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. is a holding company that owns and manages operating subsidiaries in business activities across a variety of end-markets. Our operations are currently organized into four principal business segments, based upon the nature of our current services:
•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
•Communications – Nationwide provider of technology services, including the design, build, and maintenance of the infrastructure within data centers for co-location and managed hosting customers for both large corporations and independent businesses.
•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.
•Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes.
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 construction 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. Our service and maintenance business is generally not affected by seasonality. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Results for our Infrastructure Solutions segment may be affected by the timing of outages 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, 2019. 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 STR Mechanical, LLC in fiscal 2016 and NEXT Electric, LLC (“NEXT Electric”) 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 these interests had been redeemable at June 30, 2020, the redemption amount would have been $2,438.
Leases
We enter into various contractual arrangements for the right to use facilities, vehicles and equipment. We evaluate whether each of these arrangements contains a lease and classify all identified leases as either operating or finance. If the arrangement is subsequently modified, we re-evaluate our classification. The lease term generally ranges from two to ten years for facilities and three to five years for vehicles and equipment. Our lease terms may include the exercise of renewal or termination options when it is reasonably certain these options will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Upon commencement of the lease, we recognize a lease liability and corresponding right-of use ("ROU") asset for all leases with an initial term greater than twelve months. Lease liabilities represent the present value of our future lease payments over the expected lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate as the discount rate in calculating the present value of the lease payments. The incremental borrowing rate is determined by identifying a synthetic credit rating for the consolidated company, where treasury functions are centrally managed, and adjusting the interest rates from associated indexes for differences in credit risk and interest rate risk. We have elected to combine the lease and nonlease components in the recognition of our lease liabilities across all classes of underlying assets. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability with adjustments for prepaid or accrued rent, lease incentives or unamortized initial direct costs. Costs associated with operating lease assets are recognized on a straight-line basis over the term of the lease. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations.
Certain lease contracts include obligations to pay for other services, such as operations and maintenance. Where the costs of these services can be identified as fixed or fixed-in-substance, the costs are included as part of the future lease payments. If the cost is not fixed at the inception of the lease, the cost is recorded as a variable cost in the period incurred.
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, intangible assets and long-lived asset impairments and adjustments, allowance for doubtful accounts receivable, stock-based compensation, reserves for legal matters, realizability of deferred tax assets, unrecognized tax benefits and self-insured claims liabilities and related reserves.
Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses, with further clarifications made in April 2019 and May 2019 with the issuances of Accounting Standard Updates No. 2019-04 and 2019-05. This update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted. We plan to adopt this standard on October 1, 2020, and do not expect the adoption to have a material effect on our Condensed Consolidated Financial Statements.
In August 2018, the FASB issued Accounting Standard Update No. 2018-13, Fair Value Measurement Disclosure Framework (“ASU 2018-13”), to modify certain disclosure requirements for fair value measurements. Under the new guidance, registrants will need to disclose weighted average information for significant unobservable inputs for all Level 3 fair value measurements. The guidance does not specify how entities should calculate the weighted average, but requires them to explain their calculation. The new guidance also requires disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period. This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, although early adoption is permitted for either the entire standard or only the provisions that eliminate or modify the requirements. We plan to adopt this standard on October 1, 2020, and do not expect the adoption to have a material effect on our Condensed Consolidated Financial Statements.
Accounting Standards Recently Adopted
In February 2016, the FASB issued Accounting Standard Update No. 2016-02, Leases (“ASU 2016-02”). Under ASU 2016-02, lessees need to recognize a ROU asset and a lease liability on the our Condensed Consolidated Balance Sheet for all leases, other than those that meet the definition of a short-term lease. For income statement purposes, leases must be classified as either operating or finance. Operating leases result in straight-line expense, while finance leases are accounted for similar to capital leases under the previous lease accounting standard. We adopted ASU 2016-02 on October 1, 2019 using a modified retrospective transition approach. Using the optional transition method allowed under Accounting Standard Update No. 2018-11, prior period amounts were not adjusted retrospectively and continue to be reported using the previous accounting standards in effect for the period presented. We elected to utilize all of the available practical expedients with the exception of the practical expedient permitting the use of hindsight when determining the lease term and assessing impairment of ROU assets. Therefore, we did not reassess whether any of our existing or expired contracts contained leases or the classification of or initial direct costs included in our existing or expired leases.
The adoption of ASU 2016-02 resulted in the recognition of ROU assets of approximately $32,434 and operating lease liabilities of approximately $32,237 on our Condensed Consolidated Balance Sheet at the adoption date. The difference between the ROU assets and lease liabilities was primarily due to previously accrued rent expense relating to periods prior to October 1, 2019. The adoption did not have a significant impact on our Condensed Consolidated Statements of Comprehensive Income or Cash Flows. See Note 13, “Leases” for additional discussion of our lease accounting policies and expanded disclosures.
