MasTec, Inc. (NYSE:MTZ) Q1 2024 Earnings Call Transcript

MasTec, Inc. (NYSE:MTZ) Q1 2024 Earnings Call Transcript May 3, 2024

MasTec, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to MasTec's First Quarter 2024 Earnings Conference Call, initially broadcast on Friday, May 3, 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, Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Marc Lewis: Thanks, Maddie, and good morning everyone. Welcome to MasTec's first 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 MasTec'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 initial broadcast of this conference call and the company does not undertake to update these expectations based on subsequent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press releases and filings with the SEC.

Should one or more of our risks or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in this call. In today's remarks by management, we will be discussing adjusted financial metrics reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP measure can be found in our earnings press release. Please note that we have two additional documents associated with today's webcast, which along with our earnings press release can be found on the Investors Events & Presentations page of our website at mastec.com.

There is a companion presentation 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 DiMarco, our EVP and Chief Financial Officer. The format of the call will be opening remarks and analysis by Jose followed by a detailed financial review from Paul. These discussions will be followed by a question-and-answer period and we expect the call to last about 60 minutes. We have a lot of important things to talk about today, so I'll turn the call over to Jose so we can get going. Jose?

Jose Mas: Thanks Marc. Good morning and welcome to MasTec's 2024 first quarter call. Today, I'll be reviewing our first quarter results as well as providing my outlook for the markets we serve. First, some first quarter highlights. Revenue for the quarter was $2.687 billion, up 4% organically year-over-year. Adjusted EBITDA was $157 million, a 54% year-over-year increase. Adjusted earnings per share was negative $0.13, $0.35 better than consensus and backlog at quarter end was $12.8 billion, a $430 million sequential increase. In summary, results were better than guidance across all segments. I'm proud to say this was a very clean quarter. Segments performed as expected or better and cash flow as expected was strong. I think this is an excellent indication of what we expect for the balance of the year.

I'd like to walk through a number of positive developments that I believe will have a significant impact on our ability to grow both revenue and earnings. As we announced on our last call in our Communications segment, we significantly expanded our relationship with our biggest customer AT&T. AT&T expanded both our scope and geographic territory on our core wireless work. This expansion coupled with their announcement of a complete swap out of Nokia equipment to Ericsson equipment over a five-year period is expected to significantly increase our wireless business over the next few years. While we'll see some impact during the first half of this year, it will mostly be site acquisition and engineering work. The work we are doing now is what is creating workable backlog for the second half of the year.

So our visibility is excellent. In addition, we continue to see very strong demand for our wireline services. We expanded our customer base during the first quarter and are very encouraged about the optimism of our customers related to BEAD's funding. Demand for connectivity and information requires a significant investment in our nation's broadband infrastructure. The advancement of data collection requires networks with low latency and high speed. We're also encouraged about T-Mobile's recent announcement of its investment in fiber infrastructure. Through a joint venture, T-Mobile will be an anchor tenant and investor in a large nationwide fiber network. This transaction demonstrates the importance of carriers owning and controlling their infrastructure as demand for moving data significantly increases.

Our Communications backlog total reached a record level in the first quarter, and we're off to a great start this year. Our Oil and Gas pipeline segment overperformed as revenues and EBITDA both came in higher than estimates. While Paul will cover it later, we've increased our full year expectations for this segment for both revenue and EBITDA. While backlog is down demand is actually very strong. We expect this segment to return to a more book-and-burn cadence, as it relies less on larger projects. We are confident in the visibility we have in this segment for the next few years, and we've been surprised with the potential that gas-fired generation has relative to powering industrial and manufacturing facilities, as well as data centers. Having good visibility over a multiyear time frame, is very different than where we've been in the last few years and it gives us a lot of confidence in our business.

