Welcome to the MasTec's First Quarter 2020 Earnings Conference Call, initially broadcast on May 1st, 2020. Let me remind participants that today's call is being recorded. At this time, I would like to turn the conference over to Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Thanks, Ian, and good morning, everyone. Welcome to MasTec's first quarter call. The following statements are made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we may make certain statements that are forward-looking, such as statements regarding MasTec's 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 materialize or should any of our underlying assumptions prove incorrect, actual 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-K, or in the posted PowerPoint presentations located in the Investors and News sections of our website at mastec.com. 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 by Jose, followed by a financial review from George. These discussions will then be followed by a Q&A period, and we expect the call to last about an hour. We had another great quarter and a lot of things to talk about today, so I'll go ahead and turn it over to Jose.

Thanks, Marc. Good morning, and welcome to MasTec's 2020 first quarter call. I hope and pray that everyone’s family is healthy and safe. We are truly in challenging and unprecedented times. Just a few months ago, on February 28, we reported record 2019 results, combined with record guidance. While the COVID-19 virus came up during our year-end call, little did we know that a few weeks later, much of the country would be shut down and quarantined. During this time, the safety of our team members has been our top priority. I have to say, I am so proud of the men and women of MasTec. Their sacrifices, resilience, creativity, and commitment have been inspiring. Millions of families throughout the U.S. rely on the power, communications, entertainment, and other services we help our customers provide. Our team has delivered, and I’d like to thank the men and women of MasTec for their sacrifices and hard work. First, to recap our first quarter: Revenue for the quarter was $1,417 million, adjusted EBITDA was $118 million, adjusted earnings per share were $0.60, cash flow from operations was $203 million, and backlog at quarter end was $8.3 billion, a new record level. We had a solid first quarter, exceeding our previous financial guidance for revenue, 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. While there were some disruptions in the last couple of weeks of the quarter, March was an excellent month. As we think about the balance of the year, we felt we had enough visibility to provide guidance. Again, since most of our work is ongoing, the biggest risks to our guidance revolve around governmental permitting, crews, social distancing mitigation, and the potential impact they may have on project schedules and delays. Our 2020 guidance, which George will cover in detail, assumes the impact of these risks based on the best information we have today. Now, I'd like to cover some industry specifics. Our communications revenue for the quarter was $644 million versus $613 million last year, and margins were up about 50 basis points year-over-year. Our Wireline and wireless business was up 10%, offset by about a 20% decline in our installation business. As we consider the COVID impacts on our communication segment, our installed businesses are predominantly only doing service-related work with strict mitigation efforts in place regarding entering customers' homes. Most of our outdoor work, like fiber installation and wireless deployment, has continued with the exception of a few markets where we are currently shut down. Our customers are working hard to ensure their internet connectivity is strong and available for their customers. This has created a spike in work activity levels associated with these services. Our customers are also committed to rapidly deploying technology, including 5G. As the world reopens, our day-to-day lives may be temporarily or permanently impacted. If you think about social distancing requirements moving forward, access to information will be key. I can easily envision apps that will serve as queues for public spaces. Long lines will be replaced by just-in-time access to things like restaurants, which may limit seating, and public venues that require testing and temperature readings. Deploying 5G networks will enable these potential technologies. We are confident that our customers are committed to these deployments. That said, we anticipate potential impacts to our business for the balance of the year. We're concerned with governmental permitting delays. We have been working with cities and municipalities to bolster remote permitting capabilities, and I've seen improvements since the start of the shutdowns. Our customers are looking for solutions and creative ideas to speed up deployments. Revenue in our electrical transmission segment was $128 million versus $95 million in last year's first quarter. Margins for the first quarter improved 250 basis points year-over-year. Backlog was up year-over-year but down sequentially and does not include a number of verbal awards. We're very excited about the progress we've made in this segment, and we feel we are well-positioned for long-term growth. Regarding recent impacts, we have a number of projects that have seen delays in permitting, and project starts have been pushed out a couple of months. While there is a large amount of work to be awarded in the industry, we believe some of the stay-at-home orders have affected bidding schedules. Despite these impacts, we expect revenues and earnings in 2020 to exceed 2019 levels and 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. Moving to our power generation and industrial segment, revenue was $286 million for the first quarter versus $189 million in the prior year. We continue to achieve significant growth rates in this segment, and backlog at quarter's end was a record at $1.3 billion. We expect this segment to grow somewhere between 30% to 50% this year, with margins improving over 2019 by over 100 basis points. The COVID impact on this segment has been minimal, as most of our jobs are located in rural areas. We continue to see strong demand for renewables with significant growth in solar activity, along with distributed generation. Our oil and gas pipeline segment's revenue was down as expected. First-quarter revenue was $359 million, down from $621 million in last year's first quarter. We ended the first quarter with backlog of $2.6 billion, a significant increase from year-end levels. We have been in constant communication with our customers, and we're confident in our backlog levels. We're closely monitoring the impact of COVID-19 on commodity prices and how it's affecting global demand. We expect a significant decline in U.S. oil production as a result. It's important to note that over the last three years of MasTec's roughly $10 billion of oil and gas segment revenue, only 6% came from oil pipelines. Based on current backlog levels and discussions with our customers regarding future projects, we are comfortable with the revenue levels provided in our updated guidance. Looking ahead to 2021, we now expect a considerable amount of revenue from these projects to move into next year, as we expect both permitting and social distancing requirements to limit the number of workers on one project, thus extending schedules. While we're not in a position to provide guidance for 2021 in our oil and gas segment, between current backlog levels and potential future awards, we think we're in a good position as the market ultimately recovers and demand increases. To recap, we've had a good first quarter and are confident we are mitigating the effects and impacts of the COVID-19 virus. While these times are challenging and uncertain, opportunity always arises from challenges. Our company was built around our response to Hurricane Andrew in 1992 and again reinvented itself after the dot-com crash in the early 2000s. Our customers will be looking for ways to change and improve their business models as the world reopens, and therein lies our opportunity. Our greatest strength has been understanding trends in our industry and our customers' needs. Our ability to provide services, whether existing or new, has always been our strength. I'm excited for what the future holds for MasTec. I'd like to again thank the men and women of MasTec for their commitment to safety, their hard work, and their sacrifices. Keep up the good work. I'll now turn the call over to George for our financial review. George?

