BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - MASTEC INC

Good morning, everyone. So thank you for joining us. My name is Justin Hockey. I'm the Senior Analyst covering Specialty Contractors and Facility and Industrial Services. We're pleased to have, once again, Modstech presenting today. We have the company's CEO, Jose Mas, and the company CFO, Paul DeMarco. And I think what we'll do here is, I guess, turn it over to Jose to kind of give a little bit of the lay of the land and what what you guys are seeing right now and got a lot of questions a lot of things that are going on that are topical but a lot of things are important with with your company you guys host your first analyst day earlier this year so we've got a lot things to talk about and if anyone has questions they can go ahead and email session2 at rwbaird.com we'll try to accommodate those and and then there is a breakout too so I'll turn it over to Jose to go ahead get us started all right Justin thank you first thank you for having us here today. Very pleased to be here. Thank you for joining us. For those of you that aren't as familiar with MOSTECH, we are an infrastructure construction company really specializing in a couple of key areas primarily in communications and in power. We operate under four segments today. Our first is communications where we do both wireless and wireline work on the wireless side. We're one of the largest builders of wireless facilities in the country working for AT&T, T-Mobile, Verizon, other carriers on the wireline side. We build predominantly fiber extension and plants for the carriers on the energy side we do everything from distribution to substations and transmission we'll talk about that I'm sure at length in our questioning it's been an unbelievable market for us obviously we're in the midst of an incredible growth cycle and all things power generation and power delivery is an important part of connecting that together on the we have a segment called clean energy and infrastructure where we do everything renewables construction which again I'm sure we'll get into we do gas fire generation especially as it relates to simple cycle and rice engines and then we do civil work some roads highway bridges type work and then got a large general buildings group that does everything from airports seaports and most recently has been involved in the data center build-out and finally we have a pipeline group where we build natural gas predominantly natural gas pipelines have built oil pipelines in the past we're very bullish about what's happening in that industry and the amount of pipelines that are being developed across the United States in the coming years. And we think diversity of our business across the different segments is one of our key strengths. And, again, I'm sure that's a topic we'll talk a lot about. So thank you for being here. Very excited. We're having a great year. We did about $1.1 billion in EBITDA in 25. We'll do our latest guidance is right around $1,600,000. So we feel like we're having really nice growth from 25, 26. Top line has been really strong. And again, across our segments, maybe with the exception of comms, we're seeing a lot of strength across our businesses. Very excited about what we're saying in 27 and expect a really solid growth based on the significant backlog growth that we've experienced during 26. That's a great overview. Yeah, it really speaks to the evolution of the company. I mean, you guys have, over the years we've covered you, it's really changed. And I think probably that starts the first question, which is, as far as I know, the first ever analyst that you guys have hosted was this year in May. You laid out 28 targets for, you know, $15 in EPS, really solid revenue growth and margin expansion. I think there's been, you knows, some moving pieces since then. You did the superior acquisition, which has made the data center be a bigger part of the portfolio. And then you talked about some puts and takes on some of the legacy businesses. But maybe you can just talk about, you know, within those puts and takes, your confidence on the 28 targets and, you know, what could go right or wrong to be able to get there that's changed since the May analyst day. Yeah, sure. So in May, we put out 28 targets that were basically $22 billion, $2.2 billion, and even about $15 in EPS. Those were organic targets, so without acquisitions. If you add in the superior acquisition, it's going to be a sizable increase to that number. We are highly confident in our ability to reach those targets today as we sit, again, on an organic basis, those targets. We think we're going to make great strides to that in 27. If I think about 28 and I break it out by segment, because we also did that during our NLSA, we think we are ahead of target on all businesses with the exception of communications. So, we think our power delivery, our pipeline, and our clean energy and infrastructure segments all have the opportunity to beat the guidance levels that we laid out for 28. We are seeing some short-term resistance in our communications business, predominantly around over-billed at-home fiber installations, right? So RDOF was a huge program that drove a significant investment in fiber installations across rural neighborhoods. Beads was a government program that was kind of approved to offset RDOV, which is actually bigger than the RDOB program. But