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 ~~March 31,~~June 30, 2018

☐	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

LOGO

IES Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		76-0542208
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5433 Westheimer Road, Suite 500, Houston, Texas 77056

(Address of principal executive offices and ZIP code)

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

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.

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 ~~May 2,~~August 1, 2018, there were ~~21,209,916~~21,205,536 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 ~~March 31,~~June 30, 2018 and September 30, 2017		6

Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2018 and 2017		7

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2018 and 2017		9

Notes to Condensed Consolidated Financial Statements		10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2324

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3435

Item 4. Controls and Procedures		3435

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		3435

Item 1A. Risk Factors		3536

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3637

Item 3. Defaults Upon Senior Securities		3637

Item 4. Mine Safety Disclosures		3637

Item 5. Other Information		3637

Item 6. Exhibits		3637

Signatures		3839

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

the potential recognition of valuation allowances or 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 result in a default and acceleration of our indebtedness under our revolving credit facility;

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

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

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

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

a general reduction in the demand for our services;

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

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

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

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

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

the possibility 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 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;

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

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

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

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

the recognition of tax benefits related to uncertain tax positions;

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

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

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

liabilities under laws and regulations protecting the environment; and

loss of key personnel and effective transition of new management.

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, 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.

~~Item 1.~~Financial Statements

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Information)


	June 30,			September 30,
	2018			2017
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	21,692		$	28,290
Accounts receivable:
Trade, net of allowance of $738 and $650, respectively		139,182			142,946
Retainage		23,019			21,360
Inventories		18,717			16,923
Costs and estimated earnings in excess of billings		22,595			13,438
Prepaid expenses and other current assets		8,824			8,795

Total current assets		234,029			231,752

Property and equipment, net		25,217			24,643
Goodwill		49,299			46,693
Intangible assets, net		31,736			31,413
Deferred tax assets		49,597			86,211
Othernon-current assets		6,085			3,782

Total assets	$	395,963		$	424,494

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		117,385			120,710
Billings in excess of costs and estimated earnings		25,812			29,918

Total current liabilities		143,197			150,628

Long-term debt		29,634			29,434
Othernon-current liabilities		4,412			4,457

Total liabilities		177,243			184,519

Noncontrolling interest		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 21,205,536 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		196,551			196,955
Retained earnings		27,639			46,427

Total stockholders’ equity		215,473			236,704

Total liabilities and stockholders’ equity	$	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,
	2018			2017
Revenues	$	232,576		$	208,323
Cost of services		190,039			172,925

Gross profit		42,537			35,398
Selling, general and administrative expenses		32,372			30,771
Contingent consideration		81			(33	)
Gain on sale of assets		(5	)		(55	)

Operating income		10,089			4,715

Interest and other (income) expense:
Interest expense		513			407
Other income, net		(111	)		(46	)

Income from operations before income taxes		9,687			4,354
Provision (Benefit) for income taxes		1,038			(1,519	)

Net income		8,649			5,873

Net income attributable to noncontrolling interest		(133	)		(5	)

Comprehensive income attributable to IES Holdings, Inc.	$	8,516		$	5,868

Earnings per share attributable to IES Holdings, Inc.:
Basic	$	0.40		$	0.27
Diluted	$	0.40		$	0.27

Shares used in the computation of earnings per share:
Basic		21,200,635			21,300,716
Diluted		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,
	2018			2017
Revenues	$	636,553		$	604,163
Cost of services		527,112			501,769

Gross profit		109,441			102,394
Selling, general and administrative expenses		92,108			89,085
Contingent consideration		152			50
Gain on sale of assets		(39	)		(68	)

Operating income		17,220			13,327

Interest and other (income) expense:
Interest expense		1,427			1,281
Other income, net		(252	)		(94	)

Income from operations before income taxes		16,045			12,140
Provision for income taxes		34,622			1,792

Net income (loss)		(18,577	)		10,348

Net income attributable to noncontrolling interest		(255	)		(72	)

Comprehensive income (loss) attributable to IES Holdings, Inc.	$	(18,832	)	$	10,276

Earnings (loss) per share attributable to IES Holdings, Inc.:
Basic	$	(0.89	)	$	0.48
Diluted	$	(0.89	)	$	0.48

Shares used in the computation of earnings per share:
Basic		21,193,306			21,295,254
Diluted		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,
	2018			2017
CASH FLOWS FROM 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		250			31
Deferred financing cost amortization		214			229
Depreciation and amortization		6,706			6,884
Gain on sale of assets		(39	)		(68	)
Deferred income taxes		34,622			494
Non-cash compensation		(395	)		1,329
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		4,992			(1,593	)
Inventories		(1,721	)		(3,919	)
Costs and estimated earnings in excess of billings		(8,990	)		(3,151	)
Prepaid expenses and other current assets		(1,645	)		(9,082	)
Othernon-current assets		270			350
Accounts payable and accrued expenses		(6,862	)		600
Billings in excess of costs and estimated earnings		(4,019	)		6,438
Othernon-current liabilities		172			1,312

Net cash provided by operating activities		4,978			10,202

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(3,383	)		(3,796	)
Proceeds from sale of property and equipment		107			237
Cash paid for acquisitions		(5,981	)		(14,659	)

Net cash used in investing activities		(9,257	)		(18,218	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt		99			5,313
Repayments of debt		(136	)		(5,328	)
Contingent consideration payment		—			(448	)
Distribution to noncontrolling interest		(235	)		(153	)
Options exercised		11			207
Purchase of treasury stock		(2,058	)		(891	)

Net cash used in financing activities		(2,319	)		(1,300	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(6,598	)		(9,316	)
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of period		28,290			33,221

CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period	$	21,692		$	23,905

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	1,227		$	1,108
Cash paid for income taxes	$	2,313		$	2,285

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

IES HOLDINGS, INC.

~~IES HOLDINGS, INC. AND SUBSIDIARIES~~

~~Condensed Consolidated Balance Sheets~~

~~(In Thousands, Except Share Information)~~

   March 31,
2018 September 30,
2017

   (Unaudited)
ASSETS
CURRENT ASSETS:

Cash and cash equivalents
   $ 35,713 $ 28,290
Accounts receivable:

Trade, net of allowance of $608 and $650, respectively
   127,905 142,946
Retainage
   20,567 21,360
Inventories
   17,590 16,923
Costs and estimated earnings in excess of billings
   15,358 13,438
Prepaid expenses and other current assets
   9,492 8,795


Total current assets
   226,625 231,752


Property and equipment, net
   25,055 24,643
Goodwill
   46,738 46,693
Intangible assets, net
   29,515 31,413
Deferred tax assets
   50,948 86,211
Othernon-current assets
   6,106 3,782


Total assets
   $ 384,987 $ 424,494


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable and accrued expenses
   111,608 120,710
Billings in excess of costs and estimated earnings
   27,820 29,918


Total current liabilities
   139,428 150,628


Long-term debt
   29,570 29,434
Othernon-current liabilities
   4,639 4,457


Total liabilities
   173,637 184,519


Noncontrolling interest
   3,280 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 21,259,178 and 21,336,975 outstanding, respectively
   220 220
Treasury stock, at cost, 790,351 and 712,554 shares, respectively
   (8,108 ) (6,898 )
Additionalpaid-in capital
   196,835 196,955
Retained earnings
   19,123 46,427


Total stockholders’ equity
   208,070 236,704


Total liabilities and stockholders’ equity
   $ 384,987 $ 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 March 31,
   2018 2017
Revenues
   $ 205,677 $ 203,662
Cost of services
   171,837 171,848


Gross profit
   33,840 31,814
Selling, general and administrative expenses
   29,647 30,120
Contingent consideration
   71 83
Gain on sale of assets
   (20 ) (6 )


Operating income
   4,142 1,617


Interest and other (income) expense:

Interest expense
   473 428
Other income, net
   (43 ) (44 )


Income from operations before income taxes
   3,712 1,233
Provision for income taxes
   1,425 682


Net income
   2,287 551


Net income attributable to noncontrolling interest
   (66 ) (15 )


Comprehensive income attributable to IES Holdings, Inc.
   $ 2,221 $ 536


Earnings per share attributable to IES Holdings, Inc.:

Basic
   $ 0.11 $ 0.02
Diluted
   $ 0.11 $ 0.02
Shares used in the computation of earnings per share:

Basic
   21,182,268 21,299,098
Diluted
   21,440,570 21,574,155

~~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)~~

   Six Months Ended March 31,
   2018 2017
Revenues
   $ 403,977 $ 395,840
Cost of services
   337,073 328,844


Gross profit
   66,904 66,996
Selling, general and administrative expenses
   59,736 58,314
Contingent consideration expense
   71 83
Gain on sale of assets
   (34 ) (13 )


Operating income
   7,131 8,612


Interest and other (income) expense:

Interest expense
   914 874
Other income, net
   (141 ) (48 )


Income from continuing operations before income taxes
   6,358 7,786
Provision for income taxes
   33,584 3,311


Net income (loss)
   (27,226 ) 4,475


Net income attributable to noncontrolling interest
   (122 ) (67 )


Comprehensive income (loss) attributable to IES Holdings, Inc.
   $ (27,348 ) $ 4,408


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

Basic
   $ (1.29 ) $ 0.21
Diluted
   $ (1.29 ) $ 0.20
Shares used in the computation of earnings per share:

Basic
   21,189,641 21,292,523
Diluted
   21,189,641 21,560,678

~~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)~~

   Six Months Ended
March 31,
   2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)
   $ (27,226 ) $ 4,475
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Bad debt expense
�� 96 (15 )
Deferred financing cost amortization
   142 172
Depreciation and amortization
   4,269 4,378
Gain on sale of assets
   (34 ) (13 )
Deferred income taxes
   33,584 2,675
Non-cash compensation
   (111 ) 926
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

