Q4 2020 Infrastructure and Energy Alternatives Inc Earnings Call
Good morning, and welcome to infrastructure and energy alternatives fourth quarter and full year 2020 conference call.
I'd like to note that all participants on today's call are in listen only mode.
And with that I will now turn the call over to Kimberly Astrachan with Investor Relations Kimberly. Please go ahead.
Hello, and thank you for joining us today to discuss Iea's fourth quarter and full year 2020 and financial results.
With us from management.
J P range, President and Chief Executive Officer, and Pete Executive Vice President and Chief Financial Officer.
Before turning the call over to management I would like to note that today's discussion contains forward looking statements about future growth and financial expectations and.
Any forward looking statements should be considered in conjunction with the cautionary statements in yesterday's press release and the risk.
Factors and crude and the company's SEC filings.
Except as required by law I undertakes no obligation to update forward looking statements after todays call.
And then management will be presenting some non-GAAP financial measurements as references including.
Including adjusted EBITDA.
The appropriate GAAP financial reconciliations can be found in yesterday's press release and where.
With that I'll now turn the call over to J P. <unk> Chief Executive Officer. Please go ahead JP.
Well, thank you Kimberly and good morning to everyone. We appreciate you joining our earnings conference call.
While this is a call about the fourth quarter I want to start with the full 2020 results.
<unk> achieved record revenues and record adjusted EBITDA in 2020, our consolidated revenues were $1 8 billion for 2020 up 21% year over year and our adjusted EBITDA was almost $128 million up 27, 2% year over year.
Both revenues and adjusted EBITDA were above the high end of our guidance range.
We were able to.
The resolve and a year overshadowed by the COVID-19 pandemic.
The services, we provide are considered essential infrastructure, but we were not sheltered from the impacts from COVID-19, and we continue to see and impact to our daily workflows as we abide by increased safety protocols and practice, social distancing and our project sites.
Difficult to precisely measure the inefficiencies that have resolved and from these extra precautions, but they do increase costs overall last year. We also experienced pandemic related delays and delivery of materials and turbines and some projects, but we were able to complete our projects as scheduled.
Even with the impact of the pandemic. Our teams responded and we improved our safety metrics to our total reportable incident rate of <unk>.
And just 0.61 with almost eight and a half million man hours worked that rate is about 40% lower than the industry standard.
Our backlog also remained strong and totaled $2 1 billion at the end of the year.
The final approval process for some projects has been slower than expected and project start dates have been delayed by one to two quarters in many instances.
And I'd like the end of 2019, when we saw a push to begin wind and solar construction.
And then the impending step down of the tax credits.
Tension of the PTC for wind and ITC for solar this past December may reduce some of the urgency to complete renewable projects and the very near term.
Bidding activity remains high and none of our projects have been canceled as renewable energy continues to expand and as part of the overall power generation and the country.
Enabling and sustainability is a cornerstone of our business and we are committed to environmental social and governance or ESG matters and look forward to issuing our first ESG report in the coming months.
<unk> was added to a number of sustainability equity indices in the past year.
Excluding the Wilder he'll clean energy index, the CIBC Atlas clean energy index, and our door Global alternative energy index, reflecting the fact that approximately 70% of our revenue was derived from activities that enable energy transition.
Last month, we completed a successful secondary stock offering which allowed oaktree affiliates to sell almost $150 million of stock reducing their ownership percentage of common shares to less than 5%.
The transaction increased our free flow improve the trading liquidity of our stock and allows us to meet our goal of adding institutional holders to our shareholder base.
And as part of this transaction and Oak trees representative on our board Peter Jonna has stepped down I want to thank Peter for his many contributions to the success of IEA.
Let me now turn to our business lines, our renewable segment, which accounted for 65 per cent of overall revenues in 2020 generated revenues of $1 4 billion per year and increase of 37% over 2019, as we successfully completed a larger number of win and so.
All of our projects.
We continue to see near term opportunities and our wind market for example, and the last three months since December we secured three wind projects and the state of Illinois in December we were awarded and 185 megawatt contract from the Glacier Sands Wind farm and Mesa County, then in January we want a 300 megawatt contract.
And for the Lincoln Land Wind farm, and Morgan County, and 118 megawatt project from the Shady Oaks, two wind farm in Lea County. These projects will bring the state of Illinois closer to achieving its goal of sourcing 25% of its total electricity from renewables by 2025.
