IES Holdings, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Independent Registered Public Accounting Firm (PCAOB ID 42 ) 40 Consolidated Balance Sheets 42 Consolidated Statements of Comprehensive Income (Loss) 43 Consolidated Statements of Stockholders' Equity 44 Consolidated Statements of Cash Flows 45 Notes to Consolidated Financial Statements 46 39 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of IES Holdings, Inc. and subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of IES Holdings, Inc. and subsidiaries (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 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 6, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. 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 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. Revenue recognition under this method is subject to judgment as the determination of progress towards completion requires management to prepare estimates of the total project costs to complete. Auditing management’s estimate of the progress towards completion for certain projects which are larger in size and longer in duration was complex and subjective, requiring considerable judgment to evaluate management’s determination of the forecasted costs to complete, specifically as it relates to labor productivity. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's cost estimating process, including controls over management's review of cost estimates for significant inputs such as labor. Our audit procedures included, among others, evaluating the appropriate application of the Company's revenue recognition method; testing significant assumptions used to develop the estimated costs to complete; and testing the completeness and accuracy of the underlying data. 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 or attending select project review meetings; and performing sensitivity analyses or retrospective review using historical actual costs and trends. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002 Houston, Texas December 6, 2022 40 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of IES Holdings, Inc. and subsidiaries Opinion on Internal Control Over Financial Reporting We have audited IES Holdings, Inc. and subsidiaries’ internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, IES Holdings, Inc. 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. 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. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas December 6, 2022 41 IES HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except Share Information) September 30, 2022 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 24,848 $ 23,105 Accounts receivable: Trade, net of allowance 370,726 286,707 Retainage 65,065 41,341 Inventories 96,333 68,573 Costs and estimated earnings in excess of billings 52,076 43,389 Prepaid expenses and other current assets 15,350 21,065 Total current assets 624,398 484,180 Property and equipment, net 54,426 35,454 Goodwill 92,395 92,395 Intangible assets, net 71,936 85,619 Deferred tax assets 20,519 19,009 Operating right of use assets 55,890 42,916 Other non-current assets 15,145 7,049 Total assets $ 934,709 $ 766,622 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses 316,950 249,114 Billings in excess of costs and estimated earnings 84,936 62,486 Total current liabilities 401,886 311,600 Long-term debt 81,628 39,746 Operating long-term lease liabilities 38,144 28,649 Other non-current liabilities 22,570 16,080 Total liabilities 544,228 396,075 Noncontrolling interest 29,193 24,594 STOCKHOLDERS’ EQUITY: Preferred stock, $ 0.01 par value, 10,000,000 shares authorized, none issued and outstanding — — Common stock, $ 0.01 par value, 100,000,000 shares authorized; 22,049,529 issued and 20,341,900 and 20,762,395 outstanding, respectively 220 220 Treasury stock, at cost, 1,707,629 and 1,287,134 shares, respectively ( 44,000 ) ( 29,300 ) Additional paid-in capital 201,871 201,899 Retained earnings 203,197 173,134 Total stockholders’ equity 361,288 345,953 Total liabilities and stockholders’ equity $ 934,709 $ 766,622 The accompanying notes are an integral part of these Consolidated Financial Statements. 42 IES HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (In Thousands, Except Share Information) Year Ended September 30, 2022 2021 2020 Revenues $ 2,166,808 $ 1,536,493 $ 1,190,856 Cost of services 1,847,878 1,248,495 962,897 Gross profit 318,930 287,998 227,959 Selling, general and administrative expenses 262,714 202,251 170,911 Goodwill impairment expense — — 6,976 Contingent consideration 277 211 ( 11 ) Gain on sale of assets ( 69 ) ( 47 ) — Operating income 56,008 85,583 50,083 Interest and other (income) expense: Interest expense 2,970 962 777 Other (income) expense, net 37 ( 286 ) 12 Income from operations before income taxes 53,001 84,907 49,294 Provision for income taxes 12,815 16,231 8,740 Net income 40,186 68,676 40,554 Net (income) loss attributable to noncontrolling interest ( 5,424 ) ( 2,018 ) 1,045 Comprehensive income attributable to IES Holdings, Inc. $ 34,762 $ 66,658 $ 41,599 Earnings per share attributable to common stockholders of IES Holdings, Inc.: Basic $ 1.45 $ 3.19 $ 1.96 Diluted $ 1.44 $ 3.15 $ 1.94 Shares used in the computation of earnings per share: Basic 20,667,745 20,790,307 20,795,892 Diluted 20,894,625 21,086,432 21,092,410 The accompanying notes are an integral part of these Consolidated Financial Statements. 43 IES HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In Thousands, Except Share Information) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Shares Amount Shares Amount BALANCE, September 30, 2019 22,049,529 $ 220 ( 884,518 ) $ ( 12,483 ) $ 192,911 $ 65,600 $ 246,248 Issuance of share-based compensation — — 120,197 1,708 ( 1,708 ) — — Acquisition of treasury stock — — ( 528,563 ) ( 13,808 ) 6,111 — ( 7,697 ) Options exercised — — 5,750 84 ( 50 ) — 34 Non-cash compensation — — — — 3,323 — 3,323 Increase in noncontrolling interest — — — — — ( 194 ) ( 194 ) Net income attributable to IES Holdings, Inc. — — — — — 41,599 41,599 BALANCE, September 30, 2020 22,049,529 $ 220 ( 1,287,134 ) $ ( 24,499 ) $ 200,587 $ 107,005 $ 283,313 Issuance of share-based compensation — — 140,660 2,737 ( 2,737 ) — — Acquisition of treasury stock — — ( 170,524 ) ( 7,538 ) 527 — ( 7,011 ) Options exercised — — — — — — — Non-cash compensation — — — — 3,522 — 3,522 Increase in noncontrolling interest — — — — — ( 315 ) ( 315 ) Cumulative effect adjustment from adoption of new accounting standard — — — — — ( 214 ) ( 214 ) Net income attributable to IES Holdings, Inc. — — — — — 66,658 66,658 BALANCE, September 30, 2021 22,049,529 $ 220 ( 1,316,998 ) $ ( 29,300 ) $ 201,899 $ 173,134 $ 345,953 Issuance of share-based compensation — — 157,167 3,638 ( 3,638 ) — — Acquisition of treasury stock — — ( 556,798 ) ( 18,556 ) — — ( 18,556 ) Options exercised — — 9,000 218 ( 165 ) — 53 Non-cash compensation — — — — 3,775 — 3,775 Increase in noncontrolling interest — — — — — ( 4,699 ) ( 4,699 ) Net income attributable to IES Holdings, Inc. — — — — — 34,762 34,762 BALANCE, September 30, 2022 22,049,529 $ 220 ( 1,707,629 ) $ ( 44,000 ) $ 201,871 $ 203,197 $ 361,288 The accompanying notes are an integral part of these Consolidated Financial Statements. 