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 or the housing market, seasonality and differing regional economic conditions;
our ability to successfully manage projects;
inaccurate estimates used when entering into fixed-priced contracts;
the cost and availability of qualified labor and the ability to maintain positive labor relations;
our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel and certain plastics;
a change in the mix of our customers, contracts or business;
increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers;
the recognition of potential goodwill, long-lived assets and other investment impairments;
potential supply chain disruptions due to credit or liquidity problems faced by our suppliers;
accidents resulting from the physical hazards associated with our work and the potential for accidents;
the possibility that our current insurance coverage may not be adequate or that we may not be able to obtain a policypolicies at acceptable rates;
the possibility that our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur;
disagreements with taxing authorities with regard to tax positions we have adopted;
the recognition of tax benefits related to uncertain tax positions;
the effect of litigation, claims and contingencies, including warranty losses, damages or other latent defect claims in excess of our existing reserves and accruals;
growth in latent defect litigation in states where we provide residential electrical work for home builders not otherwise covered by insurance;
interruptions to our information systems and cyber security or data breaches;
liabilities under laws and regulations protecting the environment; and
loss of key personnel and effective transition of new management.
4
You should understand that the foregoing, as well as other risk factors discussed in this document and those listed in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended September 30, 2018,2019, 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 without limitation information concerning our controlling stockholder, net operating losses, borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Quarterly Report 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.5
Item 1.Financial Statements
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Information)
| | | | | | | | |
| | March 31, 2019 | | | September 30, 2018 | |
| | (Unaudited) | | | | |
ASSETS | | | | | | |
CURRENT ASSETS: | | | | | | | | |
Cash and cash equivalents | | $ | 16,158 | | | $ | 26,247 | |
Accounts receivable: | | | | | | | | |
Trade, net of allowance of $1,015 and $868, respectively | | | 160,946 | | | | 151,578 | |
Retainage | | | 22,904 | | | | 24,312 | |
Inventories | | | 23,729 | | | | 20,966 | |
Costs and estimated earnings in excess of billings | | | 28,293 | | | | 31,446 | |
Prepaid expenses and other current assets | | | 10,897 | | | | 8,144 | |
| | | | | | | | |
Total current assets | | | 262,927 | | | | 262,693 | |
| | | | | | | | |
Property and equipment, net | | | 26,520 | | | | 25,364 | |
Goodwill | | | 50,622 | | | | 50,702 | |
Intangible assets, net | | | 28,459 | | | | 30,590 | |
Deferred tax assets | | | 43,081 | | | | 46,580 | |
Othernon-current assets | | | 5,662 | | | | 6,065 | |
| | | | | | | | |
Total assets | | $ | 417,271 | | | $ | 421,994 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable and accrued expenses | | | 129,704 | | | | 130,591 | |
Billings in excess of costs and estimated earnings | | | 32,932 | | | | 33,826 | |
| | | | | | | | |
Total current liabilities | | | 162,636 | | | | 164,417 | |
| | | | | | | | |
Long-term debt | | | 19,672 | | | | 29,564 | |
Othernon-current liabilities | | | 3,655 | | | | 4,374 | |
| | | | | | | | |
Total liabilities | | | 185,963 | | | | 198,355 | |
| | | | | | | | |
Noncontrolling interest | | | 3,163 | | | | 3,232 | |
STOCKHOLDERS’ EQUITY: | | | | | | | | |
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding | | | — | | | | — | |
Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529 issued and 21,381,847 and 21,205,536 outstanding, respectively | | | 220 | | | | 220 | |
Treasury stock, at cost, 667,682 and 843,993 shares, respectively | | | (8,443 | ) | | | (8,937 | ) |
Additionalpaid-in capital | | | 191,579 | | | | 196,810 | |
Retained earnings | | | 44,789 | | | | 32,314 | |
| | | | | | | | |
Total stockholders’ equity | | | 228,145 | | | | 220,407 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 417,271 | | | $ | 421,994 | |
| | | | | | | | |
|
| | | | | | | | | | | |
| | | | | December 31, | | September 30, |
| | | | | 2019 | | 2019 |
| | | | | (Unaudited) | | |
ASSETS | | | | |
CURRENT ASSETS: | | | | |
| | Cash and cash equivalents | | $ | 27,295 |
| | $ | 18,934 |
|
| | Accounts receivable: | | | | |
| | | Trade, net of allowance of $1,009 and $1,184, respectively | | 169,559 |
| | 186,279 |
|
| | | Retainage | | 32,992 |
| | 29,214 |
|
| | Inventories | | 19,861 |
| | 21,543 |
|
| | Costs and estimated earnings in excess of billings | | 27,941 |
| | 29,860 |
|
| | Prepaid expenses and other current assets | | 12,088 |
| | 10,625 |
|
Total current assets | | 289,736 |
| | 296,455 |
|
Property and equipment, net | | 25,613 |
| | 25,746 |
|
Goodwill | | 50,622 |
| | 50,622 |
|
Intangible assets, net | | 25,740 |
| | 26,623 |
|
Deferred tax assets | | 38,064 |
| | 40,874 |
|
Operating right of use assets | | 34,940 |
| | 0 |
|
Other non-current assets | | 5,150 |
| | 4,938 |
|
Total assets | | $ | 469,865 |
| | $ | 445,258 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
CURRENT LIABILITIES: | | | | |
| | Accounts payable and accrued expenses | | 140,379 |
| | 152,909 |
|
| | Billings in excess of costs and estimated earnings | | 45,555 |
| | 40,563 |
|
Total current liabilities | | 185,934 |
| | 193,472 |
|
Long-term debt | | 319 |
| | 299 |
|
Operating long-term lease liabilities | | 23,718 |
| | 0 |
|
Other non-current liabilities | | 2,206 |
| | 1,945 |
|
Total liabilities | | 212,177 |
| | 195,716 |
|
Noncontrolling interest | | 2,910 |
| | 3,294 |
|
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 21,223,176 and 21,165,011 outstanding, respectively | | 220 |
| | 220 |
|
| | Treasury stock, at cost, 826,353 and 884,518 shares, respectively | | (11,998 | ) | | (12,483 | ) |
| | Additional paid-in capital | | 192,499 |
| | 192,911 |
|
| | Retained earnings | | 74,057 |
| | 65,600 |
|
Total stockholders’ equity | | 254,778 |
| | 246,248 |
|
Total liabilities and stockholders’ equity | | $ | 469,865 |
| | $ | 445,258 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In Thousands, Except Share Information)
(Unaudited)
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
Revenues | | $ | 256,914 | | | $ | 205,677 | |
Cost of services | | | 213,679 | | | | 171,837 | |
| | | | | | | | |
Gross profit | | | 43,235 | | | | 33,840 | |
Selling, general and administrative expenses | | | 35,070 | | | | 29,647 | |
Contingent consideration | | | (149 | ) | | | 71 | |
Loss (gain) on sale of assets | | | 98 | | | | (20 | ) |
| | | | | | | | |
Operating income | | | 8,216 | | | | 4,142 | |
| | | | | | | | |
Interest and other (income) expense: | | | | | | | | |
Interest expense | | | 535 | | | | 473 | |
Other (income) expense, net | | | (112 | ) | | | (43 | ) |
| | | | | | | | |
Income from operations before income taxes | | | 7,793 | | | | 3,712 | |
Provision for income taxes | | | 2,336 | | | | 1,425 | |
| | | | | | | | |
Net income | | | 5,457 | | | | 2,287 | |
| | | | | | | | |
Net (income) loss attributable to noncontrolling interest | | | 32 | | | | (66 | ) |
| | | | | | | | |
Comprehensive income attributable to IES Holdings, Inc. | | $ | 5,489 | | | $ | 2,221 | |
| | | | | | | | |
Earnings per share attributable to IES Holdings, Inc.: | | | | | | | | |
Basic | | $ | 0.26 | | | $ | 0.11 | |
Diluted | | $ | 0.26 | | | $ | 0.11 | |
Shares used in the computation of earnings per share: | | | | | | | | |
Basic | | | 21,139,096 | | | | 21,182,268 | |
Diluted | | | 21,379,746 | | | | 21,440,570 | |
|
| | | | | | | | | | | | |
| | | | | | Three Months Ended December 31, |
| | | | | | 2019 | | 2018 |
| | Revenues | | $ | 276,043 |
| | $ | 243,842 |
|
| | Cost of services | | | 225,828 |
| | | 202,241 |
|
| | | Gross profit | | | 50,215 |
| | | 41,601 |
|
| | Selling, general and administrative expenses | | | 37,872 |
| | | 32,086 |
|
| | Contingent consideration | | | 0 |
| | | 34 |
|
| | Gain on sale of assets | | | (36 | ) | | | (3 | ) |
| | | Operating income | | | 12,379 |
| | | 9,484 |
|
| | Interest and other (income) expense: | | | | | | |
| | Interest expense | | | 239 |
| | | 547 |
|
| | Other (income) expense, net | | | 141 |
| | | 47 |
|
| | Income from operations before income taxes | | | 11,999 |
| | | 8,890 |
|
| | Provision for income taxes | | | 3,469 |
| | | 1,907 |
|
| | Net income | | | 8,530 |
| | | 6,983 |
|
| | Net income attributable to noncontrolling interest | | | (28 | ) | | | (99 | ) |
| | Comprehensive income attributable to IES Holdings, Inc. | | $ | 8,502 |
| | $ | 6,884 |
|
| | | | | | | | |
| | Earnings per share attributable to IES Holdings, Inc.: | | | | | | |
| | | Basic | | $ | 0.40 |
| | $ | 0.32 |
|
| | | Diluted | | $ | 0.39 |
| | $ | 0.32 |
|
| | | | | | | | | | |
| | Shares used in the computation of earnings per share: | | | | | |
| | | Basic | | | 20,883,477 |
| | | 21,233,132 |
|
| | | Diluted | | | 21,148,312 |
| | | 21,261,065 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of
Comprehensive IncomeStockholders’ Equity (unaudited)
(In Thousands, Except Share Information)
(Unaudited)
| | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
Revenues | | $ | 500,756 | | | $ | 403,977 | |
Cost of services | | | 415,920 | | | | 337,073 | |
| | | | | | | | |
Gross profit | | | 84,836 | | | | 66,904 | |
Selling, general and administrative expenses | | | 67,156 | | | | 59,736 | |
Contingent consideration | | | (115 | ) | | | 71 | |
Loss (gain) on sale of assets | | | 95 | | | | (34 | ) |
| | | | | | | | |
Operating income | | | 17,700 | | | | 7,131 | |
| | | | | | | | |
Interest and other (income) expense: | | | | | | | | |
Interest expense | | | 1,082 | | | | 914 | |
Other (income) expense, net | | | (65 | ) | | | (141 | ) |
| | | | | | | | |
Income from operations before income taxes | | | 16,683 | | | | 6,358 | |
Provision for income taxes | | | 4,243 | | | | 33,584 | |
| | | | | | | | |
Net income (loss) | | | 12,440 | | | | (27,226 | ) |
| | | | | | | | |
Net income attributable to noncontrolling interest | | | (67 | ) | | | (122 | ) |
| | | | | | | | |
Comprehensive income (loss) attributable to IES Holdings, Inc. | | $ | 12,373 | | | $ | (27,348 | ) |
| | | | | | | | |
Earnings (loss) per share attributable to IES Holdings, Inc.: | | | | | | | | |
Basic | | $ | 0.58 | | | $ | (1.29 | ) |
Diluted | | $ | 0.58 | | | $ | (1.29 | ) |
Shares used in the computation of earnings (loss) per share: | | | | | | | | |
Basic | | | 21,187,834 | | | | 21,189,641 | |
Diluted | | | 21,424,522 | | | | 21,189,641 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2019 |
| | Common Stock | | Treasury Stock | | | | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | Shares | | Amount | | APIC | | |
BALANCE, September 30, 2019 | 22,049,529 |
| | $ | 220 |
| | (884,518 | ) | | $ | (12,483 | ) | | $ | 192,911 |
| | $ | 65,600 |
| | $ | 246,248 |
|
| Issuances under compensation plans | — |
| | | — |
| | 95,409 |
| | | 1,343 |
| | | (1,343 | ) | | | — |
| | | — |
|
| Acquisition of treasury stock | — |
| | | — |
| | (37,244 | ) | | | (858 | ) | | | — |
| | | — |
| | | (858 | ) |
| Non-cash compensation | — |
| | | — |
| | — |
| | | — |
| | | 931 |
| | | — |
| | | 931 |
|
| Increase in noncontrolling interest | — |
| | | — |
| | — |
| | | — |
| | | — |
| | | (45 | ) | | | (45 | ) |
| Net income attributable to IES Holdings, Inc. | — |
| | | — |
| | — |
| | | — |
| | | — |
| | | 8,502 |
| | | 8,502 |
|
BALANCE, December 31, 2019 | 22,049,529 |
| | $ | 220 |
| | (826,353 | ) | | $ | (11,998 | ) | | $ | 192,499 |
| | $ | 74,057 |
| | $ | 254,778 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2018 |
| | Common Stock | | Treasury Stock | | | | | Retained Earnings | | Total Stockholders' Equity |
| | Shares | | Amount | | Shares | | Amount | | APIC | | |
BALANCE, September 30, 2018 | 22,049,529 |
| | $ | 220 |
| | (843,993 | ) | | $ | (8,937 | ) | | $ | 196,810 |
| | $ | 32,314 |
| | $ | 220,407 |
|
| Issuances under compensation plans | — |
| | | — |
| | 212,688 |
| | | 2,252 |
| | | (2,252 | ) | | | — |
| | | — |
|
| Cumulative effect adjustment from adoption of ASU 2014-09 | — |
| | | — |
| | — |
| | | — |
| | | — |
| | | 102 |
| | | 102 |
|
| Acquisition of treasury stock | — |
| | | — |
| | (132,121 | ) | | | (2,211 | ) | | | — |
| | | — |
| | | (2,211 | ) |
| Non-cash compensation | — |
| | | — |
| | — |
| | | — |
| | | 49 |
| | | — |
| | | 49 |
|
| Net income attributable to IES Holdings, Inc. | — |
| | | — |
| | — |
| | | — |
| | | | | | 6,884 |
| | | 6,884 |
|
BALANCE, December 31, 2018 | 22,049,529 |
| | $ | 220 |
| | (763,426 | ) | | $ | (8,896 | ) | | $ | 194,607 |
| | $ | 39,300 |
| | $ | 225,231 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of
Stockholders’ Equity (unaudited)Cash Flows
(In
Thousands, Except Share Information) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2019 | |
| | Common Stock | | | Treasury Stock | | | APIC | | | Retained Earnings | | | Total Stockholders’ Equity | |
| | Shares | | | Amount | | | Shares | | | Amount | |
BALANCE, December 31, 2018 | | | 22,049,529 | | | $ | 220 | | | | (763,426 | ) | | $ | (8,896 | ) | | $ | 194,607 | | | $ | 39,300 | | | $ | 225,231 | |
Issuances under compensation plans | | | — | | | | — | | | | 3,991 | | | | 71 | | | | (71 | ) | | | — | | | | — | |
Grants under compensation plan | | | — | | | | — | | | | 283,195 | | | | 3,582 | | | | (3,582 | ) | | | — | | | | — | |
Acquisition of treasury stock | | | — | | | | — | | | | (191,442 | ) | | | (3,200 | ) | | | — | | | | — | | | | (3,200 | ) |
Non-cash compensation | | | — | | | | — | | | | — | | | | — | | | | 625 | | | | — | | | | 625 | |
Net income attributable to IES Holdings, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,489 | | | | 5,489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, March 31, 2019 | | | 22,049,529 | | | $ | 220 | | | | (667,682 | ) | | $ | (8,443 | ) | | $ | 191,579 | | | $ | 44,789 | | | $ | 228,145 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2018 | |
| | Common Stock | | | Treasury Stock | | | APIC | | | Retained Earnings | | | Total Stockholders’ Equity | |
| | Shares | | | Amount | | | Shares | | | Amount | |
BALANCE, December 31, 2017 | | | 22,049,529 | | | $ | 220 | | | | (710,784 | ) | | $ | (6,881 | ) | | $ | 197,312 | | | $ | 16,858 | | | $ | 207,509 | |
Grants under compensation plans | | | — | | | | — | | | | 250 | | | | 2 | | | | (2 | ) | | | — | | | | — | |
Acquisition of treasury stock | | | — | | | | — | | | | (79,817 | ) | | | (1,229 | ) | | | — | | | | — | | | | (1,229 | ) |
Non-cash compensation | | | — | | | | — | | | | — | | | | — | | | | (475 | ) | | | — | | | | (475 | ) |
Increase in noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | 44 | | | | 44 | |
Net income attributable to IES Holdings, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,221 | | | | 2,221 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, March 31, 2018 | | | 22,049,529 | | | $ | 220 | | | | (790,351 | ) | | $ | (8,108 | ) | | $ | 196,835 | | | $ | 19,123 | | | $ | 208,070 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, 2019 | |
| | Common Stock | | | Treasury Stock | | | APIC | | | Retained Earnings | | | Total Stockholders’ Equity | |
| | Shares | | | Amount | | | Shares | | | Amount | |
BALANCE, September 30, 2018 | | | 22,049,529 | | | $ | 220 | | | | (843,993 | ) | | $ | (8,937 | ) | | $ | 196,810 | | | $ | 32,314 | | | $ | 220,407 | |
Issuances under compensation plans | | | — | | | | — | | | | 216,679 | | | | 2,323 | | | | (2,323 | ) | | | — | | | | — | |
Grants under compensation plan | | | — | | | | — | | | | 283,195 | | | | 3,582 | | | | (3,582 | ) | | | — | | | | — | |
