Good morning and welcome to the Fourth Quarter and Fiscal Year 2023 Limbach Holdings Earnings Conference Call and Webcast. I will now turn the conference over to your host, Julie Kegley of Financial Profiles. You may begin.

Good morning, and thank you for joining us today to discuss Limbach Holdings financial results for the fourth quarter and fiscal year 2023. Yesterday, Limbach issued its earnings release and filed its Form 10-K for the period ended December 31st, 2023. Both documents, as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages investors to review the presentation in its entirety. With me on today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open up the call for analyst questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about expected improvement in profit and operating margins, are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our fourth quarter earnings release and investor presentation, which can be found on Limbach Investor Relations website and has been furnished on Form 8-K with the SEC. With that, I will now turn the call over to Mike McCann.

Good morning, everyone. I want to welcome our stockholders and analysts, including those who are new to Limbach. Thank you for joining our call today. A few years back, we identified an opportunity to utilize our experience in construction and engineering services to establish a company focused solely on building system solutions. Our goal was twofold: first, to transform Limbach into a value-added partner for building owners, ensuring higher margins and better returns for our stockholders; and second, to position Limbach in a less competitive and less volatile market, resulting in a stronger and more resilient organization. Through careful implementation of this strategy, we are currently working with building owners to deliver essential services that help maintain smooth operations in their facilities. We offer solutions and services to help these owners maintain and upgrade their critical mechanical, electrical, and plumbing systems. Our focus spans six key vertical markets: Healthcare, Industrial & Manufacturing, Data Centers, Life Sciences, Higher Education, and Culture & Entertainment. These sectors are large, growing, and driven by sustainable demand where system failure cannot be tolerated. We operate in two segments: Owner Direct Relationships (ODR), where we collaborate directly with building owners, representing over 50% of our total revenue, and General Contractor Relationships (GCR), where we partner with general contractors. We are committed to expanding our ODR business for multiple reasons. Primarily, our direct relationships with customers provide access to key decision-makers. Although initial engagements may be minor, we offer a strong value proposition and the potential to build long-term partnerships. By integrating into our customers' operations, we work alongside their teams to create tailored solutions that minimize costs and enhance energy efficiency. This allows us to address immediate maintenance requirements while also developing strategies to mitigate risks and save on costs in the future. By continuously adding value, we position ourselves as essential partners that help customers avoid operational disruptions caused by system failures. As a consequence, these ODR partnerships generate recurring revenue at higher margins. Our growth in ODR allows us to be more selective in assessing lower-margin GCR projects, which we anticipate will lead to a decline in GCR revenue. We aim to build strong relationships with our top five building owners at each location, focusing on customers with multiple facilities to foster long-term, mutually beneficial partnerships. A recent success story illustrating our ODR model involved one of our healthcare facilities in Florida. What began as a small project has now turned this organization into one of our top customers in the state. We have dedicated teams on-site working closely with them on operational and capital expenditure planning where we can significantly influence their operational objectives. We are successfully executing our strategy from a unique vantage point between property managers, who tend to be generalists, OEMs selling proprietary equipment, and traditional contractors. Our aim is to offer unbiased analysis and recommendations about enhancing their entire systems, including HVAC, electrical, plumbing, and engineered systems. This is our value proposition. Our customers recognize that our mission is to suggest the best cost-effective solutions to ensure uninterrupted service. We believe that our ODR business holds considerable potential for organic growth as we expand our customer partnerships. For instance, as mentioned in our earnings press release, in 2024, we are investing about $4 million in portable HVAC rental equipment to deliver urgent and critical solutions to our customers. This strategic investment is designed to broaden our service offerings and increase our market share among current customers. Strategic acquisitions also play a vital role in our long-term growth strategy. We take a disciplined approach to acquiring companies that meet four essential criteria: extending our geographic reach and service capabilities, supporting our ODR growth strategy, and ensuring a good cultural match. We have established a track record of making acquisitions aligned with our strategy, having completed two acquisitions in 2023: ACME Industrial and Industrial Air. ACME was an important acquisition, providing new direct relationships with on-site teams at Fortune 500 caliber manufacturing clients. Industrial Air broadened our geographic reach in North Carolina, giving us additional ODR relationships within the consumer goods and textile manufacturing sectors. We are confident that successful strategic acquisitions, coupled with organic growth, will enhance profitability and create value for our shareholders. With that said, I would now like to discuss our performance in 2023, which was a strong year for Limbach. The company achieved substantial earnings growth and cash flow while maintaining a robust balance sheet, propelled by an accelerated shift from GCR to ODR that exceeded our expectations. ODR accounted for 50.7% of our total revenue for 2023, surpassing our 50% target. We are making significant strides toward our goal of over 70% ODR revenue by 2024-2025, ending the year with ODR revenue representing 55.1% in the fourth quarter. We improved total gross margins by 420 basis points in 2023, increasing to 23.1% from 18.9% in 2022. ODR gross margins reached 29% for the year, exceeding our target range of 25% to 28%. GCR margins also performed well at 17%, surpassing our target of 12% to 15% as we concentrated on high-margin, rapidly executed projects. I will now hand the call over to Jayme for detailed financial highlights before I return with more comments.