44 IES HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands) Year Ended September 30, 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 40,186 $ 68,676 $ 40,554 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Bad debt expense 3,141 1,216 1,864 Deferred financing cost amortization 199 198 152 Depreciation and amortization 25,468 21,914 12,508 Gain on sale of assets ( 69 ) ( 47 ) — Non-cash compensation expense 3,775 3,522 3,323 Goodwill impairment expense — — 6,976 Deferred income tax expense (benefit) ( 31 ) 11,724 5,122 Changes in operating assets and liabilities Accounts receivable ( 87,160 ) ( 55,371 ) ( 25,389 ) Inventories ( 27,760 ) ( 30,517 ) ( 2,822 ) Costs and estimated earnings in excess of billings ( 8,688 ) ( 13,451 ) 435 Prepaid expenses and other current assets ( 18,609 ) ( 9,226 ) ( 9,355 ) Other non-current assets ( 3,006 ) 703 510 Accounts payable and accrued expenses 67,128 30,623 20,122 Billings in excess of costs and estimated earnings 22,450 6,746 13,967 Other non-current liabilities ( 762 ) 1,214 8,774 Net cash provided by operating activities 16,262 37,924 76,741 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 29,255 ) ( 7,401 ) ( 4,745 ) Proceeds from sales of assets 219 295 104 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 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of debt 1,924,469 1,318,530 592,768 Repayments of debt ( 1,882,148 ) ( 1,278,204 ) ( 592,756 ) Cash paid for finance leases ( 1,801 ) ( 648 ) ( 215 ) Purchase of noncontrolling interest — ( 1,188 ) — Distribution to noncontrolling interest ( 7,000 ) ( 311 ) ( 639 ) Purchase of treasury stock ( 18,556 ) ( 7,006 ) ( 7,697 ) Issuance of shares 53 — 34 Net cash provided by (used in) financing activities 15,017 31,173 ( 8,505 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,743 ( 30,472 ) 34,643 CASH, CASH EQUIVALENTS, beginning of period 23,105 53,577 18,934 CASH, CASH EQUIVALENTS, end of period $ 24,848 $ 23,105 $ 53,577 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 3,068 $ 738 $ 782 Cash paid for income taxes (net) $ 3,953 $ 5,062 $ 323 The accompanying notes are an integral part of these Consolidated Financial Statements. 45 IES HOLDINGS, INC. Notes to the Consolidated Financial Statements (All Amounts in Thousands Except Share Amounts) 1. BUSINESS Description of the Business IES Holdings, Inc. 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 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. The words “IES”, the “Company”, “we”, “our”, and “us” refer to IES Holdings, Inc. and, except as otherwise specified herein, to our consolidated subsidiaries. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of IES Holdings, Inc. and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Asset Impairment 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. Please refer to Note 17, “Goodwill and Intangible Assets” for further discussion. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in accounting for business combinations and analyzing goodwill, intangible assets and long-lived asset impairments and adjustments, allowance for credit losses, stock-based compensation, reserves for legal matters, realizability of deferred tax assets, unrecognized tax benefits and self-insured claims liabilities and related reserves. Cash and Cash Equivalents We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories consist of raw materials, work in process, finished goods, and parts and supplies held for use in the ordinary course of business. Inventory is valued at the lower of cost or net realizable value generally using the historical average cost or first-in, first-out (FIFO) method. When circumstances dictate, we write down inventory to its estimated net realizable value based on assumptions about future demand, market conditions, plans for disposal, and physical condition of the product. Where shipping and handling costs on inventory purchases are borne by us, these charges are included in inventory and charged to cost of services upon use in our projects or the providing of services. 46 Property and Equipment Additions of property and equipment are recorded at cost, and depreciation is computed using the straight-line method over the estimated useful life of the related asset. Leasehold improvements are capitalized and depreciated over the lesser of the life of the lease or the estimated useful life of the asset. Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing property and equipment, are capitalized and depreciated. Upon retirement or disposition of property and equipment, the capitalized cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statements of comprehensive income in the caption (gain) loss on sale of assets. Goodwill Goodwill attributable to each reporting unit is tested for impairment either by comparing the fair value of each reporting unit with its carrying value or by a qualitative assessment. These impairment tests are required to be performed at least annually. On an ongoing basis (absent any impairment indicators), we perform an impairment test annually using a measurement date of September 30. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is greater than its carrying value. If we determine that it is more likely than not that the carrying value of a reporting unit is greater than its fair value, then we perform an impairment test by calculating the fair value of the reporting unit and comparing this calculated fair value with the carrying value of the reporting unit. We estimate the fair value of the reporting unit based on both a market approach and an income approach, using discounted estimated future cash flows. The market approach uses market multiples of enterprise value to earnings before interest, taxes, depreciation and amortization for comparable publicly traded companies. The income approach relies on significant estimates for future cash flows, projected long-term growth rates, and the weighted average cost of capital. Intangible Assets Intangible assets with definite lives are amortized over their estimated useful lives based on expected economic benefit with no residual value. Debt Issuance Costs Debt issuance costs are included as a reduction of our debt outstanding, or alternately classified within other non-current assets if we have no borrowings drawn on our credit facility at the balance sheet date, and are amortized to interest expense over the scheduled maturity of the debt. Amortization expense of debt issuance costs was $ 199 , $ 198 and $ 152 , respectively, for the years ended 2022, 2021 and 2020. Remaining unamortized capitalized debt issuance costs were $ 1,031 and $ 656 at September 30, 2022, and 2021, respectively. Revenue Recognition Revenue is recognized from a contract with a customer when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we have written authorization from the customer to proceed. We recognize revenue on project contracts over time using the percentage of completion method. Project contracts generally provide that customers accept completion of progress to date and compensate us for services rendered measured in terms of units installed, hours expended or some other measure of progress. We recognize revenue on both signed contracts and change orders. A discussion of our treatment of claims and unapproved change orders is described later in this section. Percentage of completion for construction contracts is measured principally by the percentage of costs incurred and accrued to date for each contract to the estimated total cost for each contract at completion. We generally consider contracts to be substantially complete upon departure from the work site and acceptance by the customer. 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. 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. We do not recognize revenue or margin based on change orders or claims if it is probable such revenue will be reversed. The amount of revenue associated with unapproved change orders and claims was immaterial for the years ended September 30, 2022, 2021 and 2020. 