Q2 2023 MasTec Inc Earnings Call
[music].
Please standby we're about to begin.
Welcome to Mastec second quarter 2023 earnings Conference call initially broadcast on Friday August 4th 2023.
Let me remind participants that today's call is being recorded.
At this time I would like to turn the call over to our host Marc Lewis Mastec, Vice President of Investor Relations Mark.
Thanks, Jeff Good morning, everyone.
Welcome to Mastec second quarter call.
All statements are made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act.
95.
These communications, we may make certain statements that are forward looking such as statements regarding <unk> future results plans and anticipated crash in the industries, where we operate.
These forward looking statements are the company's expectations. Although the initial broadcast of this conference call and the company does not undertake to update these expectations based upon subsequent events or knowledge various risks uncertainties and assumptions are detailed in our press release from yesterday and filings with the SEC.
More and 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.
In today's remarks by management, we'll be discussing adjusted financial metrics reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures on this call a.
A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP measures can be found in our earnings press release.
Please note that we also have two documents associated with todays webcast on the investors events and presentations page of our website at <unk> Dot com.
As a companion document with information and analytics on the quarter just ended and our guidance summary to assist in developing your financial models going forward.
Both PDF files are available for download with US today, we have Jose Mas, our CEO and Paul Dimarco Executive Vice President and CFO .
The former that call will be opening remarks and analysis by Jose followed by financial review from Paul. These discussions will be followed by Q&A period, and we expect the call to last about an hour.
And then last quarter with a slight visa had a lot of important things to talk about today. So I'd like to turn the call over to Jose said, we could go ahead Jose.
Thanks Mark.
Good morning, and welcome to <unk> 2023 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 billion $874 million.
Adjusted EBITDA was $255 million.
<unk> earnings per share was <unk> 89.
And backlog at quarter end was $13 4 billion.
In summary <unk>.
EBITDA was up 76 million with non oil and gas EBITDA of 57% year over year.
EPS was up 22% and revenue was up 25% year over year, but about $125 million less than our previous expectations.
EBITDA margins improved in every segment in the second quarter, and we expect strong second half performance. Despite some revenue challenges.
I'd like to highlight that our progression or margin progression story is greatly intact.
And while the lower revenue guidance is having some margin impact on the second half of 2023 margins are generally in line with previous guidance and above 2020 to second half performance.
I think this is critical as you think about Maastricht in our future.
I'm highly confident that the goals, we set out to show significant margin improvement specifically in our clean energy and infrastructure segment are proving out.
Our challenges in 2023 are predominantly due to revenue misses and <unk> and some segments offset by the expected second half revenue increases in our oil and gas segment.
I'd like to cover our second half of 2023 revenue challenges in more detail.
First let me start with some high level numbers.
We still expect 2023 total company revenue growth to exceed 30%.
If you exclude IAA from this calculation.
So think of it as master pre IAA were expected to grow 18% organically.
There is about a 5% to 6% bump from the MVP pipeline in that number so even excluding MVP, we expect double digit organic full year total company revenue growth, albeit slightly lower than our previous expectations.
Let me cover some segment revenue expectations in detail.
In our communications segment, we now expect 5% year over year revenue growth with second half revenues flat to last year.
The softness is predominantly in the wireless area, where our customers are moderating their 2023 spend plans.
We still expect wireline activity to increase about 20% over last year and see further opportunity in 2024 as large off balance sheet deployment projects begin to generate revenues.
We believe the communications market continues to be strong with some short term impact as our customers adjust to the economic and interest rate environment.
Our power delivery revenue expectations are generally in line with previous expectation with slightly lower predicted storm revenue, which could quickly change.
Our oil and gas revenue is expected to be about $2 billion.
Or roughly a $500 million increase from previous expectations due to the restart of the MVP project.
Finally, I'd like to cover our clean energy and infrastructure segment, where we are having the most significant revenue challenges.
Again, let me start with some high level numbers.
We currently expect full year 2023 segment revenues of about $4 5 billion with Moss six legacy renewable and infrastructure business contributing approximately $2 5 billion.
This compares to $2 billion last year for our legacy business or about 25% organic growth.
IAA is now expected to generate approximately $2 billion of revenues in 2023 versus our original estimate of $2 5 billion and $2 $4 billion day generated for the full year of 2022.
Thus IAA has a negative organic growth of approximately 16% in 2023 or a $500 million decline versus our original expectation.
