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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☑    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2020

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-37796

Infrastructure & Energy Alternatives, Inc.
(Exact Name of Registrant as Specified in Charter)
 
Delaware     47-4787177
(State or Other Jurisdiction
of Incorporation) 		    (IRS Employer
Identification No.)
 
6325 Digital Way
Suite 460
Indianapolis, Indiana
  46278
(Address of Principal Executive Offices)   (Zip Code)
 
Registrant’s telephone number, including area code: (765) 828-2580

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbols(s) Name of exchange on which registered
Common Stock, $0.0001 par value IEA The NASDAQ Stock Market LLC
Warrants for Common Stock IEAWW The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No

Number of shares of Common Stock outstanding as of the close of business on November 9, 2020: 22,789,262.





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Balance Sheets
($ in thousands, except per share data)
(Unaudited)
September 30, 2020 December 31, 2019
Assets
Current assets:
Cash and cash equivalents $ 57,298  $ 147,259 
Accounts receivable, net 186,302  203,645 
Contract assets 216,513  179,303 
Prepaid expenses and other current assets 20,298  16,855 
        Total current assets 480,411  547,062 
Property, plant and equipment, net 131,558  140,488 
Operating lease assets 38,460  43,431 
Intangible assets, net 27,280  37,272 
Goodwill 37,373  37,373 
Company-owned life insurance 3,905  4,752 
Deferred income taxes 3,178  12,992 
Other assets 278  1,551 
        Total assets $ 722,443  $ 824,921 
Liabilities and Stockholder's Equity (Deficit)
Current liabilities:
Accounts payable $ 117,320  $ 177,783 
Accrued liabilities 156,467  158,103 
Contract liabilities 73,999  115,634 
Current portion of finance lease obligations 23,766  23,183 
Current portion of operating lease obligations 9,110  9,628 
Current portion of long-term debt 2,661  1,946 
          Total current liabilities 383,323  486,277 
Finance lease obligations, less current portion 33,205  41,055 
Operating lease obligations, less current portion 30,896  34,572 
Long-term debt, less current portion 159,150  162,901 
Debt - Series B Preferred Stock 171,878  166,141 
Series B Preferred Stock - warrant obligations 8,200  17,591 
Deferred compensation 7,865  8,004 
         Total liabilities $ 794,517  $ 916,541 
Commitments and contingencies:
Series A Preferred Stock, par value, $0.0001 per share; 1,000,000 shares authorized; 17,483 shares and 17,483 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
17,483  17,483 
Stockholders' equity (deficit):
Common stock, par value, $0.0001 per share; 150,000,000 and 100,000,000 shares authorized; 20,983,584 and 20,460,533 shares issued and 20,983,584 and 20,446,811 outstanding at September 30, 2020 and December 31, 2019, respectively
2  2 
Treasury stock, 13,722 shares at cost at December 31, 2019.
—  (76)
Additional paid in capital 34,517  17,167 
Accumulated deficit (124,076) (126,196)
           Total stockholders' equity (deficit) (89,557) (109,103)
           Total liabilities and stockholders' equity (deficit) $ 722,443  $ 824,921 
See accompanying notes to condensed consolidated financial statements.
1

INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Operations
($ in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Revenue $ 522,232  $ 422,022  $ 1,360,999  $ 939,764 
Cost of revenue 463,343  369,152  1,214,828  849,728 
Gross profit 58,889  52,870  146,171  90,036 
Selling, general and administrative expenses 29,656  31,313  87,214  84,945 
Income from operations 29,233  21,557  58,957  5,091 
Other income (expense), net:
Interest expense (14,975) (13,959) (47,240) (35,822)
Other (expense) income 3,161  4,455  428  22,557 
Income (loss) before benefit for income taxes 17,419  12,053  12,145  (8,174)
(Provision) benefit for income taxes (6,153) 556  (10,025) 3,352 
Net income (loss) $ 11,266  $ 12,609  $ 2,120  $ (4,822)
Less: Convertible Preferred Stock dividends (619) (759) (1,991) (2,202)
Less: Contingent consideration fair value adjustment —  (4,247) —  (23,082)
Less: Net income allocated to participating securities (2,854) —  (35) — 
Net income (loss) available for common stockholders $ 7,793  $ 7,603  $ 94  $ (30,106)
Net income (loss) per common share - basic 0.37  0.37  —  (1.47)
Net income (loss) per common share - diluted 0.32  0.24  —  (1.47)
Weighted average shares - basic 20,968,271  20,446,811  20,748,193  20,425,801 
Weighted average shares - diluted 35,336,064  35,419,432  20,748,193  20,425,801 

See accompanying notes to condensed consolidated financial statements.

2

INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
($ in thousands)
(Unaudited)
Common Stock Additional Paid-in Capital Treasury Stock Accumulated Deficit Total Equity (Deficit)
Shares Par Value Shares Cost
Balance at December 31, 2018 22,155  2  4,751  —  —  (135,931) (131,178)
Net loss —  —  —  —  —  (23,639) (23,639)
Share-based compensation —  —  1,040  —  —  —  1,040 
Share-based payment transaction 111  —  235  (14) (76) —  159 
Merger recapitalization transaction —  —  —  —  —  2,754  2,754 
Cumulative effect from adoption of new accounting standard, net of tax —  —  —  —  —  750  750 
Series A Preferred dividends —  —  (525) —  —  —  (525)
Balance at March 31, 2019 22,266  $ 2  $ 5,501  (14) $ (76) $ (156,066) $ (150,639)
Net income —  —  —  —  —  6,208  6,208 
Share-based compensation —  —  720  —  —  —  720 
Series B Preferred Stock - Warrants at close —  —  9,422  —  —  —  9,422 
Series A Preferred dividends —  —  (918) —  —  —  (918)
Balance at June 30, 2019 22,266  $ 2  $ 14,725  (14) $ (76) $ (149,858) $ (135,207)
Net income 12,609  12,609 
Removal of Earnout Shares (See Note 1) (1,805) —  —  —  —  —  — 
Share-based compensation —  —  1,052  —  —  —  1,052 
Series B Preferred Stock - Warrants at close —  —  3,000  —  —  —  3,000 
Series A Preferred dividends —  —  (759) —  —  —  (759)
Balance at September 30, 2019 20,461  $ 2  $ 18,018  (14) $ (76) $ (137,249) $ (119,305)
Balance at December 31, 2019 20,461  $ 2  $ 17,167  (14) $ (76) $ (126,196) $ (109,103)
Net loss —  —  —  —  —  (12,743) (12,743)
Share-based compensation —  —  1,113  —  —  —  1,113 
Share-based payment transactions 240  —  280  (38) (84) —  196 
Series B Preferred Stock - Warrants at close —  —  15,631  —  —  —  15,631 
Series A Preferred dividends —  —  (766) —  —  —  (766)
Balance at March 31, 2020 20,701  $ 2  $ 33,425  (52) $ (160) $ (138,939) $ (105,672)
Net income —  —  —  —  —  3,597  3,597 
Share-based compensation —  —  844  —  —  —  844 
Share-based payment transactions 441  —  800  (129) (235) —  565 
Series A Preferred dividends —  —  (606) —  —  —  (606)
Balance at June 30, 2020 21,142  $ 2  $ 34,463  (181) $ (395) $ (135,342) $ (101,272)
Net income —  —  —  —  —  11,266  11,266 
Share-based compensation —  —  1,110  —  —  —  1,110 
Share-based payment transactions 23  —  (42) —  —  —  (42)
Retirement of treasury shares (181) —  (395) 181  395  —  — 
Series A Preferred dividends —  —  (619) —  —  —  (619)
Balance at September 30, 2020 20,984  $ 2  $ 34,517  —  $ —  $ (124,076) $ (89,557)

See accompanying notes to condensed consolidated financial statements.
3

INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
Nine Months Ended September 30,
2020 2019
Cash flows from operating activities:
Net income (loss) $ 2,120  $ (4,822)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization 36,566  36,373 
   Contingent consideration fair value adjustment —  (23,082)
   Warrant liability fair value adjustment (171) — 
   Amortization of debt discounts and issuance costs 9,343  3,765 
   Share-based compensation expense 3,067  2,812 
   Loss on sale of equipment 1,251  743 
   Deferred compensation (139) 1,494 
   Accrued dividends on Series B Preferred Stock 7,959  4,135 
   Deferred income taxes 9,814  (2,323)
   Other, net 287  — 
   Change in operating assets and liabilities:
       Accounts receivable 17,327  (19,108)
       Contract assets (37,210) (62,419)
       Prepaid expenses and other assets (3,288) (5,938)
       Accounts payable and accrued liabilities (64,089) 3,317 
       Contract liabilities (41,635) 9,580 
       Net cash used in operating activities (58,798) (55,473)
Cash flow from investing activities:
   Company-owned life insurance 847  (81)
   Purchases of property, plant and equipment (6,727) (5,599)
   Proceeds from sale of property, plant and equipment 4,151  7,266 
       Net cash (used in) provided by investing activities (1,729) 1,586 
Cash flows from financing activities:
   Proceeds from long-term debt 72,000  50,400 
   Payments on long-term debt (83,201) (121,215)
   Debt financing fees —  (14,738)
   Payments on finance lease obligations (19,301) (15,953)
   Sale-leaseback transaction —  24,343 
   Proceeds from issuance of Series B Preferred Stock 350  100,000 
   Proceeds from stock-based awards, net 718  159 
   Merger recapitalization transaction —  2,754 
       Net cash (used in) provided by financing activities (29,434) 25,750 
Net change in cash and cash equivalents (89,961) (28,137)
Cash and cash equivalents, beginning of the period 147,259  71,311 
Cash and cash equivalents, end of the period $ 57,298  $ 43,174 

See accompanying notes to condensed consolidated financial statements.
4


INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
(Continued)
Nine Months Ended September 30,
2020 2019
Supplemental disclosures:
  Cash paid for interest 30,149  28,240 
  Cash paid (received) for income taxes (955) 250 
Schedule of non-cash activities:
   Acquisition of assets/liabilities through finance lease 11,691  1,992 
   Acquisition of assets/liabilities through operating lease 6,028  — 
   Series A Preferred dividends declared 1,991  2,202 

See accompanying notes to condensed consolidated financial statements.

5

INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
Notes to the Condensed Consolidated Financial Statements
(unaudited)

Note 1. Business, Basis of Presentation and Significant Accounting Policies

Organization and Reportable Segments

    Infrastructure and Energy Alternatives, Inc., a Delaware corporation, is a holding company organized on August 4, 2015 (together with its wholly-owned subsidiaries, “IEA” or the “Company”). On March 26, 2018, we became a public company by consummating a merger (the “Merger”) pursuant to an Agreement and Plan of Merger, dated November 3, 2017, with M III Acquisition Corporation (“M III”).

    As of December 31, 2019, the Company's total annual gross revenues exceeded $1.07 billion and thus we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).

We segregate our business into two reportable segments: the Renewables segment and the Specialty Civil segment. See Note 10. Segments for a description of the reportable segments and their operations.

COVID-19 Pandemic

    During March 2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The COVID-19 pandemic has significantly affected economic conditions in the United States and internationally as national, state and local governments reacted to the public health crisis by requiring mitigation measures that have disrupted business activities for an uncertain period of time. The effects of the COVID-19 pandemic could affect the Company’s future business activities and financial results, including; new contract awards, reduced crew productivity, contract amendments/cancellations, higher operating costs and/or delayed project start dates or project shutdowns that may be requested or mandated by governmental authorities or others.

The Company believes that the COVID-19 pandemic has not had a material adverse impact on the Company’s financial results for the period ended September 30, 2020. Most of the Company’s construction services are currently deemed essential under governmental mitigation orders and all of our business segments continue to operate. The Company has issued several notices of force majeure for the purpose of recognizing delays in construction schedules due to COVID-19 outbreaks on certain of its teams and has also received notices of force majeure from the owners of certain projects and certain subcontractors. Management does not believe that any delays on projects related to these events of force majeure will have a material impact on its results of operations.

Management’s top priority has been to take appropriate actions to protect the health and safety of the Company's employees, customers and business partners, including adjusting the Company's standard operating procedures to respond to evolving health guidelines. Management believes that it is taking appropriate steps to mitigate any potential impact to the Company; however, given the uncertainty regarding the potential effects of the COVID-19 pandemic, any future impacts cannot be quantified or predicted with specificity.

Principles of Consolidation

    The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions for Quarterly Reports on Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Adjustments necessary to arrive at net income (loss) available for common stockholders, previously disclosed in Note 8. Earnings Per Share, have been added to the prior period presentation of the consolidated statements of operations to be comparable with the current period presentation.
    The unaudited condensed consolidated financial statements include the accounts of IEA and its wholly-owned domestic and foreign subsidiaries and in the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary to present fairly the results of operations for the interim periods presented. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These financial statements should be read in conjunction with the
6

Company’s audited consolidated financial statements for the year ended December 31, 2019 and notes thereto included in the Company’s 2019 Annual Report on Form 10-K.

