Limbach Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2026

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. The Company assumes no obligation to update any of these forward-looking statements, unless required to do so by applicable law.

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 a building systems solutions firm that designs, delivers, and maintains mechanical (heating, ventilation, and air conditioning), electrical, plumbing, and controls (“MEPC”) systems. The Company partners with building owners and operators of mission-critical facilities across healthcare, industrial and manufacturing, data centers, life sciences, higher education, and cultural and entertainment markets. With approximately 1,600 team members across 21 offices throughout the Eastern and Midwestern regions of the United States, the Company strives to be an indispensable partner by combining its national capabilities with strong local execution and talent to deliver proactive, safe, and reliable solutions for complex facilities. Operating on a connected platform, the Company integrates engineering expertise with field execution to provide customized MEPC infrastructure solutions that address both operational and capital project needs, optimizing performance, enhancing reliability, and ensuring long-term safety.

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;
• Industrial and manufacturing, including automotive, energy and general manufacturing plants;
• 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;
• Life sciences, including organizations and companies whose work is centered around research and development focused on living organisms and biological systems;
• Higher education, including both public and private colleges, universities and research centers; and
• Cultural and entertainment, including entertainment facilities (including casinos) and amusement rides and parks.

The Company operates in two segments, (i) ODR, in which the Company performs owner direct projects and/or provides maintenance or service primarily on MEPC systems, and specialty contracting projects to existing buildings direct to, or assigned by, building owners or operators, and (ii) GCR, in which the Company generally manages new construction or renovation projects that involve primarily MEPC systems awarded to the Company by general contractors or construction managers. The Company's work is primarily performed under fixed-price, modified fixed-price, and time and materials contracts over periods of typically less than two years.

Key Components of Condensed Consolidated Statements of Operations

Revenue

The Company’s revenue is primarily derived from construction-type and services contracts to deliver MEPC systems services to its customers. Such work is primarily performed under fixed-price, modified fixed-price, and time and materials contracts over periods of typically less than two years.

Construction-type contract revenue is primarily derived from fixed-price and modified fixed-price contracts. For the majority of these contracts, the Company’s performance obligations are satisfied over time because the customer controls the asset as it is created or enhanced or because the Company’s performance does not create an asset with an alternative use and the Company has an enforceable right to payment for performance completed to date. For contracts satisfied over time, the Company recognizes revenue using an input method based on costs incurred relative to total estimated costs at completion (the cost-to-cost method), which management believes depicts the transfer of control of services to the customer. The Company believes its extensive experience with MEPC systems projects, together with its internal cost estimation and review processes, enables it to reasonably estimate contract costs and mitigate the risk of cost overruns.

With respect to service contracts, the Company’s service arrangements generally include (i) fixed-price service contracts, typically for maintenance, repair and retrofit work over a period, commonly one year, and (ii) time and materials or similar service work performed on an as-needed basis. Revenue from fixed-price service contracts is generally recognized over time on a systematic basis that depicts performance over the contract term, which is typically on a straight-line basis when services are provided evenly over the contract period. Revenue derived from time and materials and other service work is recognized when the services are performed.

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 on uncompleted contracts are recorded as a contract asset until billable under the contract terms. Billings in excess of costs and estimated earnings on uncompleted contracts are recorded as a contract liability until the related revenue is recognizable.

Cost of Revenue

Cost of revenue primarily consists of labor, equipment, material, subcontract and other job costs in connection with fulfilling the terms of the Company’s 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 this fluctuation is expected to continue in future periods as well.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs for the Company’s administrative, estimating, human resources, safety, information technology, legal, finance and accounting team members and executives. Also included in SG&A expenses 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 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.

Acquisition-related Retention Expense and Contingent Consideration

As part of the acquisition of Pioneer Power, the Company implemented retention arrangements for certain key employees of the acquired business. Retention-related compensation is recognized as expense ratably over the service period, which runs through December 2027, and is contingent on continued employment.

Certain of the Company's prior acquisitions include contingent earnout arrangements in which the Company may be required to make additional payments contingent upon the acquired businesses achieving specified performance targets over specified periods. The change in fair value of contingent consideration relates to the remeasurement of the contingent consideration arrangements resulting from the acquisitions of each of ACME, Industrial Air, Kent Island and Consolidated Mechanical. The carrying values of the ACME, Industrial Air, Kent Island and Consolidated Mechanical Earnout Payments are subject to remeasurement at fair value at each reporting date through the end of the respective earnout periods with any changes in the fair value reported as a separate component of operating income in the condensed consolidated statements of operations. See Note 8 – Fair Value Measurements in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company's contingent earnout arrangements.

