Infrastructure and Energy Alternatives, Inc. (IEA) Q1 2022 Earnings Call Transcript

Infrastructure and Energy Alternatives, Inc. (IEA)
Q1 2022 Earnings Call
May 10, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Infrastructure and Energy Alternative first quarter 2022 earnings call. [Operator instructions] And with that, I will turn the call over to Aaron Reddington, vice president of investor relations. Aaron, please go ahead.

Aaron Reddington -- Vice President, Investor Relations

Hello, and thank you for joining us today to discuss IEA's first quarter 2022 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 yesterday's press release and the risk factors included in the company's SEC filings.

Except as required by law, IEA undertakes no obligation to update its forward-looking statements after today's call. Management will be presenting some non-GAAP financial measurements as references, including adjusted EBITDA, and GAAP financial reconciliations can be found in the press release issued on May 9, 2022. And with that, I'll turn the call over to JP Roehm, chief executive officer. Please go ahead, JP.

JP Roehm -- President and Chief Executive Officer

Thanks, Aaron, and welcome to everyone joining this morning's call. Today, I will provide a brief overview of four subjects: our performance in the first quarter, recent solar market developments, commentary on key end market trends, and an update on our strategic priorities. I will then turn it over to Pete for a more detailed financial review of the quarter. First, let me start with first quarter performance.

Market conditions within our core renewable and environmental businesses remain robust, and we continued our recent trend of strong organic growth as record first quarter revenues were up over 30% versus the prior year, with strong double-digit growth in both our renewables and specialty civil segments. Aided by the favorable market conditions, our leading market position, and our experienced skilled labor force, new business award activity remained strong, enabling us to finish the first quarter with record total backlog. Further, we are beginning to see an improved bidding climate across our rail business. We are very encouraged by the growth outlook for our businesses.

While revenue and backlog both impressed during the first quarter, we experienced inflationary and supply chain headwinds in recent months that we expect to continue and that will impact our margin realization this year. Many of the larger components used in our renewable projects such as solar panels and turbine blades are procured by our customers, meaning we take no price risk with these items. However, there are other components such as cables and wires that we are responsible for procuring, and in almost all contracts, we are responsible for fuel and concrete purchases. During the first quarter, the price volatility on many of these materials, especially higher fuel costs and continued supply chain challenges resulted in compressing the forecast project margins that will be realized over the year as our projects progress toward completion.

Importantly, these issues were from events largely outside of our control and they were not a function of problem contracts or execution issues. We are attempting to mitigate these headwinds through project bidding measures, negotiations with suppliers, additional project contingencies, and other efficiency improvements. We believe these measures will help position us to achieve improved profitability for the balance of the year. Entering 2022, we recognize the potential for near-term margin headwinds and consider these factors in our full year 2022 financial guidance.

Based on our strong backlog, we are updating our full year 2022 financial guidance by increasing our revenue guidance to a range of $2.3 billion to $2.5 billion, while maintaining our adjusted EBITDA guidance. This change reflects the reality of the current cost headwinds impacting our business, while we anticipate can be offset with higher revenues. Now turning to an overview of recent solar market developments. In recent months, many companies across the solar industry have voiced concerns both as to the rising cost and the availability of panels and modules.

These concerns stem from a recently announced U.S. Department of Commerce investigation of solar panels imported from Chinese companies in Cambodia, Malaysia, Thailand, and Vietnam. Allegedly, solar panels and modules from these countries are circumventing antidumping duty orders on solar cells and modules from China. The preliminary findings of the investigation are expected in August, but a final decision for the Department may not occur until the middle of next year.

The Department's conclusion could result in retroactive duties back to November of 2021. This investigation combined with the already challenging supply chain situation has resulted in significant uncertainty in the solar industry. The domestic panel market is not equipped to meet current industry demand, resulting in uncertainty around panel pricing and availability of products. This could potentially lead to cost increases and project pushouts and delays for the industry.

We believe that our current year solar projects fall into three categories with respect to how the Department of Commerce investigation will impact them. First, we have customers who source their panels from U.S.-based manufacturers. While there may be some minor delays for these customers, we anticipate no material risk to the project schedules. The second group of customers have asked us to proceed with the civil and mechanical work as they await further information on the delivery of their panels.

