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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36541
LIMBACH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware, USA
 
46-5399422
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification
No.)
 
 
 
1251 Waterfront Place, Suite 201
Pittsburgh, Pennsylvania
 
15222
(Address of principal executive offices)
 
(Zip Code)
1-412-359-2100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share
 
LMB
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨                             Accelerated filer ¨
Non-accelerated filer ý                                   Smaller reporting company ý   
Emerging growth company ¨



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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No  ý
As of August 12, 2020, there were 7,884,202 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.
 


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LIMBACH HOLDINGS, INC.
Form 10-Q
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Part I
Item 1. Financial Statements
LIMBACH HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
June 30,
2020
 
December 31,
2019
ASSETS
 

 
 

Current assets
 

 
 

Cash and cash equivalents
$
28,829

 
$
8,344

Restricted cash
113

 
113

Accounts receivable, net
101,451

 
105,067

Contract assets
72,287

 
77,188

Income tax receivable
665

 
494

Other current assets
4,340

 
4,174

Total current assets
207,685

 
195,380

 
 
 
 
Property and equipment, net
20,161

 
21,287

Intangible assets, net
11,894

 
12,311

Goodwill
6,129

 
6,129

Operating lease right-of-use assets
19,616

 
21,056

Deferred tax asset
3,988

 
4,786

Other assets
530

 
668

Total assets
$
270,003

 
$
261,617

 
 
 
 
LIABILITIES
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
6,414

 
$
4,425

Current operating lease liabilities
3,681

 
3,750

Accounts payable, including retainage
66,748

 
86,267

Contract liabilities
58,624

 
42,370

Accrued expenses and other current liabilities
29,373

 
20,057

Total current liabilities
164,840

 
156,869

Long-term debt
37,521

 
38,868

Long-term operating lease liabilities
16,502

 
18,247

Other long-term liabilities
940

 
763

Total liabilities
219,803

 
214,747

Commitments and contingencies (Note 15)


 


 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 7,853,377 issued and outstanding at June 30, 2020 and 7,688,958 at December 31, 2019
1

 
1

Additional paid-in capital
56,992

 
56,557

Accumulated deficit
(6,793
)
 
(9,688
)
Total stockholders’ equity
50,200

 
46,870

Total liabilities and stockholders’ equity
$
270,003

 
$
261,617

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2020
 
2019
 
2020
 
2019
(in thousands, except share and per share data)
 
 
 
(As Recast)
 
 
 
(As Recast)
Revenue
 
$
135,185

 
$
132,603

 
$
273,957

 
$
266,350

Cost of revenue
 
114,850

 
114,908

 
235,398

 
229,031

Gross profit
 
20,335

 
17,695

 
38,559

 
37,319

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
13,752

 
17,079

 
30,552

 
33,124

Amortization of intangibles
 
274

 
175

 
417

 
350

Total operating expenses
 
14,026

 
17,254

 
30,969

 
33,474

Operating income
 
6,309

 
441

 
7,590

 
3,845

Other income (expenses):
 
 
 
 
 
 
 
 
Interest expense, net
 
(2,137
)
 
(1,597
)
 
(4,295
)
 
(2,430
)
Gain (loss) on disposition of property and equipment
 
(13
)
 
9

 
17

 
21

Loss on debt extinguishment
 

 
(513
)
 

 
(513
)
Gain (loss) on change in fair value of warrant liability
 
(102
)
 
(103
)
 
59

 
(103
)
Total other expenses
 
(2,252
)
 
(2,204
)
 
(4,219
)
 
(3,025
)
Income (loss) before income taxes
 
4,057

 
(1,763
)
 
3,371

 
820

Income tax provision (benefit)
 
1,110

 
(474
)
 
476

 
261

Net income (loss)
 
$
2,947

 
$
(1,289
)
 
$
2,895

 
$
559

Earnings Per Share (“EPS”)
 
 
 
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
 
 
 
    Basic
 
$
0.38

 
(0.17
)
 
$
0.37

 
0.07

    Diluted
 
$
0.37

 
(0.17
)
 
$
0.37

 
0.07

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
7,845,515

 
7,643,133

 
7,821,594

 
7,643,133

Diluted
 
7,905,368

 
7,643,133

 
7,878,246

 
7,717,484

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

 
Common Stock
 
 
 
 
 
 
(in thousands, except share amounts)
Number of
shares
outstanding
 
Par value
amount
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Stockholders’
equity
Balance at December 31, 2019
7,688,958

 
$
1

 
$
56,557

 
$
(9,688
)
 
$
46,870

Stock-based compensation

 

 
295

 

 
295

Shares issued related to vested restricted stock units
104,905

 

 

 

 

Net loss

 

 

 
(52
)
 
(52
)
Balance at March 31, 2020
7,793,863

 
$
1

 
$
56,852

 
$
(9,740
)
 
$
47,113

Stock-based compensation

 

 
140

 

 
140

Shares issued related to vested restricted stock units
59,514

 

 

 

 

Net income

 

 

 
2,947

 
2,947

Balance at June 30, 2020
7,853,377

 
$
1

 
$
56,992

 
$
(6,793
)
 
$
50,200


 
Common Stock
 
 
 
 
 
 
(in thousands, except share amounts)
Number of
shares
outstanding
 
Par value
amount
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Stockholders’
equity
Balance at December 31, 2018
7,592,911

 
$
1

 
$
54,791

 
$
(8,424
)
 
$
46,368

Cumulative effect of accounting change - ASC Topic 606

 

 

 
639

 
639

Cumulative effect of accounting change - ASC Topic 842

 

 

 
(128
)
 
(128
)
Stock-based compensation

 

 
367

 

 
367

Shares issued related to vested restricted stock units
50,222

 

 

 

 

Net income

 

 

 
1,847

 
1,847

Balance at March 31, 2019 (As Recast)
7,643,133

 
$
1

 
$
55,158

 
$
(6,066
)
 
$
49,093

Stock-based compensation

 

 
515

 

 
515

Net loss

 

 

 
(1,289
)
 
(1,289
)
Balance at June 30, 2019 (As Recast)
7,643,133

 
$
1

 
$
55,673

 
$
(7,355
)
 
$
48,319


The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six months ended June 30,
 
2020
 
2019
(in thousands)
 
 
(As Recast)
Cash flows from operating activities:
 

 
 

Net income
$
2,895

 
$
559

Adjustments to reconcile net income to cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
3,140

 
2,873

Provision for doubtful accounts
27

 
33

Stock-based compensation expense
435

 
882

Noncash operating lease expense
2,025

 
1,818

Amortization of debt issuance costs
1,080

 
510

Deferred income tax (benefit) provision
798

 
214

Gain on sale of property and equipment
(17
)
 
(21
)
Loss on debt extinguishment

 
513

Gain on change in fair value of warrant liability
(59
)
 
103

Changes in operating assets and liabilities:
 
 
 
   Accounts receivable
3,588

 
(5,737
)
   Contract assets
4,901

 
(4,476
)
   Other current assets
(166
)
 
30,138

   Accounts payable, including retainage
(19,519
)
 
(4,651
)
   Prepaid income taxes
(171
)
 
85

   Accrued taxes payable
(11
)
 
10

   Contract liabilities
16,254

 
(4,686
)
   Operating lease liabilities
(2,399
)
 
(1,818
)
   Accrued expenses and other current liabilities
9,419

 
(31,923
)
   Other long-term liabilities
237

 
(87
)
Net cash provided by (used in) operating activities
22,457

 
(15,661
)
Cash flows from investing activities:
 
 
 
Proceeds from sale of property and equipment
64

 
77

Advances to joint ventures
(1
)
 
1

Purchase of property and equipment
(660
)
 
(1,229
)
Net cash used in investing activities
(597
)
 
(1,151
)
Cash flows from financing activities:
 
 
 
Increase in bank overdrafts

 
2,783

Payments on Credit Agreement term loan

 
(14,335
)
Proceeds from Credit Agreement revolver

 
17,500

Payments on Credit Agreement revolver

 
(17,500
)
Proceeds from 2019 Revolving Credit Facility
7,250

 
7,500

Payments on 2019 Revolving Credit Facility
(7,250
)
 
(7,500
)
Proceeds from 2019 refinancing Term Loan, net of debt discount

 
38,643

Warrants issued in conjunction with the 2019 Refinancing Term Loan

 
969

Embedded derivative associated with the 2019 Refinancing Term Loan

 
388

Payments on Bridge Term Loan

 
(7,736
)

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Payments on finance leases
(1,285
)
 
(1,140
)
Payments of debt issuance costs

 
(3,339
)
Taxes paid related to net-share settlement of equity awards
(90
)
 
(29
)
Net cash (used in) provided by financing activities
(1,375
)
 
