MasTec saw leverage rise during ‘difficult’ 2015, expects 2016 improvement as EBITDA grows

By Paul Deckelman

New York, Aug. 24 – MasTec, Inc. had “a very difficult” performance in 2015 from a profit-and-loss perspective, its chief financial officer acknowledged on Wednesday – “but we did have a very strong cash-flow perspective,” in fact generating record cash flow levels.

And that, said CFO George L. Pita, enabled the Coral Gables, Fla.-based infrastructure engineering and construction company to do “what you have to do in a balance-sheet cycle, when your business is tough.”

Debt cutting despite struggle

Pita told participants at the fifth annual InvestMNt Investor Conference in Minneapolis, focusing on companies either based or doing business in Minnesota, that “during that period of time, when we had our difficulties,” Mas-Tec – which builds facilities for the oil and natural gas, telecommunications and power generation and transmission industries – was able to generate “a significant amount of cash by collecting our receivables and pushing our working capital down.”

Consequently, it was able to lower its debt levels by $112 million, or around 10% of the outstanding amount, even despite executing a $100 million share repurchase program, “so we’ve significantly managed our balance sheet,” in what Pita termed “ a strong manner and a good manner.”

The company’s overall finances had been impacted in 2015, by among other things, the troubles of the energy industry, for which MasTec builds and maintains long-haul oil, natural gas and natural gas liquids pipelines and other facilities.

It saw revenues fall 8.7% year over year, to $4.2 billion from $4.6 billion the year before, saw EBITDA plunge to $308 million from $425 million and posted a $79.7 million net loss from continuing operations versus a $122 million year-earlier profit.

Pita said that “the concern at the time, from an investor perspective, was the level of leverage,” which he said was “higher than normal,” even as the company managed to cut its overall debt load, “because our EBITDA levels were so depressed.”

Better days lie ahead

He said that things would be straightening out this year, with the company projecting that revenues will come in at $5 billion for the year, up from $4.2 billion in 2015, and EBITDA would climb back up to around $440 million from $308 million last year.

He said that “we expect that we can do that without significantly changing our debt levels, despite any increase in working capital to fund that.”

According to the slides used in connection with Pita’s conference presentation, as of June 30, the company had total debt of $1.08 billion. The largest pieces of debt were its $400 million of outstanding 4 7/8% senior notes due 2023, its nearly $308 million of 2.95% revolving credit debt due in October of 2018 and its nearly $244 million of 2.46% term loan debt due in November of 2019. The company also had $107 million of capital lease obligations due in installments though 2021 and small amounts of other debt. Its debt carried a weighted average interest rate of 3.54%.

Pita said that with the company now expecting an upturn in revenues and EBITDA for the year, “when you look at that and you divide $1 billion of debt by the $440 million EBITDA number, you get a leverage ratio that’s very manageable, less than 2.5 [times].

“That’s the metric where we typically like to keep our leverage.”

He acknowledged that “temporarily, it was a little higher than that during ’15 – but we expect this year that we’ll see significant leverage metric improvement by the end of this year.”

Pita said that any investor concerns “that have ever come up have always been centered on levels of leverage, and have never been centered on availability and liquidity. It’s just been the level of leverage – and that’s something we’ve been very comfortable with.”

The company feels that what it calls its “strong liquidity profile” should be “sufficient to capitalize on expected segment growth and strategic opportunities.”

The CFO reiterated that with financial results expected to come in stronger this year than last year – for instance, he said that MasTech had just reported “a strong second quarter,” exceeding all expectations – “we will expect to generate significant leverage metric improvement by the end of the year.”

© 2015 Prospect News.
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