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, 20212022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER:Commission File Number: 001-37796
Infrastructure & Energy Alternatives, Inc.
(Exact Namename of Registrantregistrant as Specifiedspecified in Charter)charter)
| | | | | | | | | | | | | | |
Delaware | | | | 47-4787177 |
(State or Other Jurisdictionother jurisdiction of Incorporation)incorporation) | | | | (IRS Employer Identification No.) |
| | | | | | | | |
6325 Digital Way Suite 460 Indianapolis, Indiana | | 46278 |
(Address of Principal Executive Offices)principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (765) 828-2580(800) 688-3775
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbols(s) | | Name of exchange on which registered |
Common Stock, $0.0001 par value | | IEA | | The NASDAQNasdaq Stock Market LLC |
Warrants for Common Stock | | IEAWW | | The NASDAQNasdaq 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"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 July 28, 2021: 25,150,306.August 4, 2022: 48,615,369.
| | | | | | | | |
| Infrastructure and Energy Alternatives, Inc. |
| Table of Contents |
| | |
| PART I. FINANCIAL INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Part II. OTHER INFORMATION | |
| | |
| | |
| | |
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, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 117,674 | | | $ | 164,041 | | Cash and cash equivalents | $ | 46,480 | | | $ | 124,027 | |
Accounts receivable, net | Accounts receivable, net | 232,323 | | | 163,793 | | Accounts receivable, net | 404,118 | | | 280,700 | |
Contract assets | Contract assets | 176,958 | | | 145,183 | | Contract assets | 303,967 | | | 214,298 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 33,007 | | | 19,352 | | Prepaid expenses and other current assets | 51,983 | | | 42,774 | |
| Total current assets | Total current assets | 559,962 | | | 492,369 | | Total current assets | 806,548 | | | 661,799 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 135,514 | | | 130,746 | | Property, plant and equipment, net | 153,279 | | | 138,605 | |
Operating lease assets | Operating lease assets | 37,701 | | | 36,461 | | Operating lease assets | 33,316 | | | 37,292 | |
Intangible assets, net | Intangible assets, net | 22,202 | | | 25,434 | | Intangible assets, net | 15,736 | | | 18,969 | |
Goodwill | Goodwill | 37,373 | | | 37,373 | | Goodwill | 37,373 | | | 37,373 | |
Company-owned life insurance | Company-owned life insurance | 4,760 | | | 4,250 | | Company-owned life insurance | 4,273 | | | 4,944 | |
Deferred income taxes | 295 | | | 2,069 | | |
| Other assets | Other assets | 533 | | | 438 | | Other assets | 789 | | | 771 | |
Total assets | Total assets | $ | 798,340 | | | $ | 729,140 | | Total assets | $ | 1,051,314 | | | $ | 899,753 | |
| Liabilities and Stockholder's Equity (Deficit) | | |
Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | $ | 149,352 | | | $ | 104,960 | | Accounts payable | $ | 215,156 | | | $ | 164,925 | |
Accrued liabilities | Accrued liabilities | 201,828 | | | 129,594 | | Accrued liabilities | 204,012 | | | 163,364 | |
Contract liabilities | Contract liabilities | 90,566 | | | 118,235 | | Contract liabilities | 169,015 | | | 126,128 | |
| Current portion of finance lease obligations | Current portion of finance lease obligations | 24,842 | | | 25,423 | | Current portion of finance lease obligations | 23,150 | | | 24,345 | |
Current portion of operating lease obligations | Current portion of operating lease obligations | 9,817 | | | 8,835 | | Current portion of operating lease obligations | 10,201 | | | 10,254 | |
Current portion of long-term debt | Current portion of long-term debt | 2,277 | | | 2,506 | | Current portion of long-term debt | 1,101 | | | 1,960 | |
| Total current liabilities | Total current liabilities | 478,682 | | | 389,553 | | Total current liabilities | 622,635 | | | 490,976 | |
| Finance lease obligations, less current portion | Finance lease obligations, less current portion | 27,370 | | | 32,146 | | Finance lease obligations, less current portion | 45,997 | | | 30,096 | |
| Operating lease obligations, less current portion | Operating lease obligations, less current portion | 29,355 | | | 29,154 | | Operating lease obligations, less current portion | 24,643 | | | 28,540 | |
Long-term debt, less current portion | Long-term debt, less current portion | 161,266 | | | 159,225 | | Long-term debt, less current portion | 321,080 | | | 290,730 | |
Debt - Series B Preferred Stock | 176,556 | | | 173,868 | | |
| Warrant obligations | Warrant obligations | 8,834 | | | 9,200 | | Warrant obligations | 2,814 | | | 5,967 | |
| Deferred compensation | Deferred compensation | 7,930 | | | 8,672 | | Deferred compensation | 7,326 | | | 7,988 | |
| Deferred income taxes | | Deferred income taxes | 3,320 | | | 8,199 | |
Total liabilities | Total liabilities | $ | 889,993 | | | $ | 801,818 | | Total liabilities | $ | 1,027,815 | | | $ | 862,496 | |
| Commitments and contingencies: | 0 | | 0 | |
Commitments and contingencies (Note 7) | | Commitments and contingencies (Note 7) | 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, 2021 and December 31, 2020, respectively | 17,483 | | | 17,483 | | |
| Stockholders' equity (deficit): | | |
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 | | |
Stockholders' equity: | | Stockholders' equity: | |
Common stock, par value, $0.0001 per share; 150,000,000 and 150,000,000 shares authorized; 48,594,834 and 48,027,359 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | | Common stock, par value, $0.0001 per share; 150,000,000 and 150,000,000 shares authorized; 48,594,834 and 48,027,359 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 4 | | | 4 | |
| Additional paid in capital | Additional paid in capital | 32,064 | | | 35,305 | | Additional paid in capital | 242,794 | | | 246,450 | |
Accumulated deficit | Accumulated deficit | (141,203) | | | (125,468) | | Accumulated deficit | (219,299) | | | (209,197) | |
Total stockholders' deficit | (109,136) | | | (90,161) | | |
Total liabilities and stockholders' deficit | $ | 798,340 | | | $ | 729,140 | | |
Total stockholders' equity | | Total stockholders' equity | 23,499 | | | 37,257 | |
Total liabilities and stockholders' equity | | Total liabilities and stockholders' equity | $ | 1,051,314 | | | $ | 899,753 | |
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 |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue | $ | 560,148 | | | $ | 480,604 | | | $ | 836,560 | | | $ | 838,767 | |
Cost of revenue | 506,665 | | | 426,363 | | | 766,536 | | | 751,485 | |
Gross profit | 53,483 | | | 54,241 | | | 70,024 | | | 87,282 | |
| | | | | | | |
Selling, general and administrative expenses | 30,894 | | | 28,074 | | | 55,740 | | | 57,558 | |
| | | | | | | |
Income from operations | 22,589 | | | 26,167 | | | 14,284 | | | 29,724 | |
| | | | | | | |
Other income (expense), net: | | | | | | | |
Interest expense, net | (14,495) | | | (16,200) | | | (28,854) | | | (32,265) | |
| | | | | | | |
Other income (expense) | 770 | | | (1,631) | | | 608 | | | (2,733) | |
Income (loss) before benefit for income taxes | 8,864 | | | 8,336 | | | (13,962) | | | (5,274) | |
| | | | | | | |
Provision for income taxes | (4,165) | | | (4,739) | | | (1,773) | | | (3,872) | |
| | | | | | | |
Net income (loss) | $ | 4,699 | | | $ | 3,597 | | | $ | (15,735) | | | $ | (9,146) | |
Less: Convertible Preferred Stock dividends | (676) | | | (606) | | | (1,332) | | | (1,372) | |
| | | | | | | |
| | | | | | | |
Less: Net income allocated to participating securities | (788) | | | (802) | | | 0 | | | 0 | |
Net income (loss) available for common stockholders | $ | 3,235 | | | $ | 2,189 | | | $ | (17,067) | | | $ | (10,518) | |
| | | | | | | |
| | | | | | | |
Net income (loss) per common share - basic | 0.13 | | | 0.11 | | | (0.72) | | | (0.51) | |
Net income (loss) per common share - diluted | 0.12 | | | 0.09 | | | (0.72) | | | (0.51) | |
Weighted average shares - basic | 24,471,286 | | | 20,751,673 | | | 23,768,413 | | | 20,636,944 | |
Weighted average shares - diluted | 33,439,303 | | | 39,978,382 | | | 23,768,413 | | | 20,636,944 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue | $ | 680,597 | | | $ | 560,148 | | | $ | 1,040,692 | | | $ | 836,560 | |
Cost of revenue | 619,033 | | | 506,665 | | | 975,298 | | | 766,536 | |
Gross profit | 61,564 | | | 53,483 | | | 65,394 | | | 70,024 | |
| | | | | | | |
Selling, general and administrative expenses | 35,758 | | | 30,894 | | | 70,640 | | | 55,740 | |
| | | | | | | |
Income (loss) from operations | 25,806 | | | 22,589 | | | (5,246) | | | 14,284 | |
| | | | | | | |
Other income (expense), net: | | | | | | | |
Interest expense, net | (6,863) | | | (14,495) | | | (12,889) | | | (28,854) | |
| | | | | | | |
| | | | | | | |
Warrant liability fair value adjustment | 4,581 | | | 666 | | | 3,153 | | | 366 | |
Other income (expense) | (10) | | | 104 | | | 1 | | | 242 | |
Income (loss) before (provision) benefit for income taxes | 23,514 | | | 8,864 | | | (14,981) | | | (13,962) | |
| | | | | | | |
(Provision) benefit for income taxes | (6,545) | | | (4,165) | | | 4,879 | | | (1,773) | |
| | | | | | | |
Net income (loss) | $ | 16,969 | | | $ | 4,699 | | | $ | (10,102) | | | $ | (15,735) | |
Less: Convertible Preferred Stock dividends | — | | | (676) | | | — | | | (1,332) | |
| | | | | | | |
| | | | | | | |
Less: Net income allocated to participating securities | (32) | | | (788) | | | — | | | — | |
Net income (loss) available for common stockholders | $ | 16,937 | | | $ | 3,235 | | | $ | (10,102) | | | $ | (17,067) | |
| | | | | | | |
| | | | | | | |
Net income (loss) per common share - basic | 0.35 | | | 0.13 | | | (0.21) | | | (0.72) | |
Net income (loss) per common share - diluted | 0.31 | | | 0.12 | | | (0.21) | | | (0.72) | |
Weighted average shares - basic | 48,419,272 | | | 24,471,286 | | | 48,275,103 | | | 23,768,413 | |
Weighted average shares - diluted | 54,389,096 | | | 33,439,303 | | | 48,275,103 | | | 23,768,413 | |
| | | | | | | |
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) |
| | Shares | Par Value | | | Shares | Cost | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2019 | | 20,461 | | $ | 2 | | | $ | 17,167 | | | (14) | | $ | (76) | | | $ | (126,196) | | | $ | (109,103) | |
Net loss | | — | | — | | | — | | | — | | — | | | (12,743) | | | (12,743) | |
Share-based compensation | | — | | — | | | 1,113 | | | — | | — | | | — | | | 1,113 | |
Equity plan compensation | | 240 | | 0 | | | 280 | | | (38) | | (84) | | | — | | | 196 | |
Series B Preferred Stock - Warrants at close | | — | | — | | | 15,631 | | | — | | — | | | — | | | 15,631 | |
Series A Preferred dividends | | — | | — | | | (766) | | | — | | — | | | — | | | (766) | |
Balance at March 31, 2020 | | 20,701 | | $ | 2 | | | $ | 33,425 | | | (52) | | $ | (160) | | | $ | (138,939) | | | $ | (105,672) | |
Net income | | — | | — | | | — | | | — | | — | | | 3,597 | | | 3,597 | |
Share-based compensation | | — | | — | | | 844 | | | — | | — | | | — | | | 844 | |
Equity plan compensation | | 441 | | 0 | | | 800 | | | (129) | | (235) | | | — | | | 565 | |
Series A Preferred dividends | | — | | — | | | (606) | | | — | | — | | | — | | | (606) | |
Balance at June 30, 2020 | | 21,142 | | $ | 2 | | | $ | 34,463 | | | (181) | | $ | (395) | | | $ | (135,342) | | | $ | (101,272) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2020 | | 21,009 | | $ | 2 | | | $ | 35,305 | | | 0 | | $ | 0 | | | $ | (125,468) | | | $ | (90,161) | |
Net loss | | — | | — | | | — | | | — | | — | | | (20,434) | | | (20,434) | |
Earnout Shares | | 1,803 | | — | | | — | | | — | | — | | | — | | | — | |
Share-based compensation | | — | | — | | | 727 | | | — | | — | | | — | | | 727 | |
Equity plan compensation | | 521 | | — | | | (2,909) | | | — | | — | | | — | | | (2,909) | |
Exercise of warrants | | 15 | | — | | | — | | | — | | — | | | — | | | — | |
Series A Preferred dividends | | — | | — | | | (656) | | | — | | — | | | — | | | (656) | |
Balance at March 31, 2021 | | 23,348 | | $ | 2 | | | $ | 32,467 | | | 0 | | $ | 0 | | | $ | (145,902) | | | $ | (113,433) | |
Net loss | | — | | — | | | — | | | — | | — | | | 4,699 | | | 4,699 | |
| | | | | | | | | | | | |
Share-based compensation | | — | | — | | | 1,926 | | | — | | — | | | — | | | 1,926 | |
Equity plan compensation | | 249 | | — | | | (1,853) | | | — | | — | | | — | | | (1,853) | |
Exercise of warrants | | 1,553 | | 1 | | | 200 | | | — | | — | | | — | | | 201 | |
Series A Preferred dividends | | — | | — | | | (676) | | | — | | — | | | — | | | (676) | |
Balance at June 30, 2021 | | 25,150 | | $ | 3 | | | $ | 32,064 | | | 0 | | $ | 0 | | | $ | (141,203) | | | $ | (109,136) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | |
| | Shares | Par Value | | Additional Paid-in Capital | | | | | Accumulated Deficit | | Total Equity (Deficit) |
| | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2020 | | 21,009 | | $ | 2 | | | $ | 35,305 | | | | | | $ | (125,468) | | | $ | (90,161) | |
Net loss | | — | | — | | | — | | | | | | (20,434) | | | (20,434) | |
Earnout Shares | | 1,803 | | — | | | — | | | | | | — | | | — | |
Share-based compensation | | — | | — | | | 727 | | | | | | — | | | 727 | |
Equity plan compensation | | 521 | | — | | | (2,909) | | | | | | — | | | (2,909) | |
Exercise of Merger Warrants | | 15 | | — | | | — | | | | | | — | | | — | |
Series A Preferred dividends | | — | | — | | | (656) | | | | | | — | | | (656) | |
Balance at March 31, 2021 | | 23,348 | | $ | 2 | | | $ | 32,467 | | | | | | $ | (145,902) | | | $ | (113,433) | |
Net income | | — | | — | | | — | | | | | | 4,699 | | | 4,699 | |
| | | | | | | | | | | | |
Share-based compensation | | — | | — | | | 1,926 | | | | | | — | | | 1,926 | |
Equity plan compensation | | 249 | | — | | | (1,853) | | | | | | — | | | (1,853) | |
Exercise of Series B Preferred Stock - Warrants | | 1,553 | | 1 | | | 200 | | | | | | — | | | 201 | |
Series A Preferred dividends | | — | | — | | | (676) | | | | | | — | | | (676) | |
Balance at June 30, 2021 | | 25,150 | | $ | 3 | | | $ | 32,064 | | | | | | $ | (141,203) | | | $ | (109,136) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2021 | | 48,027 | | $ | 4 | | | $ | 246,450 | | | | | | $ | (209,197) | | | $ | 37,257 | |
Net loss | | — | | — | | | — | | | | | | (27,071) | | | (27,071) | |
Share-based compensation | | — | | — | | | 1,630 | | | | | | — | | | 1,630 | |
Equity plan compensation | | 296 | | — | | | (1,810) | | | | | | — | | | (1,810) | |
| | | | | | | | | | | | |
Repurchases of Merger Warrants | | — | | — | | | (2,805) | | | | | | — | | | (2,805) | |
Balance at March 31, 2022 | | 48,323 | | $ | 4 | | | $ | 243,465 | | | | | | $ | (236,268) | | | $ | 7,201 | |
Net income | | — | | — | | | — | | | | | | 16,969 | | | 16,969 | |
Share-based compensation | | — | | — | | | 1,823 | | | | | | — | | | 1,823 | |
Equity plan compensation | | 270 | | — | | | (1,111) | | | | | | — | | | (1,111) | |
Exercise of Series B Preferred Stock - Warrants | | 2 | | — | | | — | | | | | | — | | | — | |
Repurchases of Merger Warrants | | — | | — | | | (1,383) | | | | | | — | | | (1,383) | |
Balance at June 30, 2022 | | 48,595 | | $ | 4 | | | $ | 242,794 | | | | | | $ | (219,299) | | | $ | 23,499 | |
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, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net loss | Net loss | $ | (15,735) | | | $ | (9,146) | | Net loss | $ | (10,102) | | | $ | (15,735) | |
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 | 21,830 | | | 24,001 | | Depreciation and amortization | 25,181 | | | 21,830 | |
| Warrant liability fair value adjustment | Warrant liability fair value adjustment | (366) | | | 2,828 | | Warrant liability fair value adjustment | (3,153) | | | (366) | |
| Amortization of debt discounts and issuance costs | Amortization of debt discounts and issuance costs | 5,814 | | | 5,379 | | Amortization of debt discounts and issuance costs | 755 | | | 5,814 | |
| Share-based compensation expense | Share-based compensation expense | 2,653 | | | 1,957 | | Share-based compensation expense | 3,453 | | | 2,653 | |
Loss on sale of equipment | 0 | | | 574 | | |
Deferred compensation | (742) | | | (830) | | |
| Accrued dividends on Series B Preferred Stock | — | | | 7,959 | | |
| Deferred income taxes | Deferred income taxes | 1,773 | | | 3,659 | | Deferred income taxes | (4,879) | | | 1,773 | |
Other, net | Other, net | (172) | | | 227 | | Other, net | (1,880) | | | (914) | |
Change in operating assets and liabilities: | Change in operating assets and liabilities: | | Change in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | (68,531) | | | (8,349) | | Accounts receivable | (123,418) | | | (68,531) | |
Contract assets | Contract assets | (31,775) | | | (41,565) | | Contract assets | (89,669) | | | (31,775) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (13,752) | | | (16,685) | | Prepaid expenses and other assets | (9,227) | | | (13,752) | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 115,294 | | | (42,097) | | Accounts payable and accrued liabilities | 90,879 | | | 115,294 | |
Contract liabilities | Contract liabilities | (27,669) | | | 7,458 | | Contract liabilities | 42,887 | | | (27,669) | |
Net cash used in operating activities | Net cash used in operating activities | (11,378) | | | (64,630) | | Net cash used in operating activities | (79,173) | | | (11,378) | |
| Cash flow from investing activities: | Cash flow from investing activities: | | Cash flow from investing activities: | |
Company-owned life insurance | Company-owned life insurance | (510) | | | 812 | | Company-owned life insurance | 671 | | | (510) | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (14,649) | | | (5,171) | | Purchases of property, plant and equipment | (8,456) | | | (14,649) | |
Proceeds from sale of property, plant and equipment | Proceeds from sale of property, plant and equipment | 1,527 | | | 2,837 | | Proceeds from sale of property, plant and equipment | 2,379 | | | 1,527 | |
| Net cash used in investing activities | Net cash used in investing activities | (13,632) | | | (1,522) | | Net cash used in investing activities | (5,406) | | | (13,632) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Proceeds from long-term debt | 0 | | | 72,000 | | |
Proceeds from line of credit - long term | | Proceeds from line of credit - long term | 50,000 | | | — | |
Payments on line of credit - long term | | Payments on line of credit - long term | (20,000) | | | — | |
Payments on long-term debt | Payments on long-term debt | (1,314) | | | (82,357) | | Payments on long-term debt | (1,263) | | | (1,314) | |
| Payments on finance lease obligations | Payments on finance lease obligations | (15,481) | | | (12,468) | | Payments on finance lease obligations | (14,596) | | | (15,481) | |
| Proceeds from issuance of Series B Preferred Stock | 0 | | | 350 | | |
Proceeds of issuance of employee stock awards | 0 | | | 760 | | |
Shares repurchased for tax withholding on release of restricted stock units | (4,762) | | | 0 | | |
Proceeds from exercise of warrants | 200 | | | 0 | | |
Net cash used in financing activities | $ | (21,357) | | | $ | (21,715) | | |
| Tax payments for shares withheld on release of restricted stock units | | Tax payments for shares withheld on release of restricted stock units | (2,921) | | | (4,762) | |
Proceeds from exercise of Series B Preferred Stock - Warrants | | Proceeds from exercise of Series B Preferred Stock - Warrants | — | | | 200 | |
Repurchases of Merger Warrants | | Repurchases of Merger Warrants | (4,188) | | | — | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 7,032 | | | (21,357) | |
| Net change in cash and cash equivalents | Net change in cash and cash equivalents | (46,367) | | | (87,867) | | Net change in cash and cash equivalents | (77,547) | | | (46,367) | |
| Cash and cash equivalents, beginning of the period | Cash and cash equivalents, beginning of the period | 164,041 | | | 147,259 | | Cash and cash equivalents, beginning of the period | 124,027 | | | 164,041 | |
| Cash and cash equivalents, end of the period | Cash and cash equivalents, end of the period | $ | 117,674 | | | $ | 59,392 | | Cash and cash equivalents, end of the period | $ | 46,480 | | | $ | 117,674 | |
|
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, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Supplemental disclosures: | Supplemental disclosures: | | | | Supplemental disclosures: | | | |
Cash paid for interest | Cash paid for interest | 14,892 | | | 17,821 | | Cash paid for interest | 12,136 | | | 14,892 | |
Cash paid (received) for income taxes | 3,271 | | | (735) | | |
Cash paid for income taxes | | Cash paid for income taxes | 769 | | | 3,271 | |
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 | 10,125 | | | 7,635 | | Acquisition of assets/liabilities through finance lease | 29,302 | | | 10,125 | |
Acquisition of assets/liabilities through operating lease | Acquisition of assets/liabilities through operating lease | 6,265 | | | 5,295 | | Acquisition of assets/liabilities through operating lease | 1,459 | | | 6,265 | |
| Series A Preferred dividends declared | Series A Preferred dividends declared | 1,332 | | | 1,372 | | Series A Preferred dividends declared | — | | | 1,332 | |
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. (f/k/a M III Acquisition Corporation ("M III")), a Delaware corporation, is a holding company organized on August 4, 2015 (together with its wholly-ownedwholly owned subsidiaries, “IEA”unless otherwise noted 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”context otherwise requires, "IEA" or the "Company").
