Earnings Call Transcript - MTZ Q4 2022

Operator, Operator

Welcome to MasTec's Fourth Quarter 2022 Earnings Conference Call initially broadcast on Friday, February 24, 2023. Let me remind participants that today's call is being recorded. And at this time, I'd like to turn the call over to our host, Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Marc Lewis, Vice President of Investor Relations

Thanks. Good morning, everyone. Welcome to MasTec's fourth quarter earnings 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 make certain statements that are forward-looking such as statements regarding MasTec 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 and uncertainties materialize, or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in this communication. In today's remarks from 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 this conference call. A reconciliation of the non-GAAP financial measure not reconciled in these comments to the most comparable GAAP measure can be found in our earnings release or an earlier earnings press release that can be found on the website. With us today, we have Jose Mas, our CEO; George Pita, our Executive Vice President and Chief Financial Officer; and incoming CFO, Paul Dimarco. The format of the call will be opening remarks analysis by Jose, followed by '22 financial review from George. Today, a longtime financial executive, Paul Dimarco, our incoming CFO, when George retires at the end of March, will give our outlook for 2023. These discussions will be followed by a question-and-answer 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. So I'll go ahead and turn it over to Jose. Jose?

Jose Mas, CEO

Thanks, Marc. Good morning, and welcome to MasTec's 2022 fourth quarter and year-end call. Today, I'll be reviewing our fourth quarter and full year results as well as providing my outlook for 2023 and the markets we serve. I'd like to start today by thanking the men and women of MasTec. Their sacrifices and hard work helped us achieve another strong year. 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 deliver these financial results and position ourselves for continued growth and success. Now some fourth quarter highlights. Revenue was $3 billion, a 66% year-over-year increase. Fourth quarter adjusted EBITDA was $258 million, and fourth quarter adjusted EPS was $1.03. For the full year, 2022 revenue was $9.8 million, a 23% year-over-year increase; 2022 adjusted EBITDA was $781 million; and 2022 full year adjusted earnings per share was $3.05. While our results met our expectations for 2022, our highlight for the year was really how we positioned MasTec for the future. Over the last 24 months, we believe we've delivered a transformative effort to further diversify MasTec and position ourselves to be a leader in some of the most dynamic and robust industries in our nation. Just two short years ago, in 2020, MasTec was a $6 billion revenue business with nearly 30% of that revenue coming from our Oil and Gas pipeline business. While the long-term prospects of the pipeline business have improved, our Oil and Gas business represented only 12% of revenues in 2022, and EBITDA went from 56% of total company segment EBITDA in 2020 to under 20% this year. We have delivered on creating a much more diversified and recurring model over the last two years. While the effort has come with its sets of challenges, we believe we are incredibly well positioned for what is and will continue to be a period of strong growth opportunities for our business. I'd like to highlight what I believe have been some of our key accomplishments. We focused on growing our presence on the electrical grid market and have increased our revenues in electric distribution and transmission from $500 million in 2020 to over $2.7 billion in 2022. Through the acquisition of IEA at the end of this year, we've significantly increased our market share in the clean energy space and now expect our Clean Energy and Infrastructure segment to approximately $5 billion of revenue in 2023 versus $1.5 billion in 2020. Our Communications segment delivered strong 2022 growth with full year revenue growing 27% and 2023 revenues expected to, again, grow at a double-digit rate. We've delivered on diversification and believe we've created a more predictable and recurring model. For example, our non-Oil and Gas segments are now expected to generate almost 88% of our revenue in 2023, having gone from $4.5 billion in 2020 to $11.5 billion in 2023, a 2.5x increase in three years. Over the last two quarters, we've begun to demonstrate the earnings potential of our business. Margins improved 260 basis points from the first half of 2022 to the second half. Our backlog is at record levels, up over 30% year-over-year and visibility to 2023 revenue guidance is very strong. And finally, as a result, we provided 2023 guidance on yesterday's release. We