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Item 8. Financial Statements and Supplementary Data

2022-12-06 compared with 2021-12-03 · 94 added, 204 removed, 875 unchanged (25% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID 42 )

Consolidated Balance Sheets

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition for certain fixed-price contracts

Revenue recognition under certain fixed-price contracts

Description of the Matter As described in Notes 2 and 4 to the consolidated financial statements, the Company generally recognizes revenue for fixed price contracts over time using costs incurred as a percentage of the estimated total costs at completion to determine the extent of progress of performance obligations.

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To assess the reasonableness of management's estimated costs, we performed audit procedures that included, among others, agreeing the estimates to supporting documentation;

conducting interviews with project personnel;

attending select project review meetings;

conducting interviews with project personnel or attending select project review meetings;

and performing sensitivity analyses or retrospective review using historical actual costs and trends.

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and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Controls over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Bayonet Plumbing, Heating & Air-Conditioning, LLC, Edmonson Electric, LLC, K.E.P.

Electric, Inc., and Wedlake Fabricating, Inc., which are included in the 2021 consolidated financial statements of the Company and constituted 11% of total assets, excluding goodwill and intangible assets, as of September 30, 2021 and 12% of consolidated revenues for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Bayonet Plumbing, Heating & Air-Conditioning, LLC, Edmonson Electric, LLC, K.E.P.

Electric, Inc., and Wedlake Fabricating, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2022, and the related notes and our report dated December 6, 2022 expressed an unqualified opinion thereon.

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Contingent consideration 277 211 ( 11 )

Loss (gain) on sale of assets ( 47 ) — 52

Gain on sale of assets ( 69 ) ( 47 ) —

Operating income 56,008 85,583 50,083

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Non-cash compensation — — — — 3,323 — 3,323

Cumulative effect adjustment from adoption of new accounting standard — — — — — 80 80

Increase in noncontrolling interest — — — — — ( 194 ) ( 194 )

Net income attributable to IES Holdings, Inc.

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Increase in noncontrolling interest — — — — — ( 315 ) ( 315 )

Cumulative effect adjustment from adoption of new accounting standard — — — — — ( 214 ) ( 214 )

Net income attributable to IES Holdings, Inc.

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Increase in noncontrolling interest — — — — — ( 4,699 ) ( 4,699 )

Cumulative effect adjustment from adoption of new accounting standard — — — — — ( 214 ) ( 214 )

Net income attributable to IES Holdings, Inc.

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 68,676 $ 40,554 $ 33,478

Net income $ 40,186 $ 68,676 $ 40,554

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

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Depreciation and amortization 25,468 21,914 12,508

Loss (gain) on sale of assets ( 47 ) — 52

Gain on sale of assets ( 69 ) ( 47 ) —

Non-cash compensation expense 3,775 3,522 3,323

Goodwill impairment expense — — 6,976

Deferred income taxes 11,724 5,122 5,681

Deferred income tax expense (benefit) ( 31 ) 11,724 5,122

Changes in operating assets and liabilities

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Proceeds from sales of assets 219 295 104

Cash received (paid) in conjunction with business combinations or dispositions ( 92,463 ) ( 28,952 ) 50

Cash paid in conjunction with equity investments ( 500 ) — —

Cash paid in conjunction with business combinations or dispositions — ( 92,463 ) ( 28,952 )

Net cash used in investing activities ( 29,536 ) ( 99,569 ) ( 33,593 )

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Repayments of debt ( 1,882,148 ) ( 1,278,204 ) ( 592,756 )

Finance lease payment ( 648 ) ( 215 ) —

Contingent consideration payment — — ( 240 )

Cash paid for finance leases ( 1,801 ) ( 648 ) ( 215 )

Purchase of noncontrolling interest — ( 1,188 ) —

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IES Holdings, Inc.

designs and installs integrated electrical and technology systems and provides infrastructure products and services across a variety of end markets, including data centers, residential housing and commercial and industrial facilities.

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

designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end markets, including data centers, residential housing and commercial and industrial facilities.

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

• Communications – Nationwide provider of technology infrastructure services, including the design, build, and maintenance of the communications 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, 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 to be used in data centers and other industrial applications.

• 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.

• Commercial & Industrial – Provider of electrical and mechanical design, construction, and maintenance services to the commercial and industrial markets in various regional markets and nationwide in certain areas of expertise, such as the power infrastructure market and data centers.

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Asset Impairment

During the fiscal year ended September 30, 2021, the Company recorded no asset impairment charges.

During the fiscal years ended September 30, 2022 and 2021, the Company recorded no asset impairment charges.

At September 30, 2020, we recorded an impairment charge of $ 6,976 to Goodwill related to our Commercial & Industrial segment.

During the fiscal year ended September 30, 2019, the Company recorded no asset impairment charges.

Please refer to Note 17, “Goodwill and Intangible Assets” for further discussion.

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Contract costs include all direct material, labor and insurance costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs.

Changes in job performance, job

conditions, estimated contract costs and profitability and final contract settlements can result in change orders under which the customer agrees to pay additional contract price.

Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements can result in change orders under which the customer agrees to pay additional contract price.

Revisions can also result in claims we might make against the customer to recover additional costs that have not been resolved through change orders with the customer.

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Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined.

The balances billed but not paid by customers pursuant to retainage provisions in project contracts are typically due upon completion of the contracts and acceptance by the customer.

