Welcome to the MasTec Second Quarter 2020 Earnings Conference Call, initially broadcast on July 31, 2020. Let me remind participants that today's call is being recorded. And at this time, I would like to turn the call over to your host today Marc Lewis, MasTec's Vice President of Investor Relations.

Marc?.

Thank you, Sara, and good morning, everyone. Welcome to MasTec's second quarter call. The following statements made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995.

In these communication, we may 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 initial broadcast of this conference call, and the company does not undertake to update these expectations based on subsequent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press releases and filings with the SEC.

Should one or more of these risks or uncertainties prove incorrect or should be this information would be changing the results may differ significantly from results expressed or implied in these communications.

In today's remarks by management, we will be discussing adjusted financial metrics as discussed and 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 any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release, our 10-Q or in the posted PowerPoint presentations located in investors section of our website located at mastec.com.

Just a note on the 10-Q availability, we’ve been attempting to file the 10-Q with the SEC since 5:00 PM yesterday, but an SEC filing system, which has prevented the filing from being uploaded and accessible. We expect this will be resolved shortly.

With us today, we have Jose Mas, our Chief Executive Officer; and George Pita, our Executive Vice President and Chief Financial Officer. The format of the call will be opening remarks announces by Jose, followed by a financial review from George. These discussions will be followed by Q&A period, and we expect the call to last about 60 minutes.

We had another great quarter and a lot of things to talk about today, so I'll now turn the call over to Jose.

Jose?.

Thanks, Marc. Good morning, and welcome to MasTec's 2020 second quarter call. I hope and pray that everyone’s family is healthy and safe. We are truly in challenging and unprecedented times as we continue to manage through COVID 19 pandemic. During this time, the safety of our team members has been our top priority.

I have to say, I'm so proud of the men and women at MasTec, there's sacrifices, resilience, creativity, and commitment have been inspiring. Millions of families throughout the U.S. rely on the power communication, entertainment and other services we help our customers provide.

Our team has delivered, and I'd like to thank the men and women at MasTec for their sacrifices and their hard work. First, I'll quick recap of our second quarter.

Revenue for the quarter was $1,569 million, adjusted EBITDA was $166 million, adjusted earnings per share was $0.95, cash flow from operations was roughly $295 million and year-to-date cash flow from operations was $497 million. And backlog at quarter end was second quarter record at $8.2 billion.

We had a solid second quarter meeting our revenue guidance and exceeding our guidance for EBITDA and EPS. It's important to keep in mind that most of our services have been deemed essential under state and local pandemic mitigation orders. And all of our business segments have continued to operate.

We are managing through the COVID-19 challenges, including first and foremost, the safety of our employees and their families. And other challenges, including governmental permitting, crews social distancing mitigation, and the impact that, that may have on project schedules and any potential project delays.

Our 2020 guidance, which George will cover in detail assumes the impact of these risk based on the best information we have as of today. Well, I'll cover our segments in more detail in a minute, I'd like to focus on how MasTec is positioned for long-term success. I'm extremely optimistic about our future prospects.

We are very well positioned to take advantage of the continued and growing investments in telephony networks, including internet connectivity in 5G, the continued investment in grid reliability in the energy sector and the growth of the clean energy sector.

As it relates to clean energy, during the second quarter, we made a decision to rebrand our power generation industrial group to clean energy and infrastructure. We believe this better represents what we are actually doing today as the segment becomes a much larger and important part of MasTec future.

As one of the nation's leading clean energy construction companies, we have experienced significant growth over the last few years, growing revenues from $300 million in 2017, to over $1.5 billion of expected revenues this year.

We expect continued growth in 2021 and believe that by 2022, this segment will exceed the size of what our oil and gas segment is today. Today, we also announced record oil and gas backlog levels. I'd like to offer some color on the segments backlog. First, we are highly confident that all of the projects in our current backlog will be built.

We believe this backlog represents our strength in the market and our ability to offer value while still retaining solid margins. We view this level of backlog as a significant competitive advantage, as we do believe new work will slow down through the first half of 2021. There will still be new work awarded, but less of it.

Basically, if you don't have a lot of backlog today, the next year and a half will be tough. We do expect an improvement in the market as conditions improve and demand increases in a post COVID environment.

In the meantime, between what we have in backlog and other work we have been negotiating with our customers, we believe revenue levels for our oil and gas segment in 2021 will be similar to 2020 levels.

While George will cover guidance in detail later, we have lowered our annual revenue guidance in oil and gas based on the delay of two projects which would have been impacted by regulatory and judicial issues. As I think about our 2020 guidance, I think there are some important takeaways to highlight.

First, in the midst of a pandemic, our revenue guidance for 2020 is only down about $200 million, or 3% less than 2019 full year revenue. Within that our oil and gas revenue expectation is that it will be down approximately $800 million in 2020 from 2019.

That means the rest of our segment revenues will be up approximately $600 million versus last year in the middle of a challenging environment. More importantly, margins on a year-over-year basis are expected to be relatively flat at 11.4% EBITDA margins, versus 11.7% last year.

Between both the pandemic challenges and the impacts of demand and regulatory issues on our oil and gas markets, I think our financial guidance demonstrates the strength of our diversified portfolio and the efforts we have made over the years of having a strong diversified service offering. Now I'd like to cover some industry specifics.

