Limbach(LMB) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information of Limbach Holdings, Inc., including statements, notes, and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes on accounting policies, acquisitions, and segment performance Condensed Consolidated Balance Sheets (Unaudited) This table provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $38,940 | $44,930 | | Accounts receivable (net) | $113,065 | $119,659 | | Contract assets | $45,812 | $47,549 | | Total current assets | $208,970 | $220,334 | | Total assets | $342,980 | $352,129 | | LIABILITIES | | | | Current portion of long-term debt | $4,423 | $3,314 | | Accounts payable, including retainage | $55,386 | $60,814 | | Contract liabilities | $32,100 | $44,519 | | Total current liabilities | $123,453 | $151,037 | | Total liabilities | $172,446 | $198,638 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | $170,534 | $153,491 | | Total liabilities and stockholders' equity | $342,980 | $352,129 | - Total assets decreased by $9.1 million from $352.1 million at December 31, 2024, to $343.0 million at June 30, 2025, primarily driven by a decrease in cash and cash equivalents and accounts receivable[16] - Total liabilities decreased by $26.2 million from $198.6 million at December 31, 2024, to $172.4 million at June 30, 2025, mainly due to a reduction in contract liabilities and accrued expenses[16] - Total stockholders' equity increased by $17.0 million from $153.5 million at December 31, 2024, to $170.5 million at June 30, 2025[16] Condensed Consolidated Statements of Operations (Unaudited) This statement outlines the company's financial performance over specific periods, detailing revenue, expenses, and net income | (in thousands, except share and per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $142,241 | $122,235 | $275,349 | $241,211 | | Gross profit | $39,826 | $33,508 | $76,545 | $64,596 | | Operating income | $10,642 | $8,190 | $18,553 | $14,722 | | Income before income taxes | $10,764 | $8,358 | $18,755 | $15,617 | | Net income | $7,762 | $5,963 | $17,976 | $13,549 | | Basic EPS | $0.67 | $0.53 | $1.56 | $1.21 | | Diluted EPS | $0.64 | $0.50 | $1.48 | $1.13 | - Revenue increased by 16.4% for the three months ended June 30, 2025, and by 14.2% for the six months ended June 30, 2025, compared to the respective prior year periods[18] - Net income grew by 30.2% to $7.8 million for the three months ended June 30, 2025, and by 32.7% to $18.0 million for the six months ended June 30, 2025, year-over-year[18] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This statement details changes in stockholders' equity, reflecting impacts from net income, stock-based compensation, and other equity transactions | (in thousands, except share amounts) | Balance at Dec 31, 2024 | Non-cash 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, 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common stock | 1 | 0 | 0 | 0 | 0 | 0 | 1 | | Additional paid-in capital | 94,229 | 1,594 | 0 | (4,338) | 169 | 0 | 91,654 | | Treasury stock, at cost | (2,000) | 0 | 0 | 0 | 0 | 0 | (2,000) | | Retained earnings | 61,261 | 0 | 0 | 0 | 0 | 10,214 | 71,475 | | Stockholders' equity | 153,491 | 1,594 | 0 | (4,338) | 169 | 10,214 | 161,130 | Note: The table above reflects the activity for the three months ended March 31, 2025, leading to the balance at March 31, 2025. The final balance at June 30, 2025, includes additional non-cash stock-based compensation and net income for the subsequent period. - Stockholders' equity increased from $153.5 million at December 31, 2024, to $170.5 million at June 30, 2025, primarily driven by net income and non-cash stock-based compensation, partially offset by tax withholding related to vested restricted stock units[16][21] Condensed Consolidated Statements of Cash Flows (Unaudited) This statement summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,242 | $12,560 | | Net cash used in investing activities | $(2,152) | $(5,231) | | Net cash used in financing activities | $(8,080) | $(7,628) | | Decrease in cash, cash equivalents and restricted cash | $(5,990) | $(299) | | Cash, cash equivalents and restricted cash, end of period | $39,005 | $59,599 | - Net cash provided by operating activities decreased significantly from $12.6 million in H1 2024 to $4.2 million in H1 2025, primarily due to changes in working capital, particularly contract liabilities and accrued expenses[23][206] - Net cash used in investing activities decreased from $5.2 million in H1 2024 to $2.2 million in H1 2025, mainly due to lower purchases of property and equipment[23][207] - Net cash used in financing activities increased from $7.6 million in H1 2024 to $8.1 million in H1 2025, driven by higher tax payments related to equity awards and contingent consideration payments[23][209] Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 – Business and Organization This note describes Limbach Holdings, Inc.'s core business as a building systems solutions firm and its operating segments - Limbach Holdings, Inc. is a building systems solutions firm specializing in mechanical (HVAC), electrical, and plumbing infrastructure, serving six vertical markets: healthcare, industrial and manufacturing, data centers, life science, higher education, and cultural and entertainment[25] - The Company operates in two segments: Owner Direct Relationships (ODR) for direct projects and maintenance, and General Contractor Relationships (GCR) for new construction or renovation projects awarded by general contractors[26] Note 2 – Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim information and SEC Form 10-Q requirements, with certain information condensed or omitted[28] - Significant estimates include revenue recognition on construction contracts, fair value accounting for acquisitions, insurance reserves, income tax valuation allowances, and contingent consideration[29] - Recent accounting pronouncements include ASU 2024-03 (Expense Disaggregation Disclosures) effective after December 15, 2026, and ASU 2023-09 (Improvements to Income Tax Disclosures) effective after December 15, 2024, which the Company expects to adopt in its 2025 Form 10-K[33][34] Note 3 – Acquisitions This note details the company's recent acquisitions, including purchase prices, strategic rationale, and goodwill allocation - On December 2, 2024, the Company acquired Consolidated Mechanical for $23.0 million cash, expanding its reach into the industrial sector in Kentucky, Illinois, and Michigan. The acquisition resulted in $11.1 million of goodwill allocated to the ODR segment[35][36][37] - On September 3, 2024, the Company acquired Kent Island Mechanical for $15.0 million cash, expanding its market share in the greater Washington, DC metro area. The acquisition resulted in $5.6 million of goodwill allocated to both ODR and GCR segments[41][42][44] Consolidated Mechanical Transaction Purchase Price Allocation (in thousands) | (in thousands) | Adjusted Purchase Price Allocation | | :--- | :--- | | Total Consideration | $24,351 | | Fair value of assets acquired | $14,463 | | Fair value of liabilities assumed | $1,232 | | Goodwill | $11,120 | Kent Island Transaction Purchase Price Allocation (in thousands) | (in thousands) | Adjusted Purchase Price Allocation | | :--- | :--- | | Total Consideration | $19,655 | | Fair value of assets acquired | $24,760 | | Fair value of liabilities assumed | $10,683 | | Goodwill | $5,578 | Note 4 – Revenue from Contracts with Customers This note explains the company's revenue recognition policies and provides details on contract assets and liabilities - Revenue is primarily generated from fixed-price construction contracts (recognized on a cost-to-cost method) and time and materials contracts (recognized as services are performed), typically ranging from three months to two years[47] Contract Assets (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Costs and estimated earnings in excess of billings | $27,775 | $27,304 | $471 | | Retainage receivable | $18,037 | $20,245 | $(2,208) | | Total contract assets | $45,812 | $47,549 | $(1,737) | Contract Liabilities (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Billings in excess of costs and estimated earnings | $32,083 | $44,417 | $(12,334) | | Provisions for losses | $17 | $102 | $(85) | | Total contract liabilities | $32,100 | $44,519 | $(12,419) | - As of June 30, 2025, remaining performance obligations for ODR and GCR segments were $212.3 million and $99.5 million, respectively. The Company estimates 66% of ODR and 49% of GCR obligations will be recognized as revenue in the remainder of 2025[59] Note 5 – Goodwill and Intangibles This note provides information on the company's goodwill and other intangible assets, including changes and amortization expense Goodwill by Segment (in thousands) | (in thousands) | GCR | ODR | Total | | :--- | :--- | :--- | :--- | | Goodwill as of January 1, 2024 | $0 | $16,374 | $16,374 | | Goodwill as of December 31, 2024 | $4,244 | $28,790 | $33,034 | | Goodwill as of June 30, 2025 | $4,338 | $28,793 | $33,131 | - Goodwill increased slightly from $33.0 million at December 31, 2024, to $33.1 million at June 30, 2025, primarily due to measurement period adjustments related to the Kent Island and Consolidated Mechanical acquisitions[61][63] Intangible Assets (excluding goodwill) (in thousands) | (in thousands) | June 30, 2025 Net | December 31, 2024 Net | | :--- | :--- | :--- | | Customer relationships | $23,722 | $25,696 | | Backlog | $1,125 | $2,250 | | Trade name, trademarks and intellectual property | $2,859 | $3,322 | | Total amortized intangible assets | $27,706 | $31,268 | | Unamortized trade name – Limbach | $9,960 | $9,960 | | Total intangible assets, excluding goodwill | $37,666 | $41,228 | - Total amortization expense for definite-lived intangible assets was $1.8 million for Q2 2025 (up from $1.0 million in Q2 2024) and $3.6 million for H1 2025 (up from $2.1 million in H1 2024), reflecting recent acquisitions[64] Note 6 – Debt This note details the company's long-term debt obligations, including revolving loans, finance leases, and related agreements Long-term Debt (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | A&R Wintrust Revolving Loans | $10,000 | $10,000 | | Finance leases | $17,831 | $11,888 | | Financing liability | $5,351 | $5,351 | | Total debt | $33,182 | $27,239 | | Long-term debt (net of current portion, discount/costs) | $28,397 | $23,554 | - On June 27, 2025, the Second A&R Wintrust Credit Agreement was amended to increase the revolving credit facility from $50.0 million to $100.0 million, extend the maturity date to July 1, 2030, and increase the L/C sublimit to $20.0 million[71][215] - The Company had $10.0 million outstanding on the revolving loan as of June 30, 2025, with a weighted average annual interest rate of 5.70% for Q2 2025[74] - A sale-leaseback transaction for the Pontiac, MI facility was accounted for as a finance lease, resulting in a $5.0 million financing liability (net of issuance costs) as of June 30, 2025[81][82] Note 7 – Equity This note provides details on the company's equity structure, including