We
do not undertake
noany obligation to update
or revise any forward-looking statements
to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
These risks and others described under “Risk Factors” may not be exhaustive.By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
PART I
Introduction
We are a blank check company incorporated in August 2015 as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On November 3, 2017, we entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 thereto, dated November 15, 2017, Amendment No. 2 thereto, dated December 27, 2017, Amendment No. 3 thereto, dated January 9, 2017 and Amendment No. 4 thereto, dated February 7, 2018, and as it may be further amended from time to time, the "Merger Agreement") with IEA Energy Services LLC ("IEA Services"), Wind Merger Sub I, Inc. ("Merger Sub I"), Wind Merger Sub II, LLC ("Merger Sub II"),
ITEM 1. BUSINESS
Business Overview
Infrastructure and Energy Alternatives,
LLC ("Seller")Inc.,
Oaktree Power Opportunities Fund IIIa Delaware
L.P.corporation (‘‘IEA’’,
solely in its capacity as Seller’s representative, and, solely for purposes of certain sections therein, M III LLC and M III LP. The Merger Agreement provides for, among other things, the
merger of Merger Sub I with and into IEA Services with IEA Services surviving such merger and, immediately thereafter, merging with and into Merger Sub II with Merger Sub II surviving such merger as an indirect, wholly-owned subsidiary of our‘‘Company’’, ‘‘we’’, ‘‘us’’, or ‘‘our’’) is a holding company
(together with the other transactions contemplated by the Merger Agreement, the "Potential IEA Combination"). As a result of the foregoing, we will acquire IEA Services and itsthat, through various subsidiaries,
which we collectively refer to as "IEA".IEA is a leading U.S. provider ofdiversified infrastructure solutionsconstruction company with specialized energy and heavy civil expertise throughout the United States (“U.S.”). The Company specializes in providing complete engineering, procurement and construction (“EPC”) services throughout the U.S. for the renewable energy, traditional power and civil infrastructure industries. Currently, it is primarily focused on the wind energy industry, where it specializes in providing a broad range of engineering, procurement and construction (“EPC”)These services throughout the U.S. It is one of three Tier 1 providers in the wind energy industry and has completed more than 190 wind and solar projects in 35 states. The services that it provides include the design, site development, construction, installation and restoration of infrastructure. IEA believes that, asAlthough the Company has historically focused on the wind industry, its recent acquisitions have expanded its construction capabilities and geographic footprint in the areas of December 31, 2017, it holds the #1 U.S. market share among EPCs for wind.environmental remediation, industrial maintenance, specialty paving, heavy civil and rail infrastructure construction, creating a diverse national platform of specialty construction capabilities. We believe that IEA haswe have the ability to continue to grow its wind energy industry business as the industry grows and that it isexpand these services because we are well-positioned to leverage itsour expertise and relationships in the wind energy business to provide complete infrastructure solutions in all areas.
Our common stock trades on the NASDAQ Capital Market under the symbol ‘‘IEA’’. We were founded in 1947 as White Construction and we became a public company as Infrastructure and Energy Alternatives, Inc. in March 2018 when we merged with a special purpose acquisition company (a non-operating shell company).
2018 Company Highlights
Public Company - On March 26, 2018, we consummated a merger (the “Merger”) pursuant to an Agreement and Plan of Merger, dated November 3, 2017, by and among M III Acquisition Corporation (“M III”), IEA Energy Services, LLC (“IEA Services”), a Delaware limited liability company, Infrastructure and Energy Alternatives, LLC (the “Seller”), a Delaware limited liability company and the parent of IEA Services immediately prior to such time, and the other areas,parties thereto, which provided for, among other things, the merger of IEA Services with and into a wholly-owned subsidiary of M III. See Note 2.Merger, Acquisitions and Discontinued Operations in the notes to the audited consolidated financial statements for more information on the Merger and the continuing ownership of the Company by M III and Seller.
Acquisition of CCS, including Saiia and the solar energyACC Companies - On September 25, 2018, we acquired Consolidated Construction Solutions I LLC (“CCS”), a leading provider of environmental and industrial engineering services. The wholly-owned subsidiaries of CCS, Saiia LLC (“Saiia”) and the American Civil Constructors LLC (the “ACC Companies”) generally enter into long-term contracts with both government and non-government customers to provide EPC services for environmental, heavy-civil and mining projects. We believe our acquisition of Saiia and the ACC Companies will provide IEA with a strong and established presence in the environmental and industrial engineering markets, enhanced civil construction capabilities and an expanded domestic footprint in less-seasonal Southeast, West and Southwest markets.
Acquisition of William Charles Construction Group, including Ragnar Benson - On November 2, 2018, we acquired William Charles Construction Group, including Ragnar Benson ("William Charles"), a leader in engineering and construction solutions for the rail infrastructure and heavy civil construction industries. We believe our acquisition of William Charles will provide IEA with a market leading position in the attractive rail infrastructure market and continue to bolster our further growth in the heavy civil and construction footprint across the Midwest and Southwest.
Industry Trends
Our industry theis composed of national, regional and local companies in a range of industries, including renewable power generation, traditional power generation and the civil infrastructure industries. We believe the following industry trends will help to drive our growth and success over the coming years:
Renewable Power Generation
In recent years, we have maintained a tight focus on construction of renewable power production capacity as renewable energy, particularly from wind and solar, has become widely accepted within the electric utility industry and
civil infrastructure industry.IEA traces its roots backhas become a cost-effective solution for the creation of new generating capacity. We believe that this shift has occurred because renewable energy power generation has reached a level of scale and maturity that permits these technologies to now be cost-effective competitors to more traditional power generation technologies, including on an unsubsidized basis. Under many circumstances, wind and solar power production offer the foundinglowest levelized cost of White Construction in 1947. Inenergy (i.e., the 70 years since, IEA has diversified its business and expanded its geographic footprint, both organically and through acquisitions. Its historical roots are in civil infrastructureall-in cost of generating power, including construction and it continues to operateoperating costs) of any technology. As a result, wind and solar power are among the leading sources of new power generation capacity in that sector today. It has also expanded into the U.S., and wind and utility-scale solar energy construction spacegeneration is projected to become even more cost-effective in coming years as technological improvements make wind turbines and has completedphotovoltaic cells (and other solar generating technologies) even more than 190efficient.
Governmental policies focused on a clean environment and the desire to decrease U.S. dependence on foreign oil imports have created incentives historically for the development of renewable energy production capacity and have created demand for more domestic, environmentally sensitive electrical power production facilities, such as wind and solar projects,collection farms. The federal government has offered tax credits for investments in renewable energy infrastructure and production of power from renewable sources. Other tax incentives available to the renewable energy industry include accelerated tax depreciation provisions, including bonus depreciation, for certain renewable energy generation assets, such as equipment using solar or wind energy. These incentives specify a five-year depreciable life for qualifying assets rather than the longer depreciable lives of many non-renewable energy assets. In addition to shorter depreciable lives, those assets qualifying for bonus depreciation benefit from significant allowable first-year depreciation.
In addition to federal policies that historically have favored power production from renewable sources, a number of states also have supported the expansion of renewable energy generating capacity. Currently, nearly 40 states, as well as the District of Columbia and four territories, have adopted renewable portfolio standards or goals. Similarly, we believe that many corporations and retail consumers are increasingly focused on obtaining energy from renewable sources and have become a significant driver of incremental demand for wind and solar energy production capacity.
The market for the development of utility-scale wind and solar power generation is expected to remain robust. The Annual Energy Outlook 2019 published by the U.S. Department of Energy in February 2019 projected the addition of approximately 72 gigawatts of new utility-scale wind and solar capacity from 2018 to 2021, which we estimate will drive more than 14 GW$17.5 billion of construction. Although this demand is driven, in part, by accelerated, incremental investment in renewable power generation sources during the phase-out period for existing tax incentives, fundamental demand for renewable power construction-and particularly for utility-scale solar farms-is projected to remain strong thereafter. See Regulation and Environmental Matters below for further discussion of phase-out period.
Heavy Civil Construction
During 2018, heavy civil construction was only a small part of our business and accounted for less than 10% of our revenue. We believe that this will become a more significant part of our business in 2019 as a majority of the revenue of the Companies we acquired during 2018 is in this sector and we have maintained a reputation for high quality work. State and federal funding for this industry has been neglected for decades, but the near-term outlook on both state and federal levels has led us to believe that spending for infrastructure may experience significant growth over the next few years. Not only do we believe that state and federal funding is likely to increase, but alternative methods of construction, such as public and private partnerships, have gained significant traction in the United States in recent years.
We have taken steps to enhance our heavy civil construction business through acquisitions to take advantage of these growth opportunities. We believe that our business relationships with customers in this sector are excellent and our strong reputation that we have built will provide us with the foundation to grow our revenue base in this business. Additionally, there is significant overlap in labor, skills and equipment needs between our renewable energy construction business and our heavy civil infrastructure business, which we expect will provide us with operating efficiencies as we continue to expand this sector. Our renewable energy experience provides us with expertise in working in difficult conditions and environments, which we believe will provide us with a competitive advantage when bidding for more complicated and often higher margin civil and infrastructure projects.
Environmental Remediation
Coal-fired power plants have significant and recurring environmental management needs, because they consistently generate various waste byproducts throughout the power generation process. The primary type of these waste byproducts are CCRs, commonly known as coal ash. According to the American Coal Ash Association, more than 107 million tons of coal ash were generated in 2016, and according to the U.S. Environmental Protection Agency (“EPA”), in 2015, coal ash was one of the largest types of waste in the U.S. Coal ash management is mission-critical to the daily operations of power plants, as they generally only have on-site storage capacity for three to four days of CCR waste accumulation.
According to the American Coal Ash Association, as of 2016, approximately 44% of coal ash generated was disposed of. According to the EPA, approximately 80% of coal ash that was disposed of in 2012 was disposed of on-site in ash ponds or landfills. As of 2016, the American Coal Ash Association estimated that more than 1.5 billion tons of coal ash existed in ash ponds and landfills around the country. The EPA also estimates that, as of 2012, there were over 1,100 active and inactive on-site ash ponds and landfills requiring remediation or closure. These sites are typically large and will require significant capital from their owners, as well as specialized environmental expertise, to monitor on an ongoing basis, remediate, relocate the waste or completely close in an environmentally sustainable way.
As a result of our recent acquisition of Saiia and their ability to build strong relationships in the environmental remediation business, the Company intends to continue to increase its growth of this area as a part of our business. We believe that with Saiia's reputation and our cross-selling capabilities we will be able to capture further market share and facilitate more self-performing environmental remediation opportunities in other projects that we undertake.
Rail
For more than 150 years, the U.S. rail network has been a critical component of the U.S. transportation system and economy. Today it carries approximately one-third of U.S. exports and delivers five million tons of freight and approximately 85,000 passengers each day. According to the 2017 Infrastructure Report Card, the private freight rail industry owns the vast majority of the nation’s rail infrastructure, and continues to make significant capital investment — $27.1 billion in 2015 — to ensure the network’s good condition. Despite this investment, U.S. rail still faces clear challenges, most notably in passenger rail, which faces the dual problems of aging infrastructure and insufficient funding.
Federal forecasts predict an approximate 40% increase in U.S. freight shipments, including by rail, by 2040. To prepare for the future, the U.S. Department of Transportation has worked with the transportation industry to draft the first National Freight Strategic Plan, which addresses impediments to the efficient flow of goods in support of the nation’s economy. The Fixing America’s Surface Transportation (FAST) Act requires the strategic plan be completed by 2017 and be updated every five years. Through the FAST Act, Congress created a new federally-funded, freight-focused competitive grant program. Fostering Advancements in Shipping And Transportation For The Long-Term Achievement of National Efficiencies (FASTLANE) grants are expected to provide $4.5 billion through 2020 to freight and highway projects of national or regional significance.
We believe that the acquisition of William Charles including Ragnar Benson, provides the Company with the ability to capitalize on the new rail infrastructure construction that will be required to support the increase in U.S. freight shipments.
Electrical Power and High Voltage Opportunities
The U.S. electrical transmission and distribution infrastructure requires significant ongoing maintenance, upgrade and expansion to manage power line congestion and avoid delivery failures. Regional shifts in population and industry may also create pockets of demand for increased transmission and distribution construction and upgrades. According to the DOE’s Annual Energy Outlook 2019 published in February 2019, significant new electricity generating capacity is expected to be added through 2050, all of which must be connected to the existing electric grid.
Renewable energy generation projects, which are typically located in remote areas, often require investment in new transmission lines to interconnect with the electrical grid. Although we have outsourced our high-voltage electrical needs historically, we implemented a program during 2018 to upgrade our in-house capacity to complete this work and continually strive to increase the portion of our high-voltage electrical work which we self-perform. We believe that this transition will
afford us the opportunity to capture incremental margin on our projects and to provide enhanced service to our customers.
We believe that the same capabilities that we are building in order to self-perform high-voltage electrical work will enable us to capture incremental revenue by providing these services to others. With investment by utilities and transmission companies to modernize, secure and visually improve the existing transmission system expected to be strong over the coming years, we expect that our existing customer relationships and reputation will leave us well-positioned for growth in this sector.
Competitive Strengths
Our competitive strengths include:
Scale, Technical Expertise and Reputation in the Wind Industry. We are a national Tier 1 provider of wind energy generatinginfrastructure projects due to our established reputation for safe, high quality performance, reliable customer service and technical expertise. Because the construction and development of wind energy projects is very technically demanding, industry participants have increasingly emphasized safety, high quality performance and technical reliability. Our management estimates that construction costs represent only approximately 20% to 25% of total project cost, but construction-related risks pose the most significant threat to completion of the project. We have successfully completed over 200 wind projects over approximately the past 10 years. Our scale, experience and reputation gives us an advantage when competing for new work, both from existing and potential customers.
An Industry Leader in Safety Performance. Our industry-leading safety performance helps us enhance our reputation for high quality and reliability. Our management team strives to instill a corporate culture committed to health and safety. Our experience modification rate, a measure of our history and safety record as compared to other businesses in our industry, was 0.61 and our total recordable incident rate was 1.29 in 2018, both of which were significantly below the construction industry averages of 1.0 and 2.8, respectively, reported by the U.S. Department of Labor and U.S. Bureau of Labor Statistics 2017. In our experience, safety records are an important factor to customers in contracting for services and we believe that our exemplary safety record is a significant differentiator for us.
Strong Relationships With Leading Industry Players. Our business model has enabled us to hold a leading position in the wind, heavy civil, rail infrastructure and environmental remediation sectors of the construction industry by successfully winning key contracts and establishing strong relationships with many established developers and operators, as well as with other market leaders. These relationships have provided us with a recurring base of blue-chip utility and other customers. We also have strong relationships with the leading original equipment manufacturers who produce the equipment for our contracts. In recent years, customers have come to emphasize reliability and excellence in execution, as well as a strong safety record, in selecting their construction partners, and our track record and reputation has made us a provider of choice to those industry participants. We have completed projects with top U.S. developers or owners, who are market leaders in their sectors. Our longstanding relationships have enabled us to develop strong alliances with many of our customers and vendors, providing us with a strong base for expansion initiatives. We continually strive to further improve these relationships and enhance our status as a preferred vendor to our customers.
Ability to Respond Quickly and Effectively. The skills required to serve each of our end-markets are similar, which allows us to utilize qualified personnel across multiple end-markets and projects. We are able to respond quickly and effectively to industry and technological changes, demand fluctuations and major weather events by allocating our employees, fleet and other assets as and where they are needed, enabling us to provide cost effective and timely services for our customers. Additionally, we have a track record of successfully recruiting and retaining skilled labor, despite industry shortages.
Experienced Management Team. Our senior management team has over 175 years of combined experience and proven expertise in wind, heavy civil, rail infrastructure and environmental remediation, and a deep understanding of our customers and their requirements. Our senior management team plays a significant role in establishing and maintaining long-term relationships with our customers, supporting the growth of our business, integrating acquired businesses and managing the financial aspects of our operations.
Ability to Cross-Sell Our Product and Service Offerings. A majority of our wind customers also have other construction project requests, and a number of them are in active discussions with us for those projects. By leveraging our established relationships with our customers, we have realized additional revenues by selling products and services that our customers historically purchased from various other providers.
Self-Perform Capabilities. We have made substantial investments in our self-perform capabilities and, as a result, are able to self-perform across a large portion of the services that we deliver. We continue to seek opportunities to expand our self-perform capabilities and expect to transition to self-performing a majority of our high-voltage electrical work over the course of 2019. We believe that our technical expertise, project management experience and our highly skilled and stable work force, enables us to provide our customers with a compelling package of technical reliability, consistent execution and safety. In addition, our self-perform capabilities provide us with an opportunity to retain margin while better controlling scheduling of projects, potentially leading to greater operational efficiencies for us and enhanced reliability for our customers.
Strategy
The key elements of our business strategy are as follows:
Retention of strong relationships with our customers for further diversification — We believe that we have strong, long-term relationships with each of our customers and have historically worked together with them to meet their needs. By leveraging our established relationships with these customers, we intend to provide expanded products and services that will continue to diversify our revenue streams and assist our customers with their business strategies.
Ownership of Equipment — Many of our services are equipment intensive and certain key equipment used by us is specialized or customized for our businesses. The cost of construction equipment, and in some cases the availability of construction equipment, provides a significant barrier to entry into several of our businesses. We believe that our ownership and ability to lease a large and varied construction fleet at a reasonable cost, enables us to compete more effectively by ensuring availability and maximizing returns on investment of the equipment.
Maintain Operational Excellence — We have a continual focus on maintaining operational excellence, which includes the following:
Quality - We believe in satisfying our clients, mitigating risk, and driving improvement by performing work right the first time.
Technical Expertise - We have an established reputation for safe, high quality performance, reliable customer service and technical expertise in constructing technically demanding projects.
Safety - We believe the safety of our employees, the public and the environment is a moral obligation as well as good business. By identifying and concentrating resources to address jobsite hazards, we continually strive to reduce our incident rates and the costs associated with accidents.
Productivity - We strive to use our resources efficiently to deliver work on time and on budget.
Sustainability - Our focus on sustainability encompasses many aspects of how we conduct ourselves and is one of our Core Values. We believe sustainability is important to our clients, employees, shareholders, and communities, and is also a long-term business driver. By focusing on specific initiatives that address social, environmental and economic challenges, we believe that we are able to minimize risk and maintain a competitive advantage.
Code of Conduct - We believe in maintaining high ethical standards through an established code of conduct and a company-wide compliance program. Integrity is one of our core values at all times.
Acquisition Integration and Future Strategic Acquisitions and Arrangements — We expect to focus in the short-term on the business integration of our recent acquisitions, including but not limited to the back office functions and other project-related efficiencies. Consistent with our long-term strategy we will continue to pursue selected and opportunistic acquisitions, that fit our strategy of acquiring businesses with complementary cultures, niche market capabilities, excellent relationships with blue chip customers and strong, proven management teams that are retained post acquisition.
Customers
We have longstanding customer relationships with many established companies in the renewable energy, thermal power, petrochemical, environmental remediation, civil and industrial power industries, with a recurring base of blue-chip
utility customers, as well as original equipment manufacturers that produce the equipment for our business. We have completed wind projects with top U.S. developers or owners, rail infrastructure projects with top railroads and heavy civil construction projects with top government agencies.
Although we are not dependent upon any one customer in any year, a relatively small number of repeat customers constitute a substantial portion of our total revenues. Accordingly, our management is responsible for developing and maintaining existing relationships with customers to secure additional projects and increase revenue from our current customer base. We believe that our strategic relationships with customers will result in future opportunities. Our management is also focused on pursuing growth opportunities with prospective new customers.
The Company had the following approximate revenue and accounts receivable concentrations, net of allowances, for the periods ended:
|
| | | | | | | | | | | | | | |
| | Revenue % | | Accounts Receivable % |
| | Year Ended December 31, | | December 31, |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 |
| Interstate Power and Light Company | 21.0 | % | | * |
| | * |
| | 20.0 | % | | * |
|
| Union Pacific Railroad | * |
| | * |
| | * |
| | 19.0 | % | | * |
|
| Trishe Wind Ohio, LLC | * |
| | * |
| | * |
| | * |
| | 17.0 | % |
| Thunder Ranch Wind Project, LLC | * |
| | 21.0 | % | | * |
| | * |
| | 15.0 | % |
| Twin Forks Wind Farm, LLC | * |
| | 11.0 | % | | * |
| | * |
| | * |
|
| Bruenning's Breeze Wind Farm, LLC | * |
| | 11.0 | % | | * |
| | * |
| | * |
|
| EDF Renewable Development, Inc. | * |
| | 14.0 | % | | 11.0 | % | | * |
| | 11.0 | % |
| Cimarron Bend Wind Project, LLC | * |
| | * |
| | 17.0 | % | | * |
| | * |
|
| Osborn Wind Energy, LLC | * |
| | * |
| | 11.0 | % | | * |
| | * |
|
———
* Amount was not above 10% threshold.
Our work is generally performed pursuant to contracts for specific projects or jobs that require the construction or installation of an entire complex of specified units within an infrastructure system. Customers are billed monthly throughout the completion of work on a project; however, some contracts provide for additional billing upon the achievement of specific completion milestones, which may increase the billing period to more than one month. Such contracts may include retainage provisions under which, generally, from 5% to 10% of the contract price is withheld until the work has been completed and accepted by the customer. Because we may not be able to maintain our current revenue levels or our current level of capacity and resource utilization if we are not able to replace work from completed projects with new project work, we actively review our backlog of project work and take appropriate action to minimize such exposure.
We believe that our industry experience, technical expertise and reputation for customer service, as well as the relationships developed between our customers and our senior management and project management teams are important to our being retained by our customers.
Backlog
For companies in the construction industry, backlog can be an indicator of future revenue streams. Estimated backlog represents the amount of revenue we expect to realize beyond 2020 from the uncompleted portions of existing construction contracts, including new contracts under which work has not begun and awarded contracts for which the definitive project documentation is being prepared, as well as revenue from change orders and renewal options. Estimated backlog for work under fixed price contracts and cost-reimbursable contracts is determined based on historical trends, anticipated seasonal impacts, experience from similar projects and estimates of customer demand based on communications with our customers. These contracts are included in backlog based on the estimated total contract price upon completion. We expect to realize approximately 55.4% of our estimated backlog during 2019 and 44.6% during 2020 and beyond.
As of December 31, 2018 our total backlog was approximately $2.1 billion compared to $1.1 billion as of December 31, 2017. The $1.0 billion increase is primarily related to $833.7 million of backlog related to our acquisitions coupled with a $166.3 million increase in backlog related to our legacy IEA business. Based on historical trends in the Company’s backlog, we believe awarded contracts to be firm and that the revenue for such contracts will be recognized over the life of the project. Timing of revenue for construction and installation projects included in our backlog can be subject to change as a result of
customer delays, regulatory factors, weather and/or other project-related factors. These changes could cause estimated revenue to be realized in periods later than originally expected, or not at all. In the past, we have occasionally experienced postponements, cancellations and reductions on construction projects, due to market volatility and regulatory factors. There can be no assurance as to our customers’ requirements or the accuracy of our estimates. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings.
Backlog is not a term recognized under U.S. GAAP, although it is a common measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies used by others. See ‘‘Risk Factors’’ for a discussion of the risks associated with our backlog.
Safety and Insurance/Risk Management
We strive to instill and enforce safe work habits in our employees, and we require that our employees participate in training programs relevant to their employment, including all those required by law. We evaluate employees in part based upon their safety records and the safety records of the employees they supervise. Our business units have established robust safety programs to encourage, monitor and improve compliance with safety procedures and regulations including, behavioral based safety, jobsite safety analysis, site-specific safety orientation, subcontractor orientation, site safety audits, accident and incident safety investigations, OSHA 30-hour and 10-hour training, drug and alcohol testing and regular trainings in fall protection, confined spaces, crane rigging and flagman, first aid, CPR and AED.
Our business involves the use of heavy equipment and exposure to potentially dangerous workplace conditions. While we are committed to operating safely and prudently, we are subject to claims by employees, customers and third parties for property damage and personal injuries that occur in connection with our work. We maintain insurance policies for worker’s compensation, employer liability, automobile liability, general liability, inland marine property and equipment, professional and pollution liability, excess liability, and director and officers’ liability. See Note 10. Commitments and Contingencies in the notes to the audited consolidated financial statements.
Our business subjects us to the risk of adverse site conditions and unfavorable weather. While we mitigate these risks contractually to the extent possible, market conditions prevent us from fully passing these risks to our customers, and there is not a robust insurance market to cover these risks. We mitigate these risks by developing reserves we believe to be appropriate for risks that cannot be contractually mitigated, and we are evaluating the feasibility and cost-effectiviness of obtaining additional insurance to protect the Company from significant losses caused by adverse weather.
Suppliers, Materials and Working Capital
Under many of our contracts, our customers provide the necessary materials and supplies for projects and we are responsible for the installation, but not the cost or warranty, of those materials. Under certain other projects, we purchase the necessary materials and supplies on behalf of our customers from third-party providers. We are not dependent upon any one vendor and have not experienced significant difficulty in obtaining project-related materials or supplies as and when required for the projects we manage.
We utilize independent contractors to assist on projects and to help manage our work flow. Our independent contractors typically provide their own vehicles, tools and insurance coverage. We need working capital to support seasonal variations in our business, such as the impact 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. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’
We bear some risk of increases in the price of materials and supplies used in the performance of our work, such as aggregate, reinforcing steel, cable, and fuel. These risks are managed contractually, by entering into contracts with suppliers that fix the price paid by the Company within the budget established for a project, or by passing the risk of commodity cost increases to the customer.
Competition
We compete with a number of companies in the markets in which we operate, ranging from small local independent companies to large national firms, and some of our customers employ their own personnel to perform the type of services we provide.
The primary factors influencing competition in our industry are price, reputation, quality and delivery, relevant expertise, adequate financial resources, geographic presence, high safety ratings and a proven track record of operational success. We believe that our national platform, track record of completion, relationships with vendors, strong safety record and access to skilled labor enables us to compete favorably in all of these factors. We also believe that our ability to provide unionized and non-unionized workforces across a national footprint allows us to compete for a broad range of projects. While we believe our customers consider a number of factors when selecting a service provider, they award most of their work through a bid process. We believe our safety record, experience and price are often principal factors in determining which service provider is selected.
Seasonality
Our revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, receipt of required regulatory approvals, permits and rights of way, project timing and schedules and holidays. See ‘‘IEA Management’s Discussion and Analysis of Financial Condition and Results of Operations-Impact of Seasonality and Cyclical Nature of Business.’’
Regulation and Environmental Matters
We are subject to state and federal laws that apply to businesses generally, including laws and regulations related to labor relations, wages, worker safety and environmental protection.
We are also subject to numerous environmental laws, including the handling, transportation and disposal of non-hazardous and hazardous substances and wastes, as well as emissions and discharges into the environment, including discharges into air, surface water, groundwater and soil. We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment.
We believe we have all material licenses and permits needed to conduct operations and that we are in material compliance with applicable regulatory requirements. However, we could incur significant liabilities if we fail to comply with applicable regulatory requirements. See ‘‘Risk Factors-We could incur substantial costs to comply with environmental, health, and safety laws and regulations and to address violations of liabilities under these requirements.’’
The potential impact of climate change on our operations is highly uncertain. Climate change may result in, among other things, changes in rainfall patterns, storm patterns and intensity and temperature levels. Our operating results are significantly influenced by weather and major changes in historical weather patterns could significantly impact our future operating results. For example, if climate change results in significantly more adverse weather conditions in a given period, we could experience reduced productivity and increases in certain other costs, which could negatively impact revenues and gross margins.
In light of changes in federal government priorities and the cost-competitiveness of wind and solar power production, certain of the tax credits for production of renewable energy are phasing out. The Consolidated Appropriations Act of 2016 (‘‘CAA’’), which contains certain federal tax incentives applicable to the renewable energy industry, provided for the gradual elimination of certain of these incentives. Currently, the tax code provides that the production tax credit for wind projects (the ‘‘PTC’’) applies to qualifying projects for which the construction commencement date was prior to January 1, 2020. The PTC was reduced by 20% for 2017, has been reduced by 40% for 2018, and finally will be reduced by 60% for 2019. Similarly, a phase down rate of the investment tax credit (the ‘‘ITC’’), which is available in lieu of PTC, is available for wind projects: 30% ITC for projects commencing before 2017, 24% for projects commencing in 2017, 18% for projects commencing in 2018 and 12% for projects commencing in 2019. Solar projects, however, will be eligible for an investment tax credit (the ‘‘Solar ITC’’) only. The Solar ITC is 30% for projects commencing prior to 2020 and will be reduced to 26% for projects commencing in 2020 and to 22% for projects commencing in 2021. After 2021, the Solar ITC will remain at 10% for projects that commence prior to 2022, but are placed in service after 2023.
Additionally, although the enactment of the 2017 Tax Act in December 2017 did not modify the existing production tax credit and investment tax credit incentive structures, a base erosion and anti-abuse tax, or ‘‘BEAT’’ provision, contained in the 2017 Tax Act imposes a minimum tax on certain corporations, and only 80% of the value of any such corporation’s production or investment tax credits can be applied as a reduction to such corporation’s BEAT liability. Accordingly, this BEAT provision could reduce the incentive for certain taxable investors to invest in tax equity financing arrangements and could materially reduce the value and availability such tax credits, grants and incentives for certain participants and financing sources in the wind and solar industry. The 2017 Tax Act permits the immediate expensing of certain capital expenditures between
September 27, 2017 and January 1, 2023, but this new rule could be less valuable than 700 MWa dollar-for-dollar investment tax credit or production tax credit, given the reduced corporate income tax rate of utility-scale,21%. Any of the foregoing changes arising from the 2017 Tax Act, as well as other changes in law not mentioned herein, could adversely impact the demand for development of wind and solar generating capacity. Itenergy generation facilities. See ‘‘Risk Factors-The U.S. wind and solar industries benefit from tax and other economic incentives and political and governmental policies.’’ for a discussion of the risks associated with these federal and state tax incentives.
Employees
The Company has a workforce of both union and non-union employees that allows us to work anywhere in the U.S. We have a scalable workforce, with more than 2,000approximately 2,600 peak employees. As of February 15,December 31, 2018, itwe had approximately 6502,250 employees, approximately 595 of whom were represented by unions or were subject to collective bargaining agreements. See Note 14. Employee Benefit Plans in the notes to the audited consolidated financial statements, which are incorporated herein by reference.
We hire employees from a number of sources, including our industry, trade schools, colleges and universities. We attract and retain employees by offering a competitive salary, benefits package, opportunities for advancement and an exemplary safety record. We strive to offer a caring and stable work environment that enables our employees to improve their performance, and enhance their skills and knowledge. We believe that our corporate culture and core value system helps us to attract and retain employees. We provide opportunities for promotion and mobility within our organization, which we also believe helps us to retain our employees. Our employees participate in ongoing educational programs, some of which are internally developed, to enhance their technical and management skills through classroom and field training. We believe we have good employee relations.
Available Information
Our principal executive offices are located at 6325 Digital Way, Suite 460, Indianapolis, Indiana 46278, and our telephone number is (765) 828-2580. Our website is located at www.iea.net. We make available our periodic reports and other information filed with or furnished to the Securities and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, proxy statements, and all amendments to those reports, free of charge through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Any materials filed with the SEC may be read and copied at the SEC’s website at www.sec.gov.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with the other information contained in this Annual Report on Form 10-K. If any of the risks below were to occur, our business, financial condition, results of operations, profitability, cash flows and growth prospects could be adversely impacted, and the price of our common stock could decline.
Risks Related to IEA
Our business is seasonal and is affected by adverse weather conditions and the spending patterns of our customers, exposing us to variable quarterly results.
Some of our customers reduce their expenditures and work order requests towards the end of the calendar year. Adverse weather conditions, particularly during the fall and winter seasons, can also affect our ability to perform outdoor services in certain regions of North America. As a result, we generally experience reduced revenue in the first quarter of each calendar year. Natural catastrophes such as hurricanes or other severe weather could also have a negative effect on the economy overall and on our ability to perform outdoor services in affected regions or utilize equipment and crews stationed in those regions, which could negatively affect our results of operations, cash flows and liquidity.
Our 2018 results reflect the effect of multiple severe weather events on the Company's wind business that began late in the third quarter and continued into the fourth quarter. These weather conditions had a significant impact on the construction of six wind projects across South Texas, Iowa, and Michigan, resulting in additional labor, equipment and material costs as well as change orders. IEA is headquarteredaggressively pursuing the collection of all amounts it is contractually owed due to weather-related delays, including collections on change orders resulting from force majeure provisions of certain customer
contracts, which generally compensate for the actual costs of weather-related delays. See Item 7. Management's Discussion and Analysis for further discussion of weather impact.
Our failure to recover adequately on claims against project owners, subcontractors or suppliers for payment or performance could have a material adverse effect on our financial results.
We occasionally bring claims against project owners for additional costs that exceed the contract price or for amounts not included in
Indianapolis, Indiana.Subjectthe original contract price. Similarly, we present change orders and claims to our subcontractors and suppliers. If we fail to properly document the nature of change orders or claims, or are otherwise unsuccessful in negotiating a reasonable settlement, we could incur reduced profits, cost overruns or a loss on the project. These types of claims can often occur due to matters such as owner-caused delays, changes from the initial project scope and adverse conditions, which result in additional cost, both direct and indirect, or from project or contract terminations. From time to time, these claims can be the subject of lengthy and costly proceedings, and it is often difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of claims could have a material adverse effect on our liquidity and financial results.
Our business may be affected by difficult work sites and environments, which could cause delays and/or increase our costs and reduce profitability.
We perform work under a variety of conditions, including, but not limited to, challenging and hard to reach terrain and difficult site conditions. Performing work under such conditions can result in project delays or cancellations, potentially causing us to incur additional, unanticipated costs, reductions in revenue or the payment of liquidated damages. In addition, some of our contracts require that we assume the risk should actual site conditions vary from those expected. Some of our projects involve challenging engineering, procurement and construction phases, which may occur over extended time periods. We may encounter difficulties in engineering, delays in designs or materials provided by the customer or a third party, equipment and material delivery delays, schedule changes, delays from customer failure to timely obtain rights-of-way, weather-related delays, delays by subcontractors in completing their portion of the project and other factors, some of which are beyond our control, but which affect our ability to complete a project as originally scheduled. In some cases, delays and additional costs may be substantial, and we may be required to cancel a project and/or compensate the customer for the delay. We may not be able to recover any of such costs. Any such delays or cancellations or errors or other failures to meet customer expectations could result in damage claims substantially in excess of the revenue associated with a project. Delays or cancellations could also negatively impact our reputation or relationships with our customers, which could adversely affect our ability to secure new contracts and our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our failure to properly manage projects, or project delays, may result in additional costs or claims, which could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Certain of our engagements involve large-scale, complex projects that may occur over extended time periods. The quality of our performance on such a project depends in large part upon our ability to manage our client relationship and the project itself and to timely deploy appropriate resources, including third-party contractors and our own personnel. Our business, financial condition, results of operations, profitability, cash flows and growth prospects could be adversely affected if we miscalculate the resources or time needed to complete a project with capped or fixed fees, or the resources or time needed to meet contractual milestones. Additionally, delays on a particular project, including delays in designs, engineering information or materials provided by the customer or a third party, delays or difficulties in equipment and material delivery, schedule changes, delays from a customer’s failure to timely obtain permits or rights-of-way or to meet other regulatory requirements, weather-related delays, permitting delays, governmental, market, political and other factors, some of which are beyond our control, may result in the cancellation or deferral of project work, which could lead to a decline in revenue from lost project work, or, for project deferrals, could cause us to incur costs which are not reimbursable by the customer, and may lead to personnel shortages on other projects scheduled to commence at a later date.
In addition, some of our agreements require that we share in cost overages or pay liquidated damages if we do not meet project deadlines; therefore, any failure to properly estimate or manage cost or delays in the completion of projects, could subject us to penalties, which could adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects. Further, any defects or errors, or failures to meet our customers’ expectations could result in damage claims against us, and because of the substantial cost of, and potentially long lead-times necessary to acquire certain of the materials and equipment used in our complex projects, damage claims may substantially exceed the
amount we can charge for our associated services.
We have a significant amount of debt. Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations.
We have a significant amount of debt and substantial debt service requirements. This level of debt could have significant consequences on our future operations, including:
making it more difficult for us to meet our payment and other obligations;
our failure to comply with the financial and other restrictive covenants contained in our debt agreements, which could trigger events of default that could result in all of our debt becoming immediately due and payable;
reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions or strategic investments and other general corporate requirements, and limiting our ability to obtain additional financing for these purposes;
subjecting us to increased interest expense related to our indebtedness with variable interest rates, including borrowings under our credit facility;
limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to changes in our business, the industry in which we operate and the general economy;
placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged; and
preventing us from paying dividends.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations. Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to meet our payment obligations and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital, and some of these activities may be on terms that are unfavorable or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations.
Our credit facility imposes restrictions on us that may prevent us from engaging in transactions that might benefit us, including responding to changing business and economic conditions or securing additional financing, if needed.
The terms of our indebtedness contain customary events of defaults and covenants that prohibit us from taking certain actions without satisfying certain financial tests or obtaining the consent of the lenders. The restricted actions include, among other things:
making unfinanced capital expenditures;
engaging in transactions with affiliates;
buying back shares or paying dividends in excess of specified amounts;
making investments and acquisitions in excess of specified amounts;
incurring additional indebtedness in excess of specified amounts;
creating certain liens against our assets;
prepaying subordinated indebtedness;
engaging in certain mergers or combinations;
failing to satisfy certain financial tests; and
engaging in transactions that would result in a ‘‘change of control.’’
Our credit facility requires that we comply with a consolidated first lien leverage ratio. Should we be unable to comply with the terms and covenants of our credit facility, we would be required to obtain consents from our bank group, further modify our credit facility or secure another source of financing to continue to operate our business, none of which may be available to us on reasonable terms or at all. A default could also result in the acceleration of our obligations under the credit facility. To the extent we need additional financing, we may not be able to obtain such financing at all or on favorable terms, which may materially decrease our profitability, cash flows and liquidity.
We may be unable to obtain sufficient bonding capacity to support certain service offerings, and the need for performance and surety bonds may reduce our availability under our replacement credit facility.
Some of our contracts require performance and payment bonds. If we are not able to renew or obtain a sufficient level of bonding capacity in the future, we may be precluded from being able to bid for certain contracts or successfully contract with certain customers. In addition, even if we are able to successfully renew or obtain performance or payment bonds, we may be required to post letters of credit or other collateral security in connection with the bonds, which would only be obtainable if we have sufficient availability under our replacement credit facility and, if available, would reduce availability for borrowings under our facility. Furthermore, under standard terms in the surety market, sureties issue bonds on a project-by-project basis and can decline to issue bonds at any time or require the posting of additional collateral at any time. If we were to experience an interruption or reduction in the availability of bonding capacity as a result of these or any other reasons, we may be unable to compete for or work on certain projects that require bonding.
Our failure to comply with the regulations of OSHA and other state and local agencies that oversee transportation and safety compliance could adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
The Occupational Safety and Health Act of 1970, as amended, establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety and Health Administration (‘‘OSHA’’) and various recordkeeping, disclosure and procedural requirements. Various standards, including standards for notices of hazards and safety in excavation and demolition work, may apply to our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of business in complying with OSHA and other state and local laws and regulations, and could incur penalties and fines in the future, including, in extreme cases, criminal sanctions.
While we have invested, and will continue to invest, substantial resources in occupational health and safety programs, our industry involves a high degree of operational risk, and there can be no assurance that we will avoid significant liability. Although we have taken what we believe to be appropriate precautions, we have had employee injuries in the past, and may suffer additional injuries in the future. Serious accidents of this nature may subject us to substantial penalties, civil litigation or criminal prosecution. Personal injury claims for damages, including for bodily injury or loss of life, could result in substantial costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. In addition, if our safety record were to deteriorate, or if we suffered substantial penalties or criminal prosecution for violation of health and safety regulations, customers could cancel existing contracts and not award future business to us, which could materially adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our business is subject to physical hazards that could result in substantial liabilities and weaken our financial condition.
Construction projects undertaken by us expose our employees to heavy equipment, mechanical failures, transportation accidents, adverse weather conditions and the risk of damage to equipment and property. These hazards can cause personal injuries and loss of life, severe damage to or destruction of property and equipment and other consequential damages and could lead to suspension of operations and large damage claims which could, in some cases, substantially exceed the amount we charge for the associated services. In addition, if serious accidents or fatalities occur, or if our safety records were to deteriorate, we may be restricted from bidding on certain work and obtaining new contracts and certain existing contracts could be terminated. Our safety processes and procedures are monitored by various agencies and ratings bureaus.
The occurrence of accidents in our business could result in significant liabilities, employee turnover, increase the costs of our projects, or harm our ability to perform under our contracts or enter into new customer contracts, all of which could materially adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our experience modification rate, a measure of our history and safety record as compared to other businesses in our industry, was 0.61 and our total recordable incident rate was 1.29 in 2018, both of which were significantly below the industry averages of 1.0 and 2.8, respectively, reported by the U.S. Department of Labor and U.S. Bureau of Labor Statistics 2017. While these standards are still below industry averages, the Company experienced a fatality at one of our work sites in 2018 and there is no guarantee, based on the hazards discussed above, that we can maintain these averages.
We are self-insured against certain potential liabilities.
Although we maintain insurance policies with respect to employer’s liability, general liability, auto and workers compensation claims, those policies are subject to deductibles or self-insured retention amounts of up to $500,000 per occurrence. We are primarily self-insured for all claims that do not exceed the amount of the applicable deductible/self-insured retention. In addition, for our employees not part of a collective bargaining agreement, we provide employee health care benefit plans. Our primary health insurance plan is subject to a deductible of $100,000 per individual claim per year.
Our insurance policies include various coverage requirements, including the requirement to give appropriate notice. If we fail to comply with these requirements, our coverage could be denied.
Losses under our insurance programs are accrued based upon our estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported. Insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the extent of damage, the determination of our liability in proportion to other parties and the number of incidents not reported. The accruals are based upon known facts and historical trends.
Acquisition activity presents certain risks to our business, operations and financial position, and we may not realize the financial and strategic goals contemplated at the time of a transaction.
We expect that the acquisitions will be an important part of our long-term growth strategy. Successful execution following the closing of an acquisition is essential to achieving the anticipated benefits of the transaction. We have made acquisitions to expand into new markets and our acquisition strategy depends on our ability to complete and integrate the acquisitions. Mergers and acquisitions are inherently risky, and any mergers and acquisitions that we complete may not be successful. The process of integrating an acquired company’s business into our operations and investing in new technologies is challenging and may result in expected or unexpected operating or compliance challenges, which may require significant expenditures and a significant amount of our management’s attention that would otherwise be focused on the ongoing operation of our business. The potential difficulties or risks of integrating an acquired company’s business include, among others:
the effect of the acquisition on our financial and strategic positions and our reputation;
risk that we fail to successfully implement our business plan for the combined business;
risk that we are unable to obtain the anticipated benefits of the acquisition, including synergies or economies of scale;
risk that we are unable to complete development and/or integration of acquired technologies;
risk that the market does not accept the integrated product portfolio;
challenges in reconciling business practices or in integrating product development activities, logistics or information technology and other systems;
challenges in reconciling accounting issues, especially if an acquired company utilizes accounting principles different from those we use;
retention risk with respect to key customers, suppliers and employees and challenges in retaining, assimilating and training new employees;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or
challenges of an acquired company, which could result in unexpected litigation, regulatory exposure, financial contingencies and known and unknown liabilities; and
challenges in complying with newly applicable laws and regulations, including obtaining or retaining required approvals, licenses and permits.
Our acquisitions may also result in the expenditure of available cash and amortization of expenses any of which could have a material adverse effect on our operating results or financial condition. Investments in immature businesses with unproven track records and technologies have an especially high degree of risk, with the possibility that we may lose the value of our entire investments or incur additional unexpected liabilities. Large or costly acquisitions or investments may also diminish our capital resources and liquidity or limit our ability to engage in additional transactions for a period of time. All of the foregoing risks may be magnified as the cost, size or complexity of an acquisition or acquired company increases, or where the acquired company’s products, market or business are materially different from ours, or where more than one integration is occurring simultaneously or within a concentrated period of time.
In addition, in the future we may require significant financing to complete an acquisition or investment, whether through bank loans, raising of debt or otherwise. We cannot assure you that such financing options will be available to us on reasonable terms, or at all. If we are not able to obtain such necessary financing, it could have an impact on our ability to consummate a substantial acquisition or investment and execute our growth strategy. Alternatively, we may issue a significant number of shares as consideration for an acquisition, which would have a dilutive effect on our existing shareholders.
If we are unable to attract and retain qualified managers and skilled employees, we will be unable to operate efficiently, which could reduce our revenue, profitability and liquidity.
Our business is labor intensive, and some of our operations experience a high rate of employee turnover. In addition, given the nature of the highly specialized work we perform, many of our employees are trained in, and possess, specialized technical skills that are necessary to operate our business and maintain productivity and profitability. At times of low unemployment rates in the areas we serve, it can be difficult for us to find qualified and affordable personnel. We may be unable to hire and retain a sufficiently skilled labor force necessary to support our operating requirements and growth strategy. Our labor and training expenses may increase as a result of a shortage in the supply of skilled personnel. We may not be able to pass these expenses on to our customers, which could adversely affect our profitability. Additionally, our business is managed by a number of key executive and operational officers and is dependent upon retaining and recruiting qualified management. Labor shortages, increased labor or training costs, or the loss of key personnel could materially adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
The U.S. wind and solar industries benefit from tax and other economic incentives and political and governmental policies. A significant change in these incentives and policies could materially and adversely affect our business, financial condition, results of operations, cash flows and growth prospects.
The Consolidated Appropriations Act of 2016 (‘‘CAA’’) extended certain provisions of the Internal Revenue Code, which contains federal tax incentives applicable to the renewable energy industry. Currently, the tax code provides that the production tax credit for wind projects (the ‘‘PTC’’) applies to qualifying projects for which the construction commencement date was prior to January 1, 2020. The PTC was reduced by 20% for 2017, has been reduced by 40% for 2018, and finally will be reduced by 60% for 2019. Similarly, a phase down rate of the investment tax credit (the ‘‘ITC’’) in lieu of PTC is available for wind projects: 30% ITC for projects commencing before 2017, 24% for projects commencing in 2017, 18% for projects commencing in 2018 and 12% for projects commencing in 2019. Solar projects, however, will be eligible for an investment tax credit (the ‘‘Solar ITC’’) only. The Solar ITC is 30% for projects commencing prior to 2020 and is reduced to 26% for projects commencing in 2020 and to 22% for projects commencing in 2021. After 2021, the Solar ITC will permanently remain at 10% for projects that commence prior to 2022, but are placed in service after 2023.
The PTC, ITC, Solar ITC and cash grant program provide material incentives to develop wind energy generation facilities and thereby impact the demand for our manufactured products and services. The increased demand for our products and services resulting from the credits and incentives may continue until such credits or incentives lapse. The failure of Congress to extend or renew these incentives beyond their current expiration dates could significantly delay the development of wind energy generation facilities and the demand for wind turbines, towers and related components. In addition, we cannot assure you that any subsequent extension or renewal of the PTC, ITC, Solar ITC or cash grant program would be enacted prior to its expiration or, if allowed to expire, that any extension or renewal enacted thereafter would be enacted with retroactive effect. It is possible that these federal incentives will not be extended beyond their current expiration dates. Any delay or failure to extend or renew the PTC, ITC, Solar ITC or cash grant program in the future could have a material adverse
impact on our business, results of operations, financial performance and future development efforts.
State renewable energy portfolio standards generally require state-regulated electric utilities to supply a certain proportion of electricity from renewable energy sources or devote a certain portion of their plant capacity to renewable energy generation. Typically, subject utilities comply with such standards by qualifying for renewable energy credits evidencing the share of electricity that was produced from renewable sources. Under many state standards, these renewable energy credits can be unbundled from their associated energy and traded in a market system allowing generators with insufficient credits to meet their applicable state mandate. These standards have spurred significant growth in the wind energy industry and a corresponding increase in the demand for our manufactured products. Currently, the majority of states and the District of Columbia have renewable energy portfolio standards in place and certain states have voluntary utility commitments to supply a specific percentage of their electricity from renewable sources. The enactment of renewable energy portfolio standards in additional states or any changes to existing renewable energy portfolio standards, or the enactment of a federal renewable energy portfolio standard or imposition of other greenhouse gas regulations may impact the demand for our products. We cannot assure you that government support for renewable energy will continue. The elimination of, or reduction in, state or federal government policies that support renewable energy could have a material adverse impact on our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Amounts included in our backlog may not result in actual revenue or translate into profits. Our backlog is subject to cancellation and unexpected adjustments and therefore is an uncertain indicator of future operating results.
Our backlog consists of the estimated amount of services to be completed from future work on uncompleted contracts or work that has been awarded with contracts still being negotiated. It also includes revenue from change orders and renewal options. Most of our contracts are cancelable on short or no advance notice. Reductions in backlog due to cancellation by a customer, or for other reasons, could significantly reduce the revenue that we actually receive from contracts in backlog. In the event of a project cancellation, we may be reimbursed for certain costs, but we typically have no contractual right to the total revenues reflected in our backlog.
Backlog amounts are determined based on target price estimates that incorporate historical trends, anticipated seasonal impacts, experience from similar projects and from communications with our customers. These estimates may prove inaccurate, which could cause estimated revenue to be realized in periods later than originally expected, or not at all. In the past, we have occasionally experienced postponements, cancellations and reductions in expected future work due to changes in our customers’ spending plans, as well as on construction projects, due to market volatility, regulatory and other factors. There can be no assurance as to our customers’ requirements or the accuracy of our estimates. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings. In addition, contracts included in our backlog may not be profitable. If our backlog fails to materialize, our business, financial condition, results of operations, profitability, cash flows and growth prospects could be materially and adversely affected.
We may choose, or be required, to pay our subcontractors even if our customers do not pay, or delay paying us for the related services.
We use subcontractors to perform portions of our services. In some cases, we pay our subcontractors before our customers pay us for the related services. We could experience a material decrease in profitability and liquidity if we choose, or are required, to pay our subcontractors for work performed for customers that fail to pay, or delay paying us, for the related work.
Our subcontractors may fail to satisfy their obligations to us or other parties, or we may be unable to maintain these relationships, either of which may have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows and growth prospects.
We depend on subcontractors to perform work on some of our projects. There is a risk that we may have disputes with subcontractors arising from, among other things, the quality and timeliness of the work they perform, customer concerns about our subcontractors, or our failure to extend existing work orders or issue new work orders under a subcontracting arrangement. If any of our subcontractors fails to deliver the agreed-upon supplies and/or perform the agreed-upon services on a timely basis, then our ability to fulfill our obligations as a prime contractor may be jeopardized. In addition, the absence of qualified subcontractors with whom we have satisfactory relationships could adversely affect our ability to perform under some of our contracts or the quality of the services we provide. Any of these factors could have a material adverse effect on our results of operations, cash flows and liquidity.
