MasTec, Inc.

Welcome to MazTec's fourth quarter 2022 earnings conference call, initially broadcast on Friday, February 24th, 2023. Let me remind participants that today's call is being recorded, and at this time, I'd like to turn the call over to our host, Mark Lewis, MazTec's Vice President of Investor Relations. Mark?

Thanks, and good morning, everyone. Welcome to MazTec'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 make certain statements that are forward-looking, such as statements regarding MOSSE'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 files 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 applied in these communications. In today's Remarkable Management, we'll be discussing adjusted financial metrics reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference call. A reconciliation in the non-GAAP financial measure not reconciled in these comments to the most comparable GAAP measure can be found in our earnings release or any other earnings press release exactly found on the website. For this today, we have Jose Mas, our CEO, George Pita, our Executive Vice President and Chief Financial Officer, and incoming CFO, Paul DiMarco. The format of the call will be opening remarks analysis by Jose, followed by 22 financial review from George. Today, longtime financial executive, Paul DiMarco, our incoming CFO, when George retires at the end of March, will give our outlook for 2023. These discussions will be followed by a question and answer period, and we expect the call to last about 60 minutes. We have another good quarter and a lot of important 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 2022 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 2023 and the markets we serve. I'd like to start today by thanking the men and women of MOSTECH. Their sacrifices and hard work helped us achieve another strong year. I'm honored and privileged to lead such a great group. The men and women of MOSTIC 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 and position ourselves for continued growth and success. Now some fourth quarter highlights. Revenue was $3 billion, a 66% year-over-year increase. Fourth quarter adjusted EBITDA was $258 million, and fourth quarter adjusted EPS was $1.03. For the full year, 2022 revenue was $9.8 billion, a 23% year-over-year increase. 2022 adjusted EBITDA was $781 million. and 2022 full-year adjusted earnings per share was $3.05. While our results met our expectations for 2022, our highlight for the year was really how we positioned MOSTECH for the future. Over the last 24 months, we believe we've delivered a transformative effort to further diversify MOSTECH and positioned ourselves to be a leader in some of the most dynamic and robust industries in our nation. Just two short years ago, in 2020, Maastricht was a $6 billion revenue business with nearly 30% of that revenue coming from our oil and gas pipeline business. While the long-term prospects of the pipeline business have improved, our oil and gas business represented only 12% of revenues in 2022, and EBITDA went from 56% of total company segment EBITDA in 2020 to under 20% this year. we have delivered on creating a much more diversified and recurring model over the last two years. While the effort has come with its sets of challenges, we believe we are incredibly well positioned for what is and will continue to be a period of strong growth opportunities for our business. I'd like to highlight what I believe have been some of our key accomplishments. We focused on growing our presence on the electrical grid market and have increased our revenues in electric distribution and transmission from $500 million in 2020 to over $2.7 billion in 2022. Through the acquisition of IEA at the end of this year, we've significantly increased our market share in the clean energy space and now our clean energy and infrastructure segment to approximate $5 billion of revenue in 2023, versus $1.5 billion in 2020. Our communications segment delivered strong 2022 growth, with full-year revenues growing 27% and 2023 revenues expected to again grow at a double-digit rate. We've delivered on diversification and believe we've created a more predictable and recurring model. For example, our non-oil and gas segments are now expected to generate almost 88% of our revenue in 2023, having gone from $4.5 billion in 2020 to $11.5 billion in 2023, a 2.5 times increase in three years. Over the last two quarters, we've begun to demonstrate the earnings potential of our business. margins improved 260 basis points from the first half of 2022 to the second half, with communications improving over 300 basis points, power delivery improving 200 basis points, and clean energy and infrastructure improving over 500 basis points, offset by oil and gas declining over 300 basis points. Backlog is at record levels, up over 30% year-over-year, and visibility to 2023 revenue guidance is very strong. And finally, as a result, we provided 2023 guidance on yesterday's release. We expect 2023 revenue of $13 billion, and EBITDA to range from $1.1 billion to $1.15 billion, both record levels. Again, our diversification and expansion has come with its sets of challenges, and while we're proud of our guidance and it's a big improvement from 2022, we know there is a tremendous room for further improvement over the coming years. Assumptions and guidance include communications segment revenue growth of about 10%, with a slight improvement in margins to approximately 11%. Oil and gas segment revenue growth of about 30%, with margins similar to 2022. This guidance does not include the completion of the Mountain Valley pipeline. Power delivery revenue is expected to increase roughly 10%, and we expect margins to approximate last year's levels as we continue to organically ramp our transmission capabilities. And clean energy and infrastructure revenue is expected to be $5 billion, with margins in the mid to high 6% EBITDA range. Again, we believe that our visibility into our full-year guidance is very strong. Now I'd like to cover some industry specifics. Our communications revenue for the quarter was $859 million, a 26% year-over-year increase, and revenue for the full year increased 27%. We enjoyed strong, broad-based customer growth with all of our major customers. Backlog in this segment is at record levels, and we continue to invest in increasing our capabilities as we expect demand and opportunities will continue to increase over the coming years. While we're seeing the impact of current funding related to RDOF, the Rural Digital Opportunity Fund, the amount of federal grants available to the industry are going to exponentially increase. The 5G revolution continues to transform the communications ecosystem, requiring networks to be upgraded and expanded to meet the ever-increasing demand for data and Internet usage. 