Accounts receivable
   14,945 (435 )
Inventories
   (665 ) (3,252 )
Costs and estimated earnings in excess of billings
   (1,921 ) (3,491 )
Prepaid expenses and other current assets
   97 (5,642 )
Othernon-current assets
   (52 ) 594
Accounts payable and accrued expenses
   (10,081 ) 213
Billings in excess of costs and estimated earnings
   (2,098 ) 1,483
Othernon-current liabilities
   214 587


Net cash provided by operating activities
   11,159 2,655


CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment
   (2,327 ) (2,891 )
Proceeds from sale of property and equipment
   94 23
Cash paid for acquisitions
   (175 ) (11,663 )


Net cash used in investing activities
   (2,408 ) (14,531 )


CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings of debt
   68 5,050
Repayments of debt
   (109 ) (5,053 )
Contingent consideration payment
   —   (448 )
Distribution to noncontrolling interest
   (69 ) (122 )
Options exercised
   11 87
Purchase of treasury stock
   (1,229 ) (14 )


Net cash used in financing activities
   (1,328 ) (500 )


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   7,423 (12,376 )
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of period
   28,290 33,221


CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period
   $ 35,713 $ 20,845


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:


Cash paid for interest
   $ 788 $ 660
Cash paid for income taxes
   $ 1,456 $ 1,685

~~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:

•

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

Basis of Financial Statement Preparation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of IES, 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, 2017. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.

Noncontrolling Interest

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

require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on

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 ~~March 31,~~June 30, 2018, the redemption amount would have been ~~$1,995.~~$2,995. See Note 13, “Business Combinations” for further discussion. For the ~~six~~nine months ended ~~March 31,~~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 ~~March 31,~~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.

Income Taxes

In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, which, among other changes, reduced the federal statutory corporate tax rate from 35% to 21%, effective January 1, 2018. As a result of this change, the Company’s statutory tax rate for fiscal 2018 will be a blended rate of 24.53% and will decrease to 21% thereafter. For the ~~six~~nine months ended ~~March 31,~~June 30, 2018, our effective tax rate differed from the statutory tax rate as a result of a preliminary charge of ~~$31,487~~$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 of $1,840 related to the reversal of an uncertain tax position. This benefit differs from the expected recognition of $3,284 as disclosed in our Form10-K for the year ended September 30, 2017 as a result of the decrease in the statutory tax rate. ~~This~~The preliminary charge tore-measure our deferred tax assets is subject to completion of our analysis of the impact of the Act, including as it relates to future deductions for executive compensation expense, as well as the effect of changes in the utilization of net deferred tax assets that reverse in fiscal 2018 as compared to subsequent years.

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 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 Condensed Consolidated Financial Statements. In particular, we ~~continue~~believe the most significant areas where we expect some impact to ~~analyze areas including~~our current accounting will be contract termination provisions, ~~customer furnished materials, accounting for change orders,~~identification of performance obligations, and accounting for commissions paid. We expect that we will continue to recognize revenues for most of our fixed-price contracts over time, as services are 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 the impact it will have on our Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASUNo. 2017-01, Business 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.

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~

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 ASU2016-01, ASU2017-01 or ASU2017-09 to have a material effect on our Condensed Consolidated Financial Statements.

In June 2018, the FASB issued ASUNo. 2018-07, Compensation—Stock Compensation, to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current US GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update is effective for annual financial reporting periods, and interim periods within those annual periods, beginning after December 15, 2018, although early adoption is permitted. We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements.

2. CONTROLLING SHAREHOLDER

At ~~March 31,~~June 30, 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 Form 4 filed with the SEC by Tontine on ~~January 4,~~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 from November 2016 to November 2017 and asnon-executive Chairman of the Board from January 2015 to November 2016. David B. Gendell was an employee of Tontine from 2004 until December 31, 2017.

The Company is party to a sublease agreement with Tontine Associates, 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 ~~March 31,~~June 30, 2018, and September 30, 2017, our long-term debt of ~~$29,570~~$29,634 and $29,434, respectively, primarily related to amounts drawn on our revolving credit facility. Our weighted-average annual interest rate on these borrowings was ~~3.53%~~3.74% at ~~March 31,~~June 30, 2018, and 3.04% at September 30, 2017. At ~~March 31,~~June 30, 2018, we also had ~~$6,408~~$6,928 in outstanding letters of credit and total availability of ~~$43,738~~$47,231 under this facility without violating our financial covenants.

On July 23, 2018, we entered into the Third Amendment (the “Amendment”) to our Second Amended and Restated Credit and Security Agreement (as amended, the “Credit Agreement”).

Pursuant to the Amendment, we will be required to comply with the minimum EBITDA financial covenant of the Credit Agreement in a given quarter only if our Excess Availability (as defined in the 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 required to comply with the minimum EBITDA financial covenant, so long as Excess Availability remains above the threshold.

There have been no other changes to the financial or other covenants disclosed in Item 7 of our Annual Report on Form10-K for the year ended September 30, 2017. The Company was in compliance with the financial covenants as of ~~March 31,~~June 30, 2018.

At ~~March 31,~~June 30, 2018, the carrying value of amounts outstanding on our revolving credit facility approximated fair value, as debt incurs interest at a variable rate. The fair value of the debt is classified as a Level 2 measurement.

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~

4. PER SHARE INFORMATION

The following tables reconcile the components of basic and diluted earnings per share for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2018, and 2017:


	Three Months Ended March 31,					Three Months Ended June 30,
	2018			2017		2018		2017
Numerator:
Net income attributable to common shareholders of IES Holdings, Inc.	$	2,250		$	532	$	8,513	$	5,824
Decrease in noncontrolling interest		(44	)		—
Net income attributable to restricted shareholders of IES Holdings, Inc.		15			4		3		44

Net income attributable to IES Holdings, Inc.	$	2,221		$	536	$	8,516	$	5,868

Denominator:
Weighted average common shares outstanding — basic		21,182,268			21,299,098		21,200,635		21,300,716
Effect of dilutive stock options andnon-vested restricted stock		258,302			275,057		131,248		255,402

Weighted average common and common equivalent shares outstanding — diluted		21,440,570			21,574,155		21,331,883		21,556,118

Earnings per share attributable to IES Holdings, Inc.:
Basic	$	0.11		$	0.02	$	0.40	$	0.27
Diluted	$	0.11		$	0.02	$	0.40	$	0.27

	Six Months Ended March 31,
	2018			2017
Numerator:
Net income (loss) attributable to common shareholders of IES Holdings, Inc.	$	(27,304	)	$	4,373
Decrease in noncontrolling interest		(44	)		—
Net income attributable to restricted shareholders of IES Holdings, Inc.		—			35

Net income (loss) attributable to IES Holdings, Inc.	$	(27,348	)	$	4,408

Denominator:
Weighted average common shares outstanding — basic		21,189,641			21,292,523
Effect of dilutive stock options andnon-vested restricted stock		—			268,155

Weighted average common and common equivalent shares outstanding — diluted		21,189,641			21,560,678

Earnings (loss) per share attributable to IES Holdings, Inc.:
Basic	$	(1.29	)	$	0.21
Diluted	$	(1.29	)	$	0.20

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)


	Nine Months Ended June 30,
	2018			2017
Numerator:
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

Net income (loss) attributable to IES Holdings, Inc.	$	(18,832	)	$	10,276

Denominator:
Weighted average common shares outstanding — basic		21,193,306			21,295,254
Effect of dilutive stock options andnon-vested restricted stock		—			255,550

Weighted average common and common equivalent shares outstanding — diluted		21,193,306			21,550,804

Earnings (loss) per share attributable to IES Holdings, Inc.:
Basic	$	(0.89	)	$	0.48
Diluted	$	(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 ~~six~~nine months ended ~~March 31,~~June 30, 2018. The number of potential anti-dilutive shares excluded from the calculation was 211,669 shares. For the three months ended ~~March 31,~~June 30, 2018, and the three and ~~six~~nine months ended ~~March 31,~~June 30, 2017, 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.