In Power Delivery, conversations throughout the quarter centered around the long-term expected load growth our customers are beginning to experience. With the level of activity being experienced by industrial and manufacturing growth, coupled with the proliferation of data centers, the ability to power these facilities is becoming the most important issue. While we've talked about some short-term pressure as utility customers manage their distribution transmission budgets based on need and the regulatory environment, our expectation is there is a need for significant investment in our country's electrical grid to meet the growing demand. We have seen a significant uptick in transmission-related opportunities and expect that trend to continue.

Backlog in this segment was up slightly sequentially, and we expect strong backlog growth for the balance of the year. Finally, in our Clean Energy and Infrastructure segment, margins were in line with our expectations for the first quarter. Backlog was up about $400 million sequentially, and projects under limited notice to proceed exceeded $2 billion, much of which we expect to convert to backlog in the coming quarters. Renewable demand is very strong and our visibility has greatly improved versus last year. Renewables will be a key driver of added generation, to help meet the needs of our country's load growth and we believe we are very well positioned to take advantage of this growth. I've talked about load growth, a lot today. And obviously, one of the drivers of that is the expected growth of the data center market.

While data centers will create significant opportunities for us in both our clean energy and Power Delivery segments in the form of increased renewables, transmission, substation and battery storage, data centers will also have a positive impact on our Communications business, as more data is transmitted. But what we didn't expect, was the potential that data centers have on our infrastructure business. As a reminder, with the combination of IEA and MasTec's legacy infrastructure business, MasTec has significant geographic diversity in the civil space. We spent a lot of time understanding the needs of data center builders, and the potential opportunity that exists for MasTec. To date, we've actually completed over $150 million in data center infrastructure work and currently have approximately $200 million in backlog to complete.

In addition, we have approximately $1 billion in identified RFPs, we expect to bid this year. While we won't win it all, we believe we are uniquely positioned to provide data center builders, with a package that includes assistance on connecting to the power grid, infrastructure required for communications and site and civil work on the front end of their build-outs. While we're still early in understanding the full potential of this opportunity, we recognize the potential impact. In summary, I strongly believe that the investments we've made in the last few years, to build scale along our vertical offerings, will translate to not only strong levels of revenue growth, but the ability to meaningfully improve margins. I want to emphasize that thought.

I believe the most successful companies in our space are those that have the scale to meet our customers' demands. Our customers' projects have significantly increased in size, scope and complexity. And there is no question that our customers want to simplify and work with less 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 skewed throughout our industry as a partner whose workforce, size and scale affords us the capabilities to take on any project. While I'm proud of that accomplishment, I also understand the need for this advantageous positioning to be reflected in our financial results. While I'm optimistic that today's results begin to demonstrate this, I also recognize we have great potential to improve margins.

I'm excited to see what the future holds for MasTec. I'd like to take this opportunity to thank the men and women of MasTec. I'm honored and privileged to lead such a great group. The men and women of MasTec 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'll now turn the call over to Paul for our financial review. Paul?

Paul DiMarco : Thank you, Jose, and good morning, everyone. To begin, a few first quarter highlights. Revenue of $2.7 billion was a record for Q1, exceeding guidance by approximately $60 million. Adjusted EBITDA of $157 million, exceeded guidance by $27 million, with margins 90 basis points ahead of expectations. We outperformed our earnings guidance in every segment, which I will cover in more detail later. Adjusted loss per share was $0.13, exceeding guidance by $0.35, driven primarily by the adjusted EBITDA beat. We generated approximately $110 million of cash flow from operations in this quarter, starting the year off on a positive pace. This brings our trailing 12-month total cash flow from operations to almost $900 million, comparable to the adjusted EBITDA earned over the same period.

We reduced net debt by $70 million in Q1 and net leverage also declined to 2.7 times. 18-month backlog at Q1 totaled $12.8 billion, an increase of $430 million from year-end, despite the significant revenue earned on MVP in Q1. We saw clean energy backlog grow by almost $400 million in the quarter, while Communications backlog increased by $170 million to a new record level. While year-over-year backlog decreased, normalizing for the impact of current pipeline project mix and our reduced emphasis on industrial projects would result in approximately $200 million of growth versus last year's first quarter. Lastly, as we announced yesterday, we are raising our full year outlook, which I will cover in more detail shortly. Now, I'd like to cover our segment performance and expectations.

