A Leading Building Systems Solutions Firm
2O24
ANNUAL
REPORT
Limbach Holdings, Inc., (NASDAQ: LMB), with revenue of $518.8 million in 2024, is a building systems solutions firm that
partners with building owners and facilities managers who have mission critical mechanical (heating, ventilation and air
conditioning), electrical and plumbing infrastructure. We strive to be an indispensable partner to our customers by providing
services that are essential to the operation of their businesses.
We work with building owners primarily in six vertical markets: healthcare, industrial and manufacturing, data centers, life
science, higher education and cultural and entertainment. We have approximately 1,400 team members in 20 offices across
the eastern United States. Our team members uniquely combine engineering expertise with field installation skills to provide
custom solutions that leverage our full life-cycle capabilities, which allows us to address both the operational and capital
projects needs of our customers.
2024 Financial Highlights
Total & ODR Revenue
($ in millions)
Total
Revenue
ODR
Revenue
FY 2024 ODR vs. GCR Rev. Segment Mix
($ in millions)
Total Gross Profit & Margin Expansion
Total Gross Profit
($ in millions)
Total Gross Margin
Percentage
$568.2M
$127.2M
$490.4M
$140.3M
$496.8M
$216.4M
$516.4M
$262.0M
2020
2021
2022
2023
2024
$518.8M
$345.5M
$553.3M
$115.1M
2019
66.6%
33.4%
Letter to Our Stockholders:
Dear Stockholders,
Limbach Holdings completed another year of strong execution and record profitability in 2024,
driven by our commitment to creating value for our customers and delivering sustainable
growth for our investors. Our performance was anchored by the three pillars of our strategy:
shifting our revenue mix, evolving our offerings, and scaling through acquisitions.
Executing Our Three-Pillar Strategy
The key to our strategy has been our first pillar – shifting our revenue mix to working directly with building owners on existing
infrastructure in the Owner Direct Relationships (“ODR”) segment rather than relying on new construction projects in the General
Contractor Relationships (“GCR”) segment. In 2024, approximately 67% of our total revenue came from the ODR segment,
contributing approximately 75% of total gross profit dollars. This shift has significantly enhanced our margin profile and has helped
to reduce our overall risk.
The second pillar of our strategy involves the evolution of our offerings to expand capabilities and drive higher margins. In 2024,
we achieved a meaningful increase in total gross margin to 27.8%, up from 23.1% in 2023. This improvement reflects our
commitment to providing engineered solutions that solve complex facility challenges while improving operational efficiencies.
Our third pillar is scaling our business through acquisitions. In 2024, we successfully completed two strategic acquisitions – Kent
Island Mechanical and Consolidated Mechanical – which we expect to contribute approximately $6 million to our adjusted EBITDA
in 2025. Acquisitions have played a key role in broadening our market reach and strengthening our position in mission-critical
verticals*.
Expanding in Key Market Verticals
Our disciplined approach focuses on six mission-critical market verticals that drive consistent demand across economic cycles.
Among these, healthcare is our largest and most significant vertical. We play a crucial role in ensuring the operational continuity of
medical facilities, allowing them to deliver life-saving care. Each of our 20 locations prioritizes healthcare facilities with acute care,
and we continue to expand our national footprint in this sector, developing reoccurring revenue streams as we strengthen our
customer relationships and provide onsite account management as well as staff augmentation in certain instances.
Healthcare
Data Centers
Higher Education
Industrial &
Manufacturing
Life Sciences
Cultural &
Entertainment
*With respect to the projected 2025 Adjusted EBITDA contribution from Kent Island Mechanical and Consolidated Mechanical, a quantitative reconciliation is not available without unreasonable efforts
due to the forward-looking nature and high variability, complexity and low visibility with respect to certain items, which are excluded from Adjusted EBITDA. We expect the variability of these items to
have a potentially unpredictable, and potentially significant, impact on future financial results. We define Adjusted EBITDA as net income plus depreciation and amortization expense, interest expense,
and taxes, as further adjusted to eliminate the impact of, when applicable, other items or expenses that are unusual or non-recurring 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 non-GAAP financial measures are 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 calculations of non-GAAP measures, however, may not be
comparable to similarly titled measures reported by other companies. Our projection of this 2025 Adjusted EBITDA contribution is forward looking; see the statements related to forward looking
statements under the heading “Annual Meeting of Stockholders” below.
Industrial and Manufacturing has become our second largest vertical, driven by our strategic acquisitions. We partner with facility
owners to support complex systems, ensuring manufacturing processes run smoothly. Our tailored solutions address regulatory
compliance, supply chain resilience, and infrastructure upgrades. By working as a trusted partner, we help customers optimize
their operations and facility performance.
We continue to see significant growth opportunities across our other four key verticals as existing buildings age and require
critical upgrades to maintain optimal conditions. Our unique value proposition lies in our ability to embed dedicated teams within
customer facilities, augmenting their staff and ensuring seamless system performance.
Unlike traditional engineering and construction firms focused on new buildings, Limbach serves building owners directly in
existing facilities with aging infrastructure. Our approach fosters long-term customer relationships, generating repeatable revenue
streams and creating a more resilient business model.
Positioned for Long-Term Success
While 2024 was a year of progress, we are still in the early stages of realizing our full potential. We see ample opportunities for
growth, whether through geographic expansion, margin enhancement, or capitalizing on the infrastructure needs of
mission-critical facility owners.
With a strong foundation in place, we are confident in our ability to drive sustained value creation for our customers and our
stockholders.
Thank you for your continued trust and support.
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, 2024
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
46-5399422
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification
No.)
797 Commonwealth Drive,
Warrendale, Pennsylvania
15086
(Address of principal executive offices)
(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
Trading
Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share
LMB
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
¨
Accelerated filer
☒
Non-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 28, 2024 (the last business
day of the registrant’s most recently completed second fiscal quarter), was approximately $579.0 million.
As of March 6, 2025, the number of shares outstanding of the registrant’s common stock was 11,353,379.
Documents Incorporated by Reference: Portions of the registrant’s definitive proxy statement relating to its 2025 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.
5
Item 1A.
Risk Factors.
11
Item 1B.
Unresolved Staff Comments.
28
Item 1C.
Cybersecurity
Item 2.
Properties.
28
Item 3.
Legal Proceedings.
28
Item 4.
Mine Safety Disclosures.
28
Information About Our Executive Officers
28
Part II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
29
Item 6.
[Reserved]
29
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
29
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
50
Item 8.
Financial Statements and Supplementary Data.
51
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
93
Item 9A.
Controls and Procedures.
93
Item 9B.
Other Information.
94
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
94
Part III.
Item 10.
Directors, Executive Officers and Corporate Governance.
95
Item 11.
Executive Compensation.
95
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
95
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
95
Item 14.
Principal Accountant Fees and Services.
95
Part IV.
Item 15.
Exhibits, Financial Statement Schedules.
96
Item 16.
Form 10-K Summary.
99
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
•
Intense competition on our industry could reduce our market share and profit.
•
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.
•
Failure to achieve and maintain a high level of building systems solutions in our ODR segment could damage our
reputation with customers and negatively impact our results.
•
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.
•
Our failure to obtain new agreements and renew existing agreements could have a material adverse effect on our
business, financial condition and results of operations.
•
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.
•
If we experience delays and/or defaults in customer payments, we could be unable to recover all expenditures.
•
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 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.
•
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.
3
•
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, including changes to existing trade agreements and any resulting
changes in international trade relations, 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, including potential policy shifts under the
current presidential administration.
•
Increasing scrutiny and changing expectations from investors and customers with respect to our environmental, social
and governance (“ESG”) practices may impose additional costs on us or expose us to reputational or other risks.
•
We are susceptible to adverse weather conditions and the increasing frequency and severity of extreme weather events,
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.
•
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.
4
•
Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact our
results of operations and financial condition.
5
Part I
Item 1.
Business
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 with 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 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 approximately 1,400 team members in 20 offices across the eastern
United States and operates primarily in the eastern and midwest regions of the 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.
2024 Highlights
In 2024, the Company:
•
Generated $36.8 million of net cash provided by operating activities.
•
Expanded its consolidated gross profit margins by 470 bps to 27.8%.
•
Increased its revenue generated from the ODR segment (as defined below) by 31.9% (versus 2023), achieving its 2024
ODR segment revenue target of 65%-70% of total consolidated revenue at 66.6%.
•
Increased diluted earnings per share by 46% (versus 2023) to $2.57.
•
Produced record annual gross profit and gross profit margins.
•
Successfully completed the acquisitions of Kent Island Mechanical, LLC (“Kent Island”) and Consolidated
Mechanical, LLC (“Consolidated Mechanical”) (as described in more detail below).
Segments
The Company operates in two segments, (i) 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 to existing buildings direct to, or assigned by, building owners or property managers,
and (ii) General Contractor Relationships (“GCR”), in which the Company generally manages new construction or renovation
projects that involve primarily mechanical, electrical, and/or plumbing (“MEP”) services awarded to the Company by general
contractors or construction managers.
ODR Segment. The Company’s key business initiative for its ODR segment is to position itself as a value-added, indispensable
partner to building owners in mission-critical markets, providing full life-cycle capabilities from concept design and
engineering through system commissioning and around-the-clock service and maintenance primarily to their existing buildings.
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 maintenance services, which it believes improves revenue predictability and could
increase economic resilience. The Company provides its ODR business services through the following project delivery
methodologies and other service offerings:
•
Integrated Facility Planning. The Company provides professional and consultative services to building owners,
helping them proactively plan future investments, anticipate opportunities, and align facility needs with long-term
business goals. These services include engineer-led facility assessments, identification and support of capital planning
needs for new and existing facilities through the analysis of existing facility data, as well as program management
support.
•
Replacements & Retrofit. The Company provides system and/or facility assessments to determine the best solution for
the building owner’s assets. Based on the assessments performed, the Company tailors MEP equipment upgrades for
its customers’ system and/or facility. Examples of MEP equipment upgrades and products include providing installed
6
equipment solutions, equipment retrofitting/restoration, off-site equipment skids, temporary equipment fixes and
comprehensive system replacements.
•
Rental Equipment. The Company provides turnkey rental equipment solutions to support building owners during
planned replacements, emergency repairs, and construction outages. These services go beyond simply supplying
temporary equipment, they include system design, ensuring existing system compatibility, managing all necessary
connections, as well as overseeing installation, maintenance, and removal.
•
Maintenance and Repairs. The Company provides comprehensive inspection, troubleshooting, repair, and services to
ensure the safe, efficient, and reliable operation of building systems. Ongoing maintenance and operations are essential
for building functionality, safety, and energy efficiency. The Company’s skilled technicians specialize in servicing all
critical building systems, addressing root causes of issues, and delivering tailored maintenance solutions through
“evergreen” contracts. The Company’s predictive maintenance solutions include:
•
24/7 emergency service and repairs;
•
on-site asset valuation;
•
engineer-led assessments;
•
staff augmentation;
•
proactive preventative maintenance;
•
building automation consultation;
•
hydro-jetting; and
•
facility team training.
•
Energy Efficiency Solutions. The Company provides customized solutions to help building owners achieve energy
goals, secure funding, reduce operating costs, and maintain energy-efficient facilities. By enhancing visibility into
facility and asset performance, the Company delivers significant energy savings. The Company’s tailored approach
includes sourcing funding through energy rebates and incentives, energy engineer-led facility assessments and
benchmarking, energy-efficient equipment upgrades, and optimizing and maintaining building systems.
•
Decarbonization Roadmaps. The Company provides customized strategies to help building owners achieve their
carbon reduction goals in a cost-effective manner. Through consulting and energy engineer-led assessments, it
develops tailored solutions and long-term roadmaps focused on reducing carbon emissions while optimizing energy
efficiency and system performance.
Due to the Company’s ongoing 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.
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
or fully complete 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
primarily upon qualifications and project approach, and secondarily upon select cost factors. Cost factors are usually
limited to a fixed fee, 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.
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.
7
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. As part of its strategy, the Company utilizes a three
pillar approach to scale its business; 1) to improve profitability and generate quality growth in its operations by shifting to the
ODR segment; 2) to expand margins through evolved offerings, and 3) to scale the business through acquisitions. To
accomplish these objectives, the Company currently is executing the following initiatives:
ODR Growth. In focusing on improved profitability and generating quality growth in its operations, the Company has dedicated
and continues to dedicate its resources toward the growth of its ODR segment as the scope of offerings provided within the
Company’s ODR segment typically yield higher margins when compared to its GCR segment. During fiscal year 2023, the
Company eclipsed its ODR-related revenue target, generating a 50/50 segment revenue mix. For fiscal year 2024, the Company
further expanded its growth within the ODR segment where it generated 66.6% of its total consolidated revenue, achieving its
2024 ODR segment revenue target of 65%-70%. 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. 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 offerings to better serve its customers. In addition, 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 31.9% to $345.5 million for the year ended December 31, 2024 as compared to
$262.0 million for the year ended December 31, 2023. 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, ODR segment revenue increased
in the aggregate by approximately $31.5 million due to the ACME Industrial Piping, LLC (“ACME”) and Industrial Air, LLC
(“Industrial Air”) transactions. These entities were not acquired entities of the Company for the full year ending December 31,
2023. ODR gross profit increased $31.7 million, or 41.6%, due to the combination of an increase in revenue, higher margins
driven by contract mix and as a result of the ACME and Industrial Air transactions. ODR gross profit percentage increased to
31.2% for the year ended December 31, 2024 from 29.0% for the year ended December 31, 2023, mainly driven by the mix of
higher margin ODR segment work and net material gross profit write-ups.
Improved GCR Segment Margins. In the GCR segment, the Company’s efforts continue to focus on improving project
execution and profitability by pursuing opportunities that are smaller in size and shorter in duration than the opportunities
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 project selection and as it completes
current projects.
The Company’s GCR revenue decreased by 31.9% to $173.3 million for the year ended December 31, 2024 as compared to
$254.4 million for the year ended December 31, 2023. The decrease in GCR revenue was primarily due to the Company’s
continued focus on the execution of its mix-shift strategy to ODR. GCR gross profit decreased $6.7 million, or 15.5%, primarily
due to lower revenue despite higher margins. Gross profit improved to 21.1% for the year ended December 31, 2024 from
17.0% for the year ended December 31, 2023 primarily due to the Company becoming more selective when pursuing GCR
projects.
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 parts of the United States, again reducing its
exposure to negative developments in any single 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;
•
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;
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•
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 entertainment facilities (including casinos) and amusement rides and parks.
The Company also partners with building owners across other market sectors and believes that it is imperative that the
partnerships formed between the Company and its building owners share similar core values.
Investment in Its Team Members. Employee development underpins the Company’s efforts to execute its strategy. The
Company continues to actively concentrate managerial and sales resources on training and hiring experienced team members 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 seeks to attract and retain quality team members by providing them an enhanced career path that offers a stable
income, attractive benefits packages and excellent advancement opportunities. The Company invests in its team members
through safety and wellness programs, robust internal communication, career development and training programs, recognition
programs and succession planning initiatives.
Margin Expansion Through Evolved Offerings. The Company continues to focus on expanding its margins by evolving and
enhancing its current offerings to building owners. This initiative reflects its commitment to driving sustainable growth,
increasing operational efficiency and delivering greater value to its stakeholders. This evolution is designed to align more
closely with current market demands, emerging customer preferences and operational efficiencies, which together contribute to
margin expansion. The Company aims to differentiate itself from its competitors by being a one-stop-shop for building owners,
capable of providing a full life-cycle of engineered solutions and craft expertise. By meeting diverse customer needs under one
roof, the Company deepens customer loyalty. The Company believes that building owners value the convenience and reliability
of a single point of contact, which fosters long-term partnerships and reoccurring business and may open doors to larger capital
projects. In addition, by evolving its offerings, the Company is able to capture a greater share of the value chain.
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 offerings to better serve its customers. 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’s ODR growth strategy, expands and/or supplements the Company’s
current breadth of 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 Kent Island Transaction. On September 3, 2024 (the “Kent Island Effective Date”), Limbach Facility Services LLC
(“LFS”), a Delaware limited liability company and wholly-owned subsidiary of the Company, Kent Island, and the owner of
Kent Island (the “Kent Island Seller”) entered into a Purchase Agreement (the “Kent Island Purchase Agreement”) pursuant to
which LFS purchased all of the outstanding equity interests in Kent Island from the Kent Island Seller (the “Kent Island
Transaction”). The Kent Island Transaction closed on the Kent Island Effective Date. As a result of the Kent Island Transaction,
Kent Island became a wholly-owned indirect subsidiary of the Company. Kent Island is a leading provider of building systems
solutions in the Greater Washington, DC metro area, including suburban Maryland and Northern Virginia. Kent Island excels in
designing, engineering, installing, servicing, and maintaining mechanical and plumbing systems for complex facilities. 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 Consolidated Mechanical Transaction. On December 2, 2024 (the “Consolidated Mechanical Effective Date”), LFS,
Consolidated Mechanical, and the owner of Consolidated Mechanical (the “Consolidated Mechanical Seller”) entered into a
Purchase Agreement (the “Consolidated Mechanical Purchase Agreement”) pursuant to which LFS purchased all of the
outstanding equity interests in Consolidated Mechanical from the Consolidated Mechanical Seller (the “Consolidated
Mechanical Transaction”). The Consolidated Mechanical Transaction closed on the Consolidated Mechanical Effective Date.
As a result of the Consolidated Mechanical Transaction, Consolidated Mechanical became a wholly-owned indirect subsidiary
of the Company. Consolidated Mechanical serves the heavy industrial, power and commercial markets. Consolidated
Mechanical is a premier provider of mechanical, millwright, steel fabrication, plumbing construction, maintenance, and outage
services to owners of complex process systems in the industrial sector. The acquisition extends the Company’s reach into the
industrial sector, with new exposure to the power generation, food processing, manufacturing, and metal markets in Kentucky,
Illinois and Michigan.
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See Note 3 – Acquisitions in the accompanying notes to the Company’s consolidated financial statements for further
information on the Kent Island and the Consolidated Mechanical transactions.
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
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, 2024, 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 that 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 years ended December 31, 2024 and 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.
