Welcome to MasTec's First Quarter 2022 Earnings Conference Call, initially broadcast on Friday, May 6, 2022. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to your host, Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Thanks, Kevin. Good morning, everyone, and welcome to MasTec's first quarter call. The following statement is 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 industry where we operate. These forward-looking statements are the company's expectations on the day of the 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 today's call. Today's remarks by management will discuss adjusted financial metrics 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 press release. With us today, we have Jose Mas, our Chief Executive Officer; and George Pita, our EVP and Chief Financial Officer. The form of the call will be opening remarks and announcements by Jose, followed by a financial review from George. These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes. We have a lot of important things to talk about today. So, I'll turn the call over to Jose so we can get started. Jose?

Thanks, Marc. Good morning, and welcome to MasTec's 2022 First Quarter Call. Today, I'll be reviewing our first quarter results and providing my outlook for the markets we serve. First, some highlights from the quarter. Revenue was $1.954 billion, adjusted EBITDA was $99 million, adjusted earnings per share was negative $0.03, and our backlog at the end of the quarter exceeded $10.6 billion, marking a record level. Overall, our results were generally in line with expectations, with revenue, EBITDA, and EPS slightly ahead. Before diving into specifics about our quarter or guidance, I want to share my perspective on MasTec's business today. We are currently undergoing a significant transition regarding our business mix and earnings. We anticipated weakness in the oil and gas segment starting around the pandemic in 2020 and chose to invest in areas of our business with strong long-term growth potential. Alongside organic initiatives, we made several acquisitions in 2021 that have repositioned MasTec and enhanced our service offerings. As a result of these investments, we expect substantial revenue growth and diversification in 2022 and beyond. For instance, non-oil and gas revenue was $4.5 billion in 2020, and we expect it to reach approximately $7.8 billion in 2022, reflecting over 70% anticipated growth in 24 months. We are even more encouraged by the current and planned investments from our customers. We are actively responding to their needs to meet their long-term build plans, providing us with great confidence that our decisions over the past two years will lead to significant shareholder appreciation. Our first quarter results already indicate progress toward our goals, with non-oil and gas revenues and earnings both growing over 65% compared to the same quarter last year. While there is still a lot of work to do to achieve our performance standards, we are making strides. In our earnings release yesterday, we updated our 2022 guidance based on two main factors: the completion delay of the Mountain Valley Pipeline, announced earlier this week, and the effects of the Department of Commerce's ongoing anti-circumvention investigation in the solar industry. We expected challenges for our oil and gas business in 2022 due to a significant decline in new project activity during 2021. Although recent world events and rising commodity prices should positively impact the need for new pipelines, we do not anticipate a significant effect until 2023. We expected to finish the Mountain Valley Pipeline project in 2022, but it has now been delayed until the second half of 2023, and we've removed it from our current year guidance. Additionally, we lowered our solar revenue guidance within our Clean Energy segment. We initially expected solar revenues in 2022 to nearly double from 2021, but we are moderating that estimate due to the anti-circumvention investigation affecting four countries that comprise about 80% of solar panels sold in the U.S. The investigation poses the risk of added tariffs, potentially ranging from 50% to 250%. This situation complicates project advancement dependent on these panels, as tariffs would be retroactive to February. Our preliminary decision on the investigation is due by August 26, which will clarify the risks developers face. We believe activity will ramp up quickly post-decision, but many panels intended for the U.S. are now being redirected to other countries, potentially delaying U.S. shipments. Thus, our guidance has been adjusted to approximately $350 million in solar revenue, down $250 million from our previous estimate, based on ongoing projects or those using panels unaffected by the investigation. We hope this guidance will prove conservative, but it reflects our best estimate at this time. Our solar backlog at the end of the quarter aligns with the $350 million revenue guidance. In addition to that backlog, we have either been verbally awarded or are in negotiations for nearly $1.5 billion in solar work planned for 2022. Therefore, despite the 2022 impact, we expect that the resolution of this issue will not hinder our ambitious growth targets for 2023 solar business. We're also optimistic about the advances we’ve made in our power delivery business. Last year, we made two significant acquisitions—INTREN and Henkels and McCoy. Our integration efforts are ongoing, and we believe in the long-term potential of this business. Our customers have reacted positively to our enhanced service offerings, creating significant opportunities in the power delivery sector. Collaborative efforts with customers on reliability, grid hardening, renewable connectivity, and EV charging are strong prospects for long-term revenue growth. Now for some industry specifics: our Communications revenue for the quarter reached $664 million, marking a 17% year-over-year increase, and we expect full-year growth above 20%. Our backlog increased 31% year-over-year and over $300 million sequentially. We are aggressively expanding our geographic presence and adding resources to satisfy customer demand, having added over 2,000 team members in this segment year-over-year. We are experiencing significant demand for fiber expansion from existing and new customers, fueled by initiatives like the Rural Digital Opportunity Fund, which will invest $20 billion over the next decade for broadband connectivity in underserved areas. Additionally, the FCC's 5G fund and provisions from the infrastructure bill collectively represent considerable funding aimed at enhancing broadband access across rural America, stimulating a substantial increase in future spending. As a leading turnkey contractor, we are actively investing and preparing for this heightened demand. Regarding our Power Delivery segment, revenue was $650 million compared to $134 million in the same quarter last year. This segment is projected to generate approximately $2.6 billion in annual revenue, indicating substantial growth prospects ahead. With evolving electrical transmission and distribution needs, our customers aim to modernize the power grid with a focus on reliability and renewable energy solutions. Our robust service offerings allow us to provide cost-effective solutions at scale. For our Oil and Gas segment, revenue was $211 million compared to $726 million last year. After adjusting for the Mountain Valley Pipeline guidance, we now anticipate revenue in this segment to be around $1.4 billion, down from nearly $2.6 billion last year. This current expectation excludes any large project construction activity and serves as what we believe to be the lowest expected revenue for this segment. Discussions for future projects are active, with significant opportunities emerging in carbon sequestration and hydrogen initiatives. For our Clean Energy and Infrastructure segment, first quarter revenue was $436 million compared to $350 million the prior year, a 24% increase. With our lowered solar guidance, we now expect full-year revenue around $2.2 billion, roughly a 15% increase over 2021. Our backlog has also increased by 22% year-over-year. Our diversification is a key strength, allowing us to address varied customer demands. While renewables are a focus, we've also made progress in civil infrastructure alongside baseload generation projects. This includes our second advanced class turbine installation project, which has the capability of running on both gas and hydrogen. We believe our success on this project will pave the way for more opportunities with this utility customer. In summary, while we’ve faced some unexpected challenges this year and are managing through them, I am confident in the strategic positioning of MasTec for long-term success in collaboration with our customers. Although 2022 has brought more challenges than anticipated, I believe our performance in the second half of the year will showcase MasTec's growth and margin potential. We've initiated share buybacks at the end of the first quarter, with our philosophy of opportunistic repurchases. Historically, our buyback programs have been executed at favorable average prices. I want to thank the MasTec team for their dedication. I feel honored to lead such an outstanding group committed to safety, environmental stewardship, integrity, and delivering high-quality projects at the best value. Their efforts have positioned us for ongoing growth and success. Lastly, I want to express my gratitude to the investment community. It's been 15 years since I became CEO of MasTec, and while I’m proud of what we’ve achieved, I truly believe that the best is yet to come, and I’m excited about the future. I will now hand the call over to George for our financial review. George?

