Welcome to MasTec's Third Quarter 2022 Earnings Conference Call, which was broadcast on Friday, November 4, 2022. I want to remind everyone that this call is being recorded. Now, I will hand it over to our host, Marc Lewis, who is MasTec's Vice President of Investor Relations. Marc?

Thanks, Elena, and good morning, everyone. Welcome to MasTec's third-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. These communications may include certain forward-looking statements, 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 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 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 CEO; and George Pita, our Executive Vice President and CFO. The format of the call will include opening remarks presented 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 had another good quarter and a lot of important things to talk about today. So I'll turn the call over to Jose so we can get going. Jose?

Thanks, Marc. Good morning, and welcome to MasTec's 2022 Third Quarter Call. Today, I'll be reviewing our third-quarter results as well as providing my outlook for the markets we serve. I'd like to thank you for joining us today. And before getting into the quarterly details, I'd like to offer my perspective on where I think MasTec stands today. Just two short years ago on MasTec's 2020 third-quarter call, we laid out a long-term goal of achieving annual revenue of $10 billion plus. It's important to remember at that time, MasTec was on pace to generate just over $6 billion of revenue in 2020, with 28% of that coming from our Oil and Gas business. Still somewhat unsure of where the COVID pandemic would take us, we had seen a significant impact to our Oil and Gas business and the demand outlook for pipeline projects entering 2021. Our ability to provide our $10 billion outlook was dependent on the strength we were seeing across our non-Oil and Gas businesses and our ability to expand our footprint and capabilities to capitalize on those markets. Considering 56% of our operational EBITDA in 2020 came from Oil and Gas, the growth of these other markets needed to happen not only quickly but profitably. As a result, we focused heavily on growing our Communications, Power Delivery, and Clean Energy businesses. Combined with investing heavily in growing our resources and capabilities organically, we made a number of acquisitions that have effectively transformed MasTec into a leader in the energy space. With the acquisitions of INTREN and Henkels & McCoy in 2021, and with the recent addition of IEA, we've positioned ourselves at the forefront of markets that have significant demand and growth opportunities. While we faced a number of challenges during this transformation, I truly believe that our third-quarter results begin to show the potential of MasTec's long-term earnings power. I'd like to highlight some key financial accomplishments during the quarter. We now expect revenue to approach $9.7 billion in 2022, a 22% year-over-year increase, and are confident that 2023 revenues will approach or exceed $13 billion, far exceeding our ambitious $10 billion goal just two years ago. Our non-Oil and Gas segment revenues were up 38% year-over-year and represented 85% of revenue and 80% of operational EBITDA for the third quarter, significantly diversifying both our revenue and earnings mix. Our non-Oil and Gas segments achieved double-digit EBITDA margins, improving 250 basis points year-over-year and 370 basis points sequentially. Communication and Power Delivery EBITDA margins both exceeded 12%. While Clean Energy and Infrastructure EBITDA margins were below our expectations, they did improve 170 basis points year-over-year and 550 basis points sequentially. And finally, backlog, not including IEA, is at record levels, and our second to third-quarter backlog increased sequentially for the first time since 2018. In summary, while the quarter was not perfect and quite frankly, we could have and should have done better, I do believe it properly reflects the cadence of improvements we had previously laid out. More importantly, we expect our non-Oil and Gas segments to perform very well in the fourth quarter and are very confident we will deliver solid fourth-quarter improvements in our Clean Energy and Infrastructure segment. Embedded in our results, we continue to make significant investments in growth. Demand for our services is incredibly high, and our prospects to deliver long-term revenue and earnings growth are, I believe, better than at any time in our history. I'd also like to take this opportunity to welcome the IEA team members to the MasTec family. The transaction, which is the largest in MasTec's history, closed a few weeks ago, and we look forward to playing a critical role in our country's energy transition. I'd like to highlight key points that I believe make this an excellent strategic fit for MasTec. First, it continues to grow our presence in the energy market and enhances our ESG profile in what we believe is an ongoing energy transformation related to both power generation and delivery as the country transitions to a carbon-neutral economy. Second, IEA's roots are those of a union renewable contractor. While MasTec had been an exclusively nonunion renewables construction company, this transaction expands our Renewables business into union markets. More importantly, it allows us to cross-sell complementary services to the same customers with the investments we made last year in growing our union transmission and distribution presence. Third, IEA adds nearly 6,000 team members in a market where skilled labor to serve a growing market is so scarce. In a challenging procurement and labor market, this added scale gives us the ability to more efficiently serve our customers with consistency at scale. Fourth, IEA is led by an excellent management team with deep generational roots in the business and a strong family-type culture with an emphasis on safety. Our cultures are similar and complementary. We believe with MasTec's support, there are great opportunities for future growth and margin improvement. And fifth, IEA Civil and Infrastructure business combined with MasTec's Civil and Infrastructure business creates an improved competitor of size and added scale in yet another market that's undergoing strong growth with the benefit of investments from the Infrastructure bill. It's also important to note that we announced MasTec's intention to acquire IEA on July 25. And just two days later, on July 27, the Inflation Reduction Act was announced. This piece of legislation contains nearly $370 billion in incentives that will directly impact the markets that MasTec serves. The acquisition of IEA significantly enhances the number of opportunities available to MasTec as a result of the Inflation Reduction Act. Now I'd like to cover some industry specifics. Our Communications revenue for the quarter was $889 million, a 33% year-over-year increase, and we expect full year revenues to grow by over 25%. EBITDA margins in this segment were 12.4%, a 170 basis point improvement year-over-year and a 200 basis point improvement sequentially. It's good to finally see the impact of the infrastructure growth associated with both 5G and the Rural Digital Opportunity Fund finally start to show up in our financials. Our growth in the quarter was driven by year-over-year growth of 33% with AT&T, 21% with Comcast, 50% with T-Mobile, 42% with Verizon, and strong increases with a number of RDOF-funded customers. In addition to the significant demand related to fiber opportunities, the 5G revolution continues to transform the communications ecosystem, requiring networks to be upgraded and expanded to meet the ever-increasing demand for data and internet usage. Not only must new equipment be added to existing cell towers, but millions of new small and micro cells must also be built and connected, including fiber and power. All of these new points of presence not only need to be built but will require ongoing maintenance and service, creating a significant long-term maintenance opportunity. Moving to our Power Delivery segment. Revenue was $688 million versus $365 million in last year's third quarter. Margins were up 460 basis points sequentially, and our outlook remains strong. We are in the midst of an energy transition in the United States, and our customers' focus on reliability, hardening, renewable connectivity, and meeting the challenges of providing power to customers for electric vehicle charging demand usage are transforming the grid. We believe the scale we have been able to achieve, along with our history of performance and safety, uniquely position us to play a significant role in helping meet the needs of utilities and energy developers. Moving to our Clean Energy and Infrastructure segment. Revenue was $563 million for the third quarter. Results for the segment do not include IEA, although a partial quarter for IEA will be included in our fourth-quarter results. Backlog in this segment was at record levels and also did not include IEA backlog, which will be added in the fourth quarter. Despite the challenges we faced this year in the renewable energy market with the Commerce Department solar panel investigation, demand is incredibly strong heading into 2023. We expect activity to further increase as the Inflation Reduction Act benefits begin to impact our business in the second half of 2023. We are in the very early innings of a dynamic market that will offer us tremendous opportunities for growth. We look forward with the combination of IEA to providing our customers with solutions at scale. The acquisition has been very well received by both existing and new customers, and we believe that our cross-selling opportunities uniquely position us in this segment. Moving to our Oil and Gas segment. Revenue was $376 million versus $858 million last year. Margins remained solid despite the significant revenue drop. Backlog was up year-over-year and sequentially. Last quarter, we announced our largest award in over three years, and we have seen a significant uptick in project activity for 2023, '24, and '25 and expect backlog to materially build by year-end. We expect significant growth in this segment in 2023, with or without the completion of the Mountain Valley Pipeline. To recap, I'm incredibly proud of how we've transformed and transitioned MasTec over the last two years. I truly believe this quarter offers a glimpse of our potential as a company. Today, we enjoy a significant presence in some of the most resilient growth markets in our economy. We are honored to work with our customers, supporting the need for bandwidth and communications, and helping our energy customers as we transition to our carbon-neutral economy. I'd like to take this opportunity to thank the men and women of MasTec for their performance and hard work. I am honored and privileged to lead such a great group. The men and women of MasTec are committed to the values of safety, environmental stewardship, integrity, honesty, and in providing our customers with a great-quality project at the best value. These traits have been recognized by our customers, and it's because of our people's great work that we've been able to deliver these financial results in a challenging environment and position ourselves for continued growth and success. I will now turn the call over to George for our financial review. George?

