Company Quick10K Filing
Quick10K
IES Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$17.96 21 $380
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-06-12 Other Events
8-K 2019-05-06 Earnings, Regulation FD, Exhibits
8-K 2019-03-09 Officers
8-K 2019-02-06 Officers, Shareholder Vote
8-K 2019-02-05 Earnings, Regulation FD, Exhibits
8-K 2019-01-08 Regulation FD, Exhibits
8-K 2018-12-07 Earnings, Regulation FD, Exhibits
8-K 2018-08-03 Earnings, Regulation FD, Exhibits
8-K 2018-07-23 Enter Agreement, Exhibits
8-K 2018-04-06 Regulation FD, Exhibits
8-K 2018-02-07 Shareholder Vote
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IESC 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2 d740684dex102.htm
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EX-10.6 d740684dex106.htm
EX-10.7 d740684dex107.htm
EX-10.8 d740684dex108.htm
EX-10.9 d740684dex109.htm
EX-10.10 d740684dex1010.htm
EX-10.11 d740684dex1011.htm
EX-10.12 d740684dex1012.htm
EX-31.1 d740684dex311.htm
EX-31.2 d740684dex312.htm
EX-32.1 d740684dex321.htm
EX-32.2 d740684dex322.htm

IES Holdings Earnings 2019-03-31

IESC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d740684d10q.htm 10-Q 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the Quarterly Period Ended March 31, 2019

OR

 

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

For the transition period from                      to                     

Commission File Number 1-13783

 

 

 

LOGO

IES Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   76-0542208

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5433 Westheimer Road, Suite 500, Houston, Texas 77056

(Address of principal executive offices and ZIP code)

Registrant’s telephone number, including area code: (713) 860-1500

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol

 

Name of each exchange

on which registered

Common Stock, par value $0.01 per share

Rights to Purchase Preferred Stock

 

IESC

IESC

 

NASDAQ Global Market

NASDAQ Global Market

 

 

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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 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 Exchange Act).    Yes  ☐    No  ☒

On May 2, 2019, there were 21,368,483 shares of common stock outstanding.

 

 

 


IES HOLDINGS, INC. AND SUBSIDIARIES

INDEX

 

     Page  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Condensed Consolidated Balance Sheets as of March  31, 2019 and September 30, 2018

     6  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2019 and 2018

     7  

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended March 31, 2019 and 2018

     9  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2019 and 2018

     10  

Notes to Condensed Consolidated Financial Statements

     11  

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     36  

Item 4. Controls and Procedures

     36  

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     36  

Item 1A. Risk Factors

     37  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     38  

Item 3. Defaults Upon Senior Securities

     38  

Item 4. Mine Safety Disclosures

     38  

Item 5. Other Information

     38  

Item 6. Exhibits

     38  

Signatures

     41  


PART I. FINANCIAL INFORMATION

DEFINITIONS

In this Quarterly Report on Form 10-Q, the words “IES”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “seek,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. These statements involve risks and uncertainties that could cause the Company’s actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:

 

 

the ability of our controlling stockholder to take action not aligned with other stockholders;

 

 

the sale or disposition of the shares of our common stock held by our controlling stockholder, which, under certain circumstances, would trigger change of control provisions in our severance benefit plan or financing and surety arrangements, or any other substantial sale of our common stock, which could depress our stock price;

 

 

the possibility that certain tax benefits of our net operating losses may be restricted or reduced in a change in ownership or a further change in the federal tax rate;

 

 

the potential recognition of valuation allowances or write-downs on deferred tax assets;

 

 

the inability to carry out plans and strategies as expected, including our inability to identify and complete acquisitions that meet our investment criteria in furtherance of our corporate strategy, or the subsequent underperformance of those acquisitions;

 

 

limitations on the availability of sufficient credit or cash flow to fund our working capital needs and capital expenditures and debt service;

 

 

difficulty in fulfilling the covenant terms of our credit facility, including liquidity, EBITDA and other financial requirements, which could result in a default and acceleration of our indebtedness under our revolving credit facility;

 

 

the possibility that we issue additional shares of common stock or convertible securities that will dilute the percentage ownership interest of existing stockholders and may dilute the book value per share of our common stock;

 

 

the relatively low trading volume of our common stock, which could depress our stock price;

 

 

competition in the industries in which we operate, both from third parties and former employees, which could result in the loss of one or more customers or lead to lower margins on new projects;

 

 

future capital expenditures and refurbishment, repair and upgrade costs; and delays in and costs of refurbishment, repair and upgrade projects;

 

 

a general reduction in the demand for our services;

 

 

our ability to enter into, and the terms of, future contracts;

 

 

success in transferring, renewing and obtaining electrical and other licenses;

 

 

challenges integrating new businesses into the Company or new types of work, products or processes into our segments;

 

 

credit and capital market conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the inability for some of our customers to retain sufficient financing, which could lead to project delays or cancellations;

 

3


 

backlog that may not be realized or may not result in profits;

 

 

the possibility of errors when estimating revenue and progress to date on percentage-of-completion contracts;

 

 

uncertainties inherent in estimating future operating results, including revenues, operating income or cash flow;

 

 

complications associated with the incorporation of new accounting, control and operating procedures;

 

 

closures or sales of facilities resulting in significant future charges, including potential warranty losses or other unexpected liabilities, or a significant disruption of our operations;

 

 

an increased cost of surety bonds affecting margins on work and the potential for our surety providers to refuse bonding or require additional collateral at their discretion;

 

 

fluctuations in operating activity due to downturns in levels of construction or the housing market, seasonality and differing regional economic conditions;

 

 

our ability to successfully manage projects;

 

 

inaccurate estimates used when entering into fixed-priced contracts;

 

 

the cost and availability of qualified labor and the ability to maintain positive labor relations;

 

 

our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel and certain plastics;

 

 

a change in the mix of our customers, contracts or business;

 

 

increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers;

 

 

the recognition of potential goodwill, long-lived assets and other investment impairments;

 

 

potential supply chain disruptions due to credit or liquidity problems faced by our suppliers;

 

 

accidents resulting from the physical hazards associated with our work and the potential for accidents;

 

 

the possibility that our current insurance coverage may not be adequate or that we may not be able to obtain a policy at acceptable rates;

 

 

the possibility that our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur;

 

 

disagreements with taxing authorities with regard to tax positions we have adopted;

 

 

the recognition of tax benefits related to uncertain tax positions;

 

 

the effect of litigation, claims and contingencies, including warranty losses, damages or other latent defect claims in excess of our existing reserves and accruals;

 

 

growth in latent defect litigation in states where we provide residential electrical work for home builders not otherwise covered by insurance;

 

 

interruptions to our information systems and cyber security or data breaches;

 

 

liabilities under laws and regulations protecting the environment; and

 

 

loss of key personnel and effective transition of new management.

 

4


You should understand that the foregoing, as well as other risk factors discussed in this document and those listed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. We undertake no obligation to publicly update or revise any information, including information concerning our controlling stockholder, net operating losses, borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Quarterly Report on Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein.

 

5


Item 1. Financial Statements

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Information)

 

     March 31,
2019
    September 30,
2018
 
     (Unaudited)        
ASSETS             

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 16,158     $ 26,247  

Accounts receivable:

    

Trade, net of allowance of $1,015 and $868, respectively

     160,946       151,578  

Retainage

     22,904       24,312  

Inventories

     23,729       20,966  

Costs and estimated earnings in excess of billings

     28,293       31,446  

Prepaid expenses and other current assets

     10,897       8,144  
  

 

 

   

 

 

 

Total current assets

     262,927       262,693  
  

 

 

   

 

 

 

Property and equipment, net

     26,520       25,364  

Goodwill

     50,622       50,702  

Intangible assets, net

     28,459       30,590  

Deferred tax assets

     43,081       46,580  

Other non-current assets

     5,662       6,065  
  

 

 

   

 

 

 

Total assets

   $ 417,271     $ 421,994  
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY             

CURRENT LIABILITIES:

    

Accounts payable and accrued expenses

     129,704       130,591  

Billings in excess of costs and estimated earnings

     32,932       33,826  
  

 

 

   

 

 

 

Total current liabilities

     162,636       164,417  
  

 

 

   

 

 

 

Long-term debt

     19,672       29,564  

Other non-current liabilities

     3,655       4,374  
  

 

 

   

 

 

 

Total liabilities

     185,963       198,355  
  

 

 

   

 

 

 

Noncontrolling interest

     3,163       3,232  

STOCKHOLDERS’ EQUITY:

    

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding

     —         —    

Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529 issued and 21,381,847 and 21,205,536 outstanding, respectively

     220       220  

Treasury stock, at cost, 667,682 and 843,993 shares, respectively

     (8,443     (8,937

Additional paid-in capital

     191,579       196,810  

Retained earnings

     44,789       32,314  
  

 

 

   

 

 

 

Total stockholders’ equity

     228,145       220,407  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 417,271     $ 421,994  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

6


IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

(Unaudited)

 

     Three Months Ended March 31,  
     2019     2018  

Revenues

   $ 256,914     $ 205,677  

Cost of services

     213,679       171,837  
  

 

 

   

 

 

 

Gross profit

     43,235       33,840  

Selling, general and administrative expenses

     35,070       29,647  

Contingent consideration

     (149     71  

Loss (gain) on sale of assets

     98       (20
  

 

 

   

 

 

 

Operating income

     8,216       4,142  
  

 

 

   

 

 

 

Interest and other (income) expense:

    

Interest expense

     535       473  

Other (income) expense, net

     (112     (43
  

 

 

   

 

 

 

Income from operations before income taxes

     7,793       3,712  

Provision for income taxes

     2,336       1,425  
  

 

 

   

 

 

 

Net income

     5,457       2,287  
  

 

 

   

 

 

 

Net (income) loss attributable to noncontrolling interest

     32       (66
  

 

 

   

 

 

 

Comprehensive income attributable to IES Holdings, Inc.

   $ 5,489     $ 2,221  
  

 

 

   

 

 

 

Earnings per share attributable to IES Holdings, Inc.:

    

Basic

   $ 0.26     $ 0.11  

Diluted

   $ 0.26     $ 0.11  

Shares used in the computation of earnings per share:

    

Basic

     21,139,096       21,182,268  

Diluted

     21,379,746       21,440,570  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

7


IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

(Unaudited)

 

     Six Months Ended March 31,  
     2019     2018  

Revenues

   $ 500,756     $ 403,977  

Cost of services

     415,920       337,073  
  

 

 

   

 

 

 

Gross profit

     84,836       66,904  

Selling, general and administrative expenses

     67,156       59,736  

Contingent consideration

     (115     71  

Loss (gain) on sale of assets

     95       (34
  

 

 

   

 

 

 

Operating income

     17,700       7,131  
  

 

 

   

 

 

 

Interest and other (income) expense:

    

Interest expense

     1,082       914  

Other (income) expense, net

     (65     (141
  

 

 

   

 

 

 

Income from operations before income taxes

     16,683       6,358  

Provision for income taxes

     4,243       33,584  
  

 

 

   

 

 

 

Net income (loss)

     12,440       (27,226
  

 

 

   

 

 

 

Net income attributable to noncontrolling interest

     (67     (122
  

 

 

   

 

 

 

Comprehensive income (loss) attributable to IES Holdings, Inc.

