IESRQ - Sector: Capital Goods --- Industry: Construction Services

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Press Release Source: Integrated Electrical Services, Inc.


Integrated Electrical Services Reports Fiscal 2006 First Quarter Results
Thursday February 9, 9:32 pm ET


HOUSTON, Feb. 9 /PRNewswire-FirstCall/ -- Integrated Electrical Services, Inc. (OTC Pink Sheets: IESR - News) today announced results for its fiscal 2006 first quarter ended December 31, 2005. Recent highlights include:

     *  Revenue of $259.1 million and operating income of $3.9 million
        recorded for the quarter.
     *  Gross margin of 14.2% in the first quarter of fiscal 2006, increasing
        from 12.8% in the fiscal 2005 first quarter and from 9.4% in the
        fiscal 2005 fourth quarter.
     *  First quarter 2006 backlog of $378.3 million, increasing from
        $372.6 million in the prior quarter.

    FINANCIAL RESULTS
Total revenues decreased $6.3 million, or 2.4%, from $265.4 million for the first fiscal quarter of 2005, to $259.1 million for the first fiscal quarter of 2006. This decrease in revenues is primarily the result of a decrease of $23.6 million in the company's Commercial / Industrial segment revenues and an increase of $17.3 million in Residential revenues for the first fiscal quarter of 2006.

Gross profit increased $2.9 million, or 7.9%, from $34.0 million for the first fiscal quarter of 2005 to $36.9 million for the first fiscal quarter of 2006. Gross profit margin as a percentage of revenues increased from 12.8% to 14.2% for the first fiscal quarter of 2005 compared to the first fiscal quarter of 2006. The increase in gross margin was primarily due to increased profitability in the Commercial / Industrial segment.

Selling, general and administrative expenses decreased $1.6 million, or 4.9%, from $34.4 million for the first fiscal quarter of 2005 to $32.9 million for the first fiscal quarter of 2006. Selling, general and administrative expenses as a percentage of revenues remained constant at 13.0% for the first fiscal quarter of both 2005 and 2006. Employment expenses decreased $1.0 million due to a reduction in work force. Depreciation expense decreased $0.5 million as a result of the impairment and write down of assets according to SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" recorded in fiscal year 2005. There were also reductions of $0.6 million in occupancy expense as a result of the consolidation of offices and renegotiation of certain leases, $0.4 million in travel and entertainment and $0.5 million in insurance expense. These reductions were partially offset by additional costs incurred of $1.1 million for legal fees during the first fiscal quarter of 2006 resulting from litigation. An additional $0.4 million for consulting and legal expenses was incurred during the first fiscal quarter of 2006 related to the company's restructuring efforts.

Income from operations increased $4.3 million from an operating loss of $0.4 million for the first fiscal quarter of 2005 to $3.9 million for the first fiscal quarter of 2006. This increase in income from operations was attributed to increased demand for new single-family and multi-family housing and non-bonded work during the first fiscal quarter of 2006 over the same period in the prior year and the decrease in selling, general and administrative costs of $1.6 million during the first fiscal quarter of 2006. The net loss for the first quarter of fiscal 2006 was $1.8 million, a $15.8 million improvement from the net loss of $17.6 million in the first quarter of 2005.

SEGMENT INFORMATION


    Segment revenues for Commercial / Industrial work in the first quarter of
2006 were $168.8 million at a gross margin of 12.0%, declining 12% from
$192.0 million at a 10.2% gross margin the prior year.  The decline in revenue
in the Commercial / Industrial segment is largely due to the closing of the
plant and utility division at one unit and the downsizing of certain other
Commercial / Industrial units.  The Residential segment delivered revenues of
$90.3 million with a gross margin of 18.5% in the fiscal 2006 first quarter,
growing 23% from $73.4 million with 19.6% gross margin the same quarter of the
previous year.  Residential revenues as a percent of total revenues increased
to 35% in the first quarter of 2006 from 28% in the same quarter of fiscal
2005.

