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Text: Should one more of our risk or assumptions prove incorrect, or should this information be changing, the results may differ significantly from results expressed or implied in these communications.
In addition, we may use certain non-GAAP financial measures in this conference call.
Just a note on the 10-Q availability, we've been attempting to file the 10-Q with the SEC since 5:00 p.m. yesterday, but an SEC filing system breach has prevented the filing from being uploaded and accessible.
We expect this will be resolved shortly.
These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes.
I hope and pray that everyone's family is healthy and safe.
We are truly in a challenging and unprecedented time as we continue to manage through the COVID-19 pandemic.
During this time, the safety of our team members has been our top priority.
I have to say, I'm so proud of the men and women of MasTec, their sacrifices, resilience, creativity and commitment have been inspiring.
Millions of families throughout the U.S. rely on the power, communication, entertainment and other services we help our customers provide.
First, a quick recap of our second quarter.
Revenue for the quarter was $1.569 billion.
Adjusted EBITDA was $166 million.
Adjusted earnings per share was $0.95.
Cash flow from operations was roughly $295 million, and year-to-date cash flow from operations was $497 million.
And backlog at quarter end was a second quarter record at $8.2 billion.
We had a solid second quarter, meeting our revenue guidance and exceeding our guidance for EBITDA and EPS.
It's important to keep in mind that most of our services have been deemed essential under state and local pandemic mitigation orders, and all of our business segments have continued to operate.
We are managing through the COVID-19 challenges, including: first and foremost, the safety of our employees and their families; and other challenges, including governmental permitting, crew social distancing mitigation and the impact that, that may have on project schedules and any potential project delays.
Our 2020 guidance, which George will cover in detail, assumes the impact of these risks based on the best information we have as of today.
While I'll cover our segments in more detail in a minute, I'd like to focus on how I feel MasTec is positioned for long-term success.
I'm extremely optimistic about our future prospects.
We are very well positioned to take advantage of the continued and growing investment in telephony networks, including Internet connectivity and 5G, the continued investment in grid reliability in the energy sector and the growth of the clean energy sector.
As it relates to clean energy, during the second quarter, we made a decision to rebrand our Power Generation and Industrial group to Clean Energy and Infrastructure.
We believe this better represents what we are actually doing today as this segment becomes a much larger and important part of MasTec's future.
As one of the nation's leading clean energy construction companies, we have experienced significant growth over the last few years, growing revenues from $300 million in 2017 to over $1.5 billion of expected revenues this year.
We expect continued growth in 2021 and believe that, by 2022, this segment will exceed the size of what our Oil and Gas segment is today.
Today, we also announced record Oil and Gas backlog levels.
I'd like to offer some color on this segment's backlog.
First, we are highly confident that all of the projects in our current backlog will be built.
We believe this backlog represents our strength in the market and our ability to offer value while still attaining solid margins.
We view this level of backlog as a significant competitive advantage as we do believe new work will slow down through the first half of 2021.
There will still be new work awarded but less of it.
Basically, if you don't have a lot of backlog today, the next 1.5 years will be tough.
We do expect an improvement in the market as conditions improve and demand increases in a post-COVID environment.
In the meantime, between what we have in backlog and other work we have been negotiating with our customers, we believe revenue levels for our Oil and Gas segment in 2021 will be similar to 2020 levels.
While George will cover guidance in detail later, we have lowered our annual revenue guidance in Oil and Gas based on the delay of two projects, which have been impacted by regulatory and judicial issues.
As I think about our 2020 guidance, I think there are some important takeaways to highlight.
First, in the midst of a pandemic, our revenue guidance for 2020 is only down about $200 million or 3% less than 2019 full year revenue.
Within that, our Oil and Gas revenue expectation is that it will be down approximately $800 million in 2020 from 2019.
That means the rest of our segment revenues will be up approximately $600 million versus last year in the middle of a challenging environment.
More importantly, margins on a year-over-year basis are expected to be relatively flat at 11.4% EBITDA margins versus 11.7% last year.
