Q4 2019 Earnings Call
Good morning, and welcome to infrastructure and energy alternatives fourth quarter and full year 2019 conference call.
I'd like to note that all participants on today's call will listen only mode.
With that I will turn the call over to Kimberly Esterkin Investor Relations I can really please go ahead.
Thank you for joining us today to discuss I EA sports corridor and full year 2019 financial results.
With us for management, R.J.P., <unk>, Chief Executive Officer, Pete Moerbeek, Chief Financial Officer, and Michael Stoker, Chief operating Officer.
Before turning the call over can management I would like to note that today's discussion contains forward looking statements about future.
Future growth and financial expectations.
Any forward looking statements should be considered in conjunction with the cautionary statement.
In yesterday's press release.
Dr is included in the company's FCC filings.
Except as required by law <unk> undertakes no obligation to update its forward looking statements after today's call.
Since management will be presenting some non-GAAP financial measure me as references including adjusted EBITDA.
Appropriate GAAP financial reconciliation can be found on the investor section of I its website as well as any yesterday's press release.
And with that I'll now turn the call over <unk> Chief Executive Officer keep hearing. Please go ahead JP.
Thanks Kimberly.
Good morning, and thank you for joining our fourth quarter and full year 2019 earnings conference call.
We appreciate your continued support a body.
As we announced yesterday, we are pleased that Matthew Underwood Aries private equity group has been added to our board of directors.
He has been a great financial partners <unk> and we welcome Matt to our board.
This explains will be a strong asset as we continue to grow <unk>.
I also want to say the work of two directors recently stepped down from our board.
Oh, Meiji and he's Shapiro.
Yeah, we advice and guidance had been invaluable.
I'd also like to welcome Pete Moerbeek to the <unk> executive team.
He joins <unk> with over three decades of experience and executive financial and operational leadership positions across the engineering construction in utility industry.
Most recently, serving as executive Vice President Chief Financial Officer in Director at Primoris Services Corporation.
He has been an advisor to our board of directors since February 2019.
So we're expecting a seamless transition.
I look forward to working with Pete as we begin to search for a permanent CFO.
You have an opportunity to here Pete later in this call.
Let me now turn to a summary of our results.
2019 was a year or progress Friday a.
Full year revenues of approximately 1.5 billion were a record improving 89% year over year as we almost doubled in size.
Even excluding the impact 2018 acquisitions revenues improved 16% year over year.
As a result.
Entering twentytwenty on solid footing with the ability to generate continued growth across both the renewable and especially so end markets.
To take advantage of the growing business opportunities ahead of us it wasn't essential that we improved our liquidity.
And we have done so.
Over the past eight months, we executed a recapitalization efforts, which included the issue. It's a series B preferred stock.
Warrants and a public rights offering.
In total we raised $180 million.
The funds received for a financing efforts have been used to improve liquidity and reduce our debt by approximately $164 million.
I will leave it to Pete to speak from year to this topic.
Over the past 17 months.
We've diversified our service offerings.
Today.
Provide clients will DPC capabilities across the wind solar.
Civil rail construction power delivery.
Our middle end markets.
Our qualified and experienced teams can self perform virtually the entire project scope for projects in our end markets.
We are starting to see some of the benefits of our diverse capabilities.
New awards during the fourth quarter translated into a very healthy backlog of 2.2 billion at the end of December providing us great visibility as we enter twentytwenty.
Since the ended the third quarter, we received over $220 million of new business unrelated to wind farms construction.
One of the key benefits of our diversified platform has been a significant overlap in labor skills and equipment across each of our businesses.
With the integration of our 2018 acquisitions now basically complete we can capitalize on the scale capabilities that we gain from these strategic transactions by deploying resources officially throughout the entire organization.
This synergy is one of the reasons that we could sell perform work on a much greater portion of our projects.
Thereby reducing the need to subcontract and ultimately improving our margins.
Finally in 2019, we were very fortunate to make a number of key hires that strengthens the management team.
Hey.
One of those hires as Michael Stoker was our first chief operating officer.
