IES Holdings Inc (IESC) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Integrated Electrical Services fourth quarter earnings conference call. During today's presentation, all participates will be in a listen-only mode.

At this time, I would like to turn the conference over to Mr. Ken Dennard with DRG&E. Please go ahead, sir.

Thank you. Good morning, everyone. We appreciate you joining us for IES's conference call today, to review fiscal 2008 fourth quarter and year-end results. We would also like to welcome our internet participants that are listening to the call, as it is being simulcast over the web.

Before I turn the call over to management I have the normal housekeeping details to run through. If you did not receive an e-mail of the news release yesterday afternoon, and you would like to, please call our offices at DRG&E. The number is 713-529-6600, and provide us with your contact information, and we will make sure you are on that list.

Also, as you know, there will be a replay of today's call which will be available on the Company's webcast website archive site. Also there will be a telephonic instant replay available for the next seven days. The information on how to access the replay is in the press release that we released yesterday afternoon.

As a reminder, the Company announced in it's first quarter 2008 earnings call that it has revised the format of it's regularly scheduled earnings call, and is providing a more comprehensive review of results and management's prepared remarks, along with a slide presentation. But it is not an interactive format. Therefore management will not be taking questions at the end of this call.

You are encouraged to download the slide deck, which is in the Adobe PDF format, so you can read along with what corresponds with today's presentation. That slide deck is on the Company's website at www.IES-CO.com on the Investor Relations page in the Events section. We encourage feedback regarding the quality of this content, and if there is any information you think might be valuable in future calls please let us know.

Also, please note that information reported on this call speaks out only as of today, December 16th, 2008, and therefore you are advised that time sensitive information may no longer be accurate at the time of any replay listening. At the end of this call, I will come back and provide greater detail related to forward-looking statements that may be made on today's call.

General information about IES can be found on the Company's website under Investor Relations, in the Company's report on 10-K, quarterly reports on 10-Q, and current reports on Form 8-K, as well as amendments, press releases, et cetera. All are available free of charge through the website as soon as reasonably practical after filing with the SEC. Now with me this morning are Michael Caliel, Chief Executive Officer, and Randy Guba, Chief Financial Officer.

I would like to turn the call over to Mike.

Thank you, Ken. Good morning, everyone. Welcome. We appreciate you joining us today to review our fourth quarter and year-end fiscal 2008 results. Now let me start by saying that we are encouraged by our progress on several fronts. In our Residential segment, with volume down 33% for the full year, our gross margin was up 300 basis points during the same period.

Importantly, our Residential backlog improved somewhat in the fourth quarter and year-over-year, as a result of our increased penetration in the multi-family housing market. We are seeing stabilization in the execution side of our business as well. Last year at this time, we saw margin weakness from some underperforming business units and a handful of legacy projects. We have been able to work through and effectively address these issues, as well as improved controls with several new processes. This resulted in a full-year of improved performance, and no repeat of the problems we experienced in the fourth quarter of last year.

We are continuing to execute in our strategic plan of transforming the business, and are essentially complete with the operational restructuring portion of the plan. We will also continue to reinvest in the business in the form of systems and capabilities that help us get positioned for growth, and of course we will continue to adjust our cost base as market conditions warrant.

As summarized on Slides 3 through 5, since we embarked on our transformation program we have accomplished the following, we have continued to focus on safety exceeding the prior year's solid safety performance, and maintaining an excellent safety record. We are resolute that a culture focused on safety is central to excellence in project execution, and significantly reduces risks to our employees, and consequently costs to the business.

We completed a strategic restructuring of our Commercial, Industrial, and Residential operating segments. The restructuring program has consolidated administrative support functions and eliminated redundant positions that were previously performed at our 27 business units. Since we began this restructuring program in June of 2007, we have recorded a total of $5.6 million of restructuring charges.

We have reduced our overall cost base by approximately $20 million, and repositioned the business to better serve our customers, and to prepare for growth. We reinvested in our business by improving our operating and information systems and processes to make us more efficient. We have strengthened financial controls and made significant investments in systems and infrastructure.

We have developed and implemented a comprehensive project management software program across our divisions and in our shared service centers, to standardize our project management and reporting processes, and provide all of our divisions with near real-time visibility into project performance. We have improved the overall capabilities of our work force, and began a leadership development program that is designed to improve the if he effectiveness of our collective decision making to enable a more integrated culture, and to drive improved performance.

