UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM10-Q

 

 

 

☒

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

For the Quarterly Period Ended June 30, 20172018

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 Number1-13783

 

 

 

LOGOLOGO

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

 

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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” inRule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐  Accelerated filer ☒
Non-accelerated filer ☐  (Do not check if a smaller reporting company)  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 inRule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

On August 3, 2017,1, 2018, there were 21,434,34421,205,536 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 June  30, 20172018 and September 30, 20162017

   6 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 20172018 and 20162017

   7 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 20172018 and 20162017

   9 

Notes to Condensed Consolidated Financial Statements

   10 

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

   2524 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   3835 

Item 4. Controls and Procedures

   3835 

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

   3935 

Item 1A. Risk Factors

   3936 

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

   3937 

Item 3. Defaults Upon Senior Securities

   3937 

Item 4. Mine Safety Disclosures

   3937 

Item 5. Other Information

   3937 

Item 6. Exhibits

   3937 

Signatures

   4239 

PART II. FINANCIAL INFORMATION

DEFINITIONS

In this Quarterly Report onForm 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 Form10-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 shareholder to take action not aligned with other shareholders;

 

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

 

the relatively low trading volumepossibility that certain tax benefits of our common stock,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 further 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 revolving credit facility, including liquidity, EBITDA and other financial requirements, which could depressresult in a default and acceleration of our stock price;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 possibility that certain tax benefitsrelatively low trading volume of our net operating losses may be restricted or reduced in a change in ownership or a change in the federal tax rate;

the potential recognition of valuation allowances on deferred tax assets;

the inability to carry out plans and strategies as expected, includingcommon stock, which could depress our inability to identify and complete acquisitions that meet our investment criteria in furtherance of our corporate strategy;

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 facilities;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;

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

a general reduction in the demand for our services;

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

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

our ability to successfully manage projects;

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

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

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;

inaccurate estimates used when entering into fixed-priced contracts;

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

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;

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;

 

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;

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

 

accidents resulting from

the physical hazardspossibility of errors when estimating revenue and progress to date onpercentage-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 accidents;our surety providers to refuse bonding or require additional collateral at their discretion;

 

fluctuations in operating activity due to downturns in levels of construction, 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;

 

loss of key personnel

accidents resulting from the physical hazards associated with our work and effective transition of new management;the potential for accidents;

 

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

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

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

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

the recognition of tax benefits related to uncertain tax positions;

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

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

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;

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;

 

future capital expenditures

the possibility that our internal controls over financial reporting and refurbishment, repairour disclosure controls and upgrade costs,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 delayscontingencies, including warranty losses, damages or other latent defect claims in excess of our existing reserves and costs of refurbishment, repairaccruals;

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 upgrade projects; andcyber security or data breaches;

liabilities under laws and regulations protecting the environment.environment; and

loss of key personnel and effective transition of new management.

You should understand that the foregoing, as well as other risk factors discussed in this document and in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended September 30, 2016,2017, 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 shareholder, 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 onForm 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.

Item 1.

Financial Statements

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Information)

 

  June 30, September 30, 
  June 30,
2017		 September 30,
2016		   2018 2017 
  (Unaudited)     (Unaudited)   

ASSETS

      

CURRENT ASSETS:

      

Cash and cash equivalents

  $23,905  $32,961   $21,692  $28,290 

Restricted cash

   —    260 

Accounts receivable:

      

Trade, net of allowance of $729 and $736, respectively

   132,878  124,368 

Trade, net of allowance of $738 and $650, respectively

   139,182  142,946 

Retainage

   24,587  20,135    23,019  21,360 

Inventories

   18,986  13,236    18,717  16,923 

Costs and estimated earnings in excess of billings

   18,705  15,554    22,595  13,438 

Prepaid expenses and other current assets

   4,709  3,214    8,824  8,795 
  

 

  

 

   

 

  

 

 

Total current assets

   223,770  209,728    234,029  231,752 
  

 

  

 

   

 

  

 

 

Property and equipment, net

   24,642  15,694    25,217  24,643 

Goodwill

   45,033  39,936    49,299  46,693 

Intangible assets, net

   31,500  31,723    31,736  31,413 

Deferred tax assets

   88,867  93,549    49,597  86,211 

Othernon-current assets

   3,345  3,710    6,085  3,782 
  

 

  

 

   

 

  

 

 

Total assets

  $417,157  $394,340   $395,963  $424,494 
  

 

  

 

   

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

CURRENT LIABILITIES:

      

Accounts payable and accrued expenses

   116,249  108,822    117,385  120,710 

Billings in excess of costs and estimated earnings

   30,667  24,229    25,812  29,918 
  

 

  

 

   

 

  

 

 

Total current liabilities

   146,916  133,051    143,197  150,628 
  

 

  

 

   

 

  

 

 

Long-term debt

   29,407  29,257    29,634  29,434 

Othernon-current liabilities

   4,433  6,832    4,412  4,457 
  

 

  

 

   

 

  

 

 

Total liabilities

   180,756  169,140    177,243  184,519 
  

 

  

 

   

 

  

 

 

Noncontrolling interest

   1,713  1,795    3,247  3,271 

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 21,434,086 and 21,456,539 outstanding, respectively

   220  220 

Treasury stock, at cost, 615,443 and 592,990 shares, respectively

   (5,399)  (4,781) 

Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529 issued and 21,205,536 and 21,336,975 outstanding, respectively

   220  220 

Treasury stock, at cost, 843,993 and 712,554 shares, respectively

   (8,937)  (6,898) 

Additionalpaid-in capital

   196,542  195,221    196,551  196,955 

Retained earnings

   43,325  32,745    27,639  46,427 
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

   234,688  223,405    215,473  236,704 
  

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ equity

  $417,157  $394,340   $395,963  $424,494 
  

 

  

 

   

 

  

 

 

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

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

(Unaudited)

 

  Three Months Ended June 30,   Three Months Ended June 30, 
  2017 2016   2018 2017 

Revenues

  $208,323  $179,599   $232,576  $208,323 

Cost of services

   172,925  145,602    190,039  172,925 
  

 

  

 

   

 

  

 

 

Gross profit

   35,398  33,997    42,537  35,398 

Selling, general and administrative expenses

   30,771  25,716    32,372  30,771 

Contingent consideration expense

   (33)  66 

Loss (gain) on sale of assets

   (55)  34 

Contingent consideration

   81  (33) 

Gain on sale of assets

   (5)  (55) 
  

 

  

 

   

 

  

 

 

Income from operations

   4,715  8,181 

Operating income

   10,089  4,715 
  

 

  

 

   

 

  

 

 

Interest and other (income) expense:

      

Interest expense

   407  299    513  407 

Other income, net

   (46)  (17)    (111)  (46) 
  

 

  

 

   

 

  

 

 

Income from operations before income taxes

   4,354  7,899    9,687  4,354 

Benefit from income taxes

   (1,519)  (2,937) 

Provision (Benefit) for income taxes

   1,038  (1,519) 
  

 

  

 

   

 

  

 

 

Net income

   5,873  10,836    8,649  5,873 
  

 

  

 

   

 

  

 

 

Net income attributable to noncontrolling interest

   (5)  (31)    (133)  (5) 
  

 

  

 

   

 

  

 

 

Comprehensive income attributable to IES Holdings, Inc.

  $5,868  $10,805   $8,516  $5,868 
  

 

  

 

   

 

  

 

 

Earnings per share attributable to IES Holdings, Inc.:

      

Basic

  $0.27  $0.50   $0.40  $0.27 

Diluted

  $0.27  $0.50   $0.40  $0.27 

Shares used in the computation of earnings per share:

      

Basic

   21,300,716  21,297,898    21,200,635  21,300,716 

Diluted

   21,556,118  21,456,634    21,331,883  21,556,118 

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

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

(Unaudited)

 

  Nine Months Ended June 30,   Nine Months Ended June 30, 
  2017 2016   2018 2017 

Revenues

  $604,163  $490,347   $636,553  $604,163 

Cost of services

   501,769  400,905    527,112  501,769 
  

 

  

 

   

 

  

 

 

Gross profit

   102,394  89,442    109,441  102,394 

Selling, general and administrative expenses

   89,085  72,494    92,108  89,085 

Contingent consideration expense

   50  332 

Loss (gain) on sale of assets

   (68)  811 

Contingent consideration

   152  50 

Gain on sale of assets

   (39)  (68) 
  

 

  

 

   

 

  

 

 

Income from operations

   13,327  15,805 

Operating income

   17,220  13,327 
  

 

  

 

   

 

  

 

 

Interest and other (income) expense:

      

Interest expense

   1,281  895    1,427  1,281 

Other income, net

   (94)  (49)    (252)  (94) 
  

 

  

 

   

 

  

 

 

Income from continuing operations before income taxes

   12,140  14,959 

Provision (benefit) for income taxes

   1,792  (3,870) 

Income from operations before income taxes

   16,045  12,140 

Provision for income taxes

   34,622  1,792 
  

 

  

 

   

 

  

 

 

Net income

   10,348  18,829 

Net income (loss)

   (18,577)  10,348 
  

 

  

 

   

 

  

 

 

Net income attributable to noncontrolling interest

   (72)  (31)    (255)  (72) 
  

 

  

 

   

 

  

 

 

Comprehensive income attributable to IES Holdings, Inc.

  $10,276  $18,798 

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

  $(18,832)  $10,276 
  

 

  

 

   

 

  

 

 

Earnings per share attributable to IES Holdings, Inc.:

   

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

   

Basic

  $0.48  $0.88   $(0.89)  $0.48 

Diluted

  $0.48  $0.87   $(0.89)  $0.48 

Shares used in the computation of earnings per share:

      

Basic

   21,295,254  21,280,469    21,193,306  21,295,254 

Diluted

   21,550,804  21,412,343    21,193,306  21,550,804 

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

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

  Nine Months Ended June 30,   Nine Months Ended June 30, 
  2017 2016   2018 2017 

CASH FLOWS FROM OPERATING ACTIVITIES:

      

Net income

  $10,348  $18,829 

Adjustments to reconcile net income to net cash provided by operating activities:

   

Net income (loss)

  $(18,577)  $10,348 

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

   

Bad debt expense

   31  274    250  31 

Amortization of deferred financing cost

   229  263 

Deferred financing cost amortization

   214  229 

Depreciation and amortization

   6,884  3,503    6,706  6,884 

Loss (gain) on sale of assets

   (68)  832 

Gain on sale of assets

   (39)  (68) 

Deferred income taxes

   494   —      34,622  494 

Non-cash compensation

   1,329  645    (395)  1,329 

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

      

Accounts receivable

   (1,593)  (8,039)    4,992  (1,593) 

Inventories

   (3,919)  (208)    (1,721)  (3,919) 

Costs and estimated earnings in excess of billings

   (3,151)  2,964    (8,990)  (3,151) 

Prepaid expenses and other current assets

   (9,082)  (3,098)    (1,645)  (9,082) 

Othernon-current assets

   350  (1,314)    270  350 

Accounts payable and accrued expenses

   600  1,611    (6,862)  600 

Billings in excess of costs and estimated earnings

   6,438  2,482    (4,019)  6,438 

Othernon-current liabilities

   1,312  (4,840)    172  1,312 
  

 

  

 

   

 

  

 

 

Net cash provided by operating activities

   10,202  13,904    4,978  10,202 
  

 

  

 

   

 

  

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Purchases of property and equipment

   (3,796)  (2,156)    (3,383)  (3,796) 

Proceeds from sale of property and equipment

   237  2,200    107  237 

Cash paid for acquisitions, net of cash acquired

   (14,659)  (59,698) 

Cash paid for acquisitions

   (5,981)  (14,659) 
  

 

  

 

   

 

  

 

 

Net cash used in investing activities

   (18,218)  (59,654)    (9,257)  (18,218) 
  

 

  

 

   

 

  

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Borrowings of debt

   5,313  20,026    99  5,313 

Repayments of debt

   (5,328)  (112)    (136)  (5,328) 

Contingent consideration payment

   (448)   —      —    (448) 

Distribution to noncontrolling interest

   (153)   —      (235)  (153) 

Options exercised

   207  133    11  207 

Purchase of treasury stock

   (891)  (590)    (2,058)  (891) 

Changes in restricted cash

   260  (260) 
  

 

  

 

   

 

  

 

 

Net cash provided by (used in) financing activities

   (1,040)  19,197 

Net cash used in financing activities

   (2,319)  (1,300) 
  

 

  

 

   

 

  

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

   (9,056)  (26,553)    (6,598)  (9,316) 

CASH AND CASH EQUIVALENTS, beginning of period

   32,961  49,360 

CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of period

   28,290  33,221 
  

 

  

 

   

 

  

 

 

CASH AND CASH EQUIVALENTS, end of period

  $23,905  $22,807 

CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period

  $21,692  $23,905 
  

 

  

 

   

 

  

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

      

Cash paid for interest

  $1,108  $651   $1,227  $1,108 

Cash paid for income taxes

  $2,285  $1,288   $2,313  $2,285 

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

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:

 

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

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

•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.

•

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 wholly-owned 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 Communications, 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 statementsCondensed Consolidated Financial Statements include the accounts of IES, its 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 Form10-K for the fiscal year ended September 30, 2016.2017. In the opinion of management, the unaudited condensed consolidated financial statementsCondensed 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 conjunctionconnection with our purchaseacquisitions of STR Mechanical, LLC (“STR”STR Mechanical”) during the third quarter ofin fiscal 2016 and NEXT Electric, LLC (“NEXT Electric”) in fiscal 2017, we acquired a controlling interest ofan 80 percent interest in each of the membership interests of STR. Theentities, with the remaining 20 percent interest which wasin each such entity being retained by the respective third party seller. The interests retained by those third party sellers isare identified inon our financialsCondensed Consolidated Balance Sheets as noncontrolling interest, and is classified outside of permanent equityequity. 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 require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on our consolidated balance sheet. See Note 13 – Business Combinations for further discussion.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

a multiple of earnings as defined in the operating agreements. Therefore, this noncontrolling interest is carried at the greater of the balance determined under 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 June 30, 2018, the redemption amount would have been $2,995. See Note 13, “Business Combinations” for further discussion. For the nine months ended June 30, 2018, we recorded an increase to retained earnings of $44 to decrease the carrying amount of the noncontrolling interest in STR to the balance determined under ASC 810, as if it had been redeemable at June 30, 2018, as 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.

Tax RateIncome 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 will be a blended rate of 24.53% and will decrease to 21% thereafter. For the nine months ended June 30, 2017,2018, our effective tax rate differed from the statutory tax rate directly resulting fromas a $3,689result of a preliminary charge of $31,506 tore-measure our deferred tax assets and liabilities to reflect the estimated impact of the new statutory tax rate, slightly offset by a benefit associated withof $1,840 related to the reversal of a reserve previously established for an uncertain tax position. ForThis benefit differs from the nine monthsexpected recognition of $3,284 as disclosed in our Form10-K for the year ended JuneSeptember 30, 2016, our effective tax rate differed from2017 as a result of the decrease in the statutory tax rate directly resulting from benefits of $5,002 relatedrate. The preliminary charge to the release of a valuation allowance in connection with the acquisition ofre-measure our deferred tax liabilitiesassets is subject to completion of Technibus, Inc. (“Technibus”), Shanahan Mechanical and Electrical, Inc. (“Shanahan”), and Calumet Armature & Electric, LLC (“Calumet”).

Revenue Recognition

Revenue is generally recognized once the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) deliveryour analysis of the product has occurred or services have been rendered, (iii) the priceimpact of the product or service is fixed and determinable, and (iv) collectability is reasonably assured. Costs associated with these services are recognized withinAct, including as it relates to future deductions for executive compensation expense, as well as the period they are incurred.

