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Acquisitions, Goodwill, and Other Intangible Assets, Net
 3 Months Ended
Mar. 31, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Acquisitions, Goodwill, and Other Intangible Assets, Net Acquisitions, Goodwill and Other Intangible Assets, Net
The following table provides a reconciliation of changes in goodwill by reportable segment for the three month period ended March 31, 2023 (in millions):
CommunicationsClean Energy and InfrastructureOil and GasPower DeliveryTotal Goodwill
Goodwill, gross, as of December 31, 2022
$606.1 $703.3 $582.2 $270.1 $2,161.7 
Accumulated impairment loss (a)
— — (116.7)— (116.7)
Goodwill, net, as of December 31, 2022
$606.1 $703.3 $465.5 $270.1 $2,045.0 
Additions from new business combinations0.3 — — — 0.3 
Measurement period adjustments (b)
— 19.4 0.9 — 20.3 
Goodwill, net as of March 31, 2023
$606.4 $722.7 $466.4 $270.1 $2,065.6 
(a)    Accumulated impairment losses include the effects of currency translation gains and/or losses.
(b)    Represents adjustments, net, to preliminary estimates of fair value within the measurement period of up to one year from the date of acquisition. Measurement period adjustments, net, for the three month period ended March 31, 2023 relate primarily to reductions in certain accounts receivable balances and increases in contingent liabilities, including for insurance and other matters.
The following table provides a reconciliation of changes in other intangible assets, net, for the period indicated (in millions):
Other Intangible Assets, Net
Customer Relationships and Backlog
Trade Names (a)
Other (b)
Total
Other intangible assets, gross, as of December 31, 2022
$1,089.4 $228.9 $86.6 $1,404.9 
Accumulated amortization(388.8)(28.9)(40.9)(458.6)
Other intangible assets, net, as of December 31, 2022
$700.6 $200.0 $45.7 $946.3 
Amortization expense(34.8)(5.0)(2.1)(41.9)
Other intangible assets, net, as of March 31, 2023
$665.8 $195.0 $43.6 $904.4 
(a)Trade names includes approximately $34.5 million of non-amortizing trade names as of both March 31, 2023 and December 31, 2022.
(b)Consists principally of pre-qualifications and non-compete agreements.
Quarterly Assessment for Indicators of Impairment. During the first quarter of 2023, the Company performed a quarterly review for indicators of impairment, which considered its results for the three month period ended March 31, 2023, together with its expectations of future results, including consideration of the potential effects of shifts in timing for projects and macroeconomic factors. In conjunction with this quarterly review, management performed a quantitative assessment of the goodwill associated with one reporting unit within the Communications segment, one reporting unit within the Oil and Gas segment and one reporting unit within the Clean Energy and Infrastructure segment. Based on the results of these assessments, management determined that the estimated fair values of these reporting units substantially exceeded their carrying values as of March 31, 2023. Significant changes in the assumptions or estimates used in management’s assessment, such as a reduction in profitability and/or cash flows, changes in market conditions, including decreases in market activity levels and/or the effects of rising inflation, including on interest rates, could result in non-cash impairment charges to goodwill and indefinite-lived intangible assets in the future.
Recent Acquisitions
The Company seeks to grow and diversify its business both organically and through acquisitions and/or strategic arrangements in order to deepen its market presence, broaden its geographic reach and expand its service offerings. In 2021, the Company initiated a significant transformation of its end-market business operations to focus on the nation’s transition to low-carbon energy sources and position the Company for expected future opportunities. This transformation has included significant business combination activity, including expansion of the Company’s scale and capacity in renewable energy, power delivery, heavy civil and telecommunications services, which activity has resulted in significant acquisition and integration costs, both in the Company’s existing and recently acquired operations. Acquisitions are funded with cash on hand, borrowings under the Company’s senior unsecured credit facility and other debt financing and, for certain recent acquisitions, with shares of the Company’s common stock, and are generally subject to customary purchase price adjustments.
2023 Acquisitions. For the three month period ended March 31, 2023, MasTec acquired certain of the assets of a telecommunications company specializing in wireless services that is included within the Company’s Communications segment, which acquisition was effective in January and has been accounted for as a business combination under ASC 805, “Business Combinations.” The aggregate purchase price for this entity was composed of approximately $45 million in cash, net of cash acquired. Determination of the estimated fair values of net assets acquired and consideration transferred for this acquisition was preliminary as of March 31, 2023; as a result, further adjustments to these estimates may occur.