We also rely on suppliers to obtain the necessary materials for certain projects, and on equipment manufacturers and
lessors to provide us with the equipment we require to conduct our operations. Although we are not dependent on any single supplier or equipment manufacturer or lessor, any substantial limitation on the availability of required suppliers or equipment could negatively affect our operations. Market and economic conditions could contribute to a lack of available suppliers or equipment. If we cannot acquire sufficient materials or equipment, it could materially and adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Many of our customers are regulated by federal and state government agencies, and the addition of new regulations or changes to existing regulations may adversely impact demand for our services and the profitability of those services.
Many of our energy customers are regulated by the Federal Energy Regulatory Commission, or FERC, and our utility customers are regulated by state public utility commissions. These agencies could change the way in which they interpret the application of current regulations and/or may impose additional regulations. Interpretative changes or new regulations having an adverse effect on our customers and the profitability of the services they provide could reduce demand for our services, which could adversely affect our results of operations, cash flows and liquidity.
Any future restrictions or regulations which might be adopted could lead to operational delays, increased operating costs for our customers in the wind industry that could result in reduced capital spending and/or delays or cancellations of future wind infrastructure projects, which could materially and adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
We could incur substantial costs to comply with environmental, health, and safety laws and regulations and to address violations of or liabilities under these requirements.
Our operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which we operate and sell products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging. We cannot guarantee that we will at all times be in compliance with such laws and regulations and if we fail to comply with these laws and regulations or our permitting and other requirements, we may be required to pay fines or be subject to other sanctions. Also, certain environmental laws can impose the entire or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owner or operator of the site. These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites.
Changes in existing environmental laws and regulations, or their application, could cause us to incur additional or unexpected costs to achieve or maintain compliance. The assertion of claims relating to on- or off-site contamination, the discovery of previously unknown environmental liabilities, or the imposition of unanticipated investigation or cleanup obligations, could result in potentially significant expenditures to address contamination or resolve claims or liabilities. Such costs and expenditures could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows and growth prospects.
We may not accurately estimate the costs associated with services provided under fixed price contracts, which could impair our financial performance.
We derive a significant portion of our revenue from fixed-price contracts. Under these contracts, we typically set the price of our services on a per unit or aggregate basis and assume the risk that certain costs associated with our performance may be greater than what we estimated. In addition, we enter into contracts for specific projects or jobs that may require the installation or construction of an entire infrastructure system or specified units within an infrastructure system, which are priced on a per unit basis. Profitability will be reduced if actual costs to complete each unit exceed our original estimates. If estimated costs to complete the remaining work for the project exceed the expected revenue to be earned, the full amount of any expected loss on the project is recognized in the period the loss is determined. Our profitability is therefore dependent upon our ability to accurately estimate the costs associated with our services and our ability to execute in accordance with our plans. A variety of factors affect these costs, such as lower than anticipated productivity, conditions at work sites differing materially from those anticipated at the time we bid on the contract and higher costs of materials and labor. These variations, along with other risks inherent in performing fixed price contracts, may cause actual project revenue and profits to differ from original estimates. As a result, if actual costs exceed our estimates, we could have lower margins than anticipated, or losses, which could reduce our business, financial condition, results of operations, profitability, cash flows and growth prospects.
We recognize revenue from installation/construction fixed price contracts using the percentage-of-completion method; therefore, variations of actual results from our assumptions may reduce our profitability.
We recognize revenue from fixed price contracts using the percentage-of-completion method, under which the percentage of revenue to be recognized in a given period is measured by the percentage of costs incurred to date on the contract to the total estimated costs for the contract. The percentage-of-completion method therefore relies on estimates of total expected contract costs. Contract revenue and total cost estimates are reviewed and revised on an ongoing basis as the work progresses. Adjustments arising from changes in the estimates of contracts revenue or costs are reflected in the fiscal period in which such estimates are revised. Estimates are based on management’s reasonable assumptions, judgment and experience, but are subject to the risks inherent in estimates, including unanticipated delays or technical complications. Variances in actual results from related estimates on a large project, or on several smaller projects, could be material. The full amount of an estimated loss on a contract is recognized in the period that our estimates indicate such a loss. Such adjustments and accrued losses could result in reduced profitability, which could negatively impact our liquidity and results of operations.
We derive a significant portion of our revenue from a concentrated base of customers, and the loss of a small number of our significant customers, or a reduction in their demand for our services, could impair our financial performance.
Our business is concentrated among relatively few customers, and a significant proportion of our services are provided on a project-by-project basis. Although we have not been dependent upon any one customer, our revenue could significantly decline if we were to lose a small number of our significant customers, or if a few of our customers elected to perform the work that we provide with in-house service teams. In addition, our results of operations, cash flows and liquidity could be negatively affected if our customers reduce the amount of business they provide to us, or if we complete the required work on non-recurring projects and cannot replace them with similar projects. Many of the contracts with our largest customers may be canceled on short or no advance notice. Any of these factors could negatively impact our results of operations, cash flows and liquidity. See Note 1. Business, Basis of Presentation and Significant Accounting Policies and Note 10. Commitments and Contingencies, in the notes to audited consolidated financial statements, included in Item 8.
A drop in the price of energy sources other than solar or wind energy would adversely affect our results of operations.
We believe that a customer’s decision to invest in solar or wind projects, as opposed to other forms of electric power generation, is to a significant degree driven by the levelized cost of energy production. Changes in technology or cost of commodities could lessen the appeal of wind-generated electricity and other renewables relative to other technologies for power generation. Similarly, government support for other forms of renewable or non-renewable power generation could make construction of wind and solar generating projects less attractive to customers economically. The ability of energy conservation technologies, public initiatives and government incentives to reduce electricity consumption could also lead to a reduction in the need for new generating capacity and in turn reduce demand for our services. If prices for electricity generated by wind or solar facilities are not competitive or demand for new production falls, our business, financial condition, results of operations, profitability, cash flows and growth prospects may be materially harmed.
Increases in the costs of fuel could reduce our operating margins.
The price of fuel needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the oil and gas producers, war and unrest in oil producing countries, regional production patterns and environmental concerns. Any increase in fuel costs could materially reduce our profitability and liquidity because most of our contracts do not allow us to adjust our pricing for such expenses.
We maintain a workforce based upon current and anticipated workloads. We could incur significant costs and reduced profitability from underutilization of our workforce if we do not receive future contract awards, if these awards are delayed, or if there is a significant reduction in the level of work we provide.
Our estimates of future performance and results of operations depend on, among other factors, whether and when we receive new contract awards, which affect the extent to which we are able to utilize our workforce. The rate at which we utilize our workforce is affected by a variety of factors, including our ability to manage attrition, our ability to forecast our need for services, which allows us to maintain an appropriately sized workforce, our ability to transition employees from completed projects to new projects or between internal business groups, and our need to devote resources to non-chargeable activities such as training or business development. While our estimates are based upon our good faith judgment, these estimates can be unreliable and may frequently change based on newly available information. In the case of large-scale
projects where timing is often uncertain, it is particularly difficult to predict whether and when we will receive a contract award. The uncertainty of contract award timing can present difficulties in matching our workforce size to our contract needs. If an expected contract award is delayed or not received, we could incur costs resulting from reductions in staff or redundancy of facilities, which could reduce our profitability and cash flows.
In the ordinary course of our business, we may become subject to lawsuits, indemnity or other claims, which could materially and adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
From time to time, we are subject to various claims, lawsuits and other legal proceedings brought or threatened against us in the ordinary course of our business. These actions and proceedings may seek, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination and other employment-related damages, breach of contract, property damage, environmental liabilities, multiemployer pension plan withdrawal liabilities, punitive damages and civil penalties or other losses, liquidated damages, consequential damages, or injunctive or declaratory relief. We may also be subject to litigation involving allegations of violations of the Fair Labor Standards Act and state wage and hour laws. In addition, we generally indemnify our customers for claims related to the services we provide and actions we take under our contracts, and, in some instances, we may be allocated risk through our contract terms for actions by our customers or other third parties.
Claimants may seek large damage awards and defending claims can involve significant costs. When appropriate, we establish reserves against these items that we believe to be adequate in light of current information, legal advice and professional indemnity insurance coverage, and we adjust such reserves from time to time according to developments. See Note 10. Commitments and Contingencies in the notes to the audited consolidated financial statements, which are included in Item 8. We could experience a reduction in our profitability and liquidity if our legal reserves are inadequate, our insurance coverage proves to be inadequate or becomes unavailable, or our self-insurance liabilities are higher than expected. The outcome of litigation is difficult to assess or quantify, as plaintiffs may seek recovery of very large or indeterminate amounts in these types of lawsuits or proceedings, and the magnitude of the potential loss may remain unknown for substantial periods of time. Furthermore, because litigation is inherently uncertain, the ultimate resolution of any such claim, lawsuit or proceeding through settlement, mediation, or court judgment could have a material adverse effect on our business, financial condition or results of operations. In addition, claims, lawsuits and proceedings may harm our reputation or divert management’s attention from our business or divert resources away from operating our business, and cause us to incur significant expenses, any of which could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Certain of our businesses have employees who are represented by unions or are subject to collective bargaining agreements. The use of a unionized workforce and any related obligations could adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Certain of our employees are represented by labor unions and collective bargaining agreements. Although all such collective bargaining agreements prohibit strikes and work stoppages, we cannot be certain that strikes or work stoppages will not occur despite the terms of these agreements. Strikes or work stoppages could adversely affect our relationships with our customers and cause us to lose business. Additionally, as current agreements expire, the Merger Agreement and the adjustments set forth therein, the aggregate purchase price for the Potential IEA Combination is expectedlabor unions may not be able to negotiate extensions or replacements on terms favorable to their members, or at all, or avoid strikes, lockouts or other labor actions from time to time that may affect their members. Therefore, it cannot be approximately $235,000,000. The consideration toassured that new agreements will be paidreached with employee labor unions as existing contracts expire, or on desirable terms. Any action against us relating to the Sellerunion workforce we employ could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our participation in multiemployer pension plans may subject us to liabilities that could materially and adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Substantially all of our union and collective bargaining agreements require us to participate with other companies in multiemployer pension plans. To the extent that U.S.-registered plans are underfunded defined benefit plans, the Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980 (collectively, ‘‘ERISA’’), which governs U.S.-registered multiemployer pension plans, subjects employers to substantial liabilities upon the employer’s complete or partial withdrawal from, or upon termination of, such plans. Under current law pertaining to employers that are contributors to U.S.-registered multiemployer defined benefit plans, a plan’s termination, an employer’s voluntary withdrawal from, or the mass withdrawal of contributing employers from, an underfunded multiemployer defined benefit plan requires participating employers to make payments to the plan for their proportionate
share of the multiemployer plan’s unfunded vested liabilities. These liabilities include an allocable share of the unfunded vested benefits of the plan for all plan participants, not only for benefits payable to participants of the contributing employer. As a result, participating employers may bear a higher proportion of liability for unfunded vested benefits if the other participating employers cease to contribute to, or withdraw from, the plan. The allocable portion of liability to participating employers could be more disproportionate if employers that have withdrawn from the plan are insolvent, or if they otherwise fail to pay their proportionate share of the withdrawal liability. We currently contribute, and in the past have contributed to, plans that are underfunded, and, therefore, could have potential liability associated with a voluntary or involuntary withdrawal from, or termination of, these plans. We currently do not have plans to withdraw from, and are not aware of related liabilities associated with these plans. However, there can be no assurance that we will not be assessed liabilities in the future. The Pension Protection Act of 2006 (the ‘‘PPA’’) requires that underfunded pension plans improve their funding ratios within prescribed intervals based on their level of underfunding, under which benefit reductions may apply and/or participating employers could be required to make additional contributions. In addition, if a multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service (the ‘‘IRS’’) may impose on the employers contributing to such a plan a non-deductible excise tax of 5% of the amount of the accumulated funding deficiency.
Based upon the information available to us from plan administrators as of December 31, 2018, several of the multiemployer pension plans in which we participate are underfunded and, as a result, we could be required to increase our contributions, including in the form of a combinationsurcharge on future benefit contributions. The amount of additional funds we may be obligated to contribute in the future cannot be estimated, as these amounts are based on future levels of work of the union employees covered by these plans, investment returns and the level of underfunding of such plans.
Withdrawal liabilities, requirements to pay increased contributions, and/or excise taxes in connection with any of the multiemployer pension plans in which we participate could negatively impact our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our financial results are based, in part, upon estimates and assumptions that may differ from actual results.
In preparing our consolidated financial statements in conformity with U.S. GAAP, management makes a number of estimates and assumptions that affect the amounts reported in our consolidated financial statements. These estimates and assumptions must be made because certain information used in the preparation of our consolidated financial statements is either dependent on future events or cannot be calculated with a high degree of precision from data available. In some cases, these estimates are particularly uncertain and we must exercise significant judgment. Key estimates include: 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 long-term construction contracts or other projects accounted for under the percentage-of-completion method, for which the recorded amounts require estimates of costs to complete projects, ultimate project profit and the amount of probable contract price adjustments; allowances for doubtful accounts; estimated fair values of goodwill and intangible assets, acquisition-related contingent consideration, investments in equity investees; asset lives used in computing depreciation and amortization; accrued self-insured claims; share-based compensation; other reserves and accruals; accounting for income taxes; and the estimated impact of contingencies and ongoing litigation. Actual results could differ materially from the estimates and assumptions that we use, which could have a material adverse effect on our results of operations, cash flows and liquidity. See Note 1. Business, Basis of Presentation and Significant Accounting Policies in the notes to IEA’s audited consolidated financial statements, which is included in Item 8.
We may have additional tax liabilities associated with our domestic operations and discontinued Canadian operations.
We are currently subject to federal and state income taxes in the United States. Management must exercise significant judgment in determining our provision for income taxes due to lack of clear and concise tax laws and regulations in certain jurisdictions. Tax laws may be changed or clarified and such changes may adversely affect our tax provisions. We are audited by various U.S. tax authorities and in the ordinary course of our business there are many transactions and calculations for which the ultimate tax determination may be uncertain. In addition, we have certain ongoing audits and tax disputes with tax authorities in Canada. Although we believe that our tax estimates are reasonable and that we maintain appropriate reserves for our potential liability, the final outcome of tax audits and related litigation could be materially different from that which is reflected in our financial statements.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.
We will be subject to income taxes in the United States, and our domestic tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely
affected by a number of factors, including:
changes in the valuation of our deferred tax assets and liabilities;
expected timing and amount of the release of any tax valuation allowances;
tax effects of stock-based compensation;
costs related to intercompany restructurings;
changes in tax laws, regulations or interpretations thereof; and
lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
Warranty claims resulting from our services could have a material adverse effect on our business.
We generally warrant the work we perform for a two year period following substantial completion of a project, subject to further extensions of the warranty period following repairs or replacements. Historically, warranty claims have not been material, but such claims could potentially increase. If warranty claims occur, we could be required to repair or replace warrantied items at our cost, or, if our customers elect to repair or replace the warrantied item using the services of another provider, we could be required to pay for the cost of the repair or replacement. Additionally, while we generally require that the materials provided to us by suppliers have warranties consistent with those we provide to our customers, if any of these suppliers default on their warranty obligations to us, we may incur costs to repair or replace the defective materials for which we are not reimbursed. The costs associated with such warranties, including any warranty-related legal proceedings, could have a material adverse effect on our results of operations, cash flows and liquidity.
We rely on information, communications and data systems in our operations.
Systems and information technology interruptions and/or breaches in our data security could adversely affect our ability to operate and our operating results or could result in harm to our reputation. We are heavily reliant on computer, information and communications technology and related systems in order to operate. From time to time, we experience system interruptions and delays. Our operations could be interrupted or delayed, or our data security could be breached, if we are unable to add software and hardware, effectively maintain and upgrade our systems and network infrastructure and/or take other steps to improve the efficiency of and protect our systems. In addition, our computer and communications systems and operations could be damaged or interrupted by natural disasters, power loss, telecommunications failures, computer viruses, acts of war or terrorism, physical or electronic break-ins and similar events or disruptions, including breaches by computer hackers and cyber-terrorists. Any of these or other events could cause system interruptions, delays and/or loss of critical data including private data, could delay or prevent operations, including the processing of transactions and reporting of financial results, processing inefficiency, downtime, or could result in the unintentional disclosure of customer or our information, which could adversely affect our operating results, harm our reputation and result in significant costs, fines or litigation. Similar risks could affect our customers and vendors, indirectly affecting us. While management has taken steps to address these concerns by implementing network security and internal control measures, there can be no assurance that a system failure or loss or data security breach will not materially adversely affect our financial condition and operating results.
Risks Related to IEA’s Industry and its Customers’ Industries
Economic downturns could reduce capital expenditures in the industries we serve, which could result in decreased demand for our services.
The demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the U.S. economy. During economic downturns, our customers may not have the ability to fund capital expenditures for infrastructure, or may have difficulty obtaining financing for planned projects. In addition, uncertain or adverse economic conditions that create volatility in the credit and equity markets may reduce the availability of debt or equity financing for our customers, causing them to reduce capital spending. This has resulted, and in the future could result, in cancellations of projects or deferral of projects to a later date. Such cancellations or deferrals could materially and
adversely affect our results of operations, cash flows and liquidity. These conditions could also make it difficult to estimate our customers’ demand for our services and add uncertainty to the determination of our backlog.
In addition, our customers are negatively affected by economic downturns that decrease the need for their services or the profitability of their services. During an economic downturn, our customers also may not have the ability or desire to continue to fund capital expenditures for infrastructure or may outsource less work. A decrease in related project work could negatively impact demand for the services we provide and could materially adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our customers may be adversely affected by market conditions and economic downturns, which could impair their ability to pay for our services.
Slowing conditions in the industries we serve, as well as economic downturns or bankruptcies within these industries, may impair the financial condition of one or more of our customers and hinder their ability to pay us on a timely basis. In difficult economic times, some of our clients may find it difficult to pay for our services on a timely basis, increasing the risk that our accounts receivable could become uncollectible and ultimately be written off. In certain cases, our clients are project-specific entities that do not have significant assets other than their interests in the project. From time to time, it may be difficult for us to collect payments owed to us by these clients. Delays in client payments may require us to make a working capital investment, which could negatively impact our cash flows and liquidity. If a client fails to pay us on a timely basis or defaults in making payments on a project for which we have devoted significant resources, it could materially and adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Our industry is highly competitive, which may reduce our market share and harm our financial performance.
We compete with other companies in most of the markets in which we operate, ranging from small independent firms servicing local markets to larger firms servicing regional and national markets. We also face competition from existing and prospective customers that employ in-house personnel to perform some of the services we provide. Additionally, organizations that have adequate financial resources and access to technical expertise and skilled personnel may become a competitor. Most of our customers’ work is awarded through a bid process. Consequently, although management believes reliability is often more important to customers than price, price is often the principal factor that determines which service provider is selected, especially on smaller, less complex projects. Smaller competitors sometimes win bids for these projects based on price alone due to their lower costs and financial return requirements. Additionally, our bids for certain projects may not be successful because of a customer’s perception of our relative ability to perform the work as compared to our competitors or a customer’s perception of technological advantages held by our competitors as well as other factors. Our business, financial condition, results of operations, profitability, cash flows and growth prospects could be materially and adversely affected if we are unsuccessful in bidding for projects or renewing our contracts, or if our ability to win such projects or agreements requires that we accept lower margins.
Many of the industries we serve are subject to customer consolidation, rapid technological and regulatory changes, and our inability or failure to adjust to our customers’ changing needs could result in decreased demand for our services.
We derive a substantial portion of our revenue from customers in the heavy civil and power generation industries, which are subject to consolidation, rapid changes in technology and governmental regulation. Consolidation of any of our customers, or groups of our customers, could result in the loss of one or more of these customers, or could affect customer demand for the services we provide. Additionally, changes in technology may reduce demand for the services we provide.
New technologies or upgrades to existing technologies by customers could reduce demand for our services. Technological advances may result in lower costs for sources of energy, which could render existing renewable energy projects and technologies uncompetitive or obsolete. Our failure to rapidly adopt and master new technologies as they are developed in any of the industries we serve could have a material adverse effect on our results of operations, cash flows and liquidity. Furthermore, certain of our customers face stringent regulatory and environmental requirements and permitting processes as they implement plans for their projects, any of which could result in delays, reductions and cancellations of projects, which could materially and adversely affect our business, financial condition, results of operations, profitability, cash flows and growth prospects.
Risks Related to Our Company and Our Common Stock
There may be future sales of our common stock or other dilution of our equity that could adversely affect the market price of our common stock. In connection with certain completed acquisitions, we have issued shares of our common stock, and
we additionally have the option to issue shares of our common stock instead of cash as consideration for future earn-out obligations.
We may agree to issue additional shares in connection with other future acquisition or financing transactions, which, if issued, would dilute your share ownership and could lead to volatility in our common stock considerationprice. We grow our business organically as well as through acquisition. One method of acquiring companies or otherwise funding our corporate activities is through the issuance of equity securities. In connection with certain acquisitions, we have the option to issue shares of our common stock instead of paying cash for the related earn-out obligations. Such issuances could have the effect of diluting our earnings per share as well as our existing shareholders’ individual ownership percentages and is subjectcould lead to certain adjustments describedvolatility in our common stock price.
We are not restricted from issuing additional common stock. The issuance of additional shares of our common stock in connection with future acquisitions, convertible securities or other issuances of our common stock, including restricted stock awards, restricted stock units and/or options, or otherwise, will dilute the ownership interest of our common shareholders. Sales of a substantial number of shares of our common stock or other equity-related securities in the
Merger Agreement. The cash consideration payable to Seller atpublic market could depress the
closing of the Potential IEA Combination (the "Closing"), assuming no adjustments, is $100,000,000. The stock consideration will be the total consideration less the cash consideration, with such stock consideration split 74.1% in the formmarket price of our common stock and
25.9% inimpair our ability to raise capital through the
formsale of
a newly-issued Series A Preferred Stock, subject toadditional equity or equity-linked securities. We cannot predict the
adjustments described in the Merger Agreement. For purposes of determining the number of shares of common stock issuable with respect to the portion of the consideration payable in common stock, the common stock will be valued at $10.00 per share. The foregoing consideration to be paid to Seller may be further increased by up to 9,000,000 shares of common stock, which may be payable pursuant to an earn-out based upon the post-combination company achieving certain EBITDA targets in 2018 and/or 2019.In order to facilitate the Potential IEA Combination, our Sponsors and two of our directors will enter into an agreement at Closing pursuant to which they will agreeeffect that an aggregate of 1,874,999 sharesfuture sales of our common stock (representing approximately 50% of the founder shares (as defined below)) will be subject to vesting, half of which will vestor other equity-related securities would have on the first day upon which the closing salemarket price of theour common stock.
The market price of our common stock has been, and may continue to be, highly volatile.
The market price of our common stock on
Nasdaq Capital Market (“NASDAQ”)the NASDAQ has
equaled or exceeded $12.00 per share for any 20 trading day periodbeen volatile in
a 30 consecutive day trading period andrecent years. We may continue to experience significant volatility in the
other half of which will vest on the first day upon which the closing salemarket price of
theour common
stock on NASDAQ has equaled or exceeded $14.00 per share for any 20 trading day period in a 30 consecutive day trading period.Consummation of the transactions contemplated by the Merger Agreement is subject to customary conditions of the respective parties, including the approval of the Potential IEA Combination by our stockholders in accordance with our amended and restated certificate of incorporation and the completion of a redemption offer whereby we will be providing our public stockholders with the opportunity to redeem their shares of common stock for cash equal to their pro rata share of the aggregate amount on deposit in the trust account. A special meeting of stockholders to approve the Potential IEA Combination is scheduled for March 7, 2018.
For a detailed discussion of the Merger Agreement and related agreements, see the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission (“SEC”) on November 3, 2017. For the full text of the Merger Agreement, Amendment No. 1, Amendment No. 2, Amendment No. 3 and Amendment No. 4, see Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2017, Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 21, 2017, Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the SEC on December 27, 2017, Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the SEC on January 10, 2018 and Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the SEC on February 9, 2018. For additional information regarding IEA Services, the Merger Agreement and the Potential IEA Combination, see the definitive proxy statement filed by the Company with the SEC on February 9, 2018.
Other than as specifically discussed, this Report does not assume the closing of the Potential IEA Combination.
Objective and Business Opportunity
We have and will continue to focus our efforts on seeking and consummating an initial business combination with a company that has an enterprise value of between $350 million and $750 million, although a target entity with a smaller or larger enterprise value may be considered. While we may pursue an acquisition opportunity in any business industry or sector and in any geographic region, we have focused to date on businesses based in North America that engage primarily in the financial services, healthcare services and industrials sectors because we believe that this best combines the expertise and experience of our combined team with sectors that offer attractive investment opportunities.
It is our philosophy that capital has become increasingly commoditized and that successful investment results will come not from having capital alone, but rather from having the ability to accurately assess businesses with complex strategic, management and operational issues and the added expertise to deal with these issues in increasingly competitive and changing environments. We believe this to be particularly true during times of economic uncertainty, dislocations in capital markets and other conditions that create a challenge for businesses, and opportunities for investors with the right management team. In recognition of this, we have assembled a team of executives, directors and other advisors who blend traditional investment and acquisition expertise, management and operational expertise, and deep experience in financial, strategic and operational restructurings. We are confident that this team is capable of creating value in businesses that we acquire.
We believe that the broad experience and expertise of our combined team enable us to explore a wide range of potential acquisition targets. We target companies with strong business fundamentals and those which are in need of operational improvement and can thereby benefit from our human and financial capital. The members of our combined team have proven experience and track records in identifying, acquiring and improving businesses that have strong underlying fundamentals, but are undervalued due to company-specific issues, industry dislocation, limited access to capital, or other exogenousstock. Numerous factors that are fundamentally temporary in nature. Our combined team has played meaningful roles in contrarian investment situations with businesses requiring significant changes in strategy, enhancement of management or operational improvement, using our expertise in those areas to improve the businesses and drive ongoing growth.
We believe that the experience, capabilities and track record of our combined team will make us an attractive partner for potential target businesses, enhance our ability to complete a successful business combination and, thereafter, improve the performance of the business in order to create value for investors.
Our management team is led by Mohsin Meghji. Mr. Meghji serves as our Chairman and Chief Executive Officer. Mr. Meghji is the Managing Partner of M-III Partners and is a nationally recognized U.S. turnaround professional with a track record of building value across a wide range of sectors, including financial services, healthcare services and industrials. M-III Partners is a merchant banking, investment and restructuring advisory firm founded by Mr. Meghji whose philosophy and approach marries management and operations with financial expertise in order to enhance performance and create value. Mr. Meghji has over 25 years of advisory and management experience in building value in companies that are undergoing financial, operational or strategic transitions. He has accomplished this through both operating management and financial advisory roles, often in partnership with some of the world’s leading financial institutions, private equity firms and hedge fund investors.
Mr. Meghji has led the repositioning of, and driven value creation at, numerous businesses over the past two decades in an operating management or financial advisory capacity. Mr. Meghji’s most recent corporate management role was at Springleaf Holdings, LLC, a subprime consumer finance company (now known as OneMain Holdings, Inc.), where he served as Executive Vice President and Head of Strategy and as Chief Executive Officer of its captive insurance companies, Merit Life Insurance Co. and Yosemite Insurance Company. These insurance companies provided life, property and casualty insurance coverage to Springleaf’s customers. Springleaf was created in late-2010 when American International Group, Inc. sold 80% of its subsidiary, American General Finance Inc., to affiliates of Fortress Investment Group LLC. At the time of the sale, American General Finance Inc. provided consumer loans, retail financing and mortgages to more than one million families through more than 1,100 branches located across the United States, Puerto Rico, the Virgin Islands and the United Kingdom. After multiple years of operating losses, Springleaf turned profitable in 2013 as a result of the strategic, management and operational improvements implemented by its new ownership and management team, evidencing a significant turnaround in its performance. Springleaf went public (NYSE: LEAF) in October 2013 at a $1.95 billion valuation. As part of its senior management team and Head of Strategy for the company, Mr. Meghji played a key role in this successful transition.
Over the course of his career, Mr. Meghji, along with several of his colleagues at M-III Partners, has driven improvements in performance for numerous companies experiencing challenges. The following represents a sample of such cases:
| · | Mariner Health Care, Inc., one of the largest nursing home operators in the United States, with more than 400 locations containing more than 49,000 beds at the time of its bankruptcy filing. Mr. Meghji was retained in 1999 as turnaround advisor to the various private equity funds who controlled Mariner following its bankruptcy. During his tenure at Mariner, he worked with the investor group to develop the turnaround business plan, hired a new management team and served on the Board of Directors from 2002 – 2004. The business plan included significant overhead and cost reductions, facility rationalization and a significant investment in IT improvements. |
| · | Covanta Energy Corp., a national provider of waste management and energy generation services to municipal entities. Mr. Meghji was retained as Chief Restructuring Advisor to assist Covanta in the development of a business plan while restructuring through a Chapter 11 bankruptcy proceeding. While at Covanta, Mr. Meghji spearheaded a restructuring of the company’s operations through divestiture of non-core operations, increasing focus on the core “waste-to-energy” business, rationalizing the overall cost structure and enhancing the management team. |
| · | Masonite International Inc., one of the largest door manufacturers in the world. Mr. Meghji and Thomas Persteiner, who serves as one of our operating advisors, were initially retained in 2008 as financial advisors to debtholders who had taken control of Masonite during a Chapter 11 bankruptcy proceeding. At Masonite, Messrs. Meghji and Persteiner worked with a new management team to develop a turnaround business plan and manufacturing strategy. This business plan required significant overhead and other cost reductions in order to counter a massive decline in sales due to the global financial crisis. |
| · | Capmark Financial Group Inc., a leading commercial real estate finance company with businesses in commercial real estate lending and mortgage banking, investment and funds management, and servicing in North America, Asia and Europe. Capmark was the successor to GMAC’s Commercial Mortgage Business which was purchased by affiliates of Kohlberg Kravis Roberts & Co. L.P., Goldman Sachs and others in March 2006. Mr. Meghji was retained as Chief Restructuring Officer in 2009 and worked with Capmark’s management team to restructure the business through a Chapter 11 bankruptcy proceeding which culminated in 2011. |
In each of these cases and others, Mr. Meghji and his team successfully identified the value within the business, designed and implemented a business plan which maximized this value and enabled stockholders to realize this value. We caution that the historical results reflected above are not indicative of future results and no assurance can be given as to whether future transactions will achieve similar results.
Mr. Meghji’s management and restructuring expertise has been supplemented by the investment expertise of Suleman E. Lunat, who serves as our Executive Vice President and Head of Corporate Development, and investment professionals from M-III Partners. Collectively, Mr. Lunat and such investment professionals bring extensive experience in investment, mergers and acquisitions, finance, accounting, law, and other relevant disciplines.
In addition to leveraging the contacts and relationships held by our combined team to identify attractive acquisition opportunities, we benefit from the long-standing relationships held by the management, directors, operating advisors and other advisors of M-III Partners with owners of private and public companies, private equity funds, investment bankers, attorneys, accountants and business brokers. Certain key members of the M-III Partners team are active members of our combined team and the remainder of the professionals of M-III Partners are available to us to provide specific expertise on an as-needed basis. M-III Partners receives a regular stream of investment opportunities in the ordinary course of its business and these opportunities are made available to us prior to their review by M-III Partners for its own account.
Acquisition and Business Strategy
Target Industries of Focus
We focus primarily on identifying attractive acquisition candidates in the financial services, healthcare services and industrial sectors based in North America, but our search for business combination targets may extend across the wider range of industry sectors and geographies in which we believe that we can create stockholder value. We believe that our investment and operating expertise across multiple industry verticals will give us a large, addressable universe of potential targets in order to enable us to maximize our chances of completing a business combination in a timely manner and to maximize stockholder returns following such acquisition.
We have elected to focus our search for an initial business combination target on financial services, healthcare services and industrials because multiple members of our combined team have extensive experience and a successful track record of investment and management within those sectors. We believe that each of these three industries is currently experiencing some element of change or dislocation that is having a broad impact on businesses within the industry. Those businesses which have the capital and expertise to respond well will obtain a competitive advantage that should drive a disproportionate increase in shareholder value. We believe that this creates a significant opportunity for us to apply our human and financial capital to our initial acquisition target in order to capture this disproportionate increase in value for our stockholders.
Our experience and the broad rationale for our interest with respect to each of these three primary sectors for investment focus is as follows:
➤ Financial Services.
The financial services sector is a primary area of focus due to a combination of our combined team’s depth of experience in this industry and the opportunity that we perceive from the rapid change that is transforming the industry. Driven primarily by the after-effects of the global financial crisis, the imposition of the Dodd-Frank regulatory regime, potential and enacted regulatory changes under the Trump administration, as well as other regulatory and market events, financial services firms are being forced to reconsider their core strategies. We would expect that this change would be accelerated in an environment characterized by economic uncertainty, instability in capital markets and uncertain regulatory regimes. In many cases, non-regulated entities have the opportunity to play a more important role in providing services such as lending, specialty finance, insurance and asset management and regulated entities are electing to exit business lines. Concurrently, many smaller financial services firms are being forced to raise capital in order to satisfy regulatory requirements, finance necessary investment or exploit available growth opportunities. This trend may be reversed if proposed regulatory initiatives are implemented.
In addition to regulatory changes, the financial services industry is also being transformed by technological changes. Currently, new technologies are driving the conversion of traditional, relationship-driven market segments into online solutions as, for example, traditional money managers are seeing increasing competition from online management products and traditional consumer lenders are seeing increased competition from online lenders and loan brokers. Similarly, in areas such as payment processing and credit cards, long-established market leaders are facing new competition that is more convenient, secure and cost-effective than the traditional solutions. The changes wrought by these new technologies are forcing established companies to re-think their business models and strategies. Many of these companies have a sustainable business, but are challenged by identifying their key competitive strengths in this new environment or obtaining the capital needed to adapt.
We believe that regulatory and technological change will continue to drive industry dislocation for the foreseeable future, despite growing demand for financial services. We believe that this creates opportunity for an investment team with deep expertise in the financial services industry, such as us, to create value.
Members of our combined team have extensive experience in a wide variety of sectors in the financial services industry, having been involved in a variety of capacities in companies such as Springleaf, Capmark, Berkadia Commercial Mortgage, Hunt Mortgage Group, American International Group, John Hancock Financial Services, MacKay Shields, LLC and Pioneer Investments USA. We also believe that we have access to a deep roster of professional contacts in the industry, resulting from decades of our combined team’s analysis, investment and restructuring of companies within these sectors. These include senior executives of private equity firms, commercial banks, investment banks, finance companies, insurance companies and asset managers. We believe that our relationships with these senior executives will provide us with access to investment opportunities from which we can seek an appropriate business combination target.
➤ Healthcare Services.
We believe that the healthcare services industry will provide attractive acquisition opportunities because it is experiencing rapid transformation and strong secular tailwinds. Factors such as demographic change, technological change and the rising incidence of chronic disease will, we believe, drive increasing demand for various healthcare and healthcare-related services. For example:
| · | in itsHealth, United States, 2015 report, the Centers for Disease Control reported that the average life expectancy in the United States increased from 76.8 years in 2000 to 78.8 years in 2014; and |
| · | the Administration for Community Living of the US Department of Health and Human Services reports that the number of Americans who are 65 or older is projected to increase from 40.2 million in 2010 to 54.8 million in 2020 and then to 72.0 million by 2030. |
Although the aging population and rising incidence of chronic disease drive demand for increased healthcare services, this increased demand is offset by a global focus on reducing the cost of healthcare delivery and payment based upon successful outcomes (rather than volume or cost).
Concurrently with this increase in demand for healthcare services and changes in delivery and reimbursement models, the healthcare services industry is also being transformed by technological change. These changes include advances in both hardware and software that can provide more effective and efficient delivery of healthcare services. Notably, the introduction of online medical records and network-enabled diagnostic equipment has created the ability to collect large quantities of real-time patient data. Similarly, improved data analysis technologies are enabling both providers and consumers of healthcare services to identify the factors that produce the most positive outcomes in order to develop the most cost-effective solutions.
Potential and enacted regulatory changes under the Trump administration also may significantly alter the economics of, and opportunities and challenges for, businesses in the healthcare sector.
These changes are forcing businesses in the healthcare services sector to adapt to new conditions. Some of these businesses are successfully navigating these changes with internal resources, but many others require additional financing or management expertise to address this rapidly changing business environment. These changes have triggered a wave of merger and acquisition activity within the industry, as companies seek acquisitions to achieve scale or obtain technologies that are perceived as necessary to thrive in this new environment, while simultaneously divesting non-core assets in order to preserve high growth rates in a cost-sensitive environment.
Members of our combined team have significant management experience in the healthcare services sector, having been involved in a variety of capacities in companies such as HealthSouth Corporation, Mariner, Interim HealthCare, Medical Staffing Network, Gyrus ACMI, Tender Loving Care Home Health Care, American HomePatient and Rotech. From this experience, we understand the regulatory and insurance reimbursement complexities that are inherent in managing healthcare services companies, as well as the unique challenges of managing multi-locational healthcare businesses. While the regulatory and reimbursement regime can be complex and may deter many investors, a knowledgeable management team, such as ours, can navigate those complexities in order to drive growth.
We believe that the healthcare services sector offers to us a large pool of potential acquisition candidates and that our extensive range of contacts within the industry will provide us with access to a stream of potential investment opportunities. When coupled with our specialized expertise in this sector, we believe that we will possess a competitive advantage as we source and act upon investment opportunities in the sector.
➤ Industrials.
We believe that industrial companies today are facing a changing operating environment that is having a significant impact on profitability. Changes in market demand, end-buyer preferences, technology, regulation, currency, input costs and manufacturing costs are ongoing. These changes cancould have a significant impacteffect on the sizeprice of our common stock, including:
announcements of fluctuations in our operating results or the operating results of one of our competitors;
market conditions in our customers' industries;
capital spending plans of our significant customers;
global and growth ratedomestic energy prices;
announcements by us or one of variousour competitors of new or terminated customers or new, amended or terminated contracts;
announcements of acquisitions by us or one of our competitors;
changes in recommendations or earnings estimates by securities analysts; and
future sales of our common stock.
In addition, the stock market
segmentshas experienced significant price and
on the competitive position of the assets and business models that serve them. Moreover, the effect of these changes on many industrial companies hasvolume fluctuations in recent years, which have sometimes been
magnified by the forces of globalization and by continuing global economic instability.The industrial dynamics described above create both opportunities and threats, including (i) end markets can growunrelated or shrink, (ii) capacity can be long or short and (iii) a given asset type or business model can become advantaged or not. Under any of these circumstances, management teams may or may not accurately diagnose how bestdisproportionate to respond. This constant interplay between the changing environment and individual companies’ evolving strategies creates the potential for situations in which assets are mispriced relative to their potential. This is particularly trueoperating performance. Volatility in the middle market where many industrial companies lack the resourcesprice of our common stock could cause shareholders to navigate this complex business environment.
We believe thatlose some or all of these changes are driving the need for adjustments to strategy, operations and capital structure that create opportunity for us to acquire an industrial company and enhance its value. Whether the challenge arises from globalization, technology or other causes, we believe that the changing environment for industrial companies has made management skill a significant competitive advantage for an industrial company. Those industrial companies that have strong management and sufficient financial resources will become industry leaders, while those who are unable to recognize or adapt to the changing environment will fall behind.
We have assembled a team of executives, directors, operating advisors and others who have a broad range of experience, enabling us to provide the financial and management resources necessary for an industrial company to thrive in today’s competitive environment. Members of our combined team have successfully transformed industrial companies in multiple industry segments by re-designing strategy, enhancing management capabilities and improving operations. They have been involved in a variety of capacities in companies such as GKN plc, Johnson Controls, Volvo Truck, GE Aerospace, Electrical Components International, Standard Pacific Corporation and Champion Home Builders. Members of our combined team have successfully transformed struggling industrial companies in multiple industry segments by re-designing strategy, enhancing management capabilities and improving operations. In the course of these efforts, they have created substantial value. We believe that our team will provide us with skilled resources to source, analyze, negotiate and close an attractive initial business combination, as well as to provide us with additional expertise and insights as we work to maximize value of the companies that we acquire.
Acquisition Criteria
Our management team is committed to efficiently and effectively identifying and conducting due diligence on appropriate acquisition targets in order to maximize our opportunity to consummate a business combination. Based upon the experience of our combined team, we have identified a variety of criteria and guidelines that we expect to apply when evaluating any potential acquisition. These include:
| Ø | Underlying Fundamentals of the Target Business. The factors that we will evaluate in determining whether the underlying fundamentals of a target business meet our anticipated criteria include: Its financial condition and historical results of operation; our expectations of projected performance; the industry in which it operates; its brand recognition and potential; the experience and skill of existing management and availability of additional personnel; any additional capital requirements; its competitive position; any barriers to entry for potential competitors in the relevant industry; the stage of development of its key existing and potential products, processes or services; existing distribution channels for its products and potential for expansion; the degree of current or potential market acceptance of the products, processes or services; any proprietary aspects of products and the extent of intellectual property or other protection for products or formulas; and industry leadership, sustainability of market share and attractiveness of market industries in which the business participates. |
| Ø | External Factors Affecting the Target Business. The external factors affecting the target business that we anticipate we will evaluate include: The impact of regulation on the business; the regulatory environment of the industry; and the specific competitive dynamics in the industry within which the company competes. |
| Ø | Anticipated Contribution that our Combined Team can Make to Growth of the Business. The factors that we will evaluate in determining the anticipated contribution that our combined team can make to the growth of the target business include: The scope of experience and skills possessed by our combined team in the relevant business and industry; the need for additional capital or management support required by the target business; and the value of our expertise in strategy, management and operations to the business. |
| Ø | Opportunity for Superior Investment Return. The factors that we will evaluate in determining whether we are likely to obtain a superior return on ourtheir investment in the business include: the valuation at which our investment is made; the appropriateness of the business for public capital markets; the potential for growth from add-on acquisitions; the potential for profitable, organic long-term growth; and the costs associated with effecting the business combination. |
We anticipate that we will find the greatest number of opportunities for our initial business combination among middle market companies with aggregate enterprise value of approximately $350 million to $750 million, as determined in the sole discretion of our officers and directors according to reasonably accepted valuation standards and methodologies.
We believe that our investment results will be strongest when our expertise and resources can meaningfully contribute to the management and growth of the acquired business. This includes situations such as:
| Ø | Strategic or Operational Improvements. Our combined team has significant and successful experience in investing in, and working with, companies where there is an opportunity to effect meaningful operational improvements or derive meaningful benefit from a change in strategy. |
| | Members of our combined team have worked with such companies as investors, senior management, board members and consultants. We intend to tailor our approach to working with the target company’s management team to address the unique challenges and opportunities they face. Our combined team has the versatility and flexibility to allow us to provide strategic guidance as board members or to take on direct senior leadership roles to design and implement operational improvements or strategic change at the target company. |
| Ø | Value-Added Capital for Growth and/or Consolidation Opportunities. Over decades of combined investment experience, our combined team has developed significant expertise in successfully identifying and investing in companies that are achieving rapid and profitable organic growth and growth through strategic initiatives. Our combined team also has a long and successful track record in managing businesses of this nature. Through this experience, we have found that management teams vary in their ability to recognize growth opportunities and take advantage of them. It is our current intent to target companies whose management teams recognize the opportunities in their industry, but lack the capital to take advantage of those opportunities or could benefit from our combined team’s years of business experience in order to most effectively take advantage of those opportunities. |
| Ø | Established Companies in an Industry Experiencing Dislocation. We may seek to acquire an established company operating in an industry undergoing dislocation. Industries typically experience dislocation when faced with, among other things, supply and demand imbalances, new technology entrants, cyclicality and legal or regulatory challenges. We view episodes of industry dislocation as opportunities to acquire a company at an attractive multiple and invest in strengthening the long-term market position of the company over its competitors. The history of our combined team in successfully managing companies during periods of dislocation makes this a criterion that we will particularly seek as we identify appropriate business combination targets. |
| Ø | Complex or Out-of-Favor Businesses. Our management team believes that businesses that have situational complexity or operate in industries that have fallen out-of-favor with investors can provide attractive investment opportunities. Within a business, situational complexity can often arise from business, legal, regulatory or capital structure issues. Our combined team has a successful record of managing investments and operating improvements in complex or out-of-favor businesses by applying tailored solutions that drive value creation. Recognizing that capital today is becoming commoditized, we believe that it is the management skills of our combined team and our experience in managing complex situations that provide us with our greatest strategic advantage. |
| Ø | Ownership Transition Transaction. In our experience, acquisition opportunities for good businesses periodically arise when the external needs of the current owner restrict further investment in the business. These restrictions can arise from changing corporate priorities, financial distress within the owner, contractual divestiture requirements applicable to private equity funds, or other factors. In situations of this nature, it is not unusual for the seller to seek to retain a meaningful stake in the business in order to preserve the opportunity for further appreciation. We expect to actively seek out opportunities to acquire businesses of this nature in which we believe that the underlying business fundamentals justify the investment cost and provide a strong opportunity to achieve superior investment returns. Moreover, we believe that our close relationships with private equity firms will provide us with access to investment opportunities of this nature. |
| Ø | Deleveraging Transaction. Our combined team’s extensive relationships with lenders and private equity firms, as well as their prior experience in making deleveraging investments, should position us well to source and execute a recapitalizing acquisition. We believe that the record issuance of high yield debt and leveraged loans from 2011 through the first half of 2015 will lead to an increase in companies that will need to de-lever within the next two years. As opposed to distressed debt funds and investors, we believe we would be a preferred refinancing/de-leveraging solution to owners and management teams of middle-market companies. |
| Ø | “Partnership” Sale. We may seek to acquire one or more companies from a current owner, private equity or otherwise, who would like to retain a meaningful stake in the company to preserve and enhance potential upside. As a source of public equity capital, we believe that we will be well-positioned to provide liquidity to such an owner and expect that potential acquisition targets and partners would view the contribution to be made by our combined team as a positive factor in reviewing any acquisition proposal from us. We also could be an attractive financial and operating partner for a private equity firm that sees compelling acquisition opportunities, but may be already fully-invested. |
The criteria and situations described above are not intended to be exhaustive and our evaluation of any particular initial business combination may reflect other considerations, factors and criteria deemed relevant by our management in effecting the relevant transaction, consistent with our business objective and strategy. Additionally, our management team may prioritize the importance of those factors differently when evaluating different target businesses, based upon our experiences with investments and acquisitions in the relevant industry.
Acquisition Process
In implementing the strategy described above, we have undertaken a disciplined approach to identifying, analyzing, negotiating, documenting and consummating any business combination and have developed investment policies and procedures that are intended to allow us to respond quickly to opportunities, while preserving the quality of our investment approval process.
Sourcing of Potential Acquisition Targets
Each member of our combined team is tasked with the responsibility for identifying and introducing to us potential business combination targets in order to provide a steady flow of investment opportunities. Our combined team are all highly experienced in their fields and have been selected with the goal of ensuring that we have the contacts and expertise needed to source our initial business combination target and add-on acquisitions. Each of them has developed a broad network of contacts and corporate relationships and has committed to using those contacts and relationships to assist us in sourcing investment opportunities.
Our combined team has developed its network of contacts and relationships though personal experience in sourcing, acquiring, operating, developing, growing, financing and selling businesses, as well as executing transactions under varying economic and financial market conditions. Members of our combined team have served as executive officers or directors of financial services, healthcare services and industrial companies such as Bluestem Group Inc. (formerly known as Capmark Financial Group Inc.), Mariner Health Care Inc., iStar Financial Inc., Champion Home Builders, Springleaf Financial, John Hancock Financial Services, Ormet Corporation and Standard Pacific Corp. Through the professional experiences of our combined team, we have access to senior management of companies in our target industries (i.e., financial services, healthcare services and industrials) and others, as well as to executives and senior leaders of commercial banks, investment banks, private equity funds and hedge funds, who either hold business combination targets within their portfolios or otherwise can introduce us to valuable investment contacts. In addition, key members of our combined team have long-standing and strong relationships with senior players in the restructuring industry (such as financial advisors, distressed debt traders and investors, lenders, accounting firms, law firms and others).
We are
confident that these networks of contacts and relationships are important sources of investment opportunities, both by making introductions to specific opportunities and by providing us with investment ideas and targets that we can investigate through our internal resources. We also anticipate that this network will provide our management team with introductions to opportunities which are proprietary or where a limited group of investors is invited to participate in the sale process.Investment Process
In evaluating a prospective target business, we expect to conduct a thorough and extensive due diligence review, which will encompass, among other things, meetings with incumbent management and employees, document reviews and inspection of facilities, and review of financial and other information that is made available to us.
We believe that our combined team is uniquely qualified to conduct a thorough diligence examination and understand the risks and opportunities inherent in the business of a particular company. In addition to the substantial management and operating experience of our combined team, key members of our combined team have extensive expertise in managing businesses in a wide variety of industries through financial and operational restructurings. Though this experience, we have built an expertise in quickly and efficiently identifying the risks, inefficiencies and opportunities for a business. We have also developed expertise in identifying management strengths and weaknesses, so that we can provide support where appropriate and otherwise make difficult, but often essential, management changes.
Our combined team also is well-qualified to undertake the financial analysis necessary to determine whether a particular business is an attractive business combination candidate. Members of our combined team have a diverse professional backgrounds and qualifications, including experience as investment bankers, “buy-side” investment professionals and restructuring advisors. Our combined team possesses valuable professional credentials and certifications, including certified turnaround professionals, chartered accountants, CPA’s, MBA’s and law degrees.
Our experience has shown us that successful acquisition transactions result not just from thorough diligence and attractive deal terms, but also from intangible factors, such as personal relationships and trust. Our combined team is well-versed in the art and science of negotiating investment and acquisition transactions, having been involved in a wide variety of such transactions during their careers. We also have found that trust which is built with the business management team during the diligence and negotiation stages of a transaction often provide the glue that binds the team together and allows difficult decisions to be made more easily after the transaction closes. Through our professional experience, we have learned how to delicately balance the conflicting goals of obtaining the best transaction terms for our investors and maintaining a strong relationship with the seller“emerging growth company” and the business management team. We believe that this, when coupled withreduced disclosure requirements applicable to “emerging growth companies” may make our management experience, allows us to act more quickly and effectively to make the changes needed to improve management and operational efficiency of a business and build value.
Initial Business Combination
NASDAQ rules require that our initial business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of our signing a definitive agreement in connection with our initial business combination. If our board is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm that is a member of the Financial Industry Regulatory Authority, or FINRA, or a qualified independent accounting firm with respect to the satisfaction of such criteria.
