MTZ

MASTEC INC - Form 10-Q Summary (Q1 2009)

Business Context and Reporting Period

This filing covers the quarterly period ended March 31, 2009. MasTec, Inc. is a leading specialty contractor operating primarily in the United States, focusing on the construction, installation, maintenance, and upgrade of utility and communications infrastructure. Key sectors include electrical utility transmission, wind farms, natural gas, wireless, and government infrastructure. The company operates through over 200 locations with approximately 8,070 employees.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 30.6% to $342.1 million, driven primarily by $82.9 million in revenue from three businesses acquired in 2008 (Wanzek, Funraisers, Nsoro). This growth occurred despite a weak U.S. economy and delayed customer capital expenditures.
• Profitability: Net income rose 53.3% to $11.9 million. Income from continuing operations before taxes increased to $12.0 million (3.5% margin) from $8.0 million (3.0% margin) in the prior year.
• Cost Efficiency: Cost of revenue as a percentage of revenue improved by 160 basis points to 85.0%, attributed to slower labor cost growth relative to revenue and declining fuel costs.
• Depreciation & Amortization: Increased 112% to $10.6 million due to fixed assets and intangibles added from recent acquisitions.
• Interest Expense: Doubled to $5.8 million (from $2.5 million) due to increased debt levels funding acquisitions and lower interest income.
• Cash Flow: Operating cash flow surged to $49.3 million from $7.3 million, largely due to improved collections of accounts receivable and unbilled revenue.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management anticipates increased capital spending on infrastructure as the year progresses, though the impact of government stimulus initiatives remains uncertain. Capital expenditures are estimated between $40 million and $49 million annually.
• Liquidity: The company maintains a $210 million Credit Facility with $51.9 million in net availability as of March 31, 2009. Management believes cash flows and borrowings will be sufficient for the next 12 months.
• Auction Rate Securities (ARS): The company holds $33.7 million in par value of ARS (student loans and structured finance). Due to market illiquidity, these are carried at a fair value of $21.0 million, reflecting an unrealized loss of $12.6 million. Management intends to hold these to par but faces uncertainty regarding exit timing.
• Customer Concentration: Revenue is heavily concentrated; DIRECTV accounted for 37% of Q1 2009 revenue, and AT&T accounted for 11%. The top 10 customers represented 71% of total revenue.
• Legal Contingencies: Accrued liabilities for litigation totaled $7.5 million. Notable matters include a $1.5 million judgment (under appeal) from the U.S. Army Corps of Engineers and an arbitration claim against Credit Suisse regarding the sale of ARS.

Investor Verification Checklist

• Customer Concentration Risk: Verify the stability of contracts with DIRECTV (37% of revenue) and AT&T (11% of revenue), as their spending decisions significantly impact MasTec's top line.
• Auction Rate Securities Liquidity: Monitor the status of the $33.7 million ARS portfolio. Assess the risk of further impairment charges if the market does not recover or if the company is forced to sell at a loss.
• Debt Covenants: Confirm continued compliance with the Credit Facility's fixed charge coverage ratio (minimum 1.20:1) and net availability requirements, especially given the high debt load from acquisitions.
• Acquisition Integration: Evaluate the performance of the 2008 acquisitions (Wanzek, Nsoro, Pumpco) to ensure they continue to drive the revenue growth seen in Q1 2009.
• Legal Exposure: Track the outcome of the Credit Suisse arbitration and the Corps of Engineers appeal, as these could result in material charges or settlements.