# MASTEC INC (MTZ) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from MASTEC INC's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/15615/000001561522000011/mtz-20211231.htm Accession: 0000015615-22-000011 Filing date: 2022-03-01 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/MTZ/ All MD&A years: /company/MTZ/mda/ Next year: /company/MTZ/mda/fy2022/ (FY 2022) ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our business, financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto in Item 8 of this Form 10-K. The discussion below contains forward-looking statements that are based upon our current expectations and is subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Statement Regarding Forward-Looking Statements” and Item 1A. “Risk Factors.” Impact of the COVID-19 Pandemic and General Economic Conditions The COVID-19 pandemic has disrupted business activities and global economic conditions throughout 2020 and 2021 and has negatively affected our operations during the same period, including from reduced crew productivity due to mitigation measures, the health and availability of work crews or other key personnel and subcontractors; supply chain disruptions; delayed project start dates; and lost productivity from governmental permitting approval delays, project shutdowns and/or cancellations, among other factors. Additionally, disruptions in economic activity as a result of the COVID-19 pandemic have had, and may continue to have, adverse effects across our end markets. While the adverse effects of the COVID-19 29 pandemic have partially subsided, its effects vary by region, and uncertainties arising from the COVID-19 pandemic could continue to disrupt economic conditions and business activities, particularly as new variants of COVID-19 arise. The extent to which the COVID-19 pandemic, including the recent and emerging variants, could affect our business, operations and financial results is uncertain as it will depend upon numerous evolving factors that management may not be able to accurately predict, including the duration and scope of the pandemic and the continued emergence of new strains of COVID-19. The acceptance and effectiveness of vaccines and treatments, along with the length and extent of any continuing economic and market disruptions are unknown, and therefore, any future impacts on our business, financial condition and/or results of operations cannot be quantified or predicted with specificity. We believe that we have taken appropriate steps to mitigate the effects of the COVID-19 pandemic on our business, and our business model has, thus far, proven resilient. We continue to actively monitor the effects of the COVID-19 pandemic on our operations, and to the extent that future business activities are adversely affected by the pandemic, we intend to take appropriate actions designed to mitigate these impacts. We continue to adapt to the changing operational and economic environment that has resulted from the COVID-19 pandemic. Our top priority has been to take appropriate actions to protect the health and safety of our employees, customers and business partners, and we continue to monitor evolving health guidelines and respond to changes as appropriate. Notwithstanding moderation of the COVID-19 pandemic and related governmental and other restrictions, we may continue to experience negative effects on our business and operations from possible longer-term changes in consumer and customer behavior and/or from negative economic conditions, including recent inflationary effects, supply chain disruptions, including limited availability of products, and rising interest rates. As of December 31, 2021, we maintained a strong balance sheet, have strong relationships with our banking partners and had ample liquidity totaling approximately $1.1 billion, comprising $0.7 billion of availability under our Credit Facility and $361 million of cash. We believe that our financial position, strong cash flows and operational strengths will enable us to manage the current challenges and uncertainties resulting from the COVID-19 pandemic. Our business operations typically generate significant cash flow, affording us the flexibility to invest strategically in our efforts to maximize shareholder value through mergers and acquisitions, share repurchases and capital expenditures. We are carefully managing liquidity and are monitoring any potential effects from the pandemic on our financial results, cash flows and/or working capital and intend to take appropriate actions in efforts to mitigate any impacts. Business See Item 1. “Business” for discussion pertaining to our business and reportable segments. Recent acquisitions. During 2021, we completed fourteen acquisitions including: (i) within our Power Delivery segment: Henkels & McCoy Holdings, Inc., formerly known as Henkels & McCoy Group, Inc. (“HMG”), an industry-leading utility services firm providing critical infrastructure design, construction and maintenance services to the power and renewables, telecommunications, gas distribution and pipeline services end-markets; an electric utility distribution contractor; a company specializing in vegetation management services for the electric and telecommunications industries; and a premier specialty utility contractor primarily providing electrical distribution network services under various multi-year master service agreements to some of the nation’s largest utilities, municipalities and cooperatives; (ii) within our Clean Energy and Infrastructure segment: a heavy civil infrastructure construction company focusing on transportation projects; and a heavy industrial general contractor with concrete, piping and electrical capabilities; (iii) within our Communications segment: a telecommunications company specializing in cabling, plant and other network services; a telecommunications and utility technical services company focusing on outside plant telecommunications engineering; a telecommunications and cable services provider; a utilities infrastructure company, providing power line construction and repair services; and business operations specializing in install-to-the-home services; and (iv) within our Oil and Gas segment: an infrastructure construction company focusing on water, sewer and utility projects, along with expertise in site work; a company specializing in environmental services for energy infrastructure and heavy civil projects; and a pipeline contractor focusing on integrity and maintenance work related to gas distribution infrastructure. In the first quarter of 2022, we determined that we expect to integrate certain of HMG’s operations into our Communications and Oil and Gas segments. We are in the process of evaluating HMG’s organizational structure and systems, and anticipate that we will present HMG’s operations within our Power Delivery, Communications and Oil and Gas segments, as applicable, and that we will present HMG’s corporate functions within our corporate results, beginning in the first quarter of 2022. During 2020, we completed five acquisitions. These acquisitions included the equity interests of two entities, one that specializes in heavy civil infrastructure that is included within our Clean Energy and Infrastructure segment, and one that specializes in utility service and telecommunications construction that is included within our Communications segment. We also acquired the assets of three entities, one that specializes in wireless telecommunications and one that specializes in install-to-the-home services, both of which are included within our Communications segment and one that specializes in electrical transmission services that is included within our Power Delivery segment. During 2019, we completed six acquisitions, one of which specializes in water infrastructure for pipeline companies and is included within our Oil and Gas segment, four of which are included within our Communications segment, including a wireline/fiber deployment construction contractor and a telecommunications company specializing in a broad range of end-to-end wireless telecommunications solutions, and one of which specializes in construction projects in the power industry and is included in our Clean Energy and Infrastructure segment. For additional information, see Note 3 - Acquisitions, Goodwill and Other Intangible Assets in the notes to the audited consolidated financial statements, which is incorporated by reference. Economic, Industry and Market Factors We closely monitor the effects of changes in economic and market conditions on our customers, including the potential effects of climate-related matters and the COVID-19 pandemic. Changes in general economic and market conditions can either negatively or positively affect demand for our customers’ products and services, which can affect our customers’ planned capital and maintenance budgets in certain end-markets. Market, regulatory and industry factors could affect demand for our services, or the cost to provide such services, including (i) changes to our customers’ capital spending plans, including any potential effects from public health issues, supply chain or inflationary issues, or from rising interest rates; (ii) new or changing regulatory requirements, governmental policy changes, and customer or industry initiatives, including with respect to climate 30 change, sustainability and related environmental concerns, and/or from changes in governmental permitting; (iii) economic, political or other market developments or uncertainty, including access to capital for customers in the industries we serve; (iv) changes in technology, tax and other incentives; and (v) mergers, acquisitions or other business transactions among the customers we serve. Changes in demand for, and/or fluctuations in market prices for oil, gas and other fuel sources, including from renewable energy sources, and availability of transportation and transmission capacity can also affect demand for our services, in particular, on energy generation, electric grid and pipeline construction projects, including from carbon capture and other initiatives. These fluctuations, as well as the highly competitive nature of our industry, can result in changes in the levels of activity, the project mix, and/or the profitability of the services we provide. In the face of increased pricing pressure or other market developments, we strive to maintain our profit margins through productivity improvements, cost reduction programs and/or business streamlining efforts. While we actively monitor economic, industry and market factors that could affect our business, we cannot predict the effect that changes in such factors may have on our future results of operations, liquidity and cash flows, and we may be unable to fully mitigate, or benefit from, such changes. Effect of Seasonality and Cyclical Nature of Business Our revenue and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, project schedules, holidays, regulatory matters and/or timing, in particular, for large non-recurring projects, and the effects of public health matters, such as the COVID-19 pandemic. Typically, our revenue is lowest at the beginning of the year and during the winter months because cold, snowy or wet conditions can delay projects. Revenue is generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate, but continued cold and wet weather can often affect second quarter productivity. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive effect on our revenue. However, the holiday season and inclement weather can cause delays, which can reduce revenue and increase costs on affected projects. Any quarter may be positively or negatively affected by adverse or unusual weather patterns, including warm winter weather, excessive rainfall, flooding or natural catastrophes such as wildfires, hurricanes or other severe weather, making it difficult to predict quarterly revenue and margin variations. Additionally, our industry can be highly cyclical. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can affect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations in project schedules or unanticipated changes in project schedules, in particular, in connection with large construction and installation projects, can create fluctuations in revenue, which may adversely affect us in a given quarter, even if not for the full year. In addition, revenue from master service and other service agreements, while generally predictable, can be subject to volatility. The financial condition of our customers and their access to capital; variations in project margins; regional, national and global economic, political and market conditions; regulatory or environmental influences, including climate-related matters; and acquisitions, dispositions or strategic arrangements can also materially affect quarterly results in a given period. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. Understanding Our Results of Operations Revenue. We provide engineering, building, installation, maintenance and upgrade services to our customers. We derive revenue from projects performed under master and other service agreements as well as from contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system. See Item 1. “Business” for discussion of our business and revenue-generating activities and “Comparison of Fiscal Year Results” below for revenue results by reportable segment. Costs of Revenue, Excluding Depreciation and Amortization. Costs of revenue, excluding depreciation and amortization, consists principally of salaries, employee incentives and benefits, subcontracted services, equipment and facility rentals, repairs, fuel and other equipment expenses, materials costs, parts, supplies and insurance expenses. Project profit is calculated by subtracting a project’s costs of revenue, including project-related depreciation, from project revenue. Project profitability and corresponding project margins will generally be reduced if actual costs to complete a project exceed our project cost estimates. Estimated losses on contracts, or the excess of estimated costs to complete a contract over the contract’s remaining revenue, are recognized in the period in which such losses are determined. Factors impacting our costs of revenue, excluding depreciation and amortization, and project profit, include: Project Mix. The mix of revenue derived from the projects we perform impacts overall project margins, as margin opportunities can vary by project. For example, installation work, which is often performed on a fixed price basis, has a higher level of margin risk than maintenance or upgrade work, which is often performed under pre-established or time and materials pricing arrangements. As a result, changes in project mix between installation work and maintenance or upgrade services can affect our project margins in a given period. Our project mix by industry can also affect our overall margins, as project margins can vary by industry and over time. Seasonality, Weather and Geographic Mix. Seasonal patterns, which can be affected by weather conditions, can have a significant effect on project margins. Adverse or favorable weather conditions can affect project margins in a given period. For example, extended periods of rain or snowfall can negatively affect revenue and project margins due to reduced productivity from projects being delayed or temporarily halted. Conversely, when weather remains dry and temperatures are accommodating, more work can be done, sometimes with less cost, which can favorably affect project margins. In addition, the mix of business conducted in different geographic areas can affect project margins due to the particular characteristics of the physical locations where work is being performed, such as mountainous or rocky terrain versus open terrain. Site conditions, including unforeseen underground conditions, can also affect project margins. Price and Performance Risk. Overall project margins may fluctuate due to project pricing and job conditions, changes in the cost of labor and materials, crew availability, job productivity and work volume. Job productivity can be affected by quality of the work crew and equipment, the quality of engineering specifications and designs, availability of skilled labor, environmental or regulatory factors, customer decisions or delays and crew productivity. Crew productivity can be influenced by weather conditions and job terrain, such as whether project work is in a right of way that is open or one that has physical obstructions or legal encumbrances. 31 Subcontracted Resources. Our use of subcontracted resources in a given period is dependent upon activity levels and the amount and location of existing in-house resources and capacity. Project margins on subcontracted work can vary from those on self-perform work. As a result, changes in the availability and mix of subcontracted resources versus self-perform work can affect our overall project margins. Material versus Labor Costs. In many cases, our customers are responsible for supplying their own materials on projects; however, under certain contracts, we may agree to provide all or part of the required materials. Project margins are typically lower on projects where we furnish a significant amount of materials due to the fact that margins on materials are generally lower than margins on labor costs. Therefore, increases in the percentage of work with significant materials requirements could decrease our overall project margins. General and Administrative Expense. General and administrative expenses consist principally of compensation and benefit expenses, travel expenses and related costs for our finance, benefits, insurance and risk management, legal, facilities, information technology services and executive functions. General and administrative expenses also include non-cash stock-based compensation expense, outside professional and accounting fees, expenses associated with information technology used in administration of the business, gains or losses from the disposal of property and equipment, acquisition costs, including certain costs related to acquisition integration, and, from time to time, certain restructuring charges. Interest Expense, Net. Interest expense, net, consists of contractual interest expense on outstanding debt obligations, amortization of deferred financing costs and other interest expense, including interest expense related to financing arrangements and mandatorily redeemable non-controlling interests. Interest expense is offset, in part, by interest earned on cash and other investments. Other Income or Expense. Other income or expense consists primarily of gains or losses from changes to estimated Earn-out accruals, certain legal/other settlements, certain purchase accounting adjustments, and gains or losses, or changes in estimated recoveries, from certain assets and investments. Financial Performance Metrics Our senior management team regularly reviews certain key financial performance metrics within our business, including: •revenue and profitability on an overall basis, by reportable segment and for selected projects; •revenue by customer and by contract type; •costs of revenue, excluding depreciation and amortization; general and administrative expenses; depreciation and amortization; interest expense, net; other income or expense; and provision for income taxes; •earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA, as defined in our non-U.S. GAAP financial measures discussion following the “Comparison of Fiscal Year Results” section below; •earnings per share and adjusted earnings per share, as defined in our non-U.S. GAAP financial measures discussion; •days sales outstanding, net of contract liabilities and days payable outstanding; •interest and debt service coverage ratios; and •liquidity and cash flows. Management’s analysis includes detailed discussions of proposed investments in new business opportunities or property and equipment, productivity improvement efforts, acquisition integration efforts, strategic arrangement opportunities and working capital and other capital management efforts. Measuring these key performance indicators is an important tool used by management to make informed and timely operational decisions, which we believe can help us improve our performance. Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, including the potential future effects of public health matters, such as the COVID-19 pandemic, climate change, and other global and/or macroeconomic trends and events. These estimates form the basis for making judgments about our operating results and the carrying values of assets and liabilities that are not readily apparent from other sources. Given that management estimates, by their nature, involve judgments regarding future uncertainties, actual results could differ materially from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be inaccurate. Our accounting policies and critical accounting estimates are reviewed periodically by the Audit Committee of the Board of Directors. We believe that our accounting estimates pertaining to: the recognition of revenue and project profit or loss, which we define as project revenue, less project costs of revenue, including project-related depreciation, in particular, on construction contracts accounted for under the cost-to-cost method, for which the recorded amounts require estimates of costs to complete and the amount and probability of variable consideration included in the contract transaction price; fair value estimates, including those related to acquisitions, valuations of goodwill, intangible assets and acquisition-related contingent consideration; equity investments; income taxes; self-insurance liabilities; and litigation and other contingencies, are the most critical in the preparation of our consolidated financial statements as they are important to the portrayal of our financial condition and require significant or complex judgment and estimates on the part of management. Actual results could, however, vary materially from these accounting estimates. Refer to Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the audited consolidated financial statements, which is incorporated by reference, for discussion of our significant accounting policies. 