UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36541

LIMBACH HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware, USA						46-5399422
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

797 Commonwealth Drive, Warrendale, Pennsylvania						15086
(Address of principal executive offices)						(Zip Code)

1-412-359-2100

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

LMB

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 7,~~November 6, 2023, there were 11,003,424 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.

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LIMBACH HOLDINGS, INC.

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Part I.

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	2
	Condensed Consolidated Statement of Stockholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2730
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4145
Item 4.	Controls and Procedures	4145

Part II.

Item 1.	Legal Proceedings	4246
Item 1A.	Risk Factors	4246
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4246
Item 3.	Defaults Upon Senior Securities	4246
Item 4.	Mine Safety Disclosures	4246
Item 5.	Other Information	4246
Item 6.	Exhibits	4348

Signature		4449

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including all documents incorporated by reference, contains forward-looking statements regarding Limbach Holdings, Inc. (the “Company,” “Limbach” “we” or “our”) and represents our expectations and beliefs concerning future events. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties. The forward-looking statements included herein or incorporated herein by reference include or may include, but are not limited to, (and you should read carefully) statements that are predictive in nature, depend upon or refer to future events or conditions, or use or contain words, terms, phrases, or expressions such as “achieve,” “forecast,”, “plan,” “propose,” “strategy,” “envision,” “hope,” “will,” “continue,” “potential,” “expect,” “believe,” “anticipate,” “project,” “estimate,” “predict,” “intend,” “should,” “could,” “may,” “might,” or similar words, terms, phrases or expressions or the negative of any of these terms. Any statements in this Quarterly Report on Form 10-Q that are not based upon historical fact are forward-looking statements and represent our best judgment as to what may occur in the future.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and the Company management’s' current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside the control of the Company and its directors, officers and affiliates. Accordingly, forward-looking statements should not be relied upon as representing the Company's views as of any subsequent date. The Company does not undertake any obligations to update, add or to otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, the Company's results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include (i) intense competition in our industry; (ii) ineffective management of the size and cost of our operations; (iii) our dependence on a limited number of customers; (iv) unexpected adjustments to our backlog or cancellations of order in our backlog; (v) cost of overruns under our contracts; (vi) timing of the award and performance of new contracts; (vii) significant costs in excess of the original project scope and contract amount without having an approved change order; (viii) our failure to adequately recover on claims brought by us against contractors, project owners or other project participants for additional contract costs; (ix) risks associated with placing significant decision making powers with our subsidiaries' management; (x) acquisitions, divestitures, and other strategic transactions could fail to achieve financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations; (xi) unanticipated or unknown liabilities arising in connection with acquisitions or divestitures; (xii) design errors and omissions in connection with Design/Build and Design/Assist contracts; (xiii) delays and/or defaults in customer payments; (xiv) unsatisfactory safety performance; (xv) our inability to properly utilize our workforce; (xvi) labor disputes with unions representing our employees; (xvii) strikes or work stoppages; (xviii) loss of service from certain key personnel; (xix) operational inefficiencies due to our inability to attract and retain qualified managers, employees, joint venture partners, subcontractors and suppliers; (xx) misconduct by our employees, subcontractors or partners, or our overall failure to comply with laws or regulations; (xxi) our dependence on subcontracts and suppliers of equipment and materials; (xxii) price increases in materials; (xxiii) changes in energy prices; (xxiv) our inability to identify and contract with qualified Disadvantaged Business Enterprise (“DBE”) contractors to perform as subcontractors; (xxv) reputational harm arising from our participation in construction joint ventures; (xxvi) any difficulties in the financial and surety markets; (xxvii) our inability to obtain necessary insurance due to difficulties in the insurance markets; (xxviii) our use of the cost-to-cost method of accounting could result in a reduction or reversal of previously recorded revenue or profits; (xxix) impairment charges for goodwill and intangible assets; (xxx) unexpected expenses arising from contractual warranty obligations; (xxxi) increased costs or limited supplies of raw materials and products used in our operations arising from recent and potential changes in U.S. trade policies and retaliatory responses from other countries; (xxxii) rising inflation and/or interest rates, or deterioration of the United States economy and conflicts around the world; (xxxiii) increased debt service obligations due to our variable rate indebtedness; (xxxiv) failure to remain in compliance with covenants under our debt and credit agreements or service our indebtedness; (xxxv) our inability to generate sufficient cash flow to meet all of our existing or potential future debt service obligations; (xxxvi) significant expenses and liabilities arising under our obligation to contribute to multiemployer pension plans; (xxxvii) a pandemic, epidemic or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our facilities or suppliers; (xxxviii) COVID-19 vaccination mandates applicable to us and certain of our employees, causing our inability to pursue certain work, an increase in attrition rates or absenteeism within our labor force, challenges securing future labor needs, inefficiencies connected to employee turnover, and costs associated with implementation and on-going compliance; (xxxvix) future climate change; (xl) adverse weather conditions, which may harm our business and financial results ; (xli) information technology system failures, network disruptions or cyber security ~~breaches;~~breaches, events or attacks; (xlii) changes in laws, regulations or requirements, or a material failure of any of our subsidiaries or us to ~~comply with any of~~

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comply with any of them; (xliii) becoming barred from future government contracts due to violations of the applicable rules and regulations; (xlv) costs associated with compliance with environmental, safety and health regulations; (xlvi) our failure to comply with immigration laws and labor regulations; (xl) disruptions due to the conflict in Ukraine; and (xlvii) those factors described under Part I, Item 1A “Risk Factors” of the Company’s most recent Annual Report on Form 10-K.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LIMBACH HOLDINGS, INC.

Condensed Consolidated Balance Sheets (Unaudited)


(in thousands, except share and per share data)	(in thousands, except share and per share data)	June 30, 2023		December 31, 2022		(in thousands, except share and per share data)	September 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	45,929	$	36,001	Cash and cash equivalents	$	57,473	$	36,001
Restricted cash	Restricted cash	65		113		Restricted cash	65		113
Accounts receivable (net of allowance for credit losses of $295 and net of allowance for doubtful accounts of $234 as of June 30, 2023 and December 31, 2022, respectively)		87,230		124,442
Accounts receivable (net of allowance for credit losses of $295 and net of allowance for doubtful accounts of $234 as of September 30, 2023 and December 31, 2022, respectively)						Accounts receivable (net of allowance for credit losses of $295 and net of allowance for doubtful accounts of $234 as of September 30, 2023 and December 31, 2022, respectively)	103,511		124,442
Contract assets	Contract assets	59,424		61,453		Contract assets	47,853		61,453
Income tax receivable	Income tax receivable	814		95		Income tax receivable	—		95
Other current assets	Other current assets	5,747		3,886		Other current assets	5,346		3,886
Total current assets	Total current assets	199,209		225,990		Total current assets	214,248		225,990

Property and equipment, net	Property and equipment, net	19,623		18,224		Property and equipment, net	19,377		18,224
Intangible assets, net	Intangible assets, net	14,575		15,340		Intangible assets, net	16,586		15,340
Goodwill	Goodwill	11,370		11,370		Goodwill	13,703		11,370
Operating lease right-of-use assets	Operating lease right-of-use assets	17,149		18,288		Operating lease right-of-use assets	15,845		18,288
Deferred tax asset	Deferred tax asset	4,999		4,829		Deferred tax asset	4,830		4,829
Other assets	Other assets	502		515		Other assets	613		515
Total assets	Total assets	$	267,427	$	294,556	Total assets	$	285,202	$	294,556

LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	2,431	$	9,564	Current portion of long-term debt	$	2,472	$	9,564
Current operating lease liabilities	Current operating lease liabilities	3,598		3,562		Current operating lease liabilities	3,562		3,562
Accounts payable, including retainage	Accounts payable, including retainage	53,376		75,122		Accounts payable, including retainage	56,589		75,122
Contract liabilities	Contract liabilities	43,682		44,007		Contract liabilities	46,692		44,007
Accrued income taxes	Accrued income taxes	1,505		1,888		Accrued income taxes	502		1,888
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	22,677		24,942		Accrued expenses and other current liabilities	26,724		24,942
Total current liabilities	Total current liabilities	127,269		159,085		Total current liabilities	136,541		159,085
Long-term debt	Long-term debt	19,485		21,528		Long-term debt	19,437		21,528
Long-term operating lease liabilities	Long-term operating lease liabilities	14,513		15,643		Long-term operating lease liabilities	13,240		15,643
Other long-term liabilities	Other long-term liabilities	502		2,858		Other long-term liabilities	1,854		2,858
Total liabilities	Total liabilities	161,769		199,114		Total liabilities	171,072		199,114
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)						Commitments and contingencies (Note 13)

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
Common stock, $0.0001 par value; 100,000,000 shares authorized, issued 10,946,316 and 10,471,410, respectively, and 10,766,664 and 10,291,758 outstanding, respectively		1		1
Common stock, $0.0001 par value; 100,000,000 shares authorized, issued 11,183,076 and 10,471,410, respectively, and 11,003,424 and 10,291,758 outstanding, respectively						Common stock, $0.0001 par value; 100,000,000 shares authorized, issued 11,183,076 and 10,471,410, respectively, and 11,003,424 and 10,291,758 outstanding, respectively	1		1
Additional paid-in capital	Additional paid-in capital	89,712		87,809		Additional paid-in capital	90,992		87,809
Treasury stock, at cost (179,652 shares at both period ends)	Treasury stock, at cost (179,652 shares at both period ends)	(2,000)		(2,000)		Treasury stock, at cost (179,652 shares at both period ends)	(2,000)		(2,000)
Retained earnings	Retained earnings	17,945		9,632		Retained earnings	25,137		9,632
Total stockholders’ equity	Total stockholders’ equity	105,658		95,442		Total stockholders’ equity	114,130		95,442
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	267,427	$	294,556	Total liabilities and stockholders’ equity	$	285,202	$	294,556

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.

Condensed Consolidated Statements of Operations (Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	(in thousands, except share and per share data)	2023		2022		2023		2022		(in thousands, except share and per share data)	2023		2022		2023		2022
Revenue	Revenue	$	124,882	$	116,120	$	245,891	$	230,942	Revenue	$	127,768	$	122,357	$	373,659	$	353,299
Cost of revenue	Cost of revenue	96,369		94,800		191,151		191,282		Cost of revenue	96,524		97,503		287,675		288,785
Gross profit	Gross profit	28,513		21,320		54,740		39,660		Gross profit	31,244		24,854		85,984		64,514
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	20,416		18,690		41,466		37,424		Selling, general and administrative	20,967		18,688		62,433		56,113
Change in fair value of contingent consideration	Change in fair value of contingent consideration	162		765		303		765		Change in fair value of contingent consideration	161		386		464		1,151
Amortization of intangibles	Amortization of intangibles	383		399		766		798		Amortization of intangibles	288		386		1,054		1,184
Total operating expenses	Total operating expenses	20,961		19,854		42,535		38,987		Total operating expenses	21,416		19,460		63,951		58,448
Operating income	Operating income	7,552		1,466		12,205		673		Operating income	9,828		5,394		22,033		6,066
Other (expenses) income:
Other income (expenses):										Other income (expenses):
Interest expense	Interest expense	(511)		(478)		(1,178)		(964)		Interest expense	(437)		(547)		(1,615)		(1,511)
Interest income	Interest income	247		—		247		—		Interest income	377		—		624		—
Gain (loss) on disposition of property and equipment		175		147		(40)		111
Gain on disposition of property and equipment										Gain on disposition of property and equipment	68		150		28		262
Loss on early termination of operating lease	Loss on early termination of operating lease	—		(32)		—		(849)		Loss on early termination of operating lease	—		—		—		(849)
Loss on early debt extinguishment	Loss on early debt extinguishment	(311)		—		(311)		—		Loss on early debt extinguishment	—		—		(311)		—
Gain on change in fair value of interest rate swap	Gain on change in fair value of interest rate swap	193		—		37		—		Gain on change in fair value of interest rate swap	116		298		153		298
Total other expenses		(207)		(363)		(1,245)		(1,702)
Income (loss) before income taxes		7,345		1,103		10,960		(1,029)
Income tax provision (benefit)		2,025		237		2,647		(379)
Net income (loss)		$	5,320	$	866	$	8,313	$	(650)
Total other income (expenses)										Total other income (expenses)	124		(99)		(1,121)		(1,800)
Income before income taxes										Income before income taxes	9,952		5,295		20,912		4,266
Income tax provision										Income tax provision	2,760		1,654		5,407		1,275
Net income										Net income	$	7,192	$	3,641	$	15,505	$	2,991

Earnings (loss) Per Share (“EPS”)
Earnings (loss) per common share:
Earnings Per Share (“EPS”)										Earnings Per Share (“EPS”)
Earnings per common share:										Earnings per common share:
Basic	Basic	$	0.50	$	0.08	$	0.79	$	(0.06)	Basic	$	0.66	$	0.35	$	1.45	$	0.29
Diluted	Diluted	$	0.46	$	0.08	$	0.73	$	(0.06)	Diluted	$	0.61	$	0.34	$	1.33	$	0.28
Weighted average number of shares outstanding:	Weighted average number of shares outstanding:									Weighted average number of shares outstanding:
Basic	Basic	10,644,423		10,423,068		10,560,381		10,421,886		Basic	10,962,622		10,444,987		10,695,973		10,429,671
Diluted	Diluted	11,507,311		10,567,304		11,336,474		10,421,886		Diluted	11,789,137		10,690,434		11,671,819		10,595,061

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)


		Number of Shares													Number of Shares
(in thousands, except share amounts)	(in thousands, except share amounts)	Common stock	Treasury stock	Common stock		Additional paid-in capital		Treasury stock, at cost		Retained earnings		Stockholders’ equity		(in thousands, except share amounts)	Common stock	Treasury stock	Common stock		Additional paid-in capital		Treasury stock, at cost		Retained earnings		Stockholders’ equity
Balance at December 31, 2022	Balance at December 31, 2022	10,471,410	(179,652)	$	1	$	87,809	$	(2,000)	$	9,632	$	95,442	Balance at December 31, 2022	10,471,410	(179,652)	$	1	$	87,809	$	(2,000)	$	9,632	$	95,442
Stock-based compensation	Stock-based compensation	—	—	—		1,133		—		—		1,133		Stock-based compensation	—	—	—		1,133		—		—		1,133
Shares issued related to vested restricted stock units	Shares issued related to vested restricted stock units	250,548	—	—		—		—		—		—		Shares issued related to vested restricted stock units	250,548	—	—		—		—		—		—
Tax withholding related to vested restricted stock units	Tax withholding related to vested restricted stock units	—	—	—		(428)		—		—		(428)		Tax withholding related to vested restricted stock units	—	—	—		(428)		—		—		(428)
Shares issued related to employee stock purchase plan	Shares issued related to employee stock purchase plan	10,997	—	—		97		—		—		97		Shares issued related to employee stock purchase plan	10,997	—	—		97		—		—		97

Net income	Net income	—	—	—		—		—		2,993		2,993		Net income	—	—	—		—		—		2,993		2,993
Balance at March 31, 2023	Balance at March 31, 2023	10,732,955	(179,652)	$	1	$	88,611	$	(2,000)	$	12,625	$	99,237	Balance at March 31, 2023	10,732,955	(179,652)	$	1	$	88,611	$	(2,000)	$	12,625	$	99,237
Stock-based compensation	Stock-based compensation	—	—	—		1,101		—		—		1,101		Stock-based compensation	—	—	—		1,101		—		—		1,101
Shares issued related to the exercise of warrants	Shares issued related to the exercise of warrants	213,361	—	—		—		—		—		—		Shares issued related to the exercise of warrants	213,361	—	—		—		—		—		—

Net income	Net income	—	—	—		—		—		5,320		5,320		Net income	—	—	—		—		—		5,320		5,320
Balance at June 30, 2023	Balance at June 30, 2023	10,946,316	(179,652)	$	1	$	89,712	$	(2,000)	$	17,945	$	105,658	Balance at June 30, 2023	10,946,316	(179,652)	$	1	$	89,712	$	(2,000)	$	17,945	$	105,658
Stock-based compensation														Stock-based compensation	—	—	—		1,140		—		—		1,140
Shares issued related to vested restricted stock units														Shares issued related to vested restricted stock units	1,151	—	—		—		—		—		—
Shares issued related to employee stock purchase plan														Shares issued related to employee stock purchase plan	6,664	—	—		140		—				140
Shares issued related to the exercise of warrants														Shares issued related to the exercise of warrants	228,945	—	—		—		—				—

Net income														Net income	—	—	—		—		—		7,192		7,192
Balance at September 30, 2023														Balance at September 30, 2023	11,183,076	(179,652)	$	1	$	90,992	$	(2,000)	$	25,137	$	114,130


		Common Stock										Common Stock
(in thousands, except share amounts)	(in thousands, except share amounts)	Number of shares outstanding	Par value amount		Additional paid-in capital		Retained earnings		Stockholders’ equity		(in thousands, except share amounts)	Number of shares outstanding	Par value amount		Additional paid-in capital		Retained earnings		Stockholders’ equity
Balance at December 31, 2021	Balance at December 31, 2021	10,304,242	$	1	$	85,004	$	2,833	$	87,838	Balance at December 31, 2021	10,304,242	$	1	$	85,004	$	2,833	$	87,838
Stock-based compensation	Stock-based compensation	—	—		599		—		599		Stock-based compensation	—	—		599		—		599
Shares issued related to vested restricted stock units	Shares issued related to vested restricted stock units	105,928	—		—		—		—		Shares issued related to vested restricted stock units	105,928	—		—		—		—
Tax withholding related to vested restricted stock units	Tax withholding related to vested restricted stock units	—	—		(148)		—		(148)		Tax withholding related to vested restricted stock units	—	—		(148)		—		(148)
Shares issued related to employee stock purchase plan	Shares issued related to employee stock purchase plan	12,898	—		98		—		98		Shares issued related to employee stock purchase plan	12,898	—		98		—		98

Net loss	Net loss	—	—		—		(1,516)		(1,516)		Net loss	—	—		—		(1,516)		(1,516)
Balance at March 31, 2022	Balance at March 31, 2022	10,423,068	$	1	$	85,553	$	1,317	$	86,871	Balance at March 31, 2022	10,423,068	$	1	$	85,553	$	1,317	$	86,871
Stock-based compensation	Stock-based compensation	—	—		575		—		575		Stock-based compensation	—	—		575		—		575

Net income	Net income	—	—		—		866		866		Net income	—	—		—		866		866
Balance at June 30, 2022	Balance at June 30, 2022	10,423,068	$	1	$	86,128	$	2,183	$	88,312	Balance at June 30, 2022	10,423,068	$	1	$	86,128	$	2,183	$	88,312
Stock-based compensation											Stock-based compensation	—	—		806		—		806

Shares issued related to employee stock purchase plan											Shares issued related to employee stock purchase plan	24,592	—		111		—		111

Net income											Net income	—	—		—		3,641		3,641
Balance at September 30, 2022											Balance at September 30, 2022	10,447,660	$	1	$	87,045	$	5,824	$	92,870

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	8,313	$	(650)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Net income						Net income	$	15,505	$	2,991
Adjustments to reconcile net income to cash provided by operating activities:						Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	3,859		4,148		Depreciation and amortization	5,751		6,173
Provision for credit losses / doubtful accounts	Provision for credit losses / doubtful accounts	116		104		Provision for credit losses / doubtful accounts	186		235
Stock-based compensation expense	Stock-based compensation expense	2,234		1,174		Stock-based compensation expense	3,374		1,980
Noncash operating lease expense	Noncash operating lease expense	1,882		2,232		Noncash operating lease expense	2,843		3,336
Amortization of debt issuance costs	Amortization of debt issuance costs	58		65		Amortization of debt issuance costs	69		100
Deferred income tax provision	Deferred income tax provision	(170)		(12)		Deferred income tax provision	(1)		(1,077)
Loss (gain) on sale of property and equipment		40		(111)
Gain on sale of property and equipment						Gain on sale of property and equipment	(28)		(262)
Loss on early termination of operating lease	Loss on early termination of operating lease	—		849		Loss on early termination of operating lease	—		849
Loss on change in fair value of contingent consideration	Loss on change in fair value of contingent consideration	303		765		Loss on change in fair value of contingent consideration	464		1,151
Loss on early debt extinguishment	Loss on early debt extinguishment	311		—		Loss on early debt extinguishment	311		—
Gain on change in fair value of interest rate swap	Gain on change in fair value of interest rate swap	(37)		—		Gain on change in fair value of interest rate swap	(153)		(298)

