IES Holdings, Inc. — Form 10-Q summary
Business context and reporting period. The company provides electrical, technology infrastructure, residential, and industrial services through Communications, Residential, Infrastructure Solutions, and Commercial & Industrial segments. This filing covers the fiscal second quarter and six months ended March 31, 2021; dollar amounts below are in millions unless noted.
Key financial results
| Metric | Three months ended March 31, 2021 | Prior year | Six months ended March 31, 2021 | Prior year |
|---|---|---|---|---|
| Revenue | $332.0 | $291.3 | $646.8 | $567.3 |
| Gross profit / margin | $64.9 / 19.5% | $51.3 / 17.6% | $123.6 / 19.1% | $101.5 / 17.9% |
| Operating income / margin | $17.1 / 5.2% | $9.2 / 3.2% | $33.0 / 5.1% | $21.6 / 3.8% |
| Net income attributable to IES | $12.8 | $6.2 | $24.9 | $14.7 |
| Diluted EPS | $0.58 | $0.29 | $1.16 | $0.69 |
- Cash flow: Six-month operating cash flow was $48.4, versus $32.7 a year earlier. Investing used $58.4, including $55.5 for acquisitions and $3.0 for capital expenditures; financing used $1.2. Cash, cash equivalents, and restricted cash ended at $42.3, including $4.8 restricted in escrow.
- Balance sheet and liquidity: At March 31, cash and cash equivalents were $37.5; current assets were $365.8 and current liabilities $251.6. Total assets were $615.7 and total liabilities $293.5. The company had no revolving-credit borrowings, $0.1 of other long-term debt, and $93.0 of revolver availability. Reported liquidity was $130.6; the company was compliant with facility covenants, with a 18.3:1 fixed-charge coverage ratio.
- Margins and segment performance: Quarterly Residential revenue rose 50.3%, substantially including acquisitions, but its gross margin fell to 20.1% from 22.9%, principally due to commodity costs. Communications margin improved to 20.6% from 17.3%; Infrastructure Solutions to 27.5% from 24.7%; and Commercial & Industrial to 10.7% from 6.8%. Commercial & Industrial remained loss-making at the operating level, with a $1.2 quarterly operating loss.
- Debt and commitments: A $100 million revolving facility matures September 30, 2024. The company had $7.0 of outstanding letters of credit. It also reported $11.6 of copper-wire purchase commitments over the following four months and $87.7 estimated cost to complete bonded projects.
Material changes and management commentary
- Quarterly revenue increased 14.0%; management attributed growth mainly to strong Residential and Infrastructure Solutions demand and acquired businesses. Commercial & Industrial revenue declined 21.1% amid COVID-related project delays, reduced demand, and competition; Communications revenue was slightly lower for the quarter, partly due to a slower post-holiday ramp-up and severe winter weather.
- For the six-month period, revenue increased 14.0%. Residential, Communications, and Infrastructure Solutions grew, while Commercial & Industrial declined 14.3%. Gross margin improved year over year overall, although Residential margins were pressured by higher commodity prices.
- IES acquired Bayonet, KEP Electric, and Wedlake Fabricating during the six months for aggregate cash consideration of $55.5. The acquisitions contributed $44.5 of revenue and $2.4 of operating income during the period. Bayonet includes a contingent consideration liability valued at $4.1, with payments tied to earnings.
- Remaining performance obligations were $613.9; management expects to recognize approximately $458.3 over the next 12 months. The company also reported $93 of signed agreements and letters of intent without an enforceable obligation, bringing reported backlog to $707.0. Management cautions backlog is not a guarantee of revenue.
- Management reported that COVID-19 continued to delay projects and affect demand in some markets, while data-center, distribution-center, and communications infrastructure demand was comparatively strong. Copper and steel prices had risen and some materials were harder to obtain; the company may not be able to pass all cost increases to customers.
Outlook, risks, contingencies, and unusual items
- No numerical earnings or revenue guidance was provided. Management said the pandemic’s future effects remain difficult to predict and identified workforce disruption, job-site closures, customer demand and payment risk, added operating costs, and supply-chain disruption as ongoing concerns.
- Fixed-price contracts expose results to labor and commodity inflation, estimating errors, project execution, and possible loss-making work. Other disclosed risks include competition, customer credit issues, surety availability, seasonality, acquisitions and integration, cybersecurity, and potential insurance or construction-defect claims.
- Self-insurance liabilities were $6.1 and construction-defect reserves $0.04 at March 31. The company reported no material pending legal proceedings and did not expect ordinary-course legal matters to materially affect its financial position, results, or cash flows.
- Following quarter-end, the board amended the bylaws to designate Delaware’s Court of Chancery as the exclusive forum for specified internal corporate claims, and approved an amended executive severance plan effective April 29, 2021.
- Tontine Associates and affiliates owned approximately 56% of outstanding common stock, giving them significant influence. A change in ownership could affect tax-loss availability and trigger provisions in financing, surety, or severance arrangements.
Important facts for investors to verify
- Whether the $613.9 of remaining performance obligations and the additional backlog agreements convert to profitable work on the expected schedule.
- Whether Residential can protect margins as commodity prices rise, and whether higher costs can be passed through to customers.
- How acquired businesses perform relative to their purchase assumptions, including Bayonet’s contingent consideration and the status of escrowed PPP-related funds.
- Whether Commercial & Industrial demand and operating results recover, and whether COVID-19 or supply constraints continue to delay work.
- Liquidity, revolver availability, covenant compliance, and potential cash needs from claims, surety collateral, or acquisitions.
- The effects of Tontine’s controlling position and the April 2021 bylaws and severance-plan changes.