   $ 12,373     $ (27,348
  

 

 

   

 

 

 

Earnings (loss) per share attributable to IES Holdings, Inc.:

    

Basic

   $ 0.58     $ (1.29

Diluted

   $ 0.58     $ (1.29

Shares used in the computation of earnings (loss) per share:

    

Basic

     21,187,834       21,189,641  

Diluted

     21,424,522       21,189,641  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

8


IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(In Thousands, Except Share Information)

 

     Three Months Ended March 31, 2019  
     Common Stock      Treasury Stock     APIC     Retained
Earnings
     Total
Stockholders’
Equity
 
     Shares      Amount      Shares     Amount  

BALANCE, December 31, 2018

     22,049,529      $ 220        (763,426   $ (8,896   $ 194,607     $ 39,300      $ 225,231  

Issuances under compensation plans

     —          —          3,991       71       (71     —          —    

Grants under compensation plan

     —          —          283,195       3,582       (3,582     —          —    

Acquisition of treasury stock

     —          —          (191,442     (3,200     —         —          (3,200

Non-cash compensation

     —          —          —         —         625       —          625  

Net income attributable to IES Holdings, Inc.

     —          —          —         —         —         5,489        5,489  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

BALANCE, March 31, 2019

     22,049,529      $ 220        (667,682   $ (8,443   $ 191,579     $ 44,789      $ 228,145  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Three Months Ended March 31, 2018  
     Common Stock      Treasury Stock     APIC     Retained
Earnings
     Total
Stockholders’
Equity
 
     Shares      Amount      Shares     Amount  

BALANCE, December 31, 2017

     22,049,529      $ 220        (710,784   $ (6,881   $ 197,312     $ 16,858      $ 207,509  

Grants under compensation plans

     —          —          250       2       (2     —          —    

Acquisition of treasury stock

     —          —          (79,817     (1,229     —         —          (1,229

Non-cash compensation

     —          —          —         —         (475     —          (475

Increase in noncontrolling interest

     —          —          —         —         —         44        44  

Net income attributable to IES Holdings, Inc.

     —          —          —         —         —         2,221        2,221  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

BALANCE, March 31, 2018

     22,049,529      $ 220        (790,351   $ (8,108   $ 196,835     $ 19,123      $ 208,070  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Six Months Ended March 31, 2019  
     Common Stock      Treasury Stock     APIC     Retained
Earnings
     Total
Stockholders’
Equity
 
     Shares      Amount      Shares     Amount  

BALANCE, September 30, 2018

     22,049,529      $ 220        (843,993   $ (8,937   $ 196,810     $ 32,314      $ 220,407  

Issuances under compensation plans

     —          —          216,679       2,323       (2,323     —          —    

Grants under compensation plan

     —          —          283,195       3,582       (3,582     —          —    

Cumulative effect adjustment from adoption of new accounting standard

     —          —          —         —         —         102        102  

Acquisition of treasury stock

     —          —          (323,563     (5,411     —         —          (5,411

Non-cash compensation

     —          —          —         —         674       —          674  

Net income attributable to IES Holdings, Inc.

     —          —          —         —         —         12,373        12,373  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

BALANCE, March 31, 2019

     22,049,529      $ 220        (667,682   $ (8,443   $ 191,579     $ 44,789      $ 228,145  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

     Six Months Ended March 31, 2018  
     Common Stock      Treasury Stock     APIC     Retained
Earnings
    Total
Stockholders’
Equity
 
     Shares      Amount      Shares     Amount  

BALANCE, September 30, 2017

     22,049,529      $ 220        (712,554   $ (6,898   $ 196,955     $ 46,427     $ 236,704  

Grants under compensation plans

     —          —          520       5       (5     —         —    

Acquisition of treasury stock

     —          —          (79,817     (1,230       —         (1,230

Options exercised

     —          —          1,500       15       (4     —         11  

Non-cash compensation

     —          —          —         —         (111     —         (111

Increase in noncontrolling interest

     —          —          —         —         —         44       44  

Net loss attributable to IES Holdings, Inc.

     —          —          —         —         —         (27,348     (27,348
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, March 31, 2018

     22,049,529      $ 220        (790,351   $ (8,108   $ 196,835     $ 19,123     $ 208,070  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

9


IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

     Six Months Ended
March 31,
 
     2019     2018  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 12,440     $ (27,226

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Bad debt expense

     248       96  

Deferred financing cost amortization

     156       142  

Depreciation and amortization

     4,846       4,269  

Loss (gain) on sale of assets

     95       (34

Non-cash compensation expense

     674       (111

Deferred income taxes

     4,243       33,584  

Changes in operating assets and liabilities:

    

Accounts receivable

     (9,616     14,945  

Inventories

     (2,873     (665

Costs and estimated earnings in excess of billings

     3,152       (1,921

Prepaid expenses and other current assets

     (764     97  

Other non-current assets

     (1,370     (52

Accounts payable and accrued expenses

     (144     (10,081

Billings in excess of costs and estimated earnings

     (948     (2,098

Other non-current liabilities

     (736     214  
  

 

 

   

 

 

 

Net cash provided by operating activities

     9,403       11,159  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (3,929     (2,327

Proceeds from sale of assets

     7       94  

Cash paid in conjunction with business combinations

     —         (175
  

 

 

   

 

 

 

Net cash used in investing activities

     (3,922     (2,408
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Borrowings of debt

     122       68  

Repayments of debt

     (10,144     (109

Distribution to noncontrolling interest

     (137     (69

Purchase of treasury stock

     (5,411     (1,229

Issuance of shares

     —         11  
  

 

 

   

 

 

 

Net cash used in financing activities

     (15,570     (1,328
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (10,089     7,423  

CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of period

     26,247       28,290  
  

 

 

   

 

 

 

CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period

   $ 16,158     $ 35,713  
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    

Cash paid for interest

   $ 1,008     $ 788  

Cash paid for income taxes (net)

   $ 523     $ 1,456  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

10


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

1. BUSINESS AND ACCOUNTING POLICIES

Description of the Business

IES Holdings, Inc. is a holding company that owns and manages operating subsidiaries in business activities across a variety of end markets. Our operations are currently organized into four principal business segments, based upon the nature of our current services:

 

   

Commercial & Industrial – Provider of electrical and mechanical design, construction, and maintenance services to the commercial and industrial markets in various regional markets and nationwide in certain areas of expertise, such as the power infrastructure market.

 

   

Communications – Nationwide provider of technology infrastructure products and services to large corporations and independent businesses.

 

   

Infrastructure Solutions – Provider of electro-mechanical solutions for industrial operations, including apparatus repair and custom-engineered products.

 

   

Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes.

The words “IES”, the “Company”, “we”, “our”, and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our subsidiaries.

Seasonality and Quarterly Fluctuations

Results of operations from our Residential construction segment are seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues generated during fall and winter, with an impact from precipitation in the warmer months. The Commercial & Industrial, Communications and Infrastructure Solutions segments of our business are less subject to seasonal trends, as work in these segments generally is performed inside structures protected from the weather, although weather can still impact these businesses, especially in the early stages of projects. Our service and maintenance business is generally not affected by seasonality. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Results for our Infrastructure Solutions segment may be affected by the timing of outages at our customers’ facilities. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

Basis of Financial Statement Preparation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of IES, our wholly-owned subsidiaries, and entities that we control due to ownership of a majority of voting interest and have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”), and should be read in conjunction with the consolidated financial statements and notes thereto filed with the SEC in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.

Noncontrolling Interest

In connection with our acquisitions of STR Mechanical, LLC (“STR Mechanical”) in fiscal 2016 and NEXT Electric, LLC (“NEXT Electric”) in fiscal 2017, we acquired an 80 percent interest in each of the entities, with the remaining 20 percent interest in each such entity being retained by the respective third party seller. The interests retained by those third party sellers are identified on our Condensed Consolidated Balance Sheets as noncontrolling interest, classified outside of permanent equity. Under the terms of each entity’s operating agreement, after five years from the date of the acquisition, we may elect to purchase, or the third party seller may

 

11


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on a multiple of earnings as defined in the operating agreements. Therefore, this noncontrolling interest is carried at the greater of the balance determined under Accounting Standards Codification (“ASC”) 810 and the redemption amounts assuming the noncontrolling interests were redeemable at the balance sheet date. If all of these interests had been redeemable at March 31, 2019, the redemption amount would have been $1,428. For the six months ended March 31, 2018, we recorded an increase to retained earnings of $44 to decrease the carrying amount of the noncontrolling interest in STR Mechanical to the balance determined under ASC 810, as, if it had been redeemable at March 31, 2019, the redemption amount would have been less than the carrying amount.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in accounting for business combinations and analyzing goodwill, investments, intangible assets and long-lived asset impairments and adjustments, allowance for doubtful accounts receivable, stock-based compensation, reserves for legal matters, realizability of deferred tax assets, unrecognized tax benefits and self-insured claims liabilities and related reserves.

Income Taxes

In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, which, among other changes, reduced the federal statutory corporate tax rate from 35% to 21%, effective January 1, 2018. As a result of this change, the Company’s statutory tax rate for fiscal 2018 was a blended rate of 24.53% and decreased to 21% in 2019. For the six months ended March 31, 2018, our effective tax rate differed from the statutory tax rate as a result of a charge of $31,487 to re-measure our deferred tax assets and liabilities to reflect the impact of the new statutory tax rate. The Company completed its accounting for the income tax effects of the Act and fully recorded the impact in the year ended September 30, 2018.

Accounting Standards Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2016-02, Leases (“ASU 2016-02”). Under ASU 2016-02, lessees will need to recognize a right-of-use asset and a lease liability on our Balance Sheet for all leases, other than those that meet the definition of a short-term lease. For income statement purposes, leases must be classified as either operating or finance. Operating leases will result in straight-line expense, similar to current operating leases, while finance leases will be accounted for similar to current capital leases. ASU 2016-02 becomes effective for the fiscal year ended September 30, 2020. We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements.

In June 2016, the FASB issued Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. This update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted. We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements.

In June 2018, the FASB issued Accounting Standard Update No. 2018-07, Compensation—Stock Compensation (“ASU 2018-07”), to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update is effective for the fiscal year ended September 30, 2020.