We have hired several new key management with leadership responsibility for operations, accounting, corporate finance, budgeting, information technology, employee learning and development, and recruiting. These additions include the hiring of a new Group Vice President for our Industrial business, who has experience managing large of field service engineers, customer service organizations, and inspection and repair services, as well as end manufacturing operations. Jim Robertson has been Vice President of IES Industrial since January, 2008, and he was previously General Manager of Industrial Services at GE Energy.

Also, subsequent to the end of the fourth quarter, we brought on a new Group Vice President for our Commercial business, Tom Vossman joined us. He was previously Senior Vice President and Chief Operating Officer of Insituform Technologies, and also held senior management positions with Encompass Services.

We rebranded our business, as IES Commercial, IES Industrial, and IES Residential, to facilitate our ability to market the Company as a fully-integrated national brand. We renegotiated the terms of the credit facility with Bank of America, eliminating or reducing the covenant requirements, we also extended the term date to May 2010, and recovered $20 million in restricted cash.

In the first quarter of fiscal 2008, we retired our senior secured term loan facility, and issued $25 million of senior subordinated notes under more favorable terms. And we expanded our existing surety facility and established a new co-surety arrangement, more than doubling our bonding capacity to $325 million, from $150 million. We believe this agreement is a further endorsement of our continued progress, and provides us additional flexibility to address the challenges of the current market environment.

Before turning the call over to Randy, let me point out some of the highlights of the fourth quarter, and if you would turn to slide 6. Our adjusted net income from continuing operations excluding restructuring costs and one-time items that Randy will discuss later was $0.4 million, or $0.03 per diluted share for the fourth quarter. This compares to adjusted net loss from continuing operations of $0.8 million, or a $0.05 loss per share, in the fourth quarter of fiscal 2007.

SG&A net of restructuring charges was 14.9% of revenues in the fourth quarter, compared to 14.5% of revenues in the fourth quarter of 2007. Gross margin was 16% compared to 14.6% in the fourth quarter a year ago. Sequentially, gross margin was 16% in the past third quarter. Overall, backlog was up from a year ago at $337 million, and there was an improvement in backlog at our Residential group due to an increase in multi-family housing projects. There was virtually no change in the Commercial group backlog year-over-year, there was however a decline in the backlog in the Industrial group, due to competitive market pressures, and our ongoing project selectivity regarding new business.

Turning to slide 7, as I mentioned earlier, we have an unwavering commitment to safety throughout the organization, and we are pleased to have achieved the following this past year. Our OSHA recordable incidents are down 57%. Lost time incidents are down 57%. Lost and restricted days have been reduced by 76%, and claim costs are down 67%. Several of our businesses in the Industrial and Commercial groups were recognized for Excellence in Safety in 2008, and we are very proud of these achievements.

Let me turn the call over to Randy to review the financial performance in more detail.

Thanks, Mike. As you can see on slide 8, revenues for the fourth quarter of fiscal 2008 were $212 million, compared to $226 million reported in the last year's quarter. The revenue decline was primarily attributable to softness in our Residential business, due to the nationwide decline in demand for single family housing.

Parts of our Commercial group, such as strip centers and other low end Commercial projects, were negatively affected by the housing market pressures. However, we have seen strength in some of the parts of our Commercial business, particularly in significant institutional projects, such as data centers and health care facilities. In addition, revenues in our Industrial group increased from a year ago, consolidated fiscal 2008 revenues were $818 million, compared to $890 million in 2007, an 8% decline.

Gross profit for the fourth quarter was approximately $34 million, or 16% of revenues, compared to approximately $33 million, or 14.6% of revenues last year. This improvement was primarily due to an improvement in gross margin in our Residential group. As Mike mentioned, our Residential business declined 33% in volume in fiscal 2008, yet we added 300 basis points in gross margin during the same period. Looking at the full year comparison our gross profit margin for fiscal 2008 was 16.1%, compared to 16.3% in fiscal 2007.

Turning to slide 9, Sales, General & Administrative expenses for the quarter net of restructuring charges declined to $32 million, or 14.9% of revenues, a net decrease of $1 million in the same period in the prior year where SG&A was 14.5%. As Mike mentioned earlier, the decrease in both overall spending and as a percentage of revenues, was in part due to our strategic efforts to streamline our operations and eliminate redundancies.

For fiscal 2008, SG&A expenses net of restructuring charges dropped by $20 million, or 14% to $117 million. As a percentage of revenues, SG&A expenses were 14.3% in fiscal 2008, compared to 15.4% in fiscal 2007. On slide 10, adjusted operating income for the fourth quarter prior to restructuring and one-time charges was $3.2 million, compared to $200,000 in the prior year quarter.

