Good day, everyone. Welcome to the Limbach First Quarter 2023 Conference Call and Webcast. I will now turn the call over to your host, Jeremy Hellman of the Equity Group. Jeremy, please go ahead.

Thank you very much, and good morning, everyone. Yesterday, Limbach Holdings announced its first quarter 2023 results and filed its Form 10-Q for the period ended March 31, 2023. The company would also like to note that an updated investor presentation is available on the Investors section of the company website at www.limbachinc.com. Management will refer to select slides during today's call and encourages investors to review the presentation in its entirety. 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. Also, please note that during the question-and-answer session at the end of the call, we will only be taking questions from our analysts. With that, I'll turn the call over to Mike McCann, Chief Executive Officer of Limbach Holdings. Please go ahead, Mike.

Good morning. Welcome, everyone, and thanks for joining us. Joining me this morning is Jayme Brooks, our Chief Financial Officer. 2023 is off to a solid start with adjusted EBITDA pacing well ahead of the first quarter last year and also the year before that. Top line revenue was up modestly year-over-year, while gross margin continued to expand, driving the bottom line expansion. Our local teams continue to provide best-in-class services while always living our values. On the whole, market conditions remain much the same as when we spoke to you two months ago, and we continue to focus on managing the business, expanding our relationship with building owners who recognize the value in having a partner to manage their mission-critical building assets. Q1 was characterized by solid and consistent execution of our plan, which drove the margin and bottom line success we continue to discuss. This success rests on three key pillars; First of these is segment mix. We continue to push towards a greater proportion of our revenue coming from our higher-margin ODR segment, and if successful in doing so, we expect gross margin to continue to improve in the long run. Our results during the recent periods have proven that we can grow our bottom line while our total revenue remained relatively flat, even with modestly declining revenue in the GCR segment. In our updated investor presentation, we have a new slide number 9, which shows this visually. However, we certainly aim to grow our top line going forward as our higher growth ODR segment outpaces the contraction in our GCR segment. For example, our Q1 revenue was up from the prior year and the midpoint of our guidance would also represent year-over-year growth. The second of our three pillars is gross margin, which is an output of both mix as noted and also how we price and execute work in each segment. During the first quarter, both of our segments continued to perform well, leading to gross margin expansion. Within the GCR segment, we continue to focus on improving project execution and securing high-margin work. As a result of our revenue mix continuing to evolve to a greater ODR concentration, we are able to be very selective in the GCR work we take on. In certain instances, as a result of our strategic shift, building owners are recognizing our general contractor customers’ desire to use Limbach. Within the ODR segment, we are focused on changing our relationships from reactive to proactive. We're not only trying to maximize margin opportunity but also realize we must provide long-term value in order to earn future opportunities. Slide 8 in our investor presentation demonstrates how we expect to drive further margin improvement. Our third pillar is scaling through acquisition, as shown on Slide 11 and 12. We continue to diligently work on this front, and we believe our opportunity pipeline is robust. Our acquisition strategy is important both for top line revenue growth as well as improved earnings. Relative to when we spoke with you a couple of months ago, market activity remains at a similar level and as always, we remain selective. It's absolutely paramount that any business we add to our family be a cultural fit. We're also meeting our operational, financial and strategic requirements such as targeted geographic expansion and/or strategic tuck-ins with existing operations. Our strategy is focused on gaining market share while working collaboratively with the proposed acquisition to unlock maximum value. I'll now pass it off to Jayme to provide some financial highlights, and then I'll return with a few final comments before we take your questions. Jayme?