The balances billed but not paid by customers

pursuant to retainage provisions in project contracts are typically due upon completion of the contracts and acceptance by the customer.

Based on our experience, the retention balance at each balance sheet date will be collected within the subsequent fiscal year.

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Our allowance for credit losses at September 30, 2022 and 2021 was $ 5,361 and $ 2,387 , respectively.

Activity in our allowance for credit losses consists of the following:

Year Ended September 30,

Balance at beginning of period $ 2,387 $ 2,613

Additions to costs and expenses, inclusive of ASU 2016-13 adoption adjustment 3,141 1,216

Deductions for uncollectible receivables written off, net of recoveries ( 167 ) ( 1,442 )

Balance at end of period $ 5,361 $ 2,387

Comprehensive Income (Loss)

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Under this method, deferred income tax assets and liabilities are recorded for the future income tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities, and are measured using enacted tax rates and laws.

We regularly evaluate valuation allowances established for deferred tax assets for which future realization is uncertain.

We perform this evaluation on a quarterly basis.

The estimation of required valuation allowances includes estimates of future taxable income.

We evaluate valuation allowances established for deferred tax assets for which future realization is uncertain on a quarterly basis.

In assessing the realizability of deferred tax assets, we must consider whether it is more likely than not some portion, or all, of the deferred tax assets will not be realized.

We consider all available evidence, both positive and negative, in determining whether a valuation allowance is required.

At September 30, 2021, we concluded, based upon the assessment of positive and negative evidence, that it is more likely than not that the Company will generate sufficient taxable income within the applicable net operating loss ("NOL") carryforward periods to realize its net deferred tax assets of $ 19,009 .

At September 30, 2022, we concluded, based upon the assessment of positive and negative evidence, that it is more likely than not that the Company will generate sufficient taxable income within the applicable net operating loss ("NOL") carryforward periods to realize net deferred tax assets of $ 20,519 .

We considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

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Losses are accrued based upon our known claims incurred and an estimate of claims incurred but not reported.

Each year, we compile our historical data pertaining to the insurance experiences and actuarially develop the ultimate loss associated with our insurance

programs other than pollution coverage for our Infrastructure Solutions segment.

Each year, we compile our historical data pertaining to the insurance experiences and actuarially develop the ultimate loss associated with our insurance programs other than pollution coverage for our Infrastructure Solutions segment.

We believe that the actuarial valuation provides the best estimate of the ultimate losses to be expected under these programs.

The undiscounted ultimate losses of our workers’ compensation, auto and general liability insurance reserves at September 30, 2022 and 2021, were $ 5,026 and $ 3,266 , respectively.

Based on historical payment patterns, we expect payments of undiscounted ultimate losses to be made as follows:

Based on historical payment patterns, we expect payments of undiscounted ultimate

losses to be made as follows:

Year Ending September 30:

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We periodically assess the financial condition of these institutions where these funds are held and believe the credit risk is minimal.

We maintain the majority of our cash and cash equivalents in money market mutual funds.

We maintain the majority of our cash and cash equivalents in depository bank accounts or money market mutual funds.

There can be no assurance, however, that we will not be adversely affected by credit risks we face.

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The carrying value of our debt approximates fair value, as debt incurs interest at a variable rate.

Deferred Compensation Plans

The Company maintains a rabbi trust to fund certain deferred compensation plans.

The securities held by the trust are classified as trading securities.

The investments are recorded at fair value and are classified as other non-current assets in the accompanying Consolidated Balance Sheets as of September 30, 2021 and 2020.

The changes in fair values are recorded as a component of other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

The corresponding deferred compensation liability is included in other non-current liabilities on the Consolidated Balance Sheets and changes in this obligation are recognized as adjustments to compensation expense in the period in which they are determined.

Noncontrolling Interest

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If all of the noncontrolling interests remaining outstanding at September 30, 2022 had been redeemable at that date, the redemption amount would have been $ 27,204 .

For the year ended September 30, 2022, we recorded a decrease to Retained Earnings of $ 4,699 to increase the carrying amount of noncontrolling interest in NEXT and Edmonson to their redemption amounts.

For the year ended September 30, 2021, we recorded a decrease to Retained Earnings of $ 315 to increase the carrying amount of noncontrolling interest in NEXT and STR to their redemption amounts.

For the year ended September 30, 2020, we recorded a decrease to Retained Earnings of $ 194 to increase the carrying amount of noncontrolling interest in NEXT to its redemption amount.

We enter into various contractual arrangements for the right to use facilities, vehicles and equipment.

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If the cost is not fixed at the inception of the lease, the cost is recorded as a variable cost in the period incurred.

Accounting Standards Not Yet Adopted

Accounting Standards Recently Adopted

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No.

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Early adoption is permitted.

We adopted this standard as of October 1, 2021, and do not expect it to have a material impact on our Consolidated Financial Statements.

Accounting Standards Recently Adopted

We adopted this standard on October 1, 2021 with immaterial impact on our Consolidated Financial Statements.

In June 2016, FASB issued Accounting Standard Update No.

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As a result, we recorded an increase in the Allowance for Credit Losses of $ 284 , an increase to Deferred Tax Assets of $ 70 , and a decrease to Retained Earnings of $ 214 .

ASU 2016-13 requires the recognition of expected credit losses on financial assets measured at amortized cost basis.

