IES Holdings Aktie

Good morning, everyone. Welcome to Day 2 of the 17th Annual Midwest IDEAS Conference. My name is John McNamara, I'm with Three Part Advisors. Our first presentation of the day is IES Holdings. IES designs and installs integrated electrical and technology systems and provides infrastructure products and services. The stock trades on the NASDAQ under the symbol IESC. With us from management today are CEO, Matt Simmes; and Chief Financial Officer, Tracy McLauchlin. Matt?

Good morning. Thanks for joining us. As we talked about, Tracy is with me. She's our CFO, and she also heads up our Investor Relations on that side of it. So to quickly kind of get into it. We're going to start on Slide 3. We provide a high level of overview of IES.

We're an electrical technology services company, providing critical infrastructure, products and services to a diversified group of important end-user markets across North America. These markets include data centers, e-commerce, distribution, high-tech manufacturing and operations, including semiconductor plants, industrial manufacturing, health care, education, and residential housing.

For fiscal 2025, which ended September 30, 2025, we reported a total approximate revenue of $3.4 billion. Operating income of $384 million and adjusted EPS of $13.66 per share. As we've grown our business, we've also continued to expand margins, with income growing faster than revenue. This margin expansion reflects our ability and our teams to execute projects more effectively. Providing outstanding services to our customer in a fast-paced environment. We have over 170 locations across the United States and over 11,000 employees.

On Slide 4, we highlight key end markets and capabilities we bring across our organization. The chart on the right illustrates our diverse revenue mix, which again has meaningful exposures to end-markets experiencing strong growth. Two years ago, more than half of our revenue came from our residential segment falling to 39% in 2025. Year-to-date in 2026, residential is tracking under 30% of the business.

The change in this mix of business is driven partly due to housing start slowdowns, but more importantly, by rapid growth of other key markets, particularly the data center market. The changing concentration of revenue among our segments reflects the diversity of end markets that we believe is one of our strengths, protecting against some cyclical nature in the construction business.

On Slide 5, we've highlighted key pillars of our growth strategy. The strong revenue growth that IES has demonstrated over the past 5 years was driven by a mix of organic growth the benefits of capital investments to support further growth across most of our business segments as well as continued activity on the acquisition front.

Through acquisition -- though acquisitions have been a part of our capital allocation strategy for the past decade and will continue to be an important tool in our capital allocation strategy for the past decade, and we'll continue to be an important tool in our capital allocation process and the component of our long-term growth strategy.

I would note over the past several years, particularly fiscal 2021 through 2025. The majority of our top line growth across all our business segments have been driven by organic growth. Supplemented or supported by investments, including working capital and CapEx in our different business segments. When attractive acquisition candidates come along, that brings service and geographic extensions to our core business areas, we always -- will always take a look at it. We're very opportunistic in that way.

It's worth noting that many of the ideas or opportunities that we evaluate are internally generated through our Corporate Development team and existing commercial relationship. Ultimately, most of the businesses that we have acquired are not broadly shopped as part of an auction or a formal sales process.

Our strong financial position, which is fundamental to our business strategy enables us to act quickly as needed. We typically fund our acquisitions with cash flow from operations, using our borrowing capacity to manage the timing of investment opportunities. When we borrow, we typically repay borrowing promptly over the next several quarters.

While we are willing to incur debt to support our business, our growth of our business, we do not expect to maintain a debt level at more than one-time trailing 12-month EBITDA.

Slide 6. The growth has -- strategy has led to strong financial performance. Over the past 5 years, we've grown revenue at a 23% compound annual growth rate and operating income at 50%, demonstrating both strong top line growth, but also positive operating leverage across our business segments as operating margins increased from just under 4% to over 11% over that same time period. In a few minutes, Tracy will cover our 2026 performance through the first 9 months of the fiscal year. And as mentioned, our year-end September 30, so we'll be headed into our final month of the fiscal year of 2026. Tracy will talk on this more in a couple of minutes.