In August 2018, the FASB issued Accounting Standard Update No. 2018-13, Fair Value Measurement Disclosure Framework (“ASU 2018-13”), to modify certain disclosure requirements for fair value measurements. Under the new guidance, registrants will need to disclose weighted average information for significant unobservable inputs for all Level 3 fair value measurements. The guidance does not specify how entities should calculate the weighted average, but requires them to explain their calculation. The new guidance also requires disclosing the changes in unrealized gain and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted for either the entire standard or only the provisions that eliminate or modify the requirements.

 

12


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

We do not expect ASU 2018-07 or ASU 2018-13 to have a material effect on our Condensed Consolidated Financial Statements

Accounting Standards Recently Adopted

In May 2014, the FASB issued Accounting Standard Update No. 2014-09, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes prior industry-specific guidance. The new standard requires companies to recognize revenue when control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the company expects to be entitled. The new model requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time for each obligation. The new standard also expands disclosure requirements regarding revenue and cash flows arising from contracts with customers.

We adopted the new revenue recognition standard on October 1, 2018 (“Adoption Date”), using the modified retrospective method, which provides for a cumulative effect adjustment to beginning fiscal 2019 retained earnings for uncompleted contracts impacted by the adoption. We recorded an adjustment of $102 to beginning fiscal 2019 retained earnings as a result of adoption of the new standard. The changes to the method and/or timing of our revenue recognition associated with the new standard primarily affect revenue recognition within our Infrastructure Solutions segment for which, as of October 1, 2018, certain of our contracts do not qualify for revenue recognition over time. In addition, we have now combined in process contracts that historically had been accounted for as separate contracts in cases where those contracts meet the criteria for combination of contracts under the new standard, and we now capitalize certain commissions which were previously expensed when incurred. The impact on our results for the quarter and year ended March 31, 2019, of applying the new standard to our contracts was not material.

Consistent with our adoption method, the comparative prior period information for the three and six months ended March 31, 2018, continues to be reported using the previous accounting standards in effect for the period presented. We have elected to utilize the modified retrospective transition practical expedient that allows us to evaluate the impact of contract modifications as of the Adoption Date rather than evaluating the impact of the modifications at the time they occurred prior to the Adoption Date.

See Note 3, “Revenue Recognition” for additional discussion of our revenue recognition accounting policies and expanded disclosures.

In January 2016, the FASB issued Accounting Standard Update No. 2016-01, Financial Instruments. This standard is associated with the recognition and measurement of financial assets and liabilities, with further clarifications made in February 2018 with the issuance of Accounting Standard Update No. 2018-03. The amended guidance requires certain equity investments that are not consolidated and not accounted for under the equity method to be measured at fair value with changes in fair value recognized in net income rather than as a component of accumulated other comprehensive income (loss). It further states that an entity may choose to measure equity investments that do not have readily determinable fair values using a quantitative approach, or measurement alternative, which is equal to its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Our adoption of this standard on October 1, 2018 had no impact on our Condensed Consolidated Financial Statements.

In January 2017, the FASB issued Accounting Standard Update No. 2017-01, Business Combinations. This standard clarifies the definition of a business to assist entities with evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Our adoption of this standard on October 1, 2018 using the prospective transition method had no impact on our Condensed Consolidated Financial Statements.

In May 2017, the FASB issued Accounting Standard Update No. 2017-09, Compensation—Stock Compensation, to reduce the diversity in practice and the cost and complexity when changing the terms or conditions of a share-based payment award. Our adoption of this standard on October 1, 2018 using the prospective transition method had no impact on our Condensed Consolidated Financial Statements.

2. CONTROLLING STOCKHOLDER

Tontine Associates, L.L.C. and its affiliates (collectively, “Tontine”), is the Company’s controlling stockholder, owning approximately 57.5 percent of the Company’s outstanding common stock according to a Schedule 13D/A filed with the SEC by Tontine on January 11, 2019. Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of stockholders.

 

13


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

While Tontine is subject to certain restrictions under federal securities laws on sales of its shares as an affiliate, the Company has filed a shelf registration statement to register all of the shares of IES common stock owned by Tontine at the time of registration. As long as the shelf registration statement remains effective and the Company remains eligible to use it, Tontine has the ability to resell any or all of its registered shares from time to time in one or more offerings, as described in the shelf registration statement and in any prospectus supplement filed in connection with an offering pursuant to the shelf registration statement.

Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership of IES could occur. A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of the Company’s net operating losses (“NOLs”) for federal and state income tax purposes. On November 8, 2016, the Company implemented a new tax benefit protection plan (the “NOL Rights Plan”). The NOL Rights Plan was designed to deter an acquisition of the Company’s stock in excess of a threshold amount that could trigger a change of control within the meaning of Internal Revenue Code Section 382. There can be no assurance that the NOL Rights Plan will be effective in deterring a change of ownership or protecting the NOLs. Furthermore, a change in control would trigger the change of control provisions in a number of our material agreements, including our credit facility, bonding agreements with our sureties and our severance arrangements.

Jeffrey L. Gendell was appointed as a member of the Board of Directors and as Chairman of the Board in November 2016. He is the managing member and founder of Tontine, and the brother of David B. Gendell, who has served as a member of our Board of Directors since February 2012, and who previously served as Interim Director of Operations from November 2017 to January 2019, as Vice Chairman of the Board from November 2016 to November 2017 and as Chairman of the Board from January 2015 to November 2016. David B. Gendell was an employee of Tontine from 2004 until December 31, 2017.

The Company is party to a sublease agreement with Tontine Associates, L.L.C. for corporate office space in Greenwich, Connecticut. On May 1, 2019, sublease was extended for a six month term expiring December 31, 2019, with an increase in the monthly rent to $9, reflecting the increase paid by Tontine Associates, L.L.C. to its landlord. The lease has terms at market rates, and payments by the Company are at a rate consistent with that paid by Tontine Associates, L.L.C. to its landlord.

On December 6, 2018, the Company entered into a Board Observer Letter Agreement with Tontine Associates, L.L.C. in order to assist Tontine in managing its investment in the Company. Subject to the terms and conditions set forth in the Letter Agreement, the Company granted Tontine the right, at any time that Tontine holds at least 20% of the outstanding common stock of the Company, to appoint a representative to serve as an observer to the Board (the “Board Observer”). The Board Observer, who must be reasonably acceptable to those members of the Board who are not affiliates of Tontine, shall have no voting rights or other decision making authority. Subject to the terms and conditions set forth in the Letter Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable out-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.

3. REVENUE RECOGNITION

Contracts

Our revenue is derived from contracts with customers, and we determine the appropriate accounting treatment for each contract at contract inception. Our contracts primarily relate to electrical and mechanical contracting services, technology infrastructure products and services, and electro-mechanical solutions for industrial operations. Revenue is earned based upon an agreed fixed price or actual costs incurred plus an agreed upon percentage.

We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we have written authorization from the customer to proceed.

 

14


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

We recognize revenue over time for the majority of the services we perform as (i) control continuously transfers to the customer as work progresses at a project location controlled by the customer and (ii) we have the right to bill the customer as costs are incurred. Within our Infrastructure Solutions segment, we often perform work inside our own facilities, where control does not continuously transfer to the customer as work progresses. In such cases, we evaluate whether we have the right to bill the customer as costs are incurred. Such assessment involves an evaluation of contractual termination clauses. Where we have a contractual right to payment for work performed to date, we recognize revenue over time. If we do not have such a right, we recognize revenue upon completion of the contract, when control of the work transfers to the customer.

For fixed price arrangements, we use the percentage of completion method of accounting under which revenue recognized is measured principally by the costs incurred and accrued to date for each contract as a percentage of the estimated total cost for each contract at completion. Contract costs include all direct material, labor and indirect costs related to contract performance. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income, and the effects of these revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments.

Variable Consideration

The transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the probability weighted value we expect to receive (or the most probable amount we expect to incur in the case of liquidated damages, if any), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages, if any). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.

Costs of Obtaining a Contract

In certain of our operations, we incur commission costs related to entering into a contract that we only incurred because of that contract. When this occurs, we capitalize that cost and amortize it over the expected term of the contract. At March 31, 2019, we had capitalized commission costs of $100.

We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significant pre-contract costs are incurred, they will be capitalized and amortized on a percentage of completion basis over the life of the contract.

 

15


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by activity and contract type, as these categories reflect how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Our consolidated 2019 and 2018 revenue was derived from the following service activities. See details in the following tables:

 

     Three Months Ended
March 31,
     Six Months Ended
March 31,
 
     2019      2018      2019      2018  

Commercial & Industrial

   $ 79,975        65,589        152,558        118,591  

Communications

     70,437        50,244        139,762        104,703  

Infrastructure Solutions

           

Industrial Services

     12,145        10,404        24,368        21,457  

Custom Power Solutions

     22,305        13,462        39,561        24,094  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     34,450        23,866        63,929        45,551  

Residential

           

Single-family

     51,492        43,594        101,968        88,208  

Multi-family and Other

     20,560        22,384        42,539        46,924  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     72,052        65,978        144,507        135,132  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 256,914      $ 205,677      $ 500,756      $ 403,977  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended March 31, 2019  
     Commercial
& Industrial
     Communications      Infrastructure
Solutions
     Residential      Total  

Fixed-price

   $ 76,467      $ 48,602      $ 30,130      $ 72,052      $ 227,251  

Time-and-material

     3,508        21,835        4,320        —          29,663  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 79,975      $ 70,437      $ 34,450      $ 72,052      $ 256,914  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended March 31, 2018  
     Commercial
& Industrial
     Communications      Infrastructure
Solutions
     Residential      Total  

Fixed-price

   $ 58,183      $ 37,344      $ 20,636      $ 65,978      $ 182,141  

Time-and-material

     7,406        12,900        3,230        —          23,536  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 65,589      $ 50,244      $ 23,866      $ 65,978      $ 205,677  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended March 31, 2019  
     Commercial
& Industrial
     Communications      Infrastructure
Solutions
     Residential      Total  

Fixed-price

   $ 142,297      $ 97,431      $ 57,641      $ 144,507      $ 441,876  

Time-and-material

     10,261        42,331        6,288        —          58,880  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 152,558      $ 139,762      $ 63,929      $ 144,507      $ 500,756  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended March 31, 2018  
     Commercial
& Industrial
     Communications      Infrastructure
Solutions
     Residential      Total  

Fixed-price

   $ 107,103      $ 81,500      $ 40,309      $ 135,132      $ 364,044  

Time-and-material

     11,488        23,203        5,242        —          39,933  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 118,591      $ 104,703      $ 45,551      $ 135,132      $ 403,977  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accounts Receivable

Accounts receivable include amounts which we have billed or have an unconditional right to bill our customers. As of March 31, 2019, Accounts receivable included $10,173 of unbilled receivables for which we have an unconditional right to bill.

