INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements can be identified by the use of forward-looking terminology including "may," "should," "likely," "will," "believe," "expect," "anticipate," "estimate," "forecast," "seek," "target," "continue," "plan," "intend," "project," or other similar words. All statements, other than statements of historical fact included in this Quarterly Report, regarding expectations for the impact of the COVID-19 pandemic, future financial performance, business strategies, expectations for our business, future operations, liquidity positions, availability of capital resources, financial position, estimated revenues and losses, projected costs, prospects, plans, objectives and beliefs of management are forward-looking statements. These forward-looking statements are based on information available as of the date of this Quarterly Report and our management's current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove correct. Forward-looking statements should not be relied upon as representing our views as of any subsequent date. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ include: •potential risks and uncertainties relating to COVID-19, including the geographic spread, the severity of the disease, the scope and duration of the COVID-19 pandemic, actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact, and the potential negative impacts of COVID-19 on economies and financial markets; •availability of commercially reasonable and accessible sources of liquidity and bonding; •our ability to generate cash flow and liquidity to fund operations; •the timing and extent of fluctuations in geographic, weather and operational factors affecting our customers, projects and the industries in which we operate; •our ability to identify acquisition candidates and integrate acquired businesses; •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 ofU.S. federal, local, state, foreign or tax legislation and other regulations affecting the renewable energy industry and related projects and expenditures; •the effect of state and federal regulatory initiatives, including costs of compliance with existing and future safety and environmental requirements; •fluctuations in equipment, fuel, materials, labor and other costs; •our beliefs regarding the state of the renewable wind energy market generally; and •the "Risk Factors" described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and in our quarterly reports, other public filings and press releases. 22 --------------------------------------------------------------------------------
We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Throughout this section, unless otherwise noted "IEA," "Company," "we," "us," and "our" refer toInfrastructure 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 throughoutthe United States . We specialize in providing complete engineering, procurement and construction services throughoutthe 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 240 wind and solar projects in 40 states and construct one of every five gigawatts put in to place throughout theU.S. in any given year. Although the Company has historically focused on the renewable industry, but has recently focused on further expansion into the solar market and with our recent acquisitions have expanded its construction capabilities and geographic footprint in the areas of environmental remediation, industrial maintenance, specialty paving, heavy civil and rail infrastructure construction, creating a diverse national platform of specialty construction capabilities. We believe we have the ability to continue to expand these services because we are well-positioned to leverage our expertise and relationships in the wind energy business to provide complete infrastructure solutions in all areas. We have two reportable segments: the Renewables ("Renewables") segment and the Heavy Civil and Industrial ("Specialty Civil") segment. See Segment Results for a description of the reportable segments and their operations.
Coronavirus Pandemic Update
The COVID-19 pandemic continues to significantly impactthe 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, theCenter for Disease Control ("CDC") andWorld 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 forMarch 31, 2021 compared toDecember 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 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. 23 --------------------------------------------------------------------------------
Current Quarter Financials
Historically, our revenues and profitability are lowest in the first quarter of the year as inclement weather can create challenging work environments that are more costly for our customers or cause delays on projects. These seasonal patterns mean that revenues tend to be lowest in the first quarter with increases in the second and third quarters and some decline in the fourth quarter. In 2020, that traditional seasonality did not occur. To ensure renewables projects would qualify for the then-anticipated step down in the production tax credit, customers initiated several projects in the fourth quarter of 2019. The early mobilization and favorable weather conditions resulted in record first quarter revenue in 2020, strong second and third quarter performance, and a reduction in the 2020 fourth quarter as projects were completed earlier in the year. For 2021, revenues are expected to revert to the traditional seasonality with the lowest revenues in the first quarter and increasing revenues for the next quarters. The change in seasonality makes for challenging comparisons between the first quarters of 2020 and 2021. Key financial results for the quarter endedMarch 31, 2021 include:
•Backlog increased 29.3%, or
•Consolidated revenues decreased 22.8% to$276.4 million as compared to$358.2 million for the quarter endedMarch 31, 2020 , of which 65.3% was attributable to the Renewables segment and 34.7% was attributable to the Specialty Civil segment;
•Operating income decreased
•Net income decreased 60.4%, or
Trends and Future Opportunities
Renewables Segment
The Renewables segment was impacted by the following significant operational trends:
•In late 2019, the Production Tax Credit ("PTC") was extended for one year,
which increased customer demand to complete construction on more projects for
2020. The extension provided a pull forward of the 2020 quarterly revenue
timing.
