Q2 2022 MasTec Inc Earnings Call

[music].

Good morning, and welcome to <unk> second quarter 2022 earnings conference call initially broadcast on Friday August.

2022.

Let me remind participants that today's call is being recorded.

At this time I'd like to turn the call over to our host Marc Lewis.

<unk>, Vice President of Investor Relations Mark.

Thanks, Christina and good morning, everyone welcome to <unk> second quarter 2022 earnings call.

The following statement is made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of 1995.

In today's communications, we may make certain statements that are forward looking such as statements regarding <unk> future results plans and anticipated crashing in the industry fully operate. These forward looking statements are the company's expectations on the day.

Initial broadcast of this conference call.

And does not undertake to update these expectations based on subsequent events or knowledge various risks uncertainties and assumptions are detailed in our press releases and filings with the SEC.

One or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect actual results may differ significantly from results expressed or implied in today's call.

In today's remarks by management, we will be discussing adjusted financial metrics are reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference call.

A reconciliation of any non-GAAP financial measures not reconciled on these topics and the most comparable GAAP financial measure can be found in our earnings press release with US today, we have Jose Mas, our Chief Executive Officer, and George Pita, Our EVP and Chief Financial Officer.

The format of the call. We also embark by Jose followed by financial review from George.

The discussions will be followed by Q&A period, and we expect the call to last about an hour we.

We had another in line quarter and have a lot of important things to talk about today. So I'll now turn the call over to Jose to get going.

Thanks, Mark good.

And welcome to <unk> 2022 second quarter call.

Today I'll be reviewing our second quarter results as well as providing my outlook for the markets we serve.

First some second quarter highlights.

Revenue for the quarter was $2 3 billion.

Adjusted EBITDA was $179 million adjusted earnings per share was <unk> 73.

And backlog at quarter end was $11 billion a record level.

On our <unk> acquisition call last week, we announced that we were experiencing higher levels of cost for the balance of the year with limited ability to mitigate or generally pass on increases to our customers and talked about our challenges with getting pricing adjustments outside of the typical annual escalators.

While second quarter guidance was in line the quarter was negatively impacted by inflationary cost pressures the.

The increases in fuel prices and labor coupled with material delays have impacted margins in every mass tech segment in.

In addition to the inflationary pressure, we have had some select execution issues that have also impacted earnings.

To understand our future potential and our confidence in being able to see a significant improvement in 2023 and beyond it is important to understand the areas where we've underperformed.

To be clear im not trying to make excuses and I take full responsibility for the execution issues, we've had but to understand how earnings can quickly improve we need to break down our business in more detail.

I'd like to start by focusing on our clean energy and infrastructure segment.

It's a segment, where we are making a significant investment with the addition of IEA and it's a segment that for the second quarter of 2022, we're showing an EBITDA loss for the quarter.

This segment has now underperformed for a number of quarters. So it is important to understand why we are confident in our ability to meaningfully improve the margin profile of this segment.

While some of the issues have been market driven and outside of our direct control like the solar circumvention investigation, which has negatively impacted our solar revenue expectations for 2022, others had been purely execution driven.

Unfortunately, it's been the same projects. We've previously discussed that continue to get worse financially.

As we get to the end of these projects, which in some cases have required us to rework certain portions we're dealing with the same cost escalations, we see across our business, which further exasperates the losses as.

As we think about the clean energy and infrastructure segment, we break it down into three divisions.

<unk> civil and industrial.

Our problem projects had been in our industrial business, removing the industrial revenue and losses are renewables and civil business is performing at a 5% EBITDA margin rate year to date and is expected to be 6% for the full year.

We expect these levels to significantly improve as these margins have been negatively impacted by the solar investigation overhead absorption material delays and the cost pressures we've experienced.

With cost pressures built into go forward pricing and the expected growth of both the renewable and the civil market. We expect this margin profile to improve in 2023 and get back to previous levels of high single digit performance.

So our focus and efforts have been in fixing and improving the industrial business.

The first question why are we in the business.

I'd first like to define what we mean by industrial.

Our focus on this industry isn't as empower sustainable solutions, where we think there is considerable overlap with other master services. For example, advanced class turbine installations with the ability of burning both natural gas and hydrogen industrial components of the carbon capture projects and sustainability.

<unk> our industrial.

<unk> revenue in our clean energy and infrastructure segment will be approximately $425 million in 2022 with the majority of the problems in two projects, which were both bid over two years ago. The.

The projects will be completed by year end and outside of those projects the balance of our project mix has performed well.

Despite our financial performance, we've built a great resume and developed excellent relationships.

As we look forward to 2023, we have mitigated our risk on industrial projects by shifting to more cost plus contracts, having already booked over $300 million in cost plus industrial contracts for next year.

One of these projects are first of its kind is a lithium battery recycling pursue facility that will taken end of life batteries and battery manufacturing scrap to produce black mass and intermediate product containing valuable metals, such as nickel cobalt and lithium the facility will transform that.

<unk> mass into critical battery grade materials to be returned back to the lithium ion battery supply chain.

This facility will be able to process battery material that is equivalent to approximately 225000 electric vehicles per year.

While we would obviously like to have performed better out of the gate within the industrial segment. The most of the organic growth we've achieved despite the financial losses, we've endured to date have positioned us very well in the market to take advantage of a number of new opportunities.

Boeing forward as we think about our C&I segment, our renewable and civil business, coupled with the expected acquisition of IEA and the improvements in both projects and contract structures going forward in the industrial market gives us great confidence in being able to achieve the performance in our clean energy and infrastructure segment that we previous.

<unk> discussed and hope that our target of $5 billion in revenue for 2023 at mid to high single digit EBITDA margins proves to be conservative in light of the new potential energy legislation.

Moving on to other parts of our business one of the highlights of the second quarter was our revenue growth in communications <unk>.

<unk> segment revenue of $822 million was up 30% year over year, and 24% sequentially and margins in our communications segment were up 420 basis points from the first quarter.

While we've covered all of the communication opportunities at length.

It's great to finally see the impact of the infrastructure growth associated with both <unk> and the rule.

200, <unk> digital Thunder or Dot finally start to show up in our financials.

Our growth in the quarter was driven by sequential growth of 28% with AT&T.

26% with Comcast.

36% with Verizon.

<unk>, 34% with T mobile and strong increases with a number of our Dod funded customers.

In our power delivery segment revenue was $647 million and our performance was driven by both interim and henkels, <unk> Mccoy, who exceeded internal expectations that was somewhat offset by legacy Mastech business, which was down about $50 million in revenues in the quarter due to project and material delays impacting our absorption of cost.

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We expect strong third and fourth quarter performance in this segment with year over year improvements in EBITDA. Despite the inflationary challenges we are experiencing.

In our oil and gas segment margins were better than expected at 18, 8% of EBITDA, Despite revenues being down from $621 million in the second quarter of 2000 $21 million to $341 million this year.

Revenue for the year is expected to be down over $1 billion from 2021, but we're excited to announce that post quarter end, we signed our largest pipeline contract in over three years, a 300 mile 42 inch pipeline that starts construction in 2023.

While activity remains slow for 2022 the level of recent discussions for new projects has considerably increased and we expect this segment to have considerable opportunities over the next few years.

Also of note for the quarter backlog at quarter end exceeded $11 billion of.

A record level with the sequential increase in every segment, except power delivery, which was virtually flat demonstrating strong demand for all of our service offerings.

Strategically as we previously communicated mostek is and has been transitioning our business as we focused on growing and diversifying our portfolio.

Our second quarter results continue to reflect the opportunity, we have and growing our communications power delivery and clean energy and infrastructure segments.

I am extremely proud of how we've developed a portfolio of service offerings. In these three major sectors that will position <unk> to take advantage of the significant infrastructure spending growth that we expect over the next decade.

First with the transition to a new carbon neutral economy fueled by Green power massive investments will be required in order to harness the nation's best wind and solar resources, which are often located in remote locations of the agricultural Midwest and southwestern desert.

This will include installing thousands of miles of transmission lines necessary to bring green power from these remote regions to population and industrial centers as well as upgrading last mile electrical distribution networks for home office and highway charging stations, where very few exists today or.

Our recent announcement of the intent to acquire IAA is an important step in meeting that objective.

In addition to our power business. The <unk> Revolution will bring a transformation of the communications ecosystem, requiring the entire network to be upgraded and expanded to meet the ever increasing demand for smart cities smart homes and factories, the internet of things and autonomous vehicles.

Not only must new equipment would be added to the existing cell towers millions of new small and micro cells must also be built and connected including fiber and power.

All of these new points of presence will require ongoing maintenance and service.

Additionally, we have been involved in the expansion of the clean burning natural gas pipeline network that will help bridge the gap to clean energy as a leading pipeline construction company. This also positions <unk> to be a major force in the development of thousands of miles of expected carbon capture and sequestration pipelines and facilities and.

Ultimately hydrogen pipelines.

Our emphasis over the past few years has been to grow capacity organically and make certain acquisitions that best position mostek to address all of these needs.

With our portfolio now in place our focus turns to the deployment and execution of what we believe will be a significant opportunity for steady sustainable growth over the decades to come.

While George will cover our 2022 expectations in detail I'd like to reiterate the direction. We gave during the IAA acquisition call of our future expectations.

Included in the slide deck, we provided we laid out a path of too for 2023.

Our revenues of approximately $13 billion.

With EBITDA of $1 2 billion.

One of the things I'm proud of during my tenure as CEO over the last 15 years has been our consistency and our ability over many years to meet and exceed guidance.

I am not pleased that we've had to adjust our guidance over the last few quarters and in planning for 2023 and the early outlook. We provided we were cautious to create targets. We felt we could we could achieve with a high degree of confidence.

I understand that today. These are just words, but we as an organization are motivated and excited to show what <unk> can do and achieve.

I would like to take this opportunity to thank the men and women of master for their performance and hard work I'm honored and privileged to lead such a great group.

Men and women of Mastec are committed to the values of safety environmental stewardship integrity honesty and in providing our customers a great quality project at the best value.

These traits have been recognized by our customers and it's because of our People's great work that we've been able to deliver these financial results in the challenging environment and position ourselves for continued growth and success.

I'll now turn the call over to George for our financial review George.

Thanks, Jose and good morning, everyone.

Today I'll review, our second quarter 2022 financial results and provide some additional color on our guidance expectation for the balance of the year.

For the sake of clarity discussion of 2022 guidance will not include any contribution from the recently announced <unk> acquisition, which is expected to close late in the fourth quarter.

If any effect from the proposed IEA acquisition is assume that any future expectation discussed in my remarks.

That assumption will be clearly indicated.

As Marc indicated at the beginning of the call our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.

Reconciliation and details of non-GAAP measures can be found on our press release.

SEC filings or on our website.

Second quarter results were generally in line with our guidance expectation communicated during our first quarter earnings with revenue at $2 3 billion.

And adjusted EBITDA of $179 million.

Second quarter revenue grew approximately $300 million.

A 17% year over year increase comprise of approximately $600 million in revenue growth in our non oil and gas segments, namely our communications.

Our delivery and clean energy and infrastructure or clean energy segments.

This revenue growth was partially offset by unexpected year over year decrease in our oil and gas segment of approximately $300 million.

Second quarter revenue trends reflect the strategic shift we have made to expand our operations and capacity in areas where end market demand is growing.

To put the significance of this shift in perspective full.

Full year 2022, we.

We expect to generate slightly over $8 billion of revenue from our non oil and gas segments, representing almost 90% of our annual $9 2 billion revenue estimate.

As a comparison less than two years ago.

Our annual 2020, non gas oil and segment oil and gas segment revenue was only $4 $5 billion.

In summary, we are in the midst of a significant transition in our end market business mix. While also completing integration efforts on 2021 power delivery segment acquisitions.

This coupled with inflationary cost pressures have made this year disappointing from an earnings perspective.

That said, we strongly believe that we have well positioned the company for long term opportunities in both revenue growth and operating profit expansion.

Now I will cover some more detail regarding our segment results and expectations.

Second quarter Communications revenue was $822 million, a 30% increase when compared to the same period last year, and a 24% sequential increase when compared to the first quarter.

Collecting expanded wireless wireline services as telecommunications partners begin to accelerate the deployment of spectrum and fiber for transformational <unk> network enhancement.

