Infrastructure and Energy Alternatives, Inc.

Good morning, and welcome to Infrastructure and Energy Alternatives' first quarter 2022 earnings call. I'd like to note that all participants on today's call are in a listen-only mode. And with that, I'll turn the call over to Aaron Reddington, Vice President of Investor Relations. Aaron, please go ahead.

Hello, and thank you for joining us today to discuss IEA's first quarter 2022 financial results. With us from management are J.P. Rehm, President and Chief Executive Officer, and Pete Morbek, 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 in yesterday's press release and the risk factors included in the company's SEC filings. Except as required by law, IEA undertakes no obligation to update its forward-looking statements after today's call. Management will be presenting some non-GAAP financial measures as references, including adjusted EBITDA, and GAAP financial reconciliations can be found in the press release issued on May 9, 2022. And with that, I'll turn the call over to J.P. Rehm, Chief Executive Officer. Please go ahead, J.P.

Thanks, Aaron, and welcome to everyone joining this morning's call. Today, I will provide a brief overview of four subjects, our performance in the first quarter, recent solar market developments, commentary on key in-market trends, and an update on our strategic priorities. I will then turn it over to Pete for a more detailed financial review of the quarter. First, let me start with first quarter performance. Market conditions within our core renewable and environmental businesses remain robust, and we continued our recent trend of strong organic growth, as record first quarter revenues were up over 30% versus the prior year, with strong double-digit growth in both our renewables and specialty civil segments. Aided by the favorable market conditions, our leading market position and our experienced skilled labor force new business award activity remained strong, enabling us to finish the first quarter with record total backlog. Further, we're beginning to see an improved bidding climate across our rail business. We're very encouraged by the growth outlook for our businesses. While revenue and backlog both impressed during the first quarter, we experienced inflationary and supply chain headwinds in recent months that we expect to continue and that will impact our margin realization this year. Many of the larger components used in our renewable projects, such as solar panels and turbine blades, are procured by our customers, meaning we take no price risk with these items. However, there are other components, such as cables and wires, that we are responsible for procuring. And in almost all contracts, we are responsible for fuel and concrete purchases. During the first quarter, the price volatility on many of these materials, especially higher fuel costs and continued supply chain challenges, resulted in compressing the forecast project margins that will be realized over the year as our projects progress towards completion. Importantly, these issues were from events largely outside of our control, and they were not a function of problem contracts or execution issues. We are attempting to mitigate these headwinds through project bidding measures, negotiations with suppliers, additional project contingencies, and other efficiency improvements. We believe these measures will help position us to achieve improved profitability for the balance of the year. Entering 2022, we recognize the potential for near-term margin headwinds and consider these factors in our full year 2022 financial guidance. Based on our strong backlog, we are updating our full-year 2022 financial guidance by increasing our revenue guidance to a range of $2.3 to $2.5 billion, while maintaining our adjusted EBITDA guidance. This change reflects the reality of the current cost headwinds impacting our business, while we anticipate can be offset with higher revenues. Now, turning to an overview of recent solar market developments. In recent months, many companies across the solar industry have voiced concerns both as to the rising cost and the availability of panels and modules. These concerns stem from a recently announced U.S. Department of Commerce investigation of solar panels imported from Chinese companies in Cambodia, Malaysia, Thailand, and Vietnam. Allegedly, solar panels and modules from these countries are circumventing anti-dumping duty orders on solar cells and modules from China. The preliminary findings of the investigation are expected in August, but a final decision from the department may not occur until the middle of next year. The department's conclusion could result in retroactive duties back to November of 2021. This investigation combined with the already challenging supply chain situation has resulted in significant uncertainty in the solar industry. The domestic panel market is not equipped to meet current industry demand, resulting in uncertainty around panel pricing and availability of products. This could potentially lead to cost increases and project pushouts and delays for the industry. We believe that our current year solar projects fall into three categories with respect to how the Department of Commerce investigation will impact them. First, we have customers who source their panels from U.S.-based manufacturers. While there may be some minor delays for these customers, we anticipate no material risk to the project schedules. The second group of customers have asked us to proceed with the civil and mechanical work as they await further information on the delivery of their panels. If panels are not available on time, they will have us demobilize the projects and we will get paid to remobilize when the panels arrive. And, the final grouping of customers are currently not expecting any panel-related delays and are moving forward with their projects as previously scheduled. Obviously, there is a fourth grouping as some current and potential projects may be delayed, but we will leave any outlook until 2023 solar opportunities until later this year. During the first quarter, we rearranged the start dates of some projects based on the owner's availability of solar panels. Fortunately, at this time, we have ample backlog so that we still have remaining solar projects to fill in any gaps in project cadence and to support full utilization of our teams. My third subject area is an overview of our in-market trends. We believe that the key long-term trends that are driving our businesses remain very favorable. Within the renewables industry, there is an estimated to be nearly 200 gigawatts of legacy power generation capacity set to be retired in the coming decades. And together with the increasing competitive levelized cost of wind and solar when compared to carbon-based energy sources, renewables are likely to be the key beneficiary. The