Integrated Electrical Services Reports Fiscal 2005 First Quarter
Results HOUSTON, Feb. 14 /PRNewswire-FirstCall/ -- Integrated
Electrical Services, Inc. (NYSE:IES) today announced results for
its fiscal 2005 first quarter ended December 31, 2004. The company
reported revenues of $303.2 million and a net loss for the first
quarter of $17.6 million or $0.46 per diluted share compared to
revenues of $331.6 million and net income of $6.3 million or $0.16
per diluted share for the first quarter one year ago. The 2005
first quarter net loss includes the following items: * A loss of
$6.6 million or $0.17 per share from discontinued operations,
including $6.1 million of goodwill write-offs * A charge of $2.7
million or $0.07 per share related to marking to market embedded
derivatives in the recent $36 million convertible bond issue * An
expense of $1.7 million or $0.04 per share from greater than
ordinary legal, accounting and bank advisor fees * A charge of $1.6
million or $0.04 per share related to establishing valuation
allowances against deferred tax benefits created by the company's
first quarter loss * A charge of $0.3 million or $0.01 per share
from writing off deferred financing costs related to the company's
credit facility * A charge of $0.3 million or $0.01 per share
related to losses in an investment as determined by the equity
method of accounting The items detailed above total $13.2 million
or $0.35 per share in the first quarter of fiscal 2005. Excluding
the above items, the net loss in the first quarter of fiscal 2005
was $4.4 million or $0.11 per share. Net income for the first
quarter of fiscal 2004 includes a benefit of $1.4 million or $0.04
per share from the release of a tax valuation allowance. The first
quarter revenue decline is primarily the result of a reduction in
the amount of bonded work that IES performed during the quarter. As
a result of the company's strategic review process, IES has decided
to reduce its dependence on bonded work in an effort to improve
profitability and return on capital invested. Roddy Allen, IES'
president and chief executive officer, stated "IES has made
significant progress during the quarter. We are ahead of our
previously announced divestiture plan and have divested six
business units on our Planned Divestiture list for a total of $19.6
million in cash. We continue to see an upswing in attractive new
project opportunities and look forward to the profitable execution
of that work. Additionally, we have redesigned the incentive
compensation programs for our operations' employees to focus on
profitability with a modifier for collections; we believe this will
increase cash generation from the new work we are performing."
David Miller, IES' chief financial officer, added "IES will
continue to focus on improving its capital structure by carefully
managing its working capital and by utilizing operating cash flow
and the proceeds from the announced divestitures to de-lever the
company. IES was in full compliance with all financial covenants
for the quarter." SEGMENT DETAILS First quarter segment revenues
for commercial/industrial were $232.8 million in fiscal 2005
compared to $268.6 million in fiscal 2004. The decrease is a result
of lower revenues in certain regions, primarily from a decrease in
revenues from bonded projects. First quarter gross profit for
commercial/industrial was $20.9 million in fiscal 2005 versus $32.7
million in fiscal 2004. The decrease was a result of reduced
revenues and weak performance from certain business units that are
not part of the Core business units. First quarter residential
segment revenues were $70.4 million in fiscal 2005 compared to
$63.0 million in fiscal 2004. The increase is a result of continued
strong demand for new single and multi-family housing. First
quarter gross profit for residential was $13.5 million in fiscal
2005 versus $14.0 million in fiscal 2004. Residential gross profit
was down in the first fiscal quarter of 2005 as a result of margin
pressure from increased competition. (dollars in millions)
Commercial/ Corporate 2005 1st Quarter Industrial Residential &
Other Total Revenues $232.8 $70.4 $303.2 Gross profit 20.9 13.5
34.4 Income (loss) from operations (4.1) 10.1 (7.6) (1.6) EBITDA
