Integrated Electrical Services Reports Fiscal 2007 Third Quarter Results and Announces Operational Restructuring Initiative

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Reports Diluted EPS of $0.08

    HOUSTON, Aug. 13 /-/ -- Integrated Electrical Services, Inc. (Nasdaq: IESC) today announced net income of $1.2 million and diluted earnings per share of $0.08 for the fiscal 2007 third quarter ended June 30, 2007. The company also announced that it has commenced restructuring its operations into three major lines of business: Industrial, Commercial and Residential from its current decentralized structure. This operational restructuring is another step in the company's long-term strategic plan to reduce its cost structure, reposition its business to better serve its customers, strengthen financial controls and, as a result, position the company to implement a market-based growth strategy in the future.

    Michael J. Caliel, IES' President and Chief Executive Officer, stated, "We are pleased to report improved operating results and a profitable third quarter, one in which we were able to drive gross margin higher than second quarter and year ago levels, despite softness in our residential segment and challenging weather conditions in some of our key markets. With our transformation program well underway, we are seeing improvement in our core processes of estimating, screening new work and project management, all of which contributed to a better gross margin in the quarter. Also, our cash management program continues to produce solid results.

    "Regarding our operational restructuring, we are building upon the work already underway as a part of our transformation program and are now in a position to proceed with the next phase and address the more structural aspects of the company. We are taking decisive steps to move our cost structure more in line with the industry and the market, as well as strengthen our financial controls across the business. With this new business alignment, we are accelerating our efforts to improve efficiency and productivity while continuing to deliver superior services to our customers."

    OPERATIONAL RESTRUCTURING INITIATIVE

    The operational restructuring plan will consolidate administrative support functions, eliminating redundant functions currently performed at the company's 27 business units. IES estimates it will achieve a 15-20% reduction in non-operational field resource compensation costs through this restructuring along with improved operational efficiencies. The company expects to incur pre-tax restructuring charges, including severance benefits and facility consolidations and closings, of approximately $10 million over the course of the restructuring process, which will be implemented over approximately 18 months.

    "We are carrying out this initiative in a manner that assures our ability to compete and provide high quality service to our customers, while intensifying our focus on building and retaining a first-rate skilled workforce. This is an important step in building the foundation for a more competitive business. Most importantly, these changes will enable our field operations to focus even more on our customers' needs. We look forward to reporting on our progress each quarter as we implement this plan," added Caliel.

    FINANCIAL RESULTS OVERVIEW

    The company emerged from its financial reorganization on May 12, 2006, therefore, periods ended April 30, 2006 and prior are referred to as Predecessor and periods subsequent to April 30, 2006 are referred to as Successor.

    FISCAL THIRD QUARTER RESULTS

    Revenues for the third quarter of fiscal 2007 were $222.6 million with gross profit of $38.3 million, a 17.2 percent gross profit margin, compared to revenues of $241.1 million with gross profit of $36.0 million, a 14.9 percent gross profit margin, in the third quarter of fiscal 2006. Operating cash flow for the third quarter of fiscal 2007 was $16.4 million compared to a usage of $2.6 million in the third quarter of fiscal 2006.

    Net income from continuing operations for the fiscal 2007 third quarter was $1.0 million, or $0.07 per diluted share, compared to net income from continuing operations of $46.8 million, or $3.04 per diluted share, for the fiscal 2006 third quarter. Included in the fiscal 2006 third quarter results were reorganization items totaling a net gain of approximately $40.3 million, or $2.62 per diluted share. Net income, which includes discontinued operations, for the fiscal 2007 third quarter was $1.2 million, or $0.08 per diluted share, compared to $36.8 million, or $2.39 per diluted share, for the comparable period a year ago including the net gain from reorganization items.

    Selling, general and administrative ("SG&A") expenses for the fiscal third quarter of 2007 were $34.1 million, or 15.3 percent of revenues, compared to SG&A expenses of $31.4 million, or 13.0 percent of revenues, in the fiscal 2006 third quarter primarily due to $1.8 million related to the company's ongoing investment in its transformation program to improve overall operational performance.

