iesc-20231231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM			10-Q


(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended		December 31, 2023
	OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Commission file number			001-13783

IES Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware			76-0542208
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

2 Riverway, Suite 1730, Houston, Texas 77056

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (713) 860-1500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

IESC

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On January 31, 2024, there were 20,221,466 shares of common stock outstanding.

IES HOLDINGS, INC. AND SUBSIDIARIES

INDEX



			Page
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets as of December 31 , 2023 and September 30, 202 3	6
		Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 3 1 , 2023 and 2022	7
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended December 3 1 , 2023 and 2022	8
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 3 1 , 2023 and 2022	9
		Notes to Condensed Consolidated Financial Statements	10
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
	Item 4. Controls and Procedures		29
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		30
	Item 1A. Risk Factors		30
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
	Item 3. Defaults Upon Senior Securities		30
	Item 4. Mine Safety Disclosures		30
	Item 5. Other Information		30
	Item 6. Exhibits		31
	Signatures		32

PART I. FINANCIAL INFORMATION

DEFINITIONS

In this Quarterly Report on Form 10-Q, the words “IES”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “seek,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. These statements involve risks and uncertainties that could cause the Company’s actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:

•a general reduction in the demand for our products or services;

•changes in general economic conditions, including market and macro-economic disruptions resulting from Russia's invasion of Ukraine or other geo-political events;

•competition in the industries in which we operate, both from third parties and former employees, which could result in the loss of one or more customers or lead to lower margins on new projects;

•our ability to successfully manage projects, the cost and availability of qualified labor and the ability to maintain positive labor relations, and our ability to pass along increases in the cost of commodities used in our business, in particular, copper, aluminum, steel, fuel, electronic components and certain plastics;

•supply chain disruptions due to our suppliers' access to materials and labor, their ability to ship products timely, or credit or liquidity problems they may face;

•the impact of the novel coronavirus (“COVID-19”) pandemic or any future epidemics or pandemics on our business, including the potential for new or continued job site closures or work stoppages, supply chain disruptions, delays in awarding new project bids, construction delays, reduced demand for our services, delays in our ability to collect from our customers, the impact of third party vaccine mandates on employee recruiting and retention, or illness of management or other employees;

•credit and capital market conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the inability of some of our customers to retain sufficient financing, which could lead to project delays or cancellations;

•inaccurate estimates used when entering into fixed-price contracts, the possibility of errors when estimating revenue and progress to date on percentage-of-completion contracts, and complications associated with the incorporation of new accounting, control and operating procedures;

•our ability to enter into, and the terms of, future contracts;

•the inability to carry out plans and strategies as expected, including the inability to identify and complete acquisitions that meet our investment criteria in furtherance of our corporate strategy, or the subsequent underperformance of those acquisitions;

•challenges integrating new businesses into the Company or new types of work, products or processes into our segments;

•backlog that may not be realized or may not result in profits;

•failure to adequately recover on contract change orders or claims against customers;

•closures or sales of our facilities resulting in significant future charges, including potential warranty losses or other unexpected liabilities, or a significant disruption of our operations;

•the impact of seasonality, adverse weather conditions, and climate change;

•an increased cost of surety bonds affecting margins on work and the potential for our surety providers to refuse bonding or require additional collateral at their discretion;

•fluctuations in operating activity due to downturns in levels of construction or the housing market, seasonality and differing regional economic conditions;

•increases in bad debt expense and days sales outstanding due to liquidity problems faced by our customers;

•accidents resulting from the physical hazards associated with our work and the potential for accidents;

•the possibility that our current insurance coverage may not be adequate or that we may not be able to obtain policies at acceptable rates;

•the effect of litigation, claims and contingencies, including warranty losses, damages or other latent defect claims in excess of our existing reserves and accruals;

•interruptions to our information systems and cyber security or data breaches;

•liabilities under existing or potential future laws and regulations, including those laws and regulations related to the environment and climate change;

•expenditures to comply with future changes in laws and regulations, including environmental laws and regulations and those relating to climate change;

•loss of key personnel, ineffective transition of new management, or inability to transfer, renew and obtain electrical and other professional licenses;

•the possibility that the value of certain tax benefits may be reduced by a decrease in the federal tax rate;

•the recognition of tax benefits related to uncertain tax positions and the potential for disagreements with taxing authorities with regard to tax positions we have adopted;

•the potential recognition of valuation allowances or write-downs on deferred tax assets;

•limitations on the availability of sufficient credit or cash flow to fund our working capital needs and capital expenditures, to complete acquisitions, and for debt service;

•difficulty in fulfilling the covenant terms of our revolving credit facility, including liquidity, and other financial requirements, which could result in a default and acceleration of any indebtedness under such revolving credit facility;

•uncertainties inherent in estimating future operating results, including revenues, operating income or cash flow;

•the recognition of potential goodwill, long-lived assets and other investment impairments;