(2.1) 10.3 (7.4) 0.7 Commercial/ Corporate 2004 1st Quarter
Industrial Residential & Other Total Revenues $268.6 $63.0
$331.6 Gross profit 32.7 14.0 46.7 Income (loss) from operations
11.8 7.5 (5.2) 14.0 EBITDA 14.2 7.6 (3.9) 18.0 As was announced in
the Fiscal 2004 year-end earnings release on December 14, 2004, the
company now breaks out its business units into three broad
categories: Core, Under Review, and Planned Divestitures. A summary
of the results of these groups has been added later in this
release. BACKLOG AND BONDING Excluding discontinued operations,
IES' backlog was $566.9 million compared to $667.7 million for the
same units at the end of the first quarter a year ago and compared
to $614.9 million for the same units at the end of the fourth
quarter of 2004. The lower year to year backlog is primarily due to
a decrease in work that requires surety bonding. As was reported in
a January 19, 2005 press release, the company reached an agreement
with its surety bond provider to provide surety bonds to the
company on terms that are acceptable to the company. As was
permitted in its amended credit facility, the company pledged
accounts receivable and certain other assets to the surety
provider. The company was not required to post additional cash
collateral or letters of credit as part of the agreement with the
surety provider. The company is currently in the process of
identifying a co-surety to further expand bonding capacity and
allow the company to fulfill its bonding requirements. Since
January 19, IES has requested and received $20 million in new
surety bonds from its surety provider for bonded projects. CASH
FLOW, DEBT AND LIQUIDITY The company generated negative cash flow
from operations of $9.0 million for the first fiscal quarter of
2005 versus $6.4 million provided in the first fiscal quarter of
2004. The decrease is primarily a result of having posted, prior to
the January 19th agreement, $10 million as collateral with the
company's surety provider and the reduced earnings in the current
year. As of December 31, 2004, total debt was $241.6 million,
excluding a $2.7 million entry to mark to market the convertible
debt, compared to the prior year of $248.3 million. Total debt as
of September 30, 2004 was $231.3 million. As of February 11, 2005,
IES' total debt was approximately $228.5 million, and cash and
availability on its revolving credit line totaled approximately $55
million. Additionally, as previously disclosed, IES posted with its
surety provider $17.5 million of cash collateral and $5.0 million
in letters of credit through December 31, 2004. Interest expense
for the first fiscal quarter was $8.8 million compared to $6.5
million for the same fiscal quarter of 2004. The increase in 2005
is primarily due to a $2.7 million non-cash charge for marking to
market the convertible bond issue. DIVESTITURES AND SUPPLEMENTAL
FINANCIAL DATA In its previously announced strategic review, IES
assessed its business units based on consistency of profitability;
return on capital, including capital employed for bonding;
construction spending and growth trends; and management strength.
As a result, IES now views its business units in three broad
categories: Core, Under Review and Planned Divestitures. The Core
units, which include the residential units, have what IES considers
acceptable performance in the above categories. The units Under
Review are businesses that may have underperformed in some
category, necessitating further evaluation to determine whether or
not the unit should be divested. The Planned Divestiture group is
comprised of units that have unacceptable performance per IES'
criteria, and these units will be divested in order to strengthen
and improve the overall quality of IES' operations. The Planned
Divestiture group was disclosed in an October 28, 2004 press
release, as having revenues of $289 million and an operating loss
of $13.1 million in fiscal 2004. As part of a constant evaluation
of business units, that Planned Divestiture list has changed
slightly. The business units that now make up the updated Planned
Divestiture list had fiscal 2004 revenues of $327 million and an
operating loss of $11.7 million. IES has already sold six of the
Planned Divestiture units. During the fiscal first quarter of 2005,
