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Text: 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.
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 today's call.
These discussions will be followed by a Q&A session.
And we expect the call to last about 60 minutes.
We had another good quarter and a lot of important things to talk about today, so I'll going ahead hand it over to Jose.
Today, I will be reviewing our third quarter results as well as providing my outlook for the markets we serve.
Before getting into the quarterly details, I'd like to offer my perspective on where I think MasTec stands today.
At this time last year, during our 2020 third quarter call, we laid out a long-term goal of our pathway to achieving annual revenues of $10 billion plus.
It's important to remember, at that time, MasTec was on a path to generate just over $6 billion of revenue in 2020.
Still somewhat unsure of where the COVID pandemic would take us, we have seen a significant impact to our Oil and Gas business and the demand and pricing issues it had created.
Our ability to provide that outlook was a testament to the strength we were seeing across our non-Oil and Gas business and the growing opportunities we were expecting.
Fast forward 12 months, this year, we expect to generate $8 billion in revenue.
And our long-term goal of reaching annual revenues exceeding $10 billion is now within reach in what we hope will be a much shorter time frame.
Opportunities in our communication, transmission and clean energy segments continue to expand and give us great confidence we will be able to meaningfully grow revenue over the coming years.
We believe we are in the midst of a very unique opportunity.
Since becoming CEO in 2007, we've been able to grow MasTec from $900 million in revenue to $8 billion today.
And while I've seen and experienced great cycles of growth during that time, I've never seen the number and scope of opportunities we are seeing across our business.
Demand for our services is incredibly high, and again, our prospects to deliver long-term revenue growth are better than I've ever seen.
While our business continues to expand and our mix continues to diversify away from Oil and Gas, our focus is on margin improvement and execution.
Our margin execution across our non-Oil and Gas segments has been below our expectations in 2021.
We've been challenged and impacted for multiple reasons, including COVID, labor availability, supply chain delays and poor performance on projects.
With that said, we are confident we can achieve the margin targets we previously disclosed as we continue to grow the business in the coming years.
We understand and believe that our ability to create shareholder value is driven not only by our revenue growth opportunities but more importantly by our ability to achieve our targeted margins.
While we'd like to see our results materialize sooner, we believe the longer-term outlook is not only fully intact but actually improving.
Now some third quarter highlights.
Revenue for the quarter was $2.404 billion.
Adjusted EBITDA was $278 million.
Adjusted earnings per share was $1.81.
And backlog at quarter end was $8.5 billion, a year-over-year increase of $821 million.
In summary, we had another excellent quarter and are on track for another great year.
There are a number of catalysts that could have a significant impact on our growth.
These include within our Communications segment a ramp-up of 5G-related activity and the spend, including in-building solutions; continued focus on expanding fiber networks both in rural communities and in major cities to support broadband services as well as wireless backhaul; an increased focus on smart city initiatives, with increased availability of capital from both the public and private sector.
Within our electrical transmission and distribution segment, catalysts include grid modernization, including significant investments for improved grid reliability and system hardening to better prepare for storms and fires; the growing need for new transmission lines to tap into renewable-rich geographies; and the focus on grid architecture related to growing electrical vehicle charging demand.
In our Clean Energy and Infrastructure segment, catalysts include the growing focus on sustainability and climate initiatives, including zero-carbon emission goals; significant investments in renewable power generation, including wind and solar; a focus on other clean energy-generating fuels, including biomass, geothermal and hydrogen; opportunities around carbon capture and its potential benefits; and finally, the role of battery storage and its improving economics.
We believe we are very well positioned to benefit from these growing and accelerating trends in our business segments.
Now I'd like to cover some industry specifics.
Our Communications revenue for the quarter was $670 million.
We expected revenues to be slightly higher.
And we continued to experience delays and COVID impacts that affected the acceleration of AT&T's and Verizon's build plans related to last year's spectrum auctions.
Highlights for the quarter included our growth with T-Mobile, whose revenue more than doubled over last year's third quarter.
In addition, we had another quarter of strong backlog growth.
The second quarter of this year represented the largest quarterly sequential segment backlog increase in the company's history, and in the third quarter, we were again able to sequentially grow segment backlog by over $200 million.
We expect another similar increase during the fourth quarter.
Margins for the segment were 10.7% in the third quarter; and were impacted by both lower wireless revenues than expected, along with project closeouts related to a large fiber build that is nearing completion.
We expect sequential margin improvement in the Communications segment in the fourth quarter and excellent momentum heading into 2022 based on our backlog build.
Over the last few quarters, we've talked about the opportunities related to the Rural Digital Opportunity Fund or RDOF, which will provide $20 billion of funding over the next 10 years to build and connect gigabit broadband speeds in underserved rural areas; and the 5G Fund for Rural America, which will provide up to $9 billion in funding over the next decade to bring 5G wireless broadband connectivity to rural America.
