Q2 2019 Earnings Call
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All right all please turn to the Mastec second quarter call.
Thank you.
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With us today, we have so Jose Mas, our CEO and George Pita, our executive Vice President and CFO . The Formula called we operating remarks analysis by Jose followed by financial review from George. These discussions we followed by a question asked and premium we expect the call. The last about 60 minutes, we had another great quarter lot important thanks talk but today, so I'll turn the call over Jose Jose.
Thanks Mark.
Good morning, and welcome the Monster, It's 2019 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 $1 billion $939 million, a 20% increase versus last years second quarter.
Adjusted EBITDA was 241 million, a 26% increase versus last years second quarter.
Adjusted earnings per share was $1.60.
A 54% increase versus last years second quarter.
Cash flow from operations was roughly $400 million and backlog at quarter end was $7.8 billion.
In summary, we had another excellent quarter.
For me the most exciting thing about this quarter is that it could have been even better and more importantly, what this quarter says about our future.
While our oil and gas segment had another very strong quarter, our power generation and transmission segments performed above expectations.
We are very excited about our prospects in both of those segments and expect them to continue to grow in both revenues and earnings. We believe those two segments have considerable growth opportunities and will be a much larger portion of mastrich's revenue overtime.
We're also very excited about our opportunities in the communications segment.
In 2015, we spoke a lot about our expected growth in the pipeline market and the significant investments we were making to prepare ourselves to be a market leader in that segment for years to come.
What we are doing today in communications.
Is reminiscent of that exact opportunity.
Today, we are investing in people equipment and relationships to take advantage of what we believe will be a significant increase in work activity related to the deployment of Fiveg.
While we would obviously love to see growth in revenues and earnings faster, our wireline and wireless business continues to consistently grow at double digit rates and we expect that rate to continue to accelerate in 2020.
We also believe the investments, we're making today will allow us to increase our margin profile as the opportunity plays out.
Our investments today in communications are negatively impacting margins and we believe this is a sound investment that will pay off in 2020 and beyond.
We are very excited about the future earnings capability of our company.
Now I'd like to cover some industry specifics.
Our communication revenue for the quarter was $653 million versus $619 million last year.
The increase in revenues was driven by strong double digit growth in our wireline and wireless business offset by a 27% decline in our installation and fulfillment business.
We expect continued growth in both our wireline and wireless markets in the second half with continued weakness in our fulfillment and insulation business.
The last few months have been very active as it relates to the marketplace and fiveg.
Wireline backhaul service continues to expand and we are seeing both incumbent and new carriers increased their long term build plants.
As it relates to wireless the recent T mobile sprint announcements coupled with the aggressive move by dish network to create a fourth large wireless company bodes well for Mastec and our industry.
There will be a significant investment by both players as their strategy and network architecture evolves and changes.
We believe we are in the very early stages of what will be a significant investment related to fiveg from both the wireline carriers supporting backhaul services and the wireless carriers, creating a more robust and denser network.
We believe it's important to note that our service offering to both our wireline and wireless customers continues to expand and diversify.
We are engaging with our customers earlier and engaging in more value added services.
Today, our services include design review.
Engineering site acquisition lease negotiations permitting material procurement.
Warehousing kidding structural reinforcement fiber buildout.
Power coordination and provisioning tower construction antenna installation tower wiring and splicing integration commissioning and after construction, we offer pool maintenance of the network.
We've worked hard at diversifying our customer base in this segment and are happy to report that Brian has now been a top five customer for four consecutive quarters.
We believe we are well positioned in this market as the leading wireless infrastructure provider with significant opportunities for long term growth.
While we expect continued growth during the balance of 2019, our true opportunity is to position ourselves for 2020 and beyond where we believe the opportunity will be substantially greater.
Moving to our power generation and industrial segment revenue was $250 million for the second quarter versus a $146 million in the prior year, an increase of 71%.
I'd like to congratulate our management team in this segment.
In 2017, this segment generated $299 million of revenue for the full year.
This past quarter, they almost matched full year 2017 revenues.
We expect growth to continue in the second half of 2019 and be up about 30% from the first half of 19.
While backlog was down slightly sequentially, we have several projects, we anticipate being awarded in the coming months and we expect to end 2019 with record levels of backlog in this segment setting us up for another strong growth in 2020.
This quarter, we saw strong award growth in the solar markets and we were awarded our first 48 and 54 inch water main lines.
I'd like to highlight our diversification within this segment.
Our 2019 revenue estimates are comprised of wind farm construction turbine repowering projects and maintenance utility scale solar construction compressor station work civil construction vertical specialty construction gas fired peaker plants and biomass facilities.
Revenue in our electrical transmission business was $100 million versus 85 million in last years second quarter.
Backlog was up 20% sequentially and does not include projects awarded but not yet signed.
Our backlog includes KPC projects, we will not which will not generate significant revenue in 2019 as we perform a lot of the front end work, but revenue should substantially increase in 2020 as these projects go into the construction phase.
Our expectation is it 2019 will be a better year than 2018, but we should see significant financial improvements in both revenues and margins in 2020 based on our current backlog and expected awards.
We are encouraged by what we believe is a growing and improving market.