we are seeing a gap between RDOP finishing and beads starting. We have a lot of customers that we think are reassessing their installation priorities, and that's causing a little bit of some headwinds for us in 27. We'll see what happens by 28, but at this point, we've kind of talked about that business being flattish for us in 27 versus where our expectations were. At the same time, we're taking a lot of initiatives within that business to improve profitability, so we're highly comfortable that even though our revenue levels will be flat, our margins will be at least at double digits, which should lead to nice EBITDA growth in 27, versus where we'll end up in 26. so i guess maybe to just stay on the telecom side before we move on to the other pieces of business i mean that is your your legacy it was not that long ago it was 35 i think it's like 15 percent of your revenue just it's a testament to how the other parts of the businesses are growing um could you maybe talk a little bit about you know you talked about the overbuild on on on some of that the ardoff but there's also been some announced restructuring at some of the the cable companies and, you know, maybe doing some vendor consolidation there, opportunity that might present itself to you from being able to pick up scope there. And then maybe positively on some of the long haul fiber stuff, you guys talked about this 2100 mile build out that you have that I don't think it's in backlog yet, but it's something you're expecting to come into 27. So maybe just kind of those moving pieces too. Yeah. So, I mean, maybe let me take a step back on communications. We have two primary businesses in communication. Again, wireless and wireline. Wireless side of our business, it's relatively a maintenance-driven business. So if you think about wireless carriers, an incredible amount of demand comes through our devices. That demand grows every year. They have to meet that demand growth. They do that by adding capacity to their network, and that's the primary function that we operate for wireless carriers today, adding capacity on sites. So we view that as a very stable business. It's a very good business for us. We do well on the margins in that business. And then that business gets accelerated by changes in technology. So as we went from 4G to LTE or 5G or eventually we'll go to 6G, those are periods and times where there's a significant rebuild of the network, where antennas get changed, wires get changed. And that adds to cycles within that business that are very good. We don't really foresee any cyclical movements within that business in the next couple of years. So we view the wireless business as marginally growing through capacity constraints and capacity growth. And that's our driver there. Then we have the wireline business. The wireline businesses composed of a handful of different opportunities. The first we'd call BAU or business as usual, which is a system that's servicing millions of homes. And they've got to keep their network up intact. So they're changing out old equipment. They're putting up a telephone pole when it falls. They're doing moderate expansions of their networks to service their communities. Business as usual, again, very stable business. And then you get into the components of new construction. And today I think there's three primary ones. The first is middle market, so middle market fiber. Middle market fiber today is growing in a big way to support the wireless carriers. So T-Mobile doesn't really have a wireline network. They've been aggressively building a wire line network because it offsets their costs. That's also a very stable piece of the business. And then we have the last two pieces. One we just talked about, which is hyperscaler activity. This is where fiber is going to be built out to data centers to interconnect data centers. The reality is that where most data centers have been built, they've been in search of power. So they're built in areas that don't have a lot of infrastructure built. It's also the tail of a project. You don't need to have fiber in a data center until the data center is about to be operational. So it tends to be the last portion of the projects that get built. So we're in the very early cycles of seeing a significant expansion of hyperscaler fiber activity. We've been very fortunate that we've won a number of those projects. We announced one on our last call, which was 2,100 miles out of a 5,000-mile build. There's a lot more of those coming. A very small piece of that is in backlog. So initial phases of that we did include in our third quarter backlog, but the majority of that award was not included in our second quarter backlog. And then we have the traditional overbuilt fiber, where it's where people are taking fiber to the home and they're building out, whether it's a rural neighborhood or a non-rural neighborhood, but where you have copper or coax feeding your house and they are trying to bring you a fiber to your house where it significantly increases your speed. That was a predominant nature of Ardolf. That is what Beads is supposed to fund. And again, we have a lot of customers that have been very vocal about their own processes and what they're doing internally, so especially on the old cable operator side. We've got the Comcast and charters of the world that are in the middle of doing vendor consolidations, they're in the midst of