# Limbach Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Limbach Holdings, Inc.](/companies/lmb.md) (CIK 1606163)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 16:15 ET
- Period: 2023-09-30
- Accession: 0001628280-23-037858
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1606163/000162828023037858/lmb-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1606163/000162828023037858/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $127.8m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $373.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $96.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $287.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $31.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $86.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $21.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $62.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $9.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $22.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $5.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $7.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $15.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.61 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.33 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.66 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.45 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 11,789,137 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 11,671,819 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $43.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $57.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $214.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $285.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $136.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $171.1m | us-gaap:Liabilities |
| Current portion of debt | at 2023-09-30 | $2.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $114.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,427 characters.

*The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our management’s expectations. See “Cautionary Note Regarding Forward Looking Statements” contained above in this Quarterly Report on Form 10-Q. We assume no obligation to update any of these forward-looking statements.*

Unless the context otherwise requires, a reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) contained in Part I, "Item 1. Financial Statements."

### Overview

The Company is an integrated building systems solutions firm whose expertise is in the design, modular prefabrication, installation, management and maintenance of HVAC, mechanical, electrical, plumbing and control systems for commercial, institutional and light industrial markets. The Company operates primarily in the Northeast, Mid-Atlantic, Southeast and Midwest regions of the United States. In February 2022, the Company announced its strategic decision to wind down its Southern California GCR and ODR operations. The decision was made to better align the Company’s customer geographic focus and to reduce losses related to unprofitable locations. The Company is currently in the closeout phases on its remaining Southern California business unit projects and expects to fully exit the Southern California region in 2023 aside from certain operational warranty obligations. However, the Company is party to the terms of a sublease agreement for its leased premises in Southern California through April 2027 and remains obligated under the original lease for such office space in the event the sublessee fails to satisfy its obligations under the sublease agreement. See Note 12 for further information on the Southern California Sublease.

The Company’s core market sectors consist of the following customer base with mission-critical systems:

- **Healthcare**, including research, acute care and inpatient hospitals for regional and national hospital groups, and pharmaceutical and biotech laboratories and manufacturing facilities;
- **Data Centers,** including facilities composed of networked computers, storage systems and computing infrastructure that organizations use to assemble, process, store and disseminate large amounts of data;
- **Industrial and light manufacturing facilities**, including automotive, energy and general manufacturing plants;
- **Higher Education,** including both public and private colleges, universities and research centers;
- **Cultural and entertainment,** including sports arenas, entertainment facilities (including casinos) and amusement rides and parks; and
- **Life sciences,** including organizations and companies whose work is centered around research and development focused on living things.

The Company operates in two segments, (i) GCR, in which the Company generally manages new construction or renovation projects that involve primarily HVAC, plumbing, or electrical services awarded to the Company by general contractors or construction managers, and (ii) ODR, in which the Company performs owner direct projects and/or provides maintenance or service primarily on HVAC, plumbing or electrical systems, building controls and specialty contracting projects direct to, or assigned by, building owners or property managers. This work is primarily performed under fixed price, modified fixed price, and time and material contracts over periods of typically less than two years.

### Key Components of Condensed Consolidated Statements of Operations

#### Revenue

The Company generates revenue principally from fixed-price construction contracts to deliver HVAC, plumbing, and electrical construction services to its customers. The duration of the Company's contracts generally ranges from three months to two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the relationship of total cost incurred to total estimated contract costs. Revenue from time and materials service contracts is recognized as services are performed. The Company believes that its extensive experience in HVAC, plumbing, and electrical projects, and its internal cost review procedures during the bidding process, enable it to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts.

The Company generally invoices customers on a monthly basis based on a schedule of values that breaks down the contract amount into discrete billing items. Costs and estimated earnings in excess of billings are recorded as a contract asset until billable under the contract terms. Billings in excess of costs and estimated earnings are recorded as a contract liability until the related revenue is recognizable.

#### Cost of Revenue

Cost of revenue primarily consists of the labor, equipment, material, subcontract, and other job costs in connection with fulfilling the terms of our contracts. Labor costs consist of wages plus taxes, fringe benefits, and insurance. Equipment costs consist of the ownership and operating costs of company-owned assets, in addition to outside-rented equipment. If applicable, job costs include estimated contract losses to be incurred in future periods. Due to the varied nature of the Company's services, and the risks associated therewith, contract costs as a percentage of contract revenue have historically fluctuated and it expects this fluctuation to continue in future periods.

#### Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs for its administrative, estimating, human resources, safety, information technology, legal, finance and accounting employees and executives. Also included are non-personnel costs, such as travel-related expenses, legal and other professional fees and other corporate expenses to support the growth of the Company's business and to meet the compliance requirements associated with operating as a public company. Those costs include accounting, human resources, information technology, legal personnel, additional consulting, legal and audit fees, insurance costs, board of directors’ compensation and the costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

#### Change in fair value of contingent consideration

The change in fair value of contingent consideration relates to the remeasurement of the contingent consideration arrangement resulting from both the Jake Marshall and ACME transactions. As a part of the total consideration for the Jake Marshall Transaction, the Company initially recognized $3.1 million in contingent consideration associated with the Jake Marshall Earnout Payments. In addition, the Company initially recognized $1.1 million in contingent consideration associated with the ACME Earnout Payments. The carrying value of the Jake Marshall and ACME Earnout Payments is subject to remeasurement at fair value at each reporting date through the end of the earnout periods with any changes in the fair value reported as a separate component of operating income in the condensed consolidated statements of operations.