Thanks, Mike. Our press release and Form 10-Q, which were filed yesterday, provide extensive details of our financials, so I will focus on some key highlights. Focusing on the income statement. During the first quarter, the ODR segment accounted for 48.5% of total consolidated revenue. That compares with 44.6% in the fourth quarter of 2022 and 43.6% for the full year 2022. So we are continuing to make good progress towards reaching the 50-50 revenue split milestone with a long-term goal of our ODR segment contributing 70% or more to total consolidated revenue. Consolidated gross margin during the first quarter was 21.7% as a result of both the increasing contribution from our higher-margin ODR segment and strong margin performance within each segment. For the quarter, GCR gross margin was 16.6% while ODR was 27.1%. So again, in our view, very good performance in both segments. Also to expand on Mike's comments regarding GCR margins. A year ago, we were talking about GCR gross margin in the 11% to 12% range, and we increased that to 12% to 15%. This is a result of continuing to not only focus on execution, but also on the selection of projects. As a result, we expect to see margins fluctuate quarter-to-quarter depending on the timing of those newer projects as we have a mix of new, higher-margin projects and older, lower-margin projects in backlog. SG&A expense in the first quarter was $21.1 million, up from $18.7 million in the year-ago period. The $2.3 million increase included approximately $811,000 of costs related to the CEO transition and a $534,000 increase in stock-based compensation expense, primarily due to an increase in the grant date stock price year-over-year. On our last call, we noted that 2023 full year SG&A should have a similar run rate as a percentage of total revenue to 2022, and we continue to expect that to be the case. Also consistent with the prior year, we currently expect that our revenue in the second half of the year to be stronger than in the first half, which would cause SG&A expense to be higher as a percentage of revenue in the first half of the year. Turning to cash flow. Solid execution and working capital management during the first quarter contributed to operating cash flow of $9.4 million. Changes in working capital accounts had a positive impact of $1.8 million on the operating cash flow. Accounts receivable provided cash of $24.6 million as a result of the decrease in AR from December 31. This included collecting $10 million from the claims settlement we talked about on last quarter's earnings call. And it was great to see that coming during the first quarter. Offsetting the increase was cash used in accounts payable of $14.9 million and accrued expenses of $3.2 million, which included the payment of the 2022 accrued incentive compensation. The remaining $7.6 million of operating cash flow was a non-working capital component. As we have noted previously, our free cash flow can be calculated by taking this figure and then subtracting CapEx which totaled $923,000 in the quarter. That leaves free cash flow at approximately $6.6 million or around 77% of our adjusted EBITDA. So cash conversion for the quarter came in better than our 70% annual target level. The primary use of cash we generate continues to be a reduction of debt. We paid down $1.9 million of our term debt during the quarter and at the quarter end, we had a cash balance of $41.4 million and term debt of $19.6 million. Additionally, at the end of April, we paid down an additional $9.6 million of our term debt. That left an outstanding term debt balance at April 30 of $10 million. Our balance sheet is strong and the business is expected to continue to yield free cash flow. Subsequent to our quarter end, we also negotiated an amendment to our existing credit agreement with Wintrust. The new amendment extinguished our term debt and expanded our $25 million revolver to $50 million. So coupled with our free cash flow, we believe we have ample capital to pursue our acquisition program without needing to turn to equity financing. Lastly, we have had a few inquiries regarding the remaining $15 sponsor warrants and the $12.50 merger warrants. As of May 5, approximately 160,000 warrants have been exercised, all on a cashless basis for approximately a net share issuance of 26,000 shares. As a reminder, both of the remaining tranches of warrants expire in July of 2023. I'll now hand the call back to Mike.

