Business context and reporting period
MasTec, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022. It provides annual results, not a separate set of fourth-quarter financial statements. MasTec is a North American infrastructure construction and services company operating in Communications, Clean Energy and Infrastructure, Oil and Gas, Power Delivery, and Other.
Growth in 2022 included the October acquisition of Infrastructure and Energy Alternatives (IEA) and the integration of prior acquisitions, including Henkels & McCoy (HMG) and INTREN. Acquisitions materially changed the company’s scale, mix, debt, and reported results.
Financial and operating highlights
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $9.78 billion | $7.95 billion |
| Income attributable to MasTec | $33.4 million | $328.8 million |
| Diluted EPS | $0.42 | $4.45 |
| Adjusted EBITDA (non-GAAP) | $780.6 million; 8.0% margin | $939.1 million; 11.8% margin |
| Operating cash flow | $352.3 million | $793.1 million |
| Cash and cash equivalents | $370.6 million | $360.7 million |
| Working capital | $1.36 billion | $1.09 billion |
| Total debt, net of deferred financing costs | $3.22 billion | $2.01 billion |
Revenue rose 23%, but costs of revenue increased faster, from 85.6% to 87.8% of revenue. Net income attributable to MasTec fell about 90%; reported net margin declined from 4.1% to 0.3%. Adjusted net income was $234.8 million and adjusted diluted EPS was $3.05, versus $420.0 million and $5.65 in 2021. These are non-GAAP measures and exclude specified items, including acquisition and integration costs and intangible amortization.
Segment revenue and EBITDA margin in 2022: Communications, $3.23 billion and 10.1%; Clean Energy and Infrastructure, $2.62 billion and 3.9%; Oil and Gas, $1.22 billion and 13.4%; Power Delivery, $2.73 billion and 7.4%. Oil and Gas revenue fell 52% and its EBITDA margin fell from 21.9%; Power Delivery revenue increased 168%, largely due to acquisitions.
Capital expenditures were $263 million; equipment purchases under finance leases added $207 million. DSO was 83 days, compared with 98 days at year-end 2021. The company repurchased approximately 1.12 million shares for $81 million.
Material changes versus the prior comparable period
- Acquisitions contributed approximately $2.99 billion of 2022 revenue; organic revenue decreased approximately 14.6% year over year. Company-wide revenue growth therefore did not reflect organic growth.
- Adjusted EBITDA declined about 17%, with consolidated margin down 3.8 percentage points. Management cited lower Oil and Gas activity, inflation in labor, fuel and materials, project inefficiencies and delays, project mix, and acquisition-related costs.
- Net cash from operations declined $441 million, primarily reflecting lower net income and working-capital effects, including increased purchasing to secure materials amid supply-chain disruption.
- Debt increased to $3.22 billion, principally reflecting IEA financing and acquisition activity. Interest expense rose to $112 million from $53 million.
- Acquisition and integration costs totaled $86 million in 2022. The filing states that further integration costs were expected.
Outlook, risks, contingencies, and unusual items
Management described significant opportunities across communications, clean energy, grid investment, and infrastructure spending. It expected renewable-energy revenue of approximately $3 billion in 2023, nearly 25% of consolidated revenue, and anticipated Clean Energy and Infrastructure could approach 40% of revenue over several years if trends continue. These are forward-looking expectations, not guarantees.
Year-end 18-month backlog was $12.98 billion, up from $9.94 billion at December 31, 2021; MasTec expected to recognize approximately 75% in 2023. Backlog includes estimated work under service agreements that do not require customers to purchase minimum amounts and are often cancellable on short notice, so it is not a firm revenue forecast. Separately, remaining performance obligations were $7.7 billion, with approximately $5.6 billion expected to be recognized in 2023.
Management anticipated elevated inflation and interest rates in 2023 and warned that these, recession concerns, supply-chain and permitting delays, labor availability, customer spending changes, weather, and project execution could affect demand, margins, cash flow, or timing. Variable-rate debt exposes the company to higher interest costs; a further 100-basis-point rate increase was estimated to add approximately $15 million of 2022-equivalent interest expense.
Material controls issue: management concluded internal control over financial reporting and disclosure controls were not effective at year-end 2022 because of material weaknesses involving order-to-cash controls, IEA purchase-price allocation, period-end variance review, and certain acquired entities’ IT and business-process controls. The auditor issued an adverse opinion on internal control, but an unqualified opinion on the financial statements. No resulting financial-statement misstatement or restatement was reported; remediation was ongoing and expected to continue in 2023.
Other items to monitor include approximately $271 million of unresolved change orders and claims included in contract transaction prices, which could be adjusted if not resolved favorably; $4.86 billion of outstanding performance and payment bonds; self-insurance claim liabilities of $176.7 million; and potential multiemployer pension-plan obligations. The company reported no customer representing more than 10% of 2022 revenue. It did report related-party transactions, including $128.4 million of revenue from an entity in which the CEO held a minority interest.
Important facts for investors to verify
- Whether 2023 organic demand and margins improve, particularly in Oil and Gas, and whether the renewable-revenue outlook is achieved.
- How acquisition integration progresses, including realized returns from IEA, HMG, and INTREN, and the amount of remaining integration costs.
- Debt reduction, covenant headroom, borrowing availability, and sensitivity to variable interest rates.
- Operating cash conversion, receivables and contract assets, and the resolution and collectibility of the $271 million in claims and change orders.
- Whether backlog converts to revenue on schedule, given cancellation rights, customer discretion, and project delays.
- Progress and independent testing of internal-control remediation, especially for acquired operations.
- Potential exposure from bonds, self-insurance, pension plans, litigation, and related-party arrangements.