UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 20182019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number1-13783
IES Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 76-0542208 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
5433 Westheimer Road, Suite 500, Houston, Texas 77056
(Address of principal executive offices and ZIP code)
Registrant’s telephone number, including area code:(713) 860-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share Rights to Purchase Preferred Stock | IESC IESC | NASDAQ Global Market NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” inRule 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 inRule 12b-2 of the Exchange Act). Yes ☐ No ☒
On May 2, 2018,2019, there were 21,209,91621,368,483 shares of common stock outstanding.
IES HOLDINGS, INC. AND SUBSIDIARIES
INDEX
DEFINITIONS
In this Quarterly Report onForm 10-Q, the words “IES”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our subsidiaries.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “seek,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. These statements involve risks and uncertainties that could cause the Company’s actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:
the ability of our controlling shareholderstockholder to take action not aligned with other shareholders;stockholders;
the sale or disposition of the shares of our common stock held by our controlling shareholder,stockholder, which, under certain circumstances, would trigger change of control provisions in our severance benefit plan or financing and surety arrangements, or any other substantial sale of our common stock, which could depress our stock price;
the possibility that certain tax benefits of our net operating losses may be restricted or reduced in a change in ownership or a further change in the federal tax rate;
the potential recognition of valuation allowances or further write-downs on deferred tax assets;
the inability to carry out plans and strategies as expected, including our inability to identify and complete acquisitions that meet our investment criteria in furtherance of our corporate strategy, or the subsequent underperformance of those acquisitions;
limitations on the availability of sufficient credit or cash flow to fund our working capital needs and capital expenditures and debt service;
difficulty in fulfilling the covenant terms of our revolving credit facility, including liquidity, EBITDA and other financial requirements, which could result in a default and acceleration of our indebtedness under our revolving credit facility;
the possibility that we issue additional shares of common stock or convertible securities that will dilute the percentage ownership interest of existing stockholders and may dilute the book value per share of our common stock;
the relatively low trading volume of our common stock, which could depress our stock price;
competition in the industries in which we operate, both from third parties and former employees, which could result in the loss of one or more customers or lead to lower margins on new projects;
future capital expenditures and refurbishment, repair and upgrade costs; and delays in and costs of refurbishment, repair and upgrade projects;
a general reduction in the demand for our services;
our ability to enter into, and the terms of, future contracts;
success in transferring, renewing and obtaining electrical and other licenses;
challenges integrating new businesses into the Company or new types of work, products or processes into our segments;
credit and capital market conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the inability for some of our customers to retain sufficient financing, which could lead to project delays or cancellations;
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backlog that may not be realized or may not result in profits;
the possibility of errors when estimating revenue and progress to date onpercentage-of-completion contracts;
uncertainties inherent in estimating future operating results, including revenues, operating income or cash flow;
complications associated with the incorporation of new accounting, control and operating procedures;
closures or sales of facilities resulting in significant future charges, including potential warranty losses or other unexpected liabilities, or a significant disruption of our operations;
an increased cost of surety bonds affecting margins on work and the potential for our surety providers to refuse bonding or require additional collateral at their discretion;
fluctuations in operating activity due to downturns in levels of construction or the housing market, seasonality and differing regional economic conditions;
our ability to successfully manage projects;
inaccurate estimates used when entering into fixed-priced contracts;
the cost and availability of qualified labor and the ability to maintain positive labor relations;
our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel and certain plastics;
a change in the mix of our customers, contracts or business;
increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers;
the recognition of potential goodwill, long-lived assets and other investment impairments;
potential supply chain disruptions due to credit or liquidity problems faced by our suppliers;
accidents resulting from the physical hazards associated with our work and the potential for accidents;
the possibility that our current insurance coverage may not be adequate or that we may not be able to obtain a policy at acceptable rates;
the possibility that our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur;
disagreements with taxing authorities with regard to tax positions we have adopted;
the recognition of tax benefits related to uncertain tax positions;
the effect of litigation, claims and contingencies, including warranty losses, damages or other latent defect claims in excess of our existing reserves and accruals;
growth in latent defect litigation in states where we provide residential electrical work for home builders not otherwise covered by insurance;
interruptions to our information systems and cyber security or data breaches;
liabilities under laws and regulations protecting the environment; and
loss of key personnel and effective transition of new management.
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You should understand that the foregoing, as well as other risk factors discussed in this document and those listed in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended September 30, 2017,2018, could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. We undertake no obligation to publicly update or revise any information, including information concerning our controlling shareholder,stockholder, net operating losses, borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Quarterly Report onForm 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein.
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IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands, Except Share Information)
March 31, 2018 | September 30, 2017 | |||||||||||||||
March 31, 2019 | September 30, 2018 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 35,713 | $ | 28,290 | $ | 16,158 | $ | 26,247 | ||||||||
Accounts receivable: | ||||||||||||||||
Trade, net of allowance of $608 and $650, respectively | 127,905 | 142,946 | ||||||||||||||
Trade, net of allowance of $1,015 and $868, respectively | 160,946 | 151,578 | ||||||||||||||
Retainage | 20,567 | 21,360 | 22,904 | 24,312 | ||||||||||||
Inventories | 17,590 | 16,923 | 23,729 | 20,966 | ||||||||||||
Costs and estimated earnings in excess of billings | 15,358 | 13,438 | 28,293 | 31,446 | ||||||||||||
Prepaid expenses and other current assets | 9,492 | 8,795 | 10,897 | 8,144 | ||||||||||||
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Total current assets | 226,625 | 231,752 | 262,927 | 262,693 | ||||||||||||
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Property and equipment, net | 25,055 | 24,643 | 26,520 | 25,364 | ||||||||||||
Goodwill | 46,738 | 46,693 | 50,622 | 50,702 | ||||||||||||
Intangible assets, net | 29,515 | 31,413 | 28,459 | 30,590 | ||||||||||||
Deferred tax assets | 50,948 | 86,211 | 43,081 | 46,580 | ||||||||||||
Othernon-current assets | 6,106 | 3,782 | 5,662 | 6,065 | ||||||||||||
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Total assets | $ | 384,987 | $ | 424,494 | $ | 417,271 | $ | 421,994 | ||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable and accrued expenses | 111,608 | 120,710 | 129,704 | 130,591 | ||||||||||||
Billings in excess of costs and estimated earnings | 27,820 | 29,918 | 32,932 | 33,826 | ||||||||||||
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Total current liabilities | 139,428 | 150,628 | 162,636 | 164,417 | ||||||||||||
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Long-term debt | 29,570 | 29,434 | 19,672 | 29,564 | ||||||||||||
Othernon-current liabilities | 4,639 | 4,457 | 3,655 | 4,374 | ||||||||||||
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Total liabilities | 173,637 | 184,519 | 185,963 | 198,355 | ||||||||||||
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Noncontrolling interest | 3,280 | 3,271 | 3,163 | 3,232 | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||||||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding | — | — | — | — | ||||||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529 issued and 21,259,178 and 21,336,975 outstanding, respectively | 220 | 220 | ||||||||||||||
Treasury stock, at cost, 790,351 and 712,554 shares, respectively | (8,108 | ) | (6,898 | ) | ||||||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529 issued and 21,381,847 and 21,205,536 outstanding, respectively | 220 | 220 | ||||||||||||||
Treasury stock, at cost, 667,682 and 843,993 shares, respectively | (8,443 | ) | (8,937 | ) | ||||||||||||
Additionalpaid-in capital | 196,835 | 196,955 | 191,579 | 196,810 | ||||||||||||
Retained earnings | 19,123 | 46,427 | 44,789 | 32,314 | ||||||||||||
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Total stockholders’ equity | 208,070 | 236,704 | 228,145 | 220,407 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 384,987 | $ | 424,494 | $ | 417,271 | $ | 421,994 | ||||||||
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In Thousands, Except Share Information)
(Unaudited)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Revenues | $ | 205,677 | $ | 203,662 | $ | 256,914 | $ | 205,677 | ||||||||
Cost of services | 171,837 | 171,848 | 213,679 | 171,837 | ||||||||||||
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Gross profit | 33,840 | 31,814 | 43,235 | 33,840 | ||||||||||||
Selling, general and administrative expenses | 29,647 | 30,120 | 35,070 | 29,647 | ||||||||||||
Contingent consideration | 71 | 83 | (149 | ) | 71 | |||||||||||
Gain on sale of assets | (20 | ) | (6 | ) | ||||||||||||
Loss (gain) on sale of assets | 98 | (20 | ) | |||||||||||||
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Operating income | 4,142 | 1,617 | 8,216 | 4,142 | ||||||||||||
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Interest and other (income) expense: | ||||||||||||||||
Interest expense | 473 | 428 | 535 | 473 | ||||||||||||
Other income, net | (43 | ) | (44 | ) | ||||||||||||
Other (income) expense, net | (112 | ) | (43 | ) | ||||||||||||
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Income from operations before income taxes | 3,712 | 1,233 | 7,793 | 3,712 | ||||||||||||
Provision for income taxes | 1,425 | 682 | 2,336 | 1,425 | ||||||||||||
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Net income | 2,287 | 551 | 5,457 | 2,287 | ||||||||||||
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Net income attributable to noncontrolling interest | (66 | ) | (15 | ) | ||||||||||||
Net (income) loss attributable to noncontrolling interest | 32 | (66 | ) | |||||||||||||
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Comprehensive income attributable to IES Holdings, Inc. | $ | 2,221 | $ | 536 | $ | 5,489 | $ | 2,221 | ||||||||
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Earnings per share attributable to IES Holdings, Inc.: | ||||||||||||||||
Basic | $ | 0.11 | $ | 0.02 | $ | 0.26 | $ | 0.11 | ||||||||
Diluted | $ | 0.11 | $ | 0.02 | $ | 0.26 | $ | 0.11 | ||||||||
Shares used in the computation of earnings per share: | ||||||||||||||||
Basic | 21,182,268 | 21,299,098 | 21,139,096 | 21,182,268 | ||||||||||||
Diluted | 21,440,570 | 21,574,155 | 21,379,746 | 21,440,570 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In Thousands, Except Share Information)
(Unaudited)
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Revenues | $ | 403,977 | $ | 395,840 | $ | 500,756 | $ | 403,977 | ||||||||
Cost of services | 337,073 | 328,844 | 415,920 | 337,073 | ||||||||||||
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Gross profit | 66,904 | 66,996 | 84,836 | 66,904 | ||||||||||||
Selling, general and administrative expenses | 59,736 | 58,314 | 67,156 | 59,736 | ||||||||||||
Contingent consideration expense | 71 | 83 | ||||||||||||||
Gain on sale of assets | (34 | ) | (13 | ) | ||||||||||||
Contingent consideration | (115 | ) | 71 | |||||||||||||
Loss (gain) on sale of assets | 95 | (34 | ) | |||||||||||||
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Operating income | 7,131 | 8,612 | 17,700 | 7,131 | ||||||||||||
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Interest and other (income) expense: | ||||||||||||||||
Interest expense | 914 | 874 | 1,082 | 914 | ||||||||||||
Other income, net | (141 | ) | (48 | ) | ||||||||||||
Other (income) expense, net | (65 | ) | (141 | ) | ||||||||||||
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Income from continuing operations before income taxes | 6,358 | 7,786 | ||||||||||||||
Income from operations before income taxes | 16,683 | 6,358 | ||||||||||||||
Provision for income taxes | 33,584 | 3,311 | 4,243 | 33,584 | ||||||||||||
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Net income (loss) | (27,226 | ) | 4,475 | 12,440 | (27,226 | ) | ||||||||||
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Net income attributable to noncontrolling interest | (122 | ) | (67 | ) | (67 | ) | (122 | ) | ||||||||
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Comprehensive income (loss) attributable to IES Holdings, Inc. | $ | (27,348 | ) | $ | 4,408 | $ | 12,373 | $ | (27,348 | ) | ||||||
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Earnings (loss) per share attributable to IES Holdings, Inc.: | ||||||||||||||||
Basic | $ | (1.29 | ) | $ | 0.21 | $ | 0.58 | $ | (1.29 | ) | ||||||
Diluted | $ | (1.29 | ) | $ | 0.20 | $ | 0.58 | $ | (1.29 | ) | ||||||
Shares used in the computation of earnings per share: | ||||||||||||||||
Shares used in the computation of earnings (loss) per share: | ||||||||||||||||
Basic | 21,189,641 | 21,292,523 | 21,187,834 | 21,189,641 | ||||||||||||
Diluted | 21,189,641 | 21,560,678 | 21,424,522 | 21,189,641 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
(In Thousands, Except Share Information)
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||
Common Stock | Treasury Stock | APIC | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
BALANCE, December 31, 2018 | 22,049,529 | $ | 220 | (763,426 | ) | $ | (8,896 | ) | $ | 194,607 | $ | 39,300 | $ | 225,231 | ||||||||||||||
Issuances under compensation plans | — | — | 3,991 | 71 | (71 | ) | — | — | ||||||||||||||||||||
Grants under compensation plan | — | — | 283,195 | 3,582 | (3,582 | ) | — | — | ||||||||||||||||||||
Acquisition of treasury stock | — | — | (191,442 | ) | (3,200 | ) | — | — | (3,200 | ) | ||||||||||||||||||
Non-cash compensation | — | — | — | — | 625 | — | 625 | |||||||||||||||||||||
Net income attributable to IES Holdings, Inc. | — | — | — | — | — | 5,489 | 5,489 | |||||||||||||||||||||
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BALANCE, March 31, 2019 | 22,049,529 | $ | 220 | (667,682 | ) | $ | (8,443 | ) | $ | 191,579 | $ | 44,789 | $ | 228,145 | ||||||||||||||
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Three Months Ended March 31, 2018 | ||||||||||||||||||||||||||||
Common Stock | Treasury Stock | APIC | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
BALANCE, December 31, 2017 | 22,049,529 | $ | 220 | (710,784 | ) | $ | (6,881 | ) | $ | 197,312 | $ | 16,858 | $ | 207,509 | ||||||||||||||
Grants under compensation plans | — | — | 250 | 2 | (2 | ) | — | — | ||||||||||||||||||||
Acquisition of treasury stock | — | — | (79,817 | ) | (1,229 | ) | — | — | (1,229 | ) | ||||||||||||||||||
Non-cash compensation | — | — | — | — | (475 | ) | — | (475 | ) | |||||||||||||||||||
Increase in noncontrolling interest | — | — | — | — | — | 44 | 44 | |||||||||||||||||||||
Net income attributable to IES Holdings, Inc. | — | — | — | — | — | 2,221 | 2,221 | |||||||||||||||||||||
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BALANCE, March 31, 2018 | 22,049,529 | $ | 220 | (790,351 | ) | $ | (8,108 | ) | $ | 196,835 | $ | 19,123 | $ | 208,070 | ||||||||||||||
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Six Months Ended March 31, 2019 | ||||||||||||||||||||||||||||
Common Stock | Treasury Stock | APIC | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
BALANCE, September 30, 2018 | 22,049,529 | $ | 220 | (843,993 | ) | $ | (8,937 | ) | $ | 196,810 | $ | 32,314 | $ | 220,407 | ||||||||||||||
Issuances under compensation plans | — | — | 216,679 | 2,323 | (2,323 | ) | — | — | ||||||||||||||||||||
Grants under compensation plan | — | — | 283,195 | 3,582 | (3,582 | ) | — | — | ||||||||||||||||||||
Cumulative effect adjustment from adoption of new accounting standard | — | — | — | — | — | 102 | 102 | |||||||||||||||||||||
Acquisition of treasury stock | — | — | (323,563 | ) | (5,411 | ) | — | — | (5,411 | ) | ||||||||||||||||||
Non-cash compensation | — | — | — | — | 674 | — | 674 | |||||||||||||||||||||
Net income attributable to IES Holdings, Inc. | — | — | — | — | — | 12,373 | 12,373 | |||||||||||||||||||||
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BALANCE, March 31, 2019 | 22,049,529 | $ | 220 | (667,682 | ) | $ | (8,443 | ) | $ | 191,579 | $ | 44,789 | $ | 228,145 | ||||||||||||||
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Six Months Ended March 31, 2018 | ||||||||||||||||||||||||||||
Common Stock | Treasury Stock | APIC | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
BALANCE, September 30, 2017 | 22,049,529 | $ | 220 | (712,554 | ) | $ | (6,898 | ) | $ | 196,955 | $ | 46,427 | $ | 236,704 | ||||||||||||||
Grants under compensation plans | — | — | 520 | 5 | (5 | ) | — | — | ||||||||||||||||||||
Acquisition of treasury stock | — | — | (79,817 | ) | (1,230 | ) | — | (1,230 | ) | |||||||||||||||||||
Options exercised | — | — | 1,500 | 15 | (4 | ) | — | 11 | ||||||||||||||||||||
Non-cash compensation | — | — | — | — | (111 | ) | — | (111 | ) | |||||||||||||||||||
Increase in noncontrolling interest | — | — | — | — | — | 44 | 44 | |||||||||||||||||||||
Net loss attributable to IES Holdings, Inc. | — | — | — | — | — | (27,348 | ) | (27,348 | ) | |||||||||||||||||||
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BALANCE, March 31, 2018 | 22,049,529 | $ | 220 | (790,351 | ) | $ | (8,108 | ) | $ | 196,835 | $ | 19,123 | $ | 208,070 | ||||||||||||||
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9
IES HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income (loss) | $ | (27,226 | ) | $ | 4,475 | $ | 12,440 | $ | (27,226 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Bad debt expense | �� | 96 | (15 | ) | 248 | 96 | ||||||||||
Deferred financing cost amortization | 142 | 172 | 156 | 142 | ||||||||||||
Depreciation and amortization | 4,269 | 4,378 | 4,846 | 4,269 | ||||||||||||
