Q1 2023 Mastec Inc Earnings Call
Please standby we are about to begin.
Welcome to <unk> first quarter 2023 earnings conference call.
Actually broadcast on Friday May 2023.
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.
Next vice President of Investor Relations Mark.
Thanks, Kelly and good morning, everyone welcome to mass Teck's first quarter 2023 conference call.
Such statements are made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of 1995.
In these communications, we may make certain statements that are forward looking statements regarding <unk> future.
<unk> plans and anticipated trends in the industries, where we operate.
These forward looking statements are the company's expectations on the day of initial broadcast of this conference call.
The company 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 SEC filings should 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 these communications.
Today's remarks by management, we'll 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 our conference call.
A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release as well.
Today, we have Jose Mas, our Chief Executive Officer, and followed them off our EVP and Chief Financial Officer. The format of the call will be operated blocks and analysis by Jose followed by financial review from Paul We have posted a new Guy. That's fact sheet an earnings presentation to the Investor Relations section of our website just below the webcast link.
The earnings presentation is also embedded in our webcast audio page and can be downloaded there as well.
These discussions will be followed by Q&A session and we expect to call. The rest of that last about 60 minutes. We had another good quarter with a lot of important things to talk about so I'm going to go ahead and hand, it over to Jose Jose.
Thanks Mark.
And welcome to <unk> 2023 first quarter call.
Today I'll be reviewing our first quarter results as well as providing my outlook for the markets. We served.
First some first quarter highlights revenue for the quarter was $2 billion $585 million adjusted EBITDA was $102 million adjusted earnings per share was negative <unk> 54.
Backlog at quarter end was $13 9 billion a record level.
In summary results were in line with revenue EBITDA and EPS slightly ahead of our expectations before.
Before getting into specifics I'd like to offer my perspective on my Stakes business today.
Over the course of the last few years, we've talked extensively about our initiatives to diversify the business and reduce our exposure to the oil and gas markets.
2021, we've worked hard both organically and acquisitive Lee to position <unk> to take advantage of the significant opportunities in the markets, we serve and I'd like to quickly highlight the progress we've made.
Just 16 months ago, we ended 2021 with just over $5 $4 billion of non oil and gas revenues. This year, we expect non oil and gas revenues to be just over 11 $5 billion more than double 2021.
This is a significant transition in just two years and I'd like to highlight the progress we've made in each of our segments.
Our communications segment revenue is expected to grow to approximately $3 6 billion. This year compared to just under $2 6 billion in 2021, nearly 40% increase over the last two years.
Despite this aggressive mostly organic growth rate, we expect to deliver continued margin improvements over both 2021 and 2022.
Our power delivery segment generated just over $1 billion of revenue in 2021.
Early in 2021, we made our first large transmission and distribution acquisition.
And this year, we expect this segment to generate approximately $3 billion in revenue.
That's a threefold increase over the last two years and margins are expected to grow year over year.
We're now in the second year of operations of our acquired businesses and while we're pleased with our performance. We know there are lots of areas for improvement.
<unk> clean energy and infrastructure segment, which just which generated just under $2 billion of revenue in 2021 is expected to do $5 billion. This year.
The acquisition late last year of IEA doubled our market presence and while we have a lot of work to do to improve efficiency and continue to make our offering more competitive the opportunities that we've been able to cultivate post transaction are significantly better than our original expectations.
In the slide deck, we provided today, we have a slide on near term revenue opportunity levels by segment.
Our clean energy and infrastructure segment shows our largest near term potential.
While our $6 billion target is unchanged from previous stress.
The potential for achieving that target as early as 2024 has significantly increased.
While we're pleased with our progress across these segments. The best part of our story is the continued opportunities we have to continue to grow our business.
While we continue to face some challenges around supply chain permitting and higher interest costs.
Long term demand of our services is incredibly strong.
Across all of our segments, we are working with our customers on long term plans and are engaged in a number of very large opportunities.
We believe the transition we've made into diversifying our services coupled with the macro trends, particularly in both broadband infrastructure and the energy markets gives us excellent visibility into future revenue and earnings growth.
Now I'd like to cover some industry specifics.
Our communications revenue for the quarter was $807 million.
A 21% year over year increase.
Backlog for the segment at quarter end was $5 6 billion a record level.
We are experiencing a significant amount of demand related to fiber expansion opportunities from our customers and we continue to invest in increasing our capabilities as we expect this man this demand to continue to increase over the coming years.
While we are seeing the impact of current funding related to our das the rural digital opportunity fund the amount of federal grants available to the industry are going to exponentially increase with the infrastructure Bill and inflation reduction Act.
The <unk> Revolution continues to transform the communications ecosystem, requiring networks to be upgraded and expanded to meet the ever increasing demand for data and internet usage.
Not only must new equipment be added to existing cell towers millions of new small and micro cells must be built and connected including fiber and power.
All of these new points of presence not only need to be built but they will require ongoing maintenance and service, creating a significant long term maintenance opportunity.