We are seeing a greater number of opportunities and feel we are well positioned to excel in this market.
Our oil and gas pipeline segment had revenues of $937 million for the second quarter compared to revenues of $769 million in last years second quarter.
Backlog was up 14% year over year and flattish sequentially.
We also have several project some very large that had been verbally awarded and are not in backlog.
We are in the final stages of documentation and expect those projects to be added to backlog in the coming quarters.
Demand for our oil and gas segment services include pipeline construction integrity work large diameter horizontal drilling.
Distribution booster stations meter stations and compressor station demand continues to grow.
As we look ahead into 2020, we have now significantly committed our capacity to our customers with a number of projects going into 2021.
We are actively working with our customers on their future needs and we continue to have very strong visibility for multiple years out.
To recap we have had a great first half of 2019.
Our backlog is strong and more importantly, our outlook is excellent as we are enjoying growth opportunities across all of our segment.
In fact, our customer see more bullish and are actively engaging in conversations about long term planning and resource management.
While we expect 2019 to be another record year of financial performance. We are most encouraged about the opportunities we see to continue to grow our business for many years.
I'd like to take this opportunity to thank the men and women of Mastec for their commitment to safety their hard work and their sacrifice.
Our people are our most important asset and it's because of their performance that I'm, so excited and bullish about our future.
I'll now turn the call over to Bob to George for our financial review George.
Thanks, Jose and good morning, and good morning, everyone.
Today, I'll cover second quarter financial results, including cash flow liquidity and capital structure as well as our increased guidance expectation for 2019.
As Mark indicated the beginning of the call our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
Reconciliation and details of non-GAAP measures can be found in our press release.
On our website or in our SEC filings.
Here are a few highlights regarding our second quarter 2019 performance.
In summary, we had better than expected second quarter ranking results across all measures and this strong momentum is affording us the opportunity to raise our 2019 guys expectation to new record levels.
On the balance sheet side, we had a record second quarter cash flow from operations and $287 million in net debt reduction from ordinary course cash collections.
We ended the second quarter with our days sales outstanding net of B.
Or dsos at 77 days, a normal level within the targeted range for our business.
And we continue to expect record cash flow from operations for the annual 2019 period.
On the income statement side second quarter revenue adjusted EBITDA and adjusted diluted earnings per share all significantly exceeded our expectation.
Second quarter 2019 revenue of $1.94 billion increased 20% from last years level with growth in all segments.
Second quarter revenue exceeded our expectation by approximately $140 million.
Second quarter 2019, adjusted EBITDA was approximately $241 million or 12.4% of revenue.
Representing the largest second quarter adjusted EBITDA level in Mastec history.
This performance level exceeded second quarter, 2018 levels by approximately $50 million or 26%.
Adjusted EBITDA also exceeded our expectation by approximately $41 million.
And adjusted EBITDA margin rate of 12.4% of revenue exceeded our expectation by 130 basis points.
Second quarter 2019, adjusted diluted earnings per share were $1.60 cents, a 54% increase compared to one dollar and four cents per diluted share last year.
Second quarter adjusted diluted earnings per share exceeded our expectation by 49 cents.
In summary, our strong second quarter, 2019 performance and business trends allow us to increase our annual 2019 guidance expectation to new record levels with a $100 million increase in annual 2019 revenue to $7.7 billion.
A $41 million increase in adjusted EBITDA to $836 million.
And a 49 cents per diluted share increase in adjusted earnings to $5.04 per diluted share.
Now I will cover a summary of second quarter segment performance.
Second quarter, 2019 oil and gas segment revenue increased approximately 22% compared to the same period last year to approximately $937 million.
Second quarter, 2019 oil and gas segment adjusted EBITDA margin rate was 19.1% a 320 basis point improvement over the 15.9% reported in the second quarter of 2018.
This performance was better than anticipated due to project productivity on numerous small pipeline projects.
It is important to note that this marks the fourth consecutive quarter of oil and gas segment, adjusted EBITDA margin rate performance approximating, 15% or better.
And on a trailing 12 month basis, our oil and gas segment adjusted EBITDA margin rate performance is approximately 16.5% of revenue.
Given the continued strength of this market. We now expect our annual 2019 oil and gas segment adjusted EBITDA margin rate will approximate our trailing 12 month performance in the high 16% to low 17% range.
Second quarter 2019 Communications segment revenue increased approximately 5.5% compared to the same period last year to approximately $653 million.
Second quarter 2019, adjusted EBITDA margin rate was 8% of revenue a sequential improvement of 60 basis points compared to the first quarter of 2019.
As Jose already highlighted second quarter Communications segment revenue trends are characterized by strong double digit growth in wireless and wireline fiber services, partially offset by higher than expected decreases in install to the home services.
Our second quarter 2019 Communications segment adjusted EBITDA margin rate performance continues to reflect previously communicated ramp up costs related to fiber project startup costs and crew capacity initiatives.
We expect that second half 2019 communications segment performance levels will improve with revenue expected to grow over first half 2019 levels in the low double digit range.
And second half 2019, adjusted EBITDA margin rate levels in the low 9% range.
In summary.
We continue to invest in communications segment capacity growth in 2019.