16,204

Increase in cash, cash equivalents and restricted cash
20,485

 
(608
)
Cash, cash equivalents and restricted cash, beginning of period
8,457

 
1,732

Cash, cash equivalents and restricted cash, end of period
$
28,942

 
$
1,124

Supplemental disclosures of cash flow information
 
 
 
Noncash investing and financing transactions:
 
 
 
   Right of use assets obtained in exchange for new operating lease liabilities
$

 
$
3,022

   Right of use assets obtained in exchange for new finance lease liabilities
1,050

 
1,630

   Right of use assets disposed or adjusted modifying operating lease liabilities
586

 
1,651

   Right of use assets disposed or adjusted modifying finance lease liabilities
(64
)
 

Interest paid
$
3,250

 
$
1,621

The accompanying notes are an integral part of these condensed consolidated financial statements

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LIMBACH HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Organization and Plan of Business Operations
Limbach Holdings, Inc. (the “Company,” “we” or “us”), is a Delaware corporation headquartered in Pittsburgh, Pennsylvania that was formed on July 20, 2016, as a result of a business combination with Limbach Holdings LLC (“LHLLC”). The Company’s condensed consolidated financial statements include the accounts of Limbach Holdings, Inc. and its wholly-owned subsidiaries, including LHLLC, Limbach Facility Services LLC, Limbach Company LLC, Limbach Company LP, Harper Limbach LLC, and Harper Limbach Construction LLC.
We operate in two segments, (i) Construction, in which we generally manage large construction or renovation projects that involve primarily heating, ventilation, and air conditioning (“HVAC”), plumbing, or electrical services, and (ii) Service, in which we provide maintenance or service primarily on HVAC, plumbing or electrical systems. This work is primarily performed under fixed price, modified fixed price, and time and material contracts over periods of typically less than two years. The Company's customers operate in several different industries, including healthcare, education, sports and entertainment, infrastructure, government, hospitality, commercial, manufacturing, mission critical, and industrial manufacturing. The Company operates primarily in the Northeast, Mid-Atlantic, Southeast, Midwest, and Southwestern regions of the United States.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act of 1933, as amended, declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We ceased to qualify as an emerging growth company on December 31, 2019. Accordingly, we are required to comply with new or revised financial accounting standards as a public business entity.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has caused significant disruption and volatility on a global scale resulting in, among other things, an economic slowdown and the possibility of a continued economic recession. In response to the COVID-19 outbreak, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The various governmental actions have been and remain applicable to Limbach's operations in different ways, often varying by state. In some instances, these orders continued to result in shutdowns of certain projects in our Construction and Service segments into the three months ended June 30, 2020. In limited instances, projects chose to shutdown work irrespective of the existence or applicability of government action. In most markets, construction is considered an essential business and Limbach continued to staff its projects and perform work during the three months ended June 30, 2020 and has since then seen most all of the projects that were in progress restart. As Limbach's operations have been deemed essential, we have taken several measures to combat the COVID-19 downturn. The duration or recurrence of these measures and the impact of COVID-19 is unknown and may be extended, and additional measures may be necessary. The New England region was the only branch where all construction activity was prohibited for a period of time. In addition to project suspensions in the New England region, each of our other branches experienced select project suspensions and were adversely impacted by COVID-19 related regulation. In May, much of the COVID-19 regulations that caused shutdowns of projects in the New England region were lifted and all of the projects that were suspended in that region resumed operations, as well as the other projects that were impacted by similar suspensions in each of our other branches also resumed. In the Service segment, the branches are currently experiencing a slowdown in some types of work due to restrictions on building access but began to see improvement start in the month of July. As building access returns, the branches are expecting building owners to maintain or retrofit current facilities in lieu of funding larger capital projects.
During the first half of 2020, we took several actions to combat the COVID-19 outbreak induced downturn in our business including, but not limited to, the following:
Identification of projects that have been shut down and methods for seeking to preserve any contractual entitlement that may exist;

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Establishment of a task force to identify possible types and areas of impact from COVID-19 for both shutdown and continuing operations;
Examination of the Company's productivity and potential impact on gross profit as a result of COVID-19;
Implementation of the Company's pandemic response plan;
Implemented our furlough and work schedule reduction plans, as well as permanent reductions in force;
Suspended substantially all discretionary, non-essential expenditures, including but not limited to, auto allowances, deferral of rent ranging between 1 and 3 months, 10% salary reduction for a select group of corporate and regional management and cost reduction opportunities identified by our external consultant; and
Continued our hiring freeze.
During the month of July 2020, with the return of project and service work, we removed the 10% salary reduction for the select group of corporate and regional management, returned auto allowances, reinstated positions, removed schedule reduction plans and discontinued our hiring freeze.
In addition to the above actions taken during the initial impacts of COVID-19, we continue to take steps to minimize the adverse impacts of the COVID-19 pandemic on our business and to protect the safety of our employees and continue to emphasize more frequent washing of hands and tools, social distancing, wearing masks and work protocols. Limbach's COVID-19 policy is written based on the best practices provided by the Centers for Disease Control and Prevention (“CDC”) and Occupational Safety and Health Administration for essential workers. Our updated Work From Home Policy, along with the Company's business continuity planning and information technology enhancements have enabled an orderly transition to remote work and facilitated social distancing for salaried employees.

Testing and inpatient treatment for COVID-19 is covered under our medical plan and fees have been waived since the onset of the pandemic. Counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues.  
Management continues to perform a reforecast of its 2020 and 2021 financial plans on a monthly basis. For the period ended June 30, 2020, we assessed a variety of factors, including but not limited to projects in our Construction and Service segments currently being impacted or delayed, construction industry financial forecasts for the remainder of 2020, and the impact of certain cost-cutting measures implemented during the end of the our first fiscal quarter. Based on these factors we assumed a measured recovery in revenue and gross profit that commenced in May and returning to normal revenue and gross profit levels in Q4 2020. However, it is difficult to identify the nature and extent of the COVID-19 impacts and fully estimate any costs associated with its impacts. We believe these impacts will become more defined over time and any actual cost impacts are expected to be more readily discernible as projects continue to progress towards completion. Based on management's current reforecast, management projects compliance with the financial covenants associated with its current credit agreements for the next 12 months.
While management has used all currently available information in its forecasts, the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is highly uncertain, cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy, and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact. The continued impact on our business as a result of COVID-19 pandemic could result in a material adverse effect on our business, results of operations, financial condition, liquidity and prospects in the near-term and beyond 2020.
On March 27, 2020, the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees and other government programs to support companies affected by the COVID-19 pandemic and their employees. The Company elected to utilize the option to defer payment of certain payroll taxes and utilize certain income tax updates (i.e. NOL carryback).
Note 2 – Significant Accounting Policies
Basis of Presentation
Condensed Consolidated Financial Statements

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The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to the Quarterly Report on Form 10-Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 12, 2020. 
 
Unaudited Interim Financial Information
The accompanying interim Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the periods presented are unaudited. Also, within the notes to the Condensed Consolidated Financial Statements, we have included unaudited information for these interim periods. These unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2020, and its results of operations and its cash flows for the six months ended June 30, 2020. The results for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from our audited financial statements included in our Annual Report on Form 10-K filed with the SEC on May 12, 2020, but is presented as condensed and does not contain all of the footnote disclosures from the annual financial statements.
Note 3 – Accounting Standards
Recently Adopted Accounting Standards
New Revenue Recognition Standard

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequent ASUs (collectively, “ASC Topic 606”) which amends the existing accounting standards for revenue recognition and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers based on the expected consideration to be received in exchange for those goods or services. Effective December 31, 2019, management adopted ASC Topic 606 for the annual and quarterly periods beginning after January 1, 2019 using a modified retrospective transition approach. The financial information for the three and six months ended June 30, 2019 has been recast to conform to the new standard.

The adoption of ASC Topic 606 did not have an impact on revenue of our fixed-price and other service contracts. However, it did impact revenue of our construction-type contracts within our construction and service segments specifically in accounting for warranties. For many of our construction-type contracts, we previously included assurance-type warranties in total estimated project costs. Under ASC Topic 606, the estimated cost of satisfying assurance-type warranties is accrued in accordance with the guidance in ASC Topic 460, Guarantees. Upon adoption of ASC Topic 606, we removed estimated and actual warranty costs at the contract level and recognized a warranty liability and expense in direct proportion to the cost-to-cost method progress towards completion of the associated contract, which had a $0.6 million effect on our opening accumulated deficit balance at January 1, 2019.

The Company also offers service-type warranties on certain construction-type projects. These service-type warranties were not accounted for as a separate performance obligation prior to the adoption of ASC Topic 606. Upon adoption of ASC Topic 606, we allocated a portion of the contract's transaction price to the service-type warranty based on its estimated standalone selling price. The accounting for service-type warranties under ASC Topic 606 did not have a material impact on the condensed consolidated financial statements.