We expect second half 2022 revenue levels to accelerate from first half levels and approximate $1 7 billion.

With third quarter revenue approaching $900 million.

Second quarter Communications segment, adjusted EBITDA margin rate was 10, 4%.

A 420 basis point improvement over first quarter levels, primarily due to overhead leverage from increased revenue levels.

Coupled with sequentially lower levels of new art off wireline market startup costs.

That said second quarter Communications segment, adjusted EBITDA margin rate was still impacted by some new art off market startup costs as well as inflationary cost pressures on labor fuel and materials.

We expect second half 2022, adjusted EBITDA margin rate will range between 11, 5% to 12% of revenue.

With this improvement due to additional overhead leverage from higher second half revenue levels.

And the elimination of new art off market startup costs as operations ramp.

Within the second half of 2022, we expect higher adjusted EBITDA margin rate performance in the third quarter based on normal seasonality.

Our annual 2022 communication segment revenue expectation continues at approximately $3 2 billion.

A 25 plus percent annual growth rate.

With annual 2022, adjusted EBITDA margin rate in the low to mid 10% range.

We expect the accelerated run rate of second half 2022 performance to continue and accelerate in 2023, giving us significant growth opportunities.

Second quarter clean energy segment revenue was $494 million.

A 3% increase when compared to the same period last year.

Second quarter, adjusted EBITDA was a loss of $5 million.

As I already discussed our second quarter clean energy segment, adjusted EBITDA was negatively impacted by lower lower overhead absorption due to solar renewable power generation revenue disruptions.

Inflationary cost pressures on existing projects and the impact of two select industrial projects, where we incurred project losses as we move towards project closeout.

As we look forward, we expect second half clean energy segment revenue levels to accelerate from first half levels and approximate $1 2 billion.

Based on expected overhead leverage from higher second half revenue coupled with the non recurrence of select industrial project inefficiencies and projected fourth quarter closeout benefits similar to last year.

We expect second half clean energy segment, adjusted EBITDA margin rate will improve an approximate six to six 5% with fourth quarter, adjusted EBITDA margin rate slightly higher than third quarter levels.

This equates to annual 2022 clean energy segment revenue expectation of approximately $2 1 billion.

A 13% year over year growth rate.

And adjusted annual EBITDA margin rate.

Approximately 4%.

We believe the clean energy segment will benefit from the energy transition Mega trend with significant growth in both future revenue and adjusted EBITDA margin rate in 2023 and beyond.

This includes the expectation of higher levels of 2023 solar power generation project activity.

As 2022 activity was disrupted in deferred due to supply chain impacts, although now resolved solar panel anti circumvention investigation.

For the sake of clarity comments regarding 2023 segment expectations exclude the impact of the proposed <unk> acquisition.

Which would significantly enhance our capabilities and renewable energy construction and maintenance, including the addition of new Union base renewables platform, providing expansion in both new geographies.

And customers.

As a reminder, during the fourth quarter of 2021, we renamed our electrical transmission segment to power delivery.

To better reflect our expanded service offerings and capacities in the utility services market from 2021 acquisitions.

These expanded our electrical and gas distribution capabilities.

We firmly believe that our expanded geographic operations customer reach and scale provide a compelling suite of services to support our customers' needs as they work to support grid hardening.

And prepare for the grid impacts of the transition to renewable power generation sources.

Regarding our 2021 power delivery acquisitions, we have made substantial progress in the integration of acquired operations and expect to complete these activities during 2022.

Second quarter power delivery segment revenue was $647 million and adjusted EBITDA margin rate was seven 5%.

Second quarter segment revenue grew approximately $400 million over the same period last year and was essentially flat compared to first quarter 2022 levels.

Within the power delivery segment.

Our electrical and gas distribution services, including the operations of entrant and Henkels <unk> Mccoy.

Performed well, while our legacy transmission operation underperformed, our expectation due to project startup delays with this activity pushing to the third quarter and a $5 million project closeout charge.

Looking forward, we expect second half power delivery segment revenue will approximate $1 4 billion.

With second half adjusted EBITDA margin rate approximating nine 5%.

This equates to an annual 2022 segment revenue view approximating $2 6 billion.

With adjusted EBITDA margin rate in the high to low 9% range.

Second quarter oil and gas segment revenue was $341 million and adjusted EBITDA margin rate was 18, 8%.

While we expected lower levels of revenue during the quarter second quarter, adjusted EBITDA margin rate exceeded our expectations, primarily due to project efficiencies and closeouts during the quarter.

As we look forward.

<unk> second half oil and gas segment revenue will approximate $750 million.

With adjusted EBITDA margin rate approaching 13%.

This equates to an annual 2022 oil and gas segment revenue view of approximately $1 3 billion.

With adjusted EBITDA margin rate approximating, 14%.

While our annual 2022 oil and gas segment expectation reflects a significant decline when compared to 2021.

As Jose mentioned, we expect increased levels of revenue and adjusted EBITDA in 2023, as we are seeing increased demand and bidding activity.

This is evidenced by jose's comment where he indicated that during the third quarter. We were awarded the largest natural gas natural gas pipeline project, we have seen in several years.

Second quarter adjusted corporate segment costs were approximately $21 million or 90 basis points of consolidated second quarter revenue.

Second quarter, adjusted corporate segment costs improved from first quarter levels due to lower levels of henkels corporate costs as we work through the back office integration coupled.

Coupled with the timing of some settlements and other costs.

As we look forward to the second half, we expect adjusted corporate segment costs to approximate one 1% of consolidated second half revenue.

Turning to our business mix based on the strategic diversification of our revenue stream during the second quarter no customer represented more than 10% of our total revenue.

Second quarter revenue derived from Master service agreements reached 54% of our total revenue a significant increase when compared to a year ago and this was primarily derived from recurring utility services spend greatly increasing the repeatable nature of our revenue profile.

As of June 32022, we had record total backlog of approximately $11 billion sequentially up approximately $360 million and up approximately $1 8 billion.

When compared to the same period last year.

Importantly, this represented record second quarter backlog levels across communications clean energy and power delivery segments, demonstrating the end market revenue shift that is occurring within our operations.

That said as we've indicated for years backlog can be lumpy as large contracts burn off each quarter and new large contract awards only come into backlog at a single point in time as a result of actual contract signings.

Now I'll discuss our cash flow liquidity working capital usage and capital investments.

During the second quarter, the combination of working capital associated with $300 million in sequential revenue growth.

Coupled with the acceleration of our 2022 capital expenditures inventory and material purchases to address supply chain and inflationary concerns led to a temporary increase in our net debt of approximately $400 million.

To $2 1 billion.

In summary, we anticipate that annual 2022 cash flow from operations will approximate $550 million and expect year end 2022, net debt levels will approximate $1 7 billion essentially flat compared to 2021.

This expectation excludes the impact any impact associated with the potential closing of IEA.

Strong second half cash flows are expected from a combination of improved earnings.

Cash conversion of Frontloaded inventory and material purchases into second half project activity and billing.

And lower levels of second half capital expenditures and other strategic investments.

Within this expectation, we anticipate a slight reduction in third quarter net debt levels with continued reduction in the fourth quarter based on lower working capital from seasonally lower revenue levels.

On a year to date basis, we've repurchased $1 1 million Mastec shares an average price of $72 28 per share with a total cost of $81 million.

While we still have $77 million in open share repurchase authorization from our board gives.

Given the anticipated year end 2022, Aida acquisition closing, we do not anticipate additional mostek share repurchases during the second half of 2022.

With regard to our working capital profile during the second quarter second quarter Dsos were 88 days compared to 89 days at the end of the first quarter of 2022.

As we look forward towards the balance of 2022 and work towards acquisition integration.

We anticipate by year end 2022, Dsos will slightly improve.

To the mid eighties.

As previously mentioned, we accelerated capital expenditure purchases during the first half of 2020 to incurring approximately $172 million and net cash capex as we secured supply chain constrained equipment.

We anticipate that second half net cash capex will significantly moderate and approach $50 million for a total annual 2022 net cash capex expenditure estimate of approximately $220 million.

In summary, our long term capital structure is solid and we continue to be committed to our investment grade rating.

We are mindful that if the IAA acquisitions completed during the fourth quarter. It will impact our near term post transaction leverage ratio and we have communicated our plan to normalize our post transaction leverage profile during 2023 with our credit rating agencies, who have maintained our investment grade rating.

Moving to our recently updated 2022 guidance view, we expect annual revenue of approximately $9 2 billion.

With adjusted EBITDA approximating $750 million.

<unk> net income of $235 million, which leads to adjusted diluted earnings of approximately $3 nine per share.

For the third quarter, we expect revenue of $2 $5 5 billion.

With adjusted EBITDA of $245 million or nine 6% of revenue.

And adjusted diluted earnings per share of $1 29.

This concludes our prepared remarks, we will turn the call back over to the operator for Q&A operator.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Please limit yourself to one question and one related follow up question you may rejoin the queue for additional questions.

Again press Star one to ask a question.

And we will.

Take our first question.

From Alex Rygiel with B Riley.

Yes.

Good morning, gentlemen, nice quarter.

Alex.

Couple of quick questions here.

Obviously the.

Notable significant mix shift here is definitely occurring away from your oil and gas business towards the other businesses do you feel like this platform is established now.

Have you talked to some of the IEA customers and your customers and how are they responding to mass tech becoming much much bigger in the clean energy markets.

Sure So a couple of things.

We laid out a strategy a couple of years ago during the pandemic to really move away from.

<unk>.

Our oil and gas business was obviously struggling there was a significant shrinkage in the demand because of the pandemic. So it forces to really look at our business differently like we've spoken about a lot.

And.

One of the things that we kind of got to take a step back and acknowledges the remarkable change in transition that we've seen a modest cigarette George alluded to it in Ms.

Prepared remarks.

On oil and gas business was a $4 $5 billion business. In 2020. This year is going to be above eight next year it'll be north of 10. So we just we think we've built an incredible business.

Around the opportunity that exists in the marketplace. So I would say that at this point, we think we've got a great portfolio. We think we've built an amazing business with so much upside going forward.

I think we're going to really take the time now to integrate to execute to really focus on execution.

But it hasnt been our focus but thats, what we are fully focused on today.

To your question on IAA, we haven't obviously, we're we're very early on in.

We're managing the company as two separate companies today, but I think that just from the customer interaction we've had with our own customers has been tremendous right. I think there is an enormous amount of excitement in the industry.

Honestly shortly after our announcement of IAA the discussion about the new energy build.

Really.

Somewhat caught us all by surprise and a very positive manner.

It's.

It will make a big difference to our business. So we're really excited about that.

And then turning over to the communications segment, obviously, a revenue growth of 30% is a fantastic strong step higher sequentially and year over year.

And your margins margin guidance look solid as well.

It feels like we've been kind of waiting for <unk> to develop but yet it seems like <unk> has been here for three or four years can you talk to us about where you think we are in the deployment of <unk> equipment into the network and therefore is this step up in revenue here is that sustainable for the long term.

Sure. So I'd say a couple of things one a lot of the work that we've seen to date has still been a lot of the pre work.

That we expect to go into the network right. So it's been a lot of the fiber based work.

I still believe all while obviously the wireless side of this has picked up substantially it's nowhere near to the levels that it's ultimately going to be.

If you look at all of the carriers separately, obviously T mobile with its spectrum issues was able to get off to a faster start I think AT&T and Verizon are really just starting so I do expect a.

Much greater acceleration in revenue growth on the wireless side going into 2003 and throughout 'twenty three I think on the fiber side a lot of the growth that you've seen in our business has been driven by the wireline side of the business and I also think it is just getting started one of the big differences that I see in the business today versus probably at any other time I have been in the business and this is the business had been.

In the longest has been the customers' realization that they need to do things differently right that.

The labor is not there to meet the demands of their workforce I think we're working with our customers really creatively to put ourselves in a position for a lot of long term success with them I think our customers are open to it and quite frankly, they're concerned about the resources and thats.

A good place for our industry to be and I expect it to significantly increase further from where it's at.

Thank you very much. Thank you Greg Thanks, Alex.

And we'll take our next question from Neil Mehta with Goldman.

Goldman Sachs.

Hey, good morning team.

I wanted to start off on the Mountain Valley pipeline and one of the pieces that are moving pieces around the legislation is that it feels like there's a higher probability of that moving forward. So can you quantify what the opportunity set is around MVP and.