In calculating our expected credit losses, we considered trade receivables, retainage, and costs and estimated earnings in excess of billings, all of which constitute a homogenous portfolio, and therefore, to measure the expected credit loss, they have been grouped together.

We have elected to calculate an expected credit loss based on loss rates from historical data.

Each segment groups financial assets with similar risk characteristics and collectively assesses the expected credit losses.

If an individual asset experiences credit deterioration to the extent the credit risk is no longer characteristic of the other assets in the group, it will be analyzed individually.

The loss rates for our portfolios include our history of credit loss expense, the aging of our receivables, our expectation of payments and adjustment for forward-looking factors specific to the macroeconomic trends in the U.S.

construction market.

Activity in our allowance for credit losses consists of the following:

Year Ended September 30,

Balance at beginning of period $ 2,613 $ 1,184

Additions to costs and expenses, inclusive of ASU 2016-13 adoption adjustment 1,216 1,864

Deductions for uncollectible receivables written off, net of recoveries ( 1,442 ) ( 435 )

Balance at end of period $ 2,387 $ 2,613

Other than trade receivables due in one year or less, we do not have any other financial assets that are past due or are on non-accrual status.

In August 2018, the FASB issued Accounting Standard Update No.

2018-13, Fair Value Measurement Disclosure Framework (“ASU 2018-13”), to modify certain disclosure requirements for fair value measurements.

Under the new guidance, registrants will need to disclose weighted average information for significant unobservable inputs for all Level 3 fair value measurements.

The guidance does not specify how entities should calculate the weighted average, but requires them to explain their calculation.

The new guidance also requires disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period.

This guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.

We adopted this standard on October 1, 2020, with no impact on our Consolidated Financial Statements.

In February 2016, the FASB issued Accounting Standard Update No.

2016-02, Leases (“ASU 2016-02”).

Under ASU 2016-02, lessees need to recognize a ROU asset and a lease liability on their balance sheets for all leases, other than those that meet the definition of a short-term lease.

For income statement purposes, leases must be classified as either operating or finance.

Operating leases result in straight-line expense, while finance leases are accounted for similar to capital leases under the previous lease accounting standard.

We adopted ASU 2016-02 on October 1, 2019 using a modified retrospective transition approach.

Using the optional transition method allowed under Accounting Standard Update No.

2018-11, prior period amounts were not adjusted retrospectively and continue to be reported using the previous accounting standards in effect for the period presented.

We elected to utilize all of the available practical expedients with the exception of the practical expedient permitting the use of hindsight when determining the lease term and assessing impairment of ROU assets.

Therefore, we did not reassess whether any of our existing or expired contracts contained leases or the classification of or initial direct costs included in our existing or expired leases.

The adoption of ASU 2016-02 resulted in the recognition of ROU assets of approximately $ 32,434 and operating lease liabilities of approximately $ 32,237 on our Consolidated Balance Sheets at the adoption date.

The difference between the ROU assets and lease liabilities was primarily due to previously accrued rent expense relating to periods prior to October 1, 2019.

The adoption did not have a significant impact on our Consolidated Statements of Comprehensive Income or Cash Flows.

See Note 9, “Leases” for additional discussion of our lease accounting policies and expanded disclosures.

In June 2018, the FASB issued Accounting Standard Update No.

2018-07, Compensation—Stock Compensation (“ASU 2018-07”), to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments for employees, with certain exceptions.

Under the new guidance, the cost for nonemployee awards may be lower and less volatile than under current GAAP because the measurement generally will occur earlier and will be fixed at the grant date.

This update was adopted as of October 1, 2019 with no impact to our financial statements.

CONTROLLING SHAREHOLDER

Tontine Associates, L.L.C.

("Tontine Associates"), together with its affiliates (collectively, "Tontine") is the Company's controlling shareholder, owning approximately 56 percent of the Company’s outstanding common stock as of December 1, 2021, based on Form 4 filed by Tontine with the SEC on November 18, 2021.

("Tontine Associates"), together with its affiliates (collectively, "Tontine") is the Company's controlling stockholder, owning approximately 57 percent of the Company’s outstanding common stock based on the Form 4 filed by Tontine with the SEC on December 3, 2021 and the Company's shares outstanding as of December 2, 2022.

Accordingly, Tontine has the ability to exercise significant control over our affairs, including the election of directors and most actions requiring the approval of shareholders.

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As long as the shelf registration statement remains effective and the Company remains eligible to use it, Tontine has the ability to resell any or all of its registered shares from time to time in one or more offerings, as described in the shelf registration statement and in any prospectus supplement filed in connection with an offering pursuant to the shelf registration statement.

Should Tontine sell or otherwise dispose of all or a portion of its position in IES, a change in ownership of IES could occur.

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

Should Tontine, or its underlying individual owners, sell or otherwise dispose of all or a portion of its position in IES, a change in ownership of IES could occur.

A change in ownership, as defined by Internal Revenue Code Section 382, could reduce the availability of the Company’s net operating loss carryforwards for federal and state income tax purposes.

Furthermore, a change of control would trigger the change of control provisions in a number of our material agreements, including our credit agreement, bonding agreements with our sureties and our executive severance plan.

The Company previously had in place a tax benefit protection plan (the “NOL Rights Plan”), 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.

However, on May 7, 2021, we amended the NOL Rights Plan, accelerating the expiration of the plan from December 31, 2021 to May 21, 2021.

