IES Holdings Inc (IESC) 2010 Q2 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Integrated Electrical Services, Inc. second quarter earnings conference call. During today's presentation all participants will be in a listen-only mode. This conferences being ordered today, Tuesday, May 11th, 2010. I would now like to turn the conference over to Karen Roan with DRG&E. Please go ahead, ma'am.

Thank you, Brandy. Good morning everyone. We appreciate your joining IES conference call today to review fiscal 2010 second quarter results. We would also like to welcome our internet participants listening to the call as it is in simulcast live over the web. Before I turn over to the call to management I have the normal details to cover. If I did not receive an email news release yesterday please call our offices at DRG&E. That number is 713-529-6600. Please provide us with your contact information and we will make sure you're on the 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 that replay is in yesterday's earnings release. You are also encouraged to download the slide deck, which is in PDF format, so that you can read what corresponds today presentation. Is that on the Company's web site at www.ies-co.com on the Investor Relations page. Also, please note that information reported on this call speaks only as of today, May 11th, 2010 and, therefore, you are advised that time sensitive information may no longer be accurate as of the time of any replay.

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 occupied 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 web site as soon as reasonably practical after filing with the SEC. Now with me this morning or Michael Caliel, Chief Executive Officer, and Terry Freeman, Chief Financial Officer. I would now like to turn over the call to Mike.

Karen, thank you and good morning everyone and welcome. We thank you for joining us today to review our fiscal 2010 second quarter results. Let me begin by introducing Terry Freeman, our new Chief Financial Officer who joined IES at the end of March. We're delight today have Terry as a member of our support management team. He brings to IES a broad financial experience ranging from strategic planning to the implementation of processes to strengthen operation at accountability and maximize profitability. We look forward to benefiting from Terry's extent of experience as we capitalize on improving economic conditions as they occur and move forward in the execution of our strategy for growth.

Now, if you would reference slide three in the slide deck, our fiscal second quarter results from clearly disappointing with declines in construction activity in both of our business segments. Our end markets, both commercial and industrial and residential construction, continue to be weak and we experience margin pressure in the quarter. In addition, the winter months are historically a difficult period for us seasonally, which was exacerbated by the week market conditions. The economic environment is still difficult, as many projects have been delayed or deferred while awaiting financing or canceled all together and this is having a measurable incompetent participating on our Commercial and Industrial segment as well as our multi-family housing business. In addition, our operations were hindered by some adverse weather in January and February, mainly in the north eastern US and in part of the south. While we're disappointed by our volume in the second quarter, we are somewhat encouraged by our pipeline of opportunities and the positive movement in our backlog. This is a result of the investments we made in sales resources and our strategy to identify and target projects where we can differentiate ourselves and our capabilities.

We have in place a disciplined business development approach to manage the profitability and the credit risk of new business. While we continue to be strategically selective in the work we pursue, our second quarter backlog actually increased 6% from the first quarter. This follows our first quarter backlog that appeared to show some signs of stabilization as it was flat sequentially. As we navigate that true these challenging times, we continue to implement more efficient and effective ways to manage the business. To that end, subsequent to the quarter we amended and extended our $60 million credit facility, which enhance our liquidity profile and continues our strategy of conservative managing our balance sheet and liquidity during this challenging time in our end markets. We also prepaid $15 million of a principal on our $25 million term loan facility.

Also as a result of our restructuring and ongoing efforts to tight lie control our costs, we expect to sparse our previously stated goal of $85 million to $90 million in SG&A expenses for fiscal 2010. Many issues effecting our markets are not within our control, so we continue to focus on those that are under our control, driving our cost lower, continuously evaluating our structure and our approach, improving our execution, and growing our orders. We believe the restructuring we implemented over the past three years has resulted in a stronger organization with improved processes and systems, better operational performance, a lower cost structure, and an enhanced platform for growth. We're confident that the actions we've taken position us well for the recovery as it occurs. Now let me turn the call over to Terry, and he'll review the financial performance in detail.

