MasTec, Inc.

Welcome to Mass Tech's second quarter 2023 earnings conference call, initially broadcast on Friday, August 4th, 2023. 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?

Thanks, Jess. Good morning, everyone. Welcome to Mass Tech's second quarter call. The following statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we may make certain statements that are forward-looking, such as statements regarding MOSTEC'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 upon subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in our press release from yesterday 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'll 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 financial measures can be found in our earnings press release. Please note that we also have two documents associated with today's webcast on the investors' events and presentations page of our website at mostech.com. There is a companion document with information and analytics on the quarter just ended and a guidance summary to assist in developing your financial models going forward. Both PDF files are available for download. With us today, we have Jose Mas, our CEO, and Paul DeMarco, Executive Vice President and CFO. The forum of the call will be opening remarks and announcements by Jose, followed by a financial review from Paul. These discussions will be followed by a Q&A period, and we expect the call to last about an hour. We had an in-line quarter with a slight beat and had a lot of important things to talk about today, so I'd like to turn the call over to Jose so we can get going.

Jose? Thanks, Mark. Good morning, and welcome to MOSTECH's 2023 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 $2,874,000,000. Adjusted EBITDA was $255,000,000. Adjusted earnings per share was $0.89. And backlog at quarter end was $13.4 billion. In summary, EBITDA was up $76 million, with non-oil and gas EBITDA up 57% year-over-year. EPS was up 22%, and revenue was up 25% year-over-year, but about $125 million less than our previous expectations. EBITDA margins improved in every segment in the second quarter, and we expect strong second-half performance despite some revenue challenges. I'd like to highlight that our margin progression story is greatly intact. And while the lower revenue guidance is having some margin impact on the second half of 2023, margins are generally in line with previous guidance and above 2022 second half performance. I think this is critical as you think about MOSTEC and our future. I'm highly confident that the goals we set out to show significant margin improvement specifically in our clean energy and infrastructure segment are proving out. Thus, our challenges in 2023 are predominantly due to revenue misses in some segments, offset by the expected second half revenue increases in our oil and gas segment. I'd like to cover our second half of 2023 revenue challenges in more detail. First, let me start with some high level numbers. we still expect 2023 total company revenue growth to exceed 30%. If you exclude IEA from this calculation, so think of it as MOSTECH pre-IEA, we're expected to grow 18% organically. There is about a 5% to 6% bump from the MVP pipeline in that number, so even excluding MVP, we expect double-digit organic full-year total company revenue growth, albeit slightly lower than our previous expectations. Let me cover some segment revenue expectations in detail. In our communications segment, we now expect 5% year-over-year revenue growth, with second-half revenues flat to last year. The softness is predominantly in the wireless area, where our customers are moderating their 2023 spend plans. we still expect wireline activity to increase about 20% over last year and see further opportunity in 2024 as large off-balance sheet deployment projects begin to generate revenues. We believe the communications market continues to be strong with some short-term impact as our customers adjust to the economic and interest rate environment. Our power delivery revenue expectations are generally in line with previous expectation, with slightly lower predicted storm revenue, which could quickly change. Our oil and gas revenue is expected to be about $2 billion, or roughly a $500 million increase from previous expectations due to the restart of the MVP project. Finally, I'd like to cover our clean energy and infrastructure segment, where we are having the most significant revenue challenges. Again, let me start with some high-level numbers. We currently expect full-year 2023 segment revenues of about $4.5 billion, with Maastricht's legacy renewable and infrastructure business contributing approximately $2.5 billion. This compares to $2 billion last year for our legacy business, or about 25% organic growth. IEA is now expected to generate approximately $2 billion of revenues in 2023 versus our original estimate of $2.5 billion and the $2.4 billion they generated for the full year of 2022. Thus, IEA has a negative organic growth of approximately 16% in 2023 or a $500 million decline