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Operator: Welcome to MasTec’s Fourth Quarter 2022 Earnings Conference Call initially broadcast on Friday, February 24, 2023. Let me remind participants that today’s call is being recorded. And at this time, I’d like to turn the call over to our host, Marc Lewis, MasTec’s Vice President of Investor Relations. Marc?

Marc Lewis: Thanks. Good morning, everyone. Welcome to MasTec’s fourth quarter earnings call. The following statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we make certain statements that are forward-looking such as statements regarding MasTec future results, plans and anticipated trends in the industries where we operate. These forward-looking statements are the company’s expectations on the day of the initial broadcast of this conference call, and the company does not undertake to update these expectations based on subsequent events or knowledge. Various risks, uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in this communication.

In today’s remarks from management, we’ll be discussing adjusted financial metrics reconciled in yesterday’s press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference call. A reconciliation of the non-GAAP financial measure not reconciled in these comments to the most comparable GAAP measure can be found in our earnings release or an earlier earnings press release that can be found on the website. With us today, we have Jose Mas, our CEO; George Pita, our Executive Vice President and Chief Financial Officer; and incoming CFO, Paul Dimarco. The format of the call will be opening remarks analysis by Jose, followed by ’22 financial review from George. Today, a longtime financial executive, Paul Dimarco, our incoming CFO, when George retires at the end of March, we’ll give our outlook for 2023.

These discussions will be followed by a question-and-answer period, and we expect the call to last about 60 minutes. We had another good quarter and a lot of important things to talk about. So I’ll go ahead and turn it over to Jose. Jose?

Jose Mas: Thanks, Marc. Good morning, and welcome to MasTec’s 2022 fourth quarter and year-end call. Today, I’ll be reviewing our fourth quarter and full year results as well as providing my outlook for 2023 and the markets we serve. I’d like to start today by thanking the men and women of MasTec. Their sacrifices and hard work helped us achieve another strong year. I’m honored and privileged to lead such a great group. The men and women of 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 deliver these financial results and position ourselves for continued growth and success.

Now some fourth quarter highlights. Revenue was $3 billion, a 66% year-over-year increase. Fourth quarter adjusted EBITDA was $258 million, and fourth quarter adjusted EPS was $1.03. For the full year, 2022 revenue was $9.8 million, a 23% year-over-year increase; 2022 adjusted EBITDA was $781 million; and 2022 full year adjusted earnings per share was $3.05. While our results met our expectations for 2022, our highlight for the year was really how we position MasTec for the future. Over the last 24 months, we believe we’ve delivered a transformative effort to further diversify MasTec and position ourselves to be a leader in some of the most dynamic and robust industries in our nation. Just two short years ago, in 2020, MasTec was a $6 billion revenue business with nearly 30% of that revenue coming from our Oil and Gas pipeline business.

While the long-term prospects of the pipeline business have improved, our Oil and Gas business represented only 12% of revenues in 2022, and EBITDA went from 56% of total company segment EBITDA in 2020 to under 20% this year. We have delivered on creating a much more diversified and recurring model over the last two years. While the effort has come with its sets of challenges, we believe we are incredibly well positioned for what is and will continue to be a period of strong growth opportunities for our business. I’d like to highlight what I believe have been some of our key accomplishments. We focused on growing our presence on the electrical grid market and have increased our revenues in electric distribution and transmission from $500 million in 2020 to over $2.7 billion in 2022.

Through the acquisition of IEA at the end of this year, we’ve significantly increased our market share in the clean energy space and now expect our Clean Energy and Infrastructure segment to approximately $5 billion of revenue in 2023 versus $1.5 billion in 2020. Our Communications segment delivered strong 2022 growth with full year revenue growing 27% and 2023 revenues expected to, again, grow at a double-digit rate. We’ve delivered on diversification and believe we’ve created a more predictable and recurring model. For example, our non-Oil and Gas segments are now expected to generate almost 88% of our revenue in 2023, having gone from $4.5 billion in 2020 to $11.5 billion in 2023, a 2.5x increase in three years. Over the last two quarters, we’ve begun to demonstrate the earnings potential of our business.

Margins improved 260 basis points from the first half of 2022 to the second half with communications improving over 300 basis points, power delivery improving 200 basis points and clean energy and infrastructure improving over 500 basis points, offset by Oil and Gas declining over 300 basis points. Backlog is at record levels, up over 30% year-over-year and visibility to 2023 revenue guidance is very strong. And finally, as a result, we provided 2023 guidance on yesterday’s release. We expect 2023 revenue of $13 billion and EBITDA to range from $1.1 billion to $1.15 billion, both record levels. Again, our diversification and expansion has come with its sets of challenges. And while we’re proud of our guidance, and it’s a big improvement from 2022, we know there is a tremendous room for further improvement over the coming years.

Assumptions in guidance, include Communications segment revenue growth of about 10%, with a slight improvement in margins to approximately 11%. Oil and Gas segment revenue growth of about 30% with margins similar to 2022. This guidance does not include the completion of the Mountain Valley pipeline. Power delivery revenue is expected to increase roughly 10%, and we expect margins to approximate last year’s levels as we continue to organically ramp our transmission capabilities. And Clean Energy and Infrastructure revenue is expected to be $5 billion with margins in the mid-to high 6% EBITDA range. Again, we believe that our visibility into our full year guidance is very strong. Now I’d like to cover some industry specifics. Our Communications revenue for the quarter was $859 million, a 26% year-over-year increase and revenue for the full year increased 27%.