In addition, as of January 1, 2019, we began to separately present contract assets and liabilities on the consolidated balance sheets. Contract assets include amounts due under contractual retainage provisions that were previously included in accounts receivable as well as costs and estimated earnings in excess of billings on uncompleted contracts that were previously separately presented. Contract liabilities include billings in excess of costs and estimated earnings on uncompleted contracts that were previously separately presented and provisions for losses. See Note 5 - Contract Assets and Liabilities for further information.


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The adoption of ASC Topic 606 had no impact on the cash flows provided by operating activities in the Company's condensed consolidated statements of cash flows.

Notes 2, 4, 5, and 16 include additional information relating to our adoption of ASC Topic 606. Note 12 includes information regarding our revenue disaggregated by segment.

Refer to the section, Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Financial Statements, below for additional disclosures around the quantitative impacts that the adoption of ASC Topic 606 had on our condensed consolidated financial statements.

New Leasing Standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended and supplemented by subsequent ASUs (collectively, “ASC Topic 842”). ASC Topic 842 amends the existing guidance in Accounting Standards Codification (“ASC”) 840, Leases. This ASU requires, among other things, the recognition of lease right-of-use (“ROU”) assets and lease liabilities by lessees for those leases currently classified as operating leases. Effective December 31, 2019, management adopted ASC Topic 606 for the annual and quarterly periods beginning after January 1, 2019 using a modified retrospective transition approach. The financial information for the quarter-ended June 30, 2019 has been recast to conform to the new standard.

The Company elected the package of practical expedients which provides relief from having to reassess (1) whether any expired or existing contracts contain leases, (2) lease classification (as operating or financing) for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also elected not to separate non-lease components from lease components and did not elect the hindsight practical expedient.

The adoption of ASC Topic 842 had no impact to the Company's condensed consolidated statements of operations or the consolidated cash flows provided by operating and financing activities in the Company's condensed consolidated statements of cash flows.

Refer to Note 13 - Leases for additional information regarding the impact of the adoption of ASC Topic 842 on the Company's financial position.

Additionally, refer to the section, Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Financial Statements, below for additional disclosures around the quantitative impacts that the adoption of ASC Topic 842 had on our condensed consolidated financial statements.

Effects of Adoption of ASC 606 and ASC 842 on Condensed Consolidated Financial Statements

The effect of the changes made to the Company's condensed consolidated June 30, 2019 balance sheet and condensed consolidated statement of operations for the three and six month periods ended June 30, 2019 for the adoption of ASC Topic 606 and ASC Topic 842 were as follows:

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CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
Previously Reported Balance as of June 30, 2019(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
Balance as of June 30, 2019 (As Recast)
Assets
 
 
 
 
 
 
 
Accounts receivable, net (b)
142,761

 
(31,236
)
 

 
111,525

Contract assets

 
68,285

 

 
68,285

Costs and estimated earnings in excess of billings on uncompleted contracts
36,030

 
(36,030
)
 

 

Other current assets
4,637

 
1

 

 
4,638

Operating lease right-of-use assets (c)

 

 
22,685

 
22,685

Deferred tax asset
4,170

 
(207
)
 

 
3,963

 

 

 

 

Liabilities
 
 
 
 
 
 
 
Contract liabilities

 
44,131

 

 
44,131

Billings in excess of costs and estimated earnings on uncompleted contracts
46,536

 
(46,536
)
 

 

Accrued expenses and other current liabilities
24,575

 
2,663

 

 
27,238

Current portion of long-term debt
2,173

 

 
62

 
2,235

Current operating lease liabilities (c)

 

 
3,824

 
3,824

Long-term debt
39,983

 

 
65

 
40,048

Long-term operating lease liabilities (c)

 

 
19,656

 
19,656

Other long-term liabilities
2,498

 

 
(794
)
 
1,704

 

 

 

 

Stockholders' Equity
 
 
 
 
 
 
 
Accumulated deficit
(7,782
)
 
555

 
(128
)
 
(7,355
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
(b) Prior to the adoption of ASC Topic 606, retainage receivable was included within accounts receivable, net.
(c) Prior to the adoption of ASC Topic 842, operating lease right-of-use assets and current and long-term operating lease liabilities were not recorded on the Company's condensed consolidated balance sheets.

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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three months ended June 30, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
104,925

 
$
(166
)
 

 
$
104,759

   Service
27,828

 
16

 

 
27,844

Total revenue
132,753

 
(150
)
 

 
132,603

Cost of revenue
 
 
 
 
 
 
 
   Construction
94,503

 
(427
)
 

 
94,076

   Service
20,849

 
(17
)
 

 
20,832

Total cost of revenue
115,352

 
(444
)
 

 
114,908

Gross profit
17,401

 
294

 

 
17,695

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expenses
17,079

 

 

 
17,079

Amortization of intangibles
175

 

 

 
175

Total operating expenses
17,254

 

 

 
17,254

Operating income
147

 
294

 

 
441

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(1,597
)
 

 

 
(1,597
)
Gain on disposition of property and equipment
9

 

 

 
9

    Loss on debt extinguishment
(513
)
 

 

 
(513
)
    Loss on change in fair value of warrant liability
(103
)
 

 

 
(103
)
Total other expenses
(2,204
)
 

 

 
(2,204
)
Income before income taxes
(2,057
)
 
294

 

 
(1,763
)
Income tax provision (benefit)
(553
)
 
79

 

 
(474
)
Net loss
$
(1,504
)
 
$
215

 
$

 
$
(1,289
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2019.


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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Six months ended June 30, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
209,599

 
$
(380
)
 
$

 
$
209,219

   Service
57,105

 
26

 

 
57,131

Total revenue
266,704

 
(354
)
 

 
266,350

Cost of revenue
 
 
 
 
 
 

   Construction
185,864

 
(244
)
 

 
185,620

   Service
43,406

 
5

 

 
43,411

Total cost of revenue
229,270

 
(239
)
 

 
229,031

Gross profit
37,434

 
(115
)
 

 
37,319

Operating expenses:
 
 
 
 
 
 

Selling, general and administrative expenses
33,124

 

 

 
33,124

Amortization of intangibles
350

 

 

 
350

Total operating expenses
33,474

 

 

 
33,474

Operating income
3,960

 
(115
)
 

 
3,845

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(2,430
)
 

 

 
(2,430
)
Gain on disposition of property and equipment
21

 

 

 
21

    Loss on debt extinguishment
(513
)
 

 

 
(513
)
    Loss on change in fair value of warrant liability
(103
)
 

 

 
(103
)
Total other expenses
(3,025
)
 

 

 
(3,025
)
Income before income taxes
935

 
(115
)
 

 
820

Income tax provision (benefit)
293

 
(32
)
 

 
261

Net income
$
642

 
$
(83
)
 
$

 
$
559

(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the six months ended June 30, 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial instruments, including trade receivables and off-balance sheet credit exposure. Under this guidance, an entity is required to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. This ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The guidance is effective for smaller reporting companies on January 1, 2023 with early adoption permitted. The adoption of this standard will be through a cumulative-effect adjustment to retained earnings as of the effective date. Based on our historical experience, the Company does not expect that this pronouncement will have a significant impact in its financial statements or on the estimate of the allowance for doubtful accounts.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which affects general principles within Topic 740, and is meant to simplify and reduce the cost of accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and simplifies areas including franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, the incremental approach for intraperiod tax allocation, interim period income tax accounting for year-to-date losses that exceed anticipated losses and enacted changes in tax laws in interim periods. The changes are effective for annual periods beginning after December 15, 2020. Management is currently assessing the impact of this pronouncement on its condensed consolidated financial statements.

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In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which makes improvements to financial instruments guidance. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. With regard to amendments related to Issue 1, Issue 2, Issue 4 and Issue 5, for public business entities, the amendments are effective upon issuance of this final ASU. With regard to amendments related to Issue 6 and Issue 7, for entities that have not yet adopted the guidance in Update 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. For entities that have adopted the guidance in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We do not expect the adoption of this pronouncement to have a material impact on our condensed consolidated financial statements or presentation thereof.
The FASB also issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020. The new guidance provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective prospectively as of March 12, 2020 through December 31, 2022 and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material impact on our condensed consolidated financial statements or presentation thereof.
Note 4 – Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable and the allowance for doubtful accounts are comprised of the following:
(in thousands)
June 30, 2020
 
December 31, 2019
Accounts receivable - trade
$
101,717

 
$
105,373

Allowance for doubtful accounts
(266
)
 
(306
)
   Accounts receivable, net
$
101,451

 
$
105,067

Note 5 – Contract Assets and Liabilities
The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.
Contract assets include amounts due under retainage provisions and costs and estimated earnings in excess of billings. The components of the contract asset balances as of the respective dates were as follows:
(in thousands)
June 30, 2020

 
December 31, 2019

 
Change
Contract assets
 
 
 
 
 
   Costs in excess of billings and estimated earnings
$
39,898

 
$
44,315

 
$
(4,417
)
   Retainage receivable
32,389

 
32,873

 
(484
)
      Total contract assets
$
72,287

 
$
77,188

 
$
(4,901
)
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld, typically 10%, pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.

