IES Holdings Inc (IESC) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Integrated Electrical Services first quarter earnings call. During today's presentation, all parties will be in a listen-only mode. This conference is being recorded today, Wednesday, February 10, 2010.

I would now like to turn the conference over to Ken Dennard. Please go ahead, sir.

Thank you and good morning, everyone. We appreciate you joining us for IES's conference call today to review fiscal 2010 first 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 the call over to management, I'd like to run through the normal details. If you did not receive an email and the news release yesterday afternoon, please call our offices at DRG&E. That number is 713-529-6600. Please give us 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 on the Company's website. There's a telephonic instant replay available for the next seven days and the information on how to access that is in the press release.

You are encouraged to download the slide deck, which is a PDF format on the website and you can -- it corresponds with today's presentation. And of course, the website is www.ies-co.com and it's on the Investors Relations page. We encourage feedback regarding the quality of this content. If there's anything you'd like to be of value on this deck, please call us at DRG&E. Also, please note that information reported on this call speaks only as of today, February 10, 2010, 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'll come back and provide greater detail related to forward-looking statements that may be on this call.

General information about IES can be found on the Company's website under Investor Relations, in the Company's report on Form 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 free of charge through the website as soon as reasonably practical after filing with the SEC.

Now with me this morning is Michael Caliel, Chief Executive Officer, and Randy Guba, Chief Financial Officer. I'd now like to turn the call over to Mike.

Thanks, Ken. Good morning, everyone, and welcome. We thank you for joining us today to review our fiscal 2010 first quarter results. I'll start by referencing slide three in the presentation material. And let me begin by saying that it's only been a brief two months since we updated you on our fourth quarter call, and not a lot has changed with respect to the markets.

Clearly, the effects of the economic slowdown on the construction industry have not abated. When we began our first quarter, we expected the markets we served to begin to at least stabilize, and in some cases, even begin to recover in 2010. However, according to industry data published by McGraw-Hill, forecasts for the non-residential construction market in 2010 were shifted downward during the last quarter. So the construction sector remains extremely challenging and subject to many forces that are outside of our control. So we, therefore, are focused on what we can control -- our cost base, how effectively we execute, and driving our orders.

As we've discussed on previous calls, over the last three years, we've strategically restructured the Company, resulting in a stronger organization with improved processes and improved systems, better operational performance, a lower cost structure, and an enhanced platform for growth. We took a two-step approach and have completed two major operational restructuring programs.

First, we restructured our operations from the previous geographic structure into three major lines of business -- Commercial, Industrial and Residential. This was part of our long-term strategic plan to reduce our cost structure to reposition the business to better serve our customers; to strengthen financial controls; and to position us to implement a market-based growth strategy.

At the completion of this first phase, we had reduced our cost structure by approximately $20 million. In fiscal 2009, we implemented the second phase of our restructuring program, which was the next level of our business optimization strategy and design to consolidate operations within our three business segments. And by the close of fiscal 2009, we had reduced our cost structure by another 10%. During fiscal 2009, we also refined our go-to-market strategy and made strategic investments in key areas of the business.

Now in addition, as a result of the ongoing effects of the recession, we implemented a more extensive cost reduction program during the third quarter, whereby we consolidated our Commercial and Industrial groups into one business segment. And we now manage and measure the performance of our businesses in two distinct operating segments -- a Commercial and Industrial segment, and a Residential segment.

By the end of 2009, our restructuring was essentially complete and we're confident that the actions we've taken over the past three years position us well for this year and beyond. And before I turn the call over to Randy to review the financials in detail, I'll make a few comments about the quarter.

First, despite lower consolidated revenues in the first quarter, our gross profit increased again this quarter, as we continue to execute more effectively as a result of previous investments we've made in systems and processes, especially our project management operating system. And as a result of our ongoing efforts to reduce our cost base, our SG&A expense level for the first quarter puts us well below our targeted annual run rate for the year. That implies that we'll beat our previously stated goal of $85 million to $90 million.

We continue to closely monitor the market and tightly manage our costs; and given the current market environment, expect to drive our SG&A expenses even lower throughout this year.

Our backlog for the first quarter was considerably lower than the first quarter a year ago. That's due primarily to weaknesses in some end markets, a competitive environment, and the fact that we remain selective in our pursuit of new work. However, our backlog is essentially flat versus the previous quarter.