How do you think about that for 'twenty three from a financial perspective.

Sure Neal so and everything that we've kind of laid out to date. We haven't really included the full construct ability of MVP. We currently have.

Certain amount of revenue that we generate for maintaining the right away and maintaining the project and the status that it's at today.

We agree with your sentiment I think there is a much higher likelihood of MVP happening at a probably faster than we originally anticipated.

Okay.

It will obviously have a meaningful impact to our oil and gas business segment, if and when it gets built.

And the numbers that we've kind of laid out in the charts that we provided during our IAA acquisition call. I don't think we took into account MVP being built in 2023 with that said the upside the completion of that project for us is probably somewhere between 5 billion to $1 billion. It.

Depending on how the ultimate permits shake out. So there is a substantial amount of work left on that project for us.

And I think the likelihood of that happening in 'twenty three.

Increasing by the day.

And just to clarify that so thats, great color that the half of $1 billion to $1 billion.

Incremental revenue that <unk> has the potential to recognize if MVP does go through that's not in the 'twenty three guidance and is it fair to think low teens type of EBITDA margin for that type of work.

So Neil for sure on the on the low end that would be accurate right, it's going to depend somewhat on what the final permitting is in some of the constructive.

The means of construction that they'll have to use but I think at the low end of that range.

Would be additive to what we're currently seeing from a maintenance perspective.

And I think it'll be the same margin profile that we deliver on that project over time that project has not been at the higher end of our margin expectations for the segment, but it's been a good margins and it obviously dramatically helps with absorption costs for the whole segment.

Okay Sir.

Thanks Neil.

We will take our next question from Marc Bianchi with Cowen.

Hey, thanks, sticking with the oil and gas business.

Mentioned in the prepared remarks about some some additional awards post quarter close.

How big is that and was that contemplated in the 'twenty three guide that we got with the IEA announcements.

So mark we did talk about it a little bit on the acquisition cost. So it was it was contemplated in what we did there. It's a 300 mile 42 inch pipeline, we're not going to we don't necessarily give our project values. It's the largest pipeline we've been awarded in over three years, it's an incredibly exciting project for us and I think more importantly than that is just the level of activity that.

Exists in that market today, I mean, it is a completely different market than it was a year ago is a different market than it was six months ago I think the commodity prices came back I still think people held off building new capacity I think today, there's a lot of discussion about lack of capacity, especially in the southern shales again, so I think we're going to see significant.

And that industry in that market and I think will be a big beneficiary of it. So we're hoping that this is just the start of many projects we will get the build over the next few years.

Okay, Great and then on the clean energy guide for the back half of the year.

A significant uplift in margin.

Is understandable given the points that you made earlier, but I'm just curious how much progress you anticipate making on that in the third quarter versus the fourth quarter.

Sure. So we do expect the fourth quarter to be better from a margin profile in the third quarter, because we will still be working through some of the issues in the third quarter.

So I do think we'll see a nice improvement from second quarter to third quarter obviously.

I think margins will close to double last year's levels in the third quarter and then I think we'll have the best quarter of the year in the fourth quarter as some of the new work kicks in and.

And some of the pricing.

In areas that we've talked about start to kick in so.

I would call it roughly a 5% margin in the third quarter.

Growing somewhere between seven and eight in the fourth quarter.

Great. Thanks, so much for that I'll turn it back.

Thanks.

And we'll take our next question from Noelle Dilts with Stifel.

Yes.

Alright, thanks, guys good morning.

Good morning.

Good morning.

Wanted to him on that.

In conjunction with IAA announcement in the call you talked a lot about.

Some of your contacts.

Not opening up yet to adjust our costs.

Curious one if you could talk about.

The current environment the current inflationary environment.

One changing how youre structuring these newer contracts in Q, if as these contracts open up you're able to sort of alter or change some of the language around inflation.

Just how youre, how youre dealing with basically structuring your longer term MSA contract.

Sure. So I think it's maybe taking a step back right.

On many of our contracts, we do have annual escalators by right right. So it's not that we don't get Escalations that we get escalations on the anniversary dates of those contracts. So what we've kind of said as our customers have been unwilling mid cycle to readjust rates, but as those anniversary dates come up we are seeing.

Creases right and those increases are working their way through the year. So between now and the end of the year, there will be a number of contracts and customer relationships, where we do get increases across our entire book of business.

We had significant rapid cost escalations in the second quarter and it just happened that a lot of those annual escalators weren't up in the second quarter. So as the third quarter plays out as the fourth quarter plays out we will begin to get those escalators. We got some in the first quarter right. The problem is in the first quarter the cost had an.

Related to the extent that they did in the second so next first quarter those will be adjusted to reflect some of the pressure that we saw in 2023 2022, So it's really a rolling exercise.

Just not able to do it as soon as the costs go up. So there is a period of time that youre absorbing higher costs, while you're waiting for some of these annual escalators to take effect are there things in the contract based on these on some of the rapid cost escalations that we that we've seen that we're going to try to adjust for in the future. The answer is yes, but I'd.

So say historically outside of labor there haven't been any singular issues that have dramatically moved on us like we saw this year, we keep talking about fuel because I think it's I think it's an obvious one that.

Our daily lives were all impacted by and even if you go back to last year right last year fuel as a percentage of revenue versus this second quarter fuel as a percentage of revenue it's up over 120 basis points and when you when you start adding that up to our revenue.

$25 $30 million comparison issue from Q2 of 'twenty, one to Q2 of 'twenty two we're going to have a similar issue in the third quarter. We had a similar issue in the fourth quarter. So just on a pure rate right on a on a pure percentage basis.

That's a big swing.

Less than a year, where we historically haven't seen that so it.

It's not something that has caught our attention historically I don't think we've done a good enough job of tracking expenses to the detail like we're probably going to happen going forward is these price changes and all of that will allow us to go into.

Our contract negotiations with <unk>.

Learning and knowing a lot more than we previously did.

Okay got it thanks, and then on power delivery and kind of I guess more broadly just your electric business overall.

I just wanted to dig a little bit more into kind of the decline in the core business versus what looks like growth.

Acquired operations and then also I think Youre electric work within communications.

Yes.

It's up quite a bit so two questions. There one when you look at that distribution work within communications is that sort of a different set of drivers and what you would characterize it as kind of a more utility T&D.

And second could you sort of talk about like when we look at the when we look at in 2008.

And kind of legacy Mitek.

These entities.

Kind of going for different projects are competing or might we see.

A project that legacy Mastech targeted now go into each of them how do we think about that.

Dynamic.

Okay.

So a couple of things on that first if you think about legacy mossy business within what we used to call our electrical transmission and distribution segment, which we now call power delivery. It was predominantly a transmission base business right, whether it was big projects or whether it was smaller projects working with utilities, we were much more scaled to transmission there within our.

As you have mentioned in our call business. We did have some exposure to the distribution business, which is separate so our issues.

From a revenue perspective in the second quarter or about transmission jobs that have been delayed and theres a couple of larger ones that we.

We are hoping to start here in the third quarter that pushed out from the second quarter start that were impacted by material deliveries some of them who have been impacted by permitting so we've seen some impact to that which we called out right. When you look at it.

And Hank was employed there.

First of all they are heavily skewed to distribution across the country. They also have transmission related assets, but they've really focused within their core markets in their local markets versus mass tech that was more of a traveling business relative to the transmission lines. So when we think about the segment. We've done a really good job of really integrating pieces putting pieces together.

Theres not a lot of auto overlap, we don't have business units that compete against the against each other for the St projects, we've kind of delineated not just geographically, but even from a project size and project mix. So I think there's very clear direction from the different groups as to what their business opportunity.

Saar, what their areas of responsibility or with the geographical areas are we've shifted some of that for sure right. Some of that has changed.

We've looked at trying to make the best of the companies that we bought I think we're we're building a much better platform on a go forward basis than any of the end of it and then any of the businesses were individually. So that's definitely part of what we're doing but I think there's very clear delineation and as we keep performing and laying out.

Our results I think we'll we'll lay it out in that fashion right because I do think it's important to understand the different components of our business as we go forward and what's working and what's doing better than that.

Thank you.

Yeah.

We'll take our next question from Jamie Cook with Credit Suisse.

Hi, Good morning, I guess two questions.

Understanding that working capital.

The second quarter.

To fund growth.

Can you help us with I mean, there is a big ramp to get to your cash flow guide. So how do we think about third quarter versus fourth quarter, and what's driving that and then I'll follow up with Henkel and IEA sort of how does that change the cash flow conversion.

Of the company on a go forward basis, and then my second question Jose one of the questions I'm getting a lot from investors.

Obviously that has a lot of great organic organic growth opportunities ahead.

Pretty big deals.

Historically, you haven't really done too big deal.

Close together.

What are you doing to sort of mitigate risk associated with integrating two big acquisitions with the organic growth opportunities. We see ahead.

Yes, so I'll answer the second part first and then I'll, let George cover cash flow.

We've talked a little bit about this on our previous call I think one of the things that gave us a lot of confidence in our ability to really go. After IAA was the success that we feel we are having with both interim and angles and I think that one of the things that we've obviously, both the business over a long period of time buying smaller companies doing different type of M&A than what we're doing today.

But one of the realizations out of those deals that were a little larger for us where the synergy opportunities not just from a cost perspective or more importantly from a revenue and customer perspective, and the response that we saw from customers of us build and scale and being able to provide a lot more services to them and the growth opportunities we saw from those customer.

Because of that.

Really opened our eyes to what we could do at larger scale. So I think much of what we're trying to do with entrant in henkels is.

By the end of this year, we think we're going to have made so much progress that is really going to give us the time necessary to really focus on IAA and integrating that correctly. So part of part of the reason that we did what we did was quite frankly, the success and the findings that we had in the previous acquisitions that make it.

Made us excited about IAA again, I've said for a long time I think in this business scale matters, our customers are looking for.

Yeah.

Partners that can help them reduce cost.

Meet their schedules or even expedite their schedules and I think the things that we've done it really positions us differently than we've ever been positioned in the marketplace before.

So I'll, let George cover the cash flow question, Hey, Jamie in terms of look in terms of the cash flow for a second quarter. Obviously, we had a negative cash flow from ops, we talked about about the sequential revenue increase but I think also whats important to note.

The commentary we've made regarding what we've done in terms of inventory deposits on materials and materials right and thats been a drag during the quarter that was a drag during the quarter, our working capital for sure.

So when we look at the second half of the year combination of improved earnings that turning turning that drag of Frontloaded. If you will.

Inventory of materials, and converting that into one billing material into billing activity well generate more cash flow for the back half of the year. So our view would be that the second half of the year, we should be slightly better than last year's second half in each quarter and third quarter. We will start seeing some of that so we should have a good cash flow from a from a.

Third quarter perspective.

And in part that will be driven by the fact that we're starting to convert some of the materials and inventory, which is probably close to about $100 million. When all said and done that we've invested in here in the first half of this year that will start converting into project activity and billing.

We're very comfortable with the view.

That we have that we laid out for the year.

And.

When you talk about net debt outside of the working capital profile, which from our perspective in the first half of the year has been about steady state in that high 80 range.

We expect that to get a little bit better in the second half as we as we as we move through a couple of things.

But between the combination of the things I just talked about on on working capital receivables and inventory and then couple that with lower levels of Capex because we when you look at our Capex, we frontloaded, we've doubled our net cash capex spend in the first half of 'twenty. Two at about 170, I think we are close to 90 last year. So we significantly front.

Loaded our Capex all those factors come together and put us back to what we should be which is a debt level at the end of the year. It's about the same as where we started.

And we're very comfortable with that view.

Thank you.

Thanks, Jamie.

And we'll take our next question from Andy Kaplowitz with Citigroup.

Good morning, everyone.

Good morning, Andy.

Okay. So how do you think about normalized margin and communications going forward, we know what you've guided to for the second half of the year and what's embedded in 'twenty three but communication margins as you know had been kind of stuck in the 10% 11% range for quite a while now and you've got henkels in there you obviously hiring a ton of people so maybe give us a little more.

And how you're thinking about normalized margins in that segment and ultimate margin potential.

Sure I think it's really important.

Our focus on the growth that we've had right 30% year over year growth, 24% sequential growth.

The reason I say it as its expensive right. There are a lot of our growth is in new markets offices are open people that we're hiring.

