IES Holdings Inc (IESC) 2010 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. This conference is being recorded today August 10, 2010. I would now like to turn the conference over to Karen Roan with DRG&E. Please go ahead, ma'am.

Thank you, Mitch. Good morning, everyone. We appreciate your joining us for IES conference call to review fiscal 2010 third quarter results. We will like to welcome our internet participants listening to the call as it is simulcast over the web.

Before I turn over the call 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. Please provide us with your contact information and we will make sure you are on the e-mail distribution 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 replay available for the next seven days and information on how to access the reply is in yesterday's earnings release. You're encouraged to download the slide deck which is in PDF format so that you can read what corresponds with today's presentation. That is on the Company's website at www.ies-co.com on the Investors page, under News and Events.

Also, please note that information reported on this call speaks only as of today, August 10, 2010. And therefore, you're 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 Investors, 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 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 Terry Freeman, Chief Financial Officer. I will now turn over the call to Mike.

Thanks, Karen. Good morning, everyone and welcome. We thank you for joining us today to review our fiscal 2010 third quarter results. Referencing slide three in the slide deck, let me start by saying that while the current economic conditions remain very challenging and have certainly negatively impacted our end market, we're still disappointed in our third quarter results. We continue to face ongoing weakness in many of the end markets and resulting volume pressure.

The dramatic shift downward in the construction industry that we have seen over the past two years has had a considerable negative impact on our commercial and industrial and residential segments with both groups experiencing declines in construction activity in the quarter. We continue to be very disciplined regarding the work we pursue, and we're encouraged by another positive move in our backlog, which increased to approximately $259 million as of the end of the quarter. This is the third quarter of sequential backlog growth and we continue to be pleased with our pipeline of opportunities going forward.

Furthermore, as a result of our prior investments and business development and sales resources, along with our refined strategy to identify and target business where we can distinguish ourselves and our capabilities, we secured a number of significant new project awards in key targeted markets including refining, government, health care, data center and renewable energy. And these projects included a major contract to construct the transmission line and substation for a wind project in Minnesota, a major refinery expansion project in Texas to install instrumentation and electrical systems, a contract to provide communications infrastructure for a large data center in North Carolina, a significant contract in Colorado to provide electrical systems at the National Institute of Standards and Technology, and a contract to provide electrical systems at a major regional medical center in Wyoming. We believe these contract awards demonstrate measurable progress in our strategy to differentiate our company and the expertise in the core markets we serve.

We also continue to aggressively manage the aspects of our business that are within our control. One of those aspects is our cost base and we have driven down costs to ensure they are aligned with our current volumes and we will certainly continue to do so. Current with our overall cost management initiatives, we continue to focus on evaluating our overall approach, improving our execution and growing orders. We also continue to maximize our liquidity, and as a reminder as of April 30, 2010, we amended and extended our credit facility which enhances our liquidity profile.

In addition, we improved our surety agreements by reducing our costs for the same amount of bonding capacity. We believe we're navigating effectively through this downturn and as a result of the restructuring we implemented over the past three years, have a solid foundation in place with improved processes and systems, better operational performance, a leaner cost structure and an enhanced platform for growth. We're confident that the actions we have taken position us well for an economic recovery as it occurs. Now let me turn the call over to Terry to review the financial performance in more detail.

Thank you, Mike. I will limit my comments to those surrounding the third quarter results and direct your attention to our Form 10-Q, which has been filed with the Securities and Exchange Commission for a discussion of the year-to-date results. Now, as you can see on slide four, revenues for the fiscal 2010 third quarter were $121.4 million compared to $172.2 million in the last year's third quarter, a decline of 30% as revenues in each of our business segments declined from the third quarter a year ago. As was the case in our previous quarter, the revenue decrease was primarily attributable to the nationwide decline in construction activity and the challenging environment in our end markets.

Gross profit was $15.1 million compared to $31.6 million in the third quarter of fiscal 2009. Gross profit margin was 12.4% compared to 18.4% a year ago, primarily due to the competitive nature of the market and increased material costs. Sales general and administrative expenses in the fiscal 2010 third quarter were $21.1 million. These included significant charges of $0.3 million relating to severance costs, compared to $26.8 million, which included significant charges of $0.9 million related to severance costs and legal settlements in the third quarter of fiscal 2009. The 21% year-over-year reduction SG&A is primarily the result of our restructuring efforts and the ongoing cost containment program.

Loss from operations in the fiscal 2010 third quarter was $5.9 million, which includes the significant charge I described above of $0.3 million or $0.02 per share. This compares to income from operations of $4.4 million, which included restructuring and significant charges of $1.5 million or $0.11 per share in the third quarter of fiscal 2009. Net loss including the significant charges were $6.6 million or $0.45 per share compared to net income including restructuring and significant charges of $1.3 million or $0.09 per diluted share in the third quarter fiscal 2009.

