Infrastructure and Energy Alternatives, Inc.
Q2 2021 Earnings Call Transcript

Published: 10 Aug 2021

[Operator:]

Good morning, and welcome to Infrastructure and Energy Alternatives Second Quarter 2021 Conference Call. I'd like to note that all participants on today's call are in a listen-only mode. And with that, I'll turn the call over to Kimberly Esterkin, Investor Relations for IEA. Kimberly, please go ahead.

[Kimberly Esterkin:]

Hello and thank you for joining us today to discuss IEA's second quarter 2021 financial results. With us from management are JP Roehm, President and Chief Executive Officer; and Pete Moerbeek, Executive Vice President and Chief Financial Officer. Before turning the call over to management, I would like to note that today's discussion contains forward-looking statements about IEA's future growth and financial expectations. Any forward-looking statements should be considered in conjunction with the cautionary statements in IEA's second quarter press release and the Risk Factors included in the company's SEC filings. Except as required by law, IEA undertakes no obligation to update its forward-looking statements after today's call. Since management will be presenting some non-GAAP financial measurements as references, including adjusted EBITDA, the appropriate GAAP financial reconciliations can be found in the press release issued on July 28, 2021. And with that, I'll now turn the call over to JP Roehm, Chief Executive Officer. Please go ahead, JP.

[JP Roehm:]

Well, thank you, Kimberly, and good morning to everyone. We appreciate you joining our second quarter 2021 earnings conference call. I want to start by mentioning the series of financial transactions that we have begun to modify and improve our capital structure. As you can tell from the many press releases and forms 8-K, we are addressing many of the challenges of the old capital structure. I will leave the details to Pete, but we are excited for the future of IEA. For the second quarter, IEA generated record revenues of $560 million. Our renewable segment accounted for 76% of that revenue generating $425 million, an increase of 31% year-over-year. Of note, our solar division revenues grew from $7 million in Q2 in 2020 to over $108 million in Q2 2021. That's an increase of more than a $100 million. We started building our solar capabilities at the end of 2019, and we are now seeing the results of those efforts. Our Specialty Civil segment accounted for 24% of the quarter's revenue with revenue at $135 million. That was a decrease of 13.5% year-over-year, primarily from the impact of a large heavy civil project in the second quarter of 2020, which did not repeat this year, along with unseasonably rainy conditions in parts of the country. Our Specialty Civil businesses are still seeing the impact of project delays resolving from the pandemic, especially in our rail transportation business. We're not totally out of the woods when it comes to COVID-19. We continue to maintain health and safety requirements on our project sites, and from time-to-time, we experienced some delays or other supply chain issues. It's worth noting that we do have contractual protections to reduce our financial exposure to those project delays and projects cost escalations. Not only did we achieve record revenues for the second quarter, but we also enter Q2 with more business in our backlog than in any other time in the company's history. Backlogs increased by $86 million during the quarter to total $2.8 billion, up nearly 60% on a year-over-year basis. We won wind and solar projects in multiple locations this past quarter, including wind and solar farms in Texas. The number one ranked state for operating wind, solar energy storage capacity in the country. A 