What changed in this filing

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Item 1. Business

2021-12-03 compared with 2020-12-07 · 73 added, 48 removed, 229 unchanged (35% of the section changed)

IES Holdings, Inc.

is a holding company that owns and manages operating subsidiaries that design and install integrated electrical and technology systems and provide infrastructure products and services to a variety of end markets.

Our operations are currently organized into four principal business segments, based upon the nature of our current services:

designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end markets.

Our operations are organized into four principal business segments, based upon the nature of our services:

• Communications – Nationwide provider of technology services, including the design, build, and maintenance of the infrastructure within data centers for co-location and managed hosting customers, for both large corporations and independent businesses.

• Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes.

• Residential – Regional provider of electrical installation services for single-family housing and multi-family apartment complexes, as well as heating, ventilation and air conditioning, (HVAC) and plumbing installation services in certain markets.

• Infrastructure Solutions – Provider of electro-mechanical solutions for industrial operations, including apparatus repair and custom-engineered products, such as generator enclosures used in data centers and other industrial applications.

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CORPORATE STRATEGY

We seek to create shareholder value through improving operating margins and generating free cash flow by investing in our existing businesses and completing acquisitions.

We seek to acquire businesses that strategically complement our existing business segments or to acquire or invest in stand-alone platform companies based in North America.

We seek to create shareholder value by growing our business through increasing our market share, geographic and market expansion and adding to our capabilities, as well as improving operating margins and generating free cash flow, by investing in our existing businesses and completing acquisitions.

We primarily seek to acquire businesses that strategically complement our existing business segments.

In addition, we may seek to acquire or invest in stand-alone platform companies based in North America.

In evaluating potential acquisition candidates, we seek to invest in businesses with, among other characteristics:

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Our long-term strategy is to improve our position as a preferred solutions and services provider to large national corporations and strategic local companies.

Key elements of our long-term strategy include continued investment in our employees’ technical expertise and expansion of our on-site maintenance and recurring revenue model, as well as opportunistic acquisitions of businesses that serve our markets, consistent with our stated corporate strategy.

Key elements of our long-term strategy include continued investment in our employees’ technical expertise

and expansion of our on-site maintenance and recurring revenue model, as well as opportunistic acquisitions of businesses that serve our markets, consistent with our stated corporate strategy.

Our competition consists of both large national or regional competitors and small, privately owned contractors who generally have limited access to capital.

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Business Description

Originally established in 1973, our Residential segment is a leading provider of electrical installation services for single-family housing and multi-family apartment complexes and cable television installations for residential and light commercial applications.

In addition to our core electrical construction work, the Residential segment also provides services for the installation of residential solar power, both for new construction and existing residences.

Originally established in 1973, our Residential segment is a leading provider of electrical installation services for single-family housing and multi-family apartment complexes, as well as HVAC and plumbing installation services in certain markets, and cable television installations for residential and light commercial applications.

The Residential segment also provides services for the installation of residential solar power, both for new construction and existing residences.

The Residential segment is made up of 50 total locations, which include the segment headquarters in Houston, Texas.

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Demand for our Residential services is highly dependent on the number of single-family and multi-family home starts in the markets we serve.

Although we operate in multiple states throughout the Sun-Belt, Mid-Atlantic, Northeastern and Western regions of the United States, the majority of our single-family revenues are derived from services provided in Texas.

The Texas market also remains an important part of our multi-family business;

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A significant portion of our Residential business volume is generated from long-term, repeat customers, some of whom use IES as a preferred provider for major projects.

Our long-term strategy is to continue to be a leading provider of electrical services to the residential market.

Our long-term strategy is to continue to be a leading provider of electrical services to the residential market, and to continue to expand our offerings of plumbing and HVAC services.

The key elements of our long-term strategy include a continued focus on maintaining a low and variable cost structure and cash generation, allowing us to effectively scale according to the housing cycle, and to opportunistically increase our market share.

Our competition primarily consists of small, privately owned contractors who generally have limited access to capital.

We believe that we have a competitive advantage over these smaller competitors due to our key employees’ long-standing customer relationships, our financial capabilities, our strong employee training program, and our local market knowledge and competitive pricing.

We believe that we have a competitive advantage over these smaller competitors due to our key employees’ long-standing customer relationships, our financial capabilities, our employee training program, and our local market knowledge and competitive pricing.

