MasTec, Inc.

Welcome to Mass Tech's second quarter 2021 earnings conference call initially broadcast on Friday, August 6, 2021. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to Mark Lewis, Mass Tech's Vice President of Investor Relations. Mark?

Thank you, Jennifer, and good morning, everyone. Welcome to Mass Tech's 2021 second quarter call. The following statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we may make certain statements that are forward-looking, such as statements regarding MOSFET's future results, plans, and anticipated trends in the industries where we operate. These forward-looking statements are the company's expectations on the day of the initial broadcast of this conference call, and the company does not undertake to update these expectations based on subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in our press releases and filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our underlying assumptions prove incorrect, actual results may differ significantly from the results expressed or applied in these communications. In today's remarks by management, we will be discussing adjusted financial metrics, reconciling ESPE's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings press release, our 10Q, or the posted PowerPoint presentations located at the investor news section of our website located at maastech.com. With us today, we have Jose Mas, our CEO, and George Pita, our CFO. The format of the call will be opening remarks and analysis by Jose, followed by a financial review from George. These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes. We have another great quarter and a lot of good things to talk about, so I'll go ahead and turn it over to Jose. Jose?

Thanks, Mark. Good morning, and welcome to MOSTECH's 2021 second quarter call. Today, I will be reviewing our second quarter results, as well as providing my outlook for the markets we serve. I'd like to thank you for joining us today, and I hope and pray that you and your loved ones are healthy and safe. I'd like to start today by highlighting how proud I am of the men and women of MOSTEC. Their sacrifices, resilience, creativity, and commitment continue to inspire me. Millions of families throughout the U.S. rely on the power, communications, entertainment, and other services we help our customers provide. Our team has again safely delivered, and I'd like to thank the men and women of MOSTEC for their sacrifices and their hard work. Now some second quarter highlights. Revenue for the quarter was $1,963,000,000. Adjusted EBITDA was $230,000,000. Adjusted earnings per share was $1.30. And backlog of quarter end was $9.2 billion, a sequential increase of nearly $1.4 billion. In summary, we had another excellent quarter and are on track for another great year. The highlight of our quarter was the continued acceleration of customer demands and opportunities as evidenced by our growing backlog. We truly believe we are at the beginning of what we think will be transformational changes across our segments. We see several different catalysts that could have a significant impact on our growth. Within our communications segment, catalysts include a ramp-up of 5G-related activity and spend, continued focus on expanding fiber networks both in rural communities and in major cities to support broadband services as well as wireless backhaul. An increased focus on smart city initiatives with increased availability of capital from both the public and private sector. In our electrical transmission and distribution segment, catalysts include Grid modernization, including significant investments for improved grid reliability and system hardening to better prepare for storms and fires. The growing need for new lines to tap into renewable rich geographies. And the focus on grid architecture related to growing electrical vehicle charging demand. In our clean energy and infrastructure segment, catalysts include growing focus on sustainability and climate initiatives, including zero carbon emission goals, significant investments in renewable power generation, including wind and solar, a focus on other clean energy generating fuels, including biomass, geothermal, and hydrogen, opportunities around carbon capture and the potential benefits, and finally the role of battery storage and its improving economics. We believe we are very well positioned to benefit from the growing and accelerating trends in our business segments. Changes in both the communication and power markets are accelerating, and so many of these changes directly impact the services we provide. The opportunities to be innovative and involved in this evolution in very early stages represents how far we've come as a business and the value that our customers know we can provide. For example, we've continued to make significant investments in increasing our capabilities to meet customer demand. Our team member count increased year over year from 18,000 to 26,500 team members at quarter end and was up sequentially by nearly 6,000 team members. Over the last few quarters, we've talked about our strategic longer-term goals and our future business mix. Considering the challenges in the oil and gas industries, we led out a path to achieving an annual revenue target of $10 billion with double-digit margins. One of our key highlights of 2020 was our ability to significantly grow non-oil and gas revenues and EBITDA. Our full-year guidance that we provided today reflects continued diversification as we expect our non-oil and gas business to grow over 20% in revenue and over 30% in EBITDA in 2021, with significant acceleration in the second half of 2021. While this is good progress, we know we can do better. While our communications segment is performing as expected financially, our transmission and clean energy segment have underperformed our margins. This underperformance in both segments has been limited to a small number of projects. More importantly, we are nearing completion on these projects and excluding these projects, the rest of the book of business is performing well. We expect sequential margin improvement in both segments in the third quarter with further improvements in the fourth quarter We expect to exit the year in both segments with strong momentum, improved margins, and significant opportunities for further growth in 2022. Now I'd like to cover some industry specifics. Our communications revenue for the quarter was $630 million, and margins improved 290 basis points sequentially. Highlights for the quarter included our growth with T-Mobile, whose revenues again increased fourfold over last year's second quarter and was Moss Tech's seventh largest customer for the quarter. Comcast's revenue was also very strong in the quarter, increasing over 30% from last year's second quarter. That growth was offset with expected declines in both our Verizon and AT&T business, which were both down over 25%. Both AT&T and Verizon were very vocal about the importance of the 5G spectrum auctions in their business. We expect revenues for these two customers, especially AT&T, to accelerate in the second half of the year with significant growth opportunities heading into 2022. Over the last few quarters, we've talked about the opportunities related to the Rural Digital Opportunity Fund, or RDOF. which will provide $20 billion of funding over the next 10 years to build and connect gigabit broadband speeds in underserved rural areas. And the 5G Fund for Rural America, which will provide up to $9 billion in funding over the next decade to bring 5G wireless broadband connectivity to rural America. Today, we are pleased to report the largest quarterly sequential segment backlog increase in the company's history. Communication segment backlog increased sequentially by $489 million and was driven by bookings across all segment end markets, including wireless, fiber deployments, and fulfillment work. We are in early stages of what we expect to be a very robust and growing telecom infrastructure market and feel we are very well positioned. Moving to our electrical transmission segment, revenue was $232 million versus $128 million in last year's second quarter. The increase was mostly due to the Intran acquisition, which contributed two months' worth of revenue. Intran performed well in the quarter and we're excited about their growing opportunities. Customer reaction to the acquisition has been very good, and we are seeing a growing number of opportunities for them for 2022 and beyond. We believe the changes in electrical distribution and transmission needs, led by grid modernizations and hardening, reliability, and renewable integration, coupled with the transition towards increased electrical vehicle usage, will have an enormous impact on the last mile distribution of electricity. Moving to our oil and gas pipeline segment, revenue was $621 million and margins remain strong. Our guidance assumed project activity will be pushed into 2022 because of regulatory delays. As a reminder, last year we forecasted a long-term recurring revenue target of $1.5 to $2 billion a year, assuming a continued depressed oil and gas market. As commodity prices have increased and maintained, At strong levels, we have seen an increase in customer requests as we are working with a number of customers repricing previous projects and are optimistic that we will see an uptick in opportunities heading into 2022. We continue to see strong demand for integrity services, gas distribution, and line replacement activity. We've also seen a number of developments around pipelines for both carbon capture and hydrogen. we are focused on continuing to diversify our revenues in this segment. Moving to our clean energy and infrastructure segment, revenue was $482 million for the second quarter. While we're focused on margin improvement, as I discussed earlier, opportunities continue to expand. Segment backlog at quarter end was at record levels, with a sequential increase of $320 million and a year-to-date increase of $680 million. With a new administration and a clear focus on sustainability and clean energy, we have seen a significant increase in planned clean energy investments from our customers as they improve their carbon footprint. As a leading clean energy contractor and partner, MOSTIC is uniquely positioned to benefit from these investments. We believe our diversification is our strength in this market, as we're capable of meeting any of our customers' demands. We are actively working on renewable projects, including wind, solar, and biomass, baseload gas generation projects, including dual-source hydrogen-capable projects, as well as our growing presence in the infrastructure market. To recap, we've had a solid first half of 2021 and are very excited about the opportunities in the markets we serve. Finally, I'd like to highlight the potential opportunities of an infrastructure bill. With a significant presence in the telecommunications market, which include 5G build-out capabilities, our involvement in maintaining and building the electrical grid, coupled with our exposure to the clean energy market, including wind, solar, biofuels, hydrogen, and storage, and our recent expansion into heavy infrastructure, including road and heavy civil, we feel we are uniquely positioned to benefit from potential infrastructure spend. We are confident we can hit our growth targets with solely private investments in infrastructure, but do recognize the potential acceleration in our markets with significant government spend. I'd like to again congratulate and thank the men and women of MOSTEC for their fantastic performance. I'm honored and privileged to lead such a great group. The men and women of MOSTEC are committed to the values of safety, environmental stewardship, integrity, honesty, and in providing our customers a great quality project at the best value. These traits have been recognized by our customers, and it's because of our people's great work that we've been able to deliver these outstanding financial results in a challenging environment and position ourselves for continued growth and success. I will now turn the call over to George for our financial review. George?

