Greetings and welcome to the Limbach Holdings Third Quarter 2018 Earnings 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, Mr. Jeremy Hellman of The Equity Group. Thank you. You may begin.

Thank you very much. And good morning, everyone. Yesterday, Limbach Holdings issued the announcement of its 2018 third 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.

Good morning, everyone. Thank you, Jeremy and welcome, and thanks for joining us. Joining me today is our Chief Financial Officer, John Jordan; and our Executive Vice President of Acquisitions and Capital Markets, Matt Katz. As Jeremy mentioned, we’ll be using a presentation deck and I’ll note which pages we’re on. So, let’s got to Page 3 or Slide 3. We have five key areas of focus for our prepared remarks. Number 1, first and foremost we’re going to hit the mid-Atlantic business unit and what’s happening there. Number 2, comments around our strong performance we see across the company and our other business units. Number 3, we’ll update you on the company’s management initiatives to address our continuing growth. Number 4, John will provide a detailed set of comments around our results and our focus on financing. And finally, Number 5, I’ll wrap up with some preliminary thoughts on 2019. Let me start off with some global comments. Our revenue for the quarter was strong for both construction and service segments. Our SG&A is tracking as expected, but we incurred substantial write downs late in the quarter on several major projects in our mid-Atlantic region leading to our loss in the quarter. When isolating mid-Atlantic, the balance of our business is performing very, very well and in fact beating our plan with strong year-on-year growth. Let me start with mid-Atlantic. I want to give you a thorough explanation of the background, where we are, and what we see going forward. So, I’d ask that you now move to Slide 4. First, let me provide some context around Limbach and the region. Currently, Limbach is managing hundreds of projects across the country and we separate these projects by branch, location or region. The mid-Atlantic is one of Limbach’s largest and…

Thank you, Charlie. Before getting into the 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 appendix pages, which contain further data we think you will find helpful. Let me begin right away to address our current plans surrounding the refinancing of our senior debt obligations. During the period, our management bank Fifth Third made us aware that they wanted to work with us to ensure smooth transition to a new senior lender. We have enjoyed a 2.5-year relationship with existing bank group and 8-year relationship with Fifth Third. We appreciate their support as we work through a transition. This has been a supportive and productive process so far. A top priority right now is to finalize our negotiations with Fifth Third and expect to have an agreement in place by November 30. The key terms of the restructured credit agreement with existing bank group are expected to be a revolver and term loan maturity date will be March 2020. The bridge loan matures in April 2019. Secondly, a reduction of the total revolver from 25 million to 20 million between now and January 31. Also, simplified covenants, including a minimum adjusted EBITDA in the fourth quarter 2018, fixed charge coverage ratios in 2019, and enhanced bank reporting. Fourthly, specific milestone dates associated with the refinance process. Fifth, limitations on the incurrence of new debt and acquisition activity. And finally, a potential increase of the interest rate if the amendment is not executed by November 30. To assist in the refinancing effort, the company has engaged a middle market financial institution that is currently a member of Limbach’s existing bank group. This institution is seeking to underwrite and hold approximately…

Okay. Thanks John. I’m now on Slide 14 folks. Now, we move on to some general comments on 2019. As John noted, macro conditions remain favorable. Overall, the U.S. economy is growing well and our key verticals and forecast to continue to grow as well. Our booked backlog and promised work has set us up well for 2019 and to 2020, allowing us to be disciplined in our sales and execution. We’ve taken a conservative approach when it comes to forecasting, particularly with respect to mid-Atlantic. We also continue to pursue claim recoveries where we feel we have a strong taste. Let me now shift to a discussion of Limbach, mergers and acquisitions, and setting up Limbach for 2019. With Dunbar we made the seller aware of our mid-Atlantic issues and that it would delay our ability to close the deal in the prescribed timeframe due to financial matters. As a result, the management did exercise their right to terminate the transaction. We understand the position and look to remain in a proactive discussion with the management to stay engaged in the process. It is a terrific company with a great leadership team and we continue to work on a large joint venture in the greater Toledo area together. In addition to the Dunbar transaction, we have two other transactions possibly entering the LOI stage. We like both companies. We clearly understand we have to arrange for financing and once that is complete, we can concentrate once again on our focus around M&A strategy. Mid-Atlantic has a setback for us, but we are confident, we will work our way through the current period issues and move forward. As we have in the past when faced with setbacks in the business. On 2019, our business planning process is concluding and we will be providing guidance on our next call. What I will share with you is both segments have strong forward indicators. Our construction backlog is strong with improving margins along with our continued robust pipeline. Our service segment is growing well with a strong growing maintenance base in addition to the management expansion along with the growth in training and development, and internal audit we have good visibility for 2019. We expect a number of our business units to show strong growth, while stepping back in mid-Atlantic to bring that business back to profitability. With that operator, I would like to open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Great, thanks. Good morning. Charlie, thanks.

