UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM			10-Q


(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended		~~March~~December 31, 2022
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Commission file number			001-13783

IES Holdings, Inc.

(Exact name of registrant as specified in its charter)


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

5433 Westheimer Road, Suite 500, Houston, Texas 77056

(Address of principal executive offices and zip code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

IESC

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On ~~April 27, 2022,~~January 31, 2023, there were ~~20,787,896~~20,169,805 shares of common stock outstanding.

IES HOLDINGS, INC. AND SUBSIDIARIES

INDEX



			Page
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets as of ~~March~~December 31 ~~202~~2 , 2022 and September 30, ~~2021~~20 2 2	6
		Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~March~~December 31 ~~31, 202~~2 , 2022 and 2 ~~021~~2021	7
		Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Six Months~~ Ended ~~March~~December 31 , 2022 and 2 ~~021~~2021	98
		Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~March~~December 31, ~~31, 202~~2 2022 and 20 212021	109
		Notes to Condensed Consolidated Financial Statements	1110
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2622
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		3930
	Item 4. Controls and Procedures		3930
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		4031
	Item 1A. Risk Factors		4031
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4031
	Item 3. Defaults Upon Senior Securities		4031
	Item 4. Mine Safety Disclosures		4031
	Item 5. Other Information		4031
	Item 6. Exhibits		4132
	Signatures		4233

PART I. FINANCIAL INFORMATION

DEFINITIONS

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

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

•the impact of the COVID-19 pandemic or any future epidemics or pandemics on our business, including the potential for new or continued job site closures or work stoppages, supply chain disruptions, delaysa general reduction in ~~awarding new project bids, construction delays, reduced~~the demand for our ~~services, delays in our ability to collect from our customers, the impact of third party vaccine mandates on employee recruiting and retention,~~products or ~~illness of management or other employees;~~services;

•changes in general economic conditions, including market and macro-economic disruptions resulting from Russia's invasion of Ukraine or other geo-political events;

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

•our ability to successfully manage projects, the cost and availability of qualified labor and the ability to maintain positive labor relations, and our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel, electronic components and certain plastics;

•~~potential~~ supply chain disruptions due to our suppliers' access to materials and labor, their ability to ship products timely, or credit or liquidity problems they may face;

•the impact of the COVID-19 pandemic or any future epidemics or pandemics on our business, including the potential for new or continued job site closures or work stoppages, supply chain disruptions, delays in awarding new project bids, construction delays, reduced demand for our services, delays in our ability to collect from our customers, the impact of third party vaccine mandates on employee recruiting and retention, or illness of management or other employees;

•inaccurate estimates used when entering into fixed-price contracts, the possibility of errors when estimating revenue and progress to date on percentage-of-completion contracts, and complications associated with the incorporation of new accounting, control and operating procedures;

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

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

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

•~~a general reduction in the demand for our products or services;~~

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

•failure to adequately recover on contract change orders or claims against customers;

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

•the impact of seasonality, adverse weather conditions, and climate change;

•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;

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

•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 policies at acceptable rates;

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

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

•liabilities under existing or potential future laws and regulations, ~~protecting~~including those related to the environment ~~including those laws related to~~and climate change;

•expenditures to comply with future changes in laws and regulations, including environmental laws and regulations ~~including~~and those relating to climate change;

•loss of key personnel, ineffective transition of new management, or inability to transfer, renew and obtain electrical and other professional licenses;

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

•the recognition of tax benefits related to uncertain tax positions and the potential for disagreements with taxing authorities with regard to tax positions we have adopted;

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

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

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

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

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

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

•the existence of a controlling shareholder, who has the ability to take action not aligned with other shareholders or to dispose of all or any portion of the shares of our common stock it holds, which could trigger certain change of control provisions in a number of our material agreements, including our financing and surety arrangements and our executive severance plan;

•the relatively low trading volume of our common stock, as a result of which it could be more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders could sell a smaller number of shares;

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

•the potential for substantial sales of our common stock, which could adversely affect our stock price;

•the impact of increasing scrutiny and changing expectations from investors and customers, or new or changing regulations, with respect to environmental, social and governance practices;

•the cost or effort required for our shareholders to bring certain claims or actions against us, as a result of our designation of the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings;

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

•other factors discussed elsewhere in this Quarterly Report on Form 10-Q.

You should understand that the foregoing, as well as other risk factors discussed in this document, including those listed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~2022, could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. We undertake no obligation to publicly update or revise any information, including information concerning our controlling shareholder, net operating losses, borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Quarterly Report on Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein.

Item 1. Financial Statements

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Information)


				March 31,		September 30,					December 31,		September 30,
				2022		2021					2022		2022
				(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
CURRENT ASSETS:	CURRENT ASSETS:							CURRENT ASSETS:
		Cash and cash equivalents		$	19,279	$	23,105		Cash and cash equivalents		$	5,245	$	24,848

		Accounts receivable:							Accounts receivable:
			Trade, net of allowance of $4,045 and $2,387, respectively	309,445		286,707				Trade, net of allowance of $3,738 and $5,361, respectively	348,216		370,726
			Retainage	49,957		41,341				Retainage	70,348		65,065
		Inventories		85,899		68,573			Inventories		99,626		96,333
		Costs and estimated earnings in excess of billings		55,517		43,389			Costs and estimated earnings in excess of billings		44,515		52,076
		Prepaid expenses and other current assets		15,958		21,065			Prepaid expenses and other current assets		21,392		15,350
Total current assets	Total current assets			536,055		484,180		Total current assets			589,342		624,398
Property and equipment, net	Property and equipment, net			52,068		35,454		Property and equipment, net			53,850		54,426
Goodwill	Goodwill			92,395		92,395		Goodwill			92,395		92,395
Intangible assets, net	Intangible assets, net			78,694		85,619		Intangible assets, net			66,738		71,936
Deferred tax assets	Deferred tax assets			17,380		19,009		Deferred tax assets			20,969		20,519
Operating right of use assets	Operating right of use assets			43,734		42,916		Operating right of use assets			56,728		55,890
Other non-current assets	Other non-current assets			10,913		7,049		Other non-current assets			16,794		15,145
Total assets	Total assets			$	831,239	$	766,622	Total assets			$	896,816	$	934,709
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:	CURRENT LIABILITIES:							CURRENT LIABILITIES:
		Accounts payable and accrued expenses		283,684		249,114			Accounts payable and accrued expenses		281,447		316,950
		Billings in excess of costs and estimated earnings		63,619		62,486			Billings in excess of costs and estimated earnings		95,442		84,936
Total current liabilities	Total current liabilities			347,303		311,600		Total current liabilities			376,889		401,886
Long-term debt	Long-term debt			69,498		39,746		Long-term debt			41,997		81,628
Operating long-term lease liabilities	Operating long-term lease liabilities			28,370		28,649		Operating long-term lease liabilities			38,763		38,144
Other non-current liabilities	Other non-current liabilities			10,562		16,080		Other non-current liabilities			27,883		22,570
Total liabilities	Total liabilities			455,733		396,075		Total liabilities			485,532		544,228
Noncontrolling interest	Noncontrolling interest			24,458		24,594		Noncontrolling interest			33,233		29,193
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:							STOCKHOLDERS’ EQUITY:
		Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued							Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued
			and outstanding	—		—				and outstanding	—		—
		Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529							Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529
			issued and 20,785,498 and 20,732,531 outstanding, respectively	220		220				issued and 20,173,853 and 20,341,900 outstanding, respectively	220		220
		Treasury stock, at cost, 1,264,031 and 1,316,998 shares, respectively		(30,587)		(29,300)			Treasury stock, at cost, 1,875,676 and 1,707,629 shares, respectively		(49,653)		(44,000)
		Additional paid-in capital		200,159		201,899			Additional paid-in capital		200,940		201,871
		Retained earnings		181,256		173,134			Retained earnings		226,544		203,197
Total stockholders’ equity	Total stockholders’ equity			351,048		345,953		Total stockholders’ equity			378,051		361,288
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity			$	831,239	$	766,622	Total liabilities and stockholders’ equity			$	896,816	$	934,709

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

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

(Unaudited)

Three Months Ended March 31,
2022 2021
Revenues $ 501,593 $ 331,961
Cost of services 443,086 267,087
Gross profit 58,507 64,874
Selling, general and administrative expenses 63,430 47,655
Contingent consideration 69 73
Loss (gain) on sale of assets (68) 18
Operating income (loss) (4,924) 17,128
Interest and other (income) expense:
Interest expense 543 225
Other (income) expense, net (124) (51)
Income (loss) from operations before income taxes (5,343) 16,954
Provision for (benefit from) income taxes (1,293) 3,611
Net income (loss) (4,050) 13,343
Net income attributable to noncontrolling interest (1,362) (507)
Comprehensive income (loss) attributable to IES Holdings, Inc. $ (5,412) $ 12,836
Earnings (loss) per share attributable to common stockholders of IES Holdings, Inc.:
Basic $ (0.30) $ 0.59
Diluted $ (0.30) $ 0.58
Shares used in the computation of earnings per share:
Basic 20,772,426 20,780,006
Diluted 20,772,426 21,071,059


		Three Months Ended December 31,
		2022		2021
Revenues		$	574,874	$	480,509
Cost of services		479,436		400,782
	Gross profit	95,438		79,727
Selling, general and administrative expenses		67,768		59,402
Contingent consideration		69		69
Gain on sale of assets		(13,060)		(5)
	Operating income	40,661		20,261
Interest and other (income) expense:
Interest expense		1,184		436
Other expense, net		695		765

Income from operations before income taxes		38,782		19,060
Provision for income taxes		10,028		3,981
Net income		28,754		15,079
Net income attributable to noncontrolling interest		(2,352)		(615)
Comprehensive income attributable to IES Holdings, Inc.		$	26,402	$	14,464

Earnings per share attributable to common stockholders of IES Holdings, Inc.:
	Basic	$	1.15	$	0.70
	Diluted	$	1.14	$	0.69

Shares used in the computation of earnings per share:
	Basic	20,242,114		20,702,844
	Diluted	20,449,035		20,958,887

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

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Comprehensive Income~~

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

~~(Unaudited)~~

Six Months Ended March 31,
2022 2021
Revenues $ 982,102 $ 646,799
Cost of services 843,868 523,246
Gross profit 138,234 123,553
Selling, general and administrative expenses 122,832 90,441
Contingent consideration 138 73
Loss (gain) on sale of assets (73) 8
Operating income 15,337 33,031
Interest and other (income) expense:
Interest expense 979 397
Other (income) expense, net 641 (169)
Income from operations before income taxes 13,717 32,803
Provision for income taxes 2,688 7,250
Net income 11,029 25,553
Net income attributable to noncontrolling interest (1,977) (619)
Comprehensive income attributable to IES Holdings, Inc. $ 9,052 $ 24,934
Earnings per share attributable to common stockholders of IES Holdings, Inc.:
Basic $ 0.39 $ 1.18
Diluted $ 0.38 $ 1.16
Shares used in the computation of earnings per share:
Basic 20,737,253 20,756,879
Diluted 21,139,429 21,059,088

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

~~IES HOLDINGS, INC. AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of~~ Stockholders’ Equity (unaudited)

(In Thousands, Except Share Information)

Three Months Ended March 31, 2022
Common Stock Treasury Stock Retained Earnings Total Stockholders' Equity
Shares Amount Shares Amount Additional Paid-In Capital
BALANCE, December 31, 2021 22,049,529 $ 220 (1,261,444) $ (30,460) $ 199,162 $ 187,538 $ 356,460
Acquisition of treasury stock — — (2,587) (127) — — (127)
Non-cash compensation — — — — 997 — 997
Increase in noncontrolling interest — — — — — (870) (870)
Net loss attributable to IES Holdings, Inc. — — — — — (5,412) (5,412)
BALANCE, March 31, 2022 22,049,529 $ 220 (1,264,031) $ (30,587) $ 200,159 $ 181,256 $ 351,048


		Three Months Ended December 31, 2022
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid-In Capital
BALANCE, September 30, 2022		22,049,529	$	220	(1,707,629)	$	(44,000)	$	201,871	$	203,197	$	361,288
	Issuances under compensation plans	—		—	71,013		1,843		(1,843)		—		—
	Acquisition of treasury stock	—		—	(239,060)		(7,496)		7		—		(7,489)

	Non-cash compensation	—		—	—		—		905		—		905
	Increase in noncontrolling interest	—		—	—		—		—		(3,055)		(3,055)

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		26,402		26,402
BALANCE, December 31, 2022		22,049,529	$	220	(1,875,676)	$	(49,653)	$	200,940	$	226,544	$	378,051

Three Months Ended March 31, 2021
Common Stock Treasury Stock Retained Earnings Total Stockholders' Equity
Shares Amount Shares Amount Additional Paid -In Capital
BALANCE, December 31, 2020 22,049,529 $ 220 (1,279,545) $ (24,984) $ 201,219 $ 119,007 $ 295,462
Issuances under compensation plans — — 68,860 1,345 (1,345) — —
Non-cash compensation — — — — 858 — 858
Increase in noncontrolling interest — — — — — (621) (621)
Net income attributable to IES Holdings, Inc. — — — — — 12,836 12,836
BALANCE, March 31, 2021 22,049,529 $ 220 (1,210,685) $ (23,639) $ 200,732 $ 131,222 $ 308,535

Six Months Ended March 31, 2022
Common Stock Treasury Stock Retained Earnings Total Stockholders' Equity
Shares Amount Shares Amount Additional Paid -In Capital
BALANCE, September 30, 2021 22,049,529 $ 220 (1,316,998) $ (29,300) $ 201,899 $ 173,134 $ 345,953
Issuances under compensation plans — — 157,167 3,638 (3,638) — —
Acquisition of treasury stock — — (104,200) (4,925) 0 — (4,925)
Non-cash compensation — — — 1,898 — 1,898
Increase in noncontrolling interest — — — — — (930) (930)
Net income attributable to IES Holdings, Inc. — — — — — 9,052 9,052
BALANCE, March 31, 2022 22,049,529 $ 220 (1,264,031) $ (30,587) $ 200,159 $ 181,256 $ 351,048

