MasTec, Inc.

Welcome to Mass Tech's third quarter 2024 earnings conference call, initially broadcast on Friday, November 1st, 2024. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to our host, Mark Lewis, Mass Tech's Vice President of Investor Relations. Mark?

Thanks, Maddie. Good morning, everyone. The following statement is made pursuant to the safe harbor for four 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 MOSFET'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 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 the press release and filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications today. In today's Remarks by 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 today's call. A reconciliation of any non-GAAP financial measure, not reconciling these comments to the most comparable GAAP measure, can be found in our press release. Please note that we have two additional documents associated with today's webcast along with our earnings release, which can be found on the investor page in the events and presentations section at mystack.com. There is a comparison presentation with information about analytics on the quarter just ended and a guided summary to exist to assist you in financial models for Q4 and the year. Both PDF files are available for download immediately. With us today, we have Jose Mas, our CEO, and Paul DiMarco, our EVP and Chief Financial Officer. The format of the call will be opening remarks and analysis by Jose, followed by a financial review from Paul, and we expect the call to last about 60 minutes. We have a nice quarter and a lot of important things to say today, so I'd like to turn it over to Jose. Jose?

Thanks, Mark. Good morning and welcome to MOSTECH's 2024 third quarter call. Today, I'll be reviewing our third quarter results as well as providing my outlook for the markets we serve. First, some third quarter highlights. Revenue for the quarter was $3.3 billion. Adjusted EBITDA was $306 million. Adjusted earnings per share was $1.63. and backlog at quarter end was $13.9 billion, a $520 million sequential increase. In summary, we had another good and clean quarter. While revenues were slightly below expectations, EBITDA margins were about 85 basis points better than expected. For me, the highlight of the quarter was that every segment outperformed our margins compared to guidance. This demonstrates the significant improvement in our business, and with record backlog, we entered 2025 with great momentum and confidence. I'd like to point out some further highlights about our quarter. Our communications segment revenue grew over 12% both year over year and sequentially, which resulted in record quarterly revenues for this segment. Our communication segment EBITDA margin of 11.5% was its highest performance in two years. Our clean energy and infrastructure segment also had record quarterly revenue and EBITDA. Our clean energy and infrastructure EBITDA margin of 7.5% was its best performance since 2019. and revenue in our power delivery segment was up year over year for the first time in 2024, and was up about 10% versus both guidance and sequentially, and begins to reflect an improving environment on distribution spending. I'd also like to point out that our total company non-oil and gas revenue was up over 15% sequentially, and non-oil and gas EBITDA improved 36% sequentially, which was the primary driver of our earnings beat. We made significant investments post-pandemic to diversify our business and position us to participate and benefit from the changing landscape of both power generation and delivery. While we believed we had made great progress in our ability to compete and win, today's earnings begin to demonstrate our success. To be clear, while we're happy with today's results, we have room for significant improvement across all of our segments. That opportunity for improvement is actually what I'm most excited about. We are seeing incredibly strong demand for our services. We participate in great end markets, and our prospects for strong organic growth are as good as they've ever been. we also have the ability to meaningfully improve margins. While we have made progress this year, that margin improvement, coupled with strong revenue growth, should lead to significant value creation for our stakeholders. I'm excited about that opportunity and am confident that the MOSTEC team will deliver. Now I'd like to cover some segment highlights. In our communication segments, Third quarter revenues were up double digits year over year and sequentially, and represented the segment's highest revenue in our history. Margins at 11.5% were at a two-year high. On the wireless side, our market share expansion with AT&T, coupled with the Nokia Ericsson swap-out, is on track and playing out as we expected. On the wireline side, demand remains incredibly strong. While there have been some short-term delays, the impact of BEADS funding will be a catalyst for our business, as will the growing demand for fiber associated with artificial intelligence and data centers. As an example, we are excited to announce that post-quarter end and not included in backlog, we were awarded a major fiber program build from Lumen Technologies. This multi-state award represents over 8,000 miles of fiber in support of their efforts to provide capacity