QualTek Services Inc.

Good morning and welcome to Qualtech's third quarter 2022 earnings call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Michael Bowen. Thank you. Please go ahead, Mr. Bowen.

Thank you, operator, and good morning, everyone. Welcome to Qualtech's third quarter 2022 earnings call. Before we begin, I would like to remind everyone that we will be making forward-looking statements during today's call. Whether in prepared remarks or during the Q&A session, these forward-looking statements are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the risk factor section of our filings with the Securities and Exchange Commission, specifically in the company's forms 8K and 10K. Except as otherwise required by federal securities laws, Qualtech disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions, and circumstances. With us today is Scott Heisey, Qualtech's President and Chief Executive Officer, and Adam Spidler, Qualtech's Chief Financial Officer. The format of the call will be opening remarks from Scott, followed by a financial review from Adam. we will have a Q&A period following these updates. With that, I'll go ahead and turn things over to Scott. Scott?

Thanks, Michael, and good morning, everyone. On today's call, we will discuss our results for the third quarter of 2022, our outlook for the balance of the year, and early perspectives for 2023. To begin with, last month, Qualtech celebrated our 10th anniversary. Over the course of that 10-year period, The company has achieved organic growth of our base telecommunications business and strategic acquisitions, which have allowed us to extend our geographic footprint and add new and exciting service offerings, including recovery logistics and renewable energy support. We have built strong relationships with major blue chip Fortune 500 telecommunications and energy providers, and we are viewed as an essential player in many facets of the telecommunications industry. Within the past two years, we have weathered the COVID-19 pandemic and unprecedented inflation and transitioned into a public company, all while continuing to grow our backlog quarter over quarter. Since our inception, Qualtech has been agile and adaptable, and we will continue that trend as we enter our second year as a public company. I want to thank our customers and our employees for their hard work and partnership. Now transition into our third quarter results. During the quarter, we once again recorded record revenue with our third quarter topping 216 million. Total company revenue was up sequentially versus Q2 2022 by more than 17% and slightly above revenue from the prior year same quarter. A significant achievement given Q3 2021 revenue was heavily impacted by an active third quarter hurricane season. Revenue growth is primarily attributable to our telecommunications segment, which boasted top line results of 188.3 million, an increase of over 38% versus the prior year. Our renewables and recovery logistics revenue year over year was impacted by the general slowness in the renewables industry, coupled with the timing of 2022 hurricane season, with the major events of the season occurring much later than in previous years. We head into Q4 with a 24-month backlog of over 2.4 billion. While we have continued to experience significant top-line growth and an increase in backlog, we, like many companies, continue to combat wage and fuel inflation, which impacted our margins and overall profitability this year. Furthermore, as we quickly grow and address demand, we've incurred ramp-up related costs, which have impacted our profitability. Total company adjusted EBITDA for the quarter was 15.7 million, a decrease from the prior year. Same quarter, which is attributable to the timing of the 2022 hurricane season and inflationary pressures. We believe there are opportunities to improve our profitability, and we have taken several measures to do so going forward which I'll touch upon shortly. Yesterday, we issued updated guidance for the full year 2022 and expect revenue to range from 750 to 760 million, a 22% increase