    FISCAL 2007 YEAR TO DATE

    Revenues for the first nine months of fiscal 2007 were $666.0 million with gross profit of $112.0 million, a 16.8 percent gross profit margin, compared to revenues of $683.8 million with gross profit of $104.2 million, a 15.2 percent gross profit margin, in the comparable period of fiscal 2006. SG&A expenses for the first nine months of fiscal 2007 were $104.8 million, or 15.7 percent of revenues, compared to SG&A expenses of $91.2 million, or 13.3 percent of revenues, in the first nine months of fiscal 2006. SG&A expenses increased compared to the prior year due to the following:

    * $6.0 million related to the company's ongoing investment in its

     transformation program to improve overall operational performance

    * $2.5 million of amortization costs as a result of fresh start

     accounting implemented on April 30, 2006

    * $2.0 million of incentives to business unit management resulting from

     improved cash flow of $55.6 million over the prior year

    * Non-cash compensation expense of $1.2 million related to restricted

     stock

    Net income from continuing operations for the first nine months of fiscal 2007 was $0.5 million, or $0.04 per diluted share, compared to net income from continuing operations of $23.7 million, or $1.54 per diluted share, for the comparable period in fiscal 2006. Included in the fiscal 2006 nine month results are reorganization items totaling a net gain of approximately $28.2 million, or $1.83 per diluted share. Net loss, which includes discontinued operations, for the first nine months of fiscal 2007 was $0.3 million, or $0.02 per share, compared to net income of $5.9 million, or $0.38 per diluted share, for the comparable period a year ago including reorganization items.

    SEGMENT DATA

    Segment revenues for Commercial / Industrial for the third fiscal quarter of 2007 were $136.7 million at a gross margin of 17.0 percent compared to revenues of $138.1 million at a gross margin of 13.9 percent in the fiscal 2006 third quarter. Residential revenues in the third quarter were $85.9 million at a gross margin of 17.5 percent compared to $103.0 million at a gross margin of 16.3 percent in the comparable period a year ago.

    Segment revenues for Commercial / Industrial for the first nine months of fiscal 2007 were $406.6 million at a gross margin of 16.3 percent compared to revenues of $397.9 million at a gross margin of 13.4 percent in the comparable period of fiscal 2006. Residential revenues for the first nine months of fiscal 2007 were $259.4 million at a gross margin of 17.6 percent compared to $285.9 million at a gross margin of 17.7 percent in the comparable period a year ago.

    BACKLOG

    Backlog related to continuing operations was $329.5 million as of June 30, 2007 compared to $352.8 million as of March 31, 2007 and to $330.8 million as of June 30, 2006. The overall quality of backlog continues to improve, reflecting the company's ongoing selectivity regarding new business.

    DEBT AND LIQUIDITY

    Total debt was $45.8 million as of June 30, 2007. As a result of the company's focus on cash management, unrestricted cash and cash equivalents continued to improve, totaling $68.9 million as of June 30, 2007 compared to $10.9 million as of June 30, 2006.

    EBITDA RECONCILIATION

    The company has disclosed in this press release EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring expenses) amounts that are non-GAAP financial measures. EBITDA and EBITDAR are also measures that are used in determining compliance with the company's senior secured credit facility. Therefore, management believes EBITDA and EBITDAR provide useful information to investors as a measure of comparability to peer companies. However, these calculations may vary from company to company, so IES' computations may not be comparable to other companies. In addition, IES has certain assets established as part of applying fresh-start accounting that will be amortized in the future. A reconciliation of EBITDA and EBITDAR to net income is found in the table below. For further details on the company's financial results, please refer to the company's quarterly report on Form 10-Q, to be filed on August 13, 2007.

     Successor Successor Predecessor

    (in millions) Three Months Two Months One Month

     Ended Ended Ended

     June 30, June 30, April 30,

     2007 2006 2006

    Continuing Operations:

     Net Income $1.0 $1.0 $45.7

     Interest Expense 1.8 1.5 1.5

     Provision (Benefit) for

     Income Taxes 1.7 0.0 (4.8)

     Depreciation and Amortization 2.6 1.4 0.5

    EBITDA for Continuing Operations $7.0 $3.9 $42.9

    EBITDA for Discontinued

     Operations $--- $(3.0) $(2.2)

    Total EBITDA $7.0 $0.9 $40.7

    Restructuring Expenses $--- $0.4 $(40.7)

    Total EBITDAR* $7.0 $1.3 $---

     Successor Successor Predecessor

     Nine Months Two Months Seven Months

    (in millions) Ended Ended Ended

     June 30, June 30, April 30,

     2007 2006 2006

    Continuing Operations:

