IES Holdings Inc (IESC) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, thank you for standing by. Welcome to the Integrated Electrical's fourth quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. This conference is being recorded today, Wednesday December 15, 2010. I would now like to turn the conference over to Karen Roan of DRG&L, please go ahead.

Thank you, Alicia. Good morning everyone. We appreciate your joining us for IES conference call today to review fiscal 2010 fourth quarter and year-end 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 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&L, 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 a telephonic replay available for the next seven days and information on how to access that replay is in yesterday's news release. You are also encouraged to download the slide deck, 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 investor's page under news and events. Also, please note that information reported on this call speaks only as of today, December 15, 2010. And therefore, you are advised that 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 is 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 over to Mike.

Thanks Karen. And, welcome. And thank you for joining us today to review our fiscal 2010 fourth quarter and year-end results.

And if you would reference slide three in the deck. Let me start by saying we just concluded a very difficult and disappointing fourth quarter and fiscal year. For the challenging economy and the weak construction sector continued to negatively impact our end-markets. And as a result, we face ongoing weakness in ensuing volume pressure. The dramatic downward shift in the construction industry that we've seen over the past two or three years, have had a considerable negative affect on our commercial and industrial and residential segments. With both groups experiencing declines in construction activity in the fourth quarter. Additionally, we experienced further downward pressures on our gross margin. Due to our operating difficulties to some of our branches in Florida, Iowa, and Maryland. These operational issues impacted our gross margin by approximately $2.2 million in the fourth quarter. And we have since strengthened our operational leadership at these locations. And on a positive note, the enhancements that we have made to our costs to complete process helped to identify these issues early in the construction process. And aside from the operating difficulties, many of our commercial and industrial operations performed well.

Now, with respect to the fourth quarter and the year, our communications business is performing well and revenue increased during the fourth quarter and the fiscal year. Our communications segment is a leading national service provider specializing in the planning, design, implementation, and maintenance of structured cabling and other low voltage infrastructure projects. We provide structured cabling, security, audio visual, wireless data communications, fire alarms, and other custom specialty systems. We also assist our customers with their project management needs, including specialized engineering team, a dedicated project and service teams, and training facilities across the United States. We service most markets with a particular focus on technology, financial, high-tech manufacturing, as well as co- location facilities, private higher education, healthcare, and the government sectors. Now, the communications business has been part of IES commercial and industrial, and is now a separate operating segment. The decision to report communications as a separate segment was made as we changed our internal reporting structure. And the communications business gained greater significance as a percentage of consolidated revenues, gross profits, and operating income.

Also the communications segment is a separate, distinct element of our future strategic growth plan. Now with respect to backlog. Backlog was $246 million at the end of the quarter. And we saw an improvement of $8.5 million in our residential backlog during the fourth quarter. In spite of the weak economy and the very soft housing sector. This is primarily attributable to the recent improvement in the multi-family housing demand. We continue to make measurable progress on our program to reduce our cost-base, aligning it with our expected volumes. Also, we remain focused on our balance sheet. As you may recall, during the year we amended our -- and extended our credit facility enhancing our overall liquidity. We also improved our surety arrangement, which reduced our bonding cost. We are committed to our strategy of strengthening our core portfolio of electrical and communications businesses. Which are critical to the future success of the Company, and our decision to sell our light manufacturing operation underscores that commitment.

After a thorough assessment of our portfolio of offerings, we concluded that this was an opportune time to divest this facility. And that transaction closed on December 10. Our Tesla operation has been part of the IES commercial and industrial segment. And we believe the sales Siemens Energy is a positive development for Tesla, it's customers, and it's employees. During fiscal 2010 we also secured a number of significant new project awards in our key targeted markets. Some of these projects include wind projects located in Texas, Oklahoma, and Minnesota. The project in Minnesota is expected to provide power for approximately 7% of utility sales for Indianapolis Power and Light. We were awarded a number of solar projects, as well. Including the installation of a 20-acre solar farm, providing power to a graduate and doctoral research University in Maryland. A photovoltaic installation at a Midwest University that provides enough energy to become the first -- one of the first net zero use buildings in the state. And also, electrical services for a West coast facility, that became the first in the United States to produce enough renewable electric power to meet all of its power needs.