ODR and GCR 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 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. In
addition to backlog, the Company has a substantial amount of contracts with short lead times that book-and-bill within the same
reporting period and are not included in backlog. 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 ODR backlog was $225.3 million and $147.0 million as of December 31, 2024 and 2023, 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 86% of its ODR backlog as of December 31, 2024 will be
recognized as revenue during 2025. The Company believes its ODR backlog increased due to its continued focus on the
accelerated growth of its ODR business.
The Company’s GCR backlog was $140.0 million and $186.9 million as of December 31, 2024 and 2023, respectively. Projects
are brought into backlog once the Company has been provided a written confirmation of award and the contract value has been
established. At any point in time, 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 Company 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 72% of its GCR backlog
as of December 31, 2024 will be recognized as revenue during 2025. Additionally, the reduction in GCR backlog has been
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intentional as the Company continues to focus on higher margin projects than it has done historically, as well as its focus on
smaller, higher margin owner direct projects.
Competition
The mechanical, plumbing, electrical, and maintenance industry is highly competitive and fragmented, with a range of
participants including small regional businesses, large national companies, and specialized subcontractors. The geographic
markets in which the Company competes has numerous companies that provide similar services. The Company competes on
various factors, including; cost efficiency, reputation and quality of service, technical expertise and innovation, geographic
reach and scale, knowledge of local markets and conditions, financial strength, surety bonding capacity, availability and
experience of craft labor, and customer relationships. The Company’s competitors range from smaller local businesses offering
highly specialized services to large multinational corporations with broader service offerings. While some competitors may
have greater financial resources or local market presence, the Company believes its comprehensive services portfolio,
commitment to safety and quality, and focus on customer satisfaction position it to compete effectively. Additionally, the
mechanical service industry is also subject to evolving trends such as increased demand for energy-efficient systems,
sustainability initiatives, and advancements in automation. Adapting to these trends remains critical to maintaining a
competitive advantage.
Materials and Equipment
The Company’s operations rely on a wide range of materials and equipment essential for providing mechanical contracting
services. The Company procures materials and equipment from a network of suppliers and manufacturers. The Company’s
supply chain strategy emphasizes maintaining strong relationships with key vendors to ensure consistent quality and timely
delivery. While we source the majority of materials domestically, some components are sourced internationally, subject to
import regulations and tariffs. The cost and availability of materials and equipment can fluctuate based on market conditions,
global supply chain disruptions, and changes in commodity pricing. The Company actively monitors these factors and employs
strategies such as effectively managing its business through enhanced labor planning and project scheduling, increased pricing
to the extent contractually permitted, and by leveraging its relationships with its suppliers and customers. The Company ensures
that all materials and equipment meet applicable environmental and regulatory requirements. Additionally, the Company is
increasingly incorporating sustainable and energy efficient materials into its projects to meet customer demands and comply
with evolving industry standards. See Item 1A. “Risk Factors — An increase in the cost or the availability of materials and
commodities could affect our profitability.” in this Annual Report on Form 10-K.
In February 2025, the United States government announced a number of tariffs on imports, including imports on steel and
aluminum. Increased costs for imported steel and aluminum products have led domestic sellers to respond with market-based
increases to prices for such inputs as well. These tariffs, along with any additional tariffs or trade restrictions that may be
implemented by the United States or other countries, could result in further increased costs, shifts in competitive positions and a
decreased supply of steel, resins and aluminum as well as additional imported components and materials. The Company’s ODR
segment focus often allows for these increased costs to be passed onto the customer due to the short sales cycle; however, the
Company may not be able to pass certain price increases on to its customers and may not be able to secure adequate alternative
sources of materials on a timely basis. While retaliatory tariffs imposed by other countries on the United States have not yet had
a significant impact, the Company cannot predict further developments. At this time, it is difficult to accurately measure the
impact these tariffs, or potential future tariffs, will have on the Company.
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.
Team members. As of December 31, 2024, the Company had approximately 1,400 team members, including approximately 500
full-time salaried team members who support its customers directly and indirectly, such as project managers, account managers,
engineers and superintendents, and approximately 900 technician and craft team members, some of whom are represented by
various labor unions. The Company believes it has a good relationship with its team members and has developed several strong
partnerships with local unions to have access to an experienced, talented technician and craft workforce.
Core Values and Core Purpose. From the technicians in the field to the management team, the Company focuses on caring for
its 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, develop and retain talent and emphasize the importance of promoting from
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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. Since 2021, the Company has reduced its salaried attrition rate by 43% through the effective
implementation of its human capital strategies.
The Company’s culture is driven by its core values:
•
We CARE: We care about safety and having our team members 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 team members to
make a difference by giving back.
•
We Act with INTEGRITY: Our business is driven by doing the right thing for our team members and customers. We
pride ourselves on delivering on our commitments.
•
We Are INNOVATIVE: We are a collaborative team with diverse technical expertise that equips us to tackle our
customers’ toughest challenges. Our culture supports and encourages our team members to speak up to express their
ideas, track future trends, and breathe life into new concepts, all aimed at improving our company and making our
customers’ lives easier. By creating an environment of continuous learning, we empower our people with the proper
training and competencies to deliver innovative solutions tailored to address our customers’ evolving needs.
•
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 (“EOS”) as our way of managing and leading the
organization for top performance. The EOS assists our management team by clarifying, simplifying and achieving our
business vision through providing a structured approach to management of operations and ensuring that everyone in
the Company is aligned and working towards the same goals.
The Company believes its team members are essential to its continued success and the Company seeks to provide every team
member with the foundation and environment needed to achieve the team members’ goals. This objective begins with the
Company's commitment to inclusion. We CARE, one of the Company’s core values, is the foundation of its efforts to create a
fair and inclusive organization. Building a culture where all of its team members feel a sense of belonging is important to the
Company.
In addition, the Company screens leadership hires and measures team member performance against these core values, and
regularly measures team member engagement against these values through the Company’s annual team member engagement
survey. The Company’s “We Care” survey, which has been issued for more than twenty years, provides leadership with
insights, including constructive ideas on how to improve the overall business for those who work for it. In 2024, the Company
was recognized as one of America’s “Most Loved Workplaces,” published by Newsweek Magazine and certified by the Best
Practice Institute. Additionally, for the second year in a row, the Company was recognized as one of Forbes’ “Most Successful
Small Companies” (in 2024 and 2025).
Training and Team Member 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 team members benefit from opportunities to strengthen their leadership and management competencies, improve
communication and interpersonal skills, and advance their technical proficiency. The Company’s team members have access to
resources that include a robust learning management system that provides company-wide access for team members 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 for its third consecutive year (in 2023,
2024 and 2025). Additionally, the Company was recognized in 2024 and 2025 as a 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 team members see the impact of these programs, and in 2023 and 2024, its training
programs averaged a participant Net Promoter Score of over 85%. The Company has invested in additional training to support
those team members directly working in customer-facing roles across the Company, such as account management training, as it
aims to grow its ODR business.
Culture of Belonging. The Company is committed to creating and supporting a fair and inclusive environment for its team
members, We Care culture and industry as a whole. The Company actively seeks to foster an environment where every team
member’s voice is heard and every team member can reach their full potential. The Company practices its commitment through
its core values, selection, development and training, which extends to its senior leadership and Board of Directors. The
Company understands that inclusivity is truly a competitive advantage that helps drive growth and innovation.
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Embrace Forum. The Company formed the Embrace Forum to continue to evolve its commitment to a culture of belonging.
This forum is composed of team members and leaders across the company who have made it their mission to maximize the
potential of the Company’s team members by creating great opportunities through a fair and inclusive environment. The
Embrace Forum focuses on creating a culture of belonging, community and supporting employee resource groups (“ERGs”).
The Company offers all of its team members the opportunity to join ERGs. These groups foster professional development,
social connectivity, and celebrate inclusivity 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 promoting and supporting women
within its organization throughout their career, including 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 within the Company and industry.
•
Unidos. Unidos is an ERG that was created to empower and amplify the Hispanic culture within the Company. The
mission of this ERG is to create a supportive environment for Hispanic team members and their allies and provide a
more inclusive environment where everyone feels safe, respected and valued.
•
Hearts & Hands. Hearts & Hands is an ERG with the core purpose of providing opportunities and encouraging team
members to make a difference by giving back to communities in which the Company has an operating footprint.
•
Veterans. The Veterans ERG aims to offer resources, foster camaraderie, and promote understanding among Company
team members 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 team members. The Company
appreciates the fact that it owes its 120+ year existence to team members who work hard to help the Company prosper.
As such, the Company has committed itself to the health, safety and well-being of its team members and their families. One of
the ways the Company shows its commitment is through offering competitive team member 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 team members 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 team members 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 Employee Assistance Program, the Company offers its team members,
and their dependents or household members, access to services and counseling on a variety of personal, professional,
legal, and financial matters, at no cost.
•
Work/Life Programs. Consists of various activities intended to inspire the Company’s team members 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 team members
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 its senior staff and field professionals via its Hearts and
Minds Forum. The Company’s Hearts and Minds Forum asks its team members 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. Hiring qualified team members who share its core values.
•
Knowing the Details. 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
the management team to craft professionals.
13
•
Mentoring and Coaching. Acting as a mentor and coach to show team members how to practice good safety behavior.
In 2020, 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 in 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 is also subject to
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 the Company is not aware of any proposed requirements that it 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, which 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 team members 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 the climate. 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 website
the copies of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
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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.
Risks Related to Our Business and Industry
Intense competition in our industry could reduce our market share and profit.
The mechanical, plumbing, electrical, and maintenance industry is highly competitive and fragmented, with a range of
participants including small regional businesses, large national companies, and specialized subcontractors. The geographic
markets in which we compete in have numerous companies that provide similar services. 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. We also expect 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. 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 would be impaired if we have to reduce our prices to remain competitive.
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.
Failure to achieve and maintain a high level of building systems solutions in our ODR segment could damage our
reputation with customers and negatively impact our results.
As our ODR business continues to expand, our ability to provide building systems solutions at a very high level is very
important to the continued success of our business. Additionally, quality issues could harm customer confidence in our
company and our brands. If our building systems solutions offerings do not meet applicable safety standards or our customers’
expectations regarding quality, safety or performance, we could experience lost sales and increased costs and we could be
exposed to legal, financial and reputational risks. In addition, when our building systems solutions fail to perform as expected,
we could be exposed to warranty, product liability, personal injury and other claims.
15
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
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:
•
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, strikes or work stoppages in general 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;
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•
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.
Our failure to obtain new agreements and renew existing agreements could have a material adverse effect on our business,
financial condition and results of operations.
Our business depends on our ability to win new agreements and renew existing agreements with customers. Agreement
proposals and negotiations can be complex and frequently involve a lengthy sales and selection process, which is affected by a
number of factors. These factors include market conditions, the timing of renewals, the pricing of these arrangements and other
matters that are outside of our control. If negative market conditions arise, or we encounter other difficulties in obtaining new or
repeat work, we may not be able to pursue certain projects or work, which could have a material adverse effect on our business,
financial condition and results of operations.
Timing of the award and performance of new contracts could have an adverse effect on our operating results and cash flow.
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. Despite a significant
portion of our project revenue being generated from smaller, more risk averse contracts, our results of operations may 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.
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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
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 our 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 have been pursued and may pursue in the future 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.
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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:
•
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
successfully integrate the operations of the acquired businesses with our existing operations. Integrating acquired businesses
involves a number of operational challenges and risks, including:
•
diversion of management’s attention from our existing business;
•
inability to successfully convert acquisitions to our operational business strategy;
•
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 customers 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 customers
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.
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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:
•
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 of operations 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
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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 employee 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
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.
21
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.
Recent labor shortages may also lead to higher wages for employees and higher costs to purchase the services of third-party
subcontractors. Increases in labor costs, such as increases in minimum wage requirements, wage inflation and/or increased
overtime, reduce our profitability and that of our customers. Increases in such labor costs for a prolonged period of time could
have a material adverse effect on the company’s financial condition and results of operations
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
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
22
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 customers 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.
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
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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.
Recent and potential changes in U.S. trade policies, including changes to existing trade agreements and any resulting
changes in international trade relations, 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 and the current presidential administration has already proposed or
suggested that it will propose additional tariffs going-forward. 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, including additional retaliatory responses in the form of additional tariffs. The current presidential administration
may continue to alter the U.S.’s approach to international trade, which may impact existing bilateral or multi-lateral trade
agreements and treaties with foreign countries. The current presidential administration has indicated that they are likely to
impose further significant tariffs on imported materials and goods that may be used in connection with our operations. The
imposition of such tariffs may strain international trade relations and increase the risk that foreign governments implement
retaliatory tariffs on goods imported from the United States.
These political and economic changes could have a material effect on global economic conditions and the stability of financial
markets and could significantly reduce global trade. It is unclear what future actions the U.S. government or foreign
governments will or will not take with respect to tariffs or other international trade agreements and policies. Current trade
negotiations may fail, which may exacerbate these risks.
In addition to potential increases on tariffs, wars or conflicts could affect our ability to obtain raw materials and products.
Ongoing and future conflicts and other geopolitical events may result in sanctions or other export controls imposed by the U.S.
or United Nations.
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.
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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.
The global business environment remains marked by significant political and economic uncertainties, including the ongoing
effects of pandemics, international conflicts such as the wars in Ukraine and between Israel and Hamas, persistent inflation,
volatile energy prices, fluctuating consumer confidence, and geopolitical tensions. These factors create challenges for our
customers, vendors, and us in accurately forecasting and planning business activities.
Economic instability may result in reduced or delayed customer spending on our services, extended business development
cycles, increased demands for favorable pricing or contractual terms, and challenges in collecting accounts receivable.
Additionally, volatility in global markets may restrict our ability to access capital when needed, potentially limiting our capacity
to respond to changing business conditions or seize new opportunities.
If these or other uncertainties persist or worsen, they may materially and adversely impact our operations, revenue, and
profitability.
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. In addition, previously, 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. As of
December 31, 2024, we had $35.8 million of available borrowing capacity under the Second A&R Wintrust Revolving Loan (as
defined below).
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
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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
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 our 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 50 multiemployer pension plans in the United States under collective bargaining agreements
that generally provide pension benefits to employees covered by these agreements. Approximately 45% of our current
employees are members of collective bargaining units. Our contributions to these plans were approximately $10.3 million for
the year ended December 31, 2024 and $11.6 million and $12.6 million for the years ended December 31, 2023 and 2022,
respectively. 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
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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 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, 2024 or 2023.
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 legislations 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, 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, ODR and GCR 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, pandemics, epidemics, infectious outbreaks or other public health crisis’
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, outbreak of an infectious disease or other public health
crisis 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
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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
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, including potential policy shifts under the current
presidential administration.
Public and regulatory focus on climate change continues to evolve, influencing the actions of local, state, national, and
international bodies. While previous presidential administrations prioritized climate change initiatives such as rejoining the
Paris Agreement, setting GHG emission reduction targets, and finalizing the SEC 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”), whose implementation, after significant legal challenges, was voluntarily paused by the SEC in April 2024
pending judicial review, the current presidential administration may reverse or significantly alter these regulatory trends.
Historically, the current presidential administration pursued policies aimed at reducing regulatory burdens on businesses,
including the rollback of environmental regulations, withdrawal from the Paris Agreement, and easing restrictions on fossil fuel
production.
If the current presidential administration adopts similar policies, it may lead to reduced enforcement or elimination of federal
climate-related regulations, potentially lowering compliance costs for us and our customers, particularly those in fossil fuel or
emissions-intensive industries. However, any such deregulatory actions could create uncertainty for businesses already working
to meet stricter climate-related rules and commitments, including those required by state, municipal, or international
regulations, such as California's mandatory GHG disclosure laws adopted in September 2023.
Additionally, ongoing market and investor pressure for greater sustainability and climate-related disclosures may persist
regardless of federal regulatory changes.
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If federal deregulatory actions conflict with state or local climate initiatives, such as California's GHG disclosure requirements,
it could create a fragmented regulatory environment, increasing operational complexity and compliance costs for us and our
customers. Further, uncertainty surrounding federal climate policy may delay or alter customer decision-making on energy
transition projects, reducing demand for our services in certain areas.
We cannot predict with certainty the extent to which federal, state, or international climate-related regulations, or their potential
rollbacks, will impact our business, financial condition, or operations. However, changes in climate policy or market dynamics
under the current presidential administration could materially affect our operations, costs, and profitability.
Increasing scrutiny and changing expectations from investors and customers with respect to our environmental, social and
governance (“ESG”) practices may impose additional costs on us or expose us to reputational or other risks.
Investors and customers are placing growing emphasis on the ESG practices of companies across industries, including the
environmental impact of operations, human capital management and corporate governance. Many investors rely on third-party
benchmarks, ratings, or scores to measure a company’s ESG practices, which can influence investment decisions or lead to
engaging with companies to require changes to their practices. Similarly, some customers may evaluate our ESG performance
or require us to adopt specific ESG policies as a condition of awarding contracts.
While ESG expectations are evolving, they remain varied and subject to differing standards among investors, customers, and
regulators. Under the previous presidential administration, there was a significant push to advance ESG-related regulations,
including the SEC Climate Rules, which would have required extensive reporting on climate risks and GHG emissions.
However, these rules have been delayed by legal challenges, and the current presidential administration has signaled an intent to
reduce regulatory burdens on businesses, which could include altering or eliminating ESG-related requirements. These potential
changes could create further uncertainty around the ESG expectations of investors and customers.
Furthermore, organizations that provide ESG ratings or scores may assign us unfavorable ratings, whether due to our own
practices, industry trends or insufficient disclosures. Such ratings could negatively influence investor sentiment, divert
investment capital to other companies or industries and adversely impact our stock price and cost of capital.
Additionally, even in a deregulatory environment, market and stakeholder pressures around ESG are likely to persist.
Responding to these expectations may require increased costs for compliance, reporting, and operational adjustments, or expose
us to the risk of stockholder activism, all of which could materially affect our business, operations, and financial condition.
We are susceptible to adverse weather conditions and the increasing frequency and severity of extreme weather events,
which may harm our business and financial results.