We recognize revenue on project contracts using the percentageeffect of completion method. Project contracts generally provide that customers accept completion of progress to date and compensate us for services rendered measured in terms of units installed, hours expended or some other measure of progress. We recognize revenue on both signed contracts and change orders. A discussion of our treatment of claims and unapproved change orders is described later in this section. Percentage of completion for construction contracts is measured principally by the percentage of costs incurred and accrued to date for each contract to the estimated total cost for each contract at completion. We generally consider contracts to be substantially complete upon departure from the work site and acceptance by the customer. Contract costs include all direct material, labor and insurance costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. 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 recognizedchanges in the periodutilization of net deferred tax assets that reverse in which the revisions are determined. During the three and nine months ended June 30, 2017, we recorded expense of $2,476 and $3,685, respectively, relatedfiscal 2018 as compared to changes in estimates on two jobs in our Commercial & Industrial segment. The change in estimate relates to labor cost overruns primarily caused by the customer’s schedule acceleration. Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined. The balances billed but not paid by customers pursuant to retainage provisions in project contracts will be due upon completion of the contracts and acceptance by the customer. Based on our experience, the retention balance at each balance sheet date will generally be collected within the subsequent fiscal year.years.

Certain divisions in the Residential and Infrastructure Solutions segments use the completed contract method of accounting because the duration of their contracts are short in nature. We recognize revenue on completed contracts when the project is complete and billable to the customer. Provisions for estimated losses on these contracts are recorded in the period such losses are determined.

The current asset “Costs and estimated earnings in excess of billings” represents revenues recognized in excess of amounts billed which management believes will generally be billed and collected within the next twelve months. Also included in this asset, from time to time, are claims and unapproved change orders which are amounts we are in the process of collecting from our customers or agencies for changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price, or other related causes of unanticipated additional contract costs. Claims are limited to costs incurred and are recorded at estimated realizable value when collection is probable and can be reasonably estimated. We do not recognize profits on project costs incurred in

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

connection with claims. Claims made by us involve negotiation and, in certain cases, litigation. Such litigation costs are expensed as incurred. The current liability “Billings in excess of costs and estimated earnings” represents billings in excess of revenues recognized. Costs and estimated earnings in excess of billings are amounts considered recoverable from customers based on different measures of performance, including achievement of specific milestones, completion of specified units or at the completion of the contract.

Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”), issued ASUNo. 2014-09, Revenue from Contracts with Customers, a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The standard also requires expanded disclosures surrounding revenue recognition. The effective date will be the first quarter of our fiscal year ended September 30, 2019. The standard allows for either full retrospective or modified retrospective adoption, and we currently plan to use the modified retrospective basis on the adoption date. We are continuing to evaluate the impact of the adoption of this standard on our consolidated financial statements.Condensed Consolidated Financial Statements. In particular, we continuebelieve the most significant areas where we expect some impact to analyze areas includingour current accounting will be contract termination provisions, customer furnished materials,identification of performance obligations, and accounting for change orders. However, wecommissions paid. We expect that we will continue to recognize revenues for most of our fixed-price contracts over time, as services are performed.performed, although we have identified a limited number of arrangements where we currently recognize revenue over time, but will no longer do so under the new standard. The impact of this standard on our Consolidated Financial Statements will be determined by the specific terms of contracts in progress at the adoption date and our progress on those projects. We are also continuing to assess the necessary changes in processes and controls to meet the disclosure requirements of the new standard.

In January 2016, the FASB issued ASUNo. 2016-01, Financial Instruments (“ASU2016-01”). This standard is associated with the recognition and measurement of financial assets and liabilities with further clarifications made in February 2018 with the issuance ofASU 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. This update is effective for annual financial reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, although early adoption is permitted.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

In February 2016, the FASB issued ASUNo. 2016-02, Leases (“ASU2016-02”). Under ASU2016-02, lessees will need to recognize aright-of-use asset and a lease liability for all of their 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 result in a front-loaded pattern, similar to current capital leases. ASU2016-02 becomes effective for the fiscal year ended September 30, 2020. We are currently evaluating whether to early adopt the standard and what impact it will have on our consolidated financial statements.

In November 2016, the FASB issued ASU2016-18, Statement of Cash Flows, to standardize the classification of restricted cash and cash equivalents transactions on the statement of cash flows. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017, although early adoption is permitted. We expect we will adopt this guidance at September 30, 2017.Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASUNo. 2017-01, Business Combinations.Combinations (“ASU2017-01”). 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. The new standard is effective for interim and annual reporting periods beginning after December 15, 2017. The prospective transition method will be required for this new guidance.

Also in January 2017, the FASB issued ASU2017-04, Intangibles – Goodwill and Other. This update is intended to simplify the subsequent measurement of goodwill by eliminating the second step in thecurrent two-step goodwill impairment test. This update is effective for public entities for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The prospective transition method will be required for this new guidance.

In May 2017, the FASB issued ASUNo. 2017-09, Compensation—Stock Compensation (“ASU2017-09”), to reduce the diversity in practice and the cost and complexity when changing the terms or conditions of a share-based payment award. This update is effective for interim and annual financial reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, although early adoption is permitted. The prospective transition method will be required for this new guidance.

We do not expect ASUsASU2016-18,2017-01,2017-042016-01, ASU2017-01 or ASU2017-09 to have a material effect on our consolidated financial statements.

Adoption of New Accounting PronouncementsCondensed Consolidated Financial Statements.

In March 2016,June 2018, the FASB issued ASUNo. 2016-09,2018-07, Compensation—Stock Compensation, (“ASU2016-09”). ASU2016-09 eliminates additional paid in capital pools and requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. The accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation andsimplify the accounting for forfeitures is also changing. ASU2016-09share-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 US GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update is effective for fiscal yearsannual financial reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with2018, although early adoption is permitted.

IES HOLDINGS, INC.

Notes to We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

We elected to early adopt ASU2016-09 in the quarter ended December 31, 2016, which required us to reflect any adjustments as of October 1, 2016. We elected to account for forfeitures as they occur to determine the amount of compensation cost to be recognized, resulting in a cumulative effect adjustment of $58 to reduce retained earnings for the increase to stock compensation expense. We recorded a cumulative effect adjustment of $362 to increase retained earnings to recognize a deferred tax asset related to tax benefits which were not previously recognized, as the tax deduction related to stock compensation expense resulted in an increase to a net operating loss rather than a reduction to income tax payable. Amendments to the accounting for minimum statutory withholding tax requirements had no impact to retained earnings as of October 1, 2016.

In August 2016, the FASB issued ASU2016-15, Statement of Cash Flows, to standardize the classification of certain transactions on the statement of cash flows. These transactions include contingent consideration payments made after a business combination. We implemented the standard for the quarter ended March 31, 2017. The adoption had no impact on our statement of cash flows.Statements.

2. CONTROLLING SHAREHOLDER

At June 30, 2017,2018, Tontine Capital Partners, L.P., together with its affiliates (collectively, “Tontine”), was the Company’s controlling shareholder, owning approximately 58%59% of the Company’s outstanding common stock according to a Schedule 13D/AForm 4 filed with the SEC by Tontine on October 5, 2016.July 2, 2018. Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of shareholders.

While Tontine is subject to 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 asnon-executive 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 the

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

Board of Directors since February 2012 and as Interim Director of Operations of the Company since November 2017, and who

previously served asnon-executive Vice Chairman of the Board sincefrom November 2016 to November 2017 and asnon-executive Chairman of the Board from January 2015 to November 2016. David B. Gendell is alsowas an employee of Tontine.Tontine from 2004 until December 31, 2017.

The Company is party to a sublease agreement with Tontine Associates, LLC, an affiliate of Tontine, for corporate office space in Greenwich, Connecticut. The lease was renewed for a three-year term in April 2016 with an increase in the monthly rent to $8, reflecting the increase paid by Tontine Associates, LLC to its landlord and the Company’s increased use of the corporate office space. The lease has terms at market rates and payments by the Company are at a rate consistent with that paid by Tontine Associates, LLC to its landlord.

3. DEBT

At June 30, 20172018, and September 30, 2016,2017, our long-term debt of $29,407$29,634 and $29,257,$29,434, respectively, primarily relatesrelated to amounts drawn on our revolving credit facility. Our weighted-average annual interest rate on these borrowings was 3.04%3.74% at June 30, 2017,2018, and 2.76%3.04% at September 30, 2016.2017. At June 30, 2017,2018, we also had $6,493$6,928 in outstanding letters of credit and total availability of $43,821$47,231 under this facility without violating our financial covenants.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

On April 10, 2017,July 23, 2018, we entered into an amendment and restatementthe Third Amendment (the “Amendment”) to our revolving credit facility (the “AmendedSecond Amended and Restated Credit and Security Agreement (as amended, the “Credit Agreement”).

Pursuant to the AmendedAmendment, we will be required to comply with the minimum EBITDA financial covenant of the Credit Agreement in a given quarter only if our maximum revolver amount increased from $70,000 to $100,000, and the maturity date of the revolving credit facility was extended from August 9, 2019 to August 9, 2021. The Amended Credit Agreement also modified our financial covenants by, among other items: implementing a new covenant that requires the Company to maintain a minimum EBITDAExcess Availability (as defined in the Amended Credit Agreement) in the immediately following quarter, as tested monthly during that quarter, falls below $30,000. If, in a subsequent quarter, Excess Availability levels return to or exceed the contractual threshold, then the Company will no longer be tested quarterly on a trailing twelve month basis; increasingrequired to comply with the minimum liquidity requirement applicableEBITDA financial covenant, so long as Excess Availability remains above the threshold.

There have been no other changes to the Company from 12.5% to 30%financial or other covenants disclosed in Item 7 of our Annual Report on Form10-K for the maximum revolver amount; raising the Company’s required fixed charge coverage ratio (the “FCCR”) to 1.1:1.0 from 1.0:1.0; and requiring that the FCCR be tested quarterly regardless of the Company’s liquidity levels.

The amendment and restatement did not include any changes to interest rates and continues to contain other customary affirmative, negative and financial covenants as well as events of default.

On July 14, 2017, and August 2, 2017, we entered into amendments to the Amended Credit Agreement that, respectively, permitted certain transactions related to our acquisition of NEXT Electric, LLC (“NEXT”) and modified our minimum EBITDA requirement under the facility, among other things. See Note 14 – Subsequent Events for further discussion of these amendments.year ended September 30, 2017. The Company was in compliance with allthe financial covenants under the Amended Credit Agreement atas of June 30, 2017.2018.

At June 30, 2017,2018, the carrying value of amounts outstanding under the Amended Credit Agreementon 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 levelLevel 2 measurement.

4. PER SHARE INFORMATION

The following tables reconcile the components of basic and diluted earnings per share for the three and nine months ended June 30, 20172018, and 2016:2017:

 

  Three Months Ended June 30,   Three Months Ended June 30, 
  2017   2016   2018   2017 

Numerator:

        

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

  $5,824   $10,747   $8,513   $5,824 

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

   44    58    3    44 
  

 

   

 

   

 

   

 

 

Net income attributable to IES Holdings, Inc.

  $5,868   $10,805   $8,516   $5,868 
  

 

   

 

   

 

   

 

 

Denominator:

        

Weighted average common shares outstanding — basic

   21,300,716    21,297,898    21,200,635    21,300,716 

Effect of dilutive stock options andnon-vested restricted stock

   255,402    158,736    131,248    255,402 
  

 

   

 

   

 

   

 

 

Weighted average common and common equivalent shares outstanding — diluted

   21,556,118    21,456,634    21,331,883    21,556,118 
  

 

   

 

   

 

   

 

 

Earnings per share attributable to IES Holdings, Inc.:

        

Basic

  $0.27   $0.50   $0.40   $0.27 

Diluted

  $0.27   $0.50   $0.40   $0.27 

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

  Nine Months Ended June 30,   Nine Months Ended June 30, 
  2017   2016   2018   2017 

Numerator:

        

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

  $10,195   $18,641 

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

  $(18,788)   $10,195 

Decrease in noncontrolling interest

   (44)    —   

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

   81    157    —      81 
  

 

   

 

   

 

   

 

 

Net income attributable to IES Holdings, Inc.

  $10,276   $18,798 

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

  $(18,832)   $10,276 
  

 

   

 

   

 

   

 

 

Denominator:

        

Weighted average common shares outstanding — basic

   21,295,254    21,280,469    21,193,306    21,295,254 

Effect of dilutive stock options andnon-vested restricted stock

   255,550    131,874    —      255,550 
  

 

   

 

   

 

   

 

 

Weighted average common and common equivalent shares outstanding — diluted

   21,550,804    21,412,343    21,193,306    21,550,804 
  

 

   

 

   

 

   

 

 

Earnings per share attributable to IES Holdings, Inc.:

    

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

    

Basic

  $0.48   $0.88   $(0.89)   $0.48 

Diluted

  $0.48   $0.87   $(0.89)   $0.48 

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 nine months ended June 30, 2018. The number of potential anti-dilutive shares excluded from the calculation was 211,669 shares. For the three months ended June 30, 2018, and the three and nine months ended June 30, 2017, and 2016, 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.

5. OPERATING SEGMENTS

We manage and measure performance of our business in four distinct operating segments: Communications, Residential, Commercial & Industrial, Communications, Infrastructure Solutions and Infrastructure Solutions.Residential.

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 nine months ended June 30, 20172018, and 20162017 is as follows:

 

  Three Months Ended June 30, 2018 
  Three Months Ended June 30, 2017   Commercial &     Infrastructure           
  Communications   Residential   Commercial &
Industrial		 Infrastructure
Solutions		 Corporate Total   Industrial Communications   Solutions   Residential   Corporate Total 

Revenues

  $57,081   $70,162   $58,778  $22,302  $—    $208,323   $78,156  $54,368   $24,856   $75,196   $—    $232,576 

Cost of services

   46,958    54,307    54,174  17,486   —    172,925    67,839  43,436    18,701    60,063    —    190,039 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Gross profit

   10,123    15,855    4,604  4,816   —    35,398    10,317  10,932    6,155    15,133    —    42,537 

Selling, general and administrative

   6,252    11,003    4,849  4,958  3,709  30,771    6,980  7,193    4,568    10,941    2,690  32,372 

Contingent consideration

   —      —      —    (33)   —    (33)    —     —      81    —      —    81 

(Gain) loss on sale of assets

   —      37    (4)  (88)   —    (55) 

Loss (gain) on sale of assets

   (6)   —      1    —      —    (5) 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Income (loss) from operations

  $3,871   $4,815   $(241)  $(21)  $(3,709)  $4,715 

Operating income (loss)

  $3,343  $3,739   $1,505   $4,192   $(2,690)  $10,089 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

   

 

   

 

  

 

 

Other data:

                   

Depreciation and amortization expense

  $187   $135   $329  $1,785  $70  $2,506   $548  $595   $1,120   $156   $18  $2,437 

Capital expenditures

  $328   $170   $283  $124  $—    $905   $715  $119   $112   $110   $—    $1,056 

Total assets

  $70,427   $51,995   $66,190  $103,323  $125,222  $417,157   $86,012  $67,270   $102,233   $52,500   $87,948  $395,963 

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

  Three Months Ended June 30, 2016 
  Communications Residential   Commercial &
Industrial		 Infrastructure
Solutions		 Corporate Total 

Revenues

  $48,702  $56,867   $59,512  $14,518  $—    $179,599 

Cost of services

   40,487  43,388    51,882  9,845   —    145,602 
  

 

  

 

   

 

  

 

  

 

  

 

 

Gross profit

   8,215  13,479    7,630  4,673   —    33,997 

Selling, general and administrative

   5,185  9,237    4,771  3,248  3,275  25,716 

Contingent Consideration

   —     —      —    66   —    66 

Loss on sale of assets

   —     —      (17)  51   —    34 
  

 

  

 

   

 

  

 

  

 

  

 

 

Income (loss) from operations

  $3,030  $4,242   $2,876  $1,308  $(3,275)  $8,181 
  

 

  

 

   

 

  

 

  

 

  

 

 

Other data:

        