Gain on sale of assets | (34 | ) | (13 | ) | ||||||||||||
Loss (gain) on sale of assets | 95 | (34 | ) | |||||||||||||
Non-cash compensation expense | 674 | (111 | ) | |||||||||||||
Deferred income taxes | 33,584 | 2,675 | 4,243 | 33,584 | ||||||||||||
Non-cash compensation | (111 | ) | 926 | |||||||||||||
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 14,945 | (435 | ) | (9,616 | ) | 14,945 | ||||||||||
Inventories | (665 | ) | (3,252 | ) | (2,873 | ) | (665 | ) | ||||||||
Costs and estimated earnings in excess of billings | (1,921 | ) | (3,491 | ) | 3,152 | (1,921 | ) | |||||||||
Prepaid expenses and other current assets | 97 | (5,642 | ) | (764 | ) | 97 | ||||||||||
Othernon-current assets | (52 | ) | 594 | (1,370 | ) | (52 | ) | |||||||||
Accounts payable and accrued expenses | (10,081 | ) | 213 | (144 | ) | (10,081 | ) | |||||||||
Billings in excess of costs and estimated earnings | (2,098 | ) | 1,483 | (948 | ) | (2,098 | ) | |||||||||
Othernon-current liabilities | 214 | 587 | (736 | ) | 214 | |||||||||||
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|
|
| |||||||||||||
Net cash provided by operating activities | 11,159 | 2,655 | 9,403 | 11,159 | ||||||||||||
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| |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of property and equipment | (2,327 | ) | (2,891 | ) | (3,929 | ) | (2,327 | ) | ||||||||
Proceeds from sale of property and equipment | 94 | 23 | ||||||||||||||
Cash paid for acquisitions | (175 | ) | (11,663 | ) | ||||||||||||
Proceeds from sale of assets | 7 | 94 | ||||||||||||||
Cash paid in conjunction with business combinations | — | (175 | ) | |||||||||||||
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|
|
| |||||||||||||
Net cash used in investing activities | (2,408 | ) | (14,531 | ) | (3,922 | ) | (2,408 | ) | ||||||||
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| �� |
| ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Borrowings of debt | 68 | 5,050 | 122 | 68 | ||||||||||||
Repayments of debt | (109 | ) | (5,053 | ) | (10,144 | ) | (109 | ) | ||||||||
Contingent consideration payment | — | (448 | ) | |||||||||||||
Distribution to noncontrolling interest | (69 | ) | (122 | ) | (137 | ) | (69 | ) | ||||||||
Options exercised | 11 | 87 | ||||||||||||||
Purchase of treasury stock | (1,229 | ) | (14 | ) | (5,411 | ) | (1,229 | ) | ||||||||
Issuance of shares | — | 11 | ||||||||||||||
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| |||||||||||||
Net cash used in financing activities | (1,328 | ) | (500 | ) | (15,570 | ) | (1,328 | ) | ||||||||
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| |||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 7,423 | (12,376 | ) | (10,089 | ) | 7,423 | ||||||||||
CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of period | 28,290 | 33,221 | 26,247 | 28,290 | ||||||||||||
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| |||||||||||||
CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period | $ | 35,713 | $ | 20,845 | $ | 16,158 | $ | 35,713 | ||||||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for interest | $ | 788 | $ | 660 | $ | 1,008 | $ | 788 | ||||||||
Cash paid for income taxes | $ | 1,456 | $ | 1,685 | ||||||||||||
Cash paid for income taxes (net) | $ | 523 | $ | 1,456 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
910
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
1. BUSINESS AND ACCOUNTING POLICIES
Description of the Business
IES Holdings, Inc. is a holding company that owns and manages operating subsidiaries in business activities across a variety of end markets. Our operations are currently organized into four principal business segments, based upon the nature of our current services:
• | Commercial & Industrial – Provider of electrical and mechanical design, construction, and maintenance services to the commercial and industrial markets in various regional markets and nationwide in certain areas of expertise, such as the power infrastructure market. |
• | Communications – Nationwide provider of technology infrastructure products and services to large corporations and independent businesses. |
• | Infrastructure Solutions– Provider of electro-mechanical solutions for industrial |
• | Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes. |
The words “IES”, the “Company”, “we”, “our”, and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our wholly-owned subsidiaries.
Seasonality and Quarterly Fluctuations
Results of operations from our Residential construction segment are seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues generated during fall and winter, with an impact from precipitation in the warmer months. The Commercial & Industrial, Communications and Infrastructure Solutions segments of our business are less subject to seasonal trends, as work in these segments generally is performed inside structures protected from the weather, although weather can still impact these businesses, especially in the early stages of projects. Our service and maintenance business is generally not affected by seasonality. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Results for our Infrastructure Solutions segment may be affected by the timing of outages at our customers’ facilities. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.
Basis of Financial Statement Preparation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of IES, itsour wholly-owned subsidiaries, and entities that we control due to ownership of a majority of voting interest and have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”), and should be read in conjunction with the consolidated financial statements and notes thereto filed with the SEC in our Annual Report on Form10-K for the fiscal year ended September 30, 2017.2018. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.
Noncontrolling Interest
In connection with our acquisitions of STR Mechanical, LLC (“STR Mechanical”) in fiscal 2016 and NEXT Electric, LLC (“NEXT Electric”) in fiscal 2017, we acquired an 80 percent interest in each of the entities, with the remaining 20 percent interest in each such entity being retained by the respective third party seller. The interests retained by those third party sellers are identified on our Condensed Consolidated Balance Sheets as noncontrolling interest, classified outside of permanent equity. Under the terms of each entity’s operating agreement, after five years from the date of the acquisition, we may elect to purchase, or the third party seller may
11
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on
10
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
a multiple of earnings as defined in the operating agreements. Therefore, this noncontrolling interest is carried at the greater of the balance determined under ASCAccounting Standards Codification (“ASC”) 810 and the redemption amounts assuming the noncontrolling interests were redeemable at the balance sheet date. If all of these interests had been redeemable at March 31, 2018,2019, the redemption amount would have been $1,995. See Note 13, “Business Combinations” for further discussion.$1,428. For the six months ended March 31, 2018, we recorded an increase to retained earnings of $44 to decrease the carrying amount of the noncontrolling interest in STR Mechanical to the balance determined under ASC 810, as, if it had been redeemable at March 31, 2018,2019, the redemption amount would have been less than the carrying amount.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in accounting for business combinations and analyzing goodwill, investments, intangible assets and long-lived asset impairments and adjustments, allowance for doubtful accounts receivable, stock-based compensation, reserves for legal matters, realizability of deferred tax assets, unrecognized tax benefits and self-insured claims liabilities and related reserves.
Income Taxes
In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, which, among other changes, reduced the federal statutory corporate tax rate from 35% to 21%, effective January 1, 2018. As a result of this change, the Company’s statutory tax rate for fiscal 2018 will bewas a blended rate of 24.53% and will decreasedecreased to 21% thereafter.in 2019. For the six months ended March 31, 2018, our effective tax rate differed from the statutory tax rate as a result of a preliminary charge of $31,487 tore-measure our deferred tax assets and liabilities to reflect the estimated impact of the new statutory tax rate. This preliminary charge is subject to completion of our analysis ofThe Company completed its accounting for the impactincome tax effects of the Act including as it relates to future deductions for executive compensation expense, as well asand fully recorded the effect of changesimpact in the utilization of net deferred tax assets that reverse in fiscal 2018 as compared to subsequent years.year ended September 30, 2018.
Accounting Standards Not Yet Adopted
In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued ASUNo. 2014-09, Revenue from Contracts with Customers, a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The standard also requires expanded disclosures surrounding revenue recognition. The effective date will be the first quarter of our fiscal year ended September 30, 2019. The standard allows for either full retrospective or modified retrospective adoption, and we plan to use the modified retrospective basis on the adoption date. We are continuing to evaluate the impact of the adoption of this standard on our Condensed Consolidated Financial Statements. In particular, we continue to analyze areas including contract termination provisions, customer furnished materials, accounting for change orders, and accounting for commissions paid. We expect that we will continue to recognize revenues for most of our fixed-price contracts over time, as services are performed, although we have identified a limited number of arrangements where we currently recognize revenue over time, but will no longer do so under the new standard. We are also continuing to assess the necessary changes in processes and controls to meet the disclosure requirements of the new standard.
In February 2016, the FASB issued ASUAccounting Standard UpdateNo. 2016-02, Leases (“ASU2016-02”). Under ASU2016-02, lessees will need to recognize aright-of-use asset and a lease liability on our Balance Sheet for all of their leases, other than those that meet the definition of a short-term lease. For income statement purposes, leases must be classified as either operating or finance. Operating leases will result in straight-line expense, similar to current operating leases, while finance leases will result in a front-loaded pattern,be accounted for similar to current capital leases. ASU2016-02 becomes effective for the fiscal year ended September 30, 2020. We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements.
In June 2016, the FASB issued Accounting Standard UpdateNo. 2016-13, Financial Instruments – Credit Losses (“ASU2016-13”), which requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses. This update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted. We are currently evaluating the impact it will have on our Condensed Consolidated Financial Statements.
In June 2018, the FASB issued Accounting Standard UpdateNo. 2018-07, Compensation—Stock Compensation (“ASU2018-07”), to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update is effective for the fiscal year ended September 30, 2020.
In August 2018, the FASB issued Accounting Standard UpdateNo. 2018-13, Fair Value Measurement Disclosure Framework (“ASU2018-13”), to modify certain disclosure requirements for fair value measurements. Under the new guidance, registrants will need to disclose weighted average information for significant unobservable inputs for all Level 3 fair value measurements. The guidance does not specify how entities should calculate the weighted average, but requires them to explain their calculation. The new guidance also requires disclosing the changes in unrealized gain and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted for either the entire standard or only the provisions that eliminate or modify the requirements.
12
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
We do not expect ASU2018-07 or ASU2018-13 to have a material effect on our Condensed Consolidated Financial Statements
Accounting Standards Recently Adopted
In May 2014, the FASB issued Accounting Standard UpdateNo. 2014-09, which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes prior industry-specific guidance. The new standard requires companies to recognize revenue when control of promised goods or services is transferred to customers at an amount that reflects the consideration to which the company expects to be entitled. The new model requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time for each obligation. The new standard also expands disclosure requirements regarding revenue and cash flows arising from contracts with customers.
We adopted the new revenue recognition standard on October 1, 2018 (“Adoption Date”), using the modified retrospective method, which provides for a cumulative effect adjustment to beginning fiscal 2019 retained earnings for uncompleted contracts impacted by the adoption. We recorded an adjustment of $102 to beginning fiscal 2019 retained earnings as a result of adoption of the new standard. The changes to the method and/or timing of our revenue recognition associated with the new standard primarily affect revenue recognition within our Infrastructure Solutions segment for which, as of October 1, 2018, certain of our contracts do not qualify for revenue recognition over time. In addition, we have now combined in process contracts that historically had been accounted for as separate contracts in cases where those contracts meet the criteria for combination of contracts under the new standard, and we now capitalize certain commissions which were previously expensed when incurred. The impact on our results for the quarter and year ended March 31, 2019, of applying the new standard to our contracts was not material.
Consistent with our adoption method, the comparative prior period information for the three and six months ended March 31, 2018, continues to be reported using the previous accounting standards in effect for the period presented. We have elected to utilize the modified retrospective transition practical expedient that allows us to evaluate the impact of contract modifications as of the Adoption Date rather than evaluating the impact of the modifications at the time they occurred prior to the Adoption Date.
See Note 3, “Revenue Recognition” for additional discussion of our revenue recognition accounting policies and expanded disclosures.
In January 2016, the FASB issued Accounting Standard UpdateNo. 2016-01, Financial Instruments. This standard is associated with the recognition and measurement of financial assets and liabilities, with further clarifications made in February 2018 with the issuance of Accounting Standard Update No.2018-03. The amended guidance requires certain equity investments that are not consolidated and not accounted for under the equity method to be measured at fair value with changes in fair value recognized in net income rather than as a component of accumulated other comprehensive income (loss). It further states that an entity may choose to measure equity investments that do not have readily determinable fair values using a quantitative approach, or measurement alternative, which is equal to its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Our adoption of this standard on October 1, 2018 had no impact on our Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASUAccounting Standard UpdateNo. 2017-01, Business Combinations (“ASU2017-01”).Combinations. This standard clarifies the definition of a business to assist entities with evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The newOur adoption of this standard is effective for interim and annual reporting periods beginning after December 15, 2017. Theon October 1, 2018 using the prospective transition method will be required for this new guidance.
11
IES HOLDINGS, INC.
Notes to thehad no impact on our Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Statements.
In May 2017, the FASB issued ASUAccounting Standard UpdateNo. 2017-09, Compensation—Stock Compensation, (“ASU2017-09”), to reduce the diversity in practice and the cost and complexity when changing the terms or conditions of a share-based payment award. This update is effective for interim and annual financial reporting periods beginning after December 15, 2017, although earlyOur adoption is permitted. Theof this standard on October 1, 2018 using the prospective transition method will be required for this new guidance.
We do not expect ASU2017-01 or ASU2017-09 to have a material effecthad no impact on our Condensed Consolidated Financial Statements.
2. CONTROLLING SHAREHOLDERSTOCKHOLDER
At March 31, 2018, Tontine Capital Partners, L.P., together withAssociates, L.L.C. and its affiliates (collectively, “Tontine”), wasis the Company’s controlling shareholder,stockholder, owning approximately 58%57.5 percent of the Company’s outstanding common stock according to a Form 4Schedule 13D/A filed with the SEC by Tontine on January 4, 2018.11, 2019. Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of shareholders.stockholders.
13
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
While Tontine is subject to certain restrictions under federal securities laws on sales of its shares as an affiliate, the Company has filed a shelf registration statement to register all of the shares of IES common stock owned by Tontine at the time of registration. As long as the shelf registration statement remains effective and the Company remains eligible to use it, Tontine has the ability to resell any or all of its registered shares from time to time in one or more offerings, as described in the shelf registration statement and in any prospectus supplement filed in connection with an offering pursuant to the shelf registration statement.
Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership of IES could occur. A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of the Company’s net operating losses (“NOLs”) for federal and state income tax purposes. On November 8, 2016, the Company implemented a new tax benefit protection plan (the “NOL Rights Plan”). The NOL Rights Plan was designed to deter an acquisition of the Company’s stock in excess of a threshold amount that could trigger a change of control within the meaning of Internal Revenue Code Section 382. There can be no assurance that the NOL Rights Plan will be effective in deterring a change of ownership or protecting the NOLs. Furthermore, a change in control would trigger the change of control provisions in a number of our material agreements, including our credit facility, bonding agreements with our sureties and our severance arrangements.
Jeffrey L. Gendell was appointed as a member of the Board of Directors and asnon-executive Chairman of the Board in November 2016. He is the managing member and founder of Tontine, and the brother of David B. Gendell, who has served as a member of theour Board of Directors since February 2012, and who previously served as Interim Director of Operations of the Company sincefrom November 2017 and who previously servedto January 2019, asnon-executive Vice Chairman of the Board from November 2016 to November 2017 and asnon-executive Chairman of the Board from January 2015 to November 2016. David B. Gendell was an employee of Tontine from 2004 until December 31, 2017.