The Company specializes in providing complete engineering, procurement and construction services throughout the United States ("U.S.") for the renewable energy, traditional power and civil infrastructure industries. These services include the design, site development, construction, installation and restoration of infrastructure. The Company is focused on the wind industry and the solar market, and with its 2018 acquisitions expanded its construction capabilities and geographic footprint in the areas of renewables, environmental remediation, industrial maintenance, specialty paving, and heavy civil and rail infrastructure construction, creating a diverse national platform of specialty construction capabilities.
Reportable Segments
We segregate our business intoThe Company has 2 reportable segments: the Renewables ("Renewables") segment and the Heavy Civil and Industrial (“("Specialty Civil”Civil") segment. See Note 10. Segments for a description of the reportable segments and their operations.
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”U.S. ("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.
The unaudited condensed consolidated financial statements include the accounts of IEA and its wholly-ownedwholly owned domestic and foreign subsidiaries. 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”("VIE") in accordance with Accounting Standard Codification (“ASC”) Topic 810, Consolidation.Consolidation ("ASC 810"). 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, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 20202021 and notes thereto included in the Company’s 20202021 Annual Report on Form 10-K.10-K filed with the SEC on March 7, 2022 (the "Annual Report").
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;estimates related to warrant liabilities; 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.
The prior period presentation of the warrant liability fair value adjustment has been revised to conform to the current period presentation and is presented as a single line item within the condensed consolidated statements of operations. This change has no effect on net income or stockholders' equity.
The prior period presentation of deferred compensation has been revised to conform to the current period presentation and consolidated within the 'Other' line of the condensed consolidated statements of cash flows. This change has no effect on cash flows from operating activities.
Revenue Recognition
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. Contracts contain multiple pricing options, such as fixed price, unit price, or time and materials, or unit price.materials. Generally, renewable energy projects are performed for private customers while Specialty Civil projects are performed primarily for utilities, railroads, and various governmental entities.
Revenue derived from projects billed on a fixed-price basis totaled 99.3%81.0% and 98.0%87.3% of consolidated revenue from operations for the three months ended June 30, 20212022 and 2020,2021, respectively, and totaled 98.3%78.6% and 97.2%84.5% for the six months
ended June 30, 2022 and 2021, respectively. Revenue derived from projects billed on a unit price basis totaled 18.5% and 2020,12.0% of consolidated revenue from operations for the three months ended June 30, 2022 and 2021, respectively, and totaled 20.7% and 13.8% for the six months ended June 30, 2022 and 2021, respectively. Revenue and related costs for 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%0.5% and 2.0%0.7% of consolidated revenue from operations for the three months ended June 30, 20212022 and 2020,2021, respectively, and totaled 1.7%0.7% and 2.8%1.7% for the six months ended June 30, 2022 and 2021, and 2020, respectively. The prior period presentation of the components of the Company’s revenue by contract type has been revised to conform to the current presentation.
Construction contract revenue revenue is recognized over time using the cost-to-cost measure of progress for fixed price contracts. The 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 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 to transfer a distinct good or service to the customer and is the unit of account under Accounting Standards Codification (“ASC”)ASC Topic 606.606, Revenue from Contracts with Customers. The transaction price of a contract is allocated to distinct performance obligations and recognized as revenue when or as the performance obligations 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 athe same 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, 2021,2022, the amount of the Company’s remaining performance obligations was $1,665.3 million.$2.2 billion. The Company expects to recognize approximately 75.7%79.9% of its remaining performance obligations as revenue during the next twelve months. Revenue recognized from performance obligations satisfied in previous periods was $(0.8)$(2.0) million and $(1.6)$(0.8) million for the three months ended June 30, 20212022 and 2020,2021, respectively, and $(0.4)$(14.9) million and $(3.6)$(0.4) million for the six months ended June 30, 2022 and 2021, and 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 the 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 the transaction price are not resolved in the Company’s favor, or to the extent incentives reflected in the transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.
As of June 30, 20212022 and December 31, 2020,2021, the Company included approximately $51.4$111.1 million and $52.6$94.5 million, respectively, of estimated transaction price adjustments that arise from 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 includingand/or from transaction price disputes in contracts that are subject to resolution through negotiation,litigation, arbitration and other legal proceedings. These transaction price adjustments are included within Contract Assets or Contract Liabilities in the Company’s condensed consolidated balance sheets as appropriate. The Company actively engages with its customers to complete the final change order approval process on unapproved change orders and generally expects these processes to be completed within one year.year, while sometimes disputes subject to formal legal proceedings can take longer than a year to resolve. Amounts ultimately realized upon final acceptance byresolution with customers of these transaction price adjustments 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 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, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 | | | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | |
Renewables Segment | Renewables Segment | | | | | | Renewables Segment | | | | | |
Wind | Wind | | $ | 317,066 | | | $ | 317,151 | | | 463,924 | | | $ | 565,688 | | | Wind | | $ | 258,272 | | | $ | 317,066 | | | 376,204 | | | $ | 463,924 | | |
Solar | Solar | | 107,788 | | | 7,111 | | | 141,304 | | | 7,320 | | | Solar | | 244,431 | | | 107,788 | | | 370,113 | | | 141,304 | | |
| | $ | 424,854 | | | $ | 324,262 | | | $ | 605,228 | | | $ | 573,008 | | | | $ | 502,703 | | | $ | 424,854 | | | $ | 746,317 | | | $ | 605,228 | | |
| Specialty Civil Segment | Specialty Civil Segment | | Specialty Civil Segment | |
Heavy civil | Heavy civil | | $ | 78,884 | | | $ | 103,721 | | | 127,756 | | | $ | 144,943 | | | Heavy civil | | $ | 99,027 | | | $ | 78,884 | | | 153,273 | | | $ | 127,756 | | |
Rail | Rail | | 31,173 | | | 32,321 | | | 58,040 | | | 79,378 | | | Rail | | 17,205 | | | 31,173 | | | 31,886 | | | 58,040 | | |
Environmental | Environmental | | 25,237 | | | 20,300 | | | 45,536 | | | 41,438 | | | Environmental | | 61,662 | | | 25,237 | | | 109,216 | | | 45,536 | | |
| | $ | 135,294 | | | $ | 156,342 | | | $ | 231,332 | | | $ | 265,759 | | | | $ | 177,894 | | | $ | 135,294 | | | $ | 294,375 | | | $ | 231,332 | | |
Concentrations
Each of the Company's renewable projects is generally considered an individual customer because, typically, each project's developer forms its own project legal entity. The Company hadfollowing table provides the following approximate revenue and accounts receivable concentrations, net of allowances, for Renewables and Specialty Civil customers that accounted for 10% of the Company's revenue or accounts receivable for the periods ended:indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue % | | Revenue % | | |
| 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 | % | | * | * | | * | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue % | | Revenue % | | |
| Three Months Ended | | Six Months Ended | Accounts Receivable % | |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | June 30, 2022 | | December 31, 2021 | |
Company A (Renewables Segment) | 12.0 | % | | * | | 12.0 | % | | * | * | | * | |
Company B (Renewables Segment) | * | | 11.0 | % | | * | | 12.0 | % | * | | * | |
Company C (Renewables Segment) | * | | * | | * | | * | 11.5 | % | | * | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
* 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 anythey 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 condensed consolidated financial statements. See Note 11. Joint Ventures for additional discussion regarding joint ventures.
Recently Adopted Accounting Standards - Guidance Adopted in 2020
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted the standard on January 1, 2021 on a prospective basis, which did not have an impact on our disclosures for income taxes.
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. The Company is still evaluating the new standard but do not expect it to have a material impact on our estimate of the allowance for uncollectible accounts.
Management has evaluated other recently issued accounting pronouncements and does not believe that they will have a significant impact on the condensed consolidated financial statements andor 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 hasdid not hadhave a material adverse impact on the Company’s financial results for the periodthree and six months ended June 30, 2021. 2022 and 2021. Currently, most of the Company’s construction services are deemed essential under governmental mitigation orders and allboth of ourthe Company's 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 itsthe Company's 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. Management believes that it is taking appropriate steps to mitigate any potential impact to the Company; however, given the uncertainty regarding the ongoing potential effects of the COVID-19 pandemic, any future impacts cannot be quantified or predicted with specificity.
Warrant Information
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 the merger, the Company had 16,960,000 warrants ("Merger Warrants") outstanding, of which 460,000 were 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. The 460,000 private warrants can be exercised on a cashless basis.
In 2019, the Company entered into three equity agreements and issued Series B Preferred Stock. The agreements required that upon the exercise of any warrant with an exercise price of $11.50 or higher the Series B Preferred Stock will receive additional warrants ("Series B Preferred Stock - Anti-dilution Warrants") to purchase common shares at a price of $0.0001 per share. As of June 30, 2022, the Company had 5,308,697 Merger Warrants, of which 295,000 are considered private warrants, to purchase 2,654,349 shares of common stock at $11.50 per share. If the Merger Warrants were converted it would result in an additional 0.8 million anti-dilution warrants being issued. See Note 5. Fair Value of Financial Instruments for further discussion.
In August 2021, the Company entered into an agreement with ASOF Holdings I, L.P. and Ares Special Situations Fund IV, L.P. (together, "Ares Parties") which resulted in, among other things, the redemption of all Series A and Series B Preferred Stock, the issuance of Common Shares for the Ares Parties Series B Preferred Stock - Warrants and for Series B Preferred Stock - Anti-dilution rights, and the issuance of Pre-Funded warrants, exercisable into Common sock at a price of $0.0001 per share. The anti-dilution rights remain in place for the exercise of any Merger Warrants converted into Common Shares. See Note 8. Earnings Per Share for further discussion.
Note 2. Contract Assets and Liabilities and Accounts Receivable, Net
The timing of when we bill ourCompany bills its customers is generally dependent upon agreed-uponbased on contractual terms, including milestone billings based on the completion of certain phases of the work, or when services are provided.work. Sometimes, billing occurs subsequent toafter revenue recognition, resulting in unbilled revenue, which is accounted for as a contract asset. Sometimes we receivethe Company receives advance mobilization payments or deposits from ourits 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 representcondensed consolidated balance sheets represents 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 billedearned by us for work performed but held for payment by the customer as a form of security until we reachthe Company reaches certain construction milestones or completecompletes the project.
Contract assets consisted of the following:following as of the dates indicated:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 |
Costs and estimated earnings in excess of billings on uncompleted contracts | Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 83,869 | | | $ | 51,367 | | Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 192,268 | | | $ | 120,900 | |
Retainage receivable | Retainage receivable | 93,089 | | | 93,816 | | Retainage receivable | 111,699 | | | 93,398 | |
| | $ | 176,958 | | | $ | 145,183 | | | $ | 303,967 | | | $ | 214,298 | |
Contract assets as of June 30, 2022 include approximately $33.5 million for transaction price disputes in which the Company is pursuing settlement through dispute resolution and arbitration. The Company believes that these disputed amounts are collectible and recoverable under the applicable contracts. See Note 1. Business, Basis of Presentation and Significant Accounting Policies for further discussion of revenue recognized on variable consideration.
Contract liabilities consistconsisted of the following:following as of the dates indicated:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 |
Billings in excess of costs and estimated earnings on uncompleted contracts | Billings in excess of costs and estimated earnings on uncompleted contracts | $ | 90,557 | | | $ | 117,641 | | Billings in excess of costs and estimated earnings on uncompleted contracts | $ | 168,030 | | | $ | 125,658 | |
Loss on contracts in progress | Loss on contracts in progress | 9 | | | 594 | | Loss on contracts in progress | 985 | | | 470 | |
| | $ | 90,566 | | | $ | 118,235 | | | $ | 169,015 | | | $ | 126,128 | |
Revenue recognized for the three and six months ended June 30, 2022 that was included in the contract liability balance at December 31, 2021 was approximately $28.9 million and $117.9 million, respectively, and 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,million.
Accounts Receivable and revenue recognizedAllowance 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.Credit Losses
Activity in the allowance for doubtful accountscredit losses for the periods indicated was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Allowance for doubtful accounts at beginning of period | $ | 0 | | | $ | 89 | | | $ | 0 | | | $ | 75 | |
Plus: provision for (reduction in) allowance | 0 | | | 0 | | | 0 | | | 14 | |
Less: write-offs, net of recoveries | 0 | | | 0 | | | 0 | | | 0 | |
Allowance for doubtful accounts at period end | $ | 0 | | | $ | 89 | | | $ | 0 | | | $ | 89 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
(in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Allowance for credit losses at beginning of period | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Plus: provision for allowance | — | | | — | | | — | | | — | |
Less: write-offs, net of recoveries | — | | | — | | | — | | | — | |
Allowance for credit losses at period end | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Accounts Receivable at June 30, 2022 includes $18.3 million for transaction price disputes which are separate from those discussed above in contract assets. The Company is pursuing settlement through arbitration and believes that this amount is fully recoverable but cannot guarantee the timing of the collection due to the pending arbitration.
