Greetings and welcome to Limbach Holdings Q2 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jeremy Hellman of The Equity Group. Please go ahead.

Thank you very much. And good morning, everyone. Yesterday, Limbach Holdings issued the announcement of its 2018 second quarter results and filed its Form 10-Q. The company will also be using a slide presentation to accompany this earnings call. Presentation can be found in the Investors section of the company website at www.limbachinc.com. The company encourages everyone to review the forward-looking statement disclosure on Slide 2 of the presentation. With that, I’d like to turn the call over to Charlie Bacon, CEO of Limbach Holdings. Please go ahead, Charlie.

Hey. Thank you, Jeremy. Good morning to all. Joining me today is John Jordan, our Chief Financial Officer. As Jeremy noted, we have a slide presentation to accompany our prepared remarks and we hope you find the additional materials helpful. We’ll make a point of referencing which slide we are on as we go along. I’ll start on Slide 2 to remind everybody to review our forward-looking disclosure. Now turning to Slide 3, we have summarized the main themes of our discussion we’re focusing on. Number one, strong project execution across the great majority of our business, sales performance and backlog build up. Later on, I'll provide details on our strong performance to discuss some issues we faced in our Mid-Atlantic branch and our recovery process. Number two, our Construction segment growth is exceeding our planned with some interesting sales-related developments. Number three, our Service segment is on pace to exceed a $100 million of revenue this year exceeding our internal yearly plan. And fourth, our M&A focus is producing quality opportunities around our stated objectives. Number five, we will also discuss some general important updates around risk management and operational excellence. And number six, John will review the key items on our financial statements. Moving on to Slide 4, consolidated organic revenues increased 18.4% year-over-year to $139.5 million. Revenue growth was led by our business units of Southern California, New England, Ohio and Orlando. In fact, eight of our 10 business units generated strong year-on-year growth in revenue. Midway through the year, our top-line revenue was tracking ahead of our initial goal for the year, so we’re certainly pleased with that statistic. Based on that, along the excellent tracking of our sales year-to-date, we are raising our revenue guidance again. Our new 2018 revenue guidance is in the range…

Thanks, Charlie. Good morning, everyone. Before getting into details, I just want to remind everyone to please see our 10-Q for a full breakdown of our results and also note that the presentation accompanying our remarks contains several appendix pages which contain further data we think you’ll find helpful. Turning now to Slide 11, as previously mentioned for the quarter our consolidated revenues were $139.5 million, up 18.4% versus the prior year. That consolidated revenue figure also exceeded our internal forecast for the quarter. Year-to-date revenue was $260.1 million which is an 11.6% increase over the first six months of 2017. In the quarter, Construction segment revenues were up 18.2% while Service segment revenues were up 19.3%. Construction operations accounted for 81.5% of revenue, while service accounted for 18.5%. Gross margin in our Construction segment was 8.4% compared 11.4% in the second quarter of 2017. Excluding the write-downs, Construction gross margin would have been 12% in the quarter. Service segment margins were 330 basis points coming in at 24.4%. That helped to offset some of the impact of the Mid-Atlantic write-downs. Excluding the Mid-Atlantic business unit, consolidated gross margin for the quarter would have been 14.8%. Year-to-date the Mid-Atlantic branch has recognized write-downs of 8.1 million. Year-to-date gross margin without Mid-Atlantic is 15.2%. Needless to say without these write-downs the year-to-date net income and adjusted EBITDA would have been dramatically better at $3.7 million and $8.3 million respectively. Plans on several projects in Mid-Atlantic are being assembled or have been submitted which may provide some recovery in the future. Our 2018 guidance does not assume any claim recovery. During the quarter selling and general, administrative expenses were $13.7 million compared to $12.8 million in the second quarter of 2017. The increase in SG&A was due primarily to expenses associated with…