The Company is party to a sublease agreement with Tontine Associates, LLC, an affiliate of Tontine,L.L.C. for corporate office space in Greenwich, Connecticut. The leaseOn May 1, 2019, sublease was renewedextended for a three-yearsix month term in April 2016expiring December 31, 2019, with an increase in the monthly rent to $8,$9, reflecting the increase paid by Tontine Associates, LLCL.L.C. to its landlord and the Company’s increased use of the corporate office space.landlord. The lease has terms at market rates, and payments by the Company are at a rate consistent with that paid by Tontine Associates, LLCL.L.C. to its landlord.
On December 6, 2018, the Company entered into a Board Observer Letter Agreement with Tontine Associates, L.L.C. in order to assist Tontine in managing its investment in the Company. Subject to the terms and conditions set forth in the Letter Agreement, the Company granted Tontine the right, at any time that Tontine holds at least 20% of the outstanding common stock of the Company, to appoint a representative to serve as an observer to the Board (the “Board Observer”). The Board Observer, who must be reasonably acceptable to those members of the Board who are not affiliates of Tontine, shall have no voting rights or other decision making authority. Subject to the terms and conditions set forth in the Letter Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonableout-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.
3. REVENUE RECOGNITION
Contracts
Our revenue is derived from contracts with customers, and we determine the appropriate accounting treatment for each contract at contract inception. Our contracts primarily relate to electrical and mechanical contracting services, technology infrastructure products and services, and electro-mechanical solutions for industrial operations. Revenue is earned based upon an agreed fixed price or actual costs incurred plus an agreed upon percentage.
We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we have written authorization from the customer to proceed.
14
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
We recognize revenue over time for the majority of the services we perform as (i) control continuously transfers to the customer as work progresses at a project location controlled by the customer and (ii) we have the right to bill the customer as costs are incurred. Within our Infrastructure Solutions segment, we often perform work inside our own facilities, where control does not continuously transfer to the customer as work progresses. In such cases, we evaluate whether we have the right to bill the customer as costs are incurred. Such assessment involves an evaluation of contractual termination clauses. Where we have a contractual right to payment for work performed to date, we recognize revenue over time. If we do not have such a right, we recognize revenue upon completion of the contract, when control of the work transfers to the customer.
For fixed price arrangements, we use the percentage of completion method of accounting under which revenue recognized is measured principally by the costs incurred and accrued to date for each contract as a percentage of the estimated total cost for each contract at completion. Contract costs include all direct material, labor and indirect costs related to contract performance. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income, and the effects of these revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments.
Variable Consideration
The transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the probability weighted value we expect to receive (or the most probable amount we expect to incur in the case of liquidated damages, if any), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages, if any). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulativecatch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.
Costs of Obtaining a Contract
In certain of our operations, we incur commission costs related to entering into a contract that we only incurred because of that contract. When this occurs, we capitalize that cost and amortize it over the expected term of the contract. At March 31, 2019, we had capitalized commission costs of $100.
We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. On rare occasions, when significantpre-contract costs are incurred, they will be capitalized and amortized on a percentage of completion basis over the life of the contract.
15
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Disaggregation of Revenue
We disaggregate our revenue from contracts with customers by activity and contract type, as these categories reflect how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Our consolidated 2019 and 2018 revenue was derived from the following service activities. See details in the following tables:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Commercial & Industrial | $ | 79,975 | 65,589 | 152,558 | 118,591 | |||||||||||
Communications | 70,437 | 50,244 | 139,762 | 104,703 | ||||||||||||
Infrastructure Solutions | ||||||||||||||||
Industrial Services | 12,145 | 10,404 | 24,368 | 21,457 | ||||||||||||
Custom Power Solutions | 22,305 | 13,462 | 39,561 | 24,094 | ||||||||||||
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| |||||||||
Total | 34,450 | 23,866 | 63,929 | 45,551 | ||||||||||||
Residential | ||||||||||||||||
Single-family | 51,492 | 43,594 | 101,968 | 88,208 | ||||||||||||
Multi-family and Other | 20,560 | 22,384 | 42,539 | 46,924 | ||||||||||||
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| |||||||||
Total | 72,052 | 65,978 | 144,507 | 135,132 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
Total Revenue | $ | 256,914 | $ | 205,677 | $ | 500,756 | $ | 403,977 | ||||||||
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|
|
|
Three Months Ended March 31, 2019 | ||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Total | ||||||||||||||||
Fixed-price | $ | 76,467 | $ | 48,602 | $ | 30,130 | $ | 72,052 | $ | 227,251 | ||||||||||
Time-and-material | 3,508 | 21,835 | 4,320 | — | 29,663 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenue | $ | 79,975 | $ | 70,437 | $ | 34,450 | $ | 72,052 | $ | 256,914 | ||||||||||
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| |||||||||||
Three Months Ended March 31, 2018 | ||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Total | ||||||||||||||||
Fixed-price | $ | 58,183 | $ | 37,344 | $ | 20,636 | $ | 65,978 | $ | 182,141 | ||||||||||
Time-and-material | 7,406 | 12,900 | 3,230 | — | 23,536 | |||||||||||||||
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|
|
|
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|
|
|
| |||||||||||
Total revenue | $ | 65,589 | $ | 50,244 | $ | 23,866 | $ | 65,978 | $ | 205,677 | ||||||||||
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|
|
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|
| |||||||||||
Six Months Ended March 31, 2019 | ||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Total | ||||||||||||||||
Fixed-price | $ | 142,297 | $ | 97,431 | $ | 57,641 | $ | 144,507 | $ | 441,876 | ||||||||||
Time-and-material | 10,261 | 42,331 | 6,288 | — | 58,880 | |||||||||||||||
|
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|
|
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|
|
|
| |||||||||||
Total revenue | $ | 152,558 | $ | 139,762 | $ | 63,929 | $ | 144,507 | $ | 500,756 | ||||||||||
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Six Months Ended March 31, 2018 | ||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Total | ||||||||||||||||
Fixed-price | $ | 107,103 | $ | 81,500 | $ | 40,309 | $ | 135,132 | $ | 364,044 | ||||||||||
Time-and-material | 11,488 | 23,203 | 5,242 | — | 39,933 | |||||||||||||||
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Total revenue | $ | 118,591 | $ | 104,703 | $ | 45,551 | $ | 135,132 | $ | 403,977 | ||||||||||
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Accounts Receivable
Accounts receivable include amounts which we have billed or have an unconditional right to bill our customers. As of March 31, 2019, Accounts receivable included $10,173 of unbilled receivables for which we have an unconditional right to bill.
16
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Contract Assets and Liabilities
Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our balance sheet under the caption “Costs and estimated earnings in excess of billings”. To the extent amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our balance sheet under the caption “Billings in excess of costs and estimated earnings”.
The net asset (liability) position for contracts in process consisted of the following:
March 31, 2019 | September 30, 2018 | |||||||
Costs and estimated earnings on uncompleted contracts | $ | 586,289 | $ | 539,226 | ||||
Less: Billings to date and unbilled accounts receivable | (590,928 | ) | (541,606 | ) | ||||
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$ | (4,639 | ) | $ | (2,380 | ) | |||
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The net asset (liability) position for contracts in process included in the accompanying consolidated balance sheets was as follows:
March 31, 2019 | September 30, 2018 | |||||||
Costs and estimated earnings in excess of billings | $ | 28,293 | $ | 31,446 | ||||
Billings in excess of costs and estimated earnings | (32,932 | ) | (33,826 | ) | ||||
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$ | (4,639 | ) | $ | (2,380 | ) | |||
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During the three months ended March 31, 2019, and 2018, we recognized revenue of $18,114 and $14,977 related to our contract liabilities at January 1, 2019 and 2018, respectively. During the six months ended March 31, 2019, and 2018, we recognized revenue of $24,701 and $25,575 related to our contract liabilities at October 1, 2018 and 2017, respectively.
We did not have any impairment losses recognized on our receivables or contract assets for the three and six months ended March 31, 2019 or 2018.
Remaining Performance Obligations
Remaining performance obligations represent the unrecognized revenue value of our contract commitments. New awards represent the total expected revenue value of new contract commitments undertaken during a given period, as well as additions to the scope of existing contract commitments. Our new performance obligations vary significantly each reporting period based on the timing of our major new contract commitments. At March 31, 2019, we had remaining performance obligations of $423,718. The Company expects to recognize revenue on approximately $376,680 of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter.
For the three and six months ended March 31, 2019, net revenue recognized from our performance obligations satisfied in previous periods was not material.
4. DEBT
At March 31, 2018,2019, and September 30, 2017,2018, our long-term debt of $29,570$19,672 and $29,434,$29,564, respectively, primarily related to amounts drawn on our revolving credit facility. Our weighted-average annual interest rate on these borrowings was 3.53%4.52% at March 31, 2018,2019, and 3.04%3.86% at September 30, 2017.2018. At March 31, 2018,2019, we also had $6,408$6,551 in outstanding letters of credit and total availability of $43,738$71,698 under thisour revolving credit facility without violating our financial covenants.
There have been no changesPursuant to our Second Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A. (as amended, the “Credit Agreement”), the Company is subject to the financial or other covenants disclosed in Item 7 of our Annual Report on Form10-K for the year ended September 30, 2017.2018.
17
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
There have been no other changes to those covenants. The Company was in compliance with the financial covenants as of March 31, 2018.2019.
At March 31, 2018,2019, the carrying value of amounts outstanding on our revolving credit facility approximated fair value, as debt incurs interest at a variable rate. The fair value of the debt is classified as a Level 2 measurement.
12
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
4.5. PER SHARE INFORMATION
The following tables reconcile the components of basic and diluted earnings per share for the three and six months ended March 31, 2018,2019, and 2017:2018:
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to common shareholders of IES Holdings, Inc. | $ | 2,250 | $ | 532 | ||||||||||||
Net income attributable to common stockholders of IES Holdings, Inc. | $ | 5,467 | $ | 2,250 | ||||||||||||
Decrease in noncontrolling interest | (44 | ) | — | — | (44 | ) | ||||||||||
Net income attributable to restricted shareholders of IES Holdings, Inc. | 15 | 4 | ||||||||||||||
Net income attributable to restricted stockholders of IES Holdings, Inc. | 22 | 15 | ||||||||||||||
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Net income attributable to IES Holdings, Inc. | $ | 2,221 | $ | 536 | $ | 5,489 | $ | 2,221 | ||||||||
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Denominator: | ||||||||||||||||
Weighted average common shares outstanding — basic | 21,182,268 | 21,299,098 | 21,139,096 | 21,182,268 | ||||||||||||
Effect of dilutive stock options andnon-vested restricted stock | 258,302 | 275,057 | 240,650 | 258,302 | ||||||||||||
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Weighted average common and common equivalent shares outstanding — diluted | 21,440,570 | 21,574,155 | 21,379,746 | 21,440,570 | ||||||||||||
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Earnings per share attributable to IES Holdings, Inc.: | ||||||||||||||||
Basic | $ | 0.11 | $ | 0.02 | $ | 0.26 | $ | 0.11 | ||||||||
Diluted | $ | 0.11 | $ | 0.02 | $ | 0.26 | $ | 0.11 | ||||||||
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) attributable to common shareholders of IES Holdings, Inc. | $ | (27,304 | ) | $ | 4,373 | |||||||||||
Net income (loss) attributable to common stockholders of IES Holdings, Inc. | $ | 12,348 | $ | (27,304 | ) | |||||||||||
Decrease in noncontrolling interest | (44 | ) | — | — | (44 | ) | ||||||||||
Net income attributable to restricted shareholders of IES Holdings, Inc. | — | 35 | ||||||||||||||
Net income (loss) attributable to restricted stockholders of IES Holdings, Inc. | 25 | — | ||||||||||||||
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Net income (loss) attributable to IES Holdings, Inc. | $ | (27,348 | ) | $ | 4,408 | $ | 12,373 | $ | (27,348 | ) | ||||||
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Denominator: | ||||||||||||||||
Weighted average common shares outstanding — basic | 21,189,641 | 21,292,523 | 21,187,834 | 21,189,641 | ||||||||||||
Effect of dilutive stock options andnon-vested restricted stock | — | 268,155 | 236,688 | — | ||||||||||||
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Weighted average common and common equivalent shares outstanding — diluted | 21,189,641 | 21,560,678 | 21,424,522 | 21,189,641 | ||||||||||||
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Earnings (loss) per share attributable to IES Holdings, Inc.: | ||||||||||||||||
Basic | $ | (1.29 | ) | $ | 0.21 | $ | 0.58 | $ | (1.29 | ) | ||||||
Diluted | $ | (1.29 | ) | $ | 0.20 | $ | 0.58 | $ | (1.29 | ) |
18
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
When an entity has a net loss, it is prohibited from including potential common shares in the computation of diluted per share amounts. Accordingly, we have utilized basic shares outstanding to calculate both basic and diluted loss per share for the six months ended March 31, 2018. ForThe number of potential anti-dilutive shares excluded from the calculation was 255,146 shares.For the three months ended March 31, 2018, and the three and six months ended March 31, 2017,2019, the average price of our common shares exceeded the exercise price of all of our outstanding options; therefore, all of our outstanding stock options were included in the computation of fully diluted earnings per share.
13
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
5.6. OPERATING SEGMENTS
We manage and measure performance of our business in four distinct operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purpose of allocating resources and assessing performance. The Company’s CODM is its Chief Executive Officer.
Transactions between segments, if any, are eliminated in consolidation. Our corporate office provides general and administrative, as well as support services, to our four operating segments. Management allocates certain shared costs between segments for selling, general and administrative expenses and depreciation expense.
