MasTec, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone Q4 filing; quarterly figures below are unaudited. MasTec is a North American infrastructure contractor serving communications, oil and gas, electrical transmission, and power generation and industrial markets.
Financial performance
| Metric | FY 2013 | FY 2012 | Change / context |
|---|---|---|---|
| Revenue | $4,324.8 million | $3,726.8 million | Up 16.0%; acquisitions contributed $406.6 million of year-over-year revenue growth. |
| Income from continuing operations | $147.7 million | $116.6 million | Up 26.7%; margin increased to 3.4% from 3.1%. |
| Net income attributable to MasTec | $140.9 million | $107.4 million | Up 31.2%. |
| Diluted EPS from continuing operations | $1.74 | $1.42 | Up 22.5%. |
| EBITDA from continuing operations | $427.6 million | $322.1 million | Margin 9.9% versus 8.6%; non-GAAP measure. |
| Adjusted EBITDA from continuing operations | $448.9 million | $336.1 million | Margin 10.4% versus 9.0%; excludes specified items and is non-GAAP. |
| Operating cash flow | $200.4 million | $172.5 million | Up from $20.7 million in 2011; 2013 working-capital changes used cash. |
| Net cash used in investing activities | $263.2 million | $94.3 million | Includes $148.6 million for acquisitions and $126.3 million of capital expenditures. |
| Cash and working capital at year-end | $22.9 million; $480.4 million | $26.4 million; $335.5 million | Working capital increased; cash declined. |
| Total debt at year-end | $816.8 million | $598.9 million | Increase reflects financing and equipment obligations. |
Costs of revenue excluding depreciation and amortization were 85.1% of revenue, down from 86.9%, improving gross margin by 1.8 percentage points. Interest expense, net, rose to $46.4 million from $37.4 million. FY 2013 included a $5.6 million debt-extinguishment loss and $2.8 million Sintel legal settlement charge; continuing-operations results also exclude discontinued businesses.
Fourth-quarter figures (unaudited)
Q4 2013 revenue was $1,159.1 million versus $932.4 million in Q4 2012. Income from continuing operations was $42.9 million versus $37.7 million, and diluted EPS from continuing operations was $0.50 versus $0.46.
Material changes and business mix
- Oil and Gas revenue rose 70% to $1,628.8 million, supported by long-haul pipeline work, acquisitions and stronger margins; segment EBITDA margin increased to 13.3% from 10.4%.
- Communications revenue increased 11% to $1,962.6 million; EBITDA margin improved to 12.6% from 10.8%.
- Electrical Transmission revenue rose 37% to $428.8 million, but EBITDA margin fell to 9.6% from 12.4% amid higher project costs.
- Power Generation and Industrial revenue fell 56% to $294.3 million, largely because wind and other renewable revenue declined. Segment EBITDA was negative $16.3 million, versus positive $32.0 million in 2012.
- Acquisitions included Big Country Energy Services and communications and electrical transmission businesses. The company also sold Globetec in 2013; DirectStar was sold in 2012.
Liquidity, debt and cash commitments
- The amended revolving credit facility provides $750 million of capacity and matures in October 2018. At year-end, $53.0 million was drawn and $134.8 million of letters of credit were outstanding; reported remaining borrowing capacity was $562.1 million. MasTec reported compliance with debt covenants.
- In March 2013, MasTec issued $400 million of 4.875% senior notes due 2023 and repurchased or redeemed $150 million of 7.625% notes due 2017.
- $215 million principal amount of convertible notes matures in 2014. Management expected to refinance the principal on a long-term basis; its intended cash settlement of conversions may be constrained by credit-facility terms and available cash.
- Recorded acquisition-related contingent consideration was approximately $177 million, including $65 million already earned and $112 million estimated as contingent on future performance.
- Management estimated 2014 capital expenditures of about $100 million, plus $90–$100 million of equipment purchases through leases or other financing arrangements.
- Days sales outstanding, net of billings in excess of costs and earnings, increased to 80 from 74. Management attributed the increase largely to collection timing and stated it did not anticipate collection issues.
Outlook, risks and contingencies
- Management described 2014 opportunities in wireless and fiber upgrades, oil and gas pipelines, grid upgrades, renewable energy, gas-fired power and industrial construction, and install-to-the-home work. It provided no quantified revenue or earnings guidance.
- Year-end 18-month backlog was $4.127 billion, up from $3.359 billion a year earlier; management expected to realize approximately 74% in 2014. Backlog is not a firm revenue commitment: significant portions are under agreements with no minimum purchase requirement and may be canceled on short notice.
- Key operating risks include customer concentration, competitive bidding and pricing pressure, project cost overruns and delays, weather and seasonality, labor availability, customer payment delays, and dependence on customer capital spending and energy-market conditions. AT&T and Enbridge each represented 18% of 2013 continuing-operations revenue; DIRECTV represented 14%. The ten largest customers accounted for 69%.
- Renewable project demand is exposed to finite or uncertain tax incentives. The wind production tax credit applied to projects that commenced construction before January 1, 2014, subject to applicable requirements; solar incentives also have deadlines.
- SunLight solar-project disputes were in arbitration beginning January 2014, with related lien challenges and appeal ongoing. The filing does not provide a clear estimate of potential financial exposure.
- Central States pension fund disputed the company’s 2011 withdrawal and demanded approximately $10.8 million; MasTec contested the demand. The company stated that its initial liability could rise to approximately $11 million if the fund prevailed, with possible additional exposure under specified circumstances.
- Insurance claims are substantially self-insured; reported unpaid claims and related expenses were $50.8 million at year-end. The company also had $1.0 billion of performance and payment bonds outstanding.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Controls at three 2013 acquisitions were excluded from management’s and the auditor’s internal-control assessments.
Most important facts for investors to verify
- Whether 2014 backlog converts to revenue and cash on expected timing, given cancellable service agreements and project delays.
- Whether receivables and days sales outstanding improve, and whether operating cash flow remains adequate as activity grows.
- Refinancing or settlement of the $215 million convertible-note principal maturing in 2014, including any dilution or liquidity effects.
- Profitability recovery in Power Generation and Industrial and the sustainability of improved Communications and Oil and Gas margins.
- Outcomes and potential costs of the SunLight arbitrations and Central States pension dispute.
- Acquisition integration, earn-out payments, customer concentration and the effect of renewable-energy incentive changes on demand.