Welcome to MasTec's Third Quarter 2022 Earnings Conference Call, initially broadcast on Friday, November 4, 2022. Let me remind participants that today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to our host, Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Thanks, Elena, and good morning, everyone. Welcome to MasTec's third quarter 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. 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 initial broadcast of this conference call, and the company does not undertake to update these expectations based on subsequent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press releases and filings with the SEC. 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. Today's remarks by management, we'll be discussing adjusted financial metrics reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings press release. With us today, we have Jose Mas, our CEO; and George Pita, our Executive Vice President and CFO. The format of the call will be opening remarks announces by Jose, and followed by a financial review from George. These discussions will be followed by a Q&A period, 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 turn the call over to Jose, so we can get going. Jose?

Thanks, Marc. Good morning, and welcome to MasTec's 2022 Third Quarter Call. Today, I'll be reviewing our third quarter results as well as providing my outlook for the markets we serve. I'd like to thank you for joining us today. And before getting into the quarterly details, I'd like to offer my perspective on where I think MasTec stands today. Just two short years ago on MasTec's 2020 third quarter call, we laid out a long-term goal of achieving annual revenue of $10 billion plus. It's important to remember at that time, MasTec was on pace to generate just over $6 billion of revenue in 2020, with 28% of that coming from our Oil and Gas business. Still somewhat unsure of where the COVID pandemic would take us, we had seen a significant impact to our Oil and Gas business and the demand outlook for pipeline projects entering 2021. Our ability to provide our $10 billion outlook was dependent on the strength we were seeing across our non-Oil and Gas businesses and our ability to expand our footprint and capabilities to capitalize on those markets. Considering 56% of our operational EBITDA in 2020 came from Oil and Gas, the growth of these other markets needed to happen not only quickly, but profitably. As a result, we focused heavily on growing our Communications, Power Delivery and Clean Energy businesses. Combined with investing heavily and growing our resources and capabilities organically, we made a number of acquisitions that have effectively transformed MasTec into a leader in the energy space. With the acquisitions of INTREN and Henkels & McCoy in 2021 and with the recent addition of IEA, we've positioned ourselves at the forefront of markets that have significant demand and growth opportunities. While we faced a number of challenges during this transformation,…

Thanks, Jose, and good morning, everyone. Today, I'll review our third quarter '22 financial results and provide additional color on our guidance expectation for the balance of the year, which now includes partial quarter operations for the IEA acquisition completed in early October. 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. Reconciliations and details of non-GAAP measures can be found in our press release, our website or our SEC filings. Third quarter results were generally in line with our guidance expectation, with revenue at $2.5 billion and with a slight beat in adjusted EBITDA at $246 million. Third quarter adjusted diluted earnings were $1.34 per share compared to our expectation of $1.29 per share, and this was driven by about $0.01 per share beat in adjusted EBITDA, with the balance due to lower income tax expense in the quarter resulting from tax true-ups, partially offset by higher interest costs. Third quarter consolidated adjusted EBITDA margin rate showed a 200 basis point improvement over second quarter levels and approached 10% of revenue. Importantly, this performance level was achieved despite an approximate $500 million year-over-year decline in Oil and Gas segment revenue. In summary, third quarter performance was driven by approximately $600 million of year-over-year non-Oil and Gas segment revenue growth and with strong adjusted EBITDA margin rate performance of 10.2% of revenue. While we feel we can further improve on these results in the future, this performance begins to demonstrate the potential of MasTec's future earnings profile driven primarily by expanded and improved non-Oil and Gas segment operations. Third quarter revenue growth in non-Oil and Gas segment operations was driven by approximately $300 million or 88% in our Power Delivery segment, approximately $200 million or…

[Operator Instructions] And our first question comes from Justin Hauke with Robert W. Baird.

