UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-37796
Infrastructure & Energy Alternatives, Inc.
(Exact Name of Registrant as Specified in Charter)
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Delaware | | | | 47-4787177 |
(State or Other Jurisdiction of Incorporation) | | | | (IRS Employer Identification No.) |
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6325 Digital Way Suite 460 Indianapolis, Indiana | | 46278 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (765) 828-2580
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbols(s) | | Name of exchange on which registered |
Common Stock, $0.0001 par value | | IEA | | The NASDAQ Stock Market LLC |
Warrants for Common Stock | | IEAWW | | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☑ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No
Number of shares of Common Stock outstanding as of the close of business on August 10, 2020: 22,947,871.July 28, 2021: 25,150,306.
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| Infrastructure and Energy Alternatives, Inc. | |
| Table of Contents | |
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| PART I. FINANCIAL INFORMATION | |
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| Part II. OTHER INFORMATION | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Balance Sheets
($ in thousands, except per share data)
(Unaudited)
| | | June 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 59,392 | | | $ | 147,259 | | Cash and cash equivalents | $ | 117,674 | | | $ | 164,041 | |
Accounts receivable, net | Accounts receivable, net | 211,979 | | | 203,645 | | Accounts receivable, net | 232,323 | | | 163,793 | |
Contract assets | Contract assets | 220,868 | | | 179,303 | | Contract assets | 176,958 | | | 145,183 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 33,605 | | | 16,855 | | Prepaid expenses and other current assets | 33,007 | | | 19,352 | |
| Total current assets | Total current assets | 525,844 | | | 547,062 | | Total current assets | 559,962 | | | 492,369 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 133,428 | | | 140,488 | | Property, plant and equipment, net | 135,514 | | | 130,746 | |
Operating lease asset | 43,045 | | | 43,431 | | |
Operating lease assets | | Operating lease assets | 37,701 | | | 36,461 | |
Intangible assets, net | Intangible assets, net | 30,564 | | | 37,272 | | Intangible assets, net | 22,202 | | | 25,434 | |
Goodwill | Goodwill | 37,373 | | | 37,373 | | Goodwill | 37,373 | | | 37,373 | |
Company-owned life insurance | Company-owned life insurance | 3,940 | | | 4,752 | | Company-owned life insurance | 4,760 | | | 4,250 | |
Deferred income taxes | Deferred income taxes | 9,333 | | | 12,992 | | Deferred income taxes | 295 | | | 2,069 | |
Other assets | Other assets | 367 | | | 1,551 | | Other assets | 533 | | | 438 | |
Total assets | Total assets | $ | 783,894 | | | $ | 824,921 | | Total assets | $ | 798,340 | | | $ | 729,140 | |
| Liabilities and Stockholder's Equity (Deficit) | Liabilities and Stockholder's Equity (Deficit) | | Liabilities and Stockholder's Equity (Deficit) | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 141,174 | | | $ | 177,783 | | Accounts payable | $ | 149,352 | | | $ | 104,960 | |
Accrued liabilities | Accrued liabilities | 153,988 | | | 158,103 | | Accrued liabilities | 201,828 | | | 129,594 | |
Contract liabilities | Contract liabilities | 123,091 | | | 115,634 | | Contract liabilities | 90,566 | | | 118,235 | |
| Current portion of finance lease obligations | Current portion of finance lease obligations | 23,790 | | | 23,183 | | Current portion of finance lease obligations | 24,842 | | | 25,423 | |
Current portion of operating lease obligations | Current portion of operating lease obligations | 10,392 | | | 9,628 | | Current portion of operating lease obligations | 9,817 | | | 8,835 | |
Current portion of long-term debt | Current portion of long-term debt | 1,680 | | | 1,946 | | Current portion of long-term debt | 2,277 | | | 2,506 | |
| Total current liabilities | Total current liabilities | 454,115 | | | 486,277 | | Total current liabilities | 478,682 | | | 389,553 | |
| Finance lease obligations, less current portion | Finance lease obligations, less current portion | 35,615 | | | 41,055 | | Finance lease obligations, less current portion | 27,370 | | | 32,146 | |
| Operating lease obligations, less current portion | Operating lease obligations, less current portion | 33,633 | | | 34,572 | | Operating lease obligations, less current portion | 29,355 | | | 29,154 | |
Long-term debt, less current portion | Long-term debt, less current portion | 156,546 | | | 162,901 | | Long-term debt, less current portion | 161,266 | | | 159,225 | |
Debt - Series B Preferred Stock | Debt - Series B Preferred Stock | 176,800 | | | 166,141 | | Debt - Series B Preferred Stock | 176,556 | | | 173,868 | |
Series B Preferred Stock - warrant obligations | 3,800 | | | 17,591 | | |
Warrant obligations | | Warrant obligations | 8,834 | | | 9,200 | |
| Deferred compensation | Deferred compensation | 7,174 | | | 8,004 | | Deferred compensation | 7,930 | | | 8,672 | |
| Total liabilities | Total liabilities | $ | 867,683 | | | $ | 916,541 | | Total liabilities | $ | 889,993 | | | $ | 801,818 | |
| Commitments and contingencies: | Commitments and contingencies: | | Commitments and contingencies: | 0 | | 0 |
| Series A Preferred Stock, par value, $0.0001 per share; 1,000,000 shares authorized; 17,483 shares and 17,483 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 17,483 | | | 17,483 | | |
Series A Preferred Stock, par value, $0.0001 per share; 1,000,000 shares authorized; 17,483 shares and 17,483 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | | Series A Preferred Stock, par value, $0.0001 per share; 1,000,000 shares authorized; 17,483 shares and 17,483 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 17,483 | | | 17,483 | |
| Stockholders' equity (deficit): | Stockholders' equity (deficit): | | Stockholders' equity (deficit): | |
Common stock, par value, $0.0001 per share; 150,000,000 and 100,000,000 shares authorized; 21,142,193 and 20,460,533 shares issued and 20,960,862 and 20,446,811 outstanding at June 30, 2020 and December 31, 2019, respectively | 2 | | | 2 | | |
Treasury stock, 181,331 and 13,722 shares at cost at June 30, 2020 and December 31, 2019, respectively. | (395) | | | (76) | | |
Common stock, par value, $0.0001 per share; 150,000,000 and 150,000,000 shares authorized; 25,150,306 and 21,008,745 shares issued and 25,150,306 and 21,008,745 outstanding at June 30, 2021 and December 31, 2020, respectively | | Common stock, par value, $0.0001 per share; 150,000,000 and 150,000,000 shares authorized; 25,150,306 and 21,008,745 shares issued and 25,150,306 and 21,008,745 outstanding at June 30, 2021 and December 31, 2020, respectively | 3 | | | 2 | |
| Additional paid in capital | Additional paid in capital | 34,463 | | | 17,167 | | Additional paid in capital | 32,064 | | | 35,305 | |
Accumulated deficit | Accumulated deficit | (135,342) | | | (126,196) | | Accumulated deficit | (141,203) | | | (125,468) | |
Total stockholders' equity (deficit) | (101,272) | | | (109,103) | | |
Total liabilities and stockholders' equity (deficit) | $ | 783,894 | | | $ | 824,921 | | |
Total stockholders' deficit | | Total stockholders' deficit | (109,136) | | | (90,161) | |
Total liabilities and stockholders' deficit | | Total liabilities and stockholders' deficit | $ | 798,340 | | | $ | 729,140 | |
See accompanying notes to condensed consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Operations
($ in thousands, except per share data)
(Unaudited)
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, | | June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Revenue | Revenue | $ | 480,604 | | | $ | 327,961 | | | $ | 838,767 | | | $ | 517,742 | | Revenue | $ | 560,148 | | | $ | 480,604 | | | $ | 836,560 | | | $ | 838,767 | |
Cost of revenue | Cost of revenue | 426,363 | | | 296,539 | | | 751,485 | | | 480,576 | | Cost of revenue | 506,665 | | | 426,363 | | | 766,536 | | | 751,485 | |
Gross profit | Gross profit | 54,241 | | | 31,422 | | | 87,282 | | | 37,166 | | Gross profit | 53,483 | | | 54,241 | | | 70,024 | | | 87,282 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 28,074 | | | 25,878 | | | 57,558 | | | 53,632 | | Selling, general and administrative expenses | 30,894 | | | 28,074 | | | 55,740 | | | 57,558 | |
| Income (loss) from operations | 26,167 | | | 5,544 | | | 29,724 | | | (16,466) | | |
Income from operations | | Income from operations | 22,589 | | | 26,167 | | | 14,284 | | | 29,724 | |
| Other income (expense), net: | Other income (expense), net: | | Other income (expense), net: | |
Interest expense, net | Interest expense, net | (16,200) | | | (11,496) | | | (32,265) | | | (21,863) | | Interest expense, net | (14,495) | | | (16,200) | | | (28,854) | | | (32,265) | |
| Other income (expense) | Other income (expense) | (1,631) | | | 18,272 | | | (2,733) | | | 18,102 | | Other income (expense) | 770 | | | (1,631) | | | 608 | | | (2,733) | |
Income (loss) before benefit for income taxes | Income (loss) before benefit for income taxes | 8,336 | | | 12,320 | | | (5,274) | | | (20,227) | | Income (loss) before benefit for income taxes | 8,864 | | | 8,336 | | | (13,962) | | | (5,274) | |
| (Provision) benefit for income taxes | (4,739) | | | (6,112) | | | (3,872) | | | 2,796 | | |
Provision for income taxes | | Provision for income taxes | (4,165) | | | (4,739) | | | (1,773) | | | (3,872) | |
| Net income (loss) | Net income (loss) | $ | 3,597 | | | $ | 6,208 | | | $ | (9,146) | | | $ | (17,431) | | Net income (loss) | $ | 4,699 | | | $ | 3,597 | | | $ | (15,735) | | | $ | (9,146) | |
Less: Convertible Preferred Stock dividends | Less: Convertible Preferred Stock dividends | (606) | | | (918) | | | (1,372) | | | (1,443) | | Less: Convertible Preferred Stock dividends | (676) | | | (606) | | | (1,332) | | | (1,372) | |
Less: Contingent consideration fair value adjustment | — | | | (18,835) | | | — | | | (18,835) | | |
| Less: Net income allocated to participating securities | Less: Net income allocated to participating securities | (802) | | | — | | | — | | | — | | Less: Net income allocated to participating securities | (788) | | | (802) | | | 0 | | | 0 | |
Net income (loss) available for common stockholders | Net income (loss) available for common stockholders | $ | 2,189 | | | $ | (13,545) | | | $ | (10,518) | | | $ | (37,709) | | Net income (loss) available for common stockholders | $ | 3,235 | | | $ | 2,189 | | | $ | (17,067) | | | $ | (10,518) | |
| | Net income (loss) per common share - basic | Net income (loss) per common share - basic | 0.11 | | | (0.61) | | | (0.51) | | | (1.70) | | Net income (loss) per common share - basic | 0.13 | | | 0.11 | | | (0.72) | | | (0.51) | |
Net income (loss) per common share - diluted | Net income (loss) per common share - diluted | 0.09 | | | (0.61) | | | (0.51) | | | (1.70) | | Net income (loss) per common share - diluted | 0.12 | | | 0.09 | | | (0.72) | | | (0.51) | |
Weighted average shares - basic | Weighted average shares - basic | 20,751,673 | | | 22,252,489 | | | 20,636,944 | | | 22,220,799 | | Weighted average shares - basic | 24,471,286 | | | 20,751,673 | | | 23,768,413 | | | 20,636,944 | |
Weighted average shares - diluted | Weighted average shares - diluted | 39,978,382 | | | 22,252,489 | | | 20,636,944 | | | 22,220,799 | | Weighted average shares - diluted | 33,439,303 | | | 39,978,382 | | | 23,768,413 | | | 20,636,944 | |
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See accompanying notes to condensed consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
($ in thousands)
(Unaudited)
| | | Common Stock | | | Additional Paid-in Capital | | Treasury Stock | | | Accumulated Deficit | | Total Equity (Deficit) | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Deficit | | Total Equity (Deficit) |
| | Shares | Par Value | | | | Shares | Cost | | | | | | Shares | Par Value | Additional Paid-in Capital | | Shares | Cost | Accumulated Deficit | Total Equity (Deficit) |
| | Balance at December 31, 2018 | | 22,155 | | 2 | | | 4,751 | | | — | | — | | | (135,931) | | | (131,178) | | |
Net loss | | — | | — | | | — | | | — | | — | | | (23,639) | | | (23,639) | | |
Share-based compensation | | — | | — | | | 1,040 | | | — | | — | | | — | | | 1,040 | | |
Share-based payment transaction | | 111 | | — | | | 235 | | | (14) | | (76) | | | — | | | 159 | | |
Merger recapitalization transaction | | — | | — | | | — | | | — | | — | | | 2,754 | | | 2,754 | | |
Cumulative effect from adoption of new accounting standard, net of tax | | — | | — | | | — | | | — | | — | | | 750 | | | 750 | | |
Series A Preferred dividends | | — | | — | | | (525) | | | — | | — | | | — | | | (525) | | |
Balance at March 31, 2019 | | 22,266 | | $ | 2 | | | $ | 5,501 | | | (14) | | $ | (76) | | | $ | (156,066) | | | $ | (150,639) | | |
Net income | | — | | — | | | — | | | — | | — | | | 6,208 | | | 6,208 | | |
Share-based compensation | | — | | — | | | 720 | | | — | | — | | | — | | | 720 | | |
Series B Preferred Stock - Warrants at close | | — | | — | | | 9,422 | | | — | | — | | | — | | | 9,422 | | |
Series A Preferred dividends | | — | | — | | | (918) | | | — | | — | | | — | | | (918) | | |
Balance at June 30, 2019 | | 22,266 | | $ | 2 | | | $ | 14,725 | | | (14) | | $ | (76) | | | $ | (149,858) | | | $ | (135,207) | | |
| | | Balance at December 31, 2019 | Balance at December 31, 2019 | | 20,461 | | $ | 2 | | | $ | 17,167 | | | (14) | | $ | (76) | | | $ | (126,196) | | | $ | (109,103) | | Balance at December 31, 2019 | | 20,461 | | $ | 2 | | | $ | 17,167 | | | (14) | | $ | (76) | | | $ | (126,196) | | | $ | (109,103) | |
Net loss | Net loss | | — | | — | | | — | | | — | | — | | | (12,743) | | | (12,743) | | Net loss | | — | | — | | | — | | | — | | — | | | (12,743) | | | (12,743) | |
Share-based compensation | Share-based compensation | | — | | — | | | 1,113 | | | — | | — | | | — | | | 1,113 | | Share-based compensation | | — | | — | | | 1,113 | | | — | | — | | | — | | | 1,113 | |
Share-based payment transactions | | 240 | | — | | | 280 | | | (38) | | (84) | | | — | | | 196 | | |
Equity plan compensation | | Equity plan compensation | | 240 | | 0 | | | 280 | | | (38) | | (84) | | | — | | | 196 | |
Series B Preferred Stock - Warrants at close | Series B Preferred Stock - Warrants at close | | — | | — | | | 15,631 | | | — | | — | | | — | | | 15,631 | | Series B Preferred Stock - Warrants at close | | — | | — | | | 15,631 | | | — | | — | | | — | | | 15,631 | |
Series A Preferred dividends | Series A Preferred dividends | | — | | — | | | (766) | | | — | | — | | | — | | | (766) | | Series A Preferred dividends | | — | | — | | | (766) | | | — | | — | | | — | | | (766) | |
Balance at March 31, 2020 | Balance at March 31, 2020 | | 20,701 | | $ | 2 | | | $ | 33,425 | | | (52) | | $ | (160) | | | $ | (138,939) | | | $ | (105,672) | | Balance at March 31, 2020 | | 20,701 | | $ | 2 | | | $ | 33,425 | | | (52) | | $ | (160) | | | $ | (138,939) | | | $ | (105,672) | |
Net income | Net income | | — | | — | | | — | | | — | | — | | | 3,597 | | | 3,597 | | Net income | | — | | — | | | — | | | — | | — | | | 3,597 | | | 3,597 | |
Share-based compensation | Share-based compensation | | — | | — | | | 844 | | | — | | — | | | — | | | 844 | | Share-based compensation | | — | | — | | | 844 | | | — | | — | | | — | | | 844 | |
Share-based payment transactions | | 441 | | — | | | 800 | | | (129) | | (235) | | | — | | | 565 | | |
| Equity plan compensation | | Equity plan compensation | | 441 | | 0 | | | 800 | | | (129) | | (235) | | | — | | | 565 | |
Series A Preferred dividends | Series A Preferred dividends | | — | | — | | | (606) | | | — | | — | | | — | | | (606) | | Series A Preferred dividends | | — | | — | | | (606) | | | — | | — | | | — | | | (606) | |
Balance at June 30, 2020 | Balance at June 30, 2020 | | 21,142 | | $ | 2 | | | $ | 34,463 | | | (181) | | $ | (395) | | | $ | (135,342) | | | $ | (101,272) | | Balance at June 30, 2020 | | 21,142 | | $ | 2 | | | $ | 34,463 | | | (181) | | $ | (395) | | | $ | (135,342) | | | $ | (101,272) | |
| | Balance at December 31, 2020 | | Balance at December 31, 2020 | | 21,009 | | $ | 2 | | | $ | 35,305 | | | 0 | | $ | 0 | | | $ | (125,468) | | | $ | (90,161) | |
Net loss | | Net loss | | — | | — | | | — | | | — | | — | | | (20,434) | | | (20,434) | |
Earnout Shares | | Earnout Shares | | 1,803 | | — | | | — | | | — | | — | | | — | | | — | |
Share-based compensation | | Share-based compensation | | — | | — | | | 727 | | | — | | — | | | — | | | 727 | |
Equity plan compensation | | Equity plan compensation | | 521 | | — | | | (2,909) | | | — | | — | | | — | | | (2,909) | |
Exercise of warrants | | Exercise of warrants | | 15 | | — | | | — | | | — | | — | | | — | | | — | |
Series A Preferred dividends | | Series A Preferred dividends | | — | | — | | | (656) | | | — | | — | | | — | | | (656) | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | | 23,348 | | $ | 2 | | | $ | 32,467 | | | 0 | | $ | 0 | | | $ | (145,902) | | | $ | (113,433) | |
Net loss | | Net loss | | — | | — | | | — | | | — | | — | | | 4,699 | | | 4,699 | |
| Share-based compensation | | Share-based compensation | | — | | — | | | 1,926 | | | — | | — | | | — | | | 1,926 | |
Equity plan compensation | | Equity plan compensation | | 249 | | — | | | (1,853) | | | — | | — | | | — | | | (1,853) | |
Exercise of warrants | | Exercise of warrants | | 1,553 | | 1 | | | 200 | | | — | | — | | | — | | | 201 | |
Series A Preferred dividends | | Series A Preferred dividends | | — | | — | | | (676) | | | — | | — | | | — | | | (676) | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | 25,150 | | $ | 3 | | | $ | 32,064 | | | 0 | | $ | 0 | | | $ | (141,203) | | | $ | (109,136) | |
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See accompanying notes to condensed consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
| | | Six Months Ended June 30, | | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net loss | Net loss | $ | (9,146) | | | $ | (17,431) | | Net loss | $ | (15,735) | | | $ | (9,146) | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | | | Adjustments to reconcile net loss to net cash used in operating activities: | |
Depreciation and amortization | Depreciation and amortization | 24,001 | | | 23,801 | | Depreciation and amortization | 21,830 | | | 24,001 | |
Contingent consideration fair value adjustment | — | | | (18,835) | | |
| Warrant liability fair value adjustment | Warrant liability fair value adjustment | 2,828 | | | — | | Warrant liability fair value adjustment | (366) | | | 2,828 | |
| Amortization of debt discounts and issuance costs | Amortization of debt discounts and issuance costs | 5,379 | | | 2,732 | | Amortization of debt discounts and issuance costs | 5,814 | | | 5,379 | |
Share-based compensation expense | Share-based compensation expense | 1,957 | | | 1,760 | | Share-based compensation expense | 2,653 | | | 1,957 | |
Loss on sale of equipment | Loss on sale of equipment | 574 | | | 762 | | Loss on sale of equipment | 0 | | | 574 | |
Deferred compensation | Deferred compensation | (830) | | | 849 | | Deferred compensation | (742) | | | (830) | |
| Accrued dividends on Series B Preferred Stock | Accrued dividends on Series B Preferred Stock | 7,959 | | | 1,025 | | Accrued dividends on Series B Preferred Stock | — | | | 7,959 | |
Deferred income taxes | Deferred income taxes | 3,659 | | | (2,517) | | Deferred income taxes | 1,773 | | | 3,659 | |
Other, net | Other, net | 227 | | | 60 | | Other, net | (172) | | | 227 | |
Change in operating assets and liabilities: | Change in operating assets and liabilities: | | Change in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | (8,349) | | | (2,291) | | Accounts receivable | (68,531) | | | (8,349) | |
Contract assets | Contract assets | (41,565) | | | (28,471) | | Contract assets | (31,775) | | | (41,565) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (16,685) | | | (7,353) | | Prepaid expenses and other assets | (13,752) | | | (16,685) | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | (42,097) | | | (33,012) | | Accounts payable and accrued liabilities | 115,294 | | | (42,097) | |
Contract liabilities | Contract liabilities | 7,458 | | | 18,090 | | Contract liabilities | (27,669) | | | 7,458 | |
Net cash used in operating activities | Net cash used in operating activities | (64,630) | | | (60,831) | | Net cash used in operating activities | (11,378) | | | (64,630) | |
| Cash flow from investing activities: | Cash flow from investing activities: | | Cash flow from investing activities: | |
Company-owned life insurance | Company-owned life insurance | 812 | | | (296) | | Company-owned life insurance | (510) | | | 812 | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (5,171) | | | (4,158) | | Purchases of property, plant and equipment | (14,649) | | | (5,171) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 2,837 | | | 6,555 | | Proceeds from sale of property, plant and equipment | 1,527 | | | 2,837 | |
| Net cash (used in) provided by investing activities | (1,522) | | | 2,101 | | |
Net cash used in investing activities | | Net cash used in investing activities | (13,632) | | | (1,522) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Proceeds from long-term debt | Proceeds from long-term debt | 72,000 | | | 9,400 | | Proceeds from long-term debt | 0 | | | 72,000 | |
Payments on long-term debt | Payments on long-term debt | (82,357) | | | (59,334) | | Payments on long-term debt | (1,314) | | | (82,357) | |
| Debt financing fees | — | | | (9,473) | | |
| Payments on finance lease obligations | Payments on finance lease obligations | (12,468) | | | (10,119) | | Payments on finance lease obligations | (15,481) | | | (12,468) | |
Sale-leaseback transaction | — | | | 24,343 | | |
| Proceeds from issuance of stock - Series B Preferred Stock | 350 | | | 50,000 | | |
Proceeds from stock-based awards, net | 760 | | | 159 | | |
Merger recapitalization transaction | — | | | 2,754 | | |
Net cash (used in) provided by financing activities | (21,715) | | | 7,730 | | |
| Proceeds from issuance of Series B Preferred Stock | | Proceeds from issuance of Series B Preferred Stock | 0 | | | 350 | |
Proceeds of issuance of employee stock awards | | Proceeds of issuance of employee stock awards | 0 | | | 760 | |
Shares repurchased for tax withholding on release of restricted stock units | | Shares repurchased for tax withholding on release of restricted stock units | (4,762) | | | 0 | |
Proceeds from exercise of warrants | | Proceeds from exercise of warrants | 200 | | | 0 | |
Net cash used in financing activities | | Net cash used in financing activities | $ | (21,357) | | | $ | (21,715) | |
| Net change in cash and cash equivalents | Net change in cash and cash equivalents | (87,867) | | | (51,000) | | Net change in cash and cash equivalents | (46,367) | | | (87,867) | |
| Cash and cash equivalents, beginning of the period | Cash and cash equivalents, beginning of the period | 147,259 | | | 71,311 | | Cash and cash equivalents, beginning of the period | 164,041 | | | 147,259 | |
| Cash and cash equivalents, end of the period | Cash and cash equivalents, end of the period | $ | 59,392 | | | $ | 20,311 | | Cash and cash equivalents, end of the period | $ | 117,674 | | | $ | 59,392 | |
|
See accompanying notes to condensed consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
(Continued)
| | | Six Months Ended June 30, | | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Supplemental disclosures: | Supplemental disclosures: | | | | Supplemental disclosures: | | | |
Cash paid for interest | Cash paid for interest | 17,821 | | | 18,281 | | Cash paid for interest | 14,892 | | | 17,821 | |
Cash paid (received) for income taxes | Cash paid (received) for income taxes | (735) | | | 227 | | Cash paid (received) for income taxes | 3,271 | | | (735) | |
Schedule of non-cash activities: | Schedule of non-cash activities: | | Schedule of non-cash activities: | |
Acquisition of assets/liabilities through finance lease | Acquisition of assets/liabilities through finance lease | 7,635 | | | — | | Acquisition of assets/liabilities through finance lease | 10,125 | | | 7,635 | |
Acquisition of assets/liabilities through operating lease | Acquisition of assets/liabilities through operating lease | 5,295 | | | — | | Acquisition of assets/liabilities through operating lease | 6,265 | | | 5,295 | |
| Series A Preferred dividends declared | Series A Preferred dividends declared | 1,372 | | | 1,443 | | Series A Preferred dividends declared | 1,332 | | | 1,372 | |
See accompanying notes to condensed consolidated financial statements.
