Welcome to MasTec's Second Quarter 2023 Earnings Conference Call initially broadcast on Friday August 4, 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 Yash. Good morning, everyone. Welcome to MasTec's second quarter 2023 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 from yesterday and filings with the SEC. Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications. In today's remarks by management, we'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 on 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. Please note that we have also two documents associated with today’s webcast on the Investor’s Events and Presentation page of our website at mastec.com. There is a companion document with information and analytics on the quarter just ended and to assist in developing your financial models going forward. Both PDF files are available for download. With us today we have Jose Mas, our CEO, and Paul Dimarco, our Executive Vice President and CFO. The format of the call will be opening remarks and analysis by Jose followed by a financial review from Paul. These discussions will be followed by Q&A period. And we expect the call to last about an hour. We had an inline quarter with a lot of important things to talk about today. So I’d like to turn the call over to Jose, so we can get going. Jose?

Thanks, Marc. Good morning, and welcome to MasTec’s 2023 second quarter call. Today, I'll be reviewing our second quarter results, as well as providing my outlook for the markets we serve. First, some second quarter highlights. Revenue for the quarter was $2,874 million, adjusted EBITDA was $255 million, adjusted earnings per share was $0.89 and backlog at quarter end was $13.4 billion. In summary, EBITDA was up $76 million with non-oil and gas EBITDA up 57% year-over-year, EPS was up 42%. And revenue was up 25% year-over-year but about $125 million less than our previous expectations. EBITDA margins improved in every segment in the second quarter, and we expect strong second half performance despite some revenue challenges. I'd like to highlight that our margin progression story is greatly intact. And while the lower revenue guidance is having some margin impact on the second half of 2023 margins are generally in line with previous guidance and above 2022 second half performance. I think this is critical as you think about MasTec and our future. I'm highly confident that the goals we set out to show significant margin improvement, specifically in our Clean Energy and Infrastructure segment are proving out. Thus, our challenges in 2023 are predominantly due to revenue misses in some segments, offset by the expected second half revenue increases in our Oil and Gas segment. I'd like to cover our second half of 2023 revenue challenges in more detail. First, let me start with some high-level numbers. We still expect 2023 total company revenue growth to exceed 30%. If you exclude IEA from this calculation, so think of it as MasTec pre-IEA, we're expected to grow 18% organically, there is about a 5% to 6% bump from the MVP pipeline in that number. So even excluding MVP, we expect double-digit organic full year total company revenue growth, albeit slightly lower than our previous expectations. Let me cover some segment revenue expectations in detail. In our Communication segment, we now expect a 5% year-over-year with second half revenues flat to last year. The softness is predominantly in the wireless area, where our customers are moderating their 2023 spend plans. We still expect wireline activity to increase about 20% over last year and see further opportunity in 2024 as large off-balance sheet deployment projects begin to generate revenues. We believe the communications market continues to be strong, with some short-term impact as our customers adjust to the economic and interest rate environment. Our Power delivery revenue expectations are generally in line with previous expectations with slightly lower predicted strong revenue, which could quickly change. Our Oil and Gas revenue is expected to be about $2 billion or roughly a $500 million increase from previous expectations due to the restart of the MVP project. Finally, I'd like to cover our Clean Energy and Infrastructure where we are having the most significant revenue challenges. Again, let me start with some high-level numbers. We currently expect full year 2023 segment revenues of about $4.5 billion with MasTec’s legacy renewable and infrastructure business contributing approximately $.5 billion. This compares to $2 billion last year for our legacy business or about 25% organic growth. IEA is now expected to generate approximately $2 billion of revenues in 2023, versus our original estimate of $2.5 billion, and the $2.4 billion they generated for the full year of 2022. Thus, IEA has a negative organic growth of approximately 16% in 2023, or a $500 million decline versus our original expectation. So