Note 3. Property, Plant and Equipment, Net
Property, plant and equipment consisted of the following:following as of the dates indicated:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 |
Buildings and leasehold improvements | Buildings and leasehold improvements | $ | 5,667 | | | $ | 4,402 | | Buildings and leasehold improvements | $ | 6,932 | | | $ | 6,884 | |
Land | Land | 17,600 | | | 17,600 | | Land | 17,600 | | | 17,600 | |
Construction equipment | Construction equipment | 212,304 | | | 192,402 | | Construction equipment | 256,828 | | | 227,807 | |
Office equipment, furniture and fixtures | Office equipment, furniture and fixtures | 3,637 | | | 3,620 | | Office equipment, furniture and fixtures | 2,964 | | | 3,687 | |
Vehicles | Vehicles | 7,538 | | | 7,326 | | Vehicles | 10,065 | | | 8,289 | |
| 246,746 | | | 225,350 | | |
Total property, plant and equipment | | Total property, plant and equipment | 294,389 | | | 264,267 | |
Accumulated depreciation | Accumulated depreciation | (111,232) | | | (94,604) | | Accumulated depreciation | (141,110) | | | (125,662) | |
Property, plant and equipment, net | Property, plant and equipment, net | $ | 135,514 | | | $ | 130,746 | | Property, plant and equipment, net | $ | 153,279 | | | $ | 138,605 | |
Depreciation expense of property, plant and equipment was $9,415$11.3 million and $8,777$9.4 million for the three months ended June 30, 20212022 and 2020,2021, respectively, and was $18,598$22.0 million and $17,293$18.6 million for the six months ended June 30, 20212022 and 2020,2021, respectively.
Note 4. Goodwill and Intangible Assets, Net
The following table provides the changes in the carrying amount of goodwill, by segment:reporting unit:
| (in thousands) | (in thousands) | Renewables | | Specialty Civil | | Total | (in thousands) | Renewables | | Specialty Civil | | Total |
January 1, 2020 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | | |
January 1, 2021 | | January 1, 2021 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
Adjustments | Adjustments | 0 | | | 0 | | | 0 | | Adjustments | — | | | — | | | — | |
December 31, 2020 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | | |
December 31, 2021 | | December 31, 2021 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
Adjustments | Adjustments | 0 | | | 0 | | | 0 | | Adjustments | — | | | — | | | — | |
June 30, 2021 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | | |
June 30, 2022 | | June 30, 2022 | $ | 3,020 | | | $ | 34,353 | | | $ | 37,373 | |
The goodwill recorded in the Company's Specialty Civil reporting unit is deductible for income tax purposes over a 15-year period, with the exception of $2.9 million that is not deductible.
Intangible assets consisted of the following as of the dates indicated:
| | | June 30, 2021 | | | | December 31, 2020 | | | | June 30, 2022 | | | | December 31, 2021 | | |
($ 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 | | | $ | (10,373) | | | $ | 16,127 | | | 4.5 years | | $ | 26,500 | | | $ | (8,481) | | | $ | 18,019 | | | 5 years | Customer relationships | $ | 26,500 | | | $ | (14,159) | | | $ | 12,341 | | | 3.5 years | | $ | 26,500 | | | $ | (12,267) | | | $ | 14,233 | | | 4 years |
Trade name | Trade name | 13,400 | | | (7,325) | | | 6,075 | | | 2.5 years | | 13,400 | | | (5,985) | | | 7,415 | | | 3 years | Trade name | 13,400 | | | (10,005) | | | 3,395 | | | 1.5 years | | 13,400 | | | (8,664) | | | 4,736 | | | 2 years |
| | | $ | 39,900 | | | $ | (17,698) | | | $ | 22,202 | | | $ | 39,900 | | | $ | (14,466) | | | $ | 25,434 | | | | $ | 39,900 | | | $ | (24,164) | | | $ | 15,736 | | | $ | 39,900 | | | $ | (20,931) | | | $ | 18,969 | | |
Amortization expense associated with intangible assets for the three months ended June 30, 20212022 and 2020,2021, totaled $1.6 million and $3.3$1.6 million, respectively, and $3.2 million and $6.7$3.2 million for the six months ended June 30, 20212022 and 2020,2021, respectively.
The following table provides the annual intangible amortization expense currently expected to be recognized for the years 20212022 through 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Remainder of 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
Amortization expense | $ | 3,233 | | | $ | 6,466 | | | $ | 5,841 | | | $ | 3,785 | | | $ | 2,876 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | |
Amortization expense | $ | 3,233 | | | $ | 5,841 | | | $ | 3,785 | | | $ | 2,877 | | | |
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 — Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or 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, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
(in thousands) | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities | Liabilities | | Liabilities | |
Private warrants | Private warrants | $ | 0 | | | $ | 634 | | | $ | 0 | | | $ | 634 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Private warrants | $ | — | | | $ | 301 | | | $ | — | | | $ | 301 | | | $ | — | | | $ | 410 | | | $ | — | | | $ | 410 | |
Series B Preferred Stock - Anti-dilution warrants | Series B Preferred Stock - Anti-dilution warrants | 0 | | | 0 | | | 8,200 | | | 8,200 | | | 0 | | | 0 | | | 8,800 | | | 8,800 | | Series B Preferred Stock - Anti-dilution warrants | — | | | — | | | 2,513 | | | 2,513 | | | — | | | — | | | 5,557 | | | 5,557 | |
Series B-1 Preferred Stock - Performance warrants | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 400 | | | 400 | | |
| | Total liabilities | Total liabilities | $ | 0 | | | $ | 634 | | | $ | 8,200 | | | $ | 8,834 | | | $ | 0 | | | $ | 0 | | | $ | 9,200 | | | $ | 9,200 | | Total liabilities | $ | — | | | $ | 301 | | | $ | 2,513 | | | $ | 2,814 | | | $ | — | | | $ | 410 | | | $ | 5,557 | | | $ | 5,967 | |
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 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 | | | | | |
| | | | | | | | | | | | |
(in thousands) | | Series B Preferred Stock - Anti-dilution warrants | | | | | | |
Beginning Balance, December 31, 2021 | | $ | 5,557 | | | | | | | |
Fair value adjustment - gain recognized in other income | | (3,044) | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Ending Balance, June 30, 2022 | | $ | 2,513 | | | | | | | |
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 (Anti-dilution Warrants) to purchase common shares at a price of $0.0001 per share. The agreements also require that if the Company fails to meet a certain Adjusted EBITDA (as that term is defined in the agreements) threshold on a trailing twelve-month basis from May 31, 2020 through April 30, 2021, the Series B Preferred Stock will receive additional warrants (Performance Warrants) to purchase common shares at $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.
The information below describes the balance sheet classification and the recurring fair value measurement for these requirements:the Company's liabilities measured at fair value on a recurring basis:
Private Warrants (recurring) - The Company has approximately 295,000 private warrants that are not actively traded on the public markets andfor which the Company adjusts the fair value at the end of each fiscal period using the price on that date multiplied by the number of 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 expensea warrant liability fair value adjustment for the three and six months ended June 30, 2021.2022. For further discussion see Note 8. Earnings Per Share.
Series B Preferred Stock - Anti-dilution Warrants (recurring)- As of June 30, 2022, the Company had 5,308,697 Merger Warrants outstanding. The numberconversion of commonMerger Warrants would result in the issuance of 0.8 million shares attributable toin the warrants issued 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 usingform of anti-dilution warrants. As of June 30, 2022, the stock price atCompany recorded the end of the quarter and was recorded as a liability.
Series B-1 Preferred Stock - Performance Warrants (recurring) - The warrant liability was recordedanti-dilution warrants at fair value, as a liability,which was estimated using a Monte Carlo Simulationsimulation based on certain significant unobservable inputs, such as a risk rate premium, Adjusted EBITDA volatility of stock, conversion stock price, volatilitycurrent stock price and projected Adjusted EBITDAamount of time remaining before expiration of the Merger Warrants. The calculation derived a fair value of $2.5 million for the Company. Asliability based on an anti-dilution share fair value of June 30, 2021, the Company remained above the Adjusted EBITDA threshold for the trailing twelve-month basis from May 31, 2020 through April 30, 2021 and therefore was not required to issue additional warrants.$3.11.
Significant unobservable inputs used in the fair value calculation as of the period indicated were as follows:
| | | | | |
| June 30, 2022 |
Stock price | $ | 8.03 | |
Conversion stock price | $ | 11.50 | |
Time before Merger Warrant expiration | 0.74 years |
Stock volatility | 66.54 | % |
Risk-free interest rate | 2.61 | % |
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 carrying value of the Company's outstanding recorded balance on the line of credit and long-term debt approximatesbalances, further discussed in Note 6. Debt, approximate fair value due to their floating interest rates.value.
Note 6. Debt and Series B Preferred Stock
Debt consisted of the following obligations as of:of the dates indicated:
| (in thousands) | (in thousands) | June 30, 2021 | | December 31, 2020 | (in thousands) | June 30, 2022 | | December 31, 2021 |
| | Term loan | $ | 173,345 | | | $ | 173,345 | | |
| Senior unsecured notes | | Senior unsecured notes | 300,000 | | | 300,000 | |
Line of credit | | Line of credit | 30,000 | | | — | |
Commercial equipment notes | Commercial equipment notes | 4,268 | | | 5,582 | | Commercial equipment notes | 2,294 | | | 3,557 | |
Total principal due for long-term debt | Total principal due for long-term debt | 177,613 | | | 178,927 | | Total principal due for long-term debt | 332,294 | | | 303,557 | |
Unamortized debt discount and issuance costs | Unamortized debt discount and issuance costs | (14,070) | | | (17,196) | | Unamortized debt discount and issuance costs | (10,113) | | | (10,867) | |
Less: Current portion of long-term debt | Less: Current portion of long-term debt | (2,277) | | | (2,506) | | Less: Current portion of long-term debt | (1,101) | | | (1,960) | |
Long-term debt, less current portion | Long-term debt, less current portion | $ | 161,266 | | | $ | 159,225 | | Long-term debt, less current portion | $ | 321,080 | | | $ | 290,730 | |
| Debt - Series B Preferred Stock | $ | 186,696 | | | $ | 185,396 | | |
Unamortized debt discount and issuance costs | (10,140) | | | (11,528) | | |
Long-term Series B Preferred Stock | $ | 176,556 | | | $ | 173,868 | | |
|
Senior Unsecured Notes
On August 17, 2021, IEA Energy Services LLC, a wholly owned subsidiary of the Company ("Services"), issued $300.0 million aggregate principal amount of its 6.625% senior unsecured notes due 2029 (the "Senior Unsecured Notes"), in a private placement. Interest is payable on the Senior Unsecured Notes on each February 15 and August 15. The weighted average interest rateSenior Unsecured Notes will mature on August 15, 2029. The Senior Unsecured Notes are guaranteed on a senior unsecured basis by the Company and certain of its domestic wholly owned subsidiaries (the "Guarantors").
Credit Agreement
On August 17, 2021, Services, as the borrower, and certain guarantors (including the Company), entered into a Credit Agreement (the "Credit Agreement") with a syndicate of lenders and CIBC Bank USA in its capacities as the Administrative and Collateral Agent for the term loan aslenders. The Credit Agreement provides for a $150.0 million senior secured revolving credit facility. The Credit Agreement is guaranteed by the Company and certain subsidiaries of the Company (the "Credit Agreement Guarantors" and together with Services, the "Loan Parties") and is secured by a security interest in substantially all of the Loan Parties’ personal property and assets. Services has the ability to increase available borrowing under the credit facility by an additional amount up to $50.0 million subject to certain conditions. As of June 30, 2021 and December 31, 2020,2022, $30.0 million was 6.90% and 7.00%, respectively.
Debt Covenants
The term loan is governed byoutstanding under the termssenior secured revolving credit facility, bearing an interest rate of the Third A&R Credit Agreement, dated May 2019, which include customary affirmative and negative covenants and provide for customary events of default, 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 2.75:1.0, for the four fiscal quarters ending December 31, 2021, and for all subsequent quarters, 2.25:1.0.6.25%.
Interest rates on the credit facility are based upon either (1) an index rate that is established at the highest of the prime rate or the sum of the federal funds rate plus 0.50%, or (2) at Services’ election, a LIBOR rate, plus in either case, an applicable interest rate margin. The Third A&Rapplicable interest rate margins are adjusted on a quarterly basis based upon Services’ first lien net leverage within the range of 1.00% to 2.50% for index rate loans and 2.00% and 3.50% for LIBOR loans. Borrowings under the credit facility shall initially bear interest at a rate per annum equal to LIBOR plus 2.50%. In anticipation of LIBOR's phase out, the Credit Agreement also includes certain limitationsa documented transition mechanism for selecting a benchmark replacement rate for LIBOR. In addition to paying interest on outstanding principal under the payment of cash dividendscredit facility, Services is required to pay a commitment fee to the lenders under the credit facility for unused commitments. The commitment fee rate ranges from 0.30% to 0.45% per annum depending 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.
Debt - 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 the Series B Preferred Stock is February 15, 2025.
The Series B Preferred Stock requires quarterly dividend payments calculated at a 12% annual rate on all outstanding Series B Preferred Stock when the Company’sServices’ First Lien Net Leverage Ratio (as defined in the Third A&RCredit Agreement).
Debt Covenants
The credit facility requires Services to comply with a quarterly maximum consolidated First Lien Net Leverage Ratio test and minimum Fixed Charge Coverage ratio as follows:
•Fixed Charge Coverage Ratio - The Loan Parties shall not permit the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) isas of the last day of any four consecutive fiscal quarter period ending on the last day of a fiscal quarter to be less than or equal1.20:1.00.
•First Lien Net Leverage Ratio – The Loan Parties will not permit the First Lien Net Leverage Ratio (as defined in the Credit Agreement) as of the last day of any four consecutive fiscal quarter period ending on the last day of a fiscal quarter to 1.50:1.0exceed 1.75:1.00 (subject to certain increases for permitted acquisitions).
In addition, the Credit Agreement contains a number of covenants that, among other things and a 13.5% rate ifsubject to certain exceptions, limit Services’ ability and the ratio is greater. The Series B Preferred Stock agreements allowability of its restricted subsidiaries, including the Company, to accrue, but notincur indebtedness or guarantee debt; incur liens; make investments, loans and acquisitions; merge, liquidate or dissolve; sell assets, including capital stock of subsidiaries; pay the dividends at a 15.0% annual rate. Accrued dividends increase the amounton its capital stock or redeem, repurchase or retire its capital stock; amend, prepay, redeem or purchase subordinated debt; and engage in transactions with affiliates.
As of Series B Preferred Stock. Accrued dividends were $18.3 million at June 30, 2021 and December 31, 2020, respectively. Dividend payments are not deductible2022, management believed the Company was in calculating the Company’s federal and state income taxes.compliance with these covenants.
Contractual Maturities
Contractual maturities of the Company's outstanding principal on debt obligations are as follows as of June 30, 2021:2022:
| (in thousands) | (in thousands) | Maturities | (in thousands) | Maturities |
Remainder of 2021 | $ | 1,214 | | |
2022 | 16,916 | | |
Remainder of 2022 | | Remainder of 2022 | $ | 682 | |
2023 | 2023 | 29,986 | | 2023 | 836 | |
2024 | 2024 | 129,368 | | 2024 | 441 | |
2025 | 2025 | 129 | | 2025 | 255 | |
2026 | | 2026 | 30,080 | |
Thereafter | Thereafter | 0 | | Thereafter | 300,000 | |
Total contractual maturities | Total contractual maturities | $ | 177,613 | | Total contractual maturities | $ | 332,294 | |
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, 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 containsthey contain 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, recognized under various finance leases for equipment totaling $52.2$69.1 million and $57.6$54.4 million at June 30, 20212022 and December 31, 2020,2021, respectively. Gross amounts recognized within property, plant and equipment in the condensed consolidated balance sheets under this capitalizedthese finance lease agreementagreements at June 30, 20212022 and December 31, 2020,2021, totaled $135.4$170.9 million and $128.0$143.6 million, less accumulated depreciation of $65.3$83.3 million and $55.1$71.4 million, respectively, for net balances of $70.1$87.6 million and $72.9$72.2 million, respectively. Depreciation expense for assets held under the finance leases is included in cost of revenue in the condensed consolidated statements of operations.
The future minimum payments of finance lease obligations are as follows:follows as of June 30, 2022:
| (in thousands) | (in thousands) | | (in thousands) | |
Remainder of 2021 | $ | 13,547 | | |
2022 | 23,379 | | |
Remainder of 2022 | | Remainder of 2022 | $ | 15,211 | |
2023 | 2023 | 8,984 | | 2023 | 19,830 | |
2024 | 2024 | 5,043 | | 2024 | 15,731 | |
2025 | 2025 | 3,555 | | 2025 | 13,226 | |
2026 | | 2026 | 9,344 | |
Thereafter | Thereafter | 811 | | Thereafter | 2,388 | |
Future minimum lease payments | Future minimum lease payments | 55,319 | | Future minimum lease payments | 75,730 | |
Less: Amount representing interest | Less: Amount representing interest | (3,107) | | Less: Amount representing interest | (6,583) | |
Present value of minimum lease payments | Present value of minimum lease payments | 52,212 | | Present value of minimum lease payments | 69,147 | |
Less: Current portion of finance lease obligations | Less: Current portion of finance lease obligations | 24,842 | | Less: Current portion of finance lease obligations | 23,150 | |
Finance lease obligations, less current portion | Finance lease obligations, less current portion | $ | 27,370 | | Finance lease obligations, less current portion | $ | 45,997 | |
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 $39.2$34.8 million and $38.0$38.8 million at June 30, 20212022 and December 31, 2020,2021, respectively. Property underThe assets related to these operating lease agreements at June 30, 20212022 and December 31, 2020,2021, totaled $37.7$33.3 million and $36.5$37.3 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$5.8 million per year. Total expense under these agreements are listed in the following table as variable lease costs.