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~

5. OPERATING SEGMENTS

We manage and measure performance of our business in four distinct operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and 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 ~~six~~nine months ended ~~March 31,~~June 30, 2018, and 2017 is as follows:


																			Three Months Ended June 30, 2018
	Three Months Ended March 31, 2018																		Commercial &					Infrastructure
	Commercial & Industrial			Communications			Infrastructure Solutions			Residential			Corporate			Total			Industrial			Communications		Solutions		Residential		Corporate			Total
Revenues	$	65,589		$	50,244		$	23,866		$	65,978		$	—		$	205,677		$	78,156		$	54,368	$	24,856	$	75,196	$	—		$	232,576
Cost of services		59,068			40,892			18,842			53,035			—			171,837			67,839			43,436		18,701		60,063		—			190,039

Gross profit		6,521			9,352			5,024			12,943			—			33,840			10,317			10,932		6,155		15,133		—			42,537
Selling, general and administrative		6,849			6,201			4,637			9,688			2,272			29,647			6,980			7,193		4,568		10,941		2,690			32,372
Contingent consideration		—			—			71			—			—			71			—			—		81		—		—			81
Loss (gain) on sale of assets		(17	)		(8	)		6			(1	)		—			(20	)		(6	)		—		1		—		—			(5	)

Operating income (loss)	$	(311	)	$	3,159		$	310		$	3,256		$	(2,272	)	$	4,142		$	3,343		$	3,739	$	1,505	$	4,192	$	(2,690	)	$	10,089

Other data:
Depreciation and amortization expense	$	527		$	219		$	1,140		$	155		$	20		$	2,061		$	548		$	595	$	1,120	$	156	$	18		$	2,437
Capital expenditures	$	413		$	398		$	205		$	108		$	0		$	1,124		$	715		$	119	$	112	$	110	$	—		$	1,056
Total assets	$	72,559		$	60,102		$	100,884		$	47,695		$	103,747		$	384,987		$	86,012		$	67,270	$	102,233	$	52,500	$	87,948		$	395,963

	Three Months Ended March 31, 2017
	Commercial & Industrial			Communications			Infrastructure Solutions			Residential			Corporate			Total
Revenues	$	55,272		$	61,674		$	18,793		$	67,923		$	—		$	203,662
Cost of services		52,604			52,378			14,515			52,351			—			171,848

Gross profit		2,668			9,296			4,278			15,572			—			31,814
Selling, general and administrative		5,261			6,120			4,222			10,932			3,585			30,120
Contingent Consideration		—			—			83			—			—			83
Loss (gain) on sale of assets		(8	)		(1	)		6			(3	)		—			(6	)

Operating income (loss)	$	(2,585	)	$	3,177		$	(33	)	$	4,643		$	(3,585	)	$	1,617

Other data:
Depreciation and amortization expense	$	306		$	171		$	1,622		$	151		$	69		$	2,319
Capital expenditures	$	435		$	481		$	56		$	108		$	15		$	1,095
Total assets	$	54,485		$	68,475		$	107,535		$	50,743		$	126,736		$	407,974

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)


	Three Months Ended June 30, 2017
	Commercial &					Infrastructure
	Industrial			Communications		Solutions			Residential		Corporate			Total
Revenues	$	58,778		$	57,081	$	22,302		$	70,162	$	—		$	208,323
Cost of services		54,174			46,958		17,486			54,307		—			172,925

Gross profit		4,604			10,123		4,816			15,855		—			35,398
Selling, general and administrative		4,849			6,252		4,958			11,003		3,709			30,771
Contingent consideration		—			—		(33	)		—		—			(33	)
Loss (gain) on sale of assets		(4	)		—		(88	)		37		—			(55	)

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

Other data:
Depreciation and amortization expense	$	329		$	187	$	1,785		$	135	$	70		$	2,506
Capital expenditures	$	283		$	328	$	124		$	170	$	—		$	905
Total assets	$	66,190		$	70,427	$	103,323		$	51,995	$	125,222		$	417,157


	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)

   Six Months Ended March 31, 2018
   Commercial
&
Industrial Communications Infrastructure
Solutions Residential Corporate Total
Revenues
   $ 118,591 $ 104,703 $ 45,551 $ 135,132 $ —   $ 403,977
Cost of services
   107,227 86,231 35,842 107,773 —   337,073


Gross profit
   11,364 18,472 9,709 27,359 —   66,904
Selling, general and administrative
   12,644 12,285 9,194 20,054 5,559 59,736
Contingent consideration
   —   —   71 —   —   71
Loss (gain) on sale of assets
   (29 ) (9 ) 5 (1 ) —   (34 )


Operating income (loss)
   $ (1,251 ) $ 6,196 $ 439 $ 7,306 $ (5,559 ) $ 7,131


Other data:

Depreciation and amortization expense
   $ 1,084 $ 435 $ 2,383 $ 296 $ 71 $ 4,269
Capital expenditures
   $ 923 $ 473 $ 345 $ 586 $ —   $ 2,327
Total assets
   $ 72,559 $ 60,102 $ 100,884 $ 47,695 $ 103,747 $ 384,987
   Six Months Ended March 31, 2017
   Commercial
&
Industrial Communications Infrastructure
Solutions Residential Corporate Total
Revenues
   $ 109,228 $ 114,977 $ 37,270 $ 134,365 $ —   $ 395,840
Cost of services
   100,454 97,710 27,617 103,063 —   328,844


Gross profit
   8,774 17,267 9,653 31,302 —   66,996
Selling, general and administrative
   9,585 11,834 8,322 21,485 7,088 58,314
Contingent Consideration
   —   —   83 —   —   83
Gain on sale of assets
   (7 ) (1 ) (2 ) (3 ) —   (13 )


Operating income (loss)
   $ (804 ) $ 5,434 $ 1,250 $ 9,820 $ (7,088 ) $ 8,612


Other data:

Depreciation and amortization expense
   $ 654 $ 345 $ 2,945 $ 301 $ 133 $ 4,378
Capital expenditures
   $ 644 $ 1,560 $ 137 $ 347 $ 203 $ 2,891
Total assets
   $ 54,485 $ 68,475 $ 107,535 $ 50,743 $ 126,736 $ 407,974

6. STOCKHOLDERS’ EQUITY

Equity Incentive Plan

The Company’s 2006 Equity Incentive Plan, as amended and restated (the “Equity Incentive Plan”), provides for grants of stock options as well as grants of stock, including restricted stock. Approximately 3.0 million shares of common stock are authorized for issuance under the Equity Incentive Plan, of which approximately ~~1,059,671~~1,092,503 shares were available for issuance at ~~March 31,~~June 30, 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 ~~79,817~~20,810 and 100,627 shares, respectively, of our common stock during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2018, in open market transactions at an average price of ~~$ 15.40~~$15.45 and $15.41, respectively, per share. We ~~made no purchases~~repurchased 51,673 shares of our common stock ~~pursuant to this plan~~ during the three and ~~six~~nine months ended ~~March 31, 2017.~~June 30, 2017, in open market transactions at an average price of $15.68 per share.

Treasury Stock

During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, we repurchased ~~79,817~~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 ~~the~~our stock repurchase program. During the ~~six~~nine months ended ~~March 31,~~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 ~~of common stock~~ to satisfy the exercise of outstanding ~~options for employees.~~

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~

options.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2017, we repurchased ~~683~~4,575 shares of common stock from our employees to satisfy minimum tax withholding requirements upon the vesting of restricted stock issued under the Equity Incentive ~~Plan.~~Plan and repurchased 51,673 shares of common stock on the open market pursuant to our stock repurchase program. During the ~~six~~nine months ended ~~March 31,~~June 30, 2017, we issued ~~1,287~~1,545 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation and ~~14,750~~32,250 unrestricted shares to satisfy the exercise of outstanding options.

Restricted Stock

During the three months ended ~~March 31,~~June 30, 2018, and 2017, we recognized ~~$131~~$11 and ~~$136,~~$133, respectively, in compensation expense related to our restricted stock awards. During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, and 2017, we recognized ~~$245~~$256 and ~~$273,~~$406, respectively, in compensation expense related to our restricted stock awards. At ~~March 31,~~June 30, 2018, the unamortized compensation cost related to outstanding unvested restricted stock was ~~$11.~~zero.

Performance Based Phantom Cash Units

Performance based phantom cash units (“PPCUs”) are a contractual right to a cash payment of $20 per PPCU. The PPCUs will generally become vested, if at all, upon achievement of certain specified performance objectives. During the three months ended ~~March 31,~~June 30, 2018, and 2017, we recognized compensation expense of zero and ~~$58,~~$59, respectively, related to these units. During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, and 2017, we recognized compensation expense of zero and ~~$193,~~$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. During the three months ended ~~March 31,~~June 30, 2018, and 2017, we recognized $49 and ~~$40,~~$41, respectively, in compensation expense related to these grants. During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, and 2017, we recognized ~~$91~~$140 and ~~$84,~~$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 upon the achievement of certain specified performance objectives and continued performance of services. At ~~March 31,~~June 30, 2018, the Company had outstanding an aggregate of 399,027 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 and continued performance of services throughmid-December 2018. At ~~March 31,~~June 30, 2018, redemption of a portion of the awards is deemed probable. During the three and ~~six~~nine months ended ~~March 31,~~June 30, 2018, we recognized a benefit to compensation expense of ~~$652~~$343 and ~~$449,~~$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 ~~six~~nine months ended ~~March 31,~~June 30, 2017, we recognized compensation expense of $225 and ~~$528,~~$753, respectively, related to these grants.

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 cash flow projections and market multiples of the underlyingnon-public companies.

Investment in EnerTech

The following table presents the reconciliation of the carrying value to the fair value of the investment in EnerTech as of ~~March 31,~~June 30, 2018, and September 30, 2017:

   March 31,
2018    September 30,
2017
Carrying value
   $ 558    $ 558
Unrealized gains
   170    171




Fair value
   $ 728    $ 729

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~


	June 30, 2018		September 30, 2017
Carrying value	$	558	$	558
Unrealized gains		170		171

Fair value	$	728	$	729

At each reporting date, the Company performs an evaluation of impairment for securities to determine if any unrealized losses are other-than temporary. Based on the results of this evaluation, we believe the unrealized gain at ~~March 31,~~June 30, 2018, and September 30, 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 ~~March 31,~~June 30, 2018 and 2017, we recognized ~~$485~~$466 and ~~$315,~~$312, respectively, in matching expense. During the ~~six~~nine months ended ~~March 31,~~June 30, 2018 and 2017, we recognized ~~$914~~$1,380 and ~~$459,~~$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 ~~$775~~$755 recorded as of ~~March 31,~~June 30, 2018, and $815 as of September 30, 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 ~~March 31,~~June 30, 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.