Contract assets represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Contract assets result when either: 1) the appropriate contract revenue amount has been recognized over time in accordance with ASC Topic 606, but a portion of the revenue recorded cannot be currently billed due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and

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unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings.

The current estimated net realizable value on such claims and unapproved change orders as recorded in contract assets and contract liabilities in the condensed consolidated balance sheets was $39.4 million and $38.4 million as of June 30, 2020 and December 31, 2019, respectively. The Company anticipates that the majority of such amounts will be approved or executed within one year. The resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings.

Contract liabilities include billings in excess of contract costs and provisions for losses. The components of the contract liability balances as of the respective dates were as follows:
(in thousands)
June 30, 2020

 
December 31, 2019

 
Change
Contract liabilities
 
 
 
 
 
   Billings in excess of costs and estimated earnings
$
57,874

 
$
40,662

 
$
17,212

   Provisions for losses
750

 
1,708

 
(958
)
      Total contract liabilities
$
58,624

 
$
42,370

 
$
16,254


Billings in excess of costs represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue.

Provisions for losses are recognized in the condensed consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.
The net (overbilling) underbilling position for contracts in process consist of the following:
(in thousands)
June 30, 2020

 
December 31, 2019

Revenue earned on uncompleted contracts
$
755,456

 
$
726,215

Less: Billings to date
(773,432
)
 
(722,562
)
   Net (overbilling) underbilling
$
(17,976
)
 
$
3,653

 
 
 
 
 
 
 
 
(in thousands)
June 30, 2020

 
December 31, 2019

Costs in excess of billings and estimated earnings
$
39,898

 
$
44,315

Billings in excess of costs and estimated earnings
(57,874
)
 
(40,662
)
   Net (overbilling) underbilling
$
(17,976
)
 
$
3,653

We recorded revisions in our contract estimates for certain construction projects. For projects having revisions with a material gross profit impact, this resulted in gross profit write downs on four construction projects of $1.5 million for the three months ended June 30, 2020, two of which were within the Southern California region for a total of $0.7 million. No material project revisions resulting in gross profit write ups were recorded for the three months ended June 30, 2020.
For the six months ended June 30, 2020, we recorded revisions in our contract estimates for certain construction projects. We recorded gross profit write downs on eight construction projects and two gross profit write ups on construction projects for the six months ended June 30, 2020, each of which had a material gross profit impact, for an aggregate revision of $5.2 million and $1.2 million, respectively.
For the three months ended June 30, 2019, we recorded revisions in our contract estimates for certain construction and service projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling $0.3 million on one construction project and $0.3 million on one service project. We also recorded revisions in contract estimates that resulted in project write downs totaling $1.9 million on three construction projects for our Southern California region.
For the six months ended June 30, 2019, we recorded revisions in our contract estimates for certain construction and service projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling

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$3.0 million on six projects, including three projects totaling $1.0 million for our Mid-Atlantic region. One of these project write ups in the amount of $1.4 million resulted from our settlement of a significant Michigan project. We also recorded revisions in contract estimates that resulted in project write downs totaling $3.5 million on seven projects, including four projects totaling $2.2 million in our Southern California region and one project for $0.5 million in our Mid-Atlantic region. Revisions in our contract estimates on one service project resulted in a gross profit write up of $0.3 million on a Mid-Atlantic project during this period and one Southern California project resulted in a gross profit write down of $0.3 million.
Note 6 – Goodwill and Intangibles
Goodwill was $6.1 million at June 30, 2020 and December 31, 2019. The goodwill is associated with the Company's Service segment. Intangible assets are comprised of the following:
(in thousands)
Gross
carrying
amount
 
Accumulated
amortization
 
Net intangible
assets, excluding
goodwill
June 30, 2020
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
Customer Relationships – Service
$
4,710

 
$
(2,906
)
 
$
1,804

Favorable Leasehold Interests
530

 
(400
)
 
130

Total amortized intangible assets
5,240

 
(3,306
)
 
1,934

Unamortized intangible assets:
 
 
 
 
 
Trade Name
9,960

 

 
9,960

Total unamortized intangible assets
9,960

 

 
9,960

Total amortized and unamortized assets, excluding goodwill
$
15,200

 
$
(3,306
)
 
$
11,894

(in thousands)
Gross
carrying
amount
 
Accumulated
amortization
 
Net intangible
assets, excluding
goodwill
December 31, 2019
 

 
 

 
 

Amortized intangible assets:
 

 
 

 
 

Customer Relationships – Service
$
4,710

 
$
(2,655
)
 
$
2,055

Favorable Leasehold Interests
530

 
(234
)
 
296

    Total amortized intangible assets
5,240

 
(2,889
)
 
2,351

Unamortized intangible assets:
 
 
 
 
 
   Trade Name
9,960

 

 
9,960

   Total unamortized intangible assets
9,960

 

 
9,960

          Total amortized and unamortized assets, excluding goodwill
$
15,200

 
$
(2,889
)
 
$
12,311

The definite-lived intangible assets are amortized over the period the Company expects to receive the related economic benefit, which for customer relationships is based upon estimated future net cash inflows. The Company has previously determined that its trade name has an indefinite useful life. The Limbach trade name has been in existence since the Company’s founding in 1901 and therefore is an established brand within the industry.
Total amortization expense for these amortizable intangible assets was $0.3 million and $0.4 million for the three and six months ended June 30, 2020 and $0.2 million and $0.4 million for the three and six months ended June 30, 2019.
The Company did not recognize any impairment charges on its goodwill or intangible assets for the three and six months ended June 30, 2020 or June 30, 2019.
Note 7 – Debt
Long-term debt consists of the following obligations as of:

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(in thousands)
June 30, 2020
 
December 31, 2019
2019 Refinancing Term Loan - term loan payable in quarterly installments of principal, (commencing in September 2020) plus interest through April 2022
$
41,000

 
$
41,000

Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 4.85% to 6.45% through 2025
6,285

 
6,585

Total debt
47,285

 
47,585

Less - Current portion of long-term debt
(6,414
)
 
(4,425
)
Less - Unamortized discount and debt issuance costs
(3,350
)
 
(4,292
)
Long-term debt
$
37,521

 
$
38,868

Credit Agreement
In 2016, Limbach Facility Services, LLC (“LFS”), a subsidiary of the Company, entered into the Credit Agreement (as amended, the “Credit Agreement”). The Credit Agreement consisted of a $25.0 million revolving line of credit (the “Credit Agreement revolver”) and a $24.0 million term loan (the “Credit Agreement term loan”), both with a maturity date of July 20, 2021. The Credit Agreement was collateralized by substantially all assets of LFS and its subsidiaries. Principal payments of $900,000 on the Credit Agreement term loan were due at the end of each quarter, beginning September 30, 2018, through maturity of the loan, with any remaining amounts due at maturity. Outstanding borrowings on both the Credit Agreement term loan and the Credit Agreement revolver bore interest at either the Base Rate (as defined in the Credit Agreement) or LIBOR (as defined in the Credit Agreement), plus the applicable additional margin, payable monthly. Mandatory prepayments were required upon the occurrence of certain events, including, among other things and subject to certain exceptions, equity issuances, changes of control of the Company, certain debt issuances, assets sales and excess cash flow.
The Credit Agreement included restrictions on, among other things and subject to certain exceptions, the Company and its subsidiaries’ ability to incur additional indebtedness, pay dividends or make other distributions, redeem or purchase capital stock, make investments and loans and enter into certain transactions, including selling assets, engaging in mergers or acquisitions and entering into transactions with affiliates. Loans under the Credit Agreement bore interest, at the borrower's option, at either Adjusted LIBOR (“Eurodollar”) or a Base Rate, in each case, plus an applicable margin. The applicable margin with respect to any Base Rate loan was 5.00% per annum and with respect to a Eurodollar loan was 6.00% per annum.
The borrower was required to make principal payments on the Bridge Term Loan in the amount of $250,000 on the last business day of March, June, September and December of each year. The Bridge Term Loan had a maturity date of April 12, 2019. The Bridge Term Loan was guaranteed by the same guarantors (including Limbach Holdings, Inc., Limbach Facility Services LLC, Limbach Holdings LLC, Limbach Company LLC, Limbach Company LP, Harper Limbach LLC and Harper Limbach Construction LLC) and secured (on a pari passu basis) by the same collateral as the other loans under the Credit Agreement.
The equity interests of the Company’s subsidiaries were pledged as security for the obligations under the Credit Agreement. The Credit Agreement included customary events of default, including, among other items, payment defaults, cross-defaults to other indebtedness, a change of control default and events of default with respect to certain material agreements. Additionally, with respect to the Company, an event of default would have been deemed to have occurred if the Company’s securities ceased to be registered with the SEC pursuant to Section 12(b) of the Exchange Act. In case of an event of default, the administrative agent would have been entitled to, among other things, accelerated payment of amounts due under the Credit Agreement, foreclose on the equity of the Company’s subsidiaries, and exercise all rights of a secured creditor on behalf of the lenders.
The additional margin applied to both the Credit Agreement revolver and Credit Agreement term loan were determined based on levels achieved under the Company’s senior leverage ratio covenant, which reflects the ratio of indebtedness divided by EBITDA for the most recently ended four quarters.

