Good morning and welcome to the Fourth Quarter and Fiscal Year 2023 Limbach Holdings Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the conference over to your host, Julie Kegley of Financial Profiles. You may begin.

Good morning, and thank you for joining us today to discuss Limbach Holdings financial results for the fourth quarter and fiscal year 2023. Yesterday, Limbach issued its earnings release and filed its Form 10-K for the period ended December 31st, 2023. Both documents, as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages investors to review the presentation in its entirety. With me on today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open up the call for analyst questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about expected improvement in profit and operating margins, are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our fourth quarter earnings release and investor presentation, which can be found on Limbach Investor Relations website and has been furnished on Form 8-K with the SEC. With that, I will now turn the call over to Mike McCann.

Good morning, everyone. I'd like to welcome our stockholders and analysts, as well as those who may be new to Limbach. Thank you all for joining our call today. A few years ago, we saw an opportunity to leverage our construction and engineering service experience, relationships and knowledge to build a pure play building system solutions firm. Our objective was twofold. First, to transfer Limbach into a value-added solutions partner to building owners to command higher margins while delivering greater returns for our stockholders. And second, to position Limbach into a less competitive, volatile market, creating a stronger, more resilient company. Through disciplined execution of this strategy, today we are partnering with building owners to provide critical services and/or need to maintain uninterrupted operations in their facilities. We provide building owners with solutions and services to maintain and upgrade their mission-critical mechanical, electrical, and plumbing infrastructure. We are focused on six key vertical markets; Healthcare, Industrial & Manufacturing, Data Centers, Life Sciences, Higher Education, and Culture & Entertainment. These are large and growing markets with sustainable demand drivers where systems failure is not an option. We operate in two business segments, our Owner Direct Relationships or ODR, where we work directly with building owners to provide building system solutions which now accounts for over 50% of our total revenue. And our General Contractor Relationships segment, or GCR, where we work directly with general contractors. We are focused on growing our ODR business for several reasons. First, our direct customer relationships give us access to key decision-makers. While the initial engagement may be small, we have a strong value proposition and the opportunity to build long term relationships. As we become embedded into our customers' businesses, we are often on-site collaborating with their teams to develop customized solutions that reduce cost…

Thank you, Mike. Our fourth quarter and 2023 earnings press release and Form 10-K which were filed yesterday, provide comprehensive details of the company's financials. So I will focus on the fourth quarter and full year 2023 highlights. During the quarter, we generated consolidated revenue of $142.7 million versus $143.5 million in 2022. Consolidated revenue declined by 0.6% as ODR revenue grew 22.8% and GCR revenue declined 19.4% as we executed our mixed shift strategy towards ODR. In the fourth quarter, ODR revenue was 55.1% of consolidated revenue, up from 44.6% in 2022. For the year, we generated consolidated revenue of $516.4 million, compared to $496.8 million in 2022. Revenue grew 3.9% as ODR revenue grew 21.1% and GCR revenue declined 9.3%. ODR revenue accounted for 50.7% of consolidated revenue for the year, up from 43.6% in 2022. Gross margin on a consolidated basis for the fourth quarter was 23.3%, up from 20.4% in 2022. ODR gross profit increased $6.4 million, or 36.8%, driven by higher revenue with expanded gross margin in Q4 to 30.1% versus 27% in 2022. GCR gross profit decreased $2.3 million, or 19.1%, due to lower revenue with our focus on high quality, quick turning projects. GCR gross margins were flat at 15% year-over-year. For the year, gross margin on a consolidated basis was 23.1%, up from 18.9% in 2022. ODR gross profit increased $21 million, or 38%, driven by an increase in revenue and expanded gross margins of 29% from 25.5% in 2022. GCR gross profit increased $4.6 million, or 11.9%, due to higher margins. Although revenue declined in the GCR segment, gross margin expanded to 17% for the year versus 13.8% in 2022. As I mentioned earlier, the ODR segment made up 55.1% of consolidated revenue for the quarter. However, the ODR segment contributed…

Thank you, Jayme. Before opening up the call to questions, I'll cover our full year 2024 guidance and modeling considerations. For the full year 2024, we expect revenue of $510 million to $530 million, and adjusted EBITDA of $49 million to $53 million. And to help with modeling, we are targeting segment revenue mix to be 60% to 70% for ODR by the end of 2024, with GCR being between 30% to 40%. As we continue to shift the revenue and be selective with GCR projects, we expect total gross profit margins to land between 24% to 26% for 2024. Although there is always demand for building maintenance and repair, there is some level of seasonality to our business. The fourth quarter is usually stronger than the first quarter and back half of the year is usually stronger than the first half. We also expect revenue and EBITDA to gain momentum after the first quarter because we continue to see strong secular tailwinds from deferred maintenance and capital projects coming to the forefront. 2023 was a year of significant growth and achievement. We believe we are in the early innings of our long term opportunity. We are excited about 2024 and are positioned for continuing progress on all three pillars of our strategy. We need to continue to shift the mix by growing organically, as well as expanding our margins through evolved offerings and market share growth through strategic acquisitions. Finally, I want to thank all the employees. Our excellent performance in 2023 was a direct result of your hard work and dedication. That concludes our prepared remarks. Operator, please begin the Q&A session.

[Operator Instructions] Our first question comes from the line of Rob Brown with Lake Street Capital. Please proceed with your question.

Good morning, and congratulations on a strong progress.

Morning, Rob.

Hi, Rob.

I just wanted to follow up a little bit more on the ODR kind of organic growth view. How do you sort of see the organic growth in that business kind of playing out for the next few years?

Sure. As we mentioned earlier today, our next target is by the end of 2024 to get to a 60% to 70% ODR mix. So right now, our focus is really within our six vertical markets. And our strategy is really based on embedding our key personnel into those facilities to make sure that we're really capturing all the OpEx as much as possible. If you look out to future years, I think we are thinking about how we can not only capture the OpEx, but the CapEx as well, too, and then kind of tie it together in a bow with an account manager. So I look at things too from a vertical market. We're very disciplined to our six vertical markets. A couple of them right now that we're very focused on. One is Healthcare and the second is Industrial & Manufacturing. Those are two vertical markets that are very important to us. That are going to really help us drive our customer growth. And even from a Healthcare perspective, that's usually -- it doesn't go up and down very much. It's a dependable vertical market, understands the capabilities we're bringing to the marketplace. Industrial & Manufacturing obviously has been very strong for us as well, too. So it'll -- really it comes down to making sure that we're building these long term relationships with a strong foundation and allowing those -- and really growing with those customers over a period of time.

Okay, okay, great. Thank you. And you talked a little bit about a rental business expanding and maybe some of the service expansions you're doing. Could you elaborate on sort of what that rental opportunity is and what you're doing there?

Yes, absolutely. We're excited about this. We've always had three pillars; mix shift, evolved offerings, and expanded margin and strategic acquisitions. We've talked a lot about, obviously, the mix shift and acquisitions. But the second pillar of our strategy, I think this is just one piece of that that will allow us, so. At the end of the day, we're there in front of those customers and having the capability of having our initial rental fleet allows us to be much more of a single source provider for. Before, we'd have to go to a supplier to get that rental. Now we've made the initial investment of $4 million into the rental fleet, and we'll be able to offer quick service to these customers and able to capture the additional gross margin that comes from it as well too. So it's -- we feel like it's a really good fit with capturing that OpEx in that emergency type work, and it's going to be a real value-added offering for our customers.

Okay, great. And last question is more of on the overall demand environment. I know you're shifting to Owner Direct and service, so maybe that's helping. But what do you see in terms of the demand environment? How much is there a shift in the demand environment? And are you still seeing strength in the new project activity?

Sure. The demand environment is still really good. I -- Sometimes it's dependent on the vertical market sector. And again, I think one of the key reasons that we've really shifted our business to these mission-critical type customers is because that demand becomes durable. So probably the best way to kind of explain this that kind of goes with our strategy is to give a couple of customers examples. And one of the customers' examples in one of our vertical markets was a Life Science customer. And it's interesting. We sat with that customer, declared ourselves, put our resources in front of the customer. And the first thing that that customer told us is a lot of clients or suppliers make this promise, but when the big job comes, they leave all their resources and move on. And one thing we ensured this customer is that we're going to dedicate resources and we're going to stick with you. And it's amazing. I think you start to see the POs coming in, and they just want that attention. So I'll give you a Healthcare example as well, too, which is -- we're working in an older facility in the Mid-Atlantic market, and one of the customers felt trapped that they had supplier that was -- an OEM supplier that was giving them a decent amount of a little bit of attention. But at the end of the day, they felt trapped by the proprietary products and services. And we've been really able to expand our market because we've had this consultant-type relationship, as opposed to a transactional relationship where they feel like they're stuck. And what's nice, too, is we're not competing against the less sophisticated competition. We're competing against an OEM as well, too. So there's so many different examples, and I always break it down. Our model is not based upon -- we want our model to be as resilient as possible, not based upon macroeconomic demands. And it really comes down to these individual customers in these individual vertical markets, where they absolutely need us, we build a relationship, and demand becomes durable over time.

Okay, great. Thank you. I'll turn it over.

Thank you, Rob.

Thank you. Our next question comes from the line of Gerry Sweeney with ROTH Capital. Please proceed with your question.

Good morning, Jayme and Mike. Thanks for taking my call.

Good morning.

Morning.

I just wanted to stick on some of the same topics Rob has just mentioned, and specifically ODR growth. And, Mike, I think you and I have talked a little bit about this, but I wanted to retouch it and just get freshened up. I'm just curious how deep you are with some of your current customers. I think there's a wallet share play here. So my question is this, how much more wallet share do you have with existing customers? How much of this ODR growth can come from wallet share? And then the third part, sorry, is just maybe new entrants or new opportunities, new customers, et cetera.

Sure. It's interesting, I've always said before that we're in the early innings of our strategy. In some sense, that really equates to where we are from a customer basis perspective. So we've talked to tons of customers, and based upon describing what we do, there's no doubt in my mind that they desire to have the type of services and relationships that we want to have with our customers. So I look at it from where we've grown from -- just from our ODR revenue segment. A lot of that has really come from the expansion of existing relationships. So at the end of the day, we're targeting relationships that have long term spend opportunity, multiple buildings. I mentioned some of this in the script, but they want -- we're very much at the early stages of those relationships with our customers. So I would tell you, come back around to your wallet share question. While these customers, we have a small amount of market share and wallet share, but there's a tremendous amount of opportunity and there's the demand there to expand it. It's up to us to make sure that we continue to dedicate those resources. That example I used previously before about that Life Science customer is kind of a perfect example. It's going to start with some smaller POs and it's going to build to larger capital projects over a period of time. But we'll always have that steady OpEx work as that CapEx work builds over a period of time. So from -- just from a new opportunity, even from a customer basis, a lot of those relationships right now are based on recommendations. So if working on a Life Science facility or Healthcare facility, everybody knows everybody. And they see that we're doing a good job of providing a high level of service. We've had -- we started to have people call and say, can you come over to my building as well too? So it's very much in the early innings and there's a tremendous opportunity to gain market share and wallet share as we continue our journey.

Got it. And then the follow-up would be to this is just discussing opportunities to expand into some adjacent services. Obviously, rental is a prime example. Just curious, what are the opportunities? But I think also as importantly, how do you decide what to -- what opportunities to pursue? I mean, given your size, you're still a small cap, you've got some great wallet share to go. But how do you decide what is the appropriate business to go after and while still staying focused on that ODR -- that broader core ODR opportunity?

Sure. So in our investor deck, we have a new slide that talks about our unique offerings. Slide 10 in there and there's, I think, 10 different offerings. And the way that we've kind of separated this out, Gerry, is that there's three or four of them that are directly related to OpEx. It's the rental, critical services, data-driven solutions. There's another group of them that's really related to the CapEx, which is MEP infrastructure projects, equipment upgrades & products. We have our PM services that we're doing -- program management, and then there's kind of the more evolved offering. So we've kind of separated in our mind. I agree, can't do everything at once. Got to make sure it's very measured and it's got to make sure that it aligns with the customers. So very much thinking about this OpEx type of smaller project work, and then we're really setting ourselves up for next year for the capital project work. And then again, some of these more evolved offerings. So it's a very measured strategy over a period of time. We're always trying not to do too much at once.

Got it. And maybe one quick question for Jayme. Obviously, you gave the guidance $49 million to $53 million on the adjusted EBITDA side, I believe there are a couple of add-backs or write-up some projects and sort of lack a better term, one-timers in 2023 results. I apologize, I hadn't right in front of me, but I think it was especially in Q3. Could you go over some of those add-backs from 2023? Because I think that gives a little bit better apples-to-apples comparison on the EBITDA increase and projected EBITDA increase in '24 over '23.

Yes. Great point, Gerry. So, yes, our adjusted EBITDA was the $46.8 million. And then we did have some nonrecurring events that we did talk about and disclose where we had the claim recovery in California, that we had an upside from that of $1.2 million. And then we also had some projects and some other upsides that we took that would be nonrecurring as well. And that was about another $1.2 million in Q3. And then we also had about $500,000. So in total, if you look at that, then the adjusted EBITDA really is closer to like $43.9 million if you take out those one-time events.

Got it. Super helpful. That saves me a few minutes, so I appreciate it. I'll jump back in the queue. Thanks.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Michael McCann for closing comments.

Thank you all for your continued interest in Limbach. We look forward to seeing many of you at the ROTH Conference next week. If you have any additional questions, please reach out to Julie Kegley at Financial Profiles. Thank you, and have a great day.

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