MasTech. MasTech is one of the largest infrastructure services company in the country. They operate in engineering and construction of communications, utilities, pipelines, renewable energy, civil and other critical infrastructure throughout the country. Paul, one of the biggest theme at this conference, and in general, amongst the investors right now, is around AI and data centers, and MasTec has a big role to play in construction and connections for data centers. Can you tell us how you're positioned, what you are seeing in that segment?
Sure. Yeah. Well, first of all, thanks for having us here. I think everyone looks forward to this conference every year. It's a beautiful location and well attended, so thanks for everyone for being here. You know, on the data center front specifically, I think it's a really big opportunity for us. I think the industry as a whole is trying to figure out how to develop and bring online these facilities at the cadence that is required for hyperscalers and utilizers of those facilities. So we started on the kind of heavy civil side, working with some of the hyperscalers on providing that solution. And now what we're doing is really trying to understand or help educate both hyperscalers and developers on the various services we can bring to the table, right?
I mean, we can bring the power, we can bring the communications. We have capabilities around wet utilities, facility construction. So a lot of the components that are required to bring a facility online, we can do. You know, additionally, the biggest constraint for a new facility today is power, right? Everyone we talk to is trying to figure out how they're gonna get the load that they need to operate the facility. So it's gonna be a multi-pronged approach, but we're trying to provide solutions where we can, facilitate conversations with our long-term relationships with utilities or other types of generation developers, and I think we're in the really early innings.
But I think, the services that we can provide and the relationships that we've built over a long history positions us very well for that opportunity.
So do you think some of these data centers will connect to the grid, or will they do self generation? What are... What trends are you seeing?
I mean, I think we're seeing both. I think in a perfect world, they would be on the meter, you know, a traditional arrangement with the utility, but sometimes the pace of development's not going to be able to withstand that longer timeframe. So we're seeing more and more developers look at options for either existing facilities that were expected to be decommissioned, looking at other types of self-generation with a new natural gas-fired facility, for example, and that could possibly be a bridge to the ultimate solution, but I think we're gonna see, you know, both avenues, you know, while the industry is sorting it out.
Yep. So as you see this increased load growth, when you talk to your utility customers, what are their expectations around that, and how does that create any secular tailwinds for MasTec?
You know, it touches us in a lot of parts of the business. Obviously, the generation side of it, a lot of that will be driven by renewables, so that's a big continuing opportunity for us. You know, the timeline to permit interconnection is a challenge, right? And that's something that's elongating cycles, particularly as projects get bigger, further away from the ultimate end use. You know, so what we're hearing is we've got to have some ability to shorten that cycle and drive increased efficiency in the development. I think there have been some overtures from the federal government to work on that, and we're hopeful that that gains some momentum. But if not, that's gonna just elongate the cycle.
On the regulated utility side, you know, one of the challenges that we're seeing play out this year is just around what has been the historical objective of the various public utility commissions, which is to keep costs very low, right? And that has a little bit of a friction with now a need for a lot of additional investment to handle the additional load, to get it to the right location. And so we've seen some challenges in the short term with utilities working with their regulators to get the right returns for those investments. I think the short-term deferrals, because the amount of work that's required to meet, you know, increasing electrical consumption in our country for the first time in decades is very, very significant.
You know, we're being supportive, and we think it's a very robust demand environment for, you know, for the foreseeable future to meet those demands.
That's great. So maybe we spend a little bit of time on your various segments. Let's start with power delivery, because you've been intimately involved in all of the acquisitions that were done in 2021. How have you repositioned that segment? Are there newer wins? What are you seeing in power delivery?
Yeah. So what Guru alluded to was, as we looked at our end market positioning coming out of the pandemic, we had a disproportionate amount of our profit being generated in our oil and gas segment. And, you know, coming into energy transition, we said, "Okay, we really have to make sure that we have the right end market exposure to be a, you know, true top-tier player in the markets where we see capital flowing." We had a nice transmission business. It was about $500 million a year, but we were nowhere near a national player from a distribution perspective, with the relationships across the country with utilities that were gonna be deploying, you know, all this capital. So we made two big acquisitions in 2021, which really gave us nationwide coverage....