•the existence of a controlling shareholder, who has the ability to take action not aligned with other shareholders or to dispose of all or any portion of the shares of our common stock it holds, which could trigger certain change of control provisions in a number of our material agreements, including our financing and surety arrangements and our executive severance plan;

•the relatively low trading volume of our common stock, which may make it more difficult for shareholders to sell a substantial number of shares for the same price at which shareholders could sell a smaller number of shares;

•the possibility that we issue additional shares of common stock, preferred stock or convertible securities that will dilute the percentage ownership interest of existing stockholders and may dilute the value per share of our common stock;

•the potential for substantial sales of our common stock, which could adversely affect our stock price;

•the impact of increasing scrutiny and changing expectations from investors and customers, or new or changing regulations, with respect to environmental, social and governance practices;

•the cost or effort required for our shareholders to bring certain claims or actions against us, resulting from our designation of the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings;

•the possibility that our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur; and

•other factors discussed elsewhere in this Quarterly Report on Form 10-Q.

You should understand that the foregoing, as well as other risk factors discussed in this document, including those listed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. We undertake no obligation to publicly update or revise any information, including information concerning our controlling shareholder, net operating losses, borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Quarterly Report on Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein.

Item 1. Financial Statements

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Information)


			December 31,		September 30,
			2023		2023
			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	87,456	$	75,770

	Accounts receivable:
		Trade, net of allowance of $1,705 and $1,649, respectively	388,556		363,836
		Retainage	80,781		76,934
	Inventories		113,774		95,655
	Costs and estimated earnings in excess of billings		40,646		48,620
	Prepaid expenses and other current assets		16,378		10,481
Total current assets			727,591		671,296
Property and equipment, net			65,423		63,410
Goodwill			92,395		92,395
Intangible assets, net			53,141		56,208
Deferred tax assets			20,280		20,383
Operating right of use assets			62,560		61,761
Other non-current assets			20,629		16,147
Total assets			$	1,042,019	$	981,600
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued expenses		294,947		296,797
	Billings in excess of costs and estimated earnings		126,962		103,771
Total current liabilities			421,909		400,568
Long-term debt			—		—
Operating long-term lease liabilities			42,337		42,098
Other tax liabilities			22,312		22,047
Other non-current liabilities			11,849		16,951
Total liabilities			498,407		481,664
Noncontrolling interest			54,969		49,951
STOCKHOLDERS’ EQUITY:
	Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued
		and outstanding	—		—
	Common stock, $0.01 par value, 100,000,000 shares authorized; 22,049,529
		issued and 20,213,976 and 20,194,218 outstanding, respectively	220		220
	Treasury stock, at cost, 1,835,553 and 1,855,311 shares, respectively		(49,521)		(49,450)
	Additional paid-in capital		203,986		203,431
	Retained earnings		333,958		295,784
Total stockholders’ equity			488,643		449,985
Total liabilities and stockholders’ equity			$	1,042,019	$	981,600

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

(Unaudited)


		Three Months Ended December 31,
		2023		2022
Revenues		$	634,444	$	574,874
Cost of services		490,640		479,436
	Gross profit	143,804		95,438
Selling, general and administrative expenses		85,850		67,768

Contingent consideration		35		69
Gain on sale of assets		(71)		(13,060)
	Operating income	57,990		40,661
Interest and other (income) expense:
Interest expense		397		1,184
Other (income) expense, net		(1,393)		695

Income from operations before income taxes		58,986		38,782
Provision for income taxes		15,398		10,028
Net income		43,588		28,754
Net income attributable to noncontrolling interest		(2,632)		(2,352)
Comprehensive income attributable to IES Holdings, Inc.		$	40,956	$	26,402

Earnings per share attributable to common stockholders of IES Holdings, Inc.:
	Basic	$	1.89	$	1.15
	Diluted	$	1.87	$	1.14

Shares used in the computation of earnings per share:
	Basic	20,199,587		20,242,114
	Diluted	20,435,148		20,449,035

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(In Thousands, Except Share Information)


		Three Months Ended December 31, 2023
		Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount
BALANCE, September 30, 2023		22,049,529	$	220	(1,855,311)	$	(49,450)	$	203,431	$	295,784	$	449,985
	Issuances under compensation plans	—		—	32,180		858		(858)		—		—
	Acquisition of treasury stock	—		—	(12,422)		(929)		—		—		(929)

	Non-cash compensation	—		—	—		—		1,413		—		1,413
	Increase in noncontrolling interest	—		—	—		—		—		(2,782)		(2,782)

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		40,956		40,956
BALANCE, December 31, 2023		22,049,529	$	220	(1,835,553)	$	(49,521)	$	203,986	$	333,958	$	488,643


		Three Months Ended December 31, 2022
		Common Stock			Treasury Stock			Additional Paid -In Capital		Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount
BALANCE, September 30, 2022		22,049,529	$	220	(1,707,629)	$	(44,000)	$	201,871	$	203,197	$	361,288
	Issuances under compensation plans	—		—	71,013		1,843		(1,843)		—		—
	Acquisition of treasury stock	—		—	(239,060)		(7,496)		7		—		(7,489)