Moving to our power delivery segment revenue was $709 million versus $650 million in last year's first quarter.
We are in the midst of an energy transition in the United States and our customers focus on reliability hardening renewable connectivity and meeting the challenges of providing power to customers for electric vehicle charging demand usage are transforming the grid.
We believe the scale, we have been able to achieve along with our history of performance and safety uniquely position us to play a significant role in helping meet the needs of utilities and energy developers.
With our integration efforts of our acquired assets over the last two years, mostly complete we are now focused on growth off of our current base and on driving margin improvements throughout the organization.
We expect organic double digit revenue growth in 2023 with slightly improved margins for the year and are confident in our ability to improve margins to the low double digit range over the next few years.
We have significant near and long term opportunities related to growing our transmission business and have been investing heavily in resources and equipment.
We recently began construction on a multi hundred million dollar 500 kv transmission project. The project got off to a great start and we feel we are well positioned for future growth.
Moving to our clean energy and infrastructure segment.
Revenue was $825 million for the first quarter versus $436 million in the prior year.
Most of the increase was due to the acquisition of IAA.
EBITDA for the quarter was one 3% and was below our expectations.
It is important to note that on a pro forma basis last year's first quarter EBITDA. In this segment would have been negative 1% is IAA had reported a $17 million EBITDA loss.
While margins showed nice pro forma year over year improvement.
Still had a loss and while it was much improved it was below our original estimates leading into the year.
Margins at IAA were impacted by delayed project starts and supply chain delays, which created project inefficiencies.
As we think about the balance of the year and clean energy, we are confident about our ability to achieve $5 billion in annual revenue.
This would compare to roughly $4 4 billion on a pro forma basis for full year 2022, and represent about 15% organic growth on a pro forma look.
Backlog increased $319 million sequentially in the segment and while at record levels, we expect significant backlog built over the coming quarters.
While our margin guidance for this segment is mid to high 6%. We are confident margins will improve and approach double digits over the next year or two.
We have the scale to flex considerably and as I stated earlier, our visibility to reaching our stated 6 billion revenue goal is much cleaner.
With increased utilization the overall demand of the market and our customers' desire to lock in resources earlier, we feel we're really well positioned to profitably serve the market.
While early in our integration efforts, we are confident that we are mining tremendous synergies, both operationally and financially and believe we are truly building a differentiated service and product for our customers.
Moving to our oil and gas segment revenue was $257 million versus $211 million last year.
EBITDA was generally in line and was impacted by lower utilization as we ramp up for increased activity for the balance of the year.
Backlog in this segment was up almost $300 million sequentially and second quarter revenues are expected to increase by nearly 50% with further growth in the third quarter.
As we've previously shared future project activity is very active approaching levels, we haven't seen in a few years.
This coupled with carbon sequestration and hydrogen projects give us great opportunities to build off of our 2023 revenue level.
While we expect revenue to grow by over 20% in 2023 versus 2022, we.
We still believe this year's revenue continues to be a low watermark and are confident we have solid growth opportunities as newer fuel sources are transported by pipelines.
To recap we started the year as planned and I am confident our financial results. This year will begin to demonstrate <unk> potential.
I truly believe that we are just beginning to see the impact of the significant transformation. We have accomplished over the last few years and I am excited about what the future holds for Mastec.
I'd like to thank the men and women of Mastec I'm honored and privileged to lead such a great group the men and women of <unk> 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 trades have been recognized by our customers and it's because of our People's great work that we've been able to position ourselves for continued growth and success.
I'll now turn the call over to Paul for our financial review Paul.
Thanks, Jose and good morning, everyone.
Beginning with our first quarter results performance was slightly above our guidance with revenue approaching $2 6 billion and adjusted EBITDA of $102 million or 4% of revenue.
With an adjusted diluted loss per share of 54.
From a segment perspective, our communications segment was ahead of expectations with $807 million of revenue and $62 million of adjusted EBITDA or a margin of seven 7%.
This equates to over 20% revenue growth and 150 basis points of margin expansion versus last year's first quarter.
Benefiting from the market expansion efforts executed in the first half of 2022.
Our oil and gas segment was generally in line with guidance generating $257 million of revenue and $50 million of adjusted EBITDA.
While revenue was up versus Q1 of 2022 less contribution from large project activity led to lower fixed cost absorption.
First quarter clean energy revenue was roughly in line with our expectations, but adjusted EBITDA margin was only one 3%.
While we expected a challenging first quarter for clean energy, we experienced inefficiencies at certain projects, primarily at IEA, including costs related to rework on third party design effects that we're evaluating for potential future recovery.
Coming off a Q1 loss in 2022, we expect it to have a positive contribution to the first quarter.
But we ended up with a slight loss.
We are making good progress on our integration efforts and we expect to begin realizing the benefits of these initiatives in the coming quarters.
Our power delivery segment exceeded expectations for Q1.