Our communications revenue for the quarter was $654 million. More importantly, margins came in strong and we’re up 370 basis points year-over-year and 380 basis points sequentially. We're seeing strong demand from our customers as they work to meet the demands in this changing environment.

COVID has helped highlight the importance of our nation's telecommunications networks and our customers are working hard at providing their customers with reliable and high speed connectivity. We expect this trend to continue and believe there will be a renewed focus on continuing fiber expansions in the residential markets.

This coupled with the continued opportunities around 5G deployments provide us with significant opportunities to grow our business. While margins were much improved in the quarter, our revenue has been negatively impacted by COVID.

Our installation business has been impacted by strict mitigation efforts related to entering customers' homes, and we continue to have a couple of large markets where work has been very limited. Our guidance assumes these impacts continue through year end and also include the potential impacts of local permitting delays.

As some areas slow reopenings or even move back to more street closures, we have been working with the cities and municipalities to bolster remote permitting capabilities. Revenue in our Electrical Transmission segment was $124 million versus $100 million in last year second quarter.

While margins had been improving over the course of the last year, we had a project that negatively impacted margins based on the change in environmental requirements. We believe these increased costs are mostly recoverable and expect to benefit in the second half of the year. Backlog improved both year-over-year and sequentially.

And we made good progress on diversification within this segment. We have been awarded four new MSAs or master service agreements, as this has been a focus for us to drive consistent recurring work.

We believe, we are well positioned for 2021 and beyond, as the drivers for this segment remain intact, which include aging infrastructure, reliability, renewables and system hardening. Between our strong backlog and the opportunities we see in the market.

We expect to be able to deliver both strong revenue growth coupled with margin expansion in the coming years. Moving to our Clean Energy and Infrastructure segment. Revenue was $426 million for the second quarter versus $250 million in the prior year, a 70% year-over-year increase.

We continue to achieve significant growth rates in this segment, and backlog at quarter end exceeded $1 billion. Margins for this segment were strong at 7.1% and we continue to expect margins to improve over 2019 by over 100 basis points. The size and scope of the opportunities we are seeing in the segment continues to grow.

We have made significant investments in this segments of profitably grow our business through organic opportunities. We continue to add talent and resources to meet the increasing demand for our services. While we've highlighted this segment more over the last few quarters, I still think it's an underappreciated part of MasTec's portfolio.

Between both the opportunities provided by future Clean Energy initiatives, and the potential for an infrastructure bill after the election, we believe this segment provides significant opportunities for long-term growth. Our oil and gas pipeline segment revenue was down as expected.

Second quarter revenue was $369 million, compared to revenues of $937 million in last year second quarter. We ended second quarter with backlog of almost $2.7 billion. As a reminder, over the last three years, only 6% of our revenues have come from oil pipelines, with the majority of our business being tied to natural gas.

We've also focused on growing both our distribution and integrity business over the last few years, and we are encouraged by our progress. To recap, we had a good second quarter and are confident we are mitigating the effects and impacts of the COVID-19 virus. While times are challenging and uncertain, opportunities always arise from these challenges.

Our customers are looking for ways to change and improve their business models and are looking for strong partners to help them. In that lies our opportunity, our greatest strength has been to understand the trends in our industry and our customer's needs. Our ability to provide services, whether existing or new, has always been the strength.

I'm excited with for what the future holds for MasTec. I'd like to again thank the men and women at MasTec for their commitment to safety, their hard work and their sacrifices. Keep up the good work. I'll now turn the call over to George for our financial review.

George?.

Thanks, Jose. Good morning, everyone. Today' I'll cover second quarter results. Our guidance expectation for the balance of 2020, including the ongoing impact of the COVID-19 pandemic, as well as our strong cash flow performance, capital structure and liquidity.

As Marc indicated at the beginning of our call, the discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA. Reconciliation and details of non-GAAP measures can be found on our press release, on our website or in our SEC filings.

In summary, our second quarter 2020 results were better than expected with adjusted EBITDA being the high end of our guidance expectation by $6 million and adjusted diluted earnings per share, exceeding the high end of our guidance expectation by $0.06.

These results also exceeded Street consensus, with adjusted EBITDA of $166 million beating Street consensus by $14 million and adjusted diluted earnings per share of $0.95 beating Street consensus by $0.15.

Second quarter 2020 results also continue our strong cash flow performance generating $293 million in cash flow from operations and reducing sequential total debt levels by $177 million. Our first half 2020 cash flow from operations of $497 million represents a record performance level for MasTec.

And we reduced total debt levels by $190 million during the first half of 2020, despite investing approximately $130 million in share repurchases and M&A. This strong performance gives us confidence in our expectation that annual 2020 cash flow from operations will be at a new record level approximating $600 million.

Subsequent to quarter end, we took advantage of variable credit market conditions to refinance our 478, 400 million senior unsecured notes, which we have called redemption in mid-August.

Due to the strong demand for the new issue, our new senior unsecured notes offering was upsized by 50% to $600 million with a lower interest rate of 4.5% and extending the maturity to 2028 and overall better terms. Our new senior notes offering is expected to close in early August.