incentive plans and employee stock purchase programs - The Company's Omnibus Incentive Plan authorizes 3,050,000 shares for equity awards, with amendments approved in April 2025 related to treatment of death, disability, retirement, and reduction in force[85][86][132][134] - The Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at 85% of fair market value, with 380,545 shares remaining available for future issuance as of June 30, 2025[87][88] Note 8 – Fair Value Measurements This note describes the company's fair value hierarchy and valuation methods for financial assets and liabilities - The Company uses a fair value hierarchy (Level 1, 2, 3) for financial assets and liabilities. Cash equivalents (overnight repurchase agreements) are classified as Level 1[89][91][93] - Contingent earnout payments for ACME, Industrial Air, Kent Island, and Consolidated Mechanical acquisitions are valued using the Monte Carlo Simulation method (Level 3 measurement)[94][95][96][97][98] Contingent Earnout Payment Obligations (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | First Kent Island Earnout Period | $2,433 | $2,297 | | First Consolidated Mechanical Earnout Period | $683 | $402 | | Second ACME Earnout Period | $2,000 | $1,713 | | Second IA Earnout Period | $3,500 | $3,222 | | Second Kent Island Earnout Period | $2,286 | $2,201 | | Second Consolidated Mechanical Earnout Period | $511 | $355 | | Total | $11,413 | $13,190 | - An interest rate swap agreement with a notional amount of $10.0 million and a fixed rate of 3.12% is classified as a Level 2 fair value measurement. A loss of $0.1 million and $0.2 million was recognized for the three and six months ended June 30, 2025, respectively[73][101] Note 9 – Earnings per Share This note presents the calculation of basic and diluted earnings per share for the reported periods Earnings Per Share (EPS) | (in thousands, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $7,762 | $5,963 | $17,976 | $13,549 | | Basic EPS | $0.67 | $0.53 | $1.56 | $1.21 | | Diluted EPS | $0.64 | $0.50 | $1.48 | $1.13 | - Basic EPS increased to $0.67 for Q2 2025 (from $0.53 in Q2 2024) and $1.56 for H1 2025 (from $1.21 in H1 2024). Diluted EPS also increased to $0.64 for Q2 2025 (from $0.50 in Q2 2024) and $1.48 for H1 2025 (from $1.13 in H1 2024)[103] Note 10 – Income Taxes This note provides details on the company's income tax expense, effective tax rates, and the impact of tax law changes Income Tax Expense and Rate | (in thousands, except percentages) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $3,002 | $2,395 | $779 | $2,068 | | Income tax rate | 27.9% | 28.7% | 4.2% | 13.2% | - The effective tax rate for the six months ended June 30, 2025, was significantly lower at 4.2% (compared to 13.2% in H1 2024), primarily due to 'excess tax benefits on stock-based compensation' recognized discretely in Q1 2025, which reduced the rate by 53.5%[106] - Newly enacted federal legislation on U.S. federal tax law on July 4, 2025, is being assessed and its effects are expected to be reflected in Q3 2025[107][160] Note 11 – Operating Segments This note presents financial information by operating segment, detailing revenue and gross profit for ODR and GCR - The Company operates in two segments: Owner Direct Relationships (ODR) and General Contractor Relationships (GCR). Segment information is reviewed by the President and CEO and Executive Vice President and CFO[108] Segment Revenue (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | ODR Revenue | $108,948 | $82,754 | $199,341 | $157,010 | | GCR Revenue | $33,293 | $39,481 | $76,008 | $84,201 | | Total Revenue | $142,241 | $122,235 | $275,349 | $241,211 | Segment Gross Profit (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | ODR Gross Profit | $31,589 | $25,362 | $57,750 | $47,523 | | GCR Gross Profit | $8,237 | $8,146 | $18,795 | $17,073 | | Total Gross Profit | $39,826 | $33,508 | $76,545 | $64,596 | Note 12 - Leases This note provides details on the company's lease arrangements, including right-of-use assets, lease liabilities, and lease costs - The Company leases real estate, vehicles, and other equipment, electing not to separate non-lease components from lease components[111][112] Lease Assets and Liabilities (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Operating lease right-of-use assets | $21,165 | $21,539 | | Finance lease assets (Property and equipment, net) | $19,326 | $13,966 | | Total lease assets | $40,491 | $35,505 | | Current operating lease liabilities | $4,133 | $4,093 | | Current finance lease liabilities (Current portion of long-term debt) | $4,423 | $3,314 | | Long-term operating lease liabilities | $17,433 | $17,766 | | Long-term finance lease liabilities (Long-term debt) | $18,759 | $13,925 | | Total lease liabilities | $44,748 | $39,098 | Lease Costs (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Operating lease cost (Cost of revenue) | $911 | $743 | $1,769 | $1,331 | | Operating lease cost (SG&A) | $419 | $599 | $866 | $1,325 | | Finance lease amortization (Cost of revenue) | $1,042 | $754 | $1,971 | $1,494 | | Finance lease interest (Interest expense, net) | $196 | $116 | $372 | $235 | | Total lease cost | $2,568 | $2,212 | $4,978 | $4,385 | - The Company has related party operating lease agreements for facilities with former members of acquired entities (Jake Marshall and Industrial Air) and a sublease agreement for its Southern California office space, generating approximately $0.3 million and $0.6 million in income for the three and six months ended June 30, 2025, respectively[113][115][118] Note 