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 not only need to be built, but they will require ongoing maintenance and service, creating a significant long-term maintenance opportunity. Moving to our power delivery segment, revenue was $740 million versus $285 million in last year's fourth quarter. For the full year, revenue exceeded $2.7 billion and represented nearly 28% of MOSTEX revenue. We are in the midst of an energy transition in the United States, and our customers' focus on reliability, hardening, renewable connectivity, and meeting the challenges of providing power to customers for electric vehicle charging are transforming the grid. We believe the scale we have been able to achieve, along with our history of performance and safety, uniquely position us to play a significant role in helping meet the needs of utilities and energy developers. With our integration efforts over the last two years of our acquired assets mostly complete, we are now focused on growth off of our current base and on driving margin improvements throughout the organization. We have significant near and long-term opportunities related to growing our transmission business and have been investing heavily in resources and equipment. Moving to our clean energy and infrastructure segment, revenue was just over $1.1 billion for the fourth quarter. Our fourth quarter results included about $600 million in revenue for IEA. For the full year, segment revenue was $2.6 billion. If you include IEA on a pro forma basis, revenue would have been approximately $4.4 billion for the full year. As a reminder, 2022 renewables revenue was impacted by the solar circumvention and supply chain issues. While our 2023 revenue guidance of $5 billion assumes roughly 15% growth, the reality is that demand in the market far exceeds that. Guidance includes a conservative view relative to project starts, and we have assumed a certain level of project delays in guidance. Demand for our services in this segment is incredibly strong, and for the most part, not inclusive of any governmental impact from the Inflation Reduction Act. Based on interactions with our customers, we are confident that as the supply chain issues ease, coupled with the incentives available through the Inflation Reduction Act, the future demand for our services will significantly increase. While we just completed our first quarter with IEA as part of the MOSTEC family, I'd like to highlight key points that I believe make this an excellent strategic fit for MOSTEC. It continues to grow our presence in the renewable energy market and enhances our ESG profile in what we believe is an ongoing energy transformation related to both tower generation and delivery as the country transitions to a carbon-neutral economy. IEA's roots are those of a union renewable contractor. While Mostek had been an exclusively non-union renewables construction company, IEA expanded our renewable business into union markets and states. More importantly, it allows us to cross-sell complementary services to these same customers with the investments we've made in the last two years in growing our union transmission and distribution presence. In a market where skilled labor is so scarce, IEA added thousands of team members to the MOSTEC family, significantly increasing our scale and giving us the ability to more efficiently serve our customers. And finally, IEA is led by an excellent management team with deep generational roots in the business and a strong family-type culture with an emphasis on safety. Our cultures are similar and complementary. We believe, with MOSTIC's support, there are great opportunities for future growth and margin improvement. Moving to our oil and gas segment, revenue for the year was $1.2 billion versus $2.5 billion last year. margins remained solid despite the significant revenue drop. We expected 2022 to be a difficult year, as this was the first full year of the impact of the pandemic on projects. Up until 2022, we were still burning off some pre-pandemic backlog. With that said, we've been vocal about the significant uptick we've seen for projects for 2023, 24, and 25. In addition to takeaway capacity projects for natural gas, activity levels for both carbon capture and hydrogen projects have intensified. As reflected in guidance, we expect revenue in the segment to increase approximately 30% in 2023 versus 2022, and that assumes that the Mountain Valley pipeline continues to be delayed. We have a number of larger projects that are expected to kick off in early summer and expect further growth in 2024 and 2025. To recap, I'm incredibly proud of how we've transformed and transitioned Maastricht over the last two years. I truly believe our second half of 2022 performance offers a glimpse of our potential as a company. Today, We enjoy a significant presence in some of the most resilient growth markets in our economy. We are honored to work with our customers, supporting the need for bandwidth and communications, and helping our energy customers as we transition to a carbon neutral economy. 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. Before turning the call over to George, As many of you know, George is retiring, and today is his last earnings call. On behalf of myself, my family, and the entire MOSTEC team, I'd like to thank George for his dedication and work ethic. He's been my partner for nearly 10 years, and MOSTEC wouldn't be where it is today without him. He will be missed, and he knows he will always be part of the MOSTEC family. I'd like to give a shout-out to his wife, Delilah, Not to embarrass George, but Delilah was my high school teacher, and she also made significant sacrifices on behalf of MOSTC, which have been greatly appreciated. Wish you all the best, my friend.