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	37,096		(11,796)		Accounts receivable	21,896		(21,906)
Contract assets	Contract assets	2,029		8,904		Contract assets	14,014		18,597
Other current assets	Other current assets	(1,861)		(520)		Other current assets	(1,459)		698
Accounts payable, including retainage	Accounts payable, including retainage	(21,747)		(635)		Accounts payable, including retainage	(18,703)		(53)
Prepaid income taxes	Prepaid income taxes	(719)		(562)		Prepaid income taxes	95		(101)
Accrued taxes payable	Accrued taxes payable	(383)		(501)		Accrued taxes payable	(1,386)		1,763
Contract liabilities	Contract liabilities	(325)		13,123		Contract liabilities	2,312		15,810
Operating lease liabilities	Operating lease liabilities	(1,836)		(2,165)		Operating lease liabilities	(2,803)		(3,264)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	(1,806)		(1,861)		Accrued expenses and other current liabilities	1,997		(3,612)
Payment of contingent consideration liability in excess of acquisition-date fair value	Payment of contingent consideration liability in excess of acquisition-date fair value	(1,224)		—		Payment of contingent consideration liability in excess of acquisition-date fair value	(1,224)		—
Other long-term liabilities	Other long-term liabilities	159		69		Other long-term liabilities	400		(130)
Net cash provided by operating activities	Net cash provided by operating activities	26,292		12,620		Net cash provided by operating activities	43,460		22,980
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
ACME Transaction, net of cash acquired						ACME Transaction, net of cash acquired	(4,883)		—
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	275		189		Proceeds from sale of property and equipment	370		442

Purchase of property and equipment	Purchase of property and equipment	(1,499)		(473)		Purchase of property and equipment	(1,720)		(725)

Net cash used in investing activities	Net cash used in investing activities	(1,224)		(284)		Net cash used in investing activities	(6,233)		(283)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments on Wintrust and A&R Wintrust Term Loans	Payments on Wintrust and A&R Wintrust Term Loans	(21,452)		(9,149)		Payments on Wintrust and A&R Wintrust Term Loans	(21,452)		(11,571)
Proceeds from Wintrust Revolving Loan	Proceeds from Wintrust Revolving Loan	10,000		15,194		Proceeds from Wintrust Revolving Loan	10,000		15,194
Payments on Wintrust Revolving Loan	Payments on Wintrust Revolving Loan	—		(11,694)		Payments on Wintrust Revolving Loan	—		(15,194)

Proceeds from financing transaction (see Note 6)						Proceeds from financing transaction (see Note 6)	—		5,400
Payments on financing liability						Payments on financing liability	—		(7)

Payment of contingent consideration liability up to acquisition-date fair value	Payment of contingent consideration liability up to acquisition-date fair value	(1,776)		—		Payment of contingent consideration liability up to acquisition-date fair value	(1,776)		—
Payments on finance leases	Payments on finance leases	(1,302)		(1,358)		Payments on finance leases	(1,991)		(2,051)
Payments of debt issuance costs	Payments of debt issuance costs	(50)		(25)		Payments of debt issuance costs	(50)		(427)
Taxes paid related to net-share settlement of equity awards	Taxes paid related to net-share settlement of equity awards	(847)		(363)		Taxes paid related to net-share settlement of equity awards	(847)		(363)
Proceeds from contributions to Employee Stock Purchase Plan	Proceeds from contributions to Employee Stock Purchase Plan	239		213		Proceeds from contributions to Employee Stock Purchase Plan	313		265
Net cash used in financing activities	Net cash used in financing activities	(15,188)		(7,182)		Net cash used in financing activities	(15,803)		(8,754)
Increase in cash, cash equivalents and restricted cash	Increase in cash, cash equivalents and restricted cash	9,880		5,154		Increase in cash, cash equivalents and restricted cash	21,424		13,943
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	36,114		14,589		Cash, cash equivalents and restricted cash, beginning of period	36,114		14,589
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	45,994	$	19,743	Cash, cash equivalents and restricted cash, end of period	$	57,538	$	28,532
Supplemental disclosures of cash flow information	Supplemental disclosures of cash flow information					Supplemental disclosures of cash flow information
Noncash investing and financing transactions:	Noncash investing and financing transactions:					Noncash investing and financing transactions:
Earnout liability associated with the ACME Transaction						Earnout liability associated with the ACME Transaction	$	1,121	$	—
Right of use assets obtained in exchange for new operating lease liabilities	Right of use assets obtained in exchange for new operating lease liabilities	$	742	$	—	Right of use assets obtained in exchange for new operating lease liabilities	1,043		—
Right of use assets obtained in exchange for new finance lease liabilities	Right of use assets obtained in exchange for new finance lease liabilities	3,392		1,968		Right of use assets obtained in exchange for new finance lease liabilities	4,062		2,171
Right of use assets disposed or adjusted modifying operating lease liabilities	Right of use assets disposed or adjusted modifying operating lease liabilities	—		(1,276)		Right of use assets disposed or adjusted modifying operating lease liabilities	(643)		2,396
Right of use assets disposed or adjusted modifying finance lease liabilities	Right of use assets disposed or adjusted modifying finance lease liabilities	(30)		(77)		Right of use assets disposed or adjusted modifying finance lease liabilities	(77)		(77)
Interest paid	Interest paid	1,181		911		Interest paid	1,482		1,425
Cash paid for income taxes	Cash paid for income taxes	$	3,919	$	696	Cash paid for income taxes	$	6,718	$	768

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Business and Organization

Limbach Holdings, Inc. (the “Company,” “we” or “us”), a Delaware corporation headquartered in Warrendale, Pennsylvania, was formed on July 20, 2016 as a result of a business combination with Limbach Holdings LLC (“LHLLC”). The Company is a building systems solutions firm with expertise in the design, prefabrication, installation, management and maintenance of heating, ventilation, air-conditioning (“HVAC”), mechanical, electrical, plumbing and controls systems. The Company provides comprehensive facility services consisting of mechanical construction, full HVAC service and maintenance, energy audits and retrofits, engineering and design build services, constructability evaluation, equipment and materials selection, offsite/prefabrication construction, and the complete range of sustainable building solutions. The Company’s customers operate in diverse industries including, but not limited to, data centers and healthcare, industrial and light manufacturing, cultural and entertainment, higher education, and life science facilities. The Company operates primarily in the Northeast, Mid-Atlantic, Southeast and Midwest regions of the United States.

The Company operates in two segments, (i) General Contractor Relationships (“GCR”), in which the Company generally manages new construction or renovation projects that involve primarily HVAC, plumbing, or electrical services awarded to the Company by general contractors or construction managers, and (ii) Owner Direct Relationships (“ODR”), in which the Company performs owner direct projects and/or provides maintenance or service primarily on HVAC, plumbing or electrical 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.

Note 2 – Significant Accounting Policies

Basis of Presentation

References in these financial statements to the Company refer collectively to the accounts of Limbach Holdings, Inc. and its wholly-owned subsidiaries, including LHLLC, Limbach Facility Services LLC (“LFS”), Limbach Company LLC (“LC LLC”), Limbach Company LP, Harper Limbach LLC, Harper Limbach Construction LLC, Limbach Facility & Project Solutions LLC, Jake Marshall, LLC (“JMLLC”) ~~and~~, Coating Solutions, LLC (“CSLLC”) and ACME Industrial Piping, LLC (“ACME”) for all periods ~~presented.~~presented, unless otherwise indicated. All intercompany balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the requirements of 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 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 the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2023.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements for assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenue and expenses during the reported period, and the accompanying notes. Management believes that its most significant estimates and assumptions have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the condensed consolidated financial statements. The Company’s significant estimates include estimates associated with revenue recognition on construction contracts, costs incurred through each balance sheet date, intangibles, property and equipment, fair value accounting for acquisitions, insurance reserves, fair value of contingent consideration arrangements and contingencies. If the underlying estimates and assumptions upon which the condensed consolidated financial statements are based change in the future, actual amounts may differ from those included in the accompanying condensed consolidated financial statements.

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the

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periods presented are unaudited. Also, within the notes to the condensed consolidated financial statements, the Company has included unaudited information for these interim periods. These unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP. In the Company's opinion, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of ~~June~~September 30, 2023, its results of operations and equity for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 and its cash flows for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022. The results for the three and ~~six~~nine months ended ~~June~~September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

The Condensed Consolidated Balance Sheet as of December 31, 2022 was derived from the Company's audited financial statements included in its Annual Report on Form 10-K filed with the SEC on March 8, 2023, but is presented as condensed and does not contain all of the footnote disclosures from the annual financial statements.

Recently Adopted Accounting Standards

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 Company adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method, whereby the guidance was applied prospectively as of the date of adoption and prior periods are not restated. The adoption of this ASU did not have a material impact on the Company's financial position or results of operations.

The Company assessed the scope of its financial assets and determined that the guidance associated with ASU 2016-13 is relevant to its trade accounts receivable and contract assets, including retainage. The Company’s trade receivables include amounts from work completed in which it has billed or has an unconditional right to bill its customers. The majority of the Company’s trade receivables are contractually due in less than a year. The Company further assessed the guidance based on its segment portfolio of receivables. While the Company’s construction-type GCR and ODR financial assets are often in the same subset of customers and industries, the Company’s construction-type related project work is typically bonded and the customers to which they perform work are well-known, solvent and have no history of material receivable write-offs. On the contrary, the Company’s service-type work, in particular its ODR core service work, is smaller in nature and is usually more susceptible to customer write-offs. As such, there is greater risk of credit loss on the Company’s ODR-related service-type receivables. The Company’s contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of billings on uncompleted contracts. The Company has policies and procedures in place where it reviews claims and change orders on a quarterly basis to determine legal entitlement and recoverability in accordance with ASC Topic 606. As such, the Company has determined the risk of credit loss on its contracts assets to be remote.

The Company develops its allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its ODR-related service-type receivables, using an aging method. Under the aging method, the Company assigns its accounts receivable to a level of delinquency and applies a loss rate to each class. Loss rates are determined based on historical loss experiences with customers, the consideration of a customer’s financial condition, current market economic conditions and a forecast of future economic conditions when appropriate. When the Company becomes aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the expected amount to be collected.

As part of the Company’s analysis of expected credit losses, it may analyze receivables with customers on an individual basis in situations where such accounts receivables exhibit unique risk characteristics and are not expected to experience similar losses to the rest of their class.

Recent Accounting Pronouncements

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 was effective between March 12, 2020 and December 31, 2022. However, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, extending the sunset date under Topic 848 from December 31, 2022 to December 31, 2024 to align the temporary accounting relief guidance with the expected LIBOR cessation date of June 30, 2023.

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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. As a result of ASU 2022-06, an entity may now elect to apply the amendments in this update from the beginning of an interim period beginning as of March 12, 2020, through December 31, 2024. The Company has evaluated the impact of adopting the reference rate reform guidance (both ASU 2020-04 and ASU 2021-01) on its consolidated financial statements and has determined that these pronouncements did not have a significant impact. As discussed in Note 5,6, the A&R Credit Agreement removed LIBOR as a benchmark rate and now utilizes SOFR (as defined in the A&R Credit Agreement) as its replacement. During the second quarter of 2023, the Company entered into the Second A&R Credit Agreement (as defined in Note 5)6), which also utilizes SOFR as a benchmark rate. In addition, the Company’s interest rate swap utilizes SOFR as its benchmark rate.

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. Management is currently assessing the impact of this pronouncement on its condensed consolidated financial statements.

Note 3 – Acquisitions

ACME Transaction

On July 3, 2023 (the “Effective Date”), the Company, LFS and ACME (the “Acquired Company”), and the owner of the Acquired Company (the “Seller”) entered into a Purchase Agreement (the “Purchase Agreement”) pursuant to which LFS purchased all of the outstanding equity interests in the Acquired Company from the Seller (the “ACME Transaction”). The ACME Transaction closed on the Effective Date. As a result of the ACME Transaction, the Acquired Company became a wholly-owned indirect subsidiary of the Company. ACME specializes in performing industrial maintenance, capital project work, and emergency services for specialty chemical and manufacturing clients, and is a leading mechanical solutions provider for hydroelectric producers. The acquisition expands the Company’s market share within its existing operating footprint, provides further exposure to an attractive customer base and supports the Company's continued ODR growth strategy.

Total consideration paid by the Company for the ACME Transaction at closing was $5.0 million (the “Closing Purchase Price”), consisting of cash paid to the Seller, subject to typical adjustments for working capital. Of the consideration paid to the Seller, approximately $0.4 million is being held in escrow for indemnification purposes. The purchase price is subject to customary post-closing adjustments. In addition, the Seller may receive up to an aggregate of $2.5 million in cash, consisting of two individual tranches of $0.5 million and $2.0 million pursuant to the terms of the Purchase Agreement, if the gross profit of the Acquired Company equals or exceeds (i) $2.0 million in the 12-month period beginning on the Effective Date (the “First ACME Earnout Period”) or (ii) $2.5 million in the 12-month period beginning on the first anniversary of the Effective Date (the “Second ACME Earnout Period” and together with the First ACME Earnout Period, the “ACME Earnout Payments”).

The Company recorded $0.3 million in acquisition-related expenses associated with professional fees related to the ACME Transaction during the three and nine months ending September 30, 2023, which are included in selling, general and administrative expense in the condensed consolidated statement of operations.

Allocation of Purchase Price. The ACME Transaction was accounted for as a business combination using the acquisition method. The following table summarizes the preliminary purchase price and estimated fair values of assets acquired and liabilities assumed as of the Effective Date, with any excess of purchase price over estimated fair value of the identified net assets acquired recorded as goodwill. As a result of the acquisition, the Company recognized $2.3 million of goodwill, all of which was allocated to the ODR segment and fully deductible for tax purposes. Such goodwill primarily related to anticipated future earnings. The following table summarizes the preliminary allocation of the fair value of the assets and liabilities of the ACME Transaction as of the Effective Date by the Company.

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(in thousands)	Purchase Price Allocation
Consideration:
Cash	$	5,181
Earnout provision	1,121
Total Consideration	6,302

Fair value of assets acquired:
Cash and cash equivalents	298
Accounts receivable	1,150
Contract assets	414

Property and equipment	488
Operating lease right-of-use assets	301
Intangible assets	2,300
Amount attributable to assets acquired	4,951

Fair value of liabilities assumed:
Accounts payable, including retainage	170
Current operating lease liabilities	195
Accrued expenses and other current liabilities	138
Contract liabilities	373
Long-term operating lease liabilities	106
Amount attributable to liabilities assumed	982
Goodwill	$	2,333

For working capital items, such as cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other current liabilities, the Acquired Company's carrying value was assumed to represent the fair value of these assets due to the current nature of the assets and liabilities. There was no difference between the contract value and fair value of accounts receivable acquired.

The estimated fair value of property and equipment, generally consisting of vehicles, machinery, and equipment, was estimated using the cost approach. Significant unobservable inputs in the estimate of fair value under this approach included management's assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or functional obsolescence associated with the acquired assets. As a result, the estimated fair value of the property and equipment represented a Level 3 fair value measurement.

As part of the purchase price allocation, the Company identified certain definite-lived intangible assets associated with customer relationships with third-party customers and the acquired trade name and trademarks. The fair value of the customer relationships with third-party customers was determined using the multi-period excess earning method under the income approach. The multi-period excess earnings method is a variation of the discounted cash-flow analysis, which isolates the cash flows that can be associated with a single intangible asset and measures fair value by discounting it back to present value. The fair value of the acquired trade name and trademarks intangible asset was determined using an income approach, specifically known as the relief-from-royalty method. This method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs.

The Company calculates amortization of the acquired intangible assets using the straight-line method over the estimated useful lives of each acquired intangible assets. Amortization expense recorded in the consolidated statements of operations for the period from the Effective Date to September 30, 2023 was approximately $0.1 million. The estimated annual amortization expense for the remainder of 2023 is approximately $0.1 million, and $0.3 million for each of the next five years.

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Intangible assets, net as of September 30, 2023 are detailed below.


(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Weighted Average Useful Life (Years)
Trade name and trademarks	$	400	$	(18)	$	382	5.5
Customer relationships	1,900		(46)		1,854		10.3
Total	$	2,300	$	(64)	$	2,236	6.3

The aforementioned contingent ACME Earnout Payments are associated with the achievement of specified gross profit milestones. The Company estimated that the fair value of the ACME Earnout Payments was approximately $1.1 million at the date of acquisition, of which the majority of this balance was included in other long-term liabilities in the Company’s consolidated balance sheet as of September 30, 2023. The Company determined the initial fair value of the ACME Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Effective Date, the ACME Earnout Payments associated with the ACME Transaction were valued utilizing discount rates of 8.65% and 14.49%. The discount rates were calculated using the build-up method with a risk-free rate commensurate with the term of the ACME Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage. Subsequent to the Effective Date, the ACME Earnout Payments are re-measured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

Note 34 – Revenue from Contracts with Customers

The Company generates revenue from construction type contracts, primarily consisting of fixed-price contracts, to deliver HVAC, plumbing, and electrical construction services to its customers. The duration of its contracts generally ranges from three months to two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the relationship of total cost incurred to total estimated contract costs. Revenue from time and materials contracts is recognized as services are performed. The Company believes that its extensive experience in HVAC, plumbing, and electrical projects, and its internal cost review procedures during the bidding process, enable it to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts.

The Company generally invoices 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 a contract asset until billable under the contract terms. Billings in excess of costs and estimated earnings on uncompleted contracts are recorded as a contract liability until the related revenue is recognizable. 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

Contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of billings on uncompleted contracts. The components of the contract asset balances as of the respective dates were as follows:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		Change		(in thousands)	September 30, 2023		December 31, 2022		Change
Contract assets	Contract assets							Contract assets
Costs and estimated earnings in excess of billings on uncompleted contracts	Costs and estimated earnings in excess of billings on uncompleted contracts	$	34,006	$	33,573	$	433	Costs and estimated earnings in excess of billings on uncompleted contracts	$	26,007	$	33,573	$	(7,566)
Retainage receivable	Retainage receivable	25,418		27,880		(2,462)		Retainage receivable	21,846		27,880		(6,034)
Total contract assets	Total contract assets	$	59,424	$	61,453	$	(2,029)	Total contract assets	$	47,853	$	61,453	$	(13,600)

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.

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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 items as recorded in contract assets and contract liabilities in the condensed consolidated balance sheets was ~~$19.8~~$19.7 million and $28.5 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively. The Company currently anticipates that the majority of such amounts will be approved or executed within one year. The resolution of those claims and unapproved change orders that may require litigation or other forms of dispute resolution proceedings may delay the timing of billing beyond one year.