32 Revenue Recognition We recognize revenue from contracts with customers when, or as, control of promised services and goods is transferred to customers. The amount of revenue recognized reflects the consideration to which we expect to be entitled in exchange for the services and goods transferred. We primarily recognize revenue over time utilizing the cost-to-cost measure of progress. Contracts. We derive revenue primarily from construction projects performed under: (i) master and other service agreements, which generally provide a menu of available services in a specific geographic territory that are utilized on an as-needed basis, and are typically priced using either a time and materials or a fixed price per unit basis; and (ii) contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system, which are subject to multiple pricing options, including fixed price, unit price, time and materials, or cost plus a markup. The total contract transaction price and cost estimation processes used for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of our project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and our profit recognition. Changes in these factors could result in revisions to revenue in the period in which the revisions are determined, which could materially affect our consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined. For the year ended December 31, 2021, project profit was affected by less than 5% as a result of changes in contract estimates included in projects that were in process as of December 31, 2020. Revenue recognized for the year ended December 31, 2021 as a result of changes in total contract transaction price estimates, including from variable consideration, from performance obligations satisfied or partially satisfied in prior periods, totaled approximately $41.1 million. Performance Obligations. A performance obligation is a contractual promise to transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. Our contracts often require significant services to integrate complex activities and equipment into a single deliverable, and are therefore generally accounted for as a single performance obligation, even when delivering multiple distinct services. Contract amendments and change orders, which are generally not distinct from the existing contract, are typically accounted for as a modification of the existing contract and performance obligation. The vast majority of our performance obligations are completed within one year. When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract, as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts. Variable Consideration. Transaction prices for our contracts may include variable consideration, which comprises items such as change orders, claims and incentives. Management estimates variable consideration for a performance obligation utilizing estimation methods that we believe best predict the amount of consideration to which we will be entitled. Variable consideration is included in the estimated transaction price if it is probable that when the uncertainty associated with the variable consideration is resolved, there will not be a significant reversal of the cumulative amount of revenue that has been recognized. Management’s estimates of variable consideration and the determination of whether to include estimated amounts in transaction prices are based largely on engineering studies and legal opinions, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer and all other relevant information that is reasonably available at the time of the estimate. The effect of variable consideration on the transaction price of a performance obligation is typically recognized as an adjustment to revenue on a cumulative catch-up basis, as such variable consideration, which typically pertains to changed conditions and scope, is generally for services encompassed under the existing contract. To the extent unapproved change orders, claims and other variable consideration reflected in transaction prices are not resolved in our favor, or to the extent incentives reflected in transaction prices are not earned, there could be reductions in, or reversals of, previously recognized revenue. As of December 31, 2021, we included approximately $104 million of change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation, arbitration and other proceedings. These transaction price adjustments, when earned, are included within contract assets or accounts receivable, net of allowance, as appropriate. As of December 31, 2021, these change orders and/or claims primarily related to certain projects in our Clean Energy and Infrastructure and Power Delivery segments. We actively engage with our customers to complete the final approval process, and generally expect these processes to be completed within one year. Amounts ultimately realized upon final agreement by customers could be higher or lower than such estimated amounts. Business Combinations The determination of the fair value of net assets acquired in a business combination and estimates of acquisition-related contingent consideration, which, for our acquisitions are primarily “earn-out” liabilities, requires estimates and judgments of future cash flow expectations for the acquired business and the related identifiable tangible and intangible assets. Fair values of net assets acquired are calculated using expected cash flows and industry-standard valuation techniques. Fair values of earn-out liabilities are estimated using income approaches such as discounted cash flows or option pricing models. Due to the time required to gather and analyze the necessary data for each acquisition, U.S. GAAP provides a “measurement period” of up to one year in which to finalize these fair value determinations. During the measurement period, preliminary fair value estimates may be revised if new information is obtained about the facts and circumstances existing as of the date of acquisition, or based on the final net assets and working capital of the acquired business, as prescribed in the applicable purchase agreement. Such adjustments may result in the recognition of, or an adjustment to the fair values of, acquisition-related assets and liabilities and/or consideration paid, and are referred to as “measurement period” adjustments. Measurement period adjustments are recorded to goodwill. Other revisions to fair value estimates for acquisitions are reflected as income or expense, as appropriate. See Note 3 - Acquisitions, Goodwill and Other Intangible Assets in the notes to the audited consolidated financial 33 statements, which is incorporated by reference, for information pertaining to acquisition-related fair value adjustments. Significant changes in the assumptions or estimates used in the underlying valuations, including the expected profitability or cash flows of an acquired business, could materially affect our operating results in the period such changes are recognized. Goodwill and Intangible Assets We have goodwill and intangible assets that have been recorded in connection with our acquisitions of businesses. Goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. Finite-lived intangible assets are amortized over their useful lives, which are generally based on contractual or legal rights, in a manner consistent with the pattern in which the related benefits are expected to be consumed. We perform our annual impairment tests of goodwill and indefinite-lived intangible assets during the fourth quarter of each year, and on a quarterly basis, we monitor these assets for potential indicators of impairment. Goodwill is required to be tested for impairment at the reporting unit level. A reporting unit is an operating segment, or one level below the operating segment, which is referred to as a component. We combine three of the components of our Power Delivery operating segment into one reporting unit. All of our other components each comprise one reporting unit. Following is a summary of goodwill and intangible assets by segment as of December 31, 2021: [[GREPCENT_TABLE]] [["","Communications","","Clean Energy and Infrastructure","","Oil and Gas","","Power Delivery","","Total"],["Goodwill (in millions)","$","601.5","","","$","166.1","","","$","426.2","","","$","326.8","","","$","1,520.6"],["Percentage of total","39.6","%","","10.9","%","","28.0","%","","21.5","%","","100.0","%"],["Other intangible assets, net (in millions)","$","65.4","","","$","77.4","","","$","101.2","","","$","426.3","","","$","670.3"],["Percentage of total","9.8","%","","11.5","%","","15.1","%","","63.6","%","","100.0","%"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2021, we performed a qualitative assessment for our goodwill and indefinite-lived intangible assets by examining relevant events and circumstances that could have an effect on their fair values, such as: macroeconomic conditions, industry and market conditions, entity-specific events, financial performance and other relevant factors or events that could affect earnings and cash flows. Based on the results of the qualitative assessments for the year ended December 31, 2021, we performed quantitative testing for (i) four reporting units within our Oil and Gas operating segment; (ii) three reporting units in our Communications operating segment; and (iii) one reporting unit within our Clean Energy and Infrastructure operating segment. Factors considered by management in determining the reporting units for which quantitative assessments were performed included the effects of current or expected changes in market conditions on the future business outlook, the potential effects of the COVID-19 pandemic, success rates on new project awards and levels of operating activity. For the reporting units for which quantitative testing was performed, we estimated their fair values using a combination of market and income approaches. Under the market approach, fair values were estimated using published market multiples for comparable companies and applying them to revenue and EBITDA. Under the income approach, a discounted cash flow methodology was used, considering: (i) management estimates, such as projections of revenue, operating costs and cash flows, taking into consideration historical and anticipated financial results; (ii) general economic and market conditions; and (iii) the impact of planned business and operational strategies. We believe the assumptions used in our quantitative goodwill impairment tests are reflective of the risks inherent in the business models of our reporting units and within our industry. Estimated discount rates were determined using the weighted average cost of capital for each reporting unit at the time of the analysis, taking into consideration the risks inherent within each reporting unit individually. Significant assumptions used in testing the reporting units included terminal values based on terminal growth rates of 2.5% to 3.0%, five to nine years of discounted cash flows prior to the terminal value, and discount rates ranging from 