Thank you guys again for joining us for the Midwest IDEAS Conference. I'm Philip Cooper with ThreePart Advisors, Managing Director. Next presenting company is IES Holdings, traded on the NASDAQ Stock Exchange under the ticker symbol IESC. With the company today is Tracy McLauchlin, CFO, and Matt Simmes, President and CEO. Matt?
Thank you for being here today. I'll start on slide three. We provided a high-level overview of IES . We are a diverse electrical and technology systems company providing critical infrastructure products and services to a select group of important markets across North America. These markets include data centers, e-commerce, high-tech manufacturing operations in semiconductor plants, healthcare, education facilities, and a wide range of additional services across the United States, including residential. In fiscal 2024, which IES ended September 30th, 2024, we had a total revenue of approximately $2.9 billion and generated operating income of $301 million. Adjusted EPS of $9.62 a share. On slide four, we've highlighted key end markets and end markets we serve and the capabilities we bring across our organization. The chart on the right illustrates our diversified revenue mix, which again has meaningful exposure to end markets experiencing strong growth.
We highlight the key pillars of our growth. Strong revenue growth that IES has demonstrated over the past five years was driven by a mix of organic growth and 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 acquisitions, we have been part of a capital allocation strategy for the past decade. It will continue to be an important tool in our capital allocation process and a component of our long-term growth strategy. I would like to note that over the past several years, particularly since fiscal 2021, the majority of our top and bottom line growth across all our business segments has been driven by organic growth, supplemented or supported by investments in our different business segments, including working capital.
When an attractive acquisition candidate comes along that brings service and geographic extensions to our core business area, we always take a look. It's worth noting that many of the ideas or opportunities that we continuously evaluate are internally generated through the efforts and discussions and others are brought to us via existing or expanding commercial relationships. Our strong financial position, which is fundamental to our business strategy, enables us to act quickly as needed. All our acquisitions have been funded from cash flow from operations, particularly in the recent years. As we have demonstrated in the past, we are willing to supplement this with prudent use of borrowing capacity when the circumstances arise. Slide seven already. Nice. It's been a long day. The growth strategy has led to strong financial performance.
Over the past five years, we've grown revenue at a 22% compound annual rate and operating income of 48%, demonstrating strong top line growth and positive operating leverage across all our business segments. Operating margins overall increased from just under 4% to 10.4% over that time period. In a few minutes, Tracy McLauchlin will provide a brief financial performance update on 2025. We believe our strategy is supported by favorable macroeconomic backdrops and three critical secular tailwinds benefiting key areas in which IES operates: technology, infrastructure, and evolving and accelerating electrical landscape in terms of investment needs and the need for greater levels of residential construction for both single-family and multifamily housing throughout the United States.
Technology infrastructure investments in the United States are currently dominated by the need to support the vast buildout of data centers to support generational opportunity that is underway in the AI space, which IES is directly benefiting from, and a service provider for Communications, Infrastructure Solutions, Commercial & Industrial segments. Continued and growing investments in the manufacturing facilities in the U.S., as well as continued growth in investment in e-commerce centers, have greatly benefited our business and will continue to do so going forward. These trends increase the need for IES cabling and communications technology while creating demand for adjacent Infrastructure Solutions business, such as enclosures and backup generators, as well as custom manufactured components. There is a quickly evolving electrical landscape in the United States, which requires critical infrastructure solutions that IES provides.
Since fiscal 2019, we have been active strategic acquirers of businesses and bring a strong track record of completing accretive acquisitions. These acquisitions have created a significant strategy, driving the robust compound annual growth illustrated in the chart. We've highlighted our capital allocation strategy, including both sources and uses of free cash flow. From a capital allocation and an investment standpoint, we have, in the past, directed more of our available capital to organic and inorganic investment opportunities within our three other business segments, and this is likely to continue in the case moving forward. With that said, after struggling with issues around competitive landscapes, optimizing the business structure and discipline around project selection and execution for years in the business, we do believe that we have begun to settle into a groove now in this segment.
It will likely continue to be a source of cash for growth in other areas of the business moving forward, as in recent years, but we also are being opportunistic here in selectively pursuing growth opportunities as well in this segment. Communications segment overview: we're a nationwide provider of technology integration and services, including structured cabling, audio-visual services, primarily for data centers, distribution centers, industrial, and high-tech manufacturing facilities. In this segment, we have opportunities to repeat business and work for many of the same customers year- over- year. This business has grown substantially over the past five years, with the most recent period, the past two years, being driven substantially by growing investments in the data center market.
It's worth noting that the investment levels and growth in other core markets for this segment, such as high-tech manufacturing, including the building of new state-of-the-art semiconductor plants in the United States, as well as expansion of existing facilities, has been healthy and active in the e-commerce markets. Other markets, such as healthcare and education, have been strong, but clearly the strongest markets in the segment have been the data center markets, and we expect that to continue for the visible future.
