What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-07 compared with 2022-12-06 · 136 added, 132 removed, 323 unchanged (45% of the section changed)

11 unchanged sentences

Our performance is affected by a number of trends that drive the demand for our services.

In particular, the markets in which we operate are exposed to many regional and national trends such as the demand for single and multi-family housing, the need for mission

critical facilities as a result of technology-driven advancements, capital spending on data centers, distribution centers, and high-tech manufacturing facilities, demand for back-up power, output levels and equipment utilization at heavy industrial facilities, demand for our rail and infrastructure services and custom engineered products, and changes in commercial, institutional, public infrastructure and electric utility spending.

In particular, the markets in which we operate are exposed to many regional and national trends such as the demand for single and multi-family housing, the need for mission critical facilities as a result of technology-driven advancements, capital spending on data centers, distribution centers, and high-tech manufacturing facilities, demand for back-up power, output levels and equipment utilization at heavy industrial facilities, demand for our rail and infrastructure services and custom engineered products, and changes in commercial, institutional, public infrastructure and electric utility spending.

Over the long term, we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate, including (i) population growth, which will increase the need for commercial and residential facilities, (ii) aging public infrastructure, which must be replaced or repaired, (iii) an increasing demand for data storage, and (iv) increased emphasis on environmental and energy efficiency, which may lead to increased public and private spending.

However, there can be no assurance that we will not experience a decrease in demand for our services due to economic, technological or other factors beyond our control, including interest rate changes, increases in the price of copper, aluminum, steel, fuel, electrical components, certain plastics, and other commodity prices and other economic factors, which may reduce the demand for housing in the regions where our Residential division operates, and may impact levels of construction.

However, there can be no assurance that we will not experience a decrease in demand for our services due to economic, technological or other factors beyond our control, including interest rate increases, increases in the price of copper, aluminum, steel, fuel, electrical components, certain plastics, and other commodity prices and other economic factors, which may reduce the demand for housing in the regions where our Residential division operates, and may impact levels of construction.

For a further discussion of the industries in which we operate, please see Item 1.

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While there are differences among the Company’s segments, on an overall basis, increased demand for the Company’s services and the Company’s previous investment in growth initiatives and other business-specific factors discussed below resulted in aggregate year-over-year revenue growth in fiscal 2023 as compared to fiscal 2022.

In addition, revenue growth during fiscal 2022 at our Residential and Infrastructure Solutions segments reflects the contribution of acquisitions completed during fiscal 2021.

Our business segments each have their own unique set of factors influencing demand for our services, While we are entering the year with strong backlog levels in each of our business segments, we are also closely monitoring weakness in the residential construction market and, more generally, heightened uncertainty regarding the future direction of the overall economy.

Based on current trends in demand for housing heading into fiscal 2023, we expect that a revenue decline in our single-family housing business, where we typically do not enter into long-term contracts, will offset, or more than offset, revenue growth from our multi-family housing and other backlog-driven businesses during the year.

Nevertheless, we remain focused on monitoring costs, improving margins, and capitalizing on opportunities to expand our service lines and gain market share, as many of our markets continue to experience highly competitive margins and increasing costs.

Our business segments each have their own unique set of factors influencing demand for our services.

While we are entering the year with strong backlog levels in each of our business segments, we are also closely monitoring weakness in the residential construction market and, more generally, heightened uncertainty regarding the future direction of the overall economy.

Heading into fiscal 2024, we are cautious about the impact of a decline in the affordability of housing on demand in our single-family housing business, where we typically do not enter into long-term contracts.

In our multi-family housing business, limited availability and increased cost of project financing may have an impact on our backlog as the year progresses.

However, we have benefited from improved pricing in a strong non-residential construction market.

We remain focused on monitoring costs, improving margins, and capitalizing on opportunities to expand our service lines and gain market share, as many of our markets continue to experience highly competitive margins.

Further, we believe our strong balance sheet and flexible operating model position us to navigate challenges we may encounter in a more uncertain economy.

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We expect our capital expenditures will range from $15 million to $20 million for the year ending on September 30, 2024.

Current Market and Operating Conditions

The Federal Reserve has raised the target federal funds rate six times since the beginning of calendar 2022 and has announced an expectation that it will continue to raise the target rate through the end of 2022 and into 2023.

This has resulted in higher mortgage rates, which when combined with elevated materials and labor costs, have had a substantial impact on the affordability of housing.

There continue to be several trends, such as rising household formation and population growth in our key markets, that we expect will drive long-term demand for our services in the single-family housing market.

However, going into fiscal 2023, we do expect housing affordability to cause a near-term decrease in demand for our services in this market.

The COVID-19 pandemic and its impact on markets, the supply chain and the labor force continued to influence trends affecting our business throughout fiscal 2022.

While commodity prices for some of the materials we procure recently have begun to stabilize, concerns remain around limited availability or delays in deliveries for certain materials necessary for our projects, notably copper, steel, aluminum, electronic components, and certain plastics.

Reduced availability of certain materials has resulted in a continuing need to take actions such as carrying higher levels of inventory than we typically hold, or, in some cases, substituting higher-cost materials or sourcing materials from new suppliers which may offer less favorable terms or pricing than our usual suppliers.

Such actions have resulted in elevated levels of working capital throughout fiscal 2022.

We seek to mitigate supply chain risk by maintaining relationships with multiple vendors, and to recoup higher materials costs through adjusted pricing.

However, we are not able to pass on all increased costs, and our suppliers are facing challenges in providing the materials we require.