Thanks, Jose, and good morning, everyone. Today, I'll review our third-quarter 2022 financial results and provide additional color on our guidance expectation for the balance of the year, which now includes partial quarter operations for the IEA acquisition completed in early October. 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. Reconciliations and details of non-GAAP measures can be found in our press release, our website, or our SEC filings. Third-quarter results were generally in line with our guidance expectation, with revenue at $2.5 billion and a slight beat in adjusted EBITDA at $246 million. Third-quarter adjusted diluted earnings were $1.34 per share compared to our expectation of $1.29 per share, and this was driven by about $0.01 per share beat in adjusted EBITDA, with the balance due to lower income tax expense in the quarter resulting from tax true-ups, partially offset by higher interest costs. Third-quarter consolidated adjusted EBITDA margin rate showed a 200 basis point improvement over second-quarter levels and approached 10% of revenue. Importantly, this performance level was achieved despite an approximate $500 million year-over-year decline in Oil and Gas segment revenue. In summary, third-quarter performance was driven by approximately $600 million of year-over-year non-Oil and Gas segment revenue growth and strong adjusted EBITDA margin rate performance of 10.2% of revenue. While we feel we can further improve on these results in the future, this performance begins to demonstrate the potential of MasTec's future earnings profile driven primarily by expanded and improved non-Oil and Gas segment operations. Third-quarter revenue growth in non-Oil and Gas segment operations was driven by approximately $300 million or 88% in our Power Delivery segment, approximately $200 million or 33% in our Communications segment, and approximately $50 million or 9% in our Clean Energy and Infrastructure segment or Clean Energy. We continue to expect strong revenue growth in these areas in the future, and this belief is supported by record third-quarter backlog levels for all our non-Oil and Gas segments. During the third quarter, we substantially completed our integration efforts for the Henkels & McCoy acquisition and incurred initial acquisition-related expenses for the IEA acquisition completed in October. During the third quarter, despite the working capital requirements associated with a sequential revenue increase of over $200 million, we generated $118 million in cash flow from operations, and our net debt level was unchanged. We continue to expect strong cash flow from operations during the fourth quarter as legacy operations, seasonality, and project timing typically utilize lower levels of working capital during the fourth quarter. We remain committed to maintaining a strong balance sheet, supportive of our investment-grade rating, and expect that the combination of improved 2023 adjusted EBITDA performance and moderated levels of 2023 capital expenditures and strategic investments will reduce overall net debt levels and significantly improve our leverage metrics in 2023. We have ample liquidity of approximately $950 million at the end of the third quarter, and this level was not impacted by the fourth quarter IEA acquisition. In summary, while 2022 has had its challenges, we are encouraged by our third-quarter results and strongly believe that we are well-positioned for long-term growth opportunities in both revenue and operating margin expansion. Now I will cover some detail regarding our segment results and expectations. Third-quarter Communications segment revenue was $889 million, a 33% increase when compared to the same period last year and 8% sequential growth when compared to the second quarter, reflecting expanded wireless/wireline services as telecommunications partners accelerate the deployment of spectrum and fiber for transformational 5G network enhancement. Third-quarter Communications segment adjusted EBITDA margin rate was 12.4%, a 200 basis point improvement over second-quarter levels, primarily due to overhead leverage from increased wireless revenue levels and improved wireline results as new RDOF wireline markets transition from startup mode to operations mode. Based on normal year-end seasonality, we expect fourth-quarter Communications segment revenue to moderate from third-quarter levels and slightly exceed $800 million, with adjusted EBITDA margin rate approximating last year's fourth quarter. This equates to a continued expectation that annual 2022 Communications segment revenue will approximate $3.2 billion and annual 2022 adjusted EBITDA margin rate will be in the low to mid-10% range. If you do the math, you will note that our annual 2022 expectation includes strong and accelerating second-half 2022 trends, which we believe will continue into 2023, giving us significant near-term growth opportunity in this segment. Third-quarter Clean Energy segment revenue was $563 million, a 9% increase when compared to the same period last year. Third-quarter adjusted EBITDA margin rate was 4.4% of revenue, up 170 basis points from a year ago and a 550 basis point sequential improvement compared to the second quarter. While performance improved, third-quarter adjusted EBITDA margin rate performance in this segment was still negatively impacted by select industrial projects discussed during the second-quarter call. As we look forward with fourth-quarter 2022 segment Clean Energy segment results, we'll include partial quarter operations of IEA, which we estimate will add approximately $500 million in revenue at a mid-single-digit adjusted EBITDA margin rate. Inclusive of IEA, we expect fourth-quarter Clean Energy segment revenue to approach $1.1 billion at a mid-to-high single-digit adjusted EBITDA margin rate that exceeds last year's fourth quarter level, and this represents the highest Clean Energy segment quarterly adjusted EBITDA margin rate performance in over two years. This equates to an annual 2022 Clean Energy segment revenue expectation of approximately $2.6 billion, with an annual adjusted EBITDA margin rate expectation in the mid-4% range. As we have previously stated, the combination of IEA and MasTec scale, capacity, and resources, coupled with lower levels of solar panel supply chain disruptions and increased levels of governmental funding support for our customers from the recently enacted Inflation Reduction Act, are expected to accelerate renewable power energy transition and civil project activity for years to come. Accordingly, we expect that this segment can approximate $5 billion in revenue in 2023, with an improved annual adjusted EBITDA margin rate performance in the mid to high single-digit