MasTec, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. MasTec is a North American infrastructure construction company operating across communications, oil and gas, electrical transmission, power generation and industrial markets. Results are annual; the filing also reports quarterly data.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $7.183 billion | $6.909 billion |
| Income before taxes | $510.9 million | $365.3 million |
| Net income attributable to MasTec | $392.3 million | $259.7 million |
| Diluted EPS | $5.17 | $3.26 |
| EBITDA (non-GAAP) | $823.4 million; 11.5% margin | $660.8 million; 9.6% margin |
| Adjusted EBITDA (non-GAAP) | $843.2 million; 11.7% margin | $721.0 million; 10.4% margin |
| Cash provided by operating activities | $550.3 million | $530.0 million |
| Cash and working capital at year-end | $71.4 million; $954.4 million | $27.4 million; $885.4 million |
| Total debt, including finance leases | $1.432 billion | $1.407 billion |
Costs of revenue excluding depreciation and amortization were 84.5% of revenue, down from 86.0%; general and administrative expense remained 4.2% of revenue. Net margin was approximately 5.5%, versus 3.8%. Capital expenditures were $126.5 million; equipment additions through finance leases were $206.2 million. The company had $912.8 million of revolving-loan availability and was in compliance with debt covenants at year-end.
Business performance and changes
- Revenue rose 4%. Acquisitions contributed $188 million; organic revenue increased approximately 1%.
- Oil and Gas revenue fell 5% to $3.117 billion, as regulatory disruptions reduced selected long-haul pipeline activity. Segment EBITDA nevertheless increased to $634 million from $452 million, reflecting improved project efficiencies, closeouts and mix.
- Power Generation and Industrial revenue increased 56% to $1.034 billion, mainly on higher renewable-energy project activity. EBITDA was essentially flat at $40 million, and margin declined to 3.9% from 6.1% amid project inefficiencies, weather effects and capacity-expansion costs.
- Communications revenue increased 2% to $2.619 billion, but EBITDA declined 28% to $209 million and margin fell to 8.0% from 11.4%, due to project mix and inefficiencies, lower storm-restoration work and capacity investments.
- Electrical Transmission revenue increased 4% to $414 million; EBITDA rose to $30 million from $11 million, with improved project execution and mix.
- MasTec completed six acquisitions during 2019. Cash paid for acquisitions, net of cash acquired, was $179.5 million.
Liquidity, outlook, risks and unusual items
- Operating cash flow was $550 million. Year-end debt was $1.432 billion; the senior secured facility had $1.75 billion in aggregate commitments, including a $1.35 billion revolver and a $400 million term loan. The company also had $400 million of 4.875% notes due 2023.
- Receivables were approximately $1.9 billion, while days sales outstanding increased to 91 from 81, primarily due to project retainage and collection timing. Management expected substantially all receivables and unbilled receivables to be collected or billed within 12 months.
- Year-end estimated 18-month backlog was $7.959 billion, and management expected approximately 80% to be realized in 2020. About half was tied to master service agreements that generally have no minimum purchase commitments and may be canceled on short notice. Separately, remaining performance obligations were $5.3 billion, with approximately $4.6 billion expected to be recognized in 2020.
- Management described multi-year opportunities in 5G and fiber, pipelines, grid upgrades and renewables, but provided no numeric 2020 revenue or earnings guidance in the supplied filing text. Planned 2020 capital expenditures were approximately $210 million before asset disposals, plus about $150 million of equipment purchases under finance leases.
- Key risks include project-cost estimation and execution, customer cancellations and concentration, permitting and regulatory delays, oil-and-gas market volatility, weather and seasonality, labor availability, environmental and safety liabilities, cybersecurity, acquisition integration, self-insurance and underfunded multiemployer pension plans. The filing also identifies potential adverse economic effects from public-health issues, including the coronavirus outbreak.
- Unusual items included $3.3 million of non-cash intangible-asset impairment, compared with $47.7 million of goodwill impairment in 2018; $51 million of expense from revised earn-out estimates; and an approximately $60 million Canadian acquisition arbitration award. MasTec collected $32 million of the award in 2019; collection of the remainder was uncertain and not recognized.
- The effective tax rate was 22.9%, down from 29.0%. In 2019, MasTec adopted lease accounting guidance, recognizing approximately $230 million of operating lease assets and liabilities; the filing says adoption did not materially affect results or cash flows.
Most important facts for investors to verify
- Whether the strong Oil and Gas margin improvement is sustainable despite lower segment revenue and regulatory disruption.
- Whether Communications and Power Generation and Industrial margins recover after the reported project inefficiencies and capacity investments.
- How much backlog converts to revenue and profit, given the large share tied to cancellable, non-minimum-commitment service agreements.
- Cash conversion and collection trends, particularly the increase in DSO and the scale of contract assets and retainage.
- Future earn-out payments and valuation changes: estimated earn-out liabilities were $173 million, with a disclosed potential undiscounted range of $54 million to $274 million and no stated maximum.
- Customer concentration and exposure to related parties, project claims, contingent obligations, and self-insurance liabilities.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The internal-control assessment excluded four recently acquired businesses, which together represented 7% of year-end assets, 3% of 2019 revenue and less than 1% of 2019 net income.