IES Holdings Inc (IESC) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Integrated Electrical Services first-quarter earnings conference call. During today's presentation all parties will be in a listen-only mode. This conference is being recorded today, February 10, 2011. I would now like to turn the conference over to Karen Roan of DRG&L, please go ahead, ma'am.

Thank you, Alicia. Good morning, everyone. We appreciate your joining us for IES' conference call today to review fiscal 2011 first-quarter results. We would also like to welcome our Internet participants listening to the call, as it is being simulcast live 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&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 also a telephonic replay available for the next seven days and information on how to access the replay is in yesterday's news release.

You are also encouraged to download the slide deck 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 investor's page under news and events. Also, please note that information reported on this call speaks only as of today, February 10, 2011. 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 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 practical after filing with the SEC.

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.

Karen, thank you. And good morning, everyone, and welcome. Thanks for joining us today to review our fiscal 2011 first-quarter results. We'll start by referencing the slide deck that was posted on the website. If you would, reference slide 3, and let me begin by saying that after a difficult fiscal 2010, in which the challenging electricity and the weak construction sector and some operational issues negatively impacted our results, we're encouraged that our first-quarter volumes increased from the fourth quarter of fiscal 2010. In fact, we saw signs of stabilization in the quarter with sequential improvements in many of our financial metrics.

We saw an improvement in consolidated revenues, gross profit and gross profit margin were up from the fourth quarter, and each of our business segments had an improvement in gross margin. We saw nearly double-digit growth in our commercial and industrial segment revenues, and we were able to begin to leverage our cost structure on these increased volumes, further reducing our SG&A from the fourth-quarter level, and as you'll note, we narrowed our loss from the fourth quarter significantly.

Backlog was at $243 million at the end of the first quarter, relatively stable from the fourth-quarter level, and it was actually up from a year ago. Our residential backlog improved again this quarter, in spite of the continued softness in the housing sector. And also, I want to point out that the margins in backlog have begun to show signs of stabilization over the past several months.

During the first quarter, we actually secured several important project awards in some of our key markets, and those included multi-family, institutional work, data center work, and government work. And we believe these awards demonstrate measurable progress in differentiating our capabilities and expertise in these core markets. And as I've said often, safety is one of the cornerstones of our culture, and every project here at IES begins and ends with safe execution.

And in addition to the numerous safety awards that we received last year, we received another one in the first quarter of this year. We announced this in a press release on January 24th; one of our divisions received the Safety Training and Evaluation Process Platinum Award, that's the STEP Platinum Award for 2010, through the Associated Builders and Contractors. And we continue to be extremely proud of our safety culture at IES, and this award is once again a further recognition that we've developed an outstanding safety and loss prevention program.

Now let me turn the call over to Terry, so that he can review the financial performance in detail.

Thank you, Mike. As Mike mentioned, we had several sequential improvements in this year's first quarter, and I believe we are beginning to see some stabilization in the business. As we see the end of this downturn and move through this cycle, we will focus on sequential comparison. Of course, these annual comparisons are provided in our earnings release on our own Form 10-Q.

Turning now to slide 4 in the deck, commenting on the first sequential comparison from a year ago, consolidated revenues for the fiscal 2011 first quarter were $113.6 million compared to $111.3 million in the fourth quarter of 2011 -- excuse me, fiscal 2010, with the increase driven primarily by strong volumes in our commercial and industrial segment. Compared to a year ago, consolidated revenue declined 5.5% from $120.2 million. On a year-over-year basis, revenues in our communication segment increased during the first quarter, while our commercial, industrial and residential segments had lower revenues due to the challenging economic environment and a continuation of the decline in general construction activity.

Gross profit was $11.1 million compared to $7.9 million in the fiscal 2010 fourth quarter, a 41% increase. Gross margin -- gross profit was 9.8% compared to 7.1% in the fourth quarter of fiscal 2010. This compares to gross profit of $19.9 million in the first quarter a year ago, a 16.6% gross profit margin.

Sales, general and administrative expenses in the fiscal 2011 first quarter were $18 million compared to $18.8 million in the fourth quarter of fiscal 2010, and $19.3 million in the first quarter of fiscal 2010. The fiscal 2011 first-quarter SG&A includes $0.5 million of corporate severance expense. SG&A expense as a percent of revenues were 15.9% in this year's first quarter compared to 16.9% in the fourth quarter, and the 16% in the first quarter a year ago. The reductions in SG&A expense are due to our ongoing cost containment program.

The sale of our nonstrategic manufacturing facility was completed on December 20th, 2010, and we recognized the gain on the sale of that asset of $6.7 million in the fiscal first -- fiscal 2011 first quarter. We recorded a non-cash asset impairment of $3.5 million related to internally developed capitalized software. The Company ceased the use of this software in December 2010, and thus recorded the charge in the first quarter.

Loss from operations in the first quarter of fiscal 2011 was $3.7 million, which includes both the asset impairment charge and the gain on the sale of assets we described earlier. When compared to the fourth quarter fiscal 2010, loss from operations were -- was reduced by $7.2 million. This compares the income from operations of a break-even in the fourth quarter fiscal 2009, which included restructuring charges of $0.7 million. Net loss was $3.7 million, or $0.25 per share compared to a net loss of $11.5 million, or $0.80 per share in the previous quarter, and to a net loss of $0.8 million including restructuring charges or $0.06 per share in the first fiscal quarter of 2010.