We have also experienced, and may continue to experience, workforce disruptions related to exposure to, or illness from, COVID-19, resulting in production inefficiencies and delays, higher overtime costs, and the need to outsource activities or use more expensive contract labor.

An inability to procure materials in a timely manner, to complete work on schedule, and to reflect higher materials or labor costs in our pricing to customers has had, and could continue to have, a significant impact on our operating results.

The COVID-19 pandemic and its impact on markets, the supply chain and the labor force continue to be areas of focus for our business as we work to protect our workforce and serve our customers.

While the pandemic had less of an impact on our business in fiscal 2023 compared with fiscal 2022, this or any future pandemic or other public health emergency could impact our workforce,

customers and suppliers.

An inability to procure materials in a timely manner, to complete work on schedule, and to reflect higher materials or labor costs in our pricing to customers has had, and could have in the future, a significant impact on our operating results.

RESULTS OF OPERATIONS

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Selling, general and administrative expenses 298,625 12.6 % 262,714 12.1 % 202,251 13.2 %

Goodwill impairment expense — — % — — % 6,976 0.7 %

Contingent consideration 277 — % 277 — % 211 — %

5 unchanged sentences

Net income 119,787 5.0 % 40,186 1.9 % 68,676 4.5 %

Net (income) loss attributable to noncontrolling interest (5,424) (0.3) % (2,018) (0.1) % 1,045 0.1 %

Net income attributable to noncontrolling interest

(11,499) (0.5) % (5,424) (0.3) % (2,018) (0.1) %

Net income attributable to IES Holdings, Inc.

1 unchanged sentence

2023 Compared to 2022

Consolidated revenues for the year ended September 30, 2022, were $630.3 million higher than for the year ended September 30, 2021, an increase of 41.0%, with increases at all four of our operating segments, driven by strong demand and the contribution of businesses acquired in fiscal 2021.

Our overall gross profit percentage decreased to 14.7% during the year ended September 30, 2022, as compared to 18.7% during the year ended September 30, 2021.

Gross profit as a percentage of revenue decreased at all four of our operating segments.

Consolidated revenues for the year ended September 30, 2023, were $210.4 million higher than for the year ended September 30, 2022, an increase of 9.7%, with increases at our Communications, Residential and Infrastructure Solutions operating segments, partially offset by a decrease at our Commercial & Industrial segment.

See further discussion below of changes in revenues for our individual segments.

Our overall gross profit percentage increased to 18.7% during the year September 30, 2023, as compared to 14.7% during the year ended September 30, 2022.

Gross profit as a percentage of revenue increased at all four of our operating segments.

See further discussion below of changes in gross margin for our individual segments.

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We allocate certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment.

During the year ended September 30, 2022, our selling, general and administrative expenses were $262.7 million, an increase of $60.5 million, or 29.9% over the year ended September 30, 2021, driven by increased personnel costs, primarily at our Residential operating segment, in connection with its growth, and the impact of businesses acquired during fiscal 2021, including amortization of intangible assets.

Selling, general and administrative expenses as a percentage of revenue decreased to 12.1% for the year ended September 30, 2022 from 13.2% for the year ended September 30, 2021, as we benefited from the increased scale of our operations.

During the year ended September 30, 2023, our selling, general and administrative expenses were $298.6 million, an increase of $35.9 million, or 13.7% over the year ended September 30, 2022, driven by increased personnel costs, primarily at our Residential operating segment in connection with its growth, including higher incentive compensation at the division level as a result of higher earnings.

Additionally, our Residential segment recorded severance charges of $3.6 million in connection with a reorganization of its management structure.

Selling, general and administrative expenses as a percentage of revenue increased to 12.6% for the year ended September 30, 2023 from 12.1% for the year ended September 30, 2022.

Our results for the year ended September 30, 2023 include a pretax gain of $13.0 million from the sale of STR Mechanical, LLC (“STR”), which previously operated as part of our Commercial & Industrial segment, on October 7, 2022, and a pretax gain of $1.0 million from the sale of excess land at our Infrastructure Solutions segment.

2022 Compared to 2021

Consolidated revenues for the year ended September 30, 2021, were $345.6 million higher than for the year ended September 30, 2020, an increase of 29.0% with increases across all segments, driven by strong demand and the contribution of acquired businesses.

Our overall gross profit percentage decreased to 14.7% during the year ended September 30, 2022, as compared to 18.7% during the year ended September 30, 2021.

Gross profit as a percentage of revenue increased at our Infrastructure Solutions and Commercial & Industrial segments, but decreased at our Communications and Residential segments, as discussed in further detail with respect to each segment below.

During the year ended September 30, 2021, our selling, general and administrative expenses were $202.3 million, an increase of $31.3 million, or 18.3% over the year ended September 30, 2020, driven by increased personnel costs at our Communications and Residential operating segments in connection with their growth, increased incentive compensation in connection with improved results at those segments, and the impact of businesses acquired during fiscal 2021.

Selling, general and administrative expenses as a percentage of revenue decreased to 13.2% for the year ended September 30, 2021 from 14.4% for the year ended September 30, 2020.

For the year ended September 30, 2020, we recognized a non-cash goodwill impairment charge of $7.0 million relating to our Commercial & Industrial segment.

Gross profit as a percentage of revenue decreased at all four of our operating segments.

See further discussion below of changes in gross margin for our individual segments.

