Limbach(US:LMB)2024-03-13 21:20Part I Business Overview The company is a building systems solutions firm that strategically shifted to higher-margin ODR projects in 2023, driving revenue and profit growth - Limbach Holdings, Inc is a building systems solution firm focused on mission-critical mechanical, electrical, and plumbing infrastructure for building owners and facilities managers across six vertical markets23 2023 Key Highlights | Metric | Value | Change vs 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $57.4 million | - | | Consolidated gross profit margin | 23.1% | +420 bps | | ODR segment revenue increase | 21.1% | - | | Segment revenue mix (ODR) | 50/50 target | Achieved | | Diluted earnings per share | $1.76 | +175% | - The company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR), with a key initiative to position ODR as a value-added, indispensable partner2425 - Strategic objectives include improving profitability, generating quality growth by increasing ODR revenue, expanding margins, and scaling the business through acquisitions31323334 Segment Revenue and Gross Profit (2023 vs 2022) | Segment | 2023 Revenue ($M) | 2022 Revenue ($M) | YoY Change (%) | 2023 Gross Profit Margin (%) | 2022 Gross Profit Margin (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | ODR | 262.0 | 216.4 | 21.1% | 29.0% | 25.5% | | GCR | 254.4 | 280.4 | (9.3)% | 17.0% | 13.8% | | Total | 516.4 | 496.8 | 3.9% | 23.1% | 18.9% | - In 2023, the company completed two acquisitions, ACME Industrial Piping, LLC and Industrial Air, LLC, to support its ODR growth strategy4344 - The company fully exited its Southern California GCR and ODR operations in 2023 as a strategic decision to reduce losses and align geographic focus46 Backlog as of December 31 (2023 vs 2022) | Segment | 2023 Backlog ($M) | 2022 Backlog ($M) | YoY Change ($M) | Estimated 2024 Revenue Recognition (%) | | :--- | :--- | :--- | :--- | :--- | | GCR | 186.9 | 302.9 | (116.0) | 83% | | ODR | 147.0 | 108.2 | 38.8 | 95% | - The company faces intense competition from regional and national firms, with price often being a primary factor5253 - The company employs over 1,400 team members and focuses on attracting and retaining talent through competitive benefits and a strong safety culture5556575868 Risk Factors The company faces material risks from industry competition, customer dependency, contract uncertainties, acquisition integration, and macroeconomic factors - The company faces intense competition, potential loss of market share, and reduced profits due to numerous competitors7980 - Dependence on a limited number of customers, especially in the GCR segment, poses a risk to operations if business is lost or payments are delayed82 - Contract backlog is an uncertain indicator of future earnings and is subject to adjustments, cancellations, and the risk of cost overruns838485 - Acquisitions and divestitures carry risks of failing to achieve objectives, disrupting business, and difficulties in integration9899100101 - The company is exposed to risks from labor disputes, inability to attract and retain qualified personnel, and employee misconduct106107110111112 - Fluctuations in material costs, supply chain disruptions, and rising inflation/interest rates could adversely impact profitability116117118128129 - Failure to comply with debt covenants could lead to acceleration of debt maturity and severely impact liquidity and operations132133134135136137 - The company's obligation to contribute to multiemployer pension plans (MEPPs) could result in significant future liabilities138139140 - Cybersecurity threats and information technology system failures pose risks of data breaches and operational disruptions157158159 - Adverse weather, climate change, and evolving ESG expectations could impose additional costs and affect operations144145146147148149154155156157 Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC Cybersecurity The company manages cybersecurity risk through a NIST-aligned program overseen by its Board of Directors and CIO - The company's cybersecurity risk management program aligns with the National Institute of Standards and Technology (NIST) Cybersecurity Framework182 - The Board of Directors actively oversees cybersecurity risks, receiving regular briefings from senior management187189 - Key cybersecurity initiatives include advanced technology solutions, employee education, regular assessments, and threat intelligence analysis185 - The CIO, Christos Ruci, is primarily responsible for assessing, monitoring, and managing the cybersecurity program190191 - As of the report date, the company has not encountered any cybersecurity incidents deemed material to the company as a whole192 Properties The company operates 19 leased offices across the eastern US, with facilities deemed adequate for current needs - The principal executive