Sure. I actually
Why are you not showing us a representative stake? I live in Illinois. I've noticed numerous data centers in the process of being ready to go in.
We're a non-union contractor, and most of the facilities on the construction services side in Illinois are union-based contractors. You'll see most of our footprint outside of union markets. We do partner on the design and implementation on that side of it, but it's a smaller piece of our business.
I read something. I believe it was yesterday, Meta is building apparently a $15 billion data center.
It's a non-union state. I can participate there. Yeah. It's also out in the middle of nowhere, so it brings a whole different challenge to doing data centers when they take places like that. That's kind of been, you know, data centers are always moving to where the power's at. Yeah. I don't know. Probably Virginia is for sure, but we do work in North Carolina as well. Oh, yeah, the land sale deal she's trying to get settled and they don't want to buy it. Junior doesn't want to sell it, neither does the county. No.
It's like 300 acres, right?
Yeah.
You include places.
Yeah, 100%. We do work there. We've done a couple, more than a couple of data centers in North Carolina.
Will that represent places where we have established offices, not necessarily having places that we've not worked in?
What you're saying, you're not going to be doing any work in Illinois if.
Yeah, that's pretty factual on that side of it from a construction standpoint. You're welcome. Residential segment business, from a revenue standpoint, the segment provides electrical, HVAC, and plumbing installation services for both single and multifamily builds. As indicated on the bottom right of the map, kind of same given area. We work mostly in the southern parts of the United States on that piece of it, predominantly because of the area we just talked about. We have the same constraints there in that given market. Texas, Florida, being our largest two markets, Florida, we added a couple of years ago and expanded into that and have managed. That's where plumbing and HVAC came from the business side. As you can see from this slide, we now break out the trades as a percentage of revenue in our Residential segment.
You can now see the approaching 25% in 2020, or 25% on the plumbing HVAC side. In 2024, we promoted Robbie Blankenship, previously the CEO of Bayonet, which was our plumbing and HVAC acquisition in Florida, to a more senior executive role within the Residential segment to develop and expand IES's expanding HVAC and plumbing throughout our entire IES footprint to really overlay that capabilities on top of our electrical. Though there's a number of macroeconomic and structural headwinds currently negatively impacting growth of the new development in the residential market in the United States, currently nationally or broadly speaking, which I will let Tracy touch on more briefly in her comments, I would like to say that we remain optimistic about the long-term outlook for our residential business based on the positive demographic trends and pent-up demand in the housing market.
Infrastructure Solutions in this segment, we provide custom power solutions, including generator enclosures, switchgear, and bus duct, as well as electrical and mechanical apparatus services. We added our Infrastructure business in 2013 through the acquisition of a group of industrial services facilities, and we have continued to expand our capabilities through both acquisition and facility expansions in recent years. Custom manufacture enclosures for backup power generators, particularly for the data center markets, has been the largest driver of the growth in this segment, and we can continually expect this trend to continue in the foreseeable future. We also do enclosure work for the broader range of end markets, including e-commerce, distribution, healthcare facilities, including hospitals, education markets, and high-tech manufacturing.
One of the most important ways we fund and support organic growth from segment is to continue to acquire, build, expand, and lease fabrication facilities with available square footage space to facilitate a range of value-added capabilities, controls, and operational-related enhancements in our products. Sure.
In fiscal year 2020, a massive increase in your sales. Congratulations.
Thanks.
What particular project fit into that?
These are more, I mean, every project could range between $60,000 and $500,000. It's really the volume that came along with that. Certain customers provide different builds within those, different specs, and we build a lot of ancillary support systems for those enclosures. Whether that be tanks, exhaust subframes, vertical exhaust subframes, those combined have really attributed to the growth in that segment.
Compared to the previous years, I mean, why not a little bit?
In 2018, you know, we bought, was it 2018 we bought Freeman, Tracy? In 2017, we actually got into that manufacturing market. That's kind of where we started to develop the capabilities and grow the business.
Adding capacity throughout the past several years, we really have started to see some of the benefits of what.
Yeah, in two years, we've added $1.5 million square feet of manufacturing capacity to that business. Nope, we actually have a facility in Manitowoc, so now we're going in a different direction.
That was just added in 2025. This is 2024 in that, but yes, we just added it.
We're on the paper now.
Yeah. We've got a very large facility there that we'll start producing and manufacturing out of. You're welcome. Our Commercial & Industrial segment, which is really the original business that IES started on with the roll-up of about 90 companies back in 1997, services commercial buildings, industrial facility, and provides electrical and mechanical design, construction, and maintenance services. This group is of localized businesses and differentiates itself from regional competitors with the size and scale of the IES platform. The market for this segment has historically been highly competitive, with customers often awarding contracts to the lowest bid, though I would not say that that's the case today. Today, this business has changed with the constraint in the labor markets, the amount of data centers going on, the industrial manufacturing that's going on in high-tech manufacturing and other places.