Depreciation and amortization expense

  $153  $122   $410  $897  $74  $1,656 

Capital expenditures

  $122  $393   $377  $109  $71  $1,072 

Total assets

  $53,711  $40,008   $58,559  $92,559  $32,686  $277,523 
  Three Months Ended June 30, 2017 
  Nine Months Ended June 30, 2017   Commercial &     Infrastructure         
  Communications Residential   Commercial &
Industrial		 Infrastructure
Solutions		 Corporate Total   Industrial Communications   Solutions Residential   Corporate Total 

Revenues

  $172,058  $204,527   $168,006  $59,572  $—    $604,163   $58,778  $57,081   $22,302  $70,162   $—    $208,323 

Cost of services

   144,668  157,370    154,628  45,103   —    501,769    54,174  46,958    17,486  54,307    —    172,925 
  

 

  

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Gross profit

   27,390  47,157    13,378  14,469   —    102,394    4,604  10,123    4,816  15,855    —    35,398 

Selling, general and administrative

   18,086  32,488    14,434  13,280  10,797  89,085    4,849  6,252    4,958  11,003    3,709  30,771 

Contingent consideration

   —     —      —    50   —    50    —     —      (33)   —      —    (33) 

Gain on sale of assets

   (1)  34    (11)  (90)   —    (68) 

Loss (gain) on sale of assets

   (4)   —      (88)  37    —    (55) 
  

 

  

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Income (loss) from operations

  $9,305  $14,635   $(1,045)  $1,229  $(10,797)  $13,327 

Operating income (loss)

  $(241)  $3,871   $(21)  $4,815   $(3,709)  $4,715 
  

 

  

 

   

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Other data:

                 

Depreciation and amortization expense

  $532  $436   $983  $4,730  $203  $6,884   $329  $187   $1,785  $135   $70  $2,506 

Capital expenditures

  $1,888  $517   $927  $261  $203  $3,796   $283  $328   $124  $170   $—    $905 

Total assets

  $70,427  $51,995   $66,190  $103,323  $125,222  $417,157   $66,190  $70,427   $103,323  $51,995   $125,222  $417,157 
  Nine Months Ended June 30, 2016 
  Communications Residential   Commercial &
Industrial		 Infrastructure
Solutions		 Corporate Total 

Revenues

  $128,813  $162,381   $158,923  $40,230  $—    $490,347 

Cost of services

   105,855  124,459    141,237  29,354   —    400,905 
  

 

  

 

   

 

  

 

  

 

  

 

 

Gross profit

   22,958  37,922    17,686  10,876   —    89,442 

Selling, general and administrative

   14,877  26,856    13,014  9,062  8,685  72,494 

Contingent Consideration

   —     —      —    332   —    332 

Loss on sale of assets

   —     —      (17)  828   —    811 
  

 

  

 

   

 

  

 

  

 

  

 

 

Income (loss) from operations

  $8,081  $11,066   $4,689  $654  $(8,685)  $15,805 
  

 

  

 

   

 

  

 

  

 

  

 

 

Other data:

        

Depreciation and amortization expense

  $410  $364   $845  $1,674  $210  $3,503 

Capital expenditures

  $685  $537   $563  $300  $71  $2,156 

Total assets

  $53,711  $40,008   $58,559  $92,559  $32,686  $277,523 

   Nine Months Ended June 30, 2018 
   Commercial &     Infrastructure           
   Industrial  Communications  Solutions   Residential  Corporate  Total 

Revenues

  $196,747  $159,071  $70,407   $210,328  $—    $636,553 

Cost of services

   175,066   129,667   54,543    167,836   —     527,112 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Gross profit

   21,681   29,404   15,864    42,492   —     109,441 

Selling, general and administrative

   19,624   19,478   13,762    30,995   8,249   92,108 

Contingent consideration

   —     —     152    —     —     152 

Loss (gain) on sale of assets

   (35)   (9)   6    (1)   —     (39) 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Operating income (loss)

  $2,092  $9,935  $1,944   $11,498  $(8,249)  $17,220 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Other data:

        

Depreciation and amortization expense

  $1,632  $1,030  $3,503   $452  $89  $6,706 

Capital expenditures

  $1,638  $592  $457   $696  $—    $3,383 

Total assets

  $86,012  $67,270  $102,233   $52,500  $87,948  $395,963 

   Nine Months Ended June 30, 2017 
   Commercial &     Infrastructure           
   Industrial  Communications  Solutions  Residential   Corporate  Total 

Revenues

  $168,006  $172,058  $59,572  $204,527   $—    $604,163 

Cost of services

   154,628   144,668   45,103   157,370    —     501,769 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Gross profit

   13,378   27,390   14,469   47,157    —     102,394 

Selling, general and administrative

   14,434   18,086   13,280   32,488    10,797   89,085 

Contingent consideration

   —     —     50   —      —     50 

Gain on sale of assets

   (11)   (1)   (90)   34    —     (68) 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Operating income (loss)

  $(1,045)  $9,305  $1,229  $14,635   $(10,797)  $13,327 
  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Other data:

        

Depreciation and amortization expense

  $983  $532  $4,730  $436   $203  $6,884 

Capital expenditures

  $927  $1,888  $261  $517   $203  $3,796 

Total assets

  $66,190  $70,427  $103,323  $51,995   $125,222  $417,157 

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

6. STOCKHOLDERS’ EQUITY

Equity Incentive Plan

The Company’s 2006 Equity Incentive Plan, which wasas amended and restated effective February 9, 2016, (as amended and restated, the “2006 Equity(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 2006 Equity Incentive Plan, of which approximately 1,055,3911,092,503 shares were available for issuance at June 30, 2017.2018.

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 Rule10b5-1 trading plan, which allows repurchases underpre-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 20,810 and 100,627 shares, respectively, of our common stock during the three and nine months ended June 30, 2018, in open market transactions at an average price of $15.45 and $15.41, respectively, per share. We repurchased 51,673 shares of our common stock during the three and nine months ended June 30, 2017, in open market transactions at an average price of $15.68 per share.

Treasury Stock

During the nine months ended June 30, 2018, we repurchased 32,832 shares of common stock from our employees to satisfy minimum tax withholding requirements upon the vesting of restricted stock under the Equity Incentive Plan and repurchased 100,627 shares of common stock on the open market pursuant to our stock repurchase program. During the nine months ended June 30, 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 to satisfy the exercise of outstanding options.

During the nine months ended June 30, 2017, we repurchased 4,575 shares of common stock from our employees to satisfy their minimum tax withholding requirements upon the vesting of restricted stock issued under the 2006 Equity Incentive Plan and repurchased 51,673 shares of common stock on the open market pursuant to theour stock repurchase program. During the nine months ended June 30, 2017, we issued 1,545 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation and 32,250 unrestricted shares of common stock to satisfy the exercise of outstanding options for employees and directors.

During the nine months ended June 30, 2016, we repurchased 6,084 shares of common stock from our employees to satisfy their minimum tax withholding requirements upon the vesting of restricted stock issued under the 2006 Equity Incentive Plan, 46,929 shares of common stock on the open market pursuant to our share repurchase program, and 7,500 shares of common stock were forfeited by former employees and returned to treasury stock. The Company had 6,859 shares returned to treasury stock during the same period related to the satisfaction of an obligation in connection with a reconciliation of our shares of common stock offered in exchange for shares of MISCOR Group, Ltd. during our 2013 acquisition of that company. During the nine months ended June 30, 2016, we issued 4,714 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation, and 27,500 unrestricted shares to satisfy the exercise of outstanding options for employees and directors.options.

Restricted Stock

During the three months ended June 30, 20172018, and 2016,2017, we recognized $133$11 and $130,$133, respectively, in compensation expense related to our restricted stock awards. During the nine months ended June 30, 20172018, and 2016,2017, we recognized $406$256 and $392,$406, respectively, in compensation expense related to our restricted stock awards. At June 30, 2017,2018, the unamortized compensation cost related to outstanding unvested restricted stock was $408.zero.

Performance Based Phantom Cash Units

Performance based phantom cash units (“PPCUs”) are a contractual right to a cash payment of $20 dollars per PPCU. At June 30, 2017, the Company had outstanding an aggregate of 30,000The PPCUs which will generally become vested, if at all, upon achievement of certain specified performance objectives and continued performance of services throughmid-December 2018, each of which as of June 30, 2017 are deemed probable.objectives. During the three months ended June 30, 2017,2018, and 2016,2017, we recognized compensation expense of $59zero and zero,$59, respectively, related to these units. During the nine months ended June 30, 2017,2018, and 2016,2017, we recognized compensation expense of $252zero and zero,$252, respectively, related to these units.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Phantom Stock Units

Phantom stock units (“PSUs”) are primarily granted to the members of the Board of Directors as part of their overall compensation. These 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. ForDuring the three months ended June 30, 20172018, and 2016,2017, we recognized $41$49 and $34,$41, respectively, in compensation expense related to these grants. During the nine months ended June 30, 20172018, and 2016,2017, we recognized $125$140 and $102,$125, 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. The PPSUs will generally become vested, if at all,stock upon the achievement of certain specified performance objectives and continued performance of services throughmid-December 2018, each of which as of June 30, 2017 are deemed probable.services. At June 30, 2017,2018, the Company hashad outstanding an aggregate of 408,000399,027 three-year PPSUs. The vesting of these awards is subject to the achievement of specified levels of cumulative net income before taxes or specified stock price levels.levels and continued performance of services throughmid-December 2018. At June 30, 2018, redemption of a portion of the awards is deemed probable. During the three and nine months ended June 30, 20172018, we recognized a benefit to compensation expense of $343 and 2016,$792, respectively, related to these grants. This benefit is a result of a reduction in the estimated number of units deemed probable of vesting, based on the projected achievement of specified performance objectives. During the three and nine months ended June 30, 2017, we recognized compensation expense of $225 and $22,$753, respectively, related to these grants. For the nine months ended June 30, 2017 and 2016, we recognized compensation expense of $753 and $65, respectively, related to these grants.

Stock Options

During the three months ended June 30, 2017 and 2016, we recognized compensation expense of zero and $17, respectively, related to our stock option awards. During the nine months ended June 30, 2017 and 2016, we recognized compensation expense of $23 and $50, respectively, related to our stock option awards. At June 30, 2017, the unamortized compensation cost related to outstanding unvested stock options was zero.

7. 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. Additionally, we have a cost method investment in EnerTech Capital Partners II L.P. (“EnerTech”). We estimate the fair value of our investment in EnerTech (Level 3) using quoted market prices for underlying publicly traded securities, and estimated enterprise values are determined using cash flow projections and market multiples of the underlyingnon-public companies.

Investment in EnerTech

During the nine months ended June 30, 2017, we collected a distribution of $361, reducing our carrying value. The following table presents the reconciliation of the carrying value and unrealized gains to the fair value of the investment in EnerTech as of June 30, 20172018, and September 30, 2016:2017:

 

  June 30,
2017		   September 30,
2016		   June 30,
2018		   September 30,
2017		 

Carrying value

  $558   $919   $558   $558 

Unrealized gains

   171    159    170    171 
  

 

   

 

   

 

   

 

 

Fair value

  $729   $1,078   $728   $729 
  

 

   

 

   

 

   

 

 

At each reporting date, the Company performs evaluationsan evaluation of impairment for this investmentsecurities to determine if any unrealized losses are other-than-temporary. There was no impairment asother-than temporary. Based on the results of this evaluation, we believe the unrealized gain at June 30, 2017 or2018, and September 30, 2016.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

2017, indicated our investment was not impaired.

8. EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company offers employees the opportunity to participate in its 401(k) savings plans. During the three months ended June 30, 20172018 and 2016,2017, we recognized $312$466 and $247,$312, respectively, in matching expense. During the nine months ended June 30, 20172018 and 2016,2017, we recognized $771$1,380 and $525,$771, 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 $815$755 recorded as of June 30, 2017,2018, and $875$815 as of September 30, 2016,2017, related to such plans.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

9. 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 June 30, 2017,2018, 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 of Calumet in October 2015, Freeman Enclosure Systems, LLC and its affiliate Strategic Edge LLC (together, “Freeman”) in March 2017, and Technical Services II, LLC (“Technical Services”) in June 2017.acquisitions.

Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2018, and September 30, 2017, are summarized in the following tabletables by the type of inputs applicable to the fair value measurements:

 

  June 30, 2017   June 30, 2018 
  Total Fair
Value		   Quoted Prices
(Level 1)		   Significant
Unobservable
Inputs (Level 3)		   Total Fair Value   Quoted Prices
(Level 1)		   Significant
Unobservable
Inputs (Level 3)		 

Executive savings plan assets

  $649   $649   $—     $713   $713   $—   

Executive savings plan liabilities

   (537)    (537)    —      (599)    (599)    —   

Contingent consideration

   (1,347)    —      (1,347)    (795)    —      (795) 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $(1,235)   $112   $(1,347)   $(681)   $114   $(795) 
  

 

   

 

   

 

   

 

   

 

   

 

 

   September 30, 2017 
   Total Fair Value   Quoted Prices
(Level 1)		   Significant
Unobservable
Inputs (Level 3)		 

Executive savings plan assets

  $641   $641   $—   

Executive savings plan liabilities

   (529)    (529)    —   

Contingent consideration

   (786)    —      (786) 
  

 

 

   

 

 

   

 

 

 

Total

  $(674)   $112   $(786) 
  

 

 

   

 

 

   

 

 

 

In fiscal years 2016 and 2017, we entered into contingent consideration arrangements related to certain acquisitions. Please see Note 13, “Business Combinations” for further discussion. At June 30, 2018, we estimated the fair value of these contingent consideration liabilities at $795. The table below presents a reconciliation of the fair value of these obligations, which used significant unobservable inputs (Level 3).

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016, are summarized in the following table by the type of inputs applicable to the fair value measurements:

   September 30, 2016 
   Total Fair
Value		   Quoted Prices
(Level 1)		   Significant
Unobservable
Inputs (Level 3)		 

Executive savings plan assets

  $599   $599   $—   

Executive savings plan liabilities

   (486)    (486)    —   

Contingent consideration

   (1,100)    —      (1,100) 
  

 

 

   

 

 

   

 

 

 

Total

  $(987)   $113   $(1,100) 
  

 

 

   

 

 

   

 

 

 

In fiscal years 2016 and 2017, we entered into contingent consideration arrangements related to certain acquisitions. Please see Note 13 – Business Combinations for further discussion. At June 30, 2017, we estimated the fair value of these contingent consideration liabilities at $1,347. 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, 2016

  $1,100 

Issuances

   732 

Settlements

   (535) 

Net Adjustments to Fair Value

   50 
  

 

 

 

Fair Value at June 30, 2017

  $1,347 
  

 

 

 
   Contingent
Consideration
Agreements		 

Fair value at September 30, 2017

  $786 

Issuances

   248 

Settlements

   (391) 

Net adjustments to fair value

   152 
  

 

 

 

Fair value at June 30, 2018

  $795 
  

 

 

 

10. INVENTORY

Inventories consist of the following components:

 

   June 30,
2017		   September 30,
2016		 

Raw materials

  $3,354   $2,538 

Work in process

   5,031    4,158 

Finished goods

   1,590    1,558 

Parts and supplies

   9,011    4,982 
  

 

 

   

 

 

 

Total inventories

  $18,986   $13,236 
  

 

 

   

 

 

 

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

   June 30,
2018		   September 30,
2017		 

Raw materials

  $4,175   $4,104 

Work in process

   4,396    3,731 

Finished goods

   1,608    1,692 

Parts and supplies

   8,538    7,396 
  

 

 

   

 

 

 

Total inventories

  $18,717   $16,923 
  

 

 

   

 

 

 

11. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following is a progression of goodwill by segment for the nine months ended June 30, 2017:2018:

 

   Residential   Commercial &
Industrial		   Infrastructure
Solutions		   Total 

Goodwill at September 30, 2016

  $8,631   $3,806   $27,499   $39,936 

Acquisitions (See Note 13)

   —      1,640    3,820    5,460 

Divestitures

   —      —      (51)    (51) 

Adjustments

   —      (41)    (271)    (312) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill at June 30, 2017

  $8,631   $5,405   $30,997   $45,033 
  

 

 

   

 

 

   

 

 

   

 

 

 

The adjustment to goodwill in the nine months ended June 30, 2017, relates primarily to finalizing the deferred tax balances acquired in connection with our acquisitions of Technibus and STR. Please see Note 13 – Business Combinations for further discussion.