Revenue was $709 million exceeding our guidance by approximately 20% and adjusted EBITDA margin was six 9% approximately 200 basis points over guidance.
Power delivery results were driven by improved production and higher than anticipated emergency restoration services, albeit less in 2022 levels.
Acquisition and integration costs incurred in the first quarter were approximately $17 million.
Integration is trending as expected and we also incurred incremental integration expense pursuant to a small asset purchase completed in the first quarter of this year.
First quarter 2023 revenue derived from Master service agreements was 47% of our total revenue and consistent with what we expect going forward plus or minus a few percent depending on the timing of certain projects.
Backlog for the first quarter was $13 9 billion, which is a record level for mastec up $910 million from year end and approximately 31% year over year.
Q1 backlog increases at each segment and represented new record levels for communications and clean energy.
Further demonstrating the broad based diversification of our end markets.
While this diversification should result in less backlog fluctuations the timing of new power project contract signing can still introduce an element of quarter to quarter variability.
Q1 cash flow used by operations was $86 million driven by our GAAP net loss and higher than anticipated levels of working capital.
Days sales outstanding or DSO rose to 94 days up from 83 days at year end.
While a number of factors contributed to the DSO increase including 28% monthly revenue growth in March.
We are disappointed with our performance is the impact on free cash flow and invested capital efficiency.
We expect DSO to return to the mid <unk> over the course of 2023 and will work towards further improvement in subsequent quarters.
I was masked ex treasurer for a long time, so I have a very healthy respect for the cost of capital at our investor's expectations that we utilize the funds afforded to us efficiently.
I plan to bring more internal focus on generating attractive returns on invested capital and effective management of our accounts receivable and fixed assets is critical for this objective.
<unk> cash flow performance also contributed to a slight increase in our net debt leverage to three five times pro forma for the 20th wearing two fourth quarter acquisition of IEA.
Liquidity for the quarter remained strong at $1 billion.
For the second quarter, we expect revenue of $3 billion, and adjusted EBITDA of $250 million or eight 3% of revenue.
This equates to approximately 30% year over year revenue growth and 60 basis points of adjusted EBITDA margin expansion.
Adjusted net income per share is expected to be 86.
Looking at our second quarter segment performance. Our communications segment is expected to generate approximately $900 million in revenue with adjusted EBITDA margin in the low double digits.
This equates to approximately 10% year over year revenue growth and slightly higher margins than last year's second quarter.
Expectations. In this segment are driven by continued strength across cross both wireline and wireless construction and elimination of the new market startup costs, we incurred in 2022.
We anticipate that second quarter power delivery segment revenue will approximate the first quarter level of $700 million up about 10% year over year.
Adjusted EBITDA margins are expected to be in the high single digit range showing margin expansion versus last year's second quarter.
Guidance reflects the benefits of the segment integration efforts previously undertaken to reduce cost and enhance the consistency of operator results across acquired companies.
We expect second.
Quarter oil and gas revenue will increase approximately 45% versus Q1 driven.
Driven by New project starts with adjusted EBITDA margin improving to the low double digits.
Margin expectations reflects significant improvement versus 2020, threes first quarter as we achieved more fixed cost leverage through the higher revenue base.
However margins in this segment will continue to be negatively impacted by carrying costs are both labor and equipment required to execute the mountain valley pipeline once regulatory hurdles are cleared.
Second quarter clean energy segment revenue is expected to approach $1 billion with adjusted EBITDA margin in the low to mid 6% range.
This reflects approximately 23% growth and strong margin improvement versus Q1.
Driven by accelerating renewable and civil project execution.
Finally, corporate expenses are expected to approximate 100 basis points of Q2 revenue.
Yesterday, we updated full year guidance, increasing our revenue expectation to a range of 13 billion to $13 2 billion.
Which reflects the first quarter results of higher than anticipated revenue in our non oil and gas segments.
Our expected adjusted EBITDA range remains unchanged at $1 1 billion to $1 <unk> 5 billion.
Our expected revenue mix and margin profile for each segment also remains unchanged from previous guidance.
Revenue for all segments should accelerate into the second half of 2023, and adjusted EBITDA margins are forecasted to reach the low double digits for the second half.
To further illustrate 2020 three's margin cadence in order to achieve full year adjusted EBITDA margin expectations are non oil and gas segment need to improve margins 120 basis points from our Q2 guidance to the second half.
This compares to the 270 basis point improvement we generated in 2022 over the same period.
We are very confident in our ability to execute at these levels.
We also revised our 2023 adjusted earnings per share guidance to range from $4 35 to $4 85.
The revised adjusted EPS guidance is driven by higher expected interest expense based on higher anticipated rates and depreciation expectations closer to the high end of our previous range due to timing of capital expenditures in our first quarter asset purchase previously mentioned.
We now expect full year interest expense of $250 million in depreciation of $428 million.
We will continue to monitor the capital markets for opportunities to refinance tranches of our capital structure to enhance our maturity our interest rate profile.