Thank you, Mike. Our fourth quarter and 2023 earnings press release and Form 10-K, which were filed yesterday, provide comprehensive details of the company's financials. So I will focus on the fourth quarter and full year 2023 highlights. During the quarter, we generated consolidated revenue of $142.7 million versus $143.5 million in 2022. Consolidated revenue declined by 0.6% as ODR revenue grew 22.8% and GCR revenue declined 19.4% as we executed our mixed shift strategy towards ODR. In the fourth quarter, ODR revenue was 55.1% of consolidated revenue, up from 44.6% in 2022. For the year, we generated consolidated revenue of $516.4 million, compared to $496.8 million in 2022. Revenue grew 3.9% as ODR revenue grew 21.1% and GCR revenue declined 9.3%. ODR revenue accounted for 50.7% of consolidated revenue for the year, up from 43.6% in 2022. Gross margin on a consolidated basis for the fourth quarter was 23.3%, up from 20.4% in 2022. ODR gross profit increased by $6.4 million, or 36.8%, driven by higher revenue with expanded gross margin in Q4 to 30.1% versus 27% in 2022. GCR gross profit decreased by $2.3 million, or 19.1%, due to lower revenue with our focus on high-quality, quick-turning projects. GCR gross margins were flat at 15% year-over-year. For the year, gross margin on a consolidated basis was 23.1%, up from 18.9% in 2022. ODR gross profit increased by $21 million, or 38%, driven by an increase in revenue and expanded gross margins of 29% from 25.5% in 2022. GCR gross profit increased by $4.6 million, or 11.9%, due to higher margins. Although revenue declined in the GCR segment, gross margin expanded to 17% for the year versus 13.8% in 2022. As I mentioned earlier, the ODR segment made up 55.1% of consolidated revenue for the quarter. However, the ODR segment contributed 71% of the total gross profit dollars, or $23.7 million, for the quarter. This is the mix shift strategy. During the quarter, SG&A expense increased approximately $3.2 million to $25 million from $21.8 million in 2022. As a percentage of revenue, SG&A expense was 17.5%, up from 15.2% in 2022. While there are some smaller puts and takes, the increase was driven primarily by higher payroll and incentive-related expenses associated with accelerating our ODR strategy, as well as expenses incurred as a result of the acquisitions of ACME and Industrial Air. For the year, SG&A expense increased by approximately $9.5 million to $87.4 million compared to $77.9 million for 2022. As a percentage of revenue, SG&A expense was 16.9%, up from 15.7% in 2022. The increase was driven primarily by higher payroll and incentive-related expenses associated with accelerating our ODR strategy, an increase in stock-based compensation expense, and expenses incurred as a result of the ACME and Industrial acquisitions. For 2024, we are targeting SG&A expense as a percentage of revenue to be around 18% to 19% as we continue to invest in our ODR business to drive growth. Interest expense for Q4 was $0.4 million and $2 million for the year. Interest income for the quarter was $0.6 million and $1.2 million for the year, driven by the company's investment strategy in placing our excess cash in overnight repurchase agreements, U.S. treasury bills, and money market funds. Adjusted EBITDA for the fourth quarter was $12.6 million, up 8.8% from $11.6 million in 2022. Adjusted EBITDA margin for the fourth quarter was 8.8% compared to 8.1% in 2022. For the year, adjusted EBITDA was $46.8 million, up 47.3% from $31.8 million in 2022 and we exceeded our 2023 adjusted EBITDA guidance of $42 million to $45 million. Adjusted EBITDA margin for the year was 9.1% compared to 6.4% in 2022. Net income for the fourth quarter was $5.2 million or $0.44 per diluted share compared to $3.8 million or $0.35 per diluted share in 2022. This represents 37.8% growth in net income and 25.7% growth in diluted EPS. For the year, net income was $20.8 million, or $1.76 per diluted share compared to $6.8 million or $0.64 per diluted share in 2022, representing 205.3% growth in net income and 175% growth in diluted EPS. Turning to cash flow. Our operating cash flow during the fourth quarter was $13.9 million compared to $12.4 million in 2022, representing a 12.2% increase. Operating cash flow for the year was $57.4 million compared to $35.4 million in 2022, representing a 62.2% increase. Free cash flow, defined as cash flow from operating activities, less changes in working capital and capital expenditures for the year, was $36.7 million compared to $23.4 million in 2022, an increase of 56.6%. The free cash flow conversion of adjusted EBITDA for the year was 78.4% versus 73.8% in 2022. Free cash flow conversion of net income was over 100%. For 2024, we are continuing to target a free cash flow conversion rate of approximately 70%, which we define as cash flow from operating activities minus changes in working capital minus capital expenditures, excluding our investment in rental equipment, which is currently approximately $4 million, divided by adjusted EBITDA. We expect CapEx for 2024, excluding the investment in rental equipment, to have a run rate of approximately $3 million, primarily because of the acceleration of our ODR strategy. Turning to our balance sheet. At the end of Q4, we had $59.8 million in cash and cash equivalents and short and long-term debt, net of debt discount of $22.3 million. Our balance sheet remains strong, and we are well-positioned to make the necessary investments to continue to work towards our ODR expansion and acquisition strategy. Now I will turn it back to Mike for closing remarks.