#### Amortization of Intangibles

Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including favorable leasehold interests and certain customer relationships in the ODR segment. As a result of the Jake Marshall Transaction, the Company recognized, in the aggregate, an additional $5.7 million of intangible assets associated with customer relationships with third-party customers, the acquired trade name and acquired backlog. In addition, as a result of the ACME Transaction, the Company recognized, in the aggregate, an additional $2.3 million of intangible assets associated with customer relationships with third-party customers and the acquired trade name. Both the Jake Marshall and ACME-related intangible assets were recorded under the acquisition method of accounting at their estimated fair values at the acquisition date. See Note 3 for further discussion of the Company’s acquired intangible assets as a result of the ACME Transaction.

#### Other (Expenses) Income

Other (expenses) income consists primarily of interest expense incurred in connection with the Company's debt, a loss associated with the early termination of an operating lease, gains or losses associated with the disposition of property, equipment, changes in fair value of interest rate swaps, losses associated with the early extinguishment of debt and interest income earned from its overnight repurchase agreements, money market investments, U.S. Treasury Bills and the Company's interest rate swap agreement. Deferred financing costs are amortized to interest expense using the effective interest method.

#### Provision for Income Taxes

The Company is taxed as a C corporation and its financial results include the effects of federal income taxes which will be paid at the parent level.

For interim periods, the provision for income taxes (including federal, state and local taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with ASC Topic 740 – *Income Taxes*, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities and income or expense are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

### Operating Segments

The Company manages and measures the performance of its business in two operating segments: GCR and ODR. These segments are reflective of how the Company’s CODM reviews operating results for the purposes of allocating resources and assessing performance. The Company's CODM is comprised of its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer.

In accordance with ASC Topic 280 – *Segment Reporting*, the Company has elected to aggregate all of the GCR work performed at branches into one GCR reportable segment and all of the ODR work performed at branches into one ODR reportable segment. All transactions between segments are eliminated in consolidation.

As discussed in Note 11, on January 17, 2023, the Company announced its planned transition succession, pursuant to which Charles A. Bacon III stepped down as President and Chief Executive Officer on March 28, 2023, and Michael M. McCann, the Company’s former Executive Vice President and Chief Operating Officer, was appointed President and Chief Executive Officer. Following the transition, the Company revised its segment presentation to align with how Mr. McCann assesses performance and makes resource allocation decisions for its operating segments, which is based on segment revenue and segment gross profit. SG&A expenses are no longer reported on a segment basis as the Company's current CODM does not review discrete segment financial information for SG&A in order to assess performance. Interest expense is not allocated to segments because of the corporate management of debt service.

The Company restated segment information for the historical periods presented herein to conform to the current presentation. This change in segment presentation does not affect the Company’s unaudited condensed consolidated statements of operations, balance sheets or statements of cash flows.

### Comparison of Results of Operations for the three months ended September 30, 2023 and 2022

The following table presents operating results for the three months ended September 30, 2023 and 2022 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:

*(in thousands except for percentages)*

| Statement of Operations Data: Revenue: | Three Months Ended September 30, 2023 |  |  | 2022 |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| GCR | $61,936 | 48.5% |  | $62,653 | 51.2% |  |
| ODR | 65,832 | 51.5% |  | 59,704 | 48.8% |  |
| Total revenue | 127,768 | 100.0% |  | 122,357 | 100.0% |  |
| Gross profit: |  |  |  |  |  |  |
| GCR | 11,970 | 19.3% | (1) | 9,648 | 15.4% | (1) |
| ODR | 19,274 | 29.3% | (2) | 15,206 | 25.5% | (2) |
| Total gross profit | 31,244 | 24.5% |  | 24,854 | 20.3% |  |
| Selling, general and administrative(3) | 20,967 | 16.4% |  | 18,688 | 15.3% |  |
| Change in fair value of contingent consideration | 161 | 0.1% |  | 386 | 0.3% |  |
| Amortization of intangibles | 288 | 0.2% |  | 386 | 0.3% |  |
| Total operating income | 9,828 | 7.7% |  | 5,394 | 4.4% |  |
| Other income (expenses) | 124 | 0.1% |  | (99) | (0.1)% |  |
| Total consolidated income before income taxes | 9,952 | 7.8% |  | 5,295 | 4.3% |  |
| Income tax provision | 2,760 | 2.2% |  | 1,654 | 1.4% |  |
| Net income | $7,192 | 5.6% |  | $3,641 | 3.0% |  |

(1) As a percentage of GCR revenue.

(2) As a percentage of ODR revenue.

(3) Included within selling, general and administrative expenses was $1.1 million and $0.8 million of stock based compensation expense for the three months ended September 30, 2023 and 2022, respectively.

### Revenue

*(in thousands except for percentages)*

| Revenue: | Three Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| GCR | $61,936 | $62,653 | $(717) | (1.1)% |
| ODR | 65,832 | 59,704 | 6,128 | 10.3% |
| Total revenue | $127,768 | $122,357 | $5,411 | 4.4% |

Revenue for the three months ended September 30, 2023 increased by $5.4 million compared to the three months ended September 30, 2022. GCR revenue decreased by $0.7 million, or 1.1%, while ODR revenue increased by $6.1 million, or 10.3%. The increase in period over period ODR segment revenue was primarily due to the Company's continued focus on the accelerated growth of its ODR business. In addition, ODR segment revenue increased by approximately $1.5 million as a result of the ACME transaction.

### Gross Profit

*(in thousands except for percentages)*

| Gross profit: | Three Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| GCR | $11,970 | $9,648 | $2,322 | 24.1% |
| ODR | 19,274 | 15,206 | 4,068 | 26.8% |
| Total gross profit | $31,244 | $24,854 | $6,390 | 25.7% |
| Total gross profit as a percentage of consolidated total revenue | 24.5% | 20.3% |  |  |

The Company's gross profit for the three months ended September 30, 2023 increased by $6.4 million compared to the three months ended September 30, 2022. GCR gross profit increased $2.3 million, or 24.1%, primarily due to higher margins on project work period over period. ODR gross profit increased $4.1 million, or 26.8%, due to the combination of an increase in revenue and higher margins driven by contract mix. The total gross profit percentage increased from 20.3% for the three months ended September 30, 2022 to 24.5% for the same period ended in 2023, mainly driven by the mix of higher margin ODR segment work and becoming more selective when pursuing GCR work, as well as a gross profit write-up of $1.2 million during the quarter related to a settlement of a prior claim. From the Effective Date through September 30, 2023, the ACME Transaction generated approximately $0.4 million in gross profit, which was attributable to the ODR segment.