So I'd like to cover IAA in our clean energy segment in some detail.
Again 2022 revenue for IAA was roughly $2 4 billion and our expectation for 2023 was for mid single digit revenue growth knowing that the rig the wind market would be softer offset by our growing solar market.
The 2023 plan, which we've added after acquisition was detailed by projects and customers.
First and second quarter revenues track generally in line, but as the second quarter develop many of the projects that were supposed to start in the latter part of the second quarter and even into the third quarter began getting pushed into later in 2023 or into 2024.
As the year has played out there has been a big difference in customers' ability to execute on their project pipeline.
We knew that the project analysis should be very important in 2023.
As evidenced by our legacy business as expected, 25% organic growth. This year, we think we did a really good job of understanding that in our legacy business.
While we're excited about the relationships IAA has and the demand. They are seeing we collectively misjudge iaa's second half of the year project pipeline risks and potential.
It's also important to note that these arent cancelled projects rather deferred into future periods.
While we're obviously very disappointed with this adjustment to guidance, we do still expect significant second half of the year revenue growth, both at IAA and for our clean energy and infrastructure segment.
Segment revenue is expected to grow 48% in the second half versus the first half, albeit below our expectations.
As we finish out 2023 and prepare for 2024, we believe we are bringing the right scrutiny to the IAA projects as we feel our 2024 pipeline and believe we will be much more consistent in our revenue predictability.
Again, it's taken us time to both get to know the IAA customer base and the company's thought process around revenue expectations.
While we believe 2023 represented a unique set of challenges.
<unk> detailed review and risk assessment process.
A lot of value to IAA and its ability to properly forecast revenue.
We also believe that the industry is better prepared to deal with supply chain interconnect and permitting issues going into 2024.
Demand for our renewable services for 2024 is unprecedented.
At the start of 2023, we strongly believed that one of our main goals and objectives of the year to drive shareholder value had to be our ability to show significant margin improvement in our clean energy and infrastructure segment.
I want to emphasize again that while we are disappointed with our revenue Miss we believe our margin goals in the second half of 2023 are unchanged, we expect to achieve these goals without the cost absorption afforded by our previous revenue guidance. Thus.
Thus as our revenue increases into 2024, and we benefit from this operating leverage we believe our ability to expand margins further actually improves.
Moving to our oil and gas segment, we started re mobilizing onto the mountain Valley pipeline.
While we had some starts and stops in the last month, we now expect to reach full capacity by the end of September .
Since MVP wasn't originally contemplated in our year, we juggled lots of projects with customers and will ultimately have just under 4000 people and over 1100 pieces of equipment deployed on the project in.
In our guidance, we've assumed completion in 2024.
We expect full year oil and gas revenues to approximate $2 billion or up about $500 million from previous guidance.
And we now expect 2024 to approximate similar revenue levels.
In our communications segment, we continue to see strong wireline demand with some softness in short term wireless spend with.
With continued federal dollars available for fiber and broadband expansion and funds beginning to be distributed through the state level. We continue to be very bullish about the long term opportunities.
Finally, our power delivery segment is performing as expected.
While we see some utilities managing capital budgets, a little tighter we continue to see strong demand.
With the expected significant acceleration of renewable projects, we are seeing utilities and developers increase the demand for both new grid construction and upgrades.
To recap, we're pleased with our margin performance to date and expect continued progress through year end.
While we expect strong organic revenue growth for both full year and second half of 2023, we're disappointed we didn't manage our renewable revenue expectations better.
We believe we have implanted the right process to ensure much better revenue predictability in the future and we continue to be very excited about our future growth opportunities for 2024 and beyond.
I'd like to take this opportunity to thank the men and women of Master.
I'm honored and privileged to lead such a great group the men and women of Mostek 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 position ourselves for continued growth and success.
I will now turn the call over to Paul for our financial review Paul.
Thank you Jose and good morning, everyone.
Beginning with our second quarter results consolidated revenue was approximately $2 $87 billion.
Hello guidance by approximately $125 million.
Despite lower revenue, we still generated adjusted EBITDA of $255 million and adjusted earnings per share of <unk> 89.
Both exceeding our estimates.
Our quarterly revenue and adjusted EBITDA were both records for the second quarter.
Our communication segment performance was roughly in line with expectations at $869 million of revenue and $94 million of adjusted EBITDA or 10, 8%.