Between both the pandemic challenges and the impacts of demand and regulatory issues on our oil and gas markets, I think our financial guidance demonstrates the strength of our diversified portfolio and the efforts we have made over the years of having a strong, diversified service offering.
Now I'd like to cover some industry specifics.
Our Communications revenue for the quarter was $654 million.
More importantly, margins came in strong, and we're up 370 basis points year-over-year and 380 basis points sequentially.
We are seeing strong demand from our customers as they work to meet the demands in this changing environment.
COVID has helped highlight the importance of our nation's telecommunications networks, and our customers are working hard at providing their customers with reliable and high-speed connectivity.
We expect this trend to continue and believe there will be a renewed focus on continuing fiber expansions in the residential markets.
This, coupled with the continued opportunities around 5G deployment, provide us with significant opportunities to grow our business.
While margins were much improved in the quarter, our revenue has been negatively impacted by COVID.
Our installation business has been impacted by strict mitigation efforts related to entering customers' homes, and we continue to have a couple of large markets where work has been very limited.
Our guidance assumes these impacts continue through year-end and also include the potential impacts of local permitting delays as some areas slow reopenings or even move back to more strict closures.
We have been working with these cities and municipalities to bolster remote permitting capabilities.
Revenue in our Electrical Transmission segment was $124 million versus $100 million in last year's second quarter.
While margins have been improving over the course of the last year, we had a project that negatively impacted margins based on the change in environmental requirements.
We believe these increased costs are mostly recoverable and expect to benefit in the second half of the year.
Backlog improved both year-over-year and sequentially, and we made good progress on diversification within this segment.
We have been awarded four new MSAs, or master service agreements, as this has been a focus for us to drive consistent recurring work.
We believe we are well positioned for 2021 and beyond as the drivers for this segment remain intact, which include aging infrastructure, reliability, renewables and system hardening.
Between our strong backlog and the opportunities we see in the market, we expect to be able to deliver both strong revenue growth, coupled with margin expansion in the coming years.
Moving to our Clean Energy and Infrastructure segment.
Revenue was $426 million for the second quarter versus $250 million in the prior year, a 70% year-over-year increase.
We continue to achieve significant growth rates in this segment, and backlog at quarter end exceeded $1 billion.
Margins for this segment were strong at 7.1%, and we continue to expect margins to improve over 2019 by over 100 basis points.
The size and scope of the opportunities we are seeing in this segment continues to grow.
We have made significant investments in this segment to profitably grow our business through organic opportunities.
We continue to add talent and resources to meet the increasing demand for our services.
While we've highlighted this segment more over the last few quarters, I still think it's an underappreciated part of MasTec's portfolio.
Between both the opportunities provided by future clean energy initiatives and the potential for an infrastructure bill after the election, we believe this segment provides significant opportunities for long-term growth.
Our Oil and Gas pipeline segment revenue was down, as expected.
Second quarter revenue was $369 million compared to revenues of $937 million in last year's second quarter.
We ended second quarter with backlog of almost $2.7 billion.
As a reminder, over the last three years, only 6% of our revenues have come from oil pipelines, with the majority of our business being tied to natural gas.
We have also focused on growing both our distribution and integrity business over the last few years, and we are encouraged by our progress.
To recap, we had a good second quarter and are confident we are mitigating the effects and impacts of the COVID-19 virus.
While times are challenging and uncertain, opportunities always arise from these challenges.
Our customers are looking for ways to change and improve their business models and are looking for strong partners to help them.
In that lies our opportunity.
Our greatest strength has been to understand the trends in our industry and our customers' needs.
Our ability to provide services, whether existing or new, has always been a strength.
I'm excited for what the future holds for MasTec.
Keep up the good work.
Today, I'll cover second quarter results, our guidance expectation for the balance of 2020, including the ongoing impact of the COVID-19 pandemic, as well as our strong cash flow performance, capital structure and liquidity.