The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the three months ended September 30, 2023, the Company recorded material gross profit write-ups on three GCR projects for a total of $3.1 million, inclusive of a $1.2 million write-up related to a settlement of a past claim, and one material GCR project gross profit write-down for $0.7 million and one material ODR project gross profit write-down for $0.6 million. During the three months ended September 30, 2022, the Company did not record any material gross profit write-ups or write-downs that had a net gross profit impact of $0.5 million or more.

### Selling, General and Administrative

*(in thousands except for percentages)*

|  | Three Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $20,967 | $18,688 | $2,279 | 12.2% |
| Total selling, general and administrative as a percentage of consolidated total revenue | 16.4% | 15.3% |  |  |

The Company's SG&A expense for the three months ended September 30, 2023 increased by approximately $2.3 million compared to the three months ended September 30, 2022. The increase in SG&A expense was primarily due to a $1.4 million increase associated with payroll related expenses, a $0.6 million increase associated with professional fees, which included costs associated with the ACME Transaction, and a $0.3 million increase in stock compensation expense. SG&A expense associated with the acquired entity in the ACME Transaction from the Effective Date through September 30, 2023 was approximately $0.3 million. Additionally, SG&A expense as a percentage of revenue was 16.4% for the three months ended September 30, 2023 and 15.3% for the three months ended September 30, 2022.

### Change in Fair Value of Contingent Consideration

The change in fair value of the Earnout Payments contingent consideration was a $0.2 million and a $0.4 million loss for the three months ended September 30, 2023 and 2022, respectively. These increases to the contingent liability were primarily attributable to the timing component and probability of meeting the gross profit margins associated with the contingent consideration arrangements as of September 30, 2023 and 2022.

### Amortization of Intangibles

*(in thousands except for percentages)*

|  | Three Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Amortization of intangibles (Corporate) | $288 | $386 | $(98) | (25.4)% |

Total amortization expense for the three months ended September 30, 2023 and 2022 was $0.3 million and $0.4 million, respectively. See Note 5 for further information on the Company's intangible assets. In addition, see Note 3 for further discussion of the Company's acquired intangible assets as a result of the ACME Transaction.

### Other Expenses

*(in thousands except for percentages)*

| Other income (expenses): | Three Months Ended September 30, 2023 | 2022 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(437) | $(547) | $110 | (20.1)% |
| Interest income | 377 | — | 377 | 100.0% |
| Gain on disposition of property and equipment | 68 | 150 | (82) | (54.7)% |
| Gain on change in fair value of interest rate swap | 116 | 298 | (182) | 100.0% |
| Loss on early debt extinguishment | — | — | — | (100.0)% |
| Total other income (expenses) | $124 | $(99) | $223 | 225.3% |

Total other income for the three months ended September 30, 2023 was $0.1 million as compared to total other expenses of $0.1 million for the three months ended September 30, 2022. The increase in total other income (expenses) was primarily driven by a $0.4 million increase in interest income related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and money market funds. Interest expense for the three months ended September 30, 2023 and 2022 decreased by $0.1 million, which was the result of lower overall outstanding debt balance period-over-period despite higher interest rates on outstanding debt.

### Income Taxes

The Company recorded an income tax provision of $2.8 million and $1.7 million for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate was 27.7% and 31.2% for the three months ended September 30, 2023 and 2022, respectively. The U.S. federal statutory tax rate was 21% for the three months ended September 30, 2023 and 2022. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the three months ended September 30, 2023 and 2022 was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items.

### Comparison of Results of Operations for the nine months ended September 30, 2023 and 2022

The following table presents operating results for the nine months ended September 30, 2023 and 2022 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:

*(in thousands except for percentages)*

| Statement of Operations Data: Revenue: | Nine Months Ended September 30, 2023 |  |  | 2022 |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| GCR | $190,329 | 50.9% |  | $200,921 | 56.9% |  |
| ODR | 183,330 | 49.1% |  | 152,378 | 43.1% |  |
| Total revenue | 373,659 | 100.0% |  | 353,299 | 100.0% |  |
| Gross profit: |  |  |  |  |  |  |
| GCR | 33,560 | 17.6% | (1) | 26,700 | 13.3% | (1) |
| ODR | 52,424 | 28.6% | (2) | 37,814 | 24.8% | (2) |
| Total gross profit | 85,984 | 23.0% |  | 64,514 | 18.3% |  |
| Selling, general and administrative(3) | 62,433 | 16.7% |  | 56,113 | 15.9% |  |
| Change in fair value of contingent consideration | 464 | 0.1% |  | 1,151 | 0.3% |  |
| Amortization of intangibles | 1,054 | 0.3% |  | 1,184 | 0.3% |  |
| Total operating income | 22,033 | 5.9% |  | 6,066 | 1.7% |  |
| Other expenses | (1,121) | (0.3)% |  | (1,800) | (0.5)% |  |
| Total consolidated income before income taxes | 20,912 | 5.6% |  | 4,266 | 1.2% |  |
| Income tax provision | 5,407 | 1.4% |  | 1,275 | 0.4% |  |
| Net income | $15,505 | 4.1% |  | $2,991 | 0.8% |  |

(1) As a percentage of GCR revenue.

(2) As a percentage of ODR revenue.