•The locations of our construction projects in the first quarter of 2020
experienced more favorable weather conditions and early mobilization, which
provided for earlier project starts.
•Our consistent, safe and reliable performance with our customers on our wind
projects has allowed us to continue to capture further solar opportunities in
backlog for the first quarter of 2021.
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 shift coupled with the below, will continue to drive opportunity in
this segment over the long-term:
•The current administration has a goal of investing
•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.
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•Over 40 states and the District of
•InDecember 2020 , there was a one year extension of the PTC at 60% for projects that begin construction prior toDecember 31, 2021 and a two year extension of 26% Solar Investment Tax Credit ("ITC") to 2022 (22% credit extended through 2023). As a result, wind and solar power are among the leading sources of new power generation capacity in theU.S. , and the Company does not anticipate this trend to change in the near future as we are continuing to see growth through new awards in our backlog:
(in millions)
New Awards in first Revenue Recognized in Backlog at March
Segment December 31, 2020 quarter 2021(1) first quarter 2021 31, 2021(2)
Renewables $ 1,513.4 $ 615.7 $ 180.4 $ 1,948.7
(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 in Item 8. Such differences relate to the
timing of executing a formal contract or receiving a notice to proceed. More
specifically, backlog sometimes may include awards for which a contract has not
yet been executed or a notice to proceed has not been issued, but for which
there are no remaining major uncertainties that the project will proceed (e.g.,
adequate funding is in place).
Specialty Civil Segment
The Specialty Civil segment was impacted by the following significant operational trends:
•The COVID-19 pandemic continues to impact certain aspects of our projects in the rail end markets:
•negatively impacted the budgets of some of our customers, which led to uncertainty and further delays on portions of our large rail jobs; and
•increased the timing needed to obtain governmental approvals and environmental permitting that affected the start and bidding opportunities of certain rail projects.
•Competition increased in a few of our end markets, which led to lower margins on certain heavy civil construction projects reducing overall profitability.
•Despite the delays in project starts mentioned above we continued to see a strong bidding environment in the bidding environment for heavy civil construction and environmental remediation 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.
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We believe that our business relationships with customers in these sectors are
excellent and the strong reputation that our acquired companies have built has
provided us with the right foundation to continue to grow our revenue base. The
drivers to further growing this segment are as follows:
•The FMI 2021 Overview Report published in the first quarter of 2021 projects
that nonresidential construction put in place for the United States will be over
$500 billion per year from 2021 to 2024.
•Fast Act extension and highway trust fund infusion of
•According to theAmerican Coal Ash Association , coal combustion residuals "CCRs" or "coal ash" are produced by coal-fired power plants and represent one of the largest categories of industrial waste in theU.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. 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 this sector. The Company continues to cross leverage these two segments and continues to see future growth through new awards in our backlog:
(in millions)
New Awards in first Revenue Recognized in Backlog at March
Segment December 31, 2020 quarter 2021(1) first quarter 2021 31, 2021(2)
Specialty Civil $ 556.1 $ 267.0 $ 96.0 $ 727.1
(1) New awards consist of the original contract price of projects added to our
backlog plus or minus subsequent changes to the estimated total contract price
of existing contracts.
(2) Backlog may differ from the transaction prices allocated to the remaining
performance obligations as disclosed in Note 1. Business, Basis of Presentation
and Significant Accounting Policies in Item 8. 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
For companies in the construction industry, backlog can be an indicator of future revenue streams. Estimated backlog represents the amount of revenue we expect to realize from the uncompleted portions of existing construction contracts, including new contracts under which work has not begun and awarded contracts for which the definitive project documentation is being prepared, as well as revenue from change orders and renewal options. Estimated backlog for work under fixed price contracts and cost-reimbursable contracts is determined based on historical trends, anticipated seasonal impacts, experience from similar projects and estimates of customer demand based on communications with our customers. Cost-reimbursable contracts are included in backlog based on the estimated total contract price upon completion.