Basis of Accounting and Use of Estimates
    
    The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Key estimates include: the recognition of revenue and project profit or loss; fair value estimates; valuations of goodwill and intangible assets; asset lives used in computing depreciation and amortization; accrued self-insured claims; other reserves and accruals; accounting for income taxes; and the estimated impact of contingencies and ongoing litigation. While management believes that its estimates are reasonable when considered in conjunction with the Company’s consolidated financial position and results of operations, actual results could differ materially from those estimates.

Revenue Recognition

    The Company adopted the requirements of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which is also referred to as Accounting Standards Codification (“ASC”) Topic 606, under the modified retrospective transition approach effective January 1, 2019, with application to all existing contracts that were not substantially completed as of January 1, 2019. The Company adopted this standard for interim periods beginning after December 31, 2019, and recorded adjustments to the previously issued quarterly financial statements for the nine months ended September 30, 2019. The impacts of adoption on the Company’s retained earnings on January 1, 2019 was primarily related to variable consideration on unapproved change orders. The cumulative impact of adopting Topic 606 required net adjustments of $750,000 to the statement of operations among revenue, cost of revenue and income taxes, thereby reducing income for the nine months ended September 30, 2019 and reducing the December 31, 2019 accumulated deficit. The Company also adjusted the September 30, 2019, statement of cash flows to reflect the impact of adoption.
    Under Topic 606, revenue is recognized when control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is recognized by the Company primarily over time utilizing the cost-to-cost measure of progress for fixed price contracts and is based on costs for time and materials and other service contracts, consistent with the Company’s previous revenue recognition practices.
Contracts
    The Company derives revenue primarily from construction projects performed under contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system. Contracts contain multiple pricing options, such as fixed price, time and materials, or unit price. Generally, renewable energy projects are performed for private customers while Specialty Civil projects are performed for various governmental entities.
    Revenue derived from projects billed on a fixed-price basis totaled 98.4% and 98.5% of consolidated revenue from operations for the three months ended September 30, 2020 and 2019, respectively, and totaled 97.6% and 94.1% for the nine months ended September 30, 2020 and 2019, respectively. Revenue and related costs for contracts billed on a time and materials basis are recognized as the services are rendered. Revenue derived from projects billed on a time and materials basis totaled 1.6% and 1.5% of consolidated revenue from operations for the three months ended September 30, 2020 and 2019, respectively, and totaled 2.4% and 5.9% for the nine months ended September 30, 2020 and 2019, respectively.

    Construction contract revenue is recognized over time using the cost-to-cost measure of progress for fixed price contracts. The cost-to-cost measure of progress best depicts the continuous transfer of control of goods or services to the customer. The contractual terms provide that the customer compensates the Company for services rendered.

    Contract costs include all direct materials, labor and subcontracted costs, as well as indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and the costs of capital equipment. The cost estimation and review process for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and profit recognition. Changes in these factors could result in revisions to revenue and costs of revenue in the period in which the revisions are determined on a prospective basis, which could materially affect the
7

Company’s results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined.
Performance Obligations
    A performance obligation is a contractual promise to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price of a contract is allocated to distinct performance obligations and recognized as revenue when or as the performance obligations are satisfied. The Company’s contracts often require significant integrated services and, even when delivering multiple distinct services, are generally accounted for as a single performance obligation. Contract amendments and change orders are generally not distinct from the existing contract due to the significant integrated service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. With the exception of certain Specialty Civil service contracts, the majority of the Company’s performance obligations are generally completed within one year.
    When more than one contract is entered into with a customer on or close to the same date, the Company evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as more than one performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts, which could change the amount of revenue and profit recognition in a given period depending upon the outcome of the evaluation.
    Remaining performance obligations represent the amount of unearned transaction prices for contracts, including approved and unapproved change orders. As of September 30, 2020, the amount of the Company’s remaining performance obligations was $886.2 million. The Company expects to recognize approximately 37.3% of its remaining performance obligations as revenue during 2020. Revenue recognized from performance obligations satisfied in previous periods was $(0.8) million and $4.1 million for the three months ended September 30, 2020 and 2019, respectively, and $(4.4) million and $8.0 million for the nine months ended September 30, 2020 and 2019, respectively.
Variable Consideration
    Transaction pricing for the Company’s contracts may include variable consideration, such as unapproved change orders, claims, incentives and liquidated damages. Management estimates variable consideration for a performance obligation utilizing estimation methods that best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Management’s estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based on legal opinions, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer and all other relevant information that is reasonably available. The effect of a change in variable consideration on the transaction price of a performance obligation is typically recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders, claims and liquidated damages reflected in transaction price are not resolved in the Company’s favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.
    As of September 30, 2020 and year ended December 31, 2019, the Company included approximately $67.1 million and $73.3 million, respectively, of unapproved change orders and/or claims in the transaction price for certain contracts that were in the process of being resolved in the normal course of business, including through negotiation, arbitration and other proceedings. These transaction price adjustments are included within Contract Assets or Contract Liabilities as appropriate. The Company actively engages with its customers to complete the final change order approval process, and generally expects these processes to be completed within one year. Amounts ultimately realized upon final acceptance by customers could be higher or lower than such estimated amounts.

8


Disaggregation of Revenue
    The following tables disaggregate revenue by customers and services performed, which the Company believes best depicts how the nature, amount, timing and uncertainty of its revenue:
(in thousands) Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Renewables Segment
   Wind $ 261,754  $ 242,586  827,442  $ 493,689 
   Solar 65,297  68  72,617  2,145 
$ 327,051  $ 242,654  $ 900,059  $ 495,834 
Specialty Civil Segment
   Heavy civil $ 119,713  $ 113,829  264,656  $ 250,114 
   Rail 52,955  40,725  132,333  121,113 
   Environmental 22,513  24,814  63,951  72,703 
$ 195,181  $ 179,368  $ 460,940  $ 443,930 
Concentrations
    The Company had the following approximate revenue and accounts receivable concentrations, net of allowances, for the periods ended:
Revenue % Revenue %
Three Months Ended Nine Months Ended Accounts Receivable %
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 September 30, 2020 December 31, 2019
Company A (Specialty Civil Segment) * * * 11.7  % * *
* Amount was not above 10% threshold

Recently Adopted Accounting Standards - Guidance Adopted in 2020

In August 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which eliminates certain disclosure requirements for recurring and non-recurring fair value measurements, such as the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements. ASU 2018-13 was effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain disclosures per ASU 2018-13 were applied on a retrospective basis and others on a prospective basis. We adopted the standard on January 1, 2020, and it did not have an impact on our disclosures for fair value measurements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which is effective for annual reporting periods beginning after December 15, 2018. Under Topic 842, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Topic 842 requires entities to adopt the new lease standard using a modified retrospective method and initially apply the related guidance at the beginning of the earliest period presented in the financial statements. 

    The Company adopted Topic 842 using the modified retrospective method as of January 1, 2019 and for interim periods beginning after December 31, 2019, without adjusting comparative periods in the financial statements. The most significant effect of the new guidance was the recognition of operating lease right-of-use assets and a liability for operating
9

leases as of December 31, 2019. The accounting for finance leases (capital leases) was substantially unchanged. The Company elected to utilize permissible practical expedients that allowed entities to: (1) not reassess whether any expired or existing contracts were or contained leases; (2) retain the existing classification of lease contracts as of the date of adoption; (3) not reassess initial direct costs for any existing leases; and (4) not separate non-lease components for all classes of leased assets.
Recently Issued Accounting Standards Not Yet Adopted
    
    In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial assets, including trade accounts receivables. The expected credit loss methodology under ASU 2016-13 is based on historical experience, current conditions and reasonable and supportable forecasts, and replaces the probable/incurred loss model for measuring and recognizing expected losses under current GAAP. The ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The ASU and its related clarifying updates are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We are still evaluating the new standard but do not expect it to have a material impact on our estimate of the allowance for uncollectable accounts.

    In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective, or prospective basis. We are currently evaluating the potential effects of adopting the provisions of ASU No. 2019-12.

Management has evaluated other recently issued accounting pronouncements and does not believe that they will have a significant impact on the financial statements and related disclosures.

Note 2. Contract Assets and Liabilities

    The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is accounted for as a contract asset. Sometimes we receive advance payments or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is accounted for as a contract liability.

    Contract assets in the Condensed Consolidated Balance Sheets represent the following:

•costs and estimated earnings in excess of billings, which arise when revenue has been recorded but the amount has not been billed; and

•retainage amounts for the portion of the contract price billed by us for work performed but held for payment by the customer as a form of security until we reach certain construction milestones or complete the project.

    Contract assets consist of the following:
(in thousands) September 30, 2020 December 31, 2019
Costs and estimated earnings in excess of billings on uncompleted contracts $ 79,801  $ 91,543 
Retainage receivable 136,712  87,760 
216,513  179,303 

10

    Contract liabilities consist of the following:
(in thousands) September 30, 2020 December 31, 2019
Billings in excess of costs and estimated earnings on uncompleted contracts $ 73,495  $ 115,570 
Loss on contracts in progress 504  64 
$ 73,999  $ 115,634 
    
The contract receivables amount as of December 31, 2019 included unapproved change orders of approximately $9.2 million for which the Company was pursuing settlement through dispute resolution. The Company agreed to settle the unapproved change order dispute in the second quarter.

    Revenue recognized for the three and nine months ended September 30, 2020, that was included in the contract liability balance at December 31, 2019 was approximately $5.8 million and $114.5 million, respectively, and revenue recognized for the three and nine months ended September 30, 2019, that was included in the contract liability balance at December 31, 2018 was approximately $3.3 million and $53.3 million, respectively.
    
    Activity in the allowance for doubtful accounts for the periods indicated is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2020 2019 2020 2019
Allowance for doubtful accounts at beginning of period $ 89  $ 102  $ 75  $ 42 
    Plus: provision for (reduction in) allowance —  30  14  90 
    Less: write-offs, net of recoveries —  (81) —  (81)
Allowance for doubtful accounts at period end $ 89  $ 51  $ 89  $ 51 

Note 3. Property, Plant and Equipment, Net

    Property, plant and equipment consisted of the following:
(in thousands) September 30, 2020 December 31, 2019
Buildings and leasehold improvements $ 3,420  $ 2,919 
Land 17,600  17,600 
Construction equipment 180,570  173,434 
Office equipment, furniture and fixtures 3,618  3,487 
Vehicles 12,921  6,087 
218,129  203,527 
Accumulated depreciation (86,571) (63,039)
    Property, plant and equipment, net $ 131,558  $ 140,488 

    Depreciation expense of property, plant and equipment was $9,282 and $9,219 for the three months ended September 30, 2020 and 2019, respectively, and was $26,575 and $26,125 for the nine months ended September 30, 2020 and 2019, respectively.



11


Note 4. Goodwill and Intangible Assets, Net

    The following table provides the changes in the carrying amount of goodwill, by segment:
(in thousands) Renewables Specialty Civil Total
January 1, 2019 $ 3,020  $ 37,237  $ 40,257 
   Acquisition adjustments —  (2,884) (2,884)
December 31, 2019 $ 3,020  $ 34,353  $ 37,373 
   Adjustments —  —  — 
September 30, 2020 $ 3,020  $ 34,353  $ 37,373 

    

Intangible assets consisted of the following as of the dates indicated:
September 30, 2020 December 31, 2019
($ in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Life Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Life
Customer relationships $ 26,500  $ (7,534) $ 18,966  5.25 years $ 26,500  $ (4,695) $ 21,805  6 years
Trade name 13,400  (5,315) 8,085  3.25 years 13,400  (3,305) 10,095  4 years
Backlog 13,900  (13,671) 229  3 months 13,900  (8,528) 5,372  1 year
$ 53,800  $ (26,520) $ 27,280  $ 53,800  $ (16,528) $ 37,272 
    
Amortization expense associated with intangible assets for the three months ended September 30, 2020 and 2019, totaled $3.3 million and $3.4 million, respectively, and $10.0 million and $10.3 million for the nine months ended September 30, 2020 and 2019, respectively.

    The following table provides the annual intangible amortization expense currently expected to be recognized for the years 2020 through 2024:
(in thousands) Remainder of 2020 2021 2022 2023 2024
Amortization expense $ 1,846  $ 6,466  $ 6,466  $ 5,841  $ 3,785 

Note 5. Fair Value of Financial Instruments

    The Company applies ASC Topic 820, Fair Value Measurement, which establishes a framework for measuring fair value. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

    The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:

Level 1 — Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities listed on active market exchanges.
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Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.


