A Building Systems Solu�ons Firm with Exper�se in Exis�ng Infrastructure
for Mechanical, Electrical, and Plumbing Systems
ANNUAL REPORT 2023
Limbach Holdings, Inc., (NASDAQ: LMB), with revenue of $516.4 million in 2023, is a building systems solution firm that
partners with building owners and facilities managers who have mission critical mechanical (heating, ventilation and air
conditioning), electrical and plumbing infrastructure. We strive to be an indispensable partner to our customers by providing
services that are essential to the operation of their businesses.
We work with building owners primarily in six vertical markets: healthcare, industrial and manufacturing, data centers, life
science, higher education and cultural and entertainment. We have more than 1,400 team members in 19 offices across the
eastern United States. Our team members uniquely combine engineering expertise with field installation skills to provide
custom solutions that leverage our full life-cycle capabilities, which allows us to address both the operational and capital
projects needs of our customers.
Financial Highlights
Total & ODR Revenue
($ in millions)
Total Revenue
ODR Revenue
2020
2021
2022
2023
ODR vs. GCR Rev. Segment Mix
($ in millions)
Total Gross Profit & Margin Expansion
($ in millions)
2023
Total Gross Profit
($ in millions)
Total Gross Margin
Percentage
2020
2021
2022
2023
To My Fellow Stockholders
I am pleased to share with you our progress and accomplishments for 2023, my first year as Limbach Holdings’ President
and CEO. Our journey to transform Limbach into a value-added solutions provider has been both challenging and
rewarding, and I am proud to say that our efforts are paying off.
Growing into Higher Returns
A few years ago, we identified an opportunity to leverage
our construction and engineering services experience,
relationships and knowledge to build a pure play building
systems solutions firm. Our objective was twofold: first, to
transform Limbach into a trusted partner to building owners
by providing value-added solutions to earn higher margins
and deliver greater returns to our stockholders; second, to
position Limbach in less competitive and volatile markets
for a stronger, more resilient company.
for
Through disciplined execution of this strategy, today we
are partnering with building owners who provide critical
services
their customers and must maintain
uninterrupted operations in their facilities. We provide
these building owners with solutions and services to
maintain and upgrade their mission-critical mechanical,
electrical and plumbing infrastructure. We are focused on
six key vertical markets – healthcare, industrial and
manufacturing, data centers,
life sciences, higher
education and cultural and entertainment. These are large
and growing markets with sustainable demand drivers.
We operate in two business segments, Owner Direct
Relationships (ODR) and General Contractor Relationships
(GCR). In our ODR segment we work directly with building
owners developing and proposing systems solutions, that
work accounts for 50.7% of our revenue in 2023. Our
GCR segment in 2023 accounted for 49.3% of our 2023
revenue.
Owner Direct Growth
We are focused on continuing to grow our ODR segment
because we have direct access to key decision-makers.
This allows us to develop collaborative relationships, and
we can convert
large
long-term engagements as customers learn about our
compelling value proposition. As we become embedded in
our customers’ businesses, we are often on-site
collaborating with their teams to develop customized
solutions that reduce costs and drive energy efficiencies.
initial small opportunities
into
This positions us to manage near-term maintenance needs
while developing comprehensive risk mitigation and cost
savings strategies for the future. As we add value, our goal is
to become an indispensable partner to our customers, helping
them avoid business disruption due to systems failure.
Our ODR segment generates reoccurring revenue at higher
margins than our GCR segment. As we grow our ODR
business, we can be more selective in taking on GCR
opportunities. As a result, we expect GCR revenue to
continue to decline. When the shift to ODR is complete, we
expect overall revenue to grow as we expand the ODR
business.
A recent example of our successful ODR model is our work
facilities’ owner. Our
with a Florida-based healthcare
relationship with this customer started out as a small
engagement, and they are now one of our top five customers
in that location. We have a fully embedded team on-site
collaborating closely with this customer on all aspects of
planning their operating and capital budgets, helping them
make critical decisions that will have a tangible impact on their
operational success.
Our goal is to provide our customers with unbiased analysis
on the integrity of their mechanical, electrical and plumbing
systems and make recommendations on opportunities to
leverage our engineering solutions to make improvements.
They know they can count on Limbach to develop optimal,
cost-effective solutions that ensure uninterrupted service,
lower their environmental footprint and increase cost savings.
This is how we add value and is a key strategy for us to grow
into higher returns.
Evolved Service Offerings
We believe we have significant organic growth opportunities
as we continue to expand our ODR business with existing
customers. For example, we invested approximately $4
million in portable air chillers and other rental equipment to
for our
provide urgent and critical systems solutions
customers. This strategic investment will allow us to expand
our service offerings and grow our market share with existing
customers.
Growth Through Acquisition
Strategic acquisitions are another critical component of our
long-term growth plan. We take a disciplined and selective
approach to acquiring companies that meet our key
criteria: companies that have an attractive operating
footprint, support our ODR growth strategy, have an
attractive business model with a compelling valuation and
for service capability
structure, have an opportunity
expansion, and most importantly, fits in with our culture.
We are establishing a track record of making successful
and accretive acquisitions, and in 2023, we acquired two
companies – ACME Industrial Piping, LLC (“ACME”) and
Industrial Air, LLC (“Industrial Air”). ACME was a tuck-in
that provided new ODR owner direct
acquisition
relationships with on-premises teams at Fortune 500
caliber customers in the manufacturing vertical. Industrial
Air expanded our geographic reach in North Carolina,
providing additional ODR customer relationships with
consumer goods and textile manufacturing facilities.
We believe successful strategic acquisitions combined with
organic growth will drive profitability while creating value
for our stockholders. In 2023 we delivered significant
earnings growth and cash flow while maintaining a strong
balance sheet. We also accelerated our mix shift to ODR,
exceeding our 50 percent revenue target. We are focused
on achieving our 2025 ODR revenue target of more than
70 percent.
Other key accomplishments in 2023 were:
● Expanding total gross margins by 420 basis points
to 23.1 percent from 18.9 percent last year;
● Increasing ODR gross margins to 29 percent,
exceeding our target range of 25 to 28 percent; and
● Increasing GCR gross margins to 17 percent for the
year, also exceeding our target range of 12 to 15
percent as we honed our focus on higher margin
quick-hitting projects.
While 2023 was a year of tremendous growth and
achievement, we believe we are in the early innings of
capitalizing on our long-term opportunity. We are poised for
continued progress as we execute against all three pillars
of our strategy:
● Continue to shift our mix to higher margin ODR
revenue through organic growth;
● Expand our margins with evolved offerings; and
● Scale through strategic acquisitions and increase
our building owner market share.
the
focus on
In addition, we will continue our commitment to best in
class governance as we
long-term
sustainability of our 123-year-old Company. We are
committed to building sustained enterprise value to benefit
all stakeholders – stockholders, customers, employees and
vendors. We could not do what we do without each of you.
Thank you all for your support and contributions to
Limbach’s success.
Sincerely,
Michael M. McCann
President and Chief Executive Officer
Limbach Holdings, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36541
LIMBACH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
797 Commonwealth Drive,
Warrendale, Pennsylvania
(Address of principal executive offices)
46-5399422
(I.R.S. Employer Identification
No.)
15086
(Zip Code)
(Registrant's telephone number, including area code): 412-359-2100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.0001 per share LMB
Trading
Symbol(s)
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨
Non-accelerated filer
¨
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☒
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicated by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements
of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant
to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The aggregate market value of the common stock held by non-affiliates of the registrant, computed as of June 30, 2023 (the last business
day of the registrant’s most recently completed second fiscal quarter), was approximately $241.0 million.
As of March 12, 2024, the number of shares outstanding of the registrant’s common stock was 11,131,702.
Documents Incorporated by Reference: Portions of the registrant’s definitive proxy statement relating to the registrant’s 2023 Annual
Meeting of Stockholders to be filed hereafter are incorporated by reference into Part III of this Annual Report on Form 10-K.
LIMBACH HOLDINGS, INC.
FORM 10-K
TABLE OF CONTENTS
Part I.
Item 1.
Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 1C. Cybersecurity
Item 2.
Item 3.
Properties.
Legal Proceedings.
Item 4. Mine Safety Disclosures.
Information About Our Executive Officers
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Item 6.
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Item 8.
Item 9.
Financial Statements and Supplementary Data.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III.
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14.
Principal Accountant Fees and Services.
Part IV.
Item 15. Exhibits, Financial Statement Schedules.
Item 16.
Form 10-K Summary.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including all documents incorporated by reference, contains forward-looking statements
regarding Limbach Holdings, Inc. (the “Company”, “Limbach”, “we” or “our”) and represents our expectations and beliefs
concerning future events. These forward-looking statements are intended to be covered by the safe harbor for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties. The forward-looking statements included herein, or incorporated herein by reference, include
or may include, but are not limited to, (and you should read carefully) statements that are predictive in nature, depend upon or
refer to future events or conditions, or use or contain words, terms, phrases, or expressions such as “achieve,” “forecast,”
2
“plan,” “propose,” “strategy,” “envision,” “hope,” “will,” “continue,” “potential,” “expect,” “believe,” “anticipate,” “project,”
“estimate,” “predict,” “intend,” “should,” “could,” “may,” “might,” or similar words, terms, phrases or expressions or the
negative of any of these terms. Any statements in this Form 10-K that are not based upon historical fact are forward-looking
statements and represent our best judgment as to what may occur in the future.
These forward-looking statements are based on information available as of the date of this Annual Report on Form 10-K and
the Company managements' current expectations, forecasts and assumptions, and involve a number of judgments, known and
unknown risks and uncertainties and other factors, many of which are outside the control of the Company and its directors,
officers and affiliates. Accordingly, forward-looking statements should not be relied upon as representing the Company's views
as of any subsequent date. The Company does not undertake any obligations to update, add or to otherwise correct any forward-
looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new
information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required
under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, the Company's results or performance may be
materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual
results to differ are set forth under the heading “Risk Factor Summary” below and those described under Part I, Item 1A. “Risk
Factors” in this Annual Report on Form 10-K.
RISK FACTOR SUMMARY
The Company's business involves significant risks and uncertainties that make an investment in it speculative and risky. The
following is a summary list of the principal risk factors that could materially adversely affect the Company's business, financial
condition, liquidity and results of operations. These are not the only risks and uncertainties the Company faces, and you should
carefully review and consider the full discussion of the Company's risk factors in the section titled “Risk Factors”, together with
the other information in this Annual Report on Form 10-K.
Risks Related to Our Business and Industry
•
If we do not effectively manage the size and cost of our operations, our existing infrastructure may become either
strained or overly-burdened, and we may be unable to increase revenue growth.
• Our dependence on a limited number of customers could adversely affect our business and results of operations.
• Our contract backlog is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our
•
•
future earnings.
Since we bear the risk of cost overruns in most of our contracts, we may experience reduced profits or, in some cases,
losses if costs increase above estimates.
Timing of the award and performance of new contracts could have an adverse effect on our operating results and cash
flow.
• We may incur significant costs in performing our work in excess of the original project scope and contract amount
without having an approved change order.
• Our failure to adequately recover on claims brought by us against contractors, project owners or other project
participants for additional contract costs could have a negative impact on our results of operations and financial
condition, liquidity and on our credit facilities.
• We place significant decision making powers with our business units’ management, which presents certain risks that
may cause the operating results of individual branches to vary.
• Acquisitions, divestitures, and other strategic transactions could fail to achieve financial or strategic objectives, disrupt
our ongoing business, and adversely impact our results of operations.
• Design/Build and Design/Assist contracts subject us to the risks of design errors and omissions.
•
• Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating
If we experience delays and/or defaults in customer payments, we could be unable to recover all expenditures.
costs, negatively impact employee morale and result in higher employee turnover.
• Our business has union and open shop operations, subjecting the business to risk for labor disputes.
•
Strikes or work stoppages could have a negative impact on our operations and results.
3
• Misconduct by our employees, subcontractors or partners, or our overall failure to comply with laws or regulations
could harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to
criminal and civil enforcement actions.
Failure to provide our services in accordance with professional standards or contractual requirements could expose us
to significant monetary damages.
Our dependence on subcontracts and suppliers of equipment and materials could increase our costs and impair our
ability to complete contracts on a timely basis or at all, which would adversely affect our profits and cash flow.
An increase in the cost or the availability of materials and commodities could affect our profitability.
Changes in energy prices may increase our costs, and we may not be able to pass along increased energy costs to our
customers.
•
•
•
•
• We may be unable to identify and contract with qualified Disadvantaged Business Enterprises (“DBE”) contractors to
perform as subcontractors.
• Our participation in construction joint ventures exposes us to liability and/or harm to our reputation for failures of our
partners.
• A significant portion of our business depends on our ability to provide surety bonds. Any difficulties in the financial
and surety markets may cause a material adverse effect on our bonding capacity and availability.
• Our insurance policies against many potential liabilities require high deductibles. Additionally, difficulties in the
insurance markets may adversely affect our ability to obtain necessary insurance.
• Our use of the cost-to-cost method of accounting could result in a reduction or reversal of previously recorded revenue
•
•
•
•
or profits.
Earnings for future periods may be impacted by impairment charges for goodwill and intangible assets.
Contractual warranty obligations could adversely affect our profits and cash flow.
Recent and potential changes in U.S. trade policies and retaliatory responses from other countries may significantly
increase the costs or limit supplies of raw materials and products used in our operations.
Rising inflation and/or interest rates, or deterioration of the United States economy could have a material adverse
effect on our business, financial condition and results of operations.
• Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to
•
increase significantly.
Failure to remain in compliance with covenants under our debt and credit agreements or service our indebtedness
could adversely impact our business.
• We may not be able to generate sufficient cash flow to meet all of our existing or potential future debt service
obligations.
• Our obligation to contribute to multiemployer pension plans could give rise to significant expenses and liabilities in the
future.
Increases in healthcare costs could adversely affect our business.
•
• Our business may be affected by the work environment.
• A pandemic, epidemic or outbreak of an infectious disease, such as the coronavirus (COVID-19), in the markets in
which we operate or that otherwise impacts our facilities or suppliers could adversely impact our business.
Future climate change could adversely affect us.
•
• We may be affected by market or regulatory responses to climate change.
•
Increasing scrutiny and changing expectations from investors and customers with respect to our environmental, social
and governance practices may impose additional costs on us or expose us to reputational or other risks.
• We are susceptible to adverse weather conditions, which may harm our business and financial results.
•
Information technology system failures, network disruptions or cyber security breaches could adversely affect our
business.
Changes to our outsourced software or infrastructure vendors as well as any sudden loss, breach of security, disruption
or unexpected data or vendor loss associated with our information technology systems could have a material adverse
effect on our business.
•
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• We have subsidiary operations throughout the United States and are exposed to multiple state and local regulations, as
well as federal laws and requirements applicable to government contractors. Changes in laws, regulations or
requirements, or a material failure of any of our subsidiaries or us to comply with any of them, could increase our costs
and have other negative impacts on our business.
• As Federal Government Contractors under applicable federal regulations, our subsidiaries are subject to a number of
rules and regulations, and our contracts with government entities are subject to audit. Violations of the applicable rules
and regulations could result in a subsidiary being barred from future government contracts.
Past and future environmental, safety and health regulations could impose significant additional costs on us that reduce
our profits.
•
• Our failure to comply with immigration laws and labor regulations could affect our business.
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Item 1. Business
Part I
Limbach Holdings, Inc. (the “Company,” “we” or “us”), a Delaware corporation headquartered in Warrendale, Pennsylvania, is
a building systems solution firm that partners with building owners and facilities managers who have mission critical
mechanical (heating, ventilation, air conditioning), electrical, and plumbing infrastructure. The Company strives to be an
indispensable partner to its customers by providing services that are essential to the operation of their businesses. The Company
works with building owners primarily in six vertical markets: healthcare, industrial and manufacturing, data centers, life
science, higher education and cultural and entertainment. The Company has more than 1,400 team members in 19 offices across
the eastern United States. The Company’s team members uniquely combine engineering expertise with field installation skills
to provide custom solutions that leverage its full life-cycle capabilities, which allows it to address both the operational and
capital projects needs of its customers.
2023 Highlights
In 2023, the Company:
•
•
•
•
•
•
Generated $57.4 million of net cash provided by operating activities.
Expanded consolidated gross profit margin by 420 bps to 23.1%.
Revenue generated from the Company’s ODR (as defined below) segment increased 21.1% (versus 2022), achieving
its 2023 target of a 50/50 segment revenue mix.
Increased diluted earnings per share by 175% (versus 2022) to $1.76
Successfully completed the acquisitions of ACME and Industrial Air (as described in more detail below).
In June 2023, the Company was added to the Russell 3000 Index as part of the annual reconstitution of the Russell
indexes.
Segments
The Company operates in two segments, (i) General Contractor Relationships (“GCR”), in which the Company generally
manages new construction or renovation projects that involve primarily mechanical, plumbing, or electrical services awarded to
the Company by general contractors or construction managers, and (ii) Owner Direct Relationships (“ODR”), in which the
Company performs owner direct construction projects and/or provides maintenance or services primarily on mechanical,
plumbing or electrical systems, building controls and specialty contracting projects direct to, or assigned by, building owners or
property managers.
GCR Segment. The Company provides its GCR segment services through the following project delivery methodologies:
• Plan & Spec Bidding. Plan & Spec bidding is a competitive bid process among multiple contractors bidding on nearly
complete or completed design documents based on a lump sum price for delivery of the project. The Company
believes price is the predominant selection criteria in this process.
• Design/Build or Design/Assist. Design/Build or Design/Assist is a process in which a specialty contractor is selected
among competing contractors using best value methodology. In best value, the Company believes the selection is made
based primarily upon qualifications and project approach, and secondarily on select cost factors. Cost factors are
usually limited to a fixed fee and expense estimate and an estimate of the cost of work. With Design/Assist, the
specialty contractor is typically contracted early in the design process to provide design and preconstruction input as
needed to assist the customer in maintaining the established budget and completing design and drawings. This delivery
option includes lump sum or guaranteed maximum price on a fixed fee basis.
ODR Segment. The Company’s key business initiative for its ODR segment is to position itself as a value-added and
indispensable partner to building owners in mission-critical markets, providing full life-cycle capabilities from concept design
and engineering through system commissioning and recurring 24/7 service and maintenance. The Company remains focused on
the scalability of its organic business through partnering directly with building owners. The Company believes that its ODR
services offerings provide a distribution channel through which it can continue to deliver an expanded offering of value-added
services direct to building owners that further reinforces its value proposition and differentiated capabilities. In addition, by
establishing successful, long-term partnerships with building owners, the Company has positioned itself to provide reoccurring
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maintenance services, which it believes improves revenue predictability and could increase economic resilience. The Company
provides its ODR business services through both a variety of project delivery methodologies and other service offerings:
• Critical System Repairs. The Company provides retrofit and repair projects that are typically less than $0.5 million in
contract value, have short durations and limited scopes of work. When design is required for a project, the Company’s
professional engineers on staff often support the contract. Additionally, this service may be provided on a time-and-
material basis for an immediate repair.
• MEP Infrastructure Projects. This work is contracted directly for a building owner for which the Company can
perform the same project delivery methodologies akin to its GCR offerings. On projects that are predominantly
mechanical, plumbing, and/or electrical in scope, the Company may act as the “prime” general contractor. These
projects are typically MEP infrastructure projects for existing buildings. These projects are typically greater than $0.5
million in contract value, and have longer durations and broader scopes of work.
• Maintenance Contracts. Through “evergreen” contracts, the Company provides maintenance services for HVAC,
electrical and/or plumbing systems and equipment.
• Building Automation Upgrades. The Company provides design, installation and maintenance for specialized controls
systems.
• Data Driven Insights. The Company provides the means to manage facility and asset data to empower data driven
decisions. The Company’s facility analytic solutions include: (i) energy management and sustainability through real-
time tracking and monitoring, (ii) asset management, (iii) predictive maintenance and (iv) virtual facility management
services. This tool is used for customer facilities to help reduce operating costs, extend the life cycle of equipment, and
uncover energy savings to reduce the customer’s carbon footprint.
•
Program Management Services. Program Management Services provide the Company’s healthcare customers with
advisory support and strategic guidance to help match their long-term facility needs. These services include the
defining of capital program needs for new and existing facilities. In addition, these services offer assessments of
existing facilities for project upgrades to improve the operations of the buildings tied to MEP systems.
The Company’s ODR business services profile offers the potential of reoccurring business opportunities. Due to the Company’s
on-going relationships with certain building owners established through certain of its service offerings, the Company believes it
is well positioned with those owners when they initiate capital construction projects. As a result, the ongoing relationship with
the customer along with the maintenance, time-and-materials, building automation upgrades, critical system repair work, and
data driven insights often lead, drive and support the revenue associated with owner direct projects.
Additionally, the Company provides captive engineering capabilities, estimating and virtual design services. The Company also
provides professional engineering, energy analysis, estimation, and detail design and three-dimensional building installation
coordination services, direct to building owners.
The Company maintains professional engineers on staff who are supported by estimators and designers. The Company’s
engineers are experienced in healthcare, institutional, commercial, hospitality, and industrial projects. During 2023, the
Company took steps to advance its customer experience by moving its staff of professional engineers, estimators and designers
from one regional location to each of its branch locations. By decentralizing these services, the Company believes that it
maintains the ability to provide the same engineering capabilities but expands its opportunities to enhance and build
relationships with building owners.
For additional financial information about the Company’s operating segments, see Note 12 – Operating Segments in the
accompanying notes to the Company’s consolidated financial statements.
Strategy
The Company focuses on creating value for building owners by developing long-term relationships and becoming an
indispensable partner to building owners with mission-critical systems. The key objectives of the Company’s strategy are to
improve profitability and generate quality growth in its operations by increasing the percentage of revenue from ODR, to
expand margins through evolved service offerings and to scale the business through acquisitions. To accomplish its objectives,
the Company currently is executing the following initiatives:
ODR Growth. The Company’s principal focus over the past few years, and a focus that the Company plans to continue in
coming years, is the accelerated growth of its ODR segment. The Company is focused on expanding the number and breadth of
owner relationships that it serves on a direct basis and leveraging these expanded owner-direct relationships to deliver a broad
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suite of services. The Company maintains a disciplined approach of full life-cycle of engineered solutions and craft expertise to
be a one-stop-shop for building owners, maximizing their investment in their mission-critical assets.
The Company has and plans to continue to make investments to expand its ODR revenue by increasing the value it can offer to
building owners and continues to evaluate areas in which it could expand the breadth of its service offerings to better serve its
customers. Employee development underpins the Company’s efforts to execute its 2024 strategy. The Company is actively
concentrating managerial and sales resources on training and hiring experienced employees to sell and profitably perform ODR-
related services. In many locations, the Company has added or upgraded its capabilities and the Company believes its
investments and efforts have provided customer value and stimulated growth within the segment.
The Company continues to expand its owner-direct offerings to include other digital solutions to manage and monitor the
performance of building systems, including data analytics, energy consumption and sustainability. These services allow the
Company to develop new revenue streams, leveraging its professional services capabilities to support multi-location regional
and national customers in core end-markets, and to drive energy retrofit and performance optimization projects for building
owners.
The Company’s ODR revenue increased by 21.1% to $262.0 million for the year ended December 31, 2023 as compared to
$216.4 million for the year ended December 31, 2022. The increase in year-over-year ODR segment revenue was primarily due
to the Company's continued focus on the accelerated growth of its ODR business. In addition, the Company’s ODR segment
revenue increased by approximately $3.4 million and $4.7 million due to the ACME and Industrial Air transactions,
respectively. ODR gross profit increased to 29.0% for the year ended December 31, 2023 from 25.5% for the year ended
December 31, 2022 due to the combination of an increase in revenue and higher margins driven by contract mix.
Improved GCR Segment Margins. In the Company’s GCR segment, its efforts continue to focus on improving project execution
and profitability by pursuing opportunities that are smaller in size and shorter in duration than historically, and that leverage its
captive design and engineering services.
The Company’s GCR revenue decreased by 9.3% to $254.4 million for the year ended December 31, 2023 as compared to
$280.4 million for the year ended December 31, 2022. The decrease in GCR revenue was primarily due to the Company’s
continued focus on improving project execution and profitability by pursuing opportunities that are smaller in size, shorter in
duration, and that leverage its captive design and engineering services. In addition, the Company continues to drive a
disciplined shift to its higher margin ODR business. Gross profit improved to 17.0% for the year ended December 31, 2023
from 13.8% for the year ended December 31, 2022.
Maintain a Diverse Customer, Geographic and Project Base. The Company has a distribution of revenue across end-use sectors
that it believes reduces its exposure to negative developments in any given sector. Currently, the Company also has significant
geographical diversification across regions that are generally located in the eastern portions of the United States, again reducing
its exposure to negative developments in any given region. The Company’s core market sectors consist of the following
customer base with mission-critical systems:
• Healthcare, including research, acute care and inpatient hospitals for regional and national hospital groups, and
pharmaceutical and biotech laboratories and manufacturing facilities;
•
•
•
Industrial and manufacturing, including automotive, energy and general manufacturing plants;
Data Centers, including facilities composed of networked computers, storage systems and computing infrastructure
that organizations use to assemble, process, store and disseminate large amounts of data;
Life sciences, including organizations and companies whose work is centered around research and development
focused on living things;
• Higher Education, including both public and private colleges, universities and research centers; and
•
Cultural and entertainment, including sports arenas, entertainment facilities (including casinos) and amusement
rides and parks.
The Company also partners with building owners in other market sectors (infrastructure, government, hospitality and
commercial). It is imperative that the partnerships formed between the Company and its building owners share in similar core
values.
Investment in its Employees. Employee development underpins the Company’s efforts to execute its strategy. The Company
seeks to attract and retain quality employees by providing them an enhanced career path that offers a stable income, attractive
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benefits packages and excellent advancement opportunities. The Company invests in its employees through safety and wellness
programs, internal communication, career development training programs, recognition programs and succession planning
initiatives.
Fully Integrated Operations. A core growth strategy of the Company includes offering design, construction and maintenance
services for the full complement of mechanical, plumbing and electrical services in all its business units. The Company believes
this combined offering is appealing to building owners who own and operate facilities with complex building systems. The
Company also offers services to building owners known as MEP Prime, a service where the Company acts as the general
contractor on assignments that predominantly include a heavy concentration of mechanical, electrical, plumbing and building
controls systems, along with other trades such as concrete and drywall, to offer a complete service package.
Growth through Acquisitions. The Company believes that it can further increase its cash flow and operating income by
acquiring strategically synergistic companies that will increase the Company’s geographic footprint, supplement the Company’s
current business model, address capability gaps and enhance the breadth of its service offerings to better serve its clients. The
Company has dedicated and continues to dedicate its resources to seek opportunities to acquire and integrate businesses that
have attractive market positions, supports the Company ODR growth strategy, expands and/or supplements the Company’s
current breadth of service offerings and is culturally compatible. See Note 3 – Acquisitions in the accompanying notes to the
Company’s consolidated financial statements for further information on the Company’s most recent acquisition activity.
Acquisitions
The ACME Transaction. On July 3, 2023 (the “ACME Effective Date”), the Company, Limbach Facility Services LLC
(“LFS”), a Delaware limited liability company and a wholly-owned subsidiary of the Company, and ACME Industrial Piping,
LLC (“ACME”), and the owner of ACME (the “ACME Seller”) entered into a Purchase Agreement (the “ACME Purchase
Agreement”) pursuant to which LFS purchased all of the outstanding equity interests in ACME from the ACME Seller (the
“ACME Transaction”). The ACME Transaction closed on the ACME Effective Date. As a result of the ACME Transaction,
ACME became a wholly-owned indirect subsidiary of the Company. ACME specializes in performing industrial maintenance,
capital project work, and emergency services for specialty chemical and manufacturing clients, and is a leading mechanical
solutions provider for hydroelectric producers. The acquisition expands the Company’s market share within its existing
operating footprint, provides further exposure to an attractive customer base and supports the Company's continued ODR
growth strategy.
The Industrial Air Transaction. On November 1, 2023 (the “Industrial Air Effective Date”), the Company, LFS and Industrial
Air, LLC (“Industrial Air”), and the owner of Industrial Air (the “IA Seller”) entered into a Purchase Agreement (the “Industrial
Air Purchase Agreement”) pursuant to which LFS purchased all of the outstanding equity interests in Industrial Air from the IA
Seller (the “Industrial Air Transaction”). The Industrial Air Transaction closed on the Industrial Air Effective Date. As a result
of the Industrial Air Transaction, Industrial Air became a wholly-owned indirect subsidiary of the Company. Industrial Air
serves industrial customers throughout the Southeast United States and along the Eastern seaboard, focusing on delivering
engineered air handling systems, including air condition and air filtration, along with controls systems and maintenance work.
In addition, Industrial Air manufactures a wide range of components for air conditioning and filtration systems.
See Note 3 – Acquisitions in the accompanying notes to the Company’s consolidated financial statements for further
information on the ACME Transaction and the Industrial Air Transaction.
Divestitures
Southern California Region. In February 2022, the Company announced its strategic decision to wind down its Southern
California GCR and ODR operations. The decision was made to better align the Company’s customer geographic focus and to
reduce losses related to unprofitable locations. During 2023, the Company executed the closeout phases on its remaining
Southern California business unit projects and has fully exited the Southern California region aside from certain operational
warranty obligations. However, the Company is party to the terms of a sublease agreement for its leased premises in Southern
California through April 2027 and remains obligated under the original lease for such office space in the event the sublessee
fails to satisfy its obligations under the sublease agreement. See Note 14 – Leases in the accompanying notes to the Company’s
consolidated financial statements for further information on the Southern California Sublease.
Customers
The Company’s customer base primarily consists of building owners and their third-party representatives, general contractors
and construction managers. As stated previously, one of the Company’s strategic goals relate to the continued focus on the
growth of its direct relationships with building owners. The Company believes that its ODR service offerings provide a
distribution channel through which it can continue to deliver an expanded offering of value-added services direct to building
9
owners that further reinforces its value proposition and differentiated capabilities. The Company’s team members uniquely
combine engineering expertise with field installation skills to provide custom solutions that leverage its full life-cycle
capabilities, which allows it to address both the operational and capital projects needs of its customers. This also positions the
Company to deliver additional products and services in the future. The Company maintains hundreds of building owner
relationships through its contracts for program management, maintenance and critical system repairs. For the years ended
December 31, 2023 and 2022, no ODR customer accounted for more than 10% of the Company’s consolidated revenue.
The Company believes it has strong relationships with many national commercial general contractors and construction
managers. As one of its core risk management processes, the Company is selective in choosing to work with general contractors
and construction managers that have similar core values, that have a solid payment history, that have experienced and available
project management labor, and who value the Company’s services and reputation. Most of the Company’s branches also
maintain strong relationships with local and regional general contractors and construction managers that fit its selection criteria.
For the year ended December 31, 2023, no GCR segment customer accounted for more than 10% of the Company’s
consolidated revenue. For the year ended December 31, 2022, one GCR segment customer accounted for approximately 11% of
consolidated total revenue.
GCR and ODR Backlog
The Company refers to its estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which
work has not begun, less the revenue it had recognized under such contracts, as “backlog.” Backlog includes unexercised
contract options. The Company’s backlog includes projects that have a written award, a letter of intent, a notice to proceed or an
agreed upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between the
Company’s backlog and remaining performance obligations is due to the portion of unexercised contract options that are
excluded, under certain contract types, from its remaining performance obligations as these contracts can be canceled for
convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional
information related to the Company’s remaining performance obligations is provided in Note 4 — Revenue from Contracts with
Customers in the accompanying notes to its consolidated financial statements. See also Item 1A. “Risk Factors — Our contract
backlog is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our future earnings.”
The Company’s GCR backlog was $186.9 million and $302.9 million as of December 31, 2023 and 2022, respectively. Projects
are brought into backlog once the Company has been provided with a written confirmation of award and the contract value has
been established. At any point, the Company has a substantial volume of projects that are specifically identified and advanced
in negotiations and/or documentation, however those projects are not booked as backlog until the Company has received written
confirmation from the owner or the general contractor / construction manager of their intention to award the contract and they
have directed the Company to begin engineering, designing, incurring construction labor costs or procuring needed equipment
and material. The Company’s GCR projects tend to be built over a 12- to 24-month schedule depending upon scope and
complexity. Most major projects have a preconstruction planning phase which may require months of planning before actual
construction commences. The Company is occasionally employed to deliver a “fast-track” project, where construction
commences as the preconstruction planning work continues. As work on the Company’s projects progress, it increases or
decreases backlog to take into account its estimate of the effects of changes in estimated quantities, changes in conditions,
change orders and other variations from initially anticipated contract revenue, and the percentage of completion of the
Company’s work on the projects. Based on historical trends, the Company currently estimates that 83% of its GCR backlog as
of December 31, 2023 will be recognized as revenue during 2024. Additionally, the reduction in GCR backlog has been
intentional as the Company continues to focus on higher margin projects than historically, as well as its focus on smaller, higher
margin owner direct projects.
The Company’s ODR backlog was $147.0 million and $108.2 million as of December 31, 2023 and 2022, respectively. These
amounts reflect unrecognized revenue expected to be recognized over the remaining terms of the Company’s service contracts
and projects. Based on historical trends, the Company estimates that 95% of its ODR backlog as of December 31, 2023 will be
recognized as revenue during 2024. The Company believes its ODR backlog increased due to its continued focus on the
accelerated growth of its ODR business. In addition, as of December 31, 2023, ODR backlog included approximately
$1.2 million and $26.6 million of backlog associated with the operations of ACME and Industrial Air, respectively.
Competition
The mechanical, plumbing, electrical, and maintenance industry is highly competitive and the geographic markets in which the
Company competes has numerous companies that provide similar services. Factors influencing the Company’s competitiveness
include price, reputation for quality, ability to reduce customer costs, experience and expertise, financial strength, surety
bonding capacity, knowledge of local markets and conditions, availability and experience of craft labor, and customer
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relationships. Competitors tend to be regional firms that vary in size and depth of resources. There are, however, significant
national competitors that have greater national presence and breadth of expertise than the Company.
Materials and Equipment
The Company purchases materials, including sheet metal, steel and copper piping, electrical conduit, wire and other various
materials from numerous sources. The Company also purchases equipment from various manufacturers. The price and
availability of materials and equipment may vary from year to year due to market conditions and industry production capacities.
Economic disruptions resulting from the coronavirus disease 2019 (“COVID-19”) pandemic, including supply chain,
production, and other logistical issues, as well as escalating commodity prices, have and may continue to negatively impact the
Company’s business. For example, the Company has experienced lead times significantly in excess of normal levels while also
experiencing the effects of inflation through increases in fuel, material, and other commodity prices to varying degrees
throughout 2021 and 2022. These disruptions escalated in 2022 and have manifested themselves most notably through project
delays and reduced labor productivity and efficiency, particularly within its GCR segment. The elevated levels of cost inflation
persisted throughout 2023, although at lower levels than experienced in 2022. These headwinds have been partially mitigated in
2023 by pricing actions taken in response to the inflationary cost environment, supply chain productivity improvements and
cost savings initiatives. The effects of inflation also have resulted in central banks raising short-term interest rates and, as a
result, the Company has experienced an increase in its interest expense in 2023. In response to these challenges, the Company
continues to strive to more effectively manage its business through enhanced labor planning and project scheduling, increased
pricing to the extent contractually permitted, and by leveraging the Company's relationships with its suppliers and customers.
While the impacts of COVID-19 on the Company's business have moderated, there still remains uncertainty around the
pandemic, its effect on labor or other macroeconomic factors, its severity and duration, the continued availability and
effectiveness of vaccines and actions taken by third parties or by government authorities in response, including restrictions,
laws or regulations, or other responses. Also, the ongoing conflict between Russia and Ukraine, and the sanctions imposed in
response to this conflict, and the conflict in the Middle East have increased global economic and political uncertainty, and may
add to these issues as described in “Item 1A. Risk Factors — Continuing worldwide political and economic uncertainties may
adversely affect our revenue and profitability.” in this Annual Report on Form 10-K.
Human Capital
To ensure that the Company is well positioned to provide innovative system solutions and reliable services in a safe, efficient
and responsible manner, the Company seeks to employ and retain a team of highly dedicated and accomplished people who
genuinely care about the success of the Company. Creating an engaging workplace environment that provides for competitive
pay and benefits, attractive career development opportunities, and a collaborative, respectful culture further enables the
Company to achieve continued success.
Employees. As of December 31, 2023, the Company had approximately 1,400 employees, including approximately 400 full-
time salaried employees, comprising project managers, estimators, superintendents and engineers who manage crews in its
construction business and office staff. The Company also had approximately 1,000 craft employees, some of whom are
represented by various labor unions. The Company believes it has a good relationship with its employees and has developed
several strong partnerships with local unions to have access to an experienced, talented craft workforce.
Core Values and Core Purpose. From the technician in the field to the leadership of its business, the Company focuses on
caring for people. The Company’s core purpose “is to create great opportunities for people.” The Company has implemented
internal development programs, which allow it to attract and retain talent and emphasize the importance of promoting from
within. The Company believes its core values reflect who it is. The Company cares about its people and believes its approach
provides a competitive advantage. The Company believes it has strong employee retention rates because of its ability to hire,
develop and retain top industry talent. Since 2021, the Company has reduced its salaried attrition rate by 32% through the
effective implementation of human capital strategies.
The Company’s culture is driven by its Core Values:
• We CARE: We care about safety and having our employees return home injury-free every day. We care about the
environment, which is why we explore the life-cycle and total cost of ownership on every project. We care about our
communities, which is why we support social and community-based programs and encourage our employees to make a
difference by giving back.
• We Act with INTEGRITY: Our business is driven by doing the right thing for our employees and customers. We pride
ourselves on delivering on our commitments.
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• We Are INNOVATIVE: To remain competitive and provide value, we continuously advance our systems and
capabilities. Our engineering design and innovation center in Orlando provides best-in-class energy and engineering
solutions while tracking future trends and bringing new ideas to market.
• We Are ACCOUNTABLE: We are a company with drive and discipline. We set goals and hold each other responsible
for the outcomes. We utilize the Entrepreneurial Operating System as our way of managing and leading the
organization for top performance.
The Company believes its employees are essential to its continued success and the Company seeks to provide every employee
with the foundation and environment needed to achieve the employee’s goals. This objective begins with the Company's
commitment to diversity and inclusion. We CARE, one of the Company’s Core Values, is the foundation of its efforts to create a
diverse, fair and inclusive organization. Building a culture where all of its employees feel a sense of belonging is important to
the Company.
In addition, the Company screens leadership hires and measures employee performance against these Core Values, and
regularly measures employee engagement against these values through the Company’s annual employee engagement survey.
The Company’s “We Care” survey, which has been issued for more than fifteen years, provides leadership with insights,
including constructive ideas on how to improve the overall business for those who work for it.
Training and Employee Development. Investment in continuous learning is essential to providing industry-leading expertise and
service to the Company’s customers, continuous improvement across its organization, and meaningful career development
opportunities for its people. From in-person to online courses, formalized and other specialized training, the Company’s
employees benefit from opportunities to strengthen their leadership and management competencies, improve communication
and interpersonal skills, and advance their technical proficiency. The Company’s people have access to resources that include a
robust learning management system that provides company-wide access for employees to a number of online learning modules
and support tools. As a result of its efforts, the Company was recognized as one of the top training organizations in the world
earning a Training APEX Award from Training magazine in 2023 and 2024. Additionally, the Company was recognized as a
2024 winner of the Association of Talent Development’s BEST award, which honors organizations that demonstrate enterprise-
wide success as a result of employee talent development. The Company’s employees see the impact of these programs, and in
2023, its training programs averaged a participant Net Promoter Score of over 90%. The Company intends to continue to invest
in additional training to support those employees directly working in customer-facing roles across the Company as it aims to
grow the ODR business.
Diversity and Inclusion. The Company is committed to creating and supporting a diverse, fair and inclusive environment for its
employees, We Care culture and industry as a whole. The Company believes that a diverse workforce is important to the long-
term success of its business. The Company actively seeks to increase the diversity of its workforce and to practice its
commitment to diversity and inclusion in hiring, development and training, which extends to its senior leadership and Board of
Directors. The Company understands that diversity is truly a competitive advantage that helps drive growth and innovation.
Embrace Forum. The Company formed the Embrace Forum to continue to evolve its commitment to a culture of diversity and
inclusion. This forum is composed of employees and leaders across the company who have made it their mission to maximize
the potential of the Company’s employees by creating great opportunities through a diverse, fair and inclusive environment.
The Embrace Forum focuses on several core areas: culture, recruitment, development, promotion and employee resource groups
(“ERGs”).
The Company offers its employees the opportunity to join ERGs. These groups foster professional development, social
connectivity, and celebrate diversity throughout the Company. Each year, new ERGs are evaluated for consideration. Currently,
there are four active ERGs at the Company:
• Women in Construction and Service (“WICS”). The Company is committed to diversifying its workforce, promoting
and supporting women within its organization to take on leadership roles, and helping encourage other women to join
its industry as a whole. To support this initiative, the Company created the WICS ERG with a vision to create a
culturally agile community that respects and empowers women in its company and industry.
•
•
Unidos. Unidos is an ERG that was created to promote, empower and amplify the Hispanic culture within the
Company. The mission of this ERG is to create a supportive environment for Hispanic employees and provide a more
diverse and inclusive environment where everyone feels safe, respected and valued.
Hearts & Hands. Hearts & Hands is an ERG with a core purpose of providing opportunities and encouraging
employees to make a difference by giving back to communities in which the Company has an operating footprint.
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•
Veterans. The Veterans ERG aims to offer resources, foster camaraderie, and promote understanding among Company
employees who have served in the military and those who are committed to supporting them.
In addition, to help recruit the next generation of diverse industry leaders, the Company is actively involved with the ACE
Mentor Program of America, Inc. (“ACE”). ACE helps mentor high school students and inspires them to pursue careers in
design and construction. It is the construction industry’s fastest-growing high school mentoring program, reaching over 8,000
students annually.
Benefits & Wellness. The Company focuses on the most crucial component for its success: its people. The Company appreciates
the fact that it owes its century-old existence to employees who work hard to help the Company prosper.
As such, the Company has committed itself to the health, safety and well-being of its workers and their families. One of the
ways the Company shows its commitment is through offering competitive employee compensation and benefits packages,
specifically designed to meet the unique needs of each individual in its organization, which include:
•
•
•
Health and Welfare Plans. All full-time employees who do not participate in union plans are offered a range of choices
among medical, dental and vision plans, life, accident, dependent and disability insurance, and pre-tax health spending
accounts that include employer contributions.
Retirement Savings. The Company helps provide its employees with financial security by offering a 401(k) Savings
Plan, which includes company matching contributions, and an Employee Stock Purchase Plan.
Employee Assistance Programs. Through the Company’s Employee Assistance Program, it offers its employees, and
their dependents or household members, access to services and counseling on a variety of personal, professional, legal,
and financial matters, at no cost.
• Wellness Program. Consists of various activities and financial incentives intended to inspire the Company’s team
towards healthy living through personal accountability.
Safety Culture. Safety is integral to the Company’s unique culture and Core Values. The Company cares about its employees
and their families, and it holds each other accountable for working safely. The Company’s safety culture is based on its “Hearts
and Minds Commitment to Safety” program, established in 2013 by senior staff and field professionals via its Hearts and Minds
Forum. The Company’s Hearts and Minds program asks its employees to take direct responsibility for eliminating and
preventing all incidents and injuries at home and in the workplace, which is done by:
•
•
•
Hiring the Right People. The Company is focused on hiring qualified employees who share in its Core Values.