Our pipeline of opportunities is encouraging and it continues to grow. This is due to the investments we've made in sales resources, and our refined strategy to identify and target projects where we can differentiate ourselves and our capabilities.

Let me again emphasize that we have been strategically selective in the work we pursue, and we have in place a very disciplined business development approach to manage the profitability and the credit risk of new business. However, we're still seeing cancellations and delays due to financing issues and other uncertainties in the marketplace.

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

Thanks, Mike. Revenues for the fiscal 2010 first quarter were $120 million compared to $173 million in last year's first quarter, a decline of 31%. Declining revenues was attributable to declines in construction activity in both of our business segments, reflective of the current challenging economic environment and nationwide decline in construction activity. Revenues in each of our business segments declined compared to the first quarter a year ago.

Our Commercial and Industrial segment experienced a revenue shortfall, as most industry sectors continued to reduce, delay or cancel proposed construction projects, including office buildings, hotels and retail projects, due to the continued weak economy and tight credit markets.

We have also experienced increased competition from residential contractors who have been affected by the housing slowdown, particularly for less specialized work in a lower -- in the retail work in a lower barriers to entry. Our Residential segment had lower revenues, primarily due to the ongoing nation-wide decline in both single-family and multi-family housing construction.

We attribute the majority of this decrease to reductions in building activity throughout the markets we serve, with the remaining portion of the decline attributable to adverse weather conditions in certain core markets during the quarter, as well as the effect of intense market competition and pricing pressure. There was a continued decline in demand for single-family homes during the quarter, particularly in the southern California, Arizona, Nevada, Georgia and Texas. And the multi-family housing construction market realized declines for the first time in 2009 as certain projects were deferred or canceled while awaiting financing.

While we had a 31% decline in consolidated revenues, our gross profit declined 29% to $20 million from $28 million last year, as our gross profit margin increased to 16.6% from 16.2% in the first quarter of fiscal 2009.

Sales, general and administrative expenses for the fiscal 2010 first quarter declined 33% to $19 million from $29 million in the first quarter of fiscal 2009. The year-over-year reduction in SG&A is primarily the result of our restructuring efforts and ongoing cost containment program. As a percentage of revenues, SG&A expenses dropped to 16% in the first quarter compared to 16.7% in the first quarter a year ago.

As Mike mentioned, our restructuring was essentially complete by fiscal year-end 2009. However, during the first quarter of fiscal 2010, we incurred restructuring charges that reflect previous actions, including severance benefits, and facility consolidations and closings of $698,000. This compares to $483,000 in restructuring charges recognized in the first quarter of fiscal 2009. Also, we expect to record additional restructuring charges of approximately $0.5 million to $1 million over the balance of the fiscal year, as a result of the actions taken previously as part of our expanded 2009 restructuring plan.

Income from operations in the first quarter was $21,000, which includes restructuring charges compared to a loss from operations of $1.3 million, which includes restructuring charges in the first quarter a year ago. Net loss from continuing operations was $815,000 or $0.06 per share, which includes after-tax restructuring charges of $0.05 per share. This compares to net loss from continuing operations of $1.2 million or $0.08 per share, which includes after-tax restructuring charges of $0.02 per share for the first quarter a year ago.

EBITDA from continuing operations for the fiscal 2010 first quarter was $1.5 million compared to $800,000 for the first quarter a year ago. We believe that EBITDA, a non-GAAP number, is a useful metric to provide investors comparable numbers to peer companies. We provided a full reconciliation of EBITDA to net income in the first quarter earnings release.

Now I'll give you a bit of insight into our segment data. If you turn to slide five, first quarter revenues for Commercial and Industrial work declined to 29% to $91 million from $128 million a year ago, reflecting the weak construction environment nationwide. Many sectors within this group continue to be negatively impacted by delays or canceled construction projects, or projects reduced in scope, as well as increased competition during the quarter. Gross margin in our Commercial and Industrial group increased to 14.3% from 13.9% in the first quarter of fiscal 2009, reflecting improved project execution resulting from enhanced cost controls and improvements in productivity.