I'd like to cover IEA and our clean energy segment in some detail. Again, 2022, revenue for IEA was roughly $2.4 billion, and our expectation for 2023 was for mid-single digit revenue growth, knowing that the wind market would be softer offset by a growing solar market. The 2023 plan, which we've added after acquisition was detailed by projects and customers. First, and second quarter revenues tracked generally in line. But as the second quarter developed, many of the projects that were supposed to start in the latter part of the second quarter, and even into the third quarter began getting pushed into later in 2023, or into 2024. As the year has played out, there has been a big difference in customers’ ability to execute on their project pipeline. We knew that the project analysis would be very important in 2023. As evidenced by our legacy businesses expected 25% organic growth this year, we think we did a really good job of understanding that in our legacy business. While we're excited about the relationships IEA has and the demand they are seeing, we collectively misjudged IEA second half-year project pipeline risks and potential. It's also important to note that these aren't canceled projects, rather deferred into future periods. While we're obviously very disappointed with this adjustment to guidance, we do still expect significant second half of the year revenue growth, both at IEA and for a clean energy and infrastructure segment. Segment revenue is expected to grow 48% in the second half versus the first half albeit below our expectations. As we finish out 2023 and prepare for 2024, we believe we are bringing the right scrutiny to the IEA projects as we fill our 2024 pipeline, and believe we will be much more consistent in our revenue predictability. Again, it's taken us time to both get to know the IEA customer base, and the company’s thought process around revenue expectations. While we believe 2023 represented a unique set of challenges, MasTec’s detailed review and risk assessment process will add a lot of value to IEA and its ability to properly forecast revenue. We also believe that the industry is better prepared to deal with supply chain, interconnect and permitting issues going into 2024. Demand for our renewable services for 2024 is unprecedented. At the start of 2023, we strongly believe that one of our main goals and objectives of the year to drive shareholder value had to be our ability to show significant margin improvement in our clean energy and infrastructure segment. I want to emphasize again, that while we're disappointed with our revenue miss, we believe our margin goals in the second half of 2023 are unchanged. We expect to achieve these goals without the cost absorption afforded by our previous revenue guidance. Thus, as our revenue increases in 2024, and we benefit from this operating leverage, we believe our ability to expand margins further actually improves. Moving to our Oil and Gas segment, we started re-mobilizing onto the Mountain Valley Pipeline. While we had some starts and stops in the last month, we now expect to reach full capacity by the end of September. Since MVP wasn't originally contemplated in our year, we juggled lots of projects with customers, and will ultimately have just under 4,000 people and over 1,100 pieces of equipment deployed on the project. In our guidance, we've assumed completion in 2024. We expect full year oil and gas revenues to approximately $2 billion or up about $500 million from previous guidance. And we now expect 2024 to approximate similar revenue levels. In our Communication segment, we continue to see strong wireline demand with some softness in short-term wireless spends, with continued federal dollars available for fiber and broadband expansion and funds beginning to be distributed through the state level. We continue to be very bullish about those long-term opportunities. Finally, our Power Delivery segment is performing as expected. While we see some utilities managing capital budgets a little tighter, we continue to see strong demand. With the expected significant acceleration of renewable projects, we're seeing utilities and developers increased the demand for both new grid construction and upgrades. To recap, we're pleased with our margin performance to date, and expect continued progress through year end. While we expect strong organic revenue growth for both full year and second half of 2023, we're disappointed we didn't manage our renewable revenue expectations better. We believe we've implemented the right process to ensure much better revenue predictability in the future. And we continue to be very excited about our future growth opportunities for 2024 and beyond. I'd like to take this opportunity 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 in 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 will now turn the call over to Paul for our financial review. Paul?

