MasTec, Inc. — FY 2012 Form 10-K
Reporting period: Year ended December 31, 2012; filed February 28, 2013. MasTec provides engineering, construction, installation and maintenance of communications, energy and utility infrastructure, primarily in North America. The filing also reports unaudited fourth-quarter results.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $3,726.8 million | $2,831.3 million |
| Income from continuing operations | $116.6 million | $97.5 million |
| Net income attributable to MasTec | $107.4 million | $106.0 million |
| Diluted EPS, continuing operations | $1.42 | $1.13 |
| Total diluted EPS | $1.31 | $1.23 |
| Operating cash flow | $172.1 million | $5.8 million |
| Capital expenditures | $79.7 million | $71.7 million |
| Total debt at year-end | $598.9 million | $494.8 million |
| Working capital at year-end | $341.4 million | $236.4 million |
Revenue increased 31.6%; management attributed approximately 80% of the increase to organic growth and 20% to acquisitions. Costs of revenue, excluding depreciation and amortization, remained 86.9% of revenue, implying a 13.1% margin before depreciation and other expenses. Continuing-operations EBITDA was $322.1 million, or 8.6% of revenue; adjusted EBITDA was $331.7 million, or 8.9%, excluding specified unusual items. Continuing-operations income margin was 3.1%.
Fourth-quarter revenue was $932.3 million versus $731.6 million a year earlier. Continuing-operations income was $37.6 million and diluted EPS from continuing operations was $0.46 for Q4 2012.
At December 31, cash and cash equivalents from continuing operations were $26.4 million. The $600 million revolving facility had $134.0 million drawn and $120.8 million in letters of credit, leaving approximately $345.2 million available. Accounts receivable rose to $877.1 million from $658.5 million; days sales outstanding was 83, unchanged from year-end 2011 after adjustment for December acquisitions.
Material changes versus prior year
- Revenue growth was led by Power Generation and Industrial ($668.1 million, up from $219.6 million), Oil & Gas ($959.0 million, up from $774.3 million) and Electrical Transmission ($312.2 million, up from $198.3 million). Communications revenue was $1,772.7 million, up from $1,635.1 million.
- Consolidated operating cash flow rose from $5.8 million to $172.1 million, substantially reflecting working-capital movements and noncash adjustments. Investing activities used $128.0 million, including acquisitions and capital spending; financing activities used $37.7 million, including $75.0 million of share repurchases.
- Debt increased by $104.1 million, while working capital improved by $105.0 million. The company completed its $150 million repurchase authorization during 2012, buying 4.9 million shares for $75.0 million during the year.
- Total net income was nearly flat despite higher continuing-operations income, as discontinued operations shifted from $8.5 million income to a $9.2 million loss.
Outlook, commentary and significant risks
Management identified opportunities in wireless and fiber upgrades, pipeline infrastructure, electrical-grid upgrades, gas-fired power plants and industrial construction, renewable energy, and install-to-the-home services. It expected wind activity to start slowly in 2013 and recover in the second half, and expected solar development to benefit from tax incentives and lower panel prices. Management estimated 2013 capital expenditures of approximately $100 million. The filing does not provide a quantitative revenue or EPS forecast.
- Project execution and margins: MasTec recorded approximately $36 million of losses on two pipeline projects in 2012; overruns, delays, weather and inaccurate cost estimates may affect fixed-price work and percentage-of-completion accounting.
- Customer and contract concentration: AT&T represented 18% and DIRECTV 17% of continuing-operations revenue; the top ten customers represented 64%. Many service agreements have no minimum work commitment and can be canceled on short notice. Project-specific work was 57% of 2012 revenue.
- Debt and liquidity: Debt covenants restrict certain transactions; $215 million principal amount of convertible notes is due in 2014. Cash settlement of conversions is intended but could be constrained by credit-facility terms and available liquidity.
- Legal and discontinued operations: A $9.6 million reserve was recorded for the Sintel matter; the proposed agreement to dismiss MasTec defendants remained subject to conditions, and completion was not assured. Globetec was held for sale, with $12.7 million of estimated disposal and impairment losses recorded; additional losses could arise if sale proceeds are below estimates. DirectStar was sold in June 2012 for $98.9 million net cash proceeds.
- Other exposures: Several multi-employer pension plans were underfunded or in critical status; a dispute over the timing of MasTec’s Central States plan withdrawal could increase its recorded $6.4 million liability. The company also cited self-insurance, bonding, weather, fuel and labor costs, renewable-energy incentive changes, and acquisition integration as risks.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Key facts investors should verify
- Whether backlog converts into profitable revenue: year-end 18-month backlog was $3.36 billion, with about 71% expected to be realized in 2013; much is under cancellable agreements without minimum purchase commitments.
- Whether margins recover from pipeline project losses and whether project estimates, receivables, retainage and collections support reported earnings and cash flow.
- How the 2014 convertible-note maturities, cash-settlement intention, facility availability and debt covenants affect liquidity.
- Final outcomes and potential cash effects of the Sintel matter, Globetec sale, pension-plan withdrawal dispute and other contingencies.
- Whether renewable-energy incentives and customer capital spending support management’s 2013 outlook, and whether forecast capital expenditures remain near $100 million.