Thanks, Jose, and good morning everyone. Today, I'll cover first-quarter 2020 results, our current guidance expectations for the balance of 2020, including potential impacts of the COVID-19 pandemic, as well as our strong cash flow profile, capital structure, and liquidity. As Marc indicated at the beginning of our call, our 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 in our press release, on our website, or in our SEC filings. In summary, our first-quarter 2020 results were better than expected, with adjusted EBITDA exceeding our expectations by $10 million and adjusted diluted earnings exceeding our expectations by $0.12 per share. We also generated record cash flow from operations during the quarter of $203 million, a $250 million increase over the same period last year. This strong cash flow allowed us to invest approximately $119 million in opportunistic share repurchases, totaling approximately 5% of our outstanding share base while still decreasing our overall net debt level on a sequential basis. I'll 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. This combination affords us a strong advantage as we navigate through the uncertain economic climate resulting from the COVID-19 pandemic. Lastly, our first-quarter 2020 backlog grew significantly both sequentially and over the same period last year to a new record level of $8.3 billion. This includes record level power generation industrial segment backlog, as well as a strong sequential increase in oil and gas segment backlog. Now, I will cover highlights regarding our first-quarter segment results and guidance expectations for the balance of 2020. As expected and previously communicated, first-quarter 2020 oil and gas segment revenue of $359 million decreased 42% compared to the same period last year, based on project timing. First-quarter 2020 oil and gas segment adjusted EBITDA margin rate was 20.7% of revenue, continuing our strong performance trend, including the benefit of project mix comprised of reduced levels of lower margin, large project cost plus activity, and continued strong project productivity on numerous smaller pipeline projects. During the first quarter, we were awarded approximately $1 billion in new oil and gas project awards for work to be started in the back half of 2020, with estimated completion dates in 2021. With a combination of these awards, as well as visibility into additional 2021 project activity, our project work profile for the foreseeable future remains clear. That said, we expect regulatory and judicial challenges will continue to impact the timing, size, scope, and duration of our oil and gas project activity in 2020, and a couple of the impacts of crew pandemic mitigation efforts. We currently expect that a greater level of awarded oil and gas segment project activity will move from 2020 into 2021. Accordingly, our guidance expectation for oil and gas segment revenue assumes that second-quarter 2020 revenue will modestly increase sequentially over first-quarter 2020 levels, and second-half 2020 project activity and revenue will increase significantly on a year-over-year basis as large productivity initiates. This project planning and mix result in an annual 2020 oil and gas segment revenue expected to decrease in the low to mid-single digit range compared to last year. We continue to expect the oil and gas segment's annual 2020 adjusted EBITDA margin rate will be in the high-teens range, including the expectation that the second half of 2020 adjusted EBITDA margin rate will be slightly lower than the annual rate expectation due to project mix, with an increased mix of lower margin large project cost plus activity during the second half of 2020. First-quarter 2020 communication segment revenue of $644 million increased approximately 5% compared to the same period last year. First-quarter 2020 communication segment adjusted EBITDA margin rate was 7.9% of revenue. The U.S. telecommunications market is continuing its rapid evolution, which we believe will drive significant and long-term demand for our wireless and wireline fiber services. Additionally, COVID-19 nationwide stay-at-home orders have resulted in a surge in network usage, resulting from telework and homeschooling activities, further highlighting the importance of developing and expanding our nation's telecommunications infrastructure. While the services we provide in the communication segment are considered critical infrastructure and are largely proceeding, we are seeing and expecting some disruption through the balance of 2020 as a result of the COVID-19 pandemic, including loss revenue and crew productivity from local municipality permitting delays coupled with crew level pandemic mitigation impacts. We also expect larger decreases over the balance of 2020 in installed to-home services due to consumer COVID-19 pandemic social distancing concerns. As a result, we expect second-quarter 2020 communication segment revenue will approximate first-quarter 2020 levels, and we expect second half 2020 revenue will approximate last year’s second-half levels. Inclusive of anticipated COVID-19 pandemic related revenue and productivity impacts, we continue to expect that annual 2020 communication segment adjusted EBITDA margin rate will improve compared to last year by approximately 100 basis points. Importantly, we believe as the pandemic effects begin to normalize, 5G market trends will afford us the potential for significant revenue, adjusted EBITDA, and adjusted EBITDA margin rate improvements in 2021 and beyond. First-quarter 2020 electrical transmission segment revenue increased approximately 35% compared to the same period last year to approximately $128 million. First-quarter 2020 electrical transmission segment adjusted EBITDA margin rate was 6.5% of revenue. We anticipate some level of COVID-19 pandemic related project start-up delays in 2020, with annual 2020 electrical transmission segment revenue expected to grow in the high single-digit to high teens range compared to last year. We also expect a slight improvement in annual adjusted EBITDA margin rate when compared to 2019. We continue with the belief that end market conditions for this segment are supportive and expect continued strong revenue and adjusted EBITDA growth for this segment in the coming years. First-quarter 2020 power generation and industrial segment revenue increased approximately 51% compared to the same period last year to $286 million. First-quarter 2020 adjusted EBITDA margin rate was 1.7% of revenue, due to the combination of some production efficiencies and higher fixed cost levels on a seasonally