for hyperscalers and expand their high-capacity network infrastructure, enhance connectivity, and address the demand for reliable, advanced digital networks. In our power delivery segment... During the quarter, revenue was above our expectations as we began to see some improving trends from our distribution customers who had cut back earlier in the year. The third quarter represented our first year-over-year revenue increase in 2024. We made good progress on our large 700-mile transmission award that we announced last quarter and we are on schedule to fully mobilize in early 2025. Despite the revenue beat, backlog was up nearly $200 million sequentially and book to bill was strong at 1.29 times. Projected energy load growth in the U.S. will have a substantial impact on our business as our customers meaningfully increase their investment in both generation and grid expansion. We are incredibly well positioned to take advantage of this opportunity. In our oil and gas pipeline segment, revenues were slightly lower than expected, but margins outperformed. While backlog is down, demand is better than backlog suggests. We have a number of verbally awarded projects that will convert to backlog. We currently have strong multi-year visibility and are excited about the role gas fire generation is going to play in helping meet our country's low growth needs. Finally, In our clean energy and infrastructure segment, revenues were up over 20% sequentially, and EBITDA was up 80% sequentially. Both revenue and EBITDA were at record levels for the segment. Margins of 7.5% were well ahead of expectations. I'd like to congratulate our clean energy and infrastructure team for their performance. 2023 was a difficult year in this segment. and we made a number of changes to both maximize our competitive positioning and improve our operational performance. The third quarter results begin to reflect their progress. In addition to the financial progress, backlog for this segment is at record levels, an increase nearly $500 million sequentially for a book-to-bill of over 1.4 times. Backlog is up over a billion dollars from this time last year and that positions us well for 2025 and beyond. In addition to the growth opportunity, we are focused on continuing to improve margins. While the third quarter showed great progress, we expect to keep improving. In summary, this was a good quarter, with solid performance across all of our segments. The investments we've made in the last few years to build scale along our vertical offerings are beginning to translate to financial success. I want to highlight again that what excites me the most today is our opportunity to not only grow revenues, but to do it while simultaneously improving margins. That combination provides tremendous upside for MOSTECH. We are pleased with our market position, our diversified business model, and our ability to offer our customers integrated solutions at scale. I believe that the most successful companies in our space are those that have the scale to meet our customers' demand. Our customers' projects have significantly increased in size, scope, and complexity, and there is no question that our customers need strong partners. I believe that over the last few years, our biggest accomplishment has been to position ourselves as one of only a few partners that's viewed throughout our industry as a partner whose workforce, size, and scale affords it the capabilities to take on any project. I'd like to take this opportunity to thank the men and women of MOSTEC. I'm honored and privileged to lead such a great group. The men and women of MOSTEC are committed to the values of safety, environmental stewardship, integrity, honesty, and in providing our customers a great quality project at the best value. These traits have been recognized by our customers, and it's because of our people's great work that we've been able to 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. To begin, a few third quarter highlights. Third quarter adjusted EBITDA was $306 million, exceeding guidance by $11 million and a quarterly record. Adjusted EBITDA margin of 9.4% exceeded our guidance by 85 basis points. We met or exceeded our adjusted EBITDA guidance for each segment, despite the lower than expected revenue in the quarter, as certain projects saw slower burn than anticipated. Adjusted earnings per share was $1.63, exceeding guidance by $0.39, driven by the adjusted EBITDA peak, lower depreciation, and interest. Eighteen-month backlog at Q3 totaled $13.9 billion, an increase of $520 million in the second quarter and $1.4 billion year-over-year. Growth was driven by continued strong bookings of renewable energy projects, where backlog has more than doubled from last year's third quarter. Lastly, we continued to improve our balance sheet in the third quarter, with cash flow from operations of approximately $280 million, despite 10% sequential revenue growth. Accordingly, we reduced net debt by approximately $120 million in Q3, with net leverage of 2.2 times. Turning now to our segment performance and expectations. Third quarter communications revenue was $927 million, with an adjusted EBITDA margin of 11.5%, generally in line with our expectations. Modestly lower revenue in the quarter versus guidance was driven by delayed construction starts on certain