Part I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
| | Successor | |
| | September 30, | | | December 31, | |
(in thousands, except share and per share data) | | 2017 | | | 2016 | |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 761 | | | $ | 7,406 | |
Restricted cash | | | 113 | | | | 113 | |
Accounts receivable, net | | | 119,395 | | | | 113,972 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | | | 29,679 | | | | 31,959 | |
Other current assets | | | 3,798 | | | | 1,733 | |
Total current assets | | | 153,746 | | | | 155,183 | |
| | | | | | | | |
Property and equipment, net of accumulated depreciation of $7.0 million and $2.6 million at September 30, 2017 and December 31, 2016, respectively | | | 17,483 | | | | 18,541 | |
Intangible assets, net | | | 14,976 | | | | 17,807 | |
Goodwill | | | 10,488 | | | | 10,488 | |
Deferred tax asset | | | 4,617 | | | | 4,268 | |
Other assets | | | 497 | | | | 588 | |
Total assets | | $ | 201,807 | | | $ | 206,875 | |
| | | | | | | | |
LIABILITIES | | | | | | | | |
Current liabilities | | | | | | | | |
Current portion of long-term debt | | $ | 5,010 | | | $ | 4,476 | |
Accounts payable, including retainage | | | 56,330 | | | | 57,034 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | | | 33,067 | | | | 39,190 | |
Accrued expenses and other current liabilities | | | 22,823 | | | | 26,029 | |
Total current liabilities | | | 117,230 | | | | 126,729 | |
Long-term debt | | | 29,566 | | | | 21,507 | |
Other long-term liabilities | | | 755 | | | | 817 | |
Total liabilities | | | 147,551 | | | | 149,053 | |
Commitments and contingencies | | | - | | | | - | |
Redeemable convertible preferred stock, net, par value $0.0001, 1,000,000 shares authorized, 280,000 and 400,000 issued and outstanding at September 30, 2017 and December 31, 2016, respectively ($7,698 and $10,365 redemption value at September 30, 2017 and December 31, 2016, respectively) | | | 7,779 | | | | 10,374 | |
| | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | |
Common stock, $.0001 par value; 100,000,000 shares authorized, 7,454,602 issued and outstanding at September 30, 2017 and 7,454,491 at December 31, 2016 | | | 1 | | | | 1 | |
Additional paid-in capital | | | 54,185 | | | | 55,162 | |
Accumulated deficit | | | (7,709 | ) | | | (7,715 | ) |
Total stockholders’ equity | | | 46,477 | | | | 47,448 | |
Total liabilities and stockholders’ equity | | $ | 201,807 | | | $ | 206,875 | |
| | | | | | | | | | | |
(in thousands, except share and per share data) | June 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 27,693 | | | $ | 42,147 | |
Restricted cash | 113 | | | 113 | |
Accounts receivable, net | 94,615 | | | 85,767 | |
Contract assets | 70,815 | | | 67,098 | |
Income tax receivable | 891 | | | 0 | |
Other current assets | 5,599 | | | 4,292 | |
Total current assets | 199,726 | | | 199,417 | |
| | | |
Property and equipment, net | 17,433 | | | 19,700 | |
Intangible assets, net | 11,473 | | | 11,681 | |
Goodwill | 6,129 | | | 6,129 | |
Operating lease right-of-use assets | 16,852 | | | 18,751 | |
Deferred tax asset | 6,393 | | | 6,087 | |
Other assets | 283 | | | 392 | |
Total assets | $ | 258,289 | | | $ | 262,157 | |
| | | |
LIABILITIES | | | |
Current liabilities | | | |
Current portion of long-term debt | $ | 8,454 | | | $ | 6,536 | |
Current operating lease liabilities | 4,122 | | | 3,929 | |
Accounts payable, including retainage | 66,954 | | | 66,763 | |
Contract liabilities | 39,179 | | | 46,648 | |
Accrued income taxes | 0 | | | 1,671 | |
Accrued expenses and other current liabilities | 19,215 | | | 24,747 | |
Total current liabilities | 137,924 | | | 150,294 | |
Long-term debt | 24,721 | | | 36,513 | |
Long-term operating lease liabilities | 13,454 | | | 15,459 | |
Other long-term liabilities | 4,031 | | | 6,159 | |
Total liabilities | 180,130 | | | 208,425 | |
Commitments and contingencies (Note 15) | 0 | | 0 |
| | | |
STOCKHOLDERS’ EQUITY | | | |
Common stock, $0.0001 par value; 100,000,000 shares authorized, 10,251,696 issued and outstanding at June 30, 2021 and 7,926,137 at December 31, 2020 | 1 | | | 1 | |
Additional paid-in capital | 83,589 | | | 57,612 | |
Accumulated deficit | (5,431) | | | (3,881) | |
Total stockholders’ equity | 78,159 | | | 53,732 | |
Total liabilities and stockholders’ equity | $ | 258,289 | | | $ | 262,157 | |
The
Accompanying Notesaccompanying notes are an
Integral Partintegral part of these
Condensed Consolidated Financial Statementscondensed consolidated financial statements
Condensed Consolidated Statements of Operations
(Unaudited)
| | Successor | | | Successor | | | Predecessor | |
(in thousands, except share and per share data) | | July 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | July 1, 2016 through July 19, 2016 | |
Revenue | | $ | 121,299 | | | $ | 91,889 | | | $ | 26,924 | |
Cost of revenue | | | 105,889 | | | | 79,818 | | | | 23,770 | |
Gross profit | | | 15,410 | | | | 12,071 | | | | 3,154 | |
Operating expenses: | | | | | | | | | | | | |
Selling, general and administrative expense | | | 13,609 | | | | 10,207 | | | | 3,899 | |
Amortization of intangibles | | | 807 | | | | 1,454 | | | | - | |
Total operating expenses | | | 14,416 | | | | 11,661 | | | | 3,899 | |
Operating income (loss) | | | 994 | | | | 410 | | | | (745 | ) |
Other income (expenses): | | | | | | | | | | | | |
Interest income (expense), net | | | (545 | ) | | | (853 | ) | | | (178 | ) |
Gain (loss) on disposition of property and equipment | | | 7 | | | | (21 | ) | | | 4 | |
Total other expenses | | | (538 | ) | | | (874 | ) | | | (174 | ) |
Income (loss) before income taxes | | | 456 | | | | (464 | ) | | | (919 | ) |
Income tax (expense) benefit | | | (328 | ) | | | 2,277 | | | | - | |
Net income (loss) | | | 128 | | | | 1,813 | | | | (919 | ) |
Dividends on cumulative redeemable convertible preferred stock | | | 149 | | | | 160 | | | | - | |
Premium paid on partial preferred redemption | | | 847 | | | | - | | | | - | |
Net income (loss) attributable to Limbach Holdings, Inc. common stockholders | | $ | (868 | ) | | $ | 1,653 | | | | | |
Net income attributable to Limbach Holdings LLC member unit holders | | | | | | | | | | $ | (919 | ) |
Successor Earnings Per Share (“EPS”) | | | | | | | | | | | | |
Basic earnings (loss) per share for common stock: | | | | | | | | | | | | |
Net earnings (loss) attributable to Limbach common stockholders | | $ | (0.12 | ) | | $ | 0.28 | | | | | |
Diluted earnings (loss) per share for common stock: | | | | | | | | | | | | |
Net earnings (loss) attributable to Limbach common stockholders | | $ | (0.12 | ) | | $ | 0.27 | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | | |
Basic | | | 7,471,587 | | | | 5,927,813 | | | | | |
Diluted | | | 7,471,587 | | | | 6,727,813 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except share and per share data) | | 2021 | | 2020 | | 2021 | | 2020 |
Revenue | | $ | 121,019 | | | $ | 135,185 | | | $ | 234,363 | | | $ | 273,957 | |
Cost of revenue | | 102,329 | | | 114,850 | | | 198,444 | | | 235,398 | |
Gross profit | | 18,690 | | | 20,335 | | | 35,919 | | | 38,559 | |
Operating expenses: | | | | | | | | |
Selling, general and administrative | | 17,232 | | | 13,752 | | | 34,377 | | | 30,552 | |
Amortization of intangibles | | 104 | | | 274 | | 208 | | | 417 |
Total operating expenses | | 17,336 | | | 14,026 | | | 34,585 | | | 30,969 | |
Operating income | | 1,354 | | | 6,309 | | | 1,334 | | | 7,590 | |
Other income (expenses): | | | | | | | | |
Interest expense, net | | (452) | | | (2,137) | | | (1,716) | | | (4,295) | |
Gain (loss) on disposition of property and equipment | | 94 | | | (13) | | | 8 | | | 17 | |
Loss on early debt extinguishment | | 0 | | | 0 | | | (1,961) | | | 0 | |
Gain (loss) on change in fair value of warrant liability | | 0 | | | (102) | | | 14 | | | 59 | |
Total other expenses | | (358) | | | (2,252) | | | (3,655) | | | (4,219) | |
Income (loss) before income taxes | | 996 | | | 4,057 | | | (2,321) | | | 3,371 | |
Income tax provision (benefit) | | 264 | | | 1,110 | | | (771) | | | 476 | |
Net income (loss) | | $ | 732 | | | $ | 2,947 | | | $ | (1,550) | | | $ | 2,895 | |
Earnings Per Share (“EPS”) | | | | | | | | |
Income (loss) per common share: | | | | | | | | |
Basic | | $ | 0.07 | | | $ | 0.38 | | | $ | (0.16) | | | $ | 0.37 | |
Diluted | | $ | 0.07 | | | $ | 0.37 | | | $ | (0.16) | | | $ | 0.37 | |
Weighted average number of shares outstanding: | | | | | | | | |
Basic | | 10,251,696 | | | 7,845,515 | | | 9,737,801 | | | 7,821,594 | |
Diluted | | 10,469,028 | | | 7,905,368 | | | 9,737,801 | | | 7,878,246 | |
The
Accompanying Notesaccompanying notes are an
Integral Partintegral part of these
Condensed Consolidated Financial Statementscondensed consolidated financial statements
Condensed Consolidated Statements of
OperationsStockholders’ Equity
(Unaudited)
| | Successor | | | Successor | | | Predecessor | |
(in thousands, except share and per share data) | | January 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | January 1, 2016 through July 19, 2016 | |
Revenue | | $ | 354,327 | | | $ | 91,889 | | | $ | 221,391 | |
Cost of revenue | | | 309,610 | | | | 79,818 | | | | 192,911 | |
Gross profit | | | 44,717 | | | | 12,071 | | | | 28,480 | |
Operating expenses: | | | | | | | | | | | | |
Selling, general and administrative expense | | | 40,963 | | | | 10,207 | | | | 24,015 | |
Amortization of intangibles | | | 2,831 | | | | 1,454 | | | | - | |
Total operating expenses | | | 43,794 | | | | 11,661 | | | | 24,015 | |
Operating income | | | 923 | | | | 410 | | | | 4,465 | |
Other income (expenses): | | | | | | | | | | | | |
Interest income (expense), net | | | (1,562 | ) | | | (853 | ) | | | (1,898 | ) |
Gain (loss) on disposition of property and equipment | | | (130 | ) | | | (21 | ) | | | 1 | |
Total other expenses | | | (1,692 | ) | | | (874 | ) | | | (1,897 | ) |
Income (loss) before income taxes | | | (769 | ) | | | (464 | ) | | | 2,568 | |
Income tax benefit | | | 352 | | | | 2,277 | | | | - | |
Net income (loss) | | | (417 | ) | | | 1,813 | | | | 2,568 | |
Dividends on cumulative redeemable convertible preferred stock | | | 631 | | | | 160 | | | | - | |
Premium paid on partial preferred redemption | | | 847 | | | | - | | | | - | |
Net income (loss) attributable to Limbach Holdings, Inc. common stockholders | | $ | (1,895 | ) | | $ | 1,653 | | | | | |
Net income attributable to Limbach Holdings LLC member unit holders | | | | | | | | | | $ | 2,568 | |
Successor Earnings Per Share (“EPS”) | | | | | | | | | | | | |
Basic earnings (loss) per share for common stock: | | | | | | | | | | | | |
Net earnings (loss) attributable to Limbach common stockholders | | $ | (0.25 | ) | | $ | 0.28 | | | | | |
Diluted earnings (loss) per share for common stock: | | | | | | | | | | | | |
Net earnings (loss) attributable to Limbach common stockholders | | $ | (0.25 | ) | | $ | 0.27 | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | | |
Basic | | | 7,460,277 | | | | 5,927,813 | | | | | |
Diluted | | | 7,460,277 | | | | 6,727,813 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | |
(in thousands, except share amounts) | Number of shares outstanding | | Par value amount | | Additional paid-in capital | | Accumulated deficit | | Stockholders’ equity |
Balance at December 31, 2020 | 7,926,137 | | | $ | 1 | | | $ | 57,612 | | | $ | (3,881) | | | $ | 53,732 | |
Stock-based compensation | — | | | — | | | 677 | | | — | | | 677 | |
Shares issued related to vested restricted stock units | 89,446 | | | — | | | — | | | — | | | 0 | |
Tax withholding related to vested restricted stock units | — | | | — | | | (183) | | | — | | | (183) | |
Shares issued related to employee stock purchase plan | 8,928 | | | — | | | 92 | | | — | | | 92 | |
Shares issued related to the exercise of warrants | 172,869 | | | — | | | 1,989 | | | — | | | 1,989 | |
Shares issued related to sale of common stock | 2,051,025 | | | — | | | 22,773 | | | — | | | 22,773 | |
Net loss | — | | | — | | | — | | | (2,282) | | | (2,282) | |
Balance at March 31, 2021 | 10,248,405 | | | 1 | | | 82,960 | | | (6,163) | | | 76,798 | |
Stock-based compensation | — | | | — | | | 636 | | | — | | | 636 | |
Shares issued related to vested restricted stock units | 3,291 | | | — | | | — | | | — | | | 0 | |
Tax withholding related to vested restricted stock units | — | | | — | | | (7) | | | — | | | (7) | |
Net income | — | | | — | | | — | | | 732 | | | 732 | |
Balance at June 30, 2021 | 10,251,696 | | | $ | 1 | | | $ | 83,589 | | | $ | (5,431) | | | $ | 78,159 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | |
(in thousands, except share amounts) | Number of shares outstanding | | Par value amount | | Additional paid-in capital | | Accumulated deficit | | Stockholders’ equity |
Balance at December 31, 2019 | 7,688,958 | | | $ | 1 | | | $ | 56,557 | | | $ | (9,688) | | | $ | 46,870 | |
Stock-based compensation | — | | | — | | | 295 | | | — | | | 295 | |
Shares issued related to vested restricted stock units | 104,905 | | | — | | | — | | | — | | | 0 | |
Net loss | — | | | — | | | — | | | (52) | | | (52) | |
Balance at March 31, 2020 | 7,793,863 | | | 1 | | | 56,852 | | | (9,740) | | | 47,113 | |
Stock-based compensation | — | | | — | | | 140 | | | — | | | 140 | |
Shares issued related to vested restricted stock units | 59,514 | | | — | | | — | | | — | | | 0 | |
Net income | — | | | — | | | — | | | 2,947 | | | 2,947 | |
Balance at June 30, 2020 | 7,853,377 | | | $ | 1 | | | $ | 56,992 | | | $ | (6,793) | | | $ | 50,200 | |
The
Accompanying Notesaccompanying notes are an
Integral Partintegral part of these
Condensed Consolidated Financial Statementscondensed consolidated financial statements
LIMBACH HOLDINGS, INC.
(Successor)
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
| | Common Stock | | | | | | | | | | |
(in thousands, except share amounts) | | Number of shares outstanding | | | Par value amount | | | Additional paid-in capital | | | Accumulated deficit | | | Stockholders’ equity | |
| | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | | 7,454,491 | | | $ | 1 | | | $ | 55,162 | | | $ | (7,715 | ) | | $ | 47,448 | |
Dividends on redeemable convertible preferred stock | | | | | | | | | | | (149 | ) | | | (482 | ) | | | (631 | ) |
Reclassification of cumulative dividends on redeemable convertible preferred stock | | | | | | | | | | | (905 | )(1) | | | 905(1) | | | | - | |
Partial redemption of redeemable convertible preferred stock | | | | | | | | | | | (847 | ) | | | | | | | (847 | ) |
Stock-based compensation | | | | | | | | | | | 924 | | | | | | | | 924 | |
Exercise of warrants | | | 111 | | | | - | | | | - | | | | | | | | - | |
Net loss | | | | | | | | | | | | | | | (417 | ) | | | (417 | ) |
Balance at September 30, 2017 | | | 7,454,602 | | | $ | 1 | | | $ | 54,185 | | | $ | (7,709 | ) | | $ | 46,477 | |
| (1) | See Note 10 – Cumulative Redeemable Convertible Preferred Stock for further discussion of the reclassification |
The Accompanying Notes are an Integral Part of these Condensed Consolidated Financial Statements
LIMBACH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | Successor | | | Successor | | | Predecessor | |
(in thousands) | | January 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | January 1, 2016 through July 19, 2016 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income (loss) | | $ | (417 | ) | | $ | 1,813 | | | $ | 2,568 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 7,383 | | | | 2,789 | | | | 1,582 | |
Allowance for doubtful accounts | | | 289 | | | | 134 | | | | 50 | |
Stock based compensation expense | | | 924 | | | | - | | | | 1,349 | |
Capitalized deferred interest on subordinated debt | | | - | | | | 84 | | | | 1,397 | |
Amortization of debt issuance costs | | | 135 | | | | 52 | | | | - | |
Deferred tax provision | | | (349 | ) | | | (2,667 | ) | | | - | |
Accretion of preferred stock discount to redemption value | | | 19 | | | | - | | | | - | |
(Gain) loss on disposition of property and equipment | | | 130 | | | | 21 | | | | (1 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase) decrease in accounts receivable | | | (5,712) | | | | (42,855 | ) | | | 5,722 | |
(Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts | | | 2,280 | | | | 10,831 | | | | (18,698 | ) |
(Increase) decrease in other current assets | | | 71 | | | | (251 | ) | | | (662 | ) |
(Increase) decrease in other assets | | | 1 | | | | 94 | | | | (95 | ) |
Increase (decrease) in accounts payable | | | (704 | ) | | | 7,722 | | | | (6,973 | ) |
Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts | | | (6,123 | ) | | | 12,857 | | | | 4,276 | |
Increase (decrease) in accrued expenses and other current liabilities | | | (3,206 | ) | | | (6,035 | ) | | | 10,847 | |
Increase (decrease) in other long-term liabilities | | | (62 | ) | | | 28 | | | | 277 | |
Net cash provided by (used in) operating activities | | | (5,341 | ) | | | (15,383 | ) | | | 1,639 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Proceeds from sale of property and equipment | | | 48 | | | | 69 | | | | 7 | |
Advances to joint ventures | | | (1 | ) | | | (1 | ) | | | - | |
Purchase of property and equipment | | | (2,329 | ) | | | (468 | ) | | | (2,114 | ) |
Acquisition of Limbach Holdings LLC, net of cash acquired | | | - | | | | (32,158 | ) | | | - | |
Proceeds from trust account | | | - | | | | 19,545 | | | | - | |
Net cash used in investing activities | | | (2,282 | ) | | | (13,013 | ) | | | (2,107 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from revolving credit facility | | | - | | | | 16,567 | | | | 60,122 | |
Proceeds from term loan | | | - | | | | 24,000 | | | | - | |
Proceeds from subordinated debt | | | - | | | | 13,000 | | | | - | |
Payments on revolving credit facility | | | - | | | | (8,301 | ) | | | (63,630 | ) |
Payments on Credit Agreement term loan | | | (4,115 | ) | | | - | | | | - | |
Proceeds from Credit Agreement revolver | | | 74,762 | | | | - | | | | - | |
Payments on Credit Agreement revolver | | | (62,547 | ) | | | - | | | | - | |
Payments on term loan | | | (33 | ) | | | (1,270 | ) | | | (1,038 | ) |
Payments on subordinated debt facility | | | - | | | | (23,604 | ) | | | -- | |
Payments on financed insurance premium | | | (1,747 | ) | | | - | | | | | |
Payments of distributions | | | - | | | | - | | | | (195 | ) |
Payments on capital leases | | | (1,250 | ) | | | (345 | ) | | | (660 | ) |
Redemption of preferred stock | | | (4,092 | ) | | | - | | | | - | |
Proceeds from issuance of redeemable convertible preferred stock | | | - | | | | 9,948 | | | | - | |
Debt issuance costs | | | - | | | | (1,313 | ) | | | - | |
Net cash provided by (used in) financing activities | | | 978 | | | | 28,682 | | | | (5,401 | ) |
Increase (decrease) in cash and cash equivalents | | | (6,645 | ) | | | 286 | | | | (5,869 | ) |
Cash and cash equivalents, beginning of period – Limbach Holdings, Inc. | | | 7,406 | | | | 22 | | | | - | |
Cash and cash equivalents, beginning of period – Limbach Holdings LLC | | | - | | | | 238 | | | | 6,107 | |
Cash and cash equivalents, end of period | | $ | 761 | | | $ | 546 | | | $ | 238 | |
Supplemental disclosures of cash flow information | | | | | | | | | | | | |
Noncash investing and financing transactions: | | | | | | | | | | | | |
Property and equipment acquired financed with capital leases | | $ | 1,344 | | | $ | 467 | | | $ | 1,014 | |
Financed insurance premium | | $ | 2,135 | | | $ | - | | | $ | - | |
Interest paid | | $ | 1,427 | | | $ | 799 | | | $ | 192 | |
During the Successor period for the nine months ended September 30, 2017 and the period July 20, 2016 through September 30, 2016, the Company recorded redeemable convertible preferred stock dividends totaling $0.6 million and $0.2 million, respectively.
| | | | | | | | | | | |
| Six months ended June 30, |
(in thousands) | 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net (loss) income | $ | (1,550) | | | $ | 2,895 | |
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities: | | | |
Depreciation and amortization | 2,964 | | | 3,140 | |
Provision for doubtful accounts | 70 | | | 27 | |
Stock-based compensation expense | 1,313 | | | 435 | |
Noncash operating lease expense | 2,091 | | | 2,025 | |
Amortization of debt issuance costs | 220 | | | 1,080 | |
Deferred income tax provision | (306) | | | 798 | |
Gain on sale of property and equipment | (8) | | | (17) | |
Loss on early debt extinguishment | 1,961 | | | 0 | |
Gain on change in fair value of warrant liability | (14) | | | (59) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (8,918) | | | 3,588 | |
Contract assets | (3,717) | | | 4,901 | |
Other current assets | (1,306) | | | (166) | |
Accounts payable, including retainage | 190 | | | (19,519) | |
Prepaid income taxes | (891) | | | (171) | |
Accrued taxes payable | (1,671) | | | (11) | |
Contract liabilities | (7,469) | | | 16,254 | |
Operating lease liabilities | (2,004) | | | (2,399) | |
Accrued expenses and other current liabilities | (5,450) | | | 9,419 | |
Other long-term liabilities | (114) | | | 237 | |
Net cash (used in) provided by operating activities | (24,609) | | | 22,457 | |
Cash flows from investing activities: | | | |
Proceeds from sale of property and equipment | 361 | | | 64 | |
Advances to joint ventures | 0 | | | (1) | |
Purchase of property and equipment | (501) | | | (660) | |
Net cash used in investing activities | (140) | | | (597) | |
Cash flows from financing activities: | | | |
Proceeds from Wintrust Term Loan | 30,000 | | | 0 | |
Payments on Wintrust Term Loan | (2,000) | | | — | |
| | | |
| | | |
Proceeds from 2019 Revolving Credit Facility | 0 | | | 7,250 | |
Payments on 2019 Revolving Credit Facility | 0 | | | (7,250) | |
Payments on 2019 Refinancing Term Loan | (39,000) | | | 0 | |
Prepayment penalty and other costs associated with early debt extinguishment | (1,376) | | | 0 | |
Proceeds from the sale of common stock | 22,773 | | | 0 | |
Proceeds from the exercise of warrants | 1,989 | | | 0 | |
Payments on finance leases | (1,318) | | | (1,285) | |
Payments of debt issuance costs | (593) | | | 0 | |
Taxes paid related to net-share settlement of equity awards | (401) | | | (90) | |
Proceeds from contributions to Employee Stock Purchase Plan | 221 | | | 0 | |
Net cash provided by (used in) financing activities | 10,295 | | | (1,375) | |
(Decrease) increase in cash, cash equivalents and restricted cash | (14,454) | | | 20,485 | |
Cash, cash equivalents and restricted cash, beginning of period | 42,260 | | | 8,457 | |
Cash, cash equivalents and restricted cash, end of period | $ | 27,806 | | | $ | 28,942 | |
Supplemental disclosures of cash flow information | | | |
Noncash investing and financing transactions: | | | |
Right of use assets obtained in exchange for new operating lease liabilities | $ | 156 | | | $ | 0 | |
Right of use assets obtained in exchange for new finance lease liabilities | 336 | | | 1,050 | |
Right of use assets disposed or adjusted modifying operating lease liabilities | 36 | | | 586 | |
Right of use assets disposed or adjusted modifying finance lease liabilities | 0 | | | (64) | |
Interest paid | 1,741 | | | 3,250 | |
Cash paid for income taxes | $ | 2,096 | | | $ | 734 | |
The
Accompanying Notesaccompanying notes are an
Integral Partintegral part of these
Condensed Consolidated Financial Statementscondensed consolidated financial statements
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1
—– Organization and Plan of Business Operations
Limbach Holdings, Inc. (the
“Company”“Company,” “we” or
“Successor”), formerly known as 1347 Capital Corp. (“1347 Capital”“us”), is a Delaware corporation headquartered in Pittsburgh,
Pennsylvania.Pennsylvania that was formed on July 20, 2016, as a result of a business combination with Limbach Holdings LLC (“LHLLC”). The Company’s
Condensed Consolidated Financial Statementscondensed consolidated financial statements include the accounts of Limbach Holdings, Inc. and its
wholly ownedwholly-owned subsidiaries, including
Limbach Holdings LLC (“LHLLC”),LHLLC, Limbach Facility Services LLC, Limbach Company LLC, Limbach Company LP, Harper Limbach LLC, and Harper Limbach Construction LLC.
As of January 1, 2021, the Company renamed its existing 2 reportable segments to reflect our 2 distinct approaches to our customer base and to better align with our owner direct strategy. The previously named Construction Segment is now known as General Contractor Relationships (“GCR”); the previously named Service Segment is now known as Owner Direct Relationships (“ODR”). The Company
was originally incorporated as a special purpose acquisition company, formed foroperates in 2 segments that are based on the
purpose of effecting a merger, equity interest exchange, asset acquisition, stock purchase, reorganization or similar business combinationrelationship with
one or more businesses. On July 20, 2016,its customer, (i) GCR, in which the Company
consummated a business combination (“Business Combination”) with LHLLC pursuant to the agreement and plan of merger dated as of March 23, 2016, by and among 1347 Capital Corp. (now Limbach Holdings, Inc.), LHLLC and FdG HVAC LLC (“FdG”), as stockholders’ representative (the “Merger Agreement”). In connection with the closing of the Business Combination, the Company changed its name from 1347 Capital Corp. to Limbach Holdings, Inc. See Note 4 – Business Combination for further discussion.We operate our business in two segments, (i) Construction, in which we generally manage largemanages new construction or renovation projects that involve primarily HVAC,heating, ventilation, and air conditioning (“HVAC”), plumbing, andor electrical services awarded to the Company by general contractors or construction managers, and (ii) Service,ODR, in which we providethe Company provides maintenance or service primarily on HVAC, plumbing or electrical systems.systems, building controls and specialty contracting projects direct to, or assigned by, building owners or property managers. This work is primarily performed under fixed price, modified fixed price, and time and material contracts over periods of typically less than two years.
The Company's customers operate in
several differentdiverse industries including,
but not limited to, healthcare,
education, government, commercial,life sciences, data centers, industrial and light manufacturing, entertainment,
education and
leisure.government. The Company operates primarily in the Northeast, Mid-Atlantic, Southeast, Midwest, and Southwestern regions of the United States.
Emerging Growth Company
Section 102(b)(1)
Impact of the JOBS Act exempts emerging growth companies from being requiredCOVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has caused significant disruption and volatility on a global scale resulting in, among other things, an economic slowdown and the possibility of a continued economic recession. In response to comply with newthe COVID-19 outbreak, national and local governments around the world instituted certain measures, including travel bans, restrictions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The various governmental actions have abated over time, but remain applicable to Limbach's operations in various ways, often varying by state. In some instances, these orders continued to affect certain projects in our GCR and ODR segments into the first quarter of 2021. In limited instances, during fiscal 2020, projects chose to shutdown work irrespective of the existence or revised financial accounting standards until private companies (thatapplicability of government action. In most markets, construction is thoseconsidered an essential business and Limbach continued to staff its projects and perform work during fiscal 2020 and into 2021, and most of the projects that were in progress at the time shutdowns commenced were restarted. The Company’s branches are expecting building owners to maintain or retrofit current facilities in lieu of funding larger capital projects as the effects of the pandemic remain ongoing and uncertain.
During fiscal 2020 and through the second quarter of 2021, the Company continued to take several actions to combat the adverse impacts that the COVID-19 outbreak had on our business including, but not limited to the following:
• Identification of projects that have been shut down and methods for seeking to preserve any contractual entitlement that may exist to recover monetary and time impacts;
• Establishment of a task force to identify possible types and areas of impact from COVID-19 for both shutdown and continuing operations;
• Examination of the Company's productivity and potential impact on gross profit as a result of COVID-19;
• Implementation of the Company's pandemic response plan;
• Implemented our furlough and work schedule reduction plans, as well as permanent reductions in force; and
• Temporarily suspended substantially all discretionary, non-essential expenditures, including but not hadlimited to, auto allowances, deferral of rent ranging between 1 and 3 months; and
• A temporary 10% salary reduction for a Securities Act registration statement declared effective or do not haveselect group of corporate and regional management, along with a class10% fee reduction in director compensation, and cost reduction opportunities identified by our external consultant.
During the Exchange Act) are required to complymonth of July 2020, with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt outsubstantial restart and return of project and service work, the extended transition periodCompany removed the 10% salary reduction for the select group of corporate and complyregional management, along with the requirementsfee reduction for director compensation, returned auto allowances, reinstated positions, removed schedule reduction plans and discontinued our hiring freeze. During the remainder of 2020 and into 2021, the Company reinstituted limited travel and in-person meetings, along with encouraging employees to return to the office, field and training settings in a partial, flexible manner that apply to non-emerging growth companies but any such election to opt out is irrevocable.consistent with our Work From Home Policy and our COVID-19 Policy. The Company has elected notremained steadfastly committed to opt outour COVID-19 Policy as our work environment evolves in response to the changing landscape of such extended transition periodthe pandemic and in response to the increasing availability of vaccinations.
We continue to monitor the short and long term impacts of the pandemic. While our employees and customers have adapted to a new work environment and there continues to be scientific, societal and economic progress to address the effect of COVID-19, there remains significant uncertainty about the future impacts of the pandemic, including the potential effects on our operations. We remain cautiously optimistic about the markets in which meanswe operate and the customers we serve; however, the spread of more contagious variants of the virus, including the current rapid increase of the Delta Variant, may impact economic activity and could cause projects to be delayed or canceled, or we may experience access restrictions to our customers’ facilities and project sites. Additionally, the spread of the Delta Variant has the near-term possibility of causing some state and local governments where we work to reinstitute restrictions that could impact our customers, vendors and our own ability to perform existing projects.