Our solar Division is also performing very well and revenues grew to nearly $110 million in 2020 up from $3 million and 2019, our strategy has been to grow this business to meet the burgeoning demand for solar and January we secured a 100 megawatt contract to construct and lumpkin.
Solar farm and Stuart County, Georgia, the walk and solar farm as part of our portfolio of projects that will supply renewable energy to our Facebook data Center and Georgia, We're seeing a growing demand from corporations for renewable generation and interestingly corporate off takers were responsible for 20% of the power.
Our purchase agreement signed and the first half of 2020.
Last week, we also announced the addition of a team of 10 employees from Meredith Si to our solar operations. The team are experts and sustainability and energy infrastructure, and we expect them to complement our solar engineers and contractors.
With the addition of this team we now have in house access to development support pre bid optimization and added expertise and plant performance battery storage and scale of controls to enhance our solar offerings to our client base.
For us a key differentiator and so successfully bidding and performing solar projects is.
The ability to provide engineering capabilities, especially at the inception of the project.
And that capability is expected by our utility scale solar customers many of whom are the same as our utility scale wind customers.
In addition, as we discussed on our third quarter call at the end of last year, we added a win services business to our renewable segment to work on major component exchanges up tower repair and blade and composite repair.
And they also provide third party commissioning and troubleshooting and services. We are pleased with the rapid star and expect them to make a meaningful contribution this year.
Turning now and our second segment, our specialty civil segment accounted for 35 per cent of total revenues in 'twenty, and 'twenty or $610 million down slightly compared to the prior year, mainly due to minor changes and the mix and timing of construction projects as weak as compared to 2019.
Our environmental remediation business line and our rail business line, both experienced slight declines and annual revenues, primarily due to the impact of the pandemic. Nevertheless, we continue to win and solid work in these areas of our business. For example, we added remediation work and the southern U S.
And could even and onsite hauling project and a quarry and Georgia and construction of a new landfill cell and Alabama, We believe that we will see new opportunities and our coal ash remediation business in 2020, one our transportation business revenues increased slightly in 2020 and during the fourth quarter, our project wins right.
And from roadway and bridge rehab project.
And the West and mountain West regions of the United States to drainage and structural erection projects and the Midwestern U S.
Before I get into more detail on the growth drivers for our business going forward I'll now turn this call over to Pete <unk>, our CFO to discuss fourth quarter 2020 financial resolve and 2021 guidance Pete.
Thanks, JP and thanks to everyone for listening.
As we issued our earnings press release and filed our form 10-K yesterday I promise not to repeat all those numbers.
As expected revenues gross profit and gross profit margin all decrease and the fourth quarter of 2020 compared to the fourth quarter of 2019.
The decrease resulted from the timing of our renewable projects and in 2020 compared to 2019.
Historically first quarter is lowest and revenue and profitability as we begin projects and winter weather reduces construction activity.
And second and third quarter revenue and profitability increase while we complete many project and the fourth quarter and construction begins to slow down.
This pattern changed at the end of 2019 as customers started projects early to ensure they would receive the benefits of the P. T C, which was scheduled to step down in 2020.
Earlier starts and excellent winter weather in late 2019, and early 2020 resulted in record revenue and profitability for the fourth quarter of 2019, and first quarter of 2020.
This allowed us to achieve mechanical completion for many projects earlier in the calendar year, and we have historically, which in effect accelerated the cycle, our revenues and profit may fluctuate from quarter to quarter for the year, we achieved record revenue of one seven and $5 billion of 'twenty.
And 1% from 2019 and the gross profit margin for our renewable segment improved by 50 basis points.
As a percentage of revenue SG&A expenses were six 6% and the fourth quarter and $6 five per cent for the full here and 2019. These percentages were six 8% for the fourth quarter and eight 2% for the year.
While our revenues have increased by almost 125% and the past two years, our SG&A expenses average.
And much more slowly.
We expect that we will remain reasonably close to our current run rate as we look to improve our information and technology systems to reflect a larger company.
Yeah.
Before turning to backlog and 2021 guidance some other financial highlights.
And the fourth quarter, our cash flow from operations was a positive $116 $4 million and for the year cash flow from operations was $57 $7 million.