slow revenue quarter. We continue to experience a very active market and renewable project activity, as evidenced by record power generation industrial segment first-quarter 2020 backlog levels of $1.3 billion. As we look towards the balance of 2020, it was already mentioned that we expect this segment will show both strong annual 2020 revenue growth and improved adjusted EBITDA margin rate performance when compared to last year. Now, I will discuss a summary of our top 10 largest customers for the first quarter 2020 period as a percentage of revenue. AT&T revenue derived from wireless and wireline fiber services was approximately 19%, and installed to-home services were approximately 5%. On a combined basis, these three separate service offerings totaled approximately 24% of our total revenue. As a reminder, it is important to note that these offerings, while falling under AT&T's corporate umbrella, are managed and budgeted independently within that organization, giving us diversification within that corporate universe. Verizon, comprising both wireline fiber and wireless services, was 7%. Energy Transfer was 6%, Enterprise Products, NextEra Energy, Duke Energy, and Comcast Corporation were each at 4%, and Excel Energy, Permian Highway Pipeline, and NG were each at 3%. Individual construction projects comprise 58% of our revenue, while master service agreements comprise 42%. This mix highlights that we have a substantial portion of our revenue derived on a recurring basis. Lastly, it is also worth noting that as we head into a potential COVID-19 induced period of macroeconomic uncertainty, all of our top 10 customers, which represent over 60% of our first-quarter revenue, have investment-grade credit profiles. In the first quarter of 2020, our backlog of approximately $8.3 billion represented the highest level in MasTec's history. That said, it is worth noting that our current record backlog level includes the negative impact of approximately $350 million in reduced backlog levels compared to the same period last year for installs on home services within our communication segment, and this decrease accounts for virtually all of the year-over-year decline in backlog for that segment. Now, I’ll discuss our cash flow, liquidity, working capital usage, and capital investments. During the first quarter of 2020, we generated a record level of $203 million in cash flow from operations and ended the quarter with net debt, defined as total debt less cash, of $1.35 billion, which equates to a book leverage ratio of 1.6x. We ended the quarter with DSOs at 104 days compared to 91 days last quarter, with the increase primarily due to administrative delays in ordinary course collections from the impact of the COVID-19 pandemic's nationwide stay-at-home orders enacted near quarter-end. We are fortunate that our business operations profile typically generates significant cash flow from operations, affording us the flexibility to invest strategically and maximize shareholder value. Our first-quarter 2020 results highlight this fact, as we opportunistically repurchased 3.6 million shares at a cost of $119 million and still reduced our overall net debt level during the quarter. As we look forward towards the balance of 2020, we believe our strong cash flow profile will continue. While potential macroeconomic impacts of the COVID-19 pandemic over the balance of 2020 are still developing, we are closely monitoring conditions during this uncertain time. We expect annual 2020 cash flow from operations to range at levels that will approach or slightly exceed 2019 record levels of $550 million. This cash flow expectation, coupled with a solid long-term capital structure with low rates, no significant near-term maturities, and ample liquidity of approximately $950 million, places MasTec in an extremely strong balance sheet position. Regarding our share repurchase program, we will opportunistically invest in this program if conditions warrant, while also prudently managing our balance sheet. We currently have $159 million in open repurchase authorizations and have not executed any share repurchases during the second quarter. Regarding capital spending, during the first quarter, we incurred net cash CapEx, defined as cash CapEx net of equipment disposals, of approximately $52 million, and we incurred an additional $27 million in equipment purchases under finance leases. We currently anticipate incurring approximately $150 million in net cash CapEx in 2020, with an additional $140 million to $160 million to be incurred under finance leases. Moving to our current 2020 guidance, inclusive of potential COVID-19 pandemic impacts, we are projecting annual 2020 revenue to range between $7.3 billion to $7.7 billion, with adjusted EBITDA expected to range between $775 million and $825 million. This equates to the adjusted EBITDA margin rate between 10.6% and 10.7% of revenue, and adjusted diluted earnings ranging between $4.50 to $5.00 per share. As we have previously provided some color on 2020 segment expectations, I will briefly cover other guidance expectations as highlighted in our release yesterday. Based on our expected strong cash flow and lowered nominal interest rates, we expect annual 2020 interest levels to approximate $69 million. For earnings per share purposes, our weighted average annual 2020 share count is 73.6 million shares, including our first-quarter share repurchase activity. It should be noted for valuation modeling purposes that our year-end 2020 share count will approximate 73 million shares, which is approximately 600,000 shares lower than the 2020 weighted average annual share count, due to the timing of first-quarter share repurchases. We expect annual 2020 depreciation expense to range between 3.5% to 3.7% of revenue through the combination of lower expected 2020 revenue levels and the timing impact of 2019 and 2020 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-quarter adjusted tax rate, as well as the expectation that quarterly adjusted income tax rates for the balance of 2020 will approximate 26%. This blend leads to an annual 2020 adjusted tax rate that approximates 24%. Our second-quarter 2020 revenue expectation range is $1.5 billion to $1.6 billion, with adjusted EBITDA ranging between $150 million to $160 million, or 10% of revenue, and adjusted earnings ranging between $0.78 to $0.89 for adjusted diluted shares. This guidance expectation includes expected revenue and productivity impacts related to the COVID-19 pandemic. With that, that concludes our prepared remarks. And now we'll turn the call back to the operator for Q&A.