    The following table sets forth information regarding the Company's liabilities measured at fair value on a recurring basis:    
September 30, 2020 December 31, 2019
(in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Liabilities
Series B Preferred Stock - Anti-dilution warrants $ —  $ —  $ 7,800  $ 7,800  $ —  $ —  $ 4,317  $ 4,317 
Series B-1 Preferred Stock - Performance warrants —  —  400  400  —  —  400  400 
Series B-3 Preferred - Closing Warrants —  —  —  —  —  —  11,491  11,491 
Rights Offering —  —  —  —  —  —  1,383  1,383 
Total liabilities $ —  $ —  $ 8,200  $ 8,200  $ —  $ —  $ 17,591  $ 17,591 
    
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements using Level 3 inputs:
(in thousands) Series B Preferred Stock - Anti-dilution warrants Series B-1 Preferred Stock - Performance warrants Series B-3 Preferred - Closing Warrants Rights Offering
Beginning Balance, December 31, 2019 $ 4,317  $ 400  $ 11,491  $ 1,383 
Fair value adjustment - (gain) loss recognized in other income (1,491) —  1,677  (1,383)
Transfer to non-recurring fair value instrument (liability) 7,400  —  —  — 
Transfer to non-recurring fair value instrument (equity) (2,426) —  (13,168) — 
Ending Balance, September 30, 2020
$ 7,800  $ 400  $ —  $ — 
    
In 2019, the Company entered into three equity agreements and issued Series B Preferred Stock as discussed in Note 6. Debt and Series B Preferred Stock. The agreements require that on the conversion of any of the Convertible Series A Preferred Stock to common shares, the Series B Preferred Stock will receive additional warrants (Anti-dilution Warrants) to purchase common shares at a price of $0.0001 per share. The agreements also require that if the Company fails to meet a certain Adjusted EBITDA (as that term is defined in the agreements) threshold on a trailing twelve-month basis from May 31, 2020 through April 30, 2021, the Series B Preferred Stock will receive additional warrants (Performance Warrants) to purchase common shares at $0.0001 per share. On May 20, 2019, the conversion rights for the Series A Preferred Stock were amended to allow the holders of Series A Preferred Stock to convert all or any portion of Series A Preferred Stock outstanding at any point in time.

    The information below describes the balance sheet classification and the recurring fair value measurement for these two requirements:

    Series B Preferred Stock - Anti-dilution Warrants (recurring) - The number of common shares attributable to the warrants issued to Series B Preferred Stockholders upon conversion by Series A Preferred Stockholders is determined on a 30-day volume weighted average. The Anti-dilution warrant liability was valued using the stock price at the end of the quarter and were recorded as a liability.

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    Series B-1 Preferred Stock - Performance Warrants (recurring) - In 2019, the warrant liability was recorded at fair value as a liability, using a Monte Carlo Simulation based on certain significant unobservable inputs, such as a risk rate premium, Adjusted EBITDA volatility, stock price volatility and projected Adjusted EBITDA for the Company.

    Other financial instruments of the Company not listed in the table consist of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities that approximate their fair values. Additionally, management believes that the outstanding recorded balance on the line of credit and long-term debt, approximates fair value due to their floating interest rates.


Note 6. Debt and Series B Preferred Stock

    Debt consists of the following obligations as of:
(in thousands) September 30, 2020 December 31, 2019
Term loan $ 173,345  $ 182,687 
Commercial equipment notes 6,303  4,456 
   Total principal due for long-term debt 179,648  187,143 
Unamortized debt discount and issuance costs (17,837) (22,296)
Less: Current portion of long-term debt (2,661) (1,946)
   Long-term debt, less current portion $ 159,150  $ 162,901 
Debt - Series B Preferred Stock $ 184,100  $ 180,444 
Unamortized debt discount and issuance costs (12,222) (14,303)
  Long-term Series B Preferred Stock $ 171,878  $ 166,141 
    
The weighted average interest rate for the term loan as of September 30, 2020 and December 31, 2019, was 7.06% and 10.35%, respectively.
Debt Covenants
    The term loan is governed by the terms of the Third A&R Credit Agreement, which include customary affirmative and negative covenants and provide for customary events of default, which include, nonpayment of principal or interest and failure to timely deliver financial statements. Under the Third A&R Credit Agreement, the financial covenant provides that the First Lien Net Leverage Ratio (as defined therein) may not exceed (i) prior to the fiscal quarter ending December 31, 2019, 4.75:1.0, (ii) for the four fiscal quarters ending December 31, 2020, 3.50:1.0, (iii) for the four fiscal quarters ending December 31, 2021, 2.75:1.0, and (iv) for all subsequent quarters, 2.25:1.0.

    The Third A&R Credit Agreement also includes certain limitations on the payment of cash dividends on the Company's common shares and provides for other restrictions on (subject to certain exceptions) liens, indebtedness (including guarantees and other contingent obligations), investments (including loans, advances and acquisitions), mergers and other fundamental changes and sales and other dispositions of property or assets, among others.

Debt - Series B Preferred Stock
In 2019, the Company entered into three equity agreements with Ares Management, LLC, on behalf of its affiliated funds, investment vehicles and/or managed accounts (“Ares”) and funds managed by Oaktree Capital Management (“Oaktree”). These resulted in Series B-1 Preferred Stock (the “Series B-1 Preferred Stock”), Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) and Series B-3 Preferred Stock (the “Series B-3 Preferred Stock”) (collectively referred to as “Series B Preferred Stock”). The Series B Preferred Stock is a mandatorily redeemable financial instrument under ASC Topic 480 and has been recorded as a liability using the effective interest rate method for each tranche. The mandatory redemption date for all tranches of the Series B Preferred is February 15, 2025.

The Series B Preferred Stock requires quarterly dividend payments calculated at a 12% annual rate on all outstanding Series B Preferred Stock when the Company’s First Lien Net Leverage Ratio (as defined in the Third A&R Credit Agreement)
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is less than or equal to 1.50:1.0 and a 13.5% rate if the ratio if greater. The Series B Preferred Stock agreements allow the Company to accrue, but not pay, the dividends at a 15.0% annual rate. Accrued dividends increase the amount of Series B Preferred Stock. Accrued dividends were $18.3 million and $10.4 million at September 30, 2020 and December 31, 2019, respectively. Prior to June 30, 2020, the Company accrued its Series B Preferred Stock payments; the June 30, 2020 and September 30, 2020 payments were made in cash. Dividend payments are not deductible in calculating the Company’s federal and state income taxes.

In connection with each of the Series B Preferred Stock transactions, the Company provided warrants with an exercise price of $0.0001 as follows:

•On May 20, 2019, the Company received $50.0 million at the closing of the Series B-1 Preferred Stock and issued 2,545,934 warrants which was an amount equal to 10% of the issued and outstanding common stock of the Company based on the Company's fully diluted share count. The warrants were valued at the closing stock price of $4.21 and were recorded as additional paid in capital.

•On August 30, 2019, the Company received $50.0 million at the closing of the Series B-2 Preferred Stock and issued 900,000 warrants. The warrants were valued at the closing stock price of $3.75 and recorded as additional paid in capital.

•On November 14, 2019, the Company received $80.0 million and issued 3,568,750 warrants which were initially valued at the closing stock price of $2.20 and were recorded as a liability. On January 21, 2020 the Company received shareholder approval for the issuance of the warrants and the liability was marked to market at a price of $3.69 and recorded as additional paid in capital.

• On November 14, 2019, the holders of Series A Preferred Stock converted 50% of their shares to Series B Preferred Stock thereby reducing the potential dilution of converted shares. The holders of Series A Preferred Stock were issued 657,383 warrants which were initially valued at the closing stock price of $2.20 and were recorded as a liability. On January 21, 2020, the Company received shareholder approval for the issuance of the warrants and the liability was marked to market at a price of $3.69 and recorded as additional paid in capital.

•As a part of the Series B-3 Preferred Stock transactions, the Company conducted a rights offering which provided common shareholders a right to purchase Series B Preferred Stock and warrants. The offering was initially valued using a Black-Scholes model and was recorded as a liability. On March 4, 2020, the rights offering was completed. The Company received $350 and issued 12,029 warrants valued at a closing price of $3.08. The liability was transferred to additional paid in capital.

•The Series B-3 Preferred Stock agreement also required that the Company issue additional Series B Preferred Stock of approximately $15.0 million in 2019 (the 2019 Commitment) and $15.0 million (the 2020 Commitment) if the Company did not attain specified debt and liquidity levels. The Company met the 2019 Commitments at the end of 2019, and the 2019 Commitment was cancelled. On July 22, 2020, the Company and Series B Preferred Stockholders entered into an agreement which terminated the 2020 Commitment and the Company paid $1,322 (recorded as interest expense) in full satisfaction of the 2019 Commitment and 2020 Commitment Fees and reimbursed certain expenses in the amount of $344 (recorded as Selling, general and administrative expenses).


Contractual Maturities

    Contractual maturities of the Company's outstanding principal on debt obligations as of September 30, 2020:
(in thousands) Maturities
Remainder of 2020 $ 3,717 
2021 1,229 
2022 15,859 
2023 29,735 
2024 129,108 
Thereafter — 
Total contractual maturities $ 179,648 
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Note 7. Commitments and Contingencies

    In the ordinary course of business, the Company enters into agreements that provide financing for its machinery and equipment, facility and vehicle needs. The Company reviews these agreements for potential lease classification, and at inception, determines whether a lease is an operating or finance lease. Lease assets and liabilities, which generally represent the present value of future minimum lease payments over the term of the lease, are recognized as of the commencement date. Under Topic 842, leases with an initial lease term of twelve months or less are classified as short-term leases and are not recognized in the condensed consolidated balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised.
    Lease term, discount rate, variable lease costs and future minimum lease payment determinations require the use of judgment as these are based on the facts and circumstances related to each specific lease. Lease terms are generally based on their initial non-cancelable terms, unless there is a renewal option that is reasonably certain to be exercised. Various factors, including economic incentives, intent, past history and business need are considered to determine if a renewal option is reasonably certain to be exercised. The implicit rate in a lease agreement is used when it can be determined. Otherwise, the Company's incremental borrowing rate, which is based on information available as of the lease commencement date, including applicable lease terms and the current economic environment, is used to determine the value of the lease obligation.
Finance Leases
    
    The Company has obligations, exclusive of associated interest, under various finance leases for equipment totaling $57.0 million and $64.2 million at September 30, 2020 and December 31, 2019, respectively. Gross property under this capitalized lease agreement at September 30, 2020 and December 31, 2019, totaled $121.9 million and $116.1 million, less accumulated depreciation of $49.2 million and $34.0 million, respectively, for net balances of $72.7 million and $82.1 million, respectively. Depreciation expense for assets held under the finance leases is included in cost of revenue in the condensed consolidated statements of operations.

    The future minimum payments of finance lease obligations are as follows:
(in thousands)
Remainder of 2020 $ 6,620 
2021 24,716 
2022 20,949 
2023 5,675 
2024 1,819 
Thereafter 611 
Future minimum lease payments 60,390 
Less: Amount representing interest (3,419)
Present value of minimum lease payments 56,971 
Less: Current portion of finance lease obligations 23,766 
Finance lease obligations, less current portion $ 33,205 

Operating Leases
    
    In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facilities, vehicles and equipment. The Company has obligations, exclusive of associated interest, totaling $40.0 million and $44.2 million at September 30, 2020 and December 31, 2019, respectively. Property under these operating lease agreements at September 30, 2020 and December 31, 2019, totaled $38.5 million and $43.4 million, respectively.

    The Company has long-term power-by-the-hour equipment rental agreements with a construction equipment manufacturer that have a guaranteed minimum monthly hour requirement. The minimum guaranteed amount based on the Company's current operations is $3.2 million per year. Total expense under these agreements are listed in the following table as variable lease costs.

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    The future minimum payments under non-cancelable operating leases are as follows:
(in thousands)
Remainder of 2020 $ 3,136 
2021 10,887 
2022 9,123 
2023 6,934 
2024 3,454 
Thereafter 20,650 
Future minimum lease payments 54,184 
Less: Amount representing interest (14,178)
Present value of minimum lease payments 40,006 
Less: Current portion of operating lease obligations 9,110 
Operating lease obligations, less current portion $ 30,896 

Lease Information
Three months ended Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Finance Lease cost:
   Amortization of right-of-use assets $ 5,281  $ 6,109  $ 16,836  $ 16,954 
   Interest on lease liabilities 891  1,444  3,017  4,342 
Operating lease cost 3,340  2,646  10,307  6,791 
Short-term lease cost 49,817  16,969  116,585  31,737 
Variable lease cost 891  986  2,835  3,366 
Sublease Income (33) (24) (99) (71)
Total lease cost $ 60,187  $ 28,130  $ 149,481  $ 63,119 
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from finance leases $ 891  $ 1,444  $ 3,017  $ 4,342 
   Operating cash flows from operating leases $ 3,275  $ 4,499  $ 10,003  $ 11,675 
Weighted-average remaining lease term - finance leases 2.55 years 2.92 years
Weighted-average remaining lease term - operating leases 8.16 years 9.04 years
Weighted-average discount rate - finance leases 6.07  % 6.64  %
Weighted-average discount rate - operating leases 6.94  % 6.92  %

Letters of Credit and Surety Bonds

    In the ordinary course of business, the Company is required to post letters of credit and surety bonds to customers in support of performance under certain contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit or surety bond commits the issuer to pay specified amounts to the holder of the letter of credit or surety bond under certain conditions. If the letter of credit or surety bond issuer were required to pay any amount to a holder,
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the Company would be required to reimburse the issuer, which, depending upon the circumstances, could result in a charge to earnings. As of September 30, 2020, and December 31, 2019, the Company was contingently liable under letters of credit issued under its Third A&R Credit Agreement, in the amount of $23.5 million and $21.0 million, respectively, related to projects. In addition, as of September 30, 2020 and December 31, 2019, the Company had outstanding surety bonds on projects of $2.7 billion and $2.4 billion, respectively.


