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

All right. Good day, everyone, and thanks for joining us for this next session at the Barclays Virtual TMT Conference. I'm Adam Seiden, our U.S. machinery and construction analyst. Joining us for this session is MasTec. The company is represented today by CEO, Jose Mas; CFO, George Pita; and IR, Mark Lewis. If you have any questions during today's session, please feel free to submit them into the system or you could, of course, e-mail me at [email protected]. That's my first name dot my last name @barclays.com, and we'll be happy to ask your question on your behalf. So it's still relatively early, no hard questions, of course. And with that, I think we'll probably start beginning here. And we are at a TMT conference and maybe actually -- we are at a TMT conference, so for some of you folks who may be a little bit more unfamiliar about MasTec. So we'll start off with having the management team talk a little bit about MasTec. But first, I want to pass it to George for some opening statements.

Good morning, Adam, thanks for having us. Happy to be here. It's a very exciting time, why don't we talk about that now in the next 30 minutes-or-so. And I want to remind everyone the investor presentation deck we had that on our website at www.mastec.com, in the Investor Relations section. And please make a note of the forward-looking statements disclosure that's included in that presentation. And with that, I'll turn it over to Jose. Jose?

Good morning, Adam, thank you for having us. We're excited to be here. For those of you that aren't as familiar with MasTec, we are an infrastructure construction company based in North America. We specialize really in 2 areas. The first is the telecommunications area, which is really where the company got started, where we were founded from. We really started off as being a provider to all of the regional operating companies a long time ago basically building out their plants. Fast forward today, and we've got a pretty integrated solution where we offer everything from engineering to maintenance on all types of construction types. So we feel like, today, we're the largest builder of wireless infrastructure in the United States. We support all the different carriers, doing site selection, the build-out of the sites, putting all the equipment on the sites, the antennas, the cabling and then maintaining those sites. On the wireline construction side of the business, again, kind of where we have our roots from. We support the different carriers on their existing plan on building out fiber. If you think about small cells and really how 5G is changing the evolution of wireless and wireline, we're deeply involved in that. So we're very excited about what's coming. We're very excited about the investments that are being made both by the individual private companies as well as the government fundings coming in to support a lot of these initiatives. We feel we're really well positioned in that business itself. It's obviously a very large vertical for us and a very important one and really a core driver for our future growth. In addition to communications, we've got a pretty significant power side of our business where we support everything from transmission and distribution for the electric utilities across the country. We've got a generation arm where we predominantly build renewables, but we're doing some biomass. We're doing a little bit peaker plant type work. We've got an oil and gas business that supports building pipelines, that's a more challenged business in this environment. And between our high-voltage distribution and generation business, we've got unbelievable potential around how the energy grid is changing, what's happening to -- how electricity is both generated and distributed in the country, we think we're playing right in the middle of that and we're extremely excited about the opportunities that are facing us there as well. We're predominantly based in North America and predominantly in the United States. So we do a little bit in Canada. We do a little bit in Mexico, but outside of that, it's all U.S.-based, and about 400 offices across the country with about 28,000 team members. So again, very excited about the trajectory of the company, very excited on what we've accomplished, but quite frankly, much more excited about what's coming and the opportunities that lie in front of us.

Thanks, Jose on that. And given again that we're at a TMT conference, we'll be probably best to start here with telco and communications. So for the point that many investors have struggled with probably for so long, right, is that the telco opportunity set is very tangible. There's plenty of fiber and small cells to be deployed, but the pace of the spend has been a bit of a slow grind here. So I was hoping maybe you could talk a little bit about the conversations that you're having with customers today that adds to that conviction that, that growth opportunity that you see will materialize in the short to medium term here.

