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INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.

(IEA)
  Report
Delayed Nasdaq  -  04:00 2022-09-30 pm EDT
13.54 USD   -0.51%
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INFRASTRUCTURE & ENERGY ALTERNATIVES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/09/2022 | 04:51pm EDT

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 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. Other than statements of historical fact included in this Quarterly
Report, all statements regarding expectations for 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
mitigate its impact, and the potential negative impacts of COVID-19 on
permitting and project construction cycles, the U.S. economy and financial
markets;
•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, 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 on short or
no notice;
•customer disputes related to the performance of services;
•disputes with, or failures of, subcontractors to deliver agreed-upon supplies
or services in a timely fashion;
•our ability to replace non-recurring projects with new projects;
•the impact of U.S. federal, local, state, foreign or tax legislation and other
regulations affecting the renewable energy industry and related projects and
expenditures;
•the effect of state and federal regulatory initiatives, including costs of
compliance with existing and future safety and environmental requirements;
•fluctuations in equipment, fuel, materials, labor and other costs;
•our beliefs regarding the state of the renewable energy market generally; and
•the "Risk Factors" described in our Annual Report and in our quarterly reports,
other public filings and press releases.
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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 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 260 wind and solar projects in 40 states and
construct one of every five gigawatts put in to place throughout the U.S. in any
given year. We have historically focused on the renewable industry, and have
recently focused on further expansion into the solar market and on 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.


  We have two reportable segments: the Renewables ("Renewables") segment and the
Heavy Civil and Industrial ("Specialty Civil") segment. See Segment Results for
a description of the reportable segments and their operations.

Current Quarter Financials

Key financial results for the quarter ended March 31, 2022 include:


•Consolidated revenues were $360.1 million, of which 67.7% was attributable to
the Renewables segment and 32.3% was attributable to the Specialty Civil
segment, and increased 30.3% as compared to $276.4 million for the quarter ended
March 31, 2021;

•Operating loss increased $22.8 million, to $31.1 million, as compared to a loss of $8.3 million for the quarter ended March 31, 2021;

•Net loss increased $6.7 million, to a loss of $27.1 million, as compared to a loss of $20.4 million for the quarter ended March 31, 2021; and

•Backlog remained stable at $2.9 billion as compared to December 31, 2021.

See Results of Operations for further discussion on changes in operating results and backlog.


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
                                       24
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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
                                       25
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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, 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. For example,
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

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 a cost-effective
solution for the creation of new generating capacity. We believe that these
shifts, coupled with the factors noted below, will continue to drive opportunity
in this segment over the long-term:

•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 that require a specified percentage of the electricity that utilities sell come from renewable resources.


•On June 29, 2021, the Internal Revenue Service issued a notice that 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 production tax credits
("PTC") or investment tax credits ("ITC") that were in effect when construction
began. This new rule
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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 as indicated in the following table:

(in millions)

                                                                                                           Backlog at March
Segment                       December 31, 2021    New Awards in 2022(1)     Revenue Recognized in 2022      31, 2022(2)
Renewables                  $          2,034.8    $               293.6    $                     243.6    $       2,084.8



(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., adequate funding is in place).

Specialty Civil Segment


We believe that our business relationships with customers in these sectors are
excellent and the strong reputation that we have built has provided us with the
right foundation to continue to grow our revenue base. We believe that the
drivers to further growing this segment include:


•The FMI 2022 Overview Report, published in the first quarter of 2022, projects
that nonresidential construction in the U.S. will be over $500 billion per year
from 2022 to 2025.


•The Infrastructure Investment and Jobs Act will provide $1.2 trillion of federal spending for infrastructure and other investments, including $550 billion of new spending over the next five years. This bill includes provision for spending in the following areas:

•Environmental remediation: $21.0 billion

•Roads and bridges: $110.0 billion

•Passenger and freight rail: $66.0 billion



•The U.S. Environmental Protection Agency (the "EPA") has continued to take
action on controlling and cleaning up the contamination of coal ash 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 the 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 as indicated in
the following table:

(in millions)
                                                                                                             Backlog at March
Segment                        December 31, 2021     New Awards in 2022(1)     Revenue Recognized in 2022      31, 2022(2)
Specialty Civil              $            881.3    $                 96.4    $                     116.5    $         861.2



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(1) New awards consist of the original contract price of projects added to our
backlog plus or minus subsequent changes to the estimated total contract price
of existing contracts.

(2) Backlog may differ from the transaction prices allocated to the remaining
performance obligations as disclosed in Note 1. Business, Basis of Presentation
and Significant Accounting Policies included in Part I, Item 1 of this Quarterly
Report. Such differences relate to the timing of executing a formal contract or
receiving a notice to proceed. More specifically, backlog sometimes may include
awards for which a contract has not yet been executed or a notice to proceed has
not been issued, but for which there are no remaining major uncertainties that
the project will proceed (e.g., adequate funding is in place).

