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Text: 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 applied in these communications.
In addition, we may use certain non-GAAP financial measures on this conference call.
These discussions will be followed by a Q&A period.
We expect the call to last about 60 minutes.
We had another beat and raise quarter to have a lot of important things to talk about today.
Today, I'll be reviewing our first quarter results as well as providing my outlook for the markets we serve.
I'd like to start today by highlighting how proud I am of the men and women of MasTec.
Their sacrifices, resilience, creativity and commitment during this pandemic have been inspiring.
Millions of families throughout the U.S. relied on the power, communications, entertainment and other services we help our customers provide.
Our team has again safely delivered.
Before getting to quarterly results, this week, we announced the acquisition of INTREN.
INTREN is one of the largest private electrical utility contractors in the United States.
We believe the changes in electrical distribution needs, led by grid modernizations and hardening, coupled with the transition toward increased electrical vehicle usage, will have an enormous impact on the last-mile distribution of electricity.
With over 2,000 team members, INTREN significantly expands our electric distribution and transmission capabilities and footprint.
With a strong presence in both the Midwest and the West Coast, areas traditionally underserved by MasTec, this combination will enhance INTREN's capabilities as it continues to expand and allows MasTec to sell its full suite of services, including renewable power generation, substation construction and gas distribution to a relatively new customer base.
With trailing 12-month revenues of approximately $550 million, and strong opportunities for future growth, we are very excited about our future opportunities.
The purchase price of approximately $420 million represents a purchase price multiple of roughly seven times without taking into account tax benefits that on a net present value basis, represent over a full multiple turn.
We believe, based on their prospects, the potential synergies and the cross-sell opportunities that while it's on the higher end of historical multiples for MasTec, we got very good value.
On our year-end call, we announced two other acquisitions that closed during the first quarter.
In addition to INTREN, we've acquired two other companies during the second quarter.
The first Phoenix Industrial is a heavy industrial contractor that enhances our concrete piping and electrical capabilities with a strong West Coast presence.
And the other is Buyers Engineering, one of the largest outside plant telecommunication engineering firms in the country.
With approximately 900 employees across 31 states, Buyers brings new capabilities to MasTec that we've typically outsourced.
With significant investments in fiber construction, supported by both private and public investments, including the Rural Digital Opportunity Fund, smart city funds, the 5G fund for rural America, and potential further telecom infrastructure spend, we expect engineering services to be a critical path to success.
Being able to control schedule and resources will not only allow us to enjoy the engineering growth opportunities, but it will also allow us to bundle construction services along with engineering and hopefully, significantly expand our market share.
Now some first quarter highlights.
Revenue for the quarter was $1.775 billion.
Adjusted EBITDA was $204 million.
Adjusted earnings per share was $1.10.
Cash flow from operations was $257 million.
And backlog at quarter end was $7.9 billion.
In summary, we had another excellent quarter, and are on track for another great year.
Over the last few quarters, we've talked about our strategic long-term goals and our future business mix.
Considering the pandemic challenges on the oil and gas industries, we laid out a path to achieving an annual revenue target of $10 billion with double-digit margins.
One of our key highlights of 2020 was our ability to grow non-Oil and Gas revenues and EBITDA.
Our guidance that we provided today, including our most recent acquisition, reflects continued diversification as we expect, our non-Oil and Gas business to grow approximately 27% in revenues and over 40% in EBITDA in 2021, with significant acceleration in the second half of 2021.
We are encouraged by the size and scale of the growth opportunities in front of us.
Now I'd like to cover some industry specifics.
Our communication revenue for the quarter was $568 million, and margins improved 70 basis points year-over-year.
Highlights for the quarter include our growth with T-Mobile, whose revenues increased fourfold over last year's first quarter, and for the first time, broke into our top 10 customer list.
Comcast revenues were also very strong in the quarter, increasing 61% from last year's first quarter.
That growth was offset with expected declines in both our Verizon and AT&T business, which were both down approximately 35%.
Both AT&T and Verizon were vocal about the importance of the 5G spectrum auctions in their business.
We expect revenues for these two customers, especially AT&T, to accelerate in the second half of the year with significant growth opportunities heading into 2022.
We're also very excited with recent developments around the planned increased investments in the telecommunications wireline networks.
The Rural Digital Opportunity Fund, or RDOF, which is a follow-up to the Connect America Fund, will provide $20 billion of funding over the next 10 years to build and connect gigabit broadband speeds in underserved rural areas.
Additionally, in October of 2020, the FCC established the 5G run -- fund for rural America, which will provide up to an additional $9 billion in funding over the next decade to bring 5G wireless broadband connectivity to rural America.