versus our original expectation. So I'd like to cover IEA and our clean energy segment in some detail. Again, 2022 revenue for IEA was roughly $2.4 billion, and our expectation for 2023 was for mid-single-digit revenue growth, knowing that the wind market would be softer, offset by a growing solar market. The 2023 plan, which we vetted after acquisition, was detailed by projects and customers. First and second quarter revenues track generally in line. But as the second quarter developed, many of the projects that were supposed to start in the latter part of the second quarter and even into the third quarter began getting pushed into later in 2023 or into 2024. As the year has played out, there has been a big difference in customers' ability to execute on their project pipeline. We knew that the project analysis would be very important in 2023. As evidenced by our legacy businesses' expected 25% organic growth this year, we think we did a really good job of understanding that in our legacy business. While we're excited about the relationships IEA has and the demand they are seeing, we collectively misjudge IEA's second half of the year project pipeline risks and potential. It's also important to note that these aren't canceled projects, rather deferred into future periods. While we're obviously very disappointed with this adjustment to guidance, we do still expect significant second half of the year revenue growth, both at IEA and for our clean energy and infrastructure segment. Segment revenue is expected to grow 48% in the second half versus the first half, albeit below our expectations. As we finish out 2023 and prepare for 2024, we believe we are bringing the right scrutiny to the IEA projects as we fill our 2024 pipeline and believe we will be much more consistent in our revenue predictability. Again, it's taken us time to both get to know the IEA customer base and the company's thought process around revenue expectations. While we believe 2023 represented a unique set of challenges, MOSTEC's detailed review and risk assessment process will add a lot of value to IEA and its ability to properly forecast revenue. We also believe that the industry is better prepared to deal with supply chain, interconnect, and permitting issues going into 2024. Demand for our renewable services for 2024 is unprecedented. At the start of 2023, we strongly believed that one of our main goals and objectives of the year to drive shareholder value had to be our ability to show significant margin improvement in our clean energy and infrastructure segment. I want to emphasize again that while we're disappointed with our revenue miss, we believe our margin goals in the second half of 2023 are unchanged. we expect to achieve these goals without the cost absorption afforded by our previous revenue guidance. Thus, as our revenue increases into 2024 and we benefit from this operating leverage, we believe our ability to expand margins further actually improves. Moving to our oil and gas segment, we started remobilizing onto the Mountain Valley pipeline. While we had some starts and stops in the last month, We now expect to reach full capacity by the end of September. Since MVP wasn't originally contemplated in our year, we juggled lots of projects with customers and will ultimately have just under 4,000 people and over 1,100 pieces of equipment deployed on the project. In our guidance, we've assumed completion in 2024. We expect full-year oil and gas revenues to approximate $2 billion, or up about $500 million from previous guidance, and we now expect 2024 to approximate similar revenue levels. In our communications segment, we continue to see strong wireline demand with some softness in short-term wireless spend. With continued federal dollars available for fiber and broadband expansion and funds beginning to be distributed through the state level, we continue to be very bullish about the long-term opportunities. Finally, our power delivery segment is performing as expected. While we see some utilities managing capital budgets a little tighter, we continue to see strong demand. With the expected significant acceleration of renewable projects, we are seeing utilities and developers increase their demand for both new grid construction and upgrades. To recap, we're pleased with our margin performance to date and expect continued progress through year end. While we expect strong organic revenue growth for both full year and second half of 2023, we're disappointed we didn't manage our renewable revenue expectations better. We believe we've implemented the right process to ensure much better revenue predictability in the future, and we continue to be very excited about our future growth opportunities for 2024 and beyond. I'd like to take this opportunity to thank the men and women of Maastricht. 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 position ourselves for continued growth and success. I will now turn the call over to Paul for our financial review. Paul? Thank you, Jose, and good morning, everyone.

