Q2 2021 Infrastructure and Energy Alternatives Inc Earnings Call
[music].
Good morning, and welcome to infrastructure and energy alternatives second quarter 2021 conference call.
I'd like to note that all participants on today's call are in a listen only mode.
And with that I will turn the call over to Kimberley Astrachan Investor Relations for IEA. Kimberly. Please go ahead and Hello, and thank you for joining us today to discuss I Eh second quarter, 2021 financial retail.
That's from management are J P Reid, President and Chief Executive Officer, and Pete <unk>, and 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 <unk> future growth and financial expectations.
Any forward looking statements should be considered in conjunction with the cautionary statements.
And I Eh second quarter press release, and the risk factors included and the company's SEC filings.
Except as required by law IEA undertakes no obligation to update its forward looking statements after todays call.
And its management will be presenting some non-GAAP financial measurements as references including adjusted EBITDA the appropriate GAAP financial reconciliation GAAP can.
Can be found in the press release issued on July 28, 2021 and.
And with that I'll turn the call over to J P. Reed Chief Executive Officer. Please go ahead JP.
Well, thank you Kimberly and good morning to everyone. We appreciate you joining our second quarter 2021 earnings conference call.
To start by mentioning the series of financial transactions that we have begun to modify and improve our capital structure. As you can tell from the many press releases and forms 8-K, we're addressing many of the challenges of the old capital structure.
I'll leave the details to Pete, but we are excited for the future of I E.
For the second quarter IAA generated record revenues of $560 million, our renewables segment accounted for 76% of that revenue generating $425 million and increase of 31% year over year.
Of note our solar division revenues grew from $7 million and Q2, and 2022 over $108 million and Q2.2021, that's an increase of more than $100 million.
And we started building our solar capabilities at the end of 2019, and we are now seeing the results of those efforts.
Our specialty civil segment accounted for 24% other quarters revenue with revenue up $135 billion that was a decrease of 13, 5% year over year, primarily from the impact of a large heavy civil projects and the second quarter of 2020, which did not repeat this year along.
And with unseasonably rainy rainy conditions and parts of the country are especially civil businesses are still seeing the impact of project delays, resulting from the pandemic, especially in our rail transportation business.
We're not totally out of the woods when it comes and when it comes to COVID-19, we continue to maintain health and safety requirements and our project sites and from time to time, we experienced some delays or other supply chain issues.
It's worth noting that we do have contractual protections to reduce our financial exposure to those project delays and projects cost escalations.
Not only did we achieve record revenues for the second quarter, but we also into Q2 with more business and our backlogs than in any other time and the company's history.
Backlog increased by $86 million during the quarter to total $2.8 billion up nearly 60% on a year over year basis.
We won wind and solar projects and multiple locations this past quarter, including wind and solar farms and Texas. The number 1 ranked state for operating wind and solar and energy storage capacity and the country.
A 200 megawatt utility scale wind farm and northwest, Iowa, The first day to generate more than 30% of its total electricity from wind and.
And 145 megawatt utility scale wind farm, and Colorado State, which is committed to achieving 100% clean energy generation by 2040.
Wind Repowering projects are also drained and gaining traction and the U S ranks fourth among the top 20 wind repowering and markets by capacity with the Repowering market expected to reach 25 billion annually by 2030.
<unk> is uniquely positioned to act on this opportunity.
During the second quarter, we were awarded a $70 million balance of plant power contract Repower and the 240 megawatt Big Sky Wind farm and Illinois.
By the end of the construction and July 2022. This project is expected to increase big Sky and Youll energy output by over 60%.
<unk> like Big Sky and highlight the long term opportunity and the wind market.
Stalled infrastructure ages, and new technologies improve efficiencies.
Not only is our backlog and an all time high it is comprised of a much more balanced mix of business than it's ever had the best as we book more strong wins and transportation and environmental remediation and this past quarter.
For example, I E, 1 and $126 million contract from the Illinois Department of transportation to reconstruct the I 57, and <unk> 74 interchange and Champaign, Illinois.
This includes the building of 12, new ramps and bridges.
Work on this project began in July.
Although not funded by money from the federal infrastructure Bill. This project provides an example of what a typical federally funded project could be and the future the.
And the American AG calls for 343 billion invested and roads bridges and safety with 32 billion, specifically set aside for bridge repairs.
This project shows that I couldn't be a player in that market.
Renewables has propelled our growth over the past several years and I believe that we are now on the cusp of a similar opportunity and the coal ash remediation business.
Coal ash is generated by the burning of coal at power plants and it contains contaminants such as cabin mm Mercury and arsenic without proper management. These contaminants can pollute waterways groundwater drinking water and even the air.
Large spills near Kingston, Tennessee, and Eden, North Carolina caused widespread environmental and economic damage to the nearby waterways and properties and resolve it and the federal rules that ultimately protect coal ash disposal.
These rules usually require that we build new ponds and landfills that comply with current regulations and and transport the coal ash residuals from the plant our former storage sites to the new disposal sites.
We don't do the engineering for these projects and we don't take on any of the environmental risks associated with these projects as our customers retain their liability.
Coal Ash at times has the consistency similar to that and quicksand and the job requires a significant amount of equipment and expertise, thus requiring and emphasis on safe operations and a company of scale.
We work, mostly under master services agreements that enable us to be paid on either a per ton basis, or a time and materials basis further reducing risk and making these projects attractive from a margin perspective.
The coal Ash removal agreement, we recently announced with a large utility underscores the opportunity in this marketplace.
It's a multiyear opportunity and it starts at a slow pace and the first 2 years and then we'll continue for over 10 years.
And before speaking further about the growth trajectory of our end markets alternatives call over to our CFO Pete <unk> to highlight the second quarter's financial results and speak to our 2021 guidance and of course address our recent capital structure transactions Pete.
Thanks, J P and good morning to everyone.
Since we filed our second quarter form 10-Q and earnings release, almost 2 weeks ago I will mention only a few highlights.
As J P mentioned, our second quarter results were strong revenues of $560.1 million were a new record for our company and more than doubled sequentially.
Gross margins totaled $9.5 per cent for the second quarter and did decline from 11, 3% and the year ago period. There are 2 primary reasons for the decline, which we believe to be temporary.
The first is a result of the pandemic, which delayed the start of new work this year as evidenced by the first quarter's low revenue.
At the outset of any project, we established specific contingencies, which are treated as expected cost as we calculate revenues using the percentage of completion rules as we complete the project, we can usually derisk the project and reduced its contingency resulting in margin improvements.
And most quarters, we have projects at various stages of completion and this contingency effect is not pronounced however, and the second quarter, we had an unusually high number of projects still in their early stages.
And as these projects move toward completion throughout the rest of this year, we expect to return to more normal margins.
The second reason for the reduced margin in Q2 was the need to prepare for the third and fourth quarters of this year, we will be running in full force, we added 2000 employees and the second quarter.
