IES Holdings Inc (IESC) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Integrated Electrical Services first quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. (Operator Instructions). This conference is being recorded today, February 10, 2009.

I would now like to turn the conference over to Mr. Steve Gray 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 2009 first quarter results. We also would like to welcome our internet participants listening to the call, as it is being simulcast over the web. Now before I turn the call over to management, I have the normal details to cover. If you did not receive an e-mail of the news release yesterday afternoon, please call our offices at DRG&E. That number is 713-529-6600 and provide us with your contact information and we'll make sure you're on that list. Also, there will be a replay of today's call, which will be available for going to the company's website for the archived webcast. There is also a telephonic instant replay available for the next seven days, and information on how to access the replay is in yesterday's news release.

As a reminder, the Company announced on its first quarter 2008 earnings conference call that it has revised its format of regularly scheduled earnings call and is providing a more comprehensive review of results and management's prepared remarks along with a slide presentation, but in a non-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 Adobe PDF format so you can read what corresponds with today's presentation, and that is on the Company's website at www.IES-CO.com on the Investor Relations page. We encourage feedback regarding the quality of this content and if there is any more additional information you would value in future calls, please let us know.

Also, please note that information reported on this call speaks only as of today, February 10, 2009, and therefore you are advised that time sensitive information may no longer be accurate as of 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 in 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 form 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 the filing with the SEC. Now with me this morning are Michael Caliel, Chief Executive Officer; and Randy Guba, Chief Financial Officer, and I would now like to turn the call over to Mike.

Thanks, Steve. Good morning, everyone, and welcome. Thanks for joining us today to review our first quarter fiscal 2009 results.

If you would move ahead to slide three, let me start by saying that we are disappointed with our performance in the first quarter, especially with our volume in backlog levels. However, we have made measurable progress in our cost reduction programs and we continue to right size the business to address the current economic environment. It is also important to note that during our 2008 restructuring, we shifted our go to market strategies and in the near term, this adversely affected our backlog, primarily in our Industrial segment. As a reminder, we completed the restructuring of our operations during 2008, integrating 27 companies into three major business segments, Commercial, Industrial, and Residential, and that operational restructuring was part of our long-term strategic plan to reduce our cost structure, reposition the business, and better serve our customers and strengthen our financial controls, and as a result, position us to implement a growth strategy in our targeted markets.

The program consolidated certain leadership roles and administrative core functions and eliminated redundant positions. We began the operational restructuring program in June of 2007, and we recorded a total of $5.6 million in restructuring charges pertaining to that program. During the same period we also removed approximately $20 million from our overall cost base and are now beginning to gain traction from that cost out program. With the restructuring complete, we're beginning to realize benefit from those actions. For example, despite volume declines in all three of our business segments during the first quarter, gross margin improved in both our commercial and residential groups due to better execution, our stability to adjust our labor to meet project demands, along with a stabilization of material costs.

Our focus now is on building backlog and growing the business. In that regard, we have made investments in sales personnel as well as tools and processes to better manage and build our pipeline of opportunities. We believe that this is a unique approach in the electrical contracting marketplace, building a sales model and evolving from a localized opportunistic approach to a more structured method that is based on targeted markets and national strategic relationships. As a result, we are already beginning to see encouraging progress from our sales team, and based on our opportunity pipeline, we believe our backlog will grow in fiscal 2009.

A key element of our transformation involves further optimization within our three business segments, and to that end as well as in response to the current economic environment. in the first quarter we began a new restructuring program designed to further reduce costs and consolidate operations within our three business segments. Our plan in fiscal 2009 is to streamline our local project and support operations. which will be managed through regional operating centers, and to capitalize on the investments we made over the past year to further leverage our resources. Under this restructuring plan. we expect to incur pre-tax restructuring charges of approximately $2 million to $3 million as implemented over approximately 12 months.

Before I turn the call over to Randy, let me point out some of the key aspects of the first quarter. If you would, turn to slide four. Our adjusted net income from continuing operations excluding restructuring costs was $0.2 million or $0.01 per diluted share for the first quarter. This compares to adjusted net income from continuing operations excluding restructuring charges and a debt refinancing prepayment penalty of $1.3 million or $0.09 per diluted share. Our overall gross margin rose to 17.1%, compared to 16.8% in the first quarter a year ago, despite volume declines in all three of our business segments. We have seen weakness in construction nationwide. However, as I mentioned earlier, gross profit margins margins rose in our Commercial and Residential groups primarily due to improved execution, our ability to adjust our labor to meet project demands, as well as the stabilization of material costs.