   Commercial &
Industrial		   Communications   Infrastructure
Solutions		   Residential   Total 

Goodwill at September 30, 2017

  $7,176   $—     $30,886   $8,631   $46,693 

Acquisitions (See Note 13)

   —      2,561    —      —      2,561 

Adjustments

   —      —      45    —      45 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill at June 30, 2018

  $7,176   $2,561   $30,931   $8,631   $49,299 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible Assets

Intangible assets consist of the following:

 

      June 30, 2017       June 30, 2018 
  Estimated
Useful Lives
(in Years)		   Gross Carrying
Amount		   Accumulated
Amortization		   Net   Estimated
Useful Lives
(in Years)		   Gross Carrying
Amount		   Accumulated
Amortization		   Net 

Trademarks/trade names

   5-20   $4,374   $350   $4,024    5 - 20   $5,044   $723   $4,321 

Technical library

   20    400    76    324    20    400    96    304 

Customer relationships

   6-15    30,284    4,015    26,269    6 -15    33,469    7,027    26,442 

Developed technology

   4    400    400    —   

Backlog

   1    2,151    1,614    537    1    3,026    2,565    461 

Construction contracts

   1    2,191    1,845    346    1    2,583    2,375    208 
    

 

   

 

   

 

     

 

   

 

   

 

 

Total

    $39,800   $8,300   $31,500 

Total intangible assets

    $44,522   $12,786   $31,736 
    

 

   

 

   

 

     

 

   

 

   

 

 

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

      September 30, 2016       September 30, 2017 
  Estimated
Useful Lives
(in Years)		   Gross Carrying
Amount		   Accumulated
Amortization		   Net   Estimated
Useful Lives
(in Years)		   Gross Carrying
Amount		   Accumulated
Amortization		   Net 

Trademarks/trade names

   5-20   $3,845   $139   $3,706    5 - 20   $4,643   $440   $4,203 

Technical library

   20    400    61    339    20    400    81    319 

Customer relationships

   6-15    27,414    2,003    25,411    6 - 15    31,115    4,741    26,374 

Developed technology

   4    400    358    42 

Backlog

   1    1,621    545    1,076    1    2,412    2,130    282 

Construction contracts

   1    2,191    1,042    1,149    1    2,399    2,164    235 
    

 

   

 

   

 

     

 

   

 

   

 

 

Total

    $35,871   $4,148   $31,723 

Total intangible assets

    $40,969   $9,556   $31,413 
    

 

   

 

   

 

     

 

   

 

   

 

 

12. 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

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

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.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

The following is a discussion of our significant legal matters:

Capstone Construction Claims

From 2003 to 2005, two of our former subsidiaries performed HVAC and electrical work under contract with Capstone Building Corporation (“Capstone”) on a university student housing project in Texas. In 2005, our subsidiaries filed for arbitration against Capstone, seeking payment for work performed, change orders and other impacts. The parties settled those claims, and the release included a waiver of warranties associated with any of the HVAC work. Several years later, the subsidiaries discontinued operations, and the Company sold their assets.

On October 24, 2013, Capstone filed a petition in the 12th Judicial District Court of Walker County, Texas against these subsidiaries, among other subcontractors, seeking contribution, defense, indemnity and damages for breach of contract in connection with alleged construction defect claims brought against Capstone by the owner of the student housing project. The owner claimsclaimed $10,406 in damages, plus attorneys’ fees and costs against Capstone, which Capstone is seekingsought to recover from the subcontractors. The claims against the Company arewere based on alleged defects in the mechanical design, construction and installation of the HVAC and electrical systems performed by our former subsidiaries.

Based onFollowing mediation in June and November 2017, the Company reached an agreement in late December 2017 to settle all claims brought against it. In the nine months ended June 30, 2018, a mutual settlement reached inand release agreement was executed by the 2005 arbitration, we moved for, and the District Court granted us, summary judgment, dismissing all of Capstone’s claims in the 2013 lawsuit. Capstone appealed, and in April, 2016, the 10th Court of Appeals, Waco, Texas Division, reversed the ruling with respect to the indemnity claims and remanded the case back to the District Court. The Texas Supreme Court subsequently denied our petition to review this decision and our motion for rehearing. As a result, we filed a new motion for summary judgment at the District Court level in April 2017. The court denied the motion, and we were consolidated back into the main case. The Company attended mediation on June 23, 2017. Settlement was not reached,plaintiffs and the Company did not commitresulting in a charge and payment by the Company of $200.

USAMRIID Claim

On December 6, 2017, IES Commercial, Inc. filed suit in the United States District Court of Maryland in the matterUSA for the use and benefit of IES Commercial, Inc. and IES Commercial, Inc. v. Manhattan Construction Co., Torcon, Inc., Manhattan Torcon A Joint Venture, Federal Ins. Co., Fidelity & Deposit Co. of Maryland, Zurich American Ins. Co., and Travelers Casualty & Surety Co. This suit relates to any offera large project which has been ongoing since 2009 and was scheduled for completion in early 2013. As the Company has previously disclosed, the Company entered into a subcontract in 2009 with Manhattan Torcon A Joint Venture to perform subcontracting services at mediation. Thethe U.S. Army Medical Research Institute for Infectious Diseases (“USAMRIID”) replacement facility project for a contract value of approximately $61,146, subject to additions or deductions. Because of delays on the project and additional work the Company will defendperformed, the Company has sought approximately $21,000 for claims incurred as of August 31, 2017, and expects ultimately to prevailseek an additional approximate $4,500 for claims the Company expects to incur from August 31, 2017, through completion of the project. On January 22, 2018, the defendants in this matter filed a motion to dismiss the suit, and on February 2, 2018, we filed our response. We are awaiting a decision on this matter.

IES HOLDINGS, INC.

Notes to the merits, but thereCondensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

Given the uncertainty litigation poses, the Company has not recorded any recovery in connection with this claim. There can be no assurance that the Company will prevail in this litigation matter or that, if the Company does prevail, it will not incur costs and liability for indemnity in connection with resolution of the claims. To date, the Company has not establishedreceive a reserve with respect to this matter, as we believe the likelihood of our responsibility for damages is not probable and a potential range of exposure is not reasonably estimable.significantly lower award.

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 June 30, 20172018, and September 30, 2016,2017, we had $5,870$6,856 and $5,464,$6,204, respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. As of June 30, 20172018, and September 30, 2016,2017, we had $208$179 and $235,$218, 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 June 30, 20172018, and September 30, 2016, $6,0352017, $6,420 and $6,126,$5,985, respectively, of our outstanding letters of credit was utilized to collateralize our insurance program.

Surety

As of June 30, 2017,2018, the estimated cost to complete our bonded projects was approximately $44,008.$61,325. 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 both June 30, 20172018, and September 30, 2016, $458 and $818, respectively,2017, $508 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 June 30, 2017,2018, we had no such purchase orders.commitments.

13. BUSINESS COMBINATIONS

20172018

The Company completed two acquisitionsone acquisition in the nine months ended June 30, 2017:2018, for a total consideration of $6,179, which includes cash consideration paid at close of $5,806, cash consideration remaining to be paid of $125, and contingent consideration payable in July 2019 and 2020 with aggregate acquisition date fair value estimated at of $248.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

Azimuth Communications, Inc. (“Azimuth”) – On April 6, 2018, the Company acquired all of the outstanding capital stock of Azimuth, a Portland, Oregon-based provider of design and integration services for structured cabling, physical security, access control systems, distributed antenna systems, wireless access, and audio visual systems. Azimuth operates within the Company’s Communications segment. The acquisition of Azimuth has accelerated our expansion into the Pacific Northwest market, which the Company believes to be an attractive market.

2017

The Company completed three acquisitions in the year ended September 30, 2017, for a total aggregate consideration of $20,979. See Note 18, “Business Combinations and Divestitures” in our Annual Report on Form10-K for the year ended September 30, 2017, for

further information.

 

Freeman Enclosure Systems, LLC (“Freeman”) – We acquired 100% of the membership interests and associated real estate of Freeman and its affiliate Strategic Edge LLC on March 16, 2017. Strategic Edge LLC was subsequently merged into Freeman, with Freeman as the surviving entity. Freeman is included in our Infrastructure Solutions segment. Freeman’s ability to manufacture custom generator enclosures has expanded our solutions offering.

 

Technical Services II, LLC (“Technical Services”) – STR Mechanical, our 80% owned subsidiary which is consolidated, acquired all of the membership interests of Technical Services, a Chesapeake, Virginia-based provider of mechanical maintenance services, including commercial heating, ventilation and air conditioning, food service equipment, electrical and plumbing services, on June 15, 2017. Technical Services will operateoperates as a subsidiary of STR Mechanical within the Company’s Commercial & Industrial segment. The acquisition of Technical Services has expanded our geographic reach and diversified our customer base for mechanical maintenance services.

NEXT Electric, LLC (“NEXT”) – On July 14, 2017, the Company acquired 80% of the membership interests of NEXT Electric, a Milwaukee, Wisconsin-based electrical contractor specializing in the design, installation and maintenance of electrical systems for commercial, industrial, healthcare, water treatment and education end markets. NEXT Electric operates within the Company’s Commercial & Industrial segment.

The total aggregatepurchase consideration of $15,871 for these twothe Freeman, Technical Services and Azimuth acquisitions includes aggregate cashincluded contingent consideration of $15,139 and $732 of contingent consideration. Of the cash consideration paid upon closing, $14,739 was paidpayments based on the dates of closingacquired company’s earnings, as defined in the applicable purchase and the remaining $400 is payable within 18 months of the transaction date, after deducting certain seller liabilities.sale agreement. The fair value of the total contingent consideration liability for all acquisitions, including Freeman and Technical Services, was estimated at $732$795 at June 30, 2017,2018, and is included in other current liabilities and othernon-current liabilities on our condensed consolidated balance sheets.Condensed Consolidated Balance Sheets.

The Company accounted for the transactions under the acquisition method of accounting, which requires recording assets and liabilities at fair value (Level 3). The valuations derived from estimated fair value assessments and assumptions used by management are preliminary pending finalization of thecertain tangible and intangible asset valuations and assessment of deferred taxes, fixed assets, contingent consideration liability, and certain intangible assets.taxes. While management believes that its preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different values being assigned to individual assets acquired and liabilities assumed. This may result in adjustments to the preliminary amounts recorded. The preliminary estimates for Freeman, Technical Services and NEXT Electric were finalized during the nine months ended June 30, 2018. The preliminary valuation of the assets acquired and liabilities assumed as of the datesacquisition of the acquisitionsAzimuth is as follows:

 

Current assets

  $6,059   $1,765 

Property and equipment

   7,980    355 

Intangible assets (primarily customer relationships)

   3,929    3,439 

Goodwill

   5,460    2,561 

Current liabilities

   (1,154) 

Long term liabilities

   (14) 

Deferred tax liability

   (773) 
  

 

 

Net assets acquired

  $6,179 
  

 

 

With regard to goodwill, the balance is attributable to the workforce of the acquired business and other intangibles that do not qualify for separate recognition. In connection with the Azimuth acquisition, we acquired goodwill of $2,561, of which $59 is tax deductible.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

 

Current liabilities

   (6,147) 

Long term liabilities

   (249) 

Deferred tax liability

   (1,161) 
  

 

 

 

Net assets acquired

  $15,871 
  

 

 

 

The $5,460 of goodwill acquired in the nine months ended June 30, 2017, is attributable to the workforces of the acquired businesses and other intangibles that do not qualify for separate recognition. Of this goodwill, $1,640 is tax deductible.

These two acquisitionsAzimuth acquisition contributed $5,649$2,474 in additional revenue and $104$284 in operating loss during the three months ended June 30, 2017. These two acquisitions contributed $7,047 in additional revenue and $150 in operating loss during the nine months ended June 30, 2017.2018.

2016

The Company completed four acquisitions in the fiscal year ended September 30, 2016 for total aggregate consideration of $59,592. See Note 18 – Business Combinations and Divestitures in our Form10-K for the year ended September 30, 2016 for further information:

Technibus, Inc., a Canton, Ohio based provider of custom engineered, metal enclosed bus duct solutions, on June 15, 2016. Technibus is included in our Infrastructure Solutions segment.

STR Mechanical, LLC – We acquired 80% of the membership interests in STR, a Charlotte, North Carolina-based provider of commercial and industrial mechanical services, on April 27, 2016. STR is included in our Commercial & Industrial segment.

Shanahan Mechanical and Electrical, Inc., a Nebraska-based provider of mechanical and electrical contracting services, on November 20, 2015. Shanahan is included in our Commercial & Industrial segment.

Calumet Armature & Electric, LLC, an Illinois-based provider of design, manufacturing, assembly, and repair services of electric motors for the industrial and mass transit markets, on October 30, 2015. Calumet is included in our Infrastructure Solutions segment.

The total purchase consideration for the Calumet acquisition included contingent consideration payments based on the acquired company’s earnings, as defined in the purchase and sale agreement, through October 31, 2018. The fair value of the contingent consideration liability was estimated at $614 and $1,100 at June 30, 2017 and September 30, 2016, respectively. We made the first payment of $535 during the nine months ended June 30, 2017. The remaining contingent consideration will be payable if earned, during fiscal years 2018 and 2019, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

The Company accounted for these four transactions under the acquisition method of accounting, which requires recording assets and liabilities at fair value (Level 3). The valuations related to Calumet and Shanahan were finalized as of December 31, 2016. The valuations of STR and Technibus were finalized as of June 30, 2017.

These four acquisitions contributed $10,649 in additional revenue and $1,193 in additional operating income during the three months ended June 30, 2016. These four acquisitions contributed $19,613 in additional revenue and $1,841 in additional operating income during the nine months ended June 30, 2016.

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

Unaudited Pro Forma Information

The following unaudited supplemental pro forma results of operations, calculated as if each acquisition occurred as of October 1 of the fiscal year prior to consummation, for the three and nine months ended June 30, 20172018, and 2016,2017, are as follows:

 

  Unaudited   Unaudited 
  Three Months Ended   Three Months Ended   Three Months Ended June 30, 
  June 30, 2017   June 30, 2016   2018   2017 

Revenues

  $208,563   $230,315   $232,576   $220,088 

Net Income

  $5,838   $98,610 
  Unaudited 
  Nine Months Ended   Nine Months Ended 
  June 30, 2017   June 30, 2016 

Revenues

  $626,235   $549,683 

Net Income

  $10,759   $107,752 

Net income attributable to IES Holdings, Inc.

  $8,577   $5,252 

   Unaudited 
   Nine Months Ended June 30, 
   2018   2017 

Revenues

  $642,167   $654,251 

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

  $(19,452)   $8,498 

14. SUBSEQUENT EVENTS

Acquisition of NEXT Electric

On July 14, 2017, the Company acquired 80% of the membership interests of NEXT, a Milwaukee, Wisconsin-based electrical contractor specializing in the design, installation and maintenance of electrical systems for commercial, industrial, healthcare, water treatment and education end markets. NEXT will operate within the Company’s Commercial & Industrial segment.

Wind –Down of Commercial & Industrial branches

In July 2017, we made the decision to wind-down operations at two branches of our Commercial & Industrial segment. This decision is the result of underperformance at these two locations in recent years. We do not expect to incur significant costs related to the termination of leases, employee severance or other arrangements.

