MasTec, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021. MasTec provides infrastructure construction and maintenance services across communications, clean energy and infrastructure, oil and gas, and power delivery. Results include recently acquired businesses, including Henkels & McCoy (HMG), which MasTec began integrating and allocating across segments during the quarter.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1.954 billion | $1.775 billion |
| Gross costs of revenue, excluding depreciation and amortization | $1.733 billion; 88.7% of revenue | $1.514 billion; 85.3% of revenue |
| Net income (loss) attributable to MasTec | $(35.0) million | $65.6 million |
| Diluted earnings (loss) per share | $(0.47) | $0.89 |
| EBITDA; adjusted EBITDA | $78.7 million; $98.7 million | $198.4 million; $203.9 million |
| Cash provided by operating activities | $131.5 million | $257.2 million |
Revenue grew 10%, but the company swung to a net loss. Costs of revenue rose faster than sales, with management citing unfavorable segment mix, reduced productivity, project inefficiencies, start-up costs and project timing. General and administrative expense increased to $145.4 million from $70.6 million, including $57 million associated with acquisitions and $13.6 million of acquisition and integration costs. Intangible amortization increased to $25.6 million from $11.2 million, and net interest expense rose to $16.0 million from $12.5 million. Adjusted measures exclude specified items and are not GAAP results.
Segment performance: Communications revenue was $664.2 million and EBITDA was $40.3 million (6.1% margin), versus $568.6 million and $48.9 million (8.6%). Clean Energy and Infrastructure revenue was $435.9 million and EBITDA $10.9 million (2.5% margin), versus $350.4 million and $10.9 million (3.1%). Oil and Gas revenue fell to $211.0 million from $725.5 million; EBITDA fell to $21.5 million from $167.6 million, primarily reflecting lower large-diameter pipeline activity, timing and productivity. Power Delivery revenue rose to $650.5 million from $133.5 million, largely due to acquisitions; EBITDA increased to $46.1 million from $3.6 million.
Balance sheet at March 31, 2022: Cash and cash equivalents were $233.1 million, down from $360.7 million at year-end. Working capital was $918 million, versus $1.089 billion at December 31, 2021. Total debt, net of financing costs, was $1.923 billion, including $690.5 million of revolving loans, a $350 million term loan and $600 million of 4.50% senior notes due 2028. Revolving-loan availability was $760.9 million; MasTec reported approximately $1.0 billion of total liquidity including cash. The company was in compliance with debt covenants.
Operating cash flow decreased by $125.6 million year over year. Investing used $101.4 million, including $83.2 million of capital expenditures; financing used $158.0 million. The company estimated 2022 capital expenditures of approximately $230 million gross, or $150 million net of asset disposals, and expected $200–$220 million of equipment purchases under finance leases.
Material changes and outlook
- Acquisitions contributed approximately $704.7 million of Q1 2022 revenue, including $548.1 million from HMG and INTREN. Management estimated organic revenue declined approximately 30%, principally because Oil and Gas activity fell substantially.
- Estimated 18-month backlog was $10.645 billion, up from $9.939 billion at December 31, 2021 and $7.864 billion at March 31, 2021. MasTec expected to realize approximately 62% of March backlog in 2022. Separately, remaining performance obligations were $4.8 billion; approximately $3.8 billion was expected to be recognized in 2022.
- The filing does not provide a clear full-year revenue or earnings forecast. Backlog and capital spending estimates are not guarantees of future results.
- Management said COVID-19 effects had begun to subside, but highlighted inflation, labor and materials costs, supply-chain constraints, rising interest rates, geopolitical uncertainty, weather, permitting and project timing as potential pressures. Results are seasonal and estimates of contract costs, completion and variable consideration can materially affect reported revenue and profit.
Risks, contingencies and unusual items
- Approximately 65% of backlog was associated with master service or similar agreements without minimum purchase commitments; many can be canceled on short or no notice. Backlog is an uncertain indicator of future revenue.
- MasTec included approximately $131 million of unresolved change orders and claims in contract transaction prices. Final customer approvals could result in higher or lower amounts and may affect recognized revenue.
- Outstanding performance and payment bonds were approximately $2.230 billion; letters of credit issued under credit facilities were $217 million. The company also reported $186.2 million of estimated self-insurance liabilities.
- Earn-out liabilities were estimated at $160 million, with potential undiscounted amounts ranging from $41 million to $211 million and no maximum payment amount. Additional HMG acquisition payments were valued at approximately $65 million, subject to collection of acquired receivables.
- A prior settlement in MasTec’s favor was approximately $25 million; $19 million remained outstanding and was due in 2022. The filing notes ordinary-course legal and contract disputes but does not provide a clear quantified total exposure.
- Approximately $42 million of payroll taxes deferred under the CARES Act was due by December 31, 2022. MasTec repurchased $13.8 million of shares during Q1 and a further $35.8 million after quarter-end.
Important facts for investors to verify
- Whether productivity, project mix and segment margins recover after the sharp decline in consolidated EBITDA and the Oil and Gas results.
- How much of backlog converts to revenue and cash, given the large share tied to cancelable agreements and customer timing.
- Collection and resolution of contract assets, retainage, change orders and claims, including the acquired HMG receivables.
- Cash generation and liquidity after acquisition integration, planned capital expenditures, lease commitments, repurchases and deferred payroll taxes.
- Acquisition integration costs, earn-out obligations and the effect of variable-rate debt if interest rates rise.