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Note 1. Business, Basis of Presentation and Significant Accounting Policies
Organization and Reportable Segments
Infrastructure and Energy Alternatives, Inc., a Delaware corporation, is a holding company organized on August 4, 2015 (together with its wholly-owned subsidiaries, “IEA” or the “Company”). On March 26, 2018, we became a public company by consummating a merger (the “Merger”) pursuant to an Agreement and Plan of Merger, dated November 3, 2017, with M III Acquisition Corporation (“M III”).
As of December 31, 2019, the Company's total annual gross revenues exceeded $1.07 billion and thus we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).
We segregate our business into 2 reportable segments: the Renewables segment and the Heavy Civil and Industrial (“Specialty CivilCivil”) segment. See Note 10. Segments for a description of the reportable segments and their operations.
COVID-19 Pandemic
During March 2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The COVID-19 pandemic has significantly affected economic conditions in the United States and internationally as national, state and local governments reacted to the public health crisis by requiring mitigation measures that have disrupted business activities for an uncertain period of time. The effects of the COVID-19 pandemic could affect the Company’s future business activities and financial results, including; new contract awards, reduced crew productivity, contract amendments/cancellations, higher operating costs and/or delayed project start dates or project shutdowns that may be requested or mandated by governmental authorities or others.
The Company believes that the COVID-19 pandemic has not had a material adverse impact on the Company’s financial results for the period ended June 30, 2020. Most of the Company’s construction services are currently deemed essential under governmental mitigation orders and all of our business segments continue to operate. The Company has issued several notices of force majeure for the purpose of recognizing delays in construction schedules due to COVID-19 outbreaks on certain of its teams and has also received notices of force majeure from the owners of certain projects and certain subcontractors. Management does not believe that any delays on projects related to these events of force majeure will have a material impact on its results of operations.
Management’s top priority has been to take appropriate actions to protect the health and safety of the Company's employees, customers and business partners, including adjusting the Company's standard operating procedures to respond to evolving health guidelines. Management believes that it is taking appropriate steps to mitigate any potential impact to the Company; however, given the uncertainty regarding the potential effects of the COVID-19 pandemic, any future impacts cannot be quantified or predicted with specificity.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions for Quarterly Reports on Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Adjustments necessary to arrive at net income (loss) available for common stockholders, previously disclosed in Note 8, have been added to the prior period presentation of the consolidated statements of operations to be comparable with the current period presentation.
The unaudited condensed consolidated financial statements include the accounts of IEA and its wholly-owned direct and indirect domestic and foreign subsidiaries andsubsidiaries. The Company occasionally forms joint ventures with unrelated third parties for the execution of single contracts or projects. The Company assesses its joint ventures to determine if they meet the qualifications of a variable interest entity (“VIE”) in accordance with Accounting Standard Codification (“ASC”) Topic 810, Consolidation. For construction joint ventures that are not VIEs or fully consolidated but for which the Company has significant influence, the Company accounts for its interest in the joint ventures using the proportionate consolidation method, see Note 11. Joint Ventures.
In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary to present fairly the results of operations for the interim periods presented. The results of operations for the six months ended June 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021. These financial statements should be read in conjunction
with the Company’s audited consolidated financial statements for the year ended December 31, 20192020 and notes thereto included in the Company’s 20192020 Annual Report on Form 10-K.
Basis of Accounting and Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Key estimates include: the recognition of revenue and project profit or loss; fair value estimates, including those related to Series B Preferred Stock;estimates; 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 its 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.
Revenue Recognition
The Company adopted the requirements of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which is also referred to as Accounting Standards Codification (“ASC”) Topic 606, under the modified retrospective transition approach effective January 1, 2019, with application to all existing contracts that were not substantially completed as of January 1, 2019. The Company adopted this standard for interim periods beginning after December 31, 2019, and recorded adjustments to the previously issued quarterly financial statements for the six months ended June 30, 2019. The impacts of adoption on the Company’s retained earnings on January 1, 2019 was primarily related to variable consideration on unapproved change orders. The cumulative impact of adopting Topic 606 required net adjustments of $750,000 to the statement of operations between revenue, cost of revenue and income taxes, thereby reducing income for the six months ended June 30, 2019 and reducing the December 31, 2019 accumulated deficit. The Company also adjusted the cashflow statement as of June 30, 2019, to reflect adoption.
Under Topic 606, revenue is recognized when control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is recognized by the Company primarily over time utilizing the cost-to-cost measure of progress for fixed price contracts and are based on cost for time and materials and other service contracts, consistent with the Company’s previous revenue recognition practices.
Contracts
The Company derives revenue primarily from construction projects performed under contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system. The contractsContracts contain multiple pricing options, includingsuch as fixed price, time and materials, or unit price. RenewableGenerally, renewable energy projects are performed for private customers while our Specialty Civil projects are performed for a mix of various governmental entities.
Revenue derived from projects billed on a fixed-price basis totaled 98.0%99.3% and 90.7%98.0% of consolidated revenue from operations for the three months ended June 30, 20202021 and 2019,2020, respectively, and totaled 97.2%98.3% and 90.5%97.2% for the six months
ended June 30, 20202021 and 2019,2020, 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 2.0%0.7% and 9.3%2.0% of consolidated revenue from operations for the three months ended June 30, 20202021 and 2019,2020, respectively, and totaled 2.8%1.7% and 9.5%2.8% for the six months ended June 30, 20202021 and 2019,2020, respectively.
Revenue from construction contractsConstruction contract revenue is recognized over time using the cost-to-cost measure of progress for fixed price construction contracts. For these contracts, theThe cost-to-cost measure of progress best depicts the continuous transfer of control of goods or services to the customer. The contractual terms provide that the customer compensates the Company for services rendered.
Contract costs include all direct materials, labor and subcontracted costs, as well as indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and the costs of capital equipment. The cost estimation and review process for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s
assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and profit recognition. Changes in these factors could result in revisions to revenue and costs of revenue in the period in which the revisions are determined on a prospective basis, which could materially affect the Company’s condensed consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined.
Performance Obligations
A performance obligation is a contractual promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Accounting Standards Codification (“ASC”) Topic 606. The transaction price of a contract is allocated to a distinct performance obligationobligations and recognized as revenue when or as the performance obligation isobligations are satisfied. The Company’s contracts often require significant integrated services and, even when delivering multiple distinct services, are generally accounted for as a single performance obligation. Contract amendments and change orders are generally not distinct from the existing contract due to the significant integrated service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. With the exception of certain Specialty Civil service contracts, the majority of the Company’s performance obligations are generally completed within one year.
When more than one contract is entered into with a customer on or close to the same date, the Company evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as more than one performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts, which could change the amount of revenue and profit recognition in a given period depending upon the outcome of the evaluation.
Remaining performance obligations represent the amount of unearned transaction prices for contracts, including approved and unapproved change orders. As of June 30, 2020,2021, the amount of the Company’s remaining performance obligations was $1.1 billion.$1,665.3 million. The Company expects to recognize approximately 72.3%75.7% of its remaining performance obligations as revenue during 2020.the next twelve months. Revenue recognized from performance obligations satisfied in previous periods was $(1.6)$(0.8) million and $1.0$(1.6) million for the three months ended June 30, 20202021 and 2019,2020, respectively, and $(3.6)$(0.4) million and $3.8$(3.6) million for the six months ended June 30, 20202021 and 2019,2020, respectively.
Variable Consideration
Transaction pricing for the Company’s contracts may include variable consideration, such as unapproved change orders, claims, incentives and liquidated damages. Management estimates variable consideration for a performance obligation utilizing estimation methods that best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Management’s estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based on legal opinions, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer and all other relevant information that is reasonably available. The effect of a change in variable consideration on the transaction price of a performance obligation is typically recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders, claims and liquidated damages reflected in transaction price are not resolved in the Company’s favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.
As of June 30, 20202021 and year ended December 31, 2019,2020, the Company included approximately $63.5$51.4 million and $73.3$52.6 million, respectively, of unapproved change orders and/or claims in the transaction price for certain contracts that were in the process of
being resolved in the normal course of business, including through negotiation, arbitration and other proceedings. These transaction price adjustments are included within Contract Assets or Contract Liabilities as appropriate. The Company actively engages with its customers to complete the final change order approval process, and generally expects these processes to be completed within one year. Amounts ultimately realized upon final acceptance by customers could be higher or lower than such estimated amounts.
Disaggregation of Revenue
The following tables disaggregate revenue by customers and services performed, which the Company believes best depicts how the nature, amount, timing and uncertainty of its revenue:
| (in thousands) | (in thousands) | | Three Months Ended | | | Six Months Ended | | | (in thousands) | | Three Months Ended | | Six Months Ended | |
| | June 30, 2020 | | June 30, 2019 | | June 30, 2020 | | June 30, 2019 | | | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 | |
Renewables Segment | Renewables Segment | | | | | | Renewables Segment | | | | | |
Wind | Wind | | $ | 317,151 | | | $ | 179,069 | | | 565,688 | | | $ | 251,103 | | | Wind | | $ | 317,066 | | | $ | 317,151 | | | 463,924 | | | $ | 565,688 | | |
Solar | Solar | | 7,111 | | | 80 | | | 7,320 | | | 2,077 | | | Solar | | 107,788 | | | 7,111 | | | 141,304 | | | 7,320 | | |
| | $ | 324,262 | | | $ | 179,149 | | | $ | 573,008 | | | $ | 253,180 | | | | $ | 424,854 | | | $ | 324,262 | | | $ | 605,228 | | | $ | 573,008 | | |
| | | | | | | | | | |
Specialty Civil Segment | Specialty Civil Segment | | | | Specialty Civil Segment | |
Heavy civil | Heavy civil | | $ | 103,721 | | | $ | 86,170 | | | 144,943 | | | $ | 136,285 | | | Heavy civil | | $ | 78,884 | | | $ | 103,721 | | | 127,756 | | | $ | 144,943 | | |
Rail | Rail | | 32,321 | | | 37,780 | | | 79,378 | | | 80,389 | | | Rail | | 31,173 | | | 32,321 | | | 58,040 | | | 79,378 | | |
Environmental | Environmental | | 20,300 | | | 24,862 | | | 41,438 | | | 47,888 | | | Environmental | | 25,237 | | | 20,300 | | | 45,536 | | | 41,438 | | |
| | $ | 156,342 | | | $ | 148,812 | | | $ | 265,759 | | | $ | 264,562 | | | | $ | 135,294 | | | $ | 156,342 | | | $ | 231,332 | | | $ | 265,759 | | |
Concentrations
The Company had the following approximate revenue and accounts receivable concentrations, net of allowances, for the periods ended:
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| Revenue % | | | | Revenue % | | | | | | |
| Three Months Ended | | | | Six Months Ended | | | Accounts Receivable % | | | |
| June 30, 2020 | | June 30, 2019 | | June 30, 2020 | | June 30, 2019 | June 30, 2020 | | December 31, 2019 | |
Company A (Specialty Civil Segment) | * | | 10.6 | % | | * | | 14.4 | % | * | | * | |
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| Three Months Ended | | Six Months Ended | Accounts Receivable % | |
| June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 | June 30, 2021 | | December 31, 2020 | |
Renewables and Specialty Civil Segments | 11.0 | % | | * | | 12.0 | % | | * | * | | * | |
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* Amount was not above 10% threshold
Construction Joint Ventures
Certain contracts are executed through joint ventures. The arrangements are often formed for the execution of single contracts or projects and allow the Company to share risks and secure specialty skills required for project execution.
In accordance with ASC Topic 810, Consolidation the Company assesses its joint ventures at inception to determine if any meet the qualifications of a VIE. The Company considers a joint venture a VIE if either (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the joint venture is a VIE.
The Company also evaluates whether it is the primary beneficiary of each VIE and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks,
responsibilities, indebtedness, voting rights and board representation of the respective parties in determining whether it qualifies as the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. When the Company is determined to be the primary beneficiary, the VIE is consolidated. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.
Construction joint ventures that do not involve a VIE, or for which the Company is not the primary beneficiary, are evaluated for consolidation under the voting interest model that considers whether the Company owns or controls more than 50% of the voting interest in the joint venture. For construction joint ventures that are not consolidated but for which the Company has significant influence, the Company accounts for its interest in the joint ventures using the proportionate consolidation method, whereby the Company’s proportionate share of the joint ventures’ assets, liabilities, revenue and cost of operations are included in the appropriate classifications in the Company’s consolidated financial statements. See Note 11. Joint Ventures for additional discussion regarding joint ventures.
Recently Adopted Accounting Standards - Guidance Adopted in 2020
In August 2018,December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2018-13,Accounting Standards Update (“ASU”) No. 2019-12, “Fair Value MeasurementIncome Taxes (Topic 820), Disclosure Framework - Changes to740): Simplifying the Disclosure RequirementsAccounting for Fair Value Measurement,Income Taxes,” which eliminatesremoves certain disclosure requirements for recurringexceptions to the general principles in Topic 740 and non-recurring fair value measurements, such as the amount ofalso clarifies and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements.amends existing guidance to improve consistent application. This ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including2020, and interim periods within those fiscal years, with earlyyears. Depending on the amendment, adoption permitted for any eliminated or modified disclosures. Certain disclosures per ASU 2018-13 are required tomay be applied on athe retrospective, basis and others on amodified retrospective, or prospective basis. WeThe Company adopted the standard on January 1, 2020, and it2021 on a prospective basis, which did not have an impact on our disclosures for fair value measurements.income taxes.
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 Topic 842, 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. Topic 842 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.
The Company adopted Topic 842 using the modified retrospective method as of January 1, 2019 and for interim periods beginning after December 31, 2019, without adjusting comparative periods in the financial statements. The most significant effect of the new guidance was the recognition of operating lease right-of-use assets and a liability for operating leases as of December 31, 2019. The accounting for finance leases (capital leases) was substantially unchanged. The Company elected to utilize the package of practical expedients that allowed entities to: (1) not reassess whether any expired or existing
contracts were or contained leases; (2) retain the existing classification of lease contracts as of the date of adoption; (3) not reassess initial direct costs for any existing leases; and (4) not separate non-lease components for all classes of leased assets.
Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial assets, including trade accounts receivables. The expected credit loss methodology under ASU 2016-13 is based on historical experience, current conditions and reasonable and supportable forecasts, and replaces the probable/incurred loss model for measuring and recognizing expected losses under current GAAP. The ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The ASU and its related clarifying updates are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We areThe Company is still evaluating the new standard but do not expect it to have a material impact on our estimate of the allowance for uncollectableuncollectible accounts.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective, or prospective basis. We are currently evaluating the potential effects of adopting the provisions of ASU No. 2019-12.
Management has evaluated other recently issued accounting pronouncements and does not believe that they will have a significant impact on the financial statements and related disclosures.
COVID-19 Pandemic
During March 2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The COVID-19 pandemic has significantly affected economic conditions in the United States and internationally as national, state and local governments reacted to the public health crisis by requiring mitigation measures that have disrupted business activities for an uncertain period of time.
The Company believes that the COVID-19 pandemic has not had a material adverse impact on the Company’s financial results for the period ended June 30, 2021. Currently, most of the Company’s construction services are deemed essential under governmental mitigation orders and all of our business segments continue to operate. The Company has issued several notices of force majeure for the purpose of recognizing delays in construction schedules due to COVID-19 outbreaks on certain of its work sites and has also received notices of force majeure from the owners of certain projects and certain subcontractors. Management does not believe that any delays on projects related to these events of force majeure will have a material impact on its results of operations.
Management’s top priority has been to take appropriate actions to protect the health and safety of the Company's employees, customers and business partners, including adjusting the Company's standard operating procedures to respond to evolving health guidelines. Management believes that it is taking appropriate steps to mitigate any potential impact to the
Company; however, given the uncertainty regarding the potential effects of the COVID-19 pandemic, any future impacts cannot be quantified or predicted with specificity.
The effects of the COVID-19 pandemic could affect the Company’s future business activities and financial results, including new contract awards, reduced crew productivity, contract amendments or cancellations, higher operating costs or delayed project start dates or project shutdowns that may be requested or mandated by governmental authorities or others.
Note 2. Contract Assets and Liabilities
The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is accounted for as a contract asset. Also,Sometimes we sometimes receive advance payments or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is accounted for as a contract liability.