Financial assets and liabilities measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2018, and September 30, 2017, are summarized in the following tables by the type of inputs applicable to the fair value measurements:


	March 31, 2018									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	$	686		$	686		$	—		$	713		$	713		$	—
Executive savings plan liabilities		(572	)		(572	)		—			(599	)		(599	)		—
Contingent consideration		(467	)		—			(467	)		(795	)		—			(795	)

Total	$	(353	)	$	114		$	(467	)	$	(681	)	$	114		$	(795	)

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~


	September 30, 2017									September 30, 2017
	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	$	641		$	641		$	—		$	641		$	641		$	—
Executive savings plan liabilities		(529	)		(529	)		—			(529	)		(529	)		—
Contingent consideration		(786	)		—			(786	)		(786	)		—			(786	)

Total	$	(674	)	$	112		$	(786	)	$	(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 ~~March 31,~~June 30, 2018, we estimated the fair value of these contingent consideration liabilities at ~~$467.~~$795. 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, 2017
   $ 786
Settlements
   (390 )
Net Adjustments to Fair Value
   71


Fair Value at March 31, 2018
   $ 467

~~10. INVENTORY~~

~~Inventories consist of the following components:~~

   March 31,
2018    September 30,
2017
Raw materials
   $ 3,414    $ 4,104
Work in process
   4,197    3,731
Finished goods
   1,605    1,692
Parts and supplies
   8,374    7,396




Total inventories
   $ 17,590    $ 16,923

~~11. GOODWILL AND INTANGIBLE ASSETS~~

~~Goodwill~~

~~The following is a progression of goodwill by segment for the six months ended March 31, 2018:~~

   Commercial
&
Industrial    Infrastructure
Solutions    Residential    Total
Goodwill at September 30, 2017
   $ 7,176    $ 30,886    $ 8,631    $ 46,693
Adjustments
   —      45    —      45








Goodwill at March 31, 2018
   $ 7,176    $ 30,931    $ 8,631    $ 46,738

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)


	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, 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, 2018:


	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:


			March 31, 2018								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	$	4,643	$	622	$	4,021		5 - 20	$	5,044	$	723	$	4,321
Technical library		20		400		91		309		20		400		96		304
Customer relationships		6-15		31,229		6,234		24,995		6 -15		33,469		7,027		26,442
Backlog		1		2,412		2,412		—		1		3,026		2,565		461
Construction contracts		1		2,399		2,209		190		1		2,583		2,375		208

Total			$	41,083	$	11,568	$	29,515
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, 2017								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	$	4,643	$	440	$	4,203		5 - 20	$	4,643	$	440	$	4,203
Technical library		20		400		81		319		20		400		81		319
Customer relationships		6-15		31,115		4,741		26,374		6 - 15		31,115		4,741		26,374
Backlog		1		2,412		2,130		282		1		2,412		2,130		282
Construction contracts		1		2,399		2,164		235		1		2,399		2,164		235

Total			$	40,969	$	9,556	$	31,413
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 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.

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 claimed $10,406 in damages, plus attorneys’ fees and costs against Capstone, which Capstone sought to recover from the subcontractors. The claims against the Company were based on alleged defects in the mechanical design, construction and installation of the HVAC and electrical systems performed by our former subsidiaries.

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~

Following mediation in June and November 2017, the Company reached an agreement in late December 2017 to settle all claims brought against it. In the ~~six~~nine months ended ~~March 31,~~June 30, 2018, a mutual settlement and release agreement was executed by the plaintiffs and the Company resulting 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 a 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 the 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 performed, the Company ~~believes it is owed~~has sought approximately $21,000 for claims incurred as of August 31, 2017, and expects to seek 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 Condensed 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 ~~receive an amount substantially similar to the amount sought or~~ not receive a 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 ~~March 31,~~June 30, 2018, and September 30, 2017, we had ~~$6,816~~$6,856 and $6,204, respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. As of ~~March 31,~~June 30, 2018, and September 30, 2017, we had ~~$230~~$179 and $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 ~~March 31,~~June 30, 2018, and September 30, 2017, ~~$5,900~~$6,420 and $5,985, respectively, of our outstanding letters of credit was utilized to collateralize our insurance program.

Surety

As of ~~March 31,~~June 30, 2018, the estimated cost to complete our bonded projects was approximately ~~$60,114.~~$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 ~~March 31,~~June 30, 2018, and September 30, 2017, $508 of our outstanding letters of credit were to collateralize our vendors.

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~

From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of ~~March 31,~~June 30, 2018, we had no such commitments.

13. BUSINESS COMBINATIONS

2018

The Company completed one acquisition in the nine months ended June 30, 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 operates 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 purchase consideration for the Freeman, ~~and~~ Technical Services and Azimuth acquisitions included contingent consideration payments based on the acquired company’s earnings, as defined in the applicable purchase and sale agreement. The fair value of the total contingent consideration liability for all acquisitions, including Freeman and Technical Services, was estimated at ~~$467~~$795 at ~~March 31,~~June 30, 2018, and is included in other current liabilities and othernon-current liabilities on our 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 ~~of Technical Services and NEXT Electric, which are~~ derived from estimated fair value assessments and assumptions used by management are preliminary pending finalization of certain tangible and intangible asset valuations and assessment of deferred 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 and liabilities assumed as of the acquisition of Azimuth is as follows:


Current assets	$	1,765
Property and equipment		355
Intangible assets (primarily customer relationships)		3,439
Goodwill		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)

The Azimuth acquisition contributed $2,474 in additional revenue and $284 in operating loss during the three and nine months ended June 30, 2018.

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 ~~six~~nine months ended ~~March 31,~~June 30, 2018, and 2017, are as follows:


	Unaudited				Unaudited
	Three Months Ended March 31,				Three Months Ended June 30,
	2018		2017		2018		2017
Revenues	$	205,677	$	210,557	$	232,576	$	220,088
Net income attributable to IES Holdings, Inc.	$	2,221	$	499	$	8,577	$	5,252

~~IES HOLDINGS, INC.~~

~~Notes to the Condensed Consolidated Financial Statements~~

~~(All Amounts in Thousands Except Share Amounts)~~

~~(Unaudited)~~


	Unaudited					Unaudited
	Six Months Ended March 31,					Nine Months Ended June 30,
	2018			2017		2018			2017
Revenues	$	403,977		$	410,371	$	642,167		$	654,251
Net income (loss) attributable to IES Holdings, Inc.	$	(27,348	)	$	4,212	$	(19,452	)	$	8,498

14. SUBSEQUENT EVENTS

~~Acquisition of Azimuth Communications, Inc.~~On July 23, 2018, we entered into the Third Amendment to our Second Amended and Restated Credit and Security Agreement (as amended, the “Credit Agreement”). See Note 3, “Debt” for further discussion.

On April 6, 2018, the Company acquired all of the outstanding capital stock of Azimuth Communications, Inc. (“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 will operate within our Communications segment.

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.“Financial Statements and Supplementary Data” as set forth in our Annual Report on Form10-K for the year ended September 30, 2017, 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. “Business”of our Annual Report on Form10-K for the year ended September 30, 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 operating subsidiaries, comprised of providers of industrial products and infrastructure services, to a variety of end markets. Our operations are currently organized into four principal business segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential.

RESULTS OF OPERATIONS

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


	Three Months Ended March 31,												Three Months Ended June 30,
	2018						2017						2018						2017
	$			%			$			%			$			%			$			%
	(Dollars in thousands, Percentage of revenues)												(Dollars in thousands, Percentage of revenues)
Revenues	$	205,677			100.0	%	$	203,662			100.0	%	$	232,576			100.0	%	$	208,323			100.0	%
Cost of services		171,837			83.5	%		171,848			84.4	%		190,039			81.7	%		172,925			83.0	%

Gross profit		33,840			16.5	%		31,814			15.6	%		42,537			18.3	%		35,398			17.0	%
Selling, general and administrative expenses		29,647			14.4	%		30,120			14.8	%		32,372			13.9	%		30,771			14.8	%
Contingent consideration		71			0.0	%		83			0.0	%		81			0.0	%		(33	)		0.0	%
Gain on sale of assets		(20	)		0.0	%		(6	)		0.0	%		(5	)		0.0	%		(55	)		0.0	%

Operating Income		4,142			2.0	%		1,617			0.8	%
Operating income														10,089			4.3	%		4,715			2.2	%

Interest and other (income) expense, net		430			0.2	%		384			0.2	%		402			0.2	%		361			0.1	%

Income from operations before income taxes		3,712			1.8	%		1,233			0.6	%		9,687			4.2	%		4,354			2.1	%
Provision for income taxes		1,425			0.7	%		682			0.3	%		1,038			0.4	%		(1,519	)		(0.7	)%

Net income		2,287			1.1	%		551			0.3	%		8,649			3.7	%		5,873			2.8	%

Net income attributable to noncontrolling interest		(66	)		0.0	%		(15	)		0.0	%		(133	)		(0.1	)%		(5	)		0.0	%

Comprehensive income attributable to IES Holdings, Inc.	$	2,221			1.1	%	$	536			0.3	%	$	8,516			3.7	%	$	5,868			2.8	%

Consolidated revenues for the three months ended ~~March 31,~~June 30, 2018, were ~~$2.0~~$24.3 million higher than for the three months ended ~~March 31,~~June 30, 2017, an increase of ~~1.0%~~11.6%, with increases at our Commercial & Industrial, ~~and~~ Infrastructure Solutions and Residential segments. Revenues at our ~~three~~ businesses acquired in fiscal 2017 ~~increased by $15.1~~and 2018 contributed $17.3 million to the revenue increase, partly offset by a ~~$5.5~~$6.3 million decrease at two underperforming branches within our Commercial & Industrial segment, which are in the process of winding down operations.