Credit facility amendment

On July 14, 2017,23, 2018, we entered into an amendment and joinderthe Third Amendment to our Second Amended and Restated Credit and Security Agreement permitting certain transactions related to our acquisition of NEXT. On August 2, 2017, we entered into an amendment to our Amended Credit Agreement, which modifies(as amended, the definition of EBITDA used in calculating our financial covenants to exclude the results from the Denver and Roanoke branches, up to a maximum exclusion of $5 million“Credit Agreement”). See Note 3, “Debt” for a given measurement period. The amendment also reduces the minimum EBITDA requirement for the quarters ended December 31, 2017 and March 31, 2018 from $32,500 to $30,000 and $35,000 to $32,500, respectively. Minimum EBITDA requirements for all other quarters are unchanged.further discussion.

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 Item 8,8.“Financial Statements and Supplementary Data” as set forth in our Annual Report on Form10-K for the year ended September 30, 20162017, and the Condensed Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form10-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 Form10-Q.

OVERVIEW

Executive Overview

Please refer to Item 1,1. “Business”of our Annual Report on Form10-K for the year ended September 30, 2016,2017, 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

diverse 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: Communications, Residential, Commercial & Industrial, Communications, Infrastructure Solutions and Infrastructure Solutions.Residential.

Recent Events

Over the past two quarters, we completed a detailed review of the operations of our Commercial & Industrial segment, and in July 2017 made the decision to wind-down operations at our Denver, Colorado and Roanoke, Virginia branches of our Commercial & Industrial segment. These branches have consistently underperformed over the last several years and have ranked at the bottom of our group of branches based on key operational and financial metrics. While these branches did experience revenue growth for fiscal 2017 as compared with 2016, these two branches did not perform efficiently on the larger projects undertaken in 2017. In particular, these two branches were responsible for four particular projects that underperformed in the quarter ended March 31, 2017, which continued to impact our margins through the quarter ended June 30, 2017. Revenue in backlog at these two branches at June 30, 2017 and 2016 was $16.5 million and $31.5 million, respectively, reflecting our decision not to book additional work at these branches. Backlog related to the four underperforming jobs discussed above was $1.9 million at June 30, 2017, as these jobs are approaching completion. Based on their historical performance, as well as outlook for the future, we determined these two branches no longer meet the criteria to remain in our portfolio of businesses. We do not expect to incur significant costs related to the termination of leases, employee severance or other arrangements related to the wind-down of these two branches.

The following table presents selected historical financial results of the Denver and Roanoke wind-down branches:

   Three Months
Ended
December 31, 2015		  Three Months
Ended
March 31, 2016		  Three Months
Ended
June 30, 2016		  Three Months
Ended
September 30, 2016		 

Revenues

  $5,956  $4,714  $7,574  $8,941 

Cost of Service

   5,741   5,204   6,886   8,471 

Selling, general and administrative expenses

   703   824   748   582 
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss from continuing operations

  $(488)  $(1,314)(1)  $(60)  $(112) 
  

 

 

  

 

 

  

 

 

  

 

 

 

(1)Includes a $0.5 million charge upon settlement of a dispute related to a project completed in a prior year.

   Three Months
Ended
December 31, 2016		   Three Months
Ended
March 31, 2017		   Three Months
Ended
June 30, 2017		 

Revenues

  $10,398   $9,403   $7,575 

Cost of Service

   10,149    11,936    9,548 

Selling, general and administrative expenses

   648    815    635 
  

 

 

   

 

 

   

 

 

 

Loss from continuing operations

  $(399)   $(3,348)   $(2,608) 
  

 

 

   

 

 

   

 

 

 

Although we are winding down operations at these branches, the Commercial & Industrial segment remains an important part of our strategic growth plan, as demonstrated by the addition of two new acquisitions in this segment during fiscal 2017. These include the acquisition in July 2017 of an 80% interest in NEXT Electric, LLC (“NEXT”), a Milwaukee, Wisconsin-based electrical contractor specializing in the design, installation and maintenance of electrical systems for commercial, industrial, healthcare, water treatment and education end markets, and the acquisition in June 2017 of Technical Services II, LLC (“Technical Services”), a Chesapeake, Virginia-based provider of mechanical maintenance services, including commercial heating, ventilation and air conditioning, food service equipment, electrical and plumbing services. See Note 13 – Business Combinations and Note 14 – Subsequent Events in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form10-Q for further discussion.

RESULTS OF OPERATIONS

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

 

  Three Months Ended June 30,   Three Months Ended June 30, 
  2017 2016   2018 2017 
  $   % $   %   $ % $ % 
  (Dollars in thousands, Percentage of revenues)   (Dollars in thousands, Percentage of revenues) 

Revenues

  $208,323    100.0%  $179,599    100.0%   $232,576  100.0%  $208,323  100.0% 

Cost of services

   172,925    83.0%  145,602    81.1%    190,039  81.7%  172,925  83.0% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Gross profit

   35,398    17.0%  33,997    18.9%    42,537  18.3%  35,398  17.0% 

Selling, general and administrative expenses

   30,771    14.8%  25,716    14.3%    32,372  13.9%  30,771  14.8% 

Contingent consideration

   (33)    0.0%  66    0.0%    81  0.0%  (33)  0.0% 

Loss (gain) on sale of assets

   (55)    0.0%  34    0.0% 

Gain on sale of assets

   (5)  0.0%  (55)  0.0% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Net income from operations

   4,715    2.2%  8,181    4.6% 

Operating income

   10,089  4.3%  4,715  2.2% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Interest and other (income) expense, net

   361    0.1%  282    0.2%    402  0.2%  361  0.1% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Income from operations before income taxes

   4,354    2.1%  7,899    4.4%    9,687  4.2%  4,354  2.1% 

Benefit for income taxes

   (1,519)    (0.7)%  (2,937)    (1.6)% 

Provision for income taxes

   1,038  0.4%  (1,519)  (0.7)% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Net income

   5,873    2.8%  10,836    6.0%    8,649  3.7%  5,873  2.8% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Net income attributable to noncontrolling interest

   (5)    0.0%  (31)    0.0%    (133)  (0.1)%  (5)  0.0% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Comprehensive income attributable to IES Holdings, Inc.

  $5,868    2.8%  $10,805    6.0%   $8,516  3.7%  $5,868  2.8% 
  

 

   

 

  

 

   

 

   

 

  

 

  

 

  

 

 

Consolidated revenues for the three months ended June 30, 2017,2018, were $28.7$24.3 million higher than for the three months ended June 30, 2016,2017, an increase of 16.0%11.6%, with increases at three of our four operating segments, with a slight decrease of our Commercial & Industrial, segment. Our sixInfrastructure Solutions and Residential segments. Revenues at our businesses acquired in fiscal 20162017 and 2017 through June 30, 2017,2018 contributed $15.7$17.3 million to the revenue increase, partly offset by a $6.3 million decrease at two underperforming branches within our Commercial & Industrial segment, which are in the process of the increase for the three months ended June 30, 2017.winding down operations.

Consolidated gross profit for the three months ended June 30, 2017,2018, increased $1.4$7.1 million compared with the three months ended June 30, 2016.2017. Our overall gross profit percentage decreasedincreased to 18.3% during the three months ended June 30, 2018, as compared to 17.0% during the three months ended June 30, 2017, as compared to 18.9% during the three months ended June 30, 2016.2017. Gross profit as a percentage of revenue increased at our Communications segment, but decreased at eachall of our other segments. Our six businesses acquired in fiscal 2016 and 2017 through June 30, 2017, contributed $2.1 millionsegments, with the exception of the increase in consolidated gross profit.our Residential 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, costs associated with acquisitions, 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.

During the three months ended June 30, 2017,2018, our selling, general and administrative expenses were $30.8$32.4 million, an increase of $5.1$1.6 million, or 19.7%5.2%, over the three months ended June 30, 2016.2017. Selling, general and administrative expense as a percent of revenue increaseddecreased from 14.3%14.8% for the three months ended June 30, 2016,2017, to 14.8%13.9% for the three months ended June 30, 2018. This decrease was primarily attributable to lower variable compensation and incentive costs. Businesses acquired during fiscal 2017 and 2018 contributed an additional $1.9 million for the three months June 30, 2018.

   Nine Months Ended June 30, 
   2018  2017 
   $  %  $  % 
   (Dollars in thousands, Percentage of revenues) 

Revenues

  $636,553   100.0%  $604,163   100.0% 

Cost of services

   527,112   82.8%   501,769   83.1% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   109,441   17.2%   102,394   16.9% 

Selling, general and administrative expenses

   92,108   14.5%   89,085   14.7% 

Contingent consideration

   152   0.0%   50   0.0% 

Gain on sale of assets

   (39)   0.0%   (68)   0.0% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   17,220   2.7%   13,327   2.2% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Interest and other (income) expense, net

   1,175   0.2%   1,187   0.2% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from operations before income taxes

   16,045   2.5%   12,140   2.0% 

Provision for income taxes(1)

   34,622   5.4%   1,792   0.3% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

   (18,577)   (2.9)%   10,348   1.7% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to noncontrolling interest

   (255)   0.0%   (72)   0.0% 
  

 

 

  

 

 

  

 

 

  

 

 

 

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

  $(18,832)   (3.0)%  $10,276   1.7% 
  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

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

Consolidated revenues for the nine months ended June 30, 2018 were $32.4 million higher than for the nine months ended June 30, 2017, an increase of 5.4%, with increases at all of our operating segments with the exception of our Communications segment. Revenues from our businesses acquired in fiscal 2017 and 2018 contributed $44.6 million of the revenue increase for the nine months ended June 30, 2018, largely offset by a $19.0 million decrease in revenue at the Denver and Roanoke branches of our Commercial & Industrial segment, which are in the process of winding down operations.

Our overall gross profit percentage increased to 17.2% during the nine months ended June 30, 2018, as compared to 16.9% during the nine months ended June 30, 2017. Businesses acquired in fiscal 2017 and 2018, contributed an additional $5.9 million of gross profit for the nine months ended June 30, 2018, as compared with the nine months ended June 30, 2017. However, this increase was largely offset by a decrease in margin associated with higher materials costs in our Residential segment.

During the nine months ended June 30, 2018, our selling, general and administrative expenses were $92.1 million, an increase of $3.0 million, or 3.4%, over the nine months ended June 30, 2017. This increase was primarily attributable to expense incurred at businesses acquired during fiscal 20162017 and 2017 through June 30, 2017,2018, which contributed $3.2 million of the increase for the three months ended June 30, 2017. We also incurred additional expense as a result of increased activity levels across our business, as increased volume levels required additional personnel to support our growth.

   Nine Months Ended June 30, 
   2017  2016 
   $  %  $  % 
   (Dollars in thousands, Percentage of revenues) 

Revenues

  $604,163   100.0%  $490,347   100.0% 

Cost of services

   501,769   83.1%   400,905   81.8% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   102,394   16.9%   89,442   18.2% 

Selling, general and administrative expenses

   89,085   14.7%   72,494   14.8% 

Contingent consideration

   50   0.0%   332   0.1% 

Loss (gain) on sale of assets

   (68)   0.0%   811   0.2% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income from operations

   13,327   2.2%   15,805   3.1% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Interest and other (income) expense, net

   1,187   0.2%   846   0.2% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from operations before income taxes

   12,140   2.0%   14,959   2.9% 

Provision (benefit) for income taxes

   1,792   0.3%   (3,870)   (0.8)% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

   10,348   1.7%   18,829   3.7% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income attributable to noncontrolling interest

   (72)   0.0%   (31)   0.0% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income attributable to IES Holdings, Inc.

  $10,276   1.7%  $18,798   3.7% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated revenues for the nine months ended June 30, 2017 were $113.8 million higher than for the nine months ended June 30, 2016, an increase of 23.2%, with increases at each of our operating segments. Our six businesses acquired in fiscal 2016 and 2017 through June 30, 2017, contributed $32.8 million of the revenue increase for the nine months ended June 30, 2017.

Our overall gross profit percentage decreased to 16.9% during the nine months ended June 30, 2017 as compared to 18.2% during the nine months ended June 30, 2016. Total gross profit increased at all of our segments with the exception of Commercial & Industrial. Gross profit as a percentage of revenue decreased at all of our segments. Our six businesses acquired in fiscal 2016 and 2017 through June 30, 2017, contributed $5.7 million of the increase in consolidated gross profit.

During the nine months ended June 30, 2017, our selling, general and administrative expenses were $89.1 million, an increase of $16.6 million, or 22.9%, over the nine months ended June 30, 2016. This increase was primarily attributable to increased activity levels across our business, as increased volume levels required additional personnel to support our growth. Additionally, we recorded higher incentive compensation for division and branch management at our Communications and Residential segments, where profitability increased. General and administrative expense as a percent of revenue remained flat year over year. Selling, general and administrative expense incurred at our six businesses acquired in fiscal 2016 and 2017 through June 30, 2017, contributed $5.9$4.9 million of the increase for the nine months ended June 30, 2017.    2018. This increase was partly offset by a reduction in variable compensation expense.

Communications

Commercial & Industrial

 

  Three Months Ended June 30,   Three Months Ended June 30, 
  2017 2016   2018 2017 
  $   % $   %   $   % $   % 
  (Dollars in thousands, Percentage of revenues)   (Dollars in thousands, Percentage of revenues) 

Revenue

  $57,081    100.0%  $48,702    100.0%   $78,156    100.0%  $58,778    100.0% 

Cost of services

   67,839    86.8%  54,174    92.2% 
  

 

   

 

  

 

   

 

 

Gross profit

   10,123    17.7%  8,215    16.9%    10,317    13.2%  4,604    7.8% 

Selling, general and administrative expenses

   6,252    11.0%  5,185    10.6%    6,980    8.9%  4,849    8.2% 

Gain on sale of assets

   (6)    0.0%  (2)    0.0% 
  

 

   

 

  

 

   

 

 

Operating income

   3,343    4.3%  (243)    -0.4% 

Revenue.Our Communications segment’s revenuesRevenues in our Commercial & Industrial segment increased by $8.4$19.4 million, or 33.0%, during the three months ended June 30, 2017, a 17.2% increase2018, compared to the three months ended June 30, 2016.The increase is the result of both the expansion of our customer base and additional work with existing customers. We continue to expand our business in areas such as retail distribution centers, audio visual and security, and wireless access. Revenues from data center work increased by $1.2 million, and revenues from manufacturing and retail distribution centers increased by $4.1 million for the three months ended June 30, 2017, as compared with the same period in 2016. We also experienced strong growth in our audio visual and security business, with revenues increasing $3.0 million for the three months ended June 30, 2017, compared with the three months ended June 30, 2016.

Gross Profit.Our Communications segment’s gross profit during the three months ended June 30, 2017 increased by $1.9 million compared to the three months ended June 30, 2016. Gross profit as a percentage of revenue increased 0.8% to 17.7% for the three months ended June 30, 2017. The increase iswas largely driven by revenues at businesses acquired in part, by efficiencies on certain projects during the quarter ended June 30, 2017.

Selling, Generalthird and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by $1.1fourth quarters of fiscal 2017, which contributed an additional $13.5 million or 20.6%, during the three months ended June 30, 2017,2018, compared to the three months ended June 30, 2016. Selling, general2017. Additionally, increased bid volume at several of our branches and administrative expenses asimproving market conditions in certain areas also contributed to the overall increase in revenues. These increases were offset by a percentage of revenues$6.3 million decrease relating to our Denver and Roanoke branches, which are in the Communications segment increased 0.4% to 11.0%process of segment revenue during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The increase is a result of higher personnel cost, particularly related to additional personnel in sales and estimating in support of our growing business, as well as higher incentive compensation expense in connection with improved profitability.