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 47 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. Certain divisions in the Residential and Infrastructure Solutions segments recognize revenue as of a point-in-time at the completion of the contract ("completed contract") because the duration of their contracts is short in nature. We recognize revenue on completed contracts when the project is complete and billable to the customer. Provisions for estimated losses on these contracts are recorded in the period such losses are determined. Accounts Receivable and Allowance for Credit Losses As described below under “Accounting Standards Recently Adopted”, we adopted the new accounting standard for measuring credit losses effective October 1, 2020. We record accounts receivable for all amounts billed and not collected and amounts for which we have an unconditional right to bill our customers. Additionally, we provide an allowance for credit losses based on historical company-specific uncollectable accounts, as well as current and expected market conditions. From time to time, we establish additional allowance for credit losses for financial asset balances with specific customers where collectability has been determined to be improbable based on specific facts and circumstances. Such allowances are established as deemed necessary in the period such determination is made. As is common in our industry, some of these receivables are in litigation or require us to exercise our contractual lien rights in order to collect. 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, 2022 2021 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) Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by and distributions to stockholders. Income Taxes We follow the liability method of accounting for income taxes. 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 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, 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. If actual future taxable income is different from these estimates, our results could be affected. We record reserves for income taxes related to certain tax positions when management considers it more likely than not that additional taxes may be due in excess of amounts reflected on income tax returns filed. When recording these reserves, we assume that taxing authorities have full knowledge of the position and all relevant facts. We continually review exposure to additional tax obligations, and as further information is known or events occur, changes in tax reserves may be recorded. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and included in the provision for income taxes. 48 Risk Management We retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group health claims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits. Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors, as additional insureds under our insurance policies. 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. 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: Year Ending September 30: 2023 $ 1,424 2024 1,085 2025 783 2026 474 2027 243 Thereafter 1,017 Total $ 5,026 We elect to discount the ultimate losses above to present value using an approximate risk-free rate over the average life of our insurance claims. For the years ended September 30, 2022 and 2021, the discount rate used was 4.1 percent and 1.0 percent, respectively. The present value of all insurance reserves for the workers’ compensation, auto and general liability recorded at September 30, 2022 and 2021 was $ 5,042 and $ 3,234 , respectively. Our undiscounted reserves for employee group health claims at September 30, 2022 and 2021 were $ 2,651 and $ 2,553 , respectively, and are anticipated to be resolved within the year ending September 30, 2023. We had letters of credit totaling $ 3,878 outstanding at September 30, 2022 to collateralize certain of our high deductible insurance obligations. Realization of Long-Lived Assets We evaluate the recoverability of property and equipment and other long-lived assets as facts and circumstances indicate that any of those assets might be impaired. If an evaluation is required for our assets we plan to hold and use, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such property has occurred. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Estimated fair values are determined based on expected future cash flows discounted at a rate we believe incorporates the time value of money, the expectations about future cash flows and an appropriate risk premium. For the years ended September 30, 2022 and 2021, no indicators of impairments were identified, and no impairment charges were recorded. At September 30, 2020, we performed an asset impairment test for all long-lived assets within our Commercial & Industrial segment and determined no impairment charge was necessary. Risk Concentration Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash deposits and accounts receivable. Through delayed payment terms, we at times grant credit, usually without collateral, to our customers, who are generally large public companies, contractors and homebuilders throughout the United States. Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout the United States, specifically within the construction, homebuilding and mission critical facility markets. However, we are entitled to payment for work performed and generally have certain lien rights in that work. Further, management believes that its contract acceptance, billing and collection policies are adequate to manage potential credit risk. We routinely maintain cash balances in financial institutions in excess of federally insured limits. 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 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. 49 No single customer accounted for more than 10% of our consolidated revenues or accounts receivable for the years ended September 30, 2022, 2021 and 2020. Fair Value of Financial Instruments Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and a loan agreement. We believe that the carrying value of financial instruments approximates their fair value due to their short-term nature. The carrying value of our debt approximates fair value, as debt incurs interest at a variable rate. Noncontrolling Interest In connection with our acquisitions of Edmonson Electric, LLC ("Edmonson") and Bayonet Plumbing, Heating & Air-Conditioning, LLC ("Bayonet") in fiscal 2021, NEXT Electric, LLC ("NEXT") in fiscal 2017, and STR Mechanical, LLC ("STR") in fiscal 2016, we acquired an 80 percent interest in each of the entities, with the remaining 20 percent interest in each such entity being retained by the respective third party sellers. The interests retained by those third party sellers are identified on our Consolidated Balance Sheets as noncontrolling interest, classified outside of permanent equity. Under the terms of each entity’s operating agreement, after five years from the date of the acquisition, we may elect to purchase, or the third party seller may require us to purchase, part or all of the remaining 20 percent interest in the applicable entity. The purchase price is variable, based on a multiple of earnings as defined in the operating agreements. Therefore, this noncontrolling interest is carried at the greater of the balance determined under Accounting Standards Codification (“ASC”) 810 and the redemption amounts assuming the noncontrolling interests were redeemable at the balance sheet date. During the year ended September 30, 2021, we acquired the noncontrolling interest in STR for $ 1,188 . 