expect 2023 revenue of $13 billion and EBITDA to range from $1.1 billion to $1.15 billion, both record levels. Again, our diversification and expansion has come with its sets of challenges. And while we're proud of our guidance, and it's a big improvement from 2022, we know there is a tremendous room for further improvement over the coming years. Assumptions in guidance include Communications segment revenue growth of about 10%, with a slight improvement in margins to approximately 11%. Oil and Gas segment revenue growth of about 30% with margins similar to 2022. This guidance does not include the completion of the Mountain Valley pipeline. Power delivery revenue is expected to increase roughly 10%, and we expect margins to approximate last year's levels as we continue to organically ramp our transmission capabilities. Again, we believe that our visibility into our full-year guidance is very strong. Now I'd like to cover some industry specifics. Our Communications revenue for the quarter was $859 million, a 26% year-over-year increase and revenue for the full year increased 27%. We enjoyed strong broad-based customer growth with all of our major customers. Backlog in this segment is at record levels, and we continue to invest in increasing our capabilities as we expect demand and opportunities will continue to increase over the coming years. While we're seeing the impact of current funding related to RDOF, the Rural Digital Opportunity Fund, the amount of federal grants available to the industry are going to exponentially increase. 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 also 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 $740 million versus $285 million in last year's fourth quarter. For the full year, revenue exceeded $2.7 billion and represented nearly 28% of MasTec revenue. 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. We have significant near-and long-term opportunities related to growing our transmission business and have been investing heavily in resources and equipment. Moving to our Clean Energy and Infrastructure segment. Revenue was just over $1.1 billion for the fourth quarter. Our fourth quarter results included about $600 million in revenue for IEA. For the full year, segment revenue was $2.6 billion. While our 2023 revenue guidance of $5 billion assumes roughly 15% growth, the reality is that demand in the market far exceeds that. Demand for our services in this segment is incredibly strong, and for the most part, not inclusive of any governmental impact from the Inflation Reduction Act. Based on interactions with our customers, we are confident that as the supply chain issues ease, coupled with the incentives available through the Inflation Reduction Act, the future demand for our services will significantly increase. While we just completed our first quarter with IEA as part of the MasTec family, I think it's an excellent strategic fit for MasTec. It continues to grow our presence in the renewable 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. In a market where skilled labor is so scarce, IEA added thousands of team members to the MasTec family, significantly increasing our scale. We believe with MasTec support, there are great opportunities for future growth and margin improvement. Moving to our Oil and Gas segment. Revenue for the year was $1.2 billion versus $2.5 billion last year. Margins remained solid despite the significant revenue drop. We expected 2022 to be a difficult year as this was the first full year of the impact of the pandemic on projects. Up until 2022, we were still burning off some pre-pandemic backlog. With that said, we've been vocal about the significant uptick we've seen for projects for 2023, '24 and '25. We have a number of larger projects that are expected to kick off in early summer and expect further growth in 2024 and '25. To recap, I'm incredibly proud of how we've transformed and transitioned MasTec over the last two years. I truly believe our second half of 2022 performance 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 a carbon-neutral economy. I'd like to, again, thank the men and women of MasTec for their commitment to safety, their hard work and their sacrifices. Keep up the good work. Before turning the call over to George, as many of you know, George is retiring, and today is his last earnings call. On behalf of myself, my family and the entire MasTec team, I'd like to thank George for his dedication and work ethic. He has been my partner for nearly 10 years, and MasTec wouldn't be where it is today without him. He will be missed, and he knows he will always be part of the MasTec family. I'd like to give a shout out to his wife Delilah, not to embarrass George, but Delilah was my high school teacher, and she also made significant sacrifices on behalf of MasTec, which has been greatly appreciated. Wish you all the best, my friend.

