Q2 2020 Infrastructure and Energy Alternatives Inc Earnings Call
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Good morning, welcome to infrastructure energy alternative second quarter 2020 conference call.
I'd like to know that all participants on today's call or to listen only mode.
And with that I will turn the call over to Kimberly Esterkin Investor Relations for I. I can really please go ahead, Hello, and thank you for joining us today to discuss <unk> second quarter 2020 financial results with that's from management, RJ Peering, President and Chief Executive Officer.
And Pete Moerbeek Executive Vice President and Chief Financial Officer.
Before turning the call over to manage Matt I would like to note that today's discussion contains forward looking statements about <unk> future growth and financial expectations.
Any forward looking statements should be considered in conjunction with the cautionary statement in yesterday's press release and the risk factors 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 measurements as reference it including adjusted EBITDA the appropriate GAAP financial reconciliations can be found in yesterday's press release.
And with that I'll now turn the call over to Jay Peering. Please go ahead JP.
Well, thanks, Kimberly and good morning to everyone.
I appreciate you joining our second quarter 2020 earnings conference call and hope that everyone listening today is safe and healthy.
Similar to Q1, our he has not experienced a significant negative impacts from the cobot 19 pandemic.
As shown by our financial results for the second quarter.
We are reporting double digit top line growth as well as solid bottom line profitability.
The result of our performance today and our current book of business, we're raising our revenue and adjusted EBIT guidance for the year.
Pete Moerbeek will discuss the increased 2020 guidance later during this call.
We could not continue to grow revenues and drive profitability, the current environment without making the safety and well being over our employees a top priority.
In mid March well the onset of Cobot 19, we deployed the protocols set in place by our Chief operating Officer, Mike Stoker.
Under his guidance, we enhanced our sanitation procedures.
Purchase personal protection equipment for crews in place and wash stations that sanitizer and all of our project sites.
These protocols have enabled our construction teams to stay focused on their work without delays in service to our customers.
In general the timing scheduling and resource management on all our projects remains consistent with what we experienced prior to the pandemic.
We're also fortunate that most people were we performed is considered a critical infrastructure.
Sure Worksite have been drifted from state and local shelter on borders.
During the second quarter, we did receive and send them several force majeure letters to customers primarily related to their supply chains. So we did not experience any significant delays in projects.
Unfortunately, we've seen a slight uptick in cobot 19 cases, among our work for use in July.
Going to experience most of the rest of the country.
Any crews exposed to covert 19 were immediately corn team and at this time, we expect only minor impact to our workforce and do not believe that these cases, well hinder our margins or prevent us from meeting our contractual obligations to our customers.
I'm also pleased to report that we continue to higher craft labor to support our growing leveled works.
Since the beginning of the year, we've added over 1200 craft labor store payroll.
We continue to receive a growing number of experienced professionals applying for open positions and similar to last quarter. We continue to receive interest from oil and gas engineers with extensive energy construction experience to support our growing pipeline.
Let me now turn to our performance in the second quarter.
Revenues totaled approximately 481 million up 46.5% year over year.
Our renewable segment, which generated $324 billion revenues accounted for 68% of total revenues and increased 81% over the second quarter of 29 team.
The growth in our revenues was primarily driven by almost perfect weather conditions at job sites.
It earlier start for several wind projects and an increase in the number of projects, we're constructing compared to Q2 2018.
In April I constructors broke ground on a 25 megawatt solar farm in southeast, Georgia. The Baxley Solar farm is VPC contract for which we are hiring approximately 200, crap labors skilled and tracker assembly wire harnessing and module installation.
This project is expected to be completed in December and Leverages hyper surgeon high production solar panels.
Oh, Yeah Constructors also began work on solar facility in Texas, which we announced just last week.
The 77 million dollar EGPC contract is expected to be completed in June 2021.
Texas ranked fifth in the nation for total solar capacity installed.
And the solar Energy Industries Association expects, an additional four gigawatts of solar energy to be installed Texas over the next five years.
Continuing with Solar awards why construction broke ground on a 20 megawatt facility in south in Indiana. This past June.
The University Notre Dame has committed to support 40% of the solar facilities renewable attributes.
And all the equipment used in the CPC projects, including the panels themselves is manufactured in the United States.
We also began several wind repowering projects in the second quarter.
These projects are in South Dakota, Minnesota in Texas and include mechanical overhaul of existing turbines.
We're placements.
Major components of turbines and increase in them out a power currently provided by each with bar to the respective geographic region.
Once the Repowering, it's completed the for wind farms will together generate over 300 megawatts of energy.
In the second quarter, our specialty civil segment revenues totaled approximately 156 million up approximately 5% compared to Q2 of 2019.