wireline projects. Overall demand remains very strong, so this represents a delay in timing of revenue recognition. Our updated outlook incorporates these delays with full-year segment revenue guidance reduced by $50 million to $3.4 billion, but maintaining our adjusted EBITDA forecast unchanged, with margins in the high single digits. For the fourth quarter, we anticipate revenue will be approximately $915 million, up 20% year-over-year, with adjusted EBITDA margins in the low double digits. Third quarter power delivery segment revenue was $713 million, and adjusted EBITDA was $54 million, or 7.6%. Revenue was higher than expectations, as we saw some rebound in distribution services and a modest impact of emergency restoration services in the southeast U.S. Eighteen-month backlog for power delivery increased by approximately $185 million from Q2 to $3.2 billion, a record level. For the full year, we are revising our forecast to reflect third quarter performance and continued emergency restoration in the fourth quarter. We now expect segment revenue to be $2.65 billion with adjusted EBITDA margins in the high single digits. Fourth quarter revenue is anticipated to be $730 million with adjusted EBITDA margins in line with the full year estimate. In the third quarter, our clean energy and infrastructure segment generated adjusted EBITDA of $85 million, or 7.5% of revenue, ahead of our expectations by 150 basis points. The strong margin performance was driven by improved project execution across all three verticals, renewables, infrastructure, and industrial, all of which achieved their best margin quarter of the year. Revenue of $1.14 billion was $187 million below guidance, as certain project activity saw near-term delays pushing revenue into future quarters. These delays were driven by a combination of factors, including timing of material deliveries and the impacts of adverse weather. Backlog conversion remained very strong, growing over $470 million sequentially and $1.1 billion year-over-year to approximately $4.1 billion, a new record. For the full year, we now expect clean energy segment revenue to be $4.1 billion with mid-single-digit adjusted EBITDA margins, trending 100 to 150 basis points higher year-over-year. Fourth quarter revenue guidance of $1.3 billion reflects 11% sequential revenue growth and 19% year-over-year. Fourth quarter margins are expected to be in the mid-single digits, approaching Q3's level. Third quarter pipeline segment revenue was $498 million, with adjusted EBITDA of $103 million, or 20.7%. Revenue was slightly below expectations due to the timing of product burn, which we expect to make up in Q4. Our full year pipeline segment outlook remains unchanged, with revenues of $2.1 billion and adjusted EBITDA margins in the high teens. This equates to fourth quarter revenue of $425 million and adjusted EBITDA margins in the mid-teens. On a consolidated basis, full year revenue is now expected to be $12,225,000,000 with adjusted EBITDA of $990,000,000, reflecting the Q3B. Our consolidated fourth quarter outlook remains largely unchanged with $3.325,000,000 of revenue and adjusted EBITDA margins of approximately 8%. We are also raising our adjusted EPS estimates to $3.75 for the full year and $1.29 for the fourth quarter. As part of our continued efforts to improve fixed asset utilization and return on invested capital, we completed a comprehensive review of MOSFET's depreciation policy in the third quarter. The overall size, diversity of asset categories, and usage patterns of our capital fleet have changed significantly in recent years, so we launched this initiative to ensure we are more accurately capturing the cost of our capital expenditures to enable proper evaluation of the associated return on investment. We found our operations were consistently utilizing assets beyond the useful life stated in the prior policy, further evidenced by our relatively low CapEx as a percentage of revenue in recent years. The revised policy was implemented prospectively in the third quarter, so these depreciation levels are comparable to future expectations. Shifting to the balance sheet, we committed to be leveraging following our strategic acquisition in 2022. and through the third quarter of 2024, we have now repaid over $900 million of debt. Our cash flow convergent over that same timeframe equates to approximately 85% of adjusted EBITDA. I am proud of the focus and discipline MOSTECH has exhibited to drive these solid results. Q3 year-to-date cash flow from operations totals almost $650 million, exceeding our prior full-year estimate. ESO at Q3 came in at 68 days, slightly better than Q2, and liquidity stands at $1.9 billion. We expect some working capital investment in Q4, and now expect full-year cash flow from operations to be approximately $700 million. As a reminder, we have posted a guidance summary on the Investor Relations section of our website that summarizes our outlook and provides additional data points for modeling purposes. We'll now turn the call back over to the operator for Q&A.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please ask only one question and one follow-up question. If you have further questions, please return to the queue. Again, that is star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Andy Kaplowitz with Citigroup.