You don't get the same level of productivity. So our margins are not where they should be or where we think they can be we've talked about on.

Our margin profile going into 2023, and the 11% to 12% range, which is an improvement over 2022, we think that really starts to demonstrate itself. As these offices have a little bit of time under their belt as a lot of the new hires can begin to become more active you see it in margin, but the truth is that even at that level. We expect further.

Growth in 'twenty, three which also impacts margins. So I still don't our long term range on the margin profile of I think we've laid out 12 months to 13% for a long time Hasnt changed from what we think is achievable in communications, but it's going to take an environment, where we don't have significant growth.

It's a little bit more stable and we're able to really enjoy the fruits of what we build to get there and I think we're going to get there, but I think until we stabilize a little bit from a growth perspective, we're going to continually see margin improvement right. So margins.

Should be better there will be better in 2023, but I don't think we get to optimal levels probably until 'twenty four.

That's helpful. Jose and then you mentioned that your problem projects will be done.

In your industrial business in clean energy by the end of the year, but as you know <unk> had some slip ups over a long period of time and that clean energy business. So how do you think differently moving forward in terms of bidding our selectivity of projects I know you talked about partnering vegetable.

Shifting but why would you take fixed price projects going forward in that industrial business, what would be the conditions that you would do so.

Well first of all we.

We had to break into the business. So I think if you look at <unk> history, and you look at our acquisition of <unk> I don't know 12 years ago. Whatever it was they were always in the industrial business. It was a smaller component for them.

We made the decision over the last few years, what's happening in the marketplace.

That it was an interesting market.

To really step into we've made some really significant new hires around that and I think we're really happy with the business. We built right. Unfortunately, we've learned this lesson far too many times you get into a business you end up having to learn through a couple of bad projects and spending some money to really build a platform, but I actually think that we've achieved is that right.

The reason, we're getting cost plus work isn't because customers wanted to derisk the business for us it's because we've proven that we can do something and we have.

The ability to meet their needs that they're willing to pay is cost plus to do we would never have been able to do that without making the investment in that business to get there. So I think for us to break into the business, we had to take some of that risk. Unfortunately.

We thought we could better mitigate them. It is what it is but it has put us in a position to build a quite frankly less risks risky business on a go forward basis. I think there are certain projects that were really comfortable with that we think we fully understand that we think you. The risk profile is very different where we would still be comfortable doing fixed price.

When you get into projects that are a little bit newer like the projects that we described that probably have more risk from both the customer perspective, and ours that I think youre going to see us really work on cost reimbursable on those.

It's good that we're in a position to be able to do that it's part of our business. It is not.

It's a growing piece I mean, our industrial businesses will actually be up about almost double this year from where it was last year, albeit we still have the problem projects, but outside of those the projects have performed well so we like where it's going.

And again, when we look at our renewable and civil business. We think both of those have performed really well, that's where a lot of the growth is going to be going forward. So it's a nice piece one of the things that that I think is important.

To kind of focus on as we're looking at these relationships and we're looking at what our customers need and the reality is that so.

So much of what we're doing is cross selling within the same customers. If you think about whether its utilities or developers that are building power generation and a lot of them are doing renewables, but every one of them is focused in other areas as well it could be it could be gas it could be hydrogen it could be carbon capture but every one of these customers has.

Generation needs are building transmission lines are building substation to the extent as utilities are broken distribution. So the amount of cross pollination. We go with the same customer is extremely high and when you add those relationships.

And youre deepen those relationships projects tend to go better and you've got to work through your problems with people a lot easier and I think that's where we're getting to and that's what we're building and we're pretty excited about that.

I appreciate the color okay. Thanks, Andy.

Well go to our next question from Steven Fisher with UBS.

Thanks, Good morning, just to round out that discussion on the industrial piece. So you mentioned the $425 million of revenues in 2022, and the $300 million of.

Cost plus awards do you have.

Preliminary sense of.

What the industrial revenues could look like in <unk>.

'twenty three and how much of that do you think could be cost reimbursable.

So, we'll probably do somewhere.

Around 500, I would call it today with 300 of that being cost plus.

Okay and the.

The balance of the that'll be fixed price is with either existing customers like you said deeper relationships.

Why do you think those the remaining fixed price will be.

We'll be more confident.

Well I can tell you that at least.

North of a 100 of that are projects that we're currently working on that will flow through into 'twenty. Three so I think we've got a really good feel for the financials of those projects as we've been working on them. So.

So some of that is just bleed through from 'twenty two into 'twenty, three and look there.

We actually have a lot of that in backlog already right. So the question is going to be.

What does the business look like for 'twenty for quite frankly, and what do we start working on in 'twenty three that's going to play in a 24, which will probably some of it start in 'twenty three.

Some of the work that we're doing today is going to lead on two additional projects. So to the extent that we've successfully built projects for one customer and they have got multiple projects behind it if we're comfortable with them. We will focus on fixed price for those that we think theres more risk, we're going to push the cost plus but I think a lot of it is just going to drive from the existing customer relationships.

We built and the opportunities that theyre going to have for us in the future.

Okay. If I could just ask you quickly on communications, how have you factored in any other material delays or absorption issues in the second half of the year within your improving margin framework and expectations. Thank you.

Steve the biggest we're not really concerned about that because there is just so much work right. So the reality is that as we think about the second half of the year. It's more it's really all about labor.

If theres a job this miss in materials or five jobs behind that they need to get built there is a significant demand for the services that we offer in that business today and really the entire focus of our team, especially in the last quarter or less.

The first half of this year was really are focusing on getting the scale to be able to meet the demand that's out there.

As an industry.

The demand is much higher than the supply of labor at this point and I think it's something that we're trying to figure out how to best serve and best take advantage of so we're not worried about individual projects.

Being delayed because there's more than enough work behind that.

In case, there is a project that is ultimately delayed.

Thank you.

Thanks, Steve.

We will take our next question from Justin Hauke with.

Robert W. Baird.

Yes, good morning, guys.

Most of my questions have been.

I have been answered here.

Yes, I had one question.

Just circle back on the cash flow.

George I appreciate all the comments about why second half.

Should look better with the capex being weighted to the first half.

Yes.

Our receivable issues.

Are there any.

Yes.

There has been a big uptick in like your Unbilled.

And you retain its balances and also just the unapproved change orders and so I'm curious is there anything that's like milestone driven.

Could push outs from some of these contracted that way.

Challenge to cash flow or is it really just kind of mechanically.

Our collections to get there.

Hey, Justin Yeah. This is George now there is nothing nothing structural or of a major change regarding the components of unbilled and retain age et cetera.

I would characterize all of activity, including <unk> is really ordinary course.

And in process of.

In the process of moving forward.

Clearly, we had a pretty sizeable growth here in the second quarter. So so in some cases you hit some milestones, but we expect those milestones to happen during the second half of the year.

And within within a picture, where we ended up having our dsos for the quarter were <unk> 88, I think we'll be in the mid eighty's. So there'll be a little bit of an improvement here as we close out the year, but not a meaningful change that picture altogether leads to the cash flow that we're talking about.

Certainly we'll have more in the fourth quarter, because our revenue levels will dissipate. Some so we will see improved cash flow in the third and the fourth.

Second quarter.

Cash flow from op side, it's not just the receivables.

Build it's also the investments we've made on materials and <unk>.

And inventory that are also dragging down the cash flow from ops and again those are expected to convert into cash here as we move out through the balance of the 2022.

Okay.

I guess my next one.

Thank you can comment on it because it hasnt closed.

You guys had there's a cash component of the IAA acquisition.

I'm just curious if you have any thoughts about.

What the interest expense might look like next year are the rates.

Given that the leverage is just a little bit higher than it normally is.

Where rates have gone just any commentary on that to kind of think about it.

Well, we talked we obviously talked about during the IAA call.

Doesn't really change right, we expect that our standalone debt to be in the $1 $7 range.

Then we added we would add in the acquisition financing, which we are in the midst of discussing in the midst of determining what we're going to do so I'm not going to make public comments about how that would play out but but.

I would say.

Certainly as you look at next year on a pro forma basis as we start the year, we would have a higher level of debt. We would expect that we would deleveraged during the year pretty sizeable and get down to low to mid twos by the end of the year in terms of our leverage profile.

And interest Accordingly, obviously these are higher these days, but somewhere in that in that mid single digit range, 4% to 5% if you.

Our model allows us an interest expense guess, I'd say, 5% certainly safe to to add in as far as incremental costs associated with the financing of IEA.

And that's that's the way I would look at it from here to us to guesstimate what the additional short term rates are going to be it's hard to hard to do but obviously, we've all seen that that has been moving northward. So far this year and certainly increasing the level of interest cost.

From a from a total company basis because rates are moving up.

Okay. That's helpful. I appreciate that thank you. Thank you guys.

Thanks, guys.

We'll take our next question from Brent Thielman with D. A Davidson.

Hey, Thanks, Good morning, I, just had one left and.

Wondering and sorry, if I missed this.

Solar guidance I think sort of suggested last quarter Im wondering if you think youll claw that back now that the tariffs have been sort of pushed to the right.

Yes, not in 'twenty, two so our real expectation Hasnt changed for 2022, if you look at our renewable business.

Which we expect it to be up pretty sizable in 2022 versus 21.

Is actually down because of.

Yeah.

Some of the solar projects that are getting pushed out into 'twenty three.

Good thing is it push outs. So we know that those projects are going to go there'll probably be some activity late in the year, but we haven't really changed our view as to what that could be.

As of today.

Okay, great. Thanks, guys best of luck.

<unk>.

<unk>.

And we'll take our last question from Sean Eastman with Keybanc capital markets.

Hi, guys. Thanks for squeezing me in I know, we're running long here, but I appreciate it.

High level one from me.

At the big acquisitions.

Over the past couple of quarters <unk> now.

How would you frame the.

Operational leadership that will be retained there and how that factored into your decision making around these deals.

Perhaps just in light of all the growth avenues in front of you guys.

How would you frame sort of the operational leadership.

Strategic hires that you've added to to really capture this opportunity.

John It's a great question and when we think about our business at the end of the day, regardless of all the financial metrics, we've talked about today and the.

<unk> that exist.

At the end of the day, our business is all about people and this is an environment where.

<unk> talent keeping talent is incredibly challenging.

So when you look at when we think about the transition of monster and quite frankly, the transformation of mostek over the last couple of years as much as it is about revenues and earnings its about the people that you bring on to the team and the responsibility and ability that they have to continue to help grow the business. So I think when starting with intron working its way through ankles.

The people that we were able to pick up in those acquisitions.

The people that had been there 2030 40 years within those organizations. They have added a tremendous amount of capacity knowledge commitment temasek when.

When we think about IAA, we think it's going to be the same thing.

We always have said that our acquisitions arent about people synergies theyre not about walking in the door and trying to cut costs.

People are the most valuable asset in this business when you look at the growth opportunities that exist out there are challenge. Our mission is how do we use the people that we will pick up in the efficiencies that we're going to gain by scale to ultimately use those excess people to continue to grow the business right. So how do we take advantage of the growth.

By being able to do more with the joint combination of the people and Thats what its all about so I think when you when we look at interim and Henkel has in our ability to retain the talent that we acquired the same holds true of IAA. We're super excited about the 6000 or so people that we're going to add into the <unk> family again, we're hopeful that we can.

We can challenge them and pushing them along their career and allow them to have.

Hopefully a place where they can retire from and make whatever is left of their career, whether they're starting over there towards the tail end.

Really valuable and that's that's why we do these deals right. It's not it's not necessarily about a customer or a relationship. It's about the people that come with it and in all three instances, whether it's insurance, whether it's ankles in the quarter are now IAA.

We've been incredibly impressed with the level of talent and the level of people and the loyalty that people have either of those businesses, which is what makes us really excited about those acquisitions. So quite frankly, it's the most important part of these deals and it's probably what I'm most excited about and the ones that we've done and honestly in Nia joining the mostek team.

Very insightful.

Since Steve asked three questions I'm going to leave it there.

Thanks, Sean.

Yeah.

That concludes today's question and answer session I will turn it back.

For any additional or closing remarks.

So I just want to thank everybody for joining us today, and we look forward to updating you on our third quarter call in a couple of months. Thank you for joining us.

Okay.

This concludes today's call. Thank you for your participation you may now disconnect.