We enjoyed strong broad-based customer growth with all of our major customers. Backlog in this segment is at record levels, and we continue to invest in increasing our capabilities as we expect demand and opportunities will continue to increase over the coming years. While we’re seeing the impact of current funding related to RDOF, the Rural Digital Opportunity Fund, the amount of federal grants available to the industry are going to exponentially increase. The 5G revolution continues to transform the communications ecosystem, requiring networks to be upgraded and expanded to meet the ever-increasing demand for data and Internet usage. Not only must new equipment be added to existing cell towers, millions of new small and microcells must also be built and connected, including fiber and power.

All of these new points of presence not only need to be built, but they will require ongoing maintenance and service, creating a significant long-term maintenance opportunity. Moving to our Power Delivery segment. Revenue was $740 million versus $285 million in last year’s fourth quarter. For the full year, revenue exceeded $2.7 billion and represented nearly 28% of MasTec revenue. We are in the midst of an energy transition in the United States and our customers’ focus on reliability, hardening, renewable connectivity and meeting the challenges of providing power to customers for electric vehicle charging are transforming the grid. We believe the scale we have been able to achieve, along with our history of performance and safety, uniquely position us to play a significant role in helping meet the needs of utilities and energy developers.

With our integration efforts over the last two years of our acquired assets mostly complete, we are now focused on growth off of our current base and on driving margin improvements throughout the organization. We have significant near-and long-term opportunities related to growing our transmission business and have been investing heavily in resources and equipment. Moving to our Clean, Energy and Infrastructure segment. Revenue was just over $1.1 billion for the fourth quarter. Our fourth quarter results included about $600 million in revenue for IEA. For the full year, segment revenue was $2.6 billion. If you include IEA on a pro forma basis, revenue would have been approximately $4.4 billion for the full year. As a reminder, 2022 renewables revenue was impacted by the solar circumvention and supply chain issues.

While our 2023 revenue guidance of $5 billion assumes roughly 15% growth, the reality is that demand in the market far exceeds that. Guidance includes a conservative view relative to project starts, and we have assumed a certain level of project delays in guidance. Demand for our services in this segment is incredibly strong, and for the most part, not inclusive of any governmental impact from the Inflation Reduction Act. Based on interactions with our customers, we are confident that as the supply chain issues ease, coupled with the incentives available through the Inflation Reduction Act, the future demand for our services will significantly increase. While we just completed our first quarter with IEA as part of the MasTec family, I’d like to highlight key points that I believe make this an excellent strategic fit for MasTec.

It continues to grow our presence in the renewable energy market and enhances our ESG profile in what we believe is an ongoing energy transformation related to both power generation and delivery as the country transitions to a carbon-neutral economy. IEA’s roots are those of the union renewable contractor. While MasTec had been an exclusively nonunion renewables construction company, IEA expanded our renewable business in the union markets and states. More importantly, it allows us to cross sell complementary services to these same customers with the investments we’ve made in the last two years in growing our union transmission and distribution presence. In a market where skilled labor is so scarce, IEA added thousands of team members to the MasTec family, significantly increasing our scale and giving us the ability to more efficiently serve our customers.

And finally, IEA is led by an excellent management team with deep generational roots in the business and a strong family type culture with an emphasis on safety. Our cultures are similar and complementary. We believe with MasTec support, there are great opportunities for future growth and margin improvement. Moving to our Oil and Gas segment. Revenue for the year was $1.2 billion versus $2.5 billion last year. Margins remained solid despite the significant revenue drop. We expected 2022 to be a difficult year as this was the first full year of the impact of the pandemic on projects. Up until 2022, we were still burning off some pre-pandemic backlog. With that said, we’ve been vocal about the significant uptick we’ve seen for projects for 2023, ’24 and ’25.

In addition to takeaway capacity projects for natural gas, activity levels for both carbon capture and hydrogen projects have intensified. As reflected in guidance, we expect revenue in the segment to increase approximately 30% in 2023 versus 2022, and that assumes that the Mountain Valley pipeline continues to be delayed. We have a number of larger projects that are expected to kick off in early summer and expect further growth in 2024 and ’25. To recap, I’m incredibly proud of how we’ve transformed and transitioned MasTec over the last two years. I truly believe our second half of 2022 performance offers a glimpse of our potential as a company. Today, we enjoy a significant presence in some of the most resilient growth markets in our economy.

We are honored to work with our customers, supporting the need for bandwidth and communications and helping our energy customers as we transition to a carbon-neutral economy. I’d like to, again, thank the men and women of MasTec for their commitment to safety, their hard work and their sacrifices. Keep up the good work. Before turning the call over to George, as many of you know, George is retiring, and today is his last earnings call. On behalf of myself, my family and the entire MasTec team, I’d like to thank George for his dedication and work ethic. He’s been my partner for nearly 10 years, and MasTec wouldn’t be where it is today without him. He will be missed, and he knows he will always be part of the MasTec family. I’d like to give a shout out to his wife Delilah, not to embarrass George, but Delilah was my high school teacher, and she also made significant sacrifices on behalf of MasTec, which has been greatly appreciated.

Wish you all the best of my friend. George?