 

16


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Contract Assets and Liabilities

Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our balance sheet under the caption “Costs and estimated earnings in excess of billings”. To the extent amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our balance sheet under the caption “Billings in excess of costs and estimated earnings”.

The net asset (liability) position for contracts in process consisted of the following:

 

     March 31,
2019
     September 30,
2018
 

Costs and estimated earnings on uncompleted contracts

   $ 586,289      $ 539,226  

Less: Billings to date and unbilled accounts receivable

     (590,928      (541,606
  

 

 

    

 

 

 
   $ (4,639    $ (2,380
  

 

 

    

 

 

 

The net asset (liability) position for contracts in process included in the accompanying consolidated balance sheets was as follows:

 

     March 31,
2019
     September 30,
2018
 

Costs and estimated earnings in excess of billings

   $ 28,293      $ 31,446  

Billings in excess of costs and estimated earnings

     (32,932      (33,826
  

 

 

    

 

 

 
   $ (4,639    $ (2,380
  

 

 

    

 

 

 

During the three months ended March 31, 2019, and 2018, we recognized revenue of $18,114 and $14,977 related to our contract liabilities at January 1, 2019 and 2018, respectively. During the six months ended March 31, 2019, and 2018, we recognized revenue of $24,701 and $25,575 related to our contract liabilities at October 1, 2018 and 2017, respectively.

We did not have any impairment losses recognized on our receivables or contract assets for the three and six months ended March 31, 2019 or 2018.

Remaining Performance Obligations

Remaining performance obligations represent the unrecognized revenue value of our contract commitments. New awards represent the total expected revenue value of new contract commitments undertaken during a given period, as well as additions to the scope of existing contract commitments. Our new performance obligations vary significantly each reporting period based on the timing of our major new contract commitments. At March 31, 2019, we had remaining performance obligations of $423,718. The Company expects to recognize revenue on approximately $376,680 of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter.

For the three and six months ended March 31, 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material.

4. DEBT

At March 31, 2019, and September 30, 2018, our long-term debt of $19,672 and $29,564, respectively, primarily related to amounts drawn on our revolving credit facility. Our weighted-average annual interest rate on these borrowings was 4.52% at March 31, 2019, and 3.86% at September 30, 2018. At March 31, 2019, we also had $6,551 in outstanding letters of credit and total availability of $71,698 under our revolving credit facility without violating our financial covenants.

Pursuant to our Second Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A. (as amended, the “Credit Agreement”), the Company is subject to the financial or other covenants disclosed in Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2018.

 

17


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

There have been no other changes to those covenants. The Company was in compliance with the financial covenants as of March 31, 2019.

At March 31, 2019, the carrying value of amounts outstanding on our revolving credit facility approximated fair value, as debt incurs interest at a variable rate. The fair value of the debt is classified as a Level 2 measurement.

5. PER SHARE INFORMATION

The following tables reconcile the components of basic and diluted earnings per share for the three and six months ended March 31, 2019, and 2018:

 

     Three Months Ended March 31,  
     2019      2018  

Numerator:

     

Net income attributable to common stockholders of IES Holdings, Inc.

   $ 5,467      $ 2,250  

Decrease in noncontrolling interest

     —          (44

Net income attributable to restricted stockholders of IES Holdings, Inc.

     22        15  
  

 

 

    

 

 

 

Net income attributable to IES Holdings, Inc.

   $ 5,489      $ 2,221  
  

 

 

    

 

 

 

Denominator:

     

Weighted average common shares outstanding — basic

     21,139,096        21,182,268  

Effect of dilutive stock options and non-vested restricted stock

     240,650        258,302  
  

 

 

    

 

 

 

Weighted average common and common equivalent shares outstanding — diluted

     21,379,746        21,440,570  
  

 

 

    

 

 

 

Earnings per share attributable to IES Holdings, Inc.:

     

Basic

   $ 0.26      $ 0.11  

Diluted

   $ 0.26      $ 0.11  
     Six Months Ended March 31,  
     2019      2018  

Numerator:

     

Net income (loss) attributable to common stockholders of IES Holdings, Inc.

   $ 12,348      $ (27,304

Decrease in noncontrolling interest

     —          (44

Net income (loss) attributable to restricted stockholders of IES Holdings, Inc.

     25        —    
  

 

 

    

 

 

 

Net income (loss) attributable to IES Holdings, Inc.

   $ 12,373      $ (27,348
  

 

 

    

 

 

 

Denominator:

     

Weighted average common shares outstanding — basic

     21,187,834        21,189,641  

Effect of dilutive stock options and non-vested restricted stock

     236,688        —    
  

 

 

    

 

 

 

Weighted average common and common equivalent shares outstanding — diluted

     21,424,522        21,189,641  
  

 

 

    

 

 

 

Earnings (loss) per share attributable to IES Holdings, Inc.:

     

Basic

   $ 0.58      $ (1.29

Diluted

   $ 0.58      $ (1.29

 

18


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

When an entity has a net loss, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, we have utilized basic shares outstanding to calculate both basic and diluted loss per share for the six months ended March 31, 2018. The number of potential anti-dilutive shares excluded from the calculation was 255,146 shares. For the three months ended March 31, 2018, and the three and six months ended March 31, 2019, the average price of our common shares exceeded the exercise price of all of our outstanding options; therefore, all of our outstanding stock options were included in the computation of fully diluted earnings per share.

6. OPERATING SEGMENTS

We manage and measure performance of our business in four distinct operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purpose of allocating resources and assessing performance. The Company’s CODM is its Chief Executive Officer.

Transactions between segments, if any, are eliminated in consolidation. Our corporate office provides general and administrative, as well as support services, to our four operating segments. Management allocates certain shared costs between segments for selling, general and administrative expenses and depreciation expense.

Segment information for the three and six months ended March 31, 2019, and 2018 is as follows:

 

     Three Months Ended March 31, 2019  
     Commercial
& Industrial
    Communications     Infrastructure
Solutions
    Residential     Corporate     Total  

Revenues

   $ 79,975     $ 70,437     $ 34,450     $ 72,052     $ —       $ 256,914  

Cost of services

     71,184       58,492       27,004       56,999       —         213,679  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     8,791       11,945       7,446       15,053       —         43,235  

Selling, general and administrative

     7,363       7,666       4,685       11,187       4,169       35,070  

Contingent consideration

     —         —         (149     —         —         (149

Loss (gain) on sale of assets

     (1     —         101       (2     —         98  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 1,429     $ 4,279     $ 2,809     $ 3,868     $ (4,169   $ 8,216  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other data:

            

Depreciation and amortization expense

   $ 629     $ 426     $ 1,175     $ 217     $ 27     $ 2,474  

Capital expenditures

   $ 615     $ 193     $ 635     $ 398     $ —       $ 1,841  

Total assets

   $ 77,898     $ 91,960     $ 114,739     $ 55,417     $ 77,257     $ 417,271  
     Three Months Ended March 31, 2018  
     Commercial
& Industrial
    Communications     Infrastructure
Solutions
    Residential     Corporate     Total  

Revenues

   $ 65,589     $ 50,244     $ 23,866     $ 65,978     $ —       $ 205,677  

Cost of services

     59,068       40,892       18,842       53,035       —         171,837  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     6,521       9,352       5,024       12,943       —         33,840  

Selling, general and administrative

     6,849       6,201       4,637       9,688       2,272       29,647  

Contingent consideration

     —         —         71       —         —         71  

Loss (gain) on sale of assets

     (17     (8     6       (1     —         (20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ (311   $ 3,159     $ 310     $ 3,256     $ (2,272   $ 4,142  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other data:

            

Depreciation and amortization expense

   $ 527     $ 219     $ 1,140     $ 155     $ 20     $ 2,061  

Capital expenditures

   $ 413     $ 398     $ 205     $ 108     $ —       $ 1,124  

Total assets

   $ 72,559     $ 60,102     $ 100,884     $ 47,695     $ 103,747     $ 384,987  

 

19


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

     Six Months Ended March 31, 2019  
     Commercial
& Industrial
    Communications     Infrastructure
Solutions
    Residential     Corporate     Total  

Revenues

   $ 152,558     $ 139,762     $ 63,929     $ 144,507     $ —       $ 500,756  

Cost of services

     135,092       115,851       50,556       114,421       —         415,920  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     17,466       23,911       13,373       30,086       —         84,836  

Selling, general and administrative

     14,079       14,600       9,166       22,324       6,987       67,156  

Contingent consideration

     —         —         (115     —         —         (115

Loss (gain) on sale of assets

     (4     —         101       (2     —         95  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 3,391     $ 9,311     $ 4,221     $ 7,764     $ (6,987   $ 17,700  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other data:

            

Depreciation and amortization expense

   $ 1,255     $ 841     $ 2,269     $ 426     $ 55     $ 4,846  

Capital expenditures

   $ 1,467     $ 693     $ 822     $ 845     $ 102     $ 3,929  

Total assets

   $ 77,898     $ 91,960     $ 114,739     $ 55,417     $ 77,257     $ 417,271  
     Six Months Ended March 31, 2018  
     Commercial
& Industrial
    Communications     Infrastructure
Solutions
    Residential     Corporate     Total  

Revenues

   $ 118,591     $ 104,703     $ 45,551     $ 135,132     $ —       $ 403,977  

Cost of services

     107,227       86,231       35,842       107,773       —         337,073  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     11,364       18,472       9,709       27,359       —         66,904  

Selling, general and administrative

     12,644       12,285       9,194       20,054       5,559       59,736  

Contingent consideration

     —         —         71       —         —         71  

Loss (gain) on sale of assets

     (29     (9     5       (1     —         (34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ (1,251   $ 6,196     $ 439     $ 7,306     $ (5,559   $ 7,131  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other data:

            

Depreciation and amortization expense

   $ 1,084     $ 435     $ 2,383     $ 296     $ 71     $ 4,269  

Capital expenditures

   $ 923     $ 473     $ 345     $ 586     $ —       $ 2,327  

Total assets

   $ 72,559     $ 60,102     $ 100,884     $ 47,695     $ 103,747     $ 384,987  

7. STOCKHOLDERS’ EQUITY

Equity Incentive Plan

The Company’s 2006 Equity Incentive Plan, as amended and restated (the “Equity Incentive Plan”), provides for grants of stock options as well as grants of stock, including restricted stock. Approximately 3.0 million shares of common stock are authorized for issuance under the Equity Incentive Plan, of which approximately 847,891 shares were available for issuance at March 31, 2019.