                       Commercial/             Corporate Discontinued
                       Industrial  Residential  & Other   Operations   Total
    FY 2006
     1st Quarter

    Revenues             $168.8       $90.3                            $259.1
    Gross profit          $20.2       $16.7                             $36.9
    Operating income
     (loss) from
     continuing
     operations            $5.4        $6.7      ($8.2)                  $3.9
    EBITDA                 $6.3        $7.0      ($7.6)      $0.5        $6.2


                       Commercial/             Corporate Discontinued
                       Industrial  Residential  & Other   Operations   Total
    FY 2005
     1st Quarter

    Revenues             $192.0       $73.4                            $265.4
    Gross profit          $19.6       $14.4                             $34.0
    Operating income
     (loss) from
     continuing
     operations            $3.1        $4.4      ($8.0)                 ($0.5)
    EBITDA                 $4.7        $4.7      ($7.1)     ($1.6)       $0.7


    BACKLOG AND BONDING
Backlog related to continuing operations increased to $378 million from $373 million at the end of the previous quarter. Gross margin in backlog was 12.9% in the first quarter of 2006, staying flat as compared to the 12.9% at September 30, 2005. The company continues to focus on short term, higher margin projects as well as non-bonded jobs, which has helped improve the margin in backlog by approximately 120 basis points over the last 12 months. Bonded backlog has decreased quarter over quarter from $85.3 million in September 2005 to $56.5 million in December 2005, though total backlog increased in that same period.

The company continues to have limited bonding availability. Since September 30, 2005, the company has obtained $21.3 million in new surety bonds.

DIVESTITURES

IES has completed its previously announced divestiture program with the sale of one Commercial / Industrial business unit in the first quarter of fiscal 2006. The sale of this unit, based in South Carolina, was disclosed in an 8-K filing on December 13, 2005 as well as in the fiscal 2005 year end earnings release.

Since the start of the program in October 2004, IES sold 14 units, primarily operating in the Commercial / Industrial market, for total cash proceeds to date of $56.8 million and retained assets and receivables of $4.4 million and has closed two units. These 16 units had combined net revenues of $154.1 million and operating losses of $12.9 million in fiscal 2005.

DEBT AND LIQUIDITY

Total net debt was $223.1 million at the end of the fiscal 2006 first quarter and was $241.6 million at the end of the fiscal 2005 first quarter. As of February 9, 2006, total net debt remains at $223.1 million.

IES is committed to reducing the working capital consumed in its business by continuing to focus on improving cash collections in all of its units. As of February 9, 2006, unrestricted cash totaled approximately $22.8 million. In addition, the company has posted $20.8 million of additional cash collateral with its senior lender, for total cash of $43.6 million.

Interest and other expense, net, decreased 38% from $9.5 million for the first quarter ended December 31, 2004 to $5.8 million for the first quarter ended December 31, 2005, primarily due to a $2.6 million non-cash charge for marking to market the convertible bond issue in the first quarter of fiscal 2005.

AMENDMENTS TO THE CREDIT FACILITY

On January 3, 2006 and effective as of December 30, 2005, the company entered into an amendment that eliminated the fixed charge coverage ratio test for the period ending November 30, 2005 and provided that the test for the period ending December 31, 2005 would not be made until IES' delivery of financial statements covering such period on or before January 16, 2006. The amendment further provided a limited waiver of any Event of Default that would otherwise exist with respect to the audited annual financial statements for the period ending September 30, 2005.

On January 16, 2006, IES entered into a further amendment of the credit facility, which extended the deadline for the submission of financial statements covering the period ending December 31, 2005 from January 16, 2006 to January 20, 2006. On January 20, 2006, the company entered into an additional amendment of the credit facility, which further extended the deadline for the submission of financial statements covering the period ending December 31, 2005 from January 20, 2006 to January 26, 2006.

On January 27, 2006, IES disclosed that it had not met the Fixed Charge Coverage Ratio Test for the period ending December 31, 2005 and therefore was in default under the credit agreement. On that day, the Company entered into a Forbearance Agreement under which Bank of America agreed to forbear from exercising its rights and remedies under the credit agreement and related agreements from January 27, 2006 through the earliest to occur of (i) 5:00 pm CST on February 28, 2006 or (ii) the date that any forbearance default occurs. Notwithstanding the forbearance, Bank of America had the right to send a "blockage notice" to the trustee of the Company's Senior Subordinated Notes preventing any payments from being made on such notes and sent such a notice on January 26, 2006. Lastly, under the Forbearance Agreement, Bank of America has no obligation to make any loans or otherwise extend any credit to the company under the credit agreement. Any agreement by Bank of America to make any loans or otherwise extend any further credit shall be at the sole discretion of Bank of America.

UPDATE ON FINANCIAL RESTRUCTURING

During 2005, IES announced its intention to strengthen and de-lever its balance sheet in order to improve overall capital structure. As part of this initiative, the company is seeking to reduce its long term debt, which will result in an increase in free cash flow from a reduction in cash interest expense. By strengthening the balance sheet in this manner, the company expects to improve its credit ratings and enhance its surety bonding capability. To facilitate these efforts, IES announced on November 2, 2005 that it had retained Gordian Group, LLC as a financial advisor. Gordian Group, LLC is a New York based investment bank with expertise in developing capital market alternatives and providing financial advisory services.