As we onboard and provide training and Q2, the new hires are not yet actively working on projects. However, they are now working which will help margins and the third and fourth quarters.
Fourth quarter SG&A expenses were 5.5 percentage of revenue compared to 5.8% of revenue and the prior period. Our full year expectation is that SG&A expenses will be similar to last year's mid 6% of revenue range.
Some other financial highlights.
And the second quarter, our cash used in operations total of $11.4 million compared to $64.6 million and the same period a year ago. We.
We expect to generate positive cash flow and the second half of the year.
Interest expense for the quarter totaled 14, and a half million.
Down from $16.2 million from the second quarter of 2020, primarily as a result of lower effective interest rates and our term loan.
Offset by an increased dividend rate on our series B preferred stock from 12% to 13.5%.
Adjusted EBITDA for the quarter totaled $35.7 million or 6.4% of revenues as compared to $39.3 million or 8.2% of revenues and the second quarter of 2020, the expected margin improvements that I discussed earlier will also improve our adjusted EBITDA margin and the <unk>.
Second half of the year.
Capital expenditures for the second quarter totaled $18.2 million of which $7.9 million was financed through leases. We continue to expect that capital expenditures for the year will be approximately 2% of our revenue for 2020.1.
Lastly, turning into backlog and we added $86 million per our backlog and the SEC.
Second quarter, which as J P mentioned resulted in record backlog of $2.8 billion.
This amount includes only 3 years of the coal ash contract J P spoke to earlier.
We expect to recognize $1.8 billion of our total backlog amount and the next 12 months.
I a remains on track to meet our full year guidance and we are reaffirming our revenue and adjusted EBITDA guidance ranges. We continue to expect revenue and the range of 1.8 to $1.95 billion and adjusted EBITDA and the range of 130 million to $140 million for the full year.
Year 2021.
That implies a very strong third and fourth quarter with favorable comps to 2020.
From a financial perspective.
The 3 months of the quarter were on target and relatively calm.
The past 3 to 4 weeks not so much we have begun a series of transactions that will significantly improve our capital structure and make it more transparent and understandable.
Much of the transaction information can be found and the prospectus supplement that we filed on July 28, and we will post more detailed information after the closings on our website and in an 8-K and the near future.
First we launched an equity offering that price on July 28, and closed on August 2nd and which we sold $18.3 million new shares at $11 per share for net proceeds of $196.3 million Ares purchased almost 60% of this offering.
$10.9 million shares or pre funded warrants.
Demand for the non and Aerie shares.
For about twice the number available.
And we completed the offering.
At only a $5.7 discount from the previous day closing price.
Second we price the $300 million high yield bond offering last Friday.
The transaction will close on August 17th.
The 6 and 5 eighths percent senior notes will be due on August 15th 2029 and.
And 8 year tenor.
The notes priced at 98, 485%.
These notes will require semiannual interest only payments until their due date.
We're very pleased with the results as this offering was our initial high yield bond issuance.
That both Moody's and S&P upgraded our ratings and the past 2 weeks were obvious positives.
Third we are and the final negotiations for an expanded revolver credit agreement with 4 banks, we're expecting to receive a $150 million revolver, which is double the amount of our current revolver.
The revolver is expected to close on August 18th.
Fourth Aries the owner of our series a and series B preferred shares has agreed to convert all of their series a preferred to common stock as allowed and the series a agreements.
They have also agreed to convert the series B Penny warrants to common stock.
We will use the proceeds from the equity offering and the high yield notes to redeem our current secured bank notes and redeemed all of the series B preferred shares.
When we are done with the transaction, we will have a balance sheet with capital leases and equipment debt of approximately $57 million $300 million of unsecured high yield notes.
And no preferred debt or equity.
We will have approximately 52 million common shares or share equivalents outstanding.
So why do these transactions and why do them now.
And the benefits are readily apparent.
We are extending the average maturity of our debt from 3 and a half years to around 8 years, which is very important for our charities and.
We paid approximately $41 million of cash interest last year and expect a reduction from these transactions of at least $20 million per annual cash interest payments.
Our interest payments should also be tax deductible. Unlike the previous series B dividend payments, which were not.
That we are able to make these improvements to our balance sheet is due to the efforts of Ares and a special committee of our board of directors areas has agreed to a series of governance rights, including 2 of 9 or 10 directors and a voting interest of around 32%.
We expect that their economic interest will be approximately 38% of our total ownership.
Ares is converting a senior security, which paid at least 12% and cash dividends per year and the common shares.
We believe this is a very strong vote of confidence for our company.
And finally, the transactions will also allow us to grow faster as our new revolver will give us the capacity to conduct accretive tuck in acquisitions that make strategic sense with attractively priced capital.
Before turning the call back to him.
J P and I want to acknowledge the many contributors to these transactions, especially the help of air and Roth, Our New General Counsel and the members of my finance team.
And with our revised capital structure and record revenues and backlog I is ready for our next phase of growth.
J P and back to you.
Thank you Pete and.
And it's certainly been a whirlwind.
That said the overarching theme for our IAA business right now is the growing demand I've been a part of this IEA family for more than 2 decades and I.
I've never seen this much momentum across all of our businesses at the very same time.
We are the largest publicly traded wind and solar EPC company and the United States and.
And our environmental business, we believe that the recent contract win makes us a top provider of remediation services for coal combustion residuals and and our specialty civil business. We are a top 20 player and rail and highway construction our market position and these end markets has only strengthening over time.
Wind and solar are the preferred source of new energy generation and the United States, We do not see our wind or solar business slowing down any time soon according to the U S government wind and solar are now the lowest cost forms of new power generation and the country.
Over the past 3 years alone almost 2 thirds of all new.
Power generation and the country has been from renewables.
The EPC services, we provide account for between 28 and 32% on average other utility scale wind and solar project.
That means IEA is 1 of the largest recipients of the billions of dollars that will continue to be invested and new renewables energy generation.
And as virtually all owners procure the wind turbines and solar panels for their projects, we do not have any technological risk or significant capex and the project while directly benefiting from the underlying growth of this renewables industry.
In June the IRS expanded the continuity safe Harbor, which means the current wind and solar tax credits will likely apply to most projects through 2025.
That means that some more marginal projects may now become viable.
Our newly formed when services group, which performs maintenance work is also seeing increased opportunities currently wind farm owners and the United States spend approximately $2.6 billion.
And maintenance services annually with most of that money currently going to the turbine manufacturers.
And as the manufacturers changed their focus to increase their turbine capacity, we see an opportunity for IEA to become a credible independent player.
And beyond renewables as I noted earlier, we are seeing strong growth drivers for our specialty civil segment.
Our environmental business is expected to be a major growth engine for IEA as large coal ash remediation projects are awarded to meet the federal regulatory deadlines.
And what's exciting about the coal ash opportunity is that its and its early stages IEA has the capabilities and credentials to win these large multi year contracts. There are over 700 sites across the United States with over 2 billion metric tons of coal ash that must be remediated and disposed of properly.
