Acquisitions, Goodwill, and Other Intangible Assets, Net

3 Months Ended

Mar. 31, 2024

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, 2024 (in millions):

	Communications		Clean Energy and Infrastructure		Power Delivery		Oil and Gas		Total Goodwill
Goodwill, gross, as of December 31, 2023	$	646.9	$	742.0	$	270.8	$	586.0	$	2,245.7
Accumulated impairment loss (a)	—		—		—		(119.3)		(119.3)
Goodwill, net, as of December 31, 2023	$	646.9	$	742.0	$	270.8	$	466.7	$	2,126.4
Currency translation adjustments	—		—		—		(0.4)		(0.4)
Goodwill, net as of March 31, 2024	$	646.9	$	742.0	$	270.8	$	466.3	$	2,126.0

(a)    Accumulated impairment loss includes the effects of currency translation gains and/or losses.

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, 2023	$	1,096.6	$	229.0	$	87.6	$	1,413.2
Accumulated amortization	(529.3)		(49.8)		(49.8)		(628.9)
Other intangible assets, net, as of December 31, 2023	$	567.3	$	179.2	$	37.8	$	784.3
Additions from new business combinations	0.8		—		—		0.8
Currency translation adjustments	—		—		(0.4)		(0.4)
Amortization expense	(27.3)		(4.6)		(1.8)		(33.7)
Other intangible assets, net, as of March 31, 2024	$	540.8	$	174.6	$	35.6	$	751.0

(a)Includes approximately $34.5 million of non-amortizing trade names as of both March 31, 2024 and December 31, 2023.

(b)Consists principally of pre-qualifications and non-compete agreements.

Quarterly Review for Indicators of Impairment. During the first quarter of 2024, management assessed the reporting unit structure of the Power Delivery operating segment. As a result of this assessment, the reporting units within the Power Delivery operating segment were restructured to more closely align with the segment’s end markets and to better correspond with the operational management reporting structure of the segment, including from the effects of the Company’s recent transformative acquisition efforts. Under the new reporting unit structure, each of the components within the Power Delivery operating segment is a reporting unit, whereas under its previous reporting unit structure, three of the operating segments’ components were combined into one reporting unit. In connection with this assessment, management performed a quantitative assessment of the goodwill associated with each of the five reporting units of the Power Delivery operating segment under its new reporting unit structure. See below for details of these assessments.

The Company performed a quarterly review of the goodwill associated with its reporting units for indicators of impairment during the first quarter of 2024, which considered the Company’s results for the related period, together with management’s expectations of future results, including consideration of macroeconomic conditions, such as: levels of inflation, market interest rates and/or supply chain disruptions; the potential effects of shifts in timing for projects; industry and/or market conditions, including the potential effects of regulatory and/or other uncertainty, including from the expected implementation and pace of spending under governmental infrastructure programs and initiatives; project permitting uncertainty; financial, competitive and other conditions, including declines in operating performance; other entity-specific events; the potential effects of longer-term changes in consumer behavior due to regulatory, climate-related or other factors; and other relevant factors or events that could affect earnings and cash flows. In conjunction with this quarterly review, quantitative assessments of the related goodwill were considered necessary only for the five reporting units within the Power Delivery segment mentioned above.

For the tested reporting units, management estimated their fair values using a combination of market and income approaches using Level 3 inputs. Under the market approach, fair values were estimated using published market multiples for comparable companies and applying them to revenue and earnings before interest, taxes, depreciation and amortization (“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, market and regulatory conditions; and (iii) the impact of planned business and operational strategies. Management believes the assumptions used in its quantitative goodwill impairment tests are reflective of the risks inherent in the respective industries and business models of the applicable reporting units. 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.

Based on the results of the quantitative assessments for the Power Delivery operating segment, management determined that the estimated fair values of all but one of the tested reporting units substantially exceeded their carrying values. A 100 basis point increase in the discount rate would not have resulted in any of the tested reporting units’ carrying values exceeding their fair values. The reporting unit that did not substantially exceed its carrying value had approximately $47.1 million of goodwill and an estimated fair value that exceeded its carrying value by approximately

16%. Significant assumptions used in testing this reporting unit included terminal values based on a terminal growth rate of 3%, 5 years of discounted cash flows prior to the terminal value, including revenue growth and EBITDA margin assumptions, and a weighted average discount rate of 12%.

In addition, quantitative testing was performed in the first quarter of 2024 for four of the reporting units within the Power Delivery operating segment under the segment’s previous reporting unit structure. Qualitative testing was performed for the remaining reporting unit. Based on the results of these assessments, the estimated fair values of all of the tested reporting units were determined to exceed their carrying values.