Adjusted EBITDA margin was up 310 basis points versus the first quarter and 40 basis points year over year.
We did experience some revenue slowed down in the quarter as certain customers revised capital expenditure plans for the balance of 2023.
Our power delivery segment was also in line with expectations with revenue of $703 million and adjusted EBITDA of $57 million or eight 2%.
Adjusted EBITDA margin improved in this segment as well up 130 basis points from Q1, and 70 basis points year over year.
We continue to see positive performance trends from our integration efforts over the last year.
Our oil and gas segment had a strong quarter with revenue of $342 million and adjusted EBITDA of $77 million or 22, 5% of revenue.
Significantly higher than our expectations of low double digit adjusted EBITDA margins.
Performance was driven by favorable developments related to project Closeouts and strong execution on numerous projects.
Second quarter clean energy revenue and adjusted EBITDA were both slightly below expectations driven by delays in execution of certain projects.
Revenue was $970 million and adjusted EBITDA was $50 million or five 1%.
This represents approximately 400 basis point improvement versus Q1, and over 600 basis points improvement when compared to last year's second quarter.
While pleased with the margin progression there are a number of factors, causing project start dates slip putting pressure on the segment's anticipated results and second half.
In the second half versus our prior expectations.
Backlog for the second quarter was $13 4 billion, reflecting a 3% decline versus the first quarter's record level.
The decline was driven by timing of contract execution in our clean energy segment, where backlog excludes projects totaling over $1 9 billion.
We are currently working on under limited notices to proceed.
For our policy. These contracts will be included in backlog once fully executed.
Additionally, our communications segment backlog is lower sequentially as.
As we are expecting work from certain customers to slow in the back half of 2023.
Q2 cash flow used by operations was $12 million driven by higher levels of working capital investment to support revenue growth.
Partially offset by our DSO improving to 90 days from 94 days at Q1.
As stated last quarter, we expect DSO to return to the mid <unk> over the course of 2023, and we expect further improvement in subsequent quarters.
Net debt leverage was unchanged from Q1 at three five times pro forma for last year's acquisition of IEA.
Liquidity for the second quarter remains strong at approximately $900 million.
As reflected in our updated guidance there had been a number of developments impacting our outlook for the second half of 2023.
As Jose discussed our clean energy segment experienced delays in project start dates due to several factors.
Certainty around the inflation reduction act supply chain issues permitting delays and interconnection agreement lead times are all contributing to start date slips for our customers.
To illustrate this impact.
We now expect over $575 million of project activity originally planned for 2023 to shift into 2024 due to some combination of these factors.
We believe our revenue outlook for the second half is appropriately conservative in light of these market developments and will continue to closely monitor these items as we evaluate project timing going forward.
We remain extremely confident in our outlook for 2024 and beyond.
In our communications segment performance was impacted by reduced volume from certain customers, who are moderating second half capital spend after a strong first half and continued higher costs and their overall supply chain.
This is predominantly related to wireless construction services.
Turning to the oil and gas segment with the Mountain Valley pipeline now approved we expect to be fully mobilized on this project next week.
We foresee a meaningful contribution to revenue in the second half predominantly in Q3 before winter weather sets in.
Factoring in these developments, we now expect 2023 revenue to range from $12 75 billion to $13 billion with adjusted EBITDA of 1.0, $5 to $1 1 billion or eight two to eight 5% of revenue.
We anticipate a meaningful shift in revenue mix with our oil and gas segment now expected to generate approximately $2 billion, an increase of $500 million versus our prior guidance.
Adjusted EBITDA margins for this segment are still expected to be in the mid teens.
Second half revenue is largely driven by MVP.
Which is a lower risk cost plus contract at margins below segment average.
We expect to clean energy revenue of four for $4 6 billion in 2023, reflecting the previously mentioned project delays.
This compares to our previous guidance of $5 billion.
Adjusted EBITDA margins should remain in the mid single digits.
We expect communications to generate $3 four to $3 5 billion with adjusted EBITDA margins in the low double digits.
We anticipate some margin pressure versus prior guidance due to lowering operating leverage with lower revenue expectations.
Finally, 2023 power delivery segment revenue is expected to be two 9% to $3 billion with high single digit EBITDA margins.
Introducing the lower range for revenue takes into account the potential for less emergency restoration services. Then we performed in 2022.
We also revised our 2023 adjusted earnings per share guidance to range from $3 75 to $4 19.
