Limbach(LMB) - 2020 Q2 - Quarterly Report

Part I. Financial Information Presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) Presents Limbach Holdings, Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q2 2020 and FY2019 Condensed Consolidated Balance Sheets Summarizes the company's financial position, including assets, liabilities, and equity, at June 30, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2020 | December 31, 2019 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | ASSETS | | | | | | Cash and cash equivalents | $28,829 | $8,344 | $20,485 | 245.5% | | Total current assets | $207,685 | $195,380 | $12,305 | 6.3% | | Total assets | $270,003 | $261,617 | $8,386 | 3.2% | | LIABILITIES | | | | | | Total current liabilities | $164,840 | $156,869 | $7,971 | 5.1% | | Total liabilities | $219,803 | $214,747 | $5,056 | 2.4% | | STOCKHOLDERS' EQUITY | | | | | | Total stockholders' equity | $50,200 | $46,870 | $3,330 | 7.1% | Condensed Consolidated Statements of Operations Presents the company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 (As Recast) | Six months ended June 30, 2020 | Six months ended June 30, 2019 (As Recast) | | :----------------------------------- | :-------------------------------- | :------------------------------------ | :----------------------------- | :------------------------------------ | | Revenue | $135,185 | $132,603 | $273,957 | $266,350 | | Gross profit | $20,335 | $17,695 | $38,559 | $37,319 | | Operating income | $6,309 | $441 | $7,590 | $3,845 | | Net income (loss) | $2,947 | $(1,289) | $2,895 | $559 | | Basic EPS | $0.38 | $(0.17) | $0.37 | $0.07 | | Diluted EPS | $0.37 | $(0.17) | $0.37 | $0.07 | Condensed Consolidated Statements of Stockholders' Equity Details changes in stockholders' equity, including shares outstanding, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) | Item | Balance at Dec 31, 2019 | Stock-based compensation | Shares issued (vested RSUs) | Net income (loss) | Balance at June 30, 2020 | | :-------------------------------- | :---------------------- | :----------------------- | :-------------------------- | :---------------- | :----------------------- | | Number of shares outstanding | 7,688,958 | — | 164,419 | — | 7,853,377 | | Par value amount | $1 | $0 | $0 | $0 | $1 | | Additional paid-in capital | $56,557 | $435 | $0 | $0 | $56,992 | | Accumulated deficit | $(9,688) | $0 | $0 | $2,895 | $(6,793) | | Total stockholders' equity | $46,870 | $435 | $0 | $2,895 | $50,200 | Condensed Consolidated Statements of Cash Flows Outlines cash flows from operating, investing, and financing activities for the six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Six months ended June 30, 2020 | Six months ended June 30, 2019 (As Recast) | | :------------------------------------ | :----------------------------- | :------------------------------------ | | Net cash provided by (used in) operating activities | $22,457 | $(15,661) | | Net cash used in investing activities | $(597) | $(1,151) | | Net cash (used in) provided by financing activities | $(1,375) | $16,204 | | Increase in cash, cash equivalents and restricted cash | $20,485 | $(608) | | Cash, cash equivalents and restricted cash, end of period | $28,942 | $1,124 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies, standards, and specific financial statement line items Note 1 – Organization and Plan of Business Operations Details business segments, emerging growth status, COVID-19 impact, financial outlook, and CARES Act utilization - Limbach Holdings, Inc. operates in two segments: Construction (HVAC, plumbing, electrical services for large projects) and Service (maintenance for HVAC, plumbing, electrical systems)[23] - The Company ceased to qualify as an emerging growth company on December 31, 2019, now complying with new accounting standards as a public business entity[24] - The COVID-19 pandemic caused project shutdowns and slowdowns, particularly in New England and the Service segment, with most projects resuming by May; cost-cutting measures were largely reversed in July 2020[25][26][28] - Management projects compliance with financial covenants for the next 12 months, assuming a measured recovery in revenue and gross profit returning to normal levels in Q4 2020[31] - The Company utilized CARES Act provisions, including deferring payroll taxes and carrying back Net Operating Losses (NOLs) from 2018-2019 for a tax refund[33] Note 2 – Significant Accounting Policies Describes the basis of preparation for the unaudited condensed consolidated financial statements and interim reporting - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with Form 10-Q instructions and Rule 8-03 of Regulation S-X for