The ongoing effects of the pandemic, including decreased consumer confidence and economic instability, can make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and could cause constrained spending on our services, delays and a lengthening of our business development efforts, the demand for more favorable pricing or other terms, and/or difficulty in collection of our accounts receivable. Our clients may face budget deficits or other financial constraints that prohibit them from funding proposed and existing projects. During the fourth quarter of 2020 and the first half of 2021, several of our business units experienced slowdowns in the closing of sales related to the ongoing effects of the pandemic, which impacted our revenue and profitability. These impacts may continue as the pandemic persists. Further, ongoing economic instability in the global markets, including from the pandemic, could limit our ability to access the capital markets at a time when a standard is issuedwe would like, or revisedneed, to raise capital, which could have an impact on our ability to react to changing business conditions or new opportunities. If economic conditions remain uncertain or weaken, or spending continues to be reduced, our financial condition and it has different application dates for public or private companies,results of operations may be adversely affected.
The Company continues to take steps to minimize the adverse impacts of the COVID-19 pandemic on its business and to protect the safety of its employees, and the Company ascontinues to emphasize wearing of masks, more frequent washing of hands and tools, social distancing, and work protocols. Limbach's COVID-19 Policy is based on the best practices provided by the Centers for Disease Control and Prevention (“CDC”) and Occupational Safety and Health Administration for essential workers. Our updated Work From Home Policy, along with the Company's business continuity planning and information technology enhancements enabled an emerging growth company, can adoptorderly transition to remote work and facilitated social distancing for salaried employees. Although the new or revised standard atCompany has not mandated vaccinations for employees, it is encouraging all employees to be vaccinated, in accordance with CDC recommendations.
Testing and inpatient treatment for COVID-19 is covered under our medical plan and fees have been waived since the
time private companies adopt the new or revised standard. This may make comparison of Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible becauseonset of the
potential differences in accounting standards used.pandemic. Counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues. Note 2
—– Significant Accounting Policies
Condensed
Consolidated Financial StatementsThe accompanying unaudited
condensed consolidated financial statementsCondensed Consolidated Financial Statements have been prepared in accordance with instructions to the Quarterly Report on Form 10-Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our
latestmost recent Annual Report on Form 10-K filed with the Securities and Exchange Commission
(“SEC”). Predecessor and Successor Financial Statements
The Condensed Consolidated Financial Statements and certain note presentations separate the Company’s presentations into two distinct periods, the period up to and including the Business Combination closing date (labeled “Predecessor”(the “SEC”) and the period after that date (labeled “Successor”), to indicate the applicationon March 25, 2021.
Unaudited Interim Financial Information
The accompanying interim Condensed Consolidated Balance
Sheet, theSheets, Condensed Consolidated Statements of Operations, Condensed Consolidated
StatementStatements of Stockholders’ Equity and
the Condensed Consolidated Statements of Cash Flows for the periods presented are unaudited. Also, within the notes to the Condensed Consolidated Financial Statements, we have included unaudited information for these interim periods. These unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with GAAP.
In our opinion, the accompanying unaudited consolidated financial statementsCondensed Consolidated Financial Statements contain all adjustments (consisting only of a normal and recurring nature)adjustments necessary for a fair statement of the Company’s financial position as of SeptemberJune 30, 2017 and September 30, 2016, and2021, its results of operations and its cash flows for the periods presented.three and six months ended June 30, 2021. The results for the three and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results to be expected for the year ending December 31, 2017.
2021.
The
Successor Condensed Consolidated Balance Sheet as of December 31,
20162020 was derived from
our audited financial statements
included in our Annual Report on Form 10-K filed with the SEC on March 25, 2021, but is presented as condensed and does not contain all of the footnote disclosures from the annual financial statements.
Revenues and Cost Recognition
Revenues from fixed price and modified fixed price contracts are recognized on the percentage-of-completion method, measured by the relationship of total cost incurred to total estimated contract costs (cost-to-cost method). Revenues from time and materials contracts are recognized as services are performed. Contract revenue for long-term construction contracts is based upon management's estimate of contract values at completion, including revenue for additional work on which the contract value has not been finalized (claims and unapproved change orders) but is considered probable. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined.
Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined. One of our operating locations recorded revisions in its contract estimates for two projects resulting in gross profit write downs totaling $2.6 million for the three months ended September 30, 2017 and $3.1 million for the first nine months of 2017. One of our other operating locations recorded a revision in contract estimate on a project resulting in a gross profit write down of $0.5 million for both the three and nine month periods ended September 30, 2017.The Company is evaluating potential recovery options for some of the write downs recognized in the three and nine month periods ended September 30, 2017, but is not currently in a position to recognize any potential recoveries in its financial statements.Another of our operating locations recorded revisions in its contract estimates on a project resulting in gross profit write ups totaling $0.9 million and $1.8 million for the respective three and nine month periods ended September 30, 2017.
Contract costs include direct labor, material, and subcontractor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, depreciation, and insurance. Total estimated contract costs are based upon management's current estimate of total costs at completion.
The Company recognizes revenues from its service segment contracts as these services are performed. There are two basic types of service contracts: fixed price service contracts which are signed in advance for maintenance, repair, and retrofit work over a period of typically one year, and service contracts not signed in advance for similar maintenance, repair, and retrofit work performed on an as-needed basis. Fixed price service contracts are generally performed evenly over the contract period, and accordingly, revenue is recognized on a pro rata basis over the life of the contract. Revenues derived from other service contracts are recognized when the services are performed. Expenses related to all service contracts are recognized as services are provided.
Costs and estimated earnings in excess of billings on uncompleted contracts reflected in the consolidated balance sheets arise when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Also included in costs and estimated earnings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Such amounts are recorded at estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the construction costs incurred in connection with claim amounts. Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation. Claims and unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims and unapproved change orders may be made in the near term. Claims against the Company are recognized when a loss is considered probable and amounts are reasonably determinable. Billings in excess of costs and estimated earnings on uncompleted contracts represent billings in excess of revenues recognized.
In accordance with industry practice, we classify as current all assets and liabilities relating to the performance of contracts. The terms of our contracts generally range from six months to two years.
Selling, general, and administrative costs are charged to expense as incurred. Bidding and proposal costs are also recognized as an expense in the period in which such amounts are incurred.
Note 3 – Accounting Standards
Recent
Recently Adopted Accounting
PronouncementsThe effective dates shown in the following pronouncements are private company effective dates, based upon the Company’s election to conform to private company effective dates based on the relief provided to Emerging Growth Companies (“EGC”) under the JOBS Act.
Standards
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers—Topic 606,” which supersedes the revenue recognition requirements in FASB Accounting Standard Codification (“ASC”) 605. The new guidance established principles for reporting revenue and cash flows arising from an entity’s contracts with customers. This new revenue recognition standard will replace all of the recognition guidance within GAAP. This guidance was deferred by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued by the FASB in August 2015, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December
15, 2017 to annual and interim periods beginning after December 15, 2018. In March 2016,2019, the FASB issued ASU
2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations,2019-12, Income Taxes (Topic 740), which
further clarifies the implementation guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligationsaffects general principles within Topic 740, and
Licensing,is meant to
expand the guidance on identifying performance obligationssimplify and
licensing within ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenues from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost
of accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and
complexity of applying the new revenue standard. The guidance can be appliedsimplifies areas including franchise taxes that are partially based on
income, transactions with a
full retrospective or modified retrospective basis whereby the entity recordsgovernment that result in a
cumulative effect of initially applying this update at the date of initial application. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” intended to clarify the codification or to correct unintended application of the guidance which clarifies the definition of loan guarantee fees, what should be considered in contract costs impairment testing, a requirement that provisions for losses on construction-type and production-type contracts be determined at the least at the contract level, exclusion of insurance contracts from scope, specific disclosures regarding remaining performance obligations, disclosure of prior-period performance obligations and gives an example of contract modifications. These standards are required to be implemented by the Company for its fiscal year beginning January 1, 2019, including interim periods within that reporting period. Since the Company has not yet commenced its analysis of the new revenue recognition standard or selected the basis on which it will be applied, we cannot estimate the impact of its adoption on the Condensed Consolidated Financial Statements. Beginningstep up in the
third quartertax basis of
2017, we initiated a request for proposal to identify a firm to assistgoodwill, the
Company in evaluating the impact of the new pronouncement on our contracts. The Company expects to select a firm to provide this assistance during the fourth quarter of 2017. During the first quarter of 2018, we expect to commence our assessment of the new standard, which will include a review of our various types of revenue arrangements, consideration of our existing accounting policies and an evaluation of the effects of the new disclosure requirements on our business processes, controls and systems.In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842),” ASU 2016-02 provides anincremental approach for classifying leases as either finance leases or operating leases. For either classification, a right-of-use assetintraperiod tax allocation, interim period income tax accounting for year-to-date losses that exceed anticipated losses and a lease liability will be required to be recognized, unless the term of the lease is one year or less.enacted changes in tax laws in interim periods. The guidance is required to be applied using a modified retrospective approach which includes optional practical expedients. It ischanges are effective for annual periods beginning after December 15, 2019,2020. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements or presentation thereof.
Also in October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in this update remove references to various FASB Concepts Statements, situates all disclosure guidance in the appropriate disclosure section of the Codification, and makes other improvements and technical corrections to the Codification. The amendments in Sections B and C of this amendment are effective for interimannual periods beginning after December 15, 2020, for public business entities, with early adoption permitted. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements or presentation thereof.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial instruments, including trade receivables and off-balance sheet credit exposure. Under this guidance, an entity is required to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. This ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The guidance is effective for smaller reporting companies on January 1, 2023 with early adoption permitted. The adoption of this standard will be through a cumulative-effect adjustment to retained earnings as of the effective date. Based on our historical experience, the Company does not expect that this pronouncement will have a significant impact in its financial statements or on the estimate of the allowance for doubtful accounts.
The FASB has issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020. This new guidance provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform, on financial reporting. The risk of termination of the London Interbank Offered Rate (LIBOR), has caused regulators to undertake reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based that are less susceptible to manipulation. ASU 2020-04 is effective between March 12, 2020 and December 31, 2022.
In addition, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting the reference rate reform guidance (both ASU 2020-04 and ASU 2021-01) on its condensed consolidated financial statements. Management has identified that its credit agreement utilizes LIBOR as a benchmark rate. Management will continue to evaluate the impact of adopting reference rate reform as the LIBOR benchmark rate within the credit agreement is phased out.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity and amends the scope guidance for contracts in an entity's own equity. The ASU addresses how convertible instruments are accounted for in the calculation of diluted earnings per share by using the if-converted method. The guidance is effective for all entities for fiscal years beginning after March 31, 2024, albeit early adoption is permitted no earlier than fiscal years beginning after December 15, 2020.
Earlier applicationManagement is
permitted. The Company has not yet commenced its analysis of this standard and therefore cannot estimatecurrently assessing the impact of
its adoption on the Condensed Consolidated Financial Statements. In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting” to simplify accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018.The Company early adopted this standard during the quarter ended September 30, 2017, and accordingly, followed such guidance when accounting for the stock-based compensation awards which were granted by the Company during the quarter ended September 30, 2017. The adoption of this standard had no other impact on the Condensed Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments” to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a retrospective transition method to each period presented. The Company early adopted this standard during the quarter ended September 30, 2017, and accordingly, followed such guidance when accounting for the stock-based compensation awards which were granted by the Company during the quarter ended September 30, 2017. The adoption of this standard had no other impact on the Condensed Consolidated Financial Statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash” to address diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, and for interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the year that includes that interim period. The Company is currently evaluating this standard to determine the impact on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide a screen to determine when a set of assets and activities is not a business. If the screen is not met, the amendments require further consideration of inputs, substantive processes and outputs to determine whether the transaction is an acquisition of a business. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, and for interim periods within annual periods beginning after December 15, 2019. The amendments in this update are to be applied prospectively on or after the effective date. The Company is currently evaluating this standard to determine the impactpronouncement on its Consolidated Financial Statements.
condensed consolidated financial statements. Also, in January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments–Equity Method and Joint Ventures (Topic 323)” which applies to ASU 2014-09 and ASU 2016-02 and provides an SEC staff view that a Company must evaluate ASUs not yet adopted to determine the appropriate financial statement disclosures about the potential material impacts of those ASUs on the financial statements when adopted in a future period according to Staff Accounting Bulletin (“SAB”) Topic 11.M. If the Company does not know or cannot reasonably estimate the impact that adoption of the ASU is expected to have on the financial statements, a statement should be made to that effect and additional qualitative financial statement disclosures should be made to assist the financial statement reader in assessing the significance of the impact that the standard will have on the financial statements when adopted. This guidance was effective upon issuance and has been adopted.
In January 2017, the FASB issued ASU 2017-04, “Intangibles–Goodwill and Other - Simplifying the Test for Goodwill Impairment” to address the cost and complexity of the goodwill impairment test which resulted in the elimination of Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of goodwill by assigning fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Rather, the Company would be required to do its annual and interim goodwill impairment tests by comparing the fair value of the reporting unit with its carrying amount and to recognize an impairment charge for the amount by which the carrying amount is greater than the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Income tax effects measuring the goodwill impairment loss, if applicable, from any tax deductible goodwill on the carrying amount on the reporting unit should also be considered. The guidance is effective for financial statements issued for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments in this Update are to be applied on a prospective basis along with a disclosure of the nature and reason for the change in accounting principle upon initial adoption. The Company is currently evaluating this standard to determine the impact on the Consolidated Financial Statements.
Note 4 – Business Combination
On July 20, 2016, pursuant to the Merger Agreement, a wholly owned subsidiary of the Company merged with and into LHLLC in a transaction accounted for as a business combination. Following this transaction, 1347 Capital changed its name to Limbach Holdings, Inc.
LHLLC’s equity holders and option holders received consideration comprised of (a) $32.4 million in cash, (b) 2,200,005 shares of Company common stock with a fair value of $17.5 million, (c) 666,670 merger warrants, each exercisable for one share of Company common stock at an exercise price of $12.50 per share with a fair value of $0.5 million, and (d) 1,000,006 additional warrants, each exercisable for one share of Company common stock at an exercise price of $11.50 per share, with a fair value of $0.6 million. Certain of the shares and warrants are subject to lockup agreements and securities law restrictions. Total cash paid, including the additional share-based compensation, was $33.0 million.
As part of the consideration in the Business Combination, the Company issued shares of common stock to LHLLC’s equity holders pursuant to an effective registration statement and Merger Warrants (as defined below) and Additional Merger Warrants (as defined below) pursuant to a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”). Securities Act restrictions on the resale of such securities constitute a security-specific restriction under fair value guidance; therefore, a price adjustment to the fair value is appropriate for affiliates of the Company who own in excess of 10% of the outstanding securities. Fair value determinations for the securities used as consideration are valued at market prices, unless they have a security-specific restriction. Fair value determination for securities with security-specific restrictions under federal securities laws incorporate a price adjustment to the market price.
The final valuations of assets acquired and liabilities assumed were:
| | As of | |
(in thousands) | | July 20, 2016 | |
Cash and cash equivalents | | $ | 238 | |
Restricted cash | | | 63 | |
Accounts receivable | | | 80,930 | |
Property and equipment | | | 20,990 | |
Intangible assets | | | 20,910 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | | | 38,215 | |
Other current assets | | | 2,272 | |
Other assets | | | 130 | |
Advances to and equity in joint ventures, net | | | 6 | |
Deferred tax assets | | | 380 | |
Total assets acquired | | | 164,134 | |
Accounts payable, including retainage | | | 35,596 | |
Accrued expenses and other current liabilities | | | 26,507 | |
Billings in excess of costs on and estimated earnings on uncompleted contracts | | | 30,068 | |
Long-term debt | | | 30,858 | |
Other long term liabilities | | | 645 | |
Total liabilities assumed | | | 123,674 | |
Net assets acquired | | $ | 40,460 | |
Direct transaction-related costs consisted of costs incurred in connection with the Merger Agreement and the Business Combination. These costs, totaling $0.1 million for the period from July 20, 2016 through September 30, 2016 (Successor), are reflected in selling, general and administrative expenses in the respective Condensed Consolidated Statement of Operations. 1347 Capital also incurred transaction costs of $5.9 million independently prior to the Business Combination, and since 1347 Capital is not consolidated with the Predecessor (see Note 2 – Basis of Presentation), those costs are not reflected in the Predecessor financial statements, but are disclosed herein.
Additional costs consisting of stock option and other compensation-related expenses were recorded in connection with the Business Combination. These costs, totaling $0.6 million for the period from July 20, 2016 through September 30, 2016 (Successor), and $1.5 million for the period July 1, 2016 through July 19, 2016 (Predecessor), are reflected in selling, general and administrative expenses in the respective Condensed Consolidated Statements of Operations. This Predecessor amount reflects compensation expense associated with stock options which became fully vested and exercisable in connection with the Business Combination.
The following unaudited pro forma financial information summarizes the combined results of operations for the Company as though the Business Combination had occurred on January 1, 2015:
| | For the nine months ended | |
(in thousands) | | September 30, 2016 | |
Pro forma revenues | | $ | 313,280 | |
Pro forma net loss attributable to common shareholders | | $ | (848 | ) |
The pro forma financial information does not include any costs related to the Business Combination. In addition, the pro forma financial information does not assume any impacts from revenue, cost or other operating synergies that could be generated as a result of the Business Combination. The unaudited pro forma financial information is not necessarily indicative of what the Company’s results would have been had the Business Combination been consummated on such dates or project results of operations for any future period.
The following pro forma adjustments were incorporated into the presentation:
| 1. | Successor and Predecessor periods have been combined in the pro forma for the nine months ended September 30, 2016.
|
| 2. | Transaction costs related to the Business Combination were eliminated. |
| 3. | Intangible amortization is based on the economic values derived from definite-lived intangible assets. |
| 4. | Depreciation is incorporated based on the new fair values and estimated useful lives of fixed assets. |
| 5. | Interest expense is recognized on new debt financing. |
| 6. | Preferred dividends are recognized on the new issue of cumulative redeemable convertible preferred stock. |
| 7. | Statutory provision for income taxes was used. |
| 8. | The activities of 1347 Capital have been excluded for the period from January 1, 2016 through July 19, 2016 because it was not consolidated and its operations were considered to be de minimus. |
Note
54 – Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable and the allowance for
uncollectibledoubtful accounts are comprised of the following:
| | Successor | |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Accounts receivable – trade | | $ | 94,614 | | | $ | 90,296 | |
Retainage | | | 25,076 | | | | 23,868 | |
Allowance for doubtful accounts | | | (295 | ) | | | (192 | ) |
Accounts receivable, net of allowance for doubtful accounts | | $ | 119,395 | | | $ | 113,972 | |
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Accounts receivable - trade | $ | 94,881 | | | $ | 86,033 | |
Allowance for doubtful accounts | (266) | | | (266) | |
Accounts receivable, net | $ | 94,615 | | | $ | 85,767 | |
Note 5 – Contract Assets and Liabilities
The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.
Contract assets include costs in excess of billings and estimated earnings and amounts due under retainage provisions. The components of the contract asset balances as of the respective dates were as follows:
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 | | Change |
Contract assets | | | | | |
Costs in excess of billings and estimated earnings | $ | 38,200 | | | $ | 31,894 | | | $ | 6,306 | |
Retainage receivable | 32,615 | | | 35,204 | | | (2,589) | |
Total contract assets | $ | 70,815 | | | $ | 67,098 | | | $ | 3,717 | |
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld, typically 10%, pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.
Contract assets represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Contract assets result when either: 1) the appropriate contract revenue amount has been recognized over time in accordance with ASC Topic 606, but a portion of the revenue recorded cannot be currently billed due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings.
The current estimated net realizable value on such claims and unapproved change orders as recorded in contract assets and contract liabilities in the condensed consolidated balance sheets was $40.1 million and $33.6 million as of June 30, 2021 and December 31, 2020, respectively. The Company anticipates that the majority of such amounts will be approved or executed within one year. The resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings.
Contract liabilities include billings in excess of costs and estimated earnings and provisions for losses. The components of the contract liability balances as of the respective dates were as follows:
| | | | | | | | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 | | Change |
Contract liabilities | | | | | |
Billings in excess of costs and estimated earnings | $ | 38,611 | | | $ | 46,020 | | | $ | (7,409) | |
Provisions for losses | 568 | | | 628 | | | (60) | |
Total contract liabilities | $ | 39,179 | | | $ | 46,648 | | | $ | (7,469) | |
Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue.
Provisions for losses are recognized in the condensed consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.
The net overbilling position for contracts in process consist of the following:
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Revenue earned on uncompleted contracts | $ | 691,473 | | | $ | 752,564 | |
Less: Billings to date | (691,884) | | | (766,690) | |
Net overbilling | $ | (411) | | | $ | (14,126) | |
| | | |
| | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Costs in excess of billings and estimated earnings | $ | 38,200 | | | $ | 31,894 | |
Billings in excess of costs and estimated earnings | (38,611) | | | (46,020) | |
Net overbilling | $ | (411) | | | $ | (14,126) | |
For the three and six months ended June 30, 2021 and 2020, we recorded revisions in our contract estimates for certain GCR and ODR projects.
For the three months ended June 30, 2021 and 2020, total net gross profit write-downs were $1.1 million and $2.0 million, respectively. For projects having a material gross profit impact of $0.25 million or more for the three months ended June 30, 2021, this resulted in material gross profit write downs on 3 GCR segment projects of $1.7 million and 1 ODR project for $0.3 million. Of the material GCR segment write downs, 1 project was within the Michigan region for a total of $1.0 million, 1 project was within the New England region for $0.3 million and 1 project was within the Southern California region for $0.4 million. Of the material ODR segment write downs, 1 project was within the Eastern Pennsylvania region for $0.3 million. We also recorded material gross profit write ups of $0.3 million on 1 GCR segment project in the Florida region and $0.3 million on 1 ODR segment project in the Michigan region. For the three months ended June 30, 2020, we recorded material revisions in our contract estimates on 4 GCR projects which resulted in gross profit write downs of $1.5 million. NaN of these projects were within the Southern California region for a total of $0.7 million. NaN project revisions resulting in material gross profit write ups were recorded during the three months ended June 30, 2020.
For the six months ended June 30, 2021 and 2020, total net gross profit write-downs were $1.7 million and $3.4 million, respectively. For projects having a material gross profit impact of $0.25 million or more, we recorded gross profit write downs on 8 GCR segment projects of $3.5 million and 1 ODR project for $0.3 million. Of the material GCR segment write downs, 2 projects were within the Michigan region for a total of $1.2 million, 2 projects were within the Eastern Pennsylvania region for $1.0 million, 2 projects were within the Southern California region for $0.8 million, 1 project was within the New England region for $0.3 million, and 1 project was within the Mid-Atlantic region for $0.3 million. We also materially wrote down 1 ODR segment project within the Eastern Pennsylvania region for $0.3 million. We also recorded material GCR segment gross profit write ups of $0.9 million on 1 GCR segment project in the Michigan region for $0.5 million and 1 project within the Ohio region for $0.4 million. For the six months ended June 30, 2020, we recorded material gross profit write downs on 8 GCR projects and 2 gross profit write ups on GCR projects, for an aggregate revision of $5.2 million and $1.2 million, respectively.
Note 6 –
Contracts in Progress | | Successor | |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Revenue earned on uncompleted contracts | | $ | 625,603 | | | $ | 532,549 | |
Less: Billings to date | | | (628,991 | ) | | | (539,780 | ) |
Net overbilling | | $ | (3,388 | ) | | | (7,231 | ) |
| | | | | | | | |
The above is reflected in the accompanying condensed consolidated balance sheets as follows: | | | | | | | | |
Costs and estimated earnings in excess of billing on uncompleted contracts | | $ | 29,679 | | | $ | 31,959 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | | | (33,067 | ) | | | (39,190 | ) |
Net overbilling | | $ | (3,388 | ) | | $ | (7,231 | ) |
Accounts payable includes retainage due to subcontractors totaling $9.9Goodwill and Intangibles
Goodwill was $6.1 million
and $8.9 million as of Septemberat both June 30,
20172021 and December 31,
2016, respectively.2020. The Company has asserted claims and may have unapproved change orders on certain construction projects. These occur typically as a result of scope changes and project delays. Management evaluates these items and estimatesgoodwill is associated with the recoverable amounts. If significant, these recoverability estimates are evaluated to determine the net realizable value. If additional amounts are recovered, additional contract revenue would be recognized.
Note 7 – Intangibles
Goodwill was $10.5 million at September 30, 2017 (Successor) and December 31, 2016 (Successor). There has been no change in the carrying amount of the trade name since December 31, 2016 (Successor).
Company's ODR segment. Intangible assets excluding goodwill, are comprised of the following:
| | Successor | |
(in thousands) | | Gross carrying amount | | | Accumulated amortization | | | Net intangible assets, excluding goodwill | |
September 30, 2017 | | | | | | | | | | | | |
Amortized intangible assets: | | | | | | | | | | | | |
Backlog – Construction | | $ | 4,830 | | | $ | (3,811 | ) | | $ | 1,019 | |
Backlog – Service | | | 880 | | | | (880 | ) | | | - | |
Customer Relationships - Service | | | 4,710 | | | | (1,161 | ) | | | 3,549 | |
Favorable Leasehold Interests | | | 530 | | | | (82 | ) | | | 448 | |
Total amortized intangible assets | | | 10,950 | | | | (5,934 | ) | | | 5,016 | |
Unamortized intangible assets: | | | | | | | | | | | | |
Trade Name | | | 9,960 | | | | — | | | | 9,960 | |
Total unamortized intangible assets | | | 9,960 | | | | — | | | | 9,960 | |
Total amortized and unamortized assets, excluding goodwill | | $ | 20,910 | | | $ | (5,934 | ) | | $ | 14,976 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Gross carrying amount | | Accumulated amortization | | Net intangible assets, excluding goodwill |
June 30, 2021(1) | | | | | |
Amortized intangible assets: | | | | | |
Customer Relationships – ODR | $ | 4,710 | | | $ | (3,312) | | | $ | 1,398 | |
Favorable Leasehold Interests(2) | 190 | | | (75) | | | 115 | |
Total amortized intangible assets | 4,900 | | | (3,387) | | | 1,513 | |
Unamortized intangible assets: | | | | | |
Trade Name | 9,960 | | | — | | | 9,960 | |
Total unamortized intangible assets | 9,960 | | | — | | | 9,960 | |
Total amortized and unamortized assets, excluding goodwill | $ | 14,860 | | | $ | (3,387) | | | $ | 11,473 | |
| | Successor | |
(in thousands) | | Gross carrying amount | | | Accumulated amortization | | | Net intangible assets, excluding goodwill | |
December 31, 2016 | | | | | | | | | | | | |
Amortized intangible assets: | | | | | | | | | | | | |
Backlog – Construction | | $ | 4,830 | | | $ | (2,222 | ) | | $ | 2,608 | |
Backlog – Service | | | 880 | | | | (398 | ) | | | 482 | |
Customer Relationships - Service | | | 4,710 | | | | (452 | ) | | | 4,258 | |
Favorable Leasehold Interests | | | 530 | | | | (31 | ) | | | 499 | |
Total amortized intangible assets | | | 10,950 | | | | (3,103 | ) | | | 7,847 | |
Unamortized intangible assets: | | | | | | | | | | | | |
Trade Name | | | 9,960 | | | | — | | | | 9,960 | |
Total unamortized intangible assets | | | 9,960 | | | | — | | | | 9,960 | |
Total amortized and unamortized assets, excluding goodwill | | $ | 20,910 | | | $ | (3,103 | ) | | $ | 17,807 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Gross carrying amount | | Accumulated amortization | | Net intangible assets, excluding goodwill |
December 31, 2020(1) | | | | | |
Amortized intangible assets: | | | | | |
Customer Relationships – ODR | $ | 4,710 | | | $ | (3,112) | | | $ | 1,598 | |
Favorable Leasehold Interests | 530 | | | (407) | | | 123 | |
Total amortized intangible assets | 5,240 | | | (3,519) | | | 1,721 | |
Unamortized intangible assets: | | | | | |
Trade Name | 9,960 | | | — | | | 9,960 | |
Total unamortized intangible assets | 9,960 | | | — | | | 9,960 | |
Total amortized and unamortized assets, excluding goodwill | $ | 15,200 | | | $ | (3,519) | | | $ | 11,681 | |
(1) The Backlog-Construction intangible asset previously shown at December 31, 2020 has been fully amortized. Accordingly, its gross carrying amount of $4.8 million and corresponding accumulated amortization of $4.8 million have been removed from the table.
(2) The gross carrying amount and accumulated amortization associated with our Favorable leasehold interests intangible asset was reduced by $0.3 million due to the lease termination of our Western Pennsylvania office associated with the intangible asset.
The definite-lived intangible assets are amortized over the period the Company expects to receive the related economic benefit, which for customer relationships is based upon estimated future net cash inflows. The Company has previously determined that its trade name has an indefinite useful life. The Limbach trade name has been in existence since the Company’s founding in 1901 and therefore is an established brand within the industry.
Total amortization expense for these amortizable intangible assets was $2.8$0.1 million and $0.2 million for the ninethree and six months ended SeptemberJune 30, 2017 (Successor)2021, respectively, and $1.5$0.3 million and $0.4 million for the period July 20, 2016 through Septemberthree and six months ended June 30, 2016 (Successor). There were no intangible assets in the Predecessor period, and accordingly, there was no amortization expense. 2020, respectively.
The Company did
not0t recognize any impairment charges
related to definite and indefinite-livedon its goodwill or intangible assets
duringfor the
ninethree and six months ended
SeptemberJune 30,
2017 (Successor)2021 or
for the period July 20, 2016 through September 30, 2016 (Successor).2020.
Long-term debt consists of the following obligations as of:
| | Successor | |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
Credit Agreement – revolver | | $ | 12,215 | | | $ | - | |
Credit Agreement – term loan payable in quarterly installments of principal, plus interest through 2021 | | | 18,385 | | | | 22,500 | |
Casualty insurance premium financing | | | 388 | | | | - | |
State of Ohio loan- payable in monthly installments of principal, plus interest at 3% through 2017 | | | - | | | | 33 | |
Capital leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 4.9% to 5.4% through 2021 | | | 3,813 | | | | 3,719 | |
Total debt | | | 34,801 | | | | 26,252 | |
Less - Current portion | | | (5,010 | ) | | | (4,476 | ) |
Less - Debt issuance costs | | | (225 | ) | | | (269 | ) |
Long-term debt | | $ | 29,566 | | | $ | 21,507 | |
Successor
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
2019 Refinancing Term Loan - term loan payable in quarterly installments of principal, (commencing in September 2020) plus interest through April 2022 | $ | 0 | | | $ | 39,000 | |
2019 Refinancing Revolving Credit Facility | 0 | | | 0 | |
Wintrust Term Loan - term loan payable in quarterly installments of principal, (commencing in March 2021) plus interest through February 2026 | 28,000 | | | 0 | |
Wintrust Revolving Loan | 0 | | | 0 | |
Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 4.70% to 6.45% through 2025 | 5,476 | | | 6,459 | |
Total debt | 33,476 | | | 45,459 | |
Less - Current portion of long-term debt | (8,454) | | | (6,536) | |
Less - Unamortized discount and debt issuance costs | (301) | | | (2,410) | |
Long-term debt | $ | 24,721 | | | $ | 36,513 | |
The Company refinanced its 2019 Refinancing Term Loan and 2019 Refinancing Revolving Credit
Agreement
In conjunction with the completion of the Business Combination, allFacility on February 24, 2021, described below and therefore had 0 amounts outstanding under LHLLC’s prior senior credit facility were paid in full andthese agreements at June 30, 2021. Accordingly, the Company recognized a subsidiaryloss on the early debt extinguishment related to the refinancing of $2.0 million on the refinancing date. This loss consisted of the Company,write-off of $2.6 million of debt issuance and debt discount costs, the reversal of the $2.0 million CB warrants liability due to the warrants being cancelled on the refinancing date and the prepayment penalty and other extinguishment costs of $1.4 million.