Six Months Ended March 31, 2021
Common Stock Treasury Stock Retained Earnings Total Stockholders' Equity
Shares Amount Shares Amount Additional Paid -In Capital
BALANCE, September 30, 2020 22,049,529 $ 220 (1,287,134) $ (24,499) $ 200,587 $ 107,005 $ 283,313
Issuances under compensation plans — — 107,327 2,086 (2,086) — —
Acquisition of treasury stock — — (30,878) (1,226) 531 (695)
Cumulative effect adjustment from adoption of new accounting standard — — — — (214) (214)
Non-cash compensation — — — — 1,700 — 1,700
Increase in noncontrolling interest — — — — — (503) (503)
Net income attributable to IES Holdings, Inc. — — — — — 24,934 24,934
BALANCE, March 31, 2021 22,049,529 $ 220 (1,210,685) $ (23,639) $ 200,732 $ 131,222 $ 308,535


		Three Months Ended December 31, 2021
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid -In Capital
BALANCE, September 30, 2021		22,049,529	$	220	(1,316,998)	$	(29,300)	$	201,899	$	173,134	$	345,953
	Issuances under compensation plans	—		—	157,167		3,637		(3,637)		—		—
	Acquisition of treasury stock	—		—	(101,613)		(4,797)		—		—		(4,797)

	Non-cash compensation	—		—	—		—		900		—		900
	Increase in noncontrolling interest	—		—	—		—		—		(60)		(60)

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		14,464		14,464
BALANCE, December 31, 2021		22,049,529	$	220	(1,261,444)	$	(30,460)	$	199,162	$	187,538	$	356,460

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

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


				Six Months Ended March 31,							Three Months Ended December 31,
				2022		2021					2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
		Net income		$	11,029	$	25,553		Net income		$	28,754	$	15,079
		Adjustments to reconcile net income to net cash provided by (used in) operating activities:							Adjustments to reconcile net income to net cash provided by (used in) operating activities:
			Bad debt expense		92		61			Bad debt expense		63		92
			Deferred financing cost amortization		88		94			Deferred financing cost amortization		65		47
			Depreciation and amortization		12,370		9,848			Depreciation and amortization		6,388		6,214
			Loss (gain) on sale of assets		(73)		8			Gain on sale of assets		(13,060)		(5)
			Non-cash compensation expense		1,898		1,700			Non-cash compensation expense		905		900
			Deferred income taxes		1,931		5,433			Deferred income tax expense		533		2,195
		Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
			Accounts receivable		(22,830)		11,943			Accounts receivable		18,142		(8,173)
			Inventories		(17,325)		(9,771)			Inventories		(5,113)		(5,192)
			Costs and estimated earnings in excess of billings		(12,128)		5,699			Costs and estimated earnings in excess of billings		7,562		(9,140)
			Prepaid expenses and other current assets		(3,795)		1,053			Prepaid expenses and other current assets		(11,766)		(5,366)
			Other non-current assets		(1,968)		(83)			Other non-current assets		103		(1,564)
			Accounts payable and accrued expenses		26,911		(9,324)			Accounts payable and accrued expenses		(29,780)		(23,169)
			Billings in excess of costs and estimated earnings		1,134		4,518			Billings in excess of costs and estimated earnings		10,722		3,756
			Other non-current liabilities		(242)		1,626			Other non-current liabilities		826		(137)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities				(2,908)		48,358	Net cash provided by (used in) operating activities				14,344		(24,463)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchases of property and equipment			(21,627)		(3,004)		Purchases of property and equipment			(2,712)		(12,339)
		Proceeds from sale of assets			199		68		Proceeds from sale of assets			19,205		84
		Cash paid in conjunction with equity investments			(500)		—
		Cash paid in conjunction with business combinations			—		(55,468)		Cash paid in conjunction with equity investments			(165)		(500)
Net cash used in investing activities					(21,928)		(58,404)

Net cash provided by (used in) investing activities								Net cash provided by (used in) investing activities				16,328		(12,755)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
		Borrowings of debt			872,609		584,483		Borrowings of debt			607,974		444,159
		Repayments of debt			(842,727)		(584,495)		Repayments of debt			(647,639)		(415,937)
		Cash paid for finance leases			(603)		(240)		Cash paid for finance leases			(773)		(270)

		Distribution to noncontrolling interest			(3,344)		(251)		Distribution to noncontrolling interest			(2,348)		(1,215)
		Purchase of treasury stock			(4,925)		(695)		Purchase of treasury stock			(7,489)		(4,798)

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities				21,010		(1,198)	Net cash provided by (used in) financing activities				(50,275)		21,939
NET DECREASE IN CASH AND CASH EQUIVALENTS	NET DECREASE IN CASH AND CASH EQUIVALENTS				(3,826)		(11,244)	NET DECREASE IN CASH AND CASH EQUIVALENTS				(19,603)		(15,279)
CASH AND CASH EQUIVALENTS, beginning of period	CASH AND CASH EQUIVALENTS, beginning of period				23,105		53,577	CASH AND CASH EQUIVALENTS, beginning of period				24,848		23,105
CASH AND CASH EQUIVALENTS, end of period	CASH AND CASH EQUIVALENTS, end of period			$	19,279	$	42,333	CASH AND CASH EQUIVALENTS, end of period			$	5,245	$	7,826

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:							SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
			Cash paid for interest	$	949	$	262			Cash paid for interest	$	1,001	$	501
			Cash paid for income taxes (net)	$	2,142	$	2,182			Cash paid for income taxes (net)	$	63	$	9

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

109

IES HOLDINGS, INC.

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

1. BUSINESS AND ACCOUNTING POLICIES

Description of the Business

IES Holdings, Inc. designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of ~~end-markets,~~end markets, including data centers, residential housing and commercial and industrial facilities. Our operations are organized into four ~~principal~~ business segments, based upon the nature of our services:

•Communications – Nationwide provider of technology infrastructure services, including the design, build, and maintenance of the communications infrastructure within data centers for co-location and managed hosting customers, for both large corporations and independent businesses.

•Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes, as well as heating, ventilation and air conditioning (HVAC) and plumbing installation services in certain markets.

•Infrastructure Solutions – Provider of electro-mechanical solutions for industrial operations, including apparatus repair and custom-engineered products such as generator enclosures ~~to be~~ used in data centers and other industrial applications.

•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 and data centers.

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 segment can be seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues generated during fall and 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. From quarter to quarter, results for our Communications, Residential, and Commercial & Industrial segments may be materially affected by the timing of new construction projects, and our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results for our Infrastructure Solutions segment may be affected by the timing of outages or capital projects 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 United States 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, ~~2021.~~2022. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.

Noncontrolling Interest

In connection with our acquisitions of Edmonson Electric, LLC ~~(“Edmonson”)~~ and Bayonet Plumbing, Heating & Air-Conditioning, LLC (“Bayonet”) in fiscal 2021, and NEXT Electric, LLC 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~~third-party seller. The interests retained by those ~~third party~~third-party sellers are identified on our Condensed Consolidated Balance Sheets as noncontrolling interest, classified outside of permanent equity. Under the terms of each entity’s operating agreement, after five years from the date of the acquisition, we may elect to purchase, or the third-party seller may require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on 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

1110

~~amounts~~ assuming the noncontrolling interests were redeemable at the balance sheet date. If all of the noncontrolling interests remaining outstanding at ~~March~~December 31, 2022 had been redeemable at that date, the redemption amount would have been ~~$21,942.~~$31,750.

Use of Estimates

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

Other (Income) Expense, Net

Other (Income) Expense, Net includes primarily unrealized gains or losses on equity securities, including those related to our Executive Deferred Compensation Plan. These securities are recorded at fair value (Level 1) at the end of each reporting period. Please refer to Note 9 - Fair Value Measurements for further information.

~~Accounting Standards Recently Adopted~~

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This update is effective for fiscal years beginning after December 15, 2020 and for interim periods within that year. Early adoption is permitted. We adopted this standard on October 1, 2021 with immaterial impact on our Condensed Consolidated Financial Statements.

2. CONTROLLING STOCKHOLDER

Tontine Associates, L.L.C. ("(“Tontine ~~Associates"~~Associates”), together with its affiliates (collectively, “Tontine”), is the Company’s controlling stockholder, owning approximately 5658 percent of the Company’s outstanding common stock based on Amendment No. 26 to the ~~Form 4~~Schedule 13D filed by Tontine with the SEC on December ~~3, 2021~~16, 2022 and the Company's shares outstanding as of ~~April 27, 2022~~.January 31, 2023. 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.

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 loss carryforwards for federal and state income tax purposes. Furthermore, a change of control would trigger the change of control provisions in a number of our material agreements, including our credit agreement, bonding agreements with our sureties and our executive severance plan.

Jeffrey L. Gendell was appointed as Chief Executive Officer of the Company effective October 1, 2020, having served as the Company's Interim Chief Executive Officer since July 31, 2020. Mr. Gendell also serves as Chairman of the Board of Directors, a position he has held since 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.~~January 2018.

The Company is party to a sublease agreement with Tontine Associates for corporate office space in Greenwich, Connecticut. ~~The~~In December 2022, the Company entered into an amendment of the sublease ~~extends~~agreement, which was set to terminate on February 28, 2023, to extend the term of the agreement through ~~February 27, 2023, with~~August 31, 2024 and to increase the monthly payments ~~due in the amount of~~from approximately ~~$8.~~$8 to approximately $9 effective March 1, 2023. Payments by the Company are at a rate consistent with that paid by Tontine Associates to its landlord.

On December 6, 2018, the Company entered into a Board Observer Letter Agreement (the "Observer Agreement") with Tontine

Associates in order to assist Tontine in managing its investment in the Company. Subject to the terms and conditions set forth in the Observer 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 Observer Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable out-of-pocket expenses

incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.

3. REVENUE RECOGNITION

Contracts

Our revenue is derived from contracts with customers, and we determine the appropriate accounting treatment for each contract at its 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.

Performance Obligations

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

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

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

Variable Consideration

The transaction price for our contracts may include variable consideration, which includes changes to transaction price for approved and unapproved change orders, claims and incentives. 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 which 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 accounted for as a reduction of the 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.

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 revenue for the three ~~and six~~ months ended ~~March~~December 31, 2022 and 2021 was derived from the following activities. See details in the following tables:


		Three Months Ended March 31,				Six Months Ended March 31,					Three Months Ended December 31,
		2022		2021			2022		2021				2022		2021
Communications	Communications	$	130,639	$	94,886		$	258,028	$	193,242		Communications	$	147,245	$	127,389
Residential	Residential											Residential
Single-family	Single-family	192,368		100,476			365,896		172,602			Single-family	226,828		173,528
Multi-family and Other	Multi-family and Other	68,038		49,860			136,286		97,225			Multi-family and Other	91,250		68,248
Total Residential	Total Residential	260,406		150,336			502,182		269,827			Total Residential	318,078		241,776
Infrastructure Solutions	Infrastructure Solutions											Infrastructure Solutions
Industrial Services	Industrial Services	15,837		10,548			30,653		20,588			Industrial Services	20,099		14,816
Custom Power Solutions	Custom Power Solutions	25,896		24,168			53,176		48,529			Custom Power Solutions	29,185		27,280
Total Infrastructure Solutions	Total Infrastructure Solutions	41,733		34,716			83,829		69,117			Total Infrastructure Solutions	49,284		42,096
Commercial & Industrial	Commercial & Industrial	68,815		52,023			$	138,063	$	114,613		Commercial & Industrial	60,267		69,248
Total Revenue	Total Revenue	$	501,593	$	331,961		$	982,102	$	646,799		Total Revenue	$	574,874	$	480,509


		Three Months Ended March 31, 2022												Three Months Ended December 31, 2022
			Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total				Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total
Fixed-price	Fixed-price		$	85,722	$	260,406	$	39,924	$	64,346	$	450,398	Fixed-price		$	87,274	$	318,078	$	47,546	$	54,597	$	507,495
Time-and-material	Time-and-material			44,917		—		1,809		4,469		51,195	Time-and-material			59,971		—		1,738		5,670		67,379
Total revenue	Total revenue		$	130,639	$	260,406	$	41,733	$	68,815	$	501,593	Total revenue		$	147,245	$	318,078	$	49,284	$	60,267	$	574,874

		Three Months Ended March 31, 2021												Three Months Ended December 31, 2021
			Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total				Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total
Fixed-price	Fixed-price		$	68,551	$	150,336	$	32,959	$	49,003	$	300,849	Fixed-price		$	88,422	$	241,776	$	40,453	$	64,860	$	435,511
Time-and-material	Time-and-material			26,335		—		1,757		3,020		31,112	Time-and-material			38,967		—		1,643		4,388		44,998
Total revenue	Total revenue		$	94,886	$	150,336	$	34,716	$	52,023	$	331,961	Total revenue		$	127,389	$	241,776	$	42,096	$	69,248	$	480,509

Six Months Ended March 31, 2022
Communications Residential Infrastructure Solutions Commercial & Industrial Total
Fixed-price $ 174,144 $ 502,182 $ 80,377 $ 129,206 $ 885,909
Time-and-material 83,884 — 3,452 8,857 96,193
Total revenue $ 258,028 $ 502,182 $ 83,829 $ 138,063 $ 982,102
Six Months Ended March 31, 2021
Communications Residential Infrastructure Solutions Commercial & Industrial Total
Fixed-price $ 144,565 $ 269,827 $ 65,623 $ 109,690 $ 589,705
Time-and-material 48,677 — 3,494 4,923 57,094
Total revenue $ 193,242 $ 269,827 $ 69,117 $ 114,613 $ 646,799

Accounts Receivable and Allowance for Credit Losses

Accounts receivable include amounts that we have billed or have an unconditional right to bill our customers. As of ~~March~~December 31, 2022, Accounts receivable included ~~$21,824~~$15,135 of unbilled receivables for which we have an unconditional right to bill.

In calculating our expected credit losses, we considered trade receivables, retainage, and costs and estimated earnings in excess of billings, all of which constitute a homogenous portfolio, and therefore, to measure the expected credit loss, they have been grouped together.

We have elected to calculate an expected credit loss based on loss rates from historical data. Each segment groups financial assets with similar risk characteristics and collectively assesses the expected credit losses. If an individual asset experiences credit deterioration to the extent the credit risk is no longer characteristic of the other assets in the group, it will be analyzed individually. The loss rates for our portfolios include our history of credit loss expense, the aging of our receivables, our expectation of payments and adjustment for forward-looking factors specific to the macroeconomic trends in the markets we serve.

