QualTek Services Inc. (NASDAQ:QTEK) Q3 2022 Earnings Call Transcript

QualTek Services Inc. (NASDAQ:QTEK) Q3 2022 Earnings Call Transcript November 15, 2022

QualTek Services Inc. misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $0.01.

Operator: Good morning, and welcome to QualTek’s Third Quarter 2022 Earnings call. All participants are in a listen-only mode. After the speakers’ presentation, we will conduct a question-and-answer session. As a reminder, today’s conference call is being recorded. I would now like to turn the call over to Michael Bowen. Thank you. Please go ahead Mr. Bowen.

Michael Bowen: Thank you, operator, and good morning everyone. Welcome to QualTek’s third quarter 2022 earnings call. Before we begin, I would like to remind everyone that we will be making forward-looking statements during today’s call. Whether in prepared remarks or during Q&A session, these forward-looking statements are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the risk factors sections of our filings with the Securities and Exchange Commission, specifically in the company’s Forms 8-K and 10-K. Except as otherwise required by federal securities laws, QualTek disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions and circumstances.

With us today, we have Scott Hisey, QualTek’s President and Chief Executive Officer; and Adam Spittler, QualTek’s Chief Financial Officer. The format of the call will be opening remarks from Scott, followed by a financial review from Adam. We will have a Q&A period following these updates. With that, I’ll go ahead and turn things over to Scott. Scott?

Scott Hisey: Thanks, Michael and good morning everyone. On today’s call, we will discuss our results for the third quarter of 2022, our outlook for the balance of the year and early perspectives for 2023. To begin with, last month, QualTek celebrated our 10th anniversary. Over the course of that 10-year period, the company has achieved organic growth of our base telecommunications business and strategic acquisitions, which have allowed us to extend our geographic footprint and add new and exciting service offerings, including recovery logistics and renewable energy support. We have built strong relationships with major blue-chip Fortune 500 telecommunications and energy providers and we are viewed as an essential player in many facets of the telecommunications industry.

Within the past two years, we have weathered the COVID-19 pandemic and unprecedented inflation and transition into a public company, all while continue to grow our backlog quarter-over-quarter. Since our inception, QualTek has been agile and adaptable and we will continue that trend, as we enter our second year as a public company. I want to thank our customers and our employees for their hard work and partnership. Now, transition into our third quarter results. During the quarter, we once again recorded record revenue with our third quarter topping $216 million. Total company revenue was up sequentially versus Q2 2022 by more than 17% and solidly above revenue from the prior year same quarter. A significant achievement given Q3 2021 revenue was heavily impacted by an active third quarter hurricane season.

Revenue growth is primarily attributable to our Telecommunications segment, which posted top line results of $188.3 million, an increase of over 38% versus the prior year. Our renewables and recovery logistics revenue year-over-year was impacted by the general slowness in the renewables industry, coupled with the timing of 2022 hurricane season, with the major events of the season occurring much later than in previous years. We head into Q4 with a 24-month backlog of over $2.4 billion. While we have continued to experience significant top line growth and an increase in backlog we like many companies, continue to combat wage and fuel inflation which impacted our margins and overall profitability this year. Furthermore, as we quickly grow and address demand, we’ve incurred ramp-related costs which have impacted our profitability.

Total company adjusted EBITDA for the quarter was $15.7 million, a decrease from the prior year, same quarter which is attributable to the timing of the 2022 hurricane season and inflationary pressures. We believe there are opportunities to improve our profitability. And we have taken several measures to do so going forward, which I’ll touch upon shortly. Yesterday, we issued updated guidance for the full year 2022, and expect revenue to range from $750 million to $760 million, a 22% increase year-over-year. Our adjusted EBITDA will range from $50 million to $55 million. When considering the incremental public company costs in 2022, our results will be roughly flat year-over-year. The updated guidance considered our year-to-date performance, timing and the extent of 2022 hurricane season and the inflationary pressures I just spoke about.

Taking a look at each of our segments, beginning with Telecom, our Telecom business continued to remain an extremely high-demand as evidenced by our record revenue. As we discussed on our second quarter call, the industry was entering a period of significant growth due to 5G and fiber expansion. The availability of C-band licenses has increased our utilization in the Northeast and we are now building at record pace. Expansion has also been consistent in our Midwest and Western markets and our backlog continues to grow at the same time as the company records all-time high revenues. As we respond to our customers’ strong demand for our services, we continue to have focus on our margins and profitability in Telecom, which have been hampered in the current environment.