200 megawatt utility scale wind farm in Northwest Iowa, the first state to generate more than 30% of its total electricity from wind, and 145 megawatt utility scale wind farm in Colorado, a state, which is committed to achieving a 100% clean energy generation by 2040. Wind re-powering projects are also gaining traction. The U.S. ranked fourth among the top 20 wind re-powering markets by capacity, with the re-powering market expected to reach $25 billion annually by 2030. IEA is uniquely positioned to act on this opportunity. During the second quarter, we were awarded a $70 million balance of plant power contract to repower the 240 megawatts Big Sky wind farm in Illinois. By the end of the construction in July 2022, this project is expected to increase Big Sky's annual energy output by over 60%. Projects like Big Sky highlight the long-term opportunity in the wind market as installed infrastructure ages and new technologies improve efficiencies. Not only is our backlog at an all-time high, it is comprised of a much more balanced mix of business than it's ever had in the past. As we book more strong winds in transportation and environmental remediation this past quarter. For example, IEA won a $126 million contract from the Illinois Department of Transportation to reconstruct the I-57 & I-74 interchange in Champaign, Illinois. This includes the building of 12 new ramps and bridges. Work on this project began in July. Although not funded by money from the federal infrastructure bill, this project provides an example of what a typical federally funded project could be in the future. The American Act calls for $343 billion invested in roads, bridges, and safety, with $32 billion specifically set aside for bridge repairs. This project shows that IEA couldn't be a player in that market. Renewables has propelled our growth over the past several years, and I believe that we are now on the cusp of a similar opportunity in the coal ash remediation business. Coal ash is generated by the burning of coal at power plants, and it contains contaminants such as cadmium, mercury, and arsenic. Without proper management, these contaminants complete waterways, groundwater and drinking water and even the air. Large spills near Kingston, Tennessee, and Eden, North Carolina caused widespread environmental and economic damage to the nearby waterways and properties and resolve it in the federal rules that ultimately protect coal ash disposal. These rules usually require that we build new ponds and landfills that comply with current regulations and then transport the coal ash residuals from the plant or former storage sites to the new disposal sites. We don't do the engineering for these projects, and we don't take on any of the environmental risks associated with these projects as our customers retain their liability. Coal ash at times has the consistency similar to that of quick sand. And the job requires a significant amount of equipment and expertise thus requiring an emphasis on safe operations at a company of scale. We work mostly under master services agreements that enable us to be paid on either a per ton basis or a time and materials basis, further reducing risk and making these projects attractive from a margin perspective. The coal ash removal agreement, we recently announced with a large utility underscores the opportunity in this marketplace. It's a multi-year opportunity that starts at a slow pace in the first two years, and then will continue for over 10 years. Before speaking further about the growth trajectory of our end markets, I'll turn the call over to our CFO, Pete Moerbeek, to highlight the second quarter's financial results and speak to our 2021 guidance and of course, address our recent capital structure transactions. Pete?