The future minimum payments under non-cancelable operating leases are as follows:follows as of June 30, 2022:
| (in thousands) | (in thousands) | | (in thousands) | |
Remainder of 2021 | $ | 6,229 | | |
2022 | 11,238 | | |
Remainder of 2022 | | Remainder of 2022 | $ | 6,284 | |
2023 | 2023 | 8,776 | | 2023 | 10,500 | |
2024 | 2024 | 4,740 | | 2024 | 5,884 | |
2025 | 2025 | 2,236 | | 2025 | 3,030 | |
2026 | | 2026 | 2,371 | |
Thereafter | Thereafter | 18,936 | | Thereafter | 18,634 | |
Future minimum lease payments | Future minimum lease payments | 52,155 | | Future minimum lease payments | 46,703 | |
Less: Amount representing interest | Less: Amount representing interest | (12,983) | | Less: Amount representing interest | (11,859) | |
Present value of minimum lease payments | Present value of minimum lease payments | 39,172 | | Present value of minimum lease payments | 34,844 | |
Less: Current portion of operating lease obligations | Less: Current portion of operating lease obligations | 9,817 | | Less: Current portion of operating lease obligations | 10,201 | |
Operating lease obligations, less current portion | Operating lease obligations, less current portion | $ | 29,355 | | Operating lease obligations, less current portion | $ | 24,643 | |
Lease Information
| | | Three months ended | Six Months Ended | | Three months ended | Six Months Ended |
| | June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 |
| Finance Lease cost: | Finance Lease cost: | | Finance Lease cost: | |
Amortization of right-of-use assets | Amortization of right-of-use assets | $ | 5,843 | | $ | 5,858 | | $ | 11,678 | | $ | 11,555 | | Amortization of right-of-use assets | $ | 7,019 | | $ | 5,843 | | $ | 13,541 | | $ | 11,678 | |
Interest on lease liabilities | Interest on lease liabilities | 789 | | 940 | | 1,606 | | 2,126 | | Interest on lease liabilities | 857 | | 789 | | 1,594 | | 1,606 | |
Operating lease cost | Operating lease cost | 3,179 | | 3,490 | | 6,573 | | 6,967 | | Operating lease cost | 3,337 | | 3,179 | | 6,713 | | 6,573 | |
Short-term lease cost | Short-term lease cost | 35,624 | | 45,134 | | 59,228 | | 66,768 | | Short-term lease cost | 15,730 | | 35,624 | | 40,359 | | 59,228 | |
Variable lease cost | Variable lease cost | 2,910 | | 985 | | 4,157 | | 1,944 | | Variable lease cost | 1,125 | | 2,910 | | 2,233 | | 4,157 | |
Sublease Income | Sublease Income | (33) | | (33) | | (66) | | (66) | | Sublease Income | (33) | | (33) | | (66) | | (66) | |
Total lease cost | Total lease cost | $ | 48,312 | | $ | 56,374 | | $ | 83,176 | | $ | 89,294 | | Total lease cost | $ | 28,035 | | $ | 48,312 | | $ | 64,374 | | $ | 83,176 | |
| 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 | $ | 789 | | $ | 940 | | $ | 1,606 | | $ | 2,126 | | Operating cash flows from finance leases | $ | 857 | | $ | 789 | | $ | 1,594 | | $ | 1,606 | |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 3,179 | | $ | 3,385 | | $ | 6,424 | | $ | 6,728 | | Operating cash flows from operating leases | $ | 3,369 | | $ | 3,179 | | $ | 6,709 | | $ | 6,424 | |
| Weighted-average remaining lease term - finance leases | Weighted-average remaining lease term - finance leases | | 2.66 years | 2.70 years | Weighted-average remaining lease term - finance leases | | 3.67 years | 2.66 years |
Weighted-average remaining lease term - operating leases | Weighted-average remaining lease term - operating leases | | 7.71 years | 7.86 years | Weighted-average remaining lease term - operating leases | | 7.74 years | 7.71 years |
Weighted-average discount rate - finance leases | Weighted-average discount rate - finance leases | | 5.85 | % | 6.27 | % | Weighted-average discount rate - finance leases | | 5.19 | % | 5.85 | % |
Weighted-average discount rate - operating leases | Weighted-average discount rate - operating leases | | 6.81 | % | 6.96 | % | Weighted-average discount rate - operating leases | | 6.64 | % | 6.81 | % |
Letters of Credit and Surety Bonds
In the ordinary course of business, the Company ismay be 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, 2021,2022, and December 31, 2020,2021, the Company was contingently liable under letters of credit issued under its Third A&R Credit Agreement,credit facility in the amount of $21.7$24.2 million and $7.8$31.1 million, respectively, related to projects and insurance. In addition, as of June 30, 20212022 and December 31, 2020,2021, the Company had outstanding surety bonds on projects with nominal amounts of $3.0$4.0 billion and $2.8$3.3 billion, respectively. The remaining approximate exposure related to these surety bonds amounted to $999.8 million and $353.5 million, 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 (the "Board"), Oaktree Capital Management ("Oaktree"), and Ares Management, LLC ("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. On July 28, 2021, the Company and the plaintiff stockholder entered into a memorandum of understanding to settle the lawsuit against all defendants, subject to approval by the Delaware Chancery Court, the terms of which do not require payment of any settlement funds to the plaintiff except that, as they are entitled to do under Delaware law, the plaintiffs are entitled to ask the Court to award them attorneys’ fees in connection with the settlement. The timing of the approval of the settlement, if any, by the Court is unknown at this time but is not expected to occur until later in 2022. The Company has placed its director and officer liability insurance carriers on notice of the lawsuit;lawsuit and the proposed settlement; 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.exhausted. 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 successfully 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 onflows, although there can be no certainty that this will be the Company's business, financial condition, results of operations and cash flows.case.
Note 8. Earnings Per Share
The Company calculates earnings (loss) per share (“EPS”("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 and net income allocated to participating securities. If there is a net loss, the amount of the loss is increased by those preferred dividends. All Series B Preferred Stock was redeemed in August 2021.
Diluted EPS, where applicable, assumes the dilutive effect of (i) Series A cumulative convertible preferred stock, using the if-converted method, (ii) publicly traded warrants, (iii) Series B Preferred Stock - Warrants and (iv) the assumed exercise of in-the-money stock options and the assumed vesting of outstanding restricted stock units (“RSUs”("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, ifor 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:follows for the periods indicated:
| | | 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) | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | Numerator: | | Numerator: | |
Net income (loss) | Net income (loss) | $ | 4,699 | | | $ | 3,597 | | | (15,735) | | | (9,146) | | Net income (loss) | $ | 16,969 | | | $ | 4,699 | | | (10,102) | | | (15,735) | |
Less: Convertible Preferred Stock dividends | Less: Convertible Preferred Stock dividends | (676) | | | (606) | | | (1,332) | | | (1,372) | | Less: Convertible Preferred Stock dividends | — | | | (676) | | | — | | | (1,332) | |
| Less: Net income allocated to participating securities | Less: Net income allocated to participating securities | (788) | | | (802) | | | 0 | | | 0 | | Less: Net income allocated to participating securities | (32) | | | (788) | | | — | | | — | |
Net income (loss) available to common stockholders | Net income (loss) available to common stockholders | 3,235 | | | 2,189 | | | (17,067) | | | (10,518) | | Net income (loss) available to common stockholders | 16,937 | | | 3,235 | | | (10,102) | | | (17,067) | |
| Denominator: | Denominator: | | Denominator: | |
Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | 24,471,286 | | | 20,751,673 | | | 23,768,413 | | | 20,636,944 | | Weighted average common shares outstanding - basic | 48,419,272 | | | 24,471,286 | | | 48,275,103 | | | 23,768,413 | |
| Series B Preferred Stock - Warrants(2) | Series B Preferred Stock - Warrants(2) | 6,649,026 | | | 7,683,716 | | | 0 | | | 0 | | Series B Preferred Stock - Warrants (2) | 92,359 | | | 6,649,026 | | | — | | | — | |
Convertible Series A Preferred Stock | 0 | | | 9,448,988 | | | 0 | | | 0 | | |
| Merger Warrants(1) | Merger Warrants(1) | 696,434 | | | 0 | | | 0 | | | 0 | | Merger Warrants (1) | — | | | 696,434 | | | — | | | — | |
Options | 61,740 | | | 0 | | | 0 | | | 0 | | |
RSUs(4) | 1,560,817 | | | 2,094,005 | | | 0 | | | 0 | | |
Pre-Funded Warrants (3) | | Pre-Funded Warrants (3) | 4,327,353 | | | — | | | — | | | — | |
Options (4) | | Options (4) | — | | | 61,740 | | | — | | | — | |
RSUs (5) | | RSUs (5) | 1,550,112 | | | 1,560,817 | | | — | | | — | |
Weighted average common shares outstanding - diluted | Weighted average common shares outstanding - diluted | 33,439,303 | | | 39,978,382 | | | 23,768,413 | | | 20,636,944 | | Weighted average common shares outstanding - diluted | 54,389,096 | | | 33,439,303 | | | 48,275,103 | | | 23,768,413 | |
| Anti-dilutive: | Anti-dilutive: | | Anti-dilutive: | |
Convertible Series A Preferred Stock | Convertible Series A Preferred Stock | 2,090,443 | | | 0 | | | 1,859,350 | | | 8,001,014 | | Convertible Series A Preferred Stock | — | | | 2,090,443 | | | — | | | 1,859,350 | |
Merger Warrants (1) | Merger Warrants (1) | 0 | | | 0 | | | 696,434 | | | 0 | | Merger Warrants (1) | — | | | — | | | — | | | 696,434 | |
Series B Preferred Stock - Warrants (2) | Series B Preferred Stock - Warrants (2) | 0 | | | 0 | | | 6,131,520 | | | 7,679,520 | | Series B Preferred Stock - Warrants (2) | — | | | — | | | 92,359 | | | 6,131,520 | |
Options (3) | 0 | | | 0 | | | 112,355 | | | 0 | | |
RSUs (4) | 0 | | | 0 | | | 1,759,431 | | | 1,775,182 | | |
Pre-Funded Warrants (3) | | Pre-Funded Warrants (3) | — | | | — | | | 4,327,353 | | | — | |
Options (4) | | Options (4) | — | | | — | | | — | | | 112,355 | |
RSUs (5) | | RSUs (5) | — | | | — | | | 1,647,070 | | | 1,759,431 | |
| Basic EPS | Basic EPS | 0.13 | | | 0.11 | | | (0.72) | | | (0.51) | | Basic EPS | 0.35 | | | 0.13 | | | (0.21) | | | (0.72) | |
Diluted EPS (5) | 0.12 | | | 0.09 | | | (0.72) | | | (0.51) | | |
Diluted EPS (6) | | Diluted EPS (6) | 0.31 | | | 0.12 | | | (0.21) | | | (0.72) | |
(1) As of June 30, 2020,2022, there were Merger Warrants to purchase 8,480,0002,654,349 shares of common stock at $11.50 per shareshare.
For the three and six months ended June 30, 2022, the warrants were not considered as dilutive as the warrants’ exercise price was
greater than the average market price of the common stock during the periods. For the three and six months ended
June 30, 2021, the average market price of the common stock was greater than the warrants' exercise price during the
periods. These warrants were calculated using the treasury stock method and were dilutive for the three months ended
June 30, 2021 and considered anti-dilutive for the six months ended June 30, 2021.
(2) As of June 30, 2022, there remained 92,359 Series B Preferred Stock - Warrants that were dilutive for the three months ended June 30, 2022 and considered anti-dilutive for the six months ended June 30, 2022. The warrants are considered participating securities because the holders are entitled to participate in any distributions similar to that of common shareholders.
(3) As of June 30, 2022, there were 4,327,353 Pre-Funded Warrants that are considered participating because the holder is entitled to participate in any distributions similar to that of common shareholders.
(4) As of June 30, 2022, there were 480,124 vested options not considered as dilutive as their exercise price was greater than the average market price of the common stock during the period. These warrantsoptions were calculated using the treasury stock method and were dilutive for the three months ended June 30, 2021 and considered 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.
(3)(5) As of June 30, 2020,2022 and 2021, there were 539,034 of vested401,636 and 132,108 unvested options 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,PSUs, respectively. These awards were not considered dilutive as the respective performance targets werehad not been achieved.
(5)(6) For purposes of calculating diluted earnings per shares the numerator was calculated as net income (loss) less preferred dividendsshare for the three months ended June 30, 2021, and 2020.the numerator was net income less preferred dividends.
Merger Warrants
On AugustNovember 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 Board authorized a repurchase program for the Company’s Merger Warrants. This repurchase program allows the Company had 16,925,160 Merger Warrants outstanding,to purchase up to $25.0 million of which 295,000 are considered private warrants. Two Merger Warrantswarrants, and will be exercisable for one share of our common stock at $11.50 per share untilend no later than the expiration of the warrants 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 warrantsinformation is related to purchases made for the Series B Preferred Stock issuance.six months ended June 30, 2022:
•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. | | | | | | | | | | | | | | | | | |
| Issuer Purchases of Equity Securities |
Period | Total Number of Warrants Purchased | | Average Price Paid per Warrant | | Approximate Dollar Value of Warrants that May Yet Be Purchased Under the Plans or Programs (in thousands) |
January | 1,009,802 | | | $ | 1.48 | | | $ | 11,457 | |
February | 505,597 | | | 1.79 | | | 10,536 | |
March | 177,230 | | | 2.06 | | | 10,167 | |
April | 384,817 | | | 2.03 | | | 9,373 | |
May | 268,506 | | | 1.84 | | | 8,871 | |
June | — | | | — | | | 8,871 | |
Total | 2,345,952 | | | $ | 1.72 | | | |
| | | | | |
•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, 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, 2021,2022, the Company has accrued a cumulativerepurchased 11,616,483 warrants. The Merger Agreement, see Note 13. Subsequent Events, prevents future repurchases of $5.7 million in dividends to the holder of Series A Preferred Stock as a reduction to additional paid-in capital.warrants.
Stock Compensation
Under guidance of ASC Topic 718, “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 wasis based on the closing market price of ourthe Company's 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, 2022 and 2021, and 2020, wethe Company recognized $1.9$1.8 million and $0.8$1.9 million in compensation expense, respectively, and $2.7$3.4 million and $2.0$2.7 million for the six months ended June 30, 20212022 and 2020,2021, respectively.
Note 9. Income Taxes
The Company’s statutory federal tax rate was 21.00%21.0% for the periods ended June 30, 20212022 and 2020,2021, respectively. State tax rates for the same period vary among states and range from approximately 0.8% to 12.0%11.5%. A small number of states do not impose an income tax.
The effective tax rates for the three months ended June 30, 2022 and 2021 were 27.8% and 2020 were 47.0% and 56.8%, respectively, and were (12.7)%32.6% and (73.4)(12.7)% for the six months ended June 30, 20212022 and 2020,2021, 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 and executive compensation, which isare not deductible for federal and state income taxes.tax purposes. There were 0no changes in uncertain tax positions during the periods ended June 30, 20212022 and 2020.2021.
On March 27, 2020,
The Company made use of the payroll tax deferral provision of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”"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 affected the consolidated financial statements for the year ended December 31, 2020.
The Company has also made use of the payroll deferral provision to defer the 6.2% social security tax of approximately $13.6 million through December 31, 2020. Half of thistax. The remaining amount is required to be paid on December 31, 2021 and the other half by December 31, 2022.
2022 is $7.0 million.
