MasTec, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021; unaudited. Amounts are in U.S. dollars. MasTec provides infrastructure construction and maintenance services across communications, clean energy and infrastructure, oil and gas, and electrical transmission.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $2,404.3m | $1,698.3m | $6,142.4m | $4,684.2m |
| Income before tax | $140.0m | $157.4m | $338.3m | $271.5m |
| Net income attributable to MasTec | $111.1m | $116.5m | $252.2m | $209.7m |
| Diluted EPS | $1.50 | $1.59 | $3.41 | $2.84 |
| EBITDA, non-GAAP | $271.8m | $253.6m | $694.3m | $527.4m |
| EBITDA margin | 11.3% | 14.9% | 11.3% | 11.3% |
| Operating cash flow | — | $499.1m | $683.2m |
Q3 revenue grew 42%, but income attributable to MasTec fell about 5%; EBITDA margin declined 3.6 percentage points. For the first nine months, revenue grew 31% and attributable net income grew about 20%, while operating cash flow fell about 27%. Q3 gross project costs (excluding depreciation and amortization) rose to 85.6% of revenue from 81.3%, reflecting weaker productivity, project mix, start-up delays and pandemic-related inefficiencies. GAAP net margin was 4.6% in Q3 versus 6.9% a year earlier, and 4.1% for nine months versus 4.5%.
Segments and material comparisons
- Oil and Gas: Q3 revenue increased 86% to $858m, led by large-diameter pipeline work; EBITDA rose 6% to $171m, but margin fell to 19.9% from 34.7% due to reduced productivity and mix.
- Electrical Transmission: Q3 revenue rose 184% to $365m and EBITDA increased to $35m from $9m, with improved project mix and efficiencies.
- Communications: Q3 revenue rose 4% to $670m, but EBITDA declined 10% to $72m. Organic revenue was lower, partly due to C-band project timing and COVID-related delays.
- Clean Energy and Infrastructure: Q3 revenue increased 11% to $518m, but EBITDA declined 60% to $14m amid project mix and execution delays. The segment’s nine-month EBITDA also declined 42%.
- Acquisitions contributed $344m of Q3 revenue and $703m for nine months. MasTec completed eight acquisitions through September, using $605m of cash; estimated total consideration, including contingent consideration, was about $645m.
Liquidity, debt and cash flows
- At September 30, cash was $239.9m, working capital was approximately $884m, and management reported liquidity of about $1.3bn, including $1.0bn of revolving availability.
- Total debt obligations were $1.522bn, including finance leases; debt net of deferred financing costs was $1.508bn. The company was in compliance with debt covenants at quarter-end.
- Nine-month investing cash outflow was $716.7m, principally reflecting $604.9m for acquisitions. Financing provided $34.5m. Cash declined by $183.2m from year-end 2020.
- On November 1, 2021, after quarter-end, MasTec replaced its secured facility with a $2.0bn unsecured facility maturing November 1, 2026, comprising $1.65bn revolving commitments and a $350m term loan. The company incurred approximately $5m in financing costs.
Outlook, risks and unusual items
- Management expected 2021 capital expenditures of approximately $170m, net of asset disposals of about $120m, and $160m–$180m of equipment purchases under finance leases. It stated that available cash, operating cash flow and credit access should be sufficient for anticipated needs for at least 12 months.
- Estimated 18-month backlog was $8.523bn at September 30, down from $9.208bn at June 30 and up from $7.702bn a year earlier. Management expected about 20% to be realized in 2021. Backlog is not a firm revenue guarantee: 61% was associated with master service or similar agreements without minimum purchase commitments, many cancellable on short or no notice.
- Remaining performance obligations were $4.2bn; the company expected to recognize approximately $1.3bn during the remainder of 2021, with most of the balance in 2022. This measure differs from backlog.
- COVID-19, permitting and project delays, labor availability, supply-chain disruption, inflation in labor and fuel, weather, customer spending and project execution could affect revenue, costs and cash generation. The proposed federal vaccine mandate’s impact was uncertain and could increase costs or employee attrition.
- Customer concentration was significant: Enbridge represented 21% of Q3 revenue (19% for nine months), while AT&T represented 7% (8% for nine months). The top ten customers accounted for 58% of Q3 revenue.
- Outstanding performance and payment bonds rose to $1.724bn from $764.8m at year-end; estimated costs to complete the bonded projects were $569.6m. MasTec also reported $153.6m of estimated self-insurance liabilities.
- A Q3 legal settlement in MasTec’s favor totaled approximately $25m; $19m was due in 2022, and $5m of net income was recorded after legal and other costs. The company also included approximately $97m of unresolved change orders and claims in contract transaction prices; final customer approvals could result in lower or higher realized amounts.
- Other notable items included $13m of nine-month net income from changes in estimated earn-out accruals and $7m of net expense from changes in fair value of certain investments and strategic arrangements. The 2020 comparison included a $5.6m debt extinguishment loss.
Investor facts to verify
- Whether project productivity and margins recover, particularly in Oil and Gas and Clean Energy and Infrastructure.
- Conversion and cancellation risk in backlog, including the substantial share tied to agreements without minimum commitments.
- Cash conversion and working-capital trends, given lower operating cash flow despite higher revenue and earnings.
- Acquisition performance, integration costs, earn-out exposure and the effect of acquired intangible amortization.
- Execution and customer concentration risks, bonded-project obligations, unresolved claims, and the terms and covenant capacity of the replacement credit facility.