In June 2018, the FASB issued Accounting Standard Update No. 2018-07, Compensation—Stock Compensation (“ASU 2018-07”), to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions. Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current GAAP because the measurement generally will occur earlier and will be fixed at the grant date. This update was adopted as of October 1, 2019 with no impact to our 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 55 percent of the Company’s outstanding common stock according to a Form 4 filed with the SEC by Tontine on July 2, 2020. 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 losses (“NOLs”) for federal and state income tax purposes. On November 8, 2016, the Company implemented a tax benefit protection plan (the “NOL Rights Plan”). The NOL Rights Plan was designed to deter an acquisition of the Company's stock in excess of a threshold amount that could trigger a change in ownership within the meaning of Internal Revenue Code Section 382. There can be no assurance that the NOL Rights Plan will be effective in deterring a change in ownership or protecting the NOLs. Furthermore, a change in ownership would trigger the change of control provisions in a number of our material agreements, including our revolving credit facility, bonding agreements with our sureties and our severance arrangements.
Jeffrey L. Gendell was appointed Interim Chief Executive Officer effective July 31, 2020, and as a member of the Board of Directors of the Company (the "Board") and Chairman of the Board in 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 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 Letter 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 Letter 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 contract 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 increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. 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 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 excluded from 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.
Costs of Obtaining a Contract
In certain of our operations, we incur commission costs related to entering into a contract that we only incurred because of that contract. When this occurs, we capitalize that cost and amortize it over the expected term of the contract. At June 30, 2020, we had capitalized commission costs of $69.
We generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. When significant pre-contract costs are incurred, they will be capitalized and amortized on a percentage of completion basis over the life of the contract.
Disaggregation of Revenue
We disaggregate our revenue from contracts with customers by activity and contract type, as these categories reflect how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Our consolidated 2020 and 2019 revenue was derived from the following service activities. Certain prior year amounts have been reclassified to conform to current year presentation. See details in the following tables:
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Three Months Ended June 30,
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Nine Months Ended June 30,
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2020
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2019
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2020
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2019
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Commercial & Industrial
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$
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56,778
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$
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75,370
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$
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190,481
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$
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227,928
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Communications
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96,500
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90,438
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276,779
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230,200
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Infrastructure Solutions
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Industrial Services
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9,753
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12,339
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31,588
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36,707
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Custom Power Solutions
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22,189
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23,770
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60,937
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63,331
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Total Infrastructure Solutions
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31,942
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36,109
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92,525
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100,038
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Residential
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Single-family
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62,239
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54,200
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176,071
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156,168
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Multi-family and Other
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45,666
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26,516
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124,589
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69,055
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Total Residential
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107,905
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80,716
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300,660
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225,223
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Total Revenue
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$
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293,125
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$
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282,633
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$
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860,445
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$
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783,389
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Three Months Ended June 30, 2020
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Commercial & Industrial
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Communications
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Infrastructure Solutions
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Residential
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Total
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Fixed-price
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$
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53,811
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$
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79,801
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$
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30,504
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|
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$
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107,905
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|
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$
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272,021
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Time-and-material
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2,967
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16,699
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1,438
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—
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21,104
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Total revenue
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$
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56,778
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$
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96,500
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$
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31,942
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|
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$
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107,905
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|
|
$
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293,125
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|
|
|
|
|
|
|
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|
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Three Months Ended June 30, 2019
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Commercial & Industrial
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Communications
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Infrastructure Solutions
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Residential
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Total
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Fixed-price
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$
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70,917
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|
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$
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65,219
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|
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$
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34,244
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|
|
$
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80,716
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|
|
$
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251,096
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Time-and-material
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4,453
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|
|
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25,219
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|
|
|
1,865
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—
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|
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31,537
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Total revenue
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$
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75,370
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|
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$
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90,438
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|
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$
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36,109
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|
|
$
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80,716
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|
|
$
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282,633
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Nine Months Ended June 30, 2020
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Commercial & Industrial
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Communications
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Infrastructure Solutions
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Residential
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Total
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Fixed-price
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$
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180,425
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$
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213,205
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$
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87,479
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$
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300,660
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$
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781,769
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Time-and-material
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10,056
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|
63,574
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|
5,046
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—
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78,676
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Total revenue
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$
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190,481
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$
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276,779
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$
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92,525
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$
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300,660
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$
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860,445
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Nine Months Ended June 30, 2019
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Commercial & Industrial
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Communications
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Infrastructure Solutions
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Residential
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Total
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Fixed-price
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$
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213,214
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$
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162,650
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$
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93,853
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$
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225,223
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$
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694,940
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Time-and-material
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14,714
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67,550
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6,185
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—
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88,449
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Total revenue
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$
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227,928
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$
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230,200
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$
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100,038
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$
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225,223
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$
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783,389
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Accounts Receivable
Accounts receivable include amounts which we have billed or have an unconditional right to bill our customers. As of June 30, 2020, Accounts receivable included $8,324 of unbilled receivables for which we have an unconditional right to bill.
Contract Assets and Liabilities
Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our balance sheet under the caption “Costs and estimated earnings in excess of billings”. Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our balance sheet under the caption “Billings in excess of costs and estimated earnings”.
