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Item 8. Financial Statements and Supplementary Data

2023-12-07 compared with 2022-12-06 · 106 added, 151 removed, 818 unchanged (24% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders' Equity

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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”).

and subsidiaries (the Company) as of September 30, 2023 and 2022, the related consolidated statements of comprehensive income , stockholders' equity and cash flows for each of the three years in the period ended September 30, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with U.S.

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

Revenue recognition 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 for certain fixed-price construction contracts

Description of the Matter As described in Notes 2 and 4 to the consolidated financial statements, the Company principally recognizes revenue on construction 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.

Auditing management’s estimate of the progress towards completion for certain projects which are structured under fixed-price arrangements, and 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.

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;

testing significant assumptions used to develop the estimated cost 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;

conducting interviews with project personnel;

attending select project review meetings;

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

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To the Stockholders and the Board of Directors of IES Holdings, Inc.

and subsidiaries

Opinion on Internal Control Over Financial Reporting

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and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, 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.

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, 2023 and 2022, the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and our report dated December 7, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Operating long-term lease liabilities 42,098 38,144

Other tax liabilities 22,047 9,893

Other non-current liabilities 16,951 12,677

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AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(In Thousands, Except Share Information)

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Selling, general and administrative expenses 298,625 262,714 202,251

Goodwill impairment expense — — 6,976

Contingent consideration 277 277 211

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Net income 119,787 40,186 68,676

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

Net income attributable to noncontrolling interest ( 11,499 ) ( 5,424 ) ( 2,018 )

Comprehensive income attributable to IES Holdings, Inc.

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Acquisition of treasury stock — — ( 170,524 ) ( 7,538 ) 527 — ( 7,011 )

Options exercised — — 5,750 84 ( 50 ) — 34

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.

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

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

Net income attributable to IES Holdings, Inc.

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Net income $ 119,787 $ 40,186 $ 68,676

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

Bad debt expense 3,141 1,216 1,864

Adjustments to reconcile net income to net cash provided by operating activities:

Bad debt expense (benefit)

( 120 ) 3,141 1,216

Deferred financing cost amortization 268 199 198

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Non-cash compensation expense 4,372 3,775 3,522

Goodwill impairment expense — — 6,976

Deferred income tax expense (benefit) 5,185 ( 31 ) 11,724

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

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

Net cash provided by (used in) investing activities 2,770 ( 29,536 ) ( 99,569 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Purchase of treasury stock ( 8,284 ) ( 18,556 ) ( 7,006 )

Issuance of shares 53 — 34

Options exercised 22 53 —

Net cash provided by (used in) financing activities ( 105,750 ) 15,017 31,173

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Cash paid for income taxes (net) $ 12,056 $ 3,953 $ 5,062

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:

Property and equipment acquired in exchange for liabilities

$ 4,712 $ — $ —

The accompanying notes are an integral part of these Consolidated Financial Statements.

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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

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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.

Estimates are primarily used in our revenue recognition of construction in progress, fair value assumptions in accounting for business combinations, stock-based compensation, reserves for legal matters, and realizability of deferred tax assets and unrecognized tax benefits.

Cash and Cash Equivalents

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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.

Inventory is valued at the lower of cost or net realizable value generally using the 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.

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Leasehold improvements are capitalized and depreciated over the lesser of the life of the lease or the estimated useful life of the asset.

Costs associated with software developed or obtained for internal use, including third party

development fees incurred during the application development stage and software licenses, are capitalized and amortized on a straight-line basis over the estimated useful life of the software.

Expenditures for repairs and maintenance are charged to expense when incurred.

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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.

Amortization expense of debt issuance costs was $ 268 , $ 199 and $ 198 , respectively, for the years ended September 30, 2023, 2022 and 2021.

Remaining unamortized capitalized debt issuance costs were $ 836 and $ 1,031 at September 30, 2023, and 2022, respectively.

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

The balances billed but not paid by customers

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

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

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

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.

Certain divisions in the Residential and Infrastructure Solutions segments recognize revenue at the completion of the contract ("completed contract") under the right to invoice practical expedient 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

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Our allowance for credit losses at September 30, 2023 and 2022 was $ 1,649 and $ 5,361 , respectively.

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

Year Ended September 30,

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

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

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

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

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

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

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

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

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

Comprehensive Income (Loss)

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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 .

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 net deferred tax assets of $ 20,383 .

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

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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.

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:

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.

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

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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.

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.

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During the year ended September 30, 2021, we acquired the noncontrolling interest in STR for $ 1,188 .

We sold 100 % of our interests in STR in October 2022.

If all of the noncontrolling interests remaining outstanding at September 30, 2023 had been redeemable at that date, the redemption amount would have been $ 49,951 .