year over year. Our adjusted EBITDA will range from 50 to 55 million. When considering the incremental public company cost in 2022, our results will be roughly flat year over year. The updated guidance considered our year-to-date performance, timing and the extent of 2022 hurricane season and the inflationary pressures I just spoke about. Taking a look at each of our segments, beginning with telecom. Our telecom business continues to remain in extremely high demand as evidenced by our record revenue. As we discussed on our second quarter call, the industry was entering a period of significant growth due to 5G and fiber expansion. The availability of C-band licenses has increased our utilization in the Northeast, and we are now building at record pace. Expansion has also been consistent in our Midwest and Western markets, and our backlog continues to grow at the same time as the company records all-time high revenues. As we respond to our customers' strong demand for our services, we continue to have focus on our margins and profitability in telecom, which have been hampered in the current environment. To that end, We have worked with several of our customers on price, scope, and scale and delivery options. This includes successfully negotiating rate increases and more favorable payment terms with many of our customers, which we believe will benefit us in 2023. We believe that executing the right mix of our $2.4 billion backlog at the new pricing will improve our telecom margins. Moving to our renewables and recovery logistics segment. In previous years, the third quarter has been our most profitable time of year for our business, as the timing of the hurricane season has generated significant demand from our recovery logistics services. In 2022, a relatively quiet and delayed Q3 storm season drove significant variability year over year in recovery logistics. More specifically, our recovery logistics business was heavily deployed in September of 2021, following Hurricane Ida making U.S. landfall in late August. This resulted in sizable revenue and adjusted EBITDA in the third quarter of last year. During Q3 of 2022, Hurricane Ian made U.S. landfall in the last week of the quarter with the majority of our revenue generating activities occurring in Q4 and therefore causing variability when looking at Q3 2022 versus the same period prior year. Our recovery logistics business remains well positioned, and we expect our investments in assets, people, and relationships to provide future positive prospects as we look to expand into other non-storm related activities. We'll be agile with our service offerings, and we continue to explore opportunities to more regularly deploy this valuable asset base year round. As we have mentioned previously, the renewable energy industry has been impacted by regulatory delays and supply chain challenges that impacted 22. In the third quarter, these trends continued causing build plans to be pushed into 2023. We've recently begun to see increased bid activity and look forward to participating in new prospects in 2023 and 2024. Finally, We were supported by our senior lender in executing amendments to our ABL, which Adam will speak about in greater detail. We are analyzing ways to balance our unprecedented demand and growth strategy with our current capital structure and today's elevated interest rate environment. We continue to remain laser focused on balancing liquidity and cash management as we profitably convert our $2.4 billion backlog. In closing, Qualtech has continued to perform and deliver for its customers as we have throughout our 10-year history. Our customers remain committed to partner with us as they execute on their key objectives. As we head into the last quarter of 2022 and look towards 2023, we are focused on our backlog, customer relationships, and profitable delivery of services and look forward to continuing to work with our senior leadership and financial partners in positioning the company to execute on our future goals. With that, I will now turn it over to Adam Spittler, our Chief Financial Officer. Adam.