Thanks, Jose, and good morning, everyone. Today, I'll cover our first quarter financial results as well as our updated 2022 guidance. As Marc indicated at the beginning of the 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, our SEC filings or on our website. First quarter results were slightly above our guidance, with revenue at $1.95 billion, and adjusted EBITDA of $99 million, which was approximately $9 million above our guidance, primarily as a result of higher revenue levels. As previously communicated, first quarter 2022 results reflect a number of factors that make year-over-year comparisons difficult to assess, including: a seasonally slow quarter accentuated with project start-up costs; operations and integration activity on recently completed fourth quarter acquisitions; and a significant year-over-year decline in our Oil and Gas segment operations. It is worth noting that the revenue diversification strategy initiated in 2020 has begun manifesting itself during the first quarter, with 58% of our first quarter revenue derived from recurring master service agreements versus only 28% during the first quarter last year. Most of this increase is derived from recurring programmatic utility services in our expanded power delivery segment. We continue to expect a significant shift in our end market operations during the balance of 2022 with accelerating revenue and earnings in our non-oil and gas operations, namely the communications, Clean Energy & Infrastructure or Clean Energy and Power Delivery segments. This trend should become more evident during the second quarter, supporting our expectation that second half 2022 adjusted EBITDA will exceed last year's level. As we have previously indicated, we believe 2022 is a transition year, and that performance in the second half of 2022 will serve as a precursor towards a strong 2023. To reiterate Jose's comments regarding our updated 2022 guidance of $9.2 billion in revenue. The change in view is primarily composed of approximately $250 million in expected solar project delays caused by panel delivery interruptions as a result of the U.S. Department of Commerce anti-circumvention investigation announced in late March and approximately $500 million in large oil and gas project revenue shifting from the second half of 2022 into 2023 as a result of regulatory and judicial permitting impacts. We expect both of these issues will be resolved in 2022 and will provide further momentum to expected strength in 2023. In support of our belief of future growth opportunities, as of yesterday, we have repurchased approximately 680,000 MasTec shares for a total cost of approximately $50 million, an average price of slightly under $73. This leaves us with approximately $109 million, in remaining open share repurchase authorization from our Board of Directors. Now, I will cover some detail regarding our segment results and expectations. First quarter Communications segment revenue was $664 million, with an adjusted EBITDA margin rate of 6.2% of revenue. This performance was generally in line with our expectation and includes the impact of various new wireline market start-up costs for RDOF work and lower levels of wireless revenue as 5G deployments are expected to ramp this summer. We expect accelerating Communications segment year-over-year revenue growth in the second quarter in the mid to high 20% range, with improved adjusted EBITDA margin rate performance in the mid to high 11s. Our annual 2022 guidance for this segment is essentially unchanged, with annual Communications segment revenue ranging between $3.1 billion to $3.2 billion, and adjusted EBITDA margin rate in the low to mid-11s. Within the second half of 2022, we expect higher revenue and adjusted EBITDA margin rate performance in the third quarter based on expected normal seasonality. First quarter Clean Energy segment was $436 million, and adjusted EBITDA margin rate was 2.5% of revenue. This performance was generally in line with our expectation based on a seasonally slow quarter with low overhead absorption. Based on project timing, inclusive of expected solar project delays, we anticipate that second quarter Clean Energy segment revenue will approximate $500 million, with adjusted EBITDA margin rate in the low to mid-4% range. Our annual 2022 Clean Energy segment revenue expectation, inclusive of approximately $250 million in solar project timing delays from the Department of Commerce solar panel investigation is now between $2.1 billion to $2.2 billion, and our adjusted EBITDA margin rate expectation is in the high 5% to low 6% range. Within the second half of 2022, we expect slightly higher revenue levels in the third quarter based on project timing and seasonality while expecting a slightly higher adjusted EBITDA margin rate in the fourth quarter based on expected project completion timing. While 2022 project activity has been hampered on the wind side by a lack of transmission capacity and on the solar side by panel delivery interruptions, the expected future demand for renewable power generation is unprecedented, and we believe that once logistical and tariff issues that are affecting 2022 are resolved, 2023 and beyond should provide significant future revenue and adjusted EBITDA growth opportunities. As a reminder, last quarter, we renamed our Electrical Transmission segment to Power Delivery to better reflect our expanded service offerings and capacity in the utility service market, including electrical and gas distribution, which occurred from 2021 acquisitions. We firmly believe that our expanded geographic operations, customer reach and scale provide a compelling suite of service offerings to support our customers' needs as they work to transition to renewable power generation and harden the current grid. First quarter Power Delivery segment revenue was $650 million, and adjusted EBITDA margin rate was 8.2% of revenue. This performance slightly exceeded our expectation for both revenue and adjusted EBITDA margin rate. Within this segment, acquisition revenue, primarily composed of Henkels and INTREN, generated approximately $540 million in revenue, mostly from recurring, programmatic MSA utility services spend. As I previously stated, these acquisitions significantly improved MasTec's revenue stream profile, both increasing the level of recurring MSA revenue and diversifying our customer base. We anticipate that second quarter Power Delivery segment revenue will approach first quarter levels with a slight sequential improvement in second quarter adjusted EBITDA margin rate. Our annual 2022 Power Delivery segment revenue expectation remains between $2.5 billion to $2.6 billion. And our annual adjusted EBITDA margin rate expectation remains in the high single to low double-digit range. First quarter Oil and Gas segment revenue was $211 million, and our adjusted EBITDA margin rate was 11.1% of revenue, generally in line with our expectations. As expected, this was a substantial year-over-year decrease with a substantial revenue decline, causing adjusted EBITDA to decrease approximately $144 million when compared to the first quarter last year. We