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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 March 31, 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 June 14, 2020, there were 7,853,377 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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EXPLANATORY NOTE
 
In light of the circumstances and uncertainty surrounding the effects of the Coronavirus (“COVID-19”) pandemic on the business, customers, employees, subcontractors and supply chain, consultants, service providers, stockholders, investors and other stakeholders of Limbach Holdings, Inc. (the “Company”), the Company’s board of directors and management has determined that it was necessary to delay the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”), originally due on May 14, 2020, in reliance on the U.S. Securities and Exchange Commission’s (“SEC”) March 24, 2020 Order (Release No. 34-88465) (the “Order”), which allows for the delay of certain filings required under the Securities Exchange Act of 1934, as amended.

The Company’s operations and business have experienced disruption due to the unprecedented conditions surrounding the COVID-19 pandemic spreading throughout the United States and elsewhere, causing disruptions to the Company’s business operations, and management, at that time, was unable to compile and timely review certain information required to file the Quarterly Report by May 14, 2020 without unreasonable effort or expense. As such, the Company has relied upon the 45-day extension period provided by the Order to delay filing its Quarterly Report.


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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)
March 31,
2020
 
December 31,
2019
ASSETS
 

 
 

Current assets
 

 
 

Cash and cash equivalents
$
10,697

 
$
8,344

Restricted cash
113

 
113

Accounts receivable, net
112,392

 
105,067

Contract assets
69,670

 
77,188

Income tax receivable
2,012

 
494

Other current assets
4,498

 
4,174

Total current assets
199,382

 
195,380

 
 
 
 
Property and equipment, net
20,713

 
21,287

Intangible assets, net
12,168

 
12,311

Goodwill
6,129

 
6,129

Operating lease right-of-use assets
20,398

 
21,056

Deferred tax asset
3,765

 
4,786

Other assets
599

 
668

Total assets
$
263,154

 
$
261,617

 
 
 
 
LIABILITIES
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
5,376

 
$
4,425

Current operating lease liabilities
3,864

 
3,750

Accounts payable, including retainage
80,497

 
86,267

Contract liabilities
48,408

 
42,370

Accrued expenses and other current liabilities
21,408

 
20,057

Total current liabilities
159,553

 
156,869

Long-term debt
38,031

 
38,868

Long-term operating lease liabilities
17,499

 
18,247

Other long-term liabilities
958

 
763

Total liabilities
216,041

 
214,747

Commitments and contingencies (Note 15)


 


 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 7,793,863 issued and outstanding at March 31, 2020 and 7,688,958 at December 31, 2019
1

 
1

Additional paid-in capital
56,852

 
56,557

Accumulated deficit
(9,740
)
 
(9,688
)
Total stockholders’ equity
47,113

 
46,870

Total liabilities and stockholders’ equity
$
263,154

 
$
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 March 31,
 
 
 
2020
 
2019
 
(in thousands, except share and per share data)
 
 
 
(As Recast)
 
Revenue
 
$
138,772

 
$
133,746

 
Cost of revenue
 
120,548

 
114,123

 
Gross profit
 
18,224

 
19,623

 
Operating expenses:
 
 
 
 
 
Selling, general and administrative expenses
 
16,799

 
16,045

 
Amortization of intangibles
 
143

 
175

 
Total operating expenses
 
16,942

 
16,220

 
Operating income
 
1,282

 
3,403

 
Other income (expenses):
 
 
 
 
 
Interest expense, net
 
(2,158
)
 
(833
)
 
Gain on disposition of property and equipment
 
29

 
12

 
Gain on change in fair value of warrant liability
 
161

 

 
Total other expenses
 
(1,968
)
 
(821
)
 
Income (loss) before income taxes
 
(686
)
 
2,582

 
Income tax provision (benefit)
 
(634
)
 
735

 
Net income (loss)
 
$
(52
)
 
$
1,847

 
Earnings Per Share (“EPS”)
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
    Basic
 
$
(0.01
)
 
0.24

 
    Diluted
 
$
(0.01
)
 
0.24

 
Weighted average number of shares outstanding:
 
 
 
 
 
Basic
 
7,797,673

 
7,643,133

 
Diluted
 
7,797,673

 
7,667,913

 
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



 
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

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)
 
Three months ended March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)
Cash flows from operating activities:
 

 
 

Net (loss) income
$
(52
)
 
$
1,847

Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
1,504

 
1,413

Provision for doubtful accounts
8

 
10

Stock-based compensation expense
295

 
367

Noncash operating lease expense
1,002

 
882

Amortization of debt issuance costs
540

 
184

Deferred income tax (benefit) provision
1,021

 
616

Gain on sale of property and equipment
(29
)
 
(12
)
Gain on change in fair value of warrant liability
(161
)
 

Changes in operating assets and liabilities:
 
 
 
   Accounts receivable
(7,333
)
 
4,027

   Contract assets
7,518

 
(2,074
)
   Other current assets
(320
)
 
29,803

   Other assets

 
(913
)
   Accounts payable, including retainage
(5,771
)
 
(3,641
)
   Prepaid income taxes
(1,518
)
 
428

   Accrued taxes payable
(11
)
 
137

   Contract liabilities
6,038

 
(6,521
)
   Operating lease liabilities
(978
)
 
(879
)
   Accrued expenses and other current liabilities
1,407

 
(29,668
)
   Other long-term liabilities
357

 
(138
)
Net cash provided by (used in) operating activities
3,517

 
(4,132
)
Cash flows from investing activities:
 
 
 
Proceeds from sale of property and equipment
36

 
13

Advances to joint ventures
(3
)
 

Purchase of property and equipment
(501
)
 
(584
)
Net cash used in investing activities
(468
)
 
(571
)
Cash flows from financing activities:
 
 
 
Increase in bank overdrafts

 
(1,333
)
Payments on Credit Agreement term loan

 
(900
)
Proceeds from Credit Agreement revolver

 
17,500

Payments on Credit Agreement revolver

 
(7,000
)
Proceeds from 2019 Revolving Credit Facility
7,250

 

Payments on 2019 Revolving Credit Facility
(7,250
)
 

Payments on Bridge Term Loan

 
(250
)
Payments on finance leases
(652
)
 
(550
)
Payments of debt issuance costs

 
(550
)
Taxes paid related to net-share settlement of equity awards
(44
)
 
(29
)

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Net cash (used in) provided by financing activities
(696
)
 
6,888

Increase in cash, cash equivalents and restricted cash
2,353

 
2,185

Cash, cash equivalents and restricted cash, beginning of period
8,457

 
1,732

Cash, cash equivalents and restricted cash, end of period
$
10,810

 
$
3,917

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

 
$
1,509

   Right of use assets obtained in exchange for new finance lease liabilities
337

 
706

   Right of use assets disposed or adjusted modifying operating lease liabilities
344

 

   Right of use assets disposed or adjusted modifying finance lease liabilities
(41
)
 

Interest paid
$
1,607

 
$
596

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 continue to result in shutdowns of certain projects in our Construction and Service segments. In limited instances, project owners have chosen to shutdown work irrespective of the existence or applicability of government action. In most markets, construction is considered an essential business and Limbach continues to staff its projects and perform work. However, as Limbach's operations have been deemed essential, we have taken several measures to combat the COVID-19 downturn. The duration 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. However, in May, much of the COVID-19 regulations that caused shutdowns of projects in the New England region were lifted and the majority of the projects that were suspended in that region resumed operations, as well as the majority of 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. However, 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 quarter of 2020, we have taken 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;
Establishment of a task force to identify possible types and areas of impact from COVID-19 for both shutdown and continuing operations;

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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.
In addition to the above actions, we have taken steps to minimize the adverse impacts of the COVID-19 pandemic on our business and to protect the safety of our employees and have instituted daily mandatory safety talks for all employees; emphasized more frequent washing of hands and tools, social distancing, wearing masks and work protocols.
As a result of the events stated above, management performed a reforecast of its 2020 and 2021 financial plans. We assessed a variety of factors, including but not limited to, projects in our Construction and Service segments currently being impacted or delayed, anticipated and/or announced restart dates for impacted projects by local and state governments, 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 commencing 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. We continue to review and consider any available potential benefit under the CARES Act for which we qualify, if any.
Note 2 – Significant Accounting Policies
Basis of Presentation
Condensed Consolidated Financial Statements
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 latest 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

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contain all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2020, and its results of operations and its cash flows for the three months ended March 31, 2020. The results for the three months ended March 31, 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 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 quarter-ended March 31, 2019 has been restated 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.

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 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 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

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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 March 31, 2019 has been restated 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 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 Consolidated Financial Statements

The effect of the changes made to the Company's condensed consolidated March 31, 2019 balance sheet and condensed consolidated statement of operations for the adoption of ASC Topic 606 and ASC Topic 842 were as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
Previously Reported Balance as of March 31, 2019(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
Balance as of March 31, 2019 (As Recast)
Assets
 
 
 
 
 
 
 
Accounts receivable, net (b)
132,102

 
(30,318
)
 

 
101,784

Contract assets

 
65,884

 

 
65,884

Costs and estimated earnings in excess of billings on uncompleted contracts
34,170

 
(34,170
)
 

 

Other current assets
4,618

 
12

 

 
4,630

Operating lease right-of-use assets (c)

 

 
20,459

 
20,459

Deferred tax asset
3,701

 
(141
)
 

 
3,560

 

 

 

 

Liabilities
 
 
 
 
 
 
 
Contract liabilities

 
42,296

 

 
42,296

Billings in excess of costs and estimated earnings on uncompleted contracts
44,197

 
(44,197
)
 

 

Accrued expenses and other current liabilities
22,337

 
2,828

 

 
25,165

Current portion of long-term debt
2,076

 

 
62

 
2,138

Current operating lease liabilities (c)

 

 
3,431

 
3,431

Long-term debt
34,339

 

 
65

 
34,404

Long-term operating lease liabilities (c)

 

 
17,823

 
17,823

Other long-term liabilities
1,374

 

 
(794
)
 
580

 

 

 

 

Stockholders' Equity
 
 
 
 
 
 
 
Accumulated deficit
(6,278
)
 
340

 
(128
)
 
(6,066
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

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(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.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three months ended March 31, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
104,674

 
$
(215
)
 
$

 
$
104,459

   Service
29,277

 
10

 

 
29,287

Total revenue
133,951

 
(205
)
 

 
133,746

Cost of revenue
 
 
 
 
 
 

   Construction
91,361

 
183

 

 
91,544

   Service
22,557

 
22



 
22,579

Total cost of revenue
113,918

 
205

 

 
114,123

Gross profit
20,033

 
(410
)
 

 
19,623

Operating expenses:
 
 
 
 
 
 

Selling, general and administrative expenses
16,045

 

 

 
16,045

Amortization of intangibles
175

 

 

 
175

Total operating expenses
16,220

 

 

 
16,220

Operating income
3,813

 
(410
)
 

 
3,403

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(833
)
 

 

 
(833
)
Gain on disposition of property and equipment
12

 

 

 
12

Total other expenses
(821
)
 

 

 
(821
)
Income before income taxes
2,992

 
(410
)
 

 
2,582

Income tax provision
846

 
(111
)
 

 
735

Net income
$
2,146

 
$
(299
)
 
$

 
$
1,847

(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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

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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.
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 Update. 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 Update 2016-13. For entities that have adopted the guidance in Update 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)
March 31, 2020
 
December 31, 2019
Accounts receivable - trade
$
112,667

 
$
105,373

Allowance for doubtful accounts
(275
)
 
(306
)
   Accounts receivable, net
$
112,392

 
$
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)
March 31, 2020

 
December 31, 2019

 
Change
Contract assets
 
 
 
 
 
   Costs in excess of billings and estimated earnings
$
38,407

 
$
44,315

 
$
(5,908
)
   Retainage receivable
31,263

 
32,873

 
(1,610
)
      Total contract assets
$
69,670

 
$
77,188

 
$
(7,518
)
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

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

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)
March 31, 2020

 
December 31, 2019

 
Change
Contract liabilities
 
 
 
 
 
   Billings in excess of costs and estimated earnings
$
47,451

 
$
40,662

 
$
6,789

   Provisions for losses
957

 
1,708

 
(751
)
      Total contract liabilities
$
48,408

 
$
42,370

 
$
6,038


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)
March 31, 2020

 
December 31, 2019

Revenue earned on uncompleted contracts
$
743,559

 
$
726,215

Less: Billings to date
(752,603
)
 
(722,562
)
   Net (overbilling) underbilling
$
(9,044
)
 
$
3,653

 
 
 
 
 
 
 
 
(in thousands)
March 31, 2020

 
December 31, 2019

Costs in excess of billings and estimated earnings
$
38,407

 
$
44,315

Billings in excess of costs and estimated earnings
(47,451
)
 
(40,662
)
   Net (overbilling) underbilling
$
(9,044
)
 
$
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 six construction projects of $3.2 million for the three months ended March 31, 2020, four of which were within the Southern California region for a total of $2.5 million. We also recorded revisions in our contract estimates on two construction projects resulting in gross profit write ups totaling $1.0 million for the three months ended March 31, 2020.
For the three months ended March 31, 2019, we recorded revisions in our contract estimates for certain Construction projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling $1.6 million on two projects. One of these project write ups in the amount of $1.2 million resulted from our settlement of the final change order on a significant Michigan project. We also recorded revisions in contract estimates that resulted in project write downs totaling $1.2 million on three projects. No material project revisions were recorded for any Service projects during this period.
Note 6 – Goodwill and Intangibles
Goodwill was $6.1 million at March 31, 2020 and December 31, 2019. The goodwill is associated with the Company's Service segment. Intangible assets are comprised of the following:

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(in thousands)
Gross
carrying
amount
 
Accumulated
amortization
 
Net intangible
assets, excluding
goodwill
March 31, 2020
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
Customer Relationships – Service
$
4,710

 
$
(2,781
)
 
$
1,929

Favorable Leasehold Interests
530

 
(251
)
 
279

Total amortized intangible assets
5,240

 
(3,032
)
 
2,208

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

 
$
(3,032
)
 
$
12,168

(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
$
20,030

 
$
(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 $0.1 million for the three months ended March 31, 2020 and $0.2 million for the three months ended March 31, 2019.
The Company did not recognize any impairment charges on its goodwill or intangible assets for the three months ended March 31, 2020 or March 31, 2019.
Note 7 – Debt
Long-term debt consists of the following obligations as of:
(in thousands)
March 31, 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 4.95% to 6.95% through 2025
6,229

 
6,585

Total debt
47,229

 
47,585

Less - Current portion of long-term debt
(5,376
)
 
(4,425
)
Less - Unamortized discount and debt issuance costs
(3,822
)
 
(4,292
)
Long-term debt
$
38,031

 
$
38,868

Credit Agreement

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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 $750,000 on the Credit Agreement term loan were due quarterly through June 30, 2018. Principal payments of $900,000 on the Credit Agreement term loan were due at the end of each quarter 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. At March 31, 2019, the interest rates in effect were 8.5% on both the Credit Agreement term loan and the Credit Agreement revolver and 10.5% on the Bridge Term Loan (as defined below).
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. Commencing with the fiscal year ended December 31, 2017, the Company was required to remit an amount equal to 50% of the excess cash flow (as defined in the Credit Agreement) of the Company, which percentage will be reduced based on the Senior Leverage Ratio (as defined in the Credit Agreement). As a result of this provision, the Company remitted to the lenders under the Credit Agreement an excess cash flow payment of $1.2 million on May 1, 2018. No other mandatory prepayments were required before the Company refinanced the Credit Agreement on April 12, 2019.
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.
On January 12, 2018, LFS and LHLLC entered into the Second Amendment and Limited Waiver to the Credit Agreement (the “Second Amendment and Limited Waiver”) with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C issuer. The Second Amendment and Limited Waiver provides for a new term loan under the Credit Agreement in the aggregate principal amount of $10.0 million (the “Bridge Term Loan”) to be used for the purpose of financing the repurchase (the “Repurchase”) of all of the Company’s remaining 280,000 shares of Class A Preferred Stock, including accrued but unpaid dividends, and the payment of certain fees and expenses associated therewith. The proceeds from the Bridge Term Loan were used to finance the Repurchase for an aggregate purchase price of $10.0 million, including accrued but unpaid dividends of $0.9 million, pursuant to the Preferred Stock Repurchase Agreement, dated as of July 14, 2017 (the “Preferred Stock Repurchase Agreement”), by and between the Company and 1347 Investors LLC (“1347 Investors”).
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. With respect to the Bridge Term Loan, from January 12, 2018 to, but excluding, July 12, 2018 (the six-month anniversary of the loan), the applicable margin with respect to any Base Rate loans was 4.00% per annum and with respect to any Eurodollar loan was 5.00% per annum. From July 12, 2018 to, but excluding, the 12-month anniversary thereof, the applicable margin with respect to any Base Rate loan was 4.50% per annum and with respect to any Eurodollar loan was 5.50% per annum. From the 12-month anniversary of January 12, 2018 and all times thereafter, 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.
During the remainder of 2018, the Company, LFS and LHLLC entered into four additional amendments to the Credit Agreement with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C Issuer. Those amendments included but were not limited to: an increase in the amount that could be drawn against the Credit Agreement revolver for the issuances of letters of credit, modified the definition of EBITDA and amended the then-existing covenants. During the third quarter of 2018, the Company was not in compliance with the then-existing debt covenants, which ultimately resulted in the (i) reduction of the lenders' $25.0 million commitment under the Company's Credit Agreement revolver to $20.0 million over time, (ii) acceleration of the maturity date for the Credit Agreement revolver and the Credit Agreement Term Loan facility to March 31, 2020 and (iii) the lenders' request that the Company seek alternative financing. On November 19, 2018, the Company and the lenders executed a limited, conditional and temporary waiver agreement regarding loan documents, which provided for a temporary waiver of the two covenant violations through November 30, 2018, so long as no new defaults or events of default occurred in the intervening period. At the conclusion of the temporary waiver period, the lenders had reserved their rights and remedies to terminate their working capital funding and

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demand repayment of all amounts due under the Credit Agreement. In addition, the lenders were under no obligation to execute a restructured credit agreement by the November 30, 2018 date.
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.
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
%
The Company had $6.1 million of availability under its Credit Agreement revolver at March 31, 2019.

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 March 31, 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

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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 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 4.00 to 1.00 requirement. 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 eliminating its disclosure in the Company's SEC filings.

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,

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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 March 31, 2020, no amounts had been drawn on the 2019 Delayed Draw Term Loan, so no portion of the CB Warrants were 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. 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, respectively.

The CB Warrants liability is included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of March 31, 2020 and recorded any adjustments as other income (expense). At March 31, 2020 and December 31, 2019, the CB Warrants liability was $0.4 million and $0.2 million, respectively. For the three months ended March 31, 2020, the Company recorded other income of $0.2 million to reflect the change in fair value of the CB Warrants liability. At March 31, 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 for the three months ended March 31, 2020 and recorded an additional $0.4 million of interest expense for the amortization of the debt issuance costs for the three months ended March 31, 2020. 
 
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 March 31, 2020, the interest rate in effect on the 2019 ABL Credit Agreement was 5.25%.
 
2019 ABL Credit Agreement - Other Terms and Conditions
 

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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 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 4.00 to 1.00 requirement. 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 March 31, 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 months ended March 31, 2020.
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 March 31, 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

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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 March 31, 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.
In 2019, the Compensation Committee of the Board of Directors of the Company granted an aggregate of 274,851 restricted stock units (“RSUs”) 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 “2019 Ongoing LTI RSU Award”), and an ongoing RSU award to non-employee directors (“2019 Ongoing Director RSU Award”). The 2019 Ongoing LTI RSU Award and 2019 Ongoing Director RSU Award only contains service-based awards.
Upon approval of the Company's stockholders on May 30, 2019, the Company amended and restated the Omnibus Incentive Plan. Following such amendment and restatement, a total of 1,150,000 shares of the Company’s common stock were authorized and reserved for issuance under the Omnibus Incentive Plan.
See Note 17 - Management Incentive Plans for RSUs granted, vested, forfeited and remaining unvested.

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 Corporation'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 March 31, 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 March 31, 2020

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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 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 (refer to Note 7 - Debt). The fair value of the Company’s warrant liability is recorded in the Company’s condensed consolidated financial 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 March 31, 2020:
Stock price
$
2.85

Exercise price
$
7.63

Time until expiration (years)
4.0

Expected volatility
70.0
%
Risk-free interest rate
0.7
%
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, using the “if-converted” method.
 