George Pita, Chief Financial Officer

Thanks, Jose. Before we get started on 2022 results, I would be remiss if I didn't take a moment to acknowledge and thank Jose, Bob Apple, Jorge Mas and the Board for providing me this incredible opportunity over the past decade. We've grown from less than $4 billion in annual revenue to approximately $13 billion in 2023, earned Fortune 500 status, achieved an investment-grade rating profile and completed transformational M&A to position MasTec with great future opportunities. It has really been the highlight of my professional career to participate and support this process. As noted in yesterday's press release, we are planning on filing our 2022 Form 10-K next week, and we anticipate that we may report identification of a material weakness in internal controls, primarily related to general IT controls at 2021 acquired operations, which underwent first-time SOP controls evaluation in 2022. We have completed multiple substandard procedures and identified no issues or errors and this matter will not result in any change to our 2022 financial results. As a reminder, during 2022, we undertook significant integration, combination and streamline activities for transformational end market acquisitions completed in 2021, including the implementation of incremental internal controls. We certainly take control issues seriously, and we expect to continue and complete remediation of any deficient internal controls during 2023. Turning to some 2022 highlights. Fourth quarter results were generally in line with our guidance expectation, with revenue approximating $3 billion and adjusted EBITDA approximating $258 million. Fourth quarter 2022 adjusted diluted earnings were $1.03 per share, $0.03 per share above our guidance primarily due to lower income tax expense in the quarter, partially offset by higher interest costs. Annual 2022 results include revenue of approximately $9.8 billion with adjusted EBITDA of $781 million or 8% of revenue. As we have previously discussed, during 2022, we began implementing a significant shift in our end market operations, emphasizing energy transition services while also navigating with several headwinds, including challenges in the supply chain, exacerbated by a governmental investigation on solar panels, project permitting delays, as well as wage and material inflation challenges. To further demonstrate the significance of this shift in 2022, only 19% of our segment adjusted EBITDA was generated from Oil and Gas segment operations compared to 56% in 2021. Both our fourth quarter and second half 2022 results highlight an important developing business trend, namely, consolidated results showed strong second half 2022 improvement with consolidated revenue at $5.5 billion compared to $4.3 billion in the first half of the year. And with second half 2022, adjusted EBITDA margin improving to 9.1% of revenue compared to 6.5% of revenue during the first half of 2022. As Paul will cover in more detail, we expect a similar first half, second half trend in 2023. Both fourth quarter and second half 2022 results reflect expanding growth in non-Oil and Gas segments, offsetting decreased Oil and Gas segment operations. Importantly, fourth quarter results are the first time in 2022 where increased non-Oil and Gas segment adjusted EBITDA exceeded the decline in Oil and Gas segment results with consolidated fourth quarter adjusted EBITDA increasing 17% over the fourth quarter of last year to approximately $258 million. We believe that this performance demonstrates the potential of MasTec's future earnings profile. We ended 2022 with record backlog of approximately $13 billion sequentially growing backlog, excluding approximately $1.5 billion of acquired IDA backlog. And this reflects strong expected future business demand for our services across multiple segments. As a clarification point, IEA backlog, as of our year-end 2022, is being reported under MasTec policies at approximately $1.5 billion. This reflects only signed contracts and thus, no verbal awards, and includes only 18 months. So comparisons to any IEA previously reported pre-acquisition backlog amounts are apples and oranges. Stated another way, it was reported in the same manner as the pre-acquisition public company, IEA year-end 2022 backlog would have been approximately 10% higher than the backlog reported by that entity at year-end 2021. Turning to our business mix. Based on the strategic diversification of our revenue stream, during 2022, no customer represented more than 10% of our total revenue and annual 2022 revenue derived from master service agreements exceeded 50% of our total revenue, a significant increase over the prior year. This is primarily derived from recurring, utility, services spend, which greatly increases the repeatable nature of our revenue profile. During the fourth quarter of 2022, we completed the acquisition of IEA, adding approximately $1.1 billion of acquisition financing and assumed debt. We finished 2022 with approximately $2.85 billion in net debt, a $350 million reduction in net debt during the quarter following the IEA acquisition. While our year-end debt levels showed strong reduction post the IEA transaction, annual 2022 cash flow from operations, at approximately $350 million, was approximately $100 million below our expectation. And the majority of this shortfall is due to fourth quarter cash expenditures made in connection with the IEA acquisition, which, among other items, including MasTec and IEA legal and banking advisory fees, change of control payments and cash outlays to initiate transfers of letter of credit commitments. There under GAAP accounting rules, required to be shown as operating cash flow amounts rather than as part of the acquisition price. At year-end 2022, we had ample liquidity of approximately $1.2 billion. Our year in receivables were well managed with DSO or days sales outstanding of 83 days within our anticipated range of mid-80s. As we indicated at the time of the IEA acquisition, we remain committed to appropriate capital structure management and maintaining a strong balance sheet supportive of our investment-grade rating. We expect an improved 2023 adjusted EBITDA performance, coupled with a reduction in overall debt levels through from cash flow operations and moderated levels of capital expenditures and strategic investments, will significantly improve our leverage metrics over the course of 2023. Before I turn the call over, I'd like to say how thrilled I am to pass the baton over to a very capable long-time MasTec colleague in Paul Dimarco. Shortly after I joined MasTec, as I began to work with Paul, it was obvious to me that he had an exceptional combination of strong financial background and critical thinking capacity. And as a result, over the years, we continually expanded his role within the company to prepare him for this moment. Paul, congratulations. Your time is now, and I wish you the best.