Contract assets in the Condensed Consolidated Balance Sheets represent the following:
•costs and estimated earnings in excess of billings, which arise when revenue has been recorded but the amount has not been billed; and
•retainage amounts for the portion of the contract price billed by us for work performed but held for payment by the customer as a form of security until we reach certain construction milestones or complete the project.
Contract assets consistconsisted of the following:
| (in thousands) | (in thousands) | June 30, 2020 | | December 31, 2019 | (in thousands) | June 30, 2021 | | December 31, 2020 |
Costs and estimated earnings in excess of billings on uncompleted contracts | Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 105,737 | | | $ | 91,543 | | Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 83,869 | | | $ | 51,367 | |
Retainage receivable | Retainage receivable | 115,131 | | | 87,760 | | Retainage receivable | 93,089 | | | 93,816 | |
| | 220,868 | | | 179,303 | | | $ | 176,958 | | | $ | 145,183 | |
Contract liabilities consist of the following:
| (in thousands) | (in thousands) | June 30, 2020 | | December 31, 2019 | (in thousands) | June 30, 2021 | | December 31, 2020 |
Billings in excess of costs and estimated earnings on uncompleted contracts | Billings in excess of costs and estimated earnings on uncompleted contracts | $ | 123,079 | | | $ | 115,570 | | Billings in excess of costs and estimated earnings on uncompleted contracts | $ | 90,557 | | | $ | 117,641 | |
Loss on contracts in progress | Loss on contracts in progress | 12 | | | 64 | | Loss on contracts in progress | 9 | | | 594 | |
| | $ | 123,091 | | | $ | 115,634 | | | $ | 90,566 | | | $ | 118,235 | |
The contract receivables amount as of December 31, 2019 included unapproved change orders of approximately $9.2 million for which the Company was pursuing settlement through dispute resolution. The Company agreed to settle the unapproved change order dispute in the current quarter.
Revenue recognized for the three and six months ended June 30, 2021 that was included in the contract liability balance at December 31, 2020 was approximately $24.2 million and $112.0 million, respectively, and revenue recognized for the three and six months ended June 30, 2020 that was included in the contract liability balance at December 31, 2019 was approximately $17.8 million and $108.7 million, respectively, and revenue recognized for the three and six months ended June 30, 2019 included in the contract liability balance at December 31, 2018 was approximately $18.2 million and $50.1 million, respectively.million.
Activity in the allowance for doubtful accounts for the periods indicated iswas as follows:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, | | June 30, |
(in thousands) | (in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Allowance for doubtful accounts at beginning of period | Allowance for doubtful accounts at beginning of period | $ | 89 | | | $ | 72 | | | $ | 75 | | | $ | 42 | | Allowance for doubtful accounts at beginning of period | $ | 0 | | | $ | 89 | | | $ | 0 | | | $ | 75 | |
Plus: provision for (reduction in) allowance | Plus: provision for (reduction in) allowance | — | | | 30 | | | 14 | | | 60 | | Plus: provision for (reduction in) allowance | 0 | | | 0 | | | 0 | | | 14 | |
Less: write-offs, net of recoveries | Less: write-offs, net of recoveries | — | | | — | | | — | | | — | | Less: write-offs, net of recoveries | 0 | | | 0 | | | 0 | | | 0 | |
Allowance for doubtful accounts at period end | Allowance for doubtful accounts at period end | $ | 89 | | | $ | 102 | | | $ | 89 | | | $ | 102 | | Allowance for doubtful accounts at period end | $ | 0 | | | $ | 89 | | | $ | 0 | | | $ | 89 | |
Note 3. Property, Plant and Equipment, Net
Property, plant and equipment consisted of the following:
| | | | | | | | | | | |
(in thousands) | June 30, 2020 | | December 31, 2019 |
Buildings and leasehold improvements | $ | 3,385 | | | $ | 2,919 | |
Land | 17,600 | | | 17,600 | |
Construction equipment | 181,712 | | | 173,434 | |
Office equipment, furniture and fixtures | 3,562 | | | 3,487 | |
Vehicles | 5,566 | | | 6,087 | |
| 211,825 | | | 203,527 | |
Accumulated depreciation | (78,397) | | | (63,039) | |
Property, plant and equipment, net | $ | 133,428 | | | $ | 140,488 | |
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Buildings and leasehold improvements | $ | 5,667 | | | $ | 4,402 | |
Land | 17,600 | | | 17,600 | |
Construction equipment | 212,304 | | | 192,402 | |
Office equipment, furniture and fixtures | 3,637 | | | 3,620 | |
Vehicles | 7,538 | | | 7,326 | |
| 246,746 | | | 225,350 | |
Accumulated depreciation | (111,232) | | | (94,604) | |
Property, plant and equipment, net | $ | 135,514 | | | $ | 130,746 | |
Depreciation expense of property, plant and equipment was $8,777$9,415 and $8,430$8,777 for the three months ended June 30, 20202021 and 2019,2020, respectively, and was $17,293$18,598 and $16,906$17,293 for the six months ended June 30, 2021 and 2020, and 2019, respectively.
Note 4. Goodwill and Intangible Assets, Net
The following table provides the changes in the carrying amount of goodwill, by segment:
| | | | | | | | | | | | | | | | | |
(in thousands) | Renewables | | Specialty Civil | | Total |
January 1, 2019 | $ | 3,020 | | | $ | 37,237 | | | $ | 40,257 | |
Acquisition adjustments | — | | | (2,884) | | | (2,884) | |
December 31, 2019 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
Adjustments | — | | | — | | | — | |
June 30, 2020 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Renewables | | Specialty Civil | | Total |
January 1, 2020 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
Adjustments | 0 | | | 0 | | | 0 | |
December 31, 2020 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
Adjustments | 0 | | | 0 | | | 0 | |
June 30, 2021 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
Intangible assets consisted of the following as of the dates indicated:
| | | June 30, 2020 | | | | | December 31, 2019 | | | | | June 30, 2021 | | | | December 31, 2020 | | |
($ in thousands) | ($ in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Remaining Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Remaining Life | ($ in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Remaining Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Remaining Life |
Customer relationships | Customer relationships | $ | 26,500 | | | $ | (6,588) | | | $ | 19,912 | | | 5.5 years | | $ | 26,500 | | | $ | (4,695) | | | $ | 21,805 | | | 6 years | Customer relationships | $ | 26,500 | | | $ | (10,373) | | | $ | 16,127 | | | 4.5 years | | $ | 26,500 | | | $ | (8,481) | | | $ | 18,019 | | | 5 years |
Trade name | Trade name | 13,400 | | | (4,645) | | | 8,755 | | | 3.5 years | | 13,400 | | | (3,305) | | | 10,095 | | | 4 years | Trade name | 13,400 | | | (7,325) | | | 6,075 | | | 2.5 years | | 13,400 | | | (5,985) | | | 7,415 | | | 3 years |
Backlog | 13,900 | | | (12,003) | | | 1,897 | | | 6 months | | 13,900 | | | (8,528) | | | 5,372 | | | 1 year | |
| | $ | 53,800 | | | $ | (23,236) | | | $ | 30,564 | | | $ | 53,800 | | | $ | (16,528) | | | $ | 37,272 | | | |
| | | $ | 39,900 | | | $ | (17,698) | | | $ | 22,202 | | | $ | 39,900 | | | $ | (14,466) | | | $ | 25,434 | | |
Amortization expense associated with intangible assets for the three months ended June 30, 2021 and 2020, and 2019, totaled $3.3$1.6 million and $3.4$3.3 million, respectively, and $6.7$3.2 million and $6.9$6.7 million for the six months ended June 30, 20202021 and 2019,2020, respectively.
The following table provides the annual intangible amortization expense currently expected to be recognized for the years 20202021 through 2024:2025:
| (in thousands) | (in thousands) | Remainder of 2020 | | 2021 | | 2022 | | 2023 | | 2024 | (in thousands) | Remainder of 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
Amortization expense | Amortization expense | $ | 5,130 | | | $ | 6,466 | | | $ | 6,466 | | | $ | 5,841 | | | $ | 3,785 | | Amortization expense | $ | 3,233 | | | $ | 6,466 | | | $ | 5,841 | | | $ | 3,785 | | | $ | 2,876 | |
Note 5. Fair Value of Financial Instruments
The Company applies ASC Topic 820, Fair Value Measurement, which establishes a framework for measuring fair value. 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 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.liabilities listed on active market exchanges.
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.
The following table sets forth information regarding the Company's liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | December 31, 2019 | | | | | | |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities | | | | | | | | | | | | | | | |
Series B Preferred Stock - Series A Conversion Warrants and Exchange Warrants | $ | — | | | $ | — | | | $ | 3,400 | | | $ | 3,400 | | | $ | — | | | $ | — | | | $ | 4,317 | | | $ | 4,317 | |
Series B-1 Preferred Stock - Additional 6% Warrants | — | | | — | | | 400 | | | 400 | | | — | | | — | | | 400 | | | 400 | |
Series B-3 Preferred - Closing Warrants | — | | | — | | | — | | | — | | | — | | | — | | | 11,491 | | | 11,491 | |
Rights Offering | — | | | — | | | — | | | — | | | — | | | — | | | 1,383 | | | 1,383 | |
Total liabilities | $ | — | | | $ | — | | | $ | 3,800 | | | $ | 3,800 | | | $ | — | | | $ | — | | | $ | 17,591 | | | $ | 17,591 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities | | | | | | | | | | | | | | | |
Private warrants | $ | 0 | | | $ | 634 | | | $ | 0 | | | $ | 634 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Series B Preferred Stock - Anti-dilution warrants | 0 | | | 0 | | | 8,200 | | | 8,200 | | | 0 | | | 0 | | | 8,800 | | | 8,800 | |
Series B-1 Preferred Stock - Performance warrants | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 400 | | | 400 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total liabilities | $ | 0 | | | $ | 634 | | | $ | 8,200 | | | $ | 8,834 | | | $ | 0 | | | $ | 0 | | | $ | 9,200 | | | $ | 9,200 | |
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements using Level 3 inputs:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Series B Preferred - Series A Conversion Warrants and Exchange Warrants | | Series B-1 Preferred Stock - Additional 6% Warrants | | Series B-3 Preferred - Closing Warrants | | Rights Offering |
Beginning Balance, December 31, 2019 | $ | 4,317 | | | $ | 400 | | | $ | 11,491 | | | $ | 1,383 | |
Fair value adjustment - (gain) loss recognized in other income | 1,509 | | | — | | | 1,677 | | | (1,383) | |
Transfer to non-recurring fair value instrument (equity) | (2,426) | | | — | | | (13,168) | | | — | |
Ending Balance, June 30, 2020 | $ | 3,400 | | | $ | 400 | | | $ | — | | | $ | — | |
The Company entered into three equity commitment agreements at various dates during 2019 with Ares Management, LLC, on behalf of its affiliated funds, investment vehicles and/or managed accounts (“Ares”) and funds managed by Oaktree Capital Management (“Oaktree”). These resulted in Series B-1 Preferred Stock (the “Series B-1 Preferred Stock”), Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) and Series B-3 Preferred Stock (the “Series B-3 Preferred Stock”) (collectively referred to as “Series B Preferred Stock”).
The information below describes the balance sheet classification and the recurring/nonrecurring fair value measurement:
Series B Preferred Stock (non-recurring) - The Series B Preferred Stock is a mandatorily redeemable financial instrument under ASC 480 and was recorded at relative fair value as debt which was estimated using a discounted cashflow model based on certain significant unobservable inputs, such as accumulated dividend rates, and projected Adjusted EBITDA for the life of the Series B Preferred Stock. The fair value of the liability for each of the transactions, was a combined $153.7 million and recorded on the balance sheet as debt as of June 30, 2020.
Series B Preferred Stock - Warrantsat closing(non-recurring) - The Warrants at closing, with an exercise price of $0.0001, represented (on an if-converted to common stock basis) 10% of the issued and outstanding common stock of the Company based on the Company’s fully diluted share count on May 20, 2019 (including the number of shares of common stock that may be issued pursuant to all restricted stock awards, restricted stock units, stock options and any other securities or rights (directly or indirectly) convertible into, exchangeable for or to subscribe for common stock that are outstanding on May 20, 2019 (excluding any shares of common stock issuable (a) pursuant to the merger agreement for our business combination, (b) upon conversion of shares of Series A Preferred Stock, (c) upon the exercise of any warrant with an exercise price of $11.50 or higher or (d) upon the exercise of any equity issued pursuant to the Company’s long term incentive plan or other equity plan with a strike price of $11.50 or higher). The 2,545,934 warrants at closing were valued at the closing stock price of $4.21 on May 20, 2019 which was recorded as additional paid in capital.
| | | | | | | | | | | | | | | | | | | |
(in thousands) | | | Series B Preferred Stock - Anti-dilution warrants | | Series B-1 Preferred Stock - Performance warrants | | | | |
Beginning Balance, December 31, 2020 | | | $ | 8,800 | | | $ | 400 | | | | | |
Fair value adjustment - loss (gain) recognized in other income | | | (600) | | | (400) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Ending Balance, June 30, 2021 | | | $ | 8,200 | | | $ | 0 | | | | | |
On August 30, 2019, warrants for 900,000 shares of common stock were issued and were valued at the closing stock price of $3.75 which was recorded as additional paid in capital.
On November 14,
In 2019, the Company entered into three equity purchase agreements and issued Series B Preferred Stock as discussed in Note 6. Debt and Series B Preferred Stock. The agreements require that on the conversion of any of the Convertible Series A Preferred Stock to common shares, the Series B Preferred Stock will receive additional warrants for 3,568,750(Anti-dilution Warrants) to purchase common shares of common stock were issued and were valued at the closing stock price of $2.20 and these were recorded as a liability (Series B-3 Preferred - Closing Warrants) and marked to market at December 31, 2019 at a price of $3.22. On January 21, 2020$0.0001 per share. The agreements also require that if the Company received shareholder approval forfails to meet a certain Adjusted EBITDA (as that term is defined in the warrants and the liability was marked to market at a price of $3.69. Upon shareholder approval, the warrants were moved from liability to equity at a fair value of $13,168agreements) threshold on a non-recurring basis.
Series B-3 Exchange Warrants (non-recurring) - On November 14, 2019,trailing twelve-month basis from May 31, 2020 through April 30, 2021, the holders of Series A Preferred Stock converted 50% of their shares to Series B Preferred Stock and reduced the number of the potentialwill receive additional warrants. In the exchange the holders of Series A Preferred Stock were issued warrants for 657,383(Performance Warrants) to purchase common shares of common stock at the closing stock price of $2.20 and these were recorded as a liability and marked to market at December 31, 2019 at a price of $3.22. On January 21, 2020 the Company received shareholder approval for the warrants and the liability was marked to market at a price of $3.69. As of June 30, 2020, these warrants reside as part of equity at a fair value of $2,426 on a non-recurring basis.
Series B-1 Preferred Stock - Series A ConversionWarrants(recurring) -$0.0001 per share. On May 20, 2019, the conversion rights for the Series A Preferred Stock were amended to allow the holders of Series A Preferred Stock to convert all or any portion of Series A Preferred Stock outstanding into common stock at any point in time. If converted,
The information below describes the holdersbalance sheet classification and the recurring fair value measurement for these requirements:
Private Warrants (recurring) - The Company has 295,000 private warrants that are not actively traded on the public markets and the Company adjusts the fair value at the end of each fiscal period using the price on that date multiplied by the remaining private warrants. The Private warrants were recorded as Warrant obligations at the end of the quarter and the fair value adjustment was recorded as other expense for the three and six months ended June 30, 2021. For further discussion see Note 8. Earnings Per Share.
Series B Preferred Stock would be entitled- Anti-dilutionWarrants(recurring) - The number of common shares attributable to additionalthe warrants with an exercise price of $0.0001. These warrants were fairissued to Series B Preferred Stockholders upon conversion by Series A Preferred Stockholders is determined on a 30-day volume weighted average. The Anti-dilution warrant liability was valued using the closing stock price at the end of $4.21 on May 20, 2019, at an estimated if-converted share countthe quarter and was recorded as a liability.
Series B-1 Preferred Stock - Additional 6%Performance Warrants (recurring) - The Additional 6% Warrants are issuable if the Company fails to meet certain Adjusted EBITDA thresholds on a trailing twelve-month basis from May 31, 2020 through April 30, 2021. The Companywarrant liability was recorded the Additional 6% Warrants at fair value which was estimatedas a liability, using a Monte Carlo Simulation based on certain significant unobservable inputs, such as a risk rate premium, Adjusted EBITDA volatility, stock price volatility and projected Adjusted EBITDA for the Company for 2019. The Additional 6% Warrants were recorded as a liability.
Rights Offering - The Company conducted a rights offering in connection with the offeringCompany. As of the Series B Preferred Stock, in which, each common shareholder as of the record date was issued a right to purchase Series B Preferred Stock and warrants. The right that was issued was fair valued using a Black-Scholes model based on certain significant unobservable inputs, such as a risk rate premium, stock price volatility, dividend yield and expected term of rights offering. The rights offering fair value was recorded as a liability and was a deemed dividend to common stockholders and reflected as a reduction in additional paid in capital. On March 4, 2020 we completed the rights offering, removed the liability associated with the fair value (rights offering - recurring) and issued and sold 350 shares of Series B-3 Preferred Stock (Series B-3 Preferred Stock - non-recurring at a fair value of $313,000) and 12,029 warrants (non-recurring Series B Preferred Stock - Warrants at closing - non-recurring at a fair value of $37,000) to purchase common stock.
2020 Commitment - The Company was obligated to sell to, Ares and Oaktree, and they were obligated to purchase, additional shares of Series B Preferred Stock up to approximately $15.0 million based on a failure byJune 30, 2021, the Company to achieve specified debtremained above the Adjusted EBITDA threshold for the trailing twelve-month basis from May 31, 2020 through April 30, 2021 and liquidity levels. On May 6, 2020, the Company entered into an amendment to the Equity Commitment Agreement. The amendment extended the period of timetherefore was not required to enter into the 2020 Commitment and purchase from the Companyissue additional shares of Series B-3 Preferred Stock and warrants to July 14, 2020, or such other date as mutually agreed upon. Additionally, the amendment clarified that the 2020 Commitment shall in no event exceed $5.65 million. See Note 12. Subsequent Events for further discussion on the termination of the transaction.warrants.
Other financial instruments of the Company not listed in the table consist of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities that approximate their fair values. Additionally, management believes that the outstanding recorded balance on the line of credit and long-term debt, approximates fair value due to their floating interest rates.
Note 6. Debt and Series B Preferred Stock
Debt consistsconsisted of the following obligations as of:
| (in thousands) | (in thousands) | June 30, 2020 | | December 31, 2019 | (in thousands) | June 30, 2021 | | December 31, 2020 |
| | Term loan | Term loan | $ | 173,345 | | | $ | 182,687 | | Term loan | $ | 173,345 | | | $ | 173,345 | |
| Commercial equipment notes | Commercial equipment notes | 4,205 | | | 4,456 | | Commercial equipment notes | 4,268 | | | 5,582 | |
Total principal due for long-term debt | Total principal due for long-term debt | 177,550 | | | 187,143 | | Total principal due for long-term debt | 177,613 | | | 178,927 | |
Unamortized debt discount and issuance costs | Unamortized debt discount and issuance costs | (19,324) | | | (22,296) | | Unamortized debt discount and issuance costs | (14,070) | | | (17,196) | |
Less: Current portion of long-term debt | Less: Current portion of long-term debt | (1,680) | | | (1,946) | | Less: Current portion of long-term debt | (2,277) | | | (2,506) | |
Long-term debt, less current portion | Long-term debt, less current portion | $ | 156,546 | | | $ | 162,901 | | Long-term debt, less current portion | $ | 161,266 | | | $ | 159,225 | |
| Debt - Series B Preferred Stock | Debt - Series B Preferred Stock | $ | 189,716�� | | | $ | 180,444 | | Debt - Series B Preferred Stock | $ | 186,696 | | | $ | 185,396 | |
Unamortized debt discount and issuance costs | Unamortized debt discount and issuance costs | (12,916) | | | (14,303) | | Unamortized debt discount and issuance costs | (10,140) | | | (11,528) | |
Long-term Series B Preferred Stock | Long-term Series B Preferred Stock | $ | 176,800 | | | $ | 166,141 | | Long-term Series B Preferred Stock | $ | 176,556 | | | $ | 173,868 | |
The weighted average interest rate for the term loan as of June 30, 20202021 and December 31, 2019,2020, was 8.20%6.90% and 10.35%7.00%, respectively.
Debt Covenants
The term loan is governed by the terms of the Third A&R Credit Agreement, dated May 2019, which include customary affirmative and negative covenants and provide for customary events of default, which include,including, nonpayment of principal or interest and failure to timely deliver financial statements. Under the Third A&R Credit Agreement, the financial covenant provides that the First Lien Net Leverage Ratio (as defined therein) may not exceed (i) prior to the fiscal quarter ending December 31, 2019, 4.75:2.75:1.0, (ii) for the four fiscal quarters ending December 31, 2020, 3.50:1.0, (iii) for the four fiscal quarters ending December 31, 2021, 2.75:1.0, and (iv) for all subsequent quarters, 2.25:1.0.