In order to maximize our future potential and we expect 2022 shows strong annual revenue adjusted EBITDA dollar and adjusted EBITDA margin rate improvement when compared to 2019 levels.
Second quarter 2019, electrical transmission segment revenue increased 18.9% compared to the same period last year to approximately $100 million.
Adjusted EBITDA margin rate was 8.6% of revenue.
Slightly above our annual 2019 expectation for this segment in the low to mid single digit range.
Importantly, this segment's second quarter backlog grew by approximately 20% and we continue to experience active transmission project bidding activity that we expect will set this segment up for a sizable growth opportunity in 2020.
Second quarter, 2019 power generation and industrial segment revenue increased approximately 71% to $250 million.
Second quarter 2019, adjusted EBITDA margin rate was 3.5% of revenue, which includes some weather inefficiencies and close out costs on a few projects that were substantially completed during the quarter.
We expect second half 2019 year over year revenue growth to range in the 40% to 50% range with second half 2019, adjusted EBITDA margin rate improving over the first half of 2000 nineteens levels to the mid single digit range.
Second quarter 2019, corporate adjusted EBITDA was a cost of $15 million compared to $18 million in cost during the second quarter of 2018.
Second quarter 2019 corporate results include two notable type transactions.
With approximately $29 million in earn out expense.
Partially offset by approximately $25 million in recovery of legal costs and other income from a second quarter Arbitration award related to a Canadian acquisition several years ago.
As disclosed in our 10-Q filing.
While we are in active pursuit to collect additional amounts due under this award.
The success of those efforts is unknown.
And therefore, we have not reflected additional collections in either our current results or 2019 guidance expectation.
As these collection efforts are currently underway our commentary regarding this matter will be limited.
Now I will discuss a summary of our top 10 largest customers for the second quarter 2019 period as a percentage of revenue.
18, Ti revenue derived from wireless and wireline fiber services was approximately 14%.
And install to the home services were approximately 4%.
On a combined basis. These three separate service offerings totaled approximately 18% of our total revenue.
It is important to note that these offerings, while falling under one ATM corporate umbrella.
Our managed and budgeted independently within that organization, giving us diversification within that corporate universe.
He Qt Corporation was 12% and energy transfer affiliates was 8%.
And this consisted of multiple projects.
Phillips 66 affiliates was 6%.
Verizon Communications was 5%, reflecting both wireline and wireless services.
Kinder Morgan was 4%.
And the Southern company, Duke energy, even drill a group and epic pipeline were each at 3% of revenue.
Our second quarter end 2019, our 18 month backlog was approximately $7.8 billion, a slight increase compared to the same period last year.
Notable backlog activity during the second quarter includes a 20% sequential increase in electrical transmission segment backlog.
A slight decrease in communications segment segment backlog, reflecting a decrease in install to the home services.
And approximately $900 million in new quarterly oil and gas segment bookings, which does not reflect large pipeline project award activity after quarter end that Jose referred to in his mark in his remarks.
Remember as we've indicated for years quarterly backlog amounts tend to be lumpy as large contracts burn off each quarter and new large contract awards only come into backlog at a single point in time.
That said, our backlog performance and trends support our optimism regarding the strength of our end markets with multiple sizeable sizable and multiple multiyear growth opportunities.
Now I will cover our cash flow liquidity and capital structure.
As we as previously noted our long term capital structure is solid.
With low rates and no near term maturities.
We ended our second quarter with net debt defined as total debt less cash and approximately $1.3 billion, a $287 million reduction compared to the first quarter of 2019.
And a book leverage ratio defined as net debt divided by trailing 12 month adjusted EBITDA of 1.6 times.
We also had ample liquidity of over $700 million.
In summary, our capital structure allows us significant flexibility to invest in efforts to maximize shareholder value.
We reported record second quarter 2019 cash flow from operations of approximately $400 million, which reflected normal ordinary course cash collected collection activity as indicated during our last conference call.
During the second quarter, our Dsos normalize back within our targeted range and ended at 77 days.
We continue to expect that our future Dsos will fall within our target range of mid to high Seventys to low eightys.
We also continue to expect that annual 2019 cash flow from operations will reach a new record level.
In excess of the $530 million report in 2018.
With 2019 free cash flow defined as cash flow from operations less net capex.
In excess of adjusted net income.
Assuming no further acquisitions or share repurchase activity during the second half of 2019.
We expect to end the year with approximately $1.2 billion of net debt.
Ample liquidity and approximately $850 million.
And a book leverage ratio of approximately 1.4 times.
Regarding our cash flow profile allow me to take a step back and review our performance over the trailing 18 month period, covering all of 2018 and the first half of 2019.
During this period, we have supported the working capital requirements associated with significant revenue growth.
And still generated $881 million and cumulative cash flow from operations.
During this period, our Dsos started 81 days and ended at 77 days well within our target range.
And representative of ordinary course levels.
Also during this 18 month period, we invested over 600 million six at $460 million.
Strategic M&A and share repurchase activity and.
It's still managed to reduce our book leverage from two times to 1.6 times today.
We believe these longer term historical measurements highlight the strength of our ordinary course cash flow generation ability.