Thank you, Jayme. Before opening up the call to questions, I'll cover our full year 2024 guidance and modeling considerations. For the full year 2024, we expect revenue between $510 million to $530 million, and adjusted EBITDA of $49 million to $53 million. And to help with modeling, we are targeting segment revenue mix to be 60% to 70% for ODR by the end of 2024, with GCR being between 30% to 40%. As we continue to shift the revenue and be selective with GCR projects, we expect total gross profit margins to land between 24% to 26% for 2024. Although there is always demand for building maintenance and repair, there is some level of seasonality to our business. The fourth quarter is usually stronger than the first quarter and the back half of the year is usually stronger than the first half. We also expect revenue and EBITDA to gain momentum after the first quarter because we continue to see strong secular tailwinds from deferred maintenance and capital projects coming to the forefront. 2023 was a year of significant growth and achievement. We believe we are in the early innings of our long-term opportunity. We are excited about 2024 and are positioned for continuing progress on all three pillars of our strategy. We need to continue to shift the mix by growing organically, as well as expanding our margins through evolved offerings and market share growth through strategic acquisitions. Finally, I want to thank all the employees. Our excellent performance in 2023 was a direct result of your hard work and dedication. That concludes our prepared remarks. Operator, please begin the Q&A session.

Our first question comes from Rob Brown with Lake Street Capital. Please go ahead with your question.

Good morning, and congratulations on a strong progress.

Morning, Rob.

Hi, Rob.

I just wanted to follow up a little bit more on the ODR kind of organic growth view. How do you sort of see the organic growth in that business kind of playing out for the next few years?

Sure. As we mentioned earlier today, our next target is to achieve a 60% to 70% ODR mix by the end of 2024. Currently, we are concentrating on our six vertical markets. Our strategy involves integrating our key personnel into those facilities to capture as much operational expenditure as possible. Looking towards the future, we are also considering how to capture capital expenditure alongside operational expenditure and coordinate this with an account manager. We remain committed to our six vertical markets. Currently, we are particularly focused on two of them: Healthcare and Industrial & Manufacturing. These markets are crucial for driving customer growth. From a Healthcare perspective, it's a stable vertical that values the capabilities we are introducing to the market. Industrial & Manufacturing has proven to be strong for us as well. Ultimately, our goal is to build long-term relationships on a solid foundation and grow alongside our customers over time.

Okay, okay, great. Thank you. And you talked a little bit about a rental business expanding and maybe some of the service expansions you're doing. Could you elaborate on sort of what that rental opportunity is and what you're doing there?

Yes, absolutely. We're excited about this. We've always had three pillars: mix shift, evolved offerings, and expanded margin and strategic acquisitions. We've talked a lot about the mix shift and acquisitions. But the second pillar of our strategy, I think this is just one piece of that. At the end of the day, we're there in front of those customers and having the capability of having our initial rental fleet allows us to be much more of a single source provider for. Before, we had to go to a supplier to get that rental. Now we've made the initial investment of $4 million into the rental fleet, and we'll be able to offer quick service to these customers and capture the additional gross margin that comes from it as well too. So we feel like it's a really good fit with capturing that OpEx in that emergency type work, and it's going to be a real value-added offering for our customers.

Okay, great. And last question is more on the overall demand environment. I know you're shifting to Owner Direct and service, so maybe that's helping. But what do you see in terms of the demand environment? How much is there a shift in the demand environment? And are you still seeing strength in the new project activity?