As a result of the foregoing, IES commenced discussions with an ad hoc committee of holders of approximately $101 million, or 58%, of its $172.9 million principal amount senior subordinated notes outstanding due 2009 regarding a consensual restructuring of the company's debt obligations (the "Restructuring"). On December 14, 2005, IES announced that it had reached a non-binding agreement in principle with the ad hoc committee on a potential restructuring pursuant to which the senior subordinated note holders would receive, in exchange for all of their notes, shares representing approximately 82% of the common stock of the reorganized company. Holders of IES' outstanding common stock and management would retain or receive shares representing approximately 15% and 3%, respectively, of the common stock of the reorganized company.

The agreement in principle contemplates that IES' customers, vendors and trade creditors would not be impaired by the restructuring and would be paid in full in the ordinary course of business and that its senior convertible notes, with a current aggregate principal amount outstanding of approximately $50 million, would be reinstated or the holders otherwise provided the full value of their note claims. It is also contemplated that IES' senior bank credit facility would be reinstated or refinanced at the time of the restructuring.

If the Restructuring were to be consummated, the proposed plan currently contemplates the filing of a pre-arranged Chapter 11 plan of reorganization in order to achieve the exchange of all of the senior subordinated notes for equity. Approval of a proposed plan in a pre-arranged proceeding would likely require, among other things, the affirmative vote of the holders of at least two-thirds in claim amount and one-half in number of the senior subordinated notes that vote on the plan. IES would seek to enter into a plan support agreement with the holders of a majority of its Senior Subordinated Notes and then formally solicit votes for a proposed joint plan of reorganization to be filed upon or shortly after filing voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.

There is no assurance that IES will successfully complete the Restructuring or any other restructuring. At this time neither the agreement in principle nor any other proposed restructuring terms have been agreed to by the requisite holders of the senior subordinated notes, or any other creditor constituency. The agreement in principle is subject to the negotiation of definitive documentation, approval by the requisite note holders and a court in a Chapter 11 proceeding and customary closing conditions. Because the agreement in principle is not binding and because there is no assurance it will be consummated, IES continues to evaluate other alternatives for restructuring. In addition, the company may be forced by its creditors to seek the protection of federal bankruptcy law. If IES consummates any restructuring, it may do so outside of bankruptcy, in a pre-arranged Chapter 11 proceeding or in another proceeding under federal bankruptcy law. Any restructuring could cause the holders of the company's outstanding securities, including its common stock, senior subordinated notes and senior convertible notes, to lose some or all of the value of their investment in IES' securities. Furthermore, such restructuring could result in material changes in the nature of IES' business and material adverse changes to the company's financial condition and results of operations.

OUTLOOK

IES' independent registered public accounting firm, Ernst & Young LLP, included a going concern modification in its audit opinion on the company's consolidated financial statements for the fiscal year ending September 30, 2005 included in its Form 10-K as a result of operating losses during fiscal 2005, the non-compliance with certain debt covenants as of September 30, 2005 and the potential non-compliance with certain debt covenants subsequent to September 30, 2005. Each of the efforts that the company is currently undertaking to address this uncertainty, including the Restructuring and implementation of Successful Projects processes, is expected to have an impact on the company's liquidity and capital resources.

The company expects that any restructuring of its capital structure would de-lever, and therefore strengthen, its balance sheet, including the proposed Restructuring set forth in its non-binding agreement in principle with the ad hoc committee of note holders described above. The proposed Restructuring, if consummated, would result in the company's $172.9 million principal amount senior subordinated notes being exchanged for common stock and for the reinstatement or refinancing of its $50 million principal amount senior convertible notes and its bank credit facility. In addition, as described above, the agreement in principle contemplates that IES' customers, vendors and trade creditors would not be impaired by a restructuring and would be paid in full in the ordinary course of business. The company's liquidity may not improve or may be adversely affected, however, until its restructuring is consummated. There is no certainty as to when or if any restructuring will be consummated.

While IES expects to reach consensual agreement with the holders of its $50 million senior convertible notes and refinance its facility, the company may be de-listed from the NYSE. If the company's common stock is de-listed from the NYSE and its has not reached agreement with these note holders, the holders of IES' senior convertible notes would have the right, beginning 35 business days after de-listing, to put their notes back to IES. IES would likely not be able to pay the principal and accrued interest on those notes if put to the company. Additionally, its new credit facility restricts its ability to repurchase these notes. The inability to repurchase these notes and the limitations in its new credit facility to repurchase these notes could affect the success of any plan of reorganization contemplated by the company without an agreement with the holders of the senior convertible notes. Absent an agreement with the holders of the senior convertible notes to any pre- arranged Chapter 11 plan that may be filed, IES would seek to reinstate the notes or give the senior convertible note holders property equal to the full value of their note claims. The company does not presently have an agreement with any of the holders of the senior convertible notes to the agreement in principle or any other proposed restructuring plan. In addition, IES' liquidity may be negatively affected by a failure to obtain an amendment to its new bank credit facility.