And we'll take our first question from Brent Thielman of D. A. Davidson.

Great, thank you. On communication, appreciate the color on some of the delays and permitting and the COVID disruptions in terms of what that has on near-term growth rates. But just given carrier plans, the stress on the networks, dialogue with those customers, can you talk about how you think of these backlog and bookings could trend as we move through the year and start to think about some potential normalcy later this year and into 2021?

Sure, good morning, Brett. A couple of things first; I think that the long-term thesis in that business hasn't changed one bit. If you think about the early response to COVID, I think most carriers, especially those with wireline networks have really been focused on making sure that their customers have internet and high-speed availability to homes, right, and improving that. A lot of people are either watching video over the top, and quite frankly, many are using their home WiFi networks through their phones, so people get their phones and connect to their WiFi systems at home. So a lot of the cellular traffic is actually moving through WiFi systems today. It’s interesting because the priority for many carriers and our customers has been exactly that over the course of the last couple of months. That's going to change as people come back out, and the wireless networks get taxed, and I think, in general, carriers are expecting a pretty rapid swing the other way when that happens, and it's going to be interesting to see how the networks fare. So overall, to date, the networks have fared extremely well. Regarding COVID, the biggest issues for us have been permitting. If you think about the types of jobs we do, they're relatively small; they're based on work orders. So, even though jobs may be broken up into smaller segments, and each piece requires different permits at various times, we usually have a significant backlog at any given time that we've been working off. Obviously, we need that permitting pace to continue at a rapid rate. Initially, we saw a significant slowdown in that permitting, and there were many concerns and issues surrounding it. It has improved; it's not where it needs to be, but it's a lot better. So, we've taken a moderated view as we think of the balance of the year. We don't really know when every municipality is going to open up and resume operations completely. Therefore, we have modeled that as best as we can today, and we expect it to lag a little bit, with potential tail effects extending at least over the next few months, possibly into the second half of the year. There are other cities that are entirely shut down. In some of our most significant fiber build cities, we aren't currently working, particularly in strict markets like San Francisco and Seattle. We have some other areas, particularly in New York City, where operations are also halted. We've taken all of this into account as we project towards the year. So from our perspective, we do expect communication revenues to be somewhat lighter than what we had anticipated coming into the year, and I would attribute that more to areas being shut down than even the permitting issues. Therefore, our conservative view is justified given how the year is expected to unfold.