2019 Refinancing Agreement
On April 12, 2019 (the “Refinancing Closing Date”), Limbach Facility Services LLC (“LFS”), entered into a new senior credit facilityfinancing agreement (the “2019 Refinancing Agreement”) with multiplethe lenders (the “Credit Agreement”thereto and Cortland Capital Market Services LLC, as collateral agent and administrative agent and CB Agent Services LLC, as origination agent (“CB”). The Credit2019 Refinancing Agreement consistsconsisted of (i) a $25.0 million revolving line of credit and a $24.0$40.0 million term loan both(the “2019 Refinancing Term Loan”) and (ii) a new $25.0 million multi-draw delayed draw term loan (the “2019 Delayed Draw Term Loan” and, collectively with the 2019 Refinancing Term Loan, the “2019 Term Loans”). Proceeds from the 2019 Refinancing Term Loan were used to repay the then existing Credit Agreement, to pay related fees and expenses thereof and to fund working capital of the 2019 Refinancing Borrowers (defined below). Management intended for proceeds of the 2019 Delayed Draw Term Loan to be used to fund permitted acquisitions under the 2019 Refinancing Agreement and related fees and expenses in connection therewith.
LFS and each of its subsidiaries were borrowers (the “2019 Refinancing Borrowers”) under the 2019 Refinancing Agreement. In addition, the 2019 Refinancing Agreement was guaranteed by the Company and LHLLC (each, a maturity date“2019 Refinancing Guarantor”, and together with the 2019 Refinancing Borrowers, the “Loan Parties”).
The 2019 Refinancing Agreement was secured by a first-priority lien on the real property of July 20, 2021. It is collateralized bythe Loan Parties and a second-priority lien on substantially all other assets of LFSthe Loan Parties, behind the 2019 ABL Credit Agreement (as defined below). The respective lien priorities of the 2019 Refinancing Agreement and its subsidiaries. Principal payments of $750,000the 2019 ABL Credit Agreement were governed by an intercreditor agreement.
2019 Refinancing Agreement - Interest Rates and Fees
The interest rate on borrowings under the term loan are due quarterly commencing with2019 Refinancing Agreement was, at the calendar quarter ended September 30, 2016,2019 Refinancing Borrowers’ option, either LIBOR (with a 2.00% floor) plus 11.00% or a base rate (with a 3.00% minimum) plus 10.00%. At February 24, 2021 (the 2021 refinancing date) and ending with the calendar quarter ending June 30, 2018. Principal payments of $900,000 are due at the end of subsequent quarters through maturity of the loan, with any remaining amounts due at maturity. During June 2017, the Company voluntarily made an additional principal payment of $1,865,000 on its term loan. Outstanding borrowings on both the term loan and the revolving line of credit bear interest at either the Base Rate (as defined in the Credit Agreement) or LIBOR (as defined in the Credit Agreement), plus the applicable additional margin, payable monthly. At September 30, 2017,2020, the interest rate in effect on the term loan2019 Refinancing Term Loan was 4.77%13.00%.
2019 Refinancing Agreement - Other Terms and 6.75%Conditions
The 2019 Refinancing Agreement was set to mature on
the revolver.The Credit Agreement includes restrictions on, among other things andApril 12, 2022, subject to certain exceptions,adjustment. Required amortization was $1.0 million per quarter and commenced with the fiscal quarter ending September 30, 2020. There was an unused line fee of 2.0% per annum on the undrawn portion of the 2019 Delayed Draw Term Loan, and there was a make-whole premium on prepayments made prior to the 19-month anniversary of the Refinancing Closing Date. This make-whole provision guaranteed that the Company would pay no less than 18 months’ applicable interest to the lenders under the 2019 Refinancing Agreement.
The 2019 Refinancing Agreement contained representations and warranties, and covenants which were customary for debt facilities of this type. Unless the Required Lenders (as defined in the 2019 Refinancing Agreement) otherwise consented in writing, the covenants limited the ability of the Company and its
subsidiaries’ abilityrestricted subsidiaries to,
among other things, (i) incur additional indebtedness
or issue preferred stock, (ii) pay dividends or make
other distributions
to the Company’s stockholders, (iii) purchase or redeem
or purchase capital stock,the Company’s equity interests, (iv) make investments,
and loans and(v) create liens on their assets, (vi) enter
into certain transactions, including selling assets, engaging in mergers or acquisitions and entering into transactions with
affiliates.the Company’s affiliates, (vii) sell assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.
In addition, the 2019 Refinancing Agreement included customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company failed to comply with the terms of the 2019 Refinancing Agreement or if other customary events occur.
Furthermore, the 2019 Refinancing Agreement also contained 2 financial maintenance covenants for the 2019 Refinancing Term Loan, including a requirement to have sufficient collateral coverage of the aggregate outstanding principal amount of the 2019 Term Loans and as of the last day of each month for the total leverage ratio of the Company and its subsidiaries (the “Total Leverage Ratio”) not to exceed an amount beginning at 4.25 to 1.00 through June 30, 2019, and stepping down to 2.00 to 1.00 effective July 1, 2021. From July 1, 2019 through September 30, 2019, the Total Leverage Ratio may not exceed 4.00 to 1.00. In addition, the parties to the 2019 Refinancing Agreement entered into an amendment which, among other changes, revised the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement. The 2019 Refinancing Agreement contained a post-closing covenant requiring the remediation of the Company’s material weakness, as described in Item 9A of its 2018 Annual Report on Form 10-K, no later than December 31, 2020 and provision for updates as to the progress of such remediation, provided that, if such remediation was not completed on or prior to December 31, 2019, (x) the Company would be required to pay the post-closing fee pursuant to the terms of the Origination Agent Fee Letter (as defined in the 2019 Refinancing Agreement) and (y) the applicable margin shall be increased by 1.00% per annum for the period from January 1, 2020 until the date at which the material weakness was no longer disclosed or required to be disclosed in the Company’s SEC filings or audited financial statements of the Company or related auditor’s reports.
In connection with the 2019 Refinancing Amendment Number One and Waiver, dated November 14, 2019, the parties amended certain provisions of the 2019 Refinancing Agreement, including, among other changes to: (i) require, commencing October 1, 2019, a 3.00% increase in the interest rate on borrowings under the 2019 Refinancing Agreement; (ii) require the approval of CB and, generally, the lenders representing at least 50.1% of the aggregate undrawn term loan commitment or unpaid principal amount of the 2019 Term Loans, prior to effecting any permitted acquisition; (iii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 and thereafter through the term of the 2019 Refinancing Agreement; and (iv) require the liquidity of the loan parties, which is generally calculated by adding (a) unrestricted cash on hand of the Loan Parties maintained in deposit accounts subject to control agreements granting control to the collateral agent for the 2019 ABL Credit Agreement, requiresto (b) the difference between (1) the lesser of (x) $15 million, as adjusted from time to time, and (y) 75% of certain customer accounts resulting from the sale of goods or services in the ordinary course of business minus certain reserves established by the administrative agent and (2) the sum of (x) the outstanding principal balance of all revolving loans under the 2019 ABL Credit Agreement plus (y) the aggregate undrawn available amount of all letters of credit then outstanding plus the amount of any obligations that arise from any draw against any letter of credit that have not been reimbursed by the Company complyborrowers or funded with certain financial performance covenants including total leverage, senior leverage, fixed chargesa revolving loan under the 2019 ABL Credit Agreement (the “Loan Parties Liquidity”), as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000. As a condition to executing the 2019 Refinancing Amendment Number One and tangible net worth. AsWaiver, the loan parties were required to pay a non-refundable waiver fee of September 30, 2017,$400,000 and a non-refundable amendment fee of $1,000,000 (the “PIK First Amendment Fee”, which shall be paid in kind by adding the PIK First Amendment Fee to the outstanding principal amount of the 2019 Refinancing Term Loan as additional principal obligations thereunder on and as of the effective date 2019 Refinancing Amendment Number One and Waiver).
During December 2020, the Company was not in compliance with the senior leveragecollateral coverage debt covenant underas defined by the Credit Agreement.2019 Term Loan financing agreement. The Company was required to maintain at all times a Collateral Coverage Amount (as defined in the 2019 Refinancing Term Loan financing agreement) equal to or greater than the aggregate outstanding principal amount of the 2019 Term Loans. The Company calculated its Collateral Coverage amount at $37.9 million as of December 31, 2020, the aggregate outstanding principal amount of Term Loans was $39.0 million as of that same date for an excess of debt over collateral of $1.1 million. On February 1, 2021, the Company, LFS and LHLLC entered into a Waiver - Collateral Coverage Amount (December 2020) ("December 2020 Waiver") with the lenders party thereto and Cortland Capital Market Services LLC as collateral agent and administrative agent. The December 2020 Waiver included a waiver of the Company's compliance with the Collateral Coverage Amount for the month ending December 31, 2020. The lender has waived its call rightthe event of default arising from thethis noncompliance as of September 30, 2017,December 31, 2020, while reserving its rights with respect to covenant compliance in future quarters.months.
The 2019 Refinancing Term Loan was paid in full on February 24, 2021 as part of the refinancing transaction.
2019 Refinancing Agreement - CB Warrants
In connection with the 2019 Refinancing Agreement, on the Refinancing Closing Date, the Company issued to CB and the other lenders under the 2019 Refinancing Agreement warrants (the “CB Warrants”) to purchase up to a maximum of 263,314 shares of the Company's common stock at an exercise price of $7.63 per share subject to certain adjustments, including for stock dividends, stock splits or reclassifications. The actual number of shares of common stock into which the CB Warrants were exercisable at any given time were equal to: (i) the product of (x) the number of shares equal to 2% of the Company’s issued and outstanding shares of common stock on the Refinancing Closing Date on a fully diluted basis and (y) the percentage of the total 2019 Delayed Draw Term Loan made as of the exercise date, minus (ii) the number of shares previously issued under the CB Warrants. As of the Refinancing Closing Date through February 24, 2021, 0 amounts had been drawn on the 2019 Delayed Draw Term Loan, so 0 portion of the CB Warrants were exercisable. The CB Warrants were to be exercised for cash or on a “cashless basis,” subject to certain adjustments, at any time after the 2019 Refinancing Closing Date until the expiration of such warrant at 5:00 p.m., New York time, on the earlier of (i) the five (5) year anniversary of the 2019 Refinancing Closing Date, or (ii) the liquidation of the Company.
Accounting for the 2019 Term Loans and CB Warrants
The CB Warrants represented a freestanding financial instrument that was classified as a liability because the CB Warrants met the definition of a derivative instrument that does not meet the equity scope exception (i.e., the CB Warrants were not indexed to the entity’s own equity). In addition, the material weakness penalty described above was evaluated as an embedded derivative liability and bifurcated from the 2019 Term Loans as it represented a non-credit related embedded feature that provides for net settlement. Both the CB Warrants liability and the embedded derivative liability were required to be initially and subsequently measured at fair value. The initial fair values of the CB Warrants liability and the embedded derivative liability approximated $0.9 million and $0.4 million, respectively, on the Refinancing Closing Date. The Company believesestimated these fair values by using the Black-Scholes-Merton option pricing model and a probability-weighted discounted cash flow approach.
The CB Warrants liability was included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of December 31, 2020 and February 24, 2021 prior to the refinancing date and recorded any adjustments as other income (expense). At both February 24, 2021 and December 31, 2020, the CB Warrants liability was $2.0 million. Due to the extinguishment of the CB Warrants on February 24, 2021, there was 0 liability associated with the CB Warrants recorded as of June 30, 2021. For the six months ended June 30, 2021, the Company recorded other income of $0.1 million to reflect the change in the fair value of the CB Warrants liability. The Company did not record a change in fair value of the warrant liability during the three months ended June 30, 2021 as the CB Warrants liability was extinguished as part of the debt refinancing on February 24, 2021. For the three and six months ended June 30, 2020, the Company recorded other income of $0.1 million and other expense of $0.1 million to reflect the change in the CB Warrants liability.
The proceeds for the 2019 Refinancing Term Loan were first allocated to the CB Warrants liability and embedded derivative liability based on their respective fair values with a corresponding amount of $1.3 million recorded as a debt discount to the 2019 Term Loans. In addition, the Company incurred approximately $3.9 million of debt issuance costs, including $1.4 million related to the first amendment, for the 2019 Term Loans that it willhave also been recorded as a debt discount. The combined debt discount from the CB Warrants liability, embedded derivative liability and the debt issuance costs were being amortized into interest expense over the term of the 2019 Term Loans using the effective interest method and were expensed on the refinancing date as a loss on early debt extinguishment. The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million for the six months ended June 30, 2021. The Company did 0t record interest expense for the amortization of the CB Warrants liability and embedded derivative liability debt discounts for the three months ended June 30, 2021 as these debt discounts were extinguished as part of the debt refinancing on February 24, 2021. The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively.
In addition to the amortization of the debt discounts into interest expense, the Company recorded $0.1 million of interest expense for the amortization of debt issuance costs related to the 2019 Refinancing Term Loan for the six months ended June 30, 2021. The Company did 0t record any interest expense for the amortization of debt issuance costs for the three months ended June 30, 2021 as the debt issuance costs were extinguished as part of the debt refinancing on February 24, 2021. For the three and six months ended June 30, 2020, the Company recorded an additional $0.4 million and $0.7 million of interest expense, respectively, for the amortization of the debt issuance costs related to the 2019 Refinancing Term Loan.
2019 ABL Credit Agreement
On the Refinancing Closing Date, LFS also entered into a financing agreement with the lenders thereto and Citizens Bank, N.A., as collateral agent, administrative agent and origination agent (the “2019 ABL Credit Agreement” and, together with the 2019 Refinancing Agreement, the “Refinancing Agreements”). The 2019 ABL Credit Agreement consisted of a $15.0 million revolving credit facility (the “2019 Revolving Credit Facility”). Proceeds of the 2019 Revolving Credit Facility were to be used for general corporate purposes. On the Refinancing Closing Date, the Company had nothing drawn on the ABL Credit Agreement and $14.0 million of available borrowing capacity thereunder (net of a $1.0 million reserve imposed by the lender).
The 2019 Refinancing Borrowers and 2019 Refinancing Guarantors under the 2019 ABL Credit Agreement were the same as under the 2019 Refinancing Agreement. The 2019 ABL Credit Agreement was secured by a second-priority lien on the real property of the Loan Parties (behind the 2019 Refinancing Agreement) and a first-priority lien on substantially all other assets of the Loan Parties.
2019 ABL Credit Agreement - Interest Rates and Fees
The interest rate on borrowings under the 2019 ABL Credit Agreement was, at the 2019 Refinancing Borrowers’ option, either LIBOR (with a 2.0% floor) plus an applicable margin ranging from 3.00% to 3.50% or a base rate (with a 3.0% minimum) plus an applicable margin ranging from 2.00% to 2.50%. At February 24, 2021 (the 2021 refinancing date) and June 30, 2020, the interest rate in compliance with this covenant in future quarters. As a result of having obtained a waiver, management estimates no impacteffect on the 2019 ABL Credit Agreement was 5.25%.
2019 ABL Credit Agreement - Other Terms and Conditions
The 2019 ABL Credit Agreement was set to mature on April 12, 2022. There was also an unused line fee ranging from 0.250% to 0.375% per annum on undrawn amounts.
The 2019 ABL Credit Agreement contained representations and warranties, and covenants which are customary for debt facilities of this
covenant violation ontype. Unless the
Company’s financial conditionRequired Lenders otherwise consented in writing, the covenants limited the ability of the Company and
liquidity.Mandatory prepayments are required upon the occurrence of certain events, including,its restricted subsidiaries to, among other things, and subjectgenerally, to certain exceptions,(i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity issuances, changes of control ofinterests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company, certain debt issuances,Company’s affiliates, (vii) sell assets sales and excess cash flow. Effective January 1, 2017, the Company was required to remit an amount equal to 50% of its excess cash flow (as definedother than in the Credit Agreement), which percentage will be reduced based on the Senior Leverage Ratio (as defined therein). The Company may voluntarily prepay the loans at any time subject to the limitations set forth in the Credit Agreement.
The equity interestsordinary course of business or another permitted disposition of assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s subsidiaries have been pledged as security for the obligations under the Credit Agreement. assets to, other companies.
The 2019 ABL Credit Agreement includesincluded customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company failed to comply with the terms of the 2019 ABL Credit Agreement or if other customary events occur.
The 2019 ABL Credit Agreement also contained a financial maintenance covenant for the 2019 Revolving Credit Facility, which is a requirement for the Total Leverage Ratio of the Company and its subsidiaries not to exceed an amount beginning at 4.00 to 1.00 through September 30, 2019, and stepping down to 1.75 to 1.00 effective July 1, 2021. In addition, the parties to the 2019 ABL Credit Agreement entered into an amendment which, among other changes revises the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement.
In connection with the 2019 ABL Credit Amendment Number One and Waiver, the parties amended certain provisions of the 2019 ABL Credit Agreement, including, among other items, payment defaults, cross-defaultschanges to other indebtedness,(i) require the approval of the origination agent and, generally, the lenders representing at least 50.1% of the aggregate undrawn revolving loan commitment or unpaid principal amount of the 2019 Term Loans, prior to effecting any permitted acquisition; (ii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a changepeak ratio of control4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of the 2019 ABL Credit Agreement; and (iii) require the Loan Parties Liquidity as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000, as described above in the Amendment Number One to 2019 Refinancing Agreement and Waiver. As a condition to executing the 2019 ABL Credit Amendment Number One and Waiver, the loan parties were required to pay a non-refundable waiver fee of $7,500.
As noted above in the section titled: 2019 Refinancing Agreement - Other Terms and Conditions, the Company was subject to cross-default under our 2019 Revolving Credit Facility as a result of our failure to satisfy the Collateral Coverage Amount as defined in the 2019 Term Loan financing agreement, which required the company to obtain a waiver. Accordingly, on February 1, 2021, the Company, LFS and LHLLC entered into a Waiver - Collateral Coverage Amount (December 2020) (“December 2020 Waiver”) with the lenders party thereto and Citizens Bank, N.A., as collateral agent and administrative agent. The December 2020 Waiver included a waiver of the Company's compliance with the Collateral Coverage Amount for the month ending December 31, 2020. The lender has waived the event of default and eventsarising from this noncompliance as of defaultDecember 31, 2020, while reserving its rights with respect to certain material agreements. Additionally,covenant compliance in future months.
At February 24, 2021 (the 2021 refinancing date) and December 31, 2020, the Company had irrevocable letters of credit in the amount of $3.4 million with respectits lender to secure obligations under its self-insurance program.
Accounting for the 2019 ABL Credit Agreement
The Company incurred approximately $0.9 million of debt issuance costs for the 2019 ABL Credit Agreement that had been recorded as a non-current deferred asset. The deferred asset was amortized into interest expense over the term of the 2019 Term ABL Credit Agreement using the effective interest method and then expensed on the February 24, 2021 refinancing date as a loss on early debt extinguishment. The Company recorded $0.1 million of interest expense for the amortization of debt issuance costs for the six months ended June 30, 2021. The Company did 0t record any interest expense for the amortization of debt issuance costs for the three months ended June 30, 2021 as the debt issuance costs were extinguished as part of the debt refinancing on February 24, 2021. For both the three and six months ended June 30, 2020, the Company recorded $0.1 million of interest expense for the amortization of debt issuance costs.
Wintrust Term and Revolving Loans
On February 24, 2021, LFS, LHLLC and the direct and indirect subsidiaries of LFS from time to time included as parties to the agreement (the “Wintrust Guarantors”) entered into a Credit Agreement (the “Credit Agreement”) by and among the LFS, LHLLC, Wintrust Guarantors, the lenders party thereto from time to time, Wheaton Bank & Trust Company, an eventN.A., a subsidiary of default occurs ifWintrust Financial Corporation (collectively, “Wintrust”), as administrative agent and L/C issuer, Bank of the Company’s securities cease to be registeredWest as documentation agent, M&T Bank as syndication agent, and Wintrust as lead arranger and sole book runner.
In accordance with the SEC pursuant to Section 12(b)terms of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). In case of an event of default, the administrative agent would be entitled to, among other things, accelerated payment of amounts due under the Credit Agreement, forecloseLenders provide to LFS (i) a $30.0 million senior secured term loan (the “Wintrust Term Loan”); and (ii) a $25.0 million senior secured revolving credit facility with a $5.0 million sublimit for the issuance of letters of credit (the “Wintrust Revolving Loan” and, together with the Wintrust Term Loan, the “Wintrust Loans”). Proceeds of the Wintrust Loans were used to refinance certain existing indebtedness, finance working capital and other general corporate purposes and fund certain fees and expenses associated with the closing of the Wintrust Loans.
The Wintrust Revolving Loan bears interest, at the LFS’s option, at either LIBOR (with a 0.25% floor) plus 3.5% or a base rate (with a 3.0% floor) plus 0.50%, subject to a 50 basis point step-down based on the
equityratio between the senior debt of the
Company’sCompany and its subsidiaries
to the EBITDA (earnings before interest, income taxes, depreciation and
exercise all rights of a secured creditor on behalfamortization) of the
lenders.The additional margin applied to both the revolverLFS and term loan is determined based on levels achieved under the Company’s Senior Leverage Ratio covenant, which reflects the ratio of indebtedness divided by EBITDAits subsidiaries for the most recently ended four quarters.
fiscal quarters (the “Senior Leverage Ratio”). The Wintrust Term Loan bears interest, at LFS’s option, at either LIBOR (with a 0.25% floor) plus 4.0% or a base rate (with a 3.0% floor) plus 1.00%, subject to a 50 (for LIBOR) or 75 (for base rate) basis point step-down based on the Senior Leverage Ratio.
LFS is required to make principal payments on the Wintrust Term Loan in $0.5 million installments on the last business day of each month commencing on March 31, 2021 with a final payment of all principal and interest not sooner paid on the Wintrust Term Loan due and payable on February 24, 2026. The Wintrust Revolving Loan will mature and become due and payable by LFS on February 24, 2026.
The Wintrust Loans are secured by (i) a valid, perfected and enforceable lien of the administrative agent on the ownership interests held by each of LFS and Wintrust Guarantors in their respective subsidiaries; and (ii) a valid, perfected and enforceable lien of the administrative agent on each of LFS and Wintrust Guarantors’ personal property, fixtures and real estate, subject to certain exceptions and limitations. Additionally, the re-payment of the Wintrust Loans shall be jointly and severally guaranteed by each Wintrust Guarantor.
The Credit Agreement contains representations and warranties, covenants and events of default that are customary for facilities of this type, as more particularly described in the Credit Agreement. The Wintrust Loans also contain 3 financial maintenance covenants, including (i) a requirement to have as of the last day of each quarter for the senior leverage ratio of the Company and its subsidiaries not to exceed an amount beginning at 2.25 to 1.00 through December 31, 2021, and stepping down to 2.00 to 1.00 at all times thereafter, (ii) a fixed charge coverage ratio of not less than 1.20 to 1.00 as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2021, and (iii) 0 unfinanced capital expenditures, except for unfinanced capital expenditures in the ordinary course of business not exceeding in the aggregate $4.0 million during any fiscal year; and no default or event of default (as defined by the agreement) has occurred and is continuing, 50% of any portion of this annual limit, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next following fiscal year as stipulated by the agreement. LFS and its affiliates maintain various commercial and service relationships with certain members of the syndicate and their affiliates in the ordinary course of business. As of June 30, 2021, the Company was in compliance with all financial maintenance covenants as required by the Wintrust Loans.
The following is a summary of the additional margin and commitment fees payable on the available
revolvingWintrust Term Loan and Wintrust Revolving Loan credit commitment:
Level | | Senior Leverage Ratio | | Additional Margin for Base Rate loans | | | Additional Margin for Libor Rate loans | | | Commitment Fee | |
I | | Greater than or equal to 2.50 to 1.00 | | | 3.00 | % | | | 4.00 | % | | | 0.50 | % |
II | | Less than 2.50 to 1.00, but greater than or equal to 2.00 to 1.00 | | | 2.75 | % | | | 3.75 | % | | | 0.50 | % |
III | | Less than 2.00 to 1.00, but greater than or equal to 1.50 to 1.00 | | | 2.50 | % | | | 3.50 | % | | | 0.50 | % |
IV | | Less than 1.50 to 1.00 | | | 2.25 | % | | | 3.25 | % | | | 0.50 | % |
The Company had $8.5 million of availability under its revolving credit facility at September
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Level | | Senior Leverage Ratio | | Additional Margin for Prime Rate loans | | Additional Margin for Prime Revolving loans | | Additional Margin for Eurodollar Term loans | | Additional Margin for Eurodollar Revolving loans | | Commitment Fee |
I | | Greater than 1.00 to 1.00 | | 1.00 | % | | 0.50 | % | | 4.00 | % | | 3.50 | % | | 0.25 | % |
II | | Less than or equal to 1.00 to 1.00 | | 0.25 | % | | 0 | % | | 3.50 | % | | 3.00 | % | | 0.25 | % |
At June 30,
2017.Subordinated Debt
In conjunction with2021, the completion ofinterest rate in effect on the Business Combination,Wintrust Term Loan was 4.25% and the Company’s prior subordinated debtinterest rate in effect on the Wintrust Revolving Loan was paid in full and LFS entered into a new subordinated debt agreement. The new subordinated debt agreement consisted of a $13.0 million loan with a maturity date of July 20, 2022 (the “Subordinated Loan”)3.75%. Principal payments were not required prior to maturity. Outstanding borrowings bore interest at 16.0%, with 13.0% payable quarterly in cash, and
At June 30, 2021, the Company had the option either to pay the remaining 3.0%irrevocable letters of credit in cash or have it deferred and capitalized into the Subordinated Loan balance. On December 21, 2016, the Company repaid all amounts outstanding under the Subordinated Loan Agreement in full settlement thereof, including deferred interest and prepayment penalties, totaling $15.3 million, with the proceeds of the Company’s public offering of 1,405,500 shares of its common stock at a price of $13.50 per share.
Predecessor
Senior Credit Facility
The Predecessor had a senior credit facility with a single lender. The revolving credit facility permitted borrowings up to $30.0 million. In January 2016, the credit facility was increased to $35.0 million and the maturity date was extended to May 2018. It was collateralized by substantially all of the Company’s assets except for real property. The credit facility contained certain restrictive covenants, which, among other things, required the Company to maintain certain financial ratios. The credit facility also contained cross-default provisions related to the subordinated debt facility and the underwriting agreement with the Company’s surety. In January 2016, the term loan was converted into a “draw term” loan facility and the amount of the facility was increased$3.4 million with its lender to $7.5 million, of which $5.5 million was available to be drawn in increments not to exceed $2.0 million.
A commitment fee was payable on the average daily unused amount of the senior credit facility. The fee was 0.4% of the unused amount.
secure obligations under its self-insurance program.
The Company’s second amended and restated certificate of incorporation currently authorizes the issuance of 100,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001.
Prior toThe Public, Private and $15 Exercise Price Sponsor warrants were issued in conjunction with the
Business Combination, there were 5,948,000 shares of common stock issued and outstanding.In connection with itsCompany's initial public offering and the Merger and Additional Merger warrants were issued in July 2014,conjunction with the Company sold 4,798,000 units comprised of one common share, one warrant, and one right to automatically obtain one-tenth of a common share upon the consummation of a business combination. At the time of the Business Combination, these 4,798,000 outstanding rights were automatically converted into 479,800 common shares.
On December 21, 2016, the Company closed on its public offering of 1,780,500 shares of common stock of the Company at a price to the public of $13.50 per share, for gross proceeds of $22.8 million. The Company sold 1,405,500 shares, including 153,907 shares pursuant to the partial exercise of the underwriters’ overallotment option, and a selling stockholder sold 375,000 shares. The net proceeds to the Company from this sale of shares, after deducting the underwriting discounts and other offering expenses, was approximately $17.2 million.
At September 30, 2017, the Company had outstanding warrants exercisable for 4,664,901 shares of common stock, consisting of: (i) 4,600,000 Public Warrants; (ii) 198,000 warrants, each exercisablecombination with LHLLC.
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Public Warrants(1)(5) | 2,140,219 | | | 2,300,000 | |
Private Warrants(1)(5) | 99,000 | | | 99,000 | |
$15 Exercise Price Sponsor Warrants(2)(5) | 600,000 | | | 600,000 | |
Merger Warrants(3)(6) | 629,643 | | | 631,119 | |
Additional Merger Warrants(4)(6) | 935,068 | | | 946,680 | |
Total | 4,403,930 | | | 4,576,799 | |
(1) Exercisable for one-half of one share of common stock at an exercise price of $5.75 per half share ($11.50 per whole share) (“Sponsor Warrants”); (iii) 600,000 warrants, each exercisable
(2) Exercisable for one1 share of common stock at an exercise price of $15.00 per share (“$15 Exercise Price Warrants”); (iv) 666,360 warrants, each exercisable
(3) Exercisable for one1 share of common stockshare at an exercise price of $12.50 per share (“Merger Warrants”); and (v) 999,541 warrants, each exercisable
(4) Exercisable for one1 share of common stock at an exercise price of $11.50 per share (“Additional Merger Warrants”). At December 31, 2016, the Company had outstanding warrants exercisable for 4,665,676 shares of common stock.The Public Warrants, Sponsor Warrants and $15 Exercise Price Warrants were issued(5) Issued under a warrant agreement dated July 15, 2014, between Continental Stock Transfer &and Trust Company, as warrant agent, and us. The Mergerthe Company
(6) Issued to the sellers of LHLLC
Subsequent to June 30, 2021, on July 20, 2021, the Public Warrants, Private Warrants, and Additional Merger Warrants were issuedexpired by their terms.
On May 24, 2020 the Board of Directors approved further amendments to the
sellersCompany's amended and restated Omnibus Incentive Plan to increase the number of
LHLLC.On July 21, 2014,shares of the Company's common stock that may be issued pursuant to awards by 500,000, for a total of 300,000 Unit Purchase Options (“UPOs”) were issued by 1347 Capital to a representative1,650,000 shares, and extend the term of the underwriterplan so that it will expire on the tenth anniversary of the date the stockholders approve the Amended Incentive Plan. The amendments were approved by the Company's stockholders at the Annual Meeting held on July 14, 2020.
On March 9, 2021, the Board of Directors approved further amendments to the Company's amended and its designees.restated Omnibus Incentive Plan to increase the number of shares of the Company's common stock that may be issued pursuant to awards by 600,000, for a total of 2,250,000 shares, and extend the term of the plan so that it will expire on the tenth anniversary of the date the stockholders approve the Amended Incentive Plan. The amendments were approved by the Company's stockholders at the Annual Meeting held on June 16, 2021.
See Note 17 - Management Incentive Plans for RSUs granted, vested, forfeited and remaining unvested.
Upon approval of the Company's stockholders on May 30, 2019, the Company adopted the Limbach Holdings, Inc. 2019 Employee Stock Purchase Plan (“the ESPP”). On January 1, 2020, the ESPP went into effect. The ESPP enables eligible employees, as defined by the ESPP, the right to purchase the Company's common stock through payroll deductions during consecutive subscription periods at a purchase price of not less than 85% of the fair market value of a common share at the end of each offering period. Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to 10 percent of the participant's compensation or $5,000, whichever is less. Each offering period of the ESPP lasts six months, commencing on January 1 and July 1 of each year. The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of common stock. Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Compensation cost, representing the 15% discount applied to the fair market value of common stock, is recognized on a straight-line basis over the six-month vesting period during which employees perform related services. Under the ESPP, 500,000 shares are authorized to be issued. In December 2016,July 2020 and January 2021, the Company issued 121,17330,825 and 8,928 shares of its common stock, respectively, to participants in the ESPP who contributed to the plan through the June 30, 2020 and December 31, 2020 offering periods, respectively.