Cumulative effect adjustment from adoption of new accounting standard | | | — | | | | — | | | | — | | | | — | | | | — | | | | 102 | | | | 102 | |
Acquisition of treasury stock | | | — | | | | — | | | | (323,563 | ) | | | (5,411 | ) | | | — | | | | — | | | | (5,411 | ) |
Non-cash compensation | | | — | | | | — | | | | — | | | | — | | | | 674 | | | | — | | | | 674 | |
Net income attributable to IES Holdings, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12,373 | | | | 12,373 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, March 31, 2019 | | | 22,049,529 | | | $ | 220 | | | | (667,682 | ) | | $ | (8,443 | ) | | $ | 191,579 | | | $ | 44,789 | | | $ | 228,145 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, 2018 | |
| | Common Stock | | | Treasury Stock | | | APIC | | | Retained Earnings | | | Total Stockholders’ Equity | |
| | Shares | | | Amount | | | Shares | | | Amount | |
BALANCE, September 30, 2017 | | | 22,049,529 | | | $ | 220 | | | | (712,554 | ) | | $ | (6,898 | ) | | $ | 196,955 | | | $ | 46,427 | | | $ | 236,704 | |
Grants under compensation plans | | | — | | | | — | | | | 520 | | | | 5 | | | | (5 | ) | | | — | | | | — | |
Acquisition of treasury stock | | | — | | | | — | | | | (79,817 | ) | | | (1,230 | ) | | | | | | | — | | | | (1,230 | ) |
Options exercised | | | — | | | | — | | | | 1,500 | | | | 15 | | | | (4 | ) | | | — | | | | 11 | |
Non-cash compensation | | | — | | | | — | | | | — | | | | — | | | | (111 | ) | | | — | | | | (111 | ) |
Increase in noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | 44 | | | | 44 | |
Net loss attributable to IES Holdings, Inc. | | | — | | | | — | | | | — | | | | — | | | | — | | | | (27,348 | ) | | | (27,348 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, March 31, 2018 | | | 22,049,529 | | | $ | 220 | | | | (790,351 | ) | | $ | (8,108 | ) | | $ | 196,835 | | | $ | 19,123 | | | $ | 208,070 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thousands)
(Unaudited)
|
| | | | | | | | | | |
| | | | Three Months Ended December 31, |
| | | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net income | | $ | 8,530 |
| | $ | 6,983 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| | Bad debt expense | | | 21 |
| | | 38 |
|
| | Deferred financing cost amortization | | | 101 |
| | | 77 |
|
| | Depreciation and amortization | | | 2,362 |
| | | 2,372 |
|
| | Gain on sale of assets | | | (36 | ) | | | (3 | ) |
| | Non-cash compensation expense | | | 931 |
| | | 49 |
|
| | Deferred income taxes | | | 2,815 |
| | | 1,907 |
|
| Changes in operating assets and liabilities: | | | | | | |
| | Accounts receivable | | | 16,699 |
| | | (9,750 | ) |
| | Inventories | | | 1,683 |
| | | (2,915 | ) |
| | Costs and estimated earnings in excess of billings | | | 1,918 |
| | | 7,015 |
|
| | Prepaid expenses and other current assets | | | (6,291 | ) | | | (3,012 | ) |
| | Other non-current assets | | | 74 |
| | | (1,449 | ) |
| | Accounts payable and accrued expenses | | | (22,772 | ) | | | (3,552 | ) |
| | Billings in excess of costs and estimated earnings | | | 4,992 |
| | | 1,478 |
|
| | Other non-current liabilities | | | (6 | ) | | | (603 | ) |
Net cash provided by (used in) operating activities | | | 11,021 |
| | | (1,365 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Purchases of property and equipment | | | (1,391 | ) | | | (2,088 | ) |
| Proceeds from sale of assets | | | 46 |
| | | 3 |
|
Net cash used in investing activities | | | (1,345 | ) | | | (2,085 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Borrowings of debt | | | 104,189 |
| | | 93 |
|
| Repayments of debt | | | (104,189 | ) | | | (101 | ) |
| Distribution to noncontrolling interest | | | (457 | ) | | | 0 |
|
| Purchase of treasury stock | | | (858 | ) | | | (2,211 | ) |
Net cash used in financing activities | | | (1,315 | ) | | | (2,219 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 8,361 |
| | | (5,669 | ) |
CASH, CASH EQUIVALENTS, beginning of period | | | 18,934 |
| | | 26,247 |
|
CASH, CASH EQUIVALENTS, end of period | | $ | 27,295 |
| | $ | 20,578 |
|
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | |
| | Cash paid for interest | | $ | 273 |
| | $ | 524 |
|
| | Cash paid for income taxes (net) | | $ | (707 | ) | | $ | 92 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9
IES HOLDINGS, INC.
AND SUBSIDIARIESCondensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
| | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income (loss) | | $ | 12,440 | | | $ | (27,226 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | |
Bad debt expense | | | 248 | | | | 96 | |
Deferred financing cost amortization | | | 156 | | | | 142 | |
Depreciation and amortization | | | 4,846 | | | | 4,269 | |
Loss (gain) on sale of assets | | | 95 | | | | (34 | ) |
Non-cash compensation expense | | | 674 | | | | (111 | ) |
Deferred income taxes | | | 4,243 | | | | 33,584 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | (9,616 | ) | | | 14,945 | |
Inventories | | | (2,873 | ) | | | (665 | ) |
Costs and estimated earnings in excess of billings | | | 3,152 | | | | (1,921 | ) |
Prepaid expenses and other current assets | | | (764 | ) | | | 97 | |
Othernon-current assets | | | (1,370 | ) | | | (52 | ) |
Accounts payable and accrued expenses | | | (144 | ) | | | (10,081 | ) |
Billings in excess of costs and estimated earnings | | | (948 | ) | | | (2,098 | ) |
Othernon-current liabilities | | | (736 | ) | | | 214 | |
| | | | | | | | |
Net cash provided by operating activities | | | 9,403 | | | | 11,159 | |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Purchases of property and equipment | | | (3,929 | ) | | | (2,327 | ) |
Proceeds from sale of assets | | | 7 | | | | 94 | |
Cash paid in conjunction with business combinations | | | — | | | | (175 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (3,922 | ) | | | (2,408 | ) |
| | | | �� | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Borrowings of debt | | | 122 | | | | 68 | |
Repayments of debt | | | (10,144 | ) | | | (109 | ) |
Distribution to noncontrolling interest | | | (137 | ) | | | (69 | ) |
Purchase of treasury stock | | | (5,411 | ) | | | (1,229 | ) |
Issuance of shares | | | — | | | | 11 | |
| | | | | | | | |
Net cash used in financing activities | | | (15,570 | ) | | | (1,328 | ) |
| | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (10,089 | ) | | | 7,423 | |
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of period | | | 26,247 | | | | 28,290 | |
| | | | | | | | |
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period | | $ | 16,158 | | | $ | 35,713 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid for interest | | $ | 1,008 | | | $ | 788 | |
Cash paid for income taxes (net) | | $ | 523 | | | $ | 1,456 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
10
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
1. BUSINESS AND ACCOUNTING POLICIES
Description of the Business
IES Holdings, Inc.Inc. is a holding company that owns and manages operating subsidiaries in business activities across a variety of end markets.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 productsservices, including the design, build, and services tomaintenance of the communications infrastructure within data centers for co-location and managed hosting customers for both large corporations and independent businesses. |
| |
• | |
Infrastructure Solutions– Provider of electro-mechanical solutions for industrial operations, including apparatus repair and custom-engineered products.products such as generator enclosures to be used in data centers and other industrial applications. |
| |
• | |
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
consolidated subsidiaries.
Seasonality and Quarterly Fluctuations
Results of operations from our Residential construction segment
arecan be 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.winter. The Commercial & Industrial, Communications and Infrastructure Solutions segments of our business are less subject to seasonal trends, as work in these segments generally is performed inside structures protected from the weather, although weather can still impact these businesses, especially in the early stages of projects. Our service and maintenance business is generally not affected by seasonality. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Results for our Infrastructure Solutions segment may be affected by the timing of outages at our customers’ facilities. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.
Basis of Financial Statement Preparation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of IES, our wholly-owned subsidiaries, and entities that we control due to ownership of a majority of voting interest and have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”), and should be read in conjunction with the consolidated financial statements and notes thereto filed with the SEC in our Annual Report on Form
10-K for the fiscal year ended September 30,
2018.2019. 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.
In connection with our acquisitions of STR Mechanical, LLC
(“STR Mechanical”) in fiscal 2016 and NEXT Electric, LLC (“NEXT Electric”) in fiscal 2017, we acquired an 80 percent interest in each of the entities, with the remaining 20 percent interest in each such entity being retained by the respective third party seller. The interests retained by those third party sellers are identified on our Condensed Consolidated Balance Sheets as noncontrolling interest, classified outside of permanent equity. Under the terms of each entity’s operating agreement, after five years from the date of the acquisition, we may elect to purchase, or the third party seller may
11
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on a multiple of earnings as defined in the operating agreements. Therefore, this noncontrolling interest is carried at the greater of the balance determined under Accounting Standards Codification (“ASC”) 810 and the redemption amounts assuming the noncontrolling interests were redeemable at the balance sheet date. If all of these interests had been redeemable at MarchDecember 31, 2019, the redemption amount would have been $1,428.$2,548. For the sixthree months
ended MarchDecember 31, 2018,2019 we recorded an increasea decrease to retained earnings of $44$45 to decreaseincrease the carrying amount of the noncontrolling interest in STR MechanicalNEXT Electric to the balance determined under ASC 810, as,its redemption amount, if it had been redeemable at MarchDecember 31, 2019,2019.
Leases
We enter into various contractual arrangements for the redemptionright to use facilities, vehicles and equipment. We evaluate whether each of these arrangements contains a lease and classify all identified leases as either operating or finance. If the arrangement is subsequently modified, we re-evaluate our classification. The lease term generally ranges from two to ten years for facilities and three to five years for vehicles and equipment. Our lease terms may include the exercise of renewal or termination options when it is reasonably certain these options will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Upon commencement of the lease, we recognize a lease liability and corresponding right-of use ("ROU") asset for all leases with an initial term greater than twelve months. Lease liabilities represent the present value of our future lease payments over the expected lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate as the discount rate in calculating the present value of the lease payments. The incremental borrowing rate is determined by identifying a synthetic credit rating for the consolidated company, where treasury functions are centrally managed, and adjusting the interest rates from associated indexes for differences in credit risk and interest rate risk. We have elected to combine the lease and nonlease components in the recognition of our lease liabilities across all classes of underlying assets. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount
would have been less thanequal to the
carrying amount.lease liability with adjustments for prepaid or accrued rent, lease incentives or unamortized initial direct costs. Costs associated with operating lease assets are recognized on a straight-line basis over the term of the lease. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations.
Certain lease contracts include obligations to pay for other services, such as operations and maintenance. Where the costs of these services can be identified as fixed or fixed-in-substance, the costs are included as part of the future lease payments. If the cost is not fixed at the inception of the lease, the cost is recorded as a variable cost in the period incurred.
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in accounting for business combinations and analyzing goodwill,
investments, intangible assets and long-lived asset impairments and adjustments, allowance for doubtful accounts receivable, stock-based compensation, reserves for legal matters, realizability of deferred tax assets, unrecognized tax benefits and self-insured claims liabilities and related reserves.
Income Taxes
In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, which, among other changes, reduced the federal statutory corporate tax rate from 35% to 21%, effective January 1, 2018. As a result of this change, the Company’s statutory tax rate for fiscal 2018 was a blended rate of 24.53% and decreased to 21% in 2019. For the six months ended March 31, 2018, our effective tax rate differed from the statutory tax rate as a result of a charge of $31,487 tore-measure our deferred tax assets and liabilities to reflect the impact of the new statutory tax rate. The Company completed its accounting for the income tax effects of the Act and fully recorded the impact in the year ended September 30, 2018.
Accounting Standards Not Yet Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard UpdateNo. 2016-02, Leases (“ASU2016-02”). Under ASU2016-02, lessees will need to recognize aright-of-use asset and a lease liability on our Balance Sheet for all leases, other than those that meet the definition of a short-term lease. For income statement purposes, leases must be classified as either operating or finance. Operating leases will result in straight-line expense, similar to current operating leases, while finance leases will be accounted for similar to current capital leases. 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 June 2016, the FASB issued Accounting Standard Update
No. 2016-13, Financial Instruments – Credit Losses (“ASU
2016-13”), which requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit
losses.losses, with further clarifications made in April 2019 and May 2019 with the issuances of Accounting Standard Updates No. 2019-04 and 2019-05. This update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted. We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements.
In June 2018, the FASB issued Accounting Standard UpdateNo. 2018-07, Compensation—Stock Compensation (“ASU2018-07”), We plan to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update is effective for the fiscal year ended September 30,adopt this standard on October 1, 2020.
In August 2018, the FASB issued Accounting Standard Update
No. 2018-13, Fair Value Measurement Disclosure Framework (“ASU
2018-13”), to modify certain disclosure requirements for fair value measurements. Under the new guidance, registrants will need to disclose weighted average information for significant unobservable inputs for all Level 3 fair value measurements. The guidance does not specify how entities should calculate the weighted average, but requires them to explain their calculation. The new guidance also requires disclosing the changes in unrealized gain and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted for either the entire standard or only the provisions that eliminate or modify the requirements.
12
IES HOLDINGS, INC.
Notes We plan to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Weadopt this standard on October 1, 2020, and do not expect ASU2018-07 or ASU2018-13the adoption to have a material effect on our Condensed Consolidated Financial Statements
Statements.