We've actually seen margins in our entire portfolio, but this one especially, be affected by the competition that's out there in the marketplace. We've actually increased profitability by just the competitive nature of where the landscape's at today. IES revenue growth is driven by the exposure to three secular themes. We have a strong balance sheet and a financial profile and a disciplined capital allocation strategy, and we are strategically positioned in key markets across the United States. With that being said, I'll turn it over to Tracy.
Okay, thanks, Matt, and good afternoon. I'm going to give a very brief recap of our 2025 fiscal year-to-date results and then talk a little bit just about our priorities and expectations for the rest of 2025 and going into 2026. As you can see, we've had some very solid year-over-year growth with $279 million of operating income for the nine months year to date, which is an increase of 24% from the prior year. That's particularly impressive given where 2024 was compared to 2023. For the first nine months of 2024, we grew more than 100% over 2023. We were coming off a very difficult comp. We're really pleased with the continued growth that we've had going into 2025. For the remainder of the year, we are expecting continued strength from our Communications and Infrastructure Solutions businesses.
For our Commercial & Industrial business, we are continuing also to see a very, very strong sales pipeline. In that business, we will have some variability from quarter to quarter just because there are a relatively small number of very large projects. The timing of when those start up versus when something else is winding down can introduce some variability from quarter to quarter. Over time, we're still seeing a very, very strong sales pipeline for the C & I business. For Residential, I do expect that some of the headwinds that we've been seeing over the past few quarters could extend for a couple more quarters. The residential housing business can change very quickly. We are seeing some challenges in the market from housing affordability, high cost of borrowing, and mortgage rates being where they are. That could continue on.
Longer term, we do expect that there will be recovery in the housing market. In our Communications business, the growth that we're seeing this year and that we expect to continue seeing is really driven by that data center end market and the strong demand from our customers in that market. I do want to remind everyone that data centers are a very, very important end market, but they're one of many important end markets. In particular, we're seeing a lot of strength in the high-tech manufacturing market that Matt mentioned as well. Residential, we're continuing to see undersupply in the market relative to long-term demand for housing. That said, we do have those headwinds that are currently affecting the business. What we're really focusing on now is to just position ourselves in the best possible place to take advantage of the housing recovery when it happens.
That means continuing to work on our national rollout of our plumbing and HVAC service lines and to continue focusing on our national sales strategy, working to strengthen our relationships within big national and regional home builders, as well as multifamily developers. In our Infrastructure Solutions business, strong demand for enclosures continues to fuel the growth of the segment. As Matt just mentioned a few minutes ago, we're continuing to add capacity. We've added plenty of capacity over the past four years. Most recently, we signed that lease Matt mentioned in Manitowoc, Wisconsin. We'll be ramping up production capabilities there. In the quarter before, we added some new manufacturing capacity in Birmingham, Alabama. We had a small facility there, and we've moved into a much larger facility.
As we have discussions with the OEMs that are our major customers in this market, they give us a lot of visibility into what their demand plans are for the next few years, and that helps us feel comfortable adding capacity across this business.
Your profit margin infrastructure, yes.
It's more capital intensive. The other three segments are service businesses where we're working at our customers' job sites, where our Infrastructure Solutions business is much more capital intensive. We have our own manufacturing facilities, so we're looking for that higher margin. The whole sector is very capacity constrained, and we're able to, as we add capacity, command a good price for our products. Nothing we sell is off-the-shelf type product. It's all custom-engineered solutions for our various customers.
I see you just added more capacity on the site.
Yes.
In the 355 year to gain with that new capacity vault park, what's your goal to get that up to just based on the production?
We don't give guidance, but we've continued to, there's nothing special or different about the Manitowoc addition. We've been adding capacity regularly over the past four years. This will allow us to keep growing. Otherwise, we could be capacity constrained if we weren't adding this and the growth could.
Another one, it seems totally understandable. You had capacity before Manitowoc. Is this increased about 20%, 30%, 40%?
It's lower than any of the numbers you just mentioned. Finally, in our Commercial & Industrial business, we're focusing on continuing to hire and train new employees to continue to build out our capabilities to do data center work. That's a relatively, these really large data centers are relatively new. We just started doing those in this segment. We've been doing them in Communications for 20 years, but in our Commercial & Industrial segment, we just really started doing these really large data center projects about two years ago. We're working on expanding our training and our capabilities to be able to take on more of these projects. Sorry?
House training for that? We need.
Yes.
We had multiple training facilities across the United States, which gives us a very good foundation to bring people into the electrical trade, the communication trade, teach as they go. Maybe I should pass along some advice to my grandchildren for that type of career. 100%. I mean, from a front work. One of the highest paid open positions, non-college-based, is a journeyman electrician. Journeyman electrical? Electrician, yes.
