IES Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2024

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Part II, Item 8. “Financial Statements and Supplementary Data” as set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, and the Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The following discussion may contain forward looking statements. For additional information, see “Disclosure Regarding Forward Looking Statements” in Part I of this Quarterly Report on Form 10-Q.

OVERVIEW

Executive Overview

Please refer to Part I, Item 1. “Business” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, for a discussion of the Company’s services and corporate strategy. IES Holdings, Inc., a Delaware corporation, designs and installs integrated electrical and technology systems and provides infrastructure products and services to a variety of end markets, including data centers, residential housing, and commercial and industrial facilities. Our operations are organized into four business segments: Communications, Residential, Infrastructure Solutions and Commercial & Industrial.

Current Market and Operating Conditions

Increases in the target federal funds rate throughout calendar years 2022 and 2023 have resulted in higher mortgage rates, which when combined with elevated materials and labor costs, have had a substantial impact on the affordability of housing. While decreased housing affordability has led to uncertainty around near-term demand for our services in the single-family housing market and we continue to monitor market conditions for signs of slowing activity, demand in the primary markets we serve has remained firm. In addition, there continue to be several trends, such as rising household formation and population growth in our key markets, that we expect will drive long-term demand for our services. Within the various other end markets we serve, our customers' capital budgets for new construction projects may be impacted by broader economic, technological or other factors.

While the COVID-19 pandemic's impact on markets, the supply chain and the labor force had less of an impact on our business thus far in fiscal 2024 compared with prior fiscal years, COVID-19 and any future pandemic or other public health emergency could impact our workforce, customers and suppliers in the future. An inability to procure materials in a timely manner, to complete work on schedule, and to reflect higher materials or labor costs in our pricing to customers has had, and could have in the future, a significant impact on our operating results.

Please refer to Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 for further information.

RESULTS OF OPERATIONS

We report our operating results across our four operating segments: Communications, Residential, Infrastructure Solutions, and Commercial & Industrial. Expenses associated with our corporate office are classified separately. The following table presents selected historical results of operations of IES Holdings, Inc., including the results of acquired businesses from the dates acquired.

(Dollars in thousands, Percentage of revenues)

Consolidated revenues for the three months ended March 31, 2024, were $136.9 million higher than for the three months ended March 31, 2023, an increase of 24.1%, with increases at all four of our operating segments. See further discussion below of changes in revenues for our individual segments.

Consolidated gross profit for the three months ended March 31, 2024 increased $70.7 million compared to the three months ended March 31, 2023. Our overall gross profit percentage was 24.3% during the three months ended March 31, 2024, as compared to 17.7% during the three months ended March 31, 2023. Gross profit as a percentage of revenue increased at all four of our operating segments. See further discussion below of changes in gross margin for our individual segments.

Selling, general and administrative expenses include costs not directly associated with performing work for our customers. These costs consist primarily of compensation and benefits related to corporate, segment and branch management (including incentive-based compensation), occupancy and utilities, training, professional services, information technology costs, consulting fees, travel and certain types of depreciation and amortization. We allocate certain corporate selling, general and administrative costs across our segments as we believe this more accurately reflects the costs associated with operating each segment.

During the three months ended March 31, 2024, our selling, general and administrative expenses were $95.3 million, an increase of $25.9 million, or 37.4%, over the three months ended March 31, 2023, primarily driven by increased personnel costs at our Residential operating segment in connection with a reorganization of the segment's management structure in fiscal 2023 and higher incentive compensation at the division level as a result of higher earnings. Increases in selling, general and administrative expenses at our other operating segments were generally consistent with each segment's respective revenue growth. Selling, general and administrative expenses as a percentage of revenue increased from 12.2% for the three months ended March 31, 2023 to 13.5% for the three months ended March 31, 2024.

(Dollars in thousands, Percentage of revenues)

Consolidated revenues for the six months ended March 31, 2024, were $196.4 million higher than for the six months ended March 31, 2023, an increase of 17.2%, with increases at all four of our operating segments. See further discussion below of changes in revenues for our individual segments.

Our overall gross profit percentage increased to 23.5% during the six months ended March 31, 2024, as compared to 17.2% during the six months ended March 31, 2023. Gross profit as a percentage of revenue increased at all four of our operating segments. See further discussion below of changes in gross margin for our individual segments.

