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, theU.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 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 energy market generally; and •the "Risk Factors" described in our Annual Report and in our quarterly reports, other public filings and press releases. 23 --------------------------------------------------------------------------------
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 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 260 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. 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
•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 endedMarch 31, 2021 ;
•Operating loss increased
•Net loss increased
•Backlog remained stable at
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 -------------------------------------------------------------------------------- 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 inthe 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 theU.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 ofUkraine ; •Potential bans or delays of imports of certain goods from suppliers having significant operations inRussia , whether as a result of a supplier's operational decision or of sanctions imposed onRussia or operations backed by the Russian state; •Delayed shipments and potential cost increases resulting from theU.S. Department of Commerce anti-dumping circumvention investigation announced inMarch 2022 of solar cells fromCambodia ,Malaysia ,Thailand andVietnam ; and •Bans on imports of certain goods fromChina , 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 ofUkraine , international sanctions) with respect to availability and costs of certain materials and equipment necessary for the performance 25 -------------------------------------------------------------------------------- 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 inChina and other locations inSoutheast 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 announcedUS Department of Commerce investigation of solar panels imported from Chinese companies inCambodia ,Malaysia ,Thailand andVietnam . 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 fromChina . 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 toNovember 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
•OnJune 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 26 --------------------------------------------------------------------------------
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 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 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 theU.S. will be over$500 billion per year from 2022 to 2025.
•The Infrastructure Investment and Jobs Act will provide
•Environmental remediation:
•Roads and bridges:
•Passenger and freight rail:
•TheU.S. Environmental Protection Agency (the "EPA ") has continued to take action on controlling and cleaning up the contamination of coal ash disposal. InJanuary 2022 , theEPA 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 theEPA . 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 27
-------------------------------------------------------------------------------- (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
(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. 28 -------------------------------------------------------------------------------- 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 endedMarch 31, 2022 . Revenue derived from projects billed on a unit price basis totaled 24.9% for the three months endedMarch 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 endedMarch 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 inU.S. or global trade relationships or other economic or political conditions, may impact our margins. 29 --------------------------------------------------------------------------------
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) 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
Gross profit. Gross profit decreased 76.8%, or
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. 30 --------------------------------------------------------------------------------
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$2.4 million for the same period in 2021. The effective tax rates for the periods endedMarch 31, 2022 and 2021 were 29.7% and 10.5%, respectively. The higher effective tax rate in the first quarter of 2022 was primarily attributable to the elimination of permanent differences related to the interest accrued for the Series B Preferred Stock, which was redeemed in 2021. There were no changes in uncertain tax positions during the periods endedMarch 31, 2022 and 2021.
Segment Results
The Company operates our business as two reportable segments: the Renewables segment and the Specialty Civil segment. Each of our reportable segments is comprised of similar business units that specialize in services unique to the respective markets that each segment serves. The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made based on segment revenue.
The following table sets forth segment revenues and gross profit for the years indicated, as well as the dollar and percentage change from the prior year:
Three Months Ended March 31, (in thousands) 2022 2021 % of Total % of Total Segment Revenue Revenue Revenue Revenue Renewables$ 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 endedMarch 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
Gross profit. Renewables gross profit was$1.3 million for the quarter endedMarch 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 -------------------------------------------------------------------------------- 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
•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 endedMarch 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 ofMarch 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:
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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 endedMarch 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 endedMarch 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 endedMarch 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 endedMarch 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
OnAugust 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 eachFebruary 15 andAugust 15 , commencing onFebruary 15, 2022 . The Senior Unsecured Notes will mature onAugust 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 afterAugust 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 onAugust 15 of the years indicated below: Year Percentage 2024 103.3 % 2025 101.7 % 2026 and thereafter 100.0 % Prior toAugust 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 toAugust 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 -------------------------------------------------------------------------------- In connection with the issuance of the Senior Unsecured Notes, Services entered into an indenture (the "Indenture") with theGuarantors andWilmington 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 OnAugust 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 andCIBC 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 onAugust 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 endingSeptember 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 endingSeptember 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 --------------------------------------------------------------------------------
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 byDecember 31, 2022 is$7.0 million . 35 --------------------------------------------------------------------------------
Contractual Obligations
The following table sets forth our contractual obligations and commitments for
the periods indicated as of
Payments due by period
Total Remainder of 2023 2024 2025 2026 Thereafter (in thousands) 2022 Debt (principal) (1) 302,954 1,354 836 441 255 68 300,000 Debt (interest) (2) 149,263 10,045
19,931 19,901 19,884 19,877
59,625
Finance leases (3) 68,685 21,783 16,817 12,701 10,316 6,582
486
Operating leases (4) 49,905 9,529 10,457 5,884 3,030 2,371 18,634 Total$ 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 atMarch 31, 2022 . Net amounts recognized within property, plant and equipment, net in the condensed consolidated balance sheet under these financed lease agreements atMarch 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
As ofMarch 31, 2022 andDecember 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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