Sure. We've had significant backlog growth in our third quarter earnings release. We were really excited about the way our backlog grew. We even talked about on that call about further awards in Q4. We think we're going to end 2021 with really, really strong backlog numbers going into '22 for the business. The business has had its areas where it's performed really, really well and it's had its areas where it's been challenged, right? At the end of last year, in 2020, with the spectrum auctions that existed, it really put a pause on what Verizon and AT&T specific we're doing. They were really the big players in the spectrum auctions. It impacted their build plans. It impacted how they were going to deploy, what they were going to do. A lot of that spectrum is now being cleared, right? So we're getting to the point now where we think a lot of the work associated with those spectrum auctions is going to be into hit in '22 and beyond. So we expected '21 to be a year where some of our traditional customers, we do a lot of work for, we're going to be a little bit slower, right, because of what was happening in the market. What we're really proud of in 2021 is some of the customer diversification that we were able to deliver on, right? If you look at our business with T-Mobile today, it's stronger than it's ever been. If you look at our business with Comcast, it's stronger than it's ever been. We've got a great relationship with AT&T. They've been a core customer of ours forever. Their spend in our business was down in '21. We think it's going to dramatically increase in the coming years, and we think we'll be a big beneficiary of it. And a similar story for Verizon. So I think there's very specific reasons as to why it hasn't shown up in revenue yet. And we get it, right? We -- everybody is excited about the opportunities. The opportunities are -- feel like they're endless. We've done a great job building backlog. One is it going to show up in revenue? And I think you'll begin to see that in '22 for sure. I think even in the second half of '21 or in the fourth quarter of '21, we'll begin to see some of that, but it's truly a '22 and beyond story. The supply chain issues haven't helped either relative to that. I think there's some work that could have gotten completed in '21 that's probably going to get pushed in '22 because of just it might be some optics where it might be some equipment that, for whatever reason, has been challenged. But again, I don't think anybody can argue about the thesis of the story about where the business is going, and we're really trying to ramp our resources and be in a position where we can take advantage of the opportunities that are going to be there. Quite frankly, I think the opportunities that exist today are going to outstrip the demand, the labor they're going to outstrip the demand of what our industry is capable of doing, and we're going to have to grow, right? And we're going to have to be able to really meet our customers' challenges and needs, and that's going to require some investment, and require for us to continue to grow our resources. We've been doing that for years. We think we're in as good a position as anybody in the country to really respond to that and take advantage of that. But there's no question, we still have work to do. And Again, it's a very, very exciting time, and we're blessed to be in the position that we're in.

Great. And you spoke a bit about the backlog where it stands today, at very, very good levels, healthy levels and some of diversification that you've seen in the business. So maybe could you give a little bit more context around when you look at that backlog, how does that split amongst wireline versus wireless? And then how would you compare the growth rates of each size of those businesses as we look out the next -- over the short-to-medium term.

Sure. I think 5G is complicating the matter a little bit in that. Everything is really melting, right? The whole -- where wireline stops and -- where wireless stops and where wireline begins is a different conversation, right, than it was years ago. So I think a pretty easy DMR point in the past and today, it's a blurred line. There's no question that a lot of the opportunities today when you look at the dramatic growth of what's happening in the industry, there's a lot on the wireline side, right? Everybody is trying to deploy fiber. You've got a lot of funds like RDOF funds that have been deployed. So you've got an enormous amount of fiber construction that's going to happen in this country over the next few years. I think far beyond anything we've ever seen in the history that we're all going to have to prepare for. There is some lag, right? And then when you look at the wireless side, you've got what's going to happen on the macro sites, which is somewhat independent of what's happening on the wireline side. But when you think about small cells. I mean, it is integrated with the wireline build, right? So you really can't accomplish all of your small cell needs until the fiber is actually there. So there is some wireless spend that is somewhat dependent on the deployment of what's happening on the fiber side. And we're managing through that. I think both have great opportunities energies for growth. I think both areas are going to be really strong for us. I think we'll probably see higher growth rates in the wireline business initially, and then it will flip to higher growth rates in the wireless business over time. And again, we're blessed to have a significant competitive stake in both. And our biggest issue is going to be having the resources to take advantage of all the opportunities that are in front of us.

Got it. And we're talking a lot about the 5G opportunity and the growth that's in front of us, but also trying to get a little bit of an appreciation for some of the baseline business that's within that -- within communications. Like how much of the work that -- of the revenues that you guys are booking today? And is that based off of maintenance versus more of the growth avenue that we have to come here?

Our wireless business today, for the most part, is still a maintenance-driven business, right? You've got T-Mobile that's in a heavy deployment. Outside of that, none of the other carriers are -- everybody is deploying, but nobody is in a significant deployment mode right now. So the base to what we do is maintenance, and that's never going to go away. And quite frankly, it's one of the things that probably most excites us about our wireless business. If you think the network -- if you think about the networks of the future, they're going to have a lot more network element, right? Historically, a wireless network was all macro towers, you had some rooftops, you might have some antennas in other places. But for the most part, that's what made up your wireless network. When you think about the future with what's happening with small cells, with what's happening an in-building solutions and networks. The wireless network is going to have multiple of the network elements that existed in the past, which is going to require a significant ramp-up in maintenance, right? So the maintenance business, I think, is going to be multiples of what it historically was. And as we continue to deploy and build, I think we're going be in a great position to do that maintenance long term. I think integration and optimization are going to be critical elements of what we're capable of doing over the long term as a lot of these carriers are dealing with, having to manage a network, it's a lot bigger with more elements on it. We got into that space aggressively about 1.5 years ago, it's performed well, but the reality is it's a long-term play just because of how the network is going to change. So very exciting. We're obviously gearing up and really prepared to work on the deployment phase, but there's no question that over time, the maintenance opportunity in this business is far greater than it's ever been.