And at present and less of 15% of existing impoundments and landfills have been remediated to date.
Using data publicly available from Duke energy, we believe the remediation opportunity for these sites across the country could be as much as 50 to over $150 billion, depending on the price per ton of coal ash removed over the next 10 to 15 years maybe.
Major and regulations in this area did not come into effect until 2018.
And in other words, theres going to be a lot of work and the coming years.
Our transportation business, which was previously constrained because of COVID-19, and federal and state budget constraints is starting to improve with the expected increase in federal government spending on infrastructure. We believe that business is going to grow IEA is recognized as among the leaders and both freight and passenger rail.
<unk>.
We also have a terrific franchise and bridge and highway construction and some of the populous states across the United States.
The federal infrastructure Bill is expected to result, and a 50% increase from federal spending for highway and rail infrastructure.
As a top 20 contractor and both areas, we expect to be a major beneficiary of this increase in spending.
We await final action in the Senate on and infrastructure Bill and anticipate there will be follow on legislation to address de carbonization and this country.
And as best as we can tell at this time the legislation will provide additional impetus to all of our business lines.
Ice futures bright and we now have the right capital structure to push our growth higher with improved liquidity and reduce debt. We can continue to invest and our organic growth, while also making strategic bolt on acquisitions that accelerate our growth and each of our end markets.
Thank you again for joining us this morning for our second quarter call. Operator would you. Please open up the call to questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star 1 on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May Press Star 2 if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Brett Feldman with D. A Davidson. Please proceed with your question.
Hey, Thank you and good morning, J P P.
Hey, Brent.
And I guess I want to start on the coal ash remediation opportunities pretty unique pretty interesting and obviously picked up here.
And the quarter can you just talk about you gave some sort of higher level numbers, there J P. But talk about where you think that business can go and then next few years, what are the potential and sort.
The contributions we can think about.
Some of these new contracts.
And delight and and obviously you guys to be a participant there and just wanted to get some more color there.
Well I think certainly this is a market that we've been looking we've been looking at since our acquisitions in 2018, we.
And we knew the market was coming I think the announcement of the contract we announced on the East Coast. Here recently is certainly indicative of what of a market that we knew was coming.
And we've taken some and we think it's certainly a major growth driver used the analogy and other leg of the another leg of the stool.
And when you have a $50 billion per.
Plus addressable market out there and.
Truly a competitive.
Mix of.
Of competitors out there does is limited.
At least limited from a from a from a scale perspective.
We think theres, a theres a tremendous opportunity for us ahead, and particularly as.
As we alluded to here and our remarks.
Certainly probably an area that kind of tends to some consolidation over time. So we're.
We have been working over time to position ourselves as a leader in this industry and expect to maintain that leadership.
<unk> for quite some time.
Okay, and then and the 10-Q and actually Pete I think you touched on it you said you expect it to work to around $1.8 billion and the backlog over the next.
And the next 12 months I guess is the vast majority of that coming here and the second half of the year just wondering.
Do you need to book a lot more shorter term work to hit the revenue guidance.
And it's implied in the second half.
No not at all we will hit that and we expect to hit the revenue guidance.
And if anything we expect them to be towards the top end of that.
Traditionally the first and second quarters tend to be a little bit lower so first quarter next year second quarter next year, maybe slightly lower than the run rate we're on now.
And as fast as we can and the only thing that could really impact us is weird strange weather and the clients not delivering the.
Turbines or solar rays, when theyre supposed to.
And those were about the things that we.
That keeps us up at night, the rest of the way, we expect to see some very solid numbers second half of the year.
Yes.
And then the wind maintenance business I know, it's still early on but maybe could you talk about the contributions to date, the traction you're seeing with customers and that new offering.
If there is any sort of targets, you're looking to get the business to either this year or over the next couple of years.
We haven't been out with any kind of guidance on that particular business unit, what I, what I can say Brendan.
And is taking it is taking off and scaling that are at or kind of.
What we anticipated internally.
I think we're well in excess of 100 technicians today and.
And that business won so.
I would say certainly it's.
And it's meeting or even exceeding our expectations and.
Given the.
Forward runway in that market.
We expect that its materiality in the segment will grow over time, but we're just not we're not we're not out there yet where we wanted to and putting specific numbers around it.
Okay.
Last 1 the Repowering contract J P talked about $70 million I tended to think of this sort of repowering opportunities and it's smaller and would you would you call that unusually large for that for that type of work or is that kind of stuff.
Youre seeing out there.
And could you say it 1 more time I'm, sorry sizes of Repowering those debt yes.
Repower and the $70 million contract and just wondering if thats unusually large and are consistent with the sorts of opportunities.
Good question, it's probably on the larger and the scale but.
And I think it's also indicative of a big Big Sky is actually a project that we constructed in 2009.
So as.
As projects.
Get more and of that 10 year lifespan, which they would be getting bigger because 10 years ago, the wind industry with scaling perhaps perhaps they will we will get larger but I would say so far that's been on the bigger and of the landscape and we've seen from Repowering.
Okay. Thank you pass it on.
Our next question comes from the line of Adam Thalheimer with Thompson Davis. Please proceed with your question.
Hey, good morning, guys. Congrats on all the transactions and good.
Hey, Adam.
Just kind of want to carry on their on the Repower opportunity J P. What's the total.
Market like are you bidding a lot of those jobs right now.
I would say the market is still pretty well dominated by Newbuild Adam.
I think 1 thing that in the near term could.
Could cause that to grow as the recent IRS guidance.
Sure.
Extended their guidance on the save the continuity safe Harbor for the production tax credit and so I could see some projects come in and 2022 and 2023, just because of that extension and the continuity safe Harbor, but I'd still say.
The market is.
And is by far dominated by new build and I think <unk> like ourselves use that is <unk> of resources and kind of put these repowering projects and and and gaps of our schedule and.
I don't look at that really to change too much and the near future.
Okay, and then on the core wind and solar business can you give us some insight into.
The discussions youre, having with clients and potential clients today in light of logistics issues and materials costs.
Yes.
Certainly probably.
And that has been more in the solar and solar industry given the content.
Steel.
That has probably been where <unk>.
And we've seen most of the escalation and yes, I mean, our.
We've not seen it.
Really stop or delay any near term projects here.
And certainly our customers.
Not happy.
About the current markets.
Particularly in the steel market.
But projects are proceeding and we've been able to pass those.
Excuse me those escalations along I know.
As far as projects that are more and later 'twenty 2 and into 2023.
And they are looking that.
Customers are looking at delaying orders as much as they can for steel products. Because I think steel is currently predicted to kind of tail off from that in Q4.
But we will see the theme is we havent. There is just the way our contracts are structured and how they come to market. We have we have minimal risk for that and.
And the common practices to pass those escalations alone.
Okay, Perfect and then last 1 from me what's the.
Theoretical capacity of the environmental segments like what could the revenue be.
If you look a couple of years out.
Well.
Well.