expect second quarter Oil and Gas segment revenue will accelerate to the low $300 million range with adjusted EBITDA margin rate slightly improving on a sequential basis. Our annual '22 guidance view for this segment now assumes that approximately $500 million of selected large project activity, initially expected to restart in July will instead move to 2023 due to judicial and regulatory permitting issues. Accordingly, our annual 2022 revenue guidance for this segment approximates $1.4 billion to $1.5 billion, and adjusted annual EBITDA margin rate is expected in the low to mid-teens. Within the second half of 2022, we expect higher revenue levels and adjusted EBITDA margin rate performance in the third quarter as compared to the fourth quarter due to expected normal seasonality. First quarter adjusted corporate segment costs were approximately $37 million or 1.8% of consolidated first quarter revenue. Our first quarter consolidated GAAP, general and administrative expense, inclusive of $13.6 million in acquisition and integration costs, was 7.4% of revenue compared to 4% of revenue a year ago. As we have previously indicated, we are currently integrating and optimizing certain corporate and G&A functions for recently closed 2021 acquisitions, and expect higher annual 2022 corporate costs while this process is underway. Adjusted annual '22 corporate segment costs are expected to approximate 130 to 150 basis points of revenue. We are pleased with the integration progress we have made to date and expect that we will be substantially complete with these efforts during our third quarter. We expect to incur approximately a cumulative $26 million of acquisition and integration costs in the second and third quarters, with a higher level of expected cost in the second quarter. As I mentioned earlier, our efforts to diversify our customer base and increase the level of revenue generated through recurring MSA work are clearly evident in our first quarter 2022 results. For the first time since I have been at MasTec, no single customer represented more than 10% of first quarter 2022 consolidated revenue. Our top 10 customers represented only 42% of our total consolidated revenue. While it's possible that AT&T might once again exceed the 10% total revenue threshold, it is clear that a significant diversification of our customer base has occurred. Also, first quarter 2022 revenue derived from master service agreements reached 58% of our total revenue compared to only 28% a year ago. And this increase is primarily derived from recurring type utility service spend from our 2021 acquisitions, greatly increasing the repeatable nature of our revenue profile. As of March 31, 2022, we had record total backlog of approximately $10.6 billion, up sequentially approximately $700 million, and up approximately $2.8 billion compared to the same period last year. Importantly, this represented record first quarter backlog levels across communications, clean energy and power delivery segments, demonstrating the end market revenue shift that is occurring within our operations. That said, as we've indicated for years, backlog can be lumpy as contracts burn off each quarter and new contract awards only come into backlog at a single point in time. Now, I will discuss our cash flow, liquidity and working capital usage. In summary, our long-term capital structure is solid with no significant near-term maturities and ample liquidity, giving us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value. As indicated in yesterday's release, we've invested approximately $50 million in MasTec share repurchases thus far in 2022, acquiring 680,000 shares at an average price slightly under $73 per share. We have approximately $109 million in the remaining open share repurchase authorization from our Board of Directors. We ended the quarter with approximately $1 billion in liquidity and net debt, defined as total debt less cash and cash equivalents at $1.69 billion, essentially flat versus our year-end level. This equates to a comfortable 2.0x trailing 12-month leverage metric. First quarter cash provided by operating activities was approximately $132 million. We ended the first quarter with DSOs at 89 days compared to 80 days for last year's first quarter, and this includes recent fourth quarter acquisitions, which were slightly higher than the consolidated total. As we look forward towards the balance of 2022 and work towards acquisition integration, we anticipate second and third quarter DSOs will range in the high 80s to low 90s, with the continued expectation that DSOs will fall back into our target range of the mid- to high 80s by year-end 2022. We currently anticipate that annual 2022 cash flow from operations will approximate $600 million to $650 million, and expect year-end 2022 debt levels to be slightly down compared to year-end 2021 levels. Within this expectation, we anticipate that higher levels of second and third quarter revenue will consume working capital and increase borrowing levels by 10% or so when compared to the first quarter levels before decreasing again in the fourth quarter. Moving to our updated 2022 guidance. We project annual 2022 revenue of approximately $9.2 billion, with adjusted EBITDA ranging between $850 million to $875 million, and adjusted diluted earnings ranging between $4.22 and $4.47. As I previously mentioned, the primary changes in our revenue guidance from our previous expectation related to $750 million of solar and large project oil and gas activity that is now expected to shift into 2023. As I will discuss later, the adjusted earnings per share view also includes incremental interest expense of approximately $0.09 per adjusted diluted share from higher expected short-term borrowing rates over the balance of 2022 from recent and forecasted Federal Reserve rate actions. For the second quarter, we expect revenue of $2.2 billion, with adjusted EBITDA of $177 million or 8% of revenue, and adjusted diluted earnings per share of $0.72. As we have previously provided some color regarding our annual 2022 segment expectations, I will now briefly cover some additional guidance expectations for modeling purposes. We anticipate net cash CapEx spending in 2022 at approximately $150 million, with an additional $220 million to $240 million to be incurred under finance leases. And this level reflects some initial CapEx investment for 2021 acquisitions. We are revising our expectation for annual 2022 interest expense levels to $76 million to incorporate higher short-term interest rates from both recent and expected Federal Reserve actions during 2022. For modeling purposes, estimated 2022 share count is 75.8 million shares, and this only includes the impact of share repurchases to date. As a reminder, if you model additional share repurchases, also consider the interest expense impact of additional borrowings. We expect annual 2022 depreciation expense to approximate $350 million, 3.8% of revenue. And lastly, we expect that annual 2022 adjusted income tax rate will approximate 24.5%. This concludes our prepared remarks. I'll now turn the call over to the operator for Q&A.