In addition to our adjusted EBITDA update the revised adjusted EPS guidance is impacted by higher expected depreciation expense due to equipment required for the mountain Valley pipeline and a small asset purchase we completed in Q2.
Interest expense is also expected to be higher due to sustained higher rates and timing of cash flow.
We now expect full year interest expense of $220 million to $225 million and depreciation of $436 million.
For the third quarter, we expect revenue of $3 75 to $3 85 billion and adjusted EBITDA of $360 million to $398 million or nine 6% tempo of 1% of revenue.
This equates to approximately 50% year over year revenue and adjusted EBITDA growth.
Adjusted earnings per share is expected range to range from $1 85 to $2 13.
Looking at our third quarter expected segment performance.
Our communications segment revenue is expected to be flat with the second quarter approximating $870 million with adjusted EBITDA margin slightly higher than Q2.
We anticipate that third quarter clean energy clean energy segment revenue will approximate one three to $1 4 billion.
With adjusted EBITDA margins in the mid single digit range.
Our expected margin for Q3 reflects improved operating leverage as our revenue ramps, but also some inefficiencies and carrying costs for the delayed project starts previously mentioned.
Third quarter power deliver revenue should approximate $750 million with low double digit adjusted EBITDA margins.
Lightly below last year's strong third quarter.
Oil and gas segment revenue for Q3 is expected to approximate $850 million with adjusted EBITDA margins in the mid teens.
Lower than previous forecast, reflecting the cost plus structure of our work on MVP in the quarter.
Finally, corporate expenses are expected to again approximate 100 basis points of Q3 revenue.
We continue to expect to generate cash from operations of approximately $550 million in 2023 with net cash capex of approximately $100 million.
We still expect year end 2023, net debt leverage to be in the low two times.
Lastly, as Mark mentioned, we have posted a guidance factsheet to the Investor Relations section of our website.
That summarizes these comments and provides detail on additional assumptions for modeling purposes.
I'll now turn the call over to the operator for Q&A.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
We ask you please limit yourself to one question and one follow up from Larry Please rejoin the queue for any additional question.
Again star one to ask a question.
Pause for just a moment to allow everyone an opportunity to signal.
Our first question comes from Alex Rygiel with B Riley. Your line is open. Please go ahead.
Thank you good morning, gentlemen, nice quarter.
Good morning, Alex Good morning.
Couple of quick questions here first as it relates to the $1 9 billion of New awards that are pending what segments that and what's the timing and is any of that in your 2023 guidance.
Yes, so to be clear right that is specifically the renewable projects and our clean energy and infrastructure business. So its only renewable projects and the reason we thought that number was important is to give obviously with the revenue Miss its to give comfort around what we're seeing how we're seeing it and why we're so bullish on the future growth of the Biz.
So of the 109, it will not all being 24 right. Some of those projects will extend beyond 2024.
<unk>.
I actually don't believe any of that 109 is currently in our second half projections for 2023.
Okay.
And then secondly.
Your oil and gas.
<unk> guidance for 2020 for revenue it sounded like it was $2 billion, which would be flat to 2020 to be.
2023 includes MVP, which is a pretty quick burn project. So I guess my question here is what's the visibility on the backfill to MVP in 2024 that gives you so much confidence that we see oil and gas flattish in 2024.
We agree with you Alex we purposely said it because we think it's a very bullish statement on the segment our visibility is excellent.
We have a most of that work secured although not maybe not all in backlog, but a lot of it is secure so we feel really good about entering 'twenty four.
We always knew MVP would hit at a certain point in time and it would.
Impact a given year and we will always worried about what the.
Next year comp would be relative to that project and I think the way, it's playing out as we're going to do a great job of maintaining the segment revenues. Despite having a project that has such a big impact in a given year.
Great. Thank you very much good luck.
<unk>.
Our next question comes from Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.
Yes, good morning team I wanted to start on the clean energy and infrastructure the $575 million, that's getting pushed out to 2024. So.
Can you give us some more granularity around.
What's driving the push outs on the ground and then what's your confidence interval that that does show up in 2024 and some of the issues that are showing in 'twenty three do get addressed.
Yes, it's an excellent question Neil so good morning.
I'd say a couple of things one.
As we think about 2024, there is a massive subset of projects available right. There is incredible demand for the services and I think one of the most important things that we have to do right as we did in our legacy business. This year is identify those projects, which we think have the highest likelihood of moving forward in some cases those 500.