Good morning, everyone. Nice quarter.

Good morning, Andy.

Jose, obviously strong margin performance across the company, but it seems like rarely do you have essentially all of your segments operating better than you expected together. So could you give us a little more color into what's going on? Are you running the company at all differently this year after the year last year, or is this just a function of improved price versus cost given labor and equipment supply chains are better? as well as, you know, obviously good blocking and tackling from the team.

So, Andy, I think this should be the expectation of ourselves and even in the market of us, right? I think that we've made significant investments in the company over the course of the last few years to take advantage of the market opportunities that we had in front of us. And I think what you're seeing today is kind of – the beginning of that translating to financial success. We think we've had great operational success over the course of the last nine months or so in terms of how the business was trending, how we were doing with customers' wins, our reputation in the industry, the types of projects we were winning. And I think it was just going to be a matter of time before that demonstrated itself in the financial performance of the company, and I think we started to see that in Q3.

Okay, and then I know it's a bit early to talk too much about 25, but you did mention the confidence going into 25, given your sequential backlog growth. You've got that Lumen Award, which I'm curious how big that is. But I think the street is forecasting close to mid-teens EBITDA growth for MassTech in 25. So maybe any puts and takes you see across the businesses and your confidence level in meeting or beating that forecast, are you comfortable with it?

Sure. So if you look at 2024 versus 23, EBITDA with our new guidance is going to be up about 15%. We haven't provided guidance for 25, but if you look at consensus estimates out there, it's just under that growth for 25 versus 24. We believe that to be achievable. When we think about our businesses at a high end, right, when we think about our comms business, our power delivery business, our clean energy and infrastructure business, We expect all of those businesses to be up double digits from a revenue perspective on a year-over-year basis organically. Again, we have tremendous momentum across all those. We would expect our oil and gas business to be, you know, flattish to potentially slightly down. It's going to be really dependent on project timing starts. But we feel great about revenues. We feel great. We think, again, we think we've got the opportunity to improve margins across all of our segments, maybe with the exception of oil and gas. And We think we've got a great chance of delivering that, so that's our early thoughts around 25 as we sit here today.

And just Lumen, it seems like a very large job. Any more color on that?

Yeah, look, they haven't historically been a big customer. They've been a sub-$50 million customer for us for the last two years. It's a big win for us with a customer that we typically haven't done a lot of business with, so it's, I think, a great opportunity. advancement of our relationship, and we're super excited about helping them. They've got a ton to do. They've been very successful as it comes to hyperscalers and their ability to sell their network in. So we hope to keep growing with them and keep supporting them to hopefully keep winning awards over time.

Appreciate the color.

Thanks, Andy.

We will take our next question from Stephen Fisher with UBS.

Thanks. Good morning. And congratulations on the nice margin trajectory here. Just to start off on the slower clean energy revenue ramp, was that specifically solar project? It sounded like maybe there's some material delivery delays and weather. Can you talk about how many projects that was driven by and what's the path to improvement there? Is there any risk to that in Q4? And and into 2025.

Yeah, good morning, Steve. So I'd say a couple things. I'd say if you look at our clean energy business from second quarter to third quarter, We were up roughly $200 million or just over 20% on a sequential basis. I think, you know, that's a big number. When we look at, you know, what we expect to do in Q4, it actually ramps faster than that. So these are big projects. These are projects that, you know, if you slip a week or two, it has a significant impact to revenue. There were no major changes in project outlook or what we expected to do. There were just some changes. you know, projects that slip by a couple weeks. It could be delivery of materials. It could have been, you know, a particular permit. But we don't see anything, especially within the backlog that we have today, we don't see anything where we're uncomfortable about hitting our fourth quarter numbers. We actually think most of the – all of the jobs that we need to do that have all been started. So we're pretty excited about where we are. Again, with big projects – slips of a couple weeks have an impact to revenue, and I think that's what you saw in Q3, which I think was more than made up for the outperformance in earnings, which has a lot to do with, you know, the fact that a lot of the older projects are burning off and we're starting a lot of the newer projects that we've been much more successful at.

Sounds good. And then just a follow-up on the good cash flow and as it relates to capital allocation. I mean, can you just talk about some of the underlying cash flow drivers there that are maybe kind of separate from the non-recourse financing. I'm just kind of curious if there's any connection to sort of the increase in those receivable sales this year to M&A strategy. I'm wondering if the market that you're seeing for M&A is perhaps active enough that it makes you want to have sort of lower leverage sooner to be able to kind of pursue some of those deals that you might be seeing out there. Thank you.

Yeah, Steve, this is Paul. So, you know, I mean, the situations where we're using facilities to advance receivables with customers is, frankly, pretty small. You know, the driver is from really the contract assets. You know, we're billing quicker. We're billing more accurately, and that's really from the focus that all of our teams have on that effort. Some of it's mixed. Generally, renewable and infrastructure projects have better working capital profiles. So as that segment grows, we're going to have just a better mix of billing parameters in the contracts. But where we are today is achievable, and we're very comfortable with leverage as it stands now, and the flexibility it gives us to deploy capital in the manner that we think is best for for shareholder value. So, you know, we think we're in a position now where we'll support the organic needs of the business, and if the right MA opportunities come up, then we have the flexibility to look at that as well.

And, Steve, maybe just to add to that, I think that is a big change, right? You know, what a difference a year makes, right? We were sitting here last year very focused on reducing debt. We put out a target of approximately two times leverage. I think we're well on our way of beating that this year. So I think we have great financial flexibility. We do see a very active M&A market today. I think we've been very successful in M&A in the past, especially in the type of deals that we historically did. So I think it could be reasonable for you to expect us that we're engaged, we're looking, and there are some things that we would potentially do in the future.

