MasTec, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. MasTec provides infrastructure construction and maintenance services across communications, clean energy and infrastructure, oil and gas, and power delivery. Amounts below are U.S. dollars; financial statement figures are unaudited.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2,513.5 million | $2,404.3 million | $6,769.7 million | $6,142.4 million |
| Net income attributable to MasTec | $48.9 million | $111.1 million | $30.1 million | $252.2 million |
| Diluted EPS | $0.65 | $1.50 | $0.38 | $3.41 |
| EBITDA | $206.5 million | $271.8 million | $437.5 million | $694.3 million |
| EBITDA margin | 8.2% | 11.3% | 6.5% | 11.3% |
| Operating cash flow | Nine months: $118.7 million | Prior-year nine months: $499.1 million |
- Q3 revenue increased 5%, but organic revenue declined approximately 19%; acquisitions contributed $569.7 million. Nine-month revenue increased 10%, while organic revenue declined approximately 20%; acquisitions contributed $1.88 billion.
- Costs of revenue, excluding depreciation and amortization, rose to 87.0% of revenue in Q3 from 85.6%; for nine months, they rose to 87.9% from 85.4%. Management attributed pressure to segment mix, reduced productivity, inflation, project inefficiencies and start-up costs.
- Cash and cash equivalents were $95.7 million at September 30, down from $360.7 million at December 31, 2021. Working capital was $1.13 billion. Current assets were $3.11 billion and current liabilities $1.99 billion.
- Total debt, net of financing costs, was $2.22 billion, versus $2.01 billion at year-end 2021. The company reported $1.27 billion outstanding under its revolving facility and term loan, with $834.5 million available for revolving loans. It was in compliance with debt covenants at quarter-end.
- Nine-month investing cash use was $241.7 million, including $213.3 million in capital expenditures; financing cash use was $139.5 million. The cash decline reflected lower operating cash generation, capital spending, financing and share repurchases.
Material changes and segment results
- Communications: Q3 revenue rose 33% to $888.9 million and EBITDA rose 53% to $109.9 million; higher wireless and wireline activity and project efficiencies supported results.
- Clean Energy and Infrastructure: Q3 revenue increased 9% to $563.2 million and EBITDA rose to $24.6 million from $13.8 million. Nine-month EBITDA declined 25% to $30.2 million, with project inefficiencies and timing cited.
- Oil and Gas: Q3 revenue fell 56% to $375.8 million and EBITDA fell 71% to $49.2 million. Nine-month revenue fell 58% and EBITDA fell 72%, primarily reflecting lower large-diameter pipeline and other project activity.
- Power Delivery: Q3 revenue increased 88% to $688.4 million and EBITDA rose 81% to $63.1 million. Nine-month revenue more than doubled, largely due to acquisitions, including Henkels & McCoy; organic revenue declined.
- General and administrative expense increased 44% in Q3 and 69% for the nine-month period, reflecting acquired businesses, integration costs and higher corporate expenses. Net interest expense rose 105% in Q3 and 58% for nine months, due to higher average debt balances and interest rates.
Outlook, risks and unusual items
- Management estimated 18-month backlog at $11.23 billion at September 30, 2022, up from $8.52 billion a year earlier, and expected to realize about 22% of that backlog in 2022. However, 60% was tied to master service agreements without minimum purchase commitments; backlog is not a guarantee of future revenue.
- Remaining performance obligations were $5.3 billion. Management expected approximately $1.6 billion to be recognized as revenue during 2022, with most of the balance expected in 2023.
- Management estimated 2022 capital expenditures of approximately $240 million, or $180 million net of asset disposals, and $220–$240 million of equipment purchases through finance leases. It stated available operating cash, credit facilities and cash balances were expected to cover liquidity needs for the next 12 months and foreseeable future.
- On October 7, 2022, after quarter-end, MasTec completed its acquisition of IEA for an estimated $610 million in cash and approximately 2.8 million shares. It also assumed $300 million of IEA 6.625% notes. The cash consideration was funded by drawing a $700 million delayed-draw term loan facility. The acquisition’s purchase accounting was incomplete at the filing date.
- Inflation in labor, fuel and materials, labor shortages, supply-chain disruption, rising interest rates and potential recessionary effects could pressure margins, cash flow, customer spending and project timing. A 100-basis-point increase in applicable rates would have increased nine-month interest expense by approximately $10 million, based on quarter-end debt.
- Revenue and profit recognition rely on estimates of project costs to complete and variable consideration. The company included approximately $141 million of unresolved change orders and claims in contract transaction prices; unfavorable outcomes could reduce or reverse revenue. Goodwill impairment was not identified in the quarter’s review, but management noted that weaker profitability, cash flows or market conditions could lead to future impairment.
- Other exposures include $126.6 million of estimated earn-out liabilities; $2.35 billion of performance and payment bonds outstanding; self-insurance liabilities; multiemployer pension obligations; and ordinary-course legal and project disputes. Management reported no material claims on outstanding letters of credit and no plans to withdraw from multiemployer plans.
Investor verification priorities
- Track whether margin and organic revenue trends improve, particularly in Oil and Gas and Clean Energy and Infrastructure, and whether acquisition-related growth translates into sustainable returns.
- Assess operating cash flow and working-capital conversion: contract assets reached $1.62 billion, and nine-month operating cash flow declined substantially year over year.
- Verify the full financing and integration effects of the IEA acquisition, including total debt, interest expense, share dilution, purchase accounting and realized synergies.
- Monitor backlog conversion, customer cancellations or delays, and the proportion of work under agreements without minimum commitments.
- Review resolution of the $141 million of claims and change orders, earn-out payments, and any changes in contingencies, insurance or multiemployer liabilities.
- Distinguish GAAP results from management’s adjusted EBITDA and adjusted earnings measures; adjusted measures exclude items such as acquisition and integration costs and intangible amortization.