smaller reporting companies, with certain information condensed or omitted[35] - The interim financial statements are unaudited but contain all normal and recurring adjustments necessary for a fair statement of the Company's financial position, results of operations, and cash flows[36] Note 3 – Accounting Standards Details the adoption of new accounting standards, including ASC Topic 606 (Revenue) and ASC Topic 842 (Leases), and their financial impact - The Company adopted ASC Topic 606 (Revenue from Contracts with Customers) and ASC Topic 842 (Leases) effective December 31, 2019, using a modified retrospective transition approach, with prior period financial information recast for comparability[38][44] - Adoption of ASC Topic 606 impacted accounting for assurance-type warranties (accrued as liability) and service-type warranties (allocated transaction price as separate performance obligation), and led to separate presentation of contract assets and liabilities[39][40][41] - Adoption of ASC Topic 842 required recognition of lease right-of-use (ROU) assets and lease liabilities for operating leases, but had no impact on the condensed consolidated statements of operations or cash flows[44][46] Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Balance Sheet (June 30, 2019, in thousands) | Item | Previously Reported | Adjustments due to ASC Topic 606 | Adjustments due to ASC Topic 842 | As Recast | | :------------------------------------ | :------------------ | :------------------------------- | :------------------------------- | :-------- | | Accounts receivable, net | $142,761 | $(31,236) | — | $111,525 | | Contract assets | — | $68,285 | — | $68,285 | | Costs and estimated earnings in excess of billings | $36,030 | $(36,030) | — | — | | Operating lease right-of-use assets | — | — | $22,685 | $22,685 | | Contract liabilities | — | $44,131 | — | $44,131 | | Billings in excess of costs and estimated earnings | $46,536 | $(46,536) | — | — | | Current operating lease liabilities | — | — | $3,824 | $3,824 | | Long-term operating lease liabilities | — | — | $19,656 | $19,656 | | Accumulated deficit | $(7,782) | $555 | $(128) | $(7,355) | Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Statement of Operations (Three months ended June 30, 2019, in thousands) | Item | Previously Reported | Adjustments due to ASC Topic 606 | Adjustments due to ASC Topic 842 | As Recast | | :------------------------------------ | :------------------ | :------------------------------- | :------------------------------- | :-------- | | Total revenue | $132,753 | $(150) | — | $132,603 | | Total cost of revenue | $115,352 | $(444) | — | $114,908 | | Gross profit | $17,401 | $294 | — | $17,695 | | Operating income | $147 | $294 | — | $441 | | Net loss | $(1,504) | $215 | — | $(1,289) | Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Statement of Operations (Six months ended June 30, 2019, in thousands) | Item | Previously Reported | Adjustments due to ASC Topic 606 | Adjustments due to ASC Topic 842 | As Recast | | :------------------------------------ | :------------------ | :------------------------------- | :------------------------------- | :-------- | | Total revenue | $266,704 | $(354) | — | $266,350 | | Total cost of revenue | $229,270 | $(239) | — | $229,031 | | Gross profit | $37,434 | $(115) | — | $37,319 | | Operating income | $3,960 | $(115) | — | $3,845 | | Net income | $642 | $(83) | — | $559 | - The Company does not expect ASU 2016-13 (Credit Losses) or ASU 2020-03 (Financial Instruments) to have a significant impact on its financial statements; management is assessing ASU 2019-12 (Income Taxes)[57][58][59] Note 4 – Accounts Receivable and Allowance for Doubtful Accounts Presents the breakdown of accounts receivable and the allowance for doubtful accounts at June 30, 2020, and December 31, 2019 Accounts Receivable and Allowance for Doubtful Accounts (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :----------------------------- | :------------ | :---------------- | | Accounts receivable - trade | $101,717 | $105,373 | | Allowance for doubtful accounts | $(266) | $(306) | | Accounts receivable, net | $101,451 | $105,067 | Note 5 – Contract Assets and Liabilities Details the company's contract assets and liabilities, including costs in excess of billings, retainage, and provisions for losses Contract Assets (in thousands) | Item | June 30, 2020 | December 31, 2019 | Change ($) | | :------------------------------------ | :------------ | :---------------- | :--------- | | Costs in excess of billings and estimated earnings | $39,898 | $44,315 | $(4,417) | | Retainage receivable | $32,389 | $32,873 | $(484) | | Total contract assets | $72,287 | $77,188 | $(4,901) | Contract Liabilities (in thousands) | Item | June 30, 2020 | December 31, 2019 | Change ($) | | :------------------------------------ | :------------ | :---------------- | :--------- | | Billings in excess of costs and estimated earnings | $57,874 | $40,662 | $17,212 | | Provisions for losses | $750 | $1,708 | $(958) | | Total contract liabilities | $58,624 | $42,370 | $16,254 | Net (Overbilling) Underbilling Position (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :----------------------------- | :------------ | :---------------- | | Net (overbilling) underbilling | $(17,976) | $3,653 | - For the three months ended June 30, 2020, the Company recorded $1.5 million in gross profit write-downs on four construction projects, with no material write-ups; for the six months, there were $5.2 million in write-downs on eight projects and $1.2 million in write-ups on two projects[68][69] Note 6 – Goodwill and Intangibles Provides information on goodwill and other intangible assets, including amortization expense and impairment assessments - Goodwill remained stable at $6.1 million, associated with the Service segment, for both June 30, 2020, and December 31, 2019[73] Intangible Assets, Net (excluding goodwill, in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Customer Relationships – Service | $1,804 | $2,055 | | Favorable Leasehold Interests | $130 | $296 | | Trade Name (unamortized) | $9,960 | $9,960 | | Total amortized and unamortized assets | $11,894 | $12,311 | - Total amortization expense for intangible assets was $0.3 million for Q2 2020 (up from $0.2 million in Q2 2019) and $0.4 million for H1 2020 (flat YoY); no impairment charges were recognized[74] Note 7 – Debt Details the company's long-term debt, including term loans, finance leases, and associated covenants and warrant liabilities Long-term Debt (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | 2019 Refinancing Term Loan | $41,000 | $41,000 | | Finance leases | $6,285 | $6,585 | | Total debt | $47,285 | $47,585 | | Less - Current portion of long-term debt | $(6,414) | $(4,425) | | Less - Unamortized discount and debt issuance costs | $(3,350) | $(4,292) | | Long-term debt | $37,521 | $38,868 | - The Company entered into the 2019 Refinancing Agreement on April 12, 2019, comprising a $40.0 million term loan and a $25.0 million multi-draw delayed draw term loan, maturing on April 12, 2022; the interest rate was 13.00% at June 30, 2020[84][87][88] - The 2019 Refinancing Agreement includes financial maintenance covenants, such as a Total Leverage Ratio, which was amended to vary monthly, peaking at 4.25 in March 2020 and stepping down to 2.00 by April 1, 2021[90][91][92] - In connection with the 2019 Refinancing Agreement, the Company issued CB Warrants to purchase up to 263,314 shares of common stock, classified as a liability and measured at fair value, which was $0.3 million at June 30, 2020[93][94][96] - The Company also entered into the 2019 ABL Credit Agreement, a $15.0 million revolving credit facility, maturing on April 12, 2022, with no amounts drawn as of June 30, 2020[99][102][108] Note 8 – Equity Summarizes the company's common stock and warrant activity, including outstanding shares and incentive plans - As of June 30, 2020, the Company had 7,853,377 shares of common stock outstanding and warrants exercisable for 4,576,799 shares of common stock[13][110] - In 2020, the Company granted 118,633 service-based Restricted Stock Units (RSUs) and 96,500 performance-based RSUs (PRSUs) under the Omnibus Incentive Plan[112][158][160] - The Omnibus Incentive Plan was amended to increase authorized shares by 500,000 to a total of 1,650,000 shares and extend its term, approved by stockholders on July 14, 2020[113][164] - The Employee Stock Purchase Plan (ESPP) became effective January 1, 2020, allowing employees to purchase common stock at an 85% discount; no shares were issued by June 30, 2020, but 30,825 shares were issued in July 2020[115][163][165] Note 9 – Fair Value Measurements Explains the fair value hierarchy used for financial assets and liabilities, including valuation methods for debt and warrants - The Company measures financial assets and liabilities using a fair value hierarchy (Level 1, 2, 3); most financial instruments' carrying amounts approximate fair value due to short-term maturities[116][117] - The fair value of the 2019 Refinancing Agreement term loan was $41.0 million at June 30, 2020, and December 31, 2019, determined using discounted estimated future cash flows (Level 3 inputs)[117] - The CB Warrants liability is valued using the Black-Scholes-Merton option pricing model with Level 3 inputs, including stock price ($3.70), exercise