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. Each of the Jake Marshall, ACME, Industrial Air, Kent Island, Consolidated Mechanical and Pioneer Power-related intangible assets were recorded under the acquisition method of accounting at their estimated fair values at the acquisition date. See Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s intangible assets.

Other (Expenses) Income

Other (expenses) income consists primarily of interest expense incurred in connection with the Company’s indebtedness, gains and losses on dispositions of property and equipment, changes in the fair value of the Company’s interest rate swap, and interest income earned on overnight repurchase agreements. 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 are paid at the parent level.

The Company’s provision for income taxes (including federal, state and local income taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with Accounting Standards Update (“ASC”) Topic 740 — Income Taxes, which requires an asset and liability approach. Under this approach, 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 amounts of existing assets and liabilities and their respective tax bases, using enacted tax rates expected to apply in the periods in which those temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are included in the provision for income taxes.

Impact of Acquisitions

In order to provide a more meaningful discussion of period-over-period changes in the Company’s operating results, the Company may discuss the impact of acquisitions on revenue, gross profit, selling, general and administrative expenses, and operating income. Because acquired businesses are included in the Company’s results only from their respective acquisition dates, the size and timing of acquisitions may affect the comparability of period-over-period results. Accordingly, such comparisons may not be fully indicative of ongoing trends in the Company’s operating performance.

On July 1, 2025, the Company completed an acquisition of Woodbury, Minnesota-based mechanical contractor, Pioneer Power, Inc. (“Pioneer Power”), for a purchase price at closing of $66.1 million paid through a combination of available cash and the Company’s revolving credit facility (the “Pioneer Power Transaction”). Pioneer Power is a provider of industrial and institutional mechanical solutions serving healthcare, food, power/utility, oil refining and other select markets in the greater Twin Cities region of Minnesota and upper Midwest region. The acquisition further expanded the Company’s footprint in the core Midwest region and extends its reach into new geographic markets in the upper Midwest. See Note 3 – Acquisition in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s acquisition of Pioneer Power.

Operating Segments

The Company manages and measures the performance of its business in two operating segments: ODR and GCR. Segment information is prepared on the same basis that the Company’s Chief Operating Decision Maker (“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 ODR work performed at its branches into one ODR reportable segment and all of the GCR work performed at its branches into one GCR reportable segment. All transactions between segments are eliminated in consolidation.

Comparison of Results of Operations for the three months ended March 31, 2026 and 2025

The following table presents operating results for the three months ended March 31, 2026 and 2025 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:

(in thousands except for percentages)

(1) As a percentage of ODR revenue.

(2) As a percentage of GCR revenue.

(3) Included within selling, general and administrative expenses was $1.9 million and $1.6 million of non-cash stock-based compensation expense for the three months ended March 31, 2026 and 2025, respectively.

Revenue

(in thousands except for percentages)

Revenue for the three months ended March 31, 2026 increased by $5.8 million, or 4.3%, to $138.9 million, compared to $133.1 million for the three months ended March 31, 2025. The increase in revenue was primarily attributable to the acquisition of Pioneer Power, which contributed $23.5 million of acquisition-related revenue for the three months ended March 31, 2026. Acquisition-related revenue represents incremental revenue generated in 2026 by an acquired business only for the twelve-month period subsequent to its respective acquisition date. After such period, the results of acquired businesses are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis. This increase was offset by a revenue decline in the Company’s organic operations of $17.8 million for the three months ended March 31, 2026. The decline in organic revenue reflects the impact of lower bookings in the middle of 2025 and normal seasonal patterns among industrial customers. More recent booking activity has strengthened significantly, which the Company expects will drive revenue growth as the year progresses.

ODR revenue for the three months ended March 31, 2026 increased by $9.4 million, or 10.4%, to $99.8 million, compared to $90.4 million for the three months ended March 31, 2025. This increase was primarily attributable to the acquisition of Pioneer Power, which contributed approximately $14.3 million in ODR revenue in the current period. The Company’s organic ODR operations decreased approximately $4.9 million, primarily due to the timing of sales and backlog burn across certain markets.

GCR revenue for the three months ended March 31, 2026 decreased by $3.7 million, or 8.6%, to $39.0 million, compared to $42.7 million for the three months ended March 31, 2025. The decrease in period-over-period GCR revenue was primarily attributable to lower GCR organic revenue of $12.9 million. This decline was partially offset by an incremental increase in GCR acquisition-related revenue of approximately $9.2 million from the Pioneer Power acquisition.

Gross Profit

(in thousands except for percentages)

The Company's gross profit for the three months ended March 31, 2026 decreased by $5.5 million, or 15.1%, to $31.2 million, compared to $36.7 million for the three months ended March 31, 2025. The decrease was primarily driven by lower gross margin percentages in both our ODR and GCR segments.