Segment information for the three and six months ended March 31, 2018,2019, and 20172018 is as follows:
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 65,589 | $ | 50,244 | $ | 23,866 | $ | 65,978 | $ | — | $ | 205,677 | $ | 79,975 | $ | 70,437 | $ | 34,450 | $ | 72,052 | $ | — | $ | 256,914 | ||||||||||||||||||||||||
Cost of services | 59,068 | 40,892 | 18,842 | 53,035 | — | 171,837 | 71,184 | 58,492 | 27,004 | 56,999 | — | 213,679 | ||||||||||||||||||||||||||||||||||||
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Gross profit | 6,521 | 9,352 | 5,024 | 12,943 | — | 33,840 | 8,791 | 11,945 | 7,446 | 15,053 | — | 43,235 | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 6,849 | 6,201 | 4,637 | 9,688 | 2,272 | 29,647 | 7,363 | 7,666 | 4,685 | 11,187 | 4,169 | 35,070 | ||||||||||||||||||||||||||||||||||||
Contingent consideration | — | — | 71 | — | — | 71 | — | — | (149 | ) | — | — | (149 | ) | ||||||||||||||||||||||||||||||||||
Loss (gain) on sale of assets | (17 | ) | (8 | ) | 6 | (1 | ) | — | (20 | ) | (1 | ) | — | 101 | (2 | ) | — | 98 | ||||||||||||||||||||||||||||||
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Operating income (loss) | $ | (311 | ) | $ | 3,159 | $ | 310 | $ | 3,256 | $ | (2,272 | ) | $ | 4,142 | $ | 1,429 | $ | 4,279 | $ | 2,809 | $ | 3,868 | $ | (4,169 | ) | $ | 8,216 | |||||||||||||||||||||
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Other data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization expense | $ | 527 | $ | 219 | $ | 1,140 | $ | 155 | $ | 20 | $ | 2,061 | $ | 629 | $ | 426 | $ | 1,175 | $ | 217 | $ | 27 | $ | 2,474 | ||||||||||||||||||||||||
Capital expenditures | $ | 413 | $ | 398 | $ | 205 | $ | 108 | $ | 0 | $ | 1,124 | $ | 615 | $ | 193 | $ | 635 | $ | 398 | $ | — | $ | 1,841 | ||||||||||||||||||||||||
Total assets | $ | 72,559 | $ | 60,102 | $ | 100,884 | $ | 47,695 | $ | 103,747 | $ | 384,987 | $ | 77,898 | $ | 91,960 | $ | 114,739 | $ | 55,417 | $ | 77,257 | $ | 417,271 | ||||||||||||||||||||||||
Three Months Ended March 31, 2017 | Three Months Ended March 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 55,272 | $ | 61,674 | $ | 18,793 | $ | 67,923 | $ | — | $ | 203,662 | $ | 65,589 | $ | 50,244 | $ | 23,866 | $ | 65,978 | $ | — | $ | 205,677 | ||||||||||||||||||||||||
Cost of services | 52,604 | 52,378 | 14,515 | 52,351 | — | 171,848 | 59,068 | 40,892 | 18,842 | 53,035 | — | 171,837 | ||||||||||||||||||||||||||||||||||||
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Gross profit | 2,668 | 9,296 | 4,278 | 15,572 | — | 31,814 | 6,521 | 9,352 | 5,024 | 12,943 | — | 33,840 | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 5,261 | 6,120 | 4,222 | 10,932 | 3,585 | 30,120 | 6,849 | 6,201 | 4,637 | 9,688 | 2,272 | 29,647 | ||||||||||||||||||||||||||||||||||||
Contingent Consideration | — | — | 83 | — | — | 83 | ||||||||||||||||||||||||||||||||||||||||||
Contingent consideration | — | — | 71 | — | — | 71 | ||||||||||||||||||||||||||||||||||||||||||
Loss (gain) on sale of assets | (8 | ) | (1 | ) | 6 | (3 | ) | — | (6 | ) | (17 | ) | (8 | ) | 6 | (1 | ) | — | (20 | ) | ||||||||||||||||||||||||||||
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Operating income (loss) | $ | (2,585 | ) | $ | 3,177 | $ | (33 | ) | $ | 4,643 | $ | (3,585 | ) | $ | 1,617 | $ | (311 | ) | $ | 3,159 | $ | 310 | $ | 3,256 | $ | (2,272 | ) | $ | 4,142 | |||||||||||||||||||
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Other data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization expense | $ | 306 | $ | 171 | $ | 1,622 | $ | 151 | $ | 69 | $ | 2,319 | $ | 527 | $ | 219 | $ | 1,140 | $ | 155 | $ | 20 | $ | 2,061 | ||||||||||||||||||||||||
Capital expenditures | $ | 435 | $ | 481 | $ | 56 | $ | 108 | $ | 15 | $ | 1,095 | $ | 413 | $ | 398 | $ | 205 | $ | 108 | $ | — | $ | 1,124 | ||||||||||||||||||||||||
Total assets | $ | 54,485 | $ | 68,475 | $ | 107,535 | $ | 50,743 | $ | 126,736 | $ | 407,974 | $ | 72,559 | $ | 60,102 | $ | 100,884 | $ | 47,695 | $ | 103,747 | $ | 384,987 |
1419
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Six Months Ended March 31, 2018 | Six Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 118,591 | $ | 104,703 | $ | 45,551 | $ | 135,132 | $ | — | $ | 403,977 | $ | 152,558 | $ | 139,762 | $ | 63,929 | $ | 144,507 | $ | — | $ | 500,756 | ||||||||||||||||||||||||
Cost of services | 107,227 | 86,231 | 35,842 | 107,773 | — | 337,073 | 135,092 | 115,851 | 50,556 | 114,421 | — | 415,920 | ||||||||||||||||||||||||||||||||||||
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Gross profit | 11,364 | 18,472 | 9,709 | 27,359 | — | 66,904 | 17,466 | 23,911 | 13,373 | 30,086 | — | 84,836 | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 12,644 | 12,285 | 9,194 | 20,054 | 5,559 | 59,736 | 14,079 | 14,600 | 9,166 | 22,324 | 6,987 | 67,156 | ||||||||||||||||||||||||||||||||||||
Contingent consideration | — | — | 71 | — | — | 71 | — | — | (115 | ) | — | — | (115 | ) | ||||||||||||||||||||||||||||||||||
Loss (gain) on sale of assets | (29 | ) | (9 | ) | 5 | (1 | ) | — | (34 | ) | (4 | ) | — | 101 | (2 | ) | — | 95 | ||||||||||||||||||||||||||||||
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Operating income (loss) | $ | (1,251 | ) | $ | 6,196 | $ | 439 | $ | 7,306 | $ | (5,559 | ) | $ | 7,131 | $ | 3,391 | $ | 9,311 | $ | 4,221 | $ | 7,764 | $ | (6,987 | ) | $ | 17,700 | |||||||||||||||||||||
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Other data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization expense | $ | 1,084 | $ | 435 | $ | 2,383 | $ | 296 | $ | 71 | $ | 4,269 | $ | 1,255 | $ | 841 | $ | 2,269 | $ | 426 | $ | 55 | $ | 4,846 | ||||||||||||||||||||||||
Capital expenditures | $ | 923 | $ | 473 | $ | 345 | $ | 586 | $ | — | $ | 2,327 | $ | 1,467 | $ | 693 | $ | 822 | $ | 845 | $ | 102 | $ | 3,929 | ||||||||||||||||||||||||
Total assets | $ | 72,559 | $ | 60,102 | $ | 100,884 | $ | 47,695 | $ | 103,747 | $ | 384,987 | $ | 77,898 | $ | 91,960 | $ | 114,739 | $ | 55,417 | $ | 77,257 | $ | 417,271 | ||||||||||||||||||||||||
Six Months Ended March 31, 2017 | Six Months Ended March 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Corporate | Total | |||||||||||||||||||||||||||||||||||||
Revenues | $ | 109,228 | $ | 114,977 | $ | 37,270 | $ | 134,365 | $ | — | $ | 395,840 | $ | 118,591 | $ | 104,703 | $ | 45,551 | $ | 135,132 | $ | — | $ | 403,977 | ||||||||||||||||||||||||
Cost of services | 100,454 | 97,710 | 27,617 | 103,063 | — | 328,844 | 107,227 | 86,231 | 35,842 | 107,773 | — | 337,073 | ||||||||||||||||||||||||||||||||||||
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Gross profit | 8,774 | 17,267 | 9,653 | 31,302 | — | 66,996 | 11,364 | 18,472 | 9,709 | 27,359 | — | 66,904 | ||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 9,585 | 11,834 | 8,322 | 21,485 | 7,088 | 58,314 | 12,644 | 12,285 | 9,194 | 20,054 | 5,559 | 59,736 | ||||||||||||||||||||||||||||||||||||
Contingent Consideration | — | — | 83 | — | — | 83 | ||||||||||||||||||||||||||||||||||||||||||
Gain on sale of assets | (7 | ) | (1 | ) | (2 | ) | (3 | ) | — | (13 | ) | |||||||||||||||||||||||||||||||||||||
Contingent consideration | — | — | 71 | — | — | 71 | ||||||||||||||||||||||||||||||||||||||||||
Loss (gain) on sale of assets | (29 | ) | (9 | ) | 5 | (1 | ) | — | (34 | ) | ||||||||||||||||||||||||||||||||||||||
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Operating income (loss) | $ | (804 | ) | $ | 5,434 | $ | 1,250 | $ | 9,820 | $ | (7,088 | ) | $ | 8,612 | $ | (1,251 | ) | $ | 6,196 | $ | 439 | $ | 7,306 | $ | (5,559 | ) | $ | 7,131 | ||||||||||||||||||||
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Other data: | ||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization expense | $ | 654 | $ | 345 | $ | 2,945 | $ | 301 | $ | 133 | $ | 4,378 | $ | 1,084 | $ | 435 | $ | 2,383 | $ | 296 | $ | 71 | $ | 4,269 | ||||||||||||||||||||||||
Capital expenditures | $ | 644 | $ | 1,560 | $ | 137 | $ | 347 | $ | 203 | $ | 2,891 | $ | 923 | $ | 473 | $ | 345 | $ | 586 | $ | — | $ | 2,327 | ||||||||||||||||||||||||
Total assets | $ | 54,485 | $ | 68,475 | $ | 107,535 | $ | 50,743 | $ | 126,736 | $ | 407,974 | $ | 72,559 | $ | 60,102 | $ | 100,884 | $ | 47,695 | $ | 103,747 | $ | 384,987 |
6.7. 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 1,059,671847,891 shares were available for issuance at March 31, 2018.2019.
Stock Repurchase Program
OurIn 2015, our Board of Directors has authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule10b5-1 trading plan, which allows repurchases underpre-set terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We repurchased 189,821 and 235,954 shares, respectively, of our common stock during the
20
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
three and six months ended March 31, 2019, in open market transactions at an average price of $16.70 and $16.58, respectively, per share. We repurchased 79,817 shares of our common stock during the three and six months ended March 31, 2018, in open market transactions at an average price of $ 15.40$15.40 per share. We made no purchasesOn May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock pursuant to this plan duringunder the three and six months ended March 31, 2017.stock repurchase program.
Treasury Stock
During the six months ended March 31, 2019, we issued 212,688 shares of common stock from treasury stock to employees and repurchased 87,609 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan. We also repurchased 235,954 shares of common stock on the open market pursuant to our stock repurchase program. We issued 3,991 shares of treasury stock as payment for outstanding phantom stock units that vested upon the departure of the Company’s President and issued 283,195 shares out of treasury stock for restricted shares granted upon the appointment of the Company’s Chief Executive Officer (“CEO”) in March 2019.
During the six months ended March 31, 2018, we repurchased 79,817 shares of common stock on the open market pursuant to the repurchase program. During the six months ended March 31, 2018, we issued 520 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation and 1,500 unrestricted shares of common stock to satisfy the exercise of outstanding options for employees.
15
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
During the six months ended March 31, 2017, we repurchased 683 shares of common stock from our employees to satisfy minimum tax withholding requirements upon the vesting of restricted stock issued under the Equity Incentive Plan. During the six months ended March 31, 2017, we issued 1,287 unrestricted shares of common stock from treasury stock to members of our Board of Directors as part of their overall compensation and 14,750 unrestricted shares to satisfy the exercise of outstanding options.
Restricted Stock
On March 4, 2019, we granted 283,195 restricted shares, pursuant to four award agreements, in conjunction with the appointment of the Company’s CEO. These awards include restricted shares subject to the achievement of specified levels of cumulative net income before taxes or specified stock price levels, as well as shares that vest based on the passage of time. During the three months ended March 31, 2018,2019, and 2017,2018, we recognized $131$111 and $136,$131, respectively, in compensation expense related to our restricted stock awards. During the six months ended March 31, 2018,2019, and 2017,2018, we recognized $245$111 and $273,$245, respectively, in compensation expense related to our restricted stock awards. At March 31, 2018,2019, the unamortized compensation cost related to outstanding unvested restricted stock was $11.
Performance Based Phantom Cash Units
Performance based phantom cash units (“PPCUs”) are a contractual right to a cash payment of $20 per PPCU. The PPCUs will generally become vested, if at all, upon achievement of certain specified performance objectives. During the three months ended March 31, 2018, and 2017, we recognized compensation expense of zero and $58, respectively, related to these units. During the six months ended March 31, 2018, and 2017, we recognized compensation expense of zero and $193, respectively, related to these units.$3,685.
Phantom Stock Units
PhantomDirector phantom stock units (“Director PSUs”) are primarily granted to the members of the Board of Directors as part of their overall compensation. These Director PSUs are paid via unrestricted stock grants to each director upon their departure from the Board of Directors. We record compensation expense for the full value of the grant on the date of grant. During the three months ended March 31, 2018,2019, and 2017,2018, we recognized $49$50 and $40,$49, respectively, in compensation expense related to these grants. During the six months ended March 31, 2018,2019, and 2017,2018, we recognized $91$99 and $84,$91, respectively, in compensation expense related to these grants.
Performance Based Phantom Stock Units
A performance based phantom stock unit (a “PPSU”) is a contractual right to receive one share of the Company’s common stock upon the achievement of certain specified performance objectives and continued performance of services. On February 6, 2019, the Company granted an additional 230,274 PPSUs, of which 59,924 shares were subsequently forfeited in conjunction with the departure of the Company’s President. At March 31, 2018,2019, the Company had outstanding an aggregate of 399,027 three-year170,350 PPSUs. The vesting of these awards is subject to
During the achievement of specified levels of cumulative net income before taxes or specified stock price levelsthree and continued performance of services throughmid-December 2018. Atsix months ended March 31, 2018, redemption2019, we recognized compensation expense of a portion of the awards is deemed probable.$465 related to these grants. During the three and six months ended March 31, 2018, we recognized a benefit to compensation expense of $652 and $449, respectively, related to these grants. This benefit is awas the result of a reduction in the estimated number of units deemed probable of vesting based on the projected achievement of specified performance objectives. During the three and six months ended March 31, 2017, we recognized compensation expense of $225 and $528, respectively, related to these grants.
7.8. SECURITIES AND EQUITY INVESTMENTS
Our financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, investments, accounts payable and a loan agreement. We believe that the carrying value of these financial instruments in the accompanying Condensed Consolidated Balance Sheets approximates their fair value due to their short-term nature. Additionally,At March 31, 2019, and September 30, 2018, we havecarried a cost method investment in EnerTech Capital Partners II L.P. (“EnerTech”). We estimate the fair value ofat $408 and $558, respectively, which is equal to our investment in EnerTech (Level 3) using cash flow projections and market multiples of the underlyingnon-public companies.
Investment in EnerTech
The following table presents the reconciliation of the carrying value to the fair value of the investment in EnerTech as of March 31, 2018, and September 30, 2017:cost less impairment.
March 31, 2018 | September 30, 2017 | |||||||
Carrying value | $ | 558 | $ | 558 | ||||
Unrealized gains | 170 | 171 | ||||||
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Fair value | $ | 728 | $ | 729 | ||||
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21
16
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
At each reporting date, the Company performs an evaluation of impairment for securities to determine if any unrealized losses are other-than temporary. Based on the results of this evaluation, we believe the unrealized gain at March 31, 2018, and September 30, 2017, indicated our investment was not impaired.
8.9. EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company offersIn November 1998, we established the IES Holdings, Inc. 401(k) Retirement Savings Plan. All full-time IES employees the opportunityand full-time employees of participating subsidiaries are eligible to participate on the first day of the month subsequent to completing sixty days of service and attaining agetwenty-one. Participants become vested in its 401(k)our matching contributions following three years of service. We also maintain several subsidiary retirement savings plans. During the three months ended March 31, 20182019, and 2017,2018, we recognized $485$600 and $315,$485, respectively, in matching expense. During the six months ended March 31, 20182019, and 2017,2018, we recognized $914$1,023 and $459,$914, respectively, in matching expense.
Post Retirement Benefit Plans
Certain individuals at one of the Company’s locations are entitled to receive fixed annual payments pursuant to post retirement benefit plans. We had an unfunded benefit liability of $775$718 and $755 recorded as of March 31, 2018,2019, and $815 as of September 30, 2017,2018, respectively, related to such plans.
9.10. FAIR VALUE MEASUREMENTS
Fair Value Measurement Accounting
Fair value is considered the price to sell an asset, or transfer a liability, between market participants on the measurement date. Fair value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.
At March 31, 2018,2019, financial assets and liabilities measured at fair value on a recurring basis were limited to our Executive Deferred Compensation Plan, under which certain employees are permitted to defer a portion of their base salary and/or bonus for a Plan Year (as defined in the plan), and contingent consideration liabilities related to certain of our acquisitions.
Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2018,2019, and September 30, 2017,2018, are summarized in the following tables by the type of inputs applicable to the fair value measurements:
March 31, 2018 | March 31, 2019 | |||||||||||||||||||||||
Total Fair Value | Quoted Prices (Level 1) | Significant Unobservable Inputs (Level 3) | Total Fair Value | Quoted Prices (Level 1) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
Executive savings plan assets | $ | 686 | $ | 686 | $ | — | $ | 738 | $ | 738 | $ | — | ||||||||||||
Executive savings plan liabilities | (572 | ) | (572 | ) | — | (623 | ) | (623 | ) | — | ||||||||||||||
Contingent consideration | (467 | ) | — | (467 | ) | (270 | ) | — | (270 | ) | ||||||||||||||
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Total | $ | (353 | ) | $ | 114 | $ | (467 | ) | $ | (155 | ) | $ | 115 | $ | (270 | ) | ||||||||
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September 30, 2018 | ||||||||||||||||||||||||
Total Fair Value | Quoted Prices (Level 1) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
Executive savings plan assets | $ | 747 | $ | 747 | $ | — | ||||||||||||||||||
Executive savings plan liabilities | (631 | ) | (631 | ) | — | |||||||||||||||||||
Contingent consideration | (680 | ) | — | (680 | ) | |||||||||||||||||||
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Total | $ | (564 | ) | $ | 116 | $ | (680 | ) | ||||||||||||||||
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1722
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
September 30, 2017 | ||||||||||||
Total Fair Value | Quoted Prices (Level 1) | Significant Unobservable Inputs (Level 3) | ||||||||||
Executive savings plan assets | $ | 641 | $ | 641 | $ | — | ||||||
Executive savings plan liabilities | (529 | ) | (529 | ) | — | |||||||
Contingent consideration | (786 | ) | — | (786 | ) | |||||||
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Total | $ | (674 | ) | $ | 112 | $ | (786 | ) | ||||
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In fiscal years 2016, 2017 and 2017,2018, we entered into contingent consideration arrangements related to certain acquisitions. Please see Note 13, “Business Combinations” for further discussion. At March 31, 2018,2019, we estimated the fair value of these contingent consideration liabilities at $467.$270. The table below presents a reconciliation of the fair value of these obligations, which used significant unobservable inputs (Level 3).