restructuring their own businesses. We view that as a really good long-term positive sign for companies like Mostek because they will outsource a lot of the services that they may be doing in-house today. There will be a lot less people in those organizations. They will be able to manage a lot, less vendors. Those are positives, right? As we win, we win market share, we expand geographies with those, it gives us opportunity to grow our revenue base with those in the short term. It's a negative decision around where they're going to be investing. Potentially, you have short-term reductions in CapEx. That is what we're modeling into our base plan for 27. So, yes, the truth is that we do have a lot of opportunities around turning that rather quickly with market share gains. But in the short term, we're expecting it to be relatively flat until we know the outcomes of some of those. There's been a lot of talk in the industry about a fourth wireless carrier, particularly SpaceX, and what they're trying to do in the industry. Again, absolutely incredible opportunity for our industry, for companies like Mostek. We are the largest builder of wireless services in the U.S. If they decided to deploy 80,000 sites, it would be absolutely incredible for Mostek, but again, we have no idea how real that is in the time frame around that. So none of that is included as we think about the guidance that we've put out for 27. And just before we move off the telecom, but the 2,100 miles that's in the second half of 27, now, is that assumed that that does start to go to get to that flat revenue? And also, just how do we think About the profitability of that? Because I would think that that's kind of higher margin, more like your pipeline business. So that is our expectation of the growth part of our business that will offset some of the shrinking parts of our Business. So that Is built into our second half model in 27. We're already in design on that. It's a full turnkey project, so we're actually doing the full engineering. We will do the permitting, and we will do the execution of that. So we feel really good about the assumptions that we've made relative to our 27 expectations. Okay. Anything you want to add? No. I mean, the margins are healthier than the communication segment in general. I'm not going to sign up for pipeline margins yet on that job, but it should be, should be accretive. Yeah. Higher than your business as usual. Yes. Okay. All right. Maybe the other part, and this wasn't, This is more of a timing thing, but on the pipeline side of the business, this isn't the challenges that you're talking about with telecom. This is a growth market. But 3Q, there was some timing that kind of shifted. And that's a, I don't know, it's a segment where like you get really good productivity and so it really matters when you start something. But just as we think about the opportunity there and the ability to get back to the peak of where you were, I think you were at like 3.7 billion was your revenue peak in the past and you've had margins be in the mid-20s there versus kind of the mid-teens-ish that you have right now. So maybe just talk about what are the risks and puts and takes on thinking about the pipeline build over the next couple of years? It's incredible what a year does, right? So if you think about early 25, there really weren't any pipelines planned. The natural gas industry wasn't expected to significantly grow. All of that changed, right? There's now a big expectation that natural gas is going to be a big driver of power generation. Pipelines are going to be required to both feed that as well as some LNG exports that we're looking at across the country. So over the course of the last year and a half, we've seen a pipeline of projects that's far greater than anything we've seen in the history of MOSTECH. The challenge with 26, and we said it all along, was there was no supply chain mid-25. There was no projects planned mid-25. So all of that had to be restarted. We're seeing the benefits of that in 26. Our revenue growth in 26 is actually quite strong in our pipeline business, but we had a lot of projects that were starting in condensed periods of time. So for example, in the third and fourth quarter, we had more projects starting in that time frame than we would historically have. A number of those projects had permit delays, not long permit delays but permit delays of 60-90 days, which generally is not an issue, generally doesn't really move the needle but since we had so many projects starting at the same time and a few of them are delayed they impacted our third and fourth quarter of 26. this is not a pipeline industry issue right so we're confident that this is a two-quarter issue of projects slipping here or there again not materially we don't view a 60-day delay in in permits as a material delay we just had too many projects started at the time when you look at our 27 plan we have more dispersion of when projects are supposed to start which we think that gives us a lot more visibility into the plan a lot more security into the plant and the way we work our business is we lay out all the pipelines that we expect are going to be built in the country over the course of the next few years we lay them all out and the level of activity that we see for 28 29 and 30 is greater than at any other level that we've seen historically at mostang there are less players in the space