George? Thanks, Jose. Before we get started on 2022 results, I would be remiss if I didn't take a moment to acknowledge and thank Jose, Bob Apple, Jorge Mas, and the board for providing me this incredible opportunity over the past decade. We've grown from less than $4 billion in annual revenue to approximately $13 billion in 2023, earned Fortune 500 status, achieved an investment-grade rating profile, and completed transformational M&A to position Moss Tech with great future opportunities. It has really been the highlight of my professional career to participate and support this process, and I look forward to sharing in the Moss Tech's future growth as a shareholder. And I guess since Jose opened the door here, after I retire, my wife and I are planning on starting to work on a book called Young Moss, High School Years, complete with pictures. So if there's any publishers on the line, we're open to the highest bidder. In all seriousness, I didn't know Jose until our Moss Tech period together here over the last decade. But I do remember, as a young man, my wife mentioning a student. who as class president had convinced her of allowing an evening pep rally, something that had never been done before, and one of the words she used to describe him was visionary. I think if you were to describe Jose today, that term would still be at or near the top of the list. So I guess the moral of the story is the more things change, the more they stay the same. Today I'll cover some highlights of our fourth quarter and annual 2022 financial results. and Paul will cover our 2023 guidance expectations. As noted in yesterday's press release, we are planning on filing our 2022 Form 10-K next week, and we anticipate that we may report identification of a material weakness in internal controls, primarily related to general IT controls at 2021 acquired operations, which underwent first-time SOX controls evaluation in 2022. We have completed multiple substandard procedures and identified no issues or errors, and this matter will not result in any change to our 2022 financial results. As a reminder, during 2022, we undertook significant integration, combination, and streamline activities for transformational and market acquisitions completed in 2021, including the implementation of incremental internal controls. We certainly take control issues seriously, and we expect to continue and complete remediation of any deficient internal controls during 2023. Turning to some 2022 highlights. Fourth quarter results were generally in line with our guidance expectation, with revenue approximating $3 billion and adjusted EBITDA approximating $258 million. Fourth quarter 2022 adjusted diluted earnings were $1.03 per share, 3 cents per share above our guidance, primarily due to lower income tax expense in the quarter, partially offset by higher interest costs. Annual 2022 results include revenue of approximately $9.8 billion, with adjusted EBITDA of $781 million, or 8% of revenue. As we have previously discussed, during 2022, we began implementing a significant shift in our end market operations, emphasizing energy transition services, while also navigating with several headwinds, including challenging supply chain issues, exasperated by a governmental anti-circumvention investigation on solar panels, project permitting delays, as well as wage and material inflation challenges. As a point of reference to highlight the significance of our 2022 end market operations shift, oil and gas segment operations experienced a year-over-year $386 million adjusted EBITDA decline, which was largely offset by approximately $271 million in increased non-oil and gas segment adjusted EBITDA. To further demonstrate the significance of this shift, in 2022, only 19% of our segment adjusted EBITDA was generated from oil and gas segment operations, compared to 56% in 2021. Both our fourth quarter and second half 2022 results highlight some important developing business trends. Namely, consolidated results showed strong second half 2022 improvement, with consolidated revenue at $5.5 billion compared to $4.3 billion in the first half of the year, and with second half 2022 adjusted EBITDA margin improving to 9.1% of revenue compared to 6.5% of revenue during the first half of 2022. As Paul will cover in more detail, we expect a similar first half, second half trend in 2023. Both fourth quarter and second half 2022 results reflect expanding growth in non-oil and gas segments, offsetting decreased oil and gas segment operations. Importantly, fourth quarter results marked the first time in 2022 where increased non-oiling gas segment adjusted EBITDA exceeded the decline in oil and gas segment results, with consolidated fourth quarter adjusted EBITDA increasing 17% over the fourth quarter of last year to approximately $258 million. We believe that this performance demonstrates the potential of MOSTECH's future earnings profile. We ended 2022 with record backlog of approximately $13 billion, sequentially growing backlog excluding approximately $1.5 billion of acquired IEA backlog. And this reflects strong expected future business demand for our services across multiple segments. As a clarification point, IEA backlog as of our year-end 2022 is being reported under MOSTEC policies at approximately $1.5 billion. This reflects only signed contracts and thus no verbal awards and includes only 18 months, so comparisons to any IEA previously reported pre-acquisition backlog amounts are apples and oranges. Stated another way, if reported in the same manner as the pre-acquisition standalone public company, IEA year-end 2022 backlog would have been approximately 10% higher than the backlog reported by that entity at year-end 2021. Turning to our business mix, based on the strategic diversification of our revenue stream, during 2022, no customer represented more than 10% of our total revenue, and annual 2022 revenue derived from master service agreements exceeded 50% of our total revenue. a significant increase over the prior year. This is primarily derived from recurring utility services spend, which greatly increases the repeatable nature of our revenue profile. During the fourth quarter of 2022, we completed the acquisition of IEA, adding approximately $1.1 billion of acquisition financing and assumed debt. We finished 2022 with approximately $2.85 billion in net debt a $350 million reduction in net debt during the quarter following the IEA acquisition. While our year-end debt levels showed strong reduction post the IEA transaction and was generally in line with our expectation, annual 2022 cash flow from operations at approximately $350 million was approximately $100 million below our expectation And the majority of this shortfall is due to fourth-quarter cash expenditures made in connection with the IEA acquisition, which among other items included MOSTEC and IEA legal and banking advisory fees, change of control payments, and cash outlays to initiate transfers of letter of credit commitments that under GAAP accounting rules were required to be shown as operating cash flow amounts rather than as part of the acquisition price. At year-end 2022, we had ample liquidity of approximately $1.2 billion. Our year-end receivables were well-managed with DSO, or day sales of standing, of 83 days within our anticipated range of mid-80s. As we indicated at the time of the IEA acquisition, we remain committed to appropriate capital structure management and maintaining a strong balance sheet supportive of our investment grade rating. We expect that improved 2023 adjusted EBITDA performance, coupled with a reduction in overall debt levels through from cash flow operations and moderated levels of capital expenditures and strategic investments, will significantly improve our leverage metrics over the course of 2023. Before I turn the call over, I'd like to say how thrilled I am to pass the baton over to a very capable longtime MOSTEC colleague in Paul DeMarco. Shortly after I joined Mostak, as I began to work with Paul, it was obvious to me that he had an exceptional combination of strong financial background and critical thinking capacity. And as a result, over the years, we continually expanded his role within the company to prepare him for this moment. Paul, congratulations. Your time is now, and I wish you the best. Now I'll turn it over to Paul.