Knowing the Details. Performed through thorough planning and having acute awareness of present surroundings,
which aids in executing work safely.
Engaging at All Levels. Setting a great example of completing all tasks safely, at work and at home, by everyone from
company leadership to craft professional.
• Mentoring and Coaching. Acting as a mentor and coach to show team members how to practice good safety behavior.
This program helped earn the Company’s Ohio business unit the highest honor for which Occupational Safety and Health
Administration (“OSHA”) can name a company; OSHA-Voluntary Protection Programs Star Site. This was the first time a
union mechanical contractor has earned such an honor in the United States. The Company strives to achieve this honor at its
other business units.
Seasonality
Severe weather can impact the Company’s operations. In the northern climates where it operates, and to a lesser extent the
southern climates as well, severe winters can slow the Company’s productivity on construction projects, which shifts revenue
and gross profit recognition to a later period. The Company’s maintenance operations may also be impacted by mild or severe
weather. Mild weather tends to reduce demand for the Company’s maintenance services, whereas severe weather may increase
the demand for its maintenance and time-and-materials services.
Government and Environmental Regulations
The Company is subject to various federal, state and local laws and regulations relating to the environment, including those
relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste, the handling of
underground storage tanks and the cleanup of properties affected by hazardous substances. The Company also is subject to
13
compliance with numerous other laws and regulations of federal, state, local agencies, and authorities, including those relating
to workplace safety, wage and hour, and other labor issues (including the requirements of the Occupational Safety and Health
Act and comparable state laws), immigration controls, vehicle and equipment operations and other aspects of its business. In
addition, a relatively limited number of the Company’s construction contracts are entered into with public authorities, and these
contracts frequently impose additional requirements, including requirements regarding labor relations and subcontracting with
designated classes of disadvantaged businesses. A large portion of the Company’s business uses labor that is provided under
collective bargaining agreements. As such, the Company is subject to federal laws and regulations related to unionized labor
and collective bargaining (including the National Labor Relations Act).
The Company continually monitors its compliance with these laws, regulations and other requirements. While compliance with
existing laws, regulations and other requirements has not materially adversely affected the Company’s operations in the past,
and it is not aware of any proposed requirements that the Company anticipates will have a material impact on its operations,
there can be no assurance that these requirements will not change or that compliance will not otherwise adversely affect the
Company’s operations in the future. In addition, while the Company typically passes any costs of compliance on to its
customers under the applicable project agreement, either directly or as part of its estimate depending on the type of contract,
there can be no assurance that the Company will not incur compliance expenses in the future that materially adversely affect its
results of operations. Furthermore, certain environmental laws impose substantial penalties for non-compliance and other laws,
such as the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and comparable
state laws, impose strict, retroactive, joint and several liability upon persons that contribute to the release of a “hazardous
substance” into the environment. These persons include the owner or operator of the site where the release occurred and
companies that disposed or arranged for the disposal of the hazardous substances found at the site.
Climate Change and Sustainability
The Company recognizes its environmental and societal responsibilities and is committed to sustainability and to improving its
environmental footprint as well as operating its business in a manner that seeks to protect the health and safety of the
Company’s employees and customers, as well as the public. The Company’s focus on environmental stewardship and
improving productivity drives not only its efforts to become more energy efficient but also improvements in the Company’s
customers’ impact on climate change. Replacing an aging building’s existing systems with modern, energy-efficient systems
significantly reduces a building’s energy consumption and carbon footprint while improving cost, air quality and overall system
effectiveness.
The Company is subject to the requirements of numerous federal, state and local laws, regulations and rules that promote the
protection of the environment. While capital expenditures or operating costs for environmental compliance cannot be predicted
with certainty, the Company does not currently anticipate that they will have a material effect on its capital expenditures or
competitive position in the short term.
Available Information
The Company’s internet address is https://www.limbachinc.com. The Company makes available, free of charge, on its Internet
website copies of the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports as soon as reasonably practicable after the Company electronically files such material with, or
furnishes it to, the United States Securities and Exchange Commission (the “SEC”).
The content of the Company’s website is not incorporated by reference into this annual report on Form 10-K or in any other
report or document it files with the SEC, and any references to the Company’s website is intended to be inactive textual
references only.
Item 1A. Risk Factors
You should carefully consider the following risk factors, together with all of the other information included in this Annual
Report on Form 10-K. The risks described below are those which we believe are the material risks that we face. Additional
risks not presently known to us or which we currently consider immaterial may also have an adverse effect on us. Any risk
described below may have a material adverse impact on our business or financial condition. Some statements in this Annual
Report on Form 10-K, including such statements in the following risk factors, constitute forward-looking statements. These
forward-looking statements are based on our management's current expectations, forecasts and assumptions, and involve a
number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our
views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events
or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as
may be required under applicable securities laws.
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Risks Related to Our Business and Industry
Intense competition in our industry could reduce our market share and profit.
The markets we serve are highly fragmented and competitive. The non-residential contracting industry is characterized by
numerous companies, many of which are small and whose activities are often geographically concentrated. We compete on the
basis of our technical expertise and experience, financial and operational resources, industry reputation and dependability.
While we believe our customers consider a number of these factors in awarding available contracts, price is often the principal
factor in determining which contractor is selected, especially on smaller, less complex projects. As such, smaller competitors
are sometimes able to win bids for such projects based on price alone due to their lower cost and financial return requirements.
We expect competition to remain intense for the foreseeable future, presenting us with significant challenges in our ability to
maintain strong growth rates and acceptable profit margins. In addition, new and emerging technologies and services are
expected to significantly impact the industry in coming years. If we are unable to meet these competitive challenges, we could
lose market share to our competitors and experience an overall reduction in our profits. In addition, our profitability could be
impaired if we have to reduce prices to remain competitive.
We face competition from the in-house service organizations of our customers.
We face competition from the in-house service organizations of our customers who have employees who perform service and
maintenance work similar to the services we provide as part of our ODR offering. Vertical consolidation is also expected to
intensify competition in the industry. We can offer no assurance that our existing or prospective customers will continue to
outsource specialty contracting services in the future. Our revenues and results of operations could be adversely affected if our
existing or prospective customers reduce the specialty contracting services that are outsourced to us.
If we do not effectively manage the size and cost of our operations, our existing infrastructure may become either strained or
overly-burdened, and we may be unable to increase revenue growth.
The growth we have experienced in the past, and that we may experience in the future, may provide challenges to our
organization, requiring us to expand our personnel and operations. Future growth, whether organic or through acquisitions, may
strain our infrastructure, operations and other managerial and operating resources. We have also experienced severe constriction
in the markets in which we operated in the past and, as a result, in our operating requirements. Failing to maintain the
appropriate cost structure for a particular economic cycle may result in us incurring costs that affect our profitability. If our
business resources become strained or overly-burdensome, our earnings may be adversely affected and we may be unable to
increase revenue growth. Further, we may undertake contractual commitments that exceed our labor resources, which could
also adversely affect our earnings and ability to increase revenue growth.
Our dependence on a limited number of customers could adversely affect our business and results of operations.
Due to the size and nature of our regional construction contracts, one or a few customers have in the past, and may in the future,
represent a substantial portion of our consolidated revenue and gross profits in any one year or over a period of several
consecutive years. For example, for the year ended December 31, 2022, one GCR segment customer accounted for
approximately 11% of consolidated total revenue. Similarly, our backlog frequently reflects multiple contracts for a limited
number of customers; therefore, one customer may comprise a significant percentage of backlog at a certain point in time. The
loss of business from any one of such customers could have a material adverse effect on our business or results of operations;
however, our customer base continues to shift to a more ODR-centric direction, which typically yield projects that are of less
risk and smaller in nature. Also, a default or delay in payment on a significant scale by a customer may have a material adverse
effect on our financial position, results of operations and cash flows.
Our contract backlog is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our
future earnings.
We cannot guarantee that the revenue projected in our contract backlog will be realized or, if realized, will be profitable.
Projects reflected in the contract backlog may be affected by project cancellations, scope adjustments, time extensions or other
changes. Such changes may materially and adversely affect the revenue and profit we ultimately realize on these projects.
Since we bear the risk of cost overruns in most of our contracts, we may experience reduced profits or, in some cases, losses
if costs increase above estimates.
Our contract prices are established largely upon estimates and assumptions of our projected costs, including assumptions about
future economic conditions; prices, including commodities prices; availability of labor; the costs of providing labor, equipment,
and materials; and other factors outside of our control. If our estimates or assumptions prove to be inaccurate, due to changing
circumstances or our failure to successfully execute the work, cost overruns may occur and we could experience reduced profits
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or a loss for affected projects. For instance, unanticipated technical problems may arise; we could have difficulty obtaining
permits or approvals; local laws, labor costs or labor conditions could change; bad weather could delay construction; prices of
raw materials could increase; suppliers or subcontractors may fail to perform as expected; or site conditions may be different
than originally anticipated. We are also exposed to increases in energy prices. Additionally, in certain circumstances, we
guarantee project completion or the achievement of certain acceptance and performance testing levels by a scheduled date.
Failure to meet schedule or performance requirements typically results in additional costs to us, and in some cases may also
create liability for consequential and liquidated damages. Performance problems for existing and future projects could also
cause our actual results of operations to differ materially from those anticipated and could damage our reputation within the
industry and our customer base.
In addition, the costs incurred and gross profit realized on our contracts can vary, sometimes substantially, from our original
projections due to a variety of factors, including, but not limited to:
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on-site conditions that differ from those described in the original bid or contract;
failure to include required materials, equipment, or work in a bid, or the failure to properly estimate the quantities or
costs needed to complete a lump sum or guaranteed maximum price contract;
contract or project modifications creating unanticipated costs not covered by change orders;
failure by the customer, owner or general contractor to properly approve and authorize change orders for work that is
required and as a result, the inability to bill and collect for the value of the work performed;
failure by suppliers, vendors, subcontractors, designers, engineers, consultants, joint venture partners or customers to
perform their obligations;
delays in quickly identifying and taking measures to address issues which arise during contract execution;
changes in availability, proximity and costs of materials and equipment, including pipe, sheet metal, other construction
materials and mechanical, electrical and plumbing equipment;
claims or demands from third parties for alleged damages arising from the design, construction or use and operation of
a project of which our work is part;
difficulties in obtaining required governmental permits or approvals;
availability and skill level of workers in the geographic location of a project;
citations issued by any governmental authority, including OSHA;
unexpected labor conditions, shortages or work stoppages causing delays in completion, or acceleration of the
contracted work to maintain milestone completion dates, which could cause losses due to not meeting estimated
production targets;
installation productivity rates different than the rate that was estimated;
changes in applicable tariffs, laws and regulations;
delays caused by weather conditions;
fraud, theft or other improper activities by suppliers, vendors, subcontractors, designers, engineers, consultants, joint
venture partners, customers or our own personnel; and
• mechanical or performance problems with equipment.
Many of our customer contracts contain provisions that purport to shift some or all of the above risks from the customer to us,
even in cases where the customer is partly at fault. We are not always able to shift this risk to subcontractors. Our experience
has been that customers are willing to negotiate equitable adjustments in the contract compensation or completion time
provisions if unexpected circumstances arise. However, customers may seek to impose contractual risk-shifting provisions more
aggressively, which could increase risks and adversely affect our financial position, results of operations and cash flows.
Timing of the award and performance of new contracts could have an adverse effect on our operating results and cash flow.
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The timing of project awards is unpredictable and outside of our control. Project awards often involve complex and lengthy
negotiations and competitive bidding processes. These processes can be impacted by a wide variety of factors, including a
customer’s decision to not proceed with the development of a project, governmental approvals, financing contingencies,
commodity prices, environmental conditions, and overall market and economic conditions. We may not win contracts that we
have bid upon for any number of reasons, including price, a customer’s perception of our ability to perform, a competitor’s
relationships and/or perceived technology advantages held by others. Many of our competitors may be more inclined to take
greater or unusual risks or accept terms and conditions in a contract that we might not deem acceptable. Because a significant
portion of our revenue is generated from large projects, our results of operations can fluctuate quarterly and annually depending
on whether, and when, large project awards occur, as well as the commencement and progress of work under large contracts
already awarded. As a result, we are subject to the risk of losing new awards to competitors or the risk that revenue may not be
derived from awarded projects as quickly as anticipated.
The uncertainty of the timing of project awards may also present difficulties in matching the size of our work crews with project
needs. In some cases, we may maintain and bear the cost of more ready work crews than are currently required in anticipation
of future needs for existing contracts or expected future contracts. If a project is delayed or an expected project award is not
received, we would incur costs that could have a material adverse effect on our anticipated profit.
In addition, the timing of the revenue, earnings and cash flows from our contracts in backlog could be delayed by a number of
factors, including adverse weather conditions; other subcontractors delaying the progression of proceeding work; delays in
receiving material and equipment from suppliers and services from subcontractors; and changes in the scope of work to be
performed. Such delays, if they occur, could have material and adverse effects on our operating results for current and future
periods until the affected contracts are completed.
We may incur significant costs in performing our work in excess of the original project scope and contract amount without
having an approved change order.
After the award of a contract, we may perform additional work that was not contemplated in our original contract price, at the
request or direction of the customer, without the benefit of an approved change order. Our contracts generally afford the
customer the right to order such changed or additional work, and typically require the customer to compensate us for the
additional work. If we are unable to successfully negotiate a change order, or fail to obtain adequate compensation for these
matters, we could be required to record in the current period an adjustment to revenue and profit recognized in prior periods.
Such adjustments, if substantial, could have a material adverse effect on our financial position, results of operations and cash
flows.
Our failure to adequately recover on claims brought by us against contractors, project owners or other project participants
for additional contract costs could have a negative impact on our results of operations and financial condition, liquidity and
on our credit facilities.
In certain circumstances, we assert or have asserted claims against project contractors, owners, engineers, consultants,
subcontractors or others involved in a project for additional costs exceeding the contract price or for amounts not included in
the original contract price. These types of claims occur due to matters such as delays, inefficiencies or errors caused by others
or changes from the initial project scope, all of which may result in additional costs. Often, these claims can be the subject of
lengthy negotiations, arbitration or even litigation proceedings, and it is difficult to accurately predict when and on what terms
these claims will be ultimately resolved.
The potential impact of recoveries for claims may be material in future periods when they, or a portion of them, become
probable and estimable or are settled and therefore these claims have the ability to negatively impact our results of operations
and financial condition. For example, we could have estimated and reported a profit on a contract over several periods and later
determined, that all or a portion of such previously estimated and reported profits were overstated due to the results of the
settlement of a claim. If this occurs, the full aggregate amount of the overstatement would be reported for the period in which
such determination is made, thereby offsetting all or a portion of any profits from other contracts that would be reported in such
period, or even resulting in a loss being reported for such period. On a historical basis and in accordance with generally
accepted accounting principles in the United States of America, we have used a detailed process in estimating and accounting
for these claims and we believe that we have typically made reliable estimates of such claims. However, given the uncertainties
associated with these types of claims, it is possible for actual recoveries to materially and adversely vary from estimates
previously made, which may result in reductions or reversals of previously recorded revenue and profits. We could also
recognize additional revenue and profits when the final settlements exceed our recorded estimates.
In addition, when these types of claims are made, we may use or have used working capital to cover cost overruns pending the
resolution of the relevant claims and may incur additional costs when pursuing such potential recoveries. A failure to recover on
these types of claims promptly and fully could have a negative impact on our financial position, results of operations, cash
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flows and liquidity. Moreover, our use of working capital to cover cost overruns related to pending claims may impact our
ability to meet our credit agreement covenants or limit the use of our credit agreements. If we default under our credit
agreements, it could result in, among other things, us no longer being entitled to borrow under one or more of the credit
agreements, acceleration of the maturity of outstanding indebtedness under the agreements, foreclosure on collateral securing
the obligations under the agreements or require us to enter into amendments and/or waivers to those credit agreements that may
place additional requirements on us and that cost us additional amounts payable to our lenders.
We place significant decision making powers with our business units’ management, which presents certain risks that may
cause the operating results of individual branches to vary.
We operate from various locations across the eastern United States, supported by corporate executives and services, with local
business unit management retaining responsibility for day-to-day operations and adherence to applicable laws. We believe that
our practice of placing significant decision making powers with local management is important to our successful growth and
allows us to be responsive to opportunities and to our customers’ needs. However, this practice can make it difficult to
coordinate procedures across our operations and presents certain risks, including the risk that we may be slower or less effective
in our attempts to identify or react to problems affecting an important business issue than we would under a more centralized
structure, or that we would be slower to identify a misalignment between a subsidiary’s and our overall business strategy. If a
subsidiary location fails to follow our compliance policies, we could be made party to a contract, arrangement or situation with
exposure to large liabilities or that has less advantageous terms than is typically found across the markets in which we operate.
Likewise, inconsistent implementation of corporate strategy and policies at the local level could materially and adversely affect
our financial position, results of operations, cash flows and prospects.
The operating results of an individual location may differ from those of another location for a variety of reasons, including
market size, local customer base, regional construction practices, competitive landscape, regulatory requirements, state and
local laws and local economic conditions. As a result, certain of our locations may experience higher or lower levels of
profitability and growth than other locations.
Acquisitions, divestitures, and other strategic transactions could fail to achieve financial or strategic objectives, disrupt our
ongoing business, and adversely impact our results of operations.
We may pursue selective acquisitions to expand, complement, or diversify our business as growing by acquisition is part of our
stated growth strategy. We cannot provide assurances that we will be able to identify suitable acquisition targets or that we will
be able to consummate acquisitions on terms and conditions acceptable to us, or that the acquired businesses will be profitable.
Acquisitions may expose us to additional business risks different than those we have traditionally experienced. We also may
encounter difficulties or failure to integrate acquired businesses and successfully managing the growth we expect to experience
from these acquisitions.
We may choose to finance future acquisitions with debt, equity, cash or a combination of the three. Future acquisitions could
dilute earnings. To the extent we succeed in making acquisitions, a number of risks may result, including:
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the transaction may not effectively advance our business strategy, and its anticipated benefits may never materialize;
the assumption of material liabilities or inability to realize the cost savings or other financial benefits anticipated prior
to acquisition (including environmental-related costs and multiemployer pension plans) through failure of due
diligence to uncover situations that could result in legal exposure or to quantify the true liability exposure from known
risks;
the assumption of multiemployer pension plans (“MEPP”) liability in the event of an acquisition with existing unions,
and an increased exposure to challenges to the structure of our union and non-union subsidiaries and operations if an
open shop business is acquired; and
any additional indebtedness incurred in connection with an acquisition may impact our financial position, results of
operations, and cash flows.
Furthermore, the costs associated with a failed acquisition or attempted acquisition transaction could have an adverse effect on
our financial position, results of operations and cash flows.
Our failure to successfully integrate acquisitions could adversely affect our financial results.
The success of our stated growth strategy depends on our ability to realize the anticipated benefits from the acquired businesses,
such as the expansion of our existing operations and elimination of redundant costs. To realize these benefits, we must
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successfully integrate the operations of the acquired businesses with our existing operations. Integrating acquired businesses
involves a number of operational challenges and risks, including:
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diversion of management’s attention from our existing business;
difficulties in the retention of management and other key employees, the assimilation of different cultures and
practices, broad and geographically dispersed personnel and operations, and the retention of clients or key employees
of an acquired business could negatively impact our business and the acquired business;
unanticipated issues in integrating an acquired business’s accounting, information technology, human resources, and
other administrative systems may fail to permit effective management and expense reduction; and
the risk of additional financial and accounting challenges and complexities in areas such as tax planning, treasury
management, financial reporting and internal controls.
These factors could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time
and energy, which could adversely affect our results of operations and financial position. Additionally, any impairment of
goodwill or other intangible assets as a result of our failure to successfully integrate acquisitions could adversely affect our
results of operations and financial position.
Design/Build and Design/Assist contracts subject us to the risks of design errors and omissions.
Design/Build projects provide the customer with a single point of responsibility for both design and construction. When we are
awarded these projects, we typically perform the design and engineering work in-house. On other projects, we are not the
designer, but provide assistance directly to the project design team. In the event that a design error or omission by us causes
damage, there is risk that we, our subcontractors or the respective professional liability or errors and omissions insurance would
not be able to absorb the liability. Any liability resulting from an asserted design defect with respect to our projects may have a
material adverse effect on our financial position, results of operations and cash flows.
If we experience delays and/or defaults in customer payments, we could be unable to recover all expenditures.
Due to the nature of our contracts, we sometimes commit resources to projects prior to receiving payments from the customer in
amounts sufficient to cover expenditures on projects as they are incurred. Delays in customer payments may require us to make
a working capital investment. If a customer defaults in making their payments on a project to which we have devoted resources,
it could have a material negative effect on our financial position, results of operations and cash flows.
Unsatisfactory safety performance may subject us to penalties, affect customer relationships, result in higher operating
costs, negatively impact employee morale and result in higher employee turnover.
Our work is conducted at offices the Company leases, as well as a variety of sites including construction sites and industrial
facilities. Each location is subject to numerous health and safety risks, including electrocutions, fires, explosions, mechanical
failures, exposure to hazardous materials, weather-related incidents, motor vehicle and transportation accidents and damage to
equipment. In addition, we lease a sizeable fleet of vehicles operated by our employees, and many of our employees operate
their personal vehicles in the course and scope of their employment, traveling to and from the sites and our facilities. These
hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and other
consequential damages, and could lead to suspension of operations, large damage claims and, in extreme cases, criminal
liability. While we have taken what we believe are appropriate precautions to minimize health and safety risks, we have
experienced serious incidents in the past and may experience additional incidents in the future. Serious accidents may subject us
to penalties, civil litigation or criminal prosecution. Claims for damages to persons, including claims for bodily injury or loss of
life, could result in significant costs and liabilities, which could adversely affect our financial position, results of operations and
cash flows. In addition, like other companies in our industry, we track our injury history in the form of an Experience
Modification Rate (“EMR”). In the event that the EMR associated with certain of our operating units exceeds the minimum
threshold set by customers, we may be unable to pursue certain projects. Poor safety performance could also jeopardize our
relationships with our customers and harm our reputation.
Our inability to properly utilize our workforce could have a negative impact on our profitability.
The extent to which we utilize our workforce affects our profitability. Underutilizing our workforce could result in lower gross
margins and, consequently, a decrease in our short-term profitability. On the other hand, overutilization of our workforce could
negatively impact safety, employee satisfaction, attrition, and project execution, leading to a potential decline in future project
awards. The utilization of our workforce is impacted by numerous factors, including:
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our estimates of headcount requirements and our ability to manage attrition;
efficiency in scheduling projects and our ability to minimize downtime between project assignments;
productivity;
labor disputes; and
availability of skilled labor at any given time.
Our business has union and open shop operations, subjecting the business to risk for labor disputes.
We have separate subsidiary employers that have union and non-union operations. There is a risk that our corporate structure
and operations in this regard could be challenged by one or more of the unions to which the employees belong. An adverse
claim or judgment resulting from such a challenge could have a material adverse effect on our financial position, results of
operations and cash flows.
Strikes or work stoppages could have a negative impact on our operations and results.
We are a party to collective bargaining agreements covering a majority of our craft workforce. Although strikes, work
stoppages and other labor disputes have not had a significant impact on our operations or results in the recent past, any such
labor actions, or our inability to renew the collective bargaining agreements, could materially and adversely impact our
financial position, results of operations and cash flows if they occur in the future.
Our business may be negatively affected by our failure to properly execute our business strategy.
In order to maintain and grow our business, we must make strategic decisions about our current and future business plans and
effectively execute upon those plans. Our principal focus over the past few years, and a focus that we plan to continue in
coming years, is the accelerated growth of our ODR segment, which includes maintenance services, small projects, building
controls installation and service, building environment management and performance services, and other project opportunities
performed direct for building owners. We are focused on expanding the number and breadth of owner relationships that we
serve on a direct basis and to leverage these expanded owner-direct relationships to deliver a broad suite of services. We have
made substantial investments to expand our ODR segment by increasing the value we can offer to service and maintenance
customers. We continue to actively concentrate managerial and sales resources on training and hiring experienced employees to
sell and profitably perform ODR work. With our ODR-centric focus, we’ve lessened, and continue to lessen, our resources
allocated to our GCR segment and continue to limit the GCR-related work we pursue. Although we believe our ODR-centric
focus addresses the needs of our business and its long-term objectives, our strategy is based on certain assumptions and
forecasts, which are subject to risks and uncertainties, including whether we have accurately identified the issues, targeted the
appropriate market customers, and executed our strategic efforts at the appropriate scale and scope, as well as continuing to do
so. Consequently, the continued business transition to an ODR-centric focus may not be successful in yielding the intended
results. Our business and financial results may be adversely impacted if we do not successfully execute our business strategy.
Our success depends upon the continuing contributions of certain key personnel, each of whom would be difficult to
replace. If we lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating
results could suffer.
Our continuing success depends on the performance of our management team. We rely on the experience, efforts and abilities
of these individuals, each of whom would be difficult to replace. We cannot guarantee the continued employment of any of our
key executives who may choose to leave the company for any number of reasons, such as other business opportunities, differing
views on strategic direction, etc. If we lose members of our management team, our business, financial position, results of
operations, cash flows, and customer base, as well as the market price of our common stock, could be adversely affected.
If we are unable to attract and retain qualified managers, employees, joint venture partners, subcontractors and suppliers,
we will be unable to operate efficiently, which could reduce our profitability.
Our business is labor intensive, and many of our operations experience a high rate of employment turnover. It is often difficult
to find qualified personnel in certain geographic areas where we operate. Additionally, our business is managed by a small
number of key executive and operational officers. Generally, the industry is facing a shortage of trained, skilled, and qualified
management, operational, and field personnel. We may be unable to hire and retain the skilled labor force necessary to operate
efficiently and to support our growth strategy or to execute our work in backlog. Changes in general or local economic
conditions and the resulting impact on the labor market and on our joint venture partners, subcontractors and suppliers, may
make it difficult to attract or retain qualified individuals in the geographic areas where we perform our work. Our labor
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expenses may increase as a result of a shortage in the supply of skilled and other personnel. Labor shortages, increased labor
costs or the loss of key personnel could reduce our profitability and negatively impact our business. Further, our relationship
with some customers could suffer if we are unable to retain the employees with whom those customers primarily work and have
established relationships.
Misconduct by our employees, subcontractors or partners, or our overall failure to comply with laws or regulations could
harm our reputation, damage our relationships with customers, reduce our revenue and profits, and subject us to criminal
and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one or more of our
employees, subcontractors, suppliers or partners could have a significant negative impact on our business and reputation.
Examples of such misconduct include employee or subcontractor theft, the failure to comply with safety standards, state-
specific laws related to automobile operations (including mobile phone usage), customer requirements, environmental laws,
DBE regulatory compliance, and any other applicable laws or regulations. While we take precautions to prevent and detect
these activities, such precautions may not be effective and are subject to inherent limitations, including human error and fraud.
Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, harm our
reputation, damage relationships with customers, reduce our revenue and profits, and subject us to criminal and civil
enforcement actions.
Failure to provide our services in accordance with professional standards or contractual requirements could expose us to
significant monetary damages.
Our services often involve professional judgments regarding the planning, design, development, construction, or operations and
management of complex facilities. Although we have adopted a range of insurance, risk management, and risk avoidance
programs designed to reduce potential liabilities, a catastrophic event at one of our project sites or a completed project, resulting
from the services we have performed, could result in significant professional or product liability and warranty or other claims
against us, as well as reputational harm. These liabilities could exceed our insurance limits or impact our ability to obtain
insurance in the future. Further, even where insurance coverage applies, such policies have limits and deductibles or retentions,
which could result in our assumption of exposure for certain amounts with respect to any claim filed against us. In addition,
customers or subcontractors who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to
uphold their obligations to us. An uninsured claim, either in part or in whole, as well as any claim covered by insurance but
subject to a policy limit, high deductible and/or retention, could have a material adverse effect on our business, financial
condition, and results of operations.
Our dependence on subcontractors and suppliers of equipment and materials could increase our costs and impair our ability
to complete contracts on a timely basis or at all, which would adversely affect our profits and cash flow.
We rely heavily on third-party subcontractors to perform some, and often a majority, of the work on many of our contracts. We
also rely almost exclusively on third-party suppliers to provide the equipment and materials (including pipe, sheet metal and
control systems) for our contracts. If we are unable to retain qualified subcontractors or suppliers, or if our subcontractors or
suppliers do not perform as anticipated for any reason, our execution and profitability could be harmed. By contract, we remain
liable to our customers for the performance or failures of our subcontractors and suppliers.
We generally do not bid on projects unless we have commitments from suppliers for the materials and equipment and from
subcontractors for the services required to complete the projects at prices that have been included in the bid. Thus, to the extent
that we cannot obtain commitments from our suppliers for materials and equipment, and from subcontractors for services
needed, or to the extent such commitments are on terms that are adverse to the Company, our ability to bid for contracts may be
impaired or we may experience reduced profit or a loss on a contract. In addition, if a supplier or subcontractor is unable to
deliver materials, equipment or services according to the negotiated terms of a supply/services agreement for any reason,
including the deterioration of our financial condition, we may suffer delays and be required to purchase the materials,
equipment and services from another source at a higher price or incur other unanticipated costs. This may reduce the profit to be
realized, or result in a loss, on a contract.
An increase in the cost or the availability of materials and commodities could affect our profitability.
We are exposed to market risks that may cause increases in the cost, or the availability of, materials, equipment and
commodities utilized in our operations. We have experienced, and may continue to experience, delays and cost volatility of
these items due to supply chain disruptions, inflationary pressures, tariffs, regulatory slowdowns and market disruptions. In
addition, our customers’ budgets may be impacted by cost increases and reduced customer spending could lead to fewer project
awards and more competition. These costs may be impacted by government regulations, import duties and tariffs, changes in
currency exchange rates, general economic conditions and other circumstances beyond our control. We are also exposed to
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increases in energy prices, particularly as they relate to fuel prices for our fleet vehicles. Although we may attempt to pass on
certain of these increased costs to our customers, we may not be able to pass all of these cost increases on to our customers. As
a result, our margins may be adversely impacted by such cost increases.
Changes in energy prices may increase our costs, and we may not be able to pass along increased energy costs to our
customers.
Energy prices fluctuate based on events outside of our control. We could be adversely affected by limitations on fuel supplies or
increases in energy prices that result in higher transportation and equipment operation costs. Although we may be able to pass
through the impact of energy price charges to some of our customers, we may not be able to pass all of these cost increases on
to our customers. As a result, our margins may be adversely impacted by such cost increases.
We may be unable to identify and contract with qualified DBE contractors to perform as subcontractors.
Certain of our projects include contract clauses requiring DBE participation. The participation clauses may be in the form of a
goal or in the form of a minimum amount of work that must be subcontracted to a DBE firm. If we fail to complete these
projects with the minimum DBE participation, we may be held responsible for breach of contract, which may include
restrictions on our ability to bid on future projects, as well as monetary damages. To the extent we are responsible for monetary
damages, the total costs of the project could exceed the original estimates, we could experience reduced profits or a loss for that
project, and there could be a material adverse impact to our financial position, results of operations, cash flows and liquidity.
Further, if we contract with a DBE contractor that is not properly qualified to perform a commercially useful function, we could
be held responsible for violation of federal, state or local laws related to DBE contracting.
Our participation in construction joint ventures exposes us to liability and/or harm to our reputation for failures of our
partners.
As part of our business, we are a party to special purpose, project specific joint venture arrangements, pursuant to which we
typically jointly bid on and execute particular projects with other companies in the construction industry. Success on these joint
projects depends upon the various risks discussed elsewhere in this section and on whether our joint venture partners satisfy
their contractual obligations.
We and our joint venture partners are generally jointly and severally liable for all liabilities and obligations of the joint ventures.
If a joint venture partner fails to perform or is financially unable to bear its portion of required capital contributions or other
obligations, including liabilities stemming from lawsuits, we could be required to make additional investments, provide
additional services or pay more than our proportionate share of a liability to make up for our partner’s shortfall. Furthermore, if
we are unable to adequately address our partner’s performance issues, the customer may terminate the project, which could
result in legal liability to us, harm to our reputation and reduction to our profit on a project. We may be the controlling member
of a joint venture; however, to the extent we are not controlling, we may have limited control over certain of the decisions made
by the controlling member with respect to the work being performed by the joint venture. The other member(s) may not be
subject to the same compliance and regulatory requirements. While we have processes and controls intended to mitigate risks
associated with our joint ventures, to the extent the controlling member makes decisions that negatively impact the joint venture
it could have a material adverse effect on our financial position, results of operations, cash flow and profits.
A significant portion of our business depends on our ability to provide surety bonds. Any difficulties in the financial and
surety markets may cause a material adverse effect on our bonding capacity and availability.
Certain of our projects require construction surety bonds (bid, payment, and performance bonds). Historically, surety market
conditions have experienced times of difficulty as a result of significant losses incurred by surety companies stemming from
macroeconomic trends outside of our control. Consequently, during times when less overall bonding capacity is available in the
market, surety terms have become more expensive and more restrictive. We cannot guarantee our ability to maintain a sufficient
level of bonding capacity in the future, which could preclude our ability to bid for certain contracts or successfully contract with
some customers. Additionally, even if we continue to be able to access bonding capacity to sufficiently bond future work, we
may be required to post collateral to secure bonds, which would decrease the liquidity we would have available for other
purposes. Our surety providers are under no commitment to guarantee our access to new bonds in the future; thus, our ability to
access or increase bonding capacity is at the sole discretion of our surety providers. If our surety companies were to limit or
eliminate our access to bonds, the alternatives would include seeking bonding capacity from other surety companies, increasing
business with clients that do not require bonds and posting other forms of collateral for project performance, such as letters of
credit or cash. We may be unable to secure these alternatives in a timely manner, on acceptable terms, or at all. As such, if we
were to experience an interruption or reduction in the availability of bonding capacity, it is likely we would be unable to
compete for or work on certain projects.
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Our insurance policies against many potential liabilities require high deductibles. Additionally, difficulties in the insurance
markets may adversely affect our ability to obtain necessary insurance.
Although we maintain insurance policies with respect to certain of our related exposures, certain of these policies are subject to
high deductibles; as such, we are, in effect, self-insured for substantially all of our typical claims. Our estimates of liabilities for
unpaid claims and associated expenses and the appropriateness of the estimated liability are reviewed and updated quarterly.
However, insurance liabilities are difficult to assess and estimate due to the many relevant factors, the effects of which are often
unknown, including the severity of an injury, the determination of our liability in proportion to other parties, the number of
incidents that have occurred but are not reported, and the effectiveness of our health, safety and quality programs. Our accruals
are based on known facts, historical trends (both internal trends and industry averages) and our reasonable estimate of our
future expenses. We believe our accruals are adequate. However, our risk management strategies and techniques may not be
fully effective in mitigating the risk exposure in all market environments or against all types of risk. If any of the variety of
instruments, processes or strategies we use to manage our exposure to various types of risk are not effective, we may incur
losses that are not covered by our insurance policies (including potential punitive damages awards) or that exceed our accruals
or coverage limits.
Additionally, in recent years, insurance markets have become more expensive and restrictive. Also, our prior casualty loss
history might adversely affect our ability to procure insurance within commercially reasonable ranges. As such, we may not be
able to maintain commercially reasonable levels of insurance coverage in the future, which could preclude our ability to work
on many projects. Our insurance providers are under no commitment to renew our existing insurance policies in the future;
therefore, our ability to obtain necessary levels or kinds of insurance coverage are subject to market forces outside our control.
If we are unable to obtain necessary levels of insurance, we likely would be unable to compete for or work on most projects.
Our use of the cost-to-cost method of accounting could result in a reduction or reversal of previously recorded revenue or
profits.
A material portion of our revenue is recognized using the cost-to-cost method of accounting, which results in recognizing
contract revenue and earnings ratably over the contract term in the proportion that our actual costs bear to our estimated
contract costs. The earnings or losses recognized on individual contracts are based on estimates of contract revenue, costs and
profitability. We review our estimates of contract revenue, costs and profitability on an ongoing basis. Prior to contract
completion, we may adjust our estimates on one or more occasions as a result of change orders to the original contract,
collection disputes with the customer on amounts invoiced, or claims against the customer for increased costs incurred due to
customer-induced delays and other factors. Contract losses are recognized in the fiscal period in which the loss is determined.
Contract profit estimates are also adjusted in the fiscal period in which it is determined that an adjustment is required. As a
result of the requirements of the cost-to-cost method of accounting, the possibility exists, for example, that we could have
estimated and reported a profit on a contract over several periods and later determined, usually near contract completion, that all
or a portion of such previously estimated and reported profits were overstated. If this occurs, the full aggregate amount of the
overstatement will be reported for the period in which such determination is made, thereby offsetting all or a portion of any
profits from other contracts that would be reported in such period, or even resulting in a loss being reported for such period. On
a historical basis, in most business units, we believe that we have typically made reasonably reliable estimates of the progress
towards completion on our long-term contracts. However, given the uncertainties associated with these types of contracts, it is
possible for actual costs to materially and adversely vary from estimates previously made, which may result in reductions or
reversals of previously recorded revenue and profits.
Earnings for future periods may be impacted by impairment charges for goodwill and intangible assets.
We carry a significant amount of goodwill and identifiable intangible assets on our consolidated balance sheets. Goodwill is the
excess of purchase price over the estimated fair value of the net assets of acquired businesses. We assess goodwill for
impairment each year, and more frequently if circumstances suggest an impairment may have occurred. We may determine in
the future that a significant impairment has occurred in the value of our unamortized intangible assets or fixed assets, which
could require us to write off a portion of our assets and could adversely affect our financial condition or reported results of
operations.
Contractual warranty obligations could adversely affect our profits and cash flow.
We often warrant the services provided, typically as a function of contract, guaranteeing the work performed against defects in
workmanship and the material we supply. If warranty claims occur, we could be required to repair or replace warrantied work
in place at our cost. In addition, our customers may elect to repair or replace the warrantied item by using the services of
another provider and require us to pay for the cost of the repair or replacement. Costs incurred as a result of warranty claims
could adversely affect our financial position, results of operations and cash flows.
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Recent and potential changes in U.S. trade policies and retaliatory responses from other countries may significantly increase
the costs or limit supplies of raw materials and products used in our operations.
The U.S. federal government has in recent years imposed new or increased tariffs or duties on an array of imported materials
and goods that are used in connection with our operations. Foreign governments and trading blocs have responded by imposing
or increasing tariffs, duties and/or trade restrictions on U.S. goods, and may, from time to time, consider other measures. These
trade conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could
increase our operating costs, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or
local economies in which we operate, and, individually or in the aggregate, materially and adversely affect our business and our
consolidated financial statements.
Rising inflation and/or interest rates, or deterioration of the United States economy could have a material adverse effect on
our business, financial condition and results of operations.
Economic factors, including inflation and fluctuations in interest rates, recession and fears of recession could have a negative
impact on our business. If our costs were to become subject to significant inflationary pressures, we may not be able to fully
offset such higher costs through price increases. To the extent that Congress is unable to lower United States debt substantially
or effectively increase the debt limit, a decrease in federal spending could result, which could negatively impact the ability of
government agencies to fund existing or new infrastructure projects. Further, to the extent that Congress invests additional
amounts in infrastructure during periods of labor shortages or supply chain disruptions, it may increase our costs or cause us not
to find suitable labor, supplies, machinery or raw materials. In addition, all of such actions could have a material adverse effect
on the financial markets and economic conditions in the United States and throughout the world, which may limit our ability
and the ability of our customers to obtain financing and/or could impair our ability to execute our acquisition strategy. These
and related economic factors could have a material adverse effect on our financial position, results of operations, cash flows and
liquidity.
Continuing worldwide political and economic uncertainties may adversely affect our revenue and profitability.
The last several years have been periodically marked by political and economic concerns, including the COVID-19 pandemic,
decreased consumer confidence, the effects of international conflicts such as wars between Russia and Ukraine and Israel and
Hamas, tariffs, energy costs and inflation. This instability can make it extremely difficult for our customers, our vendors and us
to accurately forecast and plan future business activities, and could cause constrained spending on our services, delays and a
lengthening of our business development efforts, the demand for more favorable pricing or other terms, and/or difficulty in
collection of our accounts receivable. Further, this ongoing economic instability in the global markets could limit our ability to
access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to
react to changing business conditions or new opportunities. If economic conditions remain uncertain or weaken, our revenue
and profitability could be adversely affected.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
Borrowings under our Second A&R Wintrust Credit Agreement (as defined below) are at variable rates of interest and expose
us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even
though any amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our
indebtedness, will correspondingly decrease. As of the December 31, 2023, we had $35.9 million of available borrowing
capacity under the Second A&R Wintrust Revolving Loan (as defined below). In addition, we have entered into an interest rate
swap on our Second A&R Wintrust Revolving Loan that involves the exchange of variable for fixed rate interest payments in
order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate
indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk and could be subject to credit risk
themselves.
Failure to remain in compliance with covenants under our debt and credit agreements or service our indebtedness could
adversely impact our business.
Our Second A&R Wintrust Credit Agreement and other debt obligations include certain debt covenants, some of which are
financial in nature, are further described in “Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations” of this Annual Report on Form 10-K. Our failure to comply with any of these covenants, or to pay principal,
interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. Under
certain circumstances, the occurrence of an event of default under one of these agreements (or the acceleration of the maturity
of the indebtedness under one of these agreements) may constitute an event of default under one or more of our other debt or
surety agreements. Default under our debt agreements could result in, among other things, us no longer being entitled to borrow
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under one or more of the agreements, acceleration of the maturity of outstanding indebtedness under the agreements, and/or
foreclosure on any collateral securing the obligations under the agreements. If we are unable to service our debt obligations, or
if we are unable to comply with our financial or other debt covenants, and our indebtedness would become immediately due
and payable, and we could be forced to curtail our operations, reorganize our capital structure (including through bankruptcy
proceedings), or liquidate some or all of our assets in a manner that could cause holders of our securities to experience a partial
or total loss of their investment.
We may not be able to generate sufficient cash flow to meet all of our existing or potential future debt service obligations.
Our ability to meet all of our existing or potential future debt service obligations (including those under our Second A&R
Wintrust Credit Agreement, pursuant to which we may incur significant indebtedness), to refinance our existing or potential
future indebtedness, and to fund our operations, working capital, acquisitions, capital expenditures, and other important
business uses, depends on our ability to generate sufficient cash flow in the future. Our future cash flow is subject to, among
other factors, general economic, industry, financial, competitive, operating, legislative and regulatory conditions, many of
which are beyond our control.
We cannot assure that our business will generate sufficient cash flow from operations or that future sources of cash will be
available to us on favorable terms, or at all, in amounts sufficient to enable us to meet all of our existing or potential future debt
service obligations, or to fund our other important business uses or liquidity needs. Furthermore, if we incur additional
indebtedness in connection with future acquisitions or for any other purpose, our existing or potential future debt service
obligations could increase significantly and our ability to meet those obligations could depend, in large part, on the returns from
such acquisitions or projects, as to which no assurance can be given.
Furthermore, our obligations under the terms of our borrowings could impact us negatively. For example, such obligations
could:
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limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements,
acquisitions and general corporate or other purposes;
restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
increase our vulnerability to general economic and industry conditions; and
require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on
our borrowings, thereby reducing our ability to use cash flow to fund our operations, capital expenditures and future
business opportunities.
