Good day, and welcome to the MasTec Henkels & McCoy Acquisition Conference Call. Initially broadcast on Monday, 20 December 2021. Let me remind participants today's call is being recorded. I'd now like to turn the call over to Marc Lewis, MasTec Vice President of Investor Relations. Mark, please go ahead. Thanks, Kyle, and good morning, everyone, and welcome to the Henkels & McCoy Acquisition call. The following statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we 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. These forward-looking statements are the company's expectations on the day of the initial broadcast of this conference call and the company does not undertake to update these expectations based upon subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in today's press release, the company's slide presentation and our SEC filings. 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. Today, we will refer to the slide presentation in today's prepared remarks which will be viewable through the webcast and will also be available for download in the Events and Presentations area of the Investors section of the MasTec website at www.mastec.com. It's a great transaction for us, so let's get right to the details. With us today, we have CEO, Jose Mas, and CFO, George Pita. I'd now like to turn the call over to Jose for his commentary on the transaction. Jose? Thanks, Mark. Good morning, and thank you for joining us today. This morning, MasTec is proud to announce that it has entered into a definitive agreement to acquire Henkels & McCoy Group, one of the largest private electrical power transmission and distribution utility contractors in the United States. Founded in 1923, the company has been family-led throughout its history. What began as a tree trimming and landscaping company, Henkels & McCoy has grown into an iconic brand with a safety-first culture servicing electric utilities, communications companies and pipeline operators. With a culture of investing in talent, we are proud to soon welcome the over 5,000 team members of Henkels & McCoy to the MasTec family. With a shared tradition as family-led businesses, we believe there is a strong cultural and entrepreneurial fit. I have long admired Henkels & McCoy's competitiveness, culture and strength of talent. Ironically, my first responsibility in our family business in 1992 during Hurricane Andrew was managing the Henkels & McCoy crews that had come to support our business in storm restoration activities. I learned some of my most valuable and important lessons in my interaction with their team nearly 30 years ago. It is truly an honor and a privilege for me and the MasTec family to continue and expand the Henkels & McCoy legacy and I am greatly appreciative of the confidence entrusted in us by Rod and Paul Henkels. While for several years, I've often thought about the benefits of this potential transaction, the right time is now. With changes in electrical transmission and distribution needs, our customers have a clear goal of modernizing the power grid with a focus on reliability, wind and fire hardening, renewable connectivity and growth in electrical vehicle usage. Our combined service offerings will allow us to provide our customers with cost-effective solutions at scale to meet their demands. This transaction will double our transmission and distribution resources, expanding our presence in the Northeast markets and the Northwest, where MasTec has traditionally been underrepresented. More importantly, we are adding significant additional crew and equipment resource capacity. This transaction also further diversifies MasTec's business mix. Our power transmission and distribution business is expected to represent approximately 25% of MasTec's total revenues in 2022 and improve our ESG profile while reducing our oil and gas pipeline segment to under 20% of total revenue. Our customer base will also diversify, as Henkels & McCoy's largest customer represents less than 10% of its total revenues. With an estimated 70% of revenues derived from master service agreements, this transaction will also enhance MasTec's recurring revenue profile. Before getting into details about the Henkels & McCoy business, I'd like to walk through the transaction consideration. Total consideration for Henkels & McCoy is $600 million with customary purchase price adjustments. The consideration is comprised of approximately $420 million of cash, a portion of which will be used to pay off indebtedness, and approximately 2 million shares of MasTec common stock. As it relates to Henkels & McCoy, revenues have averaged slightly over $1.5 billion over the last three years, with consistent utility revenues offset by more variability in communications and pipeline revenue. Full year 2021 revenues are estimated at approximately $1.1 billion in utility-related work, $250 million in pipeline work and $250 million in communications. Financial performance has been impacted by a couple of projects in recent years. Challenges with a communication customer's large project impacted both profitability and cash collections in the last two years, and challenges on a large pipeline project also impacted results. With the pipeline project