Thank you, George, and good morning. To begin, I wanted to thank Jose and the board for putting their trust in me as MOSTECH's next CFO. I have been incredibly fortunate during my 15 years at MOSTECH to work under two great financial leaders in George and Bob Campbell. They have both been key mentors to me and I look forward to following their legacy, helping MOSTECH capitalize on the incredible opportunities afforded by our end markets. Turning now to our segment performance and expectations. Fourth quarter communications revenue was $859 million, with adjusted EBITDA margin of 11.1%. Annual 2022 communications segment revenue was $3.2 billion, a 27% increase when compared to last year. And 2022 adjusted EBITDA margin was 10.3%. 2022 performance is characterized by a strong and accelerating second half. We anticipate that 2023 communications segment revenue will approximate $3.5 billion and that adjusted EBITDA margin will improve to approximately 11%. Within the 2023 expectation, we anticipate revenue to be more balanced, with second half revenue contributing just over 50% of the annual total and second half adjusted EBITDA margins approximating 12%. For the first quarter, we expect communications segment revenue to grow by approximately 15% over 2022. with adjusted EBITDA margins in the mid-7% range. This compares to 6.2% in last year's first quarter. Fourth quarter clean energy and infrastructure segment revenue was $1.1 billion, with the IEA acquisition contributing almost $600 million of revenue during the quarter. Fourth quarter clean energy adjusted EBITDA margin was 7%, a 260 basis point sequential improvement, and the segment's highest adjusted EBITDA margin performance over the past two years. That said, fourth quarter adjusted EBITDA margin continued to be negatively impacted by select industrial projects that we expect to close out in 2023. Annual 2022 clean energy segment revenue was approximately $2.6 billion and adjusted EBITDA margin was 4.2%. For 2023, we expect clean energy segment revenue will approximate $5 billion and adjusted EBITDA margin will improve to the mid to high 6% range. Based on project timing and typical seasonality, we anticipate second half 2023 revenue to comprise approximately 65% of the annual total, and second half 2023 adjusted EBITDA margin should improve over the first half and be in the mid to high single-digit range. For the first quarter, we expect clean energy revenue to approximate $800 million with a low single-digit adjusted EBITDA margin. This margin rate is impacted by seasonally lower revenue levels, some continued impact from the select industrial jobs, and continued solar panel delivery delays. It's also important to recall that IEA reported $17 million, negative $17 million of adjusted EBITDA for the first quarter of 2022. On a pro forma basis, clean energy first quarter 2022 adjusted EBITDA margin would have been negative 1%. As 2023 first quarter levels will be similar, our first quarter expectation reflects a strong improvement year over year. Fourth quarter oil and gas segment revenue was $292 million, with adjusted EBITDA margin of 11.5%. Annual 2022 oil and gas segment revenue was approximately $1.2 billion, with adjusted EBITDA margin of 14.1%. While expected, this performance represented a significant decrease in both revenue and adjusted EBITDA when compared to 2021. We anticipate 2023 oil and gas segment revenue will show strong growth and approximate $1.5 billion, with adjusted EBITDA margins in the mid-teens. Based on expected project startups, we expect this growth to occur in the second half of the year, with second half revenue approximating 60% of the annual total. and second-half adjusted EBITDA margins in the mid- to high-teens. For the first quarter, revenue is expected to be similar to last year, with adjusted EBITDA margins in the mid-single digits, lower year-per-year as we invest for pipeline project starts later in 2023. Fourth quarter power delivery segment revenue was $740 million, and adjusted EBITDA margin was 7.7%. Fourth quarter adjusted EBITDA margin was impacted by investments in new project starts and some adverse project closeouts. Annual 2022 power delivery segment revenue was approximately $2.7 billion with adjusted EBITDA margin of 8.9%. We expect 2023 power delivery segment revenue to approximate $3 billion with annual adjusted EBITDA margins of approximately 9%. First quarter revenue is expected to decline approximately 10% year over year. and first quarter adjusted EBITDA margins are expected to approximate 5%. This decline in revenue and margin is due to delay in certain program startups, a rationalization to exit certain acquired underperforming contracts and services, and a reduction in storm-related activity, which has been considerably slower to date. Similar to 2022, we expect stronger adjusted EBITDA margin performance sequentially in the second quarter, continuing with strong momentum into the second half of 2023. Power delivery second half adjusted EBITDA margins should reach the low double digits as crew utilization and productivity improve over the course of the year. Revenue is also expected to ramp through the third quarter with approximately 55% of power delivery revenue coming in the second half of 2023. Corporate segment costs are expected to approximate 95 to 100 basis points of consolidated revenue for 2023. Investments reported in our other segment are expected to generate approximately $25 to $30 million of adjusted EBITDA. While we are in the early stages of the clean energy integration process, our initial estimate is that we will incur acquisition integration expenses of approximately $15 to $20 million over the course of 2023. Turning now to our consolidated guidance announced yesterday. As we've been messaging in our public comments for some time, we expect a slow start in the first quarter with expected revenue of $2.4 billion, adjusted EBITDA of $100 million, or 4.2% of revenue, and an adjusted diluted loss per share of $0.57. This expectation includes the combination of a normally slow first quarter, accentuated by the previously mentioned supply chain delays, investments for the coming ramp in various segments, and costs associated with exiting certain acquired underperforming contracts and services. In terms of the cadence for 2023, first half and second half revenue, as the percentage of the total year, should approximate 2022 levels. We expect adjusted EBITDA margin to have strong sequential growth in the second quarter that will continue into the second half of 2023. This margin expansion should exceed the improvement we achieved in 2022's second half, as we do not foresee the negative effect of supply chain disruptions and select industrial projects that we experienced in 2022. Our guidance indicates a 50 to 80 basis point improvement in full-year adjusted EBITDA margins, and we expect the majority of this expansion to come during the second half of 2023. For our annual guidance, we are projecting 2023 revenue of approximately $13 billion, a 33% increase over 2022, with adjusted EBITDA ranging between $1.1 and $1.15 billion. Adjusted diluted earnings per share is expected to range between $4.64 and $4.91. These forecasts mark a strong improvement over 2022's results and represent record levels of revenue and adjusted EBITDA for all of the non-oil and gas segments. More importantly, This further demonstrates MOSFET's transformation to more diversified and sustainable earnings generation. Now I'd like to briefly cover some additional guidance details for modeling purposes. We expect to generate approximately $550 million of cash flow from operations in 2023, despite significant revenue growth over the course of the year that will drive working capital investment. This cash flow generation, coupled with our anticipated growth and adjusted EBITDA, should allow us to reduce levers to the low twos by the end of 2023. As George mentioned, we are committed to maintaining our investment grade rating and will continue to manage our capital structure accordingly. We anticipate net cash capex in 2023 to approximate $100 million, with an additional $150 million to be incurred under finance leases. We expect annual 2023 interest expense to approximate $200 to $205 million. This reflects our expectation to pay down debt over the course of 23, offset by continuation of higher interest rates. We will actively monitor the capital markets for opportunities to adjust our interest rate and maturity profile. Our estimate for annual 2023 share count is 78.5 million shares. This includes shares issued in connection with the fourth quarter IEA acquisition. Remember, Q1 loss will utilize a basic share count of 77 million shares, not the fully diluted number. We expect annual 2023 depreciation to be in the low 3% range of revenue. And lastly, we expect that annual 2023 adjusted income tax will approximate 25%. This concludes our prepared remarks. I'll now turn the call back over to the operator for Q&A.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypads. If you're using a speakerphone, make sure your mute function is turned off to allow your signal to reach our equipment. And again, that is star 1 to ask a question. We'll go to our first question while we assemble the rest of that queue. And that comes from Stephen Fisher from UBS. Please go ahead.

