LMB 10-K & 10-Q changes, risk factors and insider trading
Limbach Holdings, Inc. · Nasdaq · Construction - Special Trade Contractors · CIK 1606163 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Because we bear the risk of cost overruns on many of our contracts, we may experience reduced profitability or incur losses if actual costs exceed our estimates.”
New heading “Our failure to obtain new customer agreements or renew existing agreements at current or more favorable terms could adversely affect our business, financial condition and results of operations.”
New heading “We may be unable to recover additional claimed costs on projects, which could adversely affect our profitability and liquidity.”
New heading “Delays in, disputes over, or defaults on customer payments could adversely affect our liquidity, results of operations, and financial condition.”
New heading “Our union and open shop operations subject us to labor relations risks, including potential disputes, work stoppages, and challenges to our corporate structure, which could adversely affect our business and results of operations.”
New heading “Our failure to effectively execute our business strategy, including our increased focus on owner-direct relationships, could adversely affect our business and results of operations.”
New heading “Our inability to identify, contract with, or properly utilize qualified disadvantaged business enterprise (“DBE”) subcontractors could adversely affect our business and results of operations.”
New heading “Our ability to obtain sufficient surety bonding is critical to our business, and any reduction in bonding capacity or availability could adversely affect our operations and results of operations.”
New heading “Adverse economic conditions, geopolitical instability, or volatility in financial markets could reduce demand for our services and adversely affect our business and results of operations.”
New heading “Our indebtedness, including variable-rate borrowings and related covenant restrictions, could increase our interest expense, limit our liquidity and financial flexibility, and adversely affect our business and results of operations.”
New heading “Climate change, including physical risks and the transition to lower-emission building practices, could increase our costs, disrupt operations, and adversely affect our financial results.”
New heading “Changing climate-related regulations, disclosure requirements, and environmental, social and governance expectations may increase compliance costs, create regulatory complexity, or adversely affect customer and investor perceptions.”
New heading “The use of artificial intelligence technologies by us or by our third-party vendors may create operational, legal, regulatory, or reputational risks.”
New heading “Unfavorable analyst coverage or a reduction in analyst coverage could adversely affect the market price and liquidity of our common stock.”
Removed heading “Since we bear the risk of cost overruns in most of our contracts, we may experience reduced profits or, in some cases, losses, if costs increase above estimates.”
Removed heading “Our failure to adequately recover on claims brought by us against contractors, project owners or other project participants for additional contract costs could have a negative impact on our results of operations and financial condition, liquidity and on our credit facilities.”
Removed heading “If we experience delays and/or defaults in customer payments, we could be unable to recover all expenditures.”
Removed heading “Our business has union and open shop operations, subjecting the business to risk for labor disputes.”
Removed heading “Strikes or work stoppages could have a negative impact on our operations and results.”
Removed heading “Our business may be negatively affected by our failure to properly execute our business strategy.”
Removed heading “Changes in energy prices may increase our costs, and we may not be able to pass along increased energy costs to our customers.”
Removed heading “We may be unable to identify and contract with qualified DBE contractors to perform as subcontractors.”
Removed heading “A significant portion of our business depends on our ability to provide surety bonds. Any difficulties in the financial and surety markets may cause a material adverse effect on our bonding capacity and availability.”
Removed heading “Recent and potential changes in U.S. trade policies, including changes to existing trade agreements and any resulting changes in international trade relations, and retaliatory responses from other countries may significantly increase the costs or limit supplies of raw materials and products used in our operations.”
Removed heading “Rising inflation and/or interest rates, or deterioration of the United States economy could have a material adverse effect on our business, financial condition and results of operations.”
Removed heading “Continuing worldwide political and economic uncertainties may adversely affect our revenue and profitability.”
Removed heading “Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.”
Removed heading “Failure to remain in compliance with covenants under our debt and credit agreements or service our indebtedness could adversely impact our business.”
Removed heading “We may not be able to generate sufficient cash flow to meet all of our existing or potential future debt service obligations.”