If you look at IEA today, I think I think what we've said in the past is we'd like to get our.
Solar EPC revenues similar to our wind EPC revenue. So I think that is certainly achievable.
And the somewhat near term.
And we haven't committed to a timeframe for that but I think thats.
And certainly achievable certainly.
The market is there.
We.
But I think I think similar.
Color market similar to our wind market as we have now.
And when markets basically a $1 billion run rate business.
You can do the math, but.
We think.
We think certainly the business and.
And the not too distant future to be could be at that $1 billion run rate and each kind of.
And each of those solar and wind.
Newbuild lines.
And then what is huge and.
And then I was thinking on the I mean, that's good to hear but I was thinking on the environmental side Yeah Yeah.
Well.
Yes peak sitting here, telling me come out of environmental guests.
Yes, I did not know that on a $1 billion, each and solar and wind and and that's good to hear.
Yeah, well tomorrow and the markets out there and we're growing our market share so.
But in.
As it relates to coal Ash I think we want to be careful about temporary and the near term expectations, but.
<unk>.
I think the key is we would we would be the key drivers that we would point out there is it certainly when you book and at a $50 billion to $150 billion market you can probably.
Count the service providers at scale in the country almost on 1 hand.
I think you can certainly look at IAA has.
Position themselves.
The top provider with this recent wind.
So we think it's a big opportunity.
I think we want to temper expectations about putting any numbers out at this time on that.
But when you have $50 billion to $150 billion addressable market over the next 10 or 15 years and.
Theres a handful of players I think were I think were low.
It's a great growth area of the business.
Sounds good thanks, guys.
Thank you.
And as a reminder, it is star 1 to ask a question. Our next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.
Hi, guys.
Yes, good morning, I guess, good morning, and again, congrats and all the progress on the balance sheet.
Thank you.
Sure. So the first the first question I wanted to ask it's kind of been touched on by some of the other questions but.
1 of the things that I think I still encounter when I speak with investors is a concern that.
And might start to tail off given some of debt tax credits currently rolling rolling off and technically and.
And.
And that this view that solar may offset that but your comments just to add I mean, a suggested that maybe you're at least think when can hold steady.
And you'll just delve into that a bit and kind of talk about your expectations on that on the longer term outlook from inside the business. Thanks, Yeah, Great question, and Pete and I get a lot of these questions from investors and our other stakeholders and the business and and we acknowledge that there are certain analysts and others.
That seem too.
<unk> downturn and the win with industry and the near term.
Quite frankly honestly, we just don't see it.
And.
A few reasons behind that.
Number 1 our best Barometer is.
What our customers are telling us and.
I think we maybe talked about this on the last last few quarterly calls, but you know.
And what I always draw people to I think and is 1 of the best Barometers and the industries go Gopro Nextera is last few quarterly.
Quarterly calls and see what kind of statements, they're making there.
They're a great barometer for the industry.
The market share is the largest.
Player, both development and asset owner of renewables and the country I think the market share is the high <unk> low <unk>.
So they're a great benchmark and I think what youre going to find is unequivocally they they've kind of.
And said that they're going to double down on wind and solar.
And their spin between 2022 and 2025.
I can tell you from our mix of clients we're hearing.
We're hearing similar.
Middle of the fairway statements. So certainly clients are.
Their pipeline that they share with us I think I think youre certainly are well aware of the competitive landscape.
Wind and solar EPC and.
And given the fact that it is a limited landscape. We are very close to our clients, we're almost embedded with our clients and understand what the.
And what projects and what their pipeline is from next 2 to 3 years.
<unk>.
Not to beat a dead horse, but that is certainly what gives us an extreme amount of confidence.
And.
And having that inside knowledge to what our Capex spend is our clients and then and then you kind of look at the other.
Drivers and the industry, you mentioned, let's tail off and the tax credits as well when you actually look at the extensions that have happened and the last few years and Congress along with Alaska.
Covid relief legislation in December of last year, and then the revised IRS guidance that came out of just a handful of weeks ago and June that.
Essentially also extended the continuity safe harbor provisions as well as lessened and the standard.
And the continuity safe Harbor.
You can get real confident that the existing legislation.
And be a driver.
2025, and Thats absent anything thats kind of happened and and with this reconciliation bill or any of the other bipartisan and infrastructure Bill Inc.
CAGR so.
And then.
Also we've got state Rps is.
Out there I know we've talked about before and then and then lastly, just a tremendous continuing the appetite of of the corporate and industrial demand.
The Facebooks and Amazons, the general Motors Mcdonalds and what have you that is buying almost half and renewable energy and that was produced this year and we don't and that's I think a continuing development and the ESG.
Phenomenon so.
We look at that.
And we feel very confident.
Going forward.
The continued.
Viability of wind going forward.
Thank you and that's really really helpful.
And the next I'm not sure that you'll go into this much detail but.
I was wondering if just given.
The gross margin and specialty civil and the quarter. If you could just kind of revisit that.
And how youre thinking about gross margins.
For the year potentially for each division and then if you could kind of talk about your longer term targets from a gross margin perspective.
Well I can certainly do the first part of it and Noel.
We expect to get back to very similar margins of last year and both segments were impacted.
By Covid and the fact that the rail projects.
And lower volume and lower margin as we look to the rest of the year. We think we'll get reasonably close on the specialty civil and we should do similar as we did last year.
The renewables certainly to get to the <unk>.
Overall adjusted EBITDA adjusted EBITDA number that we are guiding to we're going to have to improve margins over where they were and second quarter.
Right, Okay, perfect and then and longer term basis.
And that's harder.
As we see sit here right now we would expect that the margins will continue and the 11% to 14% on renewables.
And then we.
We've said specialty civil is going to be and the high single digits.
Our very low tens.
And with hopefully the coal ash towards the top end of that.
The rail kind of in the middle and here Hi.
Hi, we were kind of towards the bottom end of that range.
Okay.
And then lastly, this is Barry.
A detailed question but.
And just given all the changes with that share is coming in and and and the conversion and et cetera.
I was wondering if you have an estimate for where you think the share based and will kind of work out for the third and fourth quarter I'm sure. We've all done their own math, but.
And just maybe trying to get everyone on the same page.
Oh goodness.
I wanted to say that we're going to be and the 52 to 54 million share range.
And I get there by doing $25 million, where we are currently.
And then if you add to that.
The 6 million that areas as converted add to that the $18.3 that we just did.
2 points.
6 or so of series a conversion.
And then anywhere from 1 to 2 just on <unk>.
There are issues et cetera, outstanding and hopefully and I wasn't that and get that gets you and the $52 million to $54 million range.
Okay.
Thank you.
Thanks Noel.
And there are no further questions and the queue I would like to hand, the call back over to J P. Ream for closing remarks.
Well. Thank you operator, and thank you for everyone that has joined US today on our Q2.2021 call.
Stay healthy stay safe and we look forward to reporting our Q3 results in early November and so we'll see you. All then thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
[music].