George Pita: Thanks, Jose. Before we get started on 2022 results, I would be remiss if I didn’t take a moment to acknowledge and thank Jose, Bob Apple, Jorge Mas and the Board for providing me this incredible opportunity over the past decade. We’ve grown from less than $4 billion in annual revenue to approximately $13 billion in 2023, earned Fortune 500 status, achieved an investment-grade rating profile and completed transformational M&A to position MasTec with great future opportunities. It has really been the highlight of my professional career to participate and support this process and I look forward to sharing in the MasTec’s future growth as a shareholder. And I guess since Jose opened the door here, after I retire, my wife and I are planning on starting to work on a book called Young Mas, the high school years, complete with pictures.

So if there’s any publishers on the line, we’re open to the highest bidder. In all seriousness, I didn’t know Jose until our MasTec period together here over the last decade. But I do remember as a young man, my wife mentioning student, who is class President, had convinced of allowing an evening pep rally, something that had never been done before. And one of the words she used to describe him was a visionary. I think if you were to describe Jose today, that term would still be at or near the top of the list. So I guess the moral of the story is, the more things change, the more they stay the same. Today, I’ll cover some highlights of our fourth quarter and annual 2022 financial results, and Paul will cover our 2023 guidance expectations. As noted in yesterday’s press release, we are planning on filing our 2022 Form 10-K next week, and we anticipate that we may report identification of a material weakness in internal controls, primarily related to general IT controls at 2021 acquired operations, which underwent first-time SOP controls evaluation in 2022.

We have completed multiple substandard procedures and identified no issues or errors and this matter will not result in any change to our 2022 financial results. As a reminder, during 2022, we undertook significant integration, combination and streamline activities for transformational end market acquisitions completed in 2021, including the implementation of incremental internal controls. We certainly take control issues seriously, and we expect to continue and complete remediation of any deficient internal controls during 2023. Turning to some 2022 highlights. Fourth quarter results were generally in line with our guidance expectation, with revenue approximating $3 billion and adjusted EBITDA approximating $258 million. Fourth quarter 2022 adjusted diluted earnings were $1.03 per share, $0.03 per share above our guidance primarily due to lower income tax expense in the quarter, partially offset by higher interest costs.

Annual 2022 results include revenue of approximately $9.8 billion with adjusted EBITDA of $781 million or 8% of revenue. As we have previously discussed, during 2022, we began implementing a significant shift in our end market operations, emphasizing energy transition services while also navigating with several headwinds, including challenging supply chain issues, exacerbated by a governmental anti-circumvention investigation on solar panels, project permitting delays as well as wage and material inflation challenges. As a point of reference, to highlight the significance of our 2022 end market operation shift, Oil and Gas segment operations experienced a year-over-year $386 million adjusted EBITDA decline, which was largely offset by approximately $271 million and increased non-Oil and Gas segment adjusted EBITDA.

To further demonstrate the significance of this shift in 2022, only 19% in of our segment adjusted EBITDA was generated from Oil and Gas segment operations compared to 56% in 2021. Both our fourth quarter and second half 2022 results highlight an important developing business trends, namely, consolidated results showed strong second half 2022 improvement with consolidated revenue at $5.5 billion compared to $4.3 billion in the first half of the year. And with second half 2022, adjusted EBITDA margin improving to 9.1% of revenue compared to 6.5% of revenue during the first half of 2022. As Paul will cover in more detail, we expect a similar first half, second half trend in 2023. Both fourth quarter and second half 2022 results reflect expanding growth in non-Oil and Gas segments, offsetting decreased Oil and Gas segment operations.

Importantly, fourth quarter results are the first time in 2022 were increased non-Oil and Gas segment adjusted EBITDA exceeded the decline in Oil and Gas segment results with consolidated fourth quarter adjusted EBITDA increasing 17% over the fourth quarter of last year to approximately $258 million. We believe that this performance demonstrates the potential of MasTec’s future earnings profile. We ended 2022 with record backlog of approximately $13 billion sequentially growing backlog, excluding approximately $1.5 billion of acquired IDA backlog. And this reflects strong expected future business demand for our services across multiple segments. As a clarification point, IEA backlog, as of our year-end 2022, is being reported under MasTec policies at approximately $1.5 billion.

This reflects only signed contracts and thus, no verbal awards and includes only 18 months. So comparisons to any IEA previously reported pre-acquisition backlog amounts are apples and oranges. Stated another way, it reported in the same manner as the pre-acquisition stand-alone public company, IEA year-end 2022 backlog would have been approximately 10% higher than the backlog reported by that entity at year-end 2021. Turning to our business mix. Based on the strategic diversification of our revenue stream, during 2022, no customer represented more than 10% of our total revenue and annual 2022 revenue derived from master service agreements, exceeded 50% of our total revenue, a significant increase over the prior year. This is primarily derived from recurring, utility, services spend, which greatly increases the repeatable nature of our revenue profile.

During the fourth quarter of 2022, we completed the acquisition of IEA, adding approximately $1.1 billion of acquisition financing and assumed debt. We finished 2022 with approximately $2.85 billion in net debt, a $350 million reduction in net debt during the quarter following the IEA acquisition. While our year-end debt levels showed strong reduction post the IEA transaction and was generally in line with our expectation, annual 2022 cash flow from operations, at approximately $350 million, was approximately $100 million below our expectation. And the majority of this shortfall is due to fourth quarter cash expenditures made in connection with the IEA acquisition, which, among other items, including MasTec and IEA legal and banking advisory fees, change of control payments and cash outlays to initiate transfers of letter of credit commitments.