Given our strong cash flow profile and expectations I would like to reiterate our views on capital usage priorities.
Namely we continually evaluate the expected investment return associated with acquisitions and other strategic initiatives to grow operations as well as share repurchase opportunities.
And as a reminder, we currently have approximately $129 million and remaining share repurchase authorization.
Regarding our spending on equipment during the second quarter of 2019, we purchased approximately $12 million and net cash capex defined as cash capex net of equipment disposals.
And we incurred an additional $70 million and equipment under finance leases.
We expect that for the full year 2019 period, we will acquire approximately $80 million and net cash Capex and also expect to incur approximately $180 million and equipment under finance leases.
Moving to our current 2019 guidance, we are increasing our full year 2019 revenue expectation by $100 million to $7.7 billion.
We are increasing our full year 2019, adjusted EBITDA by $41 million the $836 million.
And raising adjusted diluted earnings per share by 49 cents to $5.04.
All of these metrics represent new record levels for Mastec.
We currently estimate third quarter 2019 revenue at $2.15 billion.
With adjusted EBITDA of $246 million or 11.4% of revenue.
And adjusted diluted earnings at $1.62 cents per diluted share.
Relative to some additional details for modeling purposes of our guidance.
We expect second half 2019 diluted share count to approximate 75.9 million shares.
With full year 2019 weighted average diluted share count approximating 75.8 million shares.
We expect second half second half interest expense will approximate $42 million.
And that annual 2019 interest expense will approximate $81 million with this estimate reflecting first half 2019 activity.
Including a 5 million dollar interest cost reimbursement received during the second quarter of 2019.
From a previously described arbitration award.
We anticipate full year 2019, depreciation and amortization expense will approximate 3.1% of annual revenue.
And lastly, we anticipate that our full year 2019, adjusted income tax rate will approximate 25.7%.
In summary, we had a great first half of 2019 and are pleased to be in position to raise our 2019 full year guidance expectation.
As importantly, we strongly believe in the future growth opportunities our markets afford us as multiyear infrastructure initiatives expand and accelerate in 2019 and beyond.
That concludes our prepared remarks, we'll now turn the call back to the operator for Q any operator.
And if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. We ask that you. Please limit yourself to one question and one follow up again that is star one to ask a question and we will take our first question from Jamie Cook with credit Suisse.
Hi, good morning.
Hi, good morning, and congratulations on a nice quarter.
Hi, good morning, guys.
My first question Jose on the oil and gas business and the margins, obviously heads that it much better than people expected you talked about some award you won post the quarter close so how do we think about backlog as you sort of exit 2019, and oil and gas and what the margin trajectory given what we've seen so far just tightness in the market and then my second question I guess I would say is on the communication side.
Obviously long term fundamentals look very positive there the margins have been a little lower this year because of investment so.
How do we think about that investment on widening 2020 or will that continue to be.
On a way down the margin Tibet. Thank you.
Sure so on the oil and gas side that I think we've been outperforming for a series of quarters and in a George alluded to the fact that.
We're kind of upping our full year.
Margin guidance.
If you look at the first half margins. This year, we're at about 18.4%. If you take the implied guidance all we're talking about having a full year of.
In the 16, 17% range.
So as we think about second half what what really drives that is the percentage of work that we're doing in cost plus versus the other type of work that we're doing we expect mark margin profiles to hold steady we think the only thing that will really move that is what percentage of cost plus work. We are doing at any given time, which is slightly less margin. So if you think about second half the upside for US is it can we.
How much is cost plus spring, we've taken conservative views on that in the second half. So if we have upside in the second half the year is probably going to be an outperformance of oil and gas margins, but more importantly to the question I think when you think about 2020 in 2021, we think we are going to be able to deliver on the same type of margin profile of the business in 2019.
As 2019, yes.
Okay, and what what's the revenue trajectory willing. Thank you 2020, just given how strong the growth has been.
Look we're not ready to guide for 2020 at I don't think you're going to see a significant reduction in revenues next year.
But I think it's kind of early right now we talked about being somewhat fully committed for 2020.
A lot happens between now and then so things change things get better some projects were delayed so it's too it's too early for us to guide for 2020, but generally speaking it's shaping up to be another great year with a similar margin profiles to what were experiencing in 2019.
Lateral uranium.
Yes for your communications question.
I mean, obviously if you go back to last few years, we've been trending anywhere from 10% to 12% from a communication margin profile. We know that we have a couple of hundred basis points of margin improvement that we think we're going to realize in the near term as early as 2020. So our expectation is margins are going to improve in 2020, we think we're making all the investments today to make that happen.
We believe the during the cycle, we have a chance of hitting peak margins from a historical level not in 2020, but over throughout the cycle and we think we're well positioned and again, we would all love to see it come sooner, but I think when you look at what's happening from a macro perspective, it's coming and we have to be patient we have to make the right investments and then I think we'll we'll benefit from it.
I said it in this in the prepared remarks, and I really believe it I fuel we talked a lot about in 2015 as to what we thought was going to happen in the pipeline market. We've executed there I think the results speak for themselves and I think it's very reminiscent of what's happening today in communications I think we're putting ourselves in a position to be a market leader in to excel in this market for a very long time.
