Business Model & Strategy - Limbach aims to be a one-stop-shop for building owners, maximizing their investment in mission-critical assets through full life-cycle capabilities[2, 9] - The company's strategy involves a shift towards Owner-Direct Relationships (ODR), targeting a gross margin range of 25-28%, compared to General Contractor Relationships (GCR) with a target of 12-15%[34, 35] - Limbach is evolving its business model to focus on recurring revenue from building maintenance services, driving higher margins in the ODR segment[9] - The company is positioned to benefit from customer spending flexibility between Capital and Operating Budgets, providing macroeconomic resilience[9] Financial Performance & Targets - As of June 30, 2023, Limbach had $45.9 million in cash and cash equivalents and $23.6 million in net cash, with TTM adjusted EBITDA of $42.4 million[9] - From FY 2018 to FY 2022, Limbach's gross margin expanded by nearly 58% to 18.9%, driving adjusted EBITDA margin up more than 5x from 1.6% to 8.3%[39] - Limbach's FY 2023 revenue guidance is between $490 million and $520 million, with adjusted EBITDA between $38 million and $41 million[66] Growth & Acquisitions - Limbach is pursuing a three-pillar approach to scale the business: margin expansion through evolved offerings, producing better ODR margin opportunities, and growing revenue and market share[26, 31] - The company is targeting acquisitions with total revenue between $25 million and $40 million, with a mix of ODR and GCR revenue[44] - A recent acquisition, ACME, is expected to contribute $10 million in revenue and over $1 million in EBITDA annually[62] Market Trends & Opportunities - Strong sector tailwinds are driven by building owners focusing on ROIC, including maintenance and retrofit of existing facilities[9] - Limbach serves mission-critical end markets, including healthcare, data centers, industrial, higher education, cultural & entertainment, and life sciences[11, 64] - The company is positioned to capitalize on industry trends such as reshoring, the CHIPS & Science Act, and the Build America Buy America Act (BABAA)[6]

[PART I. FINANCIAL INFORMATION](index=6&type=section&id=Part%20I.%20Financial%20Information) Presents unaudited condensed consolidated financial statements and management's discussion for Q2 2023 and related disclosures [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements of Limbach Holdings, Inc. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes on business operations, accounting policies, revenue recognition, debt, equity, and other financial disclosures [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes the company's financial position with assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 **Condensed Consolidated Balance Sheets (in thousands):** | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | **ASSETS** | | | | Total current assets | $199,209 | $225,990 | | Property and equipment, net | $19,623 | $18,224 | | Intangible assets, net | $14,575 | $15,340 | | Goodwill | $11,370 | $11,370 | | Total assets | $267,427 | $294,556 | | **LIABILITIES** | | | | Total current liabilities | $127,269 | $159,085 | | Total liabilities | $161,769 | $199,114 | | **STOCKHOLDERS' EQUITY** | | | | Total stockholders' equity | $105,658 | $95,442 | | Total liabilities and stockholders' equity | $267,427 | $294,556 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's financial performance, including revenue, gross profit, operating income, and net income for Q2 2023 and 2022 **Condensed Consolidated Statements of Operations (in thousands, except per share data):** | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $124,882 | $116,120 | $245,891 | $230,942 | | Gross profit | $28,513 | $21,320 | $54,740 | $39,660 | | Operating income | $7,552 | $1,466 | $12,205 | $673 | | Income (loss) before income taxes | $7,345 | $1,103 | $10,960 | $(1,029) | | Net income (loss) | $5,320 | $866 | $8,313 | $(650) | | Basic EPS | $0.50 | $0.08 | $0.79 | $(0.06) | | Diluted EPS | $0.46 | $0.08 | $0.73 | $(0.06) | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Outlines changes in stockholders' equity, including common stock, additional paid-in capital, and retained earnings, for the six months ended June 30, 2023 **Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts):** | Item | Balance at Dec 31, 2022 | Stock-based compensation | Shares issued related to vested restricted stock units | Tax withholding related to vested restricted stock units | Shares issued related to employee stock purchase plan | Net income | Balance at June 30, 2023 | | :-------------------------------- | :---------------------- | :----------------------- | :---------------------------------------------------- | :---------------------------------------------------- | :-------------------------------------------------- | :--------- | :--------------------- | | Common stock (shares) | 10,471,410 | — | 250,548 | — | 10,997 | — | 10,946,316 | | Common stock ($) | $1 | — | — | — | — | — | $1 | | Additional paid-in capital | $87,809 | $1,133 | — | $(428) | $97 | — | $89,712 | | Treasury stock, at cost | $(2,000) | — | — | — | — | — | $(2,000) | | Retained earnings | $9,632 | — | — | — | — | $8,313 | $17,945 | | Stockholders' equity | $95,442 | $2,234 | — | $(428) | $97 | $8,313 | $105,658 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Reports cash flows from operating, investing, and financing activities, showing the change in cash for the six months ended June 30, 2023 and 2022 **Condensed Consolidated Statements of Cash Flows (in thousands):** | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $26,292 | $12,620 | | Net cash used in investing activities | $(1,224) | $(284) | | Net cash used in financing activities | $(15,188) | $(7,182) | | Increase in cash, cash equivalents and restricted cash | $9,880 | $5,154 | | Cash, cash equivalents and restricted cash, end of period | $45,994 | $19,743 | [Note 1 – Business and Organization](index=11&type=section&id=Note%201%20%E2%80%93%20Business%20and%20Organization) Describes Limbach Holdings, Inc.'s core business as a building systems solutions firm and its two operating segments - Limbach Holdings, Inc. is a building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and controls systems, operating in the Northeast, Mid-Atlantic, Southeast, and Midwest regions of the United States[26](index=26&type=chunk) - The Company operates in two segments: General Contractor Relationships (GCR) for new construction/renovation projects and Owner Direct Relationships (ODR) for direct projects, maintenance, and service[27](index=27&type=chunk) [Note 2 – Significant Accounting Policies](index=11&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies) Details the accounting principles used in preparing the unaudited financial statements, including recent ASU adoptions - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q requirements for smaller reporting companies, with certain disclosures condensed or omitted[29](index=29&type=chunk) - The Company adopted ASU 2016-13 (Credit Losses) on January 1, 2023, using the modified retrospective method, which did not materially impact its financial position or results of operations[34](index=34&type=chunk) - The Company evaluated ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) and determined they did not have a significant impact, as its credit agreements and interest rate swap now utilize SOFR as the benchmark rate[39](index=39&type=chunk) [Note 3 – Revenue from Contracts with Customers](index=13&type=section&id=Note%203%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) Explains revenue recognition policies for fixed-price and time & materials contracts, along with contract assets and remaining performance obligations - Revenue from fixed-price construction contracts is recognized using the cost-to-cost method, while time and materials contracts are recognized as services are performed[41](index=41&type=chunk) Contract Assets (in thousands): | Item | June 30, 2023 | December 31, 2022 | Change | | :---------------------------------------------------- | :------------ | :---------------- | :----- | | Costs and estimated earnings in excess of billings | $34,006 | $33,573 | $433 | | Retainage receivable | $25,418 | $27,880 | $(2,462) | | Total contract assets | $59,424 | $61,453 | $(2,029) | Remaining Performance Obligations (as of June 30, 2023, in millions): | Segment | Total Amount | Expected Recognition (Remainder of 2023) | | :------ | :----------- | :--------------------------------------- | | GCR | $260.2 | 52% | | ODR | $113.6 | 65% | *Substantial majority of remaining obligations expected within 24 months* [Note 4 – Goodwill and Intangibles](index=15&type=section&id=Note%204%20%E2%80%93%20Goodwill%20and%20Intangibles) Provides details on goodwill allocated to the ODR segment and the composition and amortization of other intangible assets - Goodwill remained at **$11.4 million** as of June 30, 2023, and December 31, 2022, entirely associated with the ODR segment, with no impairment charges recognized during the reported periods[53](index=53&type=chunk)[54](index=54&type=chunk) Intangible Assets (Net, excluding goodwill, in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Total amortized intangible assets | $4,615 | $5,380 | | Total unamortized intangible assets (Limbach trade name) | $9,960 | $9,960 | | Total intangible assets, excluding goodwill | $14,575 | $15,340 | *Total amortization expense for definite-lived intangible assets was $0.4 million for both the three and six months ended June 30, 2023 and 2022* [Note 5 – Debt](index=16&type=section&id=Note%205%20%E2%80%93%20Debt) Outlines the company's long-term debt structure, including revolving loans, finance leases, and recent credit agreement amendments Long-term Debt (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | A&R Wintrust Term Loan | $— | $21,453 | | Wintrust Revolving Loans | $10,000 | $— | | Finance leases | $6,961 | $4,954 | | Financing liability | $5,351 | $5,351 | | Total debt | $22,312 | $31,758 | | Less: Current portion of long-term debt | $(2,431) | $(9,564) | | Less: Unamortized discount and debt issuance costs | $(396) | $(666) | | Long-term debt | $19,485 | $21,528 | - On May 5, 2023, the Company entered into the Second Amended and Restated Credit Agreement, increasing its senior secured revolving credit facility to **$50.0 million** and repaying the outstanding A&R Wintrust Term Loan[71](index=71&type=chunk)[72](index=72&type=chunk) - The Company accounted for a sale and leaseback arrangement of its Pontiac, MI facility as a financing transaction (finance lease) due to the significance of the present value of lease payments, resulting in a financing liability of **$4.9 million** as of June 30, 2023[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) [Note 6 – Equity](index=20&type=section&id=Note%206%20%E2%80%93%20Equity) Details changes in equity, including warrant exercises, share repurchase program completion, and amendments to the Omnibus Incentive Plan Outstanding Warrants (shares): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | $15 Exercise Price Sponsor Warrants | — | 600,000 | | Merger Warrants | 466,199 | 629,643 | | Total | 466,199 | 1,229,643 | *During Q2 2023, 600,000 $15 Exercise Price Sponsor Warrants and 163,444 Merger Warrants were exercised on a cashless basis, converting into 167,564 and 45,797 common shares, respectively* - The Board of Directors approved amendments to the Omnibus Incentive Plan in March 2023, increasing authorized shares by **450,000** to a total of **3,050,000** shares[92](index=92&type=chunk) - As of June 30, 2023, the Company completed its **$2.0 million** Share Repurchase Program, repurchasing shares of its common stock[94](index=94&type=chunk) [Note 7 – Fair Value Measurements](index=22&type=section&id=Note%207%20%E2%80%93%20Fair%20Value%20Measurements) Discusses the fair value of financial instruments, cash equivalents, and the contingent earnout liability using various valuation methods - The Company's financial instruments, including cash and cash equivalents, trade accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and low counterparty default risk[98](index=98&type=chunk) Cash Equivalents (in thousands, as of June 30, 2023): | Item | Fair Value | | :-------------------------- | :--------- | | Overnight repurchase agreements | $32,100 | | U.S. Treasury Bills | $5,000 | | Money market fund | $3,750 | | Total | $40,850 | - The fair value of the Second A&R Wintrust Revolving Loan was **$10.0 million** as of June 30, 2023, determined using discounted estimated future cash flows (Level 3 inputs)[101](index=101&type=chunk) - The estimated exposure to the contingent earnout liability for the 2023 Earnout Period was approximately **$2.7 million** at June 30, 2023, valued using the Monte Carlo Simulation method (Level 3 measurement)[102](index=102&type=chunk)[103](index=103&type=chunk) [Note 8 – Earnings per Share](index=23&type=section&id=Note%208%20%E2%80%93%20Earnings%20per%20Share) Presents basic and diluted earnings per share calculations, including the impact of antidilutive securities, for the reported periods Earnings Per Share (in thousands, except per share amounts): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $5,320 | $866 | $8,313 | $(650) | | Weighted average shares outstanding – basic | 10,644 | 10,423 | 10,560 | 10,422 | | Weighted average shares outstanding – diluted | 11,507 | 10,567 | 11,336 | 10,422 | | Basic EPS | $0.50 | $0.08 | $0.79 | $(0.06) | | Diluted EPS | $0.46 | $0.08 | $0.73 | $(0.06) | Antidilutive Securities Excluded from Diluted EPS (shares): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Out-of-the-money warrants | — | 1,229,643 | — | 1,229,643 | | Service-based RSUs | 1 | 17,595 | 26 | 72,871 | | Performance and market-based RSUs | 15 | 48,229 | 60 | 85,969 | | Employee Stock Purchase Plan | 643 | — | 2,426 | 8,451 | | Total | 659 | 1,295,467 | 2,512 | 1,396,934 | [Note 9 – Income Taxes](index=24&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) Provides the income tax provision and effective tax rates for the three and six months ended June 30, 2023 and 2022 Income Tax Provision (Benefit) and Rate (in thousands, except percentages): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision (benefit) | $2,025 | $237 | $2,647 | $(379) | | Income tax rate | 27.6% | 21.5% | 24.2% | 36.8% | *The U.S. federal statutory tax rate was 21% for all periods presented* - No valuation allowance was required as of June 30, 2023, or December 31, 2022[112](index=112&type=chunk) [Note 10 – Operating Segments](index=25&type=section&id=Note%2010%20%E2%80%93%20Operating%20Segments) Describes the company's two operating segments, GCR and ODR, and the revised segment reporting structure following a CEO transition - The Company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR), reflecting how the Chief Operating Decision Maker (CODM) reviews operating results[113](index=113&type=chunk) - Following a CEO transition in March 2023, the Company revised its segment presentation to align with the new CODM's assessment, focusing on segment revenue and gross profit, with SG&A and interest expense no longer allocated to segments[115](index=115&type=chunk) Condensed Consolidated Segment Information (in thousands): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | **Revenue:** | | | | | | GCR | $66,102 | $66,336 | $128,393 | $138,268 | | ODR | $58,780 | $49,784 | $117,498 | $92,674 | | Total revenue | $124,882 | $116,120 | $245,891 | $230,942 | | **Gross profit:** | | | | | | GCR | $11,272 | $8,694 | $21,590 | $17,052 | | ODR | $17,241 | $12,626 | $33,150 | $22,608 | | Total gross profit | $28,513 | $21,320 | $54,740 | $39,660 | [Note 11 – Leases](index=26&type=section&id=Note%2011%20%E2%80%93%20Leases) Details the company's lease assets, liabilities, and costs for real estate, trucks, and equipment, including operating and finance leases - The Company leases real estate, trucks, and other equipment, electing not to separate non-lease components from lease components and recognizing short-term leases (12 months or less) as expense[119](index=119&type=chunk)[120](index=120&type=chunk) Total Lease Assets and Liabilities (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Total lease assets | $26,456 | $25,690 | | Total lease liabilities | $30,423 | $29,510 | Total Lease Cost (in thousands): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,134 | $1,288 | $2,340 | $2,686 | | Finance lease cost (Amortization & Interest) | $753 | $751 | $1,450 | $1,468 | | Total lease cost | $1,887 | $2,039 | $3,790 | $4,154 | [Note 12 – Commitments and Contingencies](index=30&type=section&id=Note%2012%20%E2%80%93%20Commitments%20and%20Contingencies) Discloses legal proceedings, surety bonds, and self-insurance liabilities, including a $2.2 million estimated loss contingency - The Company is involved in various legal proceedings, including a lawsuit where an amended statement of decision awarded the plaintiff approximately **$2.2 million**, which was recorded as an estimated loss contingency as of December 31, 2022[130](index=130&type=chunk)[131](index=131&type=chunk) - As of June 30, 2023, the Company had approximately **$117.5 million** in surety bonds outstanding, securing payment and