As a result of this amendment, the NOL Rights Plan has now expired.

Gendell was appointed as Chief Executive Officer of the Company effective October 1, 2020, having served as the Company's Interim Chief Executive Officer since July 31, 2020.

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Gendell, who has served as a member of our Board of Directors since February 2012, and who previously served as Interim Director of Operations from November 2017 to January 2019, as Vice Chairman of the Board from November 2016 to November 2017 and as Chairman of the Board from January 2015 to November 2016.

Gendell was an employee of Tontine from 2004 until December 31, 2017.

Gendell was an employee of Tontine from 2004 until January 2018.

The Company is party to a sublease agreement with Tontine Associates for corporate office space in Greenwich, Connecticut.

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On December 6, 2018, the Company entered into a Board Observer Letter Agreement (the "Observer Agreement") with Tontine Associates, in order to assist Tontine in managing its investment in the Company.

Subject to the terms and conditions set forth in the

Observer Agreement, the Company granted Tontine the right, at any time that Tontine holds at least 20% of the outstanding common stock of the Company, to appoint a representative to serve as an observer to the Board (the “Board Observer”).

Subject to the terms and conditions set forth in the Observer Agreement, the Company granted Tontine the right, at any time that Tontine holds at least 20% of the outstanding common stock of the Company, to appoint a representative to serve as an observer to the Board (the “Board Observer”).

The Board Observer, who must be reasonably acceptable to those members of the Board who are not affiliates of Tontine, shall have no voting rights or other decision making authority.

Subject to the terms and conditions set forth in the Observer Agreement, so long as Tontine has the right to appoint a Board Observer, the Board Observer will have the right to attend and participate in meetings of the Board and the committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable out-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.

committees thereof, subject to confidentiality requirements, and to receive reimbursement for reasonable out-of-pocket expenses incurred in his or her capacity as a Board Observer and such rights to coverage under the Company’s directors’ and officers’ liability insurance policy as are available to the Company’s directors.

REVENUE RECOGNITION

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The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis.

extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.

To the extent unapproved change orders and claims reflected in transaction price (or accounted for as a reduction of the transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.

Disaggregation of Revenue

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Debt issuance costs

( 1,031 ) ( 656 )

Other long-term debt — 63

Total debt $ 81,628 $ 39,746

(1) At September 30, 2020, the remaining unamortized debt issuance costs of $ 736 , were reclassified to Other non-current assets on the Consolidated Balance Sheets.

At September 30, 2021, we had $ 40,339 of outstanding borrowings, $ 4,527 in outstanding letters of credit and $ 55,134 of availability under our revolving credit facility with Wells Fargo Bank, N.A.

("Wells Fargo").

Following the amendment discussed below of our Prior Credit Agreement (as defined below) on December 2, 2021, all amounts outstanding under our revolving credit facility are due and payable in September 2026, upon expiration of our revolving credit facility, and all amounts described as available are available without triggering our financial covenants under the Amended Credit Agreement (as defined below).

At September 30, 2022, we had $ 82,659 of outstanding borrowings, $ 4,077 in outstanding letters of credit and $ 63,263 of availability under our revolving credit facility.

All amounts outstanding under our revolving credit facility are due and payable in September 2026, upon expiration of our revolving credit facility, and all amounts described as available are available without triggering our financial covenants under the Amended Credit Agreement (as defined below).

The interest rate on outstanding borrowings under our revolving credit facility was 4.98 % at September 30, 2022.

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The Revolving Credit Facility

We maintain a revolving credit facility pursuant to an agreement with Wells Fargo (as amended, the "Prior Credit Agreement").

On December 2, 2021, we amended the Prior Credit Agreement (the "Ninth Amendment" and the Prior Credit Agreement as so amended, the "Amended Credit Agreement") to, among other things, increase the size of the facility from $ 100,000 to $ 125,000 , reduce our required minimum Liquidity (as defined in the Amended Credit Agreement) from $ 20,000 to $ 12,500 , and extend the maturity date from September 30, 2024 to September 30, 2026.

Please see Note 20 - "Subsequent Events" for further information about the terms of the Ninth Amendment.

Terms of the Prior Credit Agreement

The Prior Credit Agreement contains customary affirmative, negative and financial covenants, as well as customary events of default.

As of September 30, 2021, we were in compliance with the financial covenants in effect as of that date under the Prior Credit Agreement, requiring that we maintain:

• a Fixed Charge Coverage Ratio (as defined in the Prior Credit Agreement), measured quarterly on a trailing four-quarter basis at the end of each quarter, of at least 1.1 to 1.0;

• minimum Liquidity of at least twenty percent (20%) of the Maximum Revolver Amount (as defined in the Prior Credit Agreement), or $20,000;

with, for purposes of this covenant, at least fifty percent (50%) of our Liquidity comprised of Excess Availability (as defined in the Prior Credit Agreement).

On April 28, 2022 we entered into the Third Amended and Restated Credit and Security Agreement (the "Amended Credit Agreement"), which, among other things, increased the maximum borrowing amount under our revolving credit facility from $ 125,000 to $ 150,000 .

The Amended Credit Agreement also removed the aggregate cap on Company investments in certain securities and the cap on the Company’s ability to make stock repurchases, in each case subject to the satisfaction of certain liquidity requirements.