Accounting Standards Recently Adopted
In
May 2014,February 2016, the
FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standard Update
No. 2014-09, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes prior industry-specific guidance. The new standard requires companies2016-02, Leases (“ASU 2016-02”). Under ASU 2016-02, lessees will need to recognize
revenue when controla right-of-use asset ("ROU") and a lease liability on our Balance Sheet for all leases, other than those that meet the definition of
promised goodsa short-term lease. For income statement purposes, leases must be classified as either operating or
services is transferredfinance. Operating leases will result in straight-line expense, similar to
customers at an amount that reflects the considerationcurrent operating leases, while finance leases will be accounted for similar to
which the company expects to be entitled. The new model requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time for each obligation. The new standard also expands disclosure requirements regarding revenue and cash flows arising from contracts with customers.current capital leases. We adopted the new revenue recognition standardASU 2016-02 on October 1, 2018 (“Adoption Date”),2019 using thea modified retrospective transition approach. Using the optional transition method which provides for a cumulative effect adjustment to beginning fiscal 2019 retained earnings for uncompleted contracts impacted by the adoption. We recorded an adjustment of $102 to beginning fiscal 2019 retained earnings as a result of adoption of the new standard. The changes to the method and/or timing of our revenue recognition associated with the new standard primarily affect revenue recognition within our Infrastructure Solutions segment for which, as of October 1, 2018, certain of our contracts do not qualify for revenue recognition over time. In addition, we have now combined in process contracts that historically had been accounted for as separate contracts in cases where those contracts meet the criteria for combination of contractsallowed under the new standard, and we now capitalize certain commissions which were previously expensed when incurred. The impact on our results for the quarter and year ended March 31, 2019, of applying the new standard to our contracts was not material.
Consistent with our adoption method, the comparativeAccounting Standard Update No. 2018-11, prior period information for the threeamounts were not adjusted retrospectively and six months ended March 31, 2018, continuescontinue to be reported using the previous accounting standards in effect for the period presented. We have elected to utilize all of the modified retrospective transitionavailable practical expedients with the exception of the practical expedient that allows us to evaluatepermitting the impactuse of contract modifications ashindsight when determining the lease term and assessing impairment of ROU assets. Therefore, we did not reassess whether any of our existing or expired contracts contained leases or the Adoption Date rather than evaluatingclassification of or initial direct costs included in our existing or expired leases.
The adoption of ASU 2016-02 resulted in the
impactrecognition of
the modificationsoperating leases assets of approximately $32,434 and operating lease liabilities of approximately $32,237 on our Condensed Consolidated Balance Sheet at the
time they occurredadoption date. The difference between the operating lease assets and liabilities was primarily due to previously accrued rent expense relating to periods prior to
the Adoption Date.October 1, 2019. The adoption did not have a significant impact on our Condensed Consolidated Statements of Comprehensive Income or Cash Flows. See Note 3, “Revenue Recognition”13, “Leases” for additional discussion of our revenue recognitionlease accounting policies and expanded disclosures.
In
January 2016,June 2018, the FASB issued Accounting Standard Update
No. 2016-01, Financial Instruments. This standard is associated2018-07, Compensation—Stock Compensation (“ASU 2018-07”), to simplify the accounting for share-based payments to nonemployees by aligning it with the
recognitionaccounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and
less volatile than under current GAAP because the measurement
of financial assetsgenerally will occur earlier and
liabilities, with further clarifications made in February 2018 withwill be fixed at the
issuancegrant date. This update was adopted as of
Accounting Standard Update No.2018-03. The amended guidance requires certain equity investments that are not consolidated and not accounted for under the equity method to be measured at fair value with changes in fair value recognized in net income rather than as a component of accumulated other comprehensive income (loss). It further states that an entity may choose to measure equity investments that do not have readily determinable fair values using a quantitative approach, or measurement alternative, which is equal to its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Our adoption of this standard on October 1,
2018 had2019 with no impact
onto our
Condensed Consolidated Financial Statements.In January 2017, the FASB issued Accounting Standard UpdateNo. 2017-01, Business Combinations. This standard clarifies the definition of a business to assist entities with evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Our adoption of this standard on October 1, 2018 using the prospective transition method had no impact on our Condensed Consolidated Financial Statements.
In May 2017, the FASB issued Accounting Standard UpdateNo. 2017-09, Compensation—Stock Compensation, to reduce the diversity in practice and the cost and complexity when changing the terms or conditions of a share-based payment award. Our adoption of this standard on October 1, 2018 using the prospective transition method had no impact on our Condensed Consolidated Financial Statements.
financial statements.
2. CONTROLLING STOCKHOLDER
Tontine Associates, L.L.C.
and("Tontine Associates"), together with its affiliates (collectively, “Tontine”), is the Company’s controlling stockholder, owning approximately
57.556.9 percent of the Company’s outstanding common stock according to a
Schedule 13D/AFrom 4 filed with the SEC by Tontine on January
11, 2019.6, 2020. Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of stockholders.
13
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
While Tontine is subject to certain restrictions under federal securities laws on sales of its shares as an affiliate, the Company has filed a shelf registration statement to register all of the shares of IES common stock owned by Tontine at the time of registration. As long as the shelf registration statement remains effective and the Company remains eligible to use it, Tontine has the ability to resell any or all of its registered shares from time to time in one or more offerings, as described in the shelf registration statement and in any prospectus supplement filed in connection with an offering pursuant to the shelf registration statement.
Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership of IES could occur. A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of the Company’s net operating losses (“NOLs”) for federal and state income tax purposes. On November 8, 2016, the Company implemented a
new tax benefit protection plan (the “NOL Rights Plan”). The NOL Rights Plan was designed to deter an acquisition of the
Company’sCompany's stock in excess of a threshold amount that could trigger a change
of controlin ownership 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
ofin ownership or protecting the NOLs. Furthermore, a change
inof control would trigger the change of control provisions in a number of our material agreements, including our credit facility, bonding agreements with our sureties and our severance arrangements.
Jeffrey L. Gendell was appointed as a member of the Board of Directors and as Chairman of the Board in November 2016. He is the managing member and founder of Tontine, and the brother of David B. Gendell, who has served as a member of our Board of Directors since February 2012, and who previously served as Interim Director of Operations from November 2017 to January 2019, as Vice Chairman of the Board from November 2016 to November 2017 and as Chairman of the Board from January 2015 to November 2016. David B. Gendell was an employee of Tontine from 2004 until December 31, 2017.
The Company is party to a sublease agreement with Tontine Associates
L.L.C. for corporate office space in Greenwich, Connecticut.
On May 1, 2019,The sublease
was extended for a six month term expiring December 31, 2019,extends through February 27, 2023, with
an increasemonthly payments due in the
monthly rent to $9, reflecting the increase paid by Tontine Associates, L.L.C. to its landlord. The lease has terms at market rates, and paymentsamount of approximately $8. Payments by the Company are at a rate consistent with that paid by Tontine Associates
L.L.C. to its landlord.
On December 6, 2018, the Company entered into a Board Observer Letter Agreement with Tontine Associates L.L.C. in order to assist Tontine in managing its investment in the Company. Subject to the terms and conditions set forth in the Letter Agreement, the Company granted Tontine the right, at any time that Tontine holds at least 20% of the outstanding common stock of the Company, to appoint a representative to serve as an observer to the Board (the “Board Observer”). The Board Observer, who must be reasonably acceptable to those members
of the Board who are not affiliates of Tontine, shall have no voting rights or other decision making authority. Subject to the terms and conditions set forth in the Letter Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable
out-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.
Our revenue is derived from contracts with customers, and we determine the appropriate accounting treatment for each contract at contract inception. Our contracts primarily relate to electrical and mechanical contracting services, technology infrastructure products and services, and electro-mechanical solutions for industrial operations. Revenue is earned based upon an agreed fixed price or actual costs incurred plus an agreed upon percentage.
We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we have written authorization from the customer to proceed.
14
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
We recognize revenue over time for the majority of the services we perform as (i) control continuously transfers to the customer as work progresses at a project location controlled by the customer and (ii) we have the right to bill the customer as costs are incurred. Within our Infrastructure Solutions segment, we often perform work inside our own facilities, where control does not continuously transfer to the customer as work progresses. In such cases, we evaluate whether we have the right to bill the customer as costs are incurred. Such assessment involves an evaluation of contractual termination clauses. Where we have a contractual right to payment for work performed to date, we recognize revenue over time. If we do not have such a right, we recognize revenue upon completion of the contract, when control of the work transfers to the customer.
For fixed price arrangements, we use the percentage of completion method of accounting under which revenue recognized is measured principally by the costs incurred and accrued to date for each contract as a percentage of the estimated total cost for each contract at completion. Contract costs include all direct material, labor and indirect costs related to contract performance. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income, and the effects of these revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments.
The transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the probability weighted value we expect to receive (or the most probable amount we expect to incur in the case of liquidated damages, if any), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages, if any). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative
catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.
Costs of Obtaining a Contract
In certain of our operations, we incur commission costs related to entering into a contract that we only incurred because of that contract. When this occurs, we capitalize that cost and amortize it over the expected term of the contract. At
MarchDecember 31, 2019, we had capitalized commission costs of
$100.$64.
We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project.
On rare occasions, whenWhen significant
pre-contract pre‑contract costs are incurred, they will be capitalized and amortized on a percentage of completion basis over the life of the contract.
15
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Disaggregation of Revenue
We disaggregate our revenue from contracts with customers by activity and contract type, as these categories reflect how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Our consolidated
20192020 and
20182019 revenue was derived from the following service activities. See details in the following tables:
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | 2019 | | | 2018 | | | 2019 | | | 2018 | |
Commercial & Industrial | | $ | 79,975 | | | | 65,589 | | | | 152,558 | | | | 118,591 | |
Communications | | | 70,437 | | | | 50,244 | | | | 139,762 | | | | 104,703 | |
| | | | |
Infrastructure Solutions | | | | | | | | | | | | | | | | |
Industrial Services | | | 12,145 | | | | 10,404 | | | | 24,368 | | | | 21,457 | |
Custom Power Solutions | | | 22,305 | | | | 13,462 | | | | 39,561 | | | | 24,094 | |
| | | | | | | | | | | | | | | | |
Total | | | 34,450 | | | | 23,866 | | | | 63,929 | | | | 45,551 | |
| | | | |
Residential | | | | | | | | | | | | | | | | |
Single-family | | | 51,492 | | | | 43,594 | | | | 101,968 | | | | 88,208 | |
Multi-family and Other | | | 20,560 | | | | 22,384 | | | | 42,539 | | | | 46,924 | |
| | | | | | | | | | | | | | | | |
Total | | | 72,052 | | | | 65,978 | | | | 144,507 | | | | 135,132 | |
| | | | | | | | | | | | | | | | |
Total Revenue | | $ | 256,914 | | | $ | 205,677 | | | $ | 500,756 | | | $ | 403,977 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2019 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Total | |
Fixed-price | | $ | 76,467 | | | $ | 48,602 | | | $ | 30,130 | | | $ | 72,052 | | | $ | 227,251 | |
Time-and-material | | | 3,508 | | | | 21,835 | | | | 4,320 | | | | — | | | | 29,663 | |
| | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 79,975 | | | $ | 70,437 | | | $ | 34,450 | | | $ | 72,052 | | | $ | 256,914 | |
| | | | | | | | | | | | | | | | | | | | |
| |
| | Three Months Ended March 31, 2018 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Total | |
Fixed-price | | $ | 58,183 | | | $ | 37,344 | | | $ | 20,636 | | | $ | 65,978 | | | $ | 182,141 | |
Time-and-material | | | 7,406 | | | | 12,900 | | | | 3,230 | | | | — | | | | 23,536 | |
| | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 65,589 | | | $ | 50,244 | | | $ | 23,866 | | | $ | 65,978 | | | $ | 205,677 | |
| | | | | | | | | | | | | | | | | | | | |
| |
| | Six Months Ended March 31, 2019 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Total | |
Fixed-price | | $ | 142,297 | | | $ | 97,431 | | | $ | 57,641 | | | $ | 144,507 | | | $ | 441,876 | |
Time-and-material | | | 10,261 | | | | 42,331 | | | | 6,288 | | | | — | | | | 58,880 | |
| | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 152,558 | | | $ | 139,762 | | | $ | 63,929 | | | $ | 144,507 | | | $ | 500,756 | |
| | | | | | | | | | | | | | | | | | | | |
| |
| | Six Months Ended March 31, 2018 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Total | |
Fixed-price | | $ | 107,103 | | | $ | 81,500 | | | $ | 40,309 | | | $ | 135,132 | | | $ | 364,044 | |
Time-and-material | | | 11,488 | | | | 23,203 | | | | 5,242 | | | | — | | | | 39,933 | |
| | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 118,591 | | | $ | 104,703 | | | $ | 45,551 | | | $ | 135,132 | | | $ | 403,977 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
Commercial & Industrial | | $ | 67,743 |
| | $ | 72,583 |
|
Communications | | 84,289 |
| | 69,325 |
|
Infrastructure Solutions | | | | |
Industrial Services | | 11,111 |
| | 12,223 |
|
Custom Power Solutions | | 20,172 |
| | 17,256 |
|
Total | | 31,283 |
| | 29,479 |
|
Residential | | | | |
Single-family | | 54,874 |
| | 50,476 |
|
Multi-family and Other | | 37,854 |
| | 21,979 |
|
Total | | 92,728 |
| | 72,455 |
|
Total Revenue | | $ | 276,043 |
| | $ | 243,842 |
|
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2019 |
| | | Commercial & Industrial | | Communications | | Infrastructure Solutions | | Residential | | Total |
Fixed-price | | $ | 63,835 |
| | $ | 62,027 |
| | $ | 29,491 |
| | $ | 92,728 |
| | $ | 248,081 |
|
Time-and-material | | | 3,908 |
| | | 22,262 |
| | | 1,792 |
| | | — |
| | | 27,962 |
|
Total revenue | | $ | 67,743 |
| | $ | 84,289 |
| | $ | 31,283 |
| | $ | 92,728 |
| | $ | 276,043 |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2018 |
| | | Commercial & Industrial | | Communications | | Infrastructure Solutions | | Residential | | Total |
Fixed-price | | $ | 65,830 |
| | $ | 48,829 |
| | $ | 27,511 |
| | $ | 72,455 |
| | $ | 214,625 |
|
Time-and-material | | | 6,753 |
| | | 20,496 |
| | | 1,968 |
| | | — |
| | | 29,217 |
|
Total revenue | | $ | 72,583 |
| | $ | 69,325 |
| | $ | 29,479 |
| | $ | 72,455 |
| | $ | 243,842 |
|
Accounts receivable include amounts which we have billed or have an unconditional right to bill our customers. As of
MarchDecember 31, 2019, Accounts receivable included
$10,173$11,369 of unbilled receivables for which we have an unconditional right to bill.
16
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Contract Assets and Liabilities
Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date
exceedexceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our balance sheet under the caption “Costs and estimated earnings in excess of billings”.
To the extent amountsAmounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our balance sheet under the caption “Billings in excess of costs and estimated earnings”.
The net asset (liability) position for contracts in process consisted of the following:
| | | | | | | | |
| | March 31, 2019 | | | September 30, 2018 | |
Costs and estimated earnings on uncompleted contracts | | $ | 586,289 | | | $ | 539,226 | |
Less: Billings to date and unbilled accounts receivable | | | (590,928 | ) | | | (541,606 | ) |
| | | | | | | | |
| | $ | (4,639 | ) | | $ | (2,380 | ) |
| | | | | | | | |
|
| | | | | | | | |
| | December 31, | | September 30, |
| | 2019 | | 2019 |
Costs and estimated earnings on uncompleted contracts | | $ | 750,341 |
| | $ | 761,401 |
|
Less: Billings to date and unbilled accounts receivable | | | (767,955 | ) | | | (772,104 | ) |
| | $ | (17,614 | ) | | $ | (10,703 | ) |
The net asset (liability) position for contracts in process included in the accompanying consolidated balance sheets was as follows:
| | | | | | | | |
| | March 31, 2019 | | | September 30, 2018 | |
Costs and estimated earnings in excess of billings | | $ | 28,293 | | | $ | 31,446 | |
Billings in excess of costs and estimated earnings | | | (32,932 | ) | | | (33,826 | ) |
| | | | | | | | |
| | $ | (4,639 | ) | | $ | (2,380 | ) |
| | | | | | | | |
|
| | | | | | | | |
| | December 31, | | September 30, |
| | 2019 | | 2019 |
Costs and estimated earnings in excess of billings | | $ | 27,941 |
| | $ | 29,860 |
|
Billings in excess of costs and estimated earnings | | | (45,555 | ) | | | (40,563 | ) |
| | $ | (17,614 | ) | | $ | (10,703 | ) |
During the three months ended
MarchDecember 31, 2019, and 2018, we recognized revenue of
$18,114$19,550 and
$14,977 related to our contract liabilities at January 1, 2019 and 2018, respectively. During the six months ended March 31, 2019, and 2018, we recognized revenue of $24,701 and $25,575$20,167 related to our contract liabilities at October 1,
2019 and 2018,
and 2017, respectively.
