SEC Filing | IES Holdings, Inc.

View:

iesc-20220630

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		June 30, 2022
	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

https://cdn.kscope.io/69fca11fe77b4f9df6b723000dccffa9-iesc-20220630_g1.jpg

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.)

5433 Westheimer Road, Suite 500, 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 August 2, 2022, there were 20,523,716 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 June 3 0 , 2022 and September 30, 2021	6
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 3 0 , 2022 and 2021	7
		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended June 3 0 , 2022 and 2021	9
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 3 0 , 2022 and 2021	10
		Notes to Condensed Consolidated Financial Statements	11
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		39
	Item 4. Controls and Procedures		39
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		40
	Item 1A. Risk Factors		40
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40
	Item 3. Defaults Upon Senior Securities		40
	Item 4. Mine Safety Disclosures		40
	Item 5. Other Information		40
	Item 6. Exhibits		41
	Signatures		42

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:

•the impact of the 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;

•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;

•potential 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;

•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;

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

•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 laws and regulations protecting the environment, including those laws related to climate change;

•expenditures to comply with future changes in environmental laws and regulations, including 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 certain tax benefits of our net operating losses may be restricted or reduced in a change in ownership or 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, complete acquisitions, and for debt service;

•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;

•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, as a result of which it could be 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, as a result of 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, 2021, 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)


			June 30,		September 30,
			2022		2021
			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	17,059	$	23,105

	Accounts receivable:
		Trade, net of allowance of $5,006 and $2,387, respectively	344,871		286,707
		Retainage	58,458		41,341
	Inventories		92,762		68,573
	Costs and estimated earnings in excess of billings		58,728		43,389
	Prepaid expenses and other current assets		17,015		21,065
Total current assets			588,893		484,180
Property and equipment, net			54,498		35,454
Goodwill			92,395		92,395
Intangible assets, net			75,316		85,619
Deferred tax assets			18,305		19,009
Operating right of use assets			43,296		42,916
Other non-current assets			11,689		7,049
Total assets			$	884,392	$	766,622
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable and accrued expenses		295,362		249,114
	Billings in excess of costs and estimated earnings		71,397		62,486
Total current liabilities			366,759		311,600
Long-term debt			95,857		39,746
Operating long-term lease liabilities			27,956		28,649
Other non-current liabilities			13,966		16,080
Total liabilities			504,538		396,075
Noncontrolling interest			26,393		24,594
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 20,608,611 and 20,732,531 outstanding, respectively	220		220
	Treasury stock, at cost, 1,440,918 and 1,316,998 shares, respectively		(35,939)		(29,300)
	Additional paid-in capital		200,993		201,899
	Retained earnings		188,187		173,134
Total stockholders’ equity			353,461		345,953
Total liabilities and stockholders’ equity			$	884,392	$	766,622

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 June 30,
		2022		2021
Revenues		$	567,301	$	405,871
Cost of services		484,501		333,042
	Gross profit	82,800		72,829
Selling, general and administrative expenses		67,090		50,342
Contingent consideration		70		69
Loss (gain) on sale of assets		3		(32)
	Operating income	15,637		22,450
Interest and other (income) expense:
Interest expense		761		240
Other (income) expense, net		202		(79)

Income from operations before income taxes		14,674		22,289
Provision for income taxes		3,609		2,640
Net income		11,065		19,649
Net income attributable to noncontrolling interest		(1,600)		(348)
Comprehensive income attributable to IES Holdings, Inc.		$	9,465	$	19,301

Earnings per share attributable to common stockholders of IES Holdings, Inc.:
	Basic	$	0.33	$	0.93
	Diluted	$	0.33	$	0.92

Shares used in the computation of earnings per share:
	Basic	20,718,195		20,829,165
	Diluted	20,939,437		21,087,779

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)