It seems a little camera intuitive, but as we complete projects and our construction operations slow we generate more cash and working capital needs decrease.
For the year, our capital expenditures were $35 $9 million of which $26 2 million was financed through financing leases at this point, we expect net capital expenditures will approximate 2% of our 'twenty 'twenty, one and revenues.
Interest expense for the quarter totaled $14 4 million down from $15 4 million and the fourth quarter of 2019 for the year interest expense increased to $61 7 million from $51 3 million in 2019.
And the fourth quarter, we paid $6 5 million and dividends on our series B preferred stock and for the year, we paid $19 6 million.
On the series B stock as dividends.
Adjusted EBITDA for the quarter totaled $29 $1 million compared to $47 1 million and Q4 2019 on a full year basis adjusted EBITDA of $127 9 million was above the high end of our expectations and up approximately 27% year.
Over a year.
As of December 31, 2020, our balance sheet showed cash of $164 million, we had no cash drawn on our $75 million revolving credit facility, but we did have outstanding letters of credit of $7 8 million, leaving $67 $2 million available.
Our term loan balance remains at $173 3 million and we have no amortization payments due until December 2020 two.
Last month, we took a first step to improve our capital structure, given the rapid changes and the capital markets and our financial performance over the past two years.
We are reviewing alternative approaches to improving our complex capital structure now turning to backlog and the fourth quarter, we added $162 million to our backlog for a total of $2 $1 billion close to where we were at the end of 2019.
We expect to recognize $1 6 billion of that backlog during 2021.
We've seen a delay and the awarding of projects and notices to proceed we have not experienced significant cancellations and projects nor have we lost projects two competitors.
Finally onto guidance, let me start with a metaphor this past Sunday the Sunday streaming into my Indianapolis apartment, when I woke up the Sky was blue and it look perfect outside however, when I started my Sunday walk It was 23 degrees and that's just plain coal.
Similarly, there are many positive drivers for our business as J P will discuss in a few moments, but it is still cold the pandemic still exists and can continue to impact our operations and contract awards significant delays and customer provided wind turbine generators and other equipment and adverse.
Per impact our schedule and as usual severe weather events, such as the cold and Texas can impact our performance the.
And the potential effect of these unknowns makes us cautious at the start of this year.
On our last earnings call I said that we expected overall revenue growth in 2020, one but their revenues on the first quarter would be lower compared to the first quarter of 2020, and then as much as <unk> 65 per cent of revenues will come and the second and third quarters that remains our expectation.
We now expect 2021 revenues between one seven and 5 billion and $1 95 billion and adjusted EBITDA and the range of $130 million to $140 million.
Thank you and I'll now turn the call back to J P for his closing remarks.
Well, thank you Pete.
With our bidding opportunities remaining high and we continue to see strong prospects for growth across both of our operating segments and.
And the renewable space I E as a direct beneficiary of the growing investment and the wind and solar markets.
The global pandemic 2000, Twenty's and set a new high for utility scale solar projects and the United States with total solar project Count surpassing records previously set in 2016.
The U S energy information administration or EIA for short anticipates this trend and renewable growth will continue in 2020, one with $39 seven gigawatts of new energy to go into commercial operation This year.
And when are expected to be 39% and 31% respectively that means that 70% of the new energy will come from carbon free generation.
Further driving the renewable energy markets in December there was a one year extension of the 60% production tax credit for wind and a two year extension of the investment tax credit for solar at 26% of the project's value for both wind and solar projects placed into service by 2025 are eligible.
For these extended credits we are hopeful that the passage of a federal stimulus Bill will extend these credits.
The demand for new renewable work is definitely growing over the next three years. The EIA believes the 54 gigawatts of fossil and nuclear energy will be retired this retirement represents a 17 billion engineering procurement and construction opportunity for the renewable industry and and.
As a pure play utility scale wind and solar constructor, IEA expects to benefit and.
In addition to tax credit and extensions of the current administration is also a strong catalyst for the renewable energy renewable industry.
President Biden campaign on a national plan to achieve 100% clean energy by 2035, and since bite and took office. The U S has rejoined the Paris climate accord and reinstated key EPA regulations and support the growth of the renewables industry. The restoration of Obama's clean power plan.
