Limbach Holdings, Inc.

Good morning and welcome to the Limbox Holdings third quarter 2025 earnings conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I'll now turn the conference over to your host, Lisa Fortuna of Financial Profiles.

You may proceed. Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the third quarter of 2025. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended September 30, 2025. 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. On today's call are Michael McCann, President and Chief Executive Officer, and Jamie Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open the call to 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 those about expected financial performance 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 LIMBOC's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter 2025 earnings release and in our investor presentation, both of which can be found on LIMBOC's investor relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll now turn the call over to President and CEO, Mike McCann.

Good morning. Welcome, everyone. Thank you for joining us today. At Limbach, we play a critical role as an enterprise provider of building system solutions, ensuring the reliability and continuity of mission-critical infrastructure across our customers' facilities. We're focused on industries with long-term durable demand where facility assets simply cannot fail. We believe our distinct capabilities position us to deliver sustained growth and attractive risk-adjusted returns. As a reminder, our growth strategy is underpinned by three core pillars. The first pillar is scaling our owner-direct relationships, our ODR business. Here we're focused on working in partnership with owners of mission-critical facilities and existing building environments. This work consists mostly of routine maintenance, emergency repairs, small capital projects, and larger retrofit and renovation projects. Some of this work is contractual, and some is predictable given the age and complexity of mechanical systems. The second pillar is enhancing profitability and increasing wallet share through the introduction of expanded product and service offerings. We have strong and growing relationships with our owner-direct customers built on daily performance, trust, and our vast knowledge of their critical building systems. As a result, there's a win-win opportunity for us to expand our service offerings to these customers by introducing new capabilities that solve a greater breadth of issues for owners. As our capability expands over time, we can deliver more value to both the owner and LIMBOC. Unlike traditional E&C firms that rely on reactive bidding in response to a project, we're seeing these facilities every day providing solutions. By working directly with owners, we have a better grasp of risk and value. In order to further leverage these relationships, we're formalizing a scalable structure by building a proactive sales team that positions Limbach as a building system solutions provider. The third pillar of strategic M&A aimed at extending the reach of the Limbach brand. strengthening our market presence, and expanding our capabilities. Through target acquisitions, we seek to diversify our vertical market exposure and broaden our geographic footprint, while adding new products and offerings that align well with our ODR value proposition. For the past couple months, we've received a number of questions from investors who want to better understand our various revenue streams, particularly in the ODR segment. So let me walk through the ODR business and break down the sources of our revenue. There are three quick-burning revenue streams, maintenance contracts, work orders, and timing material, or T&M work. Maintenance contracts generate predictable recurring revenues that are usually smaller in nature but which have strong margins. Our maintenance contracts run one to three years in length prior to renewal and are built around routine service for specific equipment and customer sites. Work orders and T&M work often result from problems identified during scheduled maintenance or from emergency repairs or opportunistic upgrades of system components. In some parts of the market, this is referred to as break-fix work. Any one individual work order may not be predictable, but in a large, complex facility, there's generally an estimatable amount of this kind of work in any given year. It's usually quick-burning and completed on an on-demand basis or as directed basis. It can be priced based on labor rates and material markups that are pre-negotiated with customers in anticipation of needing to act fast when the work happens or as small fixed-price jobs less than 10K. For example, large industrial customers usually schedule seasonable shutdowns when their facility reduces production and output repairs maintenance. This provides us the opportunity to execute a high volume of this type of small work in a short period of time. Because T&M work is performed on what's essentially a costless basis, the risk profile is different than, say, a large fixed-price project. Taken together, all these work streams account for approximately one-third of the ODR revenue for year-to-date 2025. Irrespective of the specific structure of the revenue, when executing this kind of work, LIMBOK most often becomes an extension of the facility staff regardless of the contractual relationship. Fixed-price projects greater than 10K in our ODR segment can range from quick-burning work that is booked and executed in the same month or quarter to projects that typically last less than a year. They're usually performed within existing facilities or typically tied in some way to an existing customer relationship and often a maintenance and service relationship. This means we're operating in an environment where we know the systems, the sites, and the customers. This preexisting knowledge reduces uncertainty, enhances our ability to manage outcomes. As a result, the risk profile of these ODR projects is very different than GCR projects. Additionally, the average ODR project size is approximately 245,000, as compared to the average GCR project size of approximately 2.9 million. Both of those are year-to-date 2025 data points, This ODR project work accounts for approximately two-thirds of our ODR revenue. So at a high level, our intentional pivot towards older direct relationships has reshaped our revenue mix. It's become a more diversified and lower risk with more margin consistency. We believe this mix should provide a greater resilience for economic cycles and reflects our focus on stability, predictability, and