Communications

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Selling, general and administrative expenses 54,344 9.0 % 46,717 8.3 %

Loss on sale of assets 12 — % 12 — %

Operating Income 51,456 8.6 % 22,089 3.9 %

Our Communications segment’s revenues increased by $41.0 million, or 7.3%, during the year ended September 30, 2023, compared to the year ended September 30, 2022.

This increase primarily resulted from increased demand from our high-tech manufacturing and data center customers.

Gross Profit.

Our Communications segment’s gross profit during the year ended September 30, 2023, increased $37.0 million, or 53.8%, as compared to the year ended September 30, 2022.

Gross profit as a percentage of revenue increased from 12.3% for the year ended September 30, 2022 to 17.6% for the year ended September 30, 2023.

The increase in gross profit and gross profit as a percentage of revenue partially reflects the impact of $19.9 million of project losses incurred in the year ended September 30, 2022 resulting from execution issues relating to an expansion into a new, adjacent service area.

Although these projects continued to negatively impact our results throughout fiscal 2022, we have since completed all such projects, and are no longer working in this service area.

Gross profit also increased as a result of an increase in revenues in the year ended September 30, 2023 compared to the year ended September 30, 2022 as discussed above.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $7.6 million, or 16.3% during the year ended September 30, 2023, as compared to the year ended September 30, 2022.

The increase is a result of higher personnel costs including higher incentive compensation as a result of higher earnings, investment in an organizational structure that will enhance the scalability of our business, and higher wages in a competitive labor market.

Selling, general and administrative expenses as a percentage of revenue in the Communications segment were 9.0% during the year ended September 30, 2023, compared to 8.3% for the year ended September 30, 2022.

2022 Compared to 2021

Year Ended September 30,

(Dollars in thousands, Percentage of revenues)

Revenues $ 559,777 100.0 % $ 445,968 100.0 %

Cost of services 490,959 87.7 % 361,197 81.0 %

Gross Profit 68,818 12.3 % 84,771 19.0 %

Selling, general and administrative expenses 46,717 8.3 % 41,373 9.3 %

(Gain)/Loss on sale of assets 12 — % (4) — %

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Our operating margins for the year ended September 30, 2022 were also negatively impacted by a shift in our mix of customers, as well as a more competitive bidding environment in the distribution center and warehouse market, which has experienced slowing activity following a period of significant pandemic-related growth.

Supply chain challenges and workforce disruptions related to COVID-19 have also continued to affect project efficiency.

Finally, we continue to invest in hiring and training personnel, particularly in estimating and project management, to grow the business.

Supply chain challenges and workforce disruptions related to COVID-19 also continued to affect project efficiency.

Finally, we continued to invest in hiring and training personnel, particularly in estimating and project management, to grow the business.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $5.3 million, or 12.9% during the year ended September 30, 2022, as compared to the year ended September 30, 2021.

The increase is a result of higher personnel cost in connection with the growth of our business, as well as higher wages in an increasingly competitive labor market.

The increase is a result of higher personnel costs in connection with the growth of our business, as well as higher wages in an increasingly competitive labor market.

We also experienced a more typical level of selling expense for the year ended September 30, 2022 as compared to the year ended September 30, 2021, when travel and other activities were curtailed due to the pandemic.

Selling, general and administrative expenses as a percentage of revenue in the Communications segment were 8.3% during the year ended September 30, 2022, compared to 9.3% for the year ended September 30, 2021, as we have benefited from the scale of our operations.

2023 Compared to 2022

5 unchanged sentences

Selling, general and administrative expenses 169,737 13.3 % 144,100 12.7 %

(Gain)/Loss on sale of assets (4) — % 8 — %

Contingent consideration 277 — % 277 — %

Loss on sale of assets 69 — % 20 — %

Operating Income 82,897 6.5 % 58,856 5.2 %

Our Communications segment’s revenues increased by $50.8 million, or 12.9%, during the year ended September 30, 2021, compared to the year ended September 30, 2020.

This increase primarily resulted from increased demand from our data center and distribution center customers.

Revenues in our Communications segment can vary from period to period based on the capital spending cycles of our customers.

Our Residential segment’s revenues increased by $148.1 million, or 13.1%, during the year ended September 30, 2023, as compared to the year ended September 30, 2022.

The increase was driven by the impact of price increases in connection with higher materials costs and continued strong demand, particularly in the Florida single-family market.

Revenue in our single-family business

increased by $135.8 million for the year ended September 30, 2023, compared to the year ended September 30, 2022, while multi-family and other revenue increased by $12.3 million.

Gross Profit.

Our Communications segment’s gross profit during the year ended September 30, 2021, increased $6.6 million, or 8.5%, as compared to the year ended September 30, 2020.

Gross profit as a percentage of revenue decreased from 19.8% for the year ended September 30, 2020 to 19.0% for the year ended September 30, 2021, as we invested in hiring and training personnel, particularly in estimating and project management, to grow the business.

Additionally, during the fourth fiscal quarter of 2020, we benefited from some larger than typical efficiency gains from strong project execution.

During the year ended September 30, 2023, our Residential segment gross profit increased by $49.7 million, or 24.5%, as compared to the year ended September 30, 2022.

The increase in gross profit was driven primarily by increased activity, as well as the impact of price increases and an easing of supply chain challenges that impacted prior year efficiency.

Gross margin as a percentage of revenue increased to 19.8% during the year ended September 30, 2023 from 18.0% for the year ended September 30, 2022, as prior year gross margins were negatively impacted by higher labor and material costs, but improved incrementally throughout fiscal year 2022 as pricing actions were implemented.