Contract liabilities

Contract liabilities include billings in excess of contract costs and provisions for losses. The components of the contract liability balances as of the respective dates were as follows:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		Change		(in thousands)	September 30, 2023		December 31, 2022		Change
Contract liabilities	Contract liabilities							Contract liabilities
Billings in excess of costs and estimated earnings on uncompleted contracts	Billings in excess of costs and estimated earnings on uncompleted contracts	$	43,382	$	43,806	$	(424)	Billings in excess of costs and estimated earnings on uncompleted contracts	$	46,545	$	43,806	$	2,739
Provisions for losses	Provisions for losses	300		201		99		Provisions for losses	147		201		(54)
Total contract liabilities	Total contract liabilities	$	43,682	$	44,007	$	(325)	Total contract liabilities	$	46,692	$	44,007	$	2,685

Billings in excess of costs and estimated earnings on uncompleted contracts 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) underbilling position for contracts in process consisted of the following:


(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
Revenue earned on uncompleted contracts	Revenue earned on uncompleted contracts	$	739,788	$	678,014	Revenue earned on uncompleted contracts	$	625,765	$	678,014
Less: Billings to date	Less: Billings to date	(749,164)		(688,247)		Less: Billings to date	(646,303)		(688,247)
Net (overbilling) underbilling	Net (overbilling) underbilling	$	(9,376)	$	(10,233)	Net (overbilling) underbilling	$	(20,538)	$	(10,233)

(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
Costs in excess of billings and estimated earnings on uncompleted contracts	Costs in excess of billings and estimated earnings on uncompleted contracts	$	34,006	$	33,573	Costs in excess of billings and estimated earnings on uncompleted contracts	$	26,007	$	33,573
Billings in excess of costs and estimated earnings on uncompleted contracts	Billings in excess of costs and estimated earnings on uncompleted contracts	(43,382)		(43,806)		Billings in excess of costs and estimated earnings on uncompleted contracts	(46,545)		(43,806)
Net (overbilling) underbilling	Net (overbilling) underbilling	$	(9,376)	$	(10,233)	Net (overbilling) underbilling	$	(20,538)	$	(10,233)

Revisions in Contract Estimates

The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the three ~~and six~~ months ended ~~June~~September 30, 2023, the Company recorded material gross profit write-ups on three GCR projects for a total of $3.1 million, inclusive of a $1.2 million write-up related to the settlement of a past claim, and one material GCR project gross profit write-down for $0.7 million and one material ODR project gross profit write-down for $0.6 million. During the nine months ended

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September 30, 2023, the Company recorded material gross profit write-ups on two GCR projects for a total of $2.2 million, inclusive of a $1.2 million write-up related to the settlement of a past claim, and one material GCR project gross profit write-down for $0.5 million and one material ODR project gross profit write-down for $0.7 million. During the three months ended September 30, 2022, the Company did not record any material gross profit write-ups or write-downs that had a net gross profit impact of $0.5 million or more. During the ~~three and six~~nine months ended ~~June~~September 30, 2022, the Company recorded a material gross

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profit ~~write-up~~write-ups on ~~one~~two GCR ~~project~~projects for a total of ~~$1.3~~$2.0 million ~~that had a net~~and two material GCR project gross profit ~~impact~~write-downs for a total of ~~$0.5 million or more for both periods.~~$1.1 million.

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’s remaining performance obligations include 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 conditions.

As of ~~June~~September 30, 2023, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's GCR and ODR segment contracts were ~~$260.2~~$227.0 million and ~~$113.6~~$138.1 million, respectively. The Company currently estimates that ~~52%~~27% and ~~65%~~48% of its GCR and ODR remaining performance obligations as of ~~June~~September 30, 2023, respectively, will be recognized as revenue during the remainder of 2023, 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 backlog 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 these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer.

Note 45 – Goodwill and Intangibles

Goodwill

Goodwill was $13.7 million and $11.4 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively, and is entirely associated with the Company's ODR segment. The Company tests its goodwill and indefinite-lived intangible assets allocated to its reporting units for impairment annually on October 1, or more frequently if events or circumstances indicate that it is more likely than not that the fair value of its reporting units and indefinite-lived intangible assets are less than their carrying amount. The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessments results in a more-likely-than-not determination or if a qualitative assessment is not performed.

The Company did not recognize any impairment charges on its goodwill or intangible assets during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022.

The following table summarizes the carrying amount and changes in goodwill associated with the Company's segments for the nine months ended September 30, 2022 and for the year ended December 31, 2022.


(in thousands)	GCR		ODR		Total


Goodwill as of January 1, 2022	$	—	$	11,370	$	11,370
Goodwill as of December 31, 2022	—		11,370		11,370
Goodwill associated with the ACME Transaction	—		2,333		2,333
Goodwill as of September 30, 2023	$	—	$	13,703	$	13,703

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Intangible Assets

Intangible assets are comprised of the following:

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(in thousands)	(in thousands)	Gross carrying amount		Accumulated amortization		Net intangible assets, excluding goodwill		(in thousands)	Gross carrying amount		Accumulated amortization		Net intangible assets, excluding goodwill
June 30, 2023
September 30, 2023								September 30, 2023
Amortized intangible assets:	Amortized intangible assets:							Amortized intangible assets:
Customer relationships – GCR – Jake Marshall	Customer relationships – GCR – Jake Marshall	$	570	$	(127)	$	443	Customer relationships – GCR – Jake Marshall	$	570	$	(148)	$	422
Customer relationships – ODR – Jake Marshall	Customer relationships – ODR – Jake Marshall	3,050		(637)		2,413		Customer relationships – ODR – Jake Marshall	3,050		(737)		2,313
Customer relationships – ODR – ACME								Customer relationships – ODR – ACME	1,900		(46)		1,854
Customer relationships – ODR – Limbach	Customer relationships – ODR – Limbach	4,710		(3,891)		819		Customer relationships – ODR – Limbach	4,710		(3,944)		766
Favorable leasehold interests – Limbach	Favorable leasehold interests – Limbach	190		(105)		85		Favorable leasehold interests – Limbach	190		(109)		81
Backlog – GCR – Jake Marshall	Backlog – GCR – Jake Marshall	260		(260)		—		Backlog – GCR – Jake Marshall	260		(260)		—
Backlog – ODR – Jake Marshall	Backlog – ODR – Jake Marshall	680		(680)		—		Backlog – ODR – Jake Marshall	680		(680)		—
Trade name – Jake Marshall	Trade name – Jake Marshall	1,150		(295)		855		Trade name – Jake Marshall	1,150		(342)		808
Trade name – ACME								Trade name – ACME	400		(18)		382
Total amortized intangible assets	Total amortized intangible assets	10,610		(5,995)		4,615		Total amortized intangible assets	12,910		(6,284)		6,626
Unamortized intangible assets:	Unamortized intangible assets:							Unamortized intangible assets:
Trade name – Limbach(1)	Trade name – Limbach(1)	9,960		—		9,960		Trade name – Limbach(1)	9,960		—		9,960
Total unamortized intangible assets	Total unamortized intangible assets	9,960		—		9,960		Total unamortized intangible assets	9,960		—		9,960
Total amortized and unamortized assets, excluding goodwill	Total amortized and unamortized assets, excluding goodwill	$	20,570	$	(5,995)	$	14,575	Total amortized and unamortized assets, excluding goodwill	$	22,870	$	(6,284)	$	16,586

(1) The Company has 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.


(in thousands)	Gross carrying amount		Accumulated amortization		Net intangible assets, excluding goodwill
December 31, 2022
Amortized intangible assets:
Customer relationships – GCR – Jake Marshall	$	570	$	(87)	$	483
Customer relationships – ODR – Jake Marshall	3,050		(436)		2,614
Customer relationships – ODR – Limbach	4,710		(3,765)		945
Favorable leasehold interests – Limbach	190		(97)		93
Backlog – GCR – Jake Marshall	260		(178)		82
Backlog – ODR – Jake Marshall	680		(465)		215
Trade name – Jake Marshall	1,150		(202)		948
Total amortized intangible assets	10,610		(5,230)		5,380
Unamortized intangible assets:
Trade name – Limbach	9,960		—		9,960
Total unamortized intangible assets	9,960		—		9,960
Total amortized and unamortized assets, excluding goodwill	$	20,570	$	(5,230)	$	15,340

Total amortization expense for the Company's definite-lived intangible assets was $0.3 million and $0.4 million for the three months ended September 30, 2023 and ~~$0.8~~2022, respectively, and $1.1 million and $1.2 million for ~~both~~ the ~~three and six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

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Note 56 – Debt

Long-term debt consists of the following obligations as of:

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(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026	A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026	—		21,453		A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026	—		21,453
Wintrust Revolving Loans	Wintrust Revolving Loans	10,000		—		Wintrust Revolving Loans	10,000		—
Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.35% through 2027		6,961		4,954
Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.60% through 2027						Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.60% through 2027	6,949		4,954
Financing liability	Financing liability	5,351		5,351		Financing liability	5,351		5,351
Total debt	Total debt	22,312		31,758		Total debt	22,300		31,758
Less - Current portion of long-term debt	Less - Current portion of long-term debt	(2,431)		(9,564)		Less - Current portion of long-term debt	(2,472)		(9,564)
Less - Unamortized discount and debt issuance costs	Less - Unamortized discount and debt issuance costs	(396)		(666)		Less - Unamortized discount and debt issuance costs	(391)		(666)
Long-term debt	Long-term debt	$	19,485	$	21,528	Long-term debt	$	19,437	$	21,528

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 “Wintrust Credit Agreement”) by and among 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 Wintrust Credit Agreement, Lenders provided 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 initially bore interest, at 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 LFS and its subsidiaries for the most recently ended four fiscal quarters. The Wintrust Term Loan initially bore 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 (as defined below).

LFS was initially 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.

In conjunction with the Company's acquisitions of JMLLC and CSLLC (the “Jake Marshall Transaction”), the Company entered into an amendment to the Wintrust Credit Agreement (the “A&R Wintrust Credit Agreement”). In accordance with the terms of the A&R Credit Agreement, Lenders provided to LFS (i) a $35.5 million senior secured term loan (the “A&R Wintrust Term Loan”); and (ii) a $25 million senior secured revolving credit facility with a $5 million sublimit for the issuance of letters of credit (the “A&R Wintrust Revolving Loan” and, together with the Term Loan, the “A&R Wintrust Loans”). The overall Wintrust Term Loan commitment under the A&R Wintrust Credit Agreement was recast at $35.5 million in connection with the A&R Credit Agreement. A portion of the A&R Wintrust Term Loan commitment was used to fund the closing purchase price of the Jake Marshall Transaction. The A&R Credit Agreement was also amended to: (i) permit the Company to undertake the Jake Marshall Transaction, (ii) make certain adjustments to the covenants under the A&R Credit Agreement (which were largely done to make certain adjustments for the Jake Marshall Transaction), (iii) allow for the Earnout Payments (as defined in Note 78) under the Jake Marshall Transaction, and (iv) make other corresponding changes to the A&R Credit Agreement.

The A&R Wintrust Revolving Loan bore interest, at LFS’s option, at either the Term SOFR (as defined in the A&R Credit Agreement) (with a 0.15% floor) plus 3.60%, 3.76% or 3.92% for a tenor of one month, three months or six months, respectively, or a base rate (as set forth in the A&R Credit Agreement) (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 of LFS and its subsidiaries for the most recently ended four fiscal quarters (the “Senior Leverage Ratio”). The A&R Wintrust Term Loan bore

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interest, at LFS’s option, at either Term SOFR (with a 0.15% floor) plus 4.10%, 4.26% or 4.42% for a tenor of one month, three months or six months, respectively, or a base rate (with a 3.0% floor) plus 1.00%, subject to a 50 (for Term SOFR) or 75 (for base rate) basis point step-down based on the Senior Leverage Ratio.

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The A&R Wintrust Term Loan was payable through a combination of (i) monthly installments of approximately $0.6 million due on the last business day of each month commencing on December 31, 2021, (ii) annual Excess Cash Flow payments as defined in the A&R Wintrust Credit Agreement, which are due 120 days after the last day of the Company's fiscal year and (iii) Net Claim Proceeds from Legacy Claims as defined in the A&R Wintrust Credit Agreement. Subject to defaults and remedies under the A&R Credit Agreement, the final payment of all principal and interest not sooner paid on the A&R Wintrust Term Loan was due and payable on February 24, 2026. Subject to defaults and remedies under the A&R Credit Agreement, the A&R Wintrust Revolving Loan would have matured and become due and payable by LFS on February 24, 2026. During the second quarter of 2022, the Company made certain Excess Cash Flow and Net Claim Proceeds payments of $3.3 million and $2.1 million, respectively, which concurrently reduced the outstanding A&R Wintrust Term Loan balance. In addition, during the third quarter of 2022, the Company made a Net Claim Proceeds payment of $0.6 million, which was also applied against the outstanding A&R Wintrust Term Loan balance.

The A&R Wintrust Loans were 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 A&R Wintrust Loans shall be jointly and severally guaranteed by each Wintrust Guarantor.

The A&R Credit Agreement contained representations and warranties, covenants and events of default that are customary for facilities of this type, as more particularly described in the A&R Credit Agreement. The A&R Wintrust Loans also contain three 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 2.00 to 1.00, (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 December 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.

On May 5, 2022, the Company, LFS and LHLLC entered into a first amendment and waiver to the A&R Wintrust Credit Agreement (the “First Amendment to the A&R Wintrust Credit Agreement”) with the lenders party thereto and Wintrust, as administrative agent. The First Amendment to the A&R Wintrust Credit Agreement modifies certain definitions within the A&R Wintrust Credit Agreement, and make other corresponding changes, including: (i) the definition of “EBITDA” to allow for the recognition of certain restructuring charges and lease breakage costs not previously specified, (ii) the definition of “Excess Cash Flow” to exclude the aggregate amount of the Earnout Payments paid in cash, (iii) the definition of “Total Funded Debt” to exclude certain capitalized lease obligations for real estate based on the approval of each lender and (iv) the definition of “Disposition” to include a clause for the sale and leaseback of certain real property based on the approval of each lender.

In July 2022, the Company entered into an interest rate swap agreement to manage the risk associated with a portion of its variable-rate long-term debt. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. The new swap agreement became effective on July 14, 2022 and will terminate on July 31, 2027. The notional amount of the swap agreement is $10.0 million with a fixed interest rate of 3.12%. If the one-month SOFR (as defined in the A&R Credit Agreement) is above the fixed rate, the counterparty pays the Company, and if the one-month SOFR is less than the fixed rate, the Company pays the counterparty, the difference between the fixed rate of 3.12% and one-month SOFR. The Company has not designated this instrument as a hedge for accounting purposes. As a result, the change in fair value of the derivative instrument is recognized directly in earnings on the Company's condensed consolidated statements of operations as a gain or loss on interest rate swap. Refer to Note 78 for further information regarding this interest rate swap.

On September 28, 2022, the Company, LFS and LHLLC entered into a second amendment and waiver to the amended and restated Wintrust credit agreement (the “Second Amendment to the A&R Wintrust Credit Agreement”) with the lenders party thereto and Wintrust, as administrative agent. The Second Amendment to the A&R Wintrust Credit Agreement incorporates certain restricted payment provisions, among other things, to permit LFS to repurchase shares under the Company’s Share Repurchase Program (as defined in Note 6)7).

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On May 5, 2023, LFS, LHLLC and the direct and indirect subsidiaries of LFS from time to time included as parties to the agreement entered into the Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with the lenders party thereto and Wintrust, as administrative agent, which amends and restates the A&R Wintrust Credit Agreement. In

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accordance with the Second A&R Credit Agreement (i) lenders provided to LFS a $50.0 million senior secured revolving credit facility with a $5.0 million sublimit for the issuance of letters of credit, an increase of $25.0 million over the A&R Wintrust Revolving Loan, with a maturity date of February 24, 2028 (the “Second A&R Wintrust Revolving Loan”), and (ii) LFS repaid the then outstanding principal balance of the A&R Wintrust Term Loan using proceeds of the Second A&R Wintrust Revolving Loan. Prior to the execution of this agreement, the Company repaid $9.6 million of the then outstanding balance under the A&R Term Loan with cash on hand. As a result of the early repayment of the A&R Wintrust Term Loan and certain changes to the members of the loan syndicate under the Second A&R Wintrust Credit Agreement, the Company wrote off approximately $0.3 million of unamortized debt issuance costs, which are reported as a loss on early debt extinguishment on the Company's condensed consolidated statements of operations.

Prior to its repayment on May 5, 2023 and as of ~~June~~September 30, 2022, the interest rate in effect on the non-hedged portion of the A&R Wintrust Term Loan was 9.25% and ~~5.75%~~7.25%, respectively. For the period ~~from April 1, 2023 through May 5, 2023 and~~ from January 1, 2023 through May 5, 2023, the Company incurred interest on the A&R Wintrust Term Loan at a weighted average annual interest rate of ~~9.00% and~~ 8.76%~~, respectively.~~. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company incurred interest on the A&R Wintrust Term Loan at a weighted average annual interest rate of ~~4.90%~~6.35% and ~~4.57%~~5.08%, respectively.

The Second A&R Wintrust Revolving Loan bears interest, at LFS’s option, at either the Term SOFR (as defined in the Second A&R Credit Agreement) (with a 0.15% floor) plus 3.10% or the Prime Rate (as defined in the Second A&R Credit Agreement) (with a 3.0% floor), 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 of LFS and its subsidiaries for the most recently ended four fiscal quarters.

The Second A&R Wintrust Revolving Loan is 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 Second A&R Wintrust Revolving Loan is jointly and severally guaranteed by each Wintrust Guarantor.

The Second A&R 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 Second A&R Credit Agreement. The Second A&R Wintrust Revolving Loan also contains three financial maintenance covenants, including (i) a requirement to have as of the last day of each quarter for the senior leverage ratio of LFS and its subsidiaries not to exceed an amount beginning at 2.00 to 1.00, (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, 2023, 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 in the Second A&R Credit 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.

As of ~~June~~September 30, 2023, the Company had $10.0 million in borrowings outstanding under the Second A&R Wintrust Revolving Loan. As of December 31, 2022, the Company had no borrowings outstanding under the A&R Wintrust Revolving Loan. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the maximum outstanding borrowings under either the Company's revolving loan arrangements at any time was $10.0 million during both periods and the average daily balance was approximately ~~$6.3~~$10.0 million and ~~$3.1~~$5.5 million, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company incurred interest on the Second A&R Wintrust Revolving Loan at a weighted average annual interest rate of ~~7.70% for~~5.72% during both ~~periods.~~periods, inclusive of the net impact associated with the Company's interest rate swap arrangement.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the maximum outstanding borrowings under the A&R Wintrust Revolving Loan at any time was $3.5 million and $9.4 million, respectively, and the average daily balance was approximately $0.2 million and $0.1 million, ~~for both periods.~~respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company incurred interest on the A&R Wintrust Revolving Loan at a weighted average annual interest rate of ~~4.91%~~5.25% and ~~4.37%~~4.78%, respectively.

At ~~June~~September 30, 2023, the Company had irrevocable letters of credit in the amount of $4.2 million with its lender to secure obligations under its self-insurance program.

1315

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The following is a summary of the applicable margin and commitment fees payable on the Second A&R Wintrust Revolving Loan credit commitment:


Level	Senior Leverage Ratio	Applicable Margin for SOFR Revolver loans		Applicable Margin for Prime Revolving loans		Applicable Margin for commitment fee
I	Greater than 1.00 to 1.00	3.10	%	—	%	0.25	%
II	Less than or equal to 1.00 to 1.00	2.60	%	(0.50)	%	0.25	%

As of ~~June~~September 30, 2023, the Company was in compliance with all financial maintenance covenants as required by the A&R Wintrust Loans.

Sale-Leaseback Financing Transaction

On September 29, 2022, LC LLC and Royal Oak Acquisitions, LLC (the “Purchaser”) consummated the purchase of the real property under a sale and leaseback transaction, with an aggregate value of approximately $7.8 million (a purchase price of approximately $5.4 million and $2.4 million in tenant improvement allowances), pursuant to a purchase agreement under which the Purchaser purchased from LC LLC the Company’s facility and real property in Pontiac, MI (collectively, the “Pontiac Facility”).

In connection with the sale and leaseback transaction, LC LLC and Featherstone St Pontiac MI LLC (the “Landlord”) entered into a Lease Agreement (the “Lease Agreement”), dated September 29, 2022 (the “Lease Effective Date”) for the Pontiac Facility. Commencing on the Lease Effective Date, pursuant to the Lease Agreement, LC LLC has leased the Pontiac Facility, subject to the terms and conditions of the Lease Agreement. The Lease Agreement provides for a term of 25 years (the “Primary Term”). The Lease Agreement also provides LC LLC with the option to extend the Primary Term by two separate renewal terms of five years each (each a “Renewal Term”). Under the terms of the Lease Agreement, the Company’s annual minimum rent is $499,730, payable in monthly installments, subject to annual increases of approximately 2.5% each year under the Primary Term and for each year under the Renewal Terms, if exercised. LC LLC has a one-time option to terminate the Lease Agreement effective on the last day of the fifteenth lease year by providing written notice to the Landlord as more fully set forth in the Lease Agreement. The one-time termination option of the Lease Agreement would require LC LLC to pay to the Landlord a termination fee of approximately $1.7 million.

Pursuant to the terms and conditions set forth in the Lease Agreement, the Landlord has agreed to provide LC LLC with a tenant improvement allowance in an amount up to $2.4 million. LC LLC is responsible for the initial capital outlay and completion of the agreed upon improvement work. The Landlord will subsequently reimburse LC LLC for such items up to the stated allowance amount.