During the six months ended March 31, 2024, our selling, general and administrative expenses were $181.1 million, an increase of $44.0 million, or 32.1%, over the six months ended March 31, 2023, primarily driven by increased personnel costs at our Residential operating segment in connection with a reorganization of the segment's management structure in fiscal 2023 and higher incentive compensation at the division level as a result of higher earnings. Increases in selling, general and administrative expenses at our other operating segments were generally consistent with each segment's respective revenue growth. Selling, general and administrative expenses as a percentage of revenue increased from 12.0% for the six months ended March 31, 2023 to 13.5% for the six months ended March 31, 2024.

Gain on Sale of Assets. Our results for the six months ended March 31, 2023 included a pretax gain on sale of $13.0 million from the sale of STR Mechanical, LLC (“STR”) on October 7, 2022. STR previously operated as part of our Commercial & Industrial segment.

Communications

(Dollars in thousands, Percentage of revenues)

Revenues. Our Communications segment’s revenues increased by $52.4 million during the three months ended March 31, 2024, or 37.1%, compared to the three months ended March 31, 2023. The increase primarily resulted from an increase in demand from data center customers.

Gross Profit. Our Communications segment’s gross profit during the three months ended March 31, 2024 increased by $13.8 million compared to the three months ended March 31, 2023. Gross profit as a percentage of revenue increased from 17.8% to 20.1%. The increase in profitability in the three months ended March 31, 2024 was primarily the result of increased volume, improved project execution and pricing, and the impact of a more disciplined bidding process.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by $3.6 million, or 26.9%, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase primarily reflects higher personnel cost including higher incentive compensation as a result of higher earnings, investment in an organizational structure that will enhance the scalability of our business, and higher wages in an increasingly competitive labor market. Selling, general and administrative expenses as a percentage of revenue in the Communications segment decreased from 9.5% for the three months ended March 31, 2023 to 8.8% during the three months ended March 31, 2024 as we benefited from the scale of our operations.

(Dollars in thousands, Percentage of revenues)

Revenues. Our Communications segment's revenues increased by $75.9 million, or 26.3%, during the six months ended March 31, 2024, compared to the six months ended March 31, 2023. The increase primarily resulted from an increase in demand from data center, high-tech manufacturing and e-commerce distribution center customers.

Gross Profit. Our Communications segment’s gross profit during the six months ended March 31, 2024 increased by $28.3 million, or 60.4%, as compared to the six months ended March 31, 2023. Gross profit as a percentage of revenue increased from 16.3% to 20.6%. The increase in gross profit and gross profit as a percentage of revenue primarily reflects increased volume, improved project execution and pricing, and the impact of a more disciplined bidding process.

Selling, General and Administrative Expenses. Our Communications segment’s selling, general and administrative expenses increased by $6.2 million, or 24.2%, during the six months ended March 31, 2024, compared to the six months ended March 31, 2023. The increase primarily reflects higher personnel cost including higher incentive compensation as a result of higher earnings, investment in an organizational structure that will enhance the scalability of our business, and higher wages in an increasingly competitive labor market. Selling, general and administrative expenses as a percentage of revenues in the Communications segment was 8.8% during the six months ended March 31, 2024 compared to 8.9% during the six months ended March 31, 2023.

Residential

(Dollars in thousands, Percentage of revenues)

Revenues. Our Residential segment’s revenues increased by $33.3 million, or 10.9%, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily driven by an expansion of our plumbing and HVAC offerings and continued strong demand in our single-family business, where revenues increased by $25.1 million. In addition, in our multi-family business, successful execution of its backlog contributed to an $8.2 million increase in revenues.

Gross Profit. During the three months ended March 31, 2024, our Residential segment's gross profit increased by $33.8 million, or 61.7%, compared to the three months ended March 31, 2023. Gross profit as a percentage of revenue increased to 26.1% during the three months ended March 31, 2024, compared to 17.9% for the three months ended March 31, 2023. The increase in profitability was driven primarily by improved project execution in our multi-family business, as well as the benefit of improved procurement and other processes implemented as part of the reorganization of the segment in fiscal 2023.