Mikes like 35 year construction better has made an immediate impact and operationally our teams have improved the performance of predictability of our projects.
I'm, turning the call over to Mike So that he could discuss some of these operational improvements.
Mike.
Thanks, JP, it's great to have the opportunity to speak with everyone. Today is joining IEI last April I've worked to implement systems and control mechanisms to officially manage our projects and ensure more predictable reliable results and execution for all of our stakeholders.
During the year, we embarked upon the process of consolidating our 5000 piece equipment fleet into one common tracking and maintenance system, we are improving fleet management with the goal of maximizing utilization.
At the same time, we organized our fleet we began the initial stages of managing the workforces, both craft and supervision throughout our operating companies to reduce downtime and improved utilization by redirecting our teams to different parts of the company as needed.
We implemented real time project control software tools designed to help our project teams better forecast labor production.
Manage changing project conditions, such as weather or other delays and ultimately better forecast project profitability.
We are taking it much more proactive stance in addressing and resolving project change orders and claims.
We believe that this focus on change order management will help improve cash flow.
Going forward.
In terms of risk management, we centralized our insurance claims and risk management functions into a single group.
<unk> cost efficiency and enhance performance.
We reviewed our insurance contracts to ensure that hey is properly prepared to address the risks of our market.
While still staying competitive with our peers.
One other risk. We're currently tracking very closely is that Covidien 19 buyers.
Well, we've received a few notices and projects where the materials and equipment are being source of China.
There have been no delays at this time.
Manufacturers in China return to work in the near term, we do not expect to experience any significant slowdown in project work.
Nevertheless, we are actively monitoring the situation and we'll deploy necessary actions should factories in China remained close.
Last but certainly not least we remain focused on ensuring the safety of all of our employees.
In the past year, we've seen a marked improvement in our total recordable incident rate for T., our IR and our lost time incident rate for LT IR.
Not only has it had a positive impact on <unk> ability to win future work.
It means that our employees are returning home framework safe and sound each day.
JP mentioned that we've been able to generate operating leverage across our segments. So let me provide provide a few examples.
First our power delivery groups outperformed over $90 million a power delivery collection work on overdone 10 of our wind farm projects in 2019.
This notable change allows you to better control the flow of our project.
Jack and react to changes more efficiently.
Next our William Charles heavy Civil Group has provided resources to our window in the Midwest Superform Road building services on our went far projects, thereby maximizing our overall equipment and craft utilization.
Lastly.
In our transportation space American Civil Constructors began railroads, citing work right, Texas rail project that is that a collaboration with William Charles and our full service general contractor in light and heavy rail construction Ragnar Benson.
The South Texas Rail project is expected to be completed in April and ranges over 200 miles from end to end, including extension, citing at each location of approximately 8500 lineal feet.
Normal weather patterns across nearly all of our project sites in the fourth quarter 2019, and thus far in the first quarter 2020 have enabled us to continue to operate at a steady pace and begin work on a number of wind energy and civil projects earlier in the season than in prior years.
It is clear that the some of our parts can offer even more to our clients the individual pieces.
Leveraging our expertise across the entire platform, we can achieve much greater returns for our clients and our stakeholders.
With that said I'll now turn the call over to our CFO Pete Moerbeek.
Pete.
Thanks, Mike and thanks to everyone listening to this call.
Let me begin by providing an overall perspective.
He has been a publicly traded company for less than two years.
At that time, we've grown rapidly in in the fourth quarter of 29 team our annual revenue exceeded the limits that allows us to report as an emerging growth company.
I'm pleased to say that when we file our form 10-K later today, we will have successfully adopted the revenue recognition and lease accounting standards.
This result required the hard work of many of our financial and operations team.
Additionally, I guess, it's true that old Cfos don't just fade away.
Don't ever say never when retiring.
I. He begins 2020 with improved liquidity, including nearly a $150 million and cash on hand, but significantly less first lien debt than at the start of last year and with a strong team focused on profitable operations.
We also have the momentum of ending 2019 with a strong fourth quarter.