range. Third-quarter Power Delivery segment revenue was $666 million, an 88% increase when compared to the same period last year and a 6% sequential growth when compared to the second quarter. During the quarter, we substantially completed integration efforts for the Henkels & McCoy acquisition. Adjusted EBITDA margin rate was 12.1% of revenue, a 260 basis point improvement over last year's third quarter and a 460 basis point improvement sequentially from the second quarter. Within the third-quarter performance for the Power Delivery segment, our electrical and gas distribution services continued to perform well, and we had strong sequential improvement in our legacy transmission operations driven by the nonrecurrence of second-quarter project startup delays and project closeout costs. Looking forward, we expect fourth-quarter Power Delivery segment revenue will approximate $700 million with adjusted EBITDA margin rate in the high single-digit range. This equates to an annual 2022 Power Delivery segment revenue expectation of approximately $2.7 billion, with an adjusted EBITDA margin rate in the mid-9% range. Third-quarter Oil and Gas segment revenue was $376 million, and adjusted EBITDA margin rate was 13.4% of revenue. As expected, this represented a significant revenue and adjusted EBITDA quarterly decline when compared to last year, and that has been largely offset during the third quarter by non-Oil and Gas segment operations. We anticipate that fourth-quarter Oil and Gas segment revenue and adjusted EBITDA margin rate levels will decline from third-quarter levels as lower overhead absorption impacts a seasonally slow quarter. This equates to an annual 2022 Oil and Gas segment view of approximately $1.2 billion in revenue, with adjusted EBITDA margin rate in the mid-to-high 13% range. As Jose mentioned, we have strong visibility into higher levels of bidding and awards for 2023 pipeline services and believe that the Oil and Gas segment will show sizable growth in 2023. This expectation is not dependent on a restart of construction activities for the MVP pipeline, which continues to be delayed due to permitting and judicial actions. Third-quarter adjusted Corporate segment net costs were approximately $29 billion or 115 basis points of consolidated third-quarter revenue, and we expect a similar cost level in the fourth quarter. Turning to our business mix. Based on the strategic diversification of our revenue stream, during the third quarter, no customer represented more than 10% of our total revenue. Third-quarter 2022 revenue derived from master service agreements reached 52% of our total revenue compared to 37% for the same period last year, a significant increase. And this is primarily derived from recurring utility services spend, greatly increasing the repeatable nature of our revenue profile. As of September 30, 2022, we had a record total backlog of approximately $11.2 billion, sequentially up approximately $220 million and up approximately $2.7 billion when compared to the same period last year. It should be noted that we closed the IEA acquisition on October 7, and thus, no IEA amounts are included in our record third-quarter backlog levels. Importantly, September 30, 2022 backlog represented record third-quarter levels across all non-Oil and Gas segments, demonstrating the end-market revenue shift that is occurring in our operations. That said, as we've indicated for years, backlog can be lumpy, as large contracts burn off each quarter, and new large contract awards only come into backlog at a single point in time as a result of actual contract signings. Now I will discuss our cash flow, liquidity, working capital usage, and capital investments. During the third quarter, despite the working capital requirements associated with the sequential revenue increase of over $200 million, we generated $118 million in cash flow from operations, and our net debt level was unchanged. We continue to expect strong cash flow from operations during the fourth quarter, as legacy operations seasonality and project timing typically utilize lower levels of working capital. This equates to an annual 2022 cash flow from operations expectation in the low to mid $500 million range. Including approximately $1 billion in issued and assumed debt during the fourth quarter from the IEA acquisition, we expect year-end net debt levels to approximate $2.8 billion. Based on the combination of the IEA acquisition debt and higher levels of floating interest rates, we have updated our fourth-quarter interest expense estimate. We remain committed to maintaining a strong balance sheet supportive of our investment-grade rating and expect that the combination of improved 2023 adjusted EBITDA performance and continued moderated levels of 2023 capital expenditures and strategic investments will reduce overall net debt levels and significantly improve our leverage metrics. We have ample liquidity of approximately $950 million at the end of the third quarter, and this level was not impacted by the fourth quarter IEA acquisition. With regard to our working capital profile during the third quarter, DSOs were 89 days compared to 88 days at the end of the second quarter. As we look forward, we anticipate that year-end 2022 DSOs will slightly improve to the mid-80s range. As discussed during our second-quarter earnings call, we accelerated capital expenditure purchases during the first half of 2022 as we ensured the delivery of supply-chain-constrained equipment. During the third quarter, we moderated our level of capital expenditures with only $23 million in gross cash CapEx, which was fully offset by CapEx disposals. We anticipate a continuation of a moderated capital expenditure program during the fourth quarter as we focus on deleveraging. In summary, our long-term capital structure is solid with ample liquidity, and we continue to be committed to our investment-grade rating. We are mindful that the IEA acquisition will impact near-term leverage ratios, and we have communicated our plan to normalize our post-transaction leverage profile during 2023 with credit rating agencies that have maintained our investment-grade rating. Moving to our recently updated 2022 guidance. Inclusive of the partial quarter results of the IEA acquisition, we expect fourth-quarter revenue of $2.9 billion with adjusted EBITDA of $257 million or 8.8% of revenue, adjusted diluted earnings of $1 per share. This equates to an annual 2022 expectation of approximately $9.7 billion in revenue, with adjusted EBITDA approximating $780 million, with adjusted net income of $232 million and adjusted diluted earnings per share at $3.02. This concludes our prepared remarks, and we'll now turn the call back to the operator for our Q&A.

