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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 implied in these communications.
These discussions will be followed by Q&A period.
We expect the call to last about 60 minutes.
We had another great quarter and all good things to talk about.
So I'll go ahead and turn over to Jose.
Today, I will be reviewing our second 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 continue to inspire me.
Millions of families throughout the US rely on the power, communications, entertainment and other services we help our customers provide.
Now some second quarter highlights.
Revenue for the quarter was $1.963 billion.
Adjusted EBITDA was $230 million, adjusted earnings per share was $1.30.
And backlog at quarter end was $9.2 billion, a sequential increase of nearly $1.4 billion.
In summary, we had another excellent quarter and are on track for another great year.
The highlight of our quarter was the continued acceleration of customer demand and opportunities as evidenced by our growing backlog.
We truly believe we are at the beginning of what we think will be transformational changes across our segments.
We see several different catalysts that could have a significant impact on our growth.
Within our communications segment, catalysts include; a ramp-up of 5G-related activity and spend; 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.
In 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 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; 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 the potential benefits, and finally the role of battery storage and its improving economics.
We believe we are very well-positioned to benefit from the growing and accelerating trends in our business segments.
Changes in both the communication and power markets are accelerating.
And so many of these changes directly impact the services we provide.
The opportunities to be innovative and involved in this evolution in very early stages represents how far we've come as a business and the value that our customers know we can provide.
For example, we continue to make significant investments in increasing our capabilities to meet customer demand.
Our team member count increased year-over-year from 18,000 to 26,500 team members at quarter end and was up sequentially by nearly 6,000 team members.
Over the last few quarters, we talked about our strategic longer-term goals and our future business mix.
Considering the challenges in the oil and gas industries, we led our path to achieving annual revenue target of $10 billion, with double-digit margins.
One of our key highlights of 2020 was our ability to significantly grow non-Oil and Gas revenues and EBITDA.
Our full year guidance that we provided today reflects continued diversification, as we expect our non-Oil and Gas business to grow over 20% in revenue and over 30% in EBITDA in 2021, with significant acceleration in the second half of 2021.
While this is good progress, we know we can do better.
While our Communications segment is performing as expected financially, our Transmission and Clean Energy segment have underperformed their margins.
This underperformance in both segments has been limited to a small number of projects.
More importantly, we are nearing completion on these projects.
And excluding these projects, the rest of the book of business is performing well.
We expect sequential margin improvement in both segments in the third quarter, with further improvements in the fourth quarter.
We expect to exit the year in both segments, with strong momentum, improved margins and significant opportunities for further growth in 2022.
Now, I'd like to cover some industry specifics.
Our Communications revenue for the quarter was $630 million and margins improved 290 basis points sequentially.
Highlights for the quarter included our growth with T-Mobile, whose revenues again increased fourfold over last year's second quarter and was MasTec's seventh largest customer for the quarter.
Comcast revenue was also very strong in the quarter, increasing over 30% from last year's second quarter.
That growth was offset with expected declines in both our Verizon and AT&T business, which were both down over 25%.
Both AT&T and Verizon were very 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.
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.
Today, we are pleased to report the largest quarterly sequential segment backlog increase in the company's history.
Communications segment backlog, increased sequentially by $489 million, and was driven by bookings across all segment end markets, including wireless, fiber deployments and fulfillment work.
We are in early stages of what we expect to be a very robust and growing telecom infrastructure market and feel we are very well positioned.
Moving to our Electrical Transmission segment.
Revenue was $232 million versus $128 million in last year's second quarter.
The increase was mostly due to the INTREN acquisition, which contributed two months' worth of revenue.
INTREN performed well in the quarter and we're excited about their growing opportunities.
Customer reaction to the acquisition has been very good and we're seeing a growing number of opportunities for them for 2022 and beyond.
We believe the changes in Electrical Distribution & 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 the last mile distribution of electricity.
Moving to our Oil and Gas pipeline segment.
Revenue was $621 million and margins remained strong.