Excluding the gain on the sale of assets and the asset impairment charge, the adjusted net loss in the first quarter fiscal 2011 would have been $6.9 million and the adjusted loss per share would have been $0.48. A non-GAAP reconciliation table of these adjustments was included in yesterday's earnings release.

EBITDA for the first -- for the fiscal first quarter of fiscal 2011 was a loss of $2.6 million compared to a loss of $9.6 million for the fourth quarter of fiscal 2010 and to EBITDA of $1.4 million in the first quarter a year ago. We believe that EBITDA, although a non-GAAP number, is a useful metric to provide investors comparable numbers to peer companies. We have provided a reconciliation of this calculation to net income on yesterday's earnings release.

Now I'll provide some information on our segment data. If you'll turn to slide 5, revenues in our communication segment were $19.9 million compared to $22.1 million in the fourth quarter of fiscal 2010, while segment revenues dropped almost 10% sequentially, following a fairly strong fourth quarter and a lot of data center work. Gross profit was $3.2 million, only 3% lower than the previous quarter. Gross profit margin in our communication segment improved 16.1% from 14.9% of the fourth quarter fiscal 2010.

We're encouraged by some recent project awards in this segment, the effect of which will be realized in the remainder of this year. Communication segment revenues in the first quarter fiscal 2010, were $18.7 million and a gross profit margin of 18%.

Turning now to slide 6. Revenues on our residential segment were $26 million compared to $27.4 million in the previous quarter. In spite of a 5% sequential revenue decline, gross profit in the segment rose from $4.1 million to $4.6 million with gross margin rising to 17.6% from 14.9% in the previous quarter. We had delays in starting several of our multi-family projects during the first quarter. However, we expect the contribution from these projects to be felt in the second and third quarters this year.

In the first quarter a year ago, residential revenues were $28.9 million and gross profit margin was 23.6%. The lower year-over-year revenues were largely due to a decline in multi-family housing construction and certain projects were deferred or cancelled.

Now turning to slide 7. Revenues in our commercial and industrial segment increased 9.5% to $67.7 million from $61.8 million in the fourth quarter of fiscal 2010. Gross profit in the segment increased sequentially to $3.3 million, a gross margin of 5% from $0.5 million in the previous quarter, which had a negative gross profit margin impacted by operating difficulties in Maryland and Florida. In this year's first quarter, our commercial and industrial segment gross profit included a charge of $1.5 million, relating to issues associated with the execution of a materially complete project in Nebraska.

In the first quarter a year ago, commercial and industrial revenues were $72.6 million and gross profit was $9.7 million, a gross margin of 13.4%. The year-over-year revenue decline is primarily due to the continuing reduction, delay or cancellation of proposed construction projects, with lower gross margin reflecting the competitive nature of the market, and to an extent -- and to a lesser extent, higher material costs.

Now turning to slide 8. Our December 31, 2010, consolidated backlog was $243 million compared to $246 million as of September 30, 2010, and to $237 million at the end of the first quarter of fiscal 2010. Both our communications and residential segments increased their backlogs from the fourth quarter, while commercial and industrial segment declined slightly on a sequential basis. We are encouraged by an improvement in orders in the segment -- in this segment during the month of December. We did not include single-family housing or time and material work in our backlog calculation.

Now turning to slide 9. As of December 31, 2010, IES has liquidity of $45.7 million, working capital was $87.4 million and long-term debt was $10.4 million. At the close of business, Tuesday, February 8, 2011, we had a total liquidity of $43.7 million.

Now I'll turn the call back to Mike.

Terry, thanks. Referring to slide 10, for the past three years now we've been navigating the severe downturn in the economy and the construction markets and we've restructured our operations and we've significantly reduced our costs. We continue to take decisive steps to further reduce our cost base so that it's in line with our volume levels.

We have a solid foundation in place and a business with a substantial amount of operating leverage. And now, as the markets appear to be stabilizing, we believe we're well positioned to drive growth and profitability as these markets improve. As we move ahead, we're focused on three key areas; our disciplined approach to growing our orders and backlog, or strategy of strengthening our core portfolio of electrical and communications businesses that are key to the future success of the Company, and continuing to reduce our cost base to match expected volumes, as well as aggressively managing our liquidity.

As always, we appreciate your interest and we look forward to speaking to you again on our fiscal 2011 second-quarter conference call. Thanks very much and I'll turn it back over 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 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 estimating future operating results and the Company's ability to generate sales and operating income; potential default under credit facility 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 downturns 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 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 in SG&A to match lower revenues; loss of key personnel; litigation risks and uncertainties; 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 contract 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 call.

Forward-looking statements are provided in this 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.

Ladies and gentlemen, this concludes the Integrated Electrical Services first-quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 1-303-590-3030 and enter the access code of 4405034 followed by the pound sign.

ACT would like to thank you for your participation. You may now disconnect.