Especially civil segment revenues represented 32% of our total 2020 Q2 revenues.
Our William Charles and regular Benson divisions have been bidding on several new infrastructure and transportation projects.
And in Q2, Ragnar Vincent was selected as part of a joint venture for the construction of the Westlake.
Corridor commuter rail extension of Chicago's South shore mine.
We expect to receive a notice to proceed for construction of those eight mile Rail extension. This fall what project completion expected in 2024.
The project would add over $140 million to our backlog into second half of this year.
Also during the quarter, our especially civil crews began work on several infrastructure projects and our home state of Indiana.
These include a contract to redevelop the section of market Street in downtown Indianapolis.
Contracts to renovate several roads dare Indiana's west or more with Illinois.
And our contracted develop a state in the our trainee campus. Some residential center for the U.S. Education Center in Indianapolis at the Old Indianapolis Airport terminal.
Before turning the call over to Pete to discuss our second quarter financial results, an increased 2020 guidance I am pleased to announce that Pete has officially agreed to drop the interim part of his title and has become I days Chief financial officer Congratulations feet.
Thanks, JP and thanks to everyone listening obviously the word retirement is not part of my vocabulary.
I'm looking forward to working with the rest of the 18 as we focus on profitable growth both in the near term and for the long term.
Last night, we filed our second quarter form 10-Q and issued our earnings release. So I can address some of the highlights of our successful quarter.
Let me start with the impact of the pandemic.
I'll covert 19 has not been materially negative it has had an impact on our financial performance.
Starting in March and through last week, we had incurred approximately $1.6 million and pandemic cost and expenses.
About 50% are as Gionee expenses and the other half our indirect costs associated with our operations.
Additionally, in the first quarter, we created job level contingencies for potential pandemic costs at our larger projects. These contingencies totaled $10 million and reduced our gross margin of the first six months of 2020 by $7.5 million or 0.9%.
To date, we've used about 300000 of the contingency amount like any contingency if we do not incur the costs will be able to increase margins as the projects are completed.
Even with the impact of Cobot 19 contingency our gross margin for both the second quarter and the first half of the year improved significantly compared to the same periods in 2019.
Overall gross margin for the quarter was 11.3% of revenues as both of our operating segments gross margins exceeded 11%.
The increased revenues allowed us to show operating leverage and our SGN expenses as a percentage of revenue.
Were 5.8% for the second quarter and 6.9% for the first half of the year.
Interest expense for the quarter totaled $16.2 million up from 11.5 million in the second quarter of 29 team primarily as a result.
$6.5 million of dividends paid on our series B preferred stock, which they are recorded as interest expense. We did receive some benefit from a lower principal balance and a lower interest rate on our term loan.
Other expenses $1.6 million for the quarter compared to other income of $18.3 million in the second quarter of 2019.
For 2020, the other expense results from valuing the warrants associated with our series B preferred stock in 29 team. The other income, resulting primarily from an 18.8 million dollar reduction in an earn out liability.
We recorded an income tax expense of $4.7 million for the quarter compared to an expense of $6.1 million for the same period in 2019.
The effective tax rate for the current quarter was 56.8%.
The unusually high effective tax rate was primarily attributable to the non deductibility for federal and state income taxes of our series B preferred stock dividends.
As JB noted we were profitable for the second quarter net income was $3.6 million or nine cents per diluted share.
Adjusted EBITDA totaled $39.3 million for the second quarter for 8.2% of revenues as compared to 20.5 million or 6.3% of revenues in the second quarter of 2019 a.
A reconciliation of net income to adjusted EBITDA is shown in our earnings release.
At June Thirtyth 2020, we had $59.4 million in cash on the balance sheet.
Well, we had no cash drawn on our $50 million revolving credit facility. We did have outstanding letters of credit of $23.5 million, leaving $26.5 million available.
Our term loan balance was $173.3 million, we have no amortization payments due until June 2022.
Our term loan net senior leverage ratio remains under 1.5 times, which is a significant reduction from where we were just three quarters ago.
Cash provided by operations for the second quarter totaled $9.5 million compared to 23.3 million in cash used in operations in the same period a year ago.
Our expectation is that we will generate positive cash flow in the second half of the year.
Courses, we continue to grow our revenues, we will need to spend cash to fund our working capital.
Capital expenditures for the second quarter totaled $17.7 million of which 12.5 million was financed through financing leases. We continue to expect the capital expenditures will be approximately 2% of our revenues were 2020 and 2021.
During the quarter, we added a net of approximately 226 million in new projects to our backlog, which helped to partially offset the 481 million revenue burn in the quarter.