[Pete Moerbeek:]

Thanks, JP, and good morning to everyone. Since we filed our second quarter Form 10-Q and earnings release almost two weeks ago, I will mention only a few highlights. As JP mentioned, our second quarter results were strong. Revenues of $560.1 million were a new record for our company and more than doubled sequentially. Gross margins totaled 9.5% for the second quarter and did decline from a 11.3% in the year ago period. There are two primary reasons for the decline, which we believe to be temporary. The first is a result of the pandemic, which delayed the start of new work this year as evidenced by the first quarter's low revenue. At the outset of any project, we established specific contingencies, which are treated as expected costs, as we calculate revenues using the percentage of completion rules. As we complete the project, we can usually de-risk the project and reduce its contingency resulting in margin improvements. In most quarters, we have projects in various stages of completion and this contingency effect is not pronounced. However, in the second quarter, we had an unusually high number of projects still in their early stages. As these projects move toward completion throughout the rest of this year, we expect to return to more normal margins. The second reason for the reduced margin in Q2 was the need to prepare for the third and fourth quarters of this year, when we will be running in full force. We added 2,000 employees in the second quarter. As we onboard and provide training in Q2, the new hires are not yet actively working on projects. However, they are now working, which will help margins in the third and fourth quarters. For the quarter, SG&A expenses were 5.5% of revenue, compared to 5.8% of revenue in the prior period. Our full-year expectation is that SG&A expenses will be similar to last year's mid-6% of revenue range. Some other financial highlights. In the second quarter, our cash used in operations totaled $11.4 million, compared to $64.6 million in the same period a year ago. We expect to generate positive cash flow in the second half of the year. Interest expense for the quarter totaled $14.5 million, down from $16.2 million in the second quarter of 2020, primarily as a result of lower effective interest rates in our term loan, partially offset by an increased dividend rate on our Series B preferred stock from 12% to 13.5%. Adjusted EBITDA for the quarter totaled $35.7 million or 6.4% of revenues as compared to $39.3 million or 8.2% of revenues in the second quarter of 2020. The expected margin improvements that I discussed earlier will also improve our adjusted EBITDA margin in the second half of the year. Capital expenditures for the second quarter totaled $18.2 million of which $7.9 million was financed through leases. We continue to expect the capital expenditures for the year will be approximately 2% of our revenue for 2021. Lastly, turning to backlog. We added $86 million for our backlog in the second quarter, which as JP mentioned resulted in record backlog of $2.8 billion. This amount includes only three years of the coal ash contract JP spoke to earlier. We expect to recognize $1.8 billion of our total backlog amount in the next 12 months. IEA remains on track to meet our full-year guidance and we are reaffirming our revenue and adjusted EBITDA guidance ranges. We continue to expect revenue in the range of $1.8 billion to $1.95 billion and adjusted EBITDA in the range of $130 million to $140 million for the full-year 2021. That implies a very strong third and fourth quarter with favorable comps to 2020. From a financial perspective, the three months of the quarter were on target and relatively calm. The past three to four weeks, not so much. We have begun a series of transactions that will significantly improve our capital structure and make it more transparent and understandable. Much of the transaction information can be found in the prospective supplement that we filed on July 28th. And we will post more detailed information after the closings on our website in an 8-K in the near future. First, we launched an equity offering that's priced on July 28th, and closed on August 2nd, in which we sold 18.3 million new shares at $11 per share for net proceeds of $196.3 million. Ares purchased almost 60% of this offering; 10.9 million shares or prefunded warrants. Demand for the non-Ares shares was for about twice the number available. And we completed the offering at only a 5.7 discount from the previous day closing price. Second, we priced the $300 million high yield bond offering last Friday. The transaction will close on August 17th. The 6.58% senior notes will be due on August 15, 2029, an eight-year tenor. The notes priced at 98.485%. These notes will require semiannual interest only payments until their due date. We're very pleased with the results as this offering was our initial high yield bond issuance that both Moody's and S&P upgraded our ratings in the past two weeks were obvious positives. Third, we're in the final negotiations for an expanded revolver credit agreement with four banks. We're expecting to receive $150 million revolver, which is double the amount of our current revolver. The revolver is expected to close on August 18th. Fourth, Ares, the owner of our Series A and Series B preferred shares has agreed to convert all of their Series A preferred to common stock as allowed in the Series A agreements. They have also agreed to convert their Series B penny warrants to common stock. We will use the proceeds from the equity offering and the high yield notes to redeem our current secured bank notes and redeem all of the Series B preferred shares. When we are done with the transaction, we will have a balance sheet with capital leases and equipment debt of approximately $57 million, $300 million of unsecured high yield notes, and no preferred debt or equity. We will have approximately 52 million common shares or share equivalents outstanding. So why do these transactions and why do them now? The benefits are readily apparent. We're extending the average maturity of our debt from 3.5 years to around eight years, which is very important for our sureties. We paid approximately $41 million of cash interest last year and expect a reduction from these transactions of at least $20 million for annual cash interest payments. Our interest payments should also be tax deductible unlike the previous Series B dividend payments, which were not. That we are able to make these improvements to our balance sheet is due to the efforts of Ares and a special committee of our Board of Directors. Ares has agreed to a series of governance rights, including two of nine or 10 directors and a voting interest of around 32%. We expect that their economic interests will be approximately 38% of our total ownership. Ares is converting a senior security, which paid at least 12% in cash dividends per year in the common shares. We believe this is a very strong vote of confidence for our company. Finally, the transactions will also allow us to grow faster as our new revolver will give us the capacity to conduct accretive tuck-in acquisitions that makes strategic sense with attractively priced capital. Before turning the call back to him, JP and I want to acknowledge the many contributors to these transactions, especially the help of Erin Roth, our new General Counsel and the members of my finance team. With our revised capital structure and record revenues and backlog. IEA is ready for our next phase of growth. JP, back to you.