IES completed the sale of substantially all of the assets of three
business units, primarily serving the commercial segment, for total
cash proceeds of $11.8 million. These units had combined revenues
of $57.7 million and operating income of $1.1 million in fiscal
2004. Since the end of the quarter, the company has sold an
additional three units, whose combined fiscal 2004 revenues and
operating income were $44.6 million and $0.1 million respectively,
for a combined price of $7.8 million. IES continues to move forward
with its divestiture process. Management believes that the
following additional information may be helpful to assist in
analyzing the company's results: (dollars in millions) Corporate
Under Planned & 2005 1st Quarter Core Review Divestitures Other
Total Revenues $220.7 $53.5 $29.1 $303.2 Gross profit 29.6 4.3 0.6
34.4 Income (loss) from operations 8.0 (0.1) (1.9) (7.6) (1.6)
EBITDA 9.6 0.2 (1.6) (7.4) 0.7 Backlog 403.3 104.9 58.7 566.9
Corporate Under Planned & 2004 4th Quarter Core Review
Divestitures Other Total Revenues $235.0 $53.9 $34.8 $323.8 Gross
profit 31.8 4.3 (2.4) 33.6 Income (loss) from operations 9.1 (0.0)
(6.2) (6.7) (3.8) EBITDA 10.7 0.4 (5.7) (6.3) (1.0) Backlog 419.2
113.4 82.3 614.9 Corporate Under Planned & 2004 1st Quarter
Core Review Divestitures Other Total Revenues $221.0 $61.2 $49.3
$331.6 Gross profit 35.1 7.6 4.0 46.7 Income (loss) from operations
16.3 2.7 0.3 (5.2) 14.0 EBITDA 18.1 3.1 0.6 (3.9) 18.0 Backlog
438.2 139.5 90.0 667.7 EBITDA RECONCILIATION IES has disclosed in
this press release EBITDA amounts that are non-GAAP financial
measures. Management believes EBITDA provides 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. Management
further uses EBITDA to compare the financial performance of its
segments and to internally manage those business segments. EBITDA
is also one of the measures that is used in determining compliance
with the company's senior secured credit facility. A reconciliation
of EBITDA, as well as EBITDA defined by IES' credit facility
covenants, to net income is found in the tables below. (dollars in
thousands) 1st Quarter 2005 2004 Net Income (loss) ($17,608) $6,289
Interest Expense 8,844 6,459 Provision for Income Taxes 304 1,775
Depreciation 2,967 3,453 Goodwill Impairment 6,201 --- EBITDA $708
$17,976 Addbacks as per Credit Agreement (A) 2,490 N/A EBITDA as
per Credit Agreement $3,198 N/A (A) Includes gain on sale of
PP&E, bad debt expense, losses in an equity investment,
impairment of divestitures, amortization of restricted stock, bank
advisor fees, and a gain on divestitures CONFERENCE CALL Integrated
Electrical Services has scheduled a conference call for Tuesday,
February 15, 2005, at 9:30 a.m. eastern time. To participate in the
conference call, dial (303) 262-2190 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 February 22, 2005. To access the replay, dial
(303) 590-3000 using a pass code of 11024181. 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 leading 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. This Press Release includes certain
statements that may be deemed to be "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on the Company's expectations
and involve risks and uncertainties that could cause the Company's
actual results to differ materially from those set forth in the
statements. Such risks and uncertainties include, but are not
limited to, the inherent uncertainties relating to estimating
future operating results or our ability to generate sales, income,
or cash flow, potential difficulty in addressing material
weaknesses in the Company's accounting systems that have been
identified to the Company by its independent auditors, potential
limitations on our ability to access the credit line under our
credit facility, litigation risks and uncertainties, fluctuations
in operating results because of downturns in levels of
construction, incorrect estimates used in entering into and
executing contracts, difficulty in managing the operation of
existing entities, the high level of competition in the
construction industry, changes in interest rates, the general level
of the economy, increases in the level of competition from other