Note 10. Segments
We operate ourThe Company operates its business as two reportable segments: the Renewables segment and the Specialty Civil segment. Each of ourthe Company's reportable segments is comprised of similar business units that specialize in services unique to their respective markets. The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. OurThe Company's 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,financial results, 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 ourits 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 ourthe Company's 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 aare brief descriptiondescriptions of the Company's reportable segments:segments, each of which operates throughout the U.S.:
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:follows for the periods indicated:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
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 | $ | 424,854 | | 75.8 | % | | $ | 324,262 | | 67.5 | % | | $ | 605,228 | | 72.3 | % | | $ | 573,008 | | 68.3 | % | Renewables | $ | 502,703 | | 73.9 | % | | $ | 424,854 | | 75.8 | % | | $ | 746,317 | | 71.7 | % | | $ | 605,228 | | 72.3 | % |
Specialty Civil | Specialty Civil | 135,294 | | 24.2 | % | | 156,342 | | 32.5 | % | | 231,332 | | 27.7 | % | | 265,759 | | 31.7 | % | Specialty Civil | 177,894 | | 26.1 | % | | 135,294 | | 24.2 | % | | 294,375 | | 28.3 | % | | 231,332 | | 27.7 | % |
| Total revenue | Total revenue | $ | 560,148 | | 100.0 | % | | $ | 480,604 | | 100.0 | % | | $ | 836,560 | | 100.0 | % | | $ | 838,767 | | 100.0 | % | Total revenue | $ | 680,597 | | 100.0 | % | | $ | 560,148 | | 100.0 | % | | $ | 1,040,692 | | 100.0 | % | | $ | 836,560 | | 100.0 | % |
Segment Gross Profit
Gross profit by segment was as follows:follows for the periods indicated:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | 2021 | | 2020 | | 2021 | | 2020 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
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 | $ | 42,883 | | 10.1 | % | | $ | 36,983 | | 11.4 | % | | $ | 55,063 | | 9.1 | % | | $ | 62,812 | | 11.0 | % | Renewables | $ | 44,797 | | 8.9 | % | | $ | 42,883 | | 10.1 | % | | $ | 46,098 | | 6.2 | % | | $ | 55,063 | | 9.1 | % |
Specialty Civil | Specialty Civil | 10,600 | | 7.8 | % | | 17,258 | | 11.0 | % | | 14,961 | | 6.5 | % | | 24,470 | | 9.2 | % | Specialty Civil | 16,767 | | 9.4 | % | | 10,600 | | 7.8 | % | | 19,296 | | 6.6 | % | | 14,961 | | 6.5 | % |
Total gross profit | Total gross profit | $ | 53,483 | | 9.5 | % | | $ | 54,241 | | 11.3 | % | | $ | 70,024 | | 8.4 | % | | $ | 87,282 | | 10.4 | % | Total gross profit | $ | 61,564 | | 9.0 | % | | $ | 53,483 | | 9.5 | % | | $ | 65,394 | | 6.3 | % | | $ | 70,024 | | 8.4 | % |
Note 11. Joint Ventures
As of June 30, 2021,On May 22, 2019, the Company did not have any VIEs but did have oneformed a joint venture that usedwith another construction company for purposes of designing and constructing an expansion of a major railway. The joint venture does not meet the qualifications of a VIE, and the Company records its share of the joint venture's results and balances within the Specialty Civil segment using theproportionate consolidation method at 25% ownership. The joint venture's balances consisted of the following balances were included inas of the condensed consolidated financial statements:dates indicated:
| (in thousands) | (in thousands) | | June 30, 2021 | | (in thousands) | | June 30, 2022 | December 31, 2021 | |
Assets | Assets | | | | Assets | | | |
Cash | Cash | | $ | 6,918 | | | Cash | | $ | 8,697 | | $ | 8,850 | | |
Accounts receivable | Accounts receivable | | 3,550 | | | Accounts receivable | | 1,615 | | 874 | | |
Contract assets | Contract assets | | 2,064 | | | Contract assets | | 3,310 | | 2,796 | | |
| Liabilities | Liabilities | | | Liabilities | | |
Accounts payable | Accounts payable | | $ | 3,782 | | | Accounts payable | | $ | 3,109 | | $ | 2,591 | | |
Contract liabilities | Contract liabilities | | 8,750 | | | Contract liabilities | | 7,305 | | 7,353 | | |
| Equity | | Equity | | $ | 3,208 | | $ | 2,576 | | |
| | | Three Months Ended | Six Months Ended | | | Three Months Ended June 30, | Six Months Ended June 30, | |
| | June 30, 2021 | | | 2022 | 2021 | 2022 | 2021 | |
Revenue | Revenue | $ | 5,089 | | $ | 9,590 | | | Revenue | $ | 4,024 | | $ | 5,089 | | $ | 5,147 | | $ | 9,590 | | |
Cost of revenue | Cost of revenue | 5,089 | | 9,590 | | | Cost of revenue | 3,532 | | 5,089 | | 4,515 | | 9,590 | | |
Selling, general and administrative expenses | 450 | | 450 | | | |
|
Note 12. Related Party Transactions
On February 9,August 2, 2021, in connection with a series of equity transactions, the Company entered into a Stockholders’ Agreement with the Ares Management, LLC, on behalf of its affiliated funds, investment vehicles and/or managed accounts (“Ares”) purchasedParties. Pursuant to 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.Stockholders’ Agreement:
Related Party Shareholders•The Ares Parties are entitled to designate 2 members of the Company's Board under certain circumstances, as defined in the Stockholders' Agreement.
| | | | | | | | |
Type of Equity
•The Ares Parties agreed to certain restrictions regarding, among other matters, (i) transfers of common stock and (ii) taking certain actions regarding the Board's composition.
| Holder | Ownership Percentage |
Series A Preferred Stock and Series A Conversion Warrants | Ares | 100 | % |
Series B-1 Preferred Stock, Performance Warrants, Warrants at Closing (initial amount issued) | Ares | 100 | % |
| | |
Series B-2 and B-3 Preferred Stock, Warrants at Closing | Ares | 100 | % |
•The Ares Parties agreed to cause all voting securities to be present at any annual or special meeting in which directors are to be elected, to vote such securities either as recommended by the Board, or in the same proportions as votes cast by other voting securities with respect to director nominees or other nominees and in favor of any director nominee of the Ares Parties, and not to vote in favor of a change of control transaction pursuant to which the Ares Parties would receive consideration that is different in amount or form from other stockholders unless approved by the Board.
•The Ares Parties are afforded reasonable access to the Company's books and records for so long as the Ares Parties have a right to designate a director to the Board.
Note 13. Subsequent Event
On July 24, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MasTec, Inc. (“MasTec”), a leading infrastructure construction company operating mainly throughout North America across a range of industries, and Indigo Acquisition I Corp., a wholly owned subsidiary of MasTec (“Merger Sub”). The Merger Agreement provides for the merger of Merger Sub with and into the Company, with the Company continuing as the surviving company and a direct, wholly-owned subsidiary of MasTec (the “Merger”). Each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Merger will be cancelled and converted in the Merger into the right to receive (i) 0.0483 of a share of MasTec common stock and (ii) $10.50 in cash.
Completion of the Merger is subject to the satisfaction or waiver of certain closing conditions, including: (i) approval by the Company’s stockholders; (ii) the absence of any restraining order, injunction, judgment, order or decree or other law prohibiting consummation of the Merger; (iii) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period; (iv) the approval for listing on the New York Stock Exchange of the MasTec common stock to be issued in connection with the Merger; (v) effectiveness of the registration statement on Form S-4 to be filed by MasTec pursuant to which the issuance of such shares of MasTec common stock will be registered under the Securities Act; and (vi) other customary closing conditions. The Company cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if the Merger will close.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”"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, otherOther than statements of historical fact included in this Quarterly Report, all statements 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. Factors that could cause actual results to differ include:
•potential risks and uncertainties relating to COVID-19 (including new and emerging strains and variants), 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 treatmitigate its impact, and the potential negative impacts of COVID-19 on permitting and project construction cycles, the U.S. economy and financial markets;
•the effect of the announcement or pendency of the Merger may have on our business relationships, operating results, and business generally;
•the risk that the Merger may not be consummated in a timely manner, if at all;
•supply chain and labor market disruptions;
•the general impact of inflationary market pressures on labor markets, material costs and availability, the future availability of credit and the ability of our customers to proceed with previously funded projects;
•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;
•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;
•the nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against us and others;
•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, 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.law.
Throughout this section, unless otherwise noted or the context otherwise requires, “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 specialize in providing complete engineering, procurement and construction services throughout the United States for the renewable energy, traditional power and civil infrastructure industries. These services include the design, site development, construction, installation and restoration of infrastructure. We have completed more than 240260 wind and solar projects in 4042 states and construct one of every five gigawatts put in to place throughout the U.S. in any given year. Although the Company hasWe have historically focused on the renewable industry, but hasand have recently focused on further expansion into the solar market and with our recent acquisitions have expandedon expanding its construction capabilities and geographic footprint in the areas of environmental remediation, industrial maintenance, specialty paving, heavy civil and rail infrastructure construction, creating a diverse national platform of specialty construction capabilities. We believe we have the ability to continue to expand these services because we are well-positioned to leverage our expertise and relationships in the wind energy business to provide complete infrastructure solutions in all areas.solutions.
We have two reportable segments: the Renewables (“Renewables”("Renewables") segment and the Heavy Civil and Industrial (“("Specialty Civil”Civil") segment. See Segment Results for a description of the reportable segments and their operations.
Coronavirus Pandemic UpdateProposed Merger with MasTec, Inc.
On July 24, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MasTec, Inc. (“MasTec”), a leading infrastructure construction company operating mainly throughout North America across a range of industries, and Indigo Acquisition I Corp., a wholly owned subsidiary of MasTec (“Merger Sub”). The Merger Agreement provides for the merger of Merger Sub with and into the Company, with the Company continuing as the surviving company and a direct, wholly-owned subsidiary of MasTec (the “Merger”). Each share of our common stock issued and outstanding immediately prior to the effective time of the Merger will be cancelled and converted in the Merger into the right to receive (i) 0.0483 of a share of MasTec common stock and (ii) $10.50 in cash.
The Merger is expected to close during the fourth quarter of 2022, subject to the satisfaction or waiver of certain closing conditions, including: (i) approval by our stockholders; (ii) the absence of any restraining order, injunction, judgment, order or decree or other law prohibiting consummation of the Merger; (iii) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period; (iv) the approval for listing on the New York Stock Exchange of the MasTec common stock to be issued in connection with the Merger; (v) effectiveness of the registration statement on Form S-4 to be filed by MasTec pursuant to which the issuance of such shares of MasTec common stock will be registered under the Securities Act; and (vi) other customary closing conditions. We cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if the Merger will close.
The Merger Agreement contains termination rights for the Company and MasTec, including a right for either party to terminate if the Merger is not consummated by July 24, 2023 (or as extended in accordance with the Merger Agreement). Upon the termination of the Merger Agreement under specified circumstances, including if our Board of Directors changes or withdraws its recommendation of the Merger to stockholders or terminates the Merger Agreement to enter into an agreement with respect to a superior acquisition proposal, we would be required to pay MasTec a termination fee of $27.5 million.
The 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 are actively monitoring the COVID-19 pandemic, including disease progression, vaccine response and availability, federal, state and local government actions, the Center for Disease Control (“CDC”) and World 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.
We have noticed an impact of COVID-19 in adding new projects to our 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 unable to predict whether COVID-19 will continue to negatively impact the construction business and the degree of such impact as more 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.
Current Quarter Financials
Key financial results for the quarter ended June 30, 20212022 include:
•Consolidated revenues were $680.6 million, of which 73.9% was attributable to the Renewables segment and 26.1% was attributable to the Specialty Civil segment, and increased 16.6% to $560.1 million21.5% as compared to $480.6$560.1 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;2021;
•Operating income decreased $3.6increased $3.2 million, to $22.6$25.8 million, as compared to income of $26.2$22.6 million for the quarter ended June 30, 2020;2021;
•Net income increased 30.6%, or $1.1$12.3 million, to net income of $4.7$17.0 million, as compared to $3.6income of $4.7 million for the quarter ended June 30, 2020;2021; and
•Backlog increased 33.5%20.3%, or $692.3 million$593.5 to $2.8$3.5 billion as compared to $2.1$2.9 billion for the year endedat December 31, 2020.2021.
TrendsSee Results of Operations for further discussion on changes in operating results and Futurebacklog.
Business Trends
We believe there are long-term growth opportunities across the industries in which we operate, and we continue to have a positive long-term outlook. We believe that with our full-service operations, broad geographic reach, financial position and technical expertise, we are well positioned to mitigate the risks and challenges in our industries while continuing to capitalize on opportunities and trends.
Inflationary Market Pressures. We are experiencing the general impact of inflationary market pressures in our supply chain and labor markets. We continue to see pressures on non-union labor costs, as the inflationary environment, coupled with the general labor shortage, has created highly competitive markets for talent and opportunities for regular wage inflation.We continue to operate with disciplined hiring practices, but we believe our labor costs will continue to increase given our demand for labor in this environment. We are also experiencing difficulties in securing pricing or the availability of certain supplies and raw materials, as sometimes unpredictable supply chain market price escalations are impacting our subcontractors and suppliers. Our contracting practices require us to lock in pricing with subcontractors and suppliers at the time we sign a project contract, which mitigates some of these inflationary risks.However, the current market pressures are, at times, making it untenable for our suppliers and subcontractors to locate materials or honor contracted pricing without undue hardship and we believe this trend is likely to continue for so long as markets continue to experience current levels of inflation. And, while opportunities to bid on new projects and work are at some of the highest levels we’ve seen in several years, we believe inflationary market pressures may impact our ability to secure backlog in the near term.Particularly in our Specialty Civil segment, we continue to see projects on which we have submitted competitive bids being left unawarded, as all submitted bids have exceeded allowable budgets due to the inflationary pressures on materials and labor. Additionally, continued inflation may result in tightening of the credit markets, making access to funding, bonding, letters of credit or sureties more difficult, any of which could adversely impact our profitability and cash flow.
Labor Shortage. We continue to address the longer-term need for additional labor resources in our markets, as our customers continue to seek additional specialized labor resources to address an aging workforce and longer-term labor availability issues, increasing pressure to reduce costs and improve reliability, and increasing duration and complexity of their capital programs. We believe these trends will continue, possibly to such a degree that demand for labor resources will outpace supply. Furthermore, the cyclical nature of the Renewables and, to a certain extent, parts of our Specialty Civil segment, can create shortages of qualified labor in those markets during periods of high demand. Our ability to capitalize on available opportunities is limited by our ability to employ, train and retain the necessary skilled personnel, and therefore we are taking proactive steps to develop our workforce, including through strategic relationships with universities, the military and unions and the expansion and development of our training facility and postsecondary educational programs. Although we believe these initiatives will help address workforce needs, meeting our customers’ demand for labor resources could remain challenging.
Additionally, as noted above, we believe that labor costs will continue to increase given the recent escalated inflationary environment in the United States. Our labor costs are typically passed through in our contracts and the portion of our workforce that is represented by labor unions typically operates under multi-year collective bargaining agreements, which provides some visibility into future labor costs. We continue to monitor our labor markets and do not currently believe this
environment will present a material risk to our profitability, as we presently expect to be able to adjust contract pricing with customers to the extent wages and other labor costs increase, whether due to renegotiation of collective bargaining agreements or market conditions. However, the current inflationary pressures on labor costs could result in our inability to adjust contract pricing to keep up with current upward inflationary trends and could impact our profitability.
Supply Chain Disruption. We are experiencing supply chain disruptions in our end markets related to the following factors:
•Labor shortages at suppliers have increased delays of the production of certain materials, including but not limited to machinery, tools, copper, reinforced steel, solar panels and other items;
•As mentioned previously, inflationary pressures have made it difficult for suppliers to commit to contracted pricing or obtain materials at commercially reasonable prices;
•Shipping costs have increased significantly due to higher demand for products but fewer delivery options due to a reduction of truck drivers and rail cars;
•Delayed sequencing in our projects related to the inability to determine specific delivery dates for key materials;
•Cost increases for tax, tariffs and border controls for materials entering the U.S. from other countries;
•Delayed shipments of goods or of materials requiring parts sourced from European countries impacted by the effects of the Russian invasion of Ukraine;
•Potential bans or delays of imports of certain goods from suppliers having significant operations in Russia, whether as a result of a supplier’s operational decision or of sanctions imposed on Russia or operations backed by the Russian state;
•Delayed shipments and potential cost increases resulting from the U.S. Department of Commerce anti-dumping circumvention investigation announced in March 2022 of solar cells from Cambodia, Malaysia, Thailand and Vietnam; and
•Bans on imports of certain goods from China, particularly of polysilicon covered by the Uyghur Forced Labor Prevention Act, which is a significant input in the production of solar panels. These bans could result in project delays and increased costs to us or our customers.
These factors differ in their severity and impact on us and continue to evolve, and we believe their severity and impact on us may not be stable and could continue to fluctuate.
We continue to monitor these supply chain disruptions and other logistical challenges, global trade relationships (e.g., tariffs, sourcing restrictions) and other general market and political conditions (e.g., inflation, the Russian invasion of Ukraine, international sanctions) with respect to availability and costs of certain materials and equipment necessary for the performance of our business and for materials necessary for our customers’ projects. For example, in the renewable energy market, we are experiencing supply chain challenges, resulting in delays and shortages of, and increased costs for, materials necessary for the construction of certain renewable energy projects in the near term, including as a result of sourcing restrictions related to solar panels manufactured in China and other locations in Southeast Asia. While we believe many of our renewable energy customers may be able to manage near-term supply chain disruptions better than their smaller competitors, these challenges could delay our customers’ ongoing projects or impact their future project schedules, which in turn could impact the timing of our projects. While these delays are not anticipated to result in exposure to liquidated damages or commodity risks, such delays could cause our customers to cancel or delay projects, as higher than expected costs impact their project profitability projections and that could adversely impact our profitability and cash flow.
Regulatory Challenges. The regulatory environment creates both challenges and opportunities for our business, and in recent years heavy civil and rail construction have been impacted by regulatory and permitting delays in certain periods, particularly with respect to regulatory and environmental permitting. Permitting processes continue to create uncertainty for projects and negatively impact customer spending, and delays have increased as the COVID-19 pandemic and labor shortages have impacted regulatory agency operations. Additionally, in our Renewables segment, changes in certain states' environmental regulations and permitting processes have created delays and uncertainty for certain projects.
We are also experiencing disruptions, and anticipate continuing to experience disruptions into next year, relating to a recently announced US Department of Commerce investigation of solar panels imported from Chinese companies in Cambodia, Malaysia, Thailand and Vietnam. The investigation stems from allegations that solar cells and modules from these countries are circumventing previously imposed antidumping and countervailing duty orders on solar cells and modules from China.
While the Department has announced that preliminary findings of the investigation are expected in August 2022, it has also signaled that it may not issue its final decision until the middle of 2023. The Department’s conclusion could result in retroactive duties for our customers back to November 2021. While any retroactive duties are not expected to directly impact our profitability, the cost and timing uncertainty of this decision could impact our customers’ project profitability projections, which may delay or cancel certain projects, thus potentially adversely impacting our profitability and cash flow.