Selling, General and Administrative Expenses. Our Residential segment's selling, general and administrative expenses increased by $17.3 million, or 45.4%, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was driven by higher personnel costs in connection with a reorganization of the segment's management structure in fiscal 2023 and incentive profit sharing for division management resulting from higher earnings. Selling, general and administrative expenses as a percentage of revenue in the Residential segment increased to 16.3% during the three months ended March 31, 2024, compared to 12.4% in the three months ended March 31, 2023.

(Dollars in thousands, Percentage of revenues)

Revenues. Our Residential segment's revenues increased by $31.0 million, or 5.0%, during the six months ended March 31, 2024, compared to the six months ended March 31, 2023. The increase was primarily driven by an expansion of our plumbing and HVAC offerings and continued strong demand in our single-family business, where revenues increased by $27.9 million compared to the prior year period. Multi-family and other revenue also increased by $3.1 million for the six months ended March 31, 2024 compared to the prior year period as continued strong demand and successful execution of existing backlog were partially offset by a more selective bidding process and a reduction in activity in certain areas where we experienced project execution challenges in the prior year.

Gross Profit. During the six months ended March 31, 2024, our Residential segment's gross profit increased by $49.7 million, or 43.4%, compared to the six months ended March 31, 2023. Gross margin as a percentage of revenue increased to 25.0% during the six months ended March 31, 2024, compared to 18.3% during the six months ended March 31, 2023. The increase in profitability was driven primarily by improved project execution in our multi-family business, as well as the benefit of improved procurement and other processes implemented as part of the reorganization of the segment in fiscal 2023.

Selling, General and Administrative Expenses. Our Residential segment's selling, general and administrative expenses increased by $29.6 million, or 38.4%, during the six months ended March 31, 2024, compared to the six months ended March 31, 2023. The increase was driven by higher personnel costs in connection with a reorganization of the segment's management structure in fiscal 2023 and incentive profit sharing for division management resulting from higher earnings. Selling, general and administrative expenses as a percentage of revenue in the Residential segment increased to 16.3% during the six months ended March 31, 2024, compared to 12.3% during the six months ended March 31, 2023.

Infrastructure Solutions

(Dollars in thousands, Percentage of revenues)

Revenues. Revenues in our Infrastructure Solutions segment increased by $23.2 million during the three months ended March 31, 2024, an increase of 44.0% compared to the three months ended March 31, 2023, driven primarily by continued strong demand in our custom power solutions manufacturing businesses, including generator enclosures.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the three months ended March 31, 2024 increased $9.6 million, compared to the three months ended March 31, 2023, primarily resulting from higher volumes, improved pricing and operating efficiencies at our facilities as well as the impact of investments to increase capacity we have made over the last several years. Gross profit as a percentage of revenue increased from 27.0% to 31.3%.

Selling, General and Administrative Expenses. Our Infrastructure Solutions segment’s selling, general and administrative expenses during the three months ended March 31, 2024 increased by $1.6 million, compared to the three months ended March 31, 2023, primarily as a result of increased employee compensation cost to support growth in the business. Selling, general and administrative expenses as a percentage of revenue decreased from 11.4% for the three months ended March 31, 2023 to 10.1% for the three months ended March 31, 2024 as we benefited from the scale of our operations.

(Dollars in thousands, Percentage of revenues)

Revenues. Revenues in our Infrastructure Solutions segment increased by $36.8 million, or 36.1%, during the six months ended March 31, 2024 compared to the six months ended March 31, 2023. The increase in revenue was driven primarily by continued strong demand in our custom power solutions manufacturing businesses, including generator enclosures.

Gross Profit. Our Infrastructure Solutions segment’s gross profit during the six months ended March 31, 2024 increased by $17.3 million, compared to the six months ended March 31, 2023, primarily resulting from higher volumes, improved pricing and operating efficiencies at our facilities as well as the impact of investments to increase capacity we have made over the last several years. Gross profit as a percentage of revenues increased to 30.2% for the six months ended March 31, 2024 compared to 24.2% for the six months ended March 31, 2023.

