MasTec, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. MasTec is a North American infrastructure construction company operating in Communications, Clean Energy and Infrastructure, Oil and Gas, Electrical Transmission, and Other. The filing also reports unaudited fourth-quarter results.
Financial performance
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $6.321 billion | $7.183 billion |
| Net income attributable to MasTec | $322.8 million | $392.3 million |
| Diluted EPS | $4.38 | $5.17 |
| EBITDA | $782.5 million; 12.4% margin | $823.4 million; 11.5% margin |
| Operating cash flow | $937.3 million | $550.3 million |
| Cash and cash equivalents at year-end | $423.1 million | $71.4 million |
| Working capital at year-end | $943.8 million | $954.4 million |
| Total debt, including finance leases | $1.303 billion | $1.433 billion |
Costs of revenue, excluding depreciation and amortization, were 83.4% of revenue versus 84.5% in 2019. The resulting improvement in this cost ratio, along with stronger segment margins, lifted EBITDA margin despite lower revenue. Cash from operations rose substantially, primarily reflecting working-capital changes. Capital expenditures were $213.7 million; equipment purchases under finance leases added $114.2 million.
Fourth quarter: Revenue was $1.637 billion versus $1.709 billion in Q4 2019. Net income attributable to MasTec was $113.1 million versus $100.9 million, and diluted EPS was $1.54 versus $1.33.
Material changes and segment results
- Revenue declined 12% year over year. Oil and Gas revenue fell 43% to $1.790 billion, primarily from lower activity and regulatory disruption; Communications declined 4% to $2.512 billion.
- Clean Energy and Infrastructure revenue rose 48% to $1.527 billion, driven mainly by renewable-energy project activity. Electrical Transmission revenue increased 22% to $507 million.
- Segment EBITDA improved in Communications ($270 million versus $209 million) and Clean Energy and Infrastructure ($80 million versus $40 million). Oil and Gas EBITDA fell to $511 million from $634 million, although its margin increased to 28.5% from 20.3% on improved productivity, project efficiencies, close-outs, and mix. Electrical Transmission EBITDA decreased to $15 million from $30 million.
- Estimated 18-month backlog was $7.874 billion, slightly below $7.959 billion a year earlier. Management expects approximately 80% of year-end backlog to be realized in 2021. Separately, remaining performance obligations were $5.0 billion, with approximately $4.6 billion expected to be recognized in 2021.
Liquidity, debt, and capital allocation
At year-end, MasTec reported approximately $1.6 billion of liquidity: $423 million in cash and $1.2 billion available under its credit facility. The $1.75 billion senior secured facility matures in 2024; MasTec had $33 million of revolving loans and a $398 million term loan outstanding under it. In August 2020, the company issued $600 million of 4.50% senior notes due 2028, used part of the proceeds to redeem $400 million of 4.875% notes due 2023, and used remaining proceeds primarily to repay revolver borrowings. It recorded a $5.6 million debt-extinguishment loss and reported compliance with debt covenants.
MasTec repurchased approximately 3.6 million shares for $120.2 million during 2020. It has historically paid no cash dividend and does not currently anticipate one. Management expects liquidity and operating cash generation to meet needs for at least the next 12 months. For 2021, it estimated capital expenditures of approximately $150 million gross, or $100 million net of asset disposals, plus $120 million to $140 million of equipment purchases under finance leases.
Outlook, risks, and unusual items
- Management cited expected opportunities in 5G and fiber networks, renewables, grid upgrades, and pipeline integrity and replacement work. Renewables represented approximately 18% of 2020 revenue; MasTec projected the business could reach approximately 30% of revenue over the next several years.
- Management anticipated significant long-haul pipeline work in 2021 and likely into 2022 from existing awards, while stating that future awards and timing remain uncertain. The filing does not provide specific consolidated 2021 revenue or earnings guidance.
- COVID-19 negatively affected 2020 operations and could continue to do so, through permitting delays, lower crew productivity, project delays or cancellations, supply-chain constraints, and customer spending or payment pressure. Oil and gas was particularly exposed to market disruption.
- Backlog is not a firm revenue guarantee: 45% was under service agreements without minimum purchase commitments, many cancelable on short or no notice. Project delays, cancellations, and customer demand changes could affect realization.
- Revenue recognition depends on estimates of costs to complete and variable consideration. Approximately $51 million of change orders and claims were included in contract transaction prices but remained under resolution at year-end; actual recovery could be higher or lower.
- Other notable items included $27.5 million of other income, including equipment-sale gains and investment-related income, versus $14.0 million of other expense in 2019; $12.1 million of credit-loss provisions versus $1.7 million in 2019; and $59 million of deferred payroll taxes under COVID-19 relief, half due by December 2021 and the remainder by December 2022.
- Key risks include project cost overruns and fixed-price contract estimates, customer and industry concentration, commodity-price and regulatory exposure, safety and environmental liabilities, self-insurance, underfunded multiemployer pension plans, cyber risks, and acquisition integration and earn-out obligations. Outstanding acquisition earn-out liabilities were estimated at $135 million; potential undiscounted amounts ranged from $48 million to $179 million, with no maximum payment amount.
Investor verification points
- Assess whether renewable, communications, and electrical-grid growth can offset continued weakness or uncertainty in Oil and Gas.
- Verify backlog conversion, especially the service-agreement portion lacking minimum customer commitments, and compare backlog with remaining performance obligations on a consistent basis.
- Monitor cash-flow sustainability and working-capital movements, including collection of receivables and the resolution of the $51 million in pending claims and change orders.
- Review leverage, debt-service capacity, credit-facility availability, and upcoming finance-lease and earn-out cash requirements.
- Track COVID-19, permitting, labor, project execution, customer concentration, and contingent-liability developments that could affect margins and liquidity.