Limbach(LMB) - 2023 Q1 - Quarterly Report

FORM 10-Q Filing Information Provides basic identification details for Limbach Holdings, Inc.'s Form 10-Q filing for the quarter ended March 31, 2023 Registrant Details Details Limbach Holdings, Inc.'s incorporation, address, and filing period for the Form 10-Q - Registrant: LIMBACH HOLDINGS, INC.[2] - Incorporation: Delaware, USA[2] - Quarterly Period Ended: March 31, 2023[2] Securities and Filer Status 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] - Filer Status: Non-accelerated filer and Smaller reporting company[5] - Shell Company: No[6] - Common Stock Outstanding (as of May 5, 2023): 10,579,261 shares[6] Cautionary Note Regarding Forward-Looking Statements 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 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] - Statements are based on information available as of the filing date and management's current expectations, forecasts, and assumptions[12] - The Company does not undertake any obligations to update forward-looking statements, except as required by applicable securities laws[12] - 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][14] Part I. Financial Information Presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2023 Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for Q1 2023, including balance sheets, operations, equity, cash flows, and related notes Condensed Consolidated Balance Sheets 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 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 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 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 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] - Services include mechanical construction, HVAC service/maintenance, energy audits, engineering/design build, prefabrication, and sustainable building solutions[26] - Operates in two segments: General Contractor Relationships (GCR) for new construction/renovation, and Owner Direct Relationships (ODR) for direct projects, maintenance, and service[27] - Customers are in diverse industries including data centers, healthcare, industrial, higher education, and life sciences[26] Note 2 – Significant Accounting Policies 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][32] - Significant estimates include revenue recognition on construction contracts, intangibles, property and equipment, fair value accounting for acquisitions, insurance reserves, and contingent consideration[30] - Adopted ASU 2016-13 (Credit Losses) on January 1, 2023, using the modified retrospective method; no material impact on financial position or results[34] - Credit loss guidance is relevant to trade accounts receivable and contract assets, with greater risk identified for ODR-related service-type receivables[35] - 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] - Currently assessing the impact of ASU 2020-06 (Accounting for Convertible Instruments) which is effective for fiscal years beginning after March 31, 2024[40] Note 3 – Revenue from Contracts with Customers 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] - 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] - 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] - 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] - 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] Note 4 – Goodwill and Intangibles 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] - No impairment charges were recognized on goodwill or intangible assets during the three months ended March 31, 2023, and 2022[53] 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][55] Note 5 – Debt 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] - No borrowings were outstanding under the A&R Wintrust Revolving Loan as of March 31, 2023, and December 31, 2022[71] - The Company was in compliance with all financial maintenance covenants of the A&R Wintrust Loans as of March 31, 2023[72] - 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][77][78] - 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] Note 6 – Equity 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] 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] - 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] - 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] Note 7 – Fair Value Measurements 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] - 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] - 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] - 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] - 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] Note 8 – Earnings per Share 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 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] - No valuation allowance was required as of March 31, 2023, or December 31, 2022[99] Note 10 – Operating Segments 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] - 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] 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 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][107] - 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] - 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] - 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][112] 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 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] - 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] - Surety bonds outstanding totaled approximately $109,400 thousand as of March 31, 2023, securing payment and performance obligations[120] - 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] - 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][123] 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 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] - 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] - 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][130] - 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][133] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of Q1 2023 financial condition and operating results, covering business, segment performance, and liquidity 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] - 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] - Core market sectors include Healthcare, Data Centers, Industrial and light manufacturing, Higher Education, Cultural and entertainment, and Life sciences[139] Key Components of Condensed Consolidated Statements of Operations 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] - Cost of Revenue includes labor, equipment, material, subcontract, and other job costs, with historical fluctuations as a percentage of contract revenue[141] - 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] - 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] - 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] - 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] - Provision for Income Taxes is calculated based on the estimated annual effective tax rate, using the asset and liability method[147] Operating Segments 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][150] - Segment presentation was restated to conform to the current CODM's review, which no longer allocates SG&A or interest expense to segments[150][151] Comparison of Results of Operations for the three months ended March 31, 2023 and 2022 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] - 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] - 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] - 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] GCR and ODR Backlog Information 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][165] - 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] - 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] Market Update 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] - Elevated cost inflation is expected to persist in 2023, partially mitigated by pricing actions, supply chain improvements, and cost savings[168] - Rising interest rates are expected to increase interest expense in 2023[168] - Prolonged delays in critical equipment could lead to project terminations, materially impacting business[169] 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] - 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][172] - Plans to increase cash flow and operating income by acquiring strategically synergistic companies to address capability gaps and enhance service offerings[173] - Actively reducing risk and exposure to large, complex, non-owner direct projects due to unfavorable industry pricing and risks[175] Seasonality, Cyclicality and Quarterly Trends 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] - Maintenance operations are affected by mild or severe weather, with increased demand during severe conditions[176] - Operations experience mild cyclicality, with increased maintenance and capital projects in the third and fourth calendar quarters[176] Effect of Inflation and Tariffs 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] - Experienced higher material costs and supply chain delays in 2022 and Q1 2023, expected to persist[177] - Mitigation strategies include incorporating cost escalation factors into bids, limiting bid acceptance time, and using fixed-price purchase orders[177] Liquidity and Capital Resources 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] 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] - Investing activities used $800 thousand in Q1 2023, mainly for property and equipment purchases[184] - Financing activities used $3,200 thousand in Q1 2023, including term loan payments, taxes for equity awards, and finance lease payments[186] 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][190] - 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] - 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][197] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the period[200] - Management acknowledges inherent limitations in control systems, which cannot provide absolute assurance of achieving desired objectives[201] Part II Contains other information, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings Refers to Note 12 of the financial statements for detailed information regarding legal proceedings - Refer to Note 12 for details on legal proceedings[204] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - As of March 31, 2023, approximately $2,000 thousand of common stock was repurchased under the program[206] - No shares were repurchased during the three months ended March 31, 2023[206] Item 3. Defaults Upon Senior Securities Confirms that the company reported no defaults upon senior securities during the period - No defaults upon senior securities[207] Item 4. Mine Safety Disclosures States that this item is not applicable to the company's operations - Not applicable[208] Item 5. Other Information 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] - 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] - 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] - As of May 8, 2023, $10,000 thousand was outstanding under the Second A&R Wintrust Revolving Loan[209] - 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] - 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][213] Item 6. Exhibits 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] - Contains promotion letters for Michael M. McCann, Jay Sharp, and Nick Angerosa, and an employment transition agreement for Charles A. Bacon, III[216] - Lists the Limbach Facility Services LLC Performance Bonus Plan for Executives[216] - Includes the Second Amended and Restated Credit Agreement dated May 4, 2023, as Exhibit 10.6[216] - 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] 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] - Signed by Jayme L. Brooks, Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)[219] - Date of Signature: May 8, 2023[219]