price ($7.63), expected volatility (70.0%), and risk-free interest rate (0.3%) as of June 30, 2020[118][119][120] Note 10 – Earnings per Share Provides a detailed calculation of basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019 Earnings Per Share (in thousands, except per share amounts) | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 (As Recast) | Six months ended June 30, 2020 | Six months ended June 30, 2019 (As Recast) | | :------------------------------------ | :-------------------------------- | :------------------------------------ | :----------------------------- | :------------------------------------ | | Net income (loss) | $2,947 | $(1,289) | $2,895 | $559 | | Weighted average shares outstanding – basic | 7,846 | 7,643 | 7,822 | 7,643 | | Weighted average shares outstanding – diluted | 7,905 | 7,643 | 7,878 | 7,717 | | Basic EPS | $0.38 | $(0.17) | $0.37 | $0.07 | | Diluted EPS | $0.37 | $(0.17) | $0.37 | $0.07 | - Diluted EPS calculations include the dilutive effect of outstanding common stock warrants, UPOs, and RSUs using the treasury stock method; certain warrants, service-based RSUs, and performance/market-based RSUs were antidilutive or out-of-the-money and excluded[121][122] Note 11 – Income Taxes Discusses the effective tax rates and the impact of the CARES Act on the company's tax position and unrecognized tax benefits - The effective tax rate for the three months ended June 30, 2020, was 27.4% (vs. -26.9% in 2019), and for the six months ended June 30, 2020, was 14.1% (vs. 31.8% in 2019)[127] - The difference in effective tax rates is primarily due to the CARES Act, which allowed the Company to carry back Net Operating Losses (NOLs) from 2018 and 2019 (originally valued at 21% federal tax rate) to prior years with a higher 34% federal tax rate, generating a $1.6 million tax refund[127][128] - The Company recorded a liability for unrecognized tax benefits of $0.5 million as of June 30, 2020, and $0.4 million as of December 31, 2019[126] Note 12 – Operating Segments Provides financial information for the Construction and Service segments, including revenue, gross profit, and operating income - The Company operates in two segments: Construction and Service; performance is evaluated based on operating income after allocation of corporate office operating expenses[129][130] Condensed Consolidated Segment Information (Three months ended June 30, in thousands) | Item | 2020 | 2019 (As Recast) | | :------------------------------------ | :----- | :--------------- | | Revenue: | | | | Construction | $105,937 | $104,759 | | Service | $29,248 | $27,844 | | Total revenue | $135,185 | $132,603 | | Gross profit: | | | | Construction | $12,213 | $10,683 | | Service | $8,122 | $7,012 | | Total gross profit | $20,335 | $17,695 | | Operating income: | | | | Construction | $4,189 | $(546) | | Service | $2,534 | $1,677 | | Corporate | $(414) | $(690) | | Total operating income | $6,309 | $441 | Condensed Consolidated Segment Information (Six months ended June 30, in thousands) | Item | 2020 | 2019 (As Recast) | | :------------------------------------ | :----- | :--------------- | | Revenue: | | | | Construction | $215,423 | $209,219 | | Service | $58,534 | $57,131 | | Total revenue | $273,957 | $266,350 | | Gross profit: | | | | Construction | $23,195 | $23,599 | | Service | $15,364 | $13,720 | | Total gross profit | $38,559 | $37,319 | | Operating income: | | | | Construction | $4,995 | $1,918 | | Service | $3,447 | $3,159 | | Corporate | $(852) | $(1,232) | | Total operating income | $7,590 | $3,845 | Note 13 - Leases Outlines the company's lease arrangements for real estate, trucks, and equipment, including lease assets, liabilities, and costs - The Company leases real estate, trucks, and other equipment; short-term leases (12 months or less) are not recorded on the balance sheet[136][137] Lease Assets and Liabilities (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Operating lease right-of-use assets | $19,616 | $21,056 | | Finance lease assets (Property and equipment, net) | $6,088 | $6,412 | | Total lease assets | $25,704 | $27,468 | | Current operating lease liabilities | $3,681 | $3,750 | | Current portion of long-term debt (Finance) | $2,414 | $2,424 | | Long-term operating lease liabilities | $16,502 | $18,247 | | Long-term debt (Finance) | $3,871 | $4,161 | | Total lease liabilities | $26,468 | $28,582 | Total Lease Cost (in thousands) | Period | 2020 | 2019 | | :------------------------------------ | :----- | :----- | | Three months ended June 30, | $2,000 | $1,891 | | Six months ended June 30, | $4,024 | $3,675 | Weighted Average Lease Terms and Discount Rates | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Operating