Thanks, Jose, and good morning, everyone. Today I'll cover second quarter financial results and our updated annual 2021 guidance expectations. As Mark indicated at the beginning of the call, our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA. Reconciliation and details of non-GAAP measures can be found on our press release, on our website, or in our SEC filings. In summary, we had strong second quarter results with revenue of approximately $1.96 billion, a 25% increase over last year. Adjusted EBITDA of approximately $230 million and adjusted EBITDA margin rate at 11.7% of revenue. This represented a 39% increase. in adjusted EBITDA dollars and a 120 basis point increase in adjusted EBITDA margin rate over last year's second quarter. Second quarter backlog of $9.2 billion represented an all-time record high for MOSTECH. Importantly, our non-oil and gas segment backlog sequentially increased $1.6 billion with record second quarter backlog in communications, clean energy and infrastructure, and electrical transmission. We believe this backlog growth supports our expectation that end market trends are significantly shifting and gathering momentum in these segments, affording MOSTECH significant future opportunity. Our continued focus on working capital management during 2021 has allowed us to easily fund organic working capital needs, while investing approximately $600 million in strategic acquisitions. As of the end of our second quarter, we maintained a strong balance sheet and capital structure with liquidity approximating $1.2 billion and comfortable leverage metrics. Now I will cover some more detail regarding our second quarter segment results and guidance expectations for the balance of 2021. Second quarter communications segment operations performed generally in line with our expectations, with revenue of $630 million, inclusive of expected temporary lower levels of wireless project activity prior to the upcoming construction ramp-up for C-band spectrum awards. Second quarter communications segment adjusted EBITDA margin rate was 11.5% of revenue, a 290 basis point improvement sequentially. Our annual 2021 communication segment expectation is that revenue will approximate $2.6 to $2.7 billion, with annual 2021 adjusted EBITDA margin rate improving 90 to 110 basis points over 2020 levels. Regarding some color on expectations during the second half of 2021, we expect third quarter year-over-year revenue growth in the mid to high single-digit range, with fourth quarter year-over-year revenue growth accelerating in the mid to high 20% range. We also expect that third quarter adjusted EBITDA margin rate will show slight sequential improvement with more substantial acceleration during the fourth quarter as segment revenue growth accelerates. Second quarter clean energy and infrastructure segment, or clean energy, revenue was $482 million, and adjusted EBITDA was approximately $16 million, or 3.2% of revenue. Second quarter revenue and operating results were negatively impacted by project startup delays and project inefficiencies. As we have mentioned before, we have expanded our operations and headcount in this segment very quickly in order to meet increasing demand, and with that expansion, we've experienced some growing pain inefficiencies. During the second quarter, we estimate the combination of startup delays and project inefficiencies, inclusive of weather, negatively impacted second quarter segment operating margins by 350 to 400 basis points. As we look forward, we expect improved performance during the second half of 2021, with second half revenue approximating $1.2 billion, slightly over a 40% increase compared to first half 2021 levels. with adjusted EBITDA margins in the range of 7% to 8% of revenue. And this is due to the leverage benefit of higher forecasted second half 2021 revenue levels and the benefit of exiting two underperforming projects, which are approximately 75% complete as of the end of the second quarter. We are very excited that Clean Energy's second quarter backlog reached a new all-time record of $1.7 billion, and believe that this segment is well positioned for significant long-term revenue growth and adjusted EBITDA margin rate improvement. Our annual 2021 clean energy segment expectation is that revenue will range between $2 to $2.1 billion, with annual 2021 adjusted EBITDA margin rate improvement in the 20 to 70 basis point range over the prior year. Regarding our second half 2021 clean energy adjusted EBITDA margin rate expectations, We expect sequential improvement in the third quarter as we continue to experience some impact of the two previously mentioned underperforming projects, which will generate revenue at no margin. Additionally, we anticipate that our highest margin performance will occur during the fourth quarter due to project mix, with a diminished and minimal impact of these two underperforming projects, as well as a heavier concentration of project completions expected during the fourth quarter. Second quarter oil and gas segment revenue was $621 million, and adjusted EBITDA was $138 million, generally in line with our expectation. We currently expect annual 2021 oil and gas segment revenue will range between $2.4 to $2.5 billion, with the continued expectation that annual 2021 adjusted EBITDA margin rate for this segment will be in the high teens range. This expectation includes the continued assumption that selected large project activity will move into 2022 due to permitting approval delays. This delay is expected to manifest itself during the fourth quarter, and thus, we expect strong year-over-year revenue growth in the third quarter with a lesser level of fourth quarter project activity as delayed project activity shifts into 2022. Second quarter electrical transmission segment revenue was $233 million, and adjusted EBITDA margin rate was 4% of revenue. Second quarter backlog was $1.3 billion, an approximate $800 million sequential increase. We completed the acquisition of Intran, which focuses primarily on electrical distribution, mid-quarter, and this added approximately $100 million of revenue to this segment during the quarter, as well as most of the segment's sequential backlog growth. Given the size and expanded offerings of entrance-acquired operations, we are evaluating a segment name change to better reflect our operations, and we expect to advise on our determination when we report third quarter results. In summary, entrance operations performed well and as expected during the partial quarter period, while our legacy electrical transmission operations were impacted by weather-related project inefficiencies and increased closeout costs on two projects, which are over 90% complete as of the end of the second quarter. These two projects negatively impacted second quarter electrical transmission segment operating results by approximately $8.5 million and 370 basis points. Looking forward to the balance of 2021, we expect annual 2021 revenue for the electrical transmission segment to approximate $950 million to $1 billion, and annual 2021 adjusted EBITDA margin rate to approximate 6.5% of revenue. Relative to the remainder of 2021 expectations, inclusive of interim, we anticipate that second half 2021 revenue levels will range in the low $600 million range, a year-over-year increase of approximately $350 million. Second half 2021 adjusted EBITDA margin rate for this segment is expected to approximate 8% of revenue due to the combination of improved legacy operations as we exit two underperforming projects and the benefit of higher margin