IES Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; comparisons are to the year ended September 30, 2019. This is an annual filing, not a standalone fourth-quarter report. IES provides electrical, communications, residential, and industrial infrastructure services through four segments.
Financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,190.9 million | $1,077.0 million |
| Gross profit / margin | $228.0 million / 19.1% | $182.1 million / 16.9% |
| Operating income / margin | $50.1 million / 4.2% | $41.9 million / 3.9% |
| Net income attributable to IES / diluted EPS | $41.6 million / $1.94 | $33.2 million / $1.55 |
| Cash from operating activities | $76.7 million | $38.7 million |
| Cash and cash equivalents at year-end | $53.6 million | $18.9 million |
| Total debt at year-end | $0.2 million | $0.3 million |
Revenue grew 10.6%; gross margin expanded 2.2 percentage points. SG&A rose 21.6% to $170.9 million and increased to 14.4% of revenue from 13.1%. FY2020 operating cash flow included a $9.0 million payroll-tax deferral under the CARES Act. Capital expenditures were $4.7 million; acquisitions used $29.0 million of cash.
Liquidity and debt
IES had $94.3 million available on its $100 million revolving credit facility, maturing September 2024, and $5.7 million in letters of credit. Reported liquidity was $147.9 million. The company was in compliance with covenants at year-end; its fixed-charge coverage ratio was 8.3:1 versus a 1.1:1 minimum. Working capital excluding cash declined $8.6 million to $75.4 million. Days sales outstanding improved to 61 from 62.
Segment performance
| Segment | FY2020 revenue | Key year-over-year change |
|---|---|---|
| Communications | $395.1 million | Revenue +23.0%; operating income rose to $40.4 million, with gross margin improving to 19.8%. |
| Residential | $411.8 million | Revenue +31.4%; operating income rose to $30.1 million, and gross margin improved to 22.8%. |
| Infrastructure Solutions | $128.4 million | Revenue -6.1%; operating income rose to $14.6 million as gross margin improved to 27.3%. |
| Commercial & Industrial | $255.5 million | Revenue -16.4%; operating loss was $18.0 million, versus $2.1 million operating income in FY2019. |
Material changes and notable items
- Communications and Residential drove consolidated growth, supported by demand in data centers, distribution centers, and housing. IES acquired Aerial Lighting & Electric and Plant Power & Control Systems in February 2020 for aggregate cash consideration of $29.0 million.
- Commercial & Industrial faced lower demand, project inefficiencies, and COVID-related delays. IES recorded a non-cash goodwill impairment charge of $7.0 million in the fourth quarter; the segment’s reported backlog also declined.
- Consolidated backlog was $602 million at year-end, including $505 million of remaining performance obligations and $97 million of agreements without an enforceable obligation. IES expected $438 million of backlog to convert to revenue in FY2021; backlog is not a guarantee of revenue or profit.
- Federal net operating loss carryforwards were approximately $217.3 million; $128.0 million had no deferred tax asset recorded. An ownership change could restrict their use. The net deferred tax asset was $33.8 million.
- Jeffrey L. Gendell, founder of controlling shareholder Tontine, became CEO effective October 1, 2020, after serving as interim CEO. Tontine owned approximately 56% of shares, and most of its shares were registered for resale.
- IES repurchased 263,160 shares during FY2020 for $6.1 million at an average price of $23.29. It does not expect to pay cash dividends in the foreseeable future.
Outlook, risks, and contingencies
Management expected revenue from existing businesses to increase year over year in FY2021, provided there was no significant deterioration in economic conditions. It cited demand, market-share efforts, and backlog. Management forecast FY2021 fixed-asset requirements of $7–$10 million and expected cash on hand, operating cash flow, and credit availability to fund near-term needs.
COVID-19 had caused project delays and slower awards in some markets, while demand for data-center and communications infrastructure was stronger in others. Risks include renewed job-site shutdowns, customer payment difficulties, labor and commodity-cost pressure, fixed-price project estimation and execution, cyclicality, competition, and surety availability. Other notable exposures include potential insurance and construction-defect claims, covenant compliance, LIBOR replacement, and possible NOL limitations following a change in ownership. The filing reported no material pending legal proceedings. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether FY2021 revenue growth materialized, particularly as COVID-19 and construction-market conditions evolved.
- Whether Commercial & Industrial improved profitability and backlog after its FY2020 operating loss and goodwill impairment.
- Actual conversion, timing, and profitability of the $602 million reported backlog, especially agreements lacking enforceable obligations.
- Cash conversion and working-capital trends, including customer collections, retainage, and the effect of the payroll-tax deferral.
- Liquidity, revolving-credit availability, covenant headroom, and the effect of acquisitions or changes in surety terms.
- Potential effects of Tontine share sales or other ownership changes on control provisions and use of tax-loss carryforwards.