lease term (years) | 5.93 | 6.20 | | Finance lease term (years) | 2.83 | 2.96 | | Operating discount rate | 4.81% | 4.80% | | Finance discount rate | 5.64% | 5.69% | Note 14 – Self-Insurance Describes the company's self-insurance programs for workers' compensation, general liability, medical, and dental claims - The Company is self-insured for workers' compensation, general liability (with $250k per-incident deductibles and $4.6M aggregate loss limit), medical, and dental claims[143][257][258] Self-Insurance Liability (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Current liability – workers' compensation and general liability | $514 | $703 | | Current liability – medical and dental | $511 | $821 | | Non-current liability | $452 | $382 | | Total liability | $1,477 | $1,906 | | Restricted cash | $113 | $113 | Note 15 – Commitments and Contingencies Outlines ongoing legal proceedings, surety bond obligations, and multi-employer pension plan commitments - The Company is involved in ongoing legal proceedings, including arbitrations and litigations, arising in the ordinary course of business; management believes these actions will not have a material adverse effect on financial position[145] - Notable legal cases include a $0.4 million arbitration demand from Lanzo Trenchless Technologies, Inc., a $3.0 million complaint from Bernards Bros. Inc., and a $1.0 million complaint from LA Excavating, Inc[147][148][149] - As of June 30, 2020, the Company had approximately $128.6 million in surety bonds outstanding, securing payment and performance obligations under contracts[150] - Many craft labor employees are covered by collective bargaining agreements requiring specified wages and benefits, and contributions to multi-employer pension plans (MEPPs); some MEPPs are in 'critical' status, potentially leading to increased contributions or withdrawal liabilities, though no significant liabilities are currently known[151][261][262][263] Note 16 – Remaining Performance Obligations Provides a summary of the company's remaining performance obligations for its Construction and Service segments Remaining Performance Obligations (in millions) | Segment | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Construction | $408.8 | $504.2 | | Service | $46.6 | $41.9 | | Total | $455.4 | $546.1 | - The Company estimates that 56% of Construction and 100% of Service segment remaining performance obligations as of June 30, 2020, will be recognized as revenue during 2020, with the majority recognized within 24 months[154] Note 17 – Management Incentive Plans Details the Omnibus Incentive Plan, including authorized shares, types of awards, and stock-based compensation expense - The Omnibus Incentive Plan was amended to increase authorized shares to 1,650,000 and extend its term; awards are granted as options, stock appreciation rights, restricted shares, restricted stock units, and performance-based awards[156][157] Service-Based RSU Activity (Six months ended June 30, 2020) | Item | Awards | Weighted Average Grant Date Fair Value | | :------------------------------------ | :----- | :----------------------------------- | | Unvested at December 31, 2019 | 328,575 | $7.83 | | Granted | 118,633 | $3.48 | | Vested | (167,085) | $8.95 | | Forfeited | (10,109) | $6.80 | | Unvested at June 30, 2020 | 270,014 | $5.34 | Performance-Based RSU (PRSU) Activity (Six months ended June 30, 2020) | Item | Awards | Weighted Average Grant Date Fair Value | | :------------------------------------ | :----- | :----------------------------------- | | Unvested at December 31, 2019 | 62,307 | $12.62 | | Granted | 96,500 | $3.67 | | Forfeited | (13,250) | $11.31 | | Unvested at June 30, 2020 | 145,557 | $6.80 | Market-Based RSU (MRSU) Activity (Six months ended June 30, 2020) | Item | Awards | Weighted Average Grant Date Fair Value | | :------------------------------------ | :----- | :----------------------------------- | | Unvested at December 31, 2019 | 125,000 | $6.58 | | Forfeited | (22,500) | $6.58 | | Unvested at June 30, 2020 | 102,500 | $6.58 | - Total stock-based compensation expense was $0.1 million for Q2 2020 (down from $0.5 million in Q2 2019) and $0.4 million for H1 2020 (down from $0.9 million in H1 2019); unrecognized expense was $0.6 million at June 30, 2020, to be recognized over 1.28 years[162] Note 18 – Subsequent Events Reports on significant events occurring after the reporting period, including incentive plan amendments and ESPP share issuance - Stockholders approved amendments to the Omnibus Incentive Plan on July 14, 2020, increasing authorized shares to 1,650,000 and extending the plan term[164] - In July 2020, 30,825 shares of common stock