Great, Thanks, and George Nice job on free cash flow I'll get back in queue.
Thank you thanks, Jamie.
And our next question will come from Tahira Afzal with Keybanc.
Please go ahead.
Hey, congratulations on a phenomenal quarter.
Thank you to here.
Hi, there I mean.
Given you've got.
Year appropriately NCM, Inc., and maybe flattish scenario for pipeline next year.
Do you think you can still on the aggregate cruel EBITDA next year are nicely from all the other segments ideally again based on a bottoms up and coming to you provided back but love to get a sense of bad.
Look I think if you if you do the math, we think we can grow EBITDA, even if oil and gas shrinks.
Communications is going to be better in 2020 transmission is going to be better in 2020, powergen is going to be better in 2020.
We feel very strongly that our pipeline business is going to do very well in 2020, but regardless of your own individual outlook on what might happen in oil and gas EBITDA from our sticks should be really strong in 2020 compared to 2019.
Hey, Dan.
Within your prepared commentary you talked about going to encode significant opportunity from dish and the performance.
As you said the last time, you said that was about pipeline in 2012 due to bad business $300 billion in annual revenue to three and a half.
When you think significant how sizeable could it be done stream bagless is beyond that.
The business right now.
Well look it's very exciting and so it's a new entrant into the market that's going to be a significant competitor in the wireless market. We think there is super well positioned they obviously have an enormous amount of spectrum.
I think do they have shown over the course of the last few months their commitment to being a significant player in that space.
We've had a relationship with them for a long time, we have a current relationship with them on the wireless business. So I think we're very well positioned and I think it's it's going to play out time will tell.
But yes, it could be a very significant opportunity for mostek and we'll see we've got to earn it we've got to perform but the opportunities there.
Thanks today.
To hear thank you again I know you you got a recent promotion so I don't know how many calls you're going to stay with us on but I want to thank you for your support Tomasik over all these years and and congrats on your promotion.
Thank you very much.
Nice to hear.
And our next question will come from Steven Fisher with UBS.
Hi, Thanks, good morning.
Thanks, Good morning.
So you guys talked about some of the big bookings prospects in oil and gas and some of the verbal selections I guess, what what are the biggest gating factors on when those will actually get book, how much permitting risk is there versus any sort of capital budgeting disciplined risk and so what's your confidence in the timing.
How should we think about the the risk.
And margin trade off of forthcoming.
Well again, I think we've taken a conservative view, even as we look at backlog backlog is extremely strong the reported backlog is extremely strong from a historical context. When you layer into the fact that we've got a lot of awards in our own even in that number that number is substantially greater than what's reported.
We have to have obviously finalized documents and in some of those projects still need some things to get to get going but I think it just speaks to the long term outlook of that business and how strongly and how good we feel about it.
You know all projects are in different phases, I think one of the changes in our business over the last couple of years is backlog is now made up of many more projects than what was historically right. Historically, we'd have one or two big projects that was the main driver of our backlog today, that's not the case, there's a lot of projects that make up.
Our backlog, which we think probably de risk a little bit and diversifies, our customer base a little bit.
You know something also were relatively proud of if you look at our top customers from a percentage of revenue as companywide diversifications, a lot better and mostek, our top customers a smaller percentage than its historically been so I think we are doing a really good job within this segment and across the company to further diversify our scope of services to diversify our customer base and to diversify the number of projects that were working on.
Great. That's helpful. And then just on the communications as you think about this ramp up.
Over the next year, what what aspect of the telecom spending do you expect.
Strive your biggest incremental revenue.
Next year versus this year.
I would it be on most of the small cell side towers fiber, which of those pieces you think you'll see the most incremental revenues on.
I think the potential for growth obviously, the fiber builds of a lot of.
Theres been a lot of awards relative to fiber I think the revenues associated with that will significantly pickup in 20 versus where they've been this year. So thats an obvious driver of growth when I think about that question and I'd, probably put it in a longer term sense.
I think the wireless opportunities, whether its small cell or towers or a combination of everything is going to be a significant driver of our business for a very long time.
Terrific. Thanks, a lot.
Thank you.
Our next question will come from Noelle Dilts from Stifel.
Please go ahead.
Thanks, and again, congratulations on a nice quarter.
Sure. Thanks, So when I look at your guidance for the year.
Obviously really strong second quarter, very strong third quarter guidance and fourth quarter is just a bit below where consensus was on could you just.
Help us understand if maybe there's that's reflective of somewhat of a shift in maybe the work on MVP or how you're thinking about the timing of the ramp up on communications and just trying to understand some of the puts and takes as it relates to timing.
Sure.
We didnt offer fourth quarter guidance I know there were some projections out there.
I think there is some conservatism built into the fourth quarter relative to both communications and oil and gas obviously.
You know, we've got the MVP project that Hello.
We're not sure if that will finish in 2019 or 2020, I think theres a chance that it goes in 2019 and those are kind of the variables that we've got to work with as we work on projections. We've obviously had a very strong first half the year from our minds, we haven't really changed second half projections relative to where we originally kind of laid out.
So as we perform and we get more visibility into the coming six months.