Contingent Consideration Agreements | ||||
Fair Value at September 30, 2017 | $ | 786 | ||
Settlements | (390 | ) | ||
Net Adjustments to Fair Value | 71 | |||
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Fair Value at March 31, 2018 | $ | 467 | ||
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Contingent Consideration Agreements | ||||
Fair value at September 30, 2018 | $ | 680 | ||
Settlements | (295 | ) | ||
Net adjustments to fair value | (115 | ) | ||
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Fair value at March 31, 2019 | $ | 270 | ||
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10.11. INVENTORY
Inventories consist of the following components:
March 31, 2018 | September 30, 2017 | March 31, 2019 | September 30, 2018 | |||||||||||||
Raw materials | $ | 3,414 | $ | 4,104 | $ | 4,368 | $ | 4,453 | ||||||||
Work in process | 4,197 | 3,731 | 5,972 | 5,168 | ||||||||||||
Finished goods | 1,605 | 1,692 | 2,218 | 1,746 | ||||||||||||
Parts and supplies | 8,374 | 7,396 | 11,171 | 9,599 | ||||||||||||
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Total inventories | $ | 17,590 | $ | 16,923 | $ | 23,729 | $ | 20,966 | ||||||||
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11.12. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following is a progression of goodwill by segment for the six months ended March 31, 2018:2019:
Commercial & Industrial | Infrastructure Solutions | Residential | Total | |||||||||||||
Goodwill at September 30, 2017 | $ | 7,176 | $ | 30,886 | $ | 8,631 | $ | 46,693 | ||||||||
Adjustments | — | 45 | — | 45 | ||||||||||||
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Goodwill at March 31, 2018 | $ | 7,176 | $ | 30,931 | $ | 8,631 | $ | 46,738 | ||||||||
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Commercial & Industrial | Communications | Infrastructure Solutions | Residential | Total | ||||||||||||||||
Goodwill at September 30, 2018 | $ | 6,976 | $ | 2,816 | $ | 30,931 | $ | 9,979 | $ | 50,702 | ||||||||||
Divestitures (See Note 14) | — | — | (119 | ) | — | (119 | ) | |||||||||||||
Adjustments | — | — | — | 39 | 39 | |||||||||||||||
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Goodwill at March 31, 2019 | $ | 6,976 | $ | 2,816 | $ | 30,812 | $ | 10,018 | $ | 50,622 | ||||||||||
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1823
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Intangible Assets
Intangible assets consist of the following:
| March 31, 2018 | Estimated Useful Lives (in Years) | March 31, 2019 | |||||||||||||||||||||||||||||
Estimated Useful Lives (in Years) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||
Trademarks/trade names | 5-20 | $ | 4,643 | $ | 622 | $ | 4,021 | 5 - 20 | $ | 5,084 | $ | 1,053 | $ | 4,031 | ||||||||||||||||||
Technical library | 20 | 400 | 91 | 309 | 20 | 400 | 111 | 289 | ||||||||||||||||||||||||
Customer relationships | 6-15 | 31,229 | 6,234 | 24,995 | 6 - 15 | 33,539 | 9,460 | 24,079 | ||||||||||||||||||||||||
Non-competition arrangements | 5 | 40 | 5 | 35 | ||||||||||||||||||||||||||||
Backlog | 1 | 2,412 | 2,412 | — | 1 | 378 | 358 | 20 | ||||||||||||||||||||||||
Construction contracts | 1 | 2,399 | 2,209 | 190 | 1 | 2,184 | 2,179 | 5 | ||||||||||||||||||||||||
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Total | $ | 41,083 | $ | 11,568 | $ | 29,515 | ||||||||||||||||||||||||||
Total intangible assets | $ | 41,625 | $ | 13,166 | $ | 28,459 | ||||||||||||||||||||||||||
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| September 30, 2017 | Estimated Useful Lives (in Years) | September 30, 2018 | |||||||||||||||||||||||||||||
Estimated Useful Lives (in Years) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||
Trademarks/trade names | 5-20 | $ | 4,643 | $ | 440 | $ | 4,203 | 5 - 20 | $ | 5,084 | $ | 831 | $ | 4,253 | ||||||||||||||||||
Technical library | 20 | 400 | 81 | 319 | 20 | 400 | 101 | 299 | ||||||||||||||||||||||||
Customer relationships | 6-15 | 31,115 | 4,741 | 26,374 | 6 - 15 | 33,539 | 7,870 | 25,669 | ||||||||||||||||||||||||
Non-competition arrangements | 5 | 40 | 1 | 39 | ||||||||||||||||||||||||||||
Backlog | 1 | 2,412 | 2,130 | 282 | 1 | 378 | 176 | 202 | ||||||||||||||||||||||||
Construction contracts | 1 | 2,399 | 2,164 | 235 | 1 | 2,184 | 2,056 | 128 | ||||||||||||||||||||||||
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Total | $ | 40,969 | $ | 9,556 | $ | 31,413 | ||||||||||||||||||||||||||
Total intangible assets | $ | 41,625 | $ | 11,035 | $ | 30,590 | ||||||||||||||||||||||||||
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12.13. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time we are a party to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business. We maintain various insurance coverages to minimize financial risk associated with these proceedings. None of these proceedings, separately or in the aggregate, are expected to have a material adverse effect on our financial position, results of operations or cash flows. With respect to all such proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We expense routine legal costs related to these proceedings as they are incurred.
The following is a discussion of our significant legal matters:
Capstone Construction Claims
From 2003 to 2005, two of our former subsidiaries performed HVAC and electrical work under contract with Capstone Building Corporation (“Capstone”) on a university student housing project in Texas. In 2005, our subsidiaries filed for arbitration against Capstone, seeking payment for work performed, change orders and other impacts. The parties settled those claims, and the release included a waiver of warranties associated with any of the HVAC work. Several years later, the subsidiaries discontinued operations, and the Company sold their assets.
On October 24, 2013, Capstone filed a petition in the 12th Judicial District Court of Walker County, Texas against these subsidiaries, among other subcontractors, seeking contribution, defense, indemnity and damages for breach of contract in connection with alleged construction defect claims brought against Capstone by the owner of the student housing project. The owner claimed $10,406 in damages, plus attorneys’ fees and costs against Capstone, which Capstone sought to recover from the subcontractors. The claims against the Company were based on alleged defects in the mechanical design, construction and installation of the HVAC and electrical systems performed by our former subsidiaries.
19
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Following mediation in June and November 2017, the Company reached an agreement in late December 2017 to settle all claims brought against it. In the six months ended March 31, 2018, a mutual settlement and release agreement was executed by the plaintiffs and the Company resulting in a charge and payment by the Company of $200.
USAMRIID Claim
On December 6, 2017, IES Commercial, Inc. filed suit in the United States District Court of Maryland in the matterUSA for the use and benefit of IES Commercial, Inc. and IES Commercial, Inc. v. Manhattan Construction Co., Torcon, Inc., Manhattan Torcon A Joint Venture, Federal Ins. Co., Fidelity & Deposit Co. of Maryland, Zurich American Ins. Co., and Travelers Casualty & Surety Co. This suit relates to a large project which has been ongoing since 2009 and was scheduled for completion in early 2013. As the Company has previously disclosed, the Company entered into a subcontract in 2009 with Manhattan Torcon A Joint Venture to perform subcontracting services at the U.S. Army Medical Research Institute for Infectious Diseases (“USAMRIID”) replacement facility project for a contract value of approximately $61,146, subject to additions or deductions. Because of delays on the project and additional work the Company performed, the Company believes it is owed approximately $21,000 for claims incurred as of August 31, 2017, and an additional approximate $4,500 for claims the Company expects to incur from August 31, 2017, through completion of the project. On January 22, 2018, the defendants in this matter filed a motion to dismiss the suit, and on February 2, 2018, we filed our response. We are awaiting a decision on this matter.
Given the uncertainty litigation poses, the Company has not recorded any recovery in connection with this claim. There can be no assurance that the Company will prevail in this litigation matter or that, if the Company does prevail, it will receive an amount substantially similar to the amount sought or not receive a significantly lower award.
Risk-Management
We retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group health claims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits. Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors, as additional insureds under our insurance policies. Losses are accrued based upon our known claims incurred and an estimate of claims incurred but not reported. As a result, many of our claims are effectively self-insured. Many claims against our insurance are in the form of litigation. At March 31, 2018,2019, and September 30, 2017,2018, we had $6,816$6,021 and $6,204,$6,202, respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. As of March 31, 2018,2019, and September 30, 2017,2018, we had $230$87 and $218,$171, respectively, reserved for these claims. Because the reserves are based on judgment and estimates and involve variables that are inherently uncertain, such as the outcome of litigation and an assessment of insurance coverage, there can be no assurance that the ultimate liability will not be higher or lower than such estimates or that the timing of payments will not create liquidity issues for the Company.
Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date, we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At March 31, 2018,2019, and September 30, 2017, $5,9002018, $6,351 and $5,985,$6,101, respectively, of our outstanding letters of credit was utilized to collateralize our insurance program.
24
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Surety
As of March 31, 2018,2019, the estimated cost to complete our bonded projects was approximately $60,114.$77,025. We evaluate our bonding requirements on a regular basis, including the terms offered by our sureties. We believe the bonding capacity presently provided by our current sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. Posting letters of credit in favor of our sureties reduces the borrowing availability under our credit facility.
Other Commitments and Contingencies
Some of our customers and vendors require us to post letters of credit, or provide intercompany guarantees, as a means of guaranteeing performance under our contracts and ensuring payment by us to subcontractors and vendors. If our customer has
reasonable cause to effect payment under a letter of credit, we would be required to reimburse our creditor for the letter of credit. At both March 31, 2018,2019, and September 30, 2017,2018, $200 and $508, respectively, of our outstanding letters of credit were to collateralize our vendors.
20
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of March 31, 2018,2019, we had no such commitments.
13.14. BUSINESS COMBINATIONS AND DIVESTITURES
2017
The Company completed three acquisitions in the year ended September 30, 2017, forIn March 2019, our management committed to a total aggregate consideration of $20,979. See Note 18, “Business Combinations and Divestitures” in our Annual Report on Form10-Kplan for the year ended September 30, 2017, for further information.
The total purchase consideration for the Freeman and Technical Services acquisitions included contingent consideration payments based on the acquired company’s earnings, as defined in the applicable purchase and sale agreement. The fairthese assets to their net realizable value of the total contingent consideration liability for all acquisitions, including Freeman and Technical Services, was estimated at $467 at March 31, 2018, and is included in othernon-current liabilities$450, we recognized a loss of $101, recorded within “Loss (gain) on sale of assets” within our Condensed Consolidated Balance Sheets.
The Company accounted for the transactions under the acquisition methodStatements of accounting, which requires recording assets and liabilities at fair value (Level 3). The valuations of Technical Services and NEXT Electric, which are derived from estimated fair value assessments and assumptions used by management, are preliminary pending finalization of certain tangible and intangible asset valuations and assessment of deferred taxes.
Unaudited Pro Forma Information
The following unaudited supplemental pro forma results of operations, calculated as if each acquisition occurred as of October 1 of the fiscal year prior to consummation,Comprehensive Income for the three and six months ended March 31, 2018, and 2017, are as follows:2019. We expect the sale of these assets to a third party to be completed within the fiscal year ended September 30, 2019.
Unaudited | ||||||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenues | $ | 205,677 | $ | 210,557 | ||||
Net income attributable to IES Holdings, Inc. | $ | 2,221 | $ | 499 |
21
IES HOLDINGS, INC.
Notes to the Condensed Consolidated Financial Statements
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Unaudited | ||||||||
Six Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenues | $ | 403,977 | $ | 410,371 | ||||
Net income (loss) attributable to IES Holdings, Inc. | $ | (27,348 | ) | $ | 4,212 |
14.15. SUBSEQUENT EVENTS
AcquisitionOn May 2, 2019, our Board of Azimuth Communications, Inc.
On April 6, 2018, the Company acquired allDirectors authorized, subject to consent of the outstanding capitallenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock of Azimuth Communications, Inc. (“Azimuth”), a Portland, Oregon-based provider of design and integration services for structured cabling, physical security, access control systems, distributed antenna systems, wireless access, and audio visual systems. Azimuth will operate within our Communications segment.under the stock repurchase program.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Part II, Item 8.“Financial Statements and Supplementary Data” as set forth in our Annual Report on Form10-K for the year ended September 30, 2017,2018, and the Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form10-Q. The following discussion may contain forward looking statements. For additional information, see“Disclosure Regarding Forward Looking Statements” in Part I of this Quarterly Report on Form10-Q.
OVERVIEW
Executive Overview
Please refer to Part 1, Item 1. “Business”of our Annual Report on Form10-K for the year ended September 30, 2017,2018, for a discussion of the Company’s services and corporate strategy. IES Holdings, Inc., a Delaware corporation, is a holding company that owns and manages operating subsidiaries, comprised of providers of industrial products and infrastructure services, to a variety of end markets. Our operations are currently organized into four principal business segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential.
RESULTS OF OPERATIONS
We report our operating results across our four operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. Expenses associated with our corporate office are classified separately. The following tables presenttable presents selected historical results of operations of IES Holdings, Inc., as well as the results of acquired businesses from the dates acquired.
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in thousands, Percentage of revenues) | (Dollars in thousands, Percentage of revenues) | |||||||||||||||||||||||||||||||
Revenues | $ | 205,677 | 100.0 | % | $ | 203,662 | 100.0 | % | $ | 256,914 | 100.0 | % | $ | 205,677 | 100.0 | % | ||||||||||||||||
Cost of services | 171,837 | 83.5 | % | 171,848 | 84.4 | % | 213,679 | 83.2 | % | 171,837 | 83.5 | % | ||||||||||||||||||||
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Gross profit | 33,840 | 16.5 | % | 31,814 | 15.6 | % | 43,235 | 16.8 | % | 33,840 | 16.5 | % | ||||||||||||||||||||
Selling, general and administrative expenses | 29,647 | 14.4 | % | 30,120 | 14.8 | % | 35,070 | 13.7 | % | 29,647 | 14.4 | % | ||||||||||||||||||||
Contingent consideration | 71 | 0.0 | % | 83 | 0.0 | % | (149 | ) | (0.1 | )% | 71 | 0.0 | % | |||||||||||||||||||
Gain on sale of assets | (20 | ) | 0.0 | % | (6 | ) | 0.0 | % | ||||||||||||||||||||||||
Loss (gain) on sale of assets | 98 | 0.0 | % | (20 | ) | 0.0 | % | |||||||||||||||||||||||||
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Operating Income | 4,142 | 2.0 | % | 1,617 | 0.8 | % | ||||||||||||||||||||||||||
Operating income | 8,216 | 3.2 | % | 4,142 | 2.0 | % | ||||||||||||||||||||||||||
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Interest and other (income) expense, net | 430 | 0.2 | % | 384 | 0.2 | % | 423 | 0.2 | % | 430 | 0.2 | % | ||||||||||||||||||||
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Income from operations before income taxes | 3,712 | 1.8 | % | 1,233 | 0.6 | % | 7,793 | 3.0 | % | 3,712 | 1.8 | % | ||||||||||||||||||||
Provision for income taxes | 1,425 | 0.7 | % | 682 | 0.3 | % | 2,336 | 0.9 | % | 1,425 | 0.7 | % | ||||||||||||||||||||
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Net income | 2,287 | 1.1 | % | 551 | 0.3 | % | 5,457 | 2.1 | % | 2,287 | 1.1 | % | ||||||||||||||||||||
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Net income attributable to noncontrolling interest | (66 | ) | 0.0 | % | (15 | ) | 0.0 | % | ||||||||||||||||||||||||
Net loss (income) attributable to noncontrolling interest | 32 | 0.0 | % | (66 | ) | 0.0 | % | |||||||||||||||||||||||||
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Comprehensive income attributable to IES Holdings, Inc. | $ | 2,221 | 1.1 | % | $ | 536 | 0.3 | % | ||||||||||||||||||||||||
Net income attributable to IES Holdings, Inc. | $ | 5,489 | 2.1 | % | $ | 2,221 | 1.1 | % | ||||||||||||||||||||||||
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Consolidated revenues for the three months ended March 31, 2018,2019, were $2.0$51.2 million higher than for the three months ended March 31, 2017,2018, an increase of 1.0%24.9%, with increases at all of our Commercial & Industrial and Infrastructure Solutions segments. Revenues at our three businesses acquired in fiscal 2017 increasedsegments, driven by $15.1 million, partly offset by a $5.5 million decrease at two underperforming branches within our Commercial & Industrial segment, which are in the process of winding down operations.strong demand.