The Third 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.
LettersDebt - Series B Preferred Stock
The Series B Preferred Stock is a mandatorily redeemable financial instrument under ASC Topic 480 and has been recorded as a liability using the effective interest rate method for each tranche. The mandatory redemption date for all tranches of Credit and Surety Bondsthe Series B Preferred Stock is February 15, 2025.
InThe Series B Preferred Stock requires quarterly dividend payments calculated at a 12% annual rate on all outstanding Series B Preferred Stock when the ordinary course of business,Company’s First Lien Net Leverage Ratio (as defined in the Third A&R Credit Agreement) is less than or equal to 1.50:1.0 and a 13.5% rate if the ratio is greater. The Series B Preferred Stock agreements allow the Company is required to post lettersaccrue, but not pay, the dividends at a 15.0% annual rate. Accrued dividends increase the amount 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 issuerSeries B Preferred Stock. Accrued dividends 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$18.3 million at June 30, 2020,2021 and December 31, 2019,2020, respectively. Dividend payments are not deductible in calculating the Company was contingently liable under letters of credit issued under its Third A&R Credit Agreement, in the amount of $23.5 millionCompany’s federal and $21.0 million, respectively, related to projects. In addition, as of June 30, 2020 and December 31, 2019, the Company had outstanding surety bonds on projects of $2.6 billion and $2.4 billion, respectively.
Contractual Maturities
Contractual maturities of the Company's outstanding principal on debt obligations as of June 30, 2020:2021:
| (in thousands) | (in thousands) | Maturities | (in thousands) | Maturities |
Remainder of 2020 | $ | 1,621 | | |
2021 | 1,228 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 1,214 | |
2022 | 2022 | 15,859 | | 2022 | 16,916 | |
2023 | 2023 | 29,735 | | 2023 | 29,986 | |
2024 | 2024 | 129,107 | | 2024 | 129,368 | |
2025 | | 2025 | 129 | |
Thereafter | Thereafter | — | | Thereafter | 0 | |
Total contractual maturities | Total contractual maturities | $ | 177,550 | | Total contractual maturities | $ | 177,613 | |
Note 7. Commitments and Contingencies
In the ordinary course of business, the Company enters into agreements that provide financing for its machinery and equipment, facility and vehicle needs. The Company reviews these agreements for potential lease classification, and at inception, determines whether a lease is an operating or finance lease. Lease assets and liabilities, which generally represent the present value of future minimum lease payments over the term of the lease, are recognized as of the commencement date. Under ASC Topic 842, leases with an initial lease term of twelve months or less are classified as short-term leases and are not recognized in the condensed consolidated balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised.
Lease term, discount rate, variable lease costs and future minimum lease payment determinations require the use of judgment as these are based on the facts and circumstances related to each specific lease. Lease terms are generally based on their initial non-cancelable terms, unless there is a renewal option that is reasonably certain to be exercised. Various factors, including economic incentives, intent, past history and business need are considered to determine if a renewal option is reasonably certain to be exercised. The implicit rate in a lease agreement is used when it can be determined. Otherwise, the Company's incremental borrowing rate, which is based on information available as of the lease commencement date, including applicable lease terms and the current economic environment, is used to determine the value of the lease obligation.
Finance Leases
The Company has obligations, exclusive of associated interest, under various finance leases for equipment totaling $59.4$52.2 million and $64.2$57.6 million at June 30, 20202021 and December 31, 2019,2020, respectively. Gross property under this capitalized lease agreement at June 30, 20202021 and December 31, 2019,2020, totaled $121.8$135.4 million and $116.1$128.0 million, less accumulated depreciation of $45.0$65.3 million and $34.0$55.1 million, respectively, for net balances of $76.8$70.1 million and $82.1$72.9 million, respectively. Depreciation ofexpense for assets held under the finance leases areis included in cost of revenue in the condensed consolidated statements of operations.
The future minimum payments of finance lease obligations are as follows:
| (in thousands) | (in thousands) | | (in thousands) | |
Remainder of 2020 | $ | 13,437 | | |
2021 | 23,355 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 13,547 | |
2022 | 2022 | 19,304 | | 2022 | 23,379 | |
2023 | 2023 | 5,204 | | 2023 | 8,984 | |
2024 | 2024 | 1,617 | | 2024 | 5,043 | |
2025 | | 2025 | 3,555 | |
Thereafter | Thereafter | 487 | | Thereafter | 811 | |
Future minimum lease payments | Future minimum lease payments | 63,404 | | Future minimum lease payments | 55,319 | |
Less: Amount representing interest | Less: Amount representing interest | (3,999) | | Less: Amount representing interest | (3,107) | |
Present value of minimum lease payments | Present value of minimum lease payments | 59,405 | | Present value of minimum lease payments | 52,212 | |
Less: Current portion of finance lease obligations | Less: Current portion of finance lease obligations | 23,790 | | Less: Current portion of finance lease obligations | 24,842 | |
Finance lease obligations, less current portion | Finance lease obligations, less current portion | $ | 35,615 | | Finance lease obligations, less current portion | $ | 27,370 | |
Operating Leases
In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facilities, vehicles and equipment. The Company has obligations, exclusive of associated interest, totaling $44.0$39.2 million and $44.2$38.0 million at June 30, 20202021 and December 31, 2019,2020, respectively. Property under these operating lease agreements at June 30, 20202021 and December 31, 2019,2020, totaled $43.0$37.7 million and $43.4$36.5 million, respectively.
The Company has long-term power-by-the-hour equipment rental agreements with a construction equipment manufacturer that have a guaranteed minimum monthly hour requirement. The minimum guaranteed amount based on the Company's current operations is $3.2 million per year. Total expense under these agreements are listed belowin the following table as variable lease costs.
The future minimum payments under non-cancelable operating leases are as follows:
| (in thousands) | (in thousands) | | (in thousands) | |
Remainder of 2020 | $ | 6,769 | | |
2021 | 11,902 | | |
Remainder of 2021 | | Remainder of 2021 | $ | 6,229 | |
2022 | 2022 | 9,480 | | 2022 | 11,238 | |
2023 | 2023 | 6,754 | | 2023 | 8,776 | |
2024 | 2024 | 3,454 | | 2024 | 4,740 | |
2025 | | 2025 | 2,236 | |
Thereafter | Thereafter | 20,650 | | Thereafter | 18,936 | |
Future minimum lease payments | Future minimum lease payments | 59,009 | | Future minimum lease payments | 52,155 | |
Less: Amount representing interest | Less: Amount representing interest | (14,984) | | Less: Amount representing interest | (12,983) | |
Present value of minimum lease payments | Present value of minimum lease payments | 44,025 | | Present value of minimum lease payments | 39,172 | |
Less: Current portion of operating lease obligations | Less: Current portion of operating lease obligations | 10,392 | | Less: Current portion of operating lease obligations | 9,817 | |
Operating lease obligations, less current portion | Operating lease obligations, less current portion | $ | 33,633 | | Operating lease obligations, less current portion | $ | 29,355 | |
Lease Information
| | | Three months ended | | Six Months Ended | | | Three months ended | Six Months Ended |
| | June 30, 2020 | June 30, 2019 | June 30, 2020 | June 30, 2019 | | June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 |
| | | | | |
Finance Lease cost: | Finance Lease cost: | | | Finance Lease cost: | |
Amortization of right-of-use assets | Amortization of right-of-use assets | $ | 5,858 | | $ | 5,837 | | $ | 11,555 | | $ | 10,845 | | Amortization of right-of-use assets | $ | 5,843 | | $ | 5,858 | | $ | 11,678 | | $ | 11,555 | |
Interest on lease liabilities | Interest on lease liabilities | $ | 940 | | $ | 1,249 | | $ | 2,126 | | $ | 2,898 | | Interest on lease liabilities | 789 | | 940 | | 1,606 | | 2,126 | |
Operating lease cost | Operating lease cost | $ | 3,490 | | $ | 2,314 | | $ | 6,967 | | $ | 4,145 | | Operating lease cost | 3,179 | | 3,490 | | 6,573 | | 6,967 | |
Short-term lease cost | Short-term lease cost | $ | 45,134 | | $ | 6,272 | | $ | 66,768 | | $ | 14,768 | | Short-term lease cost | 35,624 | | 45,134 | | 59,228 | | 66,768 | |
Variable lease cost | Variable lease cost | $ | 985 | | $ | 2,189 | | $ | 1,944 | | $ | 2,380 | | Variable lease cost | 2,910 | | 985 | | 4,157 | | 1,944 | |
Sublease Income | Sublease Income | $ | (33) | | $ | (24) | | $ | (66) | | $ | (47) | | Sublease Income | (33) | | (33) | | (66) | | (66) | |
Total lease cost | Total lease cost | $ | 56,374 | | $ | 17,837 | | $ | 89,294 | | $ | 34,989 | | Total lease cost | $ | 48,312 | | $ | 56,374 | | $ | 83,176 | | $ | 89,294 | |
| | | | | |
Other information: | Other information: | | | Other information: | |
| Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from finance leases | Operating cash flows from finance leases | $ | 940 | | $ | 1,249 | | $ | 2,126 | | $ | 2,898 | | Operating cash flows from finance leases | $ | 789 | | $ | 940 | | $ | 1,606 | | $ | 2,126 | |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 3,385 | | $ | 3,929 | | $ | 6,728 | | $ | 7,176 | | Operating cash flows from operating leases | $ | 3,179 | | $ | 3,385 | | $ | 6,424 | | $ | 6,728 | |
| Weighted-average remaining lease term - finance leases | Weighted-average remaining lease term - finance leases | | 2.70 years | 3.14 years | Weighted-average remaining lease term - finance leases | | 2.66 years | 2.70 years |
Weighted-average remaining lease term - operating leases | Weighted-average remaining lease term - operating leases | | 7.86 years | 9.74 years | Weighted-average remaining lease term - operating leases | | 7.71 years | 7.86 years |
Weighted-average discount rate - finance leases | Weighted-average discount rate - finance leases | | 6.27 | % | 6.67 | % | Weighted-average discount rate - finance leases | | 5.85 | % | 6.27 | % |
Weighted-average discount rate - operating leases | Weighted-average discount rate - operating leases | | 6.96 | % | 6.91 | % | Weighted-average discount rate - operating leases | | 6.81 | % | 6.96 | % |
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 June 30, 2021, and December 31, 2020, the Company was contingently liable under letters of credit issued under its Third A&R Credit Agreement, in the amount of $21.7 million and $7.8 million, respectively, related to projects and insurance. In addition, as of June 30, 2021 and December 31, 2020, the Company had outstanding surety bonds on projects of $3.0 billion and $2.8 billion, respectively.
Legal Proceedings
The Company is a nominal defendant to a lawsuit, instituted in December 2019 in the Delaware Chancery Court by a purported stockholder of the Company, against the Company’s Board of Directors, Oaktree, and Ares, from which Ares was subsequently dismissed. The complaint asserts a variety of claims arising out of the sale of Series B Preferred Stock and warrants to Ares and Oaktree in May 2019. The complaint alleges claims for breach of fiduciary duty directly on behalf of putative class of stockholders and derivatively on behalf of the Company, aiding and abetting breach of fiduciary duty both derivatively and directly, and unjust enrichment derivatively on behalf of the Company. The plaintiff is seeking rescission of the transaction, unspecified monetary damages, and fees. The Company has placed its director and officer liability insurance carriers on notice of the lawsuit; pursuant to the coverage terms, the Company is subject to a $1.5 million deductible, which the Company has not yet exhausted, but we expect will be spent in defense of the lawsuit. Pursuant to agreements entered into in connection with the sale of Series B Preferred Stock, the Company is obligated to indemnify Oaktree and Ares for any legal fees and damages incurred by either of them in connection with this matter.
The Company is involved in a variety of other legal cases, claims and other disputes that arise from time to time in the ordinary course of its business. While the Company believes it has good defense against these cases and intends to defend them vigorously, it cannot provide assurance that it will be successful in recovering all or any of the potential 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 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 8. Earnings Per Share
The Company calculates earnings (loss) per share (“EPS”) in accordance with ASC Topic 260, Earnings per Share. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares of common stock outstanding during the period.
Income (loss) available to common stockholders is computed by deducting the dividends accrued for the period on cumulative preferred stock from net income.income and net income allocated to participating securities. If there is a net loss, the amount 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, (ii) publicly traded warrants, (iii) Series B Preferred Stock - Warrants and (iii)(iv) the assumed exercise of in-the-money stock options and warrants and the assumed vesting of outstanding restricted stock units (“RSUs”), using the treasury stock method.
Whether the Company has net income, or a net loss determines whether potential issuances of common stock are included in the diluted 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 the same as basic EPS.
The calculations of basic and diluted EPS, are as follows:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Six Months Ended |
| | June 30, | | | June 30, | | | June 30, | | June 30, |
($ in thousands, except per share data) | ($ in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 | ($ in thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | Numerator: | | Numerator: | |
Net income (loss) | Net income (loss) | $ | 3,597 | | | $ | 6,208 | | | $ | (9,146) | | | $ | (17,431) | | Net income (loss) | $ | 4,699 | | | $ | 3,597 | | | (15,735) | | | (9,146) | |
Less: Convertible Preferred Stock dividends | Less: Convertible Preferred Stock dividends | (606) | | | (918) | | | (1,372) | | | (1,443) | | Less: Convertible Preferred Stock dividends | (676) | | | (606) | | | (1,332) | | | (1,372) | |
Less: Contingent consideration fair value adjustment | — | | | (18,835) | | | — | | | (18,835) | | |
| Less: Net income allocated to participating securities | Less: Net income allocated to participating securities | (802) | | | — | | | — | | | — | | Less: Net income allocated to participating securities | (788) | | | (802) | | | 0 | | | 0 | |
Net income (loss) available to common stockholders | Net income (loss) available to common stockholders | 2,189 | | | (13,545) | | | (10,518) | | | (37,709) | | Net income (loss) available to common stockholders | 3,235 | | | 2,189 | | | (17,067) | | | (10,518) | |
| Denominator: | Denominator: | | Denominator: | |
Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | 20,751,673 | | | 22,252,489 | | | 20,636,944 | | | 22,220,799 | | Weighted average common shares outstanding - basic | 24,471,286 | | | 20,751,673 | | | 23,768,413 | | | 20,636,944 | |
| Series B Preferred - Warrants at closing | 7,683,716 | | | — | | | — | | | — | | |
Convertible Series A Preferred | 9,448,988 | | | — | | | — | | | — | | |
RSUs | 2,094,005 | | | — | | | — | | | — | | |
Series B Preferred Stock - Warrants(2) | | Series B Preferred Stock - Warrants(2) | 6,649,026 | | | 7,683,716 | | | 0 | | | 0 | |
Convertible Series A Preferred Stock | | Convertible Series A Preferred Stock | 0 | | | 9,448,988 | | | 0 | | | 0 | |
Merger Warrants(1) | | Merger Warrants(1) | 696,434 | | | 0 | | | 0 | | | 0 | |
Options | | Options | 61,740 | | | 0 | | | 0 | | | 0 | |
RSUs(4) | | RSUs(4) | 1,560,817 | | | 2,094,005 | | | 0 | | | 0 | |
Weighted average common shares outstanding - diluted | Weighted average common shares outstanding - diluted | 39,978,382 | | | 22,252,489 | | | 20,636,944 | | | 22,220,799 | | Weighted average common shares outstanding - diluted | 33,439,303 | | | 39,978,382 | | | 23,768,413 | | | 20,636,944 | |
| Anti-dilutive: (1)(2) | | |
Convertible Series A Preferred | — | | | 9,122,860 | | | 8,001,014 | | | 7,084,004 | | |
| Series B Preferred - Warrants at closing | — | | | 1,131,526 | | | 7,679,520 | | | 565,749 | | |
| RSUs | — | | | 632,911 | | | 1,775,182 | | | 493,508 | | |
Anti-dilutive: | | Anti-dilutive: | |
Convertible Series A Preferred Stock | | Convertible Series A Preferred Stock | 2,090,443 | | | 0 | | | 1,859,350 | | | 8,001,014 | |
Merger Warrants (1) | | Merger Warrants (1) | 0 | | | 0 | | | 696,434 | | | 0 | |
Series B Preferred Stock - Warrants (2) | | Series B Preferred Stock - Warrants (2) | 0 | | | 0 | | | 6,131,520 | | | 7,679,520 | |
Options (3) | | Options (3) | 0 | | | 0 | | | 112,355 | | | 0 | |
RSUs (4) | | RSUs (4) | 0 | | | 0 | | | 1,759,431 | | | 1,775,182 | |
| Basic EPS | Basic EPS | 0.11 | | | (0.61) | | | (0.51) | | | (1.70) | | Basic EPS | 0.13 | | | 0.11 | | | (0.72) | | | (0.51) | |
Diluted EPS | 0.09 | | | (0.61) | | | (0.51) | | | (1.70) | | |
Diluted EPS (5) | | Diluted EPS (5) | 0.12 | | | 0.09 | | | (0.72) | | | (0.51) | |
(1) As of June 30, 2020, and 2019, publicly traded warrantsMerger Warrants to purchase 8,480,000 shares of common stock at $11.50 per share were not considered as dilutive as the warrants’ exercise price was not greater than the average market price of the common stock during the period. These warrants were calculated using the treasury stock method and were dilutive for the three months ended June 30, 2021 and anti-dilutive for the six months ended June 30, 2021.
(2) Series B Preferred Stock - Warrants are considered as participating securities because the holders are entitled to participate in any distributions similar to that of common shareholders.
(2)(3) As of June 30, 2020, and 2019, there were 539,034 and 646,405 of vested and unvested options and 513,153 and 817,817 unvested RSUs, respectively. These were also not considered as dilutive as the respective exercise price or average stock price required for vesting of such awards was greater than the average market price of the common stock during the period.
(4) As of June 30, 2021 and 2020, 132,108 and 513,153 unvested RSUs, respectively. These awards were not considered dilutive as the respective performance targets were not achieved.
(5) For purposes of calculating diluted earnings per shares the numerator was calculated as net income (loss) less preferred dividends for the three months ended June 30, 2021 and 2020.
Merger Warrants
On August 4, 2015, M III formed a Special Purpose Acquisition Corporation and issued public and private warrants before the Merger with the Company. As of June 30, 2021, the Company had 16,925,160 Merger Warrants outstanding, of which 295,000 are considered private warrants. Two Merger Warrants will be exercisable for one share of our common stock at $11.50 per share until the expiration on March 26, 2023. For further discussion about the valuation of the private warrants see Note 5. Fair Value of Financial Instruments.
Series B Preferred Stock Anti-dilution Warrants
The Company also had the following potential outstanding warrants related to the Series B Preferred Stock issuance.
•At June 30, 2021, a total of 636,221 warrants calculated on an if-converted method for the conversion of shares related to the outstanding Series A Preferred Stock. As discussed in Note 5. Fair Value of Financial Instruments, these warrants are recorded as a liability. These warrants are not included in the weighted average share calculation as the contingent event (conversion of Series A Preferred Stock) had not occurred at the end of the quarter.
•The second set of additional warrants would be issued if the exercise of any warrant with an exercise price of $11.50 or higher.
•The final set of additional warrants would be issued if the exercise of any equity issued pursuant to the Company’s long term incentive plan or other equity plan with a strike price of $11.50 or higher.
Series A Preferred Stock
As of June 30, 2020,2021, we had 17,483 shares of Series A Preferred Stock with a stated value of $1,000 per share plus accumulated dividends. Dividends are paid on the Series A Preferred Stock as, if and when declared by our Board. To extent permitted, dividends are required to be paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31 on the stated value at a rate of 10% per annum.
If not paid in cash, dividends will accrue on the stated value and will increase the stated value on and effective as of the applicable dividend date without any further action by the Board at 12% per annum.
So long as any shares of Series B Preferred Stock of the Company are currently outstanding or from and after the occurrence of any non-payment event or default event and until cured or waived, the foregoing rates will increase by 2% per annum.
As of June 30, 2020,2021, the Company has accrued a cumulative of $3.1$5.7 million in dividends to holdersthe holder of Series A Preferred Stock as a reduction to additional paid-in capital.
Series B Preferred Stock
As of June 30, 2020, we had 199,474 shares of Series B Preferred Stock outstanding, with each share having a stated value of $1,000 plus accumulated dividends. Our common stock and Series A Preferred Stock are junior to the Series B Preferred Stock. Dividends are paid in cash on the Series B Preferred Stock as, if and when declared by our Board. To the extent not prohibited by applicable law, dividends are required to be declared and paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31. Any dividend period for which the Total Net Leverage Ratio is greater than 1.50:1.00, the dividend rate is 13.5% per annum and (ii) with respect to any dividend period for which the Total Net Leverage Ratio is less than or equal to 1.50:1.00, at a rate of 12% per annum.