We may also refinance all or a portion of our indebtedness at or prior to the scheduled maturity. Our ability to refinance our
indebtedness or obtain additional financing will depend on, among other things, (i) our business, financial condition, liquidity,
results of operations, and then-current market conditions; and (ii) restrictions in the agreements governing our indebtedness. As
a result, we may not be able to refinance any of our indebtedness or obtain additional financing on favorable terms, or at all.
If we do not generate sufficient cash flow from operations and additional borrowings or refinancings are not available to us, we
may be unable to meet all of our existing or potential future debt service obligations. As a result, we would be forced to take
other actions to meet those obligations, such as raising equity or delaying capital expenditures, any of which could have a
material adverse effect on us. Furthermore, we cannot assure that we will be able to effect any of these actions on favorable
terms, or at all.
Our obligation to contribute to multiemployer pension plans could give rise to significant expenses and liabilities in the
future.
We contribute to approximately 40 multiemployer pension plans in the United States under collective bargaining agreements
that generally provide pension benefits to employees covered by these agreements. Approximately 54% of our current
employees are members of collective bargaining units. Our contributions to these plans were approximately $11.6 million for
the year ended December 31, 2023 and $12.6 million for the year ended December 31, 2022. The costs of providing benefits
through such plans have increased in recent years. The amount of any increase or decrease in our required contributions to these
multiemployer pension plans will depend upon many factors, including the outcome of collective bargaining, actions taken by
trustees who manage the plans, government regulations, the actual return on assets held in the plans and the potential payment
of a withdrawal liability. Based upon the information available to us from the multiemployer pension plans’ administrators, we
believe that some of these multiemployer pension plans are underfunded. The unfunded liabilities of these plans may result in
required increased future payments by us and the other participating employers. Underfunded multiemployer pension plans may
impose a surcharge requiring additional pension contributions. Our risk of such increased payments may be greater if any of the
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participating employers in these underfunded plans withdraws from the plan and is not able to contribute an amount sufficient
to fund the unfunded liabilities associated with its participants in the plan.
With limited exception, an employer who is obligated under a collective bargaining agreement to contribute to a multiemployer
pension plan is liable, upon termination of such contribution obligation to the plan or withdrawal from a plan, for its
proportionate share of the plan’s unfunded vested pension liabilities. In the event that we withdraw from participation in a plan,
applicable law could require us to make withdrawal liability contributions to such plan, and we would have to reflect that
liability and the related expense in our consolidated financial statements. Our withdrawal liability payable to an individual
multiemployer pension plan would depend on the extent of the plan’s funding of vested benefits. While we currently have no
intention of withdrawing from a plan, and underfunded plan obligations have not affected our operations in the past, there can
be no assurance that we will not be required to make material cash contributions to one or more of these plans in the future. If
the multiemployer pension plans in which we participate have significant underfunded liabilities, such underfunding could
increase the size of our potential withdrawal liability. No liability for underfunding of multiemployer pension plans was
recorded in our consolidated financial statements for the years ended December 31, 2023 or 2022.
Increases in healthcare costs could adversely affect our financial results.
The costs of providing employee healthcare benefits have steadily increased over a number of years due to, among other things,
rising healthcare costs and legislative requirements. Because of the complex nature of healthcare laws, as well as periodic
healthcare reform legislation adopted by Congress, state legislatures, and municipalities, we cannot predict with certainty the
future effect of these laws on our healthcare costs. Continued increases in healthcare costs or additional costs created by future
health care reform laws adopted by Congress, state legislatures, or municipalities could adversely affect our results of
operations and financial position.
Our business may be affected by the work environment.
We perform our work under a variety of conditions, including but not limited to, difficult terrain, difficult site conditions, and
busy urban centers where delivery of materials and availability of labor may be impacted, clean-room environments where strict
procedures must be followed, and sites which contain harsh or hazardous conditions, refineries and other process facilities.
Performing work under these conditions can increase the cost of such work or negatively affect efficiency and, therefore, our
profitability.
A pandemic, epidemic or outbreak of an infectious disease, such as the coronavirus (COVID-19), in the markets in which we
operate or that otherwise impacts our facilities or suppliers could adversely impact our business.
If a pandemic, epidemic, or outbreak of an infectious disease, including the outbreak of any respiratory illness caused by
COVID-19, or other public health crisis were to affect our markets or facilities or those of our suppliers, or customers, our
business could be adversely affected. Consequences of a pandemic, epidemic or other infectious disease may include
disruptions in or restrictions on our ability to travel. If such an infectious disease broke out at one or more of our offices,
facilities or work sites, our operations may be adversely and materially affected, our productivity may be affected, our ability to
complete projects in accordance with our contractual obligations may be affected, and we may incur increased labor and
materials costs. If the customers with which we contract are affected by an outbreak of infectious disease, GCR and ODR work
may be delayed or cancelled, and we may incur increased labor and materials costs. If our subcontractors with whom we work
were affected by an outbreak of infectious disease, our labor supply may be affected and we may incur increased labor costs. In
addition, we may experience difficulties with certain suppliers or with vendors in their supply chains, and our business could be
affected if we become unable to procure essential equipment, supplies or services in adequate quantities and at acceptable
prices. Further, infectious outbreaks have and could in the future cause disruption to the U.S. economy, or the local economies
of the markets in which we operate, and may cause shortages of building materials, increased costs associated with obtaining
building materials, affect job growth and consumer confidence, or cause economic changes, including the possibility of an
economic recession or inflation, that we cannot anticipate. Overall, the potential impact of a pandemic, epidemic or outbreak of
an infectious disease with respect to our markets or our facilities is difficult to predict and could adversely impact our business.
Future climate change could adversely affect us.
Greenhouse gas (“GHG”) emissions are driving global climate change that is expected to have various impacts on our
operations, ranging from more frequent extreme weather events to extensive governmental policy developments and shifts in
our customers’ preferences, which have the potential individually or collectively to significantly disrupt our business as well as
negatively affect our suppliers, independent contractors and customers. Experiencing or addressing the various physical,
regulatory and adaptation/transition risks from climate change may significantly reduce our revenue and profitability, or cause
us to generate losses. For instance, incorporating greater resource efficiency into our solutions, whether to comply with
upgraded building codes or recommended practices given a region’s particular exposure to climate conditions, or undertaken to
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satisfy demand from increasingly environmentally conscious customers or to meet our own sustainability goals, often raises our
costs. In evaluating whether to implement voluntary improvements, we also consider that choosing not to enhance our
buildings’ resource efficiency can make them less attractive to municipalities, and increase the vulnerability of customers in our
communities to rising energy and water expenses and use restrictions. We weigh the impact of the costs associated with
offering more resource-efficient products against our priorities of generating higher returns and delivering solutions that are
affordable to our customers. In balancing these objectives, we may determine we need to absorb most or all of the additional
operating costs that come with making our solutions more efficient, which may be substantial for us.
Beyond the commercial pressures implicated by climate change concerns, our operations in any of our served markets may face
its potential adverse physical effects. While we have safety protocols in place for our construction sites and take steps to
safeguard our administrative functions, we can provide no assurance that we or our suppliers or other partners can successfully
operate in areas experiencing a significant weather event or natural disaster, and we or they may be more impacted and take
longer, and with higher costs, to resume operations in an affected location than other businesses, depending on the nature of the
event or other circumstances.
International, federal, state and local authorities and legislative bodies have issued, implemented or proposed regulations,
penalties, standards or guidance intended to restrict, moderate or promote activities consistent with resource conservation, GHG
emission reduction, environmental protection or other climate-related objectives. Compliance with those directed at or
otherwise affecting our business or our suppliers’ (or their suppliers’) operations, products or services, could increase our costs
or delay or complicate our solutions, for example, due to a need to reformulate or redesign building materials or components, or
source updated or upgraded items or equipment, or specially trained or certified independent contractors, in limited or restricted
supply.
Adapting to or transitioning from the use of certain items or methods in construction or other solutions, or adjusting the
products we offer to our customers, whether due to climate-related governmental rules or our supply chain, market dynamics or
consumer preferences, can negatively affect our costs and profitability, production operations in affected markets and customer
satisfaction during the transition period, which could be prolonged.
Climate change is an intrinsically complex global phenomenon with inherent residual risks across its physical, regulatory and
adaptation/transition dimensions that cannot be mitigated given their wide-ranging, (sometimes unexpectedly) interdependent
and largely unpredictable potential scope, nature, timing or duration. Therefore, we cannot provide any assurance that we have
or can successfully prepare for, or are or will be able to reduce or manage, any of them to the extent they may arise. In addition,
we may experience substantial negative impacts to our business if an unexpectedly severe weather event or natural disaster
damages our operations or those of our suppliers or independent contractors in our primary markets or from the unintended
consequences of regulatory changes that directly or indirectly impose substantial restrictions on our activities or adaptation
requirements.
We may be affected by market or regulatory responses to climate change.
Growing public concern about climate change has resulted in the increased focus of local, state, regional, national, and
international regulatory bodies on GHG emissions and climate change issues. Legislation to regulate GHG emissions has
periodically been introduced in the U.S. Congress, and there has been a wide-ranging policy debate, both in the United States
and internationally, regarding the impact of these gases and possible means for their regulation. The Biden Administration has
made climate change and the limitation of GHG emissions one of its primary objectives, including a renewed commitment to
the Paris Agreement and a Nationally Determined Contribution under such agreement that aims to reduce U.S. emissions by
50-52%, compared to a 2005 baseline, by 2030. Several states and geographic regions in the United States have also adopted
legislation and regulations to reduce emissions of GHGs. Additional legislation or regulation by the federal government or state
and local governments or agencies, and/or any international agreements to which the United States may become a party that
control or limit GHG emissions or otherwise seek to address climate change, could result in increased compliance costs for us
and our clients or have other impacts on our clients, including those who are involved in the exploration, production, or refining
of fossil fuels, or who emit greenhouse gases through the combustion of fossil fuels or through the mining, manufacture,
utilization, or production of materials or goods. Such policy changes could increase the costs of projects for our clients or, in
some cases, prevent a project from going forward, thereby potentially reducing the need for certain of our services, which could
in turn have a material adverse effect on our business, financial condition, and results of operations. However, policy changes
and climate legislation could also increase the overall demand for our services as our clients and partners work to comply with
these policies, such as reducing their energy consumption, and developing integrated and sustainable solutions, which could
have a positive impact on our business. We cannot predict with certainty what the effect of such regulation may be on us or our
customers.
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On March 6, 2024, the SEC finalized new rules that would require significant climate-related disclosures by public companies,
including evaluation and disclosure of material climate-related risks and opportunities, GHG emissions inventory, climate-
related targets and goals, and financial impacts of physical and transition risks (the “SEC Climate Rules”). As a result of the
SEC Climate Rules, our legal, accounting, and other compliance expenses may increase significantly, and compliance efforts
may divert management time and attention. We may also be exposed to legal or regulatory action or claims as a result of these
new regulations. All of these risks could have a material adverse effect on our business, financial position, and/or stock price.
In addition, numerous states, municipalities and regulators have also adopted or proposed laws and policies on climate change,
including GHG emission reduction targets and climate disclosure. For example, in September 2023, California became the first
state to pass its own far-reaching mandatory disclosure bills which require any entity doing business in California that meets
certain annual revenue thresholds to annually disclose publicly and provide independent third-party attestation on its global
Scope 1 and Scope 2 GHG emissions beginning in 2026 for the prior fiscal year, and on its value chain (Scope 3) GHG
emissions beginning in 2027.
The adoption of federal, state or local climate change legislation or regulatory programs to reduce emissions of GHGs and
comply with disclosure obligations could require us to incur increased capital and operating costs, with resulting impact on
product price and demand. We cannot predict when or in what form climate change legislation provisions and renewable
energy standards may be enacted and what the impact of any such legislation or standards may have on our business, financial
conditions or operations in the future.
Increasing scrutiny and changing expectations from investors and customers with respect to our environmental, social and
governance practices may impose additional costs on us or expose us to reputational or other risks.
Investors have increased their emphasis on the environmental, social and governance ("ESG") practices of companies across all
industries, including the environmental impact of operations and human capital management. Certain stockholders use third-
party benchmarks or scores to measure a company’s ESG practices and decide whether to invest in its common stock or engage
with the company to require changes to its practices. In addition, our customers may evaluate our ESG practices or require that
we adopt certain ESG policies as a condition of awarding contracts.
A failure to comply with investor or customer expectations and standards, which are evolving and vary considerably, or the
perception that we have not responded appropriately to the growing concern for ESG issues, could result in reputational harm to
our business and could have an adverse effect on us.
In addition, organizations that provide ratings information to investors on ESG matters may assign unfavorable ratings to us or
our industry, which may lead to negative investor sentiment and the diversion of investment capital to other companies or
industries, which could have a negative impact on our stock price and our costs of capital.
We are susceptible to adverse weather conditions, which may harm our business and financial results.
Our business may be adversely affected by severe weather in areas where we have significant operations. Repercussions of
severe weather conditions may include:
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curtailment of services;
suspension of operations;
inability to meet performance schedules in accordance with contracts and potential liability for liquidated damages;
injuries or fatalities;
weather related damage to facilities;
disruption of information systems;
inability to receive machinery, equipment and materials at jobsites; and
loss of productivity.
Information technology system failures, network disruptions or cyber security breaches could adversely affect our business.
We use sophisticated information technology systems, networks, and infrastructure in conducting some of our day-to-day
operations and providing services to certain customers, including technology used for building designs, project modeling and
scheduling. Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt our
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operations by causing transaction errors, processing inefficiencies, the loss of customers, other business disruptions, or the loss
of employee personal information. In addition, these systems, networks, and infrastructure may in the future be vulnerable to
deliberate cyber-attacks that interfere with their functionality or the confidentiality of our data or information or our customers’
data or information. Increasingly advanced cyber-attacks against rapidly evolving computer technologies pose a risk to the
security of our systems, networks, information and data. In addition, the rapid evolution and increased adoption of artificial
intelligence technologies may intensify our cybersecurity risks. Likewise, cyber incidents, including malicious cyber-attacks
perpetrated on our employees and cyber incidents caused by third parties surreptitiously accessing our systems by other means,
are an on-going risk to the security of the systems, networks, information and data of ours, our customers, subcontractors and
suppliers. While we have security, internal control and technology measures in place to protect our systems and networks,
confidential business information, personal data of ours, our customers, employees, suppliers and subcontractors, our
information technology systems and those of our third-party service providers have been and may in the future be subject to
system breaches. System breaches can lead to disclosure, modification and destruction of proprietary business data, personally
identifiable information, other sensitive information, production downtime or loss of business, and damage to our reputation,
competitiveness and operations. In addition, flexible working arrangements at our corporate offices increased as a result of the
COVID-19 pandemic, and these arrangements have resulted in a higher extent of remote working. This and other possible
changing work practices may adversely impact our ability to maintain the security, proper function and availability of our
information technology and systems since remote working by our employees could strain our technology resources and
introduce operational risk, including heightened cybersecurity risk. Remote working environments may be less secure and more
susceptible to hacking attacks, including phishing and social engineering attempts that have sought, and may seek, to exploit
remote working environments. Of special note is our risk when implementing new capabilities. The implementation of new
systems and information technology could adversely impact our operations by requiring substantial capital expenditures,
diverting management’s attention, or causing delays or difficulties in transitioning to new systems. As we implement new
systems, many times both new and old systems run in parallel until all processes have successfully transferred to the new
system and thorough testing has been performed. These events could impact our customers, suppliers, subcontractors,
employees, our financial reporting and our reputation and lead to financial losses from remediation actions, loss of business or
potential liability, or an increase in expense, all of which may have a material adverse effect on our business. Our systems
implementations may also not result in productivity improvements at the levels anticipated. In addition, current and future laws
and regulations governing data privacy and the unauthorized disclosure of confidential information, including, but not limited to
rules implemented by the SEC in 2023, may pose complex compliance challenges and result in additional costs. A failure to
comply with such laws and regulations could result in penalties or fines, legal liabilities or reputational harm. The continuing
and evolving threat of cyber-attacks has also resulted in increased regulatory focus on risk management and prevention. New
cyber-related regulations or other requirements could require significant additional resources and cause us to incur significant
costs, which could have an adverse effect on our results of operations and cash flows.
Changes to our outsourced software or infrastructure vendors as well as any sudden loss, breach of security, disruption or
unexpected data or vendor loss associated with our information technology systems could have a material adverse effect on
our business.
We rely on third-party software and infrastructure to run critical accounting, project management and financial information
systems. If software or infrastructure vendors decide to discontinue further development, integration or long-term maintenance
support for our information systems, or there is any system interruption, delay, breach of security, loss of data or loss of a
vendor, we may need to migrate some or all of our accounting, project management and financial information to other systems.
These disruptions could increase our operational expense as well as impact the management of our business operations, which
could have a material adverse effect on our financial position, results of operations, cash flows and liquidity.
We have subsidiary operations throughout the United States and are exposed to multiple state and local regulations, as well
as federal laws and requirements applicable to government contractors. Changes in laws, regulations or requirements, or a
material failure of any of our subsidiaries or us to comply with any of them, could increase our costs and have other
negative impacts on our business.
As of December 31, 2023, our business units operate in 22 states, which exposes us to a variety of state and local laws and
regulations, particularly those pertaining to contractor licensing requirements. These laws and regulations govern many aspects
of our business, and there are often different standards and requirements in different locations. In addition, our subsidiaries that
perform work for federal government entities are subject to additional federal laws and regulatory and contractual requirements.
Changes in any of these laws, or any subsidiary’s material failure to comply with them, can adversely impact our operations by,
among other things, increasing costs, distracting management’s time and attention from other items, and harming our
reputation.
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As Federal Government Contractors under applicable federal regulations, our subsidiaries are subject to a number of rules
and regulations, and our contracts with government entities are subject to audit. Violations of the applicable rules and
regulations could result in a subsidiary being barred from future government contracts.
Federal Government Contractors must comply with many regulations and other requirements that relate to the award,
administration and performance of government contracts. A violation of these laws and regulations could result in imposition of
fines and penalties, the termination of a government contract, or debarment from bidding on government contracts in the future.
Further, despite our decentralized nature, a violation at one of our locations could impact the ability of the other locations to bid
on and perform government contracts; additionally, because of our decentralized nature, we face risk in maintaining compliance
with all local, state and federal government contracting requirements. Prohibition against bidding on future government
contracts could have an adverse effect on our financial position, results of operations and cash flows.
Past and future environmental, safety and health regulations could impose significant additional costs on us that reduce our
profits.
The systems we install are subject to various statutes and regulations. There can be no assurance that the regulatory
environment in which we operate will not change significantly in the future. Various local, state and federal laws and
regulations impose licensing standards on technicians who install and service mechanical systems. And additional laws,
regulations and standards apply to contractors who perform work that is being funded by public money, particularly federal
public funding. Our failure to comply with these laws and regulations could subject us to substantial fines, the loss of licenses
or potential debarment from future publicly funded work. It is impossible to predict the full nature and effect of judicial,
legislative or regulatory developments relating to health and safety regulations and environmental protection regulations
applicable to our operations.
Our failure to comply with immigration laws and labor regulations could affect our business.
In certain markets, we rely heavily on our immigrant labor force. We have taken steps that we believe are sufficient and
appropriate to ensure compliance with immigration laws. However, we cannot provide assurance that our management has
identified, or will identify in the future, all undocumented immigrants who work for us. The failure to identify such illegal
immigrants may result in fines or other penalties being imposed upon us, which could have a material adverse effect on our
financial position, results of operations and cash flows.
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile.
The market price of our common stock has been volatile and may be volatile in the future, and could be subject to wide
fluctuations in price in response to various factors, some of which are beyond our control. These factors include, among other
things:
•
•
•
•
•
•
•
•
•
actual or anticipated variations in our quarterly results of operations;
recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
political and economic conditions, such as a recession;
news reports relating to trends, concerns and other issues in the financial services industry generally;
perceptions in the marketplace regarding us and/or our competitors;
the addition or departure of key personnel;
new technology used, or services offered, by competitors; and
changes in government regulations.
In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the
trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of
operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if
unsuccessful, could be costly to defend and a distraction to management.
30
Future sales of our common stock may cause our common stock price to decline.
Any transfer or sales of substantial amounts of our common stock in the public market or the perception that such transfer or
sales might occur may cause the market price of our common stock to decline. As of March 12, 2024, we had an aggregate of
11,131,702 shares of our outstanding common stock, of which 1,095,177 shares were held by our current directors and officers.
There were no holders of greater than 10% of our common stock as of March 12, 2024. If a substantial number of these shares
are sold in the public market, the trading price of our common stock may decline.
In addition, our Board of Directors has the power, without stockholder approval, to set the terms of any series of preferred stock
that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends
or in the event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the
future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or
winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the
holders of our common stock or the market price of our common stock could be adversely affected.
Future equity issuances could result in dilution, which could cause our common stock price to decline.
We are generally not restricted from issuing additional shares of our common stock, up to the 100,000,000 shares of voting
common stock authorized by our second amended and restated certificate of incorporation, which could be increased by a vote
of the holders of a majority of our shares. In addition, we may issue additional shares of our common stock in the future
pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, upon exercise of warrants
or in connection with future acquisitions or financings. If we choose to raise capital by selling shares of our common stock for
any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative
effect on the market price of our common stock.
If equity research analysts publish unfavorable commentary or downgrade our common stock, the price and trading volume
of our common stock could decline.
The trading market for our common stock could be affected by equity research analysts’ research or reports about us and our
business. The price of our stock could decline if one or more securities analysts downgrade our stock or if analysts issue other
unfavorable commentary about us or our business. In addition, if any of these analysts ceases coverage of us, we could lose
visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock
to be less liquid.
We have not declared any dividends on our common stock to date and have no expectation of doing so in the foreseeable
future.
The payment of cash dividends on our common stock rests within the discretion of our Board of Directors and will depend,
among other things, upon our earnings, unencumbered cash, capital requirement and our financial condition, as well as other
relevant factors. To date, we have not paid dividends on our common stock nor do we anticipate that we will pay dividends in
the foreseeable future. As of December 31, 2023, we do not have any preferred stock outstanding that has any preferential
dividends.
Provisions in our organizational documents and Delaware or certain other state laws could delay or prevent a change in
control of our company, which could adversely affect the price of our common stock.
The provisions of our Certificate of Incorporation and our bylaws could have the effect of delaying, deferring or discouraging
another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of
discouraging takeover bids. They are also designed in part to encourage persons seeking to acquire control of us to negotiate
first with our Board of Directors. We believe that the benefits of increased protection of our potential ability to negotiate with
an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation
of these proposals could result in an improvement of their terms.
Our Certificate of Incorporation and our bylaws include a number of provisions that could deter hostile takeovers or delay or
prevent changes in control of our company, including the following:
•
Board of Directors’ vacancies. Our Certificate of Incorporation authorizes our Board of Directors to fill vacant
directorships, including newly created seats. In addition, the number of directors constituting our Board of Directors is
permitted to be set only by a resolution adopted by a majority vote of our Board of Directors, provided the number of
directors may not be fewer than one and not more than nine. These provisions prevent a stockholder from increasing
the size of our Board of Directors and then gaining control of our Board of Directors by filling the resulting vacancies
31
•
•
•
•
•
•
•
•
with its own nominees. This makes it more difficult to change the composition of our Board of Directors but promotes
continuity of management.
Classified board. Our Certificate of Incorporation provides that our Board of Directors is classified into three classes
of directors, each with staggered three-year terms. A third party may be discouraged from making a tender offer or
otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a
majority of the directors on a classified board of directors.
Stockholder action: special meetings of stockholders. Our Certificate of Incorporation provides that our stockholders
may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As
a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors
without holding a meeting of our stockholders called in accordance with our bylaws. Further, our bylaws provide that
special meetings of our stockholders may be called only by the chairperson of our Board of Directors, our President
and Chief Executive Officer or our Board of Directors pursuant to a resolution of a majority of our Board of Directors,
thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our
stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take
any action, including the removal of directors.
Advance notice requirements for stockholder proposals and director nominations. Our bylaws provide advance
notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate
candidates for election as directors at our annual meeting of stockholders. Our bylaws also specify certain
requirements regarding the form and content of a stockholder's notice. In addition, any stockholder nomination must
meet the requirements of Rule 14a-19(b) under the Exchange Act. These provisions might preclude our stockholders
from bringing matters before our annual meeting of stockholders or from making nominations for directors at our
annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also
discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of
directors or otherwise attempting to obtain control of our company.
Directors removed only for cause. Our Certificate of Incorporation provides that stockholders may remove directors
only for cause, which may delay the ability of our stockholders to remove directors from our Board of Directors.
Issuance of undesignated preferred stock. Following the repurchase of all of our previously issued shares of Class A
Preferred Stock, our Board of Directors has the authority, without further action by the stockholders, to issue up to
600,000 additional shares of undesignated preferred stock with rights and preferences, including voting rights,
designated time to time by our Board of Directors. The existence of authorized but unissued shares of preferred stock
enables our Board of Directors to render more difficult or to discourage an attempt to obtain control of us by merger,
tender offer, proxy contest or other means.
Amendment of charter provisions. Any amendment of the above provisions in our Certificate of Incorporation
requires approval by holders of at least 66.67% of our outstanding common stock.
No cumulative voting. The Delaware General Corporation Law provides that stockholders are not entitled to the right
to cumulate votes in the election of directors unless a corporation's certificate of incorporation provides otherwise. Our
Certificate of Incorporation does not provide for cumulative voting.
Choice of forum. Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware is the
exclusive forum for any derivative action or proceeding brought on our behalf any action asserting a breach of
fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our
Certificate of Incorporation or our bylaws; any action asserting a claim against us that is governed by the internal
affairs doctrine. This provision is not intended to apply to claims arising under the Securities Act and the Exchange
Act. To the extent the provision could be construed to apply to such claims, there is uncertainty as to whether a court
would enforce the provision in such respect, and our stockholders will not be deemed to have waived our compliance
with federal securities laws and the rules and regulations thereunder.
General Risk Factors
Failure or circumvention of our disclosure controls and procedures or internal controls over financial reporting could
seriously harm our financial condition, results of operations, and business.
We plan to continue to maintain and strengthen internal controls and procedures to enhance the effectiveness of our disclosure
controls and internal controls over financial reporting. Any system of controls, however well designed and operated, is based in
32
part on certain assumptions and can provide only reasonable, and not absolute, assurances that the objectives of the system are
met. Any failure of our disclosure controls and procedures or internal controls over financial reporting could harm our financial
condition and results of operations.
Our management has concluded that our disclosure controls and procedures and internal control over financial reporting
are effective. However, if we are unable to establish and maintain effective disclosure controls and internal control over
financial reporting or have material weaknesses in our internal control over financial reporting, our ability to produce
accurate financial statements on a timely basis could be impaired, and the market price of our securities may be negatively
affected.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there
is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis. However, if we were unable to maintain effective internal control over financial reporting, or if we
identify additional material weaknesses in our internal control over financial reporting, our management would be unable to
assert in future reports that our disclosure controls and procedures and our internal control over financial reporting are effective.
This could cause investors, counterparties and customers to lose confidence in the accuracy and completeness of our financial
statements and reports and have a material adverse effect on our liquidity, access to capital markets and perceptions of our
creditworthiness and/or a decline in the market price of our common stock. In addition, we could become subject to
investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management
resources. These events could have a material adverse effect on our business, financial condition and results of operations.
Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our
financial condition.
We have been and will continue to be named as a defendant in legal proceedings claiming damages in connection with the
operation of our business. These actions and proceedings may involve claims for, among other things, compensation for alleged
personal injury, workers’ compensation, employment law violations and/or discrimination, breach of contract, or property
damage. In addition, we may be subject to lawsuits involving allegations of violations of the Fair Labor Standards Act and state
wage and hour laws. We may also face allegations of violations of applicable securities laws, including the possibility of class
action lawsuits. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such
actions or proceedings. We also are, and will likely continue to be from time to time, a plaintiff in legal proceedings against
customers, or will pursue claims against our customers prior to litigation in which we seek to recover payment of contractual
amounts we are owed, as well as claims for increased costs we incur. When appropriate, we will establish provisions against
possible exposures, and adjust these provisions from time to time according to ongoing exposure. If the assumptions and
estimates related to these exposures prove to be inadequate or inaccurate, we could experience a reduction in our profitability
and liquidity and a weakening of our financial condition. In addition, claims, lawsuits and proceedings may harm our reputation
or divert management resources away from operating the business.
Force majeure events, including natural disasters and terrorists’ actions, could negatively impact our business, which may
affect our financial position, results of operations or cash flows.
Force majeure, or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters,
terrorist actions, and state and federal government shutdowns, could negatively impact us. We attempt to negotiate contract
language seeking to mitigate force majeure events in both public and private client contracts. When successful, we remain
obligated to perform our services after most extraordinary events subject to relief that may be available pursuant to a force
majeure clause. If we are not able to react quickly to force majeure events, our operations may be affected significantly, which
may have a negative impact on our financial position, results of operations and cash flows.
Deliberate, malicious acts, including terrorism and sabotage, could damage our facilities, disrupt our operations or injure
employees, contractors, customers or the public and result in liability to us.
Intentional acts of theft, vandalism and destruction could damage or destroy our facilities, as well as the materials and
equipment our labor forces are installing, thereby reducing our operational production capacity and requiring us to repair or
replace facilities or installed work at substantial cost. Additionally, employees, contractors and the public could suffer
substantial physical injury from acts of terrorism for which we could be liable. Governmental authorities may also impose
security or other requirements that could make our operations more difficult or costly. The consequences of any such actions
could adversely affect our financial position, results of operations and cash flows.
A change in tax laws or regulations of any federal or state jurisdiction in which we operate could increase our tax burden
and otherwise adversely affect our financial position, results of operations, cash flows and liquidity.
33
We continue to assess the impact of various U.S. federal or state legislative proposals that could result in a material increase to
our U.S. federal or state taxes. We cannot predict whether any specific legislation will be enacted or the terms of any such
legislation. However, if such proposals were to be enacted, or if modifications were to be made to certain existing regulations,
the consequences could have a material adverse impact on us, including increasing our tax burden, increasing the cost of tax
compliance or otherwise adversely affecting our financial position, results of operations and cash flows.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
The Company’s Board of Directors recognizes the critical importance of developing, implementing, and maintaining robust
cybersecurity measures to assess, identify, and manage material risks associated with cybersecurity threats, as such term is
defined in Item 106(a) of Regulation S-K. These risks include, among other things, internal information technology risks;
system security risks; data protection; risks to proprietary business information; intellectual property theft; fraud; extortion;
harm to employees, partners, or customers; violation of privacy or security laws and other litigation and legal risk; and
reputational risks. The Company has implemented a cybersecurity risk management program that aligns with the National
Institute of Standards and Technology (NIST) Cybersecurity Framework to manage such material risks and to safeguard the
Company’s information systems, protect the confidentiality, integrity, and availability of the Company’s data, and maintain the
trust and confidence of our customers, business partners and employees.
Risk Management and Strategy
The Board of Directors is actively involved in oversight of the Company’s risk management framework and the Company’s
cybersecurity risk management practices are strategically integrated into its broader risk management framework to promote a
company-wide culture of cybersecurity risk management. This integration attempts to ensure that cybersecurity considerations
are an integral part of decision-making processes throughout the Company. The Company’s risk management team works
closely with the Company’s IT department to continuously evaluate and address cybersecurity risks in alignment with the
Company’s overall business objectives and operational needs. The Company has implemented controls and procedures that are
designed to provide for the prompt escalation of any cybersecurity concerns so that management, the Audit Committee, and the
Board of Directors receive appropriate information in a timely manner.
Due to the complexity and evolving nature of cybersecurity threats, the Company has engaged from time-to-time external
experts, including cybersecurity assessors, third-party legal consultants, and auditors, to evaluate and test its risk management
systems. The Company engages these third-parties to conduct regular audits, threat assessments and consultation on security
enhancements. These interactions are intended to enable the Company to leverage specialized knowledge and insights, in an
attempt to ensure its cybersecurity strategies and processes remain at the forefront of industry practices.
In furtherance of assessing, identifying, and managing material cybersecurity risks; the Company:
•
•
•
•
•
Employs advanced technology solutions, such as proactive detection tools, to safeguard our assets and identify threats
within its environment.
Conducts routine cyber education and awareness training sessions to empower employees with the necessary
knowledge and cultivate a strong security culture across the organization.
Regularly assesses our cybersecurity program against the NIST Cybersecurity Framework, using the findings to
develop action plans and track progress to completion.
Organizes tabletop exercises and drills to simulate cyber incidents, enhancing its incident response and recovery
capabilities.
Analyzes internal and external cybersecurity incidents and threat intelligence to assess their relevance to its
environment and industry, crafting actionable plans accordingly.
• Manages an enterprise-wide disaster recovery governance program, including cybersecurity-related standards and
compliance procedures.
•
Performs regular cybersecurity-related disaster recovery testing to ensure the recoverability of its critical systems,
supporting business continuity across various lines.
34
•
Fosters integration between business units and corporate divisions with its internal cybersecurity team, embedding
cybersecurity requirements into operational environments and influencing strategic decisions, budgeting, and processes
(e.g., Security by Design). Additionally, senior management, executives, and the Board of Directors consistently
review financial planning processes concerning cybersecurity initiatives.
Additionally, the Company is aware of the risks associated with third-party service providers, it implements stringent processes
to oversee and manage these risks. The Company conducts security assessments of third-party technology providers before
engagement and maintains ongoing monitoring to ensure compliance with Company cybersecurity standards. The monitoring
includes assessments (e.g., reviewing vendor cybersecurity related attestation and disclosures (SOC 2 Type 2, etc.)) by the
Company’s Chief Information Officer (“CIO”) and on an ongoing basis by its security engineers.
Governance
The Company’s Board of Directors believes it understands the significance of risks associated with cybersecurity threats to its
operational integrity and stakeholder confidence and believes it has established mechanisms to effectively manage such risks
based on the current understanding of the threat environment. As part of the Company’s entire Board of Directors operational
risk management responsibilities, it has oversight of risks from cybersecurity threats. Notwithstanding that fact, the full Board
of Directors has been designated the primary responsibility for oversight of the Company’s cybersecurity risk management. As
discussed below, members of management report the entire Board of Directors about cybersecurity threat risks, among other
cybersecurity related matters, at least annually and management also reports to the Audit Committee with respect to
cybersecurity risks with financial statement or financial statement reporting implications. The Audit Committee routinely
interacts and reports out to the entire Board of Directors on these matters.
The Board of Directors is composed of members with diverse expertise including, risk management, technology, and finance
domain expertise, equipping them to oversee cybersecurity risks effectively.
The Board of Directors and the Audit Committee receive briefings from the Company’s Senior Vice President and CIO,
Executive Vice President and Chief Financial Officer (“CFO”) and President and Chief Executive Officer (“CEO”) on a regular
basis, with a minimum frequency of once per year. These briefings encompass a broad range of topics, including:
•
•
•
•
Current cybersecurity landscape and emerging threats;
Status of ongoing cybersecurity initiatives and strategies;
Incident reports and learnings from any cybersecurity events; and
Compliance with regulatory requirements and industry standards.
In addition to their regularly scheduled meetings, Board members, the CIO, CFO and CEO regularly engage in ad hoc
conversations regarding emerging or potential cybersecurity risk and developments in the cybersecurity domain. The Board of
Directors actively participates in strategic decisions related to cybersecurity, offering guidance and approval for major
initiatives. This involvement ensures that cybersecurity considerations are integrated into the broader strategic objectives of the
Company. The Board of Directors conducts an annual review of the Company’s cybersecurity posture and the effectiveness of
its risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of
cybersecurity efforts with the overall risk management framework.
Christos Ruci, the Company’s CIO, is the member of the Company’s management team primarily responsible for assessing,
monitoring and managing the Company cybersecurity program. Mr. Ruci has over 20 years of experience in the field of
technology and security including extensive experience as an enterprise CIO, as well as consulting experience advising
organizations on their technology and risk profiles. The Company believes Mr. Ruci’s in-depth knowledge and experience are
instrumental in developing and designing, implementing and executing the Company’s cybersecurity strategies.
The Company’s CIO oversees the day-to-day implementation of the Company’s cybersecurity risk management programs, tests
its compliance with standards, remediates known risks, and leads its employee training program. The CIO is tasked with
keeping informed about the latest developments in cybersecurity, including potential threats and innovative risk management
techniques, in an attempt to assist in effectively preventing, detecting, mitigating, and remediating cybersecurity incidents. The
CIO implements and oversees processes for the regular monitoring of the Company’s information systems, including the
deployment of advanced security measures and regular system audits to identify potential vulnerabilities. In the event of a
cybersecurity incident, the CIO is responsible for implementing the Company’s incident response plan to mitigate the
cybersecurity incident’s immediate impact, implement long-term strategies for remediation, and prevent future incidents.
35
The CIO regularly informs the Company’s CEO and CFO of material aspects related to cybersecurity risks and incidents. This
ensures that the highest levels of management are kept abreast of the cybersecurity posture and potential risks facing the
Company.
As of the date hereof, the Company has not encountered cybersecurity incidents that the Company believes to have been
material to the Company taken as a whole.
Item 2.
Properties
As of December 31, 2023, the Company maintained its principal executive offices and corporate headquarters at 797
Commonwealth Drive, Warrendale, Pennsylvania. The Company has 19 offices throughout the United States. Those business
units and offices (summarized below) are spread throughout the eastern portion of the country. All of the Company’s business
units support both the GCR and ODR operating segments. The Company believes that its current facilities are suitable and
adequate to meet its current needs and that suitable additional or substitute space will be available as needed.
Business Unit
ACME Industrial Piping, LLC
Eastern Pennsylvania
Limbach Facility & Project Solutions LLC
Industrial Air, LLC
Jake Marshall LLC
Michigan
Michigan
Michigan
Mid-Atlantic
New England
New Jersey
Ohio
Ohio
Orlando / Limbach Collaborative Services / Corporate
Orlando
Southeastern Florida
Tampa / Corporate
Western Pennsylvania / Corporate
Western Pennsylvania
Office Location
Chattanooga, Tennessee
Warrington, Pennsylvania
Franklin, Tennessee(1)
Greensboro, North Carolina
Chattanooga, Tennessee
Pontiac, Michigan(2)
Lansing, Michigan
Detroit, Michigan
Laurel, Maryland
Wilmington, Massachusetts
East Brunswick, New Jersey
Columbus, Ohio (4 locations)
Athens, Ohio
Lake Mary, Florida
Orlando, Florida
Boynton Beach, Florida
Tampa, Florida
Warrendale, Pennsylvania
Greensburg, Pennsylvania
Owned or Leased Approximate Size
51,766 square feet
27,443 square feet
N/A
71,672 square feet
159,429 square feet
74,000 square feet
18,692 square feet
2,155 square feet
50,133 square feet
30,995 square feet
4,200 square feet
130,144 square feet
3,000 square feet
60,794 square feet
4,240 square feet
9,631 square feet
13,739 square feet
19,718 square feet
5,000 square feet
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Other Properties:
Southern California
Corporate
Seal Beach, California(3)
Bronxville, New York
Leased
Leased
88,507 square feet
250 square feet
(1) The Company holds a shared space working arrangement in which it pays a monthly fee to utilize certain co-working space and common
office amenities.
(2) On September 29, 2022, Limbach Company LLC and Royal Oak Acquisitions consummated the purchase of this real property under a
sale and leaseback transaction. In connection with the sale and leaseback transaction, LC LLC and Featherstone St Pontiac MI LLC
entered into a lease agreement for the Pontiac facility. See Note 7 – Debt in the accompanying notes to the Company’s consolidated
financial statements for further information on the Sale-Leaseback Financing Transaction.
(3)
In June 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern
California, consisting of 71,787 square feet. During the first quarter of 2022, the Company entered into an amendment to the
aforementioned sublease agreement, which, among other things, expanded the sublease premises to include the entire second floor of its
leased space in Southern California, consisting of 16,720 square feet. See Note 14 – Leases in the accompanying notes to the Company’s
consolidated financial statements for further information on the Southern California Sublease.
Item 3. Legal Proceedings
See Note 13 – Commitments and Contingencies in the accompanying notes to the Company’s consolidated financial statements
for further information regarding the Company’s legal proceedings.
Item 4. Mine Safety Disclosures
36
Not applicable.
Information About Our Executive Officers
Name
Michael M. McCann(1)
Jayme L. Brooks
Jay A. Sharp(2)
Nicholas S. Angerosa(2)
Age
42
53
58
47
Title
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
President of Limbach
President of Harper Limbach
(1) On January 17, 2023, the Company announced its planned transition succession, pursuant to which Charles A. Bacon, III stepped down
as President and Chief Executive Officer on March 28, 2023, and Michael M. McCann, the Company’s former Executive Vice President
and Chief Operating Officer, was appointed President and Chief Executive Officer.
(2)
In conjunction with the aforementioned planned transition succession, Jay A. Sharp was promoted to the position of President of the
following entities: Limbach Company LLC, Limbach Company LP, Jake Marshall LLC and Limbach Facility & Project Solutions LLC.
In addition, Nick S. Angerosa continued as President of Harper Limbach LLC (“Harper Limbach”), a Florida-based subsidiary, and was
elevated to join the senior management team.
Michael M. McCann has served as the President and Chief Executive Officer and a Director of the Company since March 2023.
Prior to his appointment as President and Chief Executive Officer and a Director of the Company, Mr. McCann served as the
Company’s Executive Vice President and Chief Operating Officer since November 2019, after having been appointed Co-Chief
Operating Officer, effective January 2019. Mr. McCann joined the Company in 2010 as Vice President and Branch Manager of
Harper Limbach’s Tampa business unit. After growing the Tampa business for almost three years, Mr. McCann became
President of Harper Limbach. His duties included all aspects of the Company’s construction operations, with primary
responsibilities including oversight of risk management, sharing of best practices, and development of operational talent. Mr.
McCann has a Bachelor of Science in Mechanical Engineering from Worcester Polytechnic Institute and a Master of Business
Administration degree from Drexel University.
Jayme L. Brooks serves as the Executive Vice President and Chief Financial Officer of the Company, since October 2019. Mrs.
Brooks served as Executive Vice President and Chief Financial Officer of Capstone Turbine Corporation, a publicly traded
manufacturer of microturbine energy systems, from April 2019 until September 2019, and as its Chief Financial Officer and
Chief Accounting Officer from April 2015 to April 2019. Previously, Mrs. Books also served as Vice President of Financial
Planning and Analysis, Interim Chief Accounting Officer and Director of Financial Reporting of Capstone Turbine
Corporation. Previously, she served as Vice President and Controller of Computer Patent Annuities North America LLC, a
company providing solutions for intellectual property management, including renewal services, software tools and portfolio
management. Mrs. Brooks holds a Bachelor of Arts degree in Business Economics from the University of California at Santa
Barbara and a Master of Business Administration degree from the Fuqua School of Business at Duke University. Mrs. Brooks is
a Certified Public Accountant (active) licensed in California.
Jay A. Sharp has served as President of the following entities: Limbach Company LLC, Limbach Company LP, Jake Marshall
LLC and Limbach Facility & Project Solutions LLC since January 2023. Prior to his appointment as President to certain of the
Company’s entities, Mr. Sharp served as the Company’s Executive Vice President, Regional Manager since March 2020, in
which he had oversight for the Midwest region of the Company. Mr. Sharp also ran the Company’s Ohio business unit from
August 2005 to March 2020 and served in various capacities at Limbach from 1990 to 2006. Mr. Sharp received his bachelor’s
degree in 1988 from Messiah College through a partnership with Temple University in Philadelphia PA, and completed
Columbia University’s Senior Executive Management program in 2013. Mr. Sharp has played an active role in the construction
industry serving on the board of MCACO Board of Directors and has been a Labor Management Trustee for Local 24 from
2011 through 2021.