performance obligations under construction contracts[132](index=132&type=chunk) Self-Insurance Liability (in thousands): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Current liability — workers' compensation and general liability | $67 | $158 | | Current liability — medical and dental | $433 | $557 | | Non-current liability | $502 | $343 | | Total liability | $1,002 | $1,058 | | Restricted cash | $65 | $113 | [Note 13 – Management Incentive Plans](index=31&type=section&id=Note%2013%20%E2%80%93%20Management%20Incentive%20Plans) Outlines the Omnibus Incentive Plan, authorized shares for equity awards, and recognized stock-based compensation expense - The Company's Omnibus Incentive Plan, as amended in 2023, reserves **3,050,000 shares** of common stock for various equity awards, including options, RSUs, and performance-based awards[139](index=139&type=chunk) - Total recognized stock-based compensation expense was **$1.1 million** for the three months and **$2.2 million** for the six months ended June 30, 2023, with **$4.4 million** in unrecognized expense related to unvested RSUs[146](index=146&type=chunk) [Note 14 – Subsequent Events](index=32&type=section&id=Note%2014%20%E2%80%93%20Subsequent%20Events) Reports the acquisition of ACME Industrial Piping, LLC for $5 million cash with a potential earnout of up to $2.5 million - On July 3, 2023, the Company acquired ACME Industrial Piping, LLC for **$5 million** in cash, with a potential earnout of up to **$2.5 million** over two years[147](index=147&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed analysis of the Company's financial condition and results of operations for the three and six months ended June 30, 2023, compared to the same periods in 2022, highlighting key drivers of revenue, gross profit, and expenses, as well as liquidity and capital resources [Overview](index=33&type=section&id=Overview) Limbach Holdings, Inc. is an integrated building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and control systems for commercial, institutional, and light industrial markets - Limbach Holdings, Inc. is an integrated building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and control systems for commercial, institutional, and light industrial markets[149](index=149&type=chunk) - The Company is winding down its Southern California GCR and ODR operations in 2023 to align geographic focus and reduce losses, while maintaining obligations under a sublease agreement[149](index=149&type=chunk) - Core market sectors include Healthcare, Data Centers, Industrial and light manufacturing, Higher Education, Cultural and entertainment, and Life sciences[151](index=151&type=chunk) [Key Components of Condensed Consolidated Statements of Operations](index=33&type=section&id=Key%20Components%20of%20Condensed%20Consolidated%20Statements%20of%20Operations) This section details the primary components of the company's condensed consolidated statements of operations, including revenue, cost of revenue, and selling, general, and administrative expenses - Revenue is primarily generated from fixed-price construction contracts (cost-to-cost method) and time and materials service contracts (as services are performed), with durations typically ranging from three months to two years[151](index=151&type=chunk) - Cost of revenue includes labor, equipment, material, subcontract, and other job costs, with historical fluctuations expected to continue[153](index=153&type=chunk) - Selling, General and Administrative (SG&A) expenses primarily cover personnel costs for administrative, estimating, and corporate functions, along with professional fees and compliance costs[154](index=154&type=chunk) [Operating Segments](index=35&type=section&id=Operating%20Segments) The company manages its business through two operating segments, GCR and ODR, with a revised presentation focusing on segment revenue and gross profit - The Company manages its business through two operating segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR), which are aggregated for reporting purposes[160](index=160&type=chunk)[161](index=161&type=chunk) - Following a CEO transition, the segment presentation was revised to focus on segment revenue and gross profit, with SG&A and interest expense no longer allocated to segments[162](index=162&type=chunk) [Comparison of Results of Operations for the three months ended June 30, 2023 and 2022](index=35&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20three%20months%20ended%20June%2030%2C%202023%20and%202022) Analyzes the company's financial performance for the three months ended June 30, 2023, highlighting revenue, gross profit, and net income changes Operating Results (Three Months Ended June 30, in thousands, except percentages): | Item | 2023 | % of Revenue | 2022 | % of Revenue | | :-------------------------------- | :----- | :----------- | :----- | :----------- | | Total revenue | $124,882 | 100.0% | $116,120 | 100.0% | | GCR revenue | $66,102 | 52.9% | $66,336 | 57.1% | | ODR revenue | $58,780 | 47.1% | $49,784 | 42.9% | | Total gross profit | $28,513 | 22.8% | $21,320 | 18.4% | | GCR gross profit | $11,272 | 17.1% | $8,694 | 13.1% | | ODR gross profit | $17,241 | 29.3% | $12,626 | 25.4% | | Selling, general and administrative | $20,416 | 16.3% | $18,690 | 16.1% | | Net income | $5,320 | 4.3% | $866 | 0.7% | - Total revenue increased by **$8.8 million (7.5%)** year-over-year, primarily driven by an **18.1% increase in ODR revenue**, while GCR revenue slightly decreased by **0.4%**[166](index=166&type=chunk) - Gross profit increased by **$7.2 million (33.7%)**, with the total gross profit percentage rising from **18.4% to 22.8%**, mainly due to higher margins in both GCR (**29.7% increase**) and ODR (**36.6% increase**) segments and a favorable contract mix[167](index=167&type=chunk) [Comparison of Results of Operations for the six months ended June 30, 2023 and 2022](index=38&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Analyzes the company's financial performance for the six months ended June 30, 2023, highlighting revenue, gross profit, and net income changes Operating Results (Six Months Ended June 30, in thousands, except percentages): | Item | 2023 | % of Revenue | 2022 | % of Revenue | | :-------------------------------- | :----- | :----------- | :----- | :----------- | | Total revenue | $245,891 | 100.0% | $230,942 | 100.0% | | GCR revenue | $128,393 | 52.2% | $138,268 | 59.9% | | ODR revenue | $117,498 | 47.8% | $92,674 | 40.1% | | Total gross profit | $54,740 | 22.3% | $39,660 | 17.2% | | GCR gross profit | $21,590 | 16.8% | $17,052 | 12.3% | | ODR gross profit | $33,150 | 28.2% | $22,608 | 24.4% | | Selling, general and administrative | $41,466 | 16.9% | $37,424 | 16.2% | | Net income (loss) | $8,313 | 3.4% | $(650) | (0.3)% | - Total revenue increased by **$14.9 million (6.5%)** year-over-year, driven by a **26.8% increase in ODR revenue**, which offset a **7.1% decrease in GCR revenue**[175](index=175&type=chunk) - Gross profit increased by **$15.1 million (38.0%)**, with the total gross profit percentage rising from **17.2% to 22.3%**, attributed to higher margins in both GCR (**26.6% increase**) and ODR (**46.6% increase**) segments[177](index=177&type=chunk) - SG&A expenses increased by **$4.0 million (10.8%)**, primarily due to higher payroll, CEO transition costs, and stock compensation, partially offset by reduced rent and professional fees[179](index=179&type=chunk) [GCR and ODR Backlog Information](index=40&type=section&id=GCR%20and%20ODR%20Backlog%20Information) Presents backlog data for GCR and ODR segments, indicating expected revenue recognition and strategic shifts in project focus Backlog Information (in millions): | Segment | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | | GCR | $260.2 | $302.9 | | ODR | $133.0 | $108.2 | | Total | $393.2 | $411.1 | *The Company expects to recognize approximately $231.5 million of total backlog as revenue over the remainder of 2023* - GCR backlog decreased due to an intentional focus on smaller, higher-margin projects and improved project execution, while ODR backlog increased significantly due to accelerated growth in that business segment[185](index=185&type=chunk)[186](index=186&type=chunk) [Market Update](index=41&type=section&id=Market%20Update) The company continues to be impacted by global economic conditions, inflationary costs, supply chain disruptions, COVID-19, and geopolitical conflicts - The Company continues to be impacted by global economic conditions, inflationary costs, supply chain disruptions, COVID-19, and geopolitical conflicts, expecting elevated cost inflation to persist in 2023[188](index=188&type=chunk) - Mitigation strategies include pricing actions, supply chain productivity improvements, and cost savings initiatives, though impacts remain uncertain and could materially affect business[188](index=188&type=chunk)[189](index=189&type=chunk) [Outlook](index=41&type=section&id=Outlook) For 2023, the Company focuses on improving profitability, accelerating ODR growth, and enhancing GCR project execution through selective pursuit of higher-margin opportunities - For 2023, the Company focuses on improving profitability and operating cash flows, accelerating ODR growth, investing in its workforce, and enhancing GCR project execution through selective pursuit of higher-margin opportunities[190](index=190&type=chunk)[191](index=191&type=chunk) - The Company aims to increase cash flow and operating income through strategically synergistic acquisitions that address capability gaps and expand service offerings[192](index=192&type=chunk) - Management is actively reducing risk and exposure to large, complex, non-owner direct projects where historical industry pricing and associated risks do not align with stakeholder expectations[195](index=195&type=chunk) [Seasonality, Cyclicality and Quarterly Trends](index=42&type=section&id=Seasonality%2C%20Cyclicality%20and%20Quarterly%20Trends) Severe weather can impact productivity and shift revenue/gross profit recognition, while mild weather may reduce maintenance demand; operations experience mild cyclicality with increased activity in Q3 and Q4 - Severe weather can impact productivity and shift revenue/gross profit recognition, while mild weather may reduce maintenance demand; operations experience mild cyclicality with increased activity in Q3 and Q4[196](index=196&type=chunk) [Effect of Inflation and Tariffs](index=42&type=section&id=Effect%20of%20Inflation%20and%20Tariffs) The Company continues to experience higher material costs and supply chain delays, expecting these to persist through 2023, but mitigates impacts through cost escalation factors in bids and fixed-price purchase orders - The Company continues to experience higher material costs and supply chain delays, expecting these to persist through 2023, but mitigates impacts through cost escalation factors in bids and fixed-price purchase orders[197](index=197&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's liquidity needs, funding sources, cash flow activities, and working capital position - The Company's liquidity needs are primarily for working capital, capital expenditures, and strategic investments, historically funded by operating activities and borrowings from commercial banks[198](index=198&type=chunk) Summary Cash Flow Information (in thousands): | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $26,292 | $12,620 | | Net cash used in investing activities | $(1,224) | $(284) | | Net cash used in financing activities | $(15,188) | $(7,182) | | Net increase in cash, cash equivalents and restricted cash | $9,880 | $5,154 | Summarized Working Capital Information (in thousands, except ratios): | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Current assets | $199,209 | $225,990 | | Current liabilities | $(127,269) | $(159,085) | | Net working capital | $71,940 | $66,905 | | Current ratio | 1.57 | 1.42 | - The Company believes its current cash balance (**$45.9 million**), expected cash from operations, and **$35.8 million** available under the Second A&R Wintrust Revolving Loan are sufficient to meet working capital and capital expenditure requirements for at least the next 12 months[214](index=214&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the registrant is not required to provide detailed quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[223](index=223&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the period [Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures](index=47&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023 - Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[224](index=224&type=chunk) [Changes in Internal Control over Financial Reporting](index=47&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the period covered by the report - No material changes in internal control over financial reporting occurred during the period covered by the report[225](index=225&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=47&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Management acknowledges that any control system has inherent limitations and cannot provide absolute assurance of achieving desired objectives or preventing all misstatements - Management acknowledges that any control system has inherent limitations and cannot provide absolute assurance of achieving desired objectives or preventing all misstatements[226](index=226&type=chunk) [PART II](index=48&type=section&id=Part%20II) Presents legal proceedings, risk factors, equity security sales, defaults, and other information for the reporting period [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The Company refers to Note 12 for information regarding legal proceedings, which includes details on a lawsuit where an amended statement of decision awarded the plaintiff $2.2 million, and the Company is evaluating appeal options - Information regarding legal proceedings is detailed in Note 12[229](index=229&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[230](index=230&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company completed its $2.0 million share repurchase program by June 30, 2023, and issued shares from the cashless exercise of warrants, receiving no proceeds from these warrant exercises [Purchases of Equity Securities by the Issuer and the Affiliated Purchasers](index=48&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20and%20the%20Affiliated%20Purchasers) The Company completed its $2.0 million share repurchase program as of June 30, 2023, with no shares repurchased during the three and six months ended June 30, 2023 - The Company completed its **$2.0 million** share repurchase program as of June 30, 2023, with no shares repurchased during the three and six months ended June 30, 2023[231](index=231&type=chunk) [Shares Issued from the Exercise of Warrants](index=48&type=section&id=Shares%20Issued%20from%20the%20Exercise%20of%20Warrants) During the three months ended June 30, 2023, 600,000 $15 Exercise Price Sponsor Warrants and 163,444 Merger Warrants were exercised on a cashless basis, resulting in the issuance of 167,564 and 45,797 common shares, respectively, with no proceeds received by the Company - During the three months ended June 30, 2023, **600,000 $15 Exercise Price Sponsor Warrants** and **163,444 Merger Warrants** were exercised on a cashless basis, resulting in the issuance of **167,564** and **45,797 common shares**, respectively, with no proceeds received by the Company[232](index=232&type=chunk) [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities - No defaults upon senior securities[234](index=234&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[235](index=235&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) The Company is seeking Delaware Court of Chancery approval to validate stockholder actions from its 2022 Annual Meeting due to a record date exceeding the permitted 60-day maximum - The Company is seeking Delaware Court of Chancery approval to validate stockholder actions from its 2022 Annual Meeting due to a record date exceeding the permitted 60-day maximum under DGCL and Company bylaws[236](index=236&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, promotion letters, credit agreements, and certifications - The section provides a comprehensive list of exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, credit agreements, and certifications[237](index=237&type=chunk) [SIGNATURES](index=50&type=section&id=SIGNATURES) Certifies the accuracy of the report through signatures from the President, CEO, and CFO [Signatures](index=50&type=section&id=Signatures) The report is signed by Michael M. McCann, President and Chief Executive Officer, and Jayme L. Brooks, Executive Vice President and Chief Financial Officer, on August 9, 2023 - The report was signed by Michael M. McCann, President and Chief Executive Officer, and Jayme L. Brooks, Executive Vice President and Chief Financial Officer, on August 9, 2023[240](index=240&type=chunk)

