MasTec, Inc.

Welcome to Mass Tech's fourth quarter 2021 earnings conference call, initially broadcast on Friday, February 25th, 2022. Let me remind participants that today's call is being recorded. At this time, I would like to turn the call over to our host, Mark Lewis, Mass Tech's Vice President of Investor Relations. Mark?

Thank you, Christina, and good morning, everyone. Welcome to Mass Tech's fourth quarter earnings 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 MOSDEC'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 release 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 results expressed or implied in these communications. In today's Remarks by Management, we will be discussing adjusted financial metrics, reconciling yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures on this call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP measure can be found in yesterday's Q4 earnings press release. With us today, we have Jose Mas, our CEO, and George Pita, our Executive Vice President and 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 we have important things to talk about today, so I'll go ahead and turn it over to Jose. Jose?

Thanks, Mark. Good morning, and welcome to MOSTEC's 2021 fourth quarter and year-end call. Today, I'll be reviewing our fourth quarter and full-year results, as well as providing my outlook for 2022 and the markets we serve. I'd like to start today by thanking the men and women of MOSTEC. Their sacrifices and hard work helped us achieve another record year of revenue and EBITDA. I am 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. Now some fourth quarter highlights. Revenue was $1.8 billion. Fourth quarter adjusted EBITDA was $219 million. And fourth quarter adjusted EPS was $1.35. For the full year, 2021 revenue was $8 billion. 2021 adjusted EBITDA was $931 million. 2021 full-year adjusted earnings per share was $5.58. And cash flow from operations for the year was approximately $800 million. In summary, we had a good quarter and another great year. While quarterly results were generally in line, We enjoyed solid quarterly year-over-year growth in our non-oil and gas segments, with revenues increasing 43% and non-oil and gas EBITDA increasing 75% during this year's fourth quarter compared to last year's fourth quarter. With that said, we were impacted by both inflation and supply chain issues in our business. revenue would have been higher and was impacted by delayed material availability causing project delays primarily in our communications and clean energy segments. I'd also like to point out that our fourth quarter EBITDA was achieved despite a year-over-year oil and gas EBITDA reduction of nearly $115 million. As we've discussed over the last year, our priority and focus in MOSTECH has been to diversify our business and grow our non-oil and gas segments and really transform our earnings mix. Our true success in 2021, irrespective of our financial performance, was our ability to position our company for significant long-term growth and earnings potential. For 2022, we expect our oil and gas segment to be our smallest revenue generating segment and comprise no more than 20% of revenue. We expect our communications, power delivery, and clean energy segments to collectively grow revenue by approximately 50% compared to 2021 and EBITDA by almost 85%. While we would obviously like to see the transition happen faster and, quite frankly, with less hiccups along the way, we are convinced that the mastic of tomorrow is much better positioned to enjoy growth opportunities and margin expansion opportunities than we've ever been. Before getting into segment specifics, I'd like to touch on 2022 guidance for a moment. Just over a year ago, towards the end of 2020, and still in the middle of the pandemic, and in the midst of a changing and challenging oil and gas environment, we laid out a path and a goal to ultimately achieving a $10 billion revenue run rate. While the goal was longer term in nature, in 2021, we made a number of acquisitions that we think position us very differently and have significantly improved our growth potential. Today, we are excited and proud that our 2022 revenue guidance is approximately $10 billion in revenue. I can guarantee you that when we laid out that goal in 2020, we didn't think we'd be here 15 months later. More importantly, as we dissect the revenue guide, we are confident and optimistic that every segment will enjoy further growth in 2023 and beyond. The size and number of opportunities continues to grow and expand. We are responding to this opportunity and continue to invest in our business. Full-year EBITDA guidance is approximately $950 million. Assumptions in the guidance include oil and gas revenue reducing by approximately $600 million and an approximately $275 million reduction in EBITDA. The reduction in revenue is offset by approximately $1.5 billion in revenue associated from the Henkels & McCoy acquisition that we announced in December and over 20% growth in each of the other non-oil and gas segments. The EBITDA offset is comprised by the acquired Henkel EBITDA and margin improvements in each segment that George will cover later. Our revenue guidance today assumes low double-digit year-over-year growth in the first half of the year, mostly the impact of the acquisitions, then over 35% year-over-year growth in the second half of 2022. Our first quarter on a year-over-year basis is impacted by a reduction of $508 million in revenue in oil and gas and a $143 million EBITDA reduction in the segments. Part of this reduction was caused by a delay on the Mountain Valley Pipeline, which was supposed to originally start in February. Our guidance now assumes activity late in the year. As 2022 progresses, I am confident we will be able to demonstrate the improved growth opportunities and margin in our business. As we prepare for significant growth during the year, we will exit 2022 at a very strong run rate, which will set us up for a very strong 2023. Now I'd like to cover some industry specifics. Our communications revenue for the quarter was $682 million, a 