mix of U.S. power generating capacity coming from renewables is set to double by 2050 as over 500 gigawatts of renewables capacity is projected to be added in the United States over the next 25 to 30 years. Within our heavy civil segment, we expect that once the rules are ironed out, we will be a beneficiary of the $1.2 trillion federal infrastructure bill passed last year. While not yet a direct result of the infrastructure bill, we have started to see a pickup in bidding activity in our heavy civil markets. We still expect it will take some time for funds to start to flow, particularly as states and municipalities seek to adjust bidding levels to reflect the recent raw materials cost inflation. Unfortunately, we have been a low bidder on several recent public awards, but our bid far exceeded the engineer's estimate, and as a result, no contract was awarded. We anticipate these public awards will come back to the market again with updated cost estimates and more closely aligned with market prices. We remain encouraged by the pickup and heavy civil bidding activity near term, and expect a strong multi-year period of elevated infrastructure spending as stimulus funds find their way into new projects of scale. We also expect the rail business to benefit from the Federal Infrastructure Bill as the stimulus package included funding for Class I railroads and public transit rail. Over the past two years, the rail industry has seen depressed capital spending due to COVID. But with the recent improvements to industry profitability, capital spending appears set to improve with several public railroads discussing favorable spending forecasts on their recent earnings goals. We've seen a pickup in our discussions with customers in recent weeks and are optimistic that we'll see improved trends in our rail business. Lastly, we remain very excited about the opportunities within our environmental remediation business. We believe we are in the early innings of a significant capital spending cycle for coal ash remediation, which we estimate could be a $50 to $150 billion opportunity over the coming decades. In January, the EPA announced a hardline stance on coal ash remediation, which will benefit industry spending over time. Although it may cause a temporary pause while utility companies analyze the new communications, from the EPA. Nevertheless, the long-term opportunity is significant, and IEA is one of a small handful of players with the environmental remediation project experience, skilled workforce, and track record to take advantage of this market. Moving on to backlog and new project awards. Given the favorable in-market trends I just discussed, we were able to maintain a strong new awards momentum and reported another quarter of record backlog. This record backlog comes despite record first quarter revenues. At the end of the first quarter, we reported total backlog of 2.9 billion, up 10% from the same period last year. Our next 12-month backlog, which gives us a good visibility into continued organic revenue growth, was $2.1 billion at the end of the first quarter, and that's up 13% year over year. I want to highlight three solar projects that we were awarded in the quarter. First, we signed a contract with Engie North America for the construction of the Palace Creek Solar Farm. That's a 70 megawatt project on approximately 500 acres in Halifax County, Virginia. Construction of the PV facility commenced in January of 2022 and has a targeted completion of December of 2022, with a total contract value of $66 million. A second project with Engie is Sunnybrook Solar. That's a 51 megawatt solar project in Scottsburg County, Virginia. Construction of the $43 million project also began in January of 2022 and also has a targeted completion. of December 2022. IEA continued our strong relationship with Silicon Ranch when we were awarded a contract to construct the Cedar Springs Solar Ranch in Early County, Georgia. Construction on the 70 megawatt solar project began in the first quarter of 2022, and the facility is expected to be online by the end of 2022. More than 215,000 first solar series six modules will be installed across the 1,400-acre site in rural southwest Georgia. Before I turn it over to Pete, let me briefly reiterate our key 2022 strategic priorities. These priorities provide a clear roadmap for long-term value creation and are a way for the investment community to measure our progress. First, We want to develop leading market positions within our key markets. We intend to accomplish this by leveraging our technical expertise, geographic reach, and scale across our key business lines to drive continued backlog growth and market share gains throughout both organic and acquisitive growth. Over the last 12 months, our revenue growth was 29% and 42% in the renewable segment versus the prior 12-month period. Secondly, we intend to capitalize on the favorable long-term fundamentals within renewables. In 2021, approximately 70% of IEA's revenue was derived from wind and solar-related EPC services. Onshore wind installations are anticipated to accelerate over the next decade with 110 gigawatts of new installed capacity expected to be online by 2030. We strive to be the builder of choice for a great part of that opportunity. Third, we will maintain bidding discipline and look to drive economies of scale to support margin expansion. Given the ongoing inflationary and supply chain challenges, it's critically important that we limit contract risk as much as possible. We have built long-term relationships with many of our renewables customers and working with trusted, experienced partners is a key element to a successful and profitable project for all parties involved. Fourth, we will work to continue to further simplify our capital structure while maintaining sufficient liquidity to support our growth. Our program to repurchase up to $25 million of outstanding warrants has been extremely successful. We have purchased nearly 65% of the outstanding warrants. Exiting the first quarter, we have more than 160 million in available cash and availability on our credit facilities to further support our growth initiatives. Finally, we will pursue a disciplined capital allocation strategy. We will continue to invest in organic growth initiatives by expanding product and services offerings to better serve customers further developing industry-leading technical expertise, and growing our skilled labor workforce. In addition, IEA intends to pursue complementary, bolt-on acquisitions that increase our service capabilities in adjacent markets and expand our geographic presence and enhance our margin profile. We're committed to our strategic plan and are confident that as we execute against our goals, we will generate attractive returns and create value for all our stakeholders. And with that, I will turn the call over to Pete.