Our first question today comes from Justin Hauke of Baird.

Great. I appreciate the detailed information on the solar and MVP issue. It clarifies what the situation is. I want to confirm something I might have missed regarding the backlog. You mentioned that there is $350 million of solar work included, which is unaffected by the tariffs and mostly consists of 2022 solar projects. Did you remove $250 million of work that you had initially anticipated? Also, regarding the MVP, the $500 million that has been deferred to 2023, is that fully incorporated into your backlog, considering you only have an 18-month backlog?

So Justin, regarding the solar sector, we have several projects that we have either been informally awarded or are in discussions about, but we are not including them in the backlog until we have a confirmed start date. The remaining work we anticipated for 2022 was intended to be added to the backlog. Therefore, nothing has actually been removed from the backlog. The projects included in the backlog in the first quarter are expected to be completed in 2022. We haven't included any additional awarded projects that we lack a start date for, so there hasn't been a negative effect on the backlog due to this situation, apart from the potential benefits we would have seen from projects expected to be completed in 2022. On the oil and gas pipeline front, we did not take the Mountain Valley pipeline out of the backlog, as we still anticipate its completion within the 18-month timeframe of our backlog outlook.

Okay. My second question is about oil and gas. You mentioned that from a revenue perspective, this is likely the lowest point since there are no large projects in the pipeline. I'm curious about the EBITDA margin in the low to mid-teens. Is that also the lowest margin, or is there some under-absorption affecting it? If we maintain this level, would the margins be higher if you were right-sized for MVP, or is that margin specific to the project level?

There’s no doubt that we are currently under absorbed. Despite the market conditions this year, we believe that 2023 will see significant improvement based on the activity we observe from all of our customers. The current sentiment is markedly different from what it was a few months ago, and there are numerous projects in the pipeline. However, transitioning these projects from the planning stage to actual construction takes time, primarily due to ordering pipeline and delivery schedules. We are optimistic about 2023 and are incurring various costs now, confident that we will be able to employ many individuals next year. Our current margin profile is not ideal. If we didn’t anticipate improvements in 2023 or didn’t see upcoming projects on the horizon, we would certainly reduce costs further than we already have.