I will make further remarks on our capital structure later, but suffice it to say that our cash flow, capital structure and liquidity are in excellent shape, even stronger than last quarter.

And this combination affords us full flexibility to invest in strategic opportunities, as well as giving us a strong advantage as we navigate through the uncertain economic climate resulting from the COVID-19 pandemics. Now I’ll cover some highlights regarding our second quarter segment results and guidance expectations for the balance of 2020.

Second quarter 2020 communications segment revenue of $654 million was basically flat with the same period last year.

Second quarter 2020 communications segment adjusted EBITDA margin rate was 11.7% of revenue representing the sequential increase of 380 basis points when compared to the first quarter of 2020 and a 370 basis point improvement when compared to last year's second quarter.

As Jose mentioned in his remarks, this performance level includes disruption and lost revenue related to the COVID-19 pandemic, as we have selected markets in which construction work slowed, and in some cases stop due to local municipality permitting approval delays.

We believe that the evolution towards 5G technology coupled with increasing remote workplace and education trends in the U.S. because of the COVID-19 pandemic, will drive significant long-term demand for our wireless and wireline services in 2021 and beyond, as the COVID-19 pandemic effects begin to normalize.

As we look to the remainder of 2020, we expect second half 2020 communication segment revenue levels will approximate first half 2020 revenue levels with some continued disruption and lost revenue, primarily from local municipality permitting issues related to the COVID-19 pandemic.

We're also increasing our annual 2020 communication segment adjusted EBITDA margin rate expectations by approximately 100 basis points. And now expect that communication segment annual 2020 adjusted EBITDA margin rate will approximate 10% of revenue, which equates to a 200 basis point improvement over last year.

While we are pleased with the expected 200 basis point improvement in 2020 communication segment adjusted EBITDA margin rate, especially in light of challenging conditions in 2020, it is important to note that this performance level still leaves ample room for future improvement in 2021 and beyond as pandemic conditions normalize and telecommunications market trends continue to develop.

As expected and previously communicated, second quarter 2020 oil and gas segment revenue of $369 million decreased 61% compared to the same period last year, based on project start time.

Second quarter 2020 oil and gas segment adjusted EBITDA margin rate was 21.7% of revenue, continuing our strong performance trends, with this performance including the benefit of project mix, comprised of reduced levels of lower margin cost plus activity and continued strong project productivity on numerous smaller pipeline projects.

During the second quarter, we were awarded approximately $450 million in new oil and gas project awards, bringing the total of new backlog additions during the first half of 2020 to approximately $1.5 billion. Second quarter 2020 oil and gas segment backlog of $2.66 billion represented a new all-time segment backlog record.

First half 2020 oil and gas segment award activity gives us strong visibility for solid project activity over the next 12 to 18 months. That said, predicting the project start timing has become more difficult due to the impact of regulatory and judicial challenges.

Given the size of our large projects, a 30 day delay in project activity could impact monthly revenue by as much as $100 million to $150 million. Our current annual 2020 revenue guidance expectation incorporates revised project start dates for two large projects with late summer early fall start dates.

This results in annual 2020 oil and gas segment revenue now expected to approximate $2.3 billion with solid backlog activity shifting into 2021. Given at the majority of project activity shifting to 2021 is related to lower margin cost plus activity.

We are increasing our annual 2020 oil and gas segment adjusted EBITDA margin rate expectation from the high-teens to the low 20% range. Second quarter 2020 Electrical Transmission segment revenue increased approximately 24% compared to the same period last year to approximately $124 million.

And segment adjusted EBITDA was a slight loss of approximately $3 million. As Jose indicated, during the quarter, we experienced production inefficiencies as we work towards completion of a project.

The project is approximately 90% complete as of the end of the second quarter, and we expect to recover a portion of these inefficiencies from our customer during the back half of 2020. As we look towards the remainder of 2020, we expect Electrical Transmission segments second half 2020 revenue will approximate first half 2020 levels.

With second half 2020 adjusted EBITDA margin rate for this segment expected in the high-single-digit range. Our second quarter 2020 Electrical Transmission segment backlog of $551 million increase sequentially 27% or $117 million, when compared to the first quarter.

And this supports our continued belief that end market conditions for this segment are supportive for strong 2021 revenue and adjusted EBITDA growth in this segment. Second quarter of 2020, Clean Energy and Infrastructure segment revenue of $426 million increased approximately 70% compared to the same period last year.

Second quarter 2020 adjusted EBITDA margin rate was 7.1% of revenue, a sequential increase of 540 basis points relative to the prior quarter and 360 basis points, compared to the same period last year.

We are pleased with the second quarter of 2020 adjusted EBITDA margin rate improvement in this segment, which begins to reflect our longer term expectation of potential for this segment in the high-single-digit range.

As Jose indicated in his remarks, we expect strong annual 2020 revenue growth and improved adjusted EBITDA margin rate performance when compared to last year with continued growth expectations into 2021 in a very active Clean Energy market.

Now, I will discuss a summary of our top 10 largest customers for the 2020 second quarter period as a percentage of revenue. AT&T revenue derived from wireless and wireline fiber services was approximately 16% and install-to-the home services was approximately 3%.