If not paid in cash, dividends will accrue on the stated value and will increase the stated value on Series B Preferred Stock and is effective as of the applicable dividend date without any further action by the Board at a rate of 15%.
The Company has accrued a cumulative of $18.3 million in dividends to holders of Series B Preferred Stock, which is recorded in convertible debt in the Company's condensed consolidated balance sheet for the period ended June 30, 2020. See Note 5. Fair Value of Financial Instruments for discussion regarding the Company's valuation of Series B Preferred Stock.
Contingent Consideration
Pursuant to the original merger agreement with M III Acquisition Corp., the Company was required to issue up to an additional 9,000,000 shares of common stock, which should have been fully earned if the final 2019 adjusted EBITDA targets were achieved. As of June 30, 2019, the Company recorded an adjustment of $18.8 million to the liability primarily based on the significant decrease in the Company's prior year stock price.
Stock Compensation
Under guidance of ASC Topic 718 “Compensation“Compensation — Stock Compensation,” stock-based compensation expense is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the award).
The fair value of the RSUs was based on the closing market price of our common stock on the date of the grant. Stock compensation expense for the RSUs is being amortized using the straight-line method over the service period. For the three months ended June 30, 20202021 and 2019,2020, we recognized $0.8$1.9 million and $0.8 million in compensation expense, respectively, and $2.0$2.7 million and $1.8$2.0 million for the six months ended June 30, 20202021 and 2019,2020, respectively.
Note 9. Income Taxes
The Company’s statutory federal tax rate was 21.00% for the periods ended June 30, 20202021 and 2019,2020, respectively. State tax rates for the same period vary among states and range from approximately 0.8% to 12.0%. A small number of states do not impose an income tax.
The effective tax rates for the three months ended June 30, 2021 and 2020 were 47.0% and 2019were 56.8% and 49.6%, respectively, and were (73.42)(12.7)% and 13.82%(73.4)% for the six months ended June 30, 20202021 and 2019,2020, respectively. The difference between the Company’s effective tax rate and the federal statutory rate primarily results from permanent differences related to the interest accrued for the Series B Preferred Stock,executive compensation, which is not deductible for federal and state income taxes. The six months ended June 30, 2020 have the full impact of all the Series B Preferred Stock that was issued in 2019 whereas the six months ended June 30, 2019 only have a relatively small amount of non-deductible Series B Preferred Stock expenses. There were 0 changes in uncertain tax positions during the periods ended June 30, 20202021 and 2019.2020.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)(the “CARES Act”) was enacted by the US Government in response to the COVID-19 pandemic to provide employment retention incentives. We do not believe that these relief measures materially affectaffected the condensed consolidated financial statements for the first or second quarter ofyear ended December 31, 2020.
The Company has also made use of the payroll deferral provision to defer social security tax of approximately $13.6 million through December 31, 2020. Half of this amount is required to be paid on December 31, 2021 and the other half by December 31, 2022.
Note 10. Segments
We operate our business as two reportable segments: the Renewables segment and the Specialty Civil segment. Each of our reportable segments is comprised of similar business units that specialize in services unique to thetheir respective markets that each segment serves.markets. The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made based on segment revenue.
Separate measures of the Company’s assets, including capital expenditures and cash flows by reportable segment are not produced or utilized by management to evaluate segment performance. A substantial portion of the Company’s fixed assets are owned by and accounted for in our equipment department, including operating machinery, equipment and vehicles, as well as office equipment, buildings and leasehold improvements, and are used on an interchangeable basis across our reportable segments. As such, for reporting purposes, total under/over absorption of equipment expenses consisting primarily of depreciation is allocated to the Company's two reportable segments based on segment revenue.
The following is a brief description of the Company's reportable segments:
Renewables Segment
The Renewables segment operates throughout the United States and specializes in a range of services for the power delivery, solar, wind and battery storage markets that includes design, procurement, construction, restoration, and maintenance.
Specialty Civil Segment
The Specialty Civil segment operates throughout the United States and specializes in a range of services that include:
•Heavy civil construction services such as road and bridge construction, specialty paving, sports field development, industrial maintenance, outsourced contract mining and heavy hauling.
•Environmental remediation services such as site development, environmental site closure, and coal ash management.
•Rail infrastructure services such as planning, design, procurement, construction and maintenance of major railway and intermodal facilities.
Segment Revenue
Revenue by segment was as follows:
| | | Three Months Ended June 30, | | | Six months ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2020 | | | 2019 | | | 2020 | | | 2019 | | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Segment | Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | | Revenue | % of Total Revenue |
Renewables | Renewables | $ | 324,262 | | 67.5 | % | | $ | 179,149 | | 54.6 | % | | $ | 573,008 | | 68.3 | % | | $ | 253,180 | | 48.9 | % | Renewables | $ | 424,854 | | 75.8 | % | | $ | 324,262 | | 67.5 | % | | $ | 605,228 | | 72.3 | % | | $ | 573,008 | | 68.3 | % |
Specialty Civil | Specialty Civil | 156,342 | | 32.5 | % | | 148,812 | | 45.4 | % | | 265,759 | | 31.7 | % | | 264,562 | | 51.1 | % | Specialty Civil | 135,294 | | 24.2 | % | | 156,342 | | 32.5 | % | | 231,332 | | 27.7 | % | | 265,759 | | 31.7 | % |
| Total revenue | Total revenue | $ | 480,604 | | 100.0 | % | | $ | 327,961 | | 100.0 | % | | $ | 838,767 | | 100.0 | % | | $ | 517,742 | | 100.0 | % | Total revenue | $ | 560,148 | | 100.0 | % | | $ | 480,604 | | 100.0 | % | | $ | 836,560 | | 100.0 | % | | $ | 838,767 | | 100.0 | % |
Segment Gross Profit
Gross profit by segment was as follows:
| | | Three Months Ended June 30, | | | Six months ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2020 | | | 2019 | | | 2020 | | | 2019 | | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Segment | Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin |
Renewables | Renewables | $ | 36,983 | | 11.4 | % | | $ | 16,150 | | 9.0 | % | | $ | 62,812 | | 11.0 | % | | $ | 17,308 | | 6.8 | % | Renewables | $ | 42,883 | | 10.1 | % | | $ | 36,983 | | 11.4 | % | | $ | 55,063 | | 9.1 | % | | $ | 62,812 | | 11.0 | % |
Specialty Civil | Specialty Civil | 17,258 | | 11.0 | % | | 15,272 | | 10.3 | % | | 24,470 | | 9.2 | % | | 19,858 | | 7.5 | % | Specialty Civil | 10,600 | | 7.8 | % | | 17,258 | | 11.0 | % | | 14,961 | | 6.5 | % | | 24,470 | | 9.2 | % |
Total gross profit | Total gross profit | $ | 54,241 | | 11.3 | % | | $ | 31,422 | | 9.6 | % | | $ | 87,282 | | 10.4 | % | | $ | 37,166 | | 7.2 | % | Total gross profit | $ | 53,483 | | 9.5 | % | | $ | 54,241 | | 11.3 | % | | $ | 70,024 | | 8.4 | % | | $ | 87,282 | | 10.4 | % |
Note 11. Joint Ventures
As of June 30, 2021, the Company did not have any VIEs but did have one joint venture that used the proportionate consolidation method at 25% ownership. The following balances were included in the condensed consolidated financial statements:
| | | | | | | | | | | | | | | | |
(in thousands) | | June 30, 2021 | | | | | | | | |
Assets | | | | | | | | | | |
Cash | | $ | 6,918 | | | | | | | | | |
Accounts receivable | | 3,550 | | | | | | | | | |
Contract assets | | 2,064 | | | | | | | | | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | |
Accounts payable | | $ | 3,782 | | | | | | | | | |
Contract liabilities | | 8,750 | | | | | | | | | |
| | | | | | | | | | |
| Three Months Ended | Six Months Ended | | | | | | |
| June 30, 2021 | June 30, 2021 | | | | | | |
Revenue | $ | 5,089 | | $ | 9,590 | | | | | | | | | |
Cost of revenue | 5,089 | | 9,590 | | | | | | | | | |
Selling, general and administrative expenses | 450 | | 450 | | | | | | | | | |
Note 11.12. Related Party Transactions
On February 9, 2021, Ares Management, LLC, on behalf of its affiliated funds, investment vehicles and/or managed accounts (“Ares”) purchased the outstanding Series B Preferred Stock and Series A Preferred Stock from funds managed by Oaktree Capital Management (“Oaktree”). As of June 30, 2021, Ares currently holds all of the outstanding Series B Preferred Stock, except for 350 shares, and all of the outstanding Series A Preferred Stock.
Related Party Shareholders
| | | | | | | | |
Type of Equity | Holder | Ownership Percentage |
Series A Preferred Stock and Series A Conversion Warrants and Exchange Warrants, Series B-3 Preferred Stock (exchange agreement) | Infrastructure and Energy Alternatives, LLCAres | 100 | % |
Series B-1 Preferred Stock, Series A Conversion Warrants, Additional 6%Performance Warrants, Warrants at closingClosing (initial amount issued) | Ares | 60100 | % |
| Oaktree Power Opportunities Fund III Delaware, L.P. | 40 | % |
Series B-2 and B-3 Preferred Stock, Warrants at closingClosing | Ares | 100 | % |
Note 12. Subsequent Event
Amendment to Equity Commitment Agreement
On July 22, 2020, the Company entered into a Second Amendment to the Equity Commitment Agreement (the “Amendment”). The Amendment terminated Section 9.18 of the Equity Commitment Agreement relating to the obligation of the Company to issue additional shares of Series B-3 Preferred Stock, and warrants pursuant to the 2020 Commitment. The Company paid $1,322,250 in full satisfaction of the 2019 Commitment and 2020 Commitment Fees and reimbursed certain expenses in the amount of $343,621. The payments were accrued at June 30, 2020.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “should,” “likely,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “seek,” “target,” “continue,” “plan,” “intend,” “project,” or other similar words. All statements, other than statements of historical fact included in this Quarterly Report, regarding expectations for the impact of the COVID-19 pandemic, future financial performance, business strategies, expectations for our business, future operations, liquidity positions, availability of capital resources, financial position, estimated revenues and losses, projected costs, prospects, plans, objectives and beliefs of management are forward-looking statements.
These forward-looking statements are based on information available as of the date of this Quarterly Report and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove correct. Forward-looking statements should not be relied upon as representing our views as of any subsequent date. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factorsFactors that could cause actual results to differ include:
•potential risks and uncertainties relating to COVID-19, including the geographic spread, the severity of the disease, the scope and duration of the COVID-19 pandemic, actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact, and the potential negative impacts of COVID-19 on economiespermitting and project construction cycles, the U.S. economy and financial markets;
•availability of commercially reasonable and accessible sources of liquidity and bonding;
•our ability to generate cash flow and liquidity to fund operations;
•the timing and extent of fluctuations in geographic, weather and operational factors affecting our customers, projects and the industries in which we operate;
•our ability to identify acquisition candidates and integrate acquired businesses;
•consumer demand;
•our ability to grow and manage growth profitably;
•the possibility that we may be adversely affected by economic, business, and/or competitive factors;
•market conditions, technological developments, regulatory changes or other governmental policy uncertainty that affects us or our customers;
•our ability to manage projects effectively and in accordance with management estimates, as well as the ability to accurately estimate the costs associated with our fixed price and other contracts, including any material changes in estimates for completion of projects;
•the effect on demand for our services and changes in the amount of capital expenditures by customers due to, among other things, economic conditions, commodity price fluctuations, the availability and cost of financing, and customer consolidation;
•the ability of customers to terminate or reduce the amount of work, or in some cases, the prices paid for services, on short or no notice;
•customer disputes related to the performance of services;
•disputes with, or failures of, subcontractors to deliver agreed-upon supplies or services in a timely fashion;
•our ability to replace non-recurring projects with new projects;
•the impact of U.S. federal, local, state, foreign or tax legislation and other regulations affecting the renewable energy industry and related projects and expenditures;
•the effect of state and federal regulatory initiatives, including costs of compliance with existing and future safety and environmental requirements;
•fluctuations in equipment, fuel, materials, labor and other costs;
•our beliefs regarding the state of the renewable wind energy market generally; and
•the “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, and in our quarterly reports, other public filings and press releases.
We do not undertake any obligation to update 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.
Throughout this section, unless otherwise noted “IEA,” “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. We segregate our business into two reportable segments: the Renewables segmentspecialize in providing complete engineering, procurement and the Specialty Civil segment.
The Renewables segment operatesconstruction services throughout the United States and specializes in a range of services for the power delivery, solar, wind and battery storage markets that includes design, procurement, construction, restoration, and maintenance. The Company is one of the largest providers in the renewable energy, industrytraditional power and hascivil infrastructure industries. These services include the design, site development, construction, installation and restoration of infrastructure. We have completed more than 200 utility scale240 wind and solar projects in 35 states.
The Specialty Civil segment operates40 states and construct one of every five gigawatts put in to place throughout the United StatesU.S. in any given year. Although the Company has historically focused on the renewable industry, but has recently focused on further expansion into the solar market and specializeswith our recent acquisitions have expanded its construction capabilities and geographic footprint in a rangethe areas of services that include:
•Heavy civil construction services such as road and bridge construction,environmental remediation, industrial maintenance, specialty paving, sports field development, industrial maintenance, outsourced contract miningheavy civil and heavy hauling.
•Environmental remediation services such as site development, environmental site closure, and coal ash management.
•Railrail infrastructure services such as planning, design, procurement, construction, and maintenance of major railway and intermodal facilities.
The Company has createdcreating a diverse national platform of specialty construction capabilities with market leadershipcapabilities. We believe we have the ability to continue to expand these services because we are well-positioned to leverage our expertise and relationships in the niche marketswind energy business to provide complete infrastructure solutions in all areas.
We have two reportable segments: the Renewables (“Renewables”) segment and the Heavy Civil and Industrial (“Specialty Civil”) segment. See Segment Results for a description of power delivery, solar power, wind power, rail, heavy civilthe reportable segments and environmental.their operations.
Coronavirus Pandemic Update
The Coronavirus Disease (“COVID-19”)COVID-19 pandemic continues to significantly impact the United States and the world. Since the start of the COVID-19 pandemic, we have been focused on the safety of our employees and ensuring that our construction sites are managed by taking all reasonable precautions to protect on-site personnel.
We have taken the following actions to address the risks attributable to the COVID-19 pandemic:
•We established a dedicated COVID-19 task force representing all parts of the Company to review and implement actions to prepare for the impacts on our operations, including a variety of protocols in the areas of social distancing, working from home, emergency office and project site closures, and travel restrictions.
•In addition to our existing site crisis management plans, our operations expanded and implemented their pandemic response plans to ensure a consistent, comprehensive response to various COVID-19 scenarios.
•We implemented more stringent office and project site cleaning and hygiene protocols in all locations. We also developed more stringent tool, vehicle and equipment cleaning protocols.
•For employees, we established a regularly updated COVID-19 information hub with FAQs, important communications, regularly updated protocols, business planning tools, best practices, signage/flyers and other important resources.
•We have significantly increased communications, signage and oversight of personal hygiene requirements to drive better prevention practices.
•We postponed social gatherings, large in-person training sessions and other activities involving groups of 10 or more.
•We have prohibited virtually all Company air travel unless approved by executive leadership. We have also required all employees to report their personal travel schedules so we can closely monitor and take any necessary steps to maintain the safety of our workforce.
•We have increased our efforts to reduce SG&A expenses by delaying the Company 401(k) match until later in the year, prohibiting all non-essential travel and canceling any non-essential capital expenditures or consulting work.
•To mitigate the effects of working from home and travel bans, we have significantly increased the use of remote communication technologies.
We are actively monitoring the COVID-19 pandemic, including disease progression, vaccine response and availability, federal, state and local government actions, CDCthe Center for Disease Control (“CDC”) and WHOWorld Health Organization (“WHO”) responses, supplier and supply chain risks, and prevention and containment measures to maintain business operations. As the COVID-19 pandemic and the responses by federal, state and local governments continue to evolve, we continue to make adjustments to our practices and policies to protect the health of our employees and those we work with at our projects and office locations, while continuing to provide our essential construction services to our clients.
We believe that the foregoing actions have significantly reduced the Company’s exposure to the effects of COVID-19, including our workforce’s exposure to infection from COVID-19. As of today, we have had a low incidence of infection in our workforce. As vaccines become increasingly available to our workforce, clients and their families, we are evaluating and redoing protocols as management deems appropriate and based on federal, state and local government recommendations and policies.
TheWe have noticed an impact of COVID-19 on construction businesses such as ours is evolving rapidly and its future effects are uncertain. While we have received notices of force majeure from certain of our suppliers and customers, we don’t believe at this time, that any such notices will cause critical project delays. To date, we have not had any work stoppages or indications that any of our keyin adding new projects will be significantly delayed. However, we cannot predict significant disruptions beyond our control, including quarantines and customer work stoppages, significant force majeure declarations by our suppliers or other equipment providers material to our projects. backlog. Our bidding activity continues at very high levels, but the final approval process for some projects, especially in our Specialty Segment, has been slowed due to COVID-19. Despite that, we were able to maintain a relatively consistent total backlog for June 30, 2021 compared to December 31, 2020.
We are taking actionsunable to preserve our liquiditypredict whether COVID-19 will continue to negatively impact the construction business and the degree of such impact as limiting our hiring and delaying spending on non-critical initiatives. At this point, wemore of the population becomes vaccinated. We do not believe that COVID-19 is having a negative impact on our liquidity. We could see a change in this status if we experience future work stoppages at our projects due to significant supply chain or production disruptions, which would prevent us from billing customers for new work performed. If the federal, state and local governments proceed with more restrictive measures, and our customers determine to stop work or terminate projects, these actions would negatively impact our business, results of operations, liquidity and prospects. In addition, the Company is unable to predict any changes in the market for bonding by our sureties.
Economic and Market Factors
We closely monitorCurrent Quarter Financials
Key financial results for the effects 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 our 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:quarter ended June 30, 2021 include:
•changesConsolidated revenues increased 16.6% to our customers’ capital spending plans;$560.1 million as compared to $480.6 million for the quarter ended June 30, 2020, of which 75.8% was attributable to the Renewables segment and 24.2% was attributable to the Specialty Civil segment;
•mergers and acquisitions amongOperating income decreased $3.6 million, to $22.6 million as compared to income of $26.2 million for the customers we serve;quarter ended June 30, 2020;
•accessNet income increased 30.6%, or $1.1 million, to capitalnet income of $4.7 million as compared to $3.6 million for customers in the industries we serve;
•changes in tax and other incentives;
•new or changing regulatory requirements or other governmental policy uncertainty;
•economic, market or political developments;quarter ended June 30, 2020; and
•changes in technology.Backlog increased 33.5%, or $692.3 million to $2.8 billion as compared to $2.1 billion for the year ended December 31, 2020.
We cannot predict the effect that changes in such factors may have on our future results of operations, liquidityTrends and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.
Industry TrendsFuture Opportunities
Our industry is 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 believeRenewables Segment
The Renewables segment was impacted by the following industry trends will help to drive our growth and success over the coming years:significant operational trends:
•RenewablesRevenue increased 31.0% to $424.9 million for the quarter ended June 30, 2021 as compared to $324.3 million.
• - Revenues increased primarily due to higher demand in our solar market as projects continue to increase due to our consistent, safe and reliable performance with our customers on our wind projects, that has allowed us to capture further solar opportunities in backlog for 2021 and beyond.
•Gross profit increased 16.0% to $42.9 million for the quarter ended June 30, 2021 as compared to $37.0 million.
We have maintained a heavy focus on construction of renewable power production capacity as renewable energy, particularly from wind and solar. On December 16, 2019,solar, has become widely accepted within the federal government implemented an agreement that extended lapsedelectric utility industry and expiring tax breakshas become a cost-effective solution for wind renewable projects. The extension provides a single year extensionthe creation of the production tax credit (“PTC”) at a 60% level and the investment tax credit (“ITC”) at an 18% level to qualifying projects for which the construction commencement date is now prior to January 1, 2021. On May 27, 2020, the federal government extended the safe harbor for completion of projects from four years to five years giving an extra year to complete construction due to delays from COVID-19.new generating capacity. We believe that demandthis shift coupled with the below, will continue to remain strong even after expiration due todrive opportunity in this segment over the following factors:
•Technological advances in turbines sizes and battery storage continue to drive lower costs of electricity generated from wind and solar farms;
•Approximately 40 states, as well as the District of Columbia and four territories, have adopted renewable portfolio standards or goals that incentivize clean energy; andlong-term:
•The Annual Energy Outlook 2020 published by the U.S. Departmentcurrent administration has a goal of Energy (“DOE”)investing $2 trillion in January 2020 projected the addition of approximately 117 gigawatts of new utility-scale windmodern, sustainable, and solar capacity from 2020 to 2023. We estimate that EPC services will account for approximately 30% of the estimated $28.4 billion of construction over that time period.