Moving to Slide 7. We believe our strategy is supported by a diverse range of end markets. I guess I should go to 7. Technology infrastructure investments in the U.S. is currently dominated by capital spending on data centers to support the growth of generative AI, cloud computing and digital lifestyle.

This is currently the largest growth driver for our communications our infrastructure solutions and our commercial and industrial segments. Continued and growing investment in the manufacturing facilities in the U.S. as well as continued growth and investment in e-commerce has also benefited our business. And we expect it will continue in the future.

These trends increase the need for cabling communications technology. We're also creating demand in the adjacent infrastructure solutions business, which produces enclosures for backup power generators as well as custom manufactured electrical mechanical components.

There is also an evolving electrical landscape in the United States, which requires the critical electrical infrastructure services we provide. The trend I just mentioned in AI-driven investments in the United States has brought an increased attention to the investment needed in the electrical infrastructure across this country as power requirements for new data centers outpace growth in power generation capacity, we expect increasing focus on electrical reliability, backup power and grid stability.

Finally, for -- a residential segment is poised to benefit over the long term from pent-up demand for housing following what we believe is an underbuilding of homes over the past decade. Current affordability and consumer sentiment continues to weigh on the housing market as persistent high interest rates and elevated home prices combined with higher input costs dampened demand.

Despite these near-term pressures, we remain committed to the residential business and optimistic about the future. We are the nation's largest provider of electrical contracting services to homebuilders in the United States, serving national and regional builders. Our strong balance sheet, national footprint and records of outstanding service provide us with an opportunity to increase market share even in a weaker market.

We are also continuing the expansion of our plumbing and HVAC trades into markets where we have established presence with our electrical trade, which helps us offset some of the housing weakness.

As seen on Slide 8. Since fiscal 2016, we have been active strategic acquirers of business and bring a strong track record of completing accretive acquisitions in all 4 business segments. When you look at this page, you'll notice in some years, we have done up to 4 acquisitions. In some years, we have done none. This reflects our discipline and patience -- patient approach to capital allocation. If an acquisition target does not meet our stringent requirements, we will pass on the opportunity and look for others.

On Slide 9, I'd like to take -- I'd like to take a minute to highlight a recent agreement to acquire DBM Global, which will be our largest acquisition to date and add a fifth operating segment to IES Holdings. The purchase price will be approximately $650 million, and we expect the acquisition to close quarter end December 31, 2026 pending regulatory approval.

DBM provides structural steel fabrication services and will expand our capabilities in manufacturing capacity. DBM works with many of the large general contractors that are already existing IES customers. And it will also further diversify our end markets in arenas -- in areas such as arenas, stadiums and marquee commercial developments, like the Golden 1 Arena in Sacramento, or the 270 Park Avenue project pictured here. We are excited to welcome DBM and its 3,400 employees and strong management team to IES.

Allocating capital effectively is one of our top priorities at IES. On Slide 10, you can see we've been generating increasing amounts of cash over the past several years, and we focused on deploying that cash to generate the best returns. First and foremost, we've used our cash to support organic growth of the business, investing in working capital and CapEx needed to continue to expand our offerings to our customers.

Next, we have funded the acquisitions I just discussed out of operating cash flow. While we use debt to manage timing of acquisition opportunities. We typically promptly pay down debt out of operating cash flow to maintain strong flexible balance sheet. As of June 30, 2026, we had no outstanding debt. However, we do expect to take on some debt with the DBM acquisition.

Let me jump deeper into our business segments, beginning with Communications on Slide 11. This segment is a nationwide provider of technology integration services, including structured cabling, fiber optic cabling, audiovisual, security and distributed antenna services, the segment's largest end market is data centers, distribution centers, high-tech manufacturing facilities and other commercial applications are also important to the end market -- also important end markets.

In the segment, we may work directly for project owners such as large technology companies or our direct customers, maybe general contractors. This business has substantially grown over the past 5 years with growth over the past 2 years being driven by growing investments in the data center market. It's worth noting that the investment levels and growth in other core markets for the segments such as high-tech manufacturing and e-commerce also have healthy activity.