2022 Acquisitions. During 2022, MasTec completed five acquisitions, which included all of the equity interests of the following: (i) within the Company’s Clean Energy and Infrastructure segment: IEA, a leading utility-scale infrastructure solutions provider in North America, with expertise in renewable energy and heavy civil projects, as well as rail and environmental remediation services, which acquisition was effective in October; and a company that specializes in the production of concrete and aggregate products, which acquisition was effective in August; (ii) within the Company’s Oil and Gas segment: an infrastructure construction company focusing on water, sewer and utility projects and with expertise in excavation and site work, which acquisition was effective in January; (iii) within the Company’s Communications segment: a telecommunications company specializing in wireline services, which acquisition was effective as of the end of May; and (iv) within the Company’s Power Delivery segment: a company specializing in the construction of overhead high voltage transmission lines, which acquisition was effective in July.
Determination of the estimated fair values of the net assets acquired and the estimated earn-out liabilities and consideration transferred for certain of the Company’s 2022 acquisitions was preliminary as of March 31, 2023; as a result, further adjustments to such estimates may occur. The following table summarizes, as of March 31, 2023, the estimated fair values of consideration paid and net assets acquired, as adjusted, for the Company’s 2022 acquisitions (in millions):
Acquisition consideration:IEAAll otherTotal
Cash, net of cash acquired$564.5 $48.4 $612.9 
Shares transferred173.7 — 173.7 
Estimated fair value of warrants10.3 — 10.3 
Estimated fair value of contingent consideration— 2.8 2.8 
Total consideration$748.5 $51.2 $799.7 
Identifiable assets acquired and liabilities assumed:
Accounts receivable and contract assets$584.9 $6.1 $591.0 
Current assets36.1 1.5 37.6 
Property and equipment213.0 30.2 243.2 
Long-term assets, primarily operating lease right-of-use assets36.9 0.1 37.0 
Amortizing intangible assets362.2 5.9 368.1 
Accounts payable(136.5)(4.6)(141.1)
Current liabilities, including current portion of operating lease liabilities(435.8)(2.7)(438.5)
Long-term debt, including finance lease obligations(330.8)(0.2)(331.0)
Long-term liabilities, primarily operating lease liabilities and deferred income taxes(131.4)(0.2)(131.6)
Total identifiable net assets$198.6 $36.1 $234.7 
Goodwill549.9 15.1 565.0 
Total net assets acquired, including goodwill$748.5 $51.2 $799.7 
Amortizing intangible assets related to the IEA acquisition are primarily composed of customer relationships, and to a lesser extent, trade names and backlog. Customer relationship and trade name intangible assets for IEA, in the aggregate, totaled approximately $321 million, which each had a weighted average life of approximately 14 years, based on IEA’s operational history and established relationships with, and the nature of, its customers, which are primarily in the renewable energy and specialty civil industries. Backlog intangible assets for IEA totaled approximately $42 million with a weighted average life of approximately 1 year, and are based on estimated cash flows expected to be derived from future work on acquired contracts with customers. The weighted average life of amortizing intangible assets in the aggregate for the IEA acquisition was 13 years. Amortizing intangible assets related to “All other” acquisitions, which are primarily composed of customer relationships, had an aggregate weighted average life of 9 years. Amortizing intangible assets are amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed.
The goodwill balances for each of the respective acquisitions represent the estimated values of each acquired company’s geographic presence in key markets, assembled workforce, management team’s industry-specific project management expertise and synergies expected to be achieved from the combined operations of each of the acquired companies and MasTec. Approximately $39 million of the goodwill balance related to the 2022 acquisitions is expected to be tax deductible as of March 31, 2023.
The shares of MasTec common stock included in consideration transferred for IEA in the table above consist of approximately 2.7 million shares, valued at approximately $174 million based on the market price of MasTec common stock on the date of closing. Total cash paid for acquisitions, net, includes approximately $44 million of cash acquired. The long-term debt assumed in the table above includes $300 million aggregate principal balance of 6.625% senior unsecured notes assumed in connection with the acquisition of IEA. See Note 7 - Debt for additional information.
Included in consideration transferred for IEA is the value of certain warrants that were originally issued by IEA, for which the remaining warrants outstanding as of December 31, 2022 had an estimated fair value of $3.1 million. Under the terms of the IEA merger agreement, holders of the IEA warrants became entitled to receive an amount in cash and shares of MasTec common stock upon the exercise of the IEA warrants. During the first quarter of 2023, the number of MasTec shares issued in connection with exercised IEA warrants was de minimis. The remaining warrants expired unexercised on March 26, 2023. For the three month period ended March 31, 2023, the Company recorded fair value gains totaling approximately $2.8 million, related primarily to the expired warrants, which amount is reflected in other income.