Stock Repurchase Program

In 2015, our Board of Directors authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which allows repurchases under pre-set terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We repurchased 189,821 and 235,954 shares, respectively, of our common stock during the

 

20


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

three and six months ended March 31, 2019, in open market transactions at an average price of $16.70 and $16.58, respectively, per share. We repurchased 79,817 shares of our common stock during the three and six months ended March 31, 2018, in open market transactions at an average price of $15.40 per share. On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.

Treasury Stock

During the six months ended March 31, 2019, we issued 212,688 shares of common stock from treasury stock to employees and repurchased 87,609 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan. We also repurchased 235,954 shares of common stock on the open market pursuant to our stock repurchase program. We issued 3,991 shares of treasury stock as payment for outstanding phantom stock units that vested upon the departure of the Company’s President and issued 283,195 shares out of treasury stock for restricted shares granted upon the appointment of the Company’s Chief Executive Officer (“CEO”) in March 2019.

During the six months ended March 31, 2018, we repurchased 79,817 shares of common stock on the open market pursuant to the repurchase program. During the six months ended March 31, 2018, we issued 520 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation and 1,500 unrestricted shares of common stock to satisfy the exercise of outstanding options for employees.

Restricted Stock

On March 4, 2019, we granted 283,195 restricted shares, pursuant to four award agreements, in conjunction with the appointment of the Company’s CEO. These awards include restricted shares subject to the achievement of specified levels of cumulative net income before taxes or specified stock price levels, as well as shares that vest based on the passage of time. During the three months ended March 31, 2019, and 2018, we recognized $111 and $131, respectively, in compensation expense related to our restricted stock awards. During the six months ended March 31, 2019, and 2018, we recognized $111 and $245, respectively, in compensation expense related to our restricted stock awards. At March 31, 2019, the unamortized compensation cost related to outstanding unvested restricted stock was $3,685.

Phantom Stock Units

Director phantom stock units (“Director PSUs”) are primarily granted to the members of the Board of Directors as part of their overall compensation. These Director PSUs are paid via unrestricted stock grants to each director upon their departure from the Board of Directors. We record compensation expense for the full value of the grant on the date of grant. During the three months ended March 31, 2019, and 2018, we recognized $50 and $49, respectively, in compensation expense related to these grants. During the six months ended March 31, 2019, and 2018, we recognized $99 and $91, respectively, in compensation expense related to these grants.

Performance Based Phantom Stock Units

A performance based phantom stock unit (a “PPSU”) is a contractual right to receive one share of the Company’s common stock upon the achievement of certain specified performance objectives and continued performance of services. On February 6, 2019, the Company granted an additional 230,274 PPSUs, of which 59,924 shares were subsequently forfeited in conjunction with the departure of the Company’s President. At March 31, 2019, the Company had outstanding an aggregate of 170,350 PPSUs.

During the three and six months ended March 31, 2019, we recognized compensation expense of $465 related to these grants. During the three and six months ended March 31, 2018, we recognized a benefit to compensation expense of $652 and $449, respectively, related to these grants. This benefit was the result of a reduction in the estimated number of units deemed probable of vesting based on the projected achievement of specified performance objectives.

8. SECURITIES AND EQUITY INVESTMENTS

Our financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, investments, accounts payable and a loan agreement. We believe that the carrying value of these financial instruments in the accompanying Condensed Consolidated Balance Sheets approximates their fair value due to their short-term nature. At March 31, 2019, and September 30, 2018, we carried a cost method investment at $408 and $558, respectively, which is equal to our cost less impairment.

 

21


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

9. EMPLOYEE BENEFIT PLANS

401(k) Plan

In November 1998, we established the IES Holdings, Inc. 401(k) Retirement Savings Plan. All full-time IES employees and full-time employees of participating subsidiaries are eligible to participate on the first day of the month subsequent to completing sixty days of service and attaining age twenty-one. Participants become vested in our matching contributions following three years of service. We also maintain several subsidiary retirement savings plans. During the three months ended March 31, 2019, and 2018, we recognized $600 and $485, respectively, in matching expense. During the six months ended March 31, 2019, and 2018, we recognized $1,023 and $914, respectively, in matching expense.

Post Retirement Benefit Plans

Certain individuals at one of the Company’s locations are entitled to receive fixed annual payments pursuant to post retirement benefit plans. We had an unfunded benefit liability of $718 and $755 recorded as of March 31, 2019, and September 30, 2018, respectively, related to such plans.

10. FAIR VALUE MEASUREMENTS

Fair Value Measurement Accounting

Fair value is considered the price to sell an asset, or transfer a liability, between market participants on the measurement date. Fair value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.

At March 31, 2019, financial assets and liabilities measured at fair value on a recurring basis were limited to our Executive Deferred Compensation Plan, under which certain employees are permitted to defer a portion of their base salary and/or bonus for a Plan Year (as defined in the plan), and contingent consideration liabilities related to certain of our acquisitions.

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019, and September 30, 2018, are summarized in the following tables by the type of inputs applicable to the fair value measurements:

 

     March 31, 2019  
     Total
Fair
Value
     Quoted
Prices
(Level 1)
     Significant
Unobservable
Inputs
(Level 3)
 

Executive savings plan assets

   $ 738      $ 738      $ —    

Executive savings plan liabilities

     (623      (623      —    

Contingent consideration

     (270      —          (270
  

 

 

    

 

 

    

 

 

 

Total

   $ (155    $ 115      $ (270
  

 

 

    

 

 

    

 

 

 
     September 30, 2018  
     Total
Fair
Value
     Quoted
Prices
(Level 1)
     Significant
Unobservable
Inputs
(Level 3)
 

Executive savings plan assets

   $ 747      $ 747      $ —    

Executive savings plan liabilities

     (631      (631      —    

Contingent consideration

     (680      —          (680
  

 

 

    

 

 

    

 

 

 

Total

   $ (564    $ 116      $ (680
  

 

 

    

 

 

    

 

 

 

 

22


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

In fiscal years 2016, 2017 and 2018, we entered into contingent consideration arrangements related to certain acquisitions. At March 31, 2019, we estimated the fair value of these contingent consideration liabilities at $270. The table below presents a reconciliation of the fair value of these obligations, which used significant unobservable inputs (Level 3).

 

     Contingent
Consideration
Agreements
 

Fair value at September 30, 2018

   $ 680  

Settlements

     (295

Net adjustments to fair value

     (115
  

 

 

 

Fair value at March 31, 2019

   $ 270  
  

 

 

 

11. INVENTORY

Inventories consist of the following components:

 

     March 31,
2019
     September 30,
2018
 

Raw materials

   $ 4,368      $ 4,453  

Work in process

     5,972        5,168  

Finished goods

     2,218        1,746  

Parts and supplies

     11,171        9,599  
  

 

 

    

 

 

 

Total inventories

   $ 23,729      $ 20,966  
  

 

 

    

 

 

 

12. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following is a progression of goodwill by segment for the six months ended March 31, 2019:

 

     Commercial
& Industrial
     Communications      Infrastructure
Solutions
    Residential      Total  

Goodwill at September 30, 2018

   $ 6,976      $ 2,816      $ 30,931     $ 9,979      $ 50,702  

Divestitures (See Note 14)

     —          —          (119     —          (119

Adjustments

     —          —          —         39        39  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Goodwill at March 31, 2019

   $ 6,976      $ 2,816      $ 30,812     $ 10,018      $ 50,622  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

23


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Intangible Assets

Intangible assets consist of the following:

 

     Estimated
Useful
Lives
(in Years)
     March 31, 2019  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net  

Trademarks/trade names

     5 - 20      $ 5,084      $ 1,053      $ 4,031  

Technical library

     20        400        111        289  

Customer relationships

     6 - 15        33,539        9,460        24,079  

Non-competition arrangements

     5        40        5        35  

Backlog

     1        378        358        20  

Construction contracts

     1        2,184        2,179        5  
     

 

 

    

 

 

    

 

 

 

Total intangible assets

      $ 41,625      $ 13,166      $ 28,459  
     

 

 

    

 

 

    

 

 

 

 

     Estimated
Useful
Lives
(in Years)
     September 30, 2018  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net  

Trademarks/trade names

     5 - 20      $ 5,084      $ 831      $ 4,253  

Technical library

     20        400        101        299  

Customer relationships

     6 - 15        33,539        7,870        25,669  

Non-competition arrangements

     5        40        1        39  

Backlog

     1        378        176        202  

Construction contracts

     1        2,184        2,056        128  
     

 

 

    

 

 

    

 

 

 

Total intangible assets

      $ 41,625      $ 11,035      $ 30,590  
     

 

 

    

 

 

    

 

 

 

13. COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time we are a party to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business. We maintain various insurance coverages to minimize financial risk associated with these proceedings. None of these proceedings, separately or in the aggregate, are expected to have a material adverse effect on our financial position, results of operations or cash flows. With respect to all such proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We expense routine legal costs related to these proceedings as they are incurred.

Risk-Management

We retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group health claims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits. Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors, as additional insureds under our insurance policies. Losses are accrued based upon our known claims incurred and an estimate of claims incurred but not reported. As a result, many of our claims are effectively self-insured. Many claims against our insurance are in the form of litigation. At March 31, 2019, and September 30, 2018, we had $6,021 and $6,202, respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. As of March 31, 2019, and September 30, 2018, we had $87 and $171, respectively, reserved for these claims. Because the reserves are based on judgment and estimates and involve variables that are inherently uncertain, such as the outcome of litigation and an assessment of insurance coverage, there can be no assurance that the ultimate liability will not be higher or lower than such estimates or that the timing of payments will not create liquidity issues for the Company.

Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date, we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At March 31, 2019, and September 30, 2018, $6,351 and $6,101, respectively, of our outstanding letters of credit was utilized to collateralize our insurance program.

 

24


IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Surety

As of March 31, 2019, the estimated cost to complete our bonded projects was approximately $77,025. We evaluate our bonding requirements on a regular basis, including the terms offered by our sureties. We believe the bonding capacity presently provided by our current sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. Posting letters of credit in favor of our sureties reduces the borrowing availability under our credit facility.

Other Commitments and Contingencies

Some of our customers and vendors require us to post letters of credit, or provide intercompany guarantees, as a means of guaranteeing performance under our contracts and ensuring payment by us to subcontractors and vendors. If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse our creditor for the letter of credit. At March 31, 2019, and September 30, 2018, $200 and $508, respectively, of our outstanding letters of credit were to collateralize our vendors.

From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of March 31, 2019, we had no such commitments.

14. BUSINESS COMBINATIONS AND DIVESTITURES

In March 2019, our management committed to a plan for the sale of substantially all of the operating assets at one of our operating facilities within the Infrastructure Solutions segment. In connection with the plan, we allocated $119 of goodwill to the disposal group. In conjunction with the write down of these assets to their net realizable value of $450, we recognized a loss of $101, recorded within “Loss (gain) on sale of assets” within our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2019. We expect the sale of these assets to a third party to be completed within the fiscal year ended September 30, 2019.