In addition to these programs, the current pending infrastructure bill has another $65 billion allocated for broadband infrastructure.
While not built into any of our models, this amount of investment would likely have a significant impact on the potential opportunities for us in this segment.
Moving to our Electrical Transmission segment.
Revenue was $365 million versus $129 million in last year's second (sic) third quarter.
The increase was driven by organic growth of nearly 50% in the quarter on a year-over-year basis; and the first full-quarter contribution of INTREN, which we acquired during the second quarter.
Margins for the segment were 9.5%, which exceeded our expectations.
The integration of our INTREN acquisition has gone very well, and we are seeing a number of cross-selling opportunities which are positively impacting both MasTec and INTREN.
While backlog was flat sequentially, we have an increasing number of opportunities that should allow us to continue to grow this business at solid double-digit rates for years to come.
We believe the changes in electrical distribution and transmission needs led by grid modernizations and hardening, reliability and renewable integration, coupled with the transition toward increased electrical vehicle usage, will have an enormous impact on a last-mile distribution of electricity.
Moving to our Oil and Gas pipeline segment.
Revenue was $858 million and margins remained strong.
During the third quarter, we were able to accelerate project timing and complete some projects early.
Our fourth quarter revenue guidance level is impacted by this acceleration.
As a reminder: Last year, we forecasted a longer-term recurring revenue target of $1.5 billion to $2 billion a year, assuming a continued depressed oil and gas market.
As commodity prices have increased and maintained strong levels, we have seen an increase in customer requests, as we are working with a number of customers repricing previous projects and are optimistic we will see an uptick in opportunities.
A challenge our customers are facing has been the increased costs of steel pipe related to the supply chain issues.
Pipe materials often account for nearly 50% of project costs.
While we believe there will be an increasing number of large pipeline projects, we expect the opportunities to materialize in 2023 and beyond as the supply chain issues improve.
That, coupled with the continued growth of carbon capture and sequestration and the potential of hydrogen, have improved our longer-term outlook of our pipeline business.
While we still expect 2022 to be within our previously disclosed revenue targets, we are becoming a lot more bullish about our opportunities for 2023 and beyond in this segment.
Moving to our Clean Energy and Infrastructure segment.
Revenue was $518 million for the third quarter.
As a reminder: Segment revenue has grown nearly sevenfold since 2017.
We expected a slight sequential improvement in margins that did not materialize.
While I believe we have done an amazing job in growing and diversifying the segment, margins haven't materialized as quickly.
With that said, we believe we are at the cusp of seeing significant improvements in margins.
At MasTec, we take great pride in having been able to perform at high levels over a long period of time.
Our conviction in improving margins in this segment are no different.
We understand and are addressing the issues that have led to the underperformance, and we have tremendous confidence in the potential of this market and the associated margins we can generate.
We believe our diversification is our strength in this segment, as we are capable of meeting any of our customers' demands.
We are actively working on renewable projects, including wind, solar and biomass; baseload generation projects, including dual-source hydrogen-capable projects; as well as our growing presence in the infrastructure market.
With a clear national focus on sustainability and clean energy, we have seen a significant increase in planned clean energy investments from our customers as they improve their carbon footprint.
As a leading clean energy contractor and partner, MasTec is uniquely positioned to benefit from these investments.
Backlog at quarter end in Clean Energy was $1.570 billion versus $891 million at the end of last year's third quarter, a year-over-year increase of nearly $700 million and a slight sequential reduction of over $100 million from the second quarter.
Since quarter end, we've either signed or been verbally awarded another roughly $800 million in projects.
In addition, the level of project proposal activity and negotiations has never been higher.
To recap: We're having a solid 2021 and are very excited about the opportunities in the markets we serve.
Finally, I'd like to highlight the potential opportunities of the pending infrastructure bill.
With a significant presence in the telecommunications market, which include 5G build-out capabilities, our involvement in maintaining and building the electric grid, coupled with our exposure to the clean energy market, including wind, solar, biofuels, hydrogen and storage; and our recent expansion into the heavy infrastructure, including road and heavy civil, we believe we are uniquely positioned to benefit from the potential 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 financial outstanding results in a challenging environment and position ourselves for continued growth and success.
Today, I'll cover our third quarter financial results and our updated annual 2021 guidance expectations.
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 third quarter results with revenue of approximately $2.4 billion, a 42% increase over last year; adjusted EBITDA of approximately $278 million; and adjusted EBITDA margin rate at 11.6% of revenue.
This represented record-level third quarter revenue and adjusted EBITDA.
Yesterday, we announced a new and increased credit facility of $2 billion, which adds to our ample liquidity, improves pricing and eliminates security requirements.