ODR gross profit decreased $3.2 million, or 12.1%, as segment margins declined to 23.0% from 28.9% in the prior year period, despite higher revenue. The decrease in gross margin was primarily driven by lower fixed cost absorption due to seasonal revenue levels and higher fixed costs, the absence of higher net project write-ups that benefited the prior-year period and the current lower margin profile of Pioneer Power. As the Company advances its integration strategy of Pioneer Power, management expects gross margins to improve as 2026 progresses. Operational and pricing improvement initiatives are underway to enhance profitability at Pioneer Power with the goal of bringing gross margins in line with the Company average over the next two to three years.

GCR gross profit decreased $2.4 million, or 22.5%, reflecting lower revenue and a decline in segment gross margin to 21.0% compared to 24.7% in the prior year period. The decrease in gross margin was primarily due to lower margin work associated with Pioneer Power and the absence of higher total net project write ups that benefited the prior-year period.

As a result, total gross profit margin decreased to 22.4% for the three months ended March 31, 2026 from 27.6% for the same period in 2025.

The Company recorded revisions in its contract estimates for certain ODR and GCR projects; however, the Company did not record any material gross profit write-ups or write-downs that had a net gross profit impact of $1.0 million or more during the three months ended March 31, 2026 and 2025.

Selling, General and Administrative

(in thousands except for percentages)

29

The Company's total SG&A expenses for the three months ended March 31, 2026 increased by approximately $1.6 million, or 6.0%, compared to the three months ended March 31, 2025. The increase in total SG&A included $0.6 million of acquisition-related SG&A expenses associated with Pioneer Power. Acquisition-related SG&A represents SG&A expenses incurred in 2026 by an acquired business only for the twelve-month period subsequent to its respective acquisition date. After such period, the results of acquired businesses are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis. Organic SG&A increased approximately $1.0 million primarily due to a $1.6 million increase in payroll related expenses, partly offset by a $0.3 million decrease in travel and entertainment related expenses. SG&A expense, as a percentage of revenue, increased to 20.2% for the three months ended March 31, 2026 as compared to 19.9% for the three months ended March 31, 2025.

Acquisition-Related Retention Expense and Contingent Consideration

Acquisition-related retention and contingent consideration expenses were $0.1 million and $0.4 million for the three months ended March 31, 2026 and 2025. For the three months ended March 31, 2026, these expenses included approximately $0.1 million of acquisition-related retention expense associated with the Pioneer Power transaction, which was not incurred in the prior year period. As part of the Pioneer Power acquisition, the Company entered into retention agreements with certain key employees of the acquired business. Retention-related compensation is recognized as expense ratably over the requisite service period, which extends through December 2027, and is contingent upon continued employment.

In addition, the Company recognized a less than $0.1 million increase in the fair value of contingent consideration during the three months ended March 31, 2026, compared to a $0.4 million increase during the three months ended March 31, 2025. The change in the fair value of contingent consideration represents a non-cash expense and was primarily attributable to updated estimates regarding the probability of achieving the gross profit targets underlying the earnout arrangements as of March 31, 2026 and 2025.

See Note 8 – Fair Value Measurements in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company's earnout arrangements.

Amortization of Intangibles

(in thousands except for percentages)

Total amortization expense for the three months ended March 31, 2026 and 2025 was $1.8 million and $1.9 million, respectively. The period-over-period decrease in amortization expense was primarily due to certain finite-lived intangible assets becoming fully amortized. This decrease was partially offset by incremental amortization expense related to intangible assets recognized in connection with the Pioneer Power acquisition, which was not included in the prior-year period.

See Note 5 - Goodwill and Intangibles in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company's intangible assets.

Other (Expenses) Income

(in thousands except for percentages)

Total other expenses for the three months ended March 31, 2026 increased approximately $0.5 million as compared to total other income for the three months ended March 31, 2025. The change period-over-period was primarily driven by a $0.4 million decrease in interest income due to reduced cash and cash equivalent balances period-over-period and lower yields on invested balances, as well as a $0.2 million increase in interest expense related to greater borrowings under the Company’s revolving credit facility and higher financing costs associated with a larger vehicle fleet period-over-period.

Income Taxes

The Company recorded an income tax benefit of $3.7 million for the three months ended March 31, 2026 compared to $2.2 million for the three months ended March 31, 2025. The effective tax rate was (505.6)% and (27.8)% for the three months ended March 31, 2026 and 2025, respectively. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate period-over-period was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items. In particular, the Company’s effective rate for the three months ended March 31, 2026 and 2025 were materially impacted by “excess tax benefits on stock-based compensation” recognized discretely during the first quarter of each year as a result of the Company’s stock price at the RSU vesting dates resulting in increased tax deductions for the Company. This benefit reduced the effective tax rate by 533.3% and 53.5% for the three months ended March 31, 2026 and 2025 respectively, with the impact varying in prior years.

