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Edited Transcript of LMBH earnings conference call or presentation 18-Apr-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Limbach Holdings Inc Earnings Call

Itasca Oct 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Limbach Holdings Inc earnings conference call or presentation Tuesday, April 18, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeremy Hellman

The Equity Group Inc. - IR

* Charlie Bacon

Limbach Holdings, Inc. - Chairman and CEO

* John Jordan

Limbach Holdings, Inc. - EVP and CFO

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Conference Call Participants

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* Brent Thielman

D.A. Davidson & Co. - Analyst

* Steve Dyer

Craig-Hallum Capital Group - Analyst

* Gerry Sweeney

ROTH Capital Partners - Analyst

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Presentation

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Operator [1]

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Greetings and welcome to the Limbach Holdings Q4 and fiscal year-end 2016 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jeremy Hellman of The Equity Group. Thank you, Mr. Hellman. You may begin.

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Jeremy Hellman, The Equity Group Inc. - IR [2]

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Thank you very much, and good morning, everyone. Yesterday the Company issued the announcement of Limbach Holdings' 2016 fourth-quarter and year-end results. Certain statements contained herein may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is our intent that any such statements be protected by the Safe Harbor created thereby.

Except for historical information, the matters set forth herein, including, but not limited to, any projections of revenues, earnings, or other financial items; any statements concerning our plans, strategies, and objectives for future operations; and any statements regarding future economic conditions or performance are forward-looking statements. These forward-looking statements are based on our current expectations, estimates, and assumptions, and are subject to certain risks and uncertainties.

Although we believe that the expectations, estimates, and assumptions reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.

Important factors that could cause our actual results to differ materially from estimates or projections contained in our forward-looking statements are set forth in the risk factors section and also in the reports we have filed with the Securities and Exchange Commission, including that unfavorable global economic conditions may adversely impact our business; our backlog may not be fully realizable as revenue; and our expenses may be higher than anticipated.

We do not intend, and undertake no obligation to update any forward-looking statement.

With that, I'd like to turn the call over Charlie Bacon, CEO of Limbach Holdings. Please go ahead, Charlie.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [3]

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Thank you, Jeremy, and good morning to all and welcome everyone to the call. Joining me today is our Chief Financial Officer, John Jordan. Before I get into the highlights of what was an immensely successful year on many fronts, I want to spend a few minutes providing some further detail on our late filing and earnings report.

Those of you that know me well, know I place a great deal of emphasis on accountability and transparency. We have big growth ambitions for Limbach, but it's also paramount that we do so the right way. That mindset is really what led us to conclude we needed to be proactive in really examining our accounting processes after we noticed something unusual with some of our accounts payable figures that we discovered in mid-February. Again, this was something that we identified, not the auditors. We did bring the issue to them, though, and they worked hand-in-hand with us from that point on.

What we found specifically was that the way we were accruing job cost and SG&A account payable liabilities on the balance sheet needed to be addressed in regards to the proper timing of recognizing the liability and expense. Because our revenue is recognized on a percent of completion basis, any change in the timing of job cost expense will also impact the timing of revenue recognition. Just to be clear: this process was purely focused on the timing of recognizing expenses and related revenue. The overall financial results of the business were not materially impacted.

Our auditors advised us that we needed to go back through our books, back through 2014, and that necessitated an immense amount of work. The project is now behind us, and we are very confident that we have proper and rigorous controls and procedures in place to support our reporting process.

Now, let's talk about the operations. I'll start with a couple of quick financial highlights before getting to some other operational successes.

Our total 2016 revenues were $447 million, which were up 34.9% from a year ago. Adjusted EBITDA for 2016 was $16.8 million, which increased 25.9% versus 2015. Our aggregate backlog at December 31 stood at $434.3 million versus $378.1 million last year, for a gain of 14.9%. This solid backlog growth positions us well for continued growth into 2017 and beyond, which we will discuss in more detail later in this call.

In addition to our financial success, 2016 was a transformative year for our Company, with many significant accomplishments on multitude of fronts, all of which bear testament to our desire and commitment to continue growing our best-in-class specialty contracting business.

At the top of the list, we made the strategic decision early in the year to pursue a public listing for Limbach. Many of you have asked John and I why we made the decision, and it really was a question of how can we best position the Company for growth.