To that end, we have worked with several of our customers on price, scope and scale and delivery options. This includes successfully negotiating rate increases and more favorable payment terms with many of our customers which we believe will benefit us in 2023. We believe that executing the right mix of our $2.4 billion backlog, at the new pricing will improve our Telecom margins. Moving to our Renewables and Recovery Logistics segment, in previous years the third quarter has been our most profitable time of the year for our business, as the timing of the hurricane season has generated significant demand from our recovery of logistics services. In 2022, a relatively quiet and delayed Q3 storm season drove significant variability year-over-year in recovery logistics.

More specifically, our Recovery Logistics business was heavily deployed in September of 2021, following hurricane item making U.S. landfall in late August. This resulted in sizable revenue and adjusted EBITDA in the third quarter of last year. During Q3 of 2022, Hurricane Ian made U.S. landfall in the last week of the quarter, with the majority of our revenue generating activities occurring in Q4 and therefore causing variability when looking at Q3 2022 versus the same period prior year. Our Recovery Logistics business remains well positioned and we expect our investments in assets, people and relationships to provide future positive prospects, as we look to expand into other non-storm-related activities. We will be agile with our service offerings and we continue to explore opportunities to more regularly deploy this valuable asset base year round.

As we have mentioned previously, the renewable energy industry has been impacted by regulatory delays and supply chain challenges that impacted 2022. In the third quarter, these trends continued causing build plans to be pushed into 2023. We’ve recently begun to see increased bid activity and look forward to participating in new prospects in 2023 and 2024. Finally, we were supported by our senior lender and executing amendments to our ABL, which Adam will speak about in greater detail. We are analyzing ways to balance our unprecedented demand and growth strategy with our current capital structure in today’s elevated interest rate environment. We continue to remain laser-focused on balancing liquidity and cash management as we profitably convert our $2.4 billion backlog.

In closing, QualTek has continued to perform and deliver for its customer’s as we have to add our 10 year history. Our customers remain committed to partner with us as they execute on their key objectives. As we head into the last quarter of 2022 and look towards 2023, we are focused on our backlog, customer relationships and profitable delivery of services, and look forward to continuing to work with our senior leadership and financial partners and positioning the company to execute on our future goals. With that, I will now turn it over to Adam Spittler, our Chief Financial Officer. Adam?

Adam Spittler: Thank you Scott, and good morning, everyone. Today, I will cover our third quarter 2022 financial results. As indicated at the beginning of this call, our discussion of financial results will include non-GAAP adjusted EBITDA. Reconciliation and details of non-GAAP measures can be found in our press release. Turning now to third quarter results. Revenue for the quarter was $216.1 million, a 0.3% increase from third quarter 2021 revenue, up $215.5 million. Our revenue growth continues to be impressive and it is important to note that our Q3 2022 results were achieved without significant benefit from our recovery business as the majority of our services to date have occurred after the third quarter. Net loss from continuing operations for the third quarter 2022 was $6.9 million versus net income of $14.5 million in the third quarter of 2021.

Third quarter 2022 adjusted EBITDA was $15.7 million compared to $45.3 million for the third quarter of 2021. Comparative results are skewed due to this year’s abnormally late season hurricane activity and also impacted by ongoing inflation particularly related to wages and fuel cost. Sequentially, however, we achieved significant improvement from a net loss of $25.6 million in the prior quarter. While we expect to continue to improve margins into 2023 through price, scale and scope changes and our significant telecom ramp costs begin to level out, inflationary costs we and others have experienced will continue in the near-term. I will now provide some detail on our segment results. Third quarter 2022, Telecom revenue, increased 38.9% to $188.3 million compared to $135.6 million for the third quarter of 2021.

We are pleased to have grown top line revenue in each of our Telecom service offerings with our wireless and wireline business reporting year-over-year revenue increases of 32.7% and 70.6%, respectively. Third quarter 2022, Telecom adjusted EBITDA was $14.1 million, an increase of 29.5% from the $10.9 million reported in the third quarter of 2021. Comparatively on a year-over-year basis, our adjusted EBITDA margin was down slightly and we attribute this decline to continued wage and fuel inflation coupled with costs associated with our ramp up in the 5G space. We continue to see robust demand for our wireline and wireless service offerings and believe that we are extremely well-positioned to experience significant continued growth across all service offerings within our Telecom segment.