And or a mandate for federal agencies to procure 100% renewable energy sources would help further drive the renewable industry forward.
Beyond renewables, we are also seeing strong growth drivers for our specialty civil business.
In terms of environmental remediation work I Acs continued opportunities to increase our coal ash work, including the safe closure of coal ash ponds, and the relocation of coal ash residuals and the construction of new landfills to comply with environmental regulations.
There are more than 700 coal ash, impoundments, and landfills and the U S. Today, but only 15% have been closed or remediated.
The coal ash remediation opportunities in this country could exceed 50 billion over the next 10 years alone and at present there are a few companies have the scale and the experience needed to serve that market.
And the rail space age and commuter infrastructure combined with the anticipated growth and freight volume of 36% over the next decade is actively driving the opportunity for additional rail improvement projects.
Association of America, and railroads has stated that the railroads are three to four times more efficient than trucks as a single freight train could replace several hundred and semi trucks, which would contribute to significant congestion relief on our roadways and.
And more importantly, a reduction of 75% and carbon emissions.
With the growing trend towards improving the environmental benefits of our transportation systems nationwide. The recent approval Pete Buda Judge a fellow Hoosier I should note as transportation Secretary and President by one and his two trillion and infrastructure Bill to ensure that America has the cleanest.
Safest and fastest rail system, we anticipate that the demand for rail infrastructure will grow.
For transportation opportunities the American Road and Transportation Builders Association noted and their most recent report that one third of the U S bridges and highways are in need of repair with an estimated 164 billion of work required to get our nations bridges and highways just up to par.
Sure.
State departments of transportation are expected to receive $9 8 billion and funding through the COVID-19 relief measures that passed in late 2020. There's also the increased potential for highway grants and funding for larger infrastructure projects, which generally have support from both parties.
Over the past two years I E has gone from just under $800 million and revenues to nearly one 8 billion and revenues we have done so through both a combination of organic and acquisitive growth. This growth supports our thesis that we are and the right and markets supporting the right clients at the right time and our name.
<unk> history.
Political and environmental drivers Fridays business, which is enabling the energy transition of our country and improving the U S transportation infrastructure could not be any stronger.
Thank you again for joining us this morning for our fourth quarter call I Wonder if he thinks the contributions made by all of <unk> employees during the past year and sepsis is women and construction week, especially highlight those made by our incredible female employees.
As we look to capitalize on our opportunities and grow our business. We look forward to continuing to deliver strong results for all of our shareholders.
This concludes our prepared remarks, operator would you. Please open the call to questions.
Thank you.
And at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is and the question queue.
You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment. Please so we pull for questions and once again Thats star one to ask a question today.
Okay.
Thank you once again is try and wanted to ask a question.
Thank you. Our first question comes from the line of Brent Salmon with D. A Davidson. Please proceed with your questions.
Thanks, and good morning, and J P and Pete.
Hey, Brian one and grant.
I guess first question you guys did $1 billion and to win business and 2020, which is extraordinary and it really.
Great year, how do you how do you think about that business from 2021, and particularly in context and the revenue outlook.
So we would expect similar similar outcomes in 2021 day the industry is expecting.
A similar build out depending on who you listen to you know you hear anywhere from 14 to 17 Gigawatts for 2021, So I would from the activity that we've seen.
And we would you know.
Our our analysis of the market is very similar to what we saw in 2020.
Okay, and J P. The win maintenance business.
And I know, it's starting from scratch here, maybe could you just talk about what you're anticipating from the business and 2021 particular any sort of targets you hope and the business can get to.
Well, we you know we haven't we haven't guided to a certain target for that Mark for that segment of our business Brent, but what I can tell you is management's extremely happy with how that's good and getting out of the ground so to speak.
And very pleased with the management team that we brought together so you know.
And I think as we've said and our remarks, we do believe that and it'll be a meaningful contributor to both revenue and the bottom line for this year, but.
And we're not prepared to come out with specific guidance for that business segment.
Okay.
And the civil side.
And J P I just Wanna.
To come back to that and what what areas, you're most optimistic about for growth and 2021, I mean, assuming we get some sort of an infrastructure bill.
I can't imagine that's necessarily a benefit this year, but certainly and of the out years, but maybe what do you see that you're most excited about and that business.