We anticipate structuring our initial business combination so that the post-transaction company in which our public stockholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or stockholders or for other reasons, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses.
We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm which is a member of FINRA or a qualified independent accounting firm that our initial business combination is fair to our company from a financial point of view.
Members of our management team may directly or indirectly own common stock and warrants following our initial public offering, and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with whichless attractive to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination. For additional information regarding our executive officers’ and directors’ business affiliations, see “Management — Directors and Executive Officers”.
Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to another entity pursuant to which such officer or director is required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, and only present it to us if such entity rejects the opportunity. We do not believe, however, that the fiduciary duties or contractual obligations of our executive officers will materially affect our ability to complete our business combination. Our amended and restated certificate of incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue.
Our executive officers have agreed, pursuant to a written letter agreement, not to participate in the formation of, or become an officer or director of, any other blank check company until we have entered into a definitive agreement regarding our initial business combination or we have failed to complete our initial business combination by July 12, 2018.
Status as a Public Company
We believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. Although there are various costs and obligations associated with being a public company, we believe target businesses will find this process a more certain and cost-effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, road show and public reporting efforts that may not be present to the same extent in connection with a business combination with us.
Furthermore, once a proposed business combination is completed, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well as general market conditions, which could prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders’ interests. It can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. Among other things, we will not be required to (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (2) comply with any new rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, (4) comply with any new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies under Section 102(b) of the JOBS Act, (5) provide certain disclosure regarding executive compensation required of larger public companies, or (6) hold a nonbinding
advisory vote on executive compensation and obtain shareholder approval of any golden parachute payments not previously approved.
Accordingly, the information that we provide shareholders in this annual report and in our other filings with the SEC may be different than what is available with respect to other public companies. In particular, as we have elected to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We cannot predict if investors will find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and adversely affected. In addition, as we are not required to have our auditors formally attest to and report on the effectiveness of our internal control over financial reporting, we cannot predict the outcome of testing in future periods. If, once we are no longer an “emerging growth company,” our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
We will remain an
emerging“emerging growth
companycompany” until the
earlierearliest of (1) the last day of the
first fiscal year
(a) following the fifth anniversary of the completion of our initial public offering, (b) in which
we haveour total annual gross
revenue of at leastrevenues exceed $1.07 billion,
or (c) in(2) the date on which we are deemed to be a
large“large accelerated filer,
” as defined in Rule 12b-2 under the Exchange Act or any successor statute, which
meanswould occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the
prior June 30th, and (2)last business day of our most recently completed second fiscal quarter, (3) the date on which we have issued more than
$1.0$1 billion in non-convertible debt during the
priorpreceding three-year
period.Financial Position
With funds available for a business combination currently inperiod, and (4) the amount of $151,428,395 (including amounts held outside the trust account at December 31, 2017), assuming no redemptions and after payment of $6,000,000 of deferred underwriting fees, we offer a target business a variety of options. These include, among other things, creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to complete our business combination using our cash, debt or equity securities, or a combinationend of the foregoing, we havefiscal year following the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing (other than financing to be provided by the Seller with respect to the Potential IEA Combination, as described in the Merger Agreement) and there can be no assurance it will be available to us.
Effecting our Initial Business Combination
General
We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination using cash from the proceeds of our initial public offering and the private placementfifth anniversary of the private placement units, our capital stock, debt or a combination of these as the consideration to be paid in our initial business combination. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses.
If our initial business combination is paid for using stock or debt securities, or not alldate of the funds released from the trust account are used for payment of the consideration in connection with our business combination or used for redemptions of purchasesfirst sale of our common stock we may applypursuant to an effective registration statement filed under the balance of the cash releasedSecurities Act, or July 6, 2021.
M III and Oaktree have significant ability to
us from the trust account for generalinfluence corporate
purposes, including for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, funding for the purchase of other companies or for working capital.Although our management will assess the risks inherent in a particular target business with which we may combine, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outsidedecisions.
Oaktree and M III beneficially own approximately 48.0% and 9.5%, respectively, of our common stock as of December 31, 2018. These ownership percentages take into account both the vested founder shares and unvested founder shares.
As long as M III or Oaktree own or control
meaning that we can do nothing to control or reduce the chances that those risks will adversely impact a
target business.We may seek to raise additional funds through a private offering of debt or equity securities in connection with the completionsignificant percentage of our initial business combination, and we may effectuate our initial business combination using the proceeds of such offering rather than using the amounts held in the trust account. Subject to compliance with applicable securities laws, we would complete such financing only simultaneously with the completion of our business combination. In the case of an initial business combination funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of the financing and, only if required by law, we would seek stockholder approval of such financing. There are no prohibitions on our ability to raise funds privately or through loans in connection with our initial business combination. At this time, we are not a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities or otherwise.
Origination and Sourcing of Target Business Opportunities
We believe our combined team’s extensive investment and transaction experience, along with relationships with intermediaries and companies, will provide us with a substantial number of potential business combination targets. Over the course of their careers, the members of our combined team have developed a broad network of contacts and corporate relationships around the world. This network has been developed over the course of over 25 years, in the case of our Chairman and Chief Executive Officer.
We believe that the combined team’s network of existing contacts and relationships will be able to deliver a flow of potential platform and add-on acquisition opportunities which are proprietary or where a limited group of established, credentialed buyers have been invited to participate in the sale process. In addition, we anticipate that target business candidates will continue to be brought to our attention from various unaffiliated sources, including investment market participants, private equity funds and large business enterprises seeking to divest non-core assets or divisions.
We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, executive officers or directors, or making the acquisition through a joint venture or other form of shared ownership with our sponsor, executive officers or directors. In the event we seek to complete an initial business combination with a target that is affiliated with our sponsor, executive officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or a qualified independent accounting firm that such an initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context.
If any of our executive officers becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has pre-existing fiduciary or contractual obligations, he or she may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us. Certain of our executive officers currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us. Our amended and restated certificate of incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue.
We anticipate that target business candidates will also continue to be brought to our attention from various unaffiliated sources, including investment bankers, private investment funds and other intermediaries. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses in which they think we may be interested on an unsolicited basis, since many of these sources will have read the prospectus relating to our initial public offering and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive a number of proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the track record and business relationships of our officers and directors.
Selection of a target business and structuring of our initial business combination
NASDAQ rules provide that our initial business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of our signing a definitive agreement in connection with our initial business combination. The fair market value of the target or targets will be determined by our board of directors based upon one or more standards generally accepted by the financial community, such as discounted cash flow valuation or value of comparable businesses. If our board is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from independent investment banking firm that is a member of FINRA or a qualified independent accounting firm with respect to the satisfaction of such criteria. Subject to this requirement, our management has virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses, although we are not permitted to effectuate our initial business combination with another blank check company or a similar company with nominal operations.
In any case, we will only complete an initial business combination in which we own or acquire 50% or more of the outstanding voting securities of the target or otherwise acquire a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. If we own or acquire less than 100% of the equity interests or assets of a target business or businesses, the portion of such business or businesses that are owned or acquired by the post-transaction company is what will be valued for purposes of the 80% of net assets test.
To the extent we effect our business combination with a company or business that may be financially unstable or in its early stages of development or growth we may be affected by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which our business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination.
Lack of business diversification
For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By completing our business combination with only a single entity, our lack of diversification may:
| ➤ | subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination, and |
| ➤ | cause us to depend on the marketing and sale of a single product or limited number of products or services. |
Limited ability to evaluate the target’s management team
Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our business combination with that business, our assessment of the target business’s management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more of our directors will remain associated in some capacity with us following our business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business.
We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination.
Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that wepower, they will have the ability to recruit additional managers,significantly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of our Board, any amendment to our certificate of incorporation or thatbylaws, or the additional managers will have the requisite skills, knowledgeapproval of any merger or experience necessary to enhance the incumbent management.
other significant corporate transaction, including a sale of substantially all of our assets. Stockholders may not have the ability to approve our initial business combination
We may conduct redemptions without a stockholder vote
In addition, pursuant to the
tender offer rulesterms of the
SEC. However, weInvestor Rights Agreement, each of Oaktree, on the one hand, and M III, on the other hand, will
seek stockholder approval if it is required by lawhave consent rights over certain matters for so long as Oaktree or
applicable stock exchange rule,M III, respectively, directly or
we may decide to seek stockholder approval for business or other legal reasons. Presentedindirectly, beneficially own at least fifty percent (50%) of the Common Stock (including unvested founder shares, in the
table below is a graphic explanationcase of the
typesM III) beneficially owned by the Selling Stockholders or the Sponsors, respectively, as of
initial business combinations we may consider and whether stockholder approval is currently required under Delaware law for each such transaction.Type of Transaction | | Whether
Stockholder
Approval is
Required |
Purchase of assets | | No |
Purchase of stock of target not involving a merger with the company | | No |
Merger of target into a subsidiary of the company | | No |
Merger of the company with a target | | Yes |
Under NASDAQ’s listing rules, stockholder approval would be required for our initial business combination if, for example:
| ➤ | we issue common stock that will be equal to or in excess of 20% of the number of shares of our common stock then outstanding; |
| ➤ | any of our directors, officers or substantial shareholders (as defined by NASDAQ rules) has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of common stock could result in an increase in outstanding shares of common stock or voting power of 5% or more; or |
| ➤ | the issuance or potential issuance of common stock will result in our undergoing a change of control. |
Permitted purchases of our securities
In the event we seek stockholder approval of our business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase shares in such transactions. They will not make any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. We have adopted an insider trading policy which requires insiders to: (i) refrain from purchasing shares during certain blackout periods and when they are in possession of any material nonpublic information and (ii) clear all trades with our legal counsel prior to execution. We cannot currently determine whether our insiders will make such purchases pursuant to a Rule 10b5-1 plan, as it will be dependent upon several factors, including but not limited to, the timing and size of such purchases. Depending on such circumstances, our insiders may either make such purchases pursuant to a Rule 10b5-1 plan or determine that such a plan is not necessary.
In the event that our sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will comply with such rules.
The purpose of such purchases would be to (i) vote such shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval of the business combination or (ii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our business combination, where it appears that such requirement wouldincluding:
entering into, waiving, amending or otherwise
not be met. This may result inmodifying the
completionterms of
our business combination that may not otherwise have been possible.In addition, if such purchases are made,any transaction or agreement between the public “float”Company or any of our common stock may be reducedits subsidiaries, on the one hand, and (a) the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.
Our sponsor, officers, directors and/M III or their affiliates anticipate that they may identifyor any affiliate of the stockholders with whom our sponsor, officers, directorsCompany, on the other hand (in the case of Oaktree), other than the exercise of any rights under certain existing agreements (without giving effect to any subsequent amendments) or (b) certain Selling Stockholders, Oaktree or their affiliates (in the case of the M III), subject to certain exceptions, and other than the exercise of any rights under certain existing agreements (without giving effect to any subsequent amendments);
hiring or removing the Chief Executive Officer or any other executive officer of the Company or its subsidiaries; or
except as contemplated by the Investor Rights Agreement, increasing or decreasing the size of the Board.
M III and Oaktree will also have ongoing rights to nominate one or two directors, depending on the ownership interests of Oaktree or the M III, respectively, and, in the case of an increase in the size of the Board or an increase in their respective ownership percentages, additional directors proportional to their respective ownership percentages.
In addition, Oaktree’s consent will be required under the terms of the Certificate of Designation for the Company and its subsidiaries to take certain actions, including:
Creating, authorizing or issuing any stock that ranks senior to or on parity with the Series A Preferred Stock with
respect to payment of dividends or upon liquidation, any capital stock that votes as a single class with the holders of Series A Preferred Stock with respect to the consent rights granted pursuant to the Certificate of Designation, or any stock of any subsidiary of the Company (with certain exceptions);
Reclassifying or amending any capital stock if it would render such capital stock senior to or on parity with the Series A Preferred Stock;
Entering into any agreement with respect to or consummating any merger, consolidation or similar event pursuant to which the Company or its subsidiary would not be the surviving entity if as a result of which any capital stock of such surviving entity would rank senior to or on parity with the Series A Preferred Stock;
Incurring or guaranteeing debt if as a result the Company and its subsidiaries would have aggregate debt in excess of $5,000,000 other than pursuant to the replacement credit facility or any refinancing thereof;
Authorizing or consummating any change of control event or liquidation (as described in the Certificate of Designation); or
Modifying the Certificate of Designation or other organizational document of the Company in a manner that would reasonably be expected to be materially adverse to the holders of Series A Preferred Stock.
The interests of M III or Oaktree may
pursue privately negotiated purchases by eithernot align with the
stockholders contacting usinterests of our other stockholders. M III and Oaktree are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or
byindirectly with us. M III or Oaktree may also pursue acquisition opportunities that may be complementary to our
receipt of redemption requests submitted by stockholders following our mailing of proxy materials in connection with our initial business,
combination. To the extent that our sponsor, officers, directors, advisors or their affiliates enter intoand, as a
private purchase, they would identify and contact only potential selling stockholders who have expressed their election to redeem their shares for a pro rata share of the trust account or vote against the business combination. Our sponsor, officers, directors, advisors or their affiliates will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws.Any purchases by our sponsor, officers, directors and/or their affiliates who are affiliated purchasers under Rule 10b-18 under the Exchange Act will only be made to the extent such purchases are able to be made in compliance with Rule 10b-18, which is a safe harbor from liability for manipulation under Section 9(a)(2) and Rule 10b-5 of the Exchange Act. Rule 10b-18 has certain technical requirements that must be complied with in order for the safe harbor toresult, those acquisition opportunities may not be available to the purchaser.us. Our sponsor,current certificate and our proposed certificate of incorporation also provides that M III and Oaktree and their respective partners, principals, directors, officers, directorsmembers, managers and/or their affiliates will not make purchases of common stock if the purchases would violate Section 9(a)(2) or Rule 10b-5employees, including any of the Exchange Act.
Redemption rightsforegoing who serve as officers or directors of the post-combination company, do not have any fiduciary duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the post-combination company or any of its subsidiaries.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly because of several factors, including:
| |
| ▪ | labor availability and costs for hourly and management personnel; |
| |
| ▪ | profitability of our products and services, especially in new markets and due to seasonal fluctuations; |
| |
| ▪ | changes in interest rates; |
| |
| ▪ | impairment of long-lived assets; |
| |
| ▪ | macroeconomic conditions, both nationally and locally; |
| |
| ▪ | negative publicity relating to products and services we offer; |
| |
| ▪ | changes in consumer preferences and competitive conditions; |
| |
| ▪ | expansion to new markets; and |
| |
| ▪ | fluctuations in commodity prices. |
Our articles of incorporation and certain provision of Delaware law contain anti-takeover provisions that could impair a takeover attempt.
As a Delaware corporation, anti-takeover provisions may impose an impediment to the ability of others to acquire control of us, even if a change of control would be of benefit to our stockholders. In addition, certain provisions of our
Articles of Incorporation and Bylaws also may impose an impediment or discourage others from a takeover.
These provisions include:
a staggered Board providing for
public stockholders upon completionthree classes of directors, which limits the ability of a stockholder or group to gain control of our
initial business combinationWe will provide our public stockholders with the opportunityBoard;
a prohibition on stockholder action by written consent, which forces stockholder action to redeem allbe taken at an annual or a portion of their shares of common stock upon the completionspecial meeting of our initial business combination at stockholders;
a per-share price, payable in cash, equalprohibition on stockholders calling a special meeting and the requirement that a special meeting of stockholders may only be called by (i) the chairman of our Board, (ii) our Chief Executive Officer, (iii) a majority of our Board, or (iv) directors designated by the Sponsors or Oaktree subject to the aggregate amount then on depositcertain conditions set forth in the trust account asInvestor Rights Agreement; and
the requirement that changes or amendments to certain provisions of two business days prior to the consummationour certificate of incorporation or bylaws must be approved by holders of at least two-thirds of the initial business combination, including interest (which interest shall be netCommon Stock of taxes payable), divided by the number of then outstanding public shares, subject to the limitations described herein. The amountpost-combination company and, in the trust accountcase of our Bylaws, in some cases 80% of the Common Stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
Our corporate headquarters, located in Indianapolis, Indiana, is a leased facility approximating 27,000 square feet. We also lease from an affiliate a 56,000 square foot office and 26,000 square foot maintenance facility in Clinton, Indiana. As of December 31, 2018, our operations were conducted from approximately 15 locations within the U.S. None of these facilities is material to our operations because most of our services are performed on customers’ premises or on public rights of way and suitable alternative locations are available in substantially all areas where we currently conduct business. We also own property and equipment that had a net book value of approximately $176.2 million as of December 31,
2017 was approximately $10.07 per public share. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our initial stockholders have entered into a letter agreement with us (and Cantor Fitzgerald has agreed as part of its unit purchase agreement), pursuant to which they have agreed to waive their redemption rights with respect to their founder shares, private placement shares2018. This property and
(except for Cantor Fitzgerald) any public shares they may hold in connection with the completionequipment includes trucks, tractors, trailers, forklifts, backhoes, sidebooms, bulldozers, excavators, trenchers, graders, loaders, scrapers, drilling machines, cranes, computers, computer software, office and building equipment, including furniture and fixtures and other equipment. Substantially all of our
business combination.Mannerequipment is acquired from third-party vendors, upon none of Conducting Redemptions
We will provide our public stockholders with the opportunitywhich we depend, and we did not experience any difficulties in obtaining desired equipment in 2018.
ITEM 3. LEGAL PROCEEDINGS
IEA is subject to redeem all or a portion of their shares of common stock upon the completion of our initial business combination either (i) in connection with a stockholder meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek stockholder approval of a proposed business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such aslegal cases, claims and other disputes that arise from time to time in the timingordinary course of its business. IEA cannot provide assurance that it will be successful in recovering all or any of the transactionpotential damages it has claimed or in defending claims against IEA. While the lawsuits and whetherclaims are asserted for amounts that may be material, should an unfavorable outcome occur, management does not currently expect that any currently pending matters will have a material adverse effect on our financial position, results of operations or cash flows. However, an unfavorable resolution of one or more of such matters could have a material adverse effect on IEA’s business, financial condition, results of operations and cash flows.
Carlitos Lopez v. Chicago Transit Authority, Parsons Brinkerhoff, Inc. and, Ragnar Benson, LLC is a lawsuit filed on January 11, 2019 in the termsCircuit Court of Cook County, Illinois, alleging claims for personal injury and premises liability arising out of an accident the transaction would require usplaintiff sustained during a construction project. The case was originally filed on March 10, 2014 in the Circuit Court of Cook County, Illinois, subsequently voluntarily dismissed by the plaintiff, and refiled. The plaintiff seeks an unspecified amount of damages in the refiled case. This case is currently in the filing stage. The Company continues to seek stockholder approvalvigorously defend itself; however, the Company cannot predict the outcome of this action. The Company believes it is covered by insurance for this matter.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders
Our common stock is listed on the NASDAQ stock market under the
law or stock exchange listing requirement. Asset acquisitions and stock purchases would not typically require stockholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20%symbol IEA. As of
our outstanding common stock or seek to amend our amended and restated certificateFebruary 8, 2019, there were 996 holders of
incorporation would require stockholder approval. We may conduct redemptions without a stockholder vote pursuant to the tender offer rules of the SEC unless stockholder approval is required by law or stock exchange listing requirement or we choose to seek stockholder approval for business or other legal reasons.If a stockholder vote is not required and we do not decide to hold a stockholder vote for business or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:
| ➤ | conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers, and |
| ➤ | file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about the initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. |
Upon the public announcement of our business combination, we or our sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase sharesrecord of our common stock inshares. Our warrants are listed on the open market if we elect to redeem our public shares through a tender offer, to comply with Rule 14e-5NASDAQ Capital Market under the Exchange Act.
In the event we conduct redemptions pursuant to the tender offer rules,symbol IEAW. As of February 8, 2019, there were 304 holders of record of our offer to purchase will remain open for at least 20 business days in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public stockholders not tendering more than a specified number of public shares which are not purchased by our sponsor, which number will be basedwarrants.
Dividend Policy
Our current credit facility includes certain limitations on the
requirement that we maypayment of cash dividends on our common shares. We have not
redeem public shares in an amount that would cause our net tangible assets upon consummation of our initial business combination to be less than $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules) orpaid any
greater net tangible asset or cash
requirement which may be contained in the agreement relating to our initial business combination. If public stockholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete the initial business combination.If, however, stockholder approval of the transaction is required by law or stock exchange listing requirement, or we decide to obtain stockholder approval for business or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:
| ➤ | conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and |
| ➤ | file proxy materials with the SEC. |
In the event that we seek stockholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public stockholders with the redemption rights described above upon completion of the initial business combination.
If we seek stockholder approval, we will complete our initial business combination only if a majority of the outstanding shares of common stock voted are voted in favor of the business combination. In such case, our initial stockholders have agreed to vote their founder shares, private placement shares and any public shares purchased during or afterdividends since our initial public offering and do not anticipate paying any cash dividends on our common shares in favorthe foreseeable future.
Stock Performance
The performance graph below compares the cumulative nine month total return for our common stock with the cumulative total return (including reinvestment of dividends) of the Russell Broadbased Index Total Return (“Russell 3000”), and with that of our initial business combination. Cantor Fitzgerald haspeer group, which is composed of MasTec, Inc., Quanta Services, Inc., MYR Group, Inc., Construction Partners, Inc., Emcor Corporation, Granite Construction, Inc., Tetra Tech, Inc., Willdan Group, Inc., Dycom Industries, Inc. and Primoris Services Corporation. The graph assumes that the value of the investment in our common stock, as well as that of the Russell 3000 and our peer group, was $100 on March 26, 2018 and tracks it through December 31, 2018. The comparisons in the graph are based upon historical data and are not committedintended to vote any private placement shares held by them in favorforecast or be indicative of possible future performance of our initial business combination. Ascommon stock.
The performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report into any filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such acts.
ITEM 6. SELECTED FINANCIAL DATA
The information below is only a result, we would need only 5,515,001summary and should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the accompanying notes included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| (in thousands, except per share data) | 2018 | | 2017 | | 2016 | | 2015 | | 2014(1) |
| Statement of Operations Data: | | | | | | | | | |
| Revenue | $ | 779,343 |
| | $ | 454,949 |
| | $ | 602,665 |
| | $ | 204,640 |
| | $ | 286,254 |
|
| Cost of revenue | 747,817 |
| | 388,928 |
| | 517,419 |
| | 184,850 |
| | 268,559 |
|
| Gross profit | $ | 31,526 |
| | $ | 66,021 |
| | $ | 85,246 |
| | $ | 19,790 |
| | $ | 17,695 |
|
| | | | | | | | | | |
| Selling, general and administrative expenses | $ | 72,262 |
| | $ | 33,543 |
| | $ | 30,705 |
| | $ | 27,169 |
| | $ | 31,377 |
|
| (Loss) income from operations | (40,736 | ) | | 32,478 |
| | 54,541 |
| | (8,907 | ) | | (15,343 | ) |
| Other (expense) income, net: | 32,038 |
| | (2,090 | ) | | (303 | ) | | 317 |
| | (728 | ) |
| | | | | | | | | | |
| Net income (loss) from continuing operations | $ | 4,244 |
| | $ | 16,525 |
| | $ | 64,451 |
| | $ | (8,696 | ) | | $ | (10,205 | ) |
| Net income (loss) from discontinued operations | — |
| | — |
| | 1,087 |
| | (19,487 | ) | | (76,636 | ) |
| Net income (loss) | $ | 4,244 |
| | $ | 16,525 |
| | $ | 65,538 |
| | $ | (28,183 | ) | | $ | (86,841 | ) |
| | | | | | | | | | |
Earnings Per Share Data:(2) | | | | | | | | | |
Net (loss) income from continuing operations per common share - basic(3) | $ | (2.01 | ) | | $ | 0.77 |
| | $ | 2.99 |
| | $ | (0.40 | ) | | $ | (0.47 | ) |
| Net income (loss) from discontinued operations per common share - basic | — |
| | — |
| | 0.05 |
| | (0.90 | ) | | (3.55 | ) |
| Net (loss) income per common share - basic | $ | (2.01 | ) | | $ | 0.77 |
| | $ | 3.04 |
| | $ | (1.30 | ) | | $ | (4.02 | ) |
| | | | | | | | | | |
| Cash Flow Data: | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 47,018 |
| | $ | (9,109 | ) | | $ | 53,591 |
| | $ | (5,617 | ) | | $ | (55,928 | ) |
| Net cash (used in) provided by investing activities | (169,834 | ) | | (3,508 | ) | | (3,000 | ) | | 352 |
| | (1,000 | ) |
| Net cash provided by (used in) financing activities | 189,250 |
| | (4,113 | ) | | (29,617 | ) | | 8,541 |
| | 39,405 |
|
| | | | | | | | | | |
| | As of December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Balance Sheet Data: | | | | | | | | | |
| Cash and cash equivalents | $ | 71,311 |
| | $ | 4,877 |
| | $ | 21,607 |
| | $ | — |
| | $ | — |
|
| Accounts receivable, net | 225,366 |
| | 60,981 |
| | 69,977 |
| | 37,594 |
| | 124,800 |
|
| Costs and estimated earnings in excess of billings on uncompleted contracts | 47,121 |
| | 18,613 |
| | 14,143 |
| | 16,016 |
| | 32,787 |
|
| Property, plant and equipment, net | 176,178 |
| | 30,905 |
| | 20,540 |
| | 14,152 |
| | 18,603 |
|
| Total assets | 639,228 |
| | 126,703 |
| | 147,716 |
| | 74,363 |
| | 194,637 |
|
| Accounts payable and accrued liabilities | 252,134 |
| | 70,030 |
| | 97,244 |
| | 79,043 |
| | 159,027 |
|
| Billings in excess of costs and estimated earnings on uncompleted contracts | 62,234 |
| | 7,398 |
| | 28,181 |
| | 15,902 |
| | 33,752 |
|
| Total debt | 328,307 |
| | 33,674 |
| | — |
| | 27,946 |
| | 39,405 |
|
| Total liabilities | 735,441 |
| | 136,722 |
| | 134,841 |
| | 150,207 |
| | 242,944 |
|
| Preferred stock | 34,965 |
| | — |
| | — |
| | — |
| | — |
|
| Total stockholders' (deficit) equity | (131,178 | ) | | (10,019 | ) | | 12,875 |
| | (75,844 | ) | | (48,307 | ) |
———
(1) Such information as of and for the year ended December 31, 2014 has been derived from unaudited consolidated financial statements.
(2) The calculation of weighted average common shares outstanding during the periods preceding a reverse recapitalization generally requires the Company to use the capital structure of the 15,000,000 public shares outstanding (approximately 36.8%) sold in our initial public offeringentity deemed to be voted in favor of our initial business combination in orderthe acquirer for accounting purposes to have such transaction approved. Each public stockholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction. In addition, our initial stockholders have entered into a letter agreement with us (and Cantor Fitzgerald has agreed as part of its unit purchase agreement), pursuant to which they have agreed to waive their redemption rights with respect to their founder shares, private placement shares and (except for Cantor Fitzgerald) public shares in connection with the completion of a business combination.Our amended and restated certificate of incorporation provides that in no event will we redeem our public shares in an amount that would cause our net tangible assets upon consummation of our initial business combination to be less than $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules). Redemptions of our public shares may also be subject to a higher net tangible asset test or cash requirement pursuant to an agreement relating to our initial business combination. For example, the proposed business combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all shares of common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, and all shares of common stock submitted for redemption will be returned to the holders thereof.
Limitation on redemption upon completion of our initial business combination if we seek stockholder approval
Notwithstanding the foregoing, if we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or
calculate EPS. However, as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 20% of thelimited liability company, IEA Services had no outstanding common shares sold in our initial public offering, which we refer to as the “Excess Shares”. We believe this restriction will discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public stockholder holding more than an aggregate of 20% of the shares sold in our initial public offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us or our management at a premium to the then-current market price or on other undesirable terms. By limiting our stockholders’ ability to redeem more than 20% of the shares sold in our initial public offering, we believe we will limit the ability of a small group of stockholders to unreasonably attempt to block our ability to complete our business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. However, we would not be restricting our stockholders’ ability to vote all of their shares (including Excess Shares) for or against our business combination.Tendering stock certificates in connection with redemption rights
We may require our public stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent up to two business days prior to the voteMerger. Therefore, the weighted average common shares outstanding for all comparable prior periods preceding the Merger is based on the proposal to approve the business combination in the event we distribute proxy materials, or to deliver their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. The proxy materials that we will furnish to holders of our public shares in connection with our initial business combination will indicate whether we are requiring public stockholders to satisfy such delivery requirements. Accordingly, a public stockholder would have from two days prior to the vote on the business combination if we distribute proxy materials to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short exercise period, it is advisable for stockholders to use electronic delivery of their public shares.
There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $35.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardlesscapital structure of the timing of when such delivery must be effectuated.
The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the stockholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his or her redemption rights. After the business combination was approved, theacquired company, would contact such stockholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, the stockholder then had an “option window” after the completion of the business combination during which he or she could monitor the price of the company’s stock in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which stockholders were aware they needed to commit before the stockholder meeting, would become “option” rights surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable once the business combination is approved.
Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the tender offer materials or the date of the stockholders meeting set forth in our proxy materials, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our business combination.
If our initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares.
If our initial proposed business combination is not completed, we may continue to try to complete a business combination with a different target until July 12, 2018.
Redemption of public shares and liquidation if no initial business combination
Our sponsor, executive officers and directors have agreed that if we do not complete our initial business combination by July 12, 2018, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (less up to $50,000 of interest to pay dissolution expenses (which interest shall be net of taxes payable)), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete our business combination by July 12, 2018.
Our initial stockholders have entered into a letter agreement with us (and Cantor Fitzgerald has agreed as part of its unit purchase agreement), pursuant to which they have waived their rights to liquidating distributions from the trust account with respect to their founder shares and private placement shares if we fail to complete our initial business combination by July 12, 2018. However, if our initial stockholders acquire public shares in or after our initial public offering, they will be entitled to liquidating distributions from the trust account with respect to such public shares if we fail to complete our initial business combination by July 12, 2018.
Our sponsor, executive officers and directors have agreed, pursuant to a written letter agreement with us, that they will not propose any amendment to our amended and restated certificate of incorporation that would affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination by July 12, 2018, unless we provide our public stockholders with the opportunity to redeem their shares of common stock upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), divided by the number of then outstanding public shares. However, we may not redeem our public shares in an amount that would cause our net tangible assets upon consummation of our initial business combination to be less than $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules). Prior to acquiring any securities from our initial stockholders, permitted transferees must enter into a written agreement with us agreeing to be bound by the same restriction.
We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the approximately $370,414 of proceeds held outside the trust account (as of December 31, 2017), although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any interest accrued in the trust account not required to pay taxes, we may request the trustee to release to us an additional amount of up to $50,000 of such accrued interest to pay those costs and expenses.
If we were to expend all of the net proceeds of our initial public offering, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the per-share redemption amount received by stockholders upon our dissolution would be approximately $10.00. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public stockholders. We cannot assure you that the actual per-share redemption amount received by stockholders will not be substantially less than $10.00. Under Section 281(b) of the DGCL, our plan of dissolution must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims.
Although we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement wouldis the most useful measure. See
Note 11. Earnings (Loss) Per Share in the notes to the audited consolidated financial statements included in Item 8.
(3) Net income used in calculation of earnings per share reflects payment of $1.6 million of preferred dividends and an adjustment of $46.3 million for the contingent consideration fair value adjustment in 2018. See Note 11. Earnings (Loss) Per Share in the notes to the audited consolidated financial statements included in Item 8.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver includeread in conjunction with our audited consolidated financial statements and the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superiornotes to those financial statements included as Item 8 in this Annual Report on Form 10-K. This discussion and analysis includes forward-looking statements that are based on current expectations and are subject to uncertainties and unknown or changed circumstances. For further discussion, please see “Forward-Looking Statements” at the beginning of other consultants that would agree to execute a waiver orthis Annual Report on Form 10-K. Our actual results may differ materially from those anticipated in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the futurethese forward-looking statements as a result of or arising outmany factors, including those risks inherent with our business as discussed in “Item 1A. Risk Factors.”
Throughout this section, unless otherwise noted, “IEA,” the “Company,” “we,” “us” and “our” refer to Infrastructure and Energy Alternatives, Inc. and its consolidated subsidiaries. Certain amounts in this section may not foot due to rounding.
Overview
We are a leading diversified infrastructure construction company with specialized energy and heavy civil expertise throughout the United States. The Company specializes in providing complete engineering, procurement and construction services throughout the United States for the renewable energy, traditional power and civil infrastructure industries. These services include the design, site development, construction, installation and restoration of any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts heldinfrastructure. We are one of three Tier 1 providers in the trust account, Mohsin Meghji,wind energy industry and have completed more than 200 wind and solar projects in 35 states. Although the Company has historically focused on the wind industry, its recent acquisitions have expanded its construction capabilities and geographic footprint in the areas of environmental remediation, industrial maintenance, specialty paving, heavy civil and rail infrastructure construction, creating a diverse national platform of specialty construction capabilities. We believe we have the ability to continue to expand these services because we are well-positioned to leverage our Chairmanexpertise and Chief Executive Officerrelationships in the wind energy business to provide complete infrastructure solutions in all areas.
2018 Company Highlights
Our long-term diversification and growth strategy has agreed that he will be liablebeen to us ifbroaden our solar, power generation, and civil infrastructure capabilities and geographic presence and to expand the extent any claimsservices we provide within our existing business areas. We took important steps in late 2018 by deepening our capabilities and entering new sectors that are synergistic with our existing capabilities and product offerings.
On March 26, 2018, we consummated the Merger pursuant to an Agreement and Plan of Merger, dated November 3, 2017, by and among M III, IEA Services, a vendorDelaware limited liability company, Infrastructure and Energy Alternatives, LLC (the “Seller”), a Delaware limited liability company and the parent of IEA Services immediately prior to such time, and the other parties thereto, which provided for, services rendered or products sold to us, or a prospective target businessamong other things, the Merger of IEA Services with which we have discussed enteringand into a transaction agreement, reduce the amountwholly-owned subsidiary of fundsM III. See Note 2. Merger, Acquisitions and Discontinued Operations in the trust accountnotes to below (i) $10.00 per public share or (ii) such lesser amount per public share heldthe audited consolidated financial statements for more information on the Merger.
On September 25, 2018, we acquired CCS, a leading provider of environmental and industrial engineering services. The wholly-owned subsidiaries of CCS, Saiia and the ACC Companies, generally enter into long-term contracts with both government and non-government customers to provide EPC services for environmental, heavy-civil and mining projects. We believe our acquisition of Saiia and the ACC Companies will provide IEA with a strong and established presence in the trust account asenvironmental and industrial engineering markets, enhanced civil construction capabilities and an expanded domestic footprint in less-seasonal Southeast, West and Southwest markets.
On November 2, 2018, we acquired William Charles, a leader in engineering and construction solutions for the rail infrastructure and heavy civil construction industries. We believe our acquisition of William Charles will provide IEA with a market leading position in the dateattractive rail civil infrastructure market and continue to bolster our further growth in the heavy civil and construction footprint across the Midwest and Southwest.
We believe that through the Merger and the acquisitions above that the Company has transformed its business into a diverse national platform of specialty construction capabilities with market leadership in niche markets, including renewables, environmental remediation and industrial maintenance services, heavy civil and rail.
Economic, Industry and Market Factors
We closely monitor the liquidation of the trust account, dueeffects that changes in economic and market conditions may have on our customers. General economic and market conditions can negatively affect demand for our customers’ products and services, which can lead to reductions in valueour customers’ capital and maintenance budgets in certain end-markets. In the face of increased pricing pressure, we strive to maintain our profit margins through productivity improvements and cost reduction programs. Other market, regulatory and industry factors could also affect demand for our services, such as:
changes to our customers’ capital spending plans;
mergers and acquisitions among the customers we serve;
access to capital for customers in the industries we serve;
new or changing regulatory requirements or other governmental policy uncertainty;
economic, market or political developments; and
changes in technology, tax and other incentives.
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.
Impact of Seasonality and Cyclical Nature of Business
Our revenue and results of operations are subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, fiscal year-ends, project schedules and timing, in particular, for large non-recurring projects and holidays. Typically, our revenue is lowest in the first quarter of the trust assetsyear because cold, snowy or wet conditions experienced in the northern climates are not conducive to efficient or safe construction practices. Revenue in the second quarter is typically higher than in the first quarter, as some projects begin, but continued cold and wet weather and effects from thawing ground conditions can often impact second quarter productivity. The third and fourth quarters are typically the most productive quarters of the year as a greater number of projects are underway and weather is normally more accommodating to construction projects. 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 impact on our revenue. Nevertheless, 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 from excessive rainfall, warm winter weather or natural catastrophes such as hurricanes or other thansevere weather, making it difficult to predict quarterly revenue and margin variations.
Our industry is also highly cyclical. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can impact 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 period. In addition, revenue from master 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, and acquisitions, dispositions or strategic investments can also materially affect quarterly results. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.
Our 2018 results reflect the effect of multiple severe weather events on the Company's wind business that began late in the third quarter and continued into the fourth quarter. These weather conditions had a significant impact on the construction of six wind projects across South Texas, Iowa, and Michigan, resulting in additional labor, equipment and material costs as well as change orders. IEA is aggressively pursuing the collection of all amounts it is contractually owed due to weather-related delays, including collections on change orders resulting from force majeure provisions of certain customer contracts, which generally compensate for the failure to obtain such waiver,actual costs of weather-related delays. See Results of Operations for further discussion of weather impact.
Understanding our Operating Results
“Emerging Growth Company” Status
IEA qualifies as an “emerging growth company” as defined in each case net of the amount of interest which may be withdrawn to pay taxes, exceptJumpstart Our Business Startups Act (the “JOBS Act”). For as to any claims bylong as a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waivercompany is deemed to be unenforceable against a third party, then Mr. Meghji will not be responsible to the extent of any liability for such third-party claims. We cannot assure you, however, that Mr. Meghji would be able to satisfy those obligations. None of our other officers will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.In the event that the proceeds in the trust account are reduced below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets other than due to the failure to obtain such waiver, in each case net of the amount of interest which may be withdrawn to pay taxes, and Mr. Meghji asserts that he is unable to satisfy his indemnification obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against Mr. Meghji to enforce his indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Meghji to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be substantially less than $10.00 per share.
We will seek to reduce the possibility that Mr. Meghji will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Mr. Meghji will also not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $370,414 from the proceeds held outside the trust account (as of December 31, 2017) with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $50,000).
Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete our business combination by July 12, 2018 may be considered a liquidation distribution under Delaware law. Delaware law provides that if a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete our business combination by July 12, 2018, is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution. If we are unable to complete our business combination by July 12, 2018, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (net of the amount of interest which may be withdrawn to pay taxes and less up to $50,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following July 12, 2018, and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent 10 years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers and auditors) or prospective target businesses. As described above, pursuant to the obligation contained in our underwriting agreement, we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account.
As a result of this obligation, the claims that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending to the trust account is remote. Further, Mohsin Meghji, our Chairman and Chief Executive Officer, may be liable only to the extent necessary to ensure that the amounts in the trust account are not reduced below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets other than due to the failure to obtain such waiver, in each case net of the amount of interest withdrawn to pay taxes and less any per-share amounts distributed from our trust account to our public stockholders in the event we are unable to complete our business combination by July 12, 2018 and will not be liable as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Meghji will not be responsible to the extent of any liability for such third-party claims.
If we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return $10.00 per share to our public stockholders. Additionally, if we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. Furthermore, our board may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our public stockholders will be entitled to receive funds from the trust account only in the event of the redemption of our public shares if we do not complete our business combination by July 12, 2018 or if they redeem their respective shares for cash upon the completion of the initial business combination. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account. In the event we seek stockholder approval in connection with our initial business combination, a stockholder’s voting in connection with the business combination alone will not result in a stockholder’s redeeming its shares to us for an applicable pro rata share of the trust account. Such stockholder must have also exercised its redemption rights described above.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate of incorporation contains certain requirements and restrictions relating to our initial public offering that will apply to us until the consummation of our initial business combination. If we seek to amend any provisions of our amended and restated certificate of incorporation relating to stockholders’ rights or pre-business combination activity, we will provide public stockholders with the opportunity to redeem their public shares in connection with any such vote. Our initial stockholders have agreed to waive any redemption rights with respect to their founder shares, private placement shares and public shares in connection with the completion of our initial business combination. Specifically, our amended and restated certificate of incorporation provides, among other things, that:
| ➤ | prior to the consummation of our initial business combination, we shall either (1) seek stockholder approval of our initial business combination at a meeting called for such purpose at which stockholders may seek to redeem their shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), or (2) provide our stockholders with the opportunity to tender their shares to us by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), in each case subject to the limitations described herein; |
| ➤ | we will consummate our initial business combination only if we have net tangible assets upon consummation of our initial business combination of at least $5,000,001 and, solely if we seek stockholder approval, a majority of the outstanding shares of common stock voted are voted in favor of the business combination; |
| ➤ | if our initial business combination is not consummated by July 12, 2018, then our existence will terminate and we will distribute all amounts in the trust account; and |
| ➤ | prior to our initial business combination, we may not issue additional shares of capital stock that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote on any initial business combination. |
These provisions cannot be amended without the approval of holders of 65% of our common stock. In the event we seek stockholder approval in connection with our initial business combination, our amended and restated certificate of incorporation provides that we may consummate our initial business combination only if approved by a majority of the shares of common stock voted by our stockholders at a duly held stockholders meeting.
Competition
In identifying, evaluating and selecting a target business for our business combination, we have encountered, and may continue to encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public stockholders who exercise their redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination.
Employees
We currently have three executive officers. Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time that Mr. Meghji or any other members of our management will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the current stage of the business combination process, but he has and will continue to devote a substantial portion of his professional time to our affairs.
Periodic Reporting and Financial Information
We registered our units, common stock and warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports contain financial statements audited and reported on by our independent registered public auditors.
We will provide stockholders with audited financial statements of the prospective target business as part of the tender offer materials or proxy solicitation materials sent to stockholders to assist them in assessing the target business. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financing reporting standards, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with GAAP or IFRS, that the potential target business will be able to prepare its financial statements in accordance with GAAP or IFRS, or that the potential target may be able to obtain a PCAOB-compliant audit. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material.
We are required to evaluate our internal control procedures for the fiscal year ending December 31, 2017 as required by the Sarbanes-Oxley Act. However, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. A target company may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible toit may take advantage of certain exemptions from variousspecified reduced reporting and other regulatory requirements that are applicablegenerally unavailable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of thecompanies. The JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intendhave elected to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier Our financial statements may therefore not be comparable to those of (1) the last daycompanies that have adopted such new or revised accounting standards. See
Note 1. Business, Basis of the fiscal year (a) following the fifth anniversary of the completion ofPresentation and Significant Accounting Policies to our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th , and (2) the dateconsolidated financial statements for more information on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.You should carefully consider all of the following risk factorsreduced reporting requirements and all the other information contained in this Report, including the financial statements. If any of the following risks occur, our business, financial condition or results of operations may be materially and adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to us and our business.
We are a recently formed company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
We are a recently formed company with no operating results. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial business combination with one or more target businesses. We may be unable to complete our business combination. If we fail to complete our business combination, we will never generate any operating revenues.
Our public stockholders may not be afforded an opportunity to vote on our proposed business combination, which means we may complete our initial business combination even if a majority of our public stockholders do not support such a combination.
We may not hold a stockholder vote to approve our initial business combination unless the business combination would require stockholder approval under applicable state law or the NASDAQ rules or if we decide to hold a stockholder vote for business or other reasons. For instance, the NASDAQ rules currently allow us to engage in a tender offer in lieu of a stockholder meeting but would still require us to obtain stockholder approval if we were seeking to issue more than 20% of our outstanding shares to a target business as consideration in any business combination. Therefore, if we were structuring a business combination that required us to issue more than 20% of our outstanding shares, we would seek stockholder approval of such business combination. However, except as required by law, the decision as to whether we will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. Accordingly, we may consummate our initial business combination even if holders of a majority of the outstanding shares of our common stock do not approve of the business combination we consummate.
If we seek stockholder approval of our initial business combination, after approval of our board, our initial stockholders have agreed to vote in favor of such initial business combination, regardless of how our public stockholders vote.
Unlike many other blank check companies in which the initial stockholders agree to vote their founder shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, after approval of our board, our initial stockholders have agreed to vote their founder shares and, except with respect to Cantor Fitzgerald, private placement shares, as well as any public shares purchased during or after our public offering, in favor of our initial business combination. Our initial stockholders, excluding Cantor Fitzgerald, own 21.3% of our outstanding shares of common stock. As a result, we would need only 5,515,001 of the 15,000,000 public shares outstanding (approximately 36.8%) to be voted in favor of our initial business combination in order to have such transaction approved. Accordingly, if we seek stockholder approval of our initial business combination, after approval of our board, it is more likely that the necessary stockholder approval will be received than would be the case if our initial stockholders agreed to vote their founder shares and private placement shares in accordance with the majority of the votes cast by our public stockholders.
Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to redeem your shares from us for cash, unless we seek stockholder approval of the business combination.
At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of one or more target businesses. Since our board of directors may complete a business combination without seeking stockholder approval (unless stockholder approval is required by law or the NASDAQ rules, or we decide to obtain stockholder approval for business or other legal reasons), public stockholders may not have the right or opportunity to vote on the business combination, unless we seek such stockholder vote. Accordingly, your only opportunity to affect the investment decision regarding a potential business combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public stockholders in which we describe our initial business combination.
The ability of our public stockholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target.
We may seek to enter into a business combination transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. If too many public stockholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the business combination. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets upon consummation of our initial business combination to be less than $5,000,001 (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets upon consummation of our initial business combination to be less than $5,000,001 or such greater amount necessary to satisfy a closing condition as described above, we would not proceed with such redemption and the related business combination and may instead search for an alternate business combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a business combination transaction with us.
The ability of our stockholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure.
At the time we enter into an agreement for our initial business combination, we will not know how many stockholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If our business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the trust account to meet such requirements, or arrange for third party financing. In addition, if a larger number of shares are submitted for redemption than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the trust account or arrange for third party financing. Raising additional third party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable business combination available to us or optimize our capital structure.
The ability of our stockholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your stock.
If our business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial business combination would be unsuccessful is increased. If our initial business combination is unsuccessful, you would not receive your pro rata portion of the trust account until we liquidate the trust account. If you are in need of immediate liquidity, you could attempt to sell your stock in the open market; however, at such time our stock may trade at a discount to the pro rata amount per share in the trust account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are able to sell your stock in the open market.
The requirement that we complete our initial business combination within the prescribed time frame may give potential target businesses leverage over us in negotiating a business combination and may decrease our ability to conduct due diligence on potential business combination targets as we approach our dissolution deadline, which could undermine our ability to complete our business combination on terms that would produce value for our stockholders.
Any potential target business with which we enter into negotiations concerning a business combination will be aware that we must complete our initial business combination by July 12, 2018. Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete our initial business combination with that particular target business, we may be unable to complete our initial business combination with any target business. This risk will increase as we get closer to the time frame described above. In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms that we would have rejected upon a more comprehensive investigation.
We may not be able to complete our initial business combination within the prescribed time frame, in which casewhen we would cease all operations except for the purpose of winding upto be an “emerging growth company.” We continue to monitor our status as an “emerging growth company” and we would redeem our public sharesare currently preparing, and liquidate.
Our sponsor, executive officers and directors have agreed that we must complete our initial business combination July 12, 2018. We may notexpect to be able to find a suitable target business and complete our initial business combination by such date. If we have not completed our initial business combination by such date, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable and less up to $50,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
If we seek stockholder approval of our initial business combination, our sponsor, directors, executive officers, advisors and their affiliates may elect to purchase shares from public stockholders, which may influence a vote on a proposed business combination and reduce the public “float” of our common stock.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our sponsor, directors, executive officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our sponsor, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval of the business combination or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our business combination, where it appears that such requirement would otherwise not be met. This may result in the completion of our business combination that may not otherwise have been possible.
In addition, if such purchases are made, the public “float” of our common stock and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain the quotation, listing or trading of our securities on a national securities exchange.
If a public stockholder fails to receive notice of our offer to redeem our public shares in connection with our business combination, or failsready to comply with, the proceduresadditional reporting and regulatory requirements that will be applicable to us when we cease to qualify as an “emerging growth company.”
Revenue
We provide engineering, building, installation, maintenance and upgrade services to our customers. We derive revenue from projects performed under fixed price contracts and other service agreements for tendering its shares, such shares may notspecific projects or jobs requiring the construction and installation of an entire infrastructure system or specified units within an entire infrastructure system. We recognize a significant portion of our revenue based on the percentage-of-completion method. See Revenue Recognition for Percentage-of-Completion Projects within Critical Accounting Policies and Estimates below.
Cost of Revenue
Cost of revenue consists principally of: salaries, wages and employee benefits; subcontracted services; equipment rentals and repairs; fuel and other equipment expenses, including allocated depreciation and amortization expense; material costs, parts and supplies; insurance; and facilities expenses. Project profit is calculated by subtracting a project’s cost of revenue, including project-related depreciation, from project revenue. Project profitability and corresponding project margins will be
redeemed.We will comply withreduced if actual costs to complete a project exceed our estimates on fixed price and installation/construction service agreements. Estimated losses on contracts are recognized immediately when estimated costs to complete a project exceed the tender offer rules or proxy rules, as applicable, when conducting redemptions in connection with our business combination. Despite our compliance with these rules, if a public stockholder failsremaining revenue to receive our tender offer or proxy materials, as applicable, such stockholder may not become awarebe received over the remainder of the opportunity to redeem its shares. In addition,contract. Various factors, some controllable and some not, can impact our margins on a quarterly or annual basis, including:
Seasonality and Geographical Factors. Seasonal patterns can have a significant impact on project margins. Generally, business is slower at the tender offer documents or proxy materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will describe the various procedures that must be complied with in order to validly tender or redeem public shares. In the event that a public stockholder fails to comply with these procedures, its shares may not be redeemed.You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your public shares or warrants, potentially at a loss.
Our public stockholders will be entitled to receive funds from the trust account only upon the earlier to occur of: (i) our completion of an initial business combination, and then only in connection with those shares of our common stock that such stockholder properly elected to redeem, subject to the limitations described herein, and (ii) the redemption of our public shares if we are unable to complete an initial business combination by July 12, 2018, subject to applicable law and as further described herein. In addition, if our plan to redeem our public shares if we are unable to complete an initial business combination by July 12, 2018 is not completed for any reason, compliance with Delaware law may require that we submit a plan of dissolution to our then-existing stockholders for approval prior to the distributionbeginning of the proceeds heldyear. Adverse or favorable weather conditions can impact project margins in our trust account. In that case, public stockholders may be forced to wait beyond July 12, 2018 before they receive funds from our trust account. In no other circumstances will a public stockholder have any rightgiven period. For example, extended periods of rain or interest of any kind in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss.