And then I think it it's obviously an opportunity for us to be and I think the numbers that we put out or are relatively conservative numbers that we think we're going to hit and there's probably upside relative to those numbers based on both of those both of those initiatives that I spoke about.
Thanks.
And then just on the pipeline side, just to clarify a bit I mean, it still sounds like you're seeing a lot of opportunity on the large projects side I mean, we've been looking at obviously.
Significant number of larger projects that are that are out there for for 2020, and 2021 and just want to understand if theres are you feeling more or less constructive about the market and.
If you kind of referenced even if that were a decline you still feel like you'd be able to grow EBITDA I guess is there.
Elements of your business from here, a little bit worried about the timing or is it is it really just timing more than anything else that would drive.
If you were to see a decline.
To be clear on a more constructive ahmad less constructive I am not trying to signal anything in the comments I know that.
One of the.
One of the shareholder concerns for Bostik for a long period of time has been sustainability of our oil and gas business.
I disagree with that assessment I think we've got a very sustainable business, it's going to be strong for a long time, I'm, just making the point that even if the contrary and position even if you take the contrary and position, which shows our oil and gas business going down the rest of the segments of Mostra could more than May go for it and I'm, just making that point out that I expect that to happen.
But I think it's important for us to to give shareholders as much information as we can relative to the prospects of all of our businesses. So we still feel very strong and very good about our oil and gas prospects for multiple years out of.
But we feel just as strong and better about our other businesses.
And the second part of that question, it's really in terms of what you're seeing lift on Kingsley and Canada do you think that those businesses will on elements of your oil and gas business will show growth as you get into 2020.
Yes, I mean, obviously the reason we made the kings the acquisition was because we felt really good about where it could potentially go.
It's.
We havent owned it for that long. So I think it's only going to get better there are tremendous opportunities for them to grow their business and be a big player in that market as it relates to Canada, you know from a revenue perspective, we're actually having a pretty good year.
We expect revenues to be up north of 60% this year and 19 versus 18.
When you think about our pipeline business, we still have dragged for Canada is still a drag on our business. We lost about 8% on that business last year from an EBITDA perspective, we're still going to lose a couple of points of EBITDA in that business. This year a lot of it has to do with just utilization and size of the business. So its significantly improved in 2019 versus 18, but it's an area of the business that could continue to improve so even within our pipeline numbers as you see them today there are opportunities for improvement there are opportunities for equity areas to get better we fully expect.
Canada to be a catalyst for margins in oil and gas pipeline next year will will that really move the needle or not.
Time will tell but no we feel good about the prospects in what's happening in the market. There today much better than we did in the past in them in the last year anyway.
Thanks very much.
Thank you know.
Our next question will come from Alex Slagle from B. Riley FBR.
Please go ahead.
Thank you Jose enjoyed very nice quarter.
Thank you Alex.
Couple random questions here, you talked about very strong margins in small pipeline business can you update us on what your mix is in oil and gas between sort of smaller projects larger projects and how you see that trending over the next year or two.
Yes, I would expect it to kind of maintain at the levels that OSAT.
We're probably somewhere in that.
Im guessing because I don't have the number in front of me 60, 40 split smaller projects to larger projects.
And I would probably expect to be somewhere in that in that mix range.
We'll have a little bit more cost plus work in the second half of the year rights, you're talking about for the full year I think our mix is we'll have more cost plus larger project work in the second half.
For the year I think the overall mix this year will probably be representative of the expectation going forward for next year.
It's helpful. In the electric transmission margins were really good in the second quarter.
Is that a function of just the volume coming through the system and therefore should we.
Kind of reset our expectation level, a little bit higher for where margins could be in electrical transmission over the next year or two.
I think when we're looking at we're certainly looking at improvement on the transmission side as we move into 2020.
I think this year, our expectation generally speaking I mentioned in the remarks. This is the same in the low to mid single digit so I wouldn't I wouldn't necessarily change our expectations for 19, but certainly as we look out into 2020, we expect to have a lot more utilization, we expect to have growth in with that should cause the margin expansion and to be clear right. While we did well in the second quarter relative to I think what expectations were those aren't the kind of margins that were looking for in that business. We expect that business to be a double digits. We think that we can be a double digits in the near future of so while it was improving and it was better and I think it. It shows that we can perform in that business with volume that's not our desired margin range right and we know and we think and we know we can do better.
Excellent. Thank you.
Thank you Alex.
And our next question comes from Andy couple Capulet with Citi.
Please go ahead morning, guys. Thanks, Good morning, guys nice quarter.
Thank you Andy.
Okay last time, when we see this kind of ramp up like we're seeing in power generation. The risk of project execution goes up in margin. There was a little below your initial expectations for the year I know you talked about weather can you talk about your confidence level that powergen margin will improve to that mid single digit range that you're guiding to in second half of the year as your revenue ramp up continues.
Look I highlighted in the prepared comments because I think with that group has done is remarkable.
2017 revenues in that entire segment were $299 million for the year. This quarter. It was 250 next quarter is probably going to exceed their full year 2017 revenue. So the fact that they have been able to grow the business that rapidly over a two year period.