Our backlog total of approximately $1.8 billion provides us with solid visibility for the rest of the year.
The decrease in backlog was not unexpected as one of the effects of the pandemic as a delay in the number of project aspects.
Both the funding process and the permitting process for many projects have been extended.
Governmental authorities working from remote locations and public hearings, having reverted to virtual meetings project development timelines are naturally longer as.
As our bidding activity is very active we fully anticipate increased awards in the second half of this year.
With our strong financial performance in the first half of the year and the projects currently in backlog, we're confident in our ability to raise guidance expectations for the year. We now expect full year revenues of between 1.6 billion and $1.7 billion up from 1.5 billion to one point.
Six 5 billion previously.
Full year adjusted EBITDA of between $110 million to 125 million up from $105 million to 125 million in our previous guidance.
Our guidance assumes no additional major disruption to our business from Cobot 19.
Future government mandated quarantines that prevent our crews from being on site that inhibits delivery of equipment or that caused customers to cancel or delay construction projects could adversely impact our operations.
Let me conclude by expressing my hope that everyone is safe and healthy as we navigate these very unusual times JP the microphone is yours.
Well, thank you Pete.
I want to take a few minutes to discuss our markets and new business opportunities both for the remainder of this year and beyond.
We are seeing robust opportunities for growth across most of our end markets and our bidding activity and bidding opportunities are an all time high.
In the near term, we're seeing additional opportunities in our renewable segment as owners and developers take advantage of the internal revenue service one year extension of the continuity safe Harbor provisions associated with the production tax credits.
The safe Harbor extend the full PTC through 2021 for when that began construction or otherwise qualified under safe Harbor in 2016 and 17.
The extension means the owners a wind projects or initially looking to complete their projects by this coming October now can leverage the full PTC for 2021 projects.
As a result, the current expectation is that renewables construction in 2021 may well exceed that level of 2020.
Interestingly renewable energy installations are expected to generate more energy that coal in 2020 for the first time in the United States history, and the trend is expected to continue for at least two reasons.
First the US climate change Taskforce recently set a new national goal of eliminating carbon pollution from us coal power plants by 2035 sort of expansion of solar and wind energy systems.
This has forced plan, which calls for installing 500 million solar panels and 53000 wind turbines manufactured in the US over the next 15 years, we'll certainly push forward future renewables work.
Second over 40 states the United States have adopted renewable portfolio standards. These standards required of the utilities continue to increase their generation mix of renewables, which is creating a need for wind and solar construction well beyond the exploration of tax credits and Covance.
18.
When currently supplies over 7% of the nation's electricity and another 44 Gigawatts of wind project capacity or 62 billion, an investment is either in construction or advanced stages of development across the United States today.
We have actively entered the solar renewable market and we continue to see strong growth in our solar pipeline at the end of Q2 2020, our solar backlog totaled 325 million as we added 233 million a new solar awards so far this year.
With the step down of solar tax incentives in 2021, theres been a growing demand to install photovoltaics systems.
Just in the first quarter this year alone, which is the most recent industry data available us solar projects increased 65% over Q1, 2019, representing the strongest quarter into solar industry in the last five years.
In the solar space. The contracting model is beginning to shift to a more traditional PC engineering procurement and construction model similar to what we see in the wind industry. This shift in contract type is a positive Friday. It means that earlier being brought in the projects not only as only a general contract.
But also for full engineer and high voltage electrical work.
Our ability to provide turnkey solutions to our solar customers will strengthen our relationships with our clients create barriers to entry and improve our margins many of the customers and the competition. We are now seen in the solar renewables market are the same as that we see in the when renewables market.
I'd continues to diversify our business beyond renewables and we're seeing progress.
And our specialty civil work, particularly within the rail infrastructure space.
In addition to the joint venture project that I mentioned earlier, we are about to begin construction of approximately $80 million joint venture project in Texas.
We're also seeing good bidding opportunities in our coal ash remediation business, we expect those privately funded opportunities to continue well into the next year future.
The last part of our portfolios in the public infrastructure sector, we build or improve roads and bridges. The pandemic has had a devastating impact on the budgets of federal and state transportation agencies will stay at home order significantly reducing fuel tax receipts.
Although states are seeing some tax recovery as vehicle traffic increases in his car travel increases at the expense of air travel the availability of transportation infrastructure funds. Unfortunately is far below the needs.
There has been much speculation as to the solutions for increased infrastructure funding.
Many expect that a new transportation act will be passed at the federal level. This fall in line with exploration of the fast acting September.
The passage of a federal infrastructure Bill currently awaiting Senate approval will also increase transportation funding.
