Greetings. And welcome to Limbach Holdings’ Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. And it is now my pleasure to introduce your host, Jeremy Hellman of the Equity Group. Thank you, Jeremy. Please go ahead.

Thank you very much, and good morning, everyone. Yesterday, Limbach Holdings announced its third quarter 2022 results and filed its Form 10-Q for the quarter ended September 30, 2022. During this call, the company will be reviewing those results and providing an update on current market conditions. Today’s discussion may contain forward-looking statements and actual results may differ from any forecasts, projections, or similar statements made during the earnings call. Listeners are reminded to review the company’s annual report on Form 10-K and quarterly reports on Form 10-Q for risk factors that may cause the actual results to differ from forward-looking statements made during the earnings call. With that, I will turn the call over to Charlie Bacon, the President and Chief Executive Officer of Limbach Holdings. Please go ahead, Charlie.

Good morning. Welcome everyone and thanks for joining us. With me today is our Chief Financial Officer, Jayme Brooks; our Chief Operating Officer, Michael McCann; and our Executive Vice President of Acquisitions, Matt Katz. We are calling you from Tampa this morning where we are experiencing a tropical storm. We are in a facility with an emergency generator. But should we lose you during the call, we have a backup plan and we will call it just give us a moment to dial back in should that happen. As always, I want to start by thanking our employees for their outstanding work. We had a terrific third quarter and those results were well earned by the entire organization. The efforts of our team from our business unit leaders to our craft workers, service technicians, and corporate and branch staff are paying off as reflected in our very solid financial and operating results. As we continue to pursue a transformational strategy, Limbach is evolving and building sustainable value at the same time. I'm tremendously proud of our employees and their contributions. For those joining us for the first time, we're in the midst of a transformation of the business model to focus more on building owners and are partnering with them to optimize mission critical mechanical, electrical and plumbing systems. Those building systems represent significant capital investments for our customers and are fundamental to the proper functioning performance of our customers' business models. We have two distinct business segments. First, the Order Direct Relationship, or ODR, includes project work and services provided directly to facility owners. The second, General Contractor Relationships, or GCR, includes work performed as a subcontractor to a general contractor or construction manager. In 2019, we implemented a strategic shift to accomplish two key objectives: First, to rapidly expand the lower risk, higher margin ODR segment and second, to rationalize the GCR segment through a focus on improving operational performance, profitability, and cash flow generation. At that time, the GCR segment constituted approximately 80% of consolidated revenue and generated an unacceptable level of volatility in earnings and cash flow. A key priority was to set a midterm goal of achieving a 50:50 segment revenue mix by 2025, which we believed would help us achieve both key objectives. The rationale for the strategic shift was fairly simple. We realized better returns and superior cash flow generation from the ODR segment. As a result of the direct relationship with facility owners, which provides stable, consistent, and recurring project work and related services. Within the GCR segment, we know that when we cherry-pick the right projects, which include knowing the building owner, allocating labor, and having a smart contract, we can generate better profitability and improve cash flow. At the time, we believed the strategy would lead to better execution with predictable growing profits and increasing cash generation. Our experience in executing that strategy over the last three years has proven us right. With our results this quarter and the previous quarters over the past two plus years, we now have the financial proof that we have the right strategy to build sustainable value. Turning to our results. Our transition to the owner-focused business continues at an accelerated pace, positioning us to achieve a 50:50 segment revenue split next year, which would be two years ahead of schedule. As we've said for some time, we've undertaken this transformation with several goals in mind: improving our consolidated gross profit and net income margins, driving better cash flow conversion, and reducing the overall risk profile of the business. Consolidated gross margin of 20.3% in Q3 was a company record, as was consolidated gross margin of 18.8% for the trailing 12-month period ending September 30. Performance was fueled by excellent execution in our GCR segment and strong revenue growth in the higher margin ODR segment, which contributed 48.8% of Limbach’s total revenue for the quarter. This compares to 30.4% of revenues in the same period last year. Cash flow from operations for the quarter was $10.4 million, bringing the total to $23 million year to date despite getting off to a slow start in Q1. The significant cash flow generation allowed us to continue to reduce debt, as our term debt declined by $2.4 million in the quarter. Excluding vehicle finance leases and the Pontiac sale leaseback financing liability, we have paid down our long-term debt by $11.6 million since December 31, 2021. Third quarter ODR sales of $62.8 million were up 40.1% from last year's third quarter, resulting in an ODR segment backlog of $124.5 million at September 30, up 4.4% from $119.3 million at the end of the second quarter, and up 27% from December 31. We also ended the quarter with GCR backlog of $332.8 million, up 7.8% from the $308.8 million at June 30. We remain on track to deliver a solid year. With strong performance year to date and a solid outlook, we're increasing the adjusted EBITDA portion of our financial guidance for this year while tightening our revenue range. We tightened our full-year revenue range to be between $510 million to $530 million, compared with $510 million to $540 million previously. And now expect adjusted EBITDA of $27 million to $30 million, up from our previous guidance of $25 million to $29 million. I want to spend a few minutes describing our business and what I call the recession-resilient positioning of the company to succeed even in the face of weakening economic conditions. We often emphasize the key themes of diversity of the business and how we are essential to our customers, especially building owners. I want to provide more detail on how our business is well diversified in four primary ways. First, we have 16 offices that service over 30 key metro areas east of the Mississippi, with demand for nonresidential mechanical, electrical and plumbing services driven by local demographics and economic activity. Our geographic markets are largely uncorrelated in this respect. Second, we offer customers a wide range of services from front-end engineering and design through construction and, importantly, service and maintenance. Demand for service and maintenance capabilities is driven by ordinary wear and tear and equipment, as well as ongoing supply chain issues. Building owners have a critical need for maintenance services to keep their equipment up and running when replacement equipment is not available. We also anticipate the possibility of a strong replacement cycle once the supply chain globalizes. Third, we operate in a large, uncorrelated and critical end markets from healthcare to data centers to industrial manufacturing. Healthcare is one of our largest end markets where we continuously grow throughout many of the markets we serve. Finally, we maintain a broad diverse set of customers ranging from well-capitalized Fortune 100 customers to thriving middle-market industrial companies that form the foundation of many local economies. We're focused on strong relationships, expanding our services and revenue and increasing what I refer to as wallet share. These key factors underscore a continued strong pipeline of opportunities for both of our segments. The building systems we design, build, and service are often, if not always, mission-critical for the building owner. Data centers that operate 24/7, 365 allow internet companies to make sure their platform is always available for users. Hospitals simply cannot operate if the air handling systems go down. These are examples of mission-critical systems, and the list goes on. By cultivating these customer relationships, our goal to expand wallet share drives long-term growth in our business. With that, I'll hand it off to Jayme to provide more details on the quarter.