The net asset (liability) position for contracts in process consisted of the following:
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June 30,
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September 30,
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2020
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|
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2019
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|
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Costs and estimated earnings on uncompleted contracts
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$
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868,267
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$
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761,401
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Less: Billings to date and unbilled accounts receivable
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(898,620)
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(772,104)
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$
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(30,353)
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$
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(10,703)
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The net asset (liability) position for contracts in process included in the accompanying consolidated balance sheets was as follows:
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|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Costs and estimated earnings in excess of billings
|
|
$
|
25,821
|
|
|
$
|
29,860
|
|
|
Billings in excess of costs and estimated earnings
|
|
|
(56,174)
|
|
|
|
(40,563)
|
|
|
|
|
$
|
(30,353)
|
|
|
$
|
(10,703)
|
|
During the three months ended June 30, 2020 and 2019, we recognized revenue of $19,661 and $18,472 related to our contract liabilities at April 1, 2020 and 2019, respectively. During the nine months ended June 30, 2020 and 2019, we recognized revenue of $29,692 and $28,816 related to our contract liabilities at October 1, 2019 and 2018, respectively.
We did not have any impairment losses recognized on our receivables or contract assets for the three and nine months ended June 30, 2020 or 2019.
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, 2020, we had remaining performance obligations of $523. The Company expects to recognize revenue on approximately $451 of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter.
For the three and nine months ended June 30, 2020, net revenue recognized from our performance obligations satisfied in previous periods was not material.
4. DEBT
At June 30, 2020 and September 30, 2019, we had zero borrowings outstanding under the credit facility, and long-term debt related to loans on capital expenditures of $256 and $299, respectively. At June 30, 2020, we also had $6,962 in outstanding letters of credit and total availability of $89,298 under our revolving credit facility without violating our financial covenants.
Pursuant to our Second Amended and Restated Credit and Security Agreement with Wells Fargo Bank, N.A. (as amended, the “Credit Agreement”), the Company is subject to the financial or other covenants disclosed in Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2019. The Company was in compliance with the financial covenants as of June 30, 2020.
5. PER SHARE INFORMATION
The following tables reconcile the components of basic and diluted earnings per share for the three and nine months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to common stockholders of IES Holdings, Inc.
|
|
$
|
12,066
|
|
|
$
|
10,826
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to restricted stockholders of IES Holdings, Inc.
|
|
|
194
|
|
|
|
146
|
|
|
Net income attributable to IES Holdings, Inc.
|
|
$
|
12,260
|
|
|
$
|
10,972
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic
|
|
|
20,728,149
|
|
|
|
21,043,425
|
|
|
Effect of dilutive stock options and non-vested restricted stock
|
|
|
268,583
|
|
|
|
257,810
|
|
|
Weighted average common and common equivalent shares outstanding — diluted
|
|
|
20,996,732
|
|
|
|
21,301,235
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to IES Holdings, Inc.:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.58
|
|
$
|
0.52
|
|
Diluted
|
|
$
|
0.58
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to common stockholders of IES Holdings, Inc.
|
|
$
|
26,577
|
|
|
$
|
23,210
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to restricted stockholders of IES Holdings, Inc.
|
|
|
416
|
|
|
|
135
|
|
|
Net income attributable to IES Holdings, Inc.
|
|
$
|
26,993
|
|
|
$
|
23,345
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — basic
|
|
|
20,819,857
|
|
|
|
21,139,697
|
|
|
Effect of dilutive stock options and non-vested restricted stock
|
|
|
264,410
|
|
|
|
242,481
|
|
|
Weighted average common and common equivalent shares outstanding — diluted
|
|
|
21,084,267
|
|
|
|
21,382,178
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to IES Holdings, Inc.:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.28
|
|
$
|
1.10
|
|
Diluted
|
|
$
|
1.26
|
|
$
|
1.09
|
For the three and nine months ended June 30, 2020 and 2019, the average price of our common shares exceeded the exercise price of all of our outstanding options; therefore, all of our outstanding stock options were included in the computation of fully diluted earnings per share.
6. OPERATING SEGMENTS
We manage and measure performance of our business in four distinct operating segments: Commercial & Industrial, Communications, Infrastructure Solutions and Residential. 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 office provides general and administrative, as well as support services, to our four operating segments. Management allocates certain shared costs between segments for selling, general and administrative expenses and depreciation expense.