For 2023, we expect to generate cash flow from operations of approximately $550 million with net cash capex of approximately $100 million.
Full year cash flow estimates are impacted by the anticipated working capital investment required to support revenue growth in the latter part of 2023.
Year end 2023, net debt leverage is expected to fall to the low two times.
Cut me off the strategic investments, we've made to diversify our end markets, reducing our leverage is a priority and we are committed to maintaining our investment grade rating.
We've aligned our leverage reduction plans with the rating agencies, who have expressed support as evidenced by standard <unk> Poor's recent affirmative rating action.
We've posted a guidance back seat to the Investor Relations section of our website that summarizes these comments and provides detail on additional assumptions for modeling purposes.
To conclude <unk> is well positioned at the forefront of the energy transition landscape and we are excited by the opportunities in front of us today.
Our end market diversification and breadth of service offerings are unmatched and provide us confidence in our ability to continue to drive strong operating results and long term shareholder value.
We are thankful to our 33000 team members for all of their hard work and sacrifice on behalf of Mastec and we look forward to providing all of them with the tools and resources required to excel in their roles.
I'll now turn the call back to the operator for Q&A.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Thank you Steve your phone. Please make sure. Your mute function is released your line is signal to reach our equipment.
But you do limit yourself to one question and one follow up question. As a reminder, it is star one if you would like to ask a question.
And we will go head and Murdoch with our first question from Alex Rygiel with B Riley. Please go ahead.
Good morning, Jose and Paul Congratulations on the solid quarter and thank you for the expanded guidance.
Thank you good morning, Alex.
Good morning.
Clean energy becomes your largest segment with the backend weighted year can you comment on your visibility within backlog as it relates to the bidding environment margin projections.
It's a great question, Alex and I think.
When we think about the business were.
Somewhat surprised based on the fact that we closed the IAA IAA acquisition last year at a total demand of our services right. I think the market is on fire I think the expectation of our customers is to significantly increase the amount of projects. They want to build I think the challenge that we're all facing as you know what.
<unk> are truly constructed will in 2023 versus what projects have to wait for outer years. There's no question in my mind that if the supply chain would be available if the panel availability would be there the amount of activity would would dwarf what we're going to see in 2023, so with that I mean, I think what we've done very well and we spent a lot of time doing is really analyze.
Every project that we're expecting that we have on the books.
That we expect to win that we're in dialogue with our customers understanding where supply is coming from and making sure that they are buildable projects in 'twenty, three and Thats kind of how we built up our 23 model. The reality is that if we counted all of our customers demands even for 2023, it would far exceed our guidance levels, but we think that the <unk>.
$5 billion range is what's actually doable based on.
The supply chain issues that we see in front of us for the balance of the year. So we actually have what we think is a very high level of visibility for our ability to hit that number.
Yeah.
And then Paul can you discuss some of the variables that can impact full year cash flow to be either higher or lower than your guidance of $5 50.
Yeah, Alex I mean, the main driver is going to be working capital for us a minute. We think we've got visibility into the profitability of the business. So it's really making sure that we're managing the balance sheet effectively getting dsos down where they need to be across the company.
And making sure that we're we're diligent in that regard that's going to be the biggest driver for us getting back down to our stated range and then working to improve from there.
Very helpful. Thank you.
Thanks, Alex.
Okay.
Our next question will come from Justin Hauke with Robert W. Baird. Please go ahead.
Okay.
Great Good morning.
I guess my question is just in clean energy I mean, you talked about the IEA.
And obviously.
It came in a little bit light I'm. Just curious are there legacy projects that are in there that need to burn off.
Fleet before the margins can improve and I know you also had some civil work that was in that segment that came from vehicles in the quarter that was.
Kind of legacy challenged and I'm, just curious where where the status is on all of those.
Yes, Hi, Justin So I think a couple of things first.
When you think about project activity I think one of the issues in Q1 was project starts being pushed relative to some customers knowing what supply was available on deciding to start their projects are a little bit later and what that means to overall absorptions with all that said revenue was good. So there was other project activity that either.
The accelerated or came towards towards the end of projects I think there were a number of projects at IAA that.
<unk> started construction on especially some solar farms that were customer started projects without panels expected panels to arrive by by this time and have and so those are those are other complexities that we're managing through for different projects I do think there's a a portion of the business in both the renewables and the civil that obviously needs.
To work itself off I think we've built that into our modeling all the way back to last year I don't think there's been any significant changes related to that.
And again based on.
We're in a year, where customers customers that have panels customers that have all their suppliers know that they have some leverage over over the business. Because there are projects are obviously going to get built so I think that as the supply chain improves as the demand for the service continues to increase and as projects actually make it into construct ability I think across the industry.
Going to see a pretty significant improvement in margins and I think we start seeing it in the second quarter.
Okay fair enough.
And I guess my second question is just to add.
The higher interest expense that you have that is going through here.