Our strong cash earnings profile, coupled with our focus on working capital management during 2021, has allowed us to easily fund organic working capital needs associated with approximately $1.5 billion in year-to-date revenue growth while investing approximately $600 million in strategic acquisitions.
At the end of our third quarter, we maintained a strong balance sheet and capital structure with liquidity approximating $1.3 billion, comfortable leverage metrics and with net debt at only 1.3 times adjusted EBITDA at quarter end.
Given our strong balance sheet and cash flow performance, coupled with the unsecured nature of our new credit facility, we have approached credit rating agencies for review and are hopeful of a positive rating agency action in the near term.
Now I will cover some detail regarding our third quarter segment results and guidance expectations for the balance of 2021.
Third quarter Communications revenue was $670 million, approximately 4% growth compared to last year.
This growth level was a few percentage points lower than our expectation, as project start-up issues slowed revenue during the quarter.
Our third quarter Communications segment adjusted EBITDA margin rate was 10.7% of revenue, an 80 basis point sequential decline primarily related to the overhead impacts of lower-than-expected third quarter revenue levels.
Our annual 2021 Communications segment expectation is that revenue will range somewhere between $2.5 billion to $2.6 billion, with annual 2021 adjusted EBITDA margin rate approximating 11%.
This implies fourth quarter year-over-year revenue growth in the high-teens range despite some continued slower revenue impact on new project start-up activity.
This also implies strong improvement in fourth quarter adjusted EBITDA margins, both sequentially and compared to the fourth quarter of last year, as we begin to ramp toward significant expansion in 2022.
Third quarter Clean Energy and Infrastructure segment or clean energy revenue was $518 million.
And adjusted EBITDA was approximately $14 million or 2.7% of revenue, below our expectation.
As we indicated on our last quarter's call, we anticipated some continued negative impact on third quarter clean energy adjusted EBITDA margin rate as two underperforming projects, highlighted during the prior quarter, would generate third quarter revenue with no margin.
We substantially completed those projects during the third quarter, with performance largely as expected.
However, during the third quarter, clean energy segment results were also negatively impacted by a COVID-19 outbreak on a project that caused delays and additional cost.
At one point during this project, approximately 1/3 of the project field crew and 50% of critical path electricians were either infected with COVID or in quarantine, effectively stopping project production.
Absent this unique impact, third quarter clean energy segment adjusted EBITDA margins would have been generally in line with our expectation of a slight sequential adjusted EBITDA margin rate improvement.
We believe the issues that have negatively impacted our clean energy segment year-to-date adjusted EBITDA margin performance are largely behind us and, based on project timing, expect that fourth quarter segment revenue will be the largest revenue quarter of the year with over 60% year-over-year revenue growth and strong fourth quarter adjusted EBITDA margin rate improvement to a high single-digit level.
As we have previously indicated, our clean energy segment has grown from $300 million of revenue in 2017 and will approach $2 billion in revenue during 2021.
In order to achieve this growth, we have significantly expanded our field crew operations and head count very quickly.
This rapid expansion has caused some growing pain inefficiencies, which has impacted our annual 2021 adjusted EBITDA margin performance.
As I just indicated, we expect improved performance during the fourth quarter and, importantly, continued strong revenue and adjusted EBITDA margin rate improvement in 2022.
Third quarter Oil and Gas segment revenue was $858 million, and adjusted EBITDA was $171 million.
During the quarter, we accelerated work on a large project and achieved substantial completion ahead of schedule.
This increased our third quarter revenue by approximately $100 million, accelerating revenue previously expected to occur in the fourth quarter.
We would like to recognize the men and women of our MasTec teams for their commitment to safety and quality during this difficult project.
We currently expect annual 2021 Oil and Gas segment revenue will range between $2.5 billion to $2.6 billion, with annual 2021 adjusted EBITDA margin rate for this segment expected in the high-teens to low-20% range.
Third quarter Electrical Transmission segment revenue was $365 million, and adjusted EBITDA margin rate of 9.5% of revenue.
Third quarter results reflected a full quarter of electrical distribution and storm services from INTREN, which contributed revenue of approximately $175 million to the quarter.
Excluding INTREN, organic segment revenue during the third quarter grew $64 million and adjusted EBITDA margin performance was strong.
We expect annual 2021 revenue for the Electrical Transmission segment to approximate $1 billion and annual 2021 adjusted EBITDA margin rate to range somewhere between 6.5% to 7% of revenue.
This expectation includes the assumption that second half of 2021 segment adjusted EBITDA margin rate will approximate a low-8% range, a significant improvement when compared to first half 2021 performance.
We continue to believe that multiple macro end market trends, including renewable power generation, increased distribution needs to support electric vehicle expansion and grid investments for storm and fire hardening, are continuing to develop and should provide our segment substantial future growth opportunities.
Now I will discuss a summary of our top 10 largest customers for the third quarter period as a percentage of revenue.