As JP mentioned earlier, both fourth quarter and 2019 full year revenues increased significantly.
The primary reason for the increase in revenue for the quarter was what Didnt happen. We did not have the bad weather that affected us the last four months in 2018.
The better weather allowed us to complete more projects at the end of the year, which has also allowed us to hit the ground running at the start of Twentytwenty.
Gross profit totaled $67 million for the quarter compared to a loss of 9.2 million in the fourth quarter of 2018.
Gross profit margins also improved to 12.9% for the fourth quarter as compared to negative 3.3% in the prior year period.
The improvement.
In gross profit margin was primarily due to higher margins in our renewable segment.
As compared to 2018, when our margins were hampered by major weather delays on six of our wind projects.
The fourth quarter also showed that when we complete project.
We can benefit from the release of any remaining contingency estimates.
Finally, the fourth quarter also included $2.7 million the benefit from the resolution of dispute for one of the 2018 weather affected projects.
Yes, she any expenses totaled 35.2 million for the fourth quarter or 6.8% of revenues as compared to 29 million or 10.6% of revenues in the year Gulf curious.
For the full year Sina expenses were 120 million or 8.2% of revenue.
For the quarter operating income was 31.7 million compared to a loss of 38.3 million in the prior years quarter.
Interest expense for the quarter totaled 15.4 million up from 8.1 million in the fourth quarter 2018, primarily as a result of increased interest accrued on our series B preferred stock.
At the time that I. He became a publicly traded company in March 2018, we accrued approximately $70 million for the estimated cost in 2018, and 29 King EBITDA earn outs.
Those earnouts were not achieve it either year.
That resulted in a reduction of the accrual.
The gain of $46.3 million, and plenty 18 and $23.1 million in 2019.
No further accruals remain at the end of 2019.
During the quarter, we were quarter tax expense of $1.1 million. The interest payments made to the series B preferred shares are considered a dividend for income tax purposes. That's they are not deductible from taxable income.
Fourth quarter 2019, net income was $11 billion or 31 cents per diluted share compared to $11 billion or a loss of $1.63 per diluted share and the your Gulf Korea.
2019, net income totaled 6.2 billion or a loss of 97 cents per diluted share compared to 4.2 million or lots of two dollar one cent per diluted share in the year ago period.
Counterintuitive loss per share with positive income is the result of not including the reduction of the contingent consideration for the EBITDA earn out about.
Operating earnings per share.
For the fourth quarter, adjusted EBITDA was 47.1 billion or 9.1% of revenues compared to a loss of 18.8 million or negative 6.8% up revenues in the fourth quarter of 2018.
For the full year adjusted EBITDA was $100.7 billion for 6.9% of revenues compared to 14 million or 1.8% of revenues 2080.
Both the earnings release and slides posted on our website show the calculation of our adjusted EBITDA on a going forward based as I anticipate that the adjustment EBITDA will be limited to the two expenses, which are related to the market value of our shares stock compensation expense and the series B preferred.
Third warrants fair market value.
We generated cash from operations of 79.8 billion for 29 team that is an improvement of 32.8 million from 2018.
As of December 30, Onest, we had $147.3 billion in cash and cash equivalents $64.2 million finance leases, a $367.1 million up debt.
The debt consisted of 182.7 million in term loans hundred 80 billion series B preferred stock, which were required to classify that since it hasn't mandatory redemption feature and 4.4 million commercial equipment loans.
We had zero drawn on our 50 billion dollar credit facility at year end.
We did have outstanding letters of credit of 21 million. So that we had 29 million available draw.
Capital expenditures totaled 29.7 million of which 22.9 million was financed through financing leases. This total is inline with our expectation that capital expenditures would be approximately 2% of annual revenues.
In the last eight months of the year I EA completed a number of capital raises that increased financial flexibility and result in any stepped out of interest and distribution rates on our term loan and outstanding series B preferred stock.
These initiatives, we saw an improvement in our Moody's credit rating and improved availability of funding to support our growing business pipeline.