Okay, all right, fair enough. And then again, on oil and gas, it's good to hear the commitments to capacity. Has all of this change customers' approach to kind of pricing or terms and conditions? Do you still feel pretty good that this tight market can support your generally elevated margins moving forward?

We do. We think it's been a competitive market for a long time; we're not the only player in that space. I think we are a low-cost provider, which is very important. We've been able to generate good margins based on the strategies we've implemented in that business over the course of the last few years to prepare for what we knew was going to be a very active market. So structurally, our cost structure is very different from those of our competitors, which puts us in a very enviable position, especially as the market starts to tighten. Consequently, we feel great about our margin profile and our ability to continue executing on that. The business will be a bit different, and with that, again, come many opportunities. We’re excited about the work we have, and we’re in a great position from a backlog perspective. I also believe we are in a great position regarding customer relationships and understanding customer needs. Our ability to meet those needs will be an important factor moving forward.

Thank you, and we can now move to our next question; it comes from Alex Rygiel, B. Riley, please go ahead.

Good morning, guys, nice quarter. The oil and gas backlog increased nicely; can you talk a little bit about the types of projects and what the timeline of those new projects looks like based on that recent increase in oil and gas backlog over the last three months? And then can you touch upon your thoughts on the Keystone energy pipeline opportunity ahead of you?

Yes. From an oil and gas perspective last quarter, I think we discussed a lot of this and it has played out as we expected. Just last call, we talked about anticipating about $1.4 billion in projects that we expected to add to the backlog in the quarter, and it ultimately came in at about $1 billion of that $1.4 billion. We still have several other projects where we believe we have verbal awards, but contracts weren't signed in time for the first quarter backlog. Therefore, we feel good about the amount of other work that will eventually contribute to that backlog, which is a positive sign. At the end of last year, we walked through our project sequencing through the year and discussed when we expected those projects to begin. Some of the projects started right on time, with four that we mentioned starting on schedule and two that were actually accelerated from Q2 into Q1. We had a couple that have slipped a few months based on scheduling and permitting, and there are a few others on schedule. Overall, we feel good about where we started the year and our expectations. As we've discussed before, we are backend loaded, which we've communicated since probably the third or fourth quarter of last year; that was our expectation going into this year, and it is playing out as expected. One thing we are monitoring is that social distancing requirements will impact the timing of these jobs. We believe that some of these jobs will take longer than we originally anticipated, meaning some may end up moving further into 2021. So, we do have better visibility into 2021 than many people give us credit for. Regarding Keystone, we've consistently stated that we feel good about our opportunity to ultimately work on that project. That project is primarily going to see its build schedule in 2021 and beyond, and none of that is in our backlog at this point, so we’ve never specifically discussed that project, but we are optimistic about our opportunity to compete.

Then turning to Telecom, the backlog was down a little bit; can you explain why? And then could you quantify how your revenue associated with 5G looks today and what that could look like in, say, a year or two?

Yes, a couple of things. George mentioned it in his prepared remarks; if you look at the year-over-year backlog trends, the entire drop in backlog stemmed from a new assessment regarding our install business. COVID had a significant impact on our install business, which is primarily MSA driven, resulting in a reevaluation of our position, causing it to drop by about $350 million year-over-year. That's the primary contributor to the backlog decline, and it actually positions us favorably as we start to model and establish comparables moving forward. Regarding 5G, I think each carrier approaches it differently. We have four primary carriers today, and if we include DISH, Verizon, and AT&T are on schedule, which will ramp significantly as we move into 2021. Meanwhile, T-Mobile and Sprint have just completed their merger, but they are somewhat behind schedule due to the pandemic. We have a very optimistic outlook for our future access to revenue from all of these carriers, and we expect our Wireless 5G-related revenues, associated with all of these carriers, to increase significantly over the next couple of years, potentially multiple times what it is today. We believe the infrastructure needs will be enormous, specifically within AT&T’s operations.

Thank you very much. Good luck.

Yes, and maybe to add to that, Alex, one final point is that it was nice to see Verizon as our second largest customer, which was a first for us. I think that’s also an important takeaway from the quarter and a positive aspect in our first quarter results.

Thank you. We’ll now move to our next question, which comes from Blake Hirschman of Stephens Investment Bank.

Yes, good morning, guys, you sound healthy, so that's good. Let's assume that oil prices don't go up from here; how long before that would start to impact the oil and gas piece of the business? And then kind of along with that, what's your mix in terms of maintenance or integrity pipeline work versus new large pipe construction work?