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Good morning, and welcome to infrastructure and energy alternatives second quarter 2021 conference call.
I'd like to note that all participants on today's call are in a listen only mode and.
And with that I will turn the call over to Kimberly estrogen Investor Relations for IEA. Kimberly. Please go ahead and Hello, and thank you for joining us today to discuss Iea's second quarter, 2020.1 financial results.
That's from management are J P Reid, President and Chief Executive Officer, and Pete Barbie, and 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 iea's future growth and financial expectations.
Any forward looking statements should be considered in conjunction with the cautionary statements.
And I Eh second quarter press release, and the risk factors included and the company's SEC filings.
Except as required by law IEA undertakes no obligation to update its forward looking statements after todays call.
And management will be presenting some non-GAAP financial measurements as references including adjusted EBITDA the appropriate GAAP financial reconciliation GAAP can.
Can be found in the press release issued on July 28.2021.
And with that I'll turn the call over to J P. Reed Chief Executive Officer. Please go ahead JP.
Well, thank you Kimberly and good morning to everyone. We appreciate you joining our second quarter 2021 earnings conference call.
To start by mentioning the series of financial transactions that we have begun to modify and improve our capital structure. As you can tell from the many press releases and forms 8-K, we are addressing many of the challenges of the old capital structure.
I'll leave the details to Pete, but we are excited for the future of I E.
For the second quarter <unk> generated record revenues of $560 million.
Our renewable segment accounted for 76% of that revenue generating $425 million and increase of 31% year over year.
Note, our solar division revenues grew from $7 million and Q2 and 2020.
2 over $108 million and Q2.2021, that's an increase of more than $100 million.
And we started building our solar capabilities at the end of 2019, and we are now seeing the results of those efforts.
Our specialty civil segment accounted for 24% other quarters revenue with revenue up $135 billion that was a decrease of 13, 5% year over year, primarily from the impact of a large heavy civil project and the second quarter of 2020, which did not repeat this year along.
And with unseasonably rainy rainy conditions and parts of the country are especially civil businesses are still seeing the impact and project delays, resulting from the pandemic, especially in our rail transportation business.
We're not totally out of the woods when it comes and when it comes to COVID-19, we continue to maintain health and safety requirements and our project sites and from time to time, we experienced some delays or other supply chain issues.
It's worth noting that we do have contractual protections to reduce our financial exposure to those project delays and projects cost escalations.
Not only did we achieve record revenues for the second quarter, but we also into Q2 with more business and our backlog than in any other time and the company's history.
Backlog increased by $86 million during the quarter to total $2.8 billion up nearly 60% on a year over year basis.
We won wind and solar projects and multiple locations this past quarter, including wind and solar farms and Texas. The number 1 ranked state for operating wind and solar and energy storage capacity and the country.
A 200 megawatt utility scale wind farm and northwest, Iowa, The first day to generate more than 30% of its total electricity from wind and 145 megawatt utility scale wind farm and Colorado.
State, which is committed to achieving 100% clean energy generation by 2040.
Wind Repowering projects are also gaining traction and the U S ranks fourth among the top 20 wind repowering markets by capacity with the Repowering market expected to reach 25 billion annually by 2030.
<unk> is uniquely positioned to act on this opportunity.
During the second quarter, we were awarded a $70 million balance of plant power contract Repower and the 240 megawatt Big Sky Wind farm and Illinois.
By the end of the construction and July 2022. This project is expected to increase big Sky annual energy output by over 60%.
<unk> like Big Sky and highlight the long term opportunity and the wind market.
Stalled infrastructure ages, and new technologies improve efficiencies.
Not only is our backlog and an all time high it is comprised of a much more balanced mix of business than it's ever had in the past as we book more strong wins and transportation and environmental remediation and this past quarter. For example, I E 1 and $126 million contract from the Illinois Department of transportation.
And to reconstruct the high 57, and <unk> 74 interchange and Champaign, Illinois.
This includes the building of 12, new ramps and bridges.
Work on this project began in July.
Although not funded by money from the federal infrastructure Bill. This project provides an example of what a typical federally funded project could be and the future.
The American Act calls for 343 billion invested and roads bridges and safety with 32 billion, specifically set aside for bridge repairs.
This project shows that IEA couldn't be a player and that market.
Renewables has propelled our growth over the past several years and I believe that we are now on the cusp of a similar opportunity and the coal ash remediation business.
Coal ash is generated by the burning of coal power plants and it contains contaminants such as Cabot him Mercury and arsenic.
And without proper management. These contaminants can pollute waterways groundwater drinking water and even the air.
Large spills near Kingston, Tennessee, and Eden, North Carolina caused widespread environmental and economic damage to the nearby waterways and properties and resolve it and the federal rules that ultimately protect coal ash disposal.
These rules usually require that we build new ponds and landfills that comply with current regulations and then transport the coal ash residuals from the plant our former storage sites to the new disposal sites.
We don't do the engineering for these projects and we don't take on any of the environmental risk associated with these projects as our customers retain their liability.
Coal Ash at times has the consistency similar to that and quicksand and the job requires a significant amount of equipment and expertise, thus requiring and emphasis on safe operations and a company of scale.
We work, mostly under master services agreements that enable us to be paid on a per ton basis, or a time and materials basis further reducing risk and making these projects attractive from a margin perspective.
The coal Ash removal agreement, we recently announced with a large utility underscores the opportunity in this marketplace.
It's a multi year opportunity and it starts at a slow pace and the first 2 years and then we will continue for over 10 years.
Before speaking further about the growth trajectory of our end markets I'll turn the call over to our CFO Pete <unk> to highlight the second quarter's financial results and speak to our 2021 guidance and of course address our recent capital structure transactions Pete.
Thanks, J P and good morning to everyone.
Since we filed our second quarter form 10-Q and earnings release, almost 2 weeks ago I will mention only a few highlights.
As J P mentioned, our second quarter results were strong revenues of $560.1 million were a new record for our company and more than doubled sequentially.
Gross margins totaled $9.5 per cent for the second quarter and did decline from 11, 3% and the year ago period. There are 2 primary reasons for the decline, which we believe to be temporary.
The first is a result of the pandemic, which delayed the start of new work this year as evidenced by the first quarter's low revenue.
At the outset of any project, we established specific contingencies, which are treated as expected cost as we calculated revenues using the percentage of completion rules as we complete the project, we can usually derisk the project and reduced its contingency resulting in margin improvement.
And most quarters, we have projects at various stages of completion and this contingency effect is not pronounced however.
However, and the second quarter, we had an unusually high number of projects still in their early stages as.
As these projects move toward completion throughout the rest of this year, we expect to return to more normal margins.
The second reason for the reduced margin in Q2 was the need to prepare for the third and fourth quarters of this year, we will be running in full force, we added 2000 employees and the second quarter.
As we onboard and provide training and Q2 and the new hires are not yet actively working on projects. However, they are now working which will help margins and the third and fourth quarters.
