Limbach Holdings, Inc.

Greetings and welcome to the Limbach Holdings call to discuss third quarter 2023 results and update on current operations. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you'd like to join the question queue, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeremy Hellman of the Equity Group. Thank you. You may begin.

Thank you very much and good morning, everyone. Yesterday, Limbach Holdings announced its third quarter 2023 results and filed its form thank you for the period ended September 30, 2023. The company would also like to note that an updated investor presentation is available in the investor 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 its financial results, 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 forward-looking statements made during the audience 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, the President and Chief Executive Officer of Limbaugh Holdings. Please go ahead, Mike.

Good morning. Welcome, everyone, and thanks for joining us. Joining me this morning is Jamie Brooks, our Executive Vice President and Chief Financial Officer. Turning to the third quarter, we continued to execute on all fronts, and the result was continued margin expansion, which in turn led to solid growth in net income, adjusted EBIT and cash flow. We continue to see our ODR transitions happening at a rapid pace. Recall that we were originally targeting a 50-50 revenue split by 2025. As we speak with you today, we appear on track to hit that target this year, And in doing so, this change in our business mix is driving the intended growth in gross margins, earnings, and cash flow. As indicated in slide 12 in our investor deck, we're now focused on shifting to a new target of at least 70% ODR. Both of our segments are performing well, and we continue to shift our sales and marketing resources toward the ODR segment, as the margin advantage for ODR segment during Q3 was 1,000 basis points compared with our DCR segment. A performance improvement in our GCR segment is a product of execution, project selection, which has been made easier due to our rapid shift to ODR and ability to be extraordinarily selective. Within our GCR segment results for this quarter was a successful resolution of our largest legacy claim. The claim resolution resulted in a $1.2 million write-up and net cash to the company of $16 million. That leaves one less significant legacy claim open. Beyond the segment shift and in-segment margin enhancement objectives, the third pillar of our strategy is scale for acquisitions. We already completed the acquisition of Acme Industrial in July and are pleased to announce that we're able to close another deal this year. Subsequent to quarter end, we announced the acquisition of Industrial Air based in Greensboro, North Carolina for $13.5 million in cash. We're very excited to add Industrial Air to the Lindbach family. We're able to fund that deal with our cash on hand as our organic business continues to allow us to self-fund acquisitions. Recall that our acquisition program focuses on both tuck-in deals as well as larger opportunities that we believe will allow us to build out our geographic presence. Industrial Air falls into the latter category, providing Limbach with a new presence in the attractive, growing Carolinas market. As shown on slide 18 of our investor deck, Industrial Air hit the mark on all of our acquisition criteria. Strategic geographic location, strong ODR customer base, including a number of national-scale customers, and we believe an incredible opportunity for future value creation. Industrial Air also has their own line of products, including air handling units that are manufactured in-house. That gives us a decided advantage in being able to propose and deliver value-added solutions for customers without contending with supply chain choke points. Industrial Air also boasts a very ODR-centric model and we believe they're a really great fit for LIMBOC. We are very excited to have them aboard. With the deal closing on November 1st, we expect Industrial Air to have a relatively minimal impact on 2023 revenues. And EBITDA, while 2024, should benefit from the inclusion of roughly $30 million of revenue and $4 million of EBITDA. We are pleased to have built a favorable earn-out economics into the deal structure, which lowers our cost of capital and provides all parties with a great outcome if and when targets are met. I'll now pass it off to Jamie to provide some financial highlights, and then I'll return with a few comments on market conditions before we take your questions. Jamie?