Got it. And you spoke a little bit at the onset around labor and having access to that. And certainly, MasTec's emphasize having excess labor force, train labor force, for quite some time, how important that is. What type of edge, if any, does that give you guys over your peers as we're looking to see this buildout materialize over the next couple of years? And then I guess the second part of that question would be, given that you guys have the labor force and maybe some other folks are still struggling a bit more, does that have any impact on the ability to improve your margins that you're earning within that business?

So lots of questions in that. I think when we think about labor, it's the most important part of our business, right? We make sure our company what it is, is our people. We can have all the equipment in the world, but it's the quality of our people and the dedication of our people that I think will ultimately separate MasTec. We take a lot of pride in the company that we're building. We truly want to build a company where people can come and build careers. We want people to start wherever they may start in the organization, but feel that they have a career path, an opportunity to get ahead and an opportunity to provide a better future for their families because I think that's the reason we all go to work and we want to have a purpose to our job and we really believe that in our company and as part of our culture, and our success is going to be based on our ability to attract great talent and keep it here and build it and give them the tools to succeed and allow them to and develop them, right? To make them better at what their individual tasks are, what they may need to do. So that's at the core of what we do. And we spend a lot of time. We spend a lot of resources. We've done a lot of dollars really trying to build that. And not just to say it and not just talk about it, but actually be able to deliver on that. So we want to be the employer of choice. We want to be the employer that people ultimately want to come to because they feel that it's the last job that they have to have, because they feel that they can make MasTec a career credibly important to our organization. With that said, right? Customers -- it matters to customers, right? The customers are worried about what's going to happen in this market over the long term. They know the labor issues that exist out there. They've seen it in the supply chain all year. They've seen it in labor rates as they've increased. So customers are talking a lot more early about things than they have in the past. They're trying to lock up companies for longer periods of times for more work. All of that bodes extremely well for MasTec. I think the one thing that we've got bond for us is our customers trust us. When we tell them, we can do something, they believe us, right? And there's responsibility that comes with that on the back end, we have to deliver, we have to execute. But customers believe in our ability to do that. And it puts us in an advantageous position, right? It puts us in a position where we've got something to sell. We've got something that our customers need. We can attract a fair wage for that, right? Obviously, we want to be able to maximize our profitability, but it's also about really long-term relationships. So do I think that our margins can improve? Of course, I do. I think utilization is going to continue to grow. I think we're going to get better at what we do. I think prices are going to escalate. But at the end of the day, we want to treat our customers fairly and really be in a position to be able to grow with them long term for all of their needs. But labor, I mean, I don't want to spend too much time talking about it, but it's the absolute most important thing that we've got to worry about that, we got to execute on that, we got to focus on because if we have the labor in place and we have the right people and the right management and the right leaders, we're going to be successful.

Got it. That's really helpful. So maybe we've got about 15 minutes here, so maybe to pivot a little bit to businesses outside telecom. But before we do kind of the walkthrough each of the businesses, I was hoping you could talk a little bit about the portfolio today and where you want it to be. MasTec has topped a bit about hydrogen battery storage, carbon capture, where do those areas fit in the MasTec umbrella?