Backlog



  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 March 31, 2022 and December 31, 2021:

                (in millions)
                Segments           March 31, 2022    December 31, 2021
                Renewables        $       2,084.8   $          2,034.8
                Specialty Civil             861.2                881.3

                 Total            $       2,946.0   $          2,916.1


The Company expects to recognize 70.8% 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 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, 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 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 for a discussion of the risks associated with our
backlog.

Significant Factors Impacting Results


Our revenues, margins and other results of operations can be influenced by a
variety of factors in any given period, including those described in Results of
Operations, Business Trends 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.
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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 projects in this segment are
more geographically diverse and located in areas that are less impacted by
severe weather. While the first quarter revenues are typically lower than the
third and fourth quarters, the geographical diversity has allowed this segment
to be less seasonal over the course of the year.

Weather and natural disasters. The results of our business in a given period can
be impacted by adverse weather conditions, severe weather events or natural
disasters, which include, among other things, heavy or prolonged snowfall or
rainfall, hurricanes, tropical storms, tornadoes, floods, blizzards, extreme
temperatures, wildfires, and 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 74.0% for the three months ended March 31, 2022.
Revenue derived from projects billed on a unit price basis totaled 24.9% for the
three months ended March 31, 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 1.1% of consolidated revenue for the three months ended March 31, 2022.

Size, scope and complexity of projects. Larger or more complex projects with
design or construction complexities, more difficult terrain requirements or
longer distance requirements typically yield opportunities for higher margins as
we assume a greater degree of performance risk and there is greater utilization
of our resources for longer construction timeframes. 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 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.
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Results of Operations

Three Months Ended March 31, 2022 and 2021

The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:

                                                                             Three Months Ended March 31,
(in thousands)                                                       2022                                 2021

Revenue                                                   $   360,095        100.0  %               276,412         100.0  %
Cost of revenue                                               356,265         98.9  %               259,871          94.0  %
Gross profit                                                    3,830          1.1  %                16,541           6.0  %
Selling, general and administrative expenses                   34,882          9.7  %                24,846           9.0  %

Loss from operations                                          (31,052)        (8.6) %                (8,305)         (3.0) %
Other income (expense), net
Interest expense, net                                          (6,026)        (1.7) %               (14,359)         (5.2) %

Warrant liability fair value adjustment                        (1,428)        (0.4) %                  (300)         (0.1) %
Other income                                                       11            -  %                   138             -  %
Loss from continuing operations before income taxes           (38,495)       (10.7) %               (22,826)         (8.3) %
Benefit for income taxes                                       11,424          3.2  %                 2,392           0.9  %

Net loss                                                  $   (27,071)        (7.5) %               (20,434)         (7.4) %


For a detailed discussion of revenue and gross profit, see Segment Results below.

Revenue. Revenue increased 30.3%, or $83.7 million, in the first quarter of 2022, as compared to the same period in 2021.

Gross profit. Gross profit decreased 76.8%, or $12.7 million, in the first quarter of 2022, as compared to the same period in 2021. As a percentage of revenue, gross profit was 1.1% in the quarter, as compared to 6.0% in the prior-year period.


Selling, general and administrative expenses. Selling, general and
administrative expenses increased 40.4%, or $10.0 million, in the first quarter
of 2022, as compared to the same period in 2021, and increased $3.3 million from
the fourth quarter of 2021. Selling, general and administrative expenses were
9.7% of revenue in the first quarter of 2022, as compared to 9.0% in the same
period in 2021. The annual increase in selling, general and administrative
expenses was primarily driven by the following factors:

•Employee expenses increased $4.8 million related to increases in the number of
employees;
•Information technology and human resources department expenses increased by
$3.7 million as a result of increased software licenses and new technology for
higher employee base; and
•Stock compensation expense increased by $1.1 million.

Interest expense, net. Interest expense, net decreased by $8.3 million, in the
first quarter of 2022, as compared to the same period in 2021. This decrease was
driven by the redemption of Series B Preferred Stock, offset by the interest
expense related to our Senior Unsecured Notes and prior term loan.

Other income (expense), net. Other income (expense), net, which includes warrant
liability fair value adjustment and other income, increased by $1.3 million to
net expense of $1.4 million in the first quarter of 2022, as compared to net
expense of $0.1 million for the same period in 2021. This increase was primarily
the result of the fair value adjustments recorded for the Series B Preferred
Stock - Anti-dilution warrants and private warrants.
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See further discussion in Note 5. Fair Value of Financial Instruments included in Item 1 of this Quarterly Report.