Okay.

Okay.

[music].

[music].

Good morning, and welcome to <unk> second quarter 2022 earnings Conference call initially broadcast on Friday August .

2022.

Let me remind participants that today's call is being recorded.

At this time I'd like to turn the call over to our host Marc Lewis.

<unk>, Vice President of Investor Relations Mark.

Thanks, Christina and good morning, everyone welcome to <unk> second quarter 2022 earnings call.

The following statement is made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of 1995.

In today's communications, we may make certain statements that are forward looking such as statements regarding <unk> future results plans and anticipated trends in the industry fully operate. These forward looking statements are the company's expectations on the day of initial broadcast of this conference call and the company is not undertake to update these expectations based on subsequent events or knowledge.

Risks uncertainties and assumptions are detailed in our press releases and filings with the SEC.

One or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect actual results may differ significantly from results expressed or implied in today's call.

In today's remarks by management, we will be discussing adjusted financial metrics are reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference call.

Conciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings press release with US today, we have Jose Mas, our Chief Executive Officer, and George Pita, Our EVP and Chief Financial Officer.

The format of the call. We ultimately marked by Jose followed by financial review from George.

The discussions will be followed by Q&A period, and we expect the call to last about an hour we.

We had another in line quarter and have a lot of important things to talk about today. So I'll now turn the call over to Jose to get going.

Thanks, Mark good.

And welcome to <unk> 2022 second quarter call.

Today I'll be reviewing our second quarter results as well as providing my outlook for the markets we serve.

First some second quarter highlights.

Revenue for the quarter was $2 3 billion.

Adjusted EBITDA was $179 million adjusted earnings per share was <unk> 73.

And backlog at quarter end was $11 billion a record level.

On our <unk> acquisition call last week, we announced that we were experiencing higher levels of cost for the balance of the year with limited ability to mitigate or generally pass on increases to our customers and talked about our challenges with getting pricing adjustments outside of the typical annual escalators.

While second quarter guidance was in line the quarter was negatively impacted by inflationary cost pressures and increases.

The increases in fuel prices and labor coupled with material delays have impacted margins in every boss Tech segment in.

In addition to the inflationary pressure, we have had some select execution issues that have also impacted earnings.

To understand our future potential and our confidence in being able to see a significant improvement in 2023 and beyond it is important to understand the areas where we've underperformed.

To be clear I'm, not trying to make excuses and I take full responsibility for the execution issues, we've had but to understand how earnings can quickly improve we need to break down our business in more detail.

I'd like to start by focusing on our clean energy and infrastructure segment.

It's a segment, where we are making a significant investment with the addition of IAA and it's a segment that for the second quarter of 2022, we're showing an EBITDA loss for the quarter.

This segment has now underperformed for a number of quarters. So it is important to understand why we are confident in our ability to meaningfully improve the margin profile of this segment.

While some of the issues have been market driven and outside of our direct control like the solar circumvention investigation, which has negatively impacted our solar revenue expectations for 2022, others had been purely execution driven.

Unfortunately, it's been the same projects. We've previously discussed that continue to get worse financially.

As we get to the end of these projects, which in some cases have required us to rework certain portions we're dealing with the same cost escalations, we see across our business, which further exasperates the losses.

As we think about the clean energy and infrastructure segment, we break it down into three divisions renewables civil and industrial.

Our problem projects had been in our industrial business, removing the industrial revenue and losses are renewables and civil business is performing at a 5% EBITDA margin rate year to date and is expected to be 6% for the full year.

We expect these levels to significantly improve as these margins have been negatively impacted by the solar investigation overhead absorption material delays and the cost pressures we've experienced.

With cost pressures built into go forward pricing and the expected growth of both the renewable and the civil market. We expect this margin profile to improve in 2023 and get back to previous levels of high single digit performance.

So our focus and efforts had been in fixing and improving the industrial business.

The first question why are we in the business.

I'd first like to define what we mean by industrial.

Our focus on this industry isn't as empower sustainable solutions, where we think there is considerable overlap with other master services. For example, advanced class turbine installations with the ability of burning both natural gas and hydrogen industrial components of the carbon capture projects and sustainability.

<unk> our industrial.

<unk> revenue in our clean energy and infrastructure segment will be approximately $425 million in 2022 with the majority of the problems in two projects, which were both bid over two years ago. The.

The projects will be completed by year end and outside of those projects the balance of our project mix has performed well.

Despite our financial performance, we've built a great resume and developed excellent relationships.

As we look forward to 2023, we have mitigated our risk on industrial projects by shifting to more cost plus contracts, having already booked over $300 million in cost plus industrial contracts for next year.

One of these projects are first of its kind is a lithium battery recycling pursue facility that will taken end of life batteries and battery manufacturing scrap to produce black mass and intermediate product containing valuable metals, such as nickel cobalt and lithium the facility will transform that.

<unk> mass into critical battery grade materials to be returned back to the lithium ion battery supply chain.

This facility will be able to process battery material that is equivalent to approximately 225000 electric vehicles per year.

While we would obviously like to have performed better out of the gate within the industrial segment. The most of the organic growth we've achieved despite the financial losses, we've endured to date have positioned us very well in the market to take advantage of a number of new opportunities.

Going forward as we think about our C&I segment, our renewable and civil business, coupled with the expected acquisition of IAA and the improvements in both projects and contract structures going forward in the industrial market gives us great confidence in being able to achieve the performance in our clean energy and infrastructure segment that we previous.

<unk> discussed and hope that our target of $5 billion in revenue for 2023 at mid to high single digit EBITDA margins proves to be conservative in light of the new potential energy legislation.

Moving on to other parts of our business one of the highlights of the second quarter was our revenue growth in communications <unk>.

Communications segment revenue of $822 million was up 30% year over year, and 24% sequentially and margins in our communications segment were up 420 basis points from the first quarter.

While we've covered all of the communication opportunities at length.

It's great to finally see the impact of the infrastructure growth associated with both <unk> and the rule.

280 digital Thunder, our dock finally start to show up in our financials.

Our growth in the quarter was driven by sequential growth of 28% with AT&T.

26% with Comcast.

36% with Verizon.

<unk>, 34% with T mobile and strong increases with a number of our Dod funded customers.

And our power delivery segment revenue was $647 million and our performance was driven by both entrant and henkels <unk> Mccoy, who exceeded internal expectations that was somewhat offset by legacy Mastech business, which was down about $50 million in revenues in the quarter due to project and material delays impacting our absorption of cost.

Yes.

We expect strong third and fourth quarter performance in this segment with year over year improvements in EBITDA. Despite the inflationary challenges we are experiencing.

In our oil and gas segment margins were better than expected at 18, 8% of EBITDA, Despite revenues being down from $621 million in the second quarter of 2000 $21 million to $341 million this year.

Revenue for the year is expected to be down over $1 billion from 2021, but we're excited to announce that post quarter end, we signed our largest pipeline contract in over three years, a 300 mile 42 inch pipeline that starts construction in 2023.

While activity remains slow for 2022 the level of recent discussions for new projects has considerably increased and we expect this segment to have considerable opportunities over the next few years.

Also of note for the quarter backlog at quarter end exceeded $11 billion.

Record level with the sequential increase in every segment, except power delivery, which was virtually flat demonstrating strong demand for all of our service offerings.

Strategically as we previously communicated.

<unk> is and has been transitioning our business as we focused on growing and diversifying our portfolio.

Our second quarter results continue to reflect the opportunity, we have and growing our communications power delivery and clean energy and infrastructure segments.

I'm extremely proud of how we've developed a portfolio of service offerings and these three major sectors that will position <unk> to take advantage of the significant infrastructure spending growth that we expect over the next decade.

First with the transition to a new carbon neutral economy fueled by Green power massive investments will be required in order to harness the nation's best wind and solar resources, which are often located in remote locations of the agricultural Midwest and southwestern desert.

This will include installing thousands of miles of transmission lines necessary to bring green power from these remote regions to population and industrial centers as well as upgrading last mile electrical distribution networks for home office and highway charging stations, where very few exists today.

Our recent announcement of the intent to acquire IAA is an important step in meeting that objective.

In addition to our power business. The <unk> Revolution will bring a transformation of the communications ecosystem, requiring the entire network to be upgraded and expanded to meet the ever increasing demand for smart cities smart homes and factories, the internet of things and autonomous vehicles.

Not only must new equipment be added to the existing cell towers millions of new small and Microsofts must also be built and connected including fiber and power.

All of these new points of presence will require ongoing maintenance and service. Additionally.

Additionally, we have been involved in the expansion of the clean burning natural gas pipeline network that will help bridge the gap to clean energy as a leading pipeline construction company. This also positions <unk> to be a major force in the development of thousands of miles of expected carbon capture and sequestration pipelines and facilities and.

Hydrogen pipelines.

Our emphasis over the past few years has been to grow capacity organically and make certain acquisitions that best position mostek to address all of these needs.

With our portfolio now in place our focus turns to the deployment and execution of what we believe will be a significant opportunity for steady sustainable growth over the decades to come.

While George will cover our 2022 expectations in detail I would like to reiterate the direction. We gave during the IAA acquisition call of our future expectations.

Included in the slide deck, we provided we laid out a path of too for 2023.

Our revenues of approximately $13 billion.

With EBITDA of $1 2 billion.

One of the things I'm proud of during my tenure as CEO over the last 15 years has been our consistency and our ability over many years to meet and exceed guidance.

I am not pleased that we've had to adjust our guidance over the last few quarters and in planning for 2023 and the early outlook. We provided we were cautious to create targets. We felt we could we could achieve with a high degree of confidence.

I understand that today. These are just words, but we as an organization are motivated and excited to show what <unk> can do and achieve.

I'd like to take this opportunity to thank the men and women of master for their performance and hard work I'm honored and privileged to lead such a great group of men and women of Mastec are committed to the values of safety environmental stewardship integrity honesty and in providing our customers a great quality.

At the best value.

These traits have been recognized by our customers and it's because of our People's great work that we've been able to deliver these financial results in the challenging environment and position ourselves for continued growth and success.

I'll now turn the call over to George for our financial review George.

Thanks, Jose and good morning, everyone.

Today I'll review, our second quarter 2022 financial results.

Some additional color on our guidance expectation for the balance of the year.

For the sake of clarity discussion of 2022 guidance will not include any contribution from the recently announced IAE acquisition, which is expected to close late in the fourth quarter.

If any effect from the proposed IEA acquisition is assumed that any future expectation discussed in my remarks that.

And that assumption will be clearly indicated.

As Marc indicated at the beginning of the call our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.

Reconciliation and details of non-GAAP measures can be found on our press release.

SEC filings or on our website.

Second quarter results were generally in line with our guidance expectation communicated during our first quarter earnings with revenue at $2 3 billion and.

And adjusted EBITDA of $179 million.

Second quarter revenue grew approximately $300 million a.

A 17% year over year increase comprise of approximately $600 million in revenue growth in our non oil and gas segments, namely our communications.

Our delivery and clean energy and infrastructure or clean energy segments.

This revenue growth was partially offset by an expected year over year decrease in our oil and gas segment of approximately $300 million.

Second quarter revenue trends reflect the strategic shift we have made to expand our operations and capacity in areas where end market demand is growing.

To put the significance of this shift in perspective full.

<unk> full year 2022, we.

We expect to generate slightly over $8 billion of revenue from our non oil and gas segments, representing almost 90% of our annual $9 $2 billion revenue estimate.

As a comparison less than two years ago.

Our annual 2020, non gas oil and segment oil and gas segment revenue was only $4 5 billion.

In summary, we are in the midst of a significant transition in our end market business mix. While also completing integration efforts on 2021 power delivery segment acquisitions.

This coupled with inflationary cost pressures have made this year disappointing from an earnings perspective.

That said, we strongly believe that we have well positioned the company for long term opportunities in both revenue growth and operating profit expansion.

Now I will cover some more detail regarding our segment results and expectations.

Second quarter Communications revenue was $822 million.

A 30% increase when compared to the same period last year, and a 24% sequential increase when compared to the first quarter.

<unk> expanded wireless wireline services as telecommunications partners begin to accelerate the deployment of spectrum and fiber for transformational <unk> network enhancement.

We expect second half 2022 revenue levels to accelerate from first half levels and approximate $1 7 billion.