Financial Data and Key Metrics Changes - Q1 revenue increased year-over-year, with gross margin expanding to 21.7% due to a higher contribution from the ODR segment [58][69] - SG&A expenses rose to $21.1 million from $18.7 million, influenced by CEO transition costs and increased stock-based compensation [59] - Cash conversion exceeded the 70% annual target, with a cash balance of $41.4 million and term debt of $19.6 million at quarter-end [7][29] Business Line Data and Key Metrics Changes - GCR gross margin improved to 16.6%, up from 11%-12% range a year ago, while ODR gross margin was 27.1% [5][58] - The ODR segment accounted for 48.5% of total revenue, up from 44.6% in Q4 2022 and 43.6% for the full year 2022 [72] Market Data and Key Metrics Changes - The demand environment remains strong, particularly in mission-critical sectors, with a focus on both short-term repairs and long-term capital expenditures [80][81] - The company is well-positioned to capitalize on infrastructure upgrades as supply chain demand eases [8] Company Strategy and Development Direction - The company aims for a long-term goal of the ODR segment contributing 70% or more to total revenue, with a focus on selective project execution [58][72] - The acquisition strategy emphasizes cultural fit and operational alignment, targeting both geographic expansion and tuck-in acquisitions [71] Management's Comments on Operating Environment and Future Outlook - Management noted that market conditions remain stable, with a focus on engaging customers and providing long-term value [62][69] - The company expects stronger revenue in the second half of the year compared to the first half, guiding towards the upper end of the revenue range [6][29] Other Important Information - The company reiterated its financial guidance for 2023, projecting total revenue between $490 million and $520 million and adjusted EBITDA between $33 million and $37 million [29] - The company has a robust acquisition pipeline and is focused on maintaining a strong balance sheet to support growth initiatives [75] Q&A Session Summary Question: Demand environment and owner direct focus - Management indicated that the demand environment is strong, particularly for mission-critical systems, with a focus on both short-term and long-term needs [80][81] Question: ODR segment and proactive relationships - Management discussed the shift from reactive to proactive relationships with customers, emphasizing the importance of data-driven solutions [90][91] Question: GCR margin perspective - Management highlighted that being selective in GCR projects allows for improved margins as the company approaches a 50-50 revenue split between ODR and GCR [88]

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) Provides basic identification details for Limbach Holdings, Inc.'s Form 10-Q filing for the quarter ended March 31, 2023 [Registrant Details](index=1&type=section&id=Registrant%20Details) Details Limbach Holdings, Inc.'s incorporation, address, and filing period for the Form 10-Q - Registrant: **LIMBACH HOLDINGS, INC.**[2](index=2&type=chunk) - Incorporation: **Delaware, USA**[2](index=2&type=chunk) - Quarterly Period Ended: **March 31, 2023**[2](index=2&type=chunk) [Securities and Filer Status](index=1&type=section&id=Securities%20and%20Filer%20Status) Limbach's common stock is listed on Nasdaq (LMB), confirming SEC compliance and filer status Title of Each Class | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.0001 per share | LMB | The Nasdaq Stock Market LLC | - Filing Compliance: Filed all required reports in the preceding 12 months and subject to filing requirements for the past 90 days (Yes). Submitted every Interactive Data File (Yes)[4](index=4&type=chunk) - Filer Status: **Non-accelerated filer** and **Smaller reporting company**[5](index=5&type=chunk) - Shell Company: **No**[6](index=6&type=chunk) - Common Stock Outstanding (as of May 5, 2023): **10,579,261 shares**[6](index=6&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) Advises readers that the report contains forward-looking statements subject to risks and uncertainties, which the company does not undertake to update [Forward-Looking Statement Disclosure](index=4&type=section&id=Forward-Looking%20Statement%20Disclosure) Details forward-looking statements, their basis, limited update obligation, and key risk factors - Forward-looking statements are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[11](index=11&type=chunk) - Statements are based on information available as of the filing date and management's current expectations, forecasts, and assumptions[12](index=12&type=chunk) - The Company does not undertake any obligations to update forward-looking statements, except as required by applicable securities laws[12](index=12&type=chunk) - Key risk factors that could cause actual results to differ include intense competition, dependence on limited customers, unexpected backlog adjustments, cost overruns, and various operational, financial, and external risks (e.g., inflation, interest rates, supply chain, cyber security, climate change)[13](index=13&type=chunk)[14](index=14&type=chunk) [Part I. Financial Information](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2023 [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q1 2023, including balance sheets, operations, equity, cash flows, and related notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the company's financial position, including assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | ASSETS | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $41,376 | $36,001 | | Accounts receivable (net) | $99,809 | $124,442 | | Contract assets | $64,190 | $61,453 | | Total current assets | $212,256 | $225,990 | | Total assets | $280,570 | $294,556 | | LIABILITIES | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Current portion of long-term debt | $9,643 | $9,564 | | Accounts payable, including retainage | $60,194 | $75,122 | | Contract liabilities | $44,875 | $44,007 | | Total current liabilities | $142,497 | $159,085 | | Total liabilities | $181,333 | $199,114 | | STOCKHOLDERS' EQUITY | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total stockholders' equity | $99,237 | $95,442 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Presents revenues, expenses, and net income (loss) for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $121,009 | $114,822 | | Cost of revenue | $94,782 | $96,482 | | Gross profit | $26,227 | $18,340 | | Total operating expenses | $21,574 | $19,133 | | Operating income (loss) | $4,653 | $(793) | | Income (loss) before income taxes | $3,615 | $(2,132) | | Net income (loss) | $2,993 | $(1,516) | | Basic EPS | $0.29 | $(0.15) | | Diluted EPS | $0.27 | $(0.15) | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Details changes in equity accounts, including common stock, additional paid-in capital, and retained earnings Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) | Item | Balance at Dec 31, 2022 | Stock-based Compensation | Shares Issued (Vested RSUs) | Tax Withholding | Shares Issued (ESPP) | Net Income | Balance at Mar 31, 2023 | | :-------------------------- | :---------------------- | :----------------------- | :-------------------------- | :-------------- | :------------------- | :--------- | :---------------------- | | Common stock | $1 | — | — | — | — | — | $1 | | Additional paid-in capital | $87,809 | $1,133 | — | $(428) | $97 | — | $88,611 | | Treasury stock, at cost | $(2,000) | — | — | — | — | — | $(2,000) | | Retained earnings | $9,632 | — | — | — | — | $2,993 | $12,625 | | **Total Stockholders' Equity** | **$95,442** | **$1,133** | **—** | **$(428)** | **$97** | **$2,993** | **$99,237** | | Item | Balance at Dec 31, 2021 | Stock-based Compensation | Shares Issued (Vested RSUs) | Tax Withholding | Shares Issued (ESPP) | Net Loss | Balance at Mar 31, 2022 | | :-------------------------- | :---------------------- | :----------------------- | :-------------------------- | :-------------- | :------------------- | :--------- | :---------------------- | | Common stock | $1 | — | — | — | — | — | $1 | | Additional paid-in capital | $85,004 | $599 | — | $(148) | $98 | — | $85,553 | | Retained earnings | $2,833 | — | — | — | — | $(1,516) | $1,317 | | **Total Stockholders' Equity** | **$87,838** | **$599** | **—** | **$(148)** | **$98** | **$(1,516)** | **$86,871** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash flows from operating, investing, and financing activities for the three months ended March 31 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $9,366 | $(2,965) | | Net cash used in investing activities | $(822) | $(130) | | Net cash (used in) provided by financing activities | $(3,169) | $6,685 | | Increase (decrease) in cash, cash equivalents and restricted cash | $5,375 | $3,590 | | Cash, cash equivalents and restricted cash, end of period | $41,489 | $18,179 | [Note 1 – Business and Organization](index=11&type=section&id=Note%201%20%E2%80%93%20Business%20and%20Organization) Describes Limbach Holdings, Inc. as a building systems solutions firm operating in GCR and ODR segments - Limbach Holdings, Inc. is a building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and controls systems[26](index=26&type=chunk) - Services include mechanical construction, HVAC service/maintenance, energy audits, engineering/design build, prefabrication, and sustainable building solutions[26](index=26&type=chunk) - Operates in two segments: General Contractor Relationships (GCR) for new construction/renovation, and Owner Direct Relationships (ODR) for direct projects, maintenance, and service[27](index=27&type=chunk) - Customers are in diverse industries including data centers, healthcare, industrial, higher education, and life sciences[26](index=26&type=chunk) [Note 2 – Significant Accounting Policies](index=11&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies) Outlines key accounting principles, estimates, and recent accounting standard adoptions impacting financial statements - Financial statements are unaudited and prepared in accordance with GAAP for interim information and Form 10-Q requirements for smaller reporting companies[29](index=29&type=chunk)[32](index=32&type=chunk) - Significant estimates include revenue recognition on construction contracts, intangibles, property and equipment, fair value accounting for acquisitions, insurance reserves, and contingent consideration[30](index=30&type=chunk) - Adopted ASU 2016-13 (Credit Losses) on **January 1, 2023**, using the modified retrospective method; no material impact on financial position or results[34](index=34&type=chunk) - Credit loss guidance is relevant to trade accounts receivable and contract assets, with greater risk identified for ODR-related service-type receivables[35](index=35&type=chunk) - Evaluated ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) and determined no significant impact, as the A&R Credit Agreement and interest rate swap now utilize SOFR[39](index=39&type=chunk) - Currently assessing the impact of ASU 2020-06 (Accounting for Convertible Instruments) which is effective for fiscal years beginning after **March 31, 2024**[40](index=40&type=chunk) [Note 3 – Revenue from Contracts with Customers](index=13&type=section&id=Note%203%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) Details revenue recognition, contract asset/liability movements, and remaining performance obligations for customer contracts - Revenue from fixed-price contracts is recognized using the cost-to-cost method; time and materials contracts are recognized as services are performed[41](index=41&type=chunk) - Contract assets (costs and estimated earnings in excess of billings) increased by **$2,700 thousand** to **$64,200 thousand** as of March 31, 2023, from **$61,500 thousand** at December 31, 2022[43](index=43&type=chunk) - Contract liabilities (billings in excess of costs and estimated earnings) increased by **$900 thousand** to **$44,900 thousand** as of March 31, 2023, from **$44,000 thousand** at December 31, 2022[46](index=46&type=chunk) - Net overbilling position for contracts in process was **$(7,200) thousand** as of March 31, 2023, an improvement from **$(10,200) thousand** at December 31, 2022[47](index=47&type=chunk) - Remaining performance obligations as of March 31, 2023: GCR **$285,700 thousand**, ODR **$101,200 thousand**. Approximately **56% of GCR** and **72% of ODR** obligations are expected to be recognized as revenue in the remainder of 2023[50](index=50&type=chunk) [Note 4 – Goodwill and Intangibles](index=15&type=section&id=Note%204%20%E2%80%93%20Goodwill%20and%20Intangibles) Reports carrying amounts of goodwill and intangible assets, primarily ODR-related, and associated amortization - Goodwill remained at **$11,400 thousand** as of March 31, 2023, and December 31, 2022, entirely associated with the ODR segment[52](index=52&type=chunk) - No impairment charges were recognized on goodwill or intangible assets during the three months ended March 31, 2023, and 2022[53](index=53&type=chunk) Intangible Assets (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total amortized intangible assets | $4,997 | $5,380 | | Total unamortized intangible assets (Trade name – Limbach) | $9,960 | $9,960 | | **Total intangible assets, excluding goodwill** | **$14,957** | **$15,340** | * Total amortization expense for definite-lived intangible assets was **$400 thousand** for both periods[54](index=54&type=chunk)[55](index=55&type=chunk) [Note 5 – Debt](index=16&type=section&id=Note%205%20%E2%80%93%20Debt) Details long-term debt, including term loans, finance leases, interest rates, and covenant compliance Long-term Debt (in thousands) | Obligation | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | A&R Wintrust Term Loan | $19,596 | $21,453 | | Finance leases | $5,716 | $4,954 | | Financing liability | $5,351 | $5,351 | | **Total debt** | **$30,663** | **$31,758** | | Less: Current portion | $(9,643) | $(9,564) | | Less: Unamortized discount/costs | $(641) | $(666) | | **Long-term debt** | **$20,379** | **$21,528** | - The A&R Wintrust Term Loan interest rate was **9.00%** at March 31, 2023, compared to **4.50%** at March 31, 2022. The weighted average annual interest rate for the three months ended March 31, 2023, was **8.68%** (vs. **4.29%** in 2022)[63](index=63&type=chunk) - No borrowings were outstanding under the A&R Wintrust Revolving Loan as of March 31, 2023, and December 31, 2022[71](index=71&type=chunk) - The Company was in compliance with all financial maintenance covenants of the A&R Wintrust Loans as of March 31, 2023[72](index=72&type=chunk) - A sale-leaseback transaction for the Pontiac Facility was accounted for as a financing transaction (finance lease) due to the significance of lease payments, resulting in a financing liability of **$4,900 thousand** (net of issuance costs) as of March 31, 2023[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) - In July 2022, the Company entered into an interest rate swap agreement with a notional amount of **$10,000 thousand** and a fixed interest rate of **3.12%** to manage variable-rate debt risk. It is not designated as a hedge for accounting purposes[69](index=69&type=chunk) [Note 6 – Equity](index=19&type=section&id=Note%206%20%E2%80%93%20Equity) Describes authorized shares, warrants, incentive plans, and the share repurchase program, detailing equity activities - Authorized shares: **100,000,000 common stock** (**$0.0001 par value**) and **1,000,000 preferred stock** (**$0.0001 par value**)[79](index=79&type=chunk) Outstanding Warrants | Warrant Type | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | $15 Exercise Price Sponsor Warrants | 600,000 | 600,000 | | Merger Warrants ($12.50 exercise price) | 629,643 | 629,643 | | **Total** | **1,229,643** | **1,229,643** | - The Omnibus Incentive Plan was amended in March 2022 to increase authorized shares by **350,000** to a total of **2,600,000 shares**[83](index=83&type=chunk) - A Share Repurchase Program of up to **$2,000 thousand** was approved in September 2022, valid through **September 29, 2023**. As of March 31, 2023, approximately **$2,000 thousand** of common stock had been repurchased[85](index=85&type=chunk) - The Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at an **85% fair market value discount**. **10,997 shares** were issued in January 2023, and **395,620 shares** remain available[86](index=86&type=chunk) [Note 7 – Fair Value Measurements](index=20&type=section&id=Note%207%20%E2%80%93%20Fair%20Value%20Measurements) Explains fair value determination for financial instruments, including debt, contingent consideration, and interest rate swaps - The fair value of financial instruments like cash, receivables, and payables approximates carrying amounts due to short-term maturities[89](index=89&type=chunk) - The fair value of the A&R Wintrust Term Loan was **$19,600 thousand** as of March 31, 2023, determined using discounted estimated future cash flows (Level 3 inputs)[89](index=89&type=chunk) - Contingent consideration for the Jake Marshall Transaction (Earnout Payments) may reach **$6,000 thousand**. A net increase of **$100 thousand** in estimated fair value was recorded for Q1 2023, with an estimated exposure of **$5,500 thousand** at March 31, 2023[90](index=90&type=chunk) - Earnout Payments are valued using the Monte Carlo Simulation method (Level 3 measurement) with a discount rate of **10.2%** as of March 31, 2023[91](index=91&type=chunk) - The interest rate swap's fair value was approximately **$200 thousand** (asset) as of March 31, 2023, recognized in other assets. A loss of **$200 