75 million some of those projects will definitely be in there, but in some cases some of those projects. We may pass on right. Because we may not have the high level of certainty that we need to be comfortable.
With that said many of those projects are.
Are in very late stages. So some of them, we feel really really good about some of them we.
We will start before year end.
And I think Theres a lot of different reasons, I think Paul laid out very well.
Some of the different things that are happening, but we're seeing everything from people trying to understand the rules around the inflation reduction act right because it impacts our financial the financials of the project some developers more than others. I think we're definitely seeing haves and have nots right. The people that have been in this business for a long time.
That have very predictable work that do certain number of megawatts every year have been more consistent in 2023 and some of the newer developers that are building projects or that are more cyclical and I think when we look at <unk> business. It was much more geared towards the latter part where moss six business was much more geared towards the prior type of cut.
And I think managing that that mix.
Is going to be critically important and again I think theres a lot of work out there that allows you to properly manage that risk and shame on us we didn't do a good job of that in 2023.
Thanks, Jose and the follow up is just around leverage.
And I think you.
You had indicated that there is a glide path to get to the low twos from a leverage perspective, so just talk about balance sheet management.
How you want to get where you wanted to get you that too in the path to get there.
Sure Neal so a lot of it is from earnings growth, obviously, we've got a big.
Depreciation to EBITDA in the back half of the year, but we do think we're going to be able to pay down a couple hundred million dollars of debt through year end as well encapsulating the revenue growth that we see so there's some obviously some working capital.
<unk> required for that but with the cadence of the year and.
Our DSO and <unk> being at the level they should be.
But we feel pretty confident about the ability to.
To achieve that.
Okay.
We'll go to our next question from Andy Kaplowitz with Citigroup. Your line is open. Please go ahead.
Hey, good morning, everyone.
Good morning.
Jose maybe give us a little more color regarding what's happening to IAA like just from the ground.
Pierre I talked about hiring 3000 people this quarter, which is a jump for them maybe talk about the workforce. How are you seeing any sort of unexpected attrition and then could you give us more color in terms of wind versus solar is.
Is it really just all wind projects getting delayed obviously, there's been a lot of issues in the wind industry. So.
What are you seeing there.
Yes.
And maybe backtrack, a little bit and again reemphasize some of the stuff we said in the prepared remarks.
Last year I did about just over $2 $4 billion of revenue.
Obviously it was an acquisition that closed late in the year public company, we were able to really do a lot of deep dive on the planning process post acquisition, which for all intents and purposes was done by the time, we bought them and quite frankly, we feel good about their plan right. We didn't have a lot of growth estimated in the plan we knew that the wind business will be challenged in 2002.
'twenty three we knew the solar market was growing.
They have a very good customer base that they have a lot of history for I think historically they had done a and.
Okay job of managing revenue expectations relative to reality, although although they did have some issues in the past.
So we generally felt okay, we didn't get too aggressive around the plan.
And again first and second quarter were generally in line with what the expectations were so as the year develops.
There is no question that historically they have been heavier on the wind side, they're also heavier on the union side, which which adds another complexity to these type of projects and the ability.
To kind of move resources to other projects that are available. So we split theres definitely a bigger hit to the wind business. Their wind revenue was down more than their solar revenue, but theres solar revenue didn't grow at the level that it should in 2023, either and it's because a lot of the projects third slated to begin got pushed.
So I think it's really about understanding where the customers were understanding where the projects were and then once you commit to a job it's really hard to go secure another job because you got your resources committed and I think what we saw was a number of their customers begin to fall off without the <unk>.
Short order the work's not available to renewables those resources so.
To your question about our peers, but there is absolutely no doubt that the industry right now.
Demand is incredibly high and the reason we wanted to kind of split legacy versus IAA was to show you. The success, we're having in our legacy business right, we're up 25% organic growth in our legacy business. So the market's there right. These are enforced errors on our part that we need to fix we're not worried about the go forward potential of the market, it's about our ability.
<unk> to understand the projects execute on them and plan better and I think that's what we're all working very diligently to do.
Okay. That's helpful. And then just going over to telecom, you've obviously been bullish and you talked about customers adjusting capex, maybe you can talk about what changed during the quarter for you and moving forward you didn't change your sort of near term forecast for telecom that $4 billion.