Note 8. Earnings Per Share

    The Company calculates earnings (loss) per share (“EPS”) in accordance with ASC Topic 260, Earnings per Share. Basic EPS is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares of common stock outstanding during the period.

    Income (loss) available to common stockholders is computed by deducting the dividends accrued for the period on cumulative preferred stock from net income, contingent consideration fair value adjustments and net income allocated to participating securities. If there is a net loss, the amount of the loss is increased by those preferred dividends and contingent consideration fair value adjustment.

    Diluted EPS assumes the dilutive effect of (i) contingently issuable earn-out shares, (ii) Series A cumulative convertible preferred stock, using the if-converted method, and (iii) the assumed exercise of in-the-money stock options and warrants and the assumed vesting of outstanding restricted stock units (“RSUs”), using the treasury stock method.

    Whether the Company has net income, or a net loss determines whether potential issuances of common stock are included in the diluted EPS computation or whether they would be anti-dilutive. As a result, if there is a net loss, diluted EPS is computed in the same manner as basic EPS is computed. Similarly, if the Company has net income but its preferred dividend adjustment made in computing income available to common stockholders results in a net loss available to common stockholders, diluted EPS would be computed the same as basic EPS.

    
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The calculations of basic and diluted EPS, are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
($ in thousands, except per share data) 2020 2019 2020 2019
Numerator:
  Net income (loss) $ 11,266  $ 12,609  $ 2,120  $ (4,822)
  Less: Convertible Preferred Stock dividends (619) (759) (1,991) (2,202)
  Less: Contingent consideration fair value adjustment —  (4,247) —  (23,082)
  Less: Net income allocated to participating securities(1)
(2,854) —  (35) — 
    Net income (loss) available to common stockholders 7,793  7,603  94  (30,106)
Denominator:
  Weighted average common shares outstanding - basic 20,968,271  20,446,811  20,748,193  20,425,801 
   Series B Preferred - Warrants 7,683,903  2,845,840  —  — 
   Convertible Series A Preferred 4,758,887  11,486,534  —  — 
   RSUs 1,925,003  640,247  —  — 
  Weighted average common shares outstanding - diluted 35,336,064  35,419,432  20,748,193  20,425,801 
Anti-dilutive: (2)(3)
  Convertible Series A Preferred —  —  6,920,305  8,968,856 
  Series B Preferred - Warrants —  —  7,680,981  1,325,779 
  RSUs —  —  1,825,123  542,421 
Basic EPS 0.37  0.37  —  (1.47)
Diluted EPS 0.32  0.24  —  (1.47)

(1)     Series B Preferred - Warrants are considered as participating securities because the holders are entitled to participate in any distributions similar to that of common shareholders.

(2)    As of September 30, 2020 and 2019, publicly traded warrants to purchase 8,480,000 shares of common stock at $11.50 per share were not considered as dilutive as the warrants’ exercise price was greater than the average market price of the common stock during the period.
    
(3)    As of September 30, 2020 and 2019, there were 504,214 and 646,405 of vested and unvested options and 611,166 and 817,817 unvested RSUs, respectively. These were also not considered as dilutive as the respective exercise price or average stock price required for vesting of such awards was greater than the average market price of the common stock during the period.    
Series B Preferred Stock Anti-dilution Warrants

The Company also had the following potential outstanding warrants related to the Series B Preferred stock issuance.

•At September 30, 2020, a total of 1,318,936 warrants calculated on an if-converted method for the conversion                 of shares related to the outstanding Series A Preferred Stock. As discussed in Note 5. Fair Value of Financial Instruments, these warrants are recorded as a liability. These warrants are not included in the weighted average share calculation as the contingent event (conversion of Series A Preferred Stock) had not occurred at the end of the quarter.

•The second set of additional warrants would be issued if the exercise of any warrant with an exercise price of $11.50 or higher.

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•The final set of additional warrants would be issued if the exercise of any equity issued pursuant to the Company’s long term incentive plan or other equity plan with a strike price of $11.50 or higher.

Series A Preferred Stock

    As of September 30, 2020, we had 17,483 shares of Series A Preferred Stock with a stated value of $1,000 per share plus accumulated dividends. Dividends are paid on the Series A Preferred Stock as, if and when declared by our Board. To extent permitted, dividends are required to be paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31 on the stated value at a rate of 10% per annum.

    If not paid in cash, dividends will accrue on the stated value and will increase the stated value on and effective as of the applicable dividend date without any further action by the Board at 12% per annum.

    So long as any shares of Series B Preferred Stock of the Company are currently outstanding or from and after the occurrence of any non-payment event or default event and until cured or waived, the foregoing rates will increase by 2% per annum.

    As of September 30, 2020, the Company has accrued a cumulative of $3.7 million in dividends to holders of Series A Preferred Stock as a reduction to additional paid-in capital.

Contingent Consideration

Pursuant to the original merger agreement with M III Acquisition Corp., the Company was required to issue up to an additional 9,000,000 shares of common stock, which should have been fully earned if the final 2019 adjusted EBITDA targets were achieved. As of September 30, 2019, the Company recorded an adjustment of $23.1 million to the liability primarily based on the significant decrease in the Company's prior year stock price. The Company did not achieve the 2019 financial targets and therefore no contingent consideration was earned at December 31, 2019.

Stock Compensation
    
    Under guidance of ASC Topic 718 “Compensation — Stock Compensation,” stock-based compensation expense is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the award).

    The fair value of the RSUs was based on the closing market price of our common stock on the date of the grant. Stock compensation expense for the RSUs is being amortized using the straight-line method over the service period. For the three months ended September 30, 2020 and 2019, we recognized $1.1 million and $1.1 million in compensation expense, respectively, and $3.1 million and $2.8 million for the nine months ended September 30, 2020 and 2019, respectively.


Note 9. Income Taxes

    The Company’s statutory federal tax rate was 21.00% for the periods ended September 30, 2020 and 2019, respectively. State tax rates for the same period vary among states and range from approximately 0.8% to 12.0%. A small number of states do not impose an income tax.

    The effective tax rates for the three months ended September 30, 2020 and 2019 were 35.3% and (4.6)%, respectively, and were 82.5% and 41.0% for the nine months ended September 30, 2020 and 2019, respectively. The difference between the Company’s effective tax rate and the federal statutory rate primarily results from permanent differences related to the interest accrued for the Series B Preferred Stock, which is not deductible for federal and state income taxes. The nine months ended September 30, 2020 have the full impact of all the Series B Preferred Stock that was issued in 2019 whereas the nine months ended September 30, 2019 only have a relatively small amount of non-deductible Series B Preferred Stock expenses. There were no changes in uncertain tax positions during the periods ended September 30, 2020 and 2019.

    On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted by the US Government in response to the COVID-19 pandemic to provide employment retention incentives. We do not believe that these relief measures materially affect the condensed consolidated financial statements for the first three quarters of 2020.

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Note 10. Segments

    We operate our business as two reportable segments: the Renewables segment and the Specialty Civil segment. Each of our reportable segments is comprised of similar business units that specialize in services unique to their respective markets. The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made based on segment revenue.

    Separate measures of the Company’s assets, including capital expenditures and cash flows by reportable segment are not produced or utilized by management to evaluate segment performance. A substantial portion of the Company’s fixed assets are owned by and accounted for in our equipment department, including operating machinery, equipment and vehicles, as well as office equipment, buildings and leasehold improvements, and are used on an interchangeable basis across our reportable segments. As such, for reporting purposes, total under/over absorption of equipment expenses consisting primarily of depreciation is allocated to the Company's two reportable segments based on segment revenue.
    
The following is a brief description of the Company's reportable segments:

Renewables Segment

    The Renewables segment operates throughout the United States and specializes in a range of services for the power delivery, solar, wind and battery storage markets that includes design, procurement, construction, restoration, and maintenance.

Specialty Civil Segment

    The Specialty Civil segment operates throughout the United States and specializes in a range of services that include:

•Heavy civil construction services such as road and bridge construction, specialty paving, sports field development, industrial maintenance, outsourced contract mining and heavy hauling.

•Environmental remediation services such as site development, environmental site closure, and coal ash management.
•Rail infrastructure services such as planning, design, procurement, construction and maintenance of major railway and intermodal facilities.

Segment Revenue

    Revenue by segment was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Segment Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue Revenue % of Total Revenue
Renewables $ 327,051  62.6  % $ 242,654  57.5  % $ 900,059  66.1  % $ 495,834  52.8  %
Specialty Civil 195,181  37.4  % 179,368  42.5  % 460,940  33.9  % 443,930  47.2  %
  Total revenue $ 522,232  100.0  % $ 422,022  100.0  % $ 1,360,999  100.0  % $ 939,764  100.0  %


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Segment Gross Profit

    Gross profit by segment was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2020 2019 2020 2019
Segment Gross Profit Gross Profit Margin Gross Profit Gross Profit Margin Gross Profit Gross Profit Margin Gross Profit Gross Profit Margin
Renewables $ 37,371  11.4  % $ 27,469  11.3  % $ 100,183  11.1  % $ 44,777  9.0  %
Specialty Civil 21,518  11.0  % 25,401  14.2  % 45,988  10.0  % 45,259  10.2  %
  Total gross profit $ 58,889  11.3  % $ 52,870  12.5  % $ 146,171  10.7  % $ 90,036  9.6  %


Note 11. Related Party Transactions

Related Party Shareholders
Type of Equity Holder Ownership Percentage
Series A Preferred, Series A Conversion Warrants and Exchange Warrants, Series B-3 Preferred Stock (exchange agreement) Infrastructure and Energy Alternatives, LLC 100  %
Series B-1 Preferred Stock, Series A Conversion Warrants, Additional 6% Warrants, Warrants at closing Ares 60  %
Oaktree Power Opportunities Fund III Delaware, L.P. 40  %
Series B-2 and B-3 Preferred Stock, Warrants at closing Ares 100  %


Note 12. Subsequent Event

On October 30, 2020, the Company entered into a First Amendment to its Third A&R Credit Agreement (the “Amendment”). The Amendment provides for, among other things, an increase in the revolving credit commitments previously available by $25.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Third A&R Credit Agreement to $75.0 million, upon the terms and subject to the satisfaction of the conditions set forth in the Third A&R Credit Agreement, as amended by the Amendment.

In addition, the Amendment provides that on and after the Amendment’s effective date and until delivery of the financial statements for the fiscal quarter ended December 31, 2020, as required under the Amendment, the percentage per annum interest rate for revolving loans and swing line loans is, at the Company’s option, (x) LIBOR plus a margin of 2.75% or (y) the applicable base rate plus a margin of 1.75%. Thereafter, for any day, the applicable percentage per annum interest rate for revolving loans and swing line loans is LIBOR or the base rate plus a margin depending upon the Company’s First Lien Net Leverage Ratio as of the last day of the most recently ended consecutive four fiscal quarter period.

The Amendment also further specifies the unused commitment fee rate. On and after the Amendment’s effective date and until delivery of the financial statements for the fiscal quarter ended December 31, 2020, as required under the Amendment, the rate is 0.40% per annum. Thereafter, for any day, the applicable percentage per annum depends upon the Company’s Senior Secured Net Leverage Ratio.



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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

    This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements can be identified by the use of forward-looking terminology including “may,” “should,” “likely,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “seek,” “target,” “continue,” “plan,” “intend,” “project,” or other similar words. All statements, other than statements of historical fact included in this Quarterly Report, regarding expectations for the impact of COVID-19, future financial performance, business strategies, expectations for our business, future operations, liquidity positions, availability of capital resources, financial position, estimated revenues and losses, projected costs, prospects, plans, objectives and beliefs of management are forward-looking statements.