Our business may be adversely affected by severe weather conditions, including hurricanes, tornadoes, floods, wildfires,
extreme heat, and other extreme weather events, particularly in areas where we have significant operations. The increasing
frequency and intensity of such events, driven by climate change, exacerbate the risks to our operations. Repercussions of
severe weather conditions may include:
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curtailment or suspension of services and operations;
•
inability to meet performance schedules in accordance with contracts, potentially leading to liability for liquidated
damages or reputational harm;
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injuries or fatalities;
•
weather related damage to facilities, equipment, and infrastructure;
•
disruption of information systems or communication networks;
•
increased insurance premiums, deductibles, or potential lack of adequate insurance coverage for weather-related
losses;
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inability to receive machinery, equipment and materials at jobsites; and
•
loss of productivity.
Information technology system failures, network disruptions or cybersecurity 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
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scheduling. Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt our
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 by introducing new vulnerabilities. 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. Increased interconnectivity with third-party systems and reliance on
cloud-based services further expose us to security risks from vulnerabilities in third-party platforms. 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 and hybrid 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 SEC rules finalized in 2023 requiring enhanced cybersecurity risk disclosures, 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. Continuing and evolving threat of cyber-attacks and increased
regulatory focus on cybersecurity risk management and incident reporting, along with potential new federal, state, or
international requirements, may require significant additional resources and investment, potentially adversely affecting our
results of operations and cash flows.
Artificial intelligence is an emerging area of technology that has the potential to impact various aspects of our business
operations.
The development, adoption, and use for generative artificial intelligence (“AI”) technologies are still in their early stages and
ineffective or inadequate AI development or deployment practices by the Company or third-party vendors could result in
unintended consequences. We contract third-party vendors that use AI in products and/or services they provide and we may not
have full control or visibility over the quality, performance, security or compliance of the products and services that incorporate
AI-related technology. AI algorithms that our third-party vendors use may be flawed or may be based on datasets that are
biased or insufficient. These limitations or failures could result in reputational damage and legal liabilities. Developing, testing,
and deploying resource-intensive AI systems may require additional investment and increase our costs. In addition, the evolving
nature of AI may cause new laws and regulations to be enacted which may require significant resources to modify and maintain
business practices to comply with the new laws and regulations, the nature of which cannot be determined at this time. Further,
inaccurate results generated as a result of our employees’, contractors’ or vendors’ use of generative AI technologies could lead
to operational interruptions or reputational harm.
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.
30
These disruptions could increase our operational expenses 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, 2024, 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.
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. Additionally, immigration laws and
labor regulations are complex, subject to change, and vary across jurisdictions, which could create challenges for maintaining
compliance.
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. Furthermore, increased enforcement of
immigration laws, changes to employment verification requirements, or new legislation or regulations could further heighten
these risks and lead to additional compliance costs, operational disruptions, or reputational harm.
Tax matters, including changes in corporate tax laws and disagreements with taxing authorities, could impact our results of
operations and financial condition.
We conduct business across the United States and file income taxes in the federal and various state jurisdictions. Significant
judgment is required in our accounting for income taxes. In the ordinary course of our business, there are transactions and
calculations in which the ultimate tax determination is uncertain. Changes in tax laws and regulations, in addition to changes
and conflicts in related interpretations and other tax guidance, could materially impact our provision for income taxes, deferred
tax assets and liabilities, and liabilities for uncertain tax positions.
31
Issues relating to tax audits or examinations and any related interest or penalties and uncertainty in obtaining deductions or
credits claimed in various jurisdictions could also impact the accounting for income taxes. Our results of operations are reported
based on our determination of the amount of taxes we owe in various tax jurisdictions, and our provision for income taxes and
tax liabilities are subject to review or examination by taxing authorities in applicable tax jurisdictions. An adverse outcome of
such a review or examination could adversely affect our operating results and financial condition. Further, the results of tax
examinations and audits could have a negative impact on our financial results and cash flows where the results differ from the
liabilities recorded in our financial statements.
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;
•
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.
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 6, 2025, we had an aggregate of
11,353,379 shares of our outstanding common stock, of which 1,074,684 shares were held by our current directors and officers.
There were no holders of greater than 10% of our common stock as of March 6, 2025. 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 of common stock. 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.
32
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, 2024, 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
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
33
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 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
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
34
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. 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.
Force majeure events, including natural disasters and terrorist 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 customer 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
our 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, our 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.
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.
Changes in accounting rules and regulations could adversely affect our financial results.
Accounting rules and regulations are subject to review and interpretation by the Financial Accounting Standards Board (the
“FASB”), the SEC and various other governing bodies. A change in U.S. GAAP could have a significant effect on our reported
financial results. Additionally, the adoption of new or revised accounting principles could require that we make significant
changes to our systems, processes and controls. We cannot predict the effect of future changes to accounting principles, which
could have a significant effect on our reported financial results and/or our results of operations, cash flows and liquidity.
Actions of activist investors could disrupt our business.
Public companies have been the target of activist investors. In the event that a third party, such as an activist investor, proposes
to change our governance policies, board of directors, or other aspects of our operations or strategy, our review and
consideration of such proposals may create a significant distraction for our management and employees. This could negatively
impact our ability to execute various strategic initiatives and may require management to expend significant time and resources
responding to such proposals. Such proposals may also create uncertainties with respect to our financial position and operations
and may adversely affect our ability to attract and retain key employees.
Item 1B. Unresolved Staff Comments
35
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 team members, 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 and its customers’
data, and maintain the trust and confidence of our customers, business partners and team members.
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 team members 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.
•
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
36
includes assessments (e.g., reviewing vendor cybersecurity related attestation and disclosures (SOC 2 Type 2, etc.)) by the
Company’s Senior Vice President and Chief Information Officer (“CIO”) and on an ongoing basis by its security engineers.
Governance
The Company’s CIO is the member of the Company’s management team primarily responsible for assessing, monitoring and
managing the Company cybersecurity program. The Company’s CIO has over 20 years of experience in the field of technology
and security including experience as an enterprise CIO, as well as consulting experience advising organizations on their
technology and risk profiles. The Company believes its CIO’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 cybersecurity 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.
The CIO regularly informs the Company’s Executive Vice President and Chief Financial Officer (“CFO”) and President and
Chief Executive Officer (“CEO”) of material aspects related to cybersecurity risks and incidents regarding the Company. This
ensures that the highest levels of management are kept abreast of the cybersecurity posture and potential risks facing the
Company.
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 as primary responsible for oversight of the Company’s cybersecurity risk management. As
discussed below, management reports to 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 regarding financial statements or financial statements reporting implications. The Audit Committee
routinely interacts and reports 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. Further, certain members of the Board of Directors
are National Association of Corporate Directors (“NACD”) CERT Certified in cybersecurity oversight.
The Board of Directors and the Audit Committee receive briefings from the Company’s CFO and 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, members of the Board of Directors, 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 making 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 is helpful for identifying areas for improvement and ensuring the
alignment of cybersecurity efforts with the overall risk management framework.
As of the date hereof, the Company is not aware of any risks from cybersecurity threats, including as a result of any previous
cybersecurity incidents, that have materially affected or are reasonably likely to have been identified or are anticipated to have a
material adverse effect on the Company’s business strategy, results of operations, and financial condition. Despite its efforts to
maintain processes which mitigate cybersecurity risks, there is no guarantee that such risks may not have a material effect on
37
the Company’s business strategy, results of operations, and financial condition in the future. For additional information on
cybersecurity risks the Company may face, see Part I, Item 1A. Risk Factors – “Information technology system failures,
network disruptions or cybersecurity breaches could adversely affect our business.”
Item 2.
Properties
As of December 31, 2024, the Company leases several properties, consisting of offices, warehouses, fabrication and supply
shops within 10 states across the eastern United States. Generally, these leases range from five to ten years and are on terms the
Company believes to be commercially reasonable. A majority of these premises are leased from individuals or entities with
whom the Company has no other business relationship. In certain instances, the Company leases property from current or
former team members. The Company’s leased premises range in size from approximately 1,000 square feet to 150,000 square
feet. To maximize available capital, the Company generally intends to keep leasing its properties, however, the Company may
also consider purchasing a property where it believes ownership would be more economical. The Company utilizes
substantially all of its leased property and believes there will be no difficulty either in negotiating the renewal of such leases as
they expire or finding alternative space, if necessary.
See Note 14 — Leases in the accompanying notes to the Company’s consolidated financial statements for additional
information regarding the Company’s leases.
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
Not applicable.
Information About Our Executive Officers
Name
Age
Title
Michael M. McCann
43
President, Chief Executive Officer and Director
Jayme L. Brooks
54
Executive Vice President and Chief Financial Officer
Jay A. Sharp
59
Regional President, Northeast and Midwest
Nicholas S. Angerosa
48
Regional President, Southeast
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 has served 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 the Regional President of Northeast and Midwest regions of the Company since January 2025.
Previously, Mr. Sharp has served as the 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
38
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 the Regional President of Southeast region of the Company since January 2025. Previously,
Mr. 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.
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
The Company’s common stock is traded on The Nasdaq Capital Market under the symbol “LMB”.
Holders
At March 6, 2025, there were 30 holders of record of the Company’s common stock.
Dividends
To date, the Company has not paid dividends on its common stock nor does it anticipate that it will pay dividends in the
foreseeable future. As of December 31, 2024, the Company does not have any preferred stock outstanding that has any
preferential dividends.
Purchases of Equity Securities by the Issuer and the Affiliated Purchasers
None.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
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,” and “Compensation Discussion and Analysis” in the 2025 Proxy Statement (as defined
below).
Performance Graph
The following Performance Graph and related information shall be deemed “furnished” and not “filed” for purposes of Section
18 of the Exchange Act, and such information shall not be incorporated by reference into any future filing under the Securities
Act or the Exchange Act except to the extent that we specifically incorporate it by reference into such filing.
Comparison of 5-Year Cumulative Total Return(1)
Among Limbach Holdings, Inc., the S&P 500 Index and the Russell 2000 Index
39
(1)
$100 invested on December 31, 2019 in stock or including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2024 Standard & Poor's, a division of S&P Global. All rights reserved
Copyright© 2024 Russell Investment Group. All right reserved.
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 on Form 10-K. The Company assumes no obligation to update any
of these forward-looking statements, unless required to do so by applicable law.
The discussion that follows includes a comparison of the Company’s results of operations and liquidity and capital resources
for the fiscal years ended December 31, 2024 and 2023. The Company has elected to omit discussion of the earliest of the three
years covered by the consolidated financial statements presented. For a discussion and analysis of fiscal year ended December
31, 2022 and of changes from the fiscal year ended December 31, 2023 to the fiscal year ended December 31, 2022, refer to
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (filed with the SEC on March 13, 2024).
Overview
The Company is a building systems solution firm that partners with building owners and facilities managers with 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 approximately 1,400 team members in 20 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;
40
•
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 entertainment facilities (including casinos) and amusement rides and parks.
The Company operates in two segments, (i) 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 to existing buildings direct to, or assigned by, building owners or property managers, and (ii) 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.
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 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 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 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 as well.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs for the Company’s administrative,
estimating, human resources, safety, information technology, legal, finance and accounting team members and executives. Also
included in SG&A expenses 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, the Industrial Air Transaction, the Kent Island Transaction and the
Consolidated Mechanical Transaction. As part of the total consideration for the Jake Marshall, ACME, Industrial Air, Kent
Island and Consolidated Mechanical transactions, the Company initially recognized $3.1 million, $1.5 million, $3.2 million,
$4.4 million and $0.8 million, respectively, in contingent consideration associated with their respective earnout payments. The
41
carrying values of the Jake Marshall, ACME, Industrial Air, Kent Island and Consolidated Mechanical 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 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. 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. 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. 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. In addition, as a result of the Kent Island Transaction, the Company recognized, in the aggregate, an
additional $10.7 million of intangible assets associated with customer relationships with third-party customers, the acquired
trade name and the acquired backlog. Lastly, as a result of the Consolidated Mechanical Transaction, the Company recognized,
in the aggregate, an additional $10.1 million of intangible assets associated with customer relationships with third-party
customers and the acquired trade name.
Each of the Jake Marshall, ACME, Industrial Air, Kent Island and Consolidated Mechanical-related 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 Kent Island and Consolidated Mechanical Transactions. In addition, see
Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s consolidated financial statements 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 Accounting Standards Update (“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 cash 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
provided for an earnout of up to $2.5 million potentially being paid out over 2024 and 2025. ACME specializes in performing
42
industrial maintenance, capital project work, and emergency services for specialty chemical and manufacturing customers, 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 provided for an earnout of up to $6.5 million potentially being paid out over 2025 and
2026. 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.
On September 3, 2024, the Company completed an acquisition of Laurel, MD-based specialty mechanical contractor, Kent
Island Mechanical, for a purchase price at closing of $15.0 million. The transaction also provided for an earnout of up to $5.0
million potentially being paid out over 2025 and 2026. Kent Island is a leading provider of building systems solutions in the
Greater Washington, DC metro area, including suburban Maryland and Northern Virginia. Kent Island excels in designing,
engineering, installing, servicing, and maintaining mechanical and plumbing systems for complex facilities. 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.
On December 2, 2024, the Company completed an acquisition of Owensboro, Kentucky-based specialty mechanical contractor,
Consolidated Mechanical, for a purchase price at closing of $23.0 million. The transaction also provided for an earnout of up to
$2.0 million potentially being paid out over 2026 and 2027. Consolidated Mechanical serves the heavy industrial, power and
commercial markets. Consolidated Mechanical is a premier provider of mechanical, millwright, steel fabrication, plumbing
construction, maintenance, and outage services to owners of complex process systems in the industrial sector. The acquisition
extends the Company’s reach into the industrial sector, with new exposure to the power generation, food processing,
manufacturing, and metal markets in Kentucky, Illinois and Michigan.
Divestitures
In February 2022, the Company announced its strategic decision to wind down its Southern California 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: ODR and GCR. Segment
information is prepared on the same basis that the Company’s Chief Operating Decision Maker (“CODM”) reviews operating
results for the purposes of allocating resources and assessing performance. The Company’s CODM comprises 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 ODR work
performed at branches into one ODR reportable segment and all of the GCR work performed at branches into one GCR
reportable segment. All transactions between segments are eliminated in consolidation.
43
Comparison of Results of Operations For the Years Ended December 31, 2024 and 2023
The following table presents operating results for the years ended December 31, 2024 and 2023 in dollars and expressed as a
percentage of total revenue (except as indicated below):
For the Years Ended December 31,
(in thousands except for percentages)
2024
2023
Statement of Operations Data:
Revenue:
ODR
$
345,500
66.6 %
$
261,958
50.7 %
GCR
173,281
33.4 %
254,392
49.3 %
Total revenue
518,781
100.0 %
516,350
100.0 %
Gross profit:
ODR
107,775
31.2 % (1)
76,090
29.0 % (1)
GCR
36,506
21.1 % (2)
43,200
17.0 % (2)
Total gross profit
144,281
27.8 %
119,290
23.1 %
Selling, general and administrative(3)
97,199
18.7 %
87,397
16.9 %
Change in fair value of contingent consideration
3,770
0.7 %
729
0.1 %
Amortization of intangibles
4,688
0.9 %
1,880
0.4 %
Total operating income
38,624
7.4 %
29,284
5.7 %
Other income (expenses)
1,342
0.3 %
(1,184)
(0.2) %
Total consolidated income before income taxes
39,966
7.7 %
28,100
5.4 %
Income tax provision
9,091
1.8 %
7,346
1.4 %
Net income
$
30,875
6.0 %
$
20,754
4.0 %
(1)
As a percentage of ODR revenue.
(2)
As a percentage of GCR revenue.
(3)
Included within selling, general and administrative expenses was $5.8 million and $4.9 million of stock-based compensation expense for
the year ended December 31, 2024 and 2023, respectively.
Revenue
For the Years Ended December 31,
2024
2023
Increase/(Decrease)
(in thousands except for percentages)
Revenue:
ODR
$
345,500 $
261,958 $
83,542
31.9 %
GCR
173,281
254,392
(81,111)
(31.9) %
Total revenue
$
518,781 $
516,350 $
2,431
0.5 %
Total revenue for the year ended December 31, 2024 increased by $2.4 million compared to the year ended December 31, 2023.
ODR revenue increased by $83.5 million, or 31.9%, while GCR revenue decreased by $81.1 million, or 31.9%. The increase in
year-over-year 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 in the aggregate by approximately $31.5 million due to the ACME
and Industrial Air transactions. These entities were not acquired entities of the Company for the full year ending December 31,
2023. The decrease in year-over-year GCR segment revenue was primarily due to the Company’s continued focus on the
execution of its mix-shift strategy to ODR. The Kent Island and Consolidated Mechanical transactions did not have a material
impact on revenue for the year ended December 31, 2024 due to timing of when these entities were acquired.
Gross Profit
44
For the Years Ended December 31,
2024
2023
Increase/(Decrease)
(in thousands except for percentages)
Gross profit:
ODR
$
107,775
$
76,090
$
31,685
41.6 %
GCR
36,506
43,200
(6,694)
(15.5) %
Total gross profit
$
144,281
$
119,290
$
24,991
20.9 %
Total gross profit as a percentage of consolidated total revenue
27.8 %
23.1 %
The Company's gross profit for the year ended December 31, 2024 increased by $25.0 million, or 20.9% compared to the year
ended December 31, 2023. ODR gross profit increased $31.7 million, or 41.6%, due to the combination of an increase in
revenue, higher margins driven by contract mix and as a result of the ACME and Industrial Air transactions. These entities were
not acquired entities of the Company for the full year ending December 31, 2023. GCR gross profit decreased $6.7 million, or
15.5%, primarily due to lower revenue despite higher margins. The total gross profit percentage increased from 23.1% for the
year ended December 31, 2023 to 27.8% for the year ended December 31, 2024, mainly driven by the mix of higher margin
ODR segment work, the Company becoming more selective when pursuing GCR work, and net material gross profit write-ups.
The Kent Island and Consolidated Mechanical transactions did not have a material impact on gross profit for the year ended
December 31, 2024 due to timing of when these entities were acquired.
The Company recorded revisions in its contract estimates for certain ODR and GCR projects. During the year ended
December 31, 2024, the Company recorded material gross profit write-ups on four ODR segment projects for a total of $3.9
million that had a net gross profit impact of $0.5 million or more. During the year ended December 31, 2024, the Company
recorded material gross profit write-ups on three GCR projects for a total of $3.3 million and material gross profit write-downs
on two GCR projects for a total of $1.4 million.
