MasTec, Inc.

Good morning and welcome to MOSTECH's second quarter 2022 earnings conference call, initially broadcast on Friday, August 5th, 2022. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to our host, Mark Lewis, MOSTECH's Vice President of Investor Relations. Mark?

Thanks, Christina, and good morning, everyone. Welcome to MOSTEC's second quarter 2022 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 today's communications, we may make certain statements that are forward-looking, such as statements regarding MOSTEC's future results, plans, and anticipated trends in the industry 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 findings with the FCC. 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 today's call. In today's remarks by management, we will be discussing adjusted financial metrics reconciling after each press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference 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. With us today we have Jose Mas, our Chief Executive Officer, and George Pita, our EVP and Chief Financial Officer. The format of the call will be ultimately marked 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 an hour. We had another inline quarter and have a lot of important things to talk about today, so I'll now turn the call over to Jose to get going. Jose? Thanks, Mark.

Good morning and welcome to MOSTECH's 2022 second quarter call. Today, I'll be reviewing our second quarter results as well as providing my outlook for the markets we serve. First, some second quarter highlights. Revenue for the quarter was $2.3 billion. Adjusted EBITDA was $179 million. adjusted earnings per share was 73 cents, and backlog at quarter end was $11 billion, a record level. On our IEA acquisition call last week, we announced that we were experiencing higher levels of cost for the balance of the year with limited ability to mitigate or generally pass on increases to our customers and talked about our challenges with getting pricing adjustments outside of the typical annual escalators. While second quarter guidance was in line, the quarter was negatively impacted by inflationary cost pressures. Increases in fuel prices and labor, coupled with material delays, have impacted margins in every MOSTECH segment. In addition to the inflationary pressure, we have had some select execution issues that have also impacted earnings. To understand our future potential and our confidence in being able to see a significant improvement in 2023 and beyond, it's important to understand the areas where we've underperformed. To be clear, I'm not trying to make excuses, and I take full responsibility for the execution issues we've had, but to understand how earnings can quickly improve, we need to break down our business in more detail. I'd like to start by focusing on our clean energy and infrastructure segment. It's a segment where we are making a significant investment with the addition of IEA, and it's a segment that for the second quarter of 2022, we're showing an EBITDA loss for the quarter. The segment has now underperformed for a number of quarters, so it's important to understand why we are confident in our ability to meaningfully improve the margin profile of this segment. While some of the issues have been market-driven and outside of our direct control, like the solar circumvention investigation, which has negatively impacted our solar revenue expectations for 2022, others have been purely execution-driven. Unfortunately, it's been the same projects we've previously discussed that continue to get worse financially. As we get to the end of these projects, which in some cases have required us to rework certain portions, we're dealing with the same cost escalations we see across our business, which further exasperates the losses. As we think about the clean energy and infrastructure segment, we break it down into three divisions, renewables, civil, and industrial. Our problem projects have been in our industrial business. Removing the industrial revenue and losses, our renewables and civil business is performing at a 5% EBITDA margin rate year-to-date and is expected to be 6% for the full year. We expect these levels to significantly improve as these margins have been negatively impacted by the solar investigation, overhead absorption, material delays, and the cost pressures we've experienced. With cost pressures built into go-forward pricing and the expected growth of both the renewable and the civil market, we expect this margin profile to improve in 2023 and get back to previous levels of high single-digit performance. So our focus and efforts have been in fixing and improving the industrial business. The first question is why are we in the business? I'd first like to define what we mean by industrial. Our focus on this industry is in power sustainable solutions where we think there is considerable overlap with other MOSTEC services. For example, advanced class turbine installations with the ability of burning both natural gas and hydrogen, industrial components of the carbon capture projects, and sustainability projects. Our industrial revenue in our clean energy and infrastructure segment will be approximately $425 million in 2022, with the majority of the problems in two projects, which were both bid over two years ago. The projects will be completed by year-end, and outside of those projects, the balance of our project mix has performed well. Despite our financial performance, we've built a great resume and developed excellent relationships. As we look forward to 2023, we have mitigated our risk on industrial projects by shifting to more cost-plus contracts, having already booked over $300 million in cost-plus industrial contracts for next year. One of these projects, a first of its kind, is a lithium battery recycling facility. that will take in end-of-life batteries and battery manufacturing scrap to produce black mass, an intermediate product containing valuable metals such as nickel, cobalt, and lithium. The facility will transform that black mass into critical battery-grade materials to be returned back to the lithium-ion battery supply chain. This facility will be able to process battery material that is equivalent to approximately 225,000 electric vehicles per year. While we'd obviously like to have performed better out of the gate within the industrial segment, the mostly organic growth we've achieved, despite the financial losses we've endured to date, have