thousand** was recognized in Q1 2023 due to changes in fair value (Level 2 measurement)[92](index=92&type=chunk) [Note 8 – Earnings per Share](index=21&type=section&id=Note%208%20%E2%80%93%20Earnings%20per%20Share) Presents basic and diluted earnings per share calculations, including the impact of dilutive and antidilutive securities Earnings Per Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $2,993 | $(1,516) | | Weighted average shares outstanding – basic | 10,475 | 10,421 | | Impact of dilutive securities | 565 | — | | Weighted average shares outstanding – diluted | 11,040 | 10,421 | | Basic EPS | $0.29 | $(0.15) | | Diluted EPS | $0.27 | $(0.15) | Antidilutive Securities Excluded from Diluted EPS (in thousands) | Security Type | March 31, 2023 | March 31, 2022 | | :-------------------------- | :------------- | :------------- | | Out-of-the-money warrants | 600 | 1,230 | | Service-based RSUs | — | 71 | | Performance and market-based RSUs | — | 87 | | Employee Stock Purchase Plan | 2 | 4 | | **Total** | **602** | **1,391** | [Note 9 – Income Taxes](index=22&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) Details income tax provision (benefit) and effective tax rates for the periods, noting the U.S. federal statutory rate Income Tax Provision (Benefit) and Rate (in thousands, except percentages) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Income tax provision (benefit) | $622 | $(616) | | Income tax rate | 17.2% | 28.9% | - The U.S. federal statutory tax rate was **21%** for both periods[98](index=98&type=chunk) - No valuation allowance was required as of March 31, 2023, or December 31, 2022[99](index=99&type=chunk) [Note 10 – Operating Segments](index=23&type=section&id=Note%2010%20%E2%80%93%20Operating%20Segments) Provides financial information for GCR and ODR operating segments, reflecting the revised management assessment approach - The Company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)[100](index=100&type=chunk) - Segment presentation was revised following a CEO transition in January 2023 to align with the new CODM's assessment based on segment revenue and gross profit; SG&A and interest expense are no longer allocated to segments[102](index=102&type=chunk) Condensed Consolidated Segment Information (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | **Revenue:** | | | | GCR | $62,291 | $71,932 | | ODR | $58,718 | $42,890 | | **Total revenue** | **$121,009** | **$114,822** | | **Gross profit:** | | | | GCR | $10,318 | $8,358 | | ODR | $15,909 | $9,982 | | **Total gross profit** | **$26,227** | **$18,340** | | Selling, general and administrative | $21,050 | $18,734 | | Operating income (loss) | $4,653 | $(793) | [Note 11 – Leases](index=25&type=section&id=Note%2011%20%E2%80%93%20Leases) Outlines lease arrangements for real estate and equipment, including related assets, liabilities, and costs - The Company leases real estate, trucks, and other equipment, electing not to separate non-lease components from lease components[106](index=106&type=chunk)[107](index=107&type=chunk) - A related party operating lease for land and facilities has a **10-year term** with options to extend, with base rent escalating from **$37,500/month** to **$45,000/month**[108](index=108&type=chunk) - A Southern California sublease agreement generated approximately **$300 thousand** and **$200 thousand** in income (recorded in SG&A) for the three months ended March 31, 2023 and 2022, respectively[110](index=110&type=chunk) - The Pittsburgh office lease was terminated early in March 2022, resulting in a termination fee of approximately **$700 thousand** and a **$100 thousand** loss on disposal of leasehold improvements[111](index=111&type=chunk)[112](index=112&type=chunk) Lease Amounts on Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability | Classification | March 31, 2023 | December 31, 2022 | | :-------------------------- | :-------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | Operating | $18,055 | $18,288 | | Property and equipment, net | Finance | $8,118 | $7,402 | | Current operating lease liabilities | Current Operating | $3,639 | $3,562 | | Current portion of long-term debt | Current Finance | $2,214 | $2,135 | | Long-term operating lease liabilities | Noncurrent Operating | $15,374 | $15,643 | | Long-term debt | Noncurrent Finance | $8,853 | $8,170 | | **Total lease assets** | | **$26,173** | **$25,690** | | **Total lease liabilities** | | **$30,080** | **$29,510** | Lease Costs on Condensed Consolidated Statements of Operations (in thousands) | Cost Type | Classification | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | Cost of revenue | $561 | $694 | | Operating lease cost | Selling, general and administrative | $645 | $704 | | Finance lease amortization | Cost of revenue | $631 | $651 | | Finance lease interest | Interest expense, net | $66 | $66 | | **Total lease cost** | | **$1,903** | **$2,115** | Weighted Average Lease Terms and Discount Rates | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Weighted average lease term (Operating) | **6.80 years** | **6.98 years** | | Weighted average lease term (Finance) | **2.96 years** | **2.73 years** | | Weighted average discount rate (Operating) | **4.88%** | **4.76%** | | Weighted average discount rate (Finance) | **5.67%** | **5.06%** | [Note 12 – Commitments and Contingencies](index=28&type=section&id=Note%2012%20%E2%80%93%20Commitments%20and%20Contingencies) Discusses legal proceedings, surety bonds, multi-employer pension plans, and self-insurance liabilities - The Company is involved in various legal proceedings arising in the ordinary course of business, but management believes the ultimate resolution will not have a material adverse effect on financial position[117](index=117&type=chunk) - A complaint filed by Bernards Bros. Inc. alleging damages over **$3,000 thousand** is ongoing; a loss was deemed probable as of December 31, 2022, and an estimated loss contingency was recorded[118](index=118&type=chunk) - Surety bonds outstanding totaled approximately **$109,400 thousand** as of March 31, 2023, securing payment and performance obligations[120](index=120&type=chunk) - Many craft labor employees are covered by collective bargaining agreements requiring contributions to multi-employer pension plans (MEPPs). Some MEPPs are in 'critical' status, but no significant liabilities are currently known[121](index=121&type=chunk) - The Company is substantially self-insured for workers' compensation and general liability claims (**$250 thousand per occurrence deductible**, **$4,400 thousand aggregate limit**) and for medical/dental claims (annual stop-loss limits)[122](index=122&type=chunk)[123](index=123&type=chunk) Self-Insurance Liability (in thousands) | Liability Type | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Current liability — workers' compensation and general liability | $188 | $158 | | Current liability — medical and dental | $461 | $557 | | Non-current liability | $569 | $343 | | **Total liability** | **$1,218** | **$1,058** | | Restricted cash | $113 | $113 | [Note 13 – Management Incentive Plans](index=29&type=section&id=Note%2013%20%E2%80%93%20Management%20Incentive%20Plans) Details the Omnibus Incentive Plan, including various RSU types and associated stock-based compensation expense - The Omnibus Incentive Plan authorizes **2,600,000 shares** for equity awards, including options, stock appreciation rights, restricted shares, RSUs, and performance-based awards[126](index=126&type=chunk) - Service-based RSUs vest ratably over three years (or one year for some non-employee directors). Stock-based compensation expense for these was **$400 thousand** for both Q1 2023 and Q1 2022[127](index=127&type=chunk) - Performance-based RSUs (PRSUs) are earned based on company performance against metrics like adjusted EBITDA and EPS growth over three years. Expense for PRSUs was **$700 thousand** in Q1 2023 (vs. **$200 thousand** in Q1 2022)[129](index=129&type=chunk)[130](index=130&type=chunk) - Market-based RSUs (MRSUs) expired on July 16, 2022, as the market condition (stock price achieving **$18.00** over **80 consecutive trading days**) was not met[132](index=132&type=chunk)[133](index=133&type=chunk) - Total recognized stock-based compensation expense was **$1,100 thousand** in Q1 2023 (vs. **$600 thousand** in Q1 2022). Unrecognized expense for unvested RSUs was **$6,200 thousand** at March 31, 2023, expected to be recognized over **2 years**[134](index=134&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of Q1 2023 financial condition and operating results, covering business, segment performance, and liquidity [Overview](index=32&type=section&id=Overview) Describes Limbach's business as an integrated building systems solutions firm and its strategic market focus - Limbach is an integrated building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and control systems for commercial, institutional, and light industrial markets[137](index=137&type=chunk) - The Company is winding down its Southern California GCR and ODR operations in 2023 to improve profitability and geographic focus, while remaining obligated under a sublease agreement through **April 2027**[137](index=137&type=chunk) - Core market sectors include Healthcare, Data Centers, Industrial and light manufacturing, Higher Education, Cultural and entertainment, and Life sciences[139](index=139&type=chunk) [Key Components of Condensed Consolidated Statements of Operations](index=32&type=section&id=Key%20Components%20of%20Condensed%20Consolidated%20Statements%20of%20Operations) Explains primary drivers and accounting treatment for revenue, cost of revenue, SG&A, and other income/expenses - Revenue is primarily from fixed-price construction contracts (cost-to-cost method) and time and materials service contracts (as services performed)[139](index=139&type=chunk) - Cost of Revenue includes labor, equipment, material, subcontract, and other job costs, with historical fluctuations as a percentage of contract revenue[141](index=141&type=chunk) - Selling, General and Administrative (SG&A) expenses cover personnel costs for administrative, estimating, HR, safety, IT, legal, finance, and accounting, plus non-personnel costs like travel and professional fees[142](index=142&type=chunk) - Change in fair value of contingent consideration relates to the remeasurement of Earnout Payments from the Jake Marshall Transaction, reported as a separate component of operating income[143](index=143&type=chunk) - Amortization of Intangibles includes periodic non-cash charges for favorable leasehold interests and customer relationships, with an additional **$5,700 thousand** recognized from the Jake Marshall Transaction[144](index=144&type=chunk) - Other (Expenses) Income primarily consists of interest expense, losses on disposition of property/equipment, early lease termination, and changes in fair value of interest rate swaps[145](index=145&type=chunk) - Provision for Income Taxes is calculated based on the estimated annual effective tax rate, using the asset and liability method[147](index=147&type=chunk) [Operating Segments](index=34&type=section&id=Operating%20Segments) Describes GCR and ODR operating segments and how their performance is assessed by management - The Company manages its business in two operating segments: GCR and ODR, with performance assessed by the CODM based on segment revenue and gross profit[148](index=148&type=chunk)[150](index=150&type=chunk) - Segment presentation was restated to conform to the current CODM's review, which no longer allocates SG&A or interest expense to segments[150](index=150&type=chunk)[151](index=151&type=chunk) [Comparison of Results of Operations for the three months ended March 31, 2023 and 2022](index=34&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20three%20months%20ended%20March%2031%2C%202023%20and%202022) Compares consolidated and segment-level financial performance, including revenue, gross profit, and expenses, for Q1 2023 vs Q1 2022 Consolidated Operating Results (in thousands, except percentages) | Metric | Three Months Ended March 31, 2023 | % of Revenue | Three Months Ended March 31, 2022 | % of Revenue | | :-------------------------- | :-------------------------------- | :----------- | :-------------------------------- | :----------- | | Total revenue | $121,009 | 100.0% | $114,822 | 100.0% | | Total gross profit | $26,227 | 21.7% | $18,340 | 16.0% | | Selling, general and administrative | $21,050 | 17.4% | $18,734 | 16.3% | | Operating income (loss) | $4,653 | 3.8% | $(793) | (0.7)% | | Total consolidated income before income taxes | $3,615 | 3.0% | $(2,132) | (1.9)% | | Net income (loss) | $2,993 | 2.5% | $(1,516) | (1.3)% | Revenue by Segment (in thousands, except percentages) | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | GCR | $62,291 | $71,932 | $(9,641) | (13.4)% | | ODR | $58,718 | $42,890 | $15,828 | 36.9% | | **Total revenue** | **$121,009** | **$114,822** | **$6,187** | **5.4%** | Gross Profit by Segment (in thousands, except percentages) | Segment | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | GCR | $10,318 | $8,358 | $1,960 | 23.5% | | ODR | $15,909 | $9,982 | $5,927 | 59.4% | | **Total gross profit** | **$26,227** | **$18,340** | **$7,887** | **43.0%** | | Total gross profit as % of consolidated total revenue | 21.7% | 16.0% | | | - SG&A expense increased by **$2,300 thousand** (**12.4%**) to **$21,100 thousand** in Q1 2023, primarily due to a **$1,900 thousand** increase in payroll-related expenses, **$800 thousand** in CEO transition costs, and **$500 thousand** in stock compensation expense, partially offset by decreases in rent and professional fees[157](index=157&type=chunk) - A **$100 thousand** loss was recorded for the change in fair value of contingent consideration in Q1 2023, attributable to the timing and probability of meeting gross profit margins[159](index=159&type=chunk) - Total other expenses decreased by **$300 thousand** (**22.5%**) to **$1,000 thousand** in Q1 2023, mainly due to an **$800 thousand** loss from early termination of the Pittsburgh operating lease in 2022, partially offset by increased interest expense[161](index=161&type=chunk) - Income tax provision was **$600 thousand** in Q1 2023 (**17.2% effective rate**) compared to a **$600 thousand** benefit in Q1 2022 (**28.9% effective rate**)[162](index=162&type=chunk) [GCR and ODR Backlog Information](index=36&type=section&id=GCR%20and%20ODR%20Backlog%20Information) Presents GCR and ODR backlog, indicating future revenue expectations and strategic shifts - GCR backlog decreased to **$285,700 thousand** at March 31, 2023, from **$302,900 thousand** at December 31, 2022, reflecting an intentional focus on smaller, higher-margin projects[164](index=164&type=chunk)[165](index=165&type=chunk) - ODR backlog increased to **$120,200 thousand** at March 31, 2023, from **$108,200 thousand** at December 31, 2022, driven by continued focus on accelerated growth in the ODR business[166](index=166&type=chunk) - Approximately **$261,000 thousand** of the total backlog at March 31, 2023, is expected to be recognized as revenue over the remainder of 2023[167](index=167&type=chunk) [Market Update](index=37&type=section&id=Market%20Update) Discusses current market conditions, including demand, inflation, supply chain issues, and rising interest rates - The Company is experiencing strong demand but faces challenges from global economic conditions, inflationary costs, supply chain disruptions, COVID-19, and the Russia-Ukraine conflict[168](index=168&type=chunk) - Elevated cost inflation is expected to persist in 2023, partially mitigated by pricing actions, supply chain improvements, and cost savings[168](index=168&type=chunk) - Rising interest rates are expected to increase interest expense in 2023[168](index=168&type=chunk) - Prolonged delays in critical equipment could lead to project terminations, materially impacting business[169](index=169&type=chunk) [Outlook](index=37&type=section&id=Outlook) Outlines 2023 strategic priorities: profitability, ODR growth, workforce investment, and GCR project selectivity - Strategic focus for 2023 includes improving profitability and operating cash flows, emphasizing ODR-related work, investing in the workforce, and improving GCR project execution through selectivity[170](index=170&type=chunk) - The Company aims to expand owner-direct relationships and leverage them to deliver a broad suite of services, focusing on mission-critical systems customers[171](index=171&type=chunk)[172](index=172&type=chunk) - Plans to increase cash flow and operating income by acquiring strategically synergistic companies to address capability gaps and enhance service offerings[173](index=173&type=chunk) - Actively reducing risk and exposure to large, complex, non-owner direct projects due to unfavorable industry pricing and risks[175](index=175&type=chunk) [Seasonality, Cyclicality and Quarterly Trends](index=38&type=section&id=Seasonality%2C%20Cyclicality%20and%20Quarterly%20Trends) Explains how weather and cyclical patterns influence construction project productivity and maintenance operations - Severe weather can impact productivity on construction projects, shifting revenue and gross profit recognition[176](index=176&type=chunk) - Maintenance operations are affected by mild