There are few barriers to entry for electrical contracting services in the residential markets.

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Results of operations from our Residential segment can be seasonal, depending on weather trends, with typically higher revenues generated during spring and summer and lower revenues during fall and winter.

Our service and maintenance business is generally not affected by seasonality.

In addition, the construction industry has historically been highly cyclical.

Our volume of business may be adversely affected by declines in multi-family occupancy rates as well as single-family housing starts within our operational footprint.

Quarterly results may also be materially affected by the timing of new construction projects.

Quarterly results may also be materially affected by the timing of new

construction projects.

Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

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Our Infrastructure Solutions segment provides electro-mechanical solutions for industrial operations to domestic and international customers.

Our solutions include the maintenance and repair of alternating current (AC) and direct current (DC) electric motors and

generators, as well as power generating and distribution equipment;

the manufacture of custom-engineered power distribution equipment, including metal enclosed bus duct solutions used in power distribution;

the manufacture of custom commercial and industrial generator enclosures;

Our Custom Power Solutions business includes the manufacture of custom commercial and industrial generator enclosures and the manufacture of custom-engineered power distribution equipment, including metal enclosed bus duct solutions used in power distribution.

Our Industrial Services business includes the maintenance and repair of alternating current (AC) and direct current (DC) electric motors and generators, as well as power generating and distribution equipment;

the manufacture, re-manufacture, and repair of industrial lifting magnets;

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This segment serves the steel, railroad, marine, petrochemical, pipeline, pulp and paper, wind energy, mining, automotive, power generation, scrap yards, data center, and utility industries.

Our Infrastructure Solutions segment is comprised of ten locations in Alabama, Georgia, Illinois, Indiana, Ohio, and West Virginia, and is headquartered in Massillon, Ohio.

Our Infrastructure Solutions segment is comprised of 11 locations in Alabama, Georgia, Illinois, Indiana, Ohio, Oklahoma and West Virginia, and is headquartered in Massillon, Ohio.

Industry Overview

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Our sales efforts are primarily driven by personnel based at our operating locations, as well as independent sales representatives.

Given that the majority of our apparatus repair customers are located within a 200-mile radius of our facilities, we believe that this structure allows us to rapidly address and respond to the needs of our customers.

Our custom-engineered power distribution, bus system and generator enclosure products and services are principally sold in partnership with an original equipment manufacturer (“OEM”) or to an engineering, procurement and construction firm on behalf of the end-user.

Our long term strategy is to be the preferred solutions provider of outsourced electro-mechanical services, repairs, and manufacturing to our select markets and a leader in custom-engineered metal enclosed bus systems and generator enclosures.

Our competition is comprised mainly of small, specialized manufacturing and repair shops, a limited number of other multi-location providers of electric motor repair, engineering and maintenance services, and various OEMs.

Regarding our apparatus repair services, the majority of our customers are located within a 200-mile radius of our facilities, and we believe that the locations of our facilities allow us to rapidly address and respond to the needs of our customers.

Our long-term strategy is to be a leader in custom-engineered metal enclosed bus systems and generator enclosures and the preferred solutions provider of outsourced electro-mechanical services, repairs, and manufacturing to our select markets.

Our competition ranges from small, single location service centers to large, multi-national companies.

Our Custom Power Solutions business competes with domestic and international manufacturers and distributors.

We believe that we have a competitive advantage due to our specific product offerings, geographic proximity to customer sites, and our ability to design high quality products to meet each customer's unique requirements.

Our Industrial Services business competes with small, specialized manufacturing and repair shops, a limited number of other multi-location providers of electric motor repair, engineering and maintenance services, and various OEMs.

Participants in this industry compete primarily on the basis of capabilities, service, quality, timeliness and price.

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Our Commercial & Industrial segment provides electrical and mechanical design, service, and construction services to commercial and industrial markets.

Our design services range from budget assistance to providing design-build and LEED (Leadership in Energy & Environmental Design) solutions to our end customers.

Our maintenance and emergency services include critical plant shutdown, troubleshooting, emergency testing, preventative maintenance, and constant presence.

Our construction services range from the initial planning and procurement to installation and start-up and are offered to a variety of new and remodel construction projects, ranging from the construction of office buildings and industrial facilities to transmission and distribution projects.