Thanks, Charlie. Our earnings press release and our form 10-Q contain a detailed review of our financials. So I'll focus my discussions on key areas. Total revenue for the quarter was $122.4 million versus $129.2 million in the prior year quarter. The lower level of total revenue for the quarter is a result of our continuous intentional rationalization of the GCR business to reduce risk and maximize profits. GCR revenue for the third quarter was $62.7 million versus $90 million in last year's period. ODR revenue continues to grow and increased $20.5 million or 52.2% to $59.7 million compared to the prior year. Within the ODR segment, the acquisition of Jake Marshall in December of 2021 contributed $10.2 million of the year-over-year increase and the remaining increase of $10.3 million represents organic growth of 26.3%. Growth in the ODR segment was driven primarily by the increase in larger owner direct project work. Larger project work, which is defined as projects in excess of $500,000, grew approximately 68% from a year ago and approximately 18% from the second quarter. We also experienced solid growth in maintenance revenue as well as T&M work, which grew 19% sequentially and 48% on a year-over-year basis. For the third quarter, ODR gross margin was 25.5% and GCR gross margin was 15.4% for a consolidated gross margin of 20.3%. This compared to a consolidated gross margin of 18.9% in Q3 of last year and 18.4% in Q2 of 2022. The overall improvement in the consolidated gross margin was a function of our revenue composition, continuing to shift to ODR and improvement in our GCR gross margin from the prior period. GCR gross margin improved to 15.4% from 14.2% last year. However, GCR gross profit decreased $3.1 million because of lower revenue in the segment. ODR gross profit increased $3.5 million due to an increase in revenue despite a lower margin of 25.5% versus 29.8%. This lower margin was driven by project mix and timing in the third quarter of 2021. Our SG&A expense for the quarter was $18.7 million, which is relatively flat compared to the first and second quarters and an increase from $18.3 million in the prior year quarter. Third quarter SG&A included the SG&A costs for the acquired Jake Marshall entities, which were not in last year's SG&A, partially offset by a $0.7 million increase in payroll related expenses and a $0.2 million decrease in rent-related expenses. Concerning the progress of winding down our business operations in Southern California and the GCR segment in Eastern Pennsylvania, we expect both to be substantially complete by the end of this year. The expense associated with winding down these operations and other non-recurring expenses associated with cost reduction initiatives throughout the company have impacted our 2022 quarter-to-date and year-to-date income before income taxes by $1.4 million and $4.3 million respectively. This compared to the three- and nine-month period in 2021, during which the unprofitable Southern California operation and the Eastern Pennsylvania GCR segment unfavorably impacted our income before income taxes by $1.2 million and $4.4 million respectively. At this point, we've worked through the cost savings initiatives additionally identified as part of our plan for the year, and we will realize the full year cost savings going into 2023. We have also prioritized the implementation of ongoing processes to ensure we are efficient with our expenses as we work to scale the business. Turning to cash and the balance sheet. During the third quarter, operating activities generated cash of $10.4 million, year-to-date cash from operating activities was $23 million. As was the case last quarter, our strong cash flow was due to a combination of factors as we continue our focus on cash generation and working capital management. The operations of the business generated cash and we've experienced continued improvement in our cash collections and net overbill position, primarily due to the resolution of a claim settlement in Q3 of 2022, which provided $5.9 million in cash, in addition to the cash generated from operating the business. For the quarter, free cash flow generated from operating the business before working capital changes was $6.6 million. This includes net income of $3.6 million plus non-cash operating activities of $3 million, which is primarily depreciation, amortization, non-cash operating lease expense and stock-based compensation, less $250,000 of CapEx. As I suggested, we believe a reasonable way to view cash generated from operating the business is to start with net income, add back non-cash operating activities and then subtract capital expenditures. Using this methodology for estimating our free cash flow, free cash flow conversion as a percentage of adjusted EBITDA was approximately 62% for the quarter, and we are targeting an annual 70% conversion rate when we achieve an annual segment revenue split of 50:50. Additionally, this quarter we entered into a sale and leaseback transaction for our facility in Pontiac, Michigan. This transaction provided us with $4.9 million of cash net of issuance costs and a $2.4 million tenant improvement allowance. Our annual rent is approximately $500,000. And its expense to interest as a transaction was classified as a finance lease per GAAP. The implicit rate associated with the aggregate purchase value of $7.8 million, which is inclusive of the tenant improvement allowance was 6.5%. With the current escalating interest rates, we were very pleased with the outcome of this transaction. Our strong performance in Q3 and cash position has enabled us to continue to reduce our term debt. We repaid $1.8 million through scheduled monthly amortization and $0.36 million upon the receipt of cash proceeds from the reported claim resolution. In total, we reduced the term loan balance by $2.4 million during the quarter. We ended the third quarter with cash of $28.4 million up from $19.6 million at the end of the second quarter. At quarter end, we had no borrowings on our revolver, and a total term debt position of $23.3 million inclusive of the short-term portion. Additionally, during the third quarter, we hedged approximately $10 million of our term debt, fixing it at a term SOFR rate of 3.12% through July of 2027. At September 30, 2022, the interest rate in effect for the $10 million hedge portion of the term debt was 7.22%. And the non-hedge portion of the term debt was 7.25%. We have also noted for some time that outstanding claims represent potential significant cash coming into the business. We are constantly working towards resolving our pending claims. And at this time, we are down to three major claims remaining, which are in active negotiations. These outstanding claims total over $40 million, and we will continue to actively pursue recovery. However, given the nature of these claims and the process by which they may be resolved, we are not able to provide a value or a timeframe in which these claims might be resolved. To conclude, our continued improving performance is driving strong operating cash flow, allowing us to rapidly pay down our debt while also providing ample ability to find potential acquisitions and the share repurchase program we announced at the end of September. I’ll now pass the call to Mike to discuss operational highlights.

