Greetings. Welcome to the Limbach Holdings Fourth Quarter and Full Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Jeremy Hellman with the – of The Equity Group. Thank you. You may begin.

Thank you very much, and good morning everyone. Yesterday, Limbach Holdings issued the announcement of its 2018 fourth quarter and year-end financial results and filed its Form 10-K. The company will also be using a slide presentation to accompany this earnings call. The presentation can be found in the Investors section of the company website at www.limbachinc.com. The company encourages everyone to review the forward-looking statement disclosure on slide 2 of the presentation. With that, I'd like to turn the call over to Charlie Bacon, CEO of Limbach Holdings. Please go ahead, Charlie.

Thank you, Jeremy, and good morning to all. Welcome everyone, and thanks for joining us. Joining me today is our Chief Financial Officer, John Jordan. As Jeremy mentioned, we'll be using the presentation deck and we'll note the pages we are on. I'll be starting-off providing my executive summary, high-level business comments and highlighting several key initiatives. John will be providing detailed financial performance information. I'll come back after John's comments to provide our views of the market conditions and an initiative we're taking on around advanced prefabrication to deal with the pressing labor conditions. Slide 3 summarizes our agenda for our prepared remarks and we'll follow those with a question-and-answer period. Turning to slide 4. Starting with Q4, we had a terrific quarter, both the Construction and Service segments performed well with sales, revenue and operating income. The quarter was led by year-on-year revenue growth of 15.2% with EPS coming in at $0.44 per share, one of our strongest quarters. We are pleased with the results. Construction sales during the quarter were strong with both actual bookings at the backlog, including four significant health care projects and several new projects entering pre-construction that we referred to as promised projects, wrapped up the quarter with record backlog of $559.7 million, and had an additional $380 million of promised work that we plan to bring into formal backlog as those contract terms are finalized. Our Construction pipeline remains strong. I want to note, we were [targeting] [ph] sales through our available human capital resources, leveraging the talent we maintain in this heated construction market. We're very focused on controlling growth while maximizing gross margin. We continue to see improved margins and we don't see that letting up in the near-term. Please turn to slide 5. Our Service segment continues to perform…

Thanks, Charlie. Moving to slide 9, starting with the fourth quarter results, our revenues were up 15.2% to $151.4 million. Construction segment revenues of $118.3 million were up 9.6%, while Service segment revenues of $33.1 million were up 40.7%. Fourth quarter gross margin came in at 13%, which was down from 15.9% last year. The fourth quarter 2017 was a very strong quarter with significant upside recognized. As Charlie noted, we've closed out the D.C. United project and craft labor levels have returned to normal in Mid-Atlantic, so we're optimistic that we are moving past the write-down issues from 2018. D.C. United settlement is reflected in the 2018 results, although, the cash was not collected until 2019. We continue to pursue recovery of approximately $18.5 million of change orders and claims in Mid-Atlantic. We expect some of these to settle on and be collected in 2019 and some will carry over into 2020. SG&A expense in the fourth quarter was $14.4 million. That was down approximately $700,000 from a year ago as we recognized less incentive expense and reduced our outside professional fees. As a percentage of revenue, SG&A was 9.5% in the fourth quarter of 2018 versus 11.5% in the prior period. Net income for the fourth quarter was $3.4 million, or $0.44 per diluted share. That was up nicely from $1 million or $0.12 per diluted share a year ago. For the full year revenues grew 12.5% to $546.5 million. Growth was balanced as our construction revenues grew 12% to $438.2 million and service grew 14.8% to a segment record of $108.3 million. Full year gross margin was 10.9%, down from 13.5% in 2017. Gross margin in 2018 was negatively impacted by the net write-down to $16 million. As I noted a minute ago, we saw a very…