		Nine Months Ended June 30,
		2022		2021
Revenues		$	1,549,403	$	1,052,670
Cost of services		1,328,369		856,288
	Gross profit	221,034		196,382
Selling, general and administrative expenses		189,922		140,783
Contingent consideration		208		142
Gain on sale of assets		(70)		(24)
	Operating income	30,974		55,481
Interest and other (income) expense:
Interest expense		1,740		637
Other (income) expense, net		843		(248)

Income from operations before income taxes		28,391		55,092
Provision for income taxes		6,297		9,890
Net income		22,094		45,202
Net income attributable to noncontrolling interest		(3,577)		(967)
Comprehensive income attributable to IES Holdings, Inc.		$	18,517	$	44,235

Earnings per share attributable to common stockholders of IES Holdings, Inc.:
	Basic	$	0.73	$	2.11
	Diluted	$	0.71	$	2.08

Shares used in the computation of earnings per share:
	Basic	20,730,900		20,780,975
	Diluted	21,275,826		21,066,489

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 June 30, 2022
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid-In Capital
BALANCE, March 31, 2022		22,049,529	$	220	(1,264,031)	$	(30,587)	$	200,159	$	181,256	$	351,048

	Acquisition of treasury stock	—		—	(185,887)		(5,570)		—		—		(5,570)
	Option exercised	—		—	9,000		218		(165)		—		53
	Non-cash compensation	—		—	—		—		999		—		999
	Increase in noncontrolling interest	—		—	—		—		—		(2,534)		(2,534)

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		9,465		9,465
BALANCE, June 30, 2022		22,049,529	$	220	(1,440,918)	$	(35,939)	$	200,993	$	188,187	$	353,461


		Three Months Ended June 30, 2021
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid -In Capital
BALANCE, March 31, 2021		22,049,529	$	220	(1,210,685)	$	(23,639)	$	200,732	$	131,222	$	308,535
	Issuances under compensation plans	—		—	33,333		651		(651)		—		—
	Acquisition of treasury stock	—		—	(15,441)		(795)		—		—		(795)

	Non-cash compensation	—		—	—		—		1,045		—		1,045
	Decease in noncontrolling interest	—		—	—		—		—		103		103

	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		19,301		19,301
BALANCE, June 30, 2021		22,049,529	$	220	(1,192,793)	$	(23,783)	$	201,126	$	150,626	$	328,189


		Nine Months Ended June 30, 2022
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid -In Capital
BALANCE, September 30, 2021		22,049,529	$	220	(1,316,998)	$	(29,300)	$	201,899	$	173,134	$	345,953
	Issuances under compensation plans	—		—	157,167		3,638		(3,638)		—		—
	Acquisition of treasury stock	—		—	(290,087)		(10,495)		—		—		(10,495)
	Options exercised	—		—	9,000		218		(165)		—		53
	Non-cash compensation	—		—	—		—		2,897		—		2,897
	Increase in noncontrolling interest	—		—	—		—		—		(3,464)		(3,464)
	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		18,517		18,517
BALANCE, June 30, 2022		22,049,529	$	220	(1,440,918)	$	(35,939)	$	200,993	$	188,187	$	353,461


		Nine Months Ended June 30, 2021
		Common Stock			Treasury Stock					Retained Earnings		Total Stockholders' Equity
		Shares	Amount		Shares	Amount		Additional Paid -In Capital
BALANCE, September 30, 2020		22,049,529	$	220	(1,287,134)	$	(24,499)	$	200,587	$	107,005	$	283,313
	Issuances under compensation plans	—		—	140,660		2,737		(2,737)		—		—
	Acquisition of treasury stock	—		—	(46,319)		(2,021)		531		—		(1,490)
	Non-cash compensation	—		—	—		—		2,745		—		2,745
	Increase in noncontrolling interest	—		—	—		—		—		(400)		(400)
	Cumulative effect adjustment from adoption of new accounting standard	—		—	—		—		—		(214)		(214)
	Net income attributable to IES Holdings, Inc.	—		—	—		—		—		44,235		44,235
BALANCE, June 30, 2021		22,049,529	$	220	(1,192,793)	$	(23,783)	$	201,126	$	150,626	$	328,189

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)