Benefit for income taxes. Benefit for income taxes increased $9.0 million to
$11.4 million in the first quarter of 2022, as compared to $2.4 million for the
same period in 2021. The effective tax rates for the periods ended March 31,
2022 and 2021 were 29.7% and 10.5%, respectively. The higher effective tax rate
in the first quarter of 2022 was primarily attributable to the elimination of
permanent differences related to the interest accrued for the Series B Preferred
Stock, which was redeemed in 2021. There were no changes in uncertain tax
positions during the periods ended March 31, 2022 and 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:


                                                                          Three Months Ended March 31,
(in thousands)                                                   2022                                      2021
                                                                       % of Total                               % of Total
Segment                                                Revenue           Revenue                Revenue           Revenue
Renewables                                        $      243,614              67.7  %       $     180,374              65.3  %
Specialty Civil                                          116,481              32.3  %              96,038              34.7  %

 Total revenue                                    $      360,095             100.0  %       $     276,412             100.0  %

                                                                      Gross Profit                             Gross Profit
Segment                                             Gross Profit         Margin               Gross Profit        Margin
Renewables                                        $        1,301               0.5  %       $      12,180               6.8  %
Specialty Civil                                            2,529               2.2  %               4,361               4.5  %
 Total gross profit                               $        3,830               1.1  %       $      16,541               6.0  %




Renewables Segment Results

Revenue. Renewables revenue was $243.6 million for the quarter ended March 31,
2022, as compared to $180.4 million for the same period in 2021, an increase of
35.1%, or $63.2 million. The increase in revenue was primarily due to:

•An increase in solar revenue of $92.1 million for the quarter ended March 31, 2022 when compared to the same period for 2021; offset by •A decrease in wind revenue in the first quarter of 2022 resulting from a smaller number of active projects, as compared to the same period in 2021.


Gross profit. Renewables gross profit was $1.3 million for the quarter ended
March 31, 2022, as compared to $12.2 million for 2021, a decrease of 89.3%, or
$10.9 million. As a percentage of revenue, gross profit was 0.5% in 2022, as
compared to 6.8% in 2021. The decrease in percentage and dollars was primarily
attributable to the 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
                                       31
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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 training costs
during the quarter, as we continue to increase our labor force to execute our
remaining backlog.

Specialty Civil Segment Results

Revenue. Specialty Civil revenue was $116.5 million for the quarter ended March 31, 2022, as compared to $96.0 million for 2021, an increase of 21.3%, or $20.4 million. The increase in revenue was primarily due to the following factors:


•Continued growth in the environmental remediation market and the Company having
more projects under construction compared to the prior year; and
•Continued modest but steady growth in the heavy civil construction market and
our leverage of shared resources to more effectively bid and execute projects.

These revenue increases were offset by revenue decreases in the rail market,
which has been negatively impacted by the COVID-19 pandemic and the reduction of
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 $2.5 million for the quarter
ended March 31, 2022, as compared to $4.4 million for 2021, a decrease of 42.0%,
or $1.8 million. As a percentage of revenue, gross profit was 2.2% in 2022, as
compared to 4.5% in 2021. The decrease in percentage and dollars was driven by
the inflationary increases discussed above. Additionally, we recorded increased
costs related to the close out of three projects.

Liquidity and Capital Resources

Overview


  Our primary sources of liquidity are cash flows from operations, our cash
balances and availability under our new Credit Agreement (as defined in Debt -
Credit Agreement below). Our primary liquidity needs are for working capital,
debt service, income taxes, capital expenditures, insurance collateral, and
strategic acquisitions. As of March 31, 2022, we had approximately $28.7 million
in cash and $132.7 million availability under our 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 and in the longer term. No assurance can be given, however, that
these sources will be sufficient, because there are many factors that could
affect our liquidity, including some that are beyond our control. See Item 1A.
Risk Factors in Part I of our Annual Report for a discussion of the risks
associated with our liquidity.

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.

Sources and Uses of Cash

Sources and uses of cash are summarized below for the periods indicated:

                                       32
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                                                   Three Months Ended March 31,
(in thousands)                                    2022                        2021

Net cash used in operating activities         (79,021)                      

(53,780)

Net cash used in investing activities          (4,077)                      

(3,522)

Net cash used in financing activities         (12,197)                      

(11,566)




Operating Activities. Net cash used in operating activities for the three months
ended March 31, 2022 was $79.0 million, as compared to $53.8 million over the
same period in 2021. The increase in net cash used in operating activities
reflects the timing of receipts from customers and payments to vendors in the
ordinary course of business. The change was primarily attributable to higher
payments on payables and accrued liabilities partially offset by higher
collections of accounts receivable due to the timing of projects.

Investing Activities. Net cash used in investing activities for the three months
ended March 31, 2022 was $4.1 million, as compared to $3.5 million over the same
period in 2021. The increase in net cash used in investing activities was
primarily attributable to an increase in purchases of property, plant and
equipment.