 
Three months ended
March 31,
 
 
2020
 
2019
(in thousands, except per share amounts)
 
 
 
(As Recast)

EPS numerator:
 
 

 
 

Net income (loss)
 
$
(52
)
 
$
1,847

 
 
 
 
 
EPS denominator:
 
 
 
 
Weighted average shares outstanding – basic
 
7,798

 
7,643

Impact of dilutive securities
 

 
25

Weighted average shares outstanding – diluted
 
7,798

 
7,668

 
 
 
 
 
EPS:
 
 
 
 
Basic
 
$
(0.01
)
 
$
0.24

Diluted
 
$
(0.01
)
 
$
0.24

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
March 31,
 
2020
 
2019
Out-of-the money warrants (see Note 8)
4,576,799

 
4,576,799

Restricted stock units (RSUs) (See Note 17)(1)
70,120

 
21,628

Stock-based compensation (See Note 17)

 

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

 
27,360

Total
4,646,919

 
4,625,787


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(1) For the three months ended March 31, 2020 and 2019, all 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
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:
 
Three months ended
March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Current tax provision (benefit)
 

 
 

U.S. federal
$
(1,521
)
 
$
10

State and local
(134
)
 
109

Total current tax provision (benefit)
(1,655
)
 
119

 
 
 
 
Deferred income tax provision (benefit)
 
 
 
U.S. federal
915

 
526

State and local
106

 
90

Total deferred income tax provision (benefit)
1,021

 
616

Income tax provision (benefit)
$
(634
)
 
$
735

No valuation allowance was required as of March 31, 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 March 31, 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 benefit rate for the three months ended March 31, 2020 was 92.4% and the effective tax provision rate for the three months ended March 31, 2019 was 28.5%. The difference in the effective rate for the three months ended March 31, 2020 as compared to the three months ended March 31, 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.

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Table of Contents

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.
Condensed consolidated segment information for the periods presented is as follows:
 
Three months ended March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Statement of Operations Data:
 

 
 

Revenue:
 

 
 

Construction
$
109,486

 
$
104,459

Service
29,286

 
29,287

Total revenue
138,772

 
133,746

 
 
 
 
Gross profit:
 
 
 
Construction
10,982

 
12,915

Service
7,242

 
6,708

Total gross profit
18,224

 
19,623

 
 
 
 
Selling, general and administrative expenses:(1)
 
 
 
Construction
10,174

 
10,452

Service
6,330

 
5,226

Corporate
295

 
367

Total selling, general and administrative expenses
16,799

 
16,045

Amortization of intangibles
143

 
175

Operating income
$
1,282

 
$
3,403

 
 
 
 
Operating income for reportable segments
$
1,282

 
$
3,403

Less unallocated amounts:
 
 
 
Interest expense, net
(2,158
)
 
(833
)
Gain on sale of property and equipment
29

 
12

Gain on change in fair value of warrant liability
161

 

Total unallocated amounts
(1,968
)
 
(821
)
Total consolidated income (loss) before income taxes
$
(686
)
 
$
2,582

 
 
 
 
Other Data:
 
 
 
Depreciation and amortization:
 
 
 
Construction
$
1,030

 
$
973

Service
331

 
265

Corporate
143

 
175

Total other data
$
1,504

 
$
1,413


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Table of Contents

(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 months ended March 31, 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 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
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
 
Operating
Operating lease right-of-use assets (a)
 
$
20,398

 
$
21,056

Finance
Property and equipment, net (b)
 
6,042

 
6,412

Total lease assets
 
 
$
26,440

 
$
27,468

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current
 
 
 
 
 
   Operating
Current operating lease liabilities
 
$
3,864

 
$
3,750

   Finance
Current portion of long-term debt
 
2,376

 
2,424

Noncurrent
 
 
 
 
 
   Operating
Long-term lease liabilities
 
17,499

 
18,247

   Finance
Long-term debt
 
3,853

 
4,161

Total lease liabilities
 
 
$
27,592

 
$
28,582

(a) Operating lease assets are recorded net of accumulated amortization of $9.1 million at March 31, 2020 and $8.5 million at December 31, 2019.
(b) Finance lease assets are recorded net of accumulated amortization of $5.3 million at March 31, 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:

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Table of Contents

(in thousands)
Classification on the Condensed Consolidated Statement of Operations
 
March 31, 2020
 
March 31, 2019
Operating lease cost
Cost of revenue(a)
 
$
880

 
$
814

Operating lease cost
Selling, general and administrative expenses(a)
 
383

 
325

Finance lease cost
 
 
 
 
 
   Amortization
Cost of revenue(b)
 
666

 
570

   Interest
Interest expense, net(b)
 
92

 
75

Total lease cost
 
 
$
2,021

 
$
1,784

(a) Operating lease costs recorded in cost of sales includes $0.2 million of variable lease costs for the three months ending March 31, 2020 and 2019. In addition, $0.1 million of variable lease costs are included in Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019.
(b) Finance lease costs recorded in cost of revenue for the three months ended March 31, 2020 and 2019 includes $0.7 million of variable leases 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.

Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2020 were as follows:
Year ending (in thousands):
Finance
Leases
 
Operating
Leases
Remainder of 2020
$
2,063

 
$
3,626

2021
2,247

 
4,716

2022
1,716

 
4,331

2023
713

 
3,287

2024
35

 
2,685

Thereafter
1

 
6,101

Total minimum lease payments
$
6,775

 
$
24,746

Amounts representing interest
(546
)
 
 
Present value of net minimum lease payments
$
6,229

 
 

The following is a summary of the lease terms and discount rates:
 
 
March 31, 2020
 
December 31, 2019
Weighted average lease term (in years)
 
 
 
 
   Operating
 
5.96

 
6.20

   Finance
 
2.84

 
2.96

 
 
 
 
 
Weighted average discount rate
 
 
 
 
   Operating
 
4.80
%
 
4.80
%
   Finance
 
5.72
%
 
5.69
%

The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the three months ended:

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Table of Contents

(in thousands)
 
March 31, 2020
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
   Operating cash flows from operating leases
 
$
1,239

 
$
1,110

   Operating cash flows from finance leases
 
92

 
75

   Financing cash flows from finance leases
 
652

 
550

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

 
$
1,509

   Finance leases
 
337

 
706

Right-of-use assets disposed or adjusted modifying operating leases liabilities
 
$
344

 
$

Right-of-use assets disposed or adjusted modifying finance leases liabilities
 
$
(41
)
 
$


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 March 31, 2020 and December 31, 2019 are as follows:
(in thousands)
As of
March 31,
2020
 
As of
December 31,
2019
Current liability — workers’ compensation and general liability
$
299

 
$
703

Current liability — medical and dental
612

 
821

Non-current liability
738

 
382

Total liability shown in Accrued expenses and other current liabilities
$
1,649

 
$
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
Legal. The Company is continually engaged in administrative proceedings, arbitrations, and litigation with owners, general contractors, suppliers, and other unrelated parties, all arising in the ordinary courses of business. In the opinion of the Company’s management, the results of these actions will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
LFS and Harper, wholly owned subsidiaries of the Company, are parties to a lawsuit involving a Harper employee who was alleged to be in the course and scope of his employment at the time the personal car he was operating collided with another car causing injuries to three persons and one fatality. During the course of the litigation, the plaintiffs made settlement demands within LFS and Harper’s insurance coverage limits. On or about October 12, 2018, the plaintiffs agreed to settle and dismiss the lawsuit in exchange for an aggregate payment of $30.0 million from LFS and Harper, which amounts were paid entirely by the Company’s insurance carriers. The Company will not have any monetary exposure. The $30.0 million amounts due from the Company’s insurance carriers and due to the plaintiffs have been included in the captions labeled as other current assets and accrued expenses and other current liabilities, respectively, in the consolidated balance sheet as of December 31, 2018 and were subsequently paid in February 2019.
On January 23, 2020, plaintiff, Bernards Bros. Inc., filed a complaint in Superior Court of the State of California for the County of Los Angeles against Limbach Holdings, Inc.  The complaint alleges that our Southern California operations refused to honor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the wrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million, including alleged increased costs for hiring a different subcontractor to perform the work.  The Company intends to vigorously defend the suit.  Trial is expected later in 2020.

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On November 13, 2019, claimant, Lanzo Trenchless Technologies, Inc. - North, filed a Demand for Arbitration against our wholly owned subsidiary, Limbach Company LLC.  The demand seeks damages in excess of $400,000 based upon the allegation that Limbach breached a construction contract by improperly terminating Lanzo’s subcontract, and for withholding payment from Lanzo based upon deficient performance.  Limbach has asserted a counterclaim seeking damages in excess of $1.0 million caused by Lanzo’s deficient performance, including the need to hire a replacement subcontractor to finish and/or remediate portions of Lanzo’s work.  A binding arbitration proceeding is anticipated later in 2020.
Surety. The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. The Surety Bonds secure our payment and performance obligations under such contracts, and we have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of Surety Bonds issued on our behalf. In addition, at the request of labor unions representing certain of our employees, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. Public sector contracts require Surety Bonds more frequently than private sector contracts, and accordingly, our bonding requirements typically increase as the amount of public sector work increases. As of March 31, 2020, the Company had approximately $148.6 million in surety bonds outstanding. The Surety Bonds are issued by surety companies in return for premiums, which vary depending on the size and type of bond.
Collective Bargaining Agreements. Many of the Company’s craft labor employees are covered by collective bargaining agreements. The agreements require the Company to pay specified wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If the Company withdraws from any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the Company could incur additional liabilities related to these plans. Although the Company has been informed that some of the multi-employer pension plans to which it contributes have been classified as “critical” status, the Company is not currently aware of any significant liabilities related to this issue.
Note 16 – Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. The Company’s remaining performance obligations includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions.
As of March 31, 2020, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's Construction and Service segment contracts were $472.3 million and $47.3 million, respectively. As of December 31, 2019, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's Construction and Service segment contracts were $504.2 million and $41.9 million, respectively.
We estimate that 57% and 91% of our Construction and Service segment remaining performance obligations as of March 31, 2020, respectively, will be recognized as revenue during 2020, with the substantial majority of remaining performance obligations to be recognized within 24 months, although the timing of the Company's performance is not always under its control.
Additionally, the difference between remaining performance obligations and backlog is due to the exclusion of a portion of the Company’s service agreements under certain contract types from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to backlog is provided in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
Note 17 – Management Incentive Plans
The Company initially adopted the Omnibus Incentive Plan on July 20, 2016 for the purpose of: (a) encouraging the profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s objectives; (b) giving participants an incentive for excellence in individual performance; (c) promoting teamwork among participants; and (d) giving the Company a significant advantage in attracting and retaining key employees, directors and consultants. To accomplish such purposes, the Omnibus Incentive Plan provides that the Company may grant options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards (including performance-based restricted shares and restricted stock units), other share based awards, other cash-based awards or any combination of the foregoing.
Following the amendment and restatement of the Omnibus Incentive Plan upon approval of the Company's stockholders on May 30, 2019, the Company has reserved a total of 1,150,000 shares of its common stock for issuance under the Omnibus Incentive Plan. The number of shares issued or reserved pursuant to the Omnibus Incentive Plan will be adjusted by the plan administrator, as they deem appropriate and equitable, as a result of stock splits, stock dividends, and similar changes in the Company’s common

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stock. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control. All awards are made in the form of shares only.
Service-Based Awards
In 2020, the Company granted 103,700 service-based RSUs to its executives, certain employees, and non-employee directors under the Omnibus Incentive Plan.
The following table summarizes our service-based RSU activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
328,575

 
$
7.83

Granted
103,700

 
3.78

Vested
(112,905
)
 
8.99

Forfeited
(1,128
)
 
8.87

Unvested at March 31, 2020
318,242

 
$
6.09

Performance-Based Awards
In 2020, the Company granted 84,500 performance-based RSUs (“PRSUs”) to its executives and certain employees under the Omnibus Incentive Plan. The Company will recognize stock-based compensation expense for these awards over the vesting period based on the projected probability of achievement of certain performance conditions as of the end of each reporting period during the performance period and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s forecasts with respect to the performance conditions. For the three months ended March 31, 2020 and 2019, the Company did not recognize any stock-based compensation expense related to any outstanding PRSUs.
The following table summarizes our PRSU activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
62,307

 
$
12.62

Granted
84,500

 
3.78

Vested

 

Forfeited
(6,000
)
 
13.51

Unvested at March 31, 2020
140,807

 
$
7.28

Market-Based Awards
The following table summarizes our market-based RSU (“MRSUs”) activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
125,000

 
$
6.58

Granted

 

Vested

 

Forfeited
(12,500
)
 
6.58

Unvested at March 31, 2020
112,500

 
$
6.58

Total recognized stock-based compensation expense amounted to $0.3 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively. The aggregate fair value as of the vest date of RSUs that vested during the three months ended March 31, 2020 and 2019 was $0.4 million and $0.2 million, respectively. Total unrecognized stock-based compensation

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expense related to unvested RSUs which are probable of vesting was $0.8 million at March 31, 2020. These costs are expected to be recognized over a weighted average period of 1.32 years.

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 Corporation'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 1st and July 1st 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 March 31, 2020, no shares have been issued under the ESPP.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in subsequent Quarterly Reports on Form 10-Q. We assume no obligation to update any of these forward-looking statements.
Overview
We are an industry-leading commercial specialty contractor in the areas of heating, ventilation, and air conditioning (“HVAC”), plumbing, electrical and building controls through design and construction of new and renovated buildings, maintenance services, energy retrofits and equipment upgrades for private customers and federal, state, and local public agencies in Florida, California, Massachusetts, New Jersey, Pennsylvania, Delaware, Maryland, Washington, D.C., Virginia, West Virginia, Ohio and Michigan. We operate our business in two segments, (i) Construction, in which we generally manage large construction or renovation projects that involve primarily HVAC, plumbing or electrical services, and (ii) Service, in which we provide facility maintenance or services primarily on HVAC, plumbing or electrical systems. Our branches and corporate headquarters are located in the United States.
JOBS Act
We ceased to qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act on December 31, 2019, at which time we reached the last day of the fiscal year following the fifth anniversary of our initial public offering of common equity securities.
Key Components of Condensed Consolidated Statements of Operations
Revenue
We generate revenue principally from fixed-price construction contracts to deliver HVAC, plumbing, and electrical construction services to our customers. The duration of our contracts generally ranges from six months to two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the relationship of total cost incurred to total estimated contract costs. Revenue from time and materials contracts is recognized as services are performed. We believe that our extensive experience in HVAC, plumbing, and electrical projects, and our internal cost review procedures during the bidding process, enable us to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts.
We generally invoice customers on a monthly basis, based on a schedule of values that breaks down the contract amount into discrete billing items. Costs and estimated earnings in excess of billings on uncompleted contracts are recorded as a contract asset until billable under the contract terms. Billings in excess of costs and estimated earnings on uncompleted contracts are recorded as a contract liability until the related revenue is recognizable.
Cost of Revenue
Cost of revenue primarily consists of the labor, equipment, material, subcontract, and other job costs in connection with fulfilling the terms of our contracts. Labor costs consist of wages plus taxes, fringe benefits, and insurance. Equipment costs consist of the ownership and operating costs of company-owned assets, in addition to outside-rented equipment. If applicable, job costs include estimated contract losses to be incurred in future periods. Due to the varied nature of our services, and the risks associated therewith, contract costs as a percentage of contract revenue have historically fluctuated and we expect this fluctuation to continue in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs for our administrative, estimating, human resources, safety, information technology, legal, finance and accounting employees and executives. Also included are non-personnel costs, such as travel-related expenses, legal and other professional fees and other corporate expenses to support the growth of our business and to meet the compliance requirements associated with operating as a public company. Those costs include accounting, human resources, information technology, legal personnel, additional consulting, legal and audit fees, insurance costs, board of directors’ compensation and the costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act.
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

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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 months ended March 31, 2019 to align with this updated allocation methodology.
Amortization of Intangibles
Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets, primarily including leasehold interests, customer relationships - Service and backlog - Construction.
Other Income/Expense
Other income/expense, net consists primarily of interest expense incurred in connection with our debt, net of interest income and gains and losses on the sale of property and equipment and change in fair value of warrant liability. Deferred financing costs are amortized to interest expense using the effective interest method.
Income Taxes
We are taxed as a C corporation and our financial results include the effects of federal income taxes which are paid at the parent level.
For interim periods, the provision for income taxes (including federal, state and local taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with ASC Topic 740 - Income Taxes, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities and income or expense are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
Operating Segments
We manage and measure the performance of our business in two operating segments: Construction and Service. These segments are reflective of how the Company’s Chief Operating Decision Makers (“CODM”) reviews its operating results for the purposes of allocating resources and assessing performance. Our CODM is comprised of our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. The CODM evaluates performance and allocates resources based on operating income, which is profit or loss from operations before “other” corporate expenses, income tax provision (benefit), if any.
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 branches 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. We allocate costs between segments for selling, general and administrative expenses and depreciation expense. Some selling, general and administrative expenses such as executive and administrative salaries and payroll, corporate marketing, corporate depreciation and amortization, consulting, and accounting and corporate legal fees are not allocated to segments because the allocation method would be arbitrary and would not provide an accurate presentation of operating results of segments; instead these types of expenses are maintained as a corporate expense. See Note 12 – Operating Segments in the notes to condensed consolidated financial statements.
We do not identify capital expenditures and total assets by segment in our 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.

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Comparison of Results of Operations for the three months ended March 31, 2020 and March 31, 2019
The following table presents operating results for the three months ended March 31, 2020 and March 31, 2019 in dollars and expressed as a percentage of total revenue, as compared below:
 
 
Three months ended March 31,
 
 
 
2020
 
2019
 
 
 
 
 
 
 
(As Recast)
 
(in thousands except for percentages)
 
($)
 
(%)
 
($)
 
(%)
 
Statement of Operations Data:
 
 
 
 
 
 

 
 

 
Revenue:
 
 
 
 
 
 

 
 

 
Construction
 
$
109,486

 
78.9
 %
 
$
104,459

 
78.1
 %
 
Service
 
29,286

 
21.1
 %
 
29,287

 
21.9
 %
 
Total revenue
 
138,772

 
100.0
 %
 
133,746

 
100.0
 %
 
 
 
 
 
 
 
 
 
 
 
Gross profit:
 
 

 
 

 
 

 
 

 
Construction
 
10,982

 
10.0
 %
(1) 
12,915

 
12.4
 %
(1) 
Service
 
7,242

 
24.7
 %
(2) 
6,708

 
22.9
 %
(2) 
Total gross profit
 
18,224

 
13.1
 %
 
19,623

 
14.7
 %
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative:
 
 

 
 

 
 

 
 

 
Construction
 
10,174

 
9.3
 %
(1) 
10,452

 
10.0
 %
(1) 
Service
 
6,330

 
21.6
 %
(2) 
5,226

 
17.8
 %
(2) 
Corporate
 
295

 
0.2
 %
(3) 
367

 
0.3
 %
(3) 
Total selling, general and administrative expenses
 
16,799

 
12.1
 %
 
16,045

 
12.0
 %
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangibles (Corporate)
 
143

 
0.1
 %
 
175

 
0.1
 %
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 

 
 

 
 

 
 

 
Construction
 
808

 
0.7
 %
(1) 
2,463

 
2.4
 %
(1) 
Service
 
912

 
3.1
 %
(2) 
1,482

 
5.1
 %
(2) 
Corporate
 
(438
)
 
 %
 
(542
)
 
 %
 
Total operating income
 
1,282

 
0.9
 %
 
3,403

 
2.5
 %
 
 
 
 
 
 
 
 
 
 
 
Other expenses (Corporate)
 
(1,968
)
 
(1.4
)%
 
(821
)
 
(0.6
)%
 
Total consolidated income (loss) before income taxes
 
(686
)
 
(2.7
)%
 
2,582

 
1.9
 %
 
Income tax provision (benefit)
 
(634
)
 
(0.5
)%
 
735

 
0.5
 %
 
Net income (loss)
 
$
(52
)
 
 %
 
$
1,847

 
1.4
 %
 
(1)
As a percentage of Construction revenue.
(2)
As a percentage of Service revenue.
(3)
As a percentage of Total revenue.