As Marc indicated at the beginning of our call, the discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
In summary, our second quarter 2020 results were better than expected, with adjusted EBITDA being the high end of our guidance expectation by $6 million, and adjusted diluted earnings per share exceeding the high end of our guidance expectation by $0.06.
These results also exceeded Street consensus, with adjusted EBITDA of $166 million beating Street consensus estimates by $14 million, and adjusted diluted earnings per share of $0.95 beating Street consensus by $0.15.
Second quarter 2020 results also continue our strong cash flow performance, generating $293 million in cash flow from operations and reducing sequential total debt levels by $177 million.
Our first half 2020 cash flow from operations of $497 million represents a record performance level for MasTec.
And we reduced total debt levels by $190 million during the first half of 2020 despite investing approximately $130 million in share repurchases and M&A.
This strong performance gives us confidence in our expectation that annual 2020 cash flow from operations will be at a new record level, approximating $600 million.
Subsequent to quarter end, we took advantage of favorable credit market conditions to refinance our four 7/8% $400 million senior unsecured notes, which we have called for redemption in mid-August.
Due to the strong demand for the new issue, our new senior unsecured notes offering was upsized by 50% to $600 million, with a lower interest rate of 4.5% and extended maturity to 2028 and overall better terms.
Our new senior notes offering is expected to close in early August.
I will make further remarks on our capital structure later, but suffice it to say that our cash flow, capital structure and liquidity are in excellent shape, even stronger than last quarter.
And this combination affords us full flexibility to invest in strategic opportunities as well as giving us a strong advantage as we navigate through the uncertain economic climate resulting from the COVID-19 pandemic.
Now I will cover some highlights regarding our second quarter segment results and guidance expectations for the balance of 2020.
Second quarter 2020 Communications segment revenue of $654 million was basically flat with the same period last year.
Second quarter 2020 Communications segment adjusted EBITDA margin rate was 11.7% of revenue, representing a sequential increase of 380 basis points when compared to the first quarter of 2020 and a 370 basis point improvement when compared to last year's second quarter.
As Jose mentioned in his remarks, this performance level includes disruption and lost revenue related to the COVID-19 pandemic as we had selected markets in which construction work slowed and, in some cases, stopped due to local municipality permitting approval delays.
We believe that the evolution toward 5G technology, coupled with increasing remote workplace and education trends in the U.S. because of the COVID-19 pandemic, will drive significant long-term demand for our wireless and wireline services in 2021 and beyond as the COVID-19 pandemic effects begin to normalize.
As we look to the remainder of 2020, we expect second half 2020 Communications segment revenue levels will approximate first half 2020 revenue levels, with some continued disruption and lost revenue primarily from local municipality permitting issues related to the COVID-19 pandemic.
We are also increasing our annual 2020 Communications segment adjusted EBITDA margin rate expectation by approximately 100 basis points and now expect that Communications segment annual 2020 adjusted EBITDA margin rate will approximate 10% of revenue, which equates to a 200 basis point improvement over last year.
While we are pleased with the expected 200 basis point improvement in 2020 Communications segment adjusted EBITDA margin rate, especially in light of challenging conditions in 2020, it is important to note that this performance level still leaves ample room for future improvement in 2021 and beyond as pandemic conditions normalize and telecommunications market trends continue to develop.
As expected and previously communicated, second quarter 2020 Oil and Gas segment revenue of $369 million decreased 61% compared to the same period last year based on project start time.
Second quarter 2020 Oil and Gas segment adjusted EBITDA margin rate was 21.7% of revenue, continuing our strong performance trend with this performance, including the benefit of project mix comprised of reduced levels of lower-margin, cost-plus activity and continued strong project productivity on numerous smaller pipeline projects.
During the second quarter, we were awarded approximately $450 million in new Oil and Gas project awards, bringing the total of new backlog additions during the first half of 2020 to approximately $1.5 billion.
Second quarter 2020 Oil and Gas segment backlog of $2.66 billion represented a new all-time segment backlog record.