The Amended Credit Agreement, which matures on September 30, 2026, contains customary affirmative, negative and financial covenants.

As of September 30, 2022, the Company was in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:

• a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement), measured quarterly on a trailing four-quarter basis at the end of each quarter, of at least 1.1 to 1.0;

• minimum Liquidity of at least ten percent (10%) of the Maximum Revolver Amount, or $15,000;

with, for purposes of this covenant, at least fifty percent (50%) of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement).

At September 30, 2022, our Liquidity was $ 88,112 , our Excess Availability was $ 63,263 (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was 1.6 :1.0.

There was no change to the Fixed Charge Coverage Ratio covenant under the Ninth Amendment.

The Ninth Amendment reduced the minimum Liquidity requirement from twenty percent (20%) to ten percent (10%) of the Maximum Revolver Amount, or $12,500.

If in the future our Liquidity falls below the amount required by the Amended Credit Agreement (or Excess Availability falls below 50% of our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under the Amended Credit Agreement, it would result in an event of default under the Amended Credit Agreement, which could result in some or all of any indebtedness we may take on becoming immediately due and payable.

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Our lease agreements do not contain any material residual value guarantees or restrictive covenants.

Current operating and finance liabilities of $ 13,973 and $ 1,033 , respectively, were included in " Accounts payable and accrued expenses " in the Consolidated Balance Sheets as of September 30, 2021.

Current operating lease liabilities were $ 17,319 and $ 13,973 , respectively, as of September 30, 2022 and 2021, and current finance lease liabilities were $ 2,928 and $ 1,033 , respectively, as of September 30, 2022 and 2021.

Current operating and finance lease liabilities were included in " Accounts payable and accrued expenses " in the Consolidated Balance Sheets as of September 30, 2022 and 2021.

Non-current finance lease liabilities and finance lease right-of-use assets were included in the " Other non-current liabilities " and " Other non-current assets ", respectively, in the Consolidated Balance Sheets.

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State income taxes, net of federal deduction 2,114 3,876 2,662

Change in valuation allowance 283 — —

Other 427 — 261

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Net deferred income tax assets $ 20,519 $ 19,009

In fiscal 2021 and 2020, the valuation allowance on our deferred tax assets decreased by $ 118 and $ 3,334 , respectively, which is included in “Provision (benefit) for income taxes” in our Consolidated Comprehensive Income Statement.

In fiscal 2022 and 2021, the valuation allowance on our deferred tax assets increased by $ 283 and decreased by $ 118 , respectively, which is included in “Provision (benefit) for income taxes” in our Consolidated Statements of Comprehensive Income.

As of September 30, 2022, we had available approximately $ 61,034 of federal net tax operating loss carry forward for federal income tax purposes, including $ 55,124 from net operating losses on which no tax benefit has been recognized and has not been recorded as a deferred tax asset.

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We will continue to evaluate the appropriateness of our remaining deferred tax assets and need for valuation allowances on a quarterly basis.

As a result of a 2006 reorganization and related adjustment to the book basis in goodwill, we have tax basis in excess of book basis in amortizable goodwill of approximately $ 3,869 .

The tax basis in amortizable goodwill in excess of book basis is not reflected as a deferred tax asset.

To the extent the amortization of the excess tax basis results in a cash tax benefit, the benefit will first go to reduce goodwill, then other long-term intangible assets, and then tax expense.

GAAP requires financial statement reporting of the expected future tax consequences of uncertain tax return reporting positions on the presumption that all relevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but it prohibits discounting of any of the related tax effects for the time value of money.

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We anticipate that approximately $ 172 in liabilities for unrecognized tax benefits, including accrued interest, primarily from net operating losses on which no tax benefit has been recognized, may be reversed in the next twelve months.

The reversal is predominately due to the expiration of the statutes of limitation for unrecognized tax benefits.

The reversal is predominantly due to the expiration of the statutes of limitation for unrecognized tax benefits.

We had approximately $ 52 and $ 50 accrued for the payment of interest and penalties at September 30, 2022, and 2021, respectively.

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Selling, general and administrative 41,373 92,761 23,966 28,172 15,979 202,251

Goodwill impairment expense — — — 6,976 — 6,976

Contingent consideration — 211 — — — 211

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Selling, general and administrative 37,674 63,668 20,418 32,128 17,023 170,911

Goodwill impairment expense — — — 6,976 — 6,976

Contingent consideration — — — ( 11 ) — ( 11 )

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Stock Repurchase Program

In 2015, our Board authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock, and on May 2, 2019, our Board authorized the repurchase from time to time of an additional 1.0 million

shares of the Company's common stock under the stock repurchase program.

In 2015, our Board authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock, in 2019, our Board authorized the repurchase from time to time of an additional 1.0 million shares of the Company's common stock under the stock repurchase program.

Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise.

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We repurchased 124,205 shares of our common stock during the year ended September 30, 2021, in open market transactions at an average price of $ 44.40 per share.

In December 2022, our Board of Directors terminated our previous share repurchase program and authorized a new $ 40,000 share repurchase program.

Treasury Stock

During the year ended September 30, 2022, we issued 157,167 shares of common stock from treasury and repurchased 45,198 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan.

We also repurchased 124,205 shares of common stock on the open market pursuant to our stock repurchase program, and 13,996 shares were forfeited by former employees and returned to treasury stock.