And our first question comes from Justin Hauke with Robert W. Baird.

Nice to see the non-Oil and Gas contribution coming through on the earnings results. So I guess I had a question just thinking about the debt structure and kind of the interest rate for next year. I guess maybe two questions that I would put in that would be, first, on the two tranches of debt that you have now we're not getting fully redeemed from the IEA bondholders. Just what costs do you have to carry that next year? And is there any expectation of being able to refinance those? And then I guess the second question is the $45 million of interest expense that you're assuming in 4Q, is that a good run rate to think about quarterly for next year, kind of fully baked in?

Thanks, Justin. This is George. I'll address your second question first. Regarding the $45 million run rate, we anticipate a reduction in leverage throughout 2023, so I view $45 million as a high estimate for our expectations. However, predicting changes in interest rates over time is challenging, and we need to consider various factors for future modeling. As for our capital structure at the end of Q4, about 45% is on a floating rate, which is more costly than last year. We're flexible with our capital structure, including the recent additions with IEA, and our term loans are prepayable. We're continually assessing the best future capital structure. Concerning the IEA bonds, we have assumed all $300 million of those bonds as of October 7, and this transaction did not activate a change of control put option. Currently, $75 million of these bonds have been converted into MasTec notes through our exchange offer, aligning them with the terms of our existing bonds. The remaining $225 million is still IEA debt. Both tranches are now rated investment grade, and the coupon rate of the IEA bonds is comparable to potential new issues, leading us to keep these bonds in place.

Okay. That's helpful. And I guess the second question I had was just previously you guys have given an EBITDA guidance, I guess, or at least a framework of $1.17 billion for 2023. And I just was curious if there's been any change in that outlook. It sounds like the revenue outlook that you gave is unchanged.

Nothing has really changed. So we talked about $13 billion in revenue for next year. I think that, that's becoming more and more clear. Obviously, the market is supportive of that. We laid out the margin profile of that early. I still think it's very attainable. I think we've laid out $1.150 billion to $1.2 billion, and I think somewhere in that range, while we're not providing guidance for '23 because there's a lot of work to do, I think that's reasonable.

