MasTec, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. MasTec is a North American infrastructure construction company operating in Communications, Clean Energy and Infrastructure, Oil and Gas, Power Delivery, and Other.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $2.874 billion | $2.302 billion | $5.459 billion | $4.256 billion |
| Net income (loss) attributable to MasTec | $15.5 million | $16.2 million | $(65.0) million | $(18.8) million |
| Diluted EPS | $0.20 | $0.20 | $(0.84) | $(0.27) |
| Consolidated EBITDA, non-GAAP | $224.2 million | $152.3 million | $300.8 million | $231.0 million |
| Adjusted EBITDA, non-GAAP | $255.4 million | $178.5 million | $357.9 million | $277.2 million |
| Operating cash flow | Not presented separately | Not presented separately | $(97.9) million | $1.5 million |
Q2 revenue increased 25%; reported growth was almost entirely acquisition-related, with approximately $570 million from acquisitions and only about $3 million of organic growth. For the first half, revenue rose 28%, including approximately $970 million of acquisition-related revenue and $232 million of organic growth. Q2 net income attributable to MasTec was slightly lower year over year despite higher revenue. First-half losses widened, reflecting higher interest expense and other costs; a $41.8 million income-tax benefit partly offset the pretax loss.
Q2 costs of revenue excluding depreciation and amortization were 86.5% of revenue, down from 88.1%, which management attributed primarily to project efficiencies and close-outs. For the first half, the ratio increased to 88.7% from 88.4%, with project inefficiencies and inflation partly offset by efficiencies. Q2 consolidated EBITDA margin was 7.8%, versus 6.6%; first-half margin was 5.5%, versus 5.4%. Adjusted EBITDA margin was 8.9% and 6.6%, respectively. Adjusted net income was $70.7 million in Q2 and $28.8 million for the first half; these are non-GAAP measures that exclude specified items.
Segments and material changes
- Clean Energy and Infrastructure: Q2 revenue nearly doubled, primarily because of acquisitions, while organic revenue declined about 10% due to project timing. Segment EBITDA improved to $33.2 million from a $5.2 million loss. First-half revenue also nearly doubled, but organic revenue declined about 4%.
- Communications: Q2 revenue rose 6%, with organic growth of about 1%; higher wireline and utility work was partly offset by lower install-to-the-home activity. First-half revenue rose 13%, including organic growth of about 9%.
- Oil and Gas: Q2 revenue was broadly flat, while EBITDA rose to $77.0 million from $62.8 million, supported by productivity and project mix. First-half revenue rose 8%; EBITDA margin was flat at 15.3%.
- Power Delivery: Q2 revenue rose 9% and EBITDA rose to $57.1 million from $41.4 million, reflecting higher activity and improved efficiencies. First-half revenue rose 9%.
Acquisition and integration costs were $22.7 million in Q2 and $39.8 million for the first half, compared with $12.5 million and $26.1 million in the prior-year periods. MasTec continued integrating recent acquisitions, including IEA, and said additional integration costs are expected.
Cash, debt, liquidity and outlook
- Cash and cash equivalents were $119.9 million at June 30, 2023, down from $370.6 million at year-end 2022. First-half cash decreased $250.7 million. Working capital was $1.388 billion.
- First-half operating cash use was $97.9 million, versus $1.5 million provided in 2022. Management cited the net loss and working-capital timing, including higher contract assets and lower accounts payable and accrued expenses. Days sales outstanding, net of contract liabilities, increased to 90 from 83 at year-end.
- Debt, net of deferred financing costs, was $3.324 billion, versus $3.224 billion at December 31, 2022. Revolving borrowings were approximately $1.007 billion; reported revolving availability was $782 million. The company was in compliance with debt covenants.
- Interest expense was $59.4 million in Q2 and $112.1 million for the first half, sharply higher year over year, primarily due to acquisition-related borrowings, higher average debt balances, and higher floating rates. Management estimated that a further 100-basis-point rate increase would add approximately $11 million to first-half interest expense.
- Management expects available cash, operating cash flows, and credit facilities to cover liquidity needs for the next 12 months and foreseeable future. It estimated 2023 capital expenditures of approximately $175 million, net of asset disposals approximately $100 million, plus about $150 million of equipment purchases through finance leases and other financing arrangements.
- Remaining performance obligations were $8.0 billion; management expected to recognize approximately $4.6 billion as revenue during 2023, with most of the balance in 2024. Estimated 18-month backlog was $13.442 billion, and approximately 47% was expected to be realized in 2023. Backlog includes substantial master service agreement work that customers may cancel or defer and is not a guarantee of future revenue.
The filing does not provide a specific earnings or revenue forecast for full-year 2023. Management expects a dynamic macroeconomic environment, with elevated interest rates and continuing, though moderating, cost inflation.
Risks, contingencies and unusual items
- Acquired solar-project litigation: A jury found IEA and its subsidiary liable in a Georgia case concerning sediment runoff from a solar project. The verdict included compensatory damages apportioned among defendants and punitive damages of $50 million against each IEA entity. Post-trial motions seeking relief or reductions, and plaintiffs’ additional damages motion, were pending. The ultimate exposure is uncertain.
- Internal controls: Management concluded disclosure controls and procedures were not effective as of June 30 because of previously identified material weaknesses involving acquired entities, purchase accounting, review controls, IT controls, and business-process controls. Remediation is ongoing. Management stated the reported financial statements fairly present the periods and that the weaknesses had not caused a restatement.
- Contract estimates and claims: Revenue and project margins depend on estimates of costs to complete and variable consideration. Contract transaction prices included approximately $317 million of unresolved change orders and claims; amounts ultimately approved could be higher or lower.
- Inflation, rates and execution: Labor, fuel and materials inflation, supply-chain issues, permitting delays, customer spending changes, project timing, and floating-rate debt could pressure margins, demand, cash flow, and interest costs.
- Other commitments: Outstanding performance and payment bonds were approximately $5.389 billion, with estimated costs to complete the bonded projects of $1.790 billion. The company also reported $196.0 million of estimated self-insurance liabilities and potential multiemployer pension-plan exposure that it could not quantify.
- Non-GAAP measures: Adjusted EBITDA, adjusted net income, and adjusted EPS exclude specified costs and other items; their definitions are not standardized and should be assessed alongside GAAP results.
Important facts for investors to verify
- Whether organic demand and margins improve, particularly in Clean Energy and Infrastructure, where Q2 revenue growth was acquisition-led and organic activity declined.
- Whether operating cash flow recovers as contract assets, collections, billing timing, and DSO develop.
- How debt levels, floating interest rates, and acquisition integration costs affect earnings and liquidity.
- The outcome and potential financial impact of the IEA litigation, including pending post-trial motions.
- Progress in remediating material weaknesses and whether controls are eventually tested as operating effectively.
- How much of the $13.442 billion backlog and $8.0 billion of remaining performance obligations is converted to revenue on the expected schedule, given cancellation, timing, and approval risks.