Third quarter 2022 Renewable and Recovery segment revenue was $27.8 million with adjusted EBITDA of $8.7 million, a decrease over the same period last year of revenue of $79.9 million and adjusted EBITDA of $38.2 million. The decrease in both revenue and adjusted EBITDA are primarily due to the variability and timing of significant events within our recovery business. To reiterate Scott’s point earlier, in 2021 our Recovery Logistics services were deployed in response to Hurricane Ida beginning in late August thus providing an entire month of recovery services being recorded in the third quarter of the prior year. Conversely, Hurricane Ian made US landfall during the last week of September and therefore shifting the majority of recovery activities to the fourth quarter.

Despite the shift in timing our margins for our recovery business remain very strong and on par with those of the prior year. Third quarter 2022 corporate costs were $7 million. Our corporate costs for the quarter were 3.3% of revenue a sequential improvement from 3.4% in the second quarter. We believe our corporate costs will approximate to this level for the near-term. Now I will discuss a summary of our five largest customers for the third quarter 2022 as a percentage of revenue. AT&T was 38% and our services for this provider include wireless, wireline and recovery services. T-Mobile is 15%, Verizon was 14% and Florida Power & Light and Comcast were each approximately 7% of revenue. This compares to the prior year period of MCG at 32%, AT&T at 31%; T-Mobile at 11%; Verizon at 8% and Blattner at 4%.

Our top three customers accounted for 67.2% of our revenue in Q3 2022 versus 72.5% in Q3 2021. This reflects a 5.3% improvement in our customer diversification. We’re extremely proud of our growth with our largest customers. AT&T revenue increased 26.2%, Verizon at 76%; T-Mobile 42%; and Comcast 143% from the prior year period. We view this as a testament to our ability to provide trusted and reliable services as we help these important customers execute on crucial infrastructure built. As it relates to our backlog we report a rolling two-year backlog on a quarterly basis. Total backlog was $2.4 billion at the end of Q3 2022, which is an increase versus the $2.3 billion that was reported at the end of our Q2 2022. Our increase in backlog is primarily related to increased visibility and awards within our Telecom segment.

Finally, during the quarter we amended our facility with PNC to increase our credit line to $130 million each year between September 15 and December 31. This additional liquidity helps the company in addressing the working capital needs that are traditionally associated with our Recovery Logistics business. This amendment demonstrates the long-standing relationship we have with our senior lender. I want to close with echoing, which Scott mentioned earlier in his remarks. It’s clear that demand is strong across all of our service offerings and we remain committed to continuing to look for opportunities to maximize our profitability through partnering with our customers and other stakeholders. I will now turn the call back to Scott to conclude our prepared remarks.

Scott?

Scott Hisey: Thanks, Adam. While 2022 has been a challenging year for profitability, given the current economic environment, QualTek has continued to perform at a high level for our customers as reflected in our strong revenue growth and increased backlog. We are encouraged by our customers’ willingness to work with the industry on pricing, scale and scope. We remain laser-focused on executing our record $2.4 billion backlog as we work to return to normalized margin profitability in 2023. This concludes our remarks, and I will now turn the call back to the operator for Q&A. Operator?

Q&A Session

Operator: Thank you. Our first question comes from Tim Horan from Oppenheimer. Please go ahead. Your line is open.

Tim Horan: Hi, guys. A couple of questions. One, could you talk about the timing of the price increases and what you’re kind of expecting for EBITDA margins going forward? Secondly, I know you said you’d give a little bit more color in 2023. Yes, can you give us a sense of revenue growth overall range maybe and what you expect margins can kind of be? And then third, renewable business, could we get a sense of what type of revenue that could represent for the fourth quarter €“ and will that flow into next year? And any sense €“ yes any sense and color on the timing on the recovery business sorry. Thanks.

Scott Hisey: Thanks, Tim. So on the renewables piece, I’ll take that first. We looked at that business all year as slowing and having a lot of projects that were sort of pushed to 2023. There were a lot of supply chain issues and regulatory issues, which hampered that business for us as a player who supports a lot of the activity in the builds, we looked at that business as something we’re excited to continue to build in but more of a 2023 and 2024 opportunity for QualTek, so we see that €“ we’re seeing strong bid activity and we’re seeing other opportunities for 2023 and 2024 in renewables. So we’re excited about that business. It’s just not a 2022 priority for us right now as the work has been pretty inconsistent. On the guidance for 2023, I think we’re focusing on right now with our customers is to look at our backlog which continues to grow.

