IES Holdings Inc (IESC) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Integrated Electrical Services third 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, Tuesday, August 11, 2009. I would now like to turn the conference over to Karen Roan of DRG&E. Please go ahead.

Thank you, Britney. Good morning, everyone. We appreciate your joining us for IES' conference call today to review fiscal 2009 third quarter results. We would also like to welcome our internet participants listening to the call as it is being simulcast over the web.

Before I turn call over to management I have the normal details to cover. If you did not receive an e-mail of the news release yesterday, please call our offices at DRG&E, and that number is 713-529-6600. Please 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 by 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 earnings release. You're also encouraged to download the slide deck which is in PDF format so that 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's any information you might -- that might be of value to you in the future, please let us know.

Also, please note that information reported on this call speaks only as of today, August 11, 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 on today's call. General information about IES can be found on the company's website under Investor Relations, in the companies 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 filing with the SEC. Now with me this morning are Michael Caliel, Chief Executive Officer and Randy Guba, Chief Financial Officer. I would now like to turn the call over to Mike.

Karen, thank you. Good morning everyone. Welcome. We thank you for joining us today to review our fiscal 2009 third quarter results. If you would, move to slide three.

We continued down the path of transforming the company in the third quarter, and we are encouraged with certain aspects of our third quarter performance; however, we clearly have more to accomplish. Gross profit margin increased again this quarter as our execution continues to improve because of our investments in systems and processes. We're also starting to see some benefit from our restructuring efforts in the form of reduced SG&A expenses as well as realizing results from investments in our sales team and our refined go-to-market strategy. We saw a sizeable increase in orders in our commercial group during the third quarter reflecting our progress in our new business development focus.

Our two largest business segments performed well during the quarter in spite of the challenging economic environment. The commercial group improved its gross margin and reduced its SG&A expenses even with lower volumes. That resulted in a substantial improvement in its contribution to operating income. In the Residential group, revenues were lower, but gross margins improved substantially. In contrast, our industrial group continued to experience considerable impact from the difficult economy during the quarter.

Now we are mindful of the challenging effect of the economy on our overall business and remain focused on driving down costs, improving our backlog as well as growing our top line. Therefore, we announced the significant expansion to our previously announced 2009 restructuring plan. This more robust cost cutting program is comprised primarily of reductions in corporate personnel and the consolidation of our commercial and industrial business segment into one operational unit. This expansion of our current restructuring program, combined with our earlier cost reductions and restructuring is expected to reduce overall SG&A substantially. Now to put this in perspective, in fiscal 2007, the year we began our initial restructuring, SG&A was approximately $138 million. We estimate SG&A of approximately $113 million in fiscal 2009 and are targeting SG&A of $85 million to $90 million in fiscal 2010. We're able to take this further step as our previous consolidations and system upgrades have established a platform that can now be leveraged. Thus, with the right operating model, systems and people in place, we're well poised to ratchet down our SG&A expenses.

We're making progress despite the challenging market environment and believe with the additional restructuring actions announced, the business is well positioned to navigate the current market challenges and capitalize on the economic recovery as it occurs. Now let me turn the call over to Randy to review the financial performance in much more detail.

Thanks, Mike. As you can see on slide four, revenues for the fiscal 2009 third quarter were $172 million compared to $214 million last year's third quarter, a decline of almost 20%. The decline in revenues was attributable to lower construction activity in all three of our business segments reflective of the current challenging economic environment. Revenues in all three segments declined comparable to a year ago consistent with a nationwide decline in construction.

In our commercial group, many of our divisions experienced revenue shortfalls as most industry sectors have begun to reduce, delay or cancel proposed construction projects including high rise office towers, hotels, condominiums and casinos. This segment was also impacted by reduced demand for light construction projects such as restaurants, movie theatres and local shopping centers which are correlated to the slowdown in housing. We've also experienced increased competition from residential contractors who have been affected by the housing slowdown for less specialized retail work with lower barriers to entry; however, despite national trends, some of our commercial divisions reported considerable revenue increases during the quarter, which partially offsets the revenue decline. We attribute these increases to progress in our business development strategy along with our strong financial position which gives us the ability to obtain surety bonding.