And nice to see the non-Oil and Gas contribution coming through on the earnings results. So I guess I had a questions. Just thinking about the debt structure and kind of the interest rate for next year. I guess maybe two questions that I would put in that would be, first, on the two tranches of debt that you have now with -- not getting it fully redeemed from the IEA bondholders. Just what costs do you have to carry that next year? And is there any expectation of being able to refinance those? And then I guess the second question is the $45 million of interest expense that you're assuming in 4Q, is that a good run rate to think about quarterly for next year kind of fully baked in?

Thanks, Justin. This is George. I'll take that. I'll take your second part first. In terms of the $45 million run rate, I would say this. I mean we talked about that we expect to delever in 2023. So I would think $45 million is more of a high mark in terms of an expectation as we would expect to delever during 2023. That said, it's hard to predict how interest rates would change. over the course of time and into 2023. So the combination of factors -- those are two factors to consider in terms of modeling going forward. If you look at our capital structure today at the end of Q4, we'll have about 45% of our capital structure on a floating rate basis. And obviously, that's costing us more than it did a year ago as that's moved. I mean we are constantly -- we have ultimate flexibility in our capital structure, even the additions that we did with IEA and the term loans are prepayable and we're constantly looking at monitoring what is the best mix of our future capital structure going forward. That's said, relative to the IEA bonds, I mean we have assumed all $300 million of those bonds as we close the transaction here on October 7. Per the terms of the indenture, it did not trigger a change of control put option. And at this point, $75 million of those amounts have been converted into MasTec notes as a result of our exchange offer, and that puts them at terms consistent with our existing bonds. The remaining $225 million that's out there remains debt of IEA. Both tranches are now rated investment grade. And at this point, the IEA bonds, coupon rate is comparable to what a new issue rate might be relative to pricing. And therefore, we intend to keep these bonds in place.

Okay. Okay. That's helpful. And I guess the second question I had was just previously, you guys have given an EBITDA guidance, I guess, or at least a framework of $1.17 billion for 2023. And I just was curious if there's been any change in that outlook. It sounds like the revenue outlook that you gave is unchanged.

Nothing has really changed. So we talked about $13 billion in revenue for next year. I think that, that's becoming more and more clear. Obviously, the market is supportive of that. We laid out the margin profile of that early. I still think it's very attainable. I think we've laid out $1.150 billion to $1.2 billion, and I think somewhere in that range, while we're not providing guidance for '23 because there's a lot of work to do, I think that's reasonable.

Next question comes from Alex Rygiel in B. Riley.

Nice quarter here.

Thank you.

Jose. A couple of quick questions. First, obviously, with the macro concerns of an economic slowdown in front of us, how do you think your business may be affected by that understanding that some of your activities are kind of in the last mile, but yet there's a lot of government funding out there and other stimulus activities out there that are driving the clean energy marketplace? So just broadly speaking, how do you think a mild recession is going to affect your business?

So first, I think we're in an -- we have an incredibly resilient portfolio. And I think you laid out some of it. But if you think about telecom, so much government funding has gone into RDOF. There's no question about the need for bandwidth and speed. 5G is here, 5G is being pushed. Fiber activity is probably at the highest level that I've ever seen in my career and actually significantly expanding as we look into '23 and beyond. I think that there's -- the truth is there's more work there than we can currently do. So we're aggressively trying to grow into that as fast as we can. When you think about our energy market and the conversion to renewables, I think that's going to be unaffected. When you think about the hardening of the grid that's been approved by so many public services across the country, I think that's unaffected. When you think about transmission lines being built to connect renewables, that's not going to be impacted. When you think about different utilities and how they're meeting the challenges of electric vehicle usage, that won't be impacted. When you think about pipelines and the commodity prices where they've been and gas is a transitionary fuel with the needs that exist today and moving it, I think that's unaffected. When you think about the Infrastructure bill relative to our Civil business, I think that's unaffected. So the reality is that there's a very, very small piece of our portfolio that you could even equate to something like housing that might be mildly affected. And I would argue the opposite, Alex, which is somewhat of a decline in the economy will probably actually help us because it will deflate the inflationary pressures that we see in our business today. So I think that the revenue outlook for our business is incredibly resilient. And anything that might happen could actually help us from a cost perspective.

