MasTec, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Unaudited results; comparisons are with Q1 2012 unless otherwise noted. MasTec provides infrastructure construction, installation and maintenance services across communications, energy, utilities and industrial markets, primarily in North America.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $918.6 million | $738.3 million |
| Income from continuing operations before tax | $31.7 million | $19.5 million |
| Income from continuing operations | $19.3 million | $11.7 million |
| Net income attributable to MasTec | $18.4 million | $14.2 million |
| Diluted EPS, continuing operations | $0.23 | $0.14 |
| Diluted EPS, total | $0.22 | $0.17 |
| Net cash provided by operating activities | $31.8 million | $43.4 million |
Revenue increased 24.4%; management attributed $137.3 million of growth to organic activity and $43.1 million to acquisitions. Costs of revenue excluding depreciation and amortization declined to 86.2% of revenue from 88.3%. Continuing-operations EBITDA, a non-GAAP measure, was $73.5 million (8.0% margin), versus $49.2 million (6.7%). Reported Q1 2013 results included a $5.6 million pretax debt-extinguishment loss; excluding its after-tax impact, management reported adjusted continuing-operations income of $22.8 million and diluted EPS of $0.27.
Segment revenue and EBITDA: Communications, $424.9 million and $46.4 million; Oil and Gas, $318.8 million and $42.4 million; Electrical Transmission, $84.6 million and $3.4 million; Power Generation and Industrial, $88.9 million and negative $0.2 million. Oil and Gas and Communications drove much of the growth and margin improvement. Electrical Transmission margins fell, while wind-related weakness weighed on Power Generation and Industrial.
Balance sheet, debt and liquidity
- At March 31, 2013, cash and cash equivalents were $109.2 million from continuing operations ($110.1 million including discontinued operations); working capital was $454 million, compared with $337 million at year-end 2012.
- Total debt was $734.7 million, including $400 million of 4.875% senior notes due 2023, $202.3 million principal of convertible notes due 2014, and capital leases and equipment notes. The $600 million revolving credit facility had no outstanding loans; $119.3 million of letters of credit were issued and $480.7 million of borrowing capacity remained available.
- In March, MasTec issued $400 million of 4.875% notes, used part of the proceeds to repay its $150 million of 7.625% notes and the credit-facility balance, and used remaining proceeds for working capital and general corporate purposes. Debt extinguishment generated a $5.6 million charge.
- Accounts receivable were $902.4 million, including $337.8 million of costs and earnings in excess of billings. Days sales outstanding rose to 88 from 83 at year-end, as adjusted for acquired businesses. Management said it did not anticipate material collection issues.
Changes, outlook and notable matters
- Oil and Gas revenue rose about 90%, with growth from long-haul pipelines, midstream projects and acquisitions. Communications revenue grew 9.2%; Electrical Transmission revenue rose 31.3%. Power Generation and Industrial revenue fell 24.3%, mainly because delayed wind production tax credit renewal reduced wind activity; solar and industrial work partly offset the decline.
- Estimated 18-month backlog was $3.455 billion at March 31, up from $3.358 billion at December 31, 2012 and $3.072 billion a year earlier. The company cautioned that backlog is not a firm revenue commitment: much master-service work can be canceled, and project timing can change.
- Management estimated 2013 capital expenditures of about $100 million and an additional $50–$60 million of equipment purchases through leases or other financing. It expected stronger Power Generation and Industrial activity in the second half, following renewal of wind production tax credits. No full-year revenue or earnings guidance is stated in the provided filing text.
- Management said operating cash flow and available liquidity should meet anticipated needs for at least the next 12 months. However, operating cash flow fell year over year, chiefly due to working-capital use, including higher receivables and lower payables/accruals. Management also noted that seasonal working-capital needs typically rise from April through October.
- Customer concentration is significant: AT&T, DIRECTV and Enbridge represented 18%, 16% and 12% of continuing-operations revenue, respectively; the top ten customers accounted for 69%. Nearly half of revenue came from project-specific work.
- Globetec remained classified as discontinued operations and held for sale, with net assets of $25.3 million. MasTec was in discussions with a potential buyer; management warned that a sale below its estimated value could result in further losses. Q1 discontinued operations recorded a $0.9 million net loss.
- Contingencies include Central States pension-fund withdrawal liability: the fund demanded $10.8 million, versus MasTec’s recorded $6.4 million estimate; the company disputed the demand. A tentative agreement in the Sintel litigation would dismiss MasTec defendants with prejudice, but conditions remained unmet and there was no assurance it would be completed. The filing also describes other litigation, self-insurance, bonding and multi-employer pension risks.
- Results are exposed to seasonality, weather, project execution and pricing pressure, customer spending and concentration, fuel and labor costs, and the timing of regulatory incentives. The company reported compliance with debt covenants at quarter-end; the credit facility requires leverage and interest-coverage tests. MasTec also intended to settle principal on convertible-note conversions in cash, but noted facility restrictions could affect that ability.
Important facts for investors to verify
- Whether receivables, unbilled contract balances and days sales outstanding stabilize as seasonal activity increases.
- Whether Oil and Gas and Communications margins remain strong, and whether Electrical Transmission project costs and wind-related weakness improve.
- Conversion cash-settlement capacity, debt covenants, available revolver liquidity, and the effect of the March refinancing on future interest expense.
- Progress and potential valuation of the Globetec sale, and outcome of the $10.8 million Central States demand and Sintel litigation agreement.
- Backlog conversion and customer demand, given project cancellations, customer concentration and the large share of project-specific revenue.