Fourth quarter SG&A expenses were 5.5 percentage of revenue compared to 5.8 percentage of revenue and the prior period. Our full year expectation is that SG&A expenses will be similar to last year's mid 6% of revenue range.
And some other financial highlights.
And the second quarter, our cash used in operations total of $11.4 million compared to $64.6 million and the same period a year ago, we expect to generate positive cash flow and the second half of the year inter.
Interest expense for the quarter totaled 14, and a half million dollars down from $16.2 million and the second quarter of 2020, primarily as a result of lower effective interest rates and our term loans, partially offset by an increased dividend rate on our series B preferred stock from 12% to 13.5%.
Adjusted EBITDA for the quarter totaled $35.7 million or 6.4% of revenues as compared to $39.3 million or 8.2% of revenues and the second quarter of 2020, the expected margin improvements that I discussed earlier will also improve our adjusted EBITDA margin.
And the second half of the year.
Capital expenditures for the second quarter totaled $18.2 million of which $7.9 million was financed through leases. We continue to expect that capital expenditures for the year will be approximately 2% of our revenue for 2021.
Lastly, turning into backlog, we had and $86 million per our backlog and the <unk>.
Second quarter, which as J P mentioned resulted in record backlog of $2.8 billion.
This amount includes only 3 years of the coal Ash pond track J P spoke to earlier.
We expect to recognize $1.8 billion of our total backlog amount and the next 12 months.
I a remains on track to meet our full year guidance and we are reaffirming our revenue and adjusted EBITDA guidance ranges.
We continue to expect revenue and a range of 1.8 to $1.95 billion and adjusted EBITDA and the range of 130 million to $140 million for the full year 2021.
That implies a very strong third and fourth quarter with favorable comps to 2020.
From a financial perspective.
The 3 months of the quarter were on target and relatively calm.
The past 3 to 4 weeks not so much we have begun a series of transactions that will significantly improve our capital structure and make it more transparent and understandable.
Much of the transaction information can be found and the prospectus supplement that we filed on July 28, and we will post more detailed information after the closings on our website and in an 8-K and the near future.
First we launched an equity offering that price on July 28, and closed on August 2nd and.
We sold $18.3 million new shares at $11 per share for net proceeds of $196.3 million Ares purchased almost 60% of this offering.
$10.9 million shares or pre funded warrants.
Demand for the non and Aerie shares.
For about twice the number available.
And we completed the offering.
And at only a $5.7 discount from the previous day closing price.
Second we price the $300 million high yield bond offering last Friday, the transaction will close on August 17.
The 6 and 5 eighths percent senior notes will be due on August 15th 2029 and.
And 8 year tenor.
The notes priced at 98, 485%.
These notes will require semiannual interest only payments until their due date.
We're very pleased with the results as this offering was our initial high yield bond issuance.
And that both Moody's and S&P upgraded our ratings and the past 2 weeks were obvious positives.
Third we are and the final negotiations for an expanded revolver credit agreement with 4 banks, we're expecting to receive a $150 million revolver, which is double the amount of our current revolver.
The revolver is expected to close on August 18th.
Fourth Aries the owner of our series a and series B preferred shares has agreed to convert all of their series a preferred to common stock as allowed and the series a agreements.
They have also agreed to convert their series B any warrants to common stock.
We will use the proceeds from the equity offering and the high yield notes to redeem our current secured bank notes and redeem all of the series B preferred shares.
When we are done with the transaction, we will have a balance sheet with capital leases and equipment debt of approximately $57 million $300 million of unsecured high yield notes and no preferred debt or equity.
We will have approximately 52 million common shares or share equivalents outstanding.
So why do these transactions and why do them now.
The benefits are readily apparent.
We are extending the average maturity of our debt from 3 and a half years to around 8 years, which is very important for our charities.
We paid approximately $41 million of cash interest last year and expect a reduction from these transactions of at least $20 million per annual cash interest payments.
Our interest payments should also be tax deductible. Unlike the previous series B dividend payments, which were not.
That we are able to make these improvements to our balance sheet is due to the efforts of Ares and a special committee of our board of directors areas has agreed to a series of governance rights, including 2 of 9 or 10 directors and a voting interest of around 32%.
We expect that their economic interest will be approximately 38% of our total ownership.
Aries is converting a senior security, which paid at least 12% and cash dividends per year and the common shares.
We believe this is a very strong vote of confidence.
For our company.
Finally, the transactions will also allow us to grow faster as our new revolver will give us the capacity to conduct accretive tuck in acquisitions that make strategic sense.
With attractively priced capital.
Before turning the call back to him J P and I want to acknowledge the many contributors to these transactions, especially with the help of air and Roth, Our New General Counsel and the members of my finance team.
With our revised capital structure and record revenues and backlog.
He is ready for our next phase of growth.
J P and back to you.
Thank you Pete and it's.
Certainly been a whirlwind.
That said the overarching theme for our Aida business right now is the growing demand I've been a part of this IEA family for more than 2 decades, and I've never seen this much momentum across all of our businesses at the very same time.
We are the largest publicly traded wind and solar EPC company, and the United States and our environmental business. We believe that the recent contract wins and makes US a top provider of remediation services for coal combustion residuals and and.
And our specialty civil business, we are a top 20 player and rail and highway construction our market position and these end markets hasn't made only strengthening over time.
Wind and solar are the preferred source of new energy generation and the United States, We do not see our wind or solar business slowing down any time soon according to the U S government wind and solar are now the lowest cost forms of new power generation and the country.
Over the past 3 years alone almost 2 thirds of all new <unk>.
Power generation and the country has been from renewables.
The EPC services, we provide account for between 28 and 32% on average other utility scale wind and solar project.
That means IEA is 1 of the largest recipient of the billions of dollars that we will continue to be invested and new renewable energy generation.
As virtually all owners procure the wind turbines and solar panel for their projects, we do not have any technological risk or significant capex and the project while directly benefiting from the underlying growth of this renewables industry.
In June the IRS expanded the continuity safe Harbor, which means the current wind and solar tax credits will likely apply to most projects through 2025.
That means that some more marginal projects may now become viable.
Our newly formed <unk> services group, which performs maintenance work has also seen increased opportunities currently wind farm owners and the United States spend approximately $2.6 billion on maintenance services annually with most of that money currently go into the turbine manufacturers and.
The manufacturers changed their focus to increase their turbine capacity, we see an opportunity for IEA to become a credible independent player.
Beyond renewables as I noted earlier, we are seeing strong growth drivers for our specialty civil segment, our environmental business is expected to be a major growth engine per IEA as large coal ash remediation projects are awarded to meet the federal regulatory deadlines.
What's exciting about the coal ash opportunity is that its and its early stages IEA has the capabilities and credentials to win these large multi year contracts. There are over 700 sites across the United States with over 2 billion metric tons of coal ash that must be remediated and disposed of properly.
Less than 15% of existing impoundments and landfills have been remediated to date.