Thanks. Good morning, George. Best wishes and thanks for all your help. So I guess, Jose, Paul, with your $100 million of EBITDA guidance for Q1, which is kind of well below consensus, it seems like you've kind of cleared the decks a bit to set a better bar for the first part of the year. But in keeping that full year, the ramp up for Q2 to Q4 does look pretty steep. So I guess what gives you the confidence in that ramp up and that you're on track for for the opportunities and hitting the numbers for full year 2023. Maybe you can give us some of the most important pieces of evidence that you see that give you that confidence.

Sure. So good morning, Steve. So I guess first I'd like to address the first quarter because I know there's been a lot of notes written on it. So if you look at the first quarter and you kind of break it up, and I think we gave a lot of detail on the call, our communication segment's in line, right, basically where we expected it to be. If you take clean energy and you take into account the loss that IEA had in the first quarter of 2022, we're actually going to deliver about a 400 basis point improvement in the first quarter relative on a year-over-year on a pro forma basis. For the full year, we're expecting a 200 to 250 basis point improvement. So if we can actually maintain that 400 basis point improvement through the year, we're actually going to significantly beat our plan relative to that. Our oil and gas business, which is part of the issue in Q1, right? Margins are... just under half of what they were last year, and that has a lot to do with the fact of revenue getting pushed and projects that are starting in the second quarter. We've got a bunch of unabsorbed costs that we're preparing for these larger jobs that we've won. I have no concerns whatsoever about that segment's ability to perform as long as the work is there, and we know it's there, so we're just really preparing, and that's having an unseasonably slow first quarter for them, probably more than we expected. And the biggest impact of, I guess, our previously stated expectations for Q1 are probably in the power delivery section. There we're going to see about $100 million of revenue less than what we expected in the first quarter, and it's made up of a bunch of reasons. One of them, you know, Paul alluded to, was storm, which, you know, it could change because, you know, we're mid-quarter, but at the same time we haven't seen a lot of activity, so I think we took a very conservative look at what storm was going to look like. We had a supply chain issue on one particular project that's pushing some revenue into Q2. And then, you know, we're also exiting some contracts from some of the acquired entities after a year we've decided and had the ability to exit those which are going to put some cross pressures on the business. So I think we had a fabulous year in power delivery in 2022. I think we're, you know, we were set up incredibly well for 23. So unfortunately, I think it's just, you know, a lot of stuff hitting in Q1 on lower volume levels. When we think about the cadence for the year, and I think we laid it out as well on the call, the difference in second half versus first half revenue isn't that significant in 23 versus 22. I think 56% of our revenue in 22 came in the second half, and we're talking about being 58% in Q3. And that difference is really driven by the oil and gas projects that are starting in the second half and by the increase in clean energy business that we know is getting pushed into the second half as a lot of the wind and solar projects are going to start. So we feel really good about it. We think we've got a really achievable plan. Even in clean energy, we did $4.4 billion on a pro forma basis. We're talking about doing five next year. So, again, I think the demand is far greater. I do think it's important to note in that business that backlog is probably significantly understated as we report it. We only book and backlog projects once. As the contracts are signed and the full projects are completed, a lot of these projects start with something called an LNTP, which is a limited notice to proceed, which is a very small percentage of the revenue. And that's what initially hits backlog. So as those projects go into full production, backlog significantly increases on projects that have already been awarded. And I think, you know, all of these things, when you think about what's happening with oil and gas, when you think about what's happening with clean energy, as we leave 23 and we exit with the second half we're going to have, I think next year's first quarter in 24 and even the first quarter in 25 are going to be significantly different than what we saw in 22 and 23 because we're going to have broad-based strength across all of our segments, which is going to make those comparables really easy. So we're pretty excited about what that's going to lead down the road.

Very helpful. Maybe just a quick follow-up on communications specifically beyond 23. I'm curious what gets you from the $3.5 billion of revenues in 23 to your $4 billion, I think you call it, a near-term target, which I assume is somewhere between 2024 and 2025. I know you talked about, you know, the tower wiring and connections. I guess there's some concern in the market about kind of making wireless thing on 5G. So I guess I'm curious, how do you see, you know, what gets you that, you know, pretty solid growth to that next level? Is it the RDOF, a shift to more kind of fiber? How do you reconcile that? Thank you.

So, Steve, I'd say it's both. The wireless industry is really just getting started with 5G deployment. A lot of the initial deployments are just really touching the network, and then you have to add an enormous amount of capacity over time. I think we're very early in the 5G cycle. When you think about what's happening on the wireline side of the business, really only the first half of RDOF got funded, which is roughly $10 billion. Those $10 billion is really all of the activity that us and all of our peers in the space have seen over the last few years. The impact that it's had in the business has been massive. Aside from the remaining RDoF funds, we've got all of the other federal money that was in the infrastructure bill and the Inflation Reduction Act, which is over $50 billion of additional government spend. So you're talking at least another $60 billion of federal spend that's going to hit the telecom market, where I could argue we've only seen the effects of 10. So the multiplier effect on that business is going to be massive, and I think that if we think we can only do $4 billion from a $3.5 billion base today, I think we're significantly understating the long-term potential of that business.