When I took the helm, 13 years ago, as much as I wanted to get to work growing Limbach, I first needed to focus on improving profitability of the Company, which we did and did well. Before we could turn our attention back to growth, though, we then needed to navigate a global recession. As it ended, we were finally able to turn our attention to focusing on growing Limbach and evaluating a variety of ways to pursue that goal.

Ultimately, we came to the conclusion that our growth plan required access to capital, and the public share listing would provide us with that valuable resource.

We completed the business combination which allowed us to go public on July 20, and followed that with a successful secondary offering on December 21. That offering allowed us to retire higher-cost subordinated debt.

We have a number of other goals that tie into our growth objectives and accomplished a number of those initiatives in 2016. We refreshed our brand and logo. We refined our marketing and sales focus. We opened our new Limbach Engineering and Design Center in Orlando, Florida, a key differentiator for us. We reduced staff turnover. And, most notably, we posted our highest-ever score on our internal employee survey, which we've been conducting for the past 13 years.

A big part of the success regarding our internal employee survey results are the investments we've made in our people. With people being such an important asset to our Company, during 2016 we promoted our Human Resource Director to Chief Learning Officer, who is tasked with onboarding our new employees while also helping our existing employees grow. This position will also support our M&A strategy and assist us in integrating the acquired businesses.

The last point is especially gratifying to the management team, as we placed significant emphasis on our corporate culture. I've been a long-time industry advocate in the area of worker safety; and coupled with a positive work environment, we really like to think Limbach is a first choice employer for engineers, tradesmen, and administrative professionals alike.

Moving on, we have a number of wins that are in backlog. Let me discuss a few select wins. We continue to see tremendous opportunity in healthcare. Within healthcare, our vertical, some key construction project wins include the Adventist hospital program, a large-scale project for Limbach that includes mechanical and plumbing. This is our first hospital win in the mid-Atlantic region, and we expect to build on success in the future.

We actually have identified a number of opportunities in the mid-Atlantic region for some substantial healthcare-related project work, which we've now included in our pipeline.

We also secured a contract with the Port Huron hospital in Michigan, continuing our expansion of our healthcare footprint throughout the state. We also selected -- we were also selected to work on an expansion of Children's Hospital in Philadelphia, also known as CHOP, an important win because they're capital spending continues year after year as they expand that institution.

And finally, we continue to expand our relationship with Hospital Corporation of America, HCA, which awarded us two additional projects in Southeast Florida. This allows us to continue our strategic expansion into Southeast Florida.

In the transportation arena, key projects of note are our relationship with LAX, the Los Angeles airport, continues to expand as we followed up on our new midfield terminal work, with an additional award around the baggage handling systems.

Also in LA, we were selected to build a new station, the LA mass transit system, known as the Crenshaw line. We think this is notable, given the huge amount of pent-up demand for social infrastructure projects across the country, and we continue to see transportation as a major opportunity for Limbach.

We also secured a contract for the new DC United soccer stadium, building on the success we have had helping build showcase stadiums and arenas around the country.

Within our services segment, while we've won numerous maintenance agreements and exceeded our plan in 2016, we renewed a very large contract with Ohio Health. This provides good affirmation that our customers are truly valuing the premium services we provide.

Looking at the macro environment, we continue to view our end markets as being in growth mode. The AIA building index, American Institute of Architects, continues to be well above 50. And that index tends to have a positive correlation with building activity, 6 to 9 months in the future.

Overall our pipeline remains very strong. We are optimistic that the commercial construction tailwinds that we've seen throughout 2016, particularly in the second half of 2016, are continuing.

Last quarter, we introduced 2017 financial guidance for our 2017 revenues to be in the range of $450 million to $490 million, with adjusted EBITDA of $18 million to $20 million. We recently tightened that range to $460 million to $480 million for revenues, and reiterated the $18 million to $20 million for adjusted EBITDA.

Bearing in mind also that with all the work that went into the audit that we just wrapped up, we did incur some unexpected expenses. And certainly those expenses will be nonrecurring in nature, and we'll include that figure in our adjusted EBITDA reconciliation. We have included our non-GAAP reconciliation in our earnings release, which details our non-GAAP adjustments.