The Company accounted for the sale and leaseback arrangement as a financing transaction in accordance with ASC Topic 842, “Leases,” as the Lease Agreement was determined to be a finance lease. The Company concluded the Lease Agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using an implicit rate of 11.11% to reflect the Company’s incremental borrowing rate associated with the $5.4 million purchase price as of the Lease Agreement date, compared to the fair value of the Pontiac Facility. The implicit rate associated with the aggregate purchase value, inclusive of tenant improvement allowances, was 6.53% as of the Lease Agreement date.

The presence of a finance lease indicates that control of the Pontiac Facility has not transferred to the Purchaser and, as such, the transaction was deemed a failed sale-leaseback and must be accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sale proceeds from the Purchaser in the form of a hypothetical loan collateralized by its leased facilities. The hypothetical loan is payable as principal and interest in the form of “lease payments” to the Purchaser. Principal repayments are recorded as a reduction to the financing liability. The Company will not derecognize the Pontiac Facility from its books for accounting purposes until the lease ends. No gain or loss was recognized under GAAP related to the sale and leaseback arrangement.

As of ~~June~~September 30, 2023, the financing liability was $4.9 million, net of issuance costs, which was recognized within ~~other~~ long-term debt on the Company's condensed consolidated balance sheets. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, approximately $0.1 million and ~~$0.2~~$0.4 million of interest expense associated with the financing was recognized.

Note 67 – Equity

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.

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Warrants

In conjunction with the Company's initial public offering, the Company issued Public Warrants, Private Warrants and $15 Exercise Price Sponsor Warrants. The Company issued certain Merger Warrants and Additional Merger Warrants in conjunction with the Company's business combination with LHLLC in July 2016 (the “Business Combination”). On July 20, 2021, the Public Warrants, Private Warrants, and Additional Merger Warrants expired by their terms. During the three months ended June 30, 2023, 600,000 $15 Exercise Price Sponsor Warrants and 163,444 Merger Warrants were exercised on a cashless basis by the holders of the warrants, which resulted in the warrants being converted into 167,564 and 45,797 shares of the Company's common stock, respectively. For the period from July 1, 2023 through July 20, 2023, the holders of the Merger Warrants exercised 443,032 warrants on a cashless basis, which resulted in the Merger Warrants being converted into 228,945 shares of the Company's common stock. The remaining 23,167 unexercised Merger Warrants expired by their terms on July 20, 2023.

The following table summarizes the underlying shares of common stock with respect to outstanding warrants:

June 30, 2023 December 31, 2022
$15 Exercise Price Sponsor Warrants(1)(2)
— 600,000
Merger Warrants(3)(4)
466,199 629,643
Total 466,199 1,229,643


	September 30, 2023	December 31, 2022


$15 Exercise Price Sponsor Warrants(1)(2)	—	600,000
Merger Warrants(3)(4)	—	629,643

Total	—	1,229,643

(1) Exercisable for one share of common stock at an exercise price of $15.00 per share (“$15 Exercise Price Sponsor Warrants”).

(2) Issued under a warrant agreement dated July 15, 2014, between Continental Stock Transfer and Trust Company, as warrant agent, and the Company.

(3) Exercisable for one share of common stock at an exercise price of $12.50 per share (“Merger Warrants”).

(4) Issued to the sellers of LHLLC.

Incentive Plan

Upon the consummation of the Company's Business Combination, the Company adopted an omnibus incentive plan (the “Omnibus Incentive Plan”) pursuant to which equity awards may be granted thereunder.

On March 25, 2022, the Board of Directors approved certain amendments to the Company's Omnibus Incentive Plan (the “2022 Amended and Restated Omnibus Incentive Plan”) to increase the number of shares of the Company's common stock that may be issued pursuant to awards by 350,000, for a total of 2,600,000 shares, and extended the term of the plan so that it will expire on the tenth anniversary of the date the stockholders approve the 2022 Amended and Restated Omnibus Incentive Plan. The amendments were approved by the Company's stockholders at the Annual Meeting held on June 22, 2022.

On March 29, 2023, the Board of Directors approved certain amendments to the Company's Omnibus Incentive Plan (the “2023 Amended and Restated Omnibus Incentive Plan”) to increase the number of shares of the Company's common stock that may be issued pursuant to awards by 450,000, for a total of 3,050,000 shares, and extended the term of the plan so that it will expire on the tenth anniversary of the date the stockholders approve the 2023 Amended and Restated Omnibus Incentive Plan. The amendments were acted upon by the Company's stockholders at the Annual Meeting held on June 22, 2023.

See Note 1314 for a discussion of the Company's management incentive plans for restricted stock units (“RSUs”) granted, vested, forfeited and remaining unvested.

Share Repurchase Program

In September 2022, the Company announced that its Board of Directors approved a share repurchase program (the “Share Repurchase Program”) to repurchase shares of its common stock for an aggregate purchase price not to exceed $2.0 million. The share repurchase authority iswas valid through September 29, 2023. Share repurchases may behave been executed through various means, including, without limitation, open market transactions, privately negotiated transactions or by other means in accordance with federal securities laws. The Share Repurchase Program ~~does~~did not obligate the Company to acquire any particular amount of common stock, and the program may behave been suspended or terminated by the Company at any time at its discretion without prior notice. As of ~~June~~September 30, 2023, the Company has made share repurchases of approximately $2.0 million under its Share Repurchase Program.

Employee Stock Purchase Plan

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

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consecutive subscription periods at a purchase price of 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 ten 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 January 2023 and July 2023, the Company issued 10,997 ~~shares of its common stock to participants in the ESPP who contributed to the plan during the offering period ending December 31, 2022. In January 2022, the Company issued a total of 12,898~~and 6,664 shares of its common stock, respectively, to participants in the ESPP who contributed to the plan during the offering periods ending December 31, ~~2021. As of~~2022 and June 30, 2023, ~~395,620~~respectively. In January 2022 and July 2022, the Company issued a total of 12,898 and 24,592 shares of its common stock, respectively, to participants in the ESPP who contributed to the plan during the offering periods ending December 31, 2021 and June 30, 2022, respectively. As of September 30, 2023, 388,956 shares remain available for future issuance under the ESPP.

Note 78 – Fair Value Measurements

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, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The 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 are as follows:

•Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date;

•Level 2 — inputs other than quoted prices included in 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 assets or liabilities; and

•Level 3 — 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. The Company considers all highly liquid investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of ~~June~~September 30, 2023 consisted of overnight repurchase agreements in which cash from the Company's main operating checking account is invested overnight in highly liquid, short term investments, one U.S. Treasury Bill and certain investments in money market funds sponsored by a large financial institution. The Company had no such investments as of December 31, 2022. For the three and ~~six~~nine months ending ~~June~~September 30, 2023, the Company recognized interest income in the aggregate of approximately ~~$0.2~~$0.4 million and $0.6 million associated with its overnight repurchase agreements, U.S. Treasury Bills and money market ~~funds.~~funds, respectively. The Company has not experienced any losses in its cash and cash equivalents and management believes the Company is not exposed to significant credit risk with respect to such accounts.


				Fair Value at Reporting Date Using									Fair Value at Reporting Date Using
(in thousands)	(in thousands)	June 30, 2023		Level 1		Level 2		Level 3		(in thousands)	September 30, 2023		Level 1		Level 2		Level 3
Cash equivalents:	Cash equivalents:									Cash equivalents:
Overnight repurchase agreements	Overnight repurchase agreements	$	32,100	$	32,100					Overnight repurchase agreements	$	41,687	$	41,687
U.S. Treasury Bills	U.S. Treasury Bills	5,000		5,000		$	—	$	—	U.S. Treasury Bills	10,000		10,000		$	—	$	—

Money market fund	Money market fund	3,750		3,750		—		—		Money market fund	3,750		3,750		—		—

Total	Total	$	40,850	$	40,850	$	—	$	—	Total	$	55,437	$	55,437	$	—	$	—

Second A&R Wintrust Revolving Loan

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The Company also believes that the carrying value of the Second A&R Wintrust Revolving Loan approximates its respective fair value due to the variable rate on such debt. As of ~~June~~September 30, 2023, the Company determined that the fair value of the Second

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A&R Wintrust Revolving Loan was $10.0 million. Such fair value was determined using discounted estimated future cash flows using level 3 inputs.

Earnout Payments

As a part of the total consideration for the Jake Marshall Transaction, the former owners of JMLLC and CSLLC may receive up to an aggregate of $6.0 million in cash, consisting of two tranches of $3.0 million, as defined in the purchase agreement, if the gross profit of the acquired companies equals or exceeds $10.0 million in (i) the approximately ~~13 month~~12-month period from closing through December 31, 2022 (the “2022 Jake Marshall Earnout Period”) or (ii) fiscal year 2023 (the “2023 Jake Marshall Earnout Period”), respectively (collectively, the ~~“Earnout~~“Jake Marshall Earnout Payments”). To the extent, however, that the gross profit of the ~~Acquired Companies~~acquired companies is less than $10.0 million, but exceeds $8.0 million, during any of the 2022 Jake Marshall Earnout Period or 2023 Jake Marshall Earnout Period, the $3.0 million amount will be prorated for such period. The Company initially recognized $3.1 million in contingent consideration, of which the entire balance was included in other long-term liabilities in the Company’s condensed consolidated balance sheets on December 2, 2021. The fair value of contingent Jake Marshall Earnout Payments is based on generating growth rates on the projected gross margins of the ~~Acquired Entities~~acquired entities and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. In April 2023, the Company made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2022 Jake Marshall Earnout Period. Based on the Company’s ongoing assessment of the fair value of contingent earnout liabilities, the Company recorded a net increase in the estimated fair value of such liabilities of $0.2 million and ~~$0.3~~$0.5 million for the three and ~~six~~nine ended ~~June~~September 30, 2023, respectively, which was presented in change in fair value of contingent consideration in the Company's condensed consolidated statements of operations. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded a net increase in the estimated fair value of such liabilities of ~~$0.8~~$0.4 million ~~for both periods.~~and $1.2 million, respectively. The Company has assessed the estimated exposure to the contingent earnout liability for the 2023 Earnout Period to be approximately $2.7 million at June 30, 2023, which was included in accrued expenses and other current liabilities on the Company's condensed consolidated balance sheets.

~~The Company determines~~determined the fair value of the Earnout Payments by utilizing the Monte Carlo Simulation method, which represents a Level 3 measurement.

As a part of the total consideration for the ACME Transaction, the Company recognized $1.1 million in contingent consideration on the Effective Date. The fair value of contingent ACME Earnout Payments is based on generating growth rates on the projected gross margins of the Acquired Company and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the ACME Earnout Payments based on the Monte Carlo Simulation method, ~~models the probability of different financial results~~which represented a Level 3 measurement. As of the ~~Acquired Entities during~~Effective Date, the ~~earn-out period, utilizing a discount rate, which reflects a credit spread over the term-adjusted continuous risk-free rate. As of June 30, 2023 and 2022, the~~ACME Earnout Payments associated with the ~~Jake Marshall~~ACME Transaction were valued utilizing a discount ~~rate of 10.2%~~rates between 8.65% and ~~6.83%, respectively.~~14.49%. The discount ~~rate was~~rates were calculated using the build-up method with a risk-free rate commensurate with the term of the ACME Earnout Payments based on the U.S. Treasury Constant Maturity ~~Yield.~~Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage.

The following table presents the carrying values of the Company's contingent earnout payment obligations included in the accompanying condensed consolidated balance sheets, which approximated fair value at September 30, 2023 and December 31, 2022.

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			Fair Value at Reporting Date Using
(in thousands)	September 30, 2023		Level 1		Level 2		Level 3
Accrued expenses and other current liabilities:
2023 Jake Marshall Earnout Period	$	2,838	$	—	$	—	$	2,838
First ACME Earnout Period	12		—		—		12
Other long-term liabilities:
Second ACME Earnout Period	1,109		—		—		1,109

Total	$	3,959	$	—	$	—	$	3,959

			Fair Value at Reporting Date Using
	December 31, 2022		Level 1		Level 2		Level 3
Accrued expenses and other current liabilities:
2022 Jake Marshall Earnout Period (1)	$	2,859	$	—	$	—	$	2,859
Other long-term liabilities:	—
2023 Jake Marshall Earnout Period	2,515		—		—		2,515
Total	$	5,374	$	—	$	—	$	5,374

(1) In April 2023, the Company made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2022 Jake Marshall Earnout Period.

Interest Rate Swap

The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The fair value of the interest rate contract has been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The interest rate swap is classified as a Level 2 item within the fair value hierarchy. As of ~~June~~September 30, 2023, the Company determined that the fair value of the interest rate swap was approximately ~~$0.3~~$0.5 million and is recognized in other assets on the Company's condensed consolidated balance sheets. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company recognized a gain of approximately ~~$0.2~~$0.1 million and ~~less than $0.1~~$0.2 million, respectively, on its condensed consolidated statements of operations associated with the change in fair value of the interest rate swap arrangement. For both the three and nine months ended September 30, 2022, the Company recognized a gain of $0.3 million on its condensed consolidated statements of operations associated with the change in fair value of the interest rate swap arrangement.

Note 89 – Earnings per Share

Earnings per Share

The Company calculates earnings per share in accordance with ASC Topic 260 - Earnings Per Share (“EPS”). Basic earnings per common share applicable to common stockholders is computed by dividing earnings applicable to common stockholders by the weighted-average number of common shares outstanding and assumed to be outstanding. Diluted EPS assumes the dilutive effect of outstanding common stock warrants, shares issued in conjunction with the Company’s ESPP and RSUs, all using the treasury stock method.

The following table sets forth the computation of the basic and diluted earnings per share attributable to the Company's common shareholders for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:

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Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands, except per share amounts) 2023 2022 2023 2022
EPS numerator:
Net income (loss) $ 5,320 $ 866 $ 8,313 $ (650)
EPS denominator:
Weighted average shares outstanding – basic 10,644 10,423 10,560 10,422
Impact of dilutive securities(1)
863 144 776 —
Weighted average shares outstanding – diluted 11,507 10,567 11,336 10,422
EPS:
Basic $ 0.50 $ 0.08 $ 0.79 $ (0.06)
Diluted $ 0.46 $ 0.08 $ 0.73 $ (0.06)

~~(1)~~ For the six months ended June 30, 2022, the Company excluded 150,420 of potentially dilutive securities related to certain of the Company's outstanding common stock warrants, shares issued in conjunction with the Company's ESPP and nonvested RSUs. These securities were excluded from the computation as their effect would have been anti-dilutive. As a result, the computations of net loss per share for the six months ended June 30, 2022 is the same for both basic and diluted.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2023		2022		2023		2022
EPS numerator:
Net income	$	7,192	$	3,641	$	15,505	$	2,991

EPS denominator:
Weighted average shares outstanding – basic	10,963		10,445		10,696		10,430
Impact of dilutive securities	826		245		976		165
Weighted average shares outstanding – diluted	11,789		10,690		11,672		10,595

EPS:
Basic	$	0.66	$	0.35	$	1.45	$	0.29
Diluted	$	0.61	$	0.34	$	1.33	$	0.28

The following table summarizes the securities that were antidilutive or out-of-the-money, and therefore, were not included in the computations of diluted income per common share:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended September 30,		Nine Months Ended September 30,
		2023	2022	2023	2022		2023	2022	2023	2022

Out-of-the-money warrants (see Note 6)		—	1,229,643	—	1,229,643
Service-based RSUs (See Note 13)		1	17,595	26	72,871
Out-of-the-money warrants (see Note 7)						Out-of-the-money warrants (see Note 7)	—	1,229,643	—	1,229,643
Service-based RSUs (See Note 14)						Service-based RSUs (See Note 14)	—	56	49	3,818
Performance and market-based RSUs(1)	Performance and market-based RSUs(1)	15	48,229	60	85,969	Performance and market-based RSUs(1)	—	197	153	842
Employee Stock Purchase Plan	Employee Stock Purchase Plan	643	—	2,426	8,451	Employee Stock Purchase Plan	33	233	1,114	1,301
Total	Total	659	1,295,467	2,512	1,396,934	Total	33	1,230,129	1,316	1,235,604

(1) For the three and ~~six~~nine months ended ~~June~~September 30, 2022, certain MRSU awards (each defined in Note ~~13)~~14) were not included in the computation of diluted income per common share because the performance and market conditions were not satisfied during the periods and would not be satisfied if the reporting date was at the end of the contingency period.

Note 910 – Income Taxes

The Company is taxed as a C 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.

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Each quarter the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.

The following table presents our income tax provision and our income tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except percentages)	(in thousands, except percentages)	2023			2022			2023			2022			(in thousands, except percentages)	2023			2022			2023			2022
Income tax provision (benefit)		$	2,025		$	237		$	2,647		$	(379)
Income tax provision														Income tax provision	$	2,760		$	1,654		$	5,407		$	1,275
Income tax rate	Income tax rate	27.6		%	21.5		%	24.2		%	36.8		%	Income tax rate	27.7		%	31.2		%	25.9		%	29.9		%

The U.S. federal statutory tax rate was 21% for each of the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate period over period was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items.

No valuation allowance was required as of ~~June~~September 30, 2023 or December 31, 2022.

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Note 1011 – Operating Segments

As discussed in Note 1, the Company operates in two segments, (i) GCR, in which the Company generally manages new construction or renovation projects that involve primarily HVAC, plumbing, or electrical services awarded to the Company by general contractors or construction managers, and (ii) ODR, in which the Company provides maintenance or service primarily on HVAC, plumbing or electrical systems, building controls and specialty contracting projects direct to, or assigned by, building owners or property managers. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company's CODM is comprised of its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer.

In 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.

On January 17, 2023, the Company announced its planned transition succession, pursuant to which Charles A. Bacon III stepped down as President and Chief Executive Officer on March 28, 2023, and Michael M. McCann, the Company’s former Executive Vice President and Chief Operating Officer, was appointed President and Chief Executive Officer. Following the transition, the Company revised its segment presentation to align with how Mr. McCann assesses performance and makes resource allocation decisions for its operating segments, which is based on segment revenue and segment gross profit. Selling, general and administrative ("SG&A") expenses are no longer reported on a segment basis as the Company's current CODM does not review discrete segment financial information for SG&A in order to assess performance. Interest expense is not allocated to segments because of the corporate management of debt service.

The Company restated segment information for the historical periods presented herein to conform to the current presentation. This change in segment presentation does not affect the Company’s unaudited condensed consolidated statements of operations, balance sheets or statements of cash flows.

All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled.

Condensed consolidated segment information for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were as follows:

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		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		2023		2022		(in thousands)	2023		2022		2023		2022
Statement of Operations Data:	Statement of Operations Data:									Statement of Operations Data:
Revenue:	Revenue:									Revenue:
GCR	GCR	$	66,102	$	66,336	$	128,393	$	138,268	GCR	$	61,936	$	62,653	$	190,329	$	200,921
ODR	ODR	58,780		49,784		117,498		92,674		ODR	65,832		59,704		183,330		152,378
Total revenue	Total revenue	124,882		116,120		245,891		230,942		Total revenue	127,768		122,357		373,659		353,299

Gross profit:	Gross profit:									Gross profit:
GCR	GCR	11,272		8,694		21,590		17,052		GCR	11,970		9,648		33,560		26,700
ODR	ODR	17,241		12,626		33,150		22,608		ODR	19,274		15,206		52,424		37,814
Total gross profit	Total gross profit	28,513		21,320		54,740		39,660		Total gross profit	31,244		24,854		85,984		64,514

Selling, general and administrative(1)	Selling, general and administrative(1)	20,416		18,690		41,466		37,424		Selling, general and administrative(1)	20,967		18,688		62,433		56,113
Change in fair value of contingent consideration	Change in fair value of contingent consideration	162		765		303		765		Change in fair value of contingent consideration	161		386		464		1,151
Amortization of intangibles	Amortization of intangibles	383		399		766		798		Amortization of intangibles	288		386		1,054		1,184
Operating income	Operating income	$	7,552	$	1,466	$	12,205	$	673	Operating income	$	9,828	$	5,394	$	22,033	$	6,066

Less unallocated amounts:	Less unallocated amounts:									Less unallocated amounts:
Interest expense	Interest expense	(511)		(478)		(1,178)		(964)		Interest expense	(437)		(547)		(1,615)		(1,511)
Interest income	Interest income	247		—		247		—		Interest income	377		—		624		—
Gain (loss) on disposition of property and equipment		175		147		(40)		111
Gain on disposition of property and equipment										Gain on disposition of property and equipment	68		150		28		262
Loss on early termination of operating lease	Loss on early termination of operating lease	—		(32)		—		(849)		Loss on early termination of operating lease	—		—		—		(849)
Loss on early debt extinguishment	Loss on early debt extinguishment	(311)		—		(311)		—		Loss on early debt extinguishment	—		—		(311)		—
Gain on change in fair value of interest rate swap	Gain on change in fair value of interest rate swap	193		—		37		—		Gain on change in fair value of interest rate swap	116		298		153		298

Total unallocated amounts	Total unallocated amounts	(207)		(363)		(1,245)		(1,702)		Total unallocated amounts	124		(99)		(1,121)		(1,800)
Income (loss) before income taxes		$	7,345	$	1,103	$	10,960	$	(1,029)
Income before income taxes										Income before income taxes	$	9,952	$	5,295	$	20,912	$	4,266

(1) Included within selling, general and administrative expenses was $1.1 million and ~~$0.6~~$0.8 million of stock based compensation expense for the three months ended ~~June~~September 30, 2023 and 2022, respectively. For the ~~six month~~nine months ended ~~June~~September 30, 2023 and 2022, selling, general and administrative expenses included ~~$2.2~~$3.4 million and ~~$1.2~~$2.0 million of stock based compensation expenses, respectively.