Selling, General and Administrative Expenses.

Our Communications segment’s selling, general and administrative expenses increased $3.7 million, or 9.8% during the year ended September 30, 2021, as compared to the year ended September 30, 2020.

The increase was a result of higher personnel cost, particularly related to continuing investment to support the growth of the business, along with higher incentive compensation expense in connection with improved profitability and cash flows.

Selling, general and administrative expenses as a percentage of revenues in the Communications segment decreased from 9.5% for the year ended September 30, 2020 to 9.3% of segment revenue during the year ended September 30, 2021, as we benefited from the increased scale of our operations.

Our Residential segment's selling, general and administrative expenses increased by $25.6 million, or 17.8%, during the year ended September 30, 2023, compared to the year ended September 30, 2022.

The increase was driven primarily by higher personnel costs in connection with business growth, including incentive profit sharing for division management.

Selling, general and administrative expenses for the year ended September 30, 2023 also included the $3.6 million of severance charges discussed above, as we reorganized the segment's management structure.

We also incurred other discrete expenses in the year ended September 30, 2023 in connection with implementing this reorganization as we began combining multiple administrative facilities into a single location and consolidating several underperforming branches.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment increased to 13.3% during the year ended September 30, 2023, from 12.7% during the year ended September 30, 2022.

2022 Compared to 2021

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Selling, general and administrative expenses incurred at the businesses acquired during fiscal 2021, including amortization of intangible assets, contributed $21.3 million of the increase.

The remaining increase was driven by higher personnel cost in connection with business growth, including incentive profit sharing for division management.

The remaining increase was driven by higher personnel costs in connection with business growth, including incentive profit sharing for division management.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased to 12.7% during the year ended September 30, 2022, from 13.5% during the year ended September 30, 2021, as we benefited from the increased scale of our operations.

Infrastructure Solutions

2023 Compared to 2022

5 unchanged sentences

Selling, general and administrative expenses 26,260 12.1 % 25,129 15.0 %

Contingent consideration 211 — % — — %

Loss on sale of assets 86 — % 2 — %

Gain on sale of assets (1,029) (0.5) % (46) — %

Operating Income 29,217 13.4 % 3,586 2.1 %

Our Residential segment’s revenues increased by $275.6 million, or 66.9%, during the year ended September 30, 2021, as compared to the year ended September 30, 2020, reflecting the revenue contribution of businesses acquired in fiscal 2021, strong demand for single-family and multi-family housing and the impact of price increases in connection with a higher cost of materials.

Businesses acquired in fiscal 2021 contributed $172.6 million of revenue for the year ended September 30, 2021.

Inclusive of these acquired businesses, revenue in our single-family business increased by $215.3 million for the year ended September 30, 2021, compared to the year ended September 30, 2020, while multi-family and other revenue increased by $60.2 million.

Excluding the impact of the businesses acquired during fiscal 2021, our Residential segment's revenues grew by 25.0% for the year ended September 30, 2021.

Revenues in our Infrastructure Solutions segment increased by $50.2 million, or 30.1% during the year ended September 30, 2023 compared to the year ended September 30, 2022.

The increase in revenue was driven primarily by increased demand at our generator enclosure business.

Gross Profit .

During the year ended September 30, 2021, our Residential segment experienced a $40.0 million, or 42.7%, increase in gross profit as compared to the year ended September 30, 2020.

The increase in gross profit was driven primarily by $27.9 million contributed by the businesses acquired in fiscal 2021, as well as higher volumes, partly offset by increased commodity prices.

Gross margin as a percentage of revenue decreased from 22.8% for the year ended September 30, 2020 to 19.5% during the year ended September 30, 2021, primarily as a result of higher commodity prices.

Our Infrastructure Solutions segment’s gross profit for the year ended September 30, 2023, increased by $25.8 million, or 89.9%, as compared to the year ended September 30, 2022.

Gross profit for the year ended September 30, 2022 was negatively impacted by supply chain disruptions, COVID-19 related labor inefficiencies, and operating inefficiencies in connection with the relocation of our Tulsa, Oklahoma operation to a new, larger facility in order to accommodate increased demand for our generator enclosure products.

Additionally, gross profit for the year ended September 30, 2023 was positively impacted by an increase in revenues from our generator enclosure business as discussed above, as well as improved operating margins in our custom power solutions business.

Gross profit as a percent of revenue increased to 25.1% for the year ended September 30, 2023 compared to 17.2% for the year ended September 30, 2022.

Selling, General and Administrative Expenses.

Our Residential segment's selling, general and administrative expenses increased $29.1 million, or 45.7%, during the year ended September 30, 2021, compared to the year ended September 30, 2020.

Selling, general and administrative expenses incurred at the businesses acquired during fiscal 2021, including amortization of intangible assets, contributed $20.1 million of the increase.

The remaining increase was driven by higher personnel cost in connection with business growth, including incentive profit sharing for division management.

Selling, general and administrative expenses as a percentage of revenues in the Residential segment decreased from 15.5% during the year ended September 30, 2020 to 13.5% during the year ended September 30, 2021, as we benefited from the increased scale of our operations.

Infrastructure Solutions

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30, 2023, increased $1.1 million, or 4.5%, compared to the year ended September 30, 2022.

Selling, general and administrative expenses as a percentage of revenue decreased from 15.0% for the year ended September 30, 2022, to 12.1% for the year ended September 30, 2023 as we benefited from the scale of our operations.