There under GAAP accounting rules are required to be shown as operating cash flow amounts rather than as part of the acquisition price. At year-end 2022, we had ample liquidity of approximately $1.2 billion. Our year in receivables were well managed with DSO or days sales outstanding of 83 days within our anticipated range of mid-80s. As we indicated at the time of the IEA acquisition, we remain committed to appropriate capital structure management and maintaining a strong balance sheet supportive of our investment-grade rating. We expect an improved 2023 adjusted EBITDA performance, coupled with a reduction in overall debt levels through from cash flow operations and moderated levels of capital expenditures and strategic investments, will significantly improve our leverage metrics over the course of 2023.

Before I turn the call over, I’d like to say how thrilled I am to pass the baton over to a very capable long-time MasTec colleague in Paul Dimarco. Shortly after I joined MasTec, as I began to work with Paul, it was obvious to me that he had an exceptional combination of strong financial background and critical thinking capacity. And as a result, over the years, we continually expanded his role within the company to prepare him for this moment. Paul, congratulations. Your time is now, and I wish you the best. Now I’ll turn it over to Paul.

Paul Dimarco: Thank you, George, and good morning. To begin, I wanted to thank Jose and the Board for putting their trust in me as MasTec next CFO. I have been incredibly fortunate during my 15 years at MasTec to work under two great financial leaders in George and Bob Campbell. They have both been key mentors to me, and I look forward to following their legacy, helping MasTec capitalize on the incredible opportunities afforded by our end markets. Turning now to our segment performance and expectations. Fourth quarter communications revenue was $859 million with adjusted EBITDA margin of 11.1%. Annual 2022 Communications segment revenue was $3.2 billion, a 27% increase when compared to last year, and 2022 adjusted EBITDA margin was 10.3%.

2022 performance is characterized by a strong and accelerating second half. We anticipate that 2023 Communications segment revenue will approximate $3.5 billion and that adjusted EBITDA margin will improve to approximately 11%. Within the 2023 expectation, we anticipate revenue to be more balanced with second half revenue contributing just over 50% of the annual total and second half adjusted EBITDA margins approximating 12%. For the first quarter, we expect communication setting revenue to grow by approximately 15% over 2022, with adjusted EBITDA margins in the mid-7% range. This compares to 6.2% in last year’s first quarter. Fourth quarter, Clean, Energy and Infrastructure segment revenue was $1.1 billion with IEA acquisition contributing almost $600 million of revenue during the quarter.

Fourth quarter Clean Energy adjusted EBITDA margin was 7%, a 260 basis points sequential improvement and the segment’s highest adjusted EBITDA margin performance over the past two years. That said fourth quarter adjusted EBITDA margin continued to be negatively impacted by select industrial projects that we expect to close out in 2023. Annual 2022 Clean Energy segment revenue was approximately $2.6 billion, adjusted EBITDA was 4.2%. For 2023, we expect Clean Energy segment revenue of approximately $5 billion and adjusted EBITDA margin will improve to the mid- to high 6% range. Based on project timing and typical seasonality, and we anticipate second half of 2023 revenue to comprise approximately 65% of the annual total. And second half 2023 adjusted EBITDA margin should improve over the first half and be in the mid- to high single-digit range.

For the first quarter, we expect Clean Energy revenue to approximately $800 million with a low single-digit adjusted EBITDA margin. This margin rate is impacted by seasonally lower revenue levels. some continued impact from the select industrial jobs and continued solar panel delivery delays. It’s also important to recall that IEA reported $17 million — negative $17 million of adjusted EBITDA for the first quarter of 2022. On a pro forma basis, Clean Energy first quarter 2022 adjusted EBITDA margin would have been negative 1%. As 2023 first quarter levels will be similar, our first quarter expectation reflects a strong improvement year-over-year. Fourth quarter Oil and Gas segment revenue was $292 million, with adjusted EBITDA margin of 11.5%.

Annual 2022 Oil and Gas segment revenue was approximately $1.2 billion, with adjusted EBITDA margin of 14.1%. While expected, this performance represented a significant decrease in both revenue and adjusted EBITDA when compared to 2021. We anticipate 2023 Oil and Gas segment revenue will show strong growth and approximate $1.5 billion with adjusted EBITDA margins in the mid-teens. Based on expected project start-ups, we expect this growth to occur in the second half of the year with second half revenue approximately 60% of the annual total and second half adjusted EBITDA margins in the mid- to high teens. For the first quarter, revenue is expected to be similar to last year with adjusted EBITDA margins in the mid-single digits, lower year-over-year as we invest to pipeline project starts later in ’23.

Fourth quarter Power Delivery segment revenue was $740 million and adjusted EBITDA margin was 7.7%. Fourth quarter adjusted EBITDA margin was impacted by investments in new project starts and some adverse project closeouts. Annual 2022 Power Delivery segment revenue was approximately $2.7 billion with adjusted EBITDA margin of 8.9%. We expect 2023 Power Delivery segment revenue to approximately $3 billion with annual adjusted EBITDA margins of approximately 9%. First quarter revenue is expected to decline approximately 10% year-over-year. First quarter adjusted EBITDA margins are expected to approximate 5%. This decline in revenue and margin is due to the delay in certain program startups, a rationalization to exit certain acquired underperforming contracts and services and a reduction in storm-related activity, which has been considerably slower to date.

Similar to 2022, we expect stronger adjusted EBITDA margin performance sequentially in the second quarter, continuing with strong momentum into the second half of 2023. Power Delivery second half adjusted EBITDA margins should reach the low double digits as crude utilization and productivity improve over the course of the year. Revenue is also expected to ramp through the third quarter with approximately 55% of power delivery revenue coming in the second half of 2023. Corporate segment costs are expected to approximate 95 to 100 basis points of consolidated revenue for 2023. Investments reported in our Other segment are expected to generate approximately $25 million to $30 million of adjusted EBITDA. While we are in the early stages of the Clean Energy integration process, our initial estimate is that we will incur acquisition integration expenses of approximately $15 million to $20 million over the course of 2023.