Sounds great. Thank you very much. Thank you. Thanks.

We will take our next question from Ati Modak with Goldman Sachs.

Hey, good morning, Beam. Jose, I think you mentioned a few verbally awarded contracts in the oil and gas business, so wondering if you can provide any color there. And then for the gas business in general or the exposure in general, what does that opportunity set look like for you, any color you can provide?

Yeah, so good morning. I think that, you know, the message that we're trying to get across is we're, again, we've got what we think is excellent visibility, and really not just for 25, but even into 26 and 27. So we've got a number of customers that have projects that are planned over the course of the next three years. We have a really good understanding of which of those projects our customers want us to work on and expect us to do for them. So that's incredible visibility, much better than we've had in years as it relates to our oil and gas business. I think that, you know, part of what's going to be dependent on where our revenue levels are is, you know, project starts. You know, we have a very... Busy second half of 25 planned and a very, very busy 26 planned. So, you know, if those projects get to start a little bit earlier, if they get pushed, it will have some impact on 25 revenues. But I think, you know, again, you know, the contrast and the difference of where we were a couple years ago in this business where we were concerned about, you know, where that business was heading. I think today it's a very healthy business. It's a business that has tremendous upside for us. I think 2023 is turning out to be a very good year in that segment. But our 2024 is turning out to be a very good year in that segment. But I think that as we look at some of the outer years, we think it could be even better, right? Again, 25 might be more challenging because we've got the replacement of MVP that we've got to do. But when we look at 26 and 27, we're feeling really, really strong about those years. And there's tremendous upside. So we're very excited. From a power generation perspective, look, we just believe that gas power generation is going to play a role in that, a much bigger role than we previously anticipated, and that's going to lead to business not just for our pipeline group but for some of our infrastructure groups as well. And, again, we're super excited about the long-term opportunities there.

That's great. Thank you for all that. On the clean energy side, your backlog increase was pretty strong this quarter. Can you give us any color on the nature of projects, maybe size, customer type if you want to, and then anything you can provide on what the impact on margins should be next year?

Sure. So I'd say a couple things. I'd say, you know, A, we had a really strong booking quarter. We hope that that trend will continue in Q4. I think, you know, one of the real changes over the course of the last year has been our ability to really have some large anchor tenants that are giving us opportunities. sort of agreements to build a considerable amount of their work. That's been very important for us because I think that's something that we haven't necessarily had in that business over the course of the last few years. With that said, again, we're excited. Demand is really strong. I missed the last part of you. What was the second part of your question?

I just wanted to understand what the impact on margins could be given the backlog strength this quarter.

Again, strong margin quarter. When we look at Q4, we're expecting margins approaching that same level. Obviously, Q4 has all the holidays built in, so I think if we can approach that level, it would be a huge win. I think as we think about next year, we probably need a little bit of time. to properly assess what our margin progression is going to be. Again, the last two, Q3, and we expect Q4 to be really good. And as we, you know, get a better understanding of what these projects can ultimately execute at, I think we'll give more insight of that as we provide 25 guidance. There's no question that, you know, getting rid of some of our older projects, some of our troubled projects, and the performance of our newer business, the business that we've won within the last year, has been a lot higher, and I think that's a great trend for us.

And, Aki, I'll just add, You know, one of the biggest benefits of the visibility we have with those contractual bookings is, you know, we started the year in a hole with really light Q1s both in 23 and 24. And, you know, you're always going to have the seasonality of the first quarter, but we have significantly more work that will continue through year end into the first quarter. And, you know, we don't expect to have that hole that we started at from a margin perspective in that segment going into 25.

Appreciate that. Thank you.

We will take our next question from Brian Brophy with Stiefel.

Thanks. Good morning, everybody. Congrats on the nice quarter. Just wanted to follow up on that large lumen award. Can you give us a sense on when that project is supposed to start and how many years do you guys expect that build to be?

Yeah, so we're hopeful that we can actually start some projects prior to year ends, although the bulk of that will start in 2025. We expect it to be a multi-year project, and we're hopeful that over time, as they continue to have success, that project will continue to grow.

Okay, that's helpful. And then just one on... power delivery. Can you give us a sense for the emergency restoration contribution from some of the recent storm activity you guys are expecting in the back half of this year?