Thank you, Jose, and good morning, everyone. Starting with our second quarter results, consolidated revenue was around $2.87 billion, which was about $125 million below our guidance. Despite this revenue shortfall, we achieved adjusted EBITDA of $255 million and adjusted earnings per share of $0.89, both surpassing our estimates. Our quarterly revenue and adjusted EBITDA set records for the second quarter. The Communication segment's performance aligned closely with expectations, generating $869 million in revenue and $94 million in adjusted EBITDA, equating to a margin of 10.8%. Adjusted EBITDA margin increased by 310 basis points from the first quarter and by 40 basis points year-over-year. We did notice some revenue slowdowns during the quarter as certain customers revised their capital expenditure plans for the rest of 2023. Our Power Delivery segment also met expectations with $703 million in revenue and $57 million in adjusted EBITDA, or 8.2%. The adjusted EBITDA margin for this segment improved by 130 basis points from Q1 and by 70 basis points year-over-year. We continue to see positive trends from our integration efforts over the past year. Our Oil and Gas segment performed strongly, with $342 million in revenue and $77 million in adjusted EBITDA, representing 22.5% of revenue, which was significantly better than our expectations for low double-digit margins. This strong performance was mainly due to positive developments related to project close-outs and successful execution on various projects. Second quarter results for clean energy revenue and adjusted EBITDA fell slightly short of expectations due to delays in executing certain projects, with revenue at $970 million and adjusted EBITDA at $50 million, or 5.1%. However, this marks a roughly 400 basis point improvement compared to Q1 and over 600 basis points compared to last year's second quarter. While we are pleased with the margin improvements, several factors are causing project start dates to slip, affecting the segment's anticipated results for the second half compared to our earlier expectations. The backlog for the second quarter stood at $13.4 billion, reflecting a 3% decline from the record level in the first quarter. This decline largely resulted from the timing of contract execution in our clean energy segment, excluding over $1.9 billion in projects we are currently managing under limited notices to proceed, which will only be included in the backlog once they are fully executed. Additionally, our communication segment backlog has also decreased sequentially, as we expect work from some customers to slow in the latter half of 2023. Our Q2 cash flow from operations was a usage of $12 million, largely due to increased working capital investments to support revenue growth, but this was partially offset by an improvement in our Days Sales Outstanding (DSO) from 94 days in Q1 to 90 days. As we mentioned last quarter, we anticipate DSO returning to the mid-80s throughout 2023, with further improvements in the following quarters. Our net debt leverage remained stable at 3.5x, taking into account last year's acquisition of IEA. Our liquidity for the second quarter continues to be strong at around $900 million. As highlighted in our updated guidance, several developments have influenced our outlook for the latter half of 2023. As Jose mentioned, our clean energy segment has faced delays in project start dates due to various reasons. Uncertainty surrounding the Inflation Reduction Act, supply chain challenges, permitting delays, and extended timelines for interconnection agreements are contributing factors to these delays for our customers. To clarify, we now anticipate that over $575 million in project activity that was originally intended for 2023 will now shift to 2024 due to a combination of these factors. We believe that our revenue outlook for the second half is reasonably conservative given these market dynamics, and we will continue to closely monitor these conditions as we assess project timelines moving forward. We remain highly confident in our prospects for 2024 and beyond. In our Communications segment, performance is being influenced by reduced volume from some customers adjusting their capital expenditures after a robust first half, along with ongoing higher supply chain costs, particularly related to wireless construction services. Regarding the Oil and Gas segment, with the Mountain Valley Pipeline approved, we anticipate being fully engaged on this project next week, which we expect will significantly contribute to revenue in the second half, especially in Q3 before winter weather affects operations. Considering these developments, we are revising our revenue expectations for 2023 to a range of $12.75 billion to $13 billion, with adjusted EBITDA projected between $1.05 billion and $1.1 billion, or 8.2% to 8.5% of revenue. We foresee a significant shift in revenue mix, with the oil and gas segment now expected to contribute around $2 billion, an increase of $500 million from our previous guidance. Adjusted EBITDA margins for this segment remain anticipated in the mid-teens. The revenue in the latter half will mainly be driven by the MVP project, which has a lower risk and cost-plus contract structure with margins below the segment average. We currently expect clean energy revenue to be in the range of $4.4 billion to $4.6 billion for 2023 due to earlier noted project delays, compared to our previous guidance of $5 billion. Adjusted EBITDA margins for clean energy are expected to stay in the mid-single digits. For communications, we project revenue of $3.4 billion to $3.5 billion, with adjusted EBITDA margins in the low double digits. We foresee some margin pressure against previous guidance due to reduced operating leverage given the lowered revenue expectations. Finally, revenue for the Power Delivery segment is projected to be between $2.9 billion and $3 billion, with high single-digit EBITDA margins. This lower revenue range considers the possibility of fewer emergency restoration services than we performed in 2022. Furthermore, we have revised our adjusted earnings per share guidance for 2023 to a range of $3.75 to $4.19. The updated adjusted EBITDA guidance also reflects expectations of higher depreciation costs linked to equipment needed for the non-value pipeline and a small asset purchase completed in Q2. We anticipate higher interest expenses due to sustained elevated rates and cash flow timing, projecting total full-year interest expense of $220 to $225 million and depreciation of $436 million. For Q3, we expect revenue between $3.75 billion and $3.85 billion, alongside adjusted EBITDA of $360 million to $390 million, equating to 9.6% to 10.1% of revenue. This represents approximately 50% growth year-over-year in both revenue and adjusted EBITDA. Our expected adjusted earnings per share for Q3 ranges from $1.85 to $2.13. As for the anticipated segment performance in Q3, we expect our communications segment revenue to be similar to Q2 at around $870 million, with adjusted EBIT margins slightly improving compared to Q2. We estimate Q3 clean energy segment revenue will be about $1.3 billion to $1.4 billion, with adjusted EBITDA margins in the mid-single digits. This expected margin for Q3 reflects improved operating leverage as revenue increases, along with some inefficiencies from carrying costs linked to the previously mentioned project start delays. Q3 power delivery revenue is anticipated to be approximately $750 million, with low double-digit adjusted EBITDA margins, slightly below last year’s strong third quarter. Oil and Gas segment revenue for Q3 is projected to be around $850 million, with adjusted EBITDA margins in the mid-teens. This is lower than earlier predictions due to the cost-plus nature of our work on MVP in this quarter. Lastly, corporate expenses are expected to account for around 100 basis points of Q3 revenue. We continue to expect to generate cash from operations of approximately $550 million in 2023, and with net cash CapEx of about $100 million, we still foresee our year-end 2023 net debt leverage to be in the low two times. Lastly, as Marc mentioned, we have posted a guidance back sheet to the investor relations section of our website that summarizes these comments and provides detailed assumptions for modeling purposes.