Our industrial group continued to experience significantly lower demand and reduced construction activity in this market. Industrial market conditions continue to be challenging, reflecting the current difficult economic and credit climate, which has resulted in delayed starts, project deferrals or cancellations. In our residential segment, the revenue decline was primarily attributable to the ongoing weakness nationwide for both single and multi-family housing construction. The slowdown in single family construction continued in the third quarter and in addition, we began to see declines in multi-family construction for the first time in 2009, primarily due to the deferral of certain projects as they await financing or are cancelled. We attribute the majority of this decrease to reductions in building activity with the remaining portion attributable to the effect of lower prices in response to the competitive market conditions and falling input prices that have impacted the prices that we can pass along to our customers. The first six months of fiscal 2009 total revenues were $513 million compared to $607 million in the first nine months of fiscal 2008. Despite the double digit decline in consolidated revenues in the third quarter, gross profit declined by only 6% to $32 million from $34 million in the third quarter of last year. Our overall gross profit margin rose to 18.8% of revenues compared to 16.0% of revenues a year ago. This reflects improved project execution and in a large part, to our investments and our proprietary project management system, the training of our personnel as well as the effect of reduced input prices.

Gross profit for the first nine months of fiscal 2009 was $92 million compared to $98 million in the same period of fiscal 2008. Gross profit margin for the above mentioned periods was 17.9% and 16.2%, respectively. Turning to slide five, sales general and administrative expenses, including restructuring and other one-time charges for the third quarter were $27.3 million compared to $28.9 million in the third quarter of fiscal 2008, a decline of 6%. Excluding these charges, SG&A expenses in the quarter were $26.2 million compared to $29.1 million in the third quarter of last year, a decline of 10%. Reduction in SG&A, excluding restructuring and other one-time charges in this year's third quarter is primarily due to ongoing restructuring efforts. These SG&A expense reductions have been partially offset by increased investments related to providing support for the new systems we implemented during 2008.

SG&A expense as a percentage of revenues, excluding restructuring and other one-time charges, were 15.2% in fiscal 2009 third quarter compared to 13.7% in the third quarter a year ago due to the lower revenues in this years third quarter. SG&A expenses, including restructuring and other one-time charges for the first nine months of fiscal 2009 were $87.6 million compared to $90.1 million in the same period in fiscal 2008, a 3% decline. SG&A expenses, excluding restructuring and other one-time charges were $82.2 million for the first nine months of 2009 compared to $89 million in the same period last year, a 7.5% decline. As a percentage of revenues, SG&A expenses, excluding restructuring and other one-time charges were 16% in the first nine months of fiscal 2009 compared to 14.7% in the first nine months in fiscal 2008.

On slide six, adjusted operating income excluding restructuring and other one-time charges of $1.5 million for the third quarter was $6.7 million. This compares to $6.5 million excluding restructuring and other one-time charges of $1 million in the fiscal 2008 third quarter. For the first nine months of fiscal 2009, adjusted operating income, excluding restructuring and other one-time charges of $4.5 million ,was $9.1 million. This compares to adjusted operating income excluding restructuring and other one-time charges of $4.2 million, up $12.3 million in the same period of fiscal 2008.

Net income from continuing operations including restructuring and other one-time charges was $1.5 million or $0.10 per diluted share in the third quarter of fiscal 2009. This compares to net income from continuing operations including restructuring and other one-time charges of $2.3 million or $0.15 per diluted share for the third quarter a year ago. Excluding restructuring and other one-time charges, adjusted net income from continuing operations for the third quarter of fiscal 2009 was $2.8 million or $0.19 per diluted share. This compares to adjusted net income from continuing operations excluding restructuring and other one-time charges of $3 million or $0.20 per diluted share for the third quarter of fiscal 2008. Net income from continuing operations in the first nine months of fiscal 2009 was $200,000 or $0.02 per diluted share which includes restructuring and other one-time charges. Net income from continuing operations for the first nine months of fiscal 2008 is $1.6 million or $0.11 per diluted share including restructuring and other one-time charges. Excluding restructuring and other one-time charges, adjusted net income for continuing operations for the first nine months of fiscal 2009 was $3.4 million or $0.24 per diluted share compared to adjusted net income from continuing operations for the first nine months of fiscal 2008 of $5.1 million or $0.33 per diluted share.