We’re looking at balancing wireless and wireline and other opportunities within the Renewable and the Power segment and looking to maximize margin and growth. So what I’ll say regarding 2023, we’re still heavily in bid season and budget season and we feel like we could probably give some better color and guidance on 2023 later in this quarter. And then the last piece was from price increases. So this is something after we went public in Q2 and as we started to look at the significant ramp in 5G that really started late Q2 and Q3. We’ve been working with our customers on pricing throughout the whole year with fuel inflation and you think about what we do we put people in trucks and use a lot of fuel and wage inflation being pretty dominant in an industry that has 0% unemployment.

We’ve been working with our customers throughout the course of the year on pricing, on scale, on payment terms. And really, it’s the unprecedented demand and the growth that we’re managing through. So, a lot of the pricing initiatives that were early in the year where there are some opportunities to increase prices. But for the most part, a lot of the pricing and contracts that we have are resetting for 2023, and we’ll feel the effects from a margin standpoint. I mean when you think about margins, we’ve operated double-digits for almost our whole entire existence. Last couple of years with growth and inflation, there’s been a lot of pressure on that. We expect to move back to our normalized margins and continue to perform at previous levels in the coming years.

Tim Horan: So just to be clear, do you think you’re going to get some significant price increases at the beginning of 2023 kicking in. Is that fair to say that you can get back to your historical margin level?

Scott Hisey: Yes. So we’ve negotiated price increases, scope changes with our customers. There were some customers who we’re perhaps not as willing to look at pricing. And we’re going to focus our efforts on long-term partnerships, and from a perspective of wage inflation and fuel inflation, we had to address margins with our customers, as I said and some of our peers have set on their calls as well. I’m encouraged by the reality of where margin pressures are and what work needs to be done and the labor rate in the industries in what they are, I feel like our customers have stepped up and supported growth initiatives, because they have a lot of work. And in a lot of cases, they have requirements to build. And I think we’re all stepping up together to meet these challenges. And I feel confident that we’re going to focus our efforts on returning our margins to normal levels.

Tim Horan: And again just a sense of timing, is that — first quarter we get back to normal, is it third quarter next year, just a rough sense?

Scott Hisey: Yes. I feel like in Q2 of next year, we’re going to return to normal margin levels. Obviously, with QualTek’s business, those of us who are familiar with our story, we have a lot of winter markets. So typically speaking, we don’t set a very high bar for Q1, because of seasonality and weather. But from a margin standpoint, the jobs that we are bidding and the work that we’re converting from backlog, we’re very focused on margin profile, profitability and delivery of what our customers’ expectations are.

Tim Horan: And then on the recovery business on the hurricanes, can we get a sense of how large — how big of a deal this recovery is for Ian and maybe Nicole. And how long you think it will last, rough idea? And maybe what kind of revenue that could represent for the fourth quarter?

Scott Hisey: Yes. So we’re still partially deployed and we’re working down the hurricane. So we’re not going to really dial that number in quite yet. When we get a little further into the quarter, we’ll look at that and other opportunities to be able to talk about it a little better.

Adam Spittler: And Tim, as Scott mentioned, we are still deployed. So, we’re just taking it on a day-by-day basis.

Tim Horan: And any idea, how much — well, can we get a sense of what this hurricane season was like, I know, it was later but versus last year. Do you think, it’s like half the overall impact about the same to the infrastructure?

Scott Hisey: Yes. So Tim, you can kind of back into the guidance. But as I mentioned, there is some variability, we’re still deployed. And at this point, we’re just taking it on a day-by-day basis.

Tim Horan: Got it. Got it. And then last question — sorry for the questions. Could you maybe just talk about the longer-term outlook? When you look at Verizon, AT&T, they basically said CapEx is peaking over the next 12, 18 months and will decline from there. I know, they still have a lot of rural build outs and other places to kind of go. But do you have a sense of how sustainable your wireless revenues are up at this relatively high level?

Adam Spittler: Yes. So, the one thing I’ll say Tim is, our customers are coming out with CapEx forecast, that some of them are flat, some of them are decreasing in some ways. But the work that we’re doing and the type of work that we’re doing, either on the wireless side or place in fiber, that is pretty much committed within their CapEx. So, we’re not looking at backlog or budgets for the particular or specific work that we do is going down. The necessity to improve their networks and deploy fiber and change out equipment on cell towers that demand is not decreasing. So we feel pretty confident that the portion of CapEx that we do for those customers will continue at these levels and greater and the other portions of the CapEx that they have within their businesses I can’t speak to.