Thanks, Jayme. Financial and operating results in the third quarter continue to demonstrate the potential of the ODR centric business model to improve profitability and cash flow generation. Our strategy and associated processes we put in place in 2019 are continuing to improve the quality of our earnings. We believe there's even more room to run. As we optimize our revenue mix, expand our key building owner relationships, and develop additional product and service offerings. When we reflect back on the ODR journey we've taken, we can identify a handful of key business drivers that continue to form the basis of our success, improvements in data collection analysis that allow us for real-time visibility into project performance. This enables us to get ahead of issues as well as opportunities. An obsessive focus on account management. We recognize the leverage that even a handful of meaningful customers can have on the operating model and a local business unit. The value of being a specialist in each market instead of a generalist. Having a defined niche provides competitive differentiation and generally means above average returns in those markets. The opportunity to drive margin improvement through better project selection and leverage of our design engineering capabilities, as well as a focus on providing integrated solutions, instead of just one-off project delivery. There's one comment that I want to add to Charlie’s summary of the transformation we're undertaking. We don't operate a one-size-fits-all model. While we do strive to implement and achieve consistency across the business units with respect to these operating themes in core processes, we have to acknowledge that each business unit is different, different customers, different skills and talents in different local market dynamics. In some locations, that means our business unit is 100% ODR focused. In other markets, that can mean that our business unit is generating 80% of its revenue from GCR opportunities. But those opportunities are of the type that makes sense given the return profiles each along with the capabilities of the local team. What that means on a consolidated basis is that we expect to see continued growth in the ODR business, which is a common theme across all of our business units. Because GCR is not a strategy everywhere though, the volume of activity in that segment is likely to be a little bit more volatile in the quarters and years ahead. We're concentrating work in fewer places, so there's less balance on a consolidated basis. And those locations are really good at executing GCR work. And that frequently means that some larger GCR work ongoing are in the backlog, but that could be more episodic. So activity within the GCR segment could have higher peaks and lower troughs given the concentration and a handful of businesses. But we have no intention of sacrificing quality or risk management. I've commented on the holistic approach to the business model and Jayme’s address performance by segment. So I’ll now focus on sales and overall activity Charlie touched on earlier. As a reminder, when we refer to sales, we're talking about work or projects for which we have contracted as opposed to revenue, which is what we have actually done the work and billed a customer. In general, we continue to benefit from a solid operating environment. Third-quarter ODR sales of $62.8 million were up 40.1% from last year’s third quarter. Sales of ODR pricing and T&M were again particularly strong, with product sales up almost 40% year-over-year, and T&M sales up almost 50% year-over-year. As of September 30th, ODR segment backlog was $124.5 million, up 4.4% from $119.3 million at the end of the second quarter and up 27% from December 31. We ended the quarter with GCR backlog of $332.8 million, up 7.7% from $308.8 million at June 30th. That position allows us to stay well through the end of the year into 2023. I want to stress again that adding to the GCR backlog, we believe we are remaining disciplined when it comes to the work we're pursuing. We have a good pipeline, and we're selective. Supply chains continue to be an issue with constant demand for crude materials absorbing any slack that develops. For us, it has caused our quick-hitting ODR work, whether time and material or service and maintenance work to be very busy. Equipment deliveries can push or pull revenue from one period to another. We're coaching building owners to make proactive decisions on their capital infrastructure programs. These decisions include pre-ordering equipment on one side of the spectrum. On the other side, we have seen customers asking us to help rebuild equipment in place. Our ODR-focused strategy has helped position us to be a partner for building owners and directly assist them with their infrastructure and building operational needs. Taken all together, we feel good about the outlook. Now I’ll pass it over to Matt.