The following table summarizes our backlog by segment as of
(in millions)
Segments March 31, 2021 December 31, 2020
Renewables $ 1,948.7 $ 1,513.4
Specialty Civil 727.1 556.1
Total $ 2,675.8 $ 2,069.5
The Company expects to recognize 69.2% of revenue related to its backlog in the next twelve months.
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Based on historical trends in the Company's backlog, we believe awarded
contracts to be firm and that the revenue for such contracts will be recognized
over the life of the project. Timing of revenue for construction and
installation projects included in our backlog can be subject to change as a
result of customer delays, regulatory factors and/or other project-related
factors. These changes could cause estimated revenue to be realized in periods
later than originally expected, or not at all. In the past, we have occasionally
experienced postponements, cancellations and reductions on construction
projects, due to market volatility and regulatory factors. There can be no
assurance as to our customers' requirements or the accuracy of our estimates. As
a result, our backlog as of any particular date is an uncertain indicator of
future revenue and earnings.
Backlog is not a term recognized under GAAP, although it is a common
measurement used in our industry. Our methodology for determining backlog may
not be comparable to the methodologies used by others. See ''Item 1A. Risk
Factors'' in our Annual Report on Form 10-K filed with the SEC on March 8, 2021
for a discussion of the risks associated with our backlog.
Significant Factors Impacting Results
Our revenues, margins and other results of operations can be influenced by a variety of factors in any given period, including those described in Results of Operations and Forward Looking Statements, and those factors have caused fluctuations in our results in the past and are expected to cause fluctuations in our results in the future. Additional information with respect to certain of those factors is provided below. Seasonality. Typically, our revenues are lowest in the first quarter of the year because cold, snowy or wet conditions can create challenging working environments that are more costly for our customers or cause delays on projects. In addition, infrastructure projects often do not begin in a meaningful way until our customers finalize their capital budgets, which typically occurs during the first quarter. Second quarter revenues are typically higher than those in the first quarter, as some projects begin, but continued cold and wet weather can often impact productivity. Third quarter revenues are typically the highest of the year, as a greater number of projects are underway and operating conditions, including weather, are normally more accommodating. Generally, revenues during the fourth quarter are lower than the third quarter but higher than the second quarter, as many projects are completed and customers often seek to spend their capital budgets before year end. However, the holiday season and inclement weather can sometimes cause delays during the fourth quarter, reducing revenues and increasing costs. Our revenue and results of operations for our Specialty Civil segment are also affected by seasonality but to a lesser extent as these projects are more geographically diverse and less impacted by severe weather. While the first and second quarter revenues are typically lower than the third and fourth quarter, 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, pandemics and earthquakes. These conditions and events can negatively impact our financial results due to the termination, deferral or delay of projects, reduced productivity and exposure to significant liabilities. Cyclical demand. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can impact demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations in project schedules or unanticipated changes in project schedules, in particular, in connection with large construction and installation projects, can create fluctuations in revenue, which may adversely affect us in a given period. In addition, revenue from master service agreements, while generally predictable, can be subject to volatility. The financial condition of our customers and their access to capital, variations in project margins, regional, national and global economic, political and market conditions, regulatory or environmental influences, and acquisitions, dispositions or strategic investments can also materially affect quarterly results. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. Revenue mix. The mix of revenues based on the types of services we provide in a given period will impact margins, as certain industries and services provide higher-margin opportunities. Revenue derived from projects billed on a fixed-price basis totaled 96.2% for the three months endedMarch 31, 2021 . Revenue and related costs for construction contracts billed on a time and materials basis are recognized as the services are rendered. Revenue derived from projects billed on a time and materials basis totaled 3.8% of consolidated revenue for the three months endedMarch 31, 2021 . 