MasTec, Inc. (MTZ) Earnings Call Transcript & Summary

All right. Great. Thanks, everybody, for joining us. My name is Adam Seiden. I'm the U.S. Machinery and Construction Analyst at Barclays. Joining us for this presentation is the MasTec team. We have Jose Mas, Chief Executive Officer. We have George Pita, the Chief Financial Officer; and we have Marc Lewis, Investor Relations, joining us from an icy Texas. So the format of this presentation here is a fireside chat. For those that are familiar with our conference, you'll know that we normally do audience response questions during the event. Given that this is virtual, it won't be quite like that, but we are asking for your participation, where you'll see on the side of your screen, there should be some -- the exact survey questions that you're used to and accustomed to. If you have a moment, please take a second to fill those out, and we'd be happy to share the results with you as the conference concludes. So to start off, like we always like to do, I'll pass it over to Jose just to give a quick 30 seconds for those folks that are new to MasTec and the MasTec story. And then we'll jump right in with questions. The one actually -- one other caveat, sorry, Jose, is that if you have any questions, please feel free to shoot me an e-mail at adam.seiden@barclays.com, and I'll be happy to ask that for you. So Jose...

Is this being webcast? Sorry. Is this being webcast?

It is. Yes.

Okay. Thanks. So please take note of our forward-looking statements in our presentations available on our on our website as far as the www.mastec.com, we have our presentation with our forward-looking statements. Thanks.

Excellent. Jose, over to you.

That was our legal requirement. So thanks, George. Thanks, Adam. Thank you for having us, Adam. Appreciate the invitation and time -- getting time to spend with you. So to everybody on the call, thanks for joining us. For those of you that aren't familiar with MasTec, MasTec is an infrastructure construction company that specializes really in 2 areas, communications and power. On the communications side, we really grew up by building fiber networks and building networks for the different telephone companies across the country. Today, we're very active on those builds. We're very active with the cable TV operators, and we've got a very large wireless business. We think we're the largest wireless constructor in the country working for the carriers, deploying towers, doing maintenance on their towers. And obviously, with 5G coming, we think that's an important part and aspect of our business. On the power side, we've got a high-voltage transmission group that focuses on the transmission grid. We've got an Oil and Gas business that specializes in pipelines. About 95% of what we do is gas pipelines. We do everything from distribution work going to people's homes to midstream to long-haul pipe. And then we've got a large Clean Energy and Infrastructure business, which is really growing very rapidly. It's gone from about $300 million in revenues to $1.5 billion in 2020. It should exceed $2 billion in '21. And there, we do everything from wind, solar, biomass and then some infrastructure-related projects as well. So very bullish on the end markets that we serve between what's happening in Clean Energy, what's happening on the transmission grid and what's happening in the telecom sector. We think we've got tremendous opportunities for growth. We've had a really good run over the years. I became CEO of the business in 2007 at the time we were doing about $900 million in revenue and about $60 million in EBITDA. Now we're -- we should be north of a $7 billion company, doing north of $800 million in EBITDA. So we've really been able to grow the company quite nicely over the course of the last 12 or 13 years. And I think more importantly, we find ourselves today in a position to be able to transform the business yet again. The opportunities that we're seeing in front of us are probably bigger in size and scope and scale than what we've ever been able to enjoy before. It's an exciting time to be part of MasTec, and it's really exciting to see what we could do with the opportunities that are afforded to us. So pretty excited to be here.

Great. Thank you, Jose, for that. And look, I think the financial performance and the stock performance certainly speaks for itself, particularly most recently. So one thing I wanted to do is maybe start off here and think strategically a little bit about the business. You have a lot of growth in a lot of your -- in a bunch of your segments here, and you touched on a few of those, and we'll get to those later. But I want to think about the portfolio a little bit and really also about valuation. The stock is getting at an all-time high. It's getting close to $90 a share. What are -- how do you see the future growth of the company along the portfolio? And when you think about assets that are out there, what are private multiples like for types of businesses that generally would be attractive for a company like yourself or are comparable to a company like yourself?