Brent, I wanted to provide a lot of detail, so people would have a handle on where we stand.

I appreciate that. Charlie, I guess my first question not to be too short-term thinking, but with the guidance you are talking $6 million to $8 million in EBITDA in the fourth quarter to get to that full-year level, I mean that’s a pretty big snap back here in the fourth quarter, can you kind of provide us a bridge and help us get comfortable with that sort of numbers in the fourth quarter?

Yes, absolutely Brent. So, I’m going to ask John to step in here in a moment. If you go back in history with the company, we’ve always had a strong second half. Putting aside the mid-Atlantic business, the business did quite well, actually to the course of the year we did extremely well, but the fourth quarter of 2017, we had very, very strong results and we expect to see similar set of results in this fourth quarter. John, please comment a bit more.

Sure. Brent, as far as our expectation for the fourth quarter, as Charlie referenced, we’ve always been strong at the second half of the year. Several branches are really executing well at a very high volume, but well under control those being the Florida operations and Ohio. In addition, the gas pipeline project that we mentioned up in the New England region is expected to produce substantial gross profit with basically no additional SG&A that would be very accretive to the fourth quarter results. As well as on some of the other branches we have some significant projects that are wrapping up that we think will potentially provide some additional upside on projects that we’ve not been able to recognize year to date just because of the project completion status as of the end of the previous quarters. So, we feel pretty confident that fourth quarter activity to get from the roughly 2 million of adjusted EBITDA after the 8 to 10 is very achievable. We started strong in September as I mentioned the volume. We see that volume of just the organic business continuing to be at a very high level for the fourth quarter.

Okay.

I guess the other thing I would add in there is, Brent, our service business – the sales were up 46% year-on-year and that work is all quick hitting. So, as we sold this work in the previous quarters that work is being executed now. And quite frankly the pipeline on that service work isn’t slowing down at all. It’s been very, very robust and when we step back and we think about what’s going on there. I do think, a lot of these smaller type projects are being influenced by the tax cuts and there’s just a lot of deferred maintenance that was held off. Now, people are moving on it. So, our service business is really cranking well.

Okay. Alright, thanks Charlie. And I guess just a follow-up there then. Could you tell us what you are embedding for the mid-Atlantic operations into that guidance for the fourth quarter?

We have no expectation of any earnings out in mid-Atlantic in the fourth quarter. We purposely put that at zero knowing some of the challenges that we've had, we don't anticipate any other changes right now, but there is no assumed earnings out in mid-Atlantic in the fourth quarter?

Okay. Okay, great. And then I guess that kind of shifting to 2019 and thereafter. How are you thinking about bidding work in that region, you know over the next call it six months, you know how do we think about that region growing as a whole, and Charlie I mean, how quickly do you think you can work with these issues?

Sure. What we decided to do and I mentioned this in my comments that, one, let me just talk about the business unit leader. The gentleman that’s going to be running that business for us has an excellent resume of working with businesses that have had challenging times. He’s got a very strong educational background, Masters in [indiscernible] Engineering, MBA, and he's been working with specialty contractors for a number of years. So, we're very excited that he’s joining us and he started on November 5. As far as what we did to kind of settle the business down, [indiscernible] my career was taking off and he just said, Charlie you got to walk before you run. And I told, look I like to run and he looked at me and he said, you’ll learn. I was only in my 20s at that point when I got that advice. So, here we are today dealing with a business in this situation. We have to step back. We got to walk before we run again. And in the case of settling it down, on the craft level, right, so what happened here when you really dissect it, the people we have there are just terrific people. I mean, they are very, very talented people. I think management at a senior level didn’t watch it close enough, and that’s why we made a senior management change. But when you look at the craft we have there, we’re comfortable with the foreman at a level of 175 to 225 craft workers; we have sufficient supervision for that. When we grew to 350, we just didn't have enough foremen and superintendents to make sure they were installing quality work and it just wasn't planned well and the delays that we faced on all of…

That did. Thank you. And Charlie, I guess outside of mid-Atlantic, how are you sort of dealing with these labor issues, I mean it seems like it is sort of a national issue, not just regional, but how are you kind of combating that right now?