interim MSA operations. We continue with the belief that multiple macro and market trends, including renewable power generation, increased distribution needs to support electric vehicle expansion, and required grid investments for storm and fire hardening, are continuing to develop and should provide our expanded segment operations substantial future growth opportunities. Now I will discuss a summary of our top 10 largest customers for the second quarter period as a percentage of revenue. Enbridge and AT&T were both 12% of revenue. AT&T revenue derived from wireless and wireline fiber services totaled approximately 9%, and install to the home services was approximately 3%. On a combined basis, these three separate service offerings totaled approximately 12% of our total revenue. As previously indicated, This revenue level included expected lower first half 2021 wireless services revenue as project activity has temporarily slowed while AT&T prepares to initiate C-band spectrum construction. Also, as a reminder, it is important to note that these offerings, while falling under one AT&T corporate umbrella, are managed and budgeted independently within the organization, giving us diversification within that corporate universe. Lastly, with AT&T's recent divestiture of its DirecTV operations, we will no longer report DirecTV installed to the home operations as a part of AT&T revenues starting next quarter. Next era was 8% of revenue, comprising services across multiple segments, including clean energy, communications, and electrical transmission. Ecotransmitstream and Comcast were each 5% of revenue, T-Mobile, Duke Energy, and Energy Transfer were each 3% of revenue, and Summit Midstream and Elite were each 2%. Individual construction projects comprised 68% of our second quarter revenue, with master service agreements comprising 32%. With the combination of an expected resurgence in wireless MSA work, coupled with the Intran acquisition, whose revenue is virtually all MSA-driven, Future MSA revenue is expected to increase as a percentage of our total revenue, highlighting an increased level of MOSTECH revenue expected to be derived on a recurring basis. Lastly, as we've indicated for years, backlog can be lumpy as large projects burn off each quarter and new large contract awards only come into backlog at a single point in time. At June 30, 2021, we had record total backlog of approximately $9.2 billion, up about $1 billion from second quarter last year, and up $1.3 billion sequentially from last quarter. Importantly, this backlog reflects record segment backlog levels across our non-oil and gas segments, namely communications, clean energy, and electrical transmission. We believe this demonstrates the strength of demand in our non-oil and gas segments, validating our expectation that accelerating end market trends in these segments will offer substantial growth opportunities for MOSTECH. Now I will discuss our cash flow, liquidity, working capital usage, and capital investments. During the second quarter, we easily funded working capital associated with over $120 million in organic revenue growth, as well as approximately $500 million in acquisition activity. We ended the quarter with $1.2 billion in liquidity and net debt, defined as total debt less cash and cash equivalents, at $1.3 billion, which equates to a very comfortable 1.4 times leverage metric. Our year-to-date 2021 cash provided by operating activities was $345 million, $118 million lower than the first half of 2020. This performance is impressive, as our first half 2021 cash flow includes working capital funding requirements associated with approximately $750 million in higher revenue levels when compared to last year, and thus, this performance was possible due to our strong working capital management. We ended the second quarter of 2021 with DSOs at 80 compared to 86 days at year-end 2020 and 90 days for the second quarter last year. and this level is slightly below our target DSO range in the mid to high 80s. In summary, we are proud of the strength, resilience, and consistency of MOSTECH's cash flow profile. As we look forward to the balance of 2021, we expect continued strong cash flow generation, despite the working capital associated with our 2021 revenue growth, and expect that annual 2021 free cash flow will once again exceed adjusted net income. Assuming no second half 2021 acquisition activity, net debt at year end is expected to approximate $1.1 billion, leaving us with ample liquidity and expected book leverage slightly over one times adjusted EBITDA. In summary, our long-term capital structure is extremely solid with low interest rates, no significant near-term maturities, and ample liquidity. This combination gives us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value. Moving to our 2021 annual guidance view, we project annual 2021 revenue of $8.1 billion, with adjusted EBITDA of $930 million, or 11.5% of revenue, and adjusted diluted earnings of $5.45 per share. Our current view represents a slight decrease in the annual 2021 revenue expectation, primarily due to some project activity slippage to 2022 in communications and clean energy, while reaffirming the annual adjusted EBITDA view of $930 million and increasing our adjusted diluted earnings per share by $0.05 to $5.45 per share. The increase in adjusted diluted earnings per share is primarily due to lower expected interest and income tax expenses. As we have previously provided some color regarding our segment expectations, I will now briefly cover some other guidance expectations. We anticipate net cash capex spending in 2021 at approximately $120 million, with an additional $160 to $180 million to be incurred under finance leases and This expectation is inclusive of expected capital additions for first half 2021 acquisitions. As we have previously indicated, as our end market operations shift with non-oil and gas segments becoming a larger portion of our overall revenue, our capital spending profile should reduce as the oil and gas segment has historically required the largest level of capital investment. We expect annual 2021 interest expense levels to approximate $56 million, with this level including approximately $600 million in acquisitions funding activity during the first half of 2021. For modeling purposes, our estimate for 2021 share count continues at 74 million shares. We expect annual 2021 depreciation expense to approximate 4.2% of revenue, inclusive of first half 21 acquisition activity. As we have previously indicated, this expectation includes an increased level of 2021 oil and gas segment depreciation expense when compared to 2020 as we are utilizing conservative depreciation life and salvage value estimates on previous capital additions to protect against potential market uncertainties. Given these trends, we anticipate that next year annual 2022 depreciation expense as a percentage of revenue will decrease when compared to 21 levels and approximate 3.5% of revenue. We expect annual 2021 corporate segment adjusted EBITDA to be a net cost of approximately 1% of overall revenue. And lastly, we expect that annual 2021 adjusted income tax rate will range between 24 to 25%, with the expectation that the third quarter tax rate may be slightly lower than the annual rate. Our third quarter revenue expectation is $2.3 billion, with adjusted EBITDA of $267 million, or 11.6% of revenue, and earnings guidance at $1.71 per adjusted diluted share. This concludes our prepared remarks, and we'll now turn the call back to the operator for questions and answers. Operator?