15. SUBSEQUENT EVENTS

On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.

 

25


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Part II, Item 8. “Financial Statements and Supplementary Data” as set forth in our Annual Report on Form 10-K for the year ended September 30, 2018, and the Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion may contain forward looking statements. For additional information, see “Disclosure Regarding Forward Looking Statements” in Part I of this Quarterly Report on Form 10-Q.

OVERVIEW

Executive Overview

Please refer to Part 1, Item 1. “Business” of our Annual Report on Form 10-K for the year ended September 30, 2018, for a discussion of the Company’s services and corporate strategy. IES Holdings, Inc., a Delaware corporation, is a holding company that owns and manages operating subsidiaries, comprised of providers of industrial products and infrastructure services, to a variety of end markets. Our operations are currently organized into four principal business segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential.

RESULTS OF OPERATIONS

We report our operating results across our four operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. Expenses associated with our corporate office are classified separately. The following table presents selected historical results of operations of IES Holdings, Inc., as well as the results of acquired businesses from the dates acquired.

 

     Three Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 256,914        100.0   $ 205,677        100.0

Cost of services

     213,679        83.2     171,837        83.5
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     43,235        16.8     33,840        16.5

Selling, general and administrative expenses

     35,070        13.7     29,647        14.4

Contingent consideration

     (149      (0.1 )%      71        0.0

Loss (gain) on sale of assets

     98        0.0     (20      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     8,216        3.2     4,142        2.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Interest and other (income) expense, net

     423        0.2     430        0.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations before income taxes

     7,793        3.0     3,712        1.8

Provision for income taxes

     2,336        0.9     1,425        0.7
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

     5,457        2.1     2,287        1.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss (income) attributable to noncontrolling interest

     32        0.0     (66      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to IES Holdings, Inc.

   $ 5,489        2.1   $ 2,221        1.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Consolidated revenues for the three months ended March 31, 2019, were $51.2 million higher than for the three months ended March 31, 2018, an increase of 24.9%, with increases at all of our segments, driven by strong demand.

Consolidated gross profit for the three months ended March 31, 2019, increased $9.4 million compared with the three months ended March 31, 2018. Our overall gross profit percentage increased to 16.8% during the three months ended March 31, 2019, as compared to 16.5% during the three months ended March 31, 2018. Gross profit as a percentage of revenue increased at all of our segments, with the exception of our Communications segment.

Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and benefits related to corporate, segment and branch management (including incentive-based compensation), occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization. We allocate certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment.

 

26


During the three months ended March 31, 2019, our selling, general and administrative expenses were $35.1 million, an increase of $5.4 million, or 18.3%, over the three months ended March 31, 2018, driven by increased personnel costs at our operating segments in connection with their growth. This increase also includes a $1.9 million increase in expenses at the corporate level, related to a severance payment to our outgoing President, as well as an increase in stock based compensation expenses. However, selling, general and administrative expense as a percent of revenue decreased from 14.4% for the three months ended March 31, 2018, to 13.7% for the three months ended March 31, 2019, as we benefitted from the increased scale of our operations.

 

     Six Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 500,756        100.0   $ 403,977        100.0

Cost of services

     415,920        83.1     337,073        83.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     84,836        16.9     66,904        16.6

Selling, general and administrative expenses

     67,156        13.4     59,736        14.8

Contingent consideration

     (115      0.0     71        0.0

Loss (gain) on sale of assets

     95        0.0     (34      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     17,700        3.5     7,131        1.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Interest and other (income) expense, net

     1,017        0.2     773        0.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Income from operations before income taxes

     16,683        3.3     6,358        1.6

Provision for income taxes (1)

     4,243        0.8     33,584        8.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss)

     12,440        2.5     (27,226      (6.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to noncontrolling interest

     (67      0.0     (122      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to IES Holdings, Inc.

   $ 12,373        2.5   $ (27,348      (6.8 )% 
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

2018 includes a charge of $31.5 million to re-measure our net deferred tax assets in connection with the Tax Cuts and Jobs Act.

Consolidated revenues for the six months ended March 31, 2019, were $96.8 million higher than for the six months ended March 31, 2018, an increase of 24.0%, with increases at all of our operating segments, driven by strong demand.

Our overall gross profit percentage increased to 16.9% during the six months ended March 31, 2019, as compared to 16.6% during the six months ended March 31, 2018. Gross profit as a percentage of revenue increased at our Residential and Commercial & Industrial segments, while decreasing slightly at our Communications and Infrastructure Solutions segments.

During the six months ended March 31, 2019, our selling, general and administrative expenses were $67.2 million, an increase of $7.4 million, or 12.4%, over the six months ended March 31, 2018, driven by increased personnel costs at our operating segments in connection with their growth. This increase also includes a $1.4 million increase in expenses at the corporate level, related to a severance payment to our outgoing President, as well as an increase in stock-based compensation expense. However, selling, general and administrative expense as a percent of revenue decreased from 14.8% for the three months ended March 31, 2018, to 13.4% for the three months ended March 31, 2019, as we benefitted from the increased scale of our operations.

Commercial & Industrial

 

     Three Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 79,975        100.0   $ 65,589        100.0

Cost of services

     71,184        89.0     59,068        90.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     8,791        11.0     6,521        9.9

Selling, general and administrative expenses

     7,363        9.2     6,849        10.4

Gain on sale of assets

     (1      0.0     (17      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     1,429        1.8     (311      -0.5

 

27


Revenue. Revenues in our Commercial & Industrial segment increased $14.4 million, or 21.9%, during the three months ended March 31, 2019, compared to the three months ended March 31, 2018. The increase was largely driven by increased bid volume at several of our branches and improving market conditions in certain areas. These increases were partly offset by a $3.8 million decrease relating to our decision to exit certain markets. The market for this segment’s services remains highly competitive.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended March 31, 2019, increased by $2.3 million, as compared to the three months ended March 31, 2018. The increase is due to improved efficiency across the branches, as we improved project execution and as our ability to absorb fixed costs benefitted from higher volumes. Gross margin as a percent of revenue increased 1.1% to 11.0% during the three months ended March 31, 2019, as compared to the three months ended March 31, 2018.

Selling, General and Administrative Expenses. Our Commercial & Industrial segment’s selling, general and administrative expenses during the three months ended March 31, 2019, increased $0.5 million, or 7.5%, compared to the three months ended March 31, 2018. Selling, general and administrative expenses as a percentage of revenues decreased 1.2% to 9.2% during the three months ended March 31, 2019, compared to the three months ended March 31, 2018. The increase relates primarily to costs associated with higher incentive compensation in connection with improved profitability.

 

     Six Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 152,558        100.0   $ 118,591        100.0

Cost of services

     135,092        88.6     107,227        90.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     17,466        11.4     11,364        9.6

Selling, general and administrative expenses

     14,079        9.2     12,644        10.7

Gain on sale of assets

     (4      0.0     (29      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     3,391        2.2     (1,251      -1.1

Revenue. Revenues in our Commercial & Industrial segment increased $34.0 million during the six months ended March 31, 2019, an increase of 28.6% compared to the six months ended March 31, 2018. The increase in revenue over this period was driven by increased bid volume at several of our branches and improving market conditions in certain areas. This increase in revenue was partly offset by a $6.7 million decrease in revenue attributable to our decision to exit the Denver and Roanoke markets. The market for this segment’s services in many geographic regions remains highly competitive.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the six months ended March 31, 2019, increased by $6.1 million, or 53.7%, as compared to the six months ended March 31, 2018. As a percentage of revenue, gross profit increased from 9.6% for the six months ended March 31, 2018, to 11.4% for the six months ended March 31, 2019. The increase is due to improved efficiency across the branches, as we improved project execution and as our ability to absorb fixed costs benefitted from higher volumes.

Selling, General and Administrative Expenses. Our Commercial & Industrial segment’s selling, general and administrative expenses during the six months ended March 31, 2019, increased $1.4 million, or 11.3%, compared to the six months ended March 31, 2018, but decreased 1.5% as a percentage of revenue. The increase was driven by costs associated with higher incentive compensation in connection with improved profitability.

 

28


Communications

 

     Three Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 70,437        100.0   $ 50,244        100.0

Cost of services

     58,492        83.0     40,892        81.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     11,945        17.0     9,352        18.6

Selling, general and administrative expenses

     7,666        10.9     6,201        12.3

Gain on sale of assets

     —          0.0     (8      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     4,279        6.1     3,159        6.3

Revenue. Our Communications segment’s revenues increased by $20.2 million during the three months ended March 31, 2019, or 40.2%, during the three months ended March 31, 2019, compared to the three months ended March 31, 2018. The increase primarily resulted from increased demand driven by several of our large data center customers. Revenues in our Communications segment can vary from quarter to quarter based on the capital spending cycles of our customers.

Gross Profit. Our Communications segment’s gross profit during the three months ended March 31, 2019, increased by $2.6 million compared to the three months ended March 31, 2018. While total gross profit increased in connection with higher volumes, gross profit as a percentage of revenue decreased, as we took on a larger proportion of cost-plus arrangements. These arrangements provide us with a reimbursement for our costs plus a markup, and are typically lower margin, but also lower risk, as compared with our fixed-cost arrangements.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by $1.5 million, or 23.6%, during the three months ended March 31, 2019, compared to the three months ended March 31, 2018. The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows. Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased 1.4% to 10.9% of segment revenue during the three months ended March 31, 2019, compared to the three months ended March 31, 2018, as we benefitted from the increased scale of our operations.

 

     Six Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 139,762        100.0   $ 104,703        100.0

Cost of services

     115,851        82.9     86,231        82.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     23,911        17.1     18,472        17.6

Selling, general and administrative expenses

     14,600        10.4     12,285        11.7

Gain on sale of assets

     —          0.0     (9      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     9,311        6.7     6,196        5.9

Revenue. Our Communications segment revenues increased by $35.1 million during the six months ended March 31, 2019, or 33.5% compared to the six months ended March 31, 2018. The increase primarily resulted from increased demand from several of our data center customers. Revenues in our Communications segment can vary from quarter to quarter based on the capital spending cycles of our customers.

Gross Profit. Our Communications segment’s gross profit during the six months ended March 31, 2019, increased $5.4 million, or 29.4%, as compared to the six months ended March 31, 2018. While total gross profit increased in connection with higher volumes, gross profit as a percentage of revenue decreased, as we took on a larger proportion of cost-plus arrangements. These arrangements provide us with a reimbursement for our costs plus a markup, and are typically lower margin, but also lower risk, as compared with our fixed-cost arrangements.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased $2.3 million, or 18.8%, during the six months ended March 31, 2019, compared to the six months ended March 31, 2018. The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows. Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased by 1.3% to 10.4% of segment revenue during the six months ended March 31, 2019, compared to the six months ended March 31, 2018, as we benefitted from the increased scale of our operations.