ODR and GCR 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. While backlog provides a measure of work expected to be performed in future periods, it is not necessarily a reliable indicator of future revenue or overall performance of the Company. A substantial portion of the Company’s contracts, particularly within its ODR operations, are short-cycle in nature and may be awarded and substantially completed within a short period following award. These projects typically have short lead times and rapid burn rates and, as a result, are generally not included in reported backlog. Consequently, fluctuations in reported backlog may not correlate with changes in overall market demand, revenue generation, or operational performance. Additional information related to the Company’s remaining performance obligations is provided in Note 4 — Revenue from Contracts with Customers in the accompanying notes to its condensed consolidated financial statements.

The Company's ODR backlog was $276.4 million and $255.8 million as of March 31, 2026 and December 31, 2025, respectively. These amounts reflect unrecognized revenue expected to be recognized over the remaining terms of its construction-type and service contracts. Based on historical trends, the Company currently estimates that 82% of its ODR backlog as of March 31, 2026 will be recognized as revenue over the remainder of 2026. The Company's ODR backlog increased due to its continued focus on the accelerated growth of its ODR business.

The Company's GCR backlog was $188.2 million and $141.8 million as of March 31, 2026 and December 31, 2025, respectively. 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 general contractor / construction manager of their intention to award 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 67% of its GCR backlog as of March 31, 2026 will be recognized as revenue over the remainder of 2026. Additionally, the reduction in GCR backlog has been intentional as the Company looks to focus on higher margin projects than it has done historically, as well as its focus on smaller, higher margin owner direct projects.

Market Update

The Company continues to monitor evolving macroeconomic conditions and heightened geopolitical risks. Economic and trade policy uncertainty has remained elevated in 2026. Rising trade tensions and changes in trade policy, including tariffs, global conflicts, labor disruptions, and evolving regulations may continue to contribute to inflationary pressures, supply chain disruptions, and pricing and lead-time volatility for certain materials and equipment. The Company continues to work closely with suppliers and subcontractors to mitigate potential shortages and manage supply and pricing volatility. The Company anticipates continued uncertainty with respect to inflation and other macroeconomic trends for the foreseeable future.

The Company continues to evaluate the extent to which these conditions may impact its business, financial condition, and results of operations. During periods of economic uncertainty, customers may delay or cancel large capital projects, including new construction or significant mechanical system upgrades. At the same time, demand for the Company’s service, maintenance, and repair offerings may remain stable or increase as customers prioritize maintaining existing systems over capital-intensive replacements. Economic uncertainty may also result in increased competition and pricing pressure, which could adversely affect revenue and margins. The Company believes its diversified service offerings and customer base help reduce exposure to market volatility. While the Company believes its remaining performance obligations generally represent firm commitments, project timing may shift due to customer scheduling decisions or the availability and timing of critical equipment. Prolonged delays could result in customers seeking to defer, modify, or terminate existing or pending agreements. Any of these events could have a material adverse effect on the Company’s business, financial condition, and results of operations.

In addition, the U.S. federal government experienced a lapse in appropriations that resulted in a partial shutdown from October 1, 2025 through November 12, 2025. The shutdown contributed to delays in the approval and funding of federally sponsored projects, interruptions in the issuance of new contracts, and deferred decision-making by government agencies. The Company experienced impacts to its operations as a result of the shutdown; however, those impacts were not material to its financial position or results of operations. The Company continues to monitor for any potential ongoing effects on project timing, awards, or customer procurement activity.

The Company also believes that starting in 2026, certain of the markets in which it sources materials, equipment and in certain instances subcontracted services have experienced, and may continue to experience, consolidation. Given this trend, the Company continues to actively manage these supplier and subcontractor relationships with the ultimate view and goal of providing services to the Company’s customers in an effort to be an indispensable building systems solutions firm.

Notwithstanding those active managerial efforts with that goal in mind, the Company understands that if it is not successful in these managerial efforts that increased consolidation among suppliers and/or subcontractors could over time impair our ability to deliver services efficiently, competitively price our offerings, or meet customer expectations.