The demand environment remains strong, though it varies by specific market sectors. A significant reason we've shifted our focus to mission-critical customers is that their demand tends to be consistent. To illustrate this, I can provide a couple of examples. One example comes from a Life Science customer who pointed out that many suppliers promise commitment but often abandon their support when big projects arise. We assured this customer that we would dedicate resources and remain engaged, which has led to an influx of purchase orders as they appreciate that attention. In another case, we worked with a Healthcare client in an older facility in the Mid-Atlantic region who felt constrained by proprietary offerings. We've managed to expand our presence there by fostering a consultative relationship rather than a transactional one, alleviating their feeling of being trapped. Importantly, we’re not solely competing with less sophisticated companies but also with original equipment manufacturers. Overall, our strategy emphasizes resilience rather than being heavily influenced by macroeconomic conditions, focusing instead on the relationships we build with individual customers in these key markets where our presence is essential, leading to sustained demand over time.

Okay, great. Thank you. I'll turn it over.

Thank you, Rob.

Thank you. Our next question comes from the line of Gerry Sweeney with ROTH Capital. Please proceed with your question.

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

Good morning.

Morning.

I just wanted to stick on some of the same topics Rob just mentioned, and specifically ODR growth. And, Mike, I think you and I have talked a little bit about this, but I wanted to retouch it and just get freshened up. I'm just curious how deep you are with some of your current customers. I think there's a wallet share play here. So my question is this: how much more wallet share do you have with existing customers? How much of this ODR growth can come from wallet share? And then the third part, sorry, is just maybe new entrants or new opportunities, new customers, etc.

Sure. It's interesting. I've always pointed out that we are just at the beginning stages of our strategy. This reflects our position in terms of our customer base. We have engaged with many customers, and based on our discussions about our services, I am convinced they want the type of services and relationships we aim to establish. Looking at our growth, particularly from our ODR revenue segment, a significant portion has resulted from expanding existing relationships. Ultimately, we are targeting relationships that have long-term spending potential across multiple buildings. Although I mentioned some of this earlier, we are still in the initial phases of these relationships with our customers. To address your question about wallet share, while we currently hold a small market and wallet share with these customers, there is a vast opportunity and demand to increase it. It is our responsibility to ensure that we continue to allocate the necessary resources. The example I previously shared about a Life Science customer illustrates this well. We will start with smaller purchase orders and gradually progress to larger capital projects over time, while consistently managing OpEx work alongside the growing CapEx projects. Many of the current opportunities with customers stem from recommendations. For instance, while working on a Life Science or Healthcare facility, the industry is well-connected, and clients notice our high level of service. We are beginning to receive inquiries from others asking if we can serve their buildings too. We are indeed in the early stages, and there is significant potential to enhance our market and wallet share as we move forward.

Got it. The follow-up would be to discuss opportunities to expand into some adjacent services. Rental is a prime example. I'm curious about what opportunities exist and, more importantly, how you decide which ones to pursue. Given your size as a small cap, you have significant wallet share potential. How do you determine the appropriate business to target while maintaining focus on the broader ODR opportunity?

In our investor presentation, we have a new slide discussing our unique offerings, specifically slide 10, which outlines around ten different offerings. We've categorized them into a few groups. There are three or four that are closely related to operational expenditures, such as rental, critical services, and data-driven solutions. Another set is associated with capital expenditures, which includes MEP infrastructure projects, equipment upgrades, and products. We also have program management services, along with some more advanced offerings. We acknowledge that we can't address everything simultaneously; it’s crucial to ensure our approach is calculated and aligned with customer needs. We are currently focusing on smaller operational expenditure projects while preparing for capital project work next year, including some of the more advanced offerings. This is a carefully planned strategy over time, and we're always cautious not to take on too much at once.

Got it. And maybe one quick question for Jayme. Obviously, you gave the guidance $49 million to $53 million on the adjusted EBITDA side. I believe there are a couple of add-backs or write-up some projects and sort of lack a better term, one-timers in 2023 results. I apologize, I hadn't right in front of me, but I think it was especially in Q3. Could you go over some of those add-backs from 2023? Because I think that gives a little bit better apples-to-apples comparison on the EBITDA increase and projected EBITDA increase in '24 over '23.

Yes. Great point, Gerry. So, yes, our adjusted EBITDA was the $46.8 million. And then we did have some nonrecurring events that we did talk about and disclose where we had the claim recovery in California, that we had an upside from that of $1.2 million. We also had some projects and some other upsides that we took that would be nonrecurring as well, and that was about another $1.2 million in Q3. We also had about $500,000. So in total, if you look at that, then the adjusted EBITDA really is closer to like $43.9 million if you take out those one-time events.

Got it. Super helpful. That saves me a few minutes, so I appreciate it. I'll jump back in the queue. Thanks.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Michael McCann for closing comments.

Thank you all for your continued interest in Limbach. We look forward to seeing many of you at the ROTH Conference next week. If you have any additional questions, please reach out to Julie Kegley at Financial Profiles. Thank you, and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.