Regarding our guidance, I'd like to note that it does not include the impact of any potential acquisitions. Those of you that we had met with or have seen us present recently will note that we have highlighted M&A as an area of focus. While we can provide no assurances regarding any deal consummation, we do have a couple of opportunities that are promising and which we hope we will be able to comment on further in the near future.

In summary, we continue to remain focused on our core growth strategies and improving our bottom-line results.

To remind everyone, our four core growth strategies are: number one, organic growth and improving execution margins; number two, rapid service expansion; number three, trade expansion within our existing footprint -- an example would be electrical; and four, entering targeted geographies.

Now I'd like to turn it over to John Jordan, our CFO, to go through the financial results in greater detail. And then I'll return for some closing remarks. John?

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John Jordan, Limbach Holdings, Inc. - EVP and CFO [4]

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Thank you, Charlie. Before getting into the details, I just want to remind everyone to please see our 10-K for a full breakdown of our results along with the supplemental tables included in our press release. Now, I will briefly go through the highlights for the quarter and year, starting with the fourth quarter.

Fourth-quarter 2016 revenues increased 45.6% to $133.7 million compared to $91.8 million for the prior-year period, led by construction growth of 37.9%. Service work grew 107.7% versus the prior-year period. As a percentage of revenue, construction represented 81%, while service provided the remaining 19%.

Gross margin for the fourth quarter of 2016 was 11.3%, down from 14.3% for the prior-year period and 12.8% for the third quarter of 2016. The decrease was driven by project mix as the Company had a large project underway which carries a lower margin profile than the corporate average, and a $2.1 million write-down on the hospital project.

This write-down was the elimination of a profit pool of an integrated project delivery hospital project, but it was not due to the Company's execution. The Company is reviewing its options for recovery, but does not anticipate any impact in 2017 as a result of this write-down.

The Company reported an operating loss of $0.8 million compared to a profit of $2.8 million for the prior-year period. The decline in operating income was due primarily to the above noted write-down along with increased selling, general, and administrative expenses associated with being public. The fourth quarter 2016 net loss was $2.8 million. That figure includes a $2.2 million charge due to the early extinguishment of our sub debt, along with the $2.1 million write-down I just noted.

Moving to the year, as Charlie noted, our 2016 revenues were $447 million, an increase of 34.9% from last year. Construction revenue grew 33.3% to $364.8 million, and service work grew 42.3% versus the prior-year period to $82.2 million. As a percentage of revenue, construction represented 82%, while service provided the remaining 18%.

Moving to a discussion on backlog, we continue to maintain a high level of visibility into our projects. The Company expects approximately 76% of the total construction and service backlog to be converted to revenues within the current fiscal year.

At the end of 2016, Limbach had an aggregate backlog of $434.3 million, an increase of 14.9% compared to the $378.1 million at the same time a year ago. Within the aggregate backlog figures, construction backlog at December 31, 2016, was $390.2 million, an increase of 9.8% from $355.4 million a year ago.

The Company expects approximately 67% of the construction backlog to be converted to revenues within the current fiscal year.

In addition, service backlog at December 31, 2016, was $44.1 million compared to $22.7 million as of December 31, 2015, an increase of 94%. The Company expects approximately 76% of the total construction and service backlog to be converted to revenues within the current fiscal year, with the remainder being recognized in 2018 and 2019.

Full-year gross margin was 12.5% as we continued construction on a large project that carries the slightly lower gross margin than our normal range. We expect that project to be completed in the fourth quarter of 2017, and anticipate positive margin reversion at that time, especially given the growth in our higher-end service business.

The Company reported operating income of $4.1 million compared to $7.6 million for the prior-year period. The decrease in operating income was due to increased costs associated with the transition to public company status, including some nonrecurring expenses totaling approximately $3.7 million.

As a percentage of total revenue, full-year 2016 SG&A accounted for 10.8% compared to 11.4% of total revenue in 2015, despite the increased costs associated with public company status along with staff additions in several areas to support our growth.

For the year 2016, net income was $1.4 million versus $4.4 million in 2015. As I noted earlier, our net income was negatively impacted by nonrecurring charges tied to the early extinguishment of debt, the project write-down; but the net income was improved by an income tax benefit. For modeling purposes, a tax rate of 40% would be appropriate.