Yes, thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. Please limit yourself to one question and one follow-up. If you are using a speakerphone, Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll first go to Noel Diltz with Stifel.

Hi, guys. Good morning. Morning, Noel. Morning. I was hoping we could dig into communications a little bit more. First, I'm curious if you're starting to see the acceleration that would help to drive that third quarter mid to high single-digit growth rate you're talking about, or if that's really dependent on activity picking up next month. And second, I'm curious how you're thinking about 2022 at this point. It seems like your fourth quarter Guidance would get you pretty close to a $3 billion number, but if you could kind of give us some thoughts on how you're thinking about 22, both from a revenue and a margin perspective, that would be great. Thanks.

Yeah, sure, Noelle. So, I mean, I think we came into the year knowing that the first half was going to be somewhat challenged from a revenue perspective, considering what was going on with the spectrum auctions. If you look at our first half of the year, organically, we're down about 7% in that business. most of that coming from the wireless side of the business with some of the delays from some of our bigger customers. When you look at our second half, we're modeling about a 15% year-over-year increase with more of that coming in the fourth quarter than the third quarter, and you're right. I mean, if you take the revenue levels in the fourth quarter and you kind of annualize them out, you know, we start getting really close to that number. I think there's going to be the opportunity to further grow from there, so I think if you look at the street estimates that are out there today on the comp side, we obviously haven't given guidance, but I think it's about $3.1 billion for next year. I think we're comfortable with that. I think that when you look at the backlog increase that we've had in communications, I think that's probably one of the highlights of our quarter. I think the opportunity for further backlog growth exists in the business. I think we, to be honest, I don't think we've ever seen the level of activity that we're seeing today, and I think it's only going to going to escalate. I think so many people are still in very early stages of their planning out for 22 and beyond. And again, I think we're positioned really well. I think we're in a great spot, and I think we're going to continue to see the opportunity to continue to grow that business pretty significantly in the coming years.