Sure. I think when you look at what we did on the Red Wings arena it’s just an excellent example and you guys have heard us talk about this project. We just had a great leader up there, he did a fantastic job presenting to management how he was going to execute that project. We ended up sub-contracting out to our competitors and local businesses over 40% of that arena. And when you look at the Bedrock program that we have up there where we have four major projects and three construction, we’re going to take exactly the same tact. We’re going to be subcontracting out a big portion of the work, you know what’s great about our company is our customer base really like our front-end engineered services; it is – very few have the capacity like we have, and we’ve become known as the go to guys. If you are going to have challenging projects, we really have modular construction, prefabrication engineering, our estimates are good, but we also [indiscernible] our customers to say, look we can take this on, but here is our contracting strategy. And providing they want to do it. That’s great. We’ll take the work on. But we are looking at that very carefully. The other thing that we instituted months and months ago was the issue of 12-month lookaheads. So, our guys every month have to present their business units to management, as I said on those calls. They have to present how their labor is trending, they list their jobs and their promised work and if they have any jobs that they are feeling really good about that they think is going to come into promise into backlog, they project that out too. And then we get to see the trends of where their labor is at. Now, I expect we can continue to add reasonable labor growth, as well as project management administration. You know, at 8%, 10%, 12%, 15% we can do that. But to grow 30% in the year, 40% a year that’s not manageable in this market. Maybe in a calm market where there is not much activity going on, we have an excellent, excellent brand reputation in the industry. We’re one of the safest contractors out there. Craft want to work for us, we treat our people extremely well. And so, it’s not really a huge issue. However, in this market we can't just rest on our great reputation to get all these folks so, you know 5%, 8%, 10%, 15% that range of organic growth within the business unit that’s what we’re targeting. And quite frankly, we're going to be very, very focused on our bottom line in terms of margin improvement. So, we're going to be a lot more selective with the pipeline that we have.

Okay. Thank you. Appreciate it.

Thanks Brent.

Thank you. [Operator Instructions] Our next question comes from the line of Gerry Sweeney with ROTH Capital Partners. Please proceed with your question.

Good morning Carlie and John, thanks for taking my call.

Good morning, Gerry.

I want to follow-up a little bit what you were just talking about and what Brent was just asking and I realize, not necessarily an easy question, but at the end of the day, I think mid-Atlantic was and is probably one of your oldest areas that you have done were probably the most solidified in terms of processes and et cetera, but as we move forward in growth for Limbach and you are, I think you are growing in multiple different fashions, at some point does it make sense that less is more, maybe go after less projects, you know become a lot more selective really focused on execution across the board?

Yes, Gerry, good question. We’re stepping back and looking at the business as a whole. To continue our growth, and again we’ve doubled since 2014 and we went public during this period, just to make it a bit more challenging, but I’m very comfortable now that we’re a public company, we’ve got all of our processes in place, we reduced our overhead expenses and getting up to speed, so that’s behind us, but going forward to continue to grow, you got to start with leadership and we have a pretty good leadership development program it’s called LLDP, Limbach Leadership and Development Program and we have annual classes. I tick off that class in January, I discuss strategy with the rising stars. Our CLOs are going to be involved with just going through operations. John will be involved with financing and we have other facilitators coming there outside from the company that helped them with some other development and we have seen great success with that. Many of our leaders today are – whether it be at the bridge management level or the operations manager, the service manager, project executives came through that leadership home grown program. So, we’re going to put a bigger focus on that this coming year and normally the class is around 15 to 18, we’ve elevated that down to 25 and we’re going to continue to push that program in a very aggressive way. So, from a leadership perspective, because I think it all starts with that and if I look at the mid-Atlantic region, quite frankly the former leader fell asleep at the switch and it caused us his team. I think he should have been more proactive and I think he should be sub-contracting strategy. Another point I want to make is, when you…

Okay. Just one quick follow-up question. Any fees by either party for the termination of the Dunbar acquisition that’s material?

No. We had a financing contingency in there and we worked hard and they are great people, and I really want to see that they will get done and we hope we can reengage if they want to in the future once we [indiscernible] our financing situation, but if we get something going again, then that will be for both parties, but there is no cancellation or termination fees.

Okay great. Thank you very much. Appreciate it.

Thanks Gerry.

Thank you. Our next question comes from Joseph Nicolas, Private Investor. Please proceed with your question.

Hi, thank you for taking my question. And sorry if this was touched on earlier in the Q&A and I missed it. Actually, one core question and then one quick follow-up. I was wondering, you know if you went back to sort of mid-September, I'm just kind of curious to get a sense of sort of how internally communications and just sort of I guess reporting and controls work. If we were back in mid-September, what was sort of I guess how much did you and John kind of realize there was sort of a re-occurring mid-Atlantic issue and just sort of how much to what degree in sort of the magnitude of it relative to what the ultimate sort of $9 million figure ended up being for the quarter? And there is a quick follow-up.