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 that had a net gross profit impact of $0.5 million or more. During the year ended
December 31, 2023, the Company recorded material gross profit write-ups of $2.2 million on two GCR projects and material
gross profit write-downs on two GCR projects for a total of $1.3 million.
Selling, General and Administrative
For the Years Ended December 31,
2024
2023
Increase/(Decrease)
(in thousands except for percentages)
Selling, general and administrative
$
97,199
$
87,397
$
9,802
11.2 %
Total selling, general and administrative expenses as a
percentage of consolidated total revenue
18.7 %
16.9 %
The Company's SG&A expense for the year ended December 31, 2024 increased by approximately $9.8 million, or 11.2%
compared to the year ended December 31, 2023. The increase in SG&A was primarily due to a $6.5 million increase associated
with payroll and incentive related expenses, $4.1 million of collective expenses incurred from the ACME and Industrial Air
entities that were not acquired entities of the Company for the full fiscal year 2023, a $0.9 million increase in stock-based
compensation expense and a $0.7 million increase for professional services fees. Partly offsetting this increase was a $1.0
million decrease in SG&A related to CEO transition costs recognized in 2023. Additionally, SG&A as a percentage of revenue
was 18.7% for the year ended December 31, 2024 and 16.9% for the year ended December 31, 2023.
Change in Fair Value of Contingent Consideration
The change in fair values of the Company’s earnout payment contingent consideration was a loss of $3.8 million and $0.7
million for the years ended December 31, 2024 and 2023, 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 for the acquisitions as of December 31, 2024 and 2023.
Amortization of Intangibles
45
For the Years Ended December 31,
2024
2023
Increase/(Decrease)
(in thousands except for percentages)
Amortization of intangibles
$
4,688 $
1,880 $
2,808
149.4 %
Total amortization expense for the year ended December 31, 2024 increased by approximately $2.8 million compared to the
year ended December 31, 2023. As a result of the ACME, Industrial Air and Kent Island transactions, the Company acquired
certain intangible assets in which it recognized an increase of approximately $3.1 million of amortization expense year-over-
year. See Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s consolidated financial
statements for further information on the Company's intangible assets.
Other Income (Expenses)
For the Years Ended December 31,
2024
2023
Increase/(Decrease)
(in thousands except for percentages)
Other income (expenses):
Interest expense
$
(1,869) $
(2,046) $
(177)
(8.7) %
Interest income
2,227
1,217
1,010
83.0 %
Loss on debt extinguishment
—
(311)
(311)
(100.0) %
Gain (loss) on change in fair value of interest rate swap
34
(124)
158
127.4 %
Gain on sale of property and equipment
950
80
870
1,087.5 %
Total other income (expenses)
$
1,342 $
(1,184) $
2,526
213.3 %
Total other income for the year ended December 31, 2024 was $1.3 million as compared to total other expenses of $1.2 million
for the year ended December 31, 2023. The increase in total other income (expenses) primarily was driven by a $1.0 million
increase in interest income related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and
money market funds. In addition, during the year ended December 31, 2024, the Company recognized a gain of $1.0 million
related to the sale of certain property and equipment compared to $0.1 million recognized in 2023. The increase in total other
income (expenses) also included a $0.3 million loss on early debt extinguishment recognized during 2023.
Income Taxes
The Company’s income tax provision was $9.1 million and $7.3 million for the years ended December 31, 2024 and 2023,
respectively, and it had a 22.7% and 26.1% effective tax rate over those same periods, respectively. The difference between the
U.S. federal statutory tax rate and the Company’s effective tax rate year-over-year was primarily due to state income taxes, tax
credits, other permanent adjustments and discrete tax items. In particular, the Company’s effective rate for the year ended
December 31, 2024 and 2023 were materially impacted by “excess tax benefits on stock-based compensation” recognized
discretely during the first quarter of each year. This benefit reduced the effective tax rate by 35.1% and 10.2% for the three
months ended March 31, 2024 and 2023 respectively, with the impact varying in prior years. The increase in the 2024 effective
rate reduction is primarily related to the higher stock price of the Company resulting in increased tax deductions for the
Company upon vesting of equity incentive awards. See also Note 11 – Income Taxes in the accompanying notes to the
Company’s consolidated financial statements.
ODR and GCR 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. In
addition to the Company’s backlog, it has a substantial amount of contracts with short lead times that book-and-bill within the
same reporting period and are not included in backlog. 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
46
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 ODR backlog was $225.3 million and $147.0 million as of December 31, 2024 and 2023, 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 86% of its ODR backlog as of December 31, 2024 will be
recognized as revenue during 2025. The Company believes its ODR backlog increased due to its continued focus on the
accelerated growth of its ODR business.
The Company’s GCR backlog was $140.0 million and $186.9 million as of December 31, 2024 and 2023, respectively. Projects
are brought into backlog once the Company has been provided a written confirmation of award and the contract value has been
established. At any point in time, 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 72% of its GCR backlog as
of December 31, 2024 will be recognized as revenue during 2025. Additionally, the reduction in GCR backlog has been
intentional as the Company looks to focus on higher margin projects than it has done historically, as well as its focus on
smaller, higher margin owner direct projects.
Market Update
In 2024, the mechanical services industry experienced steady demand across key sectors, driven by continued investment in
energy efficiency, infrastructure upgrades and maintenance of aging mechanical systems. However, the industry faced
challenges related to economic uncertainty, labor shortages and supply chain volatility. Although the Company has been
experiencing strong demand, these industry challenges continue to impact its business. The Company experienced elevated
levels of cost inflation during 2023, which has continued into 2024, although at lower levels than those experienced in 2023.
These headwinds have been partially mitigated in 2023 and 2024 by pricing actions taken in response to the inflationary cost
environment, supply chain productivity improvements and cost savings initiatives. Economic conditions contributed to
increases in interest rates during 2023; however, interest rates remained stable in the first half of 2024 and the Federal Reserve
reduced its benchmark interest rate by a total of 100 basis points in the second half of 2024. Future interest rate changes would
raise or lower the rates the Company pays on its leased fleet vehicles and borrowings under the Second A&R Wintrust
Revolving Loan. However, the Company is party to an interest rate swap arrangement to manage the risk associated with a
portion of its variable-rate revolving loan. 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. In periods of economic uncertainty, businesses and organizations may delay or cancel
large capital projects, such as new construction or major mechanical system upgrades. The Company’s service contracts and
maintenance work often remain stable or even increase, as customers prioritize maintaining existing systems over capital-
intensive replacements. Further, economic downturns may lead to increased competition and pricing pressures, impacting
revenue and margins. The Company believes that its diversified service offerings reduce its exposure to market volatility. 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 2025
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. For 2025, the key objectives of the Company’s strategy
are to 1) improve profitability and generate quality growth in its operations by shifting to the ODR segment; 2) expand margins
47
through evolved offerings, and 3) scale the business through acquisitions. To accomplish these objectives, the Company
currently is executing the following initiatives:
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 offerings 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 further expanded its
growth within the ODR segment where it generated 66.6% of total consolidated revenue, achieving its 2024 ODR segment
revenue target of 65-70%. 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. 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 customers. In addition, 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.
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 they have been 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.
The Company continues to focus on expanding its margins by evolving and enhancing its current offerings to building owners.
This initiative reflects the Company’s commitment to driving sustainable growth, increasing operational efficiency and
delivering greater value to its stakeholders. This evolution is designed to align more closely with current market demands,
emerging customer preferences and operational efficiencies, which together contribute to margin expansion. The Company
aims to differentiate itself from its competitors by being a one-stop-shop for building owners, capable of providing a full life-
cycle of engineered solutions and craft expertise. By meeting diverse customer needs under one roof, the Company deepens
customer loyalty. The Company believes that building owners value the convenience and reliability of a single point of contact,
which fosters long-term partnerships, reoccurring business and may open doors to larger capital projects. In addition, by
evolving its offerings, the Company is able to capture a greater share of the value chain.
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 offerings to better serve its customers. 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’s ODR growth strategy, expands and/or supplements the Company’s current breadth of
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.
Given the broad suite of offerings 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 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
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
48
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 these higher costs and delays in its supply chain persisted
in 2024. When appropriate, the Company includes cost escalation factors into its bids and proposals, and limits 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.
In February 2025, the United States government announced a number of tariffs on imports, including imports on steel and
aluminum. Increased costs for imported steel and aluminum products have led domestic sellers to respond with market-based
increases to prices for such inputs as well. These tariffs, along with any additional tariffs or trade restrictions that may be
implemented by the United States or other countries, could result in further increased costs, shifts in competitive positions and a
decreased supply of steel, resins and aluminum as well as additional imported components and materials. The Company’s ODR
segment focus often allows for these increased costs to be passed onto the customer due to the short sales cycle; however, the
Company may not be able to pass certain price increases on to its customers and may not be able to secure adequate alternative
sources of materials on a timely basis. The Company may not be able to pass certain price increases on to its customers and
may not be able to secure adequate alternative sources of materials on a timely basis. While retaliatory tariffs imposed by other
countries on the United States have not yet had a significant impact, the Company cannot predict further developments. At this
time, it is difficult to accurately measure the impact these tariffs, or potential future tariffs, will have on the Company.
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.
49
The following table presents summary cash flow information for the periods indicated:
For the Years Ended December 31,
(in thousands)
2024
2023
Net cash (used in) provided by:
Operating activities
$
36,783 $
57,366
Investing activities
(42,569)
(17,092)
Financing activities
(9,117)
(16,490)
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(14,903) $
23,784
Noncash investing and financing transactions:
Earnout liability associated with the Kent Island Transaction
$
4,381 $
—
Earnout liability associated with the Consolidated Mechanical Transaction
757
—
Earnout liability associated with the ACME Transaction
—
1,514
Earnout liability associated with the Industrial Air Transaction
—
3,165
Right of use assets obtained in exchange for new operating lease liabilities
4,775
3,135
Right of use assets obtained in exchange for new finance lease liabilities
7,586
5,219
Right of use assets disposed or adjusted modifying operating lease liabilities
1,268
1,112
Right of use assets disposed or adjusted modifying finance lease liabilities
—
(93)
Interest paid
1,899
1,908
Cash paid for income taxes
$
8,529 $
9,156
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
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, 2024, 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 revenue for one year from
the date of the financial statement issuance. In addition to the Company's backlog, it has a substantial amount of contracts with
short lead times that book-and-bill within the same reporting period and are not included in backlog. 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 at least 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 at least the next twelve
months.
The following table represents the Company’s summarized working capital information:
As of December 31,
(in thousands, except ratios)
2024
2023
Current assets
$
220,334 $
217,000
Current liabilities
(151,037)
(145,148)
Net working capital
$
69,297 $
71,852
Current ratio(1)
1.46
1.50
50
(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, 2024, 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:
For the Years Ended December 31,
(in thousands)
2024
2023
Cash Inflow
(Outflow)
Cash flows from operating activities:
Net income
$
30,875 $
20,754 $
10,121
Non-cash operating activities(1)
24,454
18,222
6,232
Changes in operating assets and liabilities:
Accounts receivable
(11,275)
32,607
(43,882)
Contract assets
8,506
10,397
(1,891)
Other current assets
(499)
(1,486)
987
Accounts payable, including retainage
(10,298)
(10,909)
611
Contract liabilities
(2,949)
(9,121)
6,172
Income tax receivable
—
95
(95)
Accrued taxes payable
1,024
(1,442)
2,466
Accrued expenses and other current liabilities
3,111
2,867
244
Operating lease liabilities
(3,850)
(3,795)
(55)
Payment of contingent consideration liability in excess of acquisition-
date fair value
(2,175)
(1,224)
(951)
Other long-term liabilities
(141)
401
(542)
Cash (used in) provided by working capital
(18,546)
18,390
(36,936)
Net cash provided by operating activities
$
36,783 $
57,366 $
(20,583)
(1)
Represents non-cash activity associated with depreciation and amortization, provision for credit losses, 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, 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, 2024, the Company generated $36.8 million in cash in its operating activities, which
consisted of cash used in working capital of $18.5 million, non-cash adjustments of $24.5 million (primarily depreciation and
amortization, stock-based compensation expense, operating lease expense and the change in fair value of contingent
consideration) and net income for the period of $30.9 million. 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.
The decrease in operating cash flows during the year ended December 31, 2024 compared to the year ended December 31, 2023
was primarily attributable to a $43.9 million year-over-year cash outflow related to the change in accounts receivable, which
was due to the timing of cash receipts and the successful resolution of certain outstanding claims recognized in 2023. This cash
outflow was partially offset by a $10.1 million increase in net income, a $6.2 million increase related to non-cash operating
activities and an aggregate $4.3 million period-over-period change related to the Company’s contract assets and liabilities. The
increase in the Company’s overbilled position was due to the timing of contract billings and the recognition of contract revenue.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $42.6 million for the year ended December 31, 2024 as compared to $17.1 million
for the year ended December 31, 2023. Cash used in investing activities for the year ended December 31, 2024 included cash
outflows of $13.4 million and $23.2 million cash outflows associated with the Kent Island Transaction and Consolidated
Mechanical Transaction, respectively, net of cash acquired and inclusive of certain measurement period adjustments. In
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addition, cash used in investing activities for the year ended December 31, 2024 represented $7.5 million of cash outflows for
capital additions pertaining to purchased property and equipment, which was primarily associated with the purchase of certain
rental equipment to expand customer offerings. During fiscal year 2024, the Company began offering direct rental equipment
solutions for building owners who are faced with unexpected disruptions or a planned maintenance or system repair, ensuring
minimal downtime for customers’ systems and facilities. These cash outflows were partially offset by $1.5 million in proceeds
from the sale of property and equipment. Cash used in investing activities for the year ended December 31, 2023 included cash
outflows of $4.9 million and $10.4 million 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.
Aside from the rental equipment purchased during 2024, the majority of the Company's purchases of property and equipment in
both periods was for capital additions pertaining to tools and equipment, computer software and hardware purchases, office
furniture and office related leasehold improvements. For the years ended December 31, 2024 and 2023, 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 $9.1 million for the year ended December 31, 2024 as compared to cash flows
provided by financing activities of $16.5 million for the year ended December 31, 2023. For the year ended December 31,
2024, the Company paid approximately $5.2 million in taxes related to the net share settlement of equity awards, $3.0 million
for payments on finance leases and made $3.5 million in aggregate payments to the former owners of JMLLC, CSLLC and
ACME related to their respective 2023 earnout arrangements, of which $1.3 million was recognized as a cash outflow from
financing activities. These cash financing outflows were partially offset by $0.4 million associated with proceeds from
employee contributions to the Company’s Employee Stock Purchase Plan (“ESPP”).
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 $1.8 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
ESPP.
The following table reflects the Company’s available funding capacity as of December 31, 2024:
(in thousands)
Cash & cash equivalents
$
44,930
Credit agreement:
Second A&R Wintrust Revolving Loan
50,000
Outstanding borrowings on the Second A&R Wintrust Revolving Loan
(10,000)
Outstanding letters of credit
(4,160)
Net credit agreement capacity available
35,840
Total available funding capacity
$
80,770
Debt and Related Obligations
Long-term debt consists of the following obligations as of:
52
(in thousands)
December 31,
2024
December 31,
2023
A&R Wintrust Revolving Loans
$
10,000 $
10,000
Finance leases – collateralized by vehicles, payable in monthly installments of
principal, plus interest ranging from 3.96% to 8.60% through 2031
11,888
7,347
Financing liability
5,351
5,351
Total debt
$
27,239 $
22,698
Less – Current portion of long-term debt
(3,314)
(2,680)
Less – Unamortized discount and debt issuance costs
(371)
(387)
Long-term debt
$
23,554 $
19,631
See Note 7 – Debt in the accompanying notes to the Company’s consolidated financial statements for further discussion.
Material Cash Requirements from Contractual and Other Obligations
As of December 31, 2024, the Company’s short-term and long-term material cash requirements for known contractual and other
obligations were as follows:
Outstanding Debt and Interest Payments: As of December 31, 2024, the Company had $10.0 million of direct borrowings
outstanding under its Second A&R Wintrust Revolving Loan. 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. Interest payments on any future borrowings will be determined based on prevailing
rates at that time. The Company is party to an interest rate swap arrangement to manage the risk associated with a portion of it
variable-rate long-term debt. The Second A&R Wintrust Revolving Loan will mature in February 2028. See Note 7 – Debt in
the accompanying notes to the Company’s consolidated financial statements for further detail of the Company’s debt
obligations, including the Company’s revolving credit facility.
Sale-Leaseback Financing Transaction: In fiscal year ended December 31, 2022, the Company executed a sale-leaseback
financing transaction with respect to its branch facility in Pontiac, Michigan to provide additional liquidity. Future payments
associated with the sale-leaseback financing transaction were $15.9 million at December 31, 2024, with $0.5 million payable
within the next 12 months. See Note 7 – Debt in the accompanying notes to the Company’s consolidated financial statements
for further detail surrounding the Company’s sale-leaseback financing transaction.
Operating and Finance Leases: In the normal course of business, the Company leases real estate, vehicles and other equipment
under various arrangements which are classified as either operating or finance leases. Future payments for such leases,
excluding leases with initial terms of one year or less, were $39.2 million at December 31, 2024, with $9.1 million payable
within the next 12 months. See Note 14 – Leases in the accompanying notes to the Company’s consolidated financial
statements for further detail surrounding the Company’s lease obligations and the timing of expected future payments.
Contingent Consideration Liabilities: The Company has incurred liabilities related to contingent consideration arrangements
associated with certain acquisitions, payable in the event discrete performance objectives are achieved by the acquired
businesses during designated post-acquisition periods. The aggregate amount of these liabilities can change due to additional
business acquisitions, settlement of outstanding liabilities, changes in the fair value of amounts owed based on performance
during such post-acquisition periods, and accretion in present value. As of December 31, 2024, the present value of expected
future payments relating to these contingent consideration arrangements was $13.2 million. Of this amount, $7.4 million is
estimated as being payable during 2025, with the remainder due in 2026 and 2027. See Note 9 – Fair Value Measurements in
the accompanying notes to the Company’s consolidated financial statements for more information regarding the Company’s
contingent consideration liabilities.