    These forward-looking statements are based on information available as of the date of this Quarterly Report and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurance that such expectations will prove correct. Forward-looking statements should not be relied upon as representing our views as of any subsequent date. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ include:

•potential risks and uncertainties relating to COVID-19, including the geographic spread, the severity of the disease, the scope and duration of the COVID-19 pandemic, actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact, and the potential negative impacts of COVID-19 on economies and financial markets;
•availability of commercially reasonable and accessible sources of liquidity and bonding;
•our ability to generate cash flow and liquidity to fund operations;
•the timing and extent of fluctuations in geographic, weather and operational factors affecting our customers, projects and the industries in which we operate;
•our ability to identify acquisition candidates and integrate acquired businesses;
•consumer demand;
•our ability to grow and manage growth profitably;
•the possibility that we may be adversely affected by economic, business, and/or competitive factors;
•market conditions, technological developments, regulatory changes or other governmental policy uncertainty that affects us or our customers;
•our ability to manage projects effectively and in accordance with management estimates, as well as the ability to accurately estimate the costs associated with our fixed price and other contracts, including any material changes in estimates for completion of projects;
•the effect on demand for our services and changes in the amount of capital expenditures by customers due to, among other things, economic conditions, commodity price fluctuations, the availability and cost of financing, and customer consolidation;
•the ability of customers to terminate or reduce the amount of work, or in some cases, the prices paid for services, on short or no notice;
•customer disputes related to the performance of services;
•disputes with, or failures of, subcontractors to deliver agreed-upon supplies or services in a timely fashion;
•our ability to replace non-recurring projects with new projects;
•the impact of U.S. federal, local, state, foreign or tax legislation and other regulations affecting the renewable energy industry and related projects and expenditures;
•the effect of state and federal regulatory initiatives, including costs of compliance with existing and future safety and environmental requirements;
•fluctuations in equipment, fuel, materials, labor and other costs;
•our beliefs regarding the state of the renewable wind energy market generally; and
•the “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2019, and in our quarterly reports, other public filings and press releases.
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We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
    Throughout this section, unless otherwise noted “IEA,” “Company,” “we,” “us,” and “our” refer to Infrastructure and Energy Alternatives, Inc. and its consolidated subsidiaries. Certain amounts in this section may not foot due to rounding.

Overview

    We are a leading diversified infrastructure construction company with specialized energy and heavy civil expertise throughout the United States. We segregate our business into two reportable segments: the Renewables segment and the Specialty Civil segment.

The Renewables segment operates throughout the United States and specializes in a range of services for the power delivery, solar, wind and battery storage markets that includes design, procurement, construction, restoration, and maintenance. The Company is one of the largest providers in the renewable energy industry and has completed more than 200 utility scale wind and solar projects in 35 states.

    The Specialty Civil segment operates throughout the United States and specializes in a range of services that include:

•Heavy civil construction services such as road and bridge construction, specialty paving, sports field development, industrial maintenance, outsourced contract mining and heavy hauling.

•Environmental remediation services such as site development, environmental site closure, and coal ash management.
•Rail infrastructure services such as planning, design, procurement, construction and maintenance of major railway and intermodal facilities.

The Company has created a diverse national platform of specialty construction capabilities with market leadership in the niche markets of power delivery, solar power, wind power, rail, heavy civil and environmental.

Coronavirus Pandemic Update

    The COVID-19 pandemic continues to significantly impact the United States and the world. Since the start of the COVID-19 pandemic, we have been focused on the safety of our employees and ensuring that our construction sites are managed by taking all reasonable precautions to protect on-site personnel.

    We took the following actions in the first half of 2020 to address the risks attributable to the COVID-19 pandemic:

•We established a dedicated COVID-19 task force representing all parts of the Company to review and implement actions to prepare for the impacts on our operations, including a variety of protocols in the areas of social distancing, working from home, emergency office and project site closures, and travel restrictions.

•In addition to our existing site crisis management plans, our operations expanded and implemented their pandemic response plans to ensure a consistent, comprehensive response to various COVID-19 scenarios.

•We implemented more stringent office and project site cleaning and hygiene protocols in all locations. We also developed more stringent tool, vehicle and equipment cleaning protocols.

•For employees, we established a regularly updated COVID-19 information hub with FAQs, important communications, regularly updated protocols, business planning tools, best practices, signage/flyers and other important resources.

•We significantly increased communications, signage and oversight of personal hygiene requirements to drive better prevention practices.

•We postponed social gatherings, large in-person training sessions and other activities involving groups of 10 or more.

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•We prohibited virtually all Company air travel unless approved by executive leadership. We also required all employees to report their personal travel schedules in order to closely monitor and take any necessary steps to maintain the safety of our workforce.

•We increased our efforts to reduce selling, general and administrative expenses by implementing a hiring freeze, delaying the Company 401(k) match until later in the year, prohibiting all non-essential travel, reducing new initiatives, deferring promotions and salary changes, and canceling any non-essential capital expenditures or consulting work.

•To mitigate the effects of working from home and travel bans, we significantly increased the use of remote communication technologies.

    We are actively monitoring the COVID-19 pandemic, including disease progression, federal, state and local government actions, CDC and WHO responses, supplier and supply chain risks, and prevention and containment measures to maintain business operations. As the COVID-19 pandemic and the responses by federal, state and local governments continue to evolve, we continue to make adjustments to our practices and policies to protect the health of our employees and those we work with at our projects and office locations, while continuing to provide our essential construction services to our clients.

    We believe that the foregoing actions have significantly reduced the Company’s exposure to the effects of COVID-19, including our workforce’s exposure to infection from COVID-19. As of today, we have had a low incidence of infection in our workforce.

    The impact of COVID-19 on construction businesses such as ours is evolving rapidly and its future effects are uncertain.  The Company has received several notices of force majeure from project owners as a result of delivery delays due to COVID-19. We have experienced project interruptions and restrictions that have delayed project timelines from those originally planned, and we have experienced some temporary work stoppages. This has led to general inefficiencies from having to start and stop work, re-sequencing work, requiring on-site health screenings before entering a job site, and following proper social distancing practices. To date, the inefficiencies we have experienced have had an unquantifiable negative impact on our results of operations during the third quarter and management does not anticipate a negative impact going forward from slower delivery of equipment. However, we cannot predict significant disruptions beyond our control, including quarantines and customer work stoppages, significant force majeure declarations by our suppliers or other equipment providers material to our projects.

We have also noticed an impact of COVID-19 in adding new projects to our backlog. Our bidding activity continues at very high levels, but the final approval process for some projects has been slowed due to COVID-19. Despite that, we were able to add $150 million to our backlog in the quarter, and since quarter end the Company has added a significant amount of new projects. See ‘‘Backlog’’ for further discussion.

We are continuing to take actions to preserve our liquidity such as limiting our hiring and delaying spending on non-critical initiatives. At this point, we do not believe that COVID-19 is having a negative impact on our liquidity. We could see a change in this status if we experience future work stoppages at our projects which would prevent us from billing customers for new work performed. If the federal, state and local governments proceed with more restrictive measures, and our customers determine to stop work or terminate projects, these actions would negatively impact our business, results of operations, liquidity and prospects. In addition, the Company is unable to predict any changes in the market for bonding by our sureties.

Economic and Market Factors

    We closely monitor the effects that changes in economic and market conditions may have on our customers. General economic and market conditions can negatively affect demand for our customers’ products and services, which can lead to reductions in our customers’ capital and maintenance budgets in certain end-markets. In the face of increased pricing pressure, we strive to maintain our profit margins through productivity improvements and cost reduction programs. Other market, regulatory and industry factors could also affect demand for our services, such as:

•changes to our customers’ capital spending plans;

•mergers and acquisitions among the customers we serve;

•access to capital for customers in the industries we serve;

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•changes in tax and other incentives;

•new or changing regulatory requirements or other governmental policy uncertainty;

•economic, market or political developments; and

•changes in technology.

    We cannot predict the effect that changes in such factors may have on our future results of operations, liquidity and cash flows, and we may be unable to fully mitigate, or benefit from, such changes.
Industry Trends

    Our industry is composed of national, regional and local companies in a range of industries, including renewable power generation, traditional power generation and the civil infrastructure industries. We believe the following industry trends will help to drive our growth and success over the coming years:

    Renewables - We have maintained a focus on construction of renewable power production capacity as renewable energy, particularly from wind and solar. On December 16, 2019, the federal government implemented an agreement that extended lapsed and expiring tax breaks for wind renewable projects. The extension provides a single year extension of the production tax credit (“PTC”) at a 60% level and the investment tax credit (“ITC”) at an 18% level to qualifying projects for which the construction commencement date is now prior to January 1, 2021. On May 27, 2020, the federal government extended the safe harbor for completion of projects from four years to five years giving an extra year to complete construction due to delays from COVID-19. We believe that demand will continue to remain strong even after expiration due to the following factors:

•Technological advances in turbines sizes and battery storage continue to drive lower costs of electricity generated from wind and solar farms;

•Approximately 40 states, as well as the District of Columbia and four territories, have adopted renewable portfolio standards or goals that incentivize clean energy; and

•The Annual Energy Outlook 2020 published by the U.S. Department of Energy (“DOE”) in January 2020 projected the addition of approximately 117 gigawatts of new utility-scale wind and solar capacity from 2020 to 2023. We estimate that EPC services will account for approximately 30% of the estimated $28.4 billion of construction over that time period.

    We believe that a reduction of owner financing related to the current COVID-19 environment could cause delays or cancellations of future projects which could challenge our future revenue streams in the Renewables segment:

    Specialty Civil - Our Specialty Civil revenue has been generated through a combination of heavy civil construction, rail construction and environmental remediation. On September 22, 2020, the federal highway, bridge and public transportation programs would be extended for one year under a House bill that also funds the federal government. With this extension expected to be approved, we believe that demand will continue to remain strong based on the following factors:

•Heavy civil - the FMI 2020 Overview Report published in the fourth quarter of 2019 project that nonresidential construction put in place for the United States will be over $850 million per year from 2020 to 2023.

•Rail - Fostering Advancements in Shipping And Transportation For The Long-Term Achievement of National Efficiencies (FASTLANE) grants are expected to provide $4.5 billion through 2020 to freight and highway projects of national or regional significance.

•Environmental remediation - According to the American Coal Ash Association, more than 102.3 million tons of coal ash was generated in 2018 and 42% of coal ash generated was disposed of.

    We believe that a decrease in consumption taxes due to COVID-19 could cause decreases in state departments of transportation budgets from lack of revenues thus reducing civil construction projects which could challenge our future revenue streams in the Specialty Civil segment.
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Impact of Seasonality and Cyclical Nature of Business

    Our revenue and results of operations are subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, project schedules and timing, in particular, for large non-recurring projects and holidays. Typically, our revenue in our Renewable segment is lowest in the first quarter of the year because cold, snowy or wet conditions experienced in the northern climates are not conducive to efficient or safe construction practices. Revenue in the second quarter is typically higher than in the first quarter, as some projects begin, but continued cold and wet weather and effects from thawing ground conditions can often impact second quarter productivity. The third and fourth quarters are typically the most productive quarters of the year as a greater number of projects are underway and weather is normally more accommodating to construction projects. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budgets before the end of the year, which generally has a positive impact on our revenue. Nevertheless, the holiday season and inclement weather can cause delays, which can reduce revenue and increase costs on affected projects. Any quarter may be positively or negatively affected by adverse or unusual weather patterns, including excessive rainfall, warm winter weather or natural catastrophes such as hurricanes or other severe weather, making it difficult to predict quarterly revenue and margin variations. The Company started construction on 2020 renewable projects in late 2019 due to the desire of our customers to finish these projects before September 30, 2020. This shift in demand impacted 2020 quarterly revenues, which shifted revenue from the fourth quarter back into the second and third quarter of 2020.

    Our revenue and results of operations for our Specialty Civil segment are also affected by seasonality but to a lesser extent as these projects are more geographically diverse and located in less severe weather areas. While the first and second quarter revenues are typically lower than the third and fourth quarter, this diversity has allowed this segment to be less seasonal over the course of the year.

    Our industry is also highly cyclical. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can impact demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations in project schedules or unanticipated changes in project schedules, in particular, in connection with large construction and installation projects, can create fluctuations in revenue, which may adversely affect us in a given period. In addition, revenue from master service agreements, while generally predictable, can be subject to volatility. The financial condition of our customers and their access to capital, variations in project margins, regional, national and global economic, political and market conditions, regulatory or environmental influences, and acquisitions, dispositions or strategic investments can also materially affect quarterly results. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.
Critical Accounting Policies and Estimates

    This discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our condensed consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of making judgments about our operating results, including the results of construction contracts accounted for under the cost-to-cost method, and the carrying values of assets and liabilities that are not readily apparent from other sources. Given that management estimates, by their nature, involve judgments regarding future uncertainties, actual results may differ from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be inaccurate. Refer to Note 1. Business, Basis of Presentation and Significant Accounting Policies in the notes to our condensed consolidated financial statements and to our 2019 Form 10-K for discussion of our significant accounting policies.

    We believe that our key estimates include: the recognition of revenue and project profit or loss; fair value estimates, including those related to Series B Preferred Stock; valuations of goodwill and intangible assets; asset lives used in computing depreciation and amortization; accrued self-insured claims; other reserves and accruals; accounting for income taxes; and the estimated impact of contingencies and ongoing litigation. While management believes that such estimates are reasonable when considered in conjunction with the Company’s condensed consolidated financial position and results of operations, actual results could differ materially from those estimates.

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“Emerging Growth Company” Status

    As of December 31, 2019, the Company's total annual gross revenues exceed $1.07 billion and we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). See Note 1. Business, Basis of Presentation and Significant Accounting Policies to our condensed consolidated financial statements for more information.