You will not be entitled to protections normally afforded to investors of many other blank check companies.
Since the net proceeds of our initial public offeringsnowfall can negatively impact revenue and the sale of the private placement units are intended to be used to complete an initial business combination with a target business that has not been identified, we may be deemed to be a “blank check” company under the United States securities laws. However, because we have net tangible assets in excess of $5,000,000, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means that we will have a longer period of time to complete our business combination than do companies subject to Rule 419. Moreover, if our initial public offering were subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the trust account to us unless and until the funds in the trust account were released to us in connection with our completion of an initial business combination.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of stockholders are deemed to hold in excess of 20% of our common stock, you will lose the ability to redeem all such shares in excess of 20% of our common stock.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 20% of the shares sold in our initial public offering, which we refer to as the “Excess Shares.” However, we would not be restricting our stockholders’ ability to vote all of their shares (including Excess Shares) for or against our business combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our business combination. And as a result, you will continue to hold that number of shares exceeding 20% and, in order to dispose of such shares, would be required to sell your stock in open market transactions, potentially at a loss.
Because of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us to complete our initial business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share, on our redemption, and our warrants will expire worthless.
We have encountered and expect to encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human and other resources or more local industry knowledge than we do and our financial resources are relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of our initial public offering and the sale of the private placement units, our ability to compete with respect to the acquisition of certain target businesses that are sizable is limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, if we are obligated to pay cash for the shares of common stock redeemed and, in the event we seek stockholder approval of our business combination, we make purchases of our common stock, this may potentially reduce the resources available to us for our initial business combination. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of our trust account and our warrants will expire worthless.
If the net proceeds of our initial public offering not being held in the trust account are insufficient to allow us to operate until July 12, 2018, we may be unable to complete our initial business combination.
The funds available to us outside of the trust account may not be sufficient to allow us to operate until July 12, 2018, assuming that our initial business combination is not completed during that time. We believe that the funds available to us outside of the trust account, are sufficient to allow us to operate until July 12, 2018; however, we cannot assure you that our estimate is accurate. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whetherproject margins as a result of reduced productivity from projects being delayed or temporarily halted. Conversely, in periods when weather remains dry and temperatures are accommodating, more work can be done, sometimes with less cost, which can favorably impact project margins. In addition, the mix of business conducted in different geographic areas can affect project margins due to the particular characteristics associated with the physical locations where the work is being performed, such as mountainous or rocky terrain versus open terrain. Site conditions, including unforeseen underground conditions, can also impact project margins.
Revenue Mix. The mix of revenues derived from the industries we serve and the types of services we provide within an industry will impact margins, as certain industries and services provide higher margin opportunities. Additionally, changes in our breachcustomers’ spending patterns in any of the industries we serve can cause an imbalance in supply and demand and, therefore, affect margins and mix of revenues by industry served.
Performance Risk. Overall project margins may fluctuate due to work volume, project pricing and job productivity. Job productivity can be impacted by quality of the work crew and equipment, availability of skilled labor, environmental or otherwise), we might not have sufficient funds to continue searching for,regulatory factors, customer decisions 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 conduct due diligence with respect to,one that is obstructed (either by physical obstructions or legal encumbrances).
Subcontracted Resources. Our use of subcontracted resources in a target business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of our trust accountgiven period is dependent upon activity levels and our warrants will expire worthless.If the net proceeds of our initial public offering not being held in the trust account are insufficient, it could limit the amount available to fund our search for a target business or businesses and complete our initial business combinationlocation of existing in-house resources and we will dependcapacity. Project margins on loanssubcontracted work can vary from our sponsor or management team to fund our search, to pay our taxes and to complete our business combination.
Of the net proceeds of our initial public offering, only $370,414 (as of December 31, 2017) are available to us outside the trust account to fund our working capital requirements. If we are required to seek additional capital, we would need to borrow funds from our sponsor, management team or other third parties to operate or may be forced to liquidate. Neither our sponsor, members of our management team nor any of their affiliates is under any obligation to advance funds to us in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our public stockholders may only receive approximately $10.00 per shareproject margins on our redemption of our public shares, and our warrants will expire worthless.
Subsequent to our completion of our initial business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.
Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will surface all material issues that may be present inside a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise.self-perform work. As a result, of these factors, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even if these charges may be non-cash items and would not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing. Accordingly, any stockholders who choose to remain stockholders following the business combination could suffer a reductionchanges in the valuemix of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach bysubcontracted resources versus self-perform work can impact our officers or directorsoverall project margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of
a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the tender offer materials or proxy statement relating to the business combination contained an actionable material misstatement or material omission.If third parties bring claims against us, the proceeds held in the trust account could be reducedcompensation and the per-share redemption amount received by stockholders may be less than $10.00 per share.
Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to itexpenses, travel expenses and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.
Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our public shares, if we are unable to complete our business combination within the prescribed time frame, or upon the exercise of a redemption right in connection with our business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption amount received by public stockholders could be less than the $10.00 per share initially held in the trust account, due to claims of such creditors. Mohsin Meghji has agreed that he will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of our initial public offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Meghji will not be responsible to the extent of any liability for such third party claims. We have not independently verified whether Mr. Meghji has sufficient funds to satisfy their indemnity obligations and, therefore, Mr. Meghji may not be able to satisfy those obligations. We have not asked Mr. Meghji to reserve for such eventuality. We believe the likelihood of Mr. Meghji having to indemnify the trust account is limited because we will endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account.
Our directors may decide not to enforce the indemnification obligations of Mohsin Meghji, our Chairman and Chief Executive Officer, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.
In the event that the proceeds in the trust account are reduced below the lesser of (i) $10.00 per share or (ii) other than due to the failure to obtain such waiver, such lesser amount per share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, and Mr. Meghji asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against Mr. Meghji to enforce his indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against Mr. Meghji to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.00 per share.
If, after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages.
If, after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors.
If, before distributing the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If, before distributing the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our business combination.
If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including:
| ➤ | restrictions on the nature of our investments, and |
| ➤ | restrictions on the issuance of securities, |
each of which may make it difficult for us to complete our business combination.
In addition, we may have imposed upon us burdensome requirements, including:
| ➤ | registration as an investment company; |
| ➤ | adoption of a specific form of corporate structure; and |
| ➤ | reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations. |
We do not believe that our anticipated principal activities will subject us to the Investment Company Act. The proceeds held in the trust account may be invested by the trustee only in United States government treasury bills with a maturity of 180 days or less or in money market funds investing solely in United States Treasuries and meeting certain conditions under Rule 2a-7 under the Investment Company Act. Because the investment of the proceeds will be restricted to these instruments, we believe we will meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of our trust account and our warrants will expire worthless.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
Under the Delaware General Corporation Law, or DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete our initial business combination by July 12, 2018 may be considered a liquidation distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is our intention to redeem our public shares as soon as reasonably possible following July 12, 2018 in the event we do not complete our business combination and, therefore, we do not intend to comply with those procedures.
Because we will not be complying with Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will providecosts for our payment of all existingfinance, benefits and pending claims or claims that may be potentially brought against us within the 10 years following our dissolution. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers and auditors) or prospective target businesses. If our plan of distribution complies with Section 281(b) of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete our initial business combination by July 12, 2018 is not considered a liquidation distribution under Delaware law and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidation distribution.
We do not currently intend to hold an annual meeting of stockholders until after our consummation of a business combination and you will not be entitled to any of the corporate protections provided by such a meeting.
We do not currently intend to hold an annual meeting of stockholders until after we consummate a business combination (unless required by NASDAQ), and thus may not be in compliance with Section 211(b) of the DGCL, which requires an annual meeting of stockholders be held for the purposes of electing directors in accordance with a company’s bylaws unless such election is made by written consent in lieu of such a meeting. Therefore, if our stockholders want us to hold an annual meeting prior to our consummation of a business combination, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
We have not registered the shares of common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants and causing such warrants to expire worthless.
We have not registered the shares of common stock issuable upon exercise of the warrants issued in our initial public offering under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed, as soon as practicable, but in no event later than thirty (30) days after the closing of our initial business combination, to use our best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the common stock issuable upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in therisk management, legal, facilities, information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants issued in our initial public offering are not registered under the Securities Act within 90 days after the closing of our initial business combination, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, unless an exemption is available. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under the Securities Act or applicable state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of common stock included in the units. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of common stock for sale under all applicable state securities laws.
The grant of registration rights to our initial stockholders and holders of our private placement units may make it more difficult to complete our initial business combination, and the future exercise of such rights may adversely affect the market price of our common stock.
Pursuant to an agreement entered into concurrently with the issuance and sale of the securities in our initial public offering, our initial stockholders and their permitted transferees can demand that we register the founder shares and holders of our private placement units (and their constituent securities) and their permitted transferees can demand that we register the private placement units, private placement shares, private placement warrants and the shares of common stock issuable upon exercise of the private placement warrants. We will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of the registration rights may make our initial business combination more costly or difficult to conclude. This is because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our common stock that is expected when the securities owned by our initial stockholders, holders of our private placement units (and their constituent securities) or their respective permitted transferees are registered.
Because we are not limited to a particular industry or any specific target businesses with which to pursue our initial business combination, you will be unable to ascertain the merits or risks of any particular target business’s operations.
We intend to seek a business combination with an operating company in the financial services, healthcare services or industrial sectors, but may also pursue acquisition opportunities in other industries, except that we will not, under our amended and restated certificate of incorporation, be permitted to effectuate our business combination with another blank check company or similar company with nominal operations. To the extent we complete our business combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or an early stage entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a potential business combination target. Accordingly, any stockholders who choose to remain stockholders following the business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the tender offer or proxy statement materials relating to the business combination contained an actionable material misstatement or material omission.
We may seek investment opportunities in industries outside of the financial services, healthcare services or industrial sectors (which industries may or may not be outside of our management’s area of expertise).
Although we are focusing on identifying business combination candidates in the financial services, healthcare services and industrial sectors, we will consider a business combinationexecutive personnel. Selling, general and administrative expenses also include outside of the financial services, healthcare services or industrial sectors if a business combination candidate is identifiedprofessional and we determine that such candidate offers an attractive investment opportunity for our company or we are unable to identify a suitable candidateaccounting fees, expenses associated with information technology used in the financial services, healthcare services or industrial sectors after having expended a reasonable amount of time and effort in an attempt to do so. Although our management will endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our securities will not ultimately prove to be less favorable to investors in our initial public offering than a direct investment, if an opportunity were available, in a business combination candidate.
In the event we elect to pursue an investment outside of the financial services, healthcare services or industrial sectors, our management’s expertise may not be directly applicable to its evaluation or operation, and the information contained herein regarding the financial services, healthcare services or industrial sectors would not be relevant to an understandingadministration of the business, that we electvarious forms of insurance, acquisition and transaction expenses.
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
acquire.financing arrangements, with all such expenses net of interest income. Although we have identified general criteria
Discontinued Operations
Discontinued operations consist of revenue and
guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial business combination may not have attributes entirely consistentexpenses associated with our
general criteriaCanadian operations that were completely abandoned. We effectively completed all significant projects in Canada and
guidelines.Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial business combination will not have all of these positive attributes. If we complete our initial business combination with a target that does not meet somereduced or all of these guidelines, such combination may not be as successful as a combination with a business that does meetredeployed substantially all of our general criteriaCanadian resources, facilities and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, a greater number of stockholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if stockholder approval of the transaction is required by law, or we decide to obtain stockholder approval for business or other legal reasons, it may be more difficult for us to attain stockholder approval of our initial business combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of our trust account and our warrants will expire worthless.
We may seek investment opportunities with a financially unstable business or an entity lacking an established record of revenue or earnings.
To the extent we complete our initial business combination with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by numerous risks inherent in the operations of the business with which we combine. These risks include volatile revenues or earnings and difficulties in obtaining and retaining key personnel. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we may not be able to properly ascertain or assess all of the significant risk factors and we may not have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business.
We are not required to obtain an opinion from an independent investment banking or accounting firm, and consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our company from a financial point of view.
Unless we complete our business combination with an affiliated entity, we are not required to obtain an opinion from an independent investment banking or accounting firm that the price we are paying is fair to our company from a financial point of view. If no opinion is obtained, our stockholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our tender offer documents or proxy solicitation materials, as applicable, related to our initial business combination.
We may issue additional common or preferred shares to complete our initial business combination or under an employee incentive plan after completion of our initial business combination, any one of which would dilute the interest of our stockholders and likely present other risks.
Our amended and restated certificate of incorporation authorizes the issuance of up to 35,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. There are currently 8,060,000 authorized but unissued shares of common stock available for issuance, which amount takes into account shares reserved for issuance upon exercise of outstanding warrants. There are currently no shares of preferred stock issued and outstanding. We may issue a substantial number of additional shares of common or preferred stock to complete our initial business combination or under an employee incentive plan after completion of our initial business combination. However, our amended and restated certificate of incorporation provides, among other things, that prior to our initial business combination, we may not issue additional shares of capital stock that would entitle the holders thereof to (i) receive funds from the trust account or (ii) vote on any initial business combination. The issuance of additional shares of common or preferred stock:
| ➤ | may significantly dilute the equity interest of investors in our initial public offering; |
| ➤ | may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common stock; |
| ➤ | could cause a change in control if a substantial number of shares of common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and |
| ➤ | may adversely affect prevailing market prices for our units, common stock and/or warrants. |
Resources could be wasted in researching acquisitions that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of our trust account and our warrants will expire worthless.
We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.00 per share on the liquidation of our trust account and our warrants will expire worthless.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our executive officers and directors, at least until we have completed our business combination. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating management time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
Our ability to successfully effect our business combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following our business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements and take time away from oversight of our operations.
None of our executive officers or directors has ever been associated with a special purpose acquisition corporation and such lack of experience could adversely affect our ability to consummate a business combination.
None of our executive officers or directors has ever been associated with a special purpose acquisition corporation. Accordingly, you may not have sufficient information with which to evaluate their ability to identify and consummate a business combination using the proceeds of our initial public offering. Our management’s lack of experience in operating a special purpose acquisition corporation could adversely affect our ability to consummate a business combination and could result in our not completing a business combination in the prescribed time frame.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following our business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel may be able to remain with the company after the completion of our business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe the ability of such individuals to remain with us after the completion of our business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however, that any of our key personnel will remain with us after the completion of our business combination. We cannot assure you that any of our key personnel will remain in senior management or advisory positions with us. The determination as to whether any of our key personnel will remain with us will be made at the time of our initial business combination.
We may have a limited ability to assess the management of a prospective target business and, as a result, may effect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company.
When evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any stockholders who choose to remain stockholders following the business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the tender offer materials or proxy statement relating to the business combination contained an actionable material misstatement or material omission.
The officers and directors of an acquisition candidate may resign upon completion of our initial business combination. The departure of a potential business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. The role of an acquisition candidate’s key personnel upon the completion of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial business combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place.
Our executive officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial business combination.
Our executive officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for a business combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our business combination. Each of our executive officers is engaged in several other business endeavors for which he may be entitled to substantial compensation and our executive officers are not obligated to contribute any specific number of hours per week to our affairs. Our independent directors also serve as officers and board members for other entities. If our executive officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial business combination.
Certain of our executive officers and directors are now, and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented to our company or to another entity.
Until we consummate our initial business combination, we will continue to engage in the business of identifying and combining with one or more businesses. Our executive officers and directors are, or may in the future become, affiliated with entities that are engaged in a similar business.
Our officers and directors also may become aware of business opportunities which may be appropriate for presentation to us and the other entities to which they owe certain fiduciary or contractual duties. Accordingly, they may have conflicts of interest in determining whether a particular business opportunity should be presented to our company or to another entity. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us. Our amended and restated certificate of incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue.
Members of our management team may directly or indirectly own common stock and warrants following our initial public offering, and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.
Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into a business combination with a target business that is affiliated with our sponsor, our directors or executive officers, although we do not intend to do so. We do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with our executive officers, directors or existing holders which may raise potential conflicts of interest.
In light of the involvement of our sponsor, executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with our sponsor, executive officers and directors. Our directors also serve as officers and board members for other entities. Such entities may compete with us for business combination opportunities. Although we are not specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria for a business combination and such transaction was approved by a majority of our disinterested directors. Despite our agreement to obtain an opinion from an independent accounting firm or independent investment banking firm that is a member of FINRA regarding the fairness to our company from a financial point of view of a business combination with one or more domestic or international businesses affiliated with our executive officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public stockholders as they would be absent any conflicts of interest.
Since our sponsor, executive officers and directors will lose their entire investment in us if our business combination is not completed, a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
As of the date of this report, our sponsor, executive officers and directors beneficially own an aggregate of 3,750,000 founder shares, for which they paid an aggregate purchase price of $25,000. In addition, our sponsor has purchased an aggregate of 340,000 private placement units, each consisting of one share of common stock and one warrant to purchase one half share of common stock with an exercise price of $5.75 per half share, at a price of $10.00 per unit (a total of $3,400,000) simultaneously with the consummation of our initial public offering. Subsequent to our initial public offering, Mr. Meghji, who controls our sponsor, has purchased an additional 1,353,803 warrants to purchase one half share of common stock with an exercise price of $5.75 per half share in the public markets for total consideration of $292,248. All of these securities will be worthless if we do not complete an initial business combination.
The personal and financial interests of our executive officers and directors may influence their motivation in identifying and selecting a target business combination, completing an initial business combination and influencing the operation of the business following the initial business combination.
Since our sponsor, executive officers and directors will not be eligible to be reimbursed for their out-of-pocket expenses if our business combination is not completed, a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
At the closing of our initial business combination, our sponsor, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. In the event our business combination is completed, there is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred in connection with activities on our behalf. However, our sponsor, executive officers and directors, or any of their respective affiliates will not be eligible for any such reimbursement if our business combination is not completed and we do not have funds outside the trust account. These financial interests of our sponsor, executive officers and directors may influence their motivation in identifying and selecting a target business combination and completing an initial business combination.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our stockholders’ investment in us.
Although we have no commitmentsequipment as of the date of this report to issue any notes or other debt securities, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete our business combination. We have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the trust account. As such, no issuance of debt will affect the per-share amount available for redemption from the trust account. Nevertheless, the incurrence of debt could have a variety of negative effects, including:
| ➤ | default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; |
| ➤ | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
| ➤ | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
| ➤ | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| ➤ | our inability to pay dividends on our common stock; |
| ➤ | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
| ➤ | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| ➤ | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and |
| ➤ | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
We may only be able to complete one business combination with the proceeds of our initial public offering
Critical Accounting Policies and the sale of the private placement units, which will cause us to be solely dependent on a single business which may have a limited number of products or services. Estimates
This lack of diversification may negatively impact our operations and profitability.The remaining net proceeds from our initial public offering and the private placement of units have provided us with $151,428,396 as of December 31, 2017 (including $370,414 held outside the trust as of such date and excluding up to $6,000,000 of deferred underwriting commissions being held in the trust account) that we may use to complete our initial business combination.
We may effectuate our business combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our business combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our initial business combination with only a single entity our lack of diversification may subject us to numerous economic, competitive and regulatory risks. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be:
| ➤ | solely dependent upon the performance of a single business, property or asset, or |
| ➤ | dependent upon the development or market acceptance of a single or limited number of products, processes or services. |
This lack of diversification may subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our business combination.
We may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our business combination and give rise to increased costs and risks that could negatively impact our operations and profitability.
If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete our initial business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
We may attempt to complete our initial business combination with a private company about which little information is available, which may result in a business combination with a company that is not as profitable as we suspected, if at all.
In pursuing our acquisition strategy, we may seek to effectuate our initial business combination with a privately held company. By definition, very little public information exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information, which may result in a business combination with a company that is not as profitable as we suspected, if at all.
Our management may not be able to maintain control of a target business after our initial business combination. We cannot provide assurance that, upon loss of control of a target business, new management will possess the skills, qualifications or abilities necessary to profitably operate such business.
We may structure a business combination so that the post-transaction company in which our public stockholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post-transaction company owns 50% or more of the voting securities of the target, our stockholders prior to the business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial number of new shares of common stock in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number of new shares of common stock, our stockholders immediately prior to such transaction could own less than a majority of our outstanding shares of common stock subsequent to such transaction. In addition, other minority stockholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s stock than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain our control of the target business.
We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete a business combination with which a substantial majority of our stockholders do not agree.
Our amended and restated certificate of incorporation does not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount that would cause our net tangible assets upon consummation of our initial business combination to be less than $5,000,001 (such that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. As a result, we may be able to complete our business combination even if a substantial majority of our public stockholders do not agree with the transaction and have redeemed their shares or, if we seek stockholder approval of our initial business combination and do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to our sponsor, officers, directors, advisors or their affiliates. In the event the aggregate cash consideration we would be required to pay for all shares of common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, all shares of common stock submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate business combination.
The exercise price for the public warrants is higher than in many similar blank check company offerings in the past, and, accordingly, the warrants are more likely to expire worthless.
The exercise price of the public warrants is higher than many similar blank check companies in the past. Historically, the exercise price of a warrant was generally a fraction of the purchase price of the units in the initial public offering. The exercise price for our public warrants is $5.75 per half share, or $11.50 per whole share. Warrants may be exercised only for a whole number of shares of common stock. As a result, the warrants are less likely to ever be in the money and more likely to expire worthless.
In order to effectuate our initial business combination, blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments. We cannot assure you that we will not seek to amend our amended and restated certificate of incorporation or governing instruments in a manner that will make it easier for us to complete our initial business combination that our stockholders may not support.
In order to effectuate a business combination, blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments. For example, blank check companies have amended the definition of business combination, increased redemption thresholds and changed industry focus. We cannot assure you that we will not seek to amend our charter or governing instruments in order to effectuate our initial business combination.
The provisions of our amended and restated certificate of incorporation that relate to our pre-business combination activity (and corresponding provisions of the agreement governing the release of funds from our trust account) may be amended with the approval of holders of 65% of our common stock, which is a lower amendment threshold than that of some other blank check companies. It may be easier for us, therefore, to amend our amended and restated certificate of incorporation to facilitate the completion of an initial business combination that some of our stockholders may not support.
Some other blank check companies have a provision in their charter which prohibits the amendment of certain of its provisions, including those which relate to a company’s pre-business combination activity, without approval by a certain percentage of the company’s stockholders. In those companies, amendment of these provisions requires approval by between 90% and 100% of the company’s public stockholders. Our amended and restated certificate of incorporation provides that any of its provisions related to pre-business combination activity (including the requirement to deposit proceeds of our initial public offering and the private placement of warrants into the trust account and not release such amounts except in specified circumstances, and to provide redemption rights to public stockholders as described herein) may be amended if approved by holders of 65% of our common stock, and corresponding provisions of the trust agreement governing the release of funds from our trust account may be amended if approved by holders of 65% of our common stock. In all other instances, our amended and restated certificate of incorporation may be amended by holders of a majority of our common stock, subject to applicable provisions of the DGCL or NASDAQ rules. Our initial stockholders, who collectively beneficially own 21.3% of our common stock, will participate in any vote to amend our amended and restated certificate of incorporation and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our amended and restated certificate of incorporation which govern our pre-business combination behavior more easily than some other blank check companies, and this may increase our ability to complete a business combination with which you do not agree. Our stockholders may pursue remedies against us for any breach of our amended and restated certificate of incorporation. Our sponsor, executive officers, and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated certificate of incorporation that would affect the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination by July 12, 2018, unless we provide our public stockholders with the opportunity to redeem their shares of common stock upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (net of the interest which may be withdrawn to pay taxes), divided by the number of then outstanding public shares. These agreements are contained in letter agreements that we have entered into with our sponsor, executive officers, and directors. Prior to acquiring any securities from our initial stockholders, permitted transferees must enter into a written agreement with us agreeing to be bound by the same restriction. Our stockholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against our sponsor, executive officers, directors or director nominees for any breach of these agreements. As a result, in the event of a breach, our stockholders would need to pursue a stockholder derivative action, subject to applicable law.
We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.
Although we have not yet entered into any definitive agreement with any prospective target business, and thus cannot ascertain the capital requirements for our initial business combination, we anticipate that we will find the greatest number of opportunities for our initial business combination among companies with aggregate enterprise value of approximately $350 million to $750 million. If we are unable to use our capital stock in sufficient quantity in addition to the proceeds from our initial public offering and the private placement of units, the acquisition of a target business with enterprise value within this range will require that we seek additional financing in excess of the net proceeds of our initial public offering the sale of the private placement units. We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to complete our initial business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business. In addition, even if we do not need additional financing to complete our business combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after our business combination. If we are unable to complete our initial business combination, our public stockholders may only receive approximately $10.00 per share on the liquidation of our trust account, and our warrants will expire worthless.
Our initial stockholders control a substantial interest in us and thus may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support.
Our initial stockholders currently own 21.3% of our issued and outstanding shares of common stock. Accordingly, they may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support, including amendments to our amended and restated certificate of incorporation. If our initial stockholders purchase any additional shares of common stock in the aftermarket or in privately negotiated transactions, this would increase their control. Neither our initial stockholders nor, to our knowledge, any of our officers or directors, have any current intention to purchase additional securities, other than as disclosed in this report. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our common stock. In addition, our board of directors, whose members were elected by our sponsor, is divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. We may not hold an annual meeting of stockholders to elect new directors prior to the completion of our business combination, in which case all of the current directors will continue in office until at least the completion of the business combination. If there is an annual meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial stockholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial stockholders will continue to exert control at least until the completion of our business combination.
We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 65% of the then outstanding public warrants.
Our warrants are issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of our common stock purchasable upon exercise of a warrant.
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our common stock equals or exceeds $24.00 per share for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private placement warrants will be redeemable by us so long as they are held by their initial purchasers or their permitted transferees.
Our warrants may have an adverse effect on the market price of our common stock and make it more difficult to effectuate our business combination.
We issued warrants to purchase 7,500,000 shares of our common stock as part of the units offered in our initial public offering and, simultaneously with the closing of our initial public offering, we issued in a private placement an aggregate of 460,000 private placement warrants contained in the private placement units, each exercisable to purchase one-half of one share of common stock (or an aggregate of 230,000 shares of common stock) at $5.75 per half share. Warrants may be exercised only for a whole number of shares of common stock. To the extent we issue shares of common stock to effectuate a business transaction, the potential for the issuance of a substantial number of additional shares of common stock upon exercise of these warrants could make us a less attractive acquisition vehicle to a target business. Such warrants, when exercised, will increase the number of issued and outstanding shares of our common stock and reduce the value of the shares of common stock issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a business transaction or increase the cost of acquiring the target business. The private placement warrants are identical to the warrants sold as part of the units in our initial public offering except that, so long as they are held by our sponsor, Cantor Fitzgerald or their permitted transferees, (i) they will not be redeemable by us, (ii) they (including the common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the sponsor until 30 days after the completion of our initial business combination and (iii) they may be exercised by the holders on a cashless basis. In addition, for as long as the private placement warrants are held by Cantor Fitzgerald or its designees or affiliates, they may not be exercised after five years from the effective date of the registration statement for our initial public offering ..
Because each warrant is exercisable for only one-half of one share of our common stock, the units may be worth less than units of other blank check companies.
Each warrant is exercisable for one-half of one share of common stock. Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the warrant holder. As a result, warrant holders not purchasing an even number of warrants must sell an odd number of warrants in order to obtain full value from the fractional interest that will not be issued. This is different from other initial public offerings similar to ours whose units include one share of common stock and one warrant to purchase one whole share. We have established the components of the units in this way in order to reduce the dilutive effect of the warrants upon completion of a business combination since the warrants will be exercisable in the aggregate for half of the number of shares compared to units that each contain a warrant to purchase one whole share, thus making us, we believe, a more attractive merger partner for target businesses. Nevertheless, this unit structure may cause our units to be worth less than if our units included a warrant to purchase one whole share.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of NASDAQ and other applicable securities rules and regulations. Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.
A market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
The price of our securities may vary significantly due to one or more potential business combinations and general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.
NASDAQ may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our securities are currently listed on NASDAQ. However, we cannot assure you that our securities will continue to be listed on NASDAQ in the future or prior to our initial business combination. In order to continue listing our securities on NASDAQ prior to our initial business combination, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity (generally $2,500,000) and a minimum number of holders of our securities (generally 300 public holders). Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with NASDAQ’s initial listing requirements, which are more rigorous than NASDAQ’s continued listing requirements, in order to continue to maintain the listing of our securities on NASDAQ. For instance, our stock price would generally be required to be at least $4 per share, our stockholders’ equity would generally be required to be at least $5 million and we would be required to have 300 round-lot holders. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If NASDAQ delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
| ➤ | a limited availability of market quotations for our securities; |
| ➤ | reduced liquidity for our securities; |
| ➤ | a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| ➤ | a limited amount of news and analyst coverage; and |
| ➤ | a decreased ability to issue additional securities or obtain additional financing in the future. |
In addition, although we intend to satisfy the 80% requirement even if our securities are not listed on NASDAQ at the time of our initial business combination, if NASDAQ were to delist our securities for any reason, we may choose at that time not to comply with the requirement that our initial business combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of our signing a definitive agreement in connection with our initial business combination.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our units, common stock and warrants are listed on NASDAQ, our units, common stock and warrants are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the state of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on NASDAQ, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
Because we must furnish our stockholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with some prospective target businesses.
The federal proxy rules require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financing reporting standards, or IFRS, depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statements may also be required to be prepared in accordance with GAAP in connection with our current report on Form 8-K announcing the closing our initial business combination within four business days following such closing. These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed time frame.
We are an emerging growth company within the meaning of the Securities Act and, if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our business combination, require substantial financial and management resources, and increase the time and costs of completing an acquisition.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with this Annual Report on Form 10-K for the year ending December 31, 2017. Only in the event we are deemed to be a large accelerated filer or an accelerated filer will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target company with which we seek to complete our business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition.
Provisions in our amended and restated certificate of incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management.
Our amended and restated certificate of incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
If we effect our initial business combination with a company located in the United States but with operations or opportunities outside of the United States, we would be subject to a variety of additional risks that may negatively impact our operations.
If we effect our initial business combination with a company located in the United States but with operations or opportunities outside of the United States, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following:
| ➤ | costs and difficulties inherent in managing cross-border business operations |
| ➤ | rules and regulations regarding currency redemption; |
| ➤ | complex corporate withholding taxes on individuals; |
| ➤ | laws governing the manner in which future business combinations may be effected; |
| ➤ | tariffs and trade barriers; |
| ➤ | regulations related to customs and import/export matters; |
| ➤ | tax issues, such as tax law changes and variations in tax laws as compared to the United States; |
| ➤ | currency fluctuations and exchange controls; |
| ➤ | challenges in collecting accounts receivable; |
| ➤ | cultural and language differences; |
| ➤ | crime, strikes, riots, civil disturbances, terrorist attacks and wars; and |
| ➤ | deterioration of political relations with the United States. |
We may not be able to adequately address these additional risks. If we were unable to do so, our operations might suffer, which may adversely impact our results of operations and financial condition.
| Item 1B. | Unresolved Staff Comments |
None.
We do not own any real estate or other physical properties materially important to our operation. Our executive office is located at 3 Columbus Circle, 15th Floor, New York, NY 10019 . Commencing on July 8, 2016, M-III Partners LLC, an affiliate of Mohsin Meghji, our Chief Executive Officer, agreed to provide, at no cost to us, office space and general administrative services. Subsequent to July 8, 2016, certain general administrative services previously provided by M-III Partners LLC have been provided by its affiliate, M-III Partners, LP, and M-III Partners, LP has similarly agreed to provide, at no cost to us, such general administrative services. We consider our current office space adequate for our current operations.
To the knowledge of our management, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
| Item 4. | Mine Safety Disclosures |
Not applicable.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
(a) Market Information
Our units, common stock and warrants are each traded on the NASDAQ Capital Market under the symbols “MIIIU,” “MIII” and “MIIIW, respectively. Our units commenced public trading on July 8, 2016, and our common stock and warrants commenced public trading on August 24, 2016.
The table below sets forth, for the calendar quarter indicated, the high and low bid prices of our units, common stock and warrants as reported on the NASDAQ Capital Market for the period from July 8, 2016 through December 31, 2017.
| | | Units | | | Common Stock | | | Warrants | |
| | | Low | | | High | | | Low | | | High | | | Low | | | High | |
| Year Ended December 31, 2017 | | | | | | | | | | | | | | | |
| January 1, 2017 through March 31, 2017 | | $ | 9.83 | | | $ | 10.13 | | | $ | 9.60 | | | $ | 10.09 | | | $ | 0.21 | | | $ | 0.35 | |
| April 1, 2017 through June 30, 2017 | | $ | 10.04 | | | $ | 10.30 | | | $ | 9.50 | | | $ | 9.80 | | | $ | 0.30 | | | $ | 0.49 | |
| July 1, 2017 through September 30, 2017 | | $ | 10.17 | | | $ | 10.35 | | | $ | 9.77 | | | $ | 9.91 | | | $ | 0.45 | | | $ | 0.55 | |
| October 1, 2017 through December 31, 2017 | | $ | 10.29 | | | $ | 10.70 | | | $ | 9.79 | | | $ | 9.93 | | | $ | 0.50 | | | $ | 0.80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | |
| July 8, 2016 through September 30, 2016 | | $ | 9.63 | | | $ | 9.90 | | | $ | 9.645 | | | $ | 9.645 | | | $ | 0.2 | | | $ | 0.23 | |
| October 1, 2016 through December 31, 2016 | | $ | 9.75 | | | $ | 9.93 | | | $ | 9.43 | | | $ | 9.75 | | | $ | 0.18 | | | $ | 0.25 | |
On February 15, 2018, our common stock had a closing price of $9.99, our warrants had a closing price of $0.83 and our units had a closing price of $10.81.
On February 15, 2018, there were 4 holders of record of our units, 5 holders of record of our common stock and 1 holder of record of our warrants.
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends prior to the completion of our initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of our initial business combination. The payment of any cash dividends subsequent to our initial business combination will be within the discretion of our board of directors at such time. In addition, our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our initial business combination, our ability to declare dividends may be limited by restrictive covenants to which we may agree in connection therewith.
| (d) | Securities Authorized for Issuance Under Equity Compensation Plans. |
None.
| (e) | Recent Sales of Unregistered Securities |
None.
| (f) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.
Item 6. Selected Financial Data
The following table sets forth selected historical financial information derived from our audited financial statements as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2017 and December 31, 2016 and the period from August 4, 2015 (inception) through December 31, 2015. You should read the following selected financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes appearing elsewhere in this Report.
| Income Statement Data | | 2017 | | | 2016 | | | 2015 | |
| Loss from operations | | $ | (605,712 | ) | | $ | (111,754 | ) | | $ | (809 | ) |
| Interest Income | | | 957,510 | | | | 100,471 | | | | - | |
| Income Tax Provision | | | 148,580 | | | | - | | | | - | |
| Net Income (loss) | | | 203,219 | | | | (11,283 | ) | | $ | (809 | ) |
| | | | | | | | (Revised) | | | | | |
| Basic and diluted income (loss) per share (1) | | | (0.09 | ) | | | (0.02 | ) | | | (0.00 | ) |
| | | | | | | | | | | | | |
| Balance Sheet Data | | | | | | | | | | | | |
| Cash | | $ | 370,414 | | | $ | 869,058 | | | | 31,691 | |
| Cash and marketable securities held in Trust Account | | | 151,057,982 | | | | 150,100,471 | | | | - | |
| Total assets | | | 151,449,691 | | | | 151,030,821 | | | | 136,691 | |
| Total liabilities | | | 6,235,030 | | | | 6,019,380 | | | | 112,500 | |
| Ordinary shares subject to possible redemption | | | 140,214,660 | | | | 140,011,440 | | | | - | |
| Total shareholders' equity | | | 5,000,001 | | | | 5,000,001 | | | | 24,191 | |
| (1) | Net Income / (loss) per common share – basic and diluted excludes interest income attributable to the shares of common stock subject to redemption for the twelve months ended December 31, 2017 and 2016 of $695,339 and $73,179, respectively. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be readis based upon IEA’s consolidated financial statements included in conjunctionItem 8, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our consolidated financial statements and the notes thereto contained elsewhereaccompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of making judgments about 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 may differ from these estimates if conditions change or if certain key assumptions used in this Report. Certain information containedmaking these estimates ultimately prove to be inaccurate. For discussion of all of our significant accounting policies, see
Note 1. Business, Basis of Presentation and Significant Accounting Policies to our consolidated financial statements.
We believe that the accounting policies described below 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.
Revenue Recognition for Percentage-of-Completion Projects
Revenue from fixed-price contracts provides for a fixed amount of revenue for the entire project, subject to certain additions for changed scope or specifications. We recognize revenue from these contracts using the percentage-of-completion method. Under this method, the percentage of revenue to be recognized for a given project is measured by the percentage of costs incurred to date on the contract to the total estimated costs for the contract.
The estimation process for revenue recognized under the percentage-of-completion method is based on the professional knowledge and experience of our project managers, engineers and financial professionals. Our management reviews the estimates of contract revenue and costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected settlements of disputes related to contract price adjustments are factors that influence estimates of total contract value and total costs to complete those contracts and, therefore, our profit recognition. Changes in these factors may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined, which could materially affect our results of operations in the period in which such changes are recognized. Provisions for losses on uncompleted contracts are made in the period in which such losses are determined to be probable and the amount can be reasonably estimated. The substantial majority of fixed price contracts are completed within one year.
For an approved change order which can be reliably estimated as to price, the anticipated revenues and costs associated with the change order are added to the total contract value and total estimated costs of the project, respectively. When costs are incurred for a) an unapproved change order which is probable to be approved or b) an approved change order
which cannot be reliably estimated as to price, the total anticipated costs of the change order are added to both the total contract value and total estimated costs for the project. Once a change order becomes approved and reliably estimable, any margin related to the change order is added to the total contract value of the project.
Business Combinations
We account for our business combinations by recognizing and measuring in the financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interests (if applicable) in the acquiree at the acquisition date. The purchase is accounted for using the acquisition method, and the fair value of purchase consideration is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess, if any, of the fair value of the purchase consideration over the fair value of the identifiable net assets is recorded as goodwill. Conversely, the excess, if any, of the net fair values of the identifiable net assets over the fair value of the purchase consideration is recorded as a gain. The fair values of net assets acquired are calculated using expected cash flows and industry-standard valuation techniques and these valuations require management to make significant estimates and assumptions. These estimates and assumptions are inherently uncertain and, as a result, actual results may materially differ from estimates. Significant estimates include, but are not limited to, future expected cash flows, useful lives and discount rates.
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, or adjust the fair values, of acquisition-related assets and liabilities and/or consideration paid, and are referred to as “measurement period” adjustments. For the year ended December 31, 2018, measurement period adjustments related to an increase to goodwill of $10.2 million and further adjustments discussed in Note 2. Merger, Acquisitions and Discontinued Operations included in Item 8.
Goodwill
We have goodwill that has been recorded in connection with our acquisitions of businesses. Goodwill is tested for impairment at least annually and tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. Under applicable guidance, any impairment charges are required to be recorded as operating expenses. For the years ended December 31, 2018, 2017 and 2016, we performed a qualitative assessment for our goodwill by examining relevant events and circumstances that could have an effect on its fair value, 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 evaluation of these qualitative assessments, it was determined that there was no goodwill impairment for these years; however, goodwill may be impaired in future periods. Significant changes in the assumptions or estimates used in our impairment analyses, such as a reduction in profitability and/or cash flows, could result in non-cash goodwill impairment charges and materially affect our operating results.
Impairment of Property, Plant and Equipment and Intangibles
We review long-lived assets that are held and used for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared with the asset’s carrying amount to determine if there has been an impairment, which is calculated as the difference between the fair value of an asset and its carrying value. Estimates of future undiscounted cash flows are based on expected growth rates for the business, anticipated future economic conditions and estimates of residual values. Fair values take into consideration management’s estimates of risk-adjusted discount rates, which are believed to be consistent with assumptions that marketplace participants would use in their estimates of fair value. There were no impairments of property, plant and equipment or intangible assets recognized during the years ended December 31, 2018, 2017 and 2016.
Results of Operations
Comparison of Years Ended December 31, 2018 and 2017
The following table reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | 2018 vs. 2017 |
| (in thousands, except percentages) | | 2018 | | 2017 | | $ Change | % Change |
| Revenue | | $ | 779,343 |
| 100.0 | % | | $ | 454,949 |
| 100.0 | % | | 324,394 |
| 71.3 |
|
| Cost of revenue | | 747,817 |
| 96.0 | % | | 388,928 |
| 85.5 | % | | 358,889 |
| 92.3 |
|
| Gross profit | | 31,526 |
| 4.0 | % | | 66,021 |
| 14.5 | % | | (34,495 | ) | (52.2 | ) |
| Selling, general and administrative expenses | | 72,262 |
| 9.3 | % | | 33,543 |
| 7.4 | % | | 38,719 |
| 115.4 |
|
| (Loss) income from operations | | (40,736 | ) | (5.2 | )% | | 32,478 |
| 7.1 | % | | (73,214 | ) | (225.4 | ) |
| Other (expense) income, net: | | | | | | | |
|
|
| Interest expense, net | | (12,080 | ) | (1.6 | )% | | (2,201 | ) | (0.5 | )% | | (9,879 | ) | 448.8 |
|
| Contingent consideration fair value adjustment | | 46,291 |
| 5.9 | % | | — |
| — | % | | 46,291 |
| — |
|
| Other (expense) income | | (2,173 | ) | (0.3 | )% | | 111 |
| — | % | | (2,284 | ) | (2,057.7 | ) |
| (Loss) income before benefit (provision) for income taxes | | (8,698 | ) | (1.1 | )% | | 30,388 |
| 6.7 | % | | (39,086 | ) | (128.6 | ) |
| Benefit (provision) for income taxes | | 12,942 |
| 1.7 | % | | (13,863 | ) | (3.0 | )% | | 26,805 |
| (193.4 | ) |
| Net income | | $ | 4,244 |
| 0.5 | % | | $ | 16,525 |
| 3.6 | % | | (12,281 | ) | (74.3 | ) |
Revenue. Revenue increased by 71.3%, or $324.4 million, during the year ended December 31, 2018 as compared to the same period in 2017. The increase in revenue is primarily due to the increased project volume, coupled with larger revenue projects in 2018. The Company generated approximately $156.3 million more in revenue related to our top ten projects under construction this year compared to the prior year and, to a lesser extent, the fourth quarter revenue of $125.6 million from our acquired businesses.
Cost of revenue. Cost of revenue increased by 92.3%, or $358.9 million, during the year ended December 31, 2018 as compared to the same period in 2017, primarily due to the larger volume of business in 2018, including cost of revenue of $115.4 million from our acquired businesses. As discussed under "Impact of Seasonality and Cyclical Nature of Our Business," cost of revenue for the year was negatively impacted by multiple severe weather events that began in the late third quarter and continued into the fourth quarter of 2018. The weather conditions had a significant impact on the construction of six wind projects across South Texas, Iowa and Michigan resulting in additional labor, equipment and material costs. Although the Company is aggressively pursuing the collection of all amounts it is contractually owed due to weather-related delays, including collections on change orders resulting from force majeure provisions of certain customer contracts, at this time, the Company anticipates that these costs will not be recovered.
Gross profit. Gross profit decreased by 52.2%, or $34.5 million, during the year ended December 31, 2018 as compared to the same period in 2017. As a percentage of revenue, gross profit declined and totaled 4.0% for the year ended December 31, 2018 as compared to 14.5% in the prior-year period. The decrease in margin was primarily due to work stoppages related to extreme weather on six projects of $35.8 million coupled with a negative impact due to the previously disclosed customer dispute, both due to unbilled revenue and costs associated with the project, of approximately $8.5 million. To a lesser extent, the remaining decrease in margin also reflected early signs of labor and other cost inflation due to increasingly robust construction markets across the country.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by 115.4%, or $38.7 million, during the year ended December 31, 2018 as compared to the same period in 2017. Selling, general and administrative expenses were 9.3% of revenue for the year ended December 31, 2018, compared to 7.4% for the same period in 2017. The increase in selling, general and administrative expenses was primarily driven by $14.2 million of acquisition-related expenses incurred for our 2018 acquisitions, $8.5 million of Merger-related transaction costs and $6.9 million of staffing related expenses due to higher project volume and, to a lesser extent, the fourth quarter selling, general and administrative expenses of $8.6 million from our acquired businesses.
Interest expense, net. Interest expense, net increased by 448.8%, or $9.9 million, during the year ended December 31, 2018 as compared to the same period in 2017. This increase was driven by the increased borrowings under our lines of credit to support the increased revenue base from our wind business and our new term loan to finance the acquisition of our acquired businesses.
Contingent consideration fair value adjustment. In the fourth quarter of 2018, the Company recognized a $46.3 million adjustment to the fair value of its contingent consideration incurred in connection with the Merger. The merger agreement requires the Company to issue additional shares of our common stock to the Seller if certain financial targets for 2018 and 2019 are achieved. The Company may be required to issue such shares if the 2019 financial target is achieved. The fair value calculation derived an adjustment to the liability based on 2018 actual financial results and the expected probability of reaching the full amount of contingent consideration in 2019. See Note 8. Fair Value of Financial Instruments in Item 8 for further discussion related to inputs into the fair value adjustment.
Other income (expense). Other income decreased by 2,057.7%, or $2.3 million, to an expense of $2.2 million during the year ended December 31, 2018 as compared to the same period in 2017. The decrease in other income compared to the prior year period was primarily the result of a $1.8 million loss on the extinguishment of debt recognized in 2018.
Provision for income taxes. Income tax expense decreased by 193.4%, or $26.8 million, to a benefit of $12.9 million for the year ended December 31, 2018, compared to an expense of $13.9 million for the same period in 2017. The effective tax rates for the years ended December 31, 2018 and analysis set2017were 148.8% and 45.6%, respectively. The higher effective tax rate is primarily attributable to the permanent item pertaining to contingent consideration and state taxes, partially offset by tax law changes which reduced the federal statutory rate. The difference between the Company’s effective tax rate and the federal statutory rate primarily results from permanent adjustments and current state taxes. There were no changes in uncertain tax positions during the years ended December 31, 2018 and 2017.
Comparison of Years Ended December 31, 2017 and 2016
The following table reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
|
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | 2017 vs. 2016 |
| (in thousands, except percentages) | | 2017 | | 2016 | | $ Change | % Change |
| Revenue | | $ | 454,949 |
| 100.0 | % | | $ | 602,665 |
| 100.0 | % | | (147,716 | ) | (24.5 | ) |
| Cost of revenue | | 388,928 |
| 85.5 | % | | 517,419 |
| 85.9 | % | | (128,491 | ) | (24.8 | ) |
| Gross profit | | 66,021 |
| 14.5 | % | | 85,246 |
| 14.1 | % | | (19,225 | ) | (22.6 | ) |
| Selling, general and administrative expenses | | 33,543 |
| 7.4 | % | | 30,705 |
| 5.1 | % | | 2,838 |
| 9.2 |
|
| Income from operations | | 32,478 |
| 7.1 | % | | 54,541 |
| 9.0 | % | | (22,063 | ) | (40.5 | ) |
| Other (expense) income, net: | | |
| | |
| |
|
|
| Interest expense, net | | (2,201 | ) | (0.5 | )% | | (516 | ) | (0.1 | )% | | (1,685 | ) | 326.6 |
|
| Other income | | 111 |
| — | % | | 213 |
| — | % | | (102 | ) | (47.9 | ) |
| Income before (provision) benefit for income taxes | | 30,388 |
| 6.7 | % | | 54,238 |
| 9.0 | % | | (23,850 | ) | (44.0 | ) |
| (Provision) benefit for income taxes | | (13,863 | ) | (3.0 | )% | | 10,213 |
| 1.7 | % | | (24,076 | ) | (235.7 | ) |
| Net income from continuing operations | | 16,525 |
| 3.6 | % | | 64,451 |
| 10.7 | % | | (47,926 | ) | (74.4 | ) |
| Net income from discontinued operations | | — |
| — | % | | 1,087 |
| 0.2 | % | | (1,087 | ) | (100.0 | ) |
| Net income | | $ | 16,525 |
| 3.6 | % | | $ | 65,538 |
| 10.9 | % | | (49,013 | ) | (74.8 | ) |
Revenue. For the year ended December 31, 2017, consolidated revenue decreased to $454.9 million from $602.7 million, a decrease of approximately $147.7 million, or 24.5%, as compared with the prior year. In 2016, a refocus on U.S. wind energy construction, as well as a pull forward of volume in anticipation of a decline in tax credits in 2017, resulted in higher revenue in 2016 and caused a slow-down in projects in 2017. Ultimately, the tax credits were extended in 2017, but revenue in the fourth quarter of 2017 was negatively impacted by uncertainty caused by the legislative process for enacting the 2017 Tax Act, which caused some participants in the renewable energy industry to delay new development projects until the ultimate terms of the 2017 Tax Act could be evaluated.
Cost of revenue. Cost of revenue was $388.9 million, or 85.5% of revenue, for the year ended December 31, 2017, as compared to $517.4 million, or 85.9% of revenue, for the same period in 2016, for a decrease of approximately $128.5 million,
or 24.8%. The decrease in the dollar amount cost of revenue was primarily driven by decreased project activity. We were able to achieve a slight reduction in our cost of revenue percentage primarily through our continued focus on operating efficiency.
Gross profit. Gross profit decreased by $19.2 million, or 22.6%, to $66.0 million for the year ended December 31, 2017, as compared to $85.2 million for the same period in 2016. The decrease in 2017 gross profit was due to decreased project activity relative to the prior year. A refocus on core U.S. operations and strengthened project controls in 2016 carried over to 2017 allowing us to maintain gross profit as a percentage of revenue of 14.5%, as compared to 14.1% in 2016.
Selling, general and administrative expenses. Selling, general and administrative expenses were $33.5 million, or 7.4% of revenue for the year ended December 31, 2017, as compared to $30.7 million, or 5.1% of revenue for the same period in 2016, an increase of $2.8 million, or 9.2%. The increase in selling, general and administrative expenses was primarily driven by an increase to diversification selling, general and administrative expenses related to our recent initiatives to grow our solar and transmission businesses of $3.8 million, as well as $3.8 million consulting fees and professional expenses, offset by a decrease in payments of employee incentives.
Interest expense, net. Interest expense, net of interest income, was $2.2 million for the year ended December 31, 2017 as compared to $0.5 million for the same period in 2016. This increase was primarily driven by a significant increase in equipment financed under capital leases.