27 -------------------------------------------------------------------------------- Size, scope and complexity of projects. Larger or more complex projects with design or construction complexities; more difficult terrain requirements; or longer distance requirements typically yield opportunities for higher margins as we assume a greater degree of performance risk and there is greater utilization of our resources for longer construction timeframes. Furthermore, smaller or less complex projects typically have a greater number of companies competing for them, and competitors at times may more aggressively pursue available work. A greater percentage of smaller scale or less complex work also could negatively impact margins due to the inefficiency of transitioning between a larger number of smaller projects versus continuous production on fewer larger projects. Also, at times we may choose to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on larger projects when they move forward. Project variability and performance. Margins for a single project may fluctuate period to period due to changes in the volume or type of work performed, the pricing structure under the project contract or job productivity. Additionally, our productivity and performance on a project can vary 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 inU.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
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) 2021 2020
Revenue $ 276,412 100.0 % $ 358,163 100.0 %
Cost of revenue 259,871 94.0 % 325,122 90.8 %
Gross profit 16,541 6.0 % 33,041 9.2 %
Selling, general and administrative expenses 24,846 9.0 % 29,484 8.2 %
Income from operations (8,305) (3.0) % 3,557 1.0 %
Interest expense, net (14,359) (5.2) % (16,065) (4.5) %
Other expense (162) (0.1) % (1,102) (0.3) %
Income from continuing operations before income
taxes (22,826) (8.3) % (13,610) (3.8) %
Benefit for income taxes 2,392 0.9 % 867 0.2 %
Net income $ (20,434) (7.4) % $ (12,743) (3.6) %
For a detailed discussion of Revenue and Gross profit see Segment Results, below.
Revenue. Revenue decreased 22.8%, or
Gross profit. Gross profit decreased 49.9%, or
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Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 15.7%, or $4.6 million , in the first quarter
of 2021, compared to the same period in 2020. Selling, general and
administrative expenses were 9.0% of revenue in the first quarter of 2021,
compared to 8.2% in the same period in 2020. The decrease in selling, general
and administrative expenses was primarily driven by:
•Reductions in staff related benefit costs by
The reductions above were partially offset by expense increases for:
•Outside services fees of$0.6 million related to the secondary offering in the first quarter; and •Information technology costs of$0.6 related to software licensing. Interest expense, net. Interest expense, net decreased by$1.7 million , in the first quarter of 2021, compared to the same period in 2020. This decrease was primarily driven by lower effective interest rates on our term loan, partially offset by an increase in the dividend rate of 13.5% on the Company's preferred Series B stock dividend. The increase in rate was due to the Company's net lien leverage ratio being above 1.5:1.0. Other expense. Other expense decreased by$0.9 million , to$0.2 million in the first quarter of 2021 from$1.1 million for the same period in 2020. This decrease was primarily the result of the impact of a decrease in the warrant liability in the first quarter of 2021. See further discussion in Note 5. Fair Value of Financial Instruments included in Item 1 of this Quarterly Report on Form 10-Q. Benefit for income taxes. Benefit for income taxes increased$1.5 million , to a benefit of$2.4 million in the first quarter of 2021, compared to$0.9 million for the same period in 2020. The effective tax rates for the period endedMarch 31, 2021 and 2020 were 10.5% and 6.4%, respectively. The higher effective tax rate in the first quarter of 2021 was primarily attributable to higher permanent differences related to executive compensation, which are not deductible for federal and state income taxes. There were no changes in uncertain tax positions during the periods endedMarch 31, 2021 and 2020.
Segment Results
The Company operated our business as two reportable segments: the Renewables
segment and the Specialty Civil segment. Each of our reportable segments is
comprised of similar business units that specialize in services unique to the
respective markets that each segment serves. The classification of revenue and
gross profit for segment reporting purposes can at times require judgment on the
part of management. Our segments may perform services across industries or
perform joint services for customers in multiple industries. To determine
reportable segment gross profit, certain allocations, including allocations of
shared and indirect costs, such as facility costs, equipment costs and indirect
operating expenses, were made based on segment revenue.