13 – Commitments and Contingencies This note outlines the company's 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 its financial position[125] - Surety bonds outstanding totaled approximately $107.3 million as of June 30, 2025, securing payment and performance obligations under construction contracts[126] - 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 the Company is not currently aware of significant related liabilities[127] Self-Insurance Liability (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current liability — workers' compensation and general liability | $418 | $395 | | Current liability — medical and dental | $558 | $485 | | Non-current liability | $367 | $505 | | Total liability | $1,343 | $1,385 | | Restricted cash | $65 | $65 | Note 14 – Management Incentive Plans This note details the company's equity-based incentive plans, including various types of RSU awards and associated compensation expense - The Omnibus Incentive Plan allows for various equity awards, with 3,050,000 shares reserved for issuance. Amendments in April 2025 addressed treatment of awards in cases of death, disability, retirement, and reduction in force[131][132][134] - Service-based RSUs vest ratably over one to three years, with $0.6 million in non-cash compensation expense recognized for Q2 2025 and $1.1 million for H1 2025[135] - Performance-based RSUs (PRSUs) are earned based on company performance metrics (e.g., adjusted EBITDA), with $0.7 million in non-cash compensation expense recognized for Q2 2025 and $1.4 million for H1 2025[137][138] - Market-based RSUs (MRSUs) were granted in Q1 2025, vesting based on the Company's TSR relative to the Russell 2000 Index, with $0.4 million in non-cash compensation expense recognized for Q2 2025 and $0.7 million for H1 2025[140][142] - Total unrecognized stock-based compensation expense for unvested RSUs was $10.3 million at June 30, 2025, expected to be recognized over a weighted average period of 1.87 years[144] Note 15 – Subsequent Events This note discloses significant events that occurred after the balance sheet date, specifically a recent acquisition - On July 1, 2025, the Company acquired Pioneer Power, Inc. (PPI), a mechanical contractor, for $66.1 million, funded by cash and its revolving credit facility. This acquisition expands the Company's geographic footprint and customer base in the Midwest[145] - The initial purchase price allocation for the PPI acquisition is not yet available and will be disclosed in a future filing[146] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, segment performance, and outlook, including liquidity, capital resources, and critical accounting policies Overview This overview describes Limbach Holdings, Inc.'s core business as a building systems solutions firm and its operating segments - Limbach Holdings, Inc. is a building systems solutions firm focused on mechanical, electrical, and plumbing infrastructure, serving mission-critical systems in healthcare, industrial, data centers, life sciences, higher education, and cultural/entertainment sectors[148][152] - The Company operates in two segments: Owner Direct Relationships (ODR) for direct projects and maintenance, and General Contractor Relationships (GCR) for new construction or renovation projects[149] Key Components of Condensed Consolidated Statements of Operations This section details the primary components of the condensed consolidated statements of operations, including revenue, costs, and expenses - Revenue is primarily from fixed-price construction contracts (cost-to-cost method) and time and materials service contracts (as services are performed), with contract durations typically 3 months to 2 years[150] - Cost of revenue includes labor, equipment, material, subcontract, and other job costs, with historical fluctuations expected to continue[153] - Selling, General and Administrative (SG&A) expenses cover personnel costs for administrative, estimating, HR, safety, IT, legal, finance, and accounting teams, along with non-personnel costs like professional fees and corporate expenses[154] - Changes in fair value of contingent consideration relate to remeasurement of earnout arrangements from acquisitions (ACME, Industrial Air, Kent Island, Consolidated Mechanical)[155] - Amortization of intangibles includes periodic non-cash charges for favorable leasehold interests and customer relationships from acquisitions[156] - Other (expenses) income primarily consists of interest expense, gains/losses on property disposition, changes in fair value of interest rate swaps, and interest income[157] - Income tax provision is calculated based on the estimated annual effective tax rate, with recent federal tax law changes expected to impact Q3 2025[158][159][160] Impact of Acquisitions This section outlines the strategic impact and financial details of recent acquisitions, including Kent Island Mechanical and Consolidated Mechanical - The acquisition of Kent Island Mechanical on September 3, 2024, for $15.0 million (plus potential $5.0 million earnout) expanded the Company's market share in the Greater Washington, DC metro area and supports ODR growth[162] - The acquisition of Consolidated Mechanical on December 2, 2024, for $23.0 million (plus potential $2.0 million earnout) extended the Company's reach into the heavy industrial, power, and commercial markets in Kentucky, Illinois, and Michigan[163] Operating Segments This section describes the company's two operating segments, Owner Direct Relationships (ODR) and General Contractor Relationships (GCR), used for business performance management - The Company manages and measures its business performance through two operating segments: Owner Direct Relationships (ODR) and General Contractor Relationships (GCR)[164] - All ODR work is aggregated into one ODR reportable segment, and all GCR work into one GCR reportable segment, with inter-segment transactions eliminated[165] Comparison of Results of Operations for the three months ended June 30, 2025 and 2024 This section compares the company's financial performance for the three months ended June 30, 2025, against the same period in 2024 Revenue Revenue (Q2 YoY) | (in thousands) | Q2 2025 | Q2 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | ODR Revenue | $108,948 | $82,754 | $26,194 | 31.7% | | GCR Revenue | $33,293 | $39,481 | $(6,188) | (15.7)% | | Total Revenue | $142,241 | $122,235 | $20,006 | 16.4% | - Total revenue increased by 16.4% due to a 31.7% increase in ODR revenue, driven by accelerated ODR business growth and the Consolidated Mechanical acquisition. GCR revenue decreased by 15.7% as the Company shifted focus to ODR, partially offset by Kent Island operations[167] Gross Profit Gross Profit (Q2 YoY) | (in thousands) | Q2 2025 | Q2 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | ODR Gross Profit | $31,589 | $25,362 | $6,227 | 24.6% | | GCR Gross Profit | $8,237 | $8,146 | $91 | 1.1% | | Total Gross Profit | $39,826 | $33,508 | $6,318 | 18.9% | | Total Gross Profit % of Revenue | 28.0% | 27.4% | | | - Total gross profit increased by 18.9%, with ODR gross profit up 24.6% despite slightly lower segment margins (29.0% vs 30.6%) due to non-recurring project write-ups in Q2 2024. GCR gross profit increased 1.1% due to higher segment margins (24.7% vs 20.6%) despite lower revenue[168] - The overall gross profit percentage increased from 27.4% to 28.0%, driven by a higher mix of ODR work and selective GCR project pursuit[168] - In Q2 2025, a material gross profit write-down of $0.6 million occurred on one GCR project. In Q2 2024, material gross profit write-ups totaled $1.5 million for ODR projects and $1.5 million for GCR projects[169] Selling, General and Administrative SG&A Expense (Q2 YoY) | (in thousands) | Q2 2025 | Q2 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | SG&A Expense | $26,632 | $23,176 | $3,456 | 14.9% | | SG&A % of Total Revenue | 18.7% | 19.0% | | | - SG&A expense increased by 14.9% due to a $1.7 million increase in professional services fees (including PPI acquisition costs) and a $1.6 million increase in payroll-related expenses, including costs from Kent Island and Consolidated Mechanical[170] - Despite the increase in absolute terms, SG&A as a percentage of revenue decreased from 19.0% to 18.7%[170] Change in Fair Value of Contingent Consideration - The change in fair value of contingent consideration resulted in an expense of $0.8 million for Q2 2025, down from $1.1 million in Q2 2024. These increases to the contingent liability are due to the timing and probability of meeting gross profit margins for earnout arrangements[171][172] Amortization of Intangibles Amortization of Intangibles (Q2 YoY) | (in thousands) | Q2 2025 | Q2 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | Amortization of intangibles | $1,757 | $1,031 | $726 | 70.4% | - Amortization expense increased by 70.4% due to the Kent Island and Consolidated Mechanical acquisitions, which were not owned in Q2 2024[173] Other Income (Expenses) Other Income (Expenses) (Q2 YoY) | (in thousands) | Q2 2025 | Q2 2024 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Interest expense | $(563) | $(432) | $(131) | 30.3% | | Interest income | $334 | $546 | $(212) | (38.8)% | | Gain on disposition of property and equipment | $407 | $66 | $341 | 516.7% | | Loss on change in fair value of interest rate swap | $(56) | $(12) | $(44) | 366.7% | | Total other income (expenses) | $122 | $168 | $(46) | (27.4)% | - Total other income decreased by 27.4%, primarily due to a $0.2 million decrease in interest income (reduced cash balances, lower yields) and a $0.1 million increase in interest expense (larger vehicle fleet, higher financing costs), partially offset by a $0.3 million increase in gains from property dispositions[174] Income Taxes - Income tax provision was $3.0 million for Q2 2025 (effective rate 27.9%) compared to $2.4 million for Q2 2024 (effective rate 28.7%)[175] Comparison of Results of Operations for the six months ended June 30, 2025 and 2024 This section compares the company's financial performance for the six months ended June 30, 2025, against the same period in 2024 Revenue Revenue (H1 YoY) | (in thousands) | H1 2025 | H1 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | ODR Revenue | $199,341 | $157,010 | $42,331 | 27.0% | | GCR Revenue | $76,008 | $84,201 | $(8,193) | (9.7)% | | Total Revenue | $275,349 | $241,211 | $34,138 | 14.2% | - Total revenue increased by 14.2% due to a 27.0% increase in ODR revenue, driven by continued focus on ODR growth and the Consolidated Mechanical acquisition. GCR revenue decreased by 9.7% as the Company executed its mix-shift strategy to ODR, partially offset by Kent Island operations[177] Gross Profit Gross Profit (H1 YoY) | (in thousands) | H1 2025 | H1 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | ODR Gross Profit | $57,750 | $47,523 | $10,227 | 21.5% | | GCR Gross Profit | $18,795 | $17,073 | $1,722 | 10.1% | | Total Gross Profit | $76,545 | $64,596 | $11,949 | 18.5% | | Total Gross Profit % of Revenue | 27.8% | 26.8% | | | - Total gross profit increased by 18.5%, with