EBITDA for the fiscal 2010 third quarter was a negative $4.7 million compared to $5.6 million for the third quarter a year ago. We believe EBITDA as a non-GAAP number is a useful measure -- metric to provide investors comparable numbers to peer companies. We provided a reconciliation of EBITDA to net income in the third quarter earnings release.

Now I will provide some details on our segment data. If you turn to slide five, third quarter revenues in our commercial and industrial segment decreased 33% to $89.9 million from $134.5 million as many of our customers continue to reduce, delay or cancel proposed construction projects. We also continue to see increased competition from residential contractors for less specialized commercial retail work for the barriers to entry are typically lower. Gross profit in our commercial industrial segment was $8.8 million compared to $22.2 million a year ago and gross margin was 9.7% compared to 16.5% a year ago, reflecting the competitive nature of the market and increased material costs.

Turning now to slide six. Revenues in our residential segment declined 17% to $31.5 million from $37.7 million a year ago, largely due to the overall slowdown in both single-family and multi-family construction. Our single-family housing business continues to be impacted by weakness in several geographic markets, including Southern California, Arizona, Georgia, Nevada, and parts of Texas. In addition, multi-family housing construction has decreased substantially in 2010 due to deferral or cancelation of a number of projects.

Our residential revenues were also impacted by continued pricing pressure as a result of the competitive environment. Also throughout this housing downturn, many of our home-building customers have changed their basic product offering resulting in reduced revenues per home. Gross profit in our residential segment was $6.3 million compared to $9.4 million a year-ago and gross margin was 20.1% compared to 25% in the third quarter a year ago, reflecting the decline in multi-family projects coupled with competitive pressures as well as increased material costs in our single-family sector.

Now turning to slide seven. Total backlog was $259 million as of June 30, a year-over-year decline of $30 million or 10%. On a sequential basis, backlog rose over 3% from $251 million a quarter earlier. We do not include single-family housing or time and material work in backlog.

Now turning to slide eight. As of June 30, 2010, IES had total liquidity of $40.3 million and working capital was $93.5 million. At the close of business on Friday, August 6, we had total liquidity of $46.3 million. Now I would like to turn the call back to Mike.

Thanks, Terry. Referring to slide nine, clearly the construction markets have been under tremendous pressure for some time now and during this period, we have improved our work processes, our systems and our operational performance and driven down costs. We have also expanded our product and service offerings. As an example, in our residential business we have expanded our offering for both new and existing homes to include a standby power solution, as well as the installation of residential solar systems. And as I mentioned earlier, we have also secured a number of significant new project in key targeted markets.

In this environment, we're continuously evaluating new markets in which to participate, as well as ways to augment the services we bring to market and broaden the scope of our offering to our existing customer base. As we take advantage of the core capabilities that we have in our business and extend our products and service offerings, we're also expanding our after-market service presence so that we're not only building the hospitals, hotels and data centers, but also staying with our clients by supporting their ongoing maintenance and repair needs for these structures. We continue to adhere to an exceptionally disciplined approach to growing our orders and backlog.

We have been and continue to be strategically selective in the work we pursue and we haven't placed a closely controlled business development approach to manage the profitability and the credit risk of new business. Our commitment to safety remains steadfast as evidenced by our employees unwaivering commitment to implement programs and procedures that bring about exceptional safety performance. We will continue to navigate through these difficult economic times, focusing on the two themes that you have heard us -- you have heard from us, rather, on the last several conference calls; flexing our cost base, making sure it is aligned with our volumes and aggressively managing our liquidity.

And to that end, we're still on track to beat our $85 million to $90 million SG&A target for this fiscal year. We believe that as a result of the steps we have taken to restructure our operation, we have a solid foundation in place and a business with significant operating leverage that will drive improvements in our results as the market recovers. As always, we appreciate your interest and we look in order to speaking to you again in our fiscal 2010 fourth quarter call and year-end conference call.

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 the -- 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 assumption 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 estimating future operating results and the Company's ability to generate sales and operating income, potential defaults under credit facility and term loans, cost default under surety agreements, potential depression of stock price triggered by the potential sale of controlling interest of the entire Company as a result of controlling stock holders' decision to pursue a disposition of its interest in the Company, fluctuations in operating results because of downturns and levels of construction, delayed project start dates and project cancellations resulting from adverse credit and capital market conditions that effect 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 contract, inaccuracies in estimating revenue and percentage of completion on project, 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, difficulties in reducing SG&A to match lower revenues, loss of key personnel, litigation risks and uncertainties, difficulties incorporating new accounting controls 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 the foregoing as well as other risk factors discussed on this conference 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 effort, borrowing 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 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. With that, this concludes our call.

Thank you. Ladies and gentlemen, this concludes the Integrated Electrical Services third quarter earnings call. You may now disconnect and thank you for using ACT teleconferencing.