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Three Months Ended March 31,
(in thousands) 2021 2020
% of Total % of Total
Segment Revenue Revenue Revenue Revenue
Renewables $ 180,374 65.3 % $ 248,746 69.5 %
Specialty Civil 96,038 34.7 % 109,417 30.5 %
Total revenue $ 276,412 100.0 % $ 358,163 100.0 %
Gross Profit Gross Profit
Segment Gross Profit Margin Gross Profit Margin
Renewables $ 12,180 6.8 % $ 25,829 10.4 %
Specialty Civil 4,361 4.5 % 7,212 6.6 %
Total gross profit $ 16,541 6.0 % $ 33,041 9.2 %
Renewables Segment Results
Revenue. Renewables revenue was $180.4 million for the quarter ended March 31,
2021 as compared to $248.7 million for the same period in 2020, a decrease of
27.5%, or $68.4 million . The decrease in revenue was primarily due to an
increase in customer demand in 2020 from the extension of the PTC credit in
2019, which increased the number of wind projects in construction during the
first quarter of 2020, offset by increased growth in the Solar market during
2021:
•The company had 10 projects of greater than $5.0 million of revenue in the
first quarter of 2021 compared to 13 projects during the same period in 2020,
•The average value of the 10 projects was $12.9 million in 2021 compared to
$17.6 million related to the 13 projects during the same period in 2020, and
•Solar revenue increased $33.3 million for the quarter ended March 31, 2021 when
compared to the same period for 2020.
Gross profit. Renewables gross profit was $12.2 million for the quarter ended
March 31, 2021 as compared to $25.8 million for 2020, a decrease of 52.8%, or
$13.6 million . As a percentage of revenue, gross profit was 6.8% in 2021, as
compared to 10.4% in 2020. The decrease was primarily attributable to the timing
of the project starts being later in the first quarter of 2021, which led to an
increase in unabsorbed equipment and labor costs, compared to the same period in
the prior year.
Specialty Civil Segment Results
Revenue. Specialty Civil revenue was$96.0 million for the quarter endedMarch 31, 2021 as compared to$109.4 million for 2020, a decrease of 12.2%, or$13.4 million . The decrease in revenue was primarily due to the delay of certain projects in the rail end markets, offset by higher revenue from our construction project mix in the heavy civil market as compared to 2020: •Rail markets continue to experience a decrease in revenue primarily due to delay in project starts for railroads and lower budgets decreasing bidding opportunities, and •Offsetting the decrease in revenue was a slight increase in our heavy civil construction mix of projects. Gross profit. Specialty Civil gross profit was$4.4 million for the quarter endedMarch 31, 2021 as compared to$7.2 million for 2020, a decrease of 39.5%, or$2.9 million . As a percentage of revenue, gross profit was 4.5% in 2021, as compared to 6.6% in 2020. In the first quarter of 2021, the Company had lower gross margin due to the mix of the projects as there were more heavy civil construction projects, which typically generate lower gross margins than our rail and environmental remediation markets. 30 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash flows from operations, our cash balances and availability under our Third A&R Credit Agreement. Our primary liquidity needs are for working capital, debt service, dividends on our Series B Preferred Stock, income taxes, capital expenditures, insurance collateral, and strategic acquisitions. As ofMarch 31, 2021 , we had approximately$95.2 million in cash, and$53.0 million availability under our Third A&R Credit Agreement. We anticipate that our existing cash balances, funds generated from operations, and borrowings will be sufficient to meet our cash requirements for the next twelve months. No assurance can be given, however, that these sources will be sufficient, because there are many factors which could affect our liquidity, including some which are beyond our control. Please see "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K filed with theSEC onMarch 8, 2021 for a discussion of the risks associated with our liquidity.
Capital Expenditures
For the three months endedMarch 31, 2021 , we incurred$8.0 million in finance lease payments and an additional$3.9 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 ofMarch 31, 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$318.0 million as ofMarch 31, 2021 from$309.0 million as ofDecember 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. 31 --------------------------------------------------------------------------------
Sources and Uses of Cash
Sources and uses of cash are summarized below:
Three Months Ended March 31,
(in thousands) 2021 2020
Net cash used in operating activities (53,780) (74,177)
Net cash (used in) provided by investing activities (3,522) 87
Net cash used in financing activities (11,566) (15,088)
Operating Activities. Net cash used in operating activities for the three months
ended March 31, 2021 was $53.8 million , as compared to net cash used by
operating activities of $74.2 million over the same period in 2020. The increase
in net cash used by operating activities reflects the timing of receipts from
customers and payments to vendors in the ordinary course of business. The change
was primarily attributable to lower payments on payables and accrued liabilities
coupled with lower collections of accounts receivable and contract assets due to
reduced activity level.