The Company does not identify capital expenditures and total assets 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 also not allocated to segments because of the Company’s corporate management of debt service, including interest.

Note 1112 - 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. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

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 the Company's 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 the Company's real estate leases, the Company uses quoted borrowing rates on its secured debt.

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Related Party Lease ~~Agreement.~~Agreements. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is 10 years and includes an option to extend the lease for two successive periods of two years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years 6 through 10 of the lease term. Fixed rent payments for the extension term shall be increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.

In conjunction with the closing of the ACME Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of ACME who became a full-time employee of the Company. The lease term of the lease runs through December 31, 2024 and includes an option to extend the lease for one successive period of one year through December 2025. Base rent for the term of the lease is $17,000 per month for the first six months with payment commencing on July 1, 2023. The fixed rent payment is escalated to $18,000 per month for the twelve month period ending December 31, 2024. Fixed rent payments for the extension term shall be increased to $19,000. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Southern California Sublease. In June, 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of ~~June~~September 30, 2023, the Company remains obligated under the original lease for such office space and, in the event the sublessee of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease.

In addition, during the first quarter of 2022, the Company entered into an amendment to the aforementioned sublease agreement, which, among other things, expanded the sublease premises to include the entire second floor of its leased space in Southern California, consisting of 16,720 square feet. Under the terms of the amended sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.8 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The amended sublease term commenced in March 2022 and continues through April 30, 2027. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company recorded approximately $0.3 million and $0.5 million, respectively, of income in selling, general and administrative expenses related to this sublease agreement. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded approximately $0.2 million and $0.4 million, respectively, of income in selling, general and administrative expenses related to this sublease agreement.

Pittsburgh Lease Termination. In March, 2022, the Company entered into a lease termination agreement (the “Lease Termination Agreement”) to terminate, effective March 31, 2022, the lease associated with the Company’s office space located in Pittsburgh, Pennsylvania, which previously served as its corporate headquarters. Absent the Lease Termination Agreement, the lease would have expired in accordance with its terms in July 2025. Pursuant to the Lease Termination Agreement, in exchange for allowing the Company to terminate the lease early, the Company agreed to pay a termination fee in the aggregate of approximately $0.7 million in 16 equal monthly installments commencing on April 1, 2022. The Company recognized the full termination fee expense during the first quarter of 2022.

In connection with the lease termination, the Company recognized a gain of $0.1 million associated with the derecognition of the operating lease right-of-use asset and corresponding operating lease liabilities associated with the operating lease and recorded a $0.1 million loss on the disposal of leasehold improvements and moving expenses.

The following table summarizes the lease amounts included in the Company's condensed consolidated balance sheets:

(in thousands) Classification on the Condensed Consolidated Balance Sheets June 30, 2023 December 31, 2022
Assets
Operating
Operating lease right-of-use assets(1)
$ 17,149 $ 18,288
Finance
Property and equipment, net(2)(3)
9,307 7,402
Total lease assets $ 26,456 $ 25,690
Liabilities
Current
   Operating Current operating lease liabilities $ 3,598 $ 3,562
   Finance Current portion of long-term debt 2,431 2,135
Noncurrent
   Operating Long-term operating lease liabilities 14,513 15,643
   Finance
Long-term debt(4)
9,881 8,170
Total lease liabilities $ 30,423 $ 29,510

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(in thousands)	Classification on the Condensed Consolidated Balance Sheets	September 30, 2023		December 31, 2022
Assets
Operating	Operating lease right-of-use assets(1)	$	15,845	$	18,288
Finance	Property and equipment, net(2)(3)	9,217		7,402
Total lease assets		$	25,062	$	25,690

Liabilities
Current
Operating	Current operating lease liabilities	$	3,562	$	3,562
Finance	Current portion of long-term debt	2,472		2,135
Noncurrent
Operating	Long-term operating lease liabilities	13,240		15,643
Finance	Long-term debt(4)	9,828		8,170
Total lease liabilities		$	29,102	$	29,510

(1) Operating lease assets are recorded net of accumulated amortization of ~~$11.7~~$13.0 million at ~~June~~September 30, 2023 and $12.2 million at December 31, 2022.

(2) Finance lease vehicle assets are recorded net of accumulated amortization of ~~$5.1~~$4.9 million at ~~June~~September 30, 2023 and $6.0 million at December 31, 2022.

(3) Includes approximately $2.5 million and $2.6 million of net property assets associated with the Company's Pontiac Facility as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

(4) Includes approximately $5.4 million associated with the Company's sale and leaseback financing transaction. See Note 56 for further detail.

The following table summarizes the lease costs included in the Company's condensed consolidated statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:


			Three Months Ended June 30,				Six Months Ended June 30,						Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	Classification on the Condensed Consolidated Statement of Operations	2023		2022		2023		2022		(in thousands)	Classification on the Condensed Consolidated Statement of Operations	2023		2022		2023		2022
Operating lease cost	Operating lease cost	Cost of revenue(1)	$	522	$	657	$	1,083	$	1,351	Operating lease cost	Cost of revenue(1)	$	543	$	654	$	1,626	$	2,005
Operating lease cost	Operating lease cost	Selling, general and administrative(1)	612		631		1,257		1,335		Operating lease cost	Selling, general and administrative(1)	635		622		1,892		1,957
Finance lease cost	Finance lease cost										Finance lease cost
Amortization	Amortization	Cost of revenue(2)	667		685		1,298		1,336		Amortization	Cost of revenue(2)	714		684		2,012		2,020
Interest	Interest	Interest expense, net(2)	86		66		152		132		Interest	Interest expense, net(2)	113		68		265		200
Total lease cost	Total lease cost		$	1,887	$	2,039	$	3,790	$	4,154	Total lease cost		$	2,005	$	2,028	$	5,795	$	6,182

(1) Operating lease costs recorded in cost of revenue included $0.1 million and $0.2 million of variable lease costs for ~~each of~~ the three months ended ~~June~~September 30, 2023 and 2022, respectively, and ~~$0.2~~$0.3 million and $0.4 million for ~~each of~~ the ~~six~~nine months ended ~~June~~September 30, 2023 and ~~2022.~~2022, respectively. In addition, ~~$0.1~~$0.2 million of variable lease costs are included in selling, general and administrative for each of the three months ended ~~June~~September 30, 2023 and 2022, and ~~$0.2~~$0.4 million for each of the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022. These variable costs consist of the Company's proportionate share of operating expenses, real estate taxes and utilities.

(2) Finance lease costs recorded in cost of revenue include variable lease costs of $0.9 million and $1.0 million for the three months ended ~~June~~September 30, 2023 and 2022, respectively, and $~~1.8~~2.7 million and $2.8 million for ~~both~~ the nine~~six~~ months ended ~~June~~September 30, 2023 and 2022, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges.

The future undiscounted minimum finance lease payments, as reconciled to the discounted minimum lease obligation indicated on the Company’s condensed consolidated balance sheets within current and long-term debt, less interest, and under current and long-term operating leases, less imputed interest, as of ~~June~~September 30, 2023 were as follows (in thousands):

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		Finance Lease Obligations						Operating Lease Obligations									Finance Lease Obligations						Operating Lease Obligations
Year ending:	Year ending:	Vehicles		Pontiac Facility		Total Finance		Non-Related Party		Related Party(1)		Total Operating		Sublease Receipts(2)		Year ending:	Vehicles		Pontiac Facility		Total Finance		Non-Related Party		Related Party(1)		Total Operating		Sublease Receipts(2)
Remainder of 2023	Remainder of 2023	$	1,501	$	253	$	1,754	$	2,033	$	225	$	2,258	$	448	Remainder of 2023	$	813	$	128	$	941	$	1,347	$	218	$	1,565	$	224
2024	2024	2,466		515		2,981		3,435		450		3,885		912		2024	2,624		515		3,139		3,322		666		3,988		912
2025	2025	1,922		528		2,450		2,928		450		3,378		939		2025	2,083		528		2,611		2,787		450		3,237		939
2026	2026	1,391		542		1,933		2,815		450		3,265		967		2026	1,567		542		2,109		2,670		450		3,120		967
2027	2027	483		555		1,038		1,842		540		2,382		326		2027	636		555		1,191		1,693		540		2,233		326
Thereafter	Thereafter	—		14,302		14,302		1,834		4,275		6,109		—		Thereafter	—		14,302		14,302		1,536		4,275		5,811		—
Total minimum lease payments	Total minimum lease payments	7,763		16,695		24,458		14,887		6,390		21,277		$	3,593	Total minimum lease payments	7,723		16,570		24,293		13,355		6,599		19,954		$	3,369
Financing Component (3)	Financing Component (3)	(802)		(11,343)		(12,145)		(1,686)		(1,479)		(3,165)				Financing Component (3)	(774)		(11,219)		(11,993)		(1,676)		(1,476)		(3,152)
Net present value of minimum lease payments	Net present value of minimum lease payments	6,961		5,351		12,312		13,200		4,911		18,111				Net present value of minimum lease payments	6,949		5,351		12,300		11,679		5,123		16,802
Less: current portion of finance and operating lease obligations	Less: current portion of finance and operating lease obligations	(2,431)		—		(2,431)		(3,352)		(246)		(3,598)				Less: current portion of finance and operating lease obligations	(2,472)		—		(2,472)		(3,111)		(451)		(3,562)
Long-term finance and operating lease obligations	Long-term finance and operating lease obligations	$	4,530	$	5,351	$	9,881	$	9,848	$	4,665	$	14,513			Long-term finance and operating lease obligations	$	4,477	$	5,351	$	9,828	$	8,568	$	4,672	$	13,240

(1) Associated with the aforementioned related party ~~lease~~leases entered into with a former ~~member~~members of ~~JMLLC.~~JMLLC and ACME.

(2) Associated with the aforementioned third party sublease.

(3) The financing component for finance lease obligations represents the interest component of finance leases that will be recognized as interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the lease payments to their present value.

The following is a summary of the lease terms and discount rates as of:


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Weighted average lease term (in years):	Weighted average lease term (in years):					Weighted average lease term (in years):
Operating	Operating	6.68		6.98		Operating	6.50		6.98
Finance (1)	Finance (1)	3.18		2.73		Finance (1)	3.12		2.73

Weighted average discount rate:	Weighted average discount rate:					Weighted average discount rate:
Operating	Operating	4.88	%	4.76	%	Operating	4.91	%	4.76	%
Finance (1)	Finance (1)	6.40	%	5.06	%	Finance (1)	6.66	%	5.06	%

(1) Excludes the weighted average lease term and weighted average discount rate associated with the aforementioned sale-leaseback financing transaction, which has a Primary Term of 25 years and utilized an implicit rate of 11.11%. See Note 56 for further detail.

The following is a summary of other information and supplemental cash flow information related to finance and operating leases:


		Six months ended June 30,					Nine months ended September 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	2,294	$	2,619	Operating cash flows from operating leases	$	3,478	$	3,890
Operating cash flows from finance leases	Operating cash flows from finance leases	152		132		Operating cash flows from finance leases	227		200
Financing cash flows from finance leases	Financing cash flows from finance leases	1,302		1,358		Financing cash flows from finance leases	2,032		2,051
Right-of-use assets exchanged for lease liabilities:	Right-of-use assets exchanged for lease liabilities:					Right-of-use assets exchanged for lease liabilities:
Operating leases	Operating leases	742		—		Operating leases	1,043		—
Finance leases	Finance leases	3,392		1,968		Finance leases	4,062		2,171
Right-of-use assets disposed or adjusted modifying operating leases liabilities	Right-of-use assets disposed or adjusted modifying operating leases liabilities	—		(1,276)		Right-of-use assets disposed or adjusted modifying operating leases liabilities	(643)		2,396
Right-of-use assets disposed or adjusted modifying finance leases liabilities	Right-of-use assets disposed or adjusted modifying finance leases liabilities	$	(30)	(77)		Right-of-use assets disposed or adjusted modifying finance leases liabilities	$	(77)	(77)

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Note 1213 – Commitments and Contingencies

Legal. The Company is continually engaged in administrative proceedings, arbitrations, and litigation with owners, general contractors, suppliers, employees, former employees and other unrelated parties, all arising in the ordinary courses of business. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to the condensed consolidated financial statements. In the opinion of the Company’s management, the current belief is that 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.

On January 23, 2020, plaintiff, Bernards Bros. Inc. (“Bernards”), filed a complaint against the Company in Superior Court of the State of California for the County of Los Angeles. The complaint alleges that the Company's Southern California business unit refused to honor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the wrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million plus interest, including alleged increased costs for hiring a different subcontractor to perform the work. The Company has vigorously defended the suit. Per the agreement of the Company and Bernards, in January 2022, the Court appointed a private referee to manage the case and adjudicate the dispute. A trial took place before the referee in January 2023, and on April 30, 2023, the referee issued an Amended Statement of Decision awarding Bernards approximately $2.2 million. As of December 31, 2022, the Company had determined that a loss was probable, and, as such, recorded an estimated loss contingency in the amount of $2.2 million, which is included in accrued expenses and other current liabilities reported within the Company’s consolidated balance sheets. In addition, the estimated loss contingency was recorded within selling, general and administrative expenses on the Company’s consolidated statements of ~~operations and was presented within GCR selling, general and administrative expenses within the Company’s segment operations data.~~operations. The Company is currently evaluating its options to appeal the referee's decisions.

Surety. The terms of its construction contracts frequently require that the Company obtain from surety companies, and provide to its customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. The Surety Bonds secure the Company's payment and performance obligations under such contracts, and the Company has agreed to indemnify the surety companies for amounts, if any, paid by them in respect of Surety Bonds issued on its behalf. In addition, at the request of labor unions representing certain of the Company's 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, the Company's bonding requirements typically increase as the amount of public sector work increases. As of ~~June~~September 30, 2023, the Company had approximately ~~$117.5~~$99.7 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.

Self-insurance. The Company is substantially self-insured for workers’ compensation and general liability claims, in the view of the relatively high per-incident deductibles the Company absorbs under its insurance arrangements for these risks. The Company purchases workers’ compensation and general liability insurance under policies with per-incident deductibles of $250,000 per occurrence and a $4.4 million maximum aggregate deductible loss limit per year. Losses incurred over primary policy limits are covered by umbrella and excess policies up to specified limits with multiple excess insurers. The Company accrues 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 consolidated balance sheets as current and non-current liabilities. The liability is determined by establishing 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 consolidated balance sheets. The non-current portion of the liability is included in other long-term liabilities on the consolidated balance sheets.

The Company is self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate stop-loss limits. The Company accrues 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 consolidated balance sheets as a current liability in accrued expenses and other current liabilities.

The components of the self-insurance liability as of ~~June~~September 30, 2023 and December 31, 2022 are as follows:

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(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
Current liability — workers’ compensation and general liability	Current liability — workers’ compensation and general liability	$	67	$	158	Current liability — workers’ compensation and general liability	$	99	$	158
Current liability — medical and dental	Current liability — medical and dental	433		557		Current liability — medical and dental	422		557
Non-current liability	Non-current liability	502		343		Non-current liability	746		343
Total liability	Total liability	$	1,002	$	1,058	Total liability	$	1,267	$	1,058
Restricted cash	Restricted cash	$	65	$	113	Restricted cash	$	65	$	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 1314 – Management 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, and such subsequent amendments to the Omnibus Incentive Plan, provides that the Company may grant options, stock appreciation rights, restricted shares, RSUs, 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 approval of the 2023 Amended and Restated Omnibus Incentive Plan, the Company has reserved 3,050,000 shares of its common stock for issuance. 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

The Company grants service-based stock awards in the form of RSUs. Service-based RSUs granted to executives, employees, and non-employee directors vest ratably, on an annual basis, over three years and in the case of certain awards to non-employee directors, one year. The grant date fair value of the service-based awards was equal to the closing market price of the Company’s common stock on the date of grant. For both the three months ended ~~June~~September 30, 2023 and 2022, the Company recognized ~~$0.3~~$0.5 million ~~and $0.4 million, respectively,~~ of stock-based compensation expense related to outstanding service-based RSUs. For both the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company recognized ~~$0.7~~$1.2 million of stock-based compensation expense related to outstanding service-based RSUs during both periods.

The following table summarizes the Company's service-based RSU activity for the ~~six~~nine months ended ~~June~~September 30, 2023:


		Awards	Weighted-Average Grant Date Fair Value			Awards	Weighted-Average Grant Date Fair Value
Unvested at December 31, 2022	Unvested at December 31, 2022	280,275	$	9.06	Unvested at December 31, 2022	280,275	$	9.06
Granted	Granted	162,369	11.77		Granted	164,413	11.94
Vested	Vested	(163,354)	8.58		Vested	(163,354)	8.58
Forfeited	Forfeited	(42,131)	10.63		Forfeited	(42,131)	10.63
Unvested at June 30, 2023		237,159	$	10.97
Unvested at September 30, 2023					Unvested at September 30, 2023	239,203	$	11.09

Performance-Based Awards

The Company grants performance-based restricted stock units (“PRSUs”) under which shares of the Company’s common stock may be earned based on the Company’s performance compared to defined metrics. The number of shares earned under a performance award may vary from zero to 150% of the target shares awarded, based upon the Company’s performance compared to the metrics. The metrics used for the grant are determined by the Company’s Compensation Committee of the Board of Directors and are based on internal measures such as the achievement of certain predetermined adjusted EBITDA, EPS growth and EBITDA margin performance goals over a three year period.

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The Company recognizes stock-based compensation expense for these awards over the vesting period based on the projected probability of achievement of the 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 months ended ~~June~~September 30, 2023 and 2022, the Company recognized ~~$0.8~~$0.7 million and ~~$0.2~~$0.3 million, respectively, of stock-based compensation expense related to outstanding PRSUs. For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company recognized ~~$1.5~~$2.2 million and ~~$0.4~~$0.7 million, respectively, of stock-based compensation expense related to outstanding PRSUs.

The following table summarizes the Company's PRSU activity for the ~~six~~nine months ended ~~June~~September 30, 2023:


		Awards	Weighted-Average Grant Date Fair Value			Awards	Weighted-Average Grant Date Fair Value
Unvested at December 31, 2022	Unvested at December 31, 2022	497,940	$	8.32	Unvested at December 31, 2022	497,940	$	8.32
Granted	Granted	285,005	12.60		Granted	289,092	12.77
Performance factor adjustment(1)	Performance factor adjustment(1)	32,327	4.29		Performance factor adjustment(1)	32,327	4.29
Vested	Vested	(121,827)	4.29		Vested	(121,827)	4.29
Forfeited	Forfeited	(116,911)	9.81		Forfeited	(116,911)	9.81
Unvested at June 30, 2023		576,534	$	10.75
Unvested at September 30, 2023					Unvested at September 30, 2023	580,621	$	10.85

(1) Performance-based awards covering the three year period ended December 31, 2022 were paid out in the first quarter of 2023 based on the approval of the Company's Compensation Committee. The performance factor during the measurement period used to determine compensation payouts was 136.13% of the pre-defined metric target of 100%, which resulted in a positive performance factor adjustment and the issuance of 32,327 of additional awards associated with the original grant.

