IES Holdings, Inc. (IESC)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2025, 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, 2025, 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 solutions 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

As we enter the fourth quarter of fiscal 2026, our remaining performance obligations and backlog are at record levels. Demand with respect to data centers, a key end market served by our Communications, Infrastructure Solutions, and Commercial & Industrial segments, has continued to grow. Investments in capacity we have made in recent years have allowed us to meet our customers' growing needs, and we expect to continue to invest in building our capacity and capabilities. We expect that these strategic investments, combined with our increased backlog, will drive growth in our business in the fourth quarter of the fiscal 2026 and into fiscal 2027. Availability of labor remains challenging, and will continue to be an area of focus for us. While demand is strong for much of our business, our operating segments each have their own unique set of factors influencing demand for our services. In our Residential business, lower demand and reduced housing starts have limited our ability to recover higher material costs through increased pricing, putting pressure on our margins. While we expect challenges in the single-family housing market to continue in the near term, we remain committed to this market, and will work to position the business to benefit when demand conditions improve. In the multi-family residential business, higher borrowing costs for project owners in recent years resulted in a reduction in backlog during fiscal 2025, which drove lower multi-family residential revenue for the first nine months of fiscal 2026 compared with the prior year. Multi-family backlog has increased over the first nine months of fiscal 2026, which we expect will benefit us in fiscal 2027. We are continuing to expand our Plumbing and HVAC offerings and focus on electrical markets where there may be an opportunity to expand our market share.

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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.

Consolidated revenues for the three months ended June 30, 2026, were $352.5 million higher than for the three months ended June 30, 2025, an increase of 39.6%, with increases at our Communications, Infrastructure Solutions and Commercial & Industrial segments and a decrease at our Residential segment. See further discussion below of changes in revenues for our individual segments.

Consolidated gross profit for the three months ended June 30, 2026 increased $101.1 million compared to the three months ended June 30, 2025. Our overall gross profit percentage was 27.4% during the three months ended June 30, 2026, as compared to 26.9% during the three months ended June 30, 2025. Gross profit as a percentage of revenue increased at our Communications and Commercial & Industrial segments and decreased at our Residential and Infrastructure Solutions 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 June 30, 2026, our selling, general and administrative expenses were $162.2 million, an increase of $34.8 million, or 27.4%, over the three months ended June 30, 2025, driven by increased personnel costs across our operating segments to support their growth and increased incentive compensation in connection with higher earnings than in the prior fiscal year. Certain of our stock-based employee compensation awards are expected to be cash-settled upon vesting, and our liability for these awards is adjusted at each period end based on the stock price at the balance sheet date. Expense related to these cash-settled stock-based awards was $11.4 million for the three months ended June 30, 2026, compared to $2.7 million for the three months ended June 30, 2025. The increase in expense was driven primarily by the increase in the price of our common stock. As a percentage of revenue, selling, general and administrative expenses decreased from 14.3% for the three months ended June 30, 2025 to 13.0% for the three months ended June 30, 2026.

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Consolidated revenues for the nine months ended June 30, 2026 were $614.3 million higher than for the nine months ended June 30, 2025, an increase of 24.8%, with increases at our Communications, Infrastructure Solutions and Commercial & Industrial segments and a decrease at our Residential segment. See further discussion below of changes in revenues for our individual segments.

Consolidated gross profit for the nine months ended June 30, 2026 increased $189.0 million compared to the nine months ended June 30, 2025. Our overall gross profit percentage increased to 26.4% during the nine months ended June 30, 2026 as compared to 25.3% during the nine months ended June 30, 2025. Gross profit as a percentage of revenue increased at our Communications, Infrastructure Solutions and Commercial & Industrial segments and decreased at our Residential segment. See further discussion below of changes in gross margin for our individual segments.

During the nine months ended June 30, 2026, our selling, general and administrative expenses were $426.4 million, an increase of $80.0 million, or 23.1%, over the nine months ended June 30, 2025, driven primarily by increased personnel costs across our operating segments to support their growth, increased incentive compensation in connection with higher earnings than in the prior fiscal year and continued investment in technology to support the scalability of the business. Expense related to our cash-settled stock-based awards was $17.6 million for the nine months ended June 30, 2026, compared to $3.8 million for the nine months ended June 30, 2025, with the increase in expense driven by an increase in the price of our common stock. Selling, general and administrative expenses as a percentage of revenue decreased from 14.0% for the nine months ended June 30, 2025 to 13.8% for the nine months ended June 30, 2026.

Communications

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto, set forth in Item 8.“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. For additional information, see “Disclosure Regarding Forward Looking Statements” in Part I of this Annual Report on Form 10-K.

OVERVIEW

Executive Overview

Please refer to Item 1. “Business” of this Annual Report on Form 10-K 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.