Thanks, Mike. In the acquisition market, there's been a modest increase in seller activity in the last few months, we continue to hear the same things from business owners, they're not getting any younger. Businesses are a lot harder than they used to be. And business just isn't as much fun as it used to be. All of which is great news for us in that we offer some unique solutions to those problems. And that message is resonating really well with nearly everyone we speak with. We're offering cultural continuity for like-minded businesses, a supportive environment for a local brand and the employees, and a breadth and depth of resources that's really difficult for smaller businesses to develop and invest behind. So what we've realized is that we'll often have to compete for transactions in some way. We're seeing progress toward achieving a goal of being the preferred buyer for local and regional contractors. And for the front end of our acquisition model, being that preferred buyer is really what our goal is. That being said, we're also dealing with human nature. There's a busy environment, and this is a life-changing decision for a lot of business owners. For sellers, that often leads to a lot of reflection and introspection longer, less predictable, and potentially less streamlined transaction timelines for us. There's a lot of starts and stops. And there's the occasional deal that falls apart at some point. But that may come back to life down the road. So someone who hires advisors probably needs at least a loose commitment to getting a deal done. But that's not usually the opportunity that we're pursuing. In many cases, we're trying to acquire the businesses that aren't necessarily for sale. So we have to remain patient and disciplined and be willing to push and pull opportunities in response to sellers’ timelines and transaction processes. The market data points that we've seen this year haven't given us any reason to change our focus. That continues to be businesses located east of the Mississippi River in smaller secondary and tertiary markets. Dominant local market brands, strong compatible cultures and core values, execution excellence, exposure to attractive end markets like healthcare, higher education, industrial and manufacturing, and at least some elements of an ODR foundation, something we can build on. We also continue to feel good about the valuation paradigm for these types of businesses. It's consistent with how we approached last year's Jake Marshall transaction, we need to find the balance between offering value to the business owner and still creating value for Limbach all without stressing the balance sheet or absorbing all of the company's liquidity. Building on Mike's comment about the key themes and drivers of the ODR journey we've experienced over the last few years; we've taken that experience and developed some process technology that we can apply to the acquisition candidates. Like with our own business units, it's not a one-size-fits-all approach. But we definitely see opportunities now that we might not have seen a couple of years ago, and we feel better equipped to capture the resulting value. We've also engaged with a lot of business owners, who share our frustrations over how the industry has evolved in the GCR market, and who are eager to benefit from the lessons that we've learned. And that's been a real competitive advantage, we think. So with all that said, we remain concentrated on our areas of focus, and we remain disciplined in our process. We obviously can't make predictions related to growth through acquisitions, but we continue to believe that we've got the right areas of focus and the right process as we pursue this type of growth.