For this year and for taking back, especially civil you know I do think that you know as the benefit of the energy transition you know, our environmental business switches embedded and our especially civil segment as is ripe for growth.
We believe we're at the kind of input stage of that of that market.
And as we've talked in the commentary only 15% of the coal ash to date has been remediated in this country. We you know and we believe that it's and access of a $50 billion addressable market over the next decade. So we do we do see some opportunities.
And of relatively decent size coming in that market. This year, we hope to get our fair share of those.
But that doesn't diminish our areas of our other business, obviously, where our rail business continued we have continued to see a quite a bit of opportunities as we continue to not only service our freight rail customers, but expand our reach into passenger rail.
And and quite frankly, as we kind of wind up that segment and the transportation Highway and bridge side.
You know we've been cautiously optimistic all along.
About what you know what kind of spins out of the Covid pandemic and regards to the consumption taxes and such that drives that market, but.
Yeah, so far.
Still seeing brisk bidding opportunity and and I know I think we've experience.
Some assistance and the and.
And the Covid relief legislation that was passed back in December for that for that industry. So you know so far.
So good as far as opportunities going forward and and especially so.
Okay last one from me just that you know that.
And I asked about it pizza cold across the country and all the stuff that's been going on any major disruption to some of your ongoing projects and as seasonally this is a pretty slow period for you anyway, but anything out of the ordinary we should be aware of.
Well you know just like probably most anybody who was working and taxes, we did see a.
Slowdown of work during that that climactic event.
Everybody's well aware of few weeks ago. So certainly we were short term impacted by that but.
Other than that no.
Yes.
Okay. Thank you guys.
Thank you Brent.
Our next question is from the line and from Noelle Dilts with Stifel. Please proceed with your questions.
Hey, guys congrats on a great year and thanks for taking my question.
Turning.
Yes. Good morning, So first I just wanted to ask about you know these delayed awards.
You know obviously a lot of positive things are on the horizon and term says you know what do you think back and just looking to do with renewable energy, but sometimes ahead of you know anticipation and stimulus or or some sort of the market. You can see it work flow do you think any of that is going on or do you think this is more related to COVID-19 and and that sort.
And that would be helpful. Thanks.
Oh, we think it's almost entirely related to COVID-19.
Just just everything works a little slower in today's world.
You know it takes a little longer for our clients to get get permits upfront.
I don't know if a client of ours yet.
And particularly in the renewable side of our business and it's back in the office are like we are so their internal processes for per Wolf and such just work a lot slower and and of course our.
Our clients require financing.
And the finance markets moving just a little slower so nothing alarming, but and today for and that kind of new Covid normal where things just come and the backlog just a little slower.
Okay, Great. That's really helpful. Thanks, and then second.
And second obviously a lot of optimism.
Cross the contracting industry as it relates to the solar opportunities could you just kind of remind us of.
Some of the kind of key Differentiators you have as it relates to the solar market and why you believe you're at the contractor of choice is as more and more of this work starts to come out.
Well good.
Good question and certainly.
That market is.
It lags the wind market as far as maturation.
It is reaching kind of the stage now where the wind market reached what I would personally say it was a decade ago, where now youll see the largest developers or builders of of solar and the country are much the same as our wind customers large ipp's are large investor owned.
<unk> and.
You know, it's quite frankly not are not lost on any of us that if the if you look at the largest solar contractors are today, a utility scale and the United States are remarkably looks.
The list looks remarkably similar to our win list or.
Or the wind competitors, so you know.
Certainly have enough from familiarity with with those customers.
And how they want projects delivered the methodology.
The safety the quality that they want the projects delivered are very important and and I think as you know noelle the they're well priced is important and renewables. It's a very relationship based business given the short time span and.
And the large capex involved with these projects and our clients want.
Contractors, who have demonstrated time and time again, the ability to get these projects and the in the ground are on time.
Okay.
That's perfect. Thanks, so much I appreciate it.
Thank you and.
At this time, we've reached our allotted time for question and answer session and I'll turn to flow back to J P. Ream CEO of IEA for closing remarks.
Well, thank you operator, and it's been a pleasure.
And some time with you all today and we welcome you back here just a just a few short weeks away and early May when we report on our first quarter results, everybody stay safe and healthy and look forward to see and you then thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.