MasTec(MTZ) - 2023 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements MasTec, Inc. reported a 32% revenue increase to $2.58 billion in Q1 2023, but a wider net loss of $80.5 million, with significant negative operating cash flow Consolidated Statements of Operations Q1 2023 revenue grew to $2.58 billion, but net loss widened to $80.5 million ($1.05 per share) due to higher costs and interest expense Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenue (in thousands) | $2,584,659 | $1,954,400 | | Costs of revenue (in thousands) | $2,359,494 | $1,733,316 | | Loss before income taxes (in thousands) | $(125,280) | $(48,107) | | Net loss attributable to MasTec, Inc. (in thousands) | $(80,540) | $(34,978) | | Basic and diluted loss per share ($) | $(1.05) | $(0.47) | Consolidated Balance Sheets Total assets decreased to $9.06 billion as of March 31, 2023, driven by a reduction in cash, while total liabilities and equity also slightly declined Key Balance Sheet Items (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents (in thousands) | $141,560 | $370,592 | | Total current assets (in thousands) | $3,656,663 | $3,859,127 | | Goodwill, net (in thousands) | $2,065,602 | $2,045,041 | | Total assets (in thousands) | $9,055,336 | $9,293,259 | | Total current liabilities (in thousands) | $2,378,535 | $2,496,037 | | Long-term debt, including finance leases (in thousands) | $3,045,526 | $3,052,193 | | Total liabilities (in thousands) | $6,407,704 | $6,552,072 | | Total equity (in thousands) | $2,647,632 | $2,741,187 | Consolidated Statements of Cash Flows Operating cash flow shifted to a net use of $86.4 million in Q1 2023, contributing to a $229.0 million net decrease in cash and cash equivalents Consolidated Cash Flows Summary (in thousands) | Cash Flow Activity | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities (in thousands) | $(86,371) | $131,518 | | Net cash used in investing activities (in thousands) | $(89,486) | $(101,361) | | Net cash used in financing activities (in thousands) | $(53,442) | $(158,016) | | Net decrease in cash and cash equivalents (in thousands) | $(229,032) | $(127,603) | Notes to Consolidated Financial Statements Notes detail business structure, accounting policies, and financial components, highlighting $8.4 billion in remaining performance obligations, acquisition activity, and a significant legal contingency - As of March 31, 2023, the company's remaining performance obligations (unearned revenue from contracts) totaled $8.4 billion. The company expects to recognize approximately $5.7 billion of this amount as revenue during the remainder of 2023[35] - In Q1 2023, the company incurred $17.1 million in acquisition and integration costs related to recent acquisitions. Acquisition-related revenue for the quarter was $400.6 million, primarily from the IEA acquisition[65][66] - A jury found acquired subsidiary IEA liable in a lawsuit concerning a solar farm project, awarding plaintiffs $1.5 million in remediation costs, $9 million in compensatory damages (70% apportioned to IEA), and a total of $100 million in punitive damages against IEA and its subsidiary. The company intends to appeal the verdict[120][121][122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses 32% revenue growth driven by acquisitions and organic expansion, record backlog, but notes profitability challenges from inefficiencies, inflation, and higher interest costs 18-Month Estimated Backlog by Segment (in millions) | Reportable Segment | March 31, 2023 | December 31, 2022 | March 31, 2022 | | :--- | :--- | :--- | :--- | | Communications (in millions) | $5,602 | $5,303 | $4,920 | | Clean Energy and Infrastructure (in millions) | $3,546 | $3,227 | $1,693 | | Oil and Gas (in millions) | $2,013 | $1,740 | $1,382 | | Power Delivery (in millions) | $2,731 | $2,709 | $2,650 | | Estimated 18-month backlog (in millions) | $13,892 | $12,979 | $10,645 | - Consolidated revenue increased by $630 million (32%) in Q1 2023 compared to Q1 2022. This growth was composed of $401 million from acquisitions and $230 million from organic revenue growth (12%)[166] - Interest expense increased 228% to $53 million in Q1 2023, primarily due to higher average debt balances from acquisition activity (including the $700 million term loan for the IEA acquisition) and higher average interest rates on floating rate debt[175] Reconciliation of Net Loss to Adjusted EBITDA (in millions) | Metric | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net loss (in millions) | $(80.5) | $(35.0) | | Interest, Taxes, D&A (in millions) | $156.1 | $97.7 | | EBITDA (in millions) | $76.6 | $78.7 | | Non-cash stock-based compensation (in millions) | $8.5 | $6.3 | | Acquisition and integration costs (in millions) | $17.1 | $13.6 | | Losses on fair value of investment (in millions) | $0.2 | $— | | Adjusted EBITDA (in millions) | $102.5 | $98.7 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from variable debt, with a 100 basis point increase potentially raising Q1 2023 interest expense by $5 million, while foreign currency risk is minimal - The company is exposed to interest rate risk from its variable rate debt. A hypothetical 100 basis point increase in the applicable interest rates would have increased interest expense by approximately $5 million for the three-month period ended March 31, 2023[223] - Foreign currency risk is primarily related to Canadian operations, which accounted for 1% of total revenue in Q1 2023. The impact is minimized as most revenue and expenses are denominated in the local functional currency[225] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2023, due to material weaknesses in internal control over financial reporting, primarily from acquisition integration and ITGCs - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses in internal control over financial reporting[229] - The material weaknesses relate to controls over the order-to-cash cycle at certain 2021 acquired entities, the IEA acquisition's purchase price allocation, management review controls, and IT general controls (ITGCs) in areas of user access and change management[233] - Management has initiated remediation plans, including expanding IT compliance, enhancing training, enforcing segregation of duties, and adding resources to improve control procedures. The weaknesses will be considered remediated once the new controls have operated effectively for a sufficient period[234] Part II. Other Information Item 1. Legal Proceedings This section refers to Note 14 for details on material legal proceedings, highlighting a significant adverse jury verdict against acquired subsidiary IEA related to a solar project - For details on material legal proceedings, the report refers to Note 14 - Commitments and Contingencies, which discusses the significant legal matter involving the acquired subsidiary IEA[237] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2022 Form 10-K[239] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its public programs during the quarter, with $77.3 million remaining available for future repurchases - As of March 31, 2023, the company had $77.3 million remaining available for share repurchases under its March 2020 $150 million share repurchase program[241] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including employment agreements, stock plans, and SOX certifications