Strategy

The Company focuses on creating value for building owners by developing long-term relationships and becoming an indispensable partner to building owners with mission-critical systems. The Company employs a three-pillar approach to scale its business: (i) improve profitability and drive quality organic revenue growth; (ii) expand margins through enhanced and expanded customer solutions; and (iii) scale through acquisitions. To accomplish these objectives, the Company currently is executing the following initiatives:

Pillar I

Organic ODR Growth. In focusing on improved profitability and sustainable, quality growth, the Company has dedicated its resources toward the organic growth of its ODR segment, as the scope of services provided within this segment typically yields higher margins compared to its GCR segment. For fiscal year 2025, the Company further expanded its growth within the ODR segment where it generated 75.1% of its total consolidated revenue, achieving its 2025 ODR segment revenue target of 70% - 80%. Going forward, the Company believes its disciplined, owner-focused operating model, supported by a full life cycle of engineered solutions and craft expertise, positions it as a long-term partner to building owners with mission-critical systems. Although ODR represented 71.9% of total consolidated revenue for the three months ended March 31, 2026, compared to 75.1% for fiscal year 2025, the Company does not view this variation as indicative of a change in its long-term strategy or expected revenue mix and continues to expect ODR to represent approximately 75% to 80% of total revenue for the full year.

Improved GCR Segment Margins. In the Company’s GCR segment, the Company has been able to improve the margins by focusing on improving project execution and profitability by pursuing opportunities that are smaller in size and shorter in duration and where it can leverage its captive design and engineering services. The Company believes that it is appropriate to reduce risk and exposure to large, complex, non-owner direct projects where such projects have historically presented risks that can be difficult to mitigate, which does not align with the Company’s risk-adjusted return expectations. Going forward, the Company believes it has reached a level in which the GCR segment stabilizes as a result of its disciplined focus on smaller, shorter-duration projects that are expected to contribute more consistent gross margins.

National Customer Solutions. The Company continues to advance its national customer strategy through a dedicated professional services team that provides owner advisory, construction program management and related support services for customers with complex, mission-critical building systems and infrastructure needs. These services include capital planning to assist customers in planning, prioritizing and executing both the design and construction of capital initiatives and infrastructure projects, while enabling coordinated delivery, standardized workflows and consistent execution across the Company’s operating footprint. The National Customer Solutions team is focused on enhancing alignment between local and national teams, allowing the Company to deliver a more integrated and consistent customer experience across geographies. Through this approach, the Company seeks to deepen customer relationships and increase the value delivered to its customers. The Company expects to continue driving revenue and margin expansion through its national healthcare customer relationships, while further expanding dedicated national teams to grow its presence in its data center and industrial and manufacturing market verticals.

Sales Enablement. To support organic revenue growth, the Company continues to invest in sales enablement initiatives. These efforts include the continued development of centralized functions, tools and processes intended to support sellers across operating locations, enhance coordination between local and national sales efforts, and improve visibility into customer opportunities and pipeline activity. By equipping sales teams with shared resources, training and standardized workflows, the Company seeks to drive more disciplined opportunity management, support cross-selling of services and solutions, and enable a more seamless customer experience across its geographic footprint. Management believes these sales enablement initiatives strengthen execution, enhance productivity and support scalable, margin-accretive growth over the long term as the business continues to expand.

Pillar II

Margin Expansion Through Evolved Solutions. The Company continues to focus on expanding its margins by enhancing and expanding its solutions to building owners. This initiative reflects the Company’s commitment to driving sustainable growth, increasing operational efficiency and delivering greater value to its stakeholders. This evolution is intended to align more closely with current market demands, emerging customer preferences and operational efficiencies, which together contribute to margin expansion. The Company aims to differentiate itself from its competitors by being a single-source provider for building owners, capable of providing a full life cycle of engineered solutions and craft expertise. By meeting diverse customer needs under one roof, the Company deepens customer loyalty. The Company believes that building owners value the convenience and reliability of a single point of contact, which fosters long-term partnerships, reoccurring business and may open doors to larger capital projects and being able to capture a greater share of the overall value chain. The Company continues to expand its owner-direct offerings which include integrated facility planning, service and maintenance, equipment replacement and retrofits, rental equipment, MEPC infrastructure upgrades, and energy efficiency and decarbonization analysis and projects. These capabilities enable the Company to leverage its professional services platform to support multi-location regional and national customers. Additionally, the Company continues to evaluate opportunities to broaden and enhance its customer solutions to address evolving customer needs.

Pillar III

Growth Through Acquisitions. As the Company’s business generates increasing cash flow and earnings, management believes it is well-positioned to pursue targeted acquisitions as a strategic capital investment. The Company continues to build its internal capabilities, processes and leadership capacity necessary to evaluate, execute and integrate acquisitions on a disciplined and repeatable basis, while seeking to leverage existing systems, national and geographic presence and operational investments to their maximum potential over time. The Company remains focused on disciplined capital deployment and cultural alignment to ensure acquisitions contribute to long-term value creation. See Note 3 – Acquisitions in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s most recent acquisition activity.

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 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 cyclicality, as the Company tends to see customer budgets being allocated in the first quarter of the year and an increased level of maintenance and capital project execution during the third and fourth calendar quarters of each year.

