IES Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2021; compared with the three months ended December 31, 2020 unless otherwise noted. Dollar amounts below are in millions, except per-share data. IES provides electrical, technology-infrastructure, residential, and industrial services through four segments.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $480.5 | $314.8 | +52.6% |
| Gross profit / margin | $79.7 / 16.6% | $58.7 / 18.6% | Margin down 2.0 percentage points |
| Operating income / margin | $20.3 / 4.2% | $15.9 / 5.1% | Income up; margin down |
| Net income | $15.1 | $12.2 | +23.5% |
| Net income attributable to IES | $14.5 | $12.1 | +19.6% |
| Diluted EPS | $0.69 | $0.58 | +$0.11 |
| Operating cash flow | $(24.5) | $20.3 | Decreased $44.7 |
| Capital expenditures | $12.3 | $1.2 | Higher, primarily new Wedlake facility |
Revenue increased across all four segments, reflecting strong demand and contributions from fiscal 2021 acquisitions. Residential revenue more than doubled, including $79.4 million of growth from acquired businesses. Communications revenue rose 29.5%, Infrastructure Solutions 22.4%, and Commercial & Industrial 10.6%.
Margin performance varied: gross margin declined in Communications (18.8% to 16.1%), Residential (19.7% to 17.6%), and Infrastructure Solutions (31.8% to 18.3%); Commercial & Industrial improved (9.1% to 12.8%) and returned to operating profitability. Consolidated SG&A rose 38.8% to $59.4 million, but fell as a share of revenue to 12.4% from 13.6%. Higher labor and acquisition-related costs contributed to the increase.
Financial position and liquidity
- At December 31, 2021, cash was $7.8 million, down from $23.1 million at September 30, 2021. Total assets were $785.2 million and stockholders’ equity was $356.5 million.
- Balance-sheet long-term debt was $67.8 million, up from $39.7 million at September 30. Revolver borrowings were $68.6 million, with $5.3 million of letters of credit outstanding and $51.1 million of excess availability.
- Under the amended $125 million revolving facility, reported liquidity was $59.0 million and the fixed-charge coverage ratio was 6.6:1.0. The company reported compliance with financial covenants at quarter-end.
- Working capital excluding cash increased $40.4 million during the quarter. Days sales outstanding rose to 60 from 57 at September 30, while inventory increased $5.2 million and contract assets increased $9.1 million.
- Backlog was $948 million, comprising $721 million of remaining performance obligations and $227 million of signed agreements or letters of intent without an enforceable obligation. The company expects to recognize about $653 million of remaining performance obligations over the next 12 months.
Cash flow, changes, and management commentary
Operating cash use reflected working-capital demands from growth, higher commodity prices, supply-chain delays, increased inventory, delayed billing milestones, and a $7.0 million remittance of previously deferred payroll taxes. Cash from financing included $28.2 million of net revolver borrowings, partly offset by share repurchases and other payments. Cash declined by $15.3 million during the quarter.
Management cited COVID-related absences, labor constraints, supply-chain disruptions, and elevated prices for copper, steel, electronic components, plastics, and other materials. These conditions caused project inefficiencies and delays; the company said it seeks to pass higher costs through to customers but may not be able to do so fully. The filing provides no quantitative earnings or revenue guidance.
On December 2, 2021, IES amended its credit agreement, increasing the facility from $100 million to $125 million, reducing minimum required liquidity to $12.5 million, extending maturity to September 30, 2026, and replacing LIBOR with SOFR. A 1-percentage-point increase in the facility interest rate would add an estimated $0.7 million of annual pretax interest expense, based on quarter-end borrowings.
Risks, contingencies, and unusual items
- The Department of Labor alleged that certain Arizona piece-rate employees did not record all hours worked, potentially violating the Fair Labor Standards Act. IES disputes the claim and intends to defend itself; it recorded no reserve because management said loss was not probable and exposure could not be reasonably estimated.
- Self-insurance liabilities were accrued at $5.4 million. Management cautioned that actual claims and payment timing may differ from estimates.
- IES had $12.1 million of outstanding commitments to purchase copper wire and other materials over the next 12 months, and estimated $75.5 million to complete bonded projects.
- Tontine Associates and affiliates controlled approximately 56% of outstanding shares. A change in ownership could affect tax net operating losses and trigger provisions in financing, bonding, and executive severance arrangements.
- Other key risks include project-estimate errors, fixed-price contract cost overruns, customer collections, surety availability, seasonality, and variable-rate debt exposure. The filing reported no material changes to the risk factors in the fiscal 2021 Form 10-K.
Important facts for investors to verify
- Whether revenue growth and backlog convert into profitable work, particularly as consolidated gross margin declined and some backlog is not legally enforceable.
- Whether labor, material availability, and pricing pressures ease, and whether IES can recover higher costs without further margin erosion.
- Whether working-capital needs and delayed billings improve enough to restore positive operating cash flow.
- Available revolver capacity and covenant headroom if cash use, borrowings, or interest rates increase.
- Developments in the DOL wage-and-hour investigation and any resulting financial exposure.
- The ongoing operational performance of acquired businesses and the Infrastructure Solutions segment’s facility expansion.