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The following is a summary of the additional margin and commitment fees payable on the available revolving credit commitment:
Level
 
Senior Leverage Ratio
 
Additional Margin for
Base Rate loans
 
Additional Margin for
Libor Rate loans
 
Commitment Fee
I
 
Greater than or equal to 2.50 to 1.00
 
3.00
%
 
4.00
%
 
0.50
%
II
 
Less than 2.50 to 1.00, but greater than or equal to 2.00 to 1.00
 
2.75
%
 
3.75
%
 
0.50
%
III
 
Less than 2.00 to 1.00, but greater than or equal to 1.50 to 1.00
 
2.50
%
 
3.50
%
 
0.50
%
IV
 
Less than 1.50 to 1.00
 
2.25
%
 
3.25
%
 
0.50
%

2019 Refinancing Agreement
 
On April 12, 2019 (the “Refinancing Closing Date”), LFS entered into a financing agreement (the “2019 Refinancing Agreement”) with the lenders thereto and Cortland Capital Market Services LLC, as collateral agent and administrative agent and CB Agent Services LLC, as origination agent (“CB”). The 2019 Refinancing Agreement consists of (i) a $40.0 million term loan (the “2019 Refinancing Term Loan”) and (ii) a new $25.0 million multi-draw delayed draw term loan (the “2019 Delayed Draw Term Loan” and, collectively with the 2019 Refinancing Term Loan, the “2019 Term Loans”). Proceeds from the 2019 Refinancing Term Loan were used to repay the then existing Credit Agreement, to pay related fees and expenses thereof and to fund working capital of the Borrowers (defined below). Management intends for proceeds of the 2019 Delayed Draw Term Loan to be used to fund permitted acquisitions under the 2019 Refinancing Agreement and related fees and expenses in connection therewith.
 
LFS, a wholly-owned subsidiary of the Company, and each of its subsidiaries are borrowers (the “Borrowers”) under the 2019 Refinancing Agreement. In addition, the 2019 Refinancing Agreement is guaranteed by the Company and LHLLC (each, a “Guarantor”, and together with the Borrowers, the “Loan Parties”).
 
The 2019 Refinancing Agreement is secured by a first-priority lien on the real property of the Loan Parties and a second-priority lien on substantially all other assets of the Loan Parties, behind the 2019 ABL Credit Agreement (as defined below). The respective lien priorities of the 2019 Refinancing Agreement and the 2019 ABL Credit Agreement are governed by an intercreditor agreement.
 
2019 Refinancing Agreement - Interest Rates and Fees
 
The interest rate on borrowings under the 2019 Refinancing Agreement is, at the Borrowers’ option, either LIBOR (with a 2.00% floor) plus 11.00% or a base rate (with a 3.00% minimum) plus 10.00%. At June 30, 2020, the interest rate in effect on the 2019 Refinancing Term Loan was 13.00%.
 
2019 Refinancing Agreement - Other Terms and Conditions
 
The 2019 Refinancing Agreement matures on April 12, 2022, subject to certain adjustment. Required amortization is $1.0 million per quarter commencing with the fiscal quarter ending September 30, 2020. There is an unused line fee of 2.0% per annum on the undrawn portion of the 2019 Delayed Draw Term Loan, and there is a make-whole premium on prepayments made prior to the 19-month anniversary of the Refinancing Closing Date. This make-whole provision guarantees that the Company will pay no less than 18 months’ applicable interest to the lenders under the 2019 Refinancing Agreement. The 2019 Refinancing Agreement contains representations and warranties, and covenants which are customary for debt facilities of this type. Unless the Required Lenders (as defined in the 2019 Refinancing Agreement) otherwise consent in writing, the covenants limit the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company’s affiliates, (vii) sell assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.
 
In addition, the 2019 Refinancing Agreement includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company fails to comply with the terms of the 2019 Refinancing Agreement or if other customary events occur.
 
Furthermore, the 2019 Refinancing Agreement also contains two financial maintenance covenants for the 2019 Refinancing Term Loan, including a requirement to have sufficient collateral coverage of the aggregate outstanding principal amount of the 2019 Refinancing Term Loans and as of the last day of each month for the total leverage ratio of the Company and its Subsidiaries (the “Total Leverage Ratio ”) not to exceed an amount beginning at 4.25 to 1.00 through June 30, 2019, and stepping down to 2.00 to

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1.00 effective July 1, 2021. From July 1, 2019 through September 30, 2019, the Total Leverage Ratio may not exceed 4.00 to 1.00. As of August 31, 2019, the Company’s Total Leverage Ratio for the preceding twelve consecutive fiscal month period was 4.61 to 1.00, which did not meet the requirement for such ratio not to exceed 4.00 to 1.00. As of September 30, 2019, the Company’s Total Leverage Ratio for the preceding twelve consecutive fiscal month period was 2.85 to 1.00, which was in compliance with the 4.00 to 1.00 requirement. The lender has waived the event of default arising from this noncompliance as of August 31, 2019, while reserving its rights with respect to covenant compliance in future months. In addition, the parties to the 2019 Refinancing Agreement entered into an amendment which, among other changes, revises the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement. The 2019 Refinancing Agreement contains a post-closing covenant requiring the remediation of the Company’s material weakness, as described in Item 9A of its 2018 Annual Report on Form 10-K, no later than December 31, 2020 and to provide updates as to the progress of such remediation, provided that, if such remediation has not been completed on or prior to December 31, 2019, (x) the Company shall be required to pay the post-closing fee pursuant to the terms of the Origination Agent Fee Letter (as defined in the 2019 Refinancing Agreement) and (y) the applicable margin shall be increased by 1.00% per annum for the period from January 1, 2020 until the date at which the material weakness is no longer disclosed or required to be disclosed in the Company’s SEC filings or audited financial statements of the Company or related auditor’s reports. As of December 31, 2019, the Company fully remediated its material weakness and the Company removed from its SEC filings disclosure of such material weakness.

In connection with the 2019 Refinancing Amendment Number One and Waiver, dated November 14, 2019, the parties amended certain provisions of the 2019 Refinancing Agreement, including, among other changes to: (i) require, commencing October 1, 2019, a 3.00% increase in the interest rate on borrowings under the 2019 Refinancing Agreement; (ii) require the approval of CB and, generally, the lenders representing at least 50.1% of the aggregate undrawn term loan commitment or unpaid principal amount of the term loans, prior to effecting any permitted acquisition; (iii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 and thereafter through the term of the 2019 Refinancing Agreement; and (iv) require the liquidity of the loan parties, which is generally calculated by adding (a) unrestricted cash on hand of the Loan Parties maintained in deposit accounts subject to control agreements granting control to the collateral agent for the 2019 ABL Credit Agreement, to (b) the difference between (1) the lesser of (x) $15 million, as adjusted from time to time, and (y) 75% of certain customer accounts resulting from the sale of goods or services in the ordinary course of business minus certain reserves established by the Administrative Agent and (2) the sum of (x) the outstanding principal balance of all revolving loans under the 2019 ABL Credit Agreement plus (y) the aggregate undrawn available amount of all letters of credit then outstanding plus the amount of any obligations that arise from any draw against any letter of credit that have not been reimbursed by the borrowers or funded with a revolving loan under the 2019 ABL Credit Agreement (the “Loan Parties Liquidity”), as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000. As a condition to executing the 2019 Refinancing Amendment Number One and Waiver, the loan parties will be required to pay a non-refundable waiver fee of $400,000 and a non-refundable amendment fee of $1,000,000 (the “PIK First Amendment Fee”, which shall be paid in kind by adding the PIK First Amendment Fee to the outstanding principal amount of the term loan under the 2019 Refinancing Agreement as additional principal obligations thereunder on and as of the effective date 2019 Refinancing Amendment Number One and Waiver).
 