Effect of Inflation and Tariffs

The prices of key inputs used in the Company’s projects and service operations, including steel, pipe, copper, and certain equipment and components, remain subject to volatility, including increases driven by inflation, tariffs, supply constraints, and price escalation. These factors can, at times, be material to the Company’s results of operations and financial condition, particularly on fixed-price projects and where equipment lead times extend beyond procurement windows. During the three months ended March 31, 2026, the Company continued to experience selective pricing pressure and extended lead times for certain materials and equipment, although such impacts were not material to its consolidated results of operations or financial condition.

Where appropriate, the Company seeks to mitigate these impacts by (i) incorporating cost escalation assumptions and/or escalation provisions into bids and proposals, (ii) limiting bid acceptance periods, (iii) procuring materials and equipment earlier in the project lifecycle, including through fixed-price purchase orders where feasible, and (iv) negotiating with suppliers and subcontractors to manage pricing and delivery terms. Despite these efforts, sustained inflationary pressures, supply chain disruptions, labor shortages, or rapid changes in tariff regimes could increase costs, reduce margins, and/or require the Company to defer or re-sequence projects, which could adversely affect the pace at which backlog converts to revenue.

The Company continues to monitor developments in U.S. trade policy, including tariffs imposed under Section 232 of the Trade Expansion Act of 1962 on imported steel, aluminum, and certain derivative products, as well as the potential for additional duties, exemptions, or retaliatory measures. These actions could increase costs, impact the availability and lead times of certain materials and components, and alter competitive dynamics. In the Company’s ODR segment, which generally operates on shorter sales cycles, the Company can often adjust pricing to reflect cost increases; however, may still be unable to recover all cost increases in a timely manner, particularly for fixed-price contracts and long-lead equipment orders. Accordingly, the Company cannot predict the ultimate impact of tariffs or other trade restrictions on its business, results of operations, or financial condition.

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)

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 its working capital. In line with industry practice, the Company accumulates costs during a given month and 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-monthly, 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 March 31, 2026 and December 31, 2025, 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 support a portion of forecasted revenue for one year from the date of the financial statement issuance. In addition to the Company's backlog, the Company has a substantial amount of contracts with short lead times that book-and-bill within the same reporting period and are not included in backlog. The Company's current cash balance, together with the 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 at least 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 at least the next twelve months.

The following table represents the Company's summarized working capital information:

(in thousands, except ratios)

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

As discussed above and in Note 6 – Debt in the accompanying notes to the Company’s condensed consolidated financial statements, as of March 31, 2026, the Company was in compliance with all financial maintenance covenants as required by its credit facility.

Cash Flows (Used in) Provided by Operating Activities

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

(in thousands)

35

(1) Represents non-cash activity associated with depreciation and amortization, provision for credit losses, non-cash 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, acquisition-related retention expense and contingent consideration and changes in the fair value of the Company's interest rate swap.

(2) The Company refined the presentation of contract-related balances within operating activities of the consolidated statements of cash flows. Changes in contract assets and contract liabilities are now presented on a net basis, rather than as separate line items, to align with the Company’s presentation of net contract positions. Prior-period amounts have been conformed for comparability, where applicable. This presentation change did not impact net cash provided by operating activities.

During the three months ended March 31, 2026, the Company used $7.8 million in cash from its operating activities, which consisted of cash used in working capital of $15.9 million, partly offset by net income of $4.4 million and certain non-cash adjustments of $3.7 million. During the three months ended March 31, 2025, the Company generated $2.2 million from its operating activities, which consisted of net income of $10.2 million and certain non-cash adjustments of $5.1 million, partly offset by cash used in working capital of $13.0 million.

The change in operating cash flows during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily attributable to a $5.8 million decrease in net income, a $6.0 million unfavorable change in accounts payable, including retainage, due to the timing of vendor payments and a $2.2 million increase in payments of contingent consideration liability in excess of acquisition-date fair value. In addition, there was a $2.1 million unfavorable change in contract assets and contract liabilities, net, and a $1.6 million unfavorable change in other current assets, each reflecting the timing of billings, collections and other working capital activity. These uses of cash were partially offset by a $3.7 million favorable change in accounts receivable due to the timing of cash collections and a $5.3 million favorable change in accrued expenses and other current liabilities due to the timing of payments.

Cash Flows Used in Investing Activities

Cash flows used in investing activities were $0.1 million and $1.9 million for the three months ended March 31, 2026 and 2025, respectively. Cash used in investing activities for the three months ended March 31, 2026 included a cash outflow of $0.4 million related to the purchase of property and equipment, partially offset by $0.3 million in proceeds from the sale of property and equipment. Cash used in investing activities for the three months ended March 31, 2025 included a cash outflow of $2.2 million related to the purchase of property and equipment, which was primarily associated with the purchase of certain rental equipment to expand customer offerings. These cash outflows were partially offset by $0.3 million in proceeds from the sale of property and equipment.