today than than there were in the last cycle, which only exasperates that issue. So we're very confident that as we look at 28, 29, 30, we will have the best years in the history of our pipeline business. And I guess maybe the other thing on that just before we move on, but it seems like one of the – and we'll get to the election stuff, but one ofthe positives, it seemslike in this lame duck session that there's this permitting bill that's maybe going to go through. So I guess I would say maybe there was historically a view that that was the pipelines were kind of a partisan issue and maybe that's not the case as much anymore at this point it seems like the beauty about the permitting bill is bipartisan there's very few things today that are bipartisan so to have both sides agree on anything is quite remarkable on the fact that we're actually potentially going to have a permitting Bill at least it's being discussed which was the vote yesterday that's a huge step in the right direction even if it doesn't pass in the lame duck Congress we think there's a high likelihood that in the next Congress we would get a permitting bill because, again, we think it's one of the few issues that is bipartisan. I think there's been a realization that gas is going to be a part of the power curve, right? If you go to the previous administration, everything was focused on renewables. We kind of had, you know, the pendulum swings pretty rapidly here. We had a huge focus on natural gas, and I think it is—I think there is a realization today we need it all, right. We need renewables to be healthy because it's the fastest form to power that exists today in the country. We need gas because it helps with baseload and helps with cost. So I think both of those, because they're the right business decisions to make, will both do very well. So I Think we will see less politics involved in that than we've historically had, or at least that's our hope. And I think Both, both clean energy and renewables, along with gas, is going to have a really good run rate over the course of the next few years. Yeah. Because as a country, we need power. and these are we have no other alternatives yeah i mean i i think it's a really different dynamic than if we were having the same conversation four years ago when you did the ia acquisition it was natural gas is out of the picture and now it seems like both so um maybe staying on that theme of um power generation one of the other things that was new on this this last quarter you guys talked about was um the natural gas opportunity i think you said the billion dollars of limited notice to proceed gas plant work and I guess I just would be curious on that because that's that's something I haven't historically thought of you guys as building and you know there's they've been high margin in the past they've also had there's also been challenges on building some of those so just maybe just talk about the risk terms on those projects you know what capacity you have to be able to build that and just your your confidence on, you know, that being a healthy market for you? Yeah, so we've been in this business for a long time. We've said for a lot of time there's two areas of the business we want to focus on, which is simple cycle gas plants and rice engines, right? So reciprocating engine and reciprocated engines. So that business is at the lower risk end of what happens with gas generation. We've been very vocal about our concern around combined cycle and the risk associated with the combined cycle. So it's not something that we've done. It's not Something that we pursued, we've been Very vocal about it. So we were going to kind of stay in our lane, simple cycle, rice engines. And we felt, we said at investor day, we thought there was going to be a lot of demand for that. We thought that over time, we could build a billion dollar business around those two technologies. The truth is that the order flows have come in much faster than we anticipated. We think we're going to get to that level faster than it historically did. It is, again, if you think about that industry, it's the fastest way to get the power immediately, right? So everybody's in a race for time. These are not uncomplex projects, but they're not super complex projects. So you string a number of engines together or turbines together, and you can create power. There are still projects that require a couple of years of time frame from design through construction. But you've seen all these orders of turbines that people have been making for the last two years. They're committing power. They're commiting behind-the-meter power, which is something a couple years we didn't even talk about. And this is going to be a huge way to fill that gap. And I think that there's historically not been this level of installations that have happened. There are not a significant number of contractors that build this. We're one of them, and we're really benefiting from the growth of the industry. And is that all going to be in the power delivery business, or is this also in the general buildings? I don't know how integrated it is. Yeah, historically, this has been part of our clean energy and infrastructure business. Okay. So we've got what we call an industrial group that lies in there, which is where that will fall. Okay. All right. Got it. So maybe turning to, I don't know, the elephant in the room, but the Superior