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. Leases We enter into various contractual arrangements for the right to use facilities, vehicles and equipment. We evaluate whether each of these arrangements contains a lease and classify all identified leases as either operating or finance. If the arrangement is subsequently modified, we re-evaluate our classification. The lease term generally ranges from two to ten years for facilities and three to five years for vehicles and equipment. Our lease terms may include the exercise of renewal or termination options when it is reasonably certain these options will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. Upon commencement of the lease, we recognize a lease liability and corresponding right-of-use ("ROU") asset for all leases with an initial term greater than twelve months. Lease liabilities represent the present value of our future lease payments over the expected lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate as the discount rate in calculating the present value of the lease payments. The incremental borrowing rate is determined by identifying a synthetic credit rating for the consolidated company, where treasury functions are centrally managed, and adjusting the interest rates from associated indexes for differences in credit risk and interest rate risk. We have elected to combine the lease and nonlease components in the recognition of our lease liabilities across all classes of underlying assets. ROU assets represent our right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability with adjustments for prepaid or accrued rent, lease incentives or unamortized initial direct costs. Costs associated with ROU assets are recognized on a straight-line basis over the term of the lease. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations. Certain lease contracts include obligations to pay for other services, such as operations and maintenance. Where the costs of these services can be identified as fixed or fixed-in-substance, the costs are included as part of the future lease payments. If the cost is not fixed at the inception of the lease, the cost is recorded as a variable cost in the period incurred. 50 Accounting Standards Recently Adopted In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This update is effective for fiscal years beginning after December 15, 2020 and for interim periods within that year. Early adoption is permitted. 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. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which requires companies to consider historical experiences, current market conditions and reasonable and supportable forecasts in the measurement of expected credit losses, with further clarifications made in April 2019 and May 2019 with the issuances of Accounting Standard Updates No. 2019-04 and 2019-05. This update 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, using a modified retrospective transition method through a cumulative-effect adjustment to beginning retained earnings in the period of adoption. 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 . 3. CONTROLLING SHAREHOLDER Tontine Associates, L.L.C. ("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. While Tontine is subject to certain restrictions under federal securities laws on sales of its shares as an affiliate, the Company has filed a shelf registration statement to register all of the shares of IES common stock owned by Tontine at the time of registration. 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, 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. Jeffrey L. 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. Mr. Gendell also serves as Chairman of the Board of Directors, a position he has held since November 2016. He is the managing member and founder of Tontine, and the brother of David B. 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. David B. 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. The sublease extends through February 27, 2023, with monthly payments due in the amount of approximately $ 8 . Payments by the Company are at a rate consistent with that paid by Tontine Associates to its landlord. 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”). 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 51 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. 4. REVENUE RECOGNITION Contracts Our revenue is derived from contracts with customers, and we determine the appropriate accounting treatment for each contract at its inception. Our contracts primarily relate to electrical and mechanical contracting services, technology infrastructure products and services, and electro-mechanical solutions for industrial operations. Revenue is earned based upon an agreed fixed price or actual costs incurred plus an agreed upon percentage. We account for a contract when: (i) it has approval and commitment from both parties, (ii) the rights of the parties are identified, (iii) payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable. We consider the start of a project to be when the above criteria have been met and we have written authorization from the customer to proceed. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We recognize revenue over time for the majority of the services we perform as (i) control continuously transfers to the customer as work progresses at a project location controlled by the customer and (ii) we have the right to bill the customer as costs are incurred. Within our Infrastructure Solutions segment, we often perform work inside our own facilities, where control does not continuously transfer to the customer as work progresses. In such cases, we evaluate whether we have the right to bill the customer as costs are incurred. Such assessment involves an evaluation of contractual termination clauses. Where we have a contractual right to payment for work performed to date, we recognize revenue over time. If we do not have such a right, we recognize revenue upon completion of the contract, when control of the work transfers to the customer. For fixed price arrangements, we use the percentage of completion method of accounting under which revenue recognized is measured principally by the costs incurred and accrued to date for each contract as a percentage of the estimated total cost for each contract at completion. Contract costs include all direct material, labor and indirect costs related to contract performance. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income, and the effects of these revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and these updates may include subjective assessments and judgments. Variable Consideration The transaction price for our contracts may include variable consideration, which includes changes to transaction price for approved and unapproved change orders, claims and incentives. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the probability weighted value we expect to receive (or the most probable amount we expect to incur in the case of liquidated damages, if any), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages, if any). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. 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. 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. 