The lower than expected cash flow can.
Can you just comment on kind of your rate sensitivity from here in terms of.
Whats variable and.
How much sensitivity if rates continue to go higher.
Yes, Justin so.
About $1 billion of it about $1 billion three years by fixed today and I think we're looking at as I mentioned in the comments we're looking at.
The bond markets in other ways to impact of interest rate profile. So we will continue to evaluate that.
So roughly probably 40% of it is fixed today.
We'll look at our forward looking assess.
Assessment of the interest rate environment and take that into account as we look at other.
Pass forward from a from a capital markets perspective.
Great. Thank you.
Next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
I'd also like to reiterate.
Additional guidance Super helpful at year I wanted to shift the conversation to the communications segment as a serious sometimes where we have less visibility.
If you could just talk about customer conversations and how youre thinking about the progression.
Revenue and margins over the course of the year.
Sure. So Neal we've had obviously.
Now.
A lot of quarters, where that business has performed really well, where we've seen nice year over year growth for what feels like a couple of years now and the reality is I think we're just starting to see the beginning of it right I think the only federal dollars that have really impacted the business in any significant way as our das <unk>.
Significant capital going to come into the business relative to all of the other government legislation that passed that dealt with broadband so we have a <unk>.
In constant dialogue with our customers we have a lot of customers that have massive plans on a go forward basis, I think youre going to see continued overbuild the fiber all over the country by different carriers competing with each other and I think it's great for not just the industry, but for Mastec.
Amendments demands we.
We are geared up for it we continue to gear up we're really comfortable with what what our numbers are for 2023.
And again truly believe that we're just starting to see the beginning of what of what the opportunity there is going to be.
And then about.
Have there been some bottlenecks in the fives.
And initiatives and some of the other.
Sure.
The other issues that have affected pacing I talk about how those bottlenecks are potentially being alleviated and Mike when do you really feel like that momentum will show up.
Sure I think a couple of things one.
There's no question that the carriers are allocating dollars.
Really where they think they can get the biggest bang for their buck today.
There's a question about how fast speeds do you really need in the wireless area to be competitive in the market. So I don't I think <unk> has gone much slower than most have expected I still think we're at very early stages of <unk> deployment I think customers.
We have obviously spent a considerable amount of money on the wired infrastructure side of wireless I still think we're going to continue to see that I think one of the challenges in small cells have been the need for fiber and power.
So I think as that continues to build out we're going to see an increase there. So I still think the best years of wireless are yet to come I think we're going to see a substantial increase in capex over the coming years, but I think what's driving the business today is on the wired side really in on the deployment of broadband infrastructure across the country and thats not a bad place to be right. So.
We think that again as more fiber gets put into the ground.
We're going to see continued investments in <unk> wireless technology.
Thanks, guys.
Thanks Neil.
Okay.
Next question will come from Jamie Cook with Credit Suisse. Please go ahead.
Hi, Good morning, Nexstar and I do appreciate the color on the guidance as well.
Two questions one.
Jose if you look at some of the like if you look at.
The acquisition that you guys have done.
Now, having the larger transmission distribution business with the renewable business.
Given qantas win yesterday, its NDA approved that that strategy is going to be very successful for both of you right that you built.
You have a tremendous sort of synergy opportunity across your renewables business and now your larger transmission distribution business. So my question to you is you are you bidding on projects right now that are of size that will leverage both E that you could win both on the transmission side and both on the renewable side and sort of your comfort level with winning.
These big transformational jobs, given it's a new acquisition and some of the challenges that we're having right now in terms of that challenges, but you have to integrate the acquisition. It's still early on so Thats. My first question the opportunity and your comfort level and then my second question.
It gets back to your comments on focusing more on return on invested capital sort of resonated with me. So can you just sort of go a little deeper deeper there do you have return on invested capital targets will you will include that in compensation, just a little more color on that as well. Thank you.
Sure so on the first piece.
When we look at our customers and the way that they've acted over a long period of time many times.
They look at the renewable assets they look at the transmission assets, sometimes those projects are interrelated, but for the most part those jobs were bid separately. So they would bid the renewable jobs to renewable contractors.
And really the transmission portion of those projects for the most part would be bid separately I think what what you saw from quantity yesterday, what you see from us in the deals that we've done is really the opportunity to be able to go into those customers and sell a full turnkey product and I think that the customers are receiving that well I think we will absolutely have our opportunities and have.
Our wins related to that I think thats, a big positive development relative to the size of the renewable business that we have coupled with our transmission assets and I think that's something that's resonating well with the industry and I think there's very few people that can do that so it puts us in a very small group and we're pretty excited about that so yes, I do think that that's an important part of our long term strategy.
And I think over the coming quarters, we will be able to announce our own deals relative to that when we think about the comments that Paul made around.
Really working capital and how we think about our dollars and our investments not to make excuses. Our team has been really focused on a number of acquisitions over the course of the last two or three years. It takes a lot of time to integrate these deals. There is no question that we as an organization feel that we've lost some focus on <unk>.
