MasTec, Inc. — FY 2011 Form 10-K
Business and period. MasTec provides infrastructure construction, installation, maintenance and upgrade services, mainly in North America, for communications, utility, energy and government customers. This annual report covers the year ended December 31, 2011; the filing also reports quarterly results, including the fourth quarter.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $3.009 billion | $2.308 billion |
| Net income attributable to MasTec | $106.0 million | $90.5 million |
| Diluted EPS | $1.23 | $1.05 |
| Costs of revenue, excluding depreciation and amortization | 86.6% of revenue | 84.0% of revenue |
| Adjusted EBITDA (non-GAAP) | $261.1 million; 8.7% margin | $241.1 million; 10.4% margin |
| Cash from operating activities | $5.8 million | $218.0 million |
| Capital expenditures | $71.7 million | $30.4 million |
| Cash and cash equivalents at year-end | $20.3 million | $177.6 million |
| Working capital at year-end | $242.3 million | $235.1 million |
| Total debt at year-end | $494.9 million | $412.6 million |
Revenue increased 30.4%; management attributed $265.3 million of the increase to 2011 acquisitions and reported 19% organic growth. Growth was led by wireless, pipeline, install-to-the-home and energy-transmission work. Renewable-energy revenue fell about $118 million. Net income rose 17%, while costs of revenue increased faster than sales, lowering the reported net margin from 3.9% to 3.5%. The $29.0 million EC Source remeasurement gain and $6.4 million pension withdrawal charge affected reported results; management’s adjusted measures exclude both.
Operating cash flow fell sharply, principally as receivables and unbilled revenue grew: accounts receivable, including unbilled amounts, rose to $664.6 million from $444.4 million. Investing cash outflow was $146.6 million and financing cash outflow was $16.8 million. The filing does not provide a clear free-cash-flow figure.
Fourth-quarter revenue was $774.2 million versus $730.7 million a year earlier; net income attributable to MasTec was $8.6 million versus $38.5 million, and diluted EPS was $0.10 versus $0.44. The filing identifies a $6.4 million pension withdrawal charge in Q4; the $29.0 million EC Source gain was recorded in Q2.
Liquidity, debt and capital allocation
In August 2011, MasTec increased its secured revolving credit facility to $600 million and extended maturity to August 2016. At year-end, $60 million was drawn and approximately $450 million was available after $90 million of letters of credit. The facility has leverage and interest-coverage covenants and restricts certain transactions. Management said available liquidity, operating cash flow and cash balances should meet expected needs for at least 12 months; this outlook is subject to working-capital and operating risks.
MasTec repurchased 4.6 million shares for $75 million during 2011. It authorized a program of up to $150 million, subject to its discretion and debt-agreement restrictions. The company has not paid cash dividends and does not anticipate doing so in the foreseeable future.
Outlook, risks and unusual items
- Management identified wireless and fiber upgrades, pipelines, renewable energy, electric-grid upgrades, home installation and heavy industrial projects as 2012 opportunity areas. It did not provide numerical revenue or earnings guidance. Planned 2012 capital expenditures were approximately $65 million.
- Year-end 18-month backlog was $3.339 billion, up from $2.355 billion; management expected about 75% to be realized in 2012. Much of the backlog is under agreements with no minimum purchase commitment and may be canceled or delayed.
- DIRECTV and AT&T each accounted for 23% of FY 2011 revenue; the top ten customers accounted for 71%. Red Ventures could exercise an option to buy DirectStar during 2012; management anticipated a possible second-quarter sale, which would reduce DIRECTV-related revenue and profits.
- Margins were pressured by DirectStar commissions, project inefficiencies, competitive pricing, and flooding that reduced productivity on northeastern pipeline work. Renewable projects faced financing constraints, delays and pricing pressure.
- Multi-employer pension plans pose uncertain additional obligations. MasTec recorded a $6.4 million withdrawal liability after leaving the Central States plan; the plan disputed the stated withdrawal date, potentially increasing the liability.
- Other notable exposures include fixed-price project cost-estimation risk, customer concentration and contract cancellation, self-insurance, approximately $925.8 million of goodwill and intangible assets, and $13.6 million of illiquid auction-rate securities. A Spanish Sintel-related claim alleged damages of approximately €300 million; MasTec said potential loss could not be determined and recorded no accrual.
Important facts for investors to verify
- Whether operating cash flow recovers as receivables and unbilled revenue are billed and collected.
- Whether project margins improve after 2011 weather impacts, cost pressures and the pension charge.
- Whether Red Ventures exercises its DirectStar option and the resulting effect on revenue and earnings.
- How much reported backlog converts to profitable revenue, given cancellation rights and the absence of minimum work commitments.
- The outcome of the Central States withdrawal dispute and potential future multi-employer pension contributions.
- Debt-covenant headroom and the ability to settle convertible-note principal in cash without triggering dilution or liquidity constraints.
The audited financial statements received an unqualified opinion. The auditor also reported effective internal control over financial reporting; however, the assessment excluded businesses acquired in 2011, which represented 14% of year-end assets and 9% of revenue.