Gain on Sale of Assets.

Our results for the year ended September 30, 2023 included a $1.0 million gain from the sale of a portion of the property on which one of our operating facilities is located.

The sale of this excess land will have no impact on the operations of the facility.

2022 Compared to 2021

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Gross Profit .

Our Infrastructure Solutions segment’s gross profit for the year ended September 30 , 2022 , decreased by $12.3 million, as compared to the year ended September 30, 2021, reflecting the impact of supply chain disruptions on our generator enclosure business, COVID-19 related labor inefficiencies, and operating inefficiencies in connection with the relocation of the Wedlake business to a new, larger facility that expands capacity while allowing for improved workflow and process efficiency.

business, COVID-19 related labor inefficiencies, and operating inefficiencies in connection with the relocation of the Wedlake business to a new, larger facility that expands capacity while allowing for improved workflow and process efficiency.

The transition to and setup of the new facility were completed during the third quarter of fiscal 2022.

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Selling, general and administrative expenses as a percentage of revenue decreased from 16.3% for the year ended September 30, 2021, to 15.0% for the year ended September 30, 2022.

Commercial & Industrial

2023 Compared to 2022

1 unchanged sentence

(Dollars in thousands, Percentage of revenues)

Revenues $ 146,980 100.0 % $ 128,379 100.0 %

$ 279,594 100.0 % $ 308,504 100.0 %

Cost of services 248,295 88.8 % 290,314 94.1 %

1 unchanged sentence

Selling, general and administrative expenses 25,225 9.0 % 30,557 9.9 %

(Gain)/Loss on sale of assets ( 10 ) — % 35 — %

Operating Income 16,976 11.5 % 14,568 11.3 %

Revenues in our Infrastructure Solutions segment increased by $18.6 million, or 14.5% during the year ended September 30, 2021 compared to the year ended September 30, 2020.

Increased demand for our custom power solutions was partially offset by lower revenue from our industrial services business.

The demand for our motor repair services continues to be affected by reduced demand from customers in the steel and rail industries.

During the year ended September 30, 2021, the Wedlake business acquired during the first fiscal quarter 2021 contributed $7.1 million of revenue for the year ended September 30, 2021.

Gain on sale of assets (13,198) (4.7) % (55) — %

Operating Income (Loss)

19,272 6.9 % (12,312) (4.0) %

Revenues in our Commercial & Industrial segment decreased $28.9 million, or 9.4%, during the year ended September 30, 2023, compared to the year ended September 30, 2022.

The decrease is primarily due to the sale of our STR business in October 2022, which contributed revenue of $18.3 million for the year ended September 30, 2022.

The decrease in revenues was also the result of a planned reduction in activity at an underperforming branch where we incurred substantial losses in fiscal 2022.

Gross Profit .

Our Infrastructure Solutions segment’s gross profit for the year ended September 30, 2021, increased by $5.9 million, as compared to the year ended September 30, 2020, reflecting improved overall operational efficiencies.

Gross profit as a percent of revenue increased to 27.8% for the year ended September 30, 2021 compared to 27.3% for the year ended September 30, 2020, largely as the result of those efficiencies, as management has continued to focus on procurement, engineering, and quality.

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2023 increased by $13.1 million, or 72.1%, as compared to the year ended September 30, 2022.

Gross profit for the year ended September 30, 2022 included project losses of $16.7 million due to execution issues on two projects at one underperforming branch.

The benefit of improved project execution in 2023 was partially offset by the sale of STR in October 2022, which contributed gross profit of $4.9 million for the year ended September 30, 2022.

Gross profit as a percentage of revenue increased from 5.9% for the year ended September 30, 2022, to 11.2% for the year ended September 30, 2023.

Selling, General and Administrative Expenses.

Our Infrastructure Solutions segment’s selling, general and administrative expenses during the year ended September 30, 2021, increased $3.5 million compared to the year ended September 30, 2020.

The increase in fiscal 2021 includes $1.6 million of expenses incurred, including amortization of intangible assets, at our acquired Wedlake business.

The selling, general and administrative expenses as a percentage of revenue increased from 15.9% for the year ended September 30, 2020, to 16.3% for the year ended September 30, 2021, primarily as a result of the increase in expenses, including amortization expense, related to Wedlake.

Commercial & Industrial

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2023 decreased $5.3 million, or 17.4%, compared to the year ended September 30, 2022.

The decrease was driven primarily by the sale of STR in October 2022, which recorded branch-level selling, general and administrative expense of $4.2 million for the year ended September 30, 2022.

Additionally, selling, general and administrative expenses for the year ended September 30, 2022 included $2.3 million of reserves in connection with legal matters related to certain contractual disputes.

Selling, general and administrative expenses as a percentage of revenue decreased from 9.9% for the year ended September 30, 2022 to 9.0% for the year ended September 30, 2023.

Gain on Sale of Assets .

As discussed above, our results for the year ended September 30, 2023 include a pretax gain on sale of $13.0 million from the sale of STR in October 2022.

2022 Compared to 2021

1 unchanged sentence

(Dollars in thousands, Percentage of revenues)

Revenue $ 308,504 100.0 % $ 256,198 100.0 %

Revenues $ 308,504 100.0 % $ 256,198 100.0 %

Cost of services 290,314 94.1 % 227,704 88.9 %

2 unchanged sentences

Gain on sale of assets (55) — % (92) — %

Operating Income ( 12,312 ) (4.0) % 414 0.2 %

Operating Income (Loss) (12,312) (4.0) % 414 0.2 %

Revenues in our Commercial & Industrial segment increased $52.3 million, or 20.4%, during the year ended September 30, 2022, compared to the year ended September 30, 2021.