 

29


Infrastructure Solutions

 

     Three Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 34,450        100.0   $ 23,866        100.0

Cost of services

     27,004        78.4     18,842        78.9
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     7,446        21.6     5,024        21.1

Selling, general and administrative expenses

     4,685        13.6     4,637        19.4

Contingent consideration

     (149      -0.4     71        0.3

Loss on sale of assets

     101        0.3     6        0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     2,809        8.2     310        1.3

Revenue. Revenues in our Infrastructure Solutions segment increased $10.6 million during the three months ended March 31, 2019, an increase of 44.3% compared to the three months ended March 31, 2018. The increase in revenue was driven primarily by our bus duct and enclosure business, driven by increased demand for enclosures to be used at data centers, as well as an increase in revenue from our motor repair business.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended March 31, 2019, increased $2.4 million as compared to the three months ended March 31, 2018. Gross profit as a percentage of revenue increased 0.5% to 21.6%. The primary driver of the improvement in margins was our bus duct facility, which was impacted in the prior year by production inefficiencies and the amortization of contract intangibles associated with the acquisition of this business in 2016. Margins are also affected by the mix of work performed.

Selling, General and Administrative Expenses. Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended March 31, 2019, remained flat compared to the three months ended March 31, 2018, as we were able to scale our business effectively without adding general and administrative expense.

 

     Six Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 63,929        100.0   $ 45,551        100.0

Cost of services

     50,556        79.1     35,842        78.7
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     13,373        20.9     9,709        21.3

Selling, general and administrative expenses

     9,166        14.3     9,194        20.2

Contingent consideration

     (115      -0.2     71        0.2

Loss on sale of assets

     101        0.2     5        0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     4,221        6.6     439        1.0

Revenue. Revenues in our Infrastructure Solutions segment increased $18.4 million during the six months ended March 31, 2019, an increase of 40.3% compared to the six months ended March 31, 2018. The increase in revenue relates primarily to our bus duct and enclosure business, driven by increased demand for enclosures to be used at data centers, as well as an increase in revenue from our motor repair business.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the six months ended March 31, 2019, increased $3.7 million as compared to the six months ended March 31, 2018. The primary driver of the improvement in margins was our bus duct facility, which was affected in the prior year by production inefficiencies and by the impact of the amortization of contract intangibles associated with the acquisition of this business in 2016. We also benefitted from higher volumes in our generator enclosure manufacturing facility, as well as increased activity at our motor repair shops. Gross profit as a percentage of revenues decreased 0.4% to 20.9% for the six months ended March 31, 2019, largely as the result of a change in the mix of work performed.

 

30


Selling, General and Administrative Expenses. Our Infrastructure Solutions segment’s selling, general and administrative expenses during the six months ended March 31, 2019 remained flat compared to the six months ended March 31, 2018, as we were able to scale our business effectively without adding general and administrative expense.

Residential

 

     Three Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 72,052        100.0   $ 65,978        100.0

Cost of services

     56,999        79.1     53,035        80.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     15,053        20.9     12,943        19.6

Selling, general and administrative expenses

     11,187        15.5     9,688        14.7

Gain on sale of assets

     (2      0.0     (1      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     3,868        5.4     3,256        4.9

Revenue. Our Residential segment’s revenues increased by $6.1 million during the three months ended March 31, 2019, an increase of 9.2% as compared to the three months ended March 31, 2018. The increase is driven by our single-family business, where revenues increased by $7.9 million for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. This was partly offset by an $0.8 million decrease in our multi-family business, where many projects have been delayed by weather. Service revenues also decreased by $1.0 million for the three months ended March 31, 2019, compared with the same period in the prior year.

Gross Profit. During the three months ended March 31, 2019, our Residential segment experienced a $2.1 million, or 16.3%, increase in gross profit as compared to the three months ended March 31, 2018. The increase in gross profit was driven primarily by improved commodity prices in the quarter ended March 31, 2019. Gross margin as a percentage of revenue increased 1.3% to 20.9% during the quarter ended March 31, 2019, as compared with the quarter ended March 31, 2018.

Selling, General and Administrative Expenses. Our Residential segment experienced a $1.5 million, or 15.5%, increase in selling, general and administrative expenses during the three months ended March 31, 2019, compared to the three months ended March 31, 2018, primarily as a result of higher incentive compensation expense in connection with higher profitability. Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased to 15.5% of segment revenue during the three months ended March 31, 2019, compared to 14.7% in the three months ended March 31, 2018.

 

     Six Months Ended March 31,  
     2019     2018  
     $      %     $      %  
     (Dollars in thousands, Percentage of revenues)  

Revenues

   $ 144,507        100.0   $ 135,132        100.0

Cost of services

     114,421        79.2     107,773        79.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit

     30,086        20.8     27,359        20.2

Selling, general and administrative expenses

     22,324        15.4     20,054        14.8

Gain on sale of assets

     (2      0.0     (1      0.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     7,764        5.4     7,306        5.4

Revenue. Our Residential segment revenues increased by $9.4 million during the six months ended March 31, 2019, an increase of 6.9% as compared to the six months ended March 31, 2018. The increase is driven by our single-family business, where revenues increased by $13.8 million for the six months ended March 31, 2019, compared with the six months ended March 31, 2018. This was partly offset by a $3.0 million decrease in our multi-family business, where many projects have been delayed by weather. Service revenues also decreased by $1.4 million for the six months ended March 31, 2019, compared with the same period in the prior year.

 

31


Gross Profit. During the six months ended March 31, 2019, our Residential segment experienced a $2.7 million, or 10.0%, increase in gross profit as compared to the six months ended March 31, 2018. The increase in gross profit was driven primarily by improved copper and other commodity prices. Gross margin as a percentage of revenue increased 0.6% to 20.8% during the six months ended March 31, 2019, as compared with the six months ended March 31, 2018.

Selling, General and Administrative Expenses. Our Residential segment experienced a $2.3 million, or 11.3%, increase in selling, general and administrative expenses during the six months ended March 31, 2019, compared to the six months ended March 31, 2018, driven by increased compensation expense. Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased by 0.6% to 15.4% of segment revenue during the six months ended March 31, 2019.

INTEREST AND OTHER EXPENSE, NET

 

     Three Months
Ended March 31,
 
     2019      2018  
     (In thousands)  

Interest expense

   $ 456      $ 402  

Deferred financing charges

     79        71  
  

 

 

    

 

 

 

Total interest expense

     535        473  

Other (income) expense, net

     (112      (43
  

 

 

    

 

 

 

Total interest and other expense, net

   $ 423      $ 430  
  

 

 

    

 

 

 

During the three months ended March 31, 2019, we incurred interest expense of $0.5 million primarily comprised of interest expense from our revolving credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”), an average letter of credit balance of $6.6 million under our revolving credit facility and an average unused line of credit balance of $66.6 million under our revolving credit facility. This compares to interest expense of $0.5 million for the three months ended March 31, 2018, primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $63.4 million under our revolving credit facility.

 

     Six Months Ended
March 31,
 
     2019      2018  
     (In thousands)  

Interest expense

   $ 926      $ 772  

Deferred financing charges

     156        142  
  

 

 

    

 

 

 

Total interest expense

     1,082        914  

Other (income) expense, net

     (65      (141
  

 

 

    

 

 

 

Total interest and other expense, net

   $ 1,017      $ 773  
  

 

 

    

 

 

 

During the six months ended March 31, 2019, we incurred interest expense of $1.1 million primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.7 million under our revolving credit facility and an average unused line of credit balance of $64.8 million under our revolving credit facility. This compares to interest expense of $0.9 million for the six months ended March 31, 2018, primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $63.4 million under our revolving credit facility.

PROVISION FOR INCOME TAXES

We recorded income tax expense of $2.3 million for the three months ended March 31, 2019, compared to income tax expense of $1.4 million for the three months ended March 31, 2018. We recorded income tax expense of $4.2 million for the six months ended March 31, 2019, compared to income tax expense of $33.6 million for the six months ended March 31, 2018.

For the six months ended March 31, 2018, our income tax expense included a preliminary charge of $31.5 million to re-measure our deferred tax assets and liabilities to reflect the impact of the new statutory tax rate enacted during the six months ended March 31, 2018. The Company completed its accounting for the income tax effects of the Tax Cuts and Jobs Act and fully recorded the impact in the year ended September 30, 2018.

 

32


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based upon our Condensed Consolidated Financial Statements included in this report on Form 10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Condensed Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our beliefs and assumptions derived from information available at the same time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates.

BACKLOG

 

     March 31,
2019
     December 31,
2018
     September 30,
2018
     June 30,
2018
 

Remaining performance obligations

   $ 424      $ 407      $ 326      $ 289  

Agreements without an enforceable obligation (1)

     149        131        156        103  
  

 

 

    

 

 

    

 

 

    

 

 

 

Backlog

   $ 573      $ 538      $ 482      $ 392  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Our backlog contains signed agreements and letters of intent which we do not have a legal right to enforce prior to work starting. These arrangements are excluded from remaining performance obligations until work begins.

Backlog is a measure of revenue that we expect to recognize from work that has yet to be performed on uncompleted contracts and from work that has been contracted but has not started, exclusive of short-term projects. While all of our backlog is supported by documentation from customers, backlog is not a guarantee of future revenues, as contractual commitments may change and our performance may vary. Not all of our work is performed under contracts included in backlog; for example, most of the apparatus repair work that is completed by our Infrastructure Solutions segment is performed under master service agreements on an as needed basis. Additionally, electrical installation services for single-family housing at our Residential segment is completed on a short-term basis and is therefore excluded from backlog. In addition, certain service work is performed under master service agreements on an as-needed basis and is therefore excluded from backlog. Our backlog has increased from $482 million at September 30, 2018, to $573 million at March 31, 2019.

WORKING CAPITAL

During the six months ended March 31, 2019, working capital exclusive of cash increased by $12.1 million from September 30, 2018, reflecting a $10.3 million increase in current assets excluding cash and a $1.8 million decrease in current liabilities during the period.

During the six months ended March 31, 2019, our current assets exclusive of cash increased to $246.8 million, as compared to $236.4 million as of September 30, 2018. The increase primarily relates to a $9.4 million increase in accounts receivable. Days sales outstanding decreased to 60 at March 31, 2019, from 62 at September 30, 2018. While the rate of collections may vary, our typically secured position, resulting from our ability in general to secure liens against our customers’ overdue receivables, offers some protection that collection will occur eventually to the extent that our security retains value.