Our first question comes from Alex Rygiel with B. Riley.

Thank you. Good morning, gentlemen. Nice quarter. A couple quick questions here. First, as it relates to the $1.9 billion in new awards that are pending, what segments that in what's the timing is any of that near 2023 guidance?

Yes, so to be clear, right, that is specifically renewable projects in our clean energy and infrastructure business. So it's only renewable projects. And the reason we thought that number was important is to is to give, obviously, with the revenue missed, it's to give comfort around what we're seeing how we're seeing it, and why we're so bullish on the future growth of the business. So of the $1.9 billion, it will not all be in ’24, right, some of those projects will extend beyond 2024. And I actually don't believe any of that $1.9 billion is currently in our second half projections for 2023.

And then, secondly, your oil and gas directional guidance for 2024 revenue, it sounded like it was $2 billion, which would be flat to 2023, yes includes MVP, which is a pretty quick burn project. So I guess my question here is, what's the visibility on the backfill to MVP in 2024 that gives you so much confidence that we see oil and gas flattish in 2024?

We agree with you, Alex, we purposely said it because we think it's a very bullish statement on the segment, our visibility is excellent. We have most of that work secured, although not all in backlog, but a lot of it is secure. So we feel really good about entering ‘24. We always knew MVP would hit at a certain point in time, and it would impact a given year. And we will always worry about what the next year comp would be relative to that project. And I think the way it's playing out is we're going to do a great job of maintaining the segment revenues, despite having a project that had such a big impact in a given year.