Next question comes from Alex Rygiel in B. Riley.

Nice quarter here.

Thank you.

Jose, a couple of quick questions. First, obviously, with the macro concerns of an economic slowdown in front of us, how do you think your business may be affected by that understanding that some of your activities are kind of in the last mile, but yet there's a lot of government funding out there and other stimulus activities that are driving the clean energy marketplace? So just broadly speaking, how do you think a mild recession is going to affect your business?

I believe we have a highly resilient portfolio. There has been significant government funding in telecom, especially with RDOF, and the demand for bandwidth and speed is clear. 5G is here and being implemented, and fiber activity is at an all-time high in my career, with expansion expected into 2023 and beyond. There is more work available than we can currently handle, so we are working to grow as quickly as possible. In the energy market, the shift towards renewables will remain unaffected. The grid hardening being endorsed by numerous public services across the country will not be impacted either. The construction of transmission lines to connect renewables will continue without disruption. Utilities are adapting to the demands of electric vehicle usage, which will not be influenced. Additionally, the current state of pipelines and commodity prices, with gas serving as a transitional fuel, remains stable. The Infrastructure bill will also have no negative impact on our Civil business. In fact, only a very small segment of our portfolio, related to housing, might see a minor effect. I would contend that a downturn in the economy could actually benefit us by reducing inflationary pressures that we face today. Overall, our revenue outlook is extremely resilient, and any changes could improve our cost situation.

And secondly, on the IEA acquisition, you've only owned it for a couple of weeks, but can you talk about sort of the quality of backlog that you've discovered and the opportunity for synergies, both either revenue or cost?

Sure. So again, we're super excited. I think the market is incredibly robust. The demand for the services is off the charts. I think you're going to see in the coming quarters, both MasTec's legacy business and IEA's have tremendous backlog growth just based on the conversations and awards we're seeing from customers. IEA did report backlog a little bit differently than we did. So we think the IEA added backlog will be somewhere in the $2 billion range in the fourth quarter. And as the quarter is mount, we think there are going to be considerable additions to that. So you think about solar, even wind, even a lot of these transitionary fuels that we're thinking about, whether it's hydrogen or carbon sequestration, that market is incredibly active. And again, I think it's going to be very resilient over the course of the next couple of years regardless of what happens with the economy.

Our next question comes from Andy Kaplowitz in Citigroup.

Jose, I see you had a nice step-up in Communications margins that you talked about to 12.4%. I know supply chain has been very difficult. So maybe you could talk about what went right in the quarter? Was this better utilization of your people? Were you able to renegotiate any of your significant contracts? Maybe fuel costs have been coming down a little? Any more color there would be helpful.

Well, first, I'd say, Andy, we expected it, right? If you thought about the way we guided to Q3, we expected a step-up. I know that there's been concern out there relative to our ability to hit that, but we felt comfortable. We've seen it in our business. The growth in volumes finally came in at 33%, revenue growth in the quarter is fantastic. And I'd also say there's pressure in that, right? While the results are good, and they'll moderate a little bit in Q4 because it's just timing and the seasonality of it, the reality is that we can achieve more than that. Once we get on a run rate, once we're fully utilized, once we've got the right number of people on board, we actually think those are margins that, over the long term, could be improved. Solid performance. Again, it was good to see us deliver and nothing special about the quarter. There was no individual areas where we had any big significant pickups, just solid performance throughout.

And then can you talk a little bit more about your Clean Energy business? You mentioned the mid-to-high single-digit margin in Clean Energy for Q4. Could you give us what the EBITDA is that's coming in from IEA in Q4? Or are you thinking that your industrial problem project drag is getting behind you? And how much improvement, if any, are you seeing in solar markets to help with utilization in the segment?

Yes, we experienced some challenges in Q3 related to the industrial projects we discussed in Q2, which George mentioned in his prepared remarks. Looking ahead to Q4 and beyond, the last report from IEA indicated earnings around 5.60, with Q3 being slightly weaker than expected due to issues like the solar panel investigation and renewable energy concerns. For Q4, we anticipate a performance similar to Q2, which is a cautious outlook. We've owned the company for just a few weeks, so being conservative feels appropriate at this stage. Our long-term projections for 2023 are still unchanged, estimating EBITDA at $160 million to $170 million and net income between $40 million and $50 million. We believe these figures are conservative, and our goal will be to drive improvements and develop synergies within the business to enhance those numbers. Customer feedback from the acquisition has been overwhelmingly positive, and there is significant demand for our services. Our task will be to select the right projects and clients, ensuring a smooth flow of work without interruptions, which we will manage through the project acquisition process in 2023. I feel optimistic and confident about achieving great results moving forward, though we are still in the early stages. During our next year-end call, we hope to share more details about new awards and expectations for 2023, but we still have work to do to get there.

Next question is from Neil Mehta of Goldman Sachs.

Yes. And congrats on a good quarter here. The first question is just about managing inflationary pressures that exist in the market ranging from diesel to labor, how are you guys working through those? Are you able to push some of these costs through pricing and do you feel like you sufficiently built this into the way you're thinking about '23?