long-term value creation. On a consolidated basis, ODR revenue as a percentage of total revenue has steadily increased since 2019. We began to shift our strategies. ODR represents 76.1% of total revenue in third quarter 2025 and 74.1% on a year-to-date basis in line with our targeted goal between 70% to 80% for the year. Going forward, the strategy continues to be focused on ODR growth and a reduction in GCR revenue. Keeping in mind, businesses we acquire at the time of acquisition typically do not have an evolved ODR strategy as one box. Whether we're speaking about an acquired business or a legacy business, this strategy is driving margin expansion and earnings growth over time, while also we believe reducing our overall risk profile. Starting to backlog, the strategic shift from TCR to ODR means that a larger percentage of our revenue is now generated from quick-burning, shorter-term projects that can be booked and completed within the same quarter, and therefore is not captured in backlog at quarter end. As a result, backlog alone is no longer as predictable a leading indicator of future revenue as it was in 2018 or even 2022, with a heavy GCR focus, which is typical for E&C companies. Occasionally, we will book projects with building owners that spend multiple quarters. This work is captured in the backlog. However, it's a smaller portion of the overall revenue mix, and it can experience quarter-to-quarter fluctuations. So today, looking only at backlog, we'll miss a large percentage of our current revenue streams. Earlier, I described our work order and T&M revenue streams and highlighted the industrial shutdown work we engage in. Most of these revenue streams never get captured or included in a quarterly backlog number, and they represent a far larger number than they did several years ago. Instead of the large, high-risk, multi-year projects that were a core element of our legacy business model, we're now focused on building a diversified business with multiple revenue streams and what we think is durable demand. Selective M&A remains a cornerstone of our growth strategy, enabling us to expand both our geographic footprint and deepen market share within existing regions and to expand our product and service offerings. Over the last couple of years, our focus has been broadening on our footprint in ways that enhance diversity and position us to serve national customers. Our approach has always been conservative, and we've remained disciplined and selective in what we pursue, even when the M&A market has gotten overheated. To date, we've acquired six high-quality cash flow-generating businesses at fair values and have used risk-mitigating structures where possible. We believe the Limbach brand and our unique business model positions us to engage with great companies that over time we can reposition to align with our owner-focused vision. After closing, our goal is to improve margins further by implementing our value creation processes. Our main focus in every deal is to expand the quality of gross profit through benchmarking, building a proactive sales team, and leveraging operational standards. Using the same tools that transformed our business units over the last six years led to much higher margins at lower risk. We believe we can expect better results at acquired companies than what we underwrote at the time of the closing of these transactions. At Pioneer Power, our most recent acquisition, we're actively executing the first phase of our value creation strategies. During diligence, we identified improving Pioneer Power's lower EBITDA and gross margins as a great opportunity for the intermediate term. We are now transitioning Pioneer Power to Limbach's accounting system and operating systems. Once complete, we can start to focus on improving the quality of gross profit and providing access to other parts of the Limbach operating platform. We've got a talented team in the Twin Cities. We want to make sure that we deploy all the tools at our disposal to support them and to allow the business unit to flourish. We evaluate a large volume of acquisition opportunities each year and intentionally walk away from the majority of them. Under my leadership, we'll never buy a business just to do a deal. Our track record reflects discipline underwriting, strategic fit, and a focus on asymmetrical returns. There is a meaningful upside to our company if we're right and a limited downside if we're wrong. There are times we lose to competitors willing to pay higher multiples, and we're perfectly comfortable with that. Next, I'll provide an overview of the environment in our core vertical markets. Healthcare has long been one of our strongest, most strategic end markets across all operating regions. Given the mission-critical nature of the healthcare facilities, customers can defer repairs briefly, but delays in capital spending rarely extend beyond a single quarter. While some customers experience temporary delays during the summer months in funding both operating and capital expenditures, we're now seeing spending patterns normalize as the year progresses. Our sales teams have engaged with core customers and emphasized the importance of long-term planning. Increasingly, we're hearing that cost certainty is more important to our customers than simply achieving the lowest cost. This can be achieved by implementing proactive programs, which help avoid reactionary spending and minimize risk to business operations caused by building system downtime. On our latest earnings call, we shared that a national healthcare owner engaged us to conduct facility assessments across 20 locations. In Q3, this initiative has already translated into $12 million in capital projects at four sites. We'll serve as a design builder for these energy infrastructure projects. Three of which are outside our current geographic footprint. For those out-of-market projects, we'll lead budgeting, design, and procurement, and utilize a network of subcontractor partners where necessary. In industrial manufacturing markets, our customers continue to execute seasonal shutdowns and facility upgrades in order to optimize the production of their plants and facilities. During the quarter, both Pioneer Power consolidated mechanical benefits from this type of activity, which is a core element of their local business models. In the data center market, Limbach remains focused on supporting hyperscale operators through existing building projects and specialized services, primarily in the Columbus, Ohio market. In Q3, we provided specialty fabrication services to one of our customers, enabling on-site contractors