Nicholas S. Angerosa has served as President of Harper Limbach since July 2020, which includes the following entities: Harper
Limbach LLC and Harper Limbach Construction LLC. Prior to his appointment as President of Harper Limbach, Mr. Angerosa
served as the Company’s Senior Vice President and Branch Manager from May 2018 to July 2020, in which he oversaw the
Tampa business unit. Before joining Harper Limbach, Mr. Angerosa worked as a Project Manager and Division Manager with
The Poole & Kent Company of Florida, a specialty mechanical and general contractor, from October 1996 to May 2012.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Part II
37
Market Information
The Company’s common stock is traded on The Nasdaq Capital Market under the symbol “LMB”.
Holders
At March 12, 2024, there were 32 holders of record of the Company’s common stock.
Shares Issued from the Exercise of Warrants
During the year ended December 31, 2023, 600,000 $15 Exercise Price Sponsor Warrants and 606,476 Merger Warrants were
exercised on a cashless basis by the holders of the warrants, which resulted in the warrants being converted into, and the
Company issuing, 167,564 and 274,742 shares of the Company's common stock, respectively. The Company received no
proceeds from the cashless exercise of the $15 Exercise Price Sponsor Warrants or the Merger Warrants. The remaining 23,167
unexercised Merger Warrants expired by their terms on July 20, 2023. See Note 8 – Equity in the accompanying notes to the
Company’s consolidated financial statements for further information.
Securities Authorized for Issuance under Equity Compensation Plans Information
The information called for by this item is incorporated herein by reference to the material under the caption, “Equity
Compensation Plan Information” in the Proxy Statement.
Item 6.
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-
looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from its
management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements”, “Risk
Factor Summary” and “Risk Factors” in this Annual Report. The Company assumes no obligation to update any of these
forward-looking statements, unless required to do so by applicable law.
Overview
The Company is a building systems solution firm that partners with building owners and facilities managers who have mission
critical mechanical (heating, ventilation and air conditioning), electrical, and plumbing infrastructure. The Company strives to
be an indispensable partner to its customers by providing services that are essential to the operation of their businesses. The
Company has more than 1,400 team members in 19 offices across the eastern United States. The Company’s team members
uniquely combine engineering expertise with field installation skills to provide custom solutions that leverage its full life-cycle
capabilities, which allows it to address both the operational and capital projects needs of its customers.
The Company’s core market sectors consist of the following customer base with mission-critical systems:
• Healthcare, including research, acute care and inpatient hospitals for regional and national hospital groups, and
pharmaceutical and biotech laboratories and manufacturing facilities;
•
•
•
Industrial and manufacturing, including automotive, energy and general manufacturing plants;
Data Centers, including facilities composed of networked computers, storage systems and computing infrastructure
that organizations use to assemble, process, store and disseminate large amounts of data;
Life sciences, including organizations and companies whose work is centered around research and development
focused on living things;
• Higher Education, including both public and private colleges, universities and research centers; and
•
Cultural and entertainment, including sports arenas, entertainment facilities (including casinos) and amusement
rides and parks.
The Company operates in two segments, (i) GCR, in which the Company generally manages new construction or renovation
projects that involve primarily mechanical, plumbing, or electrical services awarded to the Company by general contractors or
construction managers, and (ii) ODR, in which the Company performs owner direct projects and/or provides maintenance or
38
service primarily on mechanical, plumbing or electrical systems, building controls and specialty contracting projects direct to,
or assigned by, building owners or property managers.
Key Components of Consolidated Statements of Operations
Revenue
The Company generates revenue principally from fixed-price construction contracts to deliver mechanical, plumbing, and
electrical construction services to its customers. The duration of the Company’s contracts generally ranges from three months to
two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the relationship of total
cost incurred to total estimated contract costs. Revenue from time and materials service contracts is recognized as services are
performed. The Company believes that its extensive experience in mechanical, plumbing, and electrical projects, and its internal
cost review procedures during the bidding process, enable it to reasonably estimate costs and mitigate the risk of cost overruns
on fixed price contracts.
The Company generally invoices customers monthly based on a schedule of values that breaks down the contract amount into
discrete billing items. Costs and estimated earnings in excess of billings are recorded as a contract asset until billable under the
contract terms. Billings in excess of costs and estimated earnings are recorded as a contract liability until the related revenue is
recognizable.
Cost of Revenue
Cost of revenue primarily consists of the labor, equipment, material, subcontract and other job costs in connection with
fulfilling the terms of the Company’s contracts. Labor costs consist of wages plus taxes, fringe benefits and insurance.
Equipment costs consist of the ownership and operating costs of company-owned assets, in addition to outside-rented
equipment. If applicable, job costs include estimated contract losses to be incurred in future periods. Due to the varied nature of
the Company's services, and the risks associated therewith, contract costs as a percentage of contract revenue have historically
fluctuated, and this fluctuation is expected to continue in future periods.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs for its administrative, estimating,
human resources, safety, information technology, legal, finance and accounting employees and executives. Also included are
non-personnel costs, such as travel-related expenses, legal and other professional fees and other corporate expenses to support
the growth of the Company's business and to meet the compliance requirements associated with operating as a public company.
Those costs include accounting, human resources, information technology, legal personnel, additional consulting, legal and
audit fees, insurance costs, board of directors’ compensation and the costs of achieving and maintaining compliance with
Section 404 of the Sarbanes-Oxley Act of 2002.
Change in fair value of contingent consideration
The change in fair value of contingent consideration relates to the remeasurement of the contingent consideration arrangements
resulting from each of the Jake Marshall, LLC (“JMLLC”), Coating Solutions, LLC (“CSLLC”) (together with JMLLC, the
Jake Marshall Transaction), the ACME Transaction and the Industrial Air Transaction. As a part of the total consideration for
the Jake Marshall, ACME and Industrial Air transactions, the Company initially recognized $3.1 million, $1.5 million and
$3.2 million, respectively, in contingent consideration associated with their respective earnout payments. The carrying values of
the Jake Marshall, ACME and IA Earnout Payments are subject to remeasurement at fair value at each reporting date through
the end of the respective earnout periods with any changes in the fair value reported as a separate component of operating
income in the condensed consolidated statements of operations. See Note 9 – Fair Value Measurements in the accompanying
notes to the Company’s consolidated financial statements for further information.
Amortization of Intangibles
Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily
including favorable leasehold interests and certain customer relationships in the ODR segment. As a result of the Jake Marshall
Transaction, the Company recognized, in the aggregate, an additional $5.7 million of intangible assets associated with customer
relationships with third-party customers, the acquired trade name and acquired backlog. In addition, as a result of the ACME
Transaction, the Company recognized, in the aggregate, an additional $2.8 million of intangible assets associated with customer
relationships with third-party customers and the acquired trade name, inclusive of the impact of certain measurement period
adjustments. Lastly, as a result of the Industrial Air Transaction, the Company recognized, in the aggregate, an additional
$8.7 million of intangible assets associated with customer relationships with third-party customers, the acquired trade name,
trademarks and intellectual property and the acquired backlog. Each of the Jake Marshall, ACME and Industrial Air-related
39
intangible assets were recorded under the acquisition method of accounting at their estimated fair values at the acquisition date.
See Note 3 – Acquisitions in the accompanying notes to the Company’s consolidated financial statements for further discussion
of the Company’s acquired intangible assets as a result of the ACME Transaction and the Industrial Air Transaction. In
addition, see Note 5 – Goodwill and Intangible Assets for further information on the Company’s intangible assets.
Other (Expenses) Income
Other (expenses) income consists primarily of interest expense incurred in connection with the Company's debt, a loss
associated with the early termination of an operating lease, gains or losses associated with the disposition of property,
equipment, changes in fair value of interest rate swaps, losses associated with the early extinguishment of debt and interest
income earned from its overnight repurchase agreements, money market investments, U.S. Treasury Bills and the Company's
interest rate swap agreement. Deferred financing costs are amortized to interest expense using the effective interest method.
Provision for Income Taxes
The Company is taxed as a C corporation and its financial results include the effects of federal income taxes, which will be paid
at the parent level.
The Company’s provision for income taxes (including federal, state and local taxes) is calculated based on the estimated annual
effective tax rate. The Company accounts for income taxes in accordance with ASC Topic 740 - Income Taxes, which requires
the use of the asset and liability method. Under this method, deferred tax assets and liabilities and income or expense are
recognized for the expected future tax consequences of temporary differences between the financial statement carrying values
and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences
are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
Impact of Acquisitions
In order to provide a more meaningful period-over-period discussion of the Company’s operating results, the Company may
discuss amounts generated or incurred (revenues, gross profit, selling, general and administrative expenses, and operating
income) from companies acquired. The amounts discussed reflect the acquired companies’ operating results in the current
reported period only for the time period these entities were not owned by the Company in the comparable prior reported period.
During 2023, the Company acquired two companies for total consideration of $15.3 million, net of cash acquired and inclusive
of certain measurement period adjustments. On July 3, 2023, the Company completed an acquisition of Chattanooga, TN-based
specialty industrial contractor, ACME, for a purchase price at closing of $5.0 million in cash. The transaction also provides for
an earnout of up to $2.5 million potentially being paid out over the next two years. ACME specializes in performing industrial
maintenance, capital project work, and emergency services for specialty chemical and manufacturing clients, and is a leading
mechanical solutions provider for hydroelectric producers. On November 1, 2023, the Company completed an acquisition of
Greensboro, NC-based specialty mechanical contractor, Industrial Air, for a purchase price at closing of $13.5 million in cash.
The transaction also provides for an earnout of up to $6.5 million potentially being paid out over the next two years. Industrial
Air serves industrial customers throughout the Southeast United States and along the Eastern seaboard, focusing on delivering
engineered air handling systems, including air condition and air filtration, along with controls systems and maintenance work.
In addition, Industrial Air manufactures a wide range of components for air conditioning and filtration systems.
Based on the timing of these transactions, the post-acquisition results of the acquired companies did not have a material impact
on the Company’s consolidated results for the year-ended December 31, 2023.
Divestitures
In February 2022, the Company announced its strategic decision to wind down its Southern California GCR and ODR
operations. The decision was made to better align the Company’s customer geographic focus and to reduce losses related to
unprofitable locations. During 2023, the Company executed the closeout phases on its remaining Southern California business
unit projects and has fully exited the Southern California region aside from certain operational warranty obligations. However,
the Company is party to the terms of a sublease agreement for its leased premises in Southern California through April 2027
and remains obligated under the original lease for such office space in the event the sublessee fails to satisfy its obligations
under the sublease agreement. See Note 14 – Leases in the accompanying notes to the Company’s consolidated financial
statements for further information on the Southern California Sublease.
Operating Segments
The Company manages and measures the performance of its business in two operating segments: GCR and ODR. These
segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the
40
purposes of allocating resources and assessing performance. The Company’s CODM comprises its President and Chief
Executive Officer and Executive Vice President and Chief Financial Officer.
In accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all GCR work performed at
branches into one GCR reportable segment and all ODR work performed at branches into one ODR reportable segment. All
transactions between segments are eliminated in consolidation.
As previously discussed, on January 17, 2023, the Company announced its planned transition succession, pursuant to which
Charles A. Bacon III stepped down as President and Chief Executive Officer on March 28, 2023, and Michael M. McCann, the
Company’s former Executive Vice President and Chief Operating Officer, was appointed President and Chief Executive
Officer. Following the transition, the Company revised its segment presentation to align with how Mr. McCann assesses
performance and makes resource allocation decisions for its operating segments, which is based on segment revenue and
segment gross profit. SG&A expenses are no longer reported on a segment basis as the Company's current CODM does not
review discrete segment financial information for SG&A in order to assess performance. Interest expense is not allocated to
segments because of the corporate management of debt service.
The Company restated segment information for the historical periods presented herein to conform to the current presentation.
This change in segment presentation does not affect the Company’s consolidated statements of operations, balance sheets or
statements of cash flows.
Comparison of Results of Operations for the years ended December 31, 2023 and 2022
The following table presents operating results for the years ended December 31, 2023 and 2022 in dollars and expressed as a
percentage of total revenue (except as indicated below):
(in thousands except for percentages)
Statement of Operations Data:
Revenue:
GCR
ODR
Total revenue
Gross profit:
GCR
ODR
Total gross profit
Selling, general and administrative(3)
Change in fair value of contingent consideration
Amortization of intangibles
Total operating income
Other income (expenses)
Total consolidated income before income taxes
Income tax provision
Net income
(1) As a percentage of GCR revenue.
(2) As a percentage of ODR revenue.
For the Years Ended December 31,
2022
2023
$ 254,392
261,958
516,350
49.3 %
50.7 %
100.0 %
$ 280,379
216,403
496,782
56.4 %
43.6 %
100.0 %
43,200
76,090
119,290
17.0 % (1)
29.0 % (2)
23.1 %
87,397
729
1,880
29,284
(1,184)
28,100
7,346
20,754
$
16.9 %
0.1 %
0.4 %
5.7 %
(0.2) %
5.4 %
1.4 %
4.0 %
$
38,622
55,119
93,741
77,879
2,285
1,567
12,010
(2,402)
9,608
2,809
6,799
13.8 % (1)
25.5 % (2)
18.9 %
15.7 %
0.5 %
0.3 %
2.4 %
(0.5) %
1.9 %
0.6 %
1.4 %
(3)
Included within selling, general and administrative expenses was $4.9 million and $2.7 million of stock based compensation expense for
the year ended December 31, 2023 and 2022, respectively.
41
Revenue
(in thousands except for percentages)
Revenue:
GCR:
ODR:
Total revenue
For the Years Ended December 31,
2023
2022
Increase/(Decrease)
$
$
254,392 $
261,958
516,350 $
280,379 $
216,403
496,782 $
(25,987)
45,555
19,568
(9.3) %
21.1 %
3.9 %
Revenue for the year ended December 31, 2023 increased by $19.6 million compared to the year ended December 31, 2022.
GCR revenue decreased by $26.0 million, or 9.3%, while ODR revenue increased by $45.6 million, or 21.1%. The decrease in
year-over-year GCR segment revenue primarily was due to the Company’s continued focus on improving project execution and
profitability by pursuing GCR opportunities are smaller in size (based on contract value) and shorter in duration. The increase
in period over period ODR segment revenue primarily was due to the Company's continued focus on the accelerated growth of
its ODR business. In addition, ODR segment revenue increased by approximately $8.1 million due to the ACME and Industrial
Air transactions.
Gross Profit
(in thousands except for percentages)
Gross profit:
GCR
ODR
Total gross profit
For the Years Ended December 31,
2023
2022
Increase/(Decrease)
$ 43,200
76,090
$ 119,290
$ 38,622
55,119
$ 93,741
$
$
4,578
20,971
25,549
11.9 %
38.0 %
27.3 %
Total gross profit as a percentage of consolidated total revenue
23.1 %
18.9 %
The Company's gross profit for the year ended December 31, 2023 increased by $25.5 million, or 27.3% compared to the year
ended December 31, 2022. GCR gross profit increased $4.6 million, or 11.9%, primarily due to higher margins despite lower
revenue. ODR gross profit increased $21.0 million, or 38.0%, due to the combination of an increase in revenue and higher
margins driven by contract mix. The total gross profit percentage increased from 18.9% for the year ended December 31, 2022
to 23.1% for the year ended December 31, 2023, mainly driven by the mix of higher margin ODR segment work and being
more selective in GCR work. In addition, for the year ended December 31, 2023, total gross profit generated by the entities
acquired in the ACME Transaction and the Industrial Air Transaction was approximately $2.1 million, which was attributable
to the ODR segment.
The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the year ended
December 31, 2023, the Company recorded material gross profit write-ups on two GCR projects for a total of $2.2 million and
two material GCR project gross profit write-downs for a total of $1.3 million that had a net gross profit impact of $0.5 million
or more. During the year ended December 31, 2023, the Company recorded a material gross profit write-down on one ODR
segment project for a total of $1.0 million. During the year ended December 31, 2022, the Company recorded material gross
profit write-ups of $3.0 million on three GCR projects and four material GCR project gross profit write-downs for a total of
$2.8 million that had a net gross profit impact of $0.5 million or more. There were no material write-ups or write-downs within
the ODR segment during the year ended December 31, 2022.
Selling, General and Administrative
42
(in thousands except for percentages)
Selling, general and administrative
For the Years Ended December 31,
2023
2022
Increase/(Decrease)
$ 87,397
$ 77,879
$
9,518
12.2 %
Total selling, general and administrative expenses as a
percentage of consolidated total revenue
16.9 %
15.7 %
The Company's SG&A expense for the year ended December 31, 2023 increased by approximately $9.5 million, or 12.2%
compared to the year ended December 31, 2022. The increase in SG&A primarily was due to a $6.8 million increase associated
with payroll and incentive related expenses, a $2.2 million increase in stock-based compensation expense, a $1.5 million
increase associated with costs incurred by the entities acquired in the ACME and Industrial Air transactions, $1.0 million
related to CEO transition costs and $0.8 million related to acquisition-related costs, partially offset by a $1.2 million decrease in
rent related expenses and a $1.5 million decrease related to certain legal accruals. Additionally, SG&A as a percentage of
revenue was 16.9% for the year ended December 31, 2023 and 15.7% for the year ended December 31, 2022.
Change in Fair Value of Contingent Consideration
The change in fair values of the Company’s earnout payment contingent consideration was a loss of $0.7 million and $2.3
million for the years ended December 31, 2023 and 2022, respectively. These increases to the contingent liability were
primarily attributable to the probability of meeting the gross profit margins associated with the contingent consideration
arrangements as of December 31, 2023 and 2022.
Amortization of Intangibles
(in thousands except for percentages)
Amortization of intangibles
For the Years Ended December 31,
2023
2022
Increase/(Decrease)
$
1,880 $
1,567 $
313
20.0 %
Total amortization expense for the year ended December 31, 2023 increased by approximately $0.3 million compared to the
year ended December 31, 2022. As a result of the ACME and Industrial Air transactions, the Company acquired certain
intangible assets in which it recognized approximately $0.7 million of amortization expense for the year ended December 31,
2023. See Note 3 – Acquisitions in the accompanying notes to the Company’s consolidated financial statements for further
discussion of the Company’s acquired intangible assets due to the ACME Transaction and the Industrial Air Transaction.
Other Income (Expenses)
(in thousands except for percentages)
Other (expenses) income:
Interest expense
Interest income
Loss on early termination of operating lease
Loss on debt extinguishment
(Loss) gain on change in fair value of interest rate swap
Gain on sale of property and equipment
Total other expenses
For the Years Ended December 31,
2023
2022
Increase/(Decrease)
$
$
(2,046) $
1,217
—
(311)
(124)
80
(1,184) $
(2,144) $
—
(849)
—
310
281
(2,402) $
98
1,217
849
(311)
(434)
(201)
1,218
4.6 %
100.0 %
100.0 %
(100.0) %
(140.0) %
(71.5) %
50.7 %
Total other expenses for the year ended December 31, 2023 was $1.2 million as compared to $2.4 million for the year ended
December 31, 2022. The decrease in total other expenses primarily was driven by a $1.2 million increase in interest income
related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and money market funds, as well
as a $0.1 million offset to interest expense as a result of the Company's interest rate swap agreement. In addition, during 2022,
the Company recognized a $0.8 million loss because of the early termination of its Pittsburgh operating lease. See Note 14 –
Leases in the accompanying notes to the Company’s consolidated financial statements for further information. The decrease in
43
total other expenses was partially offset by a $0.3 million loss on early debt extinguishment recognized during 2023 and a loss
on the sale of certain property and equipment compared to a gain recognized in 2022.
Income Taxes
The Company’s income tax provision was $7.3 million and $2.8 million for the years ended December 31, 2023 and 2022,
respectively, and it had a 26.1% and 29.2% effective tax rate over those same periods, respectively. The Company’s effective
tax rate changes based upon its relative profitability, or lack thereof, in states with varying tax rates and rules. In addition,
discrete items, such as tax law changes, judgments and legal structures can impact its effective tax rate. See also Note 11 –
Income Taxes in the accompanying notes to the Company’s consolidated financial statements.
GCR and ODR Backlog Information
The Company refers to its estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which
work has not begun, less the revenue it had recognized under such contracts, as “backlog.” Backlog includes unexercised
contract options. The Company’s backlog includes projects that have a written award, a letter of intent, a notice to proceed or an
agreed upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between the
Company’s backlog and remaining performance obligations is due to the portion of unexercised contract options that are
excluded, under certain contract types, from the Company’s remaining performance obligations as these contracts can be
canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer.
Additional information related to the Company’s remaining performance obligations is provided in Note 4 — Revenue from
Contracts with Customers in the accompanying notes to its consolidated financial statements. See also “Item 1A. Risk Factors
— Our contract backlog is subject to unexpected adjustments and cancellations and could be an uncertain indicator of our
future earnings.”
The Company’s GCR backlog was $186.9 million and $302.9 million as of December 31, 2023 and 2022, respectively. Projects
are brought into backlog once the Company has been provided with a written confirmation of award and the contract value has
been established. At any point, the Company has a substantial volume of projects that are specifically identified and advanced
in negotiations and/or documentation, however those projects are not booked as backlog until the Company has received written
confirmation from the owner or the general contractor / construction manager of their intention to award it the contract and they
have directed the Company to begin engineering, designing, incurring construction labor costs or procuring needed equipment
and material. The Company’s GCR projects tend to be built over a 12- to 24-month schedule depending upon scope and
complexity. Most major projects have a preconstruction planning phase, which may require months of planning before actual
construction commences. The Company is occasionally employed to deliver a “fast-track” project, where construction
commences as the preconstruction planning work continues. As work on the Company’s projects progress, it increases or
decreases backlog to take into account its estimate of the effects of changes in estimated quantities, changes in conditions,
change orders and other variations from initially anticipated contract revenue, and the percentage of completion of the
Company’s work on the projects. Based on historical trends, the Company currently estimates that 83% of its GCR backlog as
of December 31, 2023 will be recognized as revenue during 2024. Additionally, the reduction in GCR backlog has been
intentional as the Company looks to focus on higher margin projects than historically, as well as its focus on smaller, higher
margin owner direct projects.
The Company’s ODR backlog was $147.0 million and $108.2 million as of December 31, 2023 and 2022, respectively. These
amounts reflect unrecognized revenue expected to be recognized over the remaining terms of its service contracts and projects.
Based on historical trends, the Company currently estimates that 95% of its ODR backlog as of December 31, 2023 will be
recognized as revenue during 2024. The Company believes its ODR backlog increased due to its continued focus on the
accelerated growth of its ODR business. In addition, as of December 31, 2023, ODR backlog included approximately
$1.2 million and $26.6 million of backlog associated with the operations of ACME and Industrial Air, respectively.
Market Update
Although the Company has been experiencing strong demand, certain events continue to impact its business, including global
economic conditions, the inflationary cost environment, elevated labor costs, disruption in its supply chain, continued
uncertainty around the COVID-19 pandemic and ongoing geopolitical instability caused by conflicts in Ukraine and the Middle
East. The Company continued to experience elevated levels of cost inflation during 2023, which is expected to persist through
2024, although at lower levels than experienced in 2023. These headwinds have been partially mitigated in 2023 by pricing
actions taken in response to the inflationary cost environment, supply chain productivity improvements and cost savings
initiatives. The effects of inflation also have resulted in central banks raising short-term interest rates and, therefore, the
Company has experienced an increase in its interest expense relative to its outstanding borrowings. While the impacts of
COVID-19 on the Company's business have moderated, there still remains uncertainty around the pandemic, its effect on labor
or other macroeconomic factors, its severity and duration, the continued availability and effectiveness of vaccines and actions
44
taken by third parties or by government authorities in response, including restrictions, laws or regulations, or other responses.
Also, the ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have increased
global economic and political uncertainty and the conflict in the Middle East may add to these issues.
While the impact of these factors remains uncertain, the Company continues to evaluate the extent to which they may impact its
business, financial condition or results of operations. There can be no assurance that the Company's actions will serve to
mitigate such impacts in future periods. Further, while the Company believes its remaining performance obligations are firm,
and its customers have not provided the Company with indications that they no longer wish to proceed with planned projects,
prolonged delays in the receipt of critical equipment could result in the Company's customers seeking to terminate existing or
pending agreements. Any of these events could have a material adverse effect on the Company’s business, financial condition
and/or results of operations.
Outlook for 2024
The Company continues to focus on creating value for building owners by targeting opportunities for long-term relationships
with the vision of becoming an indispensable partner to building owners with mission-critical systems. For 2024, the key
objectives of the Company’s strategy are to improve profitability and generate quality growth in its operations, to enable
sustainable and efficient building environments, to continue investing in its workforce and to acquire strategically synergistic
businesses.
In focusing on improved profitability and generating quality growth in its operation, the Company has dedicated and continues
to dedicate, its resources toward the growth of its ODR segment as the scope of services provided within the Company’s ODR
segment typically yield higher margins when compared to its GCR segment work. During fiscal year 2023, the Company
eclipsed its ODR-related revenue target, generating a 50/50 segment revenue mix. For 2024, the Company reaffirms its focus
on expanding the number and breadth of owner relationships that it serves on a direct basis and leveraging these expanded
owner-direct relationships to deliver a broad suite of services. The Company believes it maintains a disciplined approach,
capable of providing a full life-cycle of engineered solutions and craft expertise enabling it to be a one-stop-shop for building
owners to maximize their investments in their mission-critical assets. In addition, the Company continues to make investments
to expand its ODR revenue by increasing the value it can offer to building owners and continues to evaluate areas in which it
could expand the breadth of its service offerings to better serve its clients. Employee development underpins the Company’s
efforts to execute its 2024 strategy. The Company is actively concentrating managerial and sales resources on training and
hiring experienced employees to sell and profitably perform ODR-related services. In many locations, the Company has added
or upgraded its capabilities and the Company believes its investments and efforts have provided customer value and stimulated
growth. The Company’s team members uniquely combine engineering expertise with field installation skills to provide custom
solutions that leverage its full life-cycle capabilities, which allows it to address both the operational and capital projects needs
of its customers.
In the Company’s GCR segment, its efforts continue to focus on improving project execution and profitability by pursuing
opportunities that are smaller in size and shorter in duration than historically, and where it can leverage its captive design and
engineering services. The Company believes that it is appropriate in the current contracting environment to reduce risk and
exposure to large, complex, non-owner direct projects where the trend has been for such jobs to provide risks that are difficult
to mitigate. Currently, management believes the historical industry pricing and associated risks for this type of work does not
align with the Company’s stakeholders’ expectations, and therefore, the Company continues to take steps to actively reduce
these risks as it looks at future job selection and as it completes current jobs.
Additionally, the Company believes that it can further increase its cash flow and operating income by acquiring strategically
synergistic companies that will increase the Company’s geographic footprint, supplement the Company’s current business
model, address capability gaps and enhance the breadth of its service offerings to better serve its clients. The Company has
dedicated and continues to dedicate its resources to seek opportunities to acquire and integrate businesses that have attractive
market positions, supports the Company ODR growth strategy, expands and/or supplements the Company’s current breadth of
service offerings and is culturally compatible.
Given the broad suite of services offered to customers within the Company’s market concentrations, management uses a variety
of factors to attempt to predict the outlook for the Company. The Company monitors key competitors and customers in order to
gauge relative performance and the outlook for the future. The Company regularly performs detailed evaluations of the different
market verticals in which it serves to proactively detect trends and to adapt its strategies accordingly, including potential
triggers and actions to be taken under recessionary scenarios. In addition, the Company believes its backlog is indicative of
future revenue and thus are a key measure of anticipated performance.
The Company continues to monitor the impact that the inflationary cost environment has on its cost structure. Although global
supply chain and resource constraints have improved throughout the year, the Company’s performance may be impacted by
45
future developments that are uncertain. In addition, geopolitical risks and macroeconomic events could cause disruptions to
operations, supply chains and end markets, tightening credit conditions, higher interest rates, global banking uncertainty and the
possibility of deteriorating overall economic conditions which could negatively impact the Company’s business.
Seasonality, Cyclicality and Quarterly Trends
Severe weather can impact the Company’s operations. In the northern climates where it operates, and to a lesser extent the
southern climates as well, severe winters can slow the Company’s productivity on construction projects, which shifts revenue
and gross profit recognition to a later period. The Company’s maintenance operations may also be impacted by mild or severe
weather. Mild weather tends to reduce demand for its maintenance services, whereas severe weather may increase the demand
for its maintenance and time-and-materials services. The Company’s operations also experience mild cyclicality, as building
owners typically work through maintenance and capital projects at an increased level during the third and fourth calendar
quarters of each year.
Effect of Inflation and Tariffs
The prices of products such as steel, pipe, copper and equipment from manufacturers are subject to fluctuation and increases. It
is difficult to accurately measure the impact of inflation, tariffs and price escalation due to the imprecise nature of the estimates
required. However, these effects are, at times, material to the Company’s results of operations and financial condition. During
fiscal years 2023 and 2022, the Company experienced higher cost of materials on specific projects and delays in its supply
chain for equipment and service vehicles from the manufacturers, and it expects these higher costs and delays in its supply
chain to persist in 2024. When appropriate, the Company includes cost escalation factors into its bids and proposals, as well as
limit the acceptance time of its bid. In addition, the Company is often able to mitigate the impact of future price increases by
entering into fixed price purchase orders for materials and equipment and subcontracts on its projects. Notwithstanding these
efforts, if the Company experiences significant disruptions to its supply chain, it may need to delay certain projects that would
otherwise be accretive to its business, and this may also impact the conversion rate of its current backlog into revenue.
Liquidity and Capital Resources
Cash Flows
The Company’s liquidity needs relate primarily to the provision of working capital (defined as current assets less current
liabilities) to support operations, funding of capital expenditures, and investment in strategic opportunities. Historically,
liquidity has been provided by operating activities and borrowings from commercial banks and institutional lenders.
The following table presents summary cash flow information for the periods indicated:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase in cash, cash equivalents and restricted cash
Noncash investing and financing transactions:
Earnout liability associated with the ACME Transaction
Earnout liability associated with the Industrial Air Transaction
Right of use assets obtained in exchange for new operating lease liabilities
Right of use assets obtained in exchange for new finance lease liabilities
Right of use assets disposed or adjusted modifying operating lease liabilities
Right of use assets disposed or adjusted modifying finance lease liabilities
Interest paid
Cash paid for income taxes
For the Years Ended December 31,
2023
2022
$
$
$
$
57,366 $
(17,092)
(16,490)
23,784 $
35,373
(495)
(13,353)
21,525
1,514 $
3,165
3,135
5,219
1,112
(93)
1,908
9,156 $
—
—
—
2,634
2,455
(77)
2,005
1,979
The Company's cash flows are primarily impacted period to period by fluctuations in working capital. Factors such as the
Company’s contract mix, commercial terms, days sales outstanding (“DSO”) and delays in the start of projects may impact its
working capital. In line with industry practice, the Company accumulates costs during a given month then bills those costs in
46
the current month for many of its contracts. While labor costs associated with these contracts are paid weekly and salary costs
associated with the contracts are paid bi-weekly, certain subcontractor costs are generally not paid until the Company receives
payment from its customers (contractual “pay-if-paid” terms). The Company has not historically experienced a large volume of
write-offs related to its receivables and contract assets. The Company regularly assesses its receivables for collectability and
provides allowances for credit losses where appropriate. The Company believes that its reserves for its expected credit losses
are appropriate as of December 31, 2023, but adverse changes in the economic environment may impact certain of its
customers’ ability to access capital and compensate the Company for its services, as well as impact project activity for the
foreseeable future.
The Company’s existing current backlog is projected to provide substantial coverage of forecasted GCR revenue for one year
from the date of the financial statement issuance. The Company’s current cash balance, together with cash it expects to generate
from future operations along with borrowings available under its credit facility, are expected to be sufficient to finance its short-
and long-term capital requirements (or meet working capital requirements) for the next twelve months. In addition to the future
operating cash flows of the Company, along with its existing borrowing availability and access to financial markets, the
Company currently believes it will be able to meet any working capital and future operating requirements, and capital
investment forecast opportunities for the next twelve months.
The following table represents the Company’s summarized working capital information:
(in thousands, except ratios)
Current assets
Current liabilities
Net working capital
Current ratio(1)
As of December 31,
2022
2023
217,000 $
(145,148)
225,990
(159,085)
71,852 $
1.50
66,905
1.42
$
$
(1) Current ratio is calculated by dividing current assets by current liabilities.
As discussed above and in Note 7 – Debt in the accompanying notes to the Company’s consolidated financial statements, as of
December 31, 2023, the Company was in compliance with all financial maintenance covenants as required by its credit facility.
Cash Flows Provided by Operating Activities
The following is a summary of the significant sources (uses) of cash from operating activities:
47
(in thousands)
Cash flows from operating activities:
Net income
Non-cash operating activities(1)
Changes in operating assets and liabilities:
Accounts receivable
Contract assets
Other current assets
Accounts payable, including retainage
Contract liabilities
Income tax receivable
Accrued taxes payable
Accrued expenses and other current liabilities
Operating lease liabilities
Payment of contingent consideration liability in excess of acquisition-
date fair value
Other long-term liabilities
Cash provided by working capital
Net cash provided by operating activities
For the Years Ended December 31,
2023
2022
Cash Inflow
(Outflow)
$
20,754 $
18,222
6,799 $
17,634
13,955
588
32,607
10,397
(1,486)
(10,909)
(9,121)
95
(1,442)
2,867
(3,795)
(35,407)
22,410
1,128
11,282
17,296
19
1,387
(2,934)
(4,133)
(1,224)
401
18,390
57,366 $
—
(108)
10,940
35,373 $
$
68,014
(12,013)
(2,614)
(22,191)
(26,417)
76
(2,829)
5,801
338
(1,224)
509
7,450
21,993
(1)
Represents non-cash activity associated with depreciation and amortization, provision for credit losses / doubtful accounts, stock-
based compensation expense, operating lease expense, amortization of debt issuance costs, deferred income tax provision, gain or loss
on sale of property and equipment, loss on early termination of operating lease, changes in fair value of contingent consideration and
changes in the fair value of the Company’s interest rate swap.
During the year ended December 31, 2023, the Company generated $57.4 million in cash in its operating activities, which
consisted of cash provided by working capital of $18.4 million, non-cash adjustments of $18.2 million (primarily depreciation
and amortization, stock-based compensation expense, operating lease expense, loss on early debt extinguishment and the
change in fair value of contingent consideration) and net income for the period of $20.8 million. During the year ended
December 31, 2022, the Company generated $35.4 million in cash in its operating activities, which consisted of cash provided
by working capital of $10.9 million, non-cash adjustments of $17.6 million (primarily depreciation and amortization, stock-
based compensation expense, operating lease expense, loss on early termination of an operating lease and the change in fair
value of contingent consideration) and net income for the period of $6.8 million.
The increase in operating cash flows during the year ended December 31, 2023 compared to the year ended December 31, 2022
was primarily attributable to a $68.0 million period-over-period cash inflow related to the change in accounts receivable, which
was due to the timing of cash receipts, inclusive of an aggregate $25.6 million in cash receipts associated with certain
outstanding claim resolutions. This cash inflow was partially offset by a $38.4 million cash outflow period-over-period related
to the aggregate change in the Company’s contract assets and liabilities and a $22.2 million change in accounts payable,
including retainage. The increase in the Company’s overbilled position was due to the timing of contract billings and the
recognition of contract revenue, as well as the successful resolution of certain outstanding claims. The cash outflows associated
with its accounts payable were due to the timing of cash receipts and payments.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $17.1 million for the year ended December 31, 2023 as compared to $0.5 million
for the year ended December 31, 2022. Cash used in investing activities for the year ended December 31, 2023 of $4.9 million
and $10.4 million cash outflows associated with the ACME Transaction and Industrial Air Transaction, respectively, net of cash
acquired and inclusive of certain measurement period adjustments. In addition, cash used in investing activities for the year
ended December 31, 2023 represented $2.3 million of cash outflows for capital additions pertaining to purchased property and
equipment, offset by $0.4 million in cash proceeds from the sale of property and equipment. Cash used in investing activities
for the year ended December 31, 2022 of $0.5 million was primarily due to $1.0 million of cash outflows for capital additions
pertaining to additional non-leased vehicles, tools and equipment, computer software and hardware purchases, office furniture
and office related leasehold improvements, offset by $0.5 million in cash proceeds from the sale of property and equipment.
48
For the years ended December 31, 2023 and 2022, the Company obtained the use of various assets through operating and
finance leases, which reduced the level of capital expenditures that would have otherwise been necessary to operate its business.
Cash Flows Used in Financing Activities
Cash flows used in financing activities were $16.5 million for the year ended December 31, 2023 as compared to cash flows
provided by financing activities of $13.4 million for the year ended December 31, 2022. For the year ended December 31,
2023, as a result of the execution of the Second A&R Wintrust Credit Agreement, the Company paid off the remaining
principal portion of the A&R Wintrust Term Loan of $19.0 million. Prior to the termination of the A&R Wintrust Term Loan,
the Company made principal payments of $2.4 million, consisting of monthly installment payments of $0.6 million. In addition,
the Company paid approximately $0.8 million in taxes related to net share settlement of equity awards, $2.7 million for
payments on finance leases and made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2022
Jake Marshall Earnout Period, of which $1.7 million was recognized as a cash outflow from financing activities. These cash
financing outflows were partially offset by $10.0 million in proceeds from borrowings under the Second A&R Wintrust
Revolving Loan and $0.4 million associated with proceeds from contributions to the Company’s Employee Stock Purchase Plan
(“ESPP”).
For the year ended December 31, 2022, the Company made principal payments of $13.4 million, consisting of monthly
installment payments of $0.6 million, an Excess Cash Flow payment of $3.3 million and total Net Claim Proceeds payments of
$2.7 million, The Company also borrowed and repaid $15.2 million under the A&R Wintrust Revolving Loan of $15.2 million,
made payments of $2.7 million on finance leases, repurchased $2.0 million in common stock under the Company’s Share
Repurchase Program (defined below), paid $0.4 million in taxes related to net share settlement of equity awards and incurred
$0.4 million in payments for debt issuance costs. These financing cash outflows were partly offset by $5.4 million in proceeds
from the Company’s sale-leaseback financing transaction and $0.3 million associated with proceeds from contributions to the
Company’s ESPP.
The following table reflects the Company’s available funding capacity as of December 31, 2023:
(in thousands)
Cash & cash equivalents
Credit agreement:
Second A&R Wintrust Revolving Loan
Outstanding borrowings on the Second A&R Wintrust Revolving Loan
Outstanding letters of credit
Net credit agreement capacity available
Total available funding capacity
Share Repurchase Program
50,000
(10,000)
(4,065)
$
59,833
35,935
95,768
$
In September 2022, the Company announced that its Board of Directors approved the Share Repurchase Program to repurchase
shares of its common stock for an aggregate purchase price not to exceed $2.0 million. The share repurchase authority was valid
through September 29, 2023. Share repurchases may be executed through various means, including, without limitation, open
market transactions, privately negotiated transactions or by other means in accordance with federal securities laws. The Share
Repurchase Program does not obligate the Company to acquire any particular amount of common stock, and the program may
be suspended or terminated by the Company at any time at its discretion without prior notice. Through September 29, 2023,
approximately $2.0 million of common stock was repurchased under its Share Repurchase Program, which was funded from the
Company’s available cash on hand. There were no shares repurchased during 2023.
Debt and Related Obligations
Long-term debt consists of the following obligations as of:
49
(in thousands)
A&R Wintrust Term Loan
Wintrust Revolving Loans
Finance leases – collateralized by vehicles, payable in monthly installments of
principal, plus interest ranging from 3.96% to 8.60% through 2030
Financing liability
Total debt
Less – Current portion of long-term debt
Less – Unamortized discount and debt issuance costs
Long-term debt
December 31,
2023
December 31,
2022
$
$
$
— $
10,000
7,347
5,351
22,698 $
(2,680)
(387)
19,631 $
21,453
—
4,954
5,351
31,758
(9,564)
(666)
21,528
See Note 7 – Debt in the accompanying notes to the Company’s consolidated financial statements for further discussion.
Surety Bonding
In connection with its business, the Company is occasionally required to provide various types of surety bonds that provide an
additional measure of security to its customers for its performance under certain government and private sector contracts. The
Company’s ability to obtain surety bonds depends upon its capitalization, working capital, past performance, management
expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in
light of the amount of the Company’s backlog that it has currently bonded and their current underwriting standards, which may
change from time-to-time. The bonds, if any, the Company provides typically reflect the contract value. As of December 31,
2023 and 2022, the Company has approximately $90.9 million and $129.6 million in surety bonds outstanding, respectively.
The Company believes that its $800 million bonding capacity provides it with a significant competitive advantage relative to
many of its competitors which have limited bonding capacity. See Note 13 – Commitments and Contingencies in the
accompanying notes to the Company’s consolidated financial statements for further discussion.
Insurance and Self-Insurance
The Company purchases workers’ compensation and general liability insurance under policies with per-incident deductibles of
$250,000 per occurrence. Losses incurred over primary policy limits are covered by umbrella and excess policies up to
specified limits with multiple excess insurers. The Company accrues for the unfunded portion of costs for both reported claims
and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the
consolidated balance sheets as current and non-current liabilities. The liability is computed by determining a reserve for each
reported claim on a case-by-case basis based on the nature of the claim and historical loss experience for similar claims plus an
allowance for the cost of incurred but not reported claims. The current portion of the liability is included in accrued expenses
and other current liabilities on the consolidated balance sheets. The non-current portion of the liability is included in other long-
term liabilities on the consolidated balance sheets.
The Company is self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate
stop-loss limits. The Company accrues for the unfunded portion of costs for both reported claims and claims incurred but not
reported. The liability for unfunded reported claims and future claims is reflected on the consolidated balance sheets as a
current liability in accrued expenses and other current liabilities. See Note 13 – Commitments and Contingencies in the
accompanying notes to the Company’s consolidated financial statements for further discussion.
Multiemployer Plans
The Company participates in approximately 40 MEPPs that provide retirement benefits to certain union employees in
accordance with various collective bargaining agreements (“CBAs”). As one of many participating employers in these MEPPs,
the Company is responsible with the other participating employers for any plan underfunding. The Company’s contributions to
a particular MEPP are established by the applicable CBAs; however, required contributions may increase based on the funded
status of an MEPP and legal requirements of the Pension Protection Act of 2006 (the “PPA”), which requires substantially
underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve its funded
status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the
participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization
of extended amortization provisions. Assets contributed to the MEPPs by the Company may be used to provide benefits to
employees of other participating employers. If a participating employer stops contributing to an MEPP, the unfunded
obligations of the MEPP may be borne by the remaining participating employers.
50
An FIP or RP requires a particular MEPP to adopt measures to correct its underfunding status. These measures may include, but
are not limited to an increase in a company’s contribution rate as a signatory to the applicable CBA, or changes to the benefits
paid to retirees. In addition, the PPA requires that a 5.0% surcharge be levied on employer contributions for the first year
commencing shortly after the date the employer receives notice that the MEPP is in critical status and a 10.0% surcharge on
each succeeding year until a CBA is in place with terms and conditions consistent with the RP.