Segment information for the three and nine months ended June 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
Communications
|
|
Infrastructure Solutions
|
|
Residential
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
$
|
56,778
|
|
|
$
|
96,500
|
|
|
$
|
31,942
|
|
|
$
|
107,905
|
|
|
$
|
—
|
|
|
$
|
293,125
|
|
|
Cost of services
|
|
52,212
|
|
|
77,792
|
|
|
22,609
|
|
|
82,192
|
|
|
—
|
|
|
234,805
|
|
|
Gross profit
|
|
4,566
|
|
|
18,708
|
|
|
9,333
|
|
|
25,713
|
|
|
—
|
|
|
58,320
|
|
|
Selling, general and administrative
|
|
8,786
|
|
|
9,316
|
|
|
5,512
|
|
|
16,767
|
|
|
3,880
|
|
|
44,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of assets
|
|
(6)
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
Operating income (loss)
|
|
(4,214)
|
|
|
9,392
|
|
|
3,818
|
|
|
8,946
|
|
|
(3,880)
|
|
|
14,062
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
$
|
692
|
|
|
$
|
330
|
|
|
$
|
1,683
|
|
|
$
|
476
|
|
|
$
|
19
|
|
|
$
|
3,200
|
|
|
|
Capital expenditures
|
$
|
496
|
|
|
$
|
63
|
|
|
$
|
135
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
802
|
|
|
|
Total assets
|
$
|
71,877
|
|
|
$
|
131,796
|
|
|
$
|
126,557
|
|
|
$
|
107,919
|
|
|
$
|
87,176
|
|
|
$
|
525,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
Communications
|
|
Infrastructure Solutions
|
|
Residential
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
$
|
75,370
|
|
|
$
|
90,438
|
|
|
$
|
36,109
|
|
|
$
|
80,716
|
|
|
$
|
—
|
|
|
$
|
282,633
|
|
|
Cost of services
|
|
69,171
|
|
|
75,044
|
|
|
27,671
|
|
|
64,350
|
|
|
—
|
|
|
236,236
|
|
|
Gross profit
|
|
6,199
|
|
|
15,394
|
|
|
8,438
|
|
|
16,366
|
|
|
—
|
|
|
46,397
|
|
|
Selling, general and administrative
|
|
6,827
|
|
|
8,406
|
|
|
4,937
|
|
|
11,812
|
|
|
4,351
|
|
|
36,333
|
|
|
Contingent consideration
|
|
—
|
|
|
—
|
|
|
(163)
|
|
|
—
|
|
|
—
|
|
|
(163)
|
|
|
Loss (gain) on sale of assets
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
Operating income (loss)
|
|
(624)
|
|
|
6,988
|
|
|
3,668
|
|
|
4,554
|
|
|
(4,351)
|
|
|
10,235
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
$
|
652
|
|
|
$
|
339
|
|
|
$
|
1,122
|
|
|
$
|
218
|
|
|
$
|
23
|
|
|
$
|
2,354
|
|
|
|
Capital expenditures
|
$
|
507
|
|
|
$
|
74
|
|
|
$
|
311
|
|
|
$
|
329
|
|
|
$
|
22
|
|
|
$
|
1,243
|
|
|
|
Total assets
|
$
|
81,693
|
|
|
$
|
111,270
|
|
|
$
|
118,143
|
|
|
$
|
57,866
|
|
|
$
|
69,392
|
|
|
$
|
438,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
Communications
|
|
Infrastructure Solutions
|
|
Residential
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
|
$
|
190,481
|
|
|
$
|
276,779
|
|
|
$
|
92,525
|
|
|
$
|
300,660
|
|
|
$
|
—
|
|
|
$
|
860,445
|
|
|
Cost of services
|
|
|
174,712
|
|
|
225,866
|
|
|
68,177
|
|
|
231,891
|
|
|
—
|
|
|
700,646
|
|
|
Gross profit
|
|
|
15,769
|
|
|
50,913
|
|
|
24,348
|
|
|
68,769
|
|
|
—
|
|
|
159,799
|
|
|
Selling, general and administrative
|
|
|
24,660
|
|
|
27,304
|
|
|
14,923
|
|
|
46,241
|
|
|
11,041
|
|
|
124,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of assets
|
|
|
(34)
|
|
|
(9)
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(40)
|
|
|
Operating income (loss)
|
|
|
(8,857)
|
|
|
23,618
|
|
|
9,422
|
|
|
22,528
|
|
|
(11,041)
|
|
|
35,670
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
2,057
|
|
|
$
|
1,010
|
|
|
$
|
4,557
|
|
|
$
|
1,117
|
|
|
$
|
56
|
|
|
$
|
8,797
|
|
|
|
Capital expenditures
|
|
$
|
1,168
|
|
|
$
|
531
|
|
|
$
|
725
|
|
|
$
|
977
|
|
|
$
|
299
|
|
|
$
|
3,700
|
|
|
|
Total assets
|
|
$
|
71,877
|
|
|
$
|
131,796
|
|
|
$
|
126,557
|
|
|
$
|
107,919
|
|
|
$
|
87,176
|
|
|
$
|
525,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
Communications
|
|
Infrastructure Solutions
|
|
Residential
|
|
Corporate
|
|
Total
|
|
Revenues
|
|
|
$
|
227,928
|
|
|
$
|
230,200
|
|
|
$
|
100,038
|
|
|
$
|
225,223
|
|
|
$
|
—
|
|
|
$
|
783,389
|
|
|
Cost of services
|
|
|
204,263
|
|
|
190,895
|
|
|
78,227
|
|
|
178,771
|
|
|
—
|
|
|
652,156
|
|
|
Gross profit
|
|
|
23,665
|
|
|
39,305
|
|
|
21,811
|
|
|
46,452
|
|
|
—
|
|
|
131,233
|
|
|
Selling, general and administrative
|
|
|
20,906
|
|
|
23,006
|
|
|
14,103
|
|
|
34,136
|
|
|
11,338
|
|
|
103,489
|
|
|
Contingent consideration
|
|
|
—
|
|
|
—
|
|
|
(278)
|
|
|
—
|
|
|
—
|
|
|
(278)
|
|
|
Loss (gain) on sale of assets
|
|
|
(8)
|
|
|
—
|
|
|
97
|
|
|
(2)
|
|
|
—
|
|
|
87
|
|
|
Operating income (loss)
|
|
|
2,767
|
|
|
16,299
|
|
|
7,889
|
|
|
12,318
|
|
|
(11,338)
|
|
|
27,935
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
1,907
|
|
|
$
|
1,180
|
|
|
$
|
3,391
|
|
|
$
|
644
|
|
|
$
|
78
|
|
|
$
|
7,200
|
|
|
|
Capital expenditures
|
|
$
|
1,974
|
|
|
$
|
767
|
|
|
$
|
1,133
|
|
|
$
|
1,174
|
|
|
$
|
124
|
|
|
$
|
5,172
|
|
|
|
Total assets
|
|
$
|
81,693
|
|
|
$
|
111,270
|
|
|
$
|
118,143
|
|
|
$
|
57,866
|
|
|
$
|
69,392
|
|
|
$
|
438,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. STOCKHOLDERS’ EQUITY
Equity Incentive Plan