offices are located at 797 Commonwealth Drive, Warrendale, Pennsylvania193 - The company operates 19 offices across the eastern United States, with all business units supporting both GCR and ODR operating segments193 Selected Office Locations and Status | Business Unit / Location | Ownership Status | Approximate Size (sq ft) | | :--- | :--- | :--- | | ACME Industrial Piping, LLC (Chattanooga, TN) | Leased | 51,766 | | Eastern Pennsylvania (Warrington, PA) | Leased | 27,443 | | Industrial Air, LLC (Greensboro, NC) | Leased | 71,672 | | Michigan (Pontiac, MI) | Leased | 74,000 | | Mid-Atlantic (Laurel, MD) | Leased | 50,133 | | New England (Wilmington, MA) | Leased | 30,995 | | Ohio (Columbus, OH) | Leased | 130,144 | | Orlando / Corporate (Lake Mary, FL) | Leased | 60,794 | | Western Pennsylvania / Corporate (Warrendale, PA) | Leased | 19,718 | | Southern California (Seal Beach, CA) | Leased | 88,507 | Legal Proceedings The company is involved in ordinary course legal proceedings, which are not expected to have a material adverse effect - The company is continually engaged in administrative proceedings, arbitrations, and litigation with various parties in the ordinary course of business195514 - In November 2023, the company settled a lawsuit with Bernards Bros Inc for approximately $2.2 million515 - Management believes that the results of these legal actions will not have a material adverse effect on the company's financial position, results of operations, or cash flows514 Mine Safety Disclosures The company states that mine safety disclosures are not applicable Information About Our Executive Officers This section provides biographical information for the company's key executive officers Executive Officers | Name | Age | Title | | :--- | :-- | :--- | | Michael M McCann | 42 | President, Chief Executive Officer and Director | | Jayme L Brooks | 53 | Executive Vice President and Chief Financial Officer | | Jay A Sharp | 58 | President of Limbach | | Nicholas S Angerosa | 47 | President of Harper Limbach | - Michael M McCann was appointed President and CEO in March 2023, succeeding Charles A Bacon, III198 - Jayme L Brooks has served as Executive Vice President and CFO since October 2019199 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'LMB', with 1,206,476 warrants exercised on a cashless basis in 2023 - The company's common stock is traded on The Nasdaq Capital Market under the symbol 'LMB'204 - As of March 12, 2024, there were 32 holders of record of the company's common stock205 Warrant Exercise Summary (Year Ended December 31, 2023) | Warrant Type | Number Exercised | Shares Issued (Cashless) | Proceeds to Company | | :--- | :--- | :--- | :--- | | $15 Exercise Price Sponsor Warrants | 600,000 | 167,564 | None | | Merger Warrants | 606,476 | 274,742 | None | | Total | 1,206,476 | 442,306 | None | - The remaining 23,167 unexercised Merger Warrants expired by their terms on July 20, 2023206 [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations The company's strategic shift to ODR drove a 21.1% segment revenue increase, expanded gross margins to 23.1%, and boosted net income Overview - Limbach Holdings, Inc is a building systems solution firm with over 1,400 team members specializing in mission-critical systems209 - The company's core market sectors include healthcare, industrial and manufacturing, data centers, life science, higher education, and cultural and entertainment210 - Operations are divided into two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)210211 Key Components of Consolidated Statements of Operations - Revenue is primarily generated from fixed-price construction contracts and time and materials service contracts212 - Cost of revenue includes labor, material, and subcontract costs, while SG&A expenses cover administrative and corporate personnel costs214215 - Changes in the fair value of contingent consideration relate to the remeasurement of earnout arrangements from acquisitions216 - Amortization of intangibles includes non-cash charges for assets like customer relationships, with additions from recent acquisitions217218 - Other (expenses) income primarily consists of interest expense, interest income, and gains/losses on swaps and asset dispositions219 Impact of Acquisitions - In 2023, the company acquired ACME Industrial Piping, LLC for $5.0 million cash and Industrial Air, LLC for $13.5 million cash, plus potential earnouts223 - Both acquisitions support the ODR growth strategy by adding industrial maintenance and engineered air handling capabilities223 - The post-acquisition results of ACME and Industrial Air did not have a material impact on 2023 consolidated results due to transaction timing224 Divestitures - In February 2022, the company decided to wind down its Southern California GCR and ODR operations to reduce losses225 - By 2023, the