Consolidated gross profit for the three months ended ~~March 31,~~June 30, 2018, increased ~~$2.0~~$7.1 million compared with the three months ended ~~March 31,~~June 30, 2017. Our overall gross profit percentage increased to ~~16.5%~~18.3% during the three months ended ~~March 31,~~June 30, 2018, as compared to ~~15.6%~~17.0% during the three months ended ~~March 31,~~June 30, 2017. Gross profit as a percentage of revenue increased at all of our segments, with the exception of 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, 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 ~~March 31,~~June 30, 2018, our selling, general and administrative expenses were ~~$29.6~~$32.4 million, ~~a decrease~~an increase of ~~$0.5~~$1.6 million, or ~~1.6%~~5.2%, over the three months ended ~~March 31,~~June 30, 2017. Selling, general and administrative expense as a percent of revenue decreased from 14.8% for the three months ended ~~March 31,~~June 30, 2017, to ~~14.4%~~13.9% for the three months ended ~~March 31,~~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 ~~$1.4~~$1.9 million for the three months ~~March 31,~~June 30, 2018.


	Six Months Ended March 31,									Nine Months Ended June 30,
	2018				2017					2018						2017
	$			%	$			%		$			%			$			%
	(Dollars in thousands, Percentage of revenues)									(Dollars in thousands, Percentage of revenues)
Revenues	$	403,977		100.0%	$	395,840			100.0%	$	636,553			100.0	%	$	604,163			100.0	%
Cost of services		337,073		83.4%		328,844			83.1%		527,112			82.8	%		501,769			83.1	%

Gross profit		66,904		16.6%		66,996			16.9%		109,441			17.2	%		102,394			16.9	%
Selling, general and administrative expenses		59,736		14.8%		58,314			14.7%		92,108			14.5	%		89,085			14.7	%
Contingent consideration		71		0.0%		83			0.0%		152			0.0	%		50			0.0	%
Gain on sale of assets		(34	)	0.0%		(13	)		0.0%		(39	)		0.0	%		(68	)		0.0	%

Operating income		7,131		1.8%		8,612			2.2%		17,220			2.7	%		13,327			2.2	%

Interest and other (income) expense, net		773		0.2%		826			0.2%		1,175			0.2	%		1,187			0.2	%

Income from operations before income taxes		6,358		1.6%		7,786			2.0%		16,045			2.5	%		12,140			2.0	%
Provision for income taxes⁽¹⁾		33,584		8.3%		3,311			0.8%		34,622			5.4	%		1,792			0.3	%

Net income (loss)		(27,226	)	(6.7) %		4,475			1.2%		(18,577	)		(2.9	)%		10,348			1.7	%

Net income attributable to noncontrolling interest		(122	)	0.0%		(67	)		0.0%		(255	)		0.0	%		(72	)		0.0	%

Comprehensive income (loss) attributable to IES Holdings, Inc.	$	(27,348	)	(6.8) %	$	4,408			1.2%	$	(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 ~~connecti~~connection with the Tax Cuts and Jobs Act.

Consolidated revenues for the ~~six~~nine months ended ~~March 31,~~June 30, 2018 were ~~$8.1~~$32.4 million higher than for the ~~six~~nine months ended ~~March 31,~~June 30, 2017, an increase of ~~2.1%~~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 ~~$27.3~~$44.6 million of the revenue increase for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, largely offset by a ~~$12.7~~$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 ~~decreased~~increased to ~~16.6%~~17.2% during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, as compared to 16.9% during the ~~six~~nine months ended ~~March 31,~~June 30, 2017. Businesses acquired in fiscal 2017 and 2018, contributed an additional ~~$3.4~~$5.9 million of gross profit for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, as compared with the ~~six~~nine months ended ~~March 31, 2018.~~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 ~~six~~nine months ended ~~March 31,~~June 30, 2018, our selling, general and administrative expenses were ~~$59.7~~$92.1 million, an increase of ~~$1.4~~$3.0 million, or ~~2.4%~~3.4%, over the ~~six~~nine months ended ~~March 31,~~June 30, 2017. This increase was primarily attributable to expense incurred at businesses acquired during fiscal 2017 and 2018, which contributed ~~$3.0~~$4.9 million of the increase for the ~~six~~nine months ended ~~March 31,~~June 30, 2018. This increase was partly offset by a reduction in variable compensation expense.

Commercial & Industrial


	Three Months Ended March 31,										Three Months Ended June 30,
	2018					2017					2018						2017
	$			%		$			%		$			%			$			%
	(Dollars in thousands, Percentage of revenues)										(Dollars in thousands, Percentage of revenues)
Revenue	$	65,589			100.0%	$	55,272			100.0%	$	78,156			100.0	%	$	58,778			100.0	%
Cost of services		59,068			90.1%		52,604			95.2%		67,839			86.8	%		54,174			92.2	%

Gross profit		6,521			9.9%		2,668			4.8%		10,317			13.2	%		4,604			7.8	%
Selling, general and administrative expenses		6,849			10.4%		5,261			9.5%		6,980			8.9	%		4,849			8.2	%
Gain on sale of assets		(17	)		0.0%		(8	)		0.0%		(6	)		0.0	%		(2	)		0.0	%

Operating Income		(311	)		-0.5%		(2,585)			-4.7%
Operating income												3,343			4.3	%		(243	)		-0.4	%

Revenue.Revenues in our Commercial & Industrial segment increased ~~$10.3~~$19.4 million, or ~~18.7%~~33.0%, during the three months ended ~~March 31,~~June 30, 2018, compared to the three months ended ~~March 31,~~June 30, 2017. The increase was largely driven by revenues at businesses acquired in the third and fourth quarters of fiscal 2017, which contributed an additional ~~$10.5~~$13.5 million during the three months ended ~~March 31,~~June 30, 2018, compared to the three months ended ~~March 31,~~June 30, 2017. Additionally, increased bid volume at several of our branches and improving market conditions in certain areas also contributed to the overall increase in revenues. These increases were offset by a ~~$5.5~~$6.3 million decrease relating to our Denver and Roanoke branches, which are in the process of winding down operations. The market for this segment’s services remains highly competitive.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended ~~March 31,~~June 30, 2018, increased by ~~$3.9~~$5.7 million, as compared to the three months ended ~~March 31,~~June 30, 2017. The increase is due to both the ~~$2.5~~$1.5 million reduction in losses at our Denver and Roanoke branches, which are in the process of winding down operations, and ~~$1.6~~$1.8 million of additional gross profit contributed by our fiscal 2017 acquisitions during the three months ended ~~March 31,~~June 30, 2018, compared to the three months ended ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2018, increased ~~$1.6~~$2.1 million, or ~~30.2%~~44.0%, compared to the three months ended ~~March 31,~~June 30, 2017. Selling, general and administrative expenses as a percentage of revenues increased ~~0.9%~~0.7% to ~~10.4%~~8.9% during the three months ended ~~March 31,~~June 30, 2018, compared to the three months ended ~~March 31,~~June 30, 2017. The increase relates primarily to our fiscal 2017 acquisitions, which increased expense by ~~$1.1~~$1.2 million. The remaining increase is driven by costs associated with additional management oversight, as well as higher incentive compensation cost in connection with improved 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:


	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
				Three Months Ended March 31, 2017			Three Months Ended June 30,
Denver and Roanoke branches								2018			2017
Denver and Roanoke branches	Three Months Ended March 31, 2018	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017				(In thousands)
Revenues		Three Months Ended March 31, 2018			Three Months Ended March 31, 2017			$	1,261		$	7,575
Cost of Service		3,993			11,936
Cost of services									1,792			9,548
Selling, general and administrative expenses		453			815				379			635

Loss from continuing operations	$	(497	)	$	(3,348	)
Operating loss								$	(910	)	$	(2,608	)


	Six Months Ended March 31,										Nine Months Ended June 30,
	2018					2017					2018						2017
	$			%		$			%		$			%			$			%
	(Dollars in thousands, Percentage of revenues)										(Dollars in thousands, Percentage of revenues)
Revenue	$	118,591			100.0%	$	109,228			100.0%	$	196,747			100.0	%	$	168,006			100.0	%
Cost of services		107,227			90.4%		100,454			92.0%		175,066			89.0	%		154,628			92.0	%

Gross profit		11,364			9.6%		8,774			8.0%		21,681			11.0	%		13,378			8.0	%
Selling, general and administrative expenses		12,644			10.7%		9,585			8.8%		19,624			10.0	%		14,434			8.6	%
Gain on sale of assets		(29	)		0.0%		(7	)		0.0%		(35	)		0.0	%		(11	)		0.0	%

Operating Income		(1,251	)		-1.1%		(804	)		-0.7%
Operating income												2,092			1.1	%		(1,045	)		-0.6	%

Revenue.Revenues in our Commercial & Industrial segment increased ~~$9.4~~$28.7 million during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, an increase of ~~8.6%~~17.1% compared to the ~~six~~nine months ended ~~March 31, 2018.~~June 30, 2017. The increase in revenue over this period was driven by our fiscal 2017 acquisitions, which contributed ~~$19.6~~$33.1 million of additional revenue during the ~~six~~nine months ended ~~March 31,~~June 30, 2018 compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. This increase in revenue was partly offset by a ~~$12.7~~$19.0 million decrease in revenue attributable to the winding down of operations at our Denver and Roanoke locations for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, as compared with the ~~six~~nine months ended ~~March 31,~~June 30, 2017. Additionally, increased bid volume at several of our branches and improving market conditions in certain areas also contributed to the overall increase in 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 ~~six~~nine months ended ~~March 31,~~June 30, 2018, increased by ~~$2.6~~$8.3 million, or ~~29.5%~~62.0%, as compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. As a percentage of revenue, gross profit increased from 8.0% for the ~~six~~nine months ended ~~March 31,~~June 30, 2017, to ~~9.6%~~11.0% for the ~~six~~nine months ended ~~March 31,~~June 30, 2018. The increase was driven by ~~$3.1~~$4.9 million of additional gross profit contributed by our fiscal 2017 acquisitions during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. Additionally, for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, gross margin improved by ~~$2.1~~$3.6 million compared with the ~~six~~nine months ended ~~March 31,~~June 30, 2017 at our Denver and Roanoke branches, which are in the process of winding down operations. These increases were partly offset by a benefit we received from a change order on a large project in the six months ended March 31, 2017. Additionally, results for the six months ended March 31, 2018 were affected by an increase in workers’ compensation expense in the first quarter of fiscal 2018, as a result of claims incurred related to certain incidents which occurred prior to fiscal 2018. As we are effectively self-insured with respect to workers’ compensation, we may incur costs related to a claim in a reporting period subsequent to the incident related to the claim, and expense can vary significantly from period to period, depending on the timing of claims development. See Note 12, “Commitments and Contingencies” for further discussion.