completed and resolution and finality slated for 2022 in relation to the communication customer, we believe we will be able to provide the level of focus and investments needed to help Henkels take advantage of the significant opportunities in their markets. We believe that the cash flow constraints from these two issues impacted their ability to appropriately invest in its business and maximize their margin potential. Current EBITDA margins in the 4%-5% range meaningfully trail the peer group. Aside from challenges in communications and pipeline, current SG&A of approximately 12% significantly exceeds MasTec's rate of approximately 5%. We believe these are areas of opportunity for the combined entity. With the opportunities we see across all of our segments, we believe we will have the opportunity to maximize Henkels leadership. Our business and success is about our people and in a difficult labor market, we are excited about the talent we will be adding. We believe the long-term margin profile of Henkels & McCoy business is similar to MasTec, and should be performing at high single to low double-digit EBITDA rates over time. Included in our acquisition slide deck which is available both on the webcast and on our website, we have included charts on both MasTec's business mix in 2021, as well as our expectation for 2022 and beyond. It is important to note that in October 2020, just over a year ago, we laid out a long-term goal of achieving $10 billion of annual revenue in a depressed oil and gas environment. At the time, we were projecting roughly $6.3 billion of annual revenue for 2020. As 2021 materialized, our long-term prospects developed and our visibility in achieving our goal improved. Today, as slide seven shows, we are providing an estimate for 2022 revenues of approximately $10 billion, comprised of approximately $2.4 billion in our power transmission and distribution segment with about half of that coming from the Henkels & McCoy acquisition. Approximately $2.5 billion in our clean energy segment, $1.8 billion in our oil and gas segment with about $200 million coming from Henkels & McCoy and $3.1 billion in our communications segment with about $150 million coming from Henkels & McCoy. We've also updated our potential near-term revenue slide to $12 billion based on the growth opportunities by segment and now expect potential revenues of $3 billion-$3.5 billion in our power transmission and distribution segment, $3 billion-$3.5 billion in our clean energy segment, $1.5 billion-$2.5 billion in our pipeline segment, and $3.5 billion-$4 billion in our communications segment. We also included a slide found on page nine, which shows margin by segment for both 2022 and longer term. Margins are in line with prior expectations, adjusted in 2022 for the Henkels & McCoy acquisition. While we would normally not provide guidance this early, we wanted to provide our current best look at 2022. Please note that these estimates for 2022 are based on having similar results for Henkels & McCoy as in 2021, without assuming any improvements in operation. Included in these estimates for 2022, we've also assumed MasTec legacy oil and gas revenues of $1.5 billion-$1.6 billion in the lower level of our long-term expectations. While we're seeing a growing number of opportunities, our current visibility has many of these starting in 2023. To recap, today is an exciting day for MasTec and its team members. Henkels & McCoy represents the largest acquisition in MasTec's history. This transaction transforms our power business. It adds significant scale and capacity to our power delivery business, enhances our cross-selling opportunities to their customer base and coupled with our communications and clean energy business, positions MasTec to take advantage of the many opportunities afforded to us. Again, we look forward to soon welcoming the Henkels family and their team members. We hope they will find a home where they continue to be challenged, inspired, motivated and rewarded as they continue to lead the industry and provide value to our customers. This concludes our prepared remarks. I'd now like to turn the call over to the operator for the Q&A session. Thank you, ladies and gentlemen. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask analysts to limit themselves to one question at a time. Once your question has been answered, you have a follow-up question, you may re-enter the queue by pressing star one again. We pause for just a moment to allow everyone an opportunity to signal for questions. We take our first question from Andy Kaplowitz with Citigroup. Your line is open. Please go ahead. Yes, congratulations on the deal. Thank you. Good morning, Andy. Jose, just looking at Henkels, obviously less than 5% EBITDA margin. You talked about the business being high single digits to low double digits over time. I think you can get SG&A as a percent of sales down. You know, if you look at communications and pipeline, what if anything is different about Henkels communication and pipeline business that keeps its margin so much lower other than the underperforming work? Is it just that? Then how difficult will it be to get those segments margins up over time? Yeah, it's a great