As we noted last quarter, reducing our debt was a key priority. And I am pleased to report that our long-term debt, net of current portion, was $21.5 million as of December 31 versus $46.4 million as of September 30. The sharp reduction in our debt was a function of the retirement of our subordinated debt combined with the paydown of our bank term debt and the payoff of the revolver balance.

We currently have 7.5 million shares outstanding along with 7.1 million warrants which can convert into 4.6 million shares.

With that, I'll turn things back over to Charlie to share some closing comments.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [5]

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Thanks, John. Before we open it up to Q&A, I want to again say thank you to everyone on our team. 2016 was a transformative year for Limbach that required an incredible amount of hard, hard and smart work and dedication, and hope everyone takes pride in seeing these efforts pay off.

Operator, let's open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Brent Thielman, D.A. Davidson.

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Brent Thielman, D.A. Davidson & Co. - Analyst [2]

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Congratulations on a strong finish to the year.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [3]

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Good morning, Brent. Thank you.

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Brent Thielman, D.A. Davidson & Co. - Analyst [4]

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Charlie, on the services business, the 10-K, you mentioned the impact of growing your owner-direct project business, which comes as larger jobs with lower margin percentage. Assuming you continue on that path, will that compress service segment gross margins further from where you have ended in 2016?

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [5]

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We're continuing to expand the owner direct relationships throughout the Company. You can see the revenue growth. And when we look at larger service-related projects, we tend to be in a more competitive environment. Give an example, like a $2 million air handler change-out program: instead of us doing sole-source, which is the majority of our service-related business, we will have to competitively pursue that opportunity. We have a leg up because we have the relationship with the client. Typically, we do secure the deals.

However, it's typically at a lower margin, as we've explained in the past. But the traditional service work continues to grow well, Brent. And I expect, yes, there will be that reason to continue to go after those larger projects. Quite frankly, we don't want the competitors getting in. So we will look at those larger projects, make sure we secure them, keep the competitors out, and continue with the relationship with that client.

Typically, those client relationships have many, many other sole-source opportunities which generate the higher margins that we typically like to see in service.

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Brent Thielman, D.A. Davidson & Co. - Analyst [6]

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Okay, okay. And then the 67% in construction backlog -- I think you said you expect it to be completed in 2017. How does that compare where you stood at the beginning in prior years? And what level of visibility do you have with that?

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [7]

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Yes, no, we're pretty pleased with where we stand with that coverage. What we need to add to that coverage is what we call our promised and probable backlog of sales activity. Typically, we're already working on engineering or pre-construction services. In most cases, we have a contract for those services, but we haven't agreed to the actual construction price yet. We have $108 million right now of promised and probable work.

When you apply the burn that we anticipate of those projects coming online and brought into backlog, that brings our coverage for 2017 to 90%. And it also improves our coverage for 2018. So, we very seldom, if -- I can't quite remember us ever losing a deal after it came into promised and probable. But we just have to work through the timing of the -- bringing that work into backlog.

So the bottom line is this: we're quite comfortable with where we stand today in 2017 with our backlog cover for the construction segment of the business.

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Brent Thielman, D.A. Davidson & Co. - Analyst [8]

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Okay. Then one more, if I could, and I'll get back in queue. On the revenue guidance, taking into consideration your growth rates these last few years, what do you think would really cause you to land at the lower end of that range, that $460 million? Is there conservatism baked in there just to reflect potential moving timelines on projects? Is it to reflect Limbach shifting focus to different projects or sectors? What's the more probable factor that would get you (multiple speakers)?

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [9]

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Well first -- sure, Brent. Yes, good question. When we step back and look at our forecast and what we're projecting for this year, there's a couple things you have to take into consideration. One, it's still very early in the year, so we still have a lot of opportunities that we're looking at. So we're providing that range. On the -- if you were to look at potential downside on the lower end of that range, what we're concerned about is if a project slips by a month or two, a major project, that could impact our revenue stream.

It doesn't mean that we're losing the opportunity; it just means it's pushed out a bit, which could impact revenue in this year.