13 unchanged sentences

Selling, general and administrative expenses as a percentage of revenue decreased from 11.0% for the year ended September 30, 2021 to 9.9% for the year ended September 30, 2022.

2021 Compared to 2020

Year Ended September 30,

(Dollars in thousands, Percentage of revenues)

Revenues $ 256,198 100.0 % $ 255,546 100.0 %

Cost of services 227,704 88.9 % 234,492 91.8 %

Gross Profit 28,494 11.1 % 21,054 8.2 %

Selling, general and administrative expenses 28,172 11.0 % 32,128 12.6 %

Goodwill impairment expense — — % 6,976 2.7 %

Contingent consideration — — % ( 11 ) — %

Gain on sale of assets ( 92 ) — % ( 45 ) — %

Operating Income (Loss) 414 0.2 % ( 17,994 ) (7.0) %

Revenues in our Commercial & Industrial segment increased $0.7 million, or 0.3%, during the year ended September 30, 2021, compared to the year ended September 30, 2020.

The market for our Commercial & Industrial segment's services remains highly competitive, and disruptions caused by the COVID-19 pandemic resulted in some delays in the awarding of new projects and the progress of certain existing projects, as well as decreased demand for new construction in certain sectors we serve, particularly through the first six months of fiscal 2021.

Gross Profit .

Our Commercial & Industrial segment’s gross profit during the year ended September 30, 2021 increased by $7.4 million, or 35.3%, as compared to the year ended September 30, 2020.

We have improved project efficiency, enhanced our procurement process, and focused on controlling costs.

As a result, gross profit as a percent of revenues increased from 8.2% for the year ended September 30, 2020, to 11.1% for the year ended September 30, 2021.

Selling, General and Administrative Expenses.

Our Commercial & Industrial segment’s selling, general and administrative expenses during the year ended September 30, 2021 decreased $4.0 million, or 12.3%, compared to the year ended September 30, 2020.

The higher expense in fiscal 2020 primarily reflected a write-off recorded in 2020 related to a commercial dispute, as well as costs incurred in 2020 to improve our procurement process.

Selling, general and administrative expenses as a percentage of revenue decreased from 12.6% for the year ended September 30, 2020 to 11.0% for the year ended September 30, 2021.

INTEREST AND OTHER EXPENSE, NET

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Total interest and other expense, net 1,228 3,007 676

During the year ended September 30, 2022, we incurred interest expense of $3.0 million primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $4.5 million under our revolving credit facility and an average unused line of credit balance of $49.2 million.

This compares to interest expense of $1.0 million for the year ended September 30, 2021 primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $5.7 million under our revolving credit facility and an average unused line of credit balance of $77.4 million.

During the year ended September 30, 2023, we incurred interest expense of $3.0 million primarily comprised of interest expense on an average outstanding balance of $26.9 million under our revolving credit facility and on our finance lease agreements, in addition to fees on an average letter of credit balance of $4.7 million under our revolving credit facility and an average unused line of credit balance of $117.8 million.

Interest expense in the year ended September 30, 2023 remained relatively consistent compared to the year ended September 30, 2022 as a decrease in interest expense incurred on our revolving credit facility resulting from a lower average outstanding balance was offset by an increase in interest expense related to a higher volume of active finance leases.

Other income of $1.8 million in the year ended September 30, 2023 was primarily the result of gains on investments in equity securities of $1.0 million.

During the year ended September 30, 2022, we incurred interest expense of $3.0 million primarily comprised of interest expense on an average outstanding balance of $82.3 million under our revolving credit facility, in addition to fees on an average letter of credit balance of $4.5 million under our revolving credit facility and an average unused line of credit balance of $49.2 million.

During the year ended September 30, 2021, we incurred interest expense of $1.0 million primarily comprised of interest expense from our revolving credit facility and fees on an average letter of credit balance of $5.7 million under our revolving credit facility and an average unused line of credit balance of $77.4 million.

PROVISION FOR INCOME TAXES

For the year ended September 30, 2023, we recorded income tax expense of $38.8 million, which reflects a higher pretax income than in the year ended September 30, 2022.

For the year ended September 30, 2022, we recorded income tax expense of $12.8 million, which reflects a $0.8 million benefit related to the recognition of previously unrecognized tax benefits.

For the year ended September 30, 2021, we recorded income tax expense of $16.2 million, which reflects a $5.1 million benefit related to the recognition of previously unrecognized tax benefits.

For the year ended September 30, 2020, we recorded income tax expense of $8.7 million, which reflects a $3.2 million benefit related to the recognition of previously unrecognized tax benefits as well as a $3.3 million benefit related to the release of valuation allowance on certain state net operating loss carryforwards.

WORKING CAPITAL

During the year ended September 30, 2022, working capital exclusive of cash increased by $48.2 million from September 30, 2021, reflecting a $138.5 million increase in current assets excluding cash and a $90.3 million increase in current liabilities during the period.

During the year ended September 30, 2022, our current assets exclusive of cash increased to $599.6 million, as compared to $461.1 million as of September 30, 2021.

An increase in business activity drove an $84.0 million increase in trade accounts receivable.

Days sales outstanding increased to 58 at September 30, 2022 from 57 at September 30, 2021.