Turning now to our consolidated guidance announced yesterday. As we’ve been messaging in our public comments for some time, we expect a slow start in the first quarter with expected revenue of $2.4 billion; adjusted EBITDA of $100 million or 4.2% of revenue; and an adjusted diluted loss per share of $0.57. This expectation includes the combination of a normally slow first quarter, accentuated by the previously mentioned supply chain delays, investments for the coming ramp in various segments and costs associated with exiting certain acquired underperforming contracts and services. In terms of the cadence for 2023, first half and second half revenue, as a percentage of the total year, should approximate 2022 levels. We expect adjusted EBITDA margin to have strong sequential growth in the second quarter that will continue into the second half of 2023.

This margin expansion should exceed the improvement we achieved in ’22 second half as we do not foresee the negative effect of supply chain disruptions and select industrial projects that we experienced in 2022. Our guidance indicates a 50 to 80 basis point improvement in full year adjusted EBITDA margins and we expect the majority of this expansion to come during the second half of 2023. For our annual guidance, we are projecting 2023 revenue of approximately $13 billion, a 33% increase over 2022 with adjusted EBITDA ranging between $1.1 billion and $1.15 billion. Adjusted diluted earnings per share is expected to range between $4.64 and $4.91. These forecasts mark a strong improvement over 2022’s results and represent record levels of revenue and adjusted EBITDA for all of the non-Oil and Gas segments.

More importantly, this further demonstrates MasTec’s transformation to more diversified and sustainable earnings generation. Now I’d like to briefly cover some additional guidance details for modeling purposes. We expect to generate approximately $550 million of cash from operations in 2023 despite significant revenue growth over the course of the year that will drive working capital investment. This cash flow generation, coupled with our anticipated growth in adjusted EBITDA, should allow us to reduce leverage to the low 2s by the end of 2023. As George mentioned, we are committed to maintaining our investment grade rating, and we’ll continue to manage our capital structure accordingly. We anticipate net cash CapEx in 2023 to approximate $100 million with an additional $150 million to be incurred under finance leases.

We expect annual 2023 interest expense to approximate $200 million to $205 million. This reflects our expectation to pay down debt over the course of ’23, offset by a continuation of higher interest rates. We will actively monitor the capital markets for opportunities to adjust our interest rate and maturity profile. Our estimate for annual 2023 share count is 78.5 million shares. This includes shares issued in connection with the fourth quarter IEA acquisition. Remember, Q1 loss will utilize a basic share count of 77 million shares, not the fully diluted number. We expect annual 2023 depreciation to be in the low 3% range of revenue. And lastly, we expect that annual 2023 adjusted income tax will approximate 25%. This concludes our prepared remarks.

I’ll now turn the call back over to the operator for Q&A.

Operator: We’ll go to our first question while we assemble the rest of that queue and that comes from Steven Fisher from UBS.

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

Jose Mas: Sure, so good morning Steve. So I guess, first, I’d like to address the first quarter because I know there’s been a lot of notes written on it. So if you take, if you look at the first quarter, and you kind of break it gave a lot of detail on the call. Our Communications segment in line, right? Basically, where we expected it to be if you take Clean Energy and you take into account the loss it had in the first quarter of 2022. We’re actually going to deliver about a 400 basis point improvement in the first quarter relative on a year-over-year on a pro forma basis. For the full year, we’re expecting a 200 to 250 basis point improvement. So if we can actually maintain that 400 basis point improvement through the year, we’re actually going to significantly beat our plan relative to that.

Our oil and gas business, which is part of the issue in Q1, right, margins are just under half of what they were last year. And that has a lot to do with the fact of revenue getting pushed and projects that are starting in the second quarter. We’ve got a bunch of unabsorbed costs that we’re preparing for these larger jobs that we’ve won. I have no concerns whatsoever about that segment’s ability to perform as long as work is there, and we know it’s there. So we’re just really preparing and that’s having an unseasonably slow first quarter for them, probably more than we expected. And the biggest impact of, I guess, our previously stated expectations for Q1 are probably in the power delivery section there. We’re going to see about $100 million of revenue less than what we expected in the first quarter, and it’s made up of a bunch of reasons.

One of them, Paul alluded to was storm, which could change because we’re mid-quarter, but at the same time, we haven’t seen a lot of activity. So I think we took a very conservative look at what storm was going to look like. We had a supply chain issue on one particular project that’s pushing some revenue into Q2. And then we’re also exiting some contracts from some of the acquired entities after a year we decided and had the ability to exit those which are going to put some cost pressures on the business. So I think we had a fabulous year in power delivery in 2022. I think we’re set up incredibly well for ’23. So unfortunately, I think it’s just a lot of stuff hitting in Q1 on lower volume levels. When we think about the cadence for the year, and I think we laid it out as well on the call, the difference in second half versus first half’s revenue isn’t that significant in ’23 versus ’22.