Industry Trends

Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposed to many regional and national trends such as the need for mission critical facilities as a result of technology-driven advancements, capital spending on data centers, distribution centers, and high-tech manufacturing facilities, the demand for single and multi-family housing, demand for back-up power, output levels and equipment utilization at heavy industrial facilities, demand for our rail and infrastructure services and custom engineered products, and changes in commercial, institutional, public infrastructure and electric utility spending. Over the long term, we believe that there are numerous factors that could positively drive demand and affect growth within the industries in which we operate, including (i) an increasing demand for data storage, (ii) population growth, which will increase the need for commercial and residential facilities, (iii) aging public infrastructure, which must be replaced or repaired, and (iv) increased emphasis on environmental and energy efficiency, which may lead to increased public and private spending. However, there can be no assurance that we will not experience a decrease in demand for our services due to economic, technological or other factors beyond our control, including interest rate increases, increases in the price of copper, aluminum, steel, fuel, electrical components, certain plastics, and other commodity prices and other economic factors, which may reduce the demand for housing in the regions where our Residential division operates, and may impact levels of construction. For further discussion of the industries in which we operate, please see Item 1. “Business - Operating Segments” of this Annual Report on Form 10-K.

Business Outlook

While there are differences among the Company’s segments, on an overall basis, increased demand for the Company’s services and the Company’s previous investment in growth initiatives and other business-specific factors discussed below resulted in aggregate year-over-year revenue growth in fiscal 2025 as compared to fiscal 2024.

Our business segments each have their own unique set of factors influencing demand for our services. Heading into fiscal 2026, backlog across our business segments as a whole remains at record levels, reflecting strong demand in key end markets. Demand with respect to data centers, a key end market served by our Communications, Infrastructure Solutions, and Commercial & Industrial segments, remains particularly strong. However, availability of labor and capacity could constrain the rate at which we are able to grow this business. In our Residential business, we expect the challenges that affected demand for our services in the single-family market throughout fiscal 2025 will continue to affect us going into fiscal 2026, as housing affordability continues to be negatively impacted by elevated mortgage rates and the impact of inflation on materials and labor costs. In addition, consumer expectations about future interest rate reductions may cause some home buyers to delay purchases in anticipation of lower mortgage costs. In the multi-family business, prolonged elevated borrowing costs for project owners have resulted in a reduction in backlog at September 30, 2025 compared with September 30, 2024. This is expected to result in lower multi-family revenues in fiscal 2026 as compared with the prior year.

To continue to grow our business, including through acquisitions and the funding of working capital, we may require a significant amount of cash. Our ability to generate or otherwise access cash depends on many externally influenced factors, including demand for our services, the availability of projects at margins acceptable to us, the ultimate collectability of our receivables, our ability to borrow on our credit facility, and our ability to raise funds in the capital markets, among many other factors. We anticipate that the combination of cash on hand, cash flows from operations and available capacity under our credit facility will provide sufficient cash to enable us to meet our working capital needs, debt service requirements and capital expenditures for property and equipment through the next 12 months. We expect our capital expenditures will range from $110 million to $130 million for the year ending on September 30, 2026.

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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, as well as the results of acquired businesses from the dates acquired.

2025 Compared to 2024

Consolidated revenues for the year ended September 30, 2025, were $487.1 million higher than for the year ended September 30, 2024, an increase of 16.9%, with increases in our Communications, Infrastructure Solutions and Commercial & Industrial operating segments, partly offset by a decrease in our Residential segment. See further discussion below of changes in revenues for our individual segments.

Our overall gross profit percentage increased to 25.5% during the year September 30, 2025, as compared to 24.2% during the year ended September 30, 2024. Gross profit as a percentage of revenue increased at our Communications, Infrastructure Solutions and Commercial & Industrial operating segments and decreased at our Residential segment. 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, business 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 year ended September 30, 2025, our selling, general and administrative expenses were $475.0 million, an increase of $78.3 million, or 19.7%, over the year ended September 30, 2024, driven by increased personnel costs and higher incentive compensation across our business as a result of higher earnings, as well as continued investment in the scalability of the business. Selling, general and administrative expenses as a percentage of revenue were 14.1% for the year ended September 30, 2025 compared to 13.8% for the year ended September 30, 2024.

2024 Compared to 2023

Consolidated revenues for the year ended September 30, 2024, were $507.1 million higher than for the year ended September 30, 2023, an increase of 21.3%, with increases at all of our operating segments. See further discussion below of changes in revenues for our individual segments.

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Our overall gross profit percentage increased to 24.2% during the year September 30, 2024, as compared to 18.7% during the year ended September 30, 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 year ended September 30, 2024, our selling, general and administrative expenses were $396.7 million, an increase of $98.1 million, or 32.8%, over the year ended September 30, 2023, driven by increased personnel costs, primarily at our Residential operating segment, and higher incentive compensation across our business as a result of higher earnings. Selling, general and administrative expenses as a percentage of revenue increased to 13.8% for the year ended September 30, 2024 from 12.6% for the year ended September 30, 2023.

Our results for the year ended September 30, 2023 included a pretax gain of $13.0 million from the sale of STR Mechanical, LLC (“STR”), which previously operated as part of our Commercial & Industrial segment, on October 7, 2022.

Communications

2025 Compared to 2024

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