Thanks, Matt. In short, we're very optimistic about Limbach’s prospects, insiders have bought shares many times over the past year, and we announced the share repurchase program right at the end of the third quarter. So we're certainly standing behind this viewpoint. Our aggressive shift to an ODR-focused business is already delivering gross margins above our peers. In our investor presentation that is available on our website, we have a slide that details this, Jayme noted restructuring initiatives we have undertaken this year to improve our operations. And with those expenses dropping off next year, we expect to see our operating margins improve. In addition, we're focused on continuing to scale up our business, both through organic growth in the ODR segment and through acquisition. As I stated earlier, we are tightening our revenue guidance for the year while increasing our adjusted EBITDA expectations. We currently expect revenues to be in the range of $510 million to $530 million and adjusted EBITDA of between $27 million and $30 million. In addition, our newer investor presentation contains a number of other helpful modeling parameters. Our team is executing our plan, and it's working. With that, we'll take your questions.

[Operator Instructions] Our first question comes from the line of Rob Brown with Lake Street Capital.

Good morning and congratulations on a nice quarter. Just wanted to get a little more color on the demand environment in the current economic environment. I know you addressed some of the ins and outs but how do you sort of see that playing out and what markets are strong and what markets are maybe a little weaker?

Rob, this is Mike, thanks for the question. It's interesting that we've seen tremendous demand for what we provide. Just I think one of our key focuses is we're really looking for buildings and business owners that have mission-critical systems. And that's really what's been a key differentiator for us. I would look at it this way, the current environment plays with our strategy, we're very account-focused, along with the mission-critical systems, and that's really led us to partner with building owners, and kind of almost flex with their spend. I'll use a couple of examples of this too. One was a National Healthcare Company, that their spend, as they look into the next year or so, has basically flexed from large Greenfield new site construction to existing building construction that was placed perfectly for what we're looking forward to. And that's going to lead to more OR switch-outs. And they're looking for areas of the hospital where they can get a quick return that's led to more of an existing building type of approach. The other example is a Fortune 500 company that shifted their spend from, again, larger, newer construction to retrofits from a service and maintenance perspective. So definitely, we've seen the mission-critical systems, especially in healthcare, we've seen great demand from that, especially from an existing building perspective.

Rob, I want to just add a bit more to that. The account management processes that we're focusing on right now, Mike uses the word, we're aggressively pushing that. And we are, we think there's a lot more opportunity for us to expand again, I call it wallet share. But basically increasing the revenue streams out of an existing customer base, we have over 1,200 customers. Right now, quite frankly, we're looking at the top 30 laser-focused on the top 30 accounts that we think we can rapidly expand. We know what's working because we've got the evidence of the proof of expanding our wallet share with certain customers today.

Great, thank you for all the color there. And then maybe on the SG&A cost, they seem to have come down a little bit. How is that trend line? And how do you see that moving forward, Jayme?

Yes, I would expect next quarter to be fairly similar. And then we're basically working to maintain that level of SG&A as we're trying to offset increases due to inflation and for salaries, those types of things as well as professional services. So we're offsetting that with the cost reductions that we've identified. So I would think it'd be fairly constant. As we target, revenue is going to grow. And that's where we're getting to that 13% to 13.5% number that we put out for SG&A margin in the long term.

And our next question comes from the line of Chip Moore with EF Hutton.

Good morning. Thanks for taking the question. And congrats on the execution on the transformation everybody. I want to ask about the 50:50 split. I think I've heard you say you could hit that next year, two years, you've got a play on. Pretty remarkable. Just any thoughts on handicapping that or kind of what you need to go right to get to that 50:50 split potentially next year?