Thank you, Jayme. As noted in our press release, we are reiterating our financial guidance for 2023, which consists of total revenue for the year in the range of $490 million to $520 million and adjusted EBITDA in a range of $33 million to $37 million. We are also currently continue to expect second half results to exceed the first half as Jayme highlighted, which would guide us to the upper end of the range. As I noted at the onset, industry conditions are much the same as when we spoke two months ago. That said, we know conditions will always change, but our focus is on engaging customers. The systems are mission-critical and have needs regardless of the macroeconomic environment. In these types of buildings and customers, the owners can defer large capital expenditures, but they can't avoid immediate repairs. This will allow us to flex between repairs of existing equipment and infrastructure upgrades. When supply chain demand eases, there will be an opportunity for many building owners to execute their infrastructure upgrades, and we believe Limbach will be well-positioned to capitalize. In many cases, building owners are looking to reduce their operating costs and improve the energy efficiency of their buildings, but they need equipment to be readily available in order to execute their plans. In the meantime, we are still able to provide them on-demand services and continually monitor and repair their older equipment. In short, we are intensely focused on executing our strategy, which combines a disciplined approach with engineering solutions and craft expertise. By delivering value to our customers from front-end solutions to timely quality work in the field, we cement ourselves as an indispensable partner. Taking that approach to the market will be a focus on mission-critical building assets, is something we are confident we will win in our end market verticals. As we do this, we expect to earn a return of assets commensurate with the value we are providing. In some ways, this drives a new way of thinking in our industry, and we are excited to be at the forefront of this metamorphosis. With that, operator, please open the Q&A session.

Your first question comes from Rob Brown of Lake Street Capital.

Good morning. Congratulations on all the progress.

Good morning.

Thank you, Rob.

Just wanted to get a little color on the demand environment and maybe focus on owner direct, but overall, how has the demand environment been trending? And obviously, with the strong results, it has been good, but what's the demand environment and sort of visibility like?

Yes, Rob. The demand environment is still really strong. And I think one of the things that we're really focused on, and I mentioned this is we want to make sure that our customers have mission-critical systems. And if you kind of look at the vertical markets that we're in, sometimes each one of these vertical markets will shift towards short-term repair work versus long-term capital expenditures. And right now, we have a diverse enough group of vertical markets that each one of them is operating a little bit differently, but they all have demand. The question is whether the demand is short term or long term. And just as a couple of examples of this, health care still has high demand but more of a quicker turn. The data center, mission-critical market, they're investing in long-term capital expenditures. It's maybe hedged a little bit toward that direction. From a manufacturing standpoint, a lot of it is customer dependent, whether they're short term or long term, but we're well positioned because those customers are mission-critical because we positioned ourselves. And then lastly, if you look at higher education and life science, on higher education, if we're working for a university, it's going to be lab-style work. And that market has changed a little bit, but the demand is still there. It's gone from maybe less of a corn shell to a fit-out spec lab, and it's also tailored. So the biggest thing is our teams are really focused on working for mission-critical customers that have equipment that can't go down. And we always use this example internally. If they have a call on Saturday and equipment goes down at 3 o'clock and if they can wait until Monday or Tuesday, then they're not mission-critical. So we use that as a simple guide. But demand is still really strong.

Okay. Great. Thanks for the color there. And then on the M&A effort, you talked quite a bit about some of the parameters there. But how does that pipeline look? What are you looking for more near term there? And what's some of the status of where that's at?

Sure. The pipeline is really strong. We really refocused probably six or nine months ago. And I think the most important thing is we want to make sure that the acquisitions are a cultural fit, number one. And number two is they fit into the mold of the rest of the branches. We completed Jake Marshall about 16 months ago, and we've dialed into two different types of acquisitions. The first type is a new geography where we have a lot of footprints right now that we have a lot of opportunity from that standpoint. And then the second type that we've also been focused on is tuck-in locations. So is there a tuck-in acquisition adjacent to an existing business that we have that we can add market share? So we're really looking at those two different types. We've also been very patient, too. We're asking a lot, and we want to make sure that we really culture them and make sure they're going to be a fit.

Thank you for everything. I'll turn it over.

Thank you.

Your next question comes from Chip Moore of EF Hutton. Chip, your line is open.

Good morning, and congrats on a good start to the year as well.

Good morning.

Good morning, Chip.