Sure, Joseph. When I look back at what happened in our company right three months, you have a project team, they have a responsibility, we had set processes, we had things with required standards and the project teams have to come in and present once a month to the local management team and present where the project stands the issue. It’s a set formula, there is a set standard agenda, including a cost to complete, and where we are seeing profitability change orders, delays and we’re dealing with that any customer issues and that happens every month, every national project. So, in this case it was towards the end of September where the guys representing their August results, it’s actually like a one-month lag. And of course, it is other current things, they know what’s going on in the job during what they are presenting. But they presented in this particular case, late September to the management team in mid-Atlantic and our CEO immediately reached out to John and myself and made us aware that something came up. He didn’t understand we are the number two yet, he was just starting to be briefed on it, but he called us immediately. Following that, we got together and huddled and put a work plan together because we saw the meeting earlier in the year and as it was explained to me, it was a combination of things. Just further delays outside of our control, but also rework that we had to remove some systems. So, what happens is we roughed in all the piping and after the piping is in, you test it, and then you start closing things in. And what we found out was there were systems that weren’t properly tested. We found out there were systems that were…

Yes. Just I mean to get more granularity, can you say approximately how much of the 9 million write down transpired specifically during the month of September? Just ballpark?

I don't have that broken out that way. Because it’s a combination of the hits we took in September, plus the cost to complete for the remainder of those projects. That’s how we categorized. John, I don't think we have that broken out that way.

We don't have that analysis on a month-by-month basis. It was a quarter approach comparing the jobs statuses as of the end of the second quarter to the end of the third quarter and as Charlie mentioned there are costs included in those write-downs to complete the projects through project completions. So, there are future course to be incurred, the projects as we’ve referenced are wrapping up in the fourth quarter, a couple will bleed over into the first quarter of 2019, but because some of these write downs actually put the projects in a lost position, we – by GAAP we are required to take that full loss when the loss is identified. So, the full loss on the project is fully recognized in the third quarter write-downs.

Joseph, where we see opportunities for public, which we also studied that. We have people on the ground working through the project documentation. Looking at opportunities for recovery, but we can't book that recovery we don't know what that’s going to be there. So, I mentioned the Santa Monica [ADT] project down west in Southern California. That was a project that was completed some time ago. We were delayed on the project. We submitted it to the general contract, along with other subcontractors and I believe even the general contractors submitted something to the owner. And then we had to work our way for a negotiation. Eventually it led to a settlement that took place several weeks ago and that capital will be coming into the company and it is seven figures. It’s coming into the company during Q4 and we will have a modest profit write up in our Southern California business. So, we're still in that process of identifying opportunity for recovery which should happen in the future but because of GAAP we had to take the pain through the books in Q3 since we identified the cost.

Got you. Thank you. And then my follow-up question was, as we just look into 2019, so I guess these specific five projects that accounted for the current write-down there would still be – two of those will still be going on in the beginning of 2019. So, I guess the two-part question. One, is it fair to assume that there may be some write-down associated with those two projects that will still sort of flow through in 2019, and then the second part of the question is, are there any additional projects beyond those two or beyond the five for the current write-down that maybe didn’t happen in Q3, but had started ramping up just at least there is a possibility that there may have sort of the same issue around the labor occurring to sort of above and beyond the current five projects that you guys highlighted, but they just maybe having kind of ramped up yet or even begun yet. But we'll, you know between now and 2019 and the beginning of first half of 2019? Thanks.

Sure. Let me take the second question and I’ll ask John to come back on the first part of the question. So, as far as work going forward. What we did was we stopped sales on major projects in mid-Atlantic region for any work that would commence between now and June 30. We had adequate backlog in the business to maintain our craft levels that we feel comfortable with that 175 to 225 craft that’s may be plumbers and pipefitters. We're very comfortable with that level. So, we are going to get the business back to its normal operating acceptable levels where they make good money and again you got to remember, there’s a 10-year track record of this business doing extremely well. They've got great customer relationships, great relationships with the other craft and we have terrific people working on the branch. We just are going to get the business back to those levels where we can enjoy profitability again. So, we stop sales. And the work we have, and I just want to be clear. When you step back and look at all of these projects, we didn't have estimating problems. Maybe we missed something here or something there, but there is usually something else we pick up, some good news and all washes out. It is just that we are estimating works on these big jobs. But we don't have estimating problems. The real culprit really was the issue of this massive ramp up of labor, and just didn't have the supervision to properly administer it. Some of it is in our control, some of it is out of our control. So, going forward we are going to get the business back to its normalized levels. We feel comfortable with the work we had in backlog. Every job has its challenge. It is a construction process, but we have great talent in the business and we're going to focus on that talent and keeping at that level and we’ll get back to growth in 2020. Right now, in 2019, we just want to stabilize. John, can you answer the other part of the question?