The Company could also be obligated to make payments to MEPPs if it either ceases to have an obligation to contribute to the
MEPP or significantly reduces its contributions to the MEPP because it reduces the number of employees who are covered by
the relevant MEPP for various reasons, including, but not limited to, layoffs or closure of a subsidiary assuming the MEPP has
unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) would equal the
Company’s proportionate share of the MEPPs’ unfunded vested benefits. The Company believes that certain of the MEPPs in
which it participates may have unfunded vested benefits. Due to uncertainty regarding future factors that could trigger
withdrawal liability, the Company is unable to determine (a) the amount and timing of any future withdrawal liability, if any,
and (b) whether its participation in these MEPPs could have a material adverse impact on its financial condition, results of
operations or liquidity.
Recent Accounting Pronouncements
The Company reviews new accounting standards to determine the expected financial impact, if any, that the adoption of such
standards will have on its financial position and/or results of operations. See Note 2 – Significant Accounting Policies in the
accompanying notes to the Company’s consolidated financial statements for further information regarding new accounting
standards, including the anticipated dates of adoption and the effects on its consolidated financial position, results of operations,
or liquidity.
Critical Accounting Policies
The Company’s critical accounting policies are based upon the significance of the accounting policy to its overall financial
statement presentation, as well as the complexity of the accounting policy and its use of estimates and subjective assessments.
The Company’s most critical accounting policy is revenue recognition. As discussed elsewhere in this Annual Report on Form
10-K, the Company’s business has two operating segments: (i) GCR, for which it accounts for using the cost-to-cost method
and (ii) ODR, for which it accounts for using the cost-to-cost method and for certain projects when revenue is recognized as
services are provided. In addition, the Company believes that some of the more critical judgment areas in the application of
accounting policies that affect its financial condition and results of operations are the impact of changes in the estimates and
judgments pertaining to: (a) collectability or valuation of accounts receivable; (b) the recording of its self-insurance liabilities;
(c) valuation of deferred tax assets; and (d) recoverability of goodwill and identifiable intangible assets. These accounting
policies, as well as others, are described in Note 2 – Significant Accounting Policies in the accompanying notes to the
Company’s consolidated financial statements.
Revenue and Cost Recognition
The Company believes its most significant accounting policy is revenue recognition from construction contracts for which it
uses the cost-to-cost method of accounting. Under the cost-to-cost method, contract revenue recognizable at any time during the
life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred to
total estimated contract costs. Revenue from fixed price and modified fixed price contracts are recognized on the cost-to-cost
method, measured by the relationship of total cost incurred to total estimated contract costs.
Contract costs include direct labor, material, and subcontractor costs, and those indirect costs related to contract performance,
such as indirect labor, supplies, tools, repairs, depreciation, and insurance. These contract costs are included in the Company’s
results of operations under the caption “Cost of revenue.” Then, as the Company performs under those contracts, it measures
costs incurred, compares them to total estimated costs to complete the contract, and recognizes a corresponding proportion of
contract revenue. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the
work is performed but is generally subjected to approval as to milestones or other evidence of completion. Non-labor project
costs consist of purchased equipment, prefabricated materials and other materials. Purchased equipment on the Company’s
projects is substantially produced to job specifications and is a value-added element to its work. The costs are considered to be
incurred when title is transferred to the Company, which typically is upon delivery to the worksite. Prefabricated materials, such
as ductwork and piping, are generally performed at the Company’s shops and recognized as contract costs when fabricated for
the unique specifications of the job. Other materials costs are not significant and are generally recorded when delivered to the
worksite. This measurement and comparison process requires updates to the estimate of total costs to complete the contract, and
these updates may include subjective assessments.
51
The Company generally does not incur significant costs prior to receiving a contract, and therefore, these costs are expensed as
incurred. Upon receiving the contract, these costs are included in contract costs. Selling, general, and administrative costs are
charged to expense as incurred. Bidding and proposal costs are also recognized as an expense in the period in which such
amounts are incurred. Total estimated contract costs are based upon management’s current estimate of total costs at completion.
As changes in estimates of contract costs at completion and/or estimated total losses on projects are identified, appropriate
earnings adjustments are recorded during the period that the change or loss is identified. Contract revenue for construction
contracts is based upon management’s estimate of contract prices at completion, including revenue for additional work on
which contract pricing has not been finalized (claims). Changes in job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs
and income, and are recognized in the period in which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are recognized in the period in which such losses are determined.
With respect to the Company’s service contracts, there are two basic types of service contracts: fixed price service contracts,
which are signed in advance for maintenance, repair and retrofit work over a period, typically of one year, and service contracts
not signed in advance for similar maintenance, repair and retrofit work on an as-needed basis. Fixed price service contracts are
generally performed evenly over the contract period, and accordingly, revenue is recognized on a pro rata basis over the life of
the contract. Revenue derived from other service contracts is recognized when the services are performed. Expenses related to
all service contracts are recognized as services are provided.
Project contracts typically provide for a schedule of billings or invoices to the customer based on reaching agreed upon
milestones or as the Company incurs costs. The schedules for such billings usually do not precisely match the schedule on
which costs are incurred. As a result, contract revenue recognized in the statement of operations can and usually does differ
from amounts that can be billed or invoiced to the customer at any point during the contract. Amounts by which cumulative
contract revenue recognized on a contract as of a given date exceed cumulative billings to the customer under the contract are
reflected as a current asset in the Company’s balance sheet under the caption “contract assets.” Amounts by which cumulative
billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are
reflected as a current liability in the Company’s balance sheet under the caption “contract liabilities.”
The cost-to-cost method of accounting is also affected by changes in job performance, job conditions, and final contract
settlements. These factors may result in revisions to estimated costs and, therefore, revenue. Such revisions are frequently based
on further estimates and subjective assessments. The effects of these revisions are recognized in the period in which revisions
are determined. When such revisions lead to a conclusion that a loss will be recognized on a contract, the full amount of the
estimated ultimate loss is recognized in the period such conclusion is reached, regardless of the percent complete of the
contract.
Revisions to project costs and conditions can give rise to change orders under which the customer agrees to pay additional
contract price. Revisions also can result in claims the Company might make against the customer to recover project variances
that have not been satisfactorily addressed through change orders with the customer. Claims and unapproved change orders are
recorded at estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized
on the construction costs incurred in connection with claim amounts. See Note 4 – Revenue from Contracts with Customers in
the accompanying notes to the Company’s consolidated financial statements for information related to unresolved change
orders and claims.
Variations from estimated project costs could have a significant impact on the Company’s operating results, depending on
project size, and the recoverability of the variation via additional customer payments.
In accordance with industry practice, the Company classifies as current all assets and liabilities relating to the performance of
long-term contracts. The term of the Company’s contracts generally ranges from three months to two years and, accordingly,
collection or payment of amounts relating to these contracts may extend beyond one year.
Accounts Receivable and Allowance for Credit Losses
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The Company develops its allowance for credit
losses, which represents an estimate of expected losses over the remaining contractual life of its receivables, using an aging
method. Under the aging method, the Company assigns its accounts receivable to a level of delinquency and apply loss rates to
each class. The determination of its loss rates require it to make certain judgements and estimates involving, among others, the
creditworthiness of its customers, historical loss experiences with customers, the aging of past due balances, the consideration
of a customer’s financial condition, ongoing relationships with its customers, its lien rights, if any, in the property where it
performed the work, the availability, if any, of payment bonds applicable to the contract, current market economic conditions
52
and a forecast of future economic conditions when appropriate. These estimates are evaluated and adjusted as needed when
additional information is received.
Self-insurance Liabilities
The Company is substantially self-insured for workers’ compensation, employer’s liability, auto liability, general liability and
employee group health claims in view of the relatively high per-incident deductibles it absorbs under its insurance arrangements
for these risks. Losses are estimated and accrued based upon known facts, historical trends and industry averages. Estimated
losses in excess of the Company’s deductible, which have not already been paid, are included in the Company’s accrual with a
corresponding receivable from its insurance carrier.
In addition, the Company is self-insured related to medical and dental claims under policies with annual per-claimant and
annual aggregate stop-loss limits. The Company accrues for the unfunded portion of costs for both reported claims and claims
incurred but not reported.
The Company believes the liabilities recognized on its balance sheets for these obligations are adequate. However, insurance
liabilities are difficult to estimate due to unknown factors, including the severity of any injury, the determination of its liability
in proportion to other parties, timely reporting of occurrences, ongoing treatment or loss mitigation, general trends in litigation
recovery outcomes and the effectiveness of safety and risk management programs. Therefore, if actual experience differs from
the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the
period that such experience becomes known.
Deferred Tax Assets
The Company regularly evaluates the need for valuation allowances related to deferred tax assets for which future realization is
uncertain. The Company performs this evaluation quarterly. In assessing the realizability of deferred tax assets, it must consider
whether it is more likely than not some portion, or all, of the deferred tax assets will not be realized. The Company considers all
available evidence, both positive and negative, in determining whether a valuation allowance is required. Such evidence
includes the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income in prior carryback
years and tax planning strategies in making this assessment, and judgment is required in considering the relative weight of
negative and positive evidence.
Goodwill and Identifiable Intangible Assets
Goodwill is the excess of purchase price over the fair value of the net assets of acquired businesses. The Company assesses
goodwill for impairment each year, and more frequently if circumstances suggest an impairment may have occurred. When the
carrying value of a given reporting unit exceeds its fair value, an impairment loss is recorded to the extent that the implied fair
value of the goodwill of the reporting unit is less than its carrying value. If other reporting units have had increases in fair value,
such increases may not be recorded. Accordingly, such increases may not be netted against impairments at other reporting units.
The requirements for assessing whether goodwill has been impaired involve market-based information. This information, and
its use in assessing goodwill, entails some degree of subjective assessment.
The Company performs its annual impairment testing as of October 1, and any impairment charges resulting from this process
are reported in the fourth quarter. The Company segregates its operations into reporting units based on the degree of operating
and financial independence of each unit and its related management of them. The Company performs its annual goodwill
impairment analysis at the reporting unit level. Each of the Company’s operating units represents an operating segment, and its
operating segments are its reporting units.
The Company also reviews intangible assets with definite lives subject to amortization whenever events or circumstances
indicate that a carrying amount of an asset may not be recoverable. Events or circumstances that might require impairment
testing include the identification of other impaired assets within a reporting unit, loss of key personnel, the disposition of a
significant portion of a reporting unit, a significant decline in stock price or a significant adverse change in business climate or
regulations. Changes in strategy and/or market condition may also result in adjustments to recorded intangible asset balances or
their useful lives.
Off-Balance Sheet and Other Arrangements
Aside from the $4.1 million and $3.2 million in irrevocable letters of credit outstanding in connection with the Company’s self-
insurance program, at December 31, 2023 and 2022, respectively, the Company did not have any relationships with any entities
or financial partnerships, such as structured finance or special purpose entities established for the purpose of facilitating off-
balance sheet arrangements or other purposes.
53
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to Item 301(c)
of Regulation S-K, it is not required to provide the information required by this Item.
54
Item 8.
Financial Statements and Supplementary Data
LIMBACH HOLDINGS, INC.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
57
60
61
62
63
65
55
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
March 13, 2024
To the Shareholders of Limbach Holdings, Inc.:
Financial Statements and Practices
The accompanying consolidated financial statements of Limbach Holdings, Inc. are the responsibility of and have been
prepared by the Company’s management in conformity with accounting principles generally accepted in the United States of
America. They necessarily include some amounts that are based on its best judgments and estimates. The Company’s financial
information displayed in other sections of this report is consistent with these financial statements.
The Company seeks to assure the objectivity and integrity of its financial records by careful selection of its managers, by
organizational arrangements that provide an appropriate division of responsibility and by communication programs aimed at
assuring that its policies, procedures and methods are understood throughout the organization.
The Company has a comprehensive, formalized system of internal controls designed to provide reasonable assurance that assets
are safeguarded, that financial records are reliable and that information required to be disclosed in reports filed with or
submitted to the Securities and Exchange Commission is recorded, processed, summarized and reported within the required
time limits. Appropriate members of management monitor the system for compliance and evaluates it for effectiveness, and the
independent registered public accounting firm measures its effectiveness and recommends possible improvements thereto.
The Board of Directors exercises its oversight role in the area of financial reporting and internal control over financial reporting
through its Audit Committee. This committee, composed solely of independent directors, regularly meets (jointly and
separately) with the independent registered public accounting firm, management, internal audit and other executives to monitor
the proper discharge by each of their responsibilities relative to internal control over financial reporting and the Company’s
financial statements.
Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company’s management,
including the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the Company
conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
On July 3, 2023, the Company acquired all of the outstanding membership interests of ACME Industrial Piping, LLC.
Additionally, on November 1, 2023, the Company acquired all of the outstanding membership interests of Industrial Air, LLC.
As the acquisitions occurred in July 2023 and November 2023, the scope of the Company's assessment of the design and
operating effectiveness of the Company’s internal control over financial reporting for the year ended December 31, 2023
excluded these acquired businesses. The total assets and total revenue excluded from the Company’s assessment represented
approximately 11% and 2%, respectively, of Limbach Holdings, Inc.’s consolidated total assets and total revenue as of and for
the year ended December 31, 2023. This exclusion is in accordance with the SEC’s staff guidance that an assessment of a
recently acquired business may be omitted from the scope of the Company's evaluation of the effectiveness of its internal
controls in the year of acquisition. These acquired businesses will be included in management’s assessment of the effectiveness
of the Company’s internal controls over financial reporting as of December 31, 2024.
Based on this evaluation, the Company’s management concluded that Limbach Holdings, Inc.’s internal control over financial
reporting was effective as of December 31, 2023.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by
Crowe LLP, an independent registered public accounting firm, as stated in their report which is included herein.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and the Board of Directors of Limbach Holdings, Inc.
Warrendale, Pennsylvania
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Limbach Holdings, Inc. (the "Company") as of December
31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two
years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). We
also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinion
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company's financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. As permitted, the Company has
excluded the operations of ACME Industrial Piping, LLC and Industrial Air, LLC acquired during 2023, which are described in
Note 3 of the financial statements, from the scope of management’s report on internal control over financial reporting. As such,
it has also been excluded from the scope of our audit of internal control over financial reporting. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
57
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Evaluation of Variable Consideration and Estimated Costs at Completion for Fixed-Price Construction-Type Contracts.
As described in Notes 2 and 4 to the financial statements, the Company recognizes revenue from performance obligations on
construction-type contracts over time using a cost-to-cost input method in which the extent of progress is measured as the ratio
of costs incurred to date to the total estimated costs at completion. Revenue recognition under this method requires a significant
level of judgement and estimates from management to determine the transaction price and the total estimated cost to complete
each contract. During the year ended December 31, 2023, approximately $254,392,000 of the Company’s revenues were
derived from construction-type contracts.
The transaction price includes management’s estimates of variable consideration it expects to receive from pending change
orders and claims to the extent it is probable there will not be a significant reversal of revenue recorded to date. Estimating
variable consideration involves significant judgements by management that consider the nature of the variable consideration,
project communications such as notices to proceed and work directives from the owner or general contractor, changes in the
scope of the contract, historical experience with customers, third-party actions, and management’s prior experience with similar
facts and circumstances.
Estimated costs to complete for construction-type contracts include all direct labor, materials, equipment, and subcontractor
costs as well as certain indirect costs. These estimated costs can vary significantly from original estimates over the course of the
contract due to numerous factors including availability of high-skilled labor, material price changes, unforeseen site conditions,
unanticipated weather or force majeure events, necessary rework, errors or omissions in plans and specifications, and changes
in the scope and timing of contract scope and performance timing.
We considered auditing variable consideration and total estimated costs to complete on construction-type contracts to be critical
audit matters, because they involved a high degree of subjectivity and significant auditor judgement, along with extensive audit
procedures, in evaluating management’s estimates and judgements.
Our audit procedures related to testing the variable consideration and cost to complete included the following:
•
•
•
•
•
Obtained an understanding of management’s internal controls and evaluated the design of the controls.
Tested the operating effectiveness of controls over the reasonableness of estimates of costs to complete on contracts
and estimates of variable consideration recognized on contracts.
Obtained and reviewed the relevant terms of the related contracts and change orders for a sample of contracts.
Sampled contracts and observed certain internal project review meetings and interviewed project personnel to gain an
understanding of the status of projects and tested management’s significant judgements related to the recoverability of
variable consideration and estimated costs to be incurred to complete the contract.
Evaluated management’s historical ability to estimate total contract cost by performing a comparison of total actual
estimated contract cost as compared with prior period estimates, including evaluating the timely identification of
circumstances that may warrant a modification to the total estimated contract cost.
Our audit procedures related strictly to testing the variable consideration included the following:
•
•
Evaluated the recorded variable consideration by obtaining management’s contractual justification for the recorded
amounts on a sample of contracts. This includes obtaining project communications such as notices to proceed and
work directives from the owner or general contractor for the changes in the scope of the contract to support the
variable consideration.
Sampled related underlying costs for pending change orders and claims based on their significance to the variable
consideration by vouching these costs to the corresponding vendor invoice, subcontractor payment application, or
timecard depending on the nature of the associated job cost.
Our audit procedures related strictly to testing the cost to complete included the following:
•
Agreed actual costs incurred to underlying support on a sample basis.
58
•
Tested key components of estimated costs to complete including labor, materials, equipment, and subcontractor costs
on a sample basis.
Accounting for Acquisitions
As described in Note 3 to the financial statements, the Company completed the acquisition of Industrial Air, LLC in 2023. The
Company’s acquisition involved a significant level of judgement and estimates from management specifically to estimate the
fair value of contingent consideration. We considered auditing the contingent consideration in this transaction to be a critical
audit matter, because it was a significant unusual transaction, and involved a high degree of subjectivity and significant auditor
judgement in evaluating management’s methodology, estimates and judgements.
Our audit procedures related to testing the accounting for this acquisition included the following:
•
•
•
Testing controls over the accounting for acquisitions, such as controls over the recognition and measurement of
consideration paid and payable, including contingent consideration.
Reading the purchase agreement and comparing the terms of the purchase agreement to management’s application of
purchase accounting for this acquisition.
Evaluating the estimated fair value of significant contingent consideration arrangements based on attainment of certain
gross profit metrics. In addition, we assessed the terms of the contingent consideration, the valuation methods used,
management’s gross profit projections, and any other conditions that must be met for the contingent consideration
arrangements to become payable. Finally, we evaluated management’s classification of contingent payments to
continuing employees as either contingent consideration in the business combination or employee compensation.
/s/ Crowe LLP
We have served as the Company’s auditor since 2012.
Oak Brook, Illinois
March 13, 2024
59
LIMBACH HOLDINGS, INC.
Consolidated Balance Sheets
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowance for credit losses of $292 and net of allowance for doubtful
accounts of $234 as of December 31, 2023 and 2022, respectively)
Contract assets
Advances to and equity in joint ventures, net
Income tax receivable
Other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets
Deferred tax asset
Other assets
Total assets
LIABILITIES
Current liabilities:
Current portion of long-term debt
Current operating lease liabilities
Accounts payable, including retainage
Contract liabilities
Accrued income taxes
Accrued expenses and other current liabilities
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock, net, par value $0.0001, $1,000,000 shares authorized, no
shares issued and outstanding ($0 redemption value)
STOCKHOLDERS’ EQUITY
Common stock, $0.0001 par value; 100,000,000 shares authorized, issued 11,183,076 and
10,471,410, respectively; 11,003,424 and 10,291,758 outstanding, respectively
Additional paid-in capital
Treasury stock, at cost (179,652 shares at both period ends)
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
As of December 31,
2023
2022
$
59,833 $
65
36,001
113
124,442
61,453
12
95
3,874
225,990
18,224
15,340
11,370
18,288
4,829
515
294,556
9,564
3,562
75,122
44,007
1,888
24,942
159,085
21,528
15,643
2,858
199,114
97,755
51,690
12
—
7,645
217,000
20,830
24,999
16,374
19,727
5,179
330
304,439 $
2,680 $
3,627
65,268
42,160
446
30,967
145,148
19,631
16,037
2,708
183,524
—
—
1
92,528
(2,000)
30,386
120,915
304,439 $
1
87,809
(2,000)
9,632
95,442
294,556
The accompanying notes are an integral part of these consolidated financial statements
60
LIMBACH HOLDINGS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Revenue
Cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Change in fair value of contingent consideration
Amortization of intangibles
Total operating expenses
Operating income
Other (expenses) income:
Interest expense
Interest income
Loss on early termination of operating lease
Loss on early debt extinguishment
(Loss) gain on change in fair value of interest rate swap
Gain on disposition of property and equipment
Total other expenses
Income before income taxes
Income tax provision
Net income
Earnings Per Share (“EPS”)
Net income per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
$
$
$
$
For the Years Ended December 31,
2023
2022
516,350 $
397,060
119,290
87,397
729
1,880
90,006
29,284
(2,046)
1,217
—
(311)
(124)
80
(1,184)
28,100
7,346
20,754 $
496,782
403,041
93,741
77,879
2,285
1,567
81,731
12,010
(2,144)
—
(849)
—
310
281
(2,402)
9,608
2,809
6,799
1.93 $
1.76 $
0.65
0.64
10,773,467
11,812,098
10,425,119
10,676,534
The accompanying notes are an integral part of these consolidated financial statements
61
LIMBACH HOLDINGS, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Number of Shares
Common
stock
Treasury
stock
Common
stock
Additional
paid-in
capital
Treasury
stock, at cost
Retained
earnings
Stockholders’
equity
Balance at January 1, 2022
10,304,242
— $
1 $
85,004 $
— $
2,833 $
87,838
Shares issued related to vested
restricted stock units
Tax withholding related to vested
restricted stock units
Stock-based compensation
Shares issued related to employee
stock purchase plan
Repurchase of common stock under
Share Repurchase Program
Net income
129,678
—
—
37,490
—
—
—
—
—
—
(179,652)
—
—
—
—
—
—
—
—
(148)
2,742
211
—
—
(2,000)
—
—
—
—
—
6,799
Balance at December 31, 2022
10,471,410
(179,652) $
1 $
87,809 $
(2,000) $
9,632 $
Shares issued related to vested
Restricted stock units
Tax withholding related to vested
restricted stock units
Stock-based compensation
Shares issued related to employee
stock purchase plan
Shares issued related to the exercise
of warrants
Net income
251,699
—
—
17,661
442,306
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(428)
4,910
237
—
—
—
—
—
—
—
—
—
—
—
—
—
20,754
Balance at December 31, 2023
11,183,076
(179,652) $
1 $
92,528 $
(2,000) $
30,386 $
—
(148)
2,742
211
(2,000)
6,799
95,442
—
(428)
4,910
237
—
20,754
120,915
The accompanying notes are an integral part of these consolidated financial statements
62
LIMBACH HOLDINGS, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Year Ended December 31,
2023
2022
$
20,754 $
6,799
Depreciation and amortization
Noncash operating lease expense
Provision for credit losses / doubtful accounts
Stock-based compensation expense
Loss on early debt extinguishment
Loss on early termination of operating lease
Amortization of debt issuance costs
Deferred income tax provision
Gain on sale of property and equipment
Loss (gain) on change in fair value of interest rate swap
Loss on change in fair value of contingent consideration
Changes in operating assets and liabilities:
Accounts receivable
Contract assets
Other current assets
Accounts payable, including retainage
Contract liabilities
Income tax receivable
Accrued income taxes
Accrued expenses and other current liabilities
Operating lease liabilities
Payment of contingent consideration liability in excess of acquisition-date fair value
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
ACME Transaction, net of cash acquired
Industrial Air Transaction, net of cash acquired
Proceeds from sale of property and equipment
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Payments on Wintrust and A&R Wintrust Term Loans
Proceeds from Wintrust Revolving Loan
Payment on Wintrust Revolving Loan
Proceeds from financing transaction
Payments on financing liability
Payment of contingent consideration liability up to acquisition-date fair value
Repurchase of common stock under Share Repurchase Program
Payments on finance leases
Proceeds from contributions to employee stock purchase plan
Taxes paid related to net-share settlement of equity awards
Payments of debt issuance costs
63
8,244
3,824
431
4,910
311
—
79
(350)
(80)
124
729
32,607
10,397
(1,486)
(10,909)
(9,121)
95
(1,442)
2,867
(3,795)
(1,224)
401
57,366
(4,883)
(10,378)
435
(2,266)
(17,092)
(21,452)
10,000
—
—
—
(1,776)
—
(2,733)
368
(847)
(50)
8,158
4,260
292
2,742
—
849
138
(499)
(281)
(310)
2,285
(35,407)
22,410
1,128
11,282
17,296
19
1,387
(2,934)
(4,133)
—
(108)
35,373
—
—
498
(993)
(495)
(13,429)
15,194
(15,194)
5,400
(49)
—
(2,000)
(2,734)
309
(417)
(433)
Net cash used in financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Supplemental disclosures of cash flow information
Noncash investing and financing transactions:
Earnout liability associated with the ACME Transaction
Earnout liability associated with the Industrial Air Transaction
Right of use assets obtained in exchange for new operating lease liabilities
Right of use assets obtained in exchange for new finance lease liabilities
Right of use assets disposed or adjusted modifying operating leases liabilities
Right of use assets disposed or adjusted modifying finance leases liabilities
Interest paid
Cash paid for income taxes
(16,490)
23,784
36,114
59,898 $
(13,353)
21,525
14,589
36,114
1,514 $
3,165
3,135
5,219
1,112
(93)
1,908
9,156 $
—
—
—
2,634
2,455
(77)
2,005
1,979
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
64
LIMBACH HOLDINGS, INC.
Notes to Consolidated Financial Statements
Note 1 – Business and Organization
Limbach Holdings, Inc. (the “Company,” “we” or “us”), a Delaware corporation headquartered in Warrendale, Pennsylvania,
was formed on July 20, 2016 as a result of a business combination with Limbach Holdings LLC (“LHLLC”). The Company is a
building systems solutions firm who strives to be an indispensable partner to building owners with mission critical building
infrastructure. The Company’s focus is in six vertical markets: healthcare, industrial and manufacturing, data centers, life
science, higher education and cultural and entertainment. The Company provides comprehensive facility services with expertise
in the management and maintenance of mechanical, electrical, plumbing and controls systems who uniquely combines
engineering solutions with field installation expertise to provide custom solutions. The Company has more than 1,400 team
members in 19 offices across the eastern United States and operates primarily in the Northeast, Mid-Atlantic, Southeast and
Midwest regions of the United States.
The Company operates in two segments, (i) General Contractor Relationships (“GCR”), in which the Company generally
manages new construction or renovation projects that involve primarily mechanical, plumbing, or electrical services awarded to
the Company by general contractors or construction managers, and (ii) Owner Direct Relationships (“ODR”), in which the
Company performs owner direct projects and/or provides maintenance or service primarily on mechanical, plumbing or
electrical systems, building controls and specialty contracting projects direct to, or assigned by, building owners or property
managers. This work is primarily performed under fixed price, modified fixed price, and time and material contracts over
periods of typically less than two years.
Note 2 – Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission
(“SEC”) and based on the assumption that the Company will continue as a going concern, which contemplates the realization of
assets and the settlement of liabilities in the normal course of business.
Principles of Consolidation
References in these financial statements to the Company refer collectively to the accounts of Limbach Holdings, Inc. and its
wholly-owned subsidiaries, including LHLLC, Limbach Facility Services LLC (“LFS”), Limbach Company LLC (“LC LLC”),
Limbach Company LP, Harper Limbach LLC, Harper Limbach Construction LLC, Limbach Facility & Project Solutions LLC,
Jake Marshall, LLC (“JMLLC”), Coating Solutions, LLC (“CSLLC”), ACME Industrial Piping, LLC (“ACME”) and Industrial
Air, LLC (“Industrial Air”) for all periods presented, unless otherwise indicated. All intercompany balances and transactions
have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements for assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, the reported amounts of revenue and expenses during the
reported period, and the accompanying notes. Management believes that its most significant estimates and assumptions have
been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of
the consolidated financial statements. The Company’s significant estimates include estimates associated with revenue
recognition on construction contracts, costs incurred through each balance sheet date, intangibles, property and equipment, fair
value accounting for acquisitions, insurance reserves, income tax valuation allowances, fair value of contingent consideration
arrangements and contingencies. If the underlying estimates and assumptions upon which the consolidated financial statements
are based change in the future, actual amounts may differ from those included in the accompanying consolidated financial
statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less when purchased
and are carried at cost, which approximates fair value, due to their short-term maturities. The Company’s cash and cash
equivalents consist principally of currency on hand, demand deposits at commercial banks, overnight repurchase agreements,
amounts invested in highly liquid money market funds and U.S. Treasury Bills. At times, the Company’s cash deposits may
exceed the amount of federal insurance provided on such deposits. The Company has not experienced any losses in such
65
accounts and believes it is not exposed to significant credit risk beyond the normal credit risk associated with commercial
banking relationships. See Note 9 – Fair Value Measurements for further information.
Restricted Cash
Restricted cash is cash held at a commercial bank in an imprest account held for the purpose of funding workers’ compensation
and general liability claims against the Company. This amount is replenished either when depleted or at the beginning of each
month.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s
consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows:
(in thousands)
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Accounts Receivable and Allowance for Credit Losses
December 31, 2023
December 31, 2022
$
$
59,833 $
65
59,898 $
36,001
113
36,114
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The carrying value of the receivables, net of the
allowance for credit losses, represents their estimated net realizable value. The Company develops its allowances for credit
losses, which represent an estimate of expected losses over the remaining contractual life of its receivables, using an aging
method. Under the aging method, the Company assigns its accounts receivable to a level of delinquency and applies a loss rates
to each class. Loss rates are determined based on historical loss experiences with customers, the consideration of a customer’s
financial condition, current market economic conditions and a forecast of future economic conditions when appropriate. When
the Company becomes aware of a customer’s inability to meet its financial obligation, a specific reserve is recorded to reduce
the receivable to the expected amount to be collected. Balances that are still outstanding after management has used reasonable
collection efforts are written off through a charge to the valuation allowance and an adjustment of the account receivable. The
majority of customer balances at each balance sheet date are collected within twelve months. As is common practice in the
industry, the Company classifies all accounts receivable as current assets. Based on assessments by management, allowances
for credit losses were approximately $0.3 million and $0.2 million at December 31, 2023 and 2022, respectively.
Joint Ventures
The Company accounts for its participation in certain special purpose, project specific joint ventures under the equity method of
accounting. The Company’s entry into these joint ventures is for the purpose of bidding, negotiating and completing specific
projects. The Company and its joint venture partner(s) separately enter into their own sub-contracts with the joint venture for
each party’s respective portion of the work. All revenue and expenses and the related contract assets and liabilities related to the
Company’s sub-contract are recorded within the Company’s statements of operations and balance sheets, similarly to any other
construction project. The joint venture itself does not accumulate any profits or losses, as the joint venture revenue is equal to
the sum of the subcontracts it issues to the joint venture partners. The voting power and management of the joint ventures are
shared equally by the joint venture partners, qualifying these entities for joint venture treatment under GAAP. The shared
voting power and management responsibilities allow the Company to exercise significant influence without controlling the joint
venture entity. As such, the Company applies the equity method of accounting as defined in ASC Topic 323, Investments –
Equity Method and Joint Ventures.
Revenue Recognition
The Company’s revenue is primarily derived from construction-type and service contracts that generally range from three
months to two years. The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with
Customers. ASC Topic 606 provides for a five-step model for recognizing revenue from contracts with customers as follows:
1.
2.
Identify the contract
Identify performance obligations
3. Determine the transaction price
4. Allocate the transaction price
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5. Recognize revenue
Identify the contract with a customer. A contract with a customer exists when: (a) the parties have approved the contract and are
committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be
identified, (d) the arrangement has commercial substance, and (e) collectability of consideration is probable. Judgment is
required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally
executed contract may not yet exist. In these situations, the Company evaluates all relevant facts and circumstances, including
the existence of other forms of documentation or historical experience with its customers that may indicate a contractual
agreement is in place and revenue should be recognized. In determining if the collectability of consideration is probable, the
Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors,
including an assessment of the creditworthiness of the customer and its prior collection history with such customer.
Identify the performance obligations in the contract. At contract inception, the Company assesses the goods or services
promised in a contract and identifies, as a separate performance obligation, each distinct promise to transfer goods or services to
the customer. The identified performance obligations represent the “unit of account” for purposes of determining revenue
recognition. In order to properly identify separate performance obligations, the Company applies judgment in determining
whether each good or service provided is: (a) capable of being distinct, whereby the customer can benefit from the good or
service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the
context of the contract, whereby the transfer of the good or service to the customer is separately identifiable from other
promises in the contract.
Determine the transaction price. The transaction price represents the amount of consideration to which the Company expects to
be entitled in exchange for transferring promised goods or services to its customers. The consideration promised within a
contract may include fixed amounts, variable amounts, or both. To the extent the performance obligation includes variable
consideration, the Company estimates the amount of variable consideration to be included in the transaction price utilizing one
of two prescribed methods, depending on which method better predicts the amount of consideration to which the entity will be
entitled. Such methods include: (a) the expected value method, whereby the amount of variable consideration to be recognized
represents the sum of probability weighted amounts in a range of possible consideration amounts, and (b) the most likely
amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a
range of possible consideration amounts. When applying these methods, the Company considers all information that is
reasonably available, including historical, current, and estimates of future performance. The expected value method is typically
utilized in situations where a contract contains a large number of possible outcomes while the most likely amount method is
typically utilized in situations where a contract has only two possible outcomes.
Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a
significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the
uncertainty associated with the variable consideration is subsequently resolved. This threshold is referred to as the variable
consideration constraint. In assessing whether to apply the variable consideration constraint, the Company considers if factors
exist that could increase the likelihood or the magnitude of a potential reversal of revenue, including, but not limited to,
whether: (a) the amount of consideration is highly susceptible to factors outside of the Company’s influence, such as the actions
of third parties, (b) the uncertainty surrounding the amount of consideration is not expected to be resolved for a long period of
time, (c) the Company’s experience with similar types of contracts is limited or that experience has limited predictive value, (d)
the Company has a practice of either offering a broad range of price concessions or changing the payment terms and conditions
of similar contracts in similar circumstances, and (e) the contract has a large number and broad range of possible consideration
amounts.
Pending change orders represent one of the most common forms of variable consideration included within contract value and
typically represent contract modifications for which a change in scope has been authorized or acknowledged by the Company’s
customer but the final adjustment to contract price is yet to be negotiated. In estimating the transaction price for pending change
orders, the Company considers all relevant facts, including documented correspondence with the customer regarding
acknowledgment of and/or agreement with the modification, as well as historical experience with the customer or similar
contractual circumstances. Based upon this assessment, the Company estimates the transaction price, including whether the
variable consideration constraint should be applied.
Contract claims are another form of variable consideration which is common within its industry. Claim amounts represent
revenue that has been recognized for contract modifications that are not submitted or are in dispute as to both scope and price.
In estimating the transaction price for claims, the Company considers all relevant facts available. However, given the
uncertainty surrounding claims, including the potential long-term nature of dispute resolution and the broad range of possible
consideration amounts, there is an increased likelihood that any additional contract revenue associated with contract claims is
constrained. The resolution of claims involves negotiations and, in certain cases, litigation. In the event litigation costs are
67
incurred by the Company in connection with claims, such litigation costs are expensed as incurred, although it may seek to
recover these costs.
Allocate the transaction price to performance obligations in the contract. For contracts that contain multiple performance
obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling
price. The Company determines the standalone selling price based on the price at which the performance obligation would have
been sold separately in similar circumstances to similar customers. If the standalone selling price is not observable, the
Company estimates the standalone selling price taking into account all available information such as market conditions and
internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin
on anticipated costs related to the performance obligation.
Recognize revenue as performance obligations are satisfied. Throughout the execution of its construction-type contracts, the
Company recognizes revenue with the continuous transfer of control to the customer. The customer typically controls the asset
under construction by either contractual termination clauses or by the Company’s rights to payment for work already performed
on the asset under construction that does not have an alternative use for the Company.
Because control transfers over time, revenue is recognized to the extent of progress towards completion of the performance
obligations. The selection of the method to measure progress towards completion requires judgment and is based on the nature
of the products or services provided. The Company generally uses the cost-to-cost method for its contracts, which measures
progress towards completion for each performance obligation based on the ratio of costs incurred to date to the total estimated
costs at completion for the respective performance obligation. Incurred cost represents work performed, which corresponds
with, and thereby best depicts, the transfer of control to the customer. Revenue, including estimated profits, is recorded
proportionately as costs are incurred. Cost of operations includes labor, materials, subcontractor costs, and other direct and
indirect costs, including depreciation and amortization.
Certain construction-type contracts include retention provisions to provide assurance to the Company’s customers that it will
perform in accordance with the contract terms and are not considered a financing benefit. The balances billed but not paid by
customers pursuant to these provisions generally become due upon completion and acceptance of the project work by the
customer. The Company has determined there are no significant financing components in its contracts during the years ended
December 31, 2023 and 2022.
For the Company’s service-type contracts, revenue is also generally recognized over time as the customer simultaneously
receives and consumes the benefits of its performance as the Company performs the service. For its fixed price service-type
contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when
the Company’s inputs are expended evenly, and the customer receives and consumes the benefits of its performance throughout
the contract term.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance
obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-
cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance
obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When
the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the
unsatisfied performance obligation is made in the period in which the loss becomes evident.
Costs to fulfill its contracts (“pre-bid costs”) that are not expected to be recovered from the customer are expensed as incurred
and included in selling, general and administrative expenses on its consolidated statements of operations.
In accordance with industry practice, the Company classifies as current all assets and liabilities relating to the performance of
contracts.
See Note 4 – Revenue from Contracts with Customers for further information.
Changes in Estimates on Construction Contracts
The accuracy of the Company’s revenue and profit recognition in a given period depends on the accuracy of its estimates of the
cost to complete each project. There are a number of factors that can contribute to changes in estimates of contract cost and
profitability. The most significant of these include:
•
•
The completeness and accuracy of the original bid;
costs associated with scope changes;
68
•
•
•
•
•
•
•
•
•
•
•
•
expected, or actual, resolution terms for claims;
achievement of contract incentives;
changes in costs of labor and/or materials;
extended overhead and other costs due to owner, weather and other delays;
subcontractor performance issues;
changes in productivity expectations;
site conditions that differ from those assumed in the original bid;
changes from original design on design-build projects;
the availability and skill level of workers in the geographic location of the project;
a change in the availability and proximity of equipment and materials;
its ability to fully and promptly recover on claims and back charges for additional contract costs, and
the customer’s ability to properly administer the contract.
Subsequent to the inception of a construction-type contract in the Company’s GCR and ODR segments, the transaction price
could change for various reasons, including the executed or estimated amount of change orders and unresolved contract
modifications and claims to or from owners. Changes that are accounted for as an adjustment to existing performance
obligations are allocated on the same basis at contract inception. Otherwise, changes are accounted for as separate performance
obligation(s) and the separate transaction price is allocated.
Changes are made to the transaction price from unapproved change orders to the extent the amount can be reasonably estimated
and recovery is probable.
On certain projects, the Company has submitted and has pending unresolved contract modifications and claims to recover
additional costs and the associated profit, if applicable, to which it believes it is entitled under the terms of contracts with
customers, subcontractors, vendors or others. The owners or their authorized representatives and/or other third parties may be in
partial or full agreement with the modifications or claims, or may have rejected or disagree entirely or partially as to such
entitlement.
Changes are made to the transaction price from affirmative claims with customers to the extent that additional revenue on a
claim settlement with a customer is probable and estimable. A reduction to costs related to claims with non-customers with
whom the Company has a contractual arrangement (“back charges”) is recognized when the estimated recovery is probable and
estimable. Recognizing claims and back charge recoveries requires significant judgments of certain factors including, but not
limited to, dispute resolution developments and outcomes, anticipated negotiation results, and the cost of resolving such
matters.
The foregoing factors, as well as the stage of completion of contracts in process and the mix of contracts at different margins
may cause fluctuations in gross profit and gross profit margin from period to period. Generally, if the contract is at an early
stage of completion, the current period impact is smaller than if the same change in estimate is made to the contract at a later
stage of completion. Significant changes in cost estimates, particularly in the Company’s larger, more complex projects have
had, and can in future periods have, a significant effect on its profitability. Management evaluates changes in estimates on a
contract by contract basis and discloses significant changes, if material, in the notes to the consolidated financial statements.
The cumulative catch-up method is used to account for revisions in estimates. Provisions for estimated losses on uncompleted
contracts are recognized in the period in which such losses are determined.
Goodwill and Impairment of Long-Lived Assets
Goodwill is evaluated for impairment at least annually or whenever events or changes in circumstance indicate it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. The Company may perform either a qualitative
assessment of potential impairment or proceed directly to a quantitative assessment of potential impairment. The Company's
qualitative assessment of potential impairment may result in the determination that a quantitative impairment analysis is not
necessary. Under this elective process, the Company assesses qualitative factors to determine whether the existence of events or
circumstances leads the Company to determine that it is more likely than not that the fair value of a reporting unit is less than its
69
carrying amount. If after assessing the totality of events or circumstances, the Company determines it is more likely than not
that the fair value of a reporting unit is greater than its carrying amount, then a quantitative assessment is not required.
However, if the Company concludes otherwise, a quantitative impairment analysis is performed.
If the Company chooses not to perform a qualitative assessment, or if it chooses to perform a qualitative assessment but is
unable to qualitatively conclude that no impairment has occurred, then the Company will perform a quantitative assessment. In
the case of a quantitative assessment, the Company estimates the fair value of the reporting unit with which the goodwill is
associated and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, an
impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value. See Note 5 – Goodwill
and Intangible Assets for further detail.
The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate, in management's
judgment, that the carrying value of such assets may not be recoverable. With respect to property, plant and equipment and
finite lived intangibles, asset recoverability is measured by comparing the carrying value of the asset or asset group with its
expected future pre-tax undiscounted cash flows. These cash flow estimates require the Company to make projections and
assumptions for many years into the future for pricing, demand, competition, operating cost and other factors. If the carrying
amount exceeds the expected future undiscounted cash flows, the Company recognizes an impairment equal to the excess of
carrying value over fair value as determined by quoted market prices in active markets or present value techniques if quotes are
unavailable. The determination of the fair value using present value techniques requires the Company to make projections and
assumptions regarding the probability of a range of outcomes and the rates of interest used in the present value calculations.
Any changes the Company makes to these projections and assumptions could result in significant revisions to its evaluations of
recoverability and the recognition of additional impairments. See Note 5 – Goodwill and Intangible Assets for further
discussion on impairments of long-lived assets.
Intangible Assets
The Company’s indefinite-lived intangible assets associated with its trade name are evaluated for impairment at least annually
or more frequently if events or circumstances indicate that it is more likely than not that the fair value of its indefinite-lived
intangible asset are less than their carrying amount. The Company’s identifiable intangible assets with finite lives are either
amortized over their useful lives or over the period the Company expects to receive the related economic benefit based upon
estimated future cash flows. The Company reviews finite-lived intangible assets for impairment whenever facts and
circumstances indicate that their carrying values may not be fully recoverable.
See Note 5 – Goodwill and Intangible Assets for further discussion of the Company’s intangible assets.
Property and Equipment, net
Property and equipment, with the exception of the Company’s fleet vehicle finance leases, are recorded at cost and depreciated
on a straight-line basis over their estimated useful lives. For buildings and leasehold improvements, the Company’s useful lives
range from 5 years to 40 years; for machinery and equipment, useful lives range from 3 years to 10 years. Expenditures for
maintenance and repairs are expensed as incurred. Leasehold improvements for the Company’s real estate operating leases are
amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements.