Tim Horan: Understood. Thanks, guys.

Operator: Our next question comes from Christian Schwab from Craig-Hallum Capital. Please go ahead. Your line is open.

Christian Schwab: Hey great. Just a few questions. Adam, just on the — the ABL that — just to be clear on that right, it’s extended to $130 million from $70 million from September 15 to December 31, then it goes back to $70 million. Is that correct?

Adam Spittler: So, the facility pre-amendment was $103.5 million. This amendment extends it to $130 million from September 15 through year-end and then it does go back down to $103.5 million.

Christian Schwab: Great. And how much is on that the ? How much do you have on the ABL currently at the end of the quarter?

Adam Spittler: Yes. So there’s about $102 million drawn on that. Obviously, there is a sizable portion related to the recovery business that we will — we anticipate collecting in Q4.

Christian Schwab: Okay. Okay. Great. And then in the telco business, are you guys assuming typical seasonality in Q4 for that business to be down 5% or 10%? Is that what we should be thinking?

Adam Spittler: Yes. I think that’s reasonable. As Scott mentioned Christian, we do work in some cold weather markets. So far, it has been mild but that could turn relatively quickly and have an impact.

Christian Schwab: Okay. Okay. I’m really confused on the backlog you guys have call it $675 million in revenue this year plus or minus and telecommunications, but $2.4 billion in backlog, which should lead to great visibility because it’s kind of unprecedented versus trailing 12 versus your peers like Dycom and MasTec. But yet you have no visibility on 2023 because you have to wait for CapEx cycles. I don’t understand.

Scott Hisey: So Christian, just to kind of put a finer point on that. I mean if you look at the ramp in our revenue through 2022, obviously we did experience some significant growth in both the wireless and wireline portion of the business. If you look at our CapEx and kind of the way it works out for 2023, we do anticipate a similar step-up in revenue. And the majority of the growth in our backlog over the last two quarters has been related to wireline programs. The other thing Christian, you did have an anomaly in 2022. We were issued a lot of work at the beginning of 2022, particularly in wireless and particularly around C-band. And although a lot of that work was issued to us, the licenses and when supply change and commitments allowed us to start building was really as you recall mid-summer.

So you sort of have an anomaly where our backlog is sort of outsized to our revenue run rate. We have no choice, but to increase our revenue run rate. And find a way to split that backlog in half. That’s a 24-month backlog. So we have to continue to grow and manage our growth and profitability and bring our crews up to speed to take down that backlog which we’ve been doing. But I think from a standpoint of normalization, I can’t really speak to how the other companies work has flowed. I can tell you that our work particularly in the Northeast was slower getting going. And as is typically the cycle in this industry, we were issued to work. There were four or five months of delays. And the next day everybody wants to know where our crews are and let’s get going.

So we’ve been responding to a pretty hefty ramp. And I think the Q3 numbers in Telecom are sort of indicative that we’re meeting the challenges of growing.

Christian Schwab: Do you guys have the capital to even work through that backlog in a material fashion in the next 24 months. So I mean should we assume that either the backlog work can’t be accomplished in a two-year time frame and a substantial decrease in backlog occurs versus a more substantial increase in revenue well above what you grew last year to get anywhere near covering that?

Scott Hisey: So I’ll take that in two different parts, Christian. Obviously, we continue to have robust growth in the business, which is — it’s a good problem to have and we’re considering all options to maximize liquidity to execute on that backlog. On the flip side, we need to add people. We focus every single day on adding people adding resources to help us execute that backlog.

Christian Schwab: Okay. I guess I’m kind of confused also on the conversation regarding how wage and fuel inflation surprised you somehow this quarter. Last quarter you guys suggested that you could get to double-digit margins in the second half of the year. And you stated that you met with all your customers and had meaningful discussions about how to continue to organically build the business around existing locations and you mentioned scale et cetera, et cetera then we missed it by miles. I don’t understand how you can’t get that right with a few days left in the quarter.