Financing Activities. Net cash used in financing activities for the three months
ended March 31, 2022 was $12.2 million, as compared to $11.6 million over the
same period in 2021. The increase in net cash used in financing activities was
primarily attributable to repurchases of public warrants, partially offset by
lower payments on finance lease obligations and a decrease in shares for tax
withholding on the release of restricted stock units.

Capital Expenditures


  For the three months ended March 31, 2022, we incurred $7.0 million in finance
lease payments and an additional $4.8 million in cash purchases for equipment.
We estimate that we will spend approximately 2% to 3% of revenue for capital
expenditures for the entirety 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 Senior Unsecured Notes on each
February 15 and August 15, commencing on February 15, 2022. The Senior 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").


On or after August 15, 2024, the Senior Unsecured Notes are subject to
redemption at any time and from time to time at the option of Services, in whole
or in 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 years indicated below:


         Year           Percentage
2024                       103.3  %
2025                       101.7  %
2026 and thereafter        100.0  %



Prior to August 15, 2024, Services may also redeem some or all of the Senior
Unsecured Notes at the principal amount of the 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
original principal amount of the Senior Unsecured Notes with the proceeds of
certain equity offerings at a redemption price of 106.63% of the principal
amount of the Senior Unsecured Notes, together with accrued and unpaid interest.


                                       33
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In 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.


Services may voluntarily repay and reborrow 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 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 (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%. In anticipation of LIBOR's phase
out, our Credit Agreement includes a well-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 lenders under the credit facility for unused
commitments. The commitment fee rate ranges from 0.30% to 0.45% per annum
depending on Services' First Lien Net Leverage Ratio (as defined in the Credit
Agreement).


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) as of the last day of
any four consecutive fiscal quarter period ending on the last day of a fiscal
quarter to be less than 1.20:1.00, commencing with the period ending September
30, 2021.


•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 exceed 1.75:1.00, commencing with the period ending September 30,
2021 (subject to certain increases for permitted acquisitions).


In addition, the Credit Agreement contains a number of covenants that, among
other things and subject to certain exceptions, limit Services' ability and the
ability of its restricted subsidiaries including the Company to incur
indebtedness or guarantee debt; incur liens; make investments, loans and
acquisitions; merge, liquidate or dissolve; sell assets, including capital stock
of subsidiaries; pay dividends on its capital stock or redeem, repurchase or
retire its capital stock; amend, prepay, redeem or purchase subordinated debt;
and engage in transactions with affiliates.


The Credit Agreement contains certain customary representations and warranties,
affirmative covenants and events of default (including, among others, an event
of default upon a change of control). If an event of default occurs, the lenders
under the credit facility are entitled to take various actions, including the
acceleration of amounts due under the credit facility and all actions permitted
to be taken by a secured creditor.
                                       34
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Deferred Taxes - COVID-19


The Company made use of the payroll tax deferral provision of the CARES Act to
defer the 6.2% social security tax. The remaining amount required to be paid by
December 31, 2022 is $7.0 million.

                                       35
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Contractual Obligations

The following table sets forth our contractual obligations and commitments for the periods indicated as of March 31, 2022.

Payments due by period

                                           Total           Remainder of           2023              2024              2025              2026            Thereafter
(in thousands)                                                 2022

Debt (principal) (1)                      302,954               1,354               836               441               255                68             300,000
Debt (interest) (2)                       149,263              10,045      
     19,931            19,901            19,884            19,877          

59,625


Finance leases (3)                         68,685              21,783            16,817            12,701            10,316             6,582          

486

Operating leases (4)                       49,905               9,529            10,457             5,884             3,030             2,371              18,634
Total                                   $ 570,807          $   42,711          $ 48,041          $ 38,927          $ 33,485          $ 28,898          $  378,745


(1)Represents the contractual principal payment due dates on our outstanding
debt.
(2)Represents interest at the stated rate of 6.625% on the Senior Unsecured
Notes and interest at the stated rate on the Company's commercial equipment
notes.
(3)We have obligations, including associated interest, recognized under various
finance leases for equipment totaling $68.7 million at March 31, 2022. Net
amounts recognized within property, plant and equipment, net in the condensed
consolidated balance sheet under these financed lease agreements at March 31,
2022 totaled $81.8 million.
(4)We lease real estate, vehicles, office equipment and certain construction
equipment from unrelated parties under non-cancelable leases. Lease terms range
from month-to-month to terms expiring through 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 March 31, 2022 and December 31, 2021, the Company was contingently liable under letters of credit issued under our credit facility in the amounts of $17.3 million and $31.1 million, respectively, related to projects and insurance.


  As of March 31, 2022 and December 31, 2021, the Company had outstanding surety
bonds on projects with nominal amounts of $3.5 billion and $3.3 billion,
respectively. The remaining approximate exposure related to these surety bonds
amounted to $456.6 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.

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