IES Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2019. Unless stated otherwise, financial amounts below are in millions; the filing presents statements in thousands. IES provides electrical and mechanical contracting, communications infrastructure, industrial solutions, and residential electrical services through four operating segments.
Financial performance
| Metric | Three months ended March 31, 2019 | Six months ended March 31, 2019 |
|---|---|---|
| Revenue | $256.9; +24.9% year over year | $500.8; +24.0% year over year |
| Gross profit / margin | $43.2 / 16.8%, versus $33.8 / 16.5% | $84.8 / 16.9%, versus $66.9 / 16.6% |
| Operating income / margin | $8.2 / 3.2%, versus $4.1 / 2.0% | $17.7 / 3.5%, versus $7.1 / 1.8% |
| Net income attributable to IES / EPS | $5.5 / $0.26, versus $2.2 / $0.11 | $12.4 / $0.58, versus a $27.3 loss / $(1.29) |
| Operating cash flow | Not presented separately for the quarter | $9.4, versus $11.2 |
Six-month 2018 net loss included a $31.5 million deferred-tax remeasurement charge related to the Tax Cuts and Jobs Act; thus the year-over-year swing to profit is not solely an operating comparison. In the quarter, SG&A rose 18.3% to $35.1 million, but declined as a share of revenue to 13.7% from 14.4%. The filing attributes higher expenses partly to growth-related personnel costs, the outgoing president’s severance, and increased stock-based compensation.
Segments and material changes
- Commercial & Industrial: Second-quarter revenue rose 21.9% to $80.0 million; operating income improved to $1.4 million from a $0.3 million loss. Management cited stronger bid volume, market conditions, and improved project execution, partly offset by exiting certain markets.
- Communications: Revenue increased 40.2% to $70.4 million, driven by data-center demand. Operating income rose to $4.3 million from $3.2 million. Gross margin declined to 17.0% from 18.6% as cost-plus work represented a larger share.
- Infrastructure Solutions: Revenue increased 44.3% to $34.5 million; operating income was $2.8 million versus $0.3 million. Growth reflected data-center enclosure demand and motor repair activity; improved bus-duct production efficiency also supported quarterly margins.
- Residential: Revenue increased 9.2% to $72.1 million and operating income rose to $3.9 million from $3.3 million. Single-family growth and improved commodity costs helped; weather delayed some multifamily projects.
Cash, debt and liquidity
- Cash was $16.2 million at March 31, down from $26.2 million at September 30, 2018. Operating cash flow of $9.4 million was more than offset by $3.9 million of capital expenditures and $15.6 million of financing outflows, including debt repayments and share repurchases.
- Balance-sheet long-term debt was $19.7 million, down from $29.6 million at September 30. The filing separately reports $20.2 million of revolving-facility borrowings in MD&A; investors should verify the difference.
- The $100 million revolving facility matures August 2021. At March 31, reported availability was $71.7 million, total liquidity $87.9 million, and letters of credit outstanding $6.6 million. The company reported compliance with covenants, a 6.0:1.0 fixed-charge coverage ratio, and $48.2 million of trailing-four-quarter covenant EBITDA.
- Current assets were $262.9 million and current liabilities $162.6 million. Trade receivables were $160.9 million; days sales outstanding improved to 60 from 62 at September 30.
Outlook, risks and unusual items
- No specific revenue, earnings, or cash-flow guidance is provided. Remaining performance obligations were $423.7 million, of which approximately $376.7 million was expected to be recognized within 12 months. Broader backlog, including agreements without enforceable obligations, was $573 million, up from $482 million at September 30; the filing cautions backlog is not a guarantee of revenue or profit.
- Management described demand as strong across segments. Results remain exposed to project timing, seasonality, customer spending cycles, labor availability and cost, commodity prices, fixed-price estimating, and working-capital needs. Many contracts are fixed-price; the company has no commodity or interest-rate hedges.
- In March, management committed to sell substantially all operating assets of an Infrastructure Solutions facility. A $0.1 million loss was recorded after writing the assets down to $0.45 million; sale was expected by fiscal year-end 2019.
- Self-insurance liabilities were $6.0 million; construction-defect reserves were $0.1 million. Management did not expect ordinary-course legal proceedings to materially affect the company, but noted that ultimate self-insurance and claims costs may differ from estimates. Surety bonding capacity was described as adequate.
- Tontine Associates and affiliates controlled approximately 57.5% of common stock. A change in ownership could affect tax-loss benefits and trigger provisions in financing, bonding, or severance arrangements.
- The company repurchased 235,954 shares under its program during the six months. On May 2, the board authorized up to 1.0 million additional repurchases, subject to lender consent.
Important facts for investors to verify
- Reconcile the reported $19.7 million balance-sheet debt with MD&A’s $20.2 million of revolving borrowings.
- Assess cash conversion and working-capital demands as revenue and receivables grow, including whether operating cash flow sustains capital spending and buybacks.
- Evaluate the quality and expected profitability of backlog, particularly the portion not yet legally enforceable and the concentration in data-center-related demand.
- Monitor Communications margin effects from the increased mix of lower-margin, lower-risk cost-plus arrangements, and execution and labor risks on fixed-price projects.
- Review the proposed facility disposal, related charges, and the effect of any future controlling-stockholder share sales on tax attributes and contractual change-of-control provisions.