However, we believe that there are also several existing, pending or proposed legislative or regulatory actions that may alleviate certain regulatory and permitting issues and positively impact long-term demand, particularly in connection with infrastructure and renewable energy spending.
•On June 6th, 2022, President Joe Biden announced two executive actions to boost the U.S. solar installation and manufacturing industries. The first was a Declaration of Emergency to address a shortage of solar panels in the country, which had derailed several gigawatts of planned utility-scale solar projects. The second was an invocation of the Defense Production Act to increase domestic manufacturing of solar panels and other clean energy technologies.
•The Biden Administration hopes the two actions will increase U.S. solar manufacturing capacity by 200% over current levels and result in as much as 100 gigawatts of additional solar generation capability over 10 years than if executive measures weren’t taken.
•regulatory changes affecting siting and right-of-way processes could potentially accelerate construction for transmission projects, and state and federal reliability standards are creating incentives for system investment and maintenance.
Additionally, as described above, we consider renewable energy, including solar and wind generation facilities, to be an ongoing opportunity; however, policy and economic incentives designed to support and encourage such projects can create variability of project timing.
For further discussion of these risks, see Item 1A. Risk Factors disclosed in the Annual Report.
Segment Opportunities
Renewables Segment
The Renewables segment was impacted by the following significant operational trends:
•Revenue 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, has become widely accepted within the electric utility industry and has become a cost-effective solution for the creation of new generating capacity. We believe that this shiftthese shifts, coupled with the factors noted below, will continue to drive opportunity in this segment over the long-term:
•The current administration has a goal of investing $2 trillion in modern, sustainable, and clean energy infrastructure.
•Renewable energy power generation has reached a level of scale and maturity that permits these technologies to now be cost-effective competitors to more traditional power generation technologies, including on an unsubsidized basis. 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 wasenergy that require a one year extensionspecified percentage of the PTC at 60% for projectselectricity 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).utilities sell come from renewable resources.
•On June 29, 2021, the IRSInternal Revenue Service issued a notice whichthat 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 in order to qualify for the PTCproduction tax credits ("PTC") or ITCinvestment tax credits ("ITC") that waswere 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:backlog as indicated in the following table:
| | | | | | | | | | | | | | |
(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 | |
| | | | | | | | | | | | | | |
(in millions) | | | | |
Segment | December 31, 2021 | New Awards in 2022(1) | Revenue Recognized in 2022 | Backlog at June 30, 2022(2) |
Renewables | $ | 2,034.8 | | $ | 1,115.9 | | $ | 746.3 | | $ | 2,404.4 | |
(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.(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 companieswe have built has provided us with the right foundation to continue to grow our revenue base. TheWe believe that the drivers to further growing this segment are as follows:include:
•The FMI 20212022 Overview Report, published in the first quarter of 20212022, projects that nonresidential construction put in place for the United StatesU.S. will be over $500 billion per year from 20212022 to 2024.2025.
•FastThe Infrastructure Investment and Jobs Act extensionwill provide $1.2 trillion of federal spending for infrastructure and highway trust fund infusionother investments, including $550 billion of $13.6new spending over the next five years. This bill includes provision for spending in the following areas:
◦Environmental remediation: $21.0 billion for the highway
◦Roads and transit account.bridges: $110.0 billion
◦Passenger and freight rail: $66.0 billion
•AccordingThe U.S. Environmental Protection Agency (the "EPA") has continued to take action on controlling and cleaning up the American Coal Ash Association,contamination of coal combustion residuals “CCRs” or “coal ash” are producedash disposal. In January 2022, the EPA announced that it planned to finalize a federal permitting program for the disposal of coal ash and to establish regulations for legacy coal ash surface impoundment. We believe additional regulations could contribute to a slower market as our customers develop strategies on how to comply with any new guidance put forth 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 CCRs were produced in 2019. The Company anticipates this could be a $50.0 billion industry over the next ten years.EPA.
Additionally, there is significant overlap in labor, skills and equipment needs between our Renewables segment and our Specialty Civil segment, which we expect will continue to provide us with operating efficiencies as we continue to expand in this sector. The Company continues to cross leverage these two segments and continues to see future growth through new awards in our backlog:backlog as indicated in the following table:
| (in millions) | (in millions) | | (in millions) | |
Segment | Segment | December 31, 2020 | New Awards in 2021(1) | Revenue Recognized in 2021 | Backlog at June 30, 2021(2) | Segment | December 31, 2021 | New Awards in 2022(1) | Revenue Recognized in 2022 | Backlog at June 30, 2022(2) |
Specialty Civil | Specialty Civil | $ | 556.1 | | $ | 575.9 | | $ | 231.3 | | $ | 900.7 | | Specialty Civil | $ | 881.3 | | $ | 518.9 | | $ | 294.4 | | $ | 1,105.8 | |
(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.(e.g., adequate funding is in place).
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 in 2022 and beyond 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.
The following table summarizes our backlog by segment as of June 30, 20212022 and December 31, 2020:2021:
| (in millions) | (in millions) | | (in millions) | |
Segments | Segments | June 30, 2021 | December 31, 2020 | Segments | June 30, 2022 | December 31, 2021 |
Renewables | Renewables | $ | 1,861.1 | | $ | 1,513.4 | | Renewables | $ | 2,404.4 | | $ | 2,034.8 | |
Specialty Civil | Specialty Civil | 900.7 | | 556.1 | | Specialty Civil | 1,105.8 | | 881.3 | |
| Total | Total | $ | 2,761.8 | | $ | 2,069.5 | | Total | $ | 3,510.2 | | $ | 2,916.1 | |
The Company expects to recognize 65.6%64.0% 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.applicable projects. 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, the COVID-19 pandemic, supply chain or labor disruptions, weather and/or other project-related factors. These changes could cause estimated revenue to be realized in periods later than originally expected, or not at all. In the past, we have occasionally experienced postponements, cancellations and reductions on construction projects due to market volatility and regulatory factors.factors, and we are currently experiencing some regulatory, supply chain and labor market delays and shortages that may result in delays in the estimated completion dates of some projects currently in our backlog. 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.earnings and may not result in actual revenue or profits.
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 8, 2021 for a discussion of the risks associated with our backlog.
Significant Factors Impacting Results
OurIn addition to those factors described in Results of Operations, Business Trends and Forward-Looking Statements, 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, particularly for our Renewables segment, 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 in this segment are more geographically diverse and located in areas that are less impacted by severe weather. While the first and second quarter revenues are typically lower than the third and fourth quarter, we believe thisquarters, the geographical diversity has allowed this segment to be less seasonal over the course of the year.
Weather and Natural Disasters.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.earthquakes, and which may be exacerbated by climate change. These conditions and events, as well as other factors beyond our control, such as pandemics, 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%81.0% for the three months ended June 30, 2021.2022. Revenue derived from projects billed on a unit price basis totaled 18.5% for the three months ended June 30, 2022. 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%0.5% of consolidated revenue for the three months ended June 30, 2021.2022.
Size, scope and complexity of projects. Larger or more complex projects with design or construction complexities;complexities, more difficult terrain requirements;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,In contrast, 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 from 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, 20212022 and 20202021
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, | | Three Months Ended June 30, |
(in thousands) | (in thousands) | | 2021 | | 2020 | (in thousands) | | 2022 | | 2021 |
| Revenue | Revenue | | $ | 560,148 | | 100.0 | % | | $ | 480,604 | | 100.0 | % | Revenue | | $ | 680,597 | | 100.0 | % | | 560,148 | | 100.0 | % |
Cost of revenue | Cost of revenue | | 506,665 | | 90.5 | % | | 426,363 | | 88.7 | % | Cost of revenue | | 619,033 | | 91.0 | % | | 506,665 | | 90.5 | % |
Gross profit | Gross profit | | 53,483 | | 9.5 | % | | 54,241 | | 11.3 | % | Gross profit | | 61,564 | | 9.0 | % | | 53,483 | | 9.5 | % |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 30,894 | | 5.5 | % | | 28,074 | | 5.8 | % | Selling, general and administrative expenses | | 35,758 | | 5.3 | % | | 30,894 | | 5.5 | % |
| Income from operations | Income from operations | | 22,589 | | 4.0 | % | | 26,167 | | 5.4 | % | Income from operations | | 25,806 | | 3.8 | % | | 22,589 | | 4.0 | % |
Other income (expense), net | | Other income (expense), net | |
Interest expense, net | Interest expense, net | | (14,495) | | (2.6) | % | | (16,200) | | (3.4) | % | Interest expense, net | | (6,863) | | (1.0) | % | | (14,495) | | (2.6) | % |
| | Warrant liability fair value adjustment | | Warrant liability fair value adjustment | | 4,581 | | 0.7 | % | | 666 | | 0.1 | % |
Other income (expense) | Other income (expense) | | 770 | | 0.1 | % | | (1,631) | | (0.3) | % | Other income (expense) | | (10) | | — | % | | 104 | | — | % |
Income from continuing operations before income taxes | Income from continuing operations before income taxes | | 8,864 | | 1.6 | % | | 8,336 | | 1.7 | % | Income from continuing operations before income taxes | | 23,514 | | 3.5 | % | | 8,864 | | 1.6 | % |
Provision for income taxes | Provision for income taxes | | (4,165) | | (0.7) | % | | (4,739) | | (1.0) | % | Provision for income taxes | | (6,545) | | (1.0) | % | | (4,165) | | (0.7) | % |
| Net income | Net income | | $ | 4,699 | | 0.8 | % | | $ | 3,597 | | 0.7 | % | Net income | | $ | 16,969 | | 2.5 | % | | 4,699 | | 0.8 | % |
For a detailed discussion of Revenuerevenue and Grossgross profit, see Segment Results below.
Revenue. Revenue increased 16.6%21.5%, or $79.5$120.4 million, in the second quarter of 2021,2022, as compared to the same period in 2020.2021.
Gross profit. Gross profit decreased 1.4%increased 15.1%, or $0.8$8.1 million, in the second quarter of 2021,2022, as compared to the same period in 2020.2021. As a percentage of revenue, gross profit was 9.5%9.0% in the quarter, as compared to 11.3%9.5% in the prior-year period.
Selling, general and administrative expenses. Selling, general and administrative expenses increased 10.0%15.7%, or $2.8$4.9 million, in the second quarter of 2021,2022, as compared to the same period in 2020.2021. Selling, general and administrative expenses were
5.5% 5.3% of revenue in the second quarter of 2021,2022, as compared to 5.8%5.5% in the same period in 2020.2021. The increase in selling, general and administrative expenses was primarily driven by:by the following factors:
•StaffEmployee expenses increased $3.2 million related benefit coststo increases in the number of $1.4 million;employees;
•Information technology costs of $0.6$1.0 million related to software licensing; and
•Business travel costs of $0.7increased $0.5 million.
Interest expense, net. Interest expense, net decreased by $1.7$7.6 million, in the second quarter of 2021,2022, as compared to the same period in 2020.2021. This decrease was primarily driven by lower effective interest rates on our term loan, partiallythe redemption of Series B Preferred Stock in 2021, offset by an increasethe interest expense related to our Senior Unsecured Notes 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 1.5:1.0.2022.
Other income (expense)., net. Other income (expense), net, which includes warrant liability fair value adjustment and other income (expense), increased by $2.4$3.8 million to income of $0.8$4.6 million in the second quarter of 20212022, as compared to an expenseincome of $1.6$0.8 million for the same period in 2020.2021. This increase was primarily the result of the impact of a decrease infair value adjustments recorded for the warrant liability in the second quarter of 2021. Series B Preferred Stock - Anti-dilution warrants and private warrants.
See further discussion in Note 5. Fair Value of Financial Instrumentsincluded in Item 1 of this Quarterly Report on Form 10-Q.Report.
Provision for income taxes. Provision for income taxes decreased $0.6increased $2.4 million to $4.2$6.5 million in the second quarter of 2021,2022, as compared to $4.7$4.2 million for the same period in 2020.2021. The effective tax rates for the periodperiods ended June 30, 20212022 and 20202021 were 47.0%27.8% and 56.8%47.0%, respectively. The lower effective tax rate in the second quarter of 20212022 was primarily attributable to lowerthe elimination of permanent differences related to executive compensation,the interest accrued for the Series B Preferred Stock, which are not deductible for federal and state income taxes.was redeemed in 2021. There were no changes in uncertain tax positions during the periods ended June 30, 20212022 and 2020.2021.
Segment Results
The Company operatedoperates 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:indicated:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, | |
(in thousands) | (in thousands) | 2021 | | 2020 | | (in thousands) | 2022 | | 2021 | |
Segment | Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | | Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | |
Renewables | Renewables | $ | 424,854 | | 75.8 | % | | $ | 324,262 | | 67.5 | % | | Renewables | $ | 502,703 | | 73.9 | % | | $ | 424,854 | | 75.8 | % | |
Specialty Civil | Specialty Civil | 135,294 | | 24.2 | % | | 156,342 | | 32.5 | % | | Specialty Civil | 177,894 | | 26.1 | % | | 135,294 | | 24.2 | % | |
| Total revenue | Total revenue | $ | 560,148 | | 100.0 | % | | $ | 480,604 | | 100.0 | % | | Total revenue | $ | 680,597 | | 100.0 | % | | $ | 560,148 | | 100.0 | % | |
| Segment | Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | | Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | |
Renewables | Renewables | $ | 42,883 | | 10.1 | % | | $ | 36,983 | | 11.4 | % | | Renewables | $ | 44,797 | | 8.9 | % | | $ | 42,883 | | 10.1 | % | |
Specialty Civil | Specialty Civil | 10,600 | | 7.8 | % | | 17,258 | | 11.0 | % | | Specialty Civil | 16,767 | | 9.4 | % | | 10,600 | | 7.8 | % | |
Total gross profit | Total gross profit | $ | 53,483 | | 9.5 | % | | $ | 54,241 | | 11.3 | % | | Total gross profit | $ | 61,564 | | 9.0 | % | | $ | 53,483 | | 9.5 | % | |
Renewables Segment Results
Revenue. Renewables revenue was $424.9$502.7 million for the quarter ended June 30, 20212022, as compared to $324.3$424.9 million for the same period in 2020,2021, an increase of 31.0%18.3%, or $100.6$77.8 million. The increase in revenue was primarily due to:
•The Company had 13 wind projects of greater than $5.0 million of revenueAn increase in the second quarter of 2021 compared to 15 wind projects during the same period in 2020,
•The averagesolar 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$136.6 million for the quarter ended June 30, 20212022 when compared to the same period for 2020.2021; offset by
•A decrease in wind revenue of $62.5 million in the second quarter of 2022 resulting from a smaller number of active projects when compared to the same period in 2021.
Gross profit. Renewables gross profit was $42.9$44.8 million for the quarter ended June 30, 20212022, as compared to $37.0$42.9 million for 2020,2021, an increase of 16.0%4.5%, or $5.9$1.9 million. As a percentage of revenue, gross profit was 10.1%8.9% in 2021,2022, as compared to 11.4%10.1% in 2020.2021. The decrease in percentage was primarily relatedattributable 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.following factors:
•The decrease was driven primarily by the inflationary impact of labor, supply chain, fuel, and certain commodities costs. During the quarter, we recognized these inflationary increases to our estimated costs to complete for the impacted wind and solar jobs. For projects for which we could not increase the value of the contract, these increases reduced their projected margin. In addition, for projects that were in progress at the start of the quarter, the increased costs caused the percentage of completion of the relevant projects to be reduced, which required the reversal of a portion of revenue and margin that had previously been recognized on an over-time basis during 2021.
•To a lesser extent, the decrease was also driven by increased man hours which is driving up our accruals for warranty and insurance.
Specialty Civil Segment Results
Revenue. Specialty Civil revenue was $135.3$177.9 million for the quarter ended June 30, 20212022, as compared to $156.3$135.3 million for 2020, a decrease2021, an increase of 13.5%31.5%, or $21.0$42.6 million. The decreaseincrease in revenue was primarily due to:to the following factors:
•Heavy civil market had less construction projects and a lower average value of projectsContinued growth in the second quarter of 2021environmental remediation market and the Company having more projects under construction compared to 2020,the prior year; and
•OffsettingContinued modest but steady growth in the decrease in revenue was a slight increase inheavy civil construction market and our environmental remediation market dueleverage of shared resources to more projectseffectively bid and execute projects.
These revenue increases were offset by revenue decreases in the second quarterrail market, which has been negatively impacted by the COVID-19 pandemic and the reduction of 2021.spending budgets of some of our customers, which has led to delays on portions of our large rail jobs.
Gross profit. Specialty Civil gross profit was $10.6$16.8 million for the quarter ended June 30, 20212022, as compared to $17.3$10.6 million for 2020, a decrease2021, an increase of 38.6%58.2%, or $6.7$6.2 million. As a percentage of revenue, gross profit was 7.8%9.4% in 2021,2022, as compared to 11.0%7.8% in 2020. In2021. The increase in percentage and dollars was primarily due to growth in the second quarter of 2021,environmental remediation market and the Company had less projects under construction which contributedproject mix compared to lower utilization of labor and equipment fixed costs.the same period in 2021.