Yeah, the truth is that for Q3, it was relatively small. It was minimal. We really didn't have a lot of involvement in the Texas storm. So our involvement really started more in the southeast, which was a very late quarter event. It was really only a couple days at the end of the quarter. Revenues for the segment were less than $15 million, so it didn't really have a meaningful impact. It will have a bigger impact in Q4. We've still got some people deployed doing some work, so we don't know the exact extent of what that will be, but it is part of the reason that we did increase revenue guidance for Q4 in that business.

Appreciate it. Thanks. I'll pass it on. Thanks, Brian.

We will take our next question from Sanjita Jain with KeyBank Capital Markets.

Hi, good morning. Appreciate you taking my question. So I had one on power delivery. Since this year, you know, distribution spending has been more muted. Should we expect some type of a catch-up in 2025 along with the more normalized spending? I'm trying to figure out if there will be less of the normal seasonality starting 2025.

Sure, so look, I think we're pretty encouraged because we expect it to get back to a normalized level. I don't know that there will be a catch-up. But just to get to a normalized revenue base, I mean, if you think about 2023 for us, right, we did considerably better in 2023 than we did in 24. A lot of that was driven by distribution. So if we can get back to those levels and you kind of look at what we've been able to accomplish in the transmission side of the business, if we're able to get, you know, both of those humming, we're going to do really, really well in 25. I don't know that – That's our full expectation today. Obviously, the transmission win that we had is going to have a meaningful increase to revenues for the segment in 2025. Again, we're becoming more and more bullish about distribution spending. I think we need a little bit more time to figure that out, but I do think there's a good probability of both of those really being catalysts for our business in 2025.

That's great. And my follow-up is, as your backlog and revenue base grows, where do you think the biggest pinch point could be in 2025? Is it skilled labor availability or is it equipment availability for comms or clean energy? Can you talk about how you're thinking about this for next year?

Sure. I think that the biggest constraint in our industry as a whole over time is going to be labor. And I think those companies that, you know, invest in labor, invest in training, have had long-term programs and can convince our customers that we have really solid programs and the ability to scale up is what's going to drive the business. I think we're one of a very few number of companies across the country that can say that, and that can say that with confidence and that customers believe. And I think that will give us a great advantage in the marketplace.

Appreciate that. Thank you.

Thank you.

We will take our next question from Brent Thielman with DA Davidson.

Hey, great. Thanks. Good morning. Jose or Paul, I mean, really healthy year of cash flow, and I'm wondering how do we think about cash conversion on a go-forward basis for MassTech? You know, understanding this conversion may not be sustainable far into the future, but, you know, what is something we can think about as sustainable after five quarters of really big cash flow here?

Yes, this is Paul. It obviously depends on revenue growth, but we think 60%, 65% is achievable for us over the longer term of EBITDA.

Okay, I appreciate that, Paul. And then, Jose, in communications, I think a few quarters ago, you talked about something in the future where we could see more balance in terms of wireless versus wireline I guess I'm wondering if this loom and win is a precursor to that. And then also, I mean, obviously the wireless business seems to be picking up for you. So is that still something you see in the future in terms of kind of more of a balanced communications business between those two areas?

So, Brent, I think... If you go back to 2000, you know, 21-ish, right? We finished that year doing about just over $2.5 billion in our communications business. And this year, you know, we'll do 3.4, right? So we're up nearly a billion dollars in three years. It corresponds to almost 35% growth in that segment over a three-year period. The bulk of that growth has been on the wireline side. So if you think about our wireless business, it's up a little bit, but it's relatively flat compared to our wireline business, which has been the primary driver of that business. So we're pretty excited about that, Ray. We kind of forget about that level of growth over a three-year period. When we think about the next three-year period, we actually think that growth can be accelerated versus where we've been in the past. Again, you know, probably primarily driven by wireline versus wireless. But it's a very exciting market. It's one where, you know, we do expect wireless spending to continue to grow. I think, you know, 5G had a lot of excitement early. I think it slowed down. I think it's coming back. and future technologies are going to be a driver in that growth as well. The combination of the two, you know, obviously we're being benefited by what's happening at AT&T with their conversion program, but we expect the others to pick up over time, and we think, again, both markets will be great drivers of our business over the long term.

Very good. Thank you.

We will take our next question from Jamie Cook with Truist Securities.