Investing Activities. Net cash used in investing activities for the three months
ended March 31, 2021 was $3.5 million , as compared to net cash provided by
investing activities of $0.1 million over the same period in 2020. The increase
in net cash used by 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, 2021 was $11.6 million , as compared to net cash provided of
$15.1 million over the same period in 2020. The reduction of cash used in
financing activities of $3.5 million was primarily attributable to a reduction
in net long-term debt transactions.
Series A Preferred Stock
As ofMarch 31, 2021 , we had 17,483 shares of Series A Preferred Stock issued and outstanding. Each share of Series A Preferred Stock had an initial stated value of$1,000 per share (or approximately$17.5 million in the aggregate). Dividends are paid on the Series A Preferred Stock as, if and when declared by our Board. To extent permitted and only as, if and when declared by the Board, dividends are required to be paid in cash quarterly in arrears on eachMarch 31 ,June 30 ,September 30 andDecember 31 on the stated value at a rate of 10% per annum. If not paid in cash, dividends will accrue on the stated value and will increase the stated value on and effective as of the applicable dividend date without any further action by the Board at 12% per annum. As ofMarch 31, 2021 , the Company had increased the initial stated value by$5.0 million in the aggregate rather than pay cash dividends. So long as any shares of Series B Preferred Stock of the Company are currently outstanding or from and after the occurrence of any non-payment event or default event and until cured or waived, the foregoing rates will increase by 2% per annum. The Company is currently restricted from paying cash dividends on Series A Preferred Stock because it has outstanding dividends that are accrued on the Series B preferred stock. The Series A Preferred Stock do not have a scheduled redemption date or maturity date. Subject to the terms of the Series B Preferred Stock, we may, at any time and from time to time, redeem all or any portion of the shares of Series A Preferred Stock then outstanding. As a condition to the consummation of any change of control (as described in the certificate governing the Series A Preferred Stock), we are required to redeem all shares of Series A Preferred Stock then outstanding. We are also required to use the net cash proceeds from certain transactions to redeem the maximum number of shares of Series A Preferred Stock that can be redeemed with such net cash proceeds, except as prohibited by the Third A&R Credit Agreement. Based on the stated value of the Series A Preferred Stock as ofMarch 31, 2021 after giving effect to the accrual of dividends, we would be required to pay quarterly cash dividends in the aggregate of$0.6 million on the Series A Preferred Stock. If unpaid, the dividends will accrue at a rate of 12% per annum and increase the stated value of the Series A Preferred Stock. We do not presently expect to pay cash dividends. 32 --------------------------------------------------------------------------------
Series B Preferred Stock
As ofMarch 31, 2021 , we had 199,474 shares of Series B Preferred Stock issued and outstanding. Each share of Series B Preferred Stock had an initial stated value of$1,000 per share (or approximately$199.5 million in the aggregate). Our common stock and Series A Preferred Stock are junior to the Series B Preferred Stock. Dividends are paid in cash on the Series B Preferred Stock as, if and when declared by our Board. To the extent not prohibited by applicable law, and only as, if and when declared by the Board, dividends are required to be paid in cash quarterly in arrears on eachMarch 31 ,June 30 ,September 30 andDecember 31 . For any dividend period that the Total Net Leverage Ratio is greater than 1.50:1.00, the dividend rate is 13.5% per annum; and otherwise at a rate of 12.0% per annum. If not paid in cash, dividends will accrue on the stated value and will increase the stated value on Series B Preferred Stock at a rate of 15%. As ofMarch 31, 2021 , the unpaid dividends had increased the initial stated value by$18.3 million in the aggregate. Until the Series B Preferred Stock is redeemed, neither we nor any of our subsidiaries can declare, pay or set aside any dividends on shares of any other class or series of capital stock, except in limited circumstances. We are required to redeem all shares of Series B Preferred Stock outstanding onFebruary 15, 2025 at the then stated value plus all accumulated and unpaid dividends thereon through the day prior to such redemption. Subject to compliance with the terms of any credit agreement, we are also required to redeem all of the Series B Preferred Stock as a condition to the