Results of Operations
Six Months Ended June 30, 20212022 and 20202021
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) | | 2022 | | 2021 |
| | | | | | |
Revenue | | $ | 1,040,692 | | 100.0 | % | | $ | 836,560 | | 100.0 | % |
Cost of revenue | | 975,298 | | 93.7 | % | | 766,536 | | 91.6 | % |
Gross profit | | 65,394 | | 6.3 | % | | 70,024 | | 8.4 | % |
Selling, general and administrative expenses | | 70,640 | | 6.8 | % | | 55,740 | | 6.7 | % |
| | | | | | |
Income (loss) from operations | | (5,246) | | (0.5) | % | | 14,284 | | 1.7 | % |
Other income (expense), net | | | | | | |
Interest expense, net | | (12,889) | | (1.2) | % | | (28,854) | | (3.4) | % |
| | | | | | |
| | | | | | |
Warrant liability fair value adjustment | | 3,153 | | 0.3 | % | | 366 | | — | % |
Other income | | 1 | | — | % | | 242 | | — | % |
Loss from continuing operations before income taxes | | (14,981) | | (1.4) | % | | (13,962) | | (1.7) | % |
(Provision) benefit for income taxes | | 4,879 | | 0.5 | % | | (1,773) | | (0.2) | % |
| | | | | | |
| | | | | | |
Net loss | | $ | (10,102) | | (1.0) | % | | $ | (15,735) | | (1.9) | % |
| | | | | | | | | | | | | | | | | | | | |
| | 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 Revenuerevenue and Grossgross profit, see Segment Results below.
Revenue. Revenue decreased 0.3%increased 24.4%, or $2.2$204.1 million, in the first six months of 2021,2022, as compared to the same period in 2020.2021.
Gross profit. Gross profit decreased 19.8%6.6%, or $17.3$4.6 million, in the first six months of 2021,2022, as compared to the same period in 2020.2021. As a percentage of revenue, gross profit was 8.4%6.3% in the quarter,2022, as compared to 10.4%8.4% in the prior-year period.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased 3.2%increased 26.7%, or $1.8$14.9 million, in the first six months of 2021,2022, as compared to the same period in 2020.2021. Selling, general and administrative expenses were 6.7%6.8% of revenue in the first six months of 2021,2022, as compared to 6.9%6.7% in the same period in 2020.2021. The decreaseincrease in selling, general and administrative expenses was primarily driven by:by the following factors:
•ReductionEmployee expenses increased $9.3 million related to increases in staff related benefit costs by $2.9 million.the number of employees;
The reduction above was partially offset by expense increase for:
•Information technology costs of $1.2$2.7 million related to software licensing.licensing and new technology for higher employee base; and
•Business travel costs increased $2.3 million.
Interest expense, net. Interest expense, net decreased by $3.4$16.0 million, in the first six months of 2021,2022, as compared to the same period in 2020.2021. This decrease was primarily driven by lower effectivethe redemption of Series B Preferred Stock, offset by the interest rates onexpense related to our term loan.Senior Unsecured Notes.
Other income (expense)., net. Other income (expense), net, which includes warrant liability fair value adjustment and other income, increased by $3.3$2.6 million to income of $0.6$3.2 million in the first six months of 20212022, as compared to an expenseincome of $2.7$0.6 million for the same period in 2020.2021. This increase was primarily the result of the impact of a decrease infair value adjustments recorded for the warrant liability in the first six months of 2021. Series B Preferred Stock - Anti-dilution warrants and private warrants.
See further discussion in Note 5. Fair Value of Financial Instrumentsincluded in Item 1 of this Quarterly Report on Form 10-Q.Report.
Provision(Provision) benefit for income taxes. ProvisionBenefit for income taxes decreased $2.1increased $6.7 million to $1.8$4.9 million in the first six months of 2021,2022, as compared to $3.9a provision of $1.8 million for the same period in 2020.2021. The effective tax rates for the first six months ofperiods ended June 30, 2022 and 2021 and 2020 were (12.7)%32.6% and (73.4)(12.7)%, respectively. The lowerhigher effective tax rate in the first six months of 20212022 was primarily attributable to lowerthe elimination of permanent differences related to executive compensation,the interest accrued for the Series B Preferred Stock, which are not deductible for federal and state income taxes.was redeemed in 2021. There were no changes in uncertain tax positions during the periods ended June 30, 20212022 and 2020.2021.
Segment Results
The Company operates 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:indicated:
| | | Six Months Ended June 30, | | | Six Months Ended June 30, | |
(in thousands) | (in thousands) | 2021 | | 2020 | | (in thousands) | 2022 | | 2021 | |
Segment | Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | | Segment | Revenue | % of Total Revenue | | Revenue | % of Total Revenue | |
Renewables | Renewables | $ | 605,228 | | 72.3 | % | | $ | 573,008 | | 68.3 | % | | Renewables | $ | 746,317 | | 71.7 | % | | $ | 605,228 | | 72.3 | % | |
Specialty Civil | Specialty Civil | 231,332 | | 27.7 | % | | 265,759 | | 31.7 | % | | Specialty Civil | 294,375 | | 28.3 | % | | 231,332 | | 27.7 | % | |
| Total revenue | Total revenue | $ | 836,560 | | 100.0 | % | | $ | 838,767 | | 100.0 | % | | Total revenue | $ | 1,040,692 | | 100.0 | % | | $ | 836,560 | | 100.0 | % | |
| Segment | Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | | Segment | Gross Profit | Gross Profit Margin | | Gross Profit | Gross Profit Margin | |
Renewables | Renewables | $ | 55,063 | | 9.1 | % | | $ | 62,812 | | 11.0 | % | | Renewables | $ | 46,098 | | 6.2 | % | | $ | 55,063 | | 9.1 | % | |
Specialty Civil | Specialty Civil | 14,961 | | 6.5 | % | | 24,470 | | 9.2 | % | | Specialty Civil | 19,296 | | 6.6 | % | | 14,961 | | 6.5 | % | |
Total gross profit | Total gross profit | $ | 70,024 | | 8.4 | % | | $ | 87,282 | | 10.4 | % | | Total gross profit | $ | 65,394 | | 6.3 | % | | $ | 70,024 | | 8.4 | % | |
Renewables Segment Results
Revenue. Renewables revenue was $605.2$746.3 million for the first six months of 2021ended June 30, 2022, as compared to $573.0$605.2 million for the same period in 2020,2021, an increase of 5.6%23.3%, or $32.2$141.1 million. The increase in revenue was primarily due to:
•SolarAn increase in solar revenue increased $134.0of $228.8 million for the first six months of 2021ended June 30, 2022 when compared to the same period for 2020.
The increase was partially2021; offset by $101.8 million decrease in the wind market:
•The Company had 16A decrease in wind projectsrevenue of greater than $5.0$93.0 million of revenue in the first six months of 20212022 resulting from a smaller number of active projects, as 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. Renewables gross profit was $46.1 million for the six months ended June 30, 2022, as compared to $55.1 million for the first six months of 2021, as compared to $62.8 million for 2020, a decrease of 12.3%16.3%, or $7.7$9.0 million. As a percentage of revenue, gross profit was 9.1%6.2% in 2021,2022, as compared to 11.0%9.1% in 2020.2021. The decrease in percentage and dollars was primarily relatedattributable to adding more craftthe following factors:
•The decrease was driven primarily by the inflationary impact of labor, supply chain, fuel, and rentedcertain commodities costs. During the first six months of 2022, we recognized these inflationary increases to our estimated costs to complete for the impacted wind and leased equipment in anticipation of higher work volumes and greater operating intensity insolar jobs. For projects for which we could not increase the second halfvalue of the year.contract, these increases reduced their projected margin. In addition, for projects that were in progress at the start of the period, the increased costs caused the percentage of completion of the relevant projects to be reduced, which required the reversal of a portion of revenue and margin that had previously been recognized on an over-time basis during 2021.
•To a lesser extent, the decrease was also driven by increased training costs during the first six months, as we continue to increase our labor force to execute our remaining backlog.
Specialty Civil Segment Results
Revenue. Specialty Civil revenue was $294.4 million for the six months ended June 30, 2022, as compared to $231.3 million for the first six months2021, an increase of 2021 as compared to $265.8 million for 2020, a decrease of 13.0%27.3%, or $34.4$63.0 million. The decreaseincrease in revenue was primarily due to:to the following factors:
•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 projectsContinued growth in the first six months of 2021environmental remediation market and the Company having more projects under construction compared to 2020,the prior year; and
•OffsettingContinued modest but steady growth in the decrease in revenue was a slight increase inheavy civil construction market and our environmental remediation market dueleverage of shared resources to more projectseffectively bid and execute projects.
These revenue increases were offset by revenue decreases in the first six monthsrail market, which has been negatively impacted by the COVID-19 pandemic and the reduction of 2021 comparedspending budgets of some of our customers, which has led to 2020.delays on portions of our large rail jobs.
Gross profit. Specialty Civil gross profit was $19.3 million for the six months June 30, 2022, as compared to $15.0 million for the first six months2021, an increase of 2021 as compared to $24.5 million for 2020, a decrease of 38.9%29.0%, or $9.5$4.3 million. As a percentage of revenue, gross profit was 6.5%6.6% in 2021,2022, as compared to 9.2%6.5% in 2020. In the first six months of 2021, the Company had less projects under construction2021. The increase in percentage and dollars was primarily due to growth in the heavy civilenvironmental remediation market and rail markets which contributedthe project mix compared to lower utilization of labor and equipment fixed costs.the same period in 2021.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash flows from operations, our cash balances and availability under our Third A&Rnew Credit Agreement.Agreement (as defined in Debt – Credit Agreement below). Our primary liquidity needs are for working capital, debt service, dividends on our Series B Preferred Stock, income taxes, capital expenditures, insurance collateral, and strategic acquisitions. As of June 30, 2021,2022, we had approximately $117.7$46.5 million in cash and $53.3$95.8 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.months and in the longer term. No assurance can be given, however, that these sources will be sufficient, because there are many factors whichthat could affect our liquidity, including some whichthat are beyond our control. Please seeSee “Item 1A. Risk Factors”Factors in Part I of our Annual Report on Form 10-K filed with the SEC on March 8, 2021 for a discussion of the risks associated with our liquidity.
Capital Expenditures
For the six months ended June 30, 2021, we incurred $15.5 million in finance lease payments and an additional $14.6 million cash purchases for equipment. We estimate that we will spend approximately two percent of revenue for capital expenditures for 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. Working capital needs are typically lower and working capital is converted to cash during the winter months. These seasonal trends, however, can be offset by changes in the timing of projects, which can be affected by project delays or accelerations and/or other factors that may affect customer spending.
Generally, we receive 5% to 10% cash payments from our customers upon the inception of our Renewable projects. Timing of billing milestones and project close-outs can contribute to changes in unbilled revenue. As of June 30, 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 $409.3 million as of June 30, 2021 from $309.0 million as of December 31, 2020, due primarily to 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:below for the periods indicated:
| | | Six Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | (in thousands) | | 2021 | | 2020 | (in thousands) | | 2022 | | 2021 |
| Net cash used in operating activities | Net cash used in operating activities | | (11,378) | | | (64,630) | | Net cash used in operating activities | | (79,173) | | | (11,378) | |
Net cash used in investing activities | Net cash used in investing activities | | (13,632) | | | (1,522) | | Net cash used in investing activities | | (5,406) | | | (13,632) | |
Net cash used in financing activities | | (21,357) | | | (21,715) | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | 7,032 | | | (21,357) | |
Operating Activities. Net cash used in operating activities for the six months ended June 30, 20212022 was $11.4$79.2 million, as compared to $64.6$11.4 million over the same period in 2020.2021. The decreaseincrease in net cash used byin operating activities reflectsis primarily attributable to an increased volume of work compared to prior year which has caused changes in working capital related to the timing of receipts from customers and payments to vendors in the ordinary course of business. The change was primarily attributable to lower payments on payables and accrued liabilities coupled with lower collections of accounts receivable and contract assets, partially offset by lower payments on payables and accrued liabilities due to the timing of projects.
Investing Activities. Net cash used in investing activities for the six months ended June 30, 20212022 was $13.6$5.4 million, as compared to $1.5$13.6 million over the same period in 2020.2021. The increasedecrease in net cash used byin investing activities was primarily attributable to an increasea decrease in purchases of property, plant and equipment.
Financing Activities. Net cash used inprovided by financing activities for the six months ended June 30, 20212022 was $21.4$7.0 million, as compared to $21.7net cash used in financing activities of $21.4 million over the same period in 2020.2021. The increase in net cash provided by financing activities was primarily attributable to the net proceeds from borrowings under the senior secured revolving credit facility.
Series A Preferred StockCapital Expenditures
As ofFor the six months ended June 30, 2021,2022, 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 $17.5incurred $14.6 million in finance lease payments and an additional $8.5 million in cash purchases for equipment. We estimate that we will spend approximately 2% to 3% of revenue for capital expenditures for the aggregate). Dividends are paidentirety of 2022. 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.
Debt
Senior Unsecured Notes
On August 17, 2021, IEA Energy Services LLC, a wholly owned subsidiary of the Company ("Services"), issued $300.0 million aggregate principal amount of its 6.625% senior unsecured notes due 2029 (the "Senior Unsecured Notes"), in a private placement. Interest is payable 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 arrearsSenior Unsecured Notes on each March 31, June 30, September 30February 15 and December 31August 15. The Senior Unsecured Notes will mature on August 15, 2029. The Senior Unsecured Notes are guaranteed on a senior unsecured basis by the stated value at a rateCompany and certain of 10% per annum.its domestic wholly owned subsidiaries (the "Guarantors").
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, 2021, the Company had increased the initial stated value by $5.7 million in the aggregate rather than pay cash dividends.
So long as any shares of Series B Preferred Stock ofOn or after August 15, 2024, the CompanySenior Unsecured Notes 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 does not have a scheduledsubject to 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 allat the option of Services, in whole or any portionin part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if redeemed during the twelve-month period beginning on August 15 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.years indicated below:
| | | | | |
Year | Percentage |
2024 | 103.3 | % |
2025 | 101.7 | % |
2026 and thereafter | 100.0 | % |
Based on the stated valuePrior to August 15, 2024, Services may also redeem some or all of the Series A Preferred Stock asSenior Unsecured Notes at the principal amount of June 30, 2021 after giving effectthe Senior Unsecured Notes, plus a "make-whole premium," together with accrued and unpaid interest. In addition, at any time prior to August 15, 2024, Services may redeem up to 40.0% of the accrualoriginal principal amount of dividends, we would be required to pay quarterly cash dividends in the aggregateSenior Unsecured Notes with the proceeds of $0.6 million on the Series A Preferred Stock. If unpaid, the dividends will accruecertain equity offerings at a rateredemption price of 12% per annum and increase the stated value106.63% of the Series A Preferred Stock. We do not presently expect to pay cash dividends.principal amount of the Senior Unsecured Notes, together with accrued and unpaid interest.
Series B Preferred StockIn connection with the issuance of the Senior Unsecured Notes, Services entered into an indenture (the "Indenture") with the Guarantors and Wilmington Trust, National Association, as trustee, providing for the issuance of the Senior Unsecured Notes. The terms of the Indenture provides for, among other things, negative covenants that under certain circumstances would limit Services’ ability to incur additional indebtedness; pay dividends or make other restricted payments; make loans and investments; incur liens; sell assets; enter into affiliate transactions; enter into certain sale and leaseback transactions; enter into agreements restricting Services' subsidiaries' ability to pay dividends; and merge, consolidate or amalgamate or sell all or substantially all of its property, subject to certain thresholds and exceptions. The Indenture provides for customary events of default that include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; breach of other covenants or agreements in the Indenture; failure to pay certain other indebtedness; failure to pay certain final judgments; failure of certain guarantees to be enforceable; and certain events of bankruptcy or insolvency.
Credit Agreement
On August 17, 2021, Services, as the borrower, and certain guarantors (including the Company), entered into a Credit Agreement (the "Credit Agreement") with a syndicate of lenders and CIBC Bank USA in its capacities as the Administrative and Collateral Agent for the lenders. The Credit Agreement provides for a $150.0 million senior secured revolving credit facility. The Credit Agreement is guaranteed by the Company and certain subsidiaries of the Company (the "Credit Agreement Guarantors" and together with Services, the "Loan Parties") and is secured by a security interest in substantially all of the Loan Parties’ personal property and assets. Services has the ability to increase available borrowing under the credit facility by an additional amount up to $50.0 million subject to certain conditions. As of June 30, 2021, we had 199,474 shares2022, $30.0 million was outstanding under the senior secured revolving credit facility, bearing an interest rate of Series B Preferred Stock issued6.25%.
Services may voluntarily repay and outstanding. Each share of Series B Preferred Stock had an initial stated value of $1,000 per share (or approximately $199.5reborrow outstanding loans under the credit facility at any time subject to usual and customary breakage costs for borrowings bearing interest based on LIBOR and minimum amount requirements set forth in the Credit Agreement. The credit facility includes $100.0 million in borrowing capacity for the aggregate)issuance of letters of credit. The credit facility is not subject to amortization and matures with all commitments terminating on August 17, 2026.
Interest rates on the credit facility are based upon either (1) an index rate that is established at the highest of the prime rate or the sum of the federal funds rate plus 0.50%, or (2) at Services’ election, a LIBOR rate, plus in either case, an applicable interest rate margin. The applicable interest rate margins are adjusted on a quarterly basis based upon Services’ first lien net leverage within the range of 1.00% to 2.50% for index rate loans and 2.00% and 3.50% for LIBOR loans. Borrowings under the credit facility shall initially bear interest at a rate per annum equal to LIBOR plus 2.50%. Our common stock and Series A Preferred Stock are juniorIn anticipation of LIBOR's phase out, our Credit Agreement includes a documented transition mechanism for selecting a benchmark replacement rate for LIBOR. In addition to paying interest on outstanding principal under the credit facility, Services is required to pay a commitment fee to the Series B Preferred Stock. Dividends are paid in cashlenders under the credit facility for unused commitments. The commitment fee rate ranges from 0.30% to 0.45% per annum depending 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 paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31. For any dividend period that the TotalServices’ First Lien Net Leverage Ratio is greater than 1.50:1.00,(as defined in the dividend rate is 13.5% per annum; and otherwise at a rate of 12.0% per annum.Credit Agreement).
