IES Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021. Financial statements are unaudited. Unless noted otherwise, amounts are in millions of dollars.
Business context and results
IES provides electrical and mechanical contracting, communications infrastructure, residential installation, and industrial infrastructure products and services through its Communications, Residential, Infrastructure Solutions, and Commercial & Industrial segments.
| Metric | Three months ended June 30, 2021 | Change year over year | Nine months ended June 30, 2021 | Change year over year |
|---|---|---|---|---|
| Revenue | $405.9 | +38.5% | $1,052.7 | +22.3% |
| Gross profit / margin | $72.8 / 17.9% | Margin down from 19.9% | $196.4 / 18.7% | Margin up from 18.6% |
| Operating income / margin | $22.5 / 5.5% | Up from $14.1 / 4.8% | $55.5 / 5.3% | Up from $35.7 / 4.1% |
| Net income attributable to IES / diluted EPS | $19.3 / $0.92 | Up from $12.3 / $0.58 | $44.2 / $2.08 | Up from $27.0 / $1.26 |
| Operating cash flow | Not presented for quarter | — | $35.1 | Down from $55.6 |
Quarterly revenue growth reflected strong demand across all segments and fiscal 2021 acquisitions. Residential was the largest growth contributor, with revenue up 72.8%, including acquired businesses and higher housing activity. Nine-month Commercial & Industrial revenue fell 6.2%, although the segment narrowed its operating loss to $0.9 million from $8.9 million.
Financial position and liquidity
- At June 30, cash was $18.5, down from $53.6 at September 30, 2020. Total assets were $715.9, versus $560.5.
- Long-term debt was $30.6, compared with $0.2 at September 30, 2020. The company had a $100 million revolving facility, $4.5 million of letters of credit, and $64.3 million of excess availability. Reported total liquidity was $81.8; the company was in compliance with its covenants.
- Nine-month operating cash flow of $35.1 was below the prior-year $55.6, primarily because of working-capital investment, especially a $33.8 cash use from increased inventory. Investing activities used $97.9, including $92.7 for acquisitions; financing activities provided $27.7.
- Current assets were $425.2 and current liabilities $289.5. Inventory rose to $71.6 from $24.9, reflecting higher material prices, supply lead times, acquisition-related inventory, and efforts to secure materials.
Material changes, outlook, and risks
- IES completed four fiscal 2021 acquisitions for $92.7 in aggregate cash consideration, expanding residential electrical, HVAC and plumbing offerings and generator-enclosure operations. The acquired businesses contributed $98.4 of nine-month revenue and $3.1 of operating income.
- Quarterly gross margin fell as higher commodity costs pressured Communications, Residential, and Infrastructure Solutions; Residential margin declined to 18.1% from 23.8%. For the nine-month period, Residential margin also declined, while Communications, Infrastructure Solutions, and Commercial & Industrial margins improved.
- Management cited elevated prices and limited availability for copper, steel, electrical components, and some plastics. The company seeks to pass on material-cost increases but may not recover all of them; supply delays or unpassed costs could reduce revenue or margins. COVID-19-related project delays, workforce disruptions, and customer payment risks remain uncertainties.
- Remaining performance obligations were $668.7, of which approximately $555.5 was expected to be recognized over the next 12 months. Backlog, including $156 of signed agreements or letters of intent without an enforceable obligation before work starts, was $825. Management cautions that backlog is not a guarantee of revenue or profit.
- The filing gives no company-wide earnings or revenue guidance. It notes improved recent contract-award activity in Commercial & Industrial, but describes that market as highly competitive. Residential results are seasonal, and results can vary with project timing.
- Other matters to monitor include floating-rate debt and the LIBOR transition, fixed-price contract exposure to labor and commodity costs, self-insurance and construction-defect claims, and the controlling shareholder’s approximately 56% ownership. The NOL Rights Plan expired May 21, 2021; a change in ownership could affect tax attributes and trigger change-of-control provisions in financing, surety, and severance arrangements.
- IES reported no material pending legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2021.
Key facts for investors to verify
- Whether material inflation and procurement delays continue to pressure segment margins, especially in Residential.
- Whether operating cash flow recovers as inventory and other working-capital needs normalize.
- Acquisition integration and returns, including the preliminary purchase-price valuations and Bayonet contingent consideration of up to $4.5.
- Conversion of the $668.7 remaining performance obligations and $825 reported backlog into revenue and profitable work.
- Available borrowing capacity, covenant compliance, and the effects of any controlling-shareholder transactions on NOLs and contractual arrangements.