People ask us all the time, you've got all these competing businesses. You've got all these things that you do -- to the naked eye look someone different. What's the common element? What's the common thread that makes these businesses makes sense for MasTec? And what I would say is there's lots of things that I think are important. The number one thing that was -- I think we manage projects extremely well, right? So irrespective of what you're doing, right? If we have the right systems in place, if we have the right information, if we can track each business, what you track might be a little bit different, but we think that's our expertise, right? Being able to track what's happening on a project track, productivity track, metrics and then hold people accountable, right? So at the end of the day, whether you're installing a foot of cable or whether you're putting an antenna up on a tower, whether we're building a wind farm or a solar farm or a high-voltage transmission line. At the end of the day, we're managing a project. We think we have a great system to do that. We think we've got great accountability metrics in place. So that is the one core element, right? That program management, project management piece across our company that I think we execute on in a really good way. We need industry experts to understand the specifics of what they might be building. But I think at core, right? That -- at a company level, that's probably the most important thing that we've got to be able to do and we've got to be able to do well. Secondly, I'd say, we really try to focus on markets that we think have tremendous potential. Where we think significant investment is going to happen where we think the financials of the business, right, relative to where customers have to spend, what they have to do, they have to be solid, right? Because if they are, and you're in a good market and you're in a market that needs labor and we're managing projects well, we're going to be successful. So when you look at clean energy, right? We are in the midst of an energy revolution in this country. How we generate power, how we deliver power, where it goes, how it gets there. That's changing before our eyes, right? I'm 50 years old and this -- it's never -- for the first time, I feel like in my lifetime, things on the power side are going to be very different 10, 15 years from now than they are today. And I think we're at the center of that, right? So I think every utility is worried about that. Every utility is trying to figure out how can they deploy electricity to people's homes and businesses? What do electric vehicles mean to the energy grid? How do we prepare the energy grid for the future renewables as well as the future of electric vehicles? And with that comes tremendous opportunities for companies like ours. And our job is to position ourselves in those areas that we think are going to get outsized dollars invested in them, so we can take advantage of it. So as we think about all the things that we do, right, so it's power generation, it's solar, it's wind, those are going to be the drivers. But you have biomass. You have lithium facilities that are going to get built both for the production of new lithium, and at the same time, what do you do with all these batteries as they come to the useful life, where do you put them? How do you deal with them? When you think about our pipeline business, which is a business that, quite frankly, it's going to be challenged because of the oil and gas dynamics, but when you think about what we can do with those pipeline assets around carbon capture, right? How do you capture carbon and really limit the CO2 that exists and building pipelines to basically move that carbon and bury it, right? What's happening before our business is radical, the radical changes. We've got to be in front of it. We've got to be ready to participate in it. And it's, again, it's incredibly exciting.

Got it. And I guess I'm just trying to get a little bit of a better appreciation of some of the areas that are maybe -- don't carry a weight in the portfolio at all in some cases today or other areas where you're looking to grow just in general in the future. When you look at carbon capture and you look at battery storage, hydrogen, all these places, is there -- if you guys were to get figured into those spaces, is there any qualifications around the contract structure that would be more acceptable from a risk tolerance standpoint for you guys? Or how do you guys look at whether the merits are there for you guys to participate further?

Look, I think they are. First, I think that's important, right? Second, when you think about it -- when you think about carbon capture is, right? You have 2 sides of carbon capture. You have the facility construction around carbon capture projects and then you have the pipeline construction. It is no different than what we do today, right? A pipeline for oil or a pipeline for gas or a pipeline quite frankly for hydrogen or carbon capture, It's the same type of work. It's the same equipment. It's the same people. It's the same -- the processes might be a little bit different, but it's exactly the same thing of what we do. When you talk about the facilities, right? And the work that we've been doing across facilities for the last few years on the power side, there's very different that happens, right? It's the mechanical work, it's the steel work, it's the buildings, very, very -- it's the earth clearing, right? It's the civil work that happens. These are -- there's so much from project to project that is so similar, right? There might be some nuances that are different, but there's a lot of similarity in those projects. Contract structure is incredibly important to us, right? We've been extremely risk-averse as a company. We really try to position ourselves in areas where we don't think we're taking significant risk, obviously we want to grow, we want to get into new areas. There's challenges with doing that, right? If you don't perform, right, if you don't perform well, we have to limit our risk profile. We're not going to take outsized risks, we're not going to be scared of getting into new markets, but they're going to have to be done in a prudent way where we're not betting the farm. Historically, our projects have been very short term in duration. And I don't think that's really going to change. I still think we're going to have very few projects that have any real longevity to them. And most of our projects are still short term in nature. We're not taking big giant bets, right? We're not building multibillion-dollar facilities. We're building a couple of hundred million dollar facilities that we think are performed within 12 months or almost 18 months, 24 months, right? So we've got shorter duration projects. We take less risk. We really try to protect ourselves with contract language, regardless of which of those areas we do, right? So that's a nonstarter for us. We don't feel like the risk profile fits what we're trying to accomplish, and again, we're conservative. We're not going to do it. Today, I think customers -- a lot of these areas are brand new, right? They haven't been done before. So there isn't a contracting community that exists to be able to do it, so you have a lot more flexibility with customers, right? You have customers that understand we're in this to make money, right? We're in this to have a business, a viable business, so we can continue to support them for a long time. And I think that's acceptable, right? And I think our customers understand that they have to share in the risk that, again, we've got to be a viable business to help support them over time. And those are the most important things that we look at when we're looking at whether it's a new business or a new project or anything that we don't have an enormous amount of experience in.

Got it. So let's focus on the ones where you do have that experience in wind and then solar certainly the portfolio now. So if you could just talk about what percentage that is of clean energy? Or just the total dollar amount for the company? And then more thinking about the margin trajectory there. I think you guys have talked about, on the cusp of breakout for that particular segment, is seeing those margins improved. Is that all mix dependent or not?