question, Andy, and I think there's a couple of really important things to think about. You know, at the end of the day, Henkels is a private company, right? They've had significant challenges on a small number of projects which we thought was really important as we evaluated it. To us, the biggest issue wasn't even margins, it was cash flow, right? I do think that Henkels has been severely impacted in the last couple of years relative to having to just manage their business, making sure that, you know, they were dealing with their customers and getting appropriately paid for what they did. In that, I think it really limited their ability to invest in those things that would improve their business. As you know, our business has been growing, the industry's been growing, everybody's been doing well and I think they've been hampered by the cash portion of those issues. I do think that the fix hopefully will be faster, will be easier because we'll have the opportunity to invest in the right businesses that are growing. We'll have to, you know, obviously go through the customers which would they have issues and deal with them. We think, you know, throughout 2022 we'll be able to address that. We're really excited about our momentum going into 2023 with both our regular business and I think more importantly, with the Henkels addition. Thanks, Jose. Thanks, Andy. We take our next question from Alex Rygiel with B. Riley. Your line is open. Please go ahead. Thank you. Good morning, Jose. Exciting acquisition for sure. Thank you. You know, there's a component here of a turnaround as well as sort of a growth catalyst to your business. You know, historically, you acquired a lot of smaller businesses that were really just growth catalysts. Can you talk about this in the bigger context of it being somewhat of a turnaround as well as a growth catalyst? Sure. Again, I think it's really important to break up the pieces, right, and truly understand, you know, where they haven't achieved the margin potentials that they've had and where they have. You know, we're buying an iconic brand. I mean, Henkels is a fantastic company with great people. I think our business ultimately is all about people. If you look around our industry for many, many years, it's, you know, there's Henkels people that have grown up through the ranks in just about every major company that's out there and they're extremely well respected for being talented, for being good. I think, you know, I'm super excited about what that adds to MasTec and what that brings. I think that's the most important thing. When you look at, you know, potentially rectifying the issues that they have, especially the bigger ones that have impacted their last couple of years, again, while it's a turnaround, I don't think they have severe issues, right? I think it's very identifiable things that we're gonna be able to impact very quickly and hopefully turn around a lot faster than we think. Then secondly, the operating margin synergies appear quite significant b ut at this time, you're not including that into your guidance. I thank you for your broader guidance here for both this year and next year. W hy not include that at this time? Is that something that you'd possibly offer up upon closing of the transaction? I think so, Alex. You know, we haven't closed the deal yet. We've done a lot of due diligence. Obviously, this was a transaction between two companies that have been competing in the industry for a long time. You know, our ability to dive deep into the operations was somewhat limited. We understood that. I think that we will have a much better indication of that as time goes on, as our ability to really get in there and fully understand the company materializes. You know, we wanted to be very clear as we put you know very early numbers for 2022 out there. You know, we understand that there's a very conservative nature to this. We've taken a very conservative look at Henkels, but we thought it was important to put something out so to help people model 2022. Thank you very much. Thank you. Have a good holiday. Thanks, Alex. Happy holidays. Thank you. We take our next question from Steven Fisher with UBS. Your line is open. Please go ahead. Great. Thanks, and congratulations as well. Just to follow up again on, you know, sort of the actions that you need to take to improve their two lower margin businesses. Can you just talk about what cash investment that might require and what exactly do you need to do to fix it o r are there literally disputes that need to be resolved? Is it claims? Is there restructuring? What actual actions do you need to take to get those margins up? W hat are the milestones over the course of 2022 should we be looking for to see that that's happening? Sure, Steve. A couple of things. First, when you think about the pipeline business, you know, the projects have completed so it's truly about rightsizing the business relative to the opportunities that are in front of us. You know, we obviously have a very good pipeline business with very good operators, good relationships. There are relationships that they have that we don't. There are things that they bring to the equation. What you'll find with both that and communications