company had fully exited the Southern California region, aside from certain warranty and sublease obligations225 Operating Segments - The company manages its business in two operating segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)226 - Following a CEO transition, the segment presentation was revised to focus on segment revenue and gross profit228 - All identifiable assets are located in the United States, and no single customer accounted for more than 10% of consolidated revenue in 2023511 Comparison of Results of Operations for the years ended December 31, 2023 and 2022 Consolidated Statement of Operations Data (2023 vs 2022) | Metric | 2023 ($M) | 2022 ($M) | YoY Change ($M) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | 516.35 | 496.78 | 19.57 | 3.9% | | Total gross profit | 119.29 | 93.74 | 25.55 | 27.3% | | Gross profit margin | 23.1% | 18.9% | +4.2% | - | | Selling, general and administrative | 87.40 | 77.88 | 9.52 | 12.2% | | Change in fair value of contingent consideration | 0.73 | 2.29 | (1.56) | (68.1)% | | Amortization of intangibles | 1.88 | 1.57 | 0.31 | 19.7% | | Total operating income | 29.28 | 12.01 | 17.27 | 143.8% | | Total other expenses | (1.18) | (2.40) | 1.22 | 50.8% | | Income before income taxes | 28.10 | 9.61 | 18.49 | 192.4% | | Income tax provision | 7.35 | 2.81 | 4.54 | 161.6% | | Net income | 20.75 | 6.80 | 13.95 | 205.1% | Revenue by Segment (2023 vs 2022) | Segment | 2023 Revenue ($M) | 2022 Revenue ($M) | YoY Change ($M) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | GCR | 254.39 | 280.38 | (25.99) | (9.3)% | | ODR | 261.96 | 216.40 | 45.56 | 21.1% | | Total | 516.35 | 496.78 | 19.57 | 3.9% | - The decrease in GCR revenue was due to a focus on smaller, higher-margin projects, while ODR revenue growth was driven by accelerated initiatives and acquisitions231 Gross Profit by Segment (2023 vs 2022) | Segment | 2023 Gross Profit ($M) | 2022 Gross Profit ($M) | YoY Change ($M) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | GCR | 43.20 | 38.62 | 4.58 | 11.9% | | ODR | 76.09 | 55.12 | 20.97 | 38.0% | | Total | 119.29 | 93.74 | 25.55 | 27.3% | - Total gross profit percentage increased from 18.9% to 23.1%, primarily due to a mix shift towards higher-margin ODR work232 - SG&A expenses increased by $9.5 million (12.2%) in 2023, mainly due to higher payroll, stock-based compensation, and acquisition-related costs235 - The loss from change in fair value of contingent consideration decreased from $2.3 million to $0.7 million236 - Amortization of intangibles increased by $0.3 million, with $0.7 million attributable to recent acquisitions237 - Total other expenses decreased by $1.2 million, driven by a $1.2 million increase in interest income238239 Income Tax Provision and Effective Tax Rate (2023 vs 2022) | Metric | 2023 ($M) | 2022 ($M) | 2023 Effective Tax Rate (%) | 2022 Effective Tax Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Income tax provision | 7.35 | 2.81 | 26.1% | 29.2% | GCR and ODR Backlog Information - Backlog represents estimated revenue on uncompleted contracts for which the company has a written award or agreed-upon work order241 Backlog as of December 31 (2023 vs 2022) | Segment | 2023 Backlog ($M) | 2022 Backlog ($M) | YoY Change ($M) | Estimated 2024 Revenue Recognition (%) | | :--- | :--- | :--- | :--- | :--- | | GCR | 186.9 | 302.9 | (116.0) | 83% | | ODR | 147.0 | 108.2 | 38.8 | 95% | - The reduction in GCR backlog is intentional, reflecting a focus on higher-margin projects, while ODR backlog increased due to growth and acquisitions241242 Market Update - The company experiences strong demand but is impacted by inflation, elevated labor costs, and supply chain disruptions243 - Elevated cost inflation persisted in 2023 and is expected to continue in 2024, albeit at lower levels243 - Rising interest rates have increased interest expense, and prolonged equipment delays could materially affect business243245 Outlook for 2024 - For 2024, key objectives are to improve profitability, generate quality growth (especially in ODR), and acquire synergistic businesses246 - The company reaffirms its focus on expanding ODR relationships and leveraging full life-cycle engineered solutions247 - In the GCR segment, the focus remains on improving project execution and profitability on smaller, shorter-duration opportunities248 - The company continues to seek acquisitions that support the ODR growth strategy249 Seasonality, Cyclicality and Quarterly Trends - Severe weather can slow construction productivity, while maintenance demand increases with severe weather and decreases with mild weather253 - The company's operations experience mild cyclicality, with increased activity typically in the third and fourth quarters253 Effect of Inflation and Tariffs - The prices of materials and equipment are subject to fluctuation due to