And secondly, on the IEA acquisition, you've only owned it for a couple of weeks, but can you talk about sort of the quality of backlog that you've discovered and the opportunity for synergies, both either revenue or cost?

Sure. So again, we're super excited. I think the market is incredibly robust. The demand for the services is off the charts. I think you're going to see in the coming quarters, both MasTec's legacy business and IEA's have tremendous backlog growth just based on the conversations and awards we're seeing from customers. IEA did report backlog a little bit differently than we did. So we think the IEA added backlog will be somewhere in the $2 billion range in the fourth quarter. And as the quarter is mount, we think there are going to be considerable additions to that. So you think about solar, even wind, even a lot of these transitionary fuels that we're thinking about, whether it's hydrogen or carbon sequestration, that market is incredibly active. And again, I think it's going to be very resilient over the course of the next couple of years regardless of what happens with the economy.

Our next question comes from Andy Kaplowitz in Citigroup.

Jose, I see you had a nice step-up in Communications margins that you talked about to 12.4%. I know supply chain has been very difficult. So maybe you could talk about what went right in the quarter? Was this better utilization of your people? Were you able to renegotiate any of your significant contracts? Maybe fuel costs have been coming down a little. Any more color there would be helpful.

Well, first, I'd say, Andy, we expected it, right? If you thought about the way we guided to Q3, we expected a step-up. I know that there's been concern out there relative to our ability to hit that, but we felt comfortable. We've seen it in our business. We've been growing the volumes finally came in 33%, revenue growth in the quarter is fantastic. And I'd also say there's pressure in that, right? While the results are good, and they'll moderate a little bit in Q4 because it's just timing and the seasonality of it, the reality is that we can achieve more than that, right? Once we get on a run rate, once we're fully utilized, once we've got the right number of people on board, we actually think those are margins that, over the long term, could be improved, solid performance. Again, it was good to see us deliver and nothing special about the quarter. There was no individual areas where we had any big significant pickups, just solid performance throughout.

And then can you talk a little bit more about your Clean Energy business? You mentioned the mid-to-high single-digit margin in Clean Energy for Q4. Could you give us what the EBITDA is that's coming in from IEA in Q4? Or are you thinking that your industrial problem project drag is getting behind you? And how much improvement, if any, are you seeing in solar markets to help with utilization in the segment?

Yes, sure. So we still had some drag in Q3 with some of the industrial projects we talked about in Q2. I think George alluded to that in his prepared remarks. When we think about Q4 and beyond, IEA -- the last quarter that IEA reported was about -- I think it was about [5.60] at 6 points in Q2. Their third quarter was a little bit weaker than they originally anticipated for a lot of the same reasons that I've been thinking -- talked about in the industry, the solar panel investigation and the renewable issues. When we think about Q4 for them, we're kind of thinking about it in a way that they delivered Q2. It's probably a conservative view. Again, we've only owned it a few weeks, but I think it's better to be conservative at this point. We laid out a longer-term outlook for them for '23 of $160 million to $170 million of EBITDA. When we did it, $40 million to $50 million in net income for '23. Quite frankly, we think that's unchanged. And if anything, conservative, our job is going to be to see how much we can improve that and the synergies we can build out of the business to ultimately make that a much better number. Our customers' really reaction to the acquisition has been fantastic. Again, there is an incredible amount of demand for the services that we offer. Our job is going to be to pick the right projects, the right customers, find the right utilization levels. Make sure that the projects stack on each other and we don't have any holes or any significant starts and stop, and that's going to be through the management of the project acquisition process as we think about it throughout '23. I think we're going to do a great job at that, and I'm very, very optimistic and confident that we're going to be able to do a lot of great things there, but we're just getting started. So as we talk about on our next call, on our year-end call, we'll hopefully be able to highlight that a lot more with a lot of new awards and a lot of expectations going into '23, but we still got some work to do there.