Our guidance assumed project activity will be pushed into 2022, because of regulatory delays.
As a reminder, last year, we forecasted a long-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 at 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 that we will see an uptick in opportunities heading into 2022.
We continue to see strong demand for integrity services, gas distribution and line replacement activity.
We've also seen a number of developments around pipelines for both carbon capture and hydrogen.
We are focused on continuing to diversify our revenues in this segment.
Moving to our Clean Energy and Infrastructure segment.
Revenue was $482 million for the second quarter.
While we're focused on margin improvement as I discussed earlier, opportunities continue to expand.
Segment backlog at quarter end was at record levels, with a sequential increase of $320 million and a year-to-date increase of $680 million.
With the new administration and a clear 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.
We believe our diversification is our strength in this market as we're capable of meeting any of our customers' demands.
We are actively working on renewable projects including wind, solar, and biomass; baseload gas generation projects including dual-sourced hydrogen capable projects, as well as our growing presence in the infrastructure market.
To recap, we've had a solid first half of 2021 and are very excited about the opportunities in the markets we serve.
Finally, I'd like to highlight the potential opportunities of an infrastructure build.
With a significant presence in the telecommunications market which include 5G build-out capabilities, our involvement in maintaining and building the electrical grid 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 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 outstanding financial results in a challenging environment and position ourselves for continued growth and success.
Today, I'll cover second 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 second quarter results with revenue of approximately $1.96 billion, a 25% increase over last year; adjusted EBITDA of approximately $230 million; and adjusted EBITDA margin rate at 11.7% of revenue.
This represented a 39% increase in adjusted EBITDA dollars and a 120 basis point increase in adjusted EBITDA margin rate over last year's second quarter.
Second quarter backlog of $9.2 billion represented an all-time record high for MasTec.
Importantly, our non-oil and gas segment backlog sequentially increased $1.6 billion with record second quarter backlog in Communications, Clean Energy and infrastructure, and Electrical Transmission.
We believe this backlog growth supports our expectation that end market trends are significantly shifting and gathering momentum in these segments affording MasTec significant future opportunity.
Our continued focus on working capital management during 2021 has allowed us to easily fund organic working capital needs, while investing approximately $600 million in strategic acquisitions.
As of the end of our second quarter, we maintained a strong balance sheet and capital structure with liquidity approximating $1.2 billion and comfortable leverage metrics.
Now, I will cover some more detail regarding our second quarter segment results and guidance expectations for the balance of 2021.
Second quarter Communications segment operations performed generally in line with our expectations with revenue of $630 million inclusive of expected temporary lower levels of wireless project activity prior to the upcoming construction ramp-up for C-band spectrum awards.
Second quarter Communications segment adjusted EBITDA margin rate was 11.5% of revenue a 290-basis-point improvement sequentially.
Our annual 2021 Communications segment expectation is that revenue will approximate $2.6 billion to $2.7 billion with annual 2021 adjusted EBITDA margin rate improving 90 to 110 basis points over 2020 levels.
Regarding some color on expectations during the second half of 2021, we expect third quarter year-over-year revenue growth in the mid to high single-digit range with fourth quarter year-over-year revenue growth accelerating in the mid to high 20% range.
We also expect that third quarter adjusted EBITDA margin rate will show a slight sequential improvement with more substantial acceleration during the fourth quarter as segment revenue growth accelerates.
Second quarter Clean Energy and Infrastructure segment or Clean Energy, revenue was $482 million.
Adjusted EBITDA was approximately $16 million or 3.2% of revenue.
Second quarter revenue and operating results were negatively impacted by project start-up delays and project inefficiencies.
As we have mentioned before, we have expanded our operations and headcount in this segment very quickly in order to meet increasing demand.
And with that expansion, we've experienced some growing pain and efficiencies.
During the second quarter, we estimate the combination of start-up delays and project inefficiencies inclusive of weather, negatively impacted second quarter segment operating margins by 350 basis points to 400 basis points.