or severe weather, with increased demand during severe conditions[176](index=176&type=chunk) - Operations experience mild cyclicality, with increased maintenance and capital projects in the third and fourth calendar quarters[176](index=176&type=chunk) [Effect of Inflation and Tariffs](index=38&type=section&id=Effect%20of%20Inflation%20and%20Tariffs) Addresses fluctuating material costs, supply chain delays, and mitigation strategies employed by the company - Prices of products like steel, pipe, copper, and equipment are subject to fluctuation and increases, materially impacting results[177](index=177&type=chunk) - Experienced higher material costs and supply chain delays in 2022 and Q1 2023, expected to persist[177](index=177&type=chunk) - Mitigation strategies include incorporating cost escalation factors into bids, limiting bid acceptance time, and using fixed-price purchase orders[177](index=177&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses cash flow, working capital, available funding, and ability to meet short- and long-term financial obligations - Liquidity needs primarily relate to working capital, capital expenditures, and strategic investments, historically funded by operating activities and borrowings[178](index=178&type=chunk) Summary Cash Flow Information (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $9,366 | $(2,965) | | Net cash used in investing activities | $(822) | $(130) | | Net cash (used in) provided by financing activities | $(3,169) | $6,685 | | Net increase in cash, cash equivalents and restricted cash | $5,375 | $3,590 | - Operating cash flows increased by **$12,300 thousand** period-over-period, primarily due to a **$44,300 thousand** cash inflow from changes in accounts receivable, including a **$10,000 thousand** claim resolution[183](index=183&type=chunk) - Investing activities used **$800 thousand** in Q1 2023, mainly for property and equipment purchases[184](index=184&type=chunk) - Financing activities used **$3,200 thousand** in Q1 2023, including term loan payments, taxes for equity awards, and finance lease payments[186](index=186&type=chunk) Summarized Working Capital Information (in thousands, except ratios) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Current assets | $212,256 | $225,990 | | Current liabilities | $(142,497) | $(159,085) | | Net working capital | $69,759 | $66,905 | | Current ratio | 1.49 | 1.42 | Available Funding Capacity (in thousands) as of March 31, 2023 | Item | Amount | | :-------------------------- | :------------ | | Cash & cash equivalents | $41,376 | | Net credit agreement capacity available (A&R Wintrust Revolving Loan) | $20,830 | | **Total available funding capacity** | **$62,206** | - The Company believes its current cash, expected cash from operations, and available credit facility will be sufficient to meet short- and long-term capital requirements for at least the next 12 months[179](index=179&type=chunk)[190](index=190&type=chunk) - Surety bonds outstanding decreased to **$109,400 thousand** at March 31, 2023, from **$129,600 thousand** at December 31, 2022. The Company has an **$800,000 thousand** bonding capacity[192](index=192&type=chunk) - The Company participates in approximately **40 multiemployer pension plans** (MEPPs) and could incur withdrawal liabilities if it ceases or significantly reduces contributions, though the amount and timing are uncertain[195](index=195&type=chunk)[197](index=197&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Limbach Holdings, Inc. is not required to provide market risk disclosures - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[198](index=198&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2023, with no material internal control changes - Disclosure controls and procedures were evaluated and deemed effective as of **March 31, 2023**[199](index=199&type=chunk) - No material changes in internal control over financial reporting occurred during the period[200](index=200&type=chunk) - Management acknowledges inherent limitations in control systems, which cannot provide absolute assurance of achieving desired objectives[201](index=201&type=chunk) [Part II](index=44&type=section&id=Part%20II) Contains other information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 12 of the financial statements for detailed information regarding legal proceedings - Refer to Note 12 for details on legal proceedings[204](index=204&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - No material changes from risk factors disclosed in the Annual Report on Form 10-K for the year ended **December 31, 2022**[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the company's **$2,000 thousand** share repurchase program, fully utilized by March 31, 2023, with no Q1 2023 repurchases - Share Repurchase Program of up to **$2,000 thousand** approved in September 2022, valid through **September 29, 2023**[206](index=206&type=chunk) - As of March 31, 2023, approximately **$2,000 thousand** of common stock was repurchased under the program[206](index=206&type=chunk) - No shares were repurchased during the three months ended March 31, 2023[206](index=206&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that the company reported no defaults upon senior securities during the period - No defaults upon senior securities[207](index=207&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the company's operations - Not applicable[208](index=208&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) Reports on the new Second Amended and Restated Credit Agreement, increasing the revolving credit facility and repaying the prior term loan - On **May 5, 2023**, the Company entered into a Second Amended and Restated Credit Agreement[209](index=209&type=chunk) - The new agreement provides a **$50,000 thousand** senior secured revolving credit facility, an increase of **$25,000 thousand**, with a maturity date of **February 24, 2028**[209](index=209&type=chunk) - The outstanding principal balance of the A&R Wintrust Term Loan was repaid using proceeds from the new revolving loan, after a prior **$9,600 thousand** repayment with cash on hand[209](index=209&type=chunk) - As of **May 8, 2023**, **$10,000 thousand** was outstanding under the Second A&R Wintrust Revolving Loan[209](index=209&type=chunk) - The new revolving loan bears interest at Term SOFR (with a **0.15% floor**) plus **3.10%** or Prime Rate (with a **3.0% floor**), subject to a **50 basis point step-down** based on the Senior Leverage Ratio[210](index=210&type=chunk) - The agreement includes customary representations, warranties, covenants, and events of default, with financial maintenance covenants for senior leverage ratio, fixed charge coverage ratio, and unfinanced capital expenditures[212](index=212&type=chunk)[213](index=213&type=chunk) [Item 6. Exhibits](index=46&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate governance, employment agreements, and the new credit agreement - Includes corporate governance documents (Certificate of Incorporation, Bylaws)[216](index=216&type=chunk) - Contains promotion letters for Michael M. McCann, Jay Sharp, and Nick Angerosa, and an employment transition agreement for Charles A. Bacon, III[216](index=216&type=chunk) - Lists the Limbach Facility Services LLC Performance Bonus Plan for Executives[216](index=216&type=chunk) - Includes the Second Amended and Restated Credit Agreement dated **May 4, 2023**, as Exhibit 10.6[216](index=216&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are provided[216](index=216&type=chunk) [Signatures](index=47&type=section&id=SIGNATURES) The report is duly signed by Limbach Holdings, Inc.'s President and CEO, and Executive Vice President and CFO - Signed by Michael M. McCann, President and Chief Executive Officer (Principal Executive Officer)[219](index=219&type=chunk) - Signed by Jayme L. Brooks, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)[219](index=219&type=chunk) - Date of Signature: **May 8, 2023**[219](index=219&type=chunk)

Financial Performance & Guidance - FY2022 revenue reached $496.8 million, with a net income of $6.8 million and diluted EPS of $0.64[4] - Adjusted EBITDA for FY2022 was $31.8 million, and the market cap was $148 million as of February 28, 2023[4] - The company had $36 million in cash and equivalents as of December 31, 2022, with zero net debt[4] - Q4 2022 ODR revenue was $79.5 million, a 13.1% year-over-year increase[23] - FY2023 Adjusted EBITDA is projected between $33 million and $37 million[101] Business Strategy & Evolution - The company is transitioning from a project-based business to a building systems solutions partner[5] - The company is shifting towards Owner Direct Relationships (ODR), with a target gross margin range of 25-28%[27, 68] - ODR revenue increased from approximately 21% in 2019 to approximately 44% in 2022, with an expected 50/50 split in 2023[82] - The company completed a $2 million share repurchase program during Q4 2022[5] Market & Growth Drivers - Strong sector tailwinds are driven by building owners focusing on ROIC and maintenance of existing facilities[5] - The company aims to accelerate growth in high-margin businesses and expand geographically[17] - The company is focused on data-driven decision-making to improve margins and provide value to customers[78]

Limbach Holdings, Inc. (NASDAQ:LMB) Q4 2022 Earnings Conference Call March 9, 2023 9:00 AM ET Company Participants Jeremy Hellman - IR Charlie Bacon - President and CEO Jayme Brooks - CFO Michael McCann - COO and Incoming-CEO Conference Call Participants Rob Brown - Lake Street Capital Chip Moore - EF Hutton Operator Greetings, and welcome to Limbach Holdings Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will fo ...

Part I [Item 1. Business](index=7&type=section&id=Item%201%2E%20Business%2E) Limbach Holdings, Inc. delivers building systems solutions, focusing on ODR growth and winding down Southern California operations - Limbach Holdings, Inc. provides comprehensive building systems solutions, including design, prefabrication, installation, management, and maintenance of HVAC, mechanical, electrical, plumbing, and controls systems[23](index=23&type=chunk) - The company serves institutions with mission-critical infrastructures such as data centers, healthcare, industrial and light manufacturing, cultural and entertainment, higher education, and life science facilities[23](index=23&type=chunk) - The company operates in two segments: General Contractor Relationships (GCR) for new construction/renovation projects and Owner Direct Relationships (ODR) for direct construction, maintenance, and services to building owners[28](index=28&type=chunk) - Strategic decision to wind down Southern California GCR and ODR operations in February 2022 to align geographic focus and reduce losses, with full exit expected in 2023[27](index=27&type=chunk) [Segments](index=7&type=section&id=Segments) The company operates in GCR and ODR segments, with GCR revenue decreasing and ODR revenue increasing in 2022 Segment Revenue and Gross Profit (2022 vs. 2021) | Segment | 2022 Revenue (Millions) | 2021 Revenue (Millions) | YoY Change (%) | 2022 Gross Profit (%) | 2021 Gross Profit (%) | |:--------|:------------------------|:------------------------|:---------------|:----------------------|:----------------------| | GCR | $280.4 | $350.0 | -19.9% | 13.8% | 13.0% | | ODR | $216.4 | $140.3 | +54.2% | 25.5% | 28.9% | - GCR revenue decrease was primarily due to a continued focus on improving project execution and profitability by pursuing smaller, shorter-duration opportunities leveraging captive design and engineering services[29](index=29&type=chunk) - ODR revenue increase was primarily due to the company's continued focus on accelerated growth of its ODR business, including establishing long-term relationships with building owners and converting GCR projects into ODR opportunities[30](index=30&type=chunk)[31](index=31&type=chunk) [Limbach Collaborative Services](index=9&type=section&id=Limbach%20Collaborative%20Services) LCS provides in-house engineering, estimating, and virtual design services, enhancing efficiency and cost-effectiveness - LCS provides captive engineering capabilities, estimating, and virtual design services to business units, building owners, and clients in both GCR and ODR segments[36](index=36&type=chunk) - LCS maintains seven registered professional engineers and approximately **31** estimators and designers, acting as the engineer of record for Design/Build specialty contractor projects[37](index=37&type=chunk) - The Limbach Modeling and Production System (LMPS) is a proprietary BIM tool used for virtual MEP system construction, conflict avoidance, rework elimination, and maximizing off-site prefabrication[37](index=37&type=chunk) [Strategy](index=9&type=section&id=Strategy) The company's strategy focuses on value creation for building owners, emphasizing ODR growth, GCR margin enhancement, and strategic acquisitions - The company's core strategy is to become an indispensable partner to building owners with mission-critical systems, focusing on profitability, quality growth, workforce investment, and strategic acquisitions[38](index=38&type=chunk)[39](index=39&type=chunk) - Principal focus is accelerated growth of the ODR segment, expanding direct owner relationships, and leveraging these to deliver a broad suite of services, including digital solutions like data analytics and energy management[39](index=39&type=chunk)[40](index=40&type=chunk) - In the GCR segment, the strategy is to improve project execution and profitability by pursuing smaller, shorter-duration opportunities that leverage captive design and engineering services[41](index=41&type=chunk) - The company aims for fully integrated operations, offering design, construction, and maintenance for HVAC, plumbing, and electrical services across all business units, including MEP Prime services[45](index=45&type=chunk) - Growth through acquisitions targets strategically synergistic companies to increase geographic footprint, supplement business models, address capability gaps, and enhance service offerings[47](index=47&type=chunk) [GCR and ODR Backlog](index=11&type=section&id=GCR%20and%20ODR%20Backlog) GCR backlog decreased by **10.17%** to **$302.9 million**, while ODR backlog increased by **10.41%** to **$108.2 million** in 2022 Backlog Summary (as of December 31) | Segment | 2022 Backlog (Millions) | 2021 Backlog (Millions) | YoY Change (%) | Estimated 2023 Revenue Recognition (%) | |:--------|:------------------------|:------------------------|:---------------|:---------------------------------------| | GCR | $302.9 | $337.2 | -10.17% | 68% | | ODR | $108.2 | $98.0 | +10.41% | 92% | - The reduction in GCR backlog is intentional, reflecting a focus on higher-margin projects and smaller, owner-direct projects[49](index=49&type=chunk) - Backlog includes estimated revenue on uncompleted contracts, including unexercised contract options, and is subject to adjustments and cancellations[49](index=49&type=chunk) [Customers](index=12&type=section&id=Customers) The company aims to expand direct relationships with building owners, with one GCR customer accounting for **11%** of 2022 consolidated revenue - Customer base primarily consists of building owners and their third-party representatives, general contractors, and construction managers[52](index=52&type=chunk) - Strategic goal is to grow direct relationships with building owners, leading to long-term maintenance services and smaller repair/installation projects[53](index=53&type=chunk) Significant GCR Segment Customers (% of Consolidated Revenue) | Year | Customer 1 | Customer 2 | |:-----|:-----------|:-----------| | 2022 | 11% | - | | 2021 | 17% | 12% | [Competition](index=12&type=section&id=Competition) The HVAC, plumbing, electrical, and maintenance industry is highly competitive and fragmented, with competition based on price, quality, and expertise - The HVAC, plumbing, electrical, and maintenance industry is highly competitive and fragmented, with numerous regional and national firms[55](index=55&type=chunk) - Key competitive factors include price, reputation for quality, ability to reduce customer costs, experience, financial strength, surety bonding capacity, local market knowledge, and customer relationships[55](index=55&type=chunk) - Challenges include price-based competition from smaller firms, increased competition from in-house service providers, and the impact of new technologies and vertical consolidation[86](index=86&type=chunk)[87](index=87&type=chunk) [Materials & Equipment](index=12&type=section&id=Materials%20%26%20Equipment) The company faces price and availability fluctuations for materials and equipment, with COVID-19 disruptions negatively impacting the GCR segment in 2022 - The company purchases materials (sheet metal, steel, copper piping, electrical conduit, wire) and equipment from numerous sources, subject to price and availability fluctuations[56](index=56&type=chunk) - Economic disruptions from COVID-19, including supply chain issues, production delays, and escalating commodity prices, have negatively impacted the business, especially the GCR segment, in 2022[56](index=56&type=chunk) - In response, the company is managing through enhanced labor planning, project scheduling, increased