is it's already declined from a revenue perspective, right? The run rate of pipeline is significantly lower than what it's been. While that would normally be problematic, it actually helps us because there's less issues to deal with, right? It's really incorporating them into our business and trying to figure out how we maximize the revenue potential. On the communication side, you know, their issues have been driven by one large project that I think the industry has talked about ad nauseam. It's been a rough project for just about everybody. It was, you know, difficult for Henkels as well. That project is nearing completion. It will be, you know, fully finalized by 2022. We've got a good relationship with that customer. We hope to be able to bring some resolution to the issues that they've had and hope to start really turning that around from a financial perspective. Look, if those are the two major issues and we can get through them relatively quickly then I think our outlook on this business significantly improves and we're hoping to be in a position during 2022 to be able to talk about that. When we look at their power delivery business, the business has performed well. Again, there's probably areas where we think there should have been more investment that would have helped them maximize their profitability. But again, I think the cash flow implications of the issues that they were having really impeded their ability to do the things to make their business what it could have and should have been, and I think we'll be able to do that for them. Terrific. Happy holidays. Thank you, Steven. Happy holidays. Thank you. Thank you. We take our next question from Jamie Cook with Credit Suisse. Your line is open. Please go ahead. Hi, congratulations on the acquisition. I guess, you know, two questions. One on the SG&A side, you know, 12% of sales relative to what your SG&A is. I'm wondering, are there any structural reasons why their SG&A is so much higher? B ecause that seems like a large opportunity. And over time, can we get it to where your SG&A lies in terms of percent of sales? And then also, just trying to understand what this means in 2022 for the cash flow generation of your business, your free cash flow conversion, you know, just given some of the issues that they're having or is it an opportunity that you feel like you can get these issues resolved so that would be a positive for cash flow in 2022? Yeah. Jamie, great question. On the SG&A side, look, I think one of the issues again that they've had is they've been in two businesses that have shrank over the course of the last year in pipelines and communications relative to the customers and the issues that they had. I think that's part of what's driving the business. Again, one of the things that probably most excites us about this is the talent that we're picking up. We're not viewing this as having to go in and shave a lot of costs and take a lot of people out. With all the growth opportunities we're seeing, we think we're gonna be able to redeploy a significant amount of people in the areas where we think we can, you know, significantly raise utilization levels and more importantly drive much higher margins based on the combined entity and the combined talent pool and that's how we're looking at it. Very exciting for us. As it relates to cash flow, you know, outside of those two issues, their cash flow conversion is actually really strong. Again, with those two issues being minimal as we go into 2022 or shrinking as we go into 2022, we think their cash flow profile will be significantly better in 2022 than it's been, so we don't expect it to be a negative drag on cash flow for us. Then, José, one quick last one. On the T&D margins, just based on my math, I would have expected them to be higher just given, you know, where some of the peers lie. Are you comfortable that there's an opportunity with the margins? I'm just trying to think about that, how we get the margins higher over time. Sorry, I'll give that back to you. 100%, Jamie. Again, I think the challenges have been that they haven't had the capital to invest in those business to maximize margins, right? Okay. When you're struggling on cash flow with other customers and you're having to rent equipment instead of buying equipment or making decisions that based on short-term cash flow issues rather than the right long-term decisions to improve your business, I think they've also had to face that. While the margins in that business have been better, I don't think they've been optimal and I think we'll be able to optimize them. That's very helpful. Thanks, and congrats. Happy holidays. Thank you, Jamie. We take our next question from Marc Bianchi with Cowen. Your line is open. Please go ahead. Hey, thank you. Just following up on the last question there about the margins for T&D. I didn't see you make any comment about that. We've got the communications and pipeline margin that you mentioned in the slides but I was trying to do, I guess, some similar math to Jamie there. Can you just comment on where those margins are and maybe what the expansion opportunity is in 2022 and beyond? Again, you know, SG&A drives a big piece of their business. Their power margins