consummation of certain changes in control (as defined in certificate governing the Series B Preferred Stock), as well as use the net cash proceeds from certain transactions to redeem shares of Series B Preferred Stock. Based on the stated value of the Series B Preferred Stock as ofMarch 31, 2021 after giving effect to the accrual of dividends, we would be required to pay quarterly cash dividends in the aggregate of$6.6 million on the Series B Preferred Stock. If not paid the dividends will accrue at a rate of 15% per annum and increase the stated value of the Series B Preferred Stock. Actual decisions regarding payment of cash dividends on the Series B Preferred Stock will be made at the time of the applicable dividend payment based upon availability of capital resources, business conditions, other cash requirements, and other relevant factors. Deferred Taxes - COVID-19
The CARES Act was enacted on
•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
•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 also made use of the payroll deferral provision to defer the 6.2% social security tax, or approximately$13.6 million , throughDecember 31, 2020 . This amount is required to be paid at 50% onDecember 31, 2021 andDecember 31, 2022 . 33 --------------------------------------------------------------------------------
Amendment to Third A&R Credit Agreement
OnOctober 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 endedDecember 31, 2020 , as required under the Amendment, the percentage per annum interest rate for revolving loans and swing line loans is, at the Company's option, (x) LIBOR plus a margin of 2.75% or (y) the applicable base rate plus a margin of 1.75%. Thereafter, for any day, the applicable percentage per annum interest rate for revolving loans and swing line loans is LIBOR or the base rate plus a margin depending upon the Company's first lien net leverage ratio as of the last day of the most recently ended consecutive four fiscal quarter period, as set forth below: First Lien Net Leverage Ratio LIBOR Loans Base Rate Loans Less than 1.00:1.00 2.50% 1.50% Less than 2.00:1.00 but greater than or equal to 2.75% 1.75%
1.00:1.00
Less than 3.00:1.00 but greater than or equal to 3.00% 2.00%
2.00:1.00
Less than 3.50:1.00 but greater than or equal to 3.25% 2.25%
3.00:1.00
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 endedDecember 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 0.40% to 1.00:1.0 Less than 3.00:1.00 but greater than or equal 0.45% to 2.00:1.00 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
Payments due by period
Total Remainder of 2022 2023 2024 2025 Thereafter
(in thousands) 2021
Debt (principal) (1) 178,242 1,821 16,938 29,986 129,368 129 -
Debt (interest) (2) 37,912 9,242 12,020 10,285 6,362 3 -
Debt - Series B Preferred
Stock (3) 199,474 - - - - 199,474 -
Dividends - Series B
Preferred Stock (4) 119,325 19,585 26,113 26,113 26,113 21,401 -
Finance leases (5) 54,398 19,994 21,996 7,267 3,264 1,799 78
Operating leases (6) 49,717 8,435 9,753 7,347 3,532 1,751 18,899
Total $ 639,068 $ 59,077 $ 86,820 $ 80,998 $ 168,639 $ 224,557 $ 18,977
(1)Represents the contractual principal payment due dates on our outstanding
debt.
(2)Includes variable rate interest using March 31, 2021 rates.
(3)Represents the mandatorily redeemable debt - Series B Preferred with expected
redemption date of February 15, 2025 .
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(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 of associated interest, recognized under
various finance leases for equipment totaling $54.4 million at March 31, 2021 .
Net amounts recognized within property, plant and equipment, net in the
condensed consolidated balance sheet under these financed lease agreements at
March 31, 2021 totaled $69.0 million .
(6)We lease real estate, vehicles, office equipment and certain construction
equipment from unrelated parties under non-cancelable leases. Lease terms range
from month-to-month to terms expiring through 2038.
For detailed discussion and additional information pertaining to our debt
instruments, see Note 6. Debt and Note 7. Commitments and Contingencies in the
notes to our condensed consolidated financial statements, included in Part I,
Item 1.
Off-Balance Sheet Arrangements
As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business. Our significant off-balance sheet transactions include liabilities associated with letter of credit obligations, surety and performance and payment bonds entered into in the normal course of business, liabilities associated with deferred compensation plans, liabilities associated with certain indemnification and guarantee arrangements.
As of
As of
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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