Using data publicly available from Duke energy, we believe the remediation opportunity for these sites across the country. It could be as much as 50 to over $150 billion, depending on the price per ton of coal ash removed over the next 10 to 15 years.
Major and regulations in this area did not come into effect until 2018.
So in other words theres going to be a lot of work and the coming years.
Our transportation business, which was previously constrained because of COVID-19, and federal and state budget constraints is starting to improve with the expected increase in federal government spending on infrastructure. We believe that business is going to grow IEA is recognized as among the leaders and both freight and passenger rail.
<unk>.
We also have a terrific franchise and bridge and highway construction and some of the populous states across the United States.
The federal infrastructure Bill is expected to result, and a 50% increase from federal spending for highway and rail infrastructure.
As a top 20 contractor and both areas, we expect to be a major beneficiary of this increase in spending.
And we await final action and the Senate on and infrastructure Bill and anticipate there will be follow on legislation to address de carbonization and this country.
As best as we can tell at this time the legislation we will provide additional impetus to all of our business lines.
<unk> future is bright and we now have the right capital structure to push our growth higher with improved liquidity and reduce debt. We can continue to vest and our organic growth, while also making strategic bolt on acquisitions that accelerate our growth and each of our end markets.
Thank you again for joining us this morning for our second quarter call. Operator would you. Please open up the call to questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star 1 on your telephone keypad, a confirmation and tunnel and CAGR and lines and the question queue. You May Press Star 2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Brett Feldman with D. A Davidson. Please proceed with your question.
Hey, Thank you and good morning, J P P.
Hey, Brent.
I guess I want to start on the coal ash remediation opportunities pretty unique pretty interesting and obviously picked up here.
And the quarter can you just talk about you gave some sort of higher level numbers, there J P. But talk about where you think that business can go and then the next few years what are the potential is there are contributions we can think about.
Some of these new contracts.
You know come to light and obviously you guys would be a participant there I just wanted to get some more color there.
Well I think certainly this is a market that we've been looking.
He'd been looking at since our acquisitions of 2018.
And when do the market was coming I think the announcement of the contract we announced.
East Coast here recently is certainly indicative of a market that we knew was coming.
And we've taken some and we think it is certainly a major growth driver you use the analogy and other leg of the another leg of the stool.
You know when you have a $50 billion.
Plus addressable market out there and.
Truly a competitive mill.
Mix of.
Of competitors out there does is limited.
At least limited from a from a from a scale perspective.
We think theres, a theres a tremendous opportunity for us ahead, and particularly as.
As we alluded to here and our remarks.
Certainly probably an area that kind of tends to some consolidation over time so.
And we've been working over time to position ourselves as a leader in this industry and expect to maintain that leadership.
Physician for quite some time.
Okay, and then and the 10-Q and actually Pete I think you touched on it you said you expect it to work to around $1.8 billion and the backlog over the next.
And the next 12 months I guess is the vast majority of that coming here and the second half of the year just wondering.
And do you need to book a lot more shorter term work to hit the revenue guidance.
And here, it's implied in the second half.
No not at all we will hit that and we expect to hit the revenue guidance.
And if anything we expect them to be towards the top end of that.
Traditionally the first and second quarters tend to be a little bit lower so first quarter next year second quarter next year may be slightly lower than the run rate we're on now.
And as fast as we can and the only thing that we can.
And really impact us as you know we are strange weather the clients not delivering that.
Turbines or solar rays, when theyre supposed to.
Those are about the things that we.
And that keeps us up at night and the rest of the way we expect to see some very solid numbers second half of the year.
Yes and.
And then the wind maintenance business I know, it's still early on but maybe could you talk about the contribution to date, the traction you're seeing with customers and that new offering.
And there is any sort of targets, you're looking to get the business to either this year over the next couple of years.
We haven't been out with any kind of guidance on that particular business unit, what I, what I can say Brent as it is.
And is taking up it is taking off and scaling that are at or kind of.
While we anticipated internally.
I think we're well in excess of 100 technicians today and in that business 1 so I.
I would say certainly, it's it's meeting or even exceeding our expectations and.
Given the.
For runway in that market.
We expect that its materiality in the segment will grow over time, but we are.
Does not we're not we're not out there yet where we wanted to and putting specific numbers around it.
Okay. Just last 1 the repowering contract J P talked about $70 million I tended to think of this sort of repowering opportunities and.
Smaller and would you would you call that unusually large for debt for that type of work or is that kind of stuff.
And youre seeing out there.
And could you say it 1 more time I'm sorry, it is a very power and God knows.
Power and the $70 million contract and just wondering if that's unusually large and consistent with the sorts of opportunities.
Quick question is probably on the larger and the scale but.
I think it's also indicative of a big Big Sky is actually a project that we constructed in 2009.
So as.
As projects.
And get more into that 10 year lifespan, which they would be getting bigger because 10 years ago, the wind industry with scaling perhaps perhaps they will will get larger but I would say so far that's been on the bigger and of the landscape and we've seen from Repowering.
Okay. Thank you pass it on.
Our next question comes from the line of Adam Thalheimer with Thompson Davis. Please proceed with your question.
Hey, good morning, guys. Congrats on all the transactions and good.
Okay.
Okay.
Just kind of wanted to carry on their on the Repower opportunity J P. What's the total.
Market like are you bidding a lot of those jobs right now.
I would say the market is still pretty well dominated by Newbuild Adam.
I think 1 thing that in the near term could.
Could cause that to grow as the recent IRS guidance.
Or extend the <unk> guidance on the save the Continental Safe Harbor for the production tax credit and so I could see some.
Projects kind of come in and 2022 and 2023, just because of that extension and the continuity safe Harbor, but I'd still say you know.
The market is.
By far dominated by new build and I think <unk> like ourselves use that is liberalization of resources and kind of put these repowering projects and and and gaps of our schedule and.
I don't look at that really to change too much and the near future.
Okay, and then on the core wind and solar business can you give us some insight into.
The discussions youre, having with clients and potential clients today in light of logistics issues and materials costs.
Yeah.
Certainly probably debt that has been more in the solar and solar industry given the content.
Of steel.
That has probably been.
Where we've seen most of the de escalation and.
Yes, I mean, our.
We have not seen it.
Really stop or delay any near term projects here.
Certainly our customers are.
Not happy about the.
The current markets.
Particularly in the steel market.
But projects are proceeding and we've been able to pass those.
Excuse me those escalations along I know.
As far as projects that are more and later 'twenty, 2 and into 2020.3.
They are looking that.
Customers are looking at delaying orders as much as they can for steel products because.
Steel is currently predicted to kind of tail off and in Q4, but.
But we will see the theme is we havent. There is just the way our contracts are structured and how they come to market. We have we have minimal risk for that and.
And the common practices to pass those escalations alone.
Okay, Perfect and then last 1 from me what's the.
Theoretical capacity of the environmental segments like what could the revenue be.
If you look a couple of years out.
Well.
Well.
If you look at IEA today, I think I think what we've said in the past is we'd like to get our.