We have been involved in the data center market for over 20 years, and we are a trusted partner of many of the largest and most important customers in that market. Many of our customers within this segment are building larger, more complex facilities and also expanding their geographic footprint across the country. Our ability to manage and support the scaling of their needs from both a facility size, complexity and a workforce need as well as our ability to quickly support expansions into new geographies as yet another differentiator for the IES business segment.

Moving to Slide 12, our residential -- moving to the -- this segment provides electrical, HVAC and plumbing installations, for both single-family and multifamily builders. As indicated on the bottom of the right map, our business is heavily concentrated in Texas and Florida, but we substantially -- but substantially and growing our footprint across the fastest-growing regions in the Southeast, Southwest and Midwest regions of the United States.

While we've historically provided electrical services to the residential market. We have added plumbing and HVAC capabilities through an acquisition in Florida in 2021. Since then, we've worked to expand HVAC and plumbing throughout our broader residential footprint. This expansion has allowed us to offset some impact in the weakness of the housing market over the past year.

Slide 13, turning to our Infrastructure Solutions segment. In this segment, we provide power solutions, including generator enclosures, switch gear, bus duct, as well as electrical and mechanical apparatus services. We've added our infrastructure business in 2013 through an acquisition of industrial services facilities, and we continue to expand our capabilities through both acquisition and facility expansion.

In the recent years, custom manufactured enclosures for backup generators, particularly for the data center market has been the largest growth for this segment, and we can currently expect this trend to continue for the foreseeable future. What I'm the most important way is to support growth in this segment is to continue to acquire, build, expand or lease fabrication facilities with available square footage to increase capacity for our products.

Since this business is more capital-intensive, requiring investment in facilities and equipment. We expect to deliver higher operating margins. Our revenue has grown over the past several years, and we have added capacity to meet customer demand. We have also have a growing industrial service component, the segment to this segment that will continue to drive growth across various end markets listed on the slide.

Lastly, we'll talk about commercial and industrial. This business services, commercial and industrial facilities and provides electrical and mechanical and construction services. This business -- this group of business differentiates itself from a regional competitors with the size and scale of the IES platform as well as our ability to deploy skilled workforce to remote areas to data center builds. The market for this segment has historically been competitive with customers often awarding contracts to the lowest bidder.

More recently, increased demand and limited availability of electrical contracting services driven by the growth of data centers across the country has led to an expansion of bid markets across end markets. We have seen improvement results over the segment in the last 2 years, and our efforts to expand our capabilities have allowed us to take on larger projects, particularly in the data center market.

So to recap, IES revenue is driven by the exposure to 3 secular themes. We have a strong balance sheet and financial profile and a disciplined capital allocation strategy. And we are strategically positioned in key markets across the United States.

With that, I'll pass it on to Tracy and she can cover 2026 performance.

Thank you, Matt, and good morning, everyone. I'll briefly recap our year-to-date results on Page 16 and cover our key priorities and expectations for the remainder of 2026 and heading into fiscal 2027. Our operating results year-to-date showed continued solid growth with the same period last year.

Operating income for the first 9 months ended June 30, 2026, was $389 million, a 39% increase over the same period 2025. This improvement was driven largely by strong demand and operating performance in our Communications and Infrastructure Solutions segments. Also by expanded capabilities in our Commercial and Industrial segment, which allowed us to respond to the fast-growing market opportunity in the data center space.

These benefits more than made up for some of the challenging market conditions in our residential segment. As we look forward to the remainder of our fiscal year, we believe the trends or strengths and weaknesses we saw in quarter 3 and through the first 9 months of the year will continue with strong results from our Communications and Infrastructure Solutions segments leading the way this year. Our Commercial & Industrial segment has recently reported a step change in activity levels with revenue for the quarter ended June 30, 2026 doubling over the quarter -- the same quarter 2025.

We exited the June 30 quarter with record backlog, which we expect will drive further growth heading into fiscal 2027.