After raising 100 million capital through August with the help of our financing partners. There isn't oak tree in November we closed on another $80 million funded by Aries.
That $80 million was used to reduce borrowings on our term loan lowering our fixed charge.
By approximately 47%.
The loan pay but also triggered a step down in our term loan interest rates and reduced interest rates on our series B preferred stock.
It also lowered our leverage ratio at year end.
Our term loan net senior leverage ratio.
Was less than one a very significant reduction of where we were at the end of the third quarter.
We are on a path toward financial stability.
Backlog as of December 31st 2019 totaled 2.2 billion a decrease from 2.6 billion in the third quarter. This sequential decrease in backlog is consistent with the seasonality of our business as we burned off revenue and complete final project Closeouts at the end of.
The fifth of the calendar year.
While we may no longer being the merchant growth company. We do expect to continue to be a growth company. We are seeing opportunity for contract wins in 2020 in all of our business lines.
It is our policy to give annual guidance and we are reiterating our full year 2020 guidance, which anticipates grow revenues.
Tween 1.5 billion to $1.65 billion with adjusted EBITDA of 105 million to 125 million.
With regard to our seasonality we have started construction earlier on some 2020 and renewable projects.
As a result, we expect that there will be a shift toward increased revenues in second and third quarter.
Rather than just in the fourth quarter.
We expect to deliver profitable growth and plenty plenty and as we get greater visibility to future results, we will just our guidance accordingly.
Thank you and I will now turn the call back to JP for his closing remarks.
Thanks, Pete as you can tell from our guidance, we expect solid performance in 2020.
In addition to the projects we've already booked into backlog, we see robust opportunities for future growth and each of our end markets.
Beginning with renewables the U.S. market for when construction remains strong with industry experts now predicting that 2021 will be a strong year for when construction.
Technological improvements such as larger wind turbines of power storage scalability combined with the push towards reducing or eliminating fossil fuel usage are making wind and solar and economically sound and environmentally friendly choice.
The recent extension as a 60% federal production tax credit into 2021 for wind projects initiated in 2020 should increase demand for our renewable were more than originally anticipated.
On the environmental side I its acquisition of say a provides opportunities in coal ash management.
More than 1000 coal ash landfills and pause currently harbor, the waste, resulting from the production of over 100 million tons of coal still produced in the United States each year.
As regulation of the disposal of coal ash residuals becomes increasingly stringent.
Say is uniquely positioned to safely will move coal contaminants employees for our clients.
Overtime, our team of civil contractors.
And power engineers are ready to help our clients replace coal plants were much more efficient sources of energy.
Lastly in the transportation space solid growth is expected in 2020 fueled by investments at the federal state and local levels.
The American Road and Transportation Builders Association is estimating that total domestic transportation construction will reach over $300 billion in Twentytwenty.
With highway construction spend increasing 6%.
Britain title construction spend increasing 3% and rail construction spend increasing 5% over 29 seem levels.
We expect to benefit from these end market opportunities.
The improvements to our balance sheet and liquidity, we will focus our efforts are doing what we do best which was delivering innovative engineering and construction services to meet our clients essential infrastructure needs.
Thank you again for joining us on the fourth quarter and full year 2019 earnings call. We look forward to continuing to share our progress over the coming quarters.
We will now open the call to your question.
Operator.
Thank you, ladies and gentlemen, if he'd like to ask a question. Please press star one under telephone keypad half Mason total indicate your line is no question Q. You May proceed star to she'd like to remove your questions. Thank you.
Participants season Speaker equipment, please pick up the handset before pressing the star keys.
Thank you.
Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.
Hey, Thanks, Good morning welcome back.
Good morning, and thank you.
[laughter] educate maybe you could talk a little bit about the backlog is the way we quantify at least talk a bit about how much.
Yes that will work first is when done other work is now included in that backlog as we go into 2020, how much of that that revenue, it's going to be driven by areas outside of when.
Yeah, I think I think as you look to look at our backlog today, a little little over half of our backlog is is renewable work wind and solar mostly wind.