Thanks, John. Moving on to Slide 13 now. This slide and slide 14 are the ones you see from us in all of our presentations updated to reflect FMI’s second quarter 2018 report. The key message here is that market forecast for the sectors we focus on remain strong. That is helping fuel our excellent sales activity and is also resulting in upward pricing basis and we’re really happy with the state of our industry right now, it’s just terrific for the next several years, rock solid. Finally on Slide 15 to wrap up. We’re raising our revenue guidance for the year given the strong sales performance we discussed. We now expect 2018 revenues to be in the range of $530 million to $550 million. At the same time, we’re taking a conservative approach with respect to our bottom-line given the Mid-Atlantic issues we discussed. With that in mind we’re reducing our 2018 adjusted EBITDA guidance to a range of $18 million to $20 million. Both our revenue and adjusted EBITDA guidance ranges do not include any contribution from potential acquisitions or any claim recovery from Mid-Atlantic projects. Based upon our strong organic growth and our acquisition pipeline, we remain on track for the company revenues to be north of $1 billion in 2021, and delivering adjusted EBITDA in excess of $50 million. We also note that we will be at the DA Davidson 17th Annual Diversified Industrial and Service Conference which we will be attending at September. In addition to that event we are always available for calls with investors and analysts. I think for those of you on the call, we’re open for that, so if you have some questions, feel free to reach out to us. With that, operator, I will open it up for Q&A.

[Operator Instructions]. Our first question today comes from Bill Newby of D.A. Davidson. Please go ahead.

I guess just starting on the problem projects Charlie. At this time how many of these are still ongoing and I think last quarter you had said that most of them should be completed by Q3, is that still the expectation or they are going to drag on a little bit longer?

I mean the good news Bill is the big problem jobs that we -- the one with the steel delay, that’s done, they played their first game in the first week of July. We’ve got some odds and ends finishing up like [punctuals] and stuff like that but the main bulk of construction was completed in early July. We have another project that we’ve wrapped up which was an apartment building and that's done and then just a couple of other jobs that we’re in the queue nearing completion. But the good news is we have good visibility on those projects. I can't see here for services centers, nothing else is going to come out for woodwork but certainly prior to filing this -- filing the Q everything was reported that knew off and at this point I think we've got excellent oversight labors coming down in terms of quantity because that was a big issue for us. We just have these jobs stack up against each other and the good news is it's really led off. And Bill I'm just going to go a little bit further with my response. In this market, we didn’t totally turn off the sales ticket but earlier this year actually I think it was Q4, we just started throttling attack and then in Q1 we really throttled it back and we just wanted to catch our breadth with labor and just see the business stabilize and at this point we have visibility on that and the good news is the labor is coming down to more manageable levels.

Okay, I guess that was my next question is that, with the release times and the slowdown in the bidding process in that region, it sounds like you have -- I guess is it fair to say that a lot of this stuff that you guys have picked up this quarter and the stuff that further commitments that you have on recognizing backlog that's all stuff that you are I guess other regions outside of the Mid-Atlantic?

Yes, I mean I think of some work but it’s not in this quarter, no, the answer is the bulk of the sales from other regions Florida, Michigan, as I noted in my presentation, obviously the Michigan stuff is huge but it's been a real strong Mid-Atlantic across the board but in D.C. we just backed off the accelerator.

And I guess I mean and you said in the presentation Charlie that 380 million, it's a really big number for you guys. Is there any specific industries that are driving that, I mean you call out a couple of regions but any -- I mean we keep hearing people talk about healthcare coming back and education being strong, is there anything to call out there?

Yes. Well, there is two healthcare projects that we secured in promised. One was the HCA Hospital Corporation of America project down in the Orlando area and then there is another project up in Michigan, another healthcare project that we secured in terms of precon and hopefully later this year we will agree upon budgets and moving into backlog. The nice thing about the Michigan information I just shared, not all those projects are happening at once. It's kind of a staged program and like Disney or HCA, this Bedrock group just new of our reputation that Red Wings job just went so well. I think everybody is blown away on how we executed the front end and then how we closed it out so well. I remember calling up the President of Barton Malow, he had walked the job 39 days before opening and there was still a lot of work to do on the arena and I just want to see how we were doing and it was so funny. He said you got this in a great shape but do you have any electricians, so I will never forget the line. We finished so strong that the reputation in that marketplace is just stellar. And this developer just decided what I want to go around the general contractors, I want to lock you guys up, you are cream of the crop, I loved what you are doing on the front end and by the way we have done work with them before but this is new at the scale but it just was a heck of a pattern to look back but it’s five years of business. It's not all happening in one fell swoop which gave me lot of comfort plus like we did on the Red Wings we will be subcontracting out a decent portion of the work. On the Red Wings about 40% of that project was sold out to regional based contractors and some competitors. We intend on doing that again with these other major projects. Bill does that give you enough color on that?