Managing working capital I think this is definitely want to Paul strengths coming into this role I know he's hyper focus on it and we will make the organization refocus on it. It is definitely something that we've been talking about more and more and Moreover over the last few months compensation will be tied to it and I expect to see significant improvements we.
Take a lot of pride in that for years, we lead in every single one of those categories across the peer group and our goal is to is to get back there and lead the peer group again relative to all of those metrics.
Thank you.
Thanks, Jamie.
Next question comes from Brent Thielman with D. A Davidson. Please go ahead.
Hey, Thanks, Good morning Jose.
The power delivery.
Backlog, obviously very good maybe not completely represented.
Yes, the kind of market that we're in and where we're headed.
Love to just.
Yes, your comments on the trajectory of that backlog as we work our way through the year, maybe if theres anything holding that back with ultimately what are you seeing that going from here.
First I think it's important to.
Keep in mind, we made a number of acquisitions in the last two years the bulk of the work that we're doing today.
Is recurring maintenance type work, so it's not driven by large projects, it's everyday book and burn business, which is really important and that's the that's the bulk of what that unit does today I think it was really important to get our arms around.
Everything that we acquired rationalize the business make sure that the customers that we're working with gives us an opportunity to earn a fair a fair wage. So I think we're doing that I think that's been the focus over the course of the last year.
Year and a half two years I think we've made great improvements. If you look at not just the margin improvements in the business, but quite frankly, the margin dispersion amongst that business I think each of those groups is performing a lot tighter than it ever has I still think there is some some differences there where we think there's tremendous opportunities for improvement, but we feel really good.
About the.
The progress we've made there, but it really has been based on a lot of the recurring type work, which we think is critically important we talked a lot about on our on our fourth quarter call about the investments that we're making on the larger project work. We're gearing for it we started one large project we expect to win others. So I think thats definitely part of the mix, but it's not part of whats necessarily.
<unk> into our numbers today I think the the bulk of what we've done the bulk of the success that we've had has been really focused on the recurring maintenance type work and I think we will we will start layering on some of the project work and I think youll see that roll in over the course of the next year or two.
Okay appreciate that and then.
Yes, Amit the clean energy business, obviously, just the momentum and renewable.
Overshadow some of the other things you do in that business do you have a fairly large video infrastructure business now with the combination of IEA just be curious what the contribution of that business has been good bookings, where you see it headed obviously you have an infrastructure Act I think would be helpful.
Is that is that this quarter the company long term or it could be monetized.
It's a good question I think that our performance in civil so far has been better than the overall group's performance. So we're actually very pleased.
With the direction of that business backlog growth. There has been extremely strong we have tremendous prospects in that business going forward I think what we've said all along we still feel like we've just got our toe in the water there.
It's a sizable business today, but it's one that we still feel that we're learning.
Thank the Rmi initial reaction today it would be I think the business is performing dramatically better than we expected I think it's got dramatic more upside than we expect to know whether how much investment we're going to be willing to put behind that and where that ultimately goes I think.
The jury's still out but to date that business is performing really well and we actually expected to have a very solid 2023.
Thank you.
Our next question will come from Andy Kaplowitz with Citigroup. Please go ahead.
Hey, good morning.
Good morning, Andy.
One of the questions you answered last quarter, you mentioned the variability of Mastech performance should diminish considerably.
By next year's first quarter, and I think that variability is still a separator between you and your significant E&C peers. So can you talk about your conviction level that you can mitigate that their ability with the understanding that you do have a seasonal business and so what are you doing to mitigate it.
Well I think it's also where each businesses.
At a point in time, so if we if we go back to the first quarter of 2021, which was just two years ago.
Our oil and gas business at almost $750 million versus $200 million today right. So the comps have been very difficult for us, especially early in the year over the last few years because of the strength that oil and gas had early in the year. When we look forward one of the challenges that we had coming into 'twenty three that we knew about was the fact that renewable projects were still pushed out <unk>.
Mobile projects, we're going to start in a meaningful way starting in the second quarter going into the third quarter, but when we look at 'twenty four right when that renewable supply chain kind of fixed project activity in the first half of the year is going to be really strong in 24 versus where it was this year, making next year's first quarter comp actually we think quite easy and I think the same thing is happening in the pipeline business right.
We're off historical lows this as of last year's first quarter and this year's first quarter are historical lows for us and the pipeline business I think that with the projects that we've got in Q and coming on next year's first quarter is going to be considerably better than this years. So I think when you look at those two businesses in particular with the significant revenue appreciation in next year's first quarter versus.
This year, it's going to take away a significant amount of that seasonality. So for the last few years, we posted losses in Q1.
Historically, we haven't done that I think it has a lot to do with those two businesses and the variability of those businesses and I think that goes away in 2024.