2019 Refinancing Agreement - CB Warrants
 
In connection with the 2019 Refinancing Agreement, on the Refinancing Closing Date, the Company issued to CB and the other lenders under the 2019 Refinancing Agreement warrants (the “CB Warrants”) to purchase up to a maximum of 263,314 shares of the Company's common stock at an exercise price of $7.63 per share subject to certain adjustments, including for stock dividends, stock splits or reclassifications. The actual number of shares of common stock into which the CB Warrants will be exercisable at any given time will be equal to: (i) the product of (x) the number of shares equal to 2% of the Company’s issued and outstanding shares of common stock on the Refinancing Closing Date on a fully diluted basis and (y) the percentage of the total 2019 Delayed Draw Term Loan made as of the exercise date, minus (ii) the number of shares previously issued under the CB Warrants. As of the Refinancing Closing Date through June 30, 2020, no amounts had been drawn on the 2019 Delayed Draw Term Loan, so no portion of the CB Warrants was exercisable. The CB Warrants may be exercised for cash or on a “cashless basis,” subject to certain adjustments, at any time after the Refinancing Closing Date until the expiration of such warrant at 5:00 p.m., New York time, on the earlier of (i) the five (5) year anniversary of the Refinancing Closing Date, or (ii) the liquidation of the Company. 
 
Accounting for the 2019 Term Loans and CB Warrants
 
The CB Warrants represent a freestanding financial instrument that is classified as a liability because the CB Warrants meet the definition of a derivative instrument that does not meet the equity scope exception (i.e., the CB Warrants are not indexed to the entity’s own equity). In addition, the material weakness penalty described above was evaluated as an embedded derivative liability and bifurcated from the 2019 Term Loans as it represents a non-credit related embedded feature that provides for net settlement.

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Both the CB Warrants liability and the embedded derivative liability are required to be initially and subsequently measured at fair value. The initial fair values of the CB Warrants liability and the embedded derivative liability approximated $0.9 million and $0.4 million, respectively, on the Refinancing Closing Date. The Company estimated these fair values by using the Black-Scholes-Merton option pricing model and a probability-weighted discounted cash flow approach.

The CB Warrants liability is included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of June 30, 2020 and recorded any adjustments as other income (expense). At June 30, 2020 and December 31, 2019, the CB Warrants liability was $0.3 million and $0.4 million, respectively. For the three and six months ended June 30, 2020, respectively, the Company recorded other income of $0.1 million and other expenses of $0.1 million to reflect the change in fair value of the CB Warrants liability. For the three and six months ended June 30, 2019, the Company recorded other income of $0.1 million for both periods. At June 30, 2020 and December 31, 2019, the embedded derivative liability was $0.0 million as the Company remediated the material weakness associated with the embedded derivative as of December 31, 2019, and the $0.4 million embedded derivative liability was fully reversed and recorded as other income at that date.
 
The proceeds for the 2019 Term Loan were first allocated to the CB Warrants liability and embedded derivative liability based on their respective fair values with a corresponding amount of $1.3 million recorded as a debt discount to the 2019 Term Loans. In addition, the Company incurred approximately $2.5 million of debt issuance costs for the 2019 Term Loans that have also been recorded as a debt discount. The combined debt discount from the CB Warrants liability, embedded derivative liability and the debt issuance costs are being amortized into interest expense over the term of the 2019 Term Loans using the effective interest method. The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, and recorded an additional $0.4 million and $0.7 million of interest expense for the amortization of the debt issuance costs for the three and six months ended June 30, 2020, respectively. 

The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million for the three and six months ended June 30, 2019 and recorded an additional $0.2 million of interest expense for the amortization of the debt issuance costs for the three and six months ended June 30, 2019, respectively. 
 
2019 ABL Credit Agreement
 
On the Refinancing Closing Date, LFS also entered into a financing agreement with the lenders thereto and Citizens Bank, N.A., as collateral agent, administrative agent and origination agent (the “2019 ABL Credit Agreement” and, together with the 2019 Refinancing Agreement, the “Refinancing Agreements”). The 2019 ABL Credit Agreement consists of a $15.0 million revolving credit facility (the “2019 Revolving Credit Facility”). Proceeds of the 2019 Revolving Credit Facility may be used for general corporate purposes. On the Refinancing Closing Date, the Company had nothing drawn on the ABL Credit Agreement and $14.0 million of available borrowing capacity thereunder (net of a $1.0 million reserve imposed by the lender).
 
The Borrowers and Guarantors under the 2019 ABL Credit Agreement are the same as under the 2019 Refinancing Agreement.
 
The 2019 ABL Credit Agreement is secured by a second-priority lien on the real property of the Loan Parties (behind the 2019 Refinancing Agreement) and a first-priority lien on substantially all other assets of the Loan Parties.
 
2019 ABL Credit Agreement - Interest Rates and Fees
 
The interest rate on borrowings under the 2019 ABL Credit Agreement is, at the Borrowers’ option, either LIBOR (with a 2.0% floor) plus an applicable margin ranging from 3.00% to 3.50% or a base rate (with a 3.0% minimum) plus an applicable margin ranging from 2.00% to 2.50%. At June 30, 2020 and June 30, 2019, the interest rates in effect on the 2019 ABL Credit Agreement were 5.25% and 7.50%, respectively.
 
2019 ABL Credit Agreement - Other Terms and Conditions
 
The 2019 ABL Credit Agreement matures on April 12, 2022. There is an unused line fee ranging from 0.250% to 0.375% per annum on undrawn amounts.
 
The 2019 ABL Credit Agreement contains representations and warranties, and covenants which are customary for debt facilities of this type. Unless the Required Lenders otherwise consent in writing, the covenants limit the ability of the Company and its restricted subsidiaries to, among other things, generally, to (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company’s affiliates, (vii) sell assets other than

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in the ordinary course of business or another permitted disposition of assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.

The 2019 ABL Credit Agreement includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company fails to comply with the terms of the 2019 ABL Credit Agreement or if other customary events occur.
 
The 2019 ABL Credit Agreement also contains a financial maintenance covenant for the 2019 Revolving Credit Facility, which is a requirement for the Total Leverage Ratio of the Company and its Subsidiaries not to exceed an amount beginning at 4.00 to 1.00 through September 30, 2019, and stepping down to 1.75 to 1.00 effective July 1, 2021. As of August 31, 2019, the Company’s Total Leverage Ratio for the preceding twelve consecutive fiscal month period was 4.61 to 1.00, which did not meet the requirement for such ratio not to exceed 4.00 to 1.00. As of September 30, 2019, the Company’s Total Leverage Ratio for the preceding twelve consecutive fiscal month period was 2.85 to 1.00, which was in compliance with the 4.00 to 1.00 requirement. The lender has waived the event of default arising from this noncompliance as of August 31, 2019, while reserving its rights with respect to covenant compliance in future months. In addition, the parties to the 2019 ABL Credit Agreement entered into an amendment which, among other changes revises the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement.
In connection with the 2019 ABL Credit Amendment Number One and Waiver, the parties amended certain provisions of the 2019 ABL Credit Agreement, including, among other changes to (i) require the approval of the origination agent and, generally, the lenders representing at least 50.1% of the aggregate undrawn revolving loan commitment or unpaid principal amount of the term loans, prior to effecting any permitted acquisition; (ii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of the 2019 ABL Credit Agreement; and (iii) require the Loan Parties Liquidity as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000, as described above in the Amendment Number One to 2019 Refinancing Agreement and Waiver. As a condition to executing the 2019 ABL Credit Amendment Number One and Waiver, the loan parties was required to pay a non-refundable waiver fee of $7,500.

Accounting for the 2019 ABL Credit Agreement
 
As of June 30, 2020 and December 31, 2019, the Company had no amounts drawn on the 2019 ABL Credit Agreement. In addition, the Company incurred approximately $0.9 million of debt issuance costs for the 2019 ABL Credit Agreement that have been recorded as a non-current deferred asset. The deferred asset is being amortized into interest expense over the term of the 2019 Term ABL Credit Agreement using the effective interest method. The Company recorded interest expense of $0.1 million for the amortization the debt issuance costs for the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019.
Note 8 – Equity
The Company’s second amended and restated certificate of incorporation currently authorizes the issuance of 100,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001.
At June 30, 2020 and December 31, 2019, the Company had outstanding warrants exercisable for 4,576,799 shares of common stock, consisting of: (i) 4,600,000 warrants issued as part of units in its initial public offering, each of which is exercisable for one-half of one share of common stock at an exercise price of $11.50 per whole share (“Public Warrants”); (ii) 198,000 warrants, each exercisable for one-half of one share of common stock at an exercise price of $5.75 per half share ($11.50 per whole share) (“Sponsor Warrants”); (iii) 600,000 warrants, each exercisable for one share of common stock at an exercise price of $15.00 per share (“$15 Exercise Price Warrants”); (iv) 631,119 warrants, each exercisable for one share of common stock at an exercise price of $12.50 per share (“Merger Warrants”); and (v) 946,680 warrants, each exercisable for one share of common stock at an exercise price of $11.50 per share (“Additional Merger Warrants”). The Public Warrants, Sponsor Warrants and $15 Exercise Price Warrants were issued under a warrant agreement dated July 15, 2014, between Continental Stock Transfer & Trust Company, as warrant agent, and the Company. The Merger Warrants and Additional Merger Warrants were issued to the sellers of LHLLC.
On July 21, 2014, a total of 300,000 Unit Purchase Options (“UPOs”) were issued by 1347 Capital to a representative of the underwriter and its designees. The 17,100 UPOs that were outstanding at June 30, 2019 expired on July 21, 2019. Each UPO consisted of one share of common stock, one right to purchase one-tenth of one share of common stock and one warrant to purchase one-half of one share of common stock at an exercise price of $11.50 per full share, exercisable on a cash or cashless basis.