With third quarter revenue approaching $900 million.

Second quarter Communications segment, adjusted EBITDA margin rate was 10, 4%.

A 420 basis point improvement over first quarter levels.

Primarily due to overhead leverage from increased revenue levels.

Coupled with sequentially lower levels of new <unk> wireline market startup costs.

That said second quarter Communications segment, adjusted EBITDA margin rate was still impacted by some new art off market startup costs as well as inflationary cost pressures on labor fuel and materials.

We expect second half 2022, adjusted EBITDA margin rate will range between 11, 5% to 12% of revenue.

With this improvement due to additional overhead leverage from higher second half revenue levels.

And the elimination of new art off market startup costs as operations ramp.

Within the second half of 2022, we expect higher adjusted EBITDA margin rate performance in the third quarter based on normal seasonality.

Our annual 2022 Communications segment revenue expectation continues and approximately $3 $2 billion.

A 25 plus percent annual growth rate.

With annual 2022, adjusted EBITDA margin rate in the low to mid 10% range.

We expect the accelerated run rate of second half 2022 performance to continue and accelerate in 2023, giving us significant growth opportunities.

Second quarter clean energy segment revenue was $494 million.

A 3% increase when compared to the same period last year.

Second quarter, adjusted EBITDA was a loss of $5 million.

As already discussed our second quarter clean energy segment, adjusted EBITDA was negatively impacted by lower lower overhead absorption due to solar renewable power generation revenue disruptions.

Inflationary cost pressures on existing projects and the impact of two select industrial projects, where we incurred project losses as we move towards project closeout.

As we look forward, we expect second half clean energy segment revenue levels to accelerate from first half levels and approximate $1 $2 billion.

Based on expected overhead leverage from higher second half revenue coupled with the non recurrence of select industrial project inefficiencies and projected fourth quarter closeout benefits similar to last year.

We expect second half clean energy segment, adjusted EBITDA margin rate will improve an approximate six to six 5% with fourth quarter, adjusted EBITDA margin rate slightly higher than third quarter levels.

This equates to annual 2022 clean energy segment revenue expectation of approximately $2 $1 billion.

A 13 plus percent year over year growth rate.

And adjusted annual EBITDA margin rate approximating, 4%.

We believe the clean energy segment will benefit from the energy transition megatrend with significant growth in both future revenue and adjusted EBITDA margin rate in 2023 and beyond.

This includes the expectation of higher levels of 2023 solar power generation project activity.

As 2022 activity was disrupted in deferred due to supply chain impacts, although now resolved solar panel anti circumvention investigation.

For the sake of clarity comments regarding 2023 segment expectations exclude the impact of the proposed <unk> acquisition, which would significantly enhance our capabilities and renewable energy construction and maintenance, including the addition of new Union base renewables platform providing.

Spansion in both new geographies and customers.

As a reminder, during the fourth quarter of 2021, we renamed our electrical transmission segment to power delivery to better reflect.

<unk>, our expanded service offerings and capacities and the utility services market from 2021 acquisitions.

These expanded our electrical and gas distribution capabilities.

We firmly believe that our expanded geographic operations customer reach and scale provide a compelling suite of services to support our customers' needs as they work to support grid hardening and prepare for the grid impacts of the transition to renewable power generation sources.

Regarding our 2021 power delivery acquisitions, we have made substantial progress in the integration of acquired operations and expect to complete these activities during 2022.

Second quarter power delivery segment revenue was $647 million and adjusted EBITDA margin rate was seven 5%.

Second quarter segment revenue grew approximately $400 million over the same period last year and was essentially flat compared to first quarter 2022 levels.

Within the power delivery segment, our electrical and gas distribution services, including the operations of entrants and Henkels <unk> Mccoy.

Formed well, while our legacy transmission operation underperformed, our expectation due to project start up delays with this activity pushing to the third quarter and a $5 million project closeout charge.

Looking forward, we expect second half power delivery segment revenue will approximate $1 4 billion.

With second half adjusted EBITDA margin rate approximating nine 5%.

This equates to an annual 2022 segment revenue view approximating two 6 billion.

With adjusted EBITDA margin rate in the high eights to low 9% range.

Second quarter oil and gas segment revenue was $341 million and adjusted EBITDA margin rate was 18, 8%.

While we expected lower levels of revenue during the quarter.

Second quarter, adjusted EBITDA margin rate exceeded our expectations, primarily due to project efficiencies and closeouts during the quarter.

As we look forward, we expect second half oil and gas segment revenue will approximate $750 million.

With adjusted EBITDA margin rate approaching 13%.

This equates to an annual 2022 oil and gas segment revenue view of approximately $1 3 billion with adjusted EBITDA margin rate approximating 14%.

While our annual 2022 oil and gas segment expectation reflects a significant decline when compared to 2021.

As Jose mentioned, we expect increased levels of revenue and adjusted EBITDA in 2023.

What are you seeing increased demand and bidding activity.

This was evidenced by jose's comment where he indicated that during the third quarter. We were awarded the largest natural gas and natural gas pipeline project, we have seen in several years.

Second quarter adjusted corporate segment costs were approximately $21 million or 90 basis points of consolidated second quarter revenue.

Second quarter, adjusted corporate segment costs improved from first quarter levels due to lower levels of henkels corporate costs as we work through the back office integration.

Coupled with the timing of some settlements and other costs.

As we look forward to the second half, we expect adjusted corporate segment costs to approximate one 1% of consolidated second half revenue.

Turning to our business mix based on the strategic diversification of our revenue stream during the second quarter no customer represented more than 10% of our total revenue.

Second quarter revenue derived from Master service agreements reached 54% of our total revenue a significant increase when compared to a year ago and this was primarily derived from recurring utility services spend greatly increasing the repeatable nature of our revenue profile.

As of June 32022, we had record total backlog of approximately $11 billion.

Actually up approximately $360 million and up approximately $1 8 billion.

When compared to the same period last year.

Importantly, this represented record second quarter backlog levels across communications clean energy and power delivery segments, demonstrating the end market revenue shift that is occurring within our operations.

That said as we've indicated for years backlog can be lumpy as large contracts burn off each quarter and new large contract awards only come into backlog at a single point in time as a result of actual contract signings.

Now I'll discuss our cash flow liquidity working capital usage and capital investments.

During the second quarter, the combination of working capital associated with $300 million and sequential revenue growth coupled.

Coupled with the acceleration of our 2022 capital expenditures inventory and material purchases to address supply chain and inflationary concerns led to a temporary increase in our net debt of approximately $400 million.

To $2 1 million.

In summary, we anticipate that annual 2022 cash flow from operations will approximate $550 million and expect year end 2022, net debt levels will approximate $1 7 billion essentially flat compared to 2021.

And this expectation excludes the impact any impact associated with the potential closing of IEA.

Strong second half cash flows are expected from a combination of improved earnings.

Cash conversion of Frontloaded inventory and material purchases into second half project activity and billing.

And lower levels of second half capital expenditures and other strategic investments.

Within this expectation, we anticipate a slight reduction in third quarter net debt levels with continued reduction in the fourth quarter based on lower working capital from seasonally lower revenue levels.

On a year to date basis, we've repurchased $1 1 million Mostek shares an average price of $72 28 per share with a total cost of $81 million.

While we still have $77 million in open share repurchase authorization from our board.

Given the anticipated year end 2022, Aida acquisition closing, we do not anticipate additional mostek share repurchases during the second half of 2022.

With regard to our working capital profile during the second quarter second quarter Dsos were 88 days compared to 89 days at the end of the first quarter 2022.

As we look forward towards the balance of 2022 and work towards acquisition integration.

We anticipate by year end 2022, Dsos will slightly improve to the mid eighties.

As previously mentioned, we accelerated capital expenditure purchases during the first half of 2020 to incurring approximately $172 million and net cash capex as we secured supply chain constrained equipment.

We anticipate that second half net cash capex will significantly moderate and approach $50 million for a total annual 2022 net cash capex expenditure estimate of approximately $220 million.

In summary, our long term capital structure is solid and we continue to be committed to our investment grade rating.

We are mindful that if the acquisition is completed during the fourth quarter. It will impact our near term post transaction leverage ratio.

We've communicated our plan to normalize our post transaction leverage profile during 2023 with our credit rating agencies, who have maintained our investment grade rating.

Moving to our recently updated 2022 guidance view, we expect annual revenue of approximately $9 2 billion.

With adjusted EBITDA, approximating $750 million and adjusted net income of $235 million, which leads to adjusted diluted earnings of approximately $3 nine per share.

For the third quarter, we expect revenue of $2 $5 5 billion.

With adjusted EBITDA of $245 million or nine 6% of revenue.

And adjusted diluted earnings per share of $1 29.

This concludes our prepared remarks, we'll turn the call back over to the operator for Q&A operator.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Please limit yourself to one question and one related follow up question you may rejoin the queue for additional questions again press star one to ask a question.

And we will.

Take our first question.

From Alex Rygiel with B Riley.

Yes.

Good morning, gentlemen, nice quarter.

Alex.

Couple of quick questions here.

Obviously the.

Notable significant mix shift here is definitely occur.

<unk> away from your oil and gas business towards the other businesses do you feel like this platform is established now.

Have you talked to some of the IEA customers and your customers and how are they responding to mass tech becoming much much bigger in the clean energy markets.

Sure So a couple of things.

We laid out a strategy a couple of years ago during the pandemic to really move away from.

<unk>.

Our oil and gas business was obviously struggling there was a significant shrink agenda demand because of the pandemic. So it forces to really look at our business differently like we've spoken about a lot.

And I think one of the things that we're going to kind of take a step back and acknowledges the remarkable change in transition that we've seen in Maastricht right George alluded to it in his.

Prepared remarks.

On oil and gas business was a $4 $5 billion business in 2020 of this year is going to be above eight next year it'll be north of 10. So we just we think we've built an incredible business.

Around the opportunity that exists in the marketplace. So I would say that at this point, we think we've got a great portfolio. We think we've built an amazing business with so much upside going forward.

I think we're going to really take the time now to integrate to execute to really focus on execution.

But it hasnt been our focus but that's what we're fully focused on today.

To your question on IAA, we haven't obviously, we're we're very early on in.

We're managing the companies as two separate companies today, but I think that just from the customer interaction we've had with our own customers has been tremendous right. I think there is an enormous amount of excitement in the industry. Obviously shortly after our announcement of IAA the discussion about the new energy build.

Really.

Somewhat caught us all by surprise and a very positive manner.

It's.

It will make a big difference to our business. So we're really excited about that.

And then turning over to the Communications segment, obviously your revenue growth of 30% is a fantastic strong step higher sequentially and year over year.

And your margins margin guidance looks solid as well.

It feels like we've been kind of waiting for <unk> to develop but yet it seemed like <unk> has been here for three or four years can you talk to us about where you think we are in the deployment of <unk> equipment into the network and therefore is this step up in revenue here is that sustainable for the long term.

Sure. So I'd say a couple of things one a lot of the work that we've seen to date has still been a lot of the pre work.

That we expect to go into the network right. So it's been a lot of the fiber base work.

I still believe while obviously the wireless side of this has picked up substantially it's nowhere near to the levels that it's ultimately going to be.

If you look at all of the carriers separately, obviously T mobile with its spectrum issues was able to get off to a faster start I think AT&T and Verizon are really just starting so I do expect a.

Much greater acceleration in revenue growth on the wireless side going into 'twenty, three and throughout 'twenty three I think on the fiber side a lot of the growth that you've seen in our business has been driven by the wireline side of the business and I also think it is just getting started one of the big differences that I see in the business today versus probably at any other time I've been in the business and this is the business I've been.

And the longest has been the customers' realization that they need to do things differently right that.

The labor is not there to meet the demands of their workforce I think we're working with our customers really creatively to put ourselves in a position for a lot of long term success with them I think our customers are open to it and quite frankly, they're concerned about the resources and thats.

A good place for our industry to be and I expect it to significantly increase further from where it's at.

Thank you very much thank you, Greg and thanks, Alex.

And we will take our next question from Neil Mehta with Goldman.

Goldman Sachs.

Hey, good morning team.

Jose I wanted to start off on the Mountain Valley pipeline and one of the pieces that are moving pieces around the legislation as it feels like there's a higher probability of that moving forward. So can you quantify what the opportunity set is around MVP and.