As we look forward, we expect improved performance during the second half of 2021 with second half revenue approximating $1.2 billion, slightly over a 40% increase, compared to first half 2021 levels with adjusted EBITDA margins in the range of 7% to 8% of revenue.
And this is due to the leverage benefit of higher forecasted second half 2021 revenue levels.
And the benefit of exiting two underperforming projects which are approximately 75% complete as of the end of the second quarter.
We are very excited, that Clean Energy's second quarter backlog reached a new all-time record of $1.7 billion.
And believe that this segment is well positioned, for significant long-term revenue growth and adjusted EBITDA margin rate improvement.
Our annual 2021 Clean Energy segment expectation is that revenue range between $2 billion to $2.1 billion with annual 2021 adjusted EBITDA margin rate improvement in the 20 basis point to 70 basis point range over the prior year.
Regarding our second half 2021 Clean Energy adjusted EBITDA margin rate expectations, we expect sequential improvement in the third quarter, as we continue to experience some impact of the two previously mentioned underperforming projects which will generate revenue at no margin.
Additionally, we anticipate that our highest-margin performance will occur during the fourth quarter due to project mix with a diminished and minimal impact of these two underperforming projects as well as a heavier concentration of project completions expected during the fourth quarter.
Second quarter Oil and Gas segment revenue was $621 million and adjusted EBITDA was $138 million, generally in line with our expectation.
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 continued assumption that selected large project activity will move into 2022, due to permitting approval delays.
This delay is expected to manifest itself during the fourth quarter and thus, we expect strong year-over-year revenue growth in the third quarter with a lesser level of fourth quarter project activity, as delayed project activity shifts into 2022.
Second quarter Electrical Transmission segment revenue was $233 million and adjusted EBITDA margin rate was 4% of revenue.
Second quarter backlog was $1.3 billion, an approximate $800 million sequential increase.
We completed the acquisition of INTREN, which focuses primarily on electrical distribution mid-quarter and this added approximately $100 million of revenue to this segment during the quarter, as well as most of the segment's sequential backlog growth.
Given the size and expanded offerings of INTREN's acquired operations, we are evaluating a segment name change to better reflect our operations.
And we expect to advice on our determination, when we report third quarter results.
In summary, INTREN's operations performed well, and as expected, during the partial quarter period, while our legacy Electrical Transmission operations were impacted by weather-related project inefficiencies and increased closeout costs on two projects which are over 90% complete, as of the end of the second quarter.
These two projects negatively impacted second quarter Electrical Transmission segment operating results by approximately $8.5 million and 370 basis points.
Looking forward to the balance of 2021, we expect annual 2021 revenue for the Electrical Transmission segment to approximate $950 million to $1 billion and annual 2021 adjusted EBITDA margin rate to approximate 6.5% of revenue.
Relative to the remainder of 2021 expectations, inclusive of INTREN, we anticipate that second half 2021 revenue levels will range in the low $600 million range a year-over-year increase of approximately $350 million.
Second half 2021 adjusted EBITDA margin rate for this segment is expected to approximate 8% of revenue, due to the combination of improved legacy operations as we exit two underperforming projects and the benefit of higher-margin INTREN MSA operations.
We continue with the belief that, multiple macro end market trends including renewable power generation, increased distribution needs to support electric vehicle expansion, and required grid investments for storm and fire hardening are continuing to develop and should provide our expanded segment operations substantial future growth opportunities.
Now I will discuss a summary of our top 10 largest customers for the second quarter period, as a percentage of revenue.
Enbridge and AT&T were both 12% of revenue.
AT&T revenue derived from wireless and wireline fiber services totaled approximately 9% and install-to-the-home services, was approximately 3%.
On a combined basis these three separate service offerings, totaled approximately 12% of our total revenue.
As previously indicated this revenue level included expected lower first half 2021 wireless services revenue as project activity has temporarily slowed, while AT&T prepares to initiate C-band spectrum construction.
Also as a reminder, it's important to note that these offerings while falling under one AT&T corporate umbrella are managed and budgeted independently within the organization, giving us diversification within that corporate universe.
