Good morning and welcome to the First Quarter 2024 Limbach Holdings Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [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 first quarter of 2024. Yesterday, Limbach Holdings issued its earnings release and filed its Form 10-Q for the period ended March 31, 2024. 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 historical non-GAAP measures to the most directly comparable GAAP measures in our first quarter earnings release and in our investor presentation slide deck, both of which can be found on Limbach's Investor Relations website and has been furnished in the Form 8-K filed with the SEC. With that, I will now turn the call over to Mike McCann.

Good morning, everyone. Welcome to our stockholders and analysts as well as those who may be new to Limbach. Thank you all for joining our call today. Before we get to the highlights of the first quarter, I'd like to remind everyone of the key elements of our business strategy. First, we are shifting our business mix from General Contractor Relationships, or GCR to Owner Direct Relationships, or ODR. Two, we are expanding margins to evolve service offerings and three, we are scaling the business through strategic acquisitions, whether those are tuck-ins, expansion to new geographies or additional service offerings. We focused on six key verticals: Healthcare, industrial manufacturing, data centers, life science, higher education and culture and entertainment. These industries require uninterrupted building operations that cannot fail. We provide building owners with solutions and services to maintain and upgrade their mission-critical mechanical, electrical and plumbing infrastructure. We believe our strategy and core vertical focus is the best way to grow earnings and create stockholder value. So why do we see it this way? Our ODR segment is a higher-margin, lower-risk business model that is less impacted by macroeconomic trends. By shifting our business mix to the ODR segment versus the GCR segment, we are building a more stable, economically resilient business with a better long-term growth profile. Additionally, this business model does not require significant capital expenditure investment and is expected to generate strong free cash flows. By expanding and evolving our service offerings, we believe that we can grow market share with existing customers and position Limbach for reoccurring revenue streams from these Owner Direct Relationships while flexing with our customer needs between operating and capital project budgets. All this equals a business with attractive organic and acquisition growth opportunities, less volatility and more consistent execution. Our first…

Thanks, Mike. Our first quarter 2024 earnings press release and Form 10-Q were filed yesterday and provide comprehensive details of the company's financials. So I will focus on the highlights from the first quarter. During the quarter, we generated consolidated revenue of $119 million versus $121 million in Q1 of 2023. And as expected, consolidated revenue declined by 1.7% due to our focus to shift to our ODR segment. ODR revenue grew 26.5% to $74.3 million, while GCR revenue declined 28.2% to $44.7 million. As Mike indicated, the decline in GCR revenue is intentional as we continue to execute our mix shift strategy to ODR. In the first quarter, ODR revenue was 62.4% of consolidated revenue, up from 48.5% last year. This is driving our gross profit and adjusted EBITDA results. Total gross profit increased 18.5% to $31.1 million for the quarter from $26.2 million in Q1 2023 because of the mix shift to ODR. ODR gross profit contributed 71.3% of the total gross profit dollars or $22 million. ODR gross profit increased $6.2 million or 39.3% driven by higher revenue with expanded gross margins in Q1 to 29.8% versus 27.1% in Q1 of 2023. GCR gross profit decreased $1.4 million or 13.5% due to lower revenue with our focus on smaller and shorter duration projects at higher margins. This enabled GCR gross margins to expand to 20% from 16.6% in Q1 of 2023. As a result, gross margin on a consolidated basis for the first quarter was a record 26.1%, as Mike mentioned, up from 21.7% in the prior year. During the quarter, SG&A expense increased approximately $1.8 million to $22.9 million from $21 million in Q1 of 2023. As a percentage of revenue, SG&A expense was 19.2%, up from 17.4% in 2023, approximately $1.1 million of the $1.8…

Thank you, Jayme. 2024 is off to a great start, and I'm very optimistic about Limbach's future, not only in 2024, but for years ahead. There is still tremendous opportunity to grow our wallet share with customers. We continue to evolve the company and shift towards a greater focus on working directly for building owners. We have added dedicated account and sales staff in order to become embedded with our top customers and partnering with them for years to come. Because of the progress we made in Q1 and our optimism about the rest of the year, we are increasing our guidance. We now expect ODR to be 65% to 70% of total revenue. That's an increase from 60% on the low-end and implies ODR revenue growth of 25% to 36%. We are also increasing our adjusted EBITDA guidance to $51 million to $55 million, up from $49 million to $53 million. As a result, we expect to see full-year adjusted EBITDA margin in the range of 9.6% to 10.8% for 2024 based on our unchanged full-year total revenue guidance of $510 million to $530 million. I think it's important that investors see Limbach as more than a mix shift story. We are transitioning as fast as possible to our optimal mix. Once that optimal mix shift between ODR and GCR is achieved, topline consolidated revenue should reflect our growth, both organically and from acquisitions. We continue to be excited by our prospects, the long runway of growth we envision and by the significant opportunity we have to create stockholder value.

Thank you. And with that, we'll open up for a question-and-answer session. [Operator Instructions] And our first question comes from Rob Brown with Lake Street Capital. Please state your question.

Good morning, Mike and Jayme.

Good morning.

Good morning.

Congratulations on all the progress. On the ODR growth, pretty strong outlook there, just wonder if you could give a sense of some of the macro themes driving that? Is this a catch-up in spending? Or is this really kind of driven – growth driven by your new sales effort and kind of focus on the customer strategy?