			Nine Months Ended June 30,
			2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	22,094	$	45,202
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Bad debt expense		2,716		37
		Deferred financing cost amortization		136		145
		Depreciation and amortization		18,740		15,910
		Gain on sale of assets		(70)		(24)
		Non-cash compensation expense		2,897		2,745
		Deferred income taxes		1,815		6,841
	Changes in operating assets and liabilities:
		Accounts receivable		(60,879)		(10,686)
		Inventories		(24,188)		(33,761)
		Costs and estimated earnings in excess of billings		(15,339)		(2,025)
		Prepaid expenses and other current assets		(13,412)		(6,062)
		Other non-current assets		(1,974)		(275)
		Accounts payable and accrued expenses		41,449		3,964
		Billings in excess of costs and estimated earnings		8,911		11,496
		Other non-current liabilities		(695)		1,642
Net cash provided by (used in) operating activities				(17,799)		35,149
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment			(26,609)		(5,391)
	Proceeds from sale of assets			175		166
	Cash paid in conjunction with equity investments			(500)		—
	Cash paid in conjunction with business combinations			—		(92,694)
Net cash used in investing activities				(26,934)		(97,919)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowings of debt			1,383,745		947,057
	Repayments of debt			(1,327,209)		(915,928)
	Cash paid for finance leases			(1,055)		(423)
	Purchase of noncontrolling interest			—		(1,188)
	Distribution to noncontrolling interest			(6,352)		(311)
	Purchase of treasury stock			(10,495)		(1,490)
	Options exercised			53		—
Net cash provided by financing activities				38,687		27,717
NET DECREASE IN CASH AND CASH EQUIVALENTS				(6,046)		(35,053)
CASH AND CASH EQUIVALENTS, beginning of period				23,105		53,577
CASH AND CASH EQUIVALENTS, end of period			$	17,059	$	18,524

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
		Cash paid for interest	$	1,917	$	460
		Cash paid for income taxes (net)	$	3,023	$	3,473

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

IES HOLDINGS, INC.

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 to be 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, 2021. 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 (“Edmonson”) 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 interest in the applicable entity. The purchase price is variable, based on a multiple of earnings as defined in the operating agreements. Therefore, this noncontrolling interest is carried at the greater of the balance determined under Accounting Standards Codification (“ASC”) 810 and the redemption

amounts assuming the noncontrolling interests were redeemable at the balance sheet date. If all of the noncontrolling interests remaining outstanding at June 30, 2022 had been redeemable at that date, the redemption amount would have been $23,947.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in accounting for business combinations and analyzing goodwill, investments, intangible assets and long-lived asset impairments and adjustments, allowance for credit losses, stock-based compensation, reserves for legal matters, realizability of deferred tax assets, unrecognized tax benefits and self-insured claims liabilities and related reserves.

Other (Income) Expense, Net

Other (Income) Expense, Net includes primarily unrealized gains or losses on equity securities, including those related to our Executive Deferred Compensation Plan. These securities are recorded at fair value (Level 1) at the end of each reporting period. Please refer to Note 9 - Fair Value Measurements for further information.

Accounting Standards Recently Adopted

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This update is effective for fiscal years beginning after December 15, 2020 and for interim periods within that year. Early adoption is permitted. We adopted this standard on October 1, 2021 with immaterial impact on our Condensed Consolidated Financial Statements.

2. CONTROLLING STOCKHOLDER

Tontine Associates, L.L.C. ("Tontine Associates"), together with its affiliates (collectively, “Tontine”), is the Company’s controlling stockholder, owning approximately 57 percent of the Company’s outstanding common stock based on the Form 4 filed by Tontine with the SEC on December 3, 2021 and the Company's shares outstanding as of August 2, 2022. Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of stockholders.

While Tontine is subject to certain restrictions under federal securities laws on sales of its shares as an affiliate, the Company has filed a shelf registration statement to register all of the shares of IES common stock owned by Tontine at the time of registration. As long as the shelf registration statement remains effective and the Company remains eligible to use it, Tontine has the ability to resell any or all of its registered shares from time to time in one or more offerings, as described in the shelf registration statement and in any prospectus supplement filed in connection with an offering pursuant to the shelf registration statement.

Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership of IES could occur. A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of the Company’s net operating loss carryforwards for federal and state income tax purposes. Furthermore, a change of control would trigger the change of control provisions in a number of our material agreements, including our credit agreement, bonding agreements with our sureties and our executive severance plan.

Jeffrey L. Gendell was appointed as Chief Executive Officer of the Company effective October 1, 2020, having served as the Company's Interim Chief Executive Officer since July 31, 2020. Mr. Gendell also serves as Chairman of the Board of Directors, a position he has held since November 2016. He is the managing member and founder of Tontine, and the brother of David B. Gendell, who has served as a member of our Board since February 2012, and who previously served as Interim Director of Operations from November 2017 to January 2019, as Vice Chairman of the Board from November 2016 to November 2017 and as Chairman of the Board from January 2015 to November 2016. David B. Gendell was an employee of Tontine from 2004 until December 31, 2017.

The Company is party to a sublease agreement with Tontine Associates for corporate office space in Greenwich, Connecticut. The sublease extends through February 27, 2023, with monthly payments due in the amount of approximately $8. Payments by the Company are at a rate consistent with that paid by Tontine Associates to its landlord.

On December 6, 2018, the Company entered into a Board Observer Letter Agreement (the "Observer Agreement") with Tontine Associates in order to assist Tontine in managing its investment in the Company. Subject to the terms and conditions set forth in the Observer Agreement, the Company granted Tontine the right, at any time that Tontine holds at least 20% of the outstanding common stock of the Company, to appoint a representative to serve as an observer to the Board (the “Board Observer”). The Board Observer, who must be reasonably acceptable to those members of the Board who are not affiliates of Tontine, shall have no voting rights or other decision making authority. Subject to the terms and conditions set forth in the Observer Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable out-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.

3. REVENUE RECOGNITION

Contracts

Our revenue is derived from contracts with customers, and we determine the appropriate accounting treatment for each contract at its inception. Our contracts primarily relate to electrical and mechanical contracting services, technology infrastructure products and services, and electro-mechanical solutions for industrial operations. Revenue is earned based upon an agreed fixed price or actual costs incurred plus an agreed upon percentage.

We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we have written authorization from the customer to proceed.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

We recognize revenue over time for the majority of the services we perform as (i) control continuously transfers to the customer as work progresses at a project location controlled by the customer and (ii) we have the right to bill the customer as costs are incurred. Within our Infrastructure Solutions segment, we often perform work inside our own facilities, where control does not continuously transfer to the customer as work progresses. In such cases, we evaluate whether we have the right to bill the customer as costs are incurred. Such assessment involves an evaluation of contractual termination clauses. Where we have a contractual right to payment for work performed to date, we recognize revenue over time. If we do not have such a right, we recognize revenue upon completion of the contract, when control of the work transfers to the customer.

For fixed price arrangements, we use the percentage of completion method of accounting under which revenue recognized is measured principally by the costs incurred and accrued to date for each contract as a percentage of the estimated total cost for each contract at completion. Contract costs include all direct material, labor and indirect costs related to contract performance. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income, and the effects of these revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments.

Variable Consideration

The transaction price for our contracts may include variable consideration, which includes changes to transaction price for approved and unapproved change orders, claims and incentives. Change orders, claims, and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the probability weighted value we expect to receive (or the most probable amount we expect to incur in the case of liquidated damages, if any), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or which will be incurred in the case of liquidated damages, if any). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or accounted for as a reduction of the transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by activity and contract type, as these categories reflect how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Our consolidated revenue for the three and nine months ended June 30, 2022 and 2021 was derived from the following activities. See details in the following tables:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021			2022		2021
Communications	$	144,748	$	116,218		$	402,776	$	309,460
Residential
Single-family	224,556		102,105			590,453		274,707
Multi-family and Other	77,207		84,344			213,492		181,569
Total Residential	301,763		186,449			803,945		456,276
Infrastructure Solutions
Industrial Services	15,317		11,972			45,970		32,560
Custom Power Solutions	24,520		27,145			77,696		75,674
Total Infrastructure Solutions	39,837		39,117			123,666		108,234
Commercial & Industrial	80,953		64,087			$	219,016	$	178,700
Total Revenue	$	567,301	$	405,871		$	1,549,403	$	1,052,670