Market-Based Awards

The vesting of the Company's market-based RSU (“MRSUs”) was contingent upon the Company’s closing price of a share of the Company's common stock on the Nasdaq Capital market, or such other applicable principal securities exchange or quotation system, achieving at least $18.00 over a period of eighty consecutive trading days during the three-year period commencing on August 1, 2018 and concluding on July 31, 2021. On September 4, 2020, the Compensation Committee of the Board of Directors of the Company approved amendments to modify the MRSUs to extend the measurement period to July 16, 2022. In addition to the market performance-based vesting condition, the vesting of such restricted stock unit was subject to continued employment from August 1, 2017 through the later of July 31, 2019 or the date on which the Compensation Committee certifies the achievement of the performance goal. The Company accounted for this amendment as a Type I modification and recognized approximately $0.2 million of incremental stock-based compensation expense over 1.26 years from the modification date based on an updated Monte Carlo simulation model. These awards expired on July 16, 2022 as the MRSU award market condition was not achieved.

Stock-Based Compensation Expense

Total recognized stock-based compensation expense amounted to $1.1 million and ~~$0.6~~$0.8 million for the three months ended ~~June~~September 30, 2023 and 2022, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company recognized stock-based compensation expense of ~~$2.2~~$3.4 million and ~~$1.2~~$2.0 million, respectively. The aggregate fair value as of the vest date of RSUs that vested during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was ~~$3.4~~$3.8 million and $1.1 million, respectively. Total unrecognized stock-based compensation expense related to unvested RSUs which are probable of vesting was ~~$4.4~~$3.9 million at ~~June~~September 30, 2023. These costs are expected to be recognized over a weighted average period of ~~1.83~~1.68 years.

Note 1415 – Subsequent Events

On ~~July 3,~~November 1, 2023, the Company completed an acquisition of ~~Chattanooga, TN-based~~Greensboro, NC-based specialty ~~industrial~~mechanical contractor, ~~ACME~~ Industrial ~~Piping,~~Air, LLC (“~~ACME”~~Industrial Air”), for a purchase price at closing of $5$13.5 million in cash. The transaction also provides for an earnout of up to ~~$2.5~~$6.5 million potentially being paid out over the next two years. ~~ACME specializes in performing~~Industrial Air serves industrial customers throughout the Southeast United States and along the Eastern seaboard, focusing on delivering engineered air handling systems, including air condition and air filtration, along with controls systems and maintenance ~~capital project work,~~work. In addition, Industrial Air manufactures a wide range of components for air conditioning and ~~emergency services for specialty chemical and manufacturing clients, and is a leading mechanical solutions provider for hydroelectric producers.~~filtration systems.

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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 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. See “Cautionary Note Regarding Forward Looking Statements” contained above in this Quarterly Report on Form 10-Q. We assume no obligation to update any of these forward-looking statements.

Unless the context otherwise requires, a reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) contained in Part I, "Item 1. Financial Statements."

Overview

The Company is an integrated building systems solutions firm whose expertise is in the design, modular prefabrication, installation, management and maintenance of HVAC, mechanical, electrical, plumbing and control systems for commercial, institutional and light industrial markets. The Company operates primarily in the Northeast, Mid-Atlantic, Southeast and Midwest regions of the United States. In February 2022, the Company announced its strategic decision to wind down its Southern California GCR and ODR operations. The decision was made to better align the Company’s customer geographic focus and to reduce losses related to unprofitable locations. The Company is currently in the closeout phases on its remaining Southern California business unit projects and expects to fully exit the Southern California region in 2023 aside from certain operational warranty obligations. However, the Company is party to the terms of a sublease agreement for its leased premises in Southern California through April 2027 and remains obligated under the original lease for such office space in the event the sublessee fails to satisfy its obligations under the sublease agreement. See Note 1112 for further information on the Southern California Sublease.

The Company’s core market sectors consist of the following customer base with mission-critical systems:

◦Healthcare, including research, acute care and inpatient hospitals for regional and national hospital groups, and pharmaceutical and biotech laboratories and manufacturing facilities;

◦Data Centers, including facilities composed of networked computers, storage systems and computing infrastructure that organizations use to assemble, process, store and disseminate large amounts of data;

◦Industrial and light manufacturing facilities, including automotive, energy and general manufacturing plants;

◦Higher Education, including both public and private colleges, universities and research centers;

◦Cultural and entertainment, including sports arenas, entertainment facilities (including casinos) and amusement rides and parks; and

◦Life sciences, including organizations and companies whose work is centered around research and development focused on living things.

The Company operates in two segments, (i) GCR, in which the Company generally manages new construction or renovation projects that involve primarily HVAC, plumbing, or electrical services awarded to the Company by general contractors or construction managers, and (ii) ODR, in which the Company performs owner direct projects and/or provides maintenance or service primarily on HVAC, plumbing or electrical 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.

Key Components of Condensed Consolidated Statements of Operations

Revenue

The Company generates revenue principally from fixed-price construction contracts to deliver HVAC, plumbing, and electrical construction services to its customers. The duration of the Company's contracts generally ranges from three months to two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the relationship of total cost incurred to total estimated contract costs. Revenue from time and materials service contracts is recognized as services are performed. The Company believes that its extensive experience in HVAC, plumbing, and electrical projects, and its internal cost review procedures during the bidding process, enable it to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts.

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The Company generally invoices 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 are recorded as a contract asset until billable under the contract terms. Billings in excess of costs and estimated earnings are recorded as a contract liability until the related revenue is recognizable.

Cost of Revenue

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 the Company's services, and the risks associated therewith, contract costs as a percentage of contract revenue have historically fluctuated and it expects this fluctuation to continue in future periods.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs for its 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 to support the growth of the Company's business and to meet the compliance requirements associated with operating as a public company. Those costs include accounting, human resources, information technology, 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 of 2002.

Change in fair value of contingent consideration

The change in fair value of contingent consideration relates to the remeasurement of the contingent consideration arrangement resulting from both the Jake Marshall ~~Transaction.~~and ACME transactions. As a part of the total consideration for the Jake Marshall Transaction, the Company initially recognized $3.1 million in contingent consideration associated with the Jake Marshall Earnout Payments. In addition, the Company initially recognized $1.1 million in contingent consideration associated with the ACME Earnout Payments. The carrying value of the Jake Marshall and ACME Earnout Payments is subject to remeasurement at fair value at each reporting date through the end of the earnout periods with any changes in the fair value reported as a separate component of operating income in the condensed consolidated statements of operations.

Amortization of Intangibles

Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including favorable leasehold interests and certain customer relationships in the ODR segment. As a result of the Jake Marshall Transaction, the Company recognized, in the aggregate, an additional $5.7 million of intangible assets associated with customer relationships with third-party customers, the acquired trade name and acquired backlog. ~~The~~In addition, as a result of the ACME Transaction, the Company recognized, in the aggregate, an additional $2.3 million of intangible assets associated with customer relationships with third-party customers and the acquired trade name. Both the Jake ~~Marshall-related~~Marshall and ACME-related intangible assets were recorded under the acquisition method of accounting at their estimated fair values at the acquisition date. See Note 3 for further discussion of the Company’s acquired intangible assets as a result of the ACME Transaction.

Other (Expenses) Income

Other (expenses) income consists primarily of interest expense incurred in connection with the Company's debt, a loss associated with the early termination of an operating lease, gains or losses associated with the disposition of property, equipment, changes in fair value of interest rate swaps, losses associated with the early extinguishment of debt and interest income earned from its overnight repurchase agreements, money market investments, U.S. Treasury Bills and the Company's interest rate swap agreement. Deferred financing costs are amortized to interest expense using the effective interest method.

Provision for Income Taxes

The Company is taxed as a C corporation and its financial results include the effects of federal income taxes which will be 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

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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.

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Operating Segments

The Company manages and measures the performance of its business in two operating segments: GCR and ODR. These segments are reflective of how the Company’s CODM reviews operating results for the purposes of allocating resources and assessing performance. The Company's CODM is comprised of its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer.

As discussed in Note ~~10, On~~11, on January 17, 2023, the Company announced its planned transition succession, pursuant to which Charles A. Bacon III stepped down as President and Chief Executive Officer on March 28, 2023, and Michael M. McCann, the Company’s former Executive Vice President and Chief Operating Officer, was appointed President and Chief Executive Officer. Following the transition, the Company revised its segment presentation to align with how Mr. McCann assesses performance and makes resource allocation decisions for its operating segments, which is based on segment revenue and segment gross profit. SG&A expenses are no longer reported on a segment basis as the Company's current CODM does not review discrete segment financial information for SG&A in order to assess performance. Interest expense is not allocated to segments because of the corporate management of debt service.

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Comparison of Results of Operations for the three months ended ~~June~~September 30, 2023 and 2022

The following table presents operating results for the three months ended ~~June~~September 30, 2023 and 2022 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:


		Three Months Ended June 30,											Three Months Ended September 30,
		2023					2022						2023					2022
(in thousands except for percentages)	(in thousands except for percentages)											(in thousands except for percentages)
Statement of Operations Data:	Statement of Operations Data:											Statement of Operations Data:
Revenue:	Revenue:											Revenue:
GCR	GCR	$	66,102	52.9	%		$	66,336	57.1	%		GCR	$	61,936	48.5	%		$	62,653	51.2	%
ODR	ODR	58,780		47.1	%		49,784		42.9	%		ODR	65,832		51.5	%		59,704		48.8	%
Total revenue	Total revenue	124,882		100.0	%		116,120		100.0	%		Total revenue	127,768		100.0	%		122,357		100.0	%

Gross profit:	Gross profit:											Gross profit:
GCR	GCR	11,272		17.1	%	(1)	8,694		13.1	%	(1)	GCR	11,970		19.3	%	(1)	9,648		15.4	%	(1)
ODR	ODR	17,241		29.3	%	(2)	12,626		25.4	%	(2)	ODR	19,274		29.3	%	(2)	15,206		25.5	%	(2)
Total gross profit	Total gross profit	28,513		22.8	%		21,320		18.4	%		Total gross profit	31,244		24.5	%		24,854		20.3	%

Selling, general and administrative(3)	Selling, general and administrative(3)	20,416		16.3	%		18,690		16.1	%		Selling, general and administrative(3)	20,967		16.4	%		18,688		15.3	%

Change in fair value of contingent consideration	Change in fair value of contingent consideration	162		0.1	%		765		0.7	%		Change in fair value of contingent consideration	161		0.1	%		386		0.3	%
Amortization of intangibles	Amortization of intangibles	383		0.3	%		399		0.3	%		Amortization of intangibles	288		0.2	%		386		0.3	%
Total operating income	Total operating income	7,552		6.0	%		1,466		1.3	%		Total operating income	9,828		7.7	%		5,394		4.4	%

Other expenses		(207)		(0.2)	%		(363)		(0.3)	%
Other income (expenses)												Other income (expenses)	124		0.1	%		(99)		(0.1)	%
Total consolidated income before income taxes	Total consolidated income before income taxes	7,345		5.9	%		1,103		0.9	%		Total consolidated income before income taxes	9,952		7.8	%		5,295		4.3	%
Income tax provision	Income tax provision	2,025		1.6	%		237		0.2	%		Income tax provision	2,760		2.2	%		1,654		1.4	%
Net income	Net income	$	5,320	4.3	%		$	866	0.7	%		Net income	$	7,192	5.6	%		$	3,641	3.0	%

(1)As a percentage of GCR revenue.

(2)As a percentage of ODR revenue.

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(3)Included within selling, general and administrative expenses was $1.1 million and ~~$0.6~~$0.8 million of stock based compensation expense for the three months ended ~~June~~September 30, 2023 and 2022, respectively.

Revenue


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Increase/(Decrease)					2023		2022		Increase/(Decrease)
(in thousands except for percentages)	(in thousands except for percentages)									(in thousands except for percentages)
Revenue:	Revenue:									Revenue:
GCR	GCR	$	66,102	$	66,336	$	(234)	(0.4)	%	GCR	$	61,936	$	62,653	$	(717)	(1.1)	%
ODR	ODR	58,780		49,784		8,996		18.1	%	ODR	65,832		59,704		6,128		10.3	%
Total revenue	Total revenue	$	124,882	$	116,120	$	8,762	7.5	%	Total revenue	$	127,768	$	122,357	$	5,411	4.4	%

Revenue for the three months ended ~~June~~September 30, 2023 increased by ~~$8.8~~$5.4 million compared to the three months ended ~~June~~September 30, 2022. GCR revenue decreased by ~~$0.2~~$0.7 million, or ~~0.4%~~1.1%, while ODR revenue increased by ~~$9.0~~$6.1 million, or ~~18.1%~~10.3%. The increase in period over period ODR segment revenue was primarily due to the Company's continued focus on the accelerated growth of its ODR business. In addition, ODR segment revenue increased by approximately $1.5 million as a result of the ACME transaction.

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Gross Profit


		Three Months Ended June 30,											Three Months Ended September 30,
		2023			2022			Increase/(Decrease)					2023			2022			Increase/(Decrease)
(in thousands except for percentages)	(in thousands except for percentages)											(in thousands except for percentages)
Gross profit:	Gross profit:											Gross profit:
GCR	GCR	$	11,272		$	8,694		$	2,578	29.7	%	GCR	$	11,970		$	9,648		$	2,322	24.1	%
ODR	ODR	17,241			12,626			4,615		36.6	%	ODR	19,274			15,206			4,068		26.8	%
Total gross profit	Total gross profit	$	28,513		$	21,320		$	7,193	33.7	%	Total gross profit	$	31,244		$	24,854		$	6,390	25.7	%

Total gross profit as a percentage of consolidated total revenue	Total gross profit as a percentage of consolidated total revenue	22.8		%	18.4		%					Total gross profit as a percentage of consolidated total revenue	24.5		%	20.3		%

The Company's gross profit for the three months ended ~~June~~September 30, 2023 increased by ~~$7.2~~$6.4 million compared to the three months ended ~~June~~September 30, 2022. GCR gross profit increased ~~$2.6~~$2.3 million, or ~~29.7%~~24.1%, primarily due to higher margins on project work period over period. ODR gross profit increased ~~$4.6~~$4.1 million, or ~~36.6%~~26.8%, due to the combination of an increase in revenue and higher margins driven by contract mix. The total gross profit percentage increased from ~~18.4%~~20.3% for the three months ended ~~June~~September 30, 2022 to ~~22.8%~~24.5% for the same period ended in 2023, mainly driven by the mix of higher margin ODR segment work and becoming more selective when pursuing GCR ~~work.~~work, as well as a gross profit write-up of $1.2 million during the quarter related to a settlement of a prior claim. From the Effective Date through September 30, 2023, the ACME Transaction generated approximately $0.4 million in gross profit, which was attributable to the ODR segment.

The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the three months ended ~~June~~September 30, 2023, the Company recorded material gross profit write-ups on three GCR projects for a total of $3.1 million, inclusive of a $1.2 million write-up related to a settlement of a past claim, and one material GCR project gross profit write-down for $0.7 million and one material ODR project gross profit write-down for $0.6 million. During the three months ended September 30, 2022, the Company did not record any material gross profit write-ups or write-downs that had a net gross profit impact of $0.5 million or more. During the three months ended June 30, 2022, the Company recorded a material gross profit write-up on one GCR project for a total of $1.3 million that had a net gross profit impact of $0.5 million or more.

Selling, General and Administrative


		Three Months Ended June 30,											Three Months Ended September 30,
		2023			2022			Increase/(Decrease)					2023			2022			Increase/(Decrease)
(in thousands except for percentages)	(in thousands except for percentages)											(in thousands except for percentages)

Selling, general and administrative	Selling, general and administrative	$	20,416		$	18,690		$	1,726	9.2	%	Selling, general and administrative	$	20,967		$	18,688		$	2,279	12.2	%

Total selling, general and administrative as a percentage of consolidated total revenue	Total selling, general and administrative as a percentage of consolidated total revenue	16.3		%	16.1		%					Total selling, general and administrative as a percentage of consolidated total revenue	16.4		%	15.3		%

The Company's SG&A expense for the three months ended ~~June~~September 30, 2023 increased by approximately ~~$1.7~~$2.3 million compared to the three months ended ~~June~~September 30, 2022. The increase in SG&A expense was primarily due to a ~~$1.3~~$1.4 million increase associated with payroll related expenses, a $0.6 million increase associated with professional fees, which included costs associated with the ACME Transaction, and a ~~$0.5~~$0.3 million increase in stock compensation expense. SG&A expense ~~partially offset by a $0.4 million decrease~~associated with the acquired entity in ~~rent related expenses.~~the ACME Transaction from the Effective Date through September 30, 2023 was approximately $0.3 million. Additionally, SG&A expense as a percentage of revenue ~~were 16.3%~~was 16.4% for the three months ended ~~June~~September 30, 2023 and ~~16.1%~~15.3% for the three months ended ~~June~~September 30, 2022.

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Change in Fair Value of Contingent Consideration

The change in fair value of the Earnout Payments contingent consideration was a $0.2 million and a ~~$0.8~~$0.4 million loss for the three months ended ~~June~~September 30, 2023 and 2022, respectively. These increases to the contingent liability were primarily attributable to the timing component and probability of meeting the gross profit margins associated with the contingent consideration ~~arrangement~~arrangements as of ~~June~~September 30, 2023 and 2022.

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Amortization of Intangibles


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Increase/(Decrease)					2023		2022		Increase/(Decrease)
(in thousands except for percentages)	(in thousands except for percentages)									(in thousands except for percentages)
Amortization of intangibles (Corporate)	Amortization of intangibles (Corporate)	$	383	$	399	$	(16)	(4.0)	%	Amortization of intangibles (Corporate)	$	288	$	386	$	(98)	(25.4)	%

Total amortization expense for the three months ended ~~June~~September 30, 2023 and 2022 was $0.3 million and $0.4 ~~million.~~million, respectively. See Note 45 for further information on the Company's intangible assets. In addition, see Note 3 for further discussion of the Company's acquired intangible assets as a result of the ACME Transaction.

Other Expenses


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Change					2023		2022		Change
(in thousands except for percentages)	(in thousands except for percentages)									(in thousands except for percentages)
Other (expenses) income:
Other income (expenses):										Other income (expenses):
Interest expense	Interest expense	$	(511)	$	(478)	$	(33)	6.9	%	Interest expense	$	(437)	$	(547)	$	110	(20.1)	%
Interest income	Interest income	247		—		247		100.0	%	Interest income	377		—		377		100.0	%
Gain on disposition of property and equipment	Gain on disposition of property and equipment	175		147		28		19.0	%	Gain on disposition of property and equipment	68		150		(82)		(54.7)	%
Gain on change in fair value of interest rate swap	Gain on change in fair value of interest rate swap	193		—		193		100.0	%	Gain on change in fair value of interest rate swap	116		298		(182)		100.0	%
Loss on early termination of operating lease		—		(32)		32		100.0	%

Loss on early debt extinguishment	Loss on early debt extinguishment	(311)		—		(311)		(100.0)	%	Loss on early debt extinguishment	—		—		—		(100.0)	%

Total other expenses		$	(207)	$	(363)	$	156	(43.0)	%
Total other income (expenses)										Total other income (expenses)	$	124	$	(99)	$	223	225.3	%

Total other ~~expenses~~income for the three months ended ~~June~~September 30, 2023 was ~~$0.2~~$0.1 million as compared to ~~$0.4~~total other expenses of $0.1 million for the three months ended ~~June~~September 30, 2022. The ~~decrease~~increase in total other ~~expenses~~income (expenses) was primarily driven by a ~~$0.2~~$0.4 million increase in interest income related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and money market funds, as well as interest income recognized with its interest rate swap agreement. The decrease in total other expenses was partially offset by a $0.3 million loss on early debt extinguishment recognized duringfunds. Interest expense for the ~~second quarter of~~three months ended September 30, 2023 and ~~an increase in~~2022 decreased by $0.1 million, which was the result of lower overall outstanding debt balance period-over-period despite higher interest ~~expense due to an increase in the average interest rate~~rates on ~~the Company's~~ outstanding ~~borrowings in 2023 compared to the prior year.~~debt.