Open Purchase Obligations: As of December 31, 2024, the Company had $91.2 million of open purchase obligations, of which
approximately $73.0 million are expected to become due within the next 12 months. These obligations represent open purchase
orders to suppliers and subcontractors related to the Company’s projects and services contracts. These purchase orders are not
reflected in the consolidated balance sheets and are not expected to impact future liquidity as amounts should be recovered
through customer billings.
In addition, material cash requirements for other potential obligations, for which we cannot reasonably estimate future
payments, include the following:
53
Legal Proceedings: The Company is continually engaged in administrative proceedings, arbitrations, and litigation with
owners, general contractors, suppliers, team members, former team members 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 results of these actions will not have
a material adverse effect on the financial position, results of operations, or cash flows of the Company. See Note 13 –
Commitments and Contingencies in the accompanying notes to the Company’s consolidated financial statements for more
information regarding legal proceedings.
Multiemployer Pension Plans: In addition to the Company’s sponsored benefit plans, the Company participates in certain
multiemployer pension and other post-retirement plans. The cost of these plans is equal to the annual required contributions
determined in accordance with the provisions of negotiated collective bargaining agreements. During 2024 and 2023,
contributions made to these plans were $10.3 million and $11.6 million, respectively; however, the Company’s future
contributions to the multiemployer plans are dependent upon a number of factors. Amounts of future contributions that the
Company would be contractually obligated to make pursuant to these plans cannot be reasonably estimated. See Note 16 –
Multiemployer Pension Plans in the accompanying notes to the Company’s consolidated financial statements for more
information regarding these multiemployer pension plans.
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 the Company provides, if any, typically reflect the contract value. As of December 31,
2024 and 2023, the Company has approximately $109.3 million and $90.9 million, respectively, in surety bonds outstanding.
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 incurred but not reported claims. 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 incurred but not reported
claims. 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 50 MEPPs that provide retirement benefits to certain union team members 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 team
members 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.
54
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 team members 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. See Note 16 – Multiemployer Pension Plans in the accompanying notes to the Company’s consolidated
financial statements for further discussion.
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) ODR, for which it accounts for using the cost-to-cost method
and for certain projects when revenue is recognized as services are provided and (ii) GCR, for which it accounts for using the
cost-to-cost method. 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.
55
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 expenses 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,
which are 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 can also 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 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 and a forecast of future economic
conditions when appropriate. These estimates are evaluated and adjusted as needed when additional information is received.
56
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 every year, 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 $4.2 million and $4.1 million in irrevocable letters of credit outstanding in connection with the Company’s self-
insurance program, at December 31, 2024 and 2023, 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
57
The Company is exposed to market risk through changes in interest rates, primarily limited to borrowings under its Second
A&R Wintrust Revolving Loan in excess of the amounts covered by the Company’s interest rate swap arrangement. As of
December 31, 2024, the Company had $10.0 million of direct borrowings outstanding under its Second A&R Wintrust
Revolving Loan. The Company is party to an interest rate swap arrangement to manage the risk associated with a portion of its
variable-rate long-term debt. The interest rate swap has a $10.0 million notional value with a fixed interest rate and will mature
in July 2027. 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. Assuming outstanding balances were to remain the same and including the
impact of the Company’s interest rate swap agreement, an increase or decrease in interest rates would not have a material
impact on the Company’s consolidated statements of operations. See Note 7 – Debt in the accompanying notes to the
Company’s consolidated financial statements for further detail of the Company’s revolving credit facility and interest rate swap
arrangement.
In addition, 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, 2024 were $43.0 million, which 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 and certain investments in money market funds sponsored by a large financial institution. For the
year ended December 31, 2024, the Company recognized interest income in the aggregate of approximately $2.2 million. The
Company maintains a conservative investment policy and has not experienced any losses in its cash and cash equivalents.
Management believes the Company is not exposed to significant risk with respect to such accounts.
58
Item 8.
Financial Statements and Supplementary Data
LIMBACH HOLDINGS, INC.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 173)
61
Consolidated Balance Sheets as of December 31, 2024 and 2023
64
Consolidated Statements of Operations for the Years Ended December 31, 2024, 2023 and 2022
65
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2024, 2023 and 2022
66
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022
67
Notes to Consolidated Financial Statements
69
59
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
March 10, 2025
To the Stockholders 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 September 3, 2024, the Company acquired all of the outstanding membership interests of Kent Island Mechanical, LLC.
Additionally, on December 2, 2024, the Company acquired all of the outstanding membership interests of Consolidated
Mechanical, LLC. As the acquisitions occurred in September 2024 and December 2024, 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, 2024 excluded these acquired businesses. The total assets and total revenue excluded from the Company’s
assessment represented approximately 11% and 3%, respectively, of Limbach Holdings, Inc.’s consolidated total assets and
total revenue as of and for the year ended December 31, 2024. 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, 2025.
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, 2024.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2024 has been audited by
Crowe LLP, an independent registered public accounting firm, as stated in their report which is included herein.
60
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, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years
in the three-year period ended December 31, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2024 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, 2024, 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 Kent Island Mechanical, LLC and Consolidated Mechanical, LLC acquired during 2024, 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.
61
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was 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 judgment and estimates from management to determine the transaction price and the total estimated cost to complete
each contract. During the year ended December 31, 2024, approximately $429,389,000 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 judgments 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 judgment, along with extensive audit
procedures, in evaluating management’s estimates and judgments.
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 judgments 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.
62
•
Tested key components of estimated costs to complete including labor, materials, equipment, and subcontractor costs
on a sample basis.
/s/ Crowe LLP
We have served as the Company’s auditor since 2012.
Oakbrook Terrace, Illinois
March 10, 2025
63
LIMBACH HOLDINGS, INC.
Consolidated Balance Sheets
As of December 31,
(in thousands, except share data)
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
44,930
$
59,833
Restricted cash
65
65
Accounts receivable (net of allowance for credit losses of $387 and $292, respectively)
119,659
97,755
Contract assets
47,549
51,690
Advances to and equity in joint ventures, net
5
12
Other current assets
8,126
7,645
Total current assets
220,334
217,000
Property and equipment, net
30,126
20,830
Intangible assets, net
41,228
24,999
Goodwill
33,034
16,374
Operating lease right-of-use assets
21,539
19,727
Deferred tax asset
5,531
5,179
Other assets
337
330
Total assets
$
352,129
$
304,439
LIABILITIES
Current liabilities:
Current portion of long-term debt
$
3,314
$
2,680
Current operating lease liabilities
4,093
3,627
Accounts payable, including retainage
60,814
65,268
Contract liabilities
44,519
42,160
Accrued income taxes
1,470
446
Accrued expenses and other current liabilities
36,827
30,967
Total current liabilities
151,037
145,148
Long-term debt
23,554
19,631
Long-term operating lease liabilities
17,766
16,037
Other long-term liabilities
6,281
2,708
Total liabilities
198,638
183,524
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 11,452,753 and
11,183,076, respectively; 11,273,101 and 11,003,424 outstanding, respectively
1
1
Additional paid-in capital
94,229
92,528
Treasury stock, at cost (179,652 shares at both period ends)
(2,000)
(2,000)
Retained earnings
61,261
30,386
Total stockholders’ equity
153,491
120,915
Total liabilities and stockholders’ equity
$
352,129
$
304,439
The accompanying notes are an integral part of these consolidated financial statements
64
LIMBACH HOLDINGS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
For the Years Ended December 31,
2024
2023
2022
Revenue
$
518,781 $
516,350 $
496,782
Cost of revenue
374,500
397,060
403,041
Gross profit
144,281
119,290
93,741
Operating expenses:
Selling, general and administrative
97,199
87,397
77,879
Change in fair value of contingent consideration
3,770
729
2,285
Amortization of intangibles
4,688
1,880
1,567
Total operating expenses
105,657
90,006
81,731
Operating income
38,624
29,284
12,010
Other income (expenses):
Interest expense
(1,869)
(2,046)
(2,144)
Interest income
2,227
1,217
—
Loss on early termination of operating lease
—
—
(849)
Loss on early debt extinguishment
—
(311)
—
Gain (loss) on change in fair value of interest rate swap
34
(124)
310
Gain on disposition of property and equipment
950
80
281
Total other income (expenses)
1,342
(1,184)
(2,402)
Income before income taxes
39,966
28,100
9,608
Income tax provision
9,091
7,346
2,809
Net income
$
30,875 $
20,754 $
6,799
Earnings Per Share (“EPS”)
Net income per share:
Basic
$
2.75 $
1.93 $
0.65
Diluted
$
2.57 $
1.76 $
0.64
Weighted average number of shares outstanding:
Basic
11,243,714
10,773,467
10,425,119
Diluted
12,027,398
11,812,098
10,676,534
The accompanying notes are an integral part of these consolidated financial statements
65
LIMBACH HOLDINGS, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Number of Shares
Additional
paid-in
capital
Treasury
stock, at cost
Retained
earnings
Stockholders’
equity
Common
stock
Treasury
stock
Common
stock
Balance at January 1, 2022
10,304,242
—
$
1
$
85,004
$
—
$
2,833
$
87,838
Shares issued related to vested
restricted stock units
129,678
—
—
—
—
—
Tax withholding related to vested
restricted stock units
—
—
—
(148)
—
(148)
Stock-based compensation
—
—
—
2,742
—
2,742
Shares issued related to employee
stock purchase plan
37,490
—
—
211
—
211
Repurchase of common stock under
Share Repurchase Program
—
(179,652)
—
—
(2,000)
—
(2,000)
Net income
—
—
—
—
6,799
6,799
Balance at December 31, 2022
10,471,410
(179,652) $
1
$
87,809
$
(2,000) $
9,632
$
95,442
Shares issued related to vested
Restricted stock units
251,699
—
—
—
—
—
—
Tax withholding related to vested
restricted stock units
—
—
—
(428)
—
—
(428)
Stock-based compensation
—
—
—
4,910
—
—
4,910
Shares issued related to employee
stock purchase plan
17,661
—
—
237
—
—
237
Shares issued related to the exercise
of warrants
442,306
—
—
—
—
—
—
Net income
—
—
—
—
—
20,754
20,754
Balance at December 31, 2023
11,183,076
(179,652) $
1
$
92,528
$
(2,000) $
30,386
$
120,915
Stock-based compensation
—
—
—
5,773
—
—
5,773
Shares issued related to vested
restricted stock units
263,587
—
—
—
—
—
—
Tax withholding related to vested
restricted stock units
—
—
—
(4,338)
—
—
(4,338)
Shares issued related to employee
stock purchase plan
6,090
—
—
266
—
—
266
Net income
—
—
—
—
—
30,875
30,875
Balance at December 31, 2024
11,452,753
(179,652) $
1
$
94,229
$
(2,000) $
61,261
$
153,491
The accompanying notes are an integral part of these consolidated financial statements
66
LIMBACH HOLDINGS, INC.
Consolidated Statements of Cash Flows
Year Ended December 31,
(in thousands)
2024
2023
2022
Cash flows from operating activities:
Net income
$
30,875 $
20,754 $
6,799
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
11,888
8,244
8,158
Noncash operating lease expense
4,115
3,824
4,260
Provision for credit losses / doubtful accounts
201
431
292
Stock-based compensation expense
5,773
4,910
2,742
Loss on early debt extinguishment
—
311
—
Loss on early termination of operating lease
—
—
849
Amortization of debt issuance costs
43
79
138
Deferred income tax provision
(352)
(350)
(499)
Gain on sale of property and equipment
(950)
(80)
(281)
(Gain) loss on change in fair value of interest rate swap
(34)
124
(310)
Loss on change in fair value of contingent consideration
3,770
729
2,285
Changes in operating assets and liabilities:
Accounts receivable
(11,275)
32,607
(35,407)
Contract assets
8,506
10,397
22,410
Other current assets
(499)
(1,486)
1,128
Accounts payable, including retainage
(10,298)
(10,909)
11,282
Contract liabilities
(2,949)
(9,121)
17,296
Income tax receivable
—
95
19
Accrued income taxes
1,024
(1,442)
1,387
Accrued expenses and other current liabilities
3,111
2,867
(2,934)
Operating lease liabilities
(3,850)
(3,795)
(4,133)
Payment of contingent consideration liability in excess of acquisition-date
fair value
(2,175)
(1,224)
—
Other long-term liabilities
(141)
401
(108)
Net cash provided by operating activities
36,783
57,366
35,373
Cash flows from investing activities:
Kent Island Transaction, net of cash acquired
(13,387)
—
—
Consolidated Mechanical Transaction, net of cash acquired
(23,201)
—
—
ACME Transaction, net of cash acquired
—
(4,883)
—
Industrial Air Transaction, net of cash acquired
—
(10,378)
—
Proceeds from sale of property and equipment
1,536
435
498
Purchase of property and equipment
(7,524)
(2,266)
(993)
Advances from joint ventures
7
—
—
Net cash used in investing activities
(42,569)
(17,092)
(495)
Cash flows from financing activities:
Payments on Wintrust and A&R Wintrust Term Loans
—
(21,452)
(13,429)
Proceeds from Wintrust Revolving Loan
—
10,000
15,194
Payment on Wintrust Revolving Loan
—
—
(15,194)
Proceeds from financing transaction
—
—
5,400
Payments on financing liability
—
—
(49)
Payment of contingent consideration liability up to acquisition-date fair value
(1,325)
(1,776)
—
Repurchase of common stock under Share Repurchase Program
—
—
(2,000)
67
Payments on finance leases
(3,045)
(2,733)
(2,734)
Proceeds from contributions to employee stock purchase plan
440
368
309
Taxes paid related to net-share settlement of equity awards
(5,187)
(847)
(417)
Payments of debt issuance costs
—
(50)
(433)
Net cash used in financing activities
(9,117)
(16,490)
(13,353)
(Decrease) increase in cash, cash equivalents and restricted cash
(14,903)
23,784
21,525
Cash, cash equivalents and restricted cash, beginning of year
59,898
36,114
14,589
Cash, cash equivalents and restricted cash, end of year
$
44,995 $
59,898 $
36,114
Supplemental disclosures of cash flow information
Noncash investing and financing transactions:
Earnout liability associated with the Kent Island Transaction
$
4,381 $
— $
—
Earnout liability associated with the Consolidated Mechanical Transaction
757
—
—
Earnout liability associated with the ACME Transaction
—
1,514
—
Earnout liability associated with the Industrial Air Transaction
—
3,165
—
Right of use assets obtained in exchange for new operating lease liabilities
4,775
3,135
—
Right of use assets obtained in exchange for new finance lease liabilities
7,586
5,219
2,634
Right of use assets disposed or adjusted modifying operating leases liabilities
1,268
1,112
2,455
Right of use assets disposed or adjusted modifying finance leases liabilities
—
(93)
(77)
Interest paid
1,899
1,908
2,005
Cash paid for income taxes
$
8,529 $
9,156 $
1,979
The accompanying notes are an integral part of these consolidated financial statements
68
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 mechanical
(heating, ventilation, air conditioning), electrical, and plumbing 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 approximately 1,400 employees in 20 offices across the eastern United States and
operates primarily in the Eastern and Midwest regions of the United States.
The Company operates in two segments, (i) 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 to existing buildings direct to, or assigned by, building owners or property managers,
and (ii) 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. 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”), Industrial
Air, LLC (“Industrial Air”), Kent Island Mechanical, LLC (“Kent Island”) and Consolidated Mechanical, LLC (“Consolidated
Mechanical”) 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
69
exceed the amount of federal insurance provided on such deposits. The Company has not experienced any losses in such
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)
December 31, 2024
December 31, 2023
Cash and cash equivalents
$
44,930 $
59,833
Restricted cash
65
65
Total cash, cash equivalents and restricted cash
$
44,995 $
59,898
Accounts Receivable and Allowance for Credit Losses
The carrying value of the Company’s 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 $0.4 million and
$0.3 million at December 31, 2024 and 2023, 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.
Identify the contract
2.
Identify performance obligations
3.
Determine the transaction price
4.
Allocate the transaction price
70
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
71
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, 2024 and 2023.
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;
72
•
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 ODR and GCR 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
73
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 five years to 40 years; for machinery and equipment, useful lives range from three 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)
December 31,
2024
December 31,
2023
Land and improvements
$
400 $
400
Buildings and leasehold improvements
11,434
10,997
Machinery and equipment
39,603
31,157
Finance leases - vehicles(1)
16,600
11,665
Gross property and equipment
68,037
54,219
Less: Accumulated amortization on finance leases
(5,044)
(4,502)
Less: Accumulated depreciation
(32,867)
(28,887)
Property and equipment, net of accumulated amortization and depreciation(2)
$
30,126 $
20,830
(1)
See additional information provided in Note 14 – Leases.
(2)
Includes net property and equipment of approximately $0.4 million and $0.5 million for the year ended December 31, 2024 related to
assets acquired in the Kent Island and Consolidated Mechanical transactions, respectively.
74
Depreciation and amortization expense on property and equipment was $7.2 million, $6.4 million and $6.6 million for the years
ended December 31, 2024, 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.
Stock-Based Compensation
Stock-based compensation awards granted to executives, employees, former executives 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
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.
75
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.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 concluded that the updated guidance did not materially affect its segment reporting
disclosures. The Company’s current processes, systems and controls already comply with the enhanced requirements, ensuring
consistency between internal management reporting and external financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense
Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, and in January 2025, the FASB
issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic
220-40): Clarifying the Effective Date. ASU 2024-03 requires additional disclosure of the nature of expenses included in the
income statement as well as disclosures about specific types of expenses included in the expense captions presented in the
income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for the Company for its annual reporting for fiscal
2028 and for interim period reporting beginning in fiscal 2029 on a prospective basis. Both early adoption and retrospective
application are permitted. The Company is currently evaluating the impact that the adoption of these standards will have on its
consolidated financial statements and disclosures.
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.
76
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. The Company is currently assessing the impact of this pronouncement on
its consolidated financial statements.