On February 10, 2021 the Company entered into an underwriting agreement (“Underwriting Agreement”) with Lake Street Capital Markets, LLC (“Underwriter”) relating to an underwritten public offering (the “Offering”). On February 12, 2021 the Company sold to the Underwriter 1,783,500 shares of its Common Stock. The Underwriting Agreement provided for purchase and sale of the Shares by the company to the Underwriter at a price of $11.28 per share. The price to the public in the Offering was $12.00 per share. In addition, under the terms of the Underwriting Agreement, the Company granted the Underwriter a 30-day option to purchase up to an additional 267,525 shares of Common Stock to cover over-allotments, if any, on the same terms and conditions. The net proceeds to the Company from the Offering after deducting the underwriting discounts and commissions were approximately $19.8 million. On February 18, 2021, the Company received approximately $3.0 million of net proceeds for the sale of 267,525 shares in connection with the
cashless exercise of
282,900 of these UPOs. At September 30, 2017 and December 31, 2016, a total of 17,100 UPOs were outstanding and will be exercisable, either for cash or on a cashless basis, through July 21, 2019.On May 2, 2017, the Company issued 111 shares of common stock in connection with the cashless exercise of 310 Merger Warrants and 465 Additional Merger Warrants.
On August 30, 2017, the Compensation Committee of the Board of Directors of the Company granted an aggregate of 374,433 restricted stock units (“RSUs”) under the Limbach Holdings, Inc. Omnibus Incentive Plan to certain executive officers, non-executive employees and non-employee directors of the Company in the forms of an inaugural RSU award to executives (the “Inaugural RSU Award”), an annual long-term incentive RSU award (the “LTI RSU Award”), and an RSU award to non-employee directors (“Director RSU Award”). A total of 800,000 shares of the Company’s common stock were authorized and reserved for issuance under this plan. The Inaugural RSU Awards contain two different grants--one service-based and one performance-based, while the LTI RSU Awards and Director RSU Awards each only include service-based grants. As a result, the Company recognized $924 thousand in stock-based compensation as selling, general and administrative expenses in its Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017. As of September 30, 2017, unrecognized compensation expense totaling $3.1 million associated with the RSUs is expected to be recognized through December 31, 2019. The Board has also approved 66,500 performance-based RSUs under the LTI RSU Award; however, a grant date has not yet been established because the underlying performance measures have not yet been determined and communicated to the awardees.
Note 10 – Cumulative Redeemable Convertible Preferred Stock
The Company’s second amended and restated certificate of incorporation authorizes the issuance of 1,000,000 shares of preferred stock with such designation, rights and preferences as may be determined from time to time by its board of directors. In connection with the Business Combination, the Company issued 400,000 shares of Class A preferred stock (the “Preferred Stock”) on July 20, 2016. Each share of Preferred Stock may be converted (at the holder’s election) into 2.00 shares of the Company’s common stock (as may be adjusted for any stock splits, reverse stock splits or similar transactions), representing a conversion price of $12.50 per share; provided, that such conversion is in compliance with NASDAQ’s listing requirements. The Preferred Stock ranks senior to all classes and series of outstanding capital stock. The Company has agreed to not issue any other shares of capital stock that rank senior or pari passu to the Preferred Stock while the Preferred Stock is outstanding, unless at least 30% of the proceeds from such issuance are used to redeem Preferred Stock. The holders of the Preferred Stock will, in priority to any other class or series of capital stock, be entitled to receive, as and when declared by the board of directors fixed, cumulative, preferential dividends at a rate of: (i) 8% per annum in years one through three from issuance; (ii) 10% per annum in years four through five from issuance; and (iii) 12% per annum thereafter, payable in equal quarterly installments. Dividends on outstanding Preferred Stock will accrue from day to day from the date of issuance of the Preferred Stock. No dividends may be made in excess of the accrued and unpaid preferred yield in respect of the Preferred Stock.
So long as the Preferred Stock is outstanding, the Company is restricted from repurchasing, redeeming or retiring any shares of its capital stock other than the Preferred Stock. In the event of liquidation, dissolution or winding up, the holders of the Preferred Stock will be entitled to receive $25.00 per share of Preferred Stock, plus accrued but unpaid dividends thereon, whether declared or not, before any amount is paid or any assets are distributed to holders of junior capital stock. After payment to the holders of Preferred Stock of the liquidation amounts, such holders shall not be entitled to share in any further distribution payment in respect of the assets of the Company. The Company will redeem all outstanding shares of Preferred Stock on the six-year anniversary from the date of issuance for the price of $25.00 per share of Preferred Stock (as may be adjusted for any stock splits, reverse stock splits or similar transactions), plus accrued but unpaid dividends thereon, whether or not declared, up to and including the date specified for redemption. The holders are not entitled to vote.
On July 14, 2017, the Company entered into a preferred stock repurchase agreement (the “Preferred Stock Repurchase Agreement”) with 1347 Investors LLC (“1347 Investors”) pursuant to which (a) the Company repurchased from 1347 Investors a total of 120,000 shares of the Preferred Stock for an aggregate sum of $4,092,153 in cash, (b) for a period of six months after such repurchase, the Company will have the right to repurchase from 1347 Investors, in one or more transactions, all or a portion of the remaining 280,000 shares of Preferred Stock owned by 1347 Investors for a purchase price equal to 130% of the liquidation value per share plus 130% of any and all accrued but unpaid dividends thereon as of the date of closing of the purchase of such shares and (c) 1347 Investors will not, with respect to the 509,500 shares of common stock held in escrow pursuant to its current lock-up arrangement that expired on July 20, 2017, sell or otherwise transfer such shares of common stock during the period from such expiration through October 20, 2017.
This repurchase was funded through permitted borrowings under the Company’s revolving credit facility and closed on July 14, 2017. The Company has retired the repurchased shares.
Through June 30, 2017, dividends on redeemable convertible preferred stock were reflected as an increase to accumulated deficit. During the third quarter 2017, a reclassification of approximately $905 thousand was made to reflect cumulative dividends as a decrease to additional paid-in capital given the Company's accumulated deficit position. There is no impact to historically reported net income, earnings per share or its statement of cash flows.
Note
11 -9 – Fair Value Measurements
Accounting guidance
The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures, which defines fair value,
asestablishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the
exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Under this guidance,inputs to valuation techniques used to measure fair value
mustand requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs.
In addition, this guidance establishes a three-tierThe hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
which prioritizes the inputs used in measuring fair value. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:are as follows: •Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities;or liabilities that are accessible at the measurement date;
•Level 2 — inputs other than quoted prices included withinin Level 1 that are observable for the asset or liability either directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 — significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable and accounts payable consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. We also believe that the carrying value of the 2019 Refinancing Agreement term loan and 2021 Wintrust Term Loan approximates its fair values due to the variable rate on such debt. As of September 30, 2017,February 24, 2021 and December 31, 2020, the Company determined that the fair value of its senior credit facility2019 Revolving Agreement term loan was $39.0 million. As of June 30, 2021, the Company determined that the fair value of its 2021 Wintrust Term Loan was $28.0 million. There were 0 outstanding borrowings on the Company's 2019 ABL Credit Agreement revolver at $18.4 millionFebruary 24, 2021 and its revolver loan at $12.2 million.December 31, 2020. Such fair value isvalues were determined using discounted estimated future cash flows using level 3 inputs.
Note
12 -10 – Earnings per Share
Diluted EPS assumes the dilutive effect of outstanding common stock warrants and RSUs using the treasury stock method.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
(in thousands, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 |
EPS numerator: | | | | | | | | |
Net income (loss) | | $ | 732 | | | $ | 2,947 | | | $ | (1,550) | | | $ | 2,895 | |
| | | | | | | | |
EPS denominator: | | | | | | | | |
Weighted average shares outstanding – basic | | 10,252 | | | 7,846 | | | 9,738 | | | 7,822 | |
Impact of dilutive securities | | 217 | | | 59 | | | 0 | | | 56 | |
Weighted average shares outstanding – diluted | | 10,469 | | | 7,905 | | | 9,738 | | | 7,878 | |
| | | | | | | | |
EPS: | | | | | | | | |
Basic | | $ | 0.07 | | | $ | 0.38 | | | $ | (0.16) | | | $ | 0.37 | |
Diluted | | $ | 0.07 | | | $ | 0.37 | | | $ | (0.16) | | | $ | 0.37 | |
The Successor’sfollowing table summarizes the securities that were antidilutive or out-of-the-money, and therefore, were not included in the computations of diluted EPS forloss per common share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
In-the-money warrants | 0 | | | 0 | | | 0 | | | 0 | |
Out-of-the-money warrants (see Note 8) | 4,403,930 | | | 4,576,799 | | | 4,403,930 | | | 4,576,799 | |
Service-based RSUs (See Note 17) | 334 | | | 463 | | | 142,120 | | | 1,255 | |
Performance and market-based RSUs(1) | 13,929 | | | 9,674 | | | 79,971 | | | 0 | |
Employee Stock Purchase Plan | 0 | | | 0 | | | 4,778 | | | 0 | |
Total | 4,418,193 | | | 4,586,936 | | | 4,630,799 | | | 4,578,054 | |
(1) For the three and nine-month periods ended September 30, 2017 excluded 560,000 potential common shares related to the Preferred Stock due to its antidilutive effects under the if-converted method.For the threesix months ended SeptemberJune 30, 2017, the Successor’s computation of diluted EPS also excluded 345,013 potential shares underlying warrants, which were “in the money” (i.e., the average market price exceeded the exercise price), but would have had an antidilutive effect under the treasury stock method for that period. Excluded from the diluted EPS calculation for the three months ended September 30, 2017 were 17,100 remaining UPOs (issued in 2014)2021 and 176,967 unvested RSUs because their effect also would have been antidilutive.
For the nine months ended September 30, 2017, the Successor’s computation of diluted EPS also excluded 459,978 potential shares underlying warrants, which were “in the money” (i.e., the average market price exceeded the exercise price), but would have had an antidilutive effect under the treasury stock method for that period. Excluded from the diluted EPS calculation for the nine months ended September 30, 2017 were 17,100 remaining UPOs (issued in 2014)2020, certain PRSU and 176,967 unvested RSUs because their effect also would have been antidilutive.
Warrants to purchase 600,000 shares of common stock at $15.00 per share were outstanding butMRSU awards were not included in the computation of diluted EPSloss per share because the warrants’ exercise priceperformance and market conditions were not satisfied during the periods and would not be satisfied if the reporting date was greater thanat the average market priceend of the shares of common stock for the three months and nine months ended September 30, 2017 (in accordance with ASC 260-10-55-3). These warrants, which expire on various dates through July 20, 2023, were still outstanding at September 30, 2017.
(in thousands, except per share amounts) | | Three months ended September 30, 2017 | | | Nine months ended September 30, 2017 | | | July 20, 2016 through September 30, 2016 | |
EPS numerator: | | | | | | | | | | | | |
Net income (loss) | | $ | 128 | | | $ | (417 | ) | | $ | 1,813 | |
Less: Premium paid on partial preferred redemption | | | (847 | ) | | | (847 | ) | | | - | |
Less: Undistributed preferred stock dividends | | | (149 | ) | | | (631 | ) | | | (160 | ) |
Net income (loss) attributable to Limbach Holdings, Inc. common stockholders | | $ | (868 | ) | | $ | (1,895 | ) | | $ | 1,653 | |
| | | | | | | | | | | | |
EPS denominator: | | | | | | | | | | | | |
Weighted average shares outstanding – basic | | | 7,472 | | | | 7,460 | | | | 5,928 | |
Weighted average shares outstanding – diluted | | | 7,472 | | | | 7,460 | | | | 6,728 | |
| | | | | | | | | | | | |
Basic EPS attributable to common stockholders: | | | | | | | | | | | | |
Net earnings (loss) attributable to Limbach Holdings, Inc. common stockholders | | $ | (0.12 | ) | | $ | (0.25 | ) | | $ | 0.28 | |
Diluted EPS attributable to common stockholders: | | | | | | | | | | | | |
Net earnings (loss) attributable to Limbach Holdings, Inc. common stockholders | | $ | (0.12 | ) | | $ | (0.25 | ) | | $ | 0.27 | |
Predecessor
The Company has not presented predecessor earnings per member unit information because it is not meaningful or comparable to the required Successor EPS information, as well as the fact that Predecessor units were not publicly traded.
The Company is taxed as a C
Corporation. The historical audited financial results and other Predecessor financial information included herein reflect the Predecessor results as a limited liability company, which was taxed as a partnership for federal income tax purposes and not at the entity level. Following the Business Combination, LHLLC was treated as a disregarded entity (i.e., a business entity that is separate from its owner for liability purposes but is the same as its owner for income tax purposes); therefore, the financial results include the effects of federal and state income taxes at the parent level.corporation.
For interim periods, the provision for income taxes (including federal, state, local and foreign taxes) is calculated based on the estimated annual effective tax rate, adjusted for certain discrete items for the full fiscal year. Cumulative adjustments to the Company's estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.
Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
The Company had an effective tax rate of 26.5% and an effective tax benefit rate of 33.2% for the three and
ninesix months ended
SeptemberJune 30,
2017 (Successor) consists2021, respectively. For the three and six months ended June 30, 2020, the Company had an income tax rate of
the following:(in thousands) | | Three months ended September 30, 2017 | | | Nine months ended September 30, 2017 | |
Current tax provision (benefit) | | | | | | | | |
U.S. Federal | | $ | - | | | $ | - | |
State and local | | | (3 | ) | | | (3 | ) |
Total current tax provision (benefit) | | | (3 | ) | | | (3 | ) |
| | | | | | | | |
Deferred tax provision (benefit) | | | | | | | | |
U.S. Federal | | | 222 | | | | (332 | ) |
State and local | | | 109 | | | | (17 | ) |
Total deferred tax provision (benefit) | | | 331 | | | | (349 | ) |
Income tax expense (benefit) | | $ | 328 | | | $ | (352 | ) |
No27.4% and 14.1%, respectively.
NaN valuation allowance was required as of
SeptemberJune 30,
20172021 or December 31,
2016.The Company performed an analysis of its tax positions and determined that no material uncertain tax positions exist. Accordingly, there is nohad previously recorded a liability for uncertain tax positions as of September 30, 2017 or December 31, 2016. Based on the provisions of ASC 740-10, the Company had no material unrecognized tax benefits as(“UTB”) related to tax positions taken on its various income tax returns in open tax periods. If recognized, a portion of September 30, 2017.
Aunrecognized tax benefits would favorably impact the effective tax rate that is reported in future periods. The Company filed to change an improper tax method of accounting in the fourth quarter of 2020 related to the UTB that affords the Company IRS audit protection in past periods. Therefore, the total unrecognized tax benefits were reduced in the fourth quarter of 2020.
The following is a reconciliation of the
federal statutory incomebeginning and ending unrecognized tax
rate to the Company’s effective tax rate is as follows: | | Nine months ended
September 30, 2017 | |
Federal statutory income tax rate | | | 34.0 | % |
State income taxes, net of federal tax effect | | | 4.6 | % |
Nondeductible/nontaxable items | | | 1.7 | % |
Tax credits | | | (2.3 | )% |
Effective tax rate | | | 38.0 | % |
benefits: | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Balance at beginning of period | $ | 0 | | | $ | 1,130 | |
Gross increases in prior period tax positions | 0 | | | 0 | |
Gross increases in current period tax positions | 0 | | | 0 | |
Decreases related to prior year tax positions | 0 | | | (1,130) | |
Balance at end of period | $ | 0 | | | $ | 0 | |
Note
1412 – Operating Segments
The Company determined its operating segments on the same basis that it assesses performance and makes operating decisions. The Company manages and measures the performance of its business in
two2 distinct operating
segments:segments. As of January 1, 2021, the Company renamed its existing 2 reportable segments to reflect its 2 distinct approaches to our customer base and to better align with our owner direct strategy. The previously named Construction
and Service.Segment is now known as General Contractor Relationships (“GCR”); the previously named Service Segment is now known as Owner Direct Relationships (“ODR”). These segments are reflective of how the
Company'sCompany’s Chief Operating Decision Maker
("CODM"(“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company's CODM is comprised of its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM evaluates performance based on income from operations of the respective segments after the allocation of
Corporatecorporate office operating expenses.
TransactionsIn accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all of the construction activity into 1 GCR reportable segment and all of the service branches into 1 ODR reportable segment. All transactions between segments are eliminated in consolidation. Our
Corporatecorporate department provides general and administrative support services to our
two2 operating segments. The CODM allocates costs between segments for selling, general and administrative
expenses and depreciation expense.
All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled.
The Company does not have sales outside the United States. The Company does not identify capital expenditures and total assets, including goodwill, by segment in its internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment. Interest expense is not allocated to segments because of the corporate management of debt service including interest.
Condensed
consolidated segment information for the
periods presentedthree months ended June 30, 2021 and 2020 is as follows:
| | Successor | | | Successor | | | Predecessor | |
| | July 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | July 1, 2016 through July 19, 2016 | |
(in thousands) | | | | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | |
Construction | | $ | 95,779 | | | $ | 73,917 | | | $ | 24,150 | |
Service | | | 25,520 | | | | 17,972 | | | | 2,774 | |
Total revenue | | | 121,299 | | | | 91,889 | | | | 26,924 | |
| | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | | |
Construction | | | 3,674 | | | | 3,650 | | | | 1,490 | |
Service | | | 1,797 | | | | 1,591 | | | | (48 | ) |
Corporate | | | (4,477 | ) | | | (4,831 | ) | | | (2,187 | ) |
Operating income (loss) | | $ | 994 | | | $ | 410 | | | $ | (745 | ) |
| | | | | | | | | | | | |
Operating income (loss) for reportable segments | | $ | 994 | | | $ | 410 | | | $ | (745 | ) |
Less unallocated amounts: | | | | | | | | | | | | |
Other expenses (Corporate) | | | 538 | | | | 874 | | | | 174 | |
Income (loss) before provision for income taxes | | $ | 456 | | | $ | (464 | ) | | $ | (919 | ) |
| | | | | | | | | | | | |
Other Data: | | | | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | | | |
Construction | | $ | 715 | | | $ | 767 | | | $ | 93 | |
Service | | | 317 | | | | 378 | | | | 26 | |
Corporate | | | 993 | | | | 1,644 | | | | 30 | |
Total other data | | $ | 2,025 | | | $ | 2,789 | | | $ | 149 | |
| | Successor | | | Successor | | | Predecessor | |
| | January 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | January 1, 2016 through July 19, 2016 | |
(in thousands) | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | |
Construction | | $ | 283,465 | | | $ | 73,917 | | | $ | 183,100 | |
Service | | | 70,862 | | | | 17,972 | | | | 38,291 | |
Total revenue | | | 354,327 | | | | 91,889 | | | | 221,391 | |
| | | | | | | | | | | | |
Operating income: | | | | | | | | | | | | |
Construction | | | 11,149 | | | | 3,650 | | | | 8,620 | |
Service | | | 4,173 | | | | 1,591 | | | | 1,878 | |
Corporate | | | (14,399 | ) | | | (4,831 | ) | | | (6,033 | ) |
Operating income | | $ | 923 | | | $ | 410 | | | $ | 4,465 | |
| | | | | | | | | | | | |
Operating income for reportable segments | | $ | 923 | | | $ | 410 | | | $ | 4,465 | |
Less unallocated amounts: | | | | | | | | | | | | |
Other expenses (Corporate) | | | 1,692 | | | | 874 | | | | 1,897 | |
Income (loss) before provision for income taxes | | $ | (769 | ) | | $ | (464 | ) | | $ | 2,568 | |
| | | | | | | | | | | | |
Other Data: | | | | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | | | |
Construction | | $ | 2,694 | | | $ | 767 | | | $ | 953 | |
Service | | | 1,309 | | | | 378 | | | | 333 | |
Corporate | | | 3,380 | | | | 1,644 | | | | 296 | |
Total other data | | $ | 7,383 | | | $ | 2,789 | | | $ | 1,582 | |
| | | | | | | | | | | |
| Three months ended June 30, |
(in thousands) | 2021 | | 2020 |
Statement of Operations Data: | | | |
Revenue: | | | |
GCR | $ | 87,550 | | | $ | 105,937 | |
ODR | 33,469 | | | 29,248 | |
Total revenue | 121,019 | | | 135,185 | |
| | | |
Gross profit: | | | |
GCR | 8,885 | | | 12,213 | |
ODR | 9,805 | | | 8,122 | |
Total gross profit | 18,690 | | | 20,335 | |
| | | |
Selling, general and administrative: | | | |
GCR | 9,070 | | | 8,024 | |
ODR | 7,526 | | | 5,588 | |
Corporate | 636 | | | 140 | |
Total selling, general and administrative | 17,232 | | | 13,752 | |
Amortization of intangibles | 104 | | | 274 | |
Operating income | $ | 1,354 | | | $ | 6,309 | |
| | | |
Operating income for reportable segments | $ | 1,354 | | | $ | 6,309 | |
| | | |
Less unallocated amounts: | | | |
Interest expense, net | (452) | | | (2,137) | |
| | | |
Gain (loss) on disposition of property and equipment | 94 | | | (13) | |
Loss on change in fair value of warrant liability | 0 | | | (102) | |
Total unallocated amounts | (358) | | | (2,252) | |
Income before income taxes | $ | 996 | | | $ | 4,057 | |
| | | |
Other Data: | | | |
Depreciation and amortization: | | | |
GCR | $ | 1,020 | | | $ | 1,032 | |
ODR | 345 | | | 330 | |
Corporate | 104 | | | 274 | |
Total other data | $ | 1,469 | | | $ | 1,636 | |
Summarized segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 | | Three months ended June 30, 2020 |
(in thousands) | GCR | | ODR | | Total | | GCR | | ODR | | Total |
| | | | | | | | | | | |
Revenue | $ | 87,550 | | | $ | 33,469 | | | $ | 121,019 | | | $ | 105,937 | | | $ | 29,248 | | | $ | 135,185 | |
Gross Profit | 8,885 | | | 9,805 | | | 18,690 | | | 12,213 | | | 8,122 | | | 20,335 | |
Selling, general and administrative | 9,070 | | | 7,526 | | | 16,596 | | | 8,024 | | | 5,588 | | | 13,612 | |
EBIT | $ | (185) | | | $ | 2,279 | | | $ | 2,094 | | | $ | 4,189 | | | $ | 2,534 | | | $ | 6,723 | |
Reconciliation of segment gross profit to income before income taxes:
| | | | | | | | | | | |
| Three months ended June 30, |
(in thousands) | 2021 | | 2020 |
Total gross profit from reportable segments | $ | 18,690 | | | $ | 20,335 | |
Selling, general and administrative | (17,232) | | | (13,752) | |
Amortization of intangibles | (104) | | | (274) | |
Total other expenses | (358) | | | (2,252) | |
Income before income taxes | $ | 996 | | | $ | 4,057 | |
Condensed consolidated segment information for the six months ended June 30, 2021 and 2020 is as follows: | | | | | | | | | | | |
| Six months ended June 30, |
(in thousands) | 2021 | | 2020 |
Statement of Operations Data: | | | |
Revenue: | | | |
GCR | $ | 172,354 | | | $ | 215,423 | |
ODR | 62,009 | | | 58,534 | |
Total revenue | 234,363 | | | 273,957 | |
| | | |
Gross profit: | | | |
GCR | 18,280 | | | 23,195 | |
ODR | 17,639 | | | 15,364 | |
Total gross profit | 35,919 | | | 38,559 | |
| | | |
Selling, general and administrative: | | | |
GCR | 18,184 | | | 18,200 | |
ODR | 14,880 | | | 11,917 | |
Corporate | 1,313 | | | 435 | |
Total selling, general and administrative | 34,377 | | | 30,552 | |
Amortization of intangibles | 208 | | | 417 | |
Operating income | $ | 1,334 | | | $ | 7,590 | |
| | | |
Operating income for reportable segments | $ | 1,334 | | | $ | 7,590 | |
| | | |
Less unallocated amounts: | | | |
Interest expense, net | (1,716) | | | (4,295) | |
| | | |
Gain on disposition of property and equipment | 8 | | | 17 | |
Loss on early debt extinguishment | (1,961) | | | 0 | |
Gain on change in fair value of warrant liability | 14 | | | 59 | |
Total unallocated amounts | (3,655) | | | (4,219) | |
(Loss) income before income taxes | $ | (2,321) | | | $ | 3,371 | |
| | | |
Other Data: | | | |
Depreciation and amortization: | | | |
GCR | $ | 2,056 | | | $ | 2,062 | |
ODR | 700 | | | 661 | |
Corporate | 208 | | | 417 | |
Total other data | $ | 2,964 | | | $ | 3,140 | |
Summarized segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2021 | | Six months ended June 30, 2020 |
(in thousands) | GCR | | ODR | | Total | | GCR | | ODR | | Total |
| | | | | | | | | | | |
Revenue | $ | 172,354 | | | $ | 62,009 | | | $ | 234,363 | | | $ | 215,423 | | | $ | 58,534 | | | $ | 273,957 | |
Gross Profit | 18,280 | | | 17,639 | | | 35,919 | | | 23,195 | | | 15,364 | | | 38,559 | |
Selling, general and administrative | 18,184 | | | 14,880 | | | 33,064 | | | 18,200 | | | 11,917 | | | 30,117 | |
EBIT | $ | 96 | | | $ | 2,759 | | | $ | 2,855 | | | $ | 4,995 | | | $ | 3,447 | | | $ | 8,442 | |
Reconciliation of segment gross profit to (loss) income before income taxes:
| | | | | | | | | | | |
| Six months ended June 30, |
(in thousands) | 2021 | | 2020 |
Total gross profit from reportable segments | $ | 35,919 | | | $ | 38,559 | |
Selling, general and administrative | (34,377) | | | (30,552) | |
Amortization of intangibles | (208) | | | (417) | |
Total other expenses | (3,655) | | | (4,219) | |
(Loss) income before income taxes | $ | (2,321) | | | $ | 3,371 | |
Note 13 - Leases
The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets.
The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For our leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with our real estate leases, the Company uses quoted borrowing rates on our secured debt.
The following table summarizes the lease amounts included in our condensed consolidated balance sheets:
| | | | | | | | | | | | | | | | | |
(in thousands) | Classification on the Condensed Consolidated Balance Sheets | | June 30, 2021 | | December 31, 2020 |
Assets | | | | | |
Operating | Operating lease right-of-use assets (a) | | $ | 16,852 | | | $ | 18,751 | |
Finance | Property and equipment, net (b) | | 5,251 | | | 6,242 | |
Total lease assets | | | $ | 22,103 | | | $ | 24,993 | |
| | | | | |
Liabilities | | | | | |
Current | | | | | |
Operating | Current operating lease liabilities | | $ | 4,122 | | | $ | 3,929 | |
Finance | Current portion of long-term debt | | 2,454 | | | 2,536 | |
Noncurrent | | | | | |
Operating | Long-term operating lease liabilities | | 13,454 | | | 15,459 | |
Finance | Long-term debt | | 3,022 | | | 3,923 | |
Total lease liabilities | | | $ | 23,052 | | | $ | 25,847 | |
(a) Operating lease assets are recorded net of accumulated amortization of $13.9 million at June 30, 2021 and $11.9 million at December 31, 2020.
(b) Finance lease assets are recorded net of accumulated amortization of $5.6 million at June 30, 2021 and $5.3 million at December 31, 2020.
The following table summarizes the lease costs included in our condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
(in thousands) | Classification on the Condensed Consolidated Statement of Operations | | 2021 | | 2020 | | 2021 | | 2020 |
Operating lease cost | Cost of revenue(a) | | $ | 685 | | | $ | 893 | | | $ | 1,375 | | | $ | 1,777 | |
Operating lease cost | Selling, general and administrative(a) | | 584 | | | 376 | | | 1,169 | | | 757 | |
Finance lease cost | | | | | | | | | |
Amortization | Cost of revenue(b) | | 652 | | | 645 | | | 1,327 | | | 1,311 | |
Interest | Interest expense, net(b) | | 78 | | | 86 | | | 164 | | | 179 | |
Total lease cost | | | $ | 1,999 | | | $ | 2,000 | | | $ | 4,035 | | | $ | 4,024 | |
(a) Operating lease costs recorded in cost of sales includes $0.1 million and $0.2 million of variable lease costs for the three and six months ended June 30, 2021, respectively, and $0.1 million and $0.4 million for the three and six months ended June 30, 2020, respectively. In addition, $0.1 million and $0.2 million of variable leases costs are included in Selling, general and administrative for the three and six months ended June 30, 2021, respectively, and $0.1 million for both the three and six months ended June 30, 2020. These variable costs consist of our proportionate share of operating expenses, real estate taxes and utilities.
(b) Finance lease costs recorded in cost of revenue include variable lease costs of $0.7 million and $1.3 million for the three and six months ended June 30, 2021, respectively, and $0.5 million and $1.2 million for the three and six months ended June 30, 2020, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges. NaN variable lease costs for finance leases were recorded in selling, general and administrative.
Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of June 30, 2021 were as follows:
| | | | | | | | | | | |
Year ending (in thousands): | Finance Leases | | Operating Leases |
Remainder of 2021 | $ | 1,401 | | | $ | 2,479 | |
2022 | 2,404 | | | 4,616 | |
2023 | 1,409 | | | 3,516 | |
2024 | 598 | | | 2,917 | |
2025 | 50 | | | 2,409 | |
Thereafter | 0 | | | 4,043 | |
Total minimum lease payments | $ | 5,862 | | | $ | 19,980 | |
Amounts representing interest | (386) | | | |
Present value of net minimum lease payments | $ | 5,476 | | | |
The following is a summary of the lease terms and discount rates:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Weighted average lease term (in years): | | | | |
Operating | | 5.15 | | 5.48 |
Finance | | 2.49 | | 2.78 |
| | | | |
Weighted average discount rate: | | | | |
Operating | | 4.84 | % | | 4.83 | % |
Finance | | 5.45 | % | | 5.50 | % |
The following is a summary of other information and supplemental cash flow information related to finance and operating leases:
| | | | | | | | | | | | | | |
| | Six months ended June 30, |
(in thousands) | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 2,456 | | | $ | 2,910 | |
Operating cash flows from finance leases | | 164 | | | 179 | |
Financing cash flows from finance leases | | 1,318 | | | 1,285 | |
Right-of-use assets exchanged for lease liabilities: | | | | |
Operating leases | | $ | 156 | | | $ | 0 | |
Finance leases | | 336 | | | 1,050 | |
Right-of-use assets disposed or adjusted modifying operating leases liabilities | | $ | 36 | | | $ | 586 | |
Right-of-use assets disposed or adjusted modifying finance leases liabilities | | $ | 0 | | | $ | (64) | |
Note 14 – Self-Insurance
The Company purchases workers’ compensation and general liability insurance under policies with per-incident deductibles of $250 thousand and a $4.4 million maximum aggregate deductible loss limit per year.
The components of the self-insurance liability as of June 30, 2021 and December 31, 2020 are as follows:
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Current liability — workers’ compensation and general liability | $ | 105 | | | $ | 197 | |
Current liability — medical and dental | 511 | | | 764 | |
Non-current liability | 776 | | | 890 | |
Total liability shown in Accrued expenses and other current liabilities | $ | 1,392 | | | $ | 1,851 | |
Restricted cash | $ | 113 | | | $ | 113 | |
The restricted cash balance represents an imprest cash balance set aside for the funding of workers' compensation and general liability insurance claims. This amount is replenished either when depleted or at the beginning of each month.