     Net Income $0.5 $1.0 $22.7

     Interest Expense 4.9 1.5 14.9

     Provision (Benefit) for

     Income Taxes 2.1 0.0 0.8

     Depreciation and Amortization 7.5 1.4 4.0

    EBITDA for Continuing Operations $15.0 $3.9 $42.4

    EBITDA for Discontinued

     Operations $(2.5) $(3.0) $(14.8)

    Total EBITDA $12.5 $0.9 $27.6

    Restructuring Expenses $--- $0.4 $(28.6)

    Total EBITDAR* $12.5 $1.3 $(1.0)

    * Earnings before Interest, Taxes, Depreciation, Amortization, and

     Restructuring Expenses

    CONFERENCE CALL

    Integrated Electrical Services has scheduled a conference call for Tuesday, August 14, 2007, at 9:30 a.m. eastern time. To participate in the conference call, dial (303) 205-0055 at least ten minutes before the call begins and ask for the Integrated Electrical Services conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until August 30, 2007. To access the replay, dial (303) 590-3000 using a pass code of due 11094726#.

    Investors, analysts and the general public will also have the opportunity to listen to the conference call over the Internet by visiting http://www.ies-co.com. To listen to the live call on the web, please visit the company's web site at least fifteen minutes before the call begins to register, download and install any necessary audio software. For those who cannot listen to the live web cast, an archive will be available shortly after the call.

    Integrated Electrical Services, Inc. is a national provider of electrical solutions to the commercial and industrial, residential and service markets. The company offers electrical system design and installation, contract maintenance and service to large and small customers, including general contractors, developers and corporations of all sizes.

    Certain statements in this release including statements regarding the restructuring plan and total estimated charges and cost reductions associated with this plan are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions that the company believes to be reasonable as of the date hereof. These statements involve risks and uncertainties that could cause the company's actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to the company's ability to meet financial covenants; increased costs of surety bonds required for certain projects; the inherent uncertainties relating to estimating future operating results and the company's ability to generate sales, or operating income; potential difficulty in addressing material weaknesses in the inventory and control environment at one business unit that has been identified by the company and its independent auditors; fluctuations in operating results because of downturns in levels of construction particularly residential construction; inaccurate estimates used in entering into and executing contracts; inaccuracies in estimating revenue and percentage of completion on contracts; difficulty in managing the operation of existing entities; the high level of competition in the construction industry both from third parties and ex-employees; increases in costs or limitations on availability of labor, especially qualified electricians, increase in costs of commodities used in our industry of steel, copper and gasoline; weather related delays; accidents resulting from the numerous physical hazards associated with the company's work; loss of key personnel particularly presidents of business units; litigation risks and uncertainties, including in connection with the ongoing SEC investigation; unexpected liabilities or losses associated with warranties; difficulties in integrating new types of work into existing subsidiaries; inability of the company to incorporate new accounting, control and operating procedures and centralization of back office functions; the loss of productivity, either at the corporate office or operating level resulting from changed procedures or management personnel; disruptions or inability to effectively manage consolidations.

    You should understand that the foregoing, as well as other risk factors discussed in this document, in IES' annual report on Form 10-K for the year ended September 30, 2006 and in IES' quarterly report on Form 10-Q for the quarter ended March 31, 2007, could cause future outcomes to differ materially from those expressed in such forward-looking statements. IES undertakes no obligation to publicly update or revise information concerning the company's restructuring efforts, borrowing availability, or its cash position or any forward-looking statements to reflect events or circumstances that may arise after the date of this release. Forward-looking statements are provided in this press release pursuant to the safe harbor established under the private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties, and risks described herein.

    General information about us can be found at http://www.ies-co.com under "Investor Relations." Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.