were issued to participants in the Employee Stock Purchase Plan (ESPP); stock compensation expense related to the ESPP was $17 thousand for the three and six months ended June 30, 2020[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the Company's financial condition and results of operations, highlighting key components of the statements, segment performance, and liquidity Overview Introduces Limbach Holdings, Inc. as a commercial specialty contractor operating in Construction and Service segments - Limbach Holdings, Inc. is a commercial specialty contractor providing HVAC, plumbing, electrical, and building controls services across two segments: Construction (large projects) and Service (maintenance, retrofits, upgrades)[167] JOBS Act Notes the company's transition from an "emerging growth company" status as of December 31, 2019 - The Company ceased to qualify as an 'emerging growth company' on December 31, 2019, marking the end of the fifth fiscal year following its initial public offering[168] Key Components of Condensed Consolidated Statements of Operations Explains the primary components of the income statement, including revenue recognition, cost of revenue, SG&A, and income taxes - Revenue is primarily generated from fixed-price construction contracts (HVAC, plumbing, electrical) recognized on a cost-to-cost method, with contract durations typically 6 months to 2 years; Service revenue is recognized as services are performed[169] - Cost of revenue includes labor, equipment, material, subcontract, and other job costs, with historical fluctuations as a percentage of contract revenue[171] - Selling, General and Administrative (SG&A) expenses include personnel costs for administrative, estimating, HR, safety, IT, legal, finance, and accounting, as well as professional fees and public company compliance costs[172] - Effective January 1, 2020, corporate SG&A expenses (excluding stock-based compensation) are allocated to Construction and Service segments for management reporting[173] - Other income/expense primarily consists of net interest expense, gains/losses on property disposition, and changes in fair value of warrant liability[175] - Income taxes are calculated based on the estimated annual effective tax rate, with deferred taxes recognized for temporary differences[177] - The Company's Chief Operating Decision Makers (CODM) evaluate segment performance based on operating income, aggregating construction branches into one Construction segment and service branches into one Service segment[178][179] Comparison of Results of Operations (Three Months Ended June 30) Analyzes the company's financial performance for the three months ended June 30, 2020, compared to the same period in 2019 Revenue (Three months ended June 30, in thousands) | Segment | 2020 | 2019 (As Recast) | Change ($) | Change (%) | | :------------------------------------ | :----- | :--------------- | :--------- | :--------- | | Construction | $105,937 | $104,759 | $1,178 | 1.1% | | Service | $29,248 | $27,844 | $1,404 | 5.0% | | Total revenue | $135,185 | $132,603 | $2,582 | 1.9% | - Construction revenue increased due to gains in Michigan, Southern California, and Ohio, partially offset by COVID-19 related project shutdowns in Florida and New England, and project completions in Western and Eastern Pennsylvania[183] Gross Profit (Three months ended June 30, in thousands) | Segment | 2020 | 2019 (As Recast) | Change ($) | Change (%) | | :------------------------------------ | :----- | :--------------- | :--------- | :--------- | | Construction | $12,213 | $10,683 | $1,530 | 14.3% | | Service | $8,122 | $7,012 | $1,110 | 15.8% | | Total gross profit | $20,335 | $17,695 | $2,640 | 14.9% | | Total gross profit as % of revenue | 15.0% | 13.3% | | | - Gross profit percentage increased from 13.3% to 15.0% due to a more favorable mix of higher-margin Service projects and better project pricing; Construction gross profit was impacted by $1.5 million in write-downs on four projects in Q2 2020[184][185] Selling, General and Administrative Expenses (Three months ended June 30, in thousands) | Segment | 2020 | 2019 (As Recast) | Change ($) | Change (%) | | :------------------------------------ | :----- | :--------------- | :--------- | :--------- | | Construction | $8,024 | $11,229 | $(3,205) | (28.5)% | | Service | $5,588 | $5,335 | $253 | 4.7% | | Corporate | $140 | $515 | $(375) | (72.8)% | | Total SG&A expenses | $13,752 | $17,079 | $(3,327) | (19.5)% | | Total SG&A as % of revenue | 10.2% | 12.9% | | | - SG&A expenses decreased by $3.3 million, primarily due to headcount reductions ($0.7M), reduced travel and entertainment ($0.8M), lower professional service fees ($0.2M), and