Other than trade receivables due in one year or less, we do not have any other financial assets that are past due or are on non-accrual status.

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 exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our Condensed Consolidated Balance Sheet under the caption “Costs and estimated earnings in excess of billings”. Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our Condensed Consolidated Balance Sheet under the caption “Billings in excess of costs and estimated earnings”.

During the three months ended ~~March~~December 31, 2022 and 2021, we recognized revenue of ~~$38,349~~$38,047 and ~~$28,385 related to our contract liabilities at January 1, 2022 and 2021, respectively. During the six months ended March 31, 2022 and 2021, we recognized revenue of $45,115 and $33,740~~$28,341 related to our contract liabilities at October 1, ~~2021~~2022 and ~~2020,~~2021, respectively.

Remaining Performance Obligations

Remaining performance obligations represent the unrecognized revenue value of our contract commitments. New awards represent the total expected revenue value of new contract commitments undertaken during a given period, as well as additions to the scope of existing contract commitments. Our new performance obligations vary significantly each reporting period based on the timing of our major new contract commitments. At ~~March~~December 31, 2022, we had remaining performance obligations of ~~$835,548.~~$1,011,018. The Company expects to recognize revenue on approximately ~~$792,953~~$921,848 of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

For the three ~~and six~~ months ended ~~March~~December 31, 2022, net revenue recognized from our performance obligations satisfied in previous periods was not material.

4. DEBT

At March 31, 2022 and September 30, 2021, we had $70,220 and $40,339, respectively, in borrowings outstanding under our revolving credit facility with Wells Fargo Bank, N.A. ("Wells Fargo"), and long-term debt relatedWe are a party to loans on capital expenditures of $15 and $63, respectively. At March 31, 2022, we also had $4,161 in outstanding letters of credit and total availability of $50,619 under our revolving credit facility without triggering our financial covenants under our Second Amended and Restated Credit and Security Agreement with Wells Fargo (as amended, the "Credit Agreement"). As of March 31, 2022, the Company was in compliance with the financial covenants under the Credit Agreement.

~~On April 28, 2022 we entered into~~ the Third Amended and Restated Credit and Security Agreement ~~with Wells Fargo~~ (the "Amended Credit Agreement"), which ~~among other things, increased our~~provides for a maximum borrowing amount ~~from $125,000 to $150,000. Please refer to~~ ~~Note 15 - Subsequent Events~~ ~~for further information regarding the Amended Credit Agreement.~~

of $150,000 under our revolving credit facility. The Amended Credit Agreement, which matures on September 30, 2026, contains customary affirmative, negative and financial covenants as disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~2022. As of December 31, 2022, the Company was in compliance with the financial covenants under the Amended Credit Agreement.

At December 31, 2022 and September 30, 2022, we had $42,995 and $82,659, respectively, in borrowings outstanding under our revolving credit facility. At December 31, 2022, we also had $5,892 in outstanding letters of credit and total availability of $101,113 under our revolving credit facility without triggering the financial covenants under the Amended Credit Facility.

5. PER SHARE INFORMATION

The following tables reconcile the components of basic and diluted earnings (loss) per share for the three ~~and six~~ months ended ~~March~~December 31, 2022 and 2021:
Three Months Ended March 31,
2022 2021
Numerator:
Net income (loss) attributable to IES Holdings, Inc. $ (5,412) $ 12,836
Increase in noncontrolling interest 870 621
Net income attributable to restricted stockholders of IES Holdings, Inc. — 8
Net income (loss) attributable to common stockholders of IES Holdings, Inc. $ (6,282) $ 12,207
Denominator:
Weighted average common shares outstanding — basic 20,772,426 20,780,006
Effect of dilutive stock options and non-vested securities 0 291,053
Weighted average common and common equivalent shares outstanding — diluted 20,772,426 21,071,059
Earnings (loss) per share attributable to common stockholders of IES Holdings, Inc.:
Basic $ (0.30) $ 0.59
Diluted $ (0.30) $ 0.58


		Six Months Ended March 31,					Three Months Ended December 31,
		2022		2021			2022		2021
Numerator:	Numerator:					Numerator:
Net income attributable to IES Holdings, Inc.	Net income attributable to IES Holdings, Inc.	$	9,052	$	24,934	Net income attributable to IES Holdings, Inc.	$	26,402	$	14,464
Increase in noncontrolling interest	Increase in noncontrolling interest		930		503	Increase in noncontrolling interest		(3,055)		(60)
Net income attributable to restricted stockholders of IES Holdings, Inc.	Net income attributable to restricted stockholders of IES Holdings, Inc.		6		20	Net income attributable to restricted stockholders of IES Holdings, Inc.		(11)		(11)
Net income attributable to common stockholders of IES Holdings, Inc.	Net income attributable to common stockholders of IES Holdings, Inc.	$	8,116	$	24,411	Net income attributable to common stockholders of IES Holdings, Inc.	$	23,336	$	14,393

Denominator:	Denominator:					Denominator:
Weighted average common shares outstanding — basic	Weighted average common shares outstanding — basic		20,737,253		20,756,879	Weighted average common shares outstanding — basic		20,242,114		20,702,844
Effect of dilutive stock options and non-vested securities	Effect of dilutive stock options and non-vested securities		402,176		302,209	Effect of dilutive stock options and non-vested securities		206,921		256,043
Weighted average common and common equivalent shares outstanding — diluted	Weighted average common and common equivalent shares outstanding — diluted		21,139,429		21,059,088	Weighted average common and common equivalent shares outstanding — diluted		20,449,035		20,958,887

Earnings per share attributable to common stockholders of IES Holdings, Inc.:	Earnings per share attributable to common stockholders of IES Holdings, Inc.:					Earnings per share attributable to common stockholders of IES Holdings, Inc.:
Basic	Basic	$	0.39	$	1.18	Basic	$	1.15	$	0.70
Diluted	Diluted	$	0.38	$	1.16	Diluted	$	1.14	$	0.69

1614

For the three ~~and six~~ months ended ~~March~~December 31, 2022 and 2021, the average price of our common shares exceeded the exercise price of all of our outstanding stock options; therefore, all of our outstanding stock options and other potentially dilutive equity instruments were included in the computation of diluted earnings per ~~share, except for the quarter ended March 31, 2022, where such options would have had an anti-dilutive impact on the Company's loss per~~ share.

6. OPERATING SEGMENTS

We manage and measure performance of our business in four distinct operating segments: Communications, Residential, Infrastructure Solutions, and Commercial & Industrial. 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 organization provides general and administrative services, as well as support services, to each of our four operating segments. Management allocates certain shared costs ~~between~~among segments for selling, general and administrative ~~expenses.~~expenses and depreciation expense.

Segment information for the three ~~and six~~ months ended ~~March~~December 31, 2022 and 2021 is as follows:


			Three Months Ended March 31, 2022														Three Months Ended December 31, 2022
			Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Corporate		Total				Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Corporate		Total
Revenues	Revenues		$	130,639	$	260,406	$	41,733	$	68,815	$	—	$	501,593	Revenues		$	147,245	$	318,078	$	49,284	$	60,267	$	—	$	574,874
Cost of services	Cost of services		119,518		214,862		34,672		74,034		—		443,086		Cost of services		125,507		258,459		38,817		56,653		—		479,436
Gross profit (loss)			11,121		45,544		7,061		(5,219)		—		58,507
Gross profit															Gross profit		21,738		59,619		10,467		3,614		—		95,438
Selling, general and administrative	Selling, general and administrative		10,978		33,576		6,391		8,448		4,037		63,430		Selling, general and administrative		12,297		39,051		5,761		5,689		4,970		67,768
Contingent consideration	Contingent consideration		—		69		—		—		—		69		Contingent consideration		—		69		—		—		—		69
Gain on sale of assets	Gain on sale of assets		(7)		—		(28)		(33)		—		(68)		Gain on sale of assets		—		(6)		(19)		(13,035)		—		(13,060)
Operating income (loss)	Operating income (loss)		$	150	$	11,899	$	698	$	(13,634)	$	(4,037)	$	(4,924)	Operating income (loss)		$	9,441	$	20,505	$	4,725	$	10,960	$	(4,970)	$	40,661
Other data:	Other data:														Other data:
		Depreciation and amortization expense	$	362	$	3,721	$	1,385	$	647	$	41	$	6,156		Depreciation and amortization expense	$	430	$	4,144	$	1,354	$	392	$	68	$	6,388
		Capital expenditures	$	750	$	6,707	$	823	$	840	$	168	$	9,288		Capital expenditures	$	642	$	708	$	639	$	723	$	—	$	2,712
		Total assets	$	171,929	$	363,921	$	150,276	$	99,262	$	45,851	$	831,239		Total assets	$	203,500	$	395,243	$	163,201	$	79,548	$	55,324	$	896,816

Three Months Ended March 31, 2021
Communications Residential Infrastructure Solutions Commercial & Industrial Corporate Total
Revenues $ 94,886 $ 150,336 $ 34,716 $ 52,023 $ — $ 331,961
Cost of services 75,339 120,146 25,161 46,441 — 267,087
Gross profit 19,547 30,190 9,555 5,582 — 64,874
Selling, general and administrative 9,615 21,609 6,242 6,744 3,445 47,655
Contingent consideration — 73 — — — 73
Loss (gain) on sale of assets — 52 (26) (8) — 18
Operating income (loss) $ 9,932 $ 8,456 $ 3,339 $ (1,154) $ (3,445) $ 17,128
Other data:
Depreciation and amortization expense $ 347 $ 3,205 $ 1,554 $ 683 $ 39 $ 5,828
Capital expenditures $ 133 $ 1,040 $ 163 $ 397 $ 89 $ 1,822
Total assets $ 128,568 $ 215,399 $ 134,037 $ 69,405 $ 68,243 $ 615,652

Six Months Ended March 31, 2022
Communications Residential Infrastructure Solutions Commercial & Industrial Corporate Total
Revenues $ 258,028 $ 502,182 $ 83,829 $ 138,063 $ — $ 982,102
Cost of services 226,408 414,000 69,048 134,412 — 843,868
Gross profit 31,620 88,182 14,781 3,651 — 138,234
Selling, general and administrative 22,363 64,571 12,449 15,716 7,733 122,832
Contingent consideration — 138 — — — 138
Loss (gain) on sale of assets (13) 8 (28) (40) — (73)
Operating income (loss) $ 9,270 $ 23,465 $ 2,360 $ (12,025) $ (7,733) $ 15,337
Other data:
Depreciation and amortization expense $ 721 $ 7,573 $ 2,728 $ 1,277 $ 71 $ 12,370
Capital expenditures $ 1,344 $ 7,891 $ 11,139 $ 1,085 $ 168 $ 21,627
Total assets $ 171,929 $ 363,921 $ 150,276 $ 99,262 $ 45,851 $ 831,239


			Six Months Ended March 31, 2021														Three Months Ended December 31, 2021
			Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Corporate		Total				Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Corporate		Total
Revenues	Revenues		$	193,242	$	269,827	$	69,117	$	114,613	$	—	$	646,799	Revenues		$	127,389	$	241,776	$	42,096	$	69,248	$	—	$	480,509
Cost of services	Cost of services		155,156		216,109		48,625		103,356		—		523,246		Cost of services		106,891		199,138		34,375		60,378		—		400,782
Gross profit	Gross profit		38,086		53,718		20,492		11,257		—		123,553		Gross profit		20,498		42,638		7,721		8,870		—		79,727
Selling, general and administrative	Selling, general and administrative		18,956		38,936		11,853		13,168		7,528		90,441		Selling, general and administrative		11,384		30,995		6,059		7,268		3,696		59,402
Contingent consideration	Contingent consideration		—		73		—		—		—		73		Contingent consideration		—		69		—		—		—		69
Loss (gain) on sale of assets	Loss (gain) on sale of assets		—		52		(27)		(17)		—		8		Loss (gain) on sale of assets		(6)		8		—		(7)		—		(5)
Operating income (loss)	Operating income (loss)		$	19,130	$	14,657	$	8,666	$	(1,894)	$	(7,528)	$	33,031	Operating income (loss)		$	9,120	$	11,566	$	1,662	$	1,609	$	(3,696)	$	20,261
Other data:	Other data:														Other data:
		Depreciation and amortization expense	$	694	$	4,709	$	2,995	$	1,377	$	73	$	9,848		Depreciation and amortization expense	$	359	$	3,852	$	1,343	$	630	$	30	$	6,214
		Capital expenditures	$	265	$	1,477	$	508	$	665	$	89	$	3,004		Capital expenditures	$	594	$	1,184	$	10,316	$	245	$	—	$	12,339
		Total assets	$	128,568	$	215,399	$	134,037	$	69,405	$	68,243	$	615,652		Total assets	$	161,419	$	338,824	$	145,722	$	94,157	$	45,106	$	785,228

7. STOCKHOLDERS’ EQUITY

Equity Incentive Plan

The Company’s 2006 Equity Incentive Plan, as amended and restated (the “Equity Incentive Plan”), provides for grants of stock options as well as grants of stock, including restricted stock. Approximately 3.0 million shares of common stock are authorized for issuance under the Equity Incentive Plan, of which approximately ~~713,151~~605,313 shares were available for issuance at ~~March~~December 31, 2022.

Stock Repurchase Program

In 2015, our Board 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, and ~~on May 2,~~in 2019 ~~our Board~~ authorized the repurchase from time to time of up to an additional 1.0 million shares ~~of our common stock~~ under the ~~stock~~program. In December 2022, our Board terminated the remaining authorization under this program, and approved a new $40,000 share 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 predetermined 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, reinstated, or ~~reinstated~~terminated at any time at the Company’s discretion and without notice. We repurchased ~~2,587~~219,731 and ~~59,002~~56,415 shares, respectively, of our common stock during the three ~~and six~~ months ended ~~March~~December 31, 2022 and 2021 in open market transactions at an average price of ~~$49.00~~$30.97 and ~~$46.81,~~$46.71, respectively, per share. ~~We repurchased no shares of our common stock during the three and six months ended March 31, 2021 in open market transactions.~~

Treasury Stock

During the ~~six~~three months ended ~~March~~December 31, 2022, we issued 71,013 shares of common stock from treasury stock to employees and repurchased 19,142 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. In addition, 187 restricted shares were forfeited and returned to treasury stock.