Good exposure to, you know, all the major utilities. And we've worked to position ourselves now as we've integrated those businesses into, you know, a very collaborative and integrated solution for developers of for folks that are building large transmission and the regulated utilities. And I think, you know, the benefits of that strategy are starting to show out. We announced a large award in Q2 of about a 700-mile transmission and substation project. And what we saw through that procurement was the skills, capabilities, and capacity of MasTec's legacy business and the businesses that we have acquired and integrated over the last two years was really one of the key drivers for that customer to put their faith in us and partner with us to build what's a very strategic project for them going forward.
Okay. And Paul, just continuing on power delivery. You've talked about historically, some of the deferred distribution spending in 2024, in light of all the anticipated grid needs. How long can the deferred spending last?
We don't think it can last very long. You know, there's a base maintenance need that will continue to be supported, and the balance between the regulator and the utility will come through. I mean, that's unique to one geography. Like, when you come out here on the West Coast, you know, many of us flew in and saw hills on fire, right? A lot of the work we're doing in California is around undergrounding, it's around resiliency. You know, I think residents here understand that that can't be deferred, right? And the utilities and the regulators have made commitments to those investments, and we're, you know, proud to be, you know, part of that solution.
Similarly, when you look at, you know, the East Coast, we haven't seen any slowdown in the Southeast, with our utility customers there, who have, you know, exposure to windstorm events. So you know, those more pressing resiliency issues are definitely front and center and are continuing to be addressed. You know, where we've seen some short-term deferral is really around places that are more opportunistic-
Uh-huh.
Around load growth, and, you know, we think the economic activity that power can drive will ultimately, you know, bring that to resolution fairly quickly.
Okay, so moving on to clean energy and infrastructure, what changes have you implemented in that segment? And now, you've talked about a little bit more visibility. What sort of visibility you have? What's the backlog like?
Yeah. So the last major acquisition we did was at the fourth quarter of 2022 for a company called IEA, and they were a large provider of both renewable and civil construction. What we found is they had a lot of projects in their anticipated revenue for 2023 that had timing challenges with interconnection or procurement, permitting, whatever it might be. Our legacy business had been much more focused on evaluating those risks collaboratively with the customer, and because the way the integration was playing out, we hadn't been as aggressive in evaluating what the acquired company was doing. That's really where the focus has been over the last twelve months, around the integration, in addition to the you know, operational performance. But we feel really good about the visibility today. You know, we've grown backlog strong for the last two quarters.
We expect to grow backlog significantly through year-end, and our revenue for the clean energy segment is at its highest levels that we've ever had, so we've got great visibility with the customers. You know, we've got the work that we need to in backlog that we need to execute on for the twenty twenty-four guidance, and we feel really good about the cadence of work that we're seeing coming to backlog for the following year, so it's really the discipline that we've pushed across the company to work collaboratively with the customers and make sure we understand the risks that they're concerned about from a timing perspective, and manage that appropriately within our expectations.
So in this segment, how do you see your margin continuing to improve?
Yeah
especially into the next year?
Yeah, so the volatility we had in the back half of last year and earlier this year definitely has impacted margins. With the higher visibility that we have for the projects moving into twenty twenty-five, we expect there'll be some seasonality because of winter weather. It's just normal course in the first quarter. But we don't expect to see anywhere near as big of a dip in volume, and therefore, you know, the operating leverage impact that it had on margins in twenty twenty-three and twenty twenty-four, so we feel we have good visibility. You know, we should exit the back half of this year in the mid-single digits, and that is an appropriate goal for the full year next year. Longer term, we think the segment is, you know, a high single-digit EBITDA margin business for us.
You know, with the right mix of supply and demand constraints, there could be an opportunity to push that higher.
Okay. You've previously talked about starting alliance agreements with customers on clean energy side. Can you talk about the progress there? Are they really impactful?
Yeah, that's been a great collaborative development with a number of our clean energy clients. It's not the preferred procurement solution for everybody, but for a handful of customers, we've structured a relationship where, you know, we're working with them very early on, and we have commitments around a certain percentage of their portfolio or a series of projects over a longer timeframe. It's a great balance to the traditional, you know, single project procurement model. It takes the right level of commitment from the customer, you know, to bring us in early, and for us to have confidence in their ability to develop those projects on the right cadence, so that we can, you know, leverage our resources most effectively.