ODR gross profit up 21.5% despite slightly lower segment margins (29.0% vs 30.3%) due to non-recurring project write-ups in H1 2024. GCR gross profit increased 10.1% due to higher margins on project work despite lower revenue[178] - The overall gross profit percentage increased from 26.8% to 27.8%, driven by the mix of higher-margin ODR segment work and selective GCR project pursuit[178] - In H1 2025, material gross profit write-ups on two GCR projects totaled $1.4 million. In H1 2024, material gross profit write-ups totaled $3.9 million for ODR projects and $1.7 million for GCR projects[179] Selling, General and Administrative SG&A Expense (H1 YoY) | (in thousands) | H1 2025 | H1 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | SG&A Expense | $53,150 | $46,052 | $7,098 | 15.4% | | SG&A % of Total Revenue | 19.3% | 19.1% | | | - SG&A expense increased by 15.4% due to a $3.6 million increase in payroll, a $2.2 million increase in professional services fees (including PPI acquisition costs), and a $0.5 million increase in non-cash stock-based compensation, including costs from Kent Island and Consolidated Mechanical[180] - SG&A as a percentage of revenue slightly increased from 19.1% to 19.3%[180] Change in Fair Value of Contingent Consideration - The change in fair value of contingent consideration resulted in an expense of $1.2 million for H1 2025, down from $1.7 million in H1 2024. These increases to the contingent liability are due to the timing and probability of meeting gross profit margins for earnout arrangements[181] Amortization of Intangibles Amortization of Intangibles (H1 YoY) | (in thousands) | H1 2025 | H1 2024 | Increase/(Decrease) | Change % | | :--- | :--- | :--- | :--- | :--- | | Amortization of intangibles | $3,620 | $2,088 | $1,532 | 73.4% | - Amortization expense increased by 73.4% due to the Kent Island and Consolidated Mechanical acquisitions, which were not owned in H1 2024[182] Other Income (Expenses) Other Income (Expenses) (H1 YoY) | (in thousands) | H1 2025 | H1 2024 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Interest expense | $(1,089) | $(907) | $(182) | 20.1% | | Interest income | $704 | $1,108 | $(404) | (36.5)% | | Gain on disposition of property and equipment | $740 | $557 | $183 | 32.9% | | (Loss) gain on change in fair value of interest rate swap | $(153) | $137 | $(290) | (211.7)% | | Total other income (expenses) | $202 | $895 | $(693) | (77.4)% | - Total other income decreased by 77.4%, primarily due to a $0.4 million decrease in interest income (reduced cash balances, lower yields), a $0.2 million increase in interest expense (larger vehicle fleet, higher financing costs), and a current period loss on interest rate swap, partially offset by a $0.2 million increase in gains from property dispositions[183] Income Taxes - Income tax provision was $0.8 million for H1 2025 (effective rate 4.2%) compared to $2.1 million for H1 2024 (effective rate 13.2%). The lower effective rate in H1 2025 was significantly impacted by 'excess tax benefits on stock-based compensation' recognized in Q1 2025[184] ODR and GCR Backlog Information This section provides details on the backlog for both ODR and GCR segments, indicating future revenue recognition Backlog Information (in millions) | Segment | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ODR Backlog | $233.1 | $225.3 | | GCR Backlog | $99.5 | $140.0 | - ODR backlog increased to $233.1 million (from $225.3 million at Dec 31, 2024), with 65% expected to be recognized as revenue in the remainder of 2025, reflecting continued focus on ODR growth[186] - GCR backlog decreased to $99.5 million (from $140.0 million at Dec 31, 2024), with 49% expected to be recognized as revenue in the remainder of 2025. This reduction is intentional, focusing on smaller, higher-margin projects and reducing risk[187] Market Update This section discusses current macroeconomic conditions, geopolitical risks, and supply chain challenges impacting the company's operations - The Company is monitoring evolving macroeconomic conditions, heightened geopolitical risks, and increased economic and trade policy uncertainty, which could impact global growth and inflationary pressures[188] - Supply chain vulnerabilities and pricing fluctuations persist due to global conflicts, tariffs, labor disruptions, and regulations. The Company is proactively collaborating with suppliers to mitigate these issues[188] - In economic uncertainty, large capital projects may be delayed or canceled, while service contracts and maintenance work often remain stable or increase. The Company's diversified offerings aim to reduce market volatility[189] Outlook for 2025 This section outlines the company's strategic objectives for 2025, focusing on profitability, ODR growth, margin expansion, and acquisitions - Key objectives for 2025 are to improve profitability and generate quality growth by shifting to the ODR segment, expand margins through evolved offerings, and scale the business through acquisitions[190] - The ODR segment's revenue as a percentage of total consolidated revenue increased to 72.4% in H1 2025, aligning with the 2025 target of 70%-80%. The Company is investing to expand ODR offerings, including digital solutions for building systems management[190][191] - In the GCR segment, the focus is on improving project execution and profitability by pursuing smaller, shorter-duration opportunities that leverage captive design and engineering services, reducing exposure to large, complex, non-owner direct projects[192] - The Company aims to expand margins