The core of the 1.5 trillion dollar Bill calls for 494 billion in surface transportation, and 319 billion and highway and bridge funding over the next five years.
Other funding alternatives include Tears Act, which allow states do use portions of the federal allocations to invest in priority infrastructure projects and could release 20 billion or more in infrastructure spend.
There are also in number of proposals for infrastructure funding through private sector bonds, which could create 15 billion in project support.
Finally third source of funding could come directly from us Treasury and Federal reserve infrastructure funding through the cares Act, perhaps perhaps a total of 80 billion to a $100 billion.
The passage of a federal infrastructure Bill may not necessarily be quick and highway and bridge funding may be delayed for many reasons. However, we are continuing to find opportunities to bid for new highway and bridge business.
In summary, we have significant opportunities in front of us in many markets.
It is up to us to take advantage them, while remaining focused on maintaining our employee safety and providing top nonstop service to our customers, while executing projects profitably and generating positive cash flow.
That focus will drive continuing value for our shareholders.
I want to thank you again for joining us. This morning, we look forward to continuing to share our progress on our third quarter 2020 earnings call.
Operator would you please open the call to questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If he'd like to ask your questions. You May press star one on your telephone keypad.
Confirmation total indicate your line is in the question Q.
You May press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, and maybe thats starting to pick up your handset before pressing the star Kate.
Our first question comes from the line of Brent Thielman with da Davidson. Please proceed with your question.
Thank you good morning, congrats on a strong quarter.
Great. Thanks, Brent.
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Maybe first question might be for Pete just wondering if the guidance assumes any of these them contingency cost that you guys had been absorbing.
You know ultamate ultimately sort of unlocks as you ramp these projects from to the second half.
Not at the bottom and I think at the top end of the guidance, we could see some of that flowing through but at the bottom end definitely not.
Okay.
And then JP I guess, thanks for all that the commentary I mean, it sounds like year really active in terms of getting any new work and.
Yes, I guess I'd want to gauge your confidence in.
On your ability to rebuild the backlog from here as we as you work our way into the second half the year and start thinking about 2021.
Yes, I appreciate that brands and good to hear from yes.
You know very confident obviously going forward, we don't know what we don't know.
We're also obviously cautiously optimistic in this new normal that were in.
But.
The barometer for me it always has been but certainly as CEO is to look at certainly our pipeline, but for me are bidding opportunities.
Really for at least the last 90 plus days.
The opportunities in front of us.
Unprecedented.
And we talked in the commentary earlier.
About certainly things are moving a little slower.
Whether it's on the owner side from permitting or just the the old process because nobody's in the office.
But.
The fact, the matter is our opportunities and proud reserve are extremely strong a very confident and excited about what we got from us.
Moving forward.
Okay, and JPS isn't so much talk about just the momentum between Wenden.
So there can you guys than others in the space.
And the curious as the so much going on right now that.
Those cards are helping you from just the bid margin perspective right now.
Yes, I mean it.
Both.
Both industries or an all time.
Build out a record build out.
So not only ourselves, but our key competitors were all building kind of.
At.
At Max capacity.
We're fortunate to be.
Fortunately leaders in an industry, that's seen really kind of will.
Multi generational type of up to.
We're we've been a carbon based society or.
Hundred plus years and.
It's very exciting for this company to be one of the leaders in that so that transformation, which is truly global but.
We're doing our partner in that in North America sure.
Okay, and I guess me my last question.
I'll leave it there its just.
You know thinking about.
The businesses generate solid levels of profitability now for for Q4 Q more in a few quarters.
How you're thinking about strategic priorities balance sheet capital structure going forward.
Yeah, just be curious to hear your guidance thoughts there.
Well, Brian we are trying to make sure that.
We continue the trend of the president results.
We are also looking to make sure that.
Whatever structure wise, we do that are surety fees are comfortable with what we're looking at and we're looking at.
Finally, what can we do to start paying.
Some of the long term debt and or series B. It's a process that we expect will take awhile.
It's a process that is not something we can do quickly.
It is something that we're very focused on and creating longer term value for the common shareholders.
So I'm not sure that this has been something we could say we are going to be done by the end of this year, but it is certainly a process that a path that were working toward.
Okay, well, thank you for taking the questions best of luck here.
Thank you thanks, Brent advocate.
There are no other questions in the queue I'd like to hand, the call back to Mr. room for closing remarks.
Well. Thank you operator, and thank you all for joining us for Q2 2020 call.
We look forward to visiting with you here in a few months as we discuss our Q3 results. So thank you all for joining have a great Dave say.
Thank you.
Okay.
Thanks.
Thanks.
Yeah.
Yes.
Okay.
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