During the six months ended March 31, 2019, our total current liabilities decreased by $1.8 million to $162.6 million, compared to $164.4 million as of September 30, 2018, primarily related to a decrease in both accounts payable and accrued liabilities and Billings in excess of costs and estimated earnings.

Surety

We believe the bonding capacity presently provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. As of March 31, 2019, the estimated cost to complete our bonded projects was approximately $77.0 million.

 

33


LIQUIDITY AND CAPITAL RESOURCES

The Revolving Credit Facility

We maintain a $100 million revolving credit facility with Wells Fargo. that matures August 9, 2021, pursuant to a Second Amended and Restated Credit and Security Agreement with Wells Fargo dated as of April 10, 2017, which was amended on July 14, 2017, August 2, 2017, and July 23, 2018 (as amended, the “Amended Credit Agreement”).

The Amended Credit Agreement contains customary affirmative, negative and financial covenants as well as events of default.

As of March 31, 2019, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:

 

   

a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement), measured quarterly on a trailing four-quarter basis at the end of each quarter, of at least 1.1 to 1.0; and

 

   

minimum Liquidity (as defined in the Amended Credit Agreement) of at least thirty percent (30%) of the Maximum Revolver Amount (as defined in the Amended Credit Agreement), or $30 million; with, for purposes of this covenant, at least fifty percent (50%) of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement).

At March 31, 2019, our Liquidity was $87.9 million, our Excess Availability was $71.7 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was 6.0:1.0. Because our Excess Availability at March 31, 2019, exceeded $30 million, we were not required to comply with minimum EBITDA financial covenant of the Amended Credit Agreement, which would have required that we have a minimum EBITDA for the four quarters ended March 31, 2019, of $35 million. Our EBITDA, as defined in the Amended Credit Agreement for the four quarters ended March 31, 2019, was $48.2 million.

If in the future our Liquidity falls below $30 million (or Excess Availability falls below 50% or our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0, we fail to meet our minimum EBITDA requirement when it is required to be tested, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under the Amended Credit Agreement, it would result in an event of default under the Amended Credit Agreement, which could result in some or all of our indebtedness becoming immediately due and payable.

At March 31, 2019, we had $6.6 million in outstanding letters of credit with Wells Fargo and outstanding borrowings of $20.2 million.

Operating Activities

Our cash flow from operations is not only influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal first and second quarters due to the seasonality that we experience in many regions of the country; however a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions.

Operating activities provided net cash of $9.4 million during the six months ended March 31, 2019, as compared to $11.2 million of net cash provided in the six months ended March 31, 2018. The decrease in operating cash flow resulted primarily from an increase in working capital at our Commercial & Industrial and Infrastructure Solutions segments, in support of growth in these businesses.

Investing Activities

Net cash used in investing activities was $3.9 million for the six months ended March 31, 2019, compared with $2.4 million for the six months ended March 31, 2018. We used cash of $3.9 million for purchases of fixed assets in the six months ended March 31, 2019. For the six months ended March 31, 2018, we used $2.3 million of cash for the purchase of fixed assets.

 

34


Financing Activities

Net cash used in financing activities for the six months ended March 31, 2019 was $15.6 million, compared with $1.3 million in the six months ended March 31, 2018. For the six months ended March 31, 2019, we used $10.0 million to repay a portion of our revolving credit facility. We also used $5.4 million to repurchase our shares to satisfy statutory withholding requirements upon the vesting of employee stock compensation, as well as in conjunction with our stock repurchase plan. For the six months ended March 31, 2018, we used $1.2 million to repurchase our shares to satisfy statutory withholding requirements upon the vesting of employee stock compensation, as well as in conjunction with our stock repurchase plan.

Stock Repurchase Program

Our Board of Directors has authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which allows repurchases under pre-set terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We repurchased 235,954 shares pursuant to this program during the six months ended March 31, 2019. On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

There have been no material changes in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

 

35


Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management is actively involved in monitoring exposure to market risk and continues to develop and utilize appropriate risk management techniques. Our exposure to significant market risks includes fluctuations in labor costs and commodity prices for copper, aluminum, steel and fuel. Commodity price risks may have an impact on our results of operations due to the fixed price nature of many of our contracts. We are also exposed to interest rate risk with respect to our outstanding debt obligations on the Amended Credit Agreement. For additional information see Disclosure Regarding Forward-Looking Statements in Part I of this Quarterly Report on Form 10-Q and our risk factors in Item 1A. “Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Commodity Risk

Our exposure to significant market risks includes fluctuations in commodity prices for copper, aluminum, steel and fuel. Commodity price risks may have an impact on our results of operations due to the fixed nature of many of our contracts. Over the long-term, we expect to be able to pass along a portion of these costs to our customers, as market conditions in the construction industry will allow. The Company has not entered into any commodity price risk hedging instruments.

Interest Rate Risk

We are subject to interest rate risk on our floating interest rate borrowings on the Amended Credit Agreement. If LIBOR were to increase, our interest payment obligations on outstanding borrowings would increase, having a negative effect on our cash flow and financial condition. We currently do not maintain any hedging contracts that would limit our exposure to variable rates of interest when we have outstanding borrowings. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates.

All of the long-term debt outstanding under our revolving credit facility is structured on floating interest rate terms. A one percentage point increase in the interest rates on our long-term debt outstanding under our revolving credit facility as of March 31, 2019, would cause a $0.2 million pre-tax annual increase in interest expense.

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Disclosure Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2019, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 13, “Commitments and Contingencies – Legal Matters” in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

 

36


Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

 

37


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to purchases of common stock of the Company made during the three months ended March 31, 2019:

 

Date

   Total
Number of
Shares
Purchased (1)
     Average Price
Paid Per Share
     Total Number of
Shares Purchased
as Part of a Publicly
Announced Plan (2)
     Maximum Number of
Shares That May Yet
Be Purchased Under
the Publicly
Announced Plan as
of March 31, 2019
 

January 1, 2019 – January 31, 2019

     147,617      $ 16.61        147,617        531,054  

February 1, 2019 – February 28, 2019

     40,103      $ 17.00        40,103        490,951  

March 1, 2019 – March 31, 2019

     3,722      $ 17.65        2,101        488,850  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     191,442      $ 16.71        189,821        488,850  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The total number of shares purchased includes shares purchased pursuant to the plan described in footnote (2) below. During the quarter ended March 31, 2019, 1,621 shares were surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of performance stock units issued to employees.

(2)

In 2015, our Board of Directors authorized a stock repurchase program for the purchase of up to 1.5 million shares of the Company’s common stock from time to time. On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of the Company’s common stock under the stock repurchase program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

 

Exhibit
No.

  

Description

  3.1 —    Second Amended and Restated Certificate of Incorporation of IES Holdings, Inc., as amended by the Certificate of Amendment thereto, effective May 24, 2016 (composite). (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2016)
  3.2 —    Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit  3.1 to the Company’s Current Report on Form 8-K filed on January 28, 2013)
  3.3 —    Amended and Restated Bylaws of IES Holdings, Inc., effective May 24, 2016. (Incorporated by reference to Exhibit  3.2 to the Company’s Current Report on Form 8-K filed on May 24, 2016)

 

38


Exhibit
No.

 

Description

  4.1 —   Specimen common stock certificate. (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on December 9, 2016)
  4.2 —   Tax Benefit Protection Plan Agreement by and between IES Holdings, Inc. and American Stock Transfer  & Trust Company, LLC, as Rights Agent, dated as of November  8, 2016, including the form of Rights Certificate and Summary of Stockholder Rights Plan attached thereto as Exhibits A and B, respectively. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 9, 2016)
10.1 —   Third Amendment, dated as of July 23, 2018, to Second Amended and Restated Credit and Security Agreement, dated as of April  10, 2017, by and among IES Holdings, Inc., each of the other Borrowers and Guarantors named therein and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 23, 2018)
10.2 *—   Form of Phantom Stock Unit Award under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016), dated February 6, 2019.(1)
10.3 *—   IES Holdings, Inc. Short-Term Incentive Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March, 5, 2019)
10.4 *—   IES Holdings, Inc. Long-Term Incentive Plan Annual Grant Program. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March, 5, 2019)
10.5* —   Form of Cumulative Income Restricted Stock Award Agreement under the Company’s 2006 Equity Incentive Plan (as of February 9, 2016), dated March 4, 2019.(1)
10.6* —   Time-Based Restricted Stock Award Agreement, dated as of March 4, 2019, by and between IES Holdings, Inc. and Gary S.  Matthews, under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016).(1)
10.7* —   First Stock Price-Based Restricted Stock Award Agreement, dated as of March 4, 2019, by and between IES Holdings, Inc. and Gary S.  Matthews, under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016).(1)
10.8* —   Second Stock Price-Based Restricted Stock Award Agreement, dated as of March 4, 2019, by and between IES Holdings, Inc. and Gary S.  Matthews, under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016).(1)
10.9 *—   Employment Agreement between IES Holdings, Inc. and Gary S. Matthews, dated as of February 28, 2019.(1)
10.10* —   Transition Agreement and Release between IES Holdings, Inc. and Robert W. Lewey, dated as of March 9, 2019.(1)
10.11* —   Consulting Fee Agreement between IES Holdings, Inc. and Robert W. Lewey, dated as of March 9, 2019.(1)
10.12 —   Second Amendment, dated as of May 1, 2019, to Sublease Agreement, dated as of March 29, 2012 and amended as of March  31, 2016, between Tontine Associates, L.L.C. and IES Management ROO, LP.(1)
31.1 —   Rule 13a-14(a)/15d-14(a) Certification of Gary S. Matthews, Chief Executive Officer (1)
31.2 —   Rule 13a-14(a)/15d-14(a) Certification of Tracy A. McLauchlin, Senior Vice President, Chief Financial Officer and Treasurer (1)

 

39


Exhibit
No.

  

Description

32.1 —    Section 1350 Certification of Gary S. Matthews, Chief Executive Officer (2)
32.2 —    Section 1350 Certification of Tracy A. McLauchlin, Senior Vice President, Chief Financial Officer and Treasurer (2)

 

(1)101.INS   XBRL Instance Document
(1)101.SCH   XBRL Schema Document
(1)101.LAB   XBRL Label Linkbase Document
(1)101.PRE   XBRL Presentation Linkbase Document
(1)101.DEF   XBRL Definition Linkbase Document
(1)101.CAL   XBRL Calculation Linkbase Document

 

(1)

Filed herewith.

(2)

Furnished herewith.

*

Management contract or compensatory plan or arrangement.

 

40


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 6, 2019.

IES HOLDINGS, INC.

 

By:   /s/ TRACY A. MCLAUCHLIN
  Tracy A. McLauchlin
 

Senior Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer and Authorized Signatory)

 

41