Second Quarter 2018 Earnings Call August 15, 2018 Forward Looking - - PowerPoint PPT Presentation

Second Quarter 2018 Earnings Call

August 15, 2018

Forward Looking Statements

2 This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of

• 1995. These forward-looking statements relate to expectations or forecasts for future events, including, without limitation, our

earnings, Adjusted EBITDA, revenues, expenses, capital expenditures or other future financial or business performance or strategies, results of operations or financial condition. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “will likely result,” “should,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or similar expressions. These forward-looking statements are based on information available to us as of the date they were made, and involve a number of risks and uncertainties which may cause them to turn

• ut to be wrong. Accordingly, forward-looking statements should not be relied upon as representing our views as of any

subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking

• statements. Please refer to our Form 10-K filed on April 2, 2018, which is available on the SEC’s website (www.sec.gov), for a full

discussion of the risks and other factors that may impact any forward-looking statements in this presentation.

2Q’18 Operating Highlights

5

Ris isk k Man anagement, Ope peratio ional l Exce Excelle llence and nd Emp Emplo loye yee Adva vancement

• Expanded our internal leadership development program
• Added resources to Limbach University in order to grow classroom and online training programs
• Added a new board member, Laurel Krzeminski, former CFO of publicly-traded Granite Construction (NYSE:GVA)

Str trong Pr Proj

• ject Exec

Executio tion, Sale ales Pe Perfo formance and nd Bac acklo klog Build uild; Mid-Atla lantic ic Con

• ntin

inues to Chall allenge

• Absent residual project issues in Mid-Atlantic, year-to-date gross margins are approaching 16% with Adjusted

EBITDA* margins approaching 4%, both on better than expected revenue and improved SG&A control

• Revenue burn and remaining backlog supports 2018 guidance; building strong coverage for 2019 and 2020
• Challenges persist in Mid-Atlantic but specific projects are nearing completion

1

Con

• nstructio

ion Ope peratio ions

• Segment sales and revenues both tracking ahead of the Company’s initial forecast for 2018; driven by strong

industry activity and company-specific project awards

• Project write-downs in Mid-Atlantic branch negatively impacted segment gross margin by ~360 basis points

2

Servic ice Ope peratio ions

• Service sales in 2Q’18 grew 43% sequentially and 68.6% year-over-year with strength across all categories

(maintenance, project and spot); consolidated year-to-date sales exceeded plan by almost 30%

• Service revenue of $25.8 million was up 19.3% year over year

3

M&A Activ tivit itie ies Con

• nti

tinu nue to Advance

• Have signed a Letter of Intent with a quality acquisition candidate that meets all of our gating requirements
• Pipeline of proprietary opportunities is robust
• Incremental progress on several additional opportunities

4

3

* See page 18 for GAAP reconciliation to Adjusted EBITDA

6

Financia ial l Stat tatement Revie view

• Bottom-line EPS improved from the prior year quarter
• Repurchase of remaining preferred shares in 1H’18 utilized working capital

2Q’18 Operating Highlights

Continuing Financial and Operating Momentum

4

• 2Q characterized by revenue growth in both Construction and Service segments, with multiple pockets of strength

and good sales momentum

• Strong performances in the Southern California, New England, Ohio and Harper (Florida) business units as

compared to plan; 8 of 10 business units reported growth Earned Revenue Gross Profit and Gross Margins

$331. $331.4 $44 $447. 7.0 $485. $485.7 $512. $512.8 $530. $530.0 $117. $117.8 $139. $139.5 $550. $550.0

$0 $0 $10 100 $20 200 $30 300 $40 400 $50 500 $60 600 201 015 201 016 201 017 LTM TM 2Q 2Q'1 '18 201 018 2Q '1 '17 2Q '1 '18

Gr Grow

• wth

th +18. 18.4% Revised ed Gui Guidanc nce1 ($ $ in n mi mill llio ions) $45. $45.4 $55. $55.7 $65. $65.6 $65. $65.4 $15. $15.5 $15. $15.8 $3.6

$0 $0 $20 20 $40 40 $60 60 $80 80 201 015 201 016 201 017 LTM TM 2Q 2Q'1 '18 2Q'17 17 2Q'18 18

($ $ in n mi mill llio ions) Gr Grow

• wth

th 24. 24.8%

1

12. 12.8% 13. 13.5% 12. 12.5% 13. 13.7% Gr Gross ss Marg rgins Excl.

• l. Mid-Atl

tlanti ntic Br Branc nch: 14. 14.8% 1 Revised revenue guidance of $530 million - $550 million, an increase from previous revenue guidance of $520 million - $540 million. $19.4

2Q’18 Operating Highlights

Sales Momentum and Considerable Backlog Coverage

5

• With significant backlog and promised/committed but unbooked work, Limbach has 96% coverage of its 2018

Construction revenue forecast as of June 30

• ~51% of current backlog ($227.9 million) is scheduled for 2019/2020, providing excellent out-year visibility
• $381 million of promised, unbooked business
• Overall supply/demand balance increasingly favoring specialty contractors which supports margin improvement

2

Construction Segment 2018 Revenue Bridge

$210.5 $427.9 $446.5 $446.5 $217.4 $18.6 $227.9 $381.0 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 1H Construction Revenue Construction Revenue in Backlog at 06/30/18 Promised and Unbooked Revenue at 06/30/18 Book and Earn Required to Meet Construction Revenue Forecast 2018 Construction Revenue Forecast

96% Coverage of 2018 Construction Forecast Likely to be Scheduled for Multi- Year Booking ($ in millions) $3.1 billion of

• pportunities in the

Pipeline

$445.3

2Q’18 Operating Highlights

Construction Operations

6

2

Construction Segment EBIT Performance Construction Backlog

$355. $355.4 $390. $390.2 $426. $426.7 $413. $413.9 $445. $445.3

$30 300 $40 400 $50 500 $60 600 $70 700 $80 800 $90 900 4Q'15 15 4Q'16 16 4Q'17 17 1Q'18 18 2Q'18 18

($ $ in n mi mill llio ions) $12. $12.9 $15. $15.8 $19. $19.0 $5. $5.8 $2. $2.8 $3.6

$0 $0 $5 $5 $10 10 $15 15 $20 20 $25 25 201 015 201 016 201 017 2Q'17 17 2Q'18 18

($ $ in n mi mill llio ions)

• Just three business units experienced year-over-year declines in Construction revenue, including Michigan which

was adversely impacted by a difficult comp against a very strong 2Q’17 (due to the Red Wings project)

• Gross margin of 8.4% was 300 basis points lower than 2Q’17; impacted by Mid-Atlantic write-downs of $3.6 million
• Construction backlog of $445.3 million up 7.6% from March 31, with $381 million committed but not booked

Gr Grow

• wth

th of

• f 10.

10.3% Exclu ludin ing Mid id- Atla lantic tic br branc nch wr write ite-do downs Gr Grow

• wth

th +48. 48.1% $381 $381 mi mill llion

• n

pr prom

• mis

ised ed/comm mmitte tted bu but no not bo book

• ked

ed $826 $826 $6.4

7

2Q’18 Operating Highlights

Construction Operations

2

Wayne County Justice Center 2,280 Bed Jail, Courthouse, Offices and Juvenile Detention Facility GC: Barton Malow 1.5MSF Mixed Use Project GC: Turner Construction Central Utility Plant GC: TBD Hudson Tower – 60 Stories GC: Barton Malow

Detroit, Michigan

• Bedrock is a major Detroit-area commercial developer associated with Dan Gilbert
• Barton Malow is the General Contractor on the Wayne County Justice Center and

Hudson Tower projects (and was the lead GC on the Red Wings project)

• Have started budgeting work on Central Utility Plant and Mixed Use Project

$10. $10.0 $11. $11.3 $12. $12.9 $12. $12.1 $14. $14.1

$0 $0 $4 $4 $8 $8 $12 12 $16 16 201 015 201 016 201 017 2Q'17 17 2Q'18 18

Gr Grow

• wth

th +16. 16.5%

2Q’18 Operating Highlights

Service Operations

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($ $ in n mi mill llio ions)

3

Service Segment EBIT Performance Maintenance Base

$3. $3.4 $5. $5.8 $6. $6.9 $1. $1.0 $3. $3.0

$0 $0 $2 $2 $4 $4 $6 $6 $8 $8 201 015 201 016 201 017 2Q'17 17 2Q'18 18

($ $ in n mi mill llio ions) Gr Grow

• wth

th +200 200%

• Service revenues increased 19.3% year-over-year to $25.8 million with sales in all three Service categories

(maintenance, project and spot) exceeding internal forecasts by 29.6%, and 43% ahead of sales a year ago

• Year-over-year, sales of maintenance contracts increased 26.7% while project sales increased 47.4% and Time and

Materials (“T&M”) contracts grew 22.7%

• Service backlog of $47.2 million grew $8.6 million sequentially, an increase of 22.3%

M&A Update

Continuing to Advance Key Opportunities

More than 100 companies reviewed and we remain in active discussions with 30 Key M&A Criteria

➢ Cultural Compatibility ➢ Commitment from Management to Stay With Us ➢ Acquisition Multiple Within Our Target Multiple Range

Multiple Acquisition Paths

(Several Companies in Late Stage Discussions)

Southeast Texas Pacific Northwest

Mechanical Service | Existing Markets Geographic Expansion | New Markets

Multi-Trade Expansion Industrial Mission Critical

Mechanical Construction | New Markets Electrical Construction | Existing Markets

9

4

❖

Nearly doubled our staff for the office and field since the end of the recession - expect that growth to continue to track in a similar fashion.

❖

Sowing the seeds for future corporate leadership as we expanded our leadership development program this year by 67%.

❖

Added resources to our Limbach University staff in an effort to increase our class room and

• nline training programs. The additions include two senior operational staff, a finance trainer

and a program development resource.

❖

The two senior operational staff and the finance trainer will be playing dual roles. In addition to training, they will also be providing internal audit services to drive operational excellence.

❖

During Q2 we announced a new Board member, Laurel Krzeminski, the former CFO of publicly traded Granite Construction. Laurel attended her first Board meeting on August 8th, and she provided terrific input and suggestions.

❖

We continue to evolve our Board with an eye on attracting strong talent with resumes tied to supporting our growth agenda.

10

Risk Management, Operational Excellence and Employee Advancement

5

Ensuring Operational Excellence We are continuing to make significant investments in our people

2Q’18 Operating Highlights

Income Statements

11

• Total revenue increased 18.4% year-over-year to $139.5 million, and exceeded internal forecasts
• Construction operations accounted for 81.5% of revenue while Service operations accounted for 18.5%
• Gross margins generally stronger across the branch portfolio outside of specific project challenges in the Mid-

Atlantic business unit

6

($ in millions, except share and per share amounts) Three Months Ended June 30, 2018 June 30, 2017 Revenue $ 139.5 $ 117.8 Cost of revenue 123.7 102.3 Gross profit 15.8 15.5 SG&A expense 13.7 12.8 Amortization of intangibles 0.3 1.0 Operating income 1.8 1.7 Interest expense, net (0.8) (0.6) Gain (loss) on sale of assets 0.0 (0.0) Income tax provision 0.3 0.4 Net Income $ 0.7 $ 0.7 Dividends on cumulative redeemable convertible preferred stock

• 0.2

Premium paid on cumulative redeemable convertible preferred stock

• —

Net income to common shareholders $ 0.7 $ 0.4 Basic EPS1 $ 0.09 $ 0.06 Diluted EPS1 $ 0.09 $ 0.05

1 Based on 7,542,503 and 7,807,768 weighted average basic and diluted shares outstanding for the three months ended June 30, 2018 and 7,454,564 and 7,795,484 weighted average number of shares outstanding, respectively, for the three months ended June 30, 2017.

2Q’18 Operating Highlights

Balance Sheet Highlights

12

• Increase in total debt of $7.6 million from December 31, 2017 driven by term debt incurred to repurchase the

balance of the Preferred Stock (280,000 shares) in January ($10 million)

• Working capital of $19.3 million, a decrease of $11.4 million from December 31, 2017 as the Company used cash

to pay down its revolver; net over-billings increased; and re-classification of bridge loan ($8.2 million currently

• utstanding) to short term debt, due in April 2019
• Dramatic improvement in overbillings which will lead to a much-improved cash flow condition

6

($ in millions) As of June 30, 2018 December 31, 2017 June 30, 2017 Cash $0.3 $0.7 $0.7 Working Capital $19.3 $30.8 $27.1 Intangible Assets, Net $13.6 $14.3 $15.8 Net Under/(Over) Billings ($11.2) $4.5 ($0.1) Total Debt $34.5 $26.9 $23.5 Equity $45.5 $48.2 $46.4

Indic ndicato tors and nd Outlo utlook4

Source: FMI U.S. Construction Outlook Second Quarter 2018 Report. Totals may not foot due to rounding. 1 Figures represent percentages of project revenue between January 1, 2015 and March 31, 2018. Other key end markets include Central Utility Plants (3.4%), Multi- Family Residential (3.3%) and Other (8.9%). 2 As of March 31, 2018. Other key end markets include Central Utility Plants (1.4%), Multi-Family Residential (7.4%) and Other (6.3%). 3 Includes data center activity. 4 Source: Dodge Momentum Index per Dodge Data & Analytics and Architecture Billings Index per The American Institute of Architects.

Favorable Industry Outlook

FMI Data Continue to Suggest Strength

Growth forecast across multiple markets – LMB Core Sectors highlighted below

Con

• nstructio

ion For

• recasts

ts

Change from Prior Year % Change 2017 017 Act ctual 2018 018 Fore recast 2017A 017A- 2022F 022F CAGR % % of LMB B Re Reven venue1 % % of Curr urrent nt Backlog

• g2

Total No Nonre residen ential Bui uildi dings gs 2.5% 5% 5.9% 9% 4.3% 3% Healthc hcare 3.6% 6% 4.7% 7% 4.1% 1% 27.4% 32.6% Educat ducation

• n

2.2% 2% 5.2% 2% 4.1% 1% 16.4% 7.2% 2% Amuse semen ent & Re Recre reation

• n

4.9% 9% 6.6% 6% 3.9% 9% 11.8% 6.9% 9% Of Office3 2.3% 3% 8.8% 8% 4.6% 6% 9.7% 7% 20.8% Transportation 3.7% 9.8% 6.6% 7.5% 10.7% Commercial 14.0% 4.6% 3.9% 5.8% 4.1% Lodging 5.9% 4.3 3.5% 2.2% 0.5% Emer ergi ging g Oppor Opportun unity Sector

• rs for

r LMB Manufacturing

• 11.9%

3.5% 3.6% 3.4% 2.1%

13

+0. 0.8% in n Jun une e

• v
• ver

r May Score

• res grea

eate ter r tha han n 50 50 equ qual l exp xpansio ion

Source: FMI 2018 FMI Overview Featuring FMI’s Fourth Quarter 2017 Construction Outlook.

Construction Put-in-Place

Favorable Industry Outlook

Estimates Continue to be Positive for Key Markets

Health Care Amusement Transportation Education

$30, 0,000 $35, 5,000 $40, 0,000 $45, 5,000 $50, 0,000 2016 16 2017 17 2018 18 2019 19 2020 20 2021 21 2022 22 ($ $ in n mil milli lions) s) $85, 5,000 $95, 5,000 $105 05,000 $115 15,000 2016 16 2017 17 2018 18 2019 19 2020 20 2021 21 2022 22 ($ $ in n mil milli lions) s) $20, 0,000 $22, 2,500 $25, 5,000 $27, 7,500 $30, 0,000 2016 16 2017 17 2018 18 2019 19 2020 20 2021 21 2022 22 ($ $ in n mil milli lions) s) $30, 0,000 $40, 0,000 $50, 0,000 $60, 0,000 2016 16 2017 17 2018 18 2019 19 2020 20 2021 21 2022 22 ($ $ in n mil milli lion)

14

2018 Guidance Update and Conclusions

15

1 See pp. 18 for GAAP Reconciliation to Adjusted EBITDA.

• Upcoming investor events:

➢ D.A. Davidson 17th Annual Diversified Industrials & Services Conference // Sept 20-21// Chicago, IL

Update on 2018 Financial Guidance Other Items

• Adjusting previously provided guidance:

➢ Previous revenue guidance of $520 million - $540 million increasing to $530 million – $550 million ➢ Adjusted EBITDA1 guidance reduced to $18 million - $20 million from $20 million – $24 million ➢ Updated guidance excludes any claim recovery or the impact of any acquisitions ➢ Sales, which were already strong, have accelerated. Closing in on 100% of the backlog required to meet 2018 earned revenue forecasts ➢ Project execution and the resulting gross profit are expected to continue to improve leading to better bottom line results

16

Q&A

17

Appendix

18

* Use of Non-GAAP Financial Measures

In assessing the performance of our business, management utilizes a variety of financial and performance measures. The key measure is Adjusted

• EBITDA. Adjusted EBITDA is a non-GAAP financial measure. We define adjusted EBITDA as net income (loss) plus depreciation and amortization expense,

interest expense, taxes as further adjusted to eliminate the impact of, when applicable, other non-cash expenses or expenses that are unusual or non-

• recurring. We believe that Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance for the current

period and our ability to generate cash flows from operations that are available for taxes, capital expenditures and debt service. We understand that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare

• ur performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA, however, may not be

comparable to similarly titled measures reported by other companies. When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute for net income (loss) calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes. A reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, is provided below.

Non-GAAP Reconciliation Table

For the Three and Six Months Ended June 30, 2018

Adjusted EBITDA Reconciliation

Three months ended June 30, Six months ended June 30, (in thousands) 2018 2017 2018 2017 Net income (loss) $ 709 $ 669 $ (1,715) $ (545) Adjustments: Depreciation and amortization 1,427 2,713 2,798 5,359 Interest expense 799 563 1,568 1,017 Non-cash stock-based compensation expense 654 1,121 Income tax expense provision 293 404 (750) (679) Adjusted EBITDA $ 3,882 $ 4,349 $ 3,022 $ 5,152