MasTec, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. MasTec is a North American infrastructure construction company serving communications, clean energy and infrastructure, oil and gas, electrical transmission, and other markets. This unaudited filing covers the quarter and six months ended June 30, 2021; comparisons are with the same 2020 periods. Financial amounts below are in millions of U.S. dollars unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,962.7 | $1,569.3 | $3,738.1 | $2,985.9 |
| Income before taxes | $102.8 | $77.6 | $198.3 | $114.1 |
| Net income attributable to MasTec | $75.5 | $57.0 | $141.1 | $93.2 |
| Diluted EPS | $1.02 | $0.78 | $1.91 | $1.26 |
| EBITDA (non-GAAP) | $224.1 | $159.9 | $422.5 | $273.8 |
| Adjusted EBITDA (non-GAAP) | $230.2 | $165.7 | $434.1 | $283.7 |
- Revenue rose 25% in both the quarter and first half. Management attributed $271 million of Q2 revenue and $358 million of first-half revenue to acquisitions; organic revenue grew 8% and 13%, respectively.
- Net income attributable to MasTec increased 32% in Q2 and 51% for the first half. Q2 net margin was approximately 3.8%, versus 3.6%; first-half net margin was approximately 3.8%, versus 3.1%.
- EBITDA margin increased to 11.4% in Q2 from 10.2%, and to 11.3% for the first half from 9.2%. Cost of revenue, excluding depreciation and amortization, was 85.4% of Q2 revenue versus 85.5%, and 85.3% for the first half versus 86.0%.
- Interest expense declined to $13.8 million in Q2 and $26.3 million for the first half, from $14.8 million and $31.8 million, respectively. Effective tax rates were 26.3% for Q2 and 28.4% for the first half; the 2020 first-half rate of 18.6% benefited from a $9.6 million release of Canadian deferred-tax valuation allowances.
Segment results
- Oil and Gas: Q2 revenue increased 69% to $621 million and EBITDA increased 72% to $138 million; first-half revenue rose 85% to $1,347 million and EBITDA nearly doubled to $306 million. Higher large-diameter pipeline activity was the main driver.
- Electrical Transmission: Q2 revenue increased 87% to $233 million; EBITDA improved to $9 million from a $3 million loss. First-half revenue increased 45% to $366 million and EBITDA rose to $13 million from $5 million.
- Clean Energy and Infrastructure: Q2 revenue increased 13% to $482 million, but EBITDA fell 48% to $16 million and margin declined to 3.2% from 7.1%. First-half EBITDA fell 25% to $26 million. Management cited project start-up and weather delays, lower efficiencies, and mix.
- Communications: Q2 revenue declined 4% to $630 million and EBITDA declined 5% to $73 million. First-half revenue fell 8% to $1,199 million and EBITDA fell 4% to $122 million, reflecting weaker organic wireless activity and timing delays following 5G spectrum auctions.
Cash flow, balance sheet, and liquidity
- First-half operating cash flow was $349 million, down from $467 million. Investing cash use was $676 million, including $589 million for acquisitions; financing provided $141 million. Cash fell to $237 million from $423 million at year-end 2020.
- Working capital was $769 million, down from $944 million at year-end. Net days sales outstanding improved to 80 from 86. Contract assets were $1,104 million, including $832 million of unbilled receivables.
- At June 30, total debt, net of financing costs, was $1,584 million, up from $1,303 million at year-end. This included $292 million of revolver borrowings, a $393 million term loan, $600 million of 4.50% senior notes due 2028, and finance lease and other obligations. The company reported compliance with debt covenants.
- MasTec reported approximately $1.2 billion of liquidity: $237 million of cash plus $1.0 billion available under its credit facility. Management said available funding, operating cash flows, and cash balances were expected to meet liquidity needs for at least the next 12 months.
- First-half capital expenditures were $97 million, and equipment additions through finance leases were $99 million. Management estimated 2021 capital expenditures of approximately $170 million and finance-lease equipment purchases of $160–$180 million.
Outlook, commentary, and risks
- Estimated 18-month backlog was $9.2 billion at June 30, up from $7.9 billion at March 31 and $8.2 billion a year earlier. Management expected to realize approximately 43% of June backlog in 2021. Separately, remaining performance obligations were $5.2 billion, with approximately $2.9 billion expected to be recognized in 2021 and most of the balance in 2022.
- Backlog is not a firm revenue commitment: 53% related to master service or similar agreements without minimum purchase commitments, many cancellable on short or no notice. Delays, cancellations, permitting, customer spending, weather, and project execution can affect conversion. The filing does not provide formal full-year revenue or earnings guidance.
- The company completed seven acquisitions in the first half, funded with cash and credit-facility borrowings. Cash paid was $589 million; total estimated consideration, including contingent consideration, was $629 million. Acquired businesses contributed approximately $3.5 million of Q2 net income and $4.7 million for the first half. Acquired intangible assets and added depreciation and amortization increased reported expenses.
- COVID-19 continued to pose risks from workforce availability, supply-chain disruption, permitting and project delays, and potential shutdowns; management also cited rising cases associated with the Delta variant. The company had deferred approximately $59 million of payroll taxes, with half due by December 31, 2021 and the remainder by December 31, 2022.
- Other exposures include $97 million of change orders and claims included in contract transaction prices pending resolution; approximately $1.9 billion of performance and payment bonds; self-insurance claim liabilities of $146 million; and legal and project disputes whose outcomes cannot be predicted. Earn-out liabilities had an estimated fair value of $120 million, with a potential undiscounted range of $17–$189 million and no stated maximum.
- Customer concentration remained material: Enbridge and AT&T each represented 12% of Q2 revenue. The top ten customers represented 55% of Q2 revenue. Management also highlighted labor and fuel inflation, cyclical end markets, seasonality, and project-estimate and cost-to-complete judgments as risks.
Important facts for investors to verify
- Whether the strong Oil and Gas activity and backlog convert to revenue and cash flow as expected, and whether Clean Energy and Infrastructure profitability recovers from its margin decline.
- How much of backlog dependent on cancellable service agreements is ultimately awarded, and whether project delays or cancellations affect expected timing.
- Whether acquisition integration, acquired intangibles, added debt, and contingent earn-outs produce expected returns without pressuring leverage or margins.
- Whether working-capital demands, contract-asset growth, payroll-tax repayments, and acquisition spending affect liquidity and operating cash conversion.
- Resolution and collectability of claims and change orders included in revenue, as well as developments in bond, litigation, self-insurance, customer-concentration, and COVID-related exposures.