	Three Months Ended June 30, 2022
		Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total
Fixed-price		$	94,109	$	301,763	$	38,126	$	75,779	$	509,777
Time-and-material			50,639		—		1,711		5,174		57,524
Total revenue		$	144,748	$	301,763	$	39,837	$	80,953	$	567,301

	Three Months Ended June 30, 2021
		Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total
Fixed-price		$	81,521	$	186,449	$	37,241	$	60,444	$	365,655
Time-and-material			34,697		—		1,876		3,643		40,216
Total revenue		$	116,218	$	186,449	$	39,117	$	64,087	$	405,871













	Nine Months Ended June 30, 2022
		Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total
Fixed-price		$	268,253	$	803,945	$	118,503	$	204,985	$	1,395,686
Time-and-material			134,523		—		5,163		14,031		153,717
Total revenue		$	402,776	$	803,945	$	123,666	$	219,016	$	1,549,403

	Nine Months Ended June 30, 2021
		Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Total
Fixed-price		$	226,086	$	456,276	$	102,864	$	170,134	$	955,360
Time-and-material			83,374		—		5,370		8,566		97,310
Total revenue		$	309,460	$	456,276	$	108,234	$	178,700	$	1,052,670

Accounts Receivable and Allowance for Credit Losses

Accounts receivable include amounts that we have billed or have an unconditional right to bill our customers. As of June 30, 2022, Accounts receivable included $17,651 of unbilled receivables for which we have an unconditional right to bill.

In calculating our expected credit losses, we considered trade receivables, retainage, and costs and estimated earnings in excess of billings, all of which constitute a homogenous portfolio, and therefore, to measure the expected credit loss, they have been grouped together.

We have elected to calculate an expected credit loss based on loss rates from historical data. Each segment groups financial assets with similar risk characteristics and collectively assesses the expected credit losses. If an individual asset experiences credit deterioration to the extent the credit risk is no longer characteristic of the other assets in the group, it will be analyzed individually. The loss rates for our portfolios include our history of credit loss expense, the aging of our receivables, our expectation of payments and adjustment for forward-looking factors specific to the macroeconomic trends in the markets we serve.

Other than trade receivables due in one year or less, we do not have any other financial assets that are past due or are on non-accrual status.

Contract Assets and Liabilities

Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our Condensed Consolidated Balance Sheet under the caption “Costs and estimated earnings in excess of billings”. Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our Condensed Consolidated Balance Sheet under the caption “Billings in excess of costs and estimated earnings”.

During the three months ended June 30, 2022 and 2021, we recognized revenue of $30,204 and $25,851 related to our contract liabilities at April 1, 2022 and 2021, respectively. During the nine months ended June 30, 2022 and 2021, we recognized revenue of $46,703 and $41,121 related to our contract liabilities at October 1, 2021 and 2020, respectively.

Remaining Performance Obligations

Remaining performance obligations represent the unrecognized revenue value of our contract commitments. New awards represent the total expected revenue value of new contract commitments undertaken during a given period, as well as additions to the scope of existing contract commitments. Our new performance obligations vary significantly each reporting period based on the timing of our major new contract commitments. At June 30, 2022, we had remaining performance obligations of $893,923. The Company expects to recognize revenue on approximately $852,181 of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

For the three and nine months ended June 30, 2022, net revenue recognized from our performance obligations satisfied in previous periods was not material.