Other income. Other income was $0.1 million for the year ended December 31, 2017 as compared to $0.2 million for the same period in 2016. The decrease in other income was primarily driven by lower gains on the sale of assets in 2017.
(Provision) benefit for income taxes. Income tax provision was $13.9 million for the year ended December 31, 2017 as compared with a tax benefit of $10.2 million for the year ended December 31, 2016, an increase of approximately $24.1 million. The increase in provision for income taxes was primarily driven by the release of the valuation allowance during 2016.
Net income from discontinued operations. Net income from discontinued operations was $1.1 million for the year ended December 31, 2016 and related to the wind down of our Canadian operations that concluded in 2016.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, our cash balances and availability under our revolving credit facility. Our primary liquidity needs are for working capital, debt service, interest on our preferred stock, income taxes, capital expenditures, insurance collateral, and strategic acquisitions in the form of cash and letters of credit.
We anticipate that our existing cash balances, funds generated from operations and borrowings will be sufficient to meet our cash requirements for the next twelve months. As of December 31, 2018, we had approximately $71 million in cash and no availability under our credit facility. To the extent that cash from operations and borrowings under our revolving credit facility are not sufficient to meet our liquidity needs in the next twelve months, we expect to access other sources of liquidity through alternative sources such as issuance of debt and equity securities, expansions of our credit facility or other sources. There can be no assurance that any such sources will be available or if they are available that we can obtain capital from such sources on commercially reasonable terms.
Capital Expenditures
For the year ended December 31, 2018, we incurred $49.0 million in equipment purchases under capital lease and an additional $4.2 million in cash purchases. We estimate that we will spend approximately two percent of revenue for capital expenditures in 2019. Actual capital expenditures may increase or decrease in the future depending upon business activity levels, as well as ongoing assessments of equipment lease versus buy decisions based on short and long-term equipment requirements.
Working Capital
We require 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. Our business is typically slower in the first quarter of each calendar year. Working capital needs are generally lower during the spring when projects are awarded and we receive down payments from customers. Conversely, working capital needs generally increase during the summer or fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate. Again,
working capital needs are typically lower and working capital is 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.
Generally, we receive 5% to 10% cash payments from our customers upon the inception of the projects. Timing of billing milestones and project close-outs can contribute to changes in unbilled revenue. As of December 31, 2018, substantially all of our costs and estimated earnings in excess of billings on uncompleted contracts will be billed to customers in the normal course of business. Net accounts receivable balances, which consist of contract billings as well as costs and estimated earnings in excess of billings on uncompleted contracts and retainage, increased to $272.5 million as of December 31, 2018 from $79.6 million as of December 31, 2017, due primarily to higher levels of revenue, timing of project activity and collection of billings to customers.
Our 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%) 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. 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.
Sources and Uses of Cash
Sources and uses of cash are summarized below for the periods indicated:
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| (in thousands) | | 2018 | | 2017 | | 2016 |
| Net cash provided by (used in) operating activities | | $ | 47,018 |
| | $ | (9,109 | ) | | $ | 53,591 |
|
| Net cash used in investing activities | | (169,834 | ) | | (3,508 | ) | | (3,000 | ) |
| Net cash provided by (used in) financing activities | | 189,250 |
| | (4,113 | ) | | (29,617 | ) |
Operating Activities. Net cash provided by operating activities for the year ended December 31, 2018 was $47.0 million as compared to net cash used in operating activities of $9.1 million for the same period in 2017. The increase in net cash provided by operating activities reflects the timing of receipts from customers and payments to vendors in the ordinary course of business. The increase is primarily attributable to $122.6 million less cash paid for accounts payable and accrued liabilities, coupled with a $46.6 million increase from billings in excess of costs and estimated earnings on uncompleted contracts, partially offset by $45.3 million less cash collected from accounts receivable, a decrease in operating income (excluding non-cash items) of $61.5 million and additional cash paid for interest of $8.6 million.
The $62.7 million decrease in operating cash flow for the year ended December 31, 2017 as compared to the same period in 2016 was primarily attributable to $45.1 million more cash paid for accounts payable and accrued liabilities, coupled with a $33.0 million decrease from billings in excess of costs and estimated earnings on uncompleted contracts, partially offset by $30.0 million more cash collected from accounts receivable.
Investing Activities. Net cash used in investing activities for the year ended December 31, 2018 was $169.8 million as compared to $3.5 million for the same period in 2017. The increase in net cash used in investing activities in 2018 primarily reflects the net cash paid for two acquisitions of $166.7 million. The $0.5 million decrease in investing cash flow for the year ended December 31, 2017 as compared to the same period in 2016 was due to a $1.5 million increase in use of cash for company-owned life insurance, offset by a $0.6 million decrease in property, plant and equipment purchases and a $0.4 million increase in proceeds received from the sale of property, plant and equipment.
Financing Activities. Net cash provided by financing activities for the year ended December 31, 2018 was $189.3 million as compared to net cash used in financing activities of $4.1 million for the same period in 2017. The $193.4 million increase in cash in 2018 is primarily attributable to an increase in net proceeds from debt of $189.6 million, coupled with reduced distributions of $34.7 million, which was partially offset by a $25.8 million use of cash in connection with the Merger and a $4.1 million increase in capital lease payments. The $25.5 million increase in financing cash flow for the year ended December 31, 2017 as compared to the same period in 2016 was primarily driven by $33.7 million of proceeds received from our old line of credit in 2017 compared to $27.9 million of payments in 2016, partially offset by $34.7 million of distributions in 2017.
Debt
For further discussion of our term loan facility, our revolving line of credit and corresponding debt covenants, see Note 9. Debt in the notes to our audited consolidated financial statements included in Item 8.
Letters of Credit and Surety Bonds
In the ordinary course of business, we are required to post letters of credit and surety bonds to customers in support of performance under certain contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit or surety bond commits the issuer to pay specified amounts to the holder of the letter of credit or surety bond under certain conditions. If the letter of credit or surety bond issuer were required to pay any amount to a holder, we would be required to reimburse the issuer, which, depending upon the circumstances, could result in a charge to earnings. As of December 31, 2018 and 2017, we were contingently liable under letters of credit issued under our respective revolving lines of credit in the amount of $3.0 million and $5.9 million, respectively, related to projects. In addition, as of December 31, 2018 and 2017, we had outstanding surety bonds on projects of $1.68 billion and $535.5 million, respectively, which includes the bonding lines of the acquired companies as of December 31, 2018.
Contractual Obligations
The following table sets forth below includes forward-lookingour contractual obligations and commitments for the periods indicated as of December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments due by period |
| (in thousands) | | Total | | Less than 1 year | | 1 to 3 years | | 3 to 5 years | | More than 5 years |
Debt (principal)(1) | | $ | 351,841 |
| | $ | 32,580 |
| | $ | 62,279 |
| | $ | 106,944 |
| | $ | 150,038 |
|
Debt (interest)(2) | | 130,937 |
| | 30,084 |
| | 51,648 |
| | 39,556 |
| | 9,649 |
|
Capital leases(3) | | 71,197 |
| | 21,240 |
| | 37,254 |
| | 12,703 |
| | — |
|
Operating leases(4) | | 34,167 |
| | 6,674 |
| | 8,461 |
| | 4,329 |
| | 14,703 |
|
| Total | | $ | 588,142 |
| | $ | 90,578 |
| | $ | 159,642 |
| | $ | 163,532 |
| | $ | 174,390 |
|
———
| |
| (1) | Represents the contractual principal payment due dates on our outstanding debt. |
| |
| (2) | Includes variable rate interest using December 31, 2018 rates. |
| |
| (3) | We have obligations, exclusive of associated interest, recognized under various capital leases for equipment totaling $63.5 million at December 31, 2018. Net amounts recognized within property, plant and equipment, net in the consolidated balance sheet under these capitalized lease agreements at December 31, 2018 totaled $66.8 million. |
| |
| (4) | We lease real estate, vehicles, office equipment and certain construction equipment from unrelated parties under non-cancelable leases. Lease terms range from month-to-month to terms expiring through 2038. |
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, letter of credit obligations, surety and performance and payment bonds entered into in the normal course of business, liabilities associated with deferred compensation plans and liabilities associated with certain indemnification and guarantee arrangements. See Note 9. Debt and Note 10. Commitments and Contingencies to our consolidated financial statements that involve risksfor further discussion pertaining to certain of our off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
See Note 1. Business, Basis of Presentation and uncertainties.Special Note Regarding Forward-Looking Statements
AllSignificant Accounting Policies
to our consolidated financial statements other than statements of historical fact included in this FormAnnual Report on 10-K for disclosures concerning recently issued accounting standards. These disclosures are incorporated herein by reference. Backlog
For companies in the construction industry, backlog can be an indicator of future revenue streams. Estimated backlog represents the amount of revenue we expect to realize beyond 2020 from the uncompleted portions of existing construction
contracts, including without limitation, statementsnew contracts under “Management’s Discussionwhich work has not begun and Analysisawarded contracts for which the definitive project documentation is being prepared, as well as revenue from change orders and renewal options. Estimated backlog for work under fixed price contracts and cost-reimbursable contracts is determined based on historical trends, anticipated seasonal impacts, experience from similar projects and estimates of Financial Condition and Results of Operations” regardingcustomer demand based on communications with our financial position, business strategy and the plans and objectives of management for future operations,customers. Cost-reimbursable contracts are forward-looking statements. When usedincluded in this Form 10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements arebacklog based on the beliefsestimated total contract price upon completion.
As of December 31, 2018, our total backlog was approximately $2.1 billion compared to $1.1 billion as of December 31, 2017. The $1.0 billion increase is primarily related to $833.7 million of backlog related to our acquisitions coupled with $166.3 million of an increase in backlog related to our legacy IEA business. Based on historical trends in the Company’s backlog, we believe awarded contracts to be firm and that the revenue for such contracts will be recognized over the life of the project. Timing of revenue for construction and installation projects included in our backlog can be subject to change as a result of customer delays, regulatory factors and/or other project-related factors. These changes could cause estimated revenue to be realized in periods later than originally expected, or not at all. In the past, we have occasionally experienced postponements, cancellations and reductions on construction projects, due to market volatility and regulatory factors. There can be no assurance as to our customers’ requirements or the accuracy of our estimates. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings.
Backlog is not a term recognized under GAAP, although it is a common measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies used by others. See ‘‘Item 1A. Risk Factors’’ for a discussion of the risks associated with our backlog.
Quarterly Financial Information (Unaudited)
Summarized quarterly results of operations for the year ended December 31, 2018 were as follows:
|
| | | | | | | | | | | | | | | |
| ($ in thousands, except per share data) | Q1 | | Q2 | | Q3 | | Q4 |
| Revenue | $ | 50,135 |
| | $ | 174,073 |
| | $ | 279,279 |
| | $ | 275,856 |
|
| Gross profit | (3,085 | ) | | 16,799 |
| | 27,008 |
| | (9,196 | ) |
| (Loss) income from operations | (20,045 | ) | | 7,601 |
| | 10,044 |
| | (38,336 | ) |
| Net (loss) income | (17,392 | ) | | 4,915 |
| | 5,736 |
| | 10,985 |
|
| | | | | | | | |
| Net (loss) income per common share - basic | $ | (0.81 | ) | | $ | 0.20 |
| | $ | 0.24 |
| | $ | (1.63 | ) |
| Net (loss) income per common share - diluted | $ | (0.81 | ) | | $ | 0.14 |
| | $ | 0.17 |
| | $ | (1.63 | ) |
| | | | | | | | |
| Weighted average common shares outstanding - basic | 21,577,650 |
| | 21,577,650 |
| | 21,577,650 |
| | 21,928,029 |
|
| Weighted average common shares outstanding - diluted | 21,577,650 |
| | 34,392,159 |
| | 34,100,088 |
| | 21,928,029 |
|
Summarized quarterly results of operations for the year ended December 31, 2017 were as follows:
|
| | | | | | | | | | | | | | | |
| ($ in thousands, except per share data) | Q1 | | Q2 | | Q3 | | Q4 |
| Revenue | $ | 52,256 |
| | $ | 106,042 |
| | $ | 177,830 |
| | $ | 118,821 |
|
| Gross profit | 8,064 |
| | 14,204 |
| | 24,304 |
| | 19,449 |
|
| Income from operations | 1,997 |
| | 5,809 |
| | 14,813 |
| | 9,859 |
|
| Net income | 1,390 |
| | 3,588 |
| | 9,155 |
| | 2,392 |
|
| | | | | | | | |
| Net income per common share - basic and diluted | $ | 0.06 |
| | $ | 0.17 |
| | $ | 0.42 |
| | $ | 0.11 |
|
| | | | | | | | |
| Weighted average common shares outstanding - basic and diluted | 21,577,650 |
| | 21,577,650 |
| | 21,577,650 |
| | 21,577,650 |
|
Certain transactions affecting comparisons of the Company's quarterly results, which may not represent the amounts recognized for the full year for such transactions, include the following:
The Company completed a merger with a special purpose acquisition corporation in the first quarter of 2018 and therefore had significant transaction costs of $8.5 million.
There were two acquisitions completed in the second half of 2018, which contributed to Revenue and Cost of Revenue of $125.6 million and $115.4 million, respectively.
Certain projects incurred significant weather related costs in the fourth quarter of 2018, that increased costs required to complete those projects and decreased gross margin significantly.
Net income used in calculation of earnings per share reflects payment of $1.6 million of preferred dividends and an adjustment of $46.3 million for the contingent consideration fair value adjustment in 2018. See Note 11. Earnings (Loss) Per Share in the notes to the audited consolidated financial statements included in Item 8.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credit Risk
We are subject to concentrations of credit risk related to our net receivable position with customers, which includes amounts related to billed and unbilled accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts net of advanced billings with the same customer. We grant credit under normal payment terms, generally without collateral, and as a result, we are subject to potential credit risk related to our customers’ ability to pay for services provided. This risk may be heightened if there is depressed economic and financial market conditions. However, we believe the concentration of credit risk related to billed and unbilled receivables and costs and estimated earnings in excess of billings on uncompleted contracts is limited because of the high creditworthiness and diversity of our customers.
Interest Rate Risk
Borrowings under our new credit facility are at variable rates of interest and expose us to interest rate risk. As of December 31, 2018, we had not entered into any derivative financial instruments to manage this interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Our outstanding principal on debt as of December 31, 2018 was $351.8 million. A one hundred basis point change in the LIBOR rate would increase or decrease interest expense by $3.5 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
| |
| Index to Consolidated Financial Statements |
| Page |
| |
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| |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Infrastructure and Energy Alternatives, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Infrastructure and Energy Alternatives, Inc. (the "Company") as of December 31, 2018, the related consolidated statements of operations, stockholders' equity, and cash flows, for the year ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity withaccounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as assumptions made by,evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Indianapolis, Indiana
March 14, 2019
We have served as the Company's auditor since 2018.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and information currently availableBoard of Directors of Infrastructure and Energy Alternatives, Inc. and Subsidiaries
Indianapolis, Indiana
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Infrastructure and Energy Alternatives, Inc. and Subsidiaries (the "Company") as of December 31, 2017, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2017, and the related notes(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management.
Actual results could differ materially from those contemplated byOur responsibility is to express an opinion on the
forward-lookingCompany's financial statements
as a result of certain factors detailed inbased on our
filings with the SEC.Overview
audits. We are a blank checkpublic accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2016.
/s/ Crowe LLP
Crowe LLP
Indianapolis, Indiana
February 19, 2018
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Consolidated Balance Sheets
($ in thousands, except per share data)
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 71,311 |
| | $ | 4,877 |
|
| Accounts receivable, net | 225,366 |
| | 60,981 |
|
| Costs and estimated earnings in excess of billings on uncompleted contracts | 47,121 |
| | 18,613 |
|
| Prepaid expenses and other current assets | 12,864 |
| | 862 |
|
| Total current assets | 356,662 |
| | 85,333 |
|
| | | | |
| Property, plant and equipment, net | 176,178 |
| | 30,905 |
|
| Intangible assets, net | 50,874 |
| | 69 |
|
| Goodwill | 40,257 |
| | 3,020 |
|
| Company-owned life insurance | 3,854 |
| | 4,250 |
|
| Deferred income taxes | 11,215 |
| | 3,080 |
|
| Other assets | 188 |
| | 46 |
|
| Total assets | $ | 639,228 |
| | $ | 126,703 |
|
| | | | |
| Liabilities, Preferred Stock and Stockholders' Deficit | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 158,075 |
| | $ | 23,880 |
|
| Accrued liabilities | 94,059 |
| | 46,150 |
|
| Billings in excess of costs and estimated earnings on uncompleted contracts | 62,234 |
| | 7,398 |
|
| Current portion of capital lease obligations | 17,615 |
| | 4,691 |
|
| Line of credit - short-term | — |
| | 33,674 |
|
| Current portion of long-term debt | 32,580 |
| | — |
|
| Total current liabilities | 364,563 |
| | 115,793 |
|
| | | | |
| Capital lease obligations, less current portion | 45,912 |
| | 15,899 |
|
| Long-term debt, less current portion | 295,727 |
| | — |
|
| Deferred compensation | 6,157 |
| | 5,030 |
|
| Contingent consideration | 23,082 |
| | — |
|
| Total liabilities | 735,441 |
| | 136,722 |
|
| | | | |
| Commitments and contingencies: |
| |
|
| | | | |
| Preferred stock, $0.0001 par value per share; 1,000,000 shares authorized; 34,965 and 0 shares issued and outstanding at December 31, 2018 and 2017, respectively | 34,965 |
| | — |
|
| | | | |
| Stockholders' equity (deficit): | | | |
| Common stock, $0.0001 par value per share; 100,000,000 shares authorized; 22,155,271 and 21,577,650 shares issued and outstanding at December 31, 2018 and 2017, respectively | 2 |
| | 2 |
|
| Additional paid-in capital | 4,751 |
| | — |
|
| Accumulated deficit | (135,931 | ) | | (10,021 | ) |
| Total stockholders' deficit | (131,178 | ) | | (10,019 | ) |
| Total liabilities, preferred stock and stockholders' deficit | $ | 639,228 |
| | $ | 126,703 |
|
See accompanying notes to consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Consolidated Statements of Operations
($ in thousands, except per share data)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Revenue | $ | 779,343 |
| | $ | 454,949 |
| | $ | 602,665 |
|
| Cost of revenue | 747,817 |
| | 388,928 |
| | 517,419 |
|
| Gross profit | 31,526 |
| | 66,021 |
| | 85,246 |
|
| | | | | | |
| Selling, general and administrative expenses | 72,262 |
| | 33,543 |
| | 30,705 |
|
| (Loss) income from operations | (40,736 | ) | | 32,478 |
| | 54,541 |
|
| | | | | | |
| Other (expense) income, net: | | | | | |
| Interest expense, net | (12,080 | ) | | (2,201 | ) | | (516 | ) |
| Contingent consideration fair value adjustment | 46,291 |
| | — |
| | — |
|
| Other (expense) income | (2,173 | ) | | 111 |
| | 213 |
|
| (Loss) income before benefit (provision) for income taxes | (8,698 | ) | | 30,388 |
| | 54,238 |
|
| | | | | | |
| Benefit (provision) for income taxes | 12,942 |
| | (13,863 | ) | | 10,213 |
|
| | | | | | |
| Net income from continuing operations | 4,244 |
| | 16,525 |
| | 64,451 |
|
| | | | | | |
| Net income from discontinued operations | — |
| | — |
| | 1,087 |
|
| | | | | | |
| Net income | $ | 4,244 |
| | $ | 16,525 |
| | $ | 65,538 |
|
| | | | | | |
| Net (loss) income from continuing operations per common share - basic and diluted | $ | (2.01 | ) | | $ | 0.77 |
| | $ | 2.99 |
|
| Net income from discontinued operations per common share - basic and diluted | — |
| | — |
| | 0.05 |
|
| Net (loss) income per common share - basic and diluted | $ | (2.01 | ) | | $ | 0.77 |
| | $ | 3.04 |
|
| | | | | | |
| Weighted average common shares outstanding - basic and diluted | 21,665,965 |
| | 21,577,650 |
| | 21,577,650 |
|
See accompanying notes to consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Equity (Deficit) |
| | Shares | | Par Value | | | | |
| Balance, January 1, 2016 | — |
| | $ | — |
| | $ | 12,563 |
| | $ | (88,674 | ) | | $ | 267 |
| | $ | (75,844 | ) |
| Retroactive effect of shares issued in 2018 Merger | 21,578 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
|
| Net income | — |
| | — |
| | — |
| | 65,538 |
| | — |
| | 65,538 |
|
| Change in foreign currency translation | — |
| | — |
| | — |
| | — |
| | (780 | ) | | (780 | ) |
| Cumulative translation adjustment on discontinued operations | — |
| | — |
| | — |
| | — |
| | 513 |
| | 513 |
|
| Share-based compensation | — |
| | — |
| | 161 |
| | — |
| | — |
| | 161 |
|
| Conversion of subordinated debt into equity | — |
| | — |
| | 23,287 |
| | — |
| | — |
| | 23,287 |
|
| Balance, December 31, 2016 | 21,578 |
| | 2 |
| | 36,009 |
| | (23,136 | ) | | — |
| | 12,875 |
|
| Net income | — |
| | — |
| | — |
| | 16,525 |
| | — |
| | 16,525 |
|
| Share-based compensation | — |
| | — |
| | 53 |
| | — |
| | — |
| | 53 |
|
| Distributions | — |
| | — |
| | (31,328 | ) | | (3,410 | ) | | — |
| | (34,738 | ) |
| Distribution of land and building | — |
| | — |
| | (4,734 | ) | | — |
| | — |
| | (4,734 | ) |
| Balance, December 31, 2017 | 21,578 |
| | 2 |
| | — |
| | (10,021 | ) | | — |
| | (10,019 | ) |
| Net income | — |
| | — |
| | — |
| | 4,244 |
| | — |
| | 4,244 |
|
| Share-based compensation | — |
| | — |
| | 1,072 |
| | — |
| | — |
| | 1,072 |
|
| Issuance of common stock | 577 |
| | — |
| | 5,276 |
| | — |
| | — |
| | 5,276 |
|
| Issuance of preferred stock | — |
| | — |
| | — |
| | (34,965 | ) | | — |
| | (34,965 | ) |
| Contingent consideration | — |
| | — |
| | — |
| | (69,373 | ) | | — |
| | (69,373 | ) |
| Merger recapitalization transaction | — |
| | — |
| | — |
| | (25,816 | ) | | — |
| | (25,816 | ) |
| Preferred dividends | — |
| | — |
| | (1,597 | ) | | — |
| | — |
| | (1,597 | ) |
| Balance, December 31, 2018 | 22,155 |
| | $ | 2 |
| | $ | 4,751 |
| | $ | (135,931 | ) | | $ | — |
| | $ | (131,178 | ) |
See accompanying notes to consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Consolidated Statements of Cash Flows
($ in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 4,244 |
| | $ | 16,525 |
| | $ | 65,538 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
| Depreciation and amortization | 16,699 |
| | 5,044 |
| | 3,443 |
|
| Contingent consideration fair value adjustment | (46,291 | ) | | — |
| | — |
|
| Amortization of debt discounts and issuance costs | 1,321 |
| | — |
| | — |
|
| Loss on extinguishment of debt | 1,836 |
| | — |
| | — |
|
| Interest accrual on subordinated debt | — |
| | — |
| | 1,862 |
|
| Share-based compensation expense | 1,072 |
| | 53 |
| | 161 |
|
| Deferred compensation | (482 | ) | | 944 |
| | (446 | ) |
| Allowance for doubtful accounts | (174 | ) | | 81 |
| | (11,942 | ) |
| Deferred income taxes | (12,017 | ) | | 11,451 |
| | (14,687 | ) |
| Other, net | 1,034 |
| | (244 | ) | | (847 | ) |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | (36,430 | ) | | 8,915 |
| | (21,089 | ) |
| Costs and estimated earnings in excess of billings on uncompleted contracts | (2,901 | ) | | (4,470 | ) | | 2,093 |
|
| Prepaid expenses and other assets | (2,123 | ) | | 587 |
| | (539 | ) |
| Accounts payable and accrued liabilities | 95,398 |
| | (27,212 | ) | | 17,862 |
|
| Billings in excess of costs and estimated earnings on uncompleted contracts | 25,832 |
| | (20,783 | ) | | 12,182 |
|
| Net cash provided by (used in) operating activities | 47,018 |
| | (9,109 | ) | | 53,591 |
|
| Cash flows from investing activities: | | | | | |
| Company-owned life insurance | 396 |
| | (2,036 | ) | | (514 | ) |
| Purchases of property, plant and equipment | (4,230 | ) | | (2,248 | ) | | (2,821 | ) |
| Proceeds from sale of property, plant and equipment | 690 |
| | 776 |
| | 335 |
|
| Acquisition of businesses, net of cash acquired | (166,690 | ) | | — |
| | — |
|
| Net cash used in investing activities | (169,834 | ) | | (3,508 | ) | | (3,000 | ) |
| Cash flows from financing activities: | | | | | |
| Proceeds from long-term debt and line of credit - short-term | 497,272 |
| | 33,674 |
| | — |
|
| Payments on long-term debt | (155,359 | ) | | — |
| | — |
|
| Payments on line of credit - short-term | (38,447 | ) | | — |
| | (27,946 | ) |
| Extinguishment of debt | (53,549 | ) | | — |
| | — |
|
| Debt financing fees | (26,641 | ) | | — |
| | — |
|
| Payments on capital lease obligations | (7,138 | ) | | (3,049 | ) | | (1,671 | ) |
| Distributions | — |
| | (34,738 | ) | | — |
|
| Preferred dividends | (1,072 | ) | | — |
| | — |
|
| Merger recapitalization transaction | (25,816 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | 189,250 |
| | (4,113 | ) | | (29,617 | ) |
| Effect of currency translation on cash | — |
| | — |
| | 633 |
|
| Net change in cash and cash equivalents | 66,434 |
| | (16,730 | ) | | 21,607 |
|
| Cash and cash equivalents, beginning of the period | 4,877 |
| | 21,607 |
| | — |
|
| Cash and cash equivalents, end of the period | $ | 71,311 |
| | $ | 4,877 |
| | $ | 21,607 |
|
See accompanying notes to consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Consolidated Statements of Cash Flows
($ in thousands)
(Continued)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Supplemental disclosures: | | | | | |
| Cash paid for interest | $ | 10,817 |
| | $ | 2,221 |
| | $ | 1,189 |
|
| Cash paid (refund) for income taxes | (962 | ) | | 3,686 |
| | 2,673 |
|
| Schedule of non-cash activities: | | | | | |
| Acquisition of assets/liabilities through capital lease | $ | 48,951 |
| | $ | 18,309 |
| | $ | 7,501 |
|
| Merger-related contingent consideration | 69,373 |
| | — |
| | — |
|
| Issuance of common stock | 95,558 |
| | — |
| | — |
|
| Issuance of preferred stock | 34,965 |
| | — |
| | — |
|
| Preferred dividends declared | 525 |
| | — |
| | — |
|
| Conversion of subordinated debt into equity | — |
| | — |
| | 23,287 |
|
| Distribution of land and building | — |
| | 4,734 |
| | — |
|
See accompanying notes to consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Notes to Consolidated Financial Statements
Note 1. Business, Basis of Presentation and Significant Accounting Policies
Infrastructure and Energy Alternatives, Inc. (f/k/a M III Acquisition Corporation (“M III”)), a Delaware corporation, is a holding company incorporatedorganized on August 4, 2015 as a Delaware corporation and formed for(together with its wholly-owned subsidiaries, “IEA” or the purpose of effecting“Company”).
On March 26, 2018 (the “Closing Date”), the Company consummated a merger capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intend(the “Merger”) pursuant to effectuate our initial business combination using cash from the proceeds of our initial public offering and our private placement units comprised of stock and warrants that occurred simultaneously with the completion of our initial public offering, our capital stock, debt or a combination of cash, stock and debt.The issuance of additional shares of our stock in our initial business combination:
| Ø | may significantly dilute the equity interest of our stockholders; |
| Ø | may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to our common stock; |
| Ø | could cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; |
| Ø | may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and |
| Ø | may decrease prevailing market prices for our common stock and/or warrants. |
Similarly, if we issue debt securities, it could result in:
| Ø | a decrease in the prevailing market prices for our common stock and/or warrants. |
| Ø | default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; |
| Ø | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants (including, among others, those that require the maintenance of certain financial ratios or reserves) without a waiver or renegotiation of that covenant; |
| Ø | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
| Ø | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| Ø | our inability to pay dividends on our common stock; |
| Ø | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
| Ø | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| Ø | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and |
| Ø | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. |
As indicated in the accompanying financial statements, at December 31, 2017 and 2016, we had approximately $151,428,396 and $150,969,529, respectively, in cash, of which $151,057,982 and $150,100,471, respectively, was held in the trust account. We expect to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our initial business combination will be successful.
Agreement for Business Combination
The Business Combination
On November 3, 2017, we entered into an Agreement and Plan of Merger, dated November 3, 2017 (as amended, the “Merger Agreement”), by Amendment No. 1 thereto, dated November 15, 2017, Amendment No. 2 thereto, dated December 27, 2017, Amendment No. 3 thereto, dated January 9, 2017, and Amendment No. 4 thereto, dated February 7, 2018, and as it may be further amended from time to time, the "Merger Agreement") withamong M III, IEA Energy Services, LLC ("(“IEA Services"Services”), Wind Merger Sub I, Inc. ("Merger Sub I"), Wind Merger Sub II, LLC ("Merger Sub II"),a Delaware limited liability company, Infrastructure and Energy Alternatives, LLC ("Seller"(the “Seller”), Oaktree Power Opportunities Fund IIIa Delaware L.P., solely in its capacity as Seller's representative,limited liability company and solely for purposesthe parent of certain sections therein, M III LLCIEA Services immediately prior to such time, and M III LP. The Merger Agreement providesthe other parties thereto, which provided for, among other things, the merger of Merger Sub IIEA Services with and into IEA Services with IEA Services surviving such merger and, immediately thereafter, merging with and into Merger Sub II with Merger Sub II surviving such merger as an indirect,a wholly-owned subsidiary of our company (together with the other transactions contemplated byM III. Following the Merger, Agreement,M III Acquisition Corporation changed its name to Infrastructure and Energy Alternatives, Inc. See
Note 2. Merger, Acquisitions and Discontinued Operations for more information about the "PotentialMerger. On September 25, 2018, IEA Combination"Services completed its acquisition of Consolidated Construction Solutions I LLC (“CCS”).IEA is, a leading U.S. provider of environmental and industrial engineering services through its wholly-owned subsidiaries, Saiia LLC (“Saiia”) and American Civil Constructors LLC (the “ACC Companies”). On November 2, 2018, IEA Services completed its acquisition of William Charles Construction Group, including its wholly-owned subsidiary Ragnar Benson (“William Charles”), a provider of engineering and construction solutions for the rail infrastructure solutionsand heavy civil construction industries. See
Note 2. Merger, Acquisitions and Discontinued Operations for further discussion of these acquisitions. The Company specializes in providing complete engineering, procurement and construction (“EPC”) services throughout the United States (“U.S.”) for the renewable energy, traditional power and civil infrastructure industries. Currently, it is primarilyThese services include the design, site development, construction, installation and restoration of infrastructure. Although the Company has historically focused on the wind energy industry, where it specializesits recent acquisitions have expanded its construction capabilities and geographic footprint in the areas of renewables, environmental remediation, industrial maintenance, specialty paving, heavy civil and rail infrastructure construction, creating a diverse national platform of specialty construction capabilities.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Infrastructure and Energy Alternatives, Inc. and its wholly-owned direct and indirect domestic and foreign subsidiaries: IEA Intermediate Holdco, LLC (“Holdings”), IEA Services, IEA Management Services, Inc., IEA Constructors, Inc. (f/k/a IEA Renewable, Inc.), White Construction, Inc. (“White”), White Electrical Constructors, Inc., IEA Equipment Management, Inc., White’s wholly-owned subsidiary H.B. White Canada Corp. (“H.B. White”), and from their date of acquisition, CCS and William Charles. All intercompany accounts and transactions are eliminated in consolidation.
The Company operates in one reportable segment, providing a broad rangeEPC services. Operations prior to the Merger are the historical operations of EPC services throughoutIEA Services as discussed in Note 2. Merger, Acquisitions and Discontinued Operations.
Basis of Accounting and Use of Estimates
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. IEA(“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Key estimates include: the recognition of revenue and project profit or loss (which the Company defines as project revenue less project cost of revenue), in particular, on construction contracts accounted for under the percentage-of completion method, for which the recorded amounts require estimates of costs to complete projects, ultimate project profit and the amount of probable contract price adjustments as inputs; fair value estimates, including those related to acquisitions and contingent consideration; valuations of goodwill and intangible assets; asset lives used in computing depreciation and amortization; accrued self-insured claims; other reserves and accruals; accounting for income taxes; and the estimated impact of contingencies and ongoing litigation. While management believes that such estimates are reasonable when considered in conjunction with the Company’s consolidated financial position and results of operations, actual results could differ materially from those estimates.
“Emerging Growth Company” Reporting Requirements
The Company qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as a company is headquartereddeemed to be an “emerging growth company,” it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. Among other things, the Company is not required to provide an auditor attestation report on the assessment of the internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002. Section 107 of the JOBS Act also provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to take advantage of this extended transition period. The Company's financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
The Company would cease to be an “emerging growth company” upon the earliest of:
the last day of the fiscal year following July 6, 2021, the five-year anniversary of the completion of M III's initial public offering;
the last day of the fiscal year in
Indianapolis, Indiana.which the Company's total annual gross revenues exceed $1.07 billion;
the date on which the Company has, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or
the date on which the Company becomes a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of the Company's common stock held by nonaffiliates exceeds $700 million as of the last day of its most recently completed second fiscal quarter.
The Potential IEA CombinationCompany continues to monitor its status as an “emerging growth company” and is currently preparing, and expects to be ready to comply with, the additional reporting and regulatory requirements that will be applicable when it ceases to qualify as an “emerging growth company.”
Cash and Cash Equivalents
The Company considers all unrestricted, highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents. The Company maintains cash balances, which, at times, may exceed the amounts insured by the Federal Deposit Insurance Corporation.
Accounts Receivable
The Company does not accrue interest to its customers and carries its customer receivables at their face amounts, less an allowance for doubtful accounts. Accounts receivable include amounts billed to customers under the terms and provisions of the contracts. Most billings are determined based on contractual terms. Included in accounts receivable are balances billed to customers pursuant to retainage provisions in certain contracts that are due upon completion of the contract and acceptance by the customer, or earlier as provided by the contract. As is common practice in the industry, the Company classifies all accounts receivable, including retainage, as current assets. The contracting cycle for certain long-term contracts may extend beyond one year, and accordingly, collection of retainage on those contracts may extend beyond one year. Accounts receivable include amounts billed to customers under retention provisions in construction contracts. Such provisions are standard in the Company’s industry and usually allow for a small portion of progress billings on the contract price, typically 10%, to be withheld by the customer until after the Company has completed work on the project. Based on the Company’s experience with similar contracts in recent years, billings for such retention balances at each balance sheet date are finalized and collected after project completion. Generally, unbilled amounts will be billed and collected within one year. The Company determined that there are no material amounts due past one year and no material amounts billed but not collected within one year.
The Company grants trade credit, on a non-collateralized basis, to its customers and is subject to potential credit risk related to changes in business and overall economic activity. The Company analyzes specific accounts receivable balances, historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the event that a customer balance is deemed to be uncollectible, the account balance is written off against the allowance for doubtful accounts.
Revenue Recognition
Revenue under construction contracts is accounted for under the percentage-of-completion method of accounting. Under the percentage-of-completion method, the Company estimates profit as the difference between total estimated revenue and total estimated cost of a contract and recognizes that profit over the contract term based on costs incurred. Contract costs include all direct materials, labor and subcontracted costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, depreciation and the operational costs of capital equipment. The Company also has unit-price contracts that were not significant as of December 31, 2018.
The estimation process for revenue recognized under the percentage-of-completion method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of contract revenue and costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected contract settlements are factors that influence estimates of total contract value and total costs to complete those contracts and, therefore, the Company’s profit recognition. Changes in these factors may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined, which could materially affect the Company’s results of operations in the period in which such changes are recognized.
Revenue derived from projects billed on a fixed-price basis totaled 96.2%, 97.8% and 90.4% of consolidated revenue from continuing operations for the years ended December 31, 2018, 2017 and 2016, respectively. Revenue and related costs for construction contracts billed on a time and materials basis are recognized as the services are rendered. Revenue derived from projects billed on a time and materials basis totaled 3.8%, 2.2% and 9.6% of consolidated revenue from continuing operations for the years ended December 31, 2018, 2017 and 2016, respectively.
For an approved change order which can be reliably estimated as to price, the anticipated revenues and costs associated with the change order are added to the total contract value and total estimated costs of the project, respectively. When costs are incurred for a) an unapproved change order which is probable to be approved or b) an approved change order which cannot be reliably estimated as to price, the total anticipated costs of the change order are added to both the total contract value and total estimated costs for the project. Once a change order becomes approved and reliably estimable, any margin related to the change order is added to the total contract value of the project. The Company actively engages in substantive meetings with its customers to complete the final approval process and generally expects these processes to be completed within a year. The amounts ultimately realized upon final acceptance by its customers could be higher or lower than such estimated amounts.
Provisions for losses on uncompleted contracts are made in the period in which such losses become evident. The Company may incur costs subject to change orders, whether approved or unapproved by the customer, and/or claims related to certain contracts. Management determines the probability that such costs will be recovered based upon engineering studies and legal opinions, past practices with the customer and specific discussions, correspondence and/or preliminary negotiations with the customer.
The Company had the following approximate revenue and accounts receivable concentrations, net of allowances, for the periods ended:
|
| | | | | | | | | | | | | | |
| | Revenue % | | Accounts Receivable % |
| | Year Ended December 31, | | December 31, |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 |
| Interstate Power and Light Company | 21.0 | % | | * |
| | * |
| | 20.0 | % | | * |
|
| Union Pacific Railroad | * |
| | * |
| | * |
| | 19.0 | % | | * |
|
| Trishe Wind Ohio, LLC | * |
| | * |
| | * |
| | * |
| | 17.0 | % |
| Thunder Ranch Wind Project, LLC | * |
| | 21.0 | % | | * |
| | * |
| | 15.0 | % |
| Twin Forks Wind Farm, LLC | * |
| | 11.0 | % | | * |
| | * |
| | * |
|
| Bruenning's Breeze Wind Farm, LLC | * |
| | 11.0 | % | | * |
| | * |
| | * |
|
| EDF Renewable Development, Inc. | * |
| | 14.0 | % | | 11.0 | % | | * |
| | 11.0 | % |
| Cimarron Bend Wind Project, LLC | * |
| | * |
| | 17.0 | % | | * |
| | * |
|
| Osborn Wind Energy, LLC | * |
| | * |
| | 11.0 | % | | * |
| | * |
|
———
* Amount was not above 10% threshold.
Classification of Construction Contract-Related Assets and Liabilities
Contract costs include all direct subcontract, material and labor costs, and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, insurance, repairs, maintenance, communications and use of Company-owned equipment. Contract revenues are earned and matched with related costs as incurred.
Costs and estimated earnings in excess of billings on uncompleted contracts are presented as a current asset in the accompanying consolidated balance sheets, and billings in excess of costs and estimated earnings on uncompleted contracts are presented as a current liability in the accompanying consolidated balance sheets. The Company’s contracts vary in duration, with the duration of some larger contracts exceeding one year. Consistent with industry practice, the Company includes the amounts realizable and payable under contracts, which may extend beyond one year, in current assets and current liabilities. These balances are generally settled within one year.
Self-Insurance
The Company is self-insured up to the amount of its deductible for its medical and workers’ compensation insurance policies. For the years ended December 31, 2018, 2017 and 2016, the Company maintained insurance policies subject to per claim deductibles of $0.5 million, for its workers' compensation policy. Liabilities under these insurance programs are accrued based upon management’s estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported with assistance from third-party actuaries. The Company’s liability for employee group medical claims is based on analysis of historical claims experience and specific knowledge of actual losses that have occurred. The Company is also required to post letters of credit and provide cash collateral to certain of its insurance carriers and to obtain surety bonds in certain states.
The Company’s self-insurance liability is reflected in the consolidated balance sheets within accrued liabilities. The determination of such claims and expenses and the appropriateness of the related liability is reviewed and updated quarterly, however, these insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of the Company’s liability in proportion to other parties and the number of incidents not reported. Accruals are based upon known facts and historical trends. Although management believes its accruals are adequate, a change in experience or actuarial assumptions could materially affect the Company’s results of operations in a particular period. As of December 31, 2018 and 2017, the gross amount accrued for medical insurance claims totaled $0.6 million and $0.4 million, respectively, and the gross amount accrued for workers’ compensation claims totaled $2.1 million and $1.7 million, respectively. For the years ended December 31, 2018, 2017 and 2016, health care expense totaled $2.4 million, $1.1 million and $5.0 million, respectively, and workers' compensation expense totaled $5.8 million, $3.4 million and $3.2 million, respectively.
Company-Owned Life Insurance
The Company has life insurance policies on certain key executives. Company-owned life insurance is recorded at its cash surrender value or the amount that can be realized.
As of December 31, 2018 and 2017, the Company had a long-term asset of $3.9 million and $4.3 million, respectively, related to these policies. For the years ended December 31, 2018, 2017 and 2016, the Company recognized a decrease of $0.4 million and increases of $2.0 million and $0.5 million, respectively, in the cash surrender value of these policies.
Leases
The Company leases certain real estate, construction equipment and office equipment. The terms and conditions of leases (such as renewal or purchase options and escalation clauses), if material, are reviewed at inception to determine the classification (operating or capital) of the lease. Nonperformance-related default covenants, cross-default provisions, subjective default provisions and material adverse change clauses contained in material lease agreements, if any, are also evaluated to determine whether those clauses affect lease classification.
Property, Plant and Equipment, Net
Property, plant and equipment is recorded at cost, or if acquired in a business combination, at the acquisition-date fair value. Depreciation of property, plant and equipment, including property and equipment under capital leases, is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful lives of the improvements. Expenditures for repairs and maintenance are charged to expense as incurred, and expenditures for betterments and major improvements are capitalized and depreciated over the remaining useful lives of the assets. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal, with resulting gains or losses included in other income or expense.
The assets’ estimated lives used in computing depreciation for property, plant and equipment are as follows:
|
| |
| Buildings and leasehold improvements | 2 to 39 years |
| Construction equipment | 3 to 15 years |
| Office equipment, furniture and fixtures | 3 to 7 years |
| Vehicles | 3 to 5 years |
Intangible Assets, Net
The Company's intangible assets represent finite-lived assets that were acquired in a business combination, consisting of customer relationships, trade names and backlog, and are recorded at acquisition-date fair value. These assets are amortized over their estimated lives, which are generally based on contractual or legal rights. Amortization of customer relationship and trade name intangibles is recorded within selling, general and administrative expenses in the consolidated statements of operations, and amortization of backlog intangibles is recorded within cost of revenue. The straight-line method of amortization is used because it best reflects the pattern in which the economic benefits of the intangibles are consumed or otherwise used up. The amounts and useful lives assigned to intangible assets acquired impact the amount and timing of future amortization.
Impairment of Property, Plant and Equipment and Intangibles
Management reviews long-lived assets that are held and used for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared with the asset’s carrying amount to determine if there has been an impairment, which is calculated as the difference between the fair value of an asset and its carrying value. Estimates of future undiscounted cash flows are based on expected growth rates for the business, anticipated future economic conditions and estimates of residual values. Fair values take into consideration management’s estimates of risk-adjusted discount rates, which are believed to be consistent with assumptions that marketplace participants would use in their estimates of fair value. There were no impairments of property, plant and equipment or intangible assets recognized during the years ended December 31, 2018, 2017 and 2016.
Goodwill
Goodwill represents the excess purchase price paid over the fair value of acquired intangible and tangible assets. The Company applies the provisions of Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other. Accordingly, goodwill is not amortized but rather is assessed at least annually for impairment on July 1st and tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The Company may assess its goodwill for impairment initially using a qualitative approach to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts and circumstances, that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any impairment.
The Company may also elect to initially perform a quantitative analysis instead of starting with a qualitative approach. The quantitative assessment for goodwill was historically a two-step process. As discussed below, as of January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2017-04, Intangibles - Goodwill and Other, Simplifying the Accounting for Goodwill Impairment, which removed the second step of the quantitative goodwill impairment test. The first (and now final) step requires comparing the carrying value of a reporting unit, including goodwill, to its fair value using the income approach. The income approach uses a discounted cash flow model, which involves significant estimates and assumptions, including preparation of revenue and profitability growth forecasts, selection of a discount rate and selection of a terminal year multiple. If the fair value of the respective reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company would record an impairment charge equal to the difference, not to exceed the carrying amount of goodwill.
For the years ended December 31, 2018, 2017 and 2016, management performed a qualitative assessment for its goodwill by examining relevant events and circumstances that could have an affect on its fair value, 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 evaluation of these qualitative assessments, it was determined that there was no goodwill impairment for these years.
Business Combinations
The Company accounts for its business combinations in accordance with ASC 805, Business Combinations, which requires an acquirer to recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interests (if applicable) in the acquiree at the acquisition date. The purchase is accounted for using the acquisition method, and the fair value of purchase consideration is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The excess, if any, of the fair value of the purchase consideration over the fair value of the identifiable net assets is recorded as goodwill. Conversely, the excess, if any, of the net fair values of the identifiable net assets over the fair value of the purchase consideration is recorded as a gain. The fair values of net assets acquired are calculated using expected cash flows and industry-standard valuation techniques, and these valuations require management to make significant estimates and assumptions. These estimates and assumptions are inherently uncertain, and as a result, actual results may materially differ from estimates. Significant estimates include, but are not limited to, future expected cash flows, useful lives and discount rates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to either goodwill or gain, depending on whether the fair value of purchase consideration is in excess of or less than net assets acquired. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition costs related to business combinations are expensed as incurred.
Contingent Consideration
As part of the Merger, the Company agreed to issue additional common shares to the Seller upon satisfaction of financial targets for 2018 and 2019. This contingent liability, which is presented as contingent consideration in the consolidated balance sheet, was measured at its estimated fair value as of the Closing Date using a Monte Carlo simulation and subsequent changes in fair value are recorded within other (expense) income, net in the consolidated statement of operations. See Note 8. Fair Value of Financial Instruments for further discussion.
Debt Issuance Costs
Financing costs incurred with securing a term loan are deferred and amortized to interest expense, net over the maturity of the respective loan using the effective interest method and are presented as a direct deduction from the carrying amount of the related debt. Financing costs incurred with securing a revolving line of credit are deferred and amortized to interest expense, net over the contractual term of the arrangement on a straight-line basis and are presented as a direct deduction from the carrying amount of the related debt.
Stock-Based Compensation
IEA has an equity plan which grants stock options (“Options”) and restricted stock units (“RSUs”) to certain key employees and members of the Board of Directors of the Company (the “Board”) for their services on the Board. The Company recognizes compensation expense for these awards in accordance with the provisions of ASC 718, Stock Compensation, which requires the recognition of expense related to the fair value of the awards in the Company’s consolidated statement of operations.
The Company estimates the grant-date fair value of each award at issuance. For awards subject to service-based vesting conditions, the Company recognizes compensation expense equal to the grant-date fair value on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are accounted for when incurred. For awards subject to both performance and service-based vesting conditions, the Company recognizes stock-based compensation expense using the straight-line recognition method when it is probable that the performance condition will be achieved.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”), which enacted major changes to the U.S. tax code, including a reduction in the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result, the Company’s U.S. deferred income tax balances were required to be remeasured in 2017. Management considered the implications of the 2017 Tax Act, including the rate change, 100% immediate expensing, toll charge, Alternative Minimum Tax (“AMT”) credit change and state impacts on the calculation of the provision for income taxes for the year ended December 31, 2017. The effect of these changes in tax law was $0.3 million, which the Company recognized within the provision for income taxes in the consolidated statement of operations for the year ended December 31, 2017.
The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
Litigation and Contingencies
Accruals for litigation and contingencies are reflected in the consolidated financial statements based on management’s assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. 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 only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.
Fair Value of Financial Instruments
The Company applies ASC 820, Fair Value Measurement, which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 - Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions and valuation techniques when little or no market data exists for the assets or liabilities.
Fair values of financial instruments are estimated using public market prices, quotes from financial institutions and other available information.
Segments
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision makers are the chief executive officer and chief financial officer. The Company operates as a single segment and therefore reports its operations as one reportable segment.
Discontinued Operations
The Company accounts for business dispositions, businesses held for sale and abandonments in accordance with ASC 205-20, Discontinued Operations. ASC 205-20 requires the results of operations of business dispositions to be segregated from continuing operations and reflected as discontinued operations in current and prior periods. See Note 2. Merger, Acquisitions and Discontinued Operations for further information.
Recently Adopted Accounting Standards - Guidance Adopted in 2018
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. This ASU, which the Company adopted early (based on its “emerging growth company” status) as of January 1, 2018, did not have a material effect on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statementof Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities, and is required to be applied retrospectively. This ASU, which the Company adopted early (based on its “emerging growth company” status) as of January 1, 2018, did not have a material effect on the Company’s consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes the second step of the two-step goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The standard must be applied on a prospective basis. This ASU, which the Company adopted early as of January 1, 2018, did not have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The amendments should be applied prospectively on or after the effective dates. Accordingly, the Company’s early adoption of this ASU (based on its “emerging growth company” status) as of January 1, 2018 did not have an impact on the Company’s historical financial statements. Based on the Company’s evaluation of the new guidance, the Company determined that its
acquisition of CCS and its acquisition of William Charles both qualify to be accounted for as business combinations. See Note 2. Merger, Acquisitions and Discontinued Operations for further discussion of these acquisitions.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This ASU was effective upon issuance and added seven paragraphs to ASC 740, Income Taxes, that contain Securities and Exchange Commission (“SEC”) guidance related to the application of GAAP when preparing an initial accounting of the income tax effects of the 2017 Tax Act which, among other things, allows for a measurement period not to exceed one year for companies to finalize the provisional amounts recorded as of December 31, 2017. Accordingly, the Company finalized its initial accounting of the income tax effects of the 2017 Tax Act during the year ended December 31, 2018, with no adjustments to the provisional amounts initially recognized as of December 31, 2017.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces most existing revenue recognition guidance in GAAP. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. To achieve this core principle, the guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The guidance addresses several areas including transfer of control, contracts with multiple performance obligations and costs to obtain and fulfill contracts. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued additional guidance deferring the effective date for one year while allowing entities the option to adopt one year early. For public companies, the guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that annual reporting period. For as long as the Company remains an “emerging growth company,” the guidance will be effective for its fiscal year 2019 annual financial statements and for interim periods beginning in fiscal year 2020. Under the guidance, there are two acceptable adoption methods: (i) full retrospective adoption to each prior reporting period presented with the option to elect certain practical expedients; or (ii) modified retrospective adoption with the cumulative effect of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures. The Company continues to evaluate the impact the adoption of this new standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), which is effective for annual reporting periods beginning after December 15, 2018. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 requires entities to adopt the new lease standard using a modified retrospective method and initially apply the related guidance at the beginning of the earliest period presented in the financial statements. During July 2018, the FASB issued ASU 2018-11, which allows for an additional and optional transition method under which an entity would record a cumulative-effect adjustment at the beginning of the period of adoption. See Note 10. Commitments and Contingencies for additional information about the Company's leases. For as long as the Company remains an “emerging growth company,” the new guidance will be effective for its fiscal year 2020 annual financial statements and for the interim statements beginning in fiscal year 2020.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for recurring and non-recurring fair value measurements, such as the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements. This ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. Certain disclosures per this ASU are required to be applied on a retrospective basis and others on a prospective basis. The Company is currently assessing the impact these changes will have on its disclosure requirements for fair value measurement.