Our next question comes from Neil Mehta with Goldman Sachs.

Yes. Good morning team. I want to start on the clean energy and infrastructure, the $575 million, that's getting pushed out to 2024. So can you give us some more granularity around what's driving the push outs on the ground? And then what's your confidence interval that that does show up in 2024? And some of the issues that are showing up ’23 you get addressed?

Yes, that's a great question, Neil. Good morning. As we consider 2024, there are many projects available, and there's substantial demand for our services. One of the key things for us is to identify the projects with the best chance of moving forward, similar to how we approached our legacy business this year. Some of those $575 million projects will certainly be included, but there are others we may opt out of due to uncertainty. Many of these projects are in advanced stages, and we feel positive about several of them, with some ready to start before the end of the year. There are various factors at play. As Paul explained, some developers are trying to navigate the rules of the Inflation Reduction Act, which affects their project's financials differently. We're observing a divide where established players with consistent work perform better in 2023, while newer, more cyclical developers face challenges. IEA's business tends to align with the latter group, while MasTec’s is more aligned with the former. Effectively managing this mix will be crucial, and we acknowledge that we didn't manage the risk well in 2023.

Thanks, Jose, and that follow up is just around leverage. And that you had indicated that there's a glide path to get to the low 2s from a leverage perspective. So just talk about balance sheet management, and how you want to get, where you want to get your debt to and the path to get there.

Sure, Neil, so a lot of it's from earnings growth. Obviously, we've got a big appreciation EBITDA in the back half of the year, but we do think we're going to be able to pay down a couple hundred million dollars of debt through year-end as well encapsulating the revenue growth that we see. So there's probably some working capital investment required for that, but with the cadence of the year, and our DSO and DPO being at the level they should be, we feel pretty confident about the ability to achieve that.

We go to our next question from Andy Kaplowitz with Citigroup.

Hey, good morning, everyone. Jose, maybe give us a little more color regarding what's happening to IEA. Like, just from the ground, your large peer talked about hiring 3,000 people this quarter, which is a jump for them, maybe talk about the workforce, are you seeing any sort of unexpected attrition and then could you give us more color in terms of wind versus solar? Is it really just a wind projects game delayed? Obviously, there's been a lot of issues in the wind industry. So sort of what are you seeing there?

I want to briefly revisit some points from our earlier remarks. Last year, we generated a bit over $2.4 billion in revenue, following an acquisition that was completed late in the year. We were able to conduct thorough planning discussions after the acquisition, which had mostly concluded before we acquired the company. We were optimistic about their plan, even though it did not anticipate significant growth and we recognized that the wind sector would face challenges in 2023, while the solar market was expanding. They have a strong customer base with a solid track record, although their past management of revenue expectations had some shortcomings. Overall, we felt fairly comfortable, not overly aggressive, with the plan. The first and second quarters generally met expectations, but as the year progressed, it became clear that they had historically focused more on wind projects, which added complexity due to a heavier reliance on union labor that limited flexibility in reallocating resources. The wind segment took a bigger hit, with wind revenue dropping more than solar revenue, which also failed to grow as anticipated in 2023 due to delays in project timelines. Understanding our customers and project statuses became crucial, and once resources are committed to a project, it becomes challenging to secure new work. We noticed a number of their customers moved away, resulting in insufficient work to reassign those resources. Regarding our position relative to our peer, there is no doubt that industry demand is currently very high. We aimed to differentiate our legacy business from IEA to highlight its success, noting 25% organic growth in our legacy operations. The market is ripe for our involvement, but we have unforced errors on our side that need addressing. We are not concerned about future market potential; instead, our focus is on comprehending and executing projects more effectively, and that is our current priority.

Okay, that’s helpful. And then, just going over to Telecom, you've obviously been bullish. And you talked about customers adjusting CapEx, so maybe you can talk about what changed during the quarter for you. And, moving forward, you didn't change your sort of near-term forecast for telecom, that $4 billion number, but would you say near term is pushed out? And 2024 could be more challenging telecom as well or maybe color that would be helpful?