During the three months ended December 31, 2021, we issued 73,627 shares of common stock from treasury stock to employees and repurchased 45,198 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. In addition, we issued 83,540 shares from treasury stock to satisfy the vesting of Director PSUs (as defined below) in conjunction with the departure of a Board member.

During the six months ended March 31, 2021, we issued 38,087 shares of common stock from treasury stock to employees and repurchased 16,882 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. In addition, 13,996 restricted shares were forfeited by certain former employees upon their departure and returned to treasury stock. We also issued 380 unrestricted shares of common stock from treasury to members of our Board of Directors as part of their overall compensation, and we issued 68,860 shares from treasury stock to satisfy the vesting of Director PSUs in conjunction with the departure of a board member.

Restricted Stock

We granted 0no restricted shares to executives during the ~~six~~three months ended ~~March~~December 31, 2022. Of the awards previously granted, ~~3,118~~13,452 shares ~~vested. The remaining restricted~~vested and 187 shares ~~either vest subject to the achievement of specified levels of cumulative net income before taxes or vest based on the passage of time.~~were forfeited. During the three months ended ~~March~~December 31, 2022 and 2021, we recognized ~~$36~~$25 and $36, respectively, in compensation expense related to all restricted stock awards. ~~During the six months ended March~~At December 31, 2022, ~~and 2021,~~ we ~~recognized $71 and $74, respectively, in compensation expense related to all~~had no remaining unvested restricted ~~stock awards. At March 31, 2022, the~~shares or unamortized compensation cost related to outstanding unvested restricted ~~stock was $95.~~stock.

Director Phantom Stock Units

Director phantom stock units (“Director PSUs”) are granted to the members of the Board of Directors as part of their overall compensation. The Director PSUs are contractual rights to receive one share of the Company's common stock and are paid via unrestricted stock grants to each director upon their departure from the Board of Directors, or upon a change in control. We record compensation expense for the full value of the grant on the date of grant. During the three months ended ~~March~~December 31, 2022 and 2021, we recognized ~~$96~~$97 and ~~$90, respectively, in compensation expense related to these grants. During the six months ended March 31, 2022 and 2021, we recognized $193 and $186,~~$96, respectively, in compensation expense related to these grants.

Employee Phantom Stock Units

An employee phantom stock unit (an “Employee PSU”) is a contractual right to receive one share of the Company’s common stock. Depending on the terms of each grant, Employee PSUs may vest upon the achievement of certain specified performance objectives and continued performance of services, or may vest based on continued performance of services through the vesting date.

As of ~~March~~December 31, 2022, the Company had outstanding Employee PSUs, which, subject to the achievement of certain performance metrics, could result in the issuance of ~~321,463~~368,527 shares of common stock. During the ~~six~~three months ended ~~March~~December 31, 2022, we granted ~~150,447~~130,739 Employee PSUs, ~~4,962~~7,160 were forfeited, and ~~106,964~~71,013 vested. During the three months ended ~~March~~December 31, 2022 and 2021, we recognized ~~$864~~$783 and ~~$711, respectively, in compensation expense related to Employee PSU grants. During the six months ended March 31, 2022 and 2021, we recognized $1,632 and $1,408,~~$768, respectively, in compensation expense related to Employee PSU grants.

8. ~~EMPLOYEE BENEFIT PLANS~~

~~401(k) Plan~~

In November 1998, we established the IES Holdings, Inc. 401(k) Retirement Savings Plan. All full-time IES employees are eligible to participate on the first day of the month subsequent to completing sixty days of service and attaining age twenty one. Participants become vested in our matching contributions following three years of service. We also maintain several subsidiary retirement savings plans. During the three months ended March 31, 2022 and 2021, we recognized $1,195 and $773, respectively, in matching expense. During the six months ended March 31, 2022 and 2021, we recognized $2,116 and $1,479, respectively, in matching expense.

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 (1) the asset or liability is 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, and 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. Judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.

At ~~March~~December 31, 2022, 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), equity securities held for sale, and contingent consideration liabilities related to certain of our acquisitions.

Financial assets and liabilities measured at fair value on a recurring basis as of ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, are summarized in the following tables by the type of inputs applicable to the fair value measurements:


		March 31, 2022								December 31, 2022
				Total Fair Value		Quoted Prices (Level 1)		Significant Unobservable Inputs (Level 3)				Total Fair Value		Quoted Prices (Level 1)		Significant Unobservable Inputs (Level 3)
Executive savings plan assets	Executive savings plan assets		$	862	$	862	$	—	Executive savings plan assets		$	740	$	740	$	—
Equity securities	Equity securities			1,392		1,392		—	Equity securities			1,148		1,148		—
Executive savings plan liabilities	Executive savings plan liabilities			(734)		(734)		—	Executive savings plan liabilities			(617)		(617)		—
Contingent consideration liability	Contingent consideration liability			(4,252)		—		(4,252)	Contingent consideration liability			(4,358)		—		(4,358)
Total	Total		$	(2,732)	$	1,520	$	(4,252)	Total		$	(3,087)	$	1,271	$	(4,358)


		September 30, 2021								September 30, 2022
				Total Fair Value		Quoted Prices (Level 1)		Significant Unobservable Inputs (Level 3)				Total Fair Value		Quoted Prices (Level 1)		Significant Unobservable Inputs (Level 3)
Executive savings plan assets	Executive savings plan assets		$	937	$	937	$	—	Executive savings plan assets		$	706	$	706	$	—
Equity securities									Equity securities			1,937		1,937		—
Executive savings plan liabilities	Executive savings plan liabilities			(806)		(806)		—	Executive savings plan liabilities			(585)		(585)		—

Contingent consideration liability	Contingent consideration liability			(4,181)		—		(4,181)	Contingent consideration liability			(4,323)		—		(4,323)
Total	Total		$	(4,050)	$	131	$	(4,181)	Total		$	(2,265)	$	2,058	$	(4,323)

In fiscal year 2021, we entered into a contingent consideration arrangement related to the acquisition of Bayonet. At ~~March~~December 31, 2022, we estimated the fair value of this contingent consideration liability at ~~$4,252.~~$4,358. The table below presents the change in fair value of this obligation, which used significant unobservable inputs (Level 3).

Contingent Consideration Agreements

Fair value at September 30, ~~2021~~2022

~~(4,181)~~(4,323)

Net adjustments to fair value

~~(71)~~(35)

Fair value at ~~March~~December 31, 2022

~~(4,252)~~(4,358)

~~10.~~9. INVENTORY

Inventories consist of the following components:


		March 31,		September 30,			December 31,		September 30,
		2022		2021			2022		2022
Raw materials	Raw materials	$	7,877	$	5,819	Raw materials	$	12,822	$	12,504
Work in process	Work in process		7,528		6,848	Work in process		8,159		8,218
Finished goods	Finished goods		1,758		1,554	Finished goods		2,335		2,129
Parts and supplies	Parts and supplies		68,736		54,352	Parts and supplies		76,310		73,482
Total inventories	Total inventories	$	85,899	$	68,573	Total inventories	$	99,626	$	96,333

~~11.~~10. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The following summarizes the carrying value of goodwill by segment at ~~March~~December 31, 2022, which was unchanged from September 30, ~~2021:~~2022:

Communications Residential Infrastructure Solutions Commercial & Industrial Total
Goodwill at March 31, 2022 $ 2,816 $ 51,370 $ 38,209 $ — $ 92,395


	Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total




Goodwill at December 31, 2022	$	2,816	$	51,370	$	38,209	$	—	$	92,395

Intangible Assets

Intangible assets consist of the following:


		Estimated Useful Lives (in Years)				March 31, 2022																Estimated Useful Lives (in Years)				December 31, 2022
					Gross Carrying Amount				Accumulated Amortization			Net													Gross Carrying Amount				Accumulated Amortization			Net
Trademarks/trade names	Trademarks/trade names			5	-	20				$	15,262			$	(3,751)				$	11,511	Trademarks/trade names			5	-	20				$	14,621			$	(4,611)			$	10,010
Technical library	Technical library	20					400					(171)				229		Technical library				20					400					(186)				214
Customer relationships	Customer relationships	6	-	15			96,879					(29,936)				66,943		Customer relationships				6	-	15			91,426					(34,917)				56,509
Non-competition arrangements	Non-competition arrangements	5					40					(29)				11		Non-competition arrangements				5					40					(35)				5
Backlog and construction contracts	Backlog and construction contracts	1					4,957					(4,957)				—		Backlog and construction contracts				1					4,958					(4,958)				—
Total intangible assets	Total intangible assets						$	117,538				$	(38,844)			$	78,694	Total intangible assets									$	111,445				$	(44,707)			$	66,738


		Estimated Useful Lives (in Years)				September 30, 2021																Estimated Useful Lives (in Years)				September 30, 2022
					Gross Carrying Amount				Accumulated Amortization			Net													Gross Carrying Amount				Accumulated Amortization			Net
Trademarks/trade names	Trademarks/trade names			5	-	20				$	15,262			$	(2,891)				$	12,371	Trademarks/trade names			5	-	20				$	15,262			$	(4,589)			$	10,673
Technical library	Technical library	20					400					(161)				239		Technical library				20					400					(181)				219
Customer relationships	Customer relationships	6	-	15			96,879					(24,021)				72,858		Customer relationships				6	-	15			96,699					(35,662)				61,037
Non-competition arrangements	Non-competition arrangements	5					40					(25)				15		Non-competition arrangements				5					40					(33)				7
Backlog and construction contracts	Backlog and construction contracts	1					4,957					(4,821)				136		Backlog and construction contracts				1					4,958					(4,958)				—
Total intangible assets	Total intangible assets						$	117,538				$	(31,919)			$	85,619	Total intangible assets									$	117,359				$	(45,423)			$	71,936

~~12.~~11. COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time we are a party to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business. We maintain various insurance coverages to minimize financial risk associated with these proceedings. None of these proceedings, separately or in the aggregate, are expected to have a material adverse effect on our financial position, results of operations or cash

flows. With respect to all such proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We expense routine legal costs related to these proceedings as they are incurred.

On June 22, 2021, the United States Department of Labor Wage and Hour Division (the “DOL”) notified IES Residential, Inc. (“IESR”), a wholly-owned subsidiary of the Company, that the DOL had commenced an administrative investigation of IESR’s

compliance with laws regulating employee wage payment. The inquiry concerned ~~overtime calculations and~~ record keeping with respect to certain Arizona employees who are paid on a piece rate basis. ~~In response to certain DOL requests, IESR produced documents and made employees available for interviews.~~

~~On November 10, 2021,~~We entered into a settlement with the DOL ~~indicated that it believes IESR piece rate employees~~in November 2022, resolving this matter. Costs associated with this matter, which did not ~~record all hours worked, and therefore, IESR was not in compliance with the Fair Labor Standards Act. We are conducting an internal investigation~~have a material impact on ~~this matter, and plan to vigorously defend the Company against these allegations. We have established~~our results of operations, were accrued as a ~~reserve~~liability as of ~~$350 for the costs to investigate and resolve this matter. At this time, it is not possible for us to estimate a range of costs we expect to incur.~~

September 30, 2022.

In the course of performing work as a subcontractor, from time to time we may be involved in projects which are the subject of contractual disputes between the general contractor and project owner, or between us and the general contractor. In such cases, payment of amounts owed to us by the general contractor may be delayed as contractual disputes are resolved through mediation, arbitration, or litigation. Such disputes may cause us to incur legal fees and other expenses to enforce our contractual rights, and we may not prevail in recovering all amounts to which we believe we are contractually entitled. At ~~March 31,~~September 30, 2022, we had an aggregate ~~$9,700~~$10,451 of trade accounts receivable where payment ~~has~~had been delayed as a result of contractual ~~disputes.~~disputes and against which we had recorded a reserve of $3,095. During the quarter ended December 31, 2022, we collected $5,140 related to these receivables. We believe that we are contractually entitled to ~~all of these~~the remaining amounts owed to us, and intend to vigorously pursue recovery. ~~However, based on uncertainty around the timing and amount of recovery, at March~~At December 31, 2022, ~~we have recorded a reserve~~the remaining book value of ~~$1,800 against~~receivables and retainage related to these ~~receivables.~~contractual disputes, net of associated reserves, was $2,389.

Risk Management

We retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group health claims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits. Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors, as additional insured parties under our insurance policies. Losses are accrued based upon our known claims incurred and an estimate of claims incurred but not reported. As a result, many of our claims are effectively self-insured. Many claims against our insurance are in the form of litigation. At ~~March~~December 31, 2022 and September 30, ~~2021,~~2022, we had ~~$6,039~~$7,695 and ~~$5,787,~~$7,693, respectively, accrued for self-insurance liabilities. Because the reserves are based on judgment and estimates and involve variables that are inherently uncertain, such as the outcome of litigation and an assessment of insurance coverage, there can be no assurance that the ultimate liability will not be higher or lower than such estimates or that the timing of payments will not create liquidity issues for the Company.

Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date, we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At ~~March~~December 31, 2022 and September 30, ~~2021, $3,962~~2022, $5,693 and ~~$4,327,~~$3,878, respectively, of our outstanding letters of credit was utilized to collateralize our insurance program.

Surety

As of ~~March~~December 31, 2022, the estimated cost to complete our bonded projects was approximately ~~$125,880.~~$77,855. 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 revolving 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.

From time to time we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of ~~March~~December 31, 2022, we had commitments of ~~$12,058~~$6,936 outstanding under agreements to purchase copper wire and other materials over the next 12 months in the ordinary course of business.

~~13.~~12. LEASES

We enter into various contractual arrangements for the right to use facilities, vehicles and equipment. The lease terms generally range 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 operating and finance lease liabilities of ~~$14,877~~$17,495 and ~~$1,546,~~$3,663, respectively, as of ~~March~~December 31, 2022, and ~~$13,973~~$17,319 and ~~$1,033,~~$2,928, respectively, as of September 30, ~~2021,~~2022, were included in “Accounts payable and accrued expenses” in the Condensed Consolidated Balance Sheets. Non-current finance lease liabilities and finance lease right-of-use assets were included in the “Other non-current liabilities” and “Other non-current assets”, respectively, in the Condensed Consolidated Balance Sheets.