Thank you, Mike. I appreciate the opportunity to work with you and the team here at IES. As we move forward in the execution of strategy to improve the Company 's growth. I will limit my comments to those surrounding the second quarter results and direct your attention to our Form 10-Q, which has been filed with the Securities and Exchange Commission for discussion of the year-to-date results. As you can so on revenues for the fiscal 2010 second quarter were $107.6 million compared to $167.3 million in last year's second quarter. A decline of 36% as revenues in both of our business segments declined from the second quarter a year ago. The revenues decrease was primarily attributable to the nationwide decline in construction activity and a challenging environment in our end market as well as adverse weather conditions in the north eastern United States and part of the south.

Second quarter revenues in our commercial industrial segment declined 40%, as many market sectors continue to reduce, delay, or cancel construction projects. These include office buildings, hotels, retail projects. Due to weaknesses in many sectors and continued tight credit markets, we also continued to see increased competition from some residential contractors for less specialized commercial retail work where the barriers are typically lower. However, within this segment, we did see revenue increases in our communication business. Revenues on residential segments declined 17% from the second quarter a year ago, largely due to the overall slowdown in both single-family and multi-family construction. Our single-family housing business was impacted by weakness in several geographic markets such as southern California, Arizona, Georgia, Nevada and part of Texas. In addition, multi-family housing construction has declined substantially in 2010, due to deferrals of certain projects as they either a wait financing or some of them postponed all together.

Our residential revenues were also impacted by continued processing pressure as a result of competitive environment. Also, throughout the housing downturn, many of hour home building customers have changed their basic product offering resulting in reduced revenue for home. Gross profit was $13.6 million compared to $29.9 million in the second quarter of 2009. Gross profit margin was 12.6% compared to 17.9% a year ago primarily due to competitive nature of the market and increased material costs. Sales, general, and administrative costs for fiscal 2010 second quarter declined 6% to $25.7 million from $27.3 million in the second quarter of 2009. The year-over-year reduction in SG&A is primarily the result of our restructuring efforts and ongoing cost containment programs. As a percentage of revenues, SG&A expenses were 23.9% compared to 16.3% in the second quarter a year ago. SG&A for the second quarter of 2010 includes significant charges comprised of a loss of $3.7 million, relating to an individual project that came involved in a bankruptcy proceeding in 2008 and $.9 million of severance calls. In April 2010, despite objections, the bankruptcy court committed a foreclosure sale.

As a result of this action, we have determined that there is a reasonable possibility but not a probability of collecting our claim and we are accordingly fully reserved remaining $3.7 million of a long term receivable. Despite this write-off, we continue to believe that, in the merit of and we will vigorously persue our equitable relief from the court. I realize that this is a complicated subject, so I encourage interested parties to read the full disclosure relating to this matter in our Form 10-Q for the period endings March 31st, 2010. Loss from operations in the fiscal 2010 second quarter was $12.2 million which includes significant charges I described above of $3.7 million or $0.26 per share and $.9 million or $0.6 per share. This compares income from operations of $400,000 which included restructuring and significant charges of $2.5 million or $0.18 per share in the second quarter of 2009. Net loss, including the significant charges, was $13.2 million or $0.92 per share compared to the net loss including restructuring and significant charges of $.1 million or $0.1 per share in the second quarter of 2009. EBITDA for the fiscal 2010 second quarter was a negative $10.6 million, compared to $3.9 million for the second quarter of last year. We believe that EBITDA, non-GAAP number, is a useful metric to provide investors comparable numbers to peer companies. We provided a recognize sill I guess so of EBITDA and net income in the second quarter earnings release. Now I will provide more insight into our segment data.

If you turn to slide 5. Second quarter revenues in our commercial industrial segment decreased 40% to $79.6 million from $133.4 million in the second quarter of 2009. Gross profit in our commercial industrial segment was $7.3 million, compared to $22.1 million a year ago and gross margin was 9.2% compared to 16.6% a year ago, reflecting a competitive nature of the market and increased material costs. Turning now to slide 6. Second quarter revenues in our residential group declined 17% to $28.1 million to $33.9 million a year ago. Gross profit in our Residential segment was $6.3 million compared to $7.8 million a year ago and gross margin was 22.3% compared to 23% in the second quarter last year, reflecting a decline in multi-family projects coupled with competitive pressures as well as an increased material cost during the quarter in our single-family sector. Now turning to slide 7. Total backlog was $251 million as of March 31st, 2010.