We have also been awarded significant projects in high-tech, financial, healthcare, government, and the education sectors. We believe these awards demonstrate measurable progress in differentiating the Company and its resources and expertise in our core markets. Safety is one of the cornerstone of our culture. And every project begins and ends with safe execution. To that end, we received additional safety awards in fiscal 2010. Continuing our ongoing recognition and our excellent safety track record. Let me turn the call over to Terry Freeman to review our financial in more details.

Thank you, Mike. I'll limit my comments to those surround in the fourth quarter results. And direct your attention to the form 10-K, which has been filed with the Securities and Exchange Commission for a discussion of the year-to-date results. As you can see on slide four, revenues for the fiscal 2010 fourth quarter were $111.4 million. Compared to $153.4 million in last year's fourth quarter, a decline of 27%. Our commercial, industrial, and residential segments experienced declines in construction activity and therefore lower revenues from the fourth quarter a year ago. As was the case in the previous quarter the revenue decrease was primarily attributable to nationwide decline in construction activity and the challenging conditions in many of our end markets. However, as Mike highlighted, revenues in our communications group rose from a year ago. Primarily due to an increase in the data center projects, more business from our national accounts. Gross profit was $7.9 million compared to $20 million in the fourth quarter of fiscal 2009. Gross profit margin was 7.1% compared to 13% a year ago. Primarily due to the competitive nature of the market and the result of lower margins on construction projects. Higher cost of materials and operating difficulties in Florida, Iowa, and Maryland.

As Mike mentioned, operational issues in certain locations negatively impacted our gross profit margin by approximately $2.2 million. Sales general administrative expense in fiscal 2010 fourth quarter were $18.8 million. Compared to $25.6 million in the fourth quarter of fiscal '09. The 27% year-over-year reduction in SG&A is primarily result of a our restructuring effort and ongoing cost containment program. Loss from operations in the fiscal 2010 fourth quarter are $10.9 million. Compared to a loss from operations of $9.1 million, which included restructuring and significant charges of $6.4 million in the fourth quarter of ' 09. Net loss was $11.5 million or $0.80 per share compared to a net loss of $11.8 million. Which includes restructuring and significant charges or $0.82 per share in the fourth quarter of fiscal ' 09. EBITDA for fiscal 2010 fourth quarter was a loss of $9.7 million compared to a loss of $8.6 million in fourth quarter a year ago. We believe that EBITDA, a non-GAAP number, is a useful metrics to provide investors comparable numbers to compare our Company. We provide a reconciliation of EBITDA to net income in the fourth quarter earnings release. Now, I will provide some details on our segment data.

If you turn to slide five, revenues in our communications segment rose 6% to $22.1 million. Compared to $20.9 million in the fourth quarter of '09. Reflecting an increase in data center work and improved business from our national account. Gross profit in our communication segment was $3.3 million compared to $3.6 million a year ago. Gross profit margin was 14.9% compared to 16.9% in the fourth quarter of last year. This decline in gross profit margin was due to the achievement of various sales management incentive awards in the fourth quarter of 2010. Turning to slide six, revenues in our residential segment decreased 32% to $27.4 -- to $27.4 million from $40.5 million a year ago. Largely due to the decline in multi-family housing, construction, and certain projects were deferred again. Despite ongoing nationwide weakness and demand for single family homes, certain geographic margins, including Southern California, Arizona, Georgia, Nevada, and parts of Texas our single family revenues increased slightly in the fourth quarter. Which partially offset the decline in the multi-family revenue. Gross profit in our residential segment was $4.1 million compared to $9.4 million a year ago. And gross margin of 14.9% compared to 23% a year ago period. Reflecting reduced higher margin multi-family construction projects, along with increased material costs.