Yes. So first, I'll address the valuation part of the story, right? Because I know that our stock has run. I know that, that's -- it's on people's minds as they just look and focus on price. I think it's important to understand what's happened in the overall market. Obviously, there's been a significant run-up in the stock market. But if you look at relative performance to where we are versus our peers, we still think we're dramatically undervalued. As our '20 results come out, we're trading somewhere around low 8s from an EBITDA multiple perspective on total enterprise value. If you look at our peer group, right, and it's a wide peer group, it could be everyone from Dycom to Quanta to Jacobs, to AECOM, to Tetra Tech. I mean those guys are trading at 11, 12, 13, 14, 15x EBITDA, trailing EBITDA. So I do think that we have an opportunity for significant multiple appreciation. One of the things that has obviously kept our multiple lower has been our exposure to the oil and gas market, which I think we've really tried to explain how our business continues to diversify, how we look different over the course of the next couple of years. And I think that -- I think it's been well received. But I also think it's -- we have to execute and we have to perform. And if we do, and then I would suspect that our multiples are going to reach the same multiples that our peers are getting, there's no reason why it shouldn't. Quite frankly, I think we're a really well-diversified story that deserves those kind of multiples. So just on multiple appreciation alone, I think there's dramatic opportunity for the stock to move, right? If we were trading at the low end of that peer multiple that I talked about, we could be a $120 to $130 stock today at those multiple levels. So while I do -- while we completely appreciate the fact that our stock has run, that it's done well, relatively, we still think there's a lot of room based on where the multiples are in the industry. With that said, right, how does that play into M&A, because I think that's the second part of the story, right? We've been more vocal about M&A than we've been in the past, right? When I first became CEO, we did a lot of M&A between the 2007, 2011 time frame since then. It's dramatically been a -- more of an organic growth story. As I look today out, I mean we're -- the best part of being where we are today is just the amount of opportunities that are in front of us, right? The truth is that we're trying to figure out how we manage them, how we take advantage of them, how we don't grow too fast that it impacts our ability to perform, but at the same time, take advantage of what the marketplace offers us. And I think M&A plays an interesting role in that. So I'd say there's 4 focus areas for us on M&A that we're really keen on. One continues to be clean energy because it's such a big part of what we do and really being able to scale that so that we can take advantage of the opportunities is important for us. Everything related to the grid, right, because irrespective of what the generation sources, the grid needs a lot of activity and work. We look at what's happening in telecom with 5G. There's opportunities for us there. And then just infrastructure-related work, right? Maybe even some things outside of what we've historically done because we think they're going to be large drivers of future revenue growth opportunities. So that's where we're focused. Historically, we've paid low up from multiples. We've targeted a very specific kind of business. We continue to target those. We continue to think that there's deals to be done in that space under the same profile that we've done in the past. One of the challenges in 2020 was the PPP loans, right? So if a company got a PPP loans, and these are generally smaller companies, although some fairly large companies got PPP loans. If they were to close the transaction by December 31, they would have had to potentially repay those. I think there's been rules that have come out since. But at that moment in time, the thought was if you actually sold your company prior to December 31, it was -- those would not have been forgivable. So that created a lot of issues with closing transactions in '20. So I do think you'll see some transactions closed in '21, just specifically on that issue. The pipeline today is as good as I can ever remember from an M&A perspective. We're looking at really good targets that I think would ultimately really move the needle for us in all of those different sectors that I talked about. So I do think that '21 is going to be an active year from us on an M&A front, right? We're focused on performing and executing on our business, which is offering us so much opportunities. But to the extent that we can add on pieces that help us accelerate what it is that we're trying to do, I think the opportunity has never been the way it is today. That's exciting for us. So I do think we'll be active. I think we have an opportunity to transform the business yet again. We kind of laid that strategy out on our third quarter call as we target a $10 billion revenue number in a much more diversified environment. I think we have an opportunity to get there a lot faster than what we probably thought would have been possible 6 months ago. So that's -- strategically, that's where we're at, right? How do we take advantage of the organic opportunities that are in front of us? How do we use M&A to help us expedite that at fair values, right, albeit maybe values today are a little bit higher than they might have been 6 months ago or 9 months ago because they are in the general market. But how do we take advantage of that? We're obviously in a very low interest rate environment. We think that, that's going to continue. We think that, that really helps from a valuation perspective. So again, I think the things that you can control, we need to control well. And the things that you can't always control, which is the demand of your -- of the end markets that you serve in, I mean we're blessed to be in a position today where our end markets are doing unbelievably well and the opportunities arising from that are abundant.

Got it. So maybe touching on a couple of things that you said there. So when you think about 2021 being a bit more of an active year on M&A, and does that fall into the bolt-on category or something that's a bit more transformational? And then when it comes to how you would go about acquiring these businesses, in the past, I know MasTec has preferred using earnouts and certainly bolt-on structure. Generally, is that how you would be looking at any prospective M&A coming down in 2021?

Look, one of the things that I think have made us successful is the fact that we understand that every deal is different, right? So while the majority of our deals have been bolt-on acquisitions under the same format that you've talked about, the reality is that we're flexible enough to do whatever we think we need to do to get the right asset at the right price that we can -- for us, it's -- price is obviously an incredibly important part of the transaction. And buying it right upfront makes a huge difference on whether it's ultimately successful or not. But more importantly is what can you do with the business post acquisition? What does the business do for you? How do you grow it? What do you bring to the table to really help that business achieve things that it probably couldn't do on its own? So when you take it all into account, I mean, I think we're in a position today where we can do any and all of those that you talked about. I think they're all on the table. I think we'll continue to evaluate and hopefully make -- find the right businesses that make the right sense for us. And I think it's going to be a combination of all those things you talked about.