[JP Roehm:]

Thank you, Pete. And it's certainly been a whirlwind. That said the overarching theme for our IEA business right now is the growing demand. I've been a part of this IEA family for more than two decades. And I've never seen this much momentum across all of our businesses at the very same time. We are the largest publicly traded wind and solar EPC Company in the United States. In our environmental business, we believe that the recent contract win makes us the top provider remediation services for coal combustion residuals. And in our Specialty Civil business, we are a top 20 player in rail and highway construction. Our market position in these end markets has been only strengthening over time. Wind and solar are the preferred source of new energy generation in the United States. We do not see our wind or solar business slowing down any time soon. According to the U.S. government, wind and solar are now the lowest cost forms of new power generation in the country. Over the past three years alone, almost two-thirds of all new power generation in the country has been from renewables. The EPC services we provide account for between 28% and 32% on average of the utility scale wind and solar project. That means IEA is one of the largest recipients of the billions of dollars that will continue to be invested in new renewables energy generation. As virtually all owners procure the wind turbines and solar panels for their projects we do not have any technological risk or significant CapEx in the project, while directly benefiting from the underlying growth of this renewables industry. In June, the IRS expanded the continuity Safe Harbor, which means that current wind and solar tax credits will likely apply to most projects through 2025. That means that some more marginal projects may now become viable. Our newly formed wind services group, which performs maintenance work is also seen increased opportunities. Currently, wind farm owners in the United States spend approximately $2.6 billion on maintenance services annually with most of that money currently going to the turbine manufacturers. As the manufacturers change their focus to increase their turbine capacity, we see an opportunity for IEA to become a credible independent player. Beyond renewables, as I noted earlier, we're seeing strong growth drivers for our Specialty Civil segment. Our environmental business is expected to be a major growth engine for IEA as large coal ash remediation projects are awarded to meet the federal regulatory deadlines. What's exciting about the coal ash opportunity is that it's in its early stages. IEA has the capabilities and credentials to win these large multi-year contracts. There are over 700 sites across the United States with over 2 billion metric tons of coal ash that must be remediated and disposed of properly. At present, less than 15% of existing impoundments and landfills have been remediated to-date. Using data publicly available from Duke Energy, we believe the remediation opportunity for these sites across the country could be as much as $50 billion to over $150 billion, depending on the price per ton of coal ash removed over the next 10 to 15 years. Major regulations in this area did not come into effect until 2018. So in other words, there's going to be a lot of work in the coming years. Our transportation business, which was previously constrained because of COVID-19 and federal state budget constraints, is starting to improve. With the expected increase in federal government spin on infrastructure, we believe that business is going to grow. IEA is recognized as among the leaders in both freight and passenger rail projects. We also have a terrific franchise in bridge and highway construction in some of the popular states across the United States. The federal infrastructure bill is expected to result in a 50% increase in federal spending for highway and rail infrastructure. As a top 20 contractor of both areas, we expect to be a major beneficiary of this increase in spending. We await final actions in the Senate on an infrastructure bill and anticipate there will be follow-on legislation to address de-carbonization in this country. As best as we can tell at this time, the legislation will provide additional emphasis to all of our business lines. IEA's future is bright, and we now have the right capital structure to push our growth higher. With improved liquidity and reduced debt, we can continue to invest in our organic growth, while also making strategic bolt-on acquisitions that accelerate our growth in each of our end markets. Thank you again for joining us this morning for our second quarter call. Operator, would you please open up the call to questions?

[Operator:]

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. . Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

[Brent Thielman:]

I guess, well, I start on the coal ash remediation opportunity pretty unique, pretty interesting, and obviously picked up here in the quarter. Can you just talk about, you gave some sort of higher level numbers there, JP, but talk about where you think that business can go, in the next few years, what are the potential, is there a contributions we can think about some of these new contracts come to light and obviously you guys will be a participant there. I just love to get some more color there.