Next question is from Neil Mehta of Goldman Sachs.

Yes. And congrats on a good quarter here. The first question is just about managing inflationary pressures that exist in the market ranging from diesel to labor, how are you guys working through those? Are you able to push some of these costs -- through pricing and do feel like you sufficiently built this into the way you're thinking about '23?

Yes, Neil, I think a couple of things, right? We talked a lot about it on our second quarter call, even as far back as Q1. Obviously, fuel was a huge difference for us in the first half of '22 versus where it was in '21. I think we modeled that correctly through the balance of the year. We did see some of that -- we saw some improvements in fuel costs in the third quarter, it obviously ebbs and flows all the time. I think we've been very vocal about the inflationary pressures on labor. We've seen it. We think it still exists. It's probably moderated just a little bit, but it's something that we got to keep an eye on. And again, there's so much demand for our services that I think the inflationary wage pressures will continue for a little bit. To some of the earlier points as the housing market does cool off a little bit, and we think it will, it will open up a significant pool of labor that we can draw from that will hopefully counteract some of the wage inflationary pressures that we've historically seen. So we're working hard at it. Team member acquisition is one of the most important things that we do here at MasTec because we're all about our people. And we think we've got a good process in place as we think about '23. Obviously, we have some tremendous opportunities. We expect a lot of further revenue growth across all of our markets, and labor is going to be a key component of that. So there's no question that we're seeing and we've seen inflationary pressures. We've had a lot of discussions with our customers since early this year. We've gotten a lot of relief from our customers. In many cases, we've talked at length about being able to do it on anniversary dates of contracts on the annual escalators. Those have come in as we've expected. And in due process and in due negotiation, we expect that to continue through 2023. So we think it's something that obviously impacted us in the first half of the year. We think we're managing it well. We were very vocal about the issues that it caused and our intent on how we were going to manage it. And again, I think in the third quarter, you see some of the results of that execution.

And then backlog was very significant this quarter. Where are you seeing it surprised to the upside? And where do you think the backlog translates quickest into revenue recognition?

No, it's a great question. It's actually -- and we said it in our prepared remarks, but it's the first time since 2018 that our second to third quarter backlog increases. And it's relatively rare because our third quarter is normally such a high revenue quarter that it's hard to book-to-bill at the same level. And historically, we've had large pipeline awards that have really impacted that number. So the beauty of this backlog print was it didn't come from any particular project, right? It was really broad-based. It was across every segment, a lot of strength, a lot of book-to-bill. So we're super proud of that accomplishment. I think we're going to see it across all of our segments. I think it's very supportive of the dialogue that we've laid out for 2023 relative to the growth in each segment. If you were to ask me what could potentially surprise me most of the upside in '23, it's probably our Oil and Gas business because we've been expecting it to be down for such a long time, and we're seeing a lot more strength in that market than we've seen in previous quarters and are pretty excited about what that means. But we think it's pretty broad-based. Obviously, we think the Inflation Reduction Act is going to have a massive impact on our backlog over time. Some of the rules are still being written, so we don't expect to see significant impact from that until the second half of '23. But quite frankly, all things are trending in a fantastic direction, and we're really excited about what we think we can accomplish.

Next question is from Jamie Cook of Credit Suisse.

Congratulations on a nice quarter. I guess, Jose, my first question, obviously, we've done a lot with the portfolio and you have some debt right now so you can't do M&A. But given how you've transitioned the portfolio as we think over the medium term, is there anything else you think you need? Or is the portfolio rightsized for the growth opportunities that you see ahead? And as we're pitching this to sort of the investment community, do you think as we exit 2023 on a more consistent basis, is this a portfolio that can generate low-teens type margins on a normalized basis? That's my first question. And then second question, George, just try to think about how we think about the free cash flow conversion of this -- of the company, just with the addition of Henkels & McCoy and in IEA.

