MasTec, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. MasTec provides infrastructure construction and maintenance services across communications, oil and gas, electrical transmission, and power generation and industrial markets. Comparisons are with Q1 2019 unless stated otherwise. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $1,416.6 million | $1,518.3 million | Down 7% |
| Income before taxes | $36.5 million | $55.1 million | Down 34% |
| Net income attributable to MasTec | $36.2 million | $43.1 million | Down 16% |
| Diluted EPS | $0.48 | $0.57 | Down 16% |
| EBITDA | $114.0 million; 8.0% margin | $136.4 million; 9.0% margin | Down 16% |
| Adjusted EBITDA | $118.0 million; 8.3% margin | $140.1 million; 9.2% margin | Down 16% |
| Operating cash flow | $203.3 million | $(46.8) million | Improved $250.1 million |
The reported income tax provision was a $0.4 million benefit in Q1 2020, including a $9.6 million benefit from releasing Canadian deferred-tax valuation allowances; the effective tax rate was 1.2%, versus 21.8% in Q1 2019. Operating cash flow improvement was primarily driven by working-capital movements. Net cash used in investing was $58.7 million, including $60.6 million of capital expenditures; net cash used in financing was $145.2 million, including $119.4 million of share repurchases. Cash ended the quarter at $71.7 million.
At March 31, 2020, MasTec reported $1.419 billion of debt, net of deferred financing costs, including finance leases, and $1.297 billion of long-term debt. The $400 million of 4.875% senior notes mature in March 2023. The $1.75 billion secured credit facility had $874 million of revolving availability. Management reported approximately $946 million of total liquidity, including cash, and compliance with debt covenants. Working capital was approximately $820 million.
Material changes and business trends
- Oil and Gas revenue fell 42% to $359 million, mainly from project timing and mix and regulatory disruptions to selected pipeline work. Segment EBITDA declined to $74 million from $107 million, though its margin improved to 20.7% from 17.3% on better productivity and project mix.
- Communications revenue grew 5% to $644 million and EBITDA rose to $50.8 million. Electrical Transmission revenue increased 35% to $128 million; Power Generation and Industrial revenue rose 51% to $286 million, primarily reflecting higher renewable power activity.
- General and administrative expense increased 18% to $85.5 million, or 6.0% of revenue versus 4.8%, reflecting administrative, incentive compensation, IT, legal and settlement timing, and acquisition-related costs.
- Estimated 18-month backlog was $8.326 billion, up from $8.000 billion a year earlier. Management expected approximately 70% to be realized in 2020. Separately, remaining performance obligations were $5.7 billion, with approximately $4.5 billion expected to be recognized in 2020.
- MasTec repurchased approximately 3.57 million shares for $119.4 million during the quarter and had $159.4 million authorized for future repurchases at quarter-end.
Outlook, risks and unusual items
Management estimated 2020 capital expenditures of approximately $180 million, or $150 million net of asset disposals, and expected $140 million to $160 million of equipment purchases under finance leases. It stated that available liquidity and expected operating cash flows should fund anticipated needs for at least the next 12 months. This is not a specific revenue or earnings forecast.
Management said Q1 COVID-19 effects were limited and most construction work remained classified as essential. It cautioned that future permitting delays, lower crew productivity, higher costs, reduced overhead absorption, project delays or shutdowns, weaker end-market demand, and delayed customer payments could affect results; impacts could not be predicted or quantified. Net days sales outstanding rose to 104 from 91 at year-end, partly due to quarter-end collection delays associated with customer disruptions. The company also noted oil and gas market volatility and the possibility of backlog deferrals or cancellations; about 40% of backlog was under service agreements without minimum purchase commitments, many cancellable on short or no notice.
Other matters to note: unrealized losses on equity investee activity, primarily Waha JV interest-rate swaps, were $23.0 million net of tax, contributing to comprehensive income of $12.8 million versus $37.5 million. MasTec changed approximately $70 million of pre-qualification intangibles from indefinite-lived to finite-lived and began accelerated amortization; no impairment was reported. The filing describes ordinary-course litigation, bonding and letter-of-credit obligations, self-insurance liabilities, and multiemployer plan exposure. In April 2020, after quarter-end, MasTec invested $3 million in AVCT securities; the filing states its beneficial ownership interest increased to approximately 21% following the related business combination and redemptions.
Important facts for investors to verify
- Whether the COVID-19 pandemic, oil and gas conditions, and regulatory or customer decisions alter project timing, backlog conversion, margins, or collections.
- Whether the $203 million operating cash flow reflects sustainable cash generation or mainly quarter-specific working-capital timing; monitor DSO and receivables.
- Backlog and remaining performance obligations are not equivalent: backlog includes estimates under cancellable service agreements and is not a guarantee of future revenue.
- Liquidity and debt capacity after substantial share repurchases, planned capital spending, lease obligations, and potential earn-out payments; confirm future covenant compliance.
- Exposure to customer concentration, including AT&T at 24% of quarterly revenue, and the resolution and recoverability of contract claims and other contingencies.