First quarter pipeline segment revenue was $634 million with adjusted EBITDA of $93 million, or 14.6%. We continue to have strong performance in this segment with lower-than-anticipated contributions of cost-plus work driving margins higher than our guidance. We now expect 2024 pipeline segment revenue to reach $2 billion, a $100 million increase from our prior guidance. Adjusted EBITDA margins are still expected to be in the mid-teens, improving 100 to 150 basis points versus 2023. Second quarter revenue should be approximately $600 million with adjusted EBITDA margin in the high-teens and likely our highest margin quarter for the year. First quarter communications revenue was $733 million with an adjusted EBITDA margin of 6.7%, both slightly ahead of our guidance.

This year is shaping up consistently with our original forecast as we capitalize on the strong demand for both wireline and wireless construction services. Full year segment guidance remains unchanged with revenue of $3.5 billion and adjusted EBITDA margins in the high single digits, improving versus 2023. For the second quarter, we anticipate revenue will be approximately $825 million with adjusted EBITDA margins in line with the full year estimate. As we mentioned previously, we expect to begin realizing the benefits of vendor consolidation in the wireless industry during the second half of 2024 and be fully ramped in 2025, as evidenced by the continued backlog growth in this segment, which now stands at $5.8 billion, a new record. First quarter Power Delivery segment revenue was $571 million, and adjusted EBITDA margin was 4.8%.

Revenue was slightly ahead of our expectations as mild winter weather allowed for some pull forward of Q2 work particularly in the central region. For the full year we now expect Power Delivery revenue and adjusted EBITDA margins to be roughly in line with the prior year, but slightly lower revenue than our prior forecast. Full year revenue continues to be impacted by project deferrals from our utility customers in Illinois, while they await a ruling on the revised rate case proposals. And we now expect the delayed start to certain transmission projects pushing revenue into 2025. Second quarter revenue was forecasted at $650 million with adjusted EBITDA margins in the high single-digits. First quarter Clean Energy and Infrastructure segment revenue was $753 million slightly below our guidance with adjusted EBITDA margins of 2.7%.

Revenue in the quarter was impacted by timing on certain infrastructure projects that we expect to make up in subsequent quarters. Backlog grew by almost $400 million in Q1 and we expect strong bookings in the second quarter to continue this trend. Our full year Clean Energy segment guidance remains unchanged at $4.4 billion of revenue with mid single-digit adjusted EBITDA margins. Second quarter segment revenue is forecasted to be $1.025 billion with adjusted EBITDA margins in line with 2023 second quarter. On a consolidated basis, full year revenue is now expected to be $12.55 billion with adjusted EBITDA of $975 million. This incorporates the Q1 outperformance and our consistent expectations for the balance of the year. We expect second quarter revenue to be $3.1 billion with adjusted EBITDA of $260 million or 8.4%.

We now expect adjusted EPS to be $2.95 for the full year and $0.88 for the second quarter. Our full year adjusted EPS outlook represents a 50% improvement versus 2023. Our Q2 guidance represents 8% revenue growth year-over-year and 15% sequentially from Q1. This sequential growth will likely drive incremental working capital investment and put pressure on cash flow in the second quarter. However, our full year outlook for cash flow from operations remains unchanged at approximately $550 million. There is no change in our outlook for the cadence of the year with expected year-over-year growth continuing in the third quarter and Q4 roughly flat to last year without any contribution from MVP. Our deleveraging efforts remain on track with net leverage of 2.7 times for Q1 and our outlook for year end reaching the low two times range.

As a reminder, we posted a guidance summary to the Investor Relations section of our website that summarize our outlook and provides additional data points for modeling purposes. I'll now turn the call over to the operator for Q&A.

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