[Operator Instructions]. Our next question comes from Steve Dyer of Craig Hallum. Please go ahead.

I just want to make sure I’m assumptions are correct that just kind of the EBITDA guidance for the rest of the year basically assumes or implies no recoveries from these write-downs, but also that there won't be any more write-downs, is that sort of what’s baked in that?

We have some contingency in the number, I wish I could sit here today and say I have a perfect crystal ball, we’re not going to see anything else. Certainly we don’t know of any right now. But in normal course of business, Steve and for those have -- that have been in the industry space, ever month we have a detailed branch review with every business unit. So John Jordan and our COO Kris Thorne go through each business unit and ask appropriate questions, how things are going, what's going on here, looking at labor forecast, all that. And usually in those calls there is always upside, down side we call it, have an upside, downside report. And obviously net-net we want to see up. But John, when he put the forecast together with the management team, we put in some contingency just in case something comes out of the woodwork. Having said that, when I look at where we’re at June 30 sales with 96% coverage, the promised work that work will be coming into backlog here over the next number of months or quarters but it will add to revenue this year. So sitting at 96% right now and just we’re in a great position. So we will have to see how that plays out. And as we go forward what additional revenues will be coming into the business that might kick ourselves ever more and help us with improving that bottom-line. And look at our Service business, we did 57 million in the first six months of the year and the follow indicators on the service sales were just terrific, which means revenue throughout the course of the year. And when I look at the service side of the business, the weather conditions in most of…

Okay. And then you kind of alluded to my last question which is basically I think you had indicated only 217 million of that backlog is expected to be converted to revenue in 2018 and the midpoint of guidance I guess for the back year -- back half is like 280 million. So how do you -- what's the bridge between those two if you could?

Sure. Steven, bridge is our continued Service revenue which we expect to do in excess of 50 million in the second half of the year as well as new sales that would be booked and burned and recognized as revenue to get us to that 530 million to 550 million range.

And Steve we did have a very strong June. We have visibility obviously on July and August at this point and things are progressing well. I'm not going to go any further with my comments on Q4 but to the backlog cover and what we see in promised work that will be materializing into revenue yet this year and then the additional sales that we are looking at, it's certainly very strong.

[Operator Instructions] The next question is from Eric Gomberg of Dane Capital Management. Please go ahead.

Just want to get a better understanding of the margin profile backlog at this point, obviously Mid-Atlantic hurt you this year. But as we look at into 2019 and back half of this year, how should we think about kind of normalized margins? Are they in line with what you would have reported if not for Mid-Atlantic, I am just trying to go get a sense of what your -- kind of what your earnings power is if there is nothing like that goes wrong at Mid-Atlantic this year?

Sure. Eric if you recall a couple of years ago, when we first met and we presented the company to the market, we talked about improved times being in the range of 15% to 16%. When we isolate the impacts of Mid-Atlantic, pull that out, we were targeting was 15.2%. So we’re right in that range. And then when you look at kind of a forward indicator in terms of what we had in backlog so in 2017 compared to 2018 we were a 140 basis points better and the work that we sold in 2016, 2017 right at those lower margins are now coming through, are producing 15.2%. So we see the opportunity to continue improvement on the margin. 15% to 16% is a good normalized range we believe. Could we see better than that? The opportunity is there. What we are doing strategically within the business units, certain business units are just sitting primed with backlog, they’re in good shape moving into '19. And what we're seeing is alright let's push it more, let's push that margin more. And they are in fact doing that on certain projects where we believe we have a very good chance at securing the job at a higher margin. So it's selective but we are pushing upward. But the bottom-line results, I am very disappointed in having to deal with the recovery on Mid-Atlantic but when you look at the rest of the business we’re at 15.2% we are at where we said we would be and I see visibility on improving that even further.