Management has evaluated other recently issued accounting pronouncements and does not believe that they will have a significant impact on the Company's consolidated financial statements and related disclosures.
Note 2. Merger, Acquisitions and Discontinued Operations
Merger and Recapitalization
The Merger, as described in Note 1. Business, Basis of Presentation and Significant Accounting Policies, has been accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, we will beAs such, IEA Services is treated as the "acquired"continuing company and M III is treated as the ‘‘acquired’’ company for financial reporting purposes. This determination was primarily based on IEA'sIEA Services’ operations comprising substantially all of the ongoing operations of the post-combination company, IEA'sM III directors not constituting a majority of the Board of the post-combination company, IEA Services’ senior management comprising substantially all of the senior management of the post-combination company and the existence ofSeller holding a large majority48.3% voting interest in the Company.Company, while no single M III shareholder holds more than a 20% voting interest. Accordingly, for accounting purposes, the Potential IEA Combination will beMerger is treated as the equivalent of IEA Services issuing stock for ourthe net assets of M III, accompanied by a recapitalization. OurThe net assets will beof M III are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Potential IEA Combination will beMerger are the historical operations of IEA.IEA Services.
The amount of merger consideration paid at the Closing Date to IEA (the “Merger Consideration”) was $81.4 million in cash, and 10,428,500 shares of common stock and 34,965 shares of Series A special meetingconvertible preferred stock with an aggregate stated value of $126.3 million at the Closing Date. Immediately following the closing, the Seller owned approximately 48.3% of the Company’s common stock and other stockholders owned approximately 51.7% of the Company’s outstanding common stock. The Merger Consideration was subject to approveadjustment based on final determinations of IEA Services’ closing date working capital and indebtedness, which determination was finalized approximately 45 days after the Potential IEA Combination is scheduled for March 7, 2018. For additional information regarding IEA Services,Closing Date with minimal impact to the Merger Consideration as calculated on the Closing Date of the Merger.
Pursuant to the Merger Agreement, the Company is required to issue to the Seller up to an additional 9,000,000 common shares in the aggregate based upon satisfaction of financial targets for 2018 and 2019. See Note 8. Fair Value of Financial Instruments for further discussion.
Acquisitions
CCS
On September 25, 2018, IEA Services acquired CCS for $106.6 million in cash. The Company financed this acquisition through borrowings on its new credit facility as discussed in Note 9. Debt.
The wholly-owned subsidiaries of CCS, Saiia and the PotentialACC Companies, generally enter into long-term contracts with both government and non-government customers to provide EPC services for environmental, heavy civil and mining projects. As discussed in Note 1. Business, Basis of Presentation and Significant Accounting Policies, this acquisition is being accounted for as a business combination under the acquisition method of accounting.
William Charles
On November 2, 2018, IEA Combination, seeServices acquired William Charles for $77.7 million, consisting of $73.2 million in cash and $4.5 million of the definitive proxyCompany's common stock (477,621 common shares at $9.45 share price). The Company financed the cash portion of this acquisition through borrowings on its new credit facility as discussed in Note 9. Debt.
William Charles generally enters into long-term contracts with both government and non-government customers to provide EPC services for rail civil infrastructure, environmental and heavy civil projects. As discussed in Note 1. Business, Basis of Presentation and Significant Accounting Policies, this acquisition is being accounted for as a business combination under the acquisition method of accounting.
Acquisition Accounting
The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed as of the respective acquisition date at fair value for the business combinations described above. The estimated values are not yet finalized and are subject to potentially significant changes. The Company will finalize the amounts recognized as it obtains the information necessary to complete the analyses. The Company expects to finalize these amounts as soon as possible but no later than one year from the respective acquisition dates.
|
| | | | | | | |
| Preliminary acquisition-date fair value (in thousands) | CCS(1) | | William Charles |
| Cash and cash equivalents | $ | 6,413 |
| | $ | 6,641 |
|
| Accounts receivable | 58,041 |
| | 69,740 |
|
| Costs and estimated earnings in excess of billings on uncompleted contracts | 9,512 |
| | 16,095 |
|
| Other current assets | 1,813 |
| | 7,999 |
|
| Property, plant and equipment | 57,449 |
| | 49,078 |
|
| Intangible assets: | | | |
Customer relationships(2) | 19,500 |
| | 7,500 |
|
Trade names(2) | 8,900 |
| | 4,500 |
|
Backlog(2) | 8,400 |
| | 5,000 |
|
Deferred income taxes(3) | (3,920 | ) | | — |
|
| Other non-current assets | 134 |
| | 75 |
|
| Accounts payable and accrued liabilities | (25,219 | ) | | (60,962 | ) |
| Billings in excess of costs and estimated earnings on uncompleted contracts | (14,194 | ) | | (14,810 | ) |
| Debt, including current portion | (52,257 | ) | | (15,672 | ) |
| Capital lease obligations, including current portion | (1,124 | ) | | — |
|
| Other non-current liabilities | (704 | ) | | (907 | ) |
| Total identifiable net assets | 72,744 |
| | 74,277 |
|
| Goodwill | 33,835 |
| | 3,402 |
|
| Total purchase consideration | $ | 106,579 |
| | $ | 77,679 |
|
———
(1) The estimated acquisition-date fair values pertaining to CCS reflect the following significant changes from the third quarter of 2018: a decrease to property, plant and equipment of $7.6 million, an increase to backlog intangibles of $3.2 million, an increase to debt of $6.4 million, a decrease to other non-current liabilities of $6.2 million and an increase to goodwill of $10.2 million. Additionally, $6.4 million of cash and cash equivalents that was previously presented within debt, net of cash acquired in the third quarter of 2018 was reclassified to a separate line in the table above.
| |
| (2) | See Note 6. Goodwill and Intangible Assets, Net for disclosure of the weighted average amortization period for each major class of acquired intangible asset. |
(3) The Company's consolidated deferred income taxes are presented as a net deferred tax asset (long-term) in the consolidated balance sheet as of December 31, 2018.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisitions of CCS and William Charles is related to the expected, specific synergies and other benefits that the Company believes will result from combining the operations of CCS and William Charles with the operations of IEA. This goodwill is related to the Company's single reportable segment and is deductible for income tax purposes, with the exception of $4.5 million for CCS that is not deductible.
Impact of Acquisitions
The following table summarizes the results of operations included in the Company's consolidated statement filedof operations for CCS and William Charles from their respective date of acquisition to December 31, 2018.
|
| | | | | | | |
| | Year Ended December 31, 2018 |
| (in thousands) | CCS | | William Charles |
| Revenue | $ | 76,029 |
| | $ | 49,607 |
|
| Net (loss) income | (613 | ) | | 2,256 |
|
Acquisition-related costs incurred by the Company for the acquisitions of CCS and William Charles were $6.6 million and $7.6 million, respectively, for the year ended December 31, 2018, and are included within selling, general and administrative expenses in the consolidated statement of operations. Such costs primarily consisted of professional services and adviser fees. There were no acquisition-related costs incurred for the years ended December 31, 2017 and 2016.
The following table provides the supplemental unaudited pro forma total revenue and net (loss) income of the Company had the acquisition date of CCS and William Charles been the first day of IEA's fiscal 2017.
|
| | | | | | | |
| | Year Ended December 31, |
| Unaudited pro forma data (in thousands, except per share data) | 2018 | | 2017 |
| Revenue | $ | 1,257,616 |
| | $ | 997,018 |
|
| Net (loss) income | (840 | ) | | 5,792 |
|
| Net (loss) income per common share - basic and diluted | (2.25 | ) | | 0.27 |
|
The amounts in the supplemental unaudited pro forma results apply the Company's accounting policies and reflect certain adjustments to, among other things, (i) exclude the impact of transaction costs incurred in connection with the
SECacquisitions, (ii) include additional depreciation and amortization that would have been charged assuming the same fair value adjustments to property, plant and equipment and acquired intangibles had been applied on
February 9, 2018.Merger Consideration
SubjectJanuary 1, 2017 and (iii) include additional interest expense that would have been charged assuming the incremental borrowings the Company incurred to finance the acquisitions had been outstanding on January 1, 2017. Accordingly, these supplemental unaudited pro forma results have been prepared for comparative purposes only and are not intended to be indicative of the results of operations that would have occurred had the acquisitions actually occurred in the prior year period or indicative of the results of operations for any future period.
Discontinued Operations
As a result of significant, historical operating losses incurred for the Company's Canadian solar operations, management made the decision to abandon its operations in Canada and to refocus the business on the U.S. wind energy market. The Company completely abandoned the Canadian solar operations of H.B. White, effectively completed all significant projects in Canada and reduced or redeployed substantially all of its Canadian resources, facilities and equipment as of July 2016. Accordingly, the operating results of its operations in Canada for the year ended December 31, 2016 have been classified as discontinued operations in the consolidated statement of operations, and the carrying amounts of major classes of assets and liabilities were $0 for H.B. White as of the end of 2016. Interest expense that was specifically identifiable to debt related to supporting the Canadian solar operations of H.B. White qualified as discontinued operations and was allocated to the termsinterest expense component within net income from discontinued operations in the Company’s consolidated statement of operations.
Major classes of line items constituting net income from discontinued operations for the year ended December 31, 2016 were as follows:
|
| | | |
| (in thousands) | Year Ended December 31, 2016 |
| Revenue | $ | 1,911 |
|
| Cost of earned revenue, excluding depreciation | 1,626 |
|
| Operating expenses | 1,610 |
|
| Interest and other expenses, net | 3,060 |
|
| Gain on abandonment | (4,253 | ) |
| Income tax benefit | (1,219 | ) |
| Net income from discontinued operations | $ | 1,087 |
|
The following table presents the amounts related to the discontinued operations of H.B. White that were included within the significant categories of cash flows in the consolidated statement of cash flows for the year ended December 31, 2016:
|
| | | |
| (in thousands) | Year Ended December 31, 2016 |
| Net cash used in operating activities | $ | (15,539 | ) |
| Net cash provided by investing activities | 82 |
|
| Net cash provided by financing activities | 15,664 |
|
Note 3. Accounts Receivable, Net
The following table provides details of accounts receivable, net of the Merger Agreement andallowance for doubtful accounts, as of the adjustments set forth therein,dates indicated:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Contract receivables | $ | 161,408 |
| | $ | 44,696 |
|
| Contract retainage | 64,000 |
| | 16,501 |
|
| Accounts receivable, gross | 225,408 |
| | 61,197 |
|
| Less: allowance for doubtful accounts | (42 | ) | | (216 | ) |
| Accounts receivable, net | $ | 225,366 |
| | $ | 60,981 |
|
The contract receivables amount as of December 31, 2018 includes an unapproved change order of approximately $9.2 million for which the aggregate purchase priceCompany is pursuing settlement through dispute resolution. There were no similar amounts included within the December 31, 2017 amount.
Gross profit for the Potentialyear ended December 31, 2018 includes a charge of approximately $5.6 million related to a dispute with a specific customer concerning change orders with respect to one specific project completed in the second quarter of 2018. The Company believes that the charge reflected in the disputed change orders are properly the obligation of the customer. Nonetheless, the Company elected to settle the dispute and absorb these costs in order to maintain a valuable customer relationship. There were no similar charges included within gross profit for the years ended December 31, 2017 and 2016.
Activity in the allowance for doubtful accounts for the periods indicated was as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | 2018 | | 2017 | | 2016 |
| Allowance for doubtful accounts at beginning of period | $ | 216 |
| | $ | 135 |
| | $ | 12,077 |
|
| Plus: provision for (reduction in) allowance | (174 | ) | | 81 |
| | (10,534 | ) |
| Less: write-offs, net of recoveries | — |
| | — |
| | (1,408 | ) |
| Allowance for doubtful accounts at period-end | $ | 42 |
| | $ | 216 |
| | $ | 135 |
|
Note 4. Contracts in Progress
Contracts in progress were as followsas of the dates indicated:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Costs on contracts in progress | $ | 935,820 |
| | $ | 861,050 |
|
| Estimated earnings on contracts in progress | 76,883 |
| | 131,997 |
|
| Revenue on contracts in progress | 1,012,703 |
| | 993,047 |
|
| Less: billings on contracts in progress | (1,027,816 | ) | | (981,832 | ) |
| Net (over) under billings | $ | (15,113 | ) | | $ | 11,215 |
|
The above amounts have been included in the consolidated balance sheets under the following captions:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 47,121 |
| | $ | 18,613 |
|
| Billings in excess of costs and estimated earnings on uncompleted contracts | (62,234 | ) | | (7,398 | ) |
| Net (over) under billings | $ | (15,113 | ) | | $ | 11,215 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts includes a provision for loss contracts of $1.4 million and $0.0 million as of December 31, 2018 and 2017, respectively.
The Company recognizes a contract asset within costs and estimated earnings in excess of billings on uncompleted contracts in the consolidated balance sheet for revenue earned related to unapproved change orders that are probable of recovery. For the years ended December 31, 2018, 2017 and 2016, the Company recognized revenue related to unapproved change orders of $45.0 million, $33.5 million and $17.8 million, respectively.
Note 5. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following as of the dates indicated:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Buildings and leasehold improvements | $ | 4,614 |
| | $ | 416 |
|
| Land | 19,394 |
| | — |
|
| Construction equipment | 175,298 |
| | 46,404 |
|
| Office equipment, furniture and fixtures | 2,994 |
| | 1,451 |
|
| Vehicles | 4,991 |
| | 404 |
|
| Total property, plant and equipment | 207,291 |
| | 48,675 |
|
| Accumulated depreciation | (31,113 | ) | | (17,770 | ) |
| Property, plant and equipment, net | $ | 176,178 |
| | $ | 30,905 |
|
Depreciation expense for property, plant and equipment was $13.7 million, $5.0 million and $3.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
In October 2017, IEA Combination is expected to be approximately $235,000,000. The consideration to be paidServices made an equity distribution to the Seller will be in the form of land and a combinationbuilding with a total net book value at the date of distribution of $4.7 million.
Note 6. Goodwill and Intangible Assets, Net
The following table provides the changes in the carrying amount of goodwill for 2018 and 2017:
|
| | | |
| (in thousands) | Goodwill |
| January 1, 2017 | $ | 3,020 |
|
| Other adjustments | — |
|
| December 31, 2017 | 3,020 |
|
| Acquisitions | 37,237 |
|
| December 31, 2018 | $ | 40,257 |
|
Intangible assets, net consisted of the following as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| ($ in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted Average Remaining Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted Average Remaining Life |
| Customer relationships | $ | 27,000 |
| | $ | (814 | ) | | $ | 26,186 |
| | 7 years | | $ | — |
| | $ | — |
| | $ | — |
| | — |
| Trade names | 13,400 |
| | (575 | ) | | 12,825 |
| | 5 years | | 820 |
| | (751 | ) | | 69 |
| | 1 year |
| Backlog | 13,400 |
| | (1,537 | ) | | 11,863 |
| | 2 years | | — |
| | — |
| | — |
| | — |
| | $ | 53,800 |
| | $ | (2,926 | ) | | $ | 50,874 |
| | | | $ | 820 |
| | $ | (751 | ) | | $ | 69 |
| | |
Amortization expense associated with intangible assets for the years ended December 31, 2018, 2017 and 2016 totaled $3.0 million, $0.1 million and $0.1 million, respectively.
The following table provides the annual intangible amortization expense expected to be recognized for the years 2019 through 2023:
|
| | | | | | | | | | | | | | | | | | | |
| (in thousands) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Amortization expense | $ | 13,394 |
| | $ | 11,700 |
| | $ | 6,537 |
| | $ | 6,537 |
| | $ | 5,912 |
|
Note 7. Accrued Liabilities
Accrued liabilities consisted of the following as of the dates indicated:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Accrued project costs | $ | 61,689 |
| | $ | 27,097 |
|
| Accrued compensation and related expenses | 15,939 |
| | 8,855 |
|
| Other accrued expenses | 16,431 |
| | 10,198 |
|
| | $ | 94,059 |
| | $ | 46,150 |
|
Note 8. Fair Value of Financial Instruments
The following table presents the Company's financial instruments measured at fair value on a recurring basis, classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the consolidated balance sheets:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | | | | | | | | | | | | | | | |
| Contingent consideration | $ | — |
| | $ | — |
| | $ | 23,082 |
| | $ | 23,082 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
The following table reconciles the beginning and ending balances of recurring fair value measurements using Level 3 inputs for the year ended December 31, 2018. There were no changes in such balances for the year ended December 31, 2017.
|
| | | |
| (in thousands) | Level 3 |
| Beginning Balance, December 31, 2017 | $ | — |
|
| Contingent consideration issued during Merger | 69,373 |
|
| Fair value adjustment - (gain) recognized in other income | (46,291 | ) |
| Ending Balance, December 31, 2018 | $ | 23,082 |
|
Other financial instruments of the Company not listed in the table above primarily consist of cash and stock considerationcash equivalents, accounts receivable, accounts payable and is subject to certain adjustments describedother current liabilities that approximate their fair values, based on the nature and short maturity of these instruments, and they are presented in the Company's consolidated balance sheets at carrying cost. Additionally, management believes that the carrying value of the Company's outstanding debt balances, further discussed in Note 9. Debt, approximate fair value due to their floating interest rates.
Contingent Consideration
Pursuant to the Merger Agreement.Agreement, the Company shall issue to the Seller up to an additional 9,000,000 common shares in the aggregate, which shall be fully earned if the final 2018 and 2019 financial targets are achieved. The cashCompany may be required to issue such shares if the 2019 financial target is achieved. As of December 31, 2018, the Company recorded the contingent consideration payableliability at fair value, which was estimated using a Monte Carlo simulation based on certain significant unobservable inputs, such as a risk rate premium, peer group EBITDA volatility, stock price volatility and projected Adjusted EBITDA for the Company for 2019. The calculation derived a fair value adjustment of $46.3 million to Seller atthe liability based on 2018 actual financial results and the expected probability of reaching the full amount of contingent consideration in 2019.
Significant unobservable inputs used in the fair value calculation as of the periods indicated were as follows:
|
| | | | | |
| | December 31, 2018 | | March 26, 2018 |
| Risk premium adjustment | 8.0 | % | | 5.0 | % |
| Risk-free rate | 2.6 | % | | 2.0 | % |
| EBITDA volatility | 14.0 | % | | 24.5 | % |
| Stock price volatility | 37.1 | % | | 27.9 | % |
| Correlation of EBITDA and stock price | 75.0 | % | | 75.0 | % |
Note 9. Debt
Debt consists of the following obligations as of:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Line of credit - short-term | $ | — |
| | $ | 33,674 |
|
| | | | |
| Term loan | $ | 300,000 |
| | $ | — |
|
| Line of credit | 46,500 |
| | — |
|
| Commercial equipment notes | 5,341 |
| | — |
|
| Total principal due for long-term debt | 351,841 |
| | — |
|
| Unamortized debt discount and issuance costs | (23,534 | ) | | — |
|
| Less: Current portion of long-term debt | (32,580 | ) | | — |
|
| Long-term debt, less current portion | $ | 295,727 |
| | $ | — |
|
Old Credit Facility
In connection with the closing of the PotentialMerger in March 2018, the outstanding borrowings under IEA CombinationServices' then-existing line of credit of $38.4 million were repaid using proceeds from the Merger credit facility described below, and the old credit facility was terminated. The amount outstanding as of December 31, 2017 of 33.7 million is presented as line of credit - short-term in the consolidated balance sheet as these borrowings contractually matured on December 31, 2018. The weighted average interest rate on revolving loans outstanding under this facility as of December 31, 2017 was 4.50%.
Merger Credit Facility
In conjunction with the completion of the Merger, IEA Services refinanced its prior credit facility with a new facility that provided for aggregate revolving borrowings of up to $50.0 million and a $50.0 million delayed draw term loan facility. Upon closing of the acquisition of CCS in September 2018, the outstanding borrowings under this Merger credit facility of $53.5 million were repaid, plus accrued and unpaid interest, using proceeds from the new credit facility described below, and the Merger credit facility was terminated. The Company recognized a $1.8 million loss on extinguishment of debt upon this termination, primarily due to the write-off of the unamortized debt issuance costs and discount for this facility as of such date, which is reflected within other expense in the consolidated statement of operations for the year ended December 31, 2018.
Acquisition Credit Facility
At closing of the CCS acquisition, IEA Services entered into a credit agreement for a new credit facility, which was amended and restated in connection with the closing of the William Charles acquisition, and was further amended and restated on November 16, 2018 (as amended and restated, the “A&R Credit Agreement”). The A&R Credit Agreement provides for a term loan facility of $300.0 million and a revolving line of credit of $50.0 million, which is available for revolving loans and letters of credit. Availability on the line of credit is subject to customary borrowing base calculations.
On September 25, 2018, $200.0 million was drawn on the term loan facility and $20.5 million was drawn on the line of credit to pay the CCS acquisition consideration, repay borrowings under the Merger credit facility and repay certain assumed indebtedness of Saiia and the ACC Companies. The remaining $100.0 million was drawn on the term loan facility on
November 2, 2018 to pay the cash portion of the William Charles acquisition consideration and to repay certain assumed indebtedness of William Charles, and an additional $26.0 million of revolving loans were drawn in the third and fourth quarter of 2018, to be used for working capital and other general corporate purposes, for total outstanding revolving loans of $46.5 million as of December 31, 2018. The Company capitalized $24.5 million of financing fees that were incurred to obtain this new credit facility.
Term loan borrowings mature on September 25, 2024 and are subject to quarterly amortization of principal, commencing on the last day of the first quarter of 2019, in an amount equal to 2.50% of the aggregate principal amount of such loans. Beginning with 2020, an additional annual payment is required equal to 75% of Excess Cash Flow (as defined in the A&R Credit Agreement) for the preceding fiscal year if such Excess Cash Flow is greater than $2.5 million, with the percentage of Excess Cash Flow subject to reduction based upon the Company’s consolidated leverage ratio. Borrowings under the revolving line of credit mature on September 25, 2023.
Interest on term loan borrowings accrues at an interest rate of, at the Company's option, (x) LIBOR plus a margin of 6.25% or (y) the applicable base rate plus a margin of 5.25%. Interest on revolving loans accrues at an interest rate of, at the Company's option, (x) LIBOR plus a margin of 4.25% or (y) the applicable base rate plus a margin of 3.25%. The weighted average interest rate on borrowings under this credit facility as of December 31, 2018 was 8.82%.
Obligations under this credit facility are guaranteed by Infrastructure and Energy Alternatives, Inc., Holdings and each existing and future, direct and indirect, wholly-owned, material domestic subsidiary of Infrastructure and Energy Alternatives, Inc. other than IEA Services (together with IEA Services, the “Credit Parties”), and are secured by all of the present and future assets of the Credit Parties, subject to customary carve-outs.
Debt Covenants
The terms of the A&R Credit Agreement include customary affirmative and negative covenants and provide for customary events of default, which include, among others, nonpayment of principal or interest and failure to timely deliver financial statements. Under the A&R Credit Agreement, the financial covenant to which the Credit Parties are subject provides that the First Lien Net Leverage Ratio (as defined therein) may not exceed (i) prior to the fiscal quarter ending December 31, 2020, 3.50:1.0 and (ii) from and after the fiscal quarter ending December 31, 2020, 2.25:1.0. The A&R Credit Agreement also includes certain limitations on the payment of cash dividends on the Company's common shares and provides for other restrictions on (subject to certain exceptions) liens, indebtedness (including guarantees and other contingent obligations), investments (including loans, advances and acquisitions), mergers and other fundamental changes and sales and other dispositions of property or assets, among others.
Assumed Debt from Acquisitions
In connection with the acquisitions of CCS and William Charles, the Company assumed certain indebtedness of these companies. The Company repaid a majority of this indebtedness upon closing of the acquisitions using proceeds from the A&R Credit Agreement as discussed above but $5.3 million of commercial equipment notes remained outstanding as of December 31, 2018. The weighted average interest rate on this debt as of December 31, 2018 was 4.95%.
Subordinated Debt Second Lien Term Loan Agreement
On December 31, 2016, the outstanding principal and accrued interest for a second lien term loan of $23.3 million was converted into 23,268,846 non-voting, interest-bearing preferred units of the Seller, and the Seller contributed the debt interests to IEA Services as a contribution to capital. Accordingly, no amounts are currently outstanding for this loan, and the agreement was terminated as of December 31, 2016.
Contractual Maturities
Contractual maturities of the Company's outstanding principal on debt obligations as of December 31, 2018 are as follows:
|
| | | |
| (in thousands) | Maturities |
| 2019 | $ | 32,580 |
|
| 2020 | 31,518 |
|
| 2021 | 30,761 |
|
| 2022 | 30,369 |
|
| 2023 | 76,575 |
|
| Thereafter | 150,038 |
|
| Total | $ | 351,841 |
|
Letters of Credit and Surety Bonds
In the ordinary course of business, the Company is required to post letters of credit and surety bonds to customers in support of performance under certain contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit or surety bond commits the issuer to pay specified amounts to the holder of the letter of credit or surety bond under certain conditions. If the letter of credit or surety bond issuer were required to pay any amount to a holder, the Company would be required to reimburse the issuer, which, depending upon the circumstances, could result in a charge to earnings. As of December 31, 2018 and 2017, the Company was contingently liable under letters of credit issued under its respective revolving lines of credit in the amount of $3.0 million and $5.9 million, respectively, related to projects. In addition, as of December 31, 2018 and 2017, the Company had outstanding surety bonds on projects of $1.68 billion and $535.5 million, respectively, which includes the bonding line of the acquired ACC Companies, Saiia and William Charles as of the 2018 date.
Note 10. Commitments and Contingencies
Capital Leases
The Company has obligations, exclusive of associated interest, recognized under various capital leases for equipment totaling $63.5 million and $20.6 million at December 31, 2018 and 2017, respectively. Gross amounts recognized within property, plant and equipment, net in the consolidated balance sheets under these capital lease agreements at December 31, 2018 and 2017 totaled $76.9 million and $27.0 million, less accumulated depreciation of $10.1 million and $2.8 million, respectively, for net balances of $66.8 million and $24.2 million. Depreciation of assets held under the capital leases is included within cost of revenue in the consolidated statements of operations.
The future minimum payments of capital lease obligations are as follows:
|
| | | |
| (in thousands) | Capital Leases |
| 2019 | $ | 21,240 |
|
| 2020 | 21,367 |
|
| 2021 | 15,887 |
|
| 2022 | 10,920 |
|
| 2023 | 1,783 |
|
| Thereafter | — |
|
| Future minimum lease payments | 71,197 |
|
| Less: Amount representing interest | 7,670 |
|
| Present value of minimum lease payments | 63,527 |
|
| Less: Current portion of capital lease obligations | 17,615 |
|
| Capital lease obligations, less current portion | $ | 45,912 |
|
Operating Leases
In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facility, vehicle and equipment needs, including a related party lease (see Note 15. Related Parties). Rent and related expense for operating leases that have non-cancelable terms totaled approximately $6.1 million, $1.6 million and $1.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The future minimum payments under non-cancelable operating leases are as follows:
|
| | | |
| (in thousands) | Operating Leases |
| 2019 | $ | 6,674 |
|
| 2020 | 5,153 |
|
| 2021 | 3,308 |
|
| 2022 | 2,390 |
|
| 2023 | 1,939 |
|
| Thereafter | 14,703 |
|
| Future minimum lease payments | $ | 34,167 |
|
Deferred Compensation
The Company has two deferred compensation plans. The first plan is a supplemental executive retirement plan established in 1993 that covers four specific employees or former employees, whose deferred compensation is determined by the number of service years. Payment of the benefits is to be made for 20 years after employment ends. Two former employees are currently receiving benefits, and two participants are still employees of the Company. The two current employees have both reached the full benefit level, and as a result, the present value of the liability is estimated using the normal retirement method. Payments under this plan for 2018 were $0.1 million. Maximum aggregate payments per year if all participants were retired would be $0.3 million. As of December 31, 2018 and 2017, the Company had a long-term liability of $3.2 million and $3.3 million, respectively, for the supplemental executive retirement plan.
The Company offers a non-qualified deferred compensation plan which is made up of an executive excess plan and an incentive bonus plan. This plan was designed and implemented to enhance employee savings and retirement accumulation on a tax-advantaged basis, beyond the limits of traditional qualified retirement plans. This plan allows employees to: (i) defer annual compensation from multiple sources; (ii) create wealth through tax-deferred investments; (iii) save and invest on a pretax basis to meet accumulation and retirement planning needs; and (iv) utilize a diverse choice of investment options to maximize returns. Executive awards are expensed when vested. Project Management Incentive Payments are expensed when awarded as they are earned through the course of the performance of the project to which they are related. Other incentive payments are expensed when vested as they are considered to be earned by retention. Unrecognized compensation expense for the non-qualified deferred compensation plan at December 31, 2018, 2017 and 2016 was $2.2 million, $1.3 million and $0.2 million, respectively. As of December 31, 2018 and 2017, the Company had a long-term liability of $3.0 million and $1.7 million, respectively, for deferred compensation to certain current and former employees.
Legal Proceedings
Sterret Crane v. White Construction and Zurich Insurance v. White Construction. In this matter, Sterret Crane brought a liability claim against White which resulted in a jury verdict on October 23, 2017 finding White liable for $0.6 million in direct damages. Sterett subsequently filed a motion for attorney fees, interest and costs totaling $0.7 million. While White’s appeal of the jury verdict was pending, the parties settled both the liability lawsuit and the declaratory judgment action in an agreement under which White paid $0.6 million in the first quarter of 2018 and Zurich paid $0.3 million for a full release by all parties. Both of the actions have been dismissed with prejudice.
NPI Litigation/CCAA Resolution. Pursuant to a settlement agreement entered into with Northland Power, Inc. (“NPI”) on November 22, 2016 by H.B. White in connection with the Companies' Creditors Arrangement Act (the "Closing"“CCAA”), assuming no adjustments, proceeding of H.B. White, IEA agreed that it or White would pay to NPI or its designee cash in the aggregate amount of 1.0 million Canadian Dollars (“CAD”) if the closing date of a material transaction occurred on or before December 31, 2018. A material transaction was defined as a change in control or a public offering of equity securities. The Merger constituted a change in control on March 26, 2018, and as a result, the Company paid NPI CAD $1.0 million to satisfy such obligation.
Carlitos Lopez v. Chicago Transit Authority, Parsons Brinkerhoff, Inc. and, Ragnar Benson, LLC.A lawsuit was filed on January 11, 2019 in the Circuit Court of Cook County, Illinois, alleging claims for personal injury and premises liability arising out of an accident the plaintiff sustained during a construction project. The case was originally filed on March 10, 2014 in the Circuit Court of Cook County, Illinois, subsequently voluntarily dismissed by the plaintiff, and refiled. The plaintiff seeks an unspecified amount of damages in the refiled case. This case is $100,000,000.currently in the filing stage. The stock considerationCompany continues to vigorously defend itself; however, the Company cannot predict the outcome of this action. The Company believes it is covered by insurance for this matter.
In addition to the foregoing, the Company is involved in a variety of legal cases, claims and other disputes that arise from time to time in the ordinary course of its business. The Company cannot provide assurance that it will be successful in recovering all or any of the total consideration lesspotential damages it has claimed or in defending claims against the Company. While the lawsuits and claims are asserted for amounts that may be material, should an unfavorable outcome occur, management does not currently expect that any currently pending matters will have a material adverse effect on the Company’s financial position, results of operations or cash consideration,flows. However, an unfavorable resolution of one or more of such matters could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
Note 11. Earnings (Loss) Per Share
The Company calculates earnings (loss) per share (“EPS”) in accordance with suchASC 260, Earnings per Share. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period.
Income (loss) available to common stockholders is computed by deducting the dividends accumulated for the period on cumulative preferred stock consideration split 74.1% infrom net income. If there is a net loss, the formamount of the loss is increased by those preferred dividends.
Diluted EPS assumes the dilutive effect of (i) contingently issuable earn-out shares, (ii) Series A cumulative convertible preferred stock, using the if-converted method, and (iii) the assumed exercise of in-the-money stock options and warrants and the assumed vesting of outstanding RSUs, using the treasury stock method.
Whether the Company has net income or a net loss determines whether potential issuances of common stock and 25.9%are included in the formdiluted EPS computation or whether they would be anti-dilutive. As a result, if there is a net loss, diluted EPS is computed in the same manner as basic EPS is computed. Similarly, if the Company has net income but its preferred dividend adjustment made in computing income available to common stockholders results in a net loss available to common stockholders, diluted EPS would be computed in the same manner as basic EPS.
The calculations of basic and diluted EPS, are as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| ($ in thousands, except per share data) | 2018 | | 2017 | | 2016 |
| Numerator: | | | | | |
| Net income from continuing operations | $ | 4,244 |
| | $ | 16,525 |
| | $ | 64,451 |
|
| Less: Convertible preferred share dividends | (1,597 | ) | | — |
| | — |
|
| Less: Contingent consideration fair value adjustment | (46,291 | ) | | — |
| | — |
|
| Net (loss) income from continuing operations available to common stockholders | (43,644 | ) | | 16,525 |
| | 64,451 |
|
| Net income from discontinued operations available to common stockholders | — |
| | — |
| | 1,087 |
|
| Net (loss) income available to common stockholders | $ | (43,644 | ) | | $ | 16,525 |
| | $ | 65,538 |
|
| | | | | | |
| Denominator: | | | | | |
Weighted average common shares outstanding - basic and diluted(1) | 21,665,965 |
| | 21,577,650 |
| | 21,577,650 |
|
| | | | | | |
Anti-dilutive:(2) | | | | | |
| Convertible preferred shares | 3,100,085 |
| | — |
| | — |
|
| RSUs | 59,445 |
| | — |
| | — |
|
| | | | | | |
| Net (loss) income from continuing operations per common share - basic and diluted | $ | (2.01 | ) | | $ | 0.77 |
| | $ | 2.99 |
|
| Net income from discontinued operations per common share - basic and diluted | — |
| | — |
| | 0.05 |
|
| Net (loss) income per common share - basic and diluted | $ | (2.01 | ) | | $ | 0.77 |
| | $ | 3.04 |
|
———
| |
(1) | The contingent earn-out shares were not included at December 31, 2018. See Note 8. Fair Value of Financial of Financial Instruments for discussion regarding the Company's contingently issuable earn-out shares that were not potentially dilutive as of December 31, 2018. |
| |
(2) | Warrants to purchase 8,480,000 shares of common stock at $11.50 per share were outstanding at December 31, 2018 but were not potentially dilutive as the warrants’ exercise price was greater than the average market price of the common stock during the period. 713,260 of unvested Options and 187,026 of unvested RSUs were also not potentially dilutive as of December 31, 2018 as the respective exercise price or average stock price required for vesting of such award was greater than the average market price of the common stock during the period. |
The calculation of weighted average common shares outstanding during the periods preceding a newly-issuedreverse recapitalization generally requires the Company to use the capital structure of the entity deemed to be the acquirer for accounting purposes to calculate EPS. However, as a limited liability company, IEA Services had no outstanding common shares prior to the Merger. Therefore, the weighted average common shares outstanding for all comparable prior periods preceding the Merger is based on the capital structure of the acquired company, as management believes that is the most useful measure.
|
| | |
| Shares Outstanding |
| Company (f/k/a M III Acquisition Corp.) shares outstanding as of December 31, 2017 | 19,210,000 |
|
| Redemption of shares by M III stockholders prior to the Merger | (7,967,165 | ) |
| Common shares issued pursuant to Advisor Commitment Agreements, net of forfeited sponsor founder shares | (93,685 | ) |
| Shares issued to Infrastructure and Energy Alternatives, LLC/Seller | 10,428,500 |
|
| IEA shares outstanding as of March 26, 2018 | 21,577,650 |
|
At the closing of the Merger, 34,965 shares of Series A
Preferred Stock, subjectconvertible preferred stock were issued to the
adjustments described in the Merger Agreement. For purposesSeller with an initial stated value of
determining the number$1,000 per share, for total consideration of
shares$35.0 million. Dividends on each share of
common stock issuable with respect to the portion of the consideration payable in common stock, the common stock will be valued at $10.00 per share. The foregoing consideration to be paid to Seller may be further increased by up to 9,000,000 shares of common stock, which may be payable pursuant to an earn-out based upon the post-combination company achieving certain EBITDA targets in 2018 and/or 2019, as more fully described in the accompanying proxy statement.The Merger Agreement contemplates that the holders of the Series A Preferred Stock will have certain preferred rights, including, among others, the receipt of dividends payable in cash on a quarterly basisstock accrue at a rate that isof 6% per annum untilduring the date that is 18 monthsperiod from the Closing Date until the 18-month anniversary of the Closing Date and 10% per annum thereafter, with such dividend ratesdividends payable quarterly in cash. These shares are convertible to increase by 2% per annumcommon shares under certain circumstances. For the year ended December 31, 2018, the Board declared $1.6 million in the event of certain defaults (“Events of Default”). All or some of the shares of Series A Preferred Stock will be redeemed by the Company at par plus any accrued but unpaid dividends upon (i) an event which constitutes a change of control, (ii) a qualifying sale of equity or (iii) a significant disposition of assets or businesses of the Company outside the ordinary course of business, in each case as further described in the Certificate of Designation. Theto holders of Series A Preferred Stock may elect to cause us to convertpreferred stock.
Note 12. Stock-Based Compensation
The 2011 Profits Interest Unit Incentive Plan (the “2011 Equity Plan”) was terminated upon the
Series A Preferred Stock to common stock (x) at any time on or after the third anniversary of Closing or (y) at any time when certain defaults are continuing. The conversion rate is to be based on the volume-weighted average price per share of common stock for the 30 consecutive trading days ended immediately prior to the date of conversion, except that, during the continuance of certain defaults, the applicable conversion rate will be 90% multiplied by the volume-weighted average price per share of common ctock for the 30 consecutive trading days ended immediately prior to the date of conversion. The holdersclosing of the
Series A Preferred Stock will not have any preemptive rights or voting rights of stockholders. Subject to certain exceptions, while any Series A Preferred Stock is outstanding, (a) no dividends to or redemptions of any shares that rank junior to the Series A Preferred Stock may be made by the CompanyMerger in March 2018 and
(b) no dividends to or redemptions of any shares that rank pari passu with the Series A Preferred Stock may be made by the Company, unless such dividends or redemptions are made proportionately with the Series A Preferred Stock. Subject to certain exceptions, among other actions, the authorization or issuance by the Company of any shares that rank senior to or pari passu with the Series A Preferred Stock and the incurrence of certain indebtedness by the Company will require the consent of Oaktree Power Opportunities Fund III Delaware, LLC, in its capacity as the representative of the holders of Series A Preferred Stock. The holders of the Series A Preferred Stock may transfer the Series A Preferred Stock to any person or entity other than a competitor of the Company as defined in the Certificate of Designation.
Redemption Offer
Pursuant to the Company’s existing amended and restated certificate of incorporation (the “existing charter”), in connection with the Potential IEA Combination, holders of the Company’s public shares may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with the existing charter (the “Redemption Offer”). The per share redemption price would have been approximately $10.07 at December 31, 2017.
Other Provisions and Agreements
The Merger Agreement also (i) contains customary provisions outlining the representations and warranties made by each party for the benefit of the other parties, (ii) is subject to customary conditions to be satisfied by each party prior to consummation of the Potential IEA Combination and (iii) may be terminated under certain customary and limited circumstances prior to closing, all as discussed further in the Form 8-K filed by the Company on November 3, 2017, the Preliminary Proxy Statement on Schedule 14A filed by the Company on January 23, 2018, as it may be amended, and the Definitive Proxy Statement, when filed.
The Potential IEA Combination also calls for various additional agreements including amendments to the Company’s amended and restated certificate of incorporation, the establishment of a new equity incentive plan, registration rights agreements, an investor rights agreement, a voting agreement, a certificate of designations for the Series A preferred stock of the Company, a founder shares amendment agreement, and certain restrictive covenant agreements as outlined in such Form 8-K, Preliminary Proxy Statement and Definitive Proxy Statement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception to December 31, 2017equity-based awards, which were organizational activities, and those necessary to prepare for our initial public offering. Since July 2016, we have also engaged in activities related to identifying an appropriate candidate for our initial business combination and, more recently, related to the potential consummation of an initial business combination pursuant to the Merger Agreement. We do not expect to generate any operating revenues until after the completion of our initial business combination and no assurance can be given that we will successfully consummate our initial business combination. We have generated, and anticipate continuing to generate, non-operating incomegranted in the form of interest income on cash and securities held after our initial public offering. We anticipate that such non-operating income will be insignificant in viewprofit units of the low interest ratesSeller, were canceled with no such amounts available for future issuance under the 2011 Equity Plan.
In March 2018, the Company adopted the 2018 IEA Equity Incentive Plan (the “2018 Equity Plan”), which provided for 2,157,765 shares to be available for granting to certain officers, directors and employees under the plan. The plan allows for the granting of both RSUs and Options.
On September 14, 2018, the Company's Board granted 374,052 RSUs and 713,260 Options to executives and management under the 2018 Equity Plan. The grants were documented in RSU and Option Award Agreements, which provided for a vesting schedule and require continuing employment. The RSUs and Options vest 50% after four years of continuous service from the Merger Closing Date, in equal installments of one-fourth on risk-free investments. There has been no significant changeeach of the first four anniversaries of the Closing Date, 25% on the later of one year from the Closing Date or the first date upon which the closing sale price of the Company's common stock for any 20 trading days in our financial positiona consecutive 30-day trading period equals or exceeds $12.00 per share and no material adverse change has occurred since25% on the later of one year from the Closing Date or the first date upon which the closing sale price of the Company's common stock for any 20 trading days in a consecutive 30-day trading period equals or exceeds $14.00 per share.
Stock-based compensation cost is measured at the date of
our audited financial statements included in our registration statementgrant based on the calculated fair value of the stock-based award and is recognized as expense using the straight-line method over the employee’s requisite service period (generally the vesting period of the award) within selling, general and administrative expenses. The following table provides the components of stock-based compensation expense and the associated tax benefit recognized for
our initial public offering. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.the year ended December 31, 2018. For the years ended December 31, 2017 and 2016, we had net incomethe Company recognized $0.1 million and $0.2 million, respectively, of $203,219expense under the 2011 Equity Plan.
|
| | | |
| (in thousands) | 2018 |
| Options | $ | 487 |
|
| RSUs | 585 |
|
| Stock-based compensation expense | 1,072 |
|
| Tax benefit for stock-based compensation expense | — |
|
| Stock-based compensation expense, net of tax | $ | 1,072 |
|
Employee Options
Options are granted with exercise prices equal to market prices on the date of grant and expire 10 years from the date of grant. Options are typically granted to officers and key employees selected by the Compensation Committee of the Board.
The following table summarizes all Optionactivity during 2018:
|
| | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price | | Aggregate Intrinsic Value (in thousands) | | Weighted Average Remaining Contractual Term (in years) |
| Outstanding at January 1, 2018 | — |
| | $ | — |
| | | | |
| Granted | 713,260 |
| | 10.37 |
| | | | |
| Exercised | — |
| | — |
| | | | |
| Forfeited | — |
| | — |
| | | | |
| Outstanding at December 31, 2018 | 713,260 |
| | $ | 10.37 |
| | | | |
| | | | | | | | |
| Vested or expected to vest at December 31, 2018 | 713,260 |
| | 10.37 |
| | | | |
| | | | | | | | |
| Exercisable at December 31, 2018 | — |
| | — |
| | — |
| | 0 |
The Company has a
net losspolicy of
$11,283, respectively. Forissuing new common shares to satisfy the
period from August 4, 2015 (inception) throughexercise of Options. As of December 31,
2015, we had a net loss2018, there was $3.1 million of
$809.We believe that we have sufficient funds available to complete our efforts to effect our initial business combination with an operating business by July 12, 2018.
Liquidityunrecognized stock-based compensation expense for unvested Options, and Capital Resources
In July 2016, we consummated our initial public offering of an aggregate of 15,000,000 public units, each unit consisting of one share of common stock, $0.0001 parthe expected remaining expense period was 3.25 years.
The weighted average grant-date fair value per share of Options granted in 2018 was $10.37. The Company estimated the fair value of Options issued using the Black-Scholes option pricing model. Expected volatilities were based on the historical volatility of the Company’s stock, peer group and one warrantother factors. The Company used historical data to purchase one-halfestimate Option exercises and employee terminations within the valuation model. Dividends were based on an estimated dividend yield. The risk-free interest rates used for the periods within the contractual life of one sharethe Options were based on the U.S. Treasury rates in effect at the time of the grant. Option valuation models require the input of subjective assumptions including the expected volatility and lives.
The following assumptions were used to value Option grants during 2018:
|
| | |
| 2018 |
| Expected dividend yield | — | % |
| Expected volatility | 35.00 | % |
| Risk-free interest rate | 2.63 | % |
| Expected life (in years) | 4.0 |
|
Employee RSUs
RSUs are awarded to select employees and, when vested, entitle the holder to receive a specified number of shares of the Company's common stock, pursuant toincluding shares resulting from dividend equivalents paid on such RSUs. The value of RSU grants was measured as of the registration statement on Form S-1 (File No. 333-210817). The public units were sold at an offeringgrant date using the closing price of $10.00 per unit generating gross proceeds of $150,000,000 before underwriting discounts and expenses. Simultaneously with the consummation of our initial public offering, we consummated the private placement of an aggregate of 460,000 private placement units,IEA's common stock.
The following table summarizes all activity for RSUs awarded to our sponsor and Cantor Fitzgerald and Co., at a price of $10.00 per private placement unit, generating gross proceeds, before expenses, of $4,600,000. A total of $150,000,000 of the net proceeds of our initial public offering and the private placement have been deposited in the trust account and are not available to us for operations (except amounts to pay taxes and up to $50,000 of dissolution expenses). The amounts in the trust account may be invested only in U.S. government treasury bills with a maturity of 180 days or less or money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Remaining proceeds of approximately $950,000 were deposited in the Company’s operating account, of which $370,414 remained available for working capital purposes and to fund our activities asemployees during 2018:
|
| | | | | | |
| | Number of RSUs | | Weighted Average Grant-Date Fair Value Per Share |
| Unvested at January 1, 2018 | — |
| | $ | — |
|
| Granted | 449,050 |
| | 10.37 |
|
| Vested | — |
| | — |
|
| Forfeited | — |
| | — |
|
| Unvested at December 31, 2018 | 449,050 |
| | $ | 10.37 |
|
As of December 31,
2017.We intend2018, there was $3.7 million of unrecognized stock-based compensation expense for unvested RSUs awarded to use substantially allemployees, and the expected remaining expense period was 3 years.
Non-employee Director RSUs
For service in 2018, the non-employee directors of the net proceedsBoard were granted 68,562 RSUs on December 31, 2018, valued at $0.6 million. These RSUs will vest on March 31, 2019. The value of our initial public offering, includingRSU grants was measured as of the funds heldgrant date using the closing price of IEA's common stock. As of December 31, 2018, there was $0.6 million of unrecognized stock-based compensation expense for unvested non-employee director RSUs, and the expected remaining expense period was 3 months.
Note 13. Income Taxes
The Company is a corporation that is subject to U.S. federal income tax, various state income taxes, Canadian federal taxes and provincial taxes.
(Loss) income before income taxes and the related tax (benefit) provision are as follows:
|
| | | | | | | | | | | |
| | Year ended December 31, |
| (in thousands) | 2018 | | 2017 | | 2016 |
| (Loss) income before income taxes: | | | | | |
| U.S operations | $ | (7,955 | ) | | $ | 29,313 |
| | $ | 54,238 |
|
| Non-U.S. operations | (743 | ) | | 1,075 |
| | — |
|
| Total (loss) income before taxes | $ | (8,698 | ) | | $ | 30,388 |
| | $ | 54,238 |
|
| | | | | | |
| Current (benefit) provision: | | | | | |
| Federal | $ | (23 | ) | | $ | 313 |
| | $ | 1,168 |
|
| State | (902 | ) | | 2,099 |
| | 3,306 |
|
| Total current (benefit) provision | (925 | ) | | 2,412 |
| | 4,474 |
|
| | | | | | |
| Deferred (benefit) provision: | | | | | |
| Federal | (10,399 | ) | | 11,637 |
| | (12,775 | ) |
| State | (1,618 | ) | | (186 | ) | | (1,912 | ) |
| Total deferred (benefit) provision | (12,017 | ) | | 11,451 |
| | (14,687 | ) |
| | | | | | |
| Total (benefit) provision for income taxes | $ | (12,942 | ) | | $ | 13,863 |
| | $ | (10,213 | ) |
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate from continuing operations is as follows:
|
| | | | | | | | |
| | Year ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Federal statutory rate | 21.0 | % | | 34.0 | % | | 34.0 | % |
| State and local income taxes, net of federal benefits | 26.5 |
| | 3.9 |
| | 3.4 |
|
| Permanent items | 101.1 |
| | 3.8 |
| | (0.1 | ) |
| Change in valuation allowance | — |
| | (0.1 | ) | | (57.5 | ) |
| Rate change | (1.0 | ) | | 1.0 |
| | — |
|
| Other | 1.2 |
| | 3.0 |
| | 1.4 |
|
| Effective tax rate | 148.8 | % | | 45.6 | % | | (18.8 | )% |
Significant differences in the
trust account,effective tax rate between the years ended December 31, 2018 and 2017 related to
acquire a target business or businesses and to pay our expenses relating thereto, including a fee payable to Cantor Fitzgerald for its services in connection with our initial public offering upon the
consummation of such business combination in an amount equal to $6,000,000. To the extent that our capital stock is used in whole or in part as consideration to effect our initial business combination, the remaining proceeds heldchange in the
trust account, as well as any other net proceeds not expended, will be used as working capital to finance the operations of the target business. Such funds could be used in a variety of ways including continuing or expanding the target business' operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses.We intend to use the funds held outside the trust account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, reviewU.S. federal corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an initial business combination.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. This belief is based on the fact that, while we may begin preliminary due diligence of a target business in connection with an indication of interest, we intend to undertake in-depth due diligence, depending on the circumstances of the relevant prospective acquisition, only after we have negotiated and signed a letter of intent or other preliminary agreement that addresses the terms of our initial business combination. However, if our estimate of the costs of undertaking in-depth due diligence and negotiating our initial business combination is less than the actual amount necessary to do so, or the amount of interest available to use from the trust account is minimalincome tax rate as a result of the current interest rate environment, we may be required2017 Tax Act, the permanent items pertaining to raise additional capital,contingent consideration, the amount, availabilityMerger and cost of which is currently unascertainable. In this event, we could seek such additional capital through loans or additional investments from members of our management team, but such members of our management team are not under any obligation to advance funds to, or investthe acquisitions made in us. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from the trust account would be used for such repayment. Such loans would be evidenced by promissory notes.2018, and state taxes. The notes would either be repaid upon consummation of our initial business combination, without interest, or, at the lender’s discretion, up to $1,000,000 of such loans will be convertible into warrants of the post-business combination entity at a price of $0.50 per warrant. The warrants would be identical to the private placement warrants. Except as described above, the terms of such loans by our initial stockholders, officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
Off-balance sheet financing arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than the portion of the underwriting commissions fee payable to Cantor Fitzgerald for its services in connection with our initial public offering which is due upon the consummation of the business combination in an amount equal to $6,000,000
Significant Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepteddifference in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. The Company has not identified any significant accounting policies.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Redeemable Common Stock
All of the 15,000,000 shares of common stock sold as part of the Units in our initial public offering and the private placement contain a redemption feature which allows for the redemption of such common stock under our liquidation or tender offer/stockholder approval provisions. The initial stockholders and Cantor Fitzgerald have waived their rights to participate in such redemption with respect to their founder shares and private placement shares. In accordance with FASB ASC 480, redemption provisions not solely within our control require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity's equity instruments, are excluded from the provisions of FASB ASC 480. Although we do not specify a maximum redemption threshold, our amended and restated certificate of incorporation provides that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001.