4. DEBT

On April 28, 2022 we entered into the Third Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A. ("Wells Fargo") (the "Amended Credit Agreement"), which, among other things, increased the maximum borrowing amount under our revolving credit facility from $125,000 to $150,000. The Amended Credit Agreement also removed the aggregate cap on Company investments in certain securities and the cap on the Company’s ability to make stock repurchases, in each case subject to the satisfaction of certain liquidity requirements. The Amended Credit Agreement, which matures on September 30, 2026, contains customary affirmative, negative and financial covenants as disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. As of June 30, 2022, the Company was in compliance with the financial covenants under the Amended Credit Agreement.

At June 30, 2022 and September 30, 2021, we had $96,874 and $40,339, respectively, in borrowings outstanding under our revolving credit facility with Wells Fargo, and $1 and $63, respectively, of long-term debt related to loans on capital expenditures. At June 30, 2022, we also had $4,077 in outstanding letters of credit and total availability of $49,049 under our revolving credit facility without triggering the financial covenants under the Amended Credit Facility.

5. PER SHARE INFORMATION

The following tables reconcile the components of basic and diluted earnings (loss) per share for the three and nine months ended June 30, 2022 and 2021:


	Three Months Ended June 30,
	2022		2021
Numerator:
Net income attributable to IES Holdings, Inc.	$	9,465	$	19,301
Increase (decrease) in noncontrolling interest		2,534		(103)
Net income attributable to restricted stockholders of IES Holdings, Inc.		5		16
Net income attributable to common stockholders of IES Holdings, Inc.	$	6,926	$	19,388

Denominator:
Weighted average common shares outstanding — basic		20,718,195		20,829,165
Effect of dilutive stock options and non-vested securities		221,242		258,614
Weighted average common and common equivalent shares outstanding — diluted		20,939,437		21,087,779

Earnings per share attributable to common stockholders of IES Holdings, Inc.:
Basic	$	0.33	$	0.93
Diluted	$	0.33	$	0.92


	Nine Months Ended June 30,
	2022		2021
Numerator:
Net income attributable to IES Holdings, Inc.	$	18,517	$	44,235
Increase in noncontrolling interest		3,464		400
Net income attributable to restricted stockholders of IES Holdings, Inc.		10		38
Net income attributable to common stockholders of IES Holdings, Inc.	$	15,043	$	43,797

Denominator:
Weighted average common shares outstanding — basic		20,730,900		20,780,975
Effect of dilutive stock options and non-vested securities		544,926		285,514
Weighted average common and common equivalent shares outstanding — diluted		21,275,826		21,066,489

Earnings per share attributable to common stockholders of IES Holdings, Inc.:
Basic	$	0.73	$	2.11
Diluted	$	0.71	$	2.08

For the three and nine months ended June 30, 2022 and 2021, the average price of our common shares exceeded the exercise price of all of our outstanding stock options; therefore, all of our outstanding stock options and other potentially dilutive equity instruments were included in the computation of diluted earnings per share.

6. OPERATING SEGMENTS

We manage and measure performance of our business in four distinct operating segments: Communications, Residential, Infrastructure Solutions, and Commercial & Industrial. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purpose of allocating resources and assessing performance. The Company’s CODM is its Chief Executive Officer.

Transactions between segments, if any, are eliminated in consolidation. Our corporate organization provides general and administrative services, as well as support services, to each of our four operating segments. Management allocates certain shared costs between segments for selling, general and administrative expenses.

Segment information for the three and nine months ended June 30, 2022 and 2021 is as follows:


	Three Months Ended June 30, 2022
	Communications		Residential		Infrastructure Solutions		Commercial & Industrial		Corporate		Total
Revenues	$	144,748	$	301,763	$	39,837	$	80,953	$	—	$	567,301
Cost of services	128,952		248,928		33,726		72,895		—		484,501
Gross profit	15,796		52,835		6,111		8,058		—		82,800
Selling, general and administrative	11,544		37,237		6,484		7,788		4,037		67,090
Contingent consideration	—		70		—		—		—		70
Loss (gain) on sale of assets	(1)		6		—		(2)		—		3
Operating income (loss)