Congrats on the good start to the year as well. I wanted to ask about the ODR path. I think you talked about 70% longer term. You've obviously gotten closer to 50 quicker than most people thought. I guess you covered acquisitions, but maybe more on the organic investment side, what you can do there and how that helps that path?

Yes. And you're right. It's a combination of acquisitions plus organic. But from an organic side, and I think I've mentioned this in the past, I just want to reinforce this. We have gained a ton of customers in the last four or five years. Our customer count is well over 1,200. And at this point, we're really looking to make sure that we pick the right relationships, and this we have kind of a criteria. Again, is the equipment mission-critical, is there availability for long-term spend, and basically, we're really focusing our locations to pick your top 10 customers, make sure your top 10 customers fit the attributes that we're looking for and then focus resources on them. We have so many customers that we can't provide a high level of service and provide the value that we want to provide, so we're really focusing on the top 10 per location. That's still a tremendous amount of customers if you add up all our locations. And the other thing, too, that I've been - I was visiting a bunch of customers in the last four or five weeks, and it's interesting. We have a lot of - and I talked about this a little bit in the script, but we're trying to change our relationships from reactive to proactive. And just as an example of that, we could be doing reactive calls for a customer for six or nine months, and we could be getting a lot of revenue and gross profit out of there. But we've really been challenging our teams to say, okay, take a look at the information, the data that you've received from the customer, the spend that you've said, meet with that customer, sit with them and co-author more of a long-term plan with them. That's where we're really going to be able to embed ourselves, and that's where we're really going to be able to grow this owner-direct side of it, even more than we are. And I think there's not only from the revenue side but also from our margins. So just to summarize, it's really focusing our customer list, listening to them and making sure that it's just not reactive, but it's co-authoring a long-term spend plan. So it's a number of different factors. We're really focused on it. All of our sales and marketing efforts are really centered around owner-direct. And we're getting there, but we also have a long way to go, too.

Awesome, thanks for that color, appreciate it, Mike. And maybe if I could ask one more on more sort of near-term margin mix in backlog in the GCR side with the outperformance in Q1 and obviously, the stronger outlook in the second half? Just anything to take in mind on project activity near term. Thanks.

Yes. No problem. So from a GCR margin perspective, there are a bunch of different factors that have really helped us. But as we approach 50-50 and beyond, it allows us to be really selective from a GCR perspective. So being selective allows us to really raise our margin. The second piece of it is we are now in a position where the owner is recommending that they use Limbach. It puts us in a different position going forward. So from a margin perspective, we still think there's opportunity there. But really, the strategy fits importantly into the margin. And I would add, too, that our teams are continuing to execute really well. All the risk management processes that we've put in place, combined with the fact that our strategy really emphasizes that we're trying to be selective. We're focusing on building owners. There are times and needs where they have to have us. And when they have to have us, obviously, it changes our value proposition and changes the way that we can approach from a margin perspective as well.

Fantastic. Okay. Thanks again.

Your next question comes from Gerry Sweeney of ROTH Capital. Gerry, your line is open.

Good morning, Jayme and Mike, thanks for taking my call.

Good morning, Gerry.

Just wanted to circle back on ODR, Mike, you mentioned proactively active and really a couple of questions around just ODR as a segment, right? I think even in the presentation, you highlighted opportunities about getting data-driven subscription and those offerings would help you to become more proactive. So the questions are really what exactly do you need to become more proactive? And then secondarily, I'm just curious about just assets on the ground, including do you need more sales? How is your equipment utilization? Do you have enough to support growth? Or how do we look at that on a go-forward basis as well?