Sure, Jamie. So a couple of things, right? As we think about the future, obviously, the margin profile is going to continue to improve. One of -- as you think about total company margins, obviously, our Clean Energy and Infrastructure business, especially near to midterm, is going to have more challenges achieving teen-type margins. We think it's a high single to low double-digit margin business. We think we'll achieve that, and it will obviously drive the EBITDA profile of our business up. We think we can get our EBITDA margins in time to double digits. That won't be our -- that's not our guidance for '23. Our guidance for '23 will come in lower than that, for sure. But there's no doubt in my mind that, that's achievable. And depending on the strength of the market and where we can take the portfolio, I think that's only going to improve over time. Relative to what happens to the portfolio, I think we're in a great position today. I think we've got so many growth markets in front of us that we've got to execute on. I think organically, we're going to be capable of doing a lot. With that said, we're always looking for opportunities. We think in these levels of higher debt, it's going to put a lot of pressure on companies that are levered, and I think we'll have a competitive advantage relative to that in the markets that we serve. And we'll see what happens over the course of the next couple of years. But we think our portfolio is in a better position than it's ever been. We think our growth opportunities are better than they've ever been. And again, we're just -- we're super excited about what the future holds.

And Jamie, relative to free cash flow, we've said before, as we've transitioned -- as we move in this transition and the business moves more away from being centered on oil and gas pipelines, which historically has been the most capital-intensive business that we operate in, that our free cash flow profile over time, I think, is a better profile because our capital intensity has lessened as we've moved into the electric distribution business, as we move down to a larger way into the renewables business as those businesses are just generally a less capital-intensive. So that would be our expectation going forward. I mean, obviously, we started to moderate our capital expenditures here in the third quarter, and we'll do so into 2023. I think we certainly accelerated some spend in the first half of the year because we were trying to make sure that we were able to secure deliveries of some things that have been supply chain-constrained and did that. But our free cash flow profile as an entity as we go through this transition is a stronger profile because I think we have a similar working capital profile with an improved CapEx or capital intensity.

Next question is from Steven Fisher with UBS.

I wonder if you could just give a little more color on the margin buildup in the Clean Energy segment in Q3 and then into Q4. Just maybe should we assume that the Civil piece and Renewables, including IEA, I guess, in Q4 are going to be more at similar levels, but the Industrials piece more of like a breakeven or low single digits? How do you see that kind of the buildup within the segment and then trending into next year?

Sure. So I think that's accurate, right? I do think that our Civil business is performing well. I think over time, our renewables markets will outpace, will be the highest margin profile of that group. I think that the Industrial business based on the project profile that we expect to have in '23 will be significantly better than it was in '22, and it will probably be at similar levels to at least our Civil business. So I do think that the margins will be tighter if we think about the three pieces of that business in '23. I do think the fourth quarter of '22, we'll see a little bit of improvement in the Industrial segment, but it won't -- we do expect Civil and Renewables to outperform the Industrial business in the fourth quarter.

Okay. That's very helpful. And then just -- I apologize if you covered this earlier. I missed part of the call, but can you talk a little bit about the visibility? You have two renewables projects in, let's say, through the first half of 2023. Would you have good knowledge of what the slotting is going to be for your customers? And how is their kind of panel accessibility, availability in the solar side of things?