Beginning with our second quarter results, consolidated revenue was approximately $2.87 billion, below guidance by approximately $125 million. Despite lower revenue, we still generated adjusted EBITDA of $255 million and adjusted earnings per share of 89 cents, both exceeding our estimates. Our quarterly revenue and adjusted EBITDA were both records for the second quarter. Our communication segment performance was roughly in line with expectations at $869 million of revenue and $94 million of adjusted EBITDA, or 10.8%. Adjusted EBITDA margin was up 310 basis points versus the first quarter and 40 basis points year over year. We did experience some revenue slowdown in the quarter as certain customers revised capital expenditure plans for the balance of 2023. Our power delivery segment was also in line with expectations, with revenue of $703 million and adjusted EBITDA of $57 million, or 8.2%. Adjusted EBITDA margin improved in this segment as well, up 130 basis points from Q1 and 70 basis points year-over-year. We continue to see positive performance trends from our integration efforts over the last year. Our oil and gas segment had a strong quarter, with revenue of $342 million and adjusted EBITDA of $77 million, or 22.5% of revenue, significantly higher than our expectations of low double-digit adjusted EBITDA margins. Performance was driven by favorable developments related to project closeouts and strong execution on numerous projects. Second quarter clean energy revenue and adjusted EBITDA were both slightly below expectations, driven by delays in execution of certain projects. Revenue was $970 million, and adjusted EBITDA was $50 million, or 5.1%. This represents approximately 400 basis point improvement versus Q1, and over 600 basis points improvement when compared to last year's second quarter. While pleased with the margin progression, there are a number of factors causing project start dates to slip, putting pressure on the segment's anticipated results, and second half in the second half versus our prior expectations. Backlog for the second quarter was $13.4 billion, reflecting a 3% decline versus the first quarter's record level. The decline was driven by timing of contract execution in our clean energy segment, where backlog excludes projects totaling over $1.9 billion that we are currently working on under limited notices to proceed. For our policy, These contracts will be included in backlog once fully executed. Additionally, our communication segment backlog is lower sequentially, as we are expecting work from certain customers to slow in the back half of 2023. Q2 cash flow used by operations was $12 million, driven by higher levels of working capital investment to support revenue growth, partially offset by our DSO improving to 90 days from 94 days at Q1. As stated last quarter, we expect DSO to return to the mid-80s over the course of 2023 and we expect further improvement in subsequent quarters. Net debt leverage was unchanged from Q1 at 3.5 times, pro forma for last year's acquisition of IEA. Liquidity for the second quarter remains strong at approximately $900 million. As reflected in our updated guidance, there have been a number of developments impacting our outlook for the second half of 2023. As Jose discussed, our clean energy segment experienced delays in project start dates due to several factors. Uncertainty around the Inflation Reduction Act, supply chain issues, permitting delays, and interconnection agreement lead times are all contributing to start date slips for our customers. To illustrate this impact, we now expect over $575 million of project activity originally planned for 2023 to shift into 2024. due to some combination of these factors. We believe our revenue outlook for the second half is appropriately conservative in light of these market developments and will continue to closely monitor these items as we evaluate project timing going forward. We remain extremely confident in our outlook for 2024 and beyond. In our communications segment, performance is impacted by reduced volume from certain customers who are moderating second half capital spend after a strong first half and continued higher costs in their overall supply chain. This is predominantly related to wireless construction services. Turning to the oil and gas segment, with the Mountain Valley Pipeline now approved, we expect to be fully mobilized on this project next week. We'll receive a meaningful contribution to revenue in the second half, predominantly in Q3, before winter weather sets in. Factoring in these developments, we now expect 2023 revenue to range from $12.75 billion to $13 billion, with adjusted EBITDA of $1.05 to $1.1 billion, or 8.2 to 8.5% of revenue. We anticipate a meaningful shift in revenue mix, with our oil and gas segment now expected to generate approximately $2 billion, an increase of $500 million versus our prior guidance. Adjusted EBITDA margins for this segment are still expected to be in the mid-teens. Second half revenue is largely driven by MVP, which is a lower risk cost plus contract at margins below segment average. We expect clean energy revenue of $4.4 to $4.6 billion in 2023, reflecting the previously mentioned project delays. This compares to our previous guidance of $5 billion. Adjusted EBITDA margins should remain in the mid single digits. We expect communications to generate $3.4 to $3.5 billion with adjusted EBITDA margins in the low double digits. We anticipate some margin pressure versus prior guidance due to lowering operating leverage with lower revenue expectations. Finally, 2023 power delivery segment revenue is expected to be $2.9 to $3 billion with high single-digit EBITDA margins. Introducing the lower range for revenue takes into account the potential for less emergency restoration services than we performed in 2022. We also revised our 2023 adjusted earnings per share guidance to range from $3.75 to $4.19. In addition to our adjusted EBITDA update, the revised adjusted EPS guidance is impacted by higher expected depreciation expense, due to equipment required for the Mountain Valley Pipeline and a small asset purchase we completed in Q2. Interest expense is also expected to be higher due to sustained higher rates and timing of cash flow. We now expect full-year interest expense of $220 to $225 million and depreciation of $436 million. For the third quarter, we expect revenue of 3.75 to 3.85 billion and adjusted EBITDA of $360 to $390 million, or 9.6 to 10.1% of revenue. This equates to approximately 50% year-over-year revenue and adjusted EBITDA growth. Adjusted earnings per share is expected to range from $1.85 to $2.13. Looking at our third quarter expected segment performance, Our communications segment revenue is expected to be flat with the second quarter, approximating $870 million, with adjusted EBITDA margins slightly higher than Q2. We anticipate that third quarter clean energy segment revenue will approximate $1.3 to $1.4 billion, with adjusted EBITDA margins in the mid-single-digit range. Our expected margin for Q3 reflects improved operating leverage as our revenue ramps, but also some inefficiencies in carrying costs for the delayed project starts previously mentioned. Third quarter power delivery revenue should approximate $750 million with low double-digit adjusted EBITDA margins, slightly below last year's strong third quarter. Oil and gas segment revenue for Q3 is expected to approximate $850 million with adjusted EBITDA margins in the mid-teens. lower than previous forecasts, reflecting the cost plus structure of our work on MVP in the quarter. Finally, corporate expenses are expected to again approximate 100 basis points of Q3 revenue. We continue to expect to generate cash from operations of approximately $550 million in 2023, with net cash capex of approximately $100 million. We still expect year-end 2023 net debt leverage to be in the low two times. Lastly, as Mark mentioned, we have posted a guidance fact sheet to the investor relations section of our website that summarizes these comments and provides detail on additional assumptions for modeling purposes. I'll now turn the call over to the operator for Q&A.