The Company’s 2006 Equity Incentive Plan, as amended and restated (the “Equity Incentive Plan”), provides for grants of stock options as well as grants of stock, including restricted stock. Approximately 3.0 million shares of common stock are authorized for issuance under the Equity Incentive Plan, of which approximately 668,993 shares were available for issuance at June 30, 2020.
Stock Repurchase Program
In 2015, our Board authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock, and on May 2, 2019, authorized the repurchase from time to time of up to an additional 1.0 million shares of our common stock under the stock repurchase program. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which allows repurchases under pre-set terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We repurchased 26,711 and 224,959 shares, respectively, of our common stock during the three and nine months ended June 30, 2020, in open market transactions at an average price of $20.29 and $22.32, respectively, per share. We repurchased 162,993 and 398,947 shares, respectively, of our common stock during the three and nine months ended June 30, 2019, in open market transactions at an average price of $17.88 and $17.11, respectively, per share.
Treasury Stock
During the nine months ended June 30, 2020, we issued 113,408 shares of common stock from treasury stock to employees and repurchased 17,427 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan. We also issued 5,225 unrestricted shares of common stock from treasury to members of our Board as part of their overall compensation and 5,750 unrestricted shares to satisfy the exercise of outstanding options. We also repurchased 224,959 shares of common stock on the open market pursuant to our stock repurchase program.
During the nine months ended June 30, 2019, we issued 212,688 shares of common stock from treasury to employees and repurchased 87,609 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan. We also repurchased 398,947 shares of common stock on the open market pursuant to our stock repurchase program. In March 2019, we issued 3,991 shares of treasury stock as payment for outstanding phantom stock units that vested upon the departure of the Company's former President and issued 283,195 shares of treasury stock for restricted shares granted upon the appointment of the Company's Chief Executive Officer.
Restricted Stock
We granted 69,338 restricted shares to executives during the nine months ended June 30, 2020. These awards include restricted shares subject to the achievement of specified levels of cumulative net income before taxes, as well as shares that vest based on the passage of time. During the three months ended June 30, 2020, and 2019, we recognized $521 and $333 in compensation expense related to all restricted stock awards, respectively. During the nine months ended June 30, 2020 and 2019, we recognized $1,316 and $443 in compensation expense related to all restricted stock awards, respectively. At June 30, 2020, the unamortized compensation cost related to outstanding unvested restricted stock was $3,398.
Director Phantom Stock Units
Director phantom stock units (“Director PSUs”) are primarily granted to the members of the Board as part of their overall compensation. These Director PSUs are paid via unrestricted stock grants to each director upon their departure from the Board or upon a change of control. We record compensation expense for the full value of the grant on the date of grant. During the three months ended June 30, 2020, and 2019, we recognized $97 and $100, respectively, in compensation expense related to these grants. During the nine months ended June 30, 2020 and 2019 we recognized $293 and $200, respectively, in compensation expense related to these grants.
Performance Based Phantom Stock Units
An employee phantom stock unit (an “Employee PSU”) is a contractual right to receive one share of the Company’s common stock. Depending on the terms of each grant, Employee PSUs may vest upon the achievement of certain specified performance objectives and continued performance of services, or may vest based on continued performance of services through the vesting date.
As of June 30, 2020 the Company granted Employee PSUs, which, subject to the achievement of certain performance metrics, could result in the issuance of 355,597 shares of common stock, respectively. Of these Employee PSUs, 97,983 Employee PSUs have been forfeited, and 49,678 have vested. At June 30, 2020, a maximum of 207,936 shares of common stock may be issued upon vesting of our outstanding Employee PSUs. During the three months ended June 30, 2020 and 2019, we recognized $505 and $427 in compensation expense, respectively, related to Employee PSU grants. During the nine months ended June 30, 2020 and 2019, we recognized $1,121 and $892 in compensation expense, respectively, related to Employee PSU grants.