Congratulations, Jose and Paul, and a nice quarter, and Mark. I guess two questions, Jose. Back to the M&A discussion, I've always said you've been very good identifying adjacent growth opportunities early and successful in acquisitions, but as you think about acquisitions going forward, how much of it is about getting into an adjacent market versus You know, the other thing you mentioned in your prepared remarks, that scale is going to be important. So I'm wondering if, given the growth that you see ahead of you, whether, you know, we need bodies, so we need to acquire more for scale versus, you know, getting into an adjacent market. And then my second question, obviously, congrats on the margin performance in the businesses outside of oil and gas, but still your oil and gas margins have probably been better than what most of us, you know, would have thought. So just trying to understand with MVP going away, you know, how to think about, you know, the profitability of that segment and is the risk, you know what I mean, that as the other, you know, oil and gas goes down more so before the other businesses can, you know, ramp. Thank you. The profits in those businesses can ramp at the same time. Thanks.

Yeah. Thanks, Jamie. So I'd say on M&A, Look, it's pretty exciting to be back in a position where we think we can do it, and it doesn't really impact our balance sheet relative to our capabilities of doing something. I think one of the things that we're most excited about at Mostek is our organic revenue growth opportunities. We have tremendous opportunities for growth. that we've been scaling for, that we've been training for, so that is our primary objective. I think we have more opportunity there than probably anything else that we could imagine. With that said, we are seeing a robust market on the M&A side. We think there are opportunities for us to build scale across our existing businesses and do so in a manner that makes sense. We'll continue to evaluate that. But the truth is we kind of weren't in that position over the course of the last 12 months, so it's nice to be back in a position where we can actively pursue that. So you should expect some of that over the course of the next year. When I think to your second question on oil and gas, you know, I'm going to remind everybody again, I mean, MVP has been diluted to margins this year. So MVP is not what's driving margins in that business. It's the balance of the business. When we start a year, as long as I can remember, we talk about hitting mid-teen margins, roughly in the 15% range. I think as we think about 25 guidance, we'd probably start there. We have the ability to beat that. We don't think there's any reason why we shouldn't continue to perform at the levels we've been performing, but we'd start a little bit more conservatively as we book work. But, you know, we're... While revenue is going to be a little bit more cyclical because you had so much revenue associated with MVP, the reality is that margins shouldn't be, right? As MVP goes away, which is part of what you're seeing here in the second half of the year, margins have actually improved in that business. So we don't think that changes over time.

Thank you, and congrats.

Thanks, Amy.

We will take our next question from Justin Hockey with Robert W. Baird.

Great. Good morning, guys. I just, I wanted to go back to the large transmission project and just clarify, is that fully booked and backlogged yet, or does that come in when you're kind of fully mobilized at the beginning of next year? I know you've got, you know, 18-month backlog. And just, you know, I guess there's been some speculation about what that project Are you able to comment any more on the specific scope of the work and, you know, your risk terms on it?

Sure, Justin. So what I can say is that as of the second quarter, that was a fully signed project. So that, that project, uh, There is no risk to that project per se. From a backlog perspective, we only book what we think are the 18-month revenue levels. So at any given point in time, although the project's much bigger, we're only taking 18 months of that project into backlog because it's how we do our backlog calculations. So a very small part of that project is currently in backlog. We... We're not in a position yet to fully announce the project. We expect the customer to do so shortly. And once they do, then we'll talk about it more.

Okay, great. That's helpful. And then my second question is just on the clean energy margin. I mean, obviously, they've been moving higher, and they were really good this quarter. You're guiding for, you know, kind of back to mid-single digit for 4Q, which was kind of guiding you. Were there any kind of, you know, favorable closeouts or anything else in the quarter that, you know, we should know just for thinking about, you know, modeling it for next year? It looked like the 10Q, you know, talked about maybe some margin increases on a couple of projects in there that maybe benefited.

Yeah, so there was no outsized projects that benefited the business. Obviously, we had You know, we had less troubled projects in the quarter, which is what drove that. I think that some of that commentary is associated with just, you know, bad projects not being there or doing better. When, you know, I think in Paul's prepared remarks, he talked about fourth quarter level of margins for that business approaching third quarter levels. So I don't think we're not expecting a significant drop in revenues. in Q4 versus Q3, we do expect some drop, and it's largely attributed to the fact that you have so many holidays in the fourth quarter. Look, we've got one quarter under our belt of solid performance. Hopefully the fourth quarter does well again and we can talk about it, and then I think we can provide better clarity as to what that looks like in 2025. There's no question that on a full year basis in 25, we expect margins to be better than they're going to be for full year 24 in that business. The question for us is going to be how much better, and I think we'll give more clarity on that on our next call.

Okay. Thank you very much for all that.