Right, Chip, thanks for the question. Right now, we're definitely on track to hit that 50:50 with the way we're operating the business, and again, expanding the relationships with these owners. In all reality, we're going to blow through that. You're going to see constant increases in ODR revenue with the business and the GCR side of the business probably will level off. We suggest a slight contraction going into next year. But when you look at the ODR opportunity, you've already seen the growth percentages, we're suggesting not modeling at those larger numbers that we are achieving to stay conservative, but we see a lot of opportunity in front of us. So does the mix shift 60:40, 70:30? It's probably yes.

Got it, fantastic. As a follow-up, I wanted to ask on the sort of feedback cycle you alluded to supply chain normalizes presumably, that's something you have great visibility on, it sounds like just help us think about how this could play out. Say next year if things loosen up, would this be sort of upside to what you're seeing now sort of best of both worlds or how to think about that potentially?

Chip, this is Mike, thanks for the question. It's interesting on the supply chain, our business units are kind of used to the new cycle or paradigm off lead times at this point. I kind of we have an opportunity in both ends of the spectrum, right now, there's lots of opportunities because the equipment has taken a long time, there's two different areas that we've seen extensive growth, and one is, I can't get the equipment I need to make a quick repair, or I need you to have one of our talented service personnel. I need them on site all the time to manage that equipment. The second piece of it that we've seen recently, and I would say in the last six months, when building owners and customers are starting to realize that this equipment lead time supply chain issue is still ongoing, they are starting to ask us what can we do right now to get that equipment replaced. We've talked to customers and we've had pretty good success with this, of replacing equipment in place by certain components. There was an example of a mission-critical customer that was in the food processing sector where they had to get the equipment back up and running. We changed a particular component of it; they got a 30% energy efficiency pickup based upon that switching so we were able to switch the components in place. The other side of this supply chain from an ODR perspective is when they know they can't get what they want. And it's still taking a long time, they come back to us because we're their partner. We spend time with them looking for what a creative solution may be. We use our design group and we work with them to figure out how we can solve their problem in the short term. Eventually, we do see this supply chain easing up; we haven't seen that as of late. But right now, even with the supply chain the way it is, we've seen tons of opportunities for high-margin work.

Interesting, that's super helpful. Yes, it sounds like if anything, it's deepened the relationships and benefits. All right, fantastic. Thanks.

And the next question comes from the line of Gerry Sweeney with ROTH Capital.

Good morning, Charlie, Jayme, Matt and Mike, I think I got everybody there. Hope everyone is listening. Obviously, ODR is the topic du jour. So I want to keep digging in on that a little bit. But do we -- should we look at the client base really, and the number of clients really as the driver of the business or sort of a benchmark? And I know Charlie, you sort of touched upon your total customers and how much you're interacting with. But just curious if that's something we should continue just to watch as a benchmark or a driver, because I do believe there's a certain amount of pull through as you get deeper with some of these customers.

Gerry, we've talked about our ODR customers quite a bit here over the past several years. We keep looking for the better customers out there; we're actually directing our sales teams to be laser-focused on what's the potential of the owner, like where could it go? Clearly, Fortune 100 companies, there's tremendous opportunity. But even in the mid-market type businesses, we're just asking our people to look at the selection of an ODR customer where we can really maximize the return on human capital, and grow the relationship, grow the revenue stream, grow the wallet share. So today, we do have the 1,200-plus customers, and we are talking a turtle a year; are there a better set of KPIs we can provide? We haven't determined that yet.

Now that's fair, and that's good. How do you get better penetration of these guys or even go downstream? And which sort of evolves into the question of differentiated services moving up the stack, that there was a little bit of talk about data, maybe even predictive management or maintenance? There's a sense there's going to be a longer-term evolution also with an ODR.

Gerry, it's Mike, thanks for the question. Yes, you're absolutely right. This is a long-term play. That again, we look at our business units they have to select properly and be this put into the marketing strategy. But dedicating resource and specifically account manager dedicated to that really makes the initial push, I would say. We've got to gain trust; we're looking for long-term relationships. Those customers, once we maintain trust, then they're starting to discuss to us once we prove confidence in the overall look of their business. That's where we can provide our solutions to a more holistic infrastructure look. What we believe differentiates us is we're focused on accounts, not opportunities, we're focused on solutions, not fitting. Ultimately, once we gain trust, we spend time with the customer, then we can have more involved solutions. And when we get in there, that's what's really going to drive the march to that point, but to your point, it's an evolution of the account. And what we do is we stick with it, we dedicate resources, and we work with them to become a trusted adviser.

And our next question comes from the line of Jon Old with Long Meadow Investors.