10.5% to 15.0%. Based on the results of the quantitative assessment, the estimated fair values of all of the reporting units were determined to substantially exceed their carrying values. A 100 basis point increase in the discount rate would not have resulted in any of the reporting units’ carrying values exceeding their fair values. As of December 31, 2021, we believe that the recorded balances of goodwill and intangible assets are recoverable; however, significant changes in the assumptions or estimates used in our analyses, such as market conditions or a reduction in profitability and/or cash flows, and/or for intangible assets, changes in contractual rights or other asset characteristics, could result in non-cash goodwill and/or intangible asset impairment charges in future periods. See Note 1 - Business, Basis of Presentation and Significant Accounting Policies and Note 3 - Acquisitions, Goodwill and Other Intangible Assets in the notes to the audited consolidated financial statements, which are incorporated by reference, for additional discussion. Equity Investments Our investment and strategic arrangements include equity interests in various business entities and participation in contractual joint ventures. Equity investments, other than those accounted for as equity method investments or those that are proportionately consolidated, are measured at fair value if their fair values are readily determinable. Equity investments that do not have readily determinable fair values are measured at cost, adjusted for changes from observable market transactions, if any, less impairment (“adjusted cost basis”). This impairment evaluation considers a variety of factors, including the earnings performance of the related investments, as well as the economic environment and market conditions in which the investees operate. Significant changes in any of these factors could result in impairment charges in future periods. 34 Income Taxes Our provision for income taxes uses an effective tax rate based on annual pre-tax income, statutory tax rates, permanent tax differences and tax planning opportunities in the various jurisdictions in which we operate. Significant factors that can affect our annual effective tax rate include our assessment of certain tax matters, the location and amount of taxable earnings, changes in certain non-deductible expenses and expected credits. Although we believe our provision for income taxes is correct and the related assumptions are reasonable, the final outcome of tax matters could be materially different from what we currently anticipate, which could result in significant costs or benefits to us. See Note 12 - Income Taxes in the notes to the audited consolidated financial statements, which is incorporated by reference, for additional discussion. In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based on our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recognized the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in our financial statements. We file income tax returns in numerous tax jurisdictions, including U.S. federal, most U.S. states and certain foreign jurisdictions. Although we believe our calculations for tax returns are correct and the positions taken thereon are reasonable, the final outcome of income tax examinations could be materially different from our expectations and the estimates that are reflected in our consolidated financial statements, which could have a material effect on our results of operations, cash flows and liquidity. Self-Insurance We are self-insured up to the amount of our deductible for our insurance policies. Liabilities under our insurance programs are accrued based upon our estimate of the ultimate liability for claims, with assistance from third-party actuaries. The determination of such claims and expenses and the appropriateness of the related liability is reviewed and updated quarterly. These insurance liabilities are, however, difficult to assess and estimate due to many factors, the effects of which are often unknown or difficult to estimate, including the severity of an injury, the determination of our liability in proportion to other parties and the number of incidents not reported. Accruals are based upon known facts and historical trends. Although we believe such accruals are adequate, a change in experience or actuarial assumptions could materially affect our results of operations in a particular period. Litigation and Contingencies Accruals for litigation and contingencies are based on our assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable. Accruals are based on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, we reassess potential liabilities related to pending claims and litigation and may revise our previous estimates, which could materially affect our results of operations in a given period. 2022 Outlook We believe that we are well-positioned to benefit from significant opportunities in each of our business segments. Please see Item 1 “Business - Industry Trends” for additional information on the outlook for the industries we serve and a detailed discussion of our market opportunities. Our future results could be adversely affected by the matters discussed in the “Cautionary Statement Regarding Forward-Looking Statements,” Item 1A. “Risk Factors” and Item 3. “Legal Proceedings” of this Form 10-K. 35 Comparison of Fiscal Year Results The following table, which may contain slight summation differences due to rounding, reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated (dollar amounts in millions). Our consolidated results of operations are not necessarily comparable from period to period due to the effect of recent acquisitions and certain other items, which are described in the comparison of results section below. In this discussion, “acquisition” results are defined as results from acquired businesses for the first twelve months following the dates of the respective acquisitions, with the balance of results for a particular item attributed to “organic” activity. [[GREPCENT_TABLE]] [["","For the Years Ended December 31,"],["","2021","","2020","","2019"],["Revenue","$","7,951.8","","","100.0","%","","$","6,321.0","","","100.0","%","","$","7,183.2","","","100.0","%"],["Costs of revenue, excluding depreciation and amortization","6,805.7","","","85.6","%","","5,270.9","","","83.4","%","","6,070.2","","","84.5","%"],["Depreciation","345.6","","","4.3","%","","258.8","","","4.1","%","","212.5","","","3.0","%"],["Amortization of intangible assets","77.2","","","1.0","%","","38.9","","","0.6","%","","23.0","","","0.3","%"],["Goodwill and intangible asset impairment","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","3.3","","","0.0","%"],["General and administrative expenses","307.0","","","3.9","%","","303.0","","","4.8","%","","286.4","","","4.0","%"],["Interest expense, net","53.4","","","0.7","%","","59.6","","","0.9","%","","77.0","","","1.1","%"],["Equity in earnings of unconsolidated affiliates","(33.8)","","","(0.4)","%","","(29.7)","","","(0.5)","%","","(27.4)","","","(0.4)","%"],["Loss on extinguishment of debt","\u2014","","","\u2014","%","","5.6","","","0.1","%","","\u2014","","","\u2014","%"],["Other (income) expense, net","(33.4)","","","(0.4)","%","","(11.3)","","","(0.2)","%","","27.2","","","0.4","%"],["Income before income taxes","$","430.1","","","5.4","%","","$","425.2","","","6.7","%","","$","510.9","","","7.1","%"],["Provision for income taxes","(99.3)","","","(1.2)","%","","(102.5)","","","(1.6)","%","","(116.8)","","","(1.6)","%"],["Net income","$","330.7","","","4.2","%","","$","322.7","","","5.1","%","","$","394.1","","","5.5","%"],["Net income (loss) attributable to non-controlling interests","1.9","","","0.0","%","","(0.1)","","","(0.0",")%","","1.8","","","0.0","%"],["Net income attributable to MasTec, Inc.","$","328.8","","","4.1","%","","$","322.8","","","5.1","%","","$","392.3","","","5.5","%"]] [[/GREPCENT_TABLE]] We review our operating results by reportable segment. See Note 13 - Segments and Related Information in the notes to the audited consolidated financial statements, which is incorporated by reference. Our reportable segments are: (1) Communications; (2) Clean Energy and Infrastructure; (3) Oil and Gas; (4) Power Delivery and (5) Other. Management’s review of reportable segment results includes analyses of trends in revenue, EBITDA and EBITDA margin. EBITDA for segment reporting purposes is calculated consistently with our consolidated EBITDA calculation. See the discussion of our non-U.S. GAAP financial measures, including certain adjusted non-U.S. GAAP measures, as described, following the comparison of results discussion below. The following table presents revenue, EBITDA and EBITDA margin by reportable segment for the periods indicated (dollar amounts in millions): [[GREPCENT_TABLE]] [["","","For the Years Ended December 31,"],["","","Revenue","","EBITDA and EBITDA Margin"],["Reportable Segment:","","2021","","2020","","2019","","2021","","2020","","2019"],["Communications","$","2,551.1","","","$","2,512.2","","","$","2,618.8","","","$","269.5","","","10.6","%","","$","270.1","","","10.7","%","","$","208.8","","","8.0","%"],["Clean Energy and Infrastructure","1,865.0","","","1,526.9","","","1,034.3","","","75.0","","","4.0","%","","80.4","","","5.3","%","","40.1","","","3.9","%"],["Oil and Gas","2,540.5","","","1,789.8","","","3,117.2","","","557.6","","","21.9","%","","510.9","","","28.5","%","","634.2","","","20.3","%"],["Power Delivery","1,016.8","","","506.5","","","413.9","","","68.0","","","6.7","%","","14.9","","","2.9","%","","29.5","","","7.1","%"],["Other","0.0","","","0.6","","","0.2","","","33.8","","","NM","","30.7","","","NM","","26.5","","","NM"],["Eliminations","(21.6)","","","(15.0)","","","(1.2)","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Corporate","\u2014","","","\u2014","","","\u2014","","","(97.5)","","","\u2014","","","(124.5)","","","\u2014","","","(115.7)","","","\u2014"],["Consolidated Results","$","7,951.8","","","$","6,321.0","","","$","7,183.2","","","$","906.3","","","11.4","%","","$","782.5","","","12.4","%","","$","823.4","","","11.5","%"]] [[/GREPCENT_TABLE]] NM - Percentage is not meaningful Comparison of Years Ended December 31, 2021 and 2020 Revenue. For the year ended December 31, 2021, consolidated revenue totaled $7,952 million as compared with $6,321 million in 2020, an increase of $1,631 million, or 26%. Revenue increased in our Oil and Gas segment by $751 million, or 42%, our Power Delivery segment by $510 million, or 101%, our Clean Energy and Infrastructure segment by $338 million, or 22%, and in our Communications segment by $39 million, or 2%. Acquisitions contributed $1,022 million in increased revenue for the year ended December 31, 2021 and organic revenue increased by approximately $609 million, or 9.6%, as compared with 2020. Communications Segment. Communications revenue was $2,551 million in 2021, as compared with $2,512 million in 2020, an increase of $39 million, or 2%. Acquisitions contributed $162 million of increased revenue for the year ended December 31, 