On a combined basis these three separate service offerings totaled approximately 19% of our total revenue. As a reminder, it is important to note that these offerings, while falling under AT&T corporate umbrella are managed and budgeted independently within that organization, giving us diversification within that corporate universe.

Permian highway pipeline was 10% of revenue. Verizon, comprised of both wireline fiber and wireless services was 6%. Iberdrola, Comcast and Xcel Energy were each 5% and NextEra Energy, NG, Duke Energy and Enterprise Products were each at 4%. Individual construction projects comprise 64% of our revenue, with MasTec service agreements comprising 36%.

Once again highlighting that we have a substantial portion of our revenue derived on a recurring basis. Lastly, it is worth noting as we operate in a COVID-19 induced period of macroeconomic, uncertainty that all of our top 10 customers, which represented over 66% of our second quarter revenue have investment grade credit profiles.

Now we'll discuss our cash flow, liquidity, working capital usage and capital investments. During the second quarter, we generated $293 million in cash flow from operations and ended the quarter with net debt defined as total debt plus cash of $1.19 billion, which equates to a very comfortable book leverage ratio of 1.6 times.

We ended the quarter with DSOs at 90 days compared to 102 days last quarter. During the first half of 2020, we generated a record level $497 million in cash flow from operations, which allowed us to reduce our total debt levels by approximately $190 million while investing in approximately $130 million, in share repurchases and M&A.

During the first half of 2020, we repurchased approximately 3.6 million shares or approximately 5% of our outstanding share base with the vast majority of this activity occurring in the first quarter.

Regarding our share repurchase program, we expect to opportunistically invest in this program as conditions warrant, while also prudently managing our balance sheet. We currently have $158 million in open repurchase authorizations. And as of today have not executed any share repurchases during the third quarter.

We are fortunate that our business operations profile typically generates significant cash flow from operations, affording us the flexibility to invest strategically in efforts to maximize shareholder value.

Based on our strong first half 2020 cash flow performance, we are increasing our expectation for annual 2020 cash flow from operations to approximately $600 million, a new record level.

This cash flow performance expectation incorporates our view that second half 2020 revenue levels will accelerate thereby increasing our working capital investment as we close out the 2020 year.

As previously indicated we opportunistically took advantage of market conditions after the end of the second quarter to further strengthen our capital structure through a successful offering of $600 million in new senior unsecured notes, which are in 2028 with a favorable 4.5% coupon.

This operating expected to close in early August and will allow us to redeem our existing $400 million for 476% senior notes at a lower interest rate, extend our maturity profile and will increase our overall liquidity by approximately $200 million, which should approximate $1.3 billion post-closing.

In summary, our record 2020 cash flow expectation coupled with solid long-term capital structure, low interest rates, no significant near term maturities and ample liquidity places, MasTec balance sheet, and an extremely strong position.

Regarding capital spending during the second quarter, we incurred a net cash CapEx defined as cash CapEx net of equipment disposals. Well approximately $63 million and we incurred an additional $18 million in equipment purchases under finance leases.

We currently anticipate incurring approximately $175 million in net cash CapEx in 2020 with an additional $115 million to $135 million to be incurred under finance leases.

Moving towards current 2020 guidance, our third quarter 2020 revenue expectation is approximately $1.9 billion with adjusted EBITDA guidance approximately $254 million or 13.4% of revenue and adjusted earnings per share guidance at $1.67.

We're projecting annual 2020 revenue to approximate $7 billion with adjusted EBITDA expected to approximate $800 million or 11.4% of revenue, and adjusted diluted earnings per share to approximate $4.93.

These guidance expectations incorporate the impact of projected lower second half 2020 oil and gas segment revenue as regulatory delays on two large projects are expected to lower 2020 project activity and shift awarded work into 2021. As well as improved 2020 adjusted EBITDA margin rate expectations in our oil and gas and communications segments.

As we have previously provided some color as to our 2020 segments expectations, I will now briefly cover some other guidance expectations as highlighted in our release yesterday.

Based on our expected strong cash flow, lower normal interest rates and our recent senior notes offering, we expect annual 2020 interest expense levels to approximate $63 million with this level only including currently executed share repurchase activity. Our estimate for full year 2020 share count is now 73.6 million shares.

It should be noted that for valuation modeling purposes, that based on timing of repurchases our year-end 2020 share counts will approximate 73 million shares and that's inclusive of the full impact of the repurchases made to date.

We expect annual 2020 depreciation expense to approximately 3.7% of revenue through the combination of lower expected 2020 revenue levels and timing impact of capital additions and acquisition activity. Lastly, we continue to expect that our annual 2020 adjusted income tax rate will approximate 24%.

This expectation includes our existing first half 2020 adjusted tax rate, as well as the expectation that quarterly adjusted income tax rates for the balance of 2020 will approximate 26% and this blend these two an annual 2020 adjusted tax rate that approximates 24%.

That concludes our prepared remarks and I will now turn the call over to the operator for questions and answers.

Operator?.

[Operator Instructions] And I now move to our first question today, which comes from Andrew Wittmann of Baird. Please go ahead..