Our adjusted EBITDA from continuing operations excluding restructuring and other one-time charges in fiscal 2009 third quarter was $6.4 million compared to $8.3 million in the third quarter a year ago. Adjusted EBITDA from continuing operations excluding restructuring and other one-time charges for the first nine months of fiscal 2009 was $12.3 million compared to $20.2 million for the same period a year ago. We believe that adjusted 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 third quarter earnings release.

Now I'll give you a bit of insight into our segment data. If you turn to slide seven, third quarter revenues for commercial work decreased approximately 9% to $115 million from $126 million a year ago, reflecting the challenging economic environment. As I indicated earlier, many sectors within this group were impacted by reduced, delayed or cancelled construction projects as well as increased competition during the quarter. However, our commercial group's gross margin rose to 16.9% from 13.8% a year ago. This margin improvement is primarily due to a combination of enhanced cost controls and increased profitability on projects largely resulting from the project management operating system initiative that we implemented over the past year along with lower material and fuel prices. Year-to-date revenues for the commercial group were $332 million compared to $347 million in the same period last year. Gross profit margin for the segment was 16.4% compared to 14.3% for the first nine months of fiscal 2008.

On slide eight, our third quarter revenues for the Industrial group declined 39% from year ago to $20 million from $33 million. Conditions of this segment continue to be challenging during the quarter as the result of the tough economic climate. Industrial group gross profit margin decreased to 17.2% versus 19.2% in the third quarter a year ago reflecting reduced volumes and a mix of work performed at lower margins as compared to a year ago. Revenues for the industrial segment for the first nine months of fiscal 2009 were $64 million compared to revenues of $99 million in the first nine months of fiscal 2008. Industrial group gross profit margin was 15.4% in the first nine months of 2009 compared to 17.2% in the same period of fiscal 2008.

On slide nine, revenues in our Residential group declined 32% to approximately $38 million in the third quarter from $55 million a year ago as the housing sector continued to be weak; however, in spite of the revenue decline, residential gross margin improved substantially this quarter rising to 25.4% and 19% a year ago. This gross margin increase is mainly attributable to improved execution, particularly in multi-family, stabilization of material costs, and our ability to better adjust our labor to meet project demands. Revenues for the Residential segment for the first nine months of fiscal 2009 were $117 million with a gross margin of 23.6% compared to revenues of $161 million with a gross margin of 19.6% in the same period a year ago.

Now turning to slide 10, our backlog at the end of the third quarter was $289 million compared to $297 million in the previous quarter and to $367 million in the third quarter of fiscal 2008. Total backlog declined $78 million year-over-year with the commercial segment being the most impacted by continued competitive market dynamics, project deferrals and ongoing project selectivity. During the same period, the industrial segment backlog increased year-over-year by approximately $5 million while the Residential segment decreased $17 million. Sequentially, total backlog declined $8 million with the Commercial segment posting a backlog increase while both the Industrial and Residential segments experienced declines.

Now turning to slide 11, we ended the third quarter with approximately $61 million in unrestricted cash and cash equivalents compared to approximately $52 million in the preceding quarter and $57 million in a year ago. There's $11.8 million available under our revolver, liquidity totaled approximately $72 million at the end of the third quarter. Total debt was approximately $30 million as of the end of the third quarter and I believe we have adequate liquidity to meet the company's operating needs. For an update on our share repurchase program as of June 30, 2009, we've repurchased a total of 886,000 shares of our common stock for $14.4 million at an average price of $16.24. We have a 10 B5-1 plan in place which allows us to purchase during blackout periods.