Thanks very much.

Thank you. And our next question comes from Andy Kaplowitz from Citigroup. Please go ahead.

Good morning, everyone. Good morning, Andy. Good morning. George, thanks again for all your help. Congratulations. Paul, looking forward to working with you. So, Jose, many people are a little bit more what's going on in power delivery in Q1. I know you mentioned lower storm work, but what exactly are you getting out of it? I assume they're Henkel's projects because they have a tail that impacts you at all moving forward past Q1. Did you guide for that? I think any more color would be helpful.

Yeah, no, Andy, I think it's – We had an opportunity after a year to really rationalize and exit some things, which is what we're doing. I don't think that's the revenue impact. I think that's more of a cost impact. That's only going to impact Q1. I think out of Q1, we won't have that going forward. We have one large project that had some material delivery delays, which is having a pretty significant revenue impact on the first quarter that I think hopefully by the end of the first quarter, early second quarter, that project restarts quickly. So, you know, we feel really good about our $3 billion target for the year. You know, we've built that from the bottoms up, utility by utility, so we're really comfortable with the metrics. Unfortunately, you know, the cadence of it is a little different than what we were originally expecting.

Helpful. And then, Jose, GE yesterday at our conference suggested that wind customers are beginning to get in line to secure capacity for the wind manufacturers, which I would assume is still possible. a bit upstream from you guys, but are you starting to see some movement from your major wind customers regarding wanting to secure your capacity? It seems like you're beginning to see more of a significant ramp up in wind, but could you give us some more color on what you're thinking about renewables ramp up over the next couple of years, particularly in wind?

Well, we'll start with wind, right? In wind, we're seeing a dramatic increase in activity. If we think about our capabilities for the second half of 2023, we're pretty booked up at this point. We're really just trying to make sure that the projects we're committing to are projects that are going to be completed. When you take the impact of what that means into our 24 year, it means a much, much bigger 24 than what we're going to deliver in 23. So 23 is going to be a really strong second half of the year relative to wind. 24 is going to be a full, really strong year and growing. So we feel great about the outer years relative to what's going to happen in the wind market. It's been slow for the last couple of years. and we expect it to ramp pretty significantly starting in the second half this year. And solar is similar, right? Solar, we've had so many starts and stops because of the issues. We think a lot of that is resolving itself. We think there's going to be a significant improvement in the supply chain as we get into the year, and it's the same thing, right? We're really solidly booked in the second half of the year, and when you multiply that into what it means for the full year in 2024, it's quite astonishing. So I think, again, I think the investments that we've made in the last year, positioned us incredibly well. I think it's a market that's going to exponentially grow over time. I think we're in a great spot. I know it hasn't shown up in our numbers, but we're really, really bullish about what it means for us. Appreciate it, Jose. Thanks, Andy.

Thank you. And our next question comes from Jamie Cook from Credit Suisse.

Please go ahead. Hey, good morning. I guess my first question, if I look at the implied margins in the back half of the year for power delivery and clean energy and infrastructure, given what you've said, it looks like margins in the back half would be starting to approach, you know, your peers. So I'm wondering, as we think, you know, as we exit 2023 going into 2024, do you see a path that the margins in those business should be more comparable to the peers in the double digit range? And then my second question, you know, understanding we have a lot going on in 2023 in terms of the acquisitions, et cetera, but, you know, what type of investments are you making in 2023 that could potentially be weighing on margins, you know, that go away as we're approaching 24? Thank you.

Yeah, so Jamie, a couple things, right? If you think about our second half of this year, and, you know, let's break it out by business. So if we look at clean energy, Our expectation is that in 23, in the second half, margins are going to improve over 22 by about 200 basis points, just over 200 basis points. So a lot of that has to do – we've talked about it ad nauseum, right? We had a lot of impacts to our industrial business, and quite frankly, we were under-absorbed relative to our renewable business because there wasn't a lot of work. When you take into account the level of activity that's going to exist in the second half of 23 – in renewables, and you take into account the fact that we're not going to have these headwinds with industrial, we actually think that 200 basis points, again, is relatively conservative. We're going to beat Q1 on a year-over-year basis, we think, by over 400 basis points. So we actually have the improvement moderating in the second half of the year versus what we're seeing in the first quarter. So again, we think that's very achievable. In power delivery, when we look at the margin profile in the second half of 23 versus last year, again, it's about 100 basis point improvement. And quite frankly, with the opportunities that exist there, in both of those businesses, by the way, we would still be significantly below some of our peers. So these are not, by any stretch of the imagination, what we think are optimal margins. They're not. We've got a lot of work to do to continue to improve. We think the ability there to continue to improve over time exists. And to your last question, What is driving down some of these margins are the investments that we're making, right? We're going to grow revenue substantially, not just in 23, but we think in 24. We're making the investments in people across every segment that we operate in. We have tremendous revenue growth opportunities. It's about having the resources in place to be able to execute on that, and we're trying to prepare ourselves. You know, again, we feel really good about our ability to achieve our current targets for 23, but embedded in those targets are, you know, elevated level of cost to prepare us for further growth in 24 and 25. Thank you.

Thanks, Jamie.

Thank you. And our next question comes from Alex Reigel from B Reilly. Please go ahead.

Thank you. Good morning. And George, wish you nothing but the best there. A couple quick questions here. First, can you talk a bit about telecom and its economic sensitivity historically and whether you're sensing any conservatism by your customers as they start the new year?

