IES Holdings, Inc. — FY2021 Form 10-K
Business context and reporting period: This annual report covers the fiscal year ended September 30, 2021, not a standalone fourth quarter. IES provides electrical and technology infrastructure services and industrial products across Communications, Residential, Infrastructure Solutions, and Commercial & Industrial. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,536.5 million | $1,190.9 million |
| Gross profit / margin | $288.0 million / 18.7% | $228.0 million / 19.1% |
| Operating income / margin | $85.6 million / 5.6% | $50.1 million / 4.2% |
| Net income attributable to IES | $66.7 million | $41.6 million |
| Diluted earnings per share | $3.15 | $1.94 |
| Cash from operating activities | $37.9 million | $76.7 million |
| Cash and cash equivalents at year-end | $23.1 million | $53.6 million |
| Revolver borrowings at year-end | $40.3 million | $0.0 million reported as revolving loan |
At September 30, 2021, revolving-credit availability was $55.1 million and reported liquidity was $78.2 million. Total current assets were $484.2 million and current liabilities were $311.6 million. Operating cash flow less property-and-equipment purchases was approximately $30.5 million; the filing does not present this as a company-defined free-cash-flow measure.
Material changes versus FY2020
- Revenue increased 29.0%, reflecting increased demand across segments and contributions from acquisitions. Residential revenue rose 66.9%, including $172.6 million attributed to businesses acquired during FY2021; Communications revenue rose 12.9%, Infrastructure Solutions 14.5%, and Commercial & Industrial 0.3%.
- Gross margin declined to 18.7% from 19.1%, principally as Communications and Residential margins fell. Residential cited higher commodity costs; Communications cited investment in hiring and training. Infrastructure Solutions and Commercial & Industrial margins improved.
- Operating income increased to $85.6 million from $50.1 million. FY2020 included a $7.0 million non-cash goodwill impairment charge in Commercial & Industrial; FY2021 recorded none.
- Operating cash flow fell by $38.8 million, largely due to working-capital investment, including higher inventory amid rising material prices, longer lead times, and supply constraints. Inventory increased to $68.6 million from $24.9 million.
- Investing activities used $99.6 million, including $92.5 million for business acquisitions. Financing activities provided $31.2 million, including net revolver borrowing of about $40.0 million.
Outlook, risks, and unusual items
- Management expected FY2022 revenue from existing businesses to increase year over year, assuming no significant deterioration in general economic conditions, citing demand, market-share efforts, and backlog. Expected FY2022 capital expenditures were $30–$35 million.
- September 30, 2021 backlog was $900 million, including $187 million of agreements without an enforceable obligation before work begins. The company expected $651 million of backlog to convert to revenue in FY2022 and $249 million in FY2023; backlog is not a guarantee of revenue or profit. Separately, remaining performance obligations were $713 million.
- Supply-chain and commodity pressures remained significant: the company reported elevated prices, limited availability, and longer delivery times for materials, and expected supply challenges to continue during 2022. Fixed-price contracts limit the ability to pass all cost increases to customers.
- COVID-19-related risks included job-site disruption, reduced or delayed demand, labor availability and retention, supply-chain effects, and customer payment delays. The company also identified competition, project-estimation and execution risk, cyclical housing and construction markets, surety availability, and cybersecurity incidents as risks.
- On December 2, 2021, after year-end, the company amended its revolver: maximum facility size increased from $100 million to $125 million, minimum required liquidity decreased from $20 million to $12.5 million, maturity extended to September 30, 2026, and the benchmark changed from LIBOR to SOFR.
- The Department of Labor alleged that certain Arizona piece-rate employees may not have recorded all hours worked, potentially violating wage-and-hour requirements. IES disputed the claim, planned to defend itself, and recorded no reserve because management said loss was not probable and exposure was not reasonably estimable.
- Tontine and affiliates held approximately 56% of common stock as of December 1, 2021. A change of control could affect financing and bonding arrangements and could limit the use of tax-loss carryforwards. The company reported approximately $120.2 million of federal NOLs.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit of internal controls excluded four FY2021 acquisitions, which represented 12% of consolidated revenue and 11% of assets excluding goodwill and intangible assets.
Most important facts for investors to verify
- Whether revenue growth and backlog convert into profitable work, particularly given the lower consolidated gross margin and the non-enforceable portion of backlog.
- Whether higher material costs, supply delays, and labor constraints continue to pressure margins and working capital.
- Whether cash generation recovers after the FY2021 working-capital build and acquisition spending, and how borrowings evolve under the amended credit facility.
- The outcome and potential financial exposure of the Department of Labor wage-and-hour investigation.
- How acquisitions perform and integrate, including the financial effect of contingent consideration and noncontrolling interests.
- Potential effects of Tontine share sales or a change of control on governance, credit and surety arrangements, and NOL availability.