I think 56% of our revenue in ’22 came in the second half, and we’re talking about being 58% in Q3 and that difference is really driven by the Oil and Gas projects that are started in the second half. And by the increase in clean energy business that we know is getting pushed into the second half as a lot of the wind and solar projects are going to start. So, we feel really good about it. We think we’ve got a really achievable plan. Even in Clean Energy, we did $4.4 billion on a pro forma basis. We’re talking about doing $5 billion next year. So I think it’s — again, I think the demand is far greater. I do think it’s important to note in that business, that backlog is probably significantly understated as we reported. We only book and backlog projects – as the contracts are signed and the full projects are completed, a lot of these projects start with something called an LNTP, which is a limited notice to proceed, which is a very small percentage of the revenue.

And that’s what initially hits backlog. So as those projects go into full production, backlog significantly increases on projects that have already been awarded. And I think all of these things, when you think about what’s happening with oil and gas, when you think about what’s happening with Clean Energy. As we leave ’23 and we exit with the second half we’re going to have I think next year’s first quarter in ’24 and even the first quarter in ’25 were going to be significantly different than what we saw in ’22 and ’23 because we’re going to have broad-based strength across all of our segments, which is going to make those comparables really easy. So we’re pretty excited about what that’s going to lead down the road.

Steven Fisher: Very helpful. And maybe just a quick follow-up on Communications specifically beyond ’23 I’m curious what gets you from the $3.5 billion of revenues in ’23 to your $4 billion, I think you call like a near-term target, which I assume is somewhere between ’24 and ’25 I knew talked about the tower wiring and connections I guess there is some concerns in the market kind of peaking wireless spending on 5G. So I guess if there’s — how do you see what gets you that pretty solid growth to that next level? Is it the RDOF, a shift to more kind of fiber? How do you reconcile that? Thank you.

Jose Mas: So Steve, I’d say it’s both. The wireless industry is really just getting started with 5G deployment. A lot of the initial deployments are just really touching the network and then you have to add an enormous amount of capacity over time. I think we’re very early in the 5G cycle. When you think about what’s happening on the wireline side of the business, really the only the first half of RDOF got funded, which is roughly $10 billion. Those $10 billion is really all of the activity that us and all of our peers in the space have seen over the last few years. The impact that it’s had in the business has been massive. Aside from the remaining RDOF funds, we’ve got all of the other federal money that was in the infrastructure bill and the Inflation Reduction Act, which is over $50 billion of additional government spend.

So you’re talking at least another $60 billion of federal spend that’s going to hit the telecom market where I could argue we’ve only seen the effects of 10. So multiplier effect on that business is going to be massive. And I think that if we’re — if we think we can only do $4 billion from a $3.5 billion base today, I think we’re significantly understating the long-term potential of that business.

Steven Fisher: Thanks very much.

Jose Mas: Thanks Steve.

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

Andy Kaplowitz: Good morning everyone.

Jose Mas: Good morning Andy.

Andy Kaplowitz: George, thanks again for all your help. Congratulations. Paul, looking forward to working with you so, Jose I would say little bit more what’s going on in power delivery in Q1. I know you mentioned lower storm work, but what exactly are you getting out of – I assume they’re Henkel’s projects because they have a tail that impacts you at all moving forward past Q1. Could you guide for that? And I think any more color would be helpful?

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

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

Jose Mas: Well, we’ll start with wind, right? In wind, we’re seeing a dramatic increase in activity. If we think about our capabilities for the second half of 2023, we’re pretty booked up at this point. We’re really just trying to make sure that the projects we’re committing to our projects that are going to be completed. When you take the impact of what that means into our ’24 year, it means a much, much bigger 24 than what we’re going to deliver in ’23. So ’23 is going to be a really strong second half of the year relative to wind. ’24 is going to be a full really strong year and growing. So, we feel great about the outer years relative to what’s going to happen in the wind market. It’s been slow for the last couple of years, and we expect it to ramp pretty significantly starting in the second half of this year.

And solar is similar, right? Solar — we’ve had so many starts and stop because of the issues. We think a lot of that is resolving itself. We think there’s going to be a significant improvement in the supply chain as we get into the year. And it’s the same thing, right? We’re really – we’re solidly booked in the second half of the year. And when you multiply that into what it means for the full year in ’24, it’s quite astonishing. So I think – again, I think the investments that we’ve made in the last year position us incredibly well, I think it’s a market that’s going to exponentially grow over time. I think we’re in a great spot. I know it hasn’t shown up in our numbers, but we’re really, really bullish about what it means for us.

Andy Kaplowitz: Appreciate it Jose.

Jose Mas: Thanks Andy.

Operator: Thank you. And our next question comes from Jamie Cook from Credit Suisse. Please go ahead.

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

Jose Mas: Yes so Jamie, a couple of things, right? If you think about our second half of this year, and let’s break it out by business, so if we look at Clean Energy, our expectation is that in ’23, in the second half, margins are going to improve over ’22 by about 200 basis points – just over 200 basis points. So a lot of that has to do – we had – we’ve talked about it at NASUM right? We had a lot of impacts to our industrial business, and quite frankly, we were under absorbed relative to our renewable business because there wasn’t a lot of work. When you take into account the level of activity that’s going to exist in the second half ’23 in renewables and you take into account the fact that we’re not going to have these headwinds with industrial, we actually think that 200 basis points, again, is relatively conservative.

We’re going to beat Q1 on a year-over-year basis, we think, by over 400 basis points. So we actually have the improvement moderating in the second half of the year versus what we’re seeing in the first quarter. So again, we think that’s very achievable. In power delivery, when we look at the margin profile in the second half of ’23 versus last year, Again, it’s about a 100 basis point improvement. And quite frankly, with the opportunities that exist there, we would – in both of those businesses by the way, we would still be significantly below some of our peers. So these are not for – by any stretch of the imagination, what we think are optimal margins, they’re not. We’ve got a lot of work to do to continue to improve. We think the ability there to continue to improve over time exists.