But.
You should think of it as the numbers, we reported about half were little over half is renewables in the balance will be our other end markets.
Okay, and then I guess, what the extension of the PTC.
Well have a big impact on the market or bookings for you guys.
[noise] well, what that's going to.
I think that this increases our.
Our Paul to the longevity this market and what we've continued to share time and time again over the over several calls as you know were.
We believe that were in the interests of a super cycle, Oh of a massive pivot around the world, particularly United States in the renewables. So we're very long on renewables and always have been a we think we think the extension just.
Continues to reinforce that.
But I'd also continued to point you to other other items in there in the industry that we talked about before the continued growth and scale wind turbines both from a.
Hi, hi, the rotor diameter, which.
Things get bigger they get more efficient.
Output is greater.
You know I think turbines that we're going to install here in 2000.
20.
We're getting close to the Ford half megawatt range, which.
Just a few short years ago, we've been offshore type of technology. So.
Yeah, we're continuing to see massive improvements in the technology, we're continuing to see a diverse interest the renewable energy not just the utilities, but the interests of the commercial and industrial customers, which are though are over 50% of all renewable energy purchases this year renewable Pete.
Okay.
And then lastly, you know you know sands any federal policy the those state policies across the country continue to be expanded.
Almost all the continuous basis so.
That's kind of a refresh what we talked about before but we think the 60% extension just kind of enhances all that.
Okay, and JP I think it'd be helpful. I mean, obviously the equity markets are telling us where we might be entering a new world here, but.
Can you talk about what you're hearing from your customers you know over the last month and a half I mean anything granular there that kind of can help us get comfortable with the outlook for the next couple of years, just given everything we're seeing these days.
[laughter].
Well I'd say I think you're probably or you are probably should speaking to the short term both volatility that Ah that were seen across all markets because the virus.
I actually I'm going to let Mike Stoker speak to that for just a second and then maybe I'll circle back on that question that works for you but.
That's great. Thanks, you are good.
Yeah brand so several of our when clients have given us some preliminary notices that should any delays occur they will kind of the follow up on some I'll say some more definitive.
Kind of delays, but as of today, we have not actually had any firm delay notices from any of our clients.
So we're a little bit hopeful that with China kind of getting back up to a 70% production.
At their factories in in the recent recent weeks, we aren't really going to anticipate too much of a impact but should we you know come up with or should we have any more significant impacts will obviously up.
Communicate that but so far.
So good.
You know to it.
As far as I think the belief of ourselves and all our clients is this is kind of a short term solution. We don't see any kind of like long term.
Impact to to the business.
Or our clients and quite frankly.
Just the opposite we we continue to hear from our clients, they're investing heavily in their development pipeline.
You know for several years down the road yet so that continues just to make us all the more certain that we have a tremendous opportunity for years and years on them.
Okay. Thanks for that.
If I had to bother you I guess, maybe maybe curious maybe some other things you're looking to do work, we're implement and your new role here I know its.
It's been relatively reset them quite frankly kind of the opportunity you see here.
[laughter] so in the past three and a half weeks.
You know, obviously, we're making sure that we get all the filings out, but I think we want to take a long hard look at our capital structure and see what we can do whatever opportunities are what the opportunities are for I.E. Ada.
You know be a good platform company worked both renewables and in our other diverse businesses. So from our standpoint, you know the first thing is to make sure that we make 2020 and going on beyond that profitable and that we obviously manage our cash look at opportunities look at the balance sheet and maintain our liquidity.
And then.
Use that platform to grow the business and figure out how to make this a bigger more profitable company.
Okay fantastic. Thanks for the time appreciate it.
Thank you.
Ladies and gentlemen, this time there are no further questions I would like to turn it back to JP room for closing comments.
Well, we appreciate you all doing it is today for our fourth quarter 2019, and full year results.
We know we wish you all the best and we look forward to a.
Sharing our further exciting 2020 results in though in the called ahead. Thank you all for joining us today.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
[noise].
Oh.
Okay.
Okay.