How do you think about that for 'twenty three from a financial perspective.

Sure Neal so and everything that we've kind of laid out to date. We haven't really included the full construct ability of MVP. We currently have.

A certain amount of revenue that we generate for maintaining the right away and maintaining the project and the status that it's at today.

We agree with your sentiment I think there is a much higher likelihood of MVP happening at a probably faster than we originally anticipated.

Okay.

It will obviously have a meaningful impact to our oil and gas business segment, if and when it gets built.

And the numbers that we've kind of laid out in the charts that we provided during our IAA acquisition call. I don't think we took into account MVP being built in 2023 with that said the upside the completion of that project for us is probably somewhere between 5 billion to $1 billion.

Depending on how the ultimate permit shake out. So there is a substantial amount of work left on that project for us.

And I think the likelihood of that happening in 2003 <unk>.

Increases by the day.

And just to clarify that so thats, great color that the half of $1 billion to $1 billion.

Incremental revenue that <unk> has the potential to recognize if MVP does go through that's not in the 'twenty three guidance and is it fair to think low teens type of EBITDA margin for for that type of work.

So Neil for sure on the on the low end that would be accurate right, it's going to depend somewhat on what the final permitting is in some of the constructive.

The means of construction that they'll have to use but I think at the low end of that range. It would be additive to what we're currently seeing from a maintenance perspective.

And I think it'll be the same margin profile that we deliver on that project over time that project has not been at the higher end of our margin expectations for the segment, but it's been a good margins and it obviously dramatically helps with absorption costs for the whole segment.

Okay Sir.

Thanks Neil.

We will take our next question from Marc Bianchi with Cowen.

Hey, Thanks, sticking with the oil and gas business you mentioned in your prepared remarks about some some additional awards post quarter close.

How big is that and was that contemplated in the 'twenty three guide that we got with the IEA announcements.

So mark we did talk about it a little bit on the acquisition cost. So it was it was contemplated in what we did there. It's a 300 mile 42 inch pipeline, we're not going to we don't necessarily give our project values. It's the largest.

Pipeline, we've been awarded in over three years, it's an incredibly exciting project for us and I think more importantly than that is just the level of activity that exists in that market. Today I mean, it is a completely different market than it was a year ago is a different market than it was six months ago I think the commodity prices came back I still think people held off building new capacity I think today there is.

A lot of discussion about.

The lack of capacity, especially in the southern shales again, so I think we're going to see a significant uptick in that industry in that market and I think will be a big beneficiary of it. So we're hoping that this is just the start of many projects will get built over the next few years.

Okay, Great and then on the clean energy guide for the back half of the year.

A significant uplift in margin, which is understandable given the points that you made earlier, but I'm just curious how much progress you anticipate making on that in the third quarter versus the fourth quarter.

Sure. So we do expect the fourth quarter to be better from a margin profile in the third quarter, because we'll still be working through some of the issues in the third quarter.

So I do think we'll see a nice improvement from second quarter to third quarter obviously.

I think margins will close to double last year's levels in the third quarter and then I think we'll have the best quarter of the year in the fourth quarter as some of the new work kicks in.

And.

And some of the pricing.

Scenarios that we've talked about start to kick in so.

I'd call it roughly a 5% margin in the third quarter.

Growing to somewhere between seven and eight in the fourth quarter.

Great. Thanks, so much for that I'll turn it back.

Thanks.

And we'll take our next question from Noelle Dilts with Stifel.

Alright, thanks, guys good morning.

Good morning.

I wanted to.

So I wanted to on that in conjunction with IAA announcement in the call you talked a lot about.

Some of your contacts.

I'm not opening up yet to adjust our costs.

I was curious one if you could talk about.

The current environment the current inflationary environment.

One change in how Youre structuring these newer contracts and two is as these contracts open up you're able to sort of alter or change some of the language around inflation.

Just how youre, how youre dealing with basically structuring your longer term MSA contract.

Sure. So I think it's maybe taking a step back right.

On many of our contracts, we do have annual escalators by right right. So it's not that we don't get Escalations that we get escalations on the anniversary dates of those contracts. So what we've kind of said as our customers have been unwilling mid cycle to readjust rates, but as those anniversary dates come up we are seeing.

<unk> right and those increases are working their way through the year. So between now and the end of the year, there will be a number of contracts and customer relationships, where we do get increases across our entire book of business. We had significant rapid cost escalations in the second quarter and it just happened that a lot of those.

Annual escalators werent up in the second quarter, so as the third quarter plays out as the fourth quarter plays out we will begin to get those escalators. We got some in the first quarter right. The problem is in the first quarter.

Cost had an escalated to the extent that they did in the second so next first quarter those will be adjusted to reflect some of the pressure that we saw in 2023 2022. So it's really a rolling exercise youre, just not able to do it as soon as the costs go up. So there is a period of time that youre absorbing higher costs, while your way.

<unk> for some of these annual escalators to take effect are there things in the contract based on these on.

Some of the rapid cost escalations that we that we've seen that we're going to try to adjust for in the future. The answer is yes, but I would also say historically outside of labor there haven't been any singular issues that have dramatically moved on us like we saw this year.

We keep talking about fuel because I think it's I think it's an obvious one that in our daily lives were all impacted by and even if you go back to last year right last year fuel as a percentage of revenue versus this second quarter fuel as a percentage of revenue it's up over 120 basis points and when you when you start adding that up to our revenue.

It's a $25 million to $30 million comparison issue from Q2 of 'twenty, one to Q2 of 'twenty two we're going to have a similar issue in the third quarter. We had a similar issue in the fourth quarter. So just on a pure rate right on a on a percentage basis.

That's a big swing in less than a year, where we historically haven't seen that so.

It's not something that has caught our attention historically I don't think we've done a good enough job of tracking expenses to the detail like we're probably going to have to do going forward is these price changes and all of that will allow us to go into.

Our contract negotiations with <unk>.

Learning and knowing a lot more than we previously did.

Okay got it thanks, and then on power delivery and kind of I guess more broadly just your electric business overall.

I just wanted to dig a little bit more into kind of a decline in the core business versus what looks like growth.

Quired operations and then also I think Youre electric work within communications.

<unk> was up quite a bit so two questions. There one when you look at that distribution work within communications is that sort of a different set of drivers and what you would characterize as kind of a more utility T&D.

Second could you sort of talk about like when we look at the when we look at in 2008.

Kind of legacy Mantech are these entities.

Kind of going for different projects are competing or might we see.

Project that legacy Mastech targeted now go into each of them how do we think about that.

That dynamic.

Okay.

So a couple of things on that first if you think about legacy mossy business within what we used to call our electrical transmission and distribution segment, which we now called power delivery. It was predominantly a transmission base business right, whether it was big projects or whether it was smaller projects working with utilities, we were much more scaled to transmission there within our.

As you have mentioned in our cloud business, we did have some exposure to the distribution business, which is separate so our issues.

From a revenue perspective in the second quarter or about transmission jobs that have been delayed and theres a couple of larger ones that.

We're hoping to start here in the third quarter that pushed out from the second quarter start that were impacted by material deliveries. Some of them had been impacted by permitting so we've seen some impact to that which we called out right. When you look at entrant and Henkel was employed there.

First of all they are heavily skewed to distribution across the country. They also have transmission related assets, but they've really focused within their core markets in their local markets versus mass spec that was more of a traveling business relative to transmission lines. So when we think about the segment. We've done a really good job of really integrating pieces putting pieces too.

Together theres not a lot of auto overlap, we don't have business units that compete against the against each other for the same projects, we've kind of delineated not just geographically, but even from project size and project mix. So I think theres, a very clear direction from the different groups as to what their business.

These are what their areas of responsibility or with the geographical areas are we've shifted some of that for sure right. Some of that has changed.

As we've looked at trying to make the best of the companies that we bought I think we're we're building in a much better platform on a go forward basis than any of the end of it and then any of the businesses were individually. So thats definitely part of what we're doing but.

Think there's very clear delineation and as we keep performing and laying out our results I think we'll we'll lay it out in that fashion right because I do think it's important to understand the different components of our business as we go forward and what's working and what's doing better than that.

Thank you okay.

We will take our next question from Jamie Cook with Credit Suisse.

Hi, Good morning, I guess two questions.

Good morning.

Understanding that their working capital.

In the second quarter.

To fund growth.

Just can you help us with I mean, there is a big ramp to get to your cash flow guide. So how do we think about third quarter versus fourth quarter, and what's driving that and then I'll follow up with Henkel and IEA sort of how does that change the cash flow conversion.

Of the company on a go forward basis, and then my second question Jose one of the questions I'm getting a lot from investors.

Obviously mastec has a lot of great organic organic growth opportunities ahead.

Thank you pretty big deals.

Historically, you haven't really done too big deal so close together.

What are you doing to sort of mitigate risk associated with integrating two big acquisitions with the organic growth opportunities you see ahead.

Yes, so I'll answer the second part first and then I'll, let George cover cash flow.

We've talked a little bit about this on our on our previous call I think.

One of the things that gave us a lot of confidence in our ability to really go. After IAA was the success that we feel we are having with both interim and angles and I think that one of the things that we've obviously, both the business over a long period of time buying smaller companies doing different type of M&A than what we're doing today, but one of the realizations out of those deals that were a little larger.

For us.

The synergy opportunities not just from a cost perspective or more importantly from a revenue and customer perspective, and the response that we saw from customers of us building scale and being able to provide a lot more services to them and the growth opportunities we saw from those customers because of that.

Really opened our eyes to what we could do at larger scale. So I think much of what we're trying to do with intranet henkels is by the by the end of this year. We think we're going to have made so much progress that is really going to give us the time necessary to really focus on IAA and integrating that correctly. So part of part of the reason that we did what we do.

It was quite frankly, the success and the findings that we had in the previous acquisitions that make it.

That made us excited about IAA again, I've said for a long time I think.

This business scales matters, our customers are looking for.

The.

Partners that can help them reduce cost.

Meet their schedules or even expedite their schedules and I think the things that we've done it really positions us differently than we've ever been positioned in the marketplace before.

So I'll, let George cover the cash flow question, Hey, Jamie in terms of all in terms of the cash flow for a second quarter. Obviously, we had a negative cash flow from ops, we talked about about the sequential revenue increase but I think also it's important to note.

The commentary we've made regarding what we've done in terms of inventory deposits on materials and materials right and thats been a drag.

During the quarter that was a drag during the quarter and our working capital for sure. So.

So when we look at the second half of the year combination of improved earnings that turning turning that drag of Frontloaded. If you will.

Inventory materials, and converting that into billing material into billing activity well generate more cash flow for the back half of the year. So our view would be that the second half of the year, we should be slightly better than last year's second half in each quarter and third quarter, we'll start seeing some of that so we should have a good cash flow from our from the.

Third quarter perspective.

And in part that will be driven by the fact that we're starting to convert some of the materials and the inventory, which is probably close to about $1 million. When all said and done that we've invested in here in the first half of this year that will start converting into project activity and billing.

We're very comfortable with the view that.

We have that we laid out for the year.

And another when you talk about net debt outside of the working capital profile, which from our perspective in the first half of the year has been about steady state in that high 80 range.

We expect that to get a little bit better in the second half as we as we as we move through a couple of things.

But between the combination of the things I just talked about on on working capital receivables and inventory and then couple that with lower levels of Capex because we when you look at our Capex, we frontloaded, we've doubled our net cash capex spend in the first half of 'twenty. Two at about 170, I think we are close to 90 last year. So we significantly front.

Loaded our Capex all those factors come together and put us back to what we should be which is the debt level at the end of the year. It's about the same as where we started.

And we're very comfortable with that view.

Thank you. Thank you thanks, Jamie.

And we'll take our next question from Andy Kaplowitz with Citigroup.

Good morning, everyone.

Good morning, Andy.

Okay. So how do you think about normalized margin and communication going forward, we know what you've guided to for the second half of the year and what's embedded in 'twenty three but communication margins as you know had been kind of stuck in the 10% to 11% range for quite a while now and you've got henkels in there you obviously hiring a ton of people so maybe give us a little more.

Color on how you're thinking about normalized margins in that segment and ultimate margin potential.

Sure I think it's really important.

<unk> on the growth that we've had right 30% year over year growth, 24% sequential growth.

The reason I say it as its expensive right a lot of our growth is in new markets offices are open people that we're hiring.