Consolidated gross profit for the three months ended March 31, 2018,2019, increased $2.0$9.4 million compared with the three months ended March 31, 2017.2018. Our overall gross profit percentage increased to 16.8% during the three months ended March 31, 2019, as compared to 16.5% during the three months ended March 31, 2018, as compared to 15.6% during the three months ended March 31, 2017.2018. Gross profit as a percentage of revenue increased at all of our segments, with the exception of our ResidentialCommunications segment.
23
Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and benefits related to corporate, segment and branch management (including incentive-based compensation), occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization. We allocate certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment.
26
During the three months ended March 31, 2018,2019, our selling, general and administrative expenses were $29.6$35.1 million, a decreasean increase of $0.5$5.4 million, or 1.6%18.3%, over the three months ended March 31, 2017. Selling,2018, driven by increased personnel costs at our operating segments in connection with their growth. This increase also includes a $1.9 million increase in expenses at the corporate level, related to a severance payment to our outgoing President, as well as an increase in stock based compensation expenses. However, selling, general and administrative expense as a percent of revenue decreased from 14.4% for the three months ended March 31, 2018, to 13.7% for the three months ended March 31, 2019, as we benefitted from the increased scale of our operations.
Six Months Ended March 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenues | $ | 500,756 | 100.0 | % | $ | 403,977 | 100.0 | % | ||||||||
Cost of services | 415,920 | 83.1 | % | 337,073 | 83.4 | % | ||||||||||
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Gross profit | 84,836 | 16.9 | % | 66,904 | 16.6 | % | ||||||||||
Selling, general and administrative expenses | 67,156 | 13.4 | % | 59,736 | 14.8 | % | ||||||||||
Contingent consideration | (115 | ) | 0.0 | % | 71 | 0.0 | % | |||||||||
Loss (gain) on sale of assets | 95 | 0.0 | % | (34 | ) | 0.0 | % | |||||||||
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Operating income | 17,700 | 3.5 | % | 7,131 | 1.8 | % | ||||||||||
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Interest and other (income) expense, net | 1,017 | 0.2 | % | 773 | 0.2 | % | ||||||||||
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Income from operations before income taxes | 16,683 | 3.3 | % | 6,358 | 1.6 | % | ||||||||||
Provision for income taxes(1) | 4,243 | 0.8 | % | 33,584 | 8.3 | % | ||||||||||
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Net income (loss) | 12,440 | 2.5 | % | (27,226 | ) | (6.7 | )% | |||||||||
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Net income attributable to noncontrolling interest | (67 | ) | 0.0 | % | (122 | ) | 0.0 | % | ||||||||
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Net income (loss) attributable to IES Holdings, Inc. | $ | 12,373 | 2.5 | % | $ | (27,348 | ) | (6.8 | )% | |||||||
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(1) | 2018 includes a charge of $31.5 million tore-measure our net deferred tax assets in connection with the Tax Cuts and Jobs Act. |
Consolidated revenues for the six months ended March 31, 2019, were $96.8 million higher than for the six months ended March 31, 2018, an increase of 24.0%, with increases at all of our operating segments, driven by strong demand.
Our overall gross profit percentage increased to 16.9% during the six months ended March 31, 2019, as compared to 16.6% during the six months ended March 31, 2018. Gross profit as a percentage of revenue increased at our Residential and Commercial & Industrial segments, while decreasing slightly at our Communications and Infrastructure Solutions segments.
During the six months ended March 31, 2019, our selling, general and administrative expenses were $67.2 million, an increase of $7.4 million, or 12.4%, over the six months ended March 31, 2018, driven by increased personnel costs at our operating segments in connection with their growth. This increase also includes a $1.4 million increase in expenses at the corporate level, related to a severance payment to our outgoing President, as well as an increase in stock-based compensation expense. However, selling, general and administrative expense as a percent of revenue decreased from 14.8% for the three months ended March 31, 2017,2018, to 14.4%13.4% for the three months ended March 31, 2018. This decrease was primarily attributable to lower variable compensation and incentive costs. Businesses acquired during fiscal 2017 contributed an additional $1.4 million for2019, as we benefitted from the three months March 31, 2018.
Six Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenues | $ | 403,977 | 100.0% | $ | 395,840 | 100.0% | ||||||||||
Cost of services | 337,073 | 83.4% | 328,844 | 83.1% | ||||||||||||
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Gross profit | 66,904 | 16.6% | 66,996 | 16.9% | ||||||||||||
Selling, general and administrative expenses | 59,736 | 14.8% | 58,314 | 14.7% | ||||||||||||
Contingent consideration | 71 | 0.0% | 83 | 0.0% | ||||||||||||
Gain on sale of assets | (34 | ) | 0.0% | (13 | ) | 0.0% | ||||||||||
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Operating income | 7,131 | 1.8% | 8,612 | 2.2% | ||||||||||||
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Interest and other (income) expense, net | 773 | 0.2% | 826 | 0.2% | ||||||||||||
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Income from operations before income taxes | 6,358 | 1.6% | 7,786 | 2.0% | ||||||||||||
Provision for income taxes(1) | 33,584 | 8.3% | 3,311 | 0.8% | ||||||||||||
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Net income (loss) | (27,226 | ) | (6.7) % | 4,475 | 1.2% | |||||||||||
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Net income attributable to noncontrolling interest | (122 | ) | 0.0% | (67 | ) | 0.0% | ||||||||||
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Comprehensive income (loss) attributable to IES Holdings, Inc. | $ | (27,348 | ) | (6.8) % | $ | 4,408 | 1.2% | |||||||||
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Consolidated revenues for the six months ended March 31, 2018 were $8.1 million higher than for the six months ended March 31, 2017, an increase of 2.1%, with increases at allincreased scale of our operating segments with the exception of our Communications segment. Revenues from our businesses acquired in fiscal 2017 contributed $27.3 million of the revenue increase for the six months ended March 31, 2018, largely offset by a $12.7 million decrease in revenue at the Denver and Roanoke branches of our Commercial & Industrial segment, which are in the process of winding down operations.
Our overall gross profit percentage decreased to 16.6% during the six months ended March 31, 2018, as compared to 16.9% during the six months ended March 31, 2017. Businesses acquired in fiscal 2017, contributed an additional $3.4 million of gross profit for the six months ended March 31, 2018, as compared with the six months ended March 31, 2018. However, this increase was largely offset by a decrease in margin associated with higher materials costs in our Residential segment.
During the six months ended March 31, 2018, our selling, general and administrative expenses were $59.7 million, an increase of $1.4 million, or 2.4%, over the six months ended March 31, 2017. This increase was primarily attributable to expense incurred at businesses acquired during fiscal 2017, which contributed $3.0 million of the increase for the six months ended March 31, 2018. This increase was partly offset by a reduction in variable compensation expense.
24
Commercial & Industrial
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in thousands, Percentage of revenues) | (Dollars in thousands, Percentage of revenues) | |||||||||||||||||||||||||||||||
Revenue | $ | 65,589 | 100.0% | $ | 55,272 | 100.0% | ||||||||||||||||||||||||||
Revenues | $ | 79,975 | 100.0 | % | $ | 65,589 | 100.0 | % | ||||||||||||||||||||||||
Cost of services | 59,068 | 90.1% | 52,604 | 95.2% | 71,184 | 89.0 | % | 59,068 | 90.1 | % | ||||||||||||||||||||||
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Gross profit | 6,521 | 9.9% | 2,668 | 4.8% | 8,791 | 11.0 | % | 6,521 | 9.9 | % | ||||||||||||||||||||||
Selling, general and administrative expenses | 6,849 | 10.4% | 5,261 | 9.5% | 7,363 | 9.2 | % | 6,849 | 10.4 | % | ||||||||||||||||||||||
Gain on sale of assets | (17 | ) | 0.0% | (8 | ) | 0.0% | (1 | ) | 0.0 | % | (17 | ) | 0.0 | % | ||||||||||||||||||
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Operating Income | (311 | ) | -0.5% | (2,585) | -4.7% | |||||||||||||||||||||||||||
Operating income | 1,429 | 1.8 | % | (311 | ) | -0.5 | % |
27
Revenue.Revenues in our Commercial & Industrial segment increased $10.3$14.4 million, or 18.7%21.9%, during the three months ended March 31, 2018,2019, compared to the three months ended March 31, 2017.2018. The increase was largely driven by revenues at businesses acquired in the third and fourth quarters of fiscal 2017, which contributed an additional $10.5 million during the three months ended March 31, 2018, compared to the three months ended March 31, 2017. Additionally, increased bid volume at several of our branches also contributed to the overall increaseand improving market conditions in revenues.certain areas. These increases were partly offset by a $5.5$3.8 million decrease relating to our Denver and Roanoke branches, which are in the process of winding down operations.decision to exit certain markets. The market for this segment’s services remains highly competitive.
Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended March 31, 2018,2019, increased by $3.9$2.3 million, as compared to the three months ended March 31, 2017.2018. The increase is due to bothimproved efficiency across the $2.5 million reduction in losses atbranches, as we improved project execution and as our Denver and Roanoke branches, which are in the processability to absorb fixed costs benefitted from higher volumes. Gross margin as a percent of winding down operations, and $1.6 million of additional gross profit contributed by our fiscal 2017 acquisitionsrevenue increased 1.1% to 11.0% during the three months ended March 31, 2018,2019, as compared to the three months ended March 31, 2017.2018.
Selling, General and Administrative Expenses.Our Commercial & Industrial segment’s selling, general and administrative expenses during the three months ended March 31, 2018,2019, increased $1.6$0.5 million, or 30.2%7.5%, compared to the three months ended March 31, 2017.2018. Selling, general and administrative expenses as a percentage of revenues increased 0.9%decreased 1.2% to 10.4%9.2% during the three months ended March 31, 2018,2019, compared to the three months ended March 31, 2017.2018. The increase relates primarily to our fiscal 2017 acquisitions, which increased expense by $1.1 million.
The following table summarizes the results of our Denver and Roanoke branches, which arecosts associated with higher incentive compensation in the process of winding down operations. These results are included in the consolidated Commercial & Industrial results shown above:connection with improved profitability.
Three Months Ended March 31, 2018 | Three Months Ended March 31, 2017 | |||||||
Revenues | $ | 3,949 | $ | 9,403 | ||||
Cost of Service | 3,993 | 11,936 | ||||||
Selling, general and administrative expenses | 453 | 815 | ||||||
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Loss from continuing operations | $ | (497 | ) | $ | (3,348 | ) | ||
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Six Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenue | $ | 118,591 | 100.0% | $ | 109,228 | 100.0% | ||||||||||
Cost of services | 107,227 | 90.4% | 100,454 | 92.0% | ||||||||||||
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Gross profit | 11,364 | 9.6% | 8,774 | 8.0% | ||||||||||||
Selling, general and administrative expenses | 12,644 | 10.7% | 9,585 | 8.8% | ||||||||||||
Gain on sale of assets | (29 | ) | 0.0% | (7 | ) | 0.0% | ||||||||||
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Operating Income | (1,251 | ) | -1.1% | (804 | ) | -0.7% |
25
Six Months Ended March 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenues | $ | 152,558 | 100.0 | % | $ | 118,591 | 100.0 | % | ||||||||
Cost of services | 135,092 | 88.6 | % | 107,227 | 90.4 | % | ||||||||||
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Gross profit | 17,466 | 11.4 | % | 11,364 | 9.6 | % | ||||||||||
Selling, general and administrative expenses | 14,079 | 9.2 | % | 12,644 | 10.7 | % | ||||||||||
Gain on sale of assets | (4 | ) | 0.0 | % | (29 | ) | 0.0 | % | ||||||||
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Operating income | 3,391 | 2.2 | % | (1,251 | ) | -1.1 | % |
Revenue.Revenues in our Commercial & Industrial segment increased $9.4$34.0 million during the six months ended March 31, 2018,2019, an increase of 8.6%28.6% compared to the six months ended March 31, 2018. The increase in revenue over this period was driven by increased bid volume at several of our fiscal 2017 acquisitions, which contributed $19.6 million of additional revenue during the six months ended March 31, 2018 compared to the six months ended March 31, 2017.branches and improving market conditions in certain areas. This increase in revenue was partly offset by a $12.7$6.7 million decrease in revenue attributable to our decision to exit the winding down of operations at our Denver and Roanoke locations for the six months ended March 31, 2018, as compared with the six months ended March 31, 2017.markets. The market for this segment’s services in many geographic regions remains highly competitive.
Gross Profit. Our Commercial & Industrial segment’s gross profit during the six months ended March 31, 2018,2019, increased by $2.6$6.1 million, or 29.5%53.7%, as compared to the six months ended March 31, 2017.2018. As a percentage of revenue, gross profit increased from 8.0% for the six months ended March 31, 2017, to 9.6% for the six months ended March 31, 2018. The increase was driven by $3.1 million of additional gross profit contributed by our fiscal 2017 acquisitions during the six months ended March 31, 2018, compared to the six months ended March 31, 2017. Additionally,11.4% for the six months ended March 31, 2018, gross margin2019. The increase is due to improved by $2.1 million compared withefficiency across the six months ended March 31, 2017 atbranches, as we improved project execution and as our Denver and Roanoke branches, which are in the process of winding down operations. These increases were partly offset by a benefit we receivedability to absorb fixed costs benefitted from a change order on a large project in the six months ended March 31, 2017. Additionally, results for the six months ended March 31, 2018 were affected by an increase in workers’ compensation expense in the first quarter of fiscal 2018, as a result of claims incurred related to certain incidents which occurred prior to fiscal 2018. As we are effectively self-insured with respect to workers’ compensation, we may incur costs related to a claim in a reporting period subsequent to the incident related to the claim, and expense can vary significantly from period to period, depending on the timing of claims development. See Note 12, “Commitments and Contingencies” for further discussion.higher volumes.
Selling, General and Administrative Expenses.Our Commercial & Industrial segment’s selling, general and administrative expenses during the six months ended March 31, 2018,2019, increased $3.1$1.4 million, or 31.9%11.3%, compared to the six months ended March 31, 2017, and increased 1.9%2018, but decreased 1.5% as a percentage of revenue. The increase was driven by our fiscal 2017 acquisitions, where selling, general and administrative expense for the six months ended March 31, 2018, increased by $2.1 million. The remaining increase relates primarily to employee expensecosts associated with management hired to provide additional oversight at the regional and branch levels.
The following table summarizes the results of our Denver and Roanoke branches, which arehigher incentive compensation in the process of winding down operations. These results are included in the consolidated Commercial & Industrial segment results shown above:connection with improved profitability.