   Nine Months Ended June 30, 
   2017  2016 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $172,058    100.0%  $128,813    100.0% 

Gross profit

   27,390    15.9%   22,958    17.8% 

Selling, general and administrative expenses

   18,086    10.5%   14,877    11.5% 

Revenue.Our Communications segment revenues increased by $43.2 million during the nine months ended June 30, 2017, a 33.6% increase compared to the nine months ended June 30, 2016.The increase is the result of both the expansion of our customer base and additional work with existing customers. Revenues from data center work increased by $16.7 million for the nine months ended June 30, 2017, compared with the nine months ended June 30, 2016, and revenues from manufacturing and retail distribution centers increased by $9.5 million for the nine months ended June 30, 2017, as compared with the same period in 2016. Additionally, we continue to expand our business in areas such as audio visual and security, which provided additional revenue of $5.8 million for the nine months ended June 30, 2017, as compared with the nine months ended June 30, 2016. We also experienced strong growth in our core structured cabling business, with revenues increasing $5.5 million for the nine months ended June 30, 2017, compared with the nine months ended June 30, 2016.

Gross Profit.Our Communications segment’s gross profit during the nine months ended June 30, 2017, increased $4.4 million, or 19.3%, as compared to the nine months ended June 30, 2016. Gross profit as a percentage of revenue decreased 1.9% to 15.9% for the nine months ended June 30, 2017. The decline is driven, in part, by inefficiencies on certain projects during the nine months ended June 30, 2017. Additionally, margins have been affected by an increase in the volume of cost-plus work performed in the nine months ended June 30, 2017. This work is generally lower risk, and is typically performed at lower margins than the fixed price arrangements which comprise the majority of the work we perform. Finally, our lower margins reflect the impact of hiring and training a number of new employees needed to support the rapid growth of the business.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased $3.2 million, or 21.6%, during the nine months ended June 30, 2017, compared to the nine months ended June 30, 2016, as a result of higher personnel cost, including increased incentive compensation associated with higher earnings. Additionally, we have continued to invest in the necessary infrastructure to support the growing volume of business. Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased by 1.0% to 10.5% of segment revenue during the nine months ended June 30, 2017, compared to the nine months ended June 30, 2016, as we benefitted from the increased scale of ourwinding down operations.

Residential

   Three Months Ended June 30, 
   2017  2016 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $70,162    100.0%  $56,867    100.0% 

Gross profit

   15,855    22.6%   13,479    23.7% 

Selling, general and administrative expenses

   11,003    15.7%   9,237    16.2% 

Revenue.Our Residential segment’s revenues increased by $13.3 million during the three months ended June 30, 2017, an increase of 23.4% as compared to the three months ended June 30, 2016. The increase is driven by our multi-family business, where revenues increased by $9.1 million for the three months ended June 30, 2017, compared with the three months ended June 30, 2016. We entered the year with a historically high level of backlog, which is now resulting in increased revenues. Single-family construction revenues increased by $4.7 million, primarily driven by our Texas operations. Service revenues decreased by $0.5 million, and solar remained flat, during the three months ended June 30, 2017, as compared with the same period in 2016.

Gross Profit.During the three months ended June 30, 2017, our Residential segment experienced a $2.4 million, or 17.6%, increase in gross profit as compared to the three months ended June 30, 2016. The increase in gross profit was driven primarily by the increase in revenue. Gross margin as a percentage of revenue decreased 1.1% to 22.6% during the quarter ended June 30, 2017, as compared with the quarter ended June 30, 2016. For the three months ended June 30, 2017, multi-family projects, which generally have a lower gross margin than single-family projects, were a higher proportion of our total volume.

Selling, General and Administrative Expenses. Our Residential segment experienced a $1.8 million, or 19.1%, increase in selling, general and administrative expenses during the three months ended June 30, 2017, compared to the three months ended June 30, 2016, primarily as a result of higher variable compensation and a $1.3 million increase in incentive costs associated with increased profitability. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased to 15.7% of segment revenue during the three months ended June 30, 2017, compared to 16.2% in the three months ended June 30, 2016, as we benefitted from the increased scale of our operations.

   Nine Months Ended June 30, 
   2017  2016 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $204,527    100.0%  $162,381    100.0% 

Gross profit

   47,157    23.1%   37,922    23.4% 

Selling, general and administrative expenses

   32,488    15.9%   26,856    16.5% 

Revenue.Our Residential segment revenues increased by $42.1 million during the nine months ended June 30, 2017, an increase of 26.0% as compared to the nine months ended June 30, 2016. The increase is driven by our multi-family business, where revenues increased by $30.3 million for the nine months ended June 30, 2017, compared with the nine months ended June 30, 2016. We entered the year with a historically high level of backlog, which is now resulting in increased revenues. Single-family construction revenues increased by $14.5 million, primarily driven by our Texas operations. Revenue from solar installations decreased by $1.8 million, and service revenues decreased by $0.8 million for nine months ended June 30, 2017, as compared with the same period in 2016.

Gross Profit.During the nine months ended June 30, 2017, our Residential segment experienced a $9.2 million, or 24.4%, increase in gross profit as compared to the nine months ended June 30, 2016. Gross profit increased primarily due to a higher volume of work. Gross margin as a percentage of revenue decreased by 0.3% to 23.1% during the nine months ended June 30, 2017, as compared with the nine months ended June 30, 2016. For the nine months ended June 30, 2017, multi-family projects, which generally have a lower gross margin than single-family projects, were a higher proportion of our total volume.

Selling, General and Administrative Expenses. Our Residential segment experienced a $5.6 million, or 21.0%, increase in selling, general and administrative expenses during the nine months ended June 30, 2017, compared to the nine months ended June 30, 2016, driven by increased compensation expense, primarily as a result of an increase of $4.0 million in variable compensation and incentive costs associated with increased profitability. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased by 0.6% to 15.9% of segment revenue during the nine months ended June 30, 2017, as we benefitted from the increased scale of our operations.

Commercial & Industrial

   Three Months Ended June 30, 
   2017  2016 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $58,778    100.0%  $59,512    100.0% 

Gross profit

   4,604    7.8%   7,630    12.8% 

Selling, general and administrative expenses

   4,849    8.2%   4,771    8.0% 

Revenue.Revenues in our Commercial & Industrial segment decreased $0.7, or 1.2%, during the three months ended June 30, 2017, compared to the three months ended June 30, 2016. The decrease was driven by a lower volume of large, industrial projects in the Southeast market. This decrease was largely offset by revenue from our fiscal 2016 and 2017 acquisitions through June 30, 2017, which contributed an additional $6.7 million during the three months ended June 30, 2017 compared to the three months ended June 30, 2016. The market for this segment’s services remains highly competitive.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended June 30, 2017, decreased2018, increased by $3.0$5.7 million, or 39.7%, as compared to the three months ended June 30, 2016. Of this decrease, $2.72017. The increase is due to both the $1.5 million relates toreduction in losses at our Denver and Roanoke branches, which are in the process of winding down operations, as discussed herein. The decrease in margin at these branches is driven by labor cost overruns on fourand $1.8 million of our projects in connection with the acceleration of schedulesadditional gross profit contributed by our customers, as well as high rates of employee turnover. These jobs are largely complete as of June 30,fiscal 2017 but they will continue to have some impact on our margin percentages through project completion in the fourth quarter of fiscal 2017. The decrease in revenue as discussed above also contributed to the decrease in gross profit in this segment for the three months ended June 30, 2017 as compared with the three months ended June 30, 2016. These decreases were partly offset by the impact of our fiscal 2016 and 2017 acquisitions through June 30, 2017, which contributed an additional $1.4 million of gross profit during the three months ended June 30, 20172018, compared to the three months ended June 30, 2016. These newly acquired businesses continue to perform well, generally at higher gross margins than our existing business.2017. Improved efficiency across other branches drove the remaining increase.

Selling, General and Administrative Expenses.Our Commercial & Industrial segment’s selling, general and administrative expenses during the three months ended June 30, 2017,2018, increased $0.1$2.1 million, or 1.6%44.0%, compared to the three months ended June 30, 2016.2017. Selling, general and administrative expenses as a percentage of revenues increased 0.2%0.7% to 8.2%8.9% during the three months ended June 30, 2017,2018, compared to the three months ended June 30, 2016. Our2017. The increase relates primarily to our fiscal 2016 and 2017 acquisitions, through June 30, 2017,which increased expense by $1.4 million; however, this$1.2 million. The remaining increase was offsetis driven by lowercosts associated with additional management oversight, as well as higher incentive compensation expensecost in connection with reducedimproved profitability.

The following table summarizes the results of our Denver and Roanoke branches, which are in the process of winding down operations. These results are included in the consolidated Commercial & Industrial results shown above:

   Nine Months Ended June 30, 
   2017  2016 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $168,006    100.0%  $158,923    100.0% 

Gross profit

   13,378    8.0%   17,686    11.1% 

Selling, general and administrative expenses

   14,434    8.6%   13,014    8.2% 

Denver and Roanoke branches  Three Months Ended June 30, 
  2018   2017 
   (In thousands) 

Revenues

  $1,261   $7,575 

Cost of services

   1,792    9,548 

Selling, general and administrative expenses

   379    635 
  

 

 

   

 

 

 

Operating loss

  $(910)   $(2,608) 
  

 

 

   

 

 

 

   Nine Months Ended June 30, 
   2018  2017 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $196,747    100.0%  $168,006    100.0% 

Cost of services

   175,066    89.0%   154,628    92.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   21,681    11.0%   13,378    8.0% 

Selling, general and administrative expenses

   19,624    10.0%   14,434    8.6% 

Gain on sale of assets

   (35)    0.0%   (11)    0.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating income

   2,092    1.1%   (1,045)    -0.6% 

Revenue.Revenues in our Commercial & Industrial segment increased $9.1$28.7 million during the nine months ended June 30, 2017,2018, an increase of 5.7%17.1% compared to the nine months ended June 30, 2017. The increase in revenue over this period was driven by our fiscal 2017 acquisitions, which contributed $33.1 million of additional revenue during the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017. This increase in revenue was partly offset by a $19.0 million decrease in revenue attributable to the winding down of operations at our Denver and NebraskaRoanoke locations for the nine months ended June 30, 2017,2018, as compared with the nine months ended June 30, 2016. Our fiscal 20162017. Additionally, increased bid volume at several of our branches and 2017 acquisitions through June 30, 2017,improving market conditions in certain areas also contributed an additional $9.9 million of revenue during the nine months ended June 30, 2017 compared to the nine months ended June 30, 2016. These increasesoverall increase in revenue were partly offset by a decrease in the volume of large industrial projects in the Southeast market.revenues. 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 nine months ended June 30, 2017, decreased2018, increased by $4.3$8.3 million, or 24.4%62.0%, as compared to the nine months ended June 30, 2016.2017. As a percentage of revenue, gross profit decreasedincreased from 11.1% for the nine months ended June 30, 2016, to 8.0% for the nine months ended June 30, 2017, to 11.0% for the nine months ended June 30, 2018. The increase was driven by $4.9 million of additional gross profit contributed by our fiscal 2017 acquisitions during the nine months ended June 30, 2018, compared to the nine months ended June 30, 2017. Gross profit decreasedAdditionally, for the nine months ended June 30, 2018, gross margin improved by $4.7$3.6 million compared with the nine months ended June 30, 2017 at our Denver and Roanoke branches, which are in the process of winding down operations, as discussed above. This decrease was due to the effects of project delays and resulting inefficiencies caused by labor cost overruns on four of our projects in connection with the acceleration of schedules by our customers and high rates of employee turnover. These jobs are largely complete as of June

30, 2017, but they will continue to have some impact on our margin percentages through project completion in the fourth quarter of fiscal 2017. This decrease was partly offset by the impact of our fiscal 2016 and 2017 acquisitions in this segment through June 30, 2017, which contributed an additional $1.3 million of gross profit during the nine months ended June 30, 2017, compared to the nine months ended June 30, 2016. These newly acquired businesses continue to perform well, and have generally performed at higher gross margins than our existing business.operations.

Selling, General and Administrative Expenses.Our Commercial & Industrial segment’s selling, general and administrative expenses during the nine months ended June 30, 2017,2018, increased $1.4$5.2 million, or 10.9%36.0%, compared to the nine months ended June 30, 2016,2017, and increased 0.4%1.4% as a percentage of revenue. The increase was driven by our fiscal 2016 and 2017 acquisitions, where selling, general and administrative expense for the nine months ended June 30, 2017,2018, increased by $1.2$3.3 million. The remaining increase relates primarily to employee expense associated with management hired to provide additional oversight at the regional and branch levels.

The following table summarizes the results of our Denver and Roanoke branches, which are in the process of winding down operations. These results are included in the consolidated Commercial & Industrial segment results shown above:

Denver and Roanoke branches  Nine Months Ended June 30, 
  2018   2017 
   (In thousands) 

Revenues

  $8,371   $27,376 

Cost of services

   9,096    31,633 

Selling, general and administrative expenses

   1,322    2,098 
  

 

 

   

 

 

 

Operating loss

  $(2,047)   $(6,355) 
  

 

 

   

 

 

 

Communications

   Three Months Ended June 30, 
   2018  2017 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $54,368    100.0%  $57,081    100.0% 

Cost of services

   43,436    79.9%   46,958    82.3% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   10,932    20.1%   10,123    17.7% 

Selling, general and administrative expenses

   7,193    13.2%   6,252    11.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating income

   3,739    6.9%   3,871    6.8% 

Revenue.Our Communications segment’s revenues decreased by $2.7 million during the three months ended June 30, 2018, primarily as a result of the timing of capital spending by certain of our data center customers. These decreases were partly offset by $2.5 million from Azimuth, which we acquired in the three months ended June 30, 2018. 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 June 30, 2018, increased by $0.8 million compared to the three months ended June 30, 2017. Gross profit as a percentage of revenue increased 2.4% to 20.1% for the three months ended June 30, 2018, primarily as a result of improved project execution.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased

by $0.9 million, or 15.0%, during the three months ended June 30, 2018, compared to the three months ended June 30, 2017. Selling, general and administrative expenses as a percentage of revenues in the Communications segment increased 2.2% to 13.2% of segment revenue during the three months ended June 30, 2018, compared to the three months ended June 30, 2017. The increase is a result of higher personnel cost, particularly related to higher incentive compensation expense in connection with improved profitability and cash flows, as well as continuing investment to support anticipated growth.

   Nine Months Ended June 30, 
   2018  2017 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $159,071    100.0%  $172,058    100.0% 

Cost of services

   129,667    81.5%   144,668    84.1% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   29,404    18.5%   27,390    15.9% 

Selling, general and administrative expenses

   19,478    12.2%   18,086    10.5% 

Gain on sale of assets

   (9)    0.0%   (1)    0.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating income

   9,935    6.2%   9,305    5.4% 

Revenue.Our Communications segment revenues decreased by $13.0 million during the nine months ended June 30, 2018, primarily as a result of $7.9 million of revenue we received in the nine months ended June 30, 2017 on a large system upgrade project for a school district. This project was completed in fiscal 2017. Our revenues for the nine months ended June 30, 2018 were also affected by the timing of capital spending by certain 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 nine months ended June 30, 2018, increased $2.0 million, or 7.4%, as compared to the nine months ended June 30, 2017. Gross profit as a percentage of revenue increased 2.6% to 18.5% for the nine months ended June 30, 2018. The increase is driven primarily by improved project execution.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased $1.4 million, or 7.7%, during the nine months ended June 30, 2018, compared to the nine months ended June 30, 2017. Selling, general and administrative expenses as a percentage of revenues in the Communications segment increased by 1.7% to 12.2% of segment revenue during the nine months ended June 30, 2018, compared to the nine months ended June 30, 2017, as a result of the decrease in revenue, as well as continuing investment to support anticipated growth.