Our design services range from budget assistance to providing design-build and LEED

(Leadership in Energy & Environmental Design) solutions to our end customers.

Our maintenance and emergency services include critical plant shutdown, troubleshooting, emergency testing, preventative maintenance, and constant presence.

We also provide mechanical services such as maintenance agreements, installation, or replacement of mechanical equipment for commercial and industrial facilities.

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Industry Overview

Given the diverse end-markets of our Commercial & Industrial customers, which include both commercial buildings, such as offices, healthcare facilities and schools, and industrial projects, such as power, chemical, refinery and heavy manufacturing facilities, we are subject to many trends within the construction industry.

Given the diverse end-markets of our Commercial & Industrial customers, which include both commercial buildings, such as offices, healthcare facilities and schools, and industrial projects, such as power, agricultural and food processing, and heavy manufacturing facilities, we are subject to many trends within the construction industry.

In general, demand for our Commercial & Industrial services is driven by construction and renovation activity levels, economic growth, and availability of bank or other financing.

Currently, the construction industry is being impacted by the ongoing COVID-19 pandemic, which has caused some customers to delay the awarding of new projects.

The construction industry has been impacted by the ongoing COVID-19 pandemic, which has caused some customers to delay the award or start of new projects.

Although many of these delayed projects are now underway, there could be further delays in ongoing projects, or in the awarding of new projects, as a result of the pandemic.

Due to economic, technological or other factors, there can be no assurance that construction and demand will increase.

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SOURCES OF SUPPLY

The raw materials and components we use within our segments include, but are not limited to, electrical fixtures and system components, copper, aluminum, and raw steel.

The raw materials and components we use within our segments include, but are not limited to, electrical fixtures and system components, copper, aluminum, raw steel, and certain plastics.

These raw materials and components are generally available from a variety of domestic suppliers at competitive prices.

Delivery times are typically short for most raw materials and standard components, but during periods of peak demand, may extend to one month or more.

However, during fiscal 2021, primarily as a result of the COVID-19 pandemic and its aftermath, certain materials became more difficult to procure, and significantly more expensive, and order lead times have lengthened, as supply chain interruptions have become increasingly common.

We expect these supply challenges to continue during 2022.

In response, we are currently carrying higher levels of inventory than has historically been typical for us, and we expect to continue to do so until supply levels and delivery times normalize.

Our strategy to reduce commodity cost exposure includes early buying of commodities for particular projects or general inventory, as well as including escalation and escape provisions in project bids, quotes and contracts wherever possible.

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We maintain automobile, general liability and construction defect insurance for third-party health, bodily injury and property damage, as well as pollution coverage and workers’ compensation coverage, which we consider appropriate to insure against these risks.

third-party insurance is subject to deductibles for which we establish reserves.

Our third-party insurance is subject to deductibles for which we establish reserves.

In light of these risks, we are also committed to a strong safety and environmental compliance culture.

We employ full-time and part-time regional safety managers, under the supervision of our full-time Senior Vice President of Safety, and seek to maintain standardized safety and environmental policies, programs, procedures and personal protection equipment relative to each segment, including programs to train new employees, which apply to employees new to the industry and those new to the Company.

We have a robust safety program, and seek to maintain standardized safety and environmental policies and procedures.

We are also subject to cyber security and information theft risks in our operations, which we seek to manage through a cyber and information security program, training and insurance coverage.

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("Tontine Associates") and its affiliates (collectively, “Tontine”).

Based on an amended Schedule 13D filed by Tontine with the United States Securities and Exchange Commission (the “SEC”) on October 9, 2020, Tontine owns approximately 56 percent of our outstanding common stock.

Based on a Form 4 filed by Tontine with the United States Securities and Exchange Commission (the “SEC”) on November 18, 2021, Tontine owned approximately 56 percent of our outstanding common stock as of December 1, 2021.

As a result, Tontine can control most of our affairs, including most actions requiring the approval of shareholders, such as the approval of any potential merger or sale of all or substantially all of the Company's assets or business segments, or the Company itself.

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NET OPERATING LOSS TAX CARRYFORWARDS

The Company and certain of its subsidiaries have an estimated federal net operating loss (“NOL”) of approximately $217.3 million at September 30, 2020, including approximately $128.0 million resulting from net operating losses on which a deferred tax asset is not recorded.