Our next question comes from Neil Mehta of Goldman Sachs.

Jose, George, team, the first question was around share repurchases, and thanks for the color and good to see you guys. In the market given the recent stock price performance, can you just talk about your philosophy around share repurchases that you gave a little bit of color about how you historically have approached it? And is there an opportunity to be aggressive to the extent that market volatility continues here through the balance of the year?

We always take this into account. Over the years, we’ve only purchased shares when we believe there’s a story that’s either misunderstood or when the value doesn’t align with long-term opportunities. For example, in 2015 we bought shares at $19, and in 2018 and 2019 at $40. During the early pandemic, we purchased a significant amount of shares as we felt that the progress of the business and our expectations for long-term earnings created substantial value and opportunity. We feel the same way today. We know 2022 will be challenging and a transition year, but internally, we’re very optimistic about our future and where we can take it. If we execute our plans, we believe our earnings profile will change dramatically, and we think the stock is currently undervalued, which is why we’ve started buying back shares. This is our philosophy and the approach we take to the market. We have the capacity to make decisions that are right for the business, whether it’s investing in buybacks, exploring inorganic opportunities, or focusing on organic growth. Historically, we’ve allocated to buybacks only when we perceive a disconnect between our stock price and the potential we foresee ahead.

That's helpful, Jose. And I guess the follow-up is in investor conversations this morning. One of the question marks is as we think about your full-year EBITDA guidance, it's very much back-half weighted. And so when you see that, there's always questions about confidence around execution and ability to hit the number. Can you just give the market a little more color about what gives you confidence around the guidance? And what happens in 3Q relative to 2Q or the back half relative to 2Q to get that EBITDA acceleration?

We dedicate significant effort to analyzing our guidance. Historically, we haven't made substantial changes to it, so this was taken very seriously. Our review was detailed, examining monthly trends rather than just quarterly shifts, assessing what needed to occur from April through July to achieve our guidance. We're quite confident about the acceleration we anticipate in the latter half of our second quarter. While it might not be immediately visible in our financials, we feel assured internally as the months progress. We are aware of our booked projects and those that are in the pipeline, which bolsters our confidence in our plans for the latter part of the year. We've consistently stated that the second half of this year would be particularly strong for us, and we're eager to illustrate the expected revenue growth and margin profile. This will clarify our outlook for 2023 and beyond, especially as we transition from a company heavily reliant on oil and gas EBITDA to one with a more diversified earnings base, which we take pride in.

Our next question comes from Alex Rygiel of B. Riley.

And really nice quarter. Jose, congratulations. A couple of questions. First, I think it's actually a big positive here for us to see MasTec at sort of a base level of business here with a majority of the revenue coming from recurring. What I'm excited about here is what we can layer on top of that over the next couple of years. And you've mentioned a number of sort of newer growth opportunities such as EV charging, carbon capture and some new customers within communications. Can you expand upon some of those sort of new opportunities that are maybe not in the next six months, but over the next two to three years?

Sure, Alex. It's truly remarkable what we're witnessing in the industries we serve. Each of our segments in telecom is experiencing significant change. The government is investing heavily in broadband expansion, and private companies are approaching their businesses from a 5G and fiber perspective in a way that's fundamentally different from the past. The future of network planning is going to be unlike anything we've seen, making it an exciting time in these industries. The new business opportunities arising from this transformation are far beyond our previous expectations. In power delivery, we are undergoing an energy transformation that affects how power is generated, delivered, and utilized, impacting every aspect of the energy chain. Over the last few years, we've developed a service offering that addresses nearly all of it. We will benefit not only from increased revenues from our traditional work but also from the new services being created. Electric vehicles are the most recognizable example, but there are significant changes happening with the grid, including advancements in battery backups and related technologies that differ from what we've done in our Clean Energy and Infrastructure business. The importance of baseload generation is becoming clearer to our customers, and every one of them will need some form of it. New dual-sourced engines that utilize gas and hydrogen will play a major role in future generation. We are fortunate to be involved in various areas that present substantial growth opportunities. It's indeed an incredibly exciting time to engage with these diverse industries.

And then lastly, how conservative were you in revising your guidance for the uncertainty in the solar market? And do you see there to be opportunities to complete some of these projects maybe in phases whereby you complete Phase 1 and then you come back 3 or 6 months later and it's still the solar panels?

The answer to the latter part of the question is yes. Some customers, especially those with ongoing projects, are trying to manage and make the best financial decisions they can. This is a serious issue, as we face many uncertainties related to those development projects. They lack the ability to pass on the additional costs, which will slow down the industry until there is more certainty. Initially, there was much noise and doubt, with many believing the industry could navigate through the situation. Now, the Department of Commerce must make a decision. The positive aspect is that this issue has received substantial political attention and has become a significant topic. This could undermine Biden's energy strategy, which might lead to a more rational outcome. Recently, the Secretary of Energy has expressed frustration with the Department of Commerce, and there is considerable pressure on them. They've issued recent communications indicating they feel this pressure, suggesting a swift decision is likely. The real question will be what the decision entails and how quickly the market can recover. This situation will create significant pent-up demand, and when things return to normal, it will generate opportunities that everyone will need to respond to. Regarding our guidance, we believe we have provided a realistic level given the circumstances. We're hopeful that some developments will work in our favor, allowing us to reflect on how conservative our guidance was. We are taking a practical approach to the challenges ahead and are confident in our ability to meet our targets.