Results of Operations

Three Months Ended September 30, 2020 and 2019

    The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
Three Months Ended September 30,
(in thousands) 2020 2019
Revenue $ 522,232  100.0  % $ 422,022  100.0  %
Cost of revenue 463,343  88.7  % 369,152  87.5  %
Gross profit 58,889  11.3  % 52,870  12.5  %
Selling, general and administrative expenses 29,656  5.7  % 31,313  7.4  %
Income from operations 29,233  5.6  % 21,557  5.1  %
Interest expense, net (14,975) (2.9) % (13,959) (3.3) %
Other income 3,161  0.6  % 4,455  1.1  %
Income from continuing operations before income taxes 17,419  3.3  % 12,053  2.9  %
(Provision) benefit for income taxes (6,153) (1.2) % 556  0.1  %
Net income $ 11,266  2.2  % $ 12,609  3.0  %
    
We review our operating results by reportable segment. See Note 10. Segments in the notes to the condensed consolidated financial statements in Part 1. Financial Statements. Management’s review of reportable segment results includes analyses of trends in revenue and gross profit. The following table presents revenue and gross profit by reportable segment for the periods indicated:
Three Months Ended September 30,
(in thousands) 2020 2019
Segment Revenue % of Total Revenue Revenue % of Total Revenue
Renewables $ 327,051  62.6  % $ 242,654  57.5  %
Specialty Civil 195,181  37.4  % 179,368  42.5  %
  Total revenue $ 522,232  100.0  % $ 422,022  100.0  %
Segment Gross Profit Gross Profit Margin Gross Profit Gross Profit Margin
Renewables $ 37,371  11.4  % $ 27,469  11.3  %
Specialty Civil 21,518  11.0  % 25,401  14.2  %
  Total gross profit $ 58,889  11.3  % $ 52,870  12.5  %
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    The following discussion and analysis of our results of operations should be read in conjunction with our condensed consolidated financial statements and the notes relating thereto, included in Item 1 of this Quarterly Report on Form 10-Q.

Revenue. Revenue increased 23.7%, or $100.2 million, in the third quarter of 2020, compared to the same period in 2019.

Renewables Segment. Renewables revenue was $327.1 million for the third quarter of 2020, as compared to $242.7 million for the same period in 2019, an increase of $84.4 million, or 34.8%. The increase was primarily due to the expansion of our solar division of $65.2 million coupled with more favorable weather conditions at job sites.

Specialty Civil Segment. Specialty Civil revenue was $195.2 million for the third quarter of 2020, as compared to $179.4 million for the same period in 2019, an increase of $15.8 million, or 8.8% . The increase was primarily due to an increase in the number of projects under construction in our heavy civil and rail divisions.

Gross profit. Gross profit increased 11.4%, or $6.0 million, in the third quarter of 2020, compared to the same period in 2019. As a percentage of revenue, gross profit was 11.3% in the quarter, as compared to 12.5% in the prior-year period.

Renewables Segment. Gross profit was $37.4 million for the second quarter of 2020, as compared to $27.5 million for the same period in 2019. As a percentage of revenue, gross profit was 11.4% in the quarter, as compared to 11.3% in the prior-year period. The increase in gross profit dollars is related to a larger number and greater average value of construction projects.

Specialty Civil Segment. Gross profit was $21.5 million for the second quarter of 2020, as compared to $25.4 million for the same period in 2019. As a percentage of revenue, gross profit was 11.0% in the quarter, as compared to 14.2% in the prior-year period. The decrease in dollars and percentage was related to lower margins generated on a greater number of heavy civil projects compared to rail and environmental in the prior year.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased 5.3%, or $1.7 million, in the third quarter of 2020, compared to the same period in 2019. Selling, general and administrative expenses were 5.7% of revenue in the third quarter of 2020, compared to 7.4% in the same period in 2019. The decrease in selling, general and administrative expenses was primarily driven by lower professional fees in 2020 compared to 2019 due to transaction fees on Series B Preferred Stock. This decrease was offset by increased compensation expense related to significantly larger operations in both of the Company's operating segments.

Interest expense, net. Interest expense, net increased by $1.0 million, in the third quarter of 2020, compared to the same period in 2019. This increase was primarily driven by dividends on Series B Preferred Stock, which have a higher effective interest rate than our term loan and are recorded as interest expense.

Other income. Other income decreased by $1.3 million, to $3.2 million in the third quarter of 2020 from $4.5 million for the same period in 2019. This decrease was primarily the result of the impact of reducing a contingent liability in the third quarter of 2019, compared to a decrease in the warrant liability in the third quarter of 2020. See further discussion in Note 8. Earnings Per Share included in Item 1 of this Quarterly Report on Form 10-Q.

Provision for income taxes. Provision for income taxes increased $6.7 million, to an expense of $6.2 million in the third quarter of 2020, compared to a benefit of $0.6 million for the same period in 2019. The effective tax rates for the period ended September 30, 2020 and 2019 were 35.3% and (4.6)%, respectively. The higher effective tax rate in the third quarter of 2020 was primarily attributable to accrued dividends for the Series B Preferred Stock which are recorded as interest expense and not deductible for federal and state income taxes. The three months ended September 30, 2020 have the full impact of all the Series B Preferred Stock that was issued in 2019 whereas the three months ended September 30, 2019 only have a relatively small amount of non-deductible Series B Preferred Stock expenses. There were no changes in uncertain tax positions during the periods ended September 30, 2020 and 2019.

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Nine Months Ended September 30, 2020 and 2019

    The following table reflects our condensed consolidated results of operations in dollar and percentage of revenue terms for the periods indicated:
Nine Months Ended September 30,
(in thousands) 2020 2019
Revenue $ 1,360,999  100  % $ 939,764  100.0  %
Cost of revenue 1,214,828  89.3  % 849,728  90.4  %
Gross profit 146,171  10.7  % 90,036  9.6  %
Selling, general and administrative expenses 87,214  6.4  % 84,945  9.0  %
Income from operations 58,957  4.3  % 5,091  0.5  %
Interest expense, net (47,240) (3.5) % (35,822) (3.8) %
Other income 428  —  % 22,557  2.4  %
Income from continuing operations before income taxes 12,145  0.9  % (8,174) (0.9) %
(Provision) benefit for income taxes (10,025) (0.7) % 3,352  0.4  %
Net income (loss) $ 2,120  0.2  % $ (4,822) (0.5) %


(in thousands) Nine Months Ended September 30,
2020 2019
Segment Revenue % of Total Revenue Revenue % of Total Revenue
Renewables $ 900,059  66.1  % $ 495,834  52.8  %
Specialty Civil 460,940  33.9  % 443,930  47.2  %
Total revenue $ 1,360,999  100.0  % $ 939,764  100.0  %
Segment Gross Profit Gross Profit Margin Gross Profit Gross Profit Margin
Renewables $ 100,183  11.1  % $ 44,777  9.0  %
Specialty Civil 45,988  10.0  % 45,259  10.2  %
Total gross profit $ 146,171  10.7  % $ 90,036  9.6  %


Revenue. Revenue increased 44.8%, or $421.2 million, in the first nine months of 2020, compared to the same period in 2019.

Renewables Segment. Renewables revenue was $900.1 million for the first nine months of 2020, as compared to $495.8 million for the same period in 2019, an increase of $404.2 million, or 81.5%. The increase was primarily due to more favorable weather conditions at job sites, the benefit from mobilization of several wind projects at the end of 2019, an increase in the number and value of projects during the quarter and to a lesser extent the increase in the solar division.

Specialty Civil Segment. Specialty Civil revenue was $460.9 million for the first nine months of 2020, as compared to $443.9 million for the same period in 2019, an increase of $17.0 million, or 3.8%. The increase was primarily due to an increase in the number of projects under construction in our heavy civil and rail divisions.

Gross profit. Gross profit increased 62.3%, or $56.1 million, in the first nine months of 2020, compared to the same period in 2019. As a percentage of revenue, gross profit was 10.7% in the quarter, as compared to 9.6% in the prior-year period. The 2020 gross profit included the impact of recognizing increased potential future costs from the COVID-19 pandemic, which
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reduced gross margin and based on expected project completion, we could recognize an increase of margin in the fourth quarter of up to $6.0 million if those projects do not have additional COVID-19 related expenses.

Renewables Segment. Gross profit was $100.2 million for the first nine months of 2020, as compared to $44.8 million for the same period in 2019. As a percentage of revenue, gross profit was 11.1% in the quarter, as compared to 9.0% in the prior-year period. The increase in gross profit percentage and dollars is related to the increased revenue, coupled with reduced adverse weather conditions in 2020 and a larger number and greater average value of construction projects.

Specialty Civil Segment. Gross profit was $46.0 million for the first nine months of 2020, as compared to $45.3 million for the same period in 2019. As a percentage of revenue, gross profit was 10.0% in the quarter, as compared to 10.2% in the prior-year period. Gross profit was consistent year over year.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased 2.7%, or $2.3 million, in the first nine months of 2020, compared to the same period in 2019. Selling, general and administrative expenses were 6.4% of revenue in the first nine months of 2020, compared to 9.0% in the same period in 2019. The decrease in selling, general and administrative expenses was primarily driven by lower professional fees in 2020 compared to 2019 due to transaction fees on Series B Preferred Stock. This decrease was offset by increased compensation expense related to significantly larger operations in both of the Company's operating segments.

Interest expense, net. Interest expense, net increased by $11.4 million, in the first nine months of 2020, compared to the same period in 2019. This increase was primarily driven by dividends on Series B Preferred Stock, which have a higher effective interest rate than our term loan and are recorded as interest expense.

Other income (expense). Other income (expense) decreased by $22.1 million, to other income of $0.4 million in the first nine months of 2020, compared to other income of $22.5 million for the same period in 2019. This decrease was primarily the result of the impact of reducing a contingent liability by $22.5 million in 2019. See further discussion in Note 8. Earnings Per Share included in Item 1 of this Quarterly Report on Form 10-Q.

Provision for income taxes. Provision for income taxes increased $13.4 million, to an expense of $10.0 million in the first nine months of 2020, compared to a benefit of $3.4 million for the same period in 2019. The effective tax rates for the period ended September 30, 2020 and 2019 were 82.5% and 41.0%, respectively. The higher effective tax rate in the first nine months of 2020 was primarily attributable to accrued dividends for the Series B Preferred Stock which are recorded as interest expense and not deductible for federal and state income taxes. The nine months ended September 30, 2020 have the full impact of all the Series B Preferred Stock that was issued in 2019 whereas the nine months ended September 30, 2019 only have a relatively small amount of non-deductible Series B Preferred Stock expenses. There were no changes in uncertain tax positions during the periods ended September 30, 2020 and 2019.

Backlog

    For companies in the construction industry, backlog can be an indicator of future revenue streams. Estimated backlog represents the amount of revenue we expect to realize from the uncompleted portions of existing construction contracts, including new contracts under which work has not begun and awarded contracts for which the definitive project documentation is being prepared, as well as revenue from change orders and renewal options. Estimated backlog for work under fixed price contracts and cost-reimbursable contracts is determined based on historical trends, anticipated seasonal impacts, experience from similar projects and estimates of customer demand based on communications with our customers. Cost-reimbursable contracts are included in backlog based on the estimated total contract price upon completion.

    As of September 30, 2020 and December 31, 2019, our total backlog was approximately $1.9 billion and $2.2 billion, respectively, compared to $2.6 billion as of September 30, 2019. The decrease from the prior year end and the prior year period was primarily related to timing based on a slow down in the bid approval process related to COVID-19. See ‘‘Coronavirus Pandemic Update’’ for further discussion. The Company expects to recognize revenue related to its backlog of 18.7% for the remainder of 2020, 50.8% in 2021, and 30.5% in 2022 and beyond.

    
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The following table summarizes our backlog by segment as of September 30, 2020 and December 31, 2019:
(in millions)
Segments September 30, 2020 December 31, 2019
Renewables $ 1,435.5  $ 1,582.5 
Specialty Civil 472.2  588.7 
  Total $ 1,907.7  $ 2,171.2 
    
Based on historical trends in the Company’s backlog, we believe awarded contracts to be firm and that the revenue for such contracts will be recognized over the life of the project. Timing of revenue for construction and installation projects included in our backlog can be subject to change as a result of customer delays, regulatory factors and/or other project-related factors. These changes could cause estimated revenue to be realized in periods later than originally expected, or not at all. In the past, we have occasionally experienced postponements, cancellations and reductions on construction projects, due to market volatility and regulatory factors. There can be no assurance as to our customers’ requirements or the accuracy of our estimates. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings.

    Backlog is not a term recognized under GAAP, although it is a common measurement used in our industry. Our methodology for determining backlog may not be comparable to the methodologies used by others. See ‘‘Item 1A. Risk Factors’’ in our Annual Report on Form 10-K filed with the SEC on March 12, 2020 for a discussion of the risks associated with our backlog.