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Revenue
 
Three months ended March 31,
 
2020
 
2019
 
Increase/(Decrease)
 
 
 
(As Recast)
 
 
 
 
(in thousands except for percentages)
$
 
$
 
$
 
%
Revenue:
 

 
 

 
 

 
 

Construction
109,486

 
104,459

 
5,027

 
4.8
 %
Service
29,286

 
29,287

 
(1
)
 
 %
Total revenue
138,772

 
133,746

 
5,026

 
3.8
 %
Revenue for the three months ended March 31, 2020 increased by $5.0 million compared to the revenue for the three months ended March 31, 2019, as recast for the adoption of ASC Topic 606. Construction revenue increased by $5.0 million, or 4.8%. Ohio, Michigan, and Florida regions' Service revenue was up year over year nearly offset by declines in Service revenue in all other regions, causing Service revenue to remain flat. The increase in Construction revenue was primarily driven by revenue increases at the Florida, Southern California, New England, Michigan and Eastern Pennsylvania regions. These increases were partially offset by revenue decreases in the Mid-Atlantic and Western Pennsylvania regions due to the substantial completion of three projects in the first quarter of 2020 compared to the same prior year quarter. Maintenance contract revenue, a component of Service revenue, was $3.8 million and $3.7 million for the three months ended March 31, 2020 and March 31, 2019, respectively, an increase of $0.1 million or 2.7%.
Gross Profit
 
Three months ended March 31,
 
2020
 
2019
 
Increase/(Decrease)
 
 
 
(As Recast)
 
 
 
 
(in thousands except for percentages)
$
 
$
 
$
 
%
Gross Profit:
 

 
 

 
 

 
 

Construction
10,982

 
12,915

 
(1,933
)
 
(15.0
)%
Service
7,242

 
6,708

 
534

 
8.0
 %
Total gross profit
18,224

 
19,623

 
(1,399
)
 
(7.1
)%
Total gross profit as a percentage of consolidated total revenue
13.1
%
 
14.7
%
 
 

 
 

Our gross profit for the three months ended March 31, 2020 decreased by $1.4 million compared to our gross profit for the three months ended March 31, 2019. Construction gross profit decreased $1.9 million or 15.0% due to the project write downs referenced in the succeeding paragraph. Service gross profit increased $0.5 million, or 8.0% due to more favorable project pricing. The total gross profit percentage decreased from 14.7% for the three months ended March 31, 2019 to 13.1% for the same period ended in 2020, mainly driven by revisions in contract estimates resulting in gross profit write downs as noted below.
For the three months ended March 31, 2020, we recorded revisions in our contract estimates for certain construction projects. We recorded gross profit write downs on six construction projects and two gross profit write ups on construction projects for the three months ended March 31, 2020, each of which had a material gross profit impact, for an aggregate revision of $3.2 million and $1.0 million, respectively.
For the three months ended March 31, 2019, we recorded revisions in our contract estimates for certain Construction projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling $1.6 million on two projects. One of these project write ups in the amount of $1.2 million resulted from our settlement of the final change order on a significant Michigan project. We also recorded revisions in contract estimates that resulted in project write downs totaling $1.2 million on three projects. No material project revisions were recorded for any Service projects during this period.

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Selling, General and Administrative Expenses
 
Three months ended March 31,
 
2020
 
2019
 
Increase/(Decrease)
 
 
 
(As Recast)
 
 
 
 
(in thousands except for percentages)
$
 
$
 
$
 
%
Selling, general and administrative expenses:
 

 
 

 
 

 
 

Construction
10,174

 
10,452

 
(278
)
 
(2.7
)%
Service
6,330

 
5,226

 
1,104

 
21.1
 %
Corporate
295

 
367

 
(72
)
 
(19.6
)%
Total selling, general and administrative expenses
16,799

 
16,045

 
754

 
4.7
 %
 
 
 
 
 
 
 
 
Selling, general and administrative expenses as a percentage of consolidated total revenue
12.1
%
 
12.0
%
 
 

 
 

Our total selling, general and administrative (“SG&A”) expenses increased by approximately $0.8 million to $16.8 million for the three months ended March 31, 2020 compared to $16.0 million for the three months ended March 31, 2019. Total SG&A expense increased during the current quarter by $1.1 million primarily related to additional headcount within the Service segment and $0.6 million due to severance expense incurred in conjunction with headcount reductions enacted in late March 2020. These increases were offset by a $0.3 million decrease in professional fees, reductions of $0.2 million in rent expense, $0.3 million in company-wide travel and entertainment expenses in an effort to reduce SG&A expenses and $0.2 million for medical and workers' compensation expense. Corporate SG&A decreased to $0.3 million for the three months ended March 31, 2020 from $0.4 million for the three months ended March 31, 2019 due to lower expense related to stock-based compensation awards. Additionally, total SG&A as a percentage of revenues were 12.1% for the three months ended March 31, 2020 and 12.0% for the three months ended March 31, 2019.
Amortization of Intangibles
 
Three months ended March 31,
 
2020
 
2019
 
Increase/(Decrease)
(in thousands except for percentages)
$
 
$
 
$
 
%
Amortization of intangibles (Corporate)
143

 
175

 
(32
)
 
(18.3
)%
Total amortization expense for the amortizable intangible assets was $0.1 million for the three months ended March 31, 2020 and $0.2 million for the three months ended March 31, 2019. This decrease was attributable to amortization of the Customer Relationships - Service intangible asset being lower for the three months ended March 31, 2020 than for the three months ended March 31, 2019.
Other Expenses
 
 
Three months ended March 31,
 
 
2020
 
2019
 
Increase/(Decrease)
(in thousands except for percentages)
 
$
 
$
 
$
 
%
Other income (expenses):
 
 

 
 

 
 

 
 

Interest expense, net
 
(2,158
)
 
(833
)
 
(1,325
)
 
159.1
%
   Gain on disposition of property and equipment
 
29

 
12

 
17

 
141.7
%
   Gain on fair value of warrant liability
 
161

 

 
161

 
100.0
%
Total other expenses
 
(1,968
)
 
(821
)
 
(1,147
)
 
139.7
%
Other expenses, consisting primarily of interest expense, were $2.0 million for the three months ended March 31, 2020 and $0.8 million for the three months ended March 31, 2019. The increase in interest expense was primarily due to the Company's higher interest rates on the refinanced debt obligations, including debt issuance and discount amortization, associated with the 2019 Refinancing Agreement that occurred on April 12, 2019. The Company also recorded other income of $0.2 million to reflect the change in fair value of the CB Warrants liability for the three months ended March 31, 2020.

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Income Taxes
The Company recorded a $1.5 million current federal tax benefit and a $0.1 million current state and local income tax benefit for the three months ended March 31, 2020. In addition, the Company recorded a $0.9 million deferred federal income tax provision and a $0.1 million deferred state and local income tax provision for the three months ended March 31, 2020.
For the three months ended March 31, 2019, the Company recorded a $0.1 million current federal and state and local current tax provision. In addition, the Company recorded a $0.6 million deferred federal income tax provision and a $0.1 million deferred state and local income tax provision for the three months ended March 31, 2019.
The effective tax benefit rate for the three months ended March 31, 2020 was 92.4% and the effective tax provision rate for the three months ended March 31, 2019 was 28.5%. The difference in the effective rate for the three months ended March 31, 2020 as compared to 2019 is primarily due to the CARES Act allowing the Company to carryback net operating losses generated in 2018 and 2019 (originally valued at a 21% federal tax rate) to prior tax years and generate a tax refund based on the higher 34% federal tax rate in those prior years. The total refund generated by this carryback was $1.6 million and has been included in income tax receivable in the condensed consolidated balance sheet at March 31, 2020.
Construction and Service Backlog Information
We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” Backlog includes unexercised contract options. Our backlog includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between our backlog and remaining performance obligations is due to the portion of unexercised contract options that are excluded, under certain contract types, from our remaining performance obligations as these contracts can be canceled for convenience at any time by us or the customer without considerable cost incurred by the customer. Additional information related to our remaining performance obligations is provided in Note 16 — Remaining Performance Obligations in the accompanying notes to our consolidated financial statements.
Given the multi-year duration of many of our contracts, revenue from backlog is expected to be earned over a period that will extend beyond one year. Many of our contracts contain provisions that allow the contract to be canceled at any time; however, if this occurs, we can generally recover costs incurred up to the date of cancellation.
Construction backlog as of March 31, 2020 was $472.3 million compared to $504.2 million at December 31, 2019, which reflects $31.9 million in excess of new construction contract awards that we received during the first three months of 2020. In addition, Service backlog as of March 31, 2020 was $62.6 million compared to $57.0 million at December 31, 2019 as a result of incremental Service sales generated from the Company’s investment in Service sales staff over the past few years. Of the total backlog at March 31, 2020, we expect to recognize approximately $323.7 million by the end of 2020.
Seasonality, Cyclicality and Quarterly Trends
Severe weather can impact our operations. In the northern climates where we operate, and to a lesser extent the southern climates as well, severe winters can slow our productivity on construction projects, which shifts revenue and gross profit recognition to a later period. Our maintenance operations may also be impacted by mild or severe weather. Mild weather tends to reduce demand for our maintenance services, whereas severe weather may increase the demand for our maintenance and spot services. Our operations also experience mild cyclicality, as building owners typically work through maintenance and capital projects at an increased level during the third and fourth calendar quarters of each year.
Effect of Inflation and Tariffs
The prices of products such as steel, pipe, copper and equipment from manufacturers are subject to fluctuation and the imposition of or increases in tariffs. While it is difficult to accurately measure the impact of inflation and tariffs due to the imprecise nature of the estimates required, we believe these effects of inflation, if any, on our results of operations and financial condition have been immaterial. When appropriate, we include cost escalation factors into our bids and proposals. In addition, we are often able to mitigate the impact of future price increases by entering into fixed price purchase orders for materials and equipment and subcontracts on our projects.
Liquidity and Capital Resources
Cash Flows

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Our liquidity needs relate primarily to the provision of working capital (defined as current assets less current liabilities) to support operations, funding of capital expenditures, and investment in strategic opportunities. Historically, liquidity has been provided by operating activities and borrowings from commercial banks and institutional lenders.
The following table presents summary cash flow information for the periods indicated:
 
 
Three months ended March 31,
 
 
2020
 
2019
(in thousands)
 
 
 
(As Recast)
Net cash provided by (used in):
 
 

 
 

Operating activities
 
$
3,517

 
$
(4,132
)
Investing activities
 
(468
)
 
(571
)
Financing activities
 
(696
)
 
6,888

Net increase in cash and cash equivalents
 
$
2,353

 
$
2,185

 
 
 
 
 
Noncash investing and financing transactions:
 
 
 
 
   Right of use assets obtained in exchange for new operating lease liabilities
 
$

 
$
1,509

   Right of use assets obtained in exchange for new finance lease liabilities
 
337

 
706

   Right of use assets disposed or adjusted modifying operating lease liabilities
 
344

 

   Right of use assets disposed or adjusted modifying finance lease liabilities
 
(41
)
 

Interest paid
 
$
1,607

 
$
596

Our cash flows are primarily impacted from period to period by fluctuations in working capital. Factors such as our contract mix, commercial terms, days sales outstanding (“DSO”) and delays in the start of projects may impact our working capital. In line with industry practice, we accumulate costs during a given month then bill those costs in the current month for many of our contracts. While labor costs associated with these contracts are paid weekly and salary costs associated with the contracts are paid bi-weekly, certain subcontractor costs are generally not paid until we receive payment from our customers (contractual “pay-if-paid” terms). We have not historically experienced a large volume of write-offs related to our receivables and contract assets. We regularly assess our receivables for collectability and provide allowances for doubtful accounts where appropriate. We believe that our reserves for doubtful accounts are appropriate as of March 31, 2020 and December 31, 2019, but adverse changes in the economic environment may impact certain of our customers’ ability to access capital and compensate us for our services, as well as impact project activity for the foreseeable future.
The Company's existing current backlog is projected to provide substantial coverage of forecasted construction revenue for one year from the date of the financial statement issuance. Our current cash balance, together with cash we expect to generate from future operations (inclusive of actions we are taking to reduce costs and spending across our organization, in response to the COVID-19 pandemic) along with borrowings available under our 2019 Refinancing Agreement and 2019 ABL Credit Agreement, is expected to be sufficient to finance our short- and long-term capital requirements (or meet working capital requirements) for the next twelve months. In addition to the future operating cash flows of the Company, along with its existing borrowing availability and access to financial markets, the Company believes it will be able to meet any working capital and future operating requirements, and capital investment forecast opportunities for the next twelve months. If current economic conditions decline materially from information presently available or if project shutdowns extend into the fourth quarter or the first quarter of 2021, the Company could be unable to meet its financial covenants, which would cause an event of default thereby classifying its debt as current. If the lenders were to call the debt, the Company might not have the available working capital to satisfy its outstanding debt obligations.
The following table represents our summarized working capital information:
(in thousands, except ratios)
 
As of
March 31, 2020
 
As of
December 31, 2019
Current assets
 
$
199,382

 
$
195,380

Current liabilities
 
(159,553
)
 
(156,869
)
 
 
 
 
 
Net working capital
 
$
39,829

 
$
38,511

Current ratio*
 
1.25

 
1.24


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*
Current ratio is calculated by dividing current assets by current liabilities.
As discussed further above and in Note 7 to the accompanying condensed consolidated financial statements, as of March 31, 2020, the Company was in compliance with all debt covenants as required by the 2019 Refinancing Credit Agreement.
Cash Flows Provided by (Used in) Operating Activities
Cash flows provided by operating activities were $3.5 million for the three months ended March 31, 2020 compared to cash flows used in operating activities of $4.1 million for the three months ended March 31, 2019. For the three months ended March 31, 2020, the key components included cash inflows of $7.5 million related to our contract assets, $6.0 million for our contract liabilities shifting from an underbilled to an overbilled position consistent with our renewed focus on project cash flows and $1.4 million related to accrued expenses and other current liabilities. These cash inflows were offset by outflows of $7.3 million related to our accounts receivable and $5.8 million related to our accounts payable, including retainage.
Cash flows used in operating activities were $4.1 million for the three months ended March 31, 2019. For the three months ended March 31, 2019, we experienced net income of $1.8 million and cash provided by operating activities due to a $4.0 million decrease in accounts receivable during the first quarter of 2019. This accounts receivable decrease resulted from lower revenue and billings in the first quarter of 2019 in comparison to stronger revenue and billings for the fourth quarter of 2018. These first quarter 2019 sources of operating cash flow were more than offset by decreases of $6.5 million in contract liabilities and $3.6 million in accounts payable, including retainage, and an increase of $2.1 million in contract assets. The significant decreases in other current assets and accrued expenses and other current liabilities are primarily attributable to the $30.0 million lawsuit settlement payments referenced in Note 15 to the accompanying condensed consolidated financial statements. The settlement of this matter was entirely covered by the Company's insurance carriers.
Non-cash charges for depreciation and amortization were $1.5 million for the three months ended March 31, 2020 and $1.4 million for the three months ended March 31, 2019.
Cash Flows Used in Investing Activities
Cash flows used in investing activities were $0.5 million for the three months ended March 31, 2020 and $0.6 million for the three months ended March 31, 2019. The majority of our cash used for investing activities in both periods was for capital additions pertaining to tools and equipment, computer software and hardware purchases, office furniture and office related leasehold improvements.
Cash Flows Provided by (Used in) Financing Activities
Cash flows used in financing activities were $0.7 million for the three months ended March 31, 2020. Cash provided by financing activities was $6.9 million for the three months ended March 31, 2019. For the three months ended March 31, 2020, we borrowed and repaid $7.3 million on the 2019 Revolving Credit Facility and made capital lease payments of $0.7 million.
For the three months ended March 31, 2019, we borrowed $17.5 million and repaid a total of $7.0 million on the Credit Agreement revolver (as defined below), in addition to repayments of $0.9 million on the Credit Agreement Term Loan and $0.3 million on the Bridge Term Loan. The Company also made capital lease payments of $0.6 million and payments of $0.6 million related to debt issuance costs for the April 12, 2019 debt refinancing. For the three months ended March 31, 2019, the Company's bank overdraft decreased by $1.3 million, representing a decrease in the Company's short-term obligation to its bank. Bank overdrafts represent outstanding checks in excess of cash on hand with a specific financial institution as of any balance sheet date.
Debt and Other Obligations
Credit Agreement
In 2016, 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 $750,000 on the Credit Agreement term loan were due quarterly through June 30, 2018. Principal payments of $900,000 on the Credit Agreement term loan were due at the end of each quarter 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. At March 31, 2019, the interest rates in effect were 8.5% on both the Credit Agreement term loan and the Credit Agreement revolver and 10.5% on the Bridge Term Loan (as defined below).

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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. Commencing with the fiscal year ended December 31, 2017, the Company was required to remit an amount equal to 50% of the excess cash flow (as defined in the Credit Agreement) of the Company, which percentage will be reduced based on the Senior Leverage Ratio (as defined in the Credit Agreement). As a result of this provision, the Company remitted to the lenders under the Credit Agreement an excess cash flow payment of $1.2 million on May 1, 2018. No other mandatory prepayments were required before the Company refinanced the Credit Agreement on April 12, 2019.
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.
On January 12, 2018, LFS and LHLLC entered into the Second Amendment and Limited Waiver to the Credit Agreement (the “Second Amendment and Limited Waiver”) with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C issuer. The Second Amendment and Limited Waiver provides for a new term loan under the Credit Agreement in the aggregate principal amount of $10.0 million (the “Bridge Term Loan”) to be used for the purpose of financing the repurchase (the “Repurchase”) of all of the Company’s remaining 280,000 shares of Class A Preferred Stock, including accrued but unpaid dividends, and the payment of certain fees and expenses associated therewith. The proceeds from the Bridge Term Loan were used to finance the Repurchase for an aggregate purchase price of $10.0 million, including accrued but unpaid dividends of $0.9 million, pursuant to the Preferred Stock Repurchase Agreement, dated as of July 14, 2017 (the “Preferred Stock Repurchase Agreement”), by and between the Company and 1347 Investors LLC (“1347 Investors”).
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. With respect to the Bridge Term Loan, from January 12, 2018 to, but excluding, July 12, 2018 (the six-month anniversary of the loan), the applicable margin with respect to any Base Rate loans was 4.00% per annum and with respect to any Eurodollar loan was 5.00% per annum. From July 12, 2018 to, but excluding, the 12-month anniversary thereof, the applicable margin with respect to any Base Rate loan will be 4.50% per annum and with respect to any Eurodollar loan will be 5.50% per annum. From the 12-month anniversary of January 12, 2018 and all times thereafter, 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.
During the remainder of 2018, the Company, LFS and LHLLC entered into four additional amendments to the Credit Agreement with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C Issuer. Those amendments included but were not limited to: an increase in the amount that could be drawn against the Credit Agreement revolver for the issuances of letters of credit, modified the definition of EBITDA and amended the then-existing covenants. During the third quarter of 2018, the Company was not in compliance with the then-existing debt covenants, which ultimately resulted in the (i) reduction of the lenders' $25.0 million commitment under the Company's Credit Agreement revolver to $20.0 million over time, (ii) acceleration of the maturity date for the Credit Agreement revolver and the Credit Agreement Term Loan facility to March 31, 2020 and (iii) the lenders' request that the Company seek alternative financing. On November 19, 2018, the Company and the lenders executed a limited, conditional and temporary waiver agreement regarding loan documents, which provided for a temporary waiver of the two covenant violations through November 30, 2018, so long as no new defaults or events of default occurred in the intervening period. At the conclusion of the temporary waiver period, the lenders had reserved their rights and remedies to terminate their working capital funding and demand repayment of all amounts due under the Credit Agreement. In addition, the lenders were under no obligation to execute a restructured credit agreement by the November 30, 2018 date.

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

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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 March 31, 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 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 4.00 to 1.00 requirement. 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 eliminating its disclosure in the Company's SEC filings, audited financial statements or related auditor’s reports.

In connection with the 2019 Refinancing Amendment Number One and Waiver, 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

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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 and March 31, 2020, no amounts had been drawn on the 2019 Delayed Draw Term Loan, so no portion of the CB Warrants were 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. 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, respectively.

The CB Warrants liability is included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of March 31, 2020 and recorded any adjustments as other income (expense). At March 31, 2020 and December 31, 2019, the CB Warrants liability was $0.2 million and $0.4 million, respectively. For the three months ended March 31, 2020, the Company recorded other income of $0.2 million to reflect the change in fair value of the CB Warrants liability. At March 31, 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 into 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

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discounts of $0.1 million for the three months ended March 31, 2020 and recorded an additional $0.4 million of interest expense for the amortization of the debt issuance costs for the three months ended March 31, 2020. 
 
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 March 31, 2020, the interest rate in effect on the 2019 ABL Credit Agreement was 5.25%.
 