Thank you, Scott, and good morning, everyone. Today, I will cover our third quarter 2022 financial results. As indicated at the beginning of this call, our discussion of financial results will include non-GAAP adjusted EBITDA. Reconciliation and details of non-GAAP measures can be found in our press release. Turning now to third quarter results. Revenue for the quarter was $216.1 million, a 0.3% increase from third quarter 2021 revenue of $215.5 million. Our revenue growth continues to be impressive, and it is important to note that our Q3 2022 results were achieved without significant benefit from our recovery business, as a majority of our services to date have occurred after the third quarter. Net loss from continuing operations for the third quarter 2022 was $6.9 million versus net income of $14.5 million in the third quarter of 2021. Third quarter 2022 adjusted EBITDA was $15.7 million compared to $45.3 million for the third quarter of 2021. Comparative results are skewed due to this year's abnormally late season hurricane activity and also impacted by ongoing inflation, particularly related to wages and fuel costs. Sequentially, however, we achieved significant improvement from a net loss of $25.6 million in the prior quarter. While we expect to continue to improve margins into 2023 through price, scale, and scope changes, and our significant telecom ramp costs begin to level out, inflationary costs we and others have experienced will continue in the near term. I will now provide some detail on our segment results. Third quarter 2022 telecom revenue increased 38.9% to $188.3 million compared to $135.6 million for the third quarter of 2021. We are pleased to have grown top line revenue in each of our telecom service offerings with our wireless and wireline business reporting year over year revenue increases of 32.7% and 70.6% respectively. Third quarter 2022, telecom adjusted EBITDA was $14.1 million, an increase of 29.5% from the $10.9 million reported in the third quarter of 2021. Comparatively, on a year-over-year basis, our adjusted EBITDA margin was down slightly, and we attribute this decline to continued wage and fuel inflation, coupled with costs associated with our ramp-up in the 5G space. We continue to see robust demand for our wireline and wireless service offerings and believe that we are extremely well positioned to experience significant continued growth across all service offerings within our telecom segment. Third quarter 2022 renewable and recovery segment revenue was $27.8 million with adjusted EBITDA of $8.7 million, a decrease over the same period last year of revenue of $79.9 million and adjusted EBITDA of $38.2 million. The decrease in both revenue and adjusted EBITDA are primarily due to the variability and timing of significant events within our recovery business. To reiterate Scott's point earlier, in 2021, our recovery logistics services were deployed in response to Hurricane Ida beginning in late August, thus providing an entire month of recovery services being recorded in the third quarter of the prior year. Conversely, Hurricane Ian made U.S. landfall during the last week of September, therefore shifting the majority of recovery activities to the fourth quarter. Despite the shift in timing, our margins for our recovery business remain very strong and on par with those of the prior year. Third quarter 2022, corporate costs were $7 million. Our corporate costs for the quarter were 3.3% of revenue, a sequential improvement from 3.4% in the second quarter. We believe our corporate costs will approximate to this level for the near term. Now I will discuss a summary of our five largest customers for the third quarter 2022 as a percentage of revenue. AT&T was 38%, and our services for this provider include wireless, wireline, and recovery services. T-Mobile was 15%, Verizon was 14%, and Florida Power & Light and Comcast were each approximately 7% of revenue. This compares to the prior year period of Entergy at 32%, AT&T at 31%, T-Mobile at 11%, Verizon at 8%, and Blattner at 4%. Our top three customers accounted for 67.2% of our revenue in Q3 2022 versus 72.5% in Q3 2021. This reflects a 5.3% improvement in our customer diversification. We're extremely proud of our growth with our largest customers. AT&T revenue increased 26.2%, Verizon 76%, T-Mobile 42%, and Comcast 143% from the prior year period. We view this as a testament to our ability to provide trusted and reliable services as we help these important customers execute on crucial infrastructure built. As it relates to our backlog, we report a rolling two-year backlog on a quarterly basis. Total backlog was $2.4 billion at the end of Q3 2022, which is an increase versus the $2.3 billion that was reported at the end of our Q2 2022. Our increase in backlog is primarily related to increased visibility and awards within our telecom segment. Finally, during the quarter, we amended our facility with PNC to increase our credit line to $130 million each year between September 15th and December 31st. This additional liquidity helps the company in addressing the working capital needs that are traditionally associated with our recovery logistics business. This amendment demonstrates the longstanding relationship we have with our senior lender. I want to close with echoing what Scott mentioned earlier in his remarks. It's clear that demand is strong across all of our service offerings, and we remain committed to continuing to look for opportunities to maximize our profitability through partnering with our customers and other stakeholders. I will now turn the call back to Scott to conclude our prepared remarks. Scott?