52 Disaggregation of Revenue We disaggregate our revenue from contracts with customers by activity and contract type, as these categories reflect how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Our consolidated 2022, 2021, and 2020 revenue was derived from the following activities. See details in the following tables: Year Ended September 30, 2022 2021 2020 Communications $ 559,777 $ 445,968 $ 395,141 Residential Single-family 825,505 454,449 239,140 Multi-family and Other 305,909 232,898 172,650 Total Residential 1,131,414 687,347 411,790 Infrastructure Solutions Industrial Services 65,686 44,427 40,701 Custom Power Solutions 101,427 102,553 87,678 Total Infrastructure Solutions 167,113 146,980 128,379 Commercial & Industrial 308,504 256,198 255,546 Total Revenue $ 2,166,808 $ 1,536,493 $ 1,190,856 Year Ended September 30, 2022 Communications Residential Infrastructure Solutions Commercial & Industrial Total Fixed-price $ 367,513 $ 1,131,414 $ 159,994 $ 282,522 $ 1,941,443 Time-and-material 192,264 — 7,119 25,982 225,365 Total revenue $ 559,777 $ 1,131,414 $ 167,113 $ 308,504 $ 2,166,808 Year Ended September 30, 2021 Communications Residential Infrastructure Solutions Commercial & Industrial Total Fixed-price $ 327,496 $ 687,347 $ 139,532 $ 243,546 $ 1,397,921 Time-and-material 118,472 — 7,448 12,652 138,572 Total revenue $ 445,968 $ 687,347 $ 146,980 $ 256,198 $ 1,536,493 Year Ended September 30, 2020 Communications Residential Infrastructure Solutions Commercial & Industrial Total Fixed-price $ 309,567 $ 411,790 $ 121,922 $ 241,864 $ 1,085,143 Time-and-material 85,574 — 6,457 13,682 105,713 Total revenue $ 395,141 $ 411,790 $ 128,379 $ 255,546 $ 1,190,856 Accounts Receivable Accounts receivable include amounts which we have billed or have an unconditional right to bill our customers. As of September 30, 2022, accounts receivable included $ 19,296 of unbilled receivables for which we have an unconditional right to bill. Contract Assets and Liabilities Project contracts typically provide for a schedule of billings on percentage of completion of specific tasks inherent in the fulfillment of our performance obligation(s). The schedules for such billings usually do not precisely match the schedule on which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ from amounts that can be billed to the customer at any point during the contract. Amounts by which cumulative contract revenue recognized on a contract as of a given date exceeds cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our Consolidated Balance Sheets under the caption “Costs and estimated earnings in excess of billings”. Amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized are reflected as a current liability in our Consolidated Balance Sheets under the caption “Billings in excess of costs and estimated earnings”. 53 During the years ended September 30, 2022 and 2021, we recognized revenue of $ 52,683 and $ 47,906 related to our contract liabilities at October 1, 2021 and 2020, respectively. We did not have any impairment losses recognized on our receivables or contract assets for the years ended September 30, 2022, 2021, or 2020. Remaining Performance Obligations Remaining performance obligations represent the unrecognized revenue value of our contract commitments. New awards represent the total expected revenue value of new contract commitments undertaken during a given period, as well as additions to the scope of existing contract commitments. Our new performance obligations vary significantly each reporting period based on the timing of our major new contract commitments. At September 30, 2022, we had remaining performance obligations of $ 967,000 . The Company expects to recognize revenue on approximately $ 776,897 of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter. For the year ended September 30, 2022, net revenue recognized from our performance obligations satisfied in previous periods was not material. 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following: Estimated Useful Lives in Years Year Ended September 30, 2022 2021 Land N/A $ 4,569 $ 1,436 Buildings and improvements 5 - 20 32,477 15,445 Machinery and equipment 3 - 10 55,917 48,443 Information systems 2 - 8 8,699 8,555 Furniture and fixtures 5 - 7 2,239 1,571 $ 103,901 $ 75,450 Less-Accumulated depreciation ( 50,014 ) ( 41,308 ) Construction in progress 539 1,312 Property and equipment, net $ 54,426 $ 35,454 Depreciation expense was $ 10,073 , $ 8,090 and $ 6,084 , respectively, for the years ended September 30, 2022, 2021 and 2020. 6. PER SHARE INFORMATION Basic earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common shares outstanding during the period. If the effect is dilutive, participating securities are included in the computation of basic earnings per share. Our participating securities do not have a contractual obligation to share in the losses in any given period. As a result, these participating securities will not be allocated any losses in the periods of net losses, but will be allocated income in the periods of net income using the two-class method. 54 The following table reconciles the components of the basic and diluted earnings per share for the years ended September 30, 2022, 2021 and 2020: Year Ended September 30, 2022 2021 2020 Numerator: Net income attributable to IES Holdings, Inc. $ 34,762 $ 66,658 $ 41,599 Increase in noncontrolling interest ( 4,695 ) ( 315 ) ( 194 ) Net income attributable to restricted shareholders of IES Holdings, Inc. ( 21 ) ( 56 ) ( 575 ) Net income attributable to common shareholders of IES Holdings, Inc. $ 30,046 $ 66,287 $ 40,830 Denominator: Weighted average common shares outstanding — basic 20,667,745 20,790,307 20,795,892 Effect of dilutive stock options and non-vested securities 226,880 296,125 296,518 Weighted average common and common equivalent shares outstanding — diluted 20,894,625 21,086,432 21,092,410 Earnings per share attributable to common shareholders of IES Holdings, Inc.: Basic $ 1.45 $ 3.19 $ 1.96 Diluted $ 1.44 $ 3.15 $ 1.94 For the years ended September 30, 2022, 2021, and 2020, the average price of our common shares exceeded the exercise price of outstanding options; therefore, outstanding stock options were included in the computation of diluted earnings per share. 7. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS Accounts payable and accrued expenses consist of the following: Year Ended September 30, 2022 2021 Accounts payable, trade $ 184,963 $ 136,967 Accrued compensation and benefits 75,190 61,109 Accrued insurance liabilities 7,693 5,787 Current operating lease liabilities 17,319 13,973 Other accrued expenses 31,785 31,278 $ 316,950 $ 249,114 Other non-current assets are comprised of the following: Year Ended September 30, 2022 2021 Executive Savings Plan assets $ 706 $ 937 Securities and equity investments 2,447 10 Right of use asset - finance leases 10,246 3,927 Other 1,746 2,175 Total $ 15,145 $ 7,049 55 8. DEBT Debt consists of the following: Year Ended September 30, 2022 2021 Revolving loan (long-term debt) $ 82,659 $ 40,339 Debt issuance costs ( 1,031 ) ( 656 ) Other long-term debt — 63 Total debt $ 81,628 $ 39,746 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. For the years ended September 30, 2022, 2021 and 2020, we incurred interest expense of $ 2,970 , $ 962 and $ 777 , respectively. The Revolving Credit Facility 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; and • 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. 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. 9. LEASES We enter into various contractual arrangements for the right to use facilities, vehicles and equipment. The lease term generally ranges from two to ten years for facilities and three to five years for vehicles and equipment. Our lease terms may include the exercise of renewal or termination options when it is reasonably certain these options will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. 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. 