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 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 4.00 to 1.00 requirement. 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

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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 March 31, 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 months ended March 31, 2020.
At March 31, 2020, the Company had total irrevocable letters of credit in the amount of $3.5 million under its self-insurance program as compared to $3.3 million at December 31, 2019.
The following table reflects our available funding capacity as of March 31, 2020:
(in thousands)
 
 

 
 

Cash & cash equivalents
 
 

 
$
10,697

Credit agreement:
 
 

 
 

Revolving credit facility
 
$
14,000

 
 

Outstanding revolving credit facility
 

 
 

Outstanding letters of credit
 
(3,510
)
 
 

Net credit agreement capacity available
 
 

 
10,490

Total available funding capacity
 
 

 
$
21,187

Cash Flow Summary
Management continues to devote additional resources to its billing and collection efforts, which has resulted in positive cash flow from operating activities for the three months ended March 31, 2020, despite the unfavorable cash flow impact of the quarter-to-date 2020 Southern California region project write downs. Management continues to expect that growth in its service business, which is less sensitive to the cash flow issues presented by large construction projects, will positively impact our cash flow trends.
Provided that the Company’s lenders continue to provide working capital funding, we believe based on the Company's current reforecast that our current cash and cash equivalents of $10.7 million as of March 31, 2020, cash payments to be received from existing and new customers, and availability of borrowing under the revolving line of credit under our 2019 Refinancing Agreement (pursuant to which we had $14.0 million of availability as of March 31, 2020) will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. See Note 1 - Organization and Plan of Business Operations.
Surety Bonding
In connection with our business, we are occasionally required to provide various types of surety bonds that provide an additional measure of security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends upon our capitalization, working capital, past performance, management expertise and external factors, including the capacity of the overall surety market. Surety companies consider such factors in light of the amount of our backlog that we have currently bonded and their current underwriting standards, which may change from time-to-time. The bonds we provide typically reflect the contract value. As of March 31, 2020 and December 31, 2019, the Company had approximately $148.6 million and $116.0 million in surety bonds outstanding. We believe that our $700.0 million bonding capacity provides us with a significant competitive advantage relative to many of our competitors which have limited bonding capacity.
Insurance and Self-Insurance
We purchase workers’ compensation and general liability insurance under policies with per-incident deductibles of $250,000 per occurrence. Losses incurred over primary policy limits are covered by umbrella and excess policies up to specified limits with multiple excess insurers. We accrue for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the Condensed Consolidated Balance Sheets as current and non-current liabilities. The liability is computed by determining a reserve for each reported claim on a case-by-case basis based on the nature of the claim and historical loss experience for similar claims plus an allowance for the cost of incurred but not reported claims. The current portion of the liability is included in accrued expenses and other current liabilities on the Condensed

44

Table of Contents

Consolidated Balance Sheets. The non-current portion of the liability is included in other long-term liabilities on the Condensed Consolidated Balance Sheets.
We are self-insured related to medical and dental claims under policies with annual per-claimant and annual aggregate stop-loss limits. We accrue for the unfunded portion of costs for both reported claims and claims incurred but not reported. The liability for unfunded reported claims and future claims is reflected on the Condensed Consolidated Balance Sheets as a current liability in accrued expenses and other current liabilities.
The components of the self-insurance liability are reflected below as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31, 2020
 
December 31, 2019
Current liability – workers’ compensation and general liability
$
299

 
$
703

Current liability – medical and dental
612

 
821

Non-current liability
738

 
382

Total liability
$
1,649

 
$
1,906

Restricted cash
$
113

 
$
113

The restricted cash balance represents cash set aside for the funding of workers’ compensation and general liability insurance claims. This amount is replenished when depleted, or at the beginning of each month.
Multiemployer Pension Plans
We participate in approximately 40 multiemployer pension plans (“MEPPs”) that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements (“CBAs”). As one of many participating employers in these MEPPs, we are responsible with the other participating employers for any plan underfunding. Our contributions to a particular MEPP are established by the applicable CBAs; however, required contributions may increase based on the funded status of an MEPP and legal requirements of the Pension Protection Act of 2006 (the “PPA”), which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization of extended amortization provisions. Assets contributed to the MEPPs by us may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to an MEPP, the unfunded obligations of the MEPP may be borne by the remaining participating employers.
An FIP or RP requires a particular MEPP to adopt measures to correct its underfunding status. These measures may include, but are not limited to an increase in a company’s contribution rate as a signatory to the applicable CBA, or changes to the benefits paid to retirees. In addition, the PPA requires that a 5.0% surcharge be levied on employer contributions for the first year commencing shortly after the date the employer receives notice that the MEPP is in critical status and a 10.0% surcharge on each succeeding year until a CBA is in place with terms and conditions consistent with the RP.
We could also be obligated to make payments to MEPPs if we either cease to have an obligation to contribute to the MEPP or significantly reduce our contributions to the MEPP because we reduce the number of employees who are covered by the relevant MEPP for various reasons, including, but not limited to, layoffs or closure of a subsidiary assuming the MEPP has unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) would equal our proportionate share of the MEPPs’ unfunded vested benefits. We believe that certain of the MEPPs in which we participate may have unfunded vested benefits. Due to uncertainty regarding future factors that could trigger withdrawal liability, we are unable to determine (a) the amount and timing of any future withdrawal liability, if any, and (b) whether our participation in these MEPPs could have a material adverse impact on our financial condition, results of operations or liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); therefore, pursuant to Item 301(c) of Regulation S-K, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation as of March 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that our Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As a result of the COVID-19 pandemic, certain employees began working remotely in March 2020. Notwithstanding these changes to the working environment, we have not identified any material changes in our internal control over financial reporting. We will continue to monitor and assess the COVID-19 situation to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting.
Inherent Limitations on Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

45

Table of Contents

Part II
Item 1. Legal Proceedings
Bernards Litigation
On January 23, 2020, plaintiff, Bernards Bros. Inc., filed a complaint in Superior Court of the State of California for the County of Los Angeles against Limbach Holdings, Inc.  The complaint alleges that our Southern California operations refused to honor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the wrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million, including alleged increased costs for hiring a different subcontractor to perform the work.  The Company intends to vigorously defend the suit.  Trial is expected later in 2020.
Lanzo Litigation
On November 13, 2019, claimant, Lanzo Trenchless Technologies, Inc. - North, filed a Demand for Arbitration against our wholly owned subsidiary, Limbach Company LLC.  The demand seeks damages in excess of $0.4 million based upon the allegation that Limbach breached a construction contract by improperly terminating Lanzo’s subcontract, and for withholding payment from Lanzo based upon deficient performance.  Limbach has asserted a counterclaim seeking damages in excess of $1.0 million caused by Lanzo’s deficient performance, including the need to hire a replacement subcontractor to finish and/or remediate portions of Lanzo’s work.  A binding arbitration proceeding is anticipated later in 2020.
Item 1A. Risk Factors

There have been no material changes to our risk factors previously disclosed in Part I, Item 1A of our 2019 Annual Report on Form 10-K. 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
 
Description
 
 
 
 
101.INS
 
XBRL Instance Document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Document.

46

Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
LIMBACH HOLDINGS, INC.
 
 
 
/s/ Charles A. Bacon, III
 
Charles A. Bacon, III
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
/s/ Jayme L. Brooks
 
Jayme L. Brooks
 
Chief Financial Officer
 
(Principal Financial and Accounting Officer)
Date: June 15, 2020
 

47
Exhibit


EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
CERTIFICATION OF CEO
I, Charles A. Bacon, III, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of Limbach Holdings, Inc. (the "registrant");
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
/s/ Charles A. Bacon, III  
 
Charles A. Bacon, III
 
Chief Executive Officer
Date: June 15, 2020
 


Exhibit


EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302
CERTIFICATION OF CFO
I, Jayme L. Brooks, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of Limbach Holdings, Inc. (the "registrant");
2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
/s/ Jayme L. Brooks  
 
Jayme L. Brooks
 
Chief Financial Officer
Date: June 15, 2020
 



Exhibit


EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Limbach Holdings, Inc. (the “Company”) for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Charles A. Bacon, III, the Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 15, 2020
 
By
/s/ Charles A. Bacon, III
 
Charles A. Bacon, III, Chief Executive Officer
 
(Principal Executive Officer)
 


Exhibit


EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Limbach Holdings, Inc. (the “Company”) for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Jayme L. Brooks, the Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 15, 2020
 
By
/s/ Jayme L. Brooks
 
Jayme L. Brooks, Chief Financial Officer
 
(Principal Financial Officer)
 


v3.20.1
Contract Assets and Liabilities (Tables)
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Components of Contract Asset and Liability Balances
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)
March 31, 2020

 
December 31, 2019

 
Change
Contract liabilities
 
 
 
 
 
   Billings in excess of costs and estimated earnings
$
47,451

 
$
40,662

 
$
6,789

   Provisions for losses
957

 
1,708

 
(751
)
      Total contract liabilities
$
48,408

 
$
42,370

 
$
6,038

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)
March 31, 2020

 
December 31, 2019

 
Change
Contract assets
 
 
 
 
 
   Costs in excess of billings and estimated earnings
$
38,407

 
$
44,315

 
$
(5,908
)
   Retainage receivable
31,263

 
32,873

 
(1,610
)
      Total contract assets
$
69,670

 
$
77,188

 
$
(7,518
)
Schedule of Contracts In Progress
The net (overbilling) underbilling position for contracts in process consist of the following:
(in thousands)
March 31, 2020

 
December 31, 2019

Revenue earned on uncompleted contracts
$
743,559

 
$
726,215

Less: Billings to date
(752,603
)
 
(722,562
)
   Net (overbilling) underbilling
$
(9,044
)
 
$
3,653

 
 
 
 
 
 
 
 
(in thousands)
March 31, 2020

 
December 31, 2019

Costs in excess of billings and estimated earnings
$
38,407

 
$
44,315

Billings in excess of costs and estimated earnings
(47,451
)
 
(40,662
)
   Net (overbilling) underbilling
$
(9,044
)
 
$
3,653

v3.20.1
Management Incentive Plans
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Management Incentive Plans
Management Incentive Plans
The Company initially adopted the Omnibus Incentive Plan on July 20, 2016 for the purpose of: (a) encouraging the profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s objectives; (b) giving participants an incentive for excellence in individual performance; (c) promoting teamwork among participants; and (d) giving the Company a significant advantage in attracting and retaining key employees, directors and consultants. To accomplish such purposes, the Omnibus Incentive Plan provides that the Company may grant options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards (including performance-based restricted shares and restricted stock units), other share based awards, other cash-based awards or any combination of the foregoing.
Following the amendment and restatement of the Omnibus Incentive Plan upon approval of the Company's stockholders on May 30, 2019, the Company has reserved a total of 1,150,000 shares of its common stock for issuance under the Omnibus Incentive Plan. The number of shares issued or reserved pursuant to the Omnibus Incentive Plan will be adjusted by the plan administrator, as they deem appropriate and equitable, as a result of stock splits, stock dividends, and similar changes in the Company’s common stock. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control. All awards are made in the form of shares only.
Service-Based Awards
In 2020, the Company granted 103,700 service-based RSUs to its executives, certain employees, and non-employee directors under the Omnibus Incentive Plan.
The following table summarizes our service-based RSU activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
328,575

 
$
7.83

Granted
103,700

 
3.78

Vested
(112,905
)
 
8.99

Forfeited
(1,128
)
 
8.87

Unvested at March 31, 2020
318,242

 
$
6.09


Performance-Based Awards
In 2020, the Company granted 84,500 performance-based RSUs (“PRSUs”) to its executives and certain employees under the Omnibus Incentive Plan. The Company will recognize stock-based compensation expense for these awards over the vesting period based on the projected probability of achievement of certain performance conditions as of the end of each reporting period during the performance period and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s forecasts with respect to the performance conditions. For the three months ended March 31, 2020 and 2019, the Company did not recognize any stock-based compensation expense related to any outstanding PRSUs.
The following table summarizes our PRSU activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
62,307

 
$
12.62

Granted
84,500

 
3.78

Vested

 

Forfeited
(6,000
)
 
13.51

Unvested at March 31, 2020
140,807

 
$
7.28


Market-Based Awards
The following table summarizes our market-based RSU (“MRSUs”) activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
125,000

 
$
6.58

Granted

 

Vested

 

Forfeited
(12,500
)
 
6.58

Unvested at March 31, 2020
112,500

 
$
6.58


Total recognized stock-based compensation expense amounted to $0.3 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively. The aggregate fair value as of the vest date of RSUs that vested during the three months ended March 31, 2020 and 2019 was $0.4 million and $0.2 million, respectively. Total unrecognized stock-based compensation expense related to unvested RSUs which are probable of vesting was $0.8 million at March 31, 2020. These costs are expected to be recognized over a weighted average period of 1.32 years.

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 Corporation'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 1st and July 1st 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 March 31, 2020, no shares have been issued under the ESPP.
v3.20.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies
Significant Accounting Policies
Basis of Presentation
Condensed Consolidated Financial Statements
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 latest 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 March 31, 2020, and its results of operations and its cash flows for the three months ended March 31, 2020. The results for the three months ended March 31, 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 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.
v3.20.1
Contract Assets and Liabilities - Components of Contract Asset and Liability Balances (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Contract assets      
Costs in excess of billings and estimated earnings $ 38,407   $ 44,315
Retainage receivable 31,263   32,873
Total contract assets 69,670 $ 65,884 77,188
Change in costs in excess of billings and estimated earnings (5,908)    
Change in retainage receivable (1,610)    
Change in total contract assets (7,518) 2,074  
Contract liabilities      
Billings in excess of costs and estimated earnings 47,451   40,662
Provisions for losses 957   1,708
Total contract liabilities 48,408   $ 42,370
Change in billings in excess of costs and estimated earnings 6,789    
Change in provisions for losses (751)    
Change in total contract liabilities $ 6,038 $ (6,521)  
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenue $ 138,772 $ 133,746
Cost of revenue 120,548 114,123
Gross profit 18,224 19,623
Operating expenses:    
Selling, general and administrative expenses 16,799 16,045
Amortization of intangibles 143 175
Total operating expenses 16,942 16,220
Operating income 1,282 3,403
Other income (expenses):    
Interest expense, net (2,158) (833)
Gain on disposition of property and equipment 29 12
Gain on change in fair value of warrant liability 161 0
Total other expenses (1,968) (821)
Income (loss) before income taxes (686) 2,582
Income tax provision (benefit) (634) 735
Net income (loss) $ (52) $ 1,847
Income (loss) per common share:    
Basic (in usd per share) $ (0.01) $ 0.24
Diluted (in usd per share) $ (0.01) $ 0.24
Weighted average number of shares outstanding:    
Basic (in shares) 7,797,673 7,643,133
Diluted (in shares) 7,797,673 7,667,913
v3.20.1
Goodwill and Intangibles - Schedule of Goodwill and Intangible Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Finite-Lived Intangible Assets [Line Items]    
Finite-lived intangible assets, gross $ 5,240 $ 5,240
Finite-lived intangible assets, accumulated amortization (3,032) (2,889)
Finite-lived intangible assets, net 2,208 2,351
Indefinite-lived intangible assets (excluding goodwill) 9,960 9,960
Intangible assets amortized excluding goodwill 9,960 9,960
Intangible assets, gross (excluding goodwill) 15,200 20,030
Intangible assets, net (excluding goodwill) 12,168 12,311
Customer Relationships – Service    
Finite-Lived Intangible Assets [Line Items]    
Finite-lived intangible assets, gross 4,710 4,710
Finite-lived intangible assets, accumulated amortization (2,781) (2,655)
Finite-lived intangible assets, net 1,929 2,055
Favorable Leasehold Interests    
Finite-Lived Intangible Assets [Line Items]    
Finite-lived intangible assets, gross 530 530
Finite-lived intangible assets, accumulated amortization (251) (234)
Finite-lived intangible assets, net 279 296
Trade Name    
Finite-Lived Intangible Assets [Line Items]    
Indefinite-lived intangible assets (excluding goodwill) 9,960 9,960
Intangible assets amortized excluding goodwill $ 9,960 $ 9,960
v3.20.1
Label Element Value
Accounting Standards Update 2016-02 [Member]  
Cumulative Effect of New Accounting Principle in Period of Adoption us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption $ (128,000)
Accounting Standards Update 2016-02 [Member] | Retained Earnings [Member]  
Cumulative Effect of New Accounting Principle in Period of Adoption us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption $ (128,000)
v3.20.1
Management Incentive Plans - Additional Information (Details) - USD ($)
3 Months Ended
Jan. 01, 2020
Mar. 31, 2020
Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Stock-based compensation expense   $ 295,000 $ 367,000
Share-based payment arrangement, nonvested award, excluding option, cost not yet recognized, amount   $ 800,000  
Share-based payment arrangement, nonvested award, cost not yet recognized, weighted average period   1 year 3 months 26 days  
Restricted Stock Units (RSUs)      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Stock-based compensation expense   $ 300,000 400,000
Share-based compensation arrangement by share-based payment award, vested in period, fair value   $ 400,000 $ 200,000
Omnibus Incentive Plan 2019      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Common stock, capital shares reserved for future issuance (in shares)   1,150,000  
Service-Based RSUs      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Granted, awards (in shares)   103,700  
Service-Based RSUs | Omnibus Incentive Plan 2019      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Granted, awards (in shares)   103,700  
Performance-Based RSUs      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Granted, awards (in shares)   84,500  
Performance-Based RSUs | Omnibus Incentive Plan 2019      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
Granted, awards (in shares)   84,500  
Employee Stock | 2019 Employee Stock Purchase Plan      
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]      
ESPP purchase price of common stock, percent of market price 85.00%    
Maximum participant contribution rate 10.00%    
Maximum contribution amount $ 5,000    
Offering period 6 months    
ESPP discount percentage from market price, beginning of purchase period 15.00%    
Share-based compensation arrangement by share-based payment award, vesting period 6 months    
Share-based compensation arrangement by share-based payment award, number of additional shares authorized (in shares) 500,000    
v3.20.1
Self-Insurance - Components of Self-Insurance (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Insurance [Abstract]    
Current liability — workers’ compensation and general liability $ 299 $ 703
Current liability — medical and dental 612 821
Non-current liability 738 382
Total liability shown in Accrued expenses and other current liabilities 1,649 1,906
Restricted cash $ 113 $ 113
v3.20.1
Leases - Future Minimum Lease Commitment (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Finance Leases    
2020 $ 2,063  
2021 2,247  
2022 1,716  
2023 713  
2024 35  
Thereafter 1  
Total minimum lease payments 6,775  
Amounts representing interest (546)  
Present value of net minimum lease payments 6,229 $ 6,585
Operating Leases    
2020 3,626  
2021 4,716  
2022 4,331  
2023 3,287  
2024 2,685  
Thereafter 6,101  
Total minimum lease payments $ 24,746  
v3.20.1
Operating Segments Operating Segments - Additional Information (Details)
3 Months Ended
Mar. 31, 2020
segment
Segment Reporting Information [Line Items]  
Number of operating segments 2
Construction  
Segment Reporting Information [Line Items]  
Number of reportable segments 1
Service  
Segment Reporting Information [Line Items]  
Number of reportable segments 1
v3.20.1
Earnings per Share - Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
EPS numerator:    
Net (loss) income $ (52) $ 1,847
EPS denominator:    
Weighted average shares outstanding - basic (in shares) 7,797,673 7,643,133
Impact of dilutive securities (in shares) 0 25,000
Weighted average shares outstanding - diluted (in shares) 7,797,673 7,667,913
EPS:    
Basic (in usd per share) $ (0.01) $ 0.24
Diluted (in usd per share) $ (0.01) $ 0.24
v3.20.1
Management Incentive Plans - Schedule of Nonvested Restricted Stock Units Activity (Details)
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Service-Based RSUs  
Awards  
Unvested, awards (in shares) | shares 328,575
Granted, awards (in shares) | shares 103,700
Vested, awards (in shares) | shares (112,905)
Forfeited, awards (in shares) | shares (1,128)
Unvested, awards (in shares) | shares 318,242
Weighted-Average Grant Date Fair Value  
Unvested, weighted-average grant date fair values (usd per share) | $ / shares $ 7.83
Granted, weighted-average grant date fair values (usd per share) | $ / shares 3.78
Vested, weighted-average grant date fair values (usd per share) | $ / shares 8.99
Forfeited, weighted-average grant date fair values (usd per share) | $ / shares 8.87
Unvested, weighted-average grant date fair values (usd per share) | $ / shares $ 6.09
Performance-Based RSUs  
Awards  
Unvested, awards (in shares) | shares 62,307
Granted, awards (in shares) | shares 84,500
Vested, awards (in shares) | shares 0
Forfeited, awards (in shares) | shares (6,000)
Unvested, awards (in shares) | shares 140,807
Weighted-Average Grant Date Fair Value  
Unvested, weighted-average grant date fair values (usd per share) | $ / shares $ 12.62
Granted, weighted-average grant date fair values (usd per share) | $ / shares 3.78
Vested, weighted-average grant date fair values (usd per share) | $ / shares 0.00
Forfeited, weighted-average grant date fair values (usd per share) | $ / shares 13.51
Unvested, weighted-average grant date fair values (usd per share) | $ / shares $ 7.28
Market-Based Awards  
Awards  
Unvested, awards (in shares) | shares 125,000
Granted, awards (in shares) | shares 0
Vested, awards (in shares) | shares 0
Forfeited, awards (in shares) | shares (12,500)
Unvested, awards (in shares) | shares 112,500
Weighted-Average Grant Date Fair Value  
Unvested, weighted-average grant date fair values (usd per share) | $ / shares $ 6.58
Granted, weighted-average grant date fair values (usd per share) | $ / shares 0.00
Vested, weighted-average grant date fair values (usd per share) | $ / shares 0.00
Forfeited, weighted-average grant date fair values (usd per share) | $ / shares 6.58
Unvested, weighted-average grant date fair values (usd per share) | $ / shares $ 6.58
v3.20.1
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases
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 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
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
 