pricing, and leveraging supplier/customer relationships, but the impact of these disruptions and geopolitical tensions (Ukraine conflict) remains uncertain[56](index=56&type=chunk) [Human Capital](index=12&type=section&id=Human%20Capital) The company prioritizes attracting and retaining skilled employees through competitive pay, benefits, career development, and a strong safety culture - As of December 31, 2022, the company had approximately **1,500** employees, including **400** full-time salaried and **1,100** craft employees, some union-represented[59](index=59&type=chunk) - The company's core purpose is 'to create great opportunities for people,' driven by core values: We CARE, We Act with INTEGRITY, We Are INNOVATIVE, We Are ACCOUNTABLE[60](index=60&type=chunk)[61](index=61&type=chunk)[66](index=66&type=chunk) - Investments in human capital include competitive compensation/benefits, career development, safety and wellness programs, and diversity and inclusion initiatives like the Embrace Forum and Employee Resource Groups (WICS, Unidos)[44](index=44&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - The 'Hearts and Minds Commitment to Safety' program, established in 2013, emphasizes personal responsibility for safety and has earned the Ohio business unit OSHA-Voluntary Protection Programs Star Site recognition[69](index=69&type=chunk)[70](index=70&type=chunk) [Seasonality](index=16&type=section&id=Seasonality) Operations are affected by seasonality, with severe weather impacting construction productivity and maintenance service demand - Severe weather, especially in northern climates, can slow construction productivity, shifting revenue and gross profit recognition[73](index=73&type=chunk) - Maintenance operations are impacted by weather: mild weather reduces demand, while severe weather increases demand for maintenance and time-and-materials services[73](index=73&type=chunk) [Impact of the COVID-19 Pandemic](index=16&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) COVID-19 continued to cause significant economic disruptions in 2022, negatively impacting the GCR segment through project delays and reduced labor productivity - COVID-19 caused significant global disruption, including economic slowdown, supply chain impacts, and escalating commodity prices[74](index=74&type=chunk)[76](index=76&type=chunk) - In 2022, these disruptions led to significantly extended lead times, increased fuel and material costs, project delays, and reduced labor productivity and efficiency, particularly in the GCR segment[76](index=76&type=chunk) - The company is responding with enhanced labor planning, project scheduling, increased pricing, and leveraging supplier/customer relationships, but the full extent of future impacts remains unpredictable[76](index=76&type=chunk)[77](index=77&type=chunk) [Government and Environmental Regulations](index=16&type=section&id=Government%20and%20Environmental%20Regulations) The company is subject to various federal, state, and local environmental, safety, health, labor, and government contracting regulations - The company is subject to federal, state, and local laws and regulations concerning environment, workplace safety, wage and hour, immigration, and government contracting[78](index=78&type=chunk) - Compliance costs are generally passed on to customers, but future changes in regulations or non-compliance could lead to significant additional costs, penalties, or restrictions on business[79](index=79&type=chunk)[80](index=80&type=chunk) - Contracts with public authorities often impose additional requirements, including labor relations and subcontracting with disadvantaged businesses[78](index=78&type=chunk) [Climate Change and Sustainability](index=18&type=section&id=Climate%20Change%20and%20Sustainability) The company is committed to sustainability and improving its environmental footprint, recognizing its role in reducing customers' climate impact - The company is committed to sustainability and improving its environmental footprint, operating in a manner that protects health and safety[81](index=81&type=chunk) - Focus on environmental stewardship drives efforts to become more energy-efficient and helps customers reduce energy consumption and carbon footprint by replacing aging systems[81](index=81&type=chunk) - Increasing scrutiny and changing expectations from investors and customers regarding ESG practices may impose additional costs or expose the company to reputational risks[161](index=161&type=chunk)[162](index=162&type=chunk) [Available Information](index=18&type=section&id=Available%20Information) The company makes its annual, quarterly, and current reports available free of charge on its investor relations website after SEC filing - The company's annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K, respectively, are available free of charge on its website: https://www.limbachinc.com[83](index=83&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A%2E%20Risk%20Factors%2E) The company faces significant risks across its business, industry, and common stock ownership, including competition, operational challenges, and external factors - The company's business involves significant risks and uncertainties, including intense competition, challenges in managing operational size and costs, and dependence on a limited number of customers[17](index=17&type=chunk)[18](index=18&type=chunk)[86](index=86&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - Operational risks include potential cost overruns in contracts, delays in customer payments, unsatisfactory safety performance, inability to properly utilize the workforce, and labor disputes[19](index=19&type=chunk)[91](index=91&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - External risks include rising inflation and/or interest rates, deterioration of the U.S. economy, the ongoing military conflict between Ukraine and Russia, and the adverse effects of future climate change[20](index=20&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[156](index=156&type=chunk) - Risks related to common stock ownership include price volatility, potential dilution from future equity issuances, and provisions in organizational documents that could delay or prevent a change in control[170](index=170&type=chunk)[173](index=173&type=chunk)[176](index=176&type=chunk) [Risks Related to Our Business and Industry](index=18&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) The company faces intense competition, operational management challenges, customer dependence, and financial risks from cost overruns and payment delays - Intense industry competition, especially on price, could reduce market share and profit, with challenges from smaller competitors and in-house service providers[86](index=86&type=chunk)[87](index=87&type=chunk) - Dependence on a limited number of customers (one GCR customer accounted for **11%** of 2022 revenue) and the unpredictable nature of contract backlog pose risks to business and results of operations[89](index=89&type=chunk)[90](index=90&type=chunk) - Cost overruns in fixed-price contracts, delays in customer payments, and failure to recover on claims against project participants can lead to reduced profits or losses[91](index=91&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - Risks associated with human capital include inability to attract/retain qualified personnel, labor disputes (union and open shop operations), and potential negative impacts from strikes or work stoppages[115](index=115&type=chunk)[116](index=116&type=chunk)[119](index=119&type=chunk) - External economic and geopolitical risks include rising inflation and interest rates, potential U.S. economy deterioration, and the unstable market conditions caused by the Ukraine-Russia conflict, which could increase costs and disrupt supply chains[136](index=136&type=chunk)[137](index=137&type=chunk) - Compliance with environmental, safety, health, and government contracting regulations, as well as the evolving landscape of climate change and ESG expectations, could impose significant costs and reputational risks[156](index=156&type=chunk)[161](index=161&type=chunk)[166](index=166&type=chunk)[168](index=168&type=chunk) [Risks Related to Ownership of Our Common Stock](index=35&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Common stock price may be volatile, future equity issuances could cause dilution, and anti-takeover provisions could delay a change in control - The market price of common stock has been and may continue to be volatile, influenced by operational results, analyst recommendations, economic conditions, and industry trends[170](index=170&type=chunk) - Future sales of substantial amounts of common stock or additional equity issuances could lead to dilution and a decline in stock price[171](index=171&type=chunk)[173](index=173&type=chunk) - The company has not declared dividends on common stock and does not anticipate doing so in the foreseeable future[175](index=175&type=chunk) - Organizational documents include provisions (e.g., classified board, restrictions on stockholder actions, undesignated preferred stock) that could delay or prevent a change in control, potentially affecting the common stock price[176](index=176&type=chunk)[177](index=177&type=chunk) [Risks Related to Ownership of Our Warrants](index=37&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Warrants) Warrant terms can be amended by majority holders, and the company may redeem unexpired warrants, potentially rendering them worthless - Terms of the **$15** Exercise Price Warrants can be amended with the approval of a majority of holders, potentially increasing exercise price, converting to stock/cash, shortening exercise period, or decreasing warrant shares[179](index=179&type=chunk)[180](index=180&type=chunk) - The company may redeem unexpired **$15** Exercise Price Warrants at **$0.01** per warrant if common stock price exceeds **$24.00** for **20** trading days within a **30-day** period, potentially making them worthless[181](index=181&type=chunk)[182](index=182&type=chunk) [General Risk Factors](index=38&type=section&id=General%20Risk%20Factors) Failures in controls, legal proceedings, force majeure events, and changes in tax laws could materially impact the company's financial condition - Failure or circumvention of disclosure controls and procedures or internal controls over financial reporting could seriously harm financial condition, results of operations, and business[183](index=183&type=chunk)[184](index=184&type=chunk) - Actual and potential claims, lawsuits, and proceedings (e.g., personal injury, breach of contract, employment law violations) could reduce profitability and liquidity, and weaken financial condition[185](index=185&type=chunk) - Force majeure events (natural disasters, terrorist actions) and deliberate malicious acts could damage facilities, disrupt operations, injure personnel, and result in liability[186](index=186&type=chunk)[187](index=187&type=chunk) - Changes in federal or state tax laws or regulations could increase the tax burden and adversely affect financial position, results of operations, cash flows, and liquidity[188](index=188&type=chunk) [Item 1B. Unresolved Staff Comments](index=39&type=section&id=Item%201B%2E%20Unresolved%20Staff%20Comments%2E) The company has no unresolved staff comments to report [Item 2. Properties](index=39&type=section&id=Item%202%2E%20Properties%2E) As of December 31, 2022, the company maintains its principal executive offices in Warrendale, Pennsylvania, and operates 17 leased offices across the eastern U.S. - The company's principal executive offices are in Warrendale, Pennsylvania, and it operates **17** leased offices throughout the eastern United States[190](index=190&type=chunk) - All business units support both GCR and ODR operating segments, and current facilities are deemed suitable and adequate for current needs[190](index=190&type=chunk) - In September 2022, Limbach Company LLC consummated a sale and leaseback transaction for its Pontiac, Michigan property, entering into a lease agreement for the facility[191](index=191&type=chunk) - The company entered into an amendment in Q1 2022 to expand a sublease agreement for its Southern California leased space, despite winding down operations in that region[192](index=192&type=chunk) [Item 3. Legal Proceedings](index=40&type=section&id=Item%203%2E%20Legal%20Proceedings%2E) The company refers to Note 13 – Commitments and Contingencies for information regarding its legal proceedings - Information on legal proceedings is provided in Note 13 – Commitments and Contingencies[193](index=193&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204%2E%20Mine%20Safety%20Disclosures%2E) The company states that mine safety disclosures are not applicable - Mine Safety Disclosures are not applicable to the company[194](index=194&type=chunk) [Information About Our Executive Officers](index=40&type=section&id=Information%20About%20Our%20Executive%20Officers) Executive officers include Charles A. Bacon, III (President, CEO, and Director), Jayme L. Brooks (EVP and CFO), and Michael M. McCann (EVP and COO) Executive Officers | Name | Age | Title | |:--------------------|:----|:---------------------------------------| | Charles A. Bacon, III | 62 | President, Chief Executive Officer and Director | | Jayme L. Brooks | 52 | Executive Vice President and Chief Financial Officer | | Michael M. McCann | 41 | Executive Vice President and Chief Operating Officer | - Charles A. Bacon, III will step down as President and CEO on March 28, 2023, and Michael M. McCann will be appointed as his successor[195](index=195&type=chunk) - Jayme L. Brooks has served as Executive Vice President and CFO since October 2019, with prior experience at Capstone Turbine Corporation[196](index=196&type=chunk) - Michael M. McCann has been Executive Vice President and COO since November 2019, having joined the company in 2010[197](index=197&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205%2E%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities%2E) The company's common stock trades on The Nasdaq Capital Market under 'LMB', with a **$2.0 million** share repurchase program completed by December 31, 2022 - The company's common stock is traded on The Nasdaq Capital Market under the symbol 'LMB'[199](index=199&type=chunk) - As of March 7, 2023, there were **41** holders of record for common stock and **10,449,689** shares outstanding[5](index=5&type=chunk)[200](index=200&type=chunk) - In September 2022, the Board approved a **$2.0 million** share repurchase program, valid through September 29, 2023[201](index=201&type=chunk) Share Repurchase Program Activity (Q4 2022) | Period | Shares Purchased | Average Price Per Share | Approximate Dollar Value Remaining | |:------------------------|:-----------------|:------------------------|:-----------------------------------| | November 1 - 30, 2022 | 78,116 | $10.50 | $1,177,742 | | December 1 - 31, 2022 | 101,536 | $11.57 | $5,540 | | **Total (as of Dec 31, 2022)** | **179,652** | **$11.10** | **$5,540** | [Item 6. [Reserved]](index=41&type=section&id=Item%206%2E%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%2E) This section reviews the company's business, financial statements, and operating results for 2022 and 2021, highlighting strategic shifts and the 2023 outlook - The company is an integrated building systems solutions firm specializing in HVAC, mechanical, electrical, plumbing, and control systems for commercial, institutional, and light industrial markets[205](index=205&type=chunk) - Strategic decision to wind down Southern California GCR and ODR operations in February 2022 to improve geographic focus and reduce losses, with full exit expected in 2023[206](index=206&type=chunk) - The company operates in two segments: GCR (new construction/renovation) and ODR (owner-direct projects/maintenance), with a primary focus on accelerating ODR growth[207](index=207&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - Economic disruptions, including supply chain issues, production delays, and escalating commodity prices, negatively impacted the business in 2022, particularly the GCR segment[223](index=223&type=chunk)[238](index=238&type=chunk) - Outlook for 2023 focuses on improving profitability and operating cash flows, emphasizing ODR-related work, investing in the workforce, and improving GCR project execution through selective pursuit of higher-margin projects[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[245](index=245&type=chunk) [Overview](index=41&type=section&id=Overview) Limbach Holdings, Inc. is an integrated building systems solutions firm specializing in mission-critical systems across various sectors, operating through GCR and ODR segments - Limbach Holdings, Inc. is an integrated building systems solutions firm with expertise in design, prefabrication, installation, management, and maintenance of HVAC, mechanical, electrical, plumbing, and control systems[205](index=205&type=chunk) - The company operates primarily in the Northeast, Mid-Atlantic, Southeast, and Midwest regions of the United States[205](index=205&type=chunk) - Core market sectors include healthcare, data centers, industrial and light manufacturing, higher education, cultural and entertainment, and life science facilities, all