Selling, General and Administrative Expenses.Our Commercial & Industrial segment’s selling, general and administrative expenses during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, increased ~~$3.1~~$5.2 million, or ~~31.9%~~36.0%, compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017, and increased ~~1.9%~~1.4% as a percentage of revenue. The increase was driven by our fiscal 2017 acquisitions, where selling, general and administrative expense for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, increased by ~~$2.1~~$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.


	Six Months Ended March 31, 2018			Six Months Ended March 31, 2017
				Six Months Ended March 31, 2017			Nine Months Ended June 30,
Denver and Roanoke branches								2018			2017
Denver and Roanoke branches	Six Months Ended March 31, 2018	Six Months Ended March 31, 2018			Six Months Ended March 31, 2017				(In thousands)
Revenues		Six Months Ended March 31, 2018			Six Months Ended March 31, 2017			$	8,371		$	27,376
Cost of Service		7,304			22,085
Cost of services									9,096			31,633
Selling, general and administrative expenses		943			1,463				1,322			2,098

Loss from continuing operations	$	(1,137	)	$	(3,747	)
Operating loss								$	(2,047	)	$	(6,355	)

Communications

   Three Months Ended March 31,
   2018    2017
   $    %    $    %
   (Dollars in thousands, Percentage of revenues)
Revenue
   $ 50,244    100.0%    $ 61,674    100.0%
Cost of services
   40,892    81.4%    52,378    84.9%








Gross profit
   9,352    18.6%    9,296    15.1%
Selling, general and administrative expenses
   6,201    12.3%    6,120    9.9%
Gain on sale of assets
   (8 )    0.0%    (1 )    0.0%








Operating Income
   3,159    6.3%    3,177    5.2%


	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 ~~$11.4~~$2.7 million during the three months ended ~~March 31,~~June 30, 2018, primarily as a result of ~~$6.8~~the timing of capital spending by certain of our data center customers. These decreases were partly offset by $2.5 million ~~of revenue~~from Azimuth, which we ~~received~~acquired in the three months ended ~~March 31, 2017 on a large system upgrade project for a school district. This project was completed in fiscal 2017.~~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 ~~March 31,~~June 30, 2018, increased by ~~$0.1~~$0.8 million compared to the three months ended ~~March 31,~~June 30, 2017. Gross profit as a percentage of revenue increased ~~3.5%~~2.4% to ~~18.6%~~20.1% for the three months ended ~~March 31,~~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 ~~$0.1~~$0.9 million, or ~~1.3%~~15.0%, during the three months ended ~~March 31,~~June 30, 2018, compared to the three months ended ~~March 31,~~June 30, 2017. Selling, general and administrative expenses as a percentage of revenues in the Communications segment increased ~~2.4%~~2.2% to ~~12.3%~~13.2% of segment revenue during the three months ended ~~March 31,~~June 30, 2018, compared to the three months ended ~~March 31,~~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.


	Six Months Ended March 31,										Nine Months Ended June 30,
	2018					2017					2018						2017
	$			%		$			%		$			%			$			%
	(Dollars in thousands, Percentage of revenues)										(Dollars in thousands, Percentage of revenues)
Revenue	$	104,703			100.0%	$	114,977			100.0%	$	159,071			100.0	%	$	172,058			100.0	%
Cost of services		86,231			82.4%		97,710			85.0%		129,667			81.5	%		144,668			84.1	%

Gross profit		18,472			17.6%		17,267			15.0%		29,404			18.5	%		27,390			15.9	%
Selling, general and administrative expenses		12,285			11.7%		11,834			10.3%		19,478			12.2	%		18,086			10.5	%
Gain on sale of assets		(9	)		0.0%		(1	)		0.0%		(9	)		0.0	%		(1	)		0.0	%

Operating Income		6,196			5.9%		5,434			4.7%
Operating income												9,935			6.2	%		9,305			5.4	%

Revenue.Our Communications segment revenues decreased by ~~$10.3~~$13.0 million during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, primarily as a result of ~~$6.8~~$7.9 million of revenue we received in the ~~three~~nine months ended ~~March 31,~~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 ~~six~~nine months ended ~~March 31,~~June 30, 2018, increased ~~$1.2~~$2.0 million, or ~~7.0%~~7.4%, as compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. Gross profit as a percentage of revenue increased 2.6% to ~~17.6%~~18.5% for the ~~six~~nine months ended ~~March 31,~~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 ~~$0.5~~$1.4 million, or ~~3.8%~~7.7%, during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. Selling, general and administrative expenses as a percentage of revenues in the Communications segment increased by ~~1.4%~~1.7% to ~~11.7%~~12.2% of segment revenue during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, compared to the ~~six~~nine months ended ~~March 31, 2017. The increase is~~June 30, 2017, as a result of ~~higher personnel cost, including increased incentive compensation associated with higher profitability and cash flows. Additionally, we have continued to invest~~the decrease in ~~the necessary infrastructure~~revenue, as well as continuing investment to support anticipated growth.

Infrastructure Solutions

   Three Months Ended March 31,
   2018    2017
   $    %    $    %
   (Dollars in thousands, Percentage of revenues)
Revenue
   $ 23,866    100.0%    $ 18,793    100.0%
Cost of services
   18,842    78.9%    14,515    77.2%








Gross profit
   5,024    21.1%    4,278    22.8%
Selling, general and administrative expenses
   4,637    19.4%    4,222    22.5%
Contingent consideration
   71    0.3%    83    0.4%
Loss on sale of assets
   6    0.0%    6    0.0%








Operating income (loss)
   310    1.3%    (33 )    -0.2%


	Three Months Ended June 30,
	2018					2017
	$		%			$			%
	(Dollars in thousands, Percentage of revenues)
Revenue	$	24,856		100.0	%	$	22,302			100.0	%
Cost of services		18,701		75.2	%		17,486			78.4	%

Gross profit		6,155		24.8	%		4,816			21.6	%
Selling, general and administrative expenses		4,568		18.4	%		4,958			22.2	%
Contingent consideration		81		0.3	%		(33	)		-0.1	%
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 ~~$5.1~~$2.6 million during the three months ended ~~March 31,~~June 30, 2018, an increase of ~~27.0%~~11.5% compared to the three months ended ~~March 31,~~June 30, 2017. The increase in revenue was driven primarily by additional revenue of ~~$4.5~~$1.3 million contributed by the acquisition of Freeman Enclosures in the second quarter of fiscal ~~2017.~~2017, as well as a $1.0 million increase in revenue at our Technibus facility.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended ~~March 31,~~June 30, 2018, increased ~~$0.7~~$1.3 million as compared to the three months ended ~~March 31,~~June 30, 2017. Gross profit as a percentage of revenue ~~decreased 1.7%~~increased 3.2% to ~~21.1%~~24.8%. The primary driver of the improvement in margins was our bus duct facility, which was affected in the prior year by production inefficiencies and

by the impact of the amortization of contract intangibles associated with the acquisition of this business in 2016. Margins are ~~primarily~~also affected by the mix of work performed.

Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended ~~March 31,~~June 30, 2018, ~~increased~~decreased $0.4 million compared to the three months ended ~~March 31, 2017, largely as a~~June 30, 2017. This decrease was the result of ~~general~~a $0.5 million decrease in amortization expense related to intangible assets recorded in connection with the acquisitions of Freeman and ~~administrative expenses at Freeman Enclosures, which was acquired during the second quarter of fiscal 2017.~~Technibus.


	Six Months Ended March 31,											Nine Months Ended June 30,
	2018					2017						2018					2017
	$		%			$			%			$		%			$			%
	(Dollars in thousands, Percentage of revenues)											(Dollars in thousands, Percentage of revenues)
Revenue	$	45,551		100.0	%	$	37,270			100.0	%	$	70,407		100.0	%	$	59,572			100.0	%
Cost of services		35,842		78.7	%		27,617			74.1	%		54,543		77.5	%		45,103			75.7	%

Gross profit		9,709		21.3	%		9,653			25.9	%		15,864		22.5	%		14,469			24.3	%
Selling, general and administrative expenses		9,194		20.2	%		8,322			22.3	%		13,762		19.5	%		13,280			22.3	%
Contingent consideration		71		0.2	%		83			0.2	%		152		0.2	%		50			0.1	%
Loss (gain) on sale of assets		5		0.0	%		(2	)		0.0	%		6		0.0	%		(90	)		-0.2	%

Operating income		439		1.0	%		1,250			3.4	%		1,944		2.8	%		1,229			2.1	%

Revenue.Revenues in our Infrastructure Solutions segment increased ~~$8.3~~$10.8 million during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, an increase of ~~22.2%~~18.2% compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. The increase was primarily driven by ~~$10.0~~$9.0 million of additional revenue contributed by Freeman Enclosures, which we acquired during the second quarter of fiscal 2017. A $3.6 million increase in revenues from the manufacture of bus duct was offset by a decrease in revenue from our motor repair business, which remains highly dependent on the steel industry.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, increased ~~$0.1~~$1.4 million as compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. Gross profit as a percentage of revenues decreased ~~4.6%~~1.8% to ~~21.3%~~22.5% for the ~~six~~nine months ended ~~March 31,~~June 30, 2018. Margins ~~are~~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 mix of work ~~performed.~~performed, as lower margin work at Freeman represented a larger percentage of our total revenues.

Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, increased ~~$0.9~~$0.5 million compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2017. The increase was primarily the result of a $0.5 million increase in general and administrative costs incurred at Freeman Enclosures, which ~~increased $0.8~~was acquired during the second quarter of fiscal 2017, as well as $0.5 million ~~for~~in additional selling and administrative costs in support of growth of the ~~six months ended March 31, 2018.~~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 March 31,										Three Months Ended June 30,
	2018					2017					2018					2017
	$			%		$			%		$		%			$		%
	(Dollars in thousands, Percentage of revenues)										(Dollars in thousands, Percentage of revenues)
Revenue	$	65,978			100.0%	$	67,923			100.0%	$	75,196		100.0	%	$	70,162		100.0	%
Cost of services		53,035			80.4%		52,351			77.1%		60,063		79.9	%		54,307		77.4	%

Gross profit		12,943			19.6%		15,572			22.9%		15,133		20.1	%		15,855		22.6	%
Selling, general and administrative expenses		9,688			14.7%		10,932			16.1%		10,941		14.5	%		11,003		15.7	%
Gain on sale of assets		(1	)		0.0%		(3	)		0.0%		0		0.0	%		37		0.1	%

Operating income		3,256			4.9%		4,643			6.8%		4,192		5.6	%		4,815		6.9	%

Revenue.Our Residential segment’s revenues ~~decreased~~increased by ~~$1.9~~$5.0 million during the three months ended ~~March 31,~~June 30, 2018, ~~a decrease~~an increase of ~~2.9%~~7.2% as compared to the three months ended March 31, 2017. The decrease is driven by our multi-family business, where revenues decreased by $7.0 million for the three months ended March 31, 2018, compared with the three months ended March 31, 2017. The quarter ended March 31, 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. This decrease was partly offset by our single-family business, where revenues increased by $3.9 million. Service and solar revenues also increased by $1.2 million for the three months ended March 31, 2018, compared with the same period in the prior year.

~~Gross Profit.~~During the three months ended March 31, 2018, our Residential segment experienced a $2.6 million, or 16.9%, decrease in gross profit as compared to the three months ended March 31, 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 March 31, 2017, as well as an increase in labor costs, as a result of tightening labor markets. Gross margin as a percentage of revenue decreased 3.3% to 19.6% during the quarter ended March 31, 2018, as compared with the quarter ended March 31, 2017.

~~Selling, General and Administrative Expenses.~~ Our Residential segment experienced a $1.2 million, or 11.4%, decrease in selling, general and administrative expenses during the three months ended March 31, 2018, compared to the three months ended March 31, 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 14.7% of segment revenue during the three months ended March 31, 2018, compared to 16.1% in the three months ended March 31, 2017.

   Six Months Ended March 31,
   2018    2017
   $    %    $    %
   (Dollars in thousands, Percentage of revenues)
Revenue
   $ 135,132    100.0%    $ 134,365    100.0%
Cost of services
   107,773    79.8%    103,063    76.7%








Gross profit
   27,359    20.2%    31,302    23.3%
Selling, general and administrative expenses
   20,054    14.8%    21,485    16.0%
Gain on sale of assets
   (1 )    0.0%    (3 )    0.0%








Operating income
   7,306    5.4%    9,820    7.3%

~~Revenue.~~~~Our Residential segment revenues increased by $0.8 million during the six months ended March 31, 2018, an increase of 0.6% as compared to the six months ended March 31,~~June 30, 2017. The increase is driven by our single-family business, where revenues increased by ~~$9.4~~$10.0 million for the ~~six~~three months ended ~~March 31,~~June 30, 2018, compared with the ~~six~~three months ended ~~March 31,~~June 30, 2017. Service and solar revenues ~~also~~ increased by ~~$2.1~~$1.3 million for the ~~six~~three months ended ~~March 31,~~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 ~~revenues, which declined by $10.7 million.~~business. The ~~six months~~quarter ended ~~March 31,~~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 ~~six~~three months ended ~~March 31,~~June 30, 2018, our Residential segment experienced a ~~$3.9~~$0.7 million, or ~~12.6%~~4.6%, decrease in gross profit as compared to the ~~six~~three months ended ~~March 31,~~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 ~~six months~~quarter ended ~~March 31,~~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 ~~3.1%~~2.5% to ~~20.2%~~20.1% during the ~~six months~~quarter ended ~~March 31,~~June 30, 2018, as compared with the ~~six months~~quarter ended ~~March 31,~~June 30, 2017.

Selling, General and Administrative Expenses. Our Residential segment experienced a ~~$1.4~~$0.1 million, or ~~6.7%~~0.6%, decrease in selling, general and administrative expenses during the ~~six~~three months ended ~~March 31,~~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 by $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 ~~March 31,~~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, 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 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 copper 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, as 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 Administrative Expenses. Our Residential segment experienced a $1.5 million, or 4.6%, decrease in selling, general and administrative expenses during the nine months ended June 30, 2018, compared to the nine months ended June 30, 2017, driven by decreased compensation expense, primarily as a result of a decrease of ~~$0.7~~$2.9 million in variable compensation and incentive costs associated with decreased ~~profitability.~~profitability, partly offset by an increase in salary and travel costs. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased by 1.2% to ~~14.8%~~14.7% of segment revenue during the ~~six~~nine months ended ~~March 31,~~June 30, 2018.

INTEREST AND OTHER EXPENSE, NET


	Three Months Ended March 31,						Three Months Ended June 30,
	2018			2017			2018			2017
	(In thousands)						(In thousands)
Interest expense	$	402		$	341		$	441		$	351
Deferred financing charges		71			87			72			56

Total interest expense		473			428			513			407
Other (income) expense, net		(43	)		(44	)		(111	)		(46	)

Total interest and other expense, net	$	430		$	384		$	402		$	361

During the three months ended ~~March 31,~~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 ~~$6.4~~$6.8 million under our revolving credit facility and an average unused line of credit balance of ~~$28.5~~$62.9 million. This compares to interest expense of $0.4 million for the three months ended ~~March 31,~~June 30, 2017, primarily comprised of interest expense from our ~~term loan~~revolving credit facility, an average letter of credit balance of ~~$6.6~~$6.5 million under our revolving credit facility and an average unused line of credit balance of ~~$33.2~~$60.2 million.


	Six Months Ended March 31,						Nine Months Ended June 30,
	2018			2017			2018			2017
	(In thousands)						(In thousands)
Interest expense	$	772		$	702		$	1,213		$	1,052
Deferred financing charges		142			172			214			229

Total interest expense		914			874			1,427			1,281
Other (income) expense, net		(141	)		(48	)		(252	)		(94	)

Total interest and other expense, net	$	773		$	826		$	1,175		$	1,187

During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, we incurred interest expense of ~~$0.9~~$1.4 million primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of ~~$6.4~~$6.6 million and an average unused line of credit balance of ~~$24.3~~$63.2 million. This compares to interest expense of ~~$0.9~~$1.3 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2017, primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of ~~$6.7~~$6.6 million and an average unused line of credit balance of ~~$33.1~~$42.1 million.

PROVISION FOR INCOME TAXES

We recorded income tax expense of ~~$1.4~~$1.0 million for the three months ended ~~March 31,~~June 30, 2018, compared to income tax benefit of $1.5 million related to the reversal of an uncertain tax position for the three months ended June 30, 2017. For the three months ended June 30, 2018 and 2017, our income tax expense was offset by benefits of $1.8 million and $3.7 million, respectively, associated with the reversal of reserves previously established for uncertain tax positions.

We recorded income tax expense of $34.6 million for the nine months ended June 30, 2018, compared to income tax expense of ~~$0.7 million for the three months ended March 31, 2017.~~

~~We recorded income tax expense of $33.6~~$1.8 million for the six months ended ~~March 31,~~June 30, 2017. For the nine months ended June 30, 2018 ~~compared to~~and 2017, our income tax expense was offset by benefits of ~~$3.3~~$1.8 million and $3.7 million, respectively, associated with the reversal of reserves previously established for ~~the six months ended March 31, 2017.~~uncertain tax positions.

For the ~~six~~nine months ended ~~March 31,~~June 30, 2018, our income tax expense included a preliminary charge of $31.5 million tore-measure our deferred tax assets and liabilities to reflect the estimated impact of the new statutory tax rate enacted during the 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 our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Condensed Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our

beliefs and assumptions derived from information available at the same time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates.

BACKLOG

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 increased from $331 million at September 30, 2017, to ~~$343~~$392 million at ~~March 31,~~June 30, 2018.

