Welcome to MasTec's First Quarter 2023 Earnings Conference Call initially broadcast on Friday May 5th, 2023. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to our host Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Thanks, Ali, and good morning everyone. Welcome to MasTec's first quarter 2023 conference 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 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 SEC filings. Should one or more of these risks or uncertainties materialize, or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications. In today's remarks by management, we'll be discussing adjusted financial metrics reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in the conference call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release as well. With us today we have Jose Mas, our Chief Executive Officer, and Paul Dimarco, our EVP and Chief Financial Officer. The format of the call will be open remarks, and now I will hand it over to Jose. Jose?

Thanks, Marc. Good morning and welcome to MasTec's 2023 first quarter call. Today, I will be reviewing our first quarter results as well as providing my outlook for the markets we serve. First, some first quarter highlights. Revenue for the quarter was $2.585 billion, adjusted EBITDA was $102 million, adjusted earnings per share was negative $0.54, and backlog at quarter end was $13.9 billion, a record level. In summary, results were in line with revenue, EBITDA, and EPS slightly ahead of our expectations. Before getting into specifics, I'd like to offer my perspective on MasTec's business today. Over the course of the last few years, we've talked extensively about our initiatives to diversify the business and reduce our exposure to the oil and gas markets. Since 2021, we've worked hard both organically and acquisitively to position MasTec to take advantage of the significant opportunities in the markets we serve, and I'd like to quickly highlight the progress we've made. Just 16 months ago, we ended 2021 with just over $5.4 billion of non-Oil and Gas revenues. This year we expect non-Oil and Gas revenues to be just over $11.5 billion, more than double 2021. This is a significant transition in just two years, and I'd like to highlight the progress we've made in each of our segments. Our Communications segment's revenue is expected to grow to approximately $3.6 billion this year compared to just under $2.6 billion in 2021, a nearly 40% increase over the last two years. Despite this aggressive, mostly organic growth rate, we expect to deliver continued margin improvements over both 2021 and 2022. Our Power Delivery segment generated just over $1 billion of revenue in 2021. Early in 2021, we made our first large transmission and distribution acquisition. And this year, we expect this segment to generate approximately $3 billion in revenue. That's a threefold increase over the last two years, and margins are expected to grow year-over-year. We're now in the second year of operations of our acquired businesses. And while we're pleased with our performance, we know there are lots of areas for improvement. Our Clean Energy and Infrastructure segment, which generated just under $2 billion of revenue in 2021, is expected to do $5 billion this year. The acquisition late last year of IEA doubled our market presence. And while we have a lot of work to do to improve efficiency and continue to make our offering more competitive, the opportunities that we've been able to cultivate post-transaction are significantly better than our original expectations. In the slide deck we provided today, we have a slide on near-term revenue opportunity levels by segment. Our Clean Energy and Infrastructure segment shows our largest near-term potential. While our $6 billion target is unchanged from previous traps, the potential for achieving that target as early as 2024 has significantly increased. While we're pleased with our progress across these segments, the best part of our story is the continued opportunities we have to continue to grow our business. While we continue to face some challenges around supply chain, permitting, and higher interest costs, the long-term demand for our services is incredibly strong. Across all of our segments, we are working with our customers on long-term plans and are engaged in a number of very large opportunities. We believe the transition we've made into diversifying our services, coupled with the macro trends, particularly in both broadband infrastructure and the energy markets, gives us excellent visibility into future revenue and earnings growth. Now, I'd like to cover some industry specifics. Our Communications revenue for the quarter was $807 million, a 21% year-over-year increase. Backlog for the segment at quarter end was $5.6 billion, a record level. We are experiencing a significant amount of demand related to fiber expansion opportunities from our customers, and we continue to invest in increasing our capabilities, as we expect this demand to continue to increase over the coming years. While we are seeing the impact of current funding related to RDOF, the amount of federal grants available to the industry will exponentially increase with the Infrastructure Bill and Inflation Reduction Act. 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, millions of new small and microcells must be built and connected, including fiber and power. All of these new points of presence not only need to be built, but they will require ongoing maintenance and service, creating a significant long-term maintenance opportunity. Moving to our Power Delivery segment. Revenue was $709 million versus $650 million in last year's first quarter. 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. With our integration efforts of our acquired assets over the last two years mostly complete, we are now focused on growth off of our current base and on driving margin improvements throughout the organization. We expect organic double-digit revenue growth in 2023, with slightly improved margins for the year, and are confident in our ability to improve margins to the low double-digit range over the next few years. We have significant near- and long-term opportunities related to growing our transmission business and have been investing heavily in resources and equipment. We recently began construction on a multi-hundred million dollar 500 kV transmission project. The project got off to a great start and we feel we are well-positioned for future growth. Moving to our Clean Energy and Infrastructure segment. Revenue was $825 million for the first quarter versus $436 million in the prior year. Most of the increase was due to the acquisition of IEA. EBITDA for the quarter was at 1.3% and was below our expectations. It's important to note that on a pro forma basis, last year's first quarter EBITDA in this segment would have been negative 1% as IEA had reported a $17 million EBITDA loss. While margins showed nice pro forma year-over-year improvement, IEA still had a loss. And while it was much improved, it was below our original estimates leading into the year. Margins at IEA were impacted by delayed project starts and supply chain delays, which created project inefficiencies. As we think about the balance of the year in Clean Energy, we are confident about our ability to achieve $5 billion in annual revenue. This would compare to roughly $4.4 billion on a pro forma basis for full year 2022 and represent about 15% organic growth on a pro forma look. Backlog increased $319 million sequentially in this segment. And while at record levels, we expect significant backlog build over the coming quarters. While our margin guidance for this segment is mid- to high 6%, we are confident margins will improve and approach double digits over the next year or two. We have the scale to flex considerably, and as I stated earlier, our visibility to reaching our stated $6 billion revenue goal is much clearer. With increased utilization, the overall demand of the market, and our customers' desire to lock in resources earlier, we feel we are really well-positioned to profitably serve the market. While early in our integration efforts, we are confident that we are mining tremendous synergies both operationally and financially and believe we are truly building a differentiated service and product for our customers. Moving to our Oil and Gas segment. Revenue was $257 million versus $211 million last year. EBITDA was generally in line and was impacted by lower utilization as we ramp up for increased activity for the balance of the year. Backlog in this segment was up almost $300 million sequentially and second-quarter revenues are expected to increase by nearly 50% with further growth in the third quarter. As we've previously shared, future project activity is very active, approaching levels we haven't seen in a few years. This coupled with carbon sequestration and hydrogen projects gives us great opportunities to build off of our 2023 revenue level. While we expect revenue to grow by over 20% in 2023 versus 2022, we still believe this year's revenue continues to be a low watermark and are confident we have solid growth opportunities as newer fuel sources are transported by pipelines. To recap, we started the year as planned and I am confident our financial results this year will begin to demonstrate MasTec's potential. I truly believe that we are just beginning to see the impact of the significant transformation we've accomplished over the last few years, and I'm excited about what the future holds for MasTec. I'd like to thank the men and women of MasTec. I'm 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 providing our customers 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 position ourselves for continued growth and success. I'll now turn the call over to Paul for our financial review. Paul?