My first question here that I wanted to ask about was on the communication segments. And obviously, I think the margins are a highlight here that stands out to everyone. And I was wondering, in particular, what the driver was of that margin? The revenues weren't substantially changed.

So it doesn't appear on its face to be operating leverage, but I was wondering what the primary driver there was. And if it was particularly related to the headcount because this has been something you've invested in and we know it's been dragging on your margins to this point.

I was wondering if there's any particular change there?.

Yes, good morning Andy, so as COVID hit, we obviously we've been talking a long time about the investments we've been making, in that business to prepare for what we think is going to be a really attractive cycle.

And post-COVID, we've definitely slowed down what we were doing their relative to bringing in new bodies and training as we get perfect clarity around COVID. It's obviously a lot harder to do that during the pandemic.

So I think that the results in the quarter, so what we're capable of doing when things are somewhat normalized, right? And we had a lot of backlogs. We had a lot of work that had been permitted ready to work. So we have very high utilization levels of the people that we have employed in the second quarter.

So I think, again, I don't think there was nothing. There weren't any outliers in the segment. There wasn't anything that caused the spike. It was just generally really good solid performance across the board. Quite frankly, I think we can do better. I think there were things in the quarter that probably drag that down a little bit.

That should and will improve. So long-term, I think it's the sign of what is the come and what we're capable of doing. Shorter term, we will probably start rehiring again soon as we get better clarity as to when things will start.

We are concerned about the permitting issues that exist out there, there are still some cities and municipalities where we haven't been able to work. We have worked through a lot of the backlog that we had at the time, right.

So now we need to and when I say backlog, not backlog as in customer rewards, but actually backlog of work ready to be performed. So that obviously needs permits, we need to get it out of permitting agencies. We've made a lot of strides around that. I think we're taking a very conservative view as we think about the second half of the year.

Assuming we're going to continue to have some challenges as some cities begin to close down again or aren't opening, reopening as quickly as we thought. So those are the challenges we face, but a good quarter. I think we're going to have a very good second half of the year in our communications business.

Maybe not at the same level, but I definitely think it's a preview of what's the comments, it shows what we're capable of doing in a normalized environment. And we think it bodes really well for our future. .

From a follow-up question, I wanted to just talk about the importance of the NWP 12 permits. And clearly we understand what the company's position about the importance of that is, that's clear. But I was wondering, from a practical sense, how your customers are dealing with the challenges in this.

In other words, what work are you doing today on projects that have had NWP 12 permit issues? Are you working on those projects except for the water crossing? How are you managing that? And then you have a lot of the focus of the NWP 12 permits has certainly been on the pipeline side, but they're actually applicable to the other parts of your business as well.

And I was wondering, if there's been any crossover impact from these other segments of your business besides oil and gas. .

Just to be clear, since that ruling, since the original ruling happened, there has been subsequent rulings that have pretty much negated that initial ruling with the exception of the Keystone project.

So outside of Keystone, there aren't issues around that permit anywhere else on any other project to date, right? Anything, at least anything in our backlog for sure. So, I think our customers are obviously tracking that. But it is not impacting us today, at all on any of our backlog projects.

And that is a very good thing this happens during the quarter that happened at the end of Q2. So that actually allows the rest of our stuffs in our portfolio that hasn't started to go forward and start..

We will move to our next question, which comes from Sean Eastman of KeyBanc Capital Markets. Please go ahead. .

Hi, gentlemen. Thanks for taking my question.

I just wanted to start, just getting an update on the comps revenue trajectory here, you know, clearly a lot permitting of nuances to build a cushion around in the second half, but just as we think about next year with some of those key elements that are driving growth namely that sort of spring T-Mobile dish opportunity.

Any updates there in terms of activity ramping, we did see this starting to ramp up a workforce there.

Hasn't visibility around growth in comps, improved since we spoke to you last quarter?.

Sure. So I guess first had it not been for the impacts of COVID, I'm highly confident that we would have attained our initial expectation on revenue per communications. So our communications revenue should have been a lot higher in 2020, if not, for some of the things that we've had to deal with since March.

I think our customers today are trying to get as much work as they possibly get done, done, again, with all the challenges that exist in place. So I don't think the long-term thesis has changed at all.

I think it's actually improved relative to people understanding the importance of the telecom networks across the country and the need for high speed data and kind of connectivity of people's homes. I actually think our customers are thinking very differently about that on a go forward basis than they did.

I think there's going to be a renewed push to get more fiber out across the country everywhere. So I actually think we're going to see a whole other wave that that's COVID driven. That's going to be very positive for our business for years to come. I think when you think about T-Mobile and dish, they're definitely getting started.

We're seeing a lot more activity relative to what they're going to be doing in the coming years. Our business with them has increased.

We're doing, we've been very active especially with T-Mobile over the course of the last few months of gaining territory and really putting ourselves in a really good position to take advantage of that from a long term perspective. So we're encouraged about everything that's happening. We feel really good about where we stand in the market.

We think we're the largest wireless contractor in the United States. I think 5G is going to have a massive impact on our business and it's coming right in. And I don't think anything's changed. I don't think our long term view has changed at all.

If anything has gotten more positive relative to some of the things that have happened over the last few months. .