Removed heading “Future climate change could adversely affect us.”
Removed heading “We may be affected by market or regulatory responses to climate change, including potential policy shifts under the current presidential administration.”
Removed heading “Increasing scrutiny and changing expectations from investors and customers with respect to our environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to reputational or other risks.”
Removed heading “We are susceptible to adverse weather conditions and the increasing frequency and severity of extreme weather events, which may harm our business and financial results.”
Removed heading “Artificial intelligence is an emerging area of technology that has the potential to impact various aspects of our business operations.”
Removed heading “Changes to our outsourced software or infrastructure vendors as well as any sudden loss, breach of security, disruption or unexpected data or vendor loss associated with our information technology systems could have a material adverse effect on our business.”
Removed heading “If equity research analysts publish unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.”
Largest changes
“We use sophisticated information technology systems, networks, and infrastructure in conducting some of our day-to-day operations and providing services to certain customers, including technology used for building designs, project modeling and scheduling. Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt our operations by causing transaction errors, processing inefficiencies, the loss of customers, other business disruptions, or the loss of employee personal information. …”see in full comparison
“Our Second A&R Wintrust Credit Agreement and other debt obligations include certain debt covenants, some of which are financial in nature, are further described in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. Our failure to comply with any of these covenants, or to pay principal, interest or other amounts when due thereunder, would constitute an event of default under the applicable agreements. …”see in full comparison
“Economic factors, including inflation and fluctuations in interest rates, recession and fears of recession could have a negative impact on our business. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. To the extent that Congress is unable to lower United States debt substantially or effectively increase the debt limit, a decrease in federal spending could result, which could negatively impact the ability of government agencies to fund existing or new infrastructure projects. …”see in full comparison
“The last several years have been periodically marked by political and economic concerns, including the COVID-19 pandemic, decreased consumer confidence, the effects of international conflicts such as wars between Russia and Ukraine and Israel and Hamas, tariffs, energy costs and inflation. …”see in full comparison
“Delays in, disputes over, or defaults on customer payments could adversely affect our liquidity, results of operations, and financial condition.”see in full comparison
“We are exposed to market risks that may cause increases in the cost, or the availability of, materials, equipment and commodities utilized in our operations. We have experienced, and may continue to experience, delays and cost volatility of these items due to supply chain disruptions, inflationary pressures, tariffs, regulatory slowdowns and market disruptions. In addition, our customers’ budgets may be impacted by cost increases and reduced customer spending could lead to fewer project awards and more competition. …”see in full comparison
Full comparison: every changed paragraph (293)
Intense competition in our industry could reduce our market share and profit.profitability.
The MEPC systems services industry is highly competitive and fragmented, with numerous regional and national providers offering similar services in the geographic markets in which we operate. We compete based on price, technical expertise, experience, reputation, and operational capabilities. Price is often a primary factor in contract awards, particularly for smaller or less complex projects, which may enable smaller competitors with lower cost structures to win work based on price alone.
We also expect competition from the in-house service organizations of our customers who have employees who perform service and maintenance work similar to the services we provide as part of our ODR segment. Vertical consolidation is also expected to intensify competition in the industry. We can offer no assurance that our existing or prospective customers will continue to outsource specialty contracting services in the future. In addition, new and emerging technologies and service models may further alter competitive dynamics in the industry.
If we are unable to compete effectively, including maintaining competitive pricing without adversely affecting our margins, we could experience reduced market share, lower profitability, and/or slower growth. Our results of operations could also be adversely affected if we are required to reduce prices to remain competitive.