Okay.
Yes.
To wrap it up, we have a lot of optimism about the long-term fundamentals across our end markets. We're looking to gain share and continue to grow the business through our flexible capital structure, low fixed costs, and strong balance sheet. With that, Matt and I are happy to take any questions.
When you guys are in the boardroom, how are you thinking about capital allocation? Not referring to shareholders, but you have data centers, which you're good at and are growing faster than any of us expected, continuing to accelerate. I can understand you guys wanting to put more eggs in that basket. You also have a lot of other really good businesses that all generate good returns. For instance, that's a lot right now, but broadly speaking, I like your end markets and I like what you're exposed to. You have this, it's like a golden goose over here. How do you decide?
Yeah, I mean, I think we always look for opportunities to make sure we take some of the cyclicality out of the business. Data centers, I mean, you saw it just a couple of months ago, DeepSeek came along and it almost dead stopped, right? If we didn't have any diversification in the business, I can take every dollar of capital improvement and ride behind data centers and we'd probably make more money than we're making today. From a long-term strategy, it's just not how, I mean, we grew up in those markets and watched them dissipate. You know, when Intel was building campuses across, you know, whatever, we were, hey, we're going to just go do fab technology plants and that killed us at one point in time. We truly believe in the diversification.
We also let the business kind of say where they want to go and we'll give them capital and support behind that. They're in the same boat. They want to take as much as they can on the data center side, but they also want to have diversification and provide different services within their business.
How much of the data center, and I guess I'm thinking within Communications and not exclusively, is a product that could be repurposed to another? You build out this data center, exclusive product, and it has no other applications. If or when the data center party stops, you've got manufacturing capabilities with the unknown ones. If that product can be used in some other type of warehousing, environmental, blah, blah, blah, then tell me, I think just repurpose it.
Everything has a lifespan, especially in any commercial application whatsoever. Data centers right now, their lifespan is five to seven years. It used to be three to five, depending on the technology, depending on the build. We anticipate maybe large-scale constructions slowing down seven to ten years from now. You still got the recycle factor, like you said, and that's not reusable. None of these things, the millions and millions of feet of fiber that are going in there, it just gets thrown out when we refresh.
What is AI? If I understand this correctly, five years, six years from now, they'd have to start from scratch again?
Yeah, they're going to be upgrading equipment, they're going to be upgrading power solutions, they're going to be upgrading cooling.
You've got another question.
You mentioned, you know, repeat business. Can you talk about the stickiness of that, you know, the revenue? If you build something custom, I assume you're the one that gets called for the maintenance issue with that.
Yeah, I mean, most of the stuff that we build from a product line in our Infrastructure business is built for OEMs. We do service them. They also service them. We do replace them over a certain amount of time. Generators are only rated for seven to ten years within that. We get a residual business that keeps us in there. Also, with a lot of the large-scale customers we do work with, our goal is to make sure we facilitate that work and provide value to make sure we get taken along as they continue this growth cycle. We've shown that with a lot of customers out there.
It's really fun. Say four years into this.
I've been building data centers for 25 years. I'm in my fifth development cycle.
What are you doing as well today, four years from now, five years from now? Are they starting to replace literally the whole business?
Yeah. We've done it many times. You got old technology, you got old connections, you got old backbones. You don't have enough to facilitate what they're trying to do from a processing standpoint and a connection standpoint within the networks.
You did it the first time? You built it. Are you doing it?
75%- 80% of our Communications business is residual of the same customers over and over again. That's.
Can you separate that?
I can't tell you that.
I know you, but when I paint something, it's up to thinking with me. When you're doing the retrofitting, does the capacity for that to operate reduce significantly, or they can keep things coming along and you just replace them?
You replace them in segments. Most data centers have halls, like standard 25,000, 50,000 square foot shells. Networks are built into those. They're built so that they can replace them and upsize them. Power requirements change. Take your power for AI comparatively, power to processing and storage is 10- 25x greater the requirements of what we did 10 years ago.
Jesus, I've never heard this said before anywhere.
It's not a bad business to be in. Oh yeah, because they're going to keep making more chips and you're going to have to connect them. The biggest problem is the interconnecting has grown so much. We used to be at 10,000 strands of fiber in a data center. Today, it's almost a million plus in a given building. Some of it's Corning, some of it's Sumitomo.
Wow, yeah, there will be stupid shit off.
Thank you. You're still only getting about 50% of the cloud-based services in the cloud today. There's still a lot on-premise out there. You've got to build that. Where AI, you know, will take off is when all that stuff's in one given spot and it can actively integrate with the AI. That's a whole different deal. There's a long cycle left in this tail.
You don't work in chat?
Nope, don't work in chat. No.
Thank you.
Oh, thank you very much. Thank you.
Is this.