$4 billion number but would you say near term it's pushed out in 2024 could be more challenging telecom as well or maybe color there would be helpful.
Sure. So I think when we deep dive into that write the majority of what we're seeing in slowdown is only on the wireless side of the wireline business is extremely active we think there is more than enough wireline business to execute solid growth for 2024, which is why we didn't change.
The near to midterm outlook.
We think that wireless will come back but at this moment in time I think it's one of the few places that our larger customers have to adjust spend.
And with the interest rate environment, where it is I think youre seeing slight tweaks. So again, it's not a.
I think instead of growing high single digits to 10%, we're going to grow 5% for the year. So we're still growing in the business. We still have a strong second half, but it's slightly less than what our original expectation was.
Thanks Jose.
Thanks, Andy.
Our next question comes from Steven Fisher with UBS. Your line is open. Please go ahead.
Thanks. Good morning, just wanted to follow up on the IEA integration can you just talk a little bit about the.
The progression of the acquisition integration costs since the deal closed.
As each increment accomplish.
And if there were to be another step up what would it need to address.
They've been kind of ramping up here they are all kind of below the line.
But I'm really well also wondering what the cash impact of these integration costs are in.
Thats ramping and whether you included that in your.
And then kind of net $450 million of free cash flow.
Yes, Stephen this is also.
They are ramping down in the second half of the year.
And to your second question any severance or termination costs are factored in to the back half of the year guidance around acquisition integration expense.
So any impact on cash flow is captured as well.
Okay.
Okay, so, but it's all just youre finding that you keep raising it because you're just finding more.
Kind of more layers of overhead that that need to be cut just kind of curious why why it's not always alternatives declining camping.
Sorry about that sometimes it's the timing of when it can be enacted right those.
Savings on things like.
Bringing them onto our insurance program. For example is something that has to be done at the renewal or termination of license agreements things like that so that's why there is a tail on it.
But I think we've captured it all in and do expect it to moderate into Q3 and into Q4.
And then to your to your I guess, the first start which was integration.
We've spent an enormous amount of time, obviously on integrating IAA I think again when we look at the differences in terms of the performance of the two units that we have.
Done a lot of combining we think our go to market strategy today is far far superior to what it was prior to the IAA transaction. We think that we were capturing all of the detail that we need to understand the customers to projects, where we're in deep negotiations with lots of customers over multi year projects and long term.
Long term projects.
And labor availability and labor resources, the ability to commit those over a long period of time, so I think that.
Handing the market.
Positioning ourselves for 'twenty four and beyond.
Putting the right team together to execute on all of this.
At a much more structured level I think we're making really good progress on it and I think over the next coming quarters will talk a lot more about that.
Okay, and if I could just follow up on the telecom side I know you just said that you expect the wireless business to come back, but in the meantime, a bit slower growth I guess to what extent are you shifting your focus strategically from wireless to fiber and cable.
I know you've kind of pursued some of the Argos programs.
Is that a strategic shift that you are making.
If so kind of what else has to happen to <unk>.
That shift in strategy.
I don't think its a shift if you look at our year. This year, our wireline business will grow more than 20%. So we're having a really strong growth year there.
Our.
<unk> today is mixed.
Still incredibly bullish about wireless over the long term, we think it's a great business.
Albeit the growth has moderated a little bit for the second half of this year.
When you think about.
How we all live and how we use devices.
How attach we are the devices and the amount of data that goes through these devices the need for wireless will always be there the need to.
Create.
More capacity on the wireless networks is going to continue to increase and Thats, what we do right. So I'm very bullish on that market I know.
Unfortunately in an uncertain economic times some of our larger customers, which all of these companies are very large might have some slight adjustments were.
We're not seeing that impact of wireline business as much as we're seeing it impact the wireless business and at this moment in time, the wireline growth opportunity is greater and we're going to take advantage of it and we think we could have similar growth if not better growth in 24 on the wireline side versus 23. So I think when we look at the full year opportunity for us in 24 versus 23, it's still somewhat unchanged.
Ranged.
Thank you very much.
Thanks Neil.
Our next.
<unk> comes from Justin Hauke with Robert W. Baird. Your line is open. Please go ahead.
Okay.
Good morning, Thanks for taking my question.
I guess I wanted to ask.
On the margin assumption that you guys don't give point estimates.
Range is high single digit mid single digit whatnot.