Operating
Operating lease right-of-use assets (a)
 
$
20,398

 
$
21,056

Finance
Property and equipment, net (b)
 
6,042

 
6,412

Total lease assets
 
 
$
26,440

 
$
27,468

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current
 
 
 
 
 
   Operating
Current operating lease liabilities
 
$
3,864

 
$
3,750

   Finance
Current portion of long-term debt
 
2,376

 
2,424

Noncurrent
 
 
 
 
 
   Operating
Long-term lease liabilities
 
17,499

 
18,247

   Finance
Long-term debt
 
3,853

 
4,161

Total lease liabilities
 
 
$
27,592

 
$
28,582

(a) Operating lease assets are recorded net of accumulated amortization of $9.1 million at March 31, 2020 and $8.5 million at December 31, 2019.
(b) Finance lease assets are recorded net of accumulated amortization of $5.3 million at March 31, 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:
(in thousands)
Classification on the Condensed Consolidated Statement of Operations
 
March 31, 2020
 
March 31, 2019
Operating lease cost
Cost of revenue(a)
 
$
880

 
$
814

Operating lease cost
Selling, general and administrative expenses(a)
 
383

 
325

Finance lease cost
 
 
 
 
 
   Amortization
Cost of revenue(b)
 
666

 
570

   Interest
Interest expense, net(b)
 
92

 
75

Total lease cost
 
 
$
2,021

 
$
1,784

(a) Operating lease costs recorded in cost of sales includes $0.2 million of variable lease costs for the three months ending March 31, 2020 and 2019. In addition, $0.1 million of variable lease costs are included in Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019.
(b) Finance lease costs recorded in cost of revenue for the three months ended March 31, 2020 and 2019 includes $0.7 million of variable leases 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.

Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2020 were as follows:
Year ending (in thousands):
Finance
Leases
 
Operating
Leases
Remainder of 2020
$
2,063

 
$
3,626

2021
2,247

 
4,716

2022
1,716

 
4,331

2023
713

 
3,287

2024
35

 
2,685

Thereafter
1

 
6,101

Total minimum lease payments
$
6,775

 
$
24,746

Amounts representing interest
(546
)
 
 
Present value of net minimum lease payments
$
6,229

 
 


The following is a summary of the lease terms and discount rates:
 
 
March 31, 2020
 
December 31, 2019
Weighted average lease term (in years)
 
 
 
 
   Operating
 
5.96

 
6.20

   Finance
 
2.84

 
2.96

 
 
 
 
 
Weighted average discount rate
 
 
 
 
   Operating
 
4.80
%
 
4.80
%
   Finance
 
5.72
%
 
5.69
%


The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the three months ended:
(in thousands)
 
March 31, 2020
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
   Operating cash flows from operating leases
 
$
1,239

 
$
1,110

   Operating cash flows from finance leases
 
92

 
75

   Financing cash flows from finance leases
 
652

 
550

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

 
$
1,509

   Finance leases
 
337

 
706

Right-of-use assets disposed or adjusted modifying operating leases liabilities
 
$
344

 
$

Right-of-use assets disposed or adjusted modifying finance leases liabilities
 
$
(41
)
 
$

Leases
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 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
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
 
Operating
Operating lease right-of-use assets (a)
 
$
20,398

 
$
21,056

Finance
Property and equipment, net (b)
 
6,042

 
6,412

Total lease assets
 
 
$
26,440

 
$
27,468

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current
 
 
 
 
 
   Operating
Current operating lease liabilities
 
$
3,864

 
$
3,750

   Finance
Current portion of long-term debt
 
2,376

 
2,424

Noncurrent
 
 
 
 
 
   Operating
Long-term lease liabilities
 
17,499

 
18,247

   Finance
Long-term debt
 
3,853

 
4,161

Total lease liabilities
 
 
$
27,592

 
$
28,582

(a) Operating lease assets are recorded net of accumulated amortization of $9.1 million at March 31, 2020 and $8.5 million at December 31, 2019.
(b) Finance lease assets are recorded net of accumulated amortization of $5.3 million at March 31, 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:
(in thousands)
Classification on the Condensed Consolidated Statement of Operations
 
March 31, 2020
 
March 31, 2019
Operating lease cost
Cost of revenue(a)
 
$
880

 
$
814

Operating lease cost
Selling, general and administrative expenses(a)
 
383

 
325

Finance lease cost
 
 
 
 
 
   Amortization
Cost of revenue(b)
 
666

 
570

   Interest
Interest expense, net(b)
 
92

 
75

Total lease cost
 
 
$
2,021

 
$
1,784

(a) Operating lease costs recorded in cost of sales includes $0.2 million of variable lease costs for the three months ending March 31, 2020 and 2019. In addition, $0.1 million of variable lease costs are included in Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019.
(b) Finance lease costs recorded in cost of revenue for the three months ended March 31, 2020 and 2019 includes $0.7 million of variable leases 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.

Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2020 were as follows:
Year ending (in thousands):
Finance
Leases
 
Operating
Leases
Remainder of 2020
$
2,063

 
$
3,626

2021
2,247

 
4,716

2022
1,716

 
4,331

2023
713

 
3,287

2024
35

 
2,685

Thereafter
1

 
6,101

Total minimum lease payments
$
6,775

 
$
24,746

Amounts representing interest
(546
)
 
 
Present value of net minimum lease payments
$
6,229

 
 


The following is a summary of the lease terms and discount rates:
 
 
March 31, 2020
 
December 31, 2019
Weighted average lease term (in years)
 
 
 
 
   Operating
 
5.96

 
6.20

   Finance
 
2.84

 
2.96

 
 
 
 
 
Weighted average discount rate
 
 
 
 
   Operating
 
4.80
%
 
4.80
%
   Finance
 
5.72
%
 
5.69
%


The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the three months ended:
(in thousands)
 
March 31, 2020
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
   Operating cash flows from operating leases
 
$
1,239

 
$
1,110

   Operating cash flows from finance leases
 
92

 
75

   Financing cash flows from finance leases
 
652

 
550

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

 
$
1,509

   Finance leases
 
337

 
706

Right-of-use assets disposed or adjusted modifying operating leases liabilities
 
$
344

 
$

Right-of-use assets disposed or adjusted modifying finance leases liabilities
 
$
(41
)
 
$

v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
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 March 31, 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 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 (refer to Note 7 - Debt). The fair value of the Company’s warrant liability is recorded in the Company’s condensed consolidated financial 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 March 31, 2020:
Stock price
$
2.85

Exercise price
$
7.63

Time until expiration (years)
4.0

Expected volatility
70.0
%
Risk-free interest rate
0.7
%
Expected dividend yield
%
v3.20.1
Contract Assets and Liabilities
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Contract Assets and Liabilities
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)
March 31, 2020

 
December 31, 2019

 
Change
Contract assets
 
 
 
 
 
   Costs in excess of billings and estimated earnings
$
38,407

 
$
44,315

 
$
(5,908
)
   Retainage receivable
31,263

 
32,873

 
(1,610
)
      Total contract assets
$
69,670

 
$
77,188

 
$
(7,518
)

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

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)
March 31, 2020

 
December 31, 2019

 
Change
Contract liabilities
 
 
 
 
 
   Billings in excess of costs and estimated earnings
$
47,451

 
$
40,662

 
$
6,789

   Provisions for losses
957

 
1,708

 
(751
)
      Total contract liabilities
$
48,408

 
$
42,370

 
$
6,038



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)
March 31, 2020

 
December 31, 2019

Revenue earned on uncompleted contracts
$
743,559

 
$
726,215

Less: Billings to date
(752,603
)
 
(722,562
)
   Net (overbilling) underbilling
$
(9,044
)
 
$
3,653

 
 
 
 
 
 
 
 
(in thousands)
March 31, 2020

 
December 31, 2019

Costs in excess of billings and estimated earnings
$
38,407

 
$
44,315

Billings in excess of costs and estimated earnings
(47,451
)
 
(40,662
)
   Net (overbilling) underbilling
$
(9,044
)
 
$
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 six construction projects of $3.2 million for the three months ended March 31, 2020, four of which were within the Southern California region for a total of $2.5 million. We also recorded revisions in our contract estimates on two construction projects resulting in gross profit write ups totaling $1.0 million for the three months ended March 31, 2020.
For the three months ended March 31, 2019, we recorded revisions in our contract estimates for certain Construction projects. For individual projects with revisions having a material gross profit impact, this resulted in gross profit write ups totaling $1.6 million on two projects. One of these project write ups in the amount of $1.2 million resulted from our settlement of the final change order on a significant Michigan project. We also recorded revisions in contract estimates that resulted in project write downs totaling $1.2 million on three projects. No material project revisions were recorded for any Service projects during this period.
v3.20.1
Income Taxes (Tables)
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Components of Income Tax Provision (Benefit)
The provision (benefit) for income taxes consist of the following:
 
Three months ended
March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Current tax provision (benefit)
 

 
 

U.S. federal
$
(1,521
)
 
$
10

State and local
(134
)
 
109

Total current tax provision (benefit)
(1,655
)
 
119

 
 
 
 
Deferred income tax provision (benefit)
 
 
 
U.S. federal
915

 
526

State and local
106

 
90

Total deferred income tax provision (benefit)
1,021

 
616

Income tax provision (benefit)
$
(634
)
 
$
735

v3.20.1
Management Incentive Plans (Tables)
3 Months Ended
Mar. 31, 2020
Service-Based RSUs  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Schedule of Nonvested Restricted Stock Units Activity
The following table summarizes our service-based RSU activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
328,575

 
$
7.83

Granted
103,700

 
3.78

Vested
(112,905
)
 
8.99

Forfeited
(1,128
)
 
8.87

Unvested at March 31, 2020
318,242

 
$
6.09

Performance-Based RSUs  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Schedule of Nonvested Restricted Stock Units Activity
The following table summarizes our PRSU activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
62,307

 
$
12.62

Granted
84,500

 
3.78

Vested

 

Forfeited
(6,000
)
 
13.51

Unvested at March 31, 2020
140,807

 
$
7.28

Market-Based Awards  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Schedule of Nonvested Restricted Stock Units Activity
The following table summarizes our market-based RSU (“MRSUs”) activity for the three months ended March 31, 2020:
 
Awards
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2019
125,000

 
$
6.58

Granted

 

Vested

 

Forfeited
(12,500
)
 
6.58

Unvested at March 31, 2020
112,500

 
$
6.58

v3.20.1
Income Taxes - Additional Information (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 27, 2020
Dec. 31, 2019
Income Tax Disclosure [Abstract]        
Valuation allowance $ 0     $ 0
Unrecognized tax benefits, accrued interest and penalties $ 500,000     $ 400,000
Effective tax expense (benefit) rate (92.40%) 28.50%    
NOLs carryback under the CARES Act     $ 1,600,000  
v3.20.1
Fair Value Measurements Fair Value Measurements - Fair Value Assumptions Using Black-Scholes-Merton Option Pricing Model (Details) - Valuation Technique, Option Pricing Model
Mar. 31, 2020
Fair Value Measurement Inputs and Valuation Techniques [Line Items]  
Time until expiration (years) 4 years
Stock price  
Fair Value Measurement Inputs and Valuation Techniques [Line Items]  
Warrant liabilities, measurement inputs 2.85
Exercise price  
Fair Value Measurement Inputs and Valuation Techniques [Line Items]  
Warrant liabilities, measurement inputs 7.63
Expected volatility  
Fair Value Measurement Inputs and Valuation Techniques [Line Items]  
Warrant liabilities, measurement inputs 0.700
Risk-free interest rate  
Fair Value Measurement Inputs and Valuation Techniques [Line Items]  
Warrant liabilities, measurement inputs 0.007
Expected dividend yield  
Fair Value Measurement Inputs and Valuation Techniques [Line Items]  
Warrant liabilities, measurement inputs 0.00
v3.20.1
Equity
3 Months Ended
Mar. 31, 2020
Stockholders' Equity Note [Abstract]  
Equity
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 March 31, 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 March 31, 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.
In 2019, the Compensation Committee of the Board of Directors of the Company granted an aggregate of 274,851 restricted stock units (“RSUs”) 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 “2019 Ongoing LTI RSU Award”), and an ongoing RSU award to non-employee directors (“2019 Ongoing Director RSU Award”). The 2019 Ongoing LTI RSU Award and 2019 Ongoing Director RSU Award only contains service-based awards.
Upon approval of the Company's stockholders on May 30, 2019, the Company amended and restated the Omnibus Incentive Plan. Following such amendment and restatement, a total of 1,150,000 shares of the Company’s common stock were authorized and reserved for issuance under the Omnibus Incentive Plan.
See Note 17 - Management Incentive Plans for RSUs granted, vested, forfeited and remaining unvested.

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 Corporation'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 March 31, 2020, no shares have been issued under the ESPP.
v3.20.1
Accounts Receivable and Allowance for Doubtful Accounts
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Accounts Receivable and Allowance for Doubtful Accounts
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable and the allowance for doubtful accounts are comprised of the following:
(in thousands)
March 31, 2020
 
December 31, 2019
Accounts receivable - trade
$
112,667

 
$
105,373

Allowance for doubtful accounts
(275
)
 
(306
)
   Accounts receivable, net
$
112,392

 
$
105,067

v3.20.1
Operating Segments
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Operating Segments
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.
Condensed consolidated segment information for the periods presented is as follows:
 
Three months ended March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Statement of Operations Data:
 

 
 

Revenue:
 

 
 

Construction
$
109,486

 
$
104,459

Service
29,286

 
29,287

Total revenue
138,772

 
133,746

 
 
 
 
Gross profit:
 
 
 
Construction
10,982

 
12,915

Service
7,242

 
6,708

Total gross profit
18,224

 
19,623

 
 
 
 
Selling, general and administrative expenses:(1)
 
 
 
Construction
10,174

 
10,452

Service
6,330

 
5,226

Corporate
295

 
367

Total selling, general and administrative expenses
16,799

 
16,045

Amortization of intangibles
143

 
175

Operating income
$
1,282

 
$
3,403

 
 
 
 
Operating income for reportable segments
$
1,282

 
$
3,403

Less unallocated amounts:
 
 
 
Interest expense, net
(2,158
)
 
(833
)
Gain on sale of property and equipment
29

 
12

Gain on change in fair value of warrant liability
161

 

Total unallocated amounts
(1,968
)
 
(821
)
Total consolidated income (loss) before income taxes
$
(686
)
 
$
2,582

 
 
 
 
Other Data:
 
 
 
Depreciation and amortization:
 
 
 
Construction
$
1,030

 
$
973

Service
331

 
265

Corporate
143

 
175

Total other data
$
1,504

 
$
1,413


(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 months ended March 31, 2019 to align with this updated allocation methodology.
v3.20.1
Operating Segments (Tables)
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Condensed Consolidated Segment Information
Condensed consolidated segment information for the periods presented is as follows:
 
Three months ended March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Statement of Operations Data:
 

 
 

Revenue:
 

 
 

Construction
$
109,486

 
$
104,459

Service
29,286

 
29,287

Total revenue
138,772

 
133,746

 
 
 
 
Gross profit:
 
 
 
Construction
10,982

 
12,915

Service
7,242

 
6,708

Total gross profit
18,224

 
19,623

 
 
 
 
Selling, general and administrative expenses:(1)
 
 
 
Construction
10,174

 
10,452

Service
6,330

 
5,226

Corporate
295

 
367

Total selling, general and administrative expenses
16,799

 
16,045

Amortization of intangibles
143

 
175

Operating income
$
1,282

 
$
3,403

 
 
 
 
Operating income for reportable segments
$
1,282

 
$
3,403

Less unallocated amounts:
 
 
 
Interest expense, net
(2,158
)
 
(833
)
Gain on sale of property and equipment
29

 
12

Gain on change in fair value of warrant liability
161

 

Total unallocated amounts
(1,968
)
 
(821
)
Total consolidated income (loss) before income taxes
$
(686
)
 
$
2,582

 
 
 
 
Other Data:
 
 
 
Depreciation and amortization:
 
 
 
Construction
$
1,030

 
$
973

Service
331

 
265

Corporate
143

 
175

Total other data
$
1,504

 
$
1,413


(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 months ended March 31, 2019 to align with this updated allocation methodology.
v3.20.1
Organization and Plan of Business Operations Organization and Plan of Business Operations (Details)
3 Months Ended
Mar. 31, 2020
segment
Unusual or Infrequent Item, or Both [Line Items]  
Number of operating segments 2
Service period 2 years
Percentage of salary reduction for selected group 10.00%
Minimum  
Unusual or Infrequent Item, or Both [Line Items]  
Suspension period of all discretionary, non-essential expenditures 1 month
Maximum  
Unusual or Infrequent Item, or Both [Line Items]  
Suspension period of all discretionary, non-essential expenditures 3 months
v3.20.1
Accounts Receivable and Allowance for Doubtful Accounts (Tables)
3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Components of Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable and the allowance for doubtful accounts are comprised of the following:
(in thousands)
March 31, 2020
 
December 31, 2019
Accounts receivable - trade
$
112,667

 
$
105,373

Allowance for doubtful accounts
(275
)
 
(306
)
   Accounts receivable, net
$
112,392

 
$
105,067

v3.20.1
Remaining Performance Obligations
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Remaining Performance Obligations
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. The Company’s remaining performance obligations includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions.
As of March 31, 2020, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's Construction and Service segment contracts were $472.3 million and $47.3 million, respectively. As of December 31, 2019, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's Construction and Service segment contracts were $504.2 million and $41.9 million, respectively.
We estimate that 57% and 91% of our Construction and Service segment remaining performance obligations as of March 31, 2020, respectively, will be recognized as revenue during 2020, with the substantial majority of remaining performance obligations to be recognized within 24 months, although the timing of the Company's performance is not always under its control.
Additionally, the difference between remaining performance obligations and backlog is due to the exclusion of a portion of the Company’s service agreements under certain contract types from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to backlog is provided in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
v3.20.1
Contract Assets and Liabilities - Additional Information (Details)
$ in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2020
USD ($)
project
Mar. 31, 2019
USD ($)
project
Dec. 31, 2019
Property, Plant and Equipment [Line Items]      
Percentage completed of certain milestones     10.00%
Six Construction Projects      
Property, Plant and Equipment [Line Items]      
Number of Projects | project 6    
Gross profit write down | $ $ 3.2    
Four Construction Projects      
Property, Plant and Equipment [Line Items]      
Number of Projects | project 4    
Gross profit write down | $ $ 2.5    
Two Construction Projects      
Property, Plant and Equipment [Line Items]      
Number of Projects | project 2 2  
Gross profit write up | $ $ 1.0 $ 1.6  
One Construction Project      
Property, Plant and Equipment [Line Items]      
Number of Projects | project   1  
Gross profit write up | $   $ 1.2  
Three Construction Projects      
Property, Plant and Equipment [Line Items]      
Number of Projects | project   3  
Gross profit write down | $   $ 1.2  
v3.20.1
Condensed Consolidated Statement of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional paid-in capital
Accumulated deficit
Beginning balance at Dec. 31, 2018 $ 46,368 $ 1 $ 54,791 $ (8,424)
Beginning balance (in shares) at Dec. 31, 2018   7,592,911    
Stock-based compensation 367   367  
Shares issued related to vested restricted stock units 0      
Shares issued related to vested restricted stock units (in shares)   50,222    
Net (loss) income 1,847     1,847
Net (loss) income | Accounting Standards Update 2016-02 0      
Ending balance at Mar. 31, 2019 49,093 $ 1 55,158 (6,066)
Ending balance (in shares) at Mar. 31, 2019   7,643,133    
Beginning balance at Dec. 31, 2019 46,870 $ 1 56,557 (9,688)
Beginning balance (in shares) at Dec. 31, 2019   7,688,958    
Stock-based compensation 295   295  
Shares issued related to vested restricted stock units 0      
Shares issued related to vested restricted stock units (in shares)   104,905    
Net (loss) income (52)     (52)
Ending balance at Mar. 31, 2020 $ 47,113 $ 1 $ 56,852 $ (9,740)
Ending balance (in shares) at Mar. 31, 2020   7,793,863    
v3.20.1
Debt - Schedule of Long-Term Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Debt Instrument [Line Items]      
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 4.95% to 6.95% through 2025 6,229 6,585  
Total debt 47,229 47,585  
Less - Current portion of long-term debt (5,376) (4,425) $ (2,138)
Less - Unamortized discount and debt issuance costs (3,822) (4,292)  
Long-term debt $ 38,031 $ 38,868  
Minimum      
Debt Instrument [Line Items]      
Finance lease, discount rate 4.95%    
Maximum      
Debt Instrument [Line Items]      
Finance lease, discount rate 6.95%    
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
Jun. 14, 2020
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Registrant Name Limbach Holdings, Inc.  
Entity Central Index Key 0001606163  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   7,853,377
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Shell Company false  
v3.20.1
Accounting Standards
3 Months Ended
Mar. 31, 2020
Accounting Changes and Error Corrections [Abstract]  
Accounting Standards
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 quarter-ended March 31, 2019 has been restated 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.