to concentrate on their core workloads while we offered supplemental support. That arrangement provided Limbach with what we think is the optimal balance of risk, return, and resource allocation. While our current footprint and risk profile limits the scale of data center work, We see meaningful growth potential through our national sales efforts and future geographic expansion through strategic acquisitions. In the life science and higher education markets, some of our higher education clients have adopted a cautious approach to spending during ongoing policy uncertainty in Washington, D.C. While the need for our services remains essential to maintaining the mission-critical facilities, many temporary pause capital projects. Encouragingly, these clients have begun communicating anticipated spending needs for the coming year, and we are proactively aligning the resources in preparation for ramp-up. One major client has already requested full-time technician support beginning in January. In the cultural entertainment part of it, we continue to see consistent spending from our key customers. Our recent involvement in capital planning discussions provided valuable insight into some clients' 2026 budgets. Notably, our largest customer in this segment has shared plans for significantly expanding capital and operating budgets next year. They've invited us to review their prospective project list and provide input on the work we'd like to pursue, allowing us to productively plan and allocate resources for 2026. Next, I'll provide an update on sales and marketing initiatives. For the past three years, we've made deliberate investments in building our sales team, which has resulted in a higher SG&A relative to many of our E&C peers. Our training efforts are focused on equipping the team to anticipate owner challenges and craft solutions that are difficult to commoditize. We believe this investment will soon begin to yield measured results, both by leveraging SG&E more effectively and by enhancing the quality and consistency of gross profit. As we head into Q4, our priority is to deepen sales training to ensure a strong start to 2026. In many cases, we're not competing against local contractors. Instead, we're working directly for owners in a proactive capacity. helping them anticipate issues and plan their budgets accordingly. A recent example from Florida illustrates this approach well. Over the past two years, we've supported a $25 billion annual revenue healthcare customer with emergency repairs and small capital upgrades. During a routine inspection of the main cooling feed, our on-site account manager identified signs of deterioration. We conducted non-destructive testing and confirmed the piping was on the verge of failure. In response, we developed a proposal that clearly outlined the ROI and presented it to the facility manager, who then escalated to the CFO and the chief medical officer. In Q3, the project was funded, and we were awarded phase one of the repair. This is a prime example of a capital project where we weren't competing for the work. Instead, we earned it by identifying the issue early, presenting a compelling data-backed justification for the investment. One of our key differentiators was ability to offer professional services, including MVP engineering. facility assessments, program management, and commissioning. These services are particularly attractive to national customers who can leverage our domain experience even in markets where we might not have field execution capabilities. These services, along with program management, are a key driver of margin expansion. During the quarter, we had one of our national healthcare customers engage us to analyze a hospital in New Mexico, both from a cost and engineering perspective, as they were considering making a substantial investment in the facility. This initial research has the potential to become a design-build infrastructure project. We find that customers appreciate our ability to provide an engineered solution that we can also build. While currently our professional service resources are dedicated to national healthcare owners, in the future we're looking to expand these capabilities into our data center and industrial manufacturing vertical markets. As we broaden our services portfolio, which includes the expansion of our professional services and solutions-based selling, we see a path to achieving long-term gross margins in the 35% to 40% range, driven by two key dynamics. First, our ability to deepen customer relationships by shifting from reactive transactional sales to proactive consultative solution sales. This approach enables us to build long-term operating capital programs that are tailored to solving our customers' needs rather than competing solely on price. Second, our ability to bundle offerings creates margin-layering opportunities. For example, an infrastructure project may include a rental coupon, allowing us to mark up both individual elements and the overall project cost. These strategies position us well to deliver sustainable growth at attractive margins. Moving to guidance, we are reaffirming our 2025 guidance of total revenue in the range of $650 to $680 million and adjusted EBITDA of $80 to $86 million. Of note, we have made some updates to our underlying assumptions used to model 2025 guidance to better reflect current market conditions, project timing, and operational performance trends. These updates influence our outlook and are incorporated into the public issue guidance ranges for total revenue and adjusted EBITDA. As I mentioned earlier, we are on track for total ODR revenue to be 70% to 80% of total revenue. Total ODR revenue growth is expected to be 40% to 50%, with ODR organic revenue growth of 20% to 25%. Total organic revenue growth is expected in the range of 7% to 10%, from 10% to 15% previously discussed, as we originally anticipated a more positive mix shift towards ODR than GCR. Pioneer Power's revenue performance this quarter exceeded our initial expectations. While Pioneer Power's current margin profile differs from Livox's consolidated performance, we're actively integrating Pioneer into Livox's platform, and we have a path to implement operational and commercial enhancements that we expect to expand margins over time. Because of the higher revenue contribution of Pioneer, Total gross margins are expected to be 25.5% to 26.5%, from 28% to 29%. Additionally, SG&A as a percentage of total revenue is expected to be between 15% to 17%, from 18% to 19%, primarily due to the higher revenue contribution. Now I'll turn it over to Jamie to walk through the financials.