Now turning to slide seven, fourth quarter revenues in our commercial, industrial segment decreased 33% to $61.8 million from $92 million a year ago. As many customers continue to reduce, delay, or cancel proposed construction projects. We also saw competition from some residential contractors for less specialized commercial retail work, which have lower barriers (inaudible). Gross profit in our commercial-industrial segment was $0.5 million compared to $7.1 million a year ago. Gross margin was 0.8% compared to 7.8% a year ago. The gross margin weakness reflects the competitive nature of the market and increased material costs. Again, the operational issues referred to earlier adversely impacted our commercial-industrial margin $2.2 million or 350 basis points.

Now turning to slide eight, our September 30, 2010 backlog improved $246 million from $241 million a year ago. Backlog of June 30, 2010 was $259 million. We do not include single family housing or time and material work in our backlog. Now turning to slide nine, as of September 30, 2010, IES had total liquidity of $45.6 million. Working capital was $83.3 million and long-term debt was $10.4 million. At the close of business on Monday, December 13, 2010 we had total liquidity of $46 million. Which includes the net proceeds from the sale of the Tesla manufacturing facility. Now, I would like to turn the call back to Mike.

Thanks, Terry.

If you would move to slide 10, please. As we have discussed on previous calls, the construction markets have been under tremendous pressure for some time now. Since 2007 on the residential side and since 2008 in commercial. During this period we have driven down costs and we continue to aggressively manage our costs, to flex out costs base in line with our expected volumes. We have already taken steps to get our SG&A well below our fourth quarter SG&A run rate. We will make further improvements in 2011. We have enhanced our products and services offerings. And we working to expand our portfolio to services and solutions we provide to both existing and potential customers. As part of that strategy, [Terry Mimnaw] has recently joined IES in a new position as Vice President of service. In this role, Terry is responsible for leading and developing IES commercial national service business. Terry's business and leadership experience will prove critical as we develop our national services platform.

We continue to target customer service where capabilities gives us an advantage, while continuing to build upon local, regional, and national relationships to adapt to our customer's changing needs. We have secured a number of significant new projects in key targeted markets, including refining, government, healthcare, and data centers. And we are encouraged by the positive trend in our pipeline over the last 90 days. And, we continue with our disciplined approach to growing our orders and backlog. We have been and continue to be strategically selective in the work we pursue. And we have in place a closely controlled business approach to manage the profitable and the credit risk of new business. Our commitment to safety remains stead fast, as evidenced by our exceptional safety performance. During 2010 we received several major awards for safety including the Category 5 IEC/CNA safety award from the Independent Electrical Contractors. The highest platinum level step award from the Associated Builders and Contractors, and the ABC National Safety Excellence award. These awards add to more than 40 major safety awards in combination that the Company has received since its inception. So, as we continue to navigate the challenging times we remain focused on flexing our cost base to match our expected volumes and aggressively managing our liquidity. We will continue to asses our portfolio and our operations, and make sure we are well positioned for the current market and for the opportunities moving forward. We will stay focused on strategy of strengthening our core portfolio of electrical and communication businesses that are key to the future success of the Company. Finally, we believe our geographic reach and capabilities position us well. And that our restructuring has created significant operating leverage that will drive improvements in our results as the market improves.

As always, we appreciate your interest and look forward to speaking with you again on our fiscal 2011 first quarter conference call. Thank you.

Certain statements in this conference call, including statements regarding a 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 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 actually, 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 facilities and term loans, cross-defaults under surety agreements, potential depression of stock price triggered by the potential sale of controlling interests for 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 down turns and levels 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 moneys owed because of the depressed value of projects and the ineffectiveness of liens. Inaccurate estimates used in entering into contracts, inaccuracies in estimating revenue as a percentage of completion on projects, the high level of competition in the construction industry, both for third parties and former employees, weather related delays, accidents resulting from the physical hazards associated with the Company's work. Difficulty in reducing in SG&A to match lowered revenues, loss of key personnel, litigation risks and uncertainty, difficulties incorporating new accounting, 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 contractor and/or from work that has been contracted, but not started due to changes in contractual commitment. You should understand that 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, 2010, 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 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 press release 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.

Ladies and gentlemen, this concludes the conference call. (Operator Instructions) You may now disconnect