inflation, tariffs, and supply chain disruptions254 - The company experienced higher material costs and supply chain delays in 2023 and 2022, expecting these to persist in 2024254 Liquidity and Capital Resources - Liquidity needs primarily relate to working capital, capital expenditures, and strategic investments255 Summary Cash Flow Information (2023 vs 2022) | Metric | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Net cash provided by operating activities | 57.37 | 35.37 | | Net cash used in investing activities | (17.09) | (0.50) | | Net cash used in financing activities | (16.49) | (13.35) | | Net increase in cash, cash equivalents and restricted cash | 23.78 | 21.53 | - Operating cash flows increased by $22.0 million in 2023, primarily due to a $68.0 million cash inflow from accounts receivable changes261 - Cash used in investing activities increased to $17.1 million in 2023, mainly due to cash outflows for the ACME and Industrial Air acquisitions262 - Cash used in financing activities was $16.5 million in 2023, including $21.5 million for term loan repayment, partially offset by $10.0 million in revolving loan proceeds264 Available Funding Capacity (as of December 31, 2023) | Item | Amount ($M) | | :--- | :--- | | Cash & cash equivalents | 59.83 | | Second A&R Wintrust Revolving Loan | 50.00 | | Less: Outstanding borrowings | (10.00) | | Less: Outstanding letters of credit | (4.07) | | Net credit agreement capacity available | 35.93 | | Total available funding capacity | 95.77 | - The company's long-term debt decreased from $31.8 million in 2022 to $22.7 million in 2023269 - Surety bonds outstanding decreased from $129.6 million in 2022 to $90.9 million in 2023, with an $800 million bonding capacity270 - The company is substantially self-insured for workers' compensation, general liability, medical, and dental claims271272 - The company contributes to approximately 40 multiemployer pension plans (MEPPs), with total contributions of $11.6 million in 2023273275542 Recent Accounting Pronouncements - The company adopted ASU 2016-13 (Credit Losses) on January 1, 2023, with no material impact276390 Critical Accounting Policies - The most significant accounting policy is revenue recognition from construction contracts, which requires significant estimates of total contract costs277278 - Critical judgment areas include collectability of receivables, self-insurance liabilities, and recoverability of goodwill and intangible assets277 - Changes in estimates for contract costs and profitability are recognized in the period determined, potentially causing fluctuations in gross profit280282283284 - Allowance for credit losses on receivables is developed using an aging method, considering customer creditworthiness and economic conditions286287 - Goodwill and indefinite-lived intangible assets are tested for impairment annually, with no impairment losses identified in 2023292293435437 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, this disclosure is not required Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, notes, and the independent auditor's report for 2023 and 2022 - Crowe LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting308 - Critical audit matters included the evaluation of variable consideration for fixed-price contracts and the accounting for acquisitions314315320 Consolidated Balance Sheet Highlights (as of December 31) | Metric | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Total assets | 304.44 | 294.56 | | Total liabilities | 183.52 | 199.11 | | Total stockholders' equity | 120.92 | 95.44 | | Cash and cash equivalents | 59.83 | 36.00 | | Accounts receivable, net | 97.76 | 124.44 | | Contract assets | 51.69 | 61.45 | | Current liabilities | 145.15 | 159.09 | | Long-term debt | 19.63 | 21.53 | Consolidated Statements of Operations Highlights (Years Ended December 31) | Metric | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Revenue | 516.35 | 496.78 | | Gross profit | 119.29 | 93.74 | | Operating income | 29.28 | 12.01 | | Net income | 20.75 | 6.80 | | Basic EPS | $1.93 | $0.65 | | Diluted EPS | $1.76 | $0.64 | Consolidated Statements of Cash Flows Highlights (Years Ended December 31) | Metric | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Net cash provided by operating activities | 57.37 | 35.37 | | Net cash used in investing activities | (17.09) | (0.50) | | Net cash used in financing activities | (16.49) | (13.35) | | Net increase in cash, cash equivalents and restricted cash | 23.78 | 21.53 | Report of Independent Registered Public Accounting Firm - Crowe LLP provided an unqualified opinion on the financial statements and internal control over financial reporting for Limbach Holdings, Inc as of December 31, 2023308 - The audit of internal control over financial reporting excluded the operations of ACME Industrial Piping, LLC and Industrial