Note 15 – Commitments and Contingencies
Leases. Operating leases consist primarily of leases for real property and equipment. The leases frequently include renewal options, escalation clauses, and require the Company to pay certain occupancy expenses. Lease expense was approximately $1.1 million and $3.2 million for the three and nine months ended September 30, 2017, respectively.
Capital leases consist primarily of leases for vehicles (see Note 8 – Debt). The leases require monthly payments of principal and interest. All leases transfer title at lease end for a nominal cash buyout.
Legal. The Company is continually engaged in administrative proceedings, arbitrations, and litigation with owners, general contractors, suppliers, and other unrelated parties, all arising in the ordinary courses of business. In the opinion of the Company'sCompany’s management, the results of these actions will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.Energy Contracts. The Company enters into contracts with certain state agencies in Ohio to acquire, construct, implement, and install energy conservation measures, as described
On November 13, 2019, claimant, Lanzo Trenchless Technologies, Inc. - North, filed a Demand for Arbitration in the contracts.state of Michigan against the Company's wholly-owned subsidiary, Limbach Company LLC. The contracts include guarantees relateddemand seeks damages in excess of $0.4 million based upon the allegation that Limbach breached a construction contract by improperly terminating Lanzo’s subcontract, and for withholding payment from Lanzo based upon deficient performance. Limbach has asserted a counterclaim seeking damages caused by Lanzo’s deficient performance. Lanzo has recently abandoned its claims and the parties are attempting to yearly energy costs savings by these customers, typically overnegotiate a ten-year period. Toconsent judgement in Limbach's favor that will result in the extent the yearly savings guarantees are unmet, the Company would be required to pay the customer the difference between the amount of energy costs savings guarantee and actual savings realized. The total of those guarantee amounts for eachmatter being concluded.
On January 23, 2020, plaintiff, Bernards Bros. Inc., filed a complaint against Limbach Holdings, Inc. in Superior Court of the
years ending December 31, 2017 and 2018 are $84 thousand and $42 thousand, respectively.Under the termsState of these energy contracts, the Company provides a guarantee bond to its customers in the amount of the guaranteed savings. The Company also maintains a Service Maintenance Agreement on most of the contracts so it can ensure proper maintenance of the equipment. On contracts without a Service Maintenance Agreement, the Company has no obligationCalifornia for the guarantee if the equipment is not properly maintained. From the inceptionCounty of these contracts in 1997 through September 30, 2017, the Company has not been requiredLos Angeles against Limbach Holdings, Inc. The complaint alleges that our Southern California operations refused to make any material payments for unmet energy savings under any of the contracts.
Ashonor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the guarantee bondswrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million, including alleged increased costs for hiring a different subcontractor to perform the work. The Company is vigorously defending the suit. A non-binding mediation is scheduled for August 19, 2021 and its experience with these arrangements,trial is currently expected to take place in February 2022.
On April 17, 2020, plaintiff, LA Excavating, Inc., filed a complaint against our wholly-owned subsidiary, Limbach Company LP, and several other parties, in Superior Court of the
Company does not expect to incur any material liabilities with respect to the contracts. Accordingly, no liability has been recordedState of California, for the
County of Los Angeles. The complaint seeks damages of approximately $1.0 million for alleged failure to pay contract
guarantees.
balances and extra work ordered by Limbach, as well as seeks to enforce payment obligations under payment and stop notice release bonds. The Company disputes the allegations and intends to vigorously defend the suit, which is currently set for trial in November of 2021.
In July of 2020, plaintiff, Kimball Construction Co., Inc., filed a complaint against our wholly-owned subsidiary, Limbach Company LLC in circuit Court for Montgomery County, Maryland. The complaint seeks damages of approximately $1.7 million for alleged failure to pay contract balances and extra work, as well as to enforce payment obligations under a payment bond issued by Limbach's surety provider. The Company and Kimball have reached a cooperative resolution of these claims, which resulted in a Stipulation of Dismissal of the suit on or about June 21, 2021.
Surety. The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. The Surety Bonds secure our payment and performance obligations under such contracts, and we have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of Surety Bonds issued on our behalf. In addition, at the request of labor unions representing certain of our employees, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. Public sector contracts require Surety Bonds more frequently than private sector contracts, and accordingly, our bonding requirements typically increase as the amount of public sector work increases. As of SeptemberJune 30, 2017,2021, the Company had approximately $98.8$265.3 million in surety bonds outstanding. The Surety Bonds are issued by surety companies in return for premiums, which vary depending on the size and type of bond.Collective Bargaining Agreements.
Many of the Company’s craft labor employees are covered by collective bargaining agreements. The agreements require the Company to pay specified wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If the Company withdraws from any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the Company could incur additional liabilities related to these plans. Although the Company has been informed that some of the multi-employer pension plans to which it contributes have been classified as “critical” status, the Company is not currently aware of any significant liabilities related to this issue. Note 16
- Self-Insurance– Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. The Company purchases workers' compensationCompany’s remaining performance obligations includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and general liability insurance under policies with per-incident deductiblesconditions.
As of
$250 thousand and a $3.2 million maximumJune 30, 2021, the aggregate
deductible loss limit per year.The componentsamount of the self-insurance liabilitytransaction prices allocated to the remaining performance obligations of the Company's GCR and ODR segment contracts were $378.9 million and $44.2 million, respectively. As of December 31, 2020, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's GCR and ODR segment contracts were $393.5 million and $35.7 million, respectively.
We estimate that 44% and 62% of our GCR and ODR segment remaining performance obligations as of SeptemberJune 30, 20172021, respectively, will be recognized as revenue during 2021, with the substantial majority of remaining performance obligations to be recognized within 24 months, although the timing of the Company's performance is not always under its control.
Additionally, the difference between remaining performance obligations and
December 31, 2016 arebacklog is due to the exclusion of a portion of the Company’s ODR agreements under certain contract types from the Company’s remaining performance obligations as
follows: | | Successor | |
(in thousands) | | September 30, 2017 | | | December 31, 2016 | |
| | | | | | |
Current liability — workers' compensation and general liability | | $ | 430 | | | $ | 479 | |
Current liability — medical and dental | | | 408 | | | | 493 | |
Non-current liability | | | 357 | | | | 601 | |
Total liability shown in Accrued expenses and other liabilities | | $ | 1,195 | | | $ | 1,573 | |
Restricted cash | | $ | 113 | | | $ | 113 | |
The restricted cash balance represents an imprest cash balance set asidethese contracts can be canceled for convenience at any time by the fundingCompany or the customer without considerable cost incurred by the customer. Additional information related to backlog is provided in “Item 2. Management’s Discussion and Analysis of workers' compensationFinancial Condition and general liability insurance claims. This amount is replenished either when depleted or at the beginningResults of each month.
Operations” of this Quarterly Report on Form 10-Q.
Note 17 –
BacklogAtManagement Incentive Plans
The Company initially adopted the Omnibus Incentive Plan on July 20, 2016 for the purpose of: (a) encouraging the profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s objectives; (b) giving participants an incentive for excellence in individual performance; (c) promoting teamwork among participants; and (d) giving the Company a significant advantage in attracting and retaining key employees, directors and consultants. To accomplish such purposes, the Omnibus Incentive Plan provides that the Company may grant options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards (including performance-based restricted shares and restricted stock units), other share based awards, other cash-based awards or any combination of the foregoing.
Following the further amendment and restatement of the Omnibus Incentive Plan upon approval of the Company's stockholders on June 16, 2021, the Company has reserved a total of 2,250,000 shares of its common stock for issuance under the Omnibus Incentive Plan. The number of shares issued or reserved pursuant to the Omnibus Incentive Plan will be adjusted by the plan administrator, as they deem appropriate and equitable, as a result of stock splits, stock dividends, and similar changes in the Company’s common stock. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control. All awards are made in the form of shares only.
Service-Based Awards
During the first six months of 2021, the Company granted 120,899 service-based RSUs to its executives, certain employees, and non-employee directors under the Omnibus Incentive Plan.
The following table summarizes our service-based RSU activity for the six months ended June 30, 2021:
| | | | | | | | | | | |
| Awards | | Weighted-Average Grant Date Fair Value |
Unvested at December 31, 2020 | 285,799 | | | $ | 6.32 | |
Granted | 120,899 | | | 12.25 | |
Vested | (106,383) | | | 6.66 | |
Forfeited | (2,333) | | | 8.27 | |
Unvested at June 30, 2021 | 297,982 | | | $ | 8.59 | |
Performance-Based Awards
During the first six months of 2021, the Company granted 185,367 performance-based RSUs (“PRSUs”) to its executives and certain employees under the Omnibus Incentive Plan. The Company will recognize stock-based compensation expense for these awards over the vesting period based on the projected probability of achievement of certain performance conditions as of the end of each reporting period during the performance period and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s forecasts with respect to the performance conditions. For the three and six months ended June 30, 2021, the Company recognized $0.2 million and $0.4 million, respectively, of stock-based compensation expense related to outstanding PRSUs. For the three and six months ended June 30, 2020, the Company recognized $0.1 million of stock-based compensation expense related to outstanding PRSUs.
The following table summarizes our PRSU activity for the six months ended June 30, 2021:
| | | | | | | | | | | |
| Awards | | Weighted-Average Grant Date Fair Value |
Unvested at December 31, 2020 | 99,500 | | | $ | 4.23 | |
Granted | 185,367 | | | 12.26 | |
Vested | 0 | | | 0 | |
Forfeited | (4,167) | | | 8.92 | |
Unvested at June 30, 2021 | 280,700 | | | $ | 9.46 | |
Market-Based Awards
On September 4, 2020, the Compensation Committee (the “Committee”) of the Board of Directors of the Company approved amendments to certain restricted stock units initially awarded on August 30, 2017 and December 31, 2016, the Company's contractual Construction backlog, which represents the amount of revenueby the Company expects to realizecertain employees. Pursuant to the amendment adopted on September 4, 2020, the measurement period was extended to July 16, 2022. In addition to the market performance-based vesting condition, the vesting of such restricted stock unit is subject to continued employment from workAugust 1, 2017 through the later of July 31, 2019 or the date on which the Committee certifies the achievement of the performance goal. The Company has accounted for this amendment as a Type I modification and will recognize approximately $0.2 million of incremental stock-based compensation expense over 1.26 years based on an updated Monte Carlo simulation model.
The following table summarizes our market-based RSU (“MRSUs”) activity for the six months ended June 30, 2021:
| | | | | | | | | | | |
| Awards | | Weighted-Average Grant Date Fair Value |
Unvested at December 31, 2020 | 102,500 | | | $ | 8.26 | |
Granted | 0 | | | 0 | |
Vested | 0 | | | 0 | |
Forfeited | 0 | | | 0 | |
Unvested at June 30, 2021 | 102,500 | | | $ | 8.26 | |
Total recognized stock-based compensation expense amounted to $0.7 million and $1.3 million for the three and six months ended June 30, 2021, respectively, and $0.1 million and $0.4 million for the three and six months ended June 30, 2020, respectively. The aggregate fair value as of the vest date of RSUs that vested during the six months ended June 30, 2021 and 2020 was $1.3 million and $0.6 million, respectively. Total unrecognized stock-based compensation expense related to unvested RSUs which are probable of vesting was $3.6 million at June 30, 2021. These costs are expected to be
performed on uncompleted construction contracts in progress, was $454.3 million and $390.2 million, respectively. In addition, Service backlog asrecognized over a weighted average period of
September 30, 2017 and December 31, 2016 was $37.9 million and $44.1 million, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statementscondensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K
filed withfor the
SECfiscal year ended December 31, 2020 and in subsequent Quarterly Reports on
April 17, 2017.Form 10-Q. We assume no obligation to update any of these forward-looking statements.
On July 20, 2016, we completed the Business Combination in which we acquired Limbach Holdings LLC. Following the Business Combination, we changed our name to Limbach Holdings, Inc. The Condensed Consolidated Financial Statements and certain note presentations separate the Company’s presentations into two distinct periods, the period up to and including the Business Combination closing date (labeled “Predecessor”) and the period after that date (labeled “Successor”), to indicate the application of different bases of accounting between the periods presented. The accompanying Condensed Consolidated Financial Statements include a black line division which indicates that the Predecessor and Successor reporting entities shown are not comparable. The periods presented from January 1, 2017 through September 30, 2017, July 20, 2016 through September 30, 2016 and at December 31, 2016 are the “Successor” periods. The periods presented from January 1, 2016 through July 19, 2016 and July 1, 2016 through July 19, 2016 are the “Predecessor” periods.
The historical financial information of 1347 Capital prior to the Business Combination (a special purpose acquisition company, or SPAC) has not been reflected in the Predecessor financial statements as these historical amounts have been considered de minimis.
The application of acquisition accounting, pursuant to U.S. Generally Accepted Accounting Principles (“GAAP”), for the Business Combination significantly affected certain assets, liabilities, and expenses. As a result, financial information as of September 30, 2017, for January 1, 2017 through September 30, 2017 (Successor), July 1, 2017 through September 30, 2017 (Successor) and July 20, 2016 through September 30, 2016 (Successor) may not be comparable to Limbach’s Predecessor financial information for January 1, 2016 through July 19, 2016 (Predecessor) and July 1, 2016 through July 19, 2016 (Predecessor). Refer to Notes 1 and 4 in the Notes to Condensed Consolidated Financial Statements for additional information on the accounting for the Business Combination.
Calendar Year
We operate on a calendar year ending on December 31 for financial reporting purposes. For calendar year 2017, the Company’s Condensed Consolidated Financial Statements reflect January 1, 2017 through September 30, 2017 (Successor) and for calendar year 2016, the Company’s Condensed Consolidated Financial Statements reflect January 1, 2016 through July 19, 2016 (Predecessor) and July 20, 2016 through September 30, 2016 (Successor).
We are an
industry-leading commercial specialty contractorintegrated building systems solutions firm whose expertise is in the
areasdesign, modular prefabrication, installation, management and maintenance of
HVAC,heating, ventilation, and air conditioning (“HVAC”), mechanical, electrical, plumbing
electrical and
building controls through designcontrol systems. Our market sectors primarily include the following: healthcare, life sciences, data centers, industrial and
construction of newlight manufacturing, entertainment, education and
renovated buildings, maintenance services, energy retrofits and equipment upgrades for privategovernment. Our customers
and federal, state, and local public agencies inare primarily located throughout Florida, California, Massachusetts, New Jersey, Pennsylvania,
Delaware, Maryland, Washington,
DC,D.C., Virginia, West Virginia, Ohio and Michigan.
We operateAs of January 1, 2021, the Company renamed its existing two reportable segments to reflect our
businessdistinct approaches to our customer base and to better align with our owner direct strategy. The previously named Construction Segment is now known as General Contractor Relationships (“GCR”); the previously named Service Segment is now known as Owner Direct Relationships (“ODR”). The Company operates in two segments
that are based on the relationship with its customer, (i)
Construction,GCR, in which
wethe Company generally
manage largemanages new construction or renovation projects that involve primarily HVAC, plumbing
sheet metal fabrication and installation, specialty piping andor electrical services and
are awarded to the Company by general contractors or construction managers and (ii)
Service,ODR, in which
we provide facilitythe Company provides maintenance or
general construction servicesservice primarily
related toon HVAC, plumbing or electrical
services. Our branchessystems, building controls and
corporate headquarters are located in the United States. specialty contracting projects direct to, or assigned by, building owners or property managers. This work is primarily performed under fixed price, modified fixed price, and time and material contracts over periods of typically less than two years. JOBS Act
We are an emerging growth company (“EGC”) pursuant to the JOBS Act. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying companies. Under the JOBS Act, we will remain an EGC until the earliest of:
December 31, 2019 (the last day of the fiscal year following the fifth anniversary of our initial public offering of common equity securities);
the last day of the fiscal year in which we have annual gross revenue of $1.07 billion or more;
the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and
the date on which we are deemed to be a “large accelerated filer,” which will occur at such time as the Company has an aggregate worldwide market value of common equity securities held by non-affiliates of $700.0 million or more as of the last business day of our most recently completed second fiscal quarter.
Pursuant to Section 107(b) of the JOBS Act, as an EGC we elected to delay adoption of accounting pronouncements newly issued or revised after April 5, 2012 applicable to public companies until such pronouncements are made applicable to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.
Key Components of Condensed Consolidated Statements of Operations
We generate revenue principally from fixed-price construction contracts
under which weto deliver HVAC, plumbing, and electrical construction services to our customers. The duration of our contracts generally ranges from six months to two years. Revenue from fixed price
and modified fixed price contracts is recognized on the
percentage-of-completioncost-to-cost method, measured by the relationship of total cost incurred to total estimated contract
costs (cost-to-cost method).costs. Revenue from time and materials contracts is recognized as services are performed. We believe that our extensive experience in HVAC, plumbing, and electrical projects, and our internal cost review procedures during the bidding process, enable us to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts.
We generally invoice customers on a monthly basis, based on a schedule of values that breaks down the contract amount into discrete billing items. Costs and estimated earnings in excess of billings on uncompleted contracts are recorded as
ana contract asset until billable under the contract
terms, and billingsterms. Billings in excess of costs and estimated earnings on uncompleted contracts are recorded as a
contract liability until the related revenue is recognizable.
Cost of revenue primarily consists of the labor, equipment, material, subcontract, and other job costs in connection with fulfilling the terms of our contracts. Labor costs consist of wages plus taxes, fringe benefits, and insurance. Equipment costs consist of the ownership and operating costs of company-owned assets, in addition to outside-rented equipment. If applicable, job costs include estimated contract losses to be incurred in future periods. Due to the varied nature of our services, and the risks associated therewith, contract costs as a percentage of contract revenue have historically fluctuated and we expect this fluctuation to continue in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative
expenses consist primarily of personnel costs for our administrative, estimating, human resources, safety, information technology, legal, finance and accounting employees and executives. Also included are non-personnel costs, such as travel-related expenses, legal and other professional fees and other corporate
expenses. We expectexpenses to
incur incremental costs associated with supportingsupport the growth of our business and to meet the
increased compliance requirements associated with
our transition to and operationoperating as a public company. Those costs include
increases in our accounting, human resources, information technology,
and legal personnel, additional consulting, legal and audit fees, insurance costs, board of directors’ compensation and the costs of
achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act.
Depreciation and
Amortization
Depreciation and amortization expenses are of Intangibles
Amortization expense represents periodic non-cash charges that consist of
depreciation of fixed assets, including leasehold improvements and equipment, and amortization of various intangible assets, primarily including leasehold interests
and certain customer relationships
Construction and Service backlogs and definite lived assets.in the ODR segment.
Other
Income (Expense), NetIncome/Expense
Other
income (expense),income/expense, net consists primarily of interest expense incurred in connection with our debt,
along withnet of interest income, loss on early debt extinguishment, gain and loss on the
gain (loss) on dispositionsale of property and
equipment.Provision for equipment and changes in fair value of warrant liability. Deferred financing costs are amortized to interest expense using the effective interest method.
Income Taxes
Following the Business Combination, Limbach has been
We are taxed as a C
Corporation. The Limbach (Predecessor) financial information included herein reflect our results as a limited liability company taxed as a partnership for federal income tax purposes. As a partnership, our profits were not taxed at the entity level. Following the Business Combination,corporation and our financial results include the effects of federal income taxes which
will beare paid at the parent level.
For interim periods, the provision for income taxes (including federal, state and local taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with ASC
Topic 740
- Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities and income or expense are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
Surety Bonding
In connection
Operating Segments
As of January 1, 2021, the Company renamed its existing two reportable segments to reflect our two distinct approaches to our customer base and to better align with our
business, occasionally we are required to provide various types of surety bonds that provide an additional measure of security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends upon our capitalization, working capital, past performance, management expertise and external factors, includingowner direct strategy. The previously named Construction Segment is now known as General Contractor Relationships (“GCR”); the
capacity of the overall surety market. Surety companies consider such factors in light of the amount of our backlog that we have currently bonded and their current underwriting standards, which may change from time-to-time. The bonds we provide typically have face amounts ranging up to $100 million. As of September 30, 2017, the Company had approximately $98.8 million in surety bonds outstanding. We believe that our $600 million bonding capacity provides us with a significant competitive advantage relative to many of our competitors which have limited bonding capacity. Operating Segments
previously named Service Segment is now known as Owner Direct Relationships (“ODR”). We manage and measure the performance of our business in these two operating segments: Construction and Service.segments. These segments are reflective of how the Company’s chief operating decision makersChief Operating Decision Makers (“CODM”) reviewreviews its operating results for the purposes of allocating resources and assessing performance. Our chief operating decision makers areCODM is comprised of our chief executive officer, chief financial officerChief Executive Officer, Chief Financial Officer and chief operating officer. The CODM evaluates performance and allocate resources based on operating income, which is profit or loss from operations before “other” corporate expenses, income tax provision (benefit) and dividends on redeemable convertible preferred stock, if any.
Chief Operating Officer.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM evaluates performance based on income from operations of the respective branches after the allocation of corporate office operating expenses.
TransactionsIn accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all of the GCR work performed at branches into one GCR reportable segment and all of the ODR work performed at branches into one ODR reportable segment. All transactions between segments are eliminated in consolidation. Our corporate department provides
selling, general and administrative support services to our two operating segments. We allocate costs between segments for selling, general and administrative
expenses and depreciation expense.
Some selling, general and administrative expenses such as executive and administrative salaries and payroll expenses, corporate marketing, corporate depreciation and amortization, and consulting, accounting and corporate legal fees are not allocated to segments because the allocation method would be arbitrary and would not provide an accurate presentation of operating results of segments; instead these types of expenses are maintained as a corporate expense. See Note 14 – Operating Segments in the Notes to Condensed Consolidated Financial Statements.We do not identify capital expenditures and total assets, including goodwill, by segment in our internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment. Interest expense is not allocated to segments because of the corporate management of debt service including interest.
service. See Note 12 – Operating Segments in the notes to condensed consolidated financial statements.
Comparison of Results of Operations for the three months ended
SeptemberJune 30,
2017 (Successor), July 20, 2016 through September 30, 2016 (Successor)2021 and
July 1, 2016 through July 19, 2016 (Predecessor)2020
The following table presents operating results for the three months ended
SeptemberJune 30,
2017 (Successor), July 20, 2016 through September 30, 2016 (Successor)2021 and
July 1, 2016 through July 19, 2016 (Predecessor)2020 in
absolute termsdollars and expressed as a percentage of total revenue
(except as indicated below), as compared below:
| | Successor | | | Successor | | | Predecessor | |
| | July 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | July 1, 2016 through July 19, 2016 | |
(Amounts in thousands except for percentage) | | ($) | | | (%) | | | ($) | | | (%) | | | ($) | | | (%) | |
Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 95,779 | | | | 79.0 | % | | $ | 73,917 | | | | 80.4 | % | | $ | 24,150 | | | | 89.7 | % |
Service | | | 25,520 | | | | 21.0 | % | | | 17,972 | | | | 19.6 | % | | | 2,774 | | | | 10.3 | % |
Total revenue | | | 121,299 | | | | 100.0 | % | | | 91,889 | | | | 100.0 | % | | | 26,924 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 10,068 | | | | 10.5 | %(1) | | | 8,049 | | | | 10.9 | %(1) | | | 2,639 | | | | 10.9 | %(1) |
Service | | | 5,342 | | | | 20.9 | %(2) | | | 4,022 | | | | 22.4 | %(2) | | | 515 | | | | 18.6 | %(2) |
Total gross profit | | | 15,410 | | | | 12.7 | % | | | 12,071 | | | | 13.1 | % | | | 3,154 | | | | 11.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 6,394 | | | | 6.7 | %(1) | | | 4,399 | | | | 6.0 | %(1) | | | 1,149 | | | | 4.8 | %(1) |
Service | | | 3,545 | | | | 13.9 | %(2) | | | 2,431 | | | | 13.5 | %(2) | | | 563 | | | | 20.3 | %(2) |
Corporate | | | 3,670 | | | | 3.0 | %(3) | | | 3,377 | | | | 3.7 | %(3) | | | 2,187 | | | | 8.1 | %(3) |
Total selling, general and administrative expenses | | | 13,609 | | | | 11.2 | % | | | 10,207 | | | | 11.1 | % | | | 3,899 | | | | 14.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles (Corporate) | | | 807 | | | | 0.7 | % | | | 1,454 | | | | 1.6 | % | | | - | | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 3,674 | | | | 3.8 | %(1) | | | 3,650 | | | | 4.9 | %(1) | | | 1,490 | | | | 6.2 | %(1) |
Service | | | 1,797 | | | | 7.0 | %(2) | | | 1,591 | | | | 8.9 | %(2) | | | (48 | ) | | | -1.7 | %(2) |
Corporate | | | (4,477 | ) | | | - | | | | (4,831 | ) | | | - | | | | (2,187 | ) | | | - | |
Total operating income (loss) | | | 994 | | | | 0.8 | % | | | 410 | | | | 0.4 | % | | | (745 | ) | | | -2.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other expenses (Corporate) | | | 538 | | | | 0.4 | % | | | 874 | | | | 1.0 | % | | | 174 | | | | 0.6 | % |
(Loss) income before provision for income taxes | | | 456 | | | | 0.4 | % | | | (464 | ) | | | -0.5 | % | | | (919 | ) | | | -3.4 | % |
Income tax (expense) benefit | | | (328 | ) | | | -0.3 | % | | | 2,277 | | | | 2.5 | % | | | - | | | | 0.0 | % |
Net income (loss) | | $ | 128 | | | $ | 0.1 | % | | $ | 1,813 | | | $ | 2.0 | % | | $ | (919 | ) | | | -3.4 | % |
(1) | As a percentage of Construction revenue. |
| |
(2) | As a percentage of Service revenue. |
| |
(3) | As a percentage of Total revenue. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | |
| | 2021 | | 2020 | |
(in thousands except for percentages) | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | |
Revenue: | | | | | | | | | |
GCR | | $ | 87,550 | | | 72.3 | % | | $ | 105,937 | | | 78.4 | % | |
ODR | | 33,469 | | | 27.7 | % | | 29,248 | | | 21.6 | % | |
Total revenue | | 121,019 | | | 100.0 | % | | 135,185 | | | 100.0 | % | |
| | | | | | | | | |
Gross profit: | | | | | | | | | |
GCR | | 8,885 | | | 10.1 | % | (1) | 12,213 | | | 11.5 | % | (1) |
ODR | | 9,805 | | | 29.3 | % | (2) | 8,122 | | | 27.8 | % | (2) |
Total gross profit | | 18,690 | | | 15.4 | % | | 20,335 | | | 15.0 | % | |
| | | | | | | | | |
Selling, general and administrative: | | | | | | | | | |
GCR | | 9,070 | | | 10.4 | % | (1) | 8,024 | | | 7.6 | % | (1) |
ODR | | 7,526 | | | 22.5 | % | (2) | 5,588 | | | 19.1 | % | (2) |
Corporate | | 636 | | | 0.5 | % | | 140 | | | 0.1 | % | |
Total selling, general and administrative | | 17,232 | | | 14.2 | % | | 13,752 | | | 10.2 | % | |
| | | | | | | | | |
Amortization of intangibles (Corporate) | | 104 | | | 0.1 | % | | 274 | | | 0.2 | % | |
| | | | | | | | | |
Operating (loss) income: | | | | | | | | | |
GCR | | (185) | | | (0.2) | % | (1) | 4,189 | | | 4.0 | % | (1) |
ODR | | 2,279 | | | 6.8 | % | (2) | 2,534 | | | 8.7 | % | (2) |
Corporate | | (740) | | | — | % | | (414) | | | — | % | |
Total operating income | | 1,354 | | | 1.1 | % | | 6,309 | | | 4.7 | % | |
| | | | | | | | | |
Other expenses (Corporate) | | (358) | | | (0.3) | % | | (2,252) | | | (1.7) | % | |
Total consolidated income before income taxes | | 996 | | | 0.8 | % | | 4,057 | | | 3.0 | % | |
Income tax provision | | 264 | | | 0.2 | % | | 1,110 | | | 0.8 | % | |
Net income | | $ | 732 | | | 0.6 | % | | $ | 2,947 | | | 2.2 | % | |
Comparison
(1)As a percentage of select financial data: | | Successor | | | Successor | | | Predecessor | | | | | | | |
(Amounts in thousands except for percentages) | | July 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | July 1, 2016 through July 19, 2016 | | | Increase/ (Decrease) | |
| | ($) | | | ($) | | | ($) | | | $ | | | % | |
Revenue: | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 95,779 | | | $ | 73,917 | | | $ | 24,150 | | | $ | (2,288 | ) | | | -2.3 | % |
Service | | | 25,520 | | | | 17,972 | | | | 2,774 | | | | 4,774 | | | | 23.0 | % |
Total revenue | | | 121,299 | | | | 91,889 | | | | 26,924 | | | | 2,486 | | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | | | |
Construction | | | 10,068 | | | | 8,049 | | | | 2,639 | | | | (620 | ) | | | -5.8 | % |
Service | | | 5,342 | | | | 4,022 | | | | 515 | | | | 805 | | | | 17.7 | % |
Total gross profit | | | 15,410 | | | | 12,071 | | | | 3,154 | | | | 185 | | | | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses: | | | | | | | | | | | | | | | | | | | | |
Construction | | | 6,394 | | | | 4,399 | | | | 1,149 | | | | 846 | | | | 15.2 | % |
Service | | | 3,545 | | | | 2,431 | | | | 563 | | | | 551 | | | | 18.4 | % |
Corporate | | | 3,670 | | | | 3,377 | | | | 2,187 | | | | (1,894 | ) | | | -34.0 | % |
Total selling, general and administrative expenses | | | 13,609 | | | | 10,207 | | | | 3,899 | | | | (497 | ) | | | -3.5 | % |
| | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles (Corporate) | | | 807 | | | | 1,454 | | | | - | | | | (647 | ) | | | -44.5 | % |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | | | | | | | | | | |
Construction | | | 3,674 | | | | 3,650 | | | | 1,490 | | | | (1,466 | ) | | | -28.5 | % |
Service | | | 1,797 | | | | 1,591 | | | | (48 | ) | | | 254 | | | | 16.5 | % |
Corporate | | | (4,477 | ) | | | (4,831 | ) | | | (2,187 | ) | | | 2,541 | | | | 36.2 | % |
Total operating income (loss) | | $ | 994 | | | $ | 410 | | | $ | (745 | ) | | $ | 1,329 | | | | 396.7 | % |
GCR revenue.
(2)As a percentage of ODR revenue.
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Revenue: | | | | | | | |
GCR | $ | 87,550 | | | $ | 105,937 | | | $ | (18,387) | | | (17.4) | % |
ODR | 33,469 | | | 29,248 | | | 4,221 | | | 14.4 | % |
Total revenue | $ | 121,019 | | | $ | 135,185 | | | $ | (14,166) | | | (10.5) | % |
Revenue for the three months ended SeptemberJune 30, 2017 (Successor) increased2021 decreased by $2.5$14.2 million compared to the revenue generated July 20, 2016 through Septemberfor the three months ended June 30, 2016 (Successor) and July 1, 2016 through July 19, 2016 (Predecessor). Construction2020. GCR revenue decreased by $2.3$18.4 million, or 2.3%17.4%, and Servicewhile ODR revenue increased by $4.8$4.2 million, or 23.0%14.4%. TheGCR segment revenue of $87.6 million decreased due to a planned decrease in Construction revenue was primarily driven by projects winding downthe Southern California operating region and other decreases in the Michigan, Southern CaliforniaFlorida, Eastern Pennsylvania and New England regions,Ohio operating regions. These decreases were partially offset by revenue increases atin the Mid-Atlantic,New England and Michigan operating regions largely due to the start of new projects and the continuation of work on existing projects. Ohio, Michigan, and Eastern Pennsylvania regions' ODR revenue increased quarter over quarter offset by declines in ODR revenue in Florida and Florida regions. The most significant construction decrease pertains to a large project that was nearing completion at June 30, 2017, and was substantially complete at September 30, 2017. The $4.8 million increase in Service revenue resulted primarily from the Company’s focus over recent years on developing longer term customer relationships and sales of larger service owner-direct projects and contracts. Growth in Michigan, Mid-Atlantic and Southern California caused the overall service revenue increase.Mid-Atlantic. Maintenance contract revenue, wasa component of ODR revenue, increased by $0.3 million compared to June 30, 2020.
Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Gross Profit: | | | | | | | |
GCR | $ | 8,885 | | | $ | 12,213 | | | $ | (3,328) | | | (27.2) | % |
ODR | 9,805 | | | 8,122 | | | 1,683 | | | 20.7 | % |
Total gross profit | $ | 18,690 | | | $ | 20,335 | | | $ | (1,645) | | | (8.1) | % |
| | | | | | | |
Total gross profit as a percentage of consolidated total revenue | 15.4 | % | | 15.0 | % | | | | |
Our gross profit for the three months ended June 30, 2021 decreased by $1.6 million compared to our gross profit for the three months ended June 30, 2020. GCR gross profit decreased $3.3 million, or 27.2%, largely due to lower revenue at reduced margins. ODR gross profit increased $1.7 million, or 20.7%, due to an increase in revenue at higher margins. The total gross profit percentage increased from 15.0% for the three months ended June 30, 2020 to 15.4% for the same period ended in 2021, mainly driven by the mix of higher margin ODR segment work.
We recorded revisions in our contract estimates for certain GCR and $3.0ODR projects. For the three months ended June 30, 2021 and 2020, total net gross profit write-downs were $1.1 million and $2.0 million, respectively. For projects having a material gross profit impact of $0.25 million or more for the three months ended June 30, 2021, this resulted in material gross profit write downs on three GCR segment projects of $1.7 million and one ODR project for $0.3 million. Of the material GCR segment write downs, one project was within the Michigan region for a total of $1.0 million, one project was within the New England region for $0.3 million and one project was within the Southern California region for $0.4 million. Of the material ODR segment write downs, one project was within the Eastern Pennsylvania region for $0.3 million. We also recorded material gross profit write ups of $0.3 million on one GCR segment project in the Florida region and $0.3 million on one ODR segment project in the Michigan region. For the three months ended June 30, 2020, we recorded material revisions in our contract estimates on four GCR projects which resulted in gross profit write downs of $1.5 million. Two of these projects were within the Southern California region for a total of $0.7 million. No project revisions resulting in material gross profit write ups were recorded during the three months ended June 30, 2020.
Selling, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Selling, general and administrative: | | | | | | | |
GCR | $ | 9,070 | | | $ | 8,024 | | | $ | 1,046 | | | 13.0 | % |
ODR | 7,526 | | | 5,588 | | | 1,938 | | | 34.7 | % |
Corporate | 636 | | | 140 | | | 496 | | | 354.3 | % |
Total selling, general and administrative | $ | 17,232 | | | $ | 13,752 | | | $ | 3,480 | | | 25.3 | % |
| | | | | | | |
Selling, general and administrative as a percentage of consolidated total revenue | 14.2 | % | | 10.2 | % | | | | |
Our total selling, general and administrative (“SG&A”) increased by approximately $3.5 million to $17.2 million for the three months ended SeptemberJune 30, 20172021 compared to $13.8 million for the three months ended June 30, 2020. Total SG&A increased due to $0.6 million in additional payroll expenses, a $0.5 million increase in professional fees, a $0.4 million increase in rent, a $0.5 million increase in travel and Septemberentertainment, and a $0.5 million increase in stock based compensation expense. Our payroll and travel and entertainment expenses during the three months ended June 30, 2016, respectively, an increase2021 were higher than the three months ended June 30, 2020 due to pandemic-driven operational reductions in 2020 and our continued investment in ODR expansion in 2021. Additionally, total SG&A as a percentage of $0.3revenues were 14.2% for the three months ended June 30, 2021 and 10.2% for the three months ended June 30, 2020.
Amortization of Intangibles
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Amortization of intangibles (Corporate) | $ | 104 | | | $ | 274 | | | $ | (170) | | | (62.0) | % |
Total amortization expense for the three months ended June 30, 2021 was $0.1 million
or 9.9%.Gross Profit
Our gross profit increased byas compared to $0.2 million for the three months ended SeptemberJune 30, 2017 (Successor) up from $12.1 million for the period July 20, 2016 through September 30, 2016 (Successor) and $3.2 million for the period July 1, 2016 through July 19, 2016 (Predecessor). Construction gross profit decreased $0.6 million, or 5.8%. Service gross profit increased $0.8 million, or 17.7%. The total gross profit percentage decreased slightly from 12.9% for the Successor and Predecessor three months ended September 30, 2016 to 12.7% for the same period ended in 2017, mainly driven by project mix.
There were two governmental entity projects that caused gross profit to decrease in the third quarter. The larger project incurred a $2.0 million gross profit write down due to project delays sequencing issues, lack of change order processing and resulting cost overruns. This project is anticipated to be completed in the first quarter of 2018. The second project’s gross profit was written down $0.6 million due to unexpected permitting and project delays and resulting cost overruns. This project will be completed in 2018. We have undertaken extensive internal reviews by personnel not assigned to the projects, employed outside consultants and are considering potential recovery remedies which will likely not be realized until 2018, if at all. Additionally, a renovation project for a historic building experienced a gross profit write down of $0.5 million in the quarter. Recovery is possible but unknown as of September 30, 2017. This project is expected to be completed in the second quarter of 2018.
The Company also had a gross profit write up of $0.9 million on a transit related project during the quarter ended September 30, 2017. The write up resulted from effective cost management and favorable project buyouts.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended September 30, 2017 (Successor) decreased by approximately $0.5 million to $13.6 million compared to $10.2 million for the period July 20, 2016 through September 30, 2016 (Successor) and $3.9 million July 1, 2016 through July 19, 2016 (Predecessor). In the same quarter in 2016, the Predecessor incurred $1.5 million related to stock option compensation expense in connection with the Business Combination. Additionally, the Successor incurred 2016 direct transaction costs totaling $0.1 million and other compensation expense of $0.6 million related to the Business Combination. All of these 2016 expenses were nonrecurring. During the third quarter of 2017, the Company incurred $0.9 million of stock-based compensation expenses from the issuance of service-based and performance-based restricted stock units as well as incremental public company expenses totaling $0.5 million. These public company expenses included incremental professional accounting, legal and consulting fees related to the transition from private to public, some of which will be nonrecurring, and becoming Sarbanes Oxley compliant. Selling, general and administrative expenses as a percentage of revenues were 11.2% for the successor periods for the nine months ended September 30, 2017 and 11.1% for the period July 20, 2016 through September 30, 2016 versus 14.5% for the Predecessor period July 1, 2016 through July 19, 2016.
Amortization of Intangibles
Total amortization expense for the amortizable intangible assets was $0.8 million for the three months ended September 30, 2017 (Successor) and $1.5 million for July 20, 2016 through September 30, 2016 (Successor). Because the intangible asset, Backlog – Service, was fully amortized at September 30, 2017, future amortization expense will decrease. There were no intangible assets in the Predecessor period, and accordingly no amortization expense.
2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | | |
Other income (expenses): | | | | | | | | |
Interest expense, net | | $ | (452) | | | $ | (2,137) | | | $ | 1,685 | | | (78.8) | % |
Gain (loss) on disposition of property and equipment | | 94 | | | (13) | | | 107 | | | (823.1) | % |
| | | | | | | | |
Loss on change in fair value of warrant liability | | — | | | (102) | | | 102 | | | (100.0) | % |
Total other expenses | | $ | (358) | | | $ | (2,252) | | | $ | 1,894 | | | (84.1) | % |
Other
expenses, primarilyincome (expenses) consist of interest expense
wereof $0.5 million for the three months ended
SeptemberJune 30,
2017 (Successor), $0.92021 as compared to $2.1 million
for the period July 20, 2016 through September 30, 2016 (Successor) and $0.2 million for the period July 1, 2016 through July 19, 2016 (Predecessor).Provision for Income Taxes
The Predecessor was a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities or benefits being passed to the members. As part of purchase accounting, the Company was required to record all of Limbach’s acquired assets and liabilities at their acquisition date fair value. The Company established deferred tax assets and liabilities related to various asset classes through the purchase price allocation.
The Company had a $3 thousand current state and local income tax benefitinterest expense for the three months ended SeptemberJune 30, 2017 (Successor). Deferred income tax expense totaled $0.3 million for the same period. See Note 13 - Income Taxes in the Notes to Condensed Consolidated Financial Statements.
Net Income (Loss) Attributable to Common Stockholders
For the three months ended September 30, 2017 (Successor), the Company’s net loss attributable to common stockholders included its net income, net of preferred stock dividends totaling $149 thousand and the premium of $847 thousand paid on the partial preferred stock redemption. For the period July 20, 2016 through September 30, 2016 (Successor), our net income attributable to common stockholders reflected net income, net of preferred stock dividends totaling $160 thousand. Net income (loss) attributable to common stockholders is utilized to compute basic and diluted earnings per share.
Comparison of Results of Operations for the nine months ended September 30, 2017 (Successor), July 20, 2016 through September 30, 2016 (Successor) and January 1, 2016 through July 19, 2016 (Predecessor)
2020. The following table presents operating results for the nine months ended September 30, 2017 (Successor), July 20, 2016 through September 30, 2016 (Successor) and January 1, 2016 through July 19, 2016 (Predecessor) in absolute terms and expressed as a percentage of total revenue, as compared below:
| | Successor | | | Successor | | | Predecessor | |
| | January 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | January 1, 2016 through July 19, 2016 | |
(Amounts in thousands except for percentage) | | ($) | | | (%) | | | ($) | | | (%) | | | ($) | | | (%) | |
Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 283,465 | | | | 80.0 | % | | $ | 73,917 | | | | 80.4 | % | | $ | 183,100 | | | | 82.7 | % |
Service | | | 70,862 | | | | 20.0 | % | | | 17,972 | | | | 19.6 | % | | | 38,291 | | | | 17.3 | % |
Total revenue | | | 354,327 | | | | 100.0 | % | | | 91,889 | | | | 100.0 | % | | | 221,391 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 29,997 | | | | 10.6 | %(1) | | | 8,049 | | | | 10.9 | %(1) | | | 20,300 | | | | 11.1 | %(1) |
Service | | | 14,720 | | | | 20.8 | %(2) | | | 4,022 | | | | 22.4 | %(2) | | | 8,180 | | | | 21.4 | %(2) |
Total gross profit | | | 44,717 | | | | 12.6 | % | | | 12,071 | | | | 13.1 | % | | | 28,480 | | | | 12.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative: | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 18,848 | | | | 6.6 | %(1) | | | 4,399 | | | | 6.0 | %(1) | | | 11,680 | | | | 6.4 | %(1) |
Service | | | 10,547 | | | | 14.9 | %(2) | | | 2,431 | | | | 13.5 | %(2) | | | 6,302 | | | | 16.5 | %(2) |
Corporate | | | 11,568 | | | | 3.3 | %(3) | | | 3,377 | | | | 3.7 | %(3) | | | 6,033 | | | | 2.7 | %(3) |
Total selling, general and administrative expenses | | | 40,963 | | | | 11.6 | % | | | 10,207 | | | | 11.1 | % | | | 24,015 | | | | 10.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles (Corporate) | | | 2,831 | | | | 0.8 | % | | | 1,454 | | | | 1.6 | % | | | - | | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 11,149 | | | | 3.9 | %(1) | | | 3,650 | | | | 4.9 | %(1) | | | 8,620 | | | | 4.7 | %(1) |
Service | | | 4,173 | | | | 5.9 | %(2) | | | 1,591 | | | | 8.9 | %(2) | | | 1,878 | | | | 4.9 | %(2) |
Corporate | | | (14,399 | ) | | | - | | | | (4,831 | ) | | | - | | | | (6,033 | ) | | | - | |
Total operating income (loss) | | | 923 | | | | 0.3 | % | | | 410 | | | | 0.4 | % | | | 4,465 | | | | 2.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other expenses (Corporate) | | | 1,692 | | | | 0.5 | % | | | 874 | | | | 1.0 | % | | | 1,897 | | | | 0.9 | % |
(Loss) income before provision for income taxes | | | (769 | ) | | | -0.2 | % | | | (464 | ) | | | -0.5 | % | | | 2,568 | | | | 1.2 | % |
Income tax benefit | | | 352 | | | | 0.1 | % | | | 2,277 | | | | 2.5 | % | | | - | | | | 0.0 | % |
Net (loss) income | | $ | (417 | ) | | | -0.1 | % | | $ | 1,813 | | | | 2.0 | % | | | 2,568 | | | | 1.2 | % |
(1) | As a percentage of Construction revenue. |
(2) | As a percentage of Service revenue. |
(3) | As a percentage of Total revenue. |
Comparison of select financial data:
| | Successor | | | Successor | | | Predecessor | | | | |
(Amounts in thousands except for percentages) | | January 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | January 1, 2016 through July 19, 2016 | | | Increase/ (Decrease) | |
| | ($) | | | ($) | | | ($) | | | $ | | | % | |
Revenue: | | | | | | | | | | | | | | | | | | | | |
Construction | | $ | 283,465 | | | $ | 73,917 | | | $ | 183,100 | | | $ | 26,448 | | | | 10.3 | % |
Service | | | 70,862 | | | | 17,972 | | | | 38,291 | | | | 14,599 | | | | 25.9 | % |
Total revenue | | | 354,327 | | | | 91,889 | | | | 221,391 | | | | 41,047 | | | | 13.1 | % |
| | | | | | | | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | | | |
Construction | | | 29,997 | | | | 8,049 | | | | 20,300 | | | | 1,648 | | | | 5.8 | % |
Service | | | 14,720 | | | | 4,022 | | | | 8,180 | | | | 2,518 | | | | 20.6 | % |
Total gross profit | | | 44,717 | | | | 12,071 | | | | 28,480 | | | | 4,166 | | | | 10.3 | % |
| | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative expenses: | | | | | | | | | | | | | | | | | | | | |
Construction | | | 18,848 | | | | 4,399 | | | | 11,680 | | | | 2,769 | | | | 17.2 | % |
Service | | | 10,547 | | | | 2,431 | | | | 6,302 | | | | 1,814 | | | | 20.8 | % |
Corporate | | | 11,568 | | | | 3,377 | | | | 6,033 | | | | 2,158 | | | | 22.9 | % |
Total selling, general and administrative expenses | | | 40,963 | | | | 10,207 | | | | 24,015 | | | | 6,741 | | | | 19.7 | % |
| | | | | | | | | | | | | | | | | | | | |
Amortization of intangibles | | | 2,831 | | | | 1,454 | | | | - | | | | 1,377 | | | | 94.7 | % |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | | | | | | | | | | |
Construction | | | 11,149 | | | | 3,650 | | | | 8,620 | | | | (1,121 | ) | | | -9.1 | % |
Service | | | 4,173 | | | | 1,591 | | | | 1,878 | | | | 704 | | | | 20.3 | % |
Corporate | | | (14,399 | ) | | | (4,831 | ) | | | (6,033 | ) | | | (3,535 | ) | | | -32.5 | % |
Operating income (loss) | | $ | 923 | | | $ | 410 | | | $ | 4,465 | | | $ | (3,952 | ) | | | -81.1 | % |
Revenue
Revenue for the nine months ended September 30, 2017 (Successor) increased by $41.0 million up from $91.9 million for the period July 20, 2016 through September 30, 2016 (Successor) and $221.4 million for the period January 1, 2016 through July 19, 2016 (Predecessor). Construction revenue increased by $26.4 million, or 10.3%, and Service revenue increased by $14.6 million, or 25.9%. The increase in Construction revenue was primarily driven by project growth in the Mid-Atlantic and Michigan regions, partially offset by an overall reduction in the Southern California region. A single large construction project accounted for $18.0 million of this growth. The $14.6 million increase in Service revenue across all regions resulted primarily from the Company’s focus over recent years on developing longer term customer relationships and sales of larger service owner-direct projects and contracts. Year-to-date maintenance contract revenue was $9.4 million and $8.4 million as of September 30, 2017 and September 30, 2016, respectively, an increase of $1.0 million or 11.9%.
Gross Profit
Our gross profit increased by $4.2 million for the nine months ended September 30, 2017 (Successor) up from $12.1 million for the period July 20, 2016 through September 30, 2016 (Successor) and $28.5 million for the period January 1, 2016 through July 19, 2016 (Predecessor). Construction gross profit increased $1.6 million, or 5.8%. Service gross profit increased $2.5 million, or 20.6%. The total gross profit percentage decreased slightly from 13.0% for the nine months ended September 30, 2016 to 12.6% for the same period ended in 2017, mainly driven by project mix.
There were two governmental entity projects that caused gross profit to decrease for the nine months ended September 30, 2017. The larger project incurred $2.5 million in gross profit write downs due to project delays sequencing issues, lack of change order processing and resulting cost overruns. This project is anticipated to be completed in the first quarter of 2018. The second project’s gross profit was written down $0.6 million due to unexpected permitting and project delays and resulting cost overruns. This project will be completed in 2018. We have undertaken extensive internal reviews by personnel not assigned to the projects, employed outside consultants and are considering potential recovery remedies which will likely not be realized until 2018, if at all. Additionally, a renovation project for a historic building experienced a gross profit write down of $0.5 million in the nine months ended September 30, 2017. Recovery is possible but unknown as of September 30, 2017. This project is expected to be completed in the second quarter of 2018.
The Company also had gross profit write ups of $1.8 million on a transit related project for the nine months ended September 30, 2017. The write ups resulted from effective cost management and favorable project buyouts.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the nine months ended September 30, 2017 (Successor) increased by approximately $6.7 million to $41.0 million compared to $10.2 million for July 20, 2016 through September 30, 2016 (Successor) and $24.0 million January 1, 2016 through July 19, 2016 (Predecessor). For the nine months ended September 30, 2016, the Predecessor incurred $1.5 million related to stock option compensation expense in connection with the Business Combination. Additionally, the Successor incurred 2016 direct transaction costs totaling $0.1 million and other compensation expense of $0.6 million related to the Business Combination. All of these 2016 expenses were nonrecurring. For the nine months ended September 30, 2017, the Company incurred $0.9 million of stock-based compensation expenses from the issuance of service-based and performance-based restricted stock units as well as incremental public company expenses totaling $2.5 million. These public company expenses included incremental professional accounting, legal and consulting fees related to the transition from private to public, some of which will be nonrecurring, and becoming Sarbanes Oxley compliant. For the first nine months of 2017, we incurred $3.0 million in higher salary and benefits costs related to new hires at several branches. We also incurred $274 thousand pre-engineering costs, $132 thousand rent in our Florida location and another $210 thousand in rental charges at our Southern California location. The higher compensation and rental costs were incurred in support of the Company’s growth and plans for continued expansion. Selling, general and administrative expenses as a percentage of revenues were 11.6% for the successor periods nine months ended September 30, 2017 and 11.1% for July 20, 2016 through September 30, 2016 versus 10.8% for the predecessor period January 1, 2016 through July 19, 2016.
Amortization of Intangibles
Total amortization expense for the amortizable intangible assets was $2.8 million for the Successor nine months ended September 30, 2017 and $1.5 million for the period July 20, 2016 through September 30, 2016 (Successor). Because the intangible asset, Backlog – Service, was fully amortized at September 30, 2017, future amortization expense will decrease. There were no intangible assets in the Predecessor period, and accordingly no amortization expense.
Other Expenses
Other expenses, primarily interest expense, were $1.7 million for the Successor nine months ended September 30, 2017 and $0.9 million July 20, 2016 through September 30, 2016 and $1.9 million for January 1, 2016 through July 19, 2016 (Predecessor). The difference in interest expense year over year is due to the refinancing of the higher interest rate debt with a lower interest rate debt instrument in late February 2021.
Income Taxes
The Company recorded a $0.3 million and $1.1 million income tax provision for the three months ended June 30, 2021 and 2020, respectively.
The effective tax rate was 26.5% and 27.4% for the three months ended June 30, 2021 and 2020, respectively.
Comparison of Results of Operations for the six months ended June 30, 2021 and 2020
The following table presents operating results for the six months ended June 30, 2021 and 2020 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | |
| | 2021 | | 2020 | |
(in thousands except for percentages) | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | |
Revenue: | | | | | | | | | |
GCR | | $ | 172,354 | | | 73.5 | % | | $ | 215,423 | | | 78.6 | % | |
ODR | | 62,009 | | | 26.5 | % | | 58,534 | | | 21.4 | % | |
Total revenue | | 234,363 | | | 100.0 | % | | 273,957 | | | 100.0 | % | |
| | | | | | | | | |
Gross profit: | | | | | | | | | |
GCR | | 18,280 | | | 10.6 | % | (1) | 23,195 | | | 10.8 | % | (1) |
ODR | | 17,639 | | | 28.4 | % | (2) | 15,364 | | | 26.2 | % | (2) |
Total gross profit | | 35,919 | | | 15.3 | % | | 38,559 | | | 14.1 | % | |
| | | | | | | | | |
Selling, general and administrative: | | | | | | | | | |
GCR | | 18,184 | | | 10.6 | % | (1) | 18,200 | | | 8.4 | % | (1) |
ODR | | 14,880 | | | 24.0 | % | (2) | 11,917 | | | 20.4 | % | (2) |
Corporate | | 1,313 | | | 0.6 | % | | 435 | | | 0.2 | % | |
Total selling, general and administrative | | 34,377 | | | 14.7 | % | | 30,552 | | | 11.2 | % | |
| | | | | | | | | |
Amortization of intangibles (Corporate) | | 208 | | | 0.1 | % | | 417 | | | 0.2 | % | |
| | | | | | | | | |
Operating (loss) income: | | | | | | | | | |
GCR | | 96 | | | 0.1 | % | (1) | 4,995 | | | 2.3 | % | (1) |
ODR | | 2,759 | | | 4.4 | % | (2) | 3,447 | | | 5.9 | % | (2) |
Corporate | | (1,521) | | | — | % | | (852) | | | — | % | |
Total operating income | | 1,334 | | | 0.6 | % | | 7,590 | | | 2.8 | % | |
| | | | | | | | | |
Other expenses (Corporate) | | (3,655) | | | (1.6) | % | | (4,219) | | | (1.5) | % | |
Total consolidated (loss) income before income taxes | | (2,321) | | | (1.0) | % | | 3,371 | | | 1.2 | % | |
Income tax (benefit) provision | | (771) | | | (0.3) | % | | 476 | | | 0.2 | % | |
Net (loss) income | | $ | (1,550) | | | (0.7) | % | | $ | 2,895 | | | 1.1 | % | |
(1)As a percentage of GCR revenue.
(2)As a percentage of ODR revenue.
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Revenue: | | | | | | | |
GCR | $ | 172,354 | | | $ | 215,423 | | | $ | (43,069) | | | (20.0) | % |
ODR | 62,009 | | | 58,534 | | | 3,475 | | | 5.9 | % |
Total revenue | $ | 234,363 | | | $ | 273,957 | | | $ | (39,594) | | | (14.5) | % |
Revenue for the six months ended June 30, 2021 decreased by $39.6 million compared to the revenue for the six months ended June 30, 2020. GCR revenue decreased by $43.1 million, or 20.0%, while ODR revenue increased by $3.5 million, or 5.9%. GCR segment revenue of $172.4 million decreased due to a planned decrease in the Southern California and Mid-Atlantic operating regions and other decreases in the Florida, Eastern Pennsylvania, Ohio, and Western Pennsylvania operating regions. These decreases were partially offset by revenue increases in the Michigan and New England operating regions largely due to the start of new projects and the continuation of work on existing projects. Ohio, Eastern Pennsylvania, Michigan, and New England regions' ODR revenue increased nearly offset by declines in ODR revenue in Florida and Mid-Atlantic. Maintenance contract revenue, a component of ODR revenue, increased by $0.4 million compared to the six months ended June 30, 2020.
Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Gross Profit: | | | | | | | |
GCR | $ | 18,280 | | | $ | 23,195 | | | $ | (4,915) | | | (21.2) | % |
ODR | 17,639 | | | 15,364 | | | 2,275 | | | 14.8 | % |
Total gross profit | $ | 35,919 | | | $ | 38,559 | | | $ | (2,640) | | | (6.8) | % |
| | | | | | | |
Total gross profit as a percentage of consolidated total revenue | 15.3 | % | | 14.1 | % | | | | |
Our gross profit for the six months ended June 30, 2021 decreased by $2.6 million compared to our gross profit for the six months ended June 30, 2020. GCR gross profit decreased $4.9 million, or 21.2%, largely due to lower revenue at slightly lower margins. ODR gross profit increased $2.3 million, or 14.8%, due to an increase in revenue at higher margins. The total gross profit percentage increased from 14.1% for the six months ended June 30, 2020 to 15.3% for the same period ended in 2021, mainly driven by the mix of debt outstandinghigher margin ODR segment work.
For the six months ended June 30, 2021 and 2020, total net gross profit write-downs were $1.7 million and $3.4 million, respectively. For projects having a material gross profit impact of $0.25 million or more, we recorded gross profit write downs on eight GCR segment projects of $3.5 million and one ODR project for $0.3 million. Of the material GCR segment write downs, two projects were within the Michigan region for a total of $1.2 million, two projects were within the Eastern Pennsylvania region for $1.0 million, two projects were within the Southern California region for $0.8 million, one project was within the New England region for $0.3 million, and one project was within the Mid-Atlantic region for $0.3 million. We also materially wrote down one ODR segment project within the Eastern Pennsylvania region for $0.3 million. We also recorded material GCR segment gross profit write ups of $0.9 million on one GCR segment project in the Michigan region for $0.5 million and one project within the Ohio region for $0.4 million. For the six months ended June 30, 2020, we recorded material gross profit write downs on eight GCR projects and two gross profit write ups on GCR projects, for an aggregate revision of $5.2 million and $1.2 million, respectively.
Selling, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Selling, general and administrative: | | | | | | | |
GCR | $ | 18,184 | | | $ | 18,200 | | | $ | (16) | | | (0.1) | % |
ODR | 14,880 | | | 11,917 | | | 2,963 | | | 24.9 | % |
Corporate | 1,313 | | | 435 | | | 878 | | | 201.8 | % |
Total selling, general and administrative | $ | 34,377 | | | $ | 30,552 | | | $ | 3,825 | | | 12.5 | % |
| | | | | | | |
Selling, general and administrative as a percentage of consolidated total revenue | 14.7 | % | | 11.2 | % | | | | |
Our total selling, general and administrative (“SG&A”) increased by approximately $3.8 million to $34.4 million for the ninesix months ended SeptemberJune 30, 2017 versus 2016. During 2017, there2021 compared to $30.6 million for the six months ended June 30, 2020. Total SG&A increased due to a $1.1 million increase in professional fees, a $0.8 million increase in rent and a $0.9 million increase in stock based compensation expense. Our payroll and travel and entertainment expenses remained flat during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, as our investment in ODR expansion in 2021 was less weighted average debt outstandingoffset by severance expense incurred in 2020 due to our pandemic-driven operational reductions. Additionally, total SG&A as a resultpercentage of revenues were 14.7% for the six months ended June 30, 2021 and 11.2% for the six months ended June 30, 2020.
Amortization of Intangibles
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | |
Amortization of intangibles (Corporate) | $ | 208 | | | $ | 417 | | | $ | (209) | | | (50.1) | % |
Total amortization expense for the six months ended June 30, 2021 was $0.2 million compared to $0.4 million for the six months ended June 30, 2020.
Other Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, |
| | 2021 | | 2020 | | Increase/(Decrease) |
(in thousands except for percentages) | | | | | | | | |
Other income (expenses): | | | | | | | | |
Interest expense, net | | $ | (1,716) | | | $ | (4,295) | | | $ | 2,579 | | | (60.0) | % |
Gain on disposition of property and equipment | | 8 | | | 17 | | | (9) | | | (52.9) | % |
Loss on early debt extinguishment | | (1,961) | | | — | | | (1,961) | | | 100.0 | % |
Gain on change in fair value of warrant liability | | 14 | | | 59 | | | (45) | | | (76.3) | % |
Total other expenses | | $ | (3,655) | | | $ | (4,219) | | | $ | 564 | | | (13.4) | % |
Other income (expenses) consist of interest expense of $1.7 million for the six months ended June 30, 2021 as compared to $4.3 million of interest expense for the six months ended June 30, 2020. The reduction in interest expense year over year is due to the refinancing of the
subordinatedhigher interest rate debt
being repaidwith a lower interest rate debt instrument in
December 2016.Provision for late February 2021. The Company recognized a loss on early debt extinguishment of $2.0 million in connection with its refinancing of the 2019 Refinancing Term Loan and 2019 Revolving Credit Facility with the Wintrust Term Loan and Wintrust Revolving Loan.
The
Predecessor wasCompany recorded a
limited liability company treated as a partnership for federal and state$0.8 million income tax
purposes with allbenefit and a $0.5 million income tax
liabilities or benefits being passed toprovision for the
members. As part of purchase accounting, the Company was required to record all of Limbach’s acquired assetssix months ended June 30, 2021 and
liabilities at their acquisition date fair value. The Company established deferred tax assets and liabilities related to various asset classes through the purchase price allocation.2020, respectively.
The Company had a
$3 thousand current state and local income33.2% effective tax benefit
rate for the
ninesix months ended
SeptemberJune 30,
2017 (Successor). Deferred income2021 and a 14.1% effective tax
benefit totaled $0.3 millionrate for the
same period. See Note 13 - Income Taxes in the Notes to Condensed Consolidated Financial Statements.Net Income (Loss) Attributable to Common Stockholders
For the ninesix months ended SeptemberJune 30, 2017 (Successor), the Company’s net loss attributable2020.
GCR and ODR Backlog Information
We refer to
common stockholders included its net loss, net of preferred stock dividends totaling $631 thousand and the premium of $847 thousand paid on the partial preferred stock redemption. For the period July 20, 2016 through September 30, 2016 (Successor), our
net income attributable to common stockholders reflected net income, net of preferred stock dividends totaling $160 thousand. Net income (loss) attributable to common stockholders is utilized to compute basic and diluted earnings per share.Construction and Service Backlog Information
Our contract backlog consists of the remaining unearnedestimated revenue on awarded contracts. Backlog is not a term recognized under GAAP; however, it is a common measurement used in our industry. Once we have successfully negotiated a project and have received written confirmation of the contract being awarded to us, we record the value of the contract as backlog. Consequently, contract backlog is also an important factor we use to monitor our business. The duration of ouruncompleted contracts, vary significantly from months to years and our backlog is subject to increases as projects are added. Our backlog does not necessarily representincluding the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” Backlog includes unexercised contract options. Our backlog includes projects that wehave a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between our backlog and remaining performance obligations is due to the portion of unexercised contract options that are currently negotiating or pursuingexcluded, under certain contract types, from our remaining performance obligations as these contracts can be canceled for convenience at any given time. Ittime by us or the customer without considerable cost incurred by the customer. Additional information related to our remaining performance obligations is also subjectprovided in Note 16 — Remaining Performance Obligations in the accompanying notes to change as contract backlog can increase or decrease due to contract change orders.
our condensed consolidated financial statements.
Given the multi-year duration of many of our contracts, revenue from backlog is expected to be earned over a period that will extend beyond one year.