56 The maturities of our lease liabilities as of September 30, 2022, are as follows: Operating Leases Finance Leases Total 2022 $ 17,645 $ 3,004 $ 20,649 2023 13,818 2,975 16,793 2024 10,471 2,737 13,208 2025 7,660 1,885 9,545 2026 4,487 478 4,965 Thereafter 7,764 23 7,787 Total undiscounted lease payments $ 61,845 $ 11,102 $ 72,947 Less: imputed interest 6,382 962 7,344 Present value of lease liabilities $ 55,463 $ 10,140 $ 65,603 The total future undiscounted cash flows related to lease agreements committed to but not yet commenced as of September 30, 2022, is $ 4,693 . Lease cost recognized in our Consolidated Statements of Comprehensive Income is summarized as follows: Year Ended September 30, 2022 2021 Operating lease cost $ 16,000 $ 13,405 Finance lease cost Amortization of lease assets 1,729 634 Interest on lease liabilities 269 119 Finance lease cost 1,998 753 Short-term lease cost 2,426 1,575 Variable lease cost 1,900 1,286 Total lease cost $ 22,324 $ 17,019 Other information about lease amounts recognized in our Consolidated Financial Statements is summarized as follows: Year Ended September 30, 2022 2021 Operating cash flows used for operating leases $ 20,799 $ 15,011 Operating cash flows used for finance leases 269 119 Right-of-use assets obtained in exchange for new operating lease liabilities 31,422 24,606 Right-of-use assets obtained in exchange for new finance lease liabilities 7,950 2,962 Year Ended September 30, 2022 2021 Weighted-average remaining lease term - operating leases 4.8 years 5.0 years Weighted-average remaining lease term - finance leases 3.9 years 4.2 years Weighted-average discount rate - operating leases 4.0 % 3.7 % Weighted-average discount rate - finance leases 4.7 % 4.3 % For a discussion of leases with certain related parties which are included above, see Note 13, “Related-Party Transactions.” Rent expense was $ 18,426 , $ 14,980 and $ 14,073 for the years ended September 30, 2022, 2021 and 2020, respectively. 57 10. INCOME TAXES Federal and state income tax provisions are as follows: Year Ended September 30, 2022 2021 2020 Federal: Current $ 9,401 $ 2 $ ( 39 ) Deferred 3 11,678 9,317 State: Current 3,445 4,505 3,657 Deferred ( 34 ) 46 ( 4,195 ) Total provision for income taxes $ 12,815 $ 16,231 $ 8,740 Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate to income (loss) before income taxes as follows: Year Ended September 30, 2022 2021 2020 Provision at the federal statutory rate $ 11,130 $ 17,830 $ 10,352 Increase resulting from: Non-deductible expenses 471 658 1,974 State income taxes, net of federal deduction 2,114 3,876 2,662 Change in valuation allowance 283 — — Other 427 — 261 Decrease resulting from: Share-based compensation ( 665 ) ( 715 ) ( 75 ) Change in valuation allowance — ( 118 ) ( 3,334 ) Contingent tax liabilities ( 133 ) ( 2,898 ) ( 1,313 ) Component 2 goodwill utilization ( 812 ) ( 2,241 ) ( 1,787 ) Other — ( 161 ) — Total provision for income taxes $ 12,815 $ 16,231 $ 8,740 Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for income tax purposes. The income tax effects of these temporary differences, representing deferred income tax assets and liabilities, result principally from the following: 58 Year Ended September 30, 2022 2021 Deferred income tax assets: Allowance for credit losses $ 1,246 $ 541 Accrued expenses 18,645 17,134 Net operating loss carryforward 4,542 6,445 Various reserves 1,318 1,285 Equity losses in affiliate 125 210 Share-based compensation 1,142 1,079 Capital loss carryforward 82 1 Lease asset 12,534 9,634 Other 4,236 2,914 Subtotal 43,870 39,243 Less valuation allowance 875 592 Total deferred income tax assets 42,995 38,651 Deferred income tax liabilities: Property and equipment 126 509 Intangible assets 9,044 8,765 Lease liability 12,500 9,615 Other 806 753 Total deferred income tax liabilities 22,476 19,642 Net deferred income tax assets $ 20,519 $ 19,009 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. This carry forward, which may provide future tax benefits, will begin to expire in 2031. As of September 30, 2022, we had available approximately $ 71,723 state net tax operating loss carry forwards, including $ 5,520 from net operating losses on which no tax benefit has been recognized and has not been recorded as a deferred tax asset. The significant majority of these carry forwards, which may provide future tax benefits, will not begin to expire until 2026. We have provided valuation allowances on all net operating losses where it is determined it is more likely than not that they will expire without being utilized. In assessing the realizability of deferred tax assets at September 30, 2022, we considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. Our realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible. As a result, we have recorded a net deferred tax asset of $ 20,519 on our Consolidated Balance Sheets. We will continue to evaluate the appropriateness of our remaining deferred tax assets and need for valuation allowances on a quarterly basis. 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. The evaluation of a tax position is a two-step process. The first step is the recognition process to determine if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement. 59 A reconciliation of the beginning and ending balances of unrecognized tax benefit is as follows: Year Ended September 30, 2022 2021 Balance at beginning of period $ 21,879 $ 24,861 Additions for position related to current year — 59 Additions for positions of prior years 26 20 Reduction resulting from the lapse of the applicable statutes of limitations 159 3,061 Balance at end of period $ 21,746 $ 21,879 As of September 30, 2022 and 2021, $ 21,746 and $ 21,879 , respectively, of unrecognized tax benefits would result in a decrease in the provision for income tax expense. 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 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. We recognize interest and penalties related to unrecognized tax benefits as part of the provision for income taxes. The tax years ended September 30, 2019, and forward are subject to federal audit as are tax years prior to September 30, 2019, to the extent of unutilized net operating losses generated in those years. The tax years ended September 30, 2018, and forward are subject to state audits as are tax years prior to September 30, 2018, to the extent of unutilized net operating losses generated in those years. 11. OPERATING SEGMENTS We manage and measure performance of our business in four distinct operating segments: Communications, Residential, Infrastructure Solutions and Commercial & Industrial. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company’s CODM is its Chief Executive Officer. Transactions between segments, if any, are eliminated in consolidation. Our corporate office provides general and administrative services, as well as support services, to our four operating segments. Management allocates certain shared costs among segments for selling, general and administrative expenses and depreciation expense. 60 Segment information for the years ended September 30, 2022, 2021 and 2020 is as follows: Year Ended September 30, 2022 Communications Residential Infrastructure Solutions Commercial & Industrial Corporate Total Revenues $ 559,777 $ 1,131,414 $ 167,113 $ 308,504 $ — $ 2,166,808 Cost of services 490,959 928,161 138,444 290,314 — 1,847,878 Gross profit 68,818 203,253 28,669 18,190 — 318,930 Selling, general and administrative 46,717 144,100 25,129 30,557 16,211 262,714 Contingent consideration — 277 — — — 277 Loss (gain) on sale of assets 12 20 ( 46 ) ( 55 ) — ( 69 ) Income (loss) from operations $ 22,089 $ 58,856 $ 3,586 $ ( 12,312 ) $ ( 16,211 ) $ 56,008 Other data: Depreciation and amortization expense $ 1,550 $ 15,617 $ 5,575 $ 2,561 $ 165 $ 25,468 Capital expenditures $ 2,004 $ 10,054 $ 14,729 $ 1,890 $ 578 $ 29,255 Total assets $ 210,875 $ 394,757 $ 161,828 $ 114,529 $ 52,720 $ 934,709 Year Ended September 30, 2021 Communications Residential Infrastructure Solutions Commercial & Industrial Corporate Total Revenues $ 445,968 $ 687,347 $ 146,980 $ 256,198 $ — $ 1,536,493 Cost of services 361,197 553,546 106,048 227,704 — 1,248,495 Gross profit 84,771 133,801 40,932 28,494 — 287,998 Selling, general and administrative 41,373 92,761 23,966 28,172 15,979 202,251 Contingent consideration — 211 — — — 211 Loss (gain) on sale of assets ( 4 ) 86 ( 10 ) ( 92 ) ( 27 ) ( 47 ) Income (loss) from operations $ 43,402 $ 40,743 $ 16,976 $ 414 $ ( 15,952 ) $ 85,583 Other data: Depreciation and amortization expense $ 1,394 $ 11,490 $ 6,170 $ 2,709 $ 151 $ 21,914 Capital