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 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 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 March 31, 2019 has been restated 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 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 Consolidated Financial Statements

The effect of the changes made to the Company's condensed consolidated March 31, 2019 balance sheet and condensed consolidated statement of operations for the adoption of ASC Topic 606 and ASC Topic 842 were as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
Previously Reported Balance as of March 31, 2019(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
Balance as of March 31, 2019 (As Recast)
Assets
 
 
 
 
 
 
 
Accounts receivable, net (b)
132,102

 
(30,318
)
 

 
101,784

Contract assets

 
65,884

 

 
65,884

Costs and estimated earnings in excess of billings on uncompleted contracts
34,170

 
(34,170
)
 

 

Other current assets
4,618

 
12

 

 
4,630

Operating lease right-of-use assets (c)

 

 
20,459

 
20,459

Deferred tax asset
3,701

 
(141
)
 

 
3,560

 

 

 

 

Liabilities
 
 
 
 
 
 
 
Contract liabilities

 
42,296

 

 
42,296

Billings in excess of costs and estimated earnings on uncompleted contracts
44,197

 
(44,197
)
 

 

Accrued expenses and other current liabilities
22,337

 
2,828

 

 
25,165

Current portion of long-term debt
2,076

 

 
62

 
2,138

Current operating lease liabilities (c)

 

 
3,431

 
3,431

Long-term debt
34,339

 

 
65

 
34,404

Long-term operating lease liabilities (c)

 

 
17,823

 
17,823

Other long-term liabilities
1,374

 

 
(794
)
 
580

 

 

 

 

Stockholders' Equity
 
 
 
 
 
 
 
Accumulated deficit
(6,278
)
 
340

 
(128
)
 
(6,066
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three months ended March 31, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
104,674

 
$
(215
)
 
$

 
$
104,459

   Service
29,277

 
10

 

 
29,287

Total revenue
133,951

 
(205
)
 

 
133,746

Cost of revenue
 
 
 
 
 
 

   Construction
91,361

 
183

 

 
91,544

   Service
22,557

 
22



 
22,579

Total cost of revenue
113,918

 
205

 

 
114,123

Gross profit
20,033

 
(410
)
 

 
19,623

Operating expenses:
 
 
 
 
 
 

Selling, general and administrative expenses
16,045

 

 

 
16,045

Amortization of intangibles
175

 

 

 
175

Total operating expenses
16,220

 

 

 
16,220

Operating income
3,813

 
(410
)
 

 
3,403

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(833
)
 

 

 
(833
)
Gain on disposition of property and equipment
12

 

 

 
12

Total other expenses
(821
)
 

 

 
(821
)
Income before income taxes
2,992

 
(410
)
 

 
2,582

Income tax provision
846

 
(111
)
 

 
735

Net income
$
2,146

 
$
(299
)
 
$

 
$
1,847

(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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.
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 Update. 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 Update 2016-13. For entities that have adopted the guidance in Update 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.
v3.20.1
Self-Insurance - Additional Information (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
Insurance [Abstract]  
Payment to acquire workers' compensation and general liability insurance $ 250
Malpractice insurance, annual coverage limit $ 4,600
v3.20.1
Leases - Summary of Lease Costs (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Lessee, Lease, Description [Line Items]    
Finance lease cost, amortization $ 666,000 $ 570,000
Finance lease cost, interest expense 92,000 75,000
Total lease cost 2,021,000 1,784,000
Cost of revenue    
Lessee, Lease, Description [Line Items]    
Operating lease cost 880,000 814,000
Cost of revenue | Operating Lease    
Lessee, Lease, Description [Line Items]    
Variable lease costs 200,000 200,000
Cost of revenue | Finance Lease    
Lessee, Lease, Description [Line Items]    
Variable lease costs 700,000 700,000
Selling, general and administrative expenses    
Lessee, Lease, Description [Line Items]    
Operating lease cost 383,000 325,000
Selling, general and administrative expenses | Operating Lease    
Lessee, Lease, Description [Line Items]    
Variable lease costs 100,000 100,000
Selling, general and administrative expenses | Finance Lease    
Lessee, Lease, Description [Line Items]    
Variable lease costs $ 0 $ 0
v3.20.1
Remaining Performance Obligations - Remaining Performance Obligations (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01
Mar. 31, 2020
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, expected timing of satisfaction, period 24 months
Construction  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, percentage 57.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period 9 months
Service  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Revenue, remaining performance obligation, percentage 91.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period 9 months
v3.20.1
Operating Segments - Condensed Consolidated Segment Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Segment Reporting Information [Line Items]    
Revenue $ 138,772 $ 133,746
Gross profit 18,224 19,623
Selling, general and administrative expenses 16,799 16,045
Amortization of intangibles 143 175
Operating income 1,282 3,403
Interest expense, net (2,158) (833)
Gain on sale of property and equipment 29 12
Gain on change in fair value of warrant liability 161 0
Total unallocated amounts (1,968) (821)
Income (loss) before income taxes (686) 2,582
Depreciation and amortization 1,504 1,413
Construction    
Segment Reporting Information [Line Items]    
Revenue   104,459
Service    
Segment Reporting Information [Line Items]    
Revenue   29,287
Operating Segments | Construction    
Segment Reporting Information [Line Items]    
Revenue 109,486 104,459
Gross profit 10,982 12,915
Selling, general and administrative expenses 10,174 10,452
Depreciation and amortization 1,030 973
Operating Segments | Service    
Segment Reporting Information [Line Items]    
Revenue 29,286 29,287
Gross profit 7,242 6,708
Selling, general and administrative expenses 6,330 5,226
Depreciation and amortization 331 265
Corporate, Non-Segment    
Segment Reporting Information [Line Items]    
Selling, general and administrative expenses 295 367
Depreciation and amortization $ 143 $ 175
v3.20.1
Earnings per Share - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from computation of earnings per share, amount (in shares) 4,646,919 4,625,787
Out-of-the money warrants    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from computation of earnings per share, amount (in shares) 4,576,799 4,576,799
Stock-based compensation    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from computation of earnings per share, amount (in shares) 0 0
Out-of-the money UPOs    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from computation of earnings per share, amount (in shares) 0 27,360
Restricted Stock Units (RSUs)    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Antidilutive securities excluded from computation of earnings per share, amount (in shares) 70,120 21,628
v3.20.1
Equity (Details) - USD ($)
3 Months Ended 12 Months Ended
Jan. 01, 2020
Jul. 21, 2014
Mar. 31, 2020
Dec. 31, 2019
May 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Jul. 15, 2014
Class of Stock [Line Items]                
Common stock, shares authorized (in shares)     100,000,000 100,000,000        
Common stock, par or stated value per share (in usd per share)     $ 0.0001 $ 0.0001        
Preferred stock, shares authorized (in shares)     1,000,000          
Preferred stock, par or stated value per share (in usd per shares)     $ 0.0001          
Class of warrant or right, outstanding (in shares)     4,576,799 4,576,799        
Class of warrant or right, exercise price of warrants or rights (in usd per share)             $ 11.50  
Unit Purchase Options                
Class of Stock [Line Items]                
Share-based compensation arrangement by share-based payment award, options, grants in period, gross (in shares)   300,000            
Share-based compensation arrangement by share-based payment award, options, outstanding, number (in shares)           17,100    
RSU | 2016 Omnibus Incentive Plan                
Class of Stock [Line Items]                
Granted, awards (in shares)       274,851        
RSU | Omnibus Incentive Plan 2019                
Class of Stock [Line Items]                
Share-based compensation arrangement by share-based payment award, number of additional shares authorized (in shares)         1,150,000      
Service-Based RSUs                
Class of Stock [Line Items]                
Granted, awards (in shares)     103,700          
Service-Based RSUs | Omnibus Incentive Plan 2019                
Class of Stock [Line Items]                
Granted, awards (in shares)     103,700          
Employee Stock | 2019 Employee Stock Purchase Plan                
Class of Stock [Line Items]                
Share-based compensation arrangement by share-based payment award, number of additional shares authorized (in shares) 500,000              
ESPP purchase price of common stock, percent of market price 85.00%              
Maximum participant contribution rate 10.00%              
Maximum contribution amount $ 5,000              
Offering period 6 months              
ESPP discount percentage from market price, beginning of purchase period 15.00%              
Share-based compensation arrangement by share-based payment award, vesting period 6 months              
Public warrants                
Class of Stock [Line Items]                
Stock issued during period, value, new issues     $ 4,600,000 $ 4,600,000        
Class of warrant or right, exercise price of warrants or rights (in usd per share)     $ 11.5 $ 11.50        
Sponsor Warrants                
Class of Stock [Line Items]                
Class of warrant or right, outstanding (in shares)     198,000 198,000        
Class of warrant or right, rights for half share (usd per share)     $ 5.75 $ 5.75        
Class of warrant or right, exercise price of warrants or rights (in usd per share)     $ 11.5 $ 11.50        
Fifteen Dollar Exercise Price Warrants                
Class of Stock [Line Items]                
Class of warrant or right, outstanding (in shares)     600,000 600,000        
Class of warrant or right, exercise price of warrants or rights (in usd per share)     $ 15 $ 15.00       $ 15
Merger Warrants                
Class of Stock [Line Items]                
Class of warrant or right, outstanding (in shares)     631,119 631,119        
Class of warrant or right, exercise price of warrants or rights (in usd per share)     $ 12.5 $ 12.50        
Additional Merger Warrants                
Class of Stock [Line Items]                
Class of warrant or right, outstanding (in shares)     946,680 946,680        
Class of warrant or right, exercise price of warrants or rights (in usd per share)     $ 11.5 $ 11.50        
v3.20.1
Earnings per Share (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted
 
 
Three months ended
March 31,
 
 
2020
 
2019
(in thousands, except per share amounts)
 
 
 
(As Recast)

EPS numerator:
 
 

 
 

Net income (loss)
 
$
(52
)
 
$
1,847

 
 
 
 
 
EPS denominator:
 
 
 
 
Weighted average shares outstanding – basic
 
7,798

 
7,643

Impact of dilutive securities
 

 
25

Weighted average shares outstanding – diluted
 
7,798

 
7,668

 
 
 
 
 
EPS:
 
 
 
 
Basic
 
$
(0.01
)
 
$
0.24

Diluted
 
$
(0.01
)
 
$
0.24

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
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
March 31,
 
2020
 
2019
Out-of-the money warrants (see Note 8)
4,576,799

 
4,576,799

Restricted stock units (RSUs) (See Note 17)(1)
70,120

 
21,628

Stock-based compensation (See Note 17)

 

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

 
27,360

Total
4,646,919

 
4,625,787



(1) For the three months ended March 31, 2020 and 2019, all 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.
v3.20.1
Self-Insurance (Tables)
3 Months Ended
Mar. 31, 2020
Insurance [Abstract]  
Components of Self-Insurance
The components of the self-insurance liability as of March 31, 2020 and December 31, 2019 are as follows:
(in thousands)
As of
March 31,
2020
 
As of
December 31,
2019
Current liability — workers’ compensation and general liability
$
299

 
$
703

Current liability — medical and dental
612

 
821

Non-current liability
738

 
382

Total liability shown in Accrued expenses and other current liabilities
$
1,649

 
$
1,906

Restricted cash
$
113

 
$
113

v3.20.1
Accounting Standards - Effects of Adoption of ASC 606 and ASC 842 on Balance Sheets (Details) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Accounts receivable, net $ 112,392 $ 105,067 $ 101,784
Contract assets 69,670 77,188 65,884
Costs and estimated earnings in excess of billings on uncompleted contracts     0
Other current assets 4,498 4,174 4,630
Operating lease right-of-use assets 20,398 21,056 20,459
Deferred tax asset 3,765 4,786 3,560
Contract liabilities 48,408 42,370 42,296
Billings in excess of costs and estimated earnings on uncompleted contracts     0
Accrued expenses and other current liabilities 21,408 20,057 25,165
Current portion of long-term debt 5,376 4,425 2,138
Current operating lease liabilities 3,864 3,750 3,431
Long-term debt 38,031 38,868 34,404
Long-term operating lease liabilities 17,499 18,247 17,823
Other long-term liabilities 958 763 580
Accumulated deficit $ (9,740) $ (9,688) (6,066)
Accounting Standards Update 2016-02      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Accounts receivable, net     0
Contract assets     0
Costs and estimated earnings in excess of billings on uncompleted contracts     0
Other current assets     0
Operating lease right-of-use assets     20,459
Deferred tax asset     0
Contract liabilities     0
Billings in excess of costs and estimated earnings on uncompleted contracts     0
Accrued expenses and other current liabilities     0
Current portion of long-term debt     62
Current operating lease liabilities     3,431
Long-term debt     65
Long-term operating lease liabilities     17,823
Other long-term liabilities     (794)
Accumulated deficit     (128)
Calculated under Revenue Guidance in Effect before Topic 606      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Accounts receivable, net     132,102
Contract assets     0
Costs and estimated earnings in excess of billings on uncompleted contracts     34,170
Other current assets     4,618
Operating lease right-of-use assets     0
Deferred tax asset     3,701
Contract liabilities     0
Billings in excess of costs and estimated earnings on uncompleted contracts     44,197
Accrued expenses and other current liabilities     22,337
Current portion of long-term debt     2,076
Current operating lease liabilities     0
Long-term debt     34,339
Long-term operating lease liabilities     0
Other long-term liabilities     1,374
Accumulated deficit     (6,278)
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Accounts receivable, net     (30,318)
Contract assets     65,884
Costs and estimated earnings in excess of billings on uncompleted contracts     (34,170)
Other current assets     12
Operating lease right-of-use assets     0
Deferred tax asset     (141)
Contract liabilities     42,296
Billings in excess of costs and estimated earnings on uncompleted contracts     (44,197)
Accrued expenses and other current liabilities     2,828
Current portion of long-term debt     0
Current operating lease liabilities     0
Long-term debt     0
Long-term operating lease liabilities     0
Other long-term liabilities     0
Accumulated deficit     $ 340
v3.20.1
Earnings per Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Earnings per Share
Earnings per Share
Diluted EPS assumes the dilutive effect of outstanding common stock warrants, UPOs and RSUs, all using the treasury stock method, using the “if-converted” method.
 
 
Three months ended
March 31,
 
 
2020
 
2019
(in thousands, except per share amounts)
 
 
 
(As Recast)

EPS numerator:
 
 

 
 

Net income (loss)
 
$
(52
)
 
$
1,847

 
 
 
 
 
EPS denominator:
 
 
 
 
Weighted average shares outstanding – basic
 
7,798

 
7,643

Impact of dilutive securities
 

 
25

Weighted average shares outstanding – diluted
 
7,798

 
7,668

 
 
 
 
 
EPS:
 
 
 
 
Basic
 
$
(0.01
)
 
$
0.24

Diluted
 
$
(0.01
)
 
$
0.24


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
March 31,
 
2020
 
2019
Out-of-the money warrants (see Note 8)
4,576,799

 
4,576,799

Restricted stock units (RSUs) (See Note 17)(1)
70,120

 
21,628

Stock-based compensation (See Note 17)

 

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

 
27,360

Total
4,646,919

 
4,625,787



(1) For the three months ended March 31, 2020 and 2019, all 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.
v3.20.1
Goodwill and Intangibles
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangibles
Goodwill and Intangibles
Goodwill was $6.1 million at March 31, 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
March 31, 2020
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
Customer Relationships – Service
$
4,710

 
$
(2,781
)
 
$
1,929

Favorable Leasehold Interests
530

 
(251
)
 
279

Total amortized intangible assets
5,240

 
(3,032
)
 
2,208

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

 
$
(3,032
)
 
$
12,168

(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
$
20,030

 
$
(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 $0.1 million for the three months ended March 31, 2020 and $0.2 million for the three months ended March 31, 2019.
The Company did not recognize any impairment charges on its goodwill or intangible assets for the three months ended March 31, 2020 or March 31, 2019.
v3.20.1
Goodwill and Intangibles (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill and Intangible Assets
Intangible assets are comprised of the following:
(in thousands)
Gross
carrying
amount
 
Accumulated
amortization
 
Net intangible
assets, excluding
goodwill
March 31, 2020
 
 
 
 
 
Amortized intangible assets:
 
 
 
 
 
Customer Relationships – Service
$
4,710

 
$
(2,781
)
 
$
1,929

Favorable Leasehold Interests
530

 
(251
)
 
279

Total amortized intangible assets
5,240

 
(3,032
)
 
2,208

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

 
$
(3,032
)
 
$
12,168

(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
$
20,030

 
$
(2,889
)
 
$
12,311

v3.20.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
Condensed Consolidated Financial Statements
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 latest Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 12, 2020. 
Unaudited Interim Financial Information
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 March 31, 2020, and its results of operations and its cash flows for the three months ended March 31, 2020. The results for the three months ended March 31, 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 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.
Recently Adopted 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 quarter-ended March 31, 2019 has been restated 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.