Fiscal 2008 adjusted operating income prior to restructuring charges was $17.3 million, compared to $8.7 million in the prior year. The charges in the fourth quarter of 2008 include approximately $400,000 in restructuring costs, and approximately $1.1 million in three one-time items. The one-time items included an investment impairment charge, a legal dispute, and a charge related to a supplier dispute.

Net loss from continuing operations was $600,000, or a loss of $0.04 per share in the fourth quarter of fiscal 2008, including the restructuring and one-time charges I just described. Additionally, this loss included a cumulative tax true-up, that resulted in an $843,000 tax expense on a $262,000 pretax earnings. Net loss from continuing operations for the fourth quarter of fiscal 2007 was $1.3 million, or a loss of $0.09 per share, including restructuring charges.

On slide 11, excluding the restructuring and one-time charges, adjusted net income from continuing operations for the fourth quarter of fiscal 2008 was $0.4 million, or $0.03 per diluted share, compared to adjusted net loss from continuing operations of $0.8 million, or a loss of $0.05 per share for the fourth quarter of last year. For fiscal 2008, net income from continuing operations was $1 million, or $0.07 per diluted share in fiscal 2008.

Net loss from continuing operations for fiscal 2007 was $0.6 million, or a loss of $0.04 per share. Excluding restructuring and one-time charges adjusted net income from continuing operations for fiscal 2008 was $5.6 million, or $0.38 per diluted share, this is compared to adjusted net income from continuing operations for fiscal 2007 of $0.3 million, or $0.02 per diluted share.

If you turn to slide 12, you can see that our adjusted EBITDA for continuing operations for the fourth quarter excluding restructuring charges was $2.9 million for the quarter, compared to $2.7 million for the prior year. We believe that EBITDA is a useful metric to provide investors comparable numbers to peer companies. We provided a full reconciliation of adjusted EBITDA to net income in the fourth quarter earnings release.

For the full year, adjusted EBITDA from continuing operations excluding restructuring charges was $23.2 million, compared to $18.2 million last year. We incurred total pretax restructuring charges of approximately $5.6 million over the course of the process, which is now substantially complete.

Now I will give you a little bit of insight into our group data. If you turn to slide 13, fourth quarter revenues from Commercial work increased 4%, to approximately $124 million, at a gross margin of 14.8%. This group was positively impacted by several significant institutional projects, such as university billings and data centers. Full year revenues for our Commercial group were $471 million, compared to $459 million in fiscal 2007, an increase of 3%.

Our Commercial group's gross margin percentage increased to 14.8% in the fourth quarter from 13.1% a year ago, principally the result of cost reductions, due to consolidation and improved supply chain efficiencies. Fiscal 2008 gross margin in our Commercial group was 14.5% compared to 15.4% last year. On slide 14, our fourth quarter revenues for the Industrial group were $33 million, down from $36 million in last year.

Our Industrial group gross margin declined to 14.1%, versus 18.7% last year, as a result of completing several lower margin projects in the fourth quarter this year, in contrast to the completion of several higher margin projects last year. The Industrial market is generally not as cyclical as the rest of the construction industry, due to the nature of the projects, which are often large scale multi-year contracts, financed by large corporations or governmental agencies.

In the 2008 period our Industrial group has seen growth in utility line service projects, as well as increased construction of electrical substations, and alternative energy projects, including ethanol plants and wind farms. For fiscal 2008, our Industrial group's revenues were $132 million, compared to $122 million last year, a 9% increase. Gross margin in the segment was 16.5%, compared to 18% last year.

On slide 15, our Residential group generated revenues of approximately $49 million in the fourth quarter, with a gross margin of 20.6%, compared to $62 million in gross margin of 16.3% last year. The reduction in revenues is due to the well-known drop in demand in the residential sector, particularly single family housing. However, Residential gross margin continued to improve again this quarter, in spite of competitive pressures in the industry.

This increase is primarily attributable to better project execution and improved labor productivity, facility consolidations, as well as increased demand for multi-family housing. For the full year, revenues in our Residential segment were $188 million, compared to $279 million last year, a 33% decline. Gross margin in our Residential segment for fiscal 2008 was 19.5%, compared to 16.5% last year.

Now turning to backlog on slide 16, our backlog at the end of the fourth quarter was approximately $337 million, compared to $361 million at the end of the third quarter, and $333 million at the end of last year. The overall quality of backlog has remained strong quarter-over-quarter, and has improved year-over-year reflecting the Company's ongoing selectivity regarding new business.