We believe that a reduction of owner financing related to the current COVID-19 environment could cause delays or cancellations of future projects which could challenge our future revenue streams in the Renewables segment:
Specialty Civil - Our Specialty Civil revenue has been generated through a combination of heavy civil construction, rail construction and environmental remediation. We believe that demand will continue to remain strong based on the following factors:clean energy infrastructure.
•HeavyRenewable 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. The most significant changes have been related to increased turbine sizes and better battery storage methods.
•Over 40 states and the District of Colombia have adopted renewable portfolio standards for clean energy.
•In December 2020, there was a one year extension of the PTC at 60% for projects that begin construction prior to December 31, 2021 and a two year extension of 26% Solar Investment Tax Credit (“ITC”) to 2022 (22% credit extended through 2023).
•On June 29, 2021, the IRS issued a notice which provides that projects that began construction in 2016-2019 have six years, and projects that began construction in 2020 have five years from the date construction began to be placed-in-service to qualify for the PTC or ITC that was in effect when construction began. This new rule effectively extends the amount of time that many projects will be eligible for PTC to 2025.
As a result, wind and solar power are among the leading sources of new power generation capacity in the U.S., and the Company does not anticipate this trend to change in the near future as we are continuing to see growth through new awards in our backlog:
| | | | | | | | | | | | | | |
(in millions) | | | | |
Segment | December 31, 2020 | New Awards in 2021(1) | Revenue Recognized in 2021 | Backlog at June 30, 2021(2) |
Renewables | $ | 1,513.4 | | $ | 952.9 | | $ | 605.2 | | $ | 1,861.1 | |
(1) New awards consist of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.
(2) Backlog may differ from the transaction prices allocated to the remaining performance obligations as disclosed in Note 1. Business, Basis of Presentation and Significant Accounting Policies included in Part I, Item 1 of this Quarterly Report. Such differences relate to the timing of executing a formal contract or receiving a notice to proceed. More specifically, backlog sometimes may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that the project will proceed (e.g., adequate funding is in place).
Specialty Civil Segment
The Specialty Civil segment was impacted by the following significant operational trends:
•Revenue decreased 13.5% to $135.3 million for the quarter ended June 30, 2021 as compared to $156.3 million.
•Gross profit decrease 38.6% to $10.6 million for the quarter ended June 30, 2021 as compared to $17.3 million
•Revenue and gross profit decreases for the three months ended are primarily due to challenges in the following end markets:
◦The heavy civil -construction market has seen increased competition in a few of our end markets, which has led to lower margins on certain heavy civil construction projects reducing overall profitability.
◦The rail market has been negatively impacted by COVID-19 and the reduction of spending budgets of some of our customers, which has led to further delays on portions of our large rail jobs.
◦All of our end markets in this segment have experienced delays in timing related to obtaining governmental approvals and environmental permitting that have affected the start and bidding opportunities of certain projects.
•Despite the delays in project starts mentioned above we continued to see a strong bidding environment in the heavy civil construction and environmental remediation end markets for 2021 and had significant awarded projects related to:
◦The environmental remediation market continues to provide opportunities for growth and the Company has been short listed on some very significant project with anticipated start dates in 2021; and
◦The heavy civil construction market continues to be consistent year over year for awarded projects.
We believe that our business relationships with customers in these sectors are excellent and the strong reputation that our acquired companies have built has provided us with the right foundation to continue to grow our revenue base. The drivers to further growing this segment are as follows:
•The FMI 20202021 Overview Report published in the fourthfirst quarter of 2019 project2021 projects that nonresidential construction put in place for the United States will be over $850 million$500 billion per year from 20202021 to 2023.2024.
•Rail - 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 freightFast Act extension and highway projectstrust fund infusion of national or regional significance.$13.6 billion for the highway and transit account.
•Environmental remediation - According to the American Coal Ash Association, more than 102.3coal combustion residuals “CCRs” or “coal ash” are produced by coal-fired power plants and represent one of the largest categories of industrial waste in the U.S., as 78.6 million tons of coal ash was generatedCCRs were produced in 2018 and 42% of coal ash generated was disposed of.2019. The Company anticipates this could be a $50.0 billion industry over the next ten years.
We believe that a decreaseAdditionally, there is significant overlap in consumption taxes due to COVID-19 could cause decreases in state departments of transportation budgets from lack of revenues thus reducing civil construction projects which could challengelabor, skills and equipment needs between our future revenue streams in the Specialty Civil segment.
Impact of SeasonalityRenewables segment 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, project schedules and timing, in particular, for large non-recurring projects and holidays. Typically, our revenue in our Renewable segment is lowest in the first quarter of the year 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 excessive rainfall, warm winter weather or natural catastrophes such as hurricanes or other severe weather, making it difficult to predict quarterly revenue and margin variations. The Company has started construction on 2020 renewable projects in late 2019 due to the desire of our customers to finish these projects before September 30, 2020. This shift in demand will impact 2020 quarterly revenues, which we currently anticipate will shift revenue from the fourth quarter back into the second and third quarter of 2020.
Our revenue and results of operations for our Specialty Civil segment, are also affected by seasonality butwhich we expect will continue to a lesser extentprovide us with operating efficiencies as we continue to expand this sector. The Company continues to cross leverage these projects are more geographically diversetwo segments and locatedcontinues to see future growth through new awards in less severe weather areas. While the first and second quarter revenues are typically lower than the third and fourth quarter, this diversity has allowed this segment to be less seasonal over the course of the year.our backlog:
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 | | | | | | | | | | | | | | |
(in millions) | | | | |
Segment | December 31, 2020 | New Awards in 2021(1) | Revenue Recognized in 2021 | Backlog at June 30, 2021(2) |
Specialty Civil | $ | 556.1 | | $ | 575.9 | | $ | 231.3 | | $ | 900.7 | |
(1) New awards consist of the results that can be expected for any other period.
Critical Accounting Policies and Estimatesoriginal contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.
This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying 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 our operating results, including the results of construction contracts accounted for under the cost-to-cost method, and the carrying values of assets and liabilities that are not readily apparent from other sources. Given that management estimates, by their nature, involve judgments regarding future uncertainties, actual results(2) Backlog may differ from these estimates if conditions change or if certain key assumptions usedthe transaction prices allocated to the remaining performance obligations as disclosed in making these estimates ultimately prove to be inaccurate. Refer to Note 1. Business, Basis of Presentation and Significant Accounting Policies in the notes to our condensed consolidated financial statements and to our 2019 Form 10-K for discussion of our significant accounting policies.
We believe that our key estimates include: the recognition of revenue and project profit or loss; fair value estimates, including those related to Series B Preferred Stock; 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 condensed consolidated financial position and results of operations, actual results could differ materially from those estimates.
“Emerging Growth Company” Status
As of December 31, 2019, the Company's total annual gross revenues exceed $1.07 billion and we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). See Note 1. Business, Basis of Presentation and Significant Accounting Policies to our consolidated financial statements for more information.
Results of Operations
Three Months Ended June 30,2020 and 2019
The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | |
(in thousands) | | 2020 | | | 2019 | |
| | | | | | |
Revenue | | $ | 480,604 | | 100.0 | % | | $ | 327,961 | | 100.0 | % |
Cost of revenue | | 426,363 | | 88.7 | % | | 296,539 | | 90.4 | % |
Gross profit | | 54,241 | | 11.3 | % | | 31,422 | | 9.6 | % |
Selling, general and administrative expenses | | 28,074 | | 5.8 | % | | 25,878 | | 7.9 | % |
| | | | | | |
Income from operations | | 26,167 | | 5.4 | % | | 5,544 | | 1.7 | % |
Interest expense, net | | (16,200) | | (3.4) | % | | (11,496) | | (3.5) | % |
Other income (expense) | | (1,631) | | (0.3) | % | | 18,272 | | 5.6 | % |
Income from continuing operations before income taxes | | 8,336 | | 1.7 | % | | 12,320 | | 3.8 | % |
Provision for income taxes | | (4,739) | | (1.0) | % | | (6,112) | | (1.9) | % |
| | | | | | |
| | | | | | |
Net income | | $ | 3,597 | | 0.7 | % | | $ | 6,208 | | 1.9 | % |
We review our operating results by reportable segment. See Note 10. Segments in the notes to the condensed consolidated financial statementsincluded in Part 1. Financial Statements. Management’s review of reportable segment results includes analyses of trends in revenue and gross profit. The following table presents revenue and gross profit by reportable segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | |
(in thousands) | 2020 | | | 2019 | | |
Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | |
Renewables | $ | 324,262 | | 67.5 | % | | $ | 179,149 | | 54.6 | % | |
Specialty Civil | 156,342 | | 32.5 | % | | 148,812 | | 45.4 | % | |
| | | | | | |
Total revenue | $ | 480,604 | | 100.0 | % | | $ | 327,961 | | 100.0 | % | |
| | | | | | |
Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | |
Renewables | $ | 36,983 | | 11.4 | % | | $ | 16,150 | | 9.0 | % | |
Specialty Civil | 17,258 | | 11.0 | % | | 15,272 | | 10.3 | % | |
Total gross profit | $ | 54,241 | | 11.3 | % | | $ | 31,422 | | 9.6 | % | |
The following discussion and analysis of our results of operations should be read in conjunction with our condensed consolidated financial statements and the notes relating thereto, included inI, Item 1 of this Quarterly Report on Form 10-Q.
Revenue. Revenue increased 46.5%, or $152.6 million, in the second quarter of 2020, comparedReport. Such differences relate to the same periodtiming of executing a formal contract or receiving a notice to proceed. More specifically, backlog sometimes may include awards for which a contract has not yet been executed or a notice to proceed has not been issued, but for which there are no remaining major uncertainties that the project will proceed (e.g., adequate funding is in 2019.
Renewables Segment. Renewables revenue was $324.3 million for the second quarter of 2020, as compared to $179.1 million for the same period in 2019, an increase of $145.1 million, or 81.0%place). The increase was primarily due to more favorable weather conditions at job sites, the benefit from mobilization of several wind projects at the end of 2019, and an increase in the number and value of projects during the quarter.
Specialty Civil Segment. Specialty Civil revenue was $156.3 million for the second quarter of 2020, as compared to $148.8 million for the same period in 2019, an increase of $7.5 million, or 5.0%. The increase was primarily due to higher revenue generated from heavy civil construction projects.
Gross profit. Gross profit increased 72.6%, or $22.8 million, in the second quarter of 2020, compared to the same period in 2019. As a percentage of revenue, gross profit was 11.3% in the quarter, as compared to 9.6% in the prior-year period.
Renewables Segment. Gross profit was $37.0 million for the second quarter of 2020, as compared to $16.2 million for the same period in 2019. As a percentage of revenue, gross profit was 11.4% in the quarter, as compared to 9.0% in the prior-year period. The increase in gross profit percentage and dollars is related to the increased revenue, coupled with reduced adverse weather conditions in the second quarter of 2020 and a larger number and greater average value of construction projects. In 2019, the reduction of gross profit dollars and margin was negatively impacted by the completion of six construction projects affected by severe weather in 2018. These six projects together produced a gross margin of 0.4% and comprised 3.5% of 2019 second quarter revenue.
Specialty Civil Segment. Gross profit was $17.3 million for the second quarter of 2020, as compared to $15.3 million for the same period in 2019. As a percentage of revenue, gross profit was 11.0% in the quarter, as compared to 10.3% in the prior-year period. The increase in dollars and percentage was related to higher margins generated on the mix of projects under construction in the second quarter 2020 compared to the same period in the prior year.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 8.5%, or $2.2 million, in the second quarter of 2020, compared to the same period in 2019. Selling, general and administrative expenses were 5.8% of revenue in the second quarter of 2020, compared to 7.9% in the same period in 2019. The increase in selling, general and administrative expenses was primarily driven by increased compensation expense related to significantly larger operations in both of the Company's operating segments.
Interest expense, net. Interest expense, net increased by $4.7 million, in the second quarter of 2020, compared to the same period in 2019. This increase was primarily driven by dividends on Series B Preferred Stock, which are recorded as interest expense, offset by the decreased borrowings under our line of credit and term loan in the second quarter of 2020.
Other income (expense). Other income (expense) decreased by $19.9 million, to an expense of $1.6 million in the second quarter of 2020 from an income of $18.3 million for the same period in 2019. This decrease was primarily the result of the impact of reducing a contingent liability by $18.8 million in the second quarter of 2019. See further discussion in Note 8. Earnings Per Share included in Item 1 of this Quarterly Report on Form 10-Q.
Provision for income taxes. Provision for income taxes decreased 22.5%, or $1.4 million, to an expense of $4.7 million in the second quarter of 2020, compared to an expense of $6.1 million for the same period in 2019. The effective tax rates for the period ended June 30, 2020 and 2019were 56.8% and 49.6%, respectively. The higher effective tax rate in the second quarter of 2020 was primarily attributable to accrued dividends for the Series B Preferred Stock which are recorded as interest expense and not deductible for federal and state income taxes. There were no changes in uncertain tax positions during the periods ended June 30, 2020 and 2019.
Six Months Ended June 30,2020 and 2019
The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | | | |
(in thousands) | | 2020 | | | 2019 | |
| | | | | | |
Revenue | | $ | 838,767 | | 100 | % | | $ | 517,742 | | 100.0 | % |
Cost of revenue | | 751,485 | | 89.6 | % | | 480,576 | | 92.8 | % |
Gross profit | | 87,282 | | 10.4 | % | | 37,166 | | 7.2 | % |
Selling, general and administrative expenses | | 57,558 | | 6.9 | % | | 53,632 | | 10.4 | % |
| | | | | | |
Income from operations | | 29,724 | | 3.5 | % | | (16,466) | | (3.2) | % |
Interest expense, net | | (32,265) | | (3.8) | % | | (21,863) | | (4.2) | % |
Other income (expense) | | (2,733) | | (0.3) | % | | 18,102 | | 3.5 | % |
Income from continuing operations before income taxes | | (5,274) | | (0.6) | % | | (20,227) | | (3.9) | % |
Benefit (provision) for income taxes | | (3,872) | | (0.5) | % | | 2,796 | | 0.5 | % |
| | | | | | |
| | | | | | |
Net loss | | $ | (9,146) | | (1.1) | % | | $ | (17,431) | | (3.4) | % |
| | | | | | | | | | | | | | |
(in thousands) | Six months ended June 30, | | | |
| 2020 | | 2019 | |
Segment | Revenue | % of Total Revenue | Revenue | % of Total Revenue |
Renewables | $ | 573,008 | | 68.3 | % | $ | 253,180 | | 48.9 | % |
Specialty Civil | 265,759 | | 31.7 | % | 264,562 | | 51.1 | % |
Total revenue | $ | 838,767 | | 100.0 | % | $ | 517,742 | | 100.0 | % |
| | | | |
| | | | |
Segment | Gross Profit | Gross Profit Margin | Gross Profit | Gross Profit Margin |
Renewables | $ | 62,812 | | 11.0 | % | $ | 17,308 | | 6.8 | % |
Specialty Civil | 24,470 | | 9.2 | % | 19,858 | | 7.5 | % |
Total gross profit | $ | 87,282 | | 10.4 | % | $ | 37,166 | | 7.2 | % |
Revenue. Revenue increased 62.0%, or $321.0 million, in the first six months of 2020, compared to the same period in 2019.
Renewables Segment. Renewables revenue was $573.0 million for the first six months of 2020, as compared to $253.2 million for the same period in 2019, an increase of $319.8 million, or 126.3%. The increase was primarily due to more favorable weather conditions at job sites, the benefit from mobilization of several wind projects at the end of 2019, and an increase in the number and value of projects during the quarter.
Specialty Civil Segment. Specialty Civil revenue was $265.8 million for the first six months of 2020, as compared to $264.6 million for the same period in 2019, an increase of $1.2 million, or 0.5%. The increase was primarily due to higher revenue generated from heavy civil construction projects.
Gross profit. Gross profit increased 134.8%, or $50.1 million, in the first six months of 2020, compared to the same period in 2019. As a percentage of revenue, gross profit was 10.4% in the quarter, as compared to 7.2% in the prior-year period. The 2020 gross profit included the impact of recognizing increased potential future costs from the COVID-19 pandemic, which
reduced gross margin by $7.5 million or 0.9% of revenue. If we do not incur the costs, we will increase margins as the projects are completed.
Renewables Segment. Gross profit was $62.8 million for the first six months of 2020, as compared to $17.3 million for the same period in 2019. As a percentage of revenue, gross profit was 11.0% in the quarter, as compared to 6.8% in the prior-year period. The increase in gross profit percentage and dollars is related to the increased revenue, coupled with reduced adverse weather conditions in the second quarter of 2020 and a larger number and greater average value of construction projects. In 2019, the reduction of gross profit dollars and margin was negatively impacted by the completion of six construction projects affected by severe weather in 2018. These six projects together produced as gross margin of 0.8% and comprised 10.6% of revenue for the first six months in 2019.
Specialty Civil Segment. Gross profit was $24.5 million for the first six months of 2020, as compared to $19.9 million for the same period in 2019. As a percentage of revenue, gross profit was 9.2% in the quarter, as compared to 7.5% in the prior-year period. The increase in dollars and percentage was related to higher margins generated on the mix of projects under construction in 2020 compared to the same period in the prior year.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 7.3%, or $3.9 million, in the first six months of 2020, compared to the same period in 2019. Selling, general and administrative expenses were 6.9% of revenue in the first six months of 2020, compared to 10.4% in the same period in 2019. The increase in selling, general and administrative expenses was primarily driven by increased compensation expense related to significantly larger operations in both of the Company's operating segments.
Interest expense, net. Interest expense, net increased by $10.4 million, in the first six months of 2020, compared to the same period in 2019. This increase was primarily driven by dividends on Series B Preferred Stock, which are recorded as interest expense, offset by the decreased borrowings under our line of credit and term loan in the first six months of 2020.
Other income (expense). Other income (expense) decreased by $20.8 million, to an expense of $2.7 million in the first six months of 2020, compared to income of $18.1 million for the same period in 2019. This decrease was primarily the result of the impact of reducing a contingent liability by $18.8 million in the second quarter of 2019. See further discussion in Note 8. Earnings Per Share included in Item 1 of this Quarterly Report on Form 10-Q.
Benefit (provision) for income taxes. Benefit (provision) for income taxes increased 238.5%, or $6.7 million, to an expense of $3.9 million in the first six months of 2020, compared to a benefit of $2.8 million for the same period in 2019. The effective tax rates for the period ended June 30, 2020 and 2019were (73.4)% and 13.8%, respectively. The lower effective tax rate in the first six months of 2020 was primarily attributable to accrued dividends for the Series B Preferred Stock which are recorded as interest expense and not deductible for federal and state income taxes. The six months ended June 30, 2020 have the full impact of all the Series B Preferred Stock that was issued in 2019 whereas the six months ended June 30, 2019 only have a relatively small amount of non-deductible Series B Preferred Stock expenses. There were no changes in uncertain tax positions during the periods ended June 30, 2020 and 2019.
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 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. Cost-reimbursable contracts are included in backlog based on the estimated total contract price upon completion.
As of June 30, 2020 and December 31, 2019, our total backlog was approximately $1.8 billion and $2.2 billion, respectively, compared to $2.6 billion as of June 30, 2019. The decrease was primarily related to the Company's traditional seasonality. The Company expects to recognize revenue related to its backlog of 51.8% for the remainder of 2020, 38.3% in 2021, and 9.9% in 2022 and beyond.
The following table summarizes our backlog by segment as of June 30, 20202021 and December 31, 2019:2020:
| | | | | | | | |
(in millions) | | |
Segments | June 30, 2020 | December 31, 2019 |
Renewables | $ | 1,177.6 | | $ | 1,582.5 | |
Specialty Civil | 579.8 | | 588.7 | |
| | |
Total | $ | 1,757.4 | | $ | 2,171.2 | |
| | | | | | | | |
(in millions) | | |
Segments | June 30, 2021 | December 31, 2020 |
Renewables | $ | 1,861.1 | | $ | 1,513.4 | |
Specialty Civil | 900.7 | | 556.1 | |
| | |
Total | $ | 2,761.8 | | $ | 2,069.5 | |
The Company expects to recognize 65.6% of revenue related to its backlog in the next twelve months.
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’’ in our Annual Report on Form 10-K filed with the SEC on March 12, 20208, 2021 for a discussion of the risks associated with our backlog.
Significant Factors Impacting Results
Our revenues, margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Results of Operations and Forward Looking Statements, and those factors have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future. Additional information with respect to certain of those factors is provided below.
Seasonality. Typically, our revenues are lowest in the first quarter of the year because cold, snowy or wet conditions can create challenging working environments that are more costly for our customers or cause delays on projects. In addition, infrastructure projects often do not begin in a meaningful way until our customers finalize their capital budgets, which typically occurs during the first quarter. Second quarter revenues are typically higher than those in the first quarter, as some projects begin, but continued cold and wet weather can often impact productivity. Third quarter revenues are typically the highest of the year, as a greater number of projects are underway and operating conditions, including weather, are normally more accommodating. Generally, revenues during the fourth quarter are lower than the third quarter but higher than the second quarter, as many projects are completed and customers often seek to spend their capital budgets before year end. However, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenues and increasing costs.