Our next question is from Marc Bianchi of Cowen.

I think I heard in the prepared remarks that the solar backlog was $350 million. So that would imply it's kind of 20% of the division's backlog. Can you talk about what the rest of the backlog is? Is it all wind? Or what types of projects are there? And then what's the difference in execution on those types of projects? Or some relatively higher or lower risk? And what does the margin profile look like relative to one and another?

We've discussed the diversity within that segment for a long time, which I believe is a major strength of our business. Wind remains a key part of our operations, as it was our starting point and continues to be a primary revenue source. However, we've significantly expanded our civil infrastructure segment. Approximately 1.5 years ago, we acquired a company called FNF, which focuses mainly on roads and bridges. That has proven to be a highly successful acquisition, and they have excelled in growing their operations. Our investment was based on our expectations around the infrastructure bill, marking our initial entry into this sector, and it has outperformed segment averages since we took ownership. On the industrial side, we frequently discuss our advanced class turbines and the installations across utilities, which are pivotal for our future growth. We believe that baseload generation is gaining substantial attention, and we consider it to be the cleanest form. Being involved in some of the first projects of this kind in the country positions us well for future opportunities within that sector. Our backlog includes components from all three areas: wind, civil infrastructure, and industrial projects. We anticipate completing much of this work within the next 12 to 18 months, which supports the revenue targets we've outlined for this segment.

Okay. And am I right to interpret the margin guidance there that you ought to be getting into sort of the high single digits by the time we get to fourth quarter? And if that's right, how does that set you up for '23? Should we be thinking that, that's kind of the level you should be at in '23 in that business?

And that's what we've been saying for a long time. We've been discussing our growth and the investments we've made in diversifying within that industry. I believe you will witness a significant margin shift in that business in the second half. Your assessment is correct, and I think that will be the margin profile we aim to achieve on a full-year basis in 2023.

Next question today comes from Jamie Cook of Credit Suisse.

I have two questions, Jose. First, as you consider the oil and gas sector and potential improvements in 2023 and 2024, how do you view the cyclical and volatile nature of the business, especially with the intermittent progress on projects? Do you believe that, over time, this will impact earnings due to the associated risks? Secondly, regarding the projects that have been delayed this year, what impact should we anticipate for 2023?

Sure. I think I have a couple of points to make. First, when considering oil and gas, it's been cyclical, but generally positively. The business experienced significant growth for us from around 2012 to 2018. However, there's been a shift since the pandemic, influenced by changing dynamics and increased focus on clean energy and climate goals. Additionally, there's been a fundamental realization of the importance of baseload power in the U.S., and natural gas will play a key role in this. Recent global events, particularly between Russia and Ukraine, have increased the demand for natural gas, and the U.S. is positioned well to export LNG. The sentiment around this business has changed dramatically, with discussions about pipeline capacity becoming more prevalent than ever before. While I don't believe it will return to peak levels, I do think it will stabilize at a healthier level than it is now. We're quite optimistic about this, especially since we see our base level of $1.4 billion as sustainable over the long term. Any additional growth will be beneficial. We're also excited about emerging technologies like carbon capture and hydrogen pipelines, which we believe will become significant aspects of the business moving forward. There will be a time when both historical and new pipelines coexist, creating a busy period in the industry. Being a leader in this sector positions us well for long-term potential. Regarding MVP, when it's ready, it will be a significant opportunity for us. We have a lot of work ahead, and we anticipate it will be operational in 2023, which would positively impact that year. We’re prepared to build it when the time comes, and we believe the customer is taking the necessary steps for a successful project, and we'll be ready to support them.

Our next question comes from Adam Thalhimer of Thompson Davis.

I just wanted to clarify really quickly. What are the expectations for the power delivery margin in the back half? Not sure I caught that.

So what we said was, roughly, we expect roughly 10% margins for the full year. Obviously, it will be a little bit lower in the first half of the year, picking up in the second half. So it's low 8s in the first and second quarter and then building up from there.

We talked about being high single digit to low double digit for the year, Adam. So it will be a little bit above that in the second half of the year as we continue to expand third quarter, particularly with the seasonality should be more profitable.

Okay. Did you mention that margin will carry through into 2023? Was that related to power delivery?

I believe it encompasses the entire business. The earlier questions focused more on clean energy, as our clean energy margins are expected to be in the high single digits for the latter half of the year. The inquiry was linked to this and its implications for the business on an annual basis compared to our historical performance. There appears to be a significant shift in that segment for the second half of 2022 compared to what we've previously encountered. However, I would argue that many of our businesses will remain consistent. We anticipate a period where absorption and utilizations will be very high as we move into 2023, which should have a positive impact on first half 2023 margins in comparison to the first half of 2022 margins.

Adam, I believe that on the power delivery side, we have significant opportunities for growth alongside our margins. Given the integration of our operations with Henkels and INTREN, and recent developments related to the grid and spending, we are currently operating at a run rate of around 2.5 to 2.6 this year. We fully expect these opportunities to increase as we transition into 2023, which should lead to some leverage.