Thanks, Jose, and good morning, everyone. Beginning with our first quarter results, performance was slightly above our guidance, with revenue approaching $2.6 billion and adjusted EBITDA of $102 million or 4% of revenue, with an adjusted diluted loss per share of $0.54. From a segment perspective, our Communications segment was ahead of expectations, with $807 million of revenue and $62 million of adjusted EBITDA, or a margin of 7.7%. This equates to over 20% revenue growth and 150 basis points of margin expansion versus last year's first quarter, benefiting from the market expansion efforts executed in the first half of 2022. Our Oil and Gas segment was generally in line with guidance, generating $257 million of revenue and $15 million of adjusted EBITDA. While revenue was up versus Q1 of 2022, less contribution from large project activity led to lower fixed cost absorption. First quarter Clean Energy revenue was roughly in line with our expectations, but adjusted EBITDA margin was only 1.3%. While we expected a challenging first quarter for Clean Energy, we experienced inefficiencies on certain projects, primarily at IEA, including costs related to rework on third-party design effects that we are evaluating for potential future recovery. Coming off a Q1 loss in 2022, we expected IEA to have a positive contribution to the first quarter, but they ended up with a slight loss. We are making good progress on our integration efforts and we expect to begin realizing the benefits of these initiatives in the coming quarters. Our Power Delivery segment exceeds expectations for Q1. Revenue was $709 million, exceeding our guidance by approximately 20%, and adjusted EBITDA margin was 6.9%, approximately 200 basis points over guidance. Power Delivery results were driven by improved production and higher-than-anticipated emergency restoration services, albeit less than 2022 levels. Acquisition and integration costs incurred in the first quarter were approximately $17 million. The IEA integration is trending as expected, and we also incurred incremental integration expense pursuant to a small asset purchase completed in the first quarter of this year. First quarter 2023 revenue derived from master service agreements was 47% of our total revenue, consistent with what we expect going forward, plus or minus a few percent depending on the timing of certain projects. Backlog for the first quarter was $13.9 billion, which is a record level for MasTec, up $910 million from year-end and approximately 31% year-over-year. Q1 backlog increases at each segment represented new record levels for Communications and Clean Energy, further demonstrating the broad-based diversification of our end markets. While this diversification should result in less backlog fluctuations, the timing of new project contract signing can still introduce an element of quarter-to-quarter variability. Q1 cash flow used by operations was $86 million, driven by our GAAP net loss and higher-than-anticipated levels of working capital. Days sales outstanding or DSO rose to 94 days, up from 83 days at year-end. While a number of factors contributed to the DSO increase, including 28% monthly revenue growth in March, we are disappointed with our performance and its impact on free cash flow and invested capital efficiency. We expect DSO to return to the mid-80s over the course of 2023 and will work towards further improvement in subsequent quarters. I was MasTec's Treasurer for a long time, so I have a very healthy respect for the cost of capital and our investors' expectation that we utilize the funds afforded to us efficiently. I plan to bring more internal focus on generating attractive returns on invested capital, and effective management of our accounts receivable and fixed assets is critical for this objective. Q1's cash flow performance also contributed to a slight increase in our net debt leverage to 3.5 times, pro forma for the 2022 fourth quarter acquisition of IEA. Liquidity for the quarter remained strong at $1 billion. For the second quarter, we expect revenue of $3 billion and adjusted EBITDA of $250 million, or 8.3% of revenue. This equates to approximately 30% year-over-year revenue growth and 60 basis points of adjusted EBITDA margin expansion. Adjusted net income per share is expected to be $0.86. Looking at our second quarter segment performance, our Communications segment is expected to generate approximately $900 million in revenue with adjusted EBITDA margins in the low double digits. This equates to approximately 10% year-over-year revenue growth and slightly higher margins than last year's second quarter. Expectations