Thanks, Adam. While 2022 has been a challenging year for profitability given the current economic environment, Qualtech has continued to perform at a high level for our customers as reflected in our strong revenue growth and increased backlog. We are encouraged by our customers' willingness to work with the industry on pricing, scale, and scope. We remain laser focused on executing our record $2.4 billion backlog as we work to return to normalized margin and profitability in 2023. This concludes our remarks, and I will now turn the call back to the operator for Q&A. Operator?

Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Tim Horan from Oppenheimer. Please go ahead. Your line is open.

Thanks a lot, guys. A couple of questions. One, can you talk about the timing of the price increases and what you're kind of expecting for EBITDA margins going forward? Secondly, I know you said you'd give a little bit more color in 2023. Can you give us a sense of revenue growth overall range maybe and what you expect margins can kind of be? And then third, the renewables business, can we get a sense of what type of revenue that could represent for the fourth quarter? And will that flow into, you know, into next year? And, you know, any sense of, yeah, any sense and color on the timing on the recovery business? Sorry, thanks.

Thanks, Tim.

So on the renewables piece, I'll take that first. We looked at that business all year as slowing and having a lot of projects that were sort of pushed to 23%. There were a lot of supply chain issues and regulatory issues which hampered that business. For us, as a player who supports a lot of the activity in the builds, we looked at that business as something we're excited to continue to build in, but more of a 2023 and 2024 opportunity for Qualtech. So we see that, we're seeing strong bid activity, and we're seeing other opportunities for Qualtech 2023 and 2024 in renewables. So we're excited about that business. It's just not a 2022 priority for us right now as the work has been pretty inconsistent. On the guidance for 2023, I think what we're focusing on right now with our customers is to look at our backlog, which continues to grow. We're looking at balancing wireless and wireline and other opportunities. within the renewable and the power segment and looking to maximize margin and growth. So what I'll say regarding 2023, we're still heavily in bid season and budget season, and we feel like we could probably give some better color and guidance on 2023, you know, later in this quarter. And then the last piece was from price increases. So this is something, you know, after we went public in Q2 and as we started to look at the significant ramp in 5G that really started late Q2 and Q3, we've been working with our customers on pricing throughout the whole year. With fuel inflation, and you think about what we do, we put people in trucks and use a lot of fuel, and wage inflation being pretty in an industry that has 0% unemployment. We've been working with our customers throughout the course of the year on pricing, on scale, on payment terms, and really it's the unprecedented demand and the growth that we're managing through. So a lot of the pricing initiatives that were early in the year where there are some opportunities to increase prices, but for the most part, a lot of the pricing and contracts that we have are resetting for 2023. And, you know, we'll feel the effects from a margin standpoint. I mean, when you think about margins, we've operated double digits for almost our whole entire existence. Last couple of years with growth and inflation, there's been a lot of pressure on that. We expect to move back to our normalized margins and continue to perform at previous levels in the coming years.

So just to be clear, you think you're going to get some significant price increases at the beginning of 23 kicking in? Is that, you know, fair to say that you can get back to your historical margin level?

Yeah. So we negotiated price increases, scope changes with our customers. There were some customers who were perhaps not as willing to look at pricing. And, you know, we're going to focus our efforts on our long-term partnerships and You know, from a perspective of wage inflation and fuel inflation, you know, we had to address margins with our customers. And as I said, and, you know, some of our peers have said on their calls as well, I'm encouraged by the reality of where margin pressures are and what work needs to be done and the labor rate in the industries being what they are. I feel like our customers have stepped up and supported growth initiatives because They have a lot of work and a lot of cases they have, you know, requirements to build. And I think we're all stepping up together to meet these challenges. And I feel confident that we're going to focus our efforts on returning our margins to normal levels.

And just a sense of timing, is that, you know, first quarter we get back to normal? Is it third quarter, you know, next year? Just a rough sense.

Yeah, I feel like in Q2 of next year, we're going to return to normal margin levels. Obviously, with Qualtech's business, those of us who are familiar with our story, we have a lot of winter markets. So typically speaking, we don't set a very high bar for Q1 because of seasonality and weather. But from a margin standpoint, the jobs that we are bidding and the work that we're converting from backlog, we're very focused on margin profile, profitability, and delivery of what our customers' expectations are.

And then on the recovery business on the hurricanes, can we get a sense of how large, you know, how big of a deal this recovery is for Ian and maybe Nicole and, you know, how long you think it'll last, you know, rough idea and maybe what kind of revenue that can represent for the fourth quarter?

Yeah, so we're still, you know, partially deployed and we're,

We're working down the hurricane, so we're not going to really dial that number in quite yet. When we get a little further into the quarter, we'll look at that and other opportunities to be able to talk about it a little better.

And, Tim, as Scott mentioned, we are still deployed, so we're just taking it on a day-by-day basis.

And any idea how much – well, can we get a sense of what this hurricane season was like? I know it was later, but versus last year? You know, do you think it's like, you know, half the overall impact, about the same, you know, to the infrastructure?

Yeah, so Tim, you can kind of back into the guidance, but as I mentioned, you know, there is some variability. We're still deployed, and at this point, we're just taking it on a day-by-day basis.

Got it, got it. And then last question, sorry for all the questions. Could you maybe just talk about the longer-term outlook? You know, when you look at the Verizon AT&T You know, they basically say CapEx is peaking over the next, you know, 12, 18 months and will decline from there. You know, I know they still have a lot of rural build-outs and other places to kind of go. But, you know, do you have a sense of how sustainable your, you know, wireless revenues are up at this relatively high level?