2021 and organic revenue 36 decreased by approximately $123 million, or 5%, as compared with 2020. The decrease in organic revenue was primarily due to lower levels of wireless and wireline services, primarily from the effects of project timing delays related to C-band spectrum auctions and the COVID-19 pandemic. Clean Energy and Infrastructure Segment. Clean Energy and Infrastructure revenue was $1,865 million in 2021, as compared with $1,527 million in 2020, an increase of $338 million, or 22%. For the year ended December 31, 2021, acquisitions contributed $339 million of increased revenue, and organic revenue was generally flat as compared with 2020. Oil and Gas Segment. Oil and Gas revenue was $2,541 million in 2021, as compared with $1,790 million in 2020, an increase of approximately $751 million, or 42%. Organic revenue increased by approximately $666 million, or 37%, as compared with 2020, and acquisitions contributed $85 million of increased revenue for the year ended December 31, 2021. The increase in organic revenue was primarily due to higher levels of large diameter project activity, offset, in part, by lower levels of activity for other projects. Power Delivery Segment. Power Delivery revenue was $1,017 million in 2021, as compared with $507 million in 2020, an increase of $510 million, or 101%. Acquisitions contributed $436 million of increased revenue for the year ended December 31, 2021, and organic revenue increased by approximately $74 million, or 15%, as compared with 2020, due primarily to timing and mix of project activity. Costs of revenue, excluding depreciation and amortization. Costs of revenue, excluding depreciation and amortization, increased by $1,535 million, or 29%, to $6,806 million in 2021 from $5,271 million in 2020. Higher levels of revenue contributed an increase in costs of revenue, excluding depreciation and amortization, of $1,360 million, and reduced productivity contributed an increase of approximately $175 million. Costs of revenue, excluding depreciation and amortization, as a percentage of revenue increased by approximately 220 basis points, from 83.4% of revenue in 2020 to approximately 85.6% of revenue in 2021. The basis point increase was due to reduced project efficiencies, close-outs and mix, primarily in our Oil and Gas segment, and, across all our segments, the effects of project start-up delays and execution inefficiencies, including COVID-19 pandemic supply chain, crew and other effects. The basis point increase described above was offset, in part, by improved project mix and efficiencies in our Power Delivery segment. Depreciation. Depreciation was $346 million, or 4.3% of revenue, in 2021, as compared with $259 million, or 4.1% of revenue in 2020, an increase of $87 million, or 34%. Acquisitions contributed $33 million of depreciation for the year ended December 31, 2021 and organic depreciation increased by $54 million, or 21% due primarily to the impact of capital investments to support increased levels of large diameter pipeline project activity. As a percentage of revenue, depreciation increased by approximately 30 basis points. Amortization of intangible assets. Amortization of intangible assets was $77 million, or 1.0% of revenue in 2021, as compared with $39 million, or 0.6% of revenue, for the same period in 2020, an increase of $38 million, or 98%. Acquisitions contributed $47 million of intangible asset amortization for the year ended December 31, 2021 and organic amortization decreased by approximately $8 million, or 22%, due to the effects of timing of amortization for certain intangible assets. As a percentage of revenue, amortization of intangible assets increased by approximately 40 basis points. General and administrative expenses. General and administrative expenses were $307 million, or 3.9%, of revenue in 2021, as compared with $303 million, or 4.8% of revenue in 2020, an increase of $4 million, or 1%. Acquisitions contributed approximately $36 million of general and administrative expenses for the year ended December 31, 2021. Excluding the effects of acquisitions, general and administrative expenses decreased by approximately $32 million, or 11%, as compared with 2020, primarily due to recovery of provisions for credit losses resulting from successful collection efforts for previously reserved amounts and gains from the sale of property and equipment, as well as the effects of legal and settlement matter timing. The favorable effect of these items was offset, in part, by increases in compensation, professional fees, information technology and other administrative expenses. General and administrative expenses as a percentage of revenue decreased by approximately 90 basis points as compared with 2020 due primarily to higher levels of revenue. Interest expense, net. Interest expense, net of interest income, was $53 million, or 0.7% of revenue in 2021, as compared with $60 million, or 0.9% of revenue in 2020, for a decrease of approximately $6 million, or 10%. The decrease in interest expense, net, related primarily to a reduction in interest expense from credit facility and leasing activity, together with a decrease in discount charges on financing arrangements for trade receivables. Interest expense from credit facility activity decreased by approximately $5 million as compared with the same period in the prior year due to a combination of lower interest rates and lower average balances. In addition, interest expense was favorably affected by approximately $1 million of income from mandatorily redeemable non-controlling interests in 2021, as compared with $1 million of expense in 2020. The above decreases were offset, in part, by an increase in interest expense on senior notes. Interest expense on senior notes increased in 2021 due to the third quarter 2020 issuance of $600 million aggregate principal amount of 4.50% Senior Notes, offset by the redemption of $400 million aggregate principal amount of 4.875% Senior Notes. Equity in earnings of unconsolidated affiliates. Equity in earnings or losses of unconsolidated affiliates includes our share of income or losses from equity investees. For the year ended December 31, 2021, equity in earnings from unconsolidated affiliates totaled $34 million, net, as compared with $30 million, net, in 2020, and related primarily to our investments in the Waha JVs, offset slightly by equity in losses from investments in certain telecommunications and other entities. Loss on extinguishment of debt. We incurred a loss on debt extinguishment of approximately $6 million for the year ended December 31, 2020 in connection with the repurchase and redemption of our 4.875% Senior Notes, composed of approximately $3 million of early repayment premiums and $2 million from the write-off of unamortized deferred financing costs. Other income, net. Other income, net, consists primarily of gains or losses from changes to estimated Earn-out accruals, certain legal/other settlements, and gains or losses, or changes in estimated recoveries, from certain assets and investments. Other income, net, was $33 million in 2021, as compared with other income, net, of $11 million in 2020. For the year ended December 31, 2021, other income, net, included approximately $28 million of income, net, from changes to estimated Earn-out accruals, approximately $3 million of bargain purchase gain from a 2021 acquisition and approximately $7 million of income from legal settlements, offset, in part, by $7 million of expense, net, from changes in the fair value of certain assets and investments and income from strategic arrangements. For the year ended December 31, 2020, other income, net, included approximately 37 $11 million of income from changes in the fair value of certain assets and investments and income from strategic arrangements, partially offset by $2 million of expense, net, from changes to estimated Earn-out accruals. Provision for income taxes. Income tax expense was $99 million in 2021, as compared with $102 million in 2020. Pre-tax income increased to $430 million for the year ended December 31, 2021 from $425 million in 2020. For the year ended December 31, 2021, our effective tax rate decreased to 23.1% from 24.1% in 2020. Our effective tax rate for the year ended December 31, 2021 included a benefit of $3.8 million from share-based compensation, as well as benefits from adjustments related to the finalization of our 2020 tax returns and from the settlement of our 2016 and 2017 IRS examinations. For the year ended December 31, 2020, our effective income tax rate included a benefit of approximately $10 million related to the release of certain valuation allowances on Canadian deferred tax assets that were no longer necessary, as well as the benefit of adjustments from the finalization of our 2019 tax returns. Analysis of EBITDA by Segment Communications Segment. EBITDA for our Communications segment was $270 million, or 10.6% of revenue, in 2021, as compared with $270 million, or 10.7% of revenue in 2020. Higher levels of revenue contributed an increase in EBITDA of approximately $4 million. As a percentage of revenue, EBITDA decreased by approximately 20 basis points, or $5 million, due primarily to project inefficiencies, including from COVID-19 pandemic supply chain, crew and other effects, and mix, as well as the effects of project timing delays related to C-band spectrum auctions. Clean Energy and Infrastructure Segment. EBITDA for our Clean Energy and Infrastructure segment was $75 million, or 4.0% of revenue, in 2021, as compared with $80 million, or 5.3% of revenue in 2020, for a decrease in EBITDA of approximately $5 million, or 7%. Higher levels of revenue contributed an increase in EBITDA of approximately $18 million. As a percentage of revenue, EBITDA decreased by approximately 120 basis points, or $23 million, due to project mix as well as project inefficiencies, including from COVID-19 pandemic supply chain, crew and other effects, as well as project start-up and execution delays. Oil and Gas Segment. EBITDA for our Oil and Gas segment was $558 million, or 21.9% of revenue in 2021, as compared with $511 million, or 28.5% of revenue in 2020, an increase of approximately $47 million, or 9%. Higher levels of revenue contributed an increase in EBITDA of $214 million, whereas reduced productivity contributed a decrease in EBITDA of approximately $168 million. EBITDA margins decreased by approximately 660 basis points, due primarily to reduced project efficiencies, including from COVID-19 pandemic supply chain, crew and other effects, close-outs and mix. Power Delivery Segment. EBITDA for our Power Delivery segment was $68 million, or 6.7% of revenue in 2021, as compared with $15 million, or 2.9% of revenue in 2020, an increase in EBITDA of approximately $53 million, or 355%. Higher levels of revenue contributed an increase in EBITDA of approximately $15 million. As a percentage of revenue, EBITDA increased by approximately 370 basis points, or $38 million, due primarily to project mix, as well as improved project efficiencies, offset, in part, by inefficiencies from COVID-19 pandemic supply