IES expects to generate cash flow from operations and borrowings under its credit facility. The company's cash flows from operations tend to track with the seasonality of its business and historically have improved in the latter part of the company's fiscal year. IES anticipates that these combined cash flows including those resulting from successful completion of the proposed restructuring will provide sufficient cash to enable it to meet working capital needs, debt service requirements and capital expenditures for property and equipment through the next twelve months. The company expects capital expenditures of approximately $6.0 million for the fiscal year ending September 30, 2006. Its ability to generate cash flow is dependent on the successful completion of the proposed Restructuring and many other factors, including demand for the company's products and services, the availability of projects at margins acceptable to it, the ultimate collectibility of its receivables and the ability to borrow pursuant to its credit facility.

For the fiscal year ended September 30, 2006, IES expects to generate $900-$950 million in revenue, $9-$12 million in operating income, and $16-$19 million in EBITDA. The principal difference between EBITDA and operating income is depreciation and amortization expense.

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. 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 to net income is found in the tables below.


    First Quarter                                   FY 2006         FY 2005

    Continuing Operations:
        Net Loss                                     ($2.1)         ($10.1)
        Interest Expense                               5.9             9.1
        Provision for Income Taxes                     0.2             0.2
        Depreciation and Amortization                  1.7             2.5
        Goodwill Impairment                            ---             0.6
    EBITDA for Continuing Operations                  $5.7            $2.3

    EBITDA for Discontinued Operations                $0.5           ($1.6)
    Total EBITDA                                      $6.2            $0.7


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.

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 Company's inability to complete a financial restructuring on terms acceptable to the Company or at all, the Company's ability to continue as a going concern, the inherent uncertainties relating to estimating future operating results or our ability to generate sales, operating income, or cash flow, potential difficulty in addressing a material weakness in the Company's accounting systems that has been identified by the Company and 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, inaccurate 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 both from third parties and ex-employees, changes in interest rates that could effect the level of construction, the general level of the economy, increases in costs or limitations on availability of labor, steel, copper and gasoline, limitations on the availability and the increased costs of surety bonds required for certain projects, inability to reach agreements with our surety companies 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, business disruption and costs associated with the Securities and Exchange Commission investigation, class-action litigation or shareholder derivative action now pending, unexpected liabilities associated with warranties or other liabilities attributable to the retention of the legal structure or retained liabilities of business units where we have sold substantially all of the assets, inability to fulfill the terms or meet the required financial covenants of the credit facility, difficulty in integrating new types of work into existing subsidiaries, inability of subsidiaries to incorporate new accounting, control and operating procedures, inaccuracies in estimating revenues and percentage of completion on contracts, disruptions or inability to effectively manage work related to Hurricane Katrina and Rita and the expected increase in construction, the Company's failure to satisfy the listing requirements of the NYSE, the suspension from trading of the Company's common stock on the NYSE, the NYSE's commencement of efforts to de-list the Company's common stock and the Company's potential failure to appeal these efforts successfully, if de-listed from the NYSE and the senior unsecured note holders demand repayment of their notes the Company's potential inability to pay the debt and accrued interest, inability to modify, restructure or replace the Company's substantial debt; inability to successfully restructure our operations to reduce operating losses; inability to restructure the debt or reach agreement with the secured lender at the end of the forbearance and the secured lender accelerating obligations under the existing agreement; inability to reach agreement on a DIP facility required for bonding and credit facility during a bankruptcy filing; the potential for senior convertible debt holders to force payment for their debt that they allege was due February 7, 2006; a material default in one or more of the Company's credit agreements which is not waived or rectified and unexpected weather interference. You should understand that the foregoing as well as other risk factors discussed in our filings with the SEC, including those listed under the heading "Risk Factors" contained in our annual report on Form 10-K for the fiscal year ended September 30, 2005, could cause results to differ materially from those expressed in such forward looking statements. We undertake no obligation to publicly update or revise information concerning the Company's restructuring efforts, borrowing availability, its cash position or any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

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
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                 (UNAUDITED)

                                                      Three Months Ended
                                                          December 30,
                                                      2004           2005
                                                          (unaudited)