Our revenue and results of operations for our Specialty Civil segment are also affected by seasonality but to a lesser extent as these projects are more geographically diverse and less impacted by severe weather. While the first and second quarter revenues are typically lower than the third and fourth quarter, we believe this geographical diversity has allowed this segment to be less seasonal over the course of the year.
Weather and Natural Disasters. The results of our business in a given period can be impacted by adverse weather conditions, severe weather events or natural disasters, which include, among other things, heavy or prolonged snowfall or rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme temperatures, wildfires, pandemics and earthquakes. These conditions and events can negatively impact our financial results due to the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities.
Cyclical demand. 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.
Revenue mix. The mix of revenues based on the types of services we provide in a given period will impact margins, as certain industries and services provide higher-margin opportunities. Revenue derived from projects billed on a fixed-price basis totaled 99.3% for the three months ended June 30, 2021. 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 0.7% of consolidated revenue for the three months ended June 30, 2021.
Size, scope and complexity of projects. Larger or more complex projects with design or construction complexities; more difficult terrain requirements; or longer distance requirements typically yield opportunities for higher margins as we
assume a greater degree of performance risk and there is greater utilization of our resources for longer construction timeframes. Furthermore, smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may more aggressively pursue available work. A greater percentage of smaller scale or less complex work also could negatively impact margins due to the inefficiency of transitioning between a larger number of smaller projects versus continuous production on fewer larger projects. Also, at times we may choose to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on larger projects when they move forward.
Project variability and performance. Margins for a single project may fluctuate period to period due to changes in the volume or type of work performed, the pricing structure under the project contract or job productivity. Additionally, our productivity and performance on a project can vary from period to period based on a number of factors, including unexpected project difficulties or site conditions; project location, including locations with challenging operating conditions; whether the work is on an open or encumbered right of way; inclement weather or severe weather events; environmental restrictions or regulatory delays; protests, other political activity or legal challenges related to a project; and the performance of third parties.
Subcontract work and provision of materials. Work that is subcontracted to other service providers generally yields lower margins, and therefore an increase in subcontract work in a given period can decrease margins. Our customers are usually responsible for supplying the materials for their projects; however, under some contracts we agree to procure all or part of the required materials. Margins may be lower on projects where we furnish a significant amount of materials, including projects where we provide engineering, procurement and construction ("EPC") services, as our markup on materials is generally lower than our markup on labor costs. Furthermore, fluctuations in the price of materials we procure, including as a result of changes in U.S. or global trade relationships or other economic or political conditions, may impact our margins. In a given period, an increase in the percentage of work with higher materials procurement requirements may decrease our overall margins.
Results of Operations
Three Months Ended June 30,2021 and 2020
The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
(in thousands) | | 2021 | | 2020 |
| | | | | | |
Revenue | | $ | 560,148 | | 100.0 | % | | $ | 480,604 | | 100.0 | % |
Cost of revenue | | 506,665 | | 90.5 | % | | 426,363 | | 88.7 | % |
Gross profit | | 53,483 | | 9.5 | % | | 54,241 | | 11.3 | % |
Selling, general and administrative expenses | | 30,894 | | 5.5 | % | | 28,074 | | 5.8 | % |
| | | | | | |
Income from operations | | 22,589 | | 4.0 | % | | 26,167 | | 5.4 | % |
Interest expense, net | | (14,495) | | (2.6) | % | | (16,200) | | (3.4) | % |
| | | | | | |
Other income (expense) | | 770 | | 0.1 | % | | (1,631) | | (0.3) | % |
Income from continuing operations before income taxes | | 8,864 | | 1.6 | % | | 8,336 | | 1.7 | % |
Provision for income taxes | | (4,165) | | (0.7) | % | | (4,739) | | (1.0) | % |
| | | | | | |
| | | | | | |
Net income | | $ | 4,699 | | 0.8 | % | | $ | 3,597 | | 0.7 | % |
For a detailed discussion of Revenue and Gross profit see Segment Results, below.
Revenue. Revenue increased 16.6%, or $79.5 million, in the second quarter of 2021, compared to the same period in 2020.
Gross profit. Gross profit decreased 1.4%, or $0.8 million, in the second quarter of 2021, compared to the same period in 2020. As a percentage of revenue, gross profit was 9.5% in the quarter, as compared to 11.3% in the prior-year period.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 10.0%, or $2.8 million, in the second quarter of 2021, compared to the same period in 2020. Selling, general and administrative expenses were
5.5% of revenue in the second quarter of 2021, compared to 5.8% in the same period in 2020. The increase in selling, general and administrative expenses was primarily driven by:
•Staff related benefit costs of $1.4 million;
•Information technology costs of $0.6 related to software licensing; and
•Business travel costs of $0.7 million.
Interest expense, net. Interest expense, net decreased by $1.7 million, in the second quarter of 2021, compared to the same period in 2020. This decrease was primarily driven by lower effective interest rates on our term loan, partially offset by an increase in the dividend rate of 13.5% on the Company's preferred Series B stock dividend. The increase in rate was due to the Company's net lien leverage ratio being above 1.5:1.0.
Other income (expense). Other income (expense) increased by $2.4 million, to income of $0.8 million in the second quarter of 2021 compared to an expense of $1.6 million for the same period in 2020. This increase was primarily the result of the impact of a decrease in the warrant liability in the second quarter of 2021. See further discussion in Note 5. Fair Value of Financial Instruments included in Item 1 of this Quarterly Report on Form 10-Q.
Provision for income taxes. Provision for income taxes decreased $0.6 million, to $4.2 million in the second quarter of 2021, compared to $4.7 million for the same period in 2020. The effective tax rates for the period ended June 30, 2021 and 2020were 47.0% and 56.8%, respectively. The lower effective tax rate in the second quarter of 2021 was primarily attributable to lower permanent differences related to executive compensation, which are not deductible for federal and state income taxes. There were no changes in uncertain tax positions during the periods ended June 30, 2021 and 2020.
Segment Results
The Company operated our business as two reportable segments: the Renewables segment and the Specialty Civil segment. Each of our reportable segments is comprised of similar business units that specialize in services unique to the respective markets that each segment serves. The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made based on segment revenue.
The following table sets forth segment revenues and gross profit for the years indicated, as well as the dollar and percentage change from the prior year:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | |
(in thousands) | 2021 | | 2020 | |
Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | |
Renewables | $ | 424,854 | | 75.8 | % | | $ | 324,262 | | 67.5 | % | |
Specialty Civil | 135,294 | | 24.2 | % | | 156,342 | | 32.5 | % | |
| | | | | | |
Total revenue | $ | 560,148 | | 100.0 | % | | $ | 480,604 | | 100.0 | % | |
| | | | | | |
Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | |
Renewables | $ | 42,883 | | 10.1 | % | | $ | 36,983 | | 11.4 | % | |
Specialty Civil | 10,600 | | 7.8 | % | | 17,258 | | 11.0 | % | |
Total gross profit | $ | 53,483 | | 9.5 | % | | $ | 54,241 | | 11.3 | % | |
Renewables Segment Results
Revenue. Renewables revenue was $424.9 million for the quarter ended June 30, 2021 as compared to $324.3 million for the same period in 2020, an increase of 31.0%, or $100.6 million. The increase in revenue was primarily due to:
•The Company had 13 wind projects of greater than $5.0 million of revenue in the second quarter of 2021 compared to 15 wind projects during the same period in 2020,
•The average revenue of the 13 wind projects was $21.8 million in 2021 compared to $20.3 million related to the 15 wind projects during the same period in 2020, and
•Solar revenue increased $100.7 million for the quarter ended June 30, 2021 when compared to the same period for 2020.
Gross profit. Renewablesgross profit was $42.9 million for the quarter ended June 30, 2021 as compared to $37.0 million for 2020, an increase of 16.0%, or $5.9 million. As a percentage of revenue, gross profit was 10.1% in 2021, as compared to 11.4% in 2020. The decrease in percentage was primarily related to adding more craft labor and rented and leased equipment in anticipation of higher work volumes and greater operating intensity in the second half of the year.
Specialty Civil Segment Results
Revenue. Specialty Civil revenue was $135.3 million for the quarter ended June 30, 2021 as compared to $156.3 million for 2020, a decrease of 13.5%, or $21.0 million. The decrease in revenue was primarily due to:
•Heavy civil market had less construction projects and a lower average value of projects in the second quarter of 2021 compared to 2020, and
•Offsetting the decrease in revenue was a slight increase in our environmental remediation market due to more projects in the second quarter of 2021.
Gross profit. Specialty Civil gross profit was $10.6 million for the quarter ended June 30, 2021 as compared to $17.3 million for 2020, a decrease of 38.6%, or $6.7 million. As a percentage of revenue, gross profit was 7.8% in 2021, as compared to 11.0% in 2020. In the second quarter of 2021, the Company had less projects under construction which contributed to lower utilization of labor and equipment fixed costs.
Results of Operations
Six Months Ended June 30,2021 and 2020
The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
(in thousands) | | 2021 | | 2020 |
| | | | | | |
Revenue | | $ | 836,560 | | 100.0 | % | | $ | 838,767 | | 100.0 | % |
Cost of revenue | | 766,536 | | 91.6 | % | | 751,485 | | 89.6 | % |
Gross profit | | 70,024 | | 8.4 | % | | 87,282 | | 10.4 | % |
Selling, general and administrative expenses | | 55,740 | | 6.7 | % | | 57,558 | | 6.9 | % |
| | | | | | |
Income from operations | | 14,284 | | 1.7 | % | | 29,724 | | 3.5 | % |
Interest expense, net | | (28,854) | | (3.4) | % | | (32,265) | | (3.8) | % |
| | | | | | |
Other income (expense) | | 608 | | 0.1 | % | | (2,733) | | (0.3) | % |
Loss from continuing operations before income taxes | | (13,962) | | (1.7) | % | | (5,274) | | (0.6) | % |
Provision for income taxes | | (1,773) | | (0.2) | % | | (3,872) | | (0.5) | % |
| | | | | | |
| | | | | | |
Net loss | | $ | (15,735) | | (1.9) | % | | $ | (9,146) | | (1.1) | % |
For a detailed discussion of Revenue and Gross profit see Segment Results, below.
Revenue. Revenue decreased 0.3%, or $2.2 million, in the first six months of 2021, compared to the same period in 2020.
Gross profit. Gross profit decreased 19.8%, or $17.3 million, in the first six months of 2021, compared to the same period in 2020. As a percentage of revenue, gross profit was 8.4% in the quarter, as compared to 10.4% in the prior-year period.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased 3.2%, or $1.8 million, in the first six months of 2021, compared to the same period in 2020. Selling, general and administrative expenses were 6.7% of revenue in the first six months of 2021, compared to 6.9% in the same period in 2020. The decrease in selling, general and administrative expenses was primarily driven by:
•Reduction in staff related benefit costs by $2.9 million.
The reduction above was partially offset by expense increase for:
•Information technology costs of $1.2 million related to software licensing.
Interest expense, net. Interest expense, net decreased by $3.4 million, in the first six months of 2021, compared to the same period in 2020. This decrease was primarily driven by lower effective interest rates on our term loan.
Other income (expense). Other income (expense) increased by $3.3 million, to income of $0.6 million in the first six months of 2021 compared to an expense of $2.7 million for the same period in 2020. This increase was primarily the result of the impact of a decrease in the warrant liability in the first six months of 2021. See further discussion in Note 5. Fair Value of Financial Instruments included in Item 1 of this Quarterly Report on Form 10-Q.
Provision for income taxes. Provision for income taxes decreased $2.1 million, to $1.8 million in the first six months of 2021, compared to $3.9 million for the same period in 2020. The effective tax rates for the first six months of 2021 and 2020were (12.7)% and (73.4)%, respectively. The lower effective tax rate in the first six months of 2021 was primarily attributable to lower permanent differences related to executive compensation, which are not deductible for federal and state income taxes. There were no changes in uncertain tax positions during the periods ended June 30, 2021 and 2020.
Segment Results
The following table sets forth segment revenues and gross profit for the years indicated, as well as the dollar and percentage change from the prior year:
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
(in thousands) | 2021 | | 2020 | |
Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | |
Renewables | $ | 605,228 | | 72.3 | % | | $ | 573,008 | | 68.3 | % | |
Specialty Civil | 231,332 | | 27.7 | % | | 265,759 | | 31.7 | % | |
| | | | | | |
Total revenue | $ | 836,560 | | 100.0 | % | | $ | 838,767 | | 100.0 | % | |
| | | | | | |
Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | |
Renewables | $ | 55,063 | | 9.1 | % | | $ | 62,812 | | 11.0 | % | |
Specialty Civil | 14,961 | | 6.5 | % | | 24,470 | | 9.2 | % | |
Total gross profit | $ | 70,024 | | 8.4 | % | | $ | 87,282 | | 10.4 | % | |
Renewables Segment Results
Revenue. Renewables revenue was $605.2 million for the first six months of 2021 as compared to $573.0 million for the same period in 2020, an increase of 5.6%, or $32.2 million. The increase in revenue was primarily due to:
•Solar revenue increased $134.0 million for the first six months of 2021 when compared to the same period for 2020.
The increase was partially offset by $101.8 million decrease in the wind market:
•The Company had 16 wind projects of greater than $5.0 million of revenue in the first six months of 2021 compared to 17 wind projects during the same period in 2020.
•The average revenue of the 16 wind projects in 2021, was $25.4 million with an average percentage of completion of 61%.
•The average revenue of the 17 wind projects in 2020 was $31.8 million with an average percentage of completion of 75% in 2020.
•The reduction in revenue for the year on wind projects was related to earlier project starts in 2020 compared to 2021.
Gross profit. Renewablesgross profit was $55.1 million for the first six months of 2021 as compared to $62.8 million for 2020, a decrease of 12.3%, or $7.7 million. As a percentage of revenue, gross profit was 9.1% in 2021, as compared to 11.0% in 2020. The decrease in percentage was primarily related to adding more craft labor and rented and leased equipment in anticipation of higher work volumes and greater operating intensity in the second half of the year.
Specialty Civil Segment Results
Revenue. Specialty Civil revenue was $231.3 million for the first six months of 2021 as compared to $265.8 million for 2020, a decrease of 13.0%, or $34.4 million. The decrease in revenue was primarily due to:
•Rail markets continue to experience a decrease in revenue primarily due to delay in project starts for railroads and lower budgets decreasing bidding opportunities,
•Heavy civil market had less construction projects and a lower average value of projects in the first six months of 2021 compared to 2020, and
•Offsetting the decrease in revenue was a slight increase in our environmental remediation market due to more projects in the first six months of 2021 compared to 2020.
Gross profit. Specialty Civil gross profit was $15.0 million for the first six months of 2021 as compared to $24.5 million for 2020, a decrease of 38.9%, or $9.5 million. As a percentage of revenue, gross profit was 6.5% in 2021, as compared to 9.2% in 2020. In the first six months of 2021, the Company had less projects under construction in the heavy civil and rail markets which contributed to lower utilization of labor and equipment fixed costs.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash flows from operations, our cash balances and availability under our Third A&R Credit Agreement. Our primary liquidity needs are for working capital, debt service, dividends on our Series A Preferred Stock and Series B Preferred Stock, income taxes, capital expenditures, insurance collateral, and strategic acquisitions. As of June 30, 2020,2021, we had approximately $59.4$117.7 million in cash, and $26.5$53.3 million availability under our Third A&R Credit Agreement.
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. No assurance can be given, however, that these sources will be sufficient, because there are many factors which could affect our liquidity, including some which are beyond our control. Please see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K filed with the SEC on March 12, 20208, 2021 for a discussion of the risks associated with our liquidity. Please also see ‘‘Item 1A. Risk Factors’’ of this Quarterly Report on Form 10-Q.
Capital Expenditures
For the six months ended June 30, 2020,2021, we incurred $12.5$15.5 million in finance lease payments and an additional $5.2$14.6 million cash purchases for equipment. We estimate that we will spend approximately two percent of revenue for capital expenditures for 2020 and 2021. 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, workingWorking 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 our Renewable projects. Timing of billing milestones and project close-outs can contribute to changes in unbilled revenue. As of June 30, 2020,2021, substantially all of our costs in excess of billings and earnings will be billed to customers in the normal course of business within the next twelve months. Net accounts receivable balances, which consist of contract billings as well as costs and earnings in excess of billings and retainage, increased to $432.8$409.3 million as of June 30, 20202021 from $382.9$309.0 million as of December 31, 2019,2020, 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 may 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:
| | | Six Months Ended June 30, | | | Six Months Ended June 30, |
(in thousands) | (in thousands) | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
| Net cash used in operating activities | Net cash used in operating activities | | (64,630) | | | (60,831) | | Net cash used in operating activities | | (11,378) | | | (64,630) | |
Net cash provided by (used in) investing activities | | (1,522) | | | 2,101 | | |
Net cash provided by (used in) financing activities | | (21,715) | | | 7,730 | | |
Net cash used in investing activities | | Net cash used in investing activities | | (13,632) | | | (1,522) | |
Net cash used in financing activities | | Net cash used in financing activities | | (21,357) | | | (21,715) | |
Operating Activities. Net cash used in operating activities for the six months ended June 30, 20202021 was $64.6$11.4 million, as compared to net cash used by operating activities of $60.8$64.6 million over the same period in 2019.2020. The increasedecrease in net cash used by operating activities reflects the timing of receipts from customers and payments to vendors in the ordinary course of business. The change was primarily attributable to $19.2 million related to reducedlower payments on payables and accrued liabilities coupled with lower collections of accounts receivable and increased contract assets offset bydue to the decrease in net loss.timing of projects.
Investing Activities. Net cash used byin investing activities for the six months ended June 30, 20202021 was $1.5$13.6 million, as compared to net cash provided by investing activities of $2.1$1.5 million over the same period in 2019.2020. The decreaseincrease in net cash providedused by investing activities was primarily attributable to a reduction of proceeds from the salean increase in purchases of property, plant and equipment.
Financing Activities. Net cash used in financing activities for the six months ended June 30, 20202021 was $21.7$21.4 million, as compared to net cash provided of $7.7$21.7 million over the same period in 2019. The reduction of cash provided by financing activities of $29.4 million was primarily attributable to a sales leaseback transaction of $24.3 million and merger recapitalization costs received in 2019.2020.
Series A Preferred Stock
As of June 30, 2020,2021, we had 17,483 shares of Series A Preferred Stock issued and outstanding. Each share of Series A Preferred Stock had an initial stated value of $1,000 per share (or approximately $17.5 million in the aggregate). Dividends are paid on the Series A Preferred Stock as, if and when declared by our Board. To extent permitted and only as, if and when declared by our Board, dividends are required to be paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31 on the stated value at a rate of 10% per annum.
If not paid in cash, dividends will accrue on the stated value and will increase the stated value on and effective as of the applicable dividend date without any further action by the Board at 12% per annum. As of June 30, 2020,2021, the Company had increased the initial stated value by $3.1$5.7 million in the aggregate rather than pay cash dividends.
So long as any shares of Series B Preferred Stock of the Company are currently outstanding or from and after the occurrence of any non-payment event or default event and until cured or waived, the foregoing rates will increase by 2% per annum. The Company is currently restricted from paying cash dividends on Series A Preferred Stock because it has outstanding dividends that are accrued on the Series B preferred stock.
The Series A Preferred Stock dodoes not have a scheduled redemption date or maturity date. Subject to the terms of the Series B Preferred Stock, we may, at any time and from time to time, redeem all or any portion of the shares of Series A
Preferred Stock then outstanding. As a condition to the consummation of any change of control (as described in the certificate governing the Series A Preferred Stock), we are required to redeem all shares of Series A Preferred Stock then outstanding. We are also required to use the net cash proceeds from certain transactions to redeem the maximum number of shares of Series A Preferred Stock that can be redeemed with such net cash proceeds, except as prohibited by the Third A&R Credit Agreement.
Based on the stated value of the Series A Preferred Stock as of June 30, 20202021 after giving effect to the accrual of dividends, we would be required to pay quarterly cash dividends in the aggregate of $0.6 million on the Series A Preferred Stock. If our business does not generate enough cash to pay future cash dividends,unpaid, the dividends will accrue at a rate of 12% per annum and increase the stated value of the Series A Preferred Stock, which will make cash dividends on the Series A Preferred Stock more difficult for us to make in the future.Stock. We do not presently expect to pay cash dividends, although an actual decision regarding payment of cash dividends on the Series A Preferred Stock will be made at the time of the applicable dividend payment based upon availability of capital resources, business conditions, other cash requirements, and other relevant factors.dividends.