Sure. So I think when we deep dive into that, right, the majority of what we're seeing in slowdown is only on the wireless side, the wireline business is extremely active. We think there's more than enough wireline business to execute solid growth for 2024, which is why we didn't change the near to midterm outlook. We think that wireless will come back, but at this moment in time, I think it's one of the few places that our larger customers have to adjust spend. And with the interest rate environment where it is, I think you're seeing slight tweaks. So again, it's not a, I think instead of growing high single digits to 10%, we're going to grow 5% for the year, so it's. we're still growing in the business, we still have a strong second half, but it's slightly less than what original expectations were.

Our next question comes from Steven Fischer with UBS.

Thanks. Good morning, just want to follow up on the IEA integration. Can you just talk a little bit about the progression of the acquisition integration costs since the deal closed? What has each increment accomplished? And if there were to be another step up, what would it need to address because they've been kind of ramping up here, they're all kind of below the line. But I'm really also wondering what the cash impact of these integration costs are and how that's ramping and whether you've included that in your kind of net $450 million of free cash flow.

Yes, Steven, this is Paul. So they ramped down in the second half of the year. And your second question, any severance or termination costs are factored in to the back half of the year guidance around acquisition integration expense. So any impact on cash flow was captured as well.

Okay, but it's all just you're finding it, you’re keep raising it, because you're just finding more kind of more layers of overhead that need to be cut. And just kind of curious why it's not –

Sorry about that. Sometimes it's the timing when it can be enacted, right. So savings on things like, bringing them on to our insurance program, for example, right. It's something that has to be done at a renewal, or termination of license agreements, things like that. So that's where there's some tail on it. But I think we've captured it all and do expect it to moderate into Q3 and into Q4.

And then to your I guess the first op, which was integration. We've spent an enormous amount of time obviously, on integrating IEA, I think, again, when we look at the differences in terms of the performance of the two units, we've done a lot of combining, we think our go-to-market strategy today is far superior to what it was, prior to the IEA transaction, we think that we were capturing all of the detail that we need to understand the customers, the projects were in deep negotiations with lots of customers over multi-year projects and long-term projects and labor availability and labor resources, the ability to commit those over a long period of time. So I think that understanding the market, positioning ourselves for ’24 and beyond putting the right team together to execute on all of this at a much more structured level, I think we're making really good progress on and I think over the next coming quarters, we'll talk a lot more about that.

Okay, and if I could just follow up on the telecom side, I know, Jose, you just said that you expect the wireless business to come back. But in the meantime albeit slower growth, I guess, to what extent are you shifting your focus strategically from wireless to fiber and cable? I know you've kind of pursued some of the add-off programs. is that a strategic shift that you are making? And if so, kind of what else has to happen to support that shift in strategy?

I don't think it's a shift, if you look at our year, this year, our wireline business will grow more than 20%. So we're having a really strong growth year there. In our business, today's mixed, we're still incredibly bullish about wireless over the long term, we think it's a great business albeit the growth is moderated a little bit for the second half of this year, when you think about, how we all live and how we use devices and how attached we are to devices and the amount of data that goes through these devices, the need for wireless will always be there, the need to create more capacity on the wireless networks is going to continue to increase. And that's what we do, right. So I'm very bullish in that market. I know we're, unfortunately, in an uncertain economic time, some of our larger customers in which all of these companies are very large, might have some slight adjustments. We're not seeing it impact the wireline business as much as we're seeing impact the wireless business. And at this moment in time, the wireline growth opportunity is greater and we're going to take advantage of it. And we think we could have similar growth, if not better growth in ‘24 on the wireline side versus ‘23. So I think when we look at the full-year opportunity for us in ‘24 versus ‘23, it's still somewhat unchanged.

Our next question comes from Justin Hauke with Robert W. Baird.