expenditures $ 963 $ 2,829 $ 2,067 $ 1,453 $ 89 $ 7,401 Total assets $ 164,699 $ 329,691 $ 137,628 $ 87,577 $ 47,027 $ 766,622 Year Ended September 30, 2020 Communications Residential Infrastructure Solutions Commercial & Industrial Corporate Total Revenues $ 395,141 $ 411,790 $ 128,379 $ 255,546 $ — $ 1,190,856 Cost of services 317,013 318,034 93,358 234,492 — 962,897 Gross profit 78,128 93,756 35,021 21,054 — 227,959 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 ) Loss (gain) on sale of assets 8 2 35 ( 45 ) — — Income (loss) from operations $ 40,446 $ 30,086 $ 14,568 $ ( 17,994 ) $ ( 17,023 ) $ 50,083 Other data: Depreciation and amortization expense $ 1,351 $ 2,276 $ 6,020 $ 2,768 $ 93 $ 12,508 Capital expenditures $ 830 $ 1,459 $ 795 $ 1,362 $ 299 $ 4,745 Total assets $ 154,808 $ 110,998 $ 124,640 $ 68,318 $ 101,764 $ 560,528 61 12. STOCKHOLDERS’ EQUITY Equity Incentive Plan The Company’s 2006 Equity Incentive Plan, as amended and restated (the “Equity Incentive Plan”), provides for grants of stock options as well as grants of stock, including restricted stock. Approximately 3.0 million shares of common stock are authorized for issuance under the Equity Incentive Plan, of which approximately 713,058 shares were available for issuance at September 30, 2022. We measure and record compensation expense for all share-based payment awards based on the fair value of the awards granted at the date of grant. The fair value of restricted stock awards and phantom stock unit awards is determined based on the number of shares granted and the closing price of IES’s common stock on the date of grant. For awards vesting upon achievement of a market condition, the likelihood of achieving that market condition is considered in determining the fair value of the grant, which we expense ratably over the vesting period. For awards vesting upon achievement of a performance condition, we record expense based on the grant date fair value when it becomes probable the performance condition will be achieved. Forfeitures are recorded in the period in which they occur. The resulting compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. 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. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which allows repurchases under predetermined terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended or reinstated at any time at the Company’s discretion and without notice. We repurchased 511,600 shares of our common stock during the year ended September 30, 2022, in open market transactions at an average price of $ 32.02 per share. 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 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, 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 During the years ended September 30, 2022, 2021, and 2020, we recognized $ 137 , $ 145 , and $ 2,441 , respectively, in compensation expense related to our restricted stock awards. During the year ended September 30, 2020, $ 1,100 of the compensation expense was settled with cash. At September 30, 2022, the unamortized compensation cost related to outstanding unvested restricted stock was $ 23 . 62 A summary of restricted stock awards for the years ended September 30, 2022, 2021, and 2020 is provided in the table below: Year Ended September 30, 2022 2021 2020 Unvested at beginning of year 16,757 38,936 283,195 Granted — — 69,338 Vested ( 3,118 ) ( 8,183 ) ( 105,000 ) Forfeited — ( 13,996 ) ( 208,597 ) Unvested at end of year 13,639 16,757 38,936 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. The weighted average grant date fair value of unvested restricted stock at September 30, 2022 was $ 21.60 . All the restricted shares granted under the Equity Incentive Plan (vested or unvested) participate in dividends issued to common shareholders, if any. Director Phantom Stock Units Director phantom stock units (“Director PSUs”) are primarily granted to the members of the Board of Directors as part of their overall compensation. These Director PSUs are contractual rights to receive one share of the Company's common stock and are paid via unrestricted stock grants to each director upon their departure from the Board of Directors. We record compensation expense for the full value of the grant on the date of grant. For the years ended September 30, 2022, 2021, and 2020, we recognized $ 386 , $ 376 , and $ 390 , respectively, in compensation expense related to these grants. Employee Phantom Stock Units An employee phantom stock unit (an “Employee PSU”) is a contractual right to receive one share of the Company’s common stock. Depending on the terms of each grant, Employee PSUs may vest upon the achievement of certain specified performance objectives and continued performance of services, or may vest based on continued performance of services through the vesting date. As of September 30, 2021, the Company had outstanding Employee PSUs, which, subject to the achievement of certain performance metrics, could have resulted in the issuance of 282,942 shares of common stock. During the year ended September 30, 2022, 10,464 Employee PSUs were forfeited and 106,964 vested, and the Company granted additional Employee PSUs, which, subject to the achievement of certain performance metrics, could result in the issuance of 150,447 shares of common stock. As of September 30, 2022, a maximum of 315,961 shares of common stock may be issued under outstanding 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. For stock awards where vesting depends on achievement of a performance condition, we record expense when we conclude it is probable that the performance condition will be met. At September 30, 2022, it is deemed probable that the portion of the awards that vest based on performance conditions will vest. 13. RELATED-PARTY TRANSACTIONS The Company is a party to a sublease agreement with Tontine Associates, for corporate office space in Greenwich, Connecticut. The lease was renewed in November 2019, with monthly rent of approximately $ 8 . Payments by the Company are at a rate consistent with that paid by Tontine Associates to its landlord. See Note 3, “Con trolling Shareholder” for additional information regarding Tontine. 63 14. EMPLOYEE BENEFIT PLANS 401(k) Plan In November 1998, we established the IES Holdings, Inc. 401(k) Retirement Savings Plan. All full-time IES employees are eligible to participate on the first day of the month subsequent to completing sixty days of service and attaining age twenty-one. Participants become vested in our matching contributions following three years of service. We also maintain several subsidiary retirement savings plans. We recognized $ 4,494 , $ 3,386 , and $ 2,326 in matching expenses in fiscal years 2022, 2021, and 2020, respectively. Executive Savings Plan Under the Executive Deferred Compensation Plan adopted on July 1, 2004 (the “Executive Savings Plan”), certain employees are permitted to defer a portion (up to 75%) of their base salary and/or bonus for a plan year. The Human Resources and Compensation Committee of the Board of Directors may, in its sole discretion, credit one or more participants with an employer deferral (contribution) in such amount as the Committee may choose (“Employer Contribution”). The Employer Contribution, if any, may be a fixed dollar amount, a fixed percentage of the participant’s compensation, base salary, or bonus, or a “matching” amount with respect to all or part of the participant’s elective deferrals for such plan year, and/or any combination of the foregoing as the Committee may choose. No compensation earned during the years ended September 30, 2022, 2021, or 2020 was deferred under this plan. Multiemployer Pension Plan The Infrastructure Solutions segment participates in a multiemployer direct benefit pension plan for employees covered under one of our collective bargaining agreements. We do not administer the plan. We do not significantly participate in this plan. As of December 31, 2021, this plan was funded at 86.51 %. 64 15. FAIR VALUE MEASUREMENTS 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 exchange. 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. Judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. 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: September 30, 2022 Total Fair Value Quoted Prices (Level 1) Significant Unobservable (Level 3) 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 ) September 30, 2021 Total Fair Value Quoted Prices (Level 1) Significant Unobservable (Level 3) Executive savings plan assets $ 937 $ 937 $ — Executive savings plan liabilities ( 806 ) ( 806 ) — Contingent consideration liability ( 4,181 ) — ( 4,181 ) In fiscal year 2021, we entered into a contingent consideration arrangement related to the acquisition of Bayonet. At September 30, 2022, we estimated the fair value of this contingent consideration liability at $ 4,323 . The table below presents the fair value of this obligation, which used significant unobservable inputs (Level 3). Contingent Consideration Agreement Fair Value at September 30, 2020 $ — Acquisitions ( 4,074 ) Net adjustments to fair value ( 107 ) Fair Value at September 30, 2021 $ ( 4,181 ) Net adjustments to fair value ( 142 ) Fair Value at September 30, 2022 $ ( 4,323 ) Below is a description of the inputs used to value the assets summarized in the preceding tables: Level 1 — Inputs represent unadjusted quoted prices for identical assets exchanged in active markets. Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets exchanged in active or inactive markets; quoted prices for identical assets exchanged in inactive markets; and other inputs that are considered in fair value determinations of the assets. Level 3 — Inputs include unobservable inputs used in the measurement of assets. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or related observable inputs that can be corroborated at the measurement date. 65 16. INVENTORY Inventories consist of the following components: September 30, 2022 2021 Raw materials $ 12,504 $ 5,819 Work in process 8,218 6,848 Finished goods 2,129 1,554 Parts and supplies 73,482 54,352 Total inventories $ 96,333 $ 68,573 17. GOODWILL AND INTANGIBLE ASSETS Goodwill The following summarizes changes in the carrying value of goodwill by segment for the years ended September 30, 2022 and 2021: Communications Residential Infrastructure Solutions Commercial & Industrial Total Balance at September 30, 2020 $ 2,816 $ 16,219 $ 34,728 $ — $ 53,763 Acquisitions (Note 19) — 35,151 3,481 — 38,632 Balance at September 30, 2021 2,816 51,370 38,209 — 92,395 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. We have an accumulated impairment loss of $ 6,976 related to our Commercial & Industrial segment. Intangible Assets Intangible assets consist of the following: September 30, 2022 Estimated Useful Lives (in Years) Gross Carrying Amount Accumulated Amortization Net Trademarks/trade names 5 - 20 $ 15,262 $ ( 4,589 ) $ 10,673 Technical library 20 400 ( 181 ) 219 Customer relationships 6 - 15 96,699 ( 35,662 ) 61,037 Non-competition arrangements 5 40 ( 33 ) 7 Backlog and construction contracts 1 4,958 ( 4,958 ) — Total $ 117,359 $ ( 45,423 ) $ 71,936 September 30, 2021 Estimated Useful Lives (in Years) Gross Carrying Amount Accumulated Amortization Net Trademarks/trade names 5 - 20 $ 15,262 $ ( 2,891 ) $ 12,371 Technical library 20 400 ( 161 ) 239 Customer relationships 6 - 15 96,879 ( 24,021 ) 72,858 Non-competition arrangements 5 40 ( 25 ) 15 Backlog and construction contracts 1 4,957 ( 4,821 ) 136 Total $ 117,538 $ ( 31,919 ) $ 85,619 66 For the years ended September 30, 2022, 2021, and 2020, amortization expense of intangible assets was $ 13,666 , $ 13,191 and $ 6,424 , respectively. Our estimated future amortization expense for years ending September 30 is as follows: Year Ending September 30, 2023 $ 13,153 2024 12,810 2025 12,370 2026 12,031 2027 8,631 Thereafter 12,941 Total $ 71,936 18. COMMITMENTS AND CONTINGENCIES Legal Matters From time to time we are a party to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business. We maintain various insurance coverages to minimize financial risk associated with these proceedings. None of these proceedings, separately or in the aggregate, are expected to have a material adverse effect on our financial position, results of operations or cash flows. With respect to all such proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We expense routine legal costs related to these proceedings as they are incurred. On June 22, 2021, the United States Department of Labor Wage and Hour Division (the “DOL”) notified IES Residential, Inc. (“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 We retain the risk for workers’ compensation, employer’s liability, automobile liability, construction defects, general liability and employee group health claims, as well as pollution coverage, resulting from uninsured deductibles per accident or occurrence which are generally subject to annual aggregate limits. Our general liability program provides coverage for bodily injury and property damage. In many cases, we insure third parties, including general contractors, as additional insured parties under our insurance policies. Losses are accrued based upon our known claims incurred and an estimate of claims incurred but not reported. As a result, many of our claims are effectively self-insured. Many claims against our insurance are in the form of litigation. At September 30, 2022 and 2021, we had $ 7,693 and $ 5,787 , respectively, accrued for self-insurance liabilities. We are also subject to construction defect liabilities, primarily within our Residential segment. 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. Some of the underwriters of our casualty insurance program require us to post letters of credit as collateral. This is common in the insurance industry. To date, we have not had a situation where an underwriter has had reasonable cause to effect payment under a letter of credit. At September 30, 2022 and 2021, $ 3,878 and $ 4,327 , respectively, of our outstanding letters of credit was utilized to collateralize our insurance program. 67 Surety As of September 30, 2022, the estimated cost to complete our bonded projects was approximately $ 107,556 . We evaluate our bonding requirements on a regular basis, including the terms offered by our sureties. We believe the bonding capacity presently provided by our current sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. Posting letters of credit in favor of our sureties reduces the borrowing availability under our revolving credit facility. Other Commitments and Contingencies Some of our customers and vendors require us to post letters of credit, or provide intercompany guarantees, as a means of guaranteeing performance under our contracts and ensuring payment by us to subcontractors and vendors. If our customer has reasonable cause to effect payment under a letter of credit, we would be required to reimburse our creditor for the letter of credit. From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of September 30, 2022, we had commitments of $ 9,726 outstanding under agreements to purchase copper wire and other materials over the next 12 months in the ordinary course of business. 19. BUSINESS COMBINATIONS 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. Small Business Administration. Loans made under the PPP are eligible to be forgiven if certain criteria are met. 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. 20. SUBSEQUENT EVENTS 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. 68 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.