The mechanical, plumbing, electrical, and maintenance industry is highly competitive and fragmented, with a range of participants including small regional businesses, large national companies, and specialized subcontractors. The geographic markets in which we compete in have numerous companies that provide similar services. We compete on the basis of our technical expertise and experience, financial and operational resources, industry reputation and dependability. While we believe our customers consider a number of these factors in awarding available contracts, price is often the principal factor in determining which contractor is selected, especially on smaller, less complex projects. As such, smaller competitors are sometimes able to win bids for such projects based on price alone due to their lower cost and financial return requirements. We expect competition to remain intense for the foreseeable future, presenting us with significant challenges in our ability to maintain strong growth rates and acceptable profit margins. We also expect competition from the in-house service organizations of our customers who have employees who perform service and maintenance work similar to the services we provide as part of our ODR offering. Vertical consolidation is also expected to intensify competition in the industry. We can offer no assurance that our existing or prospective customers will continue to outsource specialty contracting services in the future. In addition, new and emerging technologies and services are expected to significantly impact the industry in coming years. If we are unable to meet these competitive challenges, we could lose market share to our competitors and experience an overall reduction in our profits. In addition, our profitability would be impaired if we have to reduce our prices to remain competitive.
If we do not effectively manage the size and cost of our operations, our existing infrastructure may become either strained or overly-burdened, and we may be unable to increase revenue growth.
Failure to achieve and maintain a high level ofquality building systems solutions in our ODR segment could damage our reputation with customers and negatively impact our results.
Our contract backlog is subject to unexpectedadjustments, adjustmentsdelays and cancellations and could be an uncertain indicator of our future earnings.
We cannot guarantee that the revenue projected in our contract backlog will be realized or, if realized, will be profitable. Projects reflectedincluded in the contract backlog mayare besubject affected by projectto cancellations, scope changes, pricing adjustments, timeschedule extensionsdelays, orand other changes.modifications, Suchany changesof maywhich could materially and adversely affect the amount and timing of revenue and profit we ultimately realize on these projects.recognized.
Since we bear the risk of cost overruns in most of our contracts, we may experience reduced profits or, in some cases, losses, if costs increase above estimates.
Our contract prices are established largely upon estimates and assumptions of our projected costs, including assumptions about future economic conditions; prices, including commodities prices; availability of labor; the costs of providing labor, equipment, and materials; and other factors outside of our control. If our estimates or assumptions prove to be inaccurate, due to changing circumstances or our failure to successfully execute the work, cost overruns may occur and we could experience reduced profits or a loss for affected projects. For instance, unanticipated technical problems may arise; we could have difficulty obtaining permits or approvals; local laws, labor costs or labor conditions could change; bad weather could delay construction; prices of raw materials could increase; suppliers or subcontractors may fail to perform as expected; or site conditions may be different than originally anticipated. We are also exposed to increases in energy prices. Additionally, in certain circumstances, we guarantee project completion or the achievement of certain acceptance and performance testing levels by a scheduled date. Failure to meet schedule or performance requirements typically results in additional costs to us, and in some cases may also create liability for consequential and liquidated damages. Performance problems for existing and future projects could also cause our actual results of operations to differ materially from those anticipated and could damage our reputation within the industry and our customer base.
In addition, the costs incurred and gross profit realized on our contracts can vary, sometimes substantially, from our original projections due to a variety of factors, including, but not limited to:
•on-site conditions that differ from those described in the original bid or contract;
•failure to include required materials, equipment, or work in a bid, or the failure to properly estimate the quantities or costs needed to complete a lump sum or guaranteed maximum price contract;
•contract or project modifications creating unanticipated costs not covered by change orders;
•failure by the customer, owner or general contractor to properly approve and authorize change orders for work that is required and as a result, the inability to bill and collect for the value of the work performed;
•failure by suppliers, vendors, subcontractors, designers, engineers, consultants, joint venture partners or customers to perform their obligations;
•delays in quickly identifying and taking measures to address issues which arise during contract execution;
•changes in availability, proximity and costs of materials and equipment, including pipe, sheet metal, other construction materials and mechanical, electrical and plumbing equipment;
•claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is part;
•difficulties in obtaining required governmental permits or approvals;
•availability and skill level of workers in the geographic location of a project;
•citations issued by any governmental authority, including OSHA;
•unexpected labor conditions, shortages, strikes or work stoppages in general causing delays in completion, or acