Limbach Holdings Inc.
11/04/2025 | Press release | Distributed by Public on 11/04/2025 16:26
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
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 partners with building owners and facilities managers with mission critical mechanical (heating, ventilation and air conditioning), electrical, and plumbing infrastructure. The Company strives to be an indispensable partner to its customers by providing services that are essential to the operation of their businesses. The Company has approximately 1,700 team members in 21 offices across the eastern United States. The Company's team members uniquely combine engineering expertise with field installation skills to provide custom solutions that leverage its full life-cycle capabilities, which allows it to address both the operational and capital projects needs of its customers.
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 things;
•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 mechanical, plumbing or electrical systems, building controls and specialty contracting projects to existing buildings direct to, or assigned by, building owners or property managers, and (ii) GCR, in which the Company generally manages new construction or renovation projects that involve primarily mechanical, plumbing, or electrical services awarded to the Company by general contractors or construction managers.
Key Components of Condensed Consolidated Statements of Operations
Revenue
The Company generates revenue principally from fixed-price construction contracts to deliver mechanical, plumbing, and electrical construction services to its customers. The duration of the Company's contracts generally ranges from three months to two years. Revenue from fixed-price contracts is recognized on the cost-to-cost method, measured by the relationship of total cost incurred to total estimated contract costs. Revenue from time and materials service contracts is recognized as services are performed. The Company believes that its extensive experience in mechanical, plumbing, and electrical projects, and its internal cost review procedures during the bidding process, enable it to reasonably estimate costs and mitigate the risk of cost overruns on fixed-price contracts.
The Company generally invoices customers on a monthly basis based on a schedule of values that breaks down the contract amount into discrete billing items. Costs and estimated earnings in excess of billings 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 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 debt, gains or losses associated with the disposition of property and equipment, changes in fair value of interest rate swaps, and interest income earned from its overnight repurchase agreements and money market investments and the Company's interest rate swap agreement. Deferred financing costs are amortized to interest expense using the effective interest method.
Provision for Income Taxes
The Company is taxed as a C corporation and its financial results include the effects of federal income taxes, which will be paid at the parent level.
The Company's provision for income taxes (including federal, state and local taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with ASC Topic 740 -Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities and income or expense are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
Impact of Acquisitions
In order to provide a more meaningful period-over-period discussion of the Company's operating results, the Company may discuss amounts generated or incurred (revenues, gross profit, selling, general and administrative expenses, and operating income) from companies acquired. The amounts discussed reflect the acquired companies' operating results in the current reported period only for the time period these entities were not owned by the Company in the comparable prior reported period. As a result, period-over-period comparisons may not be fully indicative of ongoing trends in our 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 expands the Company's footprint in the core Midwest region and extends its reach into new geographic markets in the upper Midwest.
On December 2, 2024, the Company completed an acquisition of Owensboro, Kentucky-based specialty mechanical contractor, Consolidated Mechanical, LLC ("Consolidated Mechanical"), for a purchase price at closing of $23.0 million. The transaction also provided for an earnout of up to $2.0 million potentially being paid out over 2026 and 2027. Consolidated Mechanical serves the heavy industrial, power and commercial markets. Consolidated Mechanical is a premier provider of mechanical, millwright, steel fabrication, plumbing construction, maintenance, and outage services to owners of complex process systems in the industrial sector. The acquisition extends the Company's reach into the industrial sector, with new exposure to the power generation, food processing, manufacturing, and metal markets in Kentucky, Illinois and Michigan.
On September 3, 2024, the Company completed an acquisition of Laurel, MD-based specialty mechanical contractor, Kent Island Mechanical, LLC ("Kent Island"), for a purchase price at closing of $15.0 million. The transaction also provided for an earnout of up to $5.0 million potentially being paid out over 2025 and 2026. Kent Island is a leading provider of building systems solutions in the Greater Washington, DC metro area, including suburban Maryland and Northern Virginia. Kent Island excels in designing, engineering, installing, servicing, and maintaining mechanical and plumbing systems for complex facilities. The acquisition expands the Company's market share within its existing operating footprint, provides further exposure to an attractive customer base and supports the Company's continued ODR growth strategy.
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 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 September 30, 2025 and 2024
The following table presents operating results for the three months ended September 30, 2025 and 2024 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:
| Three Months Ended September 30, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| ODR | $ | 141,382 | 76.6 | % | $ | 93,007 | 69.4 | % | |||||||||||||||||||||
| GCR | 43,201 | 23.4 | % | 40,913 | 30.6 | % | |||||||||||||||||||||||
| Total revenue | 184,583 | 100.0 | % | 133,920 | 100.0 | % | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||||||||
| ODR | 35,679 | 25.2 | % |
(1)
|
29,647 | 31.9 | % |
(1)
|
|||||||||||||||||||||
| GCR | 9,006 | 20.8 | % |
(2)
|
6,467 | 15.8 | % |
(2)
|
|||||||||||||||||||||
| Total gross profit | 44,685 | 24.2 | % | 36,114 | 27.0 | % | |||||||||||||||||||||||
|
Selling, general and administrative(3)
|
28,330 | 15.3 | % | 23,748 | 17.7 | % | |||||||||||||||||||||||
| Acquisition-related retention expense and contingent consideration | 610 | 0.3 | % | 610 | 0.5 | % | |||||||||||||||||||||||
| Amortization of intangibles | 2,400 | 1.3 | % | 868 | 0.6 | % | |||||||||||||||||||||||
| Total operating income | 13,345 | 7.2 | % | 10,888 | 8.1 | % | |||||||||||||||||||||||
| Other income | (790) | (0.4) | % | (10) | - | % | |||||||||||||||||||||||
| Total income before income taxes | 12,555 | 6.8 | % | 10,878 | 8.1 | % | |||||||||||||||||||||||
| Income tax provision | 3,767 | 2.0 | % | 3,394 | 2.5 | % | |||||||||||||||||||||||
| Net income | $ | 8,788 | 4.8 | % | $ | 7,484 | 5.6 | % | |||||||||||||||||||||
(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 September 30, 2025 and 2024, respectively.
Revenue
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| ODR | $ | 141,382 | $ | 93,007 | $ | 48,375 | 52.0 | % | |||||||||||||||
| GCR | 43,201 | 40,913 | 2,288 | 5.6 | % | ||||||||||||||||||
| Total revenue | $ | 184,583 | $ | 133,920 | $ | 50,663 | 37.8 | % | |||||||||||||||
Revenue for the three months ended September 30, 2025 increased by $50.7 million, or 37.8%, to $184.6 million, compared to $133.9 million for the three months ended September 30, 2024. The increase in revenue was primarily attributable to both growth within the Company's existing operations and the impact of recent acquisitions completed in the second half of 2024 and July 2025.
ODR revenue for the three months ended September 30, 2025 increased by $48.4 million, or 52.0%, to $141.4 million, compared to $93.0 million for the three months ended September 30, 2024. This increase was primarily attributable to the Company's continued focus on the accelerated growth of its ODR business and as a result of the Pioneer Power, Consolidated
Mechanical and Kent Island transactions. These acquisitions contributed approximately $37.1 million in ODR revenue in the current period.
GCR revenue for the three months ended September 30, 2025 increased by $2.3 million, or 5.6%, to $43.2 million, compared to $40.9 million for the three months ended September 30, 2024. The increase in period-over-period GCR segment revenue was primarily associated with the operations of Pioneer Power and Kent Island, partially offset by the Company's continued focus on the execution of its mix-shift strategy to ODR. These acquisitions contributed approximately $10.3 million in GCR revenue in the current period.
Gross Profit
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||
| ODR | $ | 35,679 | $ | 29,647 | $ | 6,032 | 20.3 | % | |||||||||||||||
| GCR | 9,006 | 6,467 | 2,539 | 39.3 | % | ||||||||||||||||||
| Total gross profit | $ | 44,685 | $ | 36,114 | $ | 8,571 | 23.7 | % | |||||||||||||||
| Total gross profit as a percentage of total revenue | 24.2 | % | 27.0 | % | |||||||||||||||||||
The Company's gross profit for the three months ended September 30, 2025 increased by $8.6 million, or 23.7%, compared to the three months ended September 30, 2024. ODR gross profit increased $6.0 million, or 20.3%, due to an increase in revenue despite lower segment margins of 25.2% versus 31.9%. The decrease in ODR segment margins was primarily attributable to the impact of Pioneer Power, which operates at a lower gross margin profile relative to the Company's legacy ODR operations. Management is focused on aligning the acquired Pioneer Power operations with the Company's broader operating model to improve profitability over time. GCR gross profit increased $2.5 million, or 39.3%, due to an increase in revenue and higher segment margins of 20.8% compared to 15.8% period-over-period. The total gross profit percentage decreased from 27.0% for the three months ended September 30, 2024 to 24.2% for the same period ended in 2025, mainly driven by the decrease in ODR gross margins due to the lower gross margin profile of Pioneer Power, which was also partially offset by the Company continuing to be more selective when pursuing GCR work.
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 $0.5 million or more during the three months ended September 30, 2025 and 2024.
Selling, General and Administrative
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Selling, general and administrative | $ | 28,330 | $ | 23,748 | $ | 4,582 | 19.3 | % | |||||||||||||||
| Total selling, general and administrative as a percentage of total revenue | 15.3 | % | 17.7 | % | |||||||||||||||||||
The Company's SG&A expense for the three months ended September 30, 2025 increased by approximately $4.6 million, or 19.3%, compared to the three months ended September 30, 2024. The Company's SG&A expense for the three months ended September 30, 2025 increased primarily due to a $2.3 million increase in payroll related expenses, a $1.5 million aggregate increase in SG&A-related expenses associated with Pioneer Power and Consolidated Mechanical, and a $0.4 million increase in non-cash stock-based compensation expenses. Pioneer Power and Consolidated Mechanical were not acquired entities of the Company during the three months ended September 30, 2024. Although SG&A expense increased period-over-period, SG&A expense as a percentage of revenue decreased to 15.3% for the three months ended September 30, 2025 as compared to 17.7% for the three months ended September 30, 2024 primarily due to the increased revenue in the third quarter of 2025 as a result of the Pioneer Power acquisition.
Acquisition-related Retention Expense and Contingent Consideration
Acquisition-related retention and contingent consideration expenses were $0.6 million for both the three months ended September 30, 2025 and 2024. These expenses for the three months ended September 30, 2025 included $0.3 million of retention-related expense associated with the Pioneer Power Transaction, which did not occur in the prior-year period. In addition, the Company recognized a $0.3 million increase in the fair value of contingent consideration during the current quarter, compared to a $0.6 million increase in the fair value of contingent consideration during the three months ended September 30, 2024.
As part of the acquisition of Pioneer Power, the Company entered into retention agreements with 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. The change in fair value of contingent consideration reflects updated estimates of the acquired business's projected performance relative to the earnout targets established at the time of acquisition. 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
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Amortization of intangibles | $ | 2,400 | $ | 868 | $ | 1,532 | 176.5 | % | |||||||||||||||
Total amortization expense for the three months ended September 30, 2025 and 2024 was $2.4 million and $0.9 million, respectively. The period-over-period increase in amortization expense was a result of the Pioneer Power and Consolidated Mechanical acquisitions, which resulted in higher amortization expense in the current year period as the related intangible assets from the acquisitions were not included in the prior-year comparative 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
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||||||||
| (in thousands except for percentages) | ||||||||||||||||||||||||||
| Other (expenses) income: | ||||||||||||||||||||||||||
| Interest expense | $ | (1,223) | $ | (468) | $ | (755) | 161.3 | % | ||||||||||||||||||
| Interest income | 88 | 626 | (538) | (85.9) | % | |||||||||||||||||||||
| Gain on disposition of property and equipment | 367 | 99 | 268 | 270.7 | % | |||||||||||||||||||||
| Loss on change in fair value of interest rate swap | (22) | (267) | 245 | (91.8) | % | |||||||||||||||||||||
| Total other (expenses) income | $ | (790) | $ | (10) | $ | (780) | 7,800.0 | % | ||||||||||||||||||
Total other expenses for the three months ended September 30, 2025 increased approximately $0.8 million as compared to the three months ended September 30, 2024. The change period-over-period was primarily driven by a $0.8 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, as well as a $0.5 million decrease in interest income due to reduced cash and cash equivalent balances period-over-period and lower yields on invested balances. Partially offsetting these changes was a $0.3 million increase in gains associated with the disposition of certain property and equipment as part of the Company's ongoing asset management and fleet optimization efforts and a lower loss recognized in connection with the change in fair value of the Company's interest rate swap arrangement.
Income Taxes
The Company recorded an income tax provision of $3.8 million for the three months ended September 30, 2025 compared to $3.4 million for the three months ended September 30, 2024. The effective tax rate was 30.0% and 31.2% for the three months ended September 30, 2025 and 2024, 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.
Comparison of Results of Operations for the nine months ended September 30, 2025 and 2024
The following table presents operating results for the nine months ended September 30, 2025 and 2024 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| ODR | $ | 340,723 | 74.1 | % | $ | 250,017 | 66.6 | % | |||||||||||||||||||||
| GCR | 119,209 | 25.9 | % | 125,114 | 33.4 | % | |||||||||||||||||||||||
| Total revenue | 459,932 | 100.0 | % | 375,131 | 100.0 | % | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||||||||
| ODR | 93,429 | 27.4 | % |
(1)
|
77,170 | 30.9 | % |
(1)
|
|||||||||||||||||||||
| GCR | 27,801 | 23.3 | % |
(2)
|
23,540 | 18.8 | % |
(2)
|
|||||||||||||||||||||
| Total gross profit | 121,230 | 26.4 | % | 100,710 | 26.8 | % | |||||||||||||||||||||||
|
Selling, general and administrative(3)
|
81,480 | 17.7 | % | 69,800 | 18.6 | % | |||||||||||||||||||||||
| Acquisition-related retention expense and contingent consideration | 1,832 | 0.4 | % | 2,344 | 0.6 | % | |||||||||||||||||||||||
| Amortization of intangibles | 6,020 | 1.3 | % | 2,956 | 0.8 | % | |||||||||||||||||||||||
| Total operating income | 31,898 | 6.9 | % | 25,610 | 6.8 | % | |||||||||||||||||||||||
| Other income | (588) | (0.1) | % | 885 | 0.2 | % | |||||||||||||||||||||||
| Total income before income taxes | 31,310 | 6.8 | % | 26,495 | 7.1 | % | |||||||||||||||||||||||
| Income tax provision | 4,546 | 1.0 | % | 5,462 | 1.5 | % | |||||||||||||||||||||||
| Net income | $ | 26,764 | 5.8 | % | $ | 21,033 | 5.6 | % | |||||||||||||||||||||
(1)As a percentage of ODR revenue.
(2)As a percentage of GCR revenue.
(3)Included within selling, general and administrative expenses was $5.2 million and $4.3 million of non-cash stock-based compensation expense for the nine months ended September 30, 2025 and 2024, respectively.
Revenue
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| ODR | $ | 340,723 | $ | 250,017 | $ | 90,706 | 36.3 | % | |||||||||||||||
| GCR | 119,209 | 125,114 | (5,905) | (4.7) | % | ||||||||||||||||||
| Total revenue | $ | 459,932 | $ | 375,131 | $ | 84,801 | 22.6 | % | |||||||||||||||
Revenue for the nine months ended September 30, 2025 increased by $84.8 million, or 22.6%, to $459.9 million, compared to $375.1 million for the nine months ended September 30, 2024. The increase in revenue was primarily attributable to both growth within the Company's existing operations and the impact of recent acquisitions completed in the second half of 2024 and middle of 2025.
ODR revenue for the nine months ended September 30, 2025 increased by $90.7 million, or 36.3%, to $340.7 million, compared to $250.0 million for the nine months ended September 30, 2024. The increase in period-over-period ODR segment revenue was primarily due to the Company's continued focus on the accelerated growth of its ODR business and as a result of the Pioneer Power, Consolidated Mechanical and Kent Island transactions. These acquisitions contributed approximately $54.8 million in ODR revenue in the current period.
GCR revenue for the nine months ended September 30, 2025 decreased by $5.9 million, or 4.7%, to $119.2 million, compared to $125.1 million for the nine months ended September 30, 2024. The decrease in period-over-period GCR segment revenue was primarily due to the Company's continued focus on the execution of its mix-shift strategy to ODR, partially offset by an increase in GCR revenue associated with the operations of Kent Island and Pioneer Power. These acquisitions contributed approximately $21.4 million in GCR in the current period.
Gross Profit
|
Nine Months Ended September 30,
|
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| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Gross profit: | |||||||||||||||||||||||
| ODR | $ | 93,429 | $ | 77,170 | $ | 16,259 | 21.1 | % | |||||||||||||||
| GCR | 27,801 | 23,540 | 4,261 | 18.1 | % | ||||||||||||||||||
| Total gross profit | $ | 121,230 | $ | 100,710 | $ | 20,520 | 20.4 | % | |||||||||||||||
| Total gross profit as a percentage of total revenue | 26.4 | % | 26.8 | % | |||||||||||||||||||
The Company's gross profit for the nine months ended September 30, 2025 increased by $20.5 million, or 20.4%, compared to the nine months ended September 30, 2024. ODR gross profit increased $16.3 million, or 21.1%, due to an increase in revenue despite lower segment margins of 27.4% versus 30.9% resulting from certain ODR-related project write-ups recognized in 2024 that did not reoccur in the current year. In addition, gross margins continue to reflect the ongoing integration of acquired companies as the Company transitions them to its standardized revenue growth structure and margin recognition framework. GCR gross profit increased $4.3 million, or 18.1%, due to higher margins on project work period-over-period despite lower revenue. The total gross profit percentage decreased slightly from 26.8% for the nine months ended September 30, 2024 to 26.4% for the same period ended in 2025, mainly driven by the decrease in ODR gross margins due to the lower gross margin profile of Pioneer Power which was also partially offset by the Company continuing to be more selective when pursuing GCR work.
The Company recorded revisions in its contract estimates for certain ODR and GCR projects. During the nine months ended September 30, 2025, the Company recorded material gross profit write-ups on two GCR projects for a total of $1.5 million that had a net gross profit impact of $0.5 million or more. The Company did not record any material gross profit write-downs that had a net gross profit impact of $0.5 million or more during the nine months ended September 30, 2025. During the nine months ended September 30, 2024, the Company recorded material gross profit write-ups on four ODR projects and two GCR projects for a total of $3.9 million and $1.5 million, respectively, and one GCR project gross profit write-down for a total of $0.6 million that had a net gross profit impact of $0.5 million or more.
Selling, General and Administrative
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Selling, general and administrative | $ | 81,480 | $ | 69,800 | $ | 11,680 | 16.7 | % | |||||||||||||||
| Total selling, general and administrative as a percentage of total revenue | 17.7 | % | 18.6 | % | |||||||||||||||||||
The Company's SG&A expense for the nine months ended September 30, 2025 increased by approximately $11.7 million, or 16.7%, compared to the nine months ended September 30, 2024. The Company's SG&A expense for the nine months ended September 30, 2025 mainly increased due to a $5.1 million increase in payroll related expenses, an aggregate $2.5 million increase in SG&A-related expenses associated with certain entities that were acquired in the second half of 2024 and mid-2025 for which there is no comparable period results, a $1.8 million increase in professional services fees including those incurred with the successful acquisition of Pioneer Power on July 1, 2025, a $0.8 million increase in non-cash stock-based compensation expenses and a $0.3 million increase in travel and entertainment related expenses. Although SG&A expense increased period-over-period, SG&A expense as a percentage of revenue decreased to 17.7% for the nine months ended September 30, 2025 as compared to 18.6% for the nine months ended September 30, 2024 primarily due to the increased revenue in the third quarter of 2025 as a result of the Pioneer Power acquisition.
Acquisition-related Retention Expense and Contingent Consideration
Acquisition-related retention and contingent consideration expenses were $1.8 million for the nine months ended September 30, 2025, compared to $2.3 million for the nine months ended September 30, 2024. These expenses for the nine months ended September 30, 2025 included $0.3 million of retention-related expense associated with the Pioneer Power Transaction, which did not occur in the prior-year period. In addition, the Company recognized a $1.5 million increase in the fair value of contingent consideration during the nine months ended September 30, 2025, compared to a $2.3 million increase in the fair value of contingent consideration during the nine months ended September 30, 2024.
As part of the acquisition of Pioneer Power, the Company entered into retention agreements with 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. The change in fair value of contingent consideration reflects updated estimates of the acquired business's projected performance relative to the earnout targets established at the time of acquisition. 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
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||
| 2025 | 2024 | Increase/(Decrease) | |||||||||||||||||||||
| (in thousands except for percentages) | |||||||||||||||||||||||
| Amortization of intangibles | $ | 6,020 | $ | 2,956 | $ | 3,064 | 103.7 | % | |||||||||||||||
Total amortization expense for the nine months ended September 30, 2025 and 2024 was $6.0 million and $3.0 million, respectively. The period-over-period increase in amortization expense was a result of the Pioneer Power, Consolidated Mechanical and Kent Island acquisitions, which resulted in higher amortization expense in the current year period as the related intangible assets from the acquisitions were not included in, or were included for only a portion of, the prior-year comparative 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
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||||||||
| (in thousands except for percentages) | ||||||||||||||||||||||||||
| Other (expenses) income: | ||||||||||||||||||||||||||
| Interest expense | $ | (2,312) | $ | (1,375) | $ | (937) | 68.1 | % | ||||||||||||||||||
| Interest income | 792 | 1,734 | (942) | (54.3) | % | |||||||||||||||||||||
| Gain on disposition of property and equipment | 1,107 | 656 | 451 | 68.8 | % | |||||||||||||||||||||
| Loss on change in fair value of interest rate swap | (175) | (130) | (45) | 34.6 | % | |||||||||||||||||||||
| Total other (expenses) income | $ | (588) | $ | 885 | $ | (1,473) | (166.4) | % | ||||||||||||||||||
Total other expenses for the nine months ended September 30, 2025 was approximately $0.6 million as compared to total other income of $0.9 million for the nine months ended September 30, 2024. The change period-over-period was primarily driven by a $0.9 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, as well as a $0.9 million decrease in interest income due to reduced cash and cash equivalent balances period-over-period and lower yields on invested balances. Partially offsetting these changes was a $0.5 million increase in gains associated with the disposition of certain property and equipment as part of the Company's ongoing asset management and fleet optimization efforts.
Income Taxes
The Company recorded an income tax provision of $4.5 million for the nine months ended September 30, 2025 compared to $5.5 million for the nine months ended September 30, 2024. The effective tax rate was 14.5% and 20.6% for the nine months ended September 30, 2025 and 2024, 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 nine months ended September 30, 2025 and 2024 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 53.5% and 35.1% for the three months ended March 31, 2025 and 2024 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.
The Company's ODR backlog as of September 30, 2025 was $241.6 million compared to $225.3 million as of December 31, 2024. These amounts reflect unrecognized revenue expected to be recognized over the remaining terms of its service contracts and projects. Based on historical trends, the Company currently estimates that 44% of its ODR backlog as of September 30, 2025 will be recognized as revenue over the remainder of 2025. The Company's ODR backlog increased due to its continued focus on the accelerated growth of its ODR business and as a result of backlog contributions resulting from the Pioneer Power Transaction.
The Company's GCR backlog as of September 30, 2025 was $121.2 million compared to $140.0 million at December 31, 2024. 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 it 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 31% of its GCR backlog as of September 30, 2025 will be recognized as revenue over the remainder of 2025. 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 is closely monitoring evolving macroeconomic conditions and heightened geopolitical risks. During the first nine months of 2025, there was a marked increase in economic and trade policy uncertainty globally. Rising trade tensions and changes to trade policy could adversely impact global growth and contribute to inflationary pressures. Global conflicts, tariffs, labor disruptions, and regulations continue to generate volatility in markets and can contribute to supply chain vulnerabilities and pricing fluctuations. The Company remains proactive in its collaboration with suppliers to mitigate potential shortages and reduce supply and price volatility. The Company anticipates a higher level of uncertainty with respect to inflation and other macroeconomic trends for the foreseeable future.
While the impact of these factors remains uncertain, the Company continues to evaluate the extent to which they may impact its business, financial condition or results of operations. There can be no assurance that the Company's actions will serve to mitigate such impacts in future periods. In periods of economic uncertainty, businesses and organizations may delay or cancel large capital projects, such as new construction or major mechanical system upgrades. The Company's service contracts and maintenance work often remain stable or even increase, as customers prioritize maintaining existing systems over capital-
intensive replacements. Further, economic downturns may lead to increased competition and pricing pressures, impacting revenue and margins. The Company believes that its diversified customer offerings reduce its exposure to market volatility. While the Company believes its remaining performance obligations are firm, and its customers have not provided the Company with indications that they no longer wish to proceed with planned projects, prolonged delays in the receipt of critical equipment could result in the Company's customers seeking to terminate existing or pending agreements. Any of these events could have a material adverse effect on the Company's business, financial condition and/or results of operations.
In addition, in October 2025, portions of the U.S. federal government experienced a partial shutdown due to the lapse in appropriations. While the ultimate duration and scope of the shutdown remain uncertain, potential impacts on the Company may include delays in the approval and funding of federally sponsored projects, interruptions in the issuance of new contracts, and deferred decision-making by government agencies. To date, the Company has not experienced a material impact on its operations or financial results as a direct result of the U.S. federal government partial shutdown. The Company continues to monitor developments closely and remains focused on mitigating any potential near-term disruptions arising from the shutdown.
Outlook for 2025
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. For 2025, the key objectives of the Company's strategy are and have been to i) improve profitability and generate quality growth in its operations by shifting to the ODR segment; ii) expand margins through evolved offerings, and iii) scale the business through acquisitions. To accomplish these objectives, the Company has been and currently is executing the following initiatives:
In focusing on improved profitability and generating quality growth in its operation, the Company has dedicated and continues to dedicate, its resources toward the growth of its ODR segment as the scope of offerings provided within the Company's ODR segment typically yield higher margins when compared to its GCR segment work. During fiscal year 2023, the Company eclipsed its ODR-related revenue target, generating a 50/50 segment revenue mix. For 2024, the Company further expanded its growth within the ODR segment where it generated 66.6% of total consolidated revenue, achieving its 2024 ODR segment revenue target of 65-70%. Through the nine months ended September 30, 2025, the Company's ODR segment increased as a percentage of total consolidated revenue to 74.1%, which is currently in line with its 2025 target of 70%-80%. The Company believes it maintains a disciplined approach, capable of providing a full life-cycle of engineered solutions and craft expertise enabling it to be a one-stop-shop for building owners. The Company continues to make investments to expand its ODR revenue by increasing the value it can offer to building owners and continues to evaluate areas in which it could expand the breadth of its offerings to better serve its customers. In addition, the Company continues to expand its owner-direct offerings to include other digital solutions to manage and monitor the performance of building systems, including data analytics, energy consumption and sustainability. These services allow the Company to develop new revenue streams, leveraging its professional services capabilities to support multi-location regional and national customers in core end-markets, and to drive energy retrofit and performance optimization projects for building owners.
In the Company's GCR segment, its efforts continue to focus on improving project execution and profitability by pursuing opportunities that are smaller in size and shorter in duration than they have been historically, and where it can leverage its captive design and engineering services. The Company believes that it is appropriate in the current contracting environment to reduce risk and exposure to large, complex, non-owner direct projects where the trend has been for such jobs to provide risks that are difficult to mitigate. Currently, management believes the historical industry pricing and associated risks for this type of work does not align with the Company's stakeholders' expectations, and therefore, the Company continues to take steps to actively reduce these risks as it looks at future job selection and as it completes current jobs.
The Company continues to focus on expanding its margins by evolving and enhancing its current offerings 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 designed 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 one-stop-shop 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. In addition, by evolving its offerings, the Company is able to capture a greater share of the value chain.
Additionally, the Company believes that it can further increase its cash flow and operating income by acquiring strategically synergistic companies that will increase the Company's geographic footprint, supplement the Company's current business model, address capability gaps and enhance the breadth of its offerings to better serve its customers. The Company has
dedicated and continues to dedicate its resources to seek opportunities to acquire and integrate businesses that have attractive market positions, supports the Company's ODR growth strategy, expands and/or supplements the Company's current breadth of offerings and is culturally compatible. As discussed in Note 3, on July 1, 2025, the Company completed an acquisition of Woodbury, Minnesota-based mechanical contractor, Pioneer Power, which is a provider of industrial and institutional mechanical solutions serving healthcare, food, power/utility, oil refining and other select end markets in the greater Twin Cities region of Minnesota and upper Midwest region. Pioneer Power serves owners of mission critical facilities and leverages exceptional industrial piping, HVAC and plumbing capabilities to execute complex facility shutdowns and turnarounds, capital projects, facility expansions, renovation and retrofit opportunities, and reoccurring industrial maintenance services. The acquisition of Pioneer Power aligns the Company's ODR-centric focus, and further expands the Company's footprint in the core Midwest region and extends its reach into new geographic markets in the Upper Midwest. In addition, see Note 3 for further information on the Company's most recent acquisition activity.
Given the broad suite of offerings to customers within the Company's market concentrations, management uses a variety of factors to attempt to predict the outlook for the Company. The Company monitors key competitors and customers in order to gauge relative performance and the outlook for the future. The Company regularly performs detailed evaluations of different market verticals in which it serves to proactively detect trends and to adapt its strategies accordingly, including potential triggers and actions to be taken under recessionary scenarios.
The Company continues to monitor the impact that the inflationary cost environment has on its cost structure. Although global supply chain and resource constraints have improved throughout the year, the Company's performance may be impacted by future developments that are uncertain. In addition, geopolitical risks and macroeconomic events could cause disruptions to operations, supply chains and end markets, tightening credit conditions, higher interest rates, global banking uncertainty and the possibility of deteriorating overall economic conditions which could negatively impact the Company's business.
Seasonality, Cyclicality and Quarterly Trends
Severe weather can impact the Company's operations. In the northern climates where it operates, and to a lesser extent the southern climates as well, severe winters can slow the Company's productivity on construction projects, which shifts revenue and gross profit recognition to a later period. The Company's maintenance operations may also be impacted by mild or severe weather. Mild weather tends to reduce demand for its maintenance services, whereas severe weather may increase the demand for its maintenance and time-and-materials services. The Company's operations also experience mild cyclicality, as building owners typically work through maintenance and capital projects at an increased level during the third and fourth calendar quarters of each year.
Effect of Inflation and Tariffs
The prices of products such as steel, pipe, copper and equipment from manufacturers are subject to fluctuation and increases. It is difficult to accurately measure the impact of inflation, tariffs and price escalation due to the imprecise nature of the estimates required. However, these effects are, at times, material to the Company's results of operations and financial condition. The Company has at times experienced higher cost of materials on specific projects and delays in its supply chain for equipment and service vehicles from the manufacturers. When appropriate, the Company includes cost escalation factors into its bids and proposals, and limits the acceptance time of its bid. In addition, the Company is often able to mitigate the impact of future price increases by entering into fixed price purchase orders for materials and equipment and subcontracts on its projects. Notwithstanding these efforts, if the Company experiences significant disruptions to its supply chain, it may need to delay certain projects that would otherwise be accretive to its business, and this may also impact the conversion rate of its current backlog into revenue.
The Company continues to monitor recent and potential future developments in U.S. trade policy, particularly the imposition of tariffs on imported steel and aluminum products under Section 232 of the Trade Expansion Act of 1962. In 2025, the U.S. government announced and implemented several rounds of increased tariffs on steel and aluminum imports, including raising tariffs to 50% on certain products, as well as expanding the scope of coverage to include components and derivative goods. The higher cost of imported steel and aluminum has prompted domestic suppliers to raise their own prices for these inputs. These tariffs, along with any additional duties or trade restrictions that may be enacted by the United States or other countries, could increase costs, alter competitive dynamics and reduce the availability of steel, aluminum, resins and other imported components and materials. Because the Company's ODR segment typically operates on a short sales cycle, it can often pass cost increases on to the customers; however, the Company may be unable to offset all price increases or to secure adequate alternative sources of supply in a timely manner. Although retaliatory tariffs imposed by other countries on the United States have not yet had a material impact, future developments are uncertain, and the ultimate effect of current or future tariffs on the Company cannot be quantified at this time. Currently the environment related to both domestic and foreign tariffs is fluid and evolving and it is likely that such matters will continue to develop. Given that these matters have been hard to anticipate and are continuing to
evolve it is not practical for the Company to predict what, if any, impact these matters may have on the Company in the near and long term but as those matters develop it is possible that the imposition of tariffs and similar matters may impact the Company, and in some cases in material ways.
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:
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net cash provided by (used in): | ||||||||||||||
| Operating activities | $ | 17,571 | $ | 17,494 | ||||||||||
| Investing activities | (67,905) | (17,725) | ||||||||||||
| Financing activities | 15,222 | (8,439) | ||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (35,112) | $ | (8,670) | ||||||||||
| Noncash investing and financing transactions: | ||||||||||||||
| Kent Island Transaction, measurement period adjustment | $ | (94) | $ | - | ||||||||||
| Earnout liability associated with the Kent Island Transaction | - | 4,381 | ||||||||||||
| Right of use assets obtained in exchange for new operating lease liabilities | 2,317 | 4,776 | ||||||||||||
| Right of use assets obtained in exchange for new finance lease liabilities | 13,475 | 3,095 | ||||||||||||
| Right of use assets disposed or adjusted modifying finance lease liabilities | - | 988 | ||||||||||||
| Interest paid | 2,327 | 1,413 | ||||||||||||
| Cash paid for income taxes | $ | 4,663 | $ | 4,700 | ||||||||||
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 September 30, 2025 and December 31, 2024, but adverse changes in the economic environment may impact certain of its customers' ability to access capital and compensate the Company for its services, as well as impact project activity for the foreseeable future.
The Company's existing current backlog is projected to provide considerable coverage 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) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Current assets | $ | 216,819 | $ | 220,334 | ||||||||||
| Current liabilities | (151,230) | (151,037) | ||||||||||||
| Net working capital | $ | 65,589 | $ | 69,297 | ||||||||||
|
Current ratio (1)
|
1.43 | 1.46 | ||||||||||||
(1)Current ratio is calculated by dividing current assets by current liabilities.
As discussed above and in Note 6, as of September 30, 2025, the Company was in compliance with all financial maintenance covenants as required by its credit facility.
Cash Flows Provided by Operating Activities
The following is a summary of the significant sources (uses) of cash from operating activities:
| Nine Months Ended September 30, | |||||||||||||||||
|
(in thousands)
|
2025 | 2024 | Cash Inflow (outflow) | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 26,764 | $ | 21,033 | $ | 5,731 | |||||||||||
|
Non-cash operating activities(1)
|
23,738 | 17,246 | 6,492 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | (4,743) | 4,283 | (9,026) | ||||||||||||||
| Contract assets | (1,041) | (1,115) | 74 | ||||||||||||||
| Other current assets | (3,565) | (395) | (3,170) | ||||||||||||||
| Accounts payable, including retainage | (2,972) | (18,418) | 15,446 | ||||||||||||||
| Prepaid income taxes | (44) | - | (44) | ||||||||||||||
| Accrued taxes payable | (1,470) | 1,311 | (2,781) | ||||||||||||||
| Contract liabilities | (13,753) | 10 | (13,763) | ||||||||||||||
| Operating lease liabilities | (2,964) | (2,895) | (69) | ||||||||||||||
| Accrued expenses and other current liabilities | (1,375) | (1,446) | 71 | ||||||||||||||
| Payment of contingent consideration liability in excess of acquisition-date fair value | (711) | (2,175) | 1,464 | ||||||||||||||
| Other long-term liabilities | (293) | 55 | (348) | ||||||||||||||
| Cash used in working capital | (32,931) | (20,785) | (12,146) | ||||||||||||||
| Net cash provided by operating activities | $ | 17,571 | $ | 17,494 | $ | 77 | |||||||||||
(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, changes in fair value of contingent consideration and changes in the fair value of the Company's interest rate swap.
During the nine months ended September 30, 2025, the Company generated $17.6 million in cash from its operating activities, which consisted of net income of $26.8 million and certain non-cash adjustments of $23.7 million, partly offset by cash used in working capital of $32.9 million. During the nine months ended September 30, 2024, the Company generated $17.5 million from its operating activities, which consisted of net income of $21.0 million and certain non-cash adjustments of $17.2 million, partly offset by cash used in working capital of $20.8 million.
The change in operating cash flows during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was relatively flat. The Company recognized a $5.7 million period-over-period increase in net income, a $15.4 million period-over-period increase in cash inflow related to the change in accounts payable, including retainage, which was due to the timing of cash payments and a $6.5 million increase in cash inflow related to the change in non-cash operating activities. Partially offsetting these cash inflows was an $13.7 million period-over-period cash outflow related to the aggregate change in the Company's contract assets and liabilities due to the timing of billings that impacted changes in working capital
and a $9.0 million period-over-period cash outflow related to the change in accounts receivable, which was due to the timing of cash receipts.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $67.9 million and $17.7 million for the nine months ended September 30, 2025 and 2024, respectively. Cash used in investing activities for the nine months ended September 30, 2025 included a cash outflow of $65.7 million associated with the Pioneer Power Transaction, net of cash acquired, and a cash outflow of $3.6 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 $1.3 million in proceeds from the sale of property and equipment. Cash used in investing activities for the nine months ended September 30, 2024 included a cash outflow of $12.7 million associated with the Kent Island Transaction, net of cash acquired, and $6.2 million in cash outflows related to the purchase of property and equipment, which was primarily associated with the purchase of certain rental equipment to expand customer service offerings. These cash outflows were partially offset by $1.2 million in proceeds from the sale of property and equipment.