Yes, Neil, there are a few things to consider. We discussed this extensively during our second-quarter call and even back in Q1. Fuel costs made a significant difference for us in the first half of 2022 compared to 2021, and we believe we've projected that accurately for the rest of the year. In the third quarter, we noticed some improvements in fuel expenses, although those costs can fluctuate. We've also been quite open about the inflationary pressures we face regarding labor. We have experienced these pressures, and while they may have eased slightly, they remain a concern that we need to monitor. The high demand for our services suggests that wage pressures will continue for some time. As the housing market cools down, which we anticipate will happen, it should create a larger labor pool for us, helping to alleviate some of the wage inflation we've seen historically. We are focused on team member acquisition, which is crucial for us at MasTec because our people are our priority. We believe we have a solid strategy moving into 2023, with great opportunities ahead. We expect substantial revenue growth across all our markets, and labor will be a critical part of that. There’s no doubt we've experienced inflationary pressures. We've had many conversations with our customers since the start of the year, and they have provided us with some relief. We've frequently discussed implementing adjustments on contract anniversary dates, and those adjustments have occurred as anticipated. We expect this to continue through 2023. While inflation impacted us in the first half of the year, we believe we are managing it well. We’ve communicated clearly about the challenges it presented and how we intend to address them. In the third quarter, you can see some of the positive results from that execution.

And then backlog was very significant this quarter. Where are you seeing it surprised to the upside? And where do you think the backlog translates quickest into revenue recognition?

It's a great question. It's the first time since 2018 that our backlog increased from the second to the third quarter, which is relatively rare since the third quarter typically generates a high revenue volume, making it difficult to maintain the same booking rate. Historically, we've had large pipeline awards that influenced that figure. The encouraging aspect of this backlog growth is that it wasn't driven by any specific project; it was broad-based and evident across every segment with a lot of strength and activity. We're very proud of this achievement. We expect to see similar trends throughout all our segments, which supports our growth dialogue for 2023. If I had to name one area that could exceed our expectations in '23, it would likely be our Oil and Gas business. We've anticipated a decline for quite some time, but we're observing significant strength in that market compared to previous quarters, and we're excited about its implications. Overall, we believe this growth is widespread. Additionally, we expect the Inflation Reduction Act to have a substantial long-term impact on our backlog. Since some regulations are still being established, we don't anticipate a major effect until the second half of '23. Overall, everything is trending positively, and we're enthusiastic about our potential achievements.

Next question is from Jamie Cook of Credit Suisse.

Congratulations on a great quarter. Jose, my first question is about the portfolio. You've made many changes, and given your current debt situation, M&A isn't an option right now. As we look at the medium-term future, do you feel that there's anything else you need, or is the portfolio well-positioned for the growth opportunities ahead? When presenting to the investment community, do you believe that as we finish 2023, this portfolio can sustain low-teens margins on a normalized basis? That's my first question. My second question is for you, George; how should we assess the free cash flow conversion for the company, especially with the inclusion of Henkels & McCoy and IEA?

Sure, Jamie. As we look towards the future, it's clear that our margin profile is set to improve. For our Clean Energy and Infrastructure business, especially in the near to midterm, we anticipate facing challenges in reaching teen-type margins. We believe it will operate at a high single to low double-digit margin, which we expect to achieve, consequently enhancing our EBITDA profile. In time, we aim to reach double-digit EBITDA margins, although that will not be our guidance for 2023; we expect it to be lower than that. Nonetheless, I am confident that this goal is attainable, and the strength of the market, along with our portfolio strategy, will only enhance our performance over time. Regarding our portfolio, I believe we are currently in a strong position with many growth markets ready for execution. We have the potential to grow organically, while also exploring other opportunities. In this environment of higher debt, we anticipate increased pressure on highly leveraged companies, which should give us a competitive edge in the markets we operate in. Over the next couple of years, I believe our portfolio is better positioned than ever, and our growth opportunities are more promising than ever. We are genuinely excited about the future.

And Jamie, regarding free cash flow, we have previously mentioned that as we transition away from a focus on oil and gas pipelines, which have traditionally been our most capital-intensive sector, our free cash flow profile is expected to improve. This is because we are shifting towards electric distribution and renewables, both of which generally require less capital. Therefore, we anticipate a stronger free cash flow profile moving forward. We started to moderate our capital expenditures in the third quarter and will continue to do so into 2023. We did ramp up spending in the first half of the year to ensure timely deliveries of items affected by supply chain constraints. However, our free cash flow profile during this transition is anticipated to be stronger due to a similar working capital profile and reduced capital intensity.

Next question is from Steven Fisher with UBS.

I wonder if you could just give a little more color on the margin buildup in the Clean Energy segment in Q3 and then into Q4. Just maybe should we assume that the Civil piece and Renewables, including IEA, I guess, in Q4 are going to be more at similar levels, but the Industrials piece more of like a breakeven or low single digits? How do you see that kind of the buildup within the segment and then trending into next year?

I think that's accurate. Our Civil business is performing well, and over time, I believe our renewables markets will outpace and have the highest margin profile in that group. The Industrial business, based on the project profile we expect in 2023, will significantly improve compared to 2022, likely reaching levels similar to our Civil business. However, I anticipate tighter margins when considering the three segments of that business in 2023. In the fourth quarter of 2022, we expect some improvement in the Industrial segment, but we believe Civil and Renewables will outperform the Industrial business in that quarter.

That's very helpful. I apologize if this was covered earlier, as I missed part of the call. Can you discuss the visibility regarding your two renewable projects in the first half of 2023? Will you have a clear understanding of the allocation for your customers? Also, what is the status of panel access and availability on the solar side?