During the year ended September 30, 2023, working capital exclusive of cash decreased by $2.8 million from September 30, 2022, reflecting a $4.1 million decrease in current assets excluding cash and a $1.3 million decrease in current liabilities during the period.

During the year ended September 30, 2023, our current assets exclusive of cash decreased to $595.5 million, as compared to $599.6 million as of September 30, 2022.

A decrease in activity at our Commercial & Industrial business, which generally has longer customer payment terms than our other operating segments, as well as the collection of aged receivables related to prior year contractual disputes, drove a $6.9 million decrease in trade accounts receivable.

Days sales outstanding decreased to 51 at September 30, 2023 from 58 at September 30, 2022.

While the rate of collections may vary, our typically secured position, resulting from our ability in general to secure liens against our customers’ overdue receivables, offers some protection that collection will occur eventually to the extent that our security retains value.

Retainage increased by $23.7 million as a result of growth in the Residential multi-family business, as well as the timing of projects in the Commercial & Industrial business.

Additionally, inventory increased by $27.8 million in connection with rising commodity prices as well as growth of our business.

Further, we have increased the quantity of inventory we are currently carrying to manage procurement risks.

Costs and estimated earnings in excess of billings increased by $8.7 million as a result of increased levels of activity at our Communications business, as well as supply chain disruptions in our Infrastructure Solutions business.

During the year ended September 30, 2022, our total current liabilities increased by $90.3 million to $401.9 million, compared to $311.6 million as of September 30, 2021, driven by increased levels of business activity, offset in part by remittance of payroll taxes deferred under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

Additionally, prepaid expenses and other current assets decreased by $4.9 million as a result of the recognition of certain prepaid expenses as of September 30, 2022 and the timing of payments of project costs.

These decreases were partially offset by an $11.9 million increase in retainage as a result of increased activity in our Residential multi-family business.

During the year ended September 30, 2023, our total current liabilities decreased by $1.3 million to $400.6 million, compared to $401.9 million as of September 30, 2022, driven by a decrease in business activity at our Commercial & Industrial business, the timing of payments by our Residential and Communications segments, and remittance of all remaining payroll taxes deferred under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

These decreases were largely offset by an increase in billings in excess of costs and estimated earnings driven by increased activity in our Residential multi-family business.

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a surety.

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However, current market conditions, as well as changes in our sureties' assessment of our operating and financial risk, could cause our sureties to decline to issue bonds for our work.

If our sureties decline to issue bonds for our work, our alternatives would include posting other forms of collateral for project performance, such as letters of credit or cash, seeking bonding capacity from other sureties, or engaging in more projects that do not require surety bonds.

If our sureties decline to issue bonds for our work, our alternatives will include posting other forms of collateral for project performance, such as letters of credit or cash, seeking bonding capacity from other sureties, or engaging in more projects that do not require surety bonds.

In addition, if we are awarded a project for which a surety bond is required but we are unable to obtain a surety bond, the result could be a claim for damages by the customer for the costs of replacing us with another contractor.

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If in the future our Liquidity falls below $15.0 million (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 our then-outstanding indebtedness becoming immediately due and payable.

At September 30, 2022, we had $4.1 million in outstanding letters of credit and $82.7 million of outstanding borrowings under our revolving credit facility.

At September 30, 2023, we had $4.2 million in outstanding letters of credit and no outstanding borrowings under our revolving credit facility.

From time to time, the Company invests in non-controlling positions in the debt or equity securities of other businesses.

Our Board of Directors has approved an investment policy that permits the Company to invest our cash in liquid and marketable securities that include equities and fixed income securities, subject to size limits on investments individually and in the aggregate.

Equity securities may include unrestricted, publicly traded stock that is listed on a major exchange or a national, over-the-counter market and that is appropriate for our portfolio objectives, and fixed income securities are required to have an investment grade credit quality at the time of purchase.

Our Board of Directors has approved an investment policy that, after taking into consideration the liquidity required to support and invest in the Company's operations, permits the Company to invest in marketable securities, including equities and fixed income securities that can be easily bought and sold on a public market, and non-marketable securities, including equity and fixed income investments in private companies as well as private investments in public companies, subject to size limits and required approvals for certain investments.

Operating Activities

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however, a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions.

Currently, our working capital needs are higher than they have been historically, as a result of growth of our business, elevated commodity prices,and the steps taken to mitigate the impact of supply chain disruptions.

Operating activities provided net cash of $153.9 million during the year ended September 30, 2023, as compared to $16.3 million of net cash provided in the year ended September 30, 2022.

The increase in operating cash flow resulted primarily from increased earnings and a reduction in cash used in working capital during the year ended September 30, 2023 compared to the year ended September 30, 2022

Operating activities provided net cash of $16.3 million during the year ended September 30, 2022, as compared to $37.9 million of net cash provided in the year ended September 30, 2021.

The decrease in operating cash flow resulted from lower earnings and an increase in working capital, particularly due to increased trade accounts receivable and inventory during the year ended September 30, 2022 in support of the growth of the business.

We also remitted $7.0 million of payroll taxes previously deferred under the CARES Act.

Operating activities provided net cash of $37.9 million during the year ended September 30, 2021, as compared to $76.7 million of net cash provided in the year ended September 30, 2020.

The decrease in operating cash flow resulted from an increase in working capital, particularly related to inventory.

As commodity prices increased, we also experienced longer lead times for deliveries, and reduced availability for certain products we procure, particularly copper wire.