8. EMPLOYEE BENEFIT PLANS
401(k) Plan
In November 1998, we established the IES Holdings, Inc. 401(k) Retirement Savings Plan. All full-time IES employees and full-time employees of participating subsidiaries are eligible to participate on the first day of the month subsequent to completing sixty days of service and attaining age twenty one. Participants become vested in our matching contributions following three years of service. We also maintain several subsidiary retirement savings plans. During the three months ended June 30, 2020 and 2019, we recognized $665 and $538, respectively, in matching expense. During the nine months ended June 30, 2020 and 2019, we recognized $1,747 and $1,561, respectively, in matching expense.
Post Retirement Benefit Plans
Certain individuals at one of the Company’s locations are entitled to receive fixed annual payments pursuant to post retirement benefit plans. We had an unfunded benefit liability of $703 and $738 recorded as of June 30, 2020 and September 30, 2019, respectively, related to such plans.
9. FAIR VALUE MEASUREMENTS
Fair Value Measurement Accounting
Fair value is considered the price to sell an asset, or transfer a liability, between market participants on the measurement date. Fair value measurements assume that (1) the asset or liability is exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.
At June 30, 2020, financial assets and liabilities measured at fair value on a recurring basis were limited to our Executive Deferred Compensation Plan, under which certain employees are permitted to defer a portion of their base salary and/or bonus for a Plan Year (as defined in the plan), and contingent consideration liabilities related to certain of our acquisitions.
Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and September 30, 2019, are summarized in the following tables by the type of inputs applicable to the fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
Quoted Prices (Level 1)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
Executive savings plan assets
|
|
$
|
817
|
|
|
$
|
817
|
|
|
$
|
—
|
|
|
Executive savings plan liabilities
|
|
|
(699)
|
|
|
|
(699)
|
|
|
|
—
|
|
|
Contingent consideration
|
|
|
(11)
|
|
|
|
—
|
|
|
|
(11)
|
|
|
Total
|
|
$
|
107
|
|
|
$
|
118
|
|
|
$
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
|
Quoted Prices (Level 1)
|
|
|
Significant Unobservable Inputs (Level 3)
|
|
Executive savings plan assets
|
|
$
|
763
|
|
|
$
|
763
|
|
|
$
|
—
|
|
|
Executive savings plan liabilities
|
|
|
(646)
|
|
|
|
(646)
|
|
|
|
—
|
|
|
Contingent consideration
|
|
|
(11)
|
|
|
|
—
|
|
|
|
(11)
|
|
|
Total
|
|
$
|
106
|
|
|
$
|
117
|
|
|
$
|
(11)
|
|
In fiscal years 2016, 2017 and 2018, we entered into contingent consideration arrangements related to certain acquisitions. At June 30, 2020, we estimated the fair value of these contingent consideration liabilities at $11. The table below presents a reconciliation of the fair value of these obligations, which used significant unobservable inputs (Level 3).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration Agreements
|
|
Fair value at September 30, 2019
|
|
$
|
11
|
|
|
Settlements
|
|
|
—
|
|
|
Net adjustments to fair value
|
|
|
—
|
|
|
Fair value at June 30, 2020
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
10. INVENTORY
Inventories consist of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Raw materials
|
|
$
|
3,937
|
|
|
$
|
4,104
|
|
|
Work in process
|
|
|
6,713
|
|
|
|
6,301
|
|
|
Finished goods
|
|
|
1,376
|
|
|
|
1,861
|
|
|
Parts and supplies
|
|
|
13,317
|
|
|
|
9,277
|
|
|
Total inventories
|
|
$
|
25,343
|
|
|
$
|
21,543
|
|
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following summarizes changes in the carrying value of goodwill by segment for the nine months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & Industrial
|
|
|
|
Communications
|
|
|
Infrastructure Solutions
|
|
|
|
Residential
|
|
|
Total
|
|
|
Goodwill at September 30, 2019
|
|
$
|
6,976
|
|
|
|
$
|
2,816
|
|
|
$
|
30,812
|
|
|
|
$
|
10,018
|
|
|
$
|
50,622
|
|
|
Acquisitions
|
|
|
—
|
|
|
|
|
—
|
|
|
|
3,916
|
|
|
|
|
5,946
|
|
|
|
9,862
|
|
|
Divestitures
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Adjustments
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
Goodwill at June 30, 2020
|
|
$
|
6,976
|
|
|
|
$
|
2,816
|
|
|
$
|
34,728
|
|
|
|
$
|
15,964
|
|
|
$
|
60,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of recent operating losses within our Commercial and Industrial business, we determined that an indicator of a potential goodwill impairment was present. As a result of this indicator, we performed a quantitative goodwill impairment assessment as of March 31, 2020. Based on the results of this assessment, we concluded that the fair value of our Commercial and Industrial reporting unit remains in excess of its carrying value, and therefore, we did not record an impairment charge. Our estimate of implied fair value requires us to use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with respect to future circumstances, such as industry and/or local market conditions, including the impact of COVID-19 on our business, that might directly impact the future performance of our business, and are therefore uncertain.