We reduced SG&A net of restructuring charges by over 5% in the first quarter to approximately $29 million. SG&A as a percent of revenues in it is fiscal '09 first quarter increased to 16.6%, compared to 15.4% in the first quarter of last year as the result of the 12% volume decline. The investments we made during the last fiscal year in systems and organizational capabilities have yielded savings and productivity gains. In light of the difficult market and disappointing first quarter volume, we will certainly continue to remove costs through further consolidation and optimization during fiscal 2009. Our backlog was $319 million at the end of the quarter. This compares to $348 million a year ago. Backlog in our Residential segment actually improved year-over-year due to multi-family housing projects while backlog in the Commercial and Industrial segments declined, primarily due to competitive market pressures, project deferrals, as well as ongoing selectivity regarding new work. Again, the shift in our go to market strategies had an adverse impact on backlog, especially in the Industrial group.

Let me turn the call over to Randy to review some of the financial highlights in more detail.

Thanks, Mike.

As you can see on slide five, revenues for the fiscal '09 first quarter were $173 million compared to $197 million in last year's first quarter. The decline in revenues was attributable to decreases in volume at each of our three business segments, consistent with a nationwide decline in construction activity, along with the changes we drove in our go to market strategy which temporarily impacted volume. In our Commercial group, revenues declined as key sectors began to scale back delay or cancel proposed construction projects including high rise office towers, hotels, and condominiums. Additionally, we continue to see increased competition for residential contractors for less specialized retail oriented commercial work, that typically has lower barriers to entry. However, there are some relatively healthy sectors in this market such as healthcare, institutional, government, and services.

Revenues in our Industrial segment declined as projects have been declined, canceled or are awaiting financing. Also some customers extended holiday shutdowns in response to current economic conditions. Additionally. the shift in our go to market strategy had an adverse impact on sales in the first quarter. Our Residential segment. the revenue decline was primarily attributable to reductions in building activity throughout the markets we serve. and to a lesser extent. to the effect of lower prices in response to the competitive market conditions and falling input prices. Our multi-family business was the bright spot in the segment with revenues rising slightly compared to first quarter of last year. Gross profit for the first quarter was approximately $30 million compared to $33 million in the first quarter of last year. Gross profit margin was 17.1% of revenues compared to 16.8% of revenues a year ago. This improvement in gross margin was due to the better gross margins in our Commercial and Residential groups, once again due to the better execution, our ability to adjust our labor to meet project demands, as well as stabilization of materials costs.

Turning to slide six, sales, general and administrative expenses for the first quarter net of restructuring charges were approximately $29 million compared to $30 million in the same period a year ago, a decline of 5%, as we continue to see the benefits of our restructuring efforts. SG&A expenses as a percentage of revenues were at 16.6% in the first quarter of 2009 compared to 15.4% in the first quarter of fiscal 2008, driven by the lower volume. Our investments in systems and organizational capabilities are reflected in higher headquarters costs, but are more than offset by reductions in our business groups. We'll continue to take out costs to respond to our weaker first quarter volume and expected market weakness. Charges in the first quarter of 2009 included approximately $400,000 in restructuring costs associated with our 2009 restructuring plan. In fiscal 2008 first quarter. we incurred restructuring charges of $1.3 million.

On slide seven adjusted operating income, excluding restructuring charges for the first quarter was $1 million compared to $2.7 million in the prior quarter. Net loss from continuing operations, including restructuring charges was $75,000 or a loss of $0.01 per share in the first quarter of fiscal 2009. This compares to a net loss from continuing operations including restructuring charges and a debt refinancing prepayment penalty for the first quarter of 2008 of $0.9 million or a loss of $0.06 per share. Excluding the restructuring charges, adjusted net income from continuing operations for the first quarter of fiscal 2009 was $0.2 million or $0.01 per diluted share. This compares to adjusted net loss from continuing operations excluding restructuring charges and debt refinancing prepayment penalty of $1.3 million or $0.09 per diluted share for the first quarter of fiscal 2008. You can see that our adjusted EBITDA from continuing operations excluding restructuring charges for fiscal '09 first quarter was $3.3 million compared to $6.4 million in the first quarter a year ago. 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 first quarter earnings release.