In addition, the early drafts of the infrastructure bill included additional direct investments in enhancing telecommunications networks, including 5G.
I believe we are entering one of the most exciting periods in the history of telecommunications.
And that the deployment of 5G wireless technologies and the associated networks is truly a game changer for the consumer, our customers, and for MasTec.
Moving to our Electrical Transmission segment.
Revenue was $134 million versus $128 million in last year's first quarter.
We have now begun one of the larger projects we had been previously awarded, and expect a much better margin profile for the balance of 2021.
We also expect backlog to improve as we've been awarded new MSA agreements, and are in late stages of negotiations on a number of larger projects.
We believe we are well positioned for 2021 and beyond as the drivers for this segment remain intact, which include aging infrastructure, reliability, renewable integration and system hardening.
Moving to our Oil and Gas pipeline segment, revenue was $726 million.
We had a strong start to the year as we were working on projects that had been delayed in 2020.
Based on our current backlog levels, we expect a strong 2021, and our guidance assumes some project activity will be pushed into 2022 because of regulatory delays.
Last year, we forecasted a longer-term recurring revenue target of $1.5 to $2 billion a year, assuming a continued depressed oil and gas market.
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 continue to see strong demand for integrity service, gas distribution and line replacement activity.
We are focused on continuing to diversify our revenues in this segment.
Moving to our Clean Energy and Infrastructure segment.
Revenue was $350 million for the first quarter versus $286 million in the prior year, a 22% year-over-year increase.
We expect full year's revenues to approximate $2.1 billion, a 37% increase over 2020.
Backlog was up sequentially by nearly $360 million.
And more importantly, subsequent to quarter end, we've already been awarded approximately $550 million of new projects.
While backlog was already at record levels in Q1 in this segment.
We expect backlog to continue to increase over the coming quarters.
We have made significant investments in this segment to profitably grow our business through organic opportunities in addition to our smaller tuck-in acquisitions.
We continue to add talent and resources to meet the increasing demand for our services.
We added nearly 2,000 new team members in this segment from the end of the first quarter in 2020 to the end of the first quarter in 2021.
With the new administration and a clear focus on clean energy, we have seen a significant increase in planned clean energy investments from both traditional customers as well as oil and gas companies that are trying to improve their carbon footprint.
As a leading clean energy contractor and partner, MasTec is uniquely positioned to benefit from these investments.
I'd like to highlight the diversification within our Clean Energy and Infrastructure segment.
While we got our start, and win, today, we are capable of meeting any of our customers' demands.
We are actively working on baseload gas generation projects, renewable biofuel projects, and are seeing significant demand as we continue to quickly expand our solar capabilities and footprint.
To recap, we had an excellent first quarter and are very excited about the opportunities in the markets we serve.
We are encouraged with the recent developments related to an infrastructure bill.
With a significant presence in the telecommunications market, which includes significant 5G build out capabilities, coupled with our exposure to the clean energy market including wind, solar, biofuels, hydrogen and storage, and our recent expansion into heavy infrastructure, including road and heavy civil, we feel we are uniquely positioned to benefit from this anticipated infrastructure spend.
We are confident we can hit our growth targets with solely private investments in infrastructure, but do recognize the potential acceleration in our markets with significant government spend.
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 outstanding financial results in a challenging environment, and position ourselves for continued growth and success.
Today, I'll cover our first quarter financial results and our updated annual 2021 guidance expectation, inclusive of the recently announced INTREN acquisition.
As Marc indicated at the beginning of the call, our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
In summary, we had strong first quarter results with record revenue of approximately $1.8 billion, a 25% increase over last year; record adjusted EBITDA of approximately $204 million, a 73% increase over last year; and record cash flow from operations of approximately $257 million, a 27% increase over last year.
First quarter results exceeded our expectation, with revenue exceeding expectation by approximately $125 million, adjusted EBITDA exceeding our expectation by approximately $32 million and adjusted diluted earnings per share exceeding expectation by $0.30.
We expect that $70 million of revenue and $20 million in adjusted EBITDA related to our first quarter beat, represents an increase to our annual 2021 view with the balance representing accelerated quarterly project timing within 2021.
We continued our strong cash flow performance during the first quarter, reducing our net debt levels by approximately $65 million to approximately $815 million, despite funding approximately $90 million in acquisitions during the quarter.
This equates to a book leverage ratio of less than one times, and we ended the first quarter with a record level of liquidity of approximately $1.7 billion.