ManyOur GCR backlog as of
our contracts contain provisions that allow the contract to be canceled at any time; however, if this occurs, we can generally recover costs incurred up to the date of cancellation.Construction backlog at SeptemberJune 30, 2017 (Successor)2021 was $454.3$378.9 million compared to $390.2$393.5 million at December 31, 2016 (Successor). The increase in backlog at September 30, 2017 compared to backlog at December 31, 2016 was due to new construction contract awards related to the construction portion of Design build/Design assist contracts that were in backlog for only the engineering value of the projects as of December 31, 2016 and other new construction awards.2020. In addition, ServiceODR backlog as of SeptemberJune 30, 2017 (Successor)2021 was $37.9$60.6 million compared to $44.1$50.9 million at December 31, 2016 (Successor).2020. Of the total backlog at SeptemberJune 30, 2017,2021, we expect to recognize approximately $120.0$211.0 million by the end of 2017. Duringthe third quarter of 2017, the Company secured and booked as backlog the preconstruction portion of a contract for a major mission critical data center. The construction portion is anticipated to be booked during the first quarter of 2018.
Upon the closing of the Business Combination, the Company recognized intangible assets for the fair value of both Construction and Service backlogs. See Note 4 – Business Combination in the Notes to Condensed Consolidated Financial Statements.
2021.
Seasonality, Cyclicality and Quarterly Trends
Severe weather can impact our operations. In the northern climates where we operate, and to a lesser extent the southern climates as well, severe winters can slow our productivity on construction projects, which shifts revenue and gross profit recognition to a later period. Our maintenance operations may also be impacted by mild or severe weather. Mild weather tends to reduce demand for our maintenance services, whereas severe weather may increase the demand for our maintenance and spot services. Our operations also experience mild cyclicality, as building owners typically work through maintenance and capital projects at an increased level during the third and fourth calendar quarters of each year.
Effect of Inflation
and Tariffs
The prices of products such as steel, pipe, copper and equipment from manufacturers are subject to
fluctuation. While itfluctuation and increases. It is difficult to accurately measure the impact of inflation,
tariffs and price escalation due to the imprecise nature of the estimates
required, we believe therequired. However, these effects
of inflation, if any, onare, at times, material to our results of operations and financial
conditioncondition. During the first half of 2021, we have
been immaterial.experienced higher cost of materials on specific projects and delays in our supply chain for equipment and service vehicles from the manufacturers, and we expect these higher costs and delays in our supply chain to persist through 2021. When appropriate, we include cost escalation factors into our bids and
proposals.proposals as well as limit the acceptance time of our bid. In addition, we are often able to mitigate the impact of future price increases by entering into fixed price purchase orders for materials and equipment and subcontracts on our projects.
Notwithstanding these efforts, if we experience significant disruptions to our supply chain, we may need to delay certain projects that would otherwise be accretive to our business and this may also impact the conversion rate of our current backlog into revenue.
Liquidity and Capital Resources
Summary of
Our liquidity needs relate primarily to the provision of working capital (defined as current assets less current liabilities) to support operations, funding of capital expenditures, and investment in strategic opportunities. Historically, liquidity has been provided by operating activities and
borrowingborrowings from commercial banks and institutional lenders.
Billings and collections on construction projects slowed during the third quarter
Table of 2017. Management recently devoted additional resources to its collection efforts and expects this operating cash flow trend to reverse and improve as new projects mature, retention is collected on completed projects, and profits increase. Management further expects that additional growth in its service business, which is less sensitive to the cash flow issues presented by large construction projects, will positively impact our cash flow trends.We believe our current cash and cash equivalents of $761 thousand as of September 30, 2017, cash to be received from existing and new customers, and availability of borrowing under a revolving line of credit under our Credit Agreement (pursuant to which we had $8.5 million of availability as of September 30, 2017) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. The elimination of the subordinated debt as well as the reduction of our term debt and accompanying interest expense reduction has improved cash flow. Additionally, we expect that certain non-cash items, including certain deferred tax assets resulting from accumulated net operating losses generated by the Company prior to the Business Combination, certain permanent book-tax differences originating in the ordinary course of business, and certain additional temporary differences between book and tax basis resulting from the Business Combination, will mitigate our cash outflow until such items are completely utilized, and therefore add to liquidity in the near term.
The following table
reflects our available funding capacity as of September 30, 2017:(in thousands) | | | | | | |
Cash & cash equivalents | | | | | | $ | 761 | |
Credit agreement: | | | | | | | | |
Revolving credit facility | | $ | 12,785 | | | | | |
Outstanding letters of credit | | | (4,240 | ) | | | | |
Net credit agreement capacity available | | | | | | | 8,545 | |
Total available funding capacity | | | | | | $ | 9,306 | |
presents summary cash flow information for the periods indicated:
| | | | | | | | | | | | | | |
| | Six months ended June 30, |
| | 2021 | | 2020 |
(in thousands) | | | | |
Net cash (used in) provided by: | | | | |
Operating activities | | $ | (24,609) | | | $ | 22,457 | |
Investing activities | | (140) | | | (597) | |
Financing activities | | 10,295 | | | (1,375) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | $ | (14,454) | | | $ | 20,485 | |
| | | | |
Noncash investing and financing transactions: | | | | |
Right of use assets obtained in exchange for new operating lease liabilities | | $ | 156 | | | $ | — | |
Right of use assets obtained in exchange for new finance lease liabilities | | 336 | | | 1,050 | |
Right of use assets disposed or adjusted modifying operating lease liabilities | | 36 | | | 586 | |
Right of use assets disposed or adjusted modifying finance lease liabilities | | — | | | (64) | |
Interest paid | | 1,741 | | | 3,250 | |
Cash paid for income taxes | | $ | 2,096 | | | $ | 734 | |
Our cash flows are primarily impacted from period to period by fluctuations in working capital. Factors such as our contract mix, commercial terms, days sales outstanding (“DSO”) and delays in the start of projects may impact our working capital. In line with industry practice, we accumulate costs during a given month then bill those costs in the current month for many of our contracts. While labor costs associated with these contracts are paid weekly and salary costs associated with the contracts are paid bi-weekly, certain subcontractor costs are generally not paid until we receive payment from our customers (contractual “pay-if-paid” terms). We have not historically experienced a large volume of write-offs related to our receivables and
our unbilled revenue on contracts in progress.contract assets. We regularly assess our receivables
and costs in excess of billings for collectability and provide allowances for doubtful accounts where appropriate. We believe that our reserves for doubtful accounts are appropriate as of
SeptemberJune 30,
2017,2021 and December 31, 2020, but adverse changes in the economic environment may impact certain of our customers’ ability to access capital and compensate us for our services, as well as impact project activity for the foreseeable future.
The Company's existing current backlog is projected to provide substantial coverage of forecasted GCR revenue for one year from the date of the financial statement issuance. Our current cash balance, together with cash we expect to generate from future operations along with borrowings available under our Wintrust Loans, are expected to be sufficient to finance our short- and long-term capital requirements (or meet working capital requirements) for the next twelve months. In addition to the future operating cash flows of the Company, along with its existing borrowing availability and access to financial markets, the Company believes it will be able to meet any working capital and future operating requirements, and capital investment forecast opportunities for the next twelve months.
The following table represents our summarized working capital information:
| | Successor | |
| | As of | |
| | September 30, | | | December 31, | |
(in thousands, except ratios) | | 2017 | | | 2016 | |
Current assets | | $ | 153,746 | | | $ | 155,183 | |
Current liabilities | | | (117,230 | ) | | | (126,729 | ) |
| | | | | | | | |
Net working capital | | $ | 36,516 | | | $ | 28,454 | |
Current ratio* | | | 1.31 | | | | 1.22 | |
| * | Current ratio is calculated by dividing current assets by current liabilities. |
The following table presents summary cash flow information for
| | | | | | | | | | | | | | |
(in thousands, except ratios) | | June 30, 2021 | | December 31, 2020 |
Current assets | | $ | 199,726 | | | $ | 199,417 | |
Current liabilities | | (137,924) | | | (150,294) | |
| | | | |
Net working capital | | $ | 61,802 | | | $ | 49,123 | |
Current ratio* | | 1.45 | | | 1.33 | |
*Current ratio is calculated by dividing current assets by current liabilities.
As discussed above and in Note 7 to the
periods indicated: | | Successor | | | Successor | | | Predecessor | |
(in thousands) | | January 1, 2017 through September 30, 2017 | | | July 20, 2016 through September 30, 2016 | | | January 1, 2016 through July 19, 2016 | |
Net cash provided by (used in): | | | | | | | | | | | | |
Operating activities | | $ | (5,341 | ) | | $ | (15,383 | ) | | $ | 1,639 | |
Investing activities | | | (2,282 | ) | | | (13,013 | ) | | | (2,107 | ) |
Financing activities | | | 978 | | | | 28,682 | | | | (5,401 | ) |
Net increase (decrease) in cash and cash equivalents | | $ | (6,645 | ) | | $ | 286 | | | $ | (5,869 | ) |
| | | | | | | | | | | | |
Property and equipment financed with capital leases | | $ | 1,344 | | | $ | 467 | | | $ | 1,014 | |
Financed insurance premium | | | 2,135 | | | | - | | | | - | |
Interest paid | | | 1,427 | | | | 799 | | | | 192 | |
accompanying condensed consolidated financial statements, as of June 30, 2021, the Company was in compliance with all financial maintenance covenants as required by the Wintrust Loans.
Cash Flows
(Used in) Provided by
(Used in) Operating Activities
Cash flows used in operating activities were $5.3$24.6 million for the successor periods for the ninesix months ended SeptemberJune 30, 2017 and $15.4 million for July 20, 2016 through September 30, 2016 and $1.6 million2021 compared to cash flows provided by operating activities of $22.5 million for the predecessor period January 1, 2016 through July 19, 2016.six months ended June 30, 2020. For the ninesix months ended SeptemberJune 30, 2017, we experienced2021, cash used in operating activities were negatively impacted by an $8.9 million increase in accounts receivable, a favorable$7.5 million decrease in costs and estimated earnings in excess of billings on uncompleted contracts (i.e., underbillings) of $2.3 million, offset by the unfavorable impacts ofcontract liabilities, a decrease in billings in excess of costs and estimated earnings on uncompleted contracts (i.e., overbillings) of $6.1 million, an increase in receivables of $5.7 million, and a $3.2$5.5 million decrease in accrued expenses and other current liabilities. Based onliabilities, and a $3.7 million increase in contract assets.
Cash flows provided by operating activities were $22.5 million for the decreases in overbillingssix months ended June 30, 2020. For the six months ended June 30, 2020, the key components included cash inflows of $6.1$3.6 million and in underbillings of $2.3related to our accounts receivable, $4.9 million we experienced a decrease of $3.8related to our contract assets, $16.3 million infor our netcontract liabilities shifting from an underbilled to an overbilled position at September 30, 2017. This decrease is wholly attributableconsistent with our renewed focus on project cash flows and $9.4 million related to accrued expenses and other current liabilities. These cash inflows were offset by outflows of $19.5 million related to our less overbilled position of $4.8 million on a large construction project that was nearing completion at the end of the third quarter. The increase in receivables is attributable to slower overall collections. accounts payable, including retainage.
The decrease in
accrued expenses results almost entirely fromoperating cash flows during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 were mostly attributable to the reduction of our net overbilling position, which resulted in a
$2.8$32.3 million
cash outflow period-over-period, and a $12.5 million period-over-period cash outflow related to the change in accounts receivable. The decrease in our
incentive compensation accrual at September 30, 2017, due to year-end 2016 incentive bonuses paid in the first quarter of 2017.For July 20, 2016 through September 30, 2016 (Successor) and January 1, 2016 through July 19, 2016 (Predecessor), we used net cash of $13.7 million in operating activities. We experienced an increase in receivables of $37.1 million and an increase in costs and estimated earnings in excess of billings on uncompleted contracts of $7.9 million and an increase in billings in excess of costs and estimated earnings on uncompleted contracts of $17.1 million. The increase in receivablesoverbilled position was due to several large paymentsthe reduction in our Michigan, Mid Atlantic,GCR revenue and Southern California branches that were expected on or before September 30 not being collected until the first weektiming of October. The increasecontract billings and the recognition of contract revenue. In addition, the reduction in costs and estimated earnings in excess of billings on uncompleted contractsaccounts receivable was due to our contractual terms related tothe timing of billings on several large guaranteed maximum price contracts in New England, Mid Atlantic and Southern California and slow owner and general contractor approval on authorized change orders in the Mid Atlantic and Southern California regions.
collections.
Non-cash charges for depreciation and amortization
increased to $7.4were $3.0 million for the
ninesix months ended
SeptemberJune 30,
2017 up from $2.82021 and $3.1 million for
July 20, 2016 through Septemberthe six months ended June 30,
2016 (Successor) and $1.6 million January 1, 2016 through July 19, 2016 (Predecessor), due primarily to the amortization of intangible assets acquired as part of the acquisition of LHLLC beginning in the third quarter of 2016.2020.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $0.1 million and $0.6 million for the ninesix months ended SeptemberJune 30, 2017 (Successor) were $2.32021, and 2020, respectively. For the six months ended June 30, 2021, $0.5 million $13.0was used to purchase property and equipment, offset by $0.4 million for July 20, 2016 through Septemberin proceeds from the sale of property and equipment. For the six months ended June 30, 2016 (Successor),2020, $0.7 million was used to purchase property and $2.1equipment, offset by $0.1 million for January 1, 2016 through July 19, 2016 (Predecessor). in proceeds from the sale of property and equipment.
The majority of our cash used for investing activities in
2017 and for the period January 1, 2016 through July 19, 2016 (Predecessor)both periods was for capital additions pertaining to
additional vehicles, tools and equipment, computer software and hardware purchases, office furniture and office related leasehold improvements.
We also obtained the use of various assets through operating and capital leases, which reduced the level of capital expenditures that would have otherwise been necessary to operate our business.Cash flows used in investing activities for July 20, 2016 through September 30, 2016 (Successor) were $13.0 million, primarily as a result of $32.2 million cash used in the acquisition of Limbach Holdings LLC offset by $19.5 million in proceeds from the 1347 Capital trust account.
Cash Flows Provided by (Used in) Financing Activities
Cash flows provided by financing activities were $1.0$10.3 million for the ninesix months ended SeptemberJune 30, 2017 (Successor) and $28.72021 compared to cash flows used in financing activities of $1.4 million for July 20, 2016 through Septemberthe six months ended June 30, 2016 (Successor).2020. For the ninesix months ended SeptemberJune 30, 2017 (Successor)2021, we received proceeds from the following: $22.8 million, net of fees and expenses, in conjunction with our common stock offering in February 2021, $2.0 million from the exercise of warrants and $30.0 million in connection with the refinancing of the 2019 Refinancing Term Loan with the Wintrust Loans. These proceeds were offset by the $39.0 million payment in full of the 2019 Refinancing Term Loan and associated $1.4 million prepayment penalty and other extinguishment costs, $2.0 million of scheduled principal payments on the Wintrust Term Loan, $1.3 million for payments on finance leases, $0.4 million in taxes related to net share settlement of equity awards and $0.6 million for payments related to debt issuance costs related to the Wintrust Term Loan and Wintrust Revolving Loan.
For the six months ended June 30, 2020, we borrowed
$74.8 million and repaid
a total of $62.5$7.3 million on the
2019 Revolving Credit
Agreement revolving facility, paid $4.1 million to redeem 120,000 preferred shares, made repayments of $4.1 million on the term loan,Facility and made capital lease payments of $1.3
million and made financed insurance premium payments of $1.7 million.
On July 20, 2016, in coordination with the Business Combination, the Company entered into a $25.0 million revolving credit facility (proceeds were $16.6 million), a $24.0 million term loan and a $13.0 million subordinated debt facility. The Company also paid down its previous subordinated debt facility of $23.6 million, its revolving credit facility of $8.3 million and made term loan payments of $1.3 million. The Company also received proceeds of $9.9 million from the issuance of redeemable preferred convertible preferred stock.
For January 1, 2016 through July 19, 2016 (Predecessor), we used cash of $5.4 million, in financing activities, primarily due to net reduction of long-term debt in the form of revolver credit of $3.5 million, term loan payments of $1.0 million and capital lease payments of $0.7 million.
Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support it, and increased selling, general and administrative expenses to support the anticipated growth in our operations and regulatory requirements as a new public company. Our capital expenditures in future periods are expected to grow in line with our business. To the extent that existing cash and cash from operations are not sufficient to fund our future operations, we may need to raise additional funds through public or private equity or additional debt financing. Although we currently are not a party to any agreement with any third parties with respect to potential investments in, or acquisitions of, businesses, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.
Debt and Other Obligations
In January 2016, we amended our prior credit facility, resulting in
The Company refinanced its 2019 Refinancing and ABL Credit Agreements on February 24, 2021, described below and therefore had no amounts outstanding under these agreements at June 30, 2021. Accordingly, the Company recognized a $35.0loss on the early debt extinguishment of $2.0 million. This loss consisted of $2.6 million line of credit with a commercial bank, which contained variable interest at one-month LIBOR plus 2.75%,debt issuance and wasdebt discount costs, reversed $2.0 million of the CB warrant liability due to expire May 2018. This linethe warrants being cancelled on the refinancing date and paid a prepayment penalty of credit was refinanced in connection with the Business Combination as disclosed below. The line$1.4 million.
2019 Refinancing Agreement
On July 20, 2016, in connection with the Business Combination, a subsidiary of the Company,April 12, 2019 (the “Refinancing Closing Date”), Limbach Facility Services LLC (“LFS”), refinanced its existing debt by entering entered into a financing agreement (the “2019 Refinancing Agreement”) with the Creditlenders thereto and Cortland Capital Market Services LLC, as collateral agent and administrative agent and CB Agent Services LLC, as origination agent (“CB”). The 2019 Refinancing Agreement and Subordinated Loan Agreement, and incurred lender and third party costs which were all capitalized on our balance sheet. The refinancing qualified as debt extinguishment under GAAP. The Credit Agreement provides forconsisted of (i) a $25.0 million line of credit and a $24.0$40.0 million term loan (the “2019 Refinancing Term Loan”) and (ii) a new $25.0 million multi-draw delayed draw term loan (the “2019 Delayed Draw Term Loan” and, collectively with the 2019 Refinancing Term Loan, the “2019 Term Loans”). Proceeds from the 2019 Refinancing Term Loan were used to repay the then existing Credit Agreement, to pay related fees and expenses thereof and to fund working capital of the 2019 Refinancing Borrowers (defined below). Management intended for proceeds of the 2019 Delayed Draw Term Loan to be used to fund permitted acquisitions under the 2019 Refinancing Agreement and related fees and expenses in connection therewith.
LFS and each of its subsidiaries were borrowers (the “2019 Refinancing Borrowers”) under the 2019 Refinancing Agreement. In addition, the 2019 Refinancing Agreement was guaranteed by the Company and LHLLC (each, a consortium“2019 Refinancing Guarantor”, and together with the 2019 Refinancing Borrowers, the “Loan Parties”).
The 2019 Refinancing Agreement was secured by a first-priority lien on the real property of four commercial banks.the Loan Parties and a second-priority lien on substantially all other assets of the Loan Parties, behind the 2019 ABL Credit Agreement (as defined below). The loans have a variablerespective lien priorities of the 2019 Refinancing Agreement and the 2019 ABL Credit Agreement were governed by an intercreditor agreement.
2019 Refinancing Agreement - Interest Rates and Fees
The interest rate based on one-monthborrowings under the 2019 Refinancing Agreement was, at the 2019 Refinancing Borrowers’ option, either LIBOR (with a 2.00% floor) plus 11.00% or a base rate (with a 3.00% minimum) plus 10.00%. At February 24, 2021 (the 2021 refinancing date) and expireJune 30, 2020, the interest rate in July 2021. effect on the 2019 Refinancing Term Loan was 13.00%.
2019 Refinancing Agreement - Other Terms and Conditions
The loans are subject to certain financial covenants. Also on July 20, 2016, LFS entered into the Subordinated Loan2019 Refinancing Agreement which provided for a $13.0 million subordinated note at 16.0% interest with 13.0% interest paid in cash and the option to pay the additional 3.0% interest in cash or allow it to accrue into the note balance, as payment in kind. The subordinated loan was set to mature in July 2022. On December 21, 2016,on April 12, 2022, subject to certain adjustment. Required amortization was $1.0 million per quarter and commenced with the fiscal quarter ending September 30, 2020. There was an unused line fee of 2.0% per annum on the undrawn portion of the 2019 Delayed Draw Term Loan, and there was a make-whole premium on prepayments made prior to the 19-month anniversary of the Refinancing Closing Date. This make-whole provision guaranteed that the Company repaidwould pay no less than 18 months’ applicable interest to the lenders under the 2019 Refinancing Agreement.
The 2019 Refinancing Agreement contained representations and warranties, and covenants which were customary for debt facilities of this type. Unless the Required Lenders (as defined in the 2019 Refinancing Agreement) otherwise consented in writing, the covenants limited the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company’s affiliates, (vii) sell assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.
In addition, the 2019 Refinancing Agreement included customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company failed to comply with the terms of the 2019 Refinancing Agreement or if other customary events occur.
Furthermore, the 2019 Refinancing Agreement also contained two financial maintenance covenants for the 2019 Refinancing Term Loan, including a requirement to have sufficient collateral coverage of the aggregate outstanding principal amount of the 2019 Term Loans and as of the last day of each month for the total leverage ratio of the Company and its subsidiaries (the “Total Leverage Ratio”) not to exceed an amount beginning at 4.25 to 1.00 through June 30, 2019, and stepping down to 2.00 to 1.00 effective July 1, 2021. From July 1, 2019 through September 30, 2019, the Total Leverage Ratio may not exceed 4.00 to 1.00. In addition, the parties to the 2019 Refinancing Agreement entered into an amendment which, among other changes, revised the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement. The 2019 Refinancing Agreement contained a post-closing covenant requiring the remediation of the Company’s material weakness, as described in Item 9A of its 2018 Annual Report on Form 10-K, no later than December 31, 2020 and provision for updates as to the progress of such remediation, provided that, if such remediation was not completed on or prior to December 31, 2019, (x) the Company would be required to pay the post-closing fee pursuant to the terms of the Origination Agent Fee Letter (as defined in the 2019 Refinancing Agreement) and (y) the applicable margin shall be increased by 1.00% per annum for the period from January 1, 2020 until the date at which the material weakness was no longer disclosed or required to be disclosed in the Company’s SEC filings or audited financial statements of the Company or related auditor’s reports.
In connection with the 2019 Refinancing Amendment Number One and Waiver, dated November 14, 2019, the parties amended certain provisions of the 2019 Refinancing Agreement, including, among other changes to: (i) require, commencing October 1, 2019, a 3.00% increase in the interest rate on borrowings under the
Subordinated2019 Refinancing Agreement; (ii) require the approval of CB and, generally, the lenders representing at least 50.1% of the aggregate undrawn term loan commitment or unpaid principal amount of the 2019 Term Loans, prior to effecting any permitted acquisition; (iii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 and thereafter through the term of the 2019 Refinancing Agreement; and (iv) require the liquidity of the loan parties, which is generally calculated by adding (a) unrestricted cash on hand of the Loan
Agreement, including deferred interest and prepayment penalties, totaling $15.3 millionParties maintained in deposit accounts subject to control agreements granting control to the
subordinated debt lender in full settlementcollateral agent for the 2019 ABL Credit Agreement, to (b) the difference between (1) the lesser of
the Subordinated Loan Agreement using the proceeds(x) $15 million, as adjusted from time to time, and (y) 75% of certain customer accounts resulting from the sale of
1,405,500 sharesgoods or services in the ordinary course of
its common stock at an offering pricebusiness minus certain reserves established by the administrative agent and (2) the sum of
$13.50 per share.In January 2017,(x) the Company obtained an additional irrevocableoutstanding principal balance of all revolving loans under the 2019 ABL Credit Agreement plus (y) the aggregate undrawn available amount of all letters of credit then outstanding plus the amount of any obligations that arise from any draw against any letter of credit that have not been reimbursed by the borrowers or funded with a revolving loan under the 2019 ABL Credit Agreement (the “Loan Parties Liquidity”), as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000. As a condition to executing the 2019 Refinancing Amendment Number One and Waiver, the loan parties were required to pay a non-refundable waiver fee of $400,000 and a non-refundable amendment fee of $1,000,000 (the “PIK First Amendment Fee”, which shall be paid in kind by adding the PIK First Amendment Fee to the outstanding principal amount of $850 thousand for its self-insurance program. During the nine months ended September 30, 2017, the Company drew down $74.7 million and repaid a total of $62.5 million on its revolving credit facility. The Company also made its required quarterly payments of $2.3 million per the Credit Agreement for that same period. During June 2017, the Company voluntarily made an2019 Refinancing Term Loan as additional principal paymentobligations thereunder on and as of $1.9 million under the term loan. As of September 30, 2017, there was $8.5 million of available capacity under the line of crediteffective date 2019 Refinancing Amendment Number One and $18.4 million outstanding under the term loan provided by the Credit Agreement. At September 30, 2017, the Company had total irrevocable letters of credit in the amount of $4.2 million under its self-insurance program as compared to $3.4 million atWaiver).
During December 31, 2016. As of September 30, 2017,2020, the Company was not in compliance with the senior leveragecollateral coverage debt covenant underas defined by the Credit Agreement. At September 30, 2017, the maximum senior leverage ratio permissible under2019 Term Loan financing agreement. The Company was required to maintain at all times a Collateral Coverage Amount (as defined in the Credit Agreement2019 Refinancing Term Loan financing agreement) equal to or greater than the aggregate outstanding principal amount of the 2019 Term Loans. The Company calculated its Collateral Coverage amount at $37.9 million as of December 31, 2020, the aggregate outstanding principal amount of Term Loans was 2.50; however, the Company’s actual ratio was 2.55. This was mainly caused by a significant customer payment$39.0 million as of that was expected before September 30, 2017 but not received until October 17, 2017, and this payment delay causedsame date for an excess of debt over collateral of $1.1 million. On February 1, 2021, the Company, to draw on its revolving LineLFS and LHLLC entered into a Waiver - Collateral Coverage Amount (December 2020) ("December 2020 Waiver") with the lenders party thereto and Cortland Capital Market Services LLC as collateral agent and administrative agent. The December 2020 Waiver included a waiver of Credit more than forecasted at quarter end.the Company's compliance with the Collateral Coverage Amount for the month ending December 31, 2020. The lender has waived its call rightthe event of default arising from thethis noncompliance as of September 30, 2017,December 31, 2020, while reserving its rights with respect to covenant compliance in future quarters.months.
The 2019 Refinancing Term Loan was paid in full on February 24, 2021 as part of the refinancing transaction.
2019 Refinancing Agreement - CB Warrants
In connection with the 2019 Refinancing Agreement, on the Refinancing Closing Date, the Company issued to CB and the other lenders under the 2019 Refinancing Agreement warrants (the “CB Warrants”) to purchase up to a maximum of 263,314 shares of the Company's common stock at an exercise price of $7.63 per share subject to certain adjustments, including for stock dividends, stock splits or reclassifications. The actual number of shares of common stock into which the CB Warrants were exercisable at any given time were equal to: (i) the product of (x) the number of shares equal to 2% of the Company’s issued and outstanding shares of common stock on the Refinancing Closing Date on a fully diluted basis and (y) the percentage of the total 2019 Delayed Draw Term Loan made as of the exercise date, minus (ii) the number of shares previously issued under the CB Warrants. As of the Refinancing Closing Date through February 24, 2021, no amounts had been drawn on the 2019 Delayed Draw Term Loan, so no portion of the CB Warrants were exercisable. The CB Warrants were to be exercised for cash or on a “cashless basis,” subject to certain adjustments, at any time after the 2019 Refinancing Closing Date until the expiration of such warrant at 5:00 p.m., New York time, on the earlier of (i) the five (5) year anniversary of the 2019 Refinancing Closing Date, or (ii) the liquidation of the Company.
Accounting for the 2019 Term Loans and CB Warrants
The CB Warrants represented a freestanding financial instrument that was classified as a liability because the CB Warrants met the definition of a derivative instrument that does not meet the equity scope exception (i.e., the CB Warrants were not indexed to the entity’s own equity). In addition, the material weakness penalty described above was evaluated as an embedded derivative liability and bifurcated from the 2019 Term Loans as it represented a non-credit related embedded feature that provides for net settlement. Both the CB Warrants liability and the embedded derivative liability were required to be initially and subsequently measured at fair value. The initial fair values of the CB Warrants liability and the embedded derivative liability approximated $0.9 million and $0.4 million, respectively, on the Refinancing Closing Date. The Company believesestimated these fair values by using the Black-Scholes-Merton option pricing model and a probability-weighted discounted cash flow approach.
The CB Warrants liability was included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of December 31, 2020 and February 24, 2021 prior to the refinancing date and recorded any adjustments as other income (expense). At both February 24, 2021 and December 31, 2020, the CB Warrants liability was $2.0 million. Due to the extinguishment of the CB Warrants on February 24, 2021, there was no liability associated with the CB Warrants recorded as of June 30, 2021. For the six months ended June 30, 2021, the Company recorded other income of $0.1 million to reflect the change in the fair value of the CB Warrants liability. The Company did not record a change in fair value of the warrant liability during the three months ended June 30, 2021 as the CB Warrants liability was extinguished as part of the debt refinancing on February 24, 2021. For the three and six months ended June 30, 2020, the Company recorded other income of $0.1 million and other expense of $0.1 million to reflect the change in the CB Warrants liability.
The proceeds for the 2019 Refinancing Term Loan were first allocated to the CB Warrants liability and embedded derivative liability based on their respective fair values with a corresponding amount of $1.3 million recorded as a debt discount to the 2019 Term Loans. In addition, the Company incurred approximately $3.9 million of debt issuance costs, including $1.4 million related to the first amendment, for the 2019 Term Loans that it willhave also been recorded as a debt discount. The combined debt discount from the CB Warrants liability, embedded derivative liability and the debt issuance costs were being amortized into interest expense over the term of the 2019 Term Loans using the effective interest method and were expensed on the refinancing date as a loss on early debt extinguishment. The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million for the six months ended June 30, 2021. The Company did not record interest expense for the amortization of the CB Warrants liability and embedded derivative liability debt discounts for the three months ended June 30, 2021 as these debt discounts were extinguished as part of the debt refinancing on February 24, 2021. The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively.
In addition to the amortization of the debt discounts into interest expense, the Company recorded $0.1 million of interest expense for the amortization of debt issuance costs related to the 2019 Refinancing Term Loan for the six months ended June 30, 2021. The Company did not record any interest expense for the amortization of debt issuance costs for the three months ended June 30, 2021 as the debt issuance costs were extinguished as part of the debt refinancing on February 24, 2021. For the three and six months ended June 30, 2020, the Company recorded an additional $0.4 million and $0.7 million of interest expense, respectively, for the amortization of the debt issuance costs related to the 2019 Refinancing Term Loan.
2019 ABL Credit Agreement
On the Refinancing Closing Date, LFS also entered into a financing agreement with the lenders thereto and Citizens Bank, N.A., as collateral agent, administrative agent and origination agent (the “2019 ABL Credit Agreement” and, together with the 2019 Refinancing Agreement, the “Refinancing Agreements”). The 2019 ABL Credit Agreement consisted of a $15.0 million revolving credit facility (the “2019 Revolving Credit Facility”). Proceeds of the 2019 Revolving Credit Facility were to be used for general corporate purposes. On the Refinancing Closing Date, the Company had nothing drawn on the ABL Credit Agreement and $14.0 million of available borrowing capacity thereunder (net of a $1.0 million reserve imposed by the lender).