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In 2020, the Compensation Committee of the Board of Directors of the Company granted 118,633 restricted stock units (“RSUs”) and 96,500 performance-based RSUs (“PRSUs”) under the Limbach Holdings, Inc. Omnibus Incentive Plan (as amended, the “Omnibus Incentive Plan”) to certain executive officers, non-executive employees and non-employee directors of the Company in the form of an annual ongoing long-term incentive RSU award (the “2020 Ongoing LTI RSU Award”), and an ongoing RSU award to non-employee directors (“2020 Ongoing Director RSU Award”). The 2020 Ongoing LTI RSU Award and 2020 Ongoing Director RSU Award only contains service-based awards.
On May 24, 2020 the Board of Directors approved further amendments to the Company's amended and restated Omnibus Incentive Plan to increase the number of shares of the Company's common stock that may be issued pursuant to awards by 500,000, for a total of 1,650,000 shares, and extend the term of the plan so that it will expire on the tenth anniversary of the date the stockholders approve the Amended Incentive Plan. The amendments were approved by the Company's stockholders at the Annual Meeting held on July 14, 2020.
See Note 17 - Management Incentive Plans for RSUs granted, vested, forfeited and remaining unvested and Note 18 - Subsequent Events.

Upon approval of the Company's stockholders on May 30, 2019, the Company adopted the Limbach Holdings, Inc. 2019 Employee Stock Purchase Plan (“the ESPP”). On January 1, 2020, the ESPP went into effect. The ESPP enables eligible employees, as defined by the ESPP, the right to purchase the Company's common stock through payroll deductions during consecutive subscription periods at a purchase price of 85% of the fair market value of a common share at the end of each offering period. Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant's compensation or $5,000, whichever is less. Each offering period of the ESPP lasts six months, commencing on January 1 and July 1 of each year.  The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of common stock.  Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Compensation cost, representing the 15% discount applied to the fair market value of common stock, is recognized on a straight-line basis over the six-month vesting period during which employees perform related services. Under the ESPP 500,000 shares are authorized to be issued. As of June 30, 2020, no shares have been issued under the ESPP.
Note 9 – Fair Value Measurements
The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date;
Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities; and
Level 3 — unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable and accounts payable consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. We also believe that the carrying value of the 2019 Refinancing Agreement term loan approximates its fair value due to the variable rate on such debt. As of June 30, 2020 and December 31, 2019, the Company determined that the fair value of its 2019 Refinancing Agreement term loan was $41.0 million at each date. Such fair value is determined using discounted estimated future cash flows using level 3 inputs.
In connection with the 2019 Refinancing Agreement, on the Refinancing Closing Date, the Company issued to CB and the other lenders under the CB Warrants to purchase up to a maximum of 263,314 shares of the Company's common stock at an exercise price of $7.63 per share subject to certain adjustments, including for stock dividends, stock splits or reclassifications (refer to Note 7 - Debt). The fair value of the Company’s warrant liability is recorded in the Company’s condensed consolidated financial

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statements and is determined using the Black-Scholes-Merton option pricing model. The valuation inputs include the quoted price of the Company’s common stock in an active market, volatility and expected life of the warrants, which are Level 3 inputs. Volatility is based on the actual market activity of the Company’s stock. The expected life is based on the remaining contractual term of the warrants and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ expected life.
The table below sets forth the assumptions used within the Black-Scholes-Merton option pricing model to value the Company's warrant liabilities as of June 30, 2020:
Stock price
$
3.70

Exercise price
$
7.63

Time until expiration (years)
3.79

Expected volatility
70.0
%
Risk-free interest rate
0.3
%
Expected dividend yield
%
Note 10 – Earnings per Share
Diluted EPS assumes the dilutive effect of outstanding common stock warrants, UPOs and RSUs, all using the treasury stock method.
 
 
Three months ended
June 30,
 
Six months ended
 June 30,

 
 
 
2020
 
2019
 
2020
 
2019
(in thousands, except per share amounts)
 
 
 
(As Recast)
 
 
 
(As Recast)
EPS numerator:
 
 

 
 

 
 

 
 

Net income (loss)
 
$
2,947

 
$
(1,289
)
 
$
2,895

 
$
559

 
 
 
 
 
 
 
 
 
EPS denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
 
7,846

 
7,643

 
7,822

 
7,643

Impact of dilutive securities
 
59

 

 
56

 
74

Weighted average shares outstanding – diluted
 
7,905

 
7,643

 
7,878

 
7,717

 
 
 
 
 
 
 
 
 
EPS:
 
 
 
 
 
 
 
 
Basic
 
$
0.38

 
$
(0.17
)
 
$
0.37

 
$
0.07

Diluted
 
$
0.37

 
$
(0.17
)
 
$
0.37

 
$
0.07

The following table summarizes the securities that were antidilutive or out-of-the-money, and therefore, were not included in the computations of diluted loss per common share:
 
Three months ended
June 30,
 
Six months ended
June 30,

 
 
2020
 
2019
 
2020
 
2019
Out-of-the money warrants (see Note 8)
4,576,799

 
4,576,799

 
4,576,799

 
4,576,799

Service-based RSUs (See Note 17)
463

 
138,782

 
1,255

 
2,867

Performance and market-based RSUs(1)
9,674

 

 

 

Out-of-the money UPOs (See Note 8)

 
27,360

 

 
27,360

Total
4,586,936

 
4,742,941

 
4,578,054

 
4,607,026


(1) For the three and six months ended June 30, 2020 and 2019, certain PRSUs and MRSUs (both as defined below) were not included in the computation of diluted loss per share because the performance and market conditions were not satisfied during the periods and would not be satisfied if the reporting date was at the end of the contingency periods.
Note 11 – Income Taxes

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The Company is taxed as a C corporation.
For interim periods, the provision for income taxes (including federal, state, local and foreign taxes) is calculated based on the estimated annual effective tax rate, adjusted for certain discrete items for the full fiscal year. Cumulative adjustments to the Company's estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. The provision (benefit) for income taxes consist of the following:
No valuation allowance was required as of June 30, 2020 or December 31, 2019.
The Company has recorded a liability for unrecognized tax benefits of $0.5 million and $0.4 million as of June 30, 2020 and December 31, 2019, respectively, which were included in accrued expenses and other current liabilities. These unrecognized tax benefits are related to tax positions taken on its various income tax returns in open tax periods.
The effective tax rate for the three and six months ended June 30, 2020 was 27.4% and 14.1%, respectively, and the effective tax rate for the three and six months ended June 30, 2019 was (26.9%) and 31.8%, respectively. The difference in the effective rate for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 is primarily due to the CARES Act allowing the Company to carryback net operating losses (“NOLs”) generated in 2018 and 2019 (originally valued at a 21% federal tax rate) to prior years and generate a tax refund based on the higher 34% federal tax rate in those prior years.
On March 27, 2020, the CARES Act was signed into law making several changes to the Internal Revenue Code. The CARES Act, among other things, permits NOL carryovers to offset 100% of taxable income for tax years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding years to generate a $1.6 million refund of previously paid income taxes. The CARES Act contains modification on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. The CARES Act also accelerates the refund of AMT credits that were previously accumulated.
Note 12 – Operating Segments
The Company determined its operating segments on the same basis that it assesses performance and makes operating decisions. The Company manages and measures the performance of its business in two distinct operating segments: Construction and Service. These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company's CODM is comprised of its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM evaluates performance based on income from operations of the respective segments after the allocation of Corporate office operating expenses. In accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all of the construction branches into one Construction reportable segment and all of the service branches into one Service reportable segment. All transactions between segments are eliminated in consolidation. Our Corporate department provides general and administrative support services to our two operating segments. The CODM allocates costs between segments for selling, general and administrative expenses and depreciation expense.
All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled. The Company does not have sales outside the United States. The Company does not identify capital expenditures and total assets by segment in its internal financial reports due in part to the shared use of a centralized fleet of vehicles and specialized equipment. Interest expense is not allocated to segments because of the corporate management of debt service including interest.