The following table summarizes the Company’s property and equipment:
(in thousands)
Land and improvements
Buildings and leasehold improvements
Machinery and equipment
Finance leases - vehicles(1)
Gross property and equipment
Less: Accumulated amortization on finance leases
Less: Accumulated depreciation
Property and equipment, net of accumulated amortization and depreciation(2)
(1) See additional information provided in Note 14 – Leases.
December 31,
2023
December 31,
2022
$
$
400 $
10,997
31,157
11,665
54,219
(4,502)
(28,887)
20,830 $
400
10,489
26,061
10,789
47,739
(6,001)
(23,514)
18,224
(2)
Includes net property and equipment of approximately $0.5 million and $2.1 million for the year ended December 31, 2023 related to
assets acquired in the ACME Transaction and Industrial Air Transaction, respectively.
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Depreciation and amortization expense on property and equipment was $6.4 million and $6.6 million for the years ended
December 31, 2023 and 2022, respectively.
Leases
A lease contract conveys the right to use an underlying asset for a period of time in exchange for consideration. At inception,
the Company determines whether a contract contains a lease by determining if there is an identified asset and if the contract
conveys the right to control the use of the identified asset in exchange for consideration over a period of time. Leases are
classified as either operating or finance, based on the Company’s evaluation of certain criteria.
With the exception of short-term leases (leases with an initial term of 12 months or less), at lease commencement, the Company
measures and records a lease liability equal to the present value of the remaining lease payments, generally discounted using
quoted borrowing rates on its secured debt as the implicit rate is not readily determinable on many of its real estate operating
leases. For the Company’s fleet vehicles classified as financing leases, it uses the stated interest rate in the lease.
On the lease commencement date, the amount of the right-of-use (“ROU”) assets consist of the following:
•
•
•
the amount of the initial measurement of the lease liability;
any lease payment made at or before the commencement date, minus any lease incentives received; and
any initial direct costs incurred.
Most of the Company’s operating lease contracts have the option to extend or renew. The Company assesses the option for
individual leases, and it generally considers the base term to be the term of lease contracts. See Note 14 – Leases for additional
information.
The Company periodically evaluates whether events and circumstances have occurred that indicate that the remaining balances
of its ROU assets may not be recoverable. The Company uses estimates of future undiscounted cash flows, as well as other
economic and business factors, to assess the recoverability of these assets.
Deferred Financing Costs
Deferred financing costs are deferred and amortized to interest expense using the effective interest rate method over the term of
the related long-term debt agreement, and the straight-line method for the revolving credit agreement.
Debt issuance costs related to the issuance and/or extension, as applicable, of the Company’s term loans are reflected as a direct
reduction from the carrying amount of long-term debt. Debt issuance costs related to revolving credit facilities are capitalized
and reflected as an other asset.
As a result of the early repayment of the A&R Wintrust Term Loan and certain changes to the members of the loan syndicate
under the Second A&R Wintrust Credit Agreement (See Note 7 – Debt), the Company wrote off approximately $0.3 million of
unamortized debt issuance costs, which are reported as a loss on early debt extinguishment on the Company's consolidated
statements of operations. See Note 7 – Debt for additional information.
Stock-Based Compensation
Stock-based compensation awards granted to executives, employees, and non-employee directors are measured at fair value and
recognized as an expense. For awards with service conditions only, the Company recognizes compensation expense on a graded
vesting basis over the requisite service period for each separately vesting tranche of the award based on the closing market price
of the Company’s common stock at the grant date. For awards with service and performance conditions, the Company
recognizes compensation expense based on the closing market price of the Company’s common stock at the grant date using the
straight-line method over the requisite service period. Estimates of compensation expense for an award with performance
conditions are based on the probable outcome of the performance conditions. The cumulative effect of changes in the
probability outcomes are recorded in the period in which the changes occur. The Company has elected to account for forfeitures
as they occur to determine the amount of compensation expense to be recognized each period. See also Note 17 – Management
Incentive Plans for further information.
Income Taxes
The provision for income taxes includes federal, state and local taxes. The Company accounts for income taxes in accordance
with ASC Topic 740 - Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax
assets and liabilities and income or expense is recognized for the expected future tax consequences of temporary differences
71
between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable
in the years in which the temporary differences are expected to reverse. Changes in tax rates are recorded to deferred tax assets
and liabilities and reflected in the provision for income taxes during the period that includes the enactment date.
The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely
than not that all or a portion of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is
evaluated by estimating the future taxable profits expected, scheduling of anticipated reversals of taxable temporary differences,
and considering prudent and feasible tax planning strategies.
Any interest or penalties incurred related to unrecognized tax benefits are recorded as tax expense in the provision for income
tax expense line item of the accompanying consolidated statements of operations. The consolidated financial statements reflect
expected future tax consequences of such positions presuming the taxing authorities have full knowledge of the position and all
relevant facts, but without considering time values.
Fair Value Measurements
The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 - Fair Value
Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
•
•
•
Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at
the measurement date;
Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability either
directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical
or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of assets or liabilities; and
Level 3 — unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its
own assumptions.
See also Note 9 – Fair Value Measurements for further information.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments, which introduced an expected credit loss methodology for the measurement and recognition of
credit losses on most financial instruments, including trade receivables and off-balance sheet credit exposure. Under this
guidance, an entity is required to consider a broader range of information to estimate expected credit losses, which may result in
earlier recognition of losses. This ASU also requires disclosure of information regarding how a company developed its
allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for
those changes. The Company adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method, whereby the
guidance was applied prospectively as of the date of adoption and prior periods are not restated. The adoption of this ASU did
not have a material impact on the Company's financial position or results of operations.
The Company assessed the scope of its financial assets and determined that the guidance associated with ASU 2016-13 is
relevant to its trade accounts receivable and contract assets, including retainage. The Company’s trade receivables include
amounts from work completed in which it has billed or has an unconditional right to bill its customers. The majority of the
Company’s trade receivables are contractually due in less than a year. The Company further assessed the guidance based on its
segment portfolio of receivables. While the Company’s construction-type GCR and ODR financial assets are often in the same
subset of customers and industries, the Company’s construction-type related project work is typically bonded and the customers
to which they perform work are well-known, solvent and have no history of receivable write-offs. On the contrary, the
Company’s service-type work, in particular its ODR core service work, is smaller in nature and is usually more susceptible to
customer write-offs. As such, there is greater risk of credit loss on the Company’s ODR-related service-type receivables. The
Company’s contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of
billings on uncompleted contracts. The Company has policies and procedures in place where it reviews claims and change
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orders on a quarterly basis to determine legal entitlement and recoverability in accordance with ASC 606. As such, the
Company has determined the risk of credit loss on its contracts assets to be remote.
As discussed above, the Company develops its allowances for credit losses, which represent an estimate of expected losses over
the remaining contractual life of its ODR-related service-type receivables, using an aging method. Under the aging method, the
Company assigns its accounts receivable to a level of delinquency and applies a loss rates to each class. Loss rates are
determined based on historical loss experiences with customers, the consideration of a customer’s financial condition, current
market economic conditions and a forecast of future economic conditions when appropriate. When the Company becomes
aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the
expected amount to be collected.
As part of the Company’s analysis of expected credit losses, it may analyze receivables with customers on an individual basis in
situations where such accounts receivables exhibit unique risk characteristics and are not expected to experience similar losses
to the rest of their class.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures. This update aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures
about significant segment expenses. ASU 2023-07 requires disclosure of significant segment expenses that are regularly
provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The update
also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements.
ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-07 on
its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). This update requires
entities to disclose additional information with respect to the effective tax rate reconciliation and to disclose the disaggregation
by jurisdiction of income tax expense and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after
December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-09 on its
consolidated financial statements.
The FASB has issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting in March 2020. This new guidance provides optional expedients for a limited period of time to ease the
potential burden in accounting for (or recognizing the effects of) reference rate reform, on financial reporting. The risk of
termination of the London Interbank Offered Rate (LIBOR), has caused regulators to undertake reference rate reform initiatives
to identify alternative reference rates that are more observable or transaction based that are less susceptible to manipulation.
ASU 2020-04 was effective between March 12, 2020 and December 31, 2022. However, in December 2022, the FASB issued
ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, extending the sunset date under
Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected
LIBOR cessation date of June 30, 2023.
In addition, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in
this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to
apply to derivative contracts and certain hedging relationships affected by the discounting transition. As a result of ASU
2022-06, an entity may now elect to apply the amendments in this update from the beginning of an interim period beginning as
of March 12, 2020, through December 31, 2024. The Company has evaluated the impact of adopting the reference rate reform
guidance (both ASU 2020-04 and ASU 2021-01) on its consolidated financial statements and has determined that these
pronouncements did not have a significant impact. As discussed in Note 7, the A&R Credit Agreement removed LIBOR as a
benchmark rate and now utilizes SOFR (as defined in the A&R Credit Agreement) as its replacement. During the second
quarter of 2023, the Company entered into the Second A&R Credit Agreement, which also utilizes SOFR as a benchmark rate.
In addition, the Company’s interest rate swap utilizes SOFR as its benchmark rate.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of
liabilities and equity and amends the scope guidance for contracts in an entity's own equity. The ASU addresses how
convertible instruments are accounted for in the calculation of diluted earnings per share by using the if-converted method. The
guidance is effective for all entities for fiscal years beginning after March 31, 2024, albeit early adoption is permitted no earlier
than fiscal years beginning after December 15, 2020. Management is currently assessing the impact of this pronouncement on
its consolidated financial statements.
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Note 3 – Acquisitions
ACME Transaction
On July 3, 2023 (the “ACME Effective Date”), the Company, LFS and ACME, and the owner of ACME (the “ACME Seller”)
entered into a Purchase Agreement (the “ACME Purchase Agreement”) pursuant to which LFS purchased all of the outstanding
equity interests in ACME from the ACME Seller (the “ACME Transaction”). The ACME Transaction closed on the ACME
Effective Date. As a result of the ACME Transaction, ACME became a wholly-owned indirect subsidiary of the Company.
ACME specializes in performing industrial maintenance, capital project work, and emergency services for specialty chemical
and manufacturing clients, and is a leading mechanical solutions provider for hydroelectric producers. The acquisition expands
the Company’s market share within its existing operating footprint, provides further exposure to an attractive customer base and
supports the Company's continued ODR growth strategy.
Total consideration paid by the Company for the ACME Transaction at closing was $5.0 million (the “ACME Closing Purchase
Price”), consisting of cash paid to the ACME Seller, subject to typical adjustments for working capital. Of the consideration
paid to the ACME Seller, approximately $0.4 million is being held in escrow for indemnification purposes. The purchase price
is subject to customary post-closing adjustments. In addition, the ACME Seller may receive up to an aggregate of $2.5 million
in cash, consisting of two individual tranches of $0.5 million and $2.0 million pursuant to the terms of the ACME Purchase
Agreement, if the gross profit of ACME equals or exceeds (i) $2.0 million in the 12-month period beginning on the ACME
Effective Date (the “First ACME Earnout Period”) or (ii) $2.5 million in the 12-month period beginning on the first anniversary
of the ACME Effective Date (the “Second ACME Earnout Period” and together with the First ACME Earnout Period, the
“ACME Earnout Payments”). Notwithstanding the foregoing, if ACME’s Adjusted EBITDA, as defined within the ACME
Purchase Agreement, for calendar year 2023 equaled or exceeded $2.5 million then the Company would have been required to
pay the ACME Seller $2.5 million, and the ACME Seller would not have been entitled to any further payment. This particular
earnout condition was not met as of December 31, 2023.
The Company recorded $0.5 million in acquisition-related expenses associated with professional fees related to the ACME
Transaction during the year ended December 31, 2023, which are included in selling, general and administrative expense in the
consolidated statements of operations.
Allocation of Purchase Price. The ACME Transaction was accounted for as a business combination using the acquisition
method. The following table summarizes the preliminary purchase price and estimated fair values of assets acquired and
liabilities assumed as of the ACME Effective Date, with any excess of purchase price over estimated fair value of the identified
net assets acquired recorded as goodwill. As a result of the acquisition, the Company recognized $2.3 million of goodwill, all of
which was allocated to the ODR segment and fully deductible for tax purposes. Such goodwill primarily related to anticipated
future earnings. The fair value estimates for the assets acquired and liabilities assumed, as well as the Company's estimates and
assumptions, were subject to change as the Company obtained additional information during the measurement period. During
the measurement period, if the Company obtained new information regarding facts and circumstances that existed as of the
ACME Effective Date that, if known, would have resulted in revised estimated values of those assets or liabilities, the Company
would accordingly revise its fair value estimates and purchase price allocation. Measurement period adjustments are reflected as
if the adjustments had been made as of the ACME Effective Date. The impact of all changes that do not qualify as measurement
period adjustments would have been included in current period earnings. The Company finalized its purchase price allocation
during the fourth quarter of 2023.
The following table summarizes the allocation of the fair value of the assets and liabilities of the ACME Transaction as of the
ACME Effective Date by the Company.
74
(in thousands)
Consideration:
Cash
Earnout provision
Total Consideration
Fair value of assets acquired:
Cash and cash equivalents
Accounts receivable
Contract assets
Property and equipment
Operating lease right-of-use assets
Intangible assets
Amount attributable to assets acquired
Fair value of liabilities assumed:
Accounts payable, including retainage
Current operating lease liabilities
Accrued expenses and other current liabilities
Contract liabilities
Long-term operating lease liabilities
Amount attributable to liabilities assumed
Goodwill
Purchase Price
Allocation
Measurement
Period
Adjustments(1)
Final Purchase
Price Allocation
$
$
5,181 $
1,121
6,302
— $
393
393
298
1,150
414
488
301
2,300
4,951
170
195
138
373
106
982
2,333 $
—
—
—
—
—
500
500
—
—
—
—
—
—
(107) $
5,181
1,514
6,695
298
1,150
414
488
301
2,800
5,451
170
195
138
373
106
982
2,226
(1) Measurement period adjustments recorded during the year-ended December 31, 2023 included changes in the purchase price allocation
and total consideration, resulting in a net decrease of approximately $0.1 million to goodwill. The measurement period adjustments
resulted primarily from valuation inputs pertaining to ACME’s intangible assets and earnout provision attributes based on facts and
circumstances that existed, but were not known, as of the ACME acquisition date.
For working capital items, such as cash and cash equivalents, accounts receivable, other current assets, accounts payable and
accrued expenses and other current liabilities, ACME's carrying value was assumed to represent the fair value of these assets
due to the current nature of the assets and liabilities. There was no difference between the contract value and fair value of
accounts receivable acquired. In addition, the estimated fair value of property and equipment, which generally consists of
vehicles, machinery, and equipment, was estimated to approximate its net book value.
As part of the purchase price allocation, the Company identified certain definite-lived intangible assets associated with
customer relationships with third-party customers and the acquired trade name and trademarks. The fair value of the customer
relationships with third-party customers was determined using the multi-period excess earning method under the income
approach. The multi-period excess earnings method is a variation of the discounted cash-flow analysis, which isolates the cash
flows that can be associated with a single intangible asset and measures fair value by discounting it back to present value. The
fair value of the acquired trade name and trademarks intangible asset was determined using an income approach, specifically
known as the relief-from-royalty method. This method requires identifying the future revenue that would be generated by the
trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected
royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of
market rates for similar categories of assets. Some of the more significant estimates and assumptions inherent in determining
the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent
Level 3 inputs.
The Company calculates amortization of the acquired intangible assets using the straight-line method over the estimated useful
lives of each acquired intangible assets. Amortization expense recorded in the consolidated statements of operations for the
period from the ACME Effective Date to December 31, 2023 was approximately $0.2 million. The estimated annual
amortization expense is approximately $0.3 million for each of the next five years.
75
Intangible assets, net as of December 31, 2023 are detailed below.
(in thousands)
Trade name and trademarks
Customer relationships
Total
Gross Carrying
Amount
Accumulated
Amortization
Net Intangible
Assets
$
$
200 $
2,600
2,800 $
(19) $
(150)
(169) $
181
2,450
2,631
Weighted
Average Useful
Life (Years)
4.8
8.1
7.9
The aforementioned contingent ACME Earnout Payments are associated with the achievement of specified gross profit
milestones. The Company estimated that the fair value of the ACME Earnout Payments was approximately $1.5 million at the
date of acquisition, inclusive of certain measurement period adjustments, of which the majority of this balance was included in
other long-term liabilities in the Company’s consolidated balance sheet. The Company determined the initial fair value of the
ACME Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the
ACME Effective Date, the ACME Earnout Payments associated with the ACME Transaction were valued utilizing discount
rates of 12.96% and 21.64%. The discount rates were calculated using the build-up method with a risk-free rate commensurate
with the term of the ACME Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk
premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for
operational leverage. Subsequent to the Effective Date, the ACME Earnout Payments are re-measured at fair value each
reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are
recognized immediately in earnings. See Note 9 for further information.
Industrial Air Transaction
On November 1, 2023 (the “IA Effective Date”), the Company, LFS and Industrial Air, and the owner of Industrial Air (the “IA
Seller”) entered into a Purchase Agreement (the “IA Purchase Agreement”) pursuant to which LFS purchased all of the
outstanding equity interests in Industrial Air from the IA Seller (the “Industrial Air Transaction”). The Industrial Air
Transaction closed on the IA Effective Date. As a result of the Industrial Air Transaction, Industrial Air became a wholly-
owned indirect subsidiary of the Company. Industrial Air serves industrial customers throughout the Southeast United States
and along the Eastern seaboard, focusing on delivering engineered air handling systems, including air conditioning and air
filtration, along with controls systems and maintenance work. In addition, Industrial Air manufactures a wide range of
components for air conditioning and filtration systems. The Industrial Air Transaction provides the Company with a presence in
an attractive and growing geographic market, where the acquired entity has a strong ODR customer base and supports the
Company’s continued ODR growth strategy.
Total consideration paid by the Company for the Industrial Air Transaction at closing was $13.5 million (the “IA Closing
Purchase Price”), consisting of cash paid to the IA Seller, subject to typical adjustments for working capital. Of the
consideration paid to the IA Seller, approximately $1.4 million is being held in escrow for indemnification purposes. The
purchase price is subject to customary post-closing adjustments. In addition, the IA Seller may receive up to an aggregate of
$6.5 million in cash, consisting of two individual tranches of $3.0 million and $3.5 million pursuant to the terms of the
Industrial Air Purchase Agreement, if the gross profit of Industrial Air equals or exceeds (i) $7.6 million in the 12-month period
beginning on the IA Effective Date (the “First IA Earnout Period”) or (ii) $8.8 million in the 12-month period beginning on the
first anniversary of the IA Effective Date (the “Second IA Earnout Period” and together with the First IA Earnout Period, the
“IA Earnout Payments”). However, if the gross profit of Industrial Air is less than $7.6 million but exceeds $6.6 million during
the First IA Earnout Period then the IA Seller shall receive a portion of the deferred payment made on a pro rata basis.
Similarly, if the gross profit of Industrial Air is less than $8.8 million but exceeds $7.8 million during the Second IA Earnout
Period then the IA Seller shall receive a portion of the deferred payment made on a pro rata basis.
The Company recorded $0.5 million in acquisition-related expenses associated with professional fees related to the Industrial
Air Transaction during the year ended December 31, 2023, which are included in selling, general and administrative expense in
the consolidated statements of operations.
Allocation of Purchase Price. The Industrial Air Transaction was accounted for as a business combination using the acquisition
method. The following table summarizes the preliminary purchase price and estimated fair values of assets acquired and
liabilities assumed as of the IA Effective Date, with any excess of purchase price over estimated fair value of the identified net
assets acquired recorded as goodwill. As a result of the acquisition, the Company recognized $2.8 million of goodwill, all of
which was allocated to the ODR segment and fully deductible for tax purposes. Such goodwill primarily related to anticipated
future earnings. The Company's accounting for this acquisition is preliminary. The fair value estimates for the assets acquired
and liabilities assumed, as well as the Company's estimates and assumptions are subject to change as the Company obtains
76
additional information during the measurement period. During the measurement period, if the Company obtains new
information regarding facts and circumstances that existed as of the IA Effective Date that, if known, would have resulted in
revised estimated values of those assets or liabilities, the Company will accordingly revise its fair value estimates and purchase
price allocation. Measurement period adjustments are reflected as if the adjustments had been made as of the IA Effective Date.
The impact of all changes that do not qualify as measurement period adjustments will be included in current period earnings.
The Company expects to finalize its purchase price allocation within one year of the IA Effective Date. The Company continues
to analyze and assess relevant information necessary to determine, recognize and record at fair value the assets acquired and
liabilities assumed.
The following table summarizes the preliminary allocation of the fair value of the assets and liabilities of the Industrial Air
Transaction as of the IA Effective Date by the Company.
(in thousands)
Consideration:
Cash
Earnout provision
Total Consideration
Fair value of assets acquired:
Cash and cash equivalents
Accounts receivable
Inventory
Contract assets
Other current assets
Property and equipment
Operating lease right-of-use assets(1)
Intangible assets
Amount attributable to assets acquired
Fair value of liabilities assumed:
Accounts payable, including retainage
Current operating lease liabilities
Contract liabilities
Accrued expenses and other current liabilities
Long-term operating lease liabilities
Amount attributable to liabilities assumed
Goodwill
Purchase Price
Allocation
$
$
11,527
3,165
14,692
1,149
5,200
1,290
220
993
1,447
3,756
8,720
22,775
885
475
6,900
347
2,254
10,861
2,778
(1) As a result of the Industrial Air Transaction, the Company recognized a $1.0 million below-market lease, which was recorded as an
increase to the Company’s operating lease right-of-use assets on its consolidated balance sheet as of the IA Effective Date. The below-
market lease will be amortized to amortization expense over the remaining lease term.
For working capital items, such as cash and cash equivalents, accounts receivable, inventory, other current assets, accounts
payable, and accrued expenses and other current liabilities, Industrial Air's carrying value was assumed to represent the fair
value of these assets due to the current nature of the assets and liabilities. There was no difference between the contract value
and fair value of accounts receivable acquired. In addition, the estimated fair value of property and equipment, which generally
consists of machinery, equipment and leasehold improvements, was estimated to approximate its net book value.
As part of the purchase price allocation, the Company identified certain definite-lived intangible assets associated with
customer relationships with third-party customers, the acquired trade name and trademarks, acquired intellectual property,
acquired backlog and a below market lease agreement. The fair values of the customer relationships with third-party customers
and acquired backlog were determined using the multi-period excess earning method under the income approach. The multi-
period excess earnings method is a variation of the discounted cash-flow analysis, which isolates the cash flows that can be
77
associated with a single intangible asset and measures fair value by discounting it back to present value. The fair value of the
acquired trade name, trademarks and intellectual property intangible assets were determined using an income approach,
specifically known as the relief-from-royalty method. This method requires identifying the future revenue that would be
generated by the trade name, trademark and intellectual property, multiplying it by a royalty rate deemed to be avoided through
ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used
in the valuation was based on a consideration of market rates for similar categories of assets. The fair value of the below-market
lease was determined by comparing the difference between the annual lease contract rent over the remaining contractual term to
a market rate cash flow stream, discounted to the present value. Some of the more significant estimates and assumptions
inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and
profitability, which represent Level 3 inputs.
The Company calculates amortization of the acquired intangible assets using the straight-line method over the estimated useful
lives of each acquired intangible assets. Amortization expense recorded in the consolidated statements of operations for the
period from the Industrial Air Effective Date to December 31, 2023 was approximately $0.5 million. The estimated annual
amortization expense is approximately $2.2 million for 2024 and $0.9 million each of the next four years.
Intangible assets, net as of December 31, 2023 are detailed below.
(in thousands)
Trade name, trademarks and intellectual
property
Customer relationships
Backlog
Total
Gross Carrying
Amount
Accumulated
Amortization
Net Intangible
Assets
Weighted
Average Useful
Life (Years)
$
$
2,710 $
4,390
1,620
8,720 $
(58) $
(99)
(324)
(481) $
2,652
4,291
1,296
8,239
7.6
7.2
0.6
6.3
The aforementioned contingent IA Earnout Payments are associated with the achievement of specified gross profit milestones.
The Company estimated that the fair value of the IA Earnout Payments was approximately $3.2 million at the date of
acquisition, of which the majority of this balance was included in other long-term liabilities in the Company’s consolidated
balance sheet as of December 31, 2023. The Company determined the initial fair value of the IA Earnout Payments based on
the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Industrial Air Effective Date, the IA
Earnout Payments associated with the Industrial Air Transaction were valued utilizing a discount rate of 13.68%. The discount
rate was calculated using the build-up method with a risk-free rate commensurate with the term of the IA Earnout Payments
based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term
risk free rate, a weighted average cost of capital and certain adjustments for operational leverage. Subsequent to the IA
Effective Date, the IA Earnout Payments are re-measured at fair value each reporting period. Changes in the estimated fair
value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.
Note 4 – Revenue from Contracts with Customers
The Company generates revenue from construction type contracts, primarily consisting of fixed-price contracts, to deliver
mechanical, plumbing, and electrical construction services to its customers. The duration of its contracts generally ranges from
three months to two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the
relationship of total cost incurred to total estimated contract costs. Revenue from time and materials contracts is recognized as
services are performed. The Company believes that its extensive experience in mechanical, plumbing, and electrical projects,
and its internal cost review procedures during the bidding process, enable it to reasonably estimate costs and mitigate the risk of
cost overruns on fixed price contracts.
The Company generally invoices customers on a monthly basis, based on a schedule of values that breaks down the contract
amount into discrete billing items. Costs and estimated earnings in excess of billings on uncompleted contracts are recorded as a
contract asset until billable under the contract terms. Billings in excess of costs and estimated earnings on uncompleted
contracts are recorded as a contract liability until the related revenue is recognizable. The Company classifies contract assets
and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of
the Company’s project operating cycle.
Contract assets
Contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of billings on
uncompleted contracts. The components of the contract asset balances as of the respective dates were as follows:
78
(in thousands)
Contract assets
December 31,
2023
December 31,
2022
Change
Costs and estimated earnings in excess of billings on uncompleted
contracts
Retainage receivable
Total contract assets
$
$
29,247 $
33,573 $
22,443
27,880
51,690 $
61,453 $
(4,326)
(5,437)
(9,763)
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld, typically 10%,
pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project.
Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on
a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the
Company makes progress towards completion.
Contract assets represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to
date and are classified as a current asset. Contract assets result when either: (1) the appropriate contract revenue amount has
been recognized over time in accordance with ASC Topic 606, but a portion of the revenue recorded cannot be currently billed
due to the billing terms defined in the contract, or (2) costs are incurred related to certain claims and unapproved change orders.
Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change.
Unapproved change orders occur when a change in the scope of work results in additional work being performed before the
parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to
claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to
the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty
associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement
and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and
unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result
from resolutions and subsequent billings.
The current estimated net realizable value on such items as recorded in contract assets and contract liabilities in the consolidated
balance sheets was $19.5 million and $28.5 million as of December 31, 2023 and 2022, respectively. The Company currently
anticipates that the majority of such amounts will be approved or executed within one year. The resolution of those claims and
unapproved change orders that may require litigation or other forms of dispute resolution proceedings may delay the timing of
billing beyond one year.
Contract liabilities
Contract liabilities include billings in excess of contract costs and provisions for losses. The components of the contract liability
balances as of the respective dates were as follows:
(in thousands)
Contract liabilities
December 31,
2023
December 31,
2022
Change
Billings in excess of costs and estimated earnings on uncompleted
contracts
Provisions for losses
Total contract liabilities
$
$
41,987 $
173
42,160 $
43,806 $
201
44,007 $
(1,819)
(28)
(1,847)
Billings in excess of costs and estimated earnings on uncompleted contracts represent the excess of contract billings to date over
the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the
timing of contract billings and the recognition of contract revenue.
Provisions for losses are recognized in the consolidated statements of operations at the uncompleted performance obligation
level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance
obligation exceeds its estimated total revenue.
The net (overbilling) underbilling position for contracts in process consisted of the following:
79
(in thousands)
Revenue earned on uncompleted contracts
Less: Billings to date
Net (overbilling) underbilling
(in thousands)
Costs and estimated earnings in excess of billings on uncompleted
contracts
Billings in excess of costs and estimated earnings on uncompleted contracts
Net (overbilling) underbilling
$
Revisions in Contract Estimates
December 31, 2023
December 31, 2022
$
$
551,120 $
(563,860)
(12,740) $
678,014
(688,247)
(10,233)
December 31, 2023
December 31, 2022
$
29,247 $
(41,987)
(12,740) $
33,573
(43,806)
(10,233)
The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the year ended
December 31, 2023, the Company recorded material gross profit write-ups on two GCR projects for a total of $2.2 million and
two material GCR project gross profit write-downs for a total of $1.3 million that had a net gross profit impact of $0.5 million
or more. During the year ended December 31, 2023, the Company recorded a material gross profit write-down on one ODR
segment project for a total of $1.0 million. During the year ended December 31, 2022, the Company recorded material gross
profit write-ups of $3.0 million on three GCR projects and four material GCR project gross profit write-downs for a total of
$2.8 million that had a net gross profit impact of $0.5 million or more. There were no material write-ups or write-downs within
the ODR segment during the year ended December 31, 2022.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and
exclude unexercised contract options. The Company’s remaining performance obligations include projects that have a written
award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and
conditions.
As of December 31, 2023, the aggregate amount of the transaction prices allocated to the remaining performance obligations of
the Company's GCR and ODR segment contracts were $186.9 million and $127.3 million, respectively. The Company currently
estimates that 83% and 95% of its GCR and ODR segment remaining performance obligations as of December 31, 2023,
respectively, will be recognized as revenue during 2024, with the substantial majority of remaining performance obligations to
be recognized within 24 months, although the timing of the Company’s performance is not always under its control.
Additionally, the difference between remaining performance obligations and backlog is due to the exclusion of a portion of the
Company’s ODR agreements under certain contract types from the Company’s remaining performance obligations as these
contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by
the customer.
Note 5 – Goodwill and Intangible Assets
Goodwill
Goodwill was $16.4 million and $11.4 million as of December 31, 2023 and 2022, respectively, and is entirely associated with
the Company's ODR segment. The Company tests its goodwill and indefinite-lived intangible assets allocated to its reporting
units for impairment annually on October 1, or more frequently if events or circumstances indicate that it is more likely than not
that the fair value of its reporting units and indefinite-lived intangible asset are less than their carrying amount. The Company
has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. A quantitative assessment is performed if the qualitative assessments results in a more-likely-
than-not determination or if a qualitative assessment is not performed.
On October 1, 2023, the Company performed a qualitative assessment. In conducting that qualitative assessment, the Company
analyzed a variety of events or factors that may influence the fair value of the reporting unit or indefinite-life intangible,
including, but not limited to: if applicable; changes in the carrying amount of the reporting unit or indefinite-life intangible;
actual and projected revenue and operating margin; relevant market data for both the Company and its peer companies; industry
outlooks; macroeconomic conditions; liquidity; changes in key personnel; and the Company's competitive position. Significant
judgment was used to evaluate the totality of these events and factors to make the determination of whether it is more likely
80
than not that the fair value of the reporting units or indefinite-life intangible is less than its carrying value. No impairment losses
were identified as a result of its qualitative assessment during the year ended December 31, 2023.
During the fourth quarter of 2022, the Company performed a quantitative impairment assessment for its ODR reporting unit in
which the Company determined that the fair value of the ODR reporting unit was greater than its respective carrying value. No
impairment to goodwill was recorded as a result of the annual assessment.
The following table summarizes the carrying amount of goodwill associated with the Company's segments for the years ended
December 31, 2023 and 2022.
(in thousands)
Goodwill as of January 1, 2022
Goodwill as of December 31, 2022
Goodwill associated with the ACME Transaction(1)
Goodwill associated with the Industrial Air Transaction
GCR
ODR
Total
$
— $
11,370 $
—
—
—
11,370
2,226
2,778
11,370
11,370
2,226
2,778
Goodwill as of December 31, 2023
$
— $
16,374 $
16,374
(1)
Includes certain adjustments, net, to preliminary estimates of fair value within the measurement period of up to one-year from the date of
the ACME Transaction. Measurement period adjustments, net, relate primarily to an increase in certain definite-lived intangible assets,
partially offset by an increase in total consideration associated with the earnout provision. See Note 3 – Acquisitions for further
information.
Intangible Assets
The Company reviews intangible assets with definite lives subject to amortization whenever events or changes in circumstances
(triggering events) indicate that the carrying amount of an asset may not be recoverable. Intangible assets with definite lives
subject to amortization are amortized on a straight-line or accelerated basis with estimated useful lives ranging from 1 to 15
years. Events or circumstances that might require impairment testing include the identification of other impaired assets within a
reporting unit, loss of key personnel, the disposition of a significant portion of a reporting unit, a significant decline in stock
price, or a significant adverse change in the Company’s business climate or regulations affecting the Company.
The Company did not recognize an impairment charge on its indefinite-lived intangible asset for the years ended December 31,
2023 and 2022.
Definite-lived and indefinite-lived intangible assets consist of the following:
(in thousands)
December 31, 2023
Amortized intangible assets:
Customer relationships
Backlog
Trade name, trademarks and intellectual property
Total amortized intangible assets
Unamortized intangible assets:
Trade name – Limbach(1)
$
Total unamortized intangible assets
Total amortized and unamortized assets, excluding goodwill
$
Gross
carrying
amount
Accumulated
amortization
Net intangible
assets,
excluding
goodwill
15,320 $
2,560
4,250
22,130
9,960
9,960
32,090 $
(5,249) $
(1,264)
(578)
(7,091)
—
—
(7,091) $
10,071
1,296
3,672
15,039
9,960
9,960
24,999
(1) The Company has determined that its trade name has an indefinite useful life. The Limbach trade name has been in existence since the
Company’s founding in 1901 and therefore is an established brand within the industry.
81
(in thousands)
December 31, 2022
Amortized intangible assets:
Customer relationships
Backlog
Trade name
Total amortized intangible assets
Unamortized intangible assets:
Trade name – Limbach
$
Total unamortized intangible assets
Total amortized and unamortized assets, excluding goodwill
$
Gross
carrying
amount
Accumulated
amortization
Net intangible
assets,
excluding
goodwill
8,330 $
940
1,340
10,610
9,960
9,960
20,570 $
(4,288) $
(643)
(299)
(5,230)
—
—
(5,230) $
4,042
297
1,041
5,380
9,960
9,960
15,340
Total amortization expense for the Company’s definite-lived intangible assets was $1.9 million and $1.6 million for the years
ended December 31, 2023 and 2022, respectively.
The estimated remaining useful lives of definite-lived intangible assets are as follows:
Intangible Asset
Customer relationships
Trade name, trademarks and intellectual property
Backlog
Amortization Method
Straight line / Pattern of economic
benefit
Straight line
Straight line
Estimated amortization expense is as follows for the years ending December 31:
Weighted Average Remaining
Useful Life (Years)
6.9
6.6
0.6
(in thousands)
Estimated Amortization Expense
2024
2025
2026
2027
2028
2029 and thereafter
Total
$
$
3,444
2,110
2,081
2,056
1,860
3,488
15,039
Note 6 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following:
(in thousands)
Accrued payroll and related liabilities
Accrued bonus and commissions
Accrued insurance liabilities
Accrued job costs
Assurance-type warranty liabilities
Estimated loss contingency
Earnout Payments accrued, current
Other accrued liabilities
Total
82
5,561 $
December 31, 2023 December 31, 2022
4,545
$
9,682
715
1,913
1,581
2,182
2,859
1,465
24,942
12,254
1,007
2,710
1,500
650
5,719
1,566
30,967 $
$
The Company’s construction-type contracts regularly include warranties to end customers that guarantee the work performed
against defects in workmanship and the material it supplies. These standard warranties are assurance-type warranties and do not
offer any additional services. Therefore, these assurance-type warranties are not considered separate performance obligations
and the expected cost of assurance-type warranties are accrued as an expense within cost of revenue.
The Company’s reconciliation of assurance-type warranties are as follows:
(in thousands)
Balance at the beginning of the period
Accruals for warranties issued
Accruals related to pre-existing warranties (including changes in estimates)
Settlements made
Balance at the end of the period
December 31, 2023 December 31, 2022
3,310
$
302
(494)
(1,537)
1,581
1,581 $
261
932
(1,274)
1,500 $
$
The Company also offers service-type warranties on certain construction-type projects. These service-type warranties were not
accounted for as a separate performance obligation prior to the adoption of ASC Topic 606. Upon adoption of ASC Topic 606,
the Company allocated a portion of the contract's transaction price to the service-type warranty based on its estimated
standalone selling price. The accounting for service-type warranties under ASC Topic 606 did not have a material impact to the
consolidated financial statements as of December 31, 2023 and 2022.
Note 7 – Debt
Long-term debt consists of the following obligations as of:
(in thousands)
A&R Wintrust Term Loan - term loan payable in quarterly installments of principal,
(commencing in December 2021) plus interest through February 2026
A&R Wintrust Revolving Loan
Finance leases – collateralized by vehicles, payable in monthly installments of
principal, plus interest ranging from 3.96% to 8.60% through 2030
Financing liability
Total debt
Less – Current portion of long-term debt
Less – Unamortized discount and debt issuance costs
Long-term debt
Maturities of long-term debt and finance leases at December 31, 2023 are as follows:
(in thousands)
2024
2025
2026
2027
2028 and thereafter
Total
Wintrust Term and Revolving Loans
December 31,
2023
December 31,
2022
$
$
$
— $
10,000
7,347
5,351
22,698 $
(2,680)
(387)
19,631 $
$
$
21,453
—
4,954
5,351
31,758
(9,564)
(666)
21,528
2,653
2,039
1,650
845
15,512
22,698
On February 24, 2021, LFS, LHLLC and the direct and indirect subsidiaries of LFS from time to time included as parties to the
agreement (the “Wintrust Guarantors”) entered into a credit agreement (the “Wintrust Credit Agreement”) by and among LFS,
LHLLC, Wintrust Guarantors, the lenders party thereto from time to time, Wheaton Bank & Trust Company, N.A., a subsidiary
of Wintrust Financial Corporation (collectively, “Wintrust”), as administrative agent and L/C issuer, Bank of the West as
documentation agent, M&T Bank as syndication agent, and Wintrust as lead arranger and sole book runner.
In accordance with the terms of the Wintrust Credit Agreement, Lenders provided to LFS (i) a $30.0 million senior secured
term loan (the “Wintrust Term Loan”); and (ii) a $25.0 million senior secured revolving credit facility with a $5.0 million
83
sublimit for the issuance of letters of credit (the “Wintrust Revolving Loan” and, together with the Wintrust Term Loan, the
“Wintrust Loans”). Proceeds of the Wintrust Loans were used to refinance certain existing indebtedness, finance working
capital and other general corporate purposes and fund certain fees and expenses associated with the closing of the Wintrust
Loans.
The Wintrust Revolving Loan initially bore interest, at LFS’s option, at either LIBOR (with a 0.25% floor) plus 3.5% or a base
rate (with a 3.0% floor) plus 0.50%, subject to a 50 basis point step-down based on the ratio between the senior debt of the
Company and its subsidiaries to the EBITDA (earnings before interest, income taxes, depreciation and amortization) of LFS
and its subsidiaries for the most recently ended four fiscal quarters. The Wintrust Term Loan initially bore interest, at LFS’s
option, at either LIBOR (with a 0.25% floor) plus 4.0% or a base rate (with a 3.0% floor) plus 1.00%, subject to a 50 (for
LIBOR) or 75 (for base rate) basis point step-down based on the Senior Leverage Ratio (as defined below).
LFS initially was required to make principal payments on the Wintrust Term Loan in $0.5 million installments on the last
business day of each month commencing on March 31, 2021 with a final payment of all principal and interest not sooner paid
on the Wintrust Term Loan due and payable on February 24, 2026.
In conjunction with the Jake Marshall Transaction, the Company entered into an amendment to the Wintrust Credit Agreement
(the “A&R Wintrust Credit Agreement”). In accordance with the terms of the A&R Credit Agreement, Lenders provided to
LFS (i) a $35.5 million senior secured term loan (the “A&R Wintrust Term Loan”); and (ii) a $25 million senior secured
revolving credit facility with a $5 million sublimit for the issuance of letters of credit (the “A&R Wintrust Revolving Loan”
and, together with the Term Loan, the “A&R Wintrust Loans”). The overall Wintrust Term Loan commitment under the A&R
Wintrust Credit Agreement was recast at $35.5 million in connection with the A&R Credit Agreement. A portion of the A&R
Wintrust Term Loan commitment was used to fund the closing purchase price of the Jake Marshall Transaction. The A&R
Credit Agreement was also amended to: (i) permit the Company to undertake the Jake Marshall Transaction, (ii) make certain
adjustments to the covenants under the A&R Credit Agreement (which were largely done to make certain adjustments for the
Jake Marshall Transaction), (iii) allow for the Jake Marshall Earnout Payments under the Jake Marshall Transaction, and (iv)
make other corresponding changes to the A&R Credit Agreement.
The A&R Wintrust Revolving Loan bore interest, at LFS’s option, at either the Term SOFR (as defined in the A&R Credit
Agreement) (with a 0.15% floor) plus 3.60%, 3.76% or 3.92% for a tenor of one month, three months or six months,
respectively, or a base rate (as set forth in the A&R Credit Agreement) (with a 3.0% floor) plus 0.50%, subject to a 50 basis
point step-down based on the ratio between the senior debt of the Company and its subsidiaries to the EBITDA of LFS and its
subsidiaries for the most recently ended four fiscal quarters (the “Senior Leverage Ratio”). The A&R Wintrust Term Loan bore
interest, at LFS’s option, at either Term SOFR (with a 0.15% floor) plus 4.10%, 4.26% or 4.42% for a tenor of one month, three
months or six months, respectively, or a base rate (with a 3.0% floor) plus 1.00%, subject to a 50 (for Term SOFR) or 75 (for
base rate) basis point step-down based on the Senior Leverage Ratio.
The A&R Wintrust Term Loan was payable through a combination of (i) monthly installments of approximately $0.6 million
due on the last business day of each month commencing on December 31, 2021, (ii) annual Excess Cash Flow payments as
defined in the A&R Wintrust Credit Agreement, which are due 120 days after the last day of the Company's fiscal year and (iii)
Net Claim Proceeds from Legacy Claims as defined in the A&R Wintrust Credit Agreement. Subject to defaults and remedies
under the A&R Credit Agreement, the final payment of all principal and interest not sooner paid on the A&R Wintrust Term
Loan was due and payable on February 24, 2026. Subject to defaults and remedies under the A&R Credit Agreement, the A&R
Wintrust Revolving Loan would have matured and become due and payable by LFS on February 24, 2026. During the second
quarter of 2022, the Company made certain Excess Cash Flow and Net Claim Proceeds payments of $3.3 million and
$2.1 million, respectively, which concurrently reduced the outstanding A&R Wintrust Term Loan balance. In addition, during
the third quarter of 2022, the Company made a Net Claim Proceeds payment of $0.6 million, which was also applied against the
outstanding A&R Wintrust Term Loan balance.