Paul Dimarco, Incoming CFO

Thank you, George, and good morning. To begin, I wanted to thank Jose and the Board for putting their trust in me as MasTec's next CFO. I have been incredibly fortunate during my 15 years at MasTec to work under two great financial leaders in George and Bob Campbell. They have both been key mentors to me, and I look forward to following their legacy, helping MasTec capitalize on the incredible opportunities afforded by our end markets. Turning now to our segment performance and expectations. Fourth quarter communications revenue was $859 million with adjusted EBITDA margin of 11.1%. Annual 2022 Communications segment revenue was $3.2 billion, a 27% increase when compared to last year, and 2022 adjusted EBITDA margin was 10.3%. 2022 performance is characterized by a strong and accelerating second half. We anticipate that 2023 Communications segment revenue will approximate $3.5 billion and that adjusted EBITDA margin will improve to approximately 11%. Within the 2023 expectation, we anticipate revenue to be more balanced with second half revenue contributing just over 50% of the annual total and second half adjusted EBITDA margins approximating 12%. For the first quarter, we expect communication setting revenue to grow by approximately 15% over 2022, with adjusted EBITDA margins in the mid-7% range. This compares to 6.2% in last year's first quarter. Fourth quarter, Clean Energy and Infrastructure segment revenue was $1.1 billion with IEA acquisition contributing almost $600 million of revenue during the quarter. Fourth quarter Clean Energy adjusted EBITDA margin was 7%, a 260 basis points sequential improvement and the segment's highest adjusted EBITDA margin performance over the past two years. That said fourth quarter adjusted EBITDA margin continued to be negatively impacted by select industrial projects that we expect to close out in 2023. Annual 2022 Clean Energy segment revenue was approximately $2.6 billion, adjusted EBITDA was 4.2%. For 2023, we expect Clean Energy segment revenue of approximately $5 billion and adjusted EBITDA margin will improve to the mid-to high 6% range. Based on project timing and typical seasonality, we anticipate the second half of 2023 revenue to comprise approximately 65% of the annual total. And second half 2023 adjusted EBITDA margin should improve over the first half and be in the mid- to high single-digit range. For the first quarter, we expect Clean Energy revenue to approximately $800 million with a low single-digit adjusted EBITDA margin. This margin rate is impacted by seasonally lower revenue levels and continued solar panel delivery delays. It's also important to recall that IEA reported negative $17 million of adjusted EBITDA for the first quarter of 2022. On a pro forma basis, Clean Energy first quarter 2022 adjusted EBITDA margin would have been negative 1%. As 2023 first quarter levels will be similar, our first quarter expectation reflects a strong improvement year-over-year. Fourth quarter Oil and Gas segment revenue was $292 million, with adjusted EBITDA margin of 11.5%. Annual 2022 Oil and Gas segment revenue was approximately $1.2 billion, with adjusted EBITDA margin of 14.1%. While expected, this performance represented a significant decrease in both revenue and adjusted EBITDA when compared to 2021. We anticipate 2023 Oil and Gas segment revenue will show strong growth and approximate $1.5 billion with adjusted EBITDA margins in the mid-teens. Based on expected project start-ups, we expect this growth to occur in the second half of the year with second half revenue approximately 60% of the annual total and second half adjusted EBITDA margins in the mid- to high teens. For the first quarter, revenue is expected to be similar to last year with adjusted EBITDA margins in the mid-single digits, lower year-over-year as we invest to pipeline project starts later in '23. Fourth quarter Power Delivery segment revenue was $740 million and adjusted EBITDA margin was 7.7%. Fourth quarter adjusted EBITDA margin was impacted by investments in new project starts and some adverse project closeouts. Annual 2022 Power Delivery segment revenue was approximately $2.7 billion with adjusted EBITDA margin of 8.9%. We expect 2023 Power Delivery segment revenue to approximately $3 billion with annual adjusted EBITDA margins of approximately 9%. First quarter revenue is expected to decline approximately 10% year-over-year. First quarter adjusted EBITDA margins are expected to