by evolving offerings to be a 'one-stop-shop' for building owners, fostering long-term partnerships and capturing a greater share of the value chain[193] - Strategic acquisitions, such as the recent PPI acquisition, are a key part of the strategy to increase geographic footprint, supplement business models, address capability gaps, and enhance offerings[194] Seasonality, Cyclicality and Quarterly Trends This section describes how weather, cyclical patterns, and quarterly trends influence the company's construction and maintenance activities - Severe weather, particularly in northern climates, can slow construction productivity, shifting revenue and gross profit recognition. Mild weather may reduce demand for maintenance services, while severe weather may increase it[197][198] - Operations experience mild cyclicality, with increased maintenance and capital projects typically occurring in the third and fourth calendar quarters[198] Effect of Inflation and Tariffs This section addresses the impact of inflation and tariffs on material costs and the company's mitigation strategies - Prices of materials like steel, pipe, copper, and equipment are subject to fluctuations and increases. The Company includes cost escalation factors in bids and uses fixed-price purchase orders to mitigate impact[199] - Increased tariffs on imported steel and aluminum (e.g., 50% on certain products) have prompted domestic price increases. While ODR can often pass on cost increases due to short sales cycles, significant supply chain disruptions could delay projects and impact backlog conversion[200] Liquidity and Capital Resources This section details the company's liquidity position, capital resources, and cash flow management strategies Cash Flows Summary Cash Flow Information (in thousands) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,242 | $12,560 | | Net cash used in investing activities | $(2,152) | $(5,231) | | Net cash used in financing activities | $(8,080) | $(7,628) | | Net decrease in cash, cash equivalents and restricted cash | $(5,990) | $(299) | - Liquidity needs are primarily for working capital, capital expenditures, and strategic investments, historically funded by operating activities and borrowings[201] - Cash flows are impacted by working capital fluctuations, contract mix, commercial terms, and project delays. The Company assesses receivables for collectability and believes reserves are appropriate[202] Summarized Working Capital Information (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current assets | $208,970 | $220,334 | | Current liabilities | $(123,453) | $(151,037) | | Net working capital | $85,517 | $69,297 | | Current ratio | 1.69 | 1.46 | Cash Flows Provided by Operating Activities - Net cash provided by operating activities decreased to $4.2 million in H1 2025 (from $12.6 million in H1 2024), primarily due to an $18.8 million cash outflow from changes in contract assets and liabilities and a $7.3 million outflow from accrued expenses, partially offset by increased net income and changes in accounts payable/receivable[205][206] Cash Flows Used in Investing Activities - Net cash used in investing activities decreased to $2.2 million in H1 2025 (from $5.2 million in H1 2024), mainly due to lower purchases of property and equipment ($3.1 million in H1 2025 vs. $5.8 million in H1 2024), partially offset by proceeds from asset sales[207] - Capital additions primarily included tools, equipment, computer software/hardware, office furniture, and leasehold improvements[208] Cash Flows Used in Financing Activities - Net cash used in financing activities increased to $8.1 million in H1 2025 (from $7.6 million in H1 2024), driven by $10.7 million in taxes for net share settlement of equity awards, $1.8 million for finance lease payments, and $2.3 million for contingent consideration payments[209] - These outflows were partially offset by $6.3 million from the sale of shares to cover employee taxes and $0.4 million from ESPP contributions[209] Cash Flow Summary - Management expects ODR business growth to positively impact cash flow trends, as it is less sensitive to cash flow issues from large GCR projects[212] - The Company believes its cash balance ($38.9 million), future operating cash flows, and $84.9 million available under its revolving credit facility are sufficient to meet working capital and capital expenditure requirements for at least the next 12 months[213] Debt and Related Obligations Long-term Debt (in thousands) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | A&R Wintrust Revolving Loans | $10,000 | $10,000 | | Finance leases | $17,831 | $11,888 | | Financing liability | $5,351 | $5,351 | | Total debt | $33,182 | $27,239 | | Long-term debt (net of current portion, discount/costs) | $28,397 | $23,554 | - The Second A&R Wintrust Credit Agreement was amended on June 27, 2025, increasing the revolving credit facility to $100.0 million, extending maturity to July 1, 2030, and increasing the L/C sublimit to $20.0 million[215] Surety Bonding - Surety bonds outstanding were approximately $107.3 million as of June 30, 2025 (down from $109.3 million at Dec 31, 2024). The Company believes its $1 billion bonding capacity provides a significant competitive advantage[216] Insurance and Self-Insurance - The Company is substantially self-insured for workers' compensation and general liability claims (with $250,000 per-incident deductibles) and for medical/dental claims (with annual stop-loss limits)[217][218] - Liabilities for reported and incurred but not reported claims are accrued