But where we put them in place, they've been terrific, you know, incredibly collaborative and a true partnership where, you know, we're helping them early on with things like constructability, you know, finding ways to engineer cost out earlier on than you would typically be involved. And so it's a real value add for the client. And obviously, from a planning perspective, it gives us a lot of visibility around, you know, minimizing downtime for assets and resources. So-
Paul, what would be some of the examples of these partnerships you've done?
Yeah, some of the-
What would be some of the examples or names of the-
Yeah, we haven't disclosed that publicly.
Okay.
We're gonna, you know, with respect to them, we'll keep it quiet.
Okay.
But...
Yeah. So then let's move on to your communications segment. How are you progressing into expanded wireless opportunity with AT&T?
Yeah, so the additional markets that we were awarded at the end of last year moved over to us in the third quarter, so we're just into that transition now. It's going well. You know, I think the transition was effective and, you know, now we're just picking up the crews and subcontractors to execute in those geographies. In addition, they're working on their swap-out of Nokia equipment over to Ericsson, and that's progressing as well. You know, and as we've said previously, that'll ramp through the back half of this year, and then we expect to have a full year impact from those additional territories and equipment standardization program in 2025.
Mm-hmm. So when do you expect BEAD's funding to begin, and how that may impact the demand in this segment?
Yeah. So the general consensus is we'll start to see money flowing from what's been allocated to the states, to our customers sometime in twenty twenty-five. I think the industry has been a little bit more cautious on the impact next year. We'll see some. We don't think it's gonna be a huge driver of demand for next year, but this is a, you know, a $45 billion federal program, so it's gonna impact and supplement spend for our customers for a long time. Separately, though, you know, there's been a number of trends in the industry that continue to give us good visibility on growth on the wireline side as well. You know, a lot of our customers are talking about continued expansion of territory, other strategic initiatives around overbuild of fiber.
Third-party capital, like AT&T announced earlier today, that they're gonna accelerate their deployment with Gigapower, which is a joint venture arrangement that they're operating under. So there's a lot of good tailwinds, a lot of good drivers of demand for our services. BEADs will be a really nice supplement to that as it works through the, you know, the process of allocation to the telecommunications and broadband providers.
What do you think this may do to your pricing or margins, as you think about the next eighteen months or so?
Yeah. Well, both of them, both the increased volume on the wireless side and the increasing opportunity set on the fiber side, both really help with operating leverage. Particularly on wireless, that's the one business where we self-perform less of the work. All of our everything else, we're generally a self-perform firm. But in wireless, about two-thirds of the work is more program management with a series of subcontractors. So we have a heavier layer of fixed costs to manage those crews. As the volume goes down, you can have some absorption challenges, but in this type of environment, we'll see a lot of that gross profit fall straight to the bottom line, really accretive to margins. Same thing on wireline fiber. Not quite as dramatic, but that incremental spend, you know, really helps from a utilization perspective.
We think as capacity continues to constrain, there'll be more, you know, more pricing opportunities. We've said, you know, kind of that 12-13% is a reasonable EBITDA margin expectation over time. We won't hit that in 2025, but we think with the cadence of growth that we're seeing, that's definitely an opportunity for us in 2026.
Great. Moving on to the pipelines. So you had announced you raised your revenue guidance by $100 million. What's driving optimism? What you're seeing in that segment?
We're seeing really positive demand for bidding activity, new permits, and just dialogue with customers around not a lot of the business in the late 2010s. But good, small, medium-size, you know, midstream projects to enhance takeaway capacity or move products to new markets for use. It's not gonna be a huge driver of growth, but we think kind of staying flat at $2 billion for through 2025 and beyond is very achievable with the demands that we're seeing, and that's with without the contribution that we got from the Mountain Valley Pipeline in 2024. So it's just it's not incredible, but it's the best we've seen since the pandemic. And we operate very well in that segment. It's our highest margin business.
You know, we think we should easily be able to achieve high teens EBITDA margins consistently with that type of demand backdrop.