reduced pre-sale engineering expenses ($0.4M); Corporate SG&A decreased due to lower stock-based compensation[188] Other Expenses (Three months ended June 30, in thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Interest expense, net | $(2,137) | $(1,597) | $(540) | 33.8% | | Loss on debt extinguishment | — | $(513) | $513 | (100.0)% | | Gain (loss) on fair value of warrant liability | $(102) | $(103) | $1 | (1.0)% | | Total other expenses | $(2,252) | $(2,204) | $(48) | 2.2% | - Interest expense increased due to higher interest rates (13.0% in Q2 2020 vs. 10.5% in Q2 2019) on refinanced debt obligations and associated amortization of debt issuance and discount costs[190] - The effective tax rate for Q2 2020 was 27.4% compared to (26.9%) in Q2 2019, primarily due to the CARES Act allowing NOL carrybacks to prior years with higher tax rates, resulting in a $0.7 million income tax receivable[193] Comparison of Results of Operations (Six Months Ended June 30) Analyzes the company's financial performance for the six months ended June 30, 2020, compared to the same period in 2019 Revenue (Six months ended June 30, in thousands) | Segment | 2020 | 2019 (As Recast) | Change ($) | Change (%) | | :------------------------------------ | :----- | :--------------- | :--------- | :--------- | | Construction | $215,423 | $209,219 | $6,204 | 3.0% | | Service | $58,534 | $57,131 | $1,403 | 2.5% | | Total revenue | $273,957 | $266,350 | $7,607 | 2.9% | - Construction revenue increased by $6.2 million, driven by Michigan and Southern California, partially offset by declines in other regions due to COVID-19 shutdowns and project completions; Service revenue increased by $1.4 million[197] Gross Profit (Six months ended June 30, in thousands) | Segment | 2020 | 2019 (As Recast) | Change ($) | Change (%) | | :------------------------------------ | :----- | :--------------- | :--------- | :--------- | | Construction | $23,195 | $23,599 | $(404) | (1.7)% | | Service | $15,364 | $13,720 | $1,644 | 12.0% | | Total gross profit | $38,559 | $37,319 | $1,240 | 3.3% | | Total gross profit as % of revenue | 14.1% | 14.0% | | | - Total gross profit increased by $1.2 million, with Service gross profit up 12.0% due to favorable pricing; Construction gross profit decreased by 1.7% due to $5.2 million in project write-downs, partially offset by $1.2 million in write-ups[198][199] Selling, General and Administrative Expenses (Six months ended June 30, in thousands) | Segment | 2020 | 2019 (As Recast) | Change ($) | Change (%) | | :------------------------------------ | :----- | :--------------- | :--------- | :--------- | | Construction | $18,200 | $21,681 | $(3,481) | (16.1)% | | Service | $11,917 | $10,561 | $1,356 | 12.8% | | Corporate | $435 | $882 | $(447) | (50.7)% | | Total SG&A expenses | $30,552 | $33,124 | $(2,572) | (7.8)% | | Total SG&A as % of revenue | 11.2% | 12.4% | | | - Total SG&A expenses decreased by $2.6 million, driven by reductions in travel/entertainment ($1.1M), pre-sales engineering ($0.4M), medical/workers' comp ($0.2M), rent ($0.1M), and professional fees ($0.5M), partially offset by a $1.0 million increase in payroll-related expenses[201][202] Other Expenses (Six months ended June 30, in thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Interest expense, net | $(4,295) | $(2,430) | $(1,865) | 76.7% | | Loss on debt extinguishment | — | $(513) | $513 | (100.0)% | | Gain (loss) on fair value of warrant liability | $59 | $(103) | $162 | (157.3)% | | Total other expenses | $(4,219) | $(3,025) | $(1,194) | 39.5% | - Interest expense increased significantly due to higher interest rates on the 2019 Refinancing Agreement and associated debt issuance/discount amortization[204] - The effective tax benefit rate for H1 2020 was 14.1% compared to a provision rate of 31.8% in H1 2019, primarily due to the CARES Act allowing NOL carrybacks, generating a $1.6 million tax refund[208] Construction and Service Backlog Information Provides an overview of the company's backlog for its Construction and Service segments and expected revenue recognition Backlog (in millions) | Segment | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Construction | $408.8 | $504.2 | | Service | $61.8 | $57.0 | | Total | $470.6 | $561.2 | - Construction backlog decreased by $95.4 million, while Service backlog increased by $4.8 million due to incremental sales staff investment; approximately $275.9 million of the total backlog at June 30, 2020, is expected to be recognized by year-end 2020[211] Seasonality, Cyclicality and Quarterly Trends Discusses how weather conditions and seasonal patterns influence the company's construction and service operations - Severe weather