We did not have any impairment losses recognized on our receivables or contract assets for the three
and six months ended
MarchDecember 31, 2019 or 2018.
Remaining Performance Obligations
Remaining performance obligations represent the unrecognized revenue value of our contract commitments. New awards represent the total expected revenue value of new contract commitments undertaken during a given period, as well as additions to the scope of existing contract commitments. Our new performance obligations vary significantly each reporting period based on the timing of our major new contract commitments. At
MarchDecember 31, 2019, we had remaining performance obligations of
$423,718.$430,072. The Company expects to recognize revenue on approximately
$376,680$379,950 of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter.
For the three
and six months ended
MarchDecember 31, 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material.
At
MarchDecember 31, 2019, and September 30,
2018,2019, our long-term debt of
$19,672$319 and
$29,564,$299, respectively, primarily related to
amounts drawnloans on
our revolving credit facility. Our weighted-average annual interest rate on these borrowings was 4.52% at March 31, 2019, and 3.86% at September 30, 2018.capital expenditures. At
MarchDecember 31, 2019, we also had
$6,551$7,733 in outstanding letters of credit and total availability of
$71,698$82,651 under our revolving credit facility without violating our financial covenants.
Pursuant to our Second Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A. (as amended, the “Credit Agreement”), the Company is subject to the financial or other covenants disclosed in Item 7 of our Annual Report on Form
10-K for the year ended September 30,
2018.17
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
There have been no other changes to those covenants.2019. The Company was in compliance with the financial covenants as of MarchDecember 31, 2019.
At March 31, 2019, the carrying value of amounts outstanding on our revolving credit facility approximated fair value, as debt incurs interest at a variable rate. The fair value of the debt is classified as a Level 2 measurement.
The following tables reconcile the components of basic and diluted earnings per share for the three
and six months ended
MarchDecember 31, 2019, and 2018:
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
Numerator: | | | | | | | | |
Net income attributable to common stockholders of IES Holdings, Inc. | | $ | 5,467 | | | $ | 2,250 | |
Decrease in noncontrolling interest | | | — | | | | (44 | ) |
Net income attributable to restricted stockholders of IES Holdings, Inc. | | | 22 | | | | 15 | |
| | | | | | | | |
Net income attributable to IES Holdings, Inc. | | $ | 5,489 | | | $ | 2,221 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average common shares outstanding — basic | | | 21,139,096 | | | | 21,182,268 | |
Effect of dilutive stock options andnon-vested restricted stock | | | 240,650 | | | | 258,302 | |
| | | | | | | | |
Weighted average common and common equivalent shares outstanding — diluted | | | 21,379,746 | | | | 21,440,570 | |
| | | | | | | | |
Earnings per share attributable to IES Holdings, Inc.: | | | | | | | | |
Basic | | $ | 0.26 | | | $ | 0.11 | |
Diluted | | $ | 0.26 | | | $ | 0.11 | |
| |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
Numerator: | | | | | | | | |
Net income (loss) attributable to common stockholders of IES Holdings, Inc. | | $ | 12,348 | | | $ | (27,304 | ) |
Decrease in noncontrolling interest | | | — | | | | (44 | ) |
Net income (loss) attributable to restricted stockholders of IES Holdings, Inc. | | | 25 | | | | — | |
| | | | | | | | |
Net income (loss) attributable to IES Holdings, Inc. | | $ | 12,373 | | | $ | (27,348 | ) |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average common shares outstanding — basic | | | 21,187,834 | | | | 21,189,641 | |
Effect of dilutive stock options andnon-vested restricted stock | | | 236,688 | | | | — | |
| | | | | | | | |
Weighted average common and common equivalent shares outstanding — diluted | | | 21,424,522 | | | | 21,189,641 | |
| | | | | | | | |
Earnings (loss) per share attributable to IES Holdings, Inc.: | | | | | | | | |
Basic | | $ | 0.58 | | | $ | (1.29 | ) |
Diluted | | $ | 0.58 | | | $ | (1.29 | ) |
18
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
When an entity has a net loss, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, we have utilized basic shares outstanding to calculate both basic and diluted loss per share for the six months ended March 31, 2018. The number of potential anti-dilutive shares excluded from the calculation was 255,146 shares.For
|
| | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
Numerator: | | | | | | |
Net income attributable to common stockholders of IES Holdings, Inc. | | $ | 8,337 |
| | $ | 6,884 |
|
Increase (decrease) in noncontrolling interest | | | 45 |
| | | — |
|
Net income attributable to restricted stockholders of IES Holdings, Inc. | | | 120 |
| | | — |
|
Net income attributable to IES Holdings, Inc. | | $ | 8,502 |
| | $ | 6,884 |
|
| | | | | | |
Denominator: | | | | | | |
Weighted average common shares outstanding — basic | | | 20,883,477 |
| | | 21,233,132 |
|
Effect of dilutive stock options and non-vested restricted stock | | | 264,835 |
| | | 27,933 |
|
Weighted average common and common equivalent shares outstanding — diluted | | | 21,148,312 |
| | | 21,261,065 |
|
| | | | | | |
Earnings per share attributable to IES Holdings, Inc.: | | | | | | |
Basic | | $ | 0.40 |
| | $ | 0.32 |
|
Diluted | | $ | 0.39 |
| | $ | 0.32 |
|
For the three months ended
MarchDecember 31,
2018,2019, and
the three and six months ended March 31, 2019,2018, 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.
We manage and measure performance of our business in four distinct operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purpose of allocating resources and assessing performance. The Company’s CODM is its Chief Executive Officer.
Transactions between segments, if any, are eliminated in consolidation. Our corporate office provides general and administrative, as well as support services, to our four operating segments. Management allocates certain shared costs between segments for selling, general and administrative expenses and depreciation expense.
Segment information for the three
and six months ended
MarchDecember 31, 2019, and 2018 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2019 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Corporate | | | Total | |
Revenues | | $ | 79,975 | | | $ | 70,437 | | | $ | 34,450 | | | $ | 72,052 | | | $ | — | | | $ | 256,914 | |
Cost of services | | | 71,184 | | | | 58,492 | | | | 27,004 | | | | 56,999 | | | | — | | | | 213,679 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 8,791 | | | | 11,945 | | | | 7,446 | | | | 15,053 | | | | — | | | | 43,235 | |
Selling, general and administrative | | | 7,363 | | | | 7,666 | | | | 4,685 | | | | 11,187 | | | | 4,169 | | | | 35,070 | |
Contingent consideration | | | — | | | | — | | | | (149 | ) | | | — | | | | — | | | | (149 | ) |
Loss (gain) on sale of assets | | | (1 | ) | | | — | | | | 101 | | | | (2 | ) | | | — | | | | 98 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 1,429 | | | $ | 4,279 | | | $ | 2,809 | | | $ | 3,868 | | | $ | (4,169 | ) | | $ | 8,216 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other data: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | $ | 629 | | | $ | 426 | | | $ | 1,175 | | | $ | 217 | | | $ | 27 | | | $ | 2,474 | |
Capital expenditures | | $ | 615 | | | $ | 193 | | | $ | 635 | | | $ | 398 | | | $ | — | | | $ | 1,841 | |
Total assets | | $ | 77,898 | | | $ | 91,960 | | | $ | 114,739 | | | $ | 55,417 | | | $ | 77,257 | | | $ | 417,271 | |
| |
| | Three Months Ended March 31, 2018 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Corporate | | | Total | |
Revenues | | $ | 65,589 | | | $ | 50,244 | | | $ | 23,866 | | | $ | 65,978 | | | $ | — | | | $ | 205,677 | |
Cost of services | | | 59,068 | | | | 40,892 | | | | 18,842 | | | | 53,035 | | | | — | | | | 171,837 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 6,521 | | | | 9,352 | | | | 5,024 | | | | 12,943 | | | | — | | | | 33,840 | |
Selling, general and administrative | | | 6,849 | | | | 6,201 | | | | 4,637 | | | | 9,688 | | | | 2,272 | | | | 29,647 | |
Contingent consideration | | | — | | | | — | | | | 71 | | | | — | | | | — | | | | 71 | |
Loss (gain) on sale of assets | | | (17 | ) | | | (8 | ) | | | 6 | | | | (1 | ) | | | — | | | | (20 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | (311 | ) | | $ | 3,159 | | | $ | 310 | | | $ | 3,256 | | | $ | (2,272 | ) | | $ | 4,142 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other data: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | $ | 527 | | | $ | 219 | | | $ | 1,140 | | | $ | 155 | | | $ | 20 | | | $ | 2,061 | |
Capital expenditures | | $ | 413 | | | $ | 398 | | | $ | 205 | | | $ | 108 | | | $ | — | | | $ | 1,124 | |
Total assets | | $ | 72,559 | | | $ | 60,102 | | | $ | 100,884 | | | $ | 47,695 | | | $ | 103,747 | | | $ | 384,987 | |
19
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, 2019 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Corporate | | | Total | |
Revenues | | $ | 152,558 | | | $ | 139,762 | | | $ | 63,929 | | | $ | 144,507 | | | $ | — | | | $ | 500,756 | |
Cost of services | | | 135,092 | | | | 115,851 | | | | 50,556 | | | | 114,421 | | | | — | | | | 415,920 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 17,466 | | | | 23,911 | | | | 13,373 | | | | 30,086 | | | | — | | | | 84,836 | |
Selling, general and administrative | | | 14,079 | | | | 14,600 | | | | 9,166 | | | | 22,324 | | | | 6,987 | | | | 67,156 | |
Contingent consideration | | | — | | | | — | | | | (115 | ) | | | — | | | | — | | | | (115 | ) |
Loss (gain) on sale of assets | | | (4 | ) | | | — | | | | 101 | | | | (2 | ) | | | — | | | | 95 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | 3,391 | | | $ | 9,311 | | | $ | 4,221 | | | $ | 7,764 | | | $ | (6,987 | ) | | $ | 17,700 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other data: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | $ | 1,255 | | | $ | 841 | | | $ | 2,269 | | | $ | 426 | | | $ | 55 | | | $ | 4,846 | |
Capital expenditures | | $ | 1,467 | | | $ | 693 | | | $ | 822 | | | $ | 845 | | | $ | 102 | | | $ | 3,929 | |
Total assets | | $ | 77,898 | | | $ | 91,960 | | | $ | 114,739 | | | $ | 55,417 | | | $ | 77,257 | | | $ | 417,271 | |
| |
| | Six Months Ended March 31, 2018 | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Corporate | | | Total | |
Revenues | | $ | 118,591 | | | $ | 104,703 | | | $ | 45,551 | | | $ | 135,132 | | | $ | — | | | $ | 403,977 | |
Cost of services | | | 107,227 | | | | 86,231 | | | | 35,842 | | | | 107,773 | | | | — | | | | 337,073 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 11,364 | | | | 18,472 | | | | 9,709 | | | | 27,359 | | | | — | | | | 66,904 | |
Selling, general and administrative | | | 12,644 | | | | 12,285 | | | | 9,194 | | | | 20,054 | | | | 5,559 | | | | 59,736 | |
Contingent consideration | | | — | | | | — | | | | 71 | | | | — | | | | — | | | | 71 | |
Loss (gain) on sale of assets | | | (29 | ) | | | (9 | ) | | | 5 | | | | (1 | ) | | | — | | | | (34 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | $ | (1,251 | ) | | $ | 6,196 | | | $ | 439 | | | $ | 7,306 | | | $ | (5,559 | ) | | $ | 7,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other data: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | | $ | 1,084 | | | $ | 435 | | | $ | 2,383 | | | $ | 296 | | | $ | 71 | | | $ | 4,269 | |
Capital expenditures | | $ | 923 | | | $ | 473 | | | $ | 345 | | | $ | 586 | | | $ | — | | | $ | 2,327 | |
Total assets | | $ | 72,559 | | | $ | 60,102 | | | $ | 100,884 | | | $ | 47,695 | | | $ | 103,747 | | | $ | 384,987 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2019 |
| | Commercial & Industrial | | Communications | | Infrastructure Solutions | | Residential | | Corporate | | Total |
Revenues | $ | 67,743 |
| | $ | 84,289 |
| | $ | 31,283 |
| | $ | 92,728 |
| | $ | — |
| | $ | 276,043 |
|
Cost of services | 61,008 |
| | 68,722 |
| | 23,513 |
| | 72,585 |
| | — |
| | 225,828 |
|
Gross profit | 6,735 |
| | 15,567 |
| | 7,770 |
| | 20,143 |
| | — |
| | 50,215 |
|
Selling, general and administrative | 7,288 |
| | 8,569 |
| | 4,493 |
| | 13,720 |
| | 3,802 |
| | 37,872 |
|
Loss (gain) on sale of assets | (27 | ) | | (9 | ) | | — |
| | — |
| | — |
| | (36 | ) |
Operating income (loss) | (526 | ) | | 7,007 |
| | 3,277 |
| | 6,423 |
| | (3,802 | ) | | 12,379 |
|
Other data: | | | | | | | | | | | |
| Depreciation and amortization expense | $ | 676 |
| | $ | 337 |
| | $ | 1,120 |
| | $ | 210 |
| | $ | 19 |
| | $ | 2,362 |
|
| Capital expenditures | $ | 460 |
| | $ | 282 |
| | $ | 437 |
| | $ | 212 |
| | $ | — |
| | $ | 1,391 |
|
| Total assets | $ | 80,612 |
| | $ | 113,574 |
| | $ | 112,413 |
| | $ | 77,109 |
| | $ | 86,157 |
| | $ | 469,865 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2018 |
| | Commercial & Industrial | | Communications | | Infrastructure Solutions | | Residential | | Corporate | | Total |
Revenues | $ | 72,583 |
| | $ | 69,325 |
| | $ | 29,479 |
| | $ | 72,455 |
| | $ | — |
| | $ | 243,842 |
|
Cost of services | 63,908 |
| | 57,359 |
| | 23,552 |
| | 57,422 |
| | — |
| | 202,241 |
|
Gross profit | 8,675 |
| | 11,966 |
| | 5,927 |
| | 15,033 |
| | — |
| | 41,601 |
|
Selling, general and administrative | 6,716 |
| | 6,934 |
| | 4,481 |
| | 11,137 |
| | 2,818 |
| | 32,086 |
|
Contingent consideration | — |
| | — |
| | 34 |
| | — |
| | — |
| | 34 |
|
Loss (gain) on sale of assets | (3 | ) | | — |
| | 0 |
| | — |
| | — |
| | (3 | ) |
Operating income (loss) | 1,962 |
| | 5,032 |
| | 1,412 |
| | 3,896 |
| | (2,818 | ) | | 9,484 |
|
Other data: | | | | | | | | | | | |
| Depreciation and amortization expense | $ | 626 |
| | $ | 415 |
| | $ | 1,094 |
| | $ | 209 |
| | $ | 28 |
| | $ | 2,372 |
|
| Capital expenditures | $ | 852 |
| | $ | 500 |
| | $ | 187 |
| | $ | 447 |
| | $ | 102 |
| | $ | 2,088 |
|
| Total assets | $ | 78,924 |
| | $ | 88,534 |
| | $ | 114,475 |
| | $ | 55,352 |
| | $ | 85,852 |
| | $ | 423,137 |
|
The Company’s 2006 Equity Incentive Plan, as amended and restated (the “Equity Incentive Plan”), provides for grants of stock options as well as grants of stock, including restricted stock.Approximately 3.0 million shares of common stock are authorized for issuance under the Equity Incentive Plan, of which approximately 847,891752,614 shares were available for issuance at MarchDecember 31, 2019.