Sure. We've discussed our Clean Energy and Infrastructure, aiming to deliver at or above $5 billion for 2023, and we are very confident in achieving that. A significant portion of this will come from Renewables, likely over 60%. Currently, looking at our backlog and what has been verbally awarded, we feel positive that we've identified most, if not all, of those projects, which puts us in a strong position this October. This gives me confidence that we could potentially exceed our targets. Additionally, we will have the flexibility to adjust project timelines based on readiness. Many of our solar projects are newer, and while some clients are finishing up existing projects and waiting on solar panel deliveries, those initiating new solar plants can begin construction without the panels, as they won’t need them for six to nine months. It really depends on their project timeline. We are optimistic about how the year is shaping up. While it’s early days, we still have a lot to accomplish, and we plan to provide further updates in upcoming calls. We are focusing intently on the details of each project, including timelines, resource allocation, and ensuring there are no gaps in our resource scheduling. This is our focus for 2023, and we're committed to maximizing efficiency and utilization rates. I anticipate that we will have greater clarity in the coming months regarding our quarterly performance for 2023.

Next question is from Brent Thielman of D.A. Davidson.

Great. Jose, the expenses related to acquisition and integration in Power Delivery have significantly increased from last quarter. Can you discuss what is included in that? What internal processes are in place for integrating the H&M and INTREN deals? Additionally, how does all the internal work you're doing influence your outlook on the segment margin potential in Power Delivery moving forward?

Brent, this is George. I'll respond to that. The Power Delivery number increased this quarter. As I've mentioned, we have almost completed the integration of Henkels. What you're seeing now is the result of finalizing several cost adjustments, including indirect overheads and changes to our insurance programs, among other things that have been under review. We have finished that process, so we expect that number to significantly decrease in the fourth quarter. We believe that our Power Delivery segment margin will improve in 2023 as we begin to realize more benefits from the program moving forward and continue to grow. Therefore, we foresee enhancements in that segment going ahead. We are pleased to have completed the Henkels integration. We incurred some costs in the third quarter related to IEA, primarily acquisition costs such as investment adviser fees and bridge fees. We expect some of those costs to continue in the fourth quarter, and we will assess the situation at that time. However, this presents a different challenge than the Henkels acquisition, which involved more structural changes.

To your second question on that, Brent, in terms of margins, I think the integration has gone really well. We've talked previously about the strength of the business and the upside and the growth that we think we can achieve in that business. We're more optimistic today than we were at the time of acquisition about our ability to not only help make them better, but I think we've achieved a lot of that, and I think the growth profile of that business will hopefully outpace what we originally expected going into the deal.

Next question is from Noelle Dilts at Stifel.

I think this is geared more for George. But George, just given that a fair amount of the capital structure, I think about 45% is floating rate debt. How are you thinking about just the risk of higher rates at the moment? Would you think about interest rate caps or swaps to mitigate potential additional increases? Just curious sort of how you're thinking about that at the moment.

Yes. Look, we're constantly evaluating it. The reality is, obviously, we have a more elevated level right now post the IEA acquisition. We did the financing on that in a way to maximize flexibility for us going forward. So we have term loans and whatnot, and they are floating rate, but they're also prepayable at time. So we're constantly looking at what we think, depending on where the market is, what we think is the right mix of our capital structure. And I guess the answer to that is TBD, right? We don't know yet depending on what market conditions are, when we might be able to evaluate whether we should be moving and changing the structure. We certainly have the flexibility to do so and have put the current capital structure in a way where that's the case. I'd also point out that while obviously, by floating rate debt is more expensive than it was a year ago, it's still cheaper than fixed-rate debt, right, in terms of most cases. So based on that, it's certainly a fair question as one that we're evaluating constantly and will do so in this environment.

Okay. Great. I think you addressed this somewhat with Andy's question, but can you provide more details on how IEA performed in the third quarter and what your expectations are for the company's overall results in 2022? I know you reiterated your expectations for EBITDA in 2023, but any additional details would be helpful.

Yes, Noelle. The third quarter fell short of our original expectations. We've not focused much on last year since it’s not particularly relevant for us, apart from understanding the deal dynamics. We are beginning to have a clearer view of Q4 with them and have taken a very cautious stance regarding their forecast. They are likely to exceed what we have outlined today, but we now own these numbers, so we're being more careful. Our perspective on 2023 remains stable, if not more optimistic. We previously outlined earnings capabilities we believed were attainable, and I want to emphasize that we finalized this deal just before the Inflation Reduction Act was announced, which I believe significantly boosts the company's long-term prospects, including in 2023. I am very optimistic about surpassing our initial expectations for 2023, although we have a lot of work ahead. There are numerous avenues for the combined entity to reduce costs, improve efficiency, and accelerate growth. We cannot account for these yet, as we need to execute our plans, but I'm highly confident in their long-term potential. The second half of 2023 has been challenging for renewables, as reflected in our numbers and those of others. While I don’t think it was any different for IEA, it doesn’t alter the long-term outlook for their business. We anticipate a positive fourth quarter; our numbers are conservative, and we hope they will outperform them, but overall, it's still a good quarter considering the market conditions.

Next question is from Adam Thalhimer of Thompson Davis.