The Residential segment experienced sequential improvement backlog, due to an increase in multi-family housing projects. Quarter-to-quarter backlog for both the Industrial and Commercial segments declined, in part to the impacts of the broader economy, and seasonal fluctuations, where a significant portion of the project work is performed in the summer months.

Now turning to slide 17, we ended the year with approximately $65 million in unrestricted cash and cash equivalents, compared to approximately $57 million in the preceding quarter, and $70 million a year ago. We also have approximately $26 million available under our revolving credit facility. For an update on our share repurchase program, as of September 30th, 2008, we have repurchased 584,000 shares (Sic-see press release) of our common stock for $10.4 million, at an average price of $17.73. As of today, we have purchased 886,000 shares totaling $14.4 million, at an average price of $16.19. As you know we have a 10B-51 plan in place, which allows us to purchase during blackout periods.

And finally, subsequent to the end of our fiscal year we expanded our existing surety facility, and established a new co-surety facility, increasing our capacity to $325 million from $150 million. This agreement is a further endorsement of IES' continued progress and improvement, providing it with additional flexibility to address the challenges of the current market environment.

Now I would like to turn the call back over to Mike.

Thanks, Randy. In December of 2006, we told you that we are going to restructure and resize this business and we have done just that, with the vast majority of the major changes complete, the focus this year will be on returning to growth. Going forward as opportunities arise, we will continue to adjust our business in response to the realities of the marketplace.

In that regard, we have made investments in business development resources, as well as tools and processes, to better manage our pipeline of business. Accordingly we have developed and installed a sales pipeline management tool, to drive visibility and accountability in meeting our growth objectives.

On slide 18, we now have a business that is fundamentally different than it was two years ago. One that is operationally and financially on a footing, that will allow it to navigate more effectively through these challenging times. We are encouraged regarding our performance and our future prospects when we reemerge from these current market conditions. Going forward, our focus is on organic growth, and leveraging the business development resources that we have put in place.

So in summary, we have made significant changes to this business, and as a result, IES is positioned well to deal with the market realities that we face. In the face of reduced revenues, we have built a strong balance sheet with little debt, solid cash performance, and have reduced working capital, and we believe we are poised to weather this downturn. With our strong balance sheet, our enhanced surety relationship, our national presence, and our excellent safety record, we believe our customers will value a company like IES.

As always, we appreciate your interest, and we look forward to speaking with you again on our fiscal first quarter conference call.

Thank you, Mike. Certain statements in this conference call, including statements regarding the restructuring plan, the total estimated charges and cost reductions associated with the plan, are forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, and 21-E of the Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions, that the Company believes to be reasonable as the date hereof.

These statements involve risks and uncertainties that could cause the Company's actual performance to differ materially from those set forth in such statements. Such risks and uncertainties include but are not limited to, the inherent uncertainties related to estimating future operating results, and the Company's ability to generate sales or operating income, potential difficulty in addressing material weaknesses that have been identified by the Company, fluctuations in operating results because of downturns in levels of commercial and residential construction, delayed payments relating from financial difficulties affecting customers, inaccurate estimates used in entering into contracts, delayed payments resulting from financial difficulties affecting customers, inaccurate estimates used in entering into contracts, inaccuracies in estimating revenue, or percentage of completion on projects, the high level of competition in the construction industry, both from third parties and ex-employees, increase in the cost of commodities used in our industry, including steel, copper, plastic, aluminum, and gasoline, weather-related delays, accidents resulting from the the physical hazards associated with the Company's work, difficulty in reducing SG&A, loss of key personnel, particularly Presidents of business units, litigation risks and uncertainties, difficulties in the corporate accounting control and operating procedures, and centralization of back office functions, and disruptions in, and the inability of effectively managing consolidations.

You should understand that the foregoing as well as other risk factors discussed in this call in the Company's Annual Report on Form 10-K for the year ended September 30th, 2008, could cause future outcomes to differ materially from those expressed in such forward-looking statements. The Company undertakes no obligation to publicly update or revise information concerning these restructuring efforts, or any availability or cash position, or any other forward-looking statements to reflect events or circumstances that may arise after the date of this call.

Forward-looking statements are provided in the conference call pursuant to the Safe Harbor, established on the Private Securities Litigation Reform Act of 1995, and should be evaluated in the context of the estimates, assumptions, and the uncertainties and risks described herein. General information about Integrated Electrical Services can be found at the website IES-CO.com under Investor Relations, on the Company's Annual Report of Form 10-Q, and current reports on Form 8-K, as well as amendments to those reports are available free of charge through the Company's website as soon as reasonably practical.

With that, that concludes our call. Thank you.

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and for using ACT Teleconferencing. You may now disconnect.