Turning to our segment performance on Slide 17. Within our Communications segment, as Matt already mentioned, our near-term outlook is largely driven by continued solid demand from the data center end market as well as increasing demand from industrial manufacturers, particularly high-tech manufacturers that are bringing their manufacturing supply chains back to the U.S. Our customer base is national, diversified and poised for growth with robust CapEx plans.

We look forward to capitalizing on the many secular tailwinds that continue to benefit this business. In our Residential segment for the first 9 months of fiscal 2026, we see continued softness in single-family housing starts as persistent elevated mortgage costs and weaker consumer sentiments continue to weigh on demand. Our near-term strategy for this segment is to continue to work to gain market share outpacing the industry and to expand our plumbing and HVAC capabilities into markets where we currently only offer electrical services.

In our multifamily business, the decline in backlog we experienced through 2024 and 2025 has stabilized and we're starting to see an improvement in the sales pipeline. Any new work we book now, though will continue to benefit us starting in 2027. We are working on fostering relationships with single-family builders and multifamily developer on a national scale to put ourselves in the most advantageous position we can to benefit from the eventual market recovery.

Moving to our Infrastructure Solutions segment. The growth we're experiencing is the result of investments in capacity expansion we've been making over the past several years. The Gulf Island acquisition, which we completed in January contributed $89 million of revenue for the 9 months ended June 30. So excluding that contribution from Gulf Island, our year-to-date growth rate of 57% was 32% from organic growth. We now have approximately 3 million square feet of manufacturing space and roughly 1/3 of that is still being redeveloped or retooled and will probably start to contribute to our operating results beginning in fiscal 2027.

Investment in additional capacity across our growing national footprint to drive future growth has been an ongoing strategy in our Infrastructure Solutions segment over the past several years. In this segment, we've really been focusing on acquiring facilities and employees to support our current business as opposed to continuing the acquired businesses pre-acquisition strategies.

We continue to actively engage with our customers in this market, discussing long-term planning and capacity needs, often stretching out over several years into the future. Based on our expectations about future growth, we continue to evaluate additional capacity expansions, whether through purchase, leasing or build-out of additional square footage to expand this growth and stay on top of anticipated future growth.

And finally, touching on our Commercial & Industrial segment. In the past 2 years, we've really focused on hiring and training to expand our capacity for large data center projects to meet the demand of our customers as well as to support increased activity levels in other key markets such as education and health care. This expanded capacity allowed us to book more new projects, increasing our backlog over the past couple of quarters. These new bookings, as I mentioned, led to a step change in revenue starting in the most recent quarter. And as I mentioned, that more than doubled from the same quarter prior year.

So this new level of activity will allow us to have the stage set for continued higher levels of growth going into the next year.

In closing, we're optimistic about the long-term fundamentals across each of our end markets and believe we're well positioned to continue to gain share and expand our service offerings. We're supported by our flexible capital structure, low fixed costs and strong balance sheet.

And with that, Matt and I are happy to take any questions.

Yes.

[indiscernible] more about how recurring [indiscernible] project facing. Can you give us a sense of the recurring revenue from a local perspective [indiscernible].

Sure. The question is to help get a better understanding of the level of recurring revenue in the business. Do you want to take that?

Sure. Yes. I mean we've -- we're a sales-driven organization. So we have a lot more visibility to campus type activities in the data center, commercial and health care environment also in e-commerce on that side of it. So when you get into data center projects today, it tends to be an allocation of a campus versus a one-off build for those types of environments.

This allows us to kind of staff up for those projects over the long term, build efficient crews that can perform the activities on those data centers. So our visibility into projects has never been longer and gives us the ability to help staff and relieve some of that constraint in the market.

So some operations well [indiscernible].

What's that?

Operations well construction of the [indiscernible].

Yes. Yes. I mean we feel both needs on that side of it. We perform day-to-day operations with rack and stack, patching, turnup, network turnup and then kind of in the infancy is that construction of those multiple buildings on those campuses.

