MASTEC INC. 10-Q Filing Summary
Business Context and Reporting Period
Company: MasTec, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: MasTec is a leading specialty contractor providing building, installation, maintenance, and upgrade services for utility and communications infrastructure. Core activities include electrical utility transmission, wind/solar farms, natural gas infrastructure, and wireless/wireline communications. Primary customers are in the utilities, communications, and government sectors.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Revenue | $397.2 million | $1,127.2 million |
| Net Income | $21.6 million | $52.6 million |
| Diluted EPS | $0.27 | $0.68 |
| Operating Cash Flow (9mo) | $85.6 million | |
| Cash & Equivalents (Sep 30, 2009) | $95.3 million (includes $18.2m restricted) | |
| Total Debt | $309.7 million | |
| Working Capital | $170.1 million |
Margins (9 Months 2009): Net income margin was 4.7%. Costs of revenue were 84.7% of revenue, an improvement of 80 basis points year-over-year due to productivity gains and lower fuel costs.
Material Changes vs. Prior Period
- Revenue: Q3 2009 revenue was flat ($397.2M vs. $397.8M in Q3 2008) due to organic declines offset by acquisition-related growth. Nine-month revenue increased 16.8% to $1.13 billion, driven primarily by recent acquisitions (Wanzek, Nsoro).
- Profitability: Net income for Q3 decreased 10.5% to $21.6 million compared to $24.1 million in Q3 2008. Nine-month net income increased 10.4% to $52.6 million.
- Costs: Costs of revenue decreased as a percentage of revenue (84.4% in Q3 vs. 85.0% in Q3 2008) despite higher absolute costs from acquisitions.
- Debt Structure: In June 2009, the company issued $115 million of 4% senior convertible notes. Proceeds were used to repay $55 million of 8% convertible notes (from the Wanzek acquisition) and pay down the revolving credit facility, reducing interest expense rates.
- Acquisitions: The company completed the acquisition of Wanzek Construction (effective Dec 2008) and Nsoro (July 2008), which contributed significantly to the nine-month revenue increase.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management anticipates increased capital spending on infrastructure in 2010 and subsequent years but notes that the weak U.S. economy and slow pace of stimulus bill funding have delayed customer expenditures. The company has maintained capacity anticipating improved market conditions.
- Liquidity: The company estimates sufficient funds from operations, the Credit Facility ($106.3 million net availability), and cash balances to meet obligations for the next 12 months. Capital expenditures are estimated between $20 million and $29 million for the year.
- Auction Rate Securities (ARS): MasTec holds $33.7 million in par value of ARS with an estimated fair value of $23.7 million, reflecting a $9.9 million unrealized loss. Due to market illiquidity, these are classified as long-term assets. Management does not consider the decline other-than-temporary as they intend to hold to maturity. A claim against the investment advisor was settled in October 2009 for $7 million.
- Legal Contingencies:
- Legacy Litigation: Accrued liabilities for litigation were $2.3 million at Sep 30, 2009, down from $13.3 million at year-end 2008.
- DOT Projects: The buyer of MasTec's former state Department of Transportation projects filed for bankruptcy in October 2009. MasTec remains contingently liable for performance bonds ($159.7 million outstanding) and estimates $0.7 million in remaining costs to complete these projects.
- Customer Concentration: Revenue is highly concentrated. DIRECTV accounted for 31% of Q3 revenue and 32% of nine-month revenue. AT&T accounted for 19% and 15%, respectively. The top 10 customers represented 75% of Q3 revenue.
Investor Verification Checklist
- Customer Concentration Risk: Verify the stability of contracts with DIRECTV and AT&T, which collectively represent over 50% of revenue.
- Auction Rate Securities Liquidity: Monitor the status of the $33.7 million ARS portfolio and the potential for further valuation adjustments or liquidity constraints.
- DOT Project Liability: Assess the potential exposure from the bankruptcy of the buyer of the former DOT projects and the likelihood of MasTec assuming costs beyond the estimated $0.7 million.
- Debt Covenants: Confirm continued compliance with the Credit Facility's fixed charge coverage ratio and minimum net availability requirements given the economic downturn.
- Acquisition Integration: Evaluate the performance of recent acquisitions (Wanzek, Nsoro) against organic revenue trends to determine the sustainability of growth.