Selling, General and Administrative Expenses. Our Infrastructure Solutions segment’s selling, general and administrative expenses during the six months ended March 31, 2024 increased by $3.2 million, compared to the six months ended March 31, 2023, primarily as a result of increased employee compensation cost to support growth in the business. Selling, general and administrative expenses as a percentage of revenue decreased from 11.5% for the six months ended March 31, 2023 to 10.8% for the six months ended March 31, 2024 as we benefited from the scale of our operations.

Commercial & Industrial

(Dollars in thousands, Percentage of revenues)

Revenues. Revenues in our Commercial & Industrial segment increased by $28.0 million, or 40.6%, during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase primarily relates to a large data center project.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the three months ended March 31, 2024, increased by $13.5 million, compared to the three months ended March 31, 2023. Gross profit as a percentage of revenue increased from 9.8% for the quarter ended March 31, 2023 to 20.9% for the quarter ended March 31, 2024. In the three months ended March 31, 2024, segment results benefited from favorable project execution on the large data center project, improving bid margins in certain markets, and a more selective bidding strategy implemented in the prior year. Our results for the quarter ended March 31, 2023 were impacted by continuing operating challenges at one branch that incurred significant losses during fiscal 2022 and into fiscal 2023.

Selling, General and Administrative Expenses. Our Commercial & Industrial segment’s selling, general and administrative expenses during the three months ended March 31, 2024 increased by $2.3 million, or 36.0%, compared to the three months ended March 31, 2023 primarily as a result of increased employee compensation cost, including higher incentive compensation as a result of higher earnings. Selling, general and administrative expenses as a percentage of revenue decreased from 9.3% for the three months ended March 31, 2023, to 9.0% for the three months ended March 31, 2024, as we benefited from the scale of our operations.

(Dollars in thousands, Percentage of revenues)

Revenues. Revenues in our Commercial & Industrial segment increased by $52.7 million, or 40.8%, during the six months ended March 31, 2024, compared to the six months ended March 31, 2023. The increase primarily relates to a large data center project.

Gross Profit. Our Commercial & Industrial segment’s gross profit during the six months ended March 31, 2024 increased by $23.8 million, or 230.1%, compared to the six months ended March 31, 2023. Gross profit as a percentage of revenue increased from 8.0% for the six months ended March 31, 2023 to 18.8% for the six months ended March 31, 2024. In the six months ended March 31, 2024, segment results benefited from improved project execution, including favorable project execution on the large data center project, improving bid margins in certain markets, and a more selective bidding strategy implemented in the prior year. Our results for the six months ended March 31, 2023 were impacted by continuing operating challenges at one branch that incurred significant losses during fiscal 2022 and into fiscal 2023.

Selling, General and Administrative Expenses. Our Commercial & Industrial segment’s selling, general and administrative expenses during the six months ended March 31, 2024 increased by $3.5 million, or 28.7%, compared to the six months ended March 31, 2023 primarily as a result of increased employee compensation cost, including higher incentive compensation as a result of higher earnings. Selling, general and administrative expenses as a percentage of revenue decreased from 9.3% for the six months ended March 31, 2023 to 8.5% for the six months ended March 31, 2024 as we benefited from the scale of our operations.

Gain on Sale of Assets. As discussed above, our results for the six months ended March 31, 2023 include a pretax gain on sale of $13.0 million from the sale of STR in October 2022.

INTEREST AND OTHER EXPENSE, NET

(In thousands)

During the three months ended March 31, 2024, we incurred interest expense of $0.4 million primarily comprised of interest on our finance lease agreements and fees on an average letter of credit balance of $5.6 million under our revolving credit facility and an average unused line of credit balance of $142.7 million. This compares to interest expense of $1.0 million for the three months ended March 31, 2023, primarily comprising interest expense from our revolving credit facility, which had an average outstanding balance of $43.5 million, in addition to fees on an average letter of credit balance of $5.0 million under our revolving credit facility and an average unused line of credit balance of $106.6 million. The decrease in interest expense in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was a result of a decrease in average outstanding borrowings under our revolving credit facility, which had no outstanding balance during the three months ended March 31, 2024.