Our financial statements for the third quarter include the after-tax impact of approximately $200,000 in non-cash benefits that represent the correction of a prior period accounting error. This adjusted impacted fixed assets and related depreciation resulting from our migration to an improved fixed asset accounting system. This activity was part of our ongoing effort to strengthen internal controls. We determined that an estimated $100,000 of the errors represented charges related to the fiscal year ended September 30, 2008 and approximately $300,000 of benefits related to the second quarter of fiscal 2009 on an after-tax basis. These corrections are reflected on a pre-tax basis in SG&A expenses to include a charge of an estimated $200,000 and a benefit of approximately $600,000, respectively. We concluded a restatement was not necessary as we determined these adjustments were not material. This conclusion is based on current internal forecasts of fiscal 2009 operating results as well as actual fiscal 2008 operating results. Actual results for fiscal 2009 could differ from those forecasted and result in a different conclusion. Now I'll turn the call back to Mike.

Thanks, Randy. Before closing, I want to highlight our safety program here at IES. As we've said before, safety is a core value for us at IES. We recognize the important correlation between safety and project performance, customer satisfaction and the well being of our employees, customers & partners. As an example of this committment, IES Commercial recently achieved the prestigious platinum safety level rating through the Associated Builders and Contractors Safety Training and Evaluation Process program. Awarded to less than 2% of contractors nationally, this award demonstrates our achievement and ongoing companywide committment in the area of safety performance.

Now going to slide 12. Let me again point out that we've made significant changes to the business over the past two years. Our restructuring efforts are designed to align our business with the markets we serve in order to position us for growth. And with the cost reductions we just announced in our corporate center and the consolidation of our Commercial and Industrial business segments, we believe that we're right sized and organized properly to compete effectively in our current markets. We're continually improving our execution across the entire business and enhancing our performance and profitability. We're mindful of the challenging effect of the economy on our overall business and remain focused on driving down costs, improving our backlog and growing our top line. We believe the substantial changes we've made to the business combined with our strong financial condition, our surety capacity, our national presence, our excellent safety record and the new sales capabilities well position us to navigate the current market challenges and capitalize on the economic recovery as it occurs. As always, we appreciate your interest and we look forward to speaking with you again on our fiscal fourth quarter conference call. Back to Karen.

Certain statements in this conference call, including statements regarding the restructuring plan and total estimated charges and cost reductions associated with this plan are forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933 and Section 21-E of the Securities and Exchange 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 relating to estimated future operating results and the company's ability to generate sales and operating income, potential defaults under credit facility and term loans, cross-defaults under surety agreements, potential depression of stock price triggered by the potential sale of controlling interest or the entire company as a result of controlling stockholders' decision to pursue a disposition of its interest in the company, fluctuations in operating results because of downturns in levels of construction, delayed project start dates and project cancellations resulting from adverse credit and capital market conditions that affect the costs and availability of construction financing; delayed payments resulting from financial and credit difficulties affecting customers and owners, inability to collect monies owed because of the depressed value of projects and the ineffectiveness of liens, inaccurate estimates used in entering into contracts, inaccuracies in estimating revenue and percentage of completion on projects, the high level of competition in the construction industry, both from third parties and former employees, weather related delays, accidents resulting from the physical hazards associated with the company's work, difficulty in reducing SG&A to match lowered revenues, loss of key personnel, litigation risks and uncertainties, difficulties incorporating new accounting, control and operating procedures and centralization in back office functions and failure to recognize revenue from work that is yet to be performed on uncompleted contracts and/or from work that has been contracted, but not started due to changes in contractual commitments.

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 its restructuring efforts, borrowing availability, for cash position or any forward-looking statements to reflect events or circumstances that may arise after the date of this conference call. Forward-looking statements are provided in this conference call pursuant to the Safe Harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties, and risks described herein. General information about Integrated Electrical Services can be found at the company's website, that's www.ies-co.com under Investor Relations, the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports. These are available free of charge through the company's website as soon as reasonably practical after they are filed with or furnished to the SEC. With that, that concludes this call.

Thank you. Ladies and gentlemen, this concludes the Integrated Electrical Services third quarter earnings conference call. If you'd like to listen to a replay of today's call, please dial 303-590-3030 and enter the access code of 4124359 followed by the pound sign. Thank you for your participation. You may now disconnect.