chain, crew and other effects. Other Segment. EBITDA from Other businesses totaled $34 million and $31 million for the years ended December 31, 2021 and 2020, respectively, an increase of approximately $3 million, or 10%. Other segment EBITDA relates primarily to equity in earnings from our investments in the Waha JVs, partially offset by equity in losses from other investments. Corporate. Corporate EBITDA was negative $98 million in 2021 as compared with EBITDA of negative $125 million in 2020, for an increase in EBITDA of approximately $27 million. Corporate EBITDA in 2021 included approximately $28 million of income, net, from changes to estimated Earn-out accruals and approximately $3 million of bargain purchase gain from a 2021 acquisition, offset, in part, by approximately $7 million of expense, net, from changes in the fair value of certain investments and income from strategic arrangements and approximately $4 million of acquisition and integration costs. Corporate EBITDA in 2020 included approximately $6 million of debt extinguishment losses and $2 million of expense, net, from changes to estimated Earn-out accruals, partially offset by approximately $11 million of income from changes in the fair value of certain investments and income from strategic arrangements. Excluding the effects of these items, other corporate expenses decreased by approximately $10 million as compared with 2020, due primarily to the effect of timing of legal and settlement matters, offset, in part, by increases in compensation expense, information technology costs and other administrative expenses. Comparison of Years Ended December 31, 2020 and 2019 Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Years Ended December 31, 2020 and 2019” of the Company’s 2020 Annual Report on Form 10-K (“the 2020 Form 10-K”) for a comparison of results for the years ended December 31, 2020 and 2019, which discussion is incorporated herein by reference. Foreign Operations Our foreign operations are primarily in Canada and, to a far lesser extent, in Mexico, the Caribbean and India. See Note 13 - Segments and Related Information in the notes to the audited consolidated financial statements, which is incorporated by reference. Non-U.S. GAAP Financial Measures As appropriate, we supplement our reported U.S. GAAP financial information with certain non-U.S. GAAP financial measures, including earnings before interest, income taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA (“Adjusted EBITDA”), adjusted net income (“Adjusted Net Income”) and adjusted diluted earnings per share (“Adjusted Diluted Earnings Per Share”). These “adjusted” non-U.S. GAAP measures exclude, as applicable to the particular periods, non-cash stock-based compensation expense; the bargain purchase gain from a 2021 acquisition; acquisition and integration costs related to our 2021 acquisitions; the loss on debt extinguishment from the redemption of our 4.875% Senior Notes; goodwill and intangible asset impairment; and, for Adjusted Net Income and Adjusted Diluted Earnings Per Share, amortization of intangible assets and the tax effects of the adjusted items, including the effects of changes in statutory tax rates. These definitions of EBITDA and 38 Adjusted EBITDA are not the same as in our Credit Facility or in the indenture governing our senior notes; therefore, EBITDA and Adjusted EBITDA as presented in this discussion should not be used for purposes of determining our compliance with the covenants contained in our debt instruments. We use EBITDA and Adjusted EBITDA, as well as Adjusted Net Income and Adjusted Diluted Earnings Per Share to evaluate our performance, both internally and as compared with our peers, because these measures exclude certain items that may not be indicative of our core operating results, as well as items that can vary widely across different industries or among companies within the same industry. We believe that these adjusted measures provide a baseline for analyzing trends in our underlying business. Non-cash stock-based compensation expense can be subject to volatility from changes in the market price per share of our common stock or variations in the value and number of shares granted, and amortization of intangible assets is subject to acquisition activity, which varies from period to period. We exclude intangible asset amortization and selected purchase accounting adjustments, including the bargain purchase gain from a 2021 acquisition, from our adjusted measures due to their non-operational nature and inherent volatility, as acquisition activity varies from period to period. In addition, beginning in 2021, due to the integration efforts that have been, and will continue to be, required in connection with our fourth quarter 2021 acquisitions, we are excluding acquisition and integration costs for these acquisitions, with the expectation that additional acquisition and integration costs will be excluded in 2022. We also believe that this presentation is common practice in our industry and improves comparability of our results with those of our peers, although each company’s definitions of these adjusted measures may vary as they are not standardized and should be used in light of the provided reconciliations. We believe that these non-U.S. GAAP financial measures provide meaningful information and help investors understand our financial results and assess our prospects for future performance. Because non-U.S. GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-U.S. GAAP financial measures having the same or similar names. These financial measures should not be considered in isolation from, as substitutes for, or alternative measures of, reported net income or diluted earnings per share, and should be viewed in conjunction with the most comparable U.S. GAAP financial measures and the provided reconciliations thereto. We believe these non-U.S. GAAP financial measures, when viewed together with our U.S. GAAP results and related reconciliations, provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure. The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA in dollar and percentage of revenue terms, for the periods indicated. The tables below (dollar amounts in millions) may contain slight summation differences due to rounding. [[GREPCENT_TABLE]] [["","For the Years Ended December 31,"],["EBITDA Reconciliation:","2021","","2020","","2019"],["Net income","$","330.7","","","4.2","%","","$","322.7","","","5.1","%","","$","394.1","","","5.5","%"],["Interest expense, net","53.4","","","0.7","%","","59.6","","","0.9","%","","77.0","","","1.1","%"],["Provision for income taxes","99.3","","","1.2","%","","102.5","","","1.6","%","","116.8","","","1.6","%"],["Depreciation","345.6","","","4.3","%","","258.8","","","4.1","%","","212.5","","","3.0","%"],["Amortization of intangible assets","77.2","","","1.0","%","","38.9","","","0.6","%","","23.0","","","0.3","%"],["EBITDA","$","906.3","","","11.4","%","","$","782.5","","","12.4","%","","$","823.4","","","11.5","%"],["Non-cash stock-based compensation expense","24.8","","","0.3","%","","21.9","","","0.3","%","","16.4","","","0.2","%"],["Loss on extinguishment of debt","\u2014","","","\u2014","%","","5.6","","","0.1","%","","\u2014","","","\u2014","%"],["Goodwill and intangible asset impairment","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","3.3","","","0.0","%"],["Acquisition and integration costs","3.6","","","0.0","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%"],["Bargain purchase gain","(3.5)","","","(0.0",")%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%"],["Adjusted EBITDA","$","931.3","","","11.7","%","","$","810.0","","","12.8","%","","$","843.2","","","11.7","%"]] [[/GREPCENT_TABLE]] 39 A reconciliation of EBITDA to Adjusted EBITDA and Adjusted EBITDA margin by reportable segment for the periods indicated is as follows: [[GREPCENT_TABLE]] [["","For the Years Ended December 31,"],["","2021","","2020","","2019"],["EBITDA","$","906.3","","","11.4","%","","$","782.5","","","12.4","%","","$","823.4","","","11.5","%"],["Non-cash stock-based compensation expense","24.8","","","0.3","%","","21.9","","","0.3","%","","16.4","","","0.2","%"],["Loss on extinguishment of debt","\u2014","","","\u2014","%","","5.6","","","0.1","%","","\u2014","","","\u2014","%"],["Goodwill and intangible asset impairment","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","3.3","","","0.0","%"],["Acquisition and integration costs","3.6","","","0.0","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%"],["Bargain purchase gain","(3.5)","","","(0.0",")%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%"],["Adjusted EBITDA","$","931.3","","","11.7","%","","$","810.0","","","12.8","%","","$","843.2","","","11.7","%"],["Reportable Segment:"],["Communications","$","269.5","","","10.6","%","","$","270.1","","","10.7","%","","$","208.8","","","8.0","%"],["Clean Energy and Infrastructure","75.0","","","4.0","%","","80.4","","","5.3","%","","40.1","","","3.9","%"],["Oil and Gas","557.6","","","21.9","%","","510.9","","","28.5","%","","634.2","","","20.3","%"],["Power Delivery","68.0","","","6.7","%","","14.9","","","2.9","%","","29.5","","","7.1","%"],["Other","33.8","","","NM","","30.7","","","NM","","26.5","","","NM"],["Corporate","(72.6)","","","\u2014","","","(97.0)","","","\u2014","","","(95.9)","","","\u2014"],["Adjusted EBITDA","$","931.3","","","11.7","%","","$","810.0","","","12.8","%","","$","843.2","","","11.7","%"]] [[/GREPCENT_TABLE]] NM - Percentage is not meaningful The table below, which may contain slight summation differences due to rounding, reconciles reported net income and reported diluted earnings per share, the most directly comparable U.S. GAAP financial measures, to Adjusted Net Income and Adjusted Diluted Earnings Per Share. [[GREPCENT_TABLE]] [["","For the Years Ended December 31,"],["","2021","","2020","","2019"],["","Net Income (in millions)","","Diluted Earnings Per Share","","Net Income (in millions)","","Diluted Earnings Per Share","","Net Income (in millions)","","Diluted Earnings Per Share"],["Reported U.S. GAAP measure","$","330.7","","","$","4.45","","","$","322.7","","","$","4.38","","","$","394.1","","","$","5.17"],["Adjustments:"],["Non-cash stock-based compensation expense","24.8","","","0.34","","","21.9","","","0.30","","","16.4","","","0.22"],["Amortization of intangible assets","77.2","","","1.04","","","38.9","","","0.53","","","23.0","","","0.30"],["Loss on extinguishment of debt","\u2014","","","\u2014","","","5.6","","","0.08","","","\u2014","","","\u2014"],["Goodwill and intangible asset impairment","\u2014","","","\u2014","","","\u2014","","","\u2014","","","3.3","","","0.04"],["Acquisition and integration costs","3.6","","","0.05","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Bargain purchase gain","(3.5)","","","(0.05)","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total adjustments, pre-tax","$","102.2","","","$","1.38","","","$","66.4","","","$","0.90","","","$","42.8","","","$","0.56"],["Income tax effect of adjustments (a)","(25.4)","","","(0.34)","","","(15.2)","","","(0.21)","","","(13.2)","","","(0.17)"],["Statutory