Air, LLC, acquired during 2023311 Critical Audit Matters - The evaluation of variable consideration and estimated costs for fixed-price contracts was a critical audit matter due to high subjectivity315316317318 - Accounting for acquisitions, specifically the fair value of contingent consideration, was identified as a critical audit matter320321 Consolidated Balance Sheets Consolidated Balance Sheet (as of December 31, 2023 and 2022) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $59,833 | $36,001 | | Accounts receivable, net | 97,755 | 124,442 | | Contract assets | 51,690 | 61,453 | | Total current assets | 217,000 | 225,990 | | Property and equipment, net | 20,830 | 18,224 | | Intangible assets, net | 24,999 | 15,340 | | Goodwill | 16,374 | 11,370 | | Total assets | $304,439 | $294,556 | | LIABILITIES | | | | Current portion of long-term debt | $2,680 | $9,564 | | Accounts payable, including retainage | 65,268 | 75,122 | | Contract liabilities | 42,160 | 44,007 | | Total current liabilities | 145,148 | 159,085 | | Long-term debt | 19,631 | 21,528 | | Total liabilities | 183,524 | 199,114 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | 120,915 | 95,442 | | Total liabilities and stockholders' equity | $304,439 | $294,556 | Consolidated Statements of Operations Consolidated Statements of Operations (Years Ended December 31, 2023 and 2022) | (in thousands, except share and per share data) | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $516,350 | $496,782 | | Cost of revenue | 397,060 | 403,041 | | Gross profit | 119,290 | 93,741 | | Selling, general and administrative | 87,397 | 77,879 | | Change in fair value of contingent consideration | 729 | 2,285 | | Amortization of intangibles | 1,880 | 1,567 | | Operating income | 29,284 | 12,010 | | Total other expenses | (1,184) | (2,402) | | Income before income taxes | 28,100 | 9,608 | | Income tax provision | 7,346 | 2,809 | | Net income | $20,754 | $6,799 | | Basic EPS | $1.93 | $0.65 | | Diluted EPS | $1.76 | $0.64 | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (Years Ended December 31, 2023 and 2022) | (in thousands, except share amounts) | Balance at Jan 1, 2022 | Stock-based comp | Repurchase | Net income | Balance at Dec 31, 2022 | Stock-based comp | Warrants issued | Net income | Balance at Dec 31, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common stock (shares) | 10,304,242 | - | - | - | 10,471,410 | - | 442,306 | - | 11,183,076 | | Common stock ($) | $1 | - | - | - | $1 | - | - | - | $1 | | Additional paid-in capital | $85,004 | $2,742 | ($148) | - | $87,809 | $4,910 | ($428) | - | $92,528 | | Treasury stock, at cost | - | - | ($2,000) | - | ($2,000) | - | - | - | ($2,000) | | Retained earnings | $2,833 | - | - | $6,799 | $9,632 | - | - | $20,754 | $30,386 | | Total Stockholders' Equity | $87,838 | $2,742 | ($2,000) | $6,799 | $95,442 | $4,910 | ($428) | $20,754 | $120,915 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Years Ended December 31, 2023 and 2022) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $57,366 | $35,373 | | Net cash used in investing activities | (17,092) | (495) | | Net cash used in financing activities | (16,490) | (13,353) | | Increase (decrease) in cash, cash equivalents and restricted cash | 23,784 | 21,525 | | Cash, cash equivalents and restricted cash, end of year | $59,898 | $36,114 | - Noncash investing and financing transactions in 2023 included earnout liabilities, new operating lease ROU assets, and new finance lease ROU assets332333 Notes to Consolidated Financial Statements Note 1 – Business and Organization - Limbach Holdings, Inc is a Delaware corporation headquartered in Warrendale, Pennsylvania335 - The company operates in two segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)336 Note 2 – Significant Accounting Policies - The consolidated financial statements are prepared in accordance with GAAP and involve significant management estimates337339 - Cash and cash equivalents include highly liquid investments with original maturities of three months or less340 - Restricted cash is held in an imprest account for funding workers' compensation and general liability claims342 - The company adopted ASU 2016-13 (Credit Losses) on January 1, 2023, with no material impact390 - Revenue from construction-type contracts is recognized over time using the cost-to-cost method355356358 - Goodwill and indefinite-lived intangible assets are evaluated for impairment annually on October 1st367368 - Property and equipment are recorded at cost and depreciated on a straight-line basis373376 - Deferred financing costs are amortized to interest expense, and stock-based compensation is measured at fair value380383 - Income taxes are accounted for using the asset and liability method384386 - The company is currently evaluating the impact of newly issued FASB standards on segment