Note 3 – Acquisitions
Consolidated Mechanical Transaction
On December 2, 2024 (the “Consolidated Mechanical Effective Date”), LFS, Consolidated Mechanical, and the owner of
Consolidated Mechanical (the “Consolidated Mechanical Seller”) entered into a Purchase Agreement (the “Consolidated
Mechanical Purchase Agreement”) pursuant to which LFS purchased all of the outstanding equity interests in Consolidated
Mechanical from the Consolidated Mechanical Seller (the “Consolidated Mechanical Transaction”). The Consolidated
Mechanical Transaction closed on the Consolidated Mechanical Effective Date. As a result of the Consolidated Mechanical
Transaction, Consolidated Mechanical became a wholly-owned indirect subsidiary of the Company. Consolidated Mechanical
serves the heavy industrial, power and commercial markets. Consolidated Mechanical is a premier provider of mechanical,
millwright, steel fabrication, plumbing construction, maintenance, and outage services to owners of complex process systems in
the industrial sector. The acquisition extends the Company’s reach into the industrial sector, with new exposure to the power
generation, food processing, manufacturing, and metal markets in Kentucky, Illinois and Michigan.
Total consideration paid by the Company for the Consolidated Mechanical Transaction at closing was $23.0 million (the
“Consolidated Mechanical Closing Purchase Price”), which was funded by cash on hand. The payment is subject to typical
adjustments for working capital. Of the consideration paid to the Consolidated Mechanical Seller, approximately $0.3 million
was held in escrow for indemnification purposes. The purchase price is subject to customary post-closing adjustments. In
addition, the Consolidated Mechanical Seller may receive up to an aggregate of $2.0 million in cash, consisting of two
individual tranches of $1.0 million pursuant to the terms of the Consolidated Mechanical Purchase Agreement, if the gross
profit of Consolidated Mechanical equals or exceeds approximately (i) $6.8 million in the 12-month period beginning on the
Consolidated Mechanical Effective Date (the “First Consolidated Mechanical Earnout Period”) or (ii) $6.8 million in the 12-
month period beginning on the first anniversary of the Consolidated Mechanical Effective Date (the “Second Consolidated
Mechanical Earnout Period” and together with the First Consolidated Mechanical Earnout Period, the “Consolidated
Mechanical Earnout Payments”).
Preliminary Allocation of Purchase Price. The Consolidated Mechanical 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 Consolidated Mechanical 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 $11.1 million of goodwill, which was fully allocated to the Company's ODR segment and fully deductible
for tax purposes. Such goodwill primarily related to anticipated future earnings. The following table summarizes the
preliminary allocation of the fair value of the assets and liabilities of the Consolidated Mechanical Transaction as of the
Consolidated Mechanical Effective Date by the Company.
77
(in thousands)
Preliminary
Purchase Price
Allocation
Consideration:
Cash
$
23,591
Earnout provision
757
Total Consideration
24,348
Fair value of assets acquired:
Cash and cash equivalents
390
Accounts receivable, including retainage
3,128
Contract assets
233
Other current assets
64
Property and equipment
548
Intangible assets
10,100
Amount attributable to assets acquired
14,463
Fair value of liabilities assumed:
Accounts payable, including retainage
291
Accrued expenses and other current liabilities
461
Contract liabilities
480
Amount attributable to liabilities assumed
1,232
Goodwill
$
11,117
As of December 31, 2024, the allocation of the purchase price has not been finalized with respect to the valuation of identifiable
intangible assets acquired, the fair value of certain tangible assets acquired and liabilities assumed, goodwill and tax related
matters. A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ
from the preliminary purchase price allocation. The Company expects to finalize the valuation and complete the purchase price
allocation as soon as practicable, but no later than one year from the Consolidated Mechanical Effective 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, the carrying value was assumed to represent the fair value of these assets and
liabilities due to their current nature. There was no difference between the contract value and fair value of accounts receivable
acquired.
The estimated fair value of property and equipment, generally consisting of machinery, and equipment, was estimated using the
cost approach. Significant unobservable inputs in the estimate of fair value under this approach included management's
assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or
functional obsolescence associated with the acquired assets. As a result, the estimated fair value of the property and equipment
represented a Level 3 fair value measurement.
As part of the preliminary 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.
78
The Company calculates amortization of the acquired intangible assets using the straight-line method over the estimated useful
lives of each acquired intangible assets. The estimated annual amortization expense for each of the next five years is
approximately $1.3 million in 2025 and $1.2 million for each of the next four subsequent years.
Intangible assets, net as of December 31, 2024 are detailed below.
(in thousands)
Gross Carrying
Amount
Accumulated
Amortization
Net Intangible
Assets
Weighted
Average Useful
Life (Years)
Trade name and trademarks
$
100
$
—
$
100
0.8
Customer relationships
10,000
—
10,000
8.6
Total
$
10,100
$
—
$
10,100
8.5
The aforementioned contingent Consolidated Mechanical Earnout Payments are associated with the achievement of specified
gross profit milestones. The Company estimated that the fair value of the Consolidated Mechanical Earnout Payments was
approximately $0.8 million at the date of acquisition, of which $0.4 million of this balance was included in other long-term
liabilities in the Company’s consolidated balance sheet as of December 31, 2024. The Company determined the initial fair value
of the Consolidated Mechanical Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3
measurement. As of the Effective Date, the Consolidated Mechanical Earnout Payments associated with the Consolidated
Mechanical Transaction were valued utilizing a discount rate of 10.4%. The discount rate was calculated using the build-up
method with a risk-free rate commensurate with the term of the Consolidated Mechanical 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 Consolidated Mechanical
Effective Date, the Consolidated Mechanical 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.
Kent Island Transaction
On September 3, 2024 (the “Kent Island Effective Date”), LFS, Kent Island, and the owner of Kent Island (the “Kent Island
Seller”) entered into a Purchase Agreement (the “Kent Island Purchase Agreement”) pursuant to which LFS purchased all of the
outstanding equity interests in Kent Island from the Kent Island Seller (the “Kent Island Transaction”). The Kent Island
Transaction closed on the Kent Island Effective Date. As a result of the Kent Island Transaction, Kent Island became a wholly-
owned indirect subsidiary of the Company. Kent Island is a leading provider of building systems solutions in the Greater
Washington, DC metro area, including suburban Maryland and Northern Virginia. Kent Island excels in designing, engineering,
installing, servicing, and maintaining mechanical and plumbing systems for complex facilities. 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 Kent Island Transaction at closing was $15.0 million (the “Kent Island
Closing Purchase Price”), which was funded by cash on hand. The payment is subject to typical adjustments for working
capital. Of the consideration paid to the Kent Island Seller, approximately $0.4 million was held in escrow for indemnification
purposes. The purchase price is subject to customary post-closing adjustments. In addition, the Kent Island Seller may receive
up to an aggregate of $5.0 million in cash, consisting of two individual tranches of $2.5 million pursuant to the terms of the
Kent Island Purchase Agreement, if the gross profit of Kent Island equals or exceeds approximately (i) $3.3 million in the 12-
month period beginning on the Kent Island Effective Date (the “First Kent Island Earnout Period”) or (ii) $0.2 million in the 12-
month period beginning on the first anniversary of the Kent Island Effective Date (the “Second Kent Island Earnout Period”
and together with the First Kent Island Earnout Period, the “Kent Island Earnout Payments”).
Allocation of Purchase Price. The Kent Island 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 Kent Island 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 $5.5 million of
goodwill, which was allocated between the Company's ODR and GCR segments 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 Kent Island 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 Kent Island Effective Date. The
impact of all changes that do not qualify as measurement period adjustments would have been included in current period
79
earnings. The following table summarizes the preliminary allocation of the fair value of the assets and liabilities of the Kent
Island Transaction as of December 31, 2024.
(in thousands)
Purchase Price
Allocation
Measurement
Period
Adjustments(1)
Preliminary
Purchase Price
Allocation
Consideration:
Cash
$
14,603 $
671 $
15,274
Earnout provision
4,381
4,381
Total Consideration
18,984
671
19,655
Fair value of assets acquired:
Cash and cash equivalents
1,887
1,887
Accounts receivable, including retainage
10,376
10,376
Contract assets
1,457
1,457
Property and equipment
434
434
Intangible assets
10,700
10,700
Amount attributable to assets acquired
24,854
—
24,854
Fair value of liabilities assumed:
Accounts payable, including retainage
4,586
4,586
Accrued expenses and other current liabilities
1,269
1,269
Contract liabilities
4,828
4,828
Amount attributable to liabilities assumed
10,683
—
10,683
Goodwill
$
4,813 $
671 $
5,484
(1)
Measurement period adjustments recorded during the year-ended December 31, 2024 included changes in the total cash
consideration for the Kent Island Transaction, resulting in a net increase of approximately $0.7 million to goodwill. The
measurement period adjustments related to certain working capital adjustments made in connection with the finalization of
the transactions closing date cash consideration.
For working capital items, such as cash and cash equivalents, accounts receivable, other current assets, accounts payable and
accrued expenses and other current liabilities, the carrying value was assumed to represent the fair value of these assets and
liabilities due to their current nature. There was no difference between the contract value and fair value of accounts receivable
acquired.
The estimated fair value of property and equipment, generally consisting of machinery, and equipment, was estimated using the
cost approach. Significant unobservable inputs in the estimate of fair value under this approach included management's
assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or
functional obsolescence associated with the acquired assets. As a result, the estimated fair value of the property and equipment
represented a Level 3 fair value measurement.
As part of the purchase price allocation, the Company identified certain definite-lived intangible assets associated with
customer relationships with third-party customers, acquired backlog and the acquired trade name and trademarks. The fair value
of the customer relationships with third-party customers and acquired backlog 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.
80
The Company calculates amortization of the acquired intangible assets using the straight-line method over the estimated useful
lives of each acquired intangible assets. The estimated annual amortization expense for 2025 is approximately $3.5 million and
$1.1 million for each of the next four years.
Intangible assets, net as of December 31, 2024 are detailed below.
(in thousands)
Gross Carrying
Amount
Accumulated
Amortization
Net Intangible
Assets
Weighted
Average Useful
Life (Years)
Trade name and trademarks
$
200
$
(67)
$
133
0.6
Customer relationships - ODR
2,625
(130)
2,495
6.3
Customer relationships - GCR
4,875
(241)
4,634
6.3
Backlog - ODR
1,050
(263)
787
0.9
Backlog - GCR
1,950
(488)
1,462
0.9
Total
$
10,700
$
(1,189)
$
9,511
5.0
The aforementioned contingent Kent Island Earnout Payments are associated with the achievement of specified gross profit
milestones. The Company estimated that the fair value of the Kent Island Earnout Payments was approximately $4.4 million at
the date of acquisition, of which $2.2 million of this balance was included in other long-term liabilities. The Company
determined the initial fair value of the Kent Island Earnout Payments based on the Monte Carlo Simulation method, which
represented a Level 3 measurement. As of the Effective Date, the Kent Island Earnout Payments associated with the Kent Island
Transaction were valued utilizing discount rates of 14.9%. The discount rate was calculated using the build-up method with a
risk-free rate commensurate with the term of the Kent Island 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 Kent Island Effective Date, the Kent Island 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.
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 customers, 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 was held in escrow for indemnification purposes. The purchase price was
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 was equal to 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.
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
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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 was held in escrow for indemnification purposes. The purchase
price was 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.
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 costs and estimated earnings in excess of billings on uncompleted contracts and amounts due under
retainage provisions. The components of the contract asset balances as of the respective dates were as follows:
(in thousands)
December 31,
2024
December 31,
2023
Change
Contract assets
Costs and estimated earnings in excess of billings on uncompleted
contracts
$
27,304 $
29,247 $
(1,943)
Retainage receivable
20,245
22,443
(2,198)
Total contract assets
$
47,549 $
51,690 $
(4,141)
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.
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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 $10.9 million and $19.5 million as of December 31, 2024 and 2023, 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 estimated earnings on uncompleted contracts and provisions
for losses. The components of the contract liability balances as of the respective dates were as follows:
(in thousands)
December 31,
2024
December 31,
2023
Change
Contract liabilities
Billings in excess of costs and estimated earnings on uncompleted
contracts
$
44,417 $
41,987 $
2,430
Provisions for losses
102
173
(71)
Total contract liabilities
$
44,519 $
42,160 $
2,359
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:
(in thousands)
December 31, 2024
December 31, 2023
Revenue earned on uncompleted contracts
$
618,153 $
551,120
Less: Billings to date
(635,266)
(563,860)
Net (overbilling) underbilling
$
(17,113) $
(12,740)
(in thousands)
December 31, 2024
December 31, 2023
Costs and estimated earnings in excess of billings on uncompleted
contracts
$
27,304 $
29,247
Billings in excess of costs and estimated earnings on uncompleted contracts
(44,417)
(41,987)
Net (overbilling) underbilling
$
(17,113) $
(12,740)
Revisions in Contract Estimates
The Company recorded revisions in its contract estimates for certain ODR and GCR projects. During the year ended
December 31, 2024, the Company recorded material gross profit write-ups on four ODR segment projects for a total of $3.9
million that had a net gross profit impact of $0.5 million or more. During the year ended December 31, 2024, the Company
recorded material gross profit write-ups on three GCR projects for a total of $3.3 million and material gross profit write-downs
on two GCR projects for a total of $1.4 million.
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 that had a net gross profit impact of $0.5 million or more. During the year ended
83
December 31, 2023, the Company recorded material gross profit write-ups of $2.2 million on two GCR projects and material
gross profit write-downs on two GCR projects for a total of $1.3 million.
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, 2024, the aggregate amount of the transaction prices allocated to the remaining performance obligations of
the Company's ODR and GCR segment contracts were $204.1 million and $140.0 million, respectively. The Company currently
estimates that 85% and 72% of its ODR and GCR segment remaining performance obligations as of December 31, 2024,
respectively, will be recognized as revenue during 2025, 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 $33.0 million and $16.4 million as of December 31, 2024 and 2023, respectively. 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 assets 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, 2024, 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
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, 2024.
The following table summarizes the carrying amount and changes in goodwill associated with the Company's segments for the
years ended December 31, 2024 and 2023.
(in thousands)
GCR
ODR
Total
Goodwill as of January 1, 2023
$
— $
11,370 $
11,370
Goodwill associated with the ACME Transaction(1)
—
2,226
2,226
Goodwill associated with the Industrial Air Transaction
—
2,778
2,778
Goodwill as of December 31, 2023
—
16,374
16,374
Measurement period adjustments - Industrial Air Transaction(2)
—
59
59
Goodwill associated with the Kent Island Transaction(3)
4,244
1,240
5,484
Goodwill associated with the Consolidated Mechanical Transaction
—
11,117
11,117
Goodwill as of December 31, 2024
$
4,244 $
28,790 $
33,034
(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.
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(2) Includes certain adjustments to preliminary estimates of fair value within the measurement period of up to one-year from the date of the
Industrial Air Transaction. Measurement period adjustments related to certain working capital adjustments.
(3) In connection with the Kent Island Transaction, the Company recorded preliminary goodwill of $4.8 million. During the fourth quarter
of 2024, the Company recognized certain adjustments to preliminary estimates of fair value within the measurement period of up to one-
year from the date of the Kent Island Transaction. The measurement period adjustments amounted to $0.7 million and related to certain
working capital adjustments made in connection with the finalization of the transactions closing date cash consideration.
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 assets for the years ended December 31,
2024, 2023 and 2022.
Definite-lived and indefinite-lived intangible assets consist of the following:
(in thousands)
Gross
carrying
amount
Accumulated
amortization
Net intangible
assets,
excluding
goodwill
December 31, 2024
Amortized intangible assets:
Customer relationships
$
32,820 $
(7,124) $
25,696
Backlog
5,560
(3,310)
2,250
Trade name, trademarks and intellectual property
4,550
(1,228)
3,322
Total amortized intangible assets
42,930
(11,662)
31,268
Unamortized intangible assets:
Trade name – Limbach(1)
9,960
—
9,960
Total unamortized intangible assets
9,960
—
9,960
Total amortized and unamortized assets, excluding goodwill
$
52,890 $
(11,662) $
41,228
(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.
(in thousands)
Gross
carrying
amount
Accumulated
amortization
Net intangible
assets,
excluding
goodwill
December 31, 2023
Amortized intangible assets:
Customer relationships
$
15,320 $
(5,249) $
10,071
Backlog
2,560
(1,264)
1,296
Trade name, trademarks and intellectual property
4,250
(578)
3,672
Total amortized intangible assets
22,130
(7,091)
15,039
Unamortized intangible assets:
Trade name – Limbach
9,960
—
9,960
Total unamortized intangible assets
9,960
—
9,960
Total amortized and unamortized assets, excluding goodwill
$
32,090 $
(7,091) $
24,999
Total amortization expense for the Company’s definite-lived intangible assets was $4.7 million, $1.9 million and $1.6 million
for the years ended December 31, 2024, 2023 and 2022, respectively. For the years ended December 31, 2024 and 2023,
amortization expense included approximately $0.1 million and less than $0.1 million of amortization expense related to a
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below-market lease recognized as a result of the Industrial Air Transaction, which was recorded as an increase to the
Company’s operating lease right-of-use assets on its consolidated balance sheet.
The estimated remaining useful lives of definite-lived intangible assets are as follows:
Intangible Asset
Amortization Method
Weighted Average Remaining
Useful Life (Years)
Customer relationships
Straight line / Pattern of economic
benefit
7.1
Trade name, trademarks and intellectual property
Straight line
5.4
Backlog
Straight line
0.9
Estimated amortization expense is as follows for the years ending December 31:
(in thousands)
Estimated Amortization Expense
2025
$
6,919
2026
4,339
2027
4,339
2028
4,162
2029
3,821
2030 and thereafter
7,688
Total
$
31,268
Note 6 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following:
(in thousands)
December 31, 2024
December 31, 2023
Accrued payroll and related liabilities
$
8,119 $
5,561
Accrued bonus and commissions
14,373
12,254
Accrued insurance liabilities
880
1,007
Accrued job costs
1,274
2,710
Assurance-type warranty liabilities
1,556
1,500
Estimated loss contingency
350
650
Earnout Payments accrued, current
7,412
5,719
Other accrued liabilities
2,863
1,566
Total
$
36,827 $
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)
December 31, 2024
December 31, 2023
Balance at the beginning of the period
$
1,500 $
1,581
Accruals for warranties issued
261
261
Accruals related to pre-existing warranties (including changes in estimates)
613
932
Settlements made
(818)
(1,274)
Balance at the end of the period
$
1,556 $
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
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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, 2024, 2023 and 2022.