For the year ended September 30, 2023, we recorded a decrease to Retained Earnings of $ 15,701 to increase the carrying amount of noncontrolling interest in NEXT, Edmonson and Bayonet to their redemption amounts.

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.

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

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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.

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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.

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.

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

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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 .

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 to approximately $ 9 effective March 1, 2023.

Payments by the Company are at a rate consistent with that paid by Tontine Associates to its landlord.

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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.

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.

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

REVENUE RECOGNITION

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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.

In our Residential Single-family business and our Infrastructure Solutions Industrial Services business, our contracts are generally in the form of purchase orders issued to us by the customer.

We recognize revenue upon completion of the services specified in the purchase order.

We recognize revenue over time for the majority of the services we perform other than the Residential Single-family and Infrastructure Solutions Industrial Services businesses, 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 Custom Power Solutions business, 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 the work performed creates an asset with alternative use to the Company and 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.

Where we are creating an asset with no alternative use and 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.

For arrangements where we recognize revenue over time, 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.

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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.

Our consolidated revenue for the years ended September 30, 2023, 2022 and 2021 was derived from the following activities.

See details in the following tables:

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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”.

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”.

During the years ended September 30, 2023 and 2022, we recognized revenue of $ 82,520 and $ 52,683 related to our contract liabilities at October 1, 2022 and 2021, 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.

We did not have any impairment losses recognized on our receivables or contract assets for the years ended September 30, 2023, 2022 and 2021.

Remaining Performance Obligations

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Furniture and fixtures 5 - 7 2,507 2,239

$ 103,901 $ 75,450

Property and equipment, gross $ 120,736 $ 103,901

Less-Accumulated depreciation ( 58,693 ) ( 50,014 )

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Property and equipment, net $ 63,410 $ 54,426

Depreciation expense was $ 10,073 , $ 8,090 and $ 6,084 , respectively, for the years ended September 30, 2022, 2021 and 2020.

Depreciation expense, including amortization of internal-use software, was $ 12,121 , $ 10,073 and $ 8,090 , respectively, for the years ended September 30, 2023, 2022 and 2021.

PER SHARE INFORMATION

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Diluted $ 4.54 $ 1.44 $ 3.15

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.

For the years ended September 30, 2023, 2022 and 2021, the average price of our common stock exceeded the exercise price of outstanding stock options;

therefore, all of our outstanding stock options were included in the computation of diluted earnings per share.

For the years ended September 30, 2023, 2022 and 2021, there were no other unvested performance awards excluded from the calculation of diluted earnings per share because the inclusion of such instruments would have been anti-dilutive.

DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

Accounts payable and accrued expenses consist of the following:

Year Ended September 30,

September 30,

Accounts payable, trade $ 138,591 $ 184,963

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Other non-current assets are comprised of the following:

Year Ended September 30,

September 30,

Executive Savings Plan assets $ 783 $ 706

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Debt issuance costs

( 1,031 ) ( 656 )

Other long-term debt — 63

Total debt $ — $ 81,628

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.

At September 30, 2023, we had no outstanding borrowings, $ 4,166 in outstanding letters of credit and $ 142,761 of availability under our revolving credit facility.

Any 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 under our revolving credit facility was 6.82 % at September 30, 2023.

For the years ended September 30, 2023, 2022 and 2021, we incurred interest expense of $ 3,022 , $ 2,970 and $ 962 , respectively.

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Year Ended September 30,

2023 2022 2021

Operating lease cost $ 18,501 $ 16,000 $ 13,405

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Year Ended September 30,

2023 2022 2021

Operating cash flows used for operating leases $ 22,022 $ 20,799 $ 15,011

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State income taxes, net of federal deduction 6,338 2,114 3,876

Contingent tax liabilities

Change in valuation allowance — 283 —

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Share-based compensation ( 332 ) ( 665 ) ( 715 )

Noncontrolling interest

( 2,415 ) ( 1,139 ) ( 428 )

Change in valuation allowance ( 52 ) — ( 118 )

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The income tax effects of these temporary differences, representing deferred income tax assets and liabilities, result principally from the following:

Year Ended September 30,

September 30,

Deferred income tax assets:

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Net deferred income tax assets $ 20,383 $ 20,519

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.

In fiscal 2023 and 2022, the valuation allowance on our deferred tax assets decreased by $ 52 and increased by $ 283 , respectively, which is included in “Provision for income taxes” in our Consolidated Statements of Comprehensive Income.

As of September 30, 2023, we had available approximately $ 5,202 of federal net tax operating loss carry forward for federal income tax purposes.

This carry forward, which may provide future tax benefits, is subject to an annual limitation of $ 709 under Section 382 of the Internal Revenue Code and will begin to expire in 2029.