Yeah, so the one thing I'll say, Tim, is our customers are coming out with CapEx forecasts. that some of them are flat, some of them are decreasing in some ways. But the work that we're doing and the type of work that we're doing, either on the wireless side or placing fiber, that is pretty much committed within their CapEx. So we're not looking at backlog or budgets for the particular or specific work that we do is going down. The necessity to improve their networks and deploy fiber and change out equipment on cell towers, that demand is not decreasing. So we feel pretty confident that the portion of CapEx that we do for those customers will continue at these levels and greater. And the other portions of the CapEx that they have within their businesses, I can't speak to.

Understood. Thanks, Gus.

Our next question comes from Christian Schwab from Craig Hallam Capital. Please go ahead. Your line is open.

Hey, great. Just a few questions. Adam, just on the ABL, just to be clear on that, right, it's extended to $130 million from $70 million from September 15th to December 31st. Then it goes back to $70. Is that correct?

So the facility pre-amendment was $103.5 million. This amendment extends it to $130 million from September 15th through year-end, and then it does go back down to $103.5 million.

Great. And how much is on that, the Q finally tied off? How much do you have on the ABL currently at the end of the quarter?

Yeah, so there's about $102 million drawn on that. Obviously, there is a sizable portion related to the recovery business that we anticipate collecting in Q4.

Okay. Okay, great. And then in the telco business, are you guys assuming, you know, typical seasonality in Q4 for that business to be down, you know, 5% or 10%? Is that what we should be thinking?

Yeah, I think that's reasonable. You know, as Scott mentioned, Christian, you know, we do work in some cold weather markets. You know, so far, you know, it has been mild, but that could turn relatively quickly and have an impact.

Okay. Okay. I'm really confused on the backlog. You guys have, you know, call it 670 or 75 million in revenue this year, plus or minus in telecommunications, but 2.4 billion in backlog, which should lead to great visibility because it's kind of unprecedented versus trailing 12 versus your peers like DICOM and MassTech.

uh but yet you have no visibility on 23 because you have to wait for capex cycles i don't understand so so so christian just just to kind of put a finer point on that i mean if you look at the ramp in our revenue through you know 2022 obviously we did experience some significant growth in in both the wireless and wireline portion of the business You know, if you look at our CapEx and kind of the way it works out for 2023, you know, we do anticipate a similar step up in revenue. And the majority of the growth in our backlog over the last few quarters has been related to wireline programs.

The other thing, Christian, you did have an anomaly in 2022. We were issued a lot of work at the beginning of 2022, particularly in wireless and particularly around C-band. And although a lot of that work was issued to us, the licenses and when supply chains and commitments allowed us to start building was really, as you'll recall, mid-summer. So you sort of have an anomaly where our backlog is sort of outsized to our revenue run rate. We have no choice but to increase our revenue run rate and find a way to split that backlog in half. That's a 24-month backlog. We have to continue to grow and manage our growth and profitability and bring our crews up to speed to take down that backlog, which we've been doing. But I think from a standpoint of normalization, I can't really speak to how the other companies' work has flowed. I can tell you that our work, particularly in the Northeast, was slower getting going and As is typically the cycle in this industry, we were issued the work. There were four or five months of delays, and the next day everybody wants to know where our crews are and let's get going. So we've been responding to a pretty hefty ramp, and I think the Q3 numbers in telecom are sort of indicative that we're meeting the challenges of growing.

Do you guys have the capital to even, you know, work through that backlog in a material fashion in the next 24 months? So, I mean, should we assume that either the backlog, you know, work can't be accomplished in a two-year timeframe and a substantial decrease in backlog occurs versus a more substantial increase in revenue, you know, well above what you grew last year to get anywhere near covering that?

So I'll take that in two different parts, Christian. You know, obviously, you know, we continue to have robust growth in the business, which is a good problem to have, you know, and we're considering all options to maximize liquidity to execute on that backlog. You know, on the flip side, you know, we need to add people. We focus every single day on adding people, adding resources to help us execute that backlog.

Okay. Okay. I guess I'm kind of confused also on the conversation regarding, you know, how wage and fuel inflation, you know, surprised you somehow this quarter. You know, last quarter, you know, you guys suggested that you could, you know, get to double digit margins in the second half of the year. And you stated that you met with all your customers and had meaningful discussions about how to continue to organically build the business around existing locations and mentioned scale, et cetera, et cetera. And we missed it by miles.

But I don't understand how you can't get that right with a few days left in the quarter.