The A&R Wintrust Loans were secured by (i) a valid, perfected and enforceable lien of the administrative agent on the
ownership interests held by each of LFS and Wintrust Guarantors in their respective subsidiaries; and (ii) a valid, perfected and
enforceable lien of the administrative agent on each of LFS and Wintrust Guarantors’ personal property, fixtures and real estate,
subject to certain exceptions and limitations. Additionally, the re-payment of the A&R Wintrust Loans shall be jointly and
severally guaranteed by each Wintrust Guarantor.
The A&R Credit Agreement contained representations and warranties, covenants and events of default that are customary for
facilities of this type, as more particularly described in the A&R Credit Agreement. The A&R Wintrust Loans also contain three
financial maintenance covenants, including (i) a requirement to have as of the last day of each quarter for the senior leverage
ratio of the Company and its subsidiaries not to exceed an amount beginning at 2.00 to 1.00, (ii) a fixed charge coverage ratio of
not less than 1.20 to 1.00 as of the last day of each fiscal quarter, commencing with the fiscal quarter ending December 31,
84
2021, and (iii) no unfinanced capital expenditures, except for unfinanced capital expenditures in the ordinary course of business
not exceeding in the aggregate $4.0 million during any fiscal year; and no default or event of default (as defined by the
agreement) has occurred and is continuing, 50% of any portion of this annual limit, if not expended in the fiscal year for which
it is permitted, may be carried over for expenditure in the next following fiscal year as stipulated by the agreement. LFS and its
affiliates maintain various commercial and service relationships with certain members of the syndicate and their affiliates in the
ordinary course of business.
On May 5, 2022, the Company, LFS and LHLLC entered into a first amendment and waiver to the A&R Wintrust Credit
Agreement (the “First Amendment to the A&R Wintrust Credit Agreement”) with the lenders party thereto and Wintrust, as
administrative agent. The First Amendment to the A&R Wintrust Credit Agreement modifies certain definitions within the
A&R Wintrust Credit Agreement, and make other corresponding changes, including: (i) the definition of “EBITDA” to allow
for the recognition of certain restructuring charges and lease breakage costs not previously specified, (ii) the definition of
“Excess Cash Flow” to exclude the aggregate amount of the Earnout Payments paid in cash, (iii) the definition of “Total
Funded Debt” to exclude certain capitalized lease obligations for real estate based on the approval of each lender and (iv) the
definition of “Disposition” to include a clause for the sale and leaseback of certain real property based on the approval of each
lender.
In July 2022, the Company entered into an interest rate swap agreement to manage the risk associated with a portion of its
variable-rate long-term debt. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the
exchange of the underlying notional amount on which the interest payments are calculated. The new swap agreement became
effective on July 14, 2022 and will terminate on July 31, 2027. The notional amount of the swap agreement is $10.0 million
with a fixed interest rate of 3.12%. If the one-month SOFR (as defined in the A&R Credit Agreement) is above the fixed rate,
the counterparty pays the Company, and if the one-month SOFR is less than the fixed rate, the Company pays the counterparty,
the difference between the fixed rate of 3.12% and one-month SOFR. The Company has not designated this instrument as a
hedge for accounting purposes. As a result, the change in fair value of the derivative instrument is recognized directly in
earnings on the Company's consolidated statements of operations as a gain or loss on interest rate swap. Refer to Note 9 for
further information regarding this interest rate swap.
On September 28, 2022, the Company, LFS and LHLLC entered into a second amendment and waiver to the amended and
restated Wintrust credit agreement (the “Second Amendment to the A&R Wintrust Credit Agreement”) with the lenders party
thereto and Wintrust, as administrative agent. The Second Amendment to the A&R Wintrust Credit Agreement incorporates
certain restricted payment provisions, among other things, to permit LFS to repurchase shares under the Company’s Share
Repurchase Program (as defined in Note 8 – Equity).
On May 5, 2023, LFS, LHLLC and the direct and indirect subsidiaries of LFS from time to time included as parties to the
agreement entered into the Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with the
lenders party thereto and Wintrust, as administrative agent, which amends and restates the A&R Wintrust Credit Agreement. In
accordance with the Second A&R Credit Agreement (i) lenders provided to LFS a $50.0 million senior secured revolving credit
facility with a $5.0 million sublimit for the issuance of letters of credit, an increase of $25.0 million over the A&R Wintrust
Revolving Loan, with a maturity date of February 24, 2028 (the “Second A&R Wintrust Revolving Loan”), and (ii) LFS repaid
the then outstanding principal balance of the A&R Wintrust Term Loan using proceeds of the Second A&R Wintrust Revolving
Loan. Prior to the execution of this agreement, the Company repaid $9.6 million of the then outstanding balance under the A&R
Term Loan with cash on hand. As a result of the early repayment of the A&R Wintrust Term Loan and certain changes to the
members of the loan syndicate under the Second A&R Wintrust Credit Agreement, the Company wrote off approximately
$0.3 million of unamortized debt issuance costs, which are reported as a loss on early debt extinguishment on the Company's
condensed consolidated statements of operations.
Prior to its repayment on May 5, 2023 and as of December 31, 2022, the interest rate in effect on the non-hedged portion of the
A&R Wintrust Term Loan was 9.25% and 8.50%, respectively. For the period from January 1, 2023 through May 5, 2023, the
Company incurred interest on the A&R Wintrust Term Loan at a weighted average annual interest rate of 8.76%. For the year
ended December 31, 2022, the Company incurred interest on the A&R Wintrust Term Loan at a weighted average annual
interest rate of 5.68%.
The Second A&R Wintrust Revolving Loan bears interest, at LFS’s option, at either the Term SOFR (as defined in the Second
A&R Credit Agreement) (with a 0.15% floor) plus 3.10% or the Prime Rate (as defined in the Second A&R Credit Agreement)
(with a 3.0% floor), subject to a 50 basis point step-down based on the ratio between the senior debt of the Company and its
subsidiaries to the EBITDA of LFS and its subsidiaries for the most recently ended four fiscal quarters.
The Second A&R Wintrust Revolving Loan is secured by (i) a valid, perfected and enforceable lien of the administrative agent
on the ownership interests held by each of LFS and Wintrust Guarantors in their respective subsidiaries; and (ii) a valid,
85
perfected and enforceable lien of the administrative agent on each of LFS and Wintrust Guarantors’ personal property, fixtures
and real estate, subject to certain exceptions and limitations. Additionally, the re-payment of the Second A&R Wintrust
Revolving Loan is jointly and severally guaranteed by each Wintrust Guarantor.
The Second A&R Credit Agreement contains representations and warranties, covenants and events of default that are customary
for facilities of this type, as more particularly described in the Second A&R Credit Agreement. The Second A&R Wintrust
Revolving Loan also contains three financial maintenance covenants, including (i) a requirement to have as of the last day of
each quarter for the senior leverage ratio of LFS and its subsidiaries not to exceed an amount beginning at 2.00 to 1.00, (ii) a
fixed charge coverage ratio of not less than 1.20 to 1.00 as of the last day of each fiscal quarter, commencing with the fiscal
quarter ending March 31, 2023, and (iii) no unfinanced capital expenditures, except for unfinanced capital expenditures in the
ordinary course of business not exceeding in the aggregate $4.0 million during any fiscal year; and no default or event of
default (as defined in the Second A&R Credit Agreement) has occurred and is continuing, 50% of any portion of this annual
limit, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next following fiscal
year as stipulated by the agreement.
As of December 31, 2023, the Company had $10.0 million in borrowings outstanding under the Second A&R Wintrust
Revolving Loan. During the year ended December 31, 2023, the maximum outstanding borrowings under either the Company's
revolving loan arrangements at any time was $10.0 million and the average daily balance was approximately $6.6 million. For
the year ended December 31, 2023, the Company incurred interest on the Second A&R Wintrust Revolving Loan at a weighted
average annual interest rate of 5.72%, inclusive of the net impact associated with the Company's interest rate swap arrangement.
As of December 31, 2022, the Company had no borrowings outstanding under the A&R Wintrust Revolving Loan. During the
year ended December 31, 2022, the maximum outstanding borrowings under the A&R Wintrust Revolving Loan at any time
was $9.4 million and the average daily balance was approximately $0.1 million. For the year ended December 31. 2022, the
Company incurred interest on the A&R Wintrust Revolving Loan at a weighted average annual interest rate of 4.78%.
At December 31, 2023, the Company had irrevocable letters of credit in the amount of $4.1 million with its lender to secure
obligations under its self-insurance program.
The following is a summary of the applicable margin and commitment fees payable on the available A&R Wintrust Term Loan
and A&R Wintrust Revolving Loan credit commitment:
Level
I
II
Senior Leverage Ratio
Greater than 1.00 to 1.00
Less than or equal to 1.00 to 1.00
Applicable
Margin for
SOFR
Revolver loans
3.10 %
2.60 %
Applicable
Margin for
Prime
Revolving
loans
Applicable
Margin for
commitment
fee
— %
(0.50) %
0.25 %
0.25 %
As of December 31, 2023, the Company was in compliance with all financial maintenance covenants as required by the Second
A&R Credit Agreement.
Sale-Leaseback Financing Transaction
On September 29, 2022, LC LLC and Royal Oak Acquisitions, LLC (the “Purchaser”) consummated the purchase of the real
property under a sale and leaseback transaction, with an aggregate value of approximately $7.8 million (a purchase price of
approximately $5.4 million and $2.4 million in tenant improvement allowances), pursuant to a purchase agreement under which
the Purchaser purchased from LC LLC the Company’s facility and real property in Pontiac, MI (collectively, the “Pontiac
Facility”).
In connection with the sale and leaseback transaction, LC LLC and Featherstone St Pontiac MI LLC (the “Landlord”) entered
into a Lease Agreement (the “Lease Agreement”), dated September 29, 2022 (the “Lease Effective Date”) for the Pontiac
Facility. Commencing on the Lease Effective Date, pursuant to the Lease Agreement, LC LLC has leased the Pontiac Facility,
subject to the terms and conditions of the Lease Agreement. The Lease Agreement provides for a term of 25 years (the
“Primary Term”). The Lease Agreement also provides LC LLC with the option to extend the Primary Term by two separate
renewal terms of 5 years each (each a “Renewal Term”). Under the terms of the Lease Agreement, the Company’s annual
minimum rent is $499,730, payable in monthly installments, subject to annual increases of approximately 2.5% each year under
the Primary Term and for each year under the Renewal Terms, if exercised. LC LLC has a one-time option to terminate the
Lease Agreement effective on the last day of the fifteenth lease year by providing written notice to the Landlord as more fully
86
set forth in the Lease Agreement. The one-time termination option of the Lease Agreement would require LC LLC to pay to the
Landlord a termination fee of approximately $1.7 million.
Pursuant to the terms and conditions set forth in the Lease Agreement, the Landlord has agreed to provide LC LLC with a
tenant improvement allowance in an amount up to $2.4 million. LC LLC is responsible for the initial capital outlay and
completion of the agreed upon improvement work. The Landlord will subsequently reimburse LC LLC for such items up to the
stated allowance amount.
The Company accounted for the sale and leaseback arrangement as a financing transaction in accordance with ASC Topic 842,
“Leases,” as the Lease Agreement was determined to be a finance lease. The Company concluded the Lease Agreement met the
qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using an
implicit rate of 11.11% to reflect the Company’s incremental borrowing rate associated with the $5.4 million purchase price as
of the Lease Agreement date, compared to the fair value of the Pontiac Facility. The implicit rate associated with the aggregate
purchase value, inclusive of tenant improvement allowances, was 6.53% as of the Lease Agreement date.
The presence of a finance lease indicates that control of the Pontiac Facility has not transferred to the Purchaser and, as such,
the transaction was deemed a failed sale-leaseback and must be accounted for as a financing arrangement. As a result of this
determination, the Company is viewed as having received the sale proceeds from the Purchaser in the form of a hypothetical
loan collateralized by its leased facilities. The hypothetical loan is payable as principal and interest in the form of “lease
payments” to the Purchaser. Principal repayments are recorded as a reduction to the financing liability. The Company will not
derecognize the Pontiac Facility from its books for accounting purposes until the lease ends. No gain or loss was recognized
under GAAP related to the sale and leaseback arrangement.
As of December 31, 2023, the financing liability was $5.0 million, net of issuance costs, which was recognized within other
long-term debt on the Company's consolidated balance sheets. For the year ended December 31, 2023 and 2022, $0.5 million
and less than $0.1 million of interest expense associated with the financing was recognized, respectively.
Note 8 – Equity
The Company’s second amended and restated certificate of incorporation currently authorizes the issuance of 100,000,000
shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001.
Warrants
In conjunction with the Company's initial public offering, the Company issued Public Warrants, Private Warrants and $15
Exercise Price Sponsor Warrants. The Company issued certain Merger Warrants and Additional Merger Warrants in
conjunction with the Company's business combination with LHLLC in July 2016 (the “Business Combination”). On July 20,
2021, the Public Warrants, Private Warrants, and Additional Merger Warrants expired by their terms. During 2023, 600,000
$15 Exercise Price Sponsor Warrants and 606,476 Merger Warrants (each defined below) were exercised on a cashless basis by
the holders of the warrants, which resulted in the warrants being converted into 167,564 and 274,742 shares of the Company's
common stock, respectively. The remaining 23,167 unexercised Merger Warrants expired by their terms on July 20, 2023.
The following table summarizes the underlying shares of common stock with respect to outstanding warrants:
$15 Exercise Price Sponsor Warrants(1)(2)
Merger Warrants(3)(4)
Total
December 31, 2023 December 31, 2022
—
—
—
600,000
629,643
1,229,643
(1) Exercisable for one share of common stock at an exercise price of $15.00 per share (“$15 Exercise Price Sponsor Warrants”).
(2) Issued under a warrant agreement dated July 15, 2014, between Continental Stock Transfer and Trust Company, as warrant agent, and the
Company.
(3) Exercisable for one share of common stock at an exercise price of $12.50 per share (“Merger Warrants”).
(4) Issued to the sellers of LHLLC.
Incentive Plan
Upon the consummation of the Company’s Business Combination, the Company adopted an omnibus incentive plan (the
“Omnibus Incentive Plan”) pursuant to which equity awards may be granted thereunder.
On March 25, 2022, the Board of Directors approved certain additional amendments to the Company's Omnibus Incentive Plan
(the “2022 Amended and Restated Omnibus Incentive Plan”) to increase the number of shares of the Company's common stock
87
that may be issued pursuant to awards by 350,000, for a total of 2,600,000 shares, and extended the term of the plan so that it
will expire on the tenth anniversary of the date the stockholders approve the 2022 Amended and Restated Omnibus Incentive
Plan. The amendments were approved by the Company's stockholders at the Annual Meeting held on June 22, 2022.
On March 29, 2023, the Board of Directors approved certain amendments to the Company's Omnibus Incentive Plan (the “2023
Amended and Restated Omnibus Incentive Plan”) to increase the number of shares of the Company's common stock that may
be issued pursuant to awards by 450,000, for a total of 3,050,000 shares, and extended the term of the plan so that it will expire
on the tenth anniversary of the date the stockholders approve the 2023 Amended and Restated Omnibus Incentive Plan. The
amendments were acted upon by the Company's stockholders at the Annual Meeting held on June 22, 2023.
See Note 17 – Management Incentive Plans for a discussion of the Company's management incentive plans for RSUs granted,
vested, forfeited and remaining unvested.
Share Repurchase Program
In September 2022, the Company announced that its Board of Directors approved a share repurchase program (the “Share
Repurchase Program”) to repurchase shares of its common stock for an aggregate purchase price not to exceed $2.0 million.
The share repurchase authority was valid through September 29, 2023. Share repurchases may have been executed through
various means, including, without limitation, open market transactions, privately negotiated transactions or by other means in
accordance with federal securities laws. The Share Repurchase Program did not obligate the Company to acquire any particular
amount of common stock, and the program may have been suspended or terminated by the Company at any time at its
discretion without prior notice. Through September 29, 2023, the Company has made share repurchases of approximately
$2.0 million under its Share Repurchase Program.
Employee Stock Purchase Plan
Upon approval of the Company's stockholders on May 30, 2019, the Company adopted the Limbach Holdings, Inc. 2019
Employee Stock Purchase Plan (the “ESPP”). On January 1, 2020, the ESPP went into effect. The ESPP enables eligible
employees, as defined by the ESPP, the right to purchase the Company’s common stock through payroll deductions during
consecutive subscription periods at a purchase price of 85% of the fair market value of a common share at the end of each
offering period. Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount
equal to ten percent of the participant's compensation or $5,000, whichever is less. Each offering period of the ESPP lasts six
months, commencing on January 1st and July 1st of each year. The amounts collected from participants during a subscription
period are used on the exercise date to purchase full shares of common stock. Participants may withdraw from an offering
before the exercise date and obtain a refund of amounts withheld through payroll deductions. Compensation cost, representing
the 15% discount applied to the fair market value of common stock, is recognized on a straight-line basis over the six-month
vesting period during which employees perform related services. Under the ESPP, 500,000 shares are authorized to be issued.
For the years ended December 31, 2023 and 2022, the Company issued 17,661 and 37,490 shares of its common stock,
respectively, to participants in the ESPP who contributed to the plan during these periods. As of December 31, 2023, 388,956
shares remain available for future issuance under the ESPP.
Note 9 – Fair Value Measurements
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade
accounts receivable and accounts payable, consist primarily of instruments without extended maturities, which approximate fair
value primarily due to their short-term maturities and low risk of counterparty default. The Company considers all highly liquid
investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of
December 31, 2023 consisted of overnight repurchase agreements in which cash from the Company's main operating checking
account is invested overnight in highly liquid, short term investments, one U.S. Treasury Bill and certain investments in money
market funds sponsored by a large financial institution. The Company had no such investments as of December 31, 2022. For
the year ended December 31, 2023, the Company recognized interest income in the aggregate of approximately $1.2 million
associated with its overnight repurchase agreements, U.S. Treasury Bills and money market funds, respectively. The Company
has not experienced any losses in its cash and cash equivalents and management believes the Company is not exposed to
significant credit risk with respect to such accounts.
88
(in thousands)
Cash equivalents:
December 31,
2023
Level 1
Level 2
Level 3
Fair Value at Reporting Date Using
Overnight repurchase agreements
U.S. Treasury Bills
Money market fund
Total
$
$
43,959 $
10,000
3,750
57,709 $
43,959
10,000 $
3,750
57,709 $
— $
—
— $
—
—
—
Second A&R Wintrust Revolving Loan
The Company also believes that the carrying value of the Second A&R Wintrust Revolving Loan approximates its respective
fair value due to the variable rate on such debt. As of December 31, 2023, the Company determined that the fair value of the
Second A&R Wintrust Revolving Loan was $10.0 million. Such fair value was determined using discounted estimated future
cash flows using level 3 inputs.
Earnout Payments
As a part of the total consideration for the Jake Marshall Transaction, the former owners of JMLLC and CSLLC may receive up
to an aggregate of $6.0 million in cash, consisting of two tranches of $3.0 million, as defined in the purchase agreement, if the
gross profit of the acquired companies equals or exceeds $10.0 million in (i) the approximately 12-month period from closing
through December 31, 2022 (the “2022 Jake Marshall Earnout Period”) or (ii) fiscal year 2023 (the “2023 Jake Marshall
Earnout Period”), respectively (collectively, the “Jake Marshall Earnout Payments”). To the extent, however, that the gross
profit of the acquired companies is less than $10.0 million, but exceeds $8.0 million, during any of the 2022 Jake Marshall
Earnout Period or 2023 Jake Marshall Earnout Period, the $3.0 million amount will be prorated for such period. The Company
initially recognized $3.1 million in contingent consideration, of which the entire balance was included in other long-term
liabilities in the Company’s condensed consolidated balance sheets on December 2, 2021. The fair value of contingent Jake
Marshall Earnout Payments is based on generating growth rates on the projected gross margins of the acquired entities and
calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting
period. In April 2023, the Company made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the
2022 Jake Marshall Earnout Period.
As a part of the total consideration for the ACME Transaction, the Company recognized $1.5 million in contingent
consideration on the ACME Effective Date. The fair value of contingent ACME Earnout Payments is based on generating
growth rates on the projected gross margins of ACME and calculating the associated contingent payments based on achieving
the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the ACME
Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Effective
Date, the ACME Earnout Payments associated with the ACME Transaction were valued utilizing discount rates between
12.96% and 21.64%. The discount rates were calculated using the build-up method with a risk-free rate commensurate with the
term of the ACME Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums
determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for
operational leverage.
As a part of the total consideration for the Industrial Air Transaction, the Company recognized $3.2 million in contingent
consideration on the IA Effective Date. The fair value of contingent IA Earnout Payments is based on generating growth rates
on the projected gross margins of Industrial Air and calculating the associated contingent payments based on achieving the
earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the IA Earnout
Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the IA Effective
Date, the IA Earnout Payments associated with the Industrial Air Transaction were valued utilizing a discount rate of 13.68%.
The discount rates were calculated using the build-up method with a risk-free rate commensurate with the term of the IA
Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with
reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage.
Based on the Company’s ongoing assessment of the fair value of contingent earnout liabilities, the Company recorded a net
increase in the estimated fair value of such liabilities of $0.7 million and $2.3 million for the years ended December 31, 2023
and 2022, respectively, which was presented in change in fair value of contingent consideration in the Company's consolidated
statements of operations. The Company determined the fair value of the earnout payments by utilizing the Monte Carlo
Simulation method, which represents a Level 3 measurement.
89
The following table presents the carrying values of the Company's contingent earnout payment obligations included in the
accompanying condensed consolidated balance sheets, which approximated fair value at December 31, 2023 and 2022.
(in thousands)
Accrued expenses and other current
liabilities:
2023 Jake Marshall Earnout Period
First ACME Earnout Period
First IA Earnout Period
Other long-term liabilities:
Second ACME Earnout Period
Second IA Earnout Period
Total
December 31,
2023
Level 1
Level 2
Level 3
Fair Value at Reporting Date Using
$
$
3,000 $
429
2,290
1,188
875
7,782 $
— $
—
— $
—
—
— $
— $
—
—
—
—
— $
3,000
429
2,290
1,188
875
7,782
December 31,
2022
Level 1
Level 2
Level 3
Fair Value at Reporting Date Using
Accrued expenses and other current
liabilities:
2022 Jake Marshall Earnout Period (1)
$
Other long-term liabilities:
2023 Jake Marshall Earnout Period
Total
$
2,859 $
—
2,515
5,374 $
— $
—
— $
— $
2,859
—
— $
2,515
5,374
(1)
In April 2023, the Company made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2022 Jake Marshall
Earnout Period.
Interest Rate Swap
The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual
terms of the interest rate swap including the period to maturity, and while there are no quoted prices in active markets, it uses
observable market-based inputs, including interest rate curves and implied volatilities. The fair value analysis also considers a
credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The fair value of
the interest rate contract has been determined using the market standard methodology of netting the discounted future fixed cash
receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or
receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate
curves. The interest rate swap is classified as a Level 2 item within the fair value hierarchy. As of December 31, 2023, the
Company determined that the fair value of the interest rate swap was approximately $0.2 million and is recognized in other
assets on the Company's consolidated balance sheets. For the years ended December 31, 2023 and 2022, the Company
recognized a loss of $0.1 million and a gain of $0.3 million, respectively, on its consolidated statements of operations
associated with the change in fair value of the interest rate swap arrangement.
Note 10 – Earning per Share
Earnings per Share
The Company calculates earnings per share in accordance with ASC Topic 260 - Earnings Per Share (“EPS”). Basic earnings
per common share applicable to common stockholders is computed by dividing earnings applicable to common stockholders by
the weighted-average number of common shares outstanding and assumed to be outstanding. Diluted EPS assumes the dilutive
effect of outstanding common stock warrants, shares issued in conjunction with the Company’s ESPP (defined in Note 8) and
restricted stock units (“RSUs”), all using the treasury stock method.
The following table sets forth the computation of the basic and diluted earnings per share attributable to the Company's
common shareholders for the years ended December 31, 2023 and 2022:
90
(in thousands, except per share amounts)
EPS numerator:
Net income
EPS denominator:
Weighted average shares outstanding – basic
In-the-money warrants
Nonvested restricted stock units
Employee stock purchase plan
Weighted average shares outstanding – diluted
EPS:
Basic
Diluted
For the Years Ended
December 31,
2023
December 31,
2022
$
20,754 $
6,799
10,773
249
789
1
11,812
10,425
—
247
5
10,677
$
$
1.93 $
1.76 $
0.65
0.64
The following table summarizes the securities that were antidilutive or out-of-the-money, and therefore, were not included in
the computations of diluted income per common share:
Out-of-the-money warrants
Performance and market-based RSUs(1)
Employee stock purchase plan
Total
For the Years Ended
December 31,
2023
December 31,
2022
—
95
1,044
1,139
1,229,643
—
1,573
1,231,216
(1) For the year ended December 31, 2022, certain market-based awards were not included in the computation of diluted income per
common share because the market conditions were not satisfied during the periods and would not be satisfied if the reporting date was at
the end of the contingency period.
Note 11 – Income Taxes
The Company is taxed as a C Corporation.
91
Provision for Income Taxes
The Company’s provision for income taxes relating to continuing operations consists of the following:
(in thousands)
Current tax provision
U.S. Federal
State and local
Total current tax provision
Deferred tax provision
U.S. Federal
State and local
Total deferred tax provision
Income tax provision
For the Years Ended
December 31,
2023
December 31,
2022
$
$
5,851 $
1,845
7,696
(253)
(97)
(350)
7,346 $
2,613
695
3,308
(584)
85
(499)
2,809
The provision for income taxes for the years ended December 31, 2023 and 2022 resulted in effective tax rates on continuing
operations of 26.1% and 29.2%, respectively. A reconciliation of the federal statutory income tax rate to the Company’s
effective tax rate is as follows:
Federal statutory income tax rate
State income taxes, net of federal tax effect
Stock based compensation – restricted stock
Return to provision adjustment
Permanent differences
Tax credits
Other
Effective tax rate
For the Years Ended
December 31,
2023
2022
21.0 %
4.8 %
(1.1) %
(0.2) %
1.4 %
(0.5) %
0.6 %
26.1 %
21.0 %
6.4 %
1.4 %
(0.1) %
1.3 %
(0.9) %
— %
29.2 %
The Company is subject to taxation in various jurisdictions. The Company’s 2020 through 2022 tax returns are subject to
examination by U. S. federal authorities. The Company’s tax returns are subject to examination by various state authorities for
the years 2020 and forward.
92
Deferred Tax Assets (Liabilities)
The significant components of deferred tax assets (liabilities) were as follows:
(in thousands)
Deferred tax assets:
Accrued expenses
Allowance for doubtful accounts
Intangibles
Goodwill
Startup costs
Stock-based compensation
Research and development expenses
Lease liabilities
Accrued bonuses and commissions
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Right-of-use assets
Percentage of completion
Interest
Total deferred tax liabilities
$
As of As of December 31,
2022
2023
699 $
74
435
3,057
57
1,804
1,276
6,193
424
14,019
(3,413)
(4,566)
(814)
(47)
(8,840)
950
60
463
3,301
68
1,066
640
6,280
253
13,081
(3,248)
(4,684)
(241)
(79)
(8,252)
Net deferred tax asset
$
5,179 $
4,829
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion
or all deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. In assessing the need for
a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of
the deferred tax assets. After giving consideration to these factors, management concluded that it was more likely than not that
the deferred tax assets would be fully realized, and as a result, no valuation allowance against the deferred tax assets was
deemed necessary at December 31, 2023 and 2022.
At December 31, 2023 and 2022, the Company had no net operating loss carryforwards.
Liabilities for Uncertain Tax Positions
The Company had no unrecognized tax benefits as of December 31, 2023 and 2022.
Note 12 – Operating Segments
As discussed in Note 1, the Company operates in two segments (i) GCR, in which the Company generally manages new
construction or renovation projects that involve primarily mechanical, plumbing, or electrical services awarded to the Company
by general contractors or construction managers, and (ii) ODR, in which the Company provides maintenance or service
primarily on mechanical, plumbing or electrical systems, building controls and specialty contracting projects direct to, or
assigned by, building owners or property managers. These segments are reflective of how the Company’s Chief Operating
Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The
Company's CODM is comprised of its President and Chief Executive Officer and Executive Vice President and Chief Financial
Officer.
In accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all of the GCR work performed
at branches into one GCR reportable segment and all of the ODR work performed at branches into one ODR reportable
segment. All transactions between segments are eliminated in consolidation.
93
On January 17, 2023, the Company announced its planned transition succession, pursuant to which Charles A. Bacon III
stepped down as President and Chief Executive Officer on March 28, 2023, and Michael M. McCann, the Company’s former
Executive Vice President and Chief Operating Officer, was appointed President and Chief Executive Officer. Following the
transition, the Company revised its segment presentation to align with how Mr. McCann assesses performance and makes
resource allocation decisions for its operating segments, which is based on segment revenue and segment gross profit. Selling,
general and administrative ("SG&A") expenses are no longer reported on a segment basis as the Company's current CODM
does not review discrete segment financial information for SG&A in order to assess performance. Interest expense is not
allocated to segments because of the corporate management of debt service.
The Company restated segment information for the historical periods presented herein to conform to the current presentation.
This change in segment presentation does not affect the Company’s consolidated statements of operations, balance sheets or
statements of cash flows.
All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled. The
Company does not have sales outside of the United States. For the year ended December 31, 2023, no GCR or ODR segment
customers accounted for 10% or more of the Company’s consolidated total revenue. For the year ended December 31, 2022,
one GCR segment customer accounted for approximately 11% of consolidated total revenue.
Consolidated segment information for the periods presented is as follows:
(in thousands)
Statement of Operations Data:
Revenue:
GCR
ODR
Total revenue
Gross profit:
GCR
ODR
Total gross profit
Selling, general and administrative (1)
Change in fair value of contingent consideration
Amortization of intangibles
Operating income
Interest expense
Interest income
Loss on early termination of operating lease
Loss on early debt extinguishment
(Loss) gain on change in fair value of interest rate swap
Gain on disposition of property and equipment
Total unallocated amounts
Total consolidated income before income taxes
For the Years Ended December 31,
2023
2022
$
$
$
254,392 $
261,958
516,350
280,379
216,403
496,782
43,200
76,090
119,290
87,397
729
1,880
29,284 $
(2,046)
1,217
—
(311)
(124)
80
(1,184)
28,100 $
38,622
55,119
93,741
77,879
2,285
1,567
12,010
(2,144)
—
(849)
—
310
281
(2,402)
9,608
(1)
Included within selling, general and administrative expenses was $4.9 million and $2.7 million of stock based compensation expense for
the years ended December 31, 2023 and 2022, respectively.
The Company does not identify capital expenditures and total assets by segment in its internal financial reports due in part to
the shared use of a centralized fleet of vehicles and specialized equipment. Interest expense is also not allocated to segments
because of the Company’s corporate management of debt service, including interest.
Note 13 – Commitments and Contingencies
94
Legal. The Company is continually engaged in administrative proceedings, arbitrations, and litigation with owners, general
contractors, suppliers, employees, former employees and other unrelated parties, all arising in the ordinary courses of business.
The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the consolidated financial
statements. In the opinion of the Company’s management, the current belief is that the results of these actions will not have a
material adverse effect on the financial position, results of operations, or cash flows of the Company.
On January 23, 2020, plaintiff, Bernards Bros. Inc. (“Bernards”), filed a complaint against the Company in Superior Court of
the State of California for the County of Los Angeles. The complaint alleges that the Company’s Southern California business
unit refused to honor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the
wrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million plus interest, including alleged
increased costs for hiring a different subcontractor to perform the work. The Company has vigorously defended the suit. Per the
agreement of the Company and Bernards, in January 2022, the Court appointed a private referee to manage the case and
adjudicate the dispute. A trial took place before the referee in January 2023, and on April 30, 2023, the referee issued an
Amended Statement of Decision awarding Bernards approximately $2.2 million. As of December 31, 2022, the Company had
determined that a loss was probable, and, as such, recorded an estimated loss contingency in the amount of $2.2 million, which
is included in accrued expenses and other current liabilities reported within the Company’s consolidated balance sheets. In
addition, the estimated loss contingency was recorded within selling, general and administrative expenses on the Company’s
consolidated statements of operations. In November 2023, the parties settled the Bernard’s matter, resulting in the Company
paying Bernards $2.2 million.
Surety. The terms of its construction contracts frequently require that the Company obtain from surety companies, and provide
to its customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. The Surety
Bonds secure its payment and performance obligations under such contracts, and the Company has agreed to indemnify the
surety companies for amounts, if any, paid by them in respect of Surety Bonds issued on its behalf. In addition, at the request of
labor unions representing certain of the Company's employees, Surety Bonds are sometimes provided to secure obligations for
wages and benefits payable to or for such employees. Public sector contracts require Surety Bonds more frequently than private
sector contracts, and accordingly, the Company's bonding requirements typically increase as the amount of public sector work
increases. As of December 31, 2023, the Company had approximately $90.9 million in surety bonds outstanding. The Surety
Bonds are issued by surety companies in return for premiums, which vary depending on the size and type of bond.
Collective Bargaining Agreements. Many of the Company’s craft labor employees are covered by collective bargaining
agreements. The agreements require the Company to pay specified wages, provide certain benefits and contribute certain
amounts to multi-employer pension plans. If the Company withdraws from any of the multi-employer pension plans or if the
plans were to otherwise become underfunded, the Company could incur additional liabilities related to these plans. Although
the Company has been informed that some of the multi-employer pension plans to which it contributes have been classified as
“critical” status, the Company is not currently aware of any significant liabilities related to this issue.
Self-insurance. The Company is substantially self-insured for workers’ compensation and general liability claims, in the view of
the relatively high per-incident deductibles the Company absorbs under its insurance arrangements for these risks. The
Company purchases workers’ compensation and general liability insurance under policies with per-incident deductibles of
$250,000 per occurrence and a $3.9 million maximum aggregate deductible loss limit per year. Losses incurred over primary
policy limits are covered by umbrella and excess policies up to specified limits with multiple excess insurers. The Company
accrues for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for
unfunded reported claims and future claims is reflected on the consolidated balance sheets as current and non-current liabilities.
The liability is determined by establishing a reserve for each reported claim on a case-by-case basis based on the nature of the
claim and historical loss experience for similar claims plus an allowance for the cost of incurred but not reported claims. The
current portion of the liability is included in accrued expenses and other current liabilities on the consolidated balance sheets.
The non-current portion of the liability is included in other long-term liabilities on the consolidated balance sheets.
The Company is self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate
stop-loss limits. The Company accrues for the unfunded portion of costs for both reported claims and claims incurred but not
reported. The liability for unfunded reported claims and future claims is reflected on the consolidated balance sheets as a
current liability in accrued expenses and other current liabilities.
The components of the self-insurance liability as of December 31, 2023 and 2022 are as follows:
95
(in thousands)
Current liability — workers' compensation and general liability
Current liability — medical and dental
Non-current liability
Total liability
Restricted cash
December 31,
2023
December 31,
2022
$
$
$
188 $
819
645
1,652 $
65 $
158
557
343
1,058
113
The restricted cash balance represents an imprest cash balance set aside for the funding of workers' compensation and general
liability insurance claims. This amount is replenished either when depleted or at the beginning of each month.
Note 14 - Leases
The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a
lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease
liability are determined at the lease commencement date. The Company elected the short-term lease measurement and
recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the consolidated balance
sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.
The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real
estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has
elected to not separate non-lease components from lease components and will account for each separate lease component and
non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual
value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate
leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and
when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company’s
leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease
commencement date. When the implicit rate is not readily available, as is the case with the Company’s real estate leases, the
Company uses quoted borrowing rates on its secured debt.
Related Party Lease Agreements. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into
an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the
Company. The lease term is ten years and includes an option to extend the lease for two successive periods of two years each
through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment
commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years 6 through 10 of the lease
term. Fixed rent payments for the extension term shall be increased from $45,000 by the percentage increase, if any, in the
consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its
share of estimated property taxes and operating expenses, both of which are variable lease expenses.
In conjunction with the closing of the ACME Transaction, the Company entered into an operating lease for certain land and
facilities owned by a former member of ACME who became a full-time employee of the Company. The lease term of the lease
runs through December 31, 2024 and includes an option to extend the lease for one successive period of one year through
December 2025. Base rent for the term of the lease is $17,000 per month for the first six months with payment commencing on
July 1, 2023. The fixed rent payment is escalated to $18,000 per month for the twelve month period ending December 31, 2024.
Fixed rent payments for the extension term shall be increased to $19,000. In addition, under the agreement, the Company is
required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.
In conjunction with the closing of the Industrial Air Transaction, the Company entered into an operating lease for certain land
and facilities owned by a former member of Industrial Air who became a full-time employee of the Company. The lease term of
the lease runs through August 31, 2026 and includes an option to extend the lease for two successive periods of three years each
through August 2032. Base rent for the term of the lease is $26,500 per month for the first thirty-three months with payment
commencing on November 1, 2023. The fixed rent payment is escalated to $27,563 per month for the first three year extension
period ending August 31, 2029 and to $28,941 per month for the second three year extension period ending on August 31,
2032. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating
expenses, both of which are variable lease expenses.
Southern California Sublease. In June 2021, the Company entered into a sublease agreement with a third party for the entire
ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease
agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to
96
a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September
2021 and continues through April 30, 2027. As of December 31, 2023, the Company remains obligated under the original lease
for such office space and, in the event the sublessee of such office space fails to satisfy its obligations under the sublease, the
Company would be required to satisfy its obligations directly to the landlord under such original lease.
In addition, during the first quarter of 2022, the Company entered into an amendment to the aforementioned sublease
agreement, which, among other things, expanded the sublease premises to include the entire second floor of its leased space in
Southern California, consisting of 16,720 square feet. Under the terms of the amended sublease agreement, the sublessee is
obligated to pay the Company base rent of approximately $0.8 million per year, which is subject to a 3.0% annual rent increase,
plus certain operating expenses and other costs. The amended sublease term commenced in March 2022 and continues through
April 30, 2027. For the years ended December 31, 2023 and 2022, the Company recorded $1.2 million and $1.1 million of
income in selling, general and administrative expenses related to this sublease agreement.
Pittsburgh Lease Termination. In March, 2022, the Company entered into a lease termination agreement (the “Lease
Termination Agreement”) to terminate, effective March 31, 2022, the lease associated with the Company’s office space located
in Pittsburgh, Pennsylvania, which previously served as its corporate headquarters. Absent the Lease Termination Agreement,
the lease would have expired in accordance with its terms in July 2025. Pursuant to the Lease Termination Agreement, in
exchange for allowing the Company to terminate the lease early, the Company agreed to pay a termination fee in the aggregate
of approximately $0.7 million in 16 equal monthly installments commencing on April 1, 2022. The Company recognized the
full termination fee expense during the first quarter of 2022.
In connection with the lease termination, the Company recognized a gain of $0.1 million associated with the derecognition of
the operating lease right-of-use asset and corresponding operating lease liabilities associated with the operating lease and
recorded a $0.1 million loss on the disposal of leasehold improvements and moving expenses.
The following table summarizes the lease amounts included in the Company’s consolidated balance sheets as of December 31,
2023 and 2022:
(in thousands)
Assets
Operating
Finance
Total lease assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Total lease liabilities
Classification on the Consolidated Balance Sheets
December 31, 2023
December 31, 2022
Operating lease right-of-use assets(1)(2)
Property and equipment, net(3)(4)
Current operating lease liabilities
Current portion of long-term debt
Long-term operating lease liabilities
Long-term debt(5)
$
$
$
$
19,727 $
9,561
29,288 $
3,627 $
2,680
16,037
10,018
32,362 $
18,288
7,402
25,690
3,562
2,135
15,643
8,170
29,510
(1) Operating lease assets are recorded net of accumulated amortization of $13.6 million and $12.2 million at December 31, 2023 and 2022,
respectively.
(2) As a result of the Industrial Air Transaction, the Company recognized a $1.0 million below-market lease, which was recorded as an
increase to the Company’s operating lease right-of-use assets on its consolidated balance sheet at December 31, 2023. The below-market
lease will be amortized to amortization expense over the remaining lease term.
(3) Finance lease assets are recorded net of accumulated amortization of $4.5 million and $6.0 million at December 31, 2023 and 2022,
respectively.
(4)
(5)
Includes approximately $2.4 million and $2.6 million of net property assets associated with the Company's Pontiac Facility at
December 31, 2023 and 2022, respectively.
Includes approximately $5.4 million associated with the Company's sale and leaseback financing transaction. See Note 7 for further
detail.
97
The following table summarizes the lease costs included in the Company’s consolidated statements of operations for the years
ended December 31, 2023 and 2022:
(in thousands)
Operating lease cost
Operating lease cost
Finance lease cost:
Amortization
Interest
Total lease cost
Classification on the Consolidated
Statements of Operations
Cost of revenue(1)
Selling, general and administrative(1)
Cost of revenue(2)
Interest expense, net(2)
December 31, 2023
$
2,184 $
2,550
2,753
384
7,871 $
$
December 31, 2022
2,627
2,555
2,687
264
8,133
(1) Operating lease costs recorded in cost of revenue includes $0.4 million and $0.5 million of variable lease costs for the years ended
December 31, 2023 and 2022, respectively. In addition, $0.5 million of variable lease costs are included in selling, general and
administrative expenses for both years ended December 31, 2023 and 2022, respectively. These variable costs consist of the Company’s
proportionate share of operating expenses, real estate taxes and utilities.
(2) Finance lease costs recorded in cost of revenue includes $3.7 million and $3.8 million of variable leases costs for the years ended
December 31, 2023 and 2022, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges. No variable
lease costs were recorded in selling, general and administrative expenses for the years ended December 31, 2023 and 2022.
The future undiscounted minimum finance lease payments, as reconciled to the discounted minimum lease obligation indicated
on the Company’s consolidated balance sheets within current and long-term debt, less interest, and under current and long-term
operating leases, less imputed interest, as of December 31, 2023 were as follows (in thousands):
Year ending:
2024
2025
2026
2027
2028
Thereafter
Total minimum lease payments
Financing Component (3)
Net present value of minimum
lease payments
Less: current portion of finance
and operating lease obligations
Long-term finance and operating
lease obligations
Finance Lease Obligations
Operating Lease Obligations
Vehicles
Pontiac
Facility
Total
Finance
Non-
Related
Party
Related
Party(1)
Total
Operating
$
3,041 $
2,284
1,768
872
122
48
8,135
(788)
515 $
528
542
555
569
13,733
16,442
(11,090)
3,556 $
2,812
2,310
1,427
691
13,780
24,576
(11,878)
3,682 $
3,478
3,383
2,318
1,376
844
15,081
(2,499)
981 $
765
770
871
871
4,997
9,255
(2,173)
Sublease
Receipts(2)
912
939
967
326
—
—
3,145
4,663 $
4,243
4,153
3,189
2,247
5,841
24,336 $
(4,672)
7,347
5,351
12,698
12,582
7,082
19,664
(2,680)
—
(2,680)
(3,009)
(618)
(3,627)
$
4,667 $
5,351 $
10,018 $
9,573 $
6,464 $
16,037
(1) Associated with the aforementioned related party leases entered into with former members of JMLLC, ACME and Industrial Air.
(2) Associated with the aforementioned third party sublease.
(3) The financing component for finance lease obligations represents the interest component of finance leases that will be recognized as
interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the lease
payments to their present value.