Scott Hisey: So to your question, Christian, I appreciate the question. I wouldn’t say, we were necessarily surprised, I think, as we were growing the business and demand continued and our customers shifted priorities of what we needed to build and how fast we had to ramp during the quarter. There were certainly inflationary and fuel pressures associated with the ramp and telecom. I think from a perspective of how we were ramping Telecom, which our core business from inception of the company, I think that and then the slowness in Q3 of this particular storm season, I think that was the weight of where the blended margins ended up. But I think from a Telecom perspective, we’ve had great demand for our business in Q3. We have ramped significantly.

I think Adam spoke to customer increases with all of our major customers year-over-year and what percentage of revenue they are. So the demand for our services from our largest customers in Q3 caused us to build and ramp fast, as we spoke about with margins, there’s a lot of pressure on margins particularly in wage and fuel inflation that has continued through the course of this year. We — one thing I will tell you is, historically, as we’ve continued to build this company since I started it, our focus has always been on margins and margin improvements. We’ve gone through a pretty rough period here with wage and fuel inflation, but we’re laser-focused on prioritizing our customers, the rates, our cost structure and returning to normalized margins with the business.

Christian Schwab: Okay. Great. No other questions. Thank you.

Operator: Our next question comes from Brent Thielman from D.A. Davidson. Please go ahead. Your line is open.

Jean Ramirez: Good morning. This is Jean Ramirez for Brent. How are you?

Scott Hisey: Great. How are you?

Jean Ramirez: Good. Regarding Telecom, could you let me know or provide some color to see which part of the business are you seeing more pressures on margins between wireless and wireline?

Scott Hisey: Thank you. And I’m actually really glad you asked that question, because historically in the Telecom business, there’s been swings between wireless and wireline and I’m sure all the analysts and those of us who have been in the industry for 30 years have seen. And I will tell you there is an unprecedented demand for wireless right now and the labor shortage that have fueled a lot of growth. We see that continuing for a long time and we’re working with our customers on scope and scale and pricing to make sure that there’s a sufficient labor market to accomplish some pretty healthy goals of all the carriers around 5G. I know the word 5G is a little tiresome for everyone, because we talked about it for two years before it started.

But I can assure you we really have just started 5G in the last 12 months, and there’s a long way to go building out wireless. That being said, the profile and type of work and opportunities on the wireline fiber side are pretty substantial right now. We are moving to balance out wireline and wireless within QualTek, I think, you’ll see our growth that Adam spoke about, I think, our wireline growth was 70% year-over-year. So we’re looking to balance out and move to more wireline projects. Historically, QualTek has been a significant wireline player, throughout the different shifts. But there’s also wireline swings, the other way in wireline sometimes where it gets slower. We don’t see that for the foreseeable future. So, we’re going to move folks into wireline and continue to build as that margin is strong and opportunities where our customers are strong and really look to balance out.

But historically, we’ve been substantially larger in wireless than wireline.

Jean Ramirez: And just to clarify, so you’re seeing more pressure on margins on wireline. Is that what you’re seeing, or is — am I missing something here?

Scott Hisey: Yeah, I’ll just be a little more, clear then. There’s more pressure on wireless, than there is on wireline. And that’s primarily due to a shortage of crews and some of the contracts, having predated the current inflationary and recessionary conditions. As we move forward, obviously we’re addressing wireless margins through pricing and efficiencies, but we’re also seeing sort of a new unprecedented demand for fiber construction and projects and from that, we see opportunities just from the bids the margins are — the margin profile of new bid activity is stronger. So we’ll balance out our business. And I think the best way to approach the Telecom business is with a balanced approach. QualTek has become pretty heavily shifted towards wireless, as we’re pretty good at. And our demand has increased substantially, but we are looking to balance out wireless and wireline.

Jean Ramirez: Okay. Got it. Thank you for that. And just one more question will recovery would just have a record year based on all the activity done to-date?

Scott Hisey: As I mentioned earlier, we’re still deployed. We’re taking on a day-to-day basis. There is a lot of variability. So it’s just too early to tell. And just to be clear that is an extremely important and strong part of our business and the foundation, and the management team, had done a tremendous job with that business. And we see significant opportunities for that segment to grow our leadership in Recovery Logistics, also support all of our power initiatives and renewable initiatives in the future. So we feel very confident in that group. And as we go forward, that’s a big part of our plans to reduce the seasonality piece of that business and run it more as a consistent growing segment of the company.

Jean Ramirez: Got it. And if you don’t mind, could I ask one more question regarding cash flow. I just wanted to

Scott Hisey: Please go ahead.