20% year-over-year increase, and a sequential increase over the third quarter, which is atypical. During the fourth quarter and early in the first, we have expanded into 18 new geographic wireline fiber markets, which will represent over $125 million of our 2022 segment growth, in addition to strong expansion in our current markets. We have also continued to diversify and grow our wireless operations and experienced solid growth in 2021 with T-Mobile, Verizon, and Dish Network. Just yesterday, Dish Network announced their intent to launch markets by June of 2022. Today, we are working in 17 of those markets. As AT&T increases its build plan towards the second half of 2022, we will have a much broader and diversified service offering with all of the major carriers in a very active build cycle. We expect 2022 communication revenues to grow nearly 25% year over year. Backlog is up over 20% year-over-year to a record level of $4.5 billion, and while we have seen some impact from the Rural Opportunity Fund, the vast majority of infrastructure and rural dollars available for broadband expansion have yet to be awarded. We continue to enjoy significant growth opportunities in the segment and are working with a number of customers as they work through their future build plans. Moving to our oil and gas pipeline segment, Revenue for the quarter was $335 million versus $600 million last year. Margins were again strong for the quarter as mix was favorable. Looking ahead at 2022, guidance is $1.8 to $1.9 billion, which includes a couple hundred million from the Henco's acquisition. We expect 2022 to be a trop here in this segment. While commodity prices have significantly increased and we believe the need and demand for infrastructure will increase, Reactivating projects is time-consuming, making 2022 projects start difficult. For example, customers are facing challenges with pipe delivery schedules based on supply chain issues. With that said, we are in a number of discussions with customers about projects we believe will be built in 2023 and beyond. We expect award activity to pick up significantly in the second half of 2022. Awards, coupled with the continued growth of carbon capture and sequestration and the potential of hydrogen, have improved our longer-term outlook of our pipeline business. Moving to our power delivery segment, revenue was $285 million versus $126 million in last year's fourth quarter. The growth was largely driven by the interim acquisition. At year end, we announced the acquisition of Henkels & McCoy, one of the largest private electrical power transmission and distribution utility contractors in the United States. With the combined acquisitions during 2021, we have transformed this segment into a significant growth engine for MOSTEC with significant margin expansion opportunities. In 2020, this segment generated just over $500 million of revenue. In 2022, we expect revenue for this segment of over $2.5 billion. This segment will represent over 25% of MOSTEC's revenue. More importantly, the scale we have been able to create positions us as a leader in the market with great opportunities ahead. With changes in electrical transmission and distribution needs, our customers have a clear goal of modernizing the power grid with a focus on reliability, fire hardening, renewable connectivity including both wind and solar, and growth in electrical vehicle usage. Our combined service offerings allow us to provide our customers with cost-effective solutions at scale to meet their demands. While early in our integration efforts, feedback from our customers have been excellent, and we look forward to providing a differentiated solution in the market. I'd also like to take this opportunity to again welcome all of the Henkels and McCoy team members to the MOSTEC family. While it's only been two months, I believe the energy and collaboration have been very motivating, and I can say with confidence, after having spent time with their members, that the benefits and potentials of this transaction are far greater than we expected. Moving to our clean energy and infrastructure segment, revenue was $515 million for the fourth quarter versus $346 million in last year's fourth quarter. EBITDA margins improved to 6.8% in the fourth quarter versus last year's fourth quarter of 3.2% and sequentially from 2.7%. While margins were much improved, we did have a couple of projects slip due to material deliveries. In 2022, we expect another strong year of growth, with growth approaching 25% and full-year margins approaching 7%. While backlog is up nearly 50% year over year, the reality is backlog doesn't reflect the true strength of the market. We are working under a number of LNTPs, Limited Notice to Proceeds. While we finalize pricing and schedules and the value captured in backlog is only a fraction of the total contract value. Outstanding verbal awards and negotiations actually exceed the total backlog for the segment. This level of activity is without infrastructure-related dollars that have not yet been allocated. We expect that to be yet another catalyst for our infrastructure business. We believe our diversification is our strength in this segment, and we are 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. With a clear national 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, MOSTEC is uniquely positioned to benefit from these investments. To recap, we had another great year. While times can be challenging and uncertain, opportunities always arise from these challenges. Our customers are looking for ways to change and improve their business models and are looking for strong partners to help them. In that lies our opportunity. Our greatest strength has been to understand the trends in our industry and our customers' needs. Our ability to provide services, whether existing or new, has always been a strength. I'm excited for what the future holds for Maastricht. I'd like to again thank the men and women of Maastricht for their commitment to safety, their hard work, and their sacrifices. Keep up the good work. I'll now turn the call over to George for our financial review. George?