have been in the high single-digit range, again, which is not where the peer group is today but it's not terrible either, right? We think that we can continue to improve that for the same reasons we just talked about. I think there's great opportunity there but it obviously performs much better than where their other businesses have performed in the last couple of years. Okay. Okay, thanks for that, Jose. Switching over to communications, the 3.1 for 2022 on the revenue side, I think if we go back a couple quarters, you said around the same number for 2022 and, you know, you're getting a bit more revenue here with the M&A but I also would have thought, you know, some of the building of some of these 5G delays or sort of pushing to the right would have also put some upside into 2022. Can you just kind of talk about the trajectory of how the communications revenue opportunity is shaping up and maybe what some of the moving pieces have been since the last update that you provided? Yeah. I mean, we used about a $3 billion number for legacy MasTec. We added in about $150 million for Henkels. That's, you know, there really no more math than that. It shows really nice growth for our legacy business. Assume no growth for the Henkels business. I think, look, there's tremendous opportunities on that side. We've obviously won a lot of work. We had significant backlog growth in Q3. We've talked about increasing backlog growth again in Q4. We think that with this transaction, you know, we're gonna have the opportunity to move a lot of people and to have resources to really help us potentially even grow that. We haven't taken any of those, you know, into consideration in our numbers. Again, the whole idea behind providing 2022 numbers was more in line just to kind of set a base rate. We know there's a lot of conservatism based on that. As hopefully as we get in more information and we get into, you know, the beginning of 2022, we can update that. Yep, super. Thanks so much. Happy holidays. All right. Thank you. Happy holidays. Thank you. We take our next question from Justin Hauke with Baird. Your line is open. Please go ahead. Hi, good morning, everyone. I just had a question on the claims that it sounds like there still are some cash claims that are out there. I was just wondering if you could quantify how much that is and when those are collected, are those gonna accrue to MasTec, or will they go to the former owner? I don't know if there's a carve out of those or not. You know, we don't wanna get into the deal specifics. I can tell you that it really doesn't impact MasTec. We're not overly concerned with it. You know, there are things that have to happen with those customers but they don't really impact MasTec. Okay. Well, I was more just wondering about the cash that would come in as those are settled. Okay. Yeah. Won't impact MasTec. Okay. Are there any other kinda outstanding liabilities at all that we should assume here, any pension or legal liabilities or something else that would be worth calling out? Yep, nothing out of the ordinary. Again, outside of those issues, the cash flow profile for them has been very good. Okay. Okay, I'll leave it there. Thank you very much, guys. All right, thank you. Thank you. We take our next question from Brent Thielman with D.A. Davidson. Your line is open. Please go ahead. Hey, thanks. Congrats as well. Hey, Jose, any history you can share on the trajectory of the power T&D business specifically, I guess, over the last few years? And I think you mentioned there was some sort of resource constraints there. Yeah, Brent. Look, I think anybody in the industry recognizes the brand, recognizes the name. Again, I think they've done a tremendous job of building a great brand that's really focused on safety. It's really focused on customer service. I think they're extremely highly regarded throughout the industry. You know, they've grown substantially over time. Obviously, it's a good-sized business. With all that said, in the last three years, they haven't grown to their potential because they haven't had the capital to invest in those areas where growth has been really available. Again, I think that's one of the most important parts of this acquisition and transaction is gonna be our ability to invest in those areas where they have tremendous opportunity. Again, you know, we're not monetizing that today or we're not putting dollars behind that, as we think about 2022 but we think it's the biggest potential in this transaction. Okay. Thanks, Jose. All the best. Thanks, Brent. Happy holidays to you. Thank you. We take our next question from Noelle Dilts with Stifel. Your line is open. Please go ahead. Hi, guys. Thanks, and congrats on the transaction. First- Thanks, Noelle. I just had a few housekeeping questions. Sure thing. I was wondering if you had the split of transmission versus distribution and then wireless and wireline. Also, I see there's, you know, quite a lot of a nice customer list that you have in the presentation but if there's any particular customer concentration that we should be aware of? Yeah. Maybe starting with the end, no customer makes up more than 10% of revenue, so they have really good customer diversity. On the