Group brought you kind of inside the fence data center exposure. It still is a relatively small piece of your business. I'm going to guess 10% to 15% of your revenue maybe pro forma is data center direct work. Yeah, for 26% for sure. Okay. But it's obviously growing really well. I think one of the strategies with Superior is they had a couple of states that they were in, but with merging with you, it was the opportunity to expand to more. So maybe we could just talk about the growth profile of that business, the outlook for data centers, your relative exposure, especially I think obviously everyone's gotten the question about what you think of the election and the sequencing of projects, but maybe just talk About the data center work. Yeah, look, I think one of the differences between us and a lot of our peers is we're not as exposed to data centers today. We historically haven't been. So if you look at 26 revenues, even with Superior's contributions for two quarters, it's just right at about 10%, probably just over 10%. I think that it's a great market today. It's a market where you can drive outsized margins, and it's an important market to be in. We've been positioning ourselves over the course of the last year to be a bigger player in the data center space. Our data center business in 27 will grow substantially from where it was in 26. That's part of the excitement that we have. That's parte of why we think we can do so well from a revenue growth and a margin expansion perspective. We are very pleased with Superior. We believe that the biggest bottlenecks to data center construction, quite frankly, aren't permitting. It's not financing. It's labor. If we're going to get to the levels of construction that people expect, the cog in the wheel is labor. It's the highest forms of labor required on the project, which are generally electrical and mechanical. Superior brought us into the electrical world. They have a great customer base. We work for a number of the largest GCs in the country, and we've really positioned ourselves well. I think we've brought a lot of credibility to Superior because we've bought them a much bigger balance sheet, which has given a lot of comfort to their customers, and it's given them the opportunity to significantly grow. We think they're in an incredible geography, so they kind of operate in roughly a five-state region. We think that their regions politically did very well in the election cycle, and we can talk about that later. But we're very comfortable with the progress that we expect from their customer base. And I think there's another piece that kind of gets lost is even if you talk about a lack of permitting for new projects or for new campuses. There is so much work to do on existing campuses that the tail of this is super long, right? So when you get awarded a project, you're getting awarded the first phase of what's a campus environment. So you have multiple years of work that's kind of built into these awards that gets lost in backlog or doesn't really get talked about. But A, we feel really good about where we're at, where we are doing data center work, what the political environment is in those states, and the longevity of that and the customer's commitment to what they're going to continue to build over time. I mean, just since you mentioned, I mean what states, what is the five footprints that, you know, you're saying did well politically? I mean even if you look at Ohio, right, if you look at the governor that won, I, mean her policies around data centers were actually more moderate than Vivek's policies around data centers. So the Republican candidate actually had stricter rules around what he wanted to do with data centers in Ohio than she did and I think it's been evident by what she said or hasn't said since election i think ohio is a state that with the exception of a couple municipalities and counties has been very favorable to the data centers there's a lot of communities that have embraced them and they've done very well in so we're actually bullish about what's happening in ohio we're bullish about What's happening in indiana we're Bullish about What'S happening quite frankly in florida that's a state That didn't have any data centers whose previous governor was anti-data centers whose new governor is really going to be embracing data centers so We see some states where we expect a ton of growth, some states where we don't really think it impacts them, and some states where it's probably too early to tell. Okay, fair enough. And on that, maybe the other thing, because I know at least in Texas, part of the, I don't know, desire, I guess, with the new governor is to push that to be more union work, which traditionally would have been more non-union work, and you guys are double-breasted, but I mean, just the ability to kind of cross-pollinate and do both union, non-union on the data center side? I mean, it's the beauty of our model, right? Superior is all union. Historically, the MOSDEC legacy business has been less union, but we've got our power delivery business has a huge portion of the business that's union. Our pipeline business is both union and non-union. So we've, we've Got presence in both and the capabilities of doing both. Fair enough. I guess next one I wanted to turn to just because it's it's topical with the press release that you guys put out last week but 4Q Paul I mean you guys generate a