and reflected as current and non-current liabilities on the balance sheets[217][218] Multiemployer Pension Plans - The Company participates in approximately 50 multiemployer pension plans (MEPPs) for union employees. Contributions are set by collective bargaining agreements but may increase based on funded status and Pension Protection Act requirements[219][220] - Some MEPPs are in 'critical' status, potentially requiring funding improvement or rehabilitation plans, which could increase contribution rates or alter benefits. The Company may incur withdrawal liability if it ceases or significantly reduces contributions to underfunded MEPPs[220][221][222] Critical Accounting Policies and Estimates This section highlights the significant accounting policies and estimates that require management's judgment in financial reporting - The preparation of financial statements requires management to make significant estimates and assumptions, including those related to revenue recognition on construction contracts, fair value accounting for acquisitions, insurance reserves, income tax valuation allowances, and contingent consideration[223] - No significant changes to critical accounting policies and estimates were identified during the three months ended June 30, 2025, compared to the Annual Report on Form 10-K for 2024[224] Recent Accounting Pronouncements This section refers to recent accounting pronouncements and their expected impact on the company's financial statements - Refer to Note 2 for a discussion of recent accounting pronouncements, including ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures)[225] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily focusing on interest rate risk related to its variable-rate debt and cash equivalents. It outlines how the Company manages these risks and assesses their potential impact on financial performance Interest Rate Risk This section details the company's exposure to interest rate fluctuations on its variable-rate debt and cash equivalents, and its hedging strategies - The Company's market risk exposure is primarily from changes in interest rates on its Second A&R Wintrust Revolving Loan, which had $10.0 million outstanding as of June 30, 2025[226] - An interest rate swap agreement with a $10.0 million notional value and a fixed interest rate is used to manage variable-rate debt risk, maturing in July 2027. Changes in its fair value are recognized directly in earnings[226] - Cash and cash equivalents, totaling $38.9 million at June 30, 2025 (mostly overnight repurchase agreements), are managed under a conservative investment policy, and the Company believes it is not exposed to significant risk[228] Item 4. Controls and Procedures This section details the management's evaluation of the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting. It also acknowledges the inherent limitations of any control system Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Management's assessment of the effectiveness of the company's disclosure controls and procedures as of June 30, 2025 - As of June 30, 2025, management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective[229] Changes in Internal Control over Financial Reporting Report on any material changes in internal control over financial reporting during the period - No changes in internal control over financial reporting were identified during the period covered by this 10-Q that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[230] Inherent Limitations on Effectiveness of Controls Acknowledgement of the inherent limitations of any control system in providing absolute assurance - Management acknowledges that no control system can provide absolute assurance of achieving desired objectives due to inherent judgments and assumptions[231] PART II. This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section refers to Note 13 of the Condensed Consolidated Financial Statements for information regarding legal proceedings - Information regarding legal proceedings is detailed in Note 13 to the Condensed Consolidated Financial Statements[233] Item 1A. Risk Factors This section states that 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 have occurred from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[234] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities and use of proceeds to report[235] Item 3. Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - There were no defaults upon senior securities[236] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[237] Item 5. Other Information This section provides other relevant information, specifically addressing Rule 10b5-1 Trading Plans Rule 10b5-1 Trading Plans Details on Rule 10b5-1 trading arrangements adopted or terminated by directors or officers - During the three months ended June 30, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[238] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, credit agreements, and certifications - Exhibits include the Conformed Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Amended and Restated Omnibus Incentive Plan, and the Second Amendment to the Second Amended and Restated Credit Agreement[240] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002 are filed herewith[240] SIGNATURES This section contains the official signatures of the registrant's authorized officers, confirming the due authorization and filing of the report Signature Details Details of the authorized signatories and the date of the report's filing - 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 5, 2025[243]