Eric, one other point on that. If you go back to the remarks, our Service margin was up 330 basis points in the quarter, so not only it’s Construction driving the increased margin but the Service business is -- while it's a smaller percentage of the total business, it is really contributing to that bottom-line and that gross profit because of that improvement in the margin on those projects.

I am assuming you had higher gross margins, are there any associated higher operating expenses or does that just flow through kind of 100% incremental profitability?

Well I mean year-over-year our SG&A is looking betting, we’re leveraging it. And when we look at some of the comments we made in the past about the public company expense where we had non-recurring that truly is -- we viewed off that. So that’s all good news. And then when you looking going forward, I talked about investments in training and development. We’ve taken a couple of core operational managers from the business and we’re moving them into the center for training and development. We got a lot of the people that we have on board and we will continue to bring on more people on board as we grow our company. Not to mention the acquisitions and working through integration. So we decided to make the investment in bringing a couple of senior guys into the center, they are expects of what Limbach does and think they are going to be remarkable teachers. But more important, this is the most -- this is the part that really excited me about them accepting these roles, they’re actually going to go out and audit our business and check to make sure what the individuals were taught, they are actually executing. So we have that in place today but we expect even more growth. We’ve got the acquisitions coming on board. So we think this is a right move to make sure we build a sustainable viable business. So there will be some incremental uptick in overhead in that investment but its’ not going to be that large. I think spread out over the whole organization, is a damn smart investment to make sure we execute and execute well. Other than that, we do expect to leverage the likes of the C-suite and continue to grow our business as I mentioned…

And that was probably more than I was asking. Thank you. I was just trying to get a better sense if you had gross margins that were 200 basis point higher that I mean it sounds like your OpEx is normal course of growing OpEx but you wouldn't have any associated additional OpEx if your gross margins were higher?

Eric, in the quarter our revenue increased substantially from the first quarter of '18 as well as from the second quarter of 2017. But a percentage of -- our SG&A as a percentage of revenue decreased to 9.8%. So we are starting to see the leverage of the SG&A that Charlie was referring to actually coming through in the second quarter. So we had substantial decrease in the SG&A from last quarter -- from the first quarter of '18 to the second quarter of '18 and we will continue to think that we can really leverage that well and use that leverage and the improved gross profit to generally get that bottom-line back to the level that we think it should be.

And just one other thing. Any color you can give on the size of potential M&A deals that you are looking at right now in terms of either revenue or EBITDA margin profile, anything like that?

Yes, Eric I mean the companies we’re looking at, they are ranging -- we've looked at some companies over a $100 million of revenue. We've got some nice companies we're looking at in those $75 million to $100 million range, some of them are down to $25 million to $50 million range. So there is a number of that we are looking at. And then on the Service business side we are talking to different owners and they tend to be smaller businesses but we're looking at businesses in the $10 million to $20 million range on the Service side and a couple of them are very attractive and we’re in the early stages with those. But yes, I mean does that answer the question? I mean it's a little bit of over the board and we're not having any conversations with anybody with $200 million, $300 million, may be some day in the future we will but not right now. We're looking at kind of that incremental subtle steps.

But on that $18 million to $20 million EBITDA basis, still to be somewhat meaningful?

Yes, absolutely.

[Operator Instructions]. There appears to be no additional questions at this time. I would like to turn the call back to Charles Bacon for closing remarks.

So folks thank for your interest in Limbach. And our year -- we're disappointed with Mid-Atlantic and the impact it’s had on us and we are working hard to recover and our customers are well aware of what we need to do in order to call back. So it's unfortunate that we've had to deal with that. But when I look at the overall business and how we are really just -- it's humming on all cylinders and the rest of the business units, we’re quite pleased with our progress. And on the M&A front, we are working that super aggressive but I'm only going to do a deal if it's proper and the deals where we are in late stage discussion on we are working with those owners. It just takes time and just please remember this businesses were not for sale, we’re not chasing books. There isn’t an investment banker on the other side of the table. So unfortunately it just takes a bit more time. But we think we are doing it properly and we like what we have on our radar screen. So look forward to having conversations with all of you from time-to-time. Please feel free to reach out to us if you want to ask you some other questions and we're always open to have dialogue with people. Thank you very much.

This concludes today's conference. You may now disconnect your lines. Thank you for your participation.