Thanks for that Jose and then you've got a couple of questions on communications, but maybe just following up you continue to book backlog in that business. So maybe talk about your conviction level and continued growth toward that $4 billion near term number you've talked about and has anything changed there in your view.
And why is it that you continue to sort of be so much more bullish than maybe some of your customers are talking about in terms of their capex trends.
What we're seeing in the business is very large program build plans right. So we've got a number of customers that have tremendous plans over the next couple of years in terms of significantly expanding their networks.
We're not publicly talking about them, we're not mentioning customers' names, but we're in the middle of negotiations. We're in the Middle of awards and we feel really good about not just what that means for quite frankly in the second half of 'twenty three but what it means for $24 25, and I think that's only going to ramp up in discussions with them as more federal dollars become available I think we're going to see even.
More of that so again I think that business is incredibly healthy I think we're just starting to see the beginning of what that business is going to ultimately become we continue to see new players break into that market and in addition to.
The existing core players so.
Again, we're just we're just really bullish in that space. We think that space is going to have continued solid growth.
We think we're trying to manage our growth appropriately we're not taken everything that's in front of US we're trying to manage into that growth until way, where we can continue to have margin appreciation, while we're growing and I think we've executed to that so far.
I appreciate it okay. Thanks.
Sandy.
Next question will come from Adam Thalheimer with Thompson Davis. Please go ahead.
Hey, good morning, guys.
Adam.
Can you give us some insight into your commentary on the clean energy side can you give us some insight into your conversations.
With customers and would you say that any of your customers are at all concerned about getting the construction resources they need for the next few years.
I think the customers that understand the market are very concerned and if our customers aren't concerned they should be because the amount of work that's out there the amount of demand that's going to be out there.
In my mind going to somewhat dwarf the industry's capability of delivering it.
That's why we've for a long time, we've been talking about scale and how scale matters I think it's a huge differentiator for us and yes, we have a number of customers today that are committing to long term resources trying to commit to long term resources trying to lockup resources, it's a huge shift in the market and I think it's one that will continue.
To demonstrate is 23 plays out and more importantly into 'twenty four 'twenty five I think one of the things that's really critical to think about is we're really not going to see the significant benefits of IRS until.
Until 2025, so we're still waiting for the bonus add or guidance that should be coming out hopefully later this quarter, but the reality is.
There is going to have an impact in the business in late 'twenty three 'twenty four but the majority of the impact is going to be felt in 'twenty, five and beyond and I think when you kind of put all those numbers in perspective, and you kind of model out what the industry is going to need to accomplish its pretty significant and it's why we continue to invest and keep positioning ourselves to take advantage of what we think is going to be.
Healthy growth rates for a long time.
And so when you talk about clean energy margins going to double digits.
In light of those opportunities is double digits feels like a stretch or is that where you really should be when these things start to lineup.
It's a stretch from where we are today and we get that so what we've said is we think there's an opportunity to approach double digits over the course of the next couple of years I think all of the industry trends are in our favor to obviously drive margins out of the business but.
But I don't think we should put.
Lofty goals out there either without having achieved much in and we get that so.
Our goal for this year is to get mid to high sixes, our goal for the coming years.
Is to take that and start approaching double digits and hopefully we can do that faster than we're saying and hopefully.
<unk> ends up being a lot larger, but I don't want to.
We're not here to hype the story, we're here to give a realistic view as to what we think we can accomplish and Theres no question at the fundamentals of the market are going to allow all of the players in the industry, including us to ultimately get better returns on the investments that we're making.
Thanks, Ed.
Thanks, Adam.
Next question comes from Marc Bianchi with TD Cowen. Please go ahead.
Thank you.
I wanted to start by just clarifying something.
Something about the Capex guidance that you have here for the $100 million net of disposal. So if I look at the first quarter.
That number would have been 63 of Capex and then 2020 of proceeds so 43 net for the quarter.
Just want to confirm we are on the same page there.
Yes, that's correct Mark.
Okay. Great. Thanks. So then I guess the question is if I take a look at that on an annual basis to 100.
Is kind of low by historical standards, considering how large the business has become with M&A.
I know the finance lease piece has grown as well so maybe.
Maybe that's the difference in that the finance lease piece on a longer term basis is just going to constitute a larger part of capex, but maybe as you look at it holistically.
Over time, what should sort of.
The aggregation of Capex asset proceeds and finance leases be to run the business.
Mark It's a good question right I think one if you look at mostek in its entirety and you compare us to our peer group.
From a depreciation perspective, we probably run as higher depreciation as anybody when you look at our original cost PPA and even our current PP&E values relative to our revenue is higher than most of the peer group.
So I think we're in a great place relative to our fleet I think we've got a lot of flexibility relative to our fleet with what we want to do relative to kind of how that plays into our financials. So we've made we've said it we've made significant investments over the last couple of years to prepare ourselves to be in the position that we're in I think it's time to start enjoying that in mining.