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, regulatory or other conditions, including decreases in project activity levels and/or the effects of elevated levels of inflation, market interest rates or other market disruptions, including from geopolitical or other events, 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 and customer base, broaden its geographic reach and expand its service offerings. 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. 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 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 resulted in significant acquisition and integration costs in prior periods. These acquisition and integration activities were completed in the fourth quarter of 2023.

2023 Acquisitions. During 2023, MasTec completed four acquisitions, including the acquisition of certain of the assets of a telecommunications company specializing in wireless services, which acquisition was included within the Company’s Communications segment, and was effective in January; and, effective in July, the acquisition of the equity interests of a telecommunications construction company specializing in broadband and fiber-to-the-home initiatives in the New England area, which acquisition was included within the Company’s Communications segment. Determination of the estimated fair values of the net assets acquired and consideration transferred for these acquisitions, which have been accounted for as business combinations under ASC Topic 805, Business Combinations (“ASC 805”), was substantially complete as of March 31, 2024, with exception for certain seller tax reimbursements. Additionally, effective in May 2023, MasTec acquired 68% and 42% of the equity interests of two equipment companies, respectively, both of which were accounted for as asset acquisitions under ASC 805 and were included within the Company’s Oil and Gas segment. In the fourth quarter of 2023, MasTec sold certain of the equity interests of these equipment companies to members of subsidiary management, following which its remaining equity interests in these entities totaled 40% and 20%, respectively. See Note 15 - Related Party Transactions. Based on an evaluation of the respective entities’ operating agreements, the Company determined that these entities are not VIEs; however, given that the Company has voting control with respect to the entities, the Company has consolidated these entities within the Company’s financial statements, with the other parties’ interests accounted for as non-controlling interests.

The aggregate purchase price of the Company’s 2023 acquisitions was composed of approximately $69 million in cash, net of cash acquired, and an earn-out liability valued at approximately $1 million. As of March 31, 2024, the remaining potential undiscounted earn-out liabilities for the 2023 acquisitions was estimated to be up to $2 million; however, there is no maximum payment amount. See Note 4 - Fair Value of Financial Instruments for fair value estimate and other details related to the Company’s earn-out arrangements. Goodwill related to these acquisitions represents the estimated value of the respective acquiree’s geographic presence in key markets; assembled workforce; synergies expected to be achieved from the combined operations of the acquired company and MasTec; and the acquired company’s industry-specific project management expertise. Approximately $43 million of the goodwill balance related to the 2023 acquisitions is expected to be tax deductible as of March 31, 2024.

HMG Additional Payments. The acquisition of Henkels & McCoy Holdings, Inc., formerly known as Henkels & McCoy Group, Inc. (“HMG”), which acquisition was effective in December 2021, provided 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 as unrealized gains or losses within other income or expense, as appropriate.

As of March 31, 2024 and December 31, 2023, the estimated fair value of remaining Additional Payments totaled approximately $35 million and $34 million, respectively, which amounts are included within other current liabilities in the consolidated balance sheet. For both the three month periods ended March 31, 2024 and 2023, the estimated fair value of remaining Additional Payments included the effect of unrealized fair value losses related to the contingent shares of approximately $1.6 million. The estimated number of shares that would be paid in connection with the remaining Additional Payment liability totaled approximately 160,000 shares as of both March 31, 2024 and December 31, 2023. Of the total remaining Additional Payments as of March 31, 2024, the amount due to the sellers, based on amounts collected as of March 31, 2024, totaled approximately $19.4 million, of which the amount due in shares totaled approximately $8.2 million, or 87,900 shares. For additional information pertaining to the effect of the above referenced shares on the Company’s earnings per share calculations, see Note 2 - Earnings Per Share in this Form 10-Q.

Acquisition and integration costs. As discussed above, the Company initiated a significant transformation of its end-market business operations in 2021, which transformation involved significant business combination activity and resulted in significant acquisition and integration costs. These acquisition and integration activities were completed in the fourth quarter of 2023. Such costs are included within general and administrative expenses, costs of revenue, excluding depreciation and amortization, and other expense, as appropriate. These 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; and ii) legal, professional and other fees associated with the consummation of the above-referenced acquisition activity. For the three month period ended March 31, 2023, such acquisition and integration costs totaled approximately $17.1 million, of which $14.6 million was included within general and administrative expenses, and of which $2.5 million was included within costs of revenue, excluding depreciation and amortization. As of March 31, 2024 amounts included within current liabilities related to such costs were de minimis, and as of December 31, 2023, such amounts totaled $0.3 million.