[JP Roehm:]

Well, I think certainly this is a market that we've been looking at since our acquisitions in 2018. We knew the market was coming. I think the announcement of the contract we announced on the East Coast here recently is certainly indicative of what -- of a market that we knew was coming. And we think it some -- we think it's certainly a major road driver use the analogy, the other leg of the stool. When you have a $50 billion plus addressable market out there and truly a competitive mix of competitors out there is limited, at least limited from a scale perspective. We think there's a tremendous opportunity for us ahead. And particularly as -- as we alluded to here in our remarks, certainly probably an area that kind of tends to some consolidation over time. So we're -- we have been working overtime to position ourselves as a leader in this industry and expect to maintain that leadership position for quite some time.

[Brent Thielman:]

Okay. And then in the 10-Q and actually Pete, I think you touched on it, you said you expected to work through around one point going into the backlog over the next 12 months. I guess, is the vast majority of that coming here in the second half of the year. Just wondering do you need to book a lot more shorter term work to hit the revenue guidance here some flat in the second half?

[Pete Moerbeek:]

No, not at all. We will hit the -- we expect to hit the revenue guidance. If anything, we're expecting to be toward the top end of that traditionally the first and second quarters tend to be a little bit lower. So first quarter, next year or second quarter next year, maybe slightly lower than the run rate we're on now. We're going as fast as we can. And but the only thing that could really impact us is weird, strange weather. The client's not delivering the turbines or solar rays when they're supposed to. Those are about the things that we -- that keep us up at night, the rest of the way we expect to see some very solid numbers second half of the year.

[Brent Thielman:]

Yes. And then the wind maintenance business, I know it's still early on, but maybe could you talk about the contributions to-date, the traction you're seeing with customers in that new offering? If there's any sort of targets you're looking to get the business to either this year over the next couple of years?

[JP Roehm:]

Well, we haven't been out with any kind of guidance on that particular business unit. What I can say Brent is, it is taking off and scaling at our kind of what we anticipated internally. I think we're well in excess of 100 technicians today in the -- in that business line. So I would say certainly it's meeting or even exceeding our expectations and given the four runway in that market, we expect that it's materiality in the segment will grow over time, but we're just not -- we're not out there yet where we want to put any specific numbers around it.

[Brent Thielman:]

Okay. Just last one the repowering contract JP you talked about $70 million. I tended to think of these sort of repowering opportunities is smaller. Would you call that unusually large for that type of work or is that the kind of stuff you're seeing out there?

[JP Roehm:]

Can you say that one more time, Brent? I'm sorry.

[Pete Moerbeek:]

In terms of repowering contracts.

[Brent Thielman:]

Those are repowering the $70 million contract. Just wondering if that's unusually large or if you're consistent with the sorts of opportunities you're seeing?

[JP Roehm:]

Good question. It's probably on the larger end of the scale, but I think it's also indicative of Big Sky is actually a project that we constructed in 2009. So as projects, you'll get more into that 10-year life span, which they will be getting bigger because 10 years ago, the wind industry was scaling. Yes. Perhaps, they will get larger, but I would say so far that's been on the bigger end of the landscape we've seen for repowering.

[Operator:]

Our next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question

[Adam Thalhimer:]

Just kind of wanted to carry on there on the repower opportunity, JP, what's the total market like, are you bidding a lot of those jobs right now?

[JP Roehm:]

I would say the market is still pretty well dominated by new bill, Adam. I think one thing that in the near-term could cause that could grow is the recent IRS guidance or extended their guidance on the safe -- the continuity Safe Harbor for the production tax credit. So I could see some projects kind of come in 2022 and 2023 just because of that extension that continuity Safe Harbor. But I still say if the market is by far dominated by new build and I think EPCs like ourselves use that as globalization of resources and kind of fit these repowering projects in and in gaps of our schedule. And I don't look at that really to change too much in the near future.

[Adam Thalhimer:]

Okay. And then on the core wind and solar business, can you give us some insight into the discussions you're having with clients and potential clients today in light of logistics issues and materials costs?

[JP Roehm:]

Yes. Certainly, probably that, that has been more in the solar industry given the content of steel, that is probably been where we've seen most of the escalation. And yes, I mean, our -- we've not seen it really stop or delay any near-term projects here. Certainly, our customers are not happy about the current markets in this -- particularly in the steel market. But projects are proceeding and we've been able to pass those -- excuse me, those escalations along. I know as far as projects that are more in later 2022 and into 2023, they are looking that customers are looking at delaying orders as much as they can for steel products, because I think steel is currently predicted to kind of tail off in Q4. But we'll see the theme is we have -- there's just the way our contracts are structured and how they come to market. We have minimal risks for that and the common practices to pass those escalations along.

[Adam Thalhimer:]

Okay, perfect. And then last one for me, what's the theoretical capacity of the environmental segments like what could the revenue be if you look a couple of years out?

[JP Roehm:]

Well, if you look at IEA today, I think what we've said in the past is we'd like to get our solar EPC revenues similar to our wind EPC revenues. So I think that is certainly achievable in the somewhat near-term. We haven't committed to a timeframe for that, but I think that's certainly achievable, certainly the market is there. We -- but I think similar -- a solar market similar to our wind market as we have now, wind markets basically $1 billion run rate business. So you can do the math, but we think certainly the business in the not too distant future could be at that billion dollar run rate in each kind of -- in each of those solar and wind new build lines.

[Adam Thalhimer:]

And then what if you just -- I don't know. I was thinking on the -- I mean, that's good to hear, but I was thinking on the environmental side.

[JP Roehm:]

Yes, yes. Well, yes, Pete sitting here, telling me, come on environmental, yes. Yes.

[Adam Thalhimer:]

I didn't know that on $1 billion each in solar and wind though. That's good to hear.

[JP Roehm:]

Yes. Well, the markets out there and we're growing our market share. So but in as it relates to coal ash, I think we want to be careful about tempering the near-term expectations. But I think the key is we would -- the key drivers that we would point out there it's certainly when you book into $50 billion to $150 billion market, you could probably count the service providers at scale in the country almost on one hand. I think you can certainly look at IEA has positioned themselves as the top provider with this recent win. So we think it's a big opportunity. I think we want to temper expectations by putting any numbers out at this time on that. But when you have $50 billion to $150 billion addressable market over the next 10 or 15 years, and there's a handful of players, I think we're in a -- I think it's a great growth area of the business.

[Operator:]

. Our next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question.

[Noelle Dilts:]

Okay. Good morning and again, congrats on all the progress on the balance sheet.

[JP Roehm:]

Thank you.

[Noelle Dilts:]

Sure. So the first question I wanted to ask it's kind of been touched on by some of the other questions, but one of the things that I think I still encounter when I speak with investors is a concern that when might start to tail off given some of the tax credits currently rolling off technically and that this would be that solar might offset that, but your comments just to Adam suggested that maybe you at least think when can hold steady. So could you just delve into that a bit and kind of talk about your expectations on the longer-term outlook for the wind type of the business? Thanks.

[JP Roehm:]

Yes, Noelle, great question. And Pete and I get a lot of these questions from investors or other stakeholders in the business and we acknowledge that there's certain analysts and others that seem to predict a downturn in the wind industry in the near-term. Quite frankly, honestly we just don't see it. And a few reasons behind that. Number one, our best barometer is, what our customers are telling us. And I think we may be talked about this on the last few quarterly calls, but what I always draw people to, I think it's one of the best barometers in the industry is go pull NextEra's last few quarterly calls and see what kind of statements they're making. They're great barometer for the industry. Their market share is the largest player both development and asset owner of renewables in the country. I think their market share is in the high-20s, it's not low-30s. So they're a great benchmark. And I think what you're going to find is unequivocally, they've kind of said that they're going to double down on wind and solar in their spin between 2022 and 2025. I can tell you from our mix of clients, we're hearing similar, we're hearing similarly middle of the fairway statements. So certainly clients are in their pipeline that they share with us. I think you're certainly well aware of the competitive landscape of wind and solar EPCs and given the fact that it is a limited landscape, we are very close to our clients. We're almost embedded with our clients and understand what projects and what their pipeline is for the next two to three years. So not to beat a dead horse, but that, that is certainly what gives us an extreme amount of confidence is being -- having that inside knowledge to what our CapEx spend is our clients. And then you kind of look at the other drivers in the industry. You mentioned the tail off and the tax credits. Well, when you actually look at the extensions that have happened the last few years in Congress, along with the last COVID relief legislation in December of last year, and then the revised IRS guidance that came out just a handful of weeks ago in June, that essentially also extended the continuity Safe Harbor provisions, as well as less than the standard for the continuity Safe Harbor. You could get real confident that the existing legislation is going to be a driver through 2025 and that's absent anything that's kind of happened. And then with this reconciliation bill or any of the other bipartisan infrastructure bill in Congress. So and then also we've got state RPS is out there that I know we've talked about before. And then lastly, just a tremendous continuing appetite of the corporate and industrial demand of the Facebook’s, the Amazon’s, the General Motors. McDonald's, and what have you that is buying almost half the renewable energy that was produced this year. And we don't -- look -- and that's, I think a continuing development of the ESG phenomenal. So we look at that, we feel very confident going forward the continued viability of wind going forward.

[Noelle Dilts:]

Great, thank you. That's really, really helpful. And the next, I'm not sure that you'll go into this much detail, but I was wondering if just given the gross margin in Specialty Civil in the quarter, if you could just kind of revisit, one, how you're thinking about gross margins for the year potentially for each division. And then if you could kind of talk about your longer-term targets from a gross margin perspective?

[Pete Moerbeek:]

Well, I can certainly do the first part of it, Noelle. We expect to get back to very similar margins of last year in both segments. We were impacted by COVID in the fact that real projects were at lower volume and lower margin. As we look to the rest of the year, we think we'll get reasonably close on Specialty Civil and we should do similar as we did last year, the renewables, certainly to get to the overall adjusted EBITDA number that we are guiding to, we're going to have to improve margins over where they were in second quarter.

[Noelle Dilts:]

Right. Okay, perfect.

[Pete Moerbeek:]

And on a longer-term basis, I -- that's harder. As we see sit here right now, we would expect that the margins will continue in the 11% to 14% on renewables. And then we've said Specialty Civil is going to be in the high-single-digits or very low 10s with hopefully the coal ash toward the top end of that. The rail kind of in the middle and your DOT highway work kind of toward the bottom end of that range.

[Noelle Dilts:]

Right. Okay. And then last, this is a very detailed question, but just given all of the changes with the shares coming in and the conversion, et cetera. I was wondering if you have an estimate for where you think the share base will kind of workout for the third and fourth quarter. I'm sure we've all done our own math, but just maybe trying to get everyone on the same page. Thanks.

[Pete Moerbeek:]

Oh, goodness. I want to say that we're going to be in the 52 to 54 million share range. And I get there by doing 25 million where we are currently. Then we -- if you add to that, the 6 million that Ares is converted add to that the 18.3 that we just did, a 2.6 or so of Series A conversion, and then anywhere from one to two just on the -- our issues, et cetera, standing, and hopefully, and I wasn't adding it that gets you to the 52 to 54 million range.

[Operator:]

There are no further questions in the queue. I'd like to hand the call back over to JP Roehm for closing remarks.

[JP Roehm:]

Well, thank you, operator, and thank you for everyone that's joined us today on our Q2 2021 call. Stay healthy, stay safe, and we look forward to reporting our Q3 results in early November. So we'll see you all then. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.