Appreciate the time, guys. Thank you. Thanks. Appreciate it.

We will take our next question from Drew Chamberlain with J.P. Morgan.

Yeah, good morning. Thank you for taking the questions. First, just on the large transmission side, I think you said in some recent quarters that there are a series of large transmission projects out there that you're actively pursuing and chasing. Just any update there? I mean, what's the competitive landscape look like? And when can we expect to possibly hear an announcement of anything?

So what I would say is the market is getting even better. We're seeing even more projects. There's no question that transmission spend is going to dramatically increase. for all of the things that we see relative to the load growth demand that we're seeing. We feel good about our competitive position. We feel we'll win more projects. There are a lot of active projects currently in some form of bidding cycle that we're engaged in, and we're hopeful we'll win some of those and be able to talk about them. I don't know off the top of my head anything that we would expect to happen before year end, but we think shortly thereafter there will be some projects that start making it to awards over time.

Okay, great. And then just more generally, I think you said in the prepared remarks, Jose, is that the thing that's got you most excited is that you feel like you have room for significant improvement across each segment right now. And I just wondered if you could kind of rank order or elaborate on some of the most prevalent areas where you think improvement's coming. Okay.

Yeah, we can cover them all, right? I think it's – again, we're pretty excited across all the segments. When we look at clean energy and infrastructure to start there, right, backlog growth has been phenomenal. We expect strong revenue growth in 2025. Margins have outpaced where we expected it to be. We're hoping that that can continue. So when you're looking at an environment where you should have strong revenue growth with improving margin – you know, that creates an enormous amount of upside, right, relative to where we've been. In power delivery, as we really get started on this large transmission project, we're going to have, you know, strong top-line revenue. We expect margins to improve there year over year as well. And in comms, it's the same thing, right? We expect, you know, strong double-digit growth, and we expect margins to improve. So in all those businesses, right, communications, power delivery, clean energy. We expect double-digit revenue growth this year with improved margins in 25 versus 24. Those are great trends. We expect that to continue not just into 25 but in beyond. And, you know, we think our oil and gas margins and revenue will hold over time. So that's just a great combination, right? We are, I think, in... a very unique position for so many around Maastricht in their careers to be in a position where our business is doing as well as it is from an industry perspective and our ability to not just take advantage of the revenue opportunity, but to also continually improve margins. And I think that combination is what's really going to drive the upside in Maastricht for years to come.

Great. Thank you. Thanks, Drew.

We will take our next question from Adam Thalheimer with Thompson Davis.

Hey, good morning, guys. Great quarter. Hey, can you talk at all about the seasonality in 2025? I'm curious if you could actually have a stronger start to the year, particularly in segments like clean energy based on project timing.

Yeah, look, I think it's a little early. Obviously, you know, we expect... The same business as we just talked about to start the year strong, you know, oil and gas will probably be down in the first quarter because it was highly impacted by MVP. So I think, you know, as we release results in our fourth quarter, we'll get into a lot of specifics around that. But, again, I mean, generally we're feeling really good about the year. We're feeling really good about the progress. And, you know, as we look at year-over-year comps, you know, we're feeling comfortable that there's nothing to really have to call out today.

Great. Can you update us on direct work you're doing for data centers and any discussions you might be having with potential future clients?

Yeah, tremendous opportunity. You know, last quarter we talked about a billion dollars of outstanding bids. I'd say today that number sits at about a billion five of bids that we currently have outstanding or are getting ready to bid. You know, over the course of the last six months or so, we've gone from being an approved vendor for one hyperscaler. You know, where we sit today, we're approved by four of the major hyperscalers to do direct work. You know, that in combination with, you know, the whole ecosystem of people that are working for them creates tremendous opportunity. Very new market for us, one that we're still learning. I think we've made tremendous inroads. We've got a team that's specifically focused only on data center work across all of the different segments that Mostic operates in. We think there's tremendous synergies and opportunities and actually solutions that we can bring to the customer base. So we would expect that to become a much larger piece of our business on a go-forward basis, whether, you know, when it happens and how long it takes, you know, time will tell. But there's no question that the capex that's flowing into that industry and the capital that's going to be spent is going to be massive, and I think, you know, we'll get a share of it, and it'll be a, you know, and it's a big part of what could potentially be a really good growth strategy for us.

Thanks, Heather.

Thanks, Adam.

We do not have any further questions. I would like to turn the call back to Jose for closing remarks.

I just want to thank everybody for participating today. We look forward to updating everybody on our ERN call. And until then, be safe. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.