During the year ended September 30, 2021, we issued 380 unrestricted shares of common stock from treasury to members of our Board of Directors as part of their overall compensation.

We also repurchased 511,600 shares of common stock on the open market pursuant to our stock repurchase program.

During the year ended September 30, 2022, we issued 9,000 unrestricted shares to satisfy the exercise of outstanding options.

During the year ended September 30, 2021, we issued 140,280 shares of common stock from treasury and repurchased 32,323 shares of common stock from our employees to satisfy statutory tax withholding requirements upon the vesting of certain performance phantom stock units under the Equity Incentive Plan.

We also repurchased 124,205 shares of common stock on the open market pursuant to our stock repurchase program, and 13,996 shares were forfeited by former employees and returned to treasury stock.

During the year ended September 30, 2020, we issued 6,789 unrestricted shares of common stock from treasury to members of our Board of Directors as part of their overall compensation and 5,750 unrestricted shares to satisfy the exercise of outstanding options.

During the year ended September 30, 2021, we issued 380 unrestricted shares of common stock from treasury to members of our Board of Directors as part of their overall compensation.

Restricted Stock

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Unvested at end of year 13,639 16,757 38,936

The fair value of shares vesting during the years ended September 30, 2021, 2020, and 2019 was $ 308 , $ 2,984 and zero , respectively.

The fair value of shares vesting during the years ended September 30, 2022, 2021, and 2020 was $ 150 , $ 308 and $ 2,984 , respectively.

Fair value was calculated as the number of shares vested times the market price of shares on the date of vesting.

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As of September 30, 2022, a maximum of 315,961 shares of common stock may be issued under outstanding Employee PSUs.

During the year ended September 30, 2021, 2020, and 2019 we recognized compensation expense of $ 2,986 , $ 1,443 , and $ 1,151 , respectively, related to Employee PSUs.

During the years ended September 30, 2022, 2021, and 2020 we recognized compensation expense of $ 3,251 , $ 2,986 , and $ 1,443 , respectively, related to Employee PSUs.

The vesting of these awards is subject to either the achievement of specified levels of cumulative net income before taxes (a performance condition) or specified stock price levels (a market condition) and continued performance of services, or based on continued performance of services through the vesting date alone.

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Fair value is considered the price to sell an asset, or transfer a liability, between market participants on the measurement date.

Fair value measurements assume that (1) the asset or liability is exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an

Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements.

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The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.

At September 30, 2022, financial assets and liabilities measured at fair value on a recurring basis were limited to our Executive Savings Plan, under which certain employees are permitted to defer a portion of their base salary and/or bonus for a Plan Year (as defined in the plan), equity securities held for sale, and contingent consideration liabilities related to certain of our acquisitions.

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and 2021, are summarized in the following tables by the type of inputs applicable to the fair value measurements:

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Executive savings plan assets $ 706 $ 706 $ —

Equity securities 1,937 1,937 —

Executive savings plan liabilities ( 585 ) ( 585 ) —

Contingent consideration liability ( 4,323 ) — ( 4,323 )

Total $ ( 4,050 ) $ 131 $ ( 4,181 )

September 30, 2021

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Executive savings plan liabilities ( 806 ) ( 806 ) —

Total $ 122 $ 122 $ —

Contingent consideration liability ( 4,181 ) — ( 4,181 )

In fiscal year 2021, we entered into a contingent consideration arrangement related to the acquisition of Bayonet.

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The table below presents the fair value of this obligation, which used significant unobservable inputs (Level 3).

In fiscal years 2016, 2017, and 2018, we entered into contingent consideration arrangements related to certain acquisitions.

Please see Note 19, “Business Combinations” for further discussion.

At September 30, 2021, we estimated the fair value of these contingent consideration liabilities at zero .

The table below presents a reconciliation of the fair value of these obligations, which used significant unobservable inputs (Level 3).

Contingent Consideration Agreement

Fair Value at September 30, 2020 $ —

Settlements —

Acquisitions ( 4,074 )

Net adjustments to fair value ( 107 )

Fair Value at September 30, 2021 $ ( 4,181 )

Acquisitions ( 4,074 )

Net adjustments to fair value ( 142 )

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Acquisitions (Note 19) — 35,151 3,481 — 38,632

Goodwill impairment — — — ( 6,976 ) ( 6,976 )

Balance at September 30, 2021 2,816 51,370 38,209 — 92,395

Acquisitions (Note 19) — 35,151 3,481 — 38,632

Balance at September 30, 2022 $ 2,816 $ 51,370 $ 38,209 $ — $ 92,395

Based on the results of our annual goodwill impairment assessment at September 30, 2022, we concluded the fair value of each of our reporting units exceeded its book value, and therefore we recorded no impairment charges for the year ended September 30, 2022.

In 2020, our Commercial & Industrial reporting unit experienced operating losses.

Our performance was affected by the COVID-19 pandemic and other market factors which delayed the awarding of new projects, decreased demand for new construction in market sectors such as retail, office, and hospitality, and negatively impacted our revenue, profitability and backlog.

As a result of this increasingly competitive and uncertain environment, and the financial performance of this reporting unit, we concluded in performing our annual goodwill impairment assessment as of September 30, 2020 that the fair value of our Commercial & Industrial reporting unit was less than its carrying amount, which resulted in the recognition of a non-cash goodwill impairment charge of $ 6,976 for the year ended September 30, 2020.