Note 7 – Debt
Long-term debt consists of the following obligations as of:
(in thousands)
December 31,
2024
December 31,
2023
A&R Wintrust Revolving Loans
$
10,000 $
10,000
Finance leases – collateralized by vehicles, payable in monthly installments of
principal, plus interest ranging from 3.96% to 8.60% through 2031
11,888
7,347
Financing liability
5,351
5,351
Total debt
$
27,239 $
22,698
Less – Current portion of long-term debt
(3,314)
(2,680)
Less – Unamortized discount and debt issuance costs
(371)
(387)
Long-term debt
$
23,554 $
19,631
Maturities of long-term debt and finance leases at December 31, 2024 are as follows:
(in thousands)
2025
$
3,271
2026
2,935
2027
2,205
2028
11,559
2029 and thereafter
7,269
Total
$
27,239
Wintrust Term and Revolving Loans
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
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.
In conjunction with the Company's acquisitions of JMLLC and CSLLC (the “Jake Marshall Transaction”), the Company
entered into an amendment and restatement 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 (as defined in Note 9 – Fair Value Measurements) under the Jake Marshall Transaction, and (iv)
make other corresponding changes to the A&R Credit Agreement.
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
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administrative agent. The First Amendment to the A&R Wintrust Credit Agreement modifies certain definitions within the
A&R Wintrust Credit Agreement, and makes 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 the 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. See 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
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,
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
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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.
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).
As of both December 31, 2024 and 2023, the Company had $10.0 million in borrowings outstanding under the Second A&R
Wintrust Revolving Loan. During both of the years ended December 31, 2024 and 2023, the maximum outstanding borrowings
under the Second A&R Wintrust Revolving Loan at any time was $10.0 million and the average daily balance was
$10.0 million and $6.6 million, respectively. For both of the years ended December 31, 2024 and 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.
At December 31, 2024, the Company had irrevocable letters of credit in the amount of $4.2 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 Second A&R Wintrust Revolving
Loan credit commitment:
Level
Senior Leverage Ratio
Applicable
Margin for
SOFR
Revolver loans
Applicable
Margin for
Prime
Revolving
loans
Applicable
Margin for
commitment
fee
I
Greater than 1.00 to 1.00
3.10 %
— %
0.25 %
II
Less than or equal to 1.00 to 1.00
2.60 %
(0.50) %
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
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.
89
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, 2024, the financing liability was $5.0 million, net of issuance costs, which was recognized within long-
term debt on the Company's consolidated balance sheets. For the years ended December 31, 2024, 2023 and 2022, $0.5 million,
$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. On July 20, 2021, the Public Warrants,
Private Warrants, and Additional Merger Warrants expired by their terms. During 2023, 600,000 warrants exercisable for one
share of common stock at an exercise price of $15.00 per share (“$15 Exercise Price Sponsor Warrants”) and 606,476 warrants
exercisable for one share of common stock at an exercise price of $12.50 per share (“Merger Warrants”) 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.
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 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 restricted stock
units (“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
90
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 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 share of the Company’s common stock
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, 2024 and 2023, the Company issued 6,090 and
17,661 shares of its common stock, respectively, to participants in the ESPP who contributed to the plan during these periods.
As of December 31, 2024, 382,866 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, 2024 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 and certain investments in money market funds sponsored
by a large financial institution. Cash equivalents as of December 31, 2023 consisted of overnight repurchase agreements, short
term investments, one U.S. Treasury Bill and certain investments in money market funds. For the years ended December 31,
2024 and 2023, the Company recognized interest income in the aggregate of approximately $2.2 million and $1.2 million,
respectively. The Company did not recognize interest income during the year ended December 31, 2022. 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.
Fair Value at Reporting Date Using
(in thousands)
December 31,
2024
Level 1
Level 2
Level 3
Cash equivalents:
Overnight repurchase agreements
$
38,962 $
38,962 $
— $
—
Money market fund
4,000
4,000
—
—
Total
$
42,962 $
42,962 $
— $
—
December 31,
2023
Level 1
Level 2
Level 3
Cash equivalents:
Overnight repurchase agreements
$
43,959 $
43,959
U.S. Treasury Bills
10,000
10,000 $
— $
—
Money market fund
3,750
3,750
—
—
Total
$
57,709 $
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, 2024, 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.
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Earnout Payments
As a part of the total consideration for the Jake Marshall Transaction, the former owners of JMLLC and CSLLC were eligible
to 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 was 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 was to 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 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 and 2024, the Company made two separate payments in the amount of $3.0 million to the former owners
of JMLLC and CSLLC related to the 2022 Jake Marshall Earnout Period and the 2023 Jake Marshall Earnout Period,
respectively.
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 ACME
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. In September 2024, the Company made a payment in the amount of $0.5 million to the former owner of
ACME related to the First ACME Earnout Period.
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 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. In February 2025,
the Company made a payment in the amount of $3.0 million to the former owner of Industrial Air related to the First Industrial
Air Earnout Period.
As a part of the total consideration for the Kent Island Transaction, the Company recognized $4.4 million in contingent
consideration on the Kent Island Effective Date. The fair value of contingent Kent Island Earnout Payments is based on
generating growth rates on the projected gross margins of Kent Island 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 Kent Island Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As
of the Kent Island Effective Date, the Kent Island Earnout Payments associated with the Kent Island Transaction were valued
utilizing a discount rate of 14.9%. The discount rate was calculated using the build-up method with a risk-free rate
commensurate with the term of the Kent Island 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 Consolidated Mechanical Transaction, the Company recognized $0.8 million in
contingent consideration on the Consolidated Mechanical Effective Date. The fair value of contingent Consolidated Mechanical
Earnout Payments is based on generating growth rates on the projected gross margins of Consolidated Mechanical 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 Consolidated Mechanical Earnout Payments based on the Monte
Carlo Simulation method, which represented a Level 3 measurement. As of the Consolidated Mechanical Effective Date, the
Consolidated Mechanical Earnout Payments associated with the Consolidated Mechanical Transaction were valued utilizing a
discount rate of 10.4%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the
92
term of the Consolidated Mechanical 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 $3.8 million, $0.7 million and $2.3 million for the years ended
December 31, 2024, 2023 and 2022, respectively, which was presented in the 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.
The following table presents the carrying values of the Company's contingent earnout payment obligations included in the
accompanying consolidated balance sheets, which approximated fair value at December 31, 2024 and 2023.
Fair Value at Reporting Date Using
(in thousands)
December 31,
2024
Level 1
Level 2
Level 3
Accrued expenses and other current
liabilities:
First IA Earnout Period(1)
$
3,000 $
— $
— $
3,000
First Kent Island Earnout Period
2,297
—
—
2,297
First Consolidated Mechanical Earnout
Period
402
—
—
402
Second ACME Earnout Period
1,713
—
—
1,713
Other long-term liabilities:
Second IA Earnout Period
3,222
—
—
3,222
Second Kent Island Earnout Period
2,201
—
—
2,201
Second Consolidated Mechanical
Earnout Period
355
—
—
355
Total
$
13,190 $
— $
— $
13,190
Fair Value at Reporting Date Using
December 31,
2023
Level 1
Level 2
Level 3
Accrued expenses and other current
liabilities:
2023 Jake Marshall Earnout Period(2)
$
3,000 $
— $
— $
3,000
First ACME Earnout Period(3)
429
—
—
429
First IA Earnout Period
2,290
— $
—
2,290
Other long-term liabilities:
Second ACME Earnout Period
1,188
—
—
1,188
Second IA Earnout Period
875
—
—
875
Total
$
7,782 $
— $
— $
7,782
(1)
In February 2025, the Company made a $3.0 million payment to the former owner of Industrial Air related to the First IA Earnout
Period.
(2)
In April 2024, the Company made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2023 Jake Marshall
Earnout Period.
(3)
In September 2024, the Company made a payment in the amount of $0.5 million to the former owner of ACME related to the First
ACME 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
93
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, 2024, 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, 2024, 2023 and 2022, the Company
recognized gain of less than $0.1 million, 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 share of the Company’s common stock applicable to common stockholders is computed by dividing earnings applicable to
common stockholders by the weighted-average number of shares of the Company’s common stock 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 — Equity) and 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 stockholders for the years ended December 31, 2024, 2023 and 2022:
For the Years Ended
(in thousands, except per share amounts)
December 31,
2024
December 31,
2023
December 31,
2022
EPS numerator:
Net income
$
30,875 $
20,754 $
6,799
EPS denominator:
Weighted average shares outstanding – basic
11,244
10,773
10,425
In-the-money warrants
—
249
—
Nonvested restricted stock units
783
789
247
Employee stock purchase plan
—
1
5
Weighted average shares outstanding – diluted
12,027
11,812
10,677
EPS:
Basic
$
2.75 $
1.93 $
0.65
Diluted
$
2.57 $
1.76 $
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 share of the Company’s common stock:
For the Years Ended
December 31,
2024
December 31,
2023
December 31,
2022
Out-of-the-money warrants
—
—
1,229,643
Service-based RSUs
—
—
—
Performance and market-based RSUs(1)
—
95
—
Employee stock purchase plan
351
1,044
1,573
Total
351
1,139
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
94
The Company is taxed as a C Corporation.
Provision for Income Taxes
The Company’s provision for income taxes relating to continuing operations consists of the following:
For the Years Ended
(in thousands)
December 31,
2024
December 31,
2023
December 31,
2022
Current tax provision
U.S. Federal
$
6,902 $
5,851 $
2,613
State and local
2,541
1,845
695
Total current tax provision
9,443
7,696
3,308
Deferred tax provision
U.S. Federal
16
(253)
(584)
State and local
(368)
(97)
85
Total deferred tax provision
(352)
(350)
(499)
Income tax provision
$
9,091 $
7,346 $
2,809
The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 resulted in effective tax rates on
continuing operations of 22.7%, 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:
For the Years Ended December 31,
2024
2023
2022
Federal statutory income tax rate
21.0 %
21.0 %
21.0 %
State income taxes, net of federal tax effect
4.3 %
4.8 %
6.4 %
Stock based compensation – restricted stock
(6.6) %
(1.1) %
1.4 %
Return to provision adjustment
0.1 %
(0.2) %
(0.1) %
Permanent differences
4.6 %
1.4 %
1.3 %
Tax credits
(0.3) %
(0.5) %
(0.9) %
Other
(0.4) %
0.6 %
— %
Effective tax rate
22.7 %
26.1 %
29.2 %
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in various state
jurisdictions. The Company’s 2021 and forward tax returns remain subject to examination by the U.S. federal taxing authorities.
The Company’s 2020 and forward tax returns remain subject to examination by the various state taxing authorities.
95
Deferred Tax Assets (Liabilities)
The significant components of deferred tax assets (liabilities) were as follows:
As of As of December 31,
(in thousands)
2024
2023
Deferred tax assets:
Accrued expenses
$
649 $
699
Allowance for doubtful accounts
100
74
Intangibles
915
435
Goodwill
3,581
3,057
Startup costs
48
57
Stock-based compensation
2,187
1,804
Research and development expenses
1,415
1,276
Lease liabilities
7,018
6,193
Accrued bonuses and commissions
384
424
Total deferred tax assets
16,297
14,019
Deferred tax liabilities:
Fixed assets
(4,386)
(3,413)
Right-of-use assets
(5,317)
(4,566)
Percentage of completion
(1,006)
(814)
Interest
(57)
(47)
Total deferred tax liabilities
(10,766)
(8,840)
Net deferred tax asset
$
5,531 $
5,179
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, 2024 and 2023.
At December 31, 2024 and 2023, the Company had no net operating loss carryforwards.
Liabilities for Uncertain Tax Positions
The Company had no unrecognized tax benefits as of December 31, 2024 and 2023.
Note 12 – Operating Segments
As discussed in Note 1, the Company operates in two segments (i) 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, and (ii) 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. Segment information is prepared on the same basis that 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 ODR work
performed at branches into one ODR reportable segment and all of the GCR work performed at branches into one GCR
reportable segment. All transactions between segments are eliminated in consolidation.
96
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 years ended December 31, 2024 and 2023, no ODR or GCR
segment customers accounted for 10% or more of the Company’s consolidated total revenue. For the year ended December 31,
2022, no ODR-related segment customers accounted for 10% or more of the Company’s consolidated total revenue and one
GCR segment customer accounted for approximately 11% of consolidated total revenue.
Consolidated segment information for the periods presented is as follows:
For the Years Ended December 31,
(in thousands)
2024
2023
2022
Statement of Operations Data:
Revenue:
ODR
$
345,500 $
261,958 $
216,403
GCR
173,281
254,392
280,379
Total revenue
518,781
516,350
496,782
Gross profit:
ODR
107,775
76,090
55,119
GCR
36,506
43,200
38,622
Total gross profit
144,281
119,290
93,741
Selling, general and administrative (1)
97,199
87,397
77,879
Change in fair value of contingent consideration
3,770
729
2,285
Amortization of intangibles
4,688
1,880
1,567
Operating income
$
38,624 $
29,284 $
12,010
Interest expense
(1,869)
(2,046)
(2,144)
Interest income
2,227
1,217
—
Loss on early termination of operating lease
—
—
(849)
Loss on early debt extinguishment
—
(311)
—
Gain (loss) on change in fair value of interest rate swap
34
(124)
310
Gain on disposition of property and equipment
950
80
281
Total unallocated amounts
1,342
(1,184)
(2,402)
Total consolidated income before income taxes
$
39,966 $
28,100 $
9,608
(1)
Included within selling, general and administrative expenses was $5.8 million, $4.9 million and $2.7 million of stock-based
compensation expense for the years ended December 31, 2024, 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.
Note 13 – Commitments and Contingencies
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.
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 the Company’s 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
97
of public sector work increases. As of December 31, 2024, the Company had approximately $109.3 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, 2024 and 2023 are as follows:
(in thousands)
December 31,
2024
December 31,
2023
Current liability — workers’ compensation and general liability
$
395 $
188
Current liability — medical and dental
485
819
Non-current liability
505
645
Total liability
$
1,385 $
1,652
Restricted cash
$
65 $
65
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, vehicles 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.
98
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 six through 10 of the lease
term. Fixed rent payments for the extension term are 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 are 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
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, 2024, 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, 2024, 2023 and 2022, the Company recorded $1.2 million, $1.2 million and
$1.1 million of income in selling, general and administrative expenses related to this sublease agreement.
99
The following table summarizes the lease amounts included in the Company’s consolidated balance sheets as of December 31,
2024 and 2023:
(in thousands)
Classification on the Consolidated Balance Sheets
December 31, 2024
December 31, 2023
Assets
Operating
Operating lease right-of-use assets(1)(2)
$
21,539 $
19,727
Finance
Property and equipment, net(3)(4)
13,966
9,561
Total lease assets
$
35,505 $
29,288
Liabilities
Current
Operating
Current operating lease liabilities
$
4,093 $
3,627
Finance
Current portion of long-term debt
3,314
2,680
Noncurrent
Operating
Long-term operating lease liabilities
17,766
16,037
Finance
Long-term debt(5)
13,925
10,018
Total lease liabilities
$
39,098 $
32,362
(1)
Operating lease assets are recorded net of accumulated amortization of $14.1 million and $13.6 million at December 31, 2024 and 2023,
respectively.
(2)
Includes approximately $0.9 million and $1.0 million at December 31, 2024 and 2023, respectively, related to a below-market lease
recognized as a result of the Industrial Air Transaction, which was recorded as an increase to the Company’s operating lease right-of-use
assets on its consolidated balance sheet. The below-market lease will be amortized to amortization expense over the remaining lease
term.
(3)
Finance lease vehicle assets are recorded net of accumulated amortization of $5.0 million and $4.5 million at December 31, 2024 and
2023, respectively.
(4)
Includes approximately $2.4 million of net property assets associated with the Company's Pontiac Facility at both December 31, 2024
and 2023.
(5)
Includes approximately $5.4 million associated with the Company's sale and leaseback financing transaction at both December 31, 2024
and 2023. See Note 7 — Debt for further detail.
The following table summarizes the lease costs included in the Company’s consolidated statements of operations for the years
ended December 31, 2024, 2023 and 2022:
Classification on the Consolidated
For the Years Ended December 31,
(in thousands)
Statements of Operations
2024
2023
2022
Operating lease cost
Cost of revenue(1)
$
2,863 $
2,184 $
2,627
Operating lease cost
Selling, general and administrative(1)
2,457
2,550
2,555
Finance lease cost:
Amortization
Cost of revenue(2)
3,147
2,753
2,687
Interest
Interest expense, net
515
384
264
Total lease cost
$
8,982 $
7,871 $
8,133
(1)
Operating lease costs recorded in cost of revenue includes $0.4 million, $0.4 million and $0.5 million of variable lease costs for the years
ended December 31, 2024, 2023 and 2022 respectively. In addition, $0.4 million of variable lease costs are included in selling, general
and administrative expenses for the year ended December 31, 2024 and $0.5 million for each of the 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 $4.0 million, $3.7 million and $3.8 million of variable leases costs for the years
ended December 31, 2024, 2023, and 2022 respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges.
100
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, 2024 were as follows (in thousands):
Finance Lease Obligations
Operating Lease Obligations
Year ending:
Vehicles
Pontiac
Facility
Total
Finance
Non-
Related
Party
Related
Party(1)
Total
Operating
Sublease
Receipts(2)
2025
$
3,878 $
528 $
4,406
$
4,500 $
765 $
5,265 $
939
2026
3,346
542
3,888
4,609
770
5,379
967
2027
2,447
555
3,002
3,451
871
4,322
326
2028
1,701
569
2,270
2,498
871
3,369
—
2029
1,878
583
2,461
1,799
876
2,675
—
Thereafter
108
13,149
13,257
752
4,121
4,874
—
Total minimum lease payments
13,358
15,926
29,284
17,609
8,274
25,884 $
2,233
Financing Component (3)
(1,470)
(10,575)
(12,045)
(2,213)
(1,812)
(4,025)
Net present value of minimum
lease payments
11,888
5,351
17,239
15,397
6,462
21,859
Less: current portion of finance
and operating lease obligations
(3,314)
—
(3,314)
(3,659)
(434)
(4,093)
Long-term finance and operating
lease obligations
$
8,574 $
5,351 $
13,925
$
11,737 $
6,028 $
17,766
(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:
December 31, 2024
December 31, 2023
Weighted average lease term (in years):
Operating
5.90
6.54
Finance(1)
3.84
3.10
Weighted average discount rate:
Operating
6.02 %
6.74 %
Finance(1)
6.06 %
5.33 %
(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:
101
Year Ended December 31,
(in thousands)
2024
2023
2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
5,065 $
4,705 $
5,055
Operating cash flows from finance leases
504
343
264
Financing cash flows from finance leases
2,938
2,737
2,734
Right-of-use assets exchanged for lease liabilities
Operating leases
$
4,775 $
3,135 $
—
Finance leases
7,586
5,219
2,634
Right-of-use assets disposed or adjusted modifying operating leases
liabilities
$
1,268 $
1,112 $
2,455
Right-of-use assets disposed or adjusted modifying finance leases
liabilities
$
— $
(93) $
(77)
Note 15 – Retirement Plan
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 $2.8 million for the year ended
December 31, 2024, as compared to $2.6 million and $2.4 million for the years ended December 31, 2023 and 2022,
respectively. 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,
2024, 2023 or 2022.