Aside from the rental equipment purchases in 2025, the majority of the Company's 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 Provided by (Used in) Financing Activities

Cash flows provided by financing activities were $12.3 million for the three months ended March 31, 2026 compared to cash flows used in financing activities of $7.2 million for the three months ended March 31, 2025. During the three months ended March 31, 2026, the Company borrowed $54.5 million on its revolving credit facility and recognized additional financing cash inflows of $5.9 million associated with the sale of shares to satisfy employee tax withholding requirements and $0.4 million associated with proceeds from employee contributions to the ESPP. These financing cash inflows were partially offset by $32.1 million of repayments on the Company's revolving credit facility, $12.0 million in taxes paid related to the net share settlement of equity awards, $1.3 million for payments on finance leases and payments of $3.5 million and $2.5 million to the former owners of Industrial Air and Kent Island, respectively, related to their earnout arrangements, of which $3.1 million was collectively recognized as a cash outflow from financing activities.

During the three months ended March 31, 2025, the Company paid approximately $10.7 million in taxes related to the net share settlement of equity awards, $0.9 million for payments on finance leases and made a $3.0 million payment to the former owner of Industrial Air related to the First IA Earnout Period, of which $2.3 million was recognized as a cash outflow from financing activities. These cash financing outflows were partially offset by proceeds of $6.3 million associated with the sale of shares to satisfy employee tax withholding requirements and $0.3 million associated with proceeds from employee contributions to the ESPP.

The following table reflects our available funding capacity, subject to covenant restrictions, as of March 31, 2026:

(in thousands)

(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 March 31, 2026 consisted of certain overnight repurchase agreements.

(2) The Company intends to deploy free cash flow to continue to reduce its borrowings under its revolving credit facility.

Cash Flow Summary

Management continued to devote additional resources to its billing and collection efforts during the three months ended March 31, 2026. 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 $15.8 million as of March 31, 2026, cash payments to be received from existing and new customers, and availability of borrowing under the A&R Wintrust Revolving Loan (pursuant to which we had $60.7 million of availability as of March 31, 2026) 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)

See Note 6 – Debt in the accompanying notes to the Company’s condensed consolidated financial statements for further information.

Surety Bonding

In connection with its business, the Company is occasionally required to provide various types of surety bonds that provide an additional measure of security to its customers for its performance under certain government and private sector contracts. The Company’s ability to obtain surety bonds depends upon its 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 the Company’s backlog that it has currently bonded and their current underwriting standards, which may change from time-to-time. The bonds, if any, the Company provides typically reflect the contract value. As of March 31, 2026 and December 31, 2025, the Company had approximately $119.8 million and $156.6 million in surety bonds outstanding, respectively. The Company believes that its $1 billion bonding capacity provides us with a significant competitive advantage relative to many of our competitors which we believe have limited bonding capacity. See Note 13 – Commitments and Contingencies in the accompanying notes to the Company’s condensed consolidated financial statements for further information.

Insurance and Self-Insurance

The Company purchases 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. The Company accrues 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 condensed consolidated balance sheets. The non-current portion of the liability is included in other long-term liabilities on the condensed consolidated balance sheets.

The Company is self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate stop-loss limits. The Company accrues 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 condensed consolidated balance sheets as a current liability in accrued expenses and other current liabilities. See Note 13 – Commitments and Contingencies in the accompanying notes to the Company’s condensed consolidated financial statements for further information.

Multiemployer Pension Plans

The Company participates in approximately 70 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, the Company is responsible with the other participating employers for any plan underfunding. The Company’s 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 its 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 the Company 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.

The Company could also be obligated to make payments to MEPPs if it either ceases to have an obligation to contribute to the MEPP or significantly reduces its contributions to the MEPP because it reduces 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 the Company’s proportionate share of the MEPPs’ unfunded vested benefits. The Company believes that certain of the MEPPs in which it participates may have unfunded vested benefits. Due to uncertainty regarding future factors that could trigger withdrawal liability, the Company is unable to determine (a) the amount and timing of any future withdrawal liability, if any, and (b) whether its participation in these MEPPs could have a material adverse impact on its financial condition, results of operations or liquidity.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements for assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenue and expenses during the reported period, and the accompanying notes. Management believes that its most significant estimates and assumptions have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the condensed consolidated financial statements. The Company’s significant estimates include estimates associated with revenue recognition on construction contracts, costs incurred through each balance sheet date, intangibles, property and equipment, fair value accounting for acquisitions, insurance reserves, income tax valuation allowances, fair value of contingent consideration arrangements and contingencies. If the underlying estimates and assumptions upon which the condensed consolidated financial statements are based change in the future, actual amounts may differ from those included in the accompanying consolidated financial statements.

Management believes there have been no significant changes during the three months ended March 31, 2026, to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 – Significant Accounting Policies in the accompanying notes to the Company’s consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025.

Recent Accounting Pronouncements

See Note 2 – Significant Accounting Policies in the accompanying notes to the Company’s condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Interest Rate Risk

The Company is exposed to market risk through changes in interest rates, primarily limited to borrowings under the Wintrust Revolving Loan in excess of the amounts covered by the Company’s interest rate swap arrangement. As of March 31, 2026, the Company had $32.4 million of direct borrowings outstanding under the Wintrust Revolving Loan. The Company is party to an interest rate swap arrangement to manage the risk associated with a portion of its variable-rate long-term debt. The interest rate swap has a $10.0 million notional value with a fixed interest rate and will mature in July 2027. The Company has not designated this instrument as a hedge for accounting purposes. As a result, the change in fair value of the derivative instrument is recognized directly in earnings on the Company's condensed consolidated statements of operations as a gain or loss on interest rate swap. Assuming outstanding balances were to remain the same and including the impact of the Company’s interest rate swap agreement, a hypothetical 100 basis point increase in interest rates on our variable-rate debt (excluding the portion hedged by the swap) as of March 31, 2026 would result in an approximate $0.2 million increase in annualized interest expense. Conversely, a 100 basis point decrease in interest rates would result in a comparable decrease in annualized interest expense. Actual results could differ from these estimates due to fluctuations in borrowing levels and other factors. See Note 6 – Debt in the accompanying notes to the Company’s condensed consolidated financial statements for further detail of the Company’s revolving credit facility and interest rate swap arrangement.

In addition, 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 and cash equivalents as of March 31, 2026 were $15.8 million. The Company maintains a disciplined cash management strategy whereby excess cash is invested in overnight repurchase agreements only when outstanding borrowings under its revolving credit facility are $10.0 million or less. When borrowings exceed this threshold, the Company generally deploys available cash to reduce outstanding revolver borrowings to approximately $10.0 million. For the three ended March 31, 2026, the Company recognized interest income of less than $0.1 million. The Company maintains a conservative investment policy and has not experienced any losses in its cash and cash equivalents. Management believes the Company is not exposed to significant risk with respect to such accounts.

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 March 31, 2026, 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.

Except as set forth below, 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, 2025.

Our dependence on subcontractors and suppliers, including risks associated with increased supplier and subcontractor consolidation, labor market conditions and cost inflation, could increase costs disrupt project execution, and adversely affect our profitability and cash flows.

We rely extensively on third-party subcontractors to perform a significant portion of the work on many of our contracts and on third-party suppliers to provide equipment and materials required for project execution. If we are unable to retain qualified subcontractors or suppliers, or if they fail to perform as expected, our ability to execute projects efficiently and profitably could be adversely affected. Although subcontractors and suppliers perform portions of the work, we generally remain contractually responsible to our customers for their performance.

Our ability to bid on and perform contracts depends, in part, on obtaining commitments from subcontractors and suppliers for labor, materials, and equipment at prices and on terms consistent with our bids. If we are unable to obtain such commitments, or if commitments are withdrawn, delayed, or provided on unfavorable terms, we may be unable to pursue certain projects or may experience reduced margins or losses on awarded contracts. In addition, if subcontractors or suppliers fail to deliver materials, equipment, or services in accordance with agreed terms, we may be required to obtain alternative sources at higher cost or incur delays and other unanticipated expenses.

The markets in which we source materials, equipment and, in certain instances, subcontracted services, have experienced, and may continue to experience, consolidation. As a result, a smaller number of suppliers and subcontractors may have increased bargaining power, which could enable them to impose less favorable terms, including pricing increases, more restrictive payment terms, reduced flexibility, or limitations on availability, capacity or service levels. Increased concentration among suppliers and subcontractors may also reduce competition, limit our ability to negotiate commercially favorable arrangements, increase our dependence on a narrower group of counterparties, and constrain our ability to secure materials or services on advantageous terms. In certain circumstances, we may be unable to pass through increased costs or less favorable terms to our customers.

Labor shortages, wage inflation and increased costs for subcontracted services, as well as sustained increases in supplier or subcontractor pricing or changes in payment terms, may increase project costs, reduce profitability and increase working capital requirements. Any disruptions in availability, delays in delivery, failures in performance, or inability to obtain materials or subcontracted services on acceptable terms could impair our ability to execute projects, meet customer expectations or competitively price our services, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.