Thanks. Good morning, everybody. Incredible quarter, appreciate all your hard work. I was wondering if you could talk a little bit more about the three claims that are remaining? Any color on, I know you can't be exact, but could you maybe provide an estimate that maybe by the end of ‘23, they would be resolved or just any more color would be great.

Good morning, Jon, thank you for the positive comments about our progress; it's greatly appreciated. The claims are very, very active, all three of them in various stages of back and forth, probably more activity than we've seen over the past year. So we're pretty excited about it. We mentioned the relative dollar settlement happened. And that was a bit of a surprise how that happened so quickly; we were starting to project maybe next year. But then all of a sudden, it just got resolved. And actually, I just found out through a conversation earlier this week, where I was with the customer, how it all happened so fast, and basically, it was a change in leadership with that particular public authority. A new director came in and wanted all the old stuff cleaned up; he did not want that on his watch. That's how it got settled so quickly. So the timing of these things. It's really, it's frustrating because we want to get that cash in the door. But I can assure you right now, all three of the major claims are very, very active. We're hoping to see, actually, one of them possibly resolved this year, which might mean cash in Q1 or Q2, depending on the timing of when they pay.

Okay, thank you. And maybe one for Jayme. I'm just trying to reconcile if you look at the guidance numbers and what's been provided, I mean, the fourth quarter revenues would have to come in around 100. And I'm just making round numbers $160 million or so. And the EBITDA would be $8 million plus. So the revenues are much higher than the third quarter and much higher than last year's fourth quarter. And yet the suggested EBITDA is less than the last quarter and last year's fourth quarter. What am I missing there?

So you see, we're just trying to be cautious going into the end of the quarter. It has a lot of material delivery that's going to come with equipment at the end of the quarter. And so just being cautious around the timing of that. But yes, that's why we expect to increase the bottom line between that $27 million to $30 million for the full year. Because of that revenue piece of it, that's where you see the tightening of the revenue numbers.

Jon, we are trending towards the higher end of guidance today; we're looking at our forecast. A lot of it has to do with these major equipment deliveries that are happening into summer actually, everything is scheduled right now. But as we've experienced over these past two years, some things do slip. But as of right now, we have the visibility.

Okay. All right. And then I'll just make a final comment. I mean, your hard work and great effort and incredible execution. I'm just saying it has been fantastic. But it still hasn't been reflected in the stock price. And so, I mean, by my estimates if I do an estimate of the claims, and I think we're trading at like, 2x to 3x EBITDA. So thank you for the stock purchase authorization, and the markets open at least for me.

And our next question comes from the line of William Bremer with Vanquish Capital Partners.

Good morning, Charlie, and team. Okay, I have a few. First, let's go to cash flow. Consistently, it is getting better and better. But I'm seeing an elevated level of accounts receivables. And is that due to the mix shift, or because I feel as though cash flow could have even been stronger?

It's really timing as we have, if you look at the balance sheet, we have our contract assets, so you have basically amounts that we've not been able to bill for. So it's really a timing of shift from those under billings and over billings into AR and then the collection of that. We've not really seen much of the lag on the churn of collecting AR. But as we go into the next year, we're still highly focused on cash conversion, and wanting to put some guidance out there and some loose guidance around what we're looking at from a cash flow conversion of adjusted EBITDA.

Okay, good. All right. So quick second question. Given the hurricanes, specifically in some of your regions, were there any emergency restoration services or contracts that you were able to garner during these times?

Hey, Bill, thanks for the question. We did, as an example of this, one of our national healthcare providers actually brought us onto their team. And I would call this augmented their staff for a three- or four-month engagement, purely working together on their staff to help resolve their problems. So that's just one example. There were several other examples as well too. But again, I think our focus on as I mentioned before, a dedicated account manager leads us to when customers run into situations where they need help, they turn to us.

Bill, that particular instance, there were five hospitals shut down. Three of them were able to help them get restored very quickly, they were back up and running. Two of them were severely damaged, one was actually in the Wall Street Journal to give an example, roof ripped off and ER was flooded. We were asked to come in actually the day before the hurricane hit, to help them get organized and provide a program management service to help them with their overall needs of getting those buildings back open. The only way that happens is because of the trust that they have with us. When we talked a bit earlier today during the call about aggressive account management, I emphasize the issue of building trust through solutions-based offerings. That's the direction of where the company is going. We only see that opportunity being amplified as we continue to focus.

Nicely done. That's exactly how these relationships over the long term truly build. My last question is on a capital structure priority. Is it the late September announcement of a share buyback versus the paying down of debt? What is the priority that your team has?