Sure. So we've -- I think we've talked about our Clean Energy and Infrastructure, delivering at or above $5 billion for 2023, which we think we're highly confident we can achieve. A significant portion of that will be Renewables, probably 60%, 60% plus of that is our Renewables business. I think when we look today at what's in backlog, what's been verbally awarded, what we're chasing, we feel really good that we've got most, if not all, of that currently identified, which is an incredible place to be in October of the previous year. That leads me to believe that we could do a lot better. And quite frankly, we'll have the ability to move projects in or out depending on really slotting and when they're ready. A lot of the solar work that we'll be working on and we've been talking about this for a long time, our newer projects where solar, a lot of -- some people are at the end of their projects where they're requiring solar panel installations so they're waiting on solar panels. But for those that are starting new solar plants, they're starting -- they'll start to build without the solar panels because they don't need the solar panels for six, nine months. So it depends where you are in that cycle. We feel good about where our year is laying out. Obviously, it's early. We've got a lot of work to do and we'll give a lot more updates on our future calls. But obviously, spending the level of detail as to understanding how each project lays out, what month it lays out in, where can you put your resources, how do you make sure you don't have gaps in your resource schedule, that's exactly what we're building for '23. We're hyper-focused on it. We're hyper-focused on making that as efficient as we possibly can, and it's having the highest utilization rates that we can. And I think we'll have a lot more clarity over the course of the next couple of months and how that's going to lay out on a quarter-by-quarter basis for 2023.

Next question is from Brent Thielman of D.A. Davidson.

Great. Jose, the acquisition and integration expenses in Power Delivery were up quite a bit from last quarter. Can you just talk about what's embedded in that? What you're sort of doing internally in the integration process of, I guess, H&M and INTREN deals? And then I guess the follow-up to that just sort of how all that -- all the sort of internal work you're doing informs your view of segment margin potential in Power Delivery going forward?

Brent, this is George. I'll take that. The Power Delivery number was up this quarter. We've made the point, that's why I kind of indicated we really finished to substantially completed the integration of Henkels. So what you see in there is the finalization of a lot of the cost changes that we've made in terms of indirect overheads, changing insurance programs, a lot of different things that have been in our -- in the process of being evaluated. So we've completed that. So that number will significantly drop here in the fourth quarter. And we have a view that our Power Delivery segment margin should certainly improve in 2023 as we continue to start realizing more benefits in the program as we move forward and as we continue to grow. So we anticipate improvements here in that segment going forward. And that's where we're headed. We're happy to have completed the integration for Henkels. We started to incur some costs in the third quarter relative to IEA, but a lot of those were acquisition costs, right, in terms of investment adviser fees, bridge fees, et cetera, et cetera. So we'll have some more of that in the fourth quarter and we'll evaluate from there. But it's a little bit of a different lift than the Henkels acquisition, which was -- had some more structural changes.

To your second question on that, Brent, in terms of margins, I think the integration has gone really well. We've talked previously about the strength of the business and the upside and the growth that we think we can achieve in that business. We're more optimistic today than we were at the time of acquisition about our ability to not only help make them better, but I think we've achieved a lot of that, and I think the growth profile of that business will hopefully outpace what we originally expected going into the deal.

Yes, exciting times in business.

Next question is from Noelle Dilts at Stifel.

I think this is geared more for George. But George, just given that a fair amount of the capital structure, I think about 45% is floating rate debt. How are you thinking about just the risk of higher rates at the moment? Would you think about interest rate caps or swaps to mitigate potential additional increases? Just curious sort of how you're thinking about that at the moment.

Yes. Look, we're constantly evaluating it. The reality is, obviously, we have a more elevated level right now post the IEA acquisition. We did the financing on that in a way to maximize flexibility for us going forward. So we have term loans and whatnot, and they are floating rate, but they're also prepayable at time. So we're constantly looking at what we think depending on where the market is, what we think is the right mix of our capital structure. And I guess the answer to that is TBD, right? We don't know yet depending on what market conditions are, when we might be able to evaluate whether we should be moving and changing the structure. We certainly have the flexibility to do so and have put the current capital structure in a way where that's the case. I'd also point out that while obviously by floating rate debt is more expensive than it was a year ago, it's still cheaper than fixed rate debt, right, in terms of most cases. So based on that, it's certainly a fair question as one that we're evaluating constantly and will do so in this environment.

Okay. Great. And then I think you addressed this to some extent with Andy's question. But is there any -- can you provide us with any more detail on sort of how IEA performed in the third quarter and sort of what you're expecting overall for the company's results in 2022? I know you reiterated your expectations for EBITDA in '23, but any additional detail there would be helpful.