with mission-critical systems[207](index=207&type=chunk) - The company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR), performing work under fixed price, modified fixed price, and time and material contracts[207](index=207&type=chunk) [Key Components of Consolidated Statements of Operations](index=42&type=section&id=Key%20Components%20of%20Consolidated%20Statements%20of%20Operations) Revenue is primarily from fixed-price construction contracts, with costs including labor and materials, and SG&A covering administrative and compliance expenses - Revenue is primarily generated from fixed-price construction contracts (HVAC, plumbing, electrical) recognized using the cost-to-cost method, and time and materials service contracts recognized as services are performed[208](index=208&type=chunk) - Cost of revenue comprises labor, equipment, material, subcontract, and other job costs, including estimated contract losses[210](index=210&type=chunk) - Selling, General and Administrative (SG&A) expenses include personnel costs for administrative, estimating, HR, safety, IT, legal, finance, and accounting, as well as public company compliance costs[211](index=211&type=chunk)[212](index=212&type=chunk) - Change in fair value of contingent consideration relates to the remeasurement of earnout payments from the Jake Marshall Transaction[213](index=213&type=chunk) - Amortization of intangibles includes periodic non-cash charges for favorable leasehold interests and customer relationships, with an additional **$5.7 million** recognized from the Jake Marshall Transaction[214](index=214&type=chunk) - Other (expenses) income primarily consists of interest expense, losses on lease termination or debt extinguishment, and changes in fair value of interest rate swaps and warrant liability[215](index=215&type=chunk) - The company is taxed as a C corporation, and its income tax provision is calculated based on the estimated annual effective tax rate using the asset and liability method[216](index=216&type=chunk)[217](index=217&type=chunk) [Operating Segments](index=43&type=section&id=Operating%20Segments) The company manages its business in GCR and ODR segments, with performance evaluated based on income from operations after allocating corporate expenses - The company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)[218](index=218&type=chunk) - The Chief Operating Decision Maker (CODM) evaluates performance based on income from operations after allocating corporate office operating expenses[219](index=219&type=chunk) - Interest expense is not allocated to segments due to corporate management of debt service[219](index=219&type=chunk) [Comparison of Results of Operations for the years ended December 31, 2022 and 2021](index=44&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20years%20ended%20December%2031%2C%202022%20and%202021) Total revenue increased by **1.3%** to **$496.8 million** in 2022, driven by a **54.2%** surge in ODR revenue, resulting in a net income of **$6.8 million** Consolidated Statement of Operations Data (2022 vs. 2021) | Metric | 2022 (Thousands) | 2021 (Thousands) | YoY Change (%) | |:-------------------------------------------|:-----------------|:-----------------|:---------------| | Total Revenue | $496,782 | $490,351 | 1.3% | | GCR Revenue | $280,379 | $350,015 | -19.9% | | ODR Revenue | $216,403 | $140,336 | 54.2% | | Total Gross Profit | $93,741 | $85,910 | 9.1% | | GCR Gross Profit % | 13.8% | 13.0% | +0.8 pp | | ODR Gross Profit % | 25.5% | 28.9% | -3.4 pp | | Total Selling, General and Administrative | $77,879 | $71,436 | 9.0% | | Change in fair value of contingent consideration | $2,285 | $0 | N/A | | Amortization of intangibles | $1,567 | $484 | 223.8% | | Total Operating Income | $12,010 | $13,990 | -14.2% | | Net Income | $6,799 | $6,714 | 1.3% | | Basic EPS | $0.65 | $0.67 | -3.0% | | Diluted EPS | $0.64 | $0.66 | -3.0% | - GCR revenue decreased due to a focus on smaller, higher-margin projects and the wind-down of Southern California operations, while ODR revenue increased due to accelerated growth initiatives and the Jake Marshall Transaction[222](index=222&type=chunk) - Total gross profit percentage increased from **17.5%** to **18.9%**, mainly driven by a mix shift towards higher-margin ODR segment work and a **$1.3 million** gross profit write-up from a prior claim settlement[224](index=224&type=chunk) - SG&A expense increased primarily due to costs from the Jake Marshall Transaction (**$5.9 million**) and an estimated loss contingency accrual (**$2.2 million**)[227](index=227&type=chunk) - Amortization of intangibles increased significantly by **$1.1 million** (**223.8%**) due to intangible assets acquired in the Jake Marshall Transaction[229](index=229&type=chunk) - Other expenses decreased due to refinancing higher interest rate debt, a prior year loss on early debt extinguishment, and a gain on interest rate swap, partially offset by a loss on early termination of an operating lease[231](index=231&type=chunk) [GCR and ODR Backlog Information](index=48&type=section&id=GCR%20and%20ODR%20Backlog%20Information) GCR backlog decreased by **10.17%** to **$302.9 million**, while ODR backlog increased by **10.41%** to **$108.2 million** as of December 31, 2022 - Backlog represents estimated revenue on uncompleted contracts, including unexercised contract options, and is subject to unexpected adjustments and cancellations[233](index=233&type=chunk) Backlog Summary (as of December 31) | Segment | 2022 Backlog (Millions) | 2021 Backlog (Millions) | YoY Change (%) | Estimated 2023 Revenue Recognition (%) | |:--------|:------------------------|:------------------------|:---------------|:---------------------------------------| | GCR | $302.9 | $337.2 | -10.17% | 68% | | ODR | $108.2 | $98.0 | +10.41% | 92% | - The reduction in GCR backlog is intentional, reflecting a strategic shift to focus on higher-margin, smaller owner-direct projects[234](index=234&type=chunk) - ODR backlog increased due to the company's continued focus on accelerated growth in its ODR business[235](index=235&type=chunk) [COVID-19 and Market Update](index=49&type=section&id=COVID-19%20and%20Market%20Update) COVID-19 continued to cause significant economic disruptions in 2022, negatively impacting the GCR segment through project delays and reduced labor productivity - COVID-19 caused significant global disruption, including economic slowdown, supply chain impacts, and escalating commodity prices, which continued to negatively impact the business in 2022[236](index=236&type=chunk)[238](index=238&type=chunk) - Disruptions in 2022 manifested as significantly extended lead times, increased fuel and material costs, project delays, and reduced labor productivity and efficiency, particularly within the GCR segment[238](index=238&type=chunk) - The company is taking steps to mitigate impacts through enhanced labor planning, project scheduling, increased pricing, and leveraging relationships, but the evolving nature of these circumstances and the Ukraine conflict add uncertainty[238](index=238&type=chunk)[239](index=239&type=chunk) [Outlook for 2023](index=49&type=section&id=Outlook%20for%202023) For 2023, the company plans to focus on improving profitability and operating cash flows, emphasizing ODR growth and selective GCR project execution - The 2023 outlook focuses on improving profitability, operating cash flows, and maintaining sufficient liquidity[240](index=240&type=chunk) - Continued focus on ODR-related work, emphasizing dedicated account relationships and expanding owner-direct offerings, including digital solutions[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - Investment in the workforce through training and hiring experienced employees to support ODR growth[240](index=240&type=chunk)[242](index=242&type=chunk) - Improve GCR project execution and profitability by remaining selective and reducing exposure to large, complex, non-owner direct projects due to misaligned industry pricing and risks[240](index=240&type=chunk)[245](index=245&type=chunk) [Seasonality, Cyclicality and Quarterly Trends](index=50&type=section&id=Seasonality%2C%20Cyclicality%20and%20Quarterly%20Trends) Operations are subject to seasonality, with severe weather impacting construction productivity and maintenance demand, and mild cyclicality in capital projects - Severe weather, particularly in northern climates, can slow construction productivity, shifting revenue and gross profit recognition to later periods[246](index=246&type=chunk) - Mild weather tends to reduce demand for maintenance services, while severe weather may increase demand for maintenance and time-and-materials services[246](index=246&type=chunk) - The company's operations experience mild cyclicality, with increased maintenance and capital projects typically in the third and fourth calendar quarters[246](index=246&type=chunk) [Effect of Inflation and Tariffs](index=50&type=section&id=Effect%20of%20Inflation%20and%20Tariffs) The company faces fluctuating material and equipment prices due to inflation, tariffs, and supply chain disruptions, which are expected to persist in 2023 - Prices for materials (steel, pipe, copper) and equipment are subject to fluctuations and increases due to inflation, tariffs, and supply chain disruptions[247](index=247&type=chunk) - Higher material costs and supply chain delays for equipment and service vehicles were experienced in 2022 and are expected to persist in 2023[247](index=247&type=chunk) - Mitigation strategies include incorporating cost escalation factors into bids, limiting bid acceptance time, and entering into fixed-price purchase orders[247](index=247&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=58&type=section&id=Item%207A%2E%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk%2E) As a smaller reporting company, Limbach Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[297](index=297&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=59&type=section&id=Item%208%2E%20Financial%20Statements%20and%20Supplementary%20Data%2E) This section presents the audited consolidated financial statements for 2022 and 2021, including balance sheets, statements of operations, equity, cash flows, and comprehensive notes - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[300](index=300&type=chunk) - The financial statements present fairly, in all material respects, the financial position as of December 31, 2022 and 2021, and results of operations and cash flows for the two years ended December 31, 2022, in conformity with GAAP[303](index=303&type=chunk) - A critical audit matter identified was the evaluation of variable consideration and estimated costs at completion for fixed-price construction-type contracts due to high subjectivity and significant auditor judgment[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) [Report of Independent Registered Public Accounting Firm](index=60&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Crowe LLP issued an unqualified opinion on the company's consolidated financial statements, highlighting variable consideration and estimated costs for fixed-price contracts as a critical audit matter - Crowe LLP issued an unqualified opinion, stating the financial statements present fairly the company's financial position and results of operations for the periods ended December 31, 2022 and 2021[303](index=303&type=chunk) - The critical audit matter identified was the evaluation of variable consideration and estimated costs at completion for fixed-price construction-type contracts, due to the significant judgment and estimates required[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) [Consolidated Balance Sheets](index=62&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$294.6 million** in 2022, driven by higher cash and accounts receivable, while total liabilities also rose to **$199.1 million** Consolidated Balance Sheet Summary (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | |:---------------------------|:-------------|:-------------| | Total Assets | $294,556 | $267,512 | | Current Assets | $225,990 | $192,906 | | Cash and cash equivalents | $36,001 | $14,476 | | Accounts receivable, net | $124,442 | $89,327 | | Contract assets | $61,453 | $83,863 | | Total Liabilities | $199,114 | $179,674 | | Current Liabilities | $159,085 | $129,742 | | Accounts payable, incl. retainage | $75,122 | $63,840 | | Contract liabilities | $44,007 | $26,712 | | Long-term debt | $21,528 | $29,816 | | Total Stockholders' Equity | $95,442 | $87,838 | - Cash and cash equivalents increased significantly from **$14.5 million** in 2021 to **$36.0 million** in 2022[315](index=315&type=chunk) - Accounts receivable, net, increased by **$35.1 million**, while contract assets decreased by **$22.4 million**[315](index=315&type=chunk) - Long-term debt decreased from **$29.8 million** in 2021 to **$21.5 million** in 2022[315](index=315&type=chunk) [Consolidated Statements of Operations](index=64&type=section&id=Consolidated%20Statements%20of%20Operations) Net income slightly increased to **$6.8 million** in 2022 on **$496.8 million** total revenue, with gross profit improving to **18.9%** despite higher operating expenses Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | 2022 | 2021 | |:-------------------------------------------|:---------|:---------| | Revenue | $496,782 | $490,351 | | Cost of revenue | $403,041 | $404,441 | | Gross profit | $93,741 | $85,910 | | Selling, general and administrative | $77,879 | $71,436 | | Change in fair value of contingent consideration | $2,285 | $0 | | Amortization of intangibles | $1,567 | $484 | | Operating income | $12,010 | $13,990 | | Total other expenses | $(2,402) | $(4,513) | | Income before income taxes | $9,608 | $9,477 | | Income tax provision | $2,809 | $2,763 | | Net income | $6,799 | $6,714 | | Basic EPS | $0.65 | $0.67 | | Diluted EPS | $0.64 | $0.66 | - Gross profit increased by **$7.8 million** (**9.1%**) year-over-year, while operating income decreased by **$1.98 million** (**14.2%**)[318](index=318&type=chunk) - Other expenses decreased significantly from **$(4.5) million** in 2021 to **$(2.4) million** in 2022, primarily due to the absence of a loss on early debt extinguishment in 2022[318](index=318&type=chunk) [Consolidated Statements of Stockholders' Equity](index=65&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased to **$95.4 million** in 2022, driven by net income and stock-based compensation, partially offset by share repurchases Consolidated Statements of Stockholders' Equity Summary (in thousands, except share amounts) | Metric | Dec 31, 2022 | Dec 31, 2021 | |:----------------------------------------|:-------------|:-------------| | Balance at January 1 | $87,838 | $53,732 | | Net income | $6,799 | $6,714 | | Additional paid-in capital | $87,809 | $85,004 | | Treasury stock, at cost | $(2,000) | $0 | | Retained earnings | $9,632 | $2,833 | | Total Stockholders' Equity | **$95,442** | **$87,838** | | Common stock shares outstanding (end of year) | 10,291,758 | 10,304,242 | - The increase in stockholders' equity was primarily due to net income and stock-based compensation, partially offset by share repurchases[320](index=320&type=chunk) - The company repurchased **179,652** shares of common stock for **$2.0 million** under its Share Repurchase Program in 2022[320](index=320&type=chunk) [Consolidated Statements of Cash Flows](index=66&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to **$35.4 million** in 2022, driven by changes in contract assets and liabilities Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | |:---------------------------------------|:---------|:----------| | Net cash provided by (used in) operating activities | $35,373 | $(24,233) | | Net cash used in investing activities | $(495) | $(19,303) | | Net cash (used in) provided by financing activities | $(13,353) | $15,865 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $21,525 | $(27,671) | | Cash, cash equivalents and restricted cash, end of year | $36,114 | $14,589 | - Operating cash flows increased by **$59.6 million** year-over-year, primarily driven by a **$75.2 million** cash inflow from changes in contract assets and liabilities and a **$16.9 million** change in accounts payable[253](index=253&type=chunk)[322](index=322&type=chunk) - Investing activities in 2021 included **$19.0 million** for the Jake Marshall Transaction, which was not present in 2022[256](index=256&type=chunk)[322](index=322&type=chunk) - Financing activities in 2022 included **$13.4 million** in principal debt payments and **$2.0 million** in common stock repurchases, partially offset by **$5.4 million** from a sale-leaseback transaction[258](index=258&type=chunk)[322](index=322&type=chunk) [Notes to Consolidated Financial Statements](index=68&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the company's business, accounting policies, acquisitions, revenue recognition, assets, debt, equity, and various commitments and contingencies [Note 1 – Business and Organization](index=68&type=section&id=Note%201%20%E2%80%93%20Business%20and%20Organization) Limbach Holdings, Inc. is a Delaware corporation providing building systems solutions for mission-critical infrastructure, operating in GCR and ODR segments - Limbach Holdings, Inc. is a building systems solutions firm