Thanks. And next to us on the oil and gas, you did mention, you're looking at sort of flattish oil and gas revenue into next year. Just given we've got some revenue pushing out of ‘20 into ‘21, I'm just wanting to get a sense from you on what goes into that commentary from a contingency on project start timing, et cetera.

Is that comment building in healthy amount of uncertainty around starts, just kind of curious, how conservatives maybe that's next year flat oil and gas revenue might be?.

I think this is the most important part of the MasTec story for so many people is truly understanding our oil and gas business and what it means and what it means long-term. So I think for us to be able to sit here and say that our 2021 revenue is going to pretty much equal or 2020 revenue is an unbelievable statement.

I think, it happens because so much of our work has been pushed from ‘20 into ‘21. It means that we're having an extremely healthy 2021 relative to the market conditions.

And again, I think that has a lot to do with where we are in the business, where our competitive position is the fact that we're a low cost provider, the fact that I think we're going to continue to win market share in the business as others either leave the business, get out, go bankrupt, whatever it may be, it's going to be a challenging environment for a lot of people in our space over the course of the next year.

And I think we're in a really advantageous position to have the confidence of our customers in the work of our customers, that's going to keep us very healthy through that process. I also think the market is going to improve. I think, middle of next year, things are going to start to improve.

We're hearing about a lot of projects that our customers are on the bubble, maybe projects happened, maybe they don't, I think it's a, if anything is a conservative statement that we're making around revenues for '21. The real question starts becoming what happens in '22 and '23. I think '22 will probably be slightly down from '21.

I think we can maintain solid book of business in our oil and gas business long-term in that $2 billion range from what we hear from our customers in the projects that we see coming.

And what we've tried to highlight in today's call was the change from '19 to '20 right our oil and gas businesses down $800 million in '20 from '19, yet margin stayed the same. So even if our business isn't going to be down in '21, so even if our business is down again in 2022, we think the rest of MasTec can make up the difference.

And if MasTec is sitting here in 2022, and we're generating EBITDA levels of where we are today, which I think is a negative view from an oil and gas perspective, today we're trading in less than five times EBITDA.

I mean, that's, from a valuation perspective we think that's a crazy number for the brand that we have, and where we sit in the industries that we serve. So we think older over time we're going to recover, we're going to be trading at our historical 7.5 to 8 times multiple.

And when you run those numbers, right, our stock is incredibly undervalued and has the potential of significantly increasing and we think that's the story of MasTec today, irrespective of what you think in oil and gas if you're, if you think it's a really negative story, irrespective of that or extremely undervalued..

We'll now move to our next question which comes from Andrew Kaplowitz with Citigroup. Please go ahead..

So if revenue does stay a little week in oil and gas over the medium term, what do you think of your ability to maintain price and your very high margin? And if you look at past pipeline downturns margins have come off a bit but at least so far this year, the oil and gas margin stayed very high.

So what's a different from a business now Jose? I mean, obviously, you're executing well, but any different kinds of businesses versus in the past that allow you to have confidence in the margin staying up here?.

Look, I think we're a low cost provider in the industry. I think when you look at, the universe of contractors that's out there, we're winning on price today as much as anything else, right. We're not being given work at higher levels of price. It's a competitive market, it's always been a competitive market. Our peers don't make the margins that we do.

So they don't have room. I mean, the bottom line is, the competitive peer group doesn't have room to significantly reduce prices and stay profitable. So I don't think they will, right.

So I think at the end of the day, we’ll both benefit from a reduction and costs, because payroll will go down, there will be some things that go down, we'll both be able to pass that through to our customers.

But we should still be able to attain the margin levels that we attained today relative to what's happening in the competitive peer group and we're highly confident in that..

And then again, you know versus other downturn, your revenue base in oil and gas has become more diverse over the years, I think.

So do you have any ability to mitigate, if you don't have a lot of large pipelines in '21 or '22? The other 2 billion mitigate that through, maybe it's more integrity gathering, obviously, you have a relatively large Canadian business, Mexico.

So I just think about the diversification of business and how that might help you over the next couple years?.

Andrew, I think it's evident in our first half results this year, right? We don't have any large pipelines in our first half results this year. We're not -- that's why our revenues are as low as they are. But look at our margin profile.

So I think this first half of '20 actually exemplifies what our future business should look like from a margin perspective based on the fact that the large pipelines that we're working on are pretty much all delayed until the second half of this year..

Now move to our next question from the Noelle Dilts of Stifel. Please go ahead..

So my first question has been mentioned the infrastructure bill in the context of the renewable energy business. But I was curious that you could expand upon that a bit, just in terms of where you may or may not see some benefits. Obviously, renewable activity might drive additional transmission investment.

And then we're also hearing some talk around broadband.

So just curious how you're kind of thinking about your positioning?.

So first, I don't think any of us know what's going to ultimately be in an infrastructure bill, and even if there's going to be an infrastructure bill, right? I think that coming out of this. We're obviously going to need some type of economic stimulus and I think it's one of the few areas where both parties agree on something that needs to be done.

I do think telecommunications is going to be a part of it, if there is one, so I think there will be some 5G focus on it, regardless of where there's those dollars go within that arena, it's very positive for our business. I think we'll see the same thing from the energy side, I think there will be some investments in the grid related to that.