This balance sheet position, coupled with continued strong cash flow performance, allowed us to easily fund the second quarter 2021 INTREN acquisition, while maintaining ample liquidity and comfortable leverage metrics.
Now I will cover some detail regarding our first quarter segment results and guidance expectations for the balance of 2021.
First quarter Communications segment performed generally in line with our expectation, which incorporated the expected impact of lower wireless services due to the timing of recent C-band spectrum auctions.
As Jose already mentioned, recently awarded C-band spectrum is expected to begin deployment in the latter part of 2021, and is expected to drive significant revenue opportunities for multiple years.
First quarter Communications segment adjusted EBITDA margin rate was 8.6% of revenue, a 70 basis point improvement compared to the same period last year.
Our annual 2021 Communications segment expectation is that revenue will approximate $2.7 billion to $2.8 billion, with annual 2021 adjusted EBITDA margin rate improving 90 to 110 basis points over 2020 levels.
This includes the expectation that both revenue and adjusted EBITDA margin rate improvement will accelerate during the second half of 2021 as C-band spectrum deployment initiates.
First quarter Clean Energy and Infrastructure segment, or Clean Energy, performed generally as expected during a seasonally slow quarterly revenue period.
Clean Energy segment revenue was $350 million, and adjusted EBITDA was approximately $11 million or 3.1% of revenue.
Looking forward toward the balance of 2021, we expect continuation of a very active bidding market in both the Clean Energy and Infrastructure markets.
We continue to expect annual 2021 Clean Energy segment revenue will grow in the high 30% range and approach $2.1 billion, with annual 2021 adjusted EBITDA margin rate improvement in the 70 to 110 basis point improvement over the prior year.
First quarter Oil and Gas segment revenue exceeded our expectation, with revenue at $726 million and adjusted EBITDA at $168 million.
As expected, we initiated activity on selective large projects during the quarter, and we exceeded our estimated production.
As I previously mentioned, a portion of this first quarter beat represents an expected improvement to annual 2021 results, while another portion represents an acceleration of expected project activity within the year.
We currently expect annual 2021 Oil and Gas segment revenue will range between $2.4 billion to $2.5 billion, with the continued expectation that annual 2021 adjusted EBITDA margin rate for this segment will be in the high teens range.
This expectation includes the assumption that selected large project activity over the last half of 2021 will move into 2022 due to permitting approval delays, and thus, second half 2021 Oil and Gas segment revenue is expected to approximate second half 2020 levels with a greater level of project activity expected during the third quarter and a lesser level during the fourth quarter due to the expected timing of project Winter Breakup activity.
First quarter Electrical Transmission segment generally performed as expected, with revenue at $134 million and adjusted EBITDA margin rate at 2.7%, reflecting a seasonally slow quarterly revenue period, coupled with the continued impact of project inefficiencies discussed last quarter as we move toward project completion.
Looking forward to the balance of 2021, including the expected partial year operations of the INTREN acquisition, we expect annual 2021 revenue for the Electrical Transmission segment to approximate $950 million, and annual 2021 adjusted EBITDA margin rate to approximate 7.5% of revenue.
And this guidance includes approximately $330 million of revenue at a double-digit adjusted EBITDA margin rate for the recent acquisition of INTREN, which became effective in May 2021.
Now I'll discuss a summary of our top 10 largest customers for the first quarter period as a percentage of revenue.
Enbridge revenue was approximately 25%, comprised of Canadian Station and other project activity as well as a large project initiated during the first quarter that will resume in the latter part of the second quarter, once road frost bands are lifted.
AT&T revenue derived from wireless and wireline fiber services was approximately 8%, and install-to-the-home services was approximately 3%.
The on a combined basis, these three separate service offerings totaled approximately 11% of our total revenue.
As previously indicated, this revenue level includes lower wireless services revenue due to the temporary impact of the C-band spectrum auction.
Also, 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 that organization giving us diversification within that corporate universe.
NextEra Energy was 7%.
WhiteWater Midstream was 6%.
Verizon and Energy Transfer were each at 3%.
Nuke Energy, T-Mobile and Pattern Energy were each at 2% of revenue.
Individual construction projects comprised 72% of our first quarter revenue with master service agreements comprising 28%.
With the combination of expected resurgence in wireless MSA work, coupled with the INTREN acquisition, whose revenue is virtually all MSA-driven, future MSA revenue is expected to increase as a percentage of our total revenue, highlighting an increased level of MasTec revenue expected to be derived on a recurring basis.
At March 31, 2021, our backlog was approximately $7.9 billion, essentially flat to $7.9 billion as of year-end 2020.