The following is a summary of the lease terms and discount rates as of:
98
Weighted average lease term (in years):
Operating
Finance(1)
Weighted average discount rate:
Operating
Finance(1)
December 31, 2023 December 31, 2022
6.54
3.10
6.74 %
5.33 %
6.98
2.73
4.76 %
5.06 %
(1) Excludes the weighted average lease term and weighted average discount rate associated with the aforementioned sale-leaseback
financing transaction, which has a Primary Term of 25 years and utilized an implicit rate of 11.11%. See Note 7 – Debt for further detail.
The following is a summary of other information and supplemental cash flow information related to finance and operating
leases:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets exchanged for lease liabilities
Operating leases
Finance leases
Right-of-use assets disposed or adjusted modifying operating leases liabilities
Right-of-use assets disposed or adjusted modifying finance leases liabilities
$
$
$
$
Note 15 – Retirement Plan
Year Ended December 31,
2022
2023
4,705 $
343
2,737
3,135 $
5,219
1,112 $
(93) $
5,055
264
2,734
—
2,634
2,455
(77)
The Company maintains a 401(k) plan for eligible, participating employees. The Company contributes an amount equal to
100% of an employee’s salary reduction contributions up to 4% of such employee’s compensation in a given year, as defined
by the plan and subject to IRS limitations. The Company’s mandatory contributions were $2.6 million for the year ended
December 31, 2023, as compared to $2.4 million for the year ended December 31, 2022. The Company may make a
discretionary profit sharing contribution to the 401(k) plan in accordance with plan provisions. The Company has full discretion
to determine whether to make such a contribution, and the amount of such contribution. In order to share in the profit sharing
contribution, employees must have satisfied the 401(k) Plan’s eligibility requirements and be employed on the last day of the
year. Employees are not required to contribute any money to the 401(k) Plan in order to qualify for the Company profit sharing
contribution. Any discretionary profit sharing contribution would be divided among participants eligible to share in the
contribution for the year in the same proportion that the participant’s pay bears to the total pay of all participants. This means
the amount allocated to each eligible participant’s account would, as a percentage of pay, be the same. No discretionary profit
sharing contributions were made for the years ended December 31, 2023 or 2022.
Note 16 – Multiemployer Pension Plans
The Company participates in approximately 40 multiemployer pension plans (“MEPPs”) that provide pension benefits to
certain union employees in accordance with various collective bargaining agreements (“CBAs”). As of December 31, 2023,
approximately 54% of the Company’s employees are members of collective bargaining units. As one of many employers who
are obligated to contribute to these MEPPs, the Company is responsible with the other participating employers for any
unfunded pension liabilities. The Company’s contributions to a particular MEPP are established by the applicable CBAs;
however, the Company’s required contributions to a MEPP may increase based on the funded status of the individual MEPP
and the legal requirements of the Pension Protection Act of 2006 (the “PPA”), which requires substantially underfunded MEPPs
to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that
could impact the funded status of a MEPP include, without limitation, investment performance, changes in participant
demographics, a decline in the number of actively employed covered employees, a decline in the number of contributing
employers, changes in actuarial assumptions and the utilization of extended amortization provisions. If a contributing employer
stops contributing to a MEPP, the unfunded obligations of the MEPP may be borne by the remaining contributing employers.
99
Assets contributed to an individual MEPP are pooled with contributions made by other contributing employers; the pooled
assets will be used to provide benefits to the Company’s employees and the employees of the other contributing employers.
A FIP or RP requires a particular MEPP to adopt measures to correct its underfunded status. These measures may include, but
are not limited to an increase in a contributing employer’s contribution rate, or changes to the benefits paid to retirees. In
addition, the PPA requires that a 5% surcharge be levied on employer contributions for the first year commencing shortly after
the date the employer receives notice that the MEPP is in critical status and a 10% surcharge on each succeeding year until a
CBA is in place with terms and conditions consistent with the RP.
If a MEPP has unfunded pension liabilities, the Company could be obligated to make additional payments to a MEPP if the
Company either ceases to have an obligation to contribute to the MEPP under a CBA or significantly reduces the Company’s
contributions to the MEPP because they reduce the number of employees who are covered by the relevant MEPP for various
reasons, including, but not limited to, layoffs or closure of a subsidiary. The amount of such payments (known as a complete or
partial withdrawal liability) would equal the Company’s proportionate share of the MEPPs unfunded vested benefits. Based on
the information available to the Company from the MEPPs, the Company believes that some of the MEPPs to which they
contribute are underfunded and are in “critical” or “endangered” status as those terms are defined by the PPA. Due to
uncertainty regarding future factors that could trigger withdrawal liability, as well as the absence of specific information
regarding the MEPPs’ current financial situation, the Company is unable to determine (a) the amount and timing of any future
withdrawal liability, if any, and (b) whether the Company’s participation in these MEPPs could have a material adverse impact
on its financial condition, results of operations or liquidity.
The nature and diversity of the Company’s business may result in volatility of the amount of contributions to a particular MEPP
for any given period. That is because, in any given market, the Company could be working on a significant project and/or
projects, which could result in an increase in the direct labor force and a corresponding increase in contributions to the MEPP(s)
dictated by the applicable CBA. When that particular project(s) finishes and is not replaced, the level of direct labor would also
decrease, as would the level of contributions to the particular MEPP(s). Additionally, the level of contributions to a particular
MEPP could also be affected by the terms of the CBA, which could require at a particular time, an increase in the contribution
rate and/or surcharges.
Total contributions to the various union construction industry MEPP, welfare, training and other benefits programs in
accordance with the CBAs were $31.8 million for the year ended December 31, 2023, as compared to $31.3 million for the year
ended December 31, 2022. Of these amounts, total contributions to MEPPs accounted for $11.6 million and $12.6 million for
the years ended December 31, 2023 and 2022, respectively.
The following table presents the MEPPs in which the Company participates. Additionally, this table also lists the PPA Zone
Status for MEPPs as the critical status (red zone-less than 65% funded), the endangered status (yellow-less than 80% funded),
the seriously endangered status (orange-less than 80% funded and projects a credit balance deficit within seven years) or neither
critical or endangered status (green-greater than 80% funded). The zone status represents the most recent available information
for the respective MEPP, which in certain circumstances is 2022 for the 2023 year. These dates may not correspond with the
Company’s calendar year contributions. The zone status is based on information received from the MEPPs and is certified by
the MEPPs’ actuaries. The “FIP/RP Status” column indicates MEPPs for which a financial improvement plan (FIP) or
rehabilitation plan (RP) has been adopted or implemented.
Pension
Fund
Plumbers and
Pipefitters
Local Union
No. 43
Pension Fund
Pipefitters
Local 636
Defined
Benefit
Pension Fund
Sheet Metal
Workers
Local Union
No. 80
Pension Fund
EIN/Pension
Plan Number
PPA Zone Status
Contributions (in
thousands)
2023
2022
FIP/RP Status
2023
2022
Contributions
greater than
5% of total
contributions
Surcharge
Imposed
Expiration date
of CBA
62-6101288 / 001
Green
Green
N/A
$ 1,500 $ 1,205
Yes
No
June-24
38-3009873 / 001
Green
Green
N/A
1,439
1,483
No
No
May-26
38-6105633 / 001
Green
Green
N/A
1,255
1,245
Yes
No
May-26
100
Plumbers
Local No 98
Defined
Benefit
Pension Fund
Pipefitters
Union Local
No. 537
Pension Fund
Sheet Metal
Workers
Local 98
Pension Fund
Steamfitters
Local Union
No. 420
Pension Fund
Plumbers &
Pipefitters
Local No 189
Pension Plan
United
Association
National
Pension Fund
Sheet Metal
Workers'
National
Pension Fund
Heating,
Piping and
Refrigeration
Pension Fund
Plumbers &
Pipefitters of
Local Union
No. 333
Pension Fund
Plumbers &
Steamfitters
Local 577
Pension Plan
Ironworkers
Local 704
Pension Fund
Electrical
Workers
Local No. 26
Pension Trust
Fund
Sheet Metal
Workers
Local 7, Zone
1 Pension
Plan
Steamfitters
Local #449
Pension Plan
Refrigeration,
Air
Conditioning
& Service
Division (UA-
NJ) Pension
Plan
National
Electrical
Benefit Fund
United
Association
Local Union
No. 322
Pension Plan
Plumbers
Local Union
No. 690
Pension Fund
38-3031916 / 001
Green
Yellow
Implemented
1,175
1,371
Yes
51-6030859 / 001
Green
Green
N/A
1,140
1,204
No
31-6171213 / 001
Green
Green
N/A
830
1,232
Yes
23-2004424 / 001
Red
Red
Implemented
633
537
No
31-0894807 / 001
Green
Green
N/A
592
596
Yes
52-6152779 / 001
Green
Green
N/A
579
525
No
52-6112463 / 001
Green
Green
N/A
540
792
No
52-1058013 / 001
Green
Green
N/A
295
609
No
38-3545518 / 005
Green
Green
N/A
345
393
Yes
31-6134953 /001
Red
Red
Implemented
330
316
Yes
62-6098036 / 001
Green
Green
N/A
236
46
No
No
No
No
No
No
No
No
No
No
No
No
May-25
Aug-25
May 23
Apr-26
May-25
Ranging from
May-23 - May-27
Ranging from
May-23 – Apr-26
Jul-25
May-27
May-26
Apr-26
52-6117919 / 001
Green
Green
N/A
178
247
No
No
May-24
38-6234066 / 001
Green
Yellow
N/A
113
8
25-6032401 / 001
Green
Green
N/A
87
103
22-6109064 / 001
Green
Green
N/A
53-0181657 / 001
Green
Green
N/A
83
65
65
81
No
No
No
No
No
No
No
No
Apr-26
May-26
Jul-27
May-24
21-6016638 / 001
Red
Red
Implemented
27
25
No
Yes
Apr-24
23-6405018 / 001
Green
Green
N/A
25
25
No
No
Apr-24
101
Airconditioni
ng and
Refrigeration
Industry
Retirement
Trust Fund
Plumbers
Union Local
No. 12
Pension
Southern
California
Pipe Trades
Retirement
Fund
Sheet Metal
Workers'
Pension Plan
of Southern
California,
Arizona and
Nevada
Laborers
District
Council
Pension and
Disability
Trust Fund
No. 2
All other
plans (13 and
11 as of
December 31,
2023 and
2022,
respectively)
95-6035386 / 001
Green
Green
N/A
04-6023174 / 001
Green
Green
N/A
8
5
74
No
14
No
No
No
Aug-24
Aug-25
51-6108443 / 001
Green
Green
N/A
4
130
No
No
Aug-26
95-6052257 / 001
Green
Yellow
Implemented
—
139
No
No
Jun-24
52-0749130 / 001
Green
Green
N/A
—
10
No
No
Oct-25
153
103
Total
Contributions
$ 11,637 $ 12,578
Note 17 – Management Incentive Plans
The Company initially adopted the Omnibus Incentive Plan on July 20, 2016 for the purpose of: (a) encouraging the
profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s
objectives; (b) giving participants an incentive for excellence in individual performance; (c) promoting teamwork among
participants; and (d) giving the Company a significant advantage in attracting and retaining key employees, directors and
consultants. To accomplish such purposes, the Omnibus Incentive Plan, and such subsequent amendments to the Omnibus
Incentive Plan, provides that the Company may grant options, stock appreciation rights, restricted shares, RSUs, performance-
based awards (including performance-based restricted shares and restricted stock units), other share based awards, other cash-
based awards or any combination of the foregoing.
Following the approval of the 2023 Amended and Restated Omnibus Incentive Plan, the Company has reserved 3,050,000
shares of its common stock for issuance. The number of shares issued or reserved pursuant to the Omnibus Incentive Plan will
be adjusted by the plan administrator, as they deem appropriate and equitable, as a result of stock splits, stock dividends, and
similar changes in the Company’s common stock. In connection with the grant of an award, the plan administrator may provide
for the treatment of such award in the event of a change in control. All awards are made in the form of shares only.
Service-Based Awards
The Company grants service-based stock awards in the form of RSUs. Service-based RSUs granted to executives, employees,
and non-employee directors vest ratably, on an annual basis, over three years and in the case of certain awards to non-employee
directors, one year. The grant date fair value of the service-based awards was equal to the closing market price of the
Company’s common stock on the date of grant. For the years ended December 31, 2023 and 2022, the Company recognized
$1.5 million and $1.6 million of stock-based compensation expense related to outstanding service-based RSUs, respectively.
The following table summarizes the Company’s service-based RSU activity:
102
Unvested at January 1, 2022
Granted
Vested
Forfeited
Unvested at December 31, 2022
Granted
Vested
Forfeited
Unvested at December 31, 2023
Performance-Based Awards
Weighted-
Average
Grant Date
Fair Values
8.45
8.97
7.78
9.43
9.06
11.94
8.58
10.63
11.09
Awards
266,089 $
184,941
(146,151)
(24,604)
280,275 $
164,413
(163,354)
(42,131)
239,203 $
The Company grants performance-based restricted stock units (“PRSUs”) under which shares of the Company’s common stock
may be earned based on the Company’s performance compared to defined metrics. The number of shares earned under a
performance award may vary from zero to 150% of the target shares awarded, based upon the Company’s performance
compared to the metrics. The metrics used for the grant are determined by the Company’s Compensation Committee of the
Board of Directors and are based on internal measures such as the achievement of certain predetermined adjusted EBITDA,
EPS growth and EBITDA margin performance goals over a three-year period.
The Company recognizes stock-based compensation expense for these awards over the vesting period based on the projected
probability of achievement of the performance conditions as of the end of each reporting period during the performance period
and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s
forecasts with respect to the performance conditions. For the years ended December 31, 2023 and 2022, the Company
recognized $3.4 million and $1.2 million, respectively, of stock-based compensation expense related to outstanding PRSUs.
The following table summarizes the Company’s PRSU activity:
Unvested at January 1, 2022
Granted
Vested
Forfeited
Unvested at December 31, 2022
Granted
Performance factor adjustment(1)
Vested
Forfeited
Unvested at December 31, 2023
Weighted-
Average
Grant Date
Fair Values
Awards
280,700 $
258,363
—
(41,123)
497,940 $
289,092
(121,827)
32,327
(116,911)
580,621 $
9.46
7.18
—
8.98
8.32
12.77
4.29
4.29
9.81
10.85
(1) Performance-based awards covering the three year period ended December 31, 2022 were paid out in the first quarter of 2023 based on
the approval of the Company's Compensation Committee. The performance factor during the measurement period used to determine
compensation payouts was 136.13% of the pre-defined metric target of 100%, which resulted in a positive performance factor adjustment
and the issuance of 32,327 of additional awards associated with the original grant.
Market-Based Awards
The vesting of the Company's market-based RSU (“MRSUs”) was contingent upon the Company’s closing price of a share of
the Company's common stock on the Nasdaq Capital market, or such other applicable principal securities exchange or quotation
system, achieving at least $18.00 over a period of eighty consecutive trading days during the three-year period commencing on
August 1, 2018 and concluding on July 31, 2021. On September 4, 2020, the Compensation Committee of the Board of
103
Directors of the Company approved amendments to modify the MRSUs to extend the measurement period to July 16, 2022. In
addition to the market performance-based vesting condition, the vesting of such restricted stock unit was subject to continued
employment from August 1, 2017 through the later of July 31, 2019 or the date on which the Compensation Committee certifies
the achievement of the performance goal. The Company accounted for this amendment as a Type I modification and recognized
approximately $0.2 million of incremental stock-based compensation expense over 1.26 years from the modification date based
on an updated Monte Carlo simulation model. These awards expired on July 16, 2022 as the MRSU award market condition
was not achieved.
Stock-Based Compensation Expense
Total recognized stock-based compensation expense amounted to $4.9 million and $2.7 million for the years ended
December 31, 2023 and 2022, respectively. The aggregate fair value as of the vest date of RSUs that vested during the years
ended December 31, 2023 and 2022 was $3.8 million and $1.3 million, respectively. Total unrecognized stock-
based compensation expense related to unvested RSUs which are probable of vesting amounted to $3.5 million at December 31,
2023. These costs are expected to be recognized over a weighted average period of 1.64 years.
Note 18 – Subsequent Events
On March 13, 2024, LFS, LHLLC, and other designated parties entered into a first amendment to the Second A&R Wintrust
Credit Agreement (the “First Amendment to the Second A&R Wintrust Credit Agreement”) with the lenders party thereto and
Wintrust, as administrative agent. The First Amendment to the Second A&R Wintrust Credit Agreement makes certain
amendments to the Second A&R Wintrust Credit Agreement, including: (i) modifying the definition of “L/C Sublimit” to
increase the sublimit for the issuance of letters of credit from $5.0 million to $10.0 million, (ii) removing the requirement to
deliver a Borrowing Base Certificate if outstanding Revolving Loans and Letters of Credit (as such terms are defined in the
Second A&R Wintrust Credit Agreement) do not exceed $30.0 million, and (iii) removing certain financial covenants that
restrict the Company’s ability to make Unfinanced Capital Expenditures (as defined in the Second A&R Wintrust Credit
Agreement).
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: Our management carried out, as of December 31, 2023, with the
participation of our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our President and Chief
Executive Officer and Executive Vice President and Chief Financial Officer concluded that, as of December 31, 2023, our
disclosure controls and procedures were effective to provide reasonable assurance that material information required to be
disclosed by us in reports we file under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms, and that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting: There were no changes in our internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f)) during the fourth quarter of 2023 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d
-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may
deteriorate. Under the supervision and with the participation of our management, including our President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in “Internal Control-Integrated Framework
(2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our
management concluded that our internal control over financial reporting was effective as of December 31, 2023.
104
Crowe LLP (“Crowe”), the independent registered public accounting firm that audited the Company's consolidated financial
statements, has issued an attestation report on the Company's internal control over financial reporting. Crowe's attestation report
on the Company's internal control over financial reporting appears in Part II, Item 8 of this Annual Report on Form 10-K and is
incorporated by reference herein.
Item 9B. Other Information
As previously discussed in our periodic reports, at our 2022 Annual Meeting of Stockholders held on June 22, 2022 (the “2022
Annual Meeting”), our stockholders approved, (i) the election of two Class C members of the Company’s Board of Directors;
(ii) the approval of an amendment to the Limbach Holdings, Inc. Amended and Restated Omnibus Incentive Plan, which
included an increase in the number of authorized shares under the plan by 350,000 shares of the Company’s common stock, par
value $0.0001 per share; (iii) a non-binding advisory vote on the compensation of the Company’s named executive officers; and
(iv) the ratification of the appointment of the Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2022 (the “Stockholder Actions”). The Stockholder Actions are described more fully in the Company’s
definitive proxy statement for the 2022 Annual Meeting, filed with the Securities and Exchange Commission (“SEC”) on April
29, 2022, and the voting results from the meeting are set forth in the Company’s Current Report on Form 8-K filed with the
SEC on June 23, 2022. The record date established for the 2022 Annual Meeting was April 22, 2022, which exceeded by one
day the maximum of 60 days by which a record date is permitted to precede a meeting of stockholders under the Delaware
General Corporation Law (the “DGCL”) and the Company’s Amended and Restated Bylaws.
On June 29, 2023, a putative purported class action complaint captioned Ayers v. McNally was filed against our Board in the
Court of Chancery (the “Court”) of the State of Delaware (the “Action”). The plaintiff alleged violation of Section 213(a) of the
DCGL in fixing the record date more than 60 days before the Company’s 2022 Annual Meeting. According to the complaint,
because the record date allegedly violated Section 213(a) of the DGCL, the actions taken at the 2022 Annual Meeting were
invalid.
As was described in the Company’s Current Report on Form 8-K filed with the SEC on August 16, 2023, the Company filed a
petition seeking the approval of the Delaware Court of Chancery (the “Court”), pursuant to Section 205 of the DGCL, to
validate the Stockholder Actions (the “Section 205 Petition”).
On September 18, 2023, the Court held a hearing on the Section 205 Petition. Following oral argument, the Court entered an
Order and Final Judgment declaring valid the 2022 Annual Meeting, along with each of the Stockholder Actions outlined in the
Section 205 Petition.
On September 18, 2023, the Court entered a final order approving all of the relief requested by the Company in the Section 205
Petition, including validation of the Stockholder Actions (the “Final Order”). After the Court entered the Final Order, the Court
also dismissed a purported putative class action and derivative lawsuit (the “Action”) brought against the Company by Patrick
Ayers (the “Plaintiff”). The Action was related to, but independent of, the Section 205 Petition and was dismissed as moot upon
validation of the Section 205 Petition. The Action was dismissed with prejudice as to the Plaintiff and is deemed resolved by
the Company, other than resolving an anticipated application for an award of attorneys’ fees and reimbursement of expenses
from the Action by plaintiff’s attorneys (a “Mootness Fee”). Without admitting any fault or wrongdoing, the Company agreed
to pay $0.3 million in attorneys’ fees and expenses to the plaintiff’s counsel in the Action as the Mootness Fee to resolve the
matter.
On February 29, 2024, the Court entered an order closing the case (the “February Order”), subject to the Company filing an
affidavit with the Court confirming compliance with the Court’s February Order. In entering the February Order, the Court did
not review, and did not pass judgment on, the payment of these attorneys’ fees and expenses.
Rule 10b5-1 Trading Plans
The Company’s executive officers and directors may from time to time enter into plans or arrangements for the purchase or sale
of its common shares that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule
10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation
S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
105
Item 10. Directors, Executive Officers and Corporate Governance
Part III
The information called for by this item is incorporated herein by reference to the material under the captions “Proposal No. 1:
Election of Directors – Directors and Executive Officers” and “Board of Directors and Corporate Governance” and “Security
Ownership of Certain Owners and Management – Delinquent Section 16(a) Reports” (if applicable) in the Company’s 2024
Proxy Statement. The Company’s 2024 Proxy Statement will be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year to which this report relates.
The Company’s Code of Ethics, which covers all employees (including our executive officers), meets the requirements of the
SEC rules promulgated under Section 406 of the Sarbanes-Oxley Act of 2002. The Code of Ethics is available on the
Company’s website at https://www.limbachinc.com/investor-relations/corporate-governance/, and copies are available to
stockholders without charge upon written request to the Company (attention: General Counsel) at the Company’s principal
executive offices. Any substantive amendment to the Code of Ethics or any waiver of the Code granted to our executive officers
will be posted on the Company’s website at https://www.limbachinc.com/investor-relations/ within five business days (and
retained on the website for at least one year).
Information required by Item 401 of Regulation S-K with respect to executive officers is included after Item 4 at the end of Part
I of this Annual Report on Form 10-K under the caption "Information About Our Executive Officers" and is incorporated herein
by reference.
Item 11. Executive Compensation
The information required to be disclosed by this item is incorporated herein by reference to the material under the captions
“Board of Directors and Corporate Governance – Director Compensation,” “Executive Compensation” and “Pay vs.
Performance” in the Company’s 2024 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this item is incorporated herein by reference to the material under the captions “Security
Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s
2024 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this item is incorporated herein by reference to the material under the captions “Related Person
Policy and Transactions” and “Board of Directors and Corporate Governance – Director Independence” in the Company’s 2024
Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information called for by this item is incorporated herein by reference to the material under the caption “Audit-Related
Matters” in the Proxy Statement.
106
Item 15. Exhibits and Financial Statement Schedules
a) Documents filed as part of this Report
Part IV
(1)
Financial Statements. See “Index to Financial Statements” in Part II, Item 8 of this Form 10-K.
(2)
Financial Statement Schedules. All schedules are omitted for the reason that the information is included in the
financial statements or the notes thereto or that they are not required or are not applicable.
(3)
Exhibits. The exhibits listed in the “Exhibits Index” are filed or incorporated by reference as part of this Form 10-K.
(b) Exhibits.
Exhibit
2.1
2.2
2.3
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
Description
Agreement and Plan of Merger, dated March 23, 2016, by and among the Company, Limbach Holdings LLC and
FdG HVAC LLC (“Merger Agreement”) (incorporated by reference to Exhibit 2.1 to the Company’s Current
Report on Form 8-K (File No. 001-36541), filed with the U.S. Securities and Exchange Commission on March
29, 2016).
Amendment No. 1 to Agreement and Plan of Merger, dated July 11, 2016, by and among the Company, Limbach
Holdings LLC and FdG HVAC LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K (File No. 001-36541), filed with the U.S. Securities and Exchange Commission on July 13, 2016).
Amendment No. 2 to Agreement and Plan of Merger, dated July 18, 2016, by and among the Company, Limbach
Holdings LLC and FdG HVAC LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K (File No. 001-36541), filed with the U.S. Securities and Exchange Commission on July 18, 2016).
Conformed Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on June 23, 2023).
Certificate of Designation of Class A Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s
Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on
July 26, 2016).
Certificate of Correction to Certificate of Designation of Class A Preferred Stock (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities
and Exchange Commission on August 24, 2016).
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on
Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on April 17, 2023).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 2 to the
Company’s Registration Statement on Form S-1 (File No. 333-195695), filed with the U.S. Securities and
Exchange Commission on June 27, 2014).
Warrant Agreement, dated as of July 15, 2014, by and between Continental Stock Transfer & Trust Company
and 1347 Capital Corp. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
(File No. 001-36541), filed with the U.S. Securities and Exchange Commission on July 21, 2014).
Specimen Warrant Certificate (incorporated by reference to Exhibit 4.4 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1 (File No. 333-195695), filed with the U.S. Securities and Exchange
Commission on June 27, 2014).
Form of Merger Warrant issued pursuant to the Merger Agreement Certificate (incorporated by reference to
Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (File No. 333-213646), filed with the U.S.
Securities and Exchange Commission on September 15, 2016).
Form of Additional Merger Warrant issued pursuant to the Merger Agreement (incorporated by reference to
Exhibit 4.5 to the Company’s Registration Statement on Form S-3 (File No. 333-213646), filed with the U.S.
Securities and Exchange Commission on September 15, 2016).
Form of CB Warrant issued pursuant to the 2019 Refinancing Agreement (incorporated by reference to Exhibit
4.6 to the Company's Annual Report on Form 10-K (File No. 001-36541), filed with the SEC on April 15, 2019)
Description of Securities (incorporated by reference to Exhibit 4.7 to the Company's Current Report on Form 10-
K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on March 25, 2021).
Amended and Restated Registration Rights Agreement, dated as of July 20, 2016, by and among the Company
and the parties named on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on July 26, 2016).
Amendment No. 1 to Amended and Restated Registration Rights Agreement, among the Company and the
signatories thereto (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q
(File No. 001-36541) filed with the U.S. Securities and Exchange Commission on November 14, 2016).
107
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
Amendment No. 2 to Amended and Restated Registration Rights Agreement, among the Company and the
signatories thereto (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K
(File No. 001-36541) filed with the U.S. Securities and Exchange Commission on April 17, 2017).
Credit Agreement, dated as of July 20, 2016, by and among Limbach Facility Services LLC, the Company, the
guarantors from time to time party thereto, the lenders from time to time party thereto, Fifth Third Bank, The
PrivateBank and Trust Company and Wheaton Bank & Trust Company, a subsidiary of Wintrust Financial Corp
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-36541)
filed with the U.S. Securities and Exchange Commission on July 26, 2016).
First Amendment to Credit Agreement, Limited Waiver and Consent, dated as of December 15, 2016, by and
among Limbach Facility Services LLC, Limbach Holdings LLC, the other Guarantors partly thereto, the Lenders
party thereto and Fifth Third Bank, as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit
10.5 to the Company's Current Report on Form 10-K (File No. 001-36541) filed with the U.S. Securities and
Exchange Commission on April 15, 2019).
Second Amendment to Credit Agreement and Limited Waiver, dated January 12, 2018, by and among Limbach
Facility Services LLC, Limbach Holdings LLC, the other Guarantors party thereto, the Lenders party thereto and
Fifth Third Bank, as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on January 12, 2018).
Third Amendment to Credit Agreement, dated March 21, 2018, by and among Limbach Holdings, Inc., Limbach
Facility Services LLC, Limbach Holdings LLC, the other Guarantors party thereto, the Lenders party thereto and
Fifth Third Bank, as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on March 26, 2018).
Assumption and Supplement to Security Agreement, dated March 21, 2018, by and between Limbach Holdings,
Inc. and Fifth Third Bank, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on
March 26, 2018).
Fourth Amendment to Credit Agreement, dated May 15, 2018, by and among Limbach Facility Services LLC,
Limbach Holdings LLC, the other Guarantors party thereto, the Lenders party thereto and Fifth Third Bank, as
Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.19 to the Company’s Quarterly
Report on Form 10-Q (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on May 15,
2018).
Fifth Amendment to Credit Agreement and Limited Waiver, dated as of August 13, 2018, by and among
Limbach Facility Services LLC, Limbach Holdings LLC, the other Guarantors party thereto, the Lenders party
thereto and Fifth Third Bank, as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.2
to the Company’s Quarterly Report on Form 10-Q (File No. 001-36541) filed with the U.S. Securities and
Exchange Commission on August 14, 2018).
Sixth Amendment to Credit Agreement and Limited Waiver, dated as of November 30, 2018, by and among
Limbach Facility Services LLC, Limbach Holdings LLC, the other Guarantors party thereto, the Lenders party
thereto and Fifth Third Bank, as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on November 30, 2018).
Limited, Conditional and Temporary Waiver and Amendment Related to Loan Documents, dated as of
November 19, 2018 by and among Limbach Facility Services LLC, Limbach Holdings LLC, the Company, the
other Guarantors party thereto, the Lenders party thereto and Fifth Third Bank, as Administrative Agent and L/C
Issuer ((incorporated by reference to Exhibit 10.12 to the Company's Current Report on Form 10-K (File No.
001-36541) filed with the U.S. Securities and Exchange Commission on April 15, 2019).
Limbach Holdings, Inc. Amended and Restated Omnibus Incentive Plan (incorporated by reference to Exhibit
99.1 to the Company's Registration Statement on Form S-8 (File No. 333-232407) filed with the U.S. Securities
and Exchange Commission on September 11, 2020).
Form of Inaugural Time-Based and Performance-Based Restricted Stock Unit Agreement for Executives
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36541)
filed with the U.S. Securities and Exchange Commission on September 6, 2017).
Form of Long-Term Incentive (Ongoing) Time-Based and Performance-Based Restricted Stock Unit Agreement
for Executives (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File
No. 001-36541) filed with the U.S. Securities and Exchange Commission on September 6, 2017).
Form of Restricted Stock Unit Agreement for Non-Executive Employees (Time-Vested) (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the
U.S. Securities and Exchange Commission on September 6, 2017).
Form of Annual Restricted Stock Unit Agreement for Non-Employee Directors (Time-Vested) (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the
U.S. Securities and Exchange Commission on September 6, 2017).
Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.12 to the Company’s
Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on
July 26, 2016).
108
10.19*
10.20†
10.21†
10.22†
10.23†
10.24*
10.25*
10.26*
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34*
Employment Agreement, dated as of March 23, 2016, by and between the Company and Charles A. Bacon, III
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36541),
filed with the U.S. Securities and Exchange Commission on March 29, 2016).
Financing Agreement, dated as of April 12, 2019, by and among the Company, Limbach Holdings LLC,
Limbach Facility Services LLC, the lenders from time to time party thereto, Cortland Capital Market Services
LLC, as collateral agent and administrative agent, CB Agent Services LLC, as origination agent, and the other
parties party thereto (incorporated by reference to Exhibit 10.23 to the Company's Current Report on Form 10-K
(File No. 001-36541) filed with the U.S. Securities and Exchange Commission on April 15, 2019).
Pledge and Security Agreement, dated as of April 12, 2019, by and among the Company, Limbach Facility
Services LLC, the other Guarantors party thereto and Cortland Capital Market Services LLC, as collateral agent
(incorporated by reference to Exhibit 10.24 to the Company's Current Report on Form 10-K (File No.
001-36541) filed with the U.S. Securities and Exchange Commission on April 15, 2019).
ABL Credit Agreement, dated as of April 12, 2019, by and among the Company, Limbach Holdings LLC,
Limbach Facility Services LLC, the other borrowers party thereto, the lenders from time to time party thereto
and Citizens Bank, N.A., as collateral agent, administrative agent and origination agent (incorporated by
reference to Exhibit 10.25 to the Company's Current Report on Form 10-K (File No. 001-36541) filed with the
U.S. Securities and Exchange Commission on April 15, 2019).
Pledge and Security Agreement, dated as of April 12, 2019, by and among the Company, Limbach Facility
Services LLC, the other Guarantors party thereto and Citizens Bank, N.A., as collateral agent (incorporated by
reference to Exhibit 10.26 to the Company's Current Report on Form 10-K (File No. 001-36541) filed with the
U.S. Securities and Exchange Commission on April 15, 2019).
Limbach Holdings, Inc. 2019 Employee Stock Purchase Plan, dated as of April 29, 2019 (incorporated by
reference to Exhibit 99.2 to the Company's Registration Statement on Form S-8 (File No. 333-232407) filed with
the U.S. Securities and Exchange Commission on June 27, 2019).
Offer Letter, dated September 29, 2019, by and between the Company and Jayme Brooks (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the
U.S. Securities and Exchange Commission on September 30, 2019).
Separation Agreement, dated as of October 23, 2019, by and between the Company and John T. Jordan, Jr.
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-36541)
filed with the U.S. Securities and Exchange Commission on October 30, 2019.)
Amendment Number One to Financing Agreement and Waiver, dated November 14, 2019, by and among
Limbach Holdings, Inc., Limbach Holdings LLC, Limbach Facility Services LLC, the other Guarantors party
thereto, the Lenders party thereto and Cortland Capital Market Services LLC, as Collateral Agent and
Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 10-Q
(File No 001-36541) filed with the U.S. Securities and Exchange Commission on November 14, 2019).
Amendment Number One to ABL Financing Agreement and Waiver, dated November 14, 2019, by and among
Limbach Holdings, Inc., Limbach Holdings LLC, Limbach Facility Services LLC, the other Guarantors party
thereto, the Lenders party thereto and Citizens Bank, N.A., as Collateral Agent and Administrative Agent
(incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 10-Q (File No 001-36541)
filed with the U.S. Securities and Exchange Commission on November 14, 2019).
Offer Letter, dated May 11, 2020, between the Company and Michael M. McCann (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (File No. 001-36541), filed with the SEC on
August 13, 2020
Credit Agreement, dated February 24, 2021, by and among Limbach Facility Services, LLC, Limbach Holdings
LLC, the other Guarantors party thereto, the Lenders party thereto and Wheaton Bank & Trust Company, N.A.,
as Administrative Agent and L/C Issuer, Bank of the West, as Documentation Agent and M&T Bank, as
Syndication Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
(File No. 001-36541), filed with the SEC on February 25, 2021).
The Amended and Restated Credit Agreement, dated as of December 2, 2021, by and among Limbach Facility
Services LLC, Limbach Holdings LLC, the other Guarantors party thereto, the Lenders party thereto and
Wheaton Bank & Trust Company, N.A., as Administrative Agent and L/C Issuer, Bank of the West, as
Documentation Agent and M&T Bank, as Syndication Agent (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-36541), filed with the SEC on December 3, 2021).
Membership Interest Purchase Agreement, dated as of December 2, 2021, by and between Jake Marshal, LLC,
Coating Solutions, LLC, Richard L. Pollard, Matthew S. Pollard, Limbach Holdings, Inc. and Limbach Facility
Services LLC. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No.
001-36541), filed with the SEC on December 3, 2021).
Promotion Letter dated January 17, 2023 – Michael M. McCann (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on January 17, 2023).
Promotion Letter dated January 17, 2023 – Jay Sharp (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on January 17, 2023).
109
10.35*
10.36*
10.37*
10.38
21.1
23.1
24.1
31.1
31.2
32.1
32.2
97
99.1
Promotion Letter dated January 17, 2023 – Nick Angerosa (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on January 17, 2023).
Employment Transition Agreement dated January 17, 2023, by and between Limbach Holdings, Inc. and Charles
A. Bacon, III (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No.
001-36541) filed with the U.S. Securities and Exchange Commission on January 17, 2023).
Limbach Facility Services LLC Performance Bonus Plan for Executives (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and
Exchange Commission on February 2, 2023).
The Second Amended and Restated Credit Agreement dated as of May 4, 2023, by and among Limbach Facility
Services LLC, a Delaware limited liability company, Limbach Holdings LLC, a Delaware limited liability
company, and the direct and indirect subsidiaries of the Borrower from time to time party to the agreement, as
Guarantors, the various institutions from time to time party to the agreement, as Lenders, and Wheaton Bank &
Trust Company, N.A., a subsidiary of Wintrust Financial Corporation, as Administrative Agent and L/C Issuer
(incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File No.
001-36541) filed with the U.S. Securities and Exchange Commission on May 8, 2023).
Subsidiaries of the Company, filed herewith as Exhibit 21.1
Consent of Crowe LLP.
Power of Attorney (included on the signature page).
Certification of the President and Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Executive Vice President and Chief Financial Officer Pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of the President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Limbach Holdings, Inc. Clawback Policy (filed herewith)
Petition Filed by Limbach Holdings, Inc. in the Delaware Court of Chancery on August 2, 2023 (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the
U.S. Securities and Exchange Commission on August 16, 2023).
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Document.
†
The schedules and exhibits to this agreement have been omitted from this filing pursuant to Item 601 of
Regulation S-K. The Company will furnish copies of any such schedules and exhibits to the U.S. Securities and
Exchange Commission upon request.
Management contract of compensatory plan or arrangement.
*
(c) Financial Statement Schedules. Included in Item 15(a)(2) above.
Item 16. Form 10-K Summary
Not applicable.
110
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LIMBACH HOLDINGS, INC.
/s/ Michael M. McCann
Michael M. McCann
President and Chief Executive Officer
Date: March 13, 2024
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Michael M. McCann and Jayme L. Brooks and each or any one of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the United States Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been
signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
Title
President and Chief Executive Officer and
Director
(principal executive officer)
Executive Vice President and Chief Financial
Officer
(principal financial and accounting officer)
Date
March 13, 2024
March 13, 2024
/s/ Michael M. McCann
Michael M. McCann
/s/ Jayme L. Brooks
Jayme L. Brooks
/s/ Gordon G. Pratt
Gordon G. Pratt
/s/ Michael F. McNally
Michael F. McNally
/s/ Norbert W. Young
Norbert W. Young
/s/ Laurel J. Krzeminski
Laurel J. Krzeminski
/s/ Joshua S. Horowitz
Joshua S. Horowitz
/s/ Linda G. Alvarado
Linda G. Alvarado
Director and Chairman
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
March 13, 2024
Director
Director
Director
Director
Director
111
Non-GAAP Reconciliation Table
Reconciliation of Net Income (Loss) to Adjusted EBITDA
(in thousands)
Revenue:
Fiscal Year ended December 31,
2019
2020
2021
2022
2023
$ 553,334
$ 568,209
$ 490,351
$ 496,782
$ 516,350
Net income (loss)
($ 1,775)
$ 5,807
$ 6,714
$ 6,799
$ 20,754
Adjustments:
Depreciation and amortization
Interest expense
Interest income
Non-cash stock-based compensation expense
Loss on early debt extinguishment
Impairment of goodwill
Change in fair value of warrant liability
Change in fair value of interest rate swap
Severance expense
Loss on early termination of operating lease
CEO Transition costs
CFO Transition costs
Gain on embedded derivative
Restructuring costs
Change in fair value of contingent consideration
Income tax provision (benefit)
Acquisition and other transaction costs
Adjusted EBITDA
6,286
6,285
—
1,766
513
4,359
(588)
—
—
—
—
576
(388)
—
—
(282)
—
6,171
8,627
—
1,068
—
—
1,634
—
622
—
—
—
—
—
—
5,948
2,568
—
2,601
1,961
—
(14)
—
—
—
—
—
—
—
—
1,182
—
2,763
735
8,158
2,144
—
2,742
—
—
—
(310)
—
849
—
—
—
6,016
2,285
2,809
273
8,244
2,046
(1,217)
4,910
311
—
—
124
—
—
958
—
—
1,770
729
7,346
826
$ 16,752
$ 25,111
$ 23,276
$ 31,765
$ 46,801
Adjusted EBITDA Margin
3.0%
4.4%
4.7%
6.4%
9.1%
Non-GAAP Financial Measures
In assessing the performance of our business, management utilizes a variety of financial and performance measures. The
key measure is Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net
income plus depreciation and amortization expense, interest expense (net), and taxes, as further adjusted to eliminate the
impact of, when applicable, other non-cash items or expenses that are unusual or non-recurring or that we believe do not
reflect our core operating results. We believe that Adjusted EBITDA is meaningful to our investors to enhance their
understanding of our financial performance for the current period and our ability to generate cash flows from operations that
are available for taxes, capital expenditures and debt service. We understand that Adjusted EBITDA is frequently used by
securities analysts, investors and other interested parties as a measure of financial performance and to compare our
performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA,
however, may not be comparable to similarly titled measures reported by other companies. When assessing our operating
performance, investors and others should not consider this data in isolation or as a substitute for net income (loss)
calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without
incurring the costs that the measure excludes.
DIRECTORS
Michael M. McCann
President and Chief Executive Officer
Limbach Holdings, Inc.
Joshua G. Horowitz
Portfolio Manager/Managing Director
Palm Management (US) LLC
Laurel J. Krzeminski
Chief Financial Officer (Retired)
Granite Construction, Inc.
Michael F. McNally
President and Chief Executive Officer (Retired)
Skanska USA
Gordon G. Pratt
Managing Member
Fund Management Group LLC
Norbert W. Young
Executive Vice President
Lehrer, LLC
Linda G. Alvarado
President and Chief Executive Officer
Alvarado Construction, Inc.
EXECUTIVE OFFICERS
Michael M. McCann
President and Chief Executive Officer
Jayme L. Brooks
Executive Vice President and
Chief Financial Officer
Jay A. Sharp
President of Limbach
Nick S. Angerosa
President of Harper
INVESTOR INQUIRIES
Financial Profiles, Inc.
Julie Kegley
Senior Vice President
T: 310-622-8246
jkegley@finprofiles.com
TRANSFER AGENT
Continental Stock Transfer & Trust Company
1 State Street, 30th Floor
New York, NY 10004
T: 212-509-4000
cstmail@continentalstock.com
www.continentalstock.com
INDEPENDENT AUDITOR
Crowe LLP
One Mid America Plaza, Suite 600
Oak Brook, IL 60522
T: 630-574-7878
www.crowe.com
CORPORATE COUNSEL
Cozen O’Connor LLP
One Oxford Centre
301 Grant Street, 41st Floor
Pittsburgh, PA 15219
T: 412-620-6500
https://www.cozen.com
STOCK LISTING
Limbach Holdings, Inc. Common Stock
NASDAQ: LMB
ANNUAL MEETING OF STOCKHOLDERS
The 2024 Annual Meeting of Stockholders will be held in a virtual-only format on Thursday, June 13, 2024 at 2:30 p.m. EDT.
This Annual Report contains “forward-looking statements,” as that term is used in the federal securities laws. Forward-looking
statements may be identified by words such as “believe,” “expect,” “objective,” “intend,” “targeted,” “plan,” “anticipate,”
“project” and similar phrases. These forward-looking statements are subject to numerous assumptions, risks and uncertainties
described in Limbach’s Form 10-K filled with the Securities and Exchange Commission on March 13, 2024 that may cause
Limbach’s actual results to be materially different from any future results expressed or implied in such statements. Limbach
cautions readers not to place undue reliance on these forward-looking statements, which speak only as of April 23, 2024, the
date of this Annual Report. Limbach undertakes no obligation, and specifically disclaims any obligation, to release any revision
to any forward-looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the
occurrence of unanticipated events.
797 Commonwealth Drive
Warrendale, PA 15086
limbachinc.com