First half 2020 Oil and Gas segment award activity gives us strong visibility for solid project activity over the next 12 to 18 months.
That said, predicting the project start timing has become more difficult due to the impact of regulatory and judicial challenges.
Given the size of our large projects, a 30-day delay in project activity could impact monthly revenue by as much as $100 million to $150 million.
Our current annual 2020 revenue guidance expectation incorporates revised project start dates for two large projects with late summer, early fall start dates.
This results in annual 2020 Oil and Gas segment revenue now expected to approximate $2.3 billion, with solid backlog activity shifting into 2021.
Given that the majority of project activity shifting to 2021 is related to lower-margin, cost-plus activity, we are increasing our annual 2020 Oil and Gas segment adjusted EBITDA margin rate expectation from the high teens to the low 20% range.
Second quarter 2020 Electrical Transmission segment revenue increased approximately 24% compared to the same period last year to approximately $124 million, and segment adjusted EBITDA was a slight loss of approximately $3 million.
As Jose indicated, during the quarter, we experienced production inefficiencies as we worked toward completion of a project.
The project is approximately 90% complete as of the end of the second quarter, and we expect to recover a portion of these inefficiencies from our customer during the back half of 2020.
As we look toward the remainder of 2020, we expect Electrical Transmission segment second half 2020 revenue will approximate first half 2020 levels, with second half 2020 adjusted EBITDA margin rate for this segment expected in the high single-digit range.
Our second quarter 2020 electrical distribution segment backlog of $551 million increased sequentially 27% or $117 million when compared to the first quarter, and this supports our continued belief that end-market conditions for this segment are supportive for strong 2021 revenue and adjusted EBITDA growth in this segment.
Second quarter 2020 Clean Energy and Infrastructure segment revenue of $426 million increased approximately 70% compared to the same period last year.
Second quarter 2020 adjusted EBITDA margin rate was 7.1% of revenue, a sequential increase of 540 basis points relative to the prior quarter and 360 basis points compared to the same period last year.
We are pleased with the second quarter 2020 adjusted EBITDA margin rate improvement in this segment, which begins to reflect our longer-term expectation of potential for this segment in the high single-digit range.
As Jose indicated in his remarks, we expect strong annual 2020 revenue growth and improved adjusted EBITDA margin rate performance when compared to last year, with continued growth expectations into 2021 and a very active clean energy market.
Now I will discuss a summary of our top 10 largest customers for the 2020 second quarter period as a percentage of revenue.
AT&T revenue, derived from wireless and wireline fiber services, was approximately 16% and install-to-the-home services was approximately 3%.
On a combined basis, these three separate service offerings totaled approximately 19% of our total revenue.
As a reminder, it is important to note that these offerings, while falling under one AT&T corporate umbrella, are managed and budgeted independently within their organization, giving us diversification within that corporate universe.
Permian Highway Pipeline was 10% of revenue.
Verizon, comprised of both wireline fiber and wireless services, was 6%.
Iberdrola, Comcast and Xcel Energy were each 5%.
And NextEra Energy, NG, Duke Energy and Enterprise Products were each at 4%.
Individual construction projects comprised 64% of our revenue, with master service agreements comprising 36%, once again highlighting that we have a substantial portion of our revenue derived on a recurring basis.
Lastly, it is worth noting, as we operate in a COVID-19-induced period of macroeconomic uncertainty, that all of our top 10 customers, which represented over 66% of our second quarter revenue, have investment-grade credit profiles.
Now I'll discuss our cash flow, liquidity, working capital usage and capital investments.
During the second quarter, we generated $293 million in cash flow from operations and ended the quarter with net debt, defined as total debt less cash of $1.19 billion, which equates to a very comfortable book leverage ratio of 1.6 times.
We ended the quarter with DSOs at 90 days compared to 102 days last quarter.
During the first half of 2020, we generated a record-level $497 million in cash flow from operations, which allowed us to reduce our total debt levels by approximately $190 million, while investing in approximately $130 million in share repurchases and M&A.