Thank you, John. I'll close with a few thoughts highlighted on slide 14 before opening up the call to your questions. First, we were very disappointed with the impacts we occurred due to the Mid-Atlantic setback in 2018, but it's behind us. We've made several moves to stay on top of our growth going forward. We've strengthened our leadership team, we're focused on operational excellence within our Construction segment and we will continue to see rapid expansion with our Service segment. We believe we may have a game-changing service strategy with our new technology offering I commented on earlier and our entry into large-scale data centers has huge potential. Concerning going-forward market conditions, we don't see any let-up in opportunities. Slide 15 and 16 contain the summary of market data you're used to seeing us provide. The nonresidential segment of the construction industry is projected to have 2% to 5% growth in 2019. The various sectors that make up the nonresidential space have various growth rates and we believe we are in the right sectors. We tracked the AIA Billing Index, the Dodge Momentum Index and FMI who publishes quarterly forecast of the various sectors and all are pointing to continued expansion for the near to midterm. Our core management plus we are being diversified with multiple market sectors is something we expect will allow the company to continue its growth even in a construction down-cycle. We may have to shift resources from one sector to another, but that's the beauty of how you diverse business. I want to make the investment community aware of one other initiative within the company. We have set up a team to work on where Limbach can go with prefabrication beyond what we do today. I believe Limbach is one of the leaders in the industry, when it comes to advancing lean management techniques and modular construction. The team has been tasked with researching what our next chapter should look like. Modular construction is starting to take off. Craft manpower is in short supply. We need to figure out how to build our systems with less manpower. We believe the answer is through advanced modular MEP components. The team is expected to deliver a business plan in the fall for consideration of an investment in 2020. We will update the investment community later in the year with our going-forward plan. Concerning guidance for 2019 as John mentioned, we want to apply our recent sales in Q1 to our forecast for the year. We do expect to see modest top line growth with our scaling back of the Mid-Atlantic business unit, normalized gross profit margins and some modest increased SG&A with our continued investment to support our growth. We will release guidance for 2019 with our Q1 results which we expect to report in about four weeks. Operator, let's open it up for questions.

Thank you. [Operator Instructions] Our first question is from Brent Thielman with D. A. Davidson. Please proceed.

Thank you. Good morning.

Good morning.

Charlie or John on the overall outlook and I know more is to come, but sort of kind of top line growth for the year, you had a really strong year in services in 2018. You've grown the business 15% each of the last couple of years. I guess at this point, are you comfortable saying that can you or do you plan to try to sustain that pace for that business in 2019?

Yes, there's good visibility. When we look at the sales momentum that we had in 2018 into Q1, things remain strong and there doesn't seem to be any let up in opportunity in the marketplace. So the service segment, we expect that growth to continue.

Okay. And, obviously, I know you've taken a step back in terms of pursuing your work in the Mid-Atlantic. At what point do you get more comfortable in terms of starting to build that region's backlog again?

Yeah, sure. Good question. On Friday I actually went down there and I had lunch with the business unit leader a rather remarkable individual. He's been in place now for five months. He's done a great job at executing his turnaround plan, and he has absolutely stabilized the business. We're cleaning up the old stuff and just wrapping up a couple of more jobs and we're done with the historic problem jobs. When we sat and we talked about his going forward plan, it’s very focused on how do we develop the right market sectors and customer clientele? The previous leadership really took on way too much as we all know and it was kind of not right pursuit. So as we go forward there, we have a great government sector there. We have a terrific health care sector. We have a terrific health care sector. And the idea is how do we rifle shoot and make sure we're going after the right projects, applying the talent that we have in the business as well as developing new talent? And let's go execute great work again. So they've had a very -- over the years a very historic profitable track record in that $60 million to $70 million to $80 million range. And when we cracked that $100 million figure, it was just too much work. We paid a severe price and we're chasing our money to recover. So at this point I'd say, we have the right leadership in place, we've stabilized the business and now we're stepping back, making sure we're assessing the market to go after the right opportunities. And our concept was we would not sell any new major work until after the first half of the year. And at this point we're starting to kindle those opportunities, Brent and get back in line with our past. There is sufficient backlog in that business to deliver a decent year here in 2019. We don't expect any terrific bottom line contribution, but we already plugged that into our earlier forecast we did for the year. So I think we're going to use the rest of this year to just make sure the business has stabilized, go after the right markets and we'll see a nice rebound in growth as we go into 2020.

Got it. That's helpful Charlie. And then I guess as a follow-up as you -- and again I know more is to come on the outlook, but the expectation for sort of a normalized gross profit margin for the company going forward presume that -- I mean, does that suggest with 12% to 13%, is that what you would allude to?

Well, when you look at our comments around pulling out Mid-Atlantic, the rest of the business did extremely well with gross profit margins of 15.2%. John and I have been talking for a number of years saying, we expected the business to be operating in that 15% to 16% range. And in fact we did that in 2018 outside of Mid-Atlantic. So as you look at 2019, we expect those types of numbers to be generated as we go forward. As we look at the future, the pipeline, Brent, still remains extremely strong. We don't see any let-up of an opportunity on the construction side, and I think all the indexes I mentioned earlier support that. So we see an opportunity to continue to see what we can do to ratchet it up even more. So that's our intent right now. We're very focused on discipline and execution, and also looking at what we can do to maximize our bottom line. And, obviously, that includes see what we can do to reduce the margins.