In 2015, our Board of Directors authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock.stock, and on May 2, 2019, authorized the repurchase from time to time of up to an additional 1.0 million shares of our common stock under the stock repurchase program. 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 189,821 and 235,95419,817 shares respectively, of our common stock during the20
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
three and six months ended MarchDecember 31, 2019, in open market transactions at an average price of $16.70 and $16.58, respectively,$22.51 per share. We repurchased 79,81746,133 shares of our common stock during the three and six months ended MarchDecember 31, 2018, in open market transactions at an average price of $15.40$16.08 per share. On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.
During the sixthree months ended MarchDecember 31, 2019, we issued 212,68895,409 shares of common stock from treasury stock to employees and repurchased 87,60917,427 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan. We also repurchased 235,95419,817 shares of common stock on the open market pursuant to our stock repurchase program. We
During the three months ended December 31, 2018, we issued 3,991212,688 shares of common stock from treasury to employees and repurchased
85,988 shares of common stock
as payment for outstandingfrom our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units
that vested uponunder the
departure of the Company’s President and issued 283,195 shares out of treasury stock for restricted shares granted upon the appointment of the Company’s Chief Executive Officer (“CEO”) in March 2019.During the six months ended March 31, 2018, weEquity Incentive Plan. We also repurchased 79,81746,133 shares of common stock on the open market pursuant to theour stock repurchase program. During
Restricted Stock
We granted 49,579 restricted shares to executives during the
sixthree months ended
MarchDecember 31,
2018, we issued 520 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation and 1,500 unrestricted shares of common stock to satisfy the exercise of outstanding options for employees.Restricted Stock
On March 4, 2019, we granted 283,195 restricted shares, pursuant to four award agreements, in conjunction with the appointment of the Company’s CEO.2019. These awards include restricted shares subject to the achievement of specified levels of cumulative net income before taxes, or specified stock price levels, as well as shares that vest based on the passage of time. During the three months ended MarchDecember 31, 2019, and 2018 we recognized $111$366 and $131, respectively,$0 in compensation expense related to ourall restricted stock awards. During the six months ended March 31, 2019, and 2018, we recognized $111 and $245, respectively, in compensation expense related to our restricted stock awards.awards, respectively. At MarchDecember 31, 2019, the unamortized compensation cost related to outstanding unvested restricted stock was $3,685.
$3,687.
Director Phantom Stock Units
Director phantom stock units (“Director PSUs”) are primarily granted to the members of the Board of Directors as part of their overall compensation. These Director PSUs are paid via unrestricted stock grants to each director upon their departure from the Board of
Directors.Directors or upon a change of control. We record compensation expense for the full value of the grant on the date of grant. During the three months ended
MarchDecember 31, 2019, and 2018, we recognized
$50$100 and
$49,$42, respectively, in compensation expense related to these grants.
During the six months ended March 31, 2019, and 2018, we recognized $99 and $91, respectively, in compensation expense related to these grants.
Performance Based Phantom Stock Units
A performance based
An employee phantom stock unit
(a “PPSU”(an “Employee PSU”) is a contractual right to receive one share of the Company’s common
stockstock. Depending on the terms of each grant, Employee PSUs may vest upon the achievement of certain specified performance objectives and continued performance of
services.services, or may vest based on continued performance of services through the vesting date. On February 6, 2019,
and December 4, 2019, the Company granted
an additional 230,274 PPSUs,Employee PSUs, which, subject to the achievement of
which 59,924certain performance metrics, could result in the issuance of 264,815, and 39,767 shares
were subsequentlyof common stock, respectively. Of these Employee PSUs, 97,985 Employee PSUs have been forfeited,
in conjunction with the departure of the Company’s President.and 49,678 have vested. At
MarchDecember 31, 2019,
the Company hada maximum of 156,919 shares of common stock may be issued under our outstanding
an aggregate of 170,350 PPSUs.Employee PSUs.
During the three
and six months ended
MarchDecember 31, 2019
we recognized compensation expense of $465 related to these grants. During the three and
six months ended March 31, 2018, we recognized
a benefit to$429 and zero in compensation expense,
of $652 and $449, respectively, related to
theseEmployee PSU grants.
This benefit was the result of a reduction in the estimated number of units deemed probable of vesting based on the projected achievement of specified performance objectives.
8.
SECURITIES AND EQUITY INVESTMENTSOur financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, investments, accounts payable and a loan agreement. We believe that the carrying value of these financial instruments in the accompanying Condensed Consolidated Balance Sheets approximates their fair value due to their short-term nature. At March 31, 2019, and September 30, 2018, we carried a cost method investment at $408 and $558, respectively, which is equal to our cost less impairment.
21
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
9. EMPLOYEE BENEFIT PLANS
In November 1998, we established the IES Holdings, Inc. 401(k) Retirement Savings Plan. All full-time IES employees and full-time employees of participating subsidiaries are eligible to participate on the first day of the month subsequent to completing sixty days of service and attaining age
twenty-one. Participants become vested in our matching contributions following three years of service. We also maintain several subsidiary retirement savings plans. During the three months ended
MarchDecember 31, 2019, and 2018, we recognized
$600$385 and
$485,$423, respectively, in matching expense.
During the six months ended March 31, 2019, and 2018, we recognized $1,023 and $914, respectively, in matching expense.
Post Retirement Benefit Plans
Certain individuals at one of the Company’s locations are entitled to receive fixed annual payments pursuant to post retirement benefit plans. We had an unfunded benefit liability of
$718$740 and
$755$738 recorded as of
MarchDecember 31, 2019, and September 30,
2018,2019, respectively, related to such plans.
10.
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
MarchDecember 31, 2019, financial assets and liabilities measured at fair value on a recurring basis were limited to our Executive Deferred Compensation Plan, under which certain employees are permitted to defer a portion of their base salary and/or bonus for a Plan Year (as defined in the plan), and contingent consideration liabilities related to certain of our acquisitions.
Financial assets and liabilities measured at fair value on a recurring basis as of
MarchDecember 31, 2019, and September 30,
2018,2019, are summarized in the following tables by the type of inputs applicable to the fair value measurements:
| | | | | | | | | | | | |
| | March 31, 2019 | |
| | Total Fair Value | | | Quoted Prices (Level 1) | | | Significant Unobservable Inputs (Level 3) | |
Executive savings plan assets | | $ | 738 | | | $ | 738 | | | $ | — | |
Executive savings plan liabilities | | | (623 | ) | | | (623 | ) | | | — | |
Contingent consideration | | | (270 | ) | | | — | | | | (270 | ) |
| | | | | | | | | | | | |
Total | | $ | (155 | ) | | $ | 115 | | | $ | (270 | ) |
| | | | | | | | | | | | |
| |
| | September 30, 2018 | |
| | Total Fair Value | | | Quoted Prices (Level 1) | | | Significant Unobservable Inputs (Level 3) | |
Executive savings plan assets | | $ | 747 | | | $ | 747 | | | $ | — | |
Executive savings plan liabilities | | | (631 | ) | | | (631 | ) | | | — | |
Contingent consideration | | | (680 | ) | | | — | | | | (680 | ) |
| | | | | | | | | | | | |
Total | | $ | (564 | ) | | $ | 116 | | | $ | (680 | ) |
| | | | | | | | | | | | |
22
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
|
| | | | | | | | | | | | |
| December 31, 2019 |
| | | Total Fair Value | | | Quoted Prices (Level 1) | | | Significant Unobservable Inputs (Level 3) |
Executive savings plan assets | | $ | 812 |
| | $ | 812 |
| | $ | — |
|
Executive savings plan liabilities | | | (693 | ) | | | (693 | ) | | | — |
|
Contingent consideration | | | (11 | ) | | | — |
| | | (11 | ) |
Total | | $ | 108 |
| | $ | 119 |
| | $ | (11 | ) |
|
| | | | | | | | | | | | |
| September 30, 2019 |
| | | Total Fair Value | | | Quoted Prices (Level 1) | | | Significant Unobservable Inputs (Level 3) |
Executive savings plan assets | | $ | 763 |
| | $ | 763 |
| | $ | — |
|
Executive savings plan liabilities | | | (646 | ) | | | (646 | ) | | | — |
|
Contingent consideration | | | (11 | ) | | | — |
| | | (11 | ) |
Total | | $ | 106 |
| | $ | 117 |
| | $ | (11 | ) |
In fiscal years 2016, 2017 and 2018, we entered into contingent consideration arrangements related to certain acquisitions. At
MarchDecember 31, 2019, we estimated the fair value of these contingent consideration liabilities at
$270.$11. The table below presents a reconciliation of the fair value of these obligations, which used significant unobservable inputs (Level 3).
| | | | |
| | Contingent Consideration Agreements | |
Fair value at September 30, 2018 | | $ | 680 | |
Settlements | | | (295 | ) |
Net adjustments to fair value | | | (115 | ) |
| | | | |
Fair value at March 31, 2019 | | $ | 270 | |
| | | | |
11.
|
| | | | |
| | | Contingent Consideration Agreements |
Fair value at September 30, 2019 | | $ | 11 |
|
Settlements | | | — |
|
Net adjustments to fair value | | | — |
|
Fair value at December 31, 2019 | | $ | 11 |
|
Inventories consist of the following components:
| | | | | | | | |
| | March 31, 2019 | | | September 30, 2018 | |
Raw materials | | $ | 4,368 | | | $ | 4,453 | |
Work in process | | | 5,972 | | | | 5,168 | |
Finished goods | | | 2,218 | | | | 1,746 | |
Parts and supplies | | | 11,171 | | | | 9,599 | |
| | | | | | | | |
Total inventories | | $ | 23,729 | | | $ | 20,966 | |
| | | | | | | | |
12.
|
| | | | | | | | |
| | December 31, | | September 30, |
| | 2019 | | 2019 |
Raw materials | $ | 3,863 |
| | $ | 4,104 |
|
Work in process | | 5,431 |
| | | 6,301 |
|
Finished goods | | 1,358 |
| | | 1,861 |
|
Parts and supplies | | 9,209 |
| | | 9,277 |
|
Total inventories | $ | 19,861 |
| | $ | 21,543 |
|
11. GOODWILL AND INTANGIBLE ASSETS
The following
is a progressionsummarizes changes in the carrying value of goodwill by segment for the
sixthree months ended
MarchDecember 31, 2019:
| | | | | | | | | | | | | | | | | | | | |
| | Commercial & Industrial | | | Communications | | | Infrastructure Solutions | | | Residential | | | Total | |
Goodwill at September 30, 2018 | | $ | 6,976 | | | $ | 2,816 | | | $ | 30,931 | | | $ | 9,979 | | | $ | 50,702 | |
Divestitures (See Note 14) | | | — | | | | — | | | | (119 | ) | | | — | | | | (119 | ) |
Adjustments | | | — | | | | — | | | | — | | | | 39 | | | | 39 | |
| | | | | | | | | | | | | | | | | | | | |
Goodwill at March 31, 2019 | | $ | 6,976 | | | $ | 2,816 | | | $ | 30,812 | | | $ | 10,018 | | | $ | 50,622 | |
| | | | | | | | | | | | | | | | | | | | |
23
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Commercial & Industrial | | | Communications | | Infrastructure Solutions | | | Residential | | Total |
Goodwill at September 30, 2019 | | $ | 6,976 |
| | | $ | 2,816 |
| | $ | 30,812 |
| | | $ | 10,018 |
| | $ | 50,622 |
|
Divestitures | | | — |
| | | | — |
| | | — |
| | | | — |
| | | — |
|
Adjustments | | | — |
| | | | — |
| | | — |
| | | |
|
| | | — |
|
Goodwill at December 31, 2019 | | $ | 6,976 |
| | | $ | 2,816 |
| | $ | 30,812 |
| | | $ | 10,018 |
| | $ | 50,622 |
|
Intangible assets consist of the following:
| | | | | | | | | | | | | | | | |
| | Estimated Useful Lives (in Years) | | | March 31, 2019 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net | |
Trademarks/trade names | | | 5 - 20 | | | $ | 5,084 | | | $ | 1,053 | | | $ | 4,031 | |
Technical library | | | 20 | | | | 400 | | | | 111 | | | | 289 | |
Customer relationships | | | 6 - 15 | | | | 33,539 | | | | 9,460 | | | | 24,079 | |
Non-competition arrangements | | | 5 | | | | 40 | | | | 5 | | | | 35 | |
Backlog | | | 1 | | | | 378 | | | | 358 | | | | 20 | |
Construction contracts | | | 1 | | | | 2,184 | | | | 2,179 | | | | 5 | |
| | | | | | | | | | | | | | | | |
Total intangible assets | | | | | | $ | 41,625 | | | $ | 13,166 | | | $ | 28,459 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Estimated Useful Lives (in Years) | | | September 30, 2018 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net | |
Trademarks/trade names | | | 5 - 20 | | | $ | 5,084 | | | $ | 831 | | | $ | 4,253 | |
Technical library | | | 20 | | | | 400 | | | | 101 | | | | 299 | |
Customer relationships | | | 6 - 15 | | | | 33,539 | | | | 7,870 | | | | 25,669 | |
Non-competition arrangements | | | 5 | | | | 40 | | | | 1 | | | | 39 | |
Backlog | | | 1 | | | | 378 | | | | 176 | | | | 202 | |
Construction contracts | | | 1 | | | | 2,184 | | | | 2,056 | | | | 128 | |
| | | | | | | | | | | | | | | | |
Total intangible assets | | | | | | $ | 41,625 | | | $ | 11,035 | | | $ | 30,590 | |
| | | | | | | | | | | | | | | | |
13.
|
| | | | | | | | | | | | | | | |
| | | Estimated Useful Lives (in Years) | | December 31, 2019 |
| | | | | Gross Carrying Amount | | | Accumulated Amortization | | Net |
Trademarks/trade names | | 5-20 | | $ | 5,044 |
| | $ | (1,328 | ) | | $ | 3,716 |
|
Technical library | | 20 | | | 400 |
| | | (126 | ) | | | 274 |
|
Customer relationships | | 6-15 | | | 33,539 |
| | | (11,825 | ) | | | 21,714 |
|
Non-competition arrangements | | 5 | | | 40 |
| | | (11 | ) | | | 29 |
|
Backlog and construction contracts | | 1 | | | 251 |
| | | (244 | ) | | | 7 |
|
Total intangible assets | | | | $ | 39,274 |
| | $ | (13,534 | ) | | $ | 25,740 |
|
|
| | | | | | | | | | | | | | | |
| | | Estimated Useful Lives (in Years) | | September 30, 2019 |
| | | | | Gross Carrying Amount | | | Accumulated Amortization | | Net |
Trademarks/trade names | | 5-20 | | $ | 5,084 |
| | $ | (1,267 | ) | | $ | 3,817 |
|
Technical library | | 20 | | | 400 |
| | | (121 | ) | | | 279 |
|
Customer relationships | | 6-15 | | | 33,539 |
| | | (11,051 | ) | | | 22,488 |
|
Non-competition arrangements | | 5 | | | 40 |
| | | (9 | ) | | | 31 |
|
Backlog and construction contracts | | 1 | | | 599 |
| | | (591 | ) | | | 8 |
|
Total intangible assets | | | | $ | 39,662 |
| | $ | (13,039 | ) | | $ | 26,623 |
|
The weighted average useful life of our intangible assets at December 31, 2019, was 9.91 years.
12. COMMITMENTS AND CONTINGENCIES
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.
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
MarchDecember 31, 2019, and September 30,
2018,2019, we had
$6,021$6,121 and
$6,202,$6,683, respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. As of
MarchDecember 31, 2019, and September 30,
2018,2019, we had
$87$74 and
$171,$90, 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
MarchDecember 31, 2019, and September 30,
2018, $6,3512019, $7,533 and
$6,101,$6,268, respectively, of our outstanding letters of credit was utilized to collateralize our insurance program.
24
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
As of
MarchDecember 31, 2019, the estimated cost to complete our bonded projects was approximately
$77,025.$98,656. 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
MarchDecember 31, 2019, and September 30,
2018,2019, $200 and
$508,$200, respectively, of our outstanding letters of credit were to collateralize our vendors.
From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of
MarchDecember 31, 2019, we had no such
material commitments.