Good morning. Thanks for taking my question. I guess I wanted to ask on the margin assumptions, you guys don't give point estimates you give ranges high single digit, mid-single digit whatnot. And those aren't changed. You've got MVP coming in here in your highest margin business. And obviously, you're taking your margins down. So I guess I just wanted to clarify, is it each segment that you're assuming is kind of lower profitability than where you were? Or is there some type of concentration in one segment versus another one, just maybe a little bit more help on the segment expectations?

Yes, Justin. So I'll take a stab at it and then I'll turn it over to Paul. I mean, just as it relates to MVP, right, MVP is a cost-plus job, it's not a unit job. So we've always talked about MVP, having a lower margin profile than the balance of our oil and gas business. Again, we didn't expect that project to be in 2023. So as that project executes out in ‘23, it'll have a slight dilution to the margin of that segment.

Yes, and then I would just add, I think there's probably where we were previously, a little bit of pressure on communications, just with the lower operating leverage, and a little bit of pressure versus our prior guidance on clean energy, still good improvement, but just with the lower volume, we are going to be carrying some costs to deal with this workload as it comes in right in the foreseeable future. So, still in that same range, but relative to where we thought they were, at our Q1 guidance, slightly lower margins in those two segments.

Thank you. I wanted to follow up on the IEA discussion by asking about Henkel's acquisition. It seems there are some legacy infrastructure projects that you mentioned needing to address. I noticed that there appears to be an increase in unbilled amounts on the balance sheet. Can you provide an update on those projects? Are there still charges that are affecting the margins specifically at Henkel?

Yes, so I think the industrial products you're referring to those weren't from Henkels, those were projects from MasTec’s clean energy segment that we've been working on over the last year and a half or so. We're working through those projects are mostly complete. I think we're in various stages of negotiation with the customers on any close out and claims that we have. And we feel very good about our positions on those, and we look forward to having those behind us, hopefully by the end of Q3 from a performance perspective, they should all be complete.

Our next question comes from Adam Thalhimer with Thompson Data.

Hey, good morning, guys. Jose, in your oil and gas outlook for next year what's the nature of those jobs, does that kind of traditional oil and gas jobs? Are we starting to get into some of the carbon capture?

I think we'll be better prepared to talk about it over the course of the next couple of quarters, I think there's a lot available, I think our statements, and the work that we've got currently booked is still around traditional, the traditional work we've done. There are opportunities for alternative types of pipelines to be built, starting as early as next year. So we're excited about that. And I think we'll be talking a lot more about that in the coming quarters. I mean, look, we didn't talk a lot about it, because it's kind of performing exactly as we expected for both the quarter and the year, to Justin's earlier question about, Henkels and then how we feel about the integration. I mean, we actually think that integration has gone really smoothly, we're kind of past it. We've got a completely revamped business relative to how we're going to market, how we're executing on that tremendous opportunity in that business. I think we've positioned ourselves really well for future growth. And I think this was still a year where we were kind of trying to put everything together, and it's working out as planned. And I think next year, we'll have an opportunity to show really nice growth in that business yet again.

Our next question comes from Jamie Cook with Credit Suisse.

Hi, good morning, I guess two questions. Jose, one, one of your peers was talking about margin being way down by investment required ahead of some of these large projects that are going forward. So to what degrees are risks in 2024 that margins are way down by investment, understanding the longer-term margin potential is still fairly positive? And then my second question. My second question is, I understand you don't really want to talk about 2024. But given the backlog that's out there, in the growth prospects, you see, as we think about 2024, do you still expect earnings to be sort of more of a back end loaded year? Or do you see opportunity for, earnings to be, I guess, more normalized throughout the year versus just a back end loaded year, like the past few years? Thank you.