But on a pure infrastructure basis, right, when you think about utilities on road moves, when you think about investments in hard infrastructure, via roads, bridges, et cetera. There are a lot of things that we can do around those industries that can benefit us. That group for us is a pretty well diversified business.

We've historically been more clean energy than anything else, but we do have portions of that business that would be impacted directly by infrastructure spend. And I think as it becomes more clear, and we kind of round out our portfolio, we'll be talking about that more in the future.

But have no doubt the way we're looking at it is we got a great business that's growing predominantly around Clean Energy today. We touch other parts of that business that we think, we can continue to grow and build upon that would position us really well around an infrastructure bill.

And we're focused on it, we're keeping our eyes on it, we're trying to listen to all the things that might be around it and position ourselves in a way where we can take advantage of it. So that's the focus in that business today..

And then just in the context of a very strong free cash flow and leverage coming down. Could you just remind us or kind of give us some thoughts on how you're prioritizing? Basically how you might allocate capital here as we look out over the next couple of years in terms of M&A, share repurchase, et cetera.

And also within M&A, maybe you could give us a sense of the markets that you kind of see as most intriguing at the moment?.

So M&A is a part of our story. We haven't been super active in the last couple of years. We've been talking about a much more active market today than what we've seen in the years to come in the years that have just passed. I do think COVID has changed the mindset of a lot of private business owners.

I think a lot of people are reevaluating, where they stand and we're seeing a lot of assets that potentially could move that we probably wouldn't have expected those assets to be available. So there are a lot of things that we like. There are a lot of things that we're working on.

I would expect this to be active in the market over the course of the next 12 months. With that said; right valuation is an issue for us, right. We're trading at less than five times. So, at some point we have to where do we invest our money and where do we get the best returns? We're sitting at just under 1.2 billion of net-debt.

We've got an $800 million guidance number for EBITDA. So I think this is going to be a mix, and I think it's all going to be about, where are we trade? What are we capable of doing? I think across all of the segments that we serve, probably with the exception of oil and gas, we're going to be active. We're looking for things.

And I think there are very attractive and interesting things we can do in all those businesses. .

Thank you. Our next question comes from Alex Rygiel with B. Riley. Please go ahead. .

Great quarter gentlemen. As you cash flow was massive you just mentioned that you're looking at share purchases and acquisitions across all segments excluding oil and gas. In the past you targeted a lot of small acquisitions that have turned out to be fantastic transactions for you.

And you've done a few on the larger side, but as you look forward, how should we think about that mix of size and M&A targets?.

So it's a good question, Alex. I think we're interested in both, right? So I still think we're really good at what we've always been really good at. The size of those entities has probably increased a little bit.

I still think that's our bread and butter, right? Looking for companies that are anywhere from 50 million to 250 million in revenue with the opportunity for us to significantly help them from a growth perspective, with that said, there's some larger assets in place that are interesting.

I do think we're going to see significant industry consolidation in the coming years. I think it's important for our industry. I think it will increase valuations in our industry. So, I think you're going to see a mix of everything in the industry in the coming years. .

Very helpful.

And then can you provide some more detail on the type of opportunities within the clean energy segment, given your cost expectations over the next two years? What types of projects, how large are they, what kind of risk profile that they carry?.

So look, I think, we're learning a lot about it, right I think we've kind of stuck our toe in the water in a lot of different areas and very risk averse. And as we learn more about those industries and we do bigger projects, we get more comfort around them. But today, I mean, the bulk of our business is still around wind and solar.

It's more than half of what we do today in that clean energy space, but we're doing a lot of biomass. We're doing a lot of re powering projects. We're doing ethanol, we're doing bio gas, a lot of manufacturing type work around meeting their energy needs as manufacturing continues to grow. So, lots of different opportunities.

Again, I think we've performed really well. I think we could have grown that business a lot faster had we had the people and talent in place. So I think we're trying to grow at the level of which we can manage the talent.

I think there's a lot of opportunities to continue to grow that business, M&A as well, just because we need bodies and we need talents. So, it's very exciting. I think there's a definitely a change in the trends of what our power generation is going to look like in this country over a long-term and I think we're going to play an important role in it..

And now move to our next question from Adam Thalhimer of Thompson Davis. Please go ahead..

You talked about increased fiber demand post COVID.

Is that something that you're seeing today? Or is that something has to go through kind of months and months of engineering before you see it?.

I don't think we're seeing it today. I think today we're seeing a reaction from our customers to meet the demands of their customers in the quickest way possible, right, which means lots of band aids to use and expression right, but I think they've all recognized the importance of it. And the business models associated with it.

You look at the earnings that some of our customers that have been posted just here in the last week. And you'll see the benefits that they're seeing on that side of the business, which they haven't seen in a long time.

So I think now you have a renewed focus on their commitment to invest capital in that business, around pushing connectivity to higher speeds and deeper into, closer to people, wherever that may be. And a lot of different methods, right, I think we're going to see a lot of creative things that come out of this, too.

I don't think it's just going to be fiber. I think there's going to be multiple opportunities to deliver those. But no question. I think that every one of our customers is focused on it and trying to figure out how to get their share of that wallet..

Okay.