Infrastructure Solutions

 

  Three Months Ended June 30,   Three Months Ended June 30, 
  2017 2016   2018 2017 
  $   % $   %   $   % $   % 
  (Dollars in thousands, Percentage of revenues)   (Dollars in thousands, Percentage of revenues) 

Revenue

  $22,302    100.0%  $14,518    100.0%   $24,856    100.0%  $22,302    100.0% 

Cost of services

   18,701    75.2%  17,486    78.4% 
  

 

   

 

  

 

   

 

 

Gross profit

   4,816    21.6%  4,673    32.2%    6,155    24.8%  4,816    21.6% 

Selling, general and administrative expenses

   4,958    22.2%  3,248    22.4%    4,568    18.4%  4,958    22.2% 

Contingent consideration

   (33)    -0.1%  66    0.5%    81    0.3%  (33)    -0.1% 

Loss on sale of assets

   (88)    -0.4%  51    0.4% 

Loss (gain) on sale of assets

   1    0.0%  (88)    -0.4% 
  

 

   

 

  

 

   

 

 

Operating income (loss)

   1,505    6.1%  (21)    -0.1% 

Revenue.Revenues in our Infrastructure Solutions segment increased $7.8$2.6 million during the three months ended June 30, 2017,2018, an increase of 53.6%11.5% compared to the three months ended June 30, 2016.2017. The increase in revenue was driven primarily by additional revenue of $9.0$1.3 million contributed by the acquisition of Freeman Enclosures in the second quarter of fiscal 2017, as well as a $1.0 million increase in revenue at our fiscal 2016 and 2017 acquisitions through June 30, 2017, partly offset by reduced activity at certain of our motor repair facilities.Technibus facility.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended June 30, 20172018, increased $0.1$1.3 million as compared to the three months ended June 30, 2016.2017. Gross profit contributed by our fiscal 2016 and 2017 acquisitions through June 30, 2017, increased by $0.7 for the three months ended June 30, 2017 compared with the three months ended June 30, 2016. However, this increase in margin provided by acquired businesses was offset by a decline in activity levels in our motor repair business. Gross margin as a percentage of revenue declined forincreased 3.2% to 24.8%. The primary driver of the three months ended June 30, 2017 compared with the three months ended June 30, 2016, as higher margin motor repair work decreased, and lower marginimprovement in margins was our bus duct work increased, as a percentage of our overall revenue. Although we expect the margins for motor repair and bus duct work to be more similarfacility, which was affected in the long term, bus duct margins for the three months ended June 30, 2017 were negatively affectedprior year by production inefficiencies drivenand

by the impact of the amortization of contract intangibles associated with the acquisition of this business in 2016. Margins are also affected by the mix of work being performed, as well as $0.2 million of amortization of the backlog intangible asset we recorded in connection with the acquisition of Technibus.performed.

Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended June 30, 2017 increased $1.72018, decreased $0.4 million compared to the three months ended June 30, 2016. The increase2017. This decrease was primarily the result of generala $0.5 million decrease in amortization expense related to intangible assets recorded in connection with the acquisitions of Freeman and administrative expenses incurred by our acquisitions during fiscal 2016 and 2017 through June 30, 2017.Technibus.

 

   Nine Months Ended June 30, 
   2017  2016 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $59,572    100.0%  $40,230    100.0% 

Gross profit

   14,469    24.3%   10,876    27.0% 

Selling, general and administrative expenses

   13,280    22.3%   9,062    22.5% 

Contingent consideration

   50    0.1%   332    0.8% 

Loss (gain) on sale of assets

   (90)    -0.2%   828    2.1% 

   Nine Months Ended June 30, 
   2018  2017 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $70,407    100.0%  $59,572    100.0% 

Cost of services

   54,543    77.5%   45,103    75.7% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   15,864    22.5%   14,469    24.3% 

Selling, general and administrative expenses

   13,762    19.5%   13,280    22.3% 

Contingent consideration

   152    0.2%   50    0.1% 

Loss (gain) on sale of assets

   6    0.0%   (90)    -0.2% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating income

   1,944    2.8%   1,229    2.1% 

Revenue.Revenues in our Infrastructure Solutions segment increased $19.3$10.8 million during the nine months ended June 30, 2017,2018, an increase of 48.1%18.2% compared to the nine months ended June 30, 2016.2017. The increase was primarily driven by $23.0$9.0 million of additional revenue contributed by ourFreeman Enclosures, which we acquired during the second quarter of fiscal 2016 and 2017 acquisitions through June 30, 2017. These increases were partlyA $3.6 million increase in revenues from the manufacture of bus duct was offset by a $1.7 million decrease in revenue from our engine components business. Substantially all ofmotor repair business, which remains highly dependent on the operating assets of our engine components business were sold in April 2016 to a third party.steel industry.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the nine months ended June 30, 2017,2018, increased $3.6$1.4 million as compared to the nine months ended June 30, 2016. The increase is primarily driven by $4.4 million2017. Gross profit as a percentage of additional gross profit contributed by our fiscal 2016 and 2017 acquisitions through June 30, 2017, slightly offset by a decrease in activity levels at our motor repair business. Gross profitrevenues decreased 1.8% to 22.5% for the nine months ended June 30, 2017 included $0.8 million related to2018. Margins improved year over year at both our bus duct manufacturing business and our motor repair business. However, our overall gross margin was affected by the amortizationmix of the backlog intangible asset we recorded in connection with the acquisitionwork performed, as lower margin work at Freeman represented a larger percentage of Technibus.our total revenues.

Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the nine months ended June 30, 2017,2018, increased $4.2$0.5 million compared to the nine months ended June 30, 2016.2017. The increase was primarily the result of a $0.5 million increase in general and administrative costs incurred at Freeman Enclosures, which was acquired during the second quarter of fiscal 2017, as well as $0.5 million in additional selling and administrative costs in support of growth of the business. These increases were partly offset by a decrease in intangible amortization expense related to the acquisition of Technibus in 2016.

Residential

   Three Months Ended June 30, 
   2018  2017 
   $   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $75,196    100.0%  $70,162    100.0% 

Cost of services

   60,063    79.9%   54,307    77.4% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   15,133    20.1%   15,855    22.6% 

Selling, general and administrative expenses

   10,941    14.5%   11,003    15.7% 

Gain on sale of assets

   0    0.0%   37    0.1% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating income

   4,192    5.6%   4,815    6.9% 

Revenue.Our Residential segment’s revenues increased by $5.0 million during the three months ended June 30, 2018, an increase of 7.2% as compared to the three months ended June 30, 2017. The increase is driven by our fiscal 2016single-family business, where revenues increased by $10.0 million for the three months ended June 30, 2018, compared with the three months ended June 30, 2017. Service and 2017 acquisitions throughsolar revenues increased by $1.3 million for the three months ended June 30, 2018, compared with the same period in the prior year. These increases were partly offset by a $6.2 million decrease in our multi-family business. The quarter ended June 30, 2017, benefitted from a historically high level of backlog, which was the result of project delays in the previous fiscal year. Our current multi-family backlog has returned to a more typical level.

Gross Profit.During the three months ended June 30, 2018, our Residential segment experienced a $0.7 million, or 4.6%, decrease in gross profit as compared to the three months ended June 30, 2017. The decrease in gross profit was driven primarily by an increase in copper and other commodity prices, as we experienced favorable commodity prices in the quarter ended June 30, 2017, as well as an increase in labor costs, as a result of tightening labor markets. Gross margin as a percentage of revenue decreased 2.5% to 20.1% during the quarter ended June 30, 2018, as compared with the quarter ended June 30, 2017.

Selling, General and Administrative Expenses. Our Residential segment experienced a $0.1 million, or 0.6%, decrease in selling, general and administrative expenses during the three months ended June 30, 2018, compared to the three months ended June 30, 2017, primarily as a result of lower incentive compensation expense in connection with lower profitability. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased to 14.5% of segment revenue during the three months ended June 30, 2018, compared to 15.7% in the three months ended June 30, 2017.

   Nine Months Ended June 30, 
   2018  2017 
  ��$   %  $   % 
   (Dollars in thousands, Percentage of revenues) 

Revenue

  $210,328    100.0%  $204,527    100.0% 

Cost of services

   167,836    79.8%   157,370    76.9% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Gross profit

   42,492    20.2%   47,157    23.1% 

Selling, general and administrative expenses

   30,995    14.7%   32,488    15.9% 

Gain on sale of assets

   (1)    0.0%   34    0.0% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Operating income

   11,498    5.5%   14,635    7.2% 

Revenue.Our Residential segment revenues increased $4.7by $5.8 million during the nine months ended June 30, 2018, an increase of 2.8% as compared to the nine months ended June 30, 2017. The increase is driven by our single-family business, where revenues increased by $19.3 million for the nine months ended June 30, 2018, compared with the nine months ended June 30, 2017. Service and solar revenues also increased by $3.4 million for the six months ended June 30, 2018, compared with the same period in the prior year. These increases were partly offset by a decrease in multi-family revenues, which declined by $16.9 million. The nine months ended June 30, 2017, includingbenefitted from a $1.7historically high level of backlog, which was the result of project delays in the previous fiscal year. Our current multi-family backlog has returned to a more typical level.

Gross Profit. During the nine months ended June 30, 2018, our Residential segment experienced a $4.7 million, or 9.9%, decrease in gross profit as compared to the nine months ended June 30, 2017. The decrease in gross profit was driven primarily by an increase in intangible amortization for these acquisitions. These additionalcopper and other commodity prices, as we experienced favorable commodity prices in the nine months ended June 30, 2017, as well as an increase in labor costs, were slightly offset by reduced expense for our motor repair businessas a result of tightening labor markets. Gross margin as a percentage of revenue decreased 2.9% to 20.2% during the six months ended June 30, 2018, as compared with the six months ended June 30, 2017.

Selling, General and the elimination of $0.3Administrative Expenses. Our Residential segment experienced a $1.5 million, ofor 4.6%, decrease in selling, general and administrative costs associated with our engine components business.

Contingent Consideration.Results of operations from Calumet Armature & Electric, LLC (“Calumet”), which we acquired in October 2015, have outperformed forecast measures used in our original valuation of the contingent consideration agreement, which we performed following the acquisition. We recorded additional contingent consideration expense of $50 thousand and $0.3 millionexpenses during the nine months ended June 30, 2018, compared to the nine months ended June 30, 2017, and 2016, respectively.

Loss on Saledriven by decreased compensation expense, primarily as a result of Asset.We recognized a lossdecrease of $0.8$2.9 million in conjunctionvariable compensation and incentive costs associated with decreased profitability, partly offset by an increase in salary and travel costs. Selling, general and administrative expenses as a percentage of revenues in the write downResidential segment decreased by 1.2% to net realizable value14.7% of certain assets related to our engine component businesssegment revenue during the nine months ended June 30, 2016. The sale of these assets to a third party pursuant to an asset purchase agreement was finalized in April 2016.2018.

Interest and Other Expense, net

INTEREST AND OTHER EXPENSE, NET

 

   Three Months Ended June 30, 
   2017   2016 
   (In thousands) 

Interest expense

  $351   $219 

Deferred financing charges

   56    80 
  

 

 

   

 

 

 

Total interest expense

   407    299 

Other (income) expense, net

   (46)    (17) 
  

 

 

   

 

 

 

Total interest and other expense, net

  $361   $282 
  

 

 

   

 

 

 

   Three Months Ended June 30, 
   2018   2017 
   (In thousands) 

Interest expense

  $441   $351 

Deferred financing charges

   72    56 
  

 

 

   

 

 

 

Total interest expense

   513    407 

Other (income) expense, net

   (111)    (46) 
  

 

 

   

 

 

 

Total interest and other expense, net

  $402   $361 
  

 

 

   

 

 

 

Interest ExpenseDuring the three months ended June 30, 2018, we incurred interest expense of $0.5 million primarily comprised of interest expense from our term loan facility with Wells Fargo Bank, N.A. (“Wells Fargo”), an average letter of credit balance of $6.8 million under our revolving credit facility and an average unused line of credit balance of $62.9 million. This compares to interest expense of $0.4 million for the three months ended June 30, 2017, and 2016

During the three months ended June 30, 2017, we incurred interest expense of $0.4 million primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.5 million under our revolving credit facility and an average unused line of credit balance of $60.2 million. This compares to interest expense of $0.3 million for the three months ended June 30, 2016, primarily comprised of interest expense from our revolving credit facility and average letter of credit and unused line of credit balances of $6.9 million and $44.0 million, respectively.

 

   Nine Months Ended June 30, 
   2017   2016 
   (In thousands) 

Interest expense

  $1,052   $632 

Deferred financing charges

   229    263 
  

 

 

   

 

 

 

Total interest expense

   1,281    895 

Other (income) expense, net

   (94)    (49) 
  

 

 

   

 

 

 

Total interest and other expense, net

  $1,187   $846 
  

 

 

   

 

 

 

Interest Expense for the nine months ended June 30, 2017 and 2016

   Nine Months Ended June 30, 
   2018   2017 
   (In thousands) 

Interest expense

  $1,213   $1,052 

Deferred financing charges

   214    229 
  

 

 

   

 

 

 

Total interest expense

   1,427    1,281 

Other (income) expense, net

   (252)    (94) 
  

 

 

   

 

 

 

Total interest and other expense, net

  $1,175   $1,187 
  

 

 

   

 

 

 

During the nine months ended June 30, 2017,2018, we incurred interest expense of $1.3$1.4 million primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.6 million and an average unused line of credit balance of $42.1$63.2 million. This compares to interest expense of $0.9$1.3 million for the nine months ended June 30, 2016,2017, primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.9$6.6 million and an average unused line of credit balance of $43.2$42.1 million.

PROVISION FOR INCOME TAXES

We reported a benefit fromrecorded income taxestax expense of $1.5$1.0 million for the three months ended June 30, 2017,2018, compared to aincome tax benefit of $2.9$1.5 million related to the reversal of an uncertain tax position for the three months ended June 30, 2016.2017. For the three months ended June 30, 2018 and 2017, our income tax expense was offset by abenefits of $1.8 million and $3.7 million, benefitrespectively, associated with the reversal of a reservereserves previously established for an uncertain tax position. For the three months ended June 30, 2016, we recorded a benefit of $3.6 million related to the release of a valuation allowance in connection with the acquisition of deferred tax liabilities of Technibus.positions.

We reported a provision forrecorded income taxestax expense of $1.8$34.6 million for the nine months ended June 30, 2017,2018, compared to a benefitincome tax expense of $3.9$1.8 million for the ninesix months ended June 30, 2016.2017. For the nine months ended June 30, 2018 and 2017, our income tax expense was partly offset by abenefits of $1.8 million and $3.7 million, benefitrespectively, associated with the reversal of a reservereserves previously established for an uncertain tax position. positions.

For the nine months ended June 30, 2016, we recorded2018, our income tax expense included a benefitpreliminary charge of $5.0$31.5 million related to the release of a valuation allowance in connection with the acquisition ofre-measure our deferred tax assets and liabilities of Technibus, Shanahan, and Calumet.

Excludingto reflect the estimated impact of the benefits described above,new statutory tax expense for both the three and nine months ended June 30, 2017, as compared to the three and nine months ended June 30, 2016, is higher due to the release of a valuation allowancerate enacted during the quarter ended September 30, 2016. As a result of the valuation allowance release during the quarter ended September 30, 2016, tax expense is no longer reduced by a corresponding valuation allowance release. See Note 9 – Income Taxes in the Notes to our Condensed Consolidated Financial Statements set forth in Part II, Item 8 of our Annual Report on Form10-K for the year ended September 30, 2016, for further discussion of the release of this valuation allowance.quarter.

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 Form10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statementsour Condensed Consolidated Financial Statements requires us to make estimates and judgmentsassumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosuredisclosures of contingent assets and liabilities. On an ongoingliabilities 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 we evaluateand 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 judgments, includingassumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those related to revenue recognition, allowance for doubtful accounts, write-downs for obsolete inventory, income taxes, impairments of long-lived assets, and contingencies and litigation.estimates.