Thank you, sir. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up. From there, please rejoin the queue for any additional questions. Again, star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal.

Our first question comes from Alex Regal with B Reilly.

Your line is open. Please go ahead.

Thank you. Good morning, gentlemen. Next quarter.

Morning, Alex. Morning.

A couple quick questions here. First, as it relates to the $1.9 billion in new awards that are pending, what segment is that in? What's the timing? And is any of that in your 2023 guidance?

Yeah, so to be clear, right, that is specifically renewable projects in our clean energy and infrastructure business. So it's only renewable projects. And the reason we thought that number was important is to give – obviously what the revenue is, it's to give comfort around what we're seeing and how we're seeing it and why we're so bullish on the future growth of the business. So of the 1-9, it will not all be in 2024, right? Some of those projects will extend beyond 2024. And I actually don't believe any of that 1-9 is currently in our second-half projections for 2023. And then secondly –

Your oil and gas directional guidance for 2024 revenue, it sounded like it was $2 billion, which would be flat to 2023. But yet 2023 includes MVP, which is a pretty quick burn project. So I guess my question here is, what's the visibility on the backfill to MVP in 2024 that gives you so much confidence that we see oil and gas flattish in 2024?

We agree with you, Alex. We purposely said it because we think it's a very bullish statement on the segment. Our visibility is excellent. We have most of that work secured, although maybe not all in backlog, but a lot of it is secure. So we feel really good about entering 24. We always knew MVP would hit at a certain point in time, and it would impact a given year. And we were always worried about what the You know, next year comp would be relative to that project, and I think the way it's playing out is we're going to do a great job of maintaining the segment revenues despite, you know, having a project that had such a big impact in a given year.

Great. Thank you very much. Good luck.

Thanks, Alex.

Our next question comes from Neil Mehta with Goldman Sachs. Your line is open. Please go ahead.

Yeah, good morning, team. I wanted to start on the clean energy and infrastructure, the $575 million that's getting pushed out to 2024. So, you know, can you give us some more granularity around what's driving the pushouts on the ground? And then what's the confidence interval that does show up in 2024 and some of the issues that are showing in 2023 do get addressed?

Yeah, it's an excellent question, Neil, so good morning. I'd say a couple things. One, as we think about 2024, there is a massive subset of projects available. There is incredible demand for the services. And I think one of the most important things that we have to do, right, as we did in our legacy business this year, is identify those projects which we think have the highest likelihood of moving forward. In some cases, those $575 million, some of those projects will definitely be in there. But in some cases, you know, some of those projects we may pass on, right, because we may not have the high level of certainty that we need to be comfortable. With that said, you know, many of those projects are – are in very late stages, so some of them we feel really, really good about. Some of them we, you know, will start before year end. So, and I think there's a lot of different reasons. I think Paul laid out very well some of the different things that are happening. But, you know, we're seeing everything from people trying to understand the rules around the Inflation Reduction Act, right, because it impacts their financial, the financials of the project, some developers more than others. I think we're definitely seeing, you know, haves and have-nots, right, the people that have been in this business for a long time. that have very predictable work, that do a certain number of megawatts every year, have been more consistent in 2023 than some of the newer developers that are building projects or that are more cyclical. And I think when we look at IA's business, it was much more geared toward the latter part, where Mostek's business was much more geared towards the prior type of customer. And I think managing that mix is going to be critically important. And, again, I think there's a lot of work out there that allows you to properly manage that risk. And shame on us, we didn't do a good job of that in 2023.