You don't get the same level of productivity. So our margins are not where they should be or where we think they can be we've talked about on.

Our margin profile going into 2023, and the 11% to 12% range, which is an improvement over 2022, we think that really starts to demonstrate itself. As these offices have a little bit of time under their belt as a lot of the new hires can begin to become more active you see it in margin, but the truth is that even at that level. We expect further.

Growth in 'twenty, three which also impacts margins. So I still our long term range on the margin profile of I think we've laid out 12 months to 13% for a long time Hasnt changed from what we think is achievable in communications, but it's going to take an environment, where we don't have significant growth.

It's a little bit more stable and we're able to really enjoy the fruits of what we build to get there and I think we're going to get there, but I think until we stabilize a little bit from a growth perspective, we're going to continually see margin improvement right. So margins.

Should be better there will be better in 2023, but I don't think we get to optimal levels probably until 'twenty four.

It's helpful. Jose and then you mentioned that your problem projects will be done.

In your industrial business, you clean energy by the end of the year, but as you know <unk> had some slip ups over a long period of time and that clean energy business. So how do you think differently moving forward in terms of bidding our selectivity of projects I know you talked about partnering vegetable and thats, what youre shifting but why would you take fixed rates.

<unk> going forward in that industrial business what would be.

The conditions that you would do so.

Well first of all we had to break into the business I think if you look at Moss six history and you look at our acquisition of <unk> I don't know 12 years ago. Whatever it was they were always in the industrial business. It was a smaller component for them.

We made the decision over the last few years with whats happening in the marketplace.

That it was an interesting market.

To really step into we've made some really significant new hires around that and I think we're really happy with the business. We built right. Unfortunately, we've learned this lesson part to many times you get into a business you end up having to learn through a couple of bad projects and spending some money to really build a platform, but I actually think that we've achieved that right. So.

The reason, we're getting cost plus work isn't because customers wanted to derisk the business for us it's because we've proven that we can do something and we have.

The ability to meet their needs that they're willing to pay is cost plus to do we would never have been able to do that without making the investment in that business to get there. So I think for us to break into the business, we had to take some of that risk. Unfortunately.

We thought we could better mitigate them. It is what it is but it has put us in a position to build a quite frankly less risks risky business on a go forward basis. I think there are certain projects that were really comfortable with that we think we fully understand that we think you. The risk profile is very different where we would still be comfortable doing fixed price.

When you get into projects that are a little bit newer like the project that we described that probably have more risk from both the customer perspective, and ours that I think youre going to see us really work on cost reimbursable on those.

It's good that we're in a position to be able to do that it's part of our business it's not.

It's a growing piece I mean, our industrial businesses will actually be up about almost double this year from where it was last year, albeit we still have the problem projects, but outside of those projects have performed well so we like where it's going.

And again, when we look at our renewable and civil business. We think both of those have performed really well, that's where a lot of the growth is going to be going forward. So it's a nice piece one of the things that I think is important.

To kind of focus on as we're looking at these relationships and we're looking at what our customers need and the reality is that so.

So much of what we're doing is cross selling within the same customers. If you think about whether its utilities or developers that are building power generation and a lot of them are doing renewables, but every one of them is focused in other areas as well it could be it could be gas it could be hydrogen it could be carbon capture but every one of these customers has.

Generation needs are building transmission lines are built and substation to the extent as utilities are building distribution. So the amount of cross pollination. We go with the same customer is extremely high and when you have those relationships.

And youre deepen those relationships projects tend to go better and you've got to work through your problems with people a lot easier and I think that's where we're getting to and that's what we're building and we're pretty excited about that.

I appreciate the color okay. Thanks, Andy.

Well go to our next question from Steven Fisher with UBS.

Thanks, Good morning, just to round out that discussion on the industrial piece that you mentioned the $425 million of revenues.

In 2022, and the $300 million.

Cost plus awards do you have a preliminary sense of of what the industrial revenues could look like in 2023 and how much of that do you think could be cost reimbursable.

So, we'll probably do somewhere.

Around 500, I would call it today with 300 of that being cost plus.

Okay.

The balance of the that'll be fixed price is with either existing customers like you said deeper relationships.

Why do you think those the remaining fixed price will be.

We'll be more confident.

Well I can tell you that at least probably north of a 100 of that are projects that we're currently working on that will flow through into 'twenty. Three so I think we've got a really good feel for the financials of those projects because we've been working on them. So.

So some of that is just bleed through from 'twenty two into 'twenty, three and look there.

We actually have a lot of that in backlog already right. So the question is going to be.

What does the business look like for 'twenty for quite frankly, and where do we start working on in 'twenty three that's going to play in a 24, which will probably some of it start in 'twenty three.

Some of the work that we're doing today is going to lead on two additional projects. So to the extent that we've successfully built projects for one customer and they've got multiple projects behind it if we're comfortable with them. We will focus on fixed price for those that we think theres more risk, we're going to push the cost plus but I think a lot of it is just going to drive from the existing customer relationships.

We built and the opportunities that theyre going to have for us in the future.

Okay. If I could just ask you quickly on communications, how have you factored in any other material delays or absorption issues in the second half of the year within your improving margin framework and expectations. Thank you.

Steve the biggest we're not really concerned about that because there is just so much work right. So the reality is that as we think about the second half of the year. It's more it's really all about labor.

If there is a job that's missing materials, there's five jobs behind it they need to get built there is a significant demand for the services that we offer in that business today and really the entire focus of our team, especially in the last quarter or less.

The first half this year was really are focusing on getting the scale to be able to meet the demand that's out there.

As an industry.

Demand is much higher than the supply of labor at this point and I think it's something that we're trying to figure out how to best serve and best take advantage of so we're not worried about individual projects.

Being delayed because there's more than enough work behind that.

In case, there is a project that is ultimately delayed.

Thank you.

Thanks, Steve.

We will take our next question from Justin Hauke with Robert W. Baird.

Yes, good morning, guys.

Now that most of my questions.

I have been answered here I guess I had one question.

I'll go back on the cash flow.

Yes.

George I appreciate all the comments about why second half.

Should look better with the capex being weighted to the first half and some of the.

Our receivable issues.

Are there any.

I guess real assets.

There's been a big uptick in like your Unbilled.

And you retain its balances and also just the unapproved change orders and so I'm curious is there anything that's like milestone driven.

Could push out to 'twenty three.

From some of these contract dispute that would challenge the cash flow or is it really just kind of mechanically.

Our collections to get there.

Hey, Justin Yeah. This is George now Theres, nothing nothing structural or of a major change regarding the components of unbilled and retain age et cetera.

I would characterize all of the activity, including <unk> is really ordinary course.

And in process of.

In the process of moving forward.

Clearly, we had a pretty sizeable growth here in the second quarter. So so in some cases you hit some milestones, but we expect those milestones to happen during the second half of the year.

And within within a picture, where we ended up having our dsos for the quarter were <unk> 88, I think we'll be in the mid eighty's. So there'll be a little bit of an improvement here as we close out the year, but not a meaningful change that picture altogether leads to the cash flow that we're talking about.

Certainly we'll have more in the fourth quarter, because our revenue levels will dissipate. Some so we will see improved cash flow in the third and in the fourth.

Second quarter.

Cash flow from op side, it's not just the receivables.

Build it's also the investments we've made on materials.

And inventory that are also dragging down the cash flow from ops and again those are expected to convert into cash here as we move out through the balance of the 2022.

Okay.

And I guess my next one I don't know to the extent you can comment on it because it hasnt closed yet.

You guys have a there's a cash component of the IAA acquisition, where the leverage I'm. Just curious if you have any thoughts about.

What the interest expense might look like next year are the rates.

Given that the leverage is just a little bit higher than it normally is.

<unk> gone and just any commentary on that to kind of think about it.

Well, we talked we obviously talked about during the IAA call.

It Hasnt really changed right, we expect that our standalone debt to be in that $1 billion seven range.

And then we added we would add in the acquisition financing, which we are in the midst of discussing in the midst of determining what we're going to do so I'm not going to make public comments about how that would play out but but.

I would certainly.

Certainly as you look at next year on a pro forma basis as we start the year, we would have a higher level of debt. We would expect that we would delever during the year pretty sizeable and get down to low to mid twos by the end of the year in terms of our leverage profile.

And interest Accordingly, obviously these are higher these days, but somewhere in that in that mid single digit range, 4% to 5% if you want to.

Our model and interest expense guess, I'd say, 5% certainly safe to to add in as far as incremental costs associated with the financing of IEA.

And that's the way I would look at it from here to us to guesstimate, what the additional short term rates are going to be it's hard to hard to do but obviously, we've all seen that that has been moving northward. So far this year and certainly increasing the level of interest cost.

From a from a total company basis because rates are moving up.

Okay. That's helpful. I appreciate that thank you. Thank you guys.

Thanks, guys.

We will take our next question from Brent Thielman with D. A Davidson.

Hey, Thanks, Good morning, I, just had one left and.

I was wondering and sorry, if I missed this but the solar guidance I think sort of suggested last quarter. I'm wondering if you think youll claw that back now that the tariffs have been.

Sort of pushed to the right.

Yes, not in 'twenty, two so our real expectation hasnt changed for 2022.

If you look at our renewable business.

Which we expect it to be up pretty sizable in 2022 versus 21.

<unk> is actually down because of.

Some of the solar projects that are getting pushed out into 'twenty three the good thing is our push outs. So we know that those projects are going to go there'll probably be some activity late in the year, but we haven't really changed our view as to what that could be.

As of today.

Okay, great. Thanks, guys best of luck. Thanks.

And we'll take our last question from Sean Eastman with Keybanc capital markets.

Hi, guys. Thanks for squeezing me in I know, we're running long here, but I appreciate it.

High level one for me.

Look at the big acquisitions.

Over the past couple of quarters.

<unk> now.

How would you frame the.

Operational leadership.

That will be retained there and how that factored into your decision, making around these deals and perhaps just in light of all the growth avenues in front of you guys.

How would you frame sort of the operational leadership.

The strategic hires that you've added to to really capture this opportunity.

John It's a great question and when we think about our business at the end of the day, regardless of all the financial metrics, we've talked about today in the.

Opportunities that exist.

At the end of the day, our business is all about people.

And this is an environment, where attracting talent keeping talent is incredibly challenging. So when you look at when we think about the transition temasek and quite frankly, the transformation of Mastec over the last couple of years as much as it is about revenues and earnings its about the people that you bring on to the team and the responsibility and ability that they have to continue.

To help grow the business, so I think when starting with intron working its way through ankles.

The people that we were able to pick up in those acquisitions the.

People that had been there 2030 40 years within those organizations. They have added a tremendous amount of capacity knowledge commitment temasek. When we think about IAA, we think it's going to be the same thing.

We always have said that our acquisitions arent about people synergies they are not about walking in the door and trying to cut costs.

People are the most valuable asset in this business when you look at the growth opportunities that exist out there are challenge. Our mission is how do we use the people that we would pick up in the efficiencies that we're going to gain by scale to ultimately use those excess people to continue to grow the business right. So how do we take advantage of the growth.

By being able to do more with the joint combination of the people and Thats what its all about so I think when you when we look at interim and ankles and our ability to retain the talent that we acquired the same holds true of IAA. We're super excited about the 6000 or so people that we're going to add into the <unk> family again, we're hopeful that we can.

We can challenge them and pushing them along their career and allow them to have.

Hopefully a place where they can retire from and make whatever is left of their career, whether they're starting over there towards the tail end.

Really valuable and that's that's why we do these deals right. It's not it's not necessarily about a customer or a relationship. It's about the people that come with it and in all three instances, whether it's intra and whether its ankles in the quarter are now.

We've been incredibly impressed with the level of talent and the level of people and the loyalty that people have had to those businesses, which is what makes us really excited about those acquisitions. So quite frankly, it's the most important part of these deals and it's probably.

I'm, most excited about and the ones that we've done and honestly in Nia joining the mostek team.

Very insightful.

Since Steve asked three questions I'm going to leave it there.

Thanks, Sean.

Yes.

That concludes today's question and answer session I will turn it back.

For any additional or closing remarks.

So just want to thank everybody for joining us today, and we look forward to updating on our third quarter call in a couple of months. Thank you for joining us.

Okay.

This concludes today's call. Thank you for your participation you may now disconnect.