in this segment are driven by continued strength across both wireline and wireless construction and the elimination of the new market start-up costs we incurred in 2022. We anticipate that second-quarter Power Delivery segment revenue will approximate the first-quarter level of $700 million, up about 10% year-over-year. Adjusted EBITDA margins are expected to be in the high single-digit range, showing margin expansion versus last year's second quarter. Guidance reflects the benefits of the segment integration efforts previously undertaken to reduce costs and enhance the consistency of operating results across acquired companies. We expect second-quarter Oil and Gas revenue to increase approximately 45% versus Q1 driven by new project starts, with adjusted EBITDA margin improving to the low double digits. Margin expectations reflect significant improvement versus 2023's first quarter as we achieve more fixed cost leverage through the higher revenue base. However, margins in this segment will continue to be negatively impacted by carrying costs for both labor and equipment required to execute the Mountain Valley pipeline once regulatory hurdles are cleared. Second-quarter Clean Energy segment revenue is expected to approach $1 billion, with adjusted EBITDA margin in the low to mid-6% range. This reflects approximately 23% growth and strong margin improvement versus Q1, driven by accelerating renewable and civil project execution. Finally, corporate expenses are expected to approximate 100 basis points of Q2 revenue. Yesterday, we updated full-year guidance, increasing our revenue expectation to a range of $13 billion to $13.2 billion, which reflects the first-quarter results of higher-than-anticipated revenue in our non-Oil and Gas segments. Our expected adjusted EBITDA range remains unchanged at $1.1 billion to $1.15 billion. Our expected revenue mix and margin profile for each segment also remain unchanged from previous guidance. Revenue for all segments should accelerate into the second half of 2023, and adjusted EBITDA margins are forecasted to reach the low double digits for the second half. To further illustrate 2023's margin cadence, in order to achieve full-year adjusted EBITDA margin expectations, our non-Oil and Gas segments need to improve margins 120 basis points from our Q2 guidance to the second half. This compares to the 270 basis point improvement we generated in 2022 over the same period. We are very confident in our ability to execute at these levels. We also revised our 2023 adjusted earnings per share guidance to a range from $4.35 to $4.85. The revised adjusted EPS guidance is driven by higher expected interest expense based on higher anticipated rates and depreciation expectations closer to the high end of our previous range, due to timing of capital expenditures and our first-quarter asset purchase previously mentioned. We now expect full-year interest expense of $250 million and depreciation of $428 million. We will continue to monitor the capital markets for opportunities to refinance tranches of our capital structure to enhance our maturity or interest rate profile. For 2023, we expect to generate cash flow from operations of approximately $550 million, with net cash CapEx of approximately $100 million. Full-year cash flow estimates are impacted by the anticipated working capital investment required to support revenue growth in the latter part of 2023. Year-end 2023 net debt leverage is expected to fall to the low two times. Coming off the strategic investments we've made to diversify our end markets, reducing our leverage is a priority, and we are committed to maintaining our investment-grade rating. We've aligned our leverage reduction plans with the rating agencies, who have expressed support, as evidenced by Standard & Poor's recent affirmative rating action. We've posted a guidance fact sheet to the Investor Relations section of our website that summarizes these comments and provides detail on additional assumptions for modeling purposes. To conclude, MasTec is well positioned at the forefront of the energy transition landscape, and we are excited by the opportunities in front of us today. Our end market diversification and breadth of service offerings are unmatched and provide us confidence in our ability to continue to drive strong operating results and long-term shareholder value. We are thankful to our 33,000 team members for all of their hard work and sacrifice on behalf of MasTec, and we look forward to providing them with the tools and resources required to excel in their roles. I'll now turn the call back to the operator for Q&A.