Solar EPC revenues similar to our wind EPC revenue. So I think that is certainly achievable.
And the somewhat near term.
And we haven't committed to a timeframe for that but I think thats.
And certainly achievable certainly and the.
The market is there.
We are.
But I think I think similar solar market similar to our wind market as we have now.
When markets basically $1 billion run rate business. So.
You can do the math, but.
We think.
Certainly the business and.
And the not too distant future to be could be at that $1 billion run rate and each kind of.
And each of those solar and wind.
Newbuild loans.
And then what.
And then I was thinking on the I mean, that's good to hear but I was thinking on the environmental side Yeah Yeah.
Well.
Yes, pizza and here, it's only come out of environmental guests.
Yes, I did not know that on a $1 billion, each and solar and wind and that's good to hear.
Yeah, well the market the market's out there and we're growing our market share so.
But in.
And as it relates to coal Ash I think we want to be careful about paper in the near term and expectations, but you know.
I think the key is we would we would the key drivers that we would point out there is it certainly when you book and at a $50 billion to $150 billion market you can probably.
The service providers at scale in the country almost on 1 hand.
And I think you could certainly look at IAA has positioned.
Themselves.
The top provider with the recent wind.
So we think it's a big opportunity.
I think we want a temporary expectations about putting any numbers out at this time on that.
But when you have $50 billion to $150 billion addressable market over the next 10 or 15 years and.
Theres a handful of players I think we're I think we're in.
I think it's a great growth area of the business.
Sounds good thanks, guys.
Thank you.
And as a reminder, it is star 1 to ask a question. Our next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.
Hi, guys.
Yes, good morning, I guess.
Good morning, and again, congrats and all the progress on the balance sheet.
Thank you.
Sure. So the first the first question I wanted to ask it's kind of been touched on by some of the other questions but.
And 1 of the things that I think I still encounter when I speak with investors is a concern that when it might start to tail off given some of that tax credits currently rolling rolling off.
<unk> and.
And then let's see that solar might upset that but your comments just to add I mean I suggested that maybe you at least think when can hold steady.
And just delve into that a bit and kind of talk about your expectations on that on the longer term outlook from inside of the business. Thanks, Yeah, Great question, and Pete and I get a lot of these questions from investors or our other stakeholders and the business and.
And we knowledge.
And that there's certain analysts and others.
Net seem to predict a downturn and the win with industry and the near term.
And quite frankly, you know honestly, we just don't see it.
And a.
A few reasons behind that number.
And number 1 our best Barometer is.
And what our customers are telling us and.
I think we maybe talked about this on the last last few quarterly calls, but you know what I always draw people to I think and it's 1 of the best Barometers and the industries go Gopro Nextera is last few quarterly.
Quarterly calls and see what kind of statements that we're making there.
And theyre, great barometer for the industry.
Market share is the largest.
Player, both development and asset owner of renewables and the country I think the market shares and the high Twenty's if not low <unk>.
So they're a great benchmark and I think what youre going to find is unequivocally they they've kind of.
Said that they're going to double down on wind and solar.
And their spin between 2022 and 2025.
I can tell you from our mix of clients we're hearing.
Similar we're hearing similar mill.
And they'll have a fairway statements. So certainly clients are.
Their pipeline that they share with us I think I think youre certainly are well aware of the competitive landscape.
Wind and solar EPC and.
Given the fact that it is a limited landscape we are very close to our clients, we're almost embedded with our clients and understand what the.
And what projects and what their pipeline is from the next 2 to 3 years.
<unk>.
Not to beat a dead horse, but that is certainly what gives us an extreme amount of confidence.
Bean and.
And having that inside knowledge to what our Capex spend is our clients and then you then you kind of look at the other.
Drivers and the industry, you mentioned that the tail off and the tax credits well when you actually look at the extensions that have happened and the last few years and Congress along with Alaska.
Covid relief legislation in December of last year, and then the and you revise IRS guidance that came out of just a handful of weeks ago and June that.
Essentially also extended the continuity safe harbor provisions as well as lessened and the standard.
And the continuity safe Harbor.
You can get real confident that the existing legislation.
Going to be a driver.
2025 and.
Absent anything Thats kind of happened and then with this reconciliation bill or any of the other bipartisan infrastructure Bill Inc.
Congress so.
And then you know.
Also we've got state Rps is.
Out there I know we've talked about before and then and then lastly, just a tremendous continuing the appetite of the corporate and industrial demand.
The Facebooks and Amazons, the general Motors Mcdonalds and what have you that is buying almost half and renewable energy that was produced this year and we don't and that's I think a continuing development of the ESG.
Phenomenon so.
And we look at that.
And we feel very confident going forward.
The continued.
Viability of wind going forward.
Great. Thank you and that's really.
And really helpful.
And the next I'm not sure that you will go into this much detail but.
I was wondering if just given.
The gross margin and specialty civil and the quarter. If you could just kind of revisit that.
1 how youre thinking about gross margins.
For the year potentially for each division and then if you could kind of talk about your longer term targets from a gross margin perspective.
Well I can certainly do the first part of it and Noel.
And we expect to get back to very similar margins as last year and both segments were impacted.
By Covid and the fact that the rail projects.
Lower volume and lower margin as we look to the rest of the year, We think we'll get reasonably close on the specialty civil and we should do similar as we did last year.
And the renewables certainly to get to the overall adjusted EBITDA adjust.
Adjusted EBITDA number that we are guiding to we're going to have to improve margins over where they were and second quarter.
Okay, perfect and then and longer term basis.
And that's harder.
As we see sit here right now.
And would expect that the margins will continue and the 11% to 14% on renewables.
And then we we've said specialty civil is going to be and the high single digits.
Very low tens.
And with hopefully the coal ash towards the top end of that.
The rail kind of in the middle and tier.
We were kind of towards the bottom end of that range.
Right Okay.
And then lastly, this is Barry.
A detailed question but.
And just given all of the changes.
With that share is coming in and and and the conversion and et cetera.
And I was wondering if you have an estimate for where you think the share based on what kind of work out for the third and fourth quarter I'm sure. We've all done our own math, but.
And just maybe trying to get everyone on the same page.
Oh goodness.
I wanted to say that we're going to be and the 52 to 54 million share range.
And I get there by doing $25 million, where we are currently.
And then if you add to that.
The $6 million at Ares is converted add to that the $18.3 that we just did.
And 2 points.
Or so of series a conversion.
And then anywhere from 1 to 2 just on <unk>.
And.
There are issues et cetera, outstanding and hopefully and I wasn't adding at the kitchen, and the $52 million to $54 million range.
Okay.
Thank you.
Thanks Noel.
And there are no further questions and the queue I would like to hand, the call back over to J P. <unk> for closing remarks.
Well. Thank you operator, and thank you for everyone that has joined US today on our Q2.2021 call.
Stay healthy stay safe and we look forward to reporting our Q3 results in early November and so we'll see you. All then thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.