The change in total other (income) expense, net for the three months ended March 31, 2024, compared to the three months ended March 31, 2023 is primarily the result of unrealized losses on investments in trading securities of $1.8 million in the three months ended March 31, 2024 compared to realized gains on investments in trading securities of $1.7 million in the three months ended March 31, 2023, partially offset by interest income of $1.1 million earned during the three months ended March 31, 2024 with no such interest income earned in the three months ended March 31, 2023.

(In thousands)

During the six months ended March 31, 2024, we incurred interest expense of $0.8 million primarily comprised of interest on our finance lease agreements and fees on an average letter of credit balance of $5.5 million under our revolving credit facility and an average unused line of credit balance of $142.5 million. This compares to interest expense of $2.2 million for the six months ended March 31, 2023, primarily comprised of interest expense from our revolving credit facility, which had an average outstanding balance of $52.4 million, in addition to fees on an average letter of credit balance of $5.2 million under our revolving credit facility and an average unused line of credit balance of $93.5 million. The reduction in interest expense in the six months ended March 31, 2024 compared to the six months ended March 31, 2023 was a result of a decrease in average outstanding borrowings under our revolving credit facility, which had no outstanding balance during the six months ended March 31, 2024.

The decrease in total other income, net for the six months ended March 31, 2024, compared with March 31, 2023 is primarily the result of unrealized losses on investments in trading securities of $1.9 million in the six months ended March 31, 2024 compared to realized gains on investments in trading securities of $0.9 million in the six months ended March 31, 2023, partially offset by interest income of $2.3 million earned during the six months ended March 31, 2024 with no such interest income in the six months ended March 31, 2023.

PROVISION FOR INCOME TAXES

We recorded income tax expense of $19.4 million for the three months ended March 31, 2024, compared to $8.2 million for the three months ended March 31, 2023, driven by increased pretax income.

We recorded income tax expense of $34.8 million for the six months ended March 31, 2024, compared to $18.2 million for the six months ended March 31, 2023, driven by increased pretax income.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based on our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist as of the date of the Condensed Consolidated Financial Statements, and the reported amounts of revenues and expenses recognized during the periods presented. We review all significant estimates affecting our Condensed Consolidated Financial Statements on a recurring basis and record the effect of any necessary adjustments prior to their publication. Judgments and estimates are based on our beliefs and assumptions derived from information available at the time such judgments and estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates. For a discussion of our significant accounting policies, please see our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. Some of the more significant estimates include revenue recognition, business combinations, valuation allowance for deferred tax assets and income taxes.

There have been no significant changes to our accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

REMAINING PERFORMANCE OBLIGATIONS AND BACKLOG

Remaining performance obligations represent the unrecognized revenue value of our contractual commitments. While backlog is not a defined term under GAAP, it is a common measurement used in our industry, and we believe it improves our ability to forecast future results and identify operating trends that may not otherwise be apparent. Backlog is a measure of revenue that we expect to recognize from work that has yet to be performed on uncompleted contracts and from work that has been contracted but has not started, exclusive of short-term projects. While all of our backlog is supported by documentation from customers, backlog is not a guarantee of future revenues, as contractual commitments may change and our performance may vary. Not all of our work is performed under contracts included in backlog; for example, most of the apparatus repair work that is completed by our Infrastructure Solutions segment is performed under master service agreements on an as-needed basis. Additionally, electrical installation services for single-family housing at our Residential segment are completed on a short-term basis and are therefore excluded from backlog. The table below summarizes our remaining performance obligations and backlog (in thousands):

32

WORKING CAPITAL

During the six months ended March 31, 2024, working capital exclusive of cash increased by $61.4 million from September 30, 2023, reflecting a $95.0 million increase in current assets excluding cash partially offset by a $33.7 million increase in current liabilities during the period.

During the six months ended March 31, 2024, our current assets exclusive of cash increased to $690.5 million, as compared to $595.5 million as of September 30, 2023. An increase in activity at our Communications, Infrastructure Solutions and Commercial & Industrial businesses drove a $52.8 million increase in trade accounts receivable. While the rate of collections may vary, our typically secured position, resulting from our ability in general to secure liens against our customers’ overdue receivables, offers some protection that collection will occur eventually to the extent that our security retains value. We also had a $23.5 million increase in prepaid expenses and other current assets as we invested in equity and debt securities in the second quarter of fiscal 2024, a $10.1 million increase in retainage driven by the timing of large projects approaching completion, and a $9.0 million increase in inventories from advance material purchases primarily for projects not yet commenced in our Residential multi-family business.