specializing in design, prefabrication, installation, management, and maintenance of HVAC, mechanical, electrical, plumbing, and controls systems[326](index=326&type=chunk) - The company serves customers in diverse industries with mission-critical infrastructures, including data centers, healthcare, industrial, higher education, cultural/entertainment, and life science facilities[326](index=326&type=chunk) - Operations are divided into two segments: GCR (new construction/renovation for general contractors) and ODR (owner-direct projects/maintenance services)[327](index=327&type=chunk) [Note 2 – Significant Accounting Policies](index=68&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies) The company's financial statements adhere to GAAP, requiring significant estimates for revenue recognition, fair value, and insurance reserves, with specific policies for cash, receivables, and goodwill impairment - Financial statements are prepared in accordance with GAAP, requiring significant estimates and assumptions for revenue recognition, fair value accounting, insurance reserves, and income tax valuation allowances[328](index=328&type=chunk)[330](index=330&type=chunk) - Revenue from construction-type contracts is recognized over time using the cost-to-cost method, while service contracts are recognized as services are performed or on a straight-line basis[347](index=347&type=chunk)[349](index=349&type=chunk) - Variable consideration (e.g., pending change orders, claims) is included in the transaction price only if it is probable that a significant future revenue reversal will not occur[341](index=341&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk) - The company adopted ASU 2021-08 (Business Combinations) early in December 2021 and ASU 2016-13 (Credit Losses) on January 1, 2023, with no material impact on financial position or results[379](index=379&type=chunk)[380](index=380&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually (October 1) or more frequently if indicators arise, using qualitative or quantitative assessments[358](index=358&type=chunk) [Note 3 – Acquisitions](index=77&type=section&id=Note%203%20%E2%80%93%20Acquisitions) On December 2, 2021, the company acquired JMLLC and CSLLC for **$21.3 million** cash plus potential earnouts, recognizing **$5.2 million** in goodwill and **$5.7 million** in intangible assets - The Jake Marshall Transaction closed on December 2, 2021, with the acquisition of JMLLC and CSLLC, expanding the company's market share[389](index=389&type=chunk) - Total consideration was **$21.3 million** cash at closing, plus potential earnout payments up to **$6.0 million** based on gross profit targets for 2022 and 2023[390](index=390&type=chunk) - The acquisition resulted in the recognition of **$5.2 million** in goodwill, allocated to the ODR segment, and **$5.7 million** in intangible assets (customer relationships, trade name, backlog)[392](index=392&type=chunk)[393](index=393&type=chunk) [Note 4 – Revenue from Contracts with Customers](index=78&type=section&id=Note%204%20%E2%80%93%20Revenue%20from%20Contracts%20with%20Customers) Contract assets decreased by **$22.4 million** to **$61.5 million** in 2022, while contract liabilities increased by **$17.3 million** to **$44.0 million**, shifting to a net overbilling position - Revenue from construction-type contracts is recognized using the cost-to-cost method, and from time and materials contracts as services are performed[394](index=394&type=chunk) Contract Assets and Liabilities (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | Change (YoY) | |:---------------------------|:-------------|:-------------|:-------------| | Total Contract Assets | $61,453 | $83,863 | $(22,410) | | Total Contract Liabilities | $44,007 | $26,712 | $17,295 | | Net (overbilling) underbilling | $(10,233) | $21,154 | $(31,387) | - In 2022, the company recorded material gross profit write-ups of **$3.0 million** on three GCR projects and write-downs of **$2.8 million** on four GCR projects, resulting in a net positive impact of **$0.5 million** or more[402](index=402&type=chunk) Remaining Performance Obligations (as of Dec 31, 2022) | Segment | Amount (Millions) | Estimated 2023 Revenue Recognition (%) | |:--------|:------------------|:---------------------------------------| | GCR | $302.9 | 68% | | ODR | $90.0 | 90% | [Note 5 – Goodwill and Intangible Assets](index=80&type=section&id=Note%205%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) Goodwill remained at **$11.4 million** in 2022 with no impairment, while definite-lived intangible assets totaled **$5.4 million** net, amortized over 0.5 to 8.0 years - Goodwill was **$11.4 million** as of December 31, 2022 and 2021, entirely associated with the ODR segment[406](index=406&type=chunk)[411](index=411&type=chunk) - A quantitative impairment assessment in Q4 2022 for the ODR reporting unit showed **$47.2 million** (**194%**) headroom, resulting in no goodwill impairment[408](index=408&type=chunk) Net Intangible Assets (excluding goodwill, in thousands) | Asset Type | Dec 31, 2022 | Dec 31, 2021 | |:-----------------------------------------|:-------------|:-------------| | Total amortized intangible assets | $5,380 | $6,947 | | Total unamortized intangible assets (Limbach trade name) | $9,960 | $9,960 | | **Total** | **$15,340** | **$16,907** | - Total amortization expense for definite-lived intangible assets was **$1.6 million** in 2022, up from **$0.5 million** in 2021, largely due to assets acquired in the Jake Marshall Transaction[415](index=415&type=chunk) Estimated Amortization Expense for Definite-Lived Intangibles (in thousands) | Year | Estimated Amortization Expense | |:-----|:-------------------------------| | 2023 | $1,211 | | 2024 | $867 | | 2025 | $830 | | 2026 | $800 | | 2027 | $776 | | 2028 and thereafter | $896 | | **Total** | **$5,380** | [Note 6 – Accrued Expenses and Other Current Liabilities](index=83&type=section&id=Note%206%20%E2%80%93%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities totaled **$24.9 million** in 2022, including **$9.7 million** for bonus/commissions and a **$2.2 million** estimated loss contingency Accrued Expenses and Other Current Liabilities (in thousands) | Category | Dec 31, 2022 | Dec 31, 2021 | |:---------------------------------------|:-------------|:-------------| | Accrued payroll and related liabilities | $4,545 | $8,169 | | Accrued bonus and commissions | $9,682 | $7,352 | | Accrued insurance liabilities | $715 | $719 | | Accrued job costs | $1,913 | $3,772 | | Assurance-type warranty liabilities | $1,581 | $3,310 | | Estimated loss contingency | $2,182 | $0 | | Earnout Payments accrued, current | $2,859 | $0 | | Other accrued liabilities | $1,465 | $1,122 | | **Total** | **$24,942** | **$24,444** | - Assurance-type warranty liabilities decreased by **$1.7 million** in 2022, with accruals for new warranties at **$0.3 million** and settlements at **$1.5 million**[418](index=418&type=chunk)[419](index=419&type=chunk) - An estimated loss contingency of **$2.2 million** was recorded in 2022, related to a legal proceeding[418](index=418&type=chunk)[481](index=481&type=chunk) [Note 7 – Debt](index=84&type=section&id=Note%207%20%E2%80%93%20Debt) Total debt decreased to **$31.8 million** in 2022, including the A&R Wintrust Term Loan and a **$5.4 million** financing liability from a sale-leaseback transaction Long-Term Debt Obligations (in thousands) | Obligation | Dec 31, 2022 | Dec 31, 2021 | |:-----------------------------------------|:-------------|:-------------| | A&R Wintrust Term Loan | $21,453 | $34,881 | | Finance leases | $4,954 | $5,132 | | Financing liability (Sale-Leaseback) | $5,351 | $0 | | **Total Debt** | **$31,758** | **$40,013** | | Less - Current portion | $(9,564) | $(9,879) | | Less - Unamortized discount & issuance costs | $(666) | $(318) | | **Long-term debt** | **$21,528** | **$29,816** | - The company refinanced its debt in February 2021, resulting in a **$2.0 million** loss on early extinguishment of debt[421](index=421&type=chunk) - The A&R Wintrust Credit Agreement (amended in December 2021) provides a **$35.5 million** term loan and a **$25 million** revolving credit facility, with the term loan bearing interest at Term SOFR plus a margin[435](index=435&type=chunk)[436](index=436&type=chunk) - A sale-leaseback transaction for the Pontiac Facility in September 2022 was accounted for as a **$5.4 million** financing liability, with a **25-year** term[445](index=445&type=chunk)[449](index=449&type=chunk)[451](index=451&type=chunk) - An interest rate swap agreement was entered in July 2022 with a notional amount of **$10.0 million** and a fixed rate of **3.12%** to manage variable-rate debt risk[441](index=441&type=chunk) - As of December 31, 2022, the company was in compliance with all financial maintenance covenants under its credit facility[252](index=252&type=chunk) [Note 8 – Equity](index=88&type=section&id=Note%208%20%E2%80%93%20Equity) The company's authorized capital includes **100 million** common shares and **1 million** preferred shares, with **1,229,643** warrants outstanding and a **$2.0 million** share repurchase program completed in 2022 - The company's certificate of incorporation authorizes **100,000,000** shares of common stock and **1,000,000** shares of preferred stock[452](index=452&type=chunk) Outstanding Warrants (as of December 31) | Warrant Type | 2022 Shares | 2021 Shares | |:-----------------------------|:------------|:------------| | $15 Exercise Price Sponsor Warrants | 600,000 | 600,000 | | Merger Warrants | 629,643 | 629,643 | | **Total** | **1,229,643** | **1,229,643** | - The 2022 Amended and Restated Omnibus Incentive Plan authorizes **2,600,000** shares for equity awards[457](index=457&type=chunk) - A **$2.0 million** Share Repurchase Program was approved in September 2022, with **$2.0 million** repurchased by December 31, 2022[459](index=459&type=chunk) - The Employee Stock Purchase Plan (ESPP) issued **37,490** shares in 2022 and **25,068** shares in 2021, with **406,617** shares remaining available[460](index=460&type=chunk) - In February 2021, the company completed a public offering, selling **2,051,025** shares of common stock (including over-allotment option) for net proceeds of approximately **$22.8 million**[461](index=461&type=chunk) [Note 9 – Fair Value Measurements](index=89&type=section&id=Note%209%20%E2%80%93%20Fair%20Value%20Measurements) The A&R Wintrust Term Loan's fair value was **$21.5 million**, contingent earnout payments were **$5.4 million** (Level 3), and an interest rate swap had a **$0.3 million** gain (Level 2) in 2022 - The carrying amounts of financial instruments like cash, accounts receivable, and accounts payable approximate fair value due to their short-term maturities[462](index=462&type=chunk) - The fair value of the A&R Wintrust Term Loan was **$21.5 million** at December 31, 2022, determined using discounted estimated future cash flows (Level 3 inputs)[462](index=462&type=chunk) - Contingent earnout payments from the Jake Marshall Transaction were valued at **$5.4 million** (Level 3) at December 31, 2022, resulting in a **$2.3 million** loss from fair value remeasurement in 2022[463](index=463&type=chunk)[464](index=464&type=chunk) - An interest rate swap, classified as a Level 2 measurement, had a fair value of **$0.3 million** (gain) at December 31, 2022[465](index=465&type=chunk) [Note 10 – Earning per Share](index=90&type=section&id=Note%2010%20%E2%80%93%20Earning%20per%20Share) Basic EPS for 2022 was **$0.65** and diluted EPS was **$0.64**, with out-of-the-money warrants excluded from diluted calculations Earnings Per Share (EPS) Summary | Metric | 2022 | 2021 | |:-------------------------------------|:------------|:------------| | Net income (thousands) | $6,799 | $6,714 | | Weighted average shares outstanding – basic | 10,425,119 | 10,013,117 | | Weighted average shares outstanding – diluted | 10,676,534 | 10,231,637 | | Basic EPS | $0.65 | $0.67 | | Diluted EPS | $0.64 | $0.66 | - Out-of-the-money warrants (**1,229,643** in 2022) and certain performance/market-based RSUs were excluded from diluted EPS calculations as they were antidilutive[469](index=469&type=chunk) [Note 11 – Income Taxes](index=91&type=section&id=Note%2011%20%E2%80%93%20Income%20Taxes) The income tax provision was **$2.8 million** for both 2022 and 2021, with an effective tax rate of **29.2%** and net deferred tax assets of **$4.8 million** Income Tax Provision (in thousands) | Category | 2022 | 2021 | |:---------------------|:-------|:-------| | Total current tax provision | $3,308 | $1,006 | | Total deferred tax provision | $(499) | $1,757 | | **Income tax provision** | **$2,809** | **$2,763** | Effective Tax Rate Reconciliation | Factor | 2022 | 2021 | |:-------------------------------------|:------|:------| | Federal statutory income tax rate | 21.0% | 21.0% | | State income taxes, net of federal tax effect | 6.4% | 7.0% | | Stock based compensation – restricted stock | 1.4% | (1.1)%| | Return to provision adjustment | (0.1)%| 1.2% | | Permanent differences | 1.3% | 1.9% | | Tax credits | (0.9)%| (0.8)%| | **Effective tax rate** | **29.2%** | **29.2%** | Net Deferred Tax Asset (in thousands) | Category | Dec 31, 2022 | Dec 31, 2021 | |:---------------------|:-------------|:-------------| | Total deferred tax assets | $13,081 | $13,541 | | Total deferred tax liabilities | $(8,252) | $(9,211) | | **Net deferred tax asset** | **$4,829** | **$4,330** | - No valuation allowance was deemed necessary against deferred tax assets, and there were no unrecognized tax benefits or net operating loss carryforwards[473](index=473&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk) [Note 12 – Operating Segments](index=93&type=section&id=Note%2012%20%E2%80%93%20Operating%20Segments) The company operates in GCR and ODR segments, with GCR revenue at **$280.4 million** and ODR revenue at **$216.4 million** in 2022 - The company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)[476](index=476&type=chunk) - Performance is evaluated by the Chief Operating Decision Maker (CODM) based on income from operations after allocating corporate office operating expenses; interest expense is not allocated[477](index=477&type=chunk)[478](index=478&type=chunk) Segment Revenue and Gross Profit (in thousands) | Metric | 2022 | 2021 | |:------------|:---------|:---------| | GCR Revenue | $280,379 | $350,015 | | ODR Revenue | $216,403 | $140,336 | | GCR Gross Profit | $38,622 | $45,409 | | ODR Gross Profit | $55,119 | $40,501 | - One GCR segment customer accounted for approximately **11%** of consolidated total revenue in 2022, down from two customers accounting for **17%** and **12%** in 2021[479](index=479&type=chunk) [Note 13 – Commitments and Contingencies](index=95&type=section&id=Note%2013%20%E2%80%93%20Commitments%20and%20Contingencies) The company faces ongoing legal proceedings, provides **$129.6 million** in surety bonds, and is self-insured for various claims, contributing to multiemployer pension plans - The company is continually engaged in legal proceedings, arbitrations, and litigation arising in the ordinary course of business[480](index=480&type=chunk) - A complaint filed against the Southern California business unit alleges damages exceeding **$3.0 million**; an estimated loss contingency was recorded as of December 31, 2022[481](index=481&type=chunk) - Surety bonds outstanding were approximately **$129.6 million** as of December 31, 2022, securing payment and performance obligations[484](index=484&type=chunk) - The company is substantially self-insured for workers' compensation, general liability, medical, and dental claims, with liabilities accrued based on known facts and historical trends[486](index=486&type=chunk)[488](index=488&type=chunk) Self-Insurance Liability (in thousands) | Category | Dec 31, 2022 | Dec 31, 2021 | |:---------------------------------------|:-------------|:-------------| | Current liability — workers' compensation and general liability | $158 | $184 | | Current liability — medical and dental | $557 | $456 | | Non-current liability | $343 | $451 | | **Total liability** | **$1,058** | **$1,091** | | Restricted cash | $113 | $113 | - The company contributes to approxima

Limbach Holdings, Inc. (NASDAQ:LMB) Q3 2022 Earnings Conference Call November 10, 2022 9:00 AM ET Company Participants Jeremy Hellman - Investor Relations Charlie Bacon - President and Chief Executive Officer Jayme Brooks - Executive Vice President and Chief Financial Officer Michael McCann - Executive Vice President and Chief Operating Officer Matt Katz - Executive Vice President, Acquisitions and Capital Markets Conference Call Participants Rob Brown - Lake Street Capital Chip Moore - EF Hutton Gerry Swee ...

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Limbach Holdings, Inc. (NASDAQ:LMB) Q2 2022 Earnings Conference Call August 10, 2022 9:00 AM ET Company Participants Jeremy Hellman - Equity Group Charlie Bacon - President & Chief Executive Officer Jayme Brooks - Chief Financial Officer Michael McCann - Chief Operating Officer Matt Katz - Executive Vice President, Acquisitions & Capital Markets Conference Call Participants Rob Brown - Lake Street Capital Chip Moore - EF Hutton Jon Old - Long Meadow Investors George Melas - MKH Management Operator Greeting ...