(3) Included within selling, general and administrative expenses was $3.4 million and $2.0 million of stock based compensation expense for the nine months ended September 30, 2023 and 2022, respectively.

### Revenue

*(in thousands except for percentages)*

| Revenue: | Nine Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| GCR | $190,329 | $200,921 | $(10,592) | (5.3)% |
| ODR | 183,330 | 152,378 | 30,952 | 20.3% |
| Total revenue | $373,659 | $353,299 | $20,360 | 5.8% |

Revenue for the nine months ended September 30, 2023 increased by $20.4 million compared to the nine months ended September 30, 2022. GCR revenue decreased by $10.6 million, or 5.3%, while ODR revenue increased by $31.0 million, or 20.3%. The Company continued to focus on improving project execution and profitability by pursuing GCR opportunities that were smaller in size, shorter in duration, and where the Company can leverage its captive design and engineering services. The increase in period over period ODR segment revenue was primarily due to the Company's continued focus on the accelerated growth of its ODR business. In addition, ODR segment revenue increased by approximately $1.5 million as a result of the ACME transaction.

### Gross Profit

*(in thousands except for percentages)*

| Gross profit: | Nine Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| GCR | $33,560 | $26,700 | $6,860 | 25.7% |
| ODR | 52,424 | 37,814 | 14,610 | 38.6% |
| Total gross profit | $85,984 | $64,514 | $21,470 | 33.3% |
| Total gross profit as a percentage of consolidated total revenue | 23.0% | 18.3% |  |  |

The Company's gross profit for the nine months ended September 30, 2023 increased by $21.5 million compared to the nine months ended September 30, 2022. GCR gross profit increased $6.9 million, or 25.7%, primarily due to higher margins despite lower revenue. ODR gross profit increased $14.6 million, or 38.6%, due to the combination of an increase in revenue and higher margins driven by contract mix. The total gross profit percentage increased from 18.3% for the nine months ended September 30, 2022 to 23.0% for the same period ended in 2023, mainly driven by the mix of higher margin ODR segment work and becoming more selective when pursuing GCR work. From the Effective Date through September 30, 2023, the ACME Transaction generated approximately $0.4 million in gross profit, which was attributable to the ODR segment.

The Company recorded revisions in its contract estimates for certain GCR and ODR projects. During the nine months ended September 30, 2023, the Company recorded material gross profit write-ups on two GCR projects for a total of $2.2 million, inclusive of a $1.2 million write-up related to a settlement of a past claim, and one material GCR project gross profit write-down for $0.5 million and one material ODR project gross profit write-down for $0.7 million. During the nine months ended September 30, 2022, the Company recorded material gross profit write-ups on two GCR projects for a total of $2.0 million and two material GCR project gross profit write-downs for a total of $1.1 million.

### Selling, General and Administrative

*(in thousands except for percentages)*

|  | Nine Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $62,433 | $56,113 | $6,320 | 11.3% |
| Total selling, general and administrative as a percentage of consolidated total revenue | 16.7% | 15.9% |  |  |

The Company's SG&A expense for the nine months ended September 30, 2023 increased by approximately $6.3 million compared to the nine months ended September 30, 2022. The increase in SG&A expense was primarily due to a $4.7 million increase associated with payroll related expenses, a $1.4 million increase in stock compensation expense and $1.0 million related to CEO transition costs, partially offset by a $1.1 million decrease in rent related expenses. SG&A expense associated with the acquired entity in the ACME Transaction from the Effective Date through September 30, 2023 was approximately $0.3 million. Additionally, SG&A expense as a percentage of revenue was 16.7% for the nine months ended September 30, 2023 and 15.9% for the nine months ended September 30, 2022.

### Change in Fair Value of Contingent Consideration

The change in fair value of the Earnout Payments contingent consideration was a $0.5 million and a $1.2 million loss for the nine months ended September 30, 2023 and 2022, respectively. These increases to the contingent liability were primarily attributable to the timing component and probability of meeting the gross profit margins associated with the contingent consideration arrangements as of September 30, 2023 and 2022.

### Amortization of Intangibles

*(in thousands except for percentages)*

|  | Nine Months Ended September 30, 2023 | 2022 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Amortization of intangibles (Corporate) | $1,054 | $1,184 | $(130) | (11.0)% |

Total amortization expense for the nine months ended September 30, 2023 and 2022 was $1.1 million and $1.2 million, respectively. See Note 5 for further information on the Company's intangible assets.

### Other Expenses

*(in thousands except for percentages)*

| Other (expenses) income: | Nine Months Ended September 30, 2023 | 2022 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $(1,615) | $(1,511) | $(104) | 6.9% |
| Interest income | 624 | — | $624 | 100.0% |
| Gain on disposition of property and equipment | 28 | 262 | (234) | (89.3)% |
| Loss on change in fair value of interest rate swap | 153 | 298 | (145) | (48.7)% |
| Loss on early termination of operating lease | — | (849) | 849 | 100.0% |
| Loss on early debt extinguishment | (311) | — | (311) | (100.0)% |
| Total other expenses | $(1,121) | $(1,800) | $679 | (37.7)% |

Total other expenses for the nine months ended September 30, 2023 was $1.1 million as compared to $1.8 million for the nine months ended September 30, 2022. The decrease in total other expenses was primarily driven by a $0.6 million increase in interest income related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and money market funds, as well as a $0.1 million offset to interest expense as a result of the Company's interest rate swap agreement. In addition, during 2022, the Company recognized a $0.8 million loss as a result of the early termination of its Pittsburgh operating lease. See Note 12 for further information. The decrease in total other expenses was partially offset by a $0.3 million loss on early debt extinguishment recognized during 2023 and an increase in interest expense due to an increase in the average interest rate on the Company's outstanding borrowings in 2023 compared to the prior year.