Turning to slide six, first quarter revenues in our Residential group declined 36% to $29 million from $45 million a year ago, due to the slowdown in both single and multi-family housing construction. Residential gross margin improved again this quarter, rising to 23.6% from 22.5% the first quarter a year ago. This gross margin increase is mainly attributed to improved project execution, particularly in multi-family, and our ability to more effectively manage labor costs to meet project demands, despite an increase in material costs in our single-family business during the quarter.

Now turning to slide seven, total backlog was $237 million, a year-over-year decline of $82 million or 26%, and essentially flat from the previous quarter. Commercial and Industrial segment backlog decreased year-over-year by approximately $55 million, or 20%. Residential segment backlog decreased year-over-year by $27 million or 61%. We do not include single-family housing or time and material work in backlog.

Now turning to slide eight, as of December 31, 2009, IES had total liquidity of approximately $62 million, which consisted of $55 million of cash on-hand and approximately $7 million of available revolver. Working capital was $122 million and long-term debt was $26 million. The Company also had a $60 million revolving credit facility to facilitate the letters of credit.

Now I'll turn the call back to Mike.

Thanks, Randy. As I've mentioned before, we are enthusiastic about the growing renewable energy infrastructure markets and we continue to expand into the area of alternative energy. On the last call, I mentioned that we had completed a large project with a national homebuilder in Las Vegas for an entire solar-powered community of nearly 200 homes.

During the first quarter, we completed work on a 1.8 megawatt solar project constructed on nearly 14 acres in New Jersey. The photovoltaic installation is equipped with more than 25,000 thin film modules and will supply 50% of the facility's electrical needs under the terms of a 25-year power purchase agreement. We believe projects such as these are tangible proof of the success of our portfolio diversification efforts.

Again, I'll stress the importance of our safety program here at IPS. Safety is at the foundation of our culture, and our employees are steadfast in their commitment to implementing programs and procedures that bring about exceptional safety performance.

We have an impressive history of safety awards here at IES, and just last week, the Company was presented the prestigious Associated Builders and Contractors National Safety Excellence Award for 2009. IES was among only 23 winners to receive a merit award from ABC's membership of more than 25,000 contractor members. This award is considered one of the premier measures of a Company's safety performance, and all of us at IES recognize the importance of worksite safety as a successful completion of construction projects.

So to summarize where we are today. The major challenges for us are mainly the market and, as a result, our volume. And clearly, we can't control the market; therefore, we're focusing on what we can control -- our cost base, how effectively we execute, and driving our orders.

As I said earlier, the construction markets continue to be extremely challenging. We've spoken about the weak residential market for several years and the nonresidential construction markets have also continued to deteriorate. During this severe downturn in our markets for both residential and nonresidential construction, we have essentially completed the restructuring and transformation of IES, and believe the business is well-positioned to navigate the current economic and market conditions.

We believe that our restructuring programs and aggressive cost reduction actions will create significant operating leverage as the market recovers. Of course, as I indicated earlier, we'll continue our ongoing efforts to aggressively manage our costs and further reduce them as the market conditions warrant.

As always, we appreciate your interest and we look forward to speaking to you again on our fiscal 2010 second quarter conference call. Thanks very much, and back to Ken.

Thanks, Mike. 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 27A of the Securities Act of 1933, and Section 21E 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 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 estimated future operating results and the Company's ability to generate sales and operating income; potential defaults under credit facility and term loan; cost 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 a controlling stockholder's decision to pursue a disposition of its interest in the Company; fluctuations in operating results because of downturns in the level of construction; delayed project start dates and project cancellations resulting from adverse credit and capital market conditions that affect the cost 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 ineffectiveness of liens; inaccurate estimates used in entering into contracts; inaccuracies in estimated 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 lower revenues; loss of key personnel; litigation risks and uncertainties; difficulties incorporating new accounting, and control and operating procedures, and centralization of 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, 2009, 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 or cash position, or any other 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 Act -- 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 therein and herein.

General information about Integrated Electrical Services, Inc. can be found on the Company's website, ies-co.com under Investor Relations; the Company's annual report on Form 10-K, quarterly reports, and Form 10-Q, and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge at the Company's website as soon as reasonably practical after they are filed or furnished to the SEC.

With that, that concludes our call. Thank you.

Ladies and gentlemen, this concludes the Integrated Electrical Services first quarter earnings call. You may now disconnect and thank you for using AT&T teleconference.