MasTec(US:MTZ)2023-11-02 20:45Part I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's discussion and analysis, and disclosures on market risk and internal controls Item 1. Financial Statements (Unaudited) MasTec's Q3 2023 revenue grew significantly due to acquisitions, but net income declined, while nine-month results showed a net loss despite revenue growth Consolidated Statements of Operations This section details MasTec's revenue, income, and earnings per share for Q3 and the nine months ended September 30, 2023, compared to the prior year Q3 2023 vs Q3 2022 Performance (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $3,257,077 | $2,513,484 | +29.6% | | Income before income taxes | $22,874 | $60,311 | -62.1% | | Net income attributable to MasTec, Inc. | $14,296 | $48,896 | -70.8% | | Diluted EPS | $0.18 | $0.65 | -72.3% | Nine Months 2023 vs 2022 Performance (in thousands, except per share) | Metric | Nine Months 2023 | Nine Months 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $8,715,851 | $6,769,677 | +28.7% | | (Loss) income before income taxes | $(82,718) | $30,450 | N/A | | Net (loss) income attributable to MasTec, Inc. | $(50,702) | $30,130 | N/A | | Diluted EPS | $(0.65) | $0.38 | N/A | Consolidated Balance Sheets This section presents MasTec's financial position, including assets, liabilities, and equity, as of September 30, 2023, and December 31, 2022 Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $214,174 | $370,592 | -42.2% | | Total current assets | $4,038,533 | $3,859,127 | +4.6% | | Total assets | $9,529,727 | $9,293,259 | +2.5% | | Total current liabilities | $2,811,293 | $2,496,037 | +12.6% | | Long-term debt | $3,029,939 | $3,052,193 | -0.7% | | Total liabilities | $6,816,006 | $6,552,072 | +4.0% | | Total equity | $2,713,721 | $2,741,187 | -1.0% | Consolidated Statements of Cash Flows This section outlines MasTec's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $196,572 | $118,671 | +$77,901 | | Net cash used in investing activities | $(171,683) | $(241,694) | +$70,011 | | Net cash used in financing activities | $(181,587) | $(139,478) | -$42,109 | | Net decrease in cash | $(156,418) | $(265,060) | +$108,642 | | Cash at end of period | $214,174 | $95,676 | +$118,498 | Notes to Consolidated Financial Statements These notes provide details on MasTec's business segments, revenue recognition, significant acquisitions, debt structure, and a material legal contingency - The company operates across five reportable segments: Communications, Clean Energy and Infrastructure, Oil and Gas, Power Delivery, and Other24 - Revenue is primarily recognized over time using a cost-to-cost measure of progress. As of September 30, 2023, remaining performance obligations were $7.6 billion3338 - For the nine months ended September 30, 2023, the company incurred $60.9 million in acquisition and integration costs, primarily included in general and administrative expenses74 - As of September 30, 2023, the company had total debt obligations of $3.22 billion, including a senior credit facility, senior notes, and term loans97 - A jury awarded significant damages against IEA, a subsidiary, in a solar project lawsuit. However, on October 23, 2023, the court ordered a new trial on damages unless the plaintiffs agree to a substantial remittitur (reduction) of the award130131134 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 revenue growth driven by acquisitions, segment performance variations, and profitability impacts from inefficiencies and higher interest expenses Backlog This section provides a breakdown of MasTec's estimated 18-month backlog by segment, highlighting the growth in Clean Energy and Infrastructure 18-Month Estimated Backlog by Segment (in millions) | Reportable Segment | Sep 30, 2023 | Sep 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Communications | $5,299 | $5,024 | +5.5% | | Clean Energy and Infrastructure | $3,073 | $1,933 | +59.0% | | Oil and Gas | $1,681 | $1,513 | +11.1% | | Power Delivery | $2,437 | $2,757 | -11.6% | | Total Estimated 18-month backlog | $12,490 | $11,227 | +11.2% | - Backlog differs from remaining performance obligations ($7.6 billion) primarily due to the inclusion of $7.1 billion of estimated future revenue under master service agreements, which are not contractually committed17338 Results of Operations Q3 2023 revenue grew 30% driven by Clean Energy and Oil & Gas, but overall profitability declined due to segment inefficiencies and increased interest expense - Q3 2023 consolidated revenue increased by $744 million (30%), with acquisitions contributing $533 million and organic revenue increasing by $210 million (8%)184 - Clean Energy and Infrastructure Q3 revenue grew 95% to $1.1 billion, with acquisitions (primarily IEA) contributing $485 million186 - Oil and Gas Q3 revenue increased 79% to $672 million due to higher levels of large-diameter pipeline project work187 - Communications Q3 revenue decreased 7% organically by 13%, driven by lower wireless and wireline project activity due to macroeconomic conditions and customer financing costs185 - Net interest expense for Q3 increased by $36 million (133%) year-over-year, primarily due to higher average debt balances from acquisitions and higher interest rates on floating-rate debt193 Financial Condition, Liquidity and Capital Resources MasTec's liquidity relies on operations and credit facilities, with working capital and cash decreasing, though operating cash flow improved, and DSO slightly increased - Working capital decreased by $136 million to $1.227 billion as of September 30, 2023, from December 31, 2022246 - For the first nine months of 2023, the company spent $157 million on capital expenditures and used $69 million in cash for acquisitions239240 - Days Sales Outstanding (DSO), net of contract liabilities, was 85 days as of September 30, 2023, compared to 83 days at the end of 2022248 Item 3. Quantitative and Qualitative Disclosures About Market Risk MasTec's primary market risk is interest rate exposure on variable-rate debt, with minimal foreign currency risk - The company's primary market risk is interest rate risk on its variable-rate debt, which includes the Credit Facility and term loans264 - A 100 basis point increase in applicable interest rates would have increased interest expense by approximately $16 million for the nine months ended September 30, 2023267 - Foreign currency risk is not significant, with revenue from foreign operations representing only 1% of total revenue for the nine-month period269 Item 4. Controls and Procedures Management concluded that disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, with ongoing remediation efforts - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023272 - The ineffectiveness is due to material weaknesses identified in internal control over financial reporting, related to areas such as the order-to-cash cycle at acquired entities, purchase price allocation for the IEA acquisition, and IT general controls272273 - Management is actively implementing remediation actions, including expanding IT compliance, enhancing training, and refining control procedures, but the weaknesses will not be considered fully remediated until the new controls have operated effectively for a sufficient period276 Part II. OTHER INFORMATION This section provides updates on legal proceedings, risk factors, and unregistered equity sales Item 1. Legal Proceedings The company refers to Note 14 for legal proceedings, highlighting a recent court order significantly reducing potential damages in a solar project lawsuit - For a discussion of material legal proceedings, the report refers to Note 14 - Commitments and Contingencies279 Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported, subject to general economic conditions - No material changes have been made to the risk factors previously disclosed in the 2022 Form 10-K281 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its public program in Q3 2023, with $77.3 million remaining available for future repurchases - No shares were repurchased under the publicly announced program during the quarter ended September 30, 2023282 - As of September 30, 2023, $77.3 million remained available for share repurchases under the March 2020 $150 million share repurchase program283