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 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 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 March 31, 2019 has been restated 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 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 Consolidated Financial Statements

The effect of the changes made to the Company's condensed consolidated March 31, 2019 balance sheet and condensed consolidated statement of operations for the adoption of ASC Topic 606 and ASC Topic 842 were as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
Previously Reported Balance as of March 31, 2019(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
Balance as of March 31, 2019 (As Recast)
Assets
 
 
 
 
 
 
 
Accounts receivable, net (b)
132,102

 
(30,318
)
 

 
101,784

Contract assets

 
65,884

 

 
65,884

Costs and estimated earnings in excess of billings on uncompleted contracts
34,170

 
(34,170
)
 

 

Other current assets
4,618

 
12

 

 
4,630

Operating lease right-of-use assets (c)

 

 
20,459

 
20,459

Deferred tax asset
3,701

 
(141
)
 

 
3,560

 

 

 

 

Liabilities
 
 
 
 
 
 
 
Contract liabilities

 
42,296

 

 
42,296

Billings in excess of costs and estimated earnings on uncompleted contracts
44,197

 
(44,197
)
 

 

Accrued expenses and other current liabilities
22,337

 
2,828

 

 
25,165

Current portion of long-term debt
2,076

 

 
62

 
2,138

Current operating lease liabilities (c)

 

 
3,431

 
3,431

Long-term debt
34,339

 

 
65

 
34,404

Long-term operating lease liabilities (c)

 

 
17,823

 
17,823

Other long-term liabilities
1,374

 

 
(794
)
 
580

 

 

 

 

Stockholders' Equity
 
 
 
 
 
 
 
Accumulated deficit
(6,278
)
 
340

 
(128
)
 
(6,066
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three months ended March 31, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
104,674

 
$
(215
)
 
$

 
$
104,459

   Service
29,277

 
10

 

 
29,287

Total revenue
133,951

 
(205
)
 

 
133,746

Cost of revenue
 
 
 
 
 
 

   Construction
91,361

 
183

 

 
91,544

   Service
22,557

 
22



 
22,579

Total cost of revenue
113,918

 
205

 

 
114,123

Gross profit
20,033

 
(410
)
 

 
19,623

Operating expenses:
 
 
 
 
 
 

Selling, general and administrative expenses
16,045

 

 

 
16,045

Amortization of intangibles
175

 

 

 
175

Total operating expenses
16,220

 

 

 
16,220

Operating income
3,813

 
(410
)
 

 
3,403

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(833
)
 

 

 
(833
)
Gain on disposition of property and equipment
12

 

 

 
12

Total other expenses
(821
)
 

 

 
(821
)
Income before income taxes
2,992

 
(410
)
 

 
2,582

Income tax provision
846

 
(111
)
 

 
735

Net income
$
2,146

 
$
(299
)
 
$

 
$
1,847

(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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.
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 Update. 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 Update 2016-13. For entities that have adopted the guidance in Update 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.
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 March 31, 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 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 (refer to Note 7 - Debt). The fair value of the Company’s warrant liability is recorded in the Company’s condensed consolidated financial 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.
v3.20.1
Self-Insurance
3 Months Ended
Mar. 31, 2020
Insurance [Abstract]  
Self-Insurance
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 March 31, 2020 and December 31, 2019 are as follows:
(in thousands)
As of
March 31,
2020
 
As of
December 31,
2019
Current liability — workers’ compensation and general liability
$
299

 
$
703

Current liability — medical and dental
612

 
821

Non-current liability
738

 
382

Total liability shown in Accrued expenses and other current liabilities
$
1,649

 
$
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.
v3.20.1
Commitments and Contingencies (Details) - USD ($)
Jan. 23, 2020
Nov. 13, 2019
Oct. 12, 2018
Mar. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Loss Contingencies [Line Items]            
Litigation settlement, amount awarded to other party     $ 30,000,000      
Other current assets liabilities           $ 30,000,000
Long-term debt       $ 41,000,000 $ 41,000,000  
Surety Bond            
Loss Contingencies [Line Items]            
Long-term debt       $ 148,600,000    
Bernards Bros vs. Limbach Holdings | Pending Litigation            
Loss Contingencies [Line Items]            
Loss contingency, damages sought, value $ 3,000,000          
Lanzo Trenchless Technologies vs. Limbach Company LLC | Pending Litigation            
Loss Contingencies [Line Items]            
Loss contingency, damages sought, value   $ 400,000        
Loss contingency, damages counterclaimed, value   $ 1,000,000        
v3.20.1
Leases - Summary of Lease Terms and Discount Rates (Details)
Mar. 31, 2020
Dec. 31, 2019
Leases [Abstract]    
Operating leases, weighted average remaining lease term 5 years 11 months 16 days 6 years 2 months 12 days
Finance leases, weighted average remaining lease term 2 years 10 months 2 days 2 years 11 months 16 days
Operating leases, weighted average remaining discount rate 4.80% 4.80%
Finance leases, weighted average remaining discount rate 5.72% 5.69%
v3.20.1
Organization and Plan of Business Operations
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Plan of Business Operations
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 continue to result in shutdowns of certain projects in our Construction and Service segments. In limited instances, project owners have chosen to shutdown work irrespective of the existence or applicability of government action. In most markets, construction is considered an essential business and Limbach continues to staff its projects and perform work. However, as Limbach's operations have been deemed essential, we have taken several measures to combat the COVID-19 downturn. The duration 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. However, in May, much of the COVID-19 regulations that caused shutdowns of projects in the New England region were lifted and the majority of the projects that were suspended in that region resumed operations, as well as the majority of 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. However, 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 quarter of 2020, we have taken 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;
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.
In addition to the above actions, we have taken steps to minimize the adverse impacts of the COVID-19 pandemic on our business and to protect the safety of our employees and have instituted daily mandatory safety talks for all employees; emphasized more frequent washing of hands and tools, social distancing, wearing masks and work protocols.
As a result of the events stated above, management performed a reforecast of its 2020 and 2021 financial plans. We assessed a variety of factors, including but not limited to, projects in our Construction and Service segments currently being impacted or delayed, anticipated and/or announced restart dates for impacted projects by local and state governments, 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 commencing 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. We continue to review and consider any available potential benefit under the CARES Act for which we qualify, if any.
v3.20.1
Accounts Receivable and Allowance for Doubtful Accounts (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Receivables [Abstract]      
Accounts receivable - trade $ 112,667 $ 105,373  
Allowance for doubtful accounts (275) (306)  
Accounts receivable, net $ 112,392 $ 105,067 $ 101,784
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Common stock, par or stated value per share (in usd per share) $ 0.0001 $ 0.0001
Common stock, shares authorized (in shares) 100,000,000 100,000,000
Common stock, shares, issued (in shares) 7,793,863 7,688,958
Common stock, shares, outstanding (in shares) 7,793,863 7,688,958
v3.20.1
Goodwill and Intangibles - Additional Information (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]      
Goodwill $ 6,129,000   $ 6,129,000
Amortization of intangibles 143,000 $ 175,000  
Impairment of intangible assets (excluding goodwill) 0 0  
Goodwill, impairment loss $ 0 $ 0  
v3.20.1
Debt - Summary of Additional Margin and Commitment Fees Payable (Details)
3 Months Ended
Mar. 31, 2020
Level I  
Debt Instrument [Line Items]  
Line of credit facility, commitment fee percentage 0.50%
Level I | Base Rate  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 3.00%
Level I | London Interbank Offered Rate (LIBOR)  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 4.00%
Level II  
Debt Instrument [Line Items]  
Line of credit facility, commitment fee percentage 0.50%
Level II | Base Rate  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 2.75%
Level II | London Interbank Offered Rate (LIBOR)  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 3.75%
Level III  
Debt Instrument [Line Items]  
Line of credit facility, commitment fee percentage 0.50%
Level III | Base Rate  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 2.50%
Level III | London Interbank Offered Rate (LIBOR)  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 3.50%
Level IV  
Debt Instrument [Line Items]  
Line of credit facility, commitment fee percentage 0.50%
Level IV | Base Rate  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 2.25%
Level IV | London Interbank Offered Rate (LIBOR)  
Debt Instrument [Line Items]  
Debt instrument, basis spread on variable rate 3.25%
Maximum | Level II  
Debt Instrument [Line Items]  
Senior leverage ratio 250.00%
Maximum | Level III  
Debt Instrument [Line Items]  
Senior leverage ratio 200.00%
Maximum | Level IV  
Debt Instrument [Line Items]  
Senior leverage ratio 150.00%
Minimum | Level I  
Debt Instrument [Line Items]  
Senior leverage ratio 250.00%
Minimum | Level II  
Debt Instrument [Line Items]  
Senior leverage ratio 200.00%
Minimum | Level III  
Debt Instrument [Line Items]  
Senior leverage ratio 150.00%
v3.20.1
Accounting Standards (Tables)
3 Months Ended
Mar. 31, 2020
Accounting Changes and Error Corrections [Abstract]  
Effects of Adoption of ASC 606 and ASC 842 on Consolidated Financial Statements
The effect of the changes made to the Company's condensed consolidated March 31, 2019 balance sheet and condensed consolidated statement of operations for the adoption of ASC Topic 606 and ASC Topic 842 were as follows:
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
Previously Reported Balance as of March 31, 2019(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
Balance as of March 31, 2019 (As Recast)
Assets
 
 
 
 
 
 
 
Accounts receivable, net (b)
132,102

 
(30,318
)
 

 
101,784

Contract assets

 
65,884

 

 
65,884

Costs and estimated earnings in excess of billings on uncompleted contracts
34,170

 
(34,170
)
 

 

Other current assets
4,618

 
12

 

 
4,630

Operating lease right-of-use assets (c)

 

 
20,459

 
20,459

Deferred tax asset
3,701

 
(141
)
 

 
3,560

 

 

 

 

Liabilities
 
 
 
 
 
 
 
Contract liabilities

 
42,296

 

 
42,296

Billings in excess of costs and estimated earnings on uncompleted contracts
44,197

 
(44,197
)
 

 

Accrued expenses and other current liabilities
22,337

 
2,828

 

 
25,165

Current portion of long-term debt
2,076

 

 
62

 
2,138

Current operating lease liabilities (c)

 

 
3,431

 
3,431

Long-term debt
34,339

 

 
65

 
34,404

Long-term operating lease liabilities (c)

 

 
17,823

 
17,823

Other long-term liabilities
1,374

 

 
(794
)
 
580

 

 

 

 

Stockholders' Equity
 
 
 
 
 
 
 
Accumulated deficit
(6,278
)
 
340

 
(128
)
 
(6,066
)
(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 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.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
Three months ended March 31, 2019
(in thousands)
Previously Reported(a)
 
Adjustments due to ASC Topic 606
 
Adjustments due to ASC Topic 842
 
As Recast
Revenue
 
 
 
 
 
 
 
   Construction
$
104,674

 
$
(215
)
 
$

 
$
104,459

   Service
29,277

 
10

 

 
29,287

Total revenue
133,951

 
(205
)
 

 
133,746

Cost of revenue
 
 
 
 
 
 

   Construction
91,361

 
183

 

 
91,544

   Service
22,557

 
22



 
22,579

Total cost of revenue
113,918

 
205

 

 
114,123

Gross profit
20,033

 
(410
)
 

 
19,623

Operating expenses:
 
 
 
 
 
 

Selling, general and administrative expenses
16,045

 

 

 
16,045

Amortization of intangibles
175

 

 

 
175

Total operating expenses
16,220

 

 

 
16,220

Operating income
3,813

 
(410
)
 

 
3,403

Other income (expenses):
 
 
 
 
 
 
 
Interest expense, net
(833
)
 

 

 
(833
)
Gain on disposition of property and equipment
12

 

 

 
12

Total other expenses
(821
)
 

 

 
(821
)
Income before income taxes
2,992

 
(410
)
 

 
2,582

Income tax provision
846

 
(111
)
 

 
735

Net income
$
2,146

 
$
(299
)
 
$

 
$
1,847

(a) Balances as previously reported on the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Legal. The Company is continually engaged in administrative proceedings, arbitrations, and litigation with owners, general contractors, suppliers, and other unrelated parties, all arising in the ordinary courses of business. In the opinion of the Company’s management, the results of these actions will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
LFS and Harper, wholly owned subsidiaries of the Company, are parties to a lawsuit involving a Harper employee who was alleged to be in the course and scope of his employment at the time the personal car he was operating collided with another car causing injuries to three persons and one fatality. During the course of the litigation, the plaintiffs made settlement demands within LFS and Harper’s insurance coverage limits. On or about October 12, 2018, the plaintiffs agreed to settle and dismiss the lawsuit in exchange for an aggregate payment of $30.0 million from LFS and Harper, which amounts were paid entirely by the Company’s insurance carriers. The Company will not have any monetary exposure. The $30.0 million amounts due from the Company’s insurance carriers and due to the plaintiffs have been included in the captions labeled as other current assets and accrued expenses and other current liabilities, respectively, in the consolidated balance sheet as of December 31, 2018 and were subsequently paid in February 2019.
On January 23, 2020, plaintiff, Bernards Bros. Inc., filed a complaint in Superior Court of the State of California for the County of Los Angeles against Limbach Holdings, Inc.  The complaint alleges that our Southern California operations refused to honor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the wrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million, including alleged increased costs for hiring a different subcontractor to perform the work.  The Company intends to vigorously defend the suit.  Trial is expected later in 2020.
On November 13, 2019, claimant, Lanzo Trenchless Technologies, Inc. - North, filed a Demand for Arbitration against our wholly owned subsidiary, Limbach Company LLC.  The demand seeks damages in excess of $400,000 based upon the allegation that Limbach breached a construction contract by improperly terminating Lanzo’s subcontract, and for withholding payment from Lanzo based upon deficient performance.  Limbach has asserted a counterclaim seeking damages in excess of $1.0 million caused by Lanzo’s deficient performance, including the need to hire a replacement subcontractor to finish and/or remediate portions of Lanzo’s work.  A binding arbitration proceeding is anticipated later in 2020.
Surety. The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. The Surety Bonds secure our payment and performance obligations under such contracts, and we have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of Surety Bonds issued on our behalf. In addition, at the request of labor unions representing certain of our employees, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. Public sector contracts require Surety Bonds more frequently than private sector contracts, and accordingly, our bonding requirements typically increase as the amount of public sector work increases. As of March 31, 2020, the Company had approximately $148.6 million in surety bonds outstanding. The Surety Bonds are issued by surety companies in return for premiums, which vary depending on the size and type of bond.
Collective Bargaining Agreements. Many of the Company’s craft labor employees are covered by collective bargaining agreements. The agreements require the Company to pay specified wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If the Company withdraws from any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the Company could incur additional liabilities related to these plans. Although the Company has been informed that some of the multi-employer pension plans to which it contributes have been classified as “critical” status, the Company is not currently aware of any significant liabilities related to this issue.
v3.20.1
Debt (Tables)
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Schedule of Long-Term Debt
Long-term debt consists of the following obligations as of:
(in thousands)
March 31, 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 4.95% to 6.95% through 2025
6,229

 
6,585

Total debt
47,229

 
47,585

Less - Current portion of long-term debt
(5,376
)
 
(4,425
)
Less - Unamortized discount and debt issuance costs
(3,822
)
 