Lastly with AT&T's recent divestiture of its DIRECTV operations, we will no longer report DIRECTV install-to-the-home operations as a part of AT&T revenues starting next quarter.
NextEra was 8% of revenue comprising services across multiple segments including Clean Energy, Communications and Electrical Transmission.
Equitrans Midstream and Comcast were each 5% of revenue.
T-Mobile, Duke Energy and Energy Transfer were each 3% of revenue and Midstream and Elite were each 2%.
Individual construction projects comprised 68% of our second quarter revenue with master service agreements comprising 32%.
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 projects burn off each quarter and new large contract awards only come into backlog at a single point in time.
At June 30, 2021, we had a record total backlog of approximately $9.2 billion, up about $1 billion from second quarter last year and up $1.3 billion sequentially from last quarter.
Importantly this backlog reflects record segment backlog levels across our non-oil and gas segments namely communications, clean energy and electrical transmission.
We believe this demonstrates the strength of demand in our non-oil and gas segments, validating our expectation that accelerating end market trends in these segments will offer substantial growth opportunities for MasTec.
Now, I will discuss our cash flow, liquidity, working capital usage, and capital investments.
During the second quarter, we easily funded working capital associated with over $120 million in organic revenue growth, as well as approximately $500 million in acquisition activity.
We ended the quarter with $1.2 billion in liquidity and net debt defined as total debt less cash and cash equivalents at $1.3 billion, which equates to a very comfortable 1.4 times leverage metric.
Our year-to-date 2021 cash provided by operating activities was $345 million, $118 million lower than in the first half of 2020.
This performance is impressive as our first half 2021 cash flow includes working capital funding requirements associated with approximately $750 million in higher revenue levels when compared to last year and thus this performance was possible due to our strong working capital management.
We ended the second quarter of 2021 with DSOs at 80 compared to 86 days at year-end 2020 and 90 days for the second quarter last year.
And this level is slightly below our target DSO range in the mid to high 80s.
In summary, we are proud of the strength, resilience and consistency of MasTec's cash flow profile.
As we look forward to the balance 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 second half 2021 acquisition,activity net debt at year-end is expected to approximate $1.1 billion leaving us with ample liquidity and expected book leverage slightly over one time 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.
Moving to our 2021 annual guidance view.
We project annual 2021 revenue of $8.1 billion with adjusted EBITDA of $930 million, or 11.5% of revenue and adjusted diluted earnings of $5.45 per share.
Our current view represents a slight decrease in the annual 2021 revenue expectation, primarily due to some project activity slippage to 2022 in communications and clean energy, while reaffirming the annual adjusted EBITDA view of $930 million, and increasing our adjusted diluted earnings per share by $0.05 to $5.45 per share.
The increase in adjusted diluted earnings per share is primarily due to lower expected interest and income tax expenses.
As we have previously provided some color regarding our segment expectations, I will now briefly cover some 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.
And this expectation is inclusive of expected capital additions for first half 2021 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 expect annual 2021 interest expense levels to approximate $56 million with this level including approximately $600 million in acquisitions funding activity during the first half of 2021.
For modeling purposes, our estimate for 2021 share count continues at 74 million shares.
We expect annual 2021 depreciation expense to approximate 4.2% of revenue inclusive of first half 2021 acquisition activity.
As we have previously indicated, this expectation includes an increased level of 2021 Oil and Gas segment depreciation expense when compared to 2020, as we're utilizing conservative, depreciation life and salvage value estimates 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.
And lastly, we expect that annual 2021 adjusted income tax rate will range between 24% to 25% with the expectation that the third quarter tax rate may be slightly lower than the annual rate.
Our third quarter revenue expectation is $2.3 billion with adjusted EBITDA of $267 million or 11.6% of revenue and earnings guidance at $1.71 per adjusted diluted share.

user
sees fy adjusted non-gaap earnings per share $5.45.
sees q3 adjusted earnings per share $1.71.
sees q3 revenue about $2.3 billion.

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