The contingent consideration included in the table above is composed of earn-out liabilities, which generally equal a portion of the acquired companies’ earnings before interest, taxes, depreciation and amortization (“EBITDA”) in excess of thresholds agreed upon with the sellers, if applicable. The earn-out arrangements for the 2022 acquisitions are payable annually and have five-year terms, as set forth in the respective purchase agreements, and are valued at approximately $3 million in the aggregate. Earn-outs are recorded within other current and other long-term liabilities, as appropriate, in the consolidated balance sheets. See Note 4 - Fair Value of Financial Instruments for details pertaining to fair value estimates for the Company’s earn-out arrangements. As of March 31, 2023, the range of remaining potential undiscounted earn-out liabilities for the 2022 acquisitions was estimated to be up to $4 million; however, there is no maximum payment amount. Current liabilities reflected in the table above include contingent liabilities for insurance and other matters.
HMG Additional Payments. The HMG purchase agreement, for which the subject acquisition was effective in December 2021, provides for certain additional payments to be made to the sellers if certain acquired receivables are collected by the Company (the “Additional Payments”). Pursuant to the terms of the purchase agreement, a portion of the Additional Payments will be made in cash, with the remainder due in shares of MasTec common stock. The estimated number of potential shares that could be issued related to such Additional Payments will be based on the amounts ultimately collected and the share price as defined within the purchase agreement. Changes in the estimated fair value of potential shares that could be issued, which result from changes in MasTec’s share price as compared with the share price as defined within the purchase agreement, are reflected within other income or expense, as appropriate. An Additional Payment of approximately $29.4 million was made in May 2022, which payment was composed of approximately $18 million in cash and 133,157 shares of MasTec common stock.
As of March 31, 2023 and December 31, 2022, the estimated fair value of remaining Additional Payments was approximately $39 million and $37 million, respectively, which amounts are included within other current liabilities in the consolidated balance sheet and include the effects of unrealized fair value gains or losses related to the contingent shares. The estimated number of shares that would be paid in connection with the remaining Additional Payment liability totaled approximately 170,000 shares as of both March 31, 2023 and December 31, 2022. For the three month period ended March 31, 2023, unrealized fair value measurement activity related to the contingent shares totaled losses of approximately $1.6 million. The amount of Additional Payments due to the sellers as of both March 31, 2023 and December 31, 2022 totaled approximately $21.8 million, of which the amount due in shares totaled approximately $9.3 million and $8.4 million, respectively, or 98,800 shares, for both periods. See Note 2 - Earnings Per Share for the effect of the above referenced shares on the Company’s earnings per share calculations.
Pro forma results. For the three month periods ended March 31, 2023 and 2022, unaudited supplemental pro forma revenue totaled approximately $2.6 billion and $2.3 billion, respectively, and unaudited supplemental pro forma net loss totaled approximately $83.2 million and $74.6 million, respectively. Supplemental pro forma information for the Company’s first quarter 2023 acquisition has not been presented for the pre-acquisition periods due to the impracticability of obtaining accurate or reliable historical financial information for the assets of the entity that were acquired.
Acquisition-related results. For the three month periods ended March 31, 2023 and 2022, the Company’s consolidated results of operations included acquisition-related revenue of approximately $400.6 million and $704.7 million, respectively. Acquisition-related revenue for the three month period ended March 31, 2023 included approximately $370.0 million for IEA, and for the three month period ended March 31, 2022 included approximately $548.1 million for HMG and INTREN in the aggregate. Acquisition-related net losses for the three month periods ended March 31, 2023 and 2022 totaled approximately $34.1 million and $4.3 million, respectively, based on the Company’s consolidated effective tax rates. These acquisition-related results include amortization of acquired intangible assets and certain acquisition integration costs.
Acquisition and integration costs. The Company has incurred certain acquisition and integration costs in connection with its recent acquisitions, which costs are included within general and administrative expenses, costs of revenue, excluding depreciation and amortization, and other expense. Acquisition and integration costs include i) the costs of integrating acquired entities, such as: employee termination expenses, including employee compensation relating to the elimination of certain positions that were determined to be redundant, and other integration-type costs, including operating cost redundancies, facility consolidation expenses, lease termination expenses, losses on disposal of identified assets, system migration expenses, training and other integration costs, as well as ii) legal, professional and other fees associated with the consummation of these acquisitions, including fees paid in connection with certain transaction-related financing commitments, including, in the second half of 2022, bridge financing related to the IEA acquisition. The Company is currently in the process of integrating these acquisitions and expects to incur additional acquisition and integration expenses. For the three month period ended March 31, 2023, such acquisition and integration costs totaled approximately $17.1 million, of which $14.6 million and $2.5 million were included within general and administrative expenses and costs of revenue, excluding depreciation and amortization, respectively. Acquisition and integration costs for the three month period ended March 31, 2022 totaled approximately $13.6 million, which amount was included within general and administrative expenses. As of March 31, 2023 and December 31, 2022, approximately $1.9 million and $5.5 million, respectively, was included within current liabilities within the consolidated balance sheets related to such costs.