Liquidity and Capital Resources

Overview

    Our primary sources of liquidity are cash flows from operations, our cash balances and availability under our Third A&R Credit Agreement. Our primary liquidity needs are for working capital, debt service, dividends on our Series A Preferred Stock and Series B Preferred Stock, income taxes, capital expenditures, insurance collateral, and strategic acquisitions. As of September 30, 2020, we had approximately $57.3 million in cash, and $26.5 million availability under our Third A&R Credit Agreement.

We anticipate that our existing cash balances, funds generated from operations, and borrowings will be sufficient to meet our cash requirements for the next twelve months. No assurance can be given, however, that these sources will be sufficient, because there are many factors which could affect our liquidity, including some which are beyond our control. Please see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K filed with the SEC on March 12, 2020 for a discussion of the risks associated with our liquidity. Please also see ‘‘Item 1A. Risk Factors’’ of Part II of this Quarterly Report on Form 10-Q.

On October 30, 2020, we entered into a First Amendment to our Third A&R Credit Agreement (the “Amendment”). The Amendment provides for, among other things, an increase in the revolving credit commitments previously available by $25.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Third A&R Credit Agreement to $75.0 million, upon the terms and subject to the satisfaction of the conditions set forth in the Third A&R Credit Agreement, as amended by the Amendment. The Amendment also changes the calculation of the interest rate and the commitment fee. See Note 12. Subsequent Events to our condensed consolidated financial statements for more information on the terms of the Amendment.

Capital Expenditures

    For the nine months ended September 30, 2020, we incurred $19.3 million in finance lease payments and an additional $6.7 million cash purchases for equipment. We estimate that we will spend approximately two percent of revenue for capital expenditures for 2020 and 2021. Actual capital expenditures may increase or decrease in the future depending upon business activity levels, as well as ongoing assessments of equipment lease versus buy decisions based on short and long-term equipment requirements.

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Working Capital

    We require working capital to support seasonal variations in our business, primarily due to the effect of weather conditions on external construction and maintenance work and the spending patterns of our customers, both of which influence the timing of associated spending to support related customer demand. Our business is typically slower in the first quarter of each calendar year. Working capital needs are generally lower during the spring when projects are awarded and we receive down payments from customers. Conversely, working capital needs generally increase during the summer or fall months due to increased demand for our services when favorable weather conditions exist in many of the regions in which we operate. Again, working capital needs are typically lower and working capital is converted to cash during the winter months. These seasonal trends, however, can be offset by changes in the timing of projects, which can be affected by project delays or accelerations and/or other factors that may affect customer spending.

    Generally, we receive 5% to 10% cash payments from our customers upon the inception of our Renewable projects. Timing of billing milestones and project close-outs can contribute to changes in unbilled revenue. As of September 30, 2020, substantially all of our costs in excess of billings and earnings will be billed to customers in the normal course of business within the next twelve months. Net accounts receivable balances, which consist of contract billings as well as costs and earnings in excess of billings and retainage, increased to $402.8 million as of September 30, 2020 from $382.9 million as of December 31, 2019, due primarily to higher levels of revenue, timing of project activity, and collection of billings to customers.

    Our billing terms are generally net 30 days, and some of our contracts allow our customers to retain a portion of the contract amount (generally, from 5% to 10%) until the job is completed. As part of our ongoing working capital management practices, we evaluate opportunities to improve our working capital cycle time through contractual provisions and certain financing arrangements. Our agreements with subcontractors often may contain a ‘‘pay-if-paid’’ provision, whereby our payments to subcontractors are made only after we are paid by our customers.

Sources and Uses of Cash

    Sources and uses of cash are summarized below:
Nine Months Ended September 30,
(in thousands) 2020 2019
Net cash used in operating activities (58,798) (55,473)
Net cash provided by (used in) investing activities (1,729) 1,586 
Net cash provided by (used in) financing activities (29,434) 25,750 
    
Operating Activities. Net cash used in operating activities for the nine months ended September 30, 2020 was $58.8 million, as compared to net cash used by operating activities of $55.5 million over the same period in 2019. The increase in net cash used by operating activities reflects the timing of receipts from customers and payments to vendors in the ordinary course of business. The change was primarily attributable to related to reduced collections of accounts receivable and lower contract assets offset by increased payments on payables and accrued liabilities.

Investing Activities. Net cash used by investing activities for the nine months ended September 30, 2020 was $1.7 million, as compared to net cash provided by investing activities of $1.6 million over the same period in 2019. The decrease in net cash provided by investing activities was primarily attributable to a reduction of proceeds from the sale of property, plant and equipment.

Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2020 was $29.4 million, as compared to net cash provided of $25.8 million over the same period in 2019. The reduction of cash provided by financing activities of $55.2 million was primarily attributable to a sale leaseback transaction of $24.3 million, proceeds from debt of $50.4 million and proceeds from the issuance of Series B Preferred Stock of $100.0 million offset by payments on long-term debt of $121.2 million in 2019.

Series A Preferred Stock

    As of September 30, 2020, we had 17,483 shares of Series A Preferred Stock issued and outstanding. Each share of Series A Preferred Stock had an initial stated value of $1,000 per share (or approximately $17.5 million in the aggregate).
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Dividends are paid on the Series A Preferred Stock as, if and when declared by our Board. To extent permitted and only as, if and when declared by the Board, dividends are required to be paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31 on the stated value at a rate of 10% per annum.

    If not paid in cash, dividends will accrue on the stated value and will increase the stated value on and effective as of the applicable dividend date without any further action by the Board at 12% per annum. As of September 30, 2020, the Company had increased the initial stated value by $3.7 million in the aggregate rather than pay cash dividends.

    So long as any shares of Series B Preferred Stock of the Company are currently outstanding or from and after the occurrence of any non-payment event or default event and until cured or waived, the foregoing rates will increase by 2% per annum.

    The Series A Preferred Stock do not have a scheduled redemption date or maturity date. Subject to the terms of the Series B Preferred Stock, we may, at any time and from time to time, redeem all or any portion of the shares of Series A Preferred Stock then outstanding. As a condition to the consummation of any change of control (as described in the certificate governing the Series A Preferred Stock), we are required to redeem all shares of Series A Preferred Stock then outstanding. We are also required to use the net cash proceeds from certain transactions to redeem the maximum number of shares of Series A Preferred Stock that can be redeemed with such net cash proceeds, except as prohibited by the Third A&R Credit Agreement.

    Based on the stated value of the Series A Preferred Stock as of September 30, 2020 after giving effect to the accrual of dividends, we would be required to pay quarterly cash dividends in the aggregate of $0.6 million on the Series A Preferred Stock. If our business does not generate enough cash to pay future cash dividends, the dividends will accrue at a rate of 12% per annum and increase the stated value of the Series A Preferred Stock, which will make cash dividends on the Series A Preferred Stock more difficult for us to make in the future. We do not presently expect to pay cash dividends, although an actual decision regarding payment of cash dividends on the Series A Preferred Stock will be made at the time of the applicable dividend payment based upon availability of capital resources, business conditions, other cash requirements, and other relevant factors.

Series B Preferred Stock

    As of September 30, 2020, we had 199,474 shares of Series B Preferred Stock issued and outstanding. Each share of Series B Preferred Stock had an initial stated value of $1,000 per share (or approximately $199.5 million in the aggregate). Our common stock and Series A Preferred Stock are junior to the Series B Preferred Stock. Dividends are paid in cash on the Series B Preferred Stock as, if and when declared by our Board. To the extent not prohibited by applicable law, and only as, if and when declared by the Board, dividends are required to be paid in cash quarterly in arrears on each March 31, June 30, September 30 and December 31. Any dividend period for which the Total Net Leverage Ratio is greater than 1.50:1.00, the dividend rate is 13.5% per annum and (ii) with respect to any dividend period for which the Total Net Leverage Ratio is less than or equal to 1.50:1.00, at a rate of 12% per annum.

    If not paid in cash, dividends will accrue on the stated value and will increase the stated value on Series B Preferred Stock effective as of the applicable dividend date without any further action by the Board at a rate of 15%. As of September 30, 2020, the Company had increased the initial stated value by $18.3 million in the aggregate rather then pay cash dividends.

    Until the Series B Preferred Stock is redeemed, neither we nor any of our subsidiaries can declare, pay or set aside any dividends on shares of any other class or series of capital stock, except in limited circumstances. We are required to redeem all shares of Series B Preferred Stock outstanding on February 15, 2025 at the then stated value plus all accumulated and unpaid dividends thereon through the day prior to such redemption. Subject to compliance with the terms of any credit agreement, we are also required to redeem all of the Series B Preferred Stock as a condition to the consummation of certain changes in control (as defined in certificate governing the Series B Preferred Stock), as well as use the net cash proceeds from certain transactions to redeem shares of Series B Preferred Stock.

    Based on the stated value of the Series B Preferred Stock as of September 30, 2020 after giving effect to the accrual of dividends, we would be required to pay quarterly cash dividends in the aggregate of $6.6 million on the Series B Preferred Stock. If our business does not generate enough cash to pay future cash dividends, the dividends will accrue at a rate of 15% per annum and increase the stated value of the Series A Preferred Stock, which will make cash dividends on the Series B Preferred Stock more difficult for us to make in the future. Actual decisions regarding payment of cash dividends on the Series B Preferred Stock will be made at the time of the applicable dividend payment based upon availability of capital resources, business conditions, other cash requirements, and other relevant factors.


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Deferred Taxes - COVID-19

The CARES Act was enacted on March 27, 2020, in response to the COVID-19 emergency. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income-based tax laws. Some of the key income tax-related provisions of the CARES Act include:

•Eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize net operating losses (“NOLs”) to offset taxable income in 2018, 2019 or 2020

•Allowing NOLs originating in 2018, 2019 or 2020 to be carried back five years

•Increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning 1 January 2019 and 2020

•Allowing taxpayers with alternative minimum tax (“AMT”) credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the Tax Cuts and Jobs Act (“TCJA”)

•Payroll tax deferral

The new NOL carryforward and interest expense deduction rules are favorable for IEA and will help defer future cash tax liabilities. IEA has filed an election to refund $0.5 million AMT credit in April 2020 that was received in the third quarter.

IEA has also made use of the payroll deferral provision to defer the 6.2% social security tax, which is approximately $9.0 million through December 31, 2020. This amount is required to be paid at 50% on December 31, 2021 and December 31, 2022.

Amendment to Third A&R Credit Agreement

On October 30, 2020, the Company entered into a First Amendment to its Third A&R Credit Agreement (the “Amendment”). The Amendment provides for, among other things, an increase in the revolving credit commitments previously available by $25.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Third A&R Credit Agreement to $75.0 million, upon the terms and subject to the satisfaction of the conditions set forth in the Third A&R Credit Agreement, as amended by the Amendment.

In addition, the Amendment provides that on and after the Amendment’s effective date and until delivery of the financial statements for the fiscal quarter ended December 31, 2020, as required under the Amendment, the percentage per annum interest rate for revolving loans and swing line loans is, at the Company’s option, (x) LIBOR plus a margin of 2.75% or (y) the applicable base rate plus a margin of 1.75%. Thereafter, for any day, the applicable percentage per annum interest rate for revolving loans and swing line loans is LIBOR or the base rate plus a margin depending upon the Company’s first lien net leverage ratio as of the last day of the most recently ended consecutive four fiscal quarter period, as set forth below:

First Lien Net Leverage Ratio LIBOR Loans Base Rate Loans
Less than 1.00:1.00 2.50% 1.50%
Less than 2.00:1.00 but greater than or equal to 1.00:1.00 2.75% 1.75%
Less than 3.00:1.00 but greater than or equal to 2.00:1.00 3.00% 2.00%
Less than 3.50:1.00 but greater than or equal to 3.00:1.00 3.25% 2.25%
Greater than or equal to 3.50:1.00 3.50% 2.50%

The Amendment also further specifies the unused commitment fee rate. On and after the Amendment’s effective date and until delivery of the financial statements for the fiscal quarter ended December 31, 2020, as required under the Amendment, the rate is 0.40% per annum. Thereafter, for any day, the applicable percentage per annum depends upon the Company’s senior secured net leverage ratio, as set forth below:
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Senior Secured Net Leverage Ratio Applicable Unused Commitment Fee Rate
Less than 1.00:1.00 0.35%
Less than 2.00:1.00 but greater than or equal to 1.00:1.0 0.40%
Less than 3.00:1.00 but greater than or equal to 2.00:1.00 0.45%
Greater than or equal to 3.00:1.00 0.50%


The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is filed herewith as Exhibit 10.1.