14. BUSINESS COMBINATIONS AND DIVESTITURES
In March
13. LEASES
We enter into various contractual arrangements for the right to use facilities, vehicles and equipment. The lease term generally ranges from two to ten years for facilities and three to five years for vehicles and equipment. Our lease terms may include the exercise of renewal or termination options when it is reasonably certain these options will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Current lease liabilities included in "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets were $11,040 as of December 31, 2019.
The maturities of lease liabilities as of December 31, 2019 our managementare as follows:
|
| | | |
| Operating Leases |
Remainder of 2020 | $ | 8,750 |
|
2021 | 9,273 |
|
2022 | 7,268 |
|
2023 | 4,966 |
|
2024 | 3,123 |
|
Thereafter | 5,134 |
|
Total undiscounted lease payments | $ | 38,523 |
|
Less: imputed interest | 3,765 |
|
Present value of lease liabilities | $ | 34,758 |
|
The total future undiscounted cash flows related to lease agreements committed to a plan for the salebut not yet commenced as of substantially all of the operating assets at one of our operating facilities within the Infrastructure Solutions segment. In connection with the plan, we allocated $119 of goodwill to the disposal group. In conjunction with the write down of these assets to their net realizable value of $450, weDecember 31, 2019, is $842.
Lease cost recognized a loss of $101, recorded within “Loss (gain) on sale of assets” withinin our Condensed Consolidated Statements of Comprehensive Income for the threeis summarized as follows:
|
| | | |
| Three Months Ended December 31, 2019 |
Operating lease cost | $ | 3,022 |
|
Short-term lease cost | 148 |
|
Variable lease cost | 177 |
|
Total lease cost | $ | 3,347 |
|
Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:
|
| | | |
| December 31, 2019 |
Operating cash flows used for operating leases | $ | 3,052 |
|
Right-of-use assets obtained in exchange for new lease liabilities | $ | 5,150 |
|
Weighted-average remaining lease term - operating leases | 4.8 years |
|
Weighted-average discount rate - operating leases | 4.1 | % |
Item 2. Management’s Discussion and six months ended March 31, 2019. We expect the saleAnalysis of these assets to a third party to be completed within the fiscal year ended September 30, 2019.15. SUBSEQUENT EVENTS
On May 2, 2019, our BoardFinancial Condition and Results of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.
25
Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Part II, Item 8.“Financial Statements and Supplementary Data” as set forth in our Annual Report on Form10-K for the year ended September 30, 2018,2019, and the Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form10-Q. 10-Q. The following discussion may contain forward looking statements. For additional information, see“Disclosure Regarding Forward Looking Statements” in Part I of this Quarterly Report on Form10-Q.
Please refer to Part 1,I, Item 1. “Business”of our Annual Report on Form10-K for the year ended September 30, 2018,2019, 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.
We report our operating results across our four operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. Expenses associated with our corporate office are classified separately. The following table presents selected historical results of operations of IES Holdings, Inc., as well as the results of acquired businesses from the dates acquired.
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 256,914 | | | | 100.0 | % | | $ | 205,677 | | | | 100.0 | % |
Cost of services | | | 213,679 | | | | 83.2 | % | | | 171,837 | | | | 83.5 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 43,235 | | | | 16.8 | % | | | 33,840 | | | | 16.5 | % |
Selling, general and administrative expenses | | | 35,070 | | | | 13.7 | % | | | 29,647 | | | | 14.4 | % |
Contingent consideration | | | (149 | ) | | | (0.1 | )% | | | 71 | | | | 0.0 | % |
Loss (gain) on sale of assets | | | 98 | | | | 0.0 | % | | | (20 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 8,216 | | | | 3.2 | % | | | 4,142 | | | | 2.0 | % |
| | | | | | | | | | | | | | | | |
Interest and other (income) expense, net | | | 423 | | | | 0.2 | % | | | 430 | | | | 0.2 | % |
| | | | | | | | | | | | | | | | |
Income from operations before income taxes | | | 7,793 | | | | 3.0 | % | | | 3,712 | | | | 1.8 | % |
Provision for income taxes | | | 2,336 | | | | 0.9 | % | | | 1,425 | | | | 0.7 | % |
| | | | | | | | | | | | | | | | |
Net income | | | 5,457 | | | | 2.1 | % | | | 2,287 | | | | 1.1 | % |
| | | | | | | | | | | | | | | | |
Net loss (income) attributable to noncontrolling interest | | | 32 | | | | 0.0 | % | | | (66 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Net income attributable to IES Holdings, Inc. | | $ | 5,489 | | | | 2.1 | % | | $ | 2,221 | | | | 1.1 | % |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended December 31, |
| | | | 2019 | | 2018 |
| | | | $ | | % | | $ | | % |
| | | | (Dollars in thousands, Percentage of revenues) |
| | | Revenues | $ | 276,043 |
| | 100.0 | % | | $ | 243,842 |
| | 100.0 | % |
| | | Cost of services | 225,828 |
| | 81.8 | % | | 202,241 |
| | 82.9 | % |
| | Gross profit | 50,215 |
| | 18.2 | % | | 41,601 |
| | 17.1 | % |
| | | Selling, general and administrative expenses | 37,872 |
| | 13.7 | % | | 32,086 |
| | 13.2 | % |
| | | Contingent consideration | — |
| | — | % | | 34 |
| | — | % |
| | | Gain on sale of assets | (36 | ) | | — | % | | (3 | ) | | — | % |
| | Operating income | 12,379 |
| | 4.5 | % | | 9,484 |
| | 3.9 | % |
| | | Interest and other (income) expense, net | 380 |
| | 0.1 | % | | 594 |
| | 0.2 | % |
| | Income from operations before income taxes | 11,999 |
| | 4.3 | % | | 8,890 |
| | 3.6 | % |
| | | Provision for income taxes | 3,469 |
| | 1.3 | % | | 1,907 |
| | 0.8 | % |
| | Net income | 8,530 |
| | 3.1 | % | | 6,983 |
| | 2.9 | % |
| | | Net income attributable to noncontrolling interest | (28 | ) | | — | % | | (99 | ) | | — | % |
| | Net income attributable to IES Holdings, Inc. | $ | 8,502 |
| | 3.1 | % | | $ | 6,884 |
| | 2.8 | % |
Consolidated revenues for the three months ended
MarchDecember 31, 2019, were
$51.2$32.2 million higher than for the three months ended
MarchDecember 31, 2018, an increase of
24.9%13.2%, with increases at
all of our
Communications, Infrastructure Solutions, and Residential segments, driven by strong demand.
Revenues decreased at our Commercial & Industrial segment, where many of our markets remain highly competitive.
Consolidated gross profit for the three months ended
MarchDecember 31, 2019, increased
$9.4$8.6 million compared with the three months ended
MarchDecember 31, 2018. Our overall gross profit percentage increased to
16.8%18.2% during the three months ended
MarchDecember 31, 2019, as compared to
16.5%17.1% during the three months ended
MarchDecember 31, 2018. Gross profit as a percentage of revenue increased at
alleach of our segments, with the exception of our
CommunicationsCommercial & Industrial segment.
See further discussion below of changes in gross margin for our individual segments.
Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and benefits related to corporate, segment and branch management (including incentive-based compensation), occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization. We allocate certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment.
26
During the three months ended
MarchDecember 31, 2019, our selling, general and administrative expenses were
$35.1$37.9 million, an increase of
$5.4$5.8 million, or
18.3%18.0%, over the three months ended
MarchDecember 31, 2018, driven by increased personnel costs at our operating segments in connection with their growth. This increase also includes
a $1.9 million increase in expenses at the corporate level, related to a severance payment to our outgoing President, as well as an increase in stock based compensation
expenses. However, selling,expenses at the Corporate level. Selling, general and administrative expense as a percent of revenue
decreasedincreased from
14.4%13.2% for the three months ended
MarchDecember 31, 2018, to 13.7% for the three months ended
MarchDecember 31,
2019, as we benefitted from the increased scale of our operations. | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 500,756 | | | | 100.0 | % | | $ | 403,977 | | | | 100.0 | % |
Cost of services | | | 415,920 | | | | 83.1 | % | | | 337,073 | | | | 83.4 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 84,836 | | | | 16.9 | % | | | 66,904 | | | | 16.6 | % |
Selling, general and administrative expenses | | | 67,156 | | | | 13.4 | % | | | 59,736 | | | | 14.8 | % |
Contingent consideration | | | (115 | ) | | | 0.0 | % | | | 71 | | | | 0.0 | % |
Loss (gain) on sale of assets | | | 95 | | | | 0.0 | % | | | (34 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 17,700 | | | | 3.5 | % | | | 7,131 | | | | 1.8 | % |
| | | | | | | | | | | | | | | | |
Interest and other (income) expense, net | | | 1,017 | | | | 0.2 | % | | | 773 | | | | 0.2 | % |
| | | | | | | | | | | | | | | | |
Income from operations before income taxes | | | 16,683 | | | | 3.3 | % | | | 6,358 | | | | 1.6 | % |
Provision for income taxes(1) | | | 4,243 | | | | 0.8 | % | | | 33,584 | | | | 8.3 | % |
| | | | | | | | | | | | | | | | |
Net income (loss) | | | 12,440 | | | | 2.5 | % | | | (27,226 | ) | | | (6.7 | )% |
| | | | | | | | | | | | | | | | |
Net income attributable to noncontrolling interest | | | (67 | ) | | | 0.0 | % | | | (122 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Net income (loss) attributable to IES Holdings, Inc. | | $ | 12,373 | | | | 2.5 | % | | $ | (27,348 | ) | | | (6.8 | )% |
| | | | | | | | | | | | | | | | |
(1) | 2018 includes a charge of $31.5 million tore-measure our net deferred tax assets in connection with the Tax Cuts and Jobs Act.
|
Consolidated revenues for the six months ended March 31, 2019, were $96.8 million higher than for the six months ended March 31, 2018, an increase of 24.0%, with increases at all of our operating segments, driven by strong demand.
Our overall gross profit percentage increased to 16.9% during the six months ended March 31, 2019, as compared to 16.6% during the six months ended March 31, 2018. Gross profit as a percentage of revenue increased at our Residential and 2019.
Commercial & Industrial
segments, while decreasing slightly at our Communications and Infrastructure Solutions segments.During the six months ended March 31, 2019, our selling, general and administrative expenses were $67.2 million, an increase of $7.4 million, or 12.4%, over the six months ended March 31, 2018, driven by increased personnel costs at our operating segments in connection with their growth. This increase also includes a $1.4 million increase in expenses at the corporate level, related to a severance payment to our outgoing President, as well as an increase in stock-based compensation expense. However, selling, general and administrative expense as a percent of revenue decreased from 14.8% for the three months ended March 31, 2018, to 13.4% for the three months ended March 31, 2019, as we benefitted from the increased scale of our operations.
Commercial & Industrial
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 79,975 | | | | 100.0 | % | | $ | 65,589 | | | | 100.0 | % |
Cost of services | | | 71,184 | | | | 89.0 | % | | | 59,068 | | | | 90.1 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 8,791 | | | | 11.0 | % | | | 6,521 | | | | 9.9 | % |
Selling, general and administrative expenses | | | 7,363 | | | | 9.2 | % | | | 6,849 | | | | 10.4 | % |
Gain on sale of assets | | | (1 | ) | | | 0.0 | % | | | (17 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 1,429 | | | | 1.8 | % | | | (311 | ) | | | -0.5 | % |
27
|
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| | $ | | % | | $ | | % |
| | (Dollars in thousands, Percentage of revenues) |
Revenues | | $ | 67,743 |
| | 100.0 |
| % | | $ | 72,583 |
| | 100.0 | % |
Cost of services | | | 61,008 |
| | 90.1 |
| % | | | 63,908 |
| | 88.0 | % |
Gross profit | | | 6,735 |
| | 9.9 |
| % | | | 8,675 |
| | 12.0 | % |
Selling, general and administrative expenses | | | 7,288 |
| | 10.8 |
| % | | | 6,716 |
| | 9.3 | % |
Gain on sale of assets | | | (27 | ) | | — |
| % | | | (3 | ) | | — | % |
Operating income | | | (526 | ) | | (0.8 | ) | % | | | 1,962 |
| | 2.7 | % |
Revenue.Revenues in our Commercial & Industrial segment increased $14.4decreased $4.8 million, or 21.9%6.7%, during the three months ended MarchDecember 31, 2019, compared to the three months ended MarchDecember 31, 2018. The increasedecrease was largely driven by increased bid volume at several of our branches and improving market conditionsa reduction in certain areas. These increases were partly offset by a $3.8 million decrease relating to our decision to exit certain markets.time-and-material work, as well as lower demand for large, agricultural projects in the Midwest. The market for this segment’s services remains highly competitive.
Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended MarchDecember 31, 2019, increaseddecreased by $2.3$1.9 million, as compared to the three months ended MarchDecember 31, 2018. The increasedecrease is due to improved efficiency across the branches,reduction in volumes, as we improvedwell as project executioninefficiencies at our Nebraska branch driven by weather and as our ability to absorb fixed costs benefitted from higher volumes.other factors. Gross margin as a percent of revenue increased 1.1%decreased 2.1% to 11.0%9.9% during the three months ended MarchDecember 31, 2019, as compared to the three months ended MarchDecember 31, 2018.2018, as a result of a reduction in efficiency, as well as the reduction in volumes resulting in a higher rate of fixed overhead costs as a percentage of revenue.
Selling, General and Administrative Expenses. Our Commercial & Industrial segment’s selling, general and administrative expenses during the three months ended MarchDecember 31, 2019, increased $0.5$0.6 million, or 7.5%8.5%, compared to the three months ended MarchDecember 31, 2018.2018, as we have invested in improving our procurement process. Selling, general and administrative expenses as a percentage of revenues decreased 1.2%revenue increased 1.5% to 9.2%10.8% during the three months ended MarchDecember 31, 2019, compared to the three months ended MarchDecember 31, 2018. The increase relates primarily to costs associated with higher incentive compensation in connection with improved profitability. | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 152,558 | | | | 100.0 | % | | $ | 118,591 | | | | 100.0 | % |
Cost of services | | | 135,092 | | | | 88.6 | % | | | 107,227 | | | | 90.4 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 17,466 | | | | 11.4 | % | | | 11,364 | | | | 9.6 | % |
Selling, general and administrative expenses | | | 14,079 | | | | 9.2 | % | | | 12,644 | | | | 10.7 | % |
Gain on sale of assets | | | (4 | ) | | | 0.0 | % | | | (29 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 3,391 | | | | 2.2 | % | | | (1,251 | ) | | | -1.1 | % |
Communications
|
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| | $ | | % | | $ | | % |
| | (Dollars in thousands, Percentage of revenues) |
Revenues | | $ | 84,289 |
| | 100.0 | % | | $ | 69,325 |
| | 100.0 | % |
Cost of services | | | 68,722 |
| | 81.5 | % | | | 57,359 |
| | 82.7 | % |
Gross profit | | | 15,567 |
| | 18.5 | % | | | 11,966 |
| | 17.3 | % |
Selling, general and administrative expenses | | | 8,569 |
| | 10.2 | % | | | 6,934 |
| | 10.0 | % |
Gain on sale of assets | | | (9 | ) | | — | % | | | — |
| | — | % |
Operating income | | | 7,007 |
| | 8.3 | % | | | 5,032 |
| | 7.3 | % |
Revenue.Revenues in our Commercial & Industrial segment increased $34.0 million during the six months ended March 31, 2019, an increase of 28.6% compared to the six months ended March 31, 2018. The increase in revenue over this period was driven by increased bid volume at several of our branches and improving market conditions in certain areas. This increase in revenue was partly offset by a $6.7 million decrease in revenue attributable to our decision to exit the Denver and Roanoke markets. The market for this segment’s services in many geographic regions remains highly competitive.Gross Profit. Our Commercial & Industrial segment’s gross profit during the six months ended March 31, 2019, increased by $6.1 million, or 53.7%, as compared to the six months ended March 31, 2018. As a percentage of revenue, gross profit increased from 9.6% for the six months ended March 31, 2018, to 11.4% for the six months ended March 31, 2019. The increase is due to improved efficiency across the branches, as we improved project execution and as our ability to absorb fixed costs benefitted from higher volumes.