If you look at 2016, we were providing guidance to the market at $407 million of revenue, and we obviously far exceeded that. And that was due to some escalation of projects, where projects actually moved quicker than we thought, as well as strong sales continued through the year. So it's early in the year. We believe we have a very good handle on what we have in backlog as well as what we refer to as that promised and probable.

We take all of that into account, put in some contingency. So we feel good about the range. But it is still early in the year, be it more sales could come in -- and I expect they will -- or we could see something slow down that could impact us, leading us into the lower end of that range.

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Brent Thielman, D.A. Davidson & Co. - Analyst [10]

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Okay. Thank you. Appreciate it.

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Operator [11]

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Steve Dyer, Craig-Hallum.

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Steve Dyer, Craig-Hallum Capital Group - Analyst [12]

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I wonder if you could talk a little bit about the showcase project. How much of that was that a drag in the quarter? And is that finished up with, going forward? And then finally, is there any -- have you seen any evidence that that will lead to new business? Any comment there; I know you've talked about that one before.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [13]

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Sure. So, we're talking about the Detroit Red Wings project, which we're very pleased how we negotiated a cost plus agreement with some upside opportunity. The project is going extremely well. We're quite proud of our execution on the job. The contractor is Barton Malow and Hunt. By all indications, they are quite pleased with our work. The project will complete in July time frame, the majority of the work will be done. So we're actually in the home stretch right now. The bulk of our work has already been installed. The arena is coming along quite nicely.

As far as future work, there will be future work around the arena. We will look to see what maintenance type deals we can sell. We're in that mode today, looking for those types of opportunities. The facility is huge. I think there will be additional fit-out opportunities with some of the smaller entertainment complex pieces. But I think more important is the large-scale opportunities that are actually being proposed in Detroit. That particular contractor we're working for, Barton Malow, they are looking at some fairly large-scale contractors.

Now, we've had a relationship with them for over 40 years, and we're their go-to mechanical for commercial type projects. And they are in discussions with us with some other significant opportunities, right there in the greater Detroit area where we think we stand a very good chance of securing the work. We have to compete, we have to win it. But just like the Red Wings, I think we managed to leverage that long-term relationship. They trust us; they know we are very good at what we do. And we secured a very nice deal there.

So, we expect some of the smaller work to spin off to us coming off the arena, possible maintenance opportunities; and then, finally, there are some very large-scale projects coming up in the greater Detroit area. And we look forward to participating on those, and hopefully securing them.

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Steve Dyer, Craig-Hallum Capital Group - Analyst [14]

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Got it. Okay. And then just as it relates to service, you are making good headway there, clearly. In terms of growing your service capabilities, any sort of color on how you see that? Maybe what you have to build out internally in terms of systems or people. And then what the acquisition environment -- you touched on that a little bit, but any other color there on the service agreement, that would be great.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [15]

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Sure. So, when you step back and look at our service business, certain business units -- and quite frankly, only several, I will refer to them as mature service businesses. In other words, have a nice maintenance base, they are growing nicely. But we have some immature service businesses. And I'll give you an example.

Los Angeles, we continue to make great strides with the growth of that service business. But last year -- John, correct me if I'm not stating this figure correctly -- it was around $6 million in revenue in the greater Los Angeles area. And you compare that to Philadelphia, which approached $11 million last year in revenue.

John, am I close on those figures? I just want to make sure.

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John Jordan, Limbach Holdings, Inc. - EVP and CFO [16]

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Philadelphia service was $10 million. Southern California service was $6 million.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [17]

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All right, so thank you. And if you think about the size of the MSAs between Philadelphia and Los Angeles, dramatic difference. I mean, Philly is a big city, but LA is ginormous. So we see that business growing rapidly, as it already has from the standpoint of just where it started three years ago and where it is today, it's going to continue its rapid expansion throughout the greater LA market. And we're envisioning that's going to be a $20 million business in the midterm, so the next 4 to 5 years.

So the overall growth, when you look at that and then you look at other locations like Michigan, Boston, Florida, we have tremendous growth opportunities. Because, quite frankly, the service businesses are immature. So when we start talking about the ratios of 25% service, 75% construction -- that's what management has [stepped] back as a management goal -- that's where we get to in the midterm by growing those regions with the service. And we are not backing off construction growth, by any means. We're going to get there. So, it's exciting to see.