And to your last question, what is driving down some of these margins, are the investments that we’re making, right? We’re going to grow revenue substantially, not just in ’23, but we think in ’24. We’re making the investments in people across every segment that we operate in. We have tremendous revenue growth opportunities. It’s about having the resources in place to be able to execute on that, and we’re trying to prepare ourselves. Again, we feel really good about our ability to achieve our current targets for ’23, but embedded in those targets are elevated level of costs to prepare us for further growth in ’24 and ’25.

Jamie Cook: Thank you.

Jose Mas: Thanks Jamie.

Operator: Thank you. And our next question comes from Alex Rygiel from B. Riley. Please go ahead.

Alex Rygiel: Thank you, good morning and George, wish you nothing but the best there. Couple of quick questions here first, Jose, can you talk a bit about telecom and its economic sensitivity historically and whether you’re sensing any conservatism by your customers as they start the new year?0

Jose Mas: So Alex, it’s a great question, right? And I think one of the differences – historically, quite frankly, I actually think it’s been a relatively solid industry. But I think all bets are off the table because of all the government spending that’s involved in the business today, right? Every one of our major customers is trying to find ways to tie federal dollars, whether it’s through RDOF or any of the other available resources to them. And with that, they’re all overbuilding each other. They’re all trying to expand footprint. AT&T recently announced their joint venture to build out of market networks. I mean what’s going on in this industry is unprecedented. I’ve been in – that’s been the one business that I’ve kind of been in all my life.

I’ve never seen anything like it. The reality is that it’s not going anywhere. It’s not going to slow down. I struggle to understand how the industry is going to be in a position to meet all of the demands that it’s going to have. And that’s where our challenges lie, right, is understanding what we can do, understanding what we can gear up for, picking the right customers and ultimately delivering the best margin profile we can in that business. But from a level of activity, from a revenue basis, I mean, that’s something that, quite frankly, we’re just not very worried about because of the level of activity that we see from our customers and the demand that our customers have for our services.

Alex Rygiel: That’s helpful. And then I think we understand sort of the target EBITDA margins for communications, same with the range for oil and gas. But in your opinion, what do you think of the target EBITDA margin in oil and gas and power – excuse me, in Power Delivery and Clean Energy could be over time?

Jose Mas: So it’s a great question, right? So in Power Delivery, we generated about 9% margins in 2022. We definitely think that’s a double-digit margin business. Again, we’re — we’ve made two big acquisitions in the last two years, while a lot of our integration efforts are concluding. We still have a lot of work to do to improve the profile of those businesses, to improve the margin profile. When you look at our closest peer, there are hundreds of basis points above us in that market. And I think the market is there to accomplish that. We just need time to build into it. So again, we’re guiding to roughly 9%. We’ve got some solid growth in that business this year. We’re preparing for – we’re spending some money on what we think are going to be future growth and the ability to improve margins over time.

We’ve got to spend some money to ultimately, we think, improve those margins over time. But in the next couple of years, we definitely think that’s a solid double-digit business and growing. In Clean Energy, we’re targeting roughly 6.5%, full year EBITDA profile with really a second half acceleration. So, if I was sitting here thinking about ’24 with a full year acceleration available to us, I would be trending more to what we think our second half margin guidance is going to be in that business for the full year, which is roughly in that 8% range. And I think that if we could — our first target will probably be to achieve somewhere between 8% and 8.5% in a full year. And over time, I also think that’s a double-digit margin business as the market continues to expand and create opportunities.

Alex Rygiel: Thank you very much.

Jose Mas: Thanks Alex.

Operator: Thank you. Our next question comes from Justin Hauke from Robert Baird. Please go ahead.

Justin Hauke: Hi, great. Yes, I don’t know if it counts as one of my first questions, but I guess, just I think we’re all wondering when we can get an advanced copy of the Young Mas, the high school years from George. That’s great.

Jose Mas: Yes it’s not shut in there so we’ll

Justin Hauke: That’s great no. We look forward to that, on a serious note. Just I guess, maybe one thing to kind of help with the confidence on the margins in Clean Energy is – it sounds like maybe there were some discrete efforts that you took from exiting some of those challenged industrial projects in the portfolio? And maybe just I don’t know, to the extent you could quantify the revenue impact that you’re having maybe in 1Q or the first half from those or the percentage of completion they are? Are those running at zero margin or just kind of some context to understand how that’s dragging on the margin in the beginning of the year?

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

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

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

Justin Hauke: Great, thank you guys.

Jose Mas: Sure.

Operator: Thank you. And our next question comes from Noelle Dilts from Stifel. Please go ahead.

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

Jose Mas: Yes, they’re different for each business. So if you think about oil and gas, I mean based on today’s levels, we wouldn’t have the workforce that we have in place today, but we know that we’re starting a bunch of projects in the second quarter. So today, we’ve got a bunch of under absorbed labor, quite frankly, that we’re holding on to because we know that the best is yet to come there. So that’s not necessarily new investments, but it’s holding on to people and equipment that in a normalized fashion at the current revenue rates we would never hold on to. When you think about what’s happening in telecom where we have tremendous opportunities for growth, that’s all about expanding markets, expanding people, adding equipment because the opportunity subset there is, if we had more people, the ability to put them to work is there.