     - Tables to follow -

     INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     Successor Successor Predecessor

     Three Months Two Months One Month

     Ended Ended Ended

     June 30, June 30, April 30,

     2007 2006 2006

     (Unaudited) (Unaudited) (Unaudited)

    Revenues $222,631 $166,951 $74,147

    Cost of services 184,322 142,643 62,440

     Gross profit 38,309 24,308 11,707

    Selling, general and

     administrative expenses 34,113 21,390 9,995

    (Gain) loss on asset sales (91) (71) 1

     Income from operations 4,287 2,989 1,711

     Reorganization items --- 436 (40,719)

    Interest and other expense, net 1,561 1,515 1,463

    Income (loss) from continuing

     operations before income taxes 2,726 1,038 40,967

    Provision (benefit) for income

     taxes 1,693 8 (4,756)

    Net income from continuing

     operations 1,033 1,030 45,723

    Discontinued operations

     Loss from discontinued operations (29) (2,940) (2,210)

     Benefit from income taxes (203) --- 4,804

     Net income (loss) from

     discontinued operations 174 (2,940) (7,014)

    Net income (loss) $1,207 $(1,910) $38,709

    Basic income (loss) per share:

     Continuing operations $0.07 $0.07 $3.05

     Discontinued operations 0.01 (0.20) (0.47)

     Total $0.08 $(0.13) $2.59

    Diluted income (loss) per share:

     Continuing operations $0.07 $0.07 $2.97

     Discontinued operations 0.01 (0.19) (0.46)

     Total $0.08 $(0.12) $2.52

    Shares used in the computation of

     earnings loss per share:

     Basic 15,086 14,971 14,971

     Diluted 15,163 15,374 15,374

     Successor Successor Predecessor

     Nine Months Two Months Seven Months

     Ended Ended Ended

     June 30, June 30, April 30,

     2007 2006 2006

     (Unaudited) (Unaudited) (Unaudited)

    Revenues $665,977 $166,951 $516,864

    Cost of services 553,969 142,643 436,947

     Gross profit 112,008 24,308 79,917

    Selling, general and

     administrative expenses 104,774 21,390 69,772

    (Gain) loss on asset sales (117) (71) 107

     Income from operations 7,351 2,989 10,038

     Reorganization items --- 436 (28,608)

    Interest and other expense, net 4,743 1,515 15,171

    Income (loss) from continuing

     operations before income taxes 2,608 1,038 23,475

    Provision (benefit) for income

     taxes 2,077 8 758

    Net income from continuing

     operations 531 1,030 22,717

    Discontinued operations

     Loss from discontinued

     operations (2,204) (2,940) (14,929)

     Benefit from income taxes (1,340) --- ---

     Net income (loss) from

     discontinued operations (864) (2,940) (14,929)

    Net income (loss) $(333) $(1,910) $7,788

    Basic income (loss) per share:

     Continuing operations $0.04 $0.07 $1.52

     Discontinued operations (0.06) (0.20) (1.00)

    Total $(0.02) $(0.13) $0.52

    Diluted income (loss) per share:

     Continuing operations $0.04 $0.07 $1.48

     Discontinued operations (0.06) (0.19) (0.97)

    Total $(0.02) $(0.12) $0.51

    Shares used in the computation of

     earnings loss per share:

     Basic 15,048 14,971 14,971

     Diluted 15,063 15,374 15,374

     SELECTED BALANCE SHEET DATA

     Successor Successor Successor

     6/30/2007 9/30/2006 6/30/2006

    Cash and Cash Equivalents $68,943 $28,166 $10,938

    Working Capital (Including

     Cash and Cash Equivalents) 161,384 136,506 152,775

    Goodwill 14,289 14,589 14,832

    Restricted Cash 20,000 20,000 20,000

    Total Assets 361,560 375,515 377,899

    Total Debt 45,809 55,765 54,058

    Total Stockholders' Equity 157,038 154,643 158,953

     SELECTED CASH FLOW DATA

     Successor Successor Predecessor

     Three Months Two Months One Month

     Ended Ended Ended

     6/30/2007 6/30/2006 4/30/2006

    Cash provided by (used in)

     operating activities $16,355 $(1,786) $(805)

    Cash (used in) investing

     activities (328) (197) (127)

    Cash (used in) financing

     activities (14,374) (4,052) (229)

     Successor Successor Successor

     Nine Months Two Months Seven Months

     Ended Ended Ended

     6/30/2007 6/30/2006 4/30/2006

    Cash provided by

     operating activities $56,640 $(1,786) $2,781

    Cash used in investing

     activities (895) (197) (6,525)

    Cash used in financing

     activities (14,968) (4,052) (7,632)

     Contacts: Randy Guba, CFO

     Integrated Electrical Services, Inc.

     713-860-1500

     Ken Dennard / ksdennard@drg-e.com

     Karen Roan / kcroan@drg-e.com

     DRG&E / 713-529-6600
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