MasTec, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. MasTec provides infrastructure construction and maintenance services across communications, clean energy and infrastructure, oil and gas, electrical transmission, and other markets. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless otherwise stated.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Revenue | $1,775 | $1,417; up 25% (organic growth about 19%) |
| Income before taxes | $95 | $36 |
| Net income attributable to MasTec | $65.6 | $36.2 |
| Diluted EPS | $0.89 | $0.48 |
| EBITDA and margin | $198; 11.2% | $114; 8.0% |
| Adjusted EBITDA and margin | $204; 11.5% | $118; 8.3% |
| Operating cash flow | $257 | $203 |
| Cash and working capital at period end | $512 cash; $918 working capital | $423 cash and $944 working capital at Dec. 31, 2020 |
| Debt at period end | $1,328 net of financing costs, including finance leases | $1,303 at Dec. 31, 2020 |
Revenue less costs of revenue excluding depreciation and amortization was 14.7% of revenue, versus 13.4% a year earlier; management attributed improvement to productivity, project efficiencies, close-outs, and mix. Net margin was 3.7%, versus 2.5%. Q1 2020’s 1.2% effective tax rate benefited from a roughly $9.6 million release of Canadian deferred-tax valuation allowances; Q1 2021’s effective tax rate was 30.7%.
Cash increased by $89 million during the quarter. Investing used $135 million, including $89 million for acquisitions; financing used $33 million. Capital expenditures were $48 million, and finance-lease equipment additions were $51 million. Management reported approximately $1.7 billion of liquidity: $512 million cash plus $1.2 billion of revolver availability. Working capital was $918 million. The company was in compliance with debt covenants at quarter end.
Segments and material year-over-year changes
| Segment | Revenue Q1 2021 vs. Q1 2020 | EBITDA margin Q1 2021 vs. Q1 2020 |
|---|---|---|
| Communications | $569m vs. $644m | 8.6% vs. 7.9% |
| Clean Energy and Infrastructure | $350m vs. $286m | 3.1% vs. 1.7% |
| Oil and Gas | $726m vs. $359m | 23.1% vs. 20.7% |
| Electrical Transmission | $134m vs. $128m | 2.7% vs. 6.5% |
Oil and Gas drove most of the revenue and EBITDA growth, primarily from higher large-diameter pipeline activity; Clean Energy and Infrastructure also improved. Communications revenue fell due to lower wireless work, COVID-19 effects, and timing delays related to 5G spectrum auctions; management expected deployment to begin in the latter part of 2021. Electrical Transmission revenue rose slightly, but EBITDA margin declined, primarily due to reduced productivity. Acquisitions contributed approximately $87 million of Q1 revenue.
Outlook, risks, contingencies, and unusual items
- Backlog and contracted work: Estimated 18-month backlog was $7.864 billion at March 31, 2021; management expected to realize about 67% during 2021. Separately, remaining performance obligations were $5.0 billion, with approximately $4.0 billion expected to be recognized in 2021. Backlog includes estimated work under master service agreements, many of which have no minimum purchase commitment and can be canceled on short or no notice; backlog is not a guarantee of revenue.
- Spending outlook: Management estimated 2021 capital expenditures of about $150 million, or about $100 million net of asset disposals, and $180–$200 million of equipment purchases under finance leases. It expected available funds to cover liquidity needs for at least the next 12 months.
- Acquisitions: Two acquisitions were completed in Q1 for approximately $90 million cash, net of cash acquired. After quarter end, MasTec acquired utility contractor INTREN for approximately $420 million cash plus a performance-contingent earn-out, funded with cash and credit-facility borrowings.
- COVID-19 and operating risks: The filing says the pandemic was expected to continue affecting 2021 operations through permitting delays, reduced crew productivity, labor or supply disruptions, and project delays, shutdowns, or cancellations. Results are also exposed to customer spending, oil and gas markets, weather, seasonality, labor and fuel costs, and project-cost estimates.
- Customer concentration: Enbridge accounted for 25% of Q1 revenue, versus 1% in Q1 2020; AT&T accounted for 11%, versus 24%. The top ten customers represented 68% of revenue, versus 62%.
- Claims and guarantees: Outstanding performance and payment bonds were approximately $1.740 billion, with estimated costs to complete the bonded projects of $774 million. The company also reported $153 million of letters of credit, self-insurance liabilities, potential multiemployer-plan exposure, and ordinary-course legal and contract disputes; outcomes may be uncertain.
- Revenue estimates and claims: Contract revenue relies on cost-to-cost estimates and variable consideration. Approximately $59 million of unresolved change orders and claims was included in contract transaction prices at quarter end; amounts ultimately collected could differ.
- Unusual non-cash item: Comprehensive income included $13.8 million of net-of-tax unrealized investment gains, primarily from Waha JV interest-rate swaps. This is distinct from operating earnings.
Investor verification priorities
- Track whether the large-diameter pipeline work and 5G-related communications activity develop as management expected, and assess the resulting segment margins.
- Monitor collections, contract assets, customer concentration, and whether the $59 million of unresolved claims and change orders is resolved favorably.
- Evaluate the financing, integration, and earn-out implications of the INTREN acquisition and the effect of added borrowing on debt and liquidity.
- Compare actual 2021 capital spending and lease-financed equipment purchases with management’s estimates; review backlog conversion, cancellations, and the distinction between backlog and remaining performance obligations.
- Assess potential exposure from performance bonds, self-insurance, multiemployer plans, litigation, and other guarantees, alongside ongoing COVID-19, labor, supply-chain, and project-cost risks.