MasTec, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed February 25, 2016. The filing also reports fourth-quarter results. MasTec provides communications, oil and gas, electrical transmission, power generation and industrial infrastructure construction and maintenance services, primarily in North America.
Financial performance
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $4.208 billion | $4.612 billion |
| Net income (loss) attributable to MasTec | $(79.1) million | $115.9 million |
| Diluted EPS from continuing operations | $(0.98) | $1.42 |
| Operating cash flow | $367.4 million | $323.0 million |
| Cash and cash equivalents at year-end | $5.0 million | $24.1 million |
| Working capital at year-end | $380.1 million | $550.9 million |
| Total debt at year-end | $1.023 billion | $1.135 billion |
Costs of revenue, excluding depreciation and amortization, were 88.4% of revenue versus 86.3% in 2014, implying a corresponding gross margin measure of 11.6% versus 13.7%. Consolidated EBITDA, a non-GAAP measure, was $150.0 million (3.6% margin), compared with $403.7 million (8.8%) in 2014. Adjusted EBITDA was $308.1 million (7.3% margin), versus $424.9 million (9.2%). Adjusted net income from continuing operations was $51.4 million, or $0.64 per diluted share; these adjusted measures exclude specified items and are not substitutes for GAAP results.
Cash from operations increased despite the net loss, helped by a $187 million positive contribution from changes in assets and liabilities, principally receivables and inventory. Capital expenditures were $84.4 million. The $1.25 billion senior secured credit facility had $208.5 million of revolving loans outstanding, $292.8 million of letters of credit, and $498.7 million available for revolving borrowing at year-end. The company reported compliance with debt covenants.
Material changes and unusual items
- Revenue declined 8.7% year over year. Organic revenue fell $705 million, partly offset by $302 million from acquisitions. Oil and Gas revenue fell 14%, Electrical Transmission 28%, and Communications 3%; Power Generation and Industrial revenue rose 7%.
- Oil and Gas activity was pressured by lower oil prices, reduced Canadian gathering and facilities work, weaker long-haul pipeline activity, and currency effects. Communications declined mainly because wireless customers reduced capital spending.
- Electrical Transmission reported negative EBITDA of $71.3 million, compared with positive $45.0 million in 2014, reflecting lower activity, adverse weather, project inefficiencies, legal costs, and management distraction related to the accounting investigation.
- 2015 included $78.6 million of goodwill and intangible-asset impairment, including $68.5 million of goodwill and $10.1 million of indefinite-lived intangible impairment in Oil and Gas; $17.8 million of WesTower integration costs; $16.5 million of investigation-related costs; $21.4 million of Canadian wind-project losses; $16.3 million of losses on a Canadian joint venture; and a $12.2 million court-mandated mediation settlement charge.
- Fourth-quarter revenue was $1.027 billion versus $1.231 billion a year earlier. Fourth-quarter net loss attributable to MasTec was $76.7 million versus income of $21.1 million, primarily reflecting the impairment and other 2015 charges.
- AT&T, including DIRECTV, represented 32% of 2015 revenue; the top ten customers represented 61%. Nearly half of revenue came from master or other service agreements, which generally do not guarantee minimum work and may be canceled on short notice.
Outlook, risks and contingencies
Management described improved expected 2016 opportunities in wireless and wireline/fiber upgrades, long-haul pipelines, electrical-grid work, renewable energy, and install-to-the-home services. It expected to realize about 80% of year-end 2015 estimated 18-month backlog of $5.674 billion during 2016. Backlog is an estimate, includes cancellable service-agreement work, and is not a guarantee of future revenue or earnings. The filing gives no clear numerical revenue or earnings guidance for 2016. Planned 2016 capital expenditures were estimated at $80–$90 million before asset disposals.
Key uncertainties include commodity-price effects on pipeline spending; customer concentration and short-notice cancellations; fixed-price project estimation and execution; weather, labor, subcontractor, and collection risks; leverage and covenant constraints; environmental, safety, pension, and insurance exposures; and possible further goodwill impairment. The company’s 2014 interim financial statements were restated following an Audit Committee investigation of percentage-of-completion accounting. The SEC had commenced a formal civil investigation, and a shareholder securities class action was pending. Management said the previously identified material weakness in internal control had been remediated as of year-end 2015; the independent auditor gave unqualified opinions on the financial statements and internal controls.
For 2016, the company’s board authorized a new $100 million share repurchase program in February 2016. The prior $100 million program was completed in 2015.
Important facts for investors to verify
- Whether SEC and shareholder litigation matters lead to additional costs, findings, or disclosure changes.
- Whether the remediated project-estimation controls operate effectively and prevent further accounting adjustments.
- Whether backlog converts to revenue as expected, particularly the oil and gas pipeline backlog, and how much cancellable service-agreement work is ultimately retained.
- Whether Electrical Transmission and troubled Canadian projects recover without further losses or impairment charges.
- Whether customer concentration, low year-end cash, debt service, and required letters of credit remain manageable under the credit facility.