During the first half of 2020, we repurchased approximately 3.6 million shares, or approximately 5% of our outstanding share base, with the vast majority of this activity occurring in the first quarter.
Regarding our share repurchase program, we expect to opportunistically invest in this program as conditions warrant, while also prudently managing our balance sheet.
We currently have $158 million in open repurchase authorizations.
And as of today, have not executed any share repurchases during the third quarter.
We are fortunate that our business operations profile typically generates significant cash flow from operations, affording us the flexibility to invest strategically in efforts to maximize shareholder value.
Based on our strong first half 2020 cash flow performance, we are increasing our expectation for annual 2020 cash flow from operations to approximate $600 million, a new record level.
This cash flow performance expectation incorporates our view that second half 2020 revenue levels will accelerate, thereby increasing our working capital investment as we close out the 2020 year.
As previously indicated, we opportunistically took advantage of market conditions after the end of the second quarter to further strengthen our capital structure through a successful offering of $600 million in new senior unsecured notes, maturing in 2028 with a favorable 4.5% coupon.
This offering is expected to close in early August and will allow us to redeem our existing $400 million four 7/8% senior notes at a lower interest rate, extend our maturity profile and will increase our overall liquidity by approximately $200 million, which should approximate $1.3 billion post closing.
In summary, our record 2020 cash flow expectation, coupled with solid long-term capital structure, low interest rates, no significant near-term maturities and ample liquidity, places MasTec's balance sheet in an extremely strong position.
Regarding capital spending, during the second quarter, we incurred net cash capex, defined as cash capex net of equipment disposals, of approximately $63 million, and we incurred an additional $80 million in equipment purchases under finance leases.
We currently anticipate incurring approximately $175 million in net cash capex in 2020, with an additional $115 million to $135 million to be incurred under finance leases.
Moving to our current 2020 guidance.
Our third quarter 2020 revenue expectation is approximately $1.9 billion, with adjusted EBITDA guidance approximately $254 million or 13.4% of revenue and adjusted earnings per share guidance at $1.67.
We are projecting annual 2020 revenue to approximate $7 billion, with adjusted EBITDA expected to approximate $800 million or 11.4% of revenue and adjusted diluted earnings per share to approximate $4.93.
These guidance expectations incorporate the impact of projected lower second half 2020 Oil and Gas segment revenue as regulatory delays on two large projects are expected to lower 2020 project activity and shift awarded work into 2021, as well as improved 2020 EBITDA margin rate expectations in our Oil and Gas and Communications segments.
As we have previously provided some color as to our 2020 segment expectations, I will now briefly cover some other guidance expectations, as highlighted in our release yesterday.
Based on our expected strong cash flow, lower nominal interest rates and our recent senior notes offering, we expect annual 2020 interest expense levels to approximate $63 million, with this level only including currently executed share repurchase activity.
Our estimate for full year 2020 share count is now 73.6 million shares.
It should be noted that, for valuation modeling purposes that based on the timing of repurchases, our year-end 2020 share count will approximate 73 million shares, and that's inclusive of the full impact of the repurchases made to date.
We expect annual 2020 depreciation expense to approximate 3.7% of revenue due to the combination of lower expected 2020 revenue levels and timing impact of capital additions and acquisition activity.
Lastly, we continue to expect that our annual 2020 adjusted income tax rate will approximate 24%.
This expectation includes our existing first half 2020 adjusted tax rate as well as the expectation that quarterly adjusted income tax rates for the balance of 2020 will approximate 26%, and this blend leads to an annual 2020 adjusted tax rate that approximates 24%.

user
sees q3 2020 revenue about $1.9 billion.
sees q3 2020 adjusted non-gaap earnings per share $1.67.
sees fy 2020 adjusted non-gaap earnings per share $4.93.
mastec - covid-19 pandemic has had a negative impact on co's operations and expects some continued negative impact for remainder of 2020.

assistant