Thanks, Jose. And the follow-up is just around leverage. And I think you had indicated that there's a glide path to get to the low twos from a leverage perspective. So just talk about balance sheet management and how you want to get – where you want to get your debt to and the path to get there.

Sure, Neil. So, you know, a lot of it's from earnings growth, obviously. We've got, you know, a big appreciation to EBIT down the back half of the year. But we do think we're going to be able to pay down, you know, a couple hundred million dollars of debt through year-end as well, encapsulating the revenue growth that we see. So there's obviously some working capital investment required for that. But with the cadence of the year and, you know, our DSO and DPO being at the level they should be, we feel pretty confident about the ability to achieve that.

We'll go to our next question from Andy Kaplowitz with Citigroup.

Your line is open. Please go ahead.

Hey, good morning, everyone. Good morning, Andy. Jose, maybe give us a little more color regarding what's happening to IA, like just from the ground. Your large peer talked about hiring 3,000 people this quarter, which is a jump for them. You know, maybe talk about the workforce. You know, are you seeing any sort of unexpected attrition? And then could you give us more color in terms of wind versus solar? Is it really just all wind projects getting delayed? Obviously there's been a lot of issues in the wind industry. So sort of what are you seeing there?

Yeah. I'd maybe backtrack a little bit and, again, you know, reemphasize some of the stuff we said in the prepared remarks earlier. Last year, IA did about just over $2.4 billion of revenue. Obviously, it was an acquisition that closed late in the year, public company. We were able to really do a lot of deep dive on the planning process post-acquisition, which for all intents and purposes was done by the time we bought them. And quite frankly, we feel good about their plan, right? We didn't have a lot of growth estimated in the plan. We knew that the wind business would be challenged in 2023. We knew the solar market was growing. They have a very good customer base that they have a lot of history for. I think historically they had done an okay job of managing revenue expectations relative to reality, although they did have some issues in the past. So we generally felt okay. We didn't get too aggressive around the plan. And again, first and second quarter were generally in line with what the expectations were. So as the year developed, There's no question that historically they've been heavier on the wind side. They're also heavier on the union side, which adds another complexity to these type of projects and the ability to kind of move resources to other projects that are available. So, you know, it's split. There's definitely a bigger hit to the wind business. Their wind revenue is down more than their solar revenue, but their solar revenue didn't grow at the level that it should in 2023 either, and it's because a lot of the projects they had slated to begin got pushed. So I think it's really about, you know, understanding where the customers were, understanding where the projects were. And then, you know, once you commit to a job, it's really hard to go secure another job because you've got your resources committed. And I think what we saw was a number of their customers begin to fall off. Without the, in short order, the work's not available to remobilize those resources. So, you know, to your question about our peer, look, there is absolutely no doubt that the industry right now, the demand is incredibly high. And, you know, the reason we wanted to kind of split legacy versus IEA was to show you the success that we're having in our legacy business, right? We have 25% organic growth in our legacy business. So the market's there, right? These are, you know, unforced errors on our part that we need to fix. We're not worried about the go-forward potential of the market. It's about our ability to understand the projects, execute on them, and plan better. And I think that's what, you know, we're all working very diligently to do.

Jose, that's helpful. And then, you know, just going over to telecom, you've obviously been bullish on And you talked about customers adjusting capex. So maybe you can talk about what changed during the quarter for you. And, you know, moving forward, you didn't change your sort of near-term forecast for telecom at that $4 billion number. But would you say near-term is pushed out and 2024 could be more challenging telecom as well? Or maybe color there would be helpful.