Thank you. We'll now start with our first question from Alex Rygiel with B. Riley. Please go ahead.

Good morning, Jose and Paul. Congratulations on the solid quarter and thank you for the expanded guidance.

Thank you. Good morning, Alex.

Good morning. As Clean Energy becomes your largest segment with a back-end weighted year, can you comment on your visibility within backlog as it relates to the bidding environment and margin projections?

It's a great question, Alex. I think when we think about the business, we're somewhat surprised based on the fact that we closed the IEA acquisition last year. At the total demand of our services, right? I think the market is on fire. I think the expectation of our customers is to significantly increase the amount of projects they want to build. The challenge we're all facing is what projects are truly constructible in 2023 versus those that have to wait for later years. There's no question in my mind that if the supply chain was available, the amount of activity would dwarf what we're going to see in 2023. So, what we've done very well is analyze every project that we expect to win that we're in dialogue with our customers about, understanding where supply is coming from and making sure that they're feasible projects in 2023. That’s how we built up our 2023 model. The reality is, if we counted all of our customers' demands, even for 2023, it would exceed our guidance levels. However, we believe that the $5 billion range is what is actually doable based on the supply chain issues we face this year. We believe we have a very high level of visibility for our ability to hit that number.

And then, Paul, can you also discuss some of the variables that can impact full-year cash flow to be either higher or lower than your guidance of $550 million?