In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted which, among other things, reduced the corporate income tax rate from 35% to 21%, effective January 1, 2018.

As a result of this change, the Company’s statutory rate for fiscal 2018 was a blended rate of 24.53% and decreased to 21% in 2019.

For the year ended September 30, 2018, our effective tax rate differed from the statutory tax rate as a result of a charge of $31.3 million to re-measure our deferred tax assets and liabilities to reflect the estimated impact of the new statutory tax rate.

Any future change in the federal statutory tax rate could also impact the economic benefit of the NOL and other deferred tax assets available to us and result in an additional charge or benefit to adjust the book value of the deferred tax asset recorded on our Consolidated Balance Sheets.

The Company and certain of its subsidiaries have an estimated federal net operating loss (“NOL”) of approximately $120.2 million at September 30, 2021, including approximately $103.7 million resulting from net operating losses on which a deferred tax asset is not

Any future change in the federal statutory tax rate could impact the economic benefit of the NOLs and other deferred tax assets available to us and result in a charge or benefit to adjust the book value of the deferred tax asset recorded on our Consolidated Balance Sheets.

A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of NOLs for federal and state income tax purposes.

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In addition, a change in ownership could result from the purchase of common stock by an existing or a new 5% shareholder as defined by Internal Revenue Code Section 382.

Should a change in ownership occur, all NOLs incurred prior to the change in ownership would be subject to limitation imposed by Internal Revenue Code Section 382, which would substantially reduce the amount of NOL currently available to offset taxable income.

For more information see Note 3, “Controlling Shareholder” in the notes to our Consolidated Financial Statements.

The Company maintains a tax benefit protection plan (the “NOL Rights Plan”) which is designed to deter an acquisition of the Company’s stock in excess of a threshold amount that could trigger a change in ownership within the meaning of Internal Revenue Code Section 382.

REMAINING PERFORMANCE OBLIGATIONS AND BACKLOG

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however, there can be no assurance that this backlog will be completed within expected time frames or at all.

The increase in our backlog year over year was primarily driven by strong demand and increased market share within our Communications and Residential segments.

The increase in our backlog year over year was primarily driven by strong demand and increased market share within our Communications, Residential and Infrastructure Solutions segments.

Additionally, the backlog at our Commercial & Industrial segment at September 30, 2021 reflected the awarding of projects that had been deferred or otherwise delayed during the year ended September 30, 2020 as a result of the COVID-19 pandemic.

Our operations are subject to various federal, state and local laws and regulations, including:

• licensing requirements applicable to electricians and mechanical service technicians;

• licensing requirements applicable to electricians, plumbers, and mechanical service technicians;

• building and electrical codes;

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In some cases, a required permit or license held by a single individual may be sufficient to authorize specified activities for all our electricians or mechanical service technicians who work in the state or county that issued the permit or license.

While we seek permits or licenses, where available, that may be material to our operations in a particular geographic area to be held by multiple employees

within that area, given the large number of permits and licenses required, we are unable to ensure that multiple employees hold such required permits and licenses.

While we seek permits or licenses, where available, that may be material to our operations in a particular geographic area to be held by multiple employees within that area, given the large number of permits and licenses required, we are unable to ensure that multiple employees hold such required permits and licenses.

We believe that we have all licenses required to conduct our operations and are in material compliance with applicable regulatory requirements.

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For the Company’s financial information by segment, see Note 11, “Operating Segments ” in the notes to our Consolidated Financial Statements.

At September 30, 2020, we had 5,243 employees, of whom 5,214 were full-time employees.

We are party to two collective bargaining agreements within our Infrastructure Solutions segment.

HUMAN CAPITAL MANAGEMENT

At IES, we believe that attracting and retaining highly qualified and motivated employees at all levels is a key driver of our continued growth and success.

Our human capital management objectives include recruiting, retaining, developing, incentivizing and integrating our current and prospective employees as well as prioritizing and protecting their safety.

Our Employees

At September 30, 2021, we had 6,845 employees, of which 6,781 were full-time employees.

We are party to two collective bargaining agreements covering fewer than 30 employees within our Infrastructure Solutions segment.

We have not experienced, and do not expect, any work stoppage, and we believe that our relationship with our employees is strong.