positioned us very well in the market to take advantage of a number of new opportunities. Going forward, as we think about our CE&I segment, our renewable and civil business, coupled with the expected acquisition of IEA and the improvements in both projects and contract structures going forward in the industrial market, gives us great confidence in being able to achieve the performance in our clean energy and infrastructure segment that we previously discussed and hope that our target of $5 billion in revenue for 2023 at mid to high single-digit EBITDA margins proves to be conservative in light of the new potential energy legislation. Moving on to other parts of our business, one of the highlights of the second quarter was our revenue growth and communications. Communication segment revenue of $822 million was up 30% year-over-year and 24% sequentially, and margins in our communication segment were up 420 basis points from the first quarter. While we've covered all of the communication opportunities at length, it's great to finally see the impact of the infrastructure growth associated with both 5G and the rural opportunities Tunity Digital Fund, or RDOF, finally start to show up in our financials. Our growth in the quarter was driven by sequential growth of 28% with AT&T, 26% with Comcast, 36% with Verizon, 34% with T-Mobile, and strong increases with the number of RDOF-funded customers. In our power delivery segment, Revenue was $647 million, and our performance was driven by both Intran and Henkels & McCoy, who exceeded internal expectations that was somewhat offset by legacy Moss Tech business, which was down about $50 million in revenues in the quarter due to project and material delays impacting our absorption of costs. We expect strong third and fourth quarter performance in this segment with year-over-year improvements in EBITDA despite the inflationary challenges we are experiencing. In our oil and gas segment, margins were better than expected at 18.8% of EBITDA despite revenues being down from $621 million in the second quarter of 2021 to $341 million this year. Revenue for the year is expected to be down over $1 billion from 2021. but we're excited to announce that post-quarter end, we signed our largest pipeline contract in over three years, a 300-mile, 42-inch pipeline that starts construction in 2023. While activity remains slow for 2022, the level of recent discussions for new projects has considerably increased, and we expect this segment to have considerable opportunities over the next few years. Also of note for the quarter, Backlog a quarter end exceeded $11 billion, a record level, with a sequential increase in every segment except power delivery, which was virtually flat, demonstrating strong demand for all of our service offerings. Strategically, as we've previously communicated, MOSTECH is and has been transitioning our business as we've focused on growing and diversifying our portfolio. Our second quarter results continue to reflect the opportunity we have in growing our communications, power delivery, and clean energy and infrastructure segments. I'm extremely proud of how we've developed a portfolio of service offerings in these three major sectors that will position MOSTEC to take advantage of the significant infrastructure spending growth that we expect over the next decade. First, with the transition to a new carbon-neutral economy fueled by green power, massive investments will be required in order to harness the nation's best wind and solar resources, which are often located in remote locations of the agricultural Midwest and southwestern deserts. This will include installing thousands of miles of transmission lines necessary to bring green power from these remote regions to population and industrial centers, as well as upgrading last mile electrical distribution networks for home, office, and highway charging stations, where very few exist today. Our recent announcement of the intent to acquire IEA is an important step in meeting that objective. In addition to our power business, the 5G revolution will bring a transformation of the communications ecosystem, requiring the entire network to be upgraded and expanded to meet the ever-increasing demand for smart cities, smart homes, and factories, the Internet of Things, and autonomous vehicles. Not only must new equipment be added to existing cell towers, millions of new small and micro cells must also be built and connected, including fiber and power. All of these new points of presence will require ongoing maintenance and service. Additionally, we have been involved in the expansion of the clean burning natural gas pipeline network that will help bridge the gap to clean energy. As a leading pipeline construction company, this also positions MOSTC to be a major force in the development of thousands of miles of expected carbon capture and sequestration pipelines and facilities, and ultimately hydrogen pipelines. Our emphasis over the past few years has been to grow capacity organically and make certain acquisitions that best position MOSTEC to address all of these needs. With our portfolio now in place, our focus turns to the deployment and execution of what we believe will be a significant opportunity for steady, sustainable growth over the decades to come. While George will cover our 2022 expectations in detail, I'd like to reiterate the direction we gave during the IEA acquisition call of our future expectations. Included in the slide deck we provided, we laid out a path for 2023 of revenues of approximately $13 billion with EBITDA of $1.2 billion. One of the things I'm proudest of during my tenure as CEO over the last 15 years has been our consistency and our ability over many years to meet and exceed guidance. I'm not pleased that we've had to adjust our guidance over the last few quarters, and in planning for 2023 and the early outlook we provided, we were cautious to create targets we felt we could achieve with a high degree of confidence. I understand that today these are just words, but we, as an organization, are motivated and excited to show what Maastricht can do and achieve. I'd like to take this opportunity to thank the men and women of Maastricht for their performance and hard work. 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 financial results in a challenging environment and position ourselves for continued growth and success. I'll now turn the call over to George for our financial review. George?