As a result, we increased the amount of inventory carried in an effort to ensure the availability of materials to serve our customers.

This increase in working capital was partly offset by higher earnings during the year ended September 30, 2021.

Investing Activities

Net cash provided by investing activities was $2.8 million for the year ended September 30, 2023, compared to $29.5 million of net cash used in investing activities in the year ended September 30, 2022.

During the year ended September 30, 2023, the sale of assets, including the sale of STR, provided cash of $20.6 million, which was partially offset by $17.7 million used for capital expenditures.

Investing activities for the year ended September 30, 2022 include $29.3 million of capital expenditures primarily related to the acquisition of a new operating facility for our Wedlake business, as well as an additional facility to support the growth of our Residential business in Florida.

Net cash used in investing activities was $29.5 million for the year ended September 30, 2022, compared to $99.6 million of net cash used in investing activities in the year ended September 30, 2021.

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Investing activities for the year ended September 30, 2021 include $7.4 million of capital expenditures and $92.5 million for the acquisition of businesses.

In the year ended September 30, 2021, net cash used in investing activities was $99.6 million, as compared to $33.6 million of net cash used in investing activities in the year ended September 30, 2020.

Investing activities for the year ended September 30, 2021 include $7.4 million of capital expenditures and $92.5 million for the acquisition of businesses.

Investing activities for the year ended September 30, 2020 include $4.7 million of capital expenditures and $29.0 million for the acquisition of businesses.

Financing Activities

Net cash provided by financing activities was $15.0 million in the year ended September 30, 2022, compared to $31.2 million in the year ended September 30, 2021.

Net cash provided by financing activities for the year ended September 30, 2022 included net borrowing on our credit facility of $42.3 million, partly offset by $18.6 million used for repurchase of our common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Net cash used in financing activities was $105.8 million in the year ended September 30, 2023.

Net cash used in financing activities for the year ended September 30, 2023 included net repayments on our credit facility of $82.7 million, distributions to noncontrolling interests of $11.5 million under operating agreements in connection with certain acquisitions, and $8.3 million used for the repurchase

of our common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Net cash provided by financing activities was $15.0 million in the year ended September 30, 2022.

Net cash provided by financing activities for the year ended September 30, 2022 included net borrowing on our credit facility of $42.3 million, partly offset by $18.6 million used for the repurchase of our common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation.

Additionally, we distributed $7.0 million to noncontrolling interests under operating agreements in connection with certain acquisitions.

Net cash provided by financing activities was $31.2 million in the year ended September 30, 2021, compared to $8.5 million used in the year ended September 30, 2020.

Net cash provided by financing activities was $31.2 million in the year ended September 30, 2021.

For the year ended September 30, 2021, we borrowed a net $40.0 million on our revolving credit facility.

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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.

("Tontine Associates"), together with its affiliates (collectively, "Tontine") is the Company's controlling stockholder, owning approximately 58 percent of the Company’s outstanding common stock based on Amendment No.

27 to the Schedule 13D filed by Tontine with the SEC on September 8, 2023 and the Company's shares outstanding as of November 30, 2023.

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.

We are a 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 thousand.

In December 2022, the Company entered into an amendment of the sublease agreement, which was set to terminate on February 28, 2023, to extend the term of the agreement through August 31, 2024 and to increase the monthly payments from approximately $8 thousand to approximately $9 thousand effective March 1, 2023.

The lease has terms at market rates, and payments by the Company are at a rate consistent with that paid by Tontine Associates to its landlord.

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These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specified intervals at a fixed price over the term.

As of September 30, 2022, we had commitments of $9.7 million outstanding under such agreements to purchase copper wire and other materials over the next 12 months in the ordinary course of business.

As of September 30, 2023, we did not have any such firm commitments to purchase materials outstanding.

Many of our customers require us to post performance and payment bonds issued by a surety.

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Accordingly, we have identified the accounting principles which we believe are most critical to our reported financial status by considering accounting policies that involve the most complex or subjective decisions or assessments.

We identified our most critical accounting policies to be those related to revenue recognition, accounting for business combinations, the assessment of goodwill and asset impairment, our allowance for credit losses, the recording of our insurance liabilities and estimation of the valuation allowance for deferred tax assets, and unrecognized tax benefits.

We identified our most critical accounting policies to be those related to revenue recognition, accounting for business combinations, and estimation of the valuation allowance for deferred tax assets and unrecognized tax benefits.

These accounting policies, as well as others, are described in Note 2, “Summary of Significant Accounting Policies” in the notes to our Consolidated Financial Statements and at relevant sections in this discussion and analysis.

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

In assessing the realizability of deferred tax assets 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 NOL carryforward periods to realize its $20.5 million of deferred tax assets.

In assessing the realizability of deferred tax assets at September 30, 2023, 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 to realize its $20.4 million of deferred tax assets.

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

An inability to generate sufficient taxable income in future periods to realize our deferred tax assets may lead to a future need for a valuation allowance and a corresponding reduction in GAAP net income.

In addition, any reduction in the federal statutory tax rate in the future could also cause a reduction in the economic benefit of the NOL available to us and a corresponding charge to reduce the book value of the deferred tax asset recorded on our Consolidated Balance Sheets.

In addition, any reduction in the federal statutory tax rate in the future could also cause a reduction in the economic benefit of the deferred tax assets available to us and a corresponding charge to reduce the book value of the deferred tax asset recorded on our Consolidated Balance Sheets.

Income Taxes.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis