Greetings and Welcome to the Limbach Holdings Second Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeremy Hellman of the Equity Group. Thank you Please go ahead.

Thank you, very much, and good morning, everyone. Yesterday, Limbach Holdings announced its second quarter 2023 results and filed its Form 10-Q for the period ended June 30, 2023. The company would also like to note that an updated investor presentation is available on the Investors section of the company website at www.limbachinc.com. Management will refer to select slides during today's call and encourages investors to review the presentation in its entirety. During this call, the company will be reviewing its financial results and providing an update on current market conditions. Today's discussion may contain forward-looking statements, and actual results may differ from any forecasts, projections or similar statements made during the earnings call. Listeners are reminded to review the company's annual report on Form 10-K and quarterly reports on Form 10-Q for risk factors that may cause the actual results to differ from forward-looking statements made during the earnings call. Also, please note that during the question-and-answer session at the end of the call, we will only be taking questions from our analysts. With that, I'll turn the call over to Mike McCann, President and Chief Executive Officer of Limbach Holdings. Please go ahead, Mike.

Good morning, welcome everyone and thanks for joining us. Joining me this morning as Jayme Brooks, our Executive Vice President and Chief Financial Officer. During the second quarter, we continued to execute our strategy and produce improved quality of earnings. Our strategic plan continues to center on three primary value drivers, each of which is capable of positive results, but when combined, they really provide a high growth pathway for our company. The first drivers are segment mix. We continue to aggressively shift our revenue mix towards a higher percentage of our work coming from our ODR segment. While, our GCR segment continues to make solid progress in improving its margin profile, ODR continues to be our main focus through the improvement in margin profile, the more favorable risk profile and the opportunity to strengthen relationships with long term customers. By increasing the proportion of revenues attributed to ODR there's a natural lift in our consolidated gross margin. In managing the business, we are constantly reinforcing this message to our local leadership. They should always be looking to deliver value to our customers while targeting high quality work that provides for high margins rather than large projects which typically sell at lower margins. Anytime they can achieve a gross margin of 29% instead of 17%, as was the case in respect to this segment this quarter they should pursue the 29% opportunity. That's really the biggest driver of our segment mix shift. The second driver is providing evolved offerings for our customers. We are intensely focused on developing and delivering value added solutions to our customers. We want to be their trusted partner for all the facility needs, especially when it comes to making proactive recommendations that enable them to drive long term benefits and maximize the return on their…

Thanks, Mike. Yesterday, we filed our earnings press release in Form 10-Q, which provide extensive detail of our financials. So I will focus on some key highlights. Starting with the income statement during the second quarter, the ODR segment accounted for 47.1% of total consolidated revenue, up from 42.9%, last year. ODR revenues during the quarter was up 18.1% from a year ago, while GCR revenue was essentially flat resulting in consolidated top line growth of 7.5%. We continue to see solid execution in the quarter. Consolidated gross margin during the second quarter was 22.8%, primarily due to increasing contribution from our higher margin ODR segment and strong overall margin performance in both segments. For the quarter GCR gross margin was 17.1% while ODR margin was 29.3%. SG&A expense of $20.4 million during the quarter was down modestly from $21.1 million in the first quarter and up from $18.7 million in the year ago period. The increase in SG&A expense from the year ago period was primarily related to increases in payroll related expenses of $1.3 million and a $500,000 increase in stock-based compensation expense. These increases were partially offset by a $400,000 decrease in rent related expenses. As we noted on our call last quarter, we expect full year 2023 SG&A expense as a percentage of total revenue to have a similar annual run rate as 2022. Now turning to cash flow, we continue to have a strong balance sheet. At quarter end, our cash and cash equivalents balance was $45.9 million and we had $10 million outstanding on our revolver. We exited the quarter in a net cash position of $23.6 million compared to a net cash position of $4.2 million at the end of December. As we have previously noted our ODR focus and tightened GCR project…

Thank you, Jayme. Our first half adjusted EBITDA benefited from gross margin in both segments coming in ahead of our guided ranges. And we continue to remind investors that margins can vary quarter to quarter, based on project mix, timing and execution. As we have noted, our longer-range strategy for the business continues to push for higher margins. But at the same time I want to remind everyone that the path will not necessarily be a straight one, nor will it necessarily be rapid change. With those factors in mind, as noted in our press release, we are increasing our adjusted EBITDA guidance for 2023 to a range of $38 million to $41 million, up from $33 million to $37 million previously. The upward revision to our adjusted EBITDA guidance is a function of our strong performance for the first half of the year, along with a very small contribution from the recently acquired ACME Industrial business during the second half. We expect ACME will gradually start to become a more meaningful contributor to the bottom line once it's been integrated into Limbach, and the way we do business. I also want to point out that our business appears to have entered a new normal when it comes to supply chains and equipment availability. Given this dynamic, we are reiterating our revenue guidance for 2023, which consists of total revenue for the year in the range of $490 million to $520 million. Summarizing our guidance for 2023 then, we're reiterating our expectation that revenue will be between $490 million and $520 million, or adjusted EBITDA between $38 million and $41 million. I also want to remind everyone that slide 25, in our investor presentation includes additional modeling considerations. Recapping business conditions, the demand and our mission critical vertical markets continues…

Thank you. [Operator Instructions] Today's first question is coming from Rob Brown of Lake Street Capital Markets. Please go ahead.

Good morning. Congrats on a nice quarter. Wanted little more color on the ODR business, are you seeing kinds of demand growth and I'm sure it's both but is it the direct projects or is it maintenance and repair business? What sort of the areas you're seeing the most demand and growth?

Good morning, Rob. Thanks for the question. The short answer is we're definitely seeing on both sides of it. There's a tremendous deferred maintenance opportunity right now. A lot of our customers are continuing to try to balance their needs between short-term, keep systems up and running and long-term planning. So as an example, I've met with four different hospitals this week or healthcare groups. And it's interesting because they've got their clients that they have to take care of their patients. And there's definitely a balance and really working with them in a consultative manner to make sure that we take care of their short-term needs, but we're also telling them to make sure that there's ways to avoid these long-term issues and we need to work proactively as a partner. So it's definitely a mix between both. It depends where the client is at, in their own particular journey and their needs of their business. But definitely opportunity both.

Okay, great. And then you've made some pretty strong progress on EBITDA margins. Where do you see that sort of going over time? Or do you feel like you've gotten to where you need to be and you'll see growth, with growth in revenue just give a sense on where you're at in terms of getting EBITDA margin toward your targets?

Yeah, we're very focused on quality right now. So the demand environment is super strong. And to us right now, it's a super disciplined strategy. And working within our six core vertical markets, where the customers and the clients are mission critical, where they have that durable demand, and there's resilience, at the same time, we've been really focused on each one of our locations of working for the top 5 to 10 customers. So there's a tremendous amount of demand out there. But we're super focused on the quality. And I think the other thing too, is we're just trying to make sure that we staff accordingly to make sure that we can take advantage of the short term OpEx in the long term. So it's a -- we're very early in our journey. We're very focused on quality, and making sure we're setting ourselves up for durable demand for these customers.

Thank you.

Thank you. At this time, I'd like to turn it back over to Mr. McCann for closing comments.

Thank you, everybody, for continued interest in Limbach. If you have any additional questions, please reach out to Jeremy Hellman at The Equity Group. Thank you everybody.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.