Jean Ramirez: Yeah. Thank you. So I know you said you’re in just kind of see how you still deploy and you want to see the variability going on. But — could you perhaps provide some idea or some guidance into the cash flow coming in the next — in Q4? And maybe does it bleed into 2023? Or — or are you — or is it the same answer or providing that you’re still seeing how much work there is and how much and that guides how much cash flow is coming in?

Scott Hisey: Yeah. So, obviously, we’ve been working with customers on accelerating some payment terms, just based on demand. But if you look at our Q3 cash flow, obviously, we mentioned in Q2, we do anticipate having positive cash flow in the back half of the year. In Q3, our wireless business grew 10.5% sequentially. So there was some build in working capital in that business. And then our recovery business, just related to events. We had about a $12 million build that we anticipate collecting in Q4. And then the rest of the business was about $4 million of cash flow positive. So as you think about Q4, we do anticipate being pretty strongly cash flow positive.

Jean Ramirez: Great. Thank you. Appreciate it.

Operator: Our next question comes from Tim Horan from Oppenheimer. Please go ahead. Your line is open.

Tim Horan: Thanks guys. Just a little bit more color on the backlog. The $2.4 billion is that primarily telecom. Does that reflect future price increases? And can you give us maybe a range of what type of price increases you’re expecting? And just sorry, lastly, on the backlog. I mean, so to meet this backlog, I mean, we’re talking all things being equal telecom’s got to be roughly $1 billion run rate in revenues the next 2023, 2024 and also missing something? Thank you.

Adam Spittler: Yeah, Tim, I think that’s right. And if you look at our Q3 here our Telecom business was about $188 million. We did start some large multiyear programs that we believe are at attractive margins in our wireline business that you haven’t seen the full extent of. But yeah, I mean that is the math.

Scott Hisey: And I think to answer your other question our backlog is almost entirely telecom as we grow. There is a portion of renewables and a portion of power line in there, but they’re small. So our telecom backlog reflects two years out, there’s contracts we have that are three and four years, so it goes beyond that. But to your point, we are still ramping. We’re still in a growth mode. There’s still expectation’s of our customers for 2023. And in some cases, we have sites that go out into 2024 in terms of build schedule. So from a timing standpoint, the expectation from our customers is that we’ll execute that backlog.

Tim Horan: And is that backlog include, the price increases you expect to get? And can you give us a range on the price increases at this point?

Adam Spittler: It does include price increases. We’re not going to disclose what the ranges are at this time, as we are still in discussions with various customers.

Tim Horan: Understood. Thank you.

Operator: Our next question comes from Christian Schwab from Craig-Hallum Capital. Please go ahead. Your line is open.

Christian Schwab: Hey. Just guys can you give a rough estimate of, how many wireless crews you have currently and how many wireline crews you have currently?

Scott Hisey: We don’t break that information out Christian, I wouldn’t think that any of our peers would either. We’re continuing to grow our workforce and our contractor workforce and our balance of employees to contractors remain similar to others in the industry.

Christian Schwab: Okay. I guess I think it’s pretty obvious, that the leading Telco companies want to aggressively lay fiber, kind of probably at unprecedented levels actually. But wireline crews are very expensive. It’s my understanding, it’s — it’s a significant skill set that not everybody has, right? Wireless crews can be taught as long as you’re not afraid of heights, to take something off and put something else on the power, but wireline workers are expensive, crews are expensive, capital equipment is expensive. So I’m just confused on, how you’re going to grow that materially given your current cash situation.

Scott Hisey: So we’ve been involved in some of the largest construction builds for the last decade. And prior to that, our senior leadership team is worked with all the major cable operators and telecom operators building. And we’re pulling from the same pool, as our peers a lot of this work is contracted out with companies with drills and equipment. And from an in-house perspective, we have equipment and have has needed Flextin bought equipment as the industry and the build that we’ve committed to have warranted. So I feel like, our opportunity is the same as anyone else’s. And reputationally, QualTek being a veteran sensitive business. There’s a lot of folks in our industry that have gone to trust our relationship and our performance. And we typically, do a really good job of developing relationships and have people working with us for long term in the geographies that we have.

Adam Spittler: And Christian, from a structural standpoint in the contracts, what we’re seeing just given the overwhelming demand in the business is, our customers are offering accelerated payment terms where they’re significantly less in carry during the build cycle than what you see historically.

Christian Schwab: Okay great. Thanks for all the questions. Thank you.

Operator: We have no further questions. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.