Selling, General and Administrative Expenses.Our Commercial & Industrial segment’s selling, general and administrative expenses during the six months ended March 31, 2019, increased $1.4 million, or 11.3%, compared to the six months ended March 31, 2018, but decreased 1.5% as a percentage of revenue. The increase was driven by costs associated with higher incentive compensation in connection with improved profitability.
28
Communications
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 70,437 | | | | 100.0 | % | | $ | 50,244 | | | | 100.0 | % |
Cost of services | | | 58,492 | | | | 83.0 | % | | | 40,892 | | | | 81.4 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 11,945 | | | | 17.0 | % | | | 9,352 | | | | 18.6 | % |
Selling, general and administrative expenses | | | 7,666 | | | | 10.9 | % | | | 6,201 | | | | 12.3 | % |
Gain on sale of assets | | | — | | | | 0.0 | % | | | (8 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 4,279 | | | | 6.1 | % | | | 3,159 | | | | 6.3 | % |
Revenue.Our Communications segment’s revenues increased by $20.2$15.0 million during the three months ended MarchDecember 31, 2019, or 40.2%21.6%, during the three months ended March 31, 2019, compared to the three months ended MarchDecember 31, 2018. The increase primarily resulted from increased demand driven by several of our large data center customers. Revenues in our Communications segment can vary from quarter to quarter based on the capital spending cycles of our customers.
Gross Profit.Our Communications segment’s gross profit during the three months ended MarchDecember 31, 2019, increased by $2.6$3.6 million compared to the three months ended MarchDecember 31, 2018. While total gross profit increased in connection with higher volumes, grossGross profit as a percentage of revenue decreased,increased 1.2% to 18.5% as we tookour margins benefitted from the impact of an increased volume of work on a larger proportion of cost-plus arrangements. These arrangements provide us with a reimbursement for our fixed costs, plus a markup, and are typically loweras well as an increase in higher margin but also lower risk, as compared with our fixed-cost arrangements.fixed-price contracts.
Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by $1.5$1.6 million, or 23.6%, during the three months ended MarchDecember 31, 2019, compared to the three months ended MarchDecember 31, 2018. The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows. Selling, general and administrative expenses as a percentage of revenuesrevenue in the Communications segment decreased 1.4%increased 0.2% to 10.9%10.2% of segment revenue during the three months ended MarchDecember 31, 2019, compared to the three months ended MarchDecember 31, 2018, as we benefitted from the increased scale of our operations. | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 139,762 | | | | 100.0 | % | | $ | 104,703 | | | | 100.0 | % |
Cost of services | | | 115,851 | | | | 82.9 | % | | | 86,231 | | | | 82.4 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 23,911 | | | | 17.1 | % | | | 18,472 | | | | 17.6 | % |
Selling, general and administrative expenses | | | 14,600 | | | | 10.4 | % | | | 12,285 | | | | 11.7 | % |
Gain on sale of assets | | | — | | | | 0.0 | % | | | (9 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 9,311 | | | | 6.7 | % | | | 6,196 | | | | 5.9 | % |
Revenue.Our Communications segment revenues increased by $35.1 million during the six months ended March 31, 2019, or 33.5% compared to the six months ended March 31, 2018. The increase primarily resulted from increased demand from several of our data center customers. Revenues in our Communications segment can vary from quarter to quarter based on the capital spending cycles of our customers.
Gross Profit.Our Communications segment’s gross profit during the six months ended March 31, 2019, increased $5.4 million, or 29.4%, as compared to the six months ended March 31, 2018. While total gross profit increased in connection with higher volumes, gross profit as a percentage of revenue decreased, as we took on a larger proportion of cost-plus arrangements. These arrangements provide us with a reimbursement for our costs plus a markup, and are typically lower margin, but also lower risk, as compared with our fixed-cost arrangements.
Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased $2.3 million, or 18.8%, during the six months ended March 31, 2019, compared to the six months ended March 31, 2018. The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows. Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased by 1.3% to 10.4% of segment revenue during the six months ended March 31, 2019, compared to the six months ended March 31, 2018, as we benefitted from the increased scale of our operations.
29
Infrastructure Solutions
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 34,450 | | | | 100.0 | % | | $ | 23,866 | | | | 100.0 | % |
Cost of services | | | 27,004 | | | | 78.4 | % | | | 18,842 | | | | 78.9 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 7,446 | | | | 21.6 | % | | | 5,024 | | | | 21.1 | % |
Selling, general and administrative expenses | | | 4,685 | | | | 13.6 | % | | | 4,637 | | | | 19.4 | % |
Contingent consideration | | | (149 | ) | | | -0.4 | % | | | 71 | | | | 0.3 | % |
Loss on sale of assets | | | 101 | | | | 0.3 | % | | | 6 | | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 2,809 | | | | 8.2 | % | | | 310 | | | | 1.3 | % |
|
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| | $ | | % | | $ | | % |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 31,283 |
| | 100.0 | % | | $ | 29,479 |
| | 100.0 | % |
Cost of services | | | 23,513 |
| | 75.2 | % | | | 23,552 |
| | 79.9 | % |
Gross profit | | | 7,770 |
| | 24.8 | % | | | 5,927 |
| | 20.1 | % |
Selling, general and administrative expenses | | | 4,493 |
| | 14.4 | % | | | 4,481 |
| | 15.2 | % |
Contingent consideration | | | — |
| | — | % | | | 34 |
| | 0.1 | % |
Operating income | | | 3,277 |
| | 10.5 | % | | | 1,412 |
| | 4.8 | % |
Revenue.Revenues in our Infrastructure Solutions segment increased $10.6$1.8 million during the three months ended MarchDecember 31, 2019, an increase of 44.3%6.1% compared to the three months ended MarchDecember 31, 2018. The increase in revenue was driven primarily by our bus duct andgenerator enclosure business, driven bywhere demand increased demand for enclosures to be used at data centers, as well as an increase in revenue from our motor repair business.centers.
Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended MarchDecember 31, 2019, increased $2.4$1.8 million as compared to the three months ended MarchDecember 31, 2018.2018, primarily as a result of the increase in volume. Gross profit as a percentage of revenue increased 0.5%4.7% to 21.6%. The primary driver24.8%, as we benefited from the increased scale of the improvement in margins was our bus duct facility, which was impacted in the prior year by production inefficiencies and the amortization of contract intangibles associatedoperations combined with the acquisition of this business in 2016. Margins are also affected by the mix of work performed.improved operational efficiencies.
Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended MarchDecember 31, 2019, remained flat when compared to the three months ended MarchDecember 31, 2018,2018. Selling, general and administrative expense as a percent of revenue decreased from 15.2% to 14.4%, as we were able to scale our business effectively without adding significant general and administrative expense. | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 63,929 | | | | 100.0 | % | | $ | 45,551 | | | | 100.0 | % |
Cost of services | | | 50,556 | | | | 79.1 | % | | | 35,842 | | | | 78.7 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 13,373 | | | | 20.9 | % | | | 9,709 | | | | 21.3 | % |
Selling, general and administrative expenses | | | 9,166 | | | | 14.3 | % | | | 9,194 | | | | 20.2 | % |
Contingent consideration | | | (115 | ) | | | -0.2 | % | | | 71 | | | | 0.2 | % |
Loss on sale of assets | | | 101 | | | | 0.2 | % | | | 5 | | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 4,221 | | | | 6.6 | % | | | 439 | | | | 1.0 | % |
Residential
|
| | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| | $ | | % | | $ | | % |
| | (Dollars in thousands, Percentage of revenues) |
Revenues | | $ | 92,728 |
| | 100.0 | % | | $ | 72,455 |
| | 100.0 | % |
Cost of services | | 72,585 |
| | 78.3 | % | | 57,422 |
| | 79.3 | % |
Gross profit | | 20,143 |
| | 21.7 | % | | 15,033 |
| | 20.7 | % |
Selling, general and administrative expenses | | 13,720 |
| | 14.8 | % | | 11,137 |
| | 15.4 | % |
Operating income | | 6,423 |
| | 6.9 | % | | 3,896 |
| | 5.4 | % |
Revenue.Revenues in our Infrastructure Solutions segment increased $18.4 million during the six months ended March 31, 2019, an increase of 40.3% compared to the six months ended March 31, 2018. The increase in revenue relates primarily to our bus duct and enclosure business, driven by increased demand for enclosures to be used at data centers, as well as an increase in revenue from our motor repair business.Gross Profit. Our Infrastructure Solutions segment’s gross profit during the six months ended March 31, 2019, increased $3.7 million as compared to the six months ended March 31, 2018. The primary driver of the improvement in margins was our bus duct facility, which was affected in the prior year by production inefficiencies and by the impact of the amortization of contract intangibles associated with the acquisition of this business in 2016. We also benefitted from higher volumes in our generator enclosure manufacturing facility, as well as increased activity at our motor repair shops. Gross profit as a percentage of revenues decreased 0.4% to 20.9% for the six months ended March 31, 2019, largely as the result of a change in the mix of work performed.
30
Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the six months ended March 31, 2019 remained flat compared to the six months ended March 31, 2018, as we were able to scale our business effectively without adding general and administrative expense.
Residential
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 72,052 | | | | 100.0 | % | | $ | 65,978 | | | | 100.0 | % |
Cost of services | | | 56,999 | | | | 79.1 | % | | | 53,035 | | | | 80.4 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 15,053 | | | | 20.9 | % | | | 12,943 | | | | 19.6 | % |
Selling, general and administrative expenses | | | 11,187 | | | | 15.5 | % | | | 9,688 | | | | 14.7 | % |
Gain on sale of assets | | | (2 | ) | | | 0.0 | % | | | (1 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 3,868 | | | | 5.4 | % | | | 3,256 | | | | 4.9 | % |
Revenue.Our Residential segment’s revenues increased by $6.1$20.3 million during the three months ended MarchDecember 31, 2019, an increase of 9.2%28.0% as compared to the three months ended MarchDecember 31, 2018. The increase is driven by our single-familymulti-family business, where revenues increased by $7.9$15.1 million for the three months ended MarchDecember 31, 2019, compared with the three months ended MarchDecember 31, 2018. This was partly offsetSingle-family revenue also increased by an $0.8 million decrease in our multi-family$4.4 million. Solar and cable service business where many projects have been delayedincreased by weather. Service revenues also decreased by $1.0$0.7 million for the three months ended MarchDecember 31, 2019, compared with the same period in the prior year.
Gross Profit.During the three months ended MarchDecember 31, 2019, our Residential segment experienced a $2.1segment's gross profit increased by $5.1 million, or 16.3%34.0%, increase in gross profit as compared to the three months ended MarchDecember 31, 2018. The increase in gross profit was driven primarily by improved commodity prices in the quarter ended March 31, 2019.higher volumes. Gross marginprofit as a percentage of revenue increased 1.3%1.0% to 20.9%21.7% during the quarterthree months ended MarchDecember 31, 2019, as compared with the quarterthree months ended MarchDecember 31, 2018.2018, as we benefited from the increased scale of our operations.
Selling, General and Administrative Expenses. Our Residential segment experienced a $1.5 million, or 15.5%, increase insegment's selling, general and administrative expensesexpense increased by $2.6 million, or 23.2%, during the three months ended MarchDecember 31, 2019, compared to the three months ended MarchDecember 31, 2018, primarily as a result of higher incentive compensation expense in connection with higher profitability. Selling, general and administrative expenses as a percentage of revenuesrevenue in the Residential segment increaseddecreased to 15.5%14.8% of segment revenue during the three months ended MarchDecember 31, 2019, compared to 14.7%15.4% in the three months ended MarchDecember 31, 2018. | | | | | | | | | | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | $ | | | % | | | $ | | | % | |
| | (Dollars in thousands, Percentage of revenues) | |
Revenues | | $ | 144,507 | | | | 100.0 | % | | $ | 135,132 | | | | 100.0 | % |
Cost of services | | | 114,421 | | | | 79.2 | % | | | 107,773 | | | | 79.8 | % |
| | | | | | | | | | | | | | | | |
Gross profit | | | 30,086 | | | | 20.8 | % | | | 27,359 | | | | 20.2 | % |
Selling, general and administrative expenses | | | 22,324 | | | | 15.4 | % | | | 20,054 | | | | 14.8 | % |
Gain on sale of assets | | | (2 | ) | | | 0.0 | % | | | (1 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | | |
Operating income | | | 7,764 | | | | 5.4 | % | | | 7,306 | | | | 5.4 | % |
Revenue.Our Residential segment revenues increased by $9.4 million during the six months ended March 31, 2019, an increase of 6.9% as compared to the six months ended March 31, 2018. The increase is driven by our single-family business, where revenues increased by $13.8 million for the six months ended March 31, 2019, compared with the six months ended March 31, 2018. This was partly offset by a $3.0 million decrease in our multi-family business, where many projects have been delayed by weather. Service revenues also decreased by $1.4 million for the six months ended March 31, 2019, compared with the same period in the prior year.
31
Gross Profit. During the six months ended March 31, 2019, our Residential segment experienced a $2.7 million, or 10.0%, increase in gross profit as compared to the six months ended March 31, 2018. The increase in gross profit was driven primarily by improved copper and other commodity prices. Gross margin as a percentage of revenue increased 0.6% to 20.8% during the six months ended March 31, 2019, as compared with the six months ended March 31, 2018.
Selling, General and Administrative Expenses. Our Residential segment experienced a $2.3 million, or 11.3%, increase in selling, general and administrative expenses during the six months ended March 31, 2019, compared to the six months ended March 31, 2018, driven by increased compensation expense. Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased by 0.6% to 15.4% of segment revenue during the six months ended March 31, 2019.
INTEREST AND OTHER EXPENSE, NET
| | | | | | | | |
| | Three Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | (In thousands) | |
Interest expense | | $ | 456 | | | $ | 402 | |
Deferred financing charges | | | 79 | | | | 71 | |
| | | | | | | | |
Total interest expense | | | 535 | | | | 473 | |
Other (income) expense, net | | | (112 | ) | | | (43 | ) |
| | | | | | | | |
Total interest and other expense, net | | $ | 423 | | | $ | 430 | |
| | | | | | | | |
|
| | | | | | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| | (In thousands) |
Interest expense | | $ | 138 |
| | $ | 470 |
|
Deferred financing charges | | | 101 |
| | | 77 |
|
Total interest expense | | | 239 |
| | | 547 |
|
Other (income) expense, net | | | 141 |
| | | 47 |
|
Total interest and other expense, net | | $ | 380 |
| | $ | 594 |
|
During the three months ended
MarchDecember 31, 2019, we incurred interest expense of
$0.5$0.2 million primarily comprised of interest expense from our revolving credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”), an average letter of credit balance of
$6.6$7.0 million under our revolving credit facility and an average unused line of credit balance of
$66.6$93.0 million under our revolving credit facility. This compares to interest expense of $0.5 million for the three months ended
MarchDecember 31, 2018,
primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $63.4 million under our revolving credit facility. | | | | | | | | |
| | Six Months Ended March 31, | |
| | 2019 | | | 2018 | |
| | (In thousands) | |
Interest expense | | $ | 926 | | | $ | 772 | |
Deferred financing charges | | | 156 | | | | 142 | |
| | | | | | | | |
Total interest expense | | | 1,082 | | | | 914 | |
Other (income) expense, net | | | (65 | ) | | | (141 | ) |
| | | | | | | | |
Total interest and other expense, net | | $ | 1,017 | | | $ | 773 | |
| | | | | | | | |
During the six months ended March 31, 2019, we incurred interest expense of $1.1 million primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.7 million under our revolving credit facility and an average unused line of credit balance of $64.8$63.0 million under our revolving credit facility. This compares to interest expense of $0.9 million for the six months ended March 31, 2018, primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $63.4 million under our revolving credit facility.
PROVISION FOR INCOME TAXES
We recorded income tax expense of
$2.3$3.5 million for the three months ended
MarchDecember 31, 2019, compared to income tax expense of
$1.4$1.9 million for the three months ended
MarchDecember 31, 2018.