BACKLOG

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 authorizing the performance of future work, 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 anas-needed basis. Our backlog has decreasedincreased from $341$331 million at September 30, 2016,2017, to $314$392 million at June 30, 2017. The decrease relates to an increase in work performed on certain Residential multi-family projects which were delayed at September 30, 2016, and the completion of certain large projects at our Communications segment, partly offset by the addition of backlog from our Freeman acquisition.2018.

WORKING CAPITAL

During the nine months ended June 30, 2017,2018, working capital exclusive of cash increased by $9.2$16.3 million from September 30, 2016,2017, reflecting a $23.1$8.9 million increase in current assets excluding cash and a $13.9$7.4 million increasedecrease in current liabilities during the period.

During the nine months ended June 30, 2017,2018, our current assets exclusive of cash increased to $199.9$212.3 million, as compared to $176.8$203.5 million as of September 30, 2016.2017. The increase included $6.0 million of current assets associated with the Freeman and Technical Services acquisitions in fiscal 2017. Accounts receivable and retainage, excluding acquired balances, increased by $8.9 million, primarily driven by increased activity at our Communications segment. The remaining increase was driven by a $3.2relates to an $9.1 million increase in costsCosts and estimated earnings in excess of billings, and a $3.9 million increase in inventory excluding the inventory acquired in business combinations. The increase in costs and estimated earnings in excess of billings is the result of an increase in the amount of work performed atlargely driven by our Communications segment under cost plus arrangements, as well as an increase in work with certain of our national customers. These cost plus arrangements typically take longer to bill than the fixed price arrangements that are more common for the business.Commercial & Industrial segment. Days sales outstanding increaseddecreased to 6253 at June 30, 20172018, from 6066 at September 30, 2016.2017. 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 nine months ended June 30, 2017,2018, our total current liabilities increaseddecreased by $13.9$7.4 million to $146.9$143.2 million, compared to $133.1$150.6 million as of September 30, 2016. The increase was the result of $6.1 million of2017, primarily related to a decrease in accounts payable and accrued liabilities added with the Freeman and Technical Services acquisitionsa decrease in fiscal 2017, as well as higher levelsBillings in excess of activity at our Residentialcosts and Communications segments.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 June 30, 2017,2018, the estimated cost to complete our bonded projects was approximately $44.0$61.3 million.

Effective on July 14, 2017, in connection with the acquisition of NEXT, and in order to support the outstanding surety bonds of NEXT, the Company and certain of its current and future subsidiaries and affiliates entered into a new agreement of indemnity (the “Surety Agreement”) with certain entities affiliated with Travelers Casualty and Surety Company of America (“Travelers”), governing the terms upon which Travelers has issued and may in the future issue surety bonds securing NEXT’s contractual obligations.

Pursuant to the Surety Agreement, we have agreed to assign to Travelers, as collateral to secure obligations under the Surety Agreement, among other things, our rights, title and interest in, and all accounts receivable and related proceeds arising pursuant to, any contract bonded by Travelers on NEXT’s behalf. Further, under the Surety Agreement, we have agreed that, upon written demand, we will deposit with Travelers, as additional collateral, an amount determined by Travelers to be sufficient to discharge any claim made against Travelers on a bond issued on NEXT’s behalf. The foregoing description of the Surety Agreement does not purport to be complete and is qualified in its entirety by reference to the Surety Agreement, which is included herewith as Exhibit 10.3 to this Quarterly Report on Form10-Q.

LIQUIDITY AND CAPITAL RESOURCES

The Revolving Credit Facility

On April 10, 2017, we entered intoWe maintain a $100 million revolving credit facility with Wells Fargo Bank, N.A. that matures in August 2021 (as amended, the “Credit Facility”), pursuant to a Second Amended and Restated Credit and Security Agreement pursuant to our revolving credit facility (the “Amended Credit Agreement”) with Wells Fargo Bank, N.A., which was further amended on July 14, 2017, August 2, 2017, and July 23, 2018 (as amended, the “Amended Credit Agreement”).

Pursuant to the AmendedJuly 23, 2018 amendment, we are required to comply with the minimum EBITDA financial covenant of the Credit Agreement in a given quarter only if our maximum revolver amount increased from $70 million to $100 million, and the maturity date of the revolving credit facility was extended from August 9, 2019 to August 9, 2021. The Amended Credit Agreement also modified our financial covenants by, among other items, implementing a new covenant that requires the Company to maintain a minimum EBITDAExcess Availability (as defined in the Amended Credit Agreement) in the immediately following quarter, as tested monthly during that quarter, falls below $30 million. If, in a subsequent quarter, Excess Availability levels return to or exceed the contractual threshold, then the Company will no longer be tested quarterly on a trailing twelve month basis; increasingrequired to comply with the minimum Liquidity (as defined inEBITDA financial covenant, so long as Excess Availability remains above the Amendedthreshold.

The Credit Agreement) requirement applicable to the Company from 12.5% to 30% of the maximum revolver amount; raising the Company’s required Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) (the “FCCR”) to 1.1:1.0 from 1.0:1.0; and requiring that the FCCR be tested quarterly regardless of the Company’s Liquidity levels.

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

As of June 30, 2017,2018, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:

 

An FCCR,

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 1.0.1.0; and

 

Minimum

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.

Minimum EBITDA, measured at the end of each quarter, of at least the required amount set forthAvailability (as defined in the following table for the applicable period set forth opposite thereto:Amended Credit Agreement).

Applicable Amount

Applicable Period

$30,000,000For each four quarter period ending June 30, 2017, September 30, 2017, and December 31, 2017.
$32,500,000For the four quarter period ending March 31, 2018
$35,000,000For each four quarter period ending June 30, 2018 and eachquarter-end thereafter

At June 30, 2017,2018, our Liquidity was $67.7$68.9 million, our Excess Availability was $43.8$47.2 million (or greater than 50% of minimum Liquidity), our FCCRFixed Charge Coverage Ratio was 14.8:1.0; and6.1:1.0. As our Excess Availability at June 30, 2018, exceeded $30 million, we were not required to meet the minimum EBITDA financial covenant of $35 million. However, our EBITDA, as defined in the Amended Credit Agreement for the four quarters ended June 30, 20172018, was $42.1$38.2 million.

Our FCCR is calculated as follows (with capitalized terms as defined in the Amended Credit Agreement): (i) our trailing twelve month EBITDA, lessnon-financed capital expenditures (other than capital expenditures financed by means of an advance under the credit facility), cash taxes and all Restricted Junior Payments consisting of certain pass-through tax liabilities, divided by (ii) the sum of our cash interest (other thaninterest paid-in-kind, amortization of financing fees, andother non-cash interest expense) and principal debt payments (other than repayment of principal on advances under the credit facility and including cash payments with respect to capital leases), any management, consulting, monitoring, and advisory fees paid to an affiliate, and all Restricted Junior Payments (other than pass-through tax liabilities) and other cash distributions; provided, that if any acquisition is consented to by lender after the date of the Amended Credit Agreement, the components of the FCCR will be calculated for such fiscal period after giving pro forma effect to the acquisition assuming that such transaction has occurred on the first day of such period (including pro forma adjustments arising out of events which are directly attributable to such acquisition, are factually supportable, and are expected to have a continuing impact, in each case to be reasonably agreed to by the lender).    

As defined in the Amended Credit Agreement, EBITDA is calculated as consolidated net income (or loss), less extraordinary gains, interest income,non-operating income and income tax benefits and decreases in any change in LIFO reserves, plus stock compensation expense,non-cash extraordinary losses (including, but not limited to,a non-cash impairment charge or write-down), interest expense, income taxes, depreciation and amortization and increases in any change in LIFO reserves, in each case, determined on a consolidated basis in accordance with GAAP; provided, that if any acquisition is consented to by lender after the date of the Amended Credit Agreement, EBITDA for such fiscal period shall be calculated after giving pro forma effect to the acquisition assuming that such transaction has occurred on the first day of such period (including pro forma adjustments arising out of events which are directly attributable to such acquisition, are factually supportable, and are expected to have a continuing impact, in each case to be reasonably agreed to by Lender).

On July 14, 2017, we entered into a Joinder, Limited Consent, and First Amendment to the Amended Credit Agreement permitting certain transactions related to our acquisition of NEXT, including the Surety Agreement. On August 2, 2017, we entered into a Second Amendment to the Amended Credit Agreement, which modified the definition of EBITDA used in calculating our financial covenants to exclude the results from the wind-down Denver and Roanoke branches, up to a maximum exclusion of $5 million for a given measurement period. The amendment also reduces the minimum EBITDA requirement for the quarters ended December 31, 2017 and March 31, 2018 from $32,500,000 to $30,000,000 and $35,000,000 to $32,500,000, respectively. Minimum EBITDA requirements for all other quarters are unchanged. The amendments are included as Exhibits 10.2 and 10.4 to this Quarterly Report on Form10-Q, and any description of the amendments herein is qualified in its entirety by reference to Exhibits 10.2 and 10.4 hereto.

If in the future our Liquidity falls below $30 million (or Excess Availability falls below 50% ofor our minimum Liquidity), our FCCRFixed Charge Coverage Ratio is less than 1.1:1.0, we fail to meet our minimum EBITDA requirement, 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 June 30, 2017,2018, we had $6.5$6.9 million in outstanding letters of credit with Wells Fargo Bank, N.A and outstanding borrowings of $30.2 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.

Operating activities provided net cash of $10.2$5.0 million during the nine months ended June 30, 2017,2018, as compared to $13.9$10.2 million of net cash provided in the nine months ended June 30, 2016.2017. The decrease in operating cash flow wasresulted primarily the resultfrom an increase in working capital at our Commercial & Industrial and Infrastructure Solutions segments, in support of decreased earnings.growth in these businesses.

Investing Activities

Net cash used in investing activities was $9.3 million for the nine months ended June 30, 2018, compared with $18.2 million for the nine months ended June 30, 2017, compared with $59.7 million for the nine months ended June 30, 2016.2017. We used cash of $14.7 million related to the acquisition of Freeman and Technical Services, and $3.8$3.4 million for purchases of fixed assets and $6.0 million in connection with business combinations in the nine months ended June 30, 2017.2018. For the nine months ended June 30, 2016,2017, we used $59.7$3.8 million related to our fiscal 2016 acquisitions, and $2.2 millionof cash for the purchase of fixed assets offset by $2.2and $14.7 million received for the sale of our engine componentsin conjunction with business in our Infrastructure Solutions segment.combinations.

Financing Activities

Net cash used in financing activities for the nine months ended June 30, 2017 included $0.92018 was $2.3 million, for the repurchase of our common stock, $0.4 million paid pursuant to our contingent consideration agreementcompared with the former owners of Calumet, and $0.2 million distributed to ournon-controlling interest holders, offset by the return of $0.3$1.3 million in cash which had been restricted in support of letters of credit and $0.2 received from the exercise of employee stock options.nine months ended June 30, 2017. For the nine months ended June 30, 2016,2018, we borrowed $20.0used $2.1 million which wasin conjunction with our stock repurchase plan. During the nine months ended June 30, 2017, we used $0.9 million in business acquisitions, partly offset by $0.6connection with our stock repurchase plan, and $0.4 million used for the repurchase of common stock and $0.3 million used to cash collateralize certain letters of credit.make contingent consideration payments.

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 Rule10b5-1 trading plan, which allows repurchases underpre-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. PursuantWe purchased 100,627 shares pursuant to this program we repurchased 51,673 shares of our common stock during the nine months ended June 30, 2017, in open market transactions at an average price of $15.68 per share.2018.

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 Form10-K for the fiscal year ended September 30, 2016.2017.

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 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“Disclosure Regarding Forward-Looking Statements”Statements” in Part I of this Quarterly Report onForm 10-Q and our risk factors in Item 1A,1A. “Risk Factors”Factors”in our Annual Report on Form10-K for the fiscal year ended September 30, 2016.2017.

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 the credit facility as of June 30, 2017,2018, would cause a $0.3 millionpre-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 Rules13a-15 and15d-15 under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

Disclosure Controls and Procedures

In accordance withRules 13a-15 and15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our President 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 President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017,2018, 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 SEC’sSecurities 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 President 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 12, – Commitments“Commitments and Contingencies – Legal MattersMatters” in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form10-Q, which is incorporated herein by reference.

Item 1A.

Risk Factors

There have been no material changes to the risk factors disclosed under Item 1A,1A. “Risk Factors”in our Annual Report on Form10-K for the fiscal year ended September 30, 2016.2017.

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 June 30, 2017:2018:

 

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		 

April 1, 2016 – April 30, 2017

   723   $18.60    —      970,915 

May 1, 2016 – May 31, 2017

   26,580   $15.87    23,411    947,504 

June 1, 2016 – June 30, 2017

   28,262   $15.61    28,262    919,242 

Total

   55,565   $15.77    51,673    919,242 

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 June 30,
2018		 

April 1, 2018 - April 30, 2018

   49,262   $15.28    20,810    716,091 
  

 

 

   

 

 

   

 

 

   

 

 

 

May 1, 2018 – May 31, 2018

   4,380   $17.50    —      716,091 
  

 

 

   

 

 

   

 

 

   

 

 

 

June 1, 2018 – June 30, 2018

   —      —      —      716,091 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   53,642   $15.46    20,810    716,091 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The total number of shares purchased includes (i) shares purchased pursuant to the plan described in footnote (2) below, and (ii)below. During the quarter ended June 30, 2018, 32,832 shares were surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.

(2)

Our Board of Directors has 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.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

None.

Item 5.

Other Information

None.

On August 3, 2017, we entered into a Second Amendment to our Amended Credit Agreement which modified our minimum EBITDA requirement, as further described under Part I, Item 2 – Liquidity and Capital Resources – The Revolving Credit Facility of this Quarterly Report on Form10-Q, which is incorporated herein by reference. The Second Amendment is included as Exhibit 10.4 to this Quarterly Report on Form10-Q.

Item 6.

Exhibits

Item 6.Exhibits

Exhibit
No.

 

Description

     2.1 — Stock Purchase Agreement dated as of June  1, 2016, by and among IES Infrastructure Solutions, LLC, IES Holdings, Inc., Technibus, Inc. and Technibus, LLC. (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form8-K filed on June 15, 2016)
     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 Form10-Q filed on August 8, 2016)
     3.2 — Certificate of Designations of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form8-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 Form8-K filed on May 24, 2016)
     4.1 — Specimen common stock certificate. (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form10-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 Form8-K filed on November 9, 2016)

      10.1 —

 Third Amendment to Second Amended and Restated Credit and Security Agreement, dated as of April 10, 2017,July  23, 2018, 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 Form8-K filed on April 10, 2017)July 23, 2018)

  (1)10.231.1 —

 Joinder, Limited Consent, and First Amendment, dated as of July 14, 2017, 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.
      10.3 —General Agreement of Indemnity, July 14, 2017, by IES Holdings, Inc. and certain of its present and future subsidiaries and affiliates and Travelers Casualty and Surety Company of America, St. Paul Fire and Marine Insurance Company, and their affiliated, associated and subsidiary companies, successors and assigns. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K filed on July 14, 2017)
  (1)10.4 —Second Amendment to the Amended Credit Agreement, dated as of August 2, 2017, 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.
  (1)31.1 —Rule13a-14(a)/15d-14(a) Certification of Robert W. Lewey, President,

  (1)31.2 —

 Rule13a-14(a)/15d-14(a) Certification of Tracy A. McLauchlin, Senior Vice President, Chief Financial Officer and Treasurer

  (1)32.1 —

 Section 1350 Certification of Robert W. Lewey, President

Exhibit
No.

Description

  (1)32.2 —

 Section 1350 Certification of Tracy A. McLauchlin, Senior Vice President, Chief Financial Officer and Treasurer

(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.

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 August 4, 2017.3, 2018.

IES HOLDINGS, INC.

 

By: 

/s/ TRACY A. MCLAUCHLIN

 Tracy A. McLauchlin

Senior Vice President, Chief Financial Officer and Treasurer

  (Principal

(Principal Financial Officer and Authorized Signatory)

 

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