Series B Preferred Stock
As of June 30, 2020,2021, we had 199,474 shares of Series B Preferred Stock issued and outstanding. Each share of Series B Preferred Stock had an initial stated value of $1,000 per share (or approximately $199.5 milliionmillion in the aggregate). Our common stock and Series A Preferred Stock are junior to the Series B Preferred Stock. Dividends are paid in cash on the Series B Preferred Stock as, if and when declared by our Board. To the extent not prohibited by applicable law, and only as, if and when declared by our Board, dividends are required to be declared and paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31. AnyFor any dividend period for whichthat the Total Net Leverage Ratio is greater than 1.50:1.00, the dividend rate is 13.5% per annumannum; and (ii) with respect to any dividend period for which the Total Net Leverage Ratio is less than or equal to 1.50:1.00,otherwise at a rate of 12%12.0% per annum.
If not paid in cash, dividends will accrue on the stated value and will increase the stated value on Series B Preferred Stock effective as of the applicable dividend date without any further action by the Board at a rate of 15%. As of June 30, 20202021, the Companyunpaid dividends had increased the initial stated value by $18.3 million in the aggregate rather then pay cash dividends.aggregate.
Until the Series B Preferred Stock is redeemed, neither we nor any of our subsidiaries can declare, pay or set aside any dividends on shares of any other class or series of capital stock, except in limited circumstances. We are required to redeem all shares of Series B Preferred Stock outstanding on February 15, 2025 at the then stated value plus all accumulated and unpaid dividends thereon through the day prior to such redemption. Subject to compliance with the terms of any credit agreement, we are also required to redeem all of the Series B Preferred Stock as a condition to the consummation of certain changes in control (as defined in certificate governing the Series B Preferred Stock), as well as use the net cash proceeds from certain transactions to redeem shares of Series B Preferred Stock.
Based on the stated value of the Series B Preferred Stock as of June 30, 20202021 after giving effect to the accrual of dividends, we would be required to pay quarterly cash dividends in the aggregate of $6.6 million on the Series B Preferred Stock. If our business does not generate enough cash to pay future cash dividends,paid the dividends will accrue at a rate of 15% per annum and increase the stated value of the Series A Preferred Stock, which will make cash dividends on the Series B Preferred Stock more difficult for us to make in the future.Stock. Actual decisions regarding payment of cash dividends on the Series B Preferred Stock will be made at the time of the applicable dividend payment based upon availability of capital resources, business conditions, other cash requirements, and other relevant factors.
Deferred Taxes - COVID-19
The Coronavirus Aid, Relief, and Economic SecurityCARES Act (the “CARES Act”) was enacted on March 27, 2020, in response to the COVID-19 emergency. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income-based tax laws. Some of the key income tax-related provisions of the CARES Act include:
•Eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize net operating losses (“NOLs”) to offset taxable income in 2018, 2019 or 20202020.
•Allowing NOLs originating in 2018, 2019 or 2020 to be carried back five yearsyears.
•Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning 1 January 2019 and 20202020.
•Allowing taxpayers with alternative minimum tax (“AMT”) credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the TCJATax Cuts and Jobs Act (“TCJA”).
•Payroll tax deferraldeferral.
The new NOL carryforward and interest expense deduction rules are favorable for IEA and will help defer future cash tax liabilities. IEA has filed an election to refund $0.5 million AMT credit in April 2020 that was received in the second quarter.
IEA has also made use of the payroll deferral provision to defer the 6.2% social security tax, which isor approximately $9.0$13.6 million, through December 31, 2020. This amount is required to be paid at 50% on December 31, 2021 and December 31, 2022.
Amendment to Third A&R Credit Agreement
On October 30, 2020, the Company entered into a First Amendment to its Third A&R Credit Agreement (the “Amendment”). The Amendment provides for, among other things, an increase in the revolving credit commitments previously available by $25.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Third A&R Credit Agreement to $75.0 million, upon the terms and subject to the satisfaction of the conditions set forth in the Third A&R Credit Agreement, as amended by the Amendment.
In addition, the Amendment provides that on and after the Amendment’s effective date and until delivery of the financial statements for the fiscal quarter ended December 31, 2020, as required under the Amendment, the percentage per annum interest rate for revolving loans and swing line loans is, at the Company’s option, (x) LIBOR plus a margin of 2.75% or (y) the applicable base rate plus a margin of 1.75%. Thereafter, for any day, the applicable percentage per annum interest rate for revolving loans and swing line loans is LIBOR or the base rate plus a margin depending upon the Company’s first lien net leverage ratio as of the last day of the most recently ended consecutive four fiscal quarter period, as set forth below:
| | | | | | | | |
First Lien Net Leverage Ratio | LIBOR Loans | Base Rate Loans |
Less than 1.00:1.00 | 2.50% | 1.50% |
Less than 2.00:1.00 but greater than or equal to 1.00:1.00 | 2.75% | 1.75% |
Less than 3.00:1.00 but greater than or equal to 2.00:1.00 | 3.00% | 2.00% |
Less than 3.50:1.00 but greater than or equal to 3.00:1.00 | 3.25% | 2.25% |
Greater than or equal to 3.50:1.00 | 3.50% | 2.50% |
The Amendment also further specifies the unused commitment fee rate. On and after the Amendment’s effective date and until delivery of the financial statements for the fiscal quarter ended December 31, 2020, as required under the Amendment, the rate is 0.40% per annum. Thereafter, for any day, the applicable percentage per annum depends upon the Company’s senior secured net leverage ratio, as set forth below:
| | | | | |
Senior Secured Net Leverage Ratio | Applicable Unused Commitment Fee Rate |
Less than 1.00:1.00 | 0.35% |
Less than 2.00:1.00 but greater than or equal to 1.00:1.0 | 0.40% |
Less than 3.00:1.00 but greater than or equal to 2.00:1.00 | 0.45% |
Greater than or equal to 3.00:1.00 | 0.50% |
Contractual Obligations
The following table sets forth our contractual obligations and commitments for the periods indicated as of June 30, 2020.2021.
| | | Payments due by period | | | | Payments due by period | |
(in thousands) | (in thousands) | | Total | | Remainder of 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | (in thousands) | | Total | | Remainder of 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter |
| Debt (principal) (1) | Debt (principal) (1) | | 177,550 | | | 1,621 | | | 1,228 | | | 15,859 | | | 29,735 | | | 129,107 | | | — | | Debt (principal) (1) | | 177,613 | | | 1,214 | | | 16,916 | | | 29,986 | | | 129,368 | | | 129 | | | — | |
Debt (interest) (2) | Debt (interest) (2) | | 55,107 | | | 7,200 | | | 14,306 | | | 14,095 | | | 12,097 | | | 7,409 | | | — | | Debt (interest) (2) | | 34,603 | | | 6,161 | | | 11,924 | | | 10,203 | | | 6,312 | | | 3 | | | — | |
Debt - Series B Preferred Stock (3) | Debt - Series B Preferred Stock (3) | | 199,474 | | | — | | | — | | | — | | | — | | | — | | | 199,474 | | Debt - Series B Preferred Stock (3) | | 199,474 | | | — | | | — | | | — | | | — | | | 199,474 | | | — | |
Dividends - Series B Preferred Stock (4) | Dividends - Series B Preferred Stock (4) | | 137,154 | | | 13,201 | | | 26,401 | | | 26,401 | | | 26,401 | | | 26,401 | | | 18,349 | | Dividends - Series B Preferred Stock (4) | | 112,797 | | | 13,057 | | | 26,113 | | | 26,113 | | | 26,113 | | | 21,401 | | | — | |
Finance leases (5) | Finance leases (5) | | 63,404 | | | 13,437 | | | 23,355 | | | 19,304 | | | 5,204 | | | 1,617 | | | 487 | | Finance leases (5) | | 55,319 | | | 13,547 | | | 23,379 | | | 8,984 | | | 5,043 | | | 3,555 | | | 811 | |
Operating leases (6) | Operating leases (6) | | 59,009 | | | 6,769 | | | 11,902 | | | 9,480 | | | 6,754 | | | 3,454 | | | 20,650 | | Operating leases (6) | | 52,155 | | | 6,229 | | | 11,238 | | | 8,776 | | | 4,740 | | | 2,236 | | | 18,936 | |
Total | Total | | $ | 691,698 | | | $ | 42,228 | | | $ | 77,192 | | | $ | 85,139 | | | $ | 80,191 | | | $ | 167,988 | | | $ | 238,960 | | Total | | $ | 631,961 | | | $ | 40,208 | | | $ | 89,570 | | | $ | 84,062 | | | $ | 171,576 | | | $ | 226,798 | | | $ | 19,747 | |
(1)Represents the contractual principal payment due dates on our outstanding debt.
(2)Includes variable rate interest using June 30, 20202021 rates.
(3)Represents the convertiblemandatorily redeemable debt - Series B Preferred with expected redemption date of February 15, 2025.
(4)Future declared dividends have been included at 12% but payment determination will be evaluated each quarter resulting in differing accumulated dividend rates.
(5)We have obligations, exclusiveinclusive of associated interest, recognized under various finance leases for equipment totaling $63.4$55.3 million at June 30, 2020.2021. Net amounts recognized within property, plant and equipment, net in the condensed consolidated balance sheet under these financed lease agreements at June 30, 20202021 totaled $76.8$70.1 million.
(6)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.
For detailed discussion and additional information pertaining to our debt instruments, see Note 6. Debt and Note 7. Commitments and Contingencies in the notes to our condensed consolidated financial statements, included in Part I, Item 1.
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 letter of credit obligations, surety and performance and payment bonds entered into in the normal course of business, liabilities associated with deferred compensation plans, liabilities associated with certain indemnification and guarantee arrangements.
As of June 30, 20202021 and December 31, 2019,2020, the Company was contingently liable under letters of credit issued under its revolving credit facility or its old credit facility in the amount of $23.5$21.7 million and $21.0$7.8 million, respectively, related to projects.projects and insurance.
As of June 30, 20202021 and December 31, 2019,2020, the Company had outstanding surety bonds on projects of $2.6$3.0 billion and $2.4$2.8 billion, respectively, including the bonding line of the acquired ACC Companies and Saiia.
See Note 6. Debt in the notes to condensed consolidated financial statements, included in Item 1 of this Quarterly Report on Form 10-Q, for discussion pertaining to our off-balance sheet arrangements. See Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies and Note 11. Related Party Transactions in the notes to condensed consolidated financial statements, included in Item 1, for discussion pertaining to certain of our investment arrangements.respectively.
Recently Issued Accounting Pronouncements
See Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies in the notes to our condensed consolidated financial statements, included in Part I, Item 1.
Item 3. 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 earnings in excess of billings (‘‘CIEB’’) 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 lack of concentration and the high credit rating of our customers.
Interest Rate Risk
Borrowings under the new credit facilityThird A&R Credit Agreement and certain other borrowings are at variable rates of interest and expose us to 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. The outstanding debt balance as of June 30, 20202021 was $177.6 million. A one hundred basis point change in the LIBOR rate would increase or decrease interest expense by $1.8 million. As of June 30, 2020,2021, we had no derivative financial instruments to manage interest rate risk.
Item 4. Control and Procedures
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of IEA’s Chief Executive Officer and Chief Financial Officer that are required in accordance with Rule 13a-14 of the Exchange Act of 1934. This section includes information concerning the controls and controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications.
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this Quarterly Report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that, as of June 30, 2020,2021, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
As previously discussed in Item 2. Management Discussion and Analysis, the Company is using remote technology for employees working from home due to COVID-19. Although certain employees are working remotely, there There has been no change in our internal control over financial reporting during the quarter ended June 30, 2020,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, see Note 7. Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements included in Item 1. Financial Statements of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
At June 30, 2020,2021, there have been no other material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K filed with the SEC on March 12, 2020,8, 2021, which is accessible on the SEC's website at www.sec.gov, except as described below.
The ultimate effects of the current COVID-19 pandemic are unknown and evolving, and could result in negative effects on our business, financial condition, results of operations and prospects.
The COVID-19 pandemic is a rapidly developing situation around the globe that has adversely impacted economic activity and conditions in the United States and worldwide. In particular, efforts to control the spread of COVID-19 have led to local and worldwide shutdowns and stay-at-home orders, stock price declines, employee layoffs, and governmental programs to support the economy.
The COVID-19 pandemic could affect us in a number of other ways, including but not limited to:
•Inabilities to properly staff our construction projects due to quarantines and stay at home orders.
•Inabilities of customers to fund project obligations due to liquidity issues.
•Termination or delay in project construction at our customers’ discretion due to financial uncertainties.
•Inability of, or delays by, our subcontractors to deliver equipment and services.
•Restrictions on our ability to obtain new business if our customer base is financially constrained.
•Inability to obtain bonding from our sureties due to tightening of credit markets.
•Decrease in demand for civil construction resulting from corresponding decreases in federal, state and local budgets.
Each of the foregoing would cause project delays, force majeure events and project terminations, which could negatively impact our ability to recognize revenues and bill our customers for current costs. In addition, if our customers are unable to finance new projects as a result of their liquidity issues during and in the aftermath of the pandemic, our business outlook will be negatively impacted. A prolonged continuation of the COVID-19 pandemic, or a resurgence of the pandemic even if the current pandemic is significantly reduced, could also result in additional impacts to our business, financial condition, results of operations and prospects. The ultimate effects of the COVID-19 pandemic are unknown at this time. We are continuing to monitor developments but cannot predict at this time whether COVID-19 will have a material impact on our business, financial condition, liquidity or results of operations.
Item 5. Other Information
Appointment of Peter Moerbeek as Executive Vice President and Chief Financial Officer; Employment Agreement
On August 6, 2020, Peter Moerbeek was appointed to the position of Executive Vice President and Chief Financial Officer. Additionally, on August 6, 2020, the Company and Mr. Moerbeek entered into an employment agreement (the “Employment Agreement”) that supersedes that certain employment letter agreement between the Company and Mr. Moerbeek, dated March 5, 2020, in its entirety.
Pursuant to the Employment Agreement, Mr. Moerbeek is employed as Chief Financial Officer and receives a base salary of $450,000 (payable retroactive to March 5, 2020) for an initial term of three years. The Employment Agreement provides that Mr. Moerbeek will have the opportunity to earn a performance-based bonus each calendar year in a target amount of 70% of his base salary (pro-rated for the 2020 calendar year), administered and payable under the Company’s annual bonus plan. Mr. Moerbeek is also eligible to receive equity awards each calendar year with a target award of 125% of his base salary, administered and payable under the Infrastructure and Energy Alternatives, Inc. 2018 Amended and Restated Equity Incentive
Plan. Additionally, Mr. Moerbeek will receive temporary housing, a vehicle allowance and other standard benefits and perquisites that are provided to similarly situated executives. The Employment Agreement contains standard post-employment non-competition and non-solicitation covenants during the 12-month period following Mr. Moerbeek’s termination.
If Mr. Moerbeek is terminated by the Company without “cause” or if Mr. Moerbeek resigns for “good reason,” then Mr. Moerbeek shall receive: (i) a severance payment in the amount of (a) 12 months of his then existing base salary, plus (b) an amount equal to the greater of the target bonus for year of termination or the average of his annual bonus payable in the prior three or fewer calendar years, such amount to be payable over the 12-month period following termination (the “Severance Payment”); (ii) his pro-rated bonus for the year of termination, payable in a lump sum at the time such amount would have been paid under the annual bonus plan; and (iii) payment of the applicable premium for continuation coverage for him and his eligible dependents under the Company’s group medical plan, such amount “grossed up” to account for additional income and employment taxes incurred on such amount. In addition, all of Mr. Moerbeek’s equity grants and awards shall become vested (at target level for performance awards) and immediately exercisable.
In the event Mr. Moerbeek’s employment is terminated for the reasons described above within 24 months following a Change in Control (as defined in the Company’s 2018 Amended and Restated Equity Incentive Plan), then Mr. Moerbeek shall receive: (i) two times the amount of the Severance Payment, payable over the 12-month period following termination; (ii) his pro-rated bonus for the year of termination, payable in a lump sum at the time such amount would have been paid under the annual bonus plan; (iii) payment of the applicable premium for continuation coverage for him and his eligible dependents under the Company’s group medical plan, such amount “grossed up” to account for additional income and employment taxes on such amount; and (iv) a reimbursement of up to $50,000 for the use of outplacement services. In addition, all of Mr. Moerbeek’s equity grants and awards shall become vested (at target level for performance awards) and immediately exercisable.
Following any termination for Cause or due to death or “disability” (as defined in the Employment Agreement), or if Mr. Moerbeek terminates his employment for any reason other than for Good Reason, Mr. Moerbeek will receive a payment of accrued but unpaid base salary, any earned and unpaid bonus and payment of unreimbursed expenses. Further, if Mr. Moerbeek’s employment is terminated due to death or “disability,” all of Mr. Moerbeek’s equity grants and awards shall become vested (at the target level for performance awards) and exercisable.
“Cause” means: (i) Mr. Moerbeek’s substantial and repeated failure to perform duties as reasonably directed by the Board of Directors (the “Board”) of the Company (not as a consequence of “disability”) after written notice thereof and failure to cure within 10 days; (ii) Mr. Moerbeek’s misappropriation or fraud with regard to the Company or its assets; (iii) conviction of, or the pleading of guilty to, a felony, or any other crime involving either fraud or a breach of Mr. Moerbeek’s duty of loyalty with respect to the Company or any of its customers or suppliers that results in material injury to the Company; (iv) Mr. Moerbeek’s violation of the written policies of the Company, or other misconduct in connection with the performance of his duties that in either case results in material injury to the Company, after written notice thereof and failure to cure within 10 days; or (v) Mr. Moerbeek’s breach of any material provision of the Employment Agreement, including without limitation the confidentiality and non-disparagement provisions and the non-competition and non-solicitation provisions described above.
“Good Reason” means the occurrence of any of the following events without Mr. Moerbeek’s prior express written consent: (i) any reduction in Mr. Moerbeek’s base salary or target bonus percentage, or any material diminution in Mr. Moerbeek’s duties or authorities; (ii) any relocation of Mr. Moerbeek’s principal place of employment to a location more than 75 miles from Mr. Moerbeek’s principal place of employment as of the effective date of the Employment Agreement; or (iii) any material breach by the Company of any material obligation owed to Mr. Moerbeek; provided however, that prior to resigning for any “good reason,” Mr. Moerbeek shall give written notice to the Company of the facts and circumstances claimed to provide a basis for such resignation not more than 30 days following his knowledge of such facts and circumstances, and the Company shall have 30 days after receipt of such notice to cure the circumstances giving rise to such resignation for “good reason.”
The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and incorporated in this “Item 5. Other Information” by reference.
Item 6. Exhibits
(a) Exhibits.
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Exhibit Number | | Description | |
2.12.1# | | 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 (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 (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 (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 (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). | |
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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 (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). | |
2.6 | | 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 | | | |
2.82.8# | | | |
2.9 | | | |
3.1 | | | |
3.2 | | | |
3.3 | | |
| | | | | | | | | | | |
3.9 | | | |
3.10 | | | |
4.14.2 | | | |
4.24.3 | | | |
4.34.4 | | | |
4.44.5 | | | |
4.54.6 | | | |
4.64.7 | | | |
4.74.8 | | | |
4.84.9 | | | |
4.94.10 | | | |
4.104.11 | | | |
4.114.12 | | | |
4.124.13 | | | |
| | | | | |
4.13 | | | | | |
4.14 | | | |
4.15 | | | |
10.14.16 | | | |
4.17 | | | |
4.18 | | Form of Warrant Certificate, dated as of JulyMarch 23, 2020,2021, by and among the Company, Ares Special Situations Fund IV, L.P., ASOF Holdings I, L.P., Infrastructure and Energy Alternatives, LLC, Oaktree Power Opportunities Fund III Delaware, L.P.,Inc. and OT POF IEA Preferred B Aggregator, L.P.each party to the Joinder Agreement to Registration Rights Agreement dated March 23, 2021 (incorporated by reference to Exhibit 4.27 to the Company's Registration Statement on Form S-3 (File No. 333-255097) filed on April 7, 2021). | |
10.1† | | | |
10.2†10.2†
| | | |
10.3*†10.3† | | | |
10.4† | | | |
31.1* | | | |
31.2* | | | |
32.1** | | | |
32.2** | | | |
101.INS* | | XBRL Instance Document (the Instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL) | |
101.SCH* | | XBRL Taxonomy Extension Schema Document | |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS) | |
*Filed herewith.
**Furnished herewith.herewith
† Indicates a management contract or compensatory plan or arrangement.
# Schedules have been omitted pursuant to Item 601(b)(5) of Regulation S-K. We will furnish the omitted schedules to the Securities and Exchange Commission upon request by the Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC. | |
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Dated: August 10, 2020 | By: | /s/ JP Roehm |
| Name: JP Roehm | |
| Title: Chief Executive Officer | |
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Dated: August 10, 2020July 28, 2021 | By: | /s/ Peter J. Moerbeek |
| Name: Peter J. Moerbeek | |
| Title: Executive Vice President, Chief Financial Officer | |
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Dated: August 10, 2020 | By: | /s/ Bharat Shah |
| Name: Bharat Shah | |
| Title: Chief Principal Financial and Accounting Officer | |