They grew 71% year over year, there is a lot of inefficiencies that happened when you're growing at those levels to be able to grow at those levels and to stay profitable and to continue to drive margins. We think is a feed off of its own.
I think we've we've been very cognisant of risk profile as we've grown that business and I think that like we've done in the pipeline business. We've mitigated the risk profile of that business, we're taking very little risk I think the risk of a project performing poorly for us are turning bad for US is very limited and we've done that by design. So I think that will prove out as coming quarters in coming years proof.
Lot opportunities in that market. We've built a really good reputation are really good name for ourselves across a number of those end markets and we're just really excited about what's happening we think the opportunity and the potential there.
Continues to be significant so we expect that business to continue to grow in 2020, and the margins will come with it.
There is no way that we can double that business or triple that business over the last couple of years and not have some margin impact with all the investments that we're making to get bigger in the investments in people and hiring and to be able to deliver for our customers. So.
Irrespective of some fluctuations from quarter to quarter I feel really good about the long term margin profile of that business being in that mid to high single digits.
Okay. That's helpful. And then you made the comment in the prepared remarks that you'd like your wireline and wireless business grow faster, despite growing double digits and the growth of wireline wireless not than what you thought it would be in 19 or is really the slow ramp up the communications.
Totally because of the bigger decline in the home and then how should we think about the Installable home decline could it end up being a bigger headwind on revenue and margin 2020 or by the time you get to 20, it really should be too small to be a big headwind.
So the second part of the question I think by the time, we get to 20, it will be small enough that it really wont impact our numbers in a meaningful way.
The first part of the question I think when we think about communications. We always said, we expected ramp to be second half of 19 event. We've I think we've been extremely consistent on that for a long period of time.
Has it pushed out a little bit maybe more enter into 2020. The answer is yes, right. I think we do have some customers that are still trying to figure out exactly how they're going to deploy certain things we've got.
Obviously, the the some of the Verizon permitting issues.
I've been very.
They have been prevalent and spoken about by many people. So we're seeing some of that as well. So I think were months, maybe behind where we originally thought.
Which.
In the overall scheme of things is insignificant, but yeah, we're probably a little bit lighter in the second half of 19 than we originally thought but it doesn't change our long term outlook of what we expect to happen in both wireline and wireless markets.
Thanks Jose.
Thank you Andy.
And our next question will come from Andy Wittmann with Baird.
Please go ahead.
Great. Thanks, I was going to ask a little bit more on electric transmission.
I think the commentary sounded quite positive there and and you guys have been talking about some of these.
I think youve called the larger awards that have been awarded but not yet signed.
I was just hoping for a little bit of a fresher than the number of awards potentially the size the wars at those.
Included in what needs to happen.
For those to come through I know you had when you first announced from a few quarters ago. You said, it's going to take some time, but little bit of time has passed since I was kind of hoping for an update us too.
How those are evolving and when those could wind up in backlog and then ultimately going into the ground.
Yes, so if you look at.
Backlog in transmission on a year over year basis at first blush. It looks like it was a reduction so last years from 632. This year's is for 89, it's and I think part of that story is we had a significant amount of Puerto Rico work, because we had one that large Puerto Rico contracts, there was about $250 million in that backlog associated with Puerto Rico. So when you back that out in the second half of 2018 and you compare it to 2019, we actually had a really nice year over year backlog growth sequential growth and if you backup Puerto Rico really strong year over year growth. Some of those contracts have come into fruition, which is whats driving backlog others. We're still waiting to finalize contracts. We feel we've got a chance to significantly increase backlog in the coming quarters in that segment.
Again, some of those jobs will start in 2020 some of those jobs.
We'll have very little work in 2020 and be more 2021 projects.
Bottom line is that market right now is doing really well, it's very healthy lot of projects are out there. We feel really good that we're going to win our share and that our business is going to grow.
In conjunction with that.
Great Thats all I had thank you.
Thank you Andy.
And our next question will come from Chad Dillard with Deutsche Bank.
Please go ahead.
Hi, good morning, guys.
Good morning, Chad.
So just wanted to ask a bigger picture question here.
So as the Fiveg rollout gain momentum.
What is the mix of work shift.
How is the mix of work shift from laying fiber on the ground to more aerial installation associated with the towers and small cells.
With that transition from a market share when they perspective from an attack.
And.
What that means from a margin perspective.
So its there they're all going to happen concurrently it's not like carriers are waiting for all of the fiber to get laid before they can start the rest of their work right. There is a significant amount of fiber in the ground already today in this country that people are trying to tap into to builds whether it's due to our work on the existing infrastructure to build or to build small cells. So the networks of tomorrow or going to incorporate a little bit of all of that right you're going to have to have macros in the macro the macro networks not going anywhere the macro networks going to touch.
The small cell network is really what's going to densify. The network and then you've got an enormous amount of fiber needs. Because now you have this new small cell network that has you know.
Hundreds of thousands if not millions of touch points across the country that have to be connected. So that's that's where the opportunity lies right and I think we've always been well positioned on the fiber side. We won our fair share of that the reality is when you think about pure wireless which is that we're I'd say the tower work in the small cell would work would fall we've been a market leader for a long time.