Sure. So I think when we deep dive into that, right, the majority of what we're seeing in slowdown is only on the wireless side. The wireline business is extremely active. We think there's more than enough wireline business to execute solid growth for 2024, which is why we didn't change, you know, the near to midterm outlook. We think that wireless will come back, but at this moment in time, I think it's one of the few places that our larger customers have to adjust spend. And with the interest rate environment where it is, I think you're seeing slight tweaks. So, again, it's not a – I think instead of growing high single digits to 10%, we're going to grow 5% for the year. So we're still growing in the business. We still have a strong second half, but it's slightly less than what our original expectation was.

Thanks, Jose.

Thanks, Andy.

Our next question comes from Steven Fisher with UBS. Your line is open. Please go ahead.

Thanks. Good morning. Just want to follow up on the IEA integration. Can you just talk a little bit about the progression of the acquisition integration costs since the deal closed? What has each increment accomplished? And if there were to be another step up, what would it need to address? Because they've been kind of ramping up here. They're all kind of below the line. But I'm really also wondering what the cash impact of these integration costs are and how that's ramping and whether you've included that in your kind of net $450 million of free cash flow.

Yeah, Steven, this is Paul. So they're ramping down in the second half of the year. And to your second question, any severance or termination costs are factored in to the back half of the year guidance around acquisition integration expense.

So any impact on cash flow is captured as well.

Okay. But it's all just you keep raising it because you're just finding more layers of overhead that that need to be cut? I'm just kind of curious why it's sort of... No, no, no.

Sometimes it's the timing of... Sorry about that. Sometimes it's the timing of when it can be enacted, right? So savings on things like, you know, bringing them onto our insurance program, for example, right, is something that, you know, has to be done at a renewal or, you know, termination of license agreements, things like that. So that's why there's some tail on it. But I think we've captured it all and do expect it to moderate into Q3 and into Q4.

And then to your, I guess, the first thought, which was integration, we've spent an enormous amount of time, obviously, on integrating IEA. I think, again, when we look at the differences in terms of the performance of the two units, we've done a lot of combining. We think our go-to-market strategy today is far superior to what it was prior to the IEA transaction. We think that we're capturing all of the detail that we need to understand the customers, the projects. We're in deep negotiations with lots of customers over multi-year projects and long-term projects and labor availability and labor resources, the ability to commit those over a long period of time. So I think that understanding the market, positioning ourselves for 24 and beyond is putting the right team together to execute on all of this at a much more structured level, I think we're making really good progress on, and I think over the next coming quarters we'll talk a lot more about that.

Okay, and if I could just follow up on the telecom side. I know, Jose, you just said that you expect the wireless business to come back, but in the meantime a bit slower growth. I guess to what extent are you shifting your focus strategically from telecom wireless to fiber and cable. Uh, I know you've kind of pursued some of the, uh, the Argoff programs. Um, you know, is that a strategic shift that you are making? And if so, kind of what else has to happen to support that shift in, in strategy?

I don't think it's a shift that, you know, if you look at our year this year, you know, our wireline business will grow more than 20%. So we're having a really strong growth year there. Um, Our business today is mixed. We're still incredibly bullish about wireless over the long term. We think it's a great business, albeit the growth has moderated a little bit for the second half of this year. When you think about how we all live and how we use devices and how attached we are to devices and the amount of data that goes through these devices, the need for wireless will always be there. The need to create more capacity on the wireless networks is going to continue to increase, and that's what we do, right? So I'm very bullish in that market. I know we're, unfortunately – In uncertain economic times, some of our larger customers, which all of these companies are very large, might have some slight adjustments. We're not seeing it impact the wireline business as much as we're seeing it impact the wireless business. And at this moment in time, the wireline growth opportunity is greater, and we're going to take advantage of it, and we think we could have similar growth, if not better growth, in 24 on the wireline side versus 23. So I think when we look at the full-year opportunity for us in 24 versus 23, it's still somewhat unchanged.

Thank you very much. Thanks, Neal.

Our next question comes from Justin Hockey with Robert W. Baird. Your line is open. Please go ahead.

Good morning. Thanks for taking my question. I guess I wanted to ask, on the margin assumptions, you guys don't give point estimates. You give, you know, ranges, high single digit, mid single digit, whatnot. and those aren't changed. You've got MVP coming in here in your highest margin business, and obviously you're taking your margins down. So I guess I just wanted to clarify, is it each segment that you're assuming is kind of lower profitability than where you were, or is there some type of concentration in one segment versus another one? Just maybe a little bit more help on the segment expectations.