    Revenues                                        $265,403       $259,054
    Cost of services (including depreciation)        231,449        222,187
      Gross profit                                    33,954         36,867
    Selling, general and administrative expenses      34,417         32,932
      Income/(loss) from operations                     (463)         3,935
    Other (income)/expense:
      Interest expense                                 9,137          5,882
      Other, net                                         314            (53)
                                                       9,451          5,829
      Loss before income taxes                        (9,914)        (1,894)
    Provision for income taxes                           167            211
    Net loss from continuing operations             $(10,081)       $(2,105)

    Discontinued operations
      Income/(loss) from discontinued operations      (7,390)           506
      Provision for income taxes                         137            199
      Net Income/(loss) from discontinued
       operations                                     (7,527)           307

    Net loss                                        $(17,608)       $(1,798)

      Earnings per share:
      Basic loss per share from continuing
       operations                                     $(0.26)        $(0.05)
      Basic earnings/(loss) per share from
       discontinued operations                        $(0.20)         $0.01
      Basic loss per share                            $(0.46)        $(0.04)

      Diluted loss per share from continuing
       operations                                     $(0.26)        $(0.05)
      Diluted earnings/(loss) per share from
       discontinued operations                        $(0.20)         $0.01
      Diluted loss per share                          $(0.46)        $(0.04)

    Shares used in the computation of earnings
     (loss) per share:
      Basic                                           38,666         39,248
      Diluted                                         38,666         39,248



    Selected Balance Sheet Data:                    09/30/05       12/31/05
                                                    (audited)     (unaudited)

    Cash and Cash Equivalents                        $28,349        $24,879

    Working Capital                                  (32,687)       (33,489)
    Goodwill, net                                     24,343         24,343
    Total Assets                                     416,372        400,203
    Total Debt                                       223,884        223,991
    Total Stockholders' Equity                        15,859         14,502



    Selected Cash Flow Data:                          Three Months Ended
                                                    12/31/04       12/31/05
                                                   (unaudited)   (unaudited)
    Cash provided by (used in)
     operating activities                            $(9,104)        $1,112
    Cash provided by (used in)
     investing activities                             10,652         (4,561)
    Cash provided by (used in)
     financing activities                              7,892            (21)


     Contacts:  David A. Miller, CFO
                Integrated Electrical Services, Inc.
                713-860-1500

                Ken Dennard / [email protected]
                Karen Roan / [email protected]
                DRG&E
                713-529-6600
--------------------------------------------------------------------------------
Source: Integrated Electrical Services, Inc.

[setravis]

Press Release Source: Integrated Electrical Services, Inc.


Integrated Electrical Services Announces Its Participation in Extreme Home Makeover and Introduces IBAY
Wednesday March 1, 12:43 pm ET


HOUSTON, March 1 /PRNewswire-FirstCall/ -- Integrated Electrical Services, Inc. (OTC Pink Sheets: IESRQ - News; "IES") today announced that one of its affiliate companies, Newcomb/IES of Roanoke, Virginia, participated in ABC's Extreme Makeover: Home Edition. The episode aired on ABC Sunday, February 12, 2006.


Carol Crawford, former ballerina and mother of two sons, was chosen from among thousands of applicants to have her home in Blacksburg, Virginia rebuilt. The team's goal was to build a more handicap accessible home for Ms. Crawford, who has multiple sclerosis. Newcomb/IES donated over $75,000 worth of materials, equipment and labor to the project. Not only did Newcomb/IES perform all of the electrical contracting work for the home, it also completed the plumbing, data communications and HVAC systems. Working 24 hours a day from Tuesday through Saturday (with average outdoor temperatures less than 30 degrees), Newcomb/IES contributed approximately 2,000 man hours to ensure the home was completed on schedule.

IES has developed and implemented two new internal web-based programs to enhance its operational efficiency. The first initiative is an Intranet web- based asset management system -- called IES IBAY -- designed to optimize asset usage among all of the IES affiliate companies. This program enables IES affiliate companies to view and acquire needed equipment, tools or vehicles from an online database which is populated by resources and materials from sister companies. IES has partnered with Fleet Response, a leader in custom- designed fleet management systems, to develop and link the vehicle portion of IBAY, thus maximizing the vehicle and heavy equipment utilization among affiliate companies.

IES' second initiative is IES University which provides timely and user- friendly training to its nationwide workforce through IES' Intranet.

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.

     Contacts:  C. Byron Snyder - Chairman, President & CEO
                Integrated Electrical Services, Inc.
                713-860-8001

                Ken Dennard / [email protected]
                Karen Roan / [email protected]
                DRG&E
                713-529-6600
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Source: Integrated Electrical Services, Inc.