We think we're one of the very few if only wireless contractors in America today that has the capabilities of touching power poles of doing things associated with that the reality is that everybody is going to build a small cell network and a little bit of a different capacity. Some are going to use electrical distribution network summer you're going to use street light pole some are going to use their own pools that they create so the opportunities are there their vast they are very different they are complex, which is part of the reason that this the deployment has taken a little bit longer than some of the expected, but those are good things from us because the complexity and the challenges add to the need for customers to use large vendors with.
With a proven skill set which I think which I think we have so again very excited about what's coming.
And very excited about the way we play in the in that overall scheme and the.
The benefits, we bring to our customers.
That's helpful and you mentioned that.
Youre fully funded on oil and gas.
Large pipeline in 2020.
I was just curious to get a sense for just the character of that work.
How does the fixed price versus Reimbursable next step up versus 2019.
Hasn't just like a geographic mix differ versus 2019, and if you can share with us kind of how you're thinking about that and 2021.
And also can you quantify that the oil and gas slowdown in the quarter.
Yes, so on the.
Fixed price, we do very little work on pure fixed price most of the work that we do is unit price driven or it's.
Obviously in some of our larger project today, it's in cost Reimbursable, we don't expect a mix of contract types to change as we look in 2020 or 2021.
Our contracts again, Theres, a big difference between unit price and pure fixed price and fixed price or taken a lot of risk for anything that happens in unit price, you're kind of pricing for whatever changes happen on the job.
And then in reference to your your question on Closeouts, There was no abnormal closeouts or anything of that nature that drove our second quarter. I think it was consistent with the margin profile that we've been producing over a number of quarters and we expect that to continue.
Thank you.
Thanks.
And our next question will come from Adam Thalhimer with Thompson Davis.
Please go ahead, hey, good morning, guys straight quarter, Adam how are you.
Hey, how many crews have you added now on that.
Communication side and are you almost done with that.
You know I hope we're never done.
Because it means the market is getting stronger and bigger we've we're on pace to add what we've talked about in the past so we're still adding.
A few hundred.
People a quarter.
And I think that that trends going to continue at least through the balance of this year. So we didnt expect that to to stop we actually expect that to go all the way through 2019.
At this point you know some of those early ads that we made at the end of 18 are now becoming a little bit more proficient and were seeing that in the data and in the statistics. So we're feeling really good about the progress that we're making there, but thats something that we expect to continue through throughout all of 19.
Okay Thats helpful. Thanks, and then.
Lastly core.
TNT wireless wireline, what's what's the outlook.
There for the back half.
Yes, so for us.
Our our big business with 80 anti has been core wire wireless more so than core wireline.
TNT has slowed down some of their wireline spend for the second half of 19, it doesn't impact us greatly because we didnt quite frankly, we just.
It wasn't a huge market for us it affects us a little bit, but it wasn't a huge market.
Core wire wire less.
Should be significantly up versus where it was in 2018.
The wireless was a little disappointing in the first half.
So for us.
Well it was up strong double digits first quarter and second quarter.
So our wireless business is having a very good year from a revenue perspective.
We're making a lot of investments that are affecting margins, but not revenue.
Okay. Thanks.
All right. Thank you.
And our final question will come from Brent Thielman with da Davidson.
Please go ahead.
Thanks, Good morning, Congrats good morning.
Hi, Dave transmission market does seem like it's really heating up here I guess I'm curious kind of when do you feel like you start to hit capacity constraints in terms of the business you can take on that.
If you look a number of years back that was a much bigger market for us than it is today.
A lot of that key personnel remains with our company. So we feel really good about our ability to execute.
We've been talking about INR growth appetite and our growth prospects in that business for.
For a while now I think we were starting to see that come through backlog, which really supports.
I think our outlook. So we feel really good about what we're going after and our ability to execute on what we go after.
Okay.
And I guess, so much growth happening organically and Matt Im just curious how much of your time Youre devoting to looking at M&A prospects. These days and also I guess just given that.
In the public success. The company has had in the last several years and curious whether thats steering more sellers toward you than maybe what you've seen in the past.
It's an interesting question, we've definitely seen a much more active M&A funnel than I think we've we've seen in the last couple of years, we're actually seeing some.
Some more sizable and some very interesting prospects. So we are still spending time on that its always been part of our strategy. We havent been super active in the last couple of years, because we have been focused on meeting the organic growth opportunities and mostek and I think those continue.
One of the things that I'm really excited about in the quarter was we finally got.
Our cash flow dynamics back to normal, which gives us an enormous amount of flexibility to be more aggressive going forward to make decisions that increased shareholder value in those decisions can be anything like M&A or buybacks.
So you know talking about the cash and the cash is coming is very different than actually having the cash and normalizing our cash flow situation. So now that that's been normalized it allows us to focus on that and hopefully make the right decisions related to that so.
Pretty excited to be in that position.
Okay, great. Thank you.
Thank you.
And with no further questions I would like to turn the conference back to Jose Mas for any additional or closing remarks sure. So I'd like to thank everybody for their interest in Maastricht in their participation in today's call. This concludes our second quarter of 2019 earnings call.
And this concludes today's conference. Thank you for your participation and you may now disconnect.