Yeah, Justin, so I'll take a stab at it, and then I'll turn it over to Paul. I mean, just as it relates to MVP, right, MVP is a cost-plus job. It's not a unit job. So we've always talked about MVP having a lower margin profile than the balance of oil and gas business. Again, we didn't expect that project to be in 2023. So as that project, you know, executes out in 2023, it'll have a slight dilution to the margin of that segment.

Yeah, and I would just add, I think there's probably where we were previously, A little bit of pressure on communications, just with the lower operating leverage, and a little bit of pressure versus our prior guidance on clean energy. Still good improvement, but just with the lower volume, we are going to be carrying some costs to deal with this workload as it comes in in the foreseeable future. Still in that same range, but relative to where we thought they were at our Q1 guidance, slightly lower margins in those two segments.

Okay, thank you. I guess my follow-up, you know, we've talked a lot about IEA. I wanted to ask actually about the Henkels acquisition, you know, which I think is, you know, had some legacy infrastructure projects in there that you guys have talked about, you know, kind of working through and cleaning up. It looks like, you know, you're kind of unbuild or – has kind of, you know, upticked a little bit in terms of, you know, what's on the balance sheet. I was just curious, you know, the status of those jobs and are there still charges that you're working through that are pressuring the margins at Hinkle specifically?

Yeah, so I think the industrial projects you're referring to, those weren't from Hinkle. Those were projects from MOSFET's, you know, clean energy segment that we've been working on over the last, you know, a year and a half or so. You know, we're working through those projects. They're mostly complete. You know, I think we're in various stages of negotiation with the customers on any closeout and claims that we have. And, you know, we feel very good about our positions and, you know, on those. And we look forward to having those behind us, you know, hopefully by the end of Q3 from a performance perspective, they should all be complete.

Okay, great. Thank you. Thanks, Justin.

Our next question comes from Adam Tallheimer with Thompson Data. Your line is open. Please go ahead.

Hey, good morning, guys. Jose, in your oil and gas outlook for next year, what's the nature of those jobs? Are those kind of traditional oil and gas jobs, or are we starting to get into some of the carbon capture?

You know, I think we'll be better prepared to talk about it over the course of the next couple quarters. I think there's, you know, a lot available. I think our statements and the work that we've got currently booked is still around traditional, you know, the traditional work we've done. There is opportunities for alternative type of pipelines to be built starting as early as next year, so we're excited about that, and I think we'll be talking a lot more about that in the coming quarters.

Okay, fair enough. And then on power delivery, not much talk today. What kind of project activity are you seeing for that segment?

I mean, look, we didn't talk a lot about it because it's kind of performing exactly as we expected for both the quarter and the year. You know, to Justin's earlier question about, you know, Henkels and how we feel about the integration, I mean, we actually think that that integration has gone really smoothly. We're kind of past it. We've got a completely revamped, you know, business relative to how we're going to market, how we're executing on that. Tremendous opportunity in that business. I think we've positioned ourselves really well for future growth, and I think, you know, this was still a year where we were kind of trying to put everything together, and it's working out as planned, and I think next year we'll have an opportunity to show really nice growth in that business yet again.

Good. Okay. Thanks, Jose.

Thanks, Adam.

Thanks, Adam.

Our next question comes from Jamie Cook with Credit Suisse. Your line is open.

Please go ahead. Hi, good morning. I guess two questions, Jose. One, you know, one of your peers was talking about, you know, margins being weighed down by investment required ahead of some of these large projects that are going forward. So to what degree is the risk, you know, in 2024 that margins are weighed down by investment understanding the longer-term margin potential is still fairly positive? And then my second question is, My second question is, I understand you don't really want to talk about 2024, but given the backlog that's out there, you know, and the growth prospects you see, as we think about 2024, you know, do you still expect earnings to be sort of more of a back-end loaded year, or do you see opportunity for, you know, earnings to be, I guess, more normalized throughout the year versus just a back-end loaded year like the past two years? Thank you.