Now I will give you a bit of insight into our group data. If you turn to slide eight, first quarter revenues for Commercial work decreased 7% to approximately $102 million. However, the Commercial group's gross margin rose to 15.6% from 14.8% from a year ago as a result of improved project execution, our ability to adjust our labor to meet project demands along with lower input prices such as copper, steel and fuel. On slide nine our first quarter revenues for the Industrial group declined 19% from a year ago to approximately $26 million. The Industrial group's gross profit margin declined to 13.3% versus 18.3% a year ago, primarily due to lower project volumes and a mix of projects with lower risk and lower margins. Last year's gross margin also reflected a closeout of several particularly well executed projects. On slide ten revenues in our Residential Group did he lined 18% to approximately $45 million in the first quarter. However, in spite of competitive pressures in the industry and revenue declines, Residential gross margins continued to improve this quarter, rising to 22.8% from 19.7% a year ago. This increase is primarily attributable to improved execution in our multi-family division, our ability to adjust our labor to meet project demands as well as stabilization of material costs.

Now turning to slide 11, our backlog at the end of the first first quarter was approximately $319 million compared to $337 million at the end of the fiscal 2008 and $348 million at the end of the first quarter a year ago. The overall quality of the backlog has remained strong quarter over quarter. and has improved year to year reflecting the Company's ongoing selectivity regarding new business. Once again. our backlog was impacted by the shift in our go to market strategies and the transition to a new sales model. Now turning to slide 12, we ended the first quarter with approximately $49 million in unrestricted cash and cash equivalents compared to approximately $65 million in the preceding quarter and $36 million a year ago. We also have approximately $6 million available under our revolving credit facility for liquidity, totaling approximately $55 million. Total debt was approximately $29 million at the end of the quarter. We believe we have adequate liquidity to meet the Company's operating needs. For an update on share repurchase program, as of December 31, 2008, we have repurchased a total of 886,000 shares of our common stock for $14.4 million and at an average price of $16.24. As you know, we have a 10B5-1 plan in place which allows us to purchase during blackout periods.

Now I will turn the call back to Mike.

Thanks, Randy. If you would move to slide 13. It is important to note that we have made significant changes to the business over the last eighteen months. In 2007, we announced a restructuring program designed to align our business with a markets we serve and in order to position us for growth and to consolidate into three business segments. Additionally, we invested in systems to better support our operations and as a result removed approximately $20 million in costs during our last fiscal year. As you would expect, we continue to drive cost reductions in our structure as we enter another restructuring phase to further consolidate operations within our three business segments.

This is the next logical step as we move to optimize the business within each segment and further improve our execution and address the current market environment. We have shifted our go to market strategy, and established a new sales model, shifting from a local opportunistic market approach to a more structured method based on targeted markets and national strategic relationships. This will enable to us build and better manage our pipeline of opportunities and as a result, we're beginning to see encouraging progress from our sales team, and based on our opportunity pipeline, we believe our backlog will grow in fiscal 2009.

We believe the substantial changes we made to the business combined with our strong financial condition, our expanded surety capacity, our national presence, our excellent safety record, and new sales capabilities enable us to weather the current economic environment and position us for the anticipated increases in infrastructure spending over the coming years. As always. we appreciate your interest, and we look forward to speaking with you again on our fiscal second quarter conference call.

Thank you, Mike.

To close out the call, I will make some forward-looking statements. Certain statements in this conference call including statements regarding the restructuring plan and total estimated charges and cost reductions associated with the plan are forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities act of 1934 all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. These statements involve risks and uncertainties that could cause the Company's actual future outcomes to differ materially from those set forth in such statements.

Such risks and uncertainties include but are not limited to the inherent uncertainties related to estimating future operating results, and the Company's ability to generate sales or operating income. Fluctuations in operating results because of downturns and levels of commercial and residential construction, delayed payments resulting 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, in-accuracies 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 physical hazards associated from the Company's work, difficulties in reducing SG&A, loss of key personnel, particularly Presidents of business units, litigation risk and uncertainties, difficulties in incorporating accounting, control, and operating procedures, and centralization of back office functions and disruptions and/or the inability to effectively manage consolidation.

You should understand that the foregoing as well as other risk factors discussed in this call and in the Company's annual report on form 10-K for the year ended September 30, 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 barring availability or cash position or any other forward-looking statements to reflect events or circumstances that may arise from the date of this call. Forward-looking statements are provided in the conference call pursuant to the Safe Harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in context of estimates, assumptions, uncertainty and risks described herein. General information about Integrated Electrical Services, Inc. can be found at the company's website, www.IES-CO.com under Investor Relations. The Company's annual report and form 10-Q, and our current reports Form 8-K as well as any amendments to those reports. They're available free of charge to the company's website as soon as reasonably practical after they are filed or furnished to the SEC. With that, that concludes our call.

Ladies and gentlemen, thank you so much for your participation today. That does conclude the Integrated Electrical Services first quarter earnings conference call. You may now disconnect.