The maturities of our lease liabilities as of ~~March~~December 31, 2022 are as follows:
Operating Leases Finance Leases Total
Remainder of 2022 $ 11,726 $ 1,187 $ 12,913
2023 11,918 1,576 13,494
2024 8,683 1,541 10,224
2025 6,052 1,256 7,308
2026 3,945 643 4,588
Thereafter 4,482 240 4,722
Total undiscounted lease payments $ 46,806 $ 6,443 $ 53,249
Less: imputed interest 3,559 540 4,099
Present value of lease liabilities $ 43,247 $ 5,903 $ 49,150


	Operating Leases		Finance Leases		Total
Remainder of 2023	$	13,802	$	2,829	$	16,631
2024	15,272		3,744		19,016
2025	11,906		3,503		15,409
2026	8,619		2,601		11,220
2027	5,379		1,061		6,440
Thereafter	7,935		37		7,972
Total undiscounted lease payments	$	62,913	$	13,775	$	76,688
Less: imputed interest	6,655		1,340		7,995
Present value of lease liabilities	$	56,258	$	12,435	$	68,693

The total future undiscounted cash flows related to lease agreements committed to but not yet commenced as of ~~March~~December 31, 2022 is ~~$2,346.~~$2,104.

Lease cost recognized in our Condensed Consolidated Statements of Comprehensive Income is summarized as follows:
Three Months Ended Six Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
Operating lease cost $ 4,157 $ 3,804 $ 0 $ 8,160 $ 7,049
Finance lease cost
Amortization of lease assets 332 133 603 242
Interest on lease liabilities 56 26 104 48
Finance lease cost 388 159 707 290
Short-term lease cost 491 237 776 550
Variable lease cost 485 343 957 634
Total lease cost $ 5,521 $ 4,543 $ 10,600 $ 8,523


	Three Months Ended
	December 31, 2022		December 31, 2021
Operating lease cost	$	4,926	$	3,287
Finance lease cost
Amortization of lease assets	675		176
Interest on lease liabilities	150		33
Finance lease cost	825		209
Short-term lease cost	589		330
Variable lease cost	413		321
Total lease cost	$	6,753	$	4,147

Other information about lease amounts recognized in our Condensed Consolidated Financial Statements is summarized as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
		March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021			December 31, 2022		December 31, 2021
Operating cash flows used for operating leases	Operating cash flows used for operating leases	$	5,111	$	3,654	$	9,351	$	7,649	Operating cash flows used for operating leases	$	5,951	$	4,240
Operating cash flows used for finance leases	Operating cash flows used for finance leases	56		—		104		48		Operating cash flows used for finance leases	150		47
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	3,984		6,247		11,499		14,861		Right-of-use assets obtained in exchange for new operating lease liabilities	6,319		6,982
Right-of-use assets obtained in exchange for new finance lease liabilities	Right-of-use assets obtained in exchange for new finance lease liabilities	1,328		396		2,582		960		Right-of-use assets obtained in exchange for new finance lease liabilities	2,944		1,092


		March 31, 2022		September 30, 2021			December 31, 2022		September 30, 2022
Weighted-average remaining lease term - operating leases	Weighted-average remaining lease term - operating leases	4.3 years		5.0 years		Weighted-average remaining lease term - operating leases	4.7 years		4.8 years
Weighted-average remaining lease term - finance leases	Weighted-average remaining lease term - finance leases	4.3 years		4.2 years		Weighted-average remaining lease term - finance leases	3.9 years		3.9 years
Weighted-average discount rate - operating leases	Weighted-average discount rate - operating leases	3.4	%	3.7	%	Weighted-average discount rate - operating leases	4.3	%	4.0	%
Weighted-average discount rate - finance leases	Weighted-average discount rate - finance leases	4.1	%	4.3	%	Weighted-average discount rate - finance leases	5.3	%	4.7	%

~~14.~~13. BUSINESS COMBINATIONS AND DIVESTITURES

We completed no acquisitions during the ~~six~~three months ended ~~March~~December 31, ~~2022. We completed four acquisitions in fiscal~~2022 or during the year 2021 for total aggregate cash consideration of $92,462. In November 2020, we acquired both Wedlake Fabricating, Inc., a Tulsa, Oklahoma-based manufacturer of custom generator enclosures that are primarily used by data centers and large commercial and industrial facilities, and K.E.P. Electric, Inc., a Batavia, Ohio-based electrical contractor specializing in the design and installation of electrical systems for single-family housing and multi-family developments. In December 2020, we acquired an 80% interest in Bayonet Plumbing, Heating & Air-Conditioning, LLC, a Hudson, Florida-based provider of residential heating, ventilation and air conditioning ("HVAC") and plumbing installation and maintenance services. In May 2021, we acquired an 80% ownership interest in Edmonson Electric, LLC, a Land O'Lakes, Florida-based provider of residential electric, low voltage, and HVAC installation services.

In addition to the cash consideration, the purchase price included contingent consideration with respect to the acquisition of Bayonet of up to $4,500 due in December 2023. Amounts to be paid are contingent on earnings achieved over a three year period, and will accrue interest on the $4,500 at a rate of 3%, to be paid quarterly. This contingent liability was valued at $4,074 as of the date of the acquisition.

~~15. SUBSEQUENT EVENTS~~ended September 30, 2022.

On ~~April 28,~~October 7, 2022, we ~~entered into~~sold 100% of the ~~Amended Credit Agreement with Wells Fargo~~membership interests of STR Mechanical, LLC and its subsidiary Technical Services II, LLC (collectively, “STR”). As a result, we recognized a preliminary pre-tax gain of $12,978, which ~~increased~~was included in “Gain on sale of assets” within our Condensed Consolidated Statements of Comprehensive Income for the ~~maximum revolver amount from $125,000 to $150,000.~~three months ended December 31, 2022. The ~~Amended Credit Agreement also removed the aggregate cap on Company investments in certain securities and the cap on the Company’s ability to make stock repurchases, in each case~~final purchase price for STR is subject to customary working capital true-up adjustments, expected to be finalized in the ~~satisfaction of certain liquidity requirements. The Amended Credit Agreement continues to contain other customary affirmative, negative and financial covenants as well as events of default.~~second fiscal

2520

quarter of 2023 and which may result in an adjustment to the preliminary gain on sale. The disposition of STR, which had operated as part of our Commercial & Industrial segment, will not have a material impact on our ongoing results of operations or financial position.

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

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Part II, Item 8. “Financial Statements and Supplementary Data” as set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~2022, and the Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion may contain forward looking statements. For additional information, see “Disclosure Regarding Forward Looking Statements” in Part I of this Quarterly Report on Form 10-Q.

OVERVIEW

Executive Overview

Please refer to Part I, Item 1. “Business” of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021,~~2022, for a discussion of the Company’s services and corporate strategy. IES Holdings, Inc., a Delaware corporation, designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end ~~markets.~~markets, including data centers, residential housing, and commercial and industrial facilities. Our operations are organized into four ~~principal~~ business segments: Communications, Residential, Infrastructure Solutions and Commercial & Industrial.

~~Impact of COVID-19 and~~ Current Market and Operating Conditions ~~on Our Business~~

The ~~coronavirus disease 2019 (“COVID-19”)~~Federal Reserve raised the target federal funds rate throughout calendar year 2022, and has announced an expectation that it will continue to raise the target rate into calendar year 2023. This has resulted in higher mortgage rates, which when combined with elevated materials and labor costs, have had a substantial impact on the affordability of housing. There continue to be several trends, such as rising household formation and population growth in our key markets, that we expect will drive long-term demand for our services in the single-family housing market. However, going into calendar year 2023, we do expect decreased housing affordability to cause a near-term decrease in demand for our services in this market. Within the various other end markets we serve, our customers' capital budgets for new construction projects may be impacted by broader economic, technological or other factors.

In recent years, the COVID-19 pandemic and its ~~ongoing~~ impact on markets, the supply chain and the labor force ~~continue to influence~~influenced trends affecting our business. ~~Continuing effects~~While commodity prices for some of supply chain disruptions include elevated prices, limited availability or delays in deliveries for certain materials necessary for our projects, notably copper, steel, aluminum, electronic components, and certain plastics. Reduced availability of certain materials has resulted in a continuing need to take actions such as carrying higher levels of inventory than we typically hold, or, in some cases, substituting higher-cost materials or sourcing materials from new suppliers which may offer less favorable terms or pricing than our usual suppliers. We seek to mitigate supply chain risk by maintaining relationships with multiple vendors, and to recoup higher materials costs through adjusted pricing. However, we are not able to pass on all increased costs, and our suppliers are facing challenges in providing the materials we ~~require.~~procure have become less volatile, procurement and the supply chain remain areas of focus for us. We ~~are~~have also ~~continuing~~experienced, and may continue to experience, workforce disruptions related to exposure to, or illness from, COVID-19, ~~which have resulted~~resulting in production inefficiencies and delays, higher overtime costs, and the need to outsource activities or use more expensive contract labor. An inability to procure materials in a timely manner, to complete work on schedule, and to reflect higher materials or labor costs in our pricing to customers has had, and could continue to have, a significant impact on our operating results.

Factors related to the COVID-19 pandemic that we expect will continue to affect our results of operations in the future include, but are not limited to, the potential impacts on our workforce of either illness or the shut-down of job sites; the impact of any vaccine mandates or testing requirements on employee recruiting and retention; a reduced demand for our services; increases in operating costs due to disruptions, personal protective equipment requirements and other increased employment-related costs; supply chain disruptions; increased material prices; and limitations on the ability of our customers to pay us on a timely basis. With respect to employees working remotely, we may also be more vulnerable to security breaches, cyber-attacks, computer viruses, ransomware, or other similar events. Although we have implemented policies, procedures and security software intended to protect our information technology systems, networks and infrastructure, these measures may not be effective against all potential cybersecurity threats.

We are continuing to monitor conditions affecting our business and will take actions as may be necessary to protect the health and safety of our employees and to serve our customers. The ultimate impact and the extent to which the COVID-19 pandemic will continue to affect our business, results of operations and financial condition are difficult to predict and depend on numerous evolving factors outside our control including: emergence of new variants of the virus; government, social, business and other actions taken in response to the pandemic; any additional waves of COVID-19 infections; vaccine efficacy on new variants of the virus; the impact of vaccine mandates or testing requirements on employee recruiting and retention; and the effect of the pandemic on short- and long-term general economic conditions, including the supply chain.

Please refer to Part I. Item 1A. "“Risk Factors"” of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021~~2022 for further information.

2622

RESULTS OF OPERATIONS

We report our operating results across our four operating segments: Communications, Residential, Infrastructure Solutions, and Commercial & Industrial. 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~~including the results of acquired businesses from the dates acquired.
Three Months Ended March 31,
2022 2021
$ % $ %
(Dollars in thousands, Percentage of revenues)
Revenues $ 501,593 100.0 % $ 331,961 100.0 %
Cost of services 443,086 88.3 267,087 80.5
Gross profit 58,507 11.7 64,874 19.5
Selling, general and administrative expenses 63,430 12.6 47,655 14.4
Contingent consideration 69 — 73 —
Loss (gain) on sale of assets (68) — 18 —
Operating income (loss) (4,924) (1.0) 17,128 5.2
Interest and other expense, net 419 0.1 174 0.1
Income (loss) from operations before income taxes (5,343) (1.1) 16,954 5.1
Provision for (benefit from) income taxes (1,293) (0.3) 3,611 1.1
Net income (loss) (4,050) (0.8) 13,343 4.0
Net income attributable to noncontrolling interest (1,362) (0.3) (507) (0.2)
Net income (loss) attributable to IES Holdings, Inc. $ (5,412) (1.1) % $ 12,836 3.9 %


		Three Months Ended December 31,
		2022				2021
		$		%		$		%
		(Dollars in thousands, Percentage of revenues)
Revenues		$	574,874	100.0	%	$	480,509	100.0	%
	Cost of services	479,436		83.4		400,782		83.4
Gross profit		95,438		16.6		79,727		16.6
	Selling, general and administrative expenses	67,768		11.8		59,402		12.4
	Contingent consideration	69		—		69		—
	Gain on sale of assets	(13,060)		(2.3)		(5)		—
Operating income		40,661		7.1		20,261		4.2
	Interest and other expense, net	1,879		0.3		1,201		0.2
Income from operations before income taxes		38,782		6.7		19,060		4.0
	Provision for income taxes	10,028		1.7		3,981		0.8
Net income		28,754		5.0		15,079		3.1
	Net income attributable to noncontrolling interest	(2,352)		(0.4)		(615)		(0.1)
Net income attributable to IES Holdings, Inc.		$	26,402	4.6	%	$	14,464	3.0	%

Consolidated revenues for the three months ended ~~March~~December 31, 2022, were ~~$169.6~~$94.4 million higher than for the three months ended ~~March~~December 31, 2021, an increase of ~~51.1%~~19.6%, with increases at ~~all four of~~ our Communications, Residential and Infrastructure Solutions operating segments, ~~driven~~slightly offset by ~~strong demand and the contribution~~a decrease at our Commercial & Industrial segment. See further discussion below of ~~Edmonson Electric, LLC ("Edmonson"), which was acquired subsequent to the second quarter of fiscal 2021.~~changes in revenues for our individual segments.

Consolidated gross profit for the three months ended ~~March~~December 31, 2022 ~~decreased $6.4~~increased $15.7 million compared to the three months ended ~~March~~December 31, 2021. Our overall gross profit percentage ~~decreased to 11.7%~~was 16.6% during the three months ended ~~March~~December 31, 2022, ~~as compared to 19.5% during~~consistent with our overall gross profit percentage for the three months ended ~~March~~December 31, 2021. Gross profit as a percentage of revenue ~~decreased~~increased at ~~all four of~~ our Residential and Infrastructure Solutions operating segments, while decreasing at our Communications and Commercial & Industrial operating segments. 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.

During the three months ended ~~March~~December 31, 2022, our selling, general and administrative expenses were ~~$63.4~~$67.8 million, an increase of ~~$15.8~~$8.4 million, or ~~33.1%~~14.1%, over the three months ended ~~March~~December 31, 2021, driven largely by increased personnel costs at our Residential operating segment in connection with its growth, ~~and by expenses incurred~~including higher incentive compensation at ~~Edmonson, including amortization~~the division level as a result of ~~intangible assets.~~higher earnings. Selling, general and administrative expense as a percent of revenue decreased from ~~14.4%~~12.4% for the three months ended ~~March~~December 31, 2021 to ~~12.6%~~11.8% for the three months ended ~~March~~December 31, 2022, as we benefited from the increased scale of our operations.