As of June 30, 2020, it is reasonably possible that judgments and estimates of certain key assumptions, including our internal forecasts or the external market conditions, could change in future periods and may result in a reduction in fair value. Significant adverse changes in future periods to these key assumptions, if any, could reasonably be expected to negatively affect our estimate of implied fair value, and may result in future goodwill impairment charges.
Intangible Assets
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives (in Years)
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
Net
|
|
|
Trademarks/trade names
|
|
|
5-20
|
|
$
|
7,754
|
|
|
$
|
(1,593)
|
|
|
$
|
6,161
|
|
|
Technical library
|
|
|
20
|
|
|
400
|
|
|
|
(136)
|
|
|
|
264
|
|
|
Customer relationships
|
|
|
6-15
|
|
|
46,269
|
|
|
|
(13,797)
|
|
|
|
32,472
|
|
|
Non-competition arrangements
|
|
|
5
|
|
|
1,300
|
|
|
|
(59)
|
|
|
|
1,241
|
|
|
Backlog and construction contracts
|
|
|
1
|
|
|
3,063
|
|
|
|
(1,009)
|
|
|
|
2,054
|
|
|
Total intangible assets
|
|
|
|
|
$
|
58,786
|
|
|
$
|
(16,594)
|
|
|
$
|
42,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives (in Years)
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
Net
|
|
|
Trademarks/trade names
|
|
|
5-20
|
|
$
|
5,084
|
|
|
$
|
(1,267)
|
|
|
$
|
3,817
|
|
|
Technical library
|
|
|
20
|
|
|
400
|
|
|
|
(121)
|
|
|
|
279
|
|
|
Customer relationships
|
|
|
6-15
|
|
|
33,539
|
|
|
|
(11,051)
|
|
|
|
22,488
|
|
|
Non-competition arrangements
|
|
|
5
|
|
|
40
|
|
|
|
(9)
|
|
|
|
31
|
|
|
Backlog and construction contracts
|
|
|
1
|
|
|
599
|
|
|
|
(591)
|
|
|
|
8
|
|
|
Total intangible assets
|
|
|
|
|
$
|
39,662
|
|
|
$
|
(13,039)
|
|
|
$
|
26,623
|
|
The weighted average useful life of our intangible assets at June 30, 2020 was 10.4 years.
12. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time we are a party to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business. We maintain various insurance coverages to minimize financial risk associated with these proceedings. None of these proceedings, separately or in the aggregate, are expected to have a material adverse effect on our financial position, results of operations or cash flows. With respect to all such proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We expense routine legal costs related to these proceedings as they are incurred.
Risk-Management
We retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group health claims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits. Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors, as additional insureds under our insurance policies. Losses are accrued based upon our known claims incurred and an estimate of claims incurred but not reported. As a result, many of our claims are effectively self-insured. Many claims against our insurance are in the form of litigation. At June 30, 2020 and September 30, 2019, we had $6,238 and $6,683, respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. As of June 30, 2020 and September 30, 2019, we had $34 and $90, respectively, reserved for these claims. Because the reserves are based on judgment and estimates and involve variables that are inherently uncertain, such as the outcome of litigation and an assessment of insurance coverage, there can be no assurance that the ultimate liability will not be higher or lower than such estimates or that the timing of payments will not create liquidity issues for the Company.
Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date, we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At June 30, 2020 and September 30, 2019, $6,762 and $6,268, respectively, of our outstanding letters of credit were utilized to collateralize our insurance program.
Surety
As of June 30, 2020, the estimated cost to complete our bonded projects was approximately $101,229. We evaluate our bonding requirements on a regular basis, including the terms offered by our sureties. We believe the bonding capacity provided by our current sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future.
Other Commitments and Contingencies
Some of our customers and vendors require us to post letters of credit, or provide intercompany guarantees, as a means of guaranteeing performance under our contracts and ensuring payment by us to subcontractors and vendors. If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse our creditor for the letter of credit. At each of June 30, 2020 and September 30, 2019, $200 of our outstanding letters of credit were to collateralize our vendors.
From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of June 30, 2020, we had no such material commitments.
13. LEASES
We enter into various contractual arrangements for the right to use facilities, vehicles and equipment. The lease term generally ranges from two to ten years for facilities and three to five years for vehicles and equipment. Our lease terms may include the exercise of renewal or termination options when it is reasonably certain these options will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Current operating and finance liabilities of $10,752 and $287, respectively, were included in "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets as of June 30, 2020. Non-current finance lease liabilities and finance lease right-of-use assets were included in the "Other non-current liabilities" and "Other non-current assets", respectively, in the Condensed Consolidated Balance Sheets.