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Condensed consolidated segment information for the periods presented is as follows:
 
Three months ended June 30,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Statement of Operations Data:
 

 
 

Revenue:
 

 
 

Construction
$
105,937

 
$
104,759

Service
29,248

 
27,844

Total revenue
135,185

 
132,603

 
 
 
 
Gross profit:
 
 
 
Construction
12,213

 
10,683

Service
8,122

 
7,012

Total gross profit
20,335

 
17,695

 
 
 
 
Selling, general and administrative expenses:(1)
 
 
 
Construction
8,024

 
11,229

Service
5,588

 
5,335

Corporate
140

 
515

Total selling, general and administrative expenses
13,752

 
17,079

Amortization of intangibles
274

 
175

Operating income
$
6,309

 
$
441

 
 
 
 
Operating income for reportable segments
$
6,309

 
$
441

Less unallocated amounts:
 
 
 
Interest expense, net
(2,137
)
 
(1,597
)
Gain (loss) on sale of property and equipment
(13
)
 
9

Loss on debt extinguishment

 
(513
)
Gain on change in fair value of warrant liability
(102
)
 
(103
)
Total unallocated amounts
(2,252
)
 
(2,204
)
Total consolidated income (loss) before income taxes
$
4,057

 
$
(1,763
)
 
 
 
 
Other Data:
 
 
 
Depreciation and amortization:
 
 
 
Construction
$
1,032

 
$
1,003

Service
330

 
282

Corporate
274

 
175

Total other data
$
1,636

 
$
1,460


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Six months ended June 30,

 
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Statement of Operations Data:
 

 
 

Revenue:
 

 
 

Construction
$
215,423

 
$
209,219

Service
58,534

 
57,131

Total revenue
273,957

 
266,350

 
 
 
 
Gross profit:
 
 
 
Construction
23,195

 
23,599

Service
15,364

 
13,720

Total gross profit
38,559

 
37,319

 
 
 
 
Selling, general and administrative expenses:(1)
 
 
 
Construction
18,200

 
21,681

Service
11,917

 
10,561

Corporate
435

 
882

Total selling, general and administrative expenses
30,552

 
33,124

Amortization of intangibles
417

 
350

Operating income
$
7,590

 
$
3,845

 
 
 
 
Operating income for reportable segments
$
7,590

 
$
3,845

Less unallocated amounts:
 
 
 
Interest expense, net
(4,295
)
 
(2,430
)
Gain on sale of property and equipment
17

 
21

Loss on debt extinguishment

 
(513
)
Gain on change in fair value of warrant liability
59

 
(103
)
Total unallocated amounts
(4,219
)
 
(3,025
)
Total consolidated income (loss) before income taxes
$
3,371

 
$
820

 
 
 
 
Other Data:
 
 
 
Depreciation and amortization:
 
 
 
Construction
$
2,062

 
$
1,976

Service
661

 
547

Corporate
417

 
350

Total other data
$
3,140

 
$
2,873


(1)
Starting January 1, 2020, we changed the methodology in which we present our corporate selling, general and administrative expenses to our CODM to better reflect the way the business is managed. Under this new methodology, all corporate expenses except for stock-based compensation are allocated to our Construction and Service segments. For comparability purposes, we reclassified our selling, general and administrative expense segment amounts for the three and six months ended June 30, 2019 to align with this updated allocation methodology.

Note 13 - Leases

The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition

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exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets.

The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For our leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with our real estate leases, the Company uses quoted borrowing rates on our secured debt.
The following table summarizes the lease amounts included in our condensed consolidated balance sheets:
(in thousands)
Classification on the Condensed Consolidated Balance Sheets
 
June 30, 2020
 
December 31, 2019
Assets
 
 
 
 
 
Operating
Operating lease right-of-use assets (a)
 
$
19,616

 
$
21,056

Finance
Property and equipment, net (b)
 
6,088

 
6,412

Total lease assets
 
 
$
25,704

 
$
27,468

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current
 
 
 
 
 
   Operating
Current operating lease liabilities
 
$
3,681

 
$
3,750

   Finance
Current portion of long-term debt
 
2,414

 
2,424

Noncurrent
 
 
 
 
 
   Operating
Long-term lease liabilities
 
16,502

 
18,247

   Finance
Long-term debt
 
3,871

 
4,161

Total lease liabilities
 
 
$
26,468

 
$
28,582

(a) Operating lease assets are recorded net of accumulated amortization of $9.9 million at June 30, 2020 and $8.5 million at December 31, 2019.
(b) Finance lease assets are recorded net of accumulated amortization of $4.9 million at June 30, 2020 and $4.7 million at December 31, 2019.

The following table summarizes the lease costs included in our condensed consolidated statements of operations for the three months ended:
 
 
 
For the Three months ended June 30,
 
For the Six months ended June 30,
(in thousands)
Classification on the Condensed Consolidated Statement of Operations
 
2020
 
2019
 
2020
 
2019
Operating lease cost
Cost of revenue(a)
 
$
893

 
$
853

 
$
1,777

 
1,667

Operating lease cost
Selling, general and administrative expenses(a)
 
376

 
346

 
757

 
671

Finance lease cost
 
 
 
 
 
 
 
 
 
   Amortization
Cost of revenue(b)
 
645

 
613

 
1,311

 
1,183

   Interest
Interest expense, net(b)
 
86

 
79

 
179

 
154

Total lease cost
 
 
$
2,000

 
$
1,891

 
$
4,024

 
$
3,675

(a) Operating lease costs recorded in cost of sales includes $0.1 million and $0.2 million of variable lease costs for the three months ended June 30, 2020 and 2019, respectively. In addition, $0.1 million of variable lease costs are included in Selling, general and administrative expenses for both the three months ended June 30, 2020 and 2019. Operating lease costs recorded in cost of sales includes $0.4 million of variable lease costs for the six months ended June 30, 2020 and 2019. In addition, $0.1 million of variable lease costs are included in Selling, general and administrative expenses for the six months ended June 30, 2020 and 2019.
(b) Finance lease costs recorded in cost of revenue for the three months ended June 30, 2020 and 2019 includes $0.5 million and $0.7 million of variable leases costs. Finance lease costs recorded in cost of revenue for the six months ended June 30, 2020 and 2019 includes $1.2 million and $1.4 million of variable lease costs. These variable lease costs consist of fuel, maintenance, and sales tax charges. No variable lease costs for finance leases were recorded in selling, general and administrative expenses.


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Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of June 30, 2020 were as follows:
Year ending (in thousands):
Finance
Leases
 
Operating
Leases
Remainder of 2020
$
1,429

 
$
2,294

2021
2,426

 
4,565

2022
1,898

 
4,305

2023
902

 
3,303

2024
162

 
2,701

Thereafter
1

 
6,169

Total minimum lease payments
$
6,818

 
$
23,337

Amounts representing interest
(533
)
 
 
Present value of net minimum lease payments
$
6,285

 
 

The following is a summary of the lease terms and discount rates:
 
 
June 30, 2020
 
December 31, 2019
Weighted average lease term (in years)
 
 
 
 
   Operating
 
5.93

 
6.20

   Finance
 
2.83

 
2.96

 
 
 
 
 
Weighted average discount rate
 
 
 
 
   Operating
 
4.81
%
 
4.80
%
   Finance
 
5.64
%
 
5.69
%

The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the six months ended:
(in thousands)
 
June 30, 2020
 
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
   Operating cash flows from operating leases
 
$
2,910

 
$
2,273

   Operating cash flows from finance leases
 
179

 
154

   Financing cash flows from finance leases
 
1,285

 
1,140

Right-of-use assets exchanged for lease liabilities:
 
 
 
 
   Operating leases
 
$

 
$
3,022

   Finance leases
 
1,050

 
1,630

Right-of-use assets disposed or adjusted modifying operating leases liabilities
 
$
586

 
$
1,651

Right-of-use assets disposed or adjusted modifying finance leases liabilities
 
$
(64
)
 
$


Note 14 – Self-Insurance
The Company purchases workers’ compensation and general liability insurance under policies with per-incident deductibles of $250 thousand and a $4.6 million maximum aggregate deductible loss limit per year.
The components of the self-insurance liability as of June 30, 2020 and December 31, 2019 are as follows:

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(in thousands)
As of
June 30,
2020
 
As of
December 31,
2019
Current liability — workers’ compensation and general liability
$
514

 
$
703

Current liability — medical and dental
511

 
821

Non-current liability
452

 
382

Total liability shown in Accrued expenses and other current liabilities
$
1,477

 
$
1,906

Restricted cash
$
113

 
$
113

The restricted cash balance represents an imprest cash balance set aside for the funding of workers' compensation and general liability insurance claims. This amount is replenished either when depleted or at the beginning of each month.
Note 15 – Commitments and Contingencies