So Paul, obviously, the company has made tremendous progress over the last decade. I think when I first met you, EBITDA was sub hundred million, now it's getting close to billion. As you've continued to make this progress, what's your guidance publicly that you've stated for this year, and how you see the outlook for next year?
Yeah. So for this year, we're guiding to about $12.5 billion of revenue and $975 million of EBITDA, about $3 a share. You know, we think 2024 is about setting us up for a really opportunistic end market situation in really every segment with that flat level in oil and gas. So we're really excited about what's to come in 2025 and beyond. You know, we think high single-digit top-line growth organically is achievable for the next few years, and we think we've got a really good opportunity to be double-digit EBITDA margins in every segment, with the exception of maybe clean energy, where we think the intermediate-term margin outlook is high single digits. So we're really excited about all the end markets opportunities.
Organic growth is gonna be the priority for capital allocation, but we'll definitely continue to evaluate M&A. Probably not of the size and scale that we did in 2021 and 2022, but back to more of the profile that we've done very successfully throughout the 2010s, augment our capabilities, geographies, customer base, and try to find things that we think have a really high top-line growth opportunity to supplement that the big organic backdrop.
Yeah. And you've been really passionate about deleveraging and getting to investment-grade rating. Now you've achieved all those targets, so how do you think about capital allocation?
Yeah, so you know, we did increase leverage slightly coming off of the IE acquisition. We've worked that down very well. Cash flow generation has been strong over the last year and a half, so we're really pleased with how diligently we've been managing working capital and converting earnings into cash flow. You know, organic growth is gonna be the key. We'll look at M&A. From a share purchase perspective, we really do that opportunistically. We think we've got more attractive uses of capital than just direct share repurchase. When we do that, we think it's because we have an opportunity to get the shares repurchased at a meaningful discount. So those will definitely be the key.
Yeah, I would also say, you know, if we need to invest in working capital for a particular project, sometimes customers have, you know, temporary funding needs. We would absolutely use working capital commitments for that as well, to help kind of bridge a project if necessary. We've done that very successfully in the past. So, you know, but the organic growth is gonna be the key. And, you know, José, our CEO, has always been very, very insightful into where we're seeing trends.
Uh-huh.
You know, being opportunistic with M&A to supplement that organic growth is gonna be an important part of the story, too.
Okay. And, like, one question I've always wondered: You still trade at a significant discount to one of your closest peers, although your business model is very similar, you have very similar performance. What do you think investors are missing? What is changing? What's new this year, over the next year, that should help continue to close the gap?
Yeah, I don't think, I don't think investors are missing it. I think a lot of it's on us, and we have to be more consistent, right? So we've had a very strategic transformation over the last three years, and, you know, doing big acquisitions and integrating them effectively is challenging. And, you know, we took our lumps, and we had some volatility in earnings relative to guidance because of that. So from our perspective, you know, the opportunity is there from an end market perspective. We need to perform consistently and continue to monetize that opportunity and show investors that we can do that, you know, time after time and give them the predictability we need. That's what I think was the biggest challenge in the short term.
You know, but now we've got good diversification. We've got the businesses integrated into MasTec. Still, obviously some work to do, but we've got good visibility into the opportunity set and the earnings profile, and our goal is to just, you know, perform at the levels that we put out publicly and rebuild that confidence, and I think we've started to do that this year, and we'll continue to, you know, make that our priority.
Yeah, that's great. We have a few minutes left. I'll open up for audience. Any questions?
Do you want to first start with them?
Yeah.
You know, I haven't seen any data yet looking at that interconnection specifically, but it's something that we'll dive into. I mean, we would provide those services for both the customers and/or if they're interconnecting with an existing fiber grid, with our existing, you know, telecommunications and broadband providers. So I think it's definitely something that's addressable, but in the total aggregate size, I'm not quite sure.
Given all the progress you've made on the balance sheet and improved outlook, have you had any recent conversations with your rating agencies to utilize your rating on that?
Yeah. So we're talking to them about that. You know, Fitch is stable. I think their indication is they wanted to see a couple quarters kind of at this level. So I would think the outside date from discussions with them is probably when the year-end earnings come out. That would be when we would expect to be, you know, kind of low twos and kind of met the commitments we've made from a balance sheet perspective with them.
Any other questions?