tax rate effects (b)","6.7","","","0.09","","","2.5","","","0.03","","","(7.8)","","","(0.10)"],["Adjusted non-U.S. GAAP measure","$","414.2","","","$","5.58","","","$","376.4","","","$","5.11","","","$","415.9","","","$","5.46"]] [[/GREPCENT_TABLE]] (a)    Represents the tax effect of the adjusted items that are subject to tax, including the tax effects of non-cash stock-based compensation expense, which for the years ended December 31, 2021, 2020 and 2019, included net tax benefits of $3.8 million, $0.5 million and $3.9 million, respectively, from the vesting of share-based payment awards. Tax effects are determined based on the tax treatment of the related item, the incremental statutory tax rate of the jurisdictions pertaining to the adjustment, and their effect on pre-tax income. For the years ended December 31, 2021, 2020 and 2019, our consolidated effective tax rates, as reported, were 23.1%, 24.1% and 22.9%, respectively, and as adjusted, including the effects of intangible asset amortization, as discussed above, were 22.2%, 23.4%, and 24.9%, respectively. (b)    For the years ended December 31, 2021 and 2020, includes the effect of changes in state tax rates and for the year ended December 31, 2019, includes the effects of changes in Canadian provincial statutory tax rates, as well as changes in state tax rates. Financial Condition, Liquidity and Capital Resources Our primary sources of liquidity are cash flows from operations, availability under our Credit Facility and our cash balances. Our primary liquidity needs are for working capital, capital expenditures, insurance and performance collateral in the form of cash and letters of credit, earn-out obligations, equity investment funding requirements, debt service and income taxes. We also evaluate opportunities for strategic acquisitions, 40 investments and other arrangements from time to time, and we may consider opportunities to borrow additional funds, which may include borrowings under our Credit Facility or debt issuances, or to refinance or retire outstanding debt, or repurchase additional shares of our outstanding common stock in the future under share repurchase authorizations, any of which may require our use of cash. See Note 7 - Debt in the notes to the audited consolidated financial statements in this Form 10-K, which is incorporated by reference, for details of the fourth quarter 2021 replacement of our senior secured credit facility with a senior unsecured credit facility. Capital Expenditures. For the year ended December 31, 2021, we spent approximately $170 million on capital expenditures, or $105 million, net of asset disposals, and incurred approximately $160 million of equipment purchases under finance leases. We estimate that we will spend approximately $200 million on capital expenditures, or approximately $100 million, net of asset disposals, in 2022, and expect to incur approximately $200 million to $220 million of equipment purchases under finance leases. Actual capital expenditures may increase or decrease in the future depending upon business activity levels, as well as ongoing assessments of equipment lease versus purchase decisions based on short and long-term equipment requirements. Acquisitions and Earn-Out Liabilities. We typically utilize cash for business acquisitions and other strategic arrangements, and for the year ended December 31, 2021, we used $1,245 million of cash for this purpose. In addition, in most of our acquisitions, we have agreed to make future payments to the sellers that are contingent upon the future earnings performance of the acquired businesses, which we also refer to as “Earn-out” payments. Earn-out payments may be paid in cash or, under specific circumstances, MasTec common stock, or a combination thereof, at our option. The estimated total value of future Earn-outs as of December 31, 2021 was approximately $160 million. Of this amount, $38 million represents the liability for earned amounts. The remainder is management’s estimate of Earn-outs that are contingent upon future performance. For the years ended December 31, 2021, 2020 and 2019, we made Earn-out payments of $47 million, $50 million and $35 million, respectively. Income Taxes. Tax payments, net of tax refunds totaled $69 million and $65 million for the years ended December 31, 2021 and 2020. In 2019, tax payments, net of tax refunds were approximately $106 million. The year-to-year changes in tax payments largely correspond to the changes in taxable net income for the respective years. Working Capital. We need working capital to support seasonal variations in our business, primarily due to the effect of weather conditions on external construction and maintenance work and the spending patterns of our customers, both of which influence the timing of associated spending to support related customer demand. Working capital needs are generally higher during the summer and fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate. Conversely, working capital needs are typically converted to cash during the winter months. These seasonal trends, however, can be offset by changes in the timing of projects, which can be affected by project delays or accelerations and/or other factors that may affect customer spending. Working capital requirements also tend to increase when we commence multiple projects or particularly large projects because labor, including subcontractor costs, and certain other costs, including inventory, become payable before the receivables resulting from work performed are collected. The timing of billings and project close-outs can contribute to changes in unbilled revenue. As of December 31, 2021, we expect that substantially all of our unbilled receivables will be billed to customers in the normal course of business within the next twelve months. Total accounts receivable, which consists of contract billings, unbilled receivables and retainage, net of allowance, increased to $2.2 billion as of December 31, 2021 from $1.8 billion as of December 31, 2020, due primarily to 2021 acquisition activity and higher levels of revenue, offset, in part, by the effects of strong collection activities. See below for discussion of our days sales outstanding, net of contract liabilities, which we refer to as days sales outstanding, or “DSO.”     Our payment billing terms are generally net 30 days, and some of our contracts allow our customers to retain a portion of the contract amount (generally, from 5% to 10% of billings) until the job is completed. As part of our ongoing working capital management practices, we evaluate opportunities to improve our working capital cycle time through contractual provisions and certain financing arrangements. For certain customers, we maintain inventory to meet the materials requirements of the contracts. Occasionally, certain of our customers pay us in advance for a portion of the materials we purchase for their projects or allow us to pre-bill them for materials purchases up to specified amounts. Vendor terms are generally 30 days. Our agreements with subcontractors often contain a “pay-if-paid” provision, whereby our payments to subcontractors are made only after we are paid by our customers. Summary of Financial Condition, Liquidity and Capital Resources Including our current assessment of general economic conditions and the potential effects of the COVID-19 pandemic on our results of operations and capital resource requirements, we anticipate that funds generated from operations, borrowings under our credit facilities and our cash balances will be sufficient to meet our working capital requirements, anticipated capital expenditures, debt service obligations, insurance and performance collateral requirements, letter of credit needs, earn-out obligations, required income tax payments, acquisition, strategic arrangement and investment funding requirements, share repurchase activity and other liquidity needs for the next twelve months and the foreseeable future. Sources and Uses of Cash As of December 31, 2021, we had approximately $1,089 million in working capital, defined as current assets less current liabilities, as compared with $944 million as of December 31, 2020, an increase of approximately $146 million. Cash and cash equivalents totaled $361 million as of December 31, 2021 and $423 million as of December 31, 2020, for a decrease of $62 million, due, in part, to our 2021 acquisition activity. 41 Sources and uses of cash are summarized below (in millions): [[GREPCENT_TABLE]] [["","For the Years Ended December 31,"],["","2021","","2020","","2019"],["Net cash provided by operating activities","$","793.1","","","$","937.3","","","$","550.3"],["Net cash used in investing activities","$","(1,357.2)","","","$","(216.6)","","","$","(261.8)"],["Net cash provided by (used in) financing activities","$","501.9","","","$","(369.9)","","","$","(244.6)"]] [[/GREPCENT_TABLE]] Operating Activities. Cash flow from operations is primarily influenced by changes in the timing of demand for our services and operating margins, but can also be affected by working capital needs associated with the various types of services we provide. Working capital is affected by changes in total accounts receivable, prepaid expenses and other current assets, accounts payable and payroll tax payments, including the effect of deferrals from COVID-19 relief provisions, accrued expenses and contract liabilities, all of which tend to be related. These working capital items are affected by changes in revenue resulting from the timing and volume of work performed, variability in the timing of customer billings and collections of receivables, as well as settlement of payables and other obligations. Net cash provided by operating activities for the year ended December 31, 2021 was $793 million, as compared with $937 million in 2020, for a decrease in cash provided by operating activities of approximately $144 million. The decrease was primarily due to the effect of revenue growth and timing-related working capital changes in assets and liabilities, net, (primarily accounts receivable, contract assets, accounts payable and contract liabilities) partially offset by increases in certain expenses that reconcile net income to operating cash flows, including depreciation expense and amortization of intangible assets. Our days sales outstanding, net of contract liabilities (“DSO”) was 98, and as adjusted for December 2021 acquisitions, was 77 as of December 31, 2021. As of December 31, 2020, DSO was 86. DSO is calculated as total accounts receivable, net of allowance, less contract liabilities, divided by average daily revenue for the most recently completed quarter as of the balance sheet date. To provide a representative comparison for prior period DSO, we calculated DSO, as adjusted for our December 2021 acquisitions. This calculation excludes revenue and accounts receivable, net of allowance, less contract liabilities for our December 2021 acquisitions, given that our consolidated results do not reflect the full quarter’s revenue for these acquisitions, but our consolidated