Aside from the rental equipment purchases in 2025 and 2024, 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 $15.2 million for the nine months ended September 30, 2025 compared to cash flows used in financing activities of $8.4 million for the nine months ended September 30, 2024. During the nine months ended September 30, 2025, the Company borrowed $41.8 million on its revolving credit facility and recognized additional financing cash inflows of $6.3 million associated with the sale of shares to satisfy employee tax withholding requirements and $0.6 million associated with proceeds from employee contributions to the ESPP. These financing cash inflows were partially offset by $17.3 million of repayments on the Company's revolving credit facility, $10.7 million in taxes paid related to the net share settlement of equity awards, $3.1 million for payments on finance leases and 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.
During the nine months ended September 30, 2024, the Company paid approximately $5.2 million in taxes related to the net share settlement of equity awards, $2.3 million for payments on finance leases and made $3.5 million in aggregate payments to the former owners of JMLLC, CSLLC and ACME related to their respective 2023 earnout arrangements, of which $1.3 million was recognized as a cash outflow from financing activities. These cash financing outflows were partially offset by $0.4 million associated with proceeds from employee contributions to the ESPP.
The following table reflects our available funding capacity, subject to covenant restrictions, as of September 30, 2025:
| (in thousands) | ||||||||||||||
|
Cash & cash equivalents(1)
|
$ | 9,818 | ||||||||||||
| Credit agreement: | ||||||||||||||
|
A&R Wintrust Revolving Loans(2)
|
$ | 100,000 | ||||||||||||
|
Outstanding borrowings on the A&R Wintrust Revolving Loans(3)
|
(34,501) | |||||||||||||
| Outstanding letters of credit | (5,055) | |||||||||||||
| Net credit agreement capacity available | 60,444 | |||||||||||||
| Total available funding capacity | $ | 70,262 | ||||||||||||
(1)The Company considers all highly liquid investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of September 30, 2025 consisted of certain overnight repurchase agreements.
(2)On June 27, 2025, LFS, LHLLC, and other designated parties entered into the Second Amendment to the Second A&R Wintrust Credit Agreement with Wintrust, as administrative agent, and the other lenders party thereto. The Second Amendment to the Second A&R Wintrust Credit Agreement provides for, among other things, an upsize of the aggregate principal amount of the senior secured revolving credit facility from $50.0 million to $100.0 million. See Note 6 for further discussion.
(3)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 nine months ended September 30, 2025. 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 $9.8 million as of September 30, 2025, 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 $60.4 million of availability as of September 30, 2025) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.
Debt and Related Obligations
Long-term debt consists of the following obligations as of:
| (in thousands) | September 30, 2025 | December 31, 2024 | |||||||||
| A&R Wintrust Revolving Loans | 34,501 | 10,000 | |||||||||
|
Finance leases - collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 3.96% to 8.60% through 2031
|
22,036 | 11,888 | |||||||||
| Financing liability | 5,351 | 5,351 | |||||||||
| Total debt | 61,888 | 27,239 | |||||||||
| Less - Current portion of long-term debt | (5,255) | (3,314) | |||||||||
| Less - Unamortized discount and debt issuance costs | (358) | (371) | |||||||||
| Long-term debt | $ | 56,275 | $ | 23,554 | |||||||
On June 27, 2025, LFS, LHLLC, and other designated parties entered into the Second Amendment to the Second A&R Wintrust Credit Agreement with Wintrust, as administrative agent, and the other lenders party thereto, which amends that certain Second A&R Wintrust Credit Agreement, dated as of May 5, 2023 (as amended by that certain First Amendment to the Second A&R Wintrust Credit Agreement, dated as of March 13, 2024). The Second Amendment to the Second A&R Wintrust Credit Agreement provides for, among other things, (i) an upsize of the aggregate principal amount of the senior secured revolving credit facility from $50.0 million to $100.0 million, (ii) modifying the definition of "L/C Sublimit" to increase the sublimit for the issuance of letters of credit from $10.0 million to $20.0 million, (iii) an extension of the revolving credit scheduled maturity date from February 24, 2028 to July 1, 2030, (iv) a decrease in the applicable margins for Term SOFR and Prime Rate (each defined in the Second Amendment to the Second A&R Wintrust Credit Agreement) revolving loans as determined with reference to LFS's Senior Leverage Ratio (as defined in the Second Amendment to the Second A&R Wintrust Credit Agreement), (v) a term loan conversion feature, allowing LFS, subject to certain conditions, to convert outstanding revolving loans into one or more term loan tranches, (vi) the removal of certain covenant requirements, specifically in relation to LFS's Borrowing Base, as formerly defined in the Second A&R Wintrust Credit Agreement, and (vii) modification to certain defined terms to reflect updated operational and financial terms. See Note 6 for further discussion.
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 September 30, 2025 and December 31, 2024, the Company had approximately $111.0 million and $109.3 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 for further discussion.
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 for further discussion.
Multiemployer Pension Plans
The Company participates in approximately 60 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 September 30, 2025, 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, 2024.
Recent Accounting Pronouncements
See Note 2 to the Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.
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