So is there like a pause that comes after? Are you still seeing strong demand as they kind of keep up with the COVID demand or is that started to cool off and then there's a bit of a pause before the longer term investments kick in?.

No, there's no pause..

And now move to our next question from Jamie Cook of Credit Suisse. Please go ahead..

I guess two questions for day one.

The commentary made on the growth prospects for Clean Energy are encouraging, is there a pathway to get that business to sort of, a double digit margin business over the longer term? Or are there structural reasons why that business can't be double digit, just based on what we've seen historically? And then my second question, response to the comments that you made about you said, over the long-term revenues in oil and gas flat was 20%, but then maybe 2 billion more in normal range and that the other businesses could offset, the profits that we would lose from oil and gas.

What are your assumptions on the other businesses? And is that just based on what you can do organically? Or do you need acquisitions to offset that?.

Okay, so first part of the question on margins in Clean Energy, I think that, historically, we've been talking about high single digits, I think we're getting a lot more comfort about being able to achieve double-digit margins in that segment over time.

So I think the margin profile in that business continues to improve, and our outlook continues to improve. We are, again, we are making significant investments in people today to grow that inorganic basis, which costs money, right. I mean, it impacts your margins in the short-term. And it ultimately benefits your margins in the long-term to a greater.

And I think we saw a lot of that with what we did in oil and gas years ago. I don't think it will obtain oil and gas margins, but I think we can get to double digit margins over time. And I think that's important. Relative to the oil and gas commentary, I want to take a step back and make sure that I'm clear and people understand, right.

I think we have one of the best brands in the pipeline business in the United States, the best brands to be quite frank. And I think that regardless of how you feel about the industry, and I notice there's lots of differing opinions.

We are one that thinks there's going to be a good market there for a long time, irrespective of market conditions, we do think that mark is going to come back. And when it does, we're going to benefit, and our oil and gas business should be very strong, potentially stronger than the levels that we've historically seen.

With that said, we also know that in the middle term, we may see a slowdown. So when we talk about that business being at 2 billion or around the $2 billion level, that is a negative view, it is not what we think is going to be our long-term view of the business, but it could potentially get there. And what we're trying to say is even if it does.

With the growth that we expect in communication, with the growth that we expect in Clean Energy with the margin improvements, with the growth that we expect in our transmission business with the margin improvements there, we feel we were more than offset any declines that business will provide in that 22, 23 timeframe.

And even if it happens, and even if our oil and gas business goes down, shareholders are going to hold an option into that industry, because I still think we're a great way to play what ultimately happens in the oil and gas markets long-term. And we're a leader in that business, we're not leaving that business, we believe in that business.

So all we're trying to do is create the perception of what MasTec's valuation should look like, whether you believe that that business is going to get better, or if you actually don't think the business is going to get better. And either way, I think you'd have a path to significantly high stock appreciation, irrespective of where that market goes..

But you don't need M&A to do this or now this is just organic comments?.

These are just organic comments. I do think we'll see M&A, which will be additive to the comments I just made..

And I'll move to our next question from Brent Thielman of D. A. Davidson. Please go ahead..

Jose, just beyond kind of fiber and the 5G small cell opportunities. I've heard a bit of optimism about the potential for kind of larger macro towers and maybe a pickup there's people are sort of recolonizing suburban areas outside of the city.

Do you buy that, are you seeing any anything there?.

I think we've always said it. I mean, I know that the focus has been on other things relative to 5G. But if you go back to our commentary over the course of last few years, we've always talked about the importance of the macro cells and what they mean, you can't have what they want without it.

I continue to believe that's going to be a sector of the business that grows, I think it's a very attractive sector of the business. And one that you'll probably see us get more active in. So it hasn't changed our thesis. It's been our expectation from day one..

And then one in the pipeline business. Studying, commodity prices, economics and jobs the size. These sort of regulatory permitting legal related circumstances. They've been extraordinary, obviously, for some of these projects.

And I'm just wondering, if you can talk about as a senior customers changing the strategies at all for new projects in terms of how they sort of bring these things to development just to try and navigate these disruptions?.

Look, yes. The answer is yes. And I think the other side, right, is actually been very smart about how they've gone about attacking these and they're not attacking them upfront.

They're attacking them after they start construction and going back to things that happened two and three years ago, and bringing out efficiencies in what happened there to stop projects.

So I think our customers have gotten a lot smarter around that and those things that they might've done, that the deficiencies are brought out against today, aren't happening on a go forward basis. So the strategy that's been employed against them won't work a year or two from now.

Now the question is, will they be able to develop other strategies at work or not? That's what we don't know, but I think our customers have gotten a lot smarter about being prepared once these things are permitted to have ironclad permits in place that is that the arguments against them are going to have to be different than the arguments that have been made over the course of the last year or two..

Thank you. As we have no further questions in the queue. I’d like to turn the call back over to Mr. Jose Mas for any additional or closing remarks. .

Alright, so we just want to thank everybody for participating today. Again, want to thank the men and women of MasTec and everybody, please stay safe and we will look forward to updating you on our next call. Have a great weekend. .

Thank you. Ladies and gentleman that will conclude today's conference call. Thank you for your participation. You may now disconnect..