reporting and income tax disclosures395396 Note 3 – Acquisitions - On July 3, 2023, the company acquired ACME Industrial Piping, LLC for $5.0 million cash at closing, resulting in $2.2 million of goodwill400401403405 - ACME's acquired intangible assets, valued at $2.8 million, include customer relationships and trade name406409 - On November 1, 2023, the company acquired Industrial Air, LLC for $13.5 million cash at closing, resulting in $2.8 million of goodwill410411413416 - Industrial Air's acquired intangible assets, valued at $8.7 million, include customer relationships, trade name, and backlog417421 - The fair value of contingent earnout payments for both acquisitions was determined using the Monte Carlo Simulation method409491492 Note 4 – Revenue from Contracts with Customers - Revenue is primarily derived from construction-type and service contracts, recognized using the cost-to-cost method or as services are performed422 Contract Assets (as of December 31) | (in thousands) | 2023 | 2022 | Change ($M) | | :--- | :--- | :--- | :--- | | Costs and estimated earnings in excess of billings | $29,247 | $33,573 | (4,326) | | Retainage receivable | 22,443 | 27,880 | (5,437) | | Total contract assets | $51,690 | $61,453 | (9,763) | Contract Liabilities (as of December 31) | (in thousands) | 2023 | 2022 | Change ($M) | | :--- | :--- | :--- | :--- | | Billings in excess of costs and estimated earnings | $41,987 | $43,806 | (1,819) | | Provisions for losses | 173 | 201 | (28) | | Total contract liabilities | $42,160 | $44,007 | (1,847) | - The net overbilling position for contracts in process was ($12.7) million in 2023, compared to ($10.2) million in 2022430 - In 2023, the company recorded net gross profit write-ups of $0.9 million on GCR projects and a $1.0 million write-down on one ODR project233431 Remaining Performance Obligations (as of December 31, 2023) | Segment | Amount ($M) | Estimated 2024 Revenue Recognition (%) | | :--- | :--- | :--- | | GCR | 186.9 | 83% | | ODR | 127.3 | 95% | Note 5 – Goodwill and Intangible Assets Goodwill by Segment (as of December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | GCR | $— | $— | | ODR | 16,374 | 11,370 | | Total Goodwill | $16,374 | $11,370 | - Goodwill is entirely associated with the ODR segment, with the increase due to the ACME and Industrial Air acquisitions435439 - The company performs an annual qualitative assessment for goodwill impairment, and no impairment losses were identified in 2023 or 2022435437438 Net Intangible Assets (excluding goodwill) (as of December 31, 2023) | (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Intangible Assets | | :--- | :--- | :--- | :--- | | Customer relationships | $15,320 | ($5,249) | $10,071 | | Backlog | 2,560 | (1,264) | 1,296 | | Trade name, trademarks and intellectual property | 4,250 | (578) | 3,672 | | Trade name – Limbach (unamortized) | 9,960 | — | 9,960 | | Total | $32,090 | ($7,091) | $24,999 | - Total amortization expense for definite-lived intangible assets was $1.9 million in 2023 and $1.6 million in 2022442 Estimated Amortization Expense for Definite-Lived Intangible Assets | Year Ending | Estimated Amortization Expense ($M) | | :--- | :--- | | 2024 | 3.44 | | 2025 | 2.11 | | 2026 | 2.08 | | 2027 | 2.06 | | 2028 | 1.86 | | 2029 and thereafter | 3.49 | | Total | 15.04 | Note 6 – Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (as of December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Accrued payroll and related liabilities | $5,561 | $4,545 | | Accrued bonus and commissions | 12,254 | 9,682 | | Accrued insurance liabilities | 1,007 | 715 | | Accrued job costs | 2,710 | 1,913 | | Assurance-type warranty liabilities | 1,500 | 1,581 | | Estimated loss contingency | 650 | 2,182 | | Earnout Payments accrued, current | 5,719 | 2,859 | | Other accrued liabilities | 1,566 | 1,465 | | Total | $30,967 | $24,942 | - Assurance-type warranties are accrued as an expense within cost of revenue, with a balance of $1.5 million at December 31, 2023445446 Note 7 – Debt Long-Term Debt Obligations (as of December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | A&R Wintrust Term Loan | $— | $21,453 | | Wintrust Revolving Loans | 10,000 | — | | Finance leases – collateralized by vehicles | 7,347 | 4,954 | | Financing liability | 5,351 | 5,351 | | Total debt | $22,698 | $31,758 | | Less – Current portion of long-term debt | (2,680) | (9,564) | | Less – Unamortized discount and debt issuance costs | (387) | (666) | | Long-term debt | $19,631 | $21,528 | - On May 5, 2023, the company entered into a new credit agreement, increasing the revolving credit facility to $50.0 million and repaying the term loan462 - As of December 31, 2023, the company had $10.0 million in borrowings outstanding under the revolving loan468 - The credit agreement includes financial maintenance covenants, and the