Yes, so a couple things, Blake. When we think about oil prices, we're looking at a very specific moment in time; most people worldwide are at home, oil demand has plummeted. When people get back to work, oil demand will increase. I don't think there's any question about that. The big question is how much production will drop globally and how quickly will demand catch up? I think we can debate this all day long, but nobody really knows the answer. Personally, I have a more favorable view that demand will recover quicker than most people think. Over the next year, I believe we will see a recovery in oil prices; I don't think oil prices can remain at their current levels for an extended period. With that said, we highlighted in our remarks that only 6% of our work over the last three years has been attributable to oil pipelines. There's a considerable other play here which is interesting, and again, I am not entirely sure how it will play out. However, with all the oil production comes a significant amount of natural gas produced from the same wells. There has been excess natural gas supply in this country for the last few years due to the increased drilling activity. As that gas supply drops, I expect a significant price increase in gas due to lower supply. This, in turn, could lead to big price differentials around the country, creating many opportunities for us. I believe we still have considerable runway with the backlog and projects we have queued up, which will give us the time needed to see how this market develops, allowing us to remain confident in both ’20 and ’21. Ultimately, the long-term fundamentals we always discuss will lead to many opportunities.

And we can now move to our next question. This comes from Noelle Dilts of Stifel, please go ahead.

Hi, guys, good morning, and congratulations on managing through all of this uncertainty well. So, I think both of my questions kind of focus a bit more on the telecom side. First, when you’re looking at some of these permitting challenges, I’m curious about the degree to which you are seeing that and wireless versus wireline. I think AT&T noted some challenges on its conference call while Verizon was more optimistic on that front. So, how should we think about that by those processes in those markets?

It depends on the work function. Some types require less impactful permits, while others are more complex and depend on local municipalities. For wireless, as it relates to small cells installed in heavily trafficked corridors—such as downtown areas and major streets—there can be challenges arising from municipalities that don’t want work happening in particular areas due to the pandemic context. This could involve more complicated permitting which adds layers of complexity, such as needing direction from the Department of Transportation or state permits. Regarding underground projects, they’re a bit more intrusive, and this has made it a bit more difficult. With the dependencies of some new wireless and 5G build-outs tied to fiber, there’s an interconnected nature, right? It’s a tough question to answer because there’s a lot of intertwining that happens; some segments are less impacted by delays, while others are more so. It’s our job to manage through that process appropriately. Everyone understands the pace at which they want to progress. While municipalities may not oppose it, they have many items to manage at this time, and it’s our job to convey the level of urgency.

Okay. And then, obviously, last year we discussed ramping up capacity in telecom in anticipation of 5G related spending picking up. Given some delays this year, how are you thinking about capacity utilization? Are you holding onto hope in anticipation of that ramp? How do we think about the underutilization development this year?

Yes, that’s a great question. We aim to manage uncertainty in challenging times, especially for those depending on weekly paychecks. We’re focused on ensuring our employees do not get furloughed and that we protect their interests. We consider ourselves a family-owned business at MasTec. Thus, we’ve done our best to care for our workforce, even if it means some underutilization will impact margins. We are investing heavily in our people and are determined to uphold this investment. Therefore, while some underutilization is evident, especially in heavily restricted markets, we believe we can work through that. As the quarters progress, we expect these impacts to subside. If you listen to our prepared remarks, we see improvements in margins within our communications business, albeit slightly less than our expectations coming into the year, and there’s no question that it has impacted margins.

Thank you. We'll now move to our next question. This comes from Jamie Cook with Credit Suisse.

Hi, good morning. Nice quarter. Glad to hear everyone is safe and well. I guess my first question, Jose, if we look at the oil and gas backlogs at around $2.6 billion this quarter, can you remind investors what sort of ratio there is in terms of big pipe versus integrity or other less cyclical businesses? Additionally, specifically, what are the opportunities to grow the business outside of big pipeline work? What's the impact on margins if other parts of the business become a greater share of your overall portfolio?

One of the nice aspects about the backlog we’ve been able to book—both this quarter and over the last few quarters—is that it’s not driven by any single project. A few years ago, we often had single projects that had a huge impact on our backlog, contributing to substantial swings. We’re not seeing that currently; rather, we have a lot more jobs contributing to our backlog than we’ve historically had. The mix is quite diverse across various jobs, which is important. When you look at total CapEx dollars for our customers, you must break it down into different buckets; they invest in varied areas, not solely reliant on pipelines. Even large pipeline operators have many investments outside of just pipelines. We’ve seen clear directional guidance from them for '21 and '22, although it’s early, which mainly pertains to approved projects. We are in a unique time with significant market downturns. As the market improves, we believe additional projects will appear on their radar that are economically viable. Over the past few weeks, we’ve observed some improvement in customer stock, and I believe it contributes to more confidence from clients regarding their long-term business outlook. Lastly, there are a few larger players in the market that will come through this smooth sailing, and numerous smaller contenders may not survive, which will decrease competition; thereby providing us better opportunities to thrive in this evolving market.

Thank you. Now we can move to the next question, which comes from Andy Lee of Citi.