Enbridge was 21% of revenue, reflecting the previously mentioned pipeline project acceleration.
Newly defined AT&T services totaled 7% of revenue.
As indicated on our 10-Q filed yesterday, reported AT&T revenue amounts have been reclassified to exclude DIRECTV services for all periods, as this entity has been spun off into a separate third-party entity.
Revenue performed for AT&T includes wireless, wireline and other services, including smart city deployment projects.
NextEra Energy was 6% of revenue, comprising services across multiple segments including clean energy, Communications and Electrical Transmission.
Equitrans Midstream was 5%.
Entergy and Comcast were each 4% of revenue.
Duke Energy, DIRECTV and Exelon reached 3%; and Enel Green Power was 2%.
Individual construction projects comprised 63% of our third quarter revenue, with master service agreements comprising 37%.
With the combination of an 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.
Lastly, as we've indicated for years, backlog can be lumpy, as large contracts burn off each quarter and new large contract awards only come into backlog at a single point in time as a result of actual contract signs.
As of September 30, 2021, we had total backlog of approximately $8.5 billion, up approximately $821 million when compared to last year.
Importantly, each of our non-Oil and Gas segments' backlog represented a record third quarter level, reflecting continued and expanding strength in these end markets.
And we continue with the expectation that 2022 segment revenue will range somewhere between $1.5 billion to $2 billion, with potential sizable growth opportunities in 2023 and beyond.
Now I'll discuss our cash flow, liquidity, working capital usage and capital investments.
As I mentioned earlier in these remarks, yesterday, we announced closing of a new unsecured $2 billion credit facility, which reflects a $250 million increase from our prior facility with improved pricing and extended term.
We are hopeful the combination of our consistent and strong cash flow performance coupled with our new unsecured credit facility will provide us a path toward an investment-grade credit rating in the near term.
And we are engaging with rating agencies for an updated outlook.
During the third quarter, we managed to reduce our net debt levels by approximately $80 million despite the working capital associated with approximately $450 million in sequential revenue growth.
We ended the quarter with $1.3 billion in liquidity; and net debt, define as total debt less cash and cash equivalents, at $1.26 billion, which equates to a very comfortable 1.3 times leverage metric.
2021 year-to-date cash provided by operating activities was approximately $500 million.
We ended the third quarter with DSOs at 72 days compared to 85 days in Q3 last year.
And this level is well below our target DSO range of mid- to high 80s.
We are proud of the strength, resilience and consistency of MasTec's cash flow profile.
As we look forward to close outing -- to the closeout of 2021, we expect continued strong cash flow generation despite the working capital associated with our 2021 revenue growth and expect that annual 2021 free cash flow will once again exceed adjusted net income.
Assuming no Q4 acquisition activity, net debt at year-end is expected to approximate $1.2 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, giving us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value.
Moving to our 2021 guidance view.
We predict an annual 2021 revenue of $8 billion, with adjusted EBITDA of $930 million or 11.6% of revenue; and adjusted diluted earnings of $5.55 per adjusted diluted share, which is a $0.10 per share increase over our prior expectation of $5.45 per adjusted diluted share.
And the earnings per share increase is primarily due to the benefit of lower expected annual 2021 income tax expense.
This translates into a fourth quarter revenue expectation of $1.85 billion, with adjusted EBITDA of $218 million or 11.7% of revenue; and earnings guidance of $1.33 per adjusted diluted share.
As previously mentioned, our fourth quarter revenue view includes approximately $100 million in lower revenue expectations for the Oil and Gas segment due to the acceleration of project revenue during the third quarter.
As we have previously provided some color regarding 2021 segment expectations, I will briefly cover other guidance expectations.
We anticipate net cash capex spending in 2021 at approximately $120 million, with an additional $160 million to $180 million to be incurred under finance leases.
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 expect annual 2021 interest expense levels to approximate $54 million, with this level including approximately $600 million in year-to-date acquisition funding activity.
For modeling purposes: Our estimate for 2021 share count continues at 74 million shares.
We expect annual 2021 depreciation expense to approximate 4.3% of revenue, inclusive of year-to-date 2021 acquisition 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 life and salvage value estimates on previous capital additions to protect against future market uncertainties.
Given these trends, we anticipate that annual 2022 depreciation expense dollar amount and percentage of revenue will decrease when compared to annual 2021 levels.
We expect annual 2021 corporate segment adjusted EBITDA to be a net cost of slightly under 1% of overall revenue.
And lastly, we expect that annual 2021 adjusted income tax rate will range approximately 22%, with our third and fourth quarter adjusted income tax rates ranging in the 19% to 20% range primarily due to the benefits of income mix and tax true-up adjustments.

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sees q4 adjusted earnings per share $1.33.
q3 revenue rose 42 percent to $2.4 billion.

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