	Non-cash compensation	—		—	—		—		905		—		905
	Increase in noncontrolling interest	—		—	—		—		—		(3,055)		(3,055)

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		26,402		26,402
BALANCE, December 31, 2022		22,049,529	$	220	(1,875,676)	$	(49,653)	$	200,940	$	226,544	$	378,051

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

IES HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


			Three Months Ended December 31,
			2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	43,588	$	28,754
	Adjustments to reconcile net income to net cash provided by operating activities:
		Bad debt expense		150		63
		Deferred financing cost amortization		70		65
		Depreciation and amortization		7,617		6,388
		Gain on sale of assets		(71)		(13,060)

		Non-cash compensation expense		1,413		905

		Deferred income tax expense		1,004		533
		Unrealized gain on trading securities		(119)		—
	Changes in operating assets and liabilities:
		Accounts receivable		(24,869)		18,142
		Inventories		(18,121)		(5,113)
		Costs and estimated earnings in excess of billings		7,974		7,562
		Prepaid expenses and other current assets		(9,761)		(11,766)
		Other non-current assets		(4,443)		103
		Accounts payable and accrued expenses		(2,616)		(29,780)
		Billings in excess of costs and estimated earnings		23,191		10,722
		Other non-current liabilities		(54)		826
Net cash provided by operating activities				24,953		14,344
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment			(6,515)		(2,712)
	Proceeds from sale of assets			656		19,205
	Cash paid in conjunction with equity investments			(130)		(165)


Net cash provided by (used in) investing activities				(5,989)		16,328
CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowings of debt			654,039		607,974
	Repayments of debt			(654,039)		(647,639)
	Cash paid for finance leases			(978)		(773)

	Settlement of contingent consideration liability			(4,074)		—
	Distribution to noncontrolling interest			(1,297)		(2,348)
	Purchase of treasury stock			(929)		(7,489)

Net cash used in financing activities				(7,278)		(50,275)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				11,686		(19,603)
CASH AND CASH EQUIVALENTS, beginning of period				75,770		24,848
CASH AND CASH EQUIVALENTS, end of period			$	87,456	$	5,245

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
		Cash paid for interest	$	135	$	1,001
		Cash paid for income taxes, net	$	117	$	63

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

IES HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(All Amounts in Thousands Except Share Amounts)

(Unaudited)

1. BUSINESS AND ACCOUNTING POLICIES

Description of the Business

IES Holdings, Inc. designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end markets, including data centers, residential housing and commercial and industrial facilities. Our operations are organized into four business segments, based upon the nature of our services:

•Communications – Nationwide provider of technology infrastructure services, including the design, build, and maintenance of the communications infrastructure within data centers for co-location and managed hosting customers, for both large corporations and independent businesses.

•Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes, as well as heating, ventilation and air conditioning (HVAC) and plumbing installation services in certain markets.

•Infrastructure Solutions – Provider of electro-mechanical solutions for industrial operations, including apparatus repair and custom-engineered products such as generator enclosures used in data centers and other industrial applications.

•Commercial & Industrial – Provider of electrical and mechanical design, construction, and maintenance services to the commercial and industrial markets in various regional markets and nationwide in certain areas of expertise, such as the power infrastructure market and data centers.

The words “IES”, the “Company”, “we”, “our”, and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our consolidated subsidiaries.

Seasonality and Quarterly Fluctuations

Results of operations from our Residential segment can be seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues generated during fall and winter. The Commercial & Industrial, Communications and Infrastructure Solutions segments of our business are less subject to seasonal trends, as work in these segments generally is performed inside structures protected from the weather, although weather can still impact these businesses, especially in the early stages of projects. From quarter to quarter, results for our Communications, Residential, and Commercial & Industrial segments may be materially affected by the timing of new construction projects, and our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results for our Infrastructure Solutions segment may be affected by the timing of outages or capital projects at our customers’ facilities. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

Basis of Financial Statement Preparation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of IES, our wholly-owned subsidiaries, and entities that we control due to ownership of a majority of voting interest and have been prepared in accordance with the instructions to interim financial reporting as prescribed by the United States Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the consolidated financial statements and notes thereto filed with the SEC in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.

Noncontrolling Interest

In connection with our acquisitions of Edmonson Electric, LLC and Bayonet Plumbing, Heating & Air-Conditioning, LLC (“Bayonet”) in fiscal 2021, and NEXT Electric, LLC in fiscal 2017, we acquired an 80 percent interest in each of the entities, with the remaining 20 percent interest in each such entity being retained by the respective third-party seller. The interests retained by those third-party sellers are identified on our Condensed Consolidated Balance Sheets as noncontrolling interest, classified outside of permanent equity. Under the terms of each entity’s operating agreement, after five years from the date of the acquisition, we may elect to purchase, or the third-party seller may require us to purchase, part or all of the remaining 20 percent intere

SEC Form 10-Q filed by IES Holdings Inc.