For the sake of clarity, reported first quarter backlog does not include any amounts for the recently announced INTREN acquisition.
Lastly, as we've indicated for years, backlog can be lumpy as large projects burn off each quarter, and new large contract awards only come into backlog at a single point in time.
Now I will discuss our cash flow, liquidity, working capital usage and capital investments.
During the first quarter, we generated a record level, $257 million in cash flow from operations, and ended the quarter with net debt of $815 million, which equates to a book leverage ratio of 0.9 times adjusted EBITDA.
We ended the first quarter with DSOs at 80, just below our expected DSO range in the mid- to high 80s.
We are proud of our continued strong cash flow from operations and believe this performance highlights the strength resiliency and consistency of MasTec's cash flow profile.
We ended the first quarter with $512 million in cash on hand as well as record liquidity defined as cash plus borrowing availability of approximately $1.7 billion.
During the first quarter, we reduced our net debt by $64 million despite approximately $90 million in first quarter acquisition funding.
During the second quarter of 2021, given the working capital associated with an expected $320 million increase in sequential quarterly revenue, coupled with the cash outflow for the INTREN acquisition, we expect that our leverage will temporarily increase during the quarter, while still maintaining substantial liquidity of approximately $1 billion, and comfortable leverage metrics within our target range.
As we look forward, past the second quarter to the balance of 2021, we expect continued strong cash flow generation despite the working capital associated with our planned 2021 revenue growth, with net debt at year-end, expected to reduce from second quarter levels and approximate $1.1 billion, leaving us with ample liquidity, and an expected book leverage ratio slightly over one times adjusted EBITDA.
In summary, our long-term capital structure is extremely solid, with low interest rates, no significant near-term maturities and ample liquidity.
This combination gives us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value.
We are pleased to significantly increase our annual 2021 guidance.
We now project annual 2021 revenue of $8.2 billion with adjusted EBITDA of $930 million or 11.3% of revenue and adjusted diluted earnings of $5.40 per share.
This represents a $400 million increase in revenue guidance, a $55 million increase in adjusted EBITDA and a $0.40 increase in adjusted diluted earnings per share, comprised of the combination of our strong first quarter performance and the benefit of the INTREN acquisition.
As we have previously provided some color as to our annual 2021 segment expectations, I will briefly cover other guidance expectations.
We anticipate lower levels of net cash capex spending in 2021 at approximately $100 million with an additional $180 million to $200 million to be incurred under finance leases, and this expectation is inclusive of expected capital additions for first and second quarter acquisitions.
As we have previously indicated, as our end market operations shift with non-Oil and Gas segments, becoming a larger portion of our overall revenue, our capital spending profile should reduce as the Oil and Gas segment has historically required the largest level of capital investment.
We continue to expect annual 2021 interest expense levels to approximate $58 million with this level, including over $500 million in first and second quarter 2021 M&A activity.
We expect to maintain a strong cash flow profile with annual 2021 free cash flow, once again exceeding adjusted net income, despite the working capital requirements related to our projected $1.9 billion increase in annual 2021 revenue.
For modeling purposes, our estimate for 2021 share count continues at 74 million shares.
We expect annual 2021 depreciation expense to approximate 4.1% of revenue inclusive of first and second quarter M&A activity.
As we have previously indicated, this expectation incorporates an increased level of 2021 Oil and Gas segment depreciation expense when compared to 2020, as we are utilizing conservative depreciation-wise and salvage values on previous capital additions to protect against potential market uncertainties.
Given these trends, we anticipate that next year, annual 2022 depreciation expense as a percentage of revenue will decrease when compared to 2021 levels and approximate 3.5% of revenue.
We expect annual 2021 Corporate segment adjusted EBITDA to be a net cost of approximately 1% of overall revenue.
Lastly, we expect that annual 2021 adjusted income tax rate will approximate 25%.
Our second quarter revenue expectation is $2.1 billion, with adjusted EBITDA of $229 million or 10.9% of revenue and earnings guidance at $1.25 per adjusted diluted share.
In terms of some additional color on the expected timing of second half 2021 revenue performance, we expect third quarter consolidated revenue growth in the mid- to high 30% range over the prior year, with third quarter 2021 consolidated adjusted EBITDA margin rate approximating 12% of revenue.
That concludes our remarks.

user
q1 revenue rose 25 percent to $1.8 billion.
sees fy adjusted non-gaap earnings per share $5.40.
sees q2 adjusted earnings per share $1.25.
sees q2 revenue about $2.1 billion.

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