(4,292
)
Long-term debt
$
38,031

 
$
38,868

Summary of Additional Margin and Commitment Fees Payable
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
%
v3.20.1
Remaining Performance Obligations - Additional Information (Details) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Construction    
Segment Reporting Information [Line Items]    
Revenue, remaining performance obligation, amount $ 472.3 $ 504.2
Service    
Segment Reporting Information [Line Items]    
Revenue, remaining performance obligation, amount $ 47.3 $ 41.9
v3.20.1
Leases - Supplemental Cash Flow Information (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Leases [Abstract]    
Operating cash flows from operating leases $ 1,239 $ 1,110
Operating cash flows from finance leases 92 75
Financing cash flows from finance leases 652 550
Right of use assets obtained in exchange for new operating lease liabilities 0 1,509
Right of use assets obtained in exchange for new finance lease liabilities 337 706
Right-of-use assets disposed or adjusted modifying operating leases liabilities 344 0
Right-of-use assets disposed or adjusted modifying finance leases liabilities $ (41) $ 0
v3.20.1
Debt - Additional Information (Details) - USD ($)
1 Months Ended 3 Months Ended 12 Months Ended
Apr. 01, 2021
Jan. 01, 2020
Oct. 01, 2019
Jan. 12, 2019
Jul. 12, 2018
Jan. 12, 2018
Jan. 12, 2018
Jul. 31, 2021
Mar. 31, 2020
Jun. 30, 2019
Sep. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Aug. 31, 2020
Dec. 31, 2019
Dec. 31, 2016
Nov. 30, 2019
Apr. 12, 2019
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
May 01, 2018
Dec. 31, 2017
Debt Instrument [Line Items]                                                  
Amount required to remit due to excess cash flow, percentage                                                 50.00%
Amount required to remit due to excess cash flow                                               $ 1,200,000  
Debt instrument, repurchased face amount           $ 10,000,000 $ 10,000,000                                    
Dividends payable           900,000 900,000                                    
Long-term debt                 $ 41,000,000     $ 41,000,000         $ 41,000,000                
Gain on change in fair value of warrant liability                       161,000   $ 0                      
Line of credit facility, remaining borrowing capacity                           6,100,000                      
Class of warrant or right, exercise price of warrants or rights (in usd per share)                                         $ 11.50        
Percentage of number of shares                                 2.00%                
Amortization of debt issuance costs                       540,000   $ 184,000                      
2019 Refinancing Agreement                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, face amount                                       $ 40,000,000.0          
Gain on change in fair value of warrant liability                       $ 200,000                          
Debt instrument, interest rate, effective percentage                 13.00%     13.00%                          
Leverage ratio     330.00%           425.00% 425.00%     400.00%                        
Debt instrument, interest rate, increase (decrease)   1.00%                                              
Class of warrant or right, number of securities called by each warrant or right (in shares)                 263,314     263,314         263,314                
Class of warrant or right, exercise price of warrants or rights (in usd per share)                 $ 7.63     $ 7.63         $ 7.63                
Warrants and rights outstanding                 $ 400,000     $ 400,000         $ 200,000 $ 900,000              
Derivative liability                 $ 0     0         0 400,000              
Debt instrument, unamortized discount                                 1,300,000                
Debt issuance costs, net                                 2,500,000                
Interest expense, debt                       100,000                          
Amortization of debt issuance costs                       $ 400,000                          
2019 Refinancing Amendment Number One and Waiver                                                  
Debt Instrument [Line Items]                                                  
Line of credit facility, maximum borrowing capacity     $ 15,000,000                                            
Debt instrument, percentage of customer accounts required to approve amendment     75.00%                                            
Debt instrument, non refundable waiver fee                                 400,000                
Debt instrument, non refundable amendment fee                                 $ 1,000,000                
Line of credit facility, unused capacity, commitment fee percentage                                 50.10%                
Leverage ratio     330.00%           425.00%                                
Debt instrument, interest rate, increase (decrease)     3.00%                                            
2019 ABL Credit Agreement                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, basis spread on variable rate                       3.00%                          
Debt instrument, interest rate, effective percentage                 5.25%     5.25%                          
Leverage ratio     330.00%           425.00% 400.00%                              
Debt issuance costs, net                 $ 900,000     $ 900,000                          
Long term lines of credit                 $ 0     0         $ 0                
Amortization of debt issuance costs                       $ 100,000                          
2019 ABL Credit Amendment Number One and Waiver                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, non refundable waiver fee                                 $ 7,500                
Leverage ratio     330.00%           425.00%                                
Lender's approval for acquisition, percentage                                 50.10%                
Minimum | 2019 Refinancing Amendment Number One and Waiver                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, liquidity of loan parties                                     $ 10,000,000            
Minimum | 2019 ABL Credit Agreement                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, interest rate, stated percentage                 3.00%     3.00%                          
Debt instrument, basis spread on variable rate                       2.00%                          
Line of credit facility, unused capacity, commitment fee percentage                       0.25%                          
Minimum | 2019 ABL Credit Amendment Number One and Waiver                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, liquidity of loan parties                                     $ 10,000,000            
Maximum | 2019 ABL Credit Agreement                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, interest rate, stated percentage                 3.50%     3.50%                          
Debt instrument, basis spread on variable rate                       2.50%                          
Line of credit facility, unused capacity, commitment fee percentage                       0.375%                          
Bridge Loan                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, face amount           $ 10,000,000.0 10,000,000.0                                    
Debt instrument, periodic payment             $ 250,000                                    
London Interbank Offered Rate (LIBOR) | 2019 Refinancing Agreement                                                  
Debt Instrument [Line Items]                                                  
Reference rate, minimum                                 2.00%                
Debt instrument, basis spread on variable rate                                 11.00%                
London Interbank Offered Rate (LIBOR) | 2019 ABL Credit Agreement                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, basis spread on variable rate                       2.00%                          
London Interbank Offered Rate (LIBOR) | Bridge Loan                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, basis spread on variable rate       6.00% 5.50% 5.00%                                      
Base Rate | 2019 Refinancing Agreement                                                  
Debt Instrument [Line Items]                                                  
Reference rate, minimum                                 3.00%                
Debt instrument, basis spread on variable rate                                 10.00%                
Base Rate | Bridge Loan                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, basis spread on variable rate       5.00% 4.50% 4.00%                                      
Forecast | 2019 Refinancing Agreement                                                  
Debt Instrument [Line Items]                                                  
Line of credit facility, unused capacity, commitment fee percentage                     2.00%                            
Leverage ratio 200.00%             200.00%             285.00% 461.00%                  
Leverage ratio minimum requirement                             4.00 4.00                  
Amortization of debt issuance costs                     $ 1,000,000                            
Forecast | 2019 Refinancing Amendment Number One and Waiver                                                  
Debt Instrument [Line Items]                                                  
Leverage ratio 200.00%                                                
Forecast | 2019 ABL Credit Agreement                                                  
Debt Instrument [Line Items]                                                  
Leverage ratio 200.00%             175.00%             285.00% 461.00%                  
Leverage ratio minimum requirement                             4.0000                    
Forecast | 2019 ABL Credit Amendment Number One and Waiver                                                  
Debt Instrument [Line Items]                                                  
Leverage ratio 200.00%                                                
Revolving Credit Facility                                                  
Debt Instrument [Line Items]                                                  
Line of credit facility, maximum borrowing capacity                                       $ 25,000,000.0   $ 20,000,000.0 $ 25,000,000.0    
Revolving Credit Facility | 2019 ABL Credit Agreement                                                  
Debt Instrument [Line Items]                                                  
Line of credit facility, maximum borrowing capacity                                 $ 15,000,000.0                
Line of credit facility, current borrowing capacity                                 14,000,000                
Line of credit facility reserved borrowing capacity                                 $ 1,000,000                
Loans Payable | Senior Credit Facility                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, periodic payment, principal                                   750,000              
Senior Credit Facility Agreement | Revolving Credit Facility                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, face amount                                   24,000,000              
Senior Credit Facility Agreement | Revolving Credit Facility | Bridge Loan                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, interest rate, stated percentage                           10.50%                      
Senior Credit Facility Agreement | Loans Payable                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, face amount                                   25,000,000              
Debt instrument, periodic payment, principal                                   $ 900,000              
Senior Credit Facility Agreement | Loans Payable | Revolving Credit Facility                                                  
Debt Instrument [Line Items]                                                  
Debt instrument, interest rate, stated percentage                           8.50%                      
Preferred Class A                                                  
Debt Instrument [Line Items]                                                  
Stock repurchased during period, shares             280,000                                    
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net (loss) income $ (52) $ 1,847
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:    
Depreciation and amortization 1,504 1,413
Provision for doubtful accounts 8 10
Stock-based compensation expense 295 367
Noncash operating lease expense 1,002 882
Amortization of debt issuance costs 540 184
Deferred income tax (benefit) provision 1,021 616
Gain on sale of property and equipment (29) (12)
Gain on change in fair value of warrant liability (161) 0
Changes in operating assets and liabilities:    
Accounts receivable (7,333) 4,027
Contract assets 7,518 (2,074)
Other current assets (320) 29,803
Other assets 0 (913)
Accounts payable, including retainage (5,771) (3,641)
Prepaid income taxes (1,518) 428
Accrued taxes payable (11) 137
Contract liabilities 6,038 (6,521)
Operating lease liabilities (978) (879)
Accrued expenses and other current liabilities 1,407 (29,668)
Other long-term liabilities 357 (138)
Net cash provided by (used in) operating activities 3,517 (4,132)
Cash flows from investing activities:    
Proceeds from sale of property and equipment 36 13
Advances to joint ventures (3) 0
Purchase of property and equipment (501) (584)
Net cash used in investing activities (468) (571)
Cash flows from financing activities:    
Increase in bank overdrafts 0 (1,333)
Payments on Credit Agreement term loan 0 (900)
Proceeds from Credit Agreement revolver 0 17,500
Payments on Credit Agreement revolver 0 (7,000)
Proceeds from 2019 Revolving Credit Facility 7,250 0
Payments on 2019 Revolving Credit Facility (7,250) 0
Payments on Bridge Term Loan 0 (250)
Payments on finance leases (652) (550)
Payments of debt issuance costs 0 (550)
Taxes paid related to net-share settlement of equity awards (44) (29)
Net cash (used in) provided by financing activities (696) 6,888
Increase in cash, cash equivalents and restricted cash 2,353 2,185
Cash, cash equivalents and restricted cash, beginning of period 8,457 1,732
Cash, cash equivalents and restricted cash, end of period 10,810 3,917
Noncash investing and financing transactions:    
Right of use assets obtained in exchange for new operating lease liabilities 0 1,509
Right of use assets obtained in exchange for new finance lease liabilities 337 706
Right-of-use assets disposed or adjusted modifying operating leases liabilities 344 0
Right-of-use assets disposed or adjusted modifying finance leases liabilities (41) 0
Interest paid $ 1,607 $ 596
v3.20.1
Accounting Standards - Effects of Adoption of ASC 606 and ASC 842 on Statement of Operations (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue $ 138,772 $ 133,746
Cost of revenue 120,548 114,123
Gross profit 18,224 19,623
Selling, general and administrative expenses 16,799 16,045
Amortization of intangibles 143 175
Total operating expenses 16,942 16,220
Operating income 1,282 3,403
Interest expense, net (2,158) (833)
Gain on disposition of property and equipment 29 12
Total unallocated amounts (1,968) (821)
Income (loss) before income taxes (686) 2,582
Income tax provision (benefit) (634) 735
Net income (loss) $ (52) 1,847
Accounting Standards Update 2016-02    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   0
Cost of revenue   0
Gross profit   0
Selling, general and administrative expenses   0
Amortization of intangibles   0
Total operating expenses   0
Operating income   0
Interest expense, net   0
Gain on disposition of property and equipment   0
Total unallocated amounts   0
Income (loss) before income taxes   0
Income tax provision (benefit)   0
Net income (loss)   0
Construction    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   104,459
Cost of revenue   91,544
Construction | Accounting Standards Update 2016-02    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   0
Cost of revenue   0
Service    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   29,287
Cost of revenue   22,579
Service | Accounting Standards Update 2016-02    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   0
Cost of revenue   0
Calculated under Revenue Guidance in Effect before Topic 606    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   133,951
Cost of revenue   113,918
Gross profit   20,033
Selling, general and administrative expenses   16,045
Amortization of intangibles   175
Total operating expenses   16,220
Operating income   3,813
Interest expense, net   (833)
Gain on disposition of property and equipment   12
Total unallocated amounts   (821)
Income (loss) before income taxes   2,992
Income tax provision (benefit)   846
Net income (loss)   2,146
Calculated under Revenue Guidance in Effect before Topic 606 | Construction    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   104,674
Cost of revenue   91,361
Calculated under Revenue Guidance in Effect before Topic 606 | Service    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   29,277
Cost of revenue   22,557
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   (205)
Cost of revenue   205
Gross profit   (410)
Selling, general and administrative expenses   0
Amortization of intangibles   0
Total operating expenses   0
Operating income   (410)
Interest expense, net   0
Gain on disposition of property and equipment   0
Total unallocated amounts   0
Income (loss) before income taxes   (410)
Income tax provision (benefit)   (111)
Net income (loss)   (299)
Difference between Revenue Guidance in Effect before and after Topic 606 | Construction | Accounting Standards Update 2014-09    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   (215)
Cost of revenue   183
Difference between Revenue Guidance in Effect before and after Topic 606 | Service | Accounting Standards Update 2014-09    
New Accounting Pronouncements or Change in Accounting Principle [Line Items]    
Revenue   10
Cost of revenue   $ 22
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets    
Cash and cash equivalents $ 10,697 $ 8,344
Restricted cash 113 113
Accounts receivable, net 112,392 105,067
Contract assets 69,670 77,188
Income tax receivable 2,012 494
Other current assets 4,498 4,174
Total current assets 199,382 195,380
Property and equipment, net 20,713 21,287
Intangible assets, net 12,168 12,311
Goodwill 6,129 6,129
Operating lease right-of-use assets 20,398 21,056
Deferred tax asset 3,765 4,786
Other assets 599 668
Total assets 263,154 261,617
Current liabilities    
Current portion of long-term debt 5,376 4,425
Current operating lease liabilities 3,864 3,750
Accounts payable, including retainage 80,497 86,267
Contract liabilities 48,408 42,370
Accrued expenses and other current liabilities 21,408 20,057
Total current liabilities 159,553 156,869
Long-term debt 38,031 38,868
Long-term operating lease liabilities 17,499 18,247
Other long-term liabilities 958 763
Total liabilities 216,041 214,747
Commitments and contingencies
STOCKHOLDERS’ EQUITY    
Common stock, $0.0001 par value; 100,000,000 shares authorized, 7,793,863 issued and outstanding at March 31, 2020 and 7,688,958 at December 31, 2019 1 1
Additional paid-in capital 56,852 56,557
Accumulated deficit (9,740) (9,688)
Total stockholders’ equity 47,113 46,870
Total liabilities and stockholders’ equity $ 263,154 $ 261,617
v3.20.1
Contract Assets and Liabilities - Schedule of Contracts In Progress (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]    
Revenue earned on uncompleted contracts $ 743,559 $ 726,215
Less: Billings to date (752,603) (722,562)
Net (overbilling) underbilling (9,044) 3,653
Costs in excess of billings and estimated earnings 38,407 44,315
Billings in excess of costs and estimated earnings $ (47,451) $ (40,662)
v3.20.1
Income Taxes - Components of Income Tax Provision (Benefit) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Current tax provision (benefit)    
U.S. federal $ (1,521) $ 10
State and local (134) 109
Total current tax provision (benefit) (1,655) 119
Deferred income tax provision (benefit)    
U.S. federal 915 526
State and local 106 90
Total deferred income tax provision (benefit) 1,021 616
Income tax provision (benefit) $ (634) $ 735
v3.20.1
Fair Value Measurements - Additional Information (Details) - USD ($)
$ / shares in Units, $ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Long-term debt $ 41,000 $ 41,000  
Class of warrant or right, exercise price of warrants or rights (in usd per share)     $ 11.50
2019 Refinancing Agreement      
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Class of warrant or right, number of securities called by each warrant or right (in shares) 263,314 263,314  
Class of warrant or right, exercise price of warrants or rights (in usd per share) $ 7.63 $ 7.63  
Refinancing Term Loan 2019      
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Long-term debt $ 41,000 $ 41,000  
v3.20.1
Leases - Supplemental Balance Sheets Information (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Leases [Abstract]      
Operating lease right-of-use assets $ 20,398 $ 21,056 $ 20,459
Property, plant and equipment, net 6,042 6,412  
Lease right-of-use assets 26,440 27,468  
Current operating lease liabilities 3,864 3,750 3,431
Current portion of long-term debt 2,376 2,424  
Long-term operating lease liabilities 17,499 18,247 $ 17,823
Long-term debt 3,853 4,161  
Total lease liabilities 27,592 28,582  
Operating lease, accumulated amortization 9,100 8,500  
Finance lease, accumulated amortization $ 5,300 $ 4,700  
v3.20.1
Accounting Standards - Additional Information (Details) - Accounting Standards Update 2014-09
$ in Thousands
Jan. 01, 2019
USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Cumulative effect of accounting change $ 639
Accumulated deficit  
New Accounting Pronouncements or Change in Accounting Principle [Line Items]  
Cumulative effect of accounting change $ 639
v3.20.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Assumptions Using Black-Scholes-Merton Option Pricing Model
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 March 31, 2020:
Stock price
$
2.85

Exercise price
$
7.63

Time until expiration (years)
4.0

Expected volatility
70.0
%
Risk-free interest rate
0.7
%
Expected dividend yield
%
v3.20.1
Leases (Tables)
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Supplemental Balance Sheets Information
The following table summarizes the lease amounts included in our condensed consolidated balance sheets:
(in thousands)
Classification on the Condensed Consolidated Balance Sheets
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
 
Operating
Operating lease right-of-use assets (a)
 
$
20,398

 
$
21,056

Finance
Property and equipment, net (b)
 
6,042

 
6,412

Total lease assets
 
 
$
26,440

 
$
27,468

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current
 
 
 
 
 
   Operating
Current operating lease liabilities
 
$
3,864

 
$
3,750

   Finance
Current portion of long-term debt
 
2,376

 
2,424

Noncurrent
 
 
 
 
 
   Operating
Long-term lease liabilities
 
17,499

 
18,247

   Finance
Long-term debt
 
3,853

 
4,161

Total lease liabilities
 
 
$
27,592

 
$
28,582

(a) Operating lease assets are recorded net of accumulated amortization of $9.1 million at March 31, 2020 and $8.5 million at December 31, 2019.
(b) Finance lease assets are recorded net of accumulated amortization of $5.3 million at March 31, 2020 and $4.7 million at December 31, 2019.
Summary of Lease Costs, Lease Terms and Discount Rates
The following table summarizes the lease costs included in our condensed consolidated statements of operations for the three months ended:
(in thousands)
Classification on the Condensed Consolidated Statement of Operations
 
March 31, 2020
 
March 31, 2019
Operating lease cost
Cost of revenue(a)
 
$
880

 
$
814

Operating lease cost
Selling, general and administrative expenses(a)
 
383

 
325

Finance lease cost
 
 
 
 
 
   Amortization
Cost of revenue(b)
 
666

 
570

   Interest
Interest expense, net(b)
 
92

 
75

Total lease cost
 
 
$
2,021

 
$
1,784

(a) Operating lease costs recorded in cost of sales includes $0.2 million of variable lease costs for the three months ending March 31, 2020 and 2019. In addition, $0.1 million of variable lease costs are included in Selling, general and administrative expenses for the three months ended March 31, 2020 and 2019.
(b) Finance lease costs recorded in cost of revenue for the three months ended March 31, 2020 and 2019 includes $0.7 million of variable leases 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.
The following is a summary of the lease terms and discount rates:
 
 
March 31, 2020
 
December 31, 2019
Weighted average lease term (in years)
 
 
 
 
   Operating
 
5.96

 
6.20

   Finance
 
2.84

 
2.96

 
 
 
 
 
Weighted average discount rate
 
 
 
 
   Operating
 
4.80
%
 
4.80
%
   Finance
 
5.72
%
 
5.69
%
Future Minimum Commitment for Finance Leases
Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2020 were as follows:
Year ending (in thousands):
Finance
Leases
 
Operating
Leases
Remainder of 2020
$
2,063

 
$
3,626

2021
2,247

 
4,716

2022
1,716

 
4,331

2023
713

 
3,287

2024
35

 
2,685

Thereafter
1

 
6,101

Total minimum lease payments
$
6,775

 
$
24,746

Amounts representing interest
(546
)
 
 
Present value of net minimum lease payments
$
6,229

 
 
Future Minimum Commitment for Operating Leases
Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2020 were as follows:
Year ending (in thousands):
Finance
Leases
 
Operating
Leases
Remainder of 2020
$
2,063

 
$
3,626

2021
2,247

 
4,716

2022
1,716

 
4,331

2023
713

 
3,287

2024
35

 
2,685

Thereafter
1

 
6,101

Total minimum lease payments
$
6,775

 
$
24,746

Amounts representing interest
(546
)
 
 
Present value of net minimum lease payments
$
6,229

 
 
Leases Supplemental Cash Flow Information
The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the three months ended:
(in thousands)
 
March 31, 2020
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
   Operating cash flows from operating leases
 
$
1,239

 
$
1,110

   Operating cash flows from finance leases
 
92

 
75

   Financing cash flows from finance leases
 
652

 
550

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

 
$
1,509

   Finance leases
 
337

 
706

Right-of-use assets disposed or adjusted modifying operating leases liabilities
 
$
344

 
$

Right-of-use assets disposed or adjusted modifying finance leases liabilities
 
$
(41
)
 
$

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
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:
 
Three months ended
March 31,
 
2020
 
2019
(in thousands)
 
 
(As Recast)

Current tax provision (benefit)
 

 
 

U.S. federal
$
(1,521
)
 
$
10

State and local
(134
)
 
109

Total current tax provision (benefit)
(1,655
)
 
119

 
 
 
 
Deferred income tax provision (benefit)
 
 
 
U.S. federal
915

 
526

State and local
106

 
90

Total deferred income tax provision (benefit)
1,021

 
616

Income tax provision (benefit)
$
(634
)
 
$
735


No valuation allowance was required as of March 31, 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 March 31, 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 benefit rate for the three months ended March 31, 2020 was 92.4% and the effective tax provision rate for the three months ended March 31, 2019 was 28.5%. The difference in the effective rate for the three months ended March 31, 2020 as compared to the three months ended March 31, 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.
v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt
Debt
Long-term debt consists of the following obligations as of:
(in thousands)
March 31, 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 4.95% to 6.95% through 2025
6,229

 
6,585

Total debt
47,229

 
47,585

Less - Current portion of long-term debt
(5,376
)
 
(4,425
)
Less - Unamortized discount and debt issuance costs
(3,822
)
 
(4,292
)
Long-term debt
$
38,031

 
$
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 $750,000 on the Credit Agreement term loan were due quarterly through June 30, 2018. Principal payments of $900,000 on the Credit Agreement term loan were due at the end of each quarter 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. At March 31, 2019, the interest rates in effect were 8.5% on both the Credit Agreement term loan and the Credit Agreement revolver and 10.5% on the Bridge Term Loan (as defined below).
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. Commencing with the fiscal year ended December 31, 2017, the Company was required to remit an amount equal to 50% of the excess cash flow (as defined in the Credit Agreement) of the Company, which percentage will be reduced based on the Senior Leverage Ratio (as defined in the Credit Agreement). As a result of this provision, the Company remitted to the lenders under the Credit Agreement an excess cash flow payment of $1.2 million on May 1, 2018. No other mandatory prepayments were required before the Company refinanced the Credit Agreement on April 12, 2019.
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.
On January 12, 2018, LFS and LHLLC entered into the Second Amendment and Limited Waiver to the Credit Agreement (the “Second Amendment and Limited Waiver”) with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C issuer. The Second Amendment and Limited Waiver provides for a new term loan under the Credit Agreement in the aggregate principal amount of $10.0 million (the “Bridge Term Loan”) to be used for the purpose of financing the repurchase (the “Repurchase”) of all of the Company’s remaining 280,000 shares of Class A Preferred Stock, including accrued but unpaid dividends, and the payment of certain fees and expenses associated therewith. The proceeds from the Bridge Term Loan were used to finance the Repurchase for an aggregate purchase price of $10.0 million, including accrued but unpaid dividends of $0.9 million, pursuant to the Preferred Stock Repurchase Agreement, dated as of July 14, 2017 (the “Preferred Stock Repurchase Agreement”), by and between the Company and 1347 Investors LLC (“1347 Investors”).
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. With respect to the Bridge Term Loan, from January 12, 2018 to, but excluding, July 12, 2018 (the six-month anniversary of the loan), the applicable margin with respect to any Base Rate loans was 4.00% per annum and with respect to any Eurodollar loan was 5.00% per annum. From July 12, 2018 to, but excluding, the 12-month anniversary thereof, the applicable margin with respect to any Base Rate loan was 4.50% per annum and with respect to any Eurodollar loan was 5.50% per annum. From the 12-month anniversary of January 12, 2018 and all times thereafter, 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.
During the remainder of 2018, the Company, LFS and LHLLC entered into four additional amendments to the Credit Agreement with the lenders party thereto and Fifth Third Bank, as administrative agent and L/C Issuer. Those amendments included but were not limited to: an increase in the amount that could be drawn against the Credit Agreement revolver for the issuances of letters of credit, modified the definition of EBITDA and amended the then-existing covenants. During the third quarter of 2018, the Company was not in compliance with the then-existing debt covenants, which ultimately resulted in the (i) reduction of the lenders' $25.0 million commitment under the Company's Credit Agreement revolver to $20.0 million over time, (ii) acceleration of the maturity date for the Credit Agreement revolver and the Credit Agreement Term Loan facility to March 31, 2020 and (iii) the lenders' request that the Company seek alternative financing. On November 19, 2018, the Company and the lenders executed a limited, conditional and temporary waiver agreement regarding loan documents, which provided for a temporary waiver of the two covenant violations through November 30, 2018, so long as no new defaults or events of default occurred in the intervening period. At the conclusion of the temporary waiver period, the lenders had reserved their rights and remedies to terminate their working capital funding and demand repayment of all amounts due under the Credit Agreement. In addition, the lenders were under no obligation to execute a restructured credit agreement by the November 30, 2018 date.
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.
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
%

The Company had $6.1 million of availability under its Credit Agreement revolver at March 31, 2019.

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 March 31, 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 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 4.00 to 1.00 requirement. 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 eliminating its disclosure in the Company's SEC filings.

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 March 31, 2020, no amounts had been drawn on the 2019 Delayed Draw Term Loan, so no portion of the CB Warrants were 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. 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, respectively.

The CB Warrants liability is included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of March 31, 2020 and recorded any adjustments as other income (expense). At March 31, 2020 and December 31, 2019, the CB Warrants liability was $0.4 million and $0.2 million, respectively. For the three months ended March 31, 2020, the Company recorded other income of $0.2 million to reflect the change in fair value of the CB Warrants liability. At March 31, 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 for the three months ended March 31, 2020 and recorded an additional $0.4 million of interest expense for the amortization of the debt issuance costs for the three months ended March 31, 2020. 
 
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 March 31, 2020, the interest rate in effect on the 2019 ABL Credit Agreement was 5.25%.
 
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 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 4.00 to 1.00 requirement. 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 March 31, 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 months ended March 31, 2020.