We have an accumulated impairment loss of $ 6,976 related to our Commercial & Industrial segment.

Intangible Assets

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On June 22, 2021, the United States Department of Labor Wage and Hour Division (the “DOL”) notified IES Residential, Inc.

(“IESR”), our subsidiary, that the DOL had commenced an administrative investigation of IESR’s compliance with laws regulating employee wage payment.

The inquiry concerned overtime calculations and record keeping with respect to certain Arizona employees who are paid on a piece rate basis.

In response to certain DOL requests, IESR produced documents and made employees available for interviews.

On November 10, 2021, the DOL indicated that it believes IESR piece rate employees did not record all hours worked, and therefore IESR was not in compliance with the Fair Labor Standards Act.

We dispute this claim, and plan to vigorously defend ourselves.

To date, the Company has not established a reserve with respect to this matter, as we believe the likelihood of our responsibility for damages is not probable and a potential range of exposure is not reasonably estimable.

(“IESR”), a wholly-owned subsidiary of the Company, that the DOL had commenced an administrative investigation of IESR’s compliance with laws regulating employee wage payment.

The inquiry concerned record keeping with respect to certain Arizona employees who are paid on a piece rate basis.

We entered into a settlement with the DOL in November 2022 resolving this matter.

Costs associated with this matter, which will not have a material impact on our results of operations, have been accrued as a liability as of September 30, 2022.

In the course of performing work as a subcontractor, from time to time we may be involved in projects which are the subject of contractual disputes between the general contractor and project owner, or between us and the general contractor.

In such cases, payment of amounts owed to us by the general contractor may be delayed as contractual disputes are resolved through mediation, arbitration, or litigation.

Such disputes may cause us to incur legal fees and other expenses to enforce our contractual rights, and we may not prevail in recovering all amounts to which we believe we are contractually entitled.

At September 30, 2022, we had an aggregate $ 10,451 of trade accounts receivable where payment has been delayed as a result of contractual disputes.

We believe that we are contractually entitled to all of these amounts, and intend to vigorously pursue recovery.

However, based on uncertainty around the timing and amount of recovery, at September 30, 2022, we have recorded a reserve of $ 3,095 against these receivables.

Risk Management

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We are also subject to construction defect liabilities, primarily within our Residential segment.

As of September 30, 2021 and 2020, we had $ 8 and $ 36 , respectively, reserved

for these claims.

As of September 30, 2022 and 2021, we had $ 17 and $ 8 , respectively, reserved for these claims.

Because the reserves are based on judgment and estimates, and involve variables that are inherently uncertain, such as the outcome of litigation and an assessment of insurance coverage, there can be no assurance that the ultimate liability will not be higher or lower than such estimates or that the timing of payments will not create liquidity issues for the Company.

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BUSINESS COMBINATIONS

The Company completed four acquisitions during the year ended September 30, 2021 for a total aggregate cash consideration of $ 92,463 .

• Edmonson Electric, LLC ("Edmonson") - On May 18, 2021, we acquired an 80% ownership interest in Edmonson, a Land O'Lakes, Florida-based provider of residential electric, low voltage, and heating, ventilation and air conditioning (HVAC) installation services.

The acquisition of Edmonson expanded our presence in the Florida market and added electrical to our Florida service offerings.

Edmonson is part of our Residential segment and continues to operate under the Edmonson name.

• Bayonet Plumbing, Heating & Air-Conditioning, LLC ("Bayonet") - On December 21, 2020, we acquired an 80% ownership interest in Bayonet, a Hudson, Florida-based provider of residential HVAC and plumbing installation and maintenance services.

The acquisition of Bayonet allowed us to expand into the Florida market, while adding plumbing and HVAC to our service offerings.

Bayonet is part of our Residential segment and continues to operate under the Bayonet name.

• Wedlake Fabricating, Inc.

(“Wedlake”) - On November 19, 2020, we acquired Wedlake, a Tulsa, Oklahoma-based manufacturer of custom generator enclosures that are primarily used by data centers and large commercial and industrial facilities.

The acquisition of Wedlake expanded our generator enclosures business and our geographic footprint.

Wedlake is part of our Infrastructure Solutions segment and continues to operate under the Wedlake name.

Electric, Inc.

(“KEP”) - On November 5, 2020, we acquired KEP, a Batavia, Ohio-based electrical contractor specializing in the design and installation of electrical systems for single-family housing and multi-family developments.

The acquisition of KEP, which has operations in Ohio and Kentucky, advanced the expansion of our Residential service offerings into the Midwest.

KEP is part of our Residential segment and continues to operate under the KEP name.

We completed no acquisitions in fiscal year 2022.

We completed four acquisitions in fiscal year 2021 for total aggregate cash consideration of $ 92,463 .

In November 2020, we acquired both Wedlake Fabricating, Inc., a Tulsa, Oklahoma-based manufacturer of custom generator enclosures that are primarily used by data centers and large commercial and industrial facilities, and K.E.P.

Electric, Inc., a Batavia, Ohio-based electrical contractor specializing in the design and installation of electrical systems for single-family housing and multi-family developments.

In December 2020, we acquired an 80% interest in Bayonet Plumbing, Heating & Air-Conditioning, LLC, a Hudson, Florida-based provider of residential heating, ventilation and air conditioning ("HVAC") and plumbing installation and maintenance services.