Six Months Ended March 31, 2018 | Six Months Ended March 31, 2017 | |||||||
Revenues | $ | 7,110 | $ | 19,801 | ||||
Cost of Service | 7,304 | 22,085 | ||||||
Selling, general and administrative expenses | 943 | 1,463 | ||||||
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Loss from continuing operations | $ | (1,137 | ) | $ | (3,747 | ) | ||
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28
Communications
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenue | $ | 50,244 | 100.0% | $ | 61,674 | 100.0% | ||||||||||
Cost of services | 40,892 | 81.4% | 52,378 | 84.9% | ||||||||||||
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Gross profit | 9,352 | 18.6% | 9,296 | 15.1% | ||||||||||||
Selling, general and administrative expenses | 6,201 | 12.3% | 6,120 | 9.9% | ||||||||||||
Gain on sale of assets | (8 | ) | 0.0% | (1 | ) | 0.0% | ||||||||||
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Operating Income | 3,159 | 6.3% | 3,177 | 5.2% |
26
Three Months Ended March 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenues | $ | 70,437 | 100.0 | % | $ | 50,244 | 100.0 | % | ||||||||
Cost of services | 58,492 | 83.0 | % | 40,892 | 81.4 | % | ||||||||||
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Gross profit | 11,945 | 17.0 | % | 9,352 | 18.6 | % | ||||||||||
Selling, general and administrative expenses | 7,666 | 10.9 | % | 6,201 | 12.3 | % | ||||||||||
Gain on sale of assets | — | 0.0 | % | (8 | ) | 0.0 | % | |||||||||
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Operating income | 4,279 | 6.1 | % | 3,159 | 6.3 | % |
Revenue.Our Communications segment’s revenues decreasedincreased by $11.4$20.2 million during the three months ended March 31, 2018, primarily as a result of $6.8 million of revenue we received in2019, or 40.2%, during the three months ended March 31, 2017 on a2019, compared to the three months ended March 31, 2018. The increase primarily resulted from increased demand driven by several of our large system upgrade project for a school district. This project was completed in fiscal 2017.data center customers. Revenues in our Communications segment can vary from quarter to quarter based on the capital spending cycles of our customers.
Gross Profit.Our Communications segment’s gross profit during the three months ended March 31, 2018,2019, increased by $0.1$2.6 million compared to the three months ended March 31, 2017. Gross2018. While total gross profit increased in connection with higher volumes, gross profit as a percentage of revenue increased 3.5% to 18.6%decreased, as we took on a larger proportion of cost-plus arrangements. These arrangements provide us with a reimbursement for the three months ended March 31, 2018, primarilyour costs plus a markup, and are typically lower margin, but also lower risk, as a result of improved project execution.compared with our fixed-cost arrangements.
Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by $0.1$1.5 million, or 1.3%23.6%, during the three months ended March 31, 2018,2019, compared to the three months ended March 31, 2017.2018. The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows. Selling, general and administrative expenses as a percentage of revenues in the Communications segment increased 2.4%decreased 1.4% to 12.3%10.9% of segment revenue during the three months ended March 31, 2018,2019, compared to the three months ended March 31, 2017. The increase is a result2018, as we benefitted from the increased scale of higher personnel cost, particularly related to higher incentive compensation expense in connection with improved profitability and cash flows, as well as continuing investment to support anticipated growth.our operations.
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in thousands, Percentage of revenues) | (Dollars in thousands, Percentage of revenues) | |||||||||||||||||||||||||||||||
Revenue | $ | 104,703 | 100.0% | $ | 114,977 | 100.0% | ||||||||||||||||||||||||||
Revenues | $ | 139,762 | 100.0 | % | $ | 104,703 | 100.0 | % | ||||||||||||||||||||||||
Cost of services | 86,231 | 82.4% | 97,710 | 85.0% | 115,851 | 82.9 | % | 86,231 | 82.4 | % | ||||||||||||||||||||||
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Gross profit | 18,472 | 17.6% | 17,267 | 15.0% | 23,911 | 17.1 | % | 18,472 | 17.6 | % | ||||||||||||||||||||||
Selling, general and administrative expenses | 12,285 | 11.7% | 11,834 | 10.3% | 14,600 | 10.4 | % | 12,285 | 11.7 | % | ||||||||||||||||||||||
Gain on sale of assets | (9 | ) | 0.0% | (1 | ) | 0.0% | — | 0.0 | % | (9 | ) | 0.0 | % | |||||||||||||||||||
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Operating Income | 6,196 | 5.9% | 5,434 | 4.7% | ||||||||||||||||||||||||||||
Operating income | 9,311 | 6.7 | % | 6,196 | 5.9 | % |
Revenue.Our Communications segment revenues decreasedincreased by $10.3$35.1 million during the six months ended March 31, 2018, primarily as a result of $6.8 million of revenue we received in2019, or 33.5% compared to the threesix months ended March 31, 2017 on a large system upgrade project for a school district. This project was completed in fiscal 2017.2018. The increase primarily resulted from increased demand from several of our data center customers. Revenues in our Communications segment can vary from quarter to quarter based on the capital spending cycles of our customers.
Gross Profit.Our Communications segment’s gross profit during the six months ended March 31, 2018,2019, increased $1.2$5.4 million, or 7.0%29.4%, as compared to the six months ended March 31, 2017. Gross2018. While total gross profit increased in connection with higher volumes, gross profit as a percentage of revenue increased 2.6% to 17.6%decreased, as we took on a larger proportion of cost-plus arrangements. These arrangements provide us with a reimbursement for the six months ended March 31, 2018. The increase is driven, primarily by improved project execution.our costs plus a markup, and are typically lower margin, but also lower risk, as compared with our fixed-cost arrangements.
Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased $0.5$2.3 million, or 3.8%18.8%, during the six months ended March 31, 2018,2019, compared to the six months ended March 31, 2017.2018. The increase is a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows. Selling, general and administrative expenses as a percentage of revenues in the Communications segment increaseddecreased by 1.4%1.3% to 11.7%10.4% of segment revenue during the six months ended March 31, 2018,2019, compared to the six months ended March 31, 2017. The increase is a result2018, as we benefitted from the increased scale of higher personnel cost, including increased incentive compensation associated with higher profitability and cash flows. Additionally, we have continued to invest in the necessary infrastructure to support anticipated growth.our operations.
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Infrastructure Solutions
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenue | $ | 23,866 | 100.0% | $ | 18,793 | 100.0% | ||||||||||
Cost of services | 18,842 | 78.9% | 14,515 | 77.2% | ||||||||||||
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Gross profit | 5,024 | 21.1% | 4,278 | 22.8% | ||||||||||||
Selling, general and administrative expenses | 4,637 | 19.4% | 4,222 | 22.5% | ||||||||||||
Contingent consideration | 71 | 0.3% | 83 | 0.4% | ||||||||||||
Loss on sale of assets | 6 | 0.0% | 6 | 0.0% | ||||||||||||
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Operating income (loss) | 310 | 1.3% | (33 | ) | -0.2% |
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Three Months Ended March 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenues | $ | 34,450 | 100.0 | % | $ | 23,866 | 100.0 | % | ||||||||
Cost of services | 27,004 | 78.4 | % | 18,842 | 78.9 | % | ||||||||||
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Gross profit | 7,446 | 21.6 | % | 5,024 | 21.1 | % | ||||||||||
Selling, general and administrative expenses | 4,685 | 13.6 | % | 4,637 | 19.4 | % | ||||||||||
Contingent consideration | (149 | ) | -0.4 | % | 71 | 0.3 | % | |||||||||
Loss on sale of assets | 101 | 0.3 | % | 6 | 0.0 | % | ||||||||||
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Operating income | 2,809 | 8.2 | % | 310 | 1.3 | % |
Revenue.Revenues in our Infrastructure Solutions segment increased $5.1$10.6 million during the three months ended March 31, 2018,2019, an increase of 27.0%44.3% compared to the three months ended March 31, 2017.2018. The increase in revenue was driven primarily by additionalour bus duct and enclosure business, driven by increased demand for enclosures to be used at data centers, as well as an increase in revenue of $4.5 million contributed by the acquisition of Freeman Enclosures in the second quarter of fiscal 2017.from our motor repair business.
Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended March 31, 2018,2019, increased $0.7$2.4 million as compared to the three months ended March 31, 2017.2018. Gross profit as a percentage of revenue decreased 1.7%increased 0.5% to 21.1%21.6%. The primary driver of the improvement in margins was our bus duct facility, which was impacted in the prior year by production inefficiencies and the amortization of contract intangibles associated with the acquisition of this business in 2016. Margins are primarilyalso affected by the mix of work performed.
Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended March 31, 2018, increased $0.4 million2019, remained flat compared to the three months ended March 31, 2017, largely2018, as a result ofwe were able to scale our business effectively without adding general and administrative expenses at Freeman Enclosures, which was acquired during the second quarter of fiscal 2017.expense.
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in thousands, Percentage of revenues) | (Dollars in thousands, Percentage of revenues) | |||||||||||||||||||||||||||||||
Revenue | $ | 45,551 | 100.0 | % | $ | 37,270 | 100.0 | % | ||||||||||||||||||||||||
Revenues | $ | 63,929 | 100.0 | % | $ | 45,551 | 100.0 | % | ||||||||||||||||||||||||
Cost of services | 35,842 | 78.7 | % | 27,617 | 74.1 | % | 50,556 | 79.1 | % | 35,842 | 78.7 | % | ||||||||||||||||||||
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Gross profit | 9,709 | 21.3 | % | 9,653 | 25.9 | % | 13,373 | 20.9 | % | 9,709 | 21.3 | % | ||||||||||||||||||||
Selling, general and administrative expenses | 9,194 | 20.2 | % | 8,322 | 22.3 | % | 9,166 | 14.3 | % | 9,194 | 20.2 | % | ||||||||||||||||||||
Contingent consideration | 71 | 0.2 | % | 83 | 0.2 | % | (115 | ) | -0.2 | % | 71 | 0.2 | % | |||||||||||||||||||
Loss (gain) on sale of assets | 5 | 0.0 | % | (2 | ) | 0.0 | % | |||||||||||||||||||||||||
Loss on sale of assets | 101 | 0.2 | % | 5 | 0.0 | % | ||||||||||||||||||||||||||
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Operating income | 439 | 1.0 | % | 1,250 | 3.4 | % | 4,221 | 6.6 | % | 439 | 1.0 | % |
Revenue.Revenues in our Infrastructure Solutions segment increased $8.3$18.4 million during the six months ended March 31, 2018,2019, an increase of 22.2%40.3% compared to the six months ended March 31, 2017.2018. The increase wasin revenue relates primarily to our bus duct and enclosure business, driven by $10.0 million of additionalincreased demand for enclosures to be used at data centers, as well as an increase in revenue contributed by Freeman Enclosures, which we acquired during the second quarter of fiscal 2017.from our motor repair business.
Gross Profit. Our Infrastructure Solutions segment’s gross profit during the six months ended March 31, 2018,2019, increased $0.1$3.7 million as compared to the six months ended March 31, 2017.2018. The primary driver of the improvement in margins was our bus duct facility, which was affected in the prior year by production inefficiencies and by the impact of the amortization of contract intangibles associated with the acquisition of this business in 2016. We also benefitted from higher volumes in our generator enclosure manufacturing facility, as well as increased activity at our motor repair shops. Gross profit as a percentage of revenues decreased 4.6%0.4% to 21.3%20.9% for the six months ended March 31, 2018. Margins are affected by2019, largely as the result of a change in the mix of work performed.
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Selling, General and Administrative Expenses.Our Infrastructure Solutions segment’s selling, general and administrative expenses during the six months ended March 31, 2018, increased $0.9 million2019 remained flat compared to the six months ended March 31, 2017. The increase was primarily the result of2018, as we were able to scale our business effectively without adding general and administrative costs incurred at Freeman Enclosures, which increased $0.8 million for the six months ended March 31, 2018.expense.
Residential
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenue | $ | 65,978 | 100.0% | $ | 67,923 | 100.0% | ||||||||||
Cost of services | 53,035 | 80.4% | 52,351 | 77.1% | ||||||||||||
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Gross profit | 12,943 | 19.6% | 15,572 | 22.9% | ||||||||||||
Selling, general and administrative expenses | 9,688 | 14.7% | 10,932 | 16.1% | ||||||||||||
Gain on sale of assets | (1 | ) | 0.0% | (3 | ) | 0.0% | ||||||||||
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Operating income | 3,256 | 4.9% | 4,643 | 6.8% |
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Three Months Ended March 31, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
$ | % | $ | % | |||||||||||||
(Dollars in thousands, Percentage of revenues) | ||||||||||||||||
Revenues | $ | 72,052 | 100.0 | % | $ | 65,978 | 100.0 | % | ||||||||
Cost of services | 56,999 | 79.1 | % | 53,035 | 80.4 | % | ||||||||||
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Gross profit | 15,053 | 20.9 | % | 12,943 | 19.6 | % | ||||||||||
Selling, general and administrative expenses | 11,187 | 15.5 | % | 9,688 | 14.7 | % | ||||||||||
Gain on sale of assets | (2 | ) | 0.0 | % | (1 | ) | 0.0 | % | ||||||||
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Operating income | 3,868 | 5.4 | % | 3,256 | 4.9 | % |
Revenue.Our Residential segment’s revenues decreasedincreased by $1.9$6.1 million during the three months ended March 31, 2018, a decrease2019, an increase of 2.9%9.2% as compared to the three months ended March 31, 2017.2018. The decreaseincrease is driven by our multi-familysingle-family business, where revenues decreasedincreased by $7.0$7.9 million for the three months ended March 31, 2018,2019, compared with the three months ended March 31, 2017. The quarter ended March 31, 2017, benefitted from a historically high level of backlog, which was the result of project delays in the previous fiscal year. Our current multi-family backlog has returned to a more typical level.2018. This decrease was partly offset by an $0.8 million decrease in our single-familymulti-family business, where revenues increasedmany projects have been delayed by $3.9 million.weather. Service and solar revenues also increaseddecreased by $1.2$1.0 million for the three months ended March 31, 2018,2019, compared with the same period in the prior year.
Gross Profit.During the three months ended March 31, 2018,2019, our Residential segment experienced a $2.6$2.1 million, or 16.9%16.3%, decreaseincrease in gross profit as compared to the three months ended March 31, 2017.2018. The decreaseincrease in gross profit was driven primarily by an increase in copper and other commodity prices, as we experienced favorableimproved commodity prices in the quarter ended March 31, 2017, as well as an increase in labor costs, as a result of tightening labor markets.2019. Gross margin as a percentage of revenue decreased 3.3%increased 1.3% to 19.6%20.9% during the quarter ended March 31, 2018,2019, as compared with the quarter ended March 31, 2017.2018.
Selling, General and Administrative Expenses. Our Residential segment experienced a $1.2$1.5 million, or 11.4%15.5%, decreaseincrease in selling, general and administrative expenses during the three months ended March 31, 2018,2019, compared to the three months ended March 31, 2017,2018, primarily as a result of lowerhigher incentive compensation expense in connection with lowerhigher profitability. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreasedincreased to 14.7%15.5% of segment revenue during the three months ended March 31, 2018,2019, compared to 16.1%14.7% in the three months ended March 31, 2017.2018.
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||
(Dollars in thousands, Percentage of revenues) | (Dollars in thousands, Percentage of revenues) | |||||||||||||||||||||||||||||||
Revenue | $ | 135,132 | 100.0% | $ | 134,365 | 100.0% | ||||||||||||||||||||||||||
Revenues | $ | 144,507 | 100.0 | % | $ | 135,132 | 100.0 | % | ||||||||||||||||||||||||
Cost of services | 107,773 | 79.8% | 103,063 | 76.7% | 114,421 | 79.2 | % | 107,773 | 79.8 | % | ||||||||||||||||||||||
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Gross profit | 27,359 | 20.2% | 31,302 | 23.3% | 30,086 | 20.8 | % | 27,359 | 20.2 | % | ||||||||||||||||||||||
Selling, general and administrative expenses | 20,054 | 14.8% | 21,485 | 16.0% | 22,324 | 15.4 | % | 20,054 | 14.8 | % | ||||||||||||||||||||||
Gain on sale of assets | (1 | ) | 0.0% | (3 | ) | 0.0% | (2 | ) | 0.0 | % | (1 | ) | 0.0 | % | ||||||||||||||||||
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Operating income | 7,306 | 5.4% | 9,820 | 7.3% | 7,764 | 5.4 | % | 7,306 | 5.4 | % |
Revenue.Our Residential segment revenues increased by $0.8$9.4 million during the six months ended March 31, 2018,2019, an increase of 0.6%6.9% as compared to the six months ended March 31, 2017.2018. The increase is driven by our single-family business, where revenues increased by $9.4$13.8 million for the six months ended March 31, 2018,2019, compared with the six months ended March 31, 2017.2018. This was partly offset by a $3.0 million decrease in our multi-family business, where many projects have been delayed by weather. Service and solar revenues also increaseddecreased by $2.1$1.4 million for the six months ended March 31, 2018,2019, compared with the same period in the prior year. These increases were partly offset by a decrease in multi-family revenues, which declined by $10.7 million. The six months ended March 31, 2017, benefitted from a historically high level of backlog, which was the result of project delays in the previous fiscal year. Our current multi-family backlog has returned to a more typical level.