Yes, Alex. I mean, the main driver is going to be working capital for us. We think we've got visibility into the profitability of the business. So, it's really making sure that we're managing the balance sheet effectively, getting DSOs down where they need to be across the company, and being diligent in that regard. That's going to be the biggest driver for us, getting back down to our stated range and then working to improve from there.

Very helpful. Thank you.

Thanks, Alex.

Our next question will come from Justin Hauke with Robert W. Baird. Please, go ahead.

Great. Good morning. So, my question is just, in Clean Energy, you talked about the IEA projects, and obviously that came in a little light. I'm just curious, are there legacy projects that are in there that need to burn off or complete before the margins can improve? And I know you also had some civil work that was in that segment from Henkels & McCoy that was kind of legacy challenged. I'm just curious where the status is on all of those.

Yes. Hi, Justin. So I think a couple of things. First, when you think about project activity, one of the issues in Q1 was project starts being pushed relative to some customers knowing what supply was available and deciding to start their projects later, impacting overall absorption. With all that said, revenue was good. There was other project activity that either accelerated or concluded toward the end of projects. I think there were several projects at IEA that they started construction on, especially solar farms that were customer-started projects without panels, expected panels to arrive by this time and haven’t. So those are other complexities that we're managing through for different projects. I do think there is a portion of the business in both renewables and civil that still needs to work itself off. We've built that into our modeling since last year. No significant changes have occurred regarding that. Based on the supply chain improvements, strong demand for the service, and actual project constructibility in the industry, we expect to see improvement in margins, especially in the second quarter.

Okay. Fair enough. And, I guess, my second question is just the higher interest expense that you have that's going through here and the lower-than-expected cash flow. Can you just comment on your rate sensitivity from here in terms of what's variable and how much sensitivity you have if rates continue to go higher?

Yes, Justin. About $1 billion of, about $1.3 billion is probably fixed today, and I think we're looking at, as I mentioned in the comments, we're considering the bond markets and other ways to impact the interest rate profile. So we'll continue to evaluate that. So, roughly, probably 40% of it is fixed today. We'll look at our forward-looking assessment of the interest rate environment and consider that in our capital markets strategies.

Right. Thank you.

Next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Thank you. I would also like to reiterate the additional guidance. It's super helpful here. I want to shift the conversation to the Communications segment, as this area sometimes has less visibility. Jose, if you could just talk about customer conversations and how you're thinking about the progression of both revenue and margins over the course of the year? Thank you.

Sure. So Neil, we've had a lot of quarters where that business has performed really well, where we've seen nice year-over-year growth. I think we're just starting to see the beginning of it. The only federal dollars that have significantly impacted the business in any way are RDOF. Significant capital is expected to flow into the business from all of the government legislation in the past that dealt with broadband. We're in constant dialogue with our customers. We have many customers with massive plans going forward. You're going to see continued fiber overbuild throughout the country by different carriers competing. This is great for the industry and for MasTec, as it represents tremendous demand that we've geared up for. We continue to be comfortable with our numbers for 2023. In fact, I truly believe that we're just beginning to see what this opportunity in Communications will ultimately become.

And then, there have been some bottlenecks in the 5G initiatives and other issues that have affected pacing. Talk about how those bottlenecks are potentially being alleviated? And when do you feel that momentum will show up?

Sure, I think a couple of things. There's no question that the carriers are allocating dollars to where they think they can get the biggest return today. There's a question about how fast speeds are really needed in the wireless area to be competitive. I don't think 5G has progressed as quickly as many had expected. We're still in the early stages of 5G deployment. Customers have allocated considerable capital to wired infrastructure in wireless. I think we'll continue to see growth there. One of the challenges in small cells has been the need for fiber and power. As that demand grows, we will see an increase. The best years for wireless infrastructure are still ahead of us. Nonetheless, continued investments in broadband infrastructure are driving the business today.

Thanks, guys.

Thanks, Neil.

Next question will come from Jamie Cook with Credit Suisse. Please go ahead.