approximate 5%. This decline in revenue and margin is due to the delay in certain program startups, a rationalization to exit certain acquired underperforming contracts and services and a reduction in storm-related activity, which has been considerably slower to date. Similar to 2022, we expect stronger adjusted EBITDA margin performance sequentially in the second quarter, continuing with strong momentum into the second half of 2023. Power Delivery second half adjusted EBITDA margins should reach the low double digits as crude utilization and productivity improve over the course of the year. Revenue is also expected to ramp through the third quarter with approximately 55% of power delivery revenue coming in the second half of 2023. Corporate segment costs are expected to approximate 95 to 100 basis points of consolidated revenue for 2023. Investments reported in our Other segment are expected to generate approximately $25 million to $30 million of adjusted EBITDA. While we are in the early stages of the Clean Energy integration process, our initial estimate is that we will incur acquisition integration expenses of approximately $15 million to $20 million over the course of 2023. Turning now to our consolidated guidance announced yesterday. As we've been messaging in our public comments for some time, we expect a slow start in the first quarter with expected revenue of $2.4 billion; adjusted EBITDA of $100 million or 4.2% of revenue; and an adjusted diluted loss per share of $0.57. This expectation includes the combination of a normally slow first quarter, accentuated by the previously mentioned supply chain delays, investments for the coming ramp in various segments and costs associated with exiting certain acquired underperforming contracts and services. In terms of the cadence for 2023, first half and second half revenue, as a percentage of the total year, should approximate 2022 levels. We expect adjusted EBITDA margin to have strong sequential growth in the second quarter that will continue into the second half of 2023. This margin expansion should exceed the improvement we achieved in '22 second half as we do not foresee the negative effect of supply chain disruptions and select industrial projects that we experienced in 2022. Our guidance indicates a 50 to 80 basis point improvement in full year adjusted EBITDA margins and we expect the majority of this expansion to come during the second half of 2023. For our annual guidance, we are projecting 2023 revenue of approximately $13 billion, a 33% increase over 2022 with adjusted EBITDA ranging between $1.1 billion and $1.15 billion. Adjusted diluted earnings per share is expected to range between $4.64 and $4.91. These forecasts mark a strong improvement over 2022's results and represent record levels of revenue and adjusted EBITDA for all of the non-Oil and Gas segments. More importantly, this further demonstrates MasTec's transformation to more diversified and sustainable earnings generation. Now I'd like to briefly cover some additional guidance details for modeling purposes. We expect to generate approximately $550 million of cash from operations in 2023 despite significant revenue growth over the course of the year that will drive working capital investment. This cash flow generation, coupled with our anticipated growth in adjusted EBITDA, should allow us to reduce leverage to the low 2s by the end of 2023. As George mentioned, we are committed to maintaining our investment-grade rating, and we'll continue to manage our capital structure accordingly. We anticipate net cash CapEx in 2023 to approximate $100 million with an additional $150 million to be incurred under finance leases. We expect annual 2023 interest expense to approximate $200 million to $205 million. This reflects our expectation to pay down debt over the course of '23, offset by a continuation of higher interest rates. We will actively monitor the capital markets for opportunities to adjust our interest rate and maturity profile. Our estimate for annual 2023 share count is 78.5 million shares. This includes shares issued in connection with the fourth quarter IEA acquisition. Remember, Q1 loss will utilize a basic share count of 77 million shares, not the fully diluted number. We expect annual 2023 depreciation to be in the low 3% range of revenue. And lastly, we expect that annual 2023 adjusted income tax will approximate 25%. This concludes our prepared remarks. I'll now turn the call back over to the operator for Q&A.