All right, Jamie. So a lot there. Let me try to deconstruct it. So I think from a margin story and the work that's available in 24 as business units, obviously every type of work is different. When we're thinking about our renewable strategy and the work that we've done, obviously IA is coming off of a down year in 23 going into 24. We think they have a capacity to do a lot more without a lot of further investment. I think if you're looking at pure renewable projects, the investment required is substantially lower than if you're looking at large transmission projects. And as we think about our growth in 24, it's not necessarily going to be on the really large transmission side. It's going to be on more of the traditional renewable projects, which we think require less capital. So we don't think we have a – our expectation isn't for us to have a margin deterioration as we're growing. We actually think we can manage through that. and still improve margins in 24 relative to 2023, just based on the book of business that we're going after and the mix that we have. So we actually feel good about that.

And the second question, which is, are earnings in 2024 back and loaded, or could we expect earnings to start to... Yeah, it's a good question.

The beginning of 23 was relatively slow for us, so we actually think early 23 is going to be a good comp relative to what we're seeing in 24. We have a lot of renewable projects that are starting or that have already started that are going to go well into 24, so I think we're going into 24 with a lot more activity in the early part of the year. Then we did, you know, 22 to 23. So I think you will not see. We're always going to have a bigger second half of the year versus first half of the year because it's just the nature of our business. But I do think we're set up well for good comps in the first quarter of 24 versus the first quarter of 23. Okay.

Thank you.

Thanks, Jamie. Jeff, do we have any final questions?

We do. Our final question comes from Sean Eastman with KeyBank Capital Markets. Your line is open. Please go ahead.

Hi, team. Thanks for taking my questions. I just wanted to come back to the comment about the improved revenue predictability going into 2024 for the renewable operation. Maybe just a little bit more color there, Jose, in terms of, you know, beyond kind of the operating environment type stuff, what's been actioned there, you know, where the, you know, Moztech kind of way has been implemented to help improve that predictability into next year. And, you know, to the extent you're comfortable, I mean, maybe relative to this, you know, near-term potential $6 billion in revenue number, what is like a reasonable, you know,

expectation for for the revenue stacking up into next year so a couple things right one is again you know we highlighted mastic legacy clean energy because it's just important to note the difference right I think we did a really good job this year of assessing risk relative to projects on the renewable side I think we've taken all of that and we've now implemented that at IA we've got you know one team that's kind of taken the lead on all project assessment going forward, our own revenue, internal stacking based on projects and the viability of projects and what we think it's going to be. I think you're going to see us be more conservative as we guide into 24 because we don't want to be in this position again. So we're You know, there is no question that we will have significant growth in that segment in 2024 relative to 2023. I don't think you're going to see us guide to $6 billion, but I think you'll see us guide to a number that was higher than our original guide for 2023.

Okay, that's helpful. And then one for Paul. Just coming back to Steve Fisher's question on the cash flow, you know, how is it that the cash flow guidance is – intact with the pretty significant reduction to the earnings guidance and the GAAP earnings guidance down quite a bit? Is it working capital has been tightened up? What's been the offset there to help you keep that number in play?

We're down on the range $50 million. I think a little bit lower revenue helps because there's less working capital investment. The cadence of the year helps. And, you know, I think we've had some conservatism built into the number based on, you know, the near-term DSO performance, and I think we're seeing really good momentum there across the company, you know, to improve those working capital metrics. So there's not an aggressive assumption set to get us to that level.

Okay, got it. And then just last quick one, I mean, any color on what – you know, where you're achieving that success on the DSOs, you know, where you're, you know, kind of capturing that slack in the working capital?

Yeah, some of it's mixed. I mean, the clean energy segment historically has and traditionally has lower working capital requirements than some of our other businesses. You know, and then there was, you know, a couple of pockets in communications that WIPP got a little bit long in the tooth and we've taken the opportunity, you know, with a little bit of,

volume slow down to to be more diligent with our customers around getting things billed you know quickly so that we're getting paid you know more promptly as well and maybe to that point just maybe even add a little more specificity to that you know we added a lot of customers in the course of the last year in in various segments including our communication segment and i think just understanding them and getting into the right cadence of how you bill how you get paid quicker i think it's starting to show a lot of dividends and and that's you know part of what we're seeing today, which gives us a lot of confidence in the back end of the year.

Okay. Gentlemen, thanks very much. Thanks, John.

That will conclude the Q&A session. I'll now turn it back to Mr. Jose Mas for any additional or closing comments.

Just want to take the opportunity to thank everybody for participating, and we look forward to updating you on our third quarter call in a few months.

Thanks for joining us.

Thank you. Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect your phone line at this time.