WORKING CAPITAL

During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, working capital exclusive of cash ~~decreased~~increased by ~~$1.4~~$16.3 million from September 30, 2017, reflecting a ~~$12.6~~$8.9 million ~~decrease~~increase in current assets excluding cash and a ~~$11.2~~$7.4 million decrease in current liabilities during the period.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2018, our current assets exclusive of cash ~~decreased~~increased to ~~$190.9~~$212.3 million, as compared to $203.5 million as of September 30, 2017. The ~~decrease~~increase primarily relates to ~~a $15.7~~an $9.1 million ~~decrease~~increase in ~~accounts receivable~~Costs and ~~retainage.~~estimated earnings in excess of billings, largely driven by our Commercial & Industrial segment. Days sales outstanding decreased to 5953 at ~~March 31,~~June 30, 2018, from 66 at September 30, 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 ~~six~~nine months ended ~~March 31,~~June 30, 2018, our total current liabilities decreased by ~~$11.2~~$7.4 million to ~~$139.4~~$143.2 million, compared to $150.6 million as of September 30, 2017, primarily related to a decrease in accounts payable and accrued ~~liabilities.~~

~~The decreases~~liabilities and a decrease in ~~both accounts receivable~~Billings in excess of costs and ~~accounts payable are typical for the six months of our fiscal year, based on a slowing of activity around the end of the calendar year, combined with winter weather related project delays.~~estimated earnings.

Surety

We believe the bonding capacity presently provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. As of ~~March 31,~~June 30, 2018, the estimated cost to complete our bonded projects was approximately ~~$60.1~~$61.3 million.

LIQUIDITY AND CAPITAL RESOURCES

The Revolving Credit Facility

We 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 with Wells Fargo Bank, N.A., which was further amended on July 14, 2017, ~~and~~ August 2, 2017, and July 23, 2018 (as amended, the “Amended Credit Agreement”).

Pursuant to the July 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 Excess Availability (as defined in the 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 required to comply with the minimum EBITDA financial covenant, so long as Excess Availability remains above the threshold.

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

As of ~~March 31,~~June 30, 2018, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:

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

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

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


~~Applicable Amount~~		~~Applicable Period~~
~~$ 32.5 million~~		~~For the four quarter period ending March 31, 2018~~
~~$ 35.0 million~~		~~For each four quarter period ending~~At June 30, ~~2018 and eachquarter-end~~ ~~thereafter~~

~~At March 31,~~ 2018, our Liquidity was ~~$79.5~~$68.9 million, our Excess Availability was ~~$43.7~~$47.2 million (or greater than 50% of minimum Liquidity), our Fixed Charge Coverage Ratio was ~~5.8:1.0; and~~6.1:1.0. 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 ~~March 31,~~June 30, 2018, was ~~$36.3~~$38.2 million.

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

At ~~March 31,~~June 30, 2018, we had ~~$6.4~~$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 ~~$11.2~~$5.0 million during the ~~six~~nine months ended ~~March 31,~~June 30, 2018, as compared to ~~$2.7~~$10.2 million of net cash provided in the ~~six~~nine months ended ~~March 31,~~June 30, 2017. The ~~increase~~decrease in operating cash flow resulted primarily from ~~improved~~an increase in working capital at our ~~Communications segment, where we had a higher level~~Commercial & Industrial and Infrastructure Solutions segments, in support of ~~cost-plus arrangements~~growth in ~~the six months ended March 31, 2018 as compared with March 31, 2017, under which the timing of collections from customers is later as compared to a typical fixed-price contract.~~these businesses.

Investing Activities

Net cash used in investing activities was ~~$2.4~~$9.3 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2018, compared with ~~$14.5~~$18.2 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2017. We used cash of ~~$2.3~~$3.4 million for purchases of fixed assets and $6.0 million in connection with business combinations in the ~~six~~nine months ended ~~March 31,~~June 30, 2018. For the ~~six~~nine months ended ~~March 31,~~June 30, 2017, we used ~~$2.9~~$3.8 million of cash for the purchase of fixed ~~assets. We used $0.2~~assets and $14.7 million in conjunction with business ~~combinations in the six months ended March 31, 2018, compared to $11.7 million in the six months ended March 31, 2017.~~combinations.

Financing Activities

Net cash used in financing activities for the ~~six~~nine months ended ~~March 31,~~June 30, 2018 was ~~$1.3~~$2.3 million, compared with ~~a usage of $0.5~~$1.3 million in the ~~six~~nine months ended ~~March 31,~~June 30, 2017. WeFor the nine months ended June 30, 2018, we used ~~$1.2~~$2.1 million in conjunction with our stock repurchase ~~plan during~~plan. During the ~~six~~nine months ended ~~March 31, 2018. During the six months ended March 31,~~June 30, 2017, we used $0.9 million in connection with our stock repurchase plan, and $0.4 million to make contingent consideration payments.

Stock Repurchase Program

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 purchased ~~79,817~~100,627 shares pursuant to this program during the ~~six~~nine months ended ~~March 31,~~June 30, 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, 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 Regarding Forward-Looking Statements” in Part I of this Quarterly Report onForm 10-Q and our risk factors in Item 1A. “Risk Factors”in our Annual Report on Form10-K for the fiscal year ended September 30, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our 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 and Contingencies – Legal Matters” in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on 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. “Risk Factors”in our Annual Report on Form10-K for the fiscal year ended September 30, 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 ~~March 31,~~June 30, 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 as of March 31,
2018
January 1, 2018—January 31, 2018
   —      —      —      825,431
February 1, 2018 – February 28, 2018
   8,713    $ 15.49    8,713    816,718
March 1, 2018—March 31, 2018
   71,104    $ 15.39    71,104    736,901
Total
   79,817    $ 15.40    79,817    736,901


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 shares purchased pursuant to the plan described in footnote (2) below. NoDuring 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 during the quarter ended March 31, 2018.~~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.

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 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 July 23, 2018)

(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

(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 ~~May 4,~~August 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)

3839


	March 31, 2018			September 30, 2017
	March 31, 2018			September 30, 2017
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	35,713		$	28,290
Accounts receivable:
Trade, net of allowance of $608 and $650, respectively		127,905			142,946
Retainage		20,567			21,360
Inventories		17,590			16,923
Costs and estimated earnings in excess of billings		15,358			13,438
Prepaid expenses and other current assets		9,492			8,795

Total current assets		226,625			231,752

Property and equipment, net		25,055			24,643
Goodwill		46,738			46,693
Intangible assets, net		29,515			31,413
Deferred tax assets		50,948			86,211
Othernon-current assets		6,106			3,782

Total assets	$	384,987		$	424,494

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		111,608			120,710
Billings in excess of costs and estimated earnings		27,820			29,918

Total current liabilities		139,428			150,628

Long-term debt		29,570			29,434
Othernon-current liabilities		4,639			4,457

Total liabilities		173,637			184,519

Noncontrolling interest		3,280			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 21,259,178 and 21,336,975 outstanding, respectively		220			220
Treasury stock, at cost, 790,351 and 712,554 shares, respectively		(8,108	)		(6,898	)
Additionalpaid-in capital		196,835			196,955
Retained earnings		19,123			46,427

Total stockholders’ equity		208,070			236,704

Total liabilities and stockholders’ equity	$	384,987		$	424,494


	Six Months Ended March 31, 2018
	Commercial & Industrial			Communications			Infrastructure Solutions			Residential			Corporate			Total
Revenues	$	118,591		$	104,703		$	45,551		$	135,132		$	—		$	403,977
Cost of services		107,227			86,231			35,842			107,773			—			337,073

Gross profit		11,364			18,472			9,709			27,359			—			66,904
Selling, general and administrative		12,644			12,285			9,194			20,054			5,559			59,736
Contingent consideration		—			—			71			—			—			71
Loss (gain) on sale of assets		(29	)		(9	)		5			(1	)		—			(34	)

Operating income (loss)	$	(1,251	)	$	6,196		$	439		$	7,306		$	(5,559	)	$	7,131

Other data:
Depreciation and amortization expense	$	1,084		$	435		$	2,383		$	296		$	71		$	4,269
Capital expenditures	$	923		$	473		$	345		$	586		$	—		$	2,327
Total assets	$	72,559		$	60,102		$	100,884		$	47,695		$	103,747		$	384,987

	Six Months Ended March 31, 2017
	Commercial & Industrial			Communications			Infrastructure Solutions			Residential			Corporate			Total
Revenues	$	109,228		$	114,977		$	37,270		$	134,365		$	—		$	395,840
Cost of services		100,454			97,710			27,617			103,063			—			328,844

Gross profit		8,774			17,267			9,653			31,302			—			66,996
Selling, general and administrative		9,585			11,834			8,322			21,485			7,088			58,314
Contingent Consideration		—			—			83			—			—			83
Gain on sale of assets		(7	)		(1	)		(2	)		(3	)		—			(13	)

Operating income (loss)	$	(804	)	$	5,434		$	1,250		$	9,820		$	(7,088	)	$	8,612

Other data:
Depreciation and amortization expense	$	654		$	345		$	2,945		$	301		$	133		$	4,378
Capital expenditures	$	644		$	1,560		$	137		$	347		$	203		$	2,891
Total assets	$	54,485		$	68,475		$	107,535		$	50,743		$	126,736		$	407,974


	March 31, 2018		September 30, 2017
Carrying value	$	558	$	558
Unrealized gains		170		171

Fair value	$	728	$	729


Date	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan (2)		Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plan as of March 31, 2018
January 1, 2018—January 31, 2018		—		—		—		825,431
February 1, 2018 – February 28, 2018		8,713	$	15.49		8,713		816,718
March 1, 2018—March 31, 2018		71,104	$	15.39		71,104		736,901
Total		79,817	$	15.40		79,817		736,901

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