### Income Taxes

The Company recorded an income tax provision of $5.4 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate was 25.9% and 29.9% for the nine months ended September 30, 2023 and 2022, respectively. The U.S. federal statutory tax rate was 21% for the three months ended September 30, 2023 and 2022. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the nine months ended September 30, 2023 and 2022 was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items.

### GCR and ODR Backlog Information

The Company refers to its estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue it had recognized under such contracts, as “backlog.” Backlog includes unexercised contract options. The Company’s backlog includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between the Company’s backlog and remaining performance obligations is due to the portion of unexercised contract options that are excluded, under certain contract types, from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to the Company’s remaining performance obligations is provided in Note 4.

The Company's GCR backlog as of September 30, 2023 was $227.0 million compared to $302.9 million at December 31, 2022. Projects are brought into backlog once the Company has been provided a written confirmation of award and the contract value has been established. At any point in time, the Company has a substantial volume of projects that are specifically identified and advanced in negotiations and/or documentation, however those projects are not booked as backlog until the Company has received written confirmation from the owner or the GC/CM of their intention to award the Company the contract and they have directed the Company to begin engineering, designing, incurring construction labor costs or procuring needed equipment and material. The Company’s GCR projects tend to be built over a 12- to 24-month schedule depending upon scope and complexity. Most major projects have a preconstruction planning phase which may require months of planning before actual construction commences. The Company is occasionally employed to deliver a “fast-track” project, where construction commences as the preconstruction planning work continues. As work on the Company’s projects progress, it increases or decreases backlog to take into account its estimate of the effects of changes in estimated quantities, changes in conditions, change orders and other variations from initially anticipated contract revenue, and the percentage of completion of the Company’s work on the projects. Based on historical trends, the Company currently estimates that 27% of its GCR backlog as of September 30, 2023 will be recognized as revenue over the remainder of 2023. Additionally, the reduction in GCR backlog has been intentional as the Company looks to focus on higher margin projects than historically, as well as its focus on smaller, higher margin owner direct projects.

In addition, ODR backlog as of September 30, 2023 was $157.7 million compared to $108.2 million at December 31, 2022. These amounts reflect unrecognized revenue expected to be recognized over the remaining terms of our service contracts and projects. Based on historical trends, the Company currently estimates that 45% of its ODR backlog as of September 30, 2023 will be recognized as revenue over the remainder of 2023. The Company believes its ODR backlog increased due to its continued focus on the accelerated growth of its ODR business. In addition, as of September 30, 2023, ODR backlog included approximately $1.5 million of backlog associated with the operations of ACME.

Of the total backlog at September 30, 2023, the Company expects to recognize approximately $132.6 million over the remainder of 2023.

### Market Update

Although the Company has been experiencing strong demand, certain events continue to impact its business, including: global economic conditions, the inflationary cost environment, elevated labor costs, disruption in our supply chain, the coronavirus disease 2019 (“COVID-19”) pandemic, and the ongoing conflict between Russia and Ukraine. The Company expects elevated levels of cost inflation to persist through the remainder of 2023, although at lower levels than experienced in 2022. These headwinds have been partially mitigated in 2023 by pricing actions taken in response to the inflationary cost environment, supply chain productivity improvements and cost savings initiatives. The effects of inflation have also resulted in central banks raising short-term interest rates and, as a result, the Company has experienced an increase in its interest expense in 2023. While the impacts of COVID-19 on the Company's business has moderated, there still remains uncertainty around the pandemic, its effect on labor or other macroeconomic factors, its severity and duration, the continued availability and effectiveness of vaccines and actions taken by third parties or by government authorities in response, including restrictions, laws or regulations, or other responses. Also, the ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have increased global economic and political uncertainty and the conflict in the Middle East may add to these issues.

While the impact of these factors remains uncertain, the Company continues to evaluate the extent to which they may impact its business, financial condition, or results of operations. There can be no assurance that the Company's actions will serve to mitigate such impacts in future periods. Further, while the Company believes its remaining performance obligations are firm, and its customers have not provided the Company with indications that they no longer wish to proceed with planned projects, prolonged delays in the receipt of critical equipment could result in the Company's customers seeking to terminate existing or pending agreements. Any of these events could have a material adverse effect on our business, financial condition, and/or results of operations.

### Outlook

The Company continues to focus on creating value for building owners by targeting opportunities for long-term relationships with the vision of becoming an indispensable partner to building owners with mission-critical systems. For 2023, the Company has taken and plans to continue taking steps to focus on the following key areas: (i) improve profitability, operating cash flows and actions oriented to maintaining sufficient liquidity, (ii) focus on ODR-related work with an emphasis on dedicated account relationships (iii) invest in its workforce and (iv) improve project execution and profitability in its GCR segment by remaining selective and pursuing processes that avoid or reduce exposure to jobs that create potential financial challenges for the Company.

In focusing on profitability and cash flows, among other things, the Company has dedicated and continues to dedicate, its resources toward the growth of its ODR segment as the scope of services provided within the Company’s ODR segment typically yield higher margins when compared to its GCR segment work. The Company reaffirms its focus on expanding the number and breadth of owner relationships that it serves on a direct basis and to leverage these expanded owner-direct relationships to deliver a broad suite of services. In addition, the Company proactively manages its current accounts and maintains a high standard of dedication to those account relationships. The Company’s primary focus is working with customers where their systems are mission critical and have needs regardless of the macroeconomic environment. As it relates to the Company’s ODR-related work, the Company has made substantial investments to expand its ODR revenue by increasing the value it can offer to service and maintenance customers and continues to evaluate areas in which it could expand the breadth of its service offerings to better serve its clients. The Company is focused on its differentiated business model that combines engineering, craft labor and a true partner approach, all of which creates value for its customers. This differentiated business model combines elements of traditional non-residential construction, building service and maintenance, energy services, data analytics and property management. Employee development underpins the Company’s efforts to execute its 2023 strategy. The Company is actively concentrating managerial and sales resources on training and hiring experienced employees to sell and profitably perform ODR-related work.