So we look at the capital allocation, Bill, we're looking at all the opportunities that are available to us. Our priority right now is really looking at the acquisition opportunities that are out there to scale up the business. And we're very focused, laser-focused to create the proper deals that are transactable with the seller, and obviously an opportunity for us to help them go beyond where we are going to buy them at 4x to 5x EBITDA. We see those opportunities and it's been a very interesting environment, as Matt alluded to sitting with the owners and explaining to them, where we're going with our strategy. The proof we have that it works, the owners of these businesses are really intrigued because they're tired of getting burnt by general contractors. They really like the ODR focus. So we're matching the nurturing those relationships through business development, and explaining where we can help them when they become part of Limbach.

And our next question comes from the line of Chip Brown with an unidentified firm.

Hey, good morning, folks. I hope you guys are being safe out there. Real quick, ignoring the corporate set of SG&A, I just wanted to see if you guys could shed some more light on any material cost shifts in your overhead going forward. And on a trailing 12-month basis, ODR is actually up to 21% or so year-over-year, despite being down this quarter. So is there anything that we can expect material going forward on the cost side for overhead excluding acquisitions?

From an ODR perspective, the SG&A ranges for ODR are higher than GCR. So we are rapidly growing the ODR element. We gave the percentage earlier between 40% and 50% year-on-year. Yes, there has been some increase in SG&A on the ODR side, and what we are looking to do is to shift some of the expenses away from GCR, as GCR kind of levels out and actually get a better return on the ODR piece. We are shifting resources over to ODR. So that's gone well. And, quite frankly, we are adding to the ODR piece in terms of investment with account managers; obviously that's the theme of today's call. The other part is we continue to look for technology solutions, not necessarily to build new programs and things like that, but the team with channel partners. So we're putting in some resources to look at expanding that to a sales platform. Again, it's all part of expanding the relationship with the owner, how can we help them with predictive analytics, basically, AI. We actually have to have a channel partner and we are deploying that as a pilot. So there's a bit of expense there, too. But, as Jayme said, we continue to look for opportunities to reduce overall SG&A. But we are facing some headwinds in terms of just inflationary costs with salaries and compensation and professional services that we have to employ. But we're working hard, obviously to keep that level and not see a bunch of increases.

Thank you. That's fair. In regards to the acquisitions going forward, that big does not just own overhead, but actual, your actual cash flow, that cash flow conversion rate is attractive. But when we add that back in the acquisition costs, that cash side of that, it's obviously a deterrent. So can we expect with a strategy of one to three a year, us noticing the hit cash flow, and within both segments on a consolidated basis?

We build that into kind of the ultimate return on that investment. So we look at those kind of the one-time costs as we go forward. What that is when we're actually doing the acquisition, and then we look at it from a long-term perspective that, what's one-term -- what's a one-time cost versus ongoing so that'll play through those numbers. I'm not sure. Are you looking for adjustments?

Yes, sure. So, Chip, the structure that we've been working through, and that's been reasonably well-received in the market has been a structure that provides for at least from our balance sheet, about 50% of the purchase price payable in cash, and then 50% payable in cash from debt financing. So we're basically trying to balance incurrence of new debt with existing sources of liquidity. We don't want to over-leverage the balance sheet, and we don't want to drain it of operating capital. And then providing in some, but not all situations, depending on the business opportunity, and earnout, structured over generally a two-to-three-year period. That, again, is payable in cash at the end of each of the individual years within that earnout. We really have to maintain a balance between existing liquidity and incurrence of additional indebtedness. For the time being, that should continue to provide enough capital to do the deals that we'd like to do from a size point of view. Obviously, if we find something that's meaningfully bigger than what we acquired last year, I think we'd have to take a fresh look at it. But 80% of the transactions we look at fall within the middle of the bell curve for which that structure would be appropriate.

Perfect, thank you. I appreciate it. Now, I know got history prior to this -- with FDG. I guess, I want to know where we're, where that actual cash flow cost is going to, where I can model that out. I mean, going forward. So I think you put too much into that. So I appreciate it. Thank you.

Yes, no problem. Happy to follow up with you if you've got other questions offline.

Thank you. There are no further questions at this time. And I would like to turn the floor back over to the CEO, Charlie Bacon for closing remarks.

Thank you for your continued interest or newly found interest in Limbach. We're building the next chapter of the company and we're working hard to unlock the value of Limbach for all of our shareholders. Please reach out to our Investor Relations representative Jeremy Hellman of the Equity Group if you have any questions about the company or want to arrange a meeting. All the best.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.