102
Note 16 – Multiemployer Pension Plans
The Company participates in approximately 50 multiemployer pension plans (“MEPPs”) that provide pension benefits to certain
union employees in accordance with various collective bargaining agreements (“CBAs”). As of December 31, 2024,
approximately 45% 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. 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 $28.2 million for the year ended December 31, 2024, as compared to $31.8 million and $31.3 million for the
years ended December 31, 2023 and 2022, respectively. Of these amounts, total contributions to MEPPs accounted for $10.3
million, $11.6 million and $12.6 million for the years ended December 31, 2024, 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 2023 for the 2024 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.
103
Pension
Fund
EIN/Pension
Plan Number
PPA Zone Status
FIP/RP Status
Contributions (in
thousands)
Contributions
greater than
5% of total
contributions
(1)
Surcharge
Imposed
Expiration date
of CBA
2024
2023
2024
2023
2022
Pipefitters
Local 636
Defined
Benefit
Pension Fund
38-3009873 / 001
Green
Green
N/A
$ 1,308
$ 1,439
$ 1,483
No
No
May-26
Pipefitters
Union Local
No. 537
Pension Fund
51-6030859 / 001
Green
Green
N/A
1,157
1,140
1,204
No
No
Aug-25
Plumbers
Local No 98
Defined
Benefit
Pension Fund
38-3031916 / 001
Green
Green
N/A
1,098
1,175
1,371
No
No
May-25
Sheet Metal
Workers
Local Union
No. 80
Pension Fund
38-6105633 / 001
Green
Green
N/A
984
1,255
1,245
Yes
No
May-26
Plumbers and
Pipefitters
Local Union
No. 43
Pension Fund
62-6101288 / 001
Green
Green
N/A
875
1,500
1,205
Yes
No
June-28
United
Association
National
Pension Fund
52-6152779 / 001
Green
Green
N/A
715
579
525
No
No
Ranging from
May-25 - May-27
Plumbers &
Pipefitters
Local No 189
Pension Plan
31-0894807 / 001
Green
Green
N/A
571
592
596
Yes
No
May-25
Steamfitters
Local Union
No. 420
Pension Fund
23-2004424 / 001
Yellow
Red
Implemented
565
633
537
No
No
Apr-26
Plumbers &
Pipefitters of
Local Union
No. 333
Pension Fund
38-3545518 / 005
Green
Green
N/A
537
345
393
No
No
May-27
Sheet Metal
Workers
Local 98
Pension Fund
31-6171213 / 001
Green
Green
N/A
475
830
1,232
Yes
No
May 26
Plumbers &
Steamfitters
Local 577
Pension Plan
31-6134953 /001
Red(2)
Red
Implemented
423
330
316
Yes
No
May-26
Heating,
Piping and
Refrigeration
Pension Fund
52-1058013 / 001
Green
Green
N/A
388
295
609
No
No
Jul-25
Sheet Metal
Workers'
National
Pension Fund
52-6112463 / 001
Green
Green
N/A
297
540
792
No
No
Ranging from
Apr-26 - Jun-28
Sheet Metal
Workers
Local 7, Zone
1 Pension
Plan
38-6234066 / 001
Green
Green
N/A
200
113
8
No
No
Apr-26
Ironworkers
Local 704
Pension Fund
62-6098036 / 001
Green
Green
N/A
138
236
46
No
No
Apr-26
Electrical
Workers
Local No. 26
Pension Trust
Fund
52-6117919 / 001
Green
Green
N/A
138
178
247
No
No
May-27
104
Refrigeration,
Air
Conditioning
& Service
Division (UA-
NJ) Pension
Plan
22-6109064 / 001
Green
Green
N/A
100
83
65
No
No
Jul-27
Steamfitters
Local #449
Pension Plan
25-6032401 / 001
Green(2)
Green
N/A
77
87
103
No
No
May-26
United
Association
Local Union
No. 322
Pension Plan
21-6016638 / 001
Red
Red
Implemented
33
27
25
No
Yes
Apr-25
Plumbers
Local Union
No. 690
Pension Fund
23-6405018 / 001
Green
Green
N/A
33
25
25
No
No
Apr-27
National
Electrical
Benefit Fund
53-0181657 / 001
Green
Green
N/A
9
65
81
No
No
May-27
Plumbers
Union Local
No. 12
Pension
04-6023174 / 001
Green
Green
N/A
2
5
14
No
No
Aug-25
Airconditioni
ng and
Refrigeration
Industry
Retirement
Trust Fund
95-6035386 / 001
Green
Green
N/A
—
8
74
No
No
Aug-24(3)
Southern
California
Pipe Trades
Retirement
Fund
51-6108443 / 001
Green
Green
N/A
—
4
130
No
No
Aug-26
Sheet Metal
Workers'
Pension Plan
of Southern
California,
Arizona and
Nevada
95-6052257 / 001
Green
Green
N/A
—
—
139
No
No
Jun-24(3)
Laborers
District
Council
Pension and
Disability
Trust Fund
No. 2
52-0749130 / 001
Green
Green
N/A
—
—
10
No
No
Oct-25
All other
plans (24, 13
and 11 as of
December 31,
2024, 2023
and 2022,
respectively)
131
153
103
Total
Contributions
$ 10,254
$ 11,637
$ 12,578
(1)
This information was obtained from the respective plan’s Form 5500 (“Forms”) for the most current available filing. These dates may not
correspond with the Company’s fiscal year contributions. The above-noted percentages of contributions are based upon disclosures
contained in the plans’ Forms. Those Forms, among other things, disclose the names of individual participating employers whose annual
contributions account for more than 5% of the aggregate annual amount contributed by all participating employers for a plan year.
Accordingly, if the annual contribution of two or more of the Company’s subsidiaries each accounted for less than 5% of such
contributions, but in the aggregate accounted for in excess of 5% of such contributions, that greater percentage is not available and
accordingly is not disclosed.
(2)
Funding status based off of the prior year funding notice as the current year’s funding notice was not available prior to the filing of this
Annual Report on Form 10-K.
(3)
In February 2022, the Company announced its strategic decision to wind down its Southern California operations and executed the closeout
phases on its remaining business unit projects during 2023. As such, these CBAs were not renewed.
105
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 and
employees vest ratably, on an annual basis, over three years. Service-based RSUs granted to non-employee directors vest
ratably over 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, 2024, 2023 and 2022, the Company
recognized $2.1 million, $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:
Awards
Weighted-
Average
Grant Date
Fair Values
Unvested at January 1, 2022
266,089 $
8.45
Granted
184,941
8.97
Vested
(146,151)
7.78
Forfeited
(24,604)
9.43
Unvested at December 31, 2022
280,275 $
9.06
Granted
164,413
11.94
Vested
(163,354)
8.58
Forfeited
(42,131)
10.63
Unvested at December 31, 2023
239,203 $
11.09
Granted
54,747
45.77
Vested
(140,248)
11.62
Forfeited
(3,896)
29.23
Unvested at December 31, 2024
149,806 $
22.79
Performance-Based Awards
The Company grants performance-based restricted stock units (“PRSUs”) to executives, employees and former executives
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 and EBITDA margin performance goals generally 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
106
forecasts with respect to the performance conditions. For the years ended December 31, 2024, 2023 and 2022, the Company
recognized $3.6 million and $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:
Awards
Weighted-
Average
Grant Date
Fair Values
Unvested at January 1, 2022
280,700 $
9.46
Granted
258,363
7.18
Vested
—
—
Forfeited
(41,123)
8.98
Unvested at December 31, 2022
497,940 $
8.32
Granted
289,092
12.77
Performance factor adjustment(1)
32,327
4.29
Vested
(121,827)
4.29
Forfeited
(116,911)
9.81
Unvested at December 31, 2023
580,621 $
10.85
Granted
84,869
45.58
Performance factor adjustment(2)
54,067
12.78
Vested
(211,634)
12.78
Forfeited
(11,637)
22.16
Unvested at December 31, 2024
496,286 $
15.91
(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.
(2)
Performance-based awards covering the three-year period ended December 31, 2023 were paid out in the first quarter of 2024 based on
the approval of the Company's Compensation Committee. The performance factor during the measurement period used to determine
compensation payouts was 134.3% of the pre-defined metric target of 100%, which resulted in a positive performance factor adjustment
and the issuance of 54,067 shares of the Company's common stock as additional awards associated with the original grant.
Stock-Based Compensation Expense
Total recognized stock-based compensation expense amounted to $5.8 million, $4.9 million and $2.7 million for the years
ended December 31, 2024, 2023 and 2022, respectively. The aggregate fair value as of the vest date of RSUs that vested during
the years ended December 31, 2024, 2023 and 2022 was $16.9 million, $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
$4.9 million at December 31, 2024. These costs are expected to be recognized over a weighted average period of 1.69 years.
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, 2024, 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, 2024, 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
107
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 2024 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, 2024.
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
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 the Company’s shares of common stock 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, 2024, 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.
108
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this Item 10 related to the Company’s directors is incorporated herein by reference to the
information to be included under the similarly named section of the Company’s definitive Proxy Statement for its Annual
Meeting of Stockholders scheduled to be held June 11, 2025 (the “2025 Proxy Statement”). Information regarding the
procedures by which the Company’s stockholders may recommend nominees to its Board of Directors is incorporated by
reference to the information to be included under the similarly named section of the 2025 Proxy Statement. There were no
material changes to the procedures by which security holders may recommend nominees to the Board of Directors in 2024.
Information about the Company’s Audit Committee, including its members, is incorporated by reference to the information to
be included under the similarly named section of the 2025 Proxy Statement. 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. The 2025 Proxy Statement will be
filed with the SEC within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.
The Company’s Code of Ethics, which covers all employees (including the Company’s 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 the
Company’s executive officers will be posted on the Company’s website at https://www.limbachinc.com/investor-relations/
within five business days (and will be retained on the website for at least one year).
Item 11. Executive Compensation
The information called for by this Item 11 is incorporated herein by reference to the material under the similarly named section
of the 2025 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this Item 12 is incorporated herein by reference to the material under the similarly named section
of the 2025 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this Item 13 is incorporated herein by reference to the material under the similarly named section
of the 2025 Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information called for by this Item 14 is incorporated herein by reference to the material under the similarly named section
of the 2025 Proxy Statement.
109
Part IV
Item 15. Exhibits and Financial Statement Schedules
a) Documents filed as part of this Report
(1)
Financial Statements. See “Index to Financial Statements” in Part II, Item 8 of this Annual Report on 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 Annual
Report on Form 10-K.
(b) Exhibits.
Exhibit
Description
2.1
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).
2.2
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).
2.3
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).
3.1
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).
3.2
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).
3.3
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).
3.4
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).
4.1
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).
4.2
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).
4.3
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).
4.4
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).
4.5
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).
4.6
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)
4.7
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).
10.1
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).
110
10.2
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).
10.3
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).
10.4
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).
10.5
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).
10.6
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).
10.7
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).
10.8
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).
10.9
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).
10.10
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).
10.11
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).
10.12
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).
10.13*
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).
10.14*
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).
10.15*
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).
10.16*
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).
10.17*
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).
111
10.18*
Form of Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the
Company Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on January 6, 2025)
10.19*
Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the
Company Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange
Commission on January 6, 2025)
10.20*
Limbach Holdings, Inc. Executive Severance and Change in Control Plan (incorporated by reference to Exhibit
10.1 to the Company Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and
Exchange Commission on January 6, 2025)
10.21*
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).
10.22†
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).
10.23†
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).
10.24†
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).
10.25†
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).
10.26*
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).
10.27*
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).
10.28*
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.)
10.29
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).
10.30
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).
10.31
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
10.32
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).
10.33
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).
112
10.34
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).
10.35
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).
10.36*
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).
10.37*
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).
10.38*
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).
10.39*
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).
10.40
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).
10.41
First Amendment to the Second Amended and Restated Credit Agreement, dated as of March 13, 2024, by and
among Limbach Facility Services LLC, Limbach Holdings LLC, the other Loan Parties party thereto, the
Lenders party thereto and Wheaton Bank & Trust Company, N.A., 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 13, 2024).
19.1
Limbach Holdings, Inc. Insider Trading Policy (filed herewith)
21.1
Subsidiaries of the Company (filed herewith)
23.1
Consent of Crowe LLP.
24.1
Power of Attorney (included on the signature page).
31.1
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.
31.2
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.
32.1
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.
32.2
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.
97
Limbach Holdings, Inc. Clawback Policy (filed herewith)
99.1
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.
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL 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.
113
(c) Financial Statement Schedules. Included in Item 15(a)(2) above.
Item 16. Form 10-K Summary
Not applicable.
114
SIGNATURES
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.
LIMBACH HOLDINGS, INC.
/s/ Michael M. McCann
Michael M. McCann
President and Chief Executive Officer
Date: March 10, 2025
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
Date
/s/ Michael M. McCann
President and Chief Executive Officer and
Director
March 10, 2025
Michael M. McCann
(principal executive officer)
/s/ Jayme L. Brooks
Executive Vice President and Chief Financial
Officer
March 10, 2025
Jayme L. Brooks
(principal financial and accounting officer)
/s/ Joshua S. Horowitz
Director and Chairman
March 10, 2025
Joshua S. Horowitz
/s/ Linda G. Alvarado
Director
March 10, 2025
Linda G. Alvarado
/s/ David R. Gaboury
Director
March 10, 2025
David R. Gaboury
/s/ Laurel J. Krzeminski
Director
March 10, 2025
Laurel J. Krzeminski
/s/ Michael F. McNally
Director
March 10, 2025
Michael F. McNally
/s/ Gordon G. Pratt
Director
March 10, 2025
Gordon G. Pratt
115
Non-GAAP Financial Measures
In assessing the performance of our business, management utilizes a variety of financial and performance measures. The key
measures are Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures. We define Adjusted
EBITDA as net income plus depreciation and amortization expense, interest expense, and taxes, as further adjusted to
eliminate the impact of, when applicable, other items or expenses that are unusual or non-recurring that we believe do not
reflect our core operating results. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue. Our board
of directors and executive management team focus on Adjusted EBITDA and Adjusted EBITDA Margin as two of our key
performance and compensation measures. Adjusted EBITDA and Adjusted EBITDA Margin assists us in comparing our
performance over various reporting periods on a consistent basis because it removes from our operating results the impact of
certain items that do not necessarily reflect our core operations. We believe that Adjusted EBITDA and Adjusted EBITDA
Margin are 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 these non-GAAP financial measures are 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 and Adjusted EBITDA Margin. Our calculations of these non-GAAP measures, 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 calculated in accordance with GAAP.
Further, the results presented by Adjusted EBITDA and Adjusted EBITDA Margin cannot be achieved without incurring the
costs that the measure excludes.
Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin
Non-GAAP Reconciliation Table
Fiscal Year Ended December 31,
(in thousands)
2019
2020
2021
2022
2023
2024
Revenue:
$ 553,334
$ 568,209
$ 490,351
$ 496,782
$ 516,350
$ 518,781
Net income (loss)
($ 1,775)
$ 5,807
$ 6,714
$ 6,799
$ 20,754
$ 30,875
Adjustments:
Depreciation and amortization
6,286
6,171
5,948
8,158
8,244
11,888
Interest expense
6,285
8,627
2,568
2,144
2,046
1,869
Interest income
—
—
—
—
(1,217)
(2,227)
Non-cash stock-based compensation expense
1,766
1,068
2,601
2,742
4,910
5,773
Loss on early debt extinguishment
513
—
1,961
—
311
—
Impairment of goodwill
4,359
—
—
—
—
—
Change in fair value of warrant liability
(588)
1,634
(14)
—
—
—
Change in fair value of interest rate swap
—
—
—
(310)
124
(34)
Severance expense
—
622
—
—
—
—
Loss on early termination of operating lease
—
—
—
849
—
—
CEO Transition costs
—
—
—
—
958
—
CFO Transition costs
576
—
—
—
—
—
Gain on embedded derivative
(388)
—
—
—
—
—
Restructuring costs
—
—
—
6,016
1,770
1,427
Change in fair value of contingent consideration
—
—
—
2,285
729
3,770
Income tax provision (benefit)
(282)
1,182
2,763
2,809
7,346
9,091
Acquisition and other transaction costs
—
—
735
273
826
1,282
Adjusted EBITDA
$ 16,752
$ 25,111
$ 23,276
$ 31,765
$ 46,801
$ 63,714
Adjusted EBITDA Margin
3.0%
4.4%
4.7%
6.4%
9.1%
12.3%
DIRECTORS
Michael M. McCann
President and Chief Executive Officer
Limbach Holdings, Inc.
Joshua S. 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
David R. Gaboury
President and Chief Executive Officer (Retired)
Terracon Consultants, Inc.
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
Regional President, Northeast and Midwest
Nick S. Angerosa
Regional President, Southeast
INVESTOR INQUIRIES
Financial Profiles, Inc.
LMB@financialprofiles.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
Oakbrook Terrace, IL 60181
T: 630-574-7878
www.crowe.com
CORPORATE COUNSEL
Cozen O’Connor
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
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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2025 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, 2025, 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.
ANNUAL MEETING OF STOCKHOLDERS
The 2025 Annual Meeting of Stockholders will be held in a virtual-only format on Wednesday, June 11th, 2025 at 9:00 a.m. EDT.
797 Commonwealth Drive
Warrendale, PA 15086
limbachinc.com