In terms of investment in systems and people, we are investing today in more handheld technology so we can have some real-time recording of service, proper maintenance of equipment, as well as getting invoices out to the customers quicker. So we continue to invest in handheld technology.

And on the people front, we add people as we determine the need is there. And we're also stepping back and just looking at the scale of our management that are in place. Basically we are looking at our teams and analyzing the leadership abilities to take the business to the next level. And we've always done that. We call it right person, right seat.

So we're looking at that right now. And our Executive Vice President, Dave Leathers, is in charge of service for us nationwide. He leads that effort. So we're going to continue to improve the service business, expand it, take advantage of the mature businesses that we have.

And then, finally, on the acquisition front, the gentleman I just mentioned, Dave Leathers, he has been charged to prospect for service-only acquisitions. We're looking initially at our existing footprint. Boston, we don't have a big service business. So we're prospecting up there to see if there's something up there we could acquire that fits all the management gates that I've laid out for the investment community in the past.

And if Dave can come up with the right opportunity, providing we have the bandwidth to take it on, we will make a recommendation to our Board for a service-only acquisition. So on all fronts, be it organic, M&A, we are working both sides of that, Steve.

Does that answer your question?

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Steve Dyer, Craig-Hallum Capital Group - Analyst [18]

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Yes. Yes, that's very helpful. I will hop back in queue. Thank you.

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Operator [19]

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(Operator Instructions). Gerry Sweeney, ROTH Capital.

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Gerry Sweeney, ROTH Capital Partners - Analyst [20]

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A question on the gross profit write-down: how much visibility do you have into an event like this? And as you look at your existing work, is there any risk of that on a go-forward basis?

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [21]

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Yes, look, let's just step back a moment and explain what happened here. I don't know how many people are familiar our Integrated Project Delivery, but let me give you a very quick education on what this is all about. IPD is a more sophisticated, forward lean approach to pulling together a team of contractors, the architect and owner, to think through the best solutions and come up with a smart budget to execute whatever the owner is looking to achieve. We actually have had great success on numerous IPD projects, many with Disney.

But this particular case, this was a large hospital project located up in Boston. We cut a very smart deal in terms of -- the way IPD works, all of your costs for construction and overheads are covered, no matter what. So, we provide a budget and we will often work towards that overall budget. And providing we do that, then what we refer to as the profit pool is shared amongst the team players, both through contractual percentages.

But if there's upside, meaning we deliver it under budget, you share in the upside opportunity. So it's a big team effort. And what happened here on this particular project, we were notified in November that there was some overruns by certain other contractors -- not Limbach -- that was eating into the profit pool. Again, we get all of our costs and all of our overhead covered, but they informed us that our share of that would be $542,000.

So, unfortunately, we took the write-down in November. And at that point, the contractor gave us assurances with their records that we were proceeding well, and working towards the completion of the project.

Unfortunately, that tune changed on March 22. We were informed that the balance of the profit pool happened to be wiped out. Now, this just happened, folks, March 22. And we did some quick investigation. And due to it being a subsequent event, post- the 2016 close, but we had not closed the books -- we reviewed this internally and talked to our auditors about it, that we had to take the hit in 2016. So the hit went through. It was unfortunate; it would have been a fantastic year. But we did the right thing, as we always do, and accounted for it properly.

We are now stepping back, doing investigation to understand where there may be some recovery opportunities here. And I just want to assure everybody on the call, Limbach was executing within its budget. We were not the issue or the contractor that caused this problem. There were actually several contractors that caused the problem as we know it today, but we continue to do our investigation. I want to assure everybody on the call that there will be no further impact to 2017 on this project. And in regards to other IPD projects, we have enjoyed great success, as I stated earlier.

So, we're going to step back, look at our recovery options, and execute appropriately. And from there, as far as other IPD projects in the future, we will continue to look at them and determine if there's a good risk and return on the opportunity.

As far as other write-downs, Gerry, that could happen. In our business, from time to time, we do face certain risks on projects.

I've shared with people in the past that sometimes we face projects that have so many change orders that happen on the project that we get big concern, where's the money coming from to fund all of that? And we have had issues in the past where we've been stung, but I think we've always been very transparent with our investor community. 2016, we actually have a pretty good run last year as far as execution.