Yes. Joseph, as I mentioned a few minutes ago, the two projects that are continuing into 2019 are actually at a loss position already. So, as I said, we have taken that full loss through the books through the end of the third quarter. So, as of right now we do not anticipate any further write-downs on those projects. As they get completed in the first quarter of 2019.

I just want to be clear with everybody though folks. What we did was, we took the schedules we have today and we looked at what we were going to work around and we budgeted all of that to complete these jobs. Some of these are government related projects. In this project, the turban project should have completed months ago, but there is just ongoing delays they won't let us start up the system. Stuff outside our control change order work, design issues, all sorts of things. If we see that on some of these other projects that we are completing such Realtor Dallas, we are working hard at getting that project complete and we budgeted everything we know today. If they decide to delay that project by three months of four months, two things are going to happen. One there is going to be increased cost, two they are going to get it claimed. So, sure home it doesn’t happen, but as of right now. All the cost that we have taken through the pain reflect what we know today. They shouldn’t be able to complete all the schedules that we have been told. There is no reason they shouldn’t, but I just know one of these government jobs they tend to get pushed out due to things outside of our control and then we will pursue our money.

Thank you. Our next question comes from the line of Justyn Putnam with Talanta Investment Group. Please proceed with your question.

Hi, good morning. I was wondering if you could get a little more detail around your financing situation, specifically your relationship with your lenders. I mean my specific question is, the nearest I’m hearing on this call, and quite frankly I heard on the last call was that your one-time issues you are working through it in mid-Atlantic otherwise the business is doing well, but yes, the rational lenders seem to not proportional to that narrative, so I was wondering if you can give us some more detail around that?

John, please take that.

Justyn. Thanks for the question. As far as the relationship with the lender, I can't tell you what you thought process was to come to a conclusion that they would like to remove themselves from the credit. We’ve had a strong relationship with them for the last eight years and we continue to have very productive conversations with them as we work to this transition process. As far as the re-fi process, it’s well underway with one of the lenders that’s in the existing bank group. There are four banks in our existing bank group. One of those lenders has elected to step up and take the lead and be the lead bank in a potential new lending structure. We're working very closely with them on a daily basis. We have an agreement in place to have them be part of the syndicate to provide the $30 million revolver, as well as they will arrange for a $50 million term loan. Now both those amounts are total capacity. As I mentioned, our drawers will be significantly less than the total capacity. So, from a business perspective, we feel that we’re in a good shape with the re-fi process with the potential new lender group. We’re kicking off due diligence here very soon to work through and we have very specific milestones that we will be hitting over the next few months to work through the transition process to pay off existing lenders and have a new credit facility in place.

Okay. So, your current lenders are not articulated in any issues with your business that concerns them other than what we are seeing out in mid-Atlantic?

Correct. They have not expressed any concern about the rest of the business. They see all of our financials. We meet with them. We talk with them on a regular basis. We provide them all the data that we see internally, as well as what we file externally. We’ve not heard any concerns from them about the other branches. It has all been focused on the mid-Atlantic operation.

Okay great. Thank you for taking my questions.

Sure Justin. Thanks.

Thank you. And this concludes our question-and-answer session. I’d like to turn the floor back to Mr. Bacon for any final comments.

Well look folks, it was a tough quarter, but again I want you to all please take a look at the business. Without mid-Atlantic, we're going to continue to work extremely hard at correcting mid-Atlantic, but the rest of the business is doing extremely well. And I’ve shared this with investors in the past. When you start thinking about a construction company, you got to think about diversity. We have a huge diverse footprint. We’ve got diversity in market sectors. And we have two segments, construction and service, a very nice growing service business, which balances out the business. It was a very tough quarter, I think Joseph's question that he asked about the write-downs and the hits and explained, what happened during the quarter. It’s a great question and it was very painful event. We had to get through it. I look forward to working our way through some future recovery. That can't be promised or committed. That’s why it is not on the books, but we hope to see some day in the future recovery like the Santa Monica ADT project. So, but the overall diversity in the business allows us to deal with issues like this. I want to thank you for all your support. And if any of you have any further questions and would like to follow-up with us, we welcome phone calls. Please reach out to the Equity Group and they will reach out to us and we will get something set up. Thank you very much for your time and Happy Thanksgiving.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.