Good morning. Thanks, guys. So, my first question is on the communications margin. The margin has been relatively consistent at roughly 8%, and you are expecting an uptick there going forward. Is the improvement due mainly to higher revenue, or is it a better mix of project work? Do you have any concerns about how social distancing measures might negatively impact that?

Yes, the improvement is largely a result of an uptick in demand that we have been gearing up for. There’s no question that utilization levels aren’t as high as they could ultimately be due to the pandemic’s impacts, but we expect to see substantial growth in work reflected in our numbers. In our prepared remarks, we mentioned the expectation for overall margin improvements to take place on a year-over-year basis, at least 100 basis points for the full year. We continue to anticipate that trend. By 2021, we expect that continue to increase substantially over those levels. Additionally, we have been building our resource base based on the tangible work we believe is coming. This is very similar to our approach in the oil and gas business. As you've seen, the margins recovered there, and we believe this will also hold true for the communications sector as it normalizes. Certainly, we need all players in this industry to resume operations, and I think we are nearing that point.

Okay, thanks. And then for my follow-up on the electric transmission projects; if backlog has been fluctuating a bit, are there any concerns that utility capital expenditures could drop? Are you seeing additional projects in that segment?

Yes, there's a significant pent-up demand in that space. There are many projects currently in the bid cycle. Some bidding has faced delays due to people working from home; therefore, we’ve seen numerous bids we expected to roll out during this period pushed back a month or two. However, we think a strong pent-up demand will be unleashed once everything opens back up, and many bids will hit the market at the same time. There’s a lot of work in this industry; all the fundamentals remain solid. If you consider the urgency for systems to endure storms, fires, and disasters—requirements for system hardening are not going away. The renewable aspect is significant, too, as new renewable projects necessitate considerable build-out within the grid.

Thank you. We can now move to our next question, which comes from Andrew Whitman of Baird.

Yes, great, thanks. I wanted to ask a couple more questions here on the pipeline oil and gas segments here. Specifically, I’m interested in understanding how you are considering the level of fully permitted and authorized jobs you have in hand as we head into the second half of the year? Would be great if you could discuss that.

We have a couple of jobs slated to start late in the second quarter. We've mobilized on several of them already; we’re engaged with very early work. This early work has given strong indicators as to when these projects will commence. A lot of this is tied directly to the permitting timeline, and we expect they will align with our scheduled start dates. Overall, we feel confident about the start dates across various jobs and how we’ve factored in anticipated productivity for those jobs at this point in the year. We've planned conservatively for any productivity impacts as we look ahead, factoring in some delays based on earlier scheduling concerns. However, we are optimistic about delivering the expected start dates.

Yes, you just mentioned the productivity comment; you've alluded to the fact that social distancing may extend the duration of some of the projects. There are concerns that this could also increase costs. How does this translate to expected margins on those projects? Or are you starting to price this in on jobs where the requests for proposals are already in your hands?

Yes, we have discussed this on the call before. Our jobs are a mix of project structures, whether that be unit cost or fixed price, or cost-plus pricing. The cost-plus jobs usually have lower margins than the other areas we work in. As our cost-plus jobs ramp up, it will drive down the overall margins slightly, thus lowering our margin gains in the second half of the year compared to the first. However, fundamentally, our margin expectations across our different types of work should remain consistent. Clearly we are expecting a larger mix of cost-plus jobs as some begin since we’re aware of operational factors relating to productivity on those projects.

Thank you. We'll move to our next question, which comes from Adam Thalhimer of Thompson Davis.

Hey, good morning, guys. Has COVID impacted your long-term outlook for telecom at all?

Not at all. It’s interesting; it doesn’t change any of the thesis we’ve discussed, right? Our customers are very committed to the technologies they seek to deploy. If anything, they’re looking to ramp them up more quickly, given all we’ve seen. It has become evident just how essential technology is across all sectors. Our customers are aware of this need as well, and they will likely begin evaluating their business approaches. The lessons learned from this pandemic will yield numerous opportunities available to us in services that we offer today and possibly in new services. When considering the future, I firmly believe there will be an infrastructure bill passed at some point. MasTec has been anticipating that I think for years, and we aim to secure major benefits from any future infrastructure initiatives. Although specifics are not available today, once clearer information comes out, we will talk more about our strategy.

Okay. And then, on the second question regarding oil and gas revenue ramp—going from $450 million in revenue in Q2 to well over $1 billion in Q3—logistically speaking, does that present any challenges? Or is this just how these companies are structured to operate?

Well, looking at our historical performance, it’s not much different than what we’ve done in the past. George?

Yes, typically, the third quarter is a significant period for us; we've performed well beyond these revenue numbers in previous years based on project timing. The second half of this year will certainly see a spike, and we expect both the third and fourth quarters to be strong. The reality is our performance in the fourth quarter of 2019 was somewhat muted due to project delays early winter. Therefore, we will see considerable growth in the fourth quarter; the second half will perform similarly strong to those historical levels.