As far as our pricing of projects, post- the recession, we have adequate contingencies in our projects. And we're -- I think we've done a great job at investing in our people to make sure we execute better than we have in the past.

So from the standpoint of this particular one-off situation, it was upsetting, but we dealt with it. And we still delivered the results for 2016.

So, Gerry, did I answer your question?

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Gerry Sweeney, ROTH Capital Partners - Analyst [22]

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No, absolutely. And then especially on the timing, that's very helpful in reference to it just happening in late March.

One other -- another question here, and this is just based off a comment in your commentary was you talked about positive margin reversion, I think in the fourth quarter. And it sounded as though that's after the Red Wings project would be finishing up. I wanted to see if that's -- take that as margins are starting to accelerate post- completion of the project. Or did I hear that incorrectly, or digging too far into it?

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [23]

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Well, the project is nearing completion. And we do have opportunity for upside bonuses, providing everything is delivered according to the contract. And right now we're trending in that direction to achieve those objectives.

As far as overall margin in our backlog, what's kind of interesting is if you look at the trend from 2014 to 2015 to 2016, our margin in backlog has increased. I'll let John comment to the specific figure. But the other thing that is not necessarily in our backlog gross profit margins that we book when we sell a project.

Several years ago, during the tight periods of the recession, we could not include certain project contingencies in our proposals. That has all changed, so we have adequate contingencies now in our proposals. The market is much, much healthier; much less competition; and we're actually negotiating quite a few of our jobs direct with our customers. And they understand how we budget our projects.

So we're in a much, much healthier environment, and I don't see that environment changing at all. Actually, I see it improving, at least for the near term based on the pipeline visibility that we have.

John, could you comment just a bit further on the backlog percentage improvement?

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John Jordan, Limbach Holdings, Inc. - EVP and CFO [24]

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Sure. Gerry, the backlog as of December 31, 2016, the gross margin on that was at 9.51%. Now, that includes the full contingency that we would have on a project. It includes worst-case labor; does not include any buyouts of material or equipment that we would experience on projects.

Comparing that to the backlog gross profit at the end of 2014 and 2015, in both years, they were basically 8.7%. So we've got about an 82 basis point improvement in that backlog gross profit. So it's just under a 10% increase that we see already in the backlog gross profit, not counting our contingency and upside that we might be able to recognize, plus the cost savings that we would be able to realize through effective labor management and effective buyout for material and equipment.

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Gerry Sweeney, ROTH Capital Partners - Analyst [25]

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Great. That's really helpful. I appreciate it. And then just one last real quick comment. So, obviously revenue was much better than people anticipated. If revenue had trended the way you originally planned, suffice to say, one, backlog would probably would have been up quarter-over-quarter. I know it was up year-over-year, but it likely would have been up quarter-over-quarter.

And your guidance -- well, guidance would have been upwards towards that higher end of the range for certain, if not higher. Is that a correct assessment?

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John Jordan, Limbach Holdings, Inc. - EVP and CFO [26]

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Yes. There was some acceleration of revenue into the fourth quarter of 2016 that we did not anticipate as the plans were coming together. By our estimate, a couple different factors probably contributed about $15 million of revenue that got pushed forward into 2016 because of accelerated project execution. Service performed better than expected in the fourth quarter, which contributed to the $15 million as well.

So, there really is some shifting from the revenue that we recognized that would have been in backlog otherwise, that would have improved that backlog figure as of the end of the year.

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Gerry Sweeney, ROTH Capital Partners - Analyst [27]

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Perfect. Great. I appreciate it. Thank you.

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Operator [28]

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There are no further questions in the queue.

I'd like to hand the call back over to management for closing comments.

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Charlie Bacon, Limbach Holdings, Inc. - Chairman and CEO [29]

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Well, guys, we apologize for the delay in our issuance of our 10-K. We did the right thing by stepping back. I want to make sure we build a sound business for the future. We are in a large growth mode, and I wanted to make sure everything was proper, as did John. So, we apologize for the delay, but we felt it was the right thing to do.

We look forward to speaking with each of you again very shortly on our 2017 first-quarter conference call. Thanks again for your interest in Limbach. All the best.

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Operator [30]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.