Okay. Thanks for the color. I’ll pass it on.

All right, Brent. Thanks for the questions.

[Operator Instructions] Our next question is from Gerry Sweeney with ROTH Capital. Please proceed.

Hey, good morning Charlie and John.

Good morning, Gerry.

Maybe just a little bit of a follow-up to Brent's question, I mean questions. Is it fair to say maybe you're looking for less revenue growth and higher margin just taking a step back? I'm not sure if this is just in the Mid-Atlantic or the entire organization. With the hot market there is some constraints on labor stayed well within your bounds of labor availability and just start pricing your business incrementally higher and just go for margin. Is that a fair assumption or is there more to it?

Well, on the service side, we expect the growth to continue. Brent asked a great question before. And so on that segment, we don't see a let-up. We got our foot on the accelerator and we're going to continue to see what we could do to have good control growth in service, but we're excited about the prospects of where that's taking us. On the construction side of the equation, there's a finite limit right now to construction labor. So, supply and demand curves are clearly in our favor in terms of pricing. General contractors and building owners understand that there is that limitation out there right now. And it's just interesting the calls that we receive from -- not only from general contractors but building owners just asking us could you please do this project? Please do this project. And the reality is we're going to look at the projects where we can maximize our bottom-line. We are going to take advantage of the supply and demand curves in our favor. I think we've done some really smart things in terms of our labor forecasting. Previously, we were looking anywhere from three to six months out. Last year, we extended that to a 12-month forecast that each business unit has to present each month. I'm on those calls. I'm listening to what they're doing. So, our COOs John other representatives that oversee each business unit and we're going to be asking the questions why not ask for more? I mean why not go for a bit more here and there? I think right now it's time to make some good earnings and we expect to do that. So, from a topline perspective, I think when we report a few weeks in our guidance, we have pretty good visibility in our topline. So, right now it's about maximizing that bottom-line and see what we can do with future sales. So, Gerry, I hope that -- yes. So, I'm just going to really wrap-up. Construction, we expect modest growth. We don't expect no growth, we expect modest growth.

Okay, that's what I assumed. And I'm sorry I should have delineated between construction and service with my question. And actually jumping over to the service side, I think you talked -- you did mention LEAP and I think you even mentioned AI or so I guess artificial intelligence. And I know there's some -- they're starting to come into the different parts of the economy even the industrial world. Is there any way you can give a little bit more detail as to what you're doing and how you're using maybe some of this technology on LEAP and AI to differentiate yourself from your competitors?

Yes. So, well there's -- right now the border market really doesn't have what's called predictive analytics. There's some people out there saying they have it, but what's really interesting about the development of the software we're adopting, it's going to allow us to go in and help our customer base understand how to optimize the performance of their equipment. The nightmare for a building owner is a piece of equipment goes down. What our analytics will do will allow us to actually predict the maintenance requirements better than they do today. Quite frankly today it's really what a manufacturer may recommend, but it kind of loops -- and it's like if it's not broken don't do and stick with it. And what we're suggesting is let's go in, apply our new software and allow you to have a better service program which allows you to predict your maintenance expense, but also and more importantly allows you to make sure your building never goes down. In an analogy -- in an extreme analogy, a lot of jet manufacturers -- excuse me, the engine manufacturers know exactly when those engines have to be maintained and they have predictive analytics. Our industry is behind in that curve. We don't have that, but we now have software that will allow us to do it. Limbach, I think we're at the forefront at adopting that and offering that to our customer base. On the LEAP side of the equation, it's relatively new. We really launched the pilot back in Q3 to install it. We have it in a number of buildings at this point and we're now launching that to the entire business. We want to pilot it, understand what it could do, make sure we had our reports squared away with the software…

[Operator Instructions] I would now like to turn the conference back over to management for closing remarks.

Well, I want to thank everybody for listening in this morning. We had a tough 2018 with mid-Atlantic. I view it as being behind us. We learned quite a bit and we applied those lessons learned and we'll recap whatever we said. We look forward to having our call here in several weeks and reporting in on Q1 and also providing 2019 guidance. With that, thanks again for listening in and look forward to being in touch with many of you. All the best.

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.