So to your question, Christian, and I appreciate the question, I wouldn't say we were necessarily surprised. I think as we were growing the business and demand continued and our customers shifted priorities of what we needed to build and how fast we had to ramp during the quarter. There were certainly inflationary and fuel pressures associated with the ramp and telecom. I think from a perspective of how we were ramping telecom, which, you know, our core business from inception of the company, I think that and then the you know, the slowness in Q3 of, you know, this particular storm season. I think that was the weight of where the blended margins ended up. But I think from a telecom perspective, you know, we've had great demand for our business. And in Q3, we have ramped significantly. I think Adam spoke to customer increases with all of our major customers year over year and what percentage of revenue they are. So The demand for our services from our largest customers in Q3 caused us to build and ramp fast. And as we spoke about with margins, there's a lot of pressure on margins, particularly with wage and fuel inflation that has continued through the course of this year. One thing I will tell you is historically, as we've continued to build this company since, you know, I started it, our focus has always been on margins and margin improvements. We've gone through a pretty rough period here with wage and fuel inflation, but we're laser focused on prioritizing our customers, the rates, our cost structure, and returning to normalized margins with the business.

Okay, great. No other questions. Thank you.

As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Our next question comes from Brett Thielman from DA Davidson. Please go ahead. Your line is open.

Good morning. This is John Ramirez for Brent. How are you?

Great. How are you?

Good. Regarding telecom, could you let me know or provide some color to see which part of the business are you seeing more pressures and margins between wireless and Waterland?

Thank you.

I'm actually really glad you asked that question because historically in the telecom business, there's been swings between wireless and wireline. And I'm sure all the analysts and those of us who have been in the industry for 30 years have seen. And I will tell you, there is an unprecedented demand for wireless right now and a labor shortage that have fueled a lot of growth. We see that continuing for a long time and we're working with our customers on scope and scale and pricing to make sure that there's a sufficient labor market to accomplish some some pretty healthy goals of all the carriers around 5g i know uh the word 5g is is a little tiresome for everyone because we talked about it for two years before it started but i can assure you we really have just started 5g in the last 12 months and there's a long way to go building out wireless. That being said, the profile and type of work and opportunities on the wireline fiber side are pretty substantial right now. We are moving to balance out wireline and wireless within Qualtech. I think you'll see our growth that Adam spoke about. I think our wireline growth Growth was 70% year over year. So we're looking to balance out and move to more wireline projects. Historically, Qualtech has been a significant wireline player throughout the different shifts. But there's also violent swings the other way in wireline sometimes where it gets slower. We don't see that for the foreseeable future. So we're going to move folks into wireline and continue to build as that margin

is is strong and opportunities where our customers are strong and really look to bounce out but historically we've been substantially larger and wireless than wireline and and just to clarify um so you you're seeing more pressional margins on wireline is that what you're saying or is Am I missing something here?

Yeah, I'll just be a little more clear then. There's more pressure on wireless than there is on wireline, and that's primarily due to a shortage of crews and some of the contracts having predated the current inflationary and recessionary conditions. As we move forward, obviously we're addressing wireless margins through pricing and efficiencies, but we're also seeing sort of a new and unprecedented demand for fiber construction and projects and you know from that we see opportunities you know just from the bids the margins are the margin profile of new bid activity is stronger so we'll balance out our business and you know i i think the best way to approach the telecom business is with a balanced approach qualtech has become pretty heavily shifted towards wireless as we're pretty good at and our demand has increased substantially, but we are looking to balance out wireless and wireline.

Okay, got it. Thank you for that. And just one more question. Will recovery logistics have a record year based on all the activity done to date?

As I mentioned earlier, we're still deployed. We're taking it on a day-to-day basis. There is a lot of variability, so it's just too early to tell.

And just to be clear, that is an extremely important and strong part of our business, and the foundation and the management team have done a tremendous job with that business, and we see significant opportunities for that segment to grow. Our leadership and recovery logistics also support all of our power initiatives and renewable initiatives in the future. So we feel very confident in that group. And as we go forward, that's a big part of our plans to reduce the seasonality piece of that business and run it more as a consistent growing segment of the company.

