Limbach Holdings, Inc.

Greetings and welcome to the Limbach Holdings third quarter 2022 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. As a reminder this conference is being recorded and if you would like to ask a question please press star one on the telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And it is now my pleasure to introduce to you Jeremy Hellman of the Equity Group. Thank you, Jeremy. Please go ahead.

Thank you very much, and good morning, everyone. Yesterday, Limbaugh Holdings announced its third quarter 2022 results and filed its form. Thank you for the quarter end of 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 poor-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 poor-looking statements made during the earnings call. With that, I'll 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, Jamie Brooks, our Chief Operating Officer, Michael McCann, and our Executive Vice President of Acquisitions, Matthew 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 in. 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 a 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 on 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 owner-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 the same 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 mid-term 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 the facility owner, 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 includes knowing the building owner, allocating labor, and having a smart contract, we generate better profitability and improved 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 30th. 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 from December 31, 2021. Third quarter ODR sales of 62.8 million were up 40.1% from last year's third quarter, resulting in ODR segment backlog of 124.5 million at September 30th, up 4.4% from 119.3 million at the end of the second quarter, and up 27% from December 31st. We also ended the quarter with GCR backlog of $332.8 million, up 7.8% from the $308.8 million at June 30th. 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 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 in what I call 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. Demand for non-residential 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 capability is driven by ordinary wear and tear on 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 chains normalize. 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, but we continue to see growth 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 platforms are 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 and 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 Jamie to provide more details on the quarter.