During the six months ended March 31, 2024, our total current liabilities increased by $33.7 million to $434.2 million, compared to $400.6 million as of September 30, 2023, driven by a $24.0 million increase in billings in excess of costs and estimated earnings driven by the timing of contract billings on projects on which revenue is recognized using the percentage of completion method, and a $9.7 million increase in accounts payable and accrued expenses primarily as a result of the timing of payments by our Communications segment.

Surety

We believe the bonding capacity provided by our sureties is adequate for our current operations and will be adequate for our operations for the foreseeable future. As of March 31, 2024, the estimated cost to complete our bonded projects was approximately $138.6 million.

LIQUIDITY AND CAPITAL RESOURCES

The Revolving Credit Facility

We are a party to the Third Amended and Restated Credit and Security Agreement (the "Amended Credit Agreement"), which provides for a maximum borrowing amount of $150 million. The Amended Credit Agreement contains customary affirmative, negative and financial covenants and events of default.

Borrowings under the Amended Credit Agreement may not exceed a Borrowing Base, as defined in the Amended Credit Agreement, that is determined monthly based on available collateral, primarily certain accounts receivables, inventories, and equipment. Amounts outstanding bear interest at a per annum rate equal to the Daily Three Month Secured Overnight Financing Rate ("SOFR"), plus an interest rate margin, which is determined quarterly, based on the following thresholds:

In addition, we are charged monthly in arrears for (1) an unused commitment fee of 0.25% per annum, (2) a collateral monitoring fee of $5 thousand per quarter, (3) a letter of credit fee based on the then-applicable interest rate margin (4) appraisal fees, costs and expenses and (5) certain other fees and charges as specified in the Amended Credit Agreement.

As of March 31, 2024, we were in compliance with the financial covenants under the Amended Credit Agreement, requiring that we maintain:

• a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement), measured quarterly on a trailing four-quarter basis at the end of each quarter, of at least 1.1 to 1.0; and
• minimum Liquidity of at least 10% of the Maximum Revolver Amount, or $15.0 million; with, for purposes of this covenant, at least 50% of our Liquidity comprised of Excess Availability (as defined in the Amended Credit Agreement).

At March 31, 2024, our Liquidity was $249.5 million, our Excess Availability was $143.5 million (or greater than 50% of minimum Liquidity), and our Fixed Charge Coverage Ratio was 7.9:1.0.

If in the future our Liquidity falls below $15.0 million (or Excess Availability falls below 50% of our minimum Liquidity), our Fixed Charge Coverage Ratio is less than 1.1:1.0, or if we otherwise fail to perform or otherwise comply with certain of our covenants or other agreements under the Amended Credit Agreement, it would result in an event of default under the Amended Credit Agreement, which could result in some or all of our then-outstanding indebtedness becoming immediately due and payable.

At March 31, 2024, we had $5.6 million in outstanding letters of credit and no outstanding borrowings under our revolving credit facility.

Operating Activities

Our cash flow from operations is not only influenced by cyclicality, demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of our receivable collections. Working capital needs are generally lower during our fiscal first and second quarters due to the seasonality that we experience in many regions of the country; however, a seasonal decline in working capital may be offset by needs associated with higher growth or acquisitions. Currently, our working capital needs are higher than they have been historically, as a result of growth of our business and elevated commodity prices.

Net cash provided by operating activities was $58.7 million during the six months ended March 31, 2024, as compared to $60.1 million in the six months ended March 31, 2023. The decrease in operating cash flow resulted from an increase in cash used in working capital during the six months ended March 31, 2024 as compared with the six months ended March 31, 2023, largely offset by increased earnings.

Investing Activities

Net cash used in investing activities was $11.4 million for the six months ended March 31, 2024, compared to $12.3 million provided by investing activities in the six months ended March 31, 2023. During the six months ended March 31, 2024, we used $13.4 million for capital expenditures to support the growth of our business, which was partially offset by cash provided by the sale of assets of $2.4 million. During the six months ended March 31, 2023, the sale of assets, including the sale of STR, provided cash of $19.1 million, which was partially offset by $6.7 million used for capital expenditures.