We are committed to diversity and inclusion in the workplace, and our policies prohibit discrimination based on race, color, creed, gender, gender identity, sexual orientation, religion, marital status, national origin, disability, protected veteran status and relatives of protected veterans and any other status protected by local, state or federal law.

This commitment applies to all aspects of employment, including recruitment, hiring, training, compensation, job assignment, advancement, performance feedback and separation.

We strive to support our employees’ and their families’ health by offering comprehensive benefits programs, including medical, dental, vision and prescription insurance.

We also offer our employees a 401(k) plan, and life and disability insurance plans.

Recruiting and Training

A key factor in IES’s long-term strategy is the recruitment and retention of high-quality employees.

We use both internal and external resources to recruit employees, including monitoring competitive compensation levels in the markets in which we operate.

Our Communications segment has entered into a partnership with the U.S.

Army to guarantee job interviews to those who have completed Army Reserve training or a first term of active duty service, and we value the leadership and work ethic military veterans bring to the Company.

We have invested significant resources in development opportunities for employees.

For example, our Residential segment has established the IES Residential Education Center, a dedicated facility that trains employees from around the country in the technical

skills necessary for a successful career in residential electrical contracting.

At all of our segments, partly as a result of the COVID-19 pandemic, we have recently expanded our online training offerings to help meet the needs of our changing workplaces.

We believe our investment in training supports employee motivation and retention at the same time that it improves productivity and performance.

We are committed to fostering a strong safety culture that supports the health, safety and wellness of our employees, and this commitment is reflected in our track record of workplace safety that exceeds industry averages.

Our regional safety managers, under the supervision of our Senior Vice President of Safety, seek to maintain standardized safety and environmental policies, programs and procedures and provide personal protective equipment relevant to each segment, including programs to train new employees.

Our safety leadership continuously monitors and addresses safety performance, provides regular training and educational programs on safety and participates in numerous industry safety organizations.

In response to the COVID-19 pandemic, we assembled a task force and implemented numerous measures aimed at protecting the health and safety of our employees including additional personal protective equipment, on-site health screenings in some locations, social distancing, deep cleaning protocols and travel restrictions.

The Company continues to monitor evolving health and safety guidelines and regulations.

As of September 30, 2021, we have 99 domestic locations serving the United States.

In addition to our two executive and corporate offices, as of September 30, 2020, we have 16 locations within our Communications business, 29 locations within our Residential business, ten locations within our Infrastructure Solutions business and 22 locations within our Commercial & Industrial business.

In addition to our two executive and corporate offices, as of September 30, 2021, we have 17 locations within our Communications business, 50 locations within our Residential business, 11 locations within our Infrastructure Solutions business and 19 locations within our Commercial & Industrial business.

This geographic diversity helps to reduce our exposure to unfavorable economic developments in any given region.

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Gendell has also served as the Chairman of the Board since November 2016.

Gendell is the founder and managing member of Tontine Associates, L.L.C., which together with its affiliates is the Company's majority shareholder.

Gendell is the founder and managing member of Tontine Associates, which together with its affiliates is the Company's majority shareholder.

Gendell formed Tontine in 1995 and manages all of the investment decisions at the firm.

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The Code of Ethics may be found on our website at www.ies-corporate.com/corporate-governance .

If we make any substantive amendments to the Code of Ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics to our principal executive officer, principal financial officer or principal accounting officer, we will disclose the nature of such amendment or waiver on that website or in a report on Form 8-K.

Paper copies of these documents are also available free of charge upon written request to us.

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Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports are available free of charge through our website as soon as it is reasonably practicable after we file them with, or furnish them to, the SEC.

You may also contact our Investor Relations department and they will provide you with a copy of these reports , or you may find them at www.ies-corporate.com/sec-filings .

You may also contact our Investor Relations department which will provide you with a copy of these reports , or you may find them at www.ies-corporate.com/sec-filings .

The materials that we file with the SEC are also available free of charge through the SEC’s website at www.sec.gov .

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Paper copies of these documents are also available free of charge upon written request to us.

We have designated an “audit committee financial expert” as that term is defined by the SEC.

Further information about this designee may be found in the Proxy Statement for the 2021 Annual Meeting of Stockholders of the Company.

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What changed 10-K

Item 1. Business