Additionally, the Company believes that it can further increase its cash flow and operating income by acquiring strategically synergistic companies that will supplement the Company’s current business model, address capability gaps and enhance the breadth of its service offerings to better serve its clients. The Company has dedicated, and continues to dedicate, its resources to seek opportunities to acquire businesses that have attractive market positions, a record of consistent positive cash flow, and desirable market locations. However, as a specialty contractor providing HVAC, plumbing, electrical and building controls design, engineering, installation and maintenance services in commercial, institutional and light industrial markets, our operating cash flows are subject to variability, including variability associated with winning, performing and closing work and projects.

The Company’s operating cash flows are also impacted by the timing related to the resolution of the uncertainties inherent in the complex nature of the work that it performs, including claims and back charge settlements. Although the Company believes that it has adequate plans related to providing sufficient operating working capital and liquidity in the short-term, the complex nature of the work the Company performs, including related to claims and back charge settlements could prove those plans to be incorrect. If those plans prove to be incorrect, the Company’s financial position, results of operations, cash flows and liquidity could be materially and adversely impacted.

As it relates to focusing on owner-direct work and the Company’s focus on job selection and processes, the Company believes that it is appropriate in the current contracting environment to reduce risk and exposure to large, complex, non-owner direct projects where the trend has been for such jobs to provide risks that are difficult to mitigate. Currently, management believes the historical industry pricing and associated risks for this type of work does not align with the Company’s stakeholders’ expectations and therefore the Company is continuing to take steps to actively reduce these risks as it looks at future job selection and as it completes current jobs.

### Seasonality, Cyclicality and Quarterly Trends

Severe weather can impact the Company’s operations. In the northern climates where it operates, and to a lesser extent the southern climates as well, severe winters can slow the Company’s productivity on construction projects, which shifts revenue and gross profit recognition to a later period. The Company’s maintenance operations may also be impacted by mild or severe weather. Mild weather tends to reduce demand for its maintenance services, whereas severe weather may increase the demand for its maintenance and time-and-materials services. The Company’s operations also experience mild cyclicality, as building owners typically work through maintenance and capital projects at an increased level during the third and fourth calendar quarters of each year.

### Effect of Inflation and Tariffs

The prices of products such as steel, pipe, copper and equipment from manufacturers are subject to fluctuation and increases. It is difficult to accurately measure the impact of inflation, tariffs and price escalation due to the imprecise nature of the estimates required. However, these effects are, at times, material to our results of operations and financial condition. During fiscal year 2022 and through the third quarter of 2023, we have experienced higher cost of materials on specific projects and delays in our supply chain for equipment and service vehicles from the manufacturers, and we expect these higher costs and delays in our supply chain to persist throughout 2023. When appropriate, we include cost escalation factors into our bids and proposals, as well as limit the acceptance time of our bid. In addition, we are often able to mitigate the impact of future price increases by entering into fixed price purchase orders for materials and equipment and subcontracts on our projects. Notwithstanding these efforts, if we experience significant disruptions to our supply chain, we may need to delay certain projects that would otherwise be accretive to our business, and this may also impact the conversion rate of our current backlog into revenue.

### Liquidity and Capital Resources

### Cash Flows

The Company's liquidity needs relate primarily to the provision of working capital (defined as current assets less current liabilities) to support operations, funding of capital expenditures, and investment in strategic opportunities. Historically, liquidity has been provided by operating activities and borrowings from commercial banks and institutional lenders.

The following table presents summary cash flow information for the periods indicated:

*(in thousands)*

| Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $43,460 | $22,980 |
| Investing activities | (6,233) | (283) |
| Financing activities | (15,803) | (8,754) |
| Net increase in cash, cash equivalents and restricted cash | $21,424 | $13,943 |
| Noncash investing and financing transactions: |  |  |
| Earnout liability associated with the ACME Transaction | $1,121 | $— |
| Right of use assets obtained in exchange for new operating lease liabilities | 1,043 | — |
| Right of use assets obtained in exchange for new finance lease liabilities | 4,062 | 2,171 |
| Right of use assets disposed or adjusted modifying operating lease liabilities | (643) | 2,396 |
| Right of use assets disposed or adjusted modifying finance lease liabilities | (77) | (77) |
| Interest paid | 1,482 | 1,425 |
| Cash paid for income taxes | $6,718 | $768 |

The Company's cash flows are primarily impacted period to period by fluctuations in working capital. Factors such as the Company's contract mix, commercial terms, days sales outstanding (“DSO”) and delays in the start of projects may impact the Company's working capital. In line with industry practice, the Company accumulates costs during a given month then bills those costs in the current month for many of its contracts. While labor costs associated with these contracts are paid weekly and salary costs associated with the contracts are paid bi-weekly, certain subcontractor costs are generally not paid until the Company receives payment from its customers (contractual “pay-if-paid” terms). The Company has not historically experienced a large volume of write-offs related to its receivables and contract assets. The Company regularly assesses its receivables for collectability and provides allowances for credit losses where appropriate. The Company believes that its reserves for its expected credit losses are appropriate as of September 30, 2023 and December 31, 2022, but adverse changes in the economic environment may impact certain of its customers’ ability to access capital and compensate the Company for its services, as well as impact project activity for the foreseeable future.

The Company's existing current backlog is projected to provide substantial coverage of forecasted GCR revenue for one year from the date of the financial statement issuance. The Company's current cash balance, together with cash it expects to generate from future operations along with borrowings available under its credit facility, are expected to be sufficient to finance its short- and long-term capital requirements (or meet working capital requirements) for the next twelve months. In addition to the future operating cash flows of the Company, along with its existing borrowing availability and access to financial markets, the Company currently believes it will be able to meet any working capital and future operating requirements, and capital investment forecast opportunities for the next twelve months.