2723

Six Months Ended March 31,
2022 2021
$ % $ %
(Dollars in thousands, Percentage of revenues)
Revenues $ 982,102 100.0 % $ 646,799 100.0 %
Cost of services 843,868 85.9 523,246 80.9
Gross profit 138,234 14.1 123,553 19.1
Selling, general and administrative expenses 122,832 12.5 90,441 14.0
Contingent consideration 138 — 73 —
Loss (gain) on sale of assets (73) — 8 —
Operating income 15,337 1.6 33,031 5.1
1,620 0.2 228 —
Income from operations before income taxes 13,717 1.4 32,803 5.1
Provision for income taxes 2,688 0.3 7,250 1.1
Net income 11,029 1.1 25,553 4.0
Net income attributable to noncontrolling interest (1,977) (0.2) (619) (0.1)
Net income attributable to IES Holdings, Inc. $ 9,052 0.9 % $ 24,934 3.9 %

Consolidated revenues for the six months ended March 31, 2022, were $335.3 million higher than for the six months ended March 31, 2021, an increase of 51.8%, with increases at all four of our operating segments, driven by strong demand and the contribution of businesses acquired in fiscal 2021.

Our overall gross profit percentage decreased to 14.1% during the six months ended March 31, 2022, as compared to 19.1% during the six months ended March 31, 2021. Gross profit as a percentage of revenue decreased at all four of our operating segments. See further discussion below of changes in gross margin for our individual segments.

During the six months ended March 31, 2022, our selling, general and administrative expenses were $122.8 million, an increase of $32.4 million, or 35.8%, over the six months ended March 31, 2021, driven by increased personnel costs at our Communications and Residential operating segments in connection with their growth and the impact of businesses acquired during fiscal 2021, including amortization of intangible assets. Selling, general and administrative expense as a percent of revenue decreased from 14.0% for the six months ended March 31, 2021, to 12.5% for the six months ended March 31, 2022, as we benefited from the increased scale of our operations.

Communications


		Three Months Ended March 31,									Three Months Ended December 31,
		2022				2021					2022				2021
		$		%		$		%			$		%		$		%
		(Dollars in thousands, Percentage of revenues)									(Dollars in thousands, Percentage of revenues)
Revenues	Revenues	$	130,639	100.0	%	$	94,886	100.0	%	Revenues	$	147,245	100.0	%	$	127,389	100.0	%
Cost of services	Cost of services		119,518	91.5			75,339	79.4		Cost of services		125,507	85.2			106,891	83.9
Gross profit	Gross profit		11,121	8.5			19,547	20.6		Gross profit		21,738	14.8			20,498	16.1
Selling, general and administrative expenses	Selling, general and administrative expenses		10,978	8.4			9,615	10.1		Selling, general and administrative expenses		12,297	8.4			11,384	8.9
Gain on sale of assets	Gain on sale of assets		(7)	—			—	—		Gain on sale of assets		—	—			(6)	—
Operating income	Operating income	$	150	0.1	%	$	9,932	10.5	%	Operating income	$	9,441	6.4	%	$	9,120	7.2	%

Revenues. Our Communications segment’s revenues increased by ~~$35.8~~$19.9 million during the three months ended ~~March~~December 31, 2022, or ~~37.7%~~15.6%, compared to the three months ended ~~March~~December 31, 2021. The increase primarily resulted from increased demand from our data center and high-tech manufacturing customers.

Gross Profit. Our Communications segment’s gross profit during the three months ended ~~March~~December 31, 2022 ~~decreased~~increased by ~~$8.4~~$1.2 million compared to the three months ended ~~March~~December 31, 2021. Gross profit as a percentage of revenue decreased from ~~20.6%~~16.1% to ~~8.5%~~14.8%. We recently expanded our offerings to our data center customers into a new, adjacent service area; however, we had execution issues and recorded a combined loss of $9.3 million on a series of these projects. Most such contracts were substantially complete as of MarchDuring the three months ended December 31, 2022, ~~and~~ the ~~loss recorded for the quarter includes our current best estimate with respect to any additional~~benefit of increased revenue was offset by an increase in operating costs, as we ~~expect to~~

incur to complete the remaining work on these projects. Additionally, a change in customer mix negatively affected our margins for the quarter. Supply chain challenges and workforce disruptions related to COVID-19 have also continued ~~to affect project efficiency. Finally, we continue~~ to invest in hiring and training personnel ~~particularly~~ in ~~estimating and project management, to grow~~support of our growth initiatives. In addition, we experienced more competitive pricing conditions in certain of our end markets during the ~~business.~~three months ended December 31, 2022.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by ~~$1.4~~$0.9 million, or ~~14.2%~~8.0%, during the three months ended ~~March~~December 31, 2022, compared to the three months ended ~~March~~December 31, 2021. The increase is primarily a result of ~~higher personnel cost in connection with the growth of our business, as well as~~ higher wages in an increasingly competitive labor ~~market. We also experienced a more typical level~~market, as well as increased headcount in support of ~~selling expense for the three months ended March 31, 2022 as compared to the same period in 2021, when travel and other activities were curtailed due to the pandemic.~~our growth initiatives. Selling, general and administrative expenses as a percentage of revenue in the Communications segment were 8.4% during the three months ended ~~March~~December 31, 2022, compared to ~~10.1%~~8.9% for the three months ended ~~March~~December 31, 2021, as we have benefited from the scale of our operations.

Six Months Ended March 31,
2022 2021
$ % $ %
(Dollars in thousands, Percentage of revenues)
Revenues $ 258,028 100.0 % $ 193,242 100.0 %
Cost of services 226,408 87.7 155,156 80.3
Gross profit 31,620 12.3 38,086 19.7
Selling, general and administrative expenses 22,363 8.7 18,956 9.8
Gain on sale of assets (13) — — —
Operating income $ 9,270 3.6 % $ 19,130 9.9 %

~~Revenues.~~ Our Communications segment's revenues increased by $64.8 million during the six months ended March 31, 2022, or 33.5%, compared to the six months ended March 31, 2021. The increase primarily resulted from increased demand from our data center customers.

~~Gross Profit.~~ Our Communications segment’s gross profit during the six months ended March 31, 2022 decreased $6.5 million, or 17.0%, as compared to the six months ended March 31, 2021. Gross profit as a percentage of revenue decreased from 19.7% to 12.3%. The decrease was driven primarily by certain project losses incurred in the quarter ended March 31, 2022, as discussed above. Additionally, a change in customer mix negatively affected our margins for the quarter. Supply chain challenges and workforce disruptions related to COVID-19 have also continued to affect project efficiency. Finally, we continue to invest in hiring and training personnel, particularly in estimating and project management, to grow the business.

~~Selling, General and Administrative Expenses.~~ Our Communications segment’s selling, general and administrative expenses increased $3.4 million, or 18.0%, during the six months ended March 31, 2022, compared to the six months ended March 31, 2021. The increase is a result of higher personnel cost in connection with the growth of our business, as well as higher wages in an increasingly competitive labor market. We also experienced a more typical level of selling expense for the six months ended March 31, 2022 as compared to the same period in 2021, when travel and other activities were curtailed due to the pandemic. Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased from 9.8% to 8.7% of segment revenue during the six months ended March 31, 2022, compared to the six months ended March 31, 2021, as we have benefited from the scale of our operations.

Residential


		Three Months Ended March 31,									Three Months Ended December 31,
		2022				2021					2022				2021
		$		%		$		%			$		%		$		%
		(Dollars in thousands, Percentage of revenues)									(Dollars in thousands, Percentage of revenues)
Revenues	Revenues	$	260,406	100.0	%	$	150,336	100.0	%	Revenues	$	318,078	100.0	%	$	241,776	100.0	%
Cost of services	Cost of services	214,862		82.5		120,146		79.9		Cost of services	258,459		81.3		199,138		82.4
Gross profit	Gross profit	45,544		17.5		30,190		20.1		Gross profit	59,619		18.7		42,638		17.6
Selling, general and administrative expenses	Selling, general and administrative expenses	33,576		12.9		21,609		14.4		Selling, general and administrative expenses	39,051		12.3		30,995		12.8
Contingent consideration	Contingent consideration	69		—		73		—		Contingent consideration	69		—		69		—
Loss on sale of assets		—		—		52		—
Loss (gain) on sale of assets										Loss (gain) on sale of assets	(6)		—		8		—
Operating income	Operating income	$	11,899	4.6	%	$	8,456	5.6	%	Operating income	$	20,505	6.4	%	$	11,566	4.8	%

Revenues. Our Residential segment’s revenues increased by ~~$110.1~~$76.3 million, or ~~73.2%~~31.6%, during the three months ended ~~March~~December 31, 2022 compared to the three months ended ~~March~~December 31, 2021. The increase was driven by the ~~revenue contributed by the acquisition of Edmonson subsequent to the second fiscal quarter of 2021, strong demand for single-family and multi-family housing and the~~ impact of price increases in connection with a higher ~~cost of materials. Edmonson contributed $43.6~~materials costs and continued strong demand, particularly in the multi-family and Florida single-family markets. Single-family revenues increased by $53.3 million ~~of the total increase in revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Inclusive of Edmonson, single-family revenues~~ and multi-family and other revenues increased ~~by $91.9 million and $18.2~~$23.0 million, respectively, for the three months ended ~~March 31, 2022 compared to 2021. Excluding the impact of Edmonson, our Residential segment's revenues grew by 44.2% for the three months ended March~~December 31, 2022 compared to the ~~three months ended March 31, 2021.~~prior period.

Gross Profit. During the three months ended ~~March~~December 31, 2022, our Residential segment's gross profit increased by ~~$15.4~~$17.0 million, or ~~50.9%~~39.8%, compared to the three months ended ~~March~~December 31, 2021. The increase in gross profit was driven primarily by ~~contributions from Edmonson,~~increased activity, as well as the impact of price increases. Gross profit as a percentage of revenue ~~decreased~~increased to ~~17.5%~~18.7% during the three months ended ~~March~~December 31, 2022, from ~~20.1%~~17.6% for the three months ended ~~March~~December 31, 2021, ~~primarily~~ as ~~a result of~~prior year gross margins were negatively impacted by higher labor and material costs, which were not offset by increased ~~commodity prices and a reduction~~pricing until later in ~~project efficiency related to supply-chain challenges and the COVID-19 pandemic.~~fiscal year 2022.

Selling, General and Administrative Expenses. Our Residential segment's selling, general and administrative expenses increased by ~~$12.0~~$8.1 million, or ~~55.4%~~26.0%, during the three months ended ~~March~~December 31, 2022, compared to the three months ended ~~March~~December 31, 2021. ~~Selling, general and administrative expenses incurred at Edmonson, including amortization of intangible assets, contributed $4.0 million of the net increase.~~

The ~~remaining~~ increase was driven by higher personnel cost in connection with business growth, including incentive profit sharing for division management. Selling, general and administrative expenses as a percentage of revenue in the Residential segment decreased to ~~12.9% of segment revenue~~12.3% during the three months ended ~~March~~December 31, 2022, compared to ~~14.4%~~12.8% in the three months ended ~~March~~December 31, 2021, as we benefited from the scale of our operations.

Six Months Ended March 31,
2022 2021
$ % $ %
(Dollars in thousands, Percentage of revenues)
Revenues $ 502,182 100.0 % $ 269,827 100.0 %
Cost of services 414,000 82.4 216,109 80.1
Gross profit 88,182 17.6 53,718 19.9
Selling, general and administrative expenses 64,571 12.9 38,936 14.4
Contingent consideration 138 — 73 —
Loss on sale of assets 8 — 52 —
Operating income $ 23,465 4.7 % $ 14,657 5.4 %

~~Revenues.~~ Our Residential segment's revenues increased by $232.4 million, or 86.1%, during the six months ended March 31, 2022, compared to the six months ended March 31, 2021, reflecting the revenue contribution of businesses acquired in fiscal 2021, strong demand for single-family and multi-family housing and the impact of price increases in connection with a higher cost of materials. Businesses acquired in fiscal 2021 contributed $139.9 million of the total increase in revenue for the six months ended March 31, 2022 compared to the six months ended March 31, 2021. Inclusive of these acquired businesses, revenue in our single-family business increased by $193.2 million for the six months ended March 31, 2022, compared to the six months ended March 31, 2021, while multi-family and other revenue increased by $39.1 million. Excluding the impact of the businesses acquired during fiscal 2021, our Residential segment's revenues grew by 34.2% for the six months ended March 31, 2022.

~~Gross Profit.~~ During the six months ended March 31, 2022, our Residential segment's gross profit increased by $34.5 million, or 64.2%, as compared to the six months ended March 31, 2021. The increase in gross profit was driven primarily by contributions from the businesses acquired in fiscal 2021 and higher volumes, partly offset by increased commodity prices. Gross margin as a percentage of revenue decreased to 17.6% during the six months ended March 31, 2022, from 19.9% during the six months ended March 31, 2021, primarily as a result of increased commodity prices and a reduction in project efficiency related to supply-chain challenges and the COVID-19 pandemic.

~~Selling, General and Administrative Expenses.~~ Our Residential segment's selling, general and administrative expenses increased by $25.6 million, or 65.8%, during the six months ended March 31, 2022, compared to the six months ended March 31, 2021. Selling, general and administrative expenses incurred at the businesses acquired during fiscal 2021, including amortization of intangible assets, contributed $13.9 million of the increase. The remaining increase was driven by higher personnel cost in connection with business growth, including incentive profit sharing for division management. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased to 12.9% of segment revenue during the six months ended March 31, 2022, from 14.4% during the six months ended March 31, 2021, as we benefited from the increased scale of our operations.