If not paid in cash, dividends will accrue on the stated value and will increase the stated value on Series B Preferred Stock at a rate of 15%. As of June 30, 2021, the unpaid dividends had increased the initial stated value by $18.3 million in the aggregate.
UntilThe credit facility requires Services to comply with a quarterly maximum consolidated First Lien Net Leverage Ratio test and minimum Fixed Charge Coverage ratio as follows:
•Fixed Charge Coverage Ratio - The Loan Parties shall not permit 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 controlFixed Charge Coverage Ratio (as defined in certificate governing the Series B Preferred Stock),Credit Agreement) as well as useof the net cash proceeds from certain transactionslast day of any four consecutive fiscal quarter period ending on the last day of a fiscal quarter to redeem shares of Series B Preferred Stock.be less than 1.20:1.00, commencing with the period ending September 30, 2021.
Based•First Lien Net Leverage Ratio – The Loan Parties will not permit the First Lien Net Leverage Ratio (as defined in the Credit Agreement) as of the last day of any four consecutive fiscal quarter period ending on the stated valuelast day of a fiscal quarter to exceed 1.75:1.00, commencing with the Series B Preferred Stock as of Juneperiod ending September 30, 2021 after giving effect(subject to certain increases for permitted acquisitions).
In addition, the accrualCredit Agreement contains a number of dividends, we would be requiredcovenants that, among other things and subject to pay quarterly cash dividends incertain exceptions, limit Services’ ability and the aggregateability of $6.6 million onits restricted subsidiaries including the Series B Preferred Stock. If not paid the dividends will accrue at a rateCompany to incur indebtedness or guarantee debt; incur liens; make investments, loans and acquisitions; merge, liquidate or dissolve; sell assets, including capital stock of 15% per annum and increase the stated value of the Series B Preferred Stock. Actual decisions regarding payment of cashsubsidiaries; pay dividends on the Series B Preferred Stock will be made at the time of the applicable dividend payment based upon availability ofits capital resources, business conditions, other cash requirements,stock or redeem, repurchase or retire its capital stock; amend, prepay, redeem or purchase subordinated debt; and other relevant factors.engage in transactions with affiliates.
Deferred Taxes - COVID-19
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 2020.
•Allowing NOLs originating in 2018, 2019 or 2020 to be carried back five years.
•Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning 1 January 2019 and 2020.
•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 Tax Cuts and Jobs Act (“TCJA”).
•Payroll tax deferral.
IEA has alsoCompany made use of the payroll tax deferral provision of the CARES Act to defer the 6.2% social security tax, or approximately $13.6 million, through December 31, 2020. Thistax. The remaining amount is required to be paid at 50% onby 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 loans2022 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, 2021.2022.
| | | Payments due by period | | | Payments due by period | |
(in thousands) | (in thousands) | | Total | | Remainder of 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | (in thousands) | | Total | | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
| Debt (principal) (1) | Debt (principal) (1) | | 177,613 | | | 1,214 | | | 16,916 | | | 29,986 | | | 129,368 | | | 129 | | | — | | Debt (principal) (1) | | 332,294 | | | 682 | | | 836 | | | 441 | | | 255 | | | 30,080 | | | 300,000 | |
Debt (interest) (2) | Debt (interest) (2) | | 34,603 | | | 6,161 | | | 11,924 | | | 10,203 | | | 6,312 | | | 3 | | | — | | Debt (interest) (2) | | 149,238 | | | 10,024 | | | 19,928 | | | 19,900 | | | 19,884 | | | 19,877 | | | 59,625 | |
Debt - Series B Preferred Stock (3) | | 199,474 | | | — | | | — | | | — | | | — | | | 199,474 | | | — | | |
Dividends - Series B Preferred Stock (4) | | 112,797 | | | 13,057 | | | 26,113 | | | 26,113 | | | 26,113 | | | 21,401 | | | — | | |
| Finance leases (5)(3) | Finance leases (5)(3) | | 55,319 | | | 13,547 | | | 23,379 | | | 8,984 | | | 5,043 | | | 3,555 | | | 811 | | Finance leases (5)(3) | | 75,730 | | | 15,211 | | | 19,830 | | | 15,731 | | | 13,226 | | | 9,344 | | | 2,388 | |
Operating leases (6)(4) | Operating leases (6)(4) | | 52,155 | | | 6,229 | | | 11,238 | | | 8,776 | | | 4,740 | | | 2,236 | | | 18,936 | | Operating leases (6)(4) | | 46,703 | | | 6,284 | | | 10,500 | | | 5,884 | | | 3,030 | | | 2,371 | | | 18,634 | |
Total | Total | | $ | 631,961 | | | $ | 40,208 | | | $ | 89,570 | | | $ | 84,062 | | | $ | 171,576 | | | $ | 226,798 | | | $ | 19,747 | | Total | | $ | 603,965 | | | $ | 32,201 | | | $ | 51,094 | | | $ | 41,956 | | | $ | 36,395 | | | $ | 61,672 | | | $ | 380,647 | |
(1)Represents the contractual principal payment due dates on our outstanding debt.
(2)Includes variableRepresents interest at the stated rate of 6.625% on the Senior Unsecured Notes and interest using June 30, 2021 rates.at the stated rate on the Company's commercial equipment notes.
(3)Represents the mandatorily 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, inclusive ofincluding associated interest, recognized under various finance leases for equipment totaling $55.3$75.7 million at June 30, 2021.2022. Net amounts recognized within property, plant and equipment, net in the condensed consolidated balance sheet under these financed lease agreements at June 30, 20212022 totaled $70.1$87.6 million.
(6)(4)We lease real estate, vehicles, office equipment and certain construction equipment from unrelated parties under non-cancelable leases. Lease terms range from month-to-month to terms expiring through 2038.2039.
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, and liabilities associated with certain indemnification and guarantee arrangements.
As of June 30, 20212022 and December 31, 2020,2021, the Company was contingently liable under letters of credit issued under its revolving credit facility or its oldour credit facility in the amountamounts of $21.7$24.2 million and $7.8$31.1 million, respectively, related to projects and insurance.
As of June 30, 20212022 and December 31, 2020,2021, the Company had outstanding surety bonds on projects with nominal amounts of $3.0$4.0 billion and $2.8$3.3 billion, respectively. The remaining approximate exposure related to these surety bonds amounted to $999.8 million and $353.5 million, 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 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 have the ability to file lien rights to limit this exposure and 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 Third 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, 2021 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, 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’sour Chief Executive Officer and Chief Financial Officer that are required in accordance with Rule 13a-14 of the Exchange Act of 1934.Act. 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, 2021,2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
ThereDuring the quarter ended June 30, 2022, there has been no change in our internal control over financial reporting, during the quarter ended June 30, 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 "Legal Proceedings" in Note 7. Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statementsour condensed consolidated financial statements included in Item 1. Financial Statements of Part I, Item 1 of this Quarterly Report, on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
At June 30, 2021, thereThere have been no other material changes from the risk factors previously disclosed in the Company's Annual Report, except as mentioned below.
The announcement and pendency of the proposed Merger may adversely affect our business, financial condition, and results of operations.
The announcement and pendency of the proposed Merger may adversely affect our business, financial condition, and results of operations. Current and prospective clients may be reluctant to move forward on projects with us due to potential uncertainty about the direction of our business. Additionally, we are subject to additional risks in connection with the announcement and pendency of the Merger, including but are not limited to the following, all of which could be exacerbated by any delay in completion of the proposed Merger:
•potential adverse effects on our relationships with our employees, customers, suppliers, and other current business partners, or those with which we are seeking to establish business relationships;
•the impairment of our ability to attract, retain, and motivate our employees, including key personnel;
•the diversion of significant management time and resources towards the completion of the proposed Merger;
•delays or deferments of certain business decisions by our customers, suppliers, and other business partners;
•the restrictions imposed on our business and operations pursuant to certain covenants set forth in the Merger Agreement, which may prevent us from pursuing certain opportunities;
•any litigation relating to the Merger and the costs related thereto; and
•the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the Merger.
Failure to consummate the Merger within the expected time frame or at all could have a material adverse impact on our business, financial condition and results of operations.
There can be no assurance that the proposed Merger will be consummated. The consummation of the proposed Merger is subject to various conditions, including: (i) approval by our stockholders; (ii) the absence of any restraining order, injunction, judgment, order or decree or other law prohibiting consummation of the Merger; (iii) expiration or termination of the applicable Hart-Scott-Rodino Act waiting period; (iv) the approval for listing on the New York Stock Exchange of the MasTec common stock to be issued in connection with the Merger; (v) effectiveness of the registration statement on Form 10-KS-4 to be filed by MasTec pursuant to which the issuance of such shares of MasTec common stock will be registered under the Securities Act; and (vi) other customary closing conditions. There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all. In addition, other factors, such as MasTec’s ability to obtain the debt financing it needs to consummate the transaction, may affect when and whether the Merger will occur. If the acquisition is not completed, we may suffer consequences that could adversely affect our business, results of operations, and share price, including the following:
•we could be required to pay a termination fee of $27,500,000 to MasTec under certain circumstances as described in the Merger Agreement;
•there can be no assurance that a remedy will be available to us in the event of a breach of the Merger Agreement by MasTec or that we will wholly or partially recover for any damages incurred by us in connection with the SECMerger;
•we would have incurred and will incur significant costs in connection with the Merger that we would be unable to wholly or partially recover;
•we may be subject to legal proceedings related to the Merger;
•the failure of the Merger to be consummated may result in negative publicity and a negative impression of us among customers or in the investment community or business community generally;
•any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our employees, customers, suppliers, and other business partners, may continue or intensify in the event the merger is not consummated;
•we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; and,
•we may experience a departure of management personnel and other employees.
The Merger may be less accretive than expected, or may be dilutive, and may fail to realize all of the anticipated benefits of the Merger.
The success of the Merger will depend, in part, on the combined company’s ability to realize anticipated and announced benefits and cost savings. The anticipated benefits and cost savings of the Merger may not be realized fully or at all, may take longer to realize than expected, may require more non-recurring costs and expenditures to realize than expected, or could have other unexpected adverse effects. Some of the announced assumptions that the companies have made, such as with respect to anticipated revenue synergies or the costs associated with realizing such synergies, may not be realized. There could also be potential unknown liabilities and unforeseen expenses associated with the Merger that were not discovered in the course of performing due diligence.
We and our directors may be targets of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the Merger from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against public companies and their directors when companies enter into agreements for transactions similar to those contemplated by the Merger Agreement, and such lawsuits may be brought against us and our directors in connection with the Merger Agreement. Even if the lawsuits are without merit, these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, which may adversely affect our business, financial position, and results of operations.
We are experiencing impacts from inflationary pressures in our supply chain and labor markets, which could adversely impact our profitability and cash flow.
We are experiencing, and may continue to experience, the general impact of inflationary market pressures in our supply chain and labor markets. We continue to see pressures on non-union labor costs as a result of the inflationary environment and current general labor shortage, which have created higher competitive markets for talents and opportunities for wage inflation. Despite disciplined hiring practices, it is likely that our labor costs will continue to increase given our demand for labor in this environment. In addition, inflationary pressures on labor costs could result in our inability to adjust contract pricing to keep up with current upward inflationary trends and could impact our profitability.
We are also experiencing difficulties in securing pricing or the availability of certain supplies and raw materials, as sometimes unpredictable supply chain market price escalations are impacting and may continue to impact our subcontractors and suppliers. The current market pressures can make it difficult for our suppliers and subcontractors to locate materials or honor contracted pricing without undue hardship. It is likely that this trend will continue as long as markets continue to experience current levels of inflation. Inflationary market pressures could also impact our ability to secure backlog in the near term. Particularly in our Specialty Civil segment, we continue to see projects on which we have submitted competitive bids being left unawarded, as all submitted bids have exceeded allowable budgets due to the inflationary pressures on materials and labor.
Continued inflation may also result in tightened credit markets and restrict access to funding, bonding, letters of credit or sureties, any of which could adversely impact our profitability and cash flow.
We are impacted by ongoing supply chain pressures resulting from global economic and geopolitical conditions, including the COVID-19 pandemic and the Russian invasion of Ukraine. These conditions are rapidly evolving and could result in negative effects on our business, financial condition, results of operations and prospects.
We are experiencing supply chain disruptions relating to a variety of factors, including as a result of the COVID-19 pandemic, production delays due to labor shortages, inflationary pressures making it difficult for suppliers to commit to contracted pricing or to obtain materials for commercially reasonable prices, fewer delivery options due to a reduction of truck drivers and rail cars, delayed sequencing in our projects related to the inability to determine specific delivery dates for key materials, cost increases for tax, tariffs and border controls, delayed shipments and potential bans or delays of imports as a result of the Russian invasion of Ukraine, regulatory activity that includes the U.S. Department of Commerce’s ongoing antidumping circumvention investigation related to solar cells from Southeast Asia, and bans on imports of certain goods from China including in particular a significant input in the production of solar panels as a result of the Uyghur Forced Labor
Prevention Act. Supply chain disruptions have adversely impacted economic activity and conditions worldwide and we expect that impact to continue.
Any of the foregoing or other supply chain disruptions could cause project delays or terminations or otherwise impact our customers’ ongoing projects or their future project schedules, constitute force majeure events and prevent the financing of new projects by our customers, which could negatively impact our ability to recognize revenues, bill our customers for current costs or secure future business. The factors underlying these disruptions differ in their severity and impact on us and continue to evolve, and we believe that severity and impact may not be stable and could continue to fluctuate. There can be no assurances that our business, financial condition, liquidity or results of operations will not be negatively impacted by the future effects of labor market and supply chain disruptions, or that such disruptions and their impacts will not worsen in the future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following information is related to purchases made for the three months ended June 30, 2022:
| | | | | | | | | | | | | | | | | |
| Issuer Purchases of Equity Securities |
Period | Total Number of Warrants Purchased | | Average Price Paid per Warrant | | Approximate Dollar Value of Warrants that May Yet Be Purchased Under the Plans or Programs (in thousands) |
| | | | | |
| | | | | |
| | | | | |
April | 384,817 | | | 2.03 | | | 9,373 | |
May | 268,506 | | | 1.84 | | | 8,871 | |
June | — | | | — | | | 8,871 | |
Total | 653,323 | | | $ | 1.95 | | | |
On November 4, 2021, the Board authorized a repurchase program for the Company's Merger Warrants. This repurchase program was announced on November 8, 2021, allows us to purchase up to $25.0 million of warrants, and will end no later than the expiration of the warrants on March 8, 2021, which is accessible on the SEC's website at www.sec.gov, except as described below.26, 2023. The Merger Agreement, see Note 13. Subsequent Events, prevents future repurchases of warrants.
Item 6. Exhibits
(a) Exhibits.
| | | | | | | | | | | |
Exhibit Number | | Description | |
2.1#2.1 | | Agreement and Plan of Merger, dated as of November 3, 2017,July 24, 2022, 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.Inc., solely in its capacity as the representative of the seller,MasTec, Inc. and solely for purposes of Section 10.3 thereof, and, to the extent related thereto, Article 12 thereof, M III SponsorIndigo Acquisition I LLC and M III Sponsor I LPCorp. (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)with the Securities and Exchange Commission on July 25, 2022).+. | |
2.33.1 | | Amendment No. 2 to the AgreementThird Amended and PlanRestated Certificate of Merger, dated asIncorporation 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 LPInc. dated May 5, 2022 (incorporated by reference to Exhibit 2.3 to3.1 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed January 2, 2018).with the Securities and Exchange Commission on May 9, 2022). | |
2.43.2 | | Amendment No. 3 to the AgreementSecond Amended and PlanRestated By Laws 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.Inc., solely in its capacity as the representative of the seller,adopted 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 LPeffective May 5, 2022 (incorporated by reference to Exhibit 2.4 to3.2 of the Company’s Current Report on Form 8-K (File No. 001-37796) filed January 10, 2018)with the Securities and Exchange Commission on May 9, 2022). |
3.3 | | |
| | | | | | | | | | | |
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 | | | |
2.8# | | | |
2.9 | | | |
3.1 | | | |
3.2 | | | |
3.33.4 | | | |
3.4 | | | |
3.5 | | | |
3.6 | | | |
3.73.5 | | | |
3.83.6 | | | |
| | | | | | | | | | | |
3.9 | | | |
3.10 | | | |
4.2 | | | |
4.3 | | | |
4.4 | | | |
4.5 | | | |
4.6 | | | |
4.7 | | | |
4.8 | | | |
4.9 | | | |
4.10 | | | |
4.11 | | | |
4.12 | | | |
4.13 | | | |
| | | | | | | | | | | |
4.14 | | | |
4.15 | | | |
4.16 | | | |
4.17 | | | |
4.18 | | | |
10.1† | | | |
10.2†
| | | |
10.3† | | | |
10.4†
| | | |
31.1* | | | |
31.2* | | | |
32.1** | | | |
32.2** | | | |
101.INS*101.INS | | Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH*101.SCH | | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL*101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF*101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB*101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE*101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)101) | |
*Filed herewith.
**Furnished herewith
† Indicates a management contract or compensatory plan or arrangement.
# +Schedules and exhibits have been omitted pursuant to Item 601(b)(5)(2) of Regulation S-K. We willThe Company hereby undertakes to furnish supplemental copies of any of the omitted schedules to the Securities and Exchange Commissionexhibits upon request by the U.S. Securities and Exchange Commission.
*Filed herewith.
**Furnished herewith.
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.
| | | | | | | | |
| |
| |
| INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC. |
| |
Dated: July 28, 2021August 4, 2022 | By: | /s/ Peter J. Moerbeek |
| Name: Peter J. Moerbeek |
| Title: Executive Vice President, Chief Financial Officer |
| | Principal Financial and Accounting Officer |