We recognize changes in redemption value immediately as they occur and adjust the carrying value of the securities to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital.
Accordingly, at December 31, 2017, 13,923,262 of the 15,000,000 public shares are classified outside of permanent equity at their redemption value. The redemption value is equal to the pro rata share of the aggregate amount then on deposit in the trust account, including interest but less taxes payable (approximately $10.07 per share at December 31, 2017).
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We were organized for the purpose of effecting a business combination. As of December 31, 2017, we had not commenced any operations or generated any revenues. All activity through December 31, 2017 relates to our formation and our initial public offering and, subsequent to our initial public offering, our efforts have been directed toward searching for a target for our initial business combination. Subsequent to consummation of our initial public offering on July 12, 2016, $150,000,000 of the net proceeds of our initial public offering and the private placement were deposited into the trust account which may be invested solely in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U. S. government obligations. Therefore, we do not believe there is a material interesttax rate risk.
Item 8. Financial Statements and Supplementary Data
Reference is made to Pages F-1 through F-16 comprising a portion of this Annual Report on Form 10-K.
Index to Financial Statements
| | Page |
Report of Independent Registered Public Accounting Firm | | F-1 |
Financial Statements: | | |
Balance Sheets as of December 31, 2017 and 2016 | | F-2 |
Statements of Operations for the years ended December 31, 2017 and December 31, 2016 and for the period from August 4, 2015 (inception) through December 31, 2015 | | F-3 |
Statements of Change in Stockholders’ Equity for the years ended December 31, 2017 and December 31, 2016 and for the period from August 4, 2015 (inception) through December 31, 2015 | | F-4 |
Statements of Cash Flows for the years ended December 31, 2017 and December 31, 2016 and for the period from August 4, 2015 (inception) through December 31, 2015 | | F-5 |
Notes to Financial Statements | | F-6 |
Supplementary Data (unaudited)
The following table presents selected unaudited quarterly financial data of the Company as of December 31, 2017, 2016 and 2015 forbetween the years ended December 31, 2017 and 2016 (and the negative tax rate in 2016) was driven by the release of a valuation allowance on loss carryforwards in 2016.
Deferred taxes reflect the tax effects of the differences between the amounts recorded as assets and liabilities for financial statement purposes and the comparable amounts recorded for income tax purposes. Significant components of the deferred tax assets (liabilities) as of December 31, 2018 and 2017, respectively, are as follows:
|
| | | | | | | |
| | December 31, |
| (in thousands) | 2018 | | 2017 |
| Deferred tax assets: | | | |
| Allowance for doubtful accounts | $ | 15 |
| | $ | 31 |
|
| Accrued liabilities and deferred compensation | 1,999 |
| | 1,600 |
|
| Alternative minimum tax credit carryforwards | 1,069 |
| | 1,043 |
|
| Net operating loss carryforwards | 10,701 |
| | 2,532 |
|
| Transaction costs | 1,695 |
| | — |
|
| Goodwill | — |
| | 1,239 |
|
| Section 163(j) interest limitation | 2,810 |
| | — |
|
| Other reserves and accruals | 436 |
| | — |
|
| Less: valuation allowance | — |
| | (4 | ) |
| Total deferred tax assets | 18,725 |
| | 6,441 |
|
| Deferred tax liabilities: | | | |
| Property, plant and equipment | (5,795 | ) | | (2,977 | ) |
| Equipment under capital lease | (426 | ) | | (346 | ) |
| Intangibles | (949 | ) | | (17 | ) |
| Goodwill | (340 | ) | | — |
|
| Other | — |
| | (21 | ) |
| Total deferred tax liabilities | (7,510 | ) | | (3,361 | ) |
| Net deferred tax asset | $ | 11,215 |
| | $ | 3,080 |
|
The Company assesses the realizability of the deferred tax assets at each balance sheet date based on actual and forecasted operating results in order to determine the proper amount, if any, required for a valuation allowance. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. It is management’s belief that it is more likely than not that the net deferred tax assets related to the Company will be utilized prior to expiration.
As of December 31, 2018, the Company had a federal net operating loss carryover of $40.1 million and net operating loss carryovers in certain state tax jurisdictions of approximately $45.6 million, which may be applied against future taxable income. $10.5 million of the federal net operating loss carryover was incurred prior to 2018 and will begin to expire in 2035. The state net operating loss carryovers will begin to expire in 2025. As of December 31, 2018, the Company had total alternative minimum tax credit carryovers of approximately $1.1 million.
The Company files income tax returns in U.S. federal, state and certain international jurisdictions. For federal and certain state income tax purposes, the Company’s 2015 through 2017 tax years remain open for examination by the tax authorities under the normal statute of limitations. For certain international income tax purposes, the Company’s 2014 through 2017 tax years remain open for examination by the tax authorities under the normal statute of limitations.
The Company classifies interest expense and penalties related to unrecognized tax benefits as components of the income tax provision. There were no such interest or penalties recognized in the consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, and there were no corresponding accruals as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, the Company had not identified any uncertain tax positions for which recognition was required.
Note 14. Employee Benefit Plans
The Company participates in numerous multi-employer pension plans (“MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements (“CBAs”). As of December 31, 2018, 2017 and 2016, 26%, 25% and 25%, respectively, of the Company’s employees were members of collective bargaining units. As one of many participating employers in these MEPPs, the Company is responsible, with the other participating employers, for any plan underfunding. Contributions to a particular MEPP are established by the applicable collective bargaining agreements; however, required contributions may increase based on the funded status of a MEPP and legal requirements of the Pension Protection Act of 2006, which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact the funded status of a MEPP include investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization of extended amortization provisions. If a contributing employer stops contributing to a MEPP, the unfunded obligations of the MEPP may be borne by the remaining contributing employers. Assets contributed to an individual MEPP are pooled with contributions made by other contributing employers; the pooled assets will be used to provide benefits to the Company’s employees and the employees of the other contributing employers.
An FIP or RP requires a particular MEPP to adopt measures to correct its underfunding status. These measures may include, but are not limited to: (a) an increase in the contribution rate as a signatory to the applicable collective bargaining agreement, (b) a reallocation of the contributions already being made by participating employers for various benefits to individuals participating in the MEPP and/or (c) a reduction in the benefits to be paid to future and/or current retirees. In addition, the Pension Protection Act of 2006 requires that a 5% surcharge be levied on employer contributions for the periodfirst year commencing shortly after the date the employer receives notice that the MEPP is in critical status and a 10% surcharge on each succeeding year until a collective bargaining agreement is in place with terms and conditions consistent with the RP. The zone status included in the table below is based on information that the Company received from August 4, 2015 (inception) throughthe plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are greater than 65% and less than 80% funded, and plans in the green zone are at least 80% funded.
The Company could also be obligated to make payments to MEPPs if the Company either ceases to have an obligation to contribute to the MEPP or significantly reduces its contributions to the MEPP because of a reduction in the number of employees who are covered by the relevant MEPP for various reasons. Due to uncertainty regarding future factors that could trigger a withdrawal liability, as well as the absence of specific information regarding the MEPP’s current financial situation, the Company is unable to determine (a) the amount and timing of any future withdrawal liability, if any, and (b) whether participation in these MEPPs could have a material adverse impact on the Company’s financial condition, results of operations or cash flows.
The nature and diversity of the Company’s business may result in volatility of the amount of contributions to a particular MEPP for any given period. That is because, in any given market, the Company could be working on a significant project and/or projects, which could result in an increase in its direct labor force and a corresponding increase in its contributions to the MEPP(s) dictated by the applicable collective bargaining agreement. When the particular project(s) finishes and is not replaced, the level of direct labor of contributions to a particular MEPP could also be affected by the terms of the collective bargaining agreement, which could require at a particular time, an increase in the contribution rate and/or surcharges.
The following tables list the MEPPs the Company considered individually significant in 2018, 2017 and 2016. The Company considers individually significant to be any plan over 5% of its total contributions to all MEPPs for that year. For the years ended December 31,
2015.| | | 2017 | |
| Operating Expenses | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | Period ended
December 31,
2017 | |
| Operating costs | | | (153,918 | ) | | | (119,565 | ) | | | (81,014 | ) | | | (251,216 | ) | | | (605,712 | ) |
| Loss from operations | | | (153,918 | ) | | | (119,565 | ) | | | (81,014 | ) | | | (251,216 | ) | | | (605,712 | ) |
| Other Income: | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | 122,453 | | | | 199,530 | | | | 300,627 | | | | 334,900 | | | | 957,510 | |
| Income Tax Provision | | | - | | | | - | | | | 105,048 | | | | 43,532 | | | | 148,580 | |
| Net Income (Loss) | | | (31,464 | ) | | | 79,965 | | | | 114,565 | | | | 40,152 | | | | 203,219 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) per common share: | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted (1) | | | (0.02 | ) | | | (0.01 | ) | | | (0.02 | ) | | | (0.04 | ) | | | (0.09 | ) |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted | | | 5,218,228 | | | | 5,232,775 | | | | 5,243,341 | | | | 5,259,797 | | | | 5,231,815 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Data (at period end) | | | | | | | | | | | | | | | | | | | | |
| Cash | | | 742,429 | | | | 667,445 | | | | 613,720 | | | | 370,414 | | | | 370,414 | |
| Cash and securities held in Trust Account | | | 150,222,925 | | | | 150,422,455 | | | | 150,723,082 | | | | 151,057,982 | | | | 151,057,982 | |
| Total Assets | | | 151,016,647 | | | | 151,131,194 | | | | 151,368,097 | | | | 151,449,691 | | | | 151,449,691 | |
| Deferred underwriting fees | | | 6,000,000 | | | | 6,000,000 | | | | 6,000,000 | | | | 6,000,000 | | | | 6,000,000 | |
| Total Liabilities | | | 6,036,670 | | | | 6,071,250 | | | | 6,193,588 | | | | 6,235,030 | | | | 6,235,030 | |
| Ordinary shares subject to possible redemption | | | 139,979,976 | | | | 140,059,943 | | | | 140,174,508 | | | | 140,214,660 | | | | 140,214,660 | |
| Total Shareholders' Equity | | | 5,000,001 | | | | 5,000,001 | | | | 5,000,001 | | | | 5,000,001 | | | | 5,000,001 | |
| | | 2016 | |
| Operating Expenses | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | Year ended
December 31,
2016 | |
| Operating costs | | $ | (135 | ) | | $ | (230 | ) | | $ | (46,900 | ) | | | (64,489 | ) | | | (111,754 | ) |
| Loss from operations | | | (135 | ) | | | (230 | ) | | | (46,900 | ) | | | (64,489 | ) | | | (111,754 | ) |
| Other Income: | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | - | | | | - | | | | 31,297 | | | | 69,174 | | | | 100,471 | |
| Net Income (Loss) | | | (135 | ) | | | (230 | ) | | | (15,603 | ) | | | 4,686 | | | | (11,283 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) per common share: | | | | | | | | | | | | | | | | | | | | (Revised) |
| Basic and diluted (1) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | | | 0.00 | | | | (0.02 | ) |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted | | | 4,312,500 | | | | 4,312,500 | | | | 5,058,396 | | | | 5,215,236 | | | | 4,760,158 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Data (at period end) | | | | | | | | | | | | | | | | | | | | |
| Cash | | | 8,369 | | | | 8,138 | | | | 913,858 | | | | 869,058 | | | | 869,058 | |
| Cash and securities held in Trust Account | | | - | | | | - | | | | 150,031,297 | | | | 150,100,471 | | | | 150,100,471 | |
| Total Assets | | | 186,556 | | | | 276,592 | | | | 151,016,447 | | | | 151,030,821 | | | | 151,030,821 | |
| Deferred underwriting fees | | | - | | | | - | | | | 6,000,000 | | | | 6,000,000 | | | | 6,000,000 | |
| Total Liabilities | | | 162,500 | | | | 252,766 | | | | 6,009,690 | | | | 6,019,380 | | | | 6,019,380 | |
| Ordinary shares subject to possible redemption | | | - | | | | - | | | | 140,006,756 | | | | 140,011,440 | | | | 140,011,440 | |
| Total Shareholders' Equity | | | 24,056 | | | | 23,826 | | | | 5,000,001 | | | | 5,000,001 | | | | 5,000,001 | |
| (1) | Net Income / (loss) per common share – basic and diluted excludes interest income attributable to the shares of common stock subject to redemption for the twelve months ended December 31,2018, 2017 and 2016 of $695,339 and $73,179, respectively. |
| | | 2015 | |
| Operating Expenses | | First Quarter | | | Second Quarter | | | Third
Quarter | | | Fourth
Quarter | | | Period ended
December 31,
2015 | |
| Operating costs | | | | | | | | | | | (809 | ) | | | - | | | | (809 | ) |
| Loss from operations | | | | | | | | | | | | | | | | | | | (809 | ) |
| Other Income: | | | | | | | | | | | | | | | - | | | | | |
| Interest income | | | | | | | | | | | - | | | | - | | | | - | |
| Net Income (Loss) | | | | | | | | | | | (809 | ) | | | - | | | | (809 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) per common share: | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted | | | | | | | | | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted | | | | | | | | | | | 4,312,500 | | | | 4,312,500 | | | | 4,312,500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Data (at period end) | | | | | | | | | | | | | | | | | | | | |
| Cash | | | | | | | | | | | 86,691 | | | | 31,691 | | | | 31,691 | |
| Cash and securities held in Trust Account | | | | | | | | | | | - | | | | - | | | | - | |
| Total Assets | | | | | | | | | | | 136,691 | | | | 136,691 | | | | 136,691 | |
| Deferred underwriting fees | | | | | | | | | | | - | | | | - | | | | - | |
| Total Liabilities | | | | | | | | | | | 112,500 | | | | 112,500 | | | | 112,500 | |
| Ordinary shares subject to possible redemption | | | | | | | | | | | | | | | - | | | | - | |
| Total Shareholders' Equity | | | | | | | | | | | 24,191 | | | | 24,191 | | | | 24,191 | |
Item 9. Changes in and Disagreements with Accountants on Accounting2016, these plans represented 63%, 54% and Financial Disclosure.
None.
Item 9A. Controls65% of total dollars contributed by the Company, respectively, and Procedures.
Evaluationsix of Disclosure Controls55, four of 52 and Procedures
Underseven of 22 total plans contributed to by the supervision andCompany. All of the Company's contributions were less than 5% of the total plan contributions contributed by all participating employers. This information was obtained from the respective plans’ Form 5500 for the most current available filing, which among other things, disclose the names of individual participating employers whose annual contributions account for more than 5% of the aggregate annual amount contributed by all participating employers for a plan year. These dates may not correspond with the participationCompany’s calendar year contributions.
For the year ended December 31, 2018:
|
| | | | | | | | | | | | | | | | |
| MEPP | | Federal ID# | | PPA Zone Status | | FIP/RP Status | | 2018 Contributions | | Surcharge | | Plan Year | | Expiration of CBA |
| Central Pension Fund of the IUOE & Participating Employers | | 36-6052390 | | Green | | No | | $ | 2,906 |
| | No | | January 2018 | | April 2019, March 2023, March 2020, May 2020 |
| Upstate New York Engineers Pension Fund | | 15-0614642 | | Red | | Implemented | | 1,100 |
| | No | | March 2017 | | June 2019 |
| Central Laborers' Pension Fund | | 37-6052379 | | Yellow | | Implemented | | 1,330 |
| | No | | January 2018 | | April 2021 |
| Iron Workers Local Union No. 25 Pension Plan | | 38-6056780 | | Red | | Implemented | | 998 |
| | No | | April 2018 | | May 2019 |
| Operating Engineers' Local 324 Pension Fund | | 38-1900637 | | Red | | Implemented | | 840 |
| | No | | April 2018 | | April 2018 |
| Laborers National Pension Fund | | 75-1280827 | | Red | | Implemented | | 744 |
| | No | | 2018 | | March 2019 |
| Other funds | | | | | | | | 4,748 |
| | | | | | |
| Total MEPP contributions | | | | | | | | $ | 12,666 |
| | | | | | |
For the year ended December 31, 2017:
|
| | | | | | | | | | | | | | | | |
| MEPP | | Federal ID# | | PPA Zone Status | | FIP/RP Status | | 2017 Contributions | | Surcharge | | Plan Year | | Expiration of CBA |
| Central Pension Fund of the IUOE & Participating Employers | | 36-6052390 | | Green | | No | | $ | 1,646 |
| | No | | January 2017 | | April 2019, March 2018, May 2018 |
| Central Laborers' Pension Fund | | 37-6052379 | | Yellow | | Implemented | | 839 |
| | No | | December 2016 | | April 2018 |
| Upstate New York Engineers Pension Fund | | 15-0614642 | | Red | | Implemented | | 597 |
| | No | | March 2017 | | June 2018 |
| Iron Workers St. Louis District Council Pension Trust | | 43-6052659 | | Green | | No | | 384 |
| | No | | October 2016 | | April 2017 |
| Other funds | | | | | | | | 2,946 |
| | | | | | |
| Total MEPP contributions | | | | | | | | $ | 6,412 |
| | | | | | |
For the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | | |
| MEPP | | Federal ID# | | PPA Zone Status | | FIP/RP Status | | 2016 Contributions | | Surcharge | | Plan Year | | Expiration of CBA |
| Central Pension Fund of the IUOE & Participating Employers | | 36-6052390 | | Green | | No | | $ | 1,268 |
| | No | | January 2016 | | March 2018 |
| Central Laborers' Pension Fund | | 37-6052379 | | Red | | Implemented | | 408 |
| | No | | December 2015 | | April 2017, April 2018 |
| Iron Workers Local Union No. 25 Pension Plan | | 38-6056780 | | Red | | Implemented | | 989 |
| | No | | April 2016 | | May 2019 |
| Operating Engineers' Local 324 Pension Fund | | 38-1900637 | | Yellow | | Implemented | | 675 |
| | No | | April 2016 | | May 2018 |
| Mo-Kan Iron Workers Pension Fund | | 43-6130595 | | Green | | No | | 619 |
| | No | | January 2016 | | March 2017 |
| Iron Workers Mid-America Pension Plan | | 36-6488227 | | Green | | No | | 560 |
| | No | | December 2015 | | May 2018 |
| Midwest Operating Engineers Pension Trust Fund | | 36-6140097 | | Yellow | | Implemented | | 482 |
| | No | | March 2016 | | May 2018 |
| Other funds | | | | | | | | 2,427 |
| | | | | | |
| Total MEPP contributions | | | | | | | | $ | 7,428 |
| | | | | | |
The zone status above represents the most recent available information for the respective MEPP, which is 2017 for the plan year ended in 2018, 2016 for the plan year ended in 2017 and 2015 for the plan year ended in 2016.
Note 15. Related Parties
Credit Support Fees
The Company had debt facilities and other obligations under surety bonds and stand-by letters of credit under the old credit facility that were guaranteed by the two funds that had majority ownership in the Seller. The Company paid a fee for those guarantees based on the total amount outstanding. The Company expensed $0.2 million, $1.5 million and $3.0 million related to these fees during the years ended December 31, 2018, 2017 and 2016, respectively. $0.6 million of the 2016 amount was included within net income from discontinued operations in the consolidated statement of operations.
Clinton Lease Agreement
On October 20, 2017, the ownership of a building and land was transferred from White to Clinton RE Holdings, LLC (Cayman) (“Cayman Holdings”), a directly owned subsidiary of the Seller. White then entered into a lease with Cayman Holdings for use of the building and land. This lease has been classified as an operating lease with monthly payments through 2038. The Company's rent expense related to the lease was $0.7 million and $0.1 million for the years ended December 31, 2018 and 2017, respectively.
Note 16. Subsequent Event
On March 13, 2019, the Company completed a sale-leaseback transaction related to certain assets that were acquired as part of our management, including our Chief Executive Officer and our Chief Financial Officer (together, the “Certifying Officers”), we carried out an evaluationrecent acquisitions of the effectiveness of the design and operation of ourapproximately $25.0 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls
The Company maintains disclosure controls and procedures
as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that
our disclosure controls and procedures were effective as of the end of the period covered by this Report.Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms, and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including our Certifying Officers, or persons performing similar functions,its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2018, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2018.
Management’s Report on Internal
Controls OverControl over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Underreporting as defined in Rules 13a-15(f) and 15d-15(f) under the supervisionSecurities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation ofpolicies or procedures may deteriorate.
Management has assessed the effectiveness of
ourthe Company’s internal control over financial reporting as of December 31,
2017, based on2018, utilizing the criteria
established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission for newly public companies (COSO)Commission’s Internal Control-Integrated Framework (2013). Based on
this evaluation,its assessment, our management concluded
that ourthe Company’s internal control over financial reporting was effective as of December 31,
2017.2018.
Attestation Report of the Independent Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on our internal control over financial reporting because Section 103 of the JOBS Act provides that an emerging growth company is not required to provide an auditor's report on internal control over financial reporting for as long as we qualify as an emerging growth company.
Remediation of Prior Material Weakness
As of December 31, 2018, management has concluded that the previously disclosed material weaknesses as of December 31, 2017, are remediated based on the following actions taken during the year:
revised our Board and Committee Charters, which now provide appropriate mechanisms through which to demonstrate that effective oversight over financial reporting processes and internal controls is being properly exercised;
implemented an effective annual process to ensure that all employees, as well as members of the Board, and outsourced service providers confirm their compliance with the Company’s Code of Business Conduct;
implemented a whistleblower hotline which is available throughout the organization and through an external website and communicated information regarding the whistleblower hotline to all employees; and
increased communication and training to all employees and the Board regarding the Company’s ethical values and the requirement to comply with laws, rules, regulations, and the Company’s policies, including our Code of Conduct and Ethics.
revised our organizational structure by hiring dedicated key employees, including senior management, with assigned responsibility and accountability for financial reporting processes and internal controls. Further, we will continue to provide ongoing GAAP and internal controls training for all the employees;
implemented an annual financial control risk assessment process as well as a regularly recurring fraud risk assessment process focused on identifying and analyzing risks of financial misstatement due to error and/or fraud, including management override of controls;
hired another big four accounting firm as an internal controls resource, to create and develop a risk based internal controls plan. We are also enhancing the business process documentation and management's self-assessment and testing for internal controls;
enhanced the information technology control framework to support all business applications and infrastructure.
enhanced the management review controls over the application of GAAP and accounting measurements for significant accounts and transactions by adding resources with the required skills and assigned responsibility and accountability for performing an effective review; and
management review controls have been reassessed to provide the appropriate level of precision required to mitigate the potential for a material misstatement. In addition, we have enhanced the design and implementation of and supporting documentation over management review controls to make clear: (i) management’s expectations related to transactions that are subject to such controls; (ii) the level of precision and criteria used for investigation; and (iii) evidence that all outliers or exceptions that should have been identified are investigated and resolved.
These actions resulted in improved control environment which enhanced review procedures and improved documentation standards which were in place for a period of time in 2018 that was sufficiently long enough for our management to conclude, through testing that the controls are operating effectively.
Internal Control over Financial Reporting for Acquisitions
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include an assessment of certain elements of internal controls over financial reporting of CCS and William Charles which were acquired on September 25, 2018 and November 2, 2018, respectively, which is included in the consolidated financial statements of the Company for the year ended December 31, 2018. CCS accounts for 29.3% of total assets and 9.8% of total revenue, while William Charles accounts for 27.4% of total assets and 6.4% of total revenue. See Note. 2 Merger, Acquisition and Divestiture for further discussion.
Changes in Internal Control
Overover Financial Reporting
There were
Other than changes described under Remediation of Prior Material Weaknesses, there was no
changeschange in our internal control over financial reporting
(as such term is definedidentified in
Rules 13a-15(f)connection with the evaluation required by Rule 13a-15(d) and
15d-15(f)15d-15(d) of the Exchange
Act)Act that occurred during the
most recent fiscal quarterthree months ended December 31, 2018 that
havehas materially affected, or
areis reasonably likely to materially affect, our internal control over financial
reporting.reporting, expect as described below.
ITEM 9B.
Other InformationNone.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
As of
Certain information required by Part III is omitted from this Annual Report on Form 10-K because the
date of this Report, our directors and officers are as follows:Name | | Age | | Title |
Mohsin Meghji | | 53 | | Chairman of the Board of Directors and Chief Executive Officer |
Suleman E. Lunat | | 45 | | Executive Vice President and Head of Corporate Development |
Brian Griffith | | 43 | | Chief Financial Officer |
Andrew L. Farkas | | 57 | | Director |
Osbert Hood | | 65 | | Director |
Philip Marber | | 56 | | Director |
Christopher J. Pappano | | 47 | | Director |
Mohsin Meghji, our Chairman and Chief Executive Officer since inception, has also been the Managing Partner of M-III Partners since February 2014. His career of more than 25 years has focused primarily identifying the financial, operational and strategic changes needed to revive troubled companies and workingregistrant will file with the relevant constituenciesU.S. Securities and Exchange Commission a definitive proxy statement pursuant to implement those changes. He has accomplished this through management and advisory roles in partnership with some of the world’s leading financial institutions, private equity and distressed hedge fund investors. Mr. Meghji’s most recent corporate role was as Executive Vice President and Head of Strategy at Springleaf, as well as Chief Executive Officer of its captive insurance companies, from January 2012 to February 2014. Springleaf was listed on the NYSE in late 2013. Prior to Springleaf, Mr. Meghji served as a Senior Managing Director at C-III Capital Partners, LLC, a real-estate focused merchant banking firm from October to December 2011. Mr. Meghji co-founded Loughlin Meghji + Company, a privately-held financial advisory firm which became one of the leading restructuring boutiques in the U.S. Mr. Meghji was a Principal and Managing Director of Loughlin Meghji + Company from February 2002 to October 2011. During his tenure with Loughlin Meghji + Company, Mr. Meghji periodically served as Chief Restructuring Officer (or in an analogous position) of companies which elected to utilize bankruptcy proceedings as a part of their financial restructuring process and, as such, he served as an executive officer of various companies which filed bankruptcy petitions under federal law, including, without limitation, Pappas Telecasting in 2008, Capmark Finance, Inc. in 2009, Medical Staffing Network in 2010. Mr. Meghji was appointed as an independent director of MS ResortsRegulation 14A in connection with the filingsolicitation of its bankruptcy petition and served in such capacity from January 2011 through February 2013. Earlier in his career, Mr. Meghji was with Arthur Andersen & Co. from 1987 to 2002 in the firm’s London, Toronto and New York offices, including as a Partner in the Global Corporate Finance group from 2001 to 2002. He has served as a director on a number of corporate boards including Mariner Health Care Inc. from 2002 to 2004, Cascade Timberlands, LLC from 2004 to 2005 and MS Resorts from January 2011 to February 2013. He is a director of The Children’s Museum of Manhattan as well as the Equity Group International Foundation, which provides funding for underprivileged high-potential students in Kenya. Previously, he served on the Board of HealthRight International from 2004 to 2012. Mr. Meghji is a graduate of the Schulich School of Business, York University, Canada and has taken executive courses at the INSEAD School of Business in France. He has previously qualified as a U.K. and Canadian Chartered Accountant as well as a U.S. Certified Turnaround Professional. Mr. Meghji is well-qualified to serve on our board of directors due to his extensive experience in turnaround situations, business, finance and operations.
Suleman E. Lunat, our Executive Vice President and Head of Corporate Development since inception, was also a Partner of M-III Partners from April 2013 through December 2017. He has more than 20 years of experience as an investor in public and private equity, credit and distressed special situations and investment banking. He has provided M&A, debt restructuring and capital raising services to a range of middle market and large corporate clients in North America and Europe. Before joining M-III Partners in July 2014, Mr. Lunat was a Principal and portfolio manager in the Opportunistic Credit group of Apollo Global Management (NYSE: APO), a global alternative investment manager focusing on private equity, credit and real estate, from 2007 to February 2013. At Apollo, Mr. Lunat focused on managing a portfolio of special situation performing, stressed and distressed credit and equity investments in both the public and private markets. Mr. Lunat was also a member of Apollo’s Strategic Value Fund and Credit Opportunity Fund investment teams. Prior to Apollo, Mr. Lunat held positions as Senior Investment Analyst at Longacre Fund Management from 2005 to 2007 and Sandell Asset Management from 2004 to 2005, both privately-held alternative asset management firms. Before joining Sandell, he was a Vice President at Greenhill & Co. (NYSE: GHL), where he was employed from 1997 to 2003, focused on debt restructuring, M&A and principal investing. He was an initial member of the Greenhill Capital Partners private equity investment team. He began his career at Lehman Brothers as a financial analyst in the Investment Banking division in 1995. Mr. Lunat has served as a trustee of Success Academy Charter Schools-NYC since September 2014 and was a director of Centrus Energy Corporation (NYSE: LEU) from October 2014 through June 2017. He is a graduate of Wesleyan University with a B.A. in Economics.
Brian Griffith, our Chief Financial Officer since inception, is also a Managing Director of M-III Partners. Mr. Griffith has more than 17 years of financial, operational and advisory experience in both growth and distressed situations. Over the course of his career, Mr. Griffith served as Chief Restructuring Officer and interim VP of Finance for various clients in the finance, energy and technology sectors. His experience covers a number of industries including financial services, real estate, healthcare services, energy, consumer products, manufacturing and food services. Prior to joining M-III Partners in August 2014, Mr. Griffith spent two years as an independent advisor to companies in transition, including roles as the Chief Restructuring Officer of Yoostar Entertainment Group from April 2014 to October 2014 and as an advisor to Springleaf Holdings, LLC (NYSE: LEAF) from May 2013 to October 2014. Mr. Griffith was previously a Managing Director at Loughlin Meghji + Company, a privately-held financial advisory firm, from February 2008 to January 2013. At Loughlin Meghji + Company, he was involved with numerous transactions, including the restructuring of Capmark Financial Group, Inc., where he was responsibleproxies for the development and execution of cost rationalization initiatives. Mr. Griffith also advised Berkadia Commercial Mortgage on process improvement and cost reduction initiatives. Other roles included advising an institutional investor on a merger integration of two healthcare companies. Prior to Loughlin Meghji + Company, Mr. Griffith worked for CCV Restructuring from 2002 to 2008, FTI Consulting from 2001 to 2002 and Ernst & Young, LLP from 1996 to 1997 advising stakeholders in turnarounds, as well as providing transaction advisory services. Mr. Griffith earned an M.B.A from Fordham University and received a B.S. in Business Administration degree from Villanova University. He is a member of the Turnaround Management Association.
Andrew L. Farkas, one of our directors since July 2016, currently serves as the Managing Member, Chairman and Chief Executive Officer of Island Capital Group LLC. Island Capital Group LLC is a private, real-estate oriented merchant banking firm specializing in real estate investing, real estate operating businesses and real estate securities. Mr. Farkas also serves as an officer in various subsidiaries and controlled affiliates of Island Capital Group LLC and is also regularly appointed to and holds director positions in private, non-corporate vehicles controlled by Island Capital Group LLC. Mr. Farkas also has served since September 2016 as a director and Chairman of the Board of Resource Capital Corp. (NYSE: RSO). Prior to founding Island Capital Group LLC in 2003, Mr. Farkas was the Chairman and Chief Executive Officer from 1998 to 2003 of Insignia Financial Group, Inc. (NYSE: IFS), a global real estate services company that he founded in 1990 and which was merged with CB Richard Ellis in 2003 to form the world’s largest commercial real estate services company. Prior to founding Insignia Financial Group, Inc., Mr. Farkas was employed at Thompson McKinnon Securities from 1982 to 1984 and was the founder and managing principal of Metropolitan Asset Group, Ltd., a private real estate investment banking and merchant banking firm specializing in securitized real estate transactions since 1984. Mr. Farkas served on the Board of Directors of iStar Financial Inc. from 2001 to 2003. He also served as a Managing Trustee of the Board of Trustees of Charter Mac (NYSE: CHC) from 2004 until 2007. Mr. Farkas graduated from Harvard University in 1982 with a B.A. in Economics. Mr. Farkas is well-qualified to serve on our board of directors due to his experience in finance, real estate, banking and business.
Osbert Hood, one of our directors since July 2016, is currently retired from active business management. Previously, he served as Chief Operating Officer of Advent Capital Management, LLC, a privately-held investment management firm, from June 2012 to May 2014. At Advent, Mr. Hood oversaw all non-investment functions including business development, product development, investor relations, operations and technology. Prior to joining Advent, Mr. Hood served as a business advisor from May 2010 to May 2012 and was Chairman and Chief Executive Officer of MacKay Shields, LLC, a privately-held investment management firm, from January 2007 to April 2010. Prior to MacKay Shields, LLC, he served as Pioneer Investments USA’s Chief Executive Officer and President from 2003 to 2006 and Chief Operating Officer from 2000 to 2003. Pioneer Investments USA is the US division of Pioneer Investments S.p.A., which is a global asset management firm that is a subsidiary of UniCredit S.p.A., a leading publicly-traded European banking group. Mr. Hood was employed by John Hancock Financial Services from 1990 to 2000, where he served in roles of increasing responsibility before being named as Executive Vice President and Chief Financial Officer of John Hancock Advisors in 1997. John Hancock is the United States operating unit of Manulife Financial, a leading Canada-based financial services group (NYSE: MFC). He began his professional career at American Express Company (NYSE: AXP) in 1977. Mr. Hood was a director of Centrus Energy Corporation (NYSE: LEU), a global energy company that supplies low enriched uranium for commercial nuclear plants, from October 2014 through June 2017. Mr. Hood holds an MBA from New York University and a BS from Adelphi University. He also has attended the Advanced Management Program at the Wharton School of the University of Pennsylvania. Mr. Hood is well-qualified to serve on our board of directors due to his experience in finance, business and operations.
Philip Marber, one of our directors since July 2016, is currently retired from active business management. From 1996 to 2009, Mr. Marber served as President and Chief Executive Officer of Cantor Fitzgerald and Co., an investment bank and brokerage business, where he was responsible for all aspects of management of the institutional equities business. Mr. Marber joined Cantor Fitzgerald & Co. as the founder of its institutional options department in 1990 and held positions of increasing responsibility prior to his appointment as President and Chief Executive Officer. Prior to that, Mr. Marber was employed by Jeffries & Co. as an institutional equity option salesman since 1984. He was a member of the National Organization of Investment Professionals, a non-profit organization of investment professionals to which membership is offered on an invitation-only basis, from 2002 to 2009. Mr. Marber is well-qualified to serve on our board of directors due to his experience in finance, business and operations.
Christopher J. Pappano, one of our directors since July 2017, has served as a Managing Director and Head of Risk Management at Barrington Capital Group, L.P., a fundamental, value-oriented activist investment management firm, since April 2016. From 2008 through February 2015, Mr. Pappano was a Managing Director at Richmond Hill Investment Co., L.P., a special situations investment management firm, where he served on the Investment Committee. Mr. Pappano holds an A.B. in economics from the College of the Holy Cross. Mr. Pappano is well-qualified to serve on our board of directors due to his experience in finance, business and operations.
Operating Advisors
We utilize a select group of operating advisors to (i) assist us in sourcing potential business combination targets, (ii) provide their business insights when we assess potential business combination targets and (iii) upon our request, provide their business insights as we work to create additional value in the businesses that we acquire. In this regard, they fulfill some of the same functions as our board members. However, our operating advisors do not perform board or committee functions, nor do they have any voting or decision making capacity on our behalf. They are not subject to the fiduciary requirements to which our board members are subject. Additionally, our operating advisors are utilized by us to assist us with potential business combination targets on a case-by-case basis when we believe that their expertise will be helpful. We may modify or expand our roster of operating advisors as we source potential business combination targets or create value in businesses that we may acquire.
Number and Terms of Office of Officers and Directors
Our board of directors is divided into two classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our firstCompany's annual meeting of stockholders) serving a two-year term. The term of officeshareholders (the “2019 Proxy Statement”) within 120 days after the end of the first class of directors, consisting of Messrs. Hoodfiscal year covered by this Annual Report on Form 10-K, and Marber, expired at our annual meeting of stockholders on December 29, 2017, at which time they were reelected for an additional two-year term. certain information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The term of office of the second class of directors, consisting of Messrs. Meghji and Farkas will expire at the second annual meeting of stockholders.Our officers are electedinformation required under this Item 10 is incorporated by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
Director Independence
NASDAQ listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Messrs. Farkas, Hood, Marber and Pappano are “independent directors” as defined in the NASDAQ listing standards and applicable SEC rules. Our independent directors will have meetings at which only independent directors are present on an as-needed basis.
Committees of the Board of Directors
Audit Committee
Messrs. Hood, Marber and Pappano serve as members of our audit committee and meet the independent director standard under NASDAQ’s listing standards and under Rule 10A-3(b)(1) of the Exchange Act. Mr. Marber serves as chairman of the audit committee. Each member of the audit committee is financially literate and our board of directors has determined that Mr. Marber qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We have adopted an audit committee charter, which details the principal functions of the audit committee, including:
➤ the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us;
➤ pre-approving all audit and non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures;
➤ reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence;
➤ setting clear hiring policies for employees or former employees of the independent auditors;
➤ setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
➤ obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within, the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;
➤ reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and
➤ reviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
Compensation Committee
The members of our compensation committee are Messrs. Hood and Marber. Mr. Hood serves as chairman of the compensation committee. We have adopted a compensation committee charter, which details the principal functions of the compensation committee, including:
➤ reviewing and approving on an annual basis the corporate goals and objectives relevantreference to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation in executive session at which the Chief Executive Officer2019 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item 11 is not present;➤ reviewing and approving the compensation of all of our other executive officers;
➤ reviewing our executive compensation policies and plans;
➤ implementing and administering our incentive compensation equity-based remuneration plans;
➤ assisting management in complying with our proxy statement and annual report disclosure requirements;
➤ approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees;
➤ producing a report on executive compensation to be included in our annual proxy statement; and
➤ reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
No compensation of any kind, including finders, consulting or other similar fees, will be paidincorporated by us to any of our officers, directors or any of their respective affiliates, prior to, or for any services they render in order to effectuate, the consummation of a business combination. Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with such initial business combination.
After our initial business combination, members of our combined team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosedreference to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished2019 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required under this Item 12 is incorporated by reference to our stockholders. It2019 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required under this Item 13 is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.The charter also provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors requiredincorporated by NASDAQ and the SEC.
Director Nominations
We do not have a standing nominating committee, though we intend to form a corporate governance and nominating committee as and when required to do so by law or NASDAQ rules. In accordance with Rule 5605(e)(2) of the NASDAQ rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who shall participate in the consideration and recommendation of director nominees are Messrs. Farkas, Hood, Marber and Pappano. In accordance with Rule 5605(e)(1)(A) of the NASDAQ rules, all such directors are independent. As there is no standing nominating committee, we do not have a nominating committee charter in place.
The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to the Board should follow the procedures set forth in our bylaws.
We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, and in the past year has not served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that during the year ended December 31, 2017 there were no delinquent filers.
Code of Ethics
We have adopted a code of ethics that appliesreference to our officers and directors. We have filed copies of our code of ethics, our audit committee charter and our compensation committee charter as exhibits2019 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required under this Item 14 is incorporated by reference to our registration statement in connection with our initial public offering. You may review these2019 Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) The Company has filed the following documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copyas part of the code of ethics will be provided without charge upon request to us.this Annual Report on Form 10-K: Item 11. Executive Compensation
Compensation Discussion and Analysis
Executive Officer and Director Compensation
None of our executive officers or directors has received any cash (or non-cash) compensation for services rendered to us. Our sponsor, executive officers and directors, and their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.
After our initial business combination, members of our combined team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders.
We do not intend to take any action to ensure that members of our combined team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with us after the initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding the beneficial ownership of our common stock as of February 15, 2018 based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock, by:
| ● | each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; |
| ● | each of our executive officers and directors that beneficially owns shares of our common stock; and |
| ● | all our executive officers and directors as a group. |
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
| | | Number of Shares | | | Approximate
Percentage
of Outstanding | |
| Name and Address of Beneficial Owner(1) | | Beneficially Owned | | | Common Stock | |
| M III Sponsor I LLC(2) | | | 3,777,475 | | | | 19.66 | % |
| M III Sponsor I LP(2) | | | 272,525 | | | | 1.42 | % |
| Mohsin Y. Meghji(2) | | | 4,050,000 | | | | 21.08 | % |
| Suleman E. Lunat(3) | | | - | | | | - | |
| Brian Griffith | | | - | | | | - | |
| Andrew L. Farkas(4) | | | - | | | | - | |
| Osbert Hood | | | 20,000 | | | | * | |
| Philip Marber | | | 20,000 | | | | * | |
| All directors and executive officers as a group (6 individuals) | | | 4,090,000 | | | | 21.29 | % |
| Glazer Capital, LLC(5) | | | 1,548,987 | | | | 8.1 | % |
| Weiss Asset Management LP(6) | | | 1,084,186 | | | | 5.64 | % |
| Karpus Management, Inc.(7) | | | 1,473,300 | | | | 7.67 | % |
| Polar Asset Management Partners Inc.(8) | | | 1,919,700 | | | | 9.99 | % |
| HCG Investment Management Inc.(9) | | | 1,001,469 | | | | 5.21 | % |
| (1) | Unless otherwise noted,Financial Statements - the business address of eachCompany's consolidated financial statements, notes to those consolidated financial statements and the report of the following entities or individuals is 3 Columbus Circle, 15th Floor, New York, NY 10019.Company's independent registered public accounting firm related to the consolidated financial statements are set forth under Item 8. Financial Statements and Supplementary Data. |
| (2) |
| 2. | These shares representFinancial Statement Schedules - All schedules are omitted because they are not applicable, not required, or the founder shares held by our sponsor. Mohsin Meghji, our Chairman and Chief Executive Officer,information is included in the managing member of M III Acquisition Partners I LLC, the sole managing member of M III Sponsor I LLC. He is also the Chief Executive Officer of M III Acquisition Partners I Corp., the sole general partner of M III Sponsor I LP. Consequently, he may be deemed the beneficial owners of the founder shares held by our sponsor and have sole voting and dispositive control over such securities. Mr. Meghji disclaims beneficial ownership over any securities owned by our sponsor in which he does not have a pecuniary interest.consolidated financial statements. |
| (3) |
| 3. | Mr. Lunat does not beneficially own any shares of our common stock. However, Mr. Lunat has a pecuniary interest in shares of our common stock through his ownership of membership interests in our sponsor.Exhibits - see below. |
| (4) | Mr. Farkas does not beneficially own any shares of our common stock. However, Mr. Farkas has a pecuniary interest in shares of our common stock through his ownership of membership interests of our sponsor. |
| (5) | The business address of Glazer Capital, LLC (“GCL”) is 250 West 55th Street, Suite 30A, New York, New York 10019. Paul J. Glazer does not directly own any shares of common stock, but he does indirectly own these shares of common stock in his capacity as (i) the managing member of Paul J. Glazer, LLC, a Delaware limited liability company, which in turn serves as the general partner of Glazer Capital Management L.P.,(”GCM”) and Glazer Enhanced Fund, L.P. (“GEF”) both Delaware limited partnerships and (ii) the managing member of Glazer Capital, LLC (“GCL”) which in turn serves as the investment manager of GCM, GEF, Glazer Offshore Fund, Ltd. (“GOF”) and Glazer Enhanced Offshore Fund, Ltd.(“GEOF”) both Cayman Islands corporations. In addition, GCL manages on a discretionary basis separate accounts for two unrelated entities that own shares of common stock (collectively, the “Separate Accounts”). Although Mr. Glazer does not directly own any shares of common stock, Mr. Glazer is deemed to beneficially own the shares of common stock held by GOF, GEOF, GCM, GEF and the Separate Accounts. Mr. Glazer and GCL share voting and dispositive power of the shares. |
| (6) | The business address of BIP GP LLC, a Delaware limited liability company (“BIP GP”), Weiss Asset Management LP, a Delaware limited partnership ("Weiss Asset Management"), WAM GP LLC, a Delaware limited liability company (“WAM GP”) and Andrew M. Weiss, Ph.D., is 222 Berkeley St., 16th floor, Boston, Massachusetts 02116. Shares held by for BIP GP include shares beneficially owned by a private investment partnership (the “Partnership”) of which BIP GP is the sole general partner. Weiss Asset Management is the sole investment manager to the Partnership. WAM GP is the sole general partner of Weiss Asset Management. Andrew Weiss is the managing member of WAM GP and BIP GP. Shares reported for WAM GP, Andrew Weiss and Weiss Asset Management include shares beneficially owned by the Partnership (and reported above for BIP GP). Each of BIP GP, WAM GP, Weiss Asset Management, and Andrew Weiss disclaims beneficial ownership of the shares reported herein as beneficially owned by each except to the extent of their respective pecuniary interest therein. |
| (7) | The business address of Karpus Management, Inc., a New York corporation, is 183 Sully’s Trail, Pittsford, New York 14534. |
| (8) | The business address of Polar Asset Management Partners, Inc. is 401 Bay Street, Suite 1900, PO Box 19, Toronto, Ontario M5H 2Y4, Canada. Polar Asset Management Partners Inc., a company incorporated under the laws of Ontario, Canada, serves as the investment manager to Polar Multi Strategy Master Fund, a Cayman Islands exempted company ("PMSMF") and certain managed accounts (together with PMSMF, the “Polar Vehicles”), with respect to the shares directly held by the Polar Vehicles. |
| (9) | Based solely on a Schedule 13G filed with the SEC on February 1, 2018, the business address of HGC Investment Management Inc. is 366 Adelaide, Suite 601, Toronto, Ontario M5V 1R9, Canada. HGC Investment Management Inc., a company incorporated under the laws of Canada, serves as the investment manager to HGC Arbitrage Fund, LP, an Ontario limited partnership (the “Fund”), with respect to shares held by the Fund. |
The table above does not include the shares of common stock underlying the private placement warrants held by our sponsor and Cantor Fitzgerald and the public warrants held by Mr. Meghji because these securities are not exercisable within 60 days of this Report.
Changes in Control
Not applicable.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
In August 2015, M III LLC purchased an aggregate 3,593,750 founder shares for an aggregate purchase price of $25,000, or approximately $0.007 per share. On November 5, 2015 we effectuated a 1.760-for-1 stock split in the form of a dividend. Thereafter, we cancelled a portion of the shares issued in such split, resulting in an aggregate of 4,312,500 founder shares outstanding. 562,500 of the founder shares were forfeited upon the expiration of the underwriters' over-allotment without exercise. As a result of the stock split and subsequent partial cancellations, the per-share purchase price decreased to $0.006 per share. M III LLC transferred to M III LP a number of founder shares (a portion of which were subsequently cancelled) in April 2016 and it transferred additional founder shares to M III LLP in September 2016, so that M III LP currently holds 222,525 founder shares for an aggregate purchase price of $2,106.08. The number of founder shares issued was determined based on the expectation that such founder shares would represent 20.0% of the outstanding shares upon completion of our initial public offering (excluding the private placement shares). In August 2015, M III LLC transferred 20,000 founder shares to Mr. Hood, an independent director, and in October 2015, M III LLC transferred an additional 20,000 founder shares to Mr. Marber, another independent director. In connection with the dividend, Messrs. Hood and Marber transferred to M III LLC an aggregate of 30,400 founder shares so that they each retained 20,000 founder shares.
Our sponsor and Cantor Fitzgerald, pursuant to written agreements, purchased an aggregate of 460,000 private placement units at a price of $10.00 per unit (a total of $4,600,000) in a private placement that closed simultaneously with the closing of our initial public offering. 340,000 private placement units were purchased by our sponsor (300,000 by M III LLC and 40,000 by M III LP) and 120,000 private placement units were purchased by Cantor Fitzgerald. In September 2016, M III LLC transferred additional private placement units to M III LP so that M III LLC currently holds 290,000 private placement units and M III LP holds 50,000. The purchase price of the private placement units was added to the proceeds from our initial public offering and is held in the trust account. If we do not complete a business combination by July 12, 2018, the proceeds from the sale of the private placement units held in the trust account will be used to fund the redemption of our public shares (subject to the requirements of applicable law). There will be no redemption rights or liquidating distributions with respect to our founder shares, private placement shares or warrants, which will expire worthless. The private placement units are identical to the units sold in our initial public offering except the private placement warrants are non-redeemable and exercisable on a cashless basis so long as they are held by our sponsor or their affiliates or designees. In addition, for as long as the private placement warrants are held by Cantor Fitzgerald or its designees or affiliates, they may not be exercised after five years from the effective date of the registration statement relating to our initial public offering. If the private placement units are held by someone other than the initial holder, or its permitted transferees, the private placement warrants will be redeemable by us and exercisable by such holders on the same basis as the warrants included in the units sold in our initial public offering.
If any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has then current fiduciary or contractual obligations, he or she may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us. Certain of our executive officers and directors currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us.
Our sponsor, executive officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our independent directors will review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.