Yes. So Noelle, I mean, the third quarter was below their original expectations, whatever -- they had some public expectations out there, to be honest. We haven't spent an enormous amount of time on the trailing '22 because it's somewhat indifferent for us other than understanding the deal dynamics. I think we're starting to get our arms around Q4 with them. We've taken again a very conservative position relative to their forecast. I think they're definitely helping to do better than what we've laid out here today, but it's -- so we own the numbers now, so we're going to be more cautious. Our view on 2023 is unchanged, if not improving. We laid out an earnings capability that we thought was achievable at the time, quite frankly. And I'll say it again, we did this deal two days before the Inflation Reduction Act got announced. The Inflation Reduction got announced. And in my mind, it significantly enhances the prospects of that company for a long, long time, including in '23. So I'm very bullish that we'll be able to do better than what our original anticipation was in '23, but we've got a lot of work to do. And I think there's lots of opportunities between the combined entity to take out costs and to be more efficient and to grow faster. So that's something that we can't bake in today. We have to execute to that, but that's what we'll be working on. And I'm incredibly bullish in terms of their long-term capabilities. The second half of '23, as everybody has talked about in the industry, was challenging for Renewables. You see it in our numbers. You see it in other people's numbers. And I don't think it was any different for IEA, but it doesn't change the long-term outlook for their business, and we expect them to have a good fourth quarter, right? We're conservative with our numbers. We're hoping they beat them, but it's still -- it's a good fourth quarter relative to the market.

Next question is from Adam Thalhimer of Thompson Davis.

Great. Good to see the stock up so much this morning. Jose, on the Oil and Gas, can you just give a little bit of -- or flesh that out a little bit? You said -- you or George said I think something like sizable growth next year? And then, Jose, you talked about the projects you were looking at between 2023 and 2025. I'd just be curious if that's kind of traditional oil and gas work or if the opportunities have kind of expanded there?

Yes. So a couple of things. First, I'd say '22 is a lot softer than we originally anticipated, right? So we laid out a longer-term outlook of $1.5 billion to $2 billion in the business. We're going to deliver closer to $1.2 billion this year. I think that when we think about '23, when we say outsized growth, we think the $1.5 billion to $2 billion is achievable without the Mountain Valley pipeline. Obviously, with the Mountain Valley Pipeline, it's dramatically bigger. Despite the comments that we made today, we still feel comfortable that Mountain Valley Pipeline is going to move forward and it's going to be built, and we think there's a high likelihood it gets built in '23, but we're probably not going to count on it. With that said, we're seeing significant strength across all markets, right? There's a significant number of gas pipelines that are being planned in all different stages. Some are very imminent. Some are more '24, '25 projects, but a lot of work is going into them. Pipe is being bought, a lot of commitments are being made relative to those projects. So we feel really good they're going to happen. And then obviously, we've been talking about the carbon sequestration line. You've been talking about hydrogen. We think those projects are closer to fruition than they've been. I think we'll -- hopefully, we'll be talking a lot more about those in the coming quarters. And again, I think whether I think our pipeline business, right, generally defined not just Oil and Gas, but Pipeline in general, is going to have a really good run for the next few years, and that's somewhat surprising vis-a-vis where we were just two short years ago.

And we'll take our last question from Sean Eastman of KeyBanc Capital Markets.

Nice update here. So Jose, you alluded to the Oil and Gas segment being kind of the one kind of core upside risk driver to the preliminary expectation for next year. I wondered if we could round out that discussion a little bit just in terms of how you're thinking about kind of the major kind of upside drivers or risk factors to the downside relative to this preliminary look we have in place here?