Our next question is from Andy Kaplowitz of Citigroup.

When you look at the overall clean energy business and the delays in solar, as well as how difficult supply chain in general has been, how difficult is it to deliver that high 5% to low 6% range margin guidance you gave today for the year? And then maybe stepping back, Jose, how are you thinking about MasTec's ability to deal with the current environment, high inflation, labor costs, continuing supply chain headwind?

Sure. I believe the margins are below our initial expectations. We've adjusted our outlook for the clean energy segment due to various challenges we've encountered. We're not pleased with the high 5s to low 6s margins, as we believe they should be much better. We expect to show improvement in the second half of the year, demonstrating that this segment should achieve high single-digit margins on a full run rate basis. However, we recognize that these margins are still not optimal for several reasons. When considering the overall business balance and the ongoing challenges such as inflation, labor costs, and material delays, we are feeling the impact, just like everyone else. Our guidance reflects this situation and includes aspects related to MVP and solar. We are diligently working with our customers to provide relief where possible, but it takes time, and this is widely understood. Customers have generally been receptive to compensating us fairly for our costs and efforts, but we are not insulated from these issues. One advantage of partnering with MasTec is our reliability; customers value our ability to deliver projects on time, especially given the current labor challenges. Our workforce and scale instill confidence that we will fulfill our commitments.

And then as you've been integrating Henkels, maybe give us an update on how you're thinking about the overall business. Any surprises, positive or negative so far? I know your medium-term goals are $3 billion to $3.5 billion for Power Delivery and double digits to low-teens margins. As you've really gone to know the business, can you talk about what you're seeing and the ability to get to that level?

We've encountered two surprising developments. First, our customers have shown significant interest in our growth, which has revealed more opportunities than we initially expected in that segment. Second, as we assess the business and its challenges, the long-term margin potential appears to be better than we had projected. Overall, this is a promising story and we believe it will be a key factor in driving our entire business. We expect to achieve growth that exceeds the company's average margins in the long run, with promising margin opportunities ahead. We're excited about the potential and look forward to continuing to enhance our performance.

Our next question comes from Brent Thielman of D.A. Davidson.

Jose, I mean, it looks like you're sticking to the view that the second half should see a pretty big ramp up here in communications. I guess just what are you hearing from your customers in terms of rollout for 5G? And do you feel like you have even more clarity into that than you did a few months ago when you were guiding to that?

I believe the clarity hasn't changed, which is why our guidance remains the same. We've consistently communicated with our customers about their build plans, including specifics on timing and locations. We always anticipated that the second half would significantly surpass the first half, and that appears to be happening as expected. We have been monitoring the material issues in the supply chain closely, and we feel optimistic about the trends we're seeing, which reinforces our belief in a robust second half.

Okay. I'm curious if you're approaching the addition of jobs to your backlog differently in light of the Commerce Department issues and Solar. Is there a new strategy moving forward?

Yes. I think at this point, right, we have to have an understanding of when the project is going to start, how it's going to start, how is the customer going to view the project? Are they depending on panel deliveries? Where are the panels coming from? Are there tasks that they're going to do without panels and how committed really are they to that? And what does that mean? So I think all of those things will take into account to ultimately decide what goes into backlog or not. In the meantime, we're going to continue to work with our customers. We're trying to continue to expand our presence within that market. I think when it's all said and done, we're going to have a great solar business for a very long time. But there's no question that over the course of the next few months, the industry is going to shake out. I think there'll be some players that are around and some others that aren't. So it's going to be really important to be mindful of that as you think about where you commit your resources long term.

Our next question is from Sean Eastman of KeyBanc.

I'm doing well. I'm doing well. Just coming back to the O&G segment, could we just get a little bit more color on the bridge from the first half to second half, both in terms of the revenue and the margins? I'd just like to have as much color there as possible because it still looks like quite a big jump up even with MVP being pushed out into 2023.

Look, so what we have left in that business, right, is more seasonal. So when we think about the second quarter versus the first quarter, we expect revenues to grow north of 50% from Q1 to Q2. We have probably just slightly lower than that from Q2 to Q3, and then it will come down again in Q4 based on some of the weather patterns at the end of the year. So a lot of our work gets pushed into those months that are most workable. And I think if we can demonstrate in Q2 that we've got that kind of revenue growth, and I think it will play really well into what we'll be able to accomplish in Q3. Those changes in growth rates aren't dramatically different than what they've historically been, albeit it's been much bigger. But I don't think that the trend lines have been radically different. So that's kind of our expectation. We've got a lot of projects that are starting up now because of the winter weather and Q2 and Q3 will be our strongest quarters with Q3 being our best, and then it will drop again in Q4. So nothing really unexpected there. From a margin profile perspective, I think you're going to see similar margins into Q2 as we grow. Q3 will be our best margin quarter as it normally is. And then Q4 is usually a good margin quarter for us as well, although it will be slightly less than Q3.

Okay. And then just drilling in on the operating leverage expected in the business, particularly in communications and in clean energy. Over the past year, two years, sort of expanding capacity, hiring, training, expanding the footprint, getting ready for growth has been a drag on margins. Where are we at there? I mean, are we sort of ready to go and as the revenue comes through, we'll really start to see that leverage? Or is this still an ongoing process over a multiyear period?