Hi, Jamie. There's a lot to unpack here. When we look at margins and the available work in 2024, every type of project varies, especially within our renewable strategy. The IEA had a challenging year in 2023, but we believe they can increase their capacity significantly with minimal additional investment. For pure renewable projects, the capital needed is much lower compared to large transmission projects. As we plan for growth in 2024, we believe our focus will be more on traditional renewable projects that require less capital. Therefore, we don't anticipate any deterioration in margins as we grow. In fact, we believe we can manage our growth while improving margins in 2024 compared to 2023, based on the business we are targeting and our project mix. We're feeling optimistic about this.

And regarding the second question about earnings in 2024 being back end loaded, what can we expect?

Yes, it's a good question. The beginning of ‘23 was relatively slow for us. So we actually think early ‘23 is going to be a good comparable to what we're seeing in ‘24. We have a lot of renewable projects that are starting or that have already started that are going to go well into ‘24. So I think we're going into ‘24 with a lot more activity in the early part of the year than we did ‘22 to ‘23. So I think you will not see, we're always going to have a bigger second half of the year versus the first half of the year because it's just the nature of our business. But I do think we're set up well for good comps in the first quarter of ‘24 versus the first quarter of ‘23.

Our final question comes from Sean Eastman with KeyBanc.

Hi, Team, thanks for taking my questions. Just wanted to come back to the comment about the improved revenue predictability going into 2024 for the renewable operation, maybe just a little bit more color there, Jose, in terms of, beyond kind of the operating environment type stuff, what's been action there, where the MasTec kind of way has been implemented to help improve that predictability into next year? And, to the extent you're comfortable, I mean, maybe relative to this, near term potential $6 billion in revenue number, what is like a reasonable expectation for the revenue stacking up into next year.

So, a couple things, right. One is, again, we highlighted MasTec legacy clean energy because it's just important to note the difference, right, I think we did a really good job this year of assessing risk relative to projects on the renewable side. I think we've taken all of that And we've now implemented that at IEA. We've got one team that's kind of taking the lead on all projects assessment going forward. Our own revenue, internal stacking based on projects, and in the viability of projects, and what we think it's going to be, I think you're going to see us be more conservative as we guide into ‘24. Because we don't want to be in this position again. So we're, we, there is no question that we will have significant growth in that segment, in 2024, relative to 2023. I don't think you're going to see us guide to $6 billion, but I think you'll see us guide to a number that was higher than our original guide for 2023.

Okay, that's helpful. And then one for Paul, just coming back to Steve Fischer's question. On the cash flow, how is it that the cash flow guidance is intact with pretty significant reduction to the earnings guidance? And the GAAP earnings guidance down quite a bit? Is it working capital has been tightened up, what's been the offset there to help you keep that number in play?

Yes, we're down about $50 million. Some lower revenue has contributed to that, leading to reduced working capital investments. The timing of the year has also helped. We have factored in some conservatism in our numbers based on the recent DSO performance, but we're seeing strong momentum throughout the company to enhance those working capital metrics. There are not overly aggressive assumptions needed to reach that target.

Okay, understood. Just one more quick question: Can you provide any details on where you're finding success with the DSOs and how you're capturing the slack in working capital?

Yes, some of its mix. I mean, the Clean Energy segment historically has and traditionally has lower working capital requirements than some of our other businesses, and then there was a couple of pockets in communications that what got a little bit long in the tooth, and we've taken the opportunity, with a little bit of volume slowdown to be more diligent with our customers around getting things build quickly, that we're getting paid more properly as well.

And maybe, to that point, just maybe even add a little more specificity to that. We added a lot of customers in the course of the last year in various segments, including our communication segment. And I think just understanding them and getting into the right cadence of how you bill how you get paid quicker. I think they're starting to show a lot of dividends. And that's part of what we're seeing today, which gives us a lot of confidence in the back end of the year.

That will conclude the Q&A session. I'll now turn it back to Mr. Jose Mas for any additional or closing comments.

Just want to take the opportunity to thank everybody for participating. And we look forward to updating you on our third quarter call in a few months. Thanks for joining us.

Thank you. Ladies and gentlemen that will conclude today's conference. We thank you for your participation. You may disconnect your phone line at this time.