Okay, great. Thanks. And then I wanted to shift over to transmission and clean energy. Obviously, really great backlog growth there. You mentioned a few projects having some challenges. What I'm curious about is if there have been any changes in your bidding processes, your contract evaluation, management. Is there anything you can kind of point to that can give us some confidence that the rest of the book of business will deliver to your margin targets? Thanks.

Sure. They're both a little different, right? If you think about clean energy, we've had unbelievable growth over the last three or four years. It's hard to imagine, but a few years ago, that business was a $300 million business and This year it will exceed $2 billion and it should have a lot of growth in 2022. So we've come a long way. We've obviously had a lot of growth pains that have manifested themselves here more recently. We're not happy about it. I think that we're confident that we've got it under control and we've mitigated these issues from happening in the future. But I think transmission is similar. We've had a mixed change in business there over the years. I think we've started to grow that a little bit more organically. We're having some of the same issues. We're going through somewhat of a transformation in Maastricht. We've talked a lot about it. I think that we've got incredible opportunities. We're obviously trying to grow our market share as much as we can. And with that, again, we've had some pains. We're paying for it. I think that the bright strategic investment is long-term. And I think we're mitigating as best as we can. And as we look into the third and fourth quarter, I think you'll start to see improvements. I think George laid it out really well in his script. but in both businesses we expect improvement in Q3. We expect being more close to normal in Q4. You truly back out a couple of projects in each of those that we've had issues with, and the rest of the business is looking really good, so we need to deliver across the board, and I think if we do, you'll see a substantial change in our financial model, and I think it'll make it a lot easier for everybody to understand what we're trying to accomplish long term.

Great. Thank you.

Thanks, Noel.

We'll go next to Andy Kaplowitz with Citigroup.

Hey, good morning, guys.

Hey, good morning, Andy.

Jose, so maybe just following up on Noel's question, but taking a sort of bigger picture to the company as you go, I mean, you did give us that $9 billion target for 22. So when you think about the overall businesses, obviously, you know, supply chain, COVID issues, labor availability have sort of, you know, been an issue here over the last quarter for most companies, but also there's a lot higher commodity prices. So, you know, do you get to that $9 billion maybe a different way? Do you get there through higher oil and gas versus clean energy? Any more commentary you give us would be helpful.

Look, I think when we think about 2022, and again, we haven't given guidance, but obviously, you know, estimates are out there and we track and follow them. You know, I think I think consensus is around $9 billion today. I think that it's with the reduction in oil and gas of about 20% to 25% from where it will be in 2021, right? And we kind of agree with that. We think it's attainable. For us to hit that, our non-oil and gas businesses have to grow 15%, 20% and 22%, which we think, again, is very feasible relative to the opportunities and the backlog growth we're seeing. When you look at the margin profile of the business next year from a consensus perspective, we expect oil and gas profits to come down. This year, non-oil and gas profits are growing about 30%. We actually expect them to grow closer to 50% next year. So it kind of lines up with the expectations for 22 where they're at, but I think that what we have to keep in mind is what it means for the future. If we're growing revenues at 15% and non-oil and gas margins at 40%, 50% next year, What that means for 23 is a pretty awesome story, right? So we would expect 2023 revenues to grow substantially more than 22 off of 21 because of the normalization of oil and gas, and we would expect the same on the margin side. So while a $9 billion target for 22 is reasonable, in reality, the growth profile that we should experience in 23 exceeds the growth profile that we should exceed in 22. And again, I think that the backlog growth that we're seeing, the opportunities that we're seeing, the way that our business is transforming, Before our eyes, I think it bodes well, and I think it supports that story, and I think we're very confident about it. There's no question that today our customers are worried about resources. I think it's creating a lot of opportunities for companies like ours. There's no doubt in my mind that customers think scale is extremely important, as do we. I think scale is going to be the name of the game for the next few years. That's why we highlighted today our team member growth. I mean, it's quite remarkable. We added 8,500 team members in the last year. We added 6,000 team members sequentially, some of it through acquisitions, most of it, or let's say half of it through acquisitions, half of it organically. We're proud of that, right? That's obviously going to create some pains in the short term, which we felt, but long term it positions us incredibly well to continue to take advantage of the growth in our market.

Maybe for a follow-up, I'd just ask you, Jose, the ability to sort of manage this and continue to add to the M&A pipeline. Maybe you can talk about sort of what you see out there. Net leverage is obviously still really low, but you've already done a lot of deals here over the last two years. So how much more could you do before sort of management gets strained of the portfolio, as you said, getting so much larger? And do you expect to continue to do deals here this year with your good balance sheet?

Something we're very mindful of. Obviously, it depends on what you're buying. I don't think we're in a position today to do picture uppers. We've got a lot on our plate, but there's a lot of good companies out there that I think add a lot of value. I personally believe that we're going to see significant consolidation in our space. And again, I think it's because of scale. I think scale has never mattered more in our business, in my opinion, from a customer perspective. So there's lots of small, medium, and large-sized businesses that are out there. I think our M&A funnel has never been as full as it is today, so we've got to find the right mix of opportunity and value that we think increases shareholder value. We think it's out there. We do think we'll be more active in the second half of the year. Obviously, all of our commentary is around what we think we can do organically and But there are opportunities, and we think we've got the ability to do the right deals, and that's really what we're focused on.

We'll go next to Mark Bianche with Cowan & Company.

Thank you. I wanted to start with what's in the infrastructure bill here and your comment earlier about how you think you can kind of hit your targets with private spend. I'm curious how those targets change as we start to layer in some of this upside from the infrastructure bill. And also, what do you think the timeline is to get better clarity on that? Will we hear about that as early as the beginning of 22 or what are your thoughts on that?