Income Taxes

The Company recorded an income tax provision of ~~$2.0~~$2.8 million and ~~$0.2~~$1.7 million for the three months ended ~~June~~September 30, 2023 and 2022, respectively. The effective tax rate was ~~27.6%~~27.7% and ~~21.5%~~31.2% for the three months ended ~~June~~September 30, 2023 and 2022, respectively. The U.S. federal statutory tax rate was 21% for the three months ended ~~June~~September 30, 2023 and 2022. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the three months ended ~~June~~September 30, 2023 and 2022 was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items.

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Comparison of Results of Operations for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022

The following table presents operating results for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:


		Six Months Ended June 30,											Nine Months Ended September 30,
		2023					2022						2023					2022
(in thousands except for percentages)	(in thousands except for percentages)											(in thousands except for percentages)
Statement of Operations Data:	Statement of Operations Data:											Statement of Operations Data:
Revenue:	Revenue:											Revenue:
GCR	GCR	$	128,393	52.2	%		$	138,268	59.9	%		GCR	$	190,329	50.9	%		$	200,921	56.9	%
ODR	ODR	117,498		47.8	%		92,674		40.1	%		ODR	183,330		49.1	%		152,378		43.1	%
Total revenue	Total revenue	245,891		100.0	%		230,942		100.0	%		Total revenue	373,659		100.0	%		353,299		100.0	%

Gross profit:	Gross profit:											Gross profit:
GCR	GCR	21,590		16.8	%	(1)	17,052		12.3	%	(1)	GCR	33,560		17.6	%	(1)	26,700		13.3	%	(1)
ODR	ODR	33,150		28.2	%	(2)	22,608		24.4	%	(2)	ODR	52,424		28.6	%	(2)	37,814		24.8	%	(2)
Total gross profit	Total gross profit	54,740		22.3	%		39,660		17.2	%		Total gross profit	85,984		23.0	%		64,514		18.3	%

Selling, general and administrative(3)	Selling, general and administrative(3)	41,466		16.9	%		37,424		16.2	%		Selling, general and administrative(3)	62,433		16.7	%		56,113		15.9	%

Change in fair value of contingent consideration	Change in fair value of contingent consideration	303		0.1	%		765		0.3	%		Change in fair value of contingent consideration	464		0.1	%		1,151		0.3	%
Amortization of intangibles	Amortization of intangibles	766		0.3	%		798		0.3	%		Amortization of intangibles	1,054		0.3	%		1,184		0.3	%
Total operating income	Total operating income	12,205		5.0	%		673		0.3	%		Total operating income	22,033		5.9	%		6,066		1.7	%

Other expenses	Other expenses	(1,245)		(0.5)	%		(1,702)		(0.7)	%		Other expenses	(1,121)		(0.3)	%		(1,800)		(0.5)	%
Total consolidated income before income taxes	Total consolidated income before income taxes	10,960		4.5	%		(1,029)		(0.4)	%		Total consolidated income before income taxes	20,912		5.6	%		4,266		1.2	%
Income tax provision (benefit)		2,647		1.1	%		(379)		(0.2)	%
Net income (loss)		$	8,313	3.4	%		$	(650)	(0.3)	%
Income tax provision												Income tax provision	5,407		1.4	%		1,275		0.4	%
Net income												Net income	$	15,505	4.1	%		$	2,991	0.8	%

(1)As a percentage of GCR revenue.

(2)As a percentage of ODR revenue.

(3)Included within selling, general and administrative expenses was ~~$2.2~~$3.4 million and ~~$1.2~~$2.0 million of stock based compensation expense for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Revenue


		Six Months Ended June 30,									Nine Months Ended September 30,
		2023		2022		Increase/(Decrease)					2023		2022		Increase/(Decrease)
(in thousands except for percentages)	(in thousands except for percentages)									(in thousands except for percentages)
Revenue:	Revenue:									Revenue:
GCR	GCR	$	128,393	$	138,268	$	(9,875)	(7.1)	%	GCR	$	190,329	$	200,921	$	(10,592)	(5.3)	%
ODR	ODR	117,498		92,674		24,824		26.8	%	ODR	183,330		152,378		30,952		20.3	%
Total revenue	Total revenue	$	245,891	$	230,942	$	14,949	6.5	%	Total revenue	$	373,659	$	353,299	$	20,360	5.8	%

Revenue for the ~~six~~nine months ended ~~June~~September 30, 2023 increased by ~~$14.9~~$20.4 million compared to the ~~six~~nine months ended ~~June~~September 30, 2022. GCR revenue decreased by ~~$9.9~~$10.6 million, or ~~7.1%~~5.3%, while ODR revenue increased by ~~$24.8~~$31.0 million, or ~~26.8%~~20.3%. ~~The decrease in period over period GCR segment revenue was primarily due to revenue declines in the New England, Mid-Atlantic, Ohio, Southern California and Tampa operating regions.~~ The Company continued to focus on improving project execution and profitability by pursuing GCR opportunities that were smaller in size, shorter in duration, and where the Company can leverage its captive design and engineering services. The increase in period over period ODR segment revenue was primarily due to the Company's continued focus on the accelerated growth of its ODR business. In addition, ODR segment revenue increased by approximately $1.5 million as a result of the ACME transaction.

~~Gross Profit~~

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Six Months Ended June 30,
2023 2022 Increase/(Decrease)
(in thousands except for percentages)
Gross profit:
GCR $ 21,590 $ 17,052 $ 4,538 26.6 %
ODR 33,150 22,608 10,542 46.6 %
Total gross profit $ 54,740 $ 39,660 $ 15,080 38.0 %
Total gross profit as a percentage of consolidated total revenue 22.3 % 17.2 %
Gross Profit


	Nine Months Ended September 30,
	2023			2022			Increase/(Decrease)
(in thousands except for percentages)
Gross profit:
GCR	$	33,560		$	26,700		$	6,860	25.7	%
ODR	52,424			37,814			14,610		38.6	%
Total gross profit	$	85,984		$	64,514		$	21,470	33.3	%

Total gross profit as a percentage of consolidated total revenue	23.0		%	18.3		%

The Company's gross profit for the ~~six~~nine months ended ~~June~~September 30, 2023 increased by ~~$15.1~~$21.5 million compared to the ~~six~~nine months ended ~~June~~September 30, 2022. GCR gross profit increased ~~$4.5~~$6.9 million, or ~~26.6%~~25.7%, primarily due to higher margins despite lower revenue. ODR gross profit increased ~~$10.5~~$14.6 million, or ~~46.6%~~38.6%, due to the combination of an increase in revenue and higher margins driven by contract mix. The total gross profit percentage increased from ~~17.2%~~18.3% for the ~~six~~nine months ended ~~June~~September 30, 2022 to ~~22.3%~~23.0% for the same period ended in 2023, mainly driven by the mix of higher margin ODR segment work and becoming more selective when pursuing GCR work. From the Effective Date through September 30, 2023, the ACME Transaction generated approximately $0.4 million in gross profit, which was attributable to the ODR segment.

The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company ~~did not record any~~recorded material gross profit write-ups ~~or write-downs that had~~on two GCR projects for a ~~net~~total of $2.2 million, inclusive of a $1.2 million write-up related to a settlement of a past claim, and one material GCR project gross profit ~~impact of~~write-down for $0.5 million ~~or more.~~and one material ODR project gross profit write-down for $0.7 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded a material gross profit ~~write-up~~write-ups on ~~one~~two GCR ~~project~~projects for a total of ~~$1.3~~$2.0 million ~~that had a net~~and two material GCR project gross profit ~~impact~~write-downs for a total of ~~$0.5 million or more.~~$1.1 million.

Selling, General and Administrative


		Six Months Ended June 30,											Nine Months Ended September 30,
		2023			2022			Increase/(Decrease)					2023			2022			Increase/(Decrease)
(in thousands except for percentages)	(in thousands except for percentages)											(in thousands except for percentages)

Selling, general and administrative	Selling, general and administrative	$	41,466		$	37,424		$	4,042	10.8	%	Selling, general and administrative	$	62,433		$	56,113		$	6,320	11.3	%

Total selling, general and administrative as a percentage of consolidated total revenue	Total selling, general and administrative as a percentage of consolidated total revenue	16.9		%	16.2		%					Total selling, general and administrative as a percentage of consolidated total revenue	16.7		%	15.9		%

The Company's SG&A expense for the ~~six~~nine months ended ~~June~~September 30, 2023 increased by approximately ~~$4.0~~$6.3 million compared to the ~~six~~nine months ended ~~June~~September 30, 2022. The increase in SG&A expense was primarily due to a ~~$3.2~~$4.7 million increase associated with payroll related expenses, a $1.4 million increase in stock compensation expense and $1.0 million related to CEO transition costs, ~~and a $1.1 million increase in stock compensation expense,~~ partially offset by a ~~$0.9~~$1.1 million decrease in in rent related ~~expenses and a $0.8 million decrease~~expenses. SG&A expense associated with the acquired entity in ~~professional fees.~~the ACME Transaction from the Effective Date through September 30, 2023 was approximately $0.3 million. Additionally, SG&A expense as a percentage of revenue ~~were 16.9%~~was 16.7% for the ~~six~~nine months ended ~~June~~September 30, 2023 and ~~16.2%~~15.9% for the ~~six~~nine months ended ~~June~~September 30, 2022.

Change in Fair Value of Contingent Consideration

The change in fair value of the Earnout Payments contingent consideration was a ~~$0.3~~$0.5 million and a ~~$0.8~~$1.2 million loss for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. These increases to the contingent liability were primarily attributable to the timing component and probability of meeting the gross profit margins associated with the contingent consideration ~~arrangement~~arrangements as of ~~June~~September 30, 2023 and 2022.

~~Amortization of Intangibles~~

Six Months Ended June 30,
2023 2022 Increase/(Decrease)
(in thousands except for percentages)
Amortization of intangibles (Corporate) $ 766 $ 798 $ (32) (4.0) %

~~Total amortization expense for the six months ended June 30, 2023 and 2022 was $0.8 million. See Note 4 for further information on the Company's intangible assets.~~

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Amortization of Intangibles


	Nine Months Ended September 30,
	2023		2022		Increase/(Decrease)
(in thousands except for percentages)
Amortization of intangibles (Corporate)	$	1,054	$	1,184	$	(130)	(11.0)	%

Total amortization expense for the nine months ended September 30, 2023 and 2022 was $1.1 million and $1.2 million, respectively. See Note 5 for further information on the Company's intangible assets.

Other Expenses


		Six Months Ended June 30,									Nine Months Ended September 30,
		2023		2022		Change					2023		2022		Change
(in thousands except for percentages)	(in thousands except for percentages)									(in thousands except for percentages)
Other (expenses) income:	Other (expenses) income:									Other (expenses) income:
Interest expense	Interest expense	$	(1,178)	$	(964)	$	(214)	22.2	%	Interest expense	$	(1,615)	$	(1,511)	$	(104)	6.9	%
Interest income	Interest income	247		—		$	247	100.0	%	Interest income	624		—		$	624	100.0	%
(Loss) gain on disposition of property and equipment		(40)		111		(151)		(136.0)	%
Gain on disposition of property and equipment										Gain on disposition of property and equipment	28		262		(234)		(89.3)	%
Loss on change in fair value of interest rate swap	Loss on change in fair value of interest rate swap	37		—		37		100.0	%	Loss on change in fair value of interest rate swap	153		298		(145)		(48.7)	%
Loss on early termination of operating lease	Loss on early termination of operating lease	—		(849)		849		100.0	%	Loss on early termination of operating lease	—		(849)		849		100.0	%
Loss on early debt extinguishment	Loss on early debt extinguishment	(311)		—		(311)		(100.0)	%	Loss on early debt extinguishment	(311)		—		(311)		(100.0)	%

Total other expenses	Total other expenses	$	(1,245)	$	(1,702)	$	457	(26.9)	%	Total other expenses	$	(1,121)	$	(1,800)	$	679	(37.7)	%

Total other expenses for the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~$1.2~~$1.1 million as compared to ~~$1.7~~$1.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in total other ~~expense~~expenses was primarily driven by a ~~$0.2~~$0.6 million increase in interest income related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and money market funds, as well as a $0.1 million offset to interest ~~income recognized with its~~expense as a result of the Company's interest rate swap agreement. In addition, during ~~the six months ended June 30,~~ 2022, the Company recognized a $0.8 million loss as a result of the early termination of its Pittsburgh operating lease. See Note 1112 for further information. The decrease in total other expenses was partially offset by a $0.3 million loss on early debt extinguishment recognized during 2023 and an increase in interest expense due to an increase in the average interest rate on the Company's outstanding borrowings in 2023 compared to the prior year.

Income Taxes

The Company recorded an income tax provision of ~~$2.6~~$5.4 million and ~~an income tax benefit of $0.4~~$1.3 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. The effective tax rate was ~~24.2%~~25.9% and ~~36.8%~~29.9% for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. The U.S. federal statutory tax rate was 21% for the three months ended ~~June~~September 30, 2023 and 2022. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the ~~three~~nine months ended ~~June~~September 30, 2023 and 2022 was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items.

GCR and ODR Backlog Information

The Company refers to its estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue it had recognized under such contracts, as “backlog.” Backlog includes unexercised contract options. The Company’s backlog 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 conditions. Additionally, the difference between the Company’s backlog and remaining performance obligations is due to the portion of unexercised contract options that are excluded, under certain contract types, from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to the Company’s remaining performance obligations is provided in Note 3.4.

The Company's GCR backlog as of ~~June~~September 30, 2023 was ~~$260.2~~$227.0 million compared to $302.9 million at December 31, 2022. Projects are brought into backlog once the Company has been provided a written confirmation of award and the contract value has been established. At any point in time, the Company has a substantial volume of projects that are specifically identified and advanced in negotiations and/or documentation, however those projects are not booked as backlog until the Company has received written confirmation from the owner or the GC/CM of their intention to award the Company the contract and they

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have directed the Company to begin engineering, designing, incurring construction labor costs or procuring needed equipment and material. The Company’s GCR projects tend to be built over a 12- to 24-month schedule depending upon scope and complexity. Most major projects have a preconstruction planning phase which may require months of planning before actual construction commences. The Company is occasionally employed to deliver a “fast-track” project, where construction commences as the preconstruction planning work continues. As work on the Company’s projects progress, it increases or decreases backlog to take into account its estimate of the effects of changes in estimated quantities, changes in conditions, change orders and other variations from initially anticipated contract revenue, and the percentage of completion of the Company’s work on the projects. Based on historical trends, the Company currently estimates that ~~52%~~27% of its GCR backlog as of ~~June~~September 30, 2023 will be recognized as revenue over the remainder of 2023. Additionally, the reduction in GCR backlog has been intentional as the Company looks to focus on higher margin projects than historically, as well as its focus on smaller, higher margin owner direct projects.

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In addition, ODR backlog as of ~~June~~September 30, 2023 was ~~$133.0~~$157.7 million compared to $108.2 million at December 31, 2022. These amounts reflect unrecognized revenue expected to be recognized over the remaining terms of our service contracts and projects. Based on historical trends, the Company currently estimates that ~~72%~~45% of its ODR backlog as of ~~June~~September 30, 2023 will be recognized as revenue over the remainder of 2023. The Company believes its ODR backlog increased due to its continued focus on the accelerated growth of its ODR business. In addition, as of September 30, 2023, ODR backlog included approximately $1.5 million of backlog associated with the operations of ACME.

Of the total backlog at ~~June~~September 30, 2023, the Company expects to recognize approximately ~~$231.5~~$132.6 million over the remainder of 2023.

Market Update

Although the Company has been experiencing strong demand, certain events continue to impact its business, including: global economic conditions, the inflationary cost environment, elevated labor costs, disruption in our supply chain, the coronavirus disease 2019 (“COVID-19”) pandemic, and the ongoing conflict between Russia and Ukraine. The Company expects elevated levels of cost inflation to persist ~~throughout~~through the remainder of 2023, although at lower levels than experienced in 2022. ~~The Company anticipates~~These headwinds have been partially mitigated in 2023 ~~that these headwinds will be partially mitigated~~ by pricing actions taken in response to the inflationary cost environment, supply chain productivity improvements and cost savings initiatives. The effects of inflation have also resulted in central banks raising short-term interest rates and, as a result, the Company ~~expects that~~has experienced an increase in its interest expense ~~will increase~~ in 2023. While ~~the Company expects~~ the impacts of COVID-19 on ~~its~~the Company's business ~~to moderate,~~has moderated, there still remains uncertainty around the pandemic, its effect on labor or other macroeconomic factors, its severity and duration, the continued availability and effectiveness of vaccines and actions taken by third parties or by government authorities in response, including restrictions, laws or regulations, or other responses. Also, the ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have increased global economic and political ~~uncertainty.~~uncertainty and the conflict in the Middle East may add to these issues.

While the impact of these factors remains uncertain, the Company continues to evaluate the extent to which they may impact its business, financial condition, or results of operations. There can be no assurance that the Company's actions will serve to mitigate such impacts in future periods. Further, while the Company believes its remaining performance obligations are firm, and its customers have not provided the Company with indications that they no longer wish to proceed with planned projects, prolonged delays in the receipt of critical equipment could result in the Company's customers seeking to terminate existing or pending agreements. Any of these events could have a material adverse effect on our business, financial condition, and/or results of operations.

Outlook

The Company continues to focus on creating value for building owners by targeting opportunities for long-term relationships with the vision of becoming an indispensable partner to building owners with mission-critical systems. For 2023, the Company has taken and plans to continue taking steps to focus on the following key areas: (i) improve profitability, operating cash flows and actions oriented to maintaining sufficient liquidity, (ii) focus on ODR-related work with an emphasis on dedicated account relationships (iii) invest in its workforce and (iv) improve project execution and profitability in its GCR segment by remaining selective and pursuing processes that avoid or reduce exposure to jobs that create potential financial challenges for the Company.

In focusing on profitability and cash flows, among other things, the Company has dedicated and continues to dedicate, its resources toward the growth of its ODR segment as the scope of services provided within the Company’s ODR segment typically yield higher margins when compared to its GCR segment work. The Company reaffirms its focus on expanding the number and breadth of owner relationships that it serves on a direct basis and to leverage these expanded owner-direct relationships to deliver a broad suite of services. In addition, the Company proactively manages its current accounts and maintains a high standard of dedication to those account relationships. The Company’s primary focus is working with

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customers where their systems are mission critical and have needs regardless of the macroeconomic environment. As it relates to the Company’s ODR-related work, the Company has made substantial investments to expand its ODR revenue by increasing the value it can offer to service and maintenance customers and continues to evaluate areas in which it could expand the breadth of its service offerings to better serve its clients. The Company is focused on its differentiated business model that combines engineering, craft labor and a true partner approach, all of which creates value for its customers. This differentiated business model combines elements of traditional non-residential construction, building service and maintenance, energy services, data analytics and property management. Employee development underpins the Company’s efforts to execute its 2023 strategy. The Company is actively concentrating managerial and sales resources on training and hiring experienced employees to sell and profitably perform ODR-related work.

Additionally, the Company believes that it can further increase its cash flow and operating income by acquiring strategically synergistic companies that will supplement the Company’s current business model, address capability gaps and enhance the breadth of its service offerings to better serve its clients. The Company has dedicated, and continues to dedicate, its resources to

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seek opportunities to acquire businesses that have attractive market positions, a record of consistent positive cash flow, and desirable market locations. However, as a specialty contractor providing HVAC, plumbing, electrical and building controls design, engineering, installation and maintenance services in commercial, institutional and light industrial markets, our operating cash flows are subject to variability, including variability associated with winning, performing and closing work and projects.

The Company’s operating cash flows are also impacted by the timing related to the resolution of the uncertainties inherent in the complex nature of the work that it performs, including claims and back charge settlements. Although the Company believes that it has adequate plans related to providing sufficient operating working capital and liquidity in the short-term, the complex nature of the work the Company performs, including related to claims and back charge settlements could prove those plans to be incorrect. If those plans prove to be incorrect, the Company’s financial position, results of operations, cash flows and liquidity could be materially and adversely impacted.

As it relates to focusing on owner-direct work and the Company’s focus on job selection and processes, the Company believes that it is appropriate in the current contracting environment to reduce risk and exposure to large, complex, non-owner direct projects where the trend has been for such jobs to provide risks that are difficult to mitigate. Currently, management believes the historical industry pricing and associated risks for this type of work does not align with the Company’s stakeholders’ expectations and therefore the Company is continuing to take steps to actively reduce these risks as it looks at future job selection and as it completes current jobs.