Hi. Good morning. Nice start, and I do appreciate the color on the guidance as well. So I guess two questions. One, Jose, if you look at some of the acquisitions that you've done having a larger transmission distribution business with the renewable business—given Quanta's win yesterday of SunZia—it proves that that strategy is going to be very successful for both of you right? That you have a tremendous sort of synergy opportunity across your renewables business and now your larger transmission distribution business. So my question to you is, are you bidding on projects right now that are significant enough that will leverage both sides, and what is your comfort level with winning these large transformational jobs given it is a new acquisition and some of the challenges you face during the integration?

Sure. On the first piece, when we look at our customers and their actions over a long period, they often look at the renewable and transmission assets, but those jobs have typically been bid separately. What you've seen from Quanta and from us is the opportunity to offer a full turnkey product. Customers are responding positively to this approach, and I believe we will have opportunities and wins related to this. It’s a significant development that our renewable business now has a robust transmission component, allowing for larger projects to be bid with confidence. As we integrate further, we expect to have more announcements relating to these opportunities.

My second question relates to your comments on focusing more on return on invested capital. Can you elaborate on that? Do you have return on invested capital targets? Will you include that in compensation? Just provide some more color on that as well.

Sure. Over the last couple of years, we've focused on several acquisitions, which took considerable time to integrate. While we’ve been focused on growing the business, working capital and return on invested capital have not received enough attention. I know that this is one of Paul's strong suits, and he’ll ensure our organization refocuses on it. Compensation will be tied to these objectives, and we expect to recover our previous leading positions in these metrics.

Thank you.

Thanks, Jamie.

Next question comes from Brent Thielman with D.A. Davidson. Please go ahead.

Hey, thanks. Good morning. Jose, the Power Delivery backlog is obviously very good. Can you provide comments on the trajectory of that backlog as we work our way through the year? Are there any factors holding that back, and where do you see it going from here?

First, it's important to keep in mind that we made numerous acquisitions in the past two years. The bulk of our work today is recurring maintenance-type work, driving steady income rather than relying heavily on large projects. Our focus has been to improve our margins and ensure that our customer relationships yield fair compensation for their needs. Margin improvements have been notable, and we expect to see substantial growth as we start layering some larger project work in the coming years.

I appreciate that. On the Clean Energy business, obviously, the momentum in renewables overshadows some other elements. You now have a fairly large infrastructure business with the IEA acquisition. Can you share the contribution of that business in terms of bookings and future prospects? Is that business core to the company long term or could it possibly be monetized?

It's a good question. Our performance in civil has exceeded expectations thus far. Backlog growth in that segment has been tremendous, and we see significant prospects moving forward. We're still in the early stages of exploring its full potential, but so far, it's performing better than we anticipated. The decision on future investment and direction will depend on our assessment as we gain more experience in the space. To date, the outlook is strong.

Thank you.

Our next question will come from Andy Kaplowitz with Citigroup. Please go ahead.

Hey, good morning.

Good morning Andy.

Jose, I wanted to revisit something you mentioned last quarter regarding variability in MasTec's performance. You believed it should diminish considerably this time next year. I think that variability still separates you from your E&C peers. Can you share your confidence level regarding mitigating this variability, especially considering the seasonal aspect of the business, and what you are doing to address it?

I think the variability relates to where each business is at a particular time. For example, in Q1 2021, our Oil and Gas business did almost $750 million, compared to $200 million today. The comps have been challenging, especially early in the year due to the previous Oil and Gas strength. For 2023, we knew renewable projects were pushed out, affecting our performance. However, we believe projects in 2024 will be strong and will combat this seasonality, marking a significant improvement over prior years. The situation is similar for pipelines, and we believe both revenue appreciation and project activity for the upcoming quarters will alleviate variability.

Thanks for that, Jose. Just a follow-up on Communications. You're continuing to build backlog in that segment. Can you discuss your conviction level in continued growth toward that $4 billion near-term potential you mentioned? Has anything changed in your view? Why do you remain more bullish than some of your customers concerning their CapEx?