Yes. Let me be clear, right? I think that my commentary was more around what most surprised me from an expectation base, right? I just -- we've been so negative on Oil and Gas for a long time that I actually think it's getting better, and I think that's somewhat surprising. But the truth is that there -- when you look at the balance of our business, what's happening in the energy space is unprecedented. So I'm more bullish on Power Delivery and Clean Energy than I am in Oil and Gas long term. I'm more surprised by Oil and Gas. So I want to be clear on that because I don't want to rank them, but the truth is that what we're seeing in the energy industry today with -- it's for the first time in my lifetime, everything is changing, and we're in the middle of that, and I think it's going to position us incredibly well for many, many years of growth. So unbelievably bullish there. But it's nice to have a full portfolio of businesses that all have, in our minds, tremendous upside, including Communications. So I think we've had to manage through ups and downs in different businesses. We've had cycles where some businesses are doing well and others are struggling. And I think we're going to enter a period here for the foreseeable future, while all of our businesses are going to have tremendous upside. As we think about the way we've laid out '23, I'm highly confident that we're going to achieve that, if not better. I think the risks become macro risks, right? And again, I think very little can change in the short term because of all the government spending involved in the different industries that we're in. But obviously, inflationary pressure is one that dictates margins. And I think we've got probably -- while I'm less concerned about the revenue variations because I think the market is so strong, we obviously have to keep an eye on what's happening with inflationary pressures. We've got to keep an eye on what we can do relative to passing those costs on that we see and how do we ultimately reduce the level of cost that we experience. So how do we more efficiently bring on new team members, how do we train them, how do we make sure our people are the most efficient, safe workers in the industry, and pass along that with our customers, and that's what we're focused on. So I'm actually incredibly bullish about 2023 at this point.

Okay, got it. And if I rewind to the fourth quarter reporting season, this year -- this past year. The -- when you guys rolled out the first quarter guidance, it was just kind of jarring for some folks in terms of kind of the starting point for the year. And I realize that it's early here, but I thought maybe we could get ahead of that a little bit in terms of just how pronounced sort of that first half, back half could be as we get those numbers in place ahead of 4Q '22 earnings?

Yes, Sean, obviously, we can give directional color, right? I mean I think it's fair to say that the first quarter is typically a very slow quarter. So I think a seasonality cadence, generally speaking, roughly -- maybe a little bit better than last year, but that similar kind of cadence is probably in the cards. I think when you look at the different components, we'll see how the timing of Clean Energy comes together. It's obviously a different cadence for us now in '23 with the addition of IEA. But I think Clean Energy generally has a slower first quarter, right? I think Communications should be better in general terms because we should see some more continuation of maybe at the same rate, but certainly a higher rate of spend than what we saw in the first half of last year. So those are just some factors to consider, and we'll obviously give more color when we're -- when we go through the guidance components. But I think the first quarter typically is a slow start for us, and it's not necessarily -- I don't think there's a significant change in that as we think of '23, given what we know today.

I would add a couple of things to that, which I think are really important. When you compare historically our first quarter, especially in '22, the comps were really difficult because Oil and Gas was so big. So just to take a step back in the first quarter of '21, we did $725 million in our Oil and Gas business. In the first quarter of '22 this year, we did $211 million. We had a $500 million drop-off in the first quarter of the year. When you look at the second quarter, we had almost a $280 million drop-off in that same Oil and Gas business, '22 to '21. The reason I say that is our '23 comps will be dramatically better than our '22 comps, we're looking back at '21. So while in '22, it was very pronounced the growth we had to have to offset the Oil and Gas decline, that will not be the case in 2023. So I think that phenomenon that we had to live through at the beginning of '22, which was so challenging for us which I think created a lot of the issues that we had in the first half of 2022, should not exist in the first half of '23, making the comps dramatically better and the year being a lot more consistent relative to the look back. Obviously, we made the acquisition of IEA. It's going to have a huge benefit to us in the first half of the year without anything working against us. And I think that's a big distinction between '23 and '22.

There are no further questions at this time. I'd like to hand the call back to Jose Mas.

Yes. So again, I just want to thank everybody for your interest. We're happy to print the quarter that we did. We look forward to updating you again on our year-end call and laying out our guidance for 2023. So be safe, and talk soon. Thank you.

Thank you. And this will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.