Infrastructure Solutions


		Three Months Ended March 31,									Three Months Ended June 30,
		2022				2021					2022				2021
		$		%		$		%			$		%		$		%
		(Dollars in thousands, Percentage of revenues)									(Dollars in thousands, Percentage of revenues)
Revenues	Revenues	$	41,733	100.0	%	$	34,716	100.0	%	Revenues	$	49,284	100.0	%	$	42,096	100.0	%
Cost of services	Cost of services		34,672	83.1			25,161	72.5		Cost of services		38,817	78.8			34,375	81.7
Gross profit	Gross profit		7,061	16.9			9,555	27.5		Gross profit		10,467	21.2			7,721	18.3
Selling, general and administrative expenses	Selling, general and administrative expenses		6,391	15.3			6,242	18.0		Selling, general and administrative expenses		5,761	11.7			6,059	14.4

Gain on sale of assets	Gain on sale of assets		(28)	(0.1)			(26)	(0.1)		Gain on sale of assets		(19)	—			—	—
Operating income	Operating income	$	698	1.7	%	$	3,339	9.6	%	Operating income	$	4,725	9.6	%	$	1,662	3.9	%

Revenues. Revenues in our Infrastructure Solutions segment increased ~~$7.0~~$7.2 million during the three months ended ~~March~~December 31, 2022, an increase of ~~20.2%~~17.1% compared to the three months ended ~~March~~December 31, ~~2021. The increase in revenue was~~2021 driven primarily by ~~increased~~continued strong demand atin our generator enclosure business. Wedlake Fabricating, Inc. ("Wedlake"), which we acquired during the first quarter of fiscal 2021, contributed $4.8 million of the increase, reflecting our investment in growing thisenclosures business.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended ~~March~~December 31, 2022 ~~decreased $2.5~~increased $2.7 million as compared to the three months ended ~~March~~December 31, 2021. Gross profit for the three months ended December 31, 2021 ~~reflecting~~was negatively affected by the impact of supply chain disruptions, ~~on our generator enclosure business,~~ COVID-19 related labor inefficiencies, and operating inefficiencies in connection with the relocation of ~~the Wedlake business~~our Tulsa, Oklahoma operation to a new, larger facility ~~that will expand capacity while allowing~~in order to accommodate increased demand for ~~improved workflow and process efficiency.~~our generator enclosure products. Gross profit as a percentage of revenue ~~decreased~~increased from ~~27.5%~~18.3% to ~~16.9%~~21.2%.

Selling, General and Administrative Expenses. Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended ~~March~~December 31, 2022 ~~increased $0.2~~decreased $0.3 million when compared to the three months ended ~~March~~December 31, 2021, primarily as a result of ~~expense incurred at the Wedlake business acquired during the first quarter of fiscal 2021.~~a decrease in medical claims cost. Selling, general and administrative expenses as a percent of revenue decreased from ~~18.0%~~14.4% to ~~15.3%, as we benefited from the scale of our operations.~~

Six Months Ended March 31,
2022 2021
$ % $ %
(Dollars in thousands, Percentage of revenues)
Revenues $ 83,829 100.0 % $ 69,117 100.0 %
Cost of services 69,048 82.4 48,625 70.4
Gross profit 14,781 17.6 20,492 29.6
Selling, general and administrative expenses 12,449 14.9 11,853 17.1
Gain on sale of assets (28) — (27) —
Operating income $ 2,360 2.8 % $ 8,666 12.5 %

~~Revenues.~~ Revenues in our Infrastructure Solutions segment increased $14.7 million, or 21.3%, during the six months ended March 31, 2022 compared to the six months ended March 31, 2021. The increase in revenue was driven primarily by increased demand at our generator enclosure business as well as the acquisition of Wedlake during the first quarter of fiscal 2021, which contributed $8.1 million of the increase.

~~Gross Profit~~11.7%. Our Infrastructure Solutions segment’s gross profit during the six months ended March 31, 2022 decreased $5.7 million as compared to the six months ended March 31, 2021, reflecting the impact of supply chain disruptions on our generator enclosure business, COVID-19 related labor inefficiencies, and operating inefficiencies in connection with the relocation of the Wedlake business to a new, larger facility as discussed above. Gross profit as a percentage of revenues decreased to 17.6% for the six months ended March 31, 2022 compared to 29.6% for the six months ended March 31, 2021. Additionally, during the six months ended March 31, 2021, we benefited from workers' compensation refunds received from the State of Ohio.

~~Selling, General and Administrative Expenses.~~ Our Infrastructure Solutions segment’s selling, general and administrative expenses during the six months ended March 31, 2022 increased $0.6 million compared to the six months ended March 31, 2021, primarily as a result of expenses incurred at the Wedlake business acquired during the first fiscal quarter of 2021, including amortization of intangible assets. Selling, general and administrative expenses as a percent of revenue decreased from 17.1% for the six months ended March 31, 2021 to 14.9% for the six months ended March 31, 2022, as we benefited from the scale of our operations.

Commercial & Industrial


		Three Months Ended March 31,									Three Months Ended December 31,
		2022				2021					2022				2021
		$		%		$		%			$		%		$		%
		(Dollars in thousands, Percentage of revenues)									(Dollars in thousands, Percentage of revenues)
Revenues	Revenues	$	68,815	100.0	%	$	52,023	100.0	%	Revenues	$	60,267	100.0	%	$	69,248	100.0	%
Cost of services	Cost of services		74,034	107.6			46,441	89.3		Cost of services		56,653	94.0			60,378	87.2
Gross profit (loss)			(5,219)	(7.6)			5,582	10.7
Gross profit										Gross profit		3,614	6.0			8,870	12.8
Selling, general and administrative expenses	Selling, general and administrative expenses		8,448	12.3			6,744	13.0		Selling, general and administrative expenses		5,689	9.4			7,268	10.5
Gain on sale of assets	Gain on sale of assets		(33)	—			(8)	—		Gain on sale of assets		(13,035)	(21.6)			(7)	—
Operating loss		$	(13,634)	(19.8)	%	$	(1,154)	(2.2)	%
Operating income										Operating income	$	10,960	18.2	%	$	1,609	2.3	%

Revenues. Revenues in our Commercial & Industrial segment ~~increased $16.8~~decreased $9.0 million, or ~~32.3%~~13.0%, during the three months ended ~~March~~December 31, 2022, compared to the three months ended ~~March~~December 31, 2021. ~~During~~STR Mechanical, LLC (“STR”), which we sold at the beginning of the quarter ended ~~March~~December 31, 2022, contributed revenue of $4.9 million for the quarter ended December 31, 2021. The markets in which we benefited from the start-up of projects that were delayed in fiscal 2021. While activity in this segment has been curtailed during the COVID-19 pandemic, many customers have returned to more typical levels of activity. However, this market remainsoperate remain highly competitive.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended ~~March~~December 31, 2022, decreased by ~~$10.8~~$5.3 million, as compared to the three months ended ~~March~~December 31, 2021. ~~During~~Gross profit as a percentage of revenue decreased from 12.8% for the quarter ended ~~March~~December 31, 2021 to 6.0% for the quarter ended December 31, 2022 ~~one of our Commercial & Industrial branches experienced execution issues on a large contract, resulting in significant project rework. As~~as a result ~~we recorded expense~~ of ~~$10.4 million related~~continuing operating challenges at one branch that incurred significant losses during fiscal 2022 and into fiscal year 2023. We continue to limit the size and duration of projects bid at this project including the accrual of estimated costs to complete the project, including demolition, purchase of replacement materials, and performance of the rework. Additionally, a second job at that same branch was affected by a delay in receiving materials from a supplier, resulting in a reduction to gross profit of $1.8 million.branch.

Selling, General and Administrative Expenses. Our Commercial & Industrial segment’s selling, general and administrative expenses during the three months ended ~~March~~December 31, 2022 ~~increased $1.7~~decreased $1.6 million, or ~~25.3%~~21.7%, compared to the three months ended ~~March~~ December

31, 2021. The ~~increase~~decrease was driven ~~higher pay rates~~primarily by a reduction in ~~an increasingly competitive labor market, as well as $1.4 million of reserves in connection with legal matters in connection with certain contractual disputes.~~headcount. Selling, general and administrative expenses as a percentage of revenue decreased from ~~13.0%~~10.5% to ~~12.3%~~9.4% for the three months ended ~~March~~December 31, 2022 compared to the three months ended ~~March~~December 31, 2021.

Six Months Ended March 31,
2022 2021
$ % $ %
(Dollars in thousands, Percentage of revenues)
Revenues $ 138,063 100.0 % $ 114,613 100.0 %
Cost of services 134,412 97.4 103,356 90.2
Gross profit 3,651 2.6 11,257 9.8
Selling, general and administrative expenses 15,716 11.4 13,168 11.5
Gain on sale of assets (40) — (17) —
Operating loss $ (12,025) (8.7) % $ (1,894) (1.7) %

~~Revenues.~~ Gain on sale of assetRevenues in our Commercial & Industrial segment increased $23.5 million during the six months ended March 31, 2022, or 20.5%, compared to the six months ended March 31, 2021. During the six months ended March 31,s. In October 2022, we ~~benefited from the start-up~~sold STR, and recorded a pretax gain on sale of projects that were delayed in fiscal 2021. While activity in this segment was curtailed earlier in the COVID-19 pandemic, many customers have returned to more typical levels of activity. However, this market remains highly competitive.

~~Gross Profit~~. Our Commercial & Industrial segment’s gross profit during the six months ended March 31, 2022 decreased by $7.6 million, or 67.6%, as compared to the six months ended March 31, 2021. The reduction in gross margin is the result of project loss recorded in the quarter ended March 31, 2022, as discussed above. As a result, gross profit as a percentage of revenue decreased from 9.8% for the six months ended March 31, 2021 to 2.6% for the six months ended March 31, 2022.

~~Selling, General and Administrative Expenses.~~ Our Commercial & Industrial segment’s selling, general and administrative expenses during the six months ended March 31, 2022 increased $2.5 million, or 19.4%, compared to the six months ended March 31, 2021. The increase was driven higher pay rates in an increasingly competitive labor market, as well as the $1.4 million reserve in connection with legal matters discussed above. Selling, general and administrative expenses as a percentage of revenue decreased slightly, from 11.5% for the six months ended March 31, 2021 to 11.4% for the six months ended March 31, 2022.$13.0 million.

INTEREST AND OTHER EXPENSE, NET

Three Months Ended March 31,
2022 2021
(In thousands)
Interest expense $ 502 $ 177
Deferred financing charges 41 48
Total interest expense 543 225
Other income, net (124) (51)
Total interest and other expense, net $ 419 $ 174


	Three Months Ended December 31,
	2022		2021
	(In thousands)
Interest expense	$	1,119	$	389
Deferred financing charges		65		47
Total interest expense		1,184		436
Other expense, net		695		765
Total interest and other expense, net	$	1,879	$	1,201

During the three months ended ~~March~~December 31, 2022, we incurred interest expense of ~~$0.5~~$1.2 million primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of ~~$5.0~~$5.4 million under our revolving credit facility and an average unused line of credit balance of ~~$46.1~~$80.7 million. This compares to interest expense of ~~$0.2~~$0.4 million for the three months ended ~~March~~December 31, 2021, primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $87.7 million.

Six Months Ended March 31,
2022 2021
(In thousands)
Interest expense $ 891 $ 303
Deferred financing charges 88 94
Total interest expense 979 397
Other (income) expense, net 641 (169)
Total interest and other expense, net $ 1,620 $ 228

~~During the six months ended March 31, 2022, we incurred interest expense of $1.0 million~~ primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $4.9 million under our revolving credit facility and an average unused line of credit balance of ~~$44.5~~$42.9 million. This compares to interest expense of $0.4 million for the six months ended March 31, 2021, primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $6.3 million under our revolving credit facility and an average unused line of credit balance of $89.1 million.

The increase in ~~other~~interest expense ~~for~~in the ~~six~~three months ended ~~March~~December 31, 2022 as compared ~~with March~~to the three months ended December 31, 2021 ~~is the~~was a result of ~~unrealized losses on investments in equity securities of $0.6 million.~~higher borrowing rates.

PROVISION FOR INCOME TAXES

We recorded an income tax ~~benefit~~expense of ~~$1.3~~$10.0 million for the three months ended ~~March~~December 31, 2022, compared to income tax expense of ~~$3.6~~$4.0 million for the three months ended ~~March~~December 31, ~~2021.~~

~~We recorded income tax expense of $2.7 million for~~2021, driven by increased pretax income. For the ~~six~~three months ended ~~March 31, 2022, compared to income tax expense of $7.3 million for the six months ended March 31, 2021. Income tax expense for the six months ended March~~December 31, 2022 and 2021, ~~included a benefit~~our income tax expense was partly offset by benefits of ~~$0.8~~$0.2 million and ~~$0.8~~$0.9 million, respectively, related to the vesting of stock-based compensation.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based on our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Condensed Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our beliefs and assumptions derived from information available at the 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. For a discussion of our significant accounting policies, please see our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~2022. Some of the more significant estimates include revenue recognition, business combinations, valuation allowance for deferred tax assets and income taxes.

~~NEW ACCOUNTING PRONOUNCEMENTS~~There have been no significant changes to our accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Recent accounting pronouncements are described in Note 1, "Business and Accounting Policies - Accounting Standards Recently Adopted" in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q and at relevant sections in this discussion and analysis.

REMAINING PERFORMANCE OBLIGATIONS AND BACKLOG

Remaining performance obligations represent the unrecognized revenue value of our ~~contract~~contractual 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-needed basis. Additionally, electrical installation services for ~~single-family~~single-

family housing at our Residential segment are completed on a short-term basis and are therefore excluded from backlog. The table below summarizes our remaining performance obligations and backlog:


		March 31,		December 31,		September 30,		June 30,			December 31,		September 30,		June 30,		March 31,
		2022		2021		2021		2021			2022		2022		2022		2022
Remaining performance obligations	Remaining performance obligations	$	835	$	721	$	713	$	669	Remaining performance obligations	$	1,011	$	967	$	894	$	835
Agreements without an enforceable obligation (1)	Agreements without an enforceable obligation (1)		247		227		187		156	Agreements without an enforceable obligation (1)		316		319		314		247
Backlog	Backlog	$	1,082	$	948	$	900	$	825	Backlog	$	1,327	$	1,286	$	1,208	$	1,082
(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.	(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.									(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.

WORKING CAPITAL

During the ~~six~~three months ended ~~March~~December 31, 2022, working capital exclusive of cash increased by ~~$20.0~~$9.5 million from September 30, ~~2021,~~2022, reflecting a ~~$55.7~~$15.5 million ~~increase~~decrease in current assets excluding cash and a ~~$35.7~~$25.0 million ~~increase~~decrease in current liabilities during the period.