We just have to continue to grow our resources and we’re trying to do that in a meaningfully thought-out way where we don’t overexpose ourselves to not performing. So that’s been continual and will continue. On the power delivery side with the acquisitions that we’ve made, we have tremendous opportunities on the transmission side of the business. We’ve been reinforcing our resources there. We’ve added a lot of people. We’re starting to add some specialty equipment. So those are the kind of investments we’re making there. And quite frankly, on Clean Energy, we’ve got a great base of people. Historically, we’ve done significantly more volume than what’s going through the books today. So I think on wind, we’re not necessarily making huge investments in equipment or people from a new perspective, but we’re, obviously, holding on the people at lower revenue rates because we know its coming.

And then on solar is a little bit different much by communications. We’re adding a lot of people because that market is exponentially growing, right? So when we talk about investments, they’re twofold. They’re either penetrating new markets or they’re trying to keep — or we’re holding on to a level of cost in anticipation of revenues to come, and there’s a mix of that in our business. And by the way, we always expect there to be a mix of that in the business. I think, today, especially in the first quarter, it’s unseasonably high.

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

Jose Mas: Well, I think today – in today’s world, the wireline business is growing much faster than the wireless business because of — there’s so much federal funding around that everybody is building. So there are a lot more opportunities on that side of the house a lot of the wireless activities are obviously somewhat dependent on fiber. So until fiber is deployed, there are certain things you can and can’t do. So we do think there’s going to be a delayed spend related to wireless versus wireline because of the need for fiber. With that said, some carriers have been a lot more active than others over the last couple of years. T-Mobile has been extremely active in deploying 5G, while some of the others have maybe delayed a bit.

So we’re seeing a transition, right? We expect to see much bigger spend from AT&T and Verizon this year with maybe a little bit less coming from T-Mobile. So the years are different, but I think the requirements are there, the need is there. And over time, it’s going to, we think, grow really nicely.

Noelle Dilts: Okay, great, thank you very much.

Operator: Thank you. And our next question comes from Brent Thielman from D.A. Davidson.

Brent Thielman: Hey thanks George, congrats as well, very impressive career. Jose, you’ve got a few moving pieces within the Clean Energy and Infrastructure backlog. I wanted to understand a bit better pretty encouraging comments on the wind side. It sounds like you’re seeing some good things developing for the second half and more into ’24 and beyond? I guess I’m curious, are you seeing that impact yet to your bookings and backlog in a material way or just sort of climb we’ve seen in the segment outside of IEA still largely been solar because I think that’s a material step-up so coming as that market accelerates?

Jose Mas: Right. So I got the — what was the last part of the question. I heard wind, and then I lost you. Was it all wind?

Brent Thielman: I’m also curious whether you’ve really seen a material impact to your backlog and bookings yet as a function of this kind of recovery in the wind market, so to speak, and whether that’s still a material step up to come?

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

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

Jose Mas: We talked about it last quarter. It’s obviously, we’ve taken our looks, and we’ve had our challenges. When we look at the projects that we’re working in 2023, we’re really excited. We’ve got the large lithium recycling plant that’s a cost-plus job that we’re working on, which we think is an incredibly interesting project, very unique project. We’ve got other jobs that we’re working for customers that I think are similar relative to a lot of the newer technologies that are going to get government funding and support. So I think we’ve built an incredible resume. It’s coming a huge cost, unfortunately. But we’re being very prudent about the jobs that we take. The contract structures that we take. And we think that, that business is actually going to do fairly well this year comparatively speaking.

And again, if we’re going to be – we’re not going to be as aggressive. We’re probably going to be a little bit timid as we look at these projects because of what’s happened, but we’re incredibly well positioned and think that will be a nice growth market for us as we continue to execute and get better at it.

Brent Thielman: Right very good, thank you

Operator: Thank you. And our last question comes from Adam Thalhimer from Thompson, Davis.

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

Paul Dimarco: Yes. So we did it in pieces, right? So we said $550 million of cash from operations and $100 million of net cash CapEx that would imply $450 million of free cash flow.

Adam Thalhimer: Okay. And then Jose, maybe you can just shed a little insight into what you’re seeing on the pipeline bidding side? And maybe what the outlook is beyond 2023?

Jose Mas: Well, look, I think what we’re going to do in ’23, we’ve kind of already gotten, right? So I think there’s a number of projects that are out there as we’ve won a bunch of projects for ’24 starts at this point. So there’s definitely things that are going to fall into ’23, but I think the bigger opportunity is today for ’24 and ’25. And based on what we want and what we know is coming, it’s kind of how we built our ’23 plan. So we’ve got, again, roughly 30% growth expected in ’23, but I think the opportunity for ’24 is considerably higher. MVP is the wildcard. MVP could still potentially go in ’23 and change all these numbers, but we’re feeling more and more comfortable that, that project is going to ultimately come to conclusion over the course, at least over the next two years.

Adam Thalhimer: Okay, thanks guys.

Jose Mas: Thanks Adam.

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

Jose Mas: So just before closing the call, I would like to take this opportunity to congratulate Paul Dimarco, Paul has been with MasTec for a long time and he’s demonstrated his talent over his career in MasTec. I know he’s out a lot of great ideas, and I’m excited that I’ll be leading our financial organization so again congrats, Paul. And thank you all for joining us, and we look forward to updating you on our first quarter call.

Operator: Thank you. Ladies and gentlemen, that does conclude today’s conference. We appreciate your participation, and have a wonderful day.