We recorded income tax expense of $4.2 millionExpense for the
six monthsquarter ended
March 31, 2019, compared to income tax expense of $33.6 million for the six months ended March 31, 2018.For the six months ended MarchDecember 31, 2018 our income tax expense included a preliminary chargewas partly offset by discrete benefits of $31.5$0.6 million, tore-measure our deferred tax assets and liabilitiesprimarily related to reflect the impactdeduction of the new statutory tax rate enacted during the six months ended March 31, 2018. The Company completed its accounting for the income tax effects of the Tax Cuts and Jobs Act and fully recorded the impact in the year ended September 30, 2018.
32
share-based compensation expense.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our Condensed Consolidated Financial Statements included in this report on Form
10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Condensed Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our beliefs and assumptions derived from information available at the same time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates.
REMAINING PERORMANCE OBLIGATIONS AND BACKLOG
| | | | | | | | | | | | | | | | |
| | March 31, 2019 | | | December 31, 2018 | | | September 30, 2018 | | | June 30, 2018 | |
Remaining performance obligations | | $ | 424 | | | $ | 407 | | | $ | 326 | | | $ | 289 | |
Agreements without an enforceable obligation (1) | | | 149 | | | | 131 | | | | 156 | | | | 103 | |
| | | | | | | | | | | | | | | | |
Backlog | | $ | 573 | | | $ | 538 | | | $ | 482 | | | $ | 392 | |
| | | | | | | | | | | | | | | | |
(1) | Our backlog contains signed agreements and letters of intent which we do not have a legal right to enforce prior to work starting. These arrangements are excluded from remaining performance obligations until work begins.
|
Remaining performance obligations represent the unrecognized revenue value of our contract commitments. While backlog is not a defined term under GAAP, it is a common measurement used in our industry, and we believe it improves our ability to forecast future results and identify operating trends that may not otherwise be apparent. Backlog is a measure of revenue that we expect to recognize
from work that has yet to be performed on uncompleted contracts and from work that has been contracted but has not started, exclusive of short-term projects. While all of our backlog is supported by documentation from customers, backlog is not a guarantee of future revenues, as contractual commitments may change and our performance may vary. Not all of our work is performed under contracts included in backlog; for example, most of the apparatus repair work that is completed by our Infrastructure Solutions segment is performed under master service agreements on an
as neededas-needed basis. Additionally, electrical installation services for single-family housing at our Residential segment
isare completed on a short-term basis and
isare therefore excluded from backlog.
In addition, certain service work is performed under master service agreements on anas-needed basis and is therefore excluded from backlog. Our backlog has increased from $482 million at September 30, 2018, to $573 million at March 31, 2019.The table below summarizes our backlog:
|
| | | | | | | | | | | | | | | | |
| | December 31, | | September 30, | | June 30, | | March 31, |
| | 2019 | | 2019 | | 2019 | | 2019 |
Remaining performance obligations | | $ | 430 |
| | $ | 452 |
| | $ | 487 |
| | $ | 424 |
|
Agreements without an enforceable obligation (1) | | | 79 |
| | | 85 |
| | | 59 |
| | | 149 |
|
Backlog | | $ | 509 |
| | $ | 537 |
| | $ | 546 |
| | $ | 573 |
|
(1) Our backlog contains signed agreements and letters of intent which we do not have a legal right to enforce prior to work starting. These arrangements are excluded from remaining performance obligations until work begins. |
During the
sixthree months ended
MarchDecember 31, 2019, working capital exclusive of cash
increaseddecreased by
$12.1$7.5 million from September 30,
2018,2019, reflecting a
$10.3$15.1 million
increasedecrease in current assets excluding cash and a
$1.8$7.5 million decrease in current liabilities during the period.
During the
sixthree months ended
MarchDecember 31, 2019, our current assets exclusive of cash
increaseddecreased to
$246.8$262.4 million, as compared to
$236.4$277.5 million as of September 30,
2018.2019. The
increasedecrease primarily relates to a
$9.4$16.7 million
increasedecrease in accounts
receivable.receivable, in connection with lower revenue for the three months ended December 31, 2019, as compared with the three months ended September 30, 2019. Days sales outstanding decreased to
6059 at
MarchDecember 31, 2019, from 62 at September 30,
2018.2019. 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
sixthree months ended
MarchDecember 31, 2019, our total current liabilities decreased by
$1.8$7.5 million to
$162.6$185.9 million, compared to
$164.4$193.5 million as of September 30,
2018,2019, primarily related to a decrease in
both accounts payable and accrued liabilities
and Billings in
excess of costs and estimated earnings.connection with reduced activity in the three months ended December 31, 2019 compared with the three months ended September 30, 2019.
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
MarchDecember 31, 2019, the estimated cost to complete our bonded projects was approximately
$77.0$98.7 million.
33
LIQUIDITY AND CAPITAL RESOURCES
The Revolving Credit Facility
We maintain a $100 million revolving credit facility
with Wells Fargo. that matures August 9, 2021, pursuant to a
Second Amended and Restated Credit and Security Agreementcredit agreement with Wells Fargo
dated as of April 10, 2017, which was amended on July 14, 2017, August 2, 2017, and July 23, 2018that matures September 30, 2024 (as amended, the
“Amended"Amended Credit
Agreement”Agreement").
The Amended Credit Agreement contains customary affirmative, negative and financial covenants as well as events of default.
As of
MarchDecember 31, 2019, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:
a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement), measured quarterly on a trailing four-quarter basis at the end of each quarter, of at least 1.1 to 1.0; and
minimum Liquidity (as defined in the Amended Credit Agreement) of at least thirtytwenty percent (30%(20%) of the Maximum Revolver Amount (as defined in the Amended Credit Agreement), or $30$20 million; with, for purposes of this covenant,
at least fifty percent (50%) of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement).
At
MarchDecember 31, 2019, our Liquidity was
$87.9$109.9 million, our Excess Availability was
$71.7$82.7 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was
6.0:5.2:1.0.
Because our Excess Availability at March 31, 2019, exceeded $30 million, we were not required to comply with minimum EBITDA financial covenant of the Amended Credit Agreement, which would have required that we have a minimum EBITDA for the four quarters ended March 31, 2019, of $35 million. Our EBITDA, as defined in the Amended Credit Agreement for the four quarters ended March 31, 2019, was $48.2 million.
If in the future our Liquidity falls below
$30$20 million (or Excess Availability falls below 50%
orof our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0,
we fail to meet our minimum EBITDA requirement when it is required to be tested, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under the Amended Credit Agreement, it would result in an event of default under the Amended Credit Agreement, which could result in some or all of our indebtedness becoming immediately due and payable.
At
MarchDecember 31, 2019, we had
$6.6$7.7 million in outstanding letters of credit with Wells Fargo and
no outstanding
borrowings of $20.2 million.borrowings.
Our cash flow from operations is not only influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal first and second quarters due to the seasonality that we experience in many regions of the country; however a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions.
Operating activities provided net cash of
$9.4$11.0 million during the
sixthree months ended
MarchDecember 31, 2019, as compared to
$11.2$(1.4) million of net cash
providedused in the
sixthree months ended
MarchDecember 31, 2018. The
decreaseincrease in operating cash flow resulted
primarily from an increase in
earnings and a reduction of working capital
at our Commercial & Industrial and Infrastructure Solutions segments, in
support of growth in these businesses.the three months ended December 31, 2019.
Net cash used in investing activities was
$3.9$1.3 million for the
sixthree months ended
MarchDecember 31, 2019, compared with
$2.4$2.1 million for the
sixthree months ended
MarchDecember 31, 2018. We used cash of
$3.9$1.4 million for purchases of fixed assets in the
sixthree months ended
MarchDecember 31, 2019. For the
sixthree months ended
MarchDecember 31, 2018, we used
$2.3$2.1 million of cash for the purchase of fixed assets.
34
Net cash used in financing activities for the
sixthree months ended
MarchDecember 31, 2019 was
$15.6$1.3 million, compared with
$1.3$2.2 million in the
sixthree months ended
MarchDecember 31, 2018. For the
sixthree months ended
MarchDecember 31, 2019, we
used $10.0drew and repaid $104.2 million
to repay a portion ofon our revolving credit facility. We also used
$5.4$0.9 million to repurchase our shares to satisfy statutory withholding requirements upon the vesting of employee stock compensation, as well as in conjunction with our stock repurchase plan. For the
sixthree months ended
MarchDecember 31, 2018, we used
$1.2$2.2 million to repurchase our shares to satisfy statutory withholding requirements upon the vesting of employee stock compensation, as well as
in conjunction withmarket repurchases under our stock repurchase plan.
Stock Repurchase Program
Our
In 2015, 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.stock, and on May 2, 2019 authorized the repurchase from time to time of up to an additional 1.0 million shares of our common stock under the stock repurchase program. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule
10b5-1 trading plan, which allows repurchases under
pre-set terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We repurchased
235,95419,817 shares pursuant to this program during the
sixthree months ended
MarchDecember 31, 2019.
On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes in our contractual obligations and commitments from those disclosed in our Annual Report on Form
10-K for the fiscal year ended September 30,
2018.35
2019.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Management is actively involved in monitoring exposure to market risk and continues to develop and utilize appropriate risk management techniques. Our exposure to significant market risks includes fluctuations in labor costs and commodity prices for copper, aluminum, steel and fuel. Commodity price risks may have an impact on our results of operations due to the fixed price nature of many of our contracts. We are also exposed to interest rate risk with respect to our outstanding debt obligations on the Amended Credit Agreement. For additional information see“Disclosure “Disclosure Regarding Forward-Looking Statements”Statements” in Part I of this Quarterly Report onForm 10-Q and our risk factors in Part I, Item 1A. “Risk Factors”Factors” in our Annual Report on Form10-K for the fiscal year ended September 30, 2018.2019.
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.
We are subject to interest rate risk on
our floating interest rate borrowings
on the Amended Credit Agreement.under our revolving credit facility. 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.
As we have no floating interest rate borrowings outstanding at December 31, 2019, we had no exposure to interest rate risk as of that date. We currently do not maintain any hedging contracts that would limit our exposure to variable rates of interest when we have outstanding borrowings. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates.
All of the long-term debt outstanding under our revolving credit facility is structured on floating interest rate terms. A one percentage point increase in the interest rates on our long-term debt outstanding under our revolving credit facility as of March 31, 2019, would cause a $0.2 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 Rules
13a-15 and
15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Disclosure Controls and Procedures
In accordance with
Rules 13a-15 and
15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
MarchDecember 31, 2019, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
PART II. OTHER INFORMATION
For information regarding legal proceedings, see Note 13, “Commitments12, “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.36
There have been no material changes to the risk factors disclosed under Part 1,I, Item 1A. “Risk Factors”in our Annual Report on Form10-K for the fiscal year ended September 30, 2018.37
2019.
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
MarchDecember 31, 2019:
| | | | | | | | | | | | | | | | |
Date | | Total Number of Shares Purchased (1) | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of a Publicly Announced Plan (2) | | | Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plan as of March 31, 2019 | |
January 1, 2019 – January 31, 2019 | | | 147,617 | | | $ | 16.61 | | | | 147,617 | | | | 531,054 | |
February 1, 2019 – February 28, 2019 | | | 40,103 | | | $ | 17.00 | | | | 40,103 | | | | 490,951 | |
March 1, 2019 – March 31, 2019 | | | 3,722 | | | $ | 17.65 | | | | 2,101 | | | | 488,850 | |
| | | | | | | | | | | | | | | | |
Total | | | 191,442 | | | $ | 16.71 | | | | 189,821 | | | | 488,850 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | |
Date | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plan as of December 31, 2019 (2) |
October 1, 2019 – October 31, 2019 | 1,759 |
| $19.69 |
| 1,759 | 1,255,226 |
November 1, 2019 – November 30, 2019 | 6,805 |
| $19.64 |
| 6,805 | 1,248,421 |
December 1, 2019 – December 31, 2019 | 28,680 |
| $24.04 |
| 11,253 | 1,237,168 |
Total | 37,244 |
| $23.03 |
| 19,817 | 1,237,168 |
| |
(1) | The total number of shares purchased includes shares purchased pursuant to the plan described in footnote (2) below. During the quarter ended March 31, 2019, 1,621 shares were surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of performance stock units issued to employees. |
| |
(2) | In 2015, our Board of Directors authorized a stock repurchase program for the purchase of up to 1.5 million shares of the Company’s common stock from time to time. Ontime, and on May 2, 2019, our Board of Directors authorized subject to consent of the lenders under our credit facility, the repurchase from time to time of up to an additional 1.0 million shares of the Company’s common stock under the stock repurchase program. |
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
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Exhibit
No.
| | Description
|
| |
Exhibit No. | Description |
3.1 — | | |
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3.2 — | | |
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3.3 — | | |
38
| | |
Exhibit
No.
| | Description
|
| |
4.1 — | | |
| |
4.2 — | | |
| |
10.1 — | | Third Amendment, dated as of July 23, 2018, to Second Amended and Restated Credit and Security Agreement, dated as of April 10, 2017, by and among IES Holdings, Inc., each of the other Borrowers and Guarantors named therein and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form8-K filed on July 23, 2018) |
| |
10.2 *— | | Form of Phantom Stock Unit Award under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016), dated February 6, 2019.(1) |
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10.3 *— | | IES Holdings, Inc. Short-Term Incentive Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report onForm 8-K filed March, 5, 2019) |
| |
10.4 *— | | IES Holdings, Inc. Long-Term Incentive Plan Annual Grant Program. (Incorporated by reference to Exhibit 10.210.1 to the Company’sCompany's Current Report onForm 8-K filed March, 5, December 6, 2019) * |
| |
10.5*10.2 — | | |
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10.6* — | | Time-Based Restricted Stock Award Agreement, dated as of March 4, 2019, by and between IES Holdings, Inc. and Gary S. Matthews, under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016).(1) |
| |
10.7* — | | First Stock Price-Based Restricted Stock Award Agreement dated as(1)* |
10.3 — | |
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10.8* — | | SecondPhantom Stock Price-Based Restricted StockUnit Award Agreement dated as of March 4, 2019, by and between IES Holdings, Inc. and Gary S. Matthews, under the Company’s Amended and Restated 2006 Equity Incentive Plan (as of February 9, 2016).(1)* |
| |
10.9 *— | | Employment Agreement between IES Holdings, Inc. and Gary S. Matthews, dated as of February 28, 2019.(1) |
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10.10* — | | Transition Agreement and Release between IES Holdings, Inc. and Robert W. Lewey, dated as of March 9, 2019.(1) |
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10.11* — | | Consulting Fee Agreement between IES Holdings, Inc. and Robert W. Lewey, dated as of March 9, 2019.(1) |
| |
10.12 — | | Second Amendment, dated as of May 1, 2019, to Sublease Agreement, dated as of March 29, 2012 and amended as of March 31, 2016, between Tontine Associates, L.L.C. and IES Management ROO, LP.(1) |
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31.1 — | | |
| |
31.2 — | | |
39
| | |
Exhibit
No.
| | Description
|
| |
32.1 — | | |
| |
32.2 — | | |
| | |
| |
(1)101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1) |
| |
(1)101.SCH | | XBRL Schema Document(1) |
| |
(1)101.LAB | | XBRL Label Linkbase Document(1) |
| |
(1)101.PRE | | XBRL Presentation Linkbase Document(1) |
| |
(1)101.DEF | | XBRL Definition Linkbase Document(1) |
| |
(1)101.CAL | | XBRL Calculation Linkbase Document(1) |
104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| |
(1) | Filed herewith. |
* | Management contract or compensatory plan or arrangement. |
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
May 6, 2019.IES HOLDINGS, INC.
February 4, 2020.
|
| | |
By: | IES HOLDINGS, INC. |
| | |
| | |
| By: | /s/ TRACY A. MCLAUCHLIN |
| | Tracy A. McLauchlin |
| | Senior Vice President, Chief Financial Officer and Treasurer |
| | (Principal Financial Officer and Authorized Signatory)
|
41