Got it. And if you don't mind, could I ask one more question regarding cash flow? Sure thing. I just wanted to... Yeah, thank you. So I know you say you're playing, you know, just going to see how you're still deploying and you want to see the variability going on, but could you perhaps provide some idea or some guidance into the cash flow coming in in the next Q4 and maybe...

does it bleed into 2023 or um or are you or is it the same answer providing that you're still seeing how much work there is and how much and that guides how much cash flow is coming in yeah so you know obviously we've we've been working with customers on on accelerating some payment terms just based on demand but you know if you look at our q3 cash flow you know obviously we mentioned q2 we we do anticipate having positive cash flow the back half of the year You know, in Q3, our wireless business grew 10.5% sequentially. So there was some build-in working capital in that business. And then our recovery business just related to events. You know, we had about a $12 million build that we anticipate collecting in Q4. And then the rest of the business was about $4 million of cash flow positive. So, you know, as you think about Q4, we do anticipate being pretty strongly cash flow positive.

Great. Thank you. Appreciate it.

Our next question comes from Tim Horan from Oppenheimer. Please go ahead. Your line is open.

Thanks, guys. Just a little bit more color on the backlog. The $2.4 billion, is that primarily telecom? Does that reflect future price increases? And can you give us maybe a range of what type of price increases you're expecting? And just sorry, lastly, on the backlog. I mean, so to meet this backlog, I mean, we're talking... all things being equal, telecom's got to be roughly a billion-dollar run rate in revenues the next 23, 24, unless I'm missing something. Thank you.

Yeah, Tim, I think that's right. And if you look at our Q3 here, our telecom business was about $188 million. We did start some large multi-year programs that we believe are at attractive margins in our wireline business that you haven't seen the full extent of. But, yeah, I mean, that is the math.

I think to answer your other question, our backlog is almost entirely telecom as we grow. There is a portion of renewables and a portion of power line in there, but they're small. So our telecom backlog reflects two years out. There's contracts we have that are three and four years, so it goes beyond that. But to your point, we are still ramping. We're still in a growth mode. There's still expectations of our customers for 2023. And in some cases, we have sites that go out into 2024 in terms of build schedules. So from a timing standpoint, the expectation from our customers is that we'll execute that backlog.

And does that backlog include the price increases you expect to get? And can you give us a range, you know, on the price increases at this point?

It does include price increases. You know, we're not going to disclose what the ranges are at this time as we are still in discussions with various customers.

Understood. Thank you.

Our next question comes from Christian Schwab from Craig Holland Capital. Please go ahead. Your line is open.

Hey, just, guys, can you give a rough estimate of how many

uh wireless crews you have currently and how many wireline crews you have currently so we we don't break that information out christian i wouldn't think that any any of our peers would either we're continuing to grow our workforce and our contractor workforce and our our balance of employees uh to contractors remains similar to others in the industry okay

I guess I think it's pretty obvious that, you know, the leading telco companies want to aggressively lay fiber, you know, kind of probably at unprecedented levels, actually. But, you know, wireline crews are very expensive. You know, it's my understanding it's a significant skill set that not everybody has, right? Wireless crews. can be taught as long as you're not afraid of heights to, you know, take something off and put something else on the tower. But wireline workers, you know, are expensive. Crews are expensive. Capital equipment is expensive. So I'm just confused on how you're going to grow that materially given your current cash situation.

So we've

Been involved in some of the largest construction builds for the last decade. And prior to that, our senior leadership team has worked with all the major cable operators and telecom operators building. And we're pulling from the same pool as our peers. A lot of this work is contracted out with companies with drills and equipment. From an in-house perspective, we have equipment and have, as needed, flexed and bought equipment as the industry and the build that we've committed to have warranted. So I feel like, you know, our opportunity is the same as anyone else's. And reputationally, you know, Qualtech being a veteran sensitive business, there's a lot of folks in our industry that have, you know, going to trust our relationship and our performance. And we typically do a really good job of developing relationships and have people working with us for long, you know, long terms in the geographies that we have.

And Christian, from a structural standpoint in the contracts, what we're seeing just given the overwhelming demand in the business is our customers are offering accelerated payment terms. where there's significantly less in carry during the build cycle than what you've seen historically.

Okay, great. Thanks. No other questions. Thank you.

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