Yeah, Mark, it's a great question. I think it's obviously something we're very bullish about. It's great for our business. I think when you read the infrastructure bill and you almost go through every line of it and it impacts MOSDEC in some way, right? I think we've done a great job of diversifying ourselves. And quite frankly, I mean, the infrastructure bill almost feels at times that it was written for us. With that said, I think that we can't get ahead of ourselves. That money takes time to work itself through the process. We wouldn't expect significant contributions from that in 2022. We think it's probably more of a 2023 event. And there's lots of unknowns. There's a lot of credit potential opportunities there that might expedite some of that. So we've got a lot of customers that are paying attention and are obviously trying to to see how it affects their business and ways in which it could help them. And they're lobbying for that and they're pushing for that. So I do think there's a possibility of us seeing some activity in 22, but it's more likely 23, and that's how we're viewing it. So as we think about our 22 book of business and what we're doing to accomplish there, while it's great and it's great to have in the background, it's not something that we think we need to be able to accomplish these numbers we've talked about. Obviously, if it comes... You know, it's going to have a big impact on our business. If it comes sooner, it's going to have a big impact on our business. But I don't think we're ready to really kind of put numbers to it yet.

Yep. Makes sense. I wanted to switch over to oil and gas. And you mentioned about talking to customers about repricing some projects. I'm curious if that. changes the longer term outlook for margins in the business. I think you've previously talked about high teens to low 20s as sort of the mid-cycle margin here. Do you think that's still the right margin? If I kind of look at what the guidance implies for the back half of the year here, we're probably in the mid-teens or so. So maybe if you could just help talk about that aspect.

Yeah, you're right. So our second half guidance is mid-teens in margin. I think if you, as we're thinking about 22 today, we're pushing that forward into 22. So everything we're doing internally is based on that, you know, billion five to $2 billion opportunity at the mid-teens rate. You know, obviously, as we get more comfortable, we're probably at the higher end of that, hopefully, as the year goes on. I think, you know, beyond 22, I do think a lot of these things are going to present themselves, right, whether it's carbon capture or hydrogen opportunities related to pipeline. I think that Between what's happening with commodity prices and between what's happening with new technologies, I think the longer-term outlook for our pipeline business is dramatically improved over where it was six or 12 months ago. There's no doubt in my mind about that. I think it's going to be a great business once again, and I think we'll end up doing really well. But I think we're going to be more moderate for 2022. I think our expectations for 2022 are going to be a little bit more moderate. And, you know, we're hopeful that – and we planned our business around, you know, those ranges to the extent that any of these things happen and come through. And then, obviously, it'll be upside to that business, both from a revenue perspective and probably from a margin perspective as well.

We'll go next to Jamie Cook with Credit Suisse.

Good morning.

Sorry, can you hear me?

Two questions, I guess.

Sorry, I'm managing multiple earnings call tiers. I guess my first question is, obviously, the top line growth has been great. You talked about the $10 billion sort of medium term target that you put out there. So that looks very achievable. I'm just wondering if how you're thinking about the profit profile by segment, like whether or you know, the profile mix changes, whether oil and gas is going to be higher just as the margins in that business continues to do better relative to where you were historically. So one, if you could talk to that. And then two, on electric transmission and clean energy and infrastructure, just wondering if some of the backlog growth that you've seen, which has obviously been great, is the margin profile of that business or the terms and conditions different than what we have been seeing, which would support higher margins as you think about 2022 and beyond? Thanks.

Yeah, so, Jamie, again, if we go through our businesses, right, and we look at our comm business, we expect to end this year, you know, just, you know, right at about 12 or just under 12% full-year margins. I think when you look at the growth that we're seeing in the scale and obviously the utilization rates that we expect going into 22, we're probably expecting a further margin improvement in that business, so let's call it 13 points, which is kind of where consensus is today. We think that's an achievable target and one that obviously should improve as scale continues to increase, so we feel really comfortable about that. When we think about oil and gas, again, we've talked about mid-teens for 22 and beyond. Again, we've laid out, I think today, a lot of things that could potentially improve that over time, and we're feeling better about it, but we're not ready to commit to that. When you look at what's happened in our transmission business, and again, I think if you back out some of these issues that we've had and you look at The general book of business, obviously Intran's been a great addition to that segment, and it's performing extremely well. But all in, you know, with the exclusion of a couple projects, we would have been closer to 8%, 7.5%, 8% for the second quarter. And we think that number improves. Intran performs at a higher number than that. So as long as we can get our base business to those kind of levels, we ultimately think that that's a double-digit business. We've said that for a long time. We think that's achievable. We think we can achieve that as early as 2022. We'll see significant improvements in that business as we exit the year. Again, we should see improvements in Q3 with further improvements in Q4. But that's the profile of our expectation. And then when you look at clean energy, it's kind of a similar story, right? If you kind of normalize for the issues that we saw as George laid out, it would have added another three and a half points or so to margin. I think we'll see some of that come back in Q3. I think we can exit the year at, you know, a margin profile that's closer to that. You know, we've talked about that business being, you know, a high single-digit margin business. I think, you know, as we start thinking about 22, you know, that 8% range or somewhere around that 8% range is probably our initial expectation. There's a lot of things that can make that better, but obviously we haven't been there, so we need to deliver. But that's kind of the expectation in the short term. And then I think as you think about 23 and beyond as we continue to grow, all of those margin profiles should slightly improve with what's happening in the market.

Okay, thank you.

Thanks, Jamie.

We'll go next to Stephen Fisher with UBS.

Thanks. Good morning. Just want to follow up on some of that question from Jamie. I mean, these new solar projects that you're putting into the clean energy business, they do come with a bit of a learning curve and you have likely factored that into your margins so far. Just curious if you could talk a bit about how that experience is playing out after a couple of good quarters of bookings, how you're managing that learning curve and kind of what you're planning for for the next couple of quarters.