lot of cash in the fourth quarter I think your guidance is for something like 600 million that comes in you had a press release saying that you know you're kind of suspending I guess what was late stage due diligence on an acquisition in favor of buybacks. You've got a $250 million buyback program. To what extent do you want to comment on that in terms of what you were looking at and why the buyback makes more sense? And I don't know, you guys press released it. It feels like it's topical to talk about it. Yeah, look, I think our stock went from about $200 to $150 over the course of the two days post-election. We've been very vocal about, and historically, we've been and very opportunistic around buying stock. We normally don't have buyback programs in place that are methodical. We do it fully based on the value of the business and where we feel there's a great opportunity. At that moment in time, we felt that it was too good of an opportunity to pass up. The reality is that we were prohibited from buying Maastricht stock because we had non-public information, material information about an acquisition that was pending. So the only way to allow us to buy stock that point in time was to basically clean ourselves so it was to publicly announce it so that we could go into the open market and buy shares which was our intent we actually really liked the deal we think it's a great acquisition and we think it fits a lot of the things that we've been talking about here today so our press release was the suspension of the acquisition we were obviously buying shares there may be a point in where we restart those negotiations on that same deal. It takes two sides, right? So it's not only our decision, but we have the ability to do both, right. We have the financial strength. We're generating the cash flow where we think we can do both. We just didn't want to miss that opportunity in time, which is why we went public with it. Yeah, it makes sense, especially given the timing of the cashflow dynamic. I think it was clear. So maybe just the last question, since we do have a breakout session, but to close it It would just be, there's a lot going really well in the company. The backlog speaks to itself. What is the risk? If you were to say, what's the exogenous factor that comes up that would change your story over the next couple of years versus what you're seeing? What is that? Is it an execution issue on your side? Is it something that changes with the data center investment demand? I think the risk always in our business is about execution, which is what we control. And to the extent that we execute at a high level, we feel really good about our prospects. Our business is about repeat customers. It's about doing good work for customers and having them come back to you with future projects. That's what we want. We want those to be the risk factors, right? We prefer those risk factors over the macro risk factors. Obviously, the data center story will play itself out over the course of the next months as the new Congress takes shape. We feel like the reaction over the course of the last two weeks has been, or last week has been overblown relative to the impact that that could have on the market. Time will tell. But generally, we feel really good about our end markets. If we execute, we're going to do well. The reality is we don't have the resources today to do all of the work that's demanded of us. So the most important thing that we do as a company is select our clients and projects. It's very important to understand the risk profile associated with every job that we're on. Where are they in permitting? What are the risk factors that could ultimately impede that project's ability to move forward or not? That is the most important information we have as an entity. We feel like we've done a really good job at that. We've risk mitigated those projects. We feel that we are on really high quality accounts with projects that have a really, really high likelihood of moving forward. And that's where we want to be. And this market affords us the ability to be picky and choosy. And I think that's as important as, quite frankly, trying to generate margins, right? Because you can't generate margins if you're not on the work. It's important that these projects move forward. And it all ties in together. So I thinkthat's a huge, a very important part of what we've been working on over the course of the last few years. I would just add, the diversification that we've built is intentional. So we're not overexposed to data centers or any one industry macro trend. And that's by design. So, I mean, this year is a great example. We had some things that worked against us. We're still ahead of our initial guidance. You know, we did raise guidance throughout the year, and we're coming a little bit short of that potentially in the range we have now. But, you know, the business is still very much intact, despite headwinds in certain parts of our end market mix. And that is a very deliberate and resilient aspect of our portfolio that we think will continue to benefit us in the years to come. Great. I think it's a good place to start. There's a lot of specifics we can get into. It's great for a breakout to do all those. But thank you guys very much for presenting, telling the story. Thank you, everyone. Thank you for joining us. And it's Salon A will be the breakout, which is right on the corner.