We are beginning to see the results of our long-term efforts, and I expect our revenues to see substantial growth this year compared to last year. As the year continues, I anticipate ongoing revenue growth. We experienced a significant increase from Q1 to Q2 in that area. When considering our guidance, I don't believe the numbers are fully optimized. We are still adding resources and identifying opportunities in that segment for the future. If these opportunities persist and are long-term, we will keep investing and growing. This is going to be a lengthy cycle. We briefly mentioned the public or federal funding entering the sector. Currently, we are only seeing a tiny portion of that, which has already greatly impacted the business. If these funds reach the market and our operations, the potential size of this market will far exceed what we see now. I continue to see immense opportunities ahead, so we won’t stop adding resources or training. The increased revenue allows us to handle costs more effectively than we have in recent years, which is why we anticipate margin improvement in the latter half of the year. However, our long-term margin outlook for that business remains the same. It’s a matter of balancing margin growth with investment in expansion, and I believe we will remain in this cycle for some time. That said, we expect further improvements this year and into next year.

Our next question is from Noelle Dilts of Stifel.

So first, I just have a point of clarification. On MVP, I thought that last quarter, there was some discussion that even if full construction doesn't start, there might be like $100 million to $150 million of work that would still happen. Is that also pushed out at this point? And it sounds like some of the projects we thought maybe could backfill the whole or perhaps a bit delayed just because of the availability of. Maybe you could give us an update on how you're looking at those projects and as it seems like maybe just getting tight to the limiting factor in some of those moving forward.

Yes, I’ll begin with the second part of the question. The supply chain issue is indeed affecting projects that teams are trying to accelerate. Is there a possibility for some activities to occur late in the year? Yes, there is. However, we haven't factored much of that into our plans because we still see significant risks, so we're adopting a conservative approach. Regarding MVP, the situation remains very fluid. We have removed the entire $500 million from our projections at this time, and while we hope this decision proves to be conservative, we currently do not have a clear understanding of what those numbers will ultimately be. Therefore, we decided to take it all out.

Okay, got it. And then, I guess, going back to Solar, yet again, I'm just trying to reconcile what seems to be extremely mixed commentary and opinions on what this means for the solar market across the contractor group. So I'm just curious, one, if you're seeing any differences in how utility-scale solar customers are sort of treating the panel issue and sort of the willingness to maybe put up a bond or something like that to cover the potential tariff versus smaller developers? And then you sort of talked about this, but are you getting calls from your customers today saying, "Hey, we're pushing projects out to 2023?" Or with this guidance reduction, are you just trying to get ahead of that?

We can only speak for ourselves regarding the customers we work with. It makes logical sense that in the market, panels represent a significant portion of a project's cost, over 50%, and those costs could potentially increase by 2.5 times. No developer in the country can incorporate that into their pricing model, especially retroactively after agreeing on a power sale price. This situation highlights the different levels of risk that various developers are willing to accept. Currently, there's a distinction between projects nearing completion and those at the beginning stages. Some projects have indeed been put on hold while awaiting further developments. One could reasonably anticipate a resolution in August, leading to improvements in the latter half of the year, but we opted to moderate our expectations based on the information available today, avoiding the risks that might arise in the later months. We've noticed customers like NextEra who have publicly discussed shifting 2 to 3 gigawatts from 2022 to future years without altering their forecasts through 2025. This indicates their timelines and construction cycles will likely become more compressed, which could present more opportunities for contractors like us. We aim to be transparent with the market, outlining the challenges and potential risks, so that we can all keep track of the situation together. Given where we stand today, we believe this is the most prudent approach for the year.

Our next question comes from Avi Yara Lewittes of UBS.

This is Steve Fisher. We've heard multiple implications from the commerce investigation, similar to what Noelle mentioned, particularly regarding the timing. I am curious about when we should anticipate the most significant impact of this situation on MasTec as you see it now. Last quarter, you indicated that Q1 2023 was expected to be strong for you in solar, unusually so. Is that still the case, or is that now uncertain?

The commerce investigation is expected to reach a preliminary decision by August 26, with a final decision slated for January. What we learn in August will likely indicate the final outcome. Hence, August will serve as a good indicator of future developments. There may be additional actions required depending on the investigation's findings to arrive at the right answers. We are still a few months away from understanding the direction of the investigation and its potential impact on our business. Regarding 2022, all our projects have experienced delays. Projects anticipated to commence in the second quarter have been postponed as developers took extra time to ensure their panels would not be affected. Only four countries are central to this issue; however, more than 80% of panels come from these countries. The supply chain is currently challenged. Developers are exploring ways to address this, such as securing new panels or utilizing American-made panels while awaiting the investigation's resolution. The current majority of available panels for the U.S. market presents a problem, causing a lack of clear information until this issue is addressed. We remain confident about the $350 million we have projected for solar, as we have a clear understanding of the projects involved and solid communication with our customers. While the timeline has shifted from what we initially laid out, we have full clarity regarding the jobs that will generate that revenue for us.

Ladies and gentlemen, that's all the time we have for questions today. I would like to hand the call over to Jose Mas for any additional or closing remarks.

Just want to thank everybody for joining us today, and we look forward to updating you again on our next quarterly call. So I appreciate you being with us today. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation. You may now disconnect.