Yeah, look, I think we're, you know, at this point, I think we're a substantial contractor in any of these businesses, right? You know, we've now performed a couple hundred million dollars of solar work. We've got a lot more to perform. It's a rapidly growing piece of our business. We obviously have projects that we've executed and done very well on, and we've had projects that we've executed and haven't done well on. I think the most important part is we know exactly when we haven't executed why, You know, we kind of lived this in the oil and gas business many years ago, right? You take the lessons learned, you build them into your contracts, you understand what the risks are, you start doing a much better job of mitigating the type of projects that you work on. So part of this is, as much as anything else, is being selective about the customers and the particular projects that you work on. You know, some of that takes time to learn. Unfortunately, I think we've had to learn some of that the hard way, but I think we've We've learned a ton. We've changed what we do because of it. We've changed the type of projects that we're chasing because of it. We're changing contract structures because of it. So I think it'll prove out. Again, the proof is in the pudding. We've got to deliver. We can't talk about it. We've just got to deliver, and we understand that, and we accept that. But it's also important to kind of communicate why we think we've had the issues and what we're doing about it, and I promise you we're hyper-focused on that here. We know... every single project, what every single issue is, and how we're mitigating both on the existing projects as we close them out, and more importantly, how we're mitigating these things for them not to happen again.

Fair enough. And then I know the timing of bookings is always hard to project, but really just curious how you're thinking about organic book-to-bill in the second half of the year, just trying to gauge some of the lumpiness that may be there in your various segments.

Look, again, it was the strength of the quarter in our minds. Oil and gas bookings went down, but if you look at the rest of the non-oil and gas business, they were up about $1.6 billion for the quarter. About half of that came from the interim acquisition. The rest of it was organic, $487 million on comms, $320 million on clean energy. There is no doubt in my mind that in our non-oil and gas business, we haven't hit peak backlog in any of those segments by any stretch of the imagination. So I fully expect backlog to probably significantly increase in all of those. It's not going to be linear, right? Third quarter is a huge quarter for us from a revenue perspective, and backlog tends to fall in in lumpy cycles. It could grow in Q3, but there's no doubt that I know over time it will grow. Pinpointing exactly when they grow and based on awards and based on what we're expecting, we'll see. We have a lot out there today that we're negotiating, bidding, we feel really good about. But again, whether that hits in one particular quarter or another, it's hard to forecast. But I think the trend line of backlog is going to be excellent for a long time, and we'll see how it plays out.

Terrific.

Thank you.

Thanks, Steve.

We'll go next to Brent Zillman with B.A. Davidson.

Thank you. Good morning. Hey, Jose, on pipeline, just given some of the positive customer discussions you talked about in the opening commentary, do you think bookings could begin to accelerate here in the second half? And then just wanted to get a feel for the carbon capture and hydrogen opportunities. And when do you think that might become impactful to the segment?

Yeah, look, I think a lot of the discussions are about what's going to happen in 22 and beyond. So I do think that We're going to have an opportunity, especially in the second half of 22, to see acceleration. So I wouldn't expect backlog to really meaningfully change in any positive way probably until much closer to that period, probably the first half of 22. So I don't think it's something that's imminent. But it's obviously positive and something we're pretty excited about. As we think about the new technologies, I mean, there's already name projects out there that are in the thousands of miles on both of those issues. It's unbelievably meaningful to the industry. It will have a massive impact. There's still a lot of unknowns around those and what ultimately happens. I think you can find articles around the infrastructure bill and potential funding sources within the infrastructure bill to help some of those get off the ground, so it's interesting. But again, it's relatively early, so I think that more meaningfully impacts 2023 and beyond more than it does 2022.

Appreciate that. And then the massive bookings in clean energy, you do a lot of different things in that business. Can you just talk about some of the things that are really driving it? I've heard wind's a little bit slower, but solar and other areas are really strong. I'm just curious kind of what's really fueling that right now.

Yeah, look, again, I mean, I think that We're seeing a transformation of electricity generation before our eyes, right? Customers are looking at all different types of new initiatives. You've got, you know, from obviously all the different renewable sources, and I think they're all doing well. I think even wind is holding in a lot better than people thought. The solar business is growing like crazy. A lot of the alternative fuels are things that there's an enormous amount of focus and investment on. You've got carbon capture aside from just the pipelines, what's happening in the whole side of that business. You have the move to hydrogen. There's activity everywhere. We've picked up a little bit of work that's pretty broad-based and diverse. We're excited about that. The crazy part is I think we're just scratching the surface. I think we're going to see, again, further significant increases to backlog over time. And, you know, the opportunity to grow that business and to significantly impact the revenues of that business are probably greater than anything else that we've got in the company.

We'll go next to Adam Hallheimer with Thompson Davidson.

Hey, good morning, guys. Just one from me. Jose, on the C-band build, once that gets started, how long do you think it lasts? And can you compare that build to prior wireless cycles?