Sure, Rob. Great question. From an ODR growth perspective, a lot of this really comes down to our strategy, which is to focus on six key vertical markets where the demand is durable. We're working in mission-critical facilities where their operations can't go down. So probably the best way to characterize this is just I'm going to highlight three different vertical markets that are very important to us. One is healthcare. We made a big investment from a sales perspective to capture the OpEx spend. There's been a lot of deferred maintenance that we've been able to capture. And I would tell you, even looking out into the next year or so, we're starting to build budgets right now, and we're starting to see capital projects reenergized. Industrial manufacturing is still very strong. A lot of that comes in the Midwest and Southeast. Tremendous opportunity of that as well, too. And that's from a couple of the acquisitions that we did, we've been able to capture that vertical market. And the last thing I want to highlight is data centers. So a lot of these data centers get old quick. Their equipment is about a quarter of the – from a run time perspective. So it needs to be replaced quickly. We've got lots of questions from a lot of customers on relatively new data centers where there's upgrades that need to happen. So I think that's going to be another opportunity as we look for further down the line. So I definitely think it really comes down to our focus on those mission-critical vertical markets where their infrastructure is absolutely critical to their operation.

Great. Thank you. And then maybe on the rental business, you highlighted a bit. How much more CapEx do you think that requires? Or how do you see that growing? Or is this just a nice adder to the service activity that you do and it will be kind of the CapEx for this year and that I don't expect more than that?

The rental equipment that we purchased it's really – it's cooling base. It's not heating base. So right now, as things start to get really warmer in our markets, starting from the South up to lead to the Northeast anticipate that equipment start to move. So the reason why we invested in this equipment, if you think about it, we're in a building. We've invested these on-site account managers. We are currently, in the past have captured the quick repair work and our goal is to capture, obviously, the capital projects. But there's a gap between repair work and capital projects, a lot of time is filled by that rental business, rental equipment, so it's more about providing a complete offering that end-to-end from repair to replacement in that middle location as well, too. Jayme, anything you want to add?

Yes. Rob, we had flagged $4 million for equipment this year. We actually paid cash out of $2 million during the first quarter, but it is on the order. So you'll see the rest of that cash flow that will hit in most likely in Q2 as we receive that product. So at this time, we've designated $4 million is our budget for the year of rental equipment. But as Mike said, as we get further into that, the hot months, if there's a need and opportunity, we may reassess that listed maybe expand the fleet.

Okay. Great. And then lastly on the M&A environment, I know you've looked at things for quite a while. How active do you expect to be there? Or is it more opportunistic as you find things and they mature?

Our goal is to be selective and to be opportunistic. So there's definitely a robust pipeline out there. I look – and I would also highlight, obviously, the two that we did last year, which is Industrial Air and ACME Industrial. Those are working out very well. We're very excited about the customer penetration. So for us, it's really making sure that we get the right fit that we're able to integrate with the company to get synergy, not necessarily just from the deal, but how that company now fits into the overall Limbach. So still a robust pipeline. We're being extremely selective, but our goal is to do acquisitions so.

Okay. Great. Thank you. I'll turn it over.

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

Hi. This is Brandon Rogers on for Gerry Sweeney. Thanks for taking my question.

Thank you.

So you guys are successfully navigating the shift to ODR, you raised as a percentage of revenue of 65% to 70%. When do you expect to reach the optimized segment mix shift? And once you reach that optimizing mix, where do you think – where do you see margins and revenue at?

Great question. As you stated, we adjusted from the 60% to 70% target to 65% to 70%. So we are definitely trying to make that transition as fast as possible. And how we're doing that is really in a couple of different pieces. So this year, we've invested in sales resources on-site account managers to really capture that OpEx. Our goal is to make additional investments from a capital project perspective, especially going into 2025, which really will help continue to accelerate that revenue growth. So from a long-term perspective in our deck, we pointed to beyond 2024, getting to a point where it's approximately 80% Owner Direct, 20% GCR. So we're moving as fast as possible in order to get the optimal mix. Obviously, once we achieve that mix there's a lot more margin expansion on top of that. And I think also from a margin expansion. So it's not just the mix, but it's also our ability to introduce service offerings as well, too. And obviously, finishing and getting to that optimal mix having the right offerings, there's a pickup, I think, on both sides of it.

Awesome. Thank you the color. And then just one more for me. You discussed acquisitions a little bit. But can you just discuss how the successful acquisition integration with ACME and Industrial Air and you mentioned robust pipeline. Is there any ideal targets that you have coming down the pipe in the next three to six months, maybe nine months out?

Sure. So just to talk a little bit about both of the deals that we've done. So Industrial Air very much in the industrial manufacturing space. A couple of key components, which has made that deal successful so far is their ability to have a concentrated owner direct base that is expandable, they also have an equipment line that allows us to have an installed base similar to an OEM. Between customers, the equipment offering that they have, and I would also tell that from a cultural fit as well to those three components have really – we're excited about not only the opportunity right now, but also the future opportunity in Industrial. From an ACME perspective, they are also in the industrial vertical market hydro, different types of industrial manufacturer. So they've introduced us to several new clients with future spend down the line as well, too. So cultural fit, owner direct customers, expansion opportunities, those are really the three key components that both of those deals have. So looking down the line, we're continuing to look through plenty of opportunities, a robust pipeline. We're trying to be selective. And obviously, we're trying to – we want to get deals done, but we want to get the right deals done so.

Awesome. Thank you so much. Appreciate you taking my questions. I'll take the rest on offline.

Thank you. And there are no further questions at this time. I'll hand the floor back to Mike McCann for closing comments.

Thank you all for your participation today and for your continued interest in Limbach. If you have any additional questions, please reach out to Julie Kegley at Financial Profiles. Thank you, and have a great day.

Thanks. This concludes today's call. All parties may disconnect.