Financing Activities

Net cash used in financing activities for the six months ended March 31, 2024 was $17.1 million, compared to $82.1 million for the six months ended March 31, 2023. Net cash used in financing activities for the six months ended March 31, 2024 included $4.1 million to settle our contingent consideration liability related to prior year acquisitions, $7.9 million in distributions to noncontrolling interests under operating agreements in connection with certain acquisitions, and $3.2 million in repurchases our common stock to satisfy statutory withholding requirements upon the vesting of employee stock compensation. Net cash used in financing activities for the six months ended March 31, 2023 included net repayments on our credit facility of $67.5 million, $7.6 million used to repurchase our common stock, including repurchases to satisfy statutory withholding requirements upon the vesting of employee stock compensation, and distributions of $5.3 million to noncontrolling interests under operating agreements in connection with certain acquisitions.

Stock Repurchase Program

In December 2022, our Board authorized a stock repurchase program for the purchase from time to time of up to $40.0 million of the Company’s common stock, replacing the Company's previous repurchase program. Share purchases are made for cash in open market transactions at prevailing market prices or in privately negotiated transactions or otherwise. The timing and amount of purchases under the program are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which allows repurchases under pre-set terms at times when the Company might otherwise be prevented from purchasing under insider trading laws or because of self-imposed blackout periods. The program does not require the Company to purchase any specific number of shares and may be modified, suspended, reinstated, or terminated at any time at the Company’s discretion and without notice. We had no purchases pursuant to our repurchase programs during the six months ended March 31, 2024.

MATERIAL CASH REQUIREMENTS

From time to time, we may enter into firm purchase commitments for materials, such as copper or aluminum wire, which we expect to use in the ordinary course of business. These commitments are typically for terms of less than one year and require us to buy minimum quantities of materials at specific intervals at a fixed price over the term. As of March 31, 2024, we did not have any such firm commitments to purchase materials outstanding. In connection with expected growth in our business, we are planning to expand capacity in certain areas. Further, based on increased availability of vehicles and other equipment needed in the business and the relative costs and benefits of purchasing compared with leasing, we expect to satisfy a larger proportion of our vehicle and other equipment needs through purchasing and to reduce our reliance on leasing. As a result, we have updated our capital expenditure expectations for the current fiscal year, and now expect our capital spending for the year ending September 30, 2024 will range from $35 million to $45 million, compared to $17.7 million for the year ended September 30, 2023. There have been no other material changes in our material cash requirements from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. We expect that cash and cash equivalents, cash flow from operations and availability under our revolving credit facility will be sufficient to satisfy cash requirements during at least the next 12 months.

Management is actively involved in monitoring exposure to market risk and continues to develop and utilize appropriate risk management techniques. Our exposure to significant market risks includes fluctuations in labor costs and commodity prices. We are also exposed to interest rate risk with respect to our outstanding borrowings under our revolving credit facility. For additional information see “Disclosure Regarding Forward-Looking Statements” in Part I of this Quarterly Report on Form 10-Q and our risk factors in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Commodity Risk

Our exposure to significant market risks includes fluctuations in commodity prices for copper, aluminum, steel, electronic components, certain plastics, and fuel. Commodity price risks may have an impact on our results of operations due to the fixed-price nature of many of our contracts. Over the long term, we expect to be able to pass along a portion of these costs to our customers, as market conditions in the industries we serve will allow.

Interest Rate Risk

Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates. Any long-term debt that may be outstanding from time to time under our revolving credit facility is structured on floating rate terms. We currently do not maintain any hedging contracts that would limit our exposure to variable rates of interest when we have outstanding borrowings under our revolving credit facility. The Amended Credit Agreement uses SOFR as the benchmark for establishing the interest rate charged on our borrowings. If SOFR were to increase, our interest payment obligations on any then-outstanding borrowings would increase, having a negative effect on our cash flow and financial condition. We had no borrowings outstanding under our revolving credit facility as of March 31, 2024.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Disclosure Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no material changes to the risk factors disclosed under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.