The maturities of our lease liabilities as of June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
|
Remainder of 2020
|
$
|
5,783
|
|
|
$
|
147
|
|
|
$
|
5,930
|
|
|
2021
|
9,826
|
|
|
291
|
|
|
10,117
|
|
|
2022
|
7,588
|
|
|
267
|
|
|
7,855
|
|
|
2023
|
4,796
|
|
|
261
|
|
|
5,057
|
|
|
2024
|
3,015
|
|
|
214
|
|
|
3,229
|
|
|
Thereafter
|
4,684
|
|
|
15
|
|
|
4,699
|
|
|
Total undiscounted lease payments
|
$
|
35,692
|
|
|
$
|
1,195
|
|
|
$
|
36,887
|
|
|
Less: imputed interest
|
3,298
|
|
|
131
|
|
|
3,429
|
|
|
Present value of lease liabilities
|
$
|
32,394
|
|
|
$
|
1,064
|
|
|
$
|
33,458
|
|
The total future undiscounted cash flows related to lease agreements committed to but not yet commenced as of June 30, 2020, is $432.
Lease cost recognized in our Condensed Consolidated Statements of Comprehensive Income is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 30, 2020
|
|
|
|
Operating lease cost
|
$
|
2,967
|
|
|
$
|
8,907
|
|
|
Finance lease cost
|
|
|
|
|
Amortization of lease assets
|
64
|
|
|
124
|
|
|
Interest on lease liabilities
|
15
|
|
|
30
|
|
|
Finance lease cost
|
79
|
|
|
154
|
|
|
Short-term lease cost
|
327
|
|
|
802
|
|
|
Variable lease cost
|
190
|
|
|
618
|
|
|
Total lease cost
|
$
|
3,563
|
|
|
$
|
10,481
|
|
Other information about lease amounts recognized in our condensed consolidated financial statements is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
June 30, 2020
|
|
|
|
Operating cash flows used for operating leases
|
$
|
3,202
|
|
|
$
|
9,500
|
|
|
Operating cash flows used for finance leases
|
15
|
|
|
30
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
577
|
|
|
8,750
|
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
270
|
|
|
1,198
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
Weighted-average remaining lease term - operating leases
|
4.5 years
|
|
Weighted-average remaining lease term - finance leases
|
4.4 years
|
|
Weighted-average discount rate - operating leases
|
4.0
|
%
|
|
Weighted-average discount rate - finance leases
|
5.5
|
%
|
14. BUSINESS COMBINATIONS AND DIVESTITURES
The Company completed two acquisitions during the nine months ended June 30, 2020 for a total aggregate cash consideration of $28,952.
• Aerial Lighting & Electric, Inc. (“Aerial”) – On February 18, 2020, we acquired 100% of the equity interests in Aerial, a Naugatuck, CT based electrical contractor specializing in the design and installation of electrical systems for multi-family developments. The acquisition of Aerial furthers our Residential segment's growth strategy by providing a foothold in the Northeast market.
• Plant Power & Control Systems, LLC (“PPCS”) – On February 21, 2020, we acquired 100% of the membership interests in PPCS, a Birmingham, AL based manufacturer and installer of custom engineered power distribution equipment. The acquisition of PPCS furthers our Infrastructure Solutions segment's growth strategy by accelerating their expansion in the Southeast market.
The Company accounted for the transactions under the acquisition method of accounting, which requires recording assets and liabilities at fair value (Level 3). The valuations derived from estimated fair value assessments and assumptions used by management are preliminary pending finalization of certain tangible and intangible asset valuations and assessment of deferred taxes. While management believes that its preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different values being assigned to individual assets acquired and liabilities assumed. This may result in adjustments to the preliminary amounts recorded. The preliminary valuation of the assets and liabilities assumed is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
6,185
|
|
|
Property and equipment
|
|
489
|
|
|
Intangible assets
|
|
19,733
|
|
|
Goodwill
|
|
9,862
|
|
|
Current liabilities
|
|
(4,863)
|
|
|
|
|
|
|
Deferred tax liability
|
|
(2,454)
|
|
|
Net assets acquired
|
$
|
28,952
|
|
With regard to goodwill, the balance is attributable to the workforce of the acquired business and other intangibles that do not qualify for separate recognition. In connection with these acquisitions, we acquired goodwill of $9,862 of which $3,916 is tax deductible.
These acquisitions contributed $7,713 in additional revenue and $464 in operating income during the three months ended June 30, 2020, and $12,668 in additional revenue and $991 in operating income during the nine months ended June 30, 2020.
Unaudited Pro Forma Information
The following unaudited supplemental pro forma results of operations for the three and nine months ended June 30, 2020 and 2019 are calculated as if each acquisition occurred as of October 1 of the fiscal year prior to consummation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Revenues
|
|
$
|
293,125
|
|
$
|
295,189
|
|
|
|
Net income attributable to IES Holdings, Inc.
|
|
$
|
12,260
|
|
$
|
11,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Revenues
|
|
$
|
877,609
|
|
$
|
813,575
|
|
|
|
Net income attributable to IES Holdings, Inc.
|
|
$
|
28,393
|
|
$
|
24,538
|
|
|
15. SUBSEQUENT EVENTS
On August 3, 2020, the Company announced the appointment of Jeffrey L. Gendell as Interim Chief Executive Officer, effective as of July 31, 2020, and the resignation of Gary S. Matthews as Chief Executive Officer and a Director of the Company, effective as of July 31, 2020. Mr. Matthews is expected to receive severance benefits that are materially consistent with those described in the Company’s executive severance plan and his employment agreement.