So, Alex, it's a great question, right? And I think one of the differences, you know, historically, quite frankly, I actually think it's been a relatively solid industry. But I think all bets are off the table because of all the government spending that's involved in the business today. Every one of our major customers is trying to find ways to tie federal dollars, whether it's through RDOF or any of the other available resources to them. And with that, they're all overbuilding each other. They're all trying to expand footprint. AT&T recently announced their joint venture to build out-of-market networks. I mean, what's going on in this industry is unprecedented. That's been the one business that I've kind of been in all my life, I've never seen anything like it. The reality is that it's not going anywhere. It's not going to slow down. I struggle to understand how the industry is going to be in a position to meet all of the demands that it's going to have, and that's where our challenges lie, right, is understanding what we can do, understanding what we can gear up for, picking the right customers, and ultimately delivering the best margin profile we can in that business. But from a level of activity, from revenue basis, I mean, that's – That's something that, quite frankly, we're just not very worried about because of the level of activity that we see from our customers and the demand that our customers have for our services.

That's helpful. And then I think we understand sort of the target EBITDA margins for communications, same with the range for oil and gas. But in your opinion, what do you think the target EBITDA margin in oil and gas and power delivery and clean energy could be over time?

So it's great questions, right? So in power delivery, we generated about 9% margins in 2022. We definitely think that's a double-digit margin business. Again, we've made two big acquisitions in the last two years. While a lot of our integration efforts are concluding, we still have a lot of work to do to improve the profile of those businesses, to improve the margin profile. When you look at our closest peer, there are hundreds of basis points above us in that market. And I think the market is there to accomplish that. We just need time to build into it. So, you know, again, we're guiding to roughly 9%. We've got some solid growth in that business this year. We're preparing for – we're spending some money on what we think are going to be future growth and the ability to improve margins over time. We've got to spend some money to ultimately, we think, improve those margins over time. But in the next couple of years, we definitely think that's a solid double-digit business and growing. In clean energy, you know, we're targeting, you know, roughly 6.5%. full year EBITDA profile with really a second half acceleration. So if I was sitting here thinking about 24 with a full year acceleration available to us, I would be trending more to what we think our second half margin guidance is going to be in that business for the full year, which is roughly in that 8% range. And I think that if we could Our first target will probably be to achieve somewhere between an 8 and an 8.5 in a full year. And over time, I also think that's a double-digit margin business as the market continues to expand and create opportunities. Thank you very much. Thanks, Alex.

Thank you. And our next question comes from Justin Hawk from Robert Baird. Please go ahead.

Hi, great. Yeah, I don't know if it counts as one of my first questions, but I guess just – I think we're all wondering when we can get an advanced copy of the Young Moths, the high school years from George. So that was great.

Yeah, you snuck that in there.

That's great. We'll look forward to that. But on a serious note, I guess maybe one thing to kind of help with the confidence on the margins in clean energy is, It sounds like maybe, you know, there was some discrete efforts that you took from exiting some of those challenged industrial projects in the portfolio. And maybe just, I don't know, to the extent you could quantify, you know, the revenue impact that you're having maybe in one queue or the first half from those or the percentage of completion they are, you know, are those running at zero margin or just kind of some context to understand how that's dragging on the margin in the beginning of the year.

Yeah, this is George. I'll take that. The industrial projects are largely complete, but you're right. There is some level of revenue that's still going to happen in the first half of 2023 that is basically at no margin, right? The vast majority of them are complete at this point, but there is some wrap-up and some other items that we're doing. So it's a relatively small portion of the first quarter and an even smaller portion, maybe not much at all, in the second quarter of the revenue profile for the CE&I group But those revenues that are coming in in the first half of the year will be at zero margin. We're substantially complete with them, and we think that'll be the end of it.

Okay. And then I guess my second question, just on the power delivery backlog, I guess this is kind of the first clean year-over-year organics number with Henkels and McCoy. I guess I was just a little surprised that it's down, but I'm thinking that some of it might be because of some of the projects that you've kind of right-sized and moved away from, but maybe just some context on what you're seeing in terms of bookings and power delivery on an organic basis.

I think what you're going to see in 23 is really strong bookings. Obviously, it's seasonal, and it's hard to predict exactly what quarter it's going to hit in, but I think when we look at the end of 23 versus 24, we're going to see really big bookings. We're in the middle of a bunch of things right now we feel really good about, so we think that the opportunity set that's been created with the acquisitions that we made and with our legacy business has really resonated with customers. We feel good about our competitive position in the marketplace. And I think in the near future, you're going to see the results of that show up, not just in backlog, but ultimately in our numbers as well.

Great. Thank you, guys.

Thank you. And our next question comes from Noelle Diltz from Stifel.

Hi, guys. Thanks. And again, George, congratulations. So you've mentioned kind of investing in the businesses for future growth a few times. And when I think about some of the segments, like, for example, oil and gas and maybe a little bit clean energy, it feels like you might it seems like you might have some excess capacity today. So can you give us a better feel for some of the things you're investing in? Is it equipment? Is it front end services? Like, how do we think about some of these investments that you're making in a little bit more detail? Thanks.

Yeah, they're different for each business. So if you think about oil and gas, you know, I mean, based on today's levels, we wouldn't have the workforce that we have in place today. But we know that we're starting a bunch of projects in the second quarter. So today we've got a bunch of underabsorbed labor, quite frankly, that we're holding on to because we know that, you know, the best is yet to come there. So that's not necessarily new investments, but it's holding on to people and equipment that in a normalized fashion at the current revenue rates we would never hold on to. When you think about what's happening in telecom where we have tremendous opportunities for growth, you know, that's all about expanding markets, expanding people, adding equipment, because the opportunity subset there is if we had more people, the ability to put them to work is there. We just have to continue to grow our resources, and we're trying to do that in a meaningfully thought-out way where we don't, you know, overexpose ourselves to not performing. So that's been continual and will continue. On the... Power delivery side, with the acquisitions that we've made, we have tremendous opportunities on the transmission side of the business. We've been reinforcing our resources there. We've added a lot of people. We're starting to add some specialty equipment. So those are the kind of investments we're making there. And quite frankly, on clean energy, we've got a great base of people. Historically, we've done significantly more volume than what's going through the books today. So I think on wind, we're not necessarily making huge investments in energy. equipment or people from a new perspective, but we're obviously holding on to people at lower revenue rates because we know it's coming. And then on solar is a little bit different, much like communications. We're adding a lot of people because that market is exponentially growing. Right. So, you know, when we talk about investments, they're twofold. They're either penetrating new markets or they're trying to keep or we're holding on to a level of cost in anticipation of revenues to come. And there's a mix of that in our business. And by the way, we always expect there to be a mix of that in the business. I think today, especially in the first quarter, it's unseasonably high.