Yes. I mean, you're right. The relationship always allows us to get in front of customers. But the second part of it is we have to - in order to maintain the relationship and grow the relationship, we have to provide value. Just from a data - and I would also kind of caveat from an information perspective, we'll perform work for a customer, and we'll compile service tickets, equipment history, asset history. That's one side of information that we're trying to make sure that we translate into more of a long-term plan. Also, from a building automation system and analytics platform perspective, that's another avenue that we can provide information and data. And I would tell you that what we're really focused on internally is making sure it's as simplified as possible. It's the simplest thing as if I've gone out to that piece of equipment for two years - are you providing that customer feedback on how that equipment has performed? Are you just continuing to repair that equipment? That's a question that we've really challenged our teams with. And that kind of plays into the discussion of, okay, is the customer at the point where they trust us? Will they give us the data, even from a utility spend perspective? So we have a long way to go in that perspective, but allowing us to position ourselves to gather that data is really the spot that we're in right now. And just from an asset perspective, internally, we're really focused on switching from new business development to account managers. I think the other big piece going forward, too, as we continue to talk to different people from a customer perspective, even further up the chain is more of a return on investment. That's a question that we are getting asked more and more, and we want to make sure that our teams and our account managers are well positioned to make sure they can answer those questions. So I think in its most simplistic perspective, we've got some new business development to account managers. And a lot of those assets we have internally; we always look externally to figure out if there's a key hire or two. Our primary focus is promoting from within, but we are also sprinkling in some talented account managers as well.

So, at the end of the day, it sounds like we're still - I mean, you've had great growth on ODR, but we're still sort of even in the early innings of the growth potential here so, lots of runway. It sounds even within your sort of existing customer base or your customer base that you had some type of contact with - is that sort of a fair assessment?

Yes, I completely agree. We have - and I think that kind of is a good - right now, we have a good foundation going forward. But understanding our customers, focusing on them, making sure that we are putting our staff in a position to meet those needs. And I think to your prior question, even from a data and information perspective, we're still trying to get to that point where they're trusting us to give that data, and that we can gather the data and then analyze it and provide solutions back. And that's ultimately where we can modify our offerings going forward. But yes, we're still really in the early innings. And I think as we continue to shift our mix, it's just going to continue to put us in a position from a foundation perspective.

Who do you compete against on the ODR side when you were doing some of this business or even the account management side that you're moving into? Are you competing against another entity? Or is this even a game shift for your customers sort of engaging with Limbach per se?

It's - I would say it's primarily they have a provider. Every once in a while, we'll have a customer that is lacking. But I would say the majority of the time, there's a provider because, again, they have systems that need to be serviced and maintained, and upgrades need to happen. And that's kind of in our check box and whether that customer is the right customer for us. So typically, they have one. Now is that provider giving them quality services and the focus? Well, that's really where I think traditionally we come in. So we've got a slide in the investor deck that kind of touches upon this and it's a pie chart, and each one of these relationships that we're going into has a different provider. Another thing I would tell you, too, is sometimes we'll be on a campus for a customer, and we are embedded in them, but they'll still use another couple or two or three different people, and there's still an opportunity even with an existing customer to pick up market share. So a lot of times, it will be just the local contractor or some of the other publicly traded mechanical contractors. From an OEM perspective, like Siemens or Johnson, sometimes we buy equipment and controls for them, but they also compete and provide those services directly. It could be an engineering firm. And again, we look at it this way when we're talking to our customers: we can provide engineering solutions as well, but we can also install the work. Occasionally, from a property manager perspective, so it's very situational, and our teams are really focused on making sure that even if we're with a customer, sometimes there will still be another provider or two, and there's more market share to be had with the customer as well. So most of the time, there is a provider. It's a matter of us positioning ourselves. And if we're competing, we want to make sure that our value proposition is solid compared to the other providers that may be there.

Got it. Super helpful. And I'll jump back in line and congrats on a really nice quarter and appreciate it. Thanks.

Thanks Gerry.

Thank you.

At this time, there are no further questions. I would now like to turn the call over to the management team for any closing remarks.

Thank you, everyone, for your continued interest in Limbach. If you have any additional questions, please reach out to the equity group. Looking forward to speaking again in August and all the best. Thank you.

This concludes today's presentation. Thank you, everyone, for attending.