communication side, it's predominantly all wireline. They do very little wireless, although there's probably opportunity there especially with some of their power crews to work in the energized space. Again, very little activity for them on that. I'd say they're heavier distribution to transmission but, you know, a significant portion of both. Okay, great. Again, appreciate the, you know, initial guidance on 2022. Anything we should keep in mind in terms of sort of the cadence of revenues and earnings through the year? I guess, specifically looking at telecom, you know, how are you thinking about these FCC, FAA conflicts and how that impacts sort of the pace of work through the year? Thanks. Yeah. Again, since they don't have significant exposure to the wireless market, that shouldn't affect them. We will probably give a much better indication of quarterly split on our year-end call. Still a little early for us to do that but again, you know, they're a very stable business that's been performing at a similar level for a long time. So there's really good history on that. We've got again, there's a very large recurring component to their business so we think it's a very predictable model that we'll be able to discuss in detail on our year-end call. Okay, thanks. Thanks, Noelle. Thank you. We take our next question from Adam Thalhimer with Thompson Davis. The line is open. Please go ahead. Good morning, Jose. Congratulations. Thanks, Adam. Good morning. Hey, I guess the only thing I was gonna ask, can you talk high level about the T&D market? Because that's really what you're picking up here and then also where you see the biggest near-term growth potential. What are you seeing in the market that made you wanna do this deal now? Will this immediately make you kind of a solid number two in that market to Quanta or do you kind of see yourself growing into that role? Yeah. You know, first of all, from an industry perspective, you know, I know we've said it a bunch but, you know, we keep seeing it, we keep feeling it, right? We could never have expected what's gonna happen in the market that we're in, right? The power delivery as we know it is changing before our eyes. Utilities all over the country are making massive investments in modernizing their grid, hardening their grid. They're worried about, you know, renewable connectivity. They're worried about, you know, electric vehicle usage and how charging impacts, you know, local networks. So all of that is creating an enormous amount of demand for our services on the electric side of the business. You know, while we obviously play in it today and we have, you know, a relatively nice chunk of our business, this significantly enhances that. You're 1000% right. This is exactly the reason that we're doing this deal, is because what it does for us on that side of the business. We think that, you know, between the reputation of their business and their legacy and ours, we're gonna continue to be able to grow in that business and provide our customers with a great offering and a great solution in a market that we think is just going to, you know, grow leaps and bounds. That's exactly why we're excited. We think there's gonna be tremendous opportunities across all of those areas. We think this is gonna help us, you know, significantly on the clean energy side as well as you think about unions. You know, this is gonna be a real catalyst for us to do a lot of clean energy projects on the union side which we've been somewhat limited before. You know, just a very exciting business opportunity for us relative to what we see in the marketplace and what we see from our customers. Okay. They don't do clean energy business today? They do some portions of it, right? They do some of the electrical work. They don't actually do the, you know, the wind farm construction and solar farm constructions the way we do it, but they do do portions of it, which is important, right? Which is an element that we can grow off on the union side. Got it. Thanks, Jose Mas. Thanks, Adam. We take our next question from Alex Dwyer with KeyBanc. Your line is open. Please go ahead. Hi, this is Alex on for Sean this morning. Thanks for taking our questions and congrats on the acquisition. Thank you. You guys are highlighting labor and equipment capacity as one of the positive elements on the transaction. We're just curious on how long you think it would have taken to build up this much T&D revenue organically in light of these resource constraints. I mean, the easy answer is adding 5,000 qualified people is probably something that cannot be done organically, period. Are we still on, operator? Yes, we're still on with Mr. Alex. Do you have any additional questions? No, that's it. Thanks. Thanks, Alex. Thanks. It appears there are no further questions at this time. I'll turn the conference back to you, Mr. Mas, for any additional or closing remarks. Sure. Again, thank you for joining us today. We look forward to updating you on our year-end call. Again, looking forward to welcoming all of the Henkels family to the MasTec family in short order. Again, thank you for participating today. This concludes today's conference. Thank you for your participation. You may now disconnect.