The following table represents our summarized working capital information:

*(in thousands, except ratios)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Current assets | $214,248 | $225,990 |
| Current liabilities | (136,541) | (159,085) |
| Net working capital | $77,707 | $66,905 |
| Current ratio (1) | 1.57 | 1.42 |

(1) Current ratio is calculated by dividing current assets by current liabilities.

As discussed above and in Note 6, as of September 30, 2023, the Company was in compliance with all financial maintenance covenants as required by its credit facility.

### Cash Flows Provided by Operating Activities

The following is a summary of the significant sources (uses) of cash from operating activities:

*(in thousands)*

| Cash flows from operating activities: | Nine Months Ended September 30, 2023 | 2022 | Cash Inflow (outflow) |
| --- | ---: | ---: | ---: |
| Net income | $15,505 | $2,991 | $12,514 |
| Non-cash operating activities(1) | 12,816 | 12,187 | 629 |
| Changes in operating assets and liabilities: |  |  |  |
| Accounts receivable | 21,896 | (21,906) | 43,802 |
| Contract assets | 14,014 | 18,597 | (4,583) |
| Other current assets | (1,459) | 698 | (2,157) |
| Accounts payable, including retainage | (18,703) | (53) | (18,650) |
| Prepaid income taxes | 95 | (101) | 196 |
| Accrued taxes payable | (1,386) | 1,763 | (3,149) |
| Contract liabilities | 2,312 | 15,810 | (13,498) |
| Operating lease liabilities | (2,803) | (3,264) | 461 |
| Accrued expenses and other current liabilities | 1,997 | (3,612) | 5,609 |
| Payment of contingent consideration liability in excess of acquisition-date fair value | (1,224) | — | (1,224) |
| Other long-term liabilities | 400 | (130) | 530 |
| Cash provided by working capital | 15,139 | 7,802 | 7,337 |
| Net cash provided by operating activities | $43,460 | $22,980 | $20,480 |

(1) Represents non-cash activity associated with depreciation and amortization, provision for credit losses / doubtful accounts, stock-based compensation expense, operating lease expense, amortization of debt issuance costs, deferred income tax provision, gain or loss on sale of property and equipment, loss on early termination of operating lease, changes in fair value of contingent consideration and changes in the fair value of the Company's interest rate swap.

During the nine months ended September 30, 2023, the Company generated $43.5 million in cash from its operating activities, which consisted of cash provided by working capital of $15.1 million, non-cash adjustments of $12.8 million (primarily depreciation and amortization, stock-based compensation expense, operating lease expense and the change in fair value of contingent consideration) and net income for the period of $15.5 million. During the nine months ended September 30, 2022, the Company generated $23.0 million from its operating activities, which consisted of cash provided by working capital of $7.8 million, $12.2 million of non-cash adjustments (primarily depreciation and amortization, stock-based compensation expense, operating lease expense, the change in fair value of contingent consideration and a loss from the early termination of an operating lease) and net income for the period of $3.0 million.

The increase in operating cash flows during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily attributable to a $43.8 million period-over-period cash inflow related to the change in accounts receivable, which was due to the timing of cash receipts, inclusive of an aggregate $25.6 million in cash receipts associated with certain outstanding claim resolutions. This cash inflow was partially offset by a $18.1 million cash outflow period-over-period related to the aggregate change in our contract assets and liabilities and a $18.7 million change in accounts payable, including retainage. The increase in our overbilled position was due to the timing of contract billings and the recognition of contract revenue, as well as the successful resolution of certain outstanding claims. The cash outflows associated with our accounts payable was due to the timing of cash receipts and payments.

### Cash Flows Used in Investing Activities

Cash flows used in investing activities were $6.2 million and $0.3 million for the nine months ended September 30, 2023 and 2022, respectively. Cash used in investing activities for the nine months ended September 30, 2023 of $4.9 million represented cash outflows associated with the ACME Transaction, net of cash acquired. In addition, cash used in investing activities for the nine months ended September 30, 2023 included $1.7 million, which was used to purchase property and equipment, partially offset by $0.4 million in proceeds from the sale of property and equipment. For the nine months ended September 30, 2022, $0.7 million was used to purchase property and equipment, partially offset by $0.4 million in proceeds from the sale of property and equipment.

The majority of our cash used for investing activities in both periods was for capital additions pertaining to tools and equipment, computer software and hardware purchases, office furniture and office related leasehold improvements.

### Cash Flows Used in Financing Activities

Cash flows used in financing activities were $15.8 million for the nine months ended September 30, 2023 compared to $8.8 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, as a result of the execution of the Second A&R Wintrust Credit Agreement, the Company paid off the remaining principal portion of the A&R Wintrust Term Loan of $19.0 million. Prior to the termination of the A&R Wintrust Term Loan, the Company made principal payments of $2.4 million, consisting of monthly installment payments of $0.6 million. In addition, the Company paid approximately $0.8 million in taxes related to net share settlement of equity awards, $2.0 million for payments on finance leases and made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2022 Earnout Period, of which $1.7 million was recognized as a cash outflow from financing activities. These cash financing outflows were partially offset by $10.0 million in proceeds from borrowings under the Second A&R Wintrust Revolving Loan and $0.4 million associated with proceeds from contributions to the ESPP.