In May 2021, we acquired an 80% ownership interest in Edmonson Electric, LLC, a Land O'Lakes, Florida-based provider of residential electric, low voltage, and HVAC installation services.

Total aggregate cash consideration for these acquisitions was $ 92,463 , of which $ 10,916 was paid into escrow pending discharge of the acquired companies' indebtedness under the Paycheck Protection Program ("PPP") established by the Coronavirus Aid, Relief, and Economic Security Act and implemented by the U.S.

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Loans made under the PPP are eligible to be forgiven if certain criteria are met.

As of September 30, 2021, all PPP loans were forgiven and escrow payments have been distributed to the respective sellers.

In addition to the cash consideration, the purchase price also includes contingent consideration with respect to the acquisition of Bayonet of up to $ 4,500 due in December 2023.

During the year ended September 30, 2021, all PPP loans were forgiven and escrow payments were distributed to the respective sellers.

In addition to the cash consideration, the purchase price included contingent consideration with respect to the acquisition of Bayonet of up to $ 4,500 due in December 2023.

Amounts to be paid are contingent on earnings achieved over a three year period, and will accrue interest on the $ 4,500 at a rate of 3%, to be paid quarterly.

This contingent liability was valued at $ 4,074 as of the date of the acquisition.

The Company accounted for the transactions under the acquisition method of accounting, which requires recording assets and liabilities at fair value (Level 3).

The valuations derived from the estimated fair value assessments and assumptions used by management are preliminary pending finalization of certain tangible and intangible asset valuations and assessment of deferred taxes.

While management believes the preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different values being assigned to individual assets acquired and liabilities assumed.

This may result

in further adjustments to the preliminary amounts recorded.

The preliminary valuation of the assets acquired and liabilities assumed is as follows:

Current assets $ 36,348

Property and equipment 11,965

Intangible assets 59,648

Goodwill 38,632

Operating right of use assets 837

Current liabilities ( 29,149 )

Operating long-term lease liabilities ( 723 )

Deferred tax liability ( 3,282 )

Noncontrolling interest ( 21,813 )

Net assets acquired $ 92,463

With regard to goodwill, the balance is attributable to the workforce of the acquired business and other intangibles that do not qualify for separate recognition.

In connection with these acquisitions, the preliminary estimate of acquired goodwill is $ 38,632 of which $ 20,741 is tax deductible.

The intangible assets acquired primarily consisted of Customer Relationships and Trade Names with a total weighted-average amortization period of 6.4 years.

These acquisitions contributed $ 179,628 in revenue and $ 6,508 in operating income during the year ended September 30, 2021.

We completed two acquisitions in fiscal 2020 for total aggregate cash consideration of $ 28,952 .

In February 2020, we acquired both Aerial Lighting & Electric, Inc.

("Aerial"), a Naugatuck, Connecticut-based electrical contractor specializing in the design and installation of electrical systems for multi-family developments, and Plant Power and Control Systems, L.L.C.

("PPCS"), a Birmingham, Alabama-based manufacturer and installer of custom engineered power distribution equipment.

These acquisitions contributed $ 21,836 in revenue and $ 812 in operating income during the year ended September 30, 2020.

Unaudited Pro Forma Information

The following unaudited supplemental pro forma results of operations for the year ended September 30, 2021 are calculated as if each acquisition occurred as of October 1 of the fiscal year prior to consummation.

Twelve Months Ended September 30,

Revenues $ 1,631,057 $ 1,441,933

Net income attributable to IES Holdings, Inc.

$ 69,928 $ 49,257

SUBSEQUENT EVENTS

On December 2, 2021, we entered into the Ninth Amendment of our Prior Credit Agreement with Wells Fargo.

The Ninth Amendment, among other things, increases the maximum revolver amount from $ 100,000 to $ 125,000 , reduces our required minimum Liquidity from $ 20,000 to $ 12,500 , and extends the maturity date from September 30, 2024 to September 30, 2026.

The Ninth Amendment also addresses the banking industry's transition away from the London Interbank Offered Rate ("LIBOR") as a benchmark interest rate by replacing LIBOR with the Secured Overnight Financing Rate ("SOFR") as the benchmark for establishing the interest rate charged on our borrowings.

Under the terms of the Ninth Amendment, amounts outstanding bear interest at a per annum rate equal to a Daily Three Month SOFR, plus an interest rate margin, which is determined quarterly, based on the following thresholds:

Interest Rate Margin

If Liquidity is less than 35% of the Maximum Revolver Amount at any time during the period

2.00 percentage points

If Liquidity is greater than or equal to 35% of the Maximum Revolver Amount at all times during the period and less than 50% of the Maximum Revolver Amount at any time during the period

1.75 percentage points

If Liquidity is greater than or equal to 50% of the Maximum Revolver Amount at all times during the period

1.50 percentage points

On October 10, 2022, we sold 100% of the membership interests of STR Mechanical, LLC and its subsidiary Technical Services II, LLC (collectively, "STR").

As a result, we expect to record a pre-tax gain of approximately $ 13,000 in the first fiscal quarter of 2023.

The disposition of STR, which had operated as part of our Commercial & Industrial segment, will not have a material impact on our ongoing results of operations or financial position.

In December 2022, our Board of Directors terminated our previous share repurchase program and authorized a new $ 40,000 share repurchase program.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data