During the ~~six~~three months ended ~~March~~December 31, 2022, our current assets exclusive of cash ~~increased~~decreased to ~~$516.8~~$584.1 million, as compared to ~~$461.1~~$599.6 million as of September 30, ~~2021. An increase~~2022. A seasonal decrease in business activity, as well as the collection of $5.1 million of aged receivables related to prior year contractual disputes, drove a ~~$22.7~~$22.5 million ~~increase~~decrease in trade accounts receivable. Days sales outstanding ~~increased to 61 at March 31, 2022~~decreased slightly from 5758 at September 30, ~~2021.~~2022 to 57 at December 31, 2022. 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. ~~Additionally, inventory increased~~The decrease in trade accounts receivable was partly offset by ~~$17.3~~a $6.0 million increase in ~~connection with rising commodity prices as well as growth of our business. Further, we have increased the quantity of inventory we are currently carrying to manage procurement risks. Costs~~prepaid expenses and ~~estimated earnings in excess of billings increased by $12.1 million~~other current assets as a result of ~~increased levels~~timing of ~~activity at~~ our ~~Communications business, as well as supply chain disruptions in our Infrastructure Solutions business.~~annual insurance renewal.

During the ~~six~~three months ended ~~March~~December 31, 2022, our total current liabilities ~~increased~~decreased by ~~$35.7~~$25.0 million to ~~$347.3~~$376.9 million, compared to ~~$311.6~~$401.9 million as of September 30, ~~2021,~~2022, driven by ~~increased levels of~~a seasonal decrease in business activity, ~~offset in part by~~as well as the remittance of all remaining payroll taxes deferred under the CARES ~~Act, and the timing of payment of certain year-end accruals.~~Act.

Surety

We believe the bonding capacity provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. As of ~~March~~December 31, 2022, the estimated cost to complete our bonded projects was approximately ~~$125.9~~$77.9 million.

LIQUIDITY AND CAPITAL RESOURCES

The Revolving Credit Facility

~~On April 28, 2022, we entered into~~We are a party to the Third Amended and Restated Credit and Security Agreement (the "Amended Credit Agreement") ~~with Wells Fargo Bank N.A. ("Wells Fargo")~~, which ~~increased our~~provides for a maximum borrowing amount ~~from $125 million to~~of $150 million. The Amended Credit Agreement also removed the aggregate cap on our investments in certain securities and the cap on our ability to make stock repurchases, in each case subject to the satisfaction of certain liquidity requirements. All othercontains customary affirmative, negative and financial covenants and events of ~~default were unchanged by the amendment.~~default.

Borrowings under the Amended Credit Agreement may not exceed a ~~“borrowing base”~~Borrowing Base, as defined in the Amended Credit Agreement, that is determined monthly ~~by Wells Fargo~~ based on available collateral, primarily certain accounts receivables, inventories, and equipment. Amounts outstanding bear interest at

a per annum rate equal to the Daily Three Month Secured Overnight Financing Rate ("SOFR"), plus an interest rate margin, which is determined quarterly, based on the following thresholds:

Level

Thresholds

Interest Rate Margin

If Liquidity is less than 35% of the Maximum Revolver Amount ~~(as~~(each as defined in the Amended Credit Agreement) at any time during the period

2.00 percentage points

If Liquidity is greater than or equal to 35% of the Maximum Revolver Amount at all times during the period and less than 50% of the Maximum Revolver Amount at any time during the period

1.75 percentage points

III

If Liquidity is greater than or equal to 50% of the Maximum Revolver Amount at all times during the period

1.50 percentage points

In addition, we are charged monthly in arrears for (1) an unused commitment fee of 0.25% per annum, (2) a collateral monitoring fee of $5 thousand per quarter, (3) a letter of credit fee based on the then-applicable interest rate margin (4) appraisal fees, costs and expenses and (5) certain other fees and charges as specified in the Amended Credit Agreement.

As of ~~March~~December 31, 2022, 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 of at least 10% of the Maximum Revolver Amount, or ~~$12.5~~$15.0 million; with, for purposes of this covenant, at least 50% of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement).

At ~~March~~December 31, 2022, our Liquidity was ~~$69.9~~$106.4 million, our Excess Availability was ~~$50.6~~$101.1 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was ~~3.8:~~1.9:1.0.

~~In connection with the Amended Credit Agreement increase in our maximum revolver amount, our current minimum liquidity requirement is $15.0 million.~~ If in the future our Liquidity falls below $15.0 million (or Excess Availability falls below 50% of our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0, 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 then-outstanding indebtedness becoming immediately due and payable.

At ~~March~~December 31, 2022, we had ~~$4.2~~$5.9 million in outstanding letters of credit ~~with Wells Fargo~~ and outstanding borrowings of ~~$70.2~~$43.0 million under our revolving credit facility.

Operating Activities

Our cash flow from operations is not only influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal first and second quarters due to the seasonality that we experience in many regions of the country; however, a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions. Currently, our working capital needs are higher than they have been historically, as a result of growth of our business, ~~rising~~elevated commodity prices, and the steps taken to mitigate the impact of supply chain disruptions.

Operating activities ~~used~~provided net cash of ~~$2.9~~$14.3 million during the ~~six~~three months ended ~~March~~December 31, 2022, as compared to ~~$48.4~~$24.5 million of net cash ~~provided~~used in the ~~six~~three months ended ~~March~~December 31, 2021. The ~~decrease~~increase in operating cash flow resulted from ~~lower~~increased earnings and ~~an increase~~a reduction in cash used in working capital ~~including an increase in inventory,~~ during the ~~six~~three months ended ~~March~~December 31, ~~2022. In addition to~~2022 as compared with the impact on inventory of higher commodity prices, supply chain disruptions have resulted in longer lead times for deliveries, and reduced availability for certain products we procure, particularly copper wire. As a result, we have increased the amount of inventory we are currently carrying in an effort to ensure the availability of materials to serve our customers. Trade accounts receivable also increased due to increased business activity. We also remitted $7.0 million of payroll taxes previously deferred under the CARES Act.three months ended December 31, 2021.

Investing Activities

Net cash ~~used in~~provided by investing activities was ~~$21.9~~$16.3 million for the ~~six~~three months ended ~~March~~December 31, 2022, compared to ~~$58.4~~$12.8 million ~~for~~used in the ~~six~~three months ended ~~March~~December 31, 2021. WeDuring the three months ended December 31, 2022, the sale of assets, including the sale of STR, provided cash of had $19.2 million, which was partially offset by $2.7 million used ~~$21.6~~for capital expenditures. During the three months ended December 31, 2021, we used $12.3 million for capital expenditures ~~in the six months ended March 31, 2022,~~ primarily related to the acquisition of a new operating facility for our Wedlake business, as well as an additional facility to support the growth of our Residential business in Florida. ~~During the six months ended March 31, 2021, we used $55.5 million to complete three acquisitions and $3.0 million for capital expenditures.~~

Financing Activities

Net cash used in financing activities for the three months ended December 31, 2022 was $50.3 million, compared to $21.9 million provided by financing activities for the ~~six~~three months ended ~~March 31, 2022 was $21.0 million, compared to net cash used of $1.2 million for the six months ended March~~December 31, 2021. Net cash ~~provided by~~used in financing activities for the ~~six~~three months ended ~~March~~December 31, 2022 included net ~~borrowings~~repayments on our credit facility of ~~$29.9~~$39.7 million ~~partly offset by $4.9~~and $7.5 million used for repurchases of our common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation. ~~For~~Additionally, we distributed $2.3 million to noncontrolling interests under operating agreements in connection with certain acquisitions. Net cash provided by financing activities for the ~~six~~three months ended ~~March~~December 31, 2021 weincluded net borrowings on our credit facility of $28.2 million, partly offset by $4.8 million used ~~$0.7 million~~ to repurchase our ~~shares~~common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Stock Repurchase Program

In 2015, our Board 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, and ~~on May 2,~~in 2019 ~~our Board~~ authorized the repurchase from time to time of up to an additional 1.0 million shares ~~of the Company's common stock~~ under the ~~stock~~program. In December 2022, our Board terminated the remaining authorization under this program, and approved a new $40.0 million share 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, reinstated, or ~~reinstated~~terminated at any time at the Company’s discretion and without notice. We repurchased ~~59,002~~219,731 shares pursuant to ~~this program~~our repurchase programs during the ~~six~~three months ended ~~March~~December 31, 2022.

MATERIAL CASH REQUIREMENTS

From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of ~~March~~December 31, 2022, we had commitments of ~~$12.1~~$6.9 million outstanding under agreements to purchase copper wire and other materials over the next 12 months in the ordinary course of business. There have been no other material changes in our material cash requirements from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~2022. We expect that cash and cash equivalents, cash flow from operations and availability under our revolving credit facility will be sufficient to satisfy cash requirements during at least the next 12 months.

3829

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. We are also exposed to interest rate risk with respect to our outstanding borrowings under our revolving credit facility. For additional information see “Disclosure Regarding Forward-Looking Statements” in Part I of this Quarterly Report on Form 10-Q and our risk factors in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~2022.

Commodity Risk

Our exposure to significant market risks includes fluctuations in commodity prices for copper, aluminum, steel, electronic components, certain plastics, 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. 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 industries we serve will allow.

Interest Rate Risk

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 rate terms. We currently do not maintain any hedging contracts that would limit our exposure to variable rates of interest when we have outstanding borrowings under our revolving credit facility. ~~On December 2, 2021, we entered into an amendment to our credit agreement which replaced LIBOR with~~The Amended Credit Agreement uses SOFR as the benchmark for establishing the interest rate charged on our borrowings. If SOFR were to increase, our interest payment obligations on any then-outstanding borrowings would increase, having a negative effect on our cash flow and financial condition. A one percentage point increase in the interest rate on our long-term debt outstanding under the credit facility of $43.0 million as of ~~March~~December 31, 2022 would cause a ~~$0.6~~$0.4 million pre-tax annual increase in interest expense.

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

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

Disclosure Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March~~December 31, 2022, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 12, “Commitments and Contingencies – Legal Matters” in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2021.~~

2022.

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

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 (2)
January 1, 2022 – January 31, 2022 2,587 $49.00 2,587 810,618
February 1, 2022 – February 28, 2022 0 $0.00 0 810,618
March 1, 2022 – March 31, 2022 0 $0.00 0 810,618
Total 2,587 $49.00 2,587 810,618


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 (2)	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plan (2)
October 1, 2022 – October 31, 2022	124,305	$29.73	124,020	234,000	N/A
November 1, 2022 – November 30, 2022	21,613	$32.82	21,613	212,387	N/A
December 1, 2022 – December 31, 2022	92,955	$33.13	74,098	N/A	$	37,739,873
Total	238,873	$31.33	219,731	N/A	$	37,739,873

(1) The total number of shares purchased includes shares purchased pursuant to the ~~plan~~program described in footnote (2) below.

(2) In 2015, our Board 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, and ~~on May 2,~~in 2019 authorized the repurchase from time to time of up to an additional 1.0 million shares ~~of the Company’s common stock~~ under the ~~stock~~program. In December 2022, our Board terminated the existing program, and authorized a new $40 million share repurchase program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

On April 28, 2022, we entered into the Third Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A. ("Wells Fargo"), which increased the size of our revolving credit facility from $125 million to $150 million (the "Amended Credit Agreement"). The Amended Credit Agreement also removed the aggregate cap on our investments in certain securities and the cap on our ability to make stock repurchases, in each case subject to the satisfaction of certain liquidity requirements. All other customary affirmative, negative and financial covenants and events of default were unchanged by the amendment.

The foregoing description of the Amended Credit Agreement does not purport to be complete and is qualified in its entirety by reference to, and should be read in conjunction with, the full text of the Amended Credit Agreement, which is attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

None.

4031

Item 6. Exhibits


Exhibit No.			Description
3.1 —			Second Amended and Restated Certificate of Incorporation of IES Holdings, Inc., as amended by the Certificate of Amendment thereto, effective May 24, 2016 (composite). (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2016).
3.2 —			Amended and Restated Bylaws of IES Holdings, Inc., effective April 28, 2021. (Incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q filed on April 30, 2021).
4.1 —			Specimen common stock certificate. (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on December 9, 2016).
~~10.1 —~~			Third Amended and Restated Credit and Security Agreement, dated April 28, 2022 by and among IES Holdings, Inc., each of the other Borrowers and Guarantors named therein and Wells Fargo Bank, National Association, as Administrative Agent.
31.1 —			Rule 13a-14(a)/15d-14(a) Certification of Jeffrey L. Gendell, Chief Executive Officer (1)
31.2 —			Rule 13a-14(a)/15d-14(a) Certification of Tracy A. McLauchlin, Senior Vice President, Chief Financial Officer and Treasurer (1)
32.1 —			Section 1350 Certification of Jeffrey L. Gendell, Chief Executive Officer (2)
32.2 —			Section 1350 Certification of Tracy A. McLauchlin, Senior Vice President, Chief Financial Officer and Treasurer (2)
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)
101.SCH			XBRL Schema Document (1)
101.LAB			XBRL Label Linkbase Document (1)
101.PRE			XBRL Presentation Linkbase Document (1)
101.DEF			XBRL Definition Linkbase Document (1)
101.CAL			XBRL Calculation Linkbase Document (1)
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.
(2)			Furnished herewith.
*			~~Management contract or compensatory plan or arrangement.~~

4132

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~April 29, 2022.~~February 3, 2023.


			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)

4233


		Six Months Ended March 31, 2022
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid -In Capital
BALANCE, September 30, 2021		22,049,529	$	220	(1,316,998)	$	(29,300)	$	201,899	$	173,134	$	345,953
	Issuances under compensation plans	—		—	157,167		3,638		(3,638)		—		—
	Acquisition of treasury stock	—		—	(104,200)		(4,925)		0		—		(4,925)
	Non-cash compensation	—		—			—		1,898		—		1,898
	Increase in noncontrolling interest	—		—	—		—		—		(930)		(930)

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		9,052		9,052
BALANCE, March 31, 2022		22,049,529	$	220	(1,264,031)	$	(30,587)	$	200,159	$	181,256	$	351,048