And those arent changed you've got MVP coming in here in your highest margin business and obviously you are taking your margins down. So I guess I just wanted to clarify is it each segment that you're assuming is kind of lower profitability than where you were or is there some type of concentration.
In one segment versus another one just maybe a little bit more help on the segment expectations.
Yes.
Yes, just to so I'll take a stab at it and I'll turn it over to Paul I mean, just as it relates to MVP REIT MVP is a cost plus job, it's not a unit job. So we've always talked about MVP, having a lower margin profile than the balance of our oil and gas business again, we didn't expect that project to be in 2020 three so as that project executes out in 'twenty three.
A slight dilution to the margin of that segment.
Yes, and I would just add I think there is probably where we were previously.
A little bit of pressure on communications, just with the lower operating leverage and a little bit of pressure versus our prior guidance on clean energy still good improvement, but just with the lower volume we are going to be carrying some costs.
To deal with its workload as it comes in right in the foreseeable future.
<unk> still in that same range, but relative to where we thought they were back at our Q1 guidance slightly slightly lower margins in those two segments.
Okay. Thank you and I guess my follow up.
You talked a lot about IAA.
I wanted to ask actually about about the <unk> acquisition.
Hi.
Hudson some legacy infrastructure projects in there that you guys talked about kind of working through and cleaning up.
It looks like.
Your.
On builder.
Okay.
Uptick a little bit in terms of.
Whats on the balance sheet I was just curious the status of those jobs.
Are there still charges that youre working through that are pressuring the margins at henkel specifically.
Yes, so I think the industrial products youre, referring to those warrant it from Henkel. Those were those are projects from <unk> clean energy segment that we've been working on over the last year and a half or so.
We're working through those projects are mostly complete.
I think we're in various stages of negotiation with the customers on our knee on any close out in claims that we have and we feel very good about our positions in.
On those and we look forward to having those behind us.
By the end of Q3 from a from a performance perspective, they should all be complete.
Okay, great. Thank you.
Thanks Joseph.
Okay.
Our next question comes from Adam <unk> with Thompson data. Your line is open. Please go ahead.
Hey, good morning, guys.
Good morning.
And your oil and gas outlook for next year.
What's the nature of those jobs, those kind of traditional oil and gas jobs are we starting to get into some of the carbon capture.
I think we'll be better prepared to talk about it.
Over the course of the next couple of quarters I think there's a lot available I think are our statements.
And the work that we've got currently booked is still around traditional.
Traditional work we've done there.
There is opportunities for alternative.
Type of pipelines to be built starting as early as next year. So we're excited about that and I think we'll be talking a lot more about them in the coming quarters. Okay.
Okay Fair enough and then on power delivery not much talk today.
What kind of project activity are you seeing for that segment.
I mean look we didn't talk a lot about it because its kind of performing exactly as we expected for for both the quarter and the year.
Unit adjustments earlier question about henkels, and how we feel about the integration I mean, we actually think that that integration has gone really smoothly, we're kind of past it.
We've got.
Our completely revamped.
Business relative to how we're going to market.
We're executing on that tremendous opportunity in that business I think we've positioned ourselves really well for future growth and I think this was this was still a year, where we were kind of trying to put everything together and it's working out as planned and I think next year, we'll have an opportunity to show really nice growth in that business yet again.
Okay. Okay. Thanks for that.
Adam Thanks Al.
Our next question comes from Jamie Cook with Credit Suisse. Your line is now open. Please go ahead.
Hi, Good morning, I guess two questions all day one.
One of your peers is talking about margin being weighed down by an estimate required ahead of some of these large projects that are going forward so to what degree the rent.
In 2024 that margins are way down by investment understanding of longer term margin potential still fairly positive and then my second question.
My second question is I understand you don't really want to talk about 2024.
But given the backlog that's out there.
And the growth prospects you see as we think about 2024.
Is it debt.
Do you still expect Ernie tbe's or sort of more of a backend loaded year or do you see opportunity for earnings to be I guess more normalized throughout the year versus just a backend loaded year like the past few years. Thank you.
All right Jamie So a lot there let me try to deconstruct it so I think on.
From a margin story and the work that's available in 24 as business units obviously.
Every type of work is different when when we're thinking about our renewable strategy and the work that we've done obviously is coming off of a down year in 'twenty three going into 'twenty. Four we think they have a capacity to do a lot more without a lot of further investment.