Yeah, Adam, thanks for the question. I think when you think about, you know, 5G in general, right, and the differences between 5G and what we've historically seen is historically, you know, the wireless buildouts have been, you know, a macro tower initiative. So you think about, you know, the big sites that you see, the rooftops that you see, and, you know, the antenna changeouts and the wiring that's associated with that. And then you move to 5G, and 5G is the true densification of the network, which is where you get into the C-band and you get into these small cells. And when you actually sift through it and really understand it, it's pretty much an antenna every 400 feet. And that's almost unfathomable to think about, but that's ultimately what has to happen. to your question of size and scale, it's not anywhere near anything that's ever been done before. It's from a network element perspective, it's multiples of anything that's ever been tried before. And then you plop on top of that the fact that it isn't good with building penetration and now you need in-building solutions everywhere. In addition to that, it just further makes it more complex and makes the networks more complex, makes the The whole integration of the network is more complex. For us, it's super exciting because there's lots of different avenues where we can work and lots of different avenues where we think we can win business and grow our business. It's completely different than any previous technology shift in the wireless side. For all intents and purposes, it really is just starting. It's going to morph over a long period of time. This is not a short cycle. This is going to be a really long cycle. So, again, it's kind of apples and oranges from what we've done in the past. But I think, again, we've positioned ourselves over the last few years to really, you know, grow our resources and, more importantly, grow our capabilities. So today we feel like, you know, from RF engineering all the way to optimization and integration, which is on the back end, you know, we're capable of supporting our customers. We're capable of supporting our customers at scale. And, again, I think that's going to be very meaningful and prove to be very beneficial to Maastricht over time.

Thanks, Jose. Thanks, Adam.

We'll go next to Minto with B. Riley Securities.

Good morning, Jose. How are you? Good. Well, most of my questions have been answered. I just have one question just regarding your M&A pipeline. You definitely mentioned that it's as strong as it's ever been. Given the recent acquisitions that you've done in the first half of this year and even last year, I was just wondering if you could talk a little bit about where you are most focused in the near term?

Look, it's pretty broad-based. I think we're obviously focused on our non-oil and gas businesses. So whether it's communications, the electric grid, or clean energy, those are the three areas where we're most focused. We are seeing opportunities across all of them, which is great. We're seeing good opportunities across all of them. And I think at the end of the day, you know, for us, it's a determination about, you know, where's the right, you know, value versus opportunity mix, right? So, you know, where are the companies where we think that we can bring tremendous value to based on what the market is doing? And how does it benefit, you know, how do we benefit both parties in that? And ultimately, if we can find that formula and we think, you know, again, that we're getting, we've got the ability to significantly grow shareholder value because of them, and then we'll do them. So that's where we're at in the valuation process. Again, there's a lot there. We don't need to do a deal to be successful. We don't need to do a deal to do what we talked about. But, again, I'm personally of the belief that we're going to see an unbelievable amount of consolidation within our peer group and within what we do. And I ultimately think it's important because I think the name of the game is going to be scale, and those that have scale are going to be extremely successful.

Great. Thank you.

Good luck with the rest of the year.

Appreciate it.

We will take our last question from Sean Eastman with KeyBank Capital Markets.

Hi, guys. I like this save the best for last approach to the earnings calls here. All right, Sean. We'll keep it that way then. So maybe just to expand on the comments on scale, you've mentioned a few times on the call here, Jose. Maybe... commenting on that relative to the comms margin trajectory. So, you know, that 13% for next year, expanding on that in 23, you know, those are going to kind of be new highs for that business, if I'm not mistaken. So, you know, is most of that just a utilization of the specialized labor force there? Is there... is there a scale element or a differentiation element that's a component of that bridge from where we are today?

I think it's everything you just talked about, right? There's no question in our minds that scale adds efficiency to the business, and in that efficiency, hopefully customers benefit from it to some extent, and we benefit to some extent, right? So part of our pitch to our customers is, look, The amount of work that's being planned in the industry is almost difficult to imagine how it all gets done. I know our customers are worried about that, so lock your resources up early. Obviously, in exchange for locking up your resources early, we try to work with our customers on pricing. The earlier we can get involved, the more costs we feel we can take out of the business to support our customers. But that improves margins, right, because scale improves margins. You have less, you know, indirect and fixed costs associated with the revenue growth. Every dollar of revenue generation of growth, you know, brings with it an associated slightly higher level of margin, which ultimately impacts total margin. I think we've demonstrated over the last three years our capabilities of improving margins in a growing environment, and there's no reason that that should stop, right? So while I think this year our margin performance in the business relative to what's happened in the business this year is going to be really strong. I think, again, we'll improve on that next year, and there's no reason it shouldn't continue to improve based on the market dynamics and what's coming down.

Okay, got it. And to the extent you could comment, I mean, what's the plan of attack on the in-trend kind of revenue synergy growth story? Any color there would be quite interesting. Okay. When you say plan of attack, can you elaborate a little bit?

Well, I mean, you have a track record of... What their growth profile should be? Yeah, yeah. Yeah, look, it's an amazing business, right? And it's a business, again, today that, you know, it's changing. Networks, you know, all of our customers across the country are trying to figure out, you know, how they strengthen their networks to deal with everything, right? Storms, fires, electric vehicle issues, right? So all of these things are creating... huge needs and stress on the electrical grid that has to be addressed. When you look at Intran, they're our union distribution workforce. It's a great market. I think a lot of our peers have talked about the market. They're in a great spot. We've heard a lot about what PG&E's plans are over the coming years. PG&E is their second largest customer. It has dramatic growth opportunities for them, as do some of their other customers. I think the acquisition has been viewed incredibly well by their customers. I think, again, not to belabor the point, but it's about scale. I think customers know that. I think with what we're able to add for Intran, it's all about scale. It's all about the ability to invest in the business and help them grow. And I think not much different than a lot of the previous acquisitions that we've done that have had a lot of success. I think their opportunity to grow is and our ability to help them grow really matches a lot of the bigger acquisitions that we've done in the past. So we've got great hopes for them. We think they've got a great management team. We think they have the ability to significantly grow their business in the coming years, and we look forward to helping them do that.

Very helpful, Jose.

Thanks very much. Thanks, Sean. Appreciate it.

And at this time, I will turn the call back to Jose Moss for any additional or closing remarks.

Just like to thank everybody for participating today, and we look forward to updating you on our third quarter call in a couple months. Thank you. Be safe.

This does conclude today's conference. We thank you for your participation.