Operator, Operator

We'll go to our first question while we assemble the rest of that queue and that comes from Steven Fisher from UBS.

Steven Fisher, Analyst

Thanks, good morning and George, best wishes and thanks for all your help. So I guess, Jose, Paul, with your $100 million of EBITDA guidance for Q1, which is kind of well below consensus, it seems like you cleared the decks a bit to set a better bar for the first part of the year. But in keeping that full year, the ramp-up for Q2 to Q4 does look pretty steep? So I guess what gives you the confidence in that ramp-up and that you're on track for the opportunities and hitting the numbers for full year 2023? Maybe you can give us something like the most important pieces of evidence that you see - that gives you that confidence?

Jose Mas, CEO

Sure, so good morning Steve. So I'd like to address the first quarter because I know there's been a lot of notes written on it. If you break Q1, our Communications segment is essentially in line with where we expected it to be, right? If you take Clean Energy and consider its loss in the first quarter of 2022, we're actually delivering about a 400 basis point improvement in the first quarter on a year-over-year pro forma basis. For the full year, we're expecting a 200 to 250 basis point improvement. So if we can maintain that 400 basis point improvement through the year, we're going to significantly beat our plan relative to that. Our oil and gas business, which is part of the issue in Q1, has margins just under half of what they were last year. And that has a lot to do with revenue getting pushed and projects that are starting in the second quarter. We've got a bunch of unabsorbed costs that we're preparing for these larger jobs that we've won. I have no concerns whatsoever about that segment's ability to perform as long as the work is there, and we know it's there. Unfortunately, Q1 is hit with lower volume levels, and the biggest impact comes from the power delivery sector. We're seeing about $100 million of revenue less than expected in Q1, made up of various factors including supply chain issues and varying storm activity. I think we took a very conservative look at storm activity for this quarter, but we feel set up incredibly well for '23.

Steven Fisher, Analyst

Very helpful. And maybe just a quick follow-up on Communications specifically beyond '23 I'm curious what gets you from the $3.5 billion of revenues in '23 to your $4 billion, I think you call it a near-term target, which I assume is somewhere between '24 and '25. I know you talked about the tower wiring and connections; I guess there are concerns in the market around peaking wireless spending on 5G. So how do you see a path to that solid growth?

Jose Mas, CEO

So Steve, I'd say it's both. The wireless industry is just getting started with 5G deployment. A lot of the initial deployments are just touching the network, and we need to add an enormous capacity over time. We're very early in the 5G cycle. When you think about the wireline side, only the first half of RDOF got funded, which is roughly $10 billion. This funding has significantly impacted our business and is creating opportunities across the board. With an additional $50 billion in federal spending, the telecom market is about to see exponential growth. Therefore, I believe we're significantly understating the long-term potential of that business.

Andy Kaplowitz, Analyst

Good morning everyone.

Jose Mas, CEO

Good morning Andy.

Andy Kaplowitz, Analyst

George, thank you once more for all your assistance. Congratulations. Paul, I'm eager to collaborate with you. Jose, could you share more details about what's happening in power delivery for Q1? You mentioned a decrease in storm work, but what specifically are you seeing regarding Henkel's projects? Do they have any lingering effects that will impact you beyond Q1? Any additional insights would be appreciated.

Jose Mas, CEO

Yes, no, Andy, after reviewing our projects, it was a good opportunity for us to exit deals we identified. The revenue impact is less relevant than the cost aspect, which we don’t foresee affecting us further after Q1. We do have one large project with some material delivery delays impacting Q1 revenue, but we expect to commence work by the end of Q1. We're confident in reaching our $3 billion target for the year.

Noelle Dilts, Analyst

Hi guys, thanks and George, congratulations. You've mentioned investing in the businesses for future growth. Can you give us a better feel for some of the things you're investing in? Is it equipment? Is it front-end services? How should we think about the investments you're making?

Jose Mas, CEO

Yes, the investments differ by business. For Oil and Gas, we have under absorbed labor at the current levels but are preparing for additional projects. Telecom is expanding, so we're adding resources there. For Power Delivery, we have specialty equipment to invest in due to new acquisitions and Clean Energy is experiencing growing demand, hence investing in labor and resources.

Brent Thielman, Analyst

Hey thanks, George, congrats as well, very impressive career. Jose, you've got a few moving pieces within the Clean Energy and Infrastructure backlog. I wanted to understand a bit better. It sounds like you're seeing some good things developing for the second half and more into '24 and beyond?

Jose Mas, CEO

In terms of our Clean Energy backlog, it's currently a fraction of our revenues. We have identified every job and customer where revenue will come from, and we believe our backlog is understated due to the structure of certain contracts. As those contracts are executed, the backlog will increase significantly, particularly in 2023.

Adam Thalhimer, Analyst

Hey good morning guys. George and Paul, congratulations to you both. Did you give 2023 free cash flow guidance? And I'm curious about how that timing shakes out?

Paul Dimarco, Incoming CFO

Yes. So we mentioned $550 million of cash from operations and $100 million net cash CapEx, which implies about $450 million of free cash flow.

Operator, Operator

Thank you very much. That concludes today's conference. We appreciate your participation and have a wonderful day.