Great. It's nice to see the stock rise significantly this morning. Jose, regarding Oil and Gas, could you provide some additional details? I believe you or George mentioned something about substantial growth expected next year. Additionally, you spoke about the projects being considered between 2023 and 2025. I'm interested to know if those are primarily traditional oil and gas projects or if there are broader opportunities emerging.

Certainly. So, I want to highlight a few points. First, I’d like to note that 2022 has turned out to be softer than we initially expected. We previously projected a long-term outlook of $1.5 billion to $2 billion for the business, but we are now aiming for around $1.2 billion this year. Looking ahead to 2023, when we mention significant growth, we believe achieving the $1.5 billion to $2 billion target is still possible even without the Mountain Valley Pipeline. However, if the Mountain Valley Pipeline progresses, it would significantly increase our potential. Despite our earlier comments, we remain optimistic about the Mountain Valley Pipeline moving forward and the strong possibility of its completion in 2023, though we are not counting on it at this time. That said, we are observing considerable strength across all markets. A number of gas pipelines are in the planning stages, with some projects expected to begin very soon, while others are planned for 2024 and 2025. A lot of effort is being put into these projects, with pipe purchases and substantial commitments taking place, which gives us confidence they will materialize. Additionally, we have been discussing the carbon sequestration initiatives and hydrogen projects, which we feel are advancing more rapidly than before. Hopefully, we will provide more updates on these in the upcoming quarters. Overall, I believe our pipeline business, which encompasses not just oil and gas but pipelines in general, is poised for a strong performance over the next few years, which is somewhat surprising compared to where we stood just two years ago.

And we'll take our last question from Sean Eastman of KeyBanc Capital Markets.

Nice update here. So Jose, you alluded to the Oil and Gas segment being kind of the one kind of core upside risk driver to the preliminary expectation for next year. I wondered if we could round out that discussion a little bit just in terms of how you're thinking about kind of the major kind of upside drivers or risk factors to the downside relative to this preliminary look we have in place here?

Yes, I want to clarify that my comments were about what surprised me regarding expectations. We have been negative about Oil and Gas for a while, but I'm starting to see improvements, which is somewhat unexpected. However, when I assess our entire business, the current changes in the energy sector are unprecedented. I feel more optimistic about Power Delivery and Clean Energy compared to Oil and Gas in the long-term, although my surprise lies more with the Oil and Gas sector. I don't want to rank these sectors, but I want to emphasize that the energy industry's dynamics are shifting significantly for the first time in my life, and we are well-positioned for substantial growth in the years ahead. I am very optimistic about that. We also have a diverse portfolio of businesses, all of which we believe have significant potential, including Communications. We've navigated various cycles where some segments thrive while others face challenges, but I foresee a future where all our businesses will have considerable upside. As we look at our plans for 2023, I am very confident we will meet or exceed those expectations. The primary risks we face are macroeconomic in nature. In the short term, I think little will change due to the ongoing government spending across the industries we serve. However, inflationary pressures will impact margins. While I am less worried about revenue fluctuations because the market remains strong, we must monitor inflation closely, including how we can manage costs and pass on expenses when necessary. We need to consider how to efficiently onboard and train new team members to ensure our workforce remains safe and effective, which will ultimately benefit our customers. I am genuinely optimistic about what 2023 holds for us.

Okay, I understand. If I reflect on the fourth quarter of last year, when you announced the first quarter guidance, it was surprising for some in terms of the starting point for the year. I know it's early, but I thought we could discuss how significant the first half and second half might be as we prepare those numbers for the fourth quarter earnings of 2022.

Yes, Sean, we can certainly provide some directional insight. It's fair to note that the first quarter is usually quite slow. Typically, we expect a similar seasonal pattern to last year, possibly with slight improvements. As for the different components, we'll see how the timing for Clean Energy aligns, which is now different for us in '23 due to the addition of IEA. Generally, Clean Energy tends to have a slower first quarter. On the other hand, Communications is likely to perform better, with an expected increase in spending compared to the first half of last year. These are a few factors to keep in mind, and we'll provide more details when we discuss the guidance. Overall, the first quarter is generally a slow start for us, and I don't anticipate a significant change in that for '23 based on what we know at this point.

I would add a couple of things to that, which I think are really important. When you compare historically our first quarter, especially in '22, the comps were really difficult because Oil and Gas was so big. So just to take a step back in the first quarter of '21, we did $725 million in our Oil and Gas business. In the first quarter of '22 this year, we did $211 million. We had a $500 million drop-off in the first quarter of the year. When you look at the second quarter, we had almost a $280 million drop-off in that same Oil and Gas business, '22 to '21. The reason I say that is our '23 comps will be dramatically better than our '22 comps, we're looking back at '21. So while in '22, it was very pronounced the growth we had to have to offset the Oil and Gas decline, that will not be the case in 2023. So I think that phenomenon that we had to live through at the beginning of '22, which was so challenging for us, which I think created a lot of the issues that we had in the first half of 2022, should not exist in the first half of '23, making the comps dramatically better and the year being a lot more consistent relative to the look back. Obviously, we made the acquisition of IEA. It's going to have a huge benefit to us in the first half of the year without anything working against us. And I think that's a big distinction between '23 and '22.

There are no further questions at this time. I'd like to hand the call back to Jose Mas.

Yes. So again, I just want to thank everybody for your interest. We're happy to print the quarter that we did. We look forward to updating you again on our year-end call and laying out our guidance for 2023. So be safe, and talk soon. Thank you.

Thank you. And this will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.