For the nine months ended September 30, 2022, the Company made principal payments of $11.6 million, consisting of monthly installment payments of $0.6 million, an Excess Cash Flow payment of $3.3 million and total Net Claim Proceeds payments of $2.7 million, payments on the A&R Wintrust Revolving Loan of $15.2 million, payments of $2.1 million on finance leases, $0.4 million in taxes related to net share settlement of equity awards and $0.4 million in payments for debt issuance costs. These financing cash outflows were partly offset by $15.2 million in proceeds from borrowings under the A&R Wintrust Revolving Loan, $5.4 million in proceeds from the sale-leaseback financing transaction and $0.3 million associated with proceeds from contributions to the ESPP.

The following table reflects our available funding capacity, subject to covenant restrictions, as of September 30, 2023:

*(in thousands)*

|  |  |  |
| --- | ---: | ---: |
| Cash & cash equivalents(1) |  | $57,473 |
| Credit agreement: |  |  |
| Second A&R Wintrust Revolving Loan | $50,000 |  |
| Outstanding borrowings on the Second A&R Wintrust Revolving Loan | (10,000) |  |
| Outstanding letters of credit | (4,170) |  |
| Net credit agreement capacity available |  | 35,830 |
| Total available funding capacity |  | $93,303 |

(1) The Company considers all highly liquid investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of September 30, 2023 consisted of certain overnight repurchase agreements, as well as money market investments and one U.S. Treasury Bill.

### Cash Flow Summary

Management continued to devote additional resources to its billing and collection efforts during the nine months ended September 30, 2023. Management continues to expect that growth in our ODR business, which is less sensitive to the cash flow issues presented by large GCR projects, should positively impact our cash flow trends.

Provided that the Company’s lenders continue to provide working capital funding, the Company believes based on its current forecast that its current cash and cash equivalents of $57.5 million as of September 30, 2023, cash payments to be received from existing and new customers, and availability of borrowing under the Second A&R Wintrust Revolving Loan (pursuant to which we had $35.8 million of availability as of September 30, 2023) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

### Debt and Related Obligations

Long-term debt consists of the following obligations as of:

*(in thousands)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| A&R Wintrust Term Loan - term loan payable in quarterly installments of principal, plus interest through February 2026 | — | 21,453 |
| Wintrust Revolving Loans | 10,000 | — |
| Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.60% through 2027 | 6,949 | 4,954 |
| Financing liability | 5,351 | 5,351 |
| Total debt | 22,300 | 31,758 |
| Less - Current portion of long-term debt | (2,472) | (9,564) |
| Less - Unamortized discount and debt issuance costs | (391) | (666) |
| Long-term debt | $19,437 | $21,528 |

See Note 6 for further discussion.

### Surety Bonding

In connection with our business, we are occasionally required to provide various types of surety bonds that provide an additional measure of security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends upon our capitalization, working capital, past performance, management expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of our backlog that we have currently bonded and their current underwriting standards, which may change from time-to-time. The bonds we provide typically reflect the contract value. As of September 30, 2023 and December 31, 2022, the Company had approximately $99.7 million and $129.6 million in surety bonds outstanding, respectively. We believe that our $800.0 million bonding capacity provides us with a significant competitive advantage relative to many of our competitors which have limited bonding capacity. See Note 13 for further discussion.

### Insurance and Self-Insurance

We purchase workers’ compensation and general liability insurance under policies with per-incident deductibles of $250,000 per occurrence. Losses incurred over primary policy limits are covered by umbrella and excess policies up to specified limits with multiple excess insurers. We accrue for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the consolidated balance sheets as current and non-current liabilities. The liability is computed by determining a reserve for each reported claim on a case-by-case basis based on the nature of the claim and historical loss experience for similar claims plus an allowance for the cost of incurred but not reported claims. The current portion of the liability is included in accrued expenses and other current liabilities on the consolidated balance sheets. The non-current portion of the liability is included in other long-term liabilities on the consolidated balance sheets.

We are self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate stop-loss limits. We accrue for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the consolidated balance sheets as a current liability in accrued expenses and other current liabilities. See Note 13 for further discussion.

### Multiemployer Pension Plans

We participate in approximately 40 multiemployer pension plans (“MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements (“CBAs”). As one of many participating employers in these MEPPs, we are responsible with the other participating employers for any plan underfunding. Our contributions to a particular MEPP are established by the applicable CBAs; however, required contributions may increase based on the funded status of an MEPP and legal requirements of the Pension Protection Act of 2006 (the “PPA”), which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization of extended amortization provisions. Assets contributed to the MEPPs by us may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to an MEPP, the unfunded obligations of the MEPP may be borne by the remaining participating employers.

An FIP or RP requires a particular MEPP to adopt measures to correct its underfunding status. These measures may include, but are not limited to an increase in a company’s contribution rate as a signatory to the applicable CBA, or changes to the benefits paid to retirees. In addition, the PPA requires that a 5.0% surcharge be levied on employer contributions for the first year commencing shortly after the date the employer receives notice that the MEPP is in critical status and a 10.0% surcharge on each succeeding year until a CBA is in place with terms and conditions consistent with the RP.

We could also be obligated to make payments to MEPPs if we either cease to have an obligation to contribute to the MEPP or significantly reduce our contributions to the MEPP because we reduce the number of employees who are covered by the relevant MEPP for various reasons, including, but not limited to, layoffs or closure of a subsidiary assuming the MEPP has unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) would equal our proportionate share of the MEPPs’ unfunded vested benefits. We believe that certain of the MEPPs in which we participate may have unfunded vested benefits. Due to uncertainty regarding future factors that could trigger withdrawal liability, we are unable to determine (a) the amount and timing of any future withdrawal liability, if any, and (b) whether our participation in these MEPPs could have a material adverse impact on our financial condition, results of operations or liquidity.

## Market risk

As filed, 256 characters.

We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); therefore, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.

## Controls and procedures

As filed, 1,727 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation as of September 30, 2023, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that our Company’s disclosure controls and procedures were effective.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

## Risk factors

As filed, 160 characters.

There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-037858. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.