MasTec, Inc. — Q2 2016 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2016. Figures are unaudited; dollar amounts are U.S. dollars. MasTec provides infrastructure construction, installation and maintenance services across communications, oil and gas, electrical transmission, power generation and industrial markets, primarily in North America.
Financial performance
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $1,232.4 million | $1,066.6 million | $2,206.6 million | $2,069.9 million |
| Net income (loss) attributable to MasTec | $24.1 million | $(3.7) million | $21.4 million | $(10.0) million |
| Diluted EPS | $0.30 | $(0.05) | $0.26 | $(0.12) |
| EBITDA and margin | $95.3 million; 7.7% | $53.8 million; 5.0% | $141.5 million; 6.4% | $96.6 million; 4.7% |
| Adjusted EBITDA and margin | $104.3 million; 8.5% | $71.0 million; 6.7% | $158.1 million; 7.2% | $134.7 million; 6.5% |
| Net cash provided by operating activities | Not presented as a quarterly figure | Not presented as a quarterly figure | $28.5 million | $161.3 million |
Q2 revenue increased about 16% year over year; first-half revenue rose 6.6%. Q2 costs of revenue, excluding depreciation and amortization, declined to 86.7% of revenue from 88.7%, while the first-half ratio was 88.5% in both years. First-half cash from operations fell sharply, primarily due to working-capital investment; changes in assets and liabilities had an approximately $175 million negative effect.
Segments and material changes
- Communications: Q2 revenue rose 26% to $592 million and EBITDA increased to $66.4 million from $40.5 million, reflecting stronger install-to-the-home, wireless and wireline/fiber demand and improved utilization. First-half revenue rose 18%.
- Oil and Gas: Q2 revenue grew 4% to $425.6 million with EBITDA of $53.6 million, up from $41.3 million. First-half revenue declined 3%; results included a previously disclosed approximately $13 million first-quarter project loss in western Canada and restructuring charges.
- Electrical Transmission: Q2 revenue rose 22% to $95.6 million, but EBITDA remained negative at $9.9 million. First-half EBITDA was negative $33.7 million, including a previously disclosed approximately $15 million first-quarter project loss and restructuring charges. Management reported the segment’s estimated fair value exceeded carrying value by only about 5%, leaving impairment risk if assumptions weaken.
- Power Generation and Industrial: Q2 revenue rose 16%, but EBITDA declined to $4.8 million from $8.0 million, attributed to project timing and mix and business-development investment. First-half results improved versus 2015, which included losses on a Canadian wind project.
First-half results also included approximately $10 million of income from a settlement related to a previously acquired business, partly offset by $9.1 million of restructuring charges. Adjusted EBITDA and other adjusted measures are non-GAAP; the filing cautions that they are not substitutes for GAAP results or cash flow.
Cash, debt and liquidity
- At June 30, cash was $8.8 million, working capital was approximately $455 million, and current assets and current liabilities were $1.32 billion and $866.4 million, respectively.
- Total debt was $1.080 billion, versus $1.023 billion at December 31, 2015; this included $307.6 million of revolving loans, a $243.8 million term loan, $400 million of 4.875% senior notes, and capital leases and other borrowings. Long-term debt was $998.4 million.
- The company reported $354.6 million available for revolving loans, or up to $312.2 million for additional letters of credit, under its credit facility. Outstanding facility letters of credit were $337.8 million. MasTec said it was in compliance with debt covenants.
- First-half investing cash use was $59.9 million, including $63.9 million of capital expenditures. Financing activities provided $36.0 million, including net credit-facility borrowing. The company made no repurchases under its 2016 $100 million repurchase program during the first half.
- Management expected operating cash, facility availability and cash balances to cover anticipated needs for at least the next 12 months. Its 2016 capital expenditure estimate was $95–$105 million, or $80–$90 million net of disposals, plus an estimated $60–$70 million of equipment purchases through leases or other financing.
Outlook, risks and contingencies
- Estimated 18-month backlog was $5.334 billion at June 30, down from $5.671 billion at March 31 but up from $4.070 billion a year earlier. Management expected just over half to be realized in 2016. About 60% was associated with master or other service agreements, many of which have no minimum purchase commitment and may be canceled on short or no notice; backlog is not a guarantee of future revenue.
- Customer concentration is substantial: AT&T represented 36% of Q2 revenue and Energy Transfer affiliates 22%; the top ten customers represented 76% of Q2 revenue. Customer spending changes, project delays, oil-market volatility, weather, competition and project execution can affect results.
- A shareholder securities class action relating to accounting matters and the prior Audit Committee investigation remained pending, with a trial period scheduled beginning March 2017, subject to the court’s ruling on the company’s dismissal motion. The SEC had commenced a formal civil investigation into the prior-period adjustments and investigation; MasTec said it intended to cooperate.
- Management’s contract-price adjustments for unresolved change orders and claims totaled approximately $20 million at June 30, primarily in Oil and Gas, versus $38 million at year-end. Final recovery could be higher or lower.
- Other exposures include underfunded multiemployer pension plans, self-insurance claims, letters of credit, bonds, guarantees and joint-venture obligations. The company noted that adverse litigation or contingency outcomes could materially affect results, cash flow or financial condition.
Important facts for investors to verify
- Whether strong reported earnings and EBITDA convert into operating cash, given the $28.5 million first-half operating cash flow and working-capital outflow.
- Whether communications demand and backlog convert to revenue, particularly given customer concentration and cancelable service agreements.
- Progress and costs on the western Canadian Oil and Gas and Electrical Transmission restructurings, and whether Electrical Transmission’s narrow goodwill valuation cushion changes.
- Resolution and collectibility of the $20 million in change orders and claims, and developments in the securities litigation and SEC investigation.
- Debt, facility availability and letter-of-credit needs as project activity and working-capital requirements change.