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Gross Profit. During the six months ended March 31, 2018,2019, our Residential segment experienced a $3.9$2.7 million, or 12.6%10.0%, decreaseincrease in gross profit as compared to the six months ended March 31, 2017.2018. The decreaseincrease in gross profit was driven primarily by an increase inimproved copper and other commodity prices, as we experienced favorable commodity prices in the six months ended March 31, 2017, as well as an increase in labor costs, as a result of tightening labor markets.prices. Gross margin as a percentage of revenue decreased 3.1%increased 0.6% to 20.2%20.8% during the six months ended March 31, 2018,2019, as compared with the six months ended March 31, 2017.2018.
Selling, General and Administrative Expenses. Our Residential segment experienced a $1.4$2.3 million, or 6.7%11.3%, decreaseincrease in selling, general and administrative expenses during the six months ended March 31, 2018,2019, compared to the six months ended March 31, 2017,2018, driven by decreasedincreased compensation expense, primarily as a result of a decrease of $0.7 million in variable compensation and incentive costs associated with decreased profitability.expense. Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreasedincreased by 1.2%0.6% to 14.8%15.4% of segment revenue during the six months ended March 31, 2018.2019.
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INTEREST AND OTHER EXPENSE, NET
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Interest expense | $ | 402 | $ | 341 | $ | 456 | $ | 402 | ||||||||
Deferred financing charges | 71 | 87 | 79 | 71 | ||||||||||||
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Total interest expense | 473 | 428 | 535 | 473 | ||||||||||||
Other (income) expense, net | (43 | ) | (44 | ) | (112 | ) | (43 | ) | ||||||||
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Total interest and other expense, net | $ | 430 | $ | 384 | $ | 423 | $ | 430 | ||||||||
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During the three months ended March 31, 2018,2019, we incurred interest expense of $0.5 million primarily comprised of interest expense from our term loanrevolving credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”), an average letter of credit balance of $6.6 million under our revolving credit facility and an average unused line of credit balance of $66.6 million under our revolving credit facility. This compares to interest expense of $0.5 million for the three months ended March 31, 2018, primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $28.5 million. This compares to interest expense of $0.4$63.4 million forunder our revolving credit facility.
Six Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(In thousands) | ||||||||
Interest expense | $ | 926 | $ | 772 | ||||
Deferred financing charges | 156 | 142 | ||||||
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Total interest expense | 1,082 | 914 | ||||||
Other (income) expense, net | (65 | ) | (141 | ) | ||||
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Total interest and other expense, net | $ | 1,017 | $ | 773 | ||||
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During the threesix months ended March 31, 2017,2019, we incurred interest expense of $1.1 million primarily comprised of interest expense from our term loanrevolving credit facility, an average letter of credit balance of $6.6$6.7 million under our revolving credit facility and an average unused line of credit balance of $33.2 million.
Six Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
(In thousands) | ||||||||
Interest expense | $ | 772 | $ | 702 | ||||
Deferred financing charges | 142 | 172 | ||||||
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Total interest expense | 914 | 874 | ||||||
Other (income) expense, net | (141 | ) | (48 | ) | ||||
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Total interest and other expense, net | $ | 773 | $ | 826 | ||||
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During$64.8 million under our revolving credit facility. This compares to interest expense of $0.9 million for the six months ended March 31, 2018, we incurred interest expense of $0.9 million primarily comprised of interest expense from our revolving credit facility, an average letter of credit balance of $6.4 million under our revolving credit facility and an average unused line of credit balance of $24.3 million. This compares to interest expense of $0.9$63.4 million for the six months ended March 31, 2017, primarily comprised of interest expense fromunder our revolving credit facility, an average letter of credit balance of $6.7 million and an average unused line of credit balance of $33.1 million.facility.
PROVISION FOR INCOME TAXES
We recorded income tax expense of $2.3 million for the three months ended March 31, 2019, compared to income tax expense of $1.4 million for the three months ended March 31, 2018, compared to2018. We recorded income tax expense of $0.7$4.2 million for the threesix months ended March 31, 2017.
We recorded2019, compared to income tax expense of $33.6 million for the six months ended March 31, 2018, compared to income tax expense of $3.3 million for the six months ended March 31, 2017.2018.
For the six months ended March 31, 2018, our income tax expense included a preliminary charge of $31.5 million tore-measure our deferred tax assets and liabilities to reflect the estimated impact of the new statutory tax rate enacted during the quarter.six months ended March 31, 2018. The Company completed its accounting for the income tax effects of the Tax Cuts and Jobs Act and fully recorded the impact in the year ended September 30, 2018.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our Condensed Consolidated Financial Statements included in this report on Form10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).principles. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Condensed Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our beliefs and assumptions derived from information available at the same time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates.
BACKLOG
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | |||||||||||||
Remaining performance obligations | $ | 424 | $ | 407 | $ | 326 | $ | 289 | ||||||||
Agreements without an enforceable obligation (1) | 149 | 131 | 156 | 103 | ||||||||||||
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Backlog | $ | 573 | $ | 538 | $ | 482 | $ | 392 | ||||||||
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BACKLOG
(1) | Our backlog contains signed agreements and letters of intent which we do not have a legal right to enforce prior to work starting. These arrangements are excluded from remaining performance obligations until work begins. |
Backlog is a measure of revenue that we expect to recognize from work that has yet to be performed on uncompleted contracts and from work that has been contracted but has not started, exclusive of short-term projects. While all of our backlog is supported by documentation from customers, authorizing the performance of future work, backlog is not a guarantee of future revenues, as contractual commitments may change and our performance may vary. Not all of our work is performed under contracts included in backlog; for example, most of the apparatus repair work that is completed by our Infrastructure Solutions segment is performed under master service agreements on an as needed basis. Additionally, electrical installation services for single-family housing at our Residential segment is completed on a short-term basis and is therefore excluded from backlog. In addition, certain service work is performed under master service agreements on anas-needed basis.basis and is therefore excluded from backlog. Our backlog has increased from $331$482 million at September 30, 2017,2018, to $343$573 million at March 31, 2018.2019.
WORKING CAPITAL
During the six months ended March 31, 2018,2019, working capital exclusive of cash decreasedincreased by $1.4$12.1 million from September 30, 2017,2018, reflecting a $12.6$10.3 million decreaseincrease in current assets excluding cash and a $11.2$1.8 million decrease in current liabilities during the period.
During the six months ended March 31, 2018,2019, our current assets exclusive of cash decreasedincreased to $190.9$246.8 million, as compared to $203.5$236.4 million as of September 30, 2017.2018. The decreaseincrease primarily relates to a $15.7$9.4 million decreaseincrease in accounts receivable and retainage.receivable. Days sales outstanding decreased to 5960 at March 31, 2018,2019, from 6662 at September 30, 2017.2018. While the rate of collections may vary, our typically secured position, resulting from our ability in general to secure liens against our customers’ overdue receivables, offers some protection that collection will occur eventually to the extent that our security retains value.
During the six months ended March 31, 2018,2019, our total current liabilities decreased by $11.2$1.8 million to $139.4$162.6 million, compared to $150.6$164.4 million as of September 30, 2017,2018, primarily related to a decrease in both accounts payable and accrued liabilities.
The decreasesliabilities and Billings in both accounts receivableexcess of costs and accounts payable are typical for the six months of our fiscal year, based on a slowing of activity around the end of the calendar year, combined with winter weather related project delays.estimated earnings.
Surety
We believe the bonding capacity presently provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. As of March 31, 2018,2019, the estimated cost to complete our bonded projects was approximately $60.1$77.0 million.
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LIQUIDITY AND CAPITAL RESOURCES
The Revolving Credit Facility
We maintain a $100 million revolving credit facility with Wells Fargo Bank, N.A.Fargo. that matures in August 9, 2021, (as amended, the “Credit Facility”), pursuant to a Second Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A.,dated as of April 10, 2017, which was further amended on July 14, 2017, and August 2, 2017, and July 23, 2018 (as amended, the “Amended Credit Agreement”).
The Amended Credit FacilityAgreement contains customary affirmative, negative and financial covenants as well as events of default.
As of March 31, 2018,2019, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:
a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement), measured quarterly on a trailing four-quarter basis at the end of each quarter, of at least 1.1 to 1.0; and
minimum Liquidity (as defined in the Amended Credit Agreement) of at least thirty percent (30%) of the Maximum Revolver Amount (as defined in the Amended Credit Agreement), or $30 million; with, for purposes of this covenant, at least fifty percent (50%) of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement); and.
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At March 31, 2018,2019, our Liquidity was $79.5$87.9 million, our Excess Availability was $43.7$71.7 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was 5.8:1.0; and6.0:1.0. Because our Excess Availability at March 31, 2019, exceeded $30 million, we were not required to comply with minimum EBITDA financial covenant of the Amended Credit Agreement, which would have required that we have a minimum EBITDA for the four quarters ended March 31, 2019, of $35 million. Our EBITDA, as defined in the Amended Credit Agreement for the four quarters ended March 31, 20182019, was $36.3$48.2 million.
If in the future our Liquidity falls below $30 million (or Excess Availability falls below 50% or our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0, we fail to meet our minimum EBITDA requirement when it is required to be tested, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under the Amended Credit Agreement, it would result in an event of default under the Amended Credit Agreement, which could result in some or all of our indebtedness becoming immediately due and payable.
At March 31, 2018,2019, we had $6.4$6.6 million in outstanding letters of credit with Wells Fargo Bank, N.A and outstanding borrowings of $30.2$20.2 million.
Operating Activities
Our cash flow from operations is not only influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal first and second quarters due to the seasonality that we experience in many regions of the country.country; however a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions.
Operating activities provided net cash of $11.2$9.4 million during the six months ended March 31, 2018,2019, as compared to $2.7$11.2 million of net cash provided in the six months ended March 31, 2017.2018. The increasedecrease in operating cash flow resulted primarily from improvedan increase in working capital at our Communications segment, where we had a higher levelCommercial & Industrial and Infrastructure Solutions segments, in support of cost-plus arrangementsgrowth in the six months ended March 31, 2018 as compared with March 31, 2017, under which the timing of collections from customers is later as compared to a typical fixed-price contract.these businesses.
Investing Activities
Net cash used in investing activities was $3.9 million for the six months ended March 31, 2019, compared with $2.4 million for the six months ended March 31, 2018, compared with $14.5 million for the six months ended March 31, 2017.2018. We used cash of $2.3$3.9 million for purchases of fixed assets in the six months ended March 31, 2018.2019. For the six months ended March 31, 2017,2018, we used $2.9$2.3 million of cash for the purchase of fixed assets. We used $0.2 million in conjunction with business combinations in the six months ended March 31, 2018, compared to $11.7 million in the six months ended March 31, 2017.
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Financing Activities
Net cash used in financing activities for the six months ended March 31, 20182019 was $1.3$15.6 million, compared with a usage of $0.5$1.3 million in the six months ended March 31, 2017.2018. For the six months ended March 31, 2019, we used $10.0 million to repay a portion of our revolving credit facility. We also used $1.2$5.4 million to repurchase our shares to satisfy statutory withholding requirements upon the vesting of employee stock compensation, as well as in conjunction with our stock repurchase plan duringplan. For the six months ended March 31, 2018. During the six months ended March 31, 2017,2018, we used $0.4$1.2 million to make contingent consideration payments.repurchase our shares to satisfy statutory withholding requirements upon the vesting of employee stock compensation, as well as in conjunction with our stock repurchase plan.
Stock Repurchase Program
Our Board of Directors has authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule10b5-1 trading plan, which allows repurchases underpre-set terms at times when the Company might
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otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We purchased 79,817repurchased 235,954 shares pursuant to this program during the six months ended March 31, 2018.2019. On May 2, 2019, our Board of Directors authorized, subject to consent of the lenders under our credit facility, the repurchase of up to an additional 1.0 million shares of our common stock under the stock repurchase program.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
There have been no material changes in our contractual obligations and commitments from those disclosed in our Annual Report on Form10-K for the fiscal year ended September 30, 2017.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Management is actively involved in monitoring exposure to market risk and continues to develop and utilize appropriate risk management techniques. Our exposure to significant market risks includes fluctuations in labor costs and commodity prices for copper, aluminum, steel and fuel. Commodity price risks may have an impact on our results of operations due to the fixed price nature of many of our contracts. We are also exposed to interest rate risk with respect to our outstanding debt obligations on the Amended Credit Agreement. For additional information see“Disclosure Regarding Forward-Looking Statements” in Part I of this Quarterly Report onForm 10-Q and our risk factors in Item 1A. “Risk Factors”in our Annual Report on Form10-K for the fiscal year ended September 30, 2017.2018.
Commodity Risk
Our exposure to significant market risks includes fluctuations in commodity prices for copper, aluminum, steel and fuel. Commodity price risks may have an impact on our results of operations due to the fixed nature of many of our contracts. Over the long-term, we expect to be able to pass along a portion of these costs to our customers, as market conditions in the construction industry will allow. The Company has not entered into any commodity price risk hedging instruments.
Interest Rate Risk
We are subject to interest rate risk on our floating interest rate borrowings on the Amended Credit Agreement. If LIBOR were to increase, our interest payment obligations on outstanding borrowings would increase, having a negative effect on our cash flow and financial condition. We currently do not maintain any hedging contracts that would limit our exposure to variable rates of interest when we have outstanding borrowings. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates.
All of the long-term debt outstanding under our revolving credit facility is structured on floating interest rate terms. A one percentage point increase in the interest rates on our long-term debt outstanding under theour revolving credit facility as of March 31, 2018,2019, would cause a $0.3$0.2 millionpre-tax annual increase in interest expense.
Item 4. Controls and Procedures
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules13a-15 and15d-15 under the Securities Exchange Act)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 withRules 13a-15 and15d-15 of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our PresidentChief 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 PresidentChief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2018,2019, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our PresidentChief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
For information regarding legal proceedings, see Note 12,13, “Commitments and Contingencies – Legal Matters” in the Notes to our Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form10-Q, which is incorporated herein by reference.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases of common stock of the Company made during the three months ended March 31, 2018:2019:
Date | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan (2) | Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plan as of March 31, 2018 | ||||||||||||
January 1, 2018—January 31, 2018 | — | — | — | 825,431 | ||||||||||||
February 1, 2018 – February 28, 2018 | 8,713 | $ | 15.49 | 8,713 | 816,718 | |||||||||||
March 1, 2018—March 31, 2018 | 71,104 | $ | 15.39 | 71,104 | 736,901 | |||||||||||
Total | 79,817 | $ | 15.40 | 79,817 | 736,901 |
Date | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan (2) | Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plan as of March 31, 2019 | ||||||||||||
January 1, 2019 – January 31, 2019 | 147,617 | $ | 16.61 | 147,617 | 531,054 | |||||||||||
February 1, 2019 – February 28, 2019 | 40,103 | $ | 17.00 | 40,103 | 490,951 | |||||||||||
March 1, 2019 – March 31, 2019 | 3,722 | $ | 17.65 | 2,101 | 488,850 | |||||||||||
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Total | 191,442 | $ | 16.71 | 189,821 | 488,850 | |||||||||||
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(1) | The total number of shares purchased includes shares purchased pursuant to the plan described in footnote (2) below. |
(2) | In 2015, our Board of Directors |
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
None.
None.
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(1)101.INS | XBRL Instance Document | |
(1)101.SCH | XBRL Schema Document | |
(1)101.LAB | XBRL Label Linkbase Document | |
(1)101.PRE | XBRL Presentation Linkbase Document | |
(1)101.DEF | XBRL Definition Linkbase Document | |
(1)101.CAL | XBRL Calculation Linkbase Document | |
(1) | Filed herewith. |
(2) | Furnished herewith. |
* | Management contract or compensatory plan or arrangement. |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 4, 2018.6, 2019.
IES HOLDINGS, INC.
By: | /s/ TRACY A. MCLAUCHLIN | |
Tracy A. McLauchlin | ||
Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Authorized Signatory) |
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