For those who have thought of moving manufacturing back to the United States simply be too expensive. You referenced that you're seeing some of that. Would you try to fill the gap between that mindset that the U.S. is too high cost versus you're actually seeing some of that take place?

Well, I mean, obviously, we've invested in about 3 million square feet of manufacturing capacity, and we're sold out. So it's one of our highest margin businesses that we have because we do design and fabricate our own products on that side and then ultimately install and distribute them on that side.

But the U.S. market from a manufacturing capacity command is part of the driver that's happening with this, whether it be chip manufacturing, whether it be product manufacturing we're seeing a lot of growth into that. There's definitely some problems with that also because you've got an inlay of Chinese services that are hitting the market that can affect kind of the cost and the margin profile of those products, but the demand is outpacing those risks at this point in time.

[indiscernible] something about the cost structure that's better to date than maybe we all would have worried about 2 years ago.

The labor constrainment in the market is a real factor. And that doesn't only affect electricians. I mean that's, you hear a lot of that right electricians, electricians and electricians, but it's painters, it's welders, it's field services. So this country has a history of kind of reducing service level activities and trainings in that class of employee.

And now we're hitting kind of that wall or factor of we need to reinvest. We've done that at IES for the last 30 years on that side of it, being in business and having training programs, and that's what's helping us successful today. But that constrainment is driving a huge benefit to manufacturers and service companies like ourselves.

So [indiscernible] growth question here. So for some of the data center driven demand, the revenue growth we're seeing from how does the price how much of that [indiscernible]. How sustainable do you think those 2 parts are probably are?

I'll repeat the question. So the question was about how sustainable is the data center growth, how much is driven by price versus volume?

I mean it's probably a even split between price and volume. The rates for labor resources have grown dramatically. The product sets that are going into data centers have morphed and changed. I mean the amount of fiber that we put in today is 10x what we put in 4 years ago. So that is definitely yielding to a much higher contract value for those pieces that we're facilitating today so.

You just said we [indiscernible] going to be, and I don't think that I understand, which is over 40 years, the amount of fiber going into the data centers is up 10x. Would you discuss what is actually happening within those 4 walls that just leading to a 10x what's actually happening there?

It's all the interconnections between the fabrics that they put out network -- talking to network nodes, passing processing across multiple server banks and everything along those lines. So we used to build data centers. I've been building them since early 2000, they were copper, point-to-point network switches to switches. Today, everything is an interwoven fabric. So everything talks to everything, simultaneously on that side. So that produces a lot more fiber connections within the data center. And then once we put in multiple buildings and campuses, the interconnections between those buildings now are dramatically larger. Some of those cables that we're putting in are $2 million, $3 million a piece for a piece of fiber off the table.

And the benefit of having 10x the connections the speed.

The speed and removing latency and being able to process as much information and get it out as fast as possible.

Anything else. Sorry, we blew through that presentation, so I was worried about getting it done. Yes.

Some of the geographic overlap that there were some [indiscernible] Texas in one segment, another segment, same for Virginia -- it seems like there was residential side a bit of overlap in the end markets and yes the geographic footprint [indiscernible] overlap. Is there a reason constraint behind that? Or is that an opportunity for cross-sell across the segments that are passed...

We've bridged a lot of sizes in our business. Our business were pretty siloed. We had 4 very distinct independent segments. As we become more sales-driven and look at opportunities where we can add value creation across that same customer base, we've blended those resources.

So infrastructure, commercial and industrial and our communications work very closely together now on process. Our projects providing multiple layers of different product sets. And that's part of the thing that we're excited also about the DBM integration. We can provide also another product set to the same customer base.

Residential is a little different. The skill sets is little different the training requirements from an electrical scope are a little different. We get some bleed over on that side of it, but not much.

So residential side of [indiscernible] you finished the segment, Texas [indiscernible] but then Infrastructure Solutions, it was not [indiscernible].

So the communications business is really a national business. So...

We do work in all 50 states. Canada and Mexico on that side of it.

Okay. Thank you.

Have a great day.