Business context and reporting period
MasTec, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The North American infrastructure contractor reports five segments: Communications, Clean Energy and Infrastructure, Oil and Gas, Power Delivery, and Other. Results include substantial contributions from acquisitions completed in 2021, notably Henkels & McCoy (HMG) and INTREN.
Financial highlights
Amounts below are in millions of dollars, except per-share data. Comparisons are with the prior-year period.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2,301.8 | $1,962.7 | $4,256.2 | $3,738.1 |
| Net income (loss) attributable to MasTec | $16.2 | $75.5 | $(18.8) | $141.1 |
| Diluted EPS | $0.20 | $1.02 | $(0.27) | $1.91 |
| EBITDA and EBITDA margin | $152.3; 6.6% | $224.1; 11.4% | $231.0; 5.4% | $422.5; 11.3% |
| Adjusted EBITDA and margin | $178.5; 7.8% | $229.2; 11.7% | $277.2; 6.5% | $434.1; 11.6% |
| Net cash from operating activities | Not presented separately in the filing’s cash flow statement | $1.5 | $349.3 |
Q2 costs of revenue, excluding depreciation and amortization, were 88.1% of revenue, up from 85.4%; for the six-month period they were 88.4%, versus 85.3%. Management attributed the margin pressure to revenue mix, inflation in labor, fuel and materials, lower productivity, project inefficiencies and start-up costs. Interest expense was $19.4 million in Q2 and $35.4 million for the six months, both above prior-year levels.
Segments and material changes
- Q2: Communications revenue rose 30% to $822 million, with EBITDA of $84 million. Power Delivery revenue rose 178% to $647 million, largely from acquisitions, and EBITDA increased to $41 million. Oil and Gas revenue fell 45% to $341 million; EBITDA declined to $63 million. Clean Energy and Infrastructure revenue was $495 million, while EBITDA was negative $5 million.
- Six months: Communications revenue increased 24% to $1.49 billion; Power Delivery increased 254% to $1.30 billion. Oil and Gas revenue fell 59% to $552 million and EBITDA fell to $84 million. Clean Energy and Infrastructure EBITDA declined to $6 million.
- Acquisitions contributed $602 million of Q2 revenue and $1.307 billion of six-month revenue, while organic revenue declined 13% and 21%, respectively. Oil and Gas project timing and lower large-diameter pipeline activity were significant factors in the organic declines.
Liquidity, debt and cash flow
At June 30, 2022, cash was $138.9 million, working capital was approximately $1.16 billion, and current assets were $3.06 billion against current liabilities of $1.90 billion. Total debt obligations were $2.287 billion, including $985.5 million of revolving loans, a $350 million term loan, $600 million of 4.50% senior notes due 2028, and finance lease and other obligations. The debt carrying value, net of financing costs, was $2.270 billion, compared with $2.014 billion at year-end 2021. MasTec reported compliance with debt covenants. Revolving availability was $466.9 million; outstanding letters of credit under the credit facility were $197.5 million.
Six-month operating cash flow fell to $1.5 million from $349.3 million. The filing cites lower earnings and working-capital changes, including a $289 million cash use from contract assets and increased purchasing of inventory and materials amid inflation and supply-chain concerns. Investing used $220.0 million, including $189.9 million of capital expenditures; financing used $3.0 million. Cash declined by $221.8 million from year-end. Management estimated full-year 2022 capital expenditures of approximately $270 million, or $220 million net of asset disposals, plus $170–$190 million of equipment purchases under finance leases.
Outlook, risks and unusual items
- Remaining performance obligations were $5.2 billion; MasTec expected to recognize approximately $2.8 billion as revenue during 2022, with most of the balance in 2023. Separately, estimated 18-month backlog was $11.0 billion, with approximately 41% expected to be realized in 2022. Management cautioned that backlog is uncertain: 62% was under master service or similar agreements without customer minimum-purchase commitments, and many can be canceled on short or no notice.
- In July 2022, MasTec agreed to acquire Infrastructure and Energy Alternatives (IEA) for an estimated total consideration of approximately $1.1 billion, including about 2.8 million MasTec shares. Closing was expected in Q4 2022, subject to approvals and customary conditions. The company had financing commitments for up to a $1 billion bridge facility or alternative term facilities totaling $1 billion. These are post-quarter developments, not completed transactions as of June 30.
- Management identified inflation in labor, fuel and materials, labor shortages, rising interest rates, supply-chain disruption, project delays, customer spending changes, weather, and COVID-19 uncertainty as risks. It said cost increases not passed through to customers had already affected margins and could continue to affect profitability and cash flow.
- Q2 and six-month results included $12.5 million and $26.1 million, respectively, of acquisition and integration costs. Six-month results also included $7.1 million of net fair-value losses on an investment, principally AVCT. These and other specified items are excluded from company-defined adjusted measures; those non-GAAP measures are not substitutes for GAAP results.
- Unapproved change orders and claims included in contract transaction prices totaled approximately $165 million at June 30; amounts ultimately collected could be higher or lower. The company also disclosed ordinary-course legal and project disputes, $2.154 billion of outstanding performance and payment bonds, and $215.8 million of letters of credit; it reported no material claims on outstanding letters of credit at the period end.
Important facts for investors to verify
- Whether margins and operating cash flow recover, particularly as inflation, project productivity and working-capital demands evolve.
- How much reported growth reflects acquisitions versus organic activity, including the timing and profitability of Oil and Gas and Power Delivery work.
- Whether backlog and remaining performance obligations convert to revenue as expected, given cancellation rights, project delays and customer spending uncertainty.
- IEA transaction closing, final consideration and financing terms, and the resulting effect on leverage, interest expense and share count.
- Collection and resolution of unapproved claims, contract assets and contingent acquisition payments, as well as potential exposure from bonds, self-insurance and legal matters.