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.