major electrical contractors, increases in costs of labor, steel,
copper and gasoline, limitations on the availability and the
increased costs of surety bonds required for certain projects,
inability to reach agreement with our surety bonding company to
provide sufficient bonding capacity, risk associated with failure
to provide surety bonds on jobs where we have commenced work or are
otherwise contractually obligated to provide surety bonds, loss of
key personnel, inability to reach agreement for planned sales of
assets, business disruption and transaction costs attributable to
the sale of business units, business disruptions and costs
associated with the ongoing SEC formal investigation, class action
litigation and shareholder derivative action, costs associated with
the closing of business units, unexpected liabilities associated
with warranties or other liabilities attributable to the retention
of the legal structure of business units where we have sold
substantially all of the assets of the business unit, inability to
fulfill the terms of the required paydown under the credit
facility, difficulty in integrating new types of work into existing
subsidiaries, errors in estimating revenues and percentage of
completion on contracts, and weather and seasonality. The foregoing
and other factors are discussed and should be reviewed in the
Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K for the year
ended September 30, 2004. INTEGRATED ELECTRICAL SERVICES, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS,
EXCEPT SHARE INFORMATION) Three Months Ended December 31, 2003 2004
(restated) (Unaudited) Revenues $331,559 303,238 Cost of services
284,885 268,822 Gross profit 46,674 34,416 Selling, general and
administrative expenses 32,683 36,035 Income/(loss) from operations
13,991 (1,619) Other (income)/expense: Interest expense 6,459 8,844
(Gain)/loss on sale of assets 7 (36) Other income, net 119 257
6,585 9,065 Income/(loss) from continuing operations before income
taxes 7,406 (10,684) Provision/(benefit) for income taxes 1,538 299
Net income/(loss) from continuing operations 5,868 (10,983)
Discontinued operations Income/(loss) from discontinued operations
(including gain on disposal of $0 and $86) 658 (6,620) Provision
for income taxes 237 5 Net income/(loss) from discontinued
operations 421 (6,625) Net income (loss) $6,289 (17,608) Basic
earnings/(loss) per share from continuing operations $0.15 (0.28)
Basic earnings/(loss) per share from discontinued operations $0.01
(0.17) Basic earnings/(loss) per share $0.16 (0.46) Diluted
earnings/(loss) per share from continuing operations $0.15 (0.28)
Diluted earnings/(loss) per share from discontinued operations
$0.01 (0.17) Diluted earnings/(loss) per share $0.16 (0.46) Shares
used in the computation of earnings/(loss) per share: Basic
38,273,416 38,665,537 Diluted 38,835,737 38,665,537 Reconciliation
of GAAP to EBIT and EBITDA(A) Net income $6,289 $(17,608) Provision
for income taxes 1,775 304 Interest expense 6,459 8,844 EBIT
$14,523 $(8,460) Depreciation expense 3,453 2,967 Goodwill
Impairment --- 6,201 EBITDA $17,976 $708(B) (A) The company uses
EBIT and EBITDA because we believe some investors use this data to
analyze performance (B) Addbacks as per Credit Agreement: $2,439;
EBITDA as per Credit Agreement: $3,147 Selected Balance Sheet Data:
09/30/04 12/31/04 (audited) (unaudited) Cash and cash equivalents
$22,232 $31,672 Working capital 199,307 211,837 Goodwill, net
90,186 90,331 Total assets 580,933 563,189 Total debt 231,281
244,254 Total stockholders' equity 143,168 126,043 Selected Cash
Flow Data: Three Months Ended 12/31/03 12/31/04 Cash provided by
(used in) operating activities 6,427 (9,042) Cash provided by (used
in) investing activities (1,922) 10,590 Cash provided by (used in)
financing activities (553) 7,892 Contacts: David A. Miller, CFO
Integrated Electrical Services, Inc. 713-860-1500 Ken Dennard /
Karen Roan / DRG&E 713-529-6600 DATASOURCE: Integrated
Electrical Services, Inc. CONTACT: David A. Miller, CFO of
Integrated Electrical Services, Inc., +1-713-860-1500; or Ken
Dennard, , or Karen Roan, , both of DRG&E, +1-713-529-6600, for
Integrated Electrical Services, Inc. Web site:
http://www.ies-co.com/
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