As of September 30, 2023, we had available approximately $ 70,216 state net tax operating loss carry forwards, including $ 4,965 from net operating losses on which no tax benefit has been recognized and has not been recorded as a deferred tax asset.

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Balance at beginning of period $ 21,746 $ 21,879

Additions for position related to current year — 59

Additions for positions of prior years 819 26

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

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

Contingent consideration — 211 — — — 211

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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.

In 2015, our Board authorized a stock repurchase program for the purchase from time to time of up to 1.5 million shares of the Company’s common stock, and 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.

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

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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.

We repurchased 224,013 and 511,600 shares of our common stock in open market transactions at an average price of $ 31.06 and $ 32.02 per share during the years ended September 30, 2023 and 2022, respectively.

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.

During the year ended September 30, 2023, we issued 105,755 shares of treasury stock to employees and repurchased 32,158 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 224,013 shares of common stock on the open market pursuant to our stock repurchase program, and 266 shares were forfeited by former employees and returned to treasury stock.

During the year ended September 30, 2023, we issued 3,000 unrestricted shares to satisfy the exercise of outstanding options.

During the year ended September 30, 2022, we issued 157,167 shares of treasury stock to employees 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 .

A summary of restricted stock awards for the years ended September 30, 2023, 2022 and 2021 is provided in the table below:

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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 .

At September 30, 2023, we did not have any remaining unvested restricted stock awards or related unamortized compensation cost.

All the restricted shares granted under the Equity Incentive Plan (vested or unvested) participate in dividends issued to common shareholders, if any.

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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

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As of September 30, 2023, a maximum of 325,813 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.

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At September 30, 2023, it is deemed probable that the portion of the awards that vest based on performance conditions will vest.

A summary of the compensation expense related to our stock awards recognized during the years ended September 30, 2023, 2022 and 2021 is provided in the table below:

Year Ended September 30,

2023 2022 2021

Restricted stock awards $ 23 $ 137 $ 145

Director PSUs $ 386 $ 386 $ 376

Employee PSUs $ 3,963 $ 3,251 $ 2,986

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.

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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.

No compensation earned during the years ended September 30, 2023, 2022 and 2021 was deferred under this plan.

Multiemployer Pension Plan

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

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

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Executive savings plan assets $ 783 $ 783 $ —

Equity securities 1,937 1,937 —

Executive savings plan liabilities ( 657 ) ( 657 ) —

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Executive savings plan assets $ 706 $ 706 $ —

Equity securities 1,937 $ 1,937 —

Executive savings plan liabilities ( 585 ) ( 585 ) —

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

Acquisitions ( 4,074 )

Net adjustments to fair value ( 142 )

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GOODWILL AND INTANGIBLE ASSETS

The following summarizes changes in the carrying value of goodwill by segment for the years ended September 30, 2022 and 2021:

The following summarizes the carrying value of goodwill by segment at September 30, 2023, which was unchanged during the years ended September 30, 2023 and 2022:

Communications Residential Infrastructure Solutions Commercial & Industrial Total

Balance at September 30, 2023

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

$ 2,816 $ 51,370 $ 38,209 $ — $ 92,395

Based on the results of our annual goodwill impairment assessment at September 30, 2023, 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, 2023.

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

As of September 30, 2023 and 2022, we had accumulated impairment losses of $ 6,976 related to our Commercial & Industrial segment.

Intangible Assets

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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.

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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.

At September 30, 2022, we had an aggregate $ 10,451 of trade accounts receivable, against which we had recorded a reserve of $ 3,095 , where payment had been delayed as a result of contractual disputes between the general contractor and project owner on certain projects.

All of these disputes were settled during the year ended September 30, 2023, and none of these receivables or associated reserves remained outstanding at September 30, 2023.

Risk Management

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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.

Because these accruals 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.

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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.

At September 30, 2023 and 2022, we utilized $ 4,166 and $ 3,878 , respectively, of our outstanding letters of credit to collateralize our insurance program.

As of September 30, 2023, the estimated cost to complete our bonded projects was approximately $ 151,186 .

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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 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.

BUSINESS COMBINATIONS

We completed no acquisitions in fiscal year 2022.

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

BUSINESS COMBINATIONS AND DIVESTITURES

We completed no acquisitions in fiscal years 2023 and 2022.

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

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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.

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 (the "PPP") established by the Coronavirus Aid, Relief, and Economic Security Act and implemented by the U.S.

Small Business Administration.

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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.

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

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

SUBSEQUENT EVENTS

On October 7, 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.

As a result, we recognized a pre-tax gain of $ 13,045 , which was included in “ Gain on sale of assets ” within our Consolidated Statements of Comprehensive Income for the year ended September 30 , 2023 .

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data