If panels are not available on time, they will have us demobilize the projects and we will get paid to remobilize when the panels arrive. And the final grouping of customers are currently not expecting any panel-related delays and are moving forward with their projects as previously scheduled. Obviously, there's a fourth grouping as some current and potential projects may be delayed, but we will leave any outlook until 2023, solar opportunities until later this year. During the first quarter, we rearranged the start dates of some projects based on the owner's availability of solar panels.

Fortunately, at this time, we have ample backlog so that we still have remaining solar projects to fill in any gaps in project cadence and to support full utilization of our teams. My third subject area is an overview of our end-market trends. We believe that the key long-term trends that are driving our businesses remain very favorable. Within the renewables industry, there is an estimated to be nearly 200 gigawatts of legacy power generation capacity set to be retired in the coming decade.

And together with the increasing competitive levelized cost of wind and solar when compared to carbon-based energy sources, renewables are likely to be the key beneficiary. The mix of U.S. power generating capacity coming from renewables is set to double by 2050 as over 500 gigawatts of renewables capacity is projected to be added in the United States over the next 25 to 30 years. Within our heavy civil segment, we expect that once the rules are ironed out, we will be a beneficiary of the $1.2 trillion federal infrastructure bill passed last year.

While not yet a direct result of the infrastructure bill, we have started to see a pickup in bidding activity in our heavy civil markets. We still expect it will take some time for funds to start to flow, particularly as states and municipalities seek to adjust bidding levels to reflect the recent raw materials cost inflation. Unfortunately, we have been a low bidder on several recent public awards, but our bid far exceeded the engineer's estimate. And as a result, no contract was awarded.

We anticipate these public awards will come back to the market again with updated cost estimates and more closely align with market prices. We remain encouraged by the pickup in heavy civil bidding activity near term and expect a strong multiyear period of elevated infrastructure spending as stimulus funds find their way into new projects of scale. We also expect the rail business to benefit from the federal infrastructure bill as the stimulus package included funding for class 1 railroads and public transit rail. Over the past two years, the rail industry has seen depressed capital spending due to COVID.

But with the recent improvements to industry profitability, capital spending appears set to improve with several public railroads discussing favorable spending forecasts on their recent earnings goals. We've seen a pickup in our discussions with customers in recent weeks and are optimistic that we'll see improved trends in our rail business. Lastly, we remain very excited about the opportunities within our environmental remediation business. We believe we are in the early innings of a significant capital spending cycle for coal ash remediation, which we estimate could be a $50 billion to $150 billion opportunity over the coming decades.

In January, the EPA announced a hard-line stance on coal ash remediation, which will benefit industry spending over time, although it may cause a temporary pause while utility companies analyze the new communications from the EPA. Nevertheless, the long-term opportunity is significant, and IEA is one of a small handful of players with the environmental remediation project experience, skilled workforce, and track record to take advantage of this market. Moving on to backlog and new project awards. Given the favorable end-market trends I just discussed, we were able to maintain a strong new awards momentum and reported another quarter of record backlog.

This record backlog comes despite record first quarter revenues. At the end of the first quarter, we reported total backlog of $2.9 billion, up 10% from the same period last year. Our next 12-month backlog, which gives us a good visibility into continued organic revenue growth was $2.1 billion at the end of the first quarter, and that's up 13% year over year. I want to highlight three solar projects that we were awarded in the quarter.

First, we signed a contract with ENGIE North America for the construction of the Powell's Creek solar farm. That's a 70-megawatt project on approximately 500 acres in Halifax County, Virginia. Construction of the PV facility commenced in January of 2022 and has a targeted completion of December of 2022, with a total contract value of $66 million. A second project with ENGIE is Sunnybrook Solar.

That's a 51-megawatt solar project in Scottsburg County, Virginia. Construction of the $43 million project also began in January of 2022 and also has a targeted completion of December 2022. IEA continued our strong relationship with Silicon Ranch when we were awarded a contract to construct the Cedar Springs Solar Ranch in Early County, Georgia. Construction on the 70-megawatt solar project began in the first quarter of 2022, and the facility is expected to be online by the end of 2022.

More than 215,000 First Solar's Series 6 modules will be installed across the 1,400 acre site in rural Southwest Georgia. Before I turn it over to Pete, let me briefly reiterate our key 2022 strategic priorities. These priorities provide a clear road map for long-term value creation and are a way for the investment community to measure our progress. First, we want to develop leading market positions within our key markets.

We intend to accomplish this by leveraging our technical expertise, geographic reach and scale across our key business lines to drive continued backlog growth and market share gains throughout both organic and acquisitive growth. Over the last 12 months, our revenue growth was 29% and 42% in the renewables segment versus the prior 12-month period. Secondly, we intend to capitalize on the favorable long-term fundamentals within renewables. In 2021, approximately 70% of IEA's revenue was derived from wind and solar-related EPC services.

Onshore wind installations are anticipated to accelerate over the next decade with 110 gigawatts of new installed capacity expected to be online by 2030. We strive to be the builder of choice for a great part of that opportunity. Third, we will maintain bidding discipline and look to drive economies of scale to support margin expansion. Given the ongoing inflationary and supply chain challenges, it's critically important that we limit contract risk as much as possible.

We have built long-term relationships with many of our renewables customers, and working with trusted experienced partners is a key element to a successful and profitable project for all parties involved. Fourth, we will work to continue to further simplify our capital structure while maintaining sufficient liquidity to support our growth. Our program to repurchase up to $25 million of outstanding warrants has been extremely successful. We have purchased nearly 65% of the outstanding warrants.

Exiting the first quarter, we have more than $160 million in available cash and availability on our credit facilities to further support our growth initiatives. Finally, we will pursue a disciplined capital allocation strategy. We will continue to invest in organic growth initiatives by expanding product and services offerings to better serve customers, further developing industry-leading technical expertise, and growing our skilled labor workforce. In addition, IEA intends to pursue complementary bolt-on acquisitions that increase our service capabilities in adjacent markets and expand our geographic presence and enhance our margin profile.

We're committed to our strategic plan and are confident that as we execute against our goals, we will generate attractive returns and create value for all our stakeholders. And with that, I will turn the call over to Pete.

Pete Moerbeek -- Executive Vice President and Chief Financial Officer

Thanks, JP, and good morning to everyone. I'll provide some additional details on the quarter's financial results and wrap up with our full year 2022 guidance. For the quarter, total revenue increased by 30% to $360 million, supported by broad-based strength across both our renewables and specialty civil segments. Unfortunately, at $3.8 million in the first quarter, companywide gross profit was down from $16.5 million last year, and the gross profit margin for the first quarter 2022 was 1.1%, down from 6% in the same period last year.

The primary reason for the margin reduction in both dollars and percentage is the impact of all the culprits that you've just heard from JP and for most of our peers. As JP mentioned, IEA does not take the risk of cost escalation for major project components such as wind turbines and solar panels, but we are responsible for the cost of certain construction materials such as concrete and fuel to run our equipment and trucks, and some of the project components such as wire harnesses or cable. In prior calls, we've said that we attempt to mitigate the price risk for project components by buying them as soon as we receive a notice to proceed from our customer, and those buydowns have generally worked well in the past. However, not so well in the first quarter of 2022.

We are now experiencing instances of vendor quotes that hold prices for only one week, and even a situation where some vendors back out of their quotes whether they were in writing or not. Added to these challenges are issues associated with supply chain delays, which can affect availability, and issues such as the impact of the pandemic in China and the demand by certain customers that we not use parts sourced from Russia. Procurement has become as challenging as we have ever experienced. Added to the procurement concerns, once we start a project, we must address issues of availability and price for supplies such as concrete and fuel.

Our fleet drives approximately 130,000 miles per day. We now estimate that our fuel cost for 2022 will be $10 million greater than our estimates that we made at the end of last year. These changes in expected costs have a financial impact both for the quarter and for the rest of the year. At the end of each month, we review all our projects to determine the total expected cost of that project.

If a project's revenue remains the same, increased expected cost will reduce the project margin going forward. But for projects that were in progress at the start of the quarter, there is also a retrospective reduction of the margin. Percentage of completion accounting rules require that we calculate the difference between the revised forecasted margins and the margins recorded at the end of the previous quarter and that this difference be treated as an immediate impact to profitability. For the recent quarter, that adjustment was $12.9 million.

That one-time adjustment reflects the impact of our expected cost increases for projects that were in progress at the start of the quarter. We disclosed that profitability impact in our quarterly filings. In the past three fiscal years, the net impact was a positive amount of approximately $3 million. But in the first quarter of 2022, that change led to a reduction in our margin of $12.9 million.

Approximately two-thirds of that amount impacted renewables margins, and one-third impacted specialty civil margins in the quarter. In most years, our first quarter is the lowest for revenue and margin. And even without the one-time margin adjustments I've just discussed, that would have been true for this past quarter. One other impact of the supply chain challenges is that several of our wind customers delayed the start of their projects, awaiting more certainty around the delivery of their turbines.

While those projects have now started, the delay increased our indirect cost in the quarter as we had a higher level of unused labor and equipment. Let me now briefly mention some of the other financial results in the quarter. SG&A expense was $34.9 million during the first quarter of 2022, up from $24.8 million in the same period last year. The first quarter of 2021 included around $5 million of one-time benefit credits, so the increase is not quite as stark as it seems.

SG&A expense in the fourth quarter of 2021 was $31.6 million. As a percentage of revenue, SG&A expense was 9.7%, compared to 9% in the prior-year period. That percentage should decrease each quarter this year as our revenue increases. We still expect that we will hit our target of around 6% of revenue for the year.

Interest expense for the quarter totaled $6.0 million, down from $14.4 million in the first quarter of 2021, primarily from the benefit of last year's recapitalization transactions, which provide an annual reduction of approximately $20 million in interest expense and cash interest payments. Now turning to the balance sheet and liquidity. Last year, we initiated a buyback of our public warrants, and at the end of the quarter, we had repurchased nearly 65% of these warrants at a total cost of $14.8 million. Combined with the benefit of also reducing our anti-dilution shares, these repurchases successfully removed over 7 million common shares from our potentially fully diluted common share count.

As of March 31, 2022, we had $28.7 million of cash and cash equivalents and total debt of $366.5 million, consisting of the $300 million senior unsecured notes, $3 million of commercial equipment notes, and $63.5 million of finance leases for equipment. At the end of the quarter, the company had $132.7 million of availability under its credit facility, net of letters of credit, which combined with cash resulted in total liquidity of $161.4 million. Total backlog at the end of the first quarter 2022 was $2.9 billion, an increase of 10% compared to the end of the same period in 2021. Renewable segment backlog at March 31 was $2.1 billion, an increase of 7% compared to the prior year, driven by strong growth in our solar market.

IEA has signed over $2.2 billion in wind and solar awards since the start of 2021, and the pipeline of new opportunities remains robust. Specialty civil backlog at March 31 was $861 million, up 18% compared to last year, due, in large, part to favorable market trends in our environmental business. We expect to realize approximately $2.1 billion of our estimated backlog during the next 12 months. That amount is up $233 million from the end of the first quarter of 2021.

Finally, to guidance. Entering 2022, we recognized that there would be some near-term margin headwinds and considered these when we set our full year 2022 financial guidance. However, our challenges were exacerbated in the first quarter because of rapid increases in fuel costs, primarily resulting from the unexpected Russian invasion of Ukraine and the recently announced Commerce Department investigation. Looking forward to the rest of the year, our forecast recognizes the current inflation headwinds and has factored in current market pricing.

But our strong backlog of work, especially solar work, allows us to revise our guidance for the full year 2022 as follows: first, we are increasing our revenue guidance to between $2.3 billion and $2.5 billion; and second, we are maintaining our adjusted EBITDA guidance of between $140 million and $150 million. We believe that the increased revenue provides us with a path to attain the earnings goal. We recognize that our first quarter performance makes 2022 much more challenging. However, we believe that as our project pace picks up over the next three quarters, our teams will deliver solid performance and will make 2022 another record year for IEA.

Let me now turn it back to JP.

JP Roehm -- President and Chief Executive Officer

Well, thank you for that, Pete. The demand drivers and outlook for our renewables business remains very strong. There's a clear shift toward wind and solar in the U.S. power generation market, driven both by environmental and economic factors since both wind and solar today offer the lowest levelized cost of energy.

Last year, 90% of all new energy generation capacity added in the United States was from renewable sources, and the EIA estimates that 500 gigawatts of renewable energy will come online over the next few decades. It may not always be a straight line up and to the right, but the long-term trend is very clear, and we are in a strong position to benefit from the ongoing energy transition. We're also very encouraged by the outlook for our specialty civil segment. The coal ash remediation opportunity is significant, and while the timing is tough to predict at times, there is no debating the massive opportunity that exists in this market.

We're also very encouraged by the recent pickup in activity in our rail and heavy civil markets. It is very exciting to see all five of our key business lines position to benefit from favorable end-market trends at the same time, and we believe that these trends are likely to last for a multiyear period. We fully expect to improve our margins over the balance of the year, which will keep us on track to achieve another year of strong performance, highlighted by record revenue and adjusted EBITDA. This concludes our prepared remarks for today.

Operator, would you please open the call up to questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Brent Thielman -- D.A. Davidson -- Analyst

Hey, thank you. Good morning. Hey, JP, it sounds like a bit of a perfect storm on margins here in the first quarter, and obviously, a bit lower than where we'd expect that. I guess I just wanted to come back to the outlook and maybe talk around what gives you the confidence in, call it, 20%, 25% EBITDA growth in the remainder of the year versus last year? Is it the schedules? Is it firms? You've got the cost inflation under control.

Anything else you can add around that would be great.

JP Roehm -- President and Chief Executive Officer

Thanks, Brent. Well, kind of -- further reiterate what we have in the commentary. We've got the backlog. The projects are moving to the field.

We're in the field on most of them now. And we don't have any problem in jobs right now. We talked at length about the inflationary effort -- or effects that came in the knowledge in the quarter. We reforecasted our projects for them and reported them accordingly.

And we feel extremely confident about the guidance that we've -- from an EBITDA perspective, we've held guidance, and we've raised guidance from a revenue perspective. We feel extremely confident about that. So yes, all in all, very tough quarter, a lot of headwinds out there. But we firmly believe that we have forecasted what we still believe will be a great year for the company.

Brent Thielman -- D.A. Davidson -- Analyst

OK. Appreciate that, JP. And it sounds like you've got some wind jobs that are moving forward. Again, maybe just an update on what you're sort of seeing and hearing behind the scenes for kind of new wind projects that push out to 2023 and beyond?

JP Roehm -- President and Chief Executive Officer

Yeah. As it relates to the 2022 projects that we have in the commentary that we said were pushed, unfortunately, we had some of our customers -- the escalation that they have seen since the fall of last year into this year, particularly in steel, copper and other commodities have been beyond significant, millions and millions of dollars. And unfortunately, we had some clients that had hoped to maybe avail themselves of the curves going down, but they got caught on the wrong side of that bet and kind of pushed some projects here -- or later on into 2022 than what they anticipated hoping the commodities would go down and they just couldn't. So now we've got -- as we said in the remarks, we've got full notice on all the projects that we expected to build, the wind projects we expected to build in 2022.

And quite frankly, moving into 2023, I'd point to some recent comments in the public domain that NextEra has made. We've also heard it from our -- other customers of ours. We're seeing an uptick in wind turbine OEM sales for next year, for 2023. We believe that this somewhat uncertainty in the solar market, we're going to see a lot of our customers shift their capex to wind.

And fortunately, IEA is one of those that certainly can build both wind and solar being the No. 2 wind builder the last several years in the United States. We think we're well situated for taking advantage of that capex shift if it does happen. If not, we'll continue to build more and more solar, like we have in the last few years.

But we do -- from a '23 perspective do see an uptick in wind activity.

Brent Thielman -- D.A. Davidson -- Analyst

OK. Maybe just a last one maybe for Pete. Just your expectations around cash flow for the rest of the year coming off this quarter's levels?

Pete Moerbeek -- Executive Vice President and Chief Financial Officer

Thanks, Brent. It's been a bit of a challenge as we finish jobs. And I've said this before, as we get to the end of the jobs is when we negotiate the remaining change orders. And with some of our customers, it takes a while.

Once you get the approval of that change order, for them to get paid, they have to go to Europe and get approval. Our expectation is that by the end of the second quarter, we'll start to see some good strong momentum that will carry over in the third quarter. And there's no reason that we can't finish the year strong. So the expectation is we'll get back to positive cash flow from operations.

Brent Thielman -- D.A. Davidson -- Analyst

OK. Thanks, guys. Best of luck. I'll turn it over.

JP Roehm -- President and Chief Executive Officer

Thanks, Brent.

Operator

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

Adam Thalhimer -- Thompson Davis and Company -- Analyst

Hey, good morning, guys. Sorry on the tough start to the year. I did want to make sure I understood, JP, your comments about kind of as you enter the meat of the 2022 construction season -- basically, the message is: "Look, we've -- "we're starting a bunch of jobs. We have no problem projects.

Absent a further spike in inflation or kind of new equipment availability issues, we expect normal-ish margins on all these jobs." Is that right?

JP Roehm -- President and Chief Executive Officer

I guess said pretty well. Yes.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

And then how do you see this year playing out in the renewables segment? Like how much do you expect wind to be down versus solar up?

JP Roehm -- President and Chief Executive Officer

Well, I think we're pretty well set for the year. So yes, I think we're going to see from historicals like wind is probably going to be down a couple of hundred million of revenue, which is going to be offset by what we're up in solar, if not further offset by what we're up in solar. And hence -- I just draw -- we're very -- have a strong conviction in our revised revenue guidance. So obviously, revenue is up on a year-over-year basis.

So we expect the segment to be up. And probably anything down in wind would be more than offset from solar.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

OK. The heavy civil issue, where some clients are balking at where the bids are coming in. Is that a specific state or is that pretty widespread?

JP Roehm -- President and Chief Executive Officer

Pretty widespread. I've seen personally -- if you look at lettings from the last couple of months, Colorado, in particular, has rejected numerous bids over the engineer's estimate. Indiana, I don't think one project in the April letting actually was released. I think they were all over the estimate.

Illinois, many of them have been over the estimate, not all. We're starting to slowly see the DOTs and municipalities revise their estimates. Coincidentally, there are a few states like California that their state statute or procedures that allow them more latitude in inflationary periods like this to award projects. So on our West Coast work, we haven't seen as much of that effect.

But certainly, those states that I mentioned the last quarter has been pretty challenging to get projects awarded that are public in nature.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

OK. Good color. That's helpful. And then just lastly, on environmental.

Can you give us a sense of whether there are any kind of big jobs being bid right now along the lines of the Dominion job that you won last year? And what's the potential timing on those?

JP Roehm -- President and Chief Executive Officer

Well, we do have projects in the queue for bidding, but I would caution you on being -- in the order of magnitude of Dominion, I think that's the largest one in the United States to date. There's not many of that -- at least right now of that size. But what I would call a multiyear significant material type projects, yes, there -- we have them in the bidding queue and expect those -- we do expect opportunities to come forward to IEA in that market prior to -- or in this fiscal year.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

OK Thanks. for the time.

JP Roehm -- President and Chief Executive Officer

OK. Thank you, Adam.

Operator

[Operator instructions] Our next question comes from the line of Brian Russo with Sidoti & Company. Please proceed with your question.

Brian Russo -- Sidoti and Company -- Analyst

Yeah. Hi, good morning.

JP Roehm -- President and Chief Executive Officer

Good morning.

Brian Russo -- Sidoti and Company -- Analyst

I'm just curious, the four kind of distinct profiles of your solar customers. Can you weight those and kind of correlate to what you're seeing in the next 12-month backlog, just to assess kind of the risk there?

JP Roehm -- President and Chief Executive Officer

Yes. So currently -- so our customer base of solar -- our solar customer base is pretty well made up of two distinct groups right now. The large European IPPs like in health is one portion of our customer group. And then Silicon Ranch, we've mentioned in the commentary, is another major -- they're a domestic-based IPP.

I would say the two distinct issues we have this year is we do have some of our projects that have modules that are being supplied -- or would otherwise be subject to this tariff that's being proposed. And fortunately, those projects are all moving forward, at least mostly moving forward. We're installing all the civil and mechanical on those projects and electrical. And basically, we'll come back and install the modules at a later date once the tariff is hopefully dealt with.

That later date could be later this year. It could be next year. Depending on who you listen to, this tariff may be dealt with as early as next week on May 16 or it could take up until sometime next year, 2023, to be resolved. Certainly, we hope sooner rather and later.

But most of our projects that -- or all of our projects right now that have module sourced that are subject to the tariff, we're continuing on and building those projects mechanically and electrically. The other group of projects, mostly Silicon Ranch, is they have domestic-based modules. So they're not subject to the tariff, and we will complete those projects through 100% substantial completion yet this year. So those are all -- all those scenarios -- or both of those scenarios that I just mentioned are baked into our forecast and part of the guidance that we provided today.

Brian Russo -- Sidoti and Company -- Analyst

OK. Got it. So it's fair to say that those three or four contracts you recently signed and discussed earlier in the year are on schedule and on budget in terms of time line and sequencing?

JP Roehm -- President and Chief Executive Officer

They are up until -- the only caveat I would say to that is the delivery of -- the delivery of the modules, of course, are up to the owner. And whether it's wind or solar, you're always subject to when they ultimately deliver them. But currently, as planned, they're on schedule, yes.

Brian Russo -- Sidoti and Company -- Analyst

OK, great. And then just switching gears quickly to the specialty civil segment and the environmental operating group. Nearly double the revenue quarter -- first quarter versus last year's first quarter. Is that $47 million, is that kind of a new run rate, albeit contingent on some seasonality related to the environmental remediation contract you have with Dominion?

Pete Moerbeek -- Executive Vice President and Chief Financial Officer

The answer to that is yes. And we think actually that for the rest of the year, we'll do better than that. There's some active bidding going on, and we believe there's some opportunities that will give us a chance to both enhance the workups on coal ash remediation and some of the work that we do on rail work. But yes, we should be at that level, again, depending on seasonality going forward at least, and probably better.

Brian Russo -- Sidoti and Company -- Analyst

OK. And I suppose that operating group has higher operating margins than rail and heavy civil?

Pete Moerbeek -- Executive Vice President and Chief Financial Officer

The answer is yes. They burn up a little more cash because they use a lot more equipment. But overall, they generally tend to be somewhat higher in the margins. Now there are certain rail projects that we can get that can really add to margin.

But overall, yes, they're going to have a slightly higher margin than some of the other work we do.

Brian Russo -- Sidoti and Company -- Analyst

OK, great. Thank you very much.

JP Roehm -- President and Chief Executive Officer

Thank you.

Operator

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

Noelle Dilts -- Stifel Financial Corp. -- Analyst

Hi there. Sorry if I missed this, but did you quantify in the quarter how much -- I think when you recognize that you'll have higher costs to complete the projects, so you kind of take all of that in the quarter. Did you quantify how much of that you sort of bore in the first quarter?

Pete Moerbeek -- Executive Vice President and Chief Financial Officer

Well, without making you into a cost accounting specialist, we had about $12.9 million of margin hit that we took in the first quarter for projects that were in progress at the start of the quarter. So when you reforecast, when you change your estimated cost to complete, you have to go look at where you were at the start of the quarter on any of those projects and taken an immediate hit. So that was about $12.9 million of the hit. Unfortunately, you are also going to make your margin on those projects lower as you go forward to recognize the added cost.

But I'd say $12.9 million was an immediate hit to the quarter.

Noelle Dilts -- Stifel Financial Corp. -- Analyst

OK. All right. Thank you. And then I guess I am just curious how you guys are thinking about what the market looks like for solar.

If we do see a tariff implemented or if we don't see a significant tariff implemented on panels, how are you thinking about sort of what those scenarios mean for, say, demand even looking into 2023?

JP Roehm -- President and Chief Executive Officer

Well, certainly, the -- I think the industry is not looking at many scenarios where the tariff is implemented. I think kind of across the board, the industry believes pretty strongly that it won't ultimately be implemented. I guess you never know. But all -- kind of without exception, all our customers, trade association, etc., is looking at the tariff not ultimately being implemented.

Certainly, it would -- if it would be implemented, it would -- there's no way this administration would ever reach its clean energy goals any time soon. So all that being said, the momentum behind solar projects is not slowing down. We are certainly cognizant of the near-term headwinds, but the bidding environment, the negotiations for next year, they don't slow down. So I think the industry is preparing itself for the tariff to be shot down.

And they're not really -- we just don't see much change in momentum currently.

Noelle Dilts -- Stifel Financial Corp. -- Analyst

OK. got it. Thank you.

JP Roehm -- President and Chief Executive Officer

Thanks, Noelle.

Operator

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Roehm for any final comments.

JP Roehm -- President and Chief Executive Officer

Well, thank you, operator. And we appreciate everybody joining our first quarter call here for 2022. Everybody stay safe, and we look forward to seeing you all in early August as we report our Q2 results. Thank you.

Have a good day.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Aaron Reddington -- Vice President, Investor Relations

JP Roehm -- President and Chief Executive Officer

Pete Moerbeek -- Executive Vice President and Chief Financial Officer

Brent Thielman -- D.A. Davidson -- Analyst

Adam Thalhimer -- Thompson Davis and Company -- Analyst

Brian Russo -- Sidoti and Company -- Analyst

Noelle Dilts -- Stifel Financial Corp. -- Analyst

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