can impact construction productivity, shifting revenue and gross profit; mild weather reduces demand for maintenance services, while severe weather increases it; operations typically see increased activity in the third and fourth calendar quarters[212] Effect of Inflation and Tariffs Explains how material price fluctuations and tariffs are managed to mitigate their impact on the company's financial performance - Prices of materials like steel, pipe, copper, and equipment are subject to fluctuation and tariffs; the Company includes cost escalation factors in bids and uses fixed-price purchase orders to mitigate impact, which has been immaterial to date[213] Liquidity and Capital Resources Assesses the company's ability to meet its financial obligations, including cash flows, working capital, and available credit - Liquidity needs are primarily for working capital, capital expenditures, and strategic investments, historically funded by operating activities and borrowings[215] Summary Cash Flow Information (Six months ended June 30, in thousands) | Item | 2020 | 2019 (As Recast) | | :------------------------------------ | :----- | :--------------- | | Net cash provided by (used in) operating activities | $22,457 | $(15,661) | | Net cash used in investing activities | $(597) | $(1,151) | | Net cash (used in) provided by financing activities | $(1,375) | $16,204 | | Net increase in cash and cash equivalents | $20,485 | $(608) | - Cash flows from operating activities significantly improved to $22.5 million in H1 2020 (from -$15.7 million in H1 2019), driven by cash inflows from accounts receivable, contract assets, and contract liabilities, offset by accounts payable outflows[219] Summarized Working Capital Information (in thousands, except ratios) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Current assets | $207,685 | $195,380 | | Current liabilities | $(164,840) | $(156,869) | | Net working capital | $42,845 | $38,511 | | Current ratio | 1.26 | 1.25 | - The Company believes its current cash balance ($28.8 million), expected operating cash flows, and available borrowings ($10.5 million net capacity from revolving credit facility) are sufficient to meet capital requirements for the next 12 months[253][255] - As of June 30, 2020, the Company had $128.6 million in surety bonds outstanding and a total bonding capacity of $700.0 million[256] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 therefore not required to provide quantitative and qualitative disclosures about market risk[264] Item 4. Controls and Procedures Management, with CEO and CFO participation, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020; no material changes in internal control over financial reporting were identified, despite the shift to remote work due to COVID-19 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[265] - No material changes in internal control over financial reporting were identified during the period, despite employees working remotely due to the COVID-19 pandemic[266][267] Part II. Other Information Item 1. Legal Proceedings This section details ongoing legal proceedings, including arbitration and lawsuits, that the Company is involved in; these include a $0.4 million arbitration demand, a $3.0 million complaint, and a $1.0 million complaint, all of which the Company intends to vigorously defend, with schedules delayed due to COVID-19 - The Company is facing a $0.4 million arbitration demand from Lanzo Trenchless Technologies, Inc. for alleged breach of contract[270] - Bernards Bros. Inc. filed a complaint seeking over $3.0 million in damages, alleging Limbach Holdings, Inc. refused to honor a subcontractor proposal[271] - LA Excavating, Inc. filed a complaint seeking approximately $1.0 million for alleged failure to pay contract balances and extra work[272] - Schedules for these legal proceedings have been delayed due to COVID-19 related court-closings[271][272] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's 2019 Annual Report on Form 10-K - No material changes to risk factors have occurred since the 2019 Annual Report on Form 10-K[273] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[274] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[275] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[276] Item 5. Other Information There is no other information to report for the period - No other information to report[277] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including offer letters, certifications from the CEO and CFO, and XBRL-related documents - Exhibits include an offer letter, CEO and CFO certifications (pursuant to Sarbanes-Oxley Act Sections 302 and 906), and XBRL instance and taxonomy documents[279]