We've shared that this goal was set a while back to illustrate how we can achieve $15 billion in revenue. Presently, however, given our growth to $3.6 billion in revenue later this year, it now appears less aggressive. Our growth expectations are driven by all aspects of our business continually improving. Therefore, the potential is likely larger than previous benchmarks.

Appreciate it, Jose.

Thanks, Andy.

Next question comes from Adam Thalhimer with Thompson Davis. Please go ahead.

Hey, good morning, guys.

Good morning, Adam.

Jose, can you provide insight into your conversations with customers on the Clean Energy side? Are any of your customers concerned about obtaining the construction resources they need for the next few years?

I think the customers that understand the market are very concerned. If they aren't, they should be because the demand is going to significantly exceed industry capabilities. We've seen a shift in the market where customers are committing to long-term resources, trying to secure what they need. The market is experiencing a monumental change. We expect this to manifest through 2023 and significantly into 2024 and 2025. However, the significant benefits from the Inflation Reduction Act will be realized primarily in 2025, with some effects seen in late 2023 and 2024. The magnitude of work required in the industry is substantial. Therefore, we remain committed to positioning ourselves to leverage anticipated long-term growth.

When you talk about Clean Energy margins reaching double digits amid these opportunities, does it feel like a stretch, or is that where you believe you should be as these elements line up?

It's a stretch from our current performance; we understand that. Our goal for this year is to reach mid- to high-6s. For future years, we aim to approach double digits, aiming for faster improvements than initially predicted. Our industry fundamentals bode well for better returns on capital.

Thanks, Jose.

Thanks, Adam.

Our next question comes from Marc Bianchi with TD Cowen. Please go ahead.

Thank you. I wanted to start by just clarifying something about the CapEx guidance you have here for the $100 million net of disposals. In the first quarter, that number would have been $63 million of CapEx and then $20 million of proceeds, making that $43 million net for the quarter. I just want to confirm we're on the same page there.

Yes, that's correct, Marc.

Great, thanks. The $100 million is low by historical standards considering how large the business has become with M&A. Is the finance lease piece now constituting a larger part of CapEx? As you look at it, what should the aggregation of CapEx, asset proceeds, and finance leases be to run the business effectively?

It's essential to compare our depreciation and investment with peers regarding the rate we run. While we have higher depreciation relative to revenue, it’s time to see a return on that investment and leverage our established fleet to drive higher utilization rates. Moving forward will require rationalizing our CapEx with our operational needs.

Thank you so much. I’ll turn it back.

Thanks.

Next question will come from Avi Jaroslawicz with UBS. Please go ahead.

Hey, good morning, everyone. When we think of the near-term potential for Power Delivery, how much of that margin expansion would be from absorption at higher revenue levels, project mix advantages, or other operational improvements?

I think it's all of those factors. We’ve seen tighter margins across the business, especially amongst the businesses acquired. While this still allows for improvement, we’re seeing opportunities for better margins through new projects and optimizing our base operations. Therefore, we believe that margin expansion is possible both in our base business and through new opportunities.

Understood. Thank you.

Thanks.

Our last question will come from Sean Eastman with KeyBanc. Please go ahead.

Hi guys. Thanks for fitting me in here. I just wanted to revisit the Communications outlook. Is it really the rural broadband opportunity that will bridge us to that $4 billion, or can you help me understand your message regarding the potential?

We initially set that $4 billion target as a pathway to achieve $15 billion in revenue. Given our expected revenue growth to $3.6 billion this year, that goal now feels conservative. This growth should emerge naturally across all business components, presenting a sizeable opportunity for expansion.

Thanks, Jose. How would you want the market to characterize 2023 for MasTec?

2022 was transformative; we fundamentally_changed how our business operates. In 2023, it's an earnings transition year, where performance in the second half will showcase our potential for long-term growth. It’s a period of adjustments, but we believe it will reveal the true capabilities of the company moving forward.

Thanks, Jose. I'll leave it there.

Thank you for your interest and participation today. We look forward to updating everyone on our second-quarter call.

With that, that concludes today's call. Thank you for your participation. You may now disconnect.