balance sheet as of December 31, 2021 includes the full amount of related accounts receivable, net of allowance, less contract liabilities. Our DSOs can fluctuate from period to period due to timing of billings, billing terms, collections and settlements, timing of project close-outs and retainage collections, changes in project and customer mix and the effect of working capital initiatives. The decrease in DSO for the year ended December 31, 2021, as adjusted for our December 2021 acquisitions, as compared with the prior year was due to timing of ordinary course billing and collection activities. Other than matters subject to litigation, we do not anticipate material collection issues related to our outstanding accounts receivable balances, nor do we believe that we have material amounts due from customers experiencing financial difficulties. Based on current information, we expect to collect substantially all of our outstanding accounts receivable balances within the next twelve months. Investing Activities. Net cash used in investing activities increased by approximately $1,141 million to $1,357 million for the year ended December 31, 2021 from $217 million in 2020. We completed fourteen acquisitions during the year ended December 31, 2021, for which we paid $1,245 million in cash, net of cash acquired, an increase of approximately $1,220 million as compared with 2020. These acquisitions were funded with cash on hand and borrowings under our senior credit facility. Capital expenditures totaled $170 million, or $105 million, net of asset disposals, in 2021, as compared with $214 million, or $177 million, net of asset disposals, in 2020, for a decrease in cash used in investing activities of approximately $72 million. Payments for other investments, which relate primarily to investments in certain equity investees as well as payments for life insurance agreements, decreased from $17 million in 2020 to $10 million in 2021, for a reduction of approximately $7 million in cash used in investing activities. Financing Activities. Net cash provided by financing activities for the year ended December 31, 2021 was $502 million, as compared with net cash used in financing activities of $370 million in 2020, for an increase in cash provided by financing activities of approximately $872 million. The increase in cash provided by financing activities was driven primarily by credit facility-related activity and share repurchases, offset, in part, by proceeds from the issuance of $600 million aggregate principal amount of our 4.50% Senior Notes in the third quarter of 2020, net of the redemption of $400 million aggregate principal amount of our 4.875% Senior Notes. Credit facility activity, net, totaled $691 million of borrowings, net of repayments in 2021, primarily related to our 2021 acquisitions, as compared with $306 million of repayments, net, in 2020. There were no share repurchases in 2021, whereas in 2020, share repurchases totaled $120 million, for a reduction in cash used in financing activities. Offsetting the above-mentioned increases in cash provided by financing activities, payments to holders of our non-controlling interests increased by $8 million in 2021 as compared with 2020, primarily due to $7 million of consideration to acquire 15% of the remaining interests of one of these entities in 2021. Additionally, payments of finance lease obligations increased by approximately $32 million in 2021 as compared with the same period in 2020. Payments of acquisition-related contingent consideration included within financing activities totaled $22 million in 2021 as compared with $10 million in 2020, for an increase in cash used in financing activities of $12 million. Total payments of acquisition-related contingent consideration, including payments in excess of acquisition-date liabilities, which are classified within operating activities, totaled $47 million in 2021 as compared with $50 million in 2020. Proceeds from other financing activities, net, totaled $6 million in 2021 and included other borrowing activity, net of payments for financing costs on the replacement of our senior credit facility, whereas payments for other financing activities, net, in 2020 totaled $12 million and included early repayment premiums on the redemption of our 4.875% Senior Notes and payments of financing costs on our new 4.50% Senior Notes. 42 Senior Unsecured Credit Facility On November 1, 2021, we refunded and replaced our senior secured credit facility with a senior unsecured replacement credit facility (the “replacement Credit Facility”), which matures on November 1, 2026, and has total commitments of $2.0 billion, composed of $1.65 billion of revolving commitments and a term loan with an original principal amount of $350 million (the “Term Loan”) of which $350.0 million was outstanding as of December 31, 2021. Borrowings under the Credit Facility are used for working capital requirements, capital expenditures and other corporate purposes, including potential acquisitions, equity investments or other strategic arrangements, the repurchase or prepayment of indebtedness, including repayment of term loans and potential share repurchases. We are dependent upon borrowings and letters of credit under the replacement Credit Facility to fund our operations. Should we be unable to comply with the terms and conditions of our replacement Credit Facility, we would be required to obtain modifications to the replacement Credit Facility or obtain an alternative source of financing to continue to operate, neither of which may be available to us on commercially reasonable terms, or at all. The replacement Credit Facility is subject to certain provisions and covenants. For additional information regarding the terms of our replacement Credit Facility, see Note 7 - Debt in the notes to the audited consolidated financial statements, which is incorporated by reference. 4.50% Senior Notes We have $600 million of 4.50% Senior Notes due August 15, 2028 (the “4.50% Senior Notes”). The 4.50% Senior Notes are fully and unconditionally guaranteed on a senior unsecured, joint and several basis by our wholly-owned domestic restricted subsidiaries, subject to certain exceptions. See Note 7 - Debt in the notes to the audited consolidated financial statements, which is incorporated by reference. Debt Covenants We were in compliance with the provisions and covenants contained in our outstanding debt instruments as of December 31, 2021. Additional Information For detailed discussion and additional information pertaining to our debt instruments, see Note 7 - Debt in the notes to the audited consolidated financial statements, which is incorporated by reference. Contractual Payment Obligations The following table sets forth our contractual payment obligations as of December 31, 2021 during the periods indicated below (in millions): [[GREPCENT_TABLE]] [["Contractual Obligations","","Total","","Less than 1 Year","","1 - 3 Years","","3 - 5 Years","","More than 5 Years and Thereafter"],["Senior unsecured credit facility","","$","1,122.3","","","$","\u2014","","","$","17.5","","","$","1,104.8","","","$","\u2014"],["4.50% Senior Notes","","600.0","","","\u2014","","","\u2014","","","\u2014","","","600.0"],["Finance lease and other obligations","","310.3","","","137.9","","","136.9","","","35.5","","","\u2014"],["Operating lease liabilities","","287.5","","","104.6","","","115.1","","","50.7","","","17.1"],["Earn-out obligations (a)","","38.0","","","38.0","","","\u2014","","","\u2014","","","\u2014"],["Interest (b)","","302.5","","","57.0","","","104.1","","","96.3","","","45.1"],["Total","","$","2,660.6","","","$","337.5","","","$","373.6","","","$","1,287.3","","","$","662.2"]] [[/GREPCENT_TABLE]] (a)    Under certain acquisition agreements, we have agreed to pay the sellers earn-outs and other amounts based on the performance of the businesses acquired. Certain of these payments may be made either in cash or in MasTec common stock, or a combination thereof, at our option. Due to the contingent nature of these payments, we have only included obligations that we expect will be paid in cash and have been earned as of December 31, 2021. (b)    Represents expected future interest payments on debt and finance lease obligations outstanding as of December 31, 2021, and does not include potential letter of credit or commitment fees associated with our senior unsecured credit facility. With the exception of our credit facilities, including our term loan, all of our debt instruments are fixed rate interest obligations. Off-Balance Sheet Arrangements As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business. Our significant off-balance sheet transactions include liabilities associated with non-cancelable operating leases with durations of less than twelve months, letter of credit obligations, surety and performance and payment bonds entered into in the normal course of business, self-insurance liabilities, liabilities associated with multiemployer pension plans, liabilities associated with potential funding obligations, indemnification and/or guarantee arrangements relating to our equity and other investment arrangements, including our variable interest entities. However, the off-balance sheet arrangements have not and are not reasonably likely to have a material impact on our financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources. Refer to Note 14 - Commitments and Contingencies, Note 4 - Fair Value of Financial Instruments and Note 15 - Related Party Transactions in the notes to the audited consolidated financial statements, which are incorporated by reference. Impact of Inflation The primary inflationary factors directly affecting our operations are labor, fuel and material costs. In times of low unemployment, our labor costs may increase due to shortages in the supply of skilled labor and increases in compensation rates generally. Although most project 43 materials are provided by our customers, increases in the cost of materials could negatively affect the economic viability of our customers’ projects, and accordingly, demand for our services. Material and commodity prices are subject to unexpected fluctuations due to events outside of our control, including geopolitical events, climate-related effects and fluctuations in global supply and demand, which events have recently caused market volatility, particularly, in the oil and gas markets, among others. Such market volatility can affect our customers’ investment decisions and subject us to project cancellations, deferrals or unexpected changes in the timing of project work. Market prices for goods can also be affected by supply chain disruptions, such as those arising from the effects of the COVID-19 pandemic. We closely monitor inflationary factors, including the current rise in the rate of inflation, and any potential effects on our business operations, operating results and/or financial condition. Recently Issued Accounting Pronouncements See Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the audited consolidated financial statements, which is incorporated by reference.