Seasonality, Cyclicality and Quarterly Trends

Severe weather can impact the Company’s operations. In the northern climates where it operates, and to a lesser extent the southern climates as well, severe winters can slow the Company’s productivity on construction projects, which shifts revenue and gross profit recognition to a later period. The Company’s maintenance operations may also be impacted by mild or severe weather. Mild weather tends to reduce demand for its maintenance services, whereas severe weather may increase the demand for its maintenance and time-and-materials services. The Company’s 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 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. However, these effects are, at times, material to our results of operations and financial condition. During fiscal year 2022 and through the ~~second~~third quarter of 2023, we have 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 throughout 2023. When appropriate, we include cost escalation factors into our bids and 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.

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Liquidity and Capital Resources

Cash Flows

The Company's 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 borrowings from commercial banks and institutional lenders.

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The following table presents summary cash flow information for the periods indicated:


		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
(in thousands)	(in thousands)					(in thousands)
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	26,292	$	12,620	Operating activities	$	43,460	$	22,980
Investing activities	Investing activities	(1,224)		(284)		Investing activities	(6,233)		(283)
Financing activities	Financing activities	(15,188)		(7,182)		Financing activities	(15,803)		(8,754)
Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	$	9,880	$	5,154	Net increase in cash, cash equivalents and restricted cash	$	21,424	$	13,943

Noncash investing and financing transactions:	Noncash investing and financing transactions:					Noncash investing and financing transactions:
Earnout liability associated with the ACME Transaction						Earnout liability associated with the ACME Transaction	$	1,121	$	—
Right of use assets obtained in exchange for new operating lease liabilities	Right of use assets obtained in exchange for new operating lease liabilities	$	742	$	—	Right of use assets obtained in exchange for new operating lease liabilities	1,043		—
Right of use assets obtained in exchange for new finance lease liabilities	Right of use assets obtained in exchange for new finance lease liabilities	3,392		1,968		Right of use assets obtained in exchange for new finance lease liabilities	4,062		2,171
Right of use assets disposed or adjusted modifying operating lease liabilities	Right of use assets disposed or adjusted modifying operating lease liabilities	—		(1,276)		Right of use assets disposed or adjusted modifying operating lease liabilities	(643)		2,396
Right of use assets disposed or adjusted modifying finance lease liabilities	Right of use assets disposed or adjusted modifying finance lease liabilities	(30)		(77)		Right of use assets disposed or adjusted modifying finance lease liabilities	(77)		(77)
Interest paid	Interest paid	1,181		911		Interest paid	1,482		1,425
Cash paid for income taxes	Cash paid for income taxes	$	3,919	$	696	Cash paid for income taxes	$	6,718	$	768

The Company's cash flows are primarily impacted period to period by fluctuations in working capital. Factors such as the Company's contract mix, commercial terms, days sales outstanding (“DSO”) and delays in the start of projects may impact the Company's working capital. In line with industry practice, the Company accumulates costs during a given month then bills those costs in the current month for many of its 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 the Company receives payment from its customers (contractual “pay-if-paid” terms). The Company has not historically experienced a large volume of write-offs related to its receivables and contract assets. The Company regularly assesses its receivables for collectability and provides allowances for ~~doubtful accounts~~credit losses where appropriate. The Company believes that its reserves for its expected credit losses are appropriate as of ~~June~~September 30, 2023 and December 31, 2022, but adverse changes in the economic environment may impact certain of its customers’ ability to access capital and compensate the Company for its 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. The Company's current cash balance, together with cash it expects to generate from future operations along with borrowings available under its credit facility, are expected to be sufficient to finance its 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 currently 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:

(in thousands, except ratios) June 30, 2023 December 31, 2022
Current assets $ 199,209 $ 225,990
Current liabilities (127,269) (159,085)
Net working capital $ 71,940 $ 66,905
Current ratio (1)
1.57 1.42

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(in thousands, except ratios)	September 30, 2023		December 31, 2022
Current assets	$	214,248	$	225,990
Current liabilities	(136,541)		(159,085)

Net working capital	$	77,707	$	66,905
Current ratio (1)	1.57		1.42

(1) Current ratio is calculated by dividing current assets by current liabilities.

As discussed above and in Note 5,6, as of ~~June~~September 30, 2023, the Company was in compliance with all financial maintenance covenants as required by its credit facility.

Cash Flows Provided by ~~(Used in)~~ Operating Activities

The following is a summary of the significant sources (uses) of cash from operating activities:

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		Six Months Ended June 30,							Nine Months Ended September 30,
(in thousands)	(in thousands)	2023		2022		Cash Inflow (outflow)		(in thousands)	2023		2022		Cash Inflow (outflow)
Cash flows from operating activities:	Cash flows from operating activities:							Cash flows from operating activities:
Net income (loss)		$	8,313	$	(650)	$	8,963
Net income								Net income	$	15,505	$	2,991	$	12,514
Non-cash operating activities(1)	Non-cash operating activities(1)	8,596		9,214		(618)		Non-cash operating activities(1)	12,816		12,187		629
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	37,096		(11,796)		48,892		Accounts receivable	21,896		(21,906)		43,802
Contract assets	Contract assets	2,029		8,904		(6,875)		Contract assets	14,014		18,597		(4,583)
Other current assets	Other current assets	(1,861)		(520)		(1,341)		Other current assets	(1,459)		698		(2,157)
Accounts payable, including retainage	Accounts payable, including retainage	(21,747)		(635)		(21,112)		Accounts payable, including retainage	(18,703)		(53)		(18,650)
Prepaid income taxes	Prepaid income taxes	(719)		(562)		(157)		Prepaid income taxes	95		(101)		196

Accrued taxes payable	Accrued taxes payable	(383)		(501)		118		Accrued taxes payable	(1,386)		1,763		(3,149)
Contract liabilities	Contract liabilities	(325)		13,123		(13,448)		Contract liabilities	2,312		15,810		(13,498)
Operating lease liabilities	Operating lease liabilities	(1,836)		(2,165)		329		Operating lease liabilities	(2,803)		(3,264)		461
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	(1,806)		(1,861)		55		Accrued expenses and other current liabilities	1,997		(3,612)		5,609
Payment of contingent consideration liability in excess of acquisition-date fair value	Payment of contingent consideration liability in excess of acquisition-date fair value	(1,224)		—		(1,224)		Payment of contingent consideration liability in excess of acquisition-date fair value	(1,224)		—		(1,224)
Other long-term liabilities	Other long-term liabilities	159		69		90		Other long-term liabilities	400		(130)		530
Cash provided by working capital	Cash provided by working capital	9,383		4,056		5,327		Cash provided by working capital	15,139		7,802		7,337
Net cash provided by operating activities	Net cash provided by operating activities	$	26,292	$	12,620	$	13,672	Net cash provided by operating activities	$	43,460	$	22,980	$	20,480

(1)Represents non-cash activity associated with depreciation and amortization, provision for credit losses / doubtful accounts, stock-based compensation expense, operating lease expense, amortization of debt issuance costs, deferred income tax provision, gain or loss on sale of property and equipment, loss on early termination of operating lease, changes in fair value of contingent consideration and changes in the fair value of the Company's interest rate swap.

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company generated ~~$26.3~~$43.5 million in cash from its operating activities, which consisted of cash provided by working capital of ~~$9.4~~$15.1 million, non-cash adjustments of ~~$8.6~~$12.8 million (primarily depreciation and amortization, stock-based compensation expense, operating lease expense and the change in fair value of contingent consideration) and net income for the period of ~~$8.3~~$15.5 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company generated ~~$12.6~~$23.0 million from its operating activities, which consisted of cash provided by working capital of ~~$4.1~~$7.8 million, ~~and $9.2~~$12.2 million of non-cash adjustments (primarily depreciation and amortization, stock-based compensation expense, operating lease expense, the change in fair value of contingent consideration and a loss from the early termination of an operating lease)~~, partially offset by a~~ and net ~~loss~~income for the period of ~~$0.7~~$3.0 million.

The increase in operating cash flows during the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily attributable to a ~~$48.9~~$43.8 million period-over-period cash inflow related to the change in accounts receivable, which was due to the timing of cash receipts, inclusive of ~~a $10.0~~an aggregate $25.6 million in cash ~~receipt~~receipts associated with ancertain outstanding claim ~~resolution.~~resolutions. This cash inflow was partially offset by a ~~$20.3~~$18.1 million cash outflow

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period-over-period related to the aggregate change in our contract assets and liabilities and a ~~$21.1~~$18.7 million change in accounts payable, including retainage. The ~~decrease~~increase in our overbilled position was due to the timing of contract billings and the recognition of contract ~~revenue.~~revenue, as well as the successful resolution of certain outstanding claims. The cash outflows associated with our accounts payable was due to the timing of cash receipts and payments.

Cash Flows Used in Investing Activities

Cash flows used in investing activities were ~~$1.2~~$6.2 million and $0.3 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. ~~For~~Cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2023 ~~$1.5~~of $4.9 million represented cash outflows associated with the ACME Transaction, net of cash acquired. In addition, cash used in investing activities for the nine months ended September 30, 2023 included $1.7 million, which was used to purchase property and equipment, partially offset by ~~$0.3~~$0.4 million in proceeds from the sale of property and equipment. For the ~~six~~nine months ended ~~June~~September 30, 2022, ~~$0.5~~$0.7 million was used to purchase property and equipment, partially offset by ~~$0.2~~$0.4 million in proceeds from the sale of property and equipment.

The majority of our cash used for investing activities in both periods was for capital additions pertaining to tools and equipment, computer software and hardware purchases, office furniture and office related leasehold improvements.

Cash Flows ~~(Used in) Provided by~~Used in Financing Activities

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Cash flows used in financing activities were ~~$15.2~~$15.8 million for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to ~~$7.2~~$8.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2023, as a result of the execution of the Second A&R Wintrust Credit Agreement, the Company paid off the remaining principal portion of the A&R Wintrust Term Loan of $19.0 million. Prior to the termination of the A&R Wintrust Term Loan, the Company made principal payments of $2.4 million, consisting of monthly installment payments of $0.6 million. In addition, the Company paid approximately $0.8 million in taxes related to net share settlement of equity awards, ~~$1.3~~$2.0 million for payments on finance leases and made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2022 Earnout Period, of which $1.7 million was recognized as a cash outflow from financing activities. These cash financing outflows were partially offset by $10.0 million in proceeds from borrowings under the Second A&R Wintrust Revolving Loan and ~~$0.2~~$0.4 million associated with proceeds from contributions to the ESPP.

For the ~~six~~nine months ended ~~June~~September 30, 2022, the Company made principal payments of ~~$9.1~~$11.6 million, consisting of monthly installment payments of $0.6 million, an Excess Cash Flow payment of $3.3 million and atotal Net Claim Proceeds ~~payment~~payments of ~~$2.1~~$2.7 million, payments on the A&R Wintrust Revolving Loan of ~~$11.7~~$15.2 million, payments of ~~$1.4~~$2.1 million on finance leases, ~~and~~ $0.4 million in taxes related to net share settlement of equity ~~awards.~~awards and $0.4 million in payments for debt issuance costs. These financing cash outflows were partly offset by $15.2 million in proceeds from borrowings under the A&R Wintrust Revolving Loan, $5.4 million in proceeds from the sale-leaseback financing transaction and ~~$0.2~~$0.3 million associated with proceeds from contributions to the ESPP.

The following table reflects our available funding capacity, subject to covenant restrictions, as of ~~June~~September 30, 2023:


(in thousands)
Cash & cash equivalents(1)			$	~~45,929~~57,473
Credit agreement:
Second A&R Wintrust Revolving Loan	$	50,000
Outstanding borrowings on the Second A&R Wintrust Revolving Loan	(10,000)
Outstanding letters of credit	(4,170)
Net credit agreement capacity available			35,830
Total available funding capacity			$	~~81,759~~93,303

(1) The Company considers all highly liquid investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of ~~June~~September 30, 2023 consisted of certain overnight repurchase agreements, as well as money market investments and one U.S. Treasury Bill.

Cash Flow Summary

Management continued to devote additional resources to its billing and collection efforts during the ~~six~~nine months ended ~~June~~September 30, 2023. Management continues to expect that growth in our ODR business, which is less sensitive to the cash flow issues presented by large GCR projects, should positively impact our cash flow trends.

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Provided that the Company’s lenders continue to provide working capital funding, the Company believes based on its current forecast that its current cash and cash equivalents of ~~$45.9~~$57.5 million as of ~~June~~September 30, 2023, cash payments to be received from existing and new customers, and availability of borrowing under the Second A&R Wintrust Revolving Loan (pursuant to which we had $35.8 million of availability as of ~~June~~September 30, 2023) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

Debt and Related Obligations

Long-term debt consists of the following obligations as of:

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(in thousands)	(in thousands)	June 30, 2023		December 31, 2022		(in thousands)	September 30, 2023		December 31, 2022
A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026	A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026	—		21,453		A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026	—		21,453
Wintrust Revolving Loans	Wintrust Revolving Loans	10,000		—		Wintrust Revolving Loans	10,000		—
Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.35% through 2027		6,961		4,954
Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.60% through 2027						Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.60% through 2027	6,949		4,954
Financing liability	Financing liability	5,351		5,351		Financing liability	5,351		5,351
Total debt	Total debt	22,312		31,758		Total debt	22,300		31,758
Less - Current portion of long-term debt	Less - Current portion of long-term debt	(2,431)		(9,564)		Less - Current portion of long-term debt	(2,472)		(9,564)
Less - Unamortized discount and debt issuance costs	Less - Unamortized discount and debt issuance costs	(396)		(666)		Less - Unamortized discount and debt issuance costs	(391)		(666)
Long-term debt	Long-term debt	$	19,485	$	21,528	Long-term debt	$	19,437	$	21,528

See Note 56 for further discussion.

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~~September 30, 2023 and December 31, 2022, the Company had approximately ~~$117.5~~$99.7 million and $129.6 million in surety bonds outstanding, respectively. We believe that our $800.0 million bonding capacity provides us with a significant competitive advantage relative to many of our competitors which have limited bonding capacity. See Note 1213 for further discussion.

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 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 consolidated balance sheets. The non-current portion of the liability is included in other long-term liabilities on the consolidated balance 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 consolidated balance sheets as a current liability in accrued expenses and other current liabilities. See Note 1213 for further discussion.

Multiemployer Pension Plans

We participate in approximately 40 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

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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.

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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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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)~~305(e) 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 President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation as of ~~June~~September 30, 2023, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that our Company’s disclosure controls and procedures were 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 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the 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 will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

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Part II

Item 1. Legal Proceedings

See Note 1213 for information regarding legal proceedings.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and the Affiliated Purchasers

In September 2022, the Company announced that its Board of Directors approved the Share Repurchase Program to repurchase shares of its common stock for an aggregate purchase price not to exceed $2.0 million. The share repurchase authority is valid through September 29, 2023. Share repurchases may be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or by other means in accordance with federal securities laws. The Share Repurchase Program does not obligate the Company to acquire any particular amount of common stock, and the program may be suspended or terminated by the Company at any time at its discretion without prior notice. As of ~~June~~September 30, 2023, approximately $2.0 million of common stock was repurchased under its Share Repurchase Program, which was funded from the Company’s available cash on hand. There were no shares repurchased during the three and ~~six~~nine months ended ~~June~~September 30, 2023.

Shares Issued from the Exercise of Warrants

During the three months ended ~~June~~September 30, 2023, the holders of the Merger Warrants exercised 443,032 warrants on a cashless basis, which resulted in the Merger Warrants being converted into 228,945 shares of the Company's common stock. The remaining 23,167 unexercised Merger Warrants expired by their terms on July 20, 2023. During the nine months ended September 30, 2023, 600,000 $15 Exercise Price Sponsor Warrants and ~~163,444~~606,476 Merger Warrants were exercised on a cashless basis by the holders of the warrants, which resulted in the warrants being converted into, and the Company issuing, 167,564 and ~~45,797~~274,742 shares of the Company's common stock, respectively. The Company received no proceeds from the cashless exercise of the $15 Exercise Price Sponsor Warrants or the Merger Warrants.

The above securities were issued in reliance upon an exemption from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

At our 2022 Annual Meeting of Stockholders held on June 22, 2022 (the “2022 Annual Meeting”), our stockholders approved, (i) the election of two Class C members of the Company’s Board of Directors; (ii) the approval of an amendment to the Limbach Holdings, Inc. Amended and Restated Omnibus Incentive Plan, which included an increase in the number of authorized shares under the plan by 350,000 shares of the Company’s common stock, par value $0.0001 per share; (iii) a non-binding advisory vote on the compensation of the Company’s named executive officers; and (iv) the ratification of the appointment of the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022 (the “Stockholder Actions”).The Stockholder Actions are described more fully in the Company’s definitive proxy statement for the 2022 Annual Meeting, filed with the Securities and Exchange Commission (“SEC”) on April 29, 2022, and the voting results from the meeting are set forth in the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2022. The record date established for the 2022 Annual Meeting was April 22, 2022, which exceeded by one day the maximum of 60 days by which a record date is permitted to precede a meeting of stockholders under the Delaware General Corporation Law (the “DGCL”) and the Company’s Amended and Restated Bylaws. ~~The~~As was described in the Company’s Current Report on Form 8-K filed with the SEC on August 16, 2023, the Company ~~has~~ filed a petition seeking the approval of the Delaware Court of Chancery (the “Court”), pursuant to Section 205 of the DGCL, to validate the Stockholder ~~Actions.~~Actions (the “Section 205 Petition”). On

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September 18, 2023, the Court granted a final order approving all of the relief requested by the Company in the Section 205 Petition, including validation of the Stockholder Actions (the “Final Order”). After the Court granted the Final Order, the Court also dismissed a purported putative class action and derivative lawsuit (the “Action”) brought against the Company by Patrick Ayers (the “Plaintiff”). The Action was related to, but independent of, the Section 205 Petition and was dismissed as moot upon validation of the Section 205 Petition. The Action was dismissed with prejudice as to the Plaintiff and is deemed resolved by the Company, other than resolving an anticipated application for an award of attorneys’ fees and reimbursement of expenses from the Plaintiff’s attorneys. No compensation in any form has passed directly or indirectly from the Company to the Plaintiff or the Plaintiff’s attorneys in the Action, and no promise to give any such compensation has been made. The Company ~~intends~~is currently in the process of attempting to ~~provide additional information regarding this process as~~resolve the ~~proceeding under Section 205 moves forward.~~application for the award of attorney’s fees and reimbursement of expenses for the Plaintiff’s attorneys.

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Item 6. Exhibits


Exhibit						Description
3.1						Conformed Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on June 23, 2023).
3.2						Certificate of Designation of Class A Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on July 26, 2016).
3.3						Certificate of Correction to Certificate of Designation of Class A Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on August 24, 2016).
3.4						Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on April 17, 2023).
10.1						Promotion Letter dated January 17, 2023 -Michael M. McCann (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on January 17, 2023).
10.2						Promotion Letter dated January 17, 2023- Jay Sharp (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on January 17, 2023).
10.3						Promotion Letter dated January 17, 2023- Nick Angerosa (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on January 17, 2023).
10.4						Employment Transition Agreement dated January 17, 2023, by and between Limbach Facility Services LLC, Limbach Holdings, Inc. and Charles A. Bacon, III (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on January 17, 2023).
10.5						Limbach Facility Services LLC Performance Bonus Plan for Executives (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on February 3, 2023).
10.6						The Second Amended and Restated Credit Agreement dated as of May 4, 2023, by and among Limbach Facility Services LLC, a Delaware limited liability company, Limbach Holdings LLC, a Delaware limited liability company, and the direct and indirect subsidiaries of the Borrower from time to time party to the agreement, as Guarantors, the various institutions from time to time party to the agreement, as Lenders, and Wheaton Bank & Trust Company, N.A., a subsidiary of Wintrust Financial Corporation, as Administrative Agent and L/C Issuer (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File No. 001-36541) filed with the U.S. Securities and Exchange Commission on May 8, 2023).
31.1						Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document.
101.SCH						XBRL Taxonomy Extension Schema Document.
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF						XBRL Taxonomy Extension Definition Document.

*Filed herewith

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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.

			/s/ Michael M. McCann
			Michael M. McCann
			President and Chief Executive Officer
			(Principal Executive Officer)

			/s/ Jayme L. Brooks
			Jayme L. Brooks
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)
Date: ~~August 9,~~November 8, 2023

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