Contractual Obligations

    The following table sets forth our contractual obligations and commitments for the periods indicated as of September 30, 2020.
Payments due by period
(in thousands) Total Remainder of 2020 2021 2022 2023 2024 Thereafter
Debt (principal) (1)
179,648  3,717  1,229  15,859  29,735  129,108  — 
Debt (interest) (2)
43,803  3,115  12,144  11,971  10,277  6,296  — 
Debt - Series B Preferred Stock (3)
199,474  —  —  —  —  —  199,474 
Dividends - Series B Preferred Stock (4)
130,553  6,600  26,401  26,401  26,401  26,401  18,349 
Finance leases (5)
60,390  6,620  24,716  20,949  5,675  1,819  611 
Operating leases (6)
54,184  3,136  10,887  9,123  6,934  3,454  20,650 
Total $ 668,052  $ 23,188  $ 75,377  $ 84,303  $ 79,022  $ 167,078  $ 239,084 
(1)Represents the contractual principal payment due dates on our outstanding debt.
(2)Includes variable rate interest using September 30, 2020 rates.
(3)Represents the mandatorily redeemable debt - Series B Preferred with expected redemption date of February 15, 2025.
(4)Future declared dividends have been included at 12% but payment determination will be evaluated each quarter resulting in differing accumulated dividend rates.
(5)We have obligations, exclusive of associated interest, recognized under various finance leases for equipment totaling $60.4 million at September 30, 2020. Net amounts recognized within property, plant and equipment, net in the condensed consolidated balance sheet under these financed lease agreements at September 30, 2020 totaled $72.7 million.
(6)We lease real estate, vehicles, office equipment and certain construction equipment from unrelated parties under non-cancelable leases. Lease terms range from month-to-month to terms expiring through 2038.

    For detailed discussion and additional information pertaining to our debt instruments, see Note 6. Debt and Note 7. Commitments and Contingencies in the notes to our condensed consolidated financial statements, included in Part I, Item 1.

Off-Balance Sheet Arrangements

    As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business. Our significant off-balance sheet transactions include liabilities associated with letter of credit obligations, surety and performance and payment bonds entered into in the normal course of business, liabilities associated with deferred compensation plans, liabilities associated with certain indemnification and guarantee arrangements.

    As of September 30, 2020 and December 31, 2019, the Company was contingently liable under letters of credit issued under its revolving credit facility or its old credit facility in the amount of $23.5 million and $21.0 million, respectively, related to projects.

    As of September 30, 2020 and December 31, 2019, the Company had outstanding surety bonds on projects of $2.7 billion and $2.4 billion, respectively, including the bonding line of the acquired ACC Companies and Saiia.

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    See Note 6. Debt in the notes to our condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for discussion pertaining to our off-balance sheet arrangements. See Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies and Note 11. Related Party Transactions in the notes to condensed consolidated financial statements, included in Part I, Item 1, for discussion pertaining to certain of our investment arrangements.

Recently Issued Accounting Pronouncements

    See Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies in the notes to our condensed consolidated financial statements, included in Part I, Item 1.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Credit Risk

    We are subject to concentrations of credit risk related to our net receivable position with customers, which includes amounts related to billed and unbilled accounts receivable and costs and earnings in excess of billings (‘‘CIEB’’) on uncompleted contracts net of advanced billings with the same customer. We grant credit under normal payment terms, generally without collateral, and as a result, we are subject to potential credit risk related to our customers’ ability to pay for services provided. This risk may be heightened if there is depressed economic and financial market conditions. However, we believe the concentration of credit risk related to billed and unbilled receivables and costs and estimated earnings in excess of billings on uncompleted contracts is limited because of the lack of concentration and the high credit rating of our customers.

Interest Rate Risk

    Borrowings under the new credit facility and certain other borrowings are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. The outstanding debt balance as of September 30, 2020 was $179.6 million. A one hundred basis point change in the LIBOR rate would increase or decrease interest expense by $1.8 million. As of September 30, 2020, we had no derivative financial instruments to manage interest rate risk.
Item 4. Control and Procedures

    Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of IEA’s Chief Executive Officer and Chief Financial Officer that are required in accordance with Rule 13a-14 of the Exchange Act of 1934. This section includes information concerning the controls and controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications.

Evaluation of Disclosure Controls and Procedures

    Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

    As of the end of the period covered by this Quarterly Report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that, as of September 30, 2020, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

    As previously discussed in Item 2. Management Discussion and Analysis, the Company is using remote technology for employees working from home due to COVID-19. Although certain employees are working remotely, there has been no change in our internal control over financial reporting during the quarter ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION
Item 1A. Risk Factors

    At September 30, 2020, there have been no other material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K filed with the SEC on March 12, 2020, which is accessible on the SEC's website at www.sec.gov, except as described below.

The ultimate effects of the current COVID-19 pandemic are unknown and evolving, and could result in negative effects on our business, financial condition, results of operations and prospects.

The COVID-19 pandemic is a rapidly developing situation around the globe that has adversely impacted economic activity and conditions in the United States and worldwide. In particular, efforts to control the spread of COVID-19 have led to local and worldwide shutdowns and stay-at-home orders, stock price declines, employee layoffs, and governmental programs to support the economy.

The COVID-19 pandemic could affect us in a number of other ways, including but not limited to:

•Inabilities to properly staff our construction projects due to quarantines and stay at home orders.

•Inabilities of customers to fund project obligations due to liquidity issues.

•Termination or delay in project construction at our customers’ discretion due to financial uncertainties.

•Inability of, or delays by, our subcontractors to deliver equipment and services.

•Restrictions on our ability to obtain new business if our customer base is financially constrained.

•Inability to obtain bonding from our sureties due to tightening of credit markets.

•Decrease in demand for civil construction resulting from corresponding decreases in federal, state and local budgets.

Each of the foregoing would cause project delays, force majeure events and project terminations, which could negatively impact our ability to recognize revenues and bill our customers for current costs. In addition, if our customers are unable to finance new projects as a result of their liquidity issues during and in the aftermath of the pandemic, our business outlook will be negatively impacted. A prolonged continuation of the COVID-19 pandemic, or a resurgence of the pandemic even if the current pandemic is significantly reduced, could also result in additional impacts to our business, financial condition, results of operations and prospects. The ultimate effects of the COVID-19 pandemic are unknown at this time. We are continuing to monitor developments but cannot predict at this time whether COVID-19 will have a material impact on our business, financial condition, liquidity or results of operations.


Item 5. Other Information

Amended and Restated Employment Agreements

On November 5, 2020, the Company entered into amended and restated employment agreements (the “Amended and Restated Employment Agreements”) with each of J.P. Roehm, Michael Stoecker and Gil Melman, which Amended and Restated Employment Agreements supersede their respective existing employment agreements in their entirety.

Pursuant to the Amended and Restated Employment Agreements, Mr. Roehm is employed as Chief Executive Officer and receives a base salary of $650,000 for an initial term of three years, Mr. Stoecker is employed as Chief Operating Officer and receives a base salary of $450,000 for an initial term of three years, and Mr. Melman is employed as Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer and receives a base salary of $360,000 for an initial term of three years.

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The Amended and Restated Employment Agreements provide that the executives will have the opportunity to earn a performance-based bonus each calendar year in a target amount of a percentage of his base salary (100%, 80% and 60% for Messrs. Roehm, Stoecker and Melman, respectively), administered and payable under the Company’s annual bonus plan. Each executive is also eligible to receive equity awards each calendar year with a target award of a percentage of their base salary (200%, 85% and 75% for Messrs. Roehm, Stoecker and Melman, respectively), administered and payable under the Infrastructure and Energy Alternatives, Inc. 2018 Amended and Restated Equity Incentive Plan. Additionally, each executive will receive, at the Company’s election, a company-owned or leased vehicle. The Amended and Restated Employment Agreements contain standard post-employment non-competition and non-solicitation covenants during the 12-month period following each executive’s termination.

If the executives are terminated by the Company without “cause” or if the executive resigns for “good reason,” then they shall receive: (i) a severance payment in the amount of (a) 12 months (or 18 months in the case of Mr. Roehm) of his then existing base salary , plus (b) an amount equal to the greater of the target bonus for year of termination or the average of his annual bonus payable in the prior three or fewer calendar years (or 1.5 times such amount in the case of Mr. Roehm), such amount to be payable over the 12-month period (or 18 month period in the case of Mr. Roehm) following termination (the “Severance Payment”); (ii) his pro-rated bonus for the year of termination, payable in a lump sum at the time such amount would have been paid under the annual bonus plan; and (iii) payment of the applicable premium for continuation coverage for him and his eligible dependents under the Company’s group medical plan, such amount “grossed up” to account for additional income and employment taxes incurred on such amount. In addition, all of the executive’s equity grants and awards shall become vested (at target level for performance awards) and immediately exercisable.

In the event the executive’s employment is terminated for the reasons described above within 24 months following a Change in Control (as defined in the Company’s 2018 Amended and Restated Equity Incentive Plan), then the executive shall receive: (i) two times the amount of the Severance Payment, payable over the 12-month period following termination; (ii) his pro-rated bonus for the year of termination, payable in a lump sum at the time such amount would have been paid under the annual bonus plan; (iii) payment of the applicable premium for continuation coverage for him and his eligible dependents under the Company’s group medical plan, such amount “grossed up” to account for additional income and employment taxes on such amount; and (iv) a reimbursement of up to $50,000 for the use of outplacement services. In addition, all of the executive’s equity grants and awards shall become vested (at target level for performance awards) and immediately exercisable.

Following any termination for Cause or due to death or “disability” (as defined in the Employment Agreement), or if the executive terminates his employment for any reason other than for Good Reason, the executive will receive a payment of accrued but unpaid base salary, any earned and unpaid bonus and payment of unreimbursed expenses. Further, if the executive’s employment is terminated due to death or “disability,” all of the executive’s equity grants and awards shall become vested (at the target level for performance awards) and exercisable.

“Cause” means: (i) the executive’s substantial and repeated failure to perform duties as reasonably directed by the Board of the Company (not as a consequence of “disability”) after written notice thereof and failure to cure within 10 days; (ii) the executive’s misappropriation or fraud with regard to the Company or its assets; (iii) conviction of, or the pleading of guilty to, a felony, or any other crime involving either fraud or a breach of the executive’s duty of loyalty with respect to the Company or any of its customers or suppliers that results in material injury to the Company; (iv) the executive’s violation of the written policies of the Company, or other misconduct in connection with the performance of his duties that in either case results in material injury to the Company, after written notice thereof and failure to cure within 10 days; or (v) the executive’s breach of any material provision of the Employment Agreement, including without limitation the confidentiality and non-disparagement provisions and the non-competition and non-solicitation provisions described above.

“Good Reason” means the occurrence of any of the following events without the executive’s prior express written consent: (i) any reduction in the executive’s base salary or target bonus percentage, or any material diminution in the executive’s duties or authorities; (ii) any relocation of the executive’s principal place of employment to a location more than 75 miles from the executive’s principal place of employment as of the effective date of the Employment Agreement; or (iii) any material breach by the Company of any material obligation owed to the executive; provided however, that prior to resigning for any “good reason,” the executive shall give written notice to the Company of the facts and circumstances claimed to provide a basis for such resignation not more than 30 days following his knowledge of such facts and circumstances, and the Company shall have 30 days after receipt of such notice to cure the circumstances giving rise to such resignation for “good reason.”

The foregoing descriptions of the Amended and Restated Employment Agreement are qualified in their entirety by reference to the full text of the Amended and Restated Employment Agreements, which are filed as Exhibit 10.2, 10.3 and 10.4 to this Quarterly Report on Form 10-Q and incorporated in this “Item 5. Other Information” by reference.


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Appointment of Director

On November 5, 2020, the Company’s Board, based on the recommendation of the Company’s Corporate Governance and Nominating Committee and a majority of its independent directors, elected Michael Della Rocca to serve as a Class I member of the Board. Mr. Della Rocca will serve until the 2021 annual meeting of shareholders, or until his successor is elected and qualified or his earlier death, resignation, removal or retirement. Mr. Della Rocca will serve on the Compensation Committee and the Bid Review Committee.

There are no arrangements or understandings between Mr. Della Rocca and any other persons pursuant to which Mr. Della Rocca was elected to serve as a director. The Company has determined that neither Mr. Della Rocca nor any of his immediate family members, has or had a direct or indirect material interest in any transaction in which the Company or any of the Company’s subsidiaries was or is a participant, that would be required to be disclosed under Item 404(a) of SEC Regulation S-K.

The Company has entered into a standard director indemnity agreement with Mr. Della Rocca, a form of which was filed as Exhibit 10.8 to the Company’s Amendment No. 1 to Form S-1 filed with the SEC on May 2, 2016.



Item 6. Exhibits

(a)    Exhibits.
    
Exhibit Number Description
2.1
2.2
2.3
2.4
2.5
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2.6
2.7
2.8
2.9
3.1*
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
4.1
4.2
4.3
4.4
4.5
4.6
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4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2*†
10.3*†
10.4*†
31.1*
31.2*
32.1**
32.2**
101.INS* XBRL Instance Document (the Instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL)
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)
* Filed herewith.
** Furnished herewith.
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† Indicates a management contract or compensatory plan or arrangement.




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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
   
  INFRASTRUCTURE AND ENERGY ALTERNATIVES, INC.
   
Dated: November 9, 2020 By: /s/ Peter J. Moerbeek
  Name: Peter J. Moerbeek
  Title:   Executive Vice President, Chief Financial Officer
  Principal Financial and Accounting Officer

Infrastructure and Energ... (NASDAQ:IEAWW)
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