The year-over-year decline of $46 million or 15%. On a sequential basis, backlog rose 6% from $237 million. We don't include single-family housing or time and material work in our backlog calculations. Now turning to slide 8, as of March 31st, 2010, IES had total liquidity of $63.5 million and working capital of approximately $114.3 million. Turning to slide 9. As Mike mentioned, as of April 30th, 2010 we amended and extend our existing $60 million unsecured revolving credit facility with Bank of America and Wells Fargo, two members of our original bank. The maturity date of the amended facility is May 12th, 2012 which is the two year extension. The amended credit facility improves liquidity and debt coverage. Also, on April 30th, 2010 we prepaid $15 million principal on our $25 million term loan, solely eliminating $1.65 million of annualized interest payments. Now I would like to turn the call back over to Mike.

Terry thank you. If you would reference slide 10. As we've discussed in previous calls, we continue to make progress penetrating the renewable energy infrastructure marks and we believe our safety records, broad expertise, and experience bring significant value to this market, which is growing both in importance and size. Our portfolio of renewable projects is also expanding. We recently completed work on such wind projects as Buffalo Bear wind farm in Oklahoma and no trees wind farm in Texas. Also we recently secured solar and biomass projects in New Jersey, Texas, Oregon, and Washington which include work for the residential marketplace, office buildings, hospitals and waste treatment facilities. We believe projects such as these demonstrate the success of our portfolio diversification efforts. In spite of our disappointing sequential quarter financial performance and the market softness or commitment to safety remains steadfast.

Safety continues to be the foundation of the IES culture, and our employees are unwavering in their commitment to implement programs, procedures that bring about exceptional safety performance. Over the last two years, IES has received ten national safety awards from general contractors, owners, and safety groups. So to summarise where we are today, the major challenge for us are primarily our Indiana market and therefore our volumes. While there are signs of improvement in the broad economy, several factors of the construction industry remain weak. I'm sorry several sectors of the construction industry remain weak such as commercial, office buildings, lodging and gaming. And we believe based on our previous restructuring programs there is significant operating leverage in the business which will drive improvements in our as the market recovers. Of course, as I indicated earlier, we'll continue our ongoing efforts to tightly control our costs and further reduce them as the market conditions warrant. As always, we appreciate your interest and look forward to speaking you to you again on our fiscal 2010 third quarter conference call.

Certain statements in this conference call including statements regarding the restructuring plan and total 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 there of our business.

These statements involve risks and uncertainties that could cause the Company's actual future outcome to different materially from those set forth in such statements. Such risks and uncertainties include but are not limited to the inherent uncertainties relating to estimating future operating and the Company's abilities to generate sales an operating income, potential defaults under credit facility and term loans, defaults under assuratee agreements, potential depression of stock price triggered by potential sales controlling interests of the entire Company as a result of controlling stockholder's decision to pursue a disposition of its interest in the Company, fluctuations in operating results because of downturn and 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 and inaccurate estimates used when entering into contracts, inaccuracy in estimating revenue and percentages 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 fiscal hazards associated with the Company's work, difficulty in reducing SG&A to match lower revenues, loss of key personnel, litigation risks wand uncertainties, difficulties incorporating new accounting control and operating procedures and central compilation 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 end he had September 30, 2009 could cause future outcomes to differ materially from those expressed in such forward-looking statements.

The Company undertake no obligation to publicly update or revise information concerning its restructuring efforts barring availability or 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 provided in this conference call pursuant to the Safe Harbor established under the Private Securities and Litigation Reform of 1995, and should be evaluated in the context of the estimates assumptions, uncertainties, and risks described herein. General information about the Integrated Electrical Services can be found on the Company's website. 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. They're available free of charge through the Company's web site as soon as reasonably practical after they are filed with the SEC. That concludes our call.

Thank you. Ladies and gentlemen, this concludes the Integrated Electrical Services second quarter conference call. If you would like to listen to a replay of today's conference please dial 303-590-3030 or 1800-406-7325 bypass codes of 4285997. IES would like to thank you for your participation and you may now disconnect.