company was in compliance as of December 31, 2023467470 - A 2022 sale-leaseback transaction was accounted for as a financing transaction, resulting in a financing liability of $5.0 million471475477 Note 8 – Equity - In 2023, warrants were exercised on a cashless basis, resulting in the issuance of 442,306 shares of common stock479 - The 2023 Amended and Restated Omnibus Incentive Plan authorizes 3,050,000 shares of common stock for equity awards483 - The $2.0 million Share Repurchase Program was fully utilized by September 29, 2023485 - The Employee Stock Purchase Plan (ESPP) allows employees to purchase stock at an 85% discount, with 17,661 shares issued in 2023486 Note 9 – Fair Value Measurements - The company's cash equivalents are classified as Level 1 fair value measurements487488 - The fair value of the revolving loan is determined using discounted estimated future cash flows (Level 3 inputs)489 Contingent Earnout Payment Obligations (as of December 31, 2023) | (in thousands) | Fair Value (Level 3) | | :--- | :--- | | 2023 Jake Marshall Earnout Period | $3,000 | | First ACME Earnout Period | 429 | | First IA Earnout Period | 2,290 | | Second ACME Earnout Period | 1,188 | | Second IA Earnout Period | 875 | | Total | $7,782 | - The fair value of contingent earnout payments is determined using the Monte Carlo Simulation method (Level 3 measurement)490491492493 - The interest rate swap had a fair value of approximately $0.2 million (Level 2 measurement) as of December 31, 2023496 Note 10 – Earning per Share Earnings Per Share (Years Ended December 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $20,754 | $6,799 | | Weighted average shares outstanding – basic | 10,773 | 10,425 | | Weighted average shares outstanding – diluted | 11,812 | 10,677 | | Basic EPS | $1.93 | $0.65 | | Diluted EPS | $1.76 | $0.64 | - Diluted EPS calculation includes the dilutive effect of in-the-money warrants, nonvested RSUs, and the ESPP497499 Note 11 – Income Taxes Income Tax Provision (Years Ended December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total current tax provision | $7,696 | $3,308 | | Total deferred tax provision | (350) | (499) | | Income tax provision | $7,346 | $2,809 | Effective Tax Rate Reconciliation (Years Ended December 31) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Federal statutory income tax rate | 21.0% | 21.0% | | State income taxes, net of federal tax effect | 4.8% | 6.4% | | Stock based compensation – restricted stock | (1.1)% | 1.4% | | Permanent differences | 1.4% | 1.3% | | Tax credits | (0.5)% | (0.9)% | | Other | 0.6% | —% | | Effective tax rate | 26.1% | 29.2% | Net Deferred Tax Asset (as of December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total deferred tax assets | $14,019 | $13,081 | | Total deferred tax liabilities | (8,840) | (8,252) | | Net deferred tax asset | $5,179 | $4,829 | - Management concluded that deferred tax assets would be fully realized, and no valuation allowance was deemed necessary504 Note 12 – Operating Segments - The company operates in two reportable segments: General Contractor Relationships (GCR) and Owner Direct Relationships (ODR)507508 - Segment presentation was revised in 2023 to focus on segment revenue and gross profit509 Consolidated Segment Information (Years Ended December 31) | (in thousands) | 2023 Revenue | 2022 Revenue | 2023 Gross Profit | 2022 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | GCR | $254,392 | $280,379 | $43,200 | $38,622 | | ODR | 261,958 | 216,403 | 76,090 | 55,119 | | Total | $516,350 | $496,782 | $119,290 | $93,741 | Note 13 – Commitments and Contingencies - Management believes the ultimate resolution of various legal proceedings will not materially affect its financial position514 - Surety bonds outstanding were approximately $90.9 million as of December 31, 2023516 - Many craft labor employees are covered by collective bargaining agreements, requiring contributions to multi-employer pension plans (MEPPs)517 Self-Insurance Liability (as of December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Current liability — workers' compensation and general liability | $188 | $158 | | Current liability — medical and dental | 819 | 557 | | Non-current liability | 645 | 343 | | Total liability | $1,652 | $1,058 | | Restricted cash | $65 | $113 | Note 14 - Leases - The company leases real estate, trucks, and other equipment, classifying them as operating or finance leases522 - Related party operating leases were entered into with former owners of acquired entities524525526 - The Southern California sublease generated $1.2 million in income in 2023529 Lease Assets and Liabilities (as of December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total lease assets | $29,288 | $25,690 | | Total lease liabilities | $32,362 | $29,510 | Lease Costs (Years Ended December 