Okay, perfect. That's helpful. And then Steve and Alex touched on this a little bit in their questions, but can you talk about how you're thinking about the relative growth rates of wireless and wireline for 2023 and if you have a bit more confidence in one side or the other as you look out for the year?

Well, I think today in today's world, you know, the wireline business is growing much faster than the wireless business because of, you know, there's so much federal funding around that everybody's building. So there are a lot more opportunities on that side of the house. A lot of the wireless activities are obviously somewhat dependent on fiber. So until fiber is deployed, there's certain things you can and can't do. So we do think there's going to be a delayed spend related to wireless versus wireline because of the need for fiber. You know, with that said, you know, some carriers have been a lot more active than others over the last couple years. T-Mobile has been extremely active in deploying 5G, while some of the others have maybe delayed a bit. So we're seeing a transition, right? We expect to see much bigger spends from AT&T and Verizon this year with maybe a little bit less coming from T-Mobile. So the years are different, but I think the requirements are there, the need is there, and over time it's going to, you know, we think, grow really nicely.

Okay, great. Thank you very much.

Thank you. And our next question comes from Brent Fleeman from DA Davidson.

Hey, thanks, George. Congrats as well. Very impressive career. Jose, you've got a few moving pieces within the clean energy and infrastructure backlog. I wanted to understand a bit better. Pretty encouraging comments on the wind side. Sounds like you're seeing some good things developing for the second half and more into 24 and beyond. I guess I'm curious, are you seeing that impact yet to your bookings and backlog in a material way, or is this sort of climb we've seen in the segment outside of IEA still largely been solar? Because I think that's the material step up still coming as that market accelerates.

Right. So I got the – what was the last part of the question? I heard wind, and then I lost you.

Was it all wind related? I'm more so curious whether you've really seen a material impact to your backlog in bookings yet as a function of this kind of recovery in the wind market, so to speak, and whether that's still a material step up to come.

Yeah, look, I mean, if you look at our clean energy backlog, it's a fraction of our revenues. And the reality is that when we look at our revenues for 23, we've identified every job and every customer where it's coming from. So we think that, again, our backlog in clean energy is dramatically understated because we're working under a number of LNTPs, which is a limited notice to proceed. It's a very small percentage over the overall contract. If all of those contracts went, our backlog would be dramatically higher than it is today. And as those contracts go into full execution, you're going to see that play in. So, yes, we think that our clean energy backlog is going to considerably grow as 23 plays out.

Yeah, that's helpful. I guess the second question, Jose, the experience on the industrial projects, does it change your view of wanting to participate on these things in the future? Because it still seems like a huge opportunity in terms of what you're doing there.

You know, we talked about it last quarter. Obviously, we've taken our licks and we've had our challenges. When we look at the projects that we're working in 2023, we're really excited. We've got the large lithium recycling plant that's a cost-plus job that we're working on, which we think is an incredibly interesting project, very unique project. We've got other jobs that we're working for customers that I think are similar relative to a lot of the newer technologies that are going to get government funding and support. I think we've built an incredible resume. It's come at a huge cost, unfortunately. But, you know, we're being very prudent about the jobs that we take, the contract structures that we take, and we think that that business is actually going to do fairly well this year, comparatively speaking. And, again, we're not going to be as aggressive. We're probably going to be a little bit timid as we look at these projects because of what's happened. But we're incredibly well positioned and think that will be a nice growth market for us as we continue to execute and get better at it.

Very good. Thank you.

Thank you. And our last question comes from Adam Thalheimer from Thompson Davis.

Hey, good morning, guys. George and Paul, congratulations to you both. I don't know if I just missed it. Did you give 2023 free cash flow guidance? And also kind of curious on how the timing shakes out there.

Yeah, so we did it in pieces, right? So we said $550 million of cash flow from operations and $100 million of net cash capex. I would apply for 50 of free cash flow.

Okay.

And then, um, Jose, maybe you can just shed a little insight into what you're seeing on the pipeline bidding side and, um, maybe what the outlook is beyond 2023.

Well, look, I think what we're going to do in 23, we've kind of already gotten right. So I think, uh, There's a number of projects that are out there. We've won a bunch of projects for 24 starts at this point, so there's definitely things that are going to fall into 23, but I think the bigger opportunities today are for 24 and 25. Based on what we've won and what we know is coming is kind of how we built our 23 plan. We've got, again, roughly 30% growth expected in 23. But I think the opportunity for 24 is considerably higher. You know, MVP is the wild card. MVP, you know, could still potentially go in 23 and change all these numbers. But, you know, we're feeling more and more comfortable that that project is going to ultimately come to conclusion over the course at least of the next two years.

Okay. Thanks, guys. Thanks, Adam.

Thank you very much. I'd like to turn it back over to our CEO, Jose Mas.

So just before closing the call, I would like to take this opportunity to congratulate Paul DeMarco. You know, Paul's been with Mostek for a long time, and he's demonstrated his talent over his career at Mostek. I know he's had a lot of great ideas, and I'm excited that he'll be leading our financial organization. So, again, congrats, Paul. And thank you all for joining us, and we look forward to updating you on our first quarter call.

Thank you. And, ladies and gentlemen, that does conclude today's conference. We appreciate your participation, and have a wonderful day.