Got it. And then one last one here, and we'll move on to the businesses. If you think about the valuation equation and story and you laid out that path like $120, $130, just if you go to the bottom end of the range, and you talked about oil and gas and how The Street has to get comfort on the strategy that you'll be able to match business just as you've done it in the past. So is there any thoughts to the opposite about what -- how you guys are viewing the pipeline business and that impact on your valuation? Is it -- is the impact on the valuation greater than the financial benefits of the business, [ bringing ] sort of thing internally, whether it's in cash flow, et cetera? Just trying to get a sense there of the long-term commitment to that business.

Yes. Look, I think we're -- things are always changing, right? So I don't think any of us could have predicted what was going to happen last March, both from COVID and what it ultimately did to the economy in general, more importantly, commodities and what those fuel sources have done. So what we've always said is we're never going to overreact. The pendulum swings in lots of different directions. I think if you look at what's happened in the last 48 hours in Texas, it's -- what I think we need to better understand as a country, really as a world, is we need energy diversification. There is no right single story, right? We need all forms of energy, and renewables are incredibly important for lots of reasons. But it -- they're not the only solution, right? So I think that we can't lose sight of that. I think there's -- we're going to continue to be in a diversified state. I think gas, especially because gas is a much cleaner source of energy than even what people give it credit for today, and I know it depends on who you talk to, but we're still a big believer that gas improves the carbon footprint of the country relative to where we are today as the -- as a source of use. So we don't think that business is going away. We think there's a very solid sustainable business behind that. That's going to be around for a long time. We understand that at different points in times, The Street might have a different perspective on that. So we're trying to build a very repetitive, repeatable business on what that means to us, and that's why we've kept talking about it being $1.5 billion to $2 billion business. Quite frankly, I think there's a chance that it isn't as bad as we all think, and it's going to actually be a little bit better. But that's not where we're focused as a business. We're focused as how do we create a business that we feel can sustain itself over a long period of time at those revenue levels, which would represent a 10% or 15% -- maybe 10% to 20% of our portfolio at any given point in time. We think that's a very reasonable number that people will get behind and people will value fairly because they'll understand the importance of that over a long period of time. That's not where we are today. That's hopefully where we'll get to. And I think that -- I think part of being well diversified for a company like ours that's infrastructure-driven has to include a piece of that to be involved in that sector depending on where that pendulum swings at any given point in time.

Got it. So maybe moving on a little bit. So you talked about the growth prospects or you mentioned the growth prospects in some of your businesses, which is certainly there. And there's a new administration in Washington. Thinking specifically around telco, I'm curious what your thoughts are as far as new administration, their priorities around telecommunication spend and then that relating into your customers' willingness to invest in the network in -- whether it's 2021 or even we could talk long term here how you think that plays out.

So a couple of things, right? If you just look at government spending, right, I think the biggest dollar flow as of late has been what's happened with RDOF, right, the Rural Development Opportunity Fund. Over $9 billion got allocated. There's going to be an enormous amount of work just related to that, incremental to what we've seen for a very long period of time. So that in and of itself is going to drive the market to very healthy levels for the foreseeable future, right? But they are obviously the smaller player, right? The -- none of the -- with the exception of a couple of the, I guess, medium to larger-sized carriers, the big, big carriers didn't participate in that. So they're very active in what they're doing, right? The spectrum auctions at the end of last year were really important. They were especially important for Verizon and AT&T. So I think we're getting close to that moment where everybody is going to be spending a lot of money on building out their network, whether it's fiber or wireless and a combination of both. We haven't been there in a long time, right? We've been in an environment where 1 carrier has been dominating the spend, whether it was AT&T years ago on fiber or when they slowed down, Verizon started their One Fiber build; or from a carrier perspective, you had Sprint and T-Mobile shut down for such a -- maybe not shut down, but spending less for such a long period of time because of the merger; you had Verizon. And so everybody is different, right? Today, you have T-Mobile spending considerably on the rollout of their network. So when you get to the end of '21, I think it's everybody, right? I think it's all the wireline providers. It's all the wireless providers. It's all these RDOF guys, and everybody is worried about resources, as they should be, because it's going to get a lot tighter and it's going to get a lot tougher. That's a good place for our business to be, and I think our business is going to be there for a long time. I know that everybody talks about when is it coming? When is it coming? Why haven't we seen it? And there's been a lot of reasons, right? I -- there's no doubt in my mind that COVID significantly pushed back a lot of what was going to happen in '20. But a lot of these other things are the big drivers now, right? The spectrum auctions are huge. You've got the cable TV operators participating in the spectrum auctions, participating some of them in the RDOF side. So there's going to be a lot of capital deployed in that market. And again, I think the industry is going to benefit as a whole and as we think we will as well.