Yes. So a couple of things. It was a business that a few years ago, for us, was a $300 million business. It's a business that, this year, will approach $2 billion. It's a business that we've talked about, 30% growth in 2022, right? So it's roughly -- we looked out in '22, and we think it's plus 2.5%, maybe 2.6%. When we think about mix within that, it's more than half renewables. We've got a pretty -- a growing civil piece of the business, which is small. We've got outside, they're just pure renewables when we think about solar and wind, and we've got our whole biomass infrastructure business that is probably another 1/3 of our business-or-so that's growing, we think has tremendous potential. Is mix important? Of course, it is, right? The one business that we've been in for a long time is wind, and we performed really well in wind. We make good margins in wind. Everything else we're building into, they're newer businesses for us or businesses that we have tremendous confidence in our ability to achieve high margins. But they're newer businesses, so they take more time. We build most of this organically. The wind business has been a little bit challenged in the last, especially in '21 because you have all the transmission issues related to wind, there's a lot of transmission lines that are going to be built that opened up a lot of wind corridors. We think in '23, the wind business starts growing again at a pretty sizable level. Solar is growing tremendously right now. The opportunities are great. We struggled on our first couple of solar projects. We've done very well on our last couple of solar projects. So when you look at the business, I think the fourth quarter is it's going to show tremendous improvement from where we've been. I think we're going to enter '22 with tremendous tailwinds. And again, we're very excited about what we can achieve there, not only from a top line growth perspective, but more importantly, in our ability to continue margins. We still believe that we have the ability to be hitting double-digit margins in that business. We probably don't get there in '22, but we think it's a high single digit margin for us in '22. And hopefully, as we look at '23 and beyond, we're a lot closer to double digit or above that double-digit margin profile.

Got it. That's great. And just as we talked about in communications about the -- really, the maintenance, the underlying business that kind of just doesn't go away, it's -- it continues. When you think about clean energy and some of this renewables work, if you're doing a lot of installations, wind, solar, et cetera, those assets are going to be sitting out there. Is there any -- there's more from a natural maintenance. Is there any maintenance work that could develop off the back of that, that you guys participate or do already?

So the answer is absolutely. We do some of it already. One of the challenges with the business is, this is a relatively new business. So a lot of the equipment is under manufacturer warranty programs. And as the business evolves and a lot of that starts coming off, those manufacturer warranties, then a whole industry gets created around servicing that outside of the factors we're doing, some of that today. We think it's a tremendous long-term opportunity. The challenge, and really, the opportunity is renewables are going to grow multiple times bigger than what they are today, right? So the installation component of this over the next 10 years is going to be somewhat mind boggling. You have to build the maintenance business as it's growing to be able to support the long-term nature of those requirements. And we're super focused on it. We started it about 1.5 years ago. It's had -- it's still relatively small, but it's had really nice growth, and I think this is going to continue.

Got it. Maybe just a -- we're running out of time here, just to wrap up with transmission or the electrical transmission business. I guess, one, are we at an inflection point here for margins? And then two would be what are those margin aspirations? And three, ultimately, does that mean that we've done some of these -- the growing pains that you've seen within that business?

We had a good third quarter, right? It was -- I think we were able to demonstrate what we think we can do in margins, and it was the beginning of that. I think fourth quarter will be another good margin quarter for us in that business. We've talked about hitting double digits. I think the long-term opportunity in that business is a lot higher than that, but I think we've got to demonstrate our ability to consistently hit double-digit margins in the business. I think we're well on our way to that. There's a lot of evidence in the market, right, with some of our peers of what could be accomplished. We understand what the issues are. We made the INTREN acquisition earlier this year, it's been a fantastic acquisition for us. It's helped us from a margin profile in that business. And again, we're -- we -- part of our issue is we were never fully utilized, right? We really built the business to be a lot bigger than what it is. I think we're starting to accomplish really the revenue growth that we need to support a higher margin business. And I think we're getting really close. And again, another very exciting opportunity for us as we look down the road.

Got it, and I got to ask. So in closing, what are you more bullish on for '22, MasTec or the Miami Hurricanes football team?

Well, we have to be more bullish about MasTec, right? It's -- I think we've proven ourselves. We're in great markets. We've got tremendous opportunities in front of us, and we can't wait to execute on it.

Excellent. Well, it's a good story. I appreciate you guys taking the time today to let us all hear about it and look forward to doing this again. And to everyone on the line, thanks for joining in, and we'll see you next time.

Adam, thank you.