That equipment and put it all to work. So we can get high Utilizations and then make determinations on the balance of our capex relative to that but I think there isn't a company in the peer group.
With the size of fleet relative to us on a revenue basis, where quite frankly, the amount of depreciation that's going through our books. So we actually think we need to rationalize that a little bit better.
And bring us more in line with other peers.
Okay. Thanks for that and maybe Paul just if you could is the finance lease number in the first quarter of <unk> 37, a good number to assume for the remainder of the year or any guidance on what we should assume for the year there.
Yes, Thats a reasonable number I think we've said before about $150 million in expectation on.
On the finance leases for the full year.
Super. Thank you so much I'll turn it back.
Thanks.
Next question will come from Avi.
<unk> with UBS. Please go ahead.
Hey, good morning, everyone I'll be on for Steve Fisher.
When we.
Good morning, So when we think of the near term potential for power delivery.
You got the margin go into double digit to low teens.
How much of that margin expansion would be from absorption at higher revenue levels versus some of the project mix you were talking about versus other operational improvements.
Well I think it's all of it.
When we.
One of one of the points that we talked about earlier was margin dispersion, especially amongst that business because we've made a lot of acquisitions right.
It is much tighter than it's ever been since we've since we've acquired those businesses, but and I think it's different right. We don't we don't necessarily operate is different units. We've tried to create geographical clusters, where we can operate under one entity, but we still see a wide range of margins and while that may not seem overly positive at first.
We think that that actually shows the.
The opportunities for improvement in the business so.
While margins arent as dispersed they still run anywhere on the low end from six to 12.
And what that tells US is there's tremendous opportunities to continue to fix a number of those areas that need improvement. So I do think a portion of that comes from improvements in underperforming markets to this day again, although we're really satisfied with the progress that we've made and I think thats only added by the change of project mix and the ability to grow revenues and absorb.
Some of your fixed cost faster. So I think it's a combination of all I don't think we only need to rely on new projects for margin expansion I think there's margin expansion available to us both within our base business and then obviously with some of the newer opportunities.
Okay I appreciate that.
And then in terms of.
The near term potential for the oil and gas segment.
You mentioned.
Fuels in carbon capture opportunities.
As being catalyst. So wondering if you could talk about what youre seeing in that part of the market.
What would the scale of some of the projects that you know.
You are maybe starting to CEB.
Timeline, who is developing these projects any kind of color you might have.
Well I think theres a lot of activity on multiple fronts.
Still think we're we're.
We're hopeful that we start seeing those projects in 'twenty four and activity starts in 'twenty four we've been in very.
Prolonged discussions with a number of players.
We're.
One of our hesitation and talking.
But at a lot more publicly has just had.
<unk> strong assurances of when those projects will start, but I think over the coming quarters Youre going to hear us talk a lot more about that.
Understood. Thank you.
Thanks.
Our last question will come from Sean Eastman with Keybanc. Please go ahead.
Hi, guys. Thanks for fitting me in here.
I just wanted to come back to the communications outlook, maybe just through the lens of the bridge to the $4 billion kind of near term potential.
So I understand is the message that it's really largely the rural broadband opportunity that bridges bridges us to that number or.
Help me understand exactly what you guys are trying to.
Communicate there.
Well I would argue that we kind of put that out a while ago just to give a <unk>.
Pathway to how we achieve $15 billion of revenue I mean, the reality is as we performed that bridge is kind of small now so.
Due to $3 $6 billion this year in revenue and comps to get the $4 billion is just the 10% growth. The reality is and that's not by any stretch of imagination aggressive so thats, probably not the right midterm goal for us anymore, it's probably a lot larger.
With that said we don't.
That type of growth should actually come naturally from all components of the business right. The entire business should be lifting at roughly a rate close to that.
So I think again, it's probably a very conservative target that we're laying out there as a goal.
Okay got you and maybe just in closing a high level one.
If through last year, we were.
Framing 2022 is a transition year.
Would you want the street to characterize 2023 and <unk>.
Well I think 22 was a transformative year for Mastec is we radically changed the look and the feel of the business and the size of we were in the different markets. I think 2023 is going to be a.
It's.
In my mind still somewhat of a transition year, but more of an earnings transition year. So I think the earnings power that youll start seeing coming through the business in the second quarter and then further augmented in Q3 and Q4 is going to give people the right look in the outlook of what the potential mostek as long term.
While we will still be somewhat of a seasonal business from quarter to quarter I think the second half performance of 23 is going to give great color. So what this business can do on a full year basis in 2024, and I think that will show a radically different mostek than the one that you see today.
Thanks, guys I'll leave it there.
Alright, Thanks, Sean.
And it appears there are no further questions in the queue that does conclude our question and answer session for today I would now like to turn the call back over to Jose Mas for any additional or closing remarks.
Just want to thank everybody for their interest in participating today, and we look forward to updating everybody on our second quarter call. Thank you talk soon.
With that that does conclude today's call. Thank you for your participation you may now disconnect.
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