So, we achieved around $1.2 billion in the third quarter of 2017, and looking back historically, we’re not expected to fall below that for this upcoming third quarter, although this may require a significant ramp from Q2.

Thank you. We can now move to our next question. This comes from Sean Eastman of KeyBanc Capital Markets.

Thanks, team. Thanks for taking my question. First for me, I'm curious, as the Sprint T-Mobile and DISH deployment plans start to ramp up, it seems like there are a couple of options: they can either do some work in-house, go with program managers, or utilize local operators. How does MasTec's capabilities compare with those alternative options? Moreover, how do you evaluate MasTec's addressable scope as deployments solidify?

I think today; we are the largest wireless contractor in the United States. Each of those carriers is well aware of this fact. They understand the strengths we bring, and I think we have a tremendous opportunity with all of them.

Okay, and just a higher level of concern. Clearly, with this backdrop, the oil and gas exposure is very much in focus. Arguably, it may drag down the valuation you’re receiving. So, I’m curious whether you’re spending time exploring new growth ventures outside of oil and gas, or do you let the numbers speak for themselves with the existing business mix? If you’re looking to expand, is that more about exploring new end markets, new geographies, or just capturing more of the supply chain in existing markets like QuadGen?

I don’t think our approach has shifted at all. We are continuously exploring different alternatives for growth and opportunities. We genuinely love our current business segments, oil and gas included. We believe we will perform strongly in this sector as the market improves. As a cyclical business, oil and gas will recover, and we’ve established a valuable asset in this sector that will succeed in the long-term. That said, we are always looking to enhance the business and explore sectors we may not currently operate in. Following the pandemic, I believe our customers will look to improve efficiency and reduce costs, which will open many avenues for us to offer services that fulfill those requirements. With the upcoming years, I foresee some infrastructure initiative gaining traction. We have prepared MasTec for years to take advantage of such an initiative, and we are confident that we will benefit significantly from it. As we operate today, we recognize the landscape may drastically change in the next decade. We’re focused on growth, and we expect our revenue to change greatly over the coming ten years.

Thank you. We can now move to our final question. This comes from Steven Fisher of UBS.

Thanks, good morning, guys. You beat expectations for Q1 when you had about a month left in the quarter. I'm curious, as we look forward to Q2 and the 2020 guidance, to what extent would you describe these guidance levels as conservative, or do the market conditions make any characterization difficult?

It's a good query—this is certainly something we debated internally. Many companies decided not to offer guidance due to the uncertainty we all face, and they've scaled back across the board. Additionally, we are still navigating uncertain times. We have no data to definitively predict how the pandemic will unfold. We felt confident enough to provide guidance because we believe we have sufficient visibility. Ultimately, we wanted our shareholders to gain insights into our knowledge and projections, as we view 2020. By offering guidance, we didn’t want to be overly optimistic, so we have input potential risks during this uncertain period. This reflects MasTec's strength—the visibility we have provides us with the confidence to share guidance when many others have not. If circumstances improve significantly and this period passes without great consequence, it'd be safe to say this guidance might seem conservative. Conversely, if results were poorer than expected, we still have confidence that we’ll meet or exceed guidance levels. We wanted to position somewhere in the middle of that spectrum, and overall we are pleased with the numbers we shared.

Well, kudos for taking a stab at it. Regarding the Power Gen and industrial margins, I know you discussed in the prepared remarks some factors driving the volatility related to efficiencies and higher fixed costs. I am curious how to think of this going forward. You face potential headwinds in oil and gas, but it seems you have enough robust revenue coming in from other segments to create a more meaningful profitability foundation. How should we view the volatility in those margins and the quarterly profit rates swinging notably? What are the prospects for producing a larger profit base in that segment?

Yes, a couple of things. First, the business is in hyper-growth. I think the growth rates we have enjoyed within this sector over the past several years have been remarkable. If there’s any silver lining, it’s the fact that we are gaining strong growth comparable to any other business we’ve been in. For full-year 2020 guidance, we anticipate about a 150 basis point improvement in our margin profile year-over-year for this business, signifying robust progress overall. However, as this business continues to grow, we should see some inefficiencies tied to costs. We expect margins in the mid-single digits in the new term over the next couple of years, with the potential of even moving up to low double digits. While we hope to expedite these advancements, we maintain realistic aspirations for this segment. We’ll continue to monitor the burgeoning project pipeline currently on the horizon, knowing how specific timeframes, such as first-quarter delays due to weather, significantly impact the constraints on margins. Overall, we believe you’ll see ongoing quarter-over-quarter improvement in this segment as we harness that pipeline activity.

So I think with that, this concludes our first-quarter 2020 call. We thank you all for participating. We hope and pray that you'll stay safe and healthy, and we look forward to updating you on our next call. Thank you very much. This concludes today's call. Thank you all for your participation. You may now disconnect.