MasTec, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. MasTec is a North American infrastructure construction company serving communications, clean energy and infrastructure, power delivery, oil and gas, and other markets. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023. Dollar amounts below are U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $2.687 billion | $2.585 billion |
| Net loss attributable to MasTec | $41.2 million | $80.5 million |
| Basic and diluted loss per share | $0.53 | $1.05 |
| Operating cash flow | $107.8 million | $(86.4) million |
| EBITDA (company-defined) | $147.6 million; 5.5% margin | $76.6 million; 3.0% margin |
| Adjusted EBITDA (non-GAAP) | $157.3 million; 5.9% margin | $102.5 million; 4.0% margin |
Costs of revenue, excluding depreciation and amortization, were 88.6% of revenue versus 91.3% a year earlier. Adjusted net loss was $3.3 million, or $0.13 per diluted share, compared with $41.9 million, or $0.54 per share, in Q1 2023. These adjusted measures are non-GAAP and should be considered alongside GAAP results.
At March 31, 2024, cash was $249.3 million, down from $529.6 million at year-end 2023; working capital was $812 million, versus $1.137 billion. Net cash used in investing was $13.0 million and net cash used in financing was $374.8 million. Financing cash use included $324 million of net repayments on credit facilities and term loans. Capital expenditures were $25.4 million in the quarter.
Total debt, net of deferred financing costs, was $2.718 billion, down from $3.065 billion at December 31, 2023. The company had $1.4 billion available for revolving loans under its credit facility and reported compliance with debt covenants. Current assets were $3.445 billion and current liabilities $2.633 billion. DSO increased to 79 days from 74 at year-end.
Material changes versus the prior period
- Revenue rose 4%, primarily because Oil and Gas revenue increased 147% to $633.8 million. Revenue declined in Communications by 9%, Clean Energy and Infrastructure by 9%, and Power Delivery by 20%.
- Oil and Gas EBITDA increased to $92.8 million from $14.5 million, with margin rising to 14.6% from 5.7%, reflecting higher activity, productivity and project mix. Clean Energy and Infrastructure EBITDA improved to $20.4 million from $5.3 million.
- Power Delivery EBITDA fell to $27.4 million from $47.4 million, and Communications EBITDA declined to $48.8 million from $52.8 million.
- Operating cash flow improved by approximately $194 million, reflecting working-capital timing and a narrower net loss. Cash nevertheless declined as the company made substantial net debt repayments.
- Q1 2023 included $17.1 million of acquisition and integration costs; the company reported none in Q1 2024. Q1 2024 other expense included approximately $9 million of asset impairment and other valuation adjustments, partly offset by approximately $6 million of income from lower estimated earn-out liabilities.
Outlook, management commentary and risks
- Management expects 2024 capital expenditures of approximately $175 million, or $125 million net of asset disposals, plus approximately $150 million of equipment purchases through finance leases and other financing arrangements.
- Management believes operating cash generation, cash balances and credit availability will be sufficient for anticipated needs over the next 12 months and foreseeable future. It expects elevated interest rates, continuing cost inflation and possible market volatility during the remainder of 2024, with potential effects on costs, demand and customer budgets.
- Estimated 18-month backlog was $12.837 billion, and the company expects to realize approximately 60% in 2024. However, 55% of backlog is under master service or similar agreements without contractual minimum purchases; many can be canceled on short or no notice. Backlog is not a guaranteed revenue measure.
- Remaining performance obligations were $8.0 billion; management expects to recognize approximately $5.2 billion, or 65%, during 2024. This measure differs from backlog.
- Equitrans Midstream represented approximately 11% of Q1 revenue. The top ten customers generated 43% of revenue, up from 39% in Q1 2023.
- Contract transaction prices included approximately $209 million of change orders and claims still being resolved. Amounts ultimately approved could be lower or higher than estimates; unfavorable outcomes could reduce or reverse recognized revenue.
- Outstanding performance and payment bonds were approximately $6.6 billion, supporting projects with estimated costs to complete of $2.2 billion. The company also reported $219.4 million of estimated self-insurance liabilities. Legal, project, joint-venture, multiemployer-plan and other contingent exposures may result in costs, although management reported no material recent development in the acquired legacy solar matter.
- Goodwill testing found fair value above carrying value for the reporting units assessed; one Power Delivery reporting unit exceeded carrying value by approximately 16%. Adverse changes in profitability, cash flows, market conditions or assumptions could lead to future impairment charges.
- Variable-rate debt exposes the company to rate increases; management estimated that a further 100-basis-point increase would add approximately $4 million to quarterly interest expense. The company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether the Oil and Gas activity and margins supporting Q1 improvement persist, and whether weakness in Power Delivery and Communications reverses.
- Conversion and collection of backlog and remaining performance obligations, especially work under cancellable master service agreements and customer-dependent project schedules.
- Working-capital trends, DSO, receivable collections, and the extent to which receivable sales support operating cash flow.
- Debt reduction, interest-rate exposure, covenant compliance and availability under the credit facility.
- Resolution of the $209 million in change orders and claims, earn-out obligations, project contingencies and significant bonding and self-insurance exposures.