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Operating lease cost | $4,734 | $5,182 | | Finance lease cost | $3,137 | $2,951 | | Total lease cost | $7,871 | $8,133 | Note 15 – Retirement Plan - The company maintains a 401(k) plan, with mandatory contributions of $2.6 million in 2023 and $2.4 million in 2022536 - No discretionary profit sharing contributions were made for 2023 or 2022536 Note 16 – Multiemployer Pension Plans - The company participates in approximately 40 multiemployer pension plans (MEPPs) for union employees537 - Total contributions to MEPPs were $11.6 million in 2023, down from $12.6 million in 2022542 - Some MEPPs are in 'critical' or 'endangered' status, potentially leading to increased contribution rates or withdrawal liabilities540 Selected Multiemployer Pension Plans (2023 PPA Zone Status) | Pension Fund | 2023 PPA Zone Status | 2022 PPA Zone Status | FIP/RP Status | 2023 Contributions ($M) | 2022 Contributions ($M) | | :--- | :--- | :--- | :--- | :--- | :--- | | Plumbers and Pipefitters Local Union No 43 | Green | Green | N/A | 1.50 | 1.21 | | Pipefitters Local 636 Defined Benefit Pension Fund | Green | Green | N/A | 1.44 | 1.48 | | Sheet Metal Workers Local Union No 80 Pension Fund | Green | Green | N/A | 1.26 | 1.25 | | Plumbers No 9 Benefit Fund Pipefitter | Green | Yellow | Implemented | 1.18 | 1.37 | | Sheet Metal Workers' National Pension Fund | Green | Green | N/A | 0.54 | 0.79 | | Plumbers & Pipefitters Local No 20 Pension Fund | Red | Red | Implemented | 0.63 | 0.54 | Note 17 – Management Incentive Plans - The Omnibus Incentive Plan allows for granting various equity awards to encourage profitability and growth547548 - Stock-based compensation expense for service-based RSUs was $1.5 million in 2023549 - Stock-based compensation expense for performance-based RSUs (PRSUs) was $3.4 million in 2023552553 - Market-based RSUs (MRSUs) expired on July 16, 2022, as the market condition was not achieved555556 - Total recognized stock-based compensation expense was $4.9 million in 2023 and $2.7 million in 2022557 Note 18 – Subsequent Events - On March 13, 2024, the company amended its credit agreement, increasing the L/C Sublimit to $10.0 million558 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with accountants Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023560 - Management also concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework562 - The assessment of internal control excluded recently acquired businesses, ACME and Industrial Air304 - There were no material changes in internal control over financial reporting during the fourth quarter of 2023561 Other Information A class action lawsuit was dismissed as moot, with the company agreeing to pay $0.3 million in attorneys' fees - A putative class action lawsuit regarding the record date for the 2022 Annual Meeting was dismissed as moot565567568 - The company agreed to pay $0.3 million in attorneys' fees and expenses to resolve the matter568 - No Rule 10b5-1 trading plans were adopted or terminated by executive officers and directors during Q4 2023570 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company states that this disclosure is not applicable Part III Directors, Executive Officers and Corporate Governance This item incorporates by reference information from the company's 2024 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement573 - The company's Code of Ethics is available on its investor relations website574 Executive Compensation This item incorporates by reference information from the company's 2024 Proxy Statement - Information on executive compensation is incorporated by reference from the company's 2024 Proxy Statement576 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This item incorporates by reference information from the company's 2024 Proxy Statement - Information on security ownership and equity compensation plans is incorporated by reference from the company's 2024 Proxy Statement577 Certain Relationships and Related Transactions, and Director Independence This item incorporates by reference information from the company's 2024 Proxy Statement - Information on related person transactions and director independence is incorporated by reference from the company's 2024 Proxy Statement578 Principal Accountant Fees and Services This item incorporates by reference information from the company's Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the company's Proxy Statement579 Part IV Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report - The report includes a comprehensive list of exhibits, such as merger agreements, organizational documents, and credit agreements581582583586 - Financial statement schedules are omitted as the information is included in the financial statements or notes thereto581584 Form 10-K Summary The company states that this item is not applicable