If youre looking at pure renewable projects the investment required is substantially lower than if youre looking at large transmission projects and as we think about our growth in 24, it's not necessarily going to be on the really large transmission side, it's going to be on more of the traditional renewable projects, which we think require less capital. So we don't think we have it.
Our expectation is for us to have a margin deterioration as we grow and we actually think we can manage through that and still improve margins in 'twenty four relative to 2023, just based on the book of business that we're going after in the mix that we have.
So we actually feel good about that.
And.
And the second question. The second question, which is that our earnings in 2020 for backend loaded or could we expect.
Yes, it's a good question.
The beginning of 'twenty three was relatively slow for us. So we actually think early 'twenty three is going to be a good comp relative to what we're seeing in 'twenty. Four we have a lot of renewable projects that are starting or that have already started that are going to go well into 24. So I think we're going into 'twenty four with a lot more activity in the early part of the year than we did 22 to 23. So I think you will.
I see we're always going to have a bigger second half of the year versus first half of the year because it's just the nature of our business, but I do think we're set up well for good comps in the first quarter of 'twenty four versus the first quarter of 'twenty three.
Okay. Thank you.
Thanks, Jamie.
Okay.
Gasoline have any final questions.
We do our final question comes from Sean Eastman with Keybanc capital markets. Your line is open. Please go ahead.
Hi team. Thanks for taking my questions I, just wanted to come back to the comment about the improved revenue predictability going into 2024 four.
For the renewable operation.
Maybe just a little bit more color there Jose in terms of.
On kind of the operating environment type stuff, what what's been action there.
Where the mass tech kind of way has been implemented to help improve that predictability into next year.
To the extent you're comfortable.
Maybe relative to this near term potential 6 billion in revenue number what is like a reasonable.
Our expectation for for the revenue stacking up into next year.
Yeah.
So a couple of things right. One is again we highlighted.
Mostek legacy clean energy because it's just important to note that difference right I think we did a really good job this year of assessing risk relative to projects on the renewable side.
Yeah.
We've taken all of that and we've now implemented that at IAA. We've got one team that's kind of taken the lead on all project assessment going forward.
Our own revenue internal stacking based on projects in the.
The viability of projects and what we think it's going to be I think youre going to see us be more conservative as we guide into 'twenty four because we don't we don't want to be in this position again so were we.
There is no question that we will have significant growth in that segment in 2024 relative to 2023, I don't think youre going to see us guide to $6 billion, but I think youll see us guide to a number that was higher than our original guide for 2023.
Okay. That's helpful. And then one for Paul just coming back to Steve Fisher's question.
On the cash flow how is it that the cash flow guidance is intact with the pretty significant reduction to the earnings guidance and the GAAP earnings guidance down quite a bit.
Is it working capital has been tightened up whats been the offset there to help you keep that number in play.
Yes, so we're I mean, we're done.
On the range 50 million right.
I think.
A little bit lower revenue helps because there's less working capital investment the cadence of the year helps and.
I think we've had some some conservatism built into the number based on.
The near term DSO performance and I think we're seeing really good momentum there across the company.
To improve improve those working capital metrics so it.
It's not there's not an.
Of assumption set to get us to that to that level.
Okay got it and then just last quick one I mean any color on what what.
Where were you are achieving that success on the Dsos, where youre, where youre kind of capturing that.
Slack in the working capital yes.
Yes, some of its mix I mean, the clean energy segment. Historically has been traditionally has lower working capital requirements in some of our other businesses.
And then there was a couple of pockets in communications that we've got a little bit little bit long in the long in the tooth and we've taken the opportunity with a little bit of volume slowdown to be more diligent with our customers around getting things build.
Quickly so that we are getting paid more properly as well.
And maybe to that point, just maybe even add a little more specificity to that and we added a lot of customers in the course of the last year in various segments, including our communication segment, and I think just understanding them and getting into the right cadence of how you Bill how you get paid quicker I think that's starting to show a lot of dividends in and that's part of what we're seeing today with.
It gives us a lot of confidence in the back end of the year.
Okay, gentlemen, thanks very much.
Thanks, Sean.
That will conclude the Q&A session I will now turn it back to Mr. Jose Mas for any additional or closing comments.
Just wanted to take the opportunity to thank everybody for participating and we look forward to updating you on our third quarter call in a few months thanks for joining us.
Thank you, ladies and gentlemen that will conclude today's conference. We thank you for your participation you may disconnect. Your phone line at this time.
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