Prior to our initial public offering, M III LLC loaned and advanced us $250,000 and $2,766, respectively, to us under an unsecured promissory note and in advances, to be used for a portion of the expenses of our initial public offering. These loans and advances were non-interest bearing, unsecured and were repaid upon the closing of our initial public offering.
In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,000,000 of such loans may be convertible into warrants of the post-business combination entity at a price of $0.50 per warrant at the option of the lender. The warrants would be identical to the private placement warrants. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.
We have entered into a registration rights agreement with respect to the founder shares and private placement warrants. The holders of these securities will be entitled to make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders have “piggy-back” registration rights to include such securities in other registration statements filed by us and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. Notwithstanding the foregoing, Cantor Fitzgerald may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years after the effective date of the registration statement for our initial public offering and may not exercise its demand rights on more than one occasion. We will bear the costs and expenses of filing any such registration statements.
Commencing on July 8, 2016, M-III Partners LLC, an affiliate of Mohsin Meghji, our Chief Executive Officer, provided, at no cost to us, office space and general administrative services. Subsequent to July 8, 2016, certain general administrative services previously provided by M-III Partners LLC have been provided by its affiliate, M-III Partners, LP, and M-III Partners, LP has similarly provided, at no cost to us, such general administrative services.
Our audit committee must review and approve any related person transaction we propose to enter into. Our audit committee charter details the policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise questions as to whether such transactions are consistent with the best interest of our company and our stockholders. A summary of such policies and procedures is set forth below.
Any potential related party transaction that is brought to the audit committee’s attention will be analyzed by the audit committee, in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related party transaction. At its meetings, the audit committee will be provided with the details of each new, existing or proposed related party transaction, including the terms of the transaction, the business purpose of the transaction and the benefits to us and to the relevant related party.
In determining whether to approve a related party transaction, the audit committee must consider, among other factors, the following factors to the extent relevant:
| ● | whether the terms of the transaction are fair to us and on the same basis as would apply if the transaction did not involve a related party; |
| ● | whether there are business reasons for us to enter into the transaction; |
| ● | whether the transaction would impair the independence of an outside director; and |
| ● | whether the transaction would present an improper conflict of interest for any director or executive officer. |
Any member of the audit committee who has an interest in the transaction under discussion must abstain from any voting regarding the transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s discussions of the transaction. Upon completion of its review of the transaction, the audit committee may determine to permit or to prohibit the transaction.
Item 14. Principal Accountant Fees and Services.
The following is a summarycomplete list of fees paid or to be paid to Marcum LLP, or Marcum, for services rendered.
Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by Marcum in connection with regulatory filings. The aggregate fees billed by Marcum for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q and, where applicable, 10-K for the respective periods, and other required filings with the SEC, totaled $39,675 for the year ended December 31, 2017, $41,040 for the year ended December 31, 2016, $25,000 for the period from August 4, 2015 (inception) to December 31, 2015, and $68,337 related to audit services in connection with our public offering. The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings.
Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. During the years ended December 31, 2017. we paid Marcum $14,420 in connection with the review of our proxy statements. During the years ended December 31, 2017 and 2016 and the period from August 4, 2015 (inception) through December 31, 2015, we did not pay Marcum for consultations concerning financial accounting and reporting standards.
Tax Fees. We paid $1,185 to Marcum for tax preparation for the year ended December 31, 2017, $2,060 for tax preparation for the year ended December 31, 2016. We did not pay Marcum for tax planning and tax advice for the period from August 4, 2015 (inception) through December 31, 2015.
All Other Fees. We did not pay Marcum for other services for the years ended December 31, 2017 and 2016 or for the period from August 4, 2015 (inception) through December 31, 2015.
Pre-Approval Policy
Our audit committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).
PART IV
Item 15. Exhibits, Financial Statement Schedules
| (a) | The following documents areexhibits filed as part of this Report: |
| (2) | Financial Statements Schedule |
All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto in is Item 15 of Part IV below.
We hereby file as part of this Annual Report the exhibits listed in the attached Exhibit Index. Exhibitson Form 10-K, some of which are incorporated herein by reference can be inspectedfrom certain other of the Company's reports, registration statements and copied at the public reference facilities maintained byother filings with the SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov.
as referenced below: EXHIBIT INDEX
Exhibit No.Number | | Description |
1.12.1# | | Underwriting Agreement, dated July 7, 2016, between the Company and Cantor Fitzgerald & Co. as representative of the several underwriters.(1) |
2.1 | | Agreement and Plan of Merger, dated as of November 3, 2017, by and among the Company, IEA Energy Services LLC, Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as the representative of the seller, and, solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof,, M III Sponsor I LLC and M III Sponsor I LP.(2)LP (incorporated by reference to Exhibit 2.1 to the Company’s Amendment No. 1 to its Current Report on Form 8-K (File No. 001-37796) filed November 8, 2017). |
| 2.2 | | Amendment No. 1 to the Agreement and Plan of Merger, dated as of November 15, 2017, by and among IEA Energy Services LLC, M III Acquisition Corp., Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as the representative of the seller, and solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof, M III Sponsor I LLC and M III Sponsor I LP.(3)LP (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K (File No. 001-37796) filed November 21, 2017). |
| 2.3 | | Amendment No. 2 to the Agreement and Plan of Merger, dated as of December 27, 2017, by and among IEA Energy Services LLC, M III Acquisition Corp., Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as the representative of the seller, and solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof, M III Sponsor I LLC and M III Sponsor I LP.(4)LP (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K (File No. 001-37796) filed January 2, 2018). |
| 2.4 | | Amendment No. 3 to the Agreement and Plan of Merger, dated as of January 9, 2018, by and among IEA Energy Services LLC, M III Acquisition Corp., Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as the representative of the seller, and solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof, M III Sponsor I LLC and M III Sponsor I LP. (5)LP (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K (File No. 001-37796) filed January 10, 2018). |
| 2.5 | | Amendment No. 4 to the Agreement and Plan of Merger, dated as of February 7, 2018, by and among IEA Energy Services LLC, M III Acquisition Corp., Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as the representative of the seller, and solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof, M III Sponsor I LLC and M III Sponsor I LP.(6)LP (incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K (File No. 001-37796) filed February 9, 2018). |
3.12.6 | | Amendment No. 5 to the Agreement and Plan of Merger, dated as of March 8, 2018, by and among IEA Energy Services LLC, M III Acquisition Corp., Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as the representative of the seller, and solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof, M III Sponsor I LLC and M III Sponsor I LP (incorporated by reference to Exhibit 2.6 to the Company’s Current Report on Form 8-K (File No. 001-37796) filed March 8, 2018). |
|
| | |
| 2.7 | | |
| 2.8# | | |
| 2.9 | | |
| 3.1 | | |
| 3.2 | | |
4.13.3 | | |
4.24.1 | | |
4.34.2 | | |
| 4.3 | | |
| 4.4 | | |
10.14.5 | | |
| 10.1 | | |
| 10.2 | | |
10.3 | | Registration Rights Agreement, dated July 7, 2016, between the Company and certain security holders. (1) |
10.4 | | Amended and Restated Unit Subscription Agreement dated July 7, 2016 among the Company, the Sponsors and Cantor Fitzgerald & Co.(1)certain subscribers identified therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed with the Securities Exchange Commission on March 8, 2018). |
10.510.3 | | |
| 10.4 | | Waiver, Consent and Agreement to Forfeit Founder Shares, dated as of March 20, 2018, by and among the Company,IEA Energy Services LLC, Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P., M III Acquisition Corp., Wind Merger Sub I, Inc., Wind Merger Sub II, LLC, M III Sponsor I LLC and M III Sponsor I LP. (1)LP (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed with the Securities Exchange Commission on March 20, 2018). |
10.710.5 | | |
|
10.8 | | |
| 10.6 | | |
| 10.7 | | Investor Rights Agreement, dated as of March 26, 2018, (i) by and among Infrastructure and Energy Alternatives, Inc., M III Sponsor I LLC and any other Sponsor Affiliated Transferees who become a party to the agreement; and (ii) Infrastructure and Energy Alternatives, LLC, any other Seller Affiliated Transferees who become a party to the agreement and Oaktree Power Opportunities Fund III Delaware, L.P., in its capacity as the representatives of the Selling Stockholders (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed with the Securities Exchange Commission on March 29, 2018). |
| 10.8 | | |
| 10.9 | | |
| 10.10 | | |
| 10.11 | | Credit Agreement, dated as of March 26, 2018 among Wind Merger Sub I, Inc., as the Initial Borrower, IEA Energy Services LLC, as the Borrower, the Guarantors party thereto, Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer, and the other Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed with the Securities Exchange Commission on March 29, 2018). |
| 10.12 | | Credit Agreement, dated as of September 25, 2018 among Infrastructure and Energy Alternatives, Inc., as a Guarantor thereunder, IEA Intermediate Holdco, LLC as Guarantor thereunder, IEA Energy Services LLC, as the Borrower, the subsidiary guarantors party thereto, Jefferies Finance LLC, as Administrative Agent and Collateral Agent, and KeyBank National Association, as Revolving Agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed with the Securities Exchange Commission on September 26, 2018). |
| 10.13# | | Amendment and Restatement Agreement, dated as of November 2, 2018, by and among Infrastructure and Energy Alternatives, Inc., as a Guarantor thereunder, IEA Intermediate Holdco, LLC as Guarantor thereunder, IEA Energy Services LLC, as the Borrower, the subsidiary guarantors party thereto, Jefferies Finance LLC, as Administrative Agent and Collateral Agent, and KeyBank National Association, as Revolving Agent (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (File No. 001-37796) filed with the Securities Exchange Commission on November 8, 2018). |
| 10.14# | | Second Amendment and Restatement Agreement, dated as of November 16, 2018, by and among Infrastructure and Energy Alternatives, Inc., as a Guarantor thereunder, IEA Intermediate Holdco, LLC as a Guarantor thereunder, IEA Energy Services LLC, as the Borrower, the subsidiary guarantors party thereto and Jefferies Finance LLC, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 of the Company’s Current on Form 8-K (File No. 001-37796) filed with the Securities Exchange Commission on November 23, 2018). |
| 10.15† | | |
14.110.16† | | |
31.110.17† | | |
| 10.18† | | |
|
| | |
| 10.19† | | |
| 10.20† | | |
| 10.21† | | |
| 10.22*† | | |
| 16.1 | | |
| 16.2 | | |
| 21.1* | | |
| 23.1* | | |
| 23.2* | | |
| 31.1* | | |
31.231.2* | | |
32.132.1** | | |
32.232.2** | | |
101.INS101.INS* | | XBRL Instance Document*Document |
101.SCH101.SCH* | | XBRL Taxonomy Extension Schema*Schema Document |
101.CAL101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase*Linkbase Document |
101.LAB101.DEF* | | XBRL Taxonomy Label Linkbase*Extension Definition Linkbase Document |
101.PRE101.LAB* | | XBRL DefinitionTaxonomy Extension Label Linkbase Document*Document |
101.DEF101.PRE* | | XBRL DefinitionTaxonomy Extension Presentation Linkbase Document* |
* Filed herewith
** Furnished herewith
| (1) | Incorporated by reference**Furnished herewith # Schedules have been omitted pursuant to the Company’s Form 8-K, filed with the Commission on July 13, 2016. |
| (2) | Incorporated by reference to the Company’s Form 8-K, filed with the Commission on November 8, 2017. |
| (3) | Incorporated by reference to the Company’s Form 8-K, filed with the Commission on November 21, 2017. |
| (4) | Incorporated by reference to the Company’s Form 8-K, filed with the Commission on January 2, 2018. |
| (5) | Incorporated by reference to the Company’s Form 8-K, filed with the Commission on January 10, 2018. |
| (6) | Incorporated by reference to the Company’s Form 8-K, filed with the Commission on February 9, 2018. |
| (7) | Incorporated by reference to the Company’s Form S-1 (File no. 333-210817) (the “Form S-1”), filed with the Commission on April 19, 2016. |
| (8) | Incorporated by reference to the Company’s Amendment No. 1 to Form S-1, filed with the Commission on May 2, 2016. |
Item 16.Form 10-K Summary
Not applicable.
M-III ACQUISITION CORP.
Index601(b)(2) of Regulation S-K. We will furnish the omitted schedules to Financial Statements
| | Page |
Report of Independent Registered Public Accounting Firm | | F-1 |
Financial Statements: | | |
Balance Sheets as of December 31, 2017 and 2016 | | F-2 |
Statements of Operations for the years ended December 31, 2017andDecember 31, 2016 and for the period from August 4, 2015 (inception) throughDecember 31, 2015 | | F-3 |
Statements of Change in Stockholders’ Equity for the years ended December 31, 2017andDecember 31, 2016 and for the period from August 4, 2015 (inception) through December 31, 2015 | | F-4 |
Statements of Cash Flows for the years ended December 31, 2017 and December 31, 2016 and for the period from August 4, 2015 (inception) through December 31, 2015 | | F-5 |
Notes to Financial Statements | | F-6 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
M III Acquisition Corp.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of M III Acquisition Corp. (the “Company”) as of December 31, 2017 and 2016, the related statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2017 and for the period from August 4, 2015 (inception) to December 31, 2015, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017 and for the period from August 4, 2015 (inception) to December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Marcumllp
/s/Marcum LLP
We have served as the Company’s auditor since 2015.
New York, NY
March 5, 2018
M-III Acquisition Corp. |
Balance Sheets |
|
| | | As of December 31, 2017 | | | As of December 31,
2016 | |
| | | | | | | |
| Assets | | | | | | | | |
| Cash | | $ | 370,414 | | | $ | 869,058 | |
| Prepaid expense | | | 21,296 | | | | 61,292 | |
| Current Assets | | | 391,710 | | | | 930,350 | |
| | | | | | | | | |
| Cash and cash equivalents held in Trust Account | | | 151,057,980 | | | | 150,100,471 | |
| | | | | | | | | |
| Total Assets | | $ | 151,449,690 | | | $ | 151,030,821 | |
| | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | |
| Franchise tax payable | | $ | 86,450 | | | $ | 19,380 | |
| Income tax payable | | | 148,580 | | | | - | |
| Current Liabilities | | | 235,030 | | | | 19,380 | |
| Deferred underwriting fee | | | 6,000,000 | | | | 6,000,000 | |
| Total Liabilities | | | 6,235,030 | | | | 6,019,380 | |
| | | | | | | | | |
| Commitments | | | - | | | | - | |
| Common stock, 13,923,262 shares subject to possible redemption at December 31, 2017 and 13,991,772 shares subject to possible redemption at December 31, 2016 | | | 140,214,659 | | | | 140,011,440 | |
| Stockholders' Equity | | | | | | | | |
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued or outstanding | | | - | | | | - | |
| Common stock, $0.0001 par value, 35,000,000 shares authorized; 5,286,738 shares issued and outstanding (excluding 13,923,262 shares subject to redemption) at December 31, 2017; 5,218,228 shares issued and outstanding (excluding 13,991,772 shares subject to redemption) at December 31, 2016 | | | 528 | | | | 522 | |
| Additional paid in capital | | | 4,808,346 | | | | 5,011,571 | |
| Retained earnings (accumulated deficit) | | | 191,127 | | | | (12,092 | ) |
| Total Stockholders’ Equity | | | 5,000,001 | | | | 5,000,001 | |
| | | | | | | | | |
| Total Liabilities and Stockholders’ Equity | | $ | 151,449,690 | | | $ | 151,030,821 | |
The accompanying notes are an integral part of the financial statements
M-III Acquisition Corp. |
Statements of Operations |
|
| | | For the Year
Ended
December 31,
2017 | | | For the
Year Ended
December 31,
2016 | | | For the
Period from
August 4, 2015
(inception)
to
December 31,
2015 | |
| | | | | | | | | | |
| Formation and operating costs | | $ | (605,711 | ) | | $ | (111,754 | ) | | $ | (809 | ) |
| Loss from operations | | | (605,711 | ) | | | (111,754 | ) | | | - | |
| Interest income | | | 957,510 | | | | 100,471 | | | | - | |
| Income (loss) before income taxes | | | 351,799 | | | | (11,283 | ) | | | - | |
| Income Tax Provision | | | (148,580 | ) | | | - | | | | - | |
| Income (loss) | | $ | 203,219 | | | $ | (11,283 | ) | | $ | (809 | ) |
| Weighted average number of common shares outstanding - basic and diluted(1) | | | 5,231,815 | | | | 4,683,028 | | | | 4,312,500 | |
| | | | | | | | (Revised) | | | | | |
| Net loss per common share - basic and diluted (2) | | $ | (0.09 | ) | | $ | (0.02 | ) | | | (0.00 | ) |
| (1) | Excludes 13,923,262 and 13,991,772 shares subject to redemption at December 31, 2017 and December 31, 2016, respectively, and 562,500 shares of common stock that were forfeited in August 2016 upon the expiration of the underwriters’ over-allotment option without exercise. |
| (2) | Net Income / (loss) per common share – basic and diluted excludes interest income attributable to the shares of common stock subject to redemption for the years ended December 31, 2017 and 2016 of $693,996 and $73,179, respectively. |
The accompanying notes are an integral part of the financial statements
M-III Acquisition Corp. |
Statements of Change in Stockholders’ Equity |
|
| | | Common Stock | | | | | | | | | | |
| | | Shares | | | Amount | | | Additional
Paid-in Capital | | | Accumulated
Deficit | | | Total
Stockholder's
Equity | |
| | | | | | | | | | | | | | | | |
| Balance, August 4, 2015 (Inception) | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Issuance of common stock to Initial Stockholder | | | 6,325,000 | | | | 633 | | | | 24,367 | | | | - | | | | 25,000 | |
| Cancellation of Shares | | | (1,293,750 | ) | | | (130 | ) | | | 130 | | | | - | | | | - | |
| Net loss attributable to common shares | | | - | | | | - | | | | - | | | | (809 | ) | | | (809 | ) |
| Balance at December 31, 2015 | | | 5,031,250 | | | | 503 | | | | 24,497 | | | | (809 | ) | | | 24,191 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cancellation of Shares | | | (718,750 | ) | | | (72 | ) | | | 72 | | | | - | | | | - | |
| Sale of Units | | | 15,000,000 | | | | 1,500 | | | | 149,998,500 | | | | - | | | | 150,000,000 | |
| Underwriting discount | | | - | | | | - | | | | (9,000,000 | ) | | | - | | | | (9,000,000 | ) |
| Offering costs | | | - | | | | - | | | | (601,467 | ) | | | - | | | | (601,467 | ) |
| Sale of Private Placement Units | | | 460,000 | | | | 46 | | | | 4,599,954 | | | | - | | | | 4,600,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Forfeiture of Shares | | | (562,500 | ) | | | (56 | ) | | | 56 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares subject to possible conversion | | | (13,991,772 | ) | | | (1,399 | ) | | | (140,010,041 | ) | | | - | | | | (140,011,440 | ) |
| Net (loss) | | | - | | | | - | | | | - | | | | (11,283 | ) | | | (11,283 | ) |
| Balance at December 31, 2016 | | | 5,218,228 | | | $ | 522 | | | $ | 5,011,571 | | | $ | (12,092 | ) | | $ | 5,000,001 | |
| | | | | | | | | | | | | | | | | | | | | |
| Change in shares subject to possible conversion | | | 68,510 | | | | 6 | | | | (203,225 | ) | | | | | | | (203,219 | ) |
| Net income | | | | | | | | | | | | | | | 203,219 | | | | 203,219 | |
| Balance at December 31, 2017 | | | 5,286,738 | | | $ | 528 | | | $ | 4,808,346 | | | $ | 191,127 | | | $ | 5,000,001 | |
The accompanying notes are an integral part of the financial statements
M-III Acquisition Corp. |
Statements of Cash Flows |
|
| | | For the Year Ended
December 31, 2017 | | | For the Year Ended
December 31, 2016 | | | For the period from August 4, 2015 (inception) to December 31, 2015 | |
| | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | | | | |
| Net income (loss) | | $ | 203,219 | | | $ | (11,283 | ) | | $ | (809 | ) |
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | | | | | | | | | | | | |
| Interest income held in Trust Account | | | (957,509 | ) | | | (100,471 | ) | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Prepaid expenses | | | 39,996 | | | | (61,293 | | | | - | |
| Franchise tax payable | | | 67,070 | | | | 19,380 | | | | - | |
| Income tax payable | | | 148,580 | | | | | | | | - | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (498,644 | ) | | | (153,667 | ) | | | (809 | ) |
| | | | | | | | | | | | | |
| Cash flows used in investing activities: | | | | | | | | | | | | |
| Principal deposited in Trust Account | | | - | | | | (150,000,000 | ) | | | - | |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Borrowing / (Repayment) of notes payable | | | - | | | | (238,000 | ) | | | 75,000 | |
| Net proceeds from issuance of units | | | - | | | | 146,848,325 | | | | 25,000 | |
| Proceeds from private placement | | | - | | | | 4,600,000 | | | | - | |
| Payment of deferred offering costs | | | - | | | | (219,291 | ) | | | (67,500 | ) |
| Net cash provided by financing activities | | | - | | | | 150,991,034 | | | | 32,500 | |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash | | | (498,644 | ) | | | 837,367 | | | | 31,691 | |
| Cash at beginning of the period | | | 869,058 | | | | 31,691 | | | | - | |
| Cash at the end of the period | | $ | 370,414 | | | $ | 869,058 | | | $ | 31,691 | |
| | | | | | | | | | | | | |
| Supplemental disclosure of noncash financing activities: | | | | | | | | | | | | |
| Deferred underwriting fees | | $ | - | | | $ | 6,000,000 | | | $ | - | |
| Deferred offering costs reclassified to equity | | $ | - | | | $ | 105,000 | | | $ | - | |
| Value of common stock subject to possible redemption at IPO | | $ | - | | | $ | 140,022,200 | | | $ | - | |
| Change in common stock subject to possible redemption | | $ | 203,219 | | | $ | (10,760 | ) | | $ | - | |
| Payment of deferred offering costs directly by affiliate | | $ | - | | | $ | - | | | $ | 37,500 | |
The accompanying notes are an integral part of the financial statements
M III Acquisition Corp.
Notes to Financial Statements
NOTE 1 — DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Organization and General:
M III Acquisition Corp. (the ‘‘Company’’) was incorporated in Delaware on August 4, 2015. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the ‘‘Business Combination’’). While it may pursue an acquisition opportunity in any business, industry or sector and in any geographic region, the Company expects to focus on businesses based in North America that engage primarily in the financial services, healthcare services and industrials sectors. The Company is an ‘‘emerging growth company,’’ as defined in Section 2(a) of the Securities Act of 1933, as amended, or the ‘‘Securities Act,’’ as modifiedupon request by the Jumpstart Our Business Startups Act of 2012 (the ‘‘JOBS Act’’).
At December 31, 2017, the Company had not commenced any operations. All activity through December 31, 2017 relates to the Company’s formation, the initial public offering (‘‘Offering’’) described below and work to identifyCommission.
† Indicates a
potential target for, and consummate, the Business Combination. The Company will not generate any operating revenues until after completion of its Business Combination, at the earliest. The Company has generated non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Offering.The registration statement for the Offering was declared effective on July 6, 2016. On July 12, 2016 the Company consummated the Offering of 15,000,000 units (“Units” and, with respect to the common shares included in the Units, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of $150,000,000, which is described more fully in Note 3.
Simultaneously with the closing of the Offering, the Company consummated the sale of 460,000 Units (the “Private Units” and, with respect to the common shares included in the Private Units, the “Private Shares”), at a price of $10.00 per Unit in a private placement to the Company’s sponsor, described below, and Cantor Fitzgerald & Co., the lead underwriter for the Offering (“Cantor Fitzgerald”), generating gross proceeds of $4,600,000, which is described more fully in Note 4.
Sponsor and Financing:
The Company’s sponsor is M III Sponsor I LLC, a Delaware limited liability company, and M III Sponsor I LP, a Delaware limited partnership (“M III LLC” and “M III LP,” respectively; and collectively, the ‘‘Sponsor’’). The Company intends to finance its Business Combination with proceeds from the funds raised in the $150,000,000 Offering (Note 3) and the $4,600,000 private placement (Note 4). The $150,000,000 of net proceeds are held in the Trust Account (as defined below).
The Trust Account:
Following the closing of the Offering and the private placement on July 12, 2016, an amount of $150 million ($10.00 per unit) from the net proceeds of the sale of the Units in the Offering and the private placement was placed in a United States-based trust account (“Trust Account”) at Citibank, N.A. maintained by Continental Stock Transfer & Trust Company, acting as trustee, which funds may be invested only in U.S. government treasury bills with a maturity of one hundred and eighty (180) daysmanagement contract or lesscompensatory plan or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940 which invest only in direct U.S. government obligations. The funds will remain in the Trust Account until the earlier of (i) the consummation of the initial Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.
The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay taxes and up to $50,000 of interest to pay dissolution expenses, if any, none of the funds held in the Trust Account will be released until the earliest of: (i) the completion of the initial Business Combination, (ii) the redemption of 100% of the common stock included in the Units sold in the Offering if the Company is unable to complete its initial Business Combination by July 12, 2018 (subject to the requirements of law) and (iii) the redemption of shares in connection with a vote seeking to amend any provisions of the Company’s Amended and Restated Certificate of Incorporation relating to stockholders’ rights or pre-Business Combination activity, with it being understood that funds held in the Trust Account may be released to fund the first to occur of such transactions.
Business Combination:
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating its initial Business Combination with (or acquisition of) a Target Business. A ‘‘Target Business’’ means one or more target businesses that together have a fair market value equal to at least 80% of the balance in the trust account (less any deferred underwriting commissions and taxes payable on interest earned) at the time of the Company signing a definitive agreement in connection with its initial Business Combination. There is no assurance that the Company will be able to successfully effect its initial Business Combination.
The Company, after signing a definitive agreement for its initial Business Combination, will either (i) seek stockholder approval of the Business Combination at a meeting called for such purpose in connection with which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to commencement of the tender offer, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the initial Business Combination or will allow stockholders to sell their shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval. If the Company seeks stockholder approval, it will complete its initial Business Combination only if a majority of the outstanding shares of common stock voted are voted in favor of the Business Combination. However, in no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets upon consummation of its initial Business Combination to be less than $5,000,001. In such case, the Company would not proceed with the redemption of its Public Shares and the related Business Combination, and instead may search for an alternate Business Combination.
If the Company holds a stockholder vote or there is a tender offer for shares in connection with the initial Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest but less taxes payable. As a result, such shares of common stock are recorded at redemption amount and classified as temporary equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, ‘‘Distinguishing Liabilities from Equity.’’ The amount in the Trust Account as of December 31, 2017 is approximately $10.07 per Public Share ($151,057,982 held in the Trust Account divided by 15,000,000 Public Shares).
If the Company seeks stockholder approval of the initial Business Combination and it does not conduct redemptions in connection with the Business Combination pursuant to the tender offer rules, the Company’s Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a ‘‘group’’ (as defined under Section 13 of the Exchange Act) will be restricted from redeeming its shares with respect to more than an aggregate of 20% of the shares sold in the Offering (‘‘Excess Shares’’). However, the Company would not be restricting the stockholders’ ability to vote all of their shares (including Excess Shares) for or against the initial Business Combination.
The Company must complete its initial Business Combination by July 12, 2018. If the Company does not complete its initial Business Combination by July 12, 2018, then it shall (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the Public Shares for a per share pro rata portion of the Trust Account, including interest, but less taxes payable (less up to $50,000 of such net interest to pay dissolution expenses) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of the Company’s net assets to its remaining stockholders, as part of its plan of dissolution and liquidation. The initial stockholders have entered into letter agreements with the Company (and Cantor Fitzgerald has agreed as part of its unit purchase agreement), pursuant to which they have waived their rights to participate in any redemption with respect to their initial shares; however, if the initial stockholders or any of the Company’s officers, directors, or affiliates acquire, or Cantor Fitzgerald acquires, shares of common stock in or after the Offering, they will be entitled to a pro rata share of the Trust Account with respect to such shares only upon the Company’s redemption or liquidation in the event the Company does not complete its initial Business Combination within the required time period.
In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Offering. In order to protect the amounts held in the Trust Account, the Company’s Chairman and Chief Executive Officer has agreed that he will be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a definitive agreement, reduce the amount of funds in the Trust Account. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, then the Company’s Chairman and Chief Executive Officer will not be responsible to the extent of any liability for such third-party claims.
Agreement for Initial Business Combination:
On November 3, 2017, the Company entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 thereto, dated November15, 2017, Amendment No. 2 thereto, dated December 27, 2017, Amendment No. 3 thereto, dated January 9, 2017, and Amendment No. 4 thereto, dated February 7, 2018, and as it may be further amended from time to time, the "Merger Agreement") with IEA Energy Services LLC ("IEA Services"), Wind Merger Sub I, Inc. ("Merger Sub I"), Wind Merger Sub II, LLC ("Merger Sub II"), Infrastructure and Energy Alternatives, LLC ("Seller"), Oaktree Power Opportunities Fund III Delaware, L.P., solely in its capacity as Seller’s representative, and, solely for purposes of certain sections therein, M III LLC and M III LP. The MergerAgreementprovides for, among other things, the merger of Merger Sub I with and into IEA Services with IEA Services surviving such merger and, immediately thereafter, merging with and into Merger Sub II with Merger Sub II surviving such merger as an indirect, wholly-owned subsidiary of the Company (together with the other transactions contemplated by the Merger Agreement, the "Potential IEA Combination"). As a result of the foregoing, the Company will acquire IEA Services and its subsidiaries, which are referred to herein collectively as "IEA".
IEAisaleadingU.S. provider of infrastructure solutions for the renewable energy, traditional power and civil infrastructure industries. Currently, it is primarily focused on the wind energy industry, where it specializes in providing a broad range of engineering, procurement and construction (“EPC”) services throughout the U.S.
Subject to the terms of the Merger Agreement and the adjustments set forth therein, the aggregate purchase price for the Potential IEA Combination is expected to be approximately $235,000,000. The consideration to be paid to the Seller will be in the form of a combination of cash and stock consideration and is subject to certain adjustments described in the Merger Agreement. The cash consideration payable to Seller at the closing of the Potential IEA Combination (the "Closing"), assuming no adjustments, is $100,000,000. The stock consideration will be the total consideration less the cash consideration, with such stock consideration split 74.1% in the form of common stock of the Company and 25.9% in the form of a newly-issued Series A Preferred Stock of the Company, subject to the adjustments described in the Merger Agreement. For purposes of determining the number of shares of common stock issuable with respect to the portion of the consideration payable in common stock, the common stock will be valued at $10.00 per share. The foregoing consideration to be paid to Seller may be further increased by up to 9,000,000 shares of common stock, which may be payable pursuant to an earn-out based upon the post-combination company achieving certain EBITDA targets in 2018 and/or 2019.
In order to facilitate the Potential IEA Combination, the Company’s sponsor and two of its directors will enter into an agreement at closing pursuant to which they will agree that an aggregate of 1,874,999 shares of the Company’s common stock will be subject to vesting, half of which will vest on the first day upon which the closing sale price of the common stock on Nasdaq Capital Market (“NASDAQ”) has equaled or exceeded $12.00 per share for any 20 trading day period in a 30 consecutive day trading period and theotherhalf of which will vest on the first day upon which the closing sale price of the common stock on NASDAQ has equaled or exceeded $14.00 per share for any 20 trading day period in a 30 consecutive day trading period.
Consummation of the transactions contemplated by the Merger Agreement is subject to customary conditions of the respective parties, including theapprovalof the Potential IEA Combination by the Company’s stockholders in accordance with its amended and restated certificate of incorporation and the completion of a redemption offer whereby the Company will provide its public stockholders with the opportunity to redeem their shares of common stock for cash equal to their pro rata share of the aggregate amount on deposit in the Trust Account.
TheCompany filed a definitive Proxy Statement on Schedule 14A on February 9, 2018 and has scheduled a special meeting of its stockholders to approve the Potential IEA Combination for March 7, 2018.
NOTE 2 —ITEM 16. FORM 10-K SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”).
Emerging Growth Company:
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised accounting standard at the time private companies adopt the new or revised standard.
Cash, Cash Equivalents and Securities Held in Trust Account:
The amounts held in the Trust Account represent substantially all of the proceeds of the Offering and are classified as restricted assets since such amount can only be used by the Company in connection with the consummation of a Business Combination. At December 31, 2017, all of the assets in the Trust Account were invested in the J.P. Morgan 100% US Treasury Money Market Fund (199) Institutional Share Class. As of December 31, 2017, the Trust Account had earned $1,057,981 in interest (which will be reduced by $97,014 upon reimbursement to the Company of tax amounts previously paid by the Company on account of tax obligations) which is held in the Trust Account to be released to the Company to pay its tax obligations. As of December 31, 2016, the Trust Account had earned $100,471 in interest.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Financial Instruments:
The fair value of the Company’s financial instruments, such as cash and payables, approximates the carrying amounts represented in the balance sheet due to the short-term nature of these instruments.
Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes:
The Company complies with the accounting and reporting requirements of FASB ASC 740, ‘‘Income Taxes,’’ which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company’s currently taxable income consists of interest income on the TrustAccount net of taxes paid. The Company’s costs are generally considered start-up costs and are not currently deductible. During the year ended December 31, 2017, the Company recorded income tax expense of approximately $148,580, primarily related to interest income earned on the Trust Account net of franchise taxes paid. The Company’s effective tax rate for the year ended December 31, 2017 was 42.23%, which does not differ significantly from the expected income tax rate. On December 22, 2017, the Tax Cut and Jobs Act (the “Tax Act”) was enacted into law resulting in a reduction in the federal corporate income tax rate from 35% to 21% for years beginning in 2018. The enactment of the Tax Act also requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Although the Company had established a valuation allowance of ($5,149) at December 31, 2016, the Company did not have any deferred tax assets at December 31, 2017 and, as such, no revaluation to the Company’s valuation allowance has been made to recognize the effect of the Tax Act.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There were no uncertain tax benefits as of December 31, 2017.
The Company is required to file income tax returns in the United States (federal) and in various state and local jurisdictions. The Company has been subject to income tax examinations by various taxing authorities since its inception. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest as of December 31, 2017 and 2016. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position for its 2015 or 2016 tax years.
Redeemable Common Stock:
All of the 15,000,000 shares of common stock sold as part of the Units in the Offering and the private placement contain a redemption feature which allows for the redemption of such common stock under the Company's liquidation or tender offer/stockholder approval provisions. The initial stockholders and Cantor Fitzgerald have waived their rights to participate in such redemption with respect to their founder shares and private placement shares. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity's equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company does not specify a maximum redemption threshold, its amended and restated certificate of incorporation provides that in no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the securities to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital.
Accordingly, at December 31, 2017 and 2016, 13,923,262 and 13,991,772, respectively, of the 15,000,000 Public Shares are classified outside of permanent equity at their redemption value. The redemption value is equal to the pro rata share of the aggregate amount then on deposit in the Trust Account, including interest but less taxes payable (approximately $10.07 per share at December 31, 2017 and $10.01 per share at December 31, 2016).
Recent Accounting Pronouncements:
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Subsequent Events:
Management has evaluated subsequent events to determine if events or transactions occurring through the date the financial statements were issued require potential adjustment to or disclosure in the financial statements and has concluded that all such events that would require recognition or disclosure have been recognized or disclosed.
Liquidity:
As of December 31, 2017, the Company had $370,414 in its operating bank account, as well as $151,057,982 in cash and cash equivalents in the Trust Account.
Based on the foregoing, management believes that the Company will have sufficient working capital to meet the Company's needs through the earlier of consummation of its initial Business Combination or July 12, 2018. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective merger or acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the initial Business Combination. The Company anticipates that its uses of cash during 2018 until the closing of its initial Business Combination will be approximately $354,000 for expenses incurred in the search for target businesses, including the legal, accounting and other third-party expenses attendant to the due diligence investigations, structuring and negotiating of its initial Business Combination.
Offering Costs:
Offering costs consist principally of legal, underwriting commissions and other costs incurred through the balance sheet date that are directly related to the Offering. Offering costs amounting to approximately $9.6 million were charged to stockholders’ equity upon completion of the Offering, including $3 million of underwriting commissions paid upon the closing of the Offering and $6 million of deferred underwriting commissions recorded as a liability in the accompanying balance sheets.
Net Income (Loss) per Share:
Net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. An aggregate of 13,923,262 and 13,991,772 shares of common stock subject to possible redemption at December 31, 2017 and December 31, 2016, respectively, have been excluded from the calculation of basic loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account. No shares of common stock were subject to possible redemption at December 31, 2015. The Company has not considered the effect of the warrants sold in the Offering and private placement to purchase 7,730,000 shares of the Company’s common stock in the calculation of diluted net income (loss) per share because the exercise of the warrants is contingent on the occurrence of future events.
Reconciliation of net income (loss) per common share:
The Company’s net income (loss) is adjusted for the portion of income that is attributable to common stock subject to redemption, as these shares only participate in the income of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted loss per common share is calculated as follows:
| | | For the Year
Ended
December 31,
2017 | | | For the Year
Ended
December 31,
2016 | | | For the Period
from August 4,
2015 (inception)
through
December 31,
2015 | |
| | | | | | | | | | |
| Net income (loss) | | $ | 203,219 | | | $ | (11,283 | ) | | $ | (809 | ) |
| | | | | | | | | | | | | |
| Less: income attributable to ordinary shares subject to redemption | | | (693,996 | ) | | | (73,179 | ) | | | 0 | |
| | | | | | | | | | | | | |
| Adjusted net loss | | $ | (490,777 | ) | | $ | (84,461 | ) | | $ | (809 | ) |
| | | | | | | | | | | | | |
| Weighted average shares outstanding, basic and diluted | | | 5,231,815 | | | | 5,251,965 | | | | 4,312,500 | |
| | | | | | | | | | | | | |
| | | | | | | | (Revised) | | | | | |
| Basic and diluted net loss per ordinary share | | $ | (0.09 | ) | | $ | (0.02 | ) | | $ | (0.00 | ) |
NOTE 3 — PUBLIC OFFERING
On July 12, 2016 the Company consummated the Offering of 15,000,000 Units at $10.00 per Unit. Each Unit consists of one share of the Company’s common stock, $0.0001 par value and one redeemable common stock purchase warrant (the ‘‘Warrants’’). Each Warrant entitles the holder to purchase one-half of one share of common stock at a price of $5.75. No fractional shares will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, the Company will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. Each Warrant will become exercisable 30 days after the completion of the Company’s initial Business Combination and will expire five years after the completion of the Company’s initial Business Combination or earlier upon redemption or liquidation. However, if the Company does not complete its initial Business Combination on or prior to July 12, 2018, the Warrants will expire at the end of such period. If the Company is unable to deliver registered shares of common stock to the holder upon exercise of Warrants issued in the Offering during the exercise period, there will be no net cash settlement of these Warrants and the Warrants will expire worthless, unless they may be exercised on a cashless basis in the circumstances described in the warrant agreement. Once the Warrants become exercisable, the Company may redeem the outstanding Warrants in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, but only in the event that the last sale price of the Company’s shares of common stock equals or exceeds $24.00 per share for any 20 trading days within the 30-trading day period ending on the third trading day before the Company sends the notice of redemption to the Warrant holders.
The Company granted the underwriters a 45-day option to purchase up to 2,250,000 additional Units to cover any over-allotments, at the Offering price less the underwriting discounts and commissions. The underwriters did not exercise the over-allotment option.
NOTE 4 — RELATED PARTY TRANSACTIONS
Founder Shares:
In August 2015, M III LLC purchased an aggregate 3,593,750 shares of common stock (the “Founder Shares”) for an aggregate purchase price of $25,000, or approximately $0.007 per share. On November 5, 2015, the Company effectuated a 1.760-for-1 stock split in the form of a dividend. All share and per-share amounts have been retroactively restated for the effect of this stock split. On December 31, 2015, the Company cancelled 1,293,750 Founder Shares issued in the stock split, and on July 6, 2016, the Company cancelled a further 718,750 Founder Shares issued in the stock split, resulting in an aggregate of 4,312,500 Founder Shares outstanding (which included 562,500 shares which were forfeited by the Sponsor since the underwriters’ over-allotment option was not exercised). As a result of the stock split and subsequent partial cancellations, the per-share purchase price of the Founder Shares decreased to $0.006 per share. The Founder Shares are identical to the common stock included in the Units sold in the Offering except that the Founder Shares are subject to certain transfer restrictions, as described in more detail below.
The Company’s initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until the earlier of (A) one year after the completion of the Company’s initial Business Combination, or (B) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction after the initial Business Combination that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property (the ‘‘Lock Up Period’’). If subsequent to the Company’s initial Business Combination, the last sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s initial Business Combination, the Founder Shares will be released from the lock-up.
Private Placement Units:
On July 12, 2016 the Sponsor and Cantor Fitzgerald purchased from the Company an aggregate of 460,000 private placement units, each consisting of one share of common stock and one warrant to purchase one half share of common stock with an exercise price of $5.75 per half share, at a price of $10.00 per unit (the ‘‘Private Placement Units’’). 340,000 Private Placement Units were purchased by the Sponsor and 120,000 Private Placement Units were purchased by Cantor Fitzgerald. The purchase price of the Private Placement Units was added to the net proceeds from the Offering to be held in the Trust Account pending completion of the Company’s initial Business Combination. The Private Placement Units (including their component securities) are not transferable, assignable or salable until 30 days after the completion of the initial Business Combination and the Private Placement Warrants will be non-redeemable so long as they are held by the Sponsor, Cantor Fitzgerald or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor, Cantor Fitzgerald or their permitted transferees, the Private Placement Warrants contained in the Private Placement Units are redeemable by the Company and exercisable by such holders on the same basis as the Warrants included in the Units sold in the Offering. In addition, for as long as the Private Placement Warrants are held by Cantor Fitzgerald or its designees or affiliates, they may not be exercised after five years from the effective date of the registration statement related to the Offering. Otherwise, the Private Placement Warrants contained in the Private Placement Units have terms and provisions that are identical to those of the Warrants sold as part of the Units in the Offering and have no net cash settlement provisions.
If the Company does not complete its initial Business Combination, then the proceeds from the Private Placement Units will be part of the liquidating distribution to the public stockholders and the Private Placement Units and their component securities issued to the Sponsor and Cantor Fitzgerald will expire worthless.
Related Party Loans:
M III LLC had agreed to loan the Company an aggregate of $250,000 against the issuance of an unsecured promissory note (the ‘‘Note’’) to cover expenses related to the Offering. This loan was non-interest bearing and payable on the earlier of July 31, 2016 or the completion of the Offering. As of December 31, 2016, all amounts owed under the Note had been repaid. In addition to the Note, M III LLC advanced the Company an additional $2,766 to cover expenses related to the Offering, which was also repaid upon consummation of the Offering on July 12, 2016.
In order to finance transaction costs in connection with an initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required. If the Company completes its Business Combination, the Company would repay such loaned amounts out of the proceeds released from the Trust Account. Otherwise, such loans would be repaid only out of funds held outside the Trust Account. In the event that the Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used to repay such loaned amounts. Up to $1,000,000 of such loans will be convertible into warrants of the post-Business Combination entity at a price of $0.50 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants discussed above. The terms of such loans by the Company’s Sponsor, officers and directors, if any, have not been determined and no written agreements exist with respect to such loans.
NOTE 5 — COMMITMENTS
Underwriting Agreement
The Company paid an underwriting discount of 2% of the per Unit offering price to the underwriters at the closing of the Offering (or $3.0 million), with an additional fee (the ‘‘Deferred Discount’’) of 4% of the gross offering proceeds payable upon the Company’s completion of a Business Combination. The Deferred Discount will be forfeited by the underwriters if the Company fails to complete its initial Business Combination.
Registration Rights
The Company’s initial stockholders and holders of the Private Placement Units (and their constituent securities) are entitled to registration rights pursuant to a registration rights agreement signed on the date of the prospectus for the Offering. The Company’s initial stockholders and holders of the Private Placement Units (and their constituent securities) are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders will have ‘‘piggy-back’’ registration rights to include their securities in other registration statements filed by the Company. The Company will bear the expenses incurred in connection with the filing of any such registration statements. The registration rights agreement does not provide for any cash penalties or additional penalties associated with any delays in registering the securities.
Other General and Administrative Services:
The Sponsor and the Company’s executive officers and directors, and their respective affiliates, will be entitled to be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf, including but not limited to, identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s audit committee will review on a quarterly basis all payments that were made to the Sponsor and the Company’s executive officers, directors and affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on the Company’s behalf, provided, however, that to the extent such expenses exceed the available proceeds not deposited in the Trust Account, such expenses would not be reimbursed by the Company unless the Company consummates an initial Business Combination. Notwithstanding the foregoing, no reimbursement is due to M-III Partners, LP or M-III Partners, LLC for office space and general administrative expenses incurred by them and provided to the Company.
NOTE 6 — TRUST ACCOUNT AND FAIR VALUE MEASUREMENT
Upon the closing of the Offering and the private placement, a total of $150,000,000 was deposited into the Trust Account. All proceeds in the Trust Account may be invested in either U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, and that invest solely in U.S. government treasury obligations.
At December 31, 2017 and December 31, 2016, the proceeds in the Trust Account were invested in money market funds holding U.S. government treasury bills yielding interest of approximately 0.7% and 0.3%, respectively. The carrying value of the investment is stated at market and includes interest income of approximately $1,057,982 at December 31, 2017 and approximately $100,471 at December 31, 2016.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2017 and December 31, 2016, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | | Level | | | December 31, 2017 | | | December 31, 2016 | |
| Assets: | | | | | | | | | | | | |
| Cash and securities held in Trust Account | | | 1 | | | $ | 151,057,982 | | | $ | 150,100,471- | |
NOTE 7 — STOCKHOLDERS’ EQUITY
Common Stock
The authorized common stock of the Company is 35,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. At December 31, 2017, there were 19,210,000 shares of common stock issued and outstanding, including 13,923,262 shares subject to redemption. At December 31, 2016, there were 19,210,000 shares of common stock issued and outstanding, including 13,991,772 shares subject to redemption.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. At December 31, 2017 and December 31, 2016, there were no shares of preferred stock issued and outstanding.
NOTE 8 — INCOME TAXES
The Company’s net deferred tax assets are as follows:
| | | December 31, 2017 | | | December 31, 2016 | |
| | | | | | | |
| Deferred tax asset | | | | | | | | |
| Net operating loss carryforward | | $ | 0 | | | $ | 5,149 | |
| Total deferred tax assets | | | 0 | | | | 5,149 | |
| Valuation allowance | | | 0 | | | | (5,149 | ) |
| Deferred tax asset, net of allowance | | $ | - | | | $ | - | |
The income tax provision (benefit) consists of the following:
| | | For the year ended
December 31, 2017 | | | For the year ended
December 31, 2016 | | | For the period from
August 4, 2015
(inception) to
December 31, 2015 | |
| | | | | | | | | | |
| Federal | | | | | | | | | | | | |
| Current | | $ | 148,580 | | | $ | - | | | $ | - | |
| Deferred | | | 5,149 | | | | (3,836 | ) | | | (275 | ) |
| | | | | | | | | | | | | |
| State | | | | | | | | | | | | |
| Current | | $ | - | | | $ | - | | | $ | - | |
| Deferred | | | 0 | | | | (953 | ) | | | (85 | ) |
| Change in valuation allowance | | | (5,149 | ) | | | 4,789 | | | | 360 | |
| Income tax provision (benefit) | | $ | 148,580 | | | $ | - | | | $ | - | |
As of December 31, 2017, the Company had no U.S. federal and state net operating loss carryovers (“NOLs”) available to offset future taxable income. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOLs may be subject to an annual limitation in the event of a change of control as defined under the regulations.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. Because the Company had no deferred tax assets at December 31, 2017, no valuation allowance has been established.
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
| | | For the year ended
December 31, 2017 | | | For the year ended
December 31, 2016 | | | For the Period from August 4, 2015 (inception) through
December 31, 2015 | |
| | | | | | | | | | |
| Statutory federal income tax rate | | | 35.00 | % | | | (34.00 | )% | | | (34.00 | )% |
| Capitalized deal related expense | | | 7.24 | % | | | | | | | | |
| State taxes, net of federal tax benefit | | | 0.0 | % | | | (8.60 | )% | | | (10.50 | )% |
| Change in valuation allowance | | | (0.01 | )% | | | 42.60 | % | | | 44.50 | % |
| Income tax provision (benefit) | | | 42.23 | % | | | 0 | % | | | 0 | % |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized.
March 5, 2018 |
| M III ACQUISITION CORP. | |
| | |
| | By: | /s/ Mohsin Y. MeghjiINFRASTRUCTURE AND ENERGY ALTERNATIVES, INC. (Registrant) |
| | |
Name: Mohsin Y. MeghjiDated: March 14, 2019 | By: | /s/ JP Roehm |
| | Name: JP Roehm |
| | Title: Chairman and Chief Executive Officer |
| | (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Reportreport has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name |
| | | | | |
| Signature | | PositionTitle | | Date |
| | | | | | |
| By: | /s/ Mohsin Y. MeghjiJP Roehm | | Chairman of the Board of Directors and Chief Executive Officer and Director | | March 5, 201814, 2019 |
Mohsin Y. MeghjiName: JP Roehm | | (Principal Executive Officer)executive officer) | | |
| | | | | | |
| By: | /s/ Brian GriffithAndrew D. Layman | | Chief Financial Officer | | March 5, 201814, 2019 |
Brian GriffithName: Andrew D. Layman | | (Principal Financial and Accounting Officer)(Principal financial officer) | | |
| | | | | | |
| By: | /s/ Andrew L. FarkasBharat Shah | | DirectorChief Accounting Officer | | March 5, 201814, 2019 |
Andrew L. FarkasName: Bharat Shah | | (Principal accounting officer) | | |
| | | | | |
| By: | /s/ Mohsin Y. Meghji | | Director and Chairman | | March 14, 2019 |
| Name: Mohsin Y. Meghji | | | | |
| | | | | | |
| By: | /s/ Osbert HoodDerek Glanvill | | Director | | March 5, 201814, 2019 |
Osbert HoodName: Derek Glanvill | | | | |
| | | | | | |
| By: | /s/ Philip MarberPeter Jonna | | Director | | March 5, 201814, 2019 |
Philip MarberName: Peter Jonna | | | | |
| | | | | | |
| By: | /s/ Christopher J. PappanoCharles Garner | | Director | | March 5, 201814, 2019 |
Christopher J. PappanoName: Charles Garner | | | | |
| | | | | |
| By: | /s/ Terence Montgomery | | Director | | March 14, 2019 |
| Name: Terence Montgomery | | | | |
| | | | | |
| By: | /s/ Ian Schapiro | | Director | | March 14, 2019 |
| Name: Ian Schapiro | | | | |
| | | | | |
| By: | /s/ John Eber | | Director | | March 14, 2019 |
| Name: John Eber | | | | |
| | | | | |