The 2019 Refinancing Borrowers and 2019 Refinancing Guarantors under the 2019 ABL Credit Agreement were the same as under the 2019 Refinancing Agreement. The 2019 ABL Credit Agreement was secured by a second-priority lien on the real property of the Loan Parties (behind the 2019 Refinancing Agreement) and a first-priority lien on substantially all other assets of the Loan Parties.
2019 ABL Credit Agreement - Interest Rates and Fees
The interest rate on borrowings under the 2019 ABL Credit Agreement was, at the 2019 Refinancing Borrowers’ option, either LIBOR (with a 2.0% floor) plus an applicable margin ranging from 3.00% to 3.50% or a base rate (with a 3.0% minimum) plus an applicable margin ranging from 2.00% to 2.50%. At February 24, 2021 (the 2021 refinancing date) and June 30, 2020, the interest rate in complianceeffect on the 2019 ABL Credit Agreement was 5.25%.
2019 ABL Credit Agreement - Other Terms and Conditions
The 2019 ABL Credit Agreement was set to mature on April 12, 2022. There was also an unused line fee ranging from 0.250% to 0.375% per annum on undrawn amounts.
The 2019 ABL Credit Agreement contained representations and warranties, and covenants which are customary for debt facilities of this type. Unless the Required Lenders otherwise consented in writing, the covenants limited the ability of the Company and its restricted subsidiaries to, among other things, generally, to (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with thisthe Company’s affiliates, (vii) sell assets other than in the ordinary course of business or another permitted disposition of assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.
The 2019 ABL Credit Agreement included customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company failed to comply with the terms of the 2019 ABL Credit Agreement or if other customary events occur.
The 2019 ABL Credit Agreement also contained a financial maintenance covenant for the 2019 Revolving Credit Facility, which is a requirement for the Total Leverage Ratio of the Company and its subsidiaries not to exceed an amount beginning at 4.00 to 1.00 through September 30, 2019, and stepping down to 1.75 to 1.00 effective July 1, 2021. In addition, the parties to the 2019 ABL Credit Agreement entered into an amendment which, among other changes revises the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in future quarters.the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement.
In connection with the 2019 ABL Credit Amendment Number One and Waiver, the parties amended certain provisions of the 2019 ABL Credit Agreement, including, among other changes to (i) require the approval of the origination agent and, generally, the lenders representing at least 50.1% of the aggregate undrawn revolving loan commitment or unpaid principal amount of the 2019 Term Loans, prior to effecting any permitted acquisition; (ii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of the 2019 ABL Credit Agreement; and (iii) require the Loan Parties Liquidity as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000, as described above in the Amendment Number One to 2019 Refinancing Agreement and Waiver. As a condition to executing the 2019 ABL Credit Amendment Number One and Waiver, the loan parties were required to pay a non-refundable waiver fee of $7,500.
As noted above in the section titled: 2019 Refinancing Agreement - Other Terms and Conditions, the Company was subject to cross-default under our 2019 Revolving Credit Facility as a result of having obtainedour failure to satisfy the Collateral Coverage Amount as defined in the 2019 Term Loan financing agreement, which required the company to obtain a waiver. Accordingly, on February 1, 2021, the Company, LFS and LHLLC entered into a Waiver - Collateral Coverage Amount (December 2020) (“December 2020 Waiver”) with the lenders party thereto and Citizens Bank, N.A., as collateral agent and administrative agent. The December 2020 Waiver included a waiver management estimates no impactof the Company's compliance with the Collateral Coverage Amount for the month ending December 31, 2020. The lender has waived the event of default arising from this noncompliance as of December 31, 2020, while reserving its rights with respect to covenant compliance in future months.
At February 24, 2021 (the 2021 refinancing date) and December 31, 2020, the Company had irrevocable letters of credit in the amount of $3.4 million with its lender to secure obligations under its self-insurance program.
Accounting for the 2019 ABL Credit Agreement
The Company incurred approximately $0.9 million of debt issuance costs for the 2019 ABL Credit Agreement that had been recorded as a non-current deferred asset. The deferred asset was amortized into interest expense over the term of the 2019 Term ABL Credit Agreement using the effective interest method and then expensed on the February 24, 2021 refinancing date as a loss on early debt extinguishment. The Company recorded $0.1 million of interest expense for the amortization of debt issuance costs for the six months ended June 30, 2021. The Company did not record any interest expense for the amortization of debt issuance costs for the three months ended June 30, 2021 as the debt issuance costs were extinguished as part of the debt refinancing on February 24, 2021. For both the three and six months ended June 30, 2020, the Company recorded $0.1 million of interest expense for the amortization of debt issuance costs.
Wintrust Term and Revolving Loans
On February 24, 2021, LFS, LHLLC and the direct and indirect subsidiaries of LFS from time to time included as parties to the agreement (the “Wintrust Guarantors”) entered into a Credit Agreement (the “Credit Agreement”) by and among the LFS, LHLLC, Wintrust Guarantors, the lenders party thereto from time to time, Wheaton Bank & Trust Company, N.A., a subsidiary of Wintrust Financial Corporation (collectively, “Wintrust”), as administrative agent and L/C issuer, Bank of the West as documentation agent, M&T Bank as syndication agent, and Wintrust as lead arranger and sole book runner.
In accordance with the terms of the Credit Agreement, Lenders provide to LFS (i) a $30.0 million senior secured term loan (the “Wintrust Term Loan”); and (ii) a $25.0 million senior secured revolving credit facility with a $5.0 million sublimit for the issuance of letters of credit (the “Wintrust Revolving Loan” and, together with the Wintrust Term Loan, the “Wintrust Loans”). Proceeds of the Wintrust Loans were used to refinance certain existing indebtedness, finance working capital and other general corporate purposes and fund certain fees and expenses associated with the closing of the Wintrust Loans.
The Wintrust Revolving Loan bears interest, at the LFS’s option, at either LIBOR (with a 0.25% floor) plus 3.5% or a base rate (with a 3.0% floor) plus 0.50%, subject to a 50 basis point step-down based on the ratio between the senior debt of the Company and its subsidiaries to the EBITDA (earnings before interest, income taxes, depreciation and amortization) of the LFS and its subsidiaries for the most recently ended four fiscal quarters (the “Senior Leverage Ratio”). The Wintrust Term Loan bears interest, at LFS’s option, at either LIBOR (with a 0.25% floor) plus 4.0% or a base rate (with a 3.0% floor) plus 1.00%, subject to a 50 (for LIBOR) or 75 (for base rate) basis point step-down based on the Senior Leverage Ratio.
LFS is required to make principal payments on the Wintrust Term Loan in $0.5 million installments on the last business day of each month commencing on March 31, 2021 with a final payment of all principal and interest not sooner paid on the Wintrust Term Loan due and payable on February 24, 2026. The Wintrust Revolving Loan will mature and become due and payable by LFS on February 24, 2026.
The Wintrust Loans are secured by (i) a valid, perfected and enforceable lien of the administrative agent on the ownership interests held by each of LFS and Wintrust Guarantors in their respective subsidiaries; and (ii) a valid, perfected and enforceable lien of the administrative agent on each of LFS and Wintrust Guarantors’ personal property, fixtures and real estate, subject to certain exceptions and limitations. Additionally, the re-payment of the Wintrust Loans shall be jointly and severally guaranteed by each Wintrust Guarantor.
The Credit Agreement contains representations and warranties, covenants and events of default that are customary for facilities of this covenant violation ontype, as more particularly described in the Company’sCredit Agreement. The Wintrust Loans also contain three financial conditionmaintenance covenants, including (i) a requirement to have as of the last day of each quarter for the senior leverage ratio of the Company and liquidity. Atits subsidiaries not to exceed an amount beginning at 2.25 to 1.00 through December 31, 2016, we were2021, and stepping down to 2.00 to 1.00 at all times thereafter, (ii) a fixed charge coverage ratio of not less than 1.20 to 1.00 as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2021, and (iii) no unfinanced capital expenditures, except for unfinanced capital expenditures in the ordinary course of business not exceeding in the aggregate $4.0 million during any fiscal year; and no default or event of default (as defined by the agreement) has occurred and is continuing, 50% of any portion of this annual limit, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next following fiscal year as stipulated by the agreement. LFS and its affiliates maintain various commercial and service relationships with certain members of the syndicate and their affiliates in the ordinary course of business. As of June 30, 2021, the Company was in compliance with all financial maintenance covenants as required by the financialWintrust Loans.
The following is a summary of the additional margin and other covenants relatedcommitment fees payable on the available Wintrust Term Loan and Wintrust Revolving Loan credit commitment:
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Level | | Senior Leverage Ratio | | Additional Margin for Prime Rate loans | | Additional Margin for Prime Revolving loans | | Additional Margin for Eurodollar Term loans | | Additional Margin for Eurodollar Revolving loans | | Commitment Fee |
I | | Greater than 1.00 to 1.00 | | 1.00 | % | | 0.50 | % | | 4.00 | % | | 3.50 | % | | 0.25 | % |
II | | Less than or equal to 1.00 to 1.00 | | 0.25 | % | | — | % | | 3.50 | % | | 3.00 | % | | 0.25 | % |
At June 30, 2021, the interest rate in effect on the Wintrust Term Loan was 4.25% and the interest rate in effect on the Wintrust Revolving Loan was 3.75%.
At June 30, 2021, the Company had irrevocable letters of credit in the amount of $3.4 million with its lender to secure obligations under its self-insurance program.
The following table reflects our available funding capacity as of June 30, 2021:
| | | | | | | | | | | | | | |
(in thousands) | | | | |
Cash & cash equivalents | | | | $ | 27,693 | |
Credit agreement: | | | | |
Revolving credit facility | | $ | 25,000 | | | |
Outstanding revolving credit facility | | — | | | |
Outstanding letters of credit | | (3,405) | | | |
Net credit agreement capacity available | | | | 21,595 | |
Total available funding capacity | | | | $ | 49,288 | |
Cash Flow Summary
Management continues to devote additional resources to its billing and collection efforts during the six months ended June 30, 2021. Management continues to expect that growth in its ODR business, which is less sensitive to the
Credit Agreement.cash flow issues presented by large GCR projects, will positively impact our cash flow trends. Provided that the Company’s lenders continue to provide working capital funding, we believe based on the Company's current reforecast that our current cash and cash equivalents of $27.7 million as of June 30, 2021, cash payments to be received from existing and new customers, and availability of borrowing under the revolving line of credit under our Wintrust Loans (pursuant to which we had $21.6 million of availability as of June 30, 2021) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. See Note 1 - Organization and Plan of Business Operations. On July 14, 2017,
Surety Bonding
In connection with our business, we are occasionally required to provide various types of surety bonds that provide an additional measure of security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends upon our capitalization, working capital, past performance, management expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of our backlog that we have currently bonded and their current underwriting standards, which may change from time-to-time. The bonds we provide typically reflect the contract value. As of June 30, 2021 and December 31, 2020, the Company
entered intohad approximately $265.3 million and $79.4 million in surety bonds outstanding, respectively. We believe that our $700.0 million bonding capacity provides us with a
preferred stock repurchase agreement (the “Preferred Stock Repurchase Agreement”) with 1347 Investors LLC (“1347 Investors”) pursuantsignificant competitive advantage relative to
many of our competitors which
(a) the Company repurchased from 1347 Investors a total of 120,000 shares of the Company’s Class A Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), for an aggregate sum of approximately $4,092,153 in cash, (b) for a period of six months after such repurchase, the Company will have
the right to repurchase from 1347 Investors, in one or more transactions, all or a portion of the remaining 280,000 shares of Preferred Stock owned by 1347 Investors for a purchase price equal to 130% of the liquidation value per share plus 130% of any and all accrued but unpaid dividends thereon as of the date of closing of the purchase of such shares and (c) 1347 Investors will not, with respect to the 509,500 shares of common stock held in escrow pursuant to its current lock-up arrangement that is to expire on July 20, 2017, sell or otherwise transfer such shares of common stock during the period from such expiration and ending on October 20, 2017.This repurchase was funded through borrowings under the Company’s revolving credit facility and closed on July 14, 2017. The Company has retired the repurchased shares.
limited bonding capacity.
Insurance and Self-Insurance
We purchase workers’ compensation and general liability insurance under policies with per-incident deductibles of $250,000 per occurrence. Losses incurred over primary policy limits are covered by umbrella and excess policies up to specified limits with multiple excess insurers. We accrue for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the Condensed Consolidated Balance Sheets as current and non-current liabilities. The liability is computed by determining a reserve for each reported claim on a case-by-case basis based on the nature of the claim and historical loss experience for similar claims plus an allowance for the cost of incurred but not reported claims. The current portion of the liability is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance
Sheet.Sheets. The non-current portion of the liability is included in other long-term liabilities on the Condensed Consolidated Balance
Sheet.Sheets.
We are self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate stop-loss limits. We accrue for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the Condensed Consolidated Balance Sheets as a current liability in accrued expenses and other current liabilities.
The components of the self-insurance liability are reflected below as of
SeptemberJune 30,
20172021 and December 31,
2016: | | Successor | |
(in thousands) | | As of September 30, 2017 | | | As of December 31, 2016 | |
Current liability – workers’ compensation and general liability | | $ | 430 | | | $ | 479 | |
Current liability – medical and dental | | | 408 | | | | 493 | |
Non-current liability | | | 357 | | | | 601 | |
Total liability | | $ | 1,195 | | | $ | 1,573 | |
Restricted cash | | $ | 113 | | | $ | 113 | |
2020:
| | | | | | | | | | | |
(in thousands) | June 30, 2021 | | December 31, 2020 |
Current liability – workers’ compensation and general liability | $ | 105 | | | $ | 197 | |
Current liability – medical and dental | 511 | | | 764 | |
Non-current liability | 776 | | | 890 | |
Total liability | $ | 1,392 | | | $ | 1,851 | |
Restricted cash | $ | 113 | | | $ | 113 | |
The restricted cash balance represents cash set aside for the funding of workers’ compensation and general liability insurance claims. This amount is replenished when depleted, or at the beginning of each month.
Multiemployer Pension Plans
We participate in approximately
5040 multiemployer pension plans (“MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements (“CBAs”). As one of many participating employers in these MEPPs, we are responsible with the other participating employers for any plan underfunding. Our contributions to a particular MEPP are established by the applicable CBAs; however, required contributions may increase based on the funded status of an MEPP and legal requirements of the Pension Protection Act of 2006 (the “PPA”), which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization of extended amortization provisions. Assets contributed to the MEPPs by us may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to an MEPP, the unfunded obligations of the MEPP may be borne by the remaining participating employers.
An FIP or RP requires a particular MEPP to adopt measures to correct its underfunding status. These measures may include, but are not limited to an increase in a company’s contribution rate as a signatory to the applicable CBA, or changes to the benefits paid to retirees. In addition, the PPA requires that a 5.0% surcharge be levied on employer contributions for the first year commencing shortly after the date the employer receives notice that the MEPP is in critical status and a 10.0% surcharge on each succeeding year until a CBA is in place with terms and conditions consistent with the RP.
We could also be obligated to make payments to MEPPs if we either cease to have an obligation to contribute to the MEPP or significantly reduce our contributions to the MEPP because we reduce the number of employees who are covered by the relevant MEPP for various reasons, including, but not limited to, layoffs or closure of a subsidiary assuming the MEPP has unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) would equal our proportionate share of the MEPPs’ unfunded vested benefits. We believe that certain of the MEPPs in which we participate may have unfunded vested benefits. Due to uncertainty regarding future factors that could trigger withdrawal liability, we are unable to determine (a) the amount and timing of any future withdrawal liability, if any, and (b) whether our participation in these MEPPs could have a material adverse impact on our financial condition, results of operations or liquidity.
In 2015, the Company terminated its relationship with the Teamsters local union in Michigan. As a result of the termination, the Collective Bargaining Agreement required the Company to pay an assessment for future pension liabilities.Recent Accounting Pronouncements
We review new accounting standards to determine the expected financial impact, if any, that the adoption of such standards will have. See Note 3 - Accounting Standards in the Notes to Condensed Consolidated Financial Statements for further information regarding new accounting standards, including the anticipated dates of adoption and the effects on our consolidated financial position, results of operations or liquidity.
Significant Accounting Policies and Significant Estimates
Our Condensed Consolidated Financial Statements are based on the application of significant accounting policies, which require management to make significant estimates and assumptions. Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies of the notes to consolidated financial statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016. We believe that some of our more critical judgment areas in the application of accounting policies that affect our financial condition and results of operations are the impact of changes in the estimates and judgments pertaining to: (a) revenue recognition from (i) long-term construction contracts for which the percentage-of-completion method of accounting is used and (ii) service contracts; (b) collectability or valuation of accounts receivable; (c) costs and earnings in excess of billings and billings in excess of costs and earnings; (d) property and equipment; (e) fair value measurements; (f) stock based compensation; (g) impairment of both definite and indefinite- lived intangibles; (h) long-lived assets; (i) insurance reserves; (j) tax valuation allowance; and (k) accounting for business combinations.
Revenue and Cost Recognition
We believe our most significant accounting policy is revenue recognition from long-term construction contracts for which we use the percentage-of-completion method of accounting. Percentage-of-completion accounting is the prescribed method of accounting for long-term contracts in accordance with Accounting Standard Codification (“ASC”) Topic 605-35, “Revenue Recognition – Construction-Type and Production-Type Contracts”, and, accordingly, is the method used for revenue recognition within our industry. Revenue from fixed price and modified fixed price contracts are recognized on the percentage-of-completion method, measured by the relationship of total cost incurred to total estimated contract costs (cost-to-cost method). Revenue from time and materials contracts are recognized as services are performed.
Contract costs include direct labor, material, and subcontractor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, depreciation, and insurance. Selling, general, and administrative costs are charged to expense as incurred. Bidding and proposal costs are also recognized as an expense in the period in which such amounts are incurred. Total estimated contract costs are based upon management’s current estimate of total costs at completion. As changes in estimates of contract costs at completion and/or estimated total losses on projects are identified, appropriate earnings adjustments are recorded during the period that the change or loss is identified. Contract revenue for long-term construction contracts is based upon management’s estimate of contract prices at completion, including revenue for additional work on which contract pricing has not been finalized. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined.
Costs and estimated earnings in excess of billings on uncompleted contracts reflected in the condensed consolidated balance sheets arise when revenue has been recognized but the amounts have not been billed under the terms of the contracts. Also included in Costs and estimated earnings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Such amounts are recorded at estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the construction costs incurred in connection with claim amounts. Claims and unapproved change orders made by the Company may involve negotiation and, in rare cases, litigation. Unapproved change orders and claims also involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims and unapproved change orders may be made in the near term. Claims against the Company are recognized when a loss is considered probable and amounts are reasonably determinable. Billings in excess of costs and estimated earnings on uncompleted contracts represent billings in excess of revenue recognized.
In accordance with industry practice, we classify as current all assets and liabilities relating to the performance of long-term contracts. The term of our contracts generally ranges from six months to two years and, accordingly, collection or payment of amounts relating to these contracts may extend beyond one year.
Costs and Earnings in Excess of Billings and Billings in Excess of Costs and Earnings
The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenue earned and recognized in advance of billings. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in advance of revenue recognized. These amounts will generally be billable or recognizable, as applicable, in the next twelve months. We generally consider collection risk to be low. When events or conditions indicate that the amounts outstanding may become uncollectible, an allowance is estimated and recorded.
Accounts Receivable
Accounts receivable include amounts billed to customers under retention provisions in construction contracts. Such provisions are standard in the Company’s industry and usually allow for a small portion of progress billings or the contract price, typically 10%, to be withheld by the customer until after the Company has completed work on the project. Based on the Company’s experience with similar contracts in recent years, billings for such retention balances at each balance sheet date are finalized and collected after project completion.
The carrying value of the receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. Management provides for probable uncollectible accounts through a charge to earnings and a credit to the valuation account based on its assessment of the current status of individual accounts, type of service performed, and current economic conditions. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and an adjustment of the account receivable.
Property and Equipment
Property and equipment, including purchases financed through capital leases, are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which for buildings and leasehold improvements is 5 to 40 years and for machinery and equipment is 1 to 10 years. Expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements for operating leases are amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements.
Fair Value Measurements
Accounting guidance defines fair value as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Under this guidance, valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, this guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
Level 1 — quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 — inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 — significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s consolidated financial instruments are comprised of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. As of September 30, 2017, the Company determined the fair value of its senior credit facility term loan at $18.4 million and its revolver loan at $12.2 million. Such fair value is determined using discounted estimated future cash flows using level 3 inputs.
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable, accounts payable and amounts drawn under the revolving portion of the new senior credit facility consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. We also believe that the carrying value of the term portion of the new senior credit facility approximates its fair value due to the variable rate on such debt.
Stock-Based Compensation
Successor
Upon approval of the Business Combination, the Company adopted the Limbach Holdings, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”). Certain employees, directors and consultants will be eligible to be granted awards under the 2016 Plan, other than incentive stock options, which may be granted only to employees. Successor has authorized and reserved 800,000 shares of the Company’s common stock for issuance under the 2016 Plan. The number of shares issued or reserved pursuant to the 2016 Plan will be adjusted by the plan administrator, as they deem appropriate and equitable, as a result of stock splits, stock dividends, and similar changes in the Company’s common stock. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control.
On August 30, 2017, the Compensation Committee of the Board of Directors of the Company granted an aggregate of 374,433 restricted stock units (“RSUs”) under the Limbach Holdings, Inc. Omnibus Incentive Plan to certain executive officers, non-executive employees and non-employee directors of the Company in the forms of an inaugural RSU award to executives (the “Inaugural RSU Award”), an annual long-term incentive RSU award (the “LTI RSU Award”), and an RSU award to non-employee directors (“Director RSU Award”).The recipients of the various executive RSUs include the CEO, COO, CFO and other senior Corporate executives and all Business Unit Managers.The Inaugural RSU Awards contain two different grants--one service-based and one performance-based, while the LTI RSU Awards and the Director RSU Awards each only include service-based grants. As a result, the Company recognized $924 thousand in stock-based compensation as selling, general and administrative expenses in its Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017. As of September 30, 2017, unrecognized compensation expense totaling $3.1 million associated with the RSUs is expected to be recognized through December 31, 2019.
Predecessor
The Company measured future compensation expense for all stock options and warrants based on the fair value of the awards at the grant date using the Black-Scholes option pricing model. The Company’s Predecessor stock options could only be exercised with a change in control of the Company, consummation of an initial public offering, or dissolution of the Company, as defined by the agreement. In conjunction with the Business Combination on July 20, 2016, the Predecessor options were exercised in a cashless exercise and compensation expense for all outstanding options was recorded in the predecessor period from January 1, 2016 to July 19, 2016.
Intangible Assets and Impairment
We review intangible assets with indefinite lives not subject to amortization for impairment each year, or more frequently when events or significant changes in circumstances indicate that the carrying value may not be recoverable.
We also review intangible assets with definite lives subject to amortization whenever events or circumstances indicate that a carrying amount of an asset may not be recoverable. Intangible assets with definite lives subject to amortization are amortized on a straight-line basis with estimated useful lives ranging from 1 to 9 years. Events or circumstances that might require impairment testing include the identification of other impaired assets within a reporting unit, loss of key personnel, the disposition of a significant portion of a reporting unit, a significant decline in stock price or a significant adverse change in business climate or regulations.
Long-Lived Assets
We evaluate the carrying value of long-lived assets whenever events or changes in circumstances indicate that a potential impairment has occurred. A potential impairment has occurred if the projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of the asset in operations. When a potential impairment has occurred, an impairment charge is recorded if the carrying value of the long-lived asset exceeds its fair value. Fair value is measured based on a projected discounted cash flow model using a discount rate we feel is commensurate with the risk inherent in our business. Our impairment analysis contains estimates due to the inherently judgmental nature of forecasting long-term estimated cash flows and determining the ultimate useful lives of assets. Actual results may differ, which could materially impact our impairment assessment.
Off-Balance Sheet and Other Arrangements
Aside from the $4.2 million in irrevocable letters of credit outstanding in connection with the Company’s self-insurance program at September 30, 2017, we did not have any other relationships with any entities or financial partnerships, such as structured finance or special purpose entities established for the purpose of facilitating off-balance sheet arrangements or other purposes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); therefore, pursuant to Item 301(c) of Regulation S-K, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange ActAct. Based on that evaluation as of 1934, as amended (“Exchange Act”). DisclosureJune 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that our Company’s disclosure controls and procedures means controlswere effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and other procedures15d-15(d) of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is recorded, processed, summarized,reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
In designing and
reported, withinevaluating the
time periods specified in the SEC’s rules and forms. Disclosuredisclosure controls and procedures,
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management
including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated,
cancannot provide
only reasonableabsolute assurance of achieving
theirthe desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives
and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.Based on thewill be met. Similarly, an evaluation of our disclosure controls and procedures, as of September 30, 2017, our Chief Executive Officer and Chief Financial Officer concludedcannot provide absolute assurance that our disclosure controls and procedures were not effectivemisstatements due to two material weaknesses (as defined in SEC Rule 12b-2) in our internal control over financial reporting, as further described below.
A material weakness is a deficiency,error or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statementsfraud will not be preventedoccur or detected on a timely basis.
Evaluation of Disclosure Controlsthat all control issues and Procedures
Based upon this assessment, although progress is being made pursuant to execution of Management’s Remediation Plans as discussed below, management determined that, as of September 30, 2017, we continued to have the following material weaknesses:
| · | We have not yet fully developed the required accounting and financial reporting control environment to achieve sufficient precision and timeliness of review. We had not established access review controls for employees who post journal entries to ensure that access is required for their job responsibilities. The infrastructure of the accounting department, including the complement of personnel, is not sufficient to account for complex or infrequent transactions, such as business combinations, preferred stock, warrants and convertible debt, to review the work of third-party consultants, material agreements, and journal entries and medical claims incurred but not reported and underlying support with the necessary level of precision in management review controls, or to fully handle SEC reporting requirements. Limitations with our current financial close processes and supporting systems adversely impact our ability to generate financial statements that are free of material misstatement on a timely basis. |
| · | We have not yet established processes and internal controls sufficient to properly accrue for all goods and services received at project sites, but not invoiced to the Company on a timely basis. |
Because our financial statements are dependent on the effectiveness of these controls, these deficiencies can result in the increased chanceinstances of fraud, occurring and not being detected or the increased likelihoodif any, have been detected.
Table of a material error in our financial statements.Management’s Remediation Plans
In light of our material weaknesses in internal control over financial reporting, we retained consulting firms with technical expertise in accounting and SEC reporting matters to support the preparation of our financial statements, assist us in determining the costs to accrue and associated revenues to record, and perform additional analysis to ensure that our financial statements are prepared in accordance with GAAP. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations, changes in stockholders’ equity and cash flows for the periods presented.
In addition, we have taken other steps toward the remediation of our material weaknesses. We have hired additional personnel with relevant accounting experience, skills and knowledge. We have reviewed and continue to review our finance and accounting functions to evaluate whether we have a sufficient number of appropriately trained and experienced personnel and plan to add new personnel as we deem necessary. We have also implemented continued learning initiatives and other training programs to ensure that our personnel are appropriately trained and up-to-date on relevant rules and procedures. We have engaged a “big four” accounting firm to assist us in accounting for complex or infrequent transactions. We have segregated access control of those who prepare journal entries from those who review, approve and post journal entries to the general ledger and are in the process of implementing procedures to ensure more detailed reviews of such entries going forward. We have identified, designed, implemented and tested key controls aimed at addressing each of our material weaknesses in an effort to strengthen our internal control environment, including controls surrounding our intercompany transactions and reviews of our material agreements to ensure proper accounting treatment and disclosure. We have also implemented reviews of third party information on which we rely for debt valuations and financial reporting. We continue to review and improve processes and internal controls at our branch locations and train personnel to improve our accrual procedures associated with project costs and selling, general & administrative expenses, including the design and implementation of a new monthly review process. With assistance from consulting firms, we have implemented enhancements to our disclosure controls and procedures. We also continue to develop and refine our comprehensive assessment, documentation and testing of our internal control over financial reporting pursuant to management’s assertion requirements under section 404(a) of the Sarbanes Oxley Act.
As we continue to work to improve our internal control over financial reporting and remediate our material weaknesses, management will take additional measures, as deemed appropriate, to improve and strengthen our remediation plans.
Changes in Internal Control over Financial Reporting
Except with respect to certain enhancements discussed immediately above under Management’s Remediation Plans, there has been no change in our internal control over financial reporting during the nine months ended September 30, 2017 that has materially affected, or its reasonably likely to materially affect, our internal control over financial reporting.
Part II
Item 1. Legal Proceedings
On May 10, 2016, Robert Garfield, on behalf of himself
See Note 15 Commitments and all other similarly situated public holders of the Company’s common stock, filed a Verified Class Action and Derivative Complaint (the “Complaint”) against the Company, Gordon G. Pratt, Hassan R. Baqar, Larry G. Swets, Jr., John T. Fitzgerald, Joshua Horowitz, Leo Christopher Saenger III, and Thomas D. Sargent (the “Defendants”) in the Circuit Court of Du Page County, Illinois. In his Complaint, Mr. Garfield alleged that (1) the Defendants’ efforts to consummate the Business Combination were “ultra vires” acts in violation of the Company’s amended and restated certificate of incorporation (the “Charter”) because the Charter required Company to liquidate if it had not entered into a letter of intent or definitive agreement to consummate an initial business combination by January 21, 2016, and the letter of intent with Limbach was not entered into until January 29, 2016, (2) the Defendants breached their fiduciary duties to the shareholders in negotiating and approving the merger because, among other things, they had conflicts of interest resulting from their ownership of insider shares, and (3) the Defendants filed a proxy statement that was incomplete and misleading because, among other things, the proxy statement does not disclose certain conflicts of interest and the violation of Company’s Charter. The Complaint sought (a) a determination that the action was a proper class action and that Mr. Garfield was a proper class representative; (b) a determination that the action was a proper derivative action; (c) a declaration that the Company’s directors breached their fiduciary duties; (d) a declaration that the merger agreement was void because it was ultra vires; (e) injunctive relief enjoining and rescinding the merger; (f) compensatory and/or rescissory damages; and (g) an award of costs and attorney’s fees. The Defendants believed that the Complaint was without merit because, among other things, the Company entered into a letter of intent prior to January 21, 2016 with a potential targetContingencies for a business combination (other than Limbach) which the Company was unable to consummate, thereby extending its deadline for completing a business combination to July 21, 2016, the Defendants did not breach their fiduciary duties, and the proxy statement was not incomplete and misleading. Accordingly, the Company filed a motion to dismiss on November 14, 2016 and, on August 3, 2017, the Circuit Court of Du Page County, Illinois, granted the Company’s motion to dismiss, with prejudice. On September 1, 2017, Garfield filed a Notice of Appeal of the trial court’s ruling. Briefing has not yet begun and the parties are in active settlement negotiations.further information regarding legal proceedings.
There have been no material changes to our risk factors previously disclosed in Part I, Item 1A of our
20162020 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The Exhibit Index following the signature page hereto is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LIMBACH HOLDINGS, INC. | | | | | |
Exhibit | | Description |
| /s/ Charles A. Bacon, III |
| Charles A. Bacon, III |
| Chief Executive Officer
(principal executive officer)
|
| |
| /s/ John T. Jordan, Jr. |
| John T. Jordan, Jr.
Chief Financial Officer
(principal financial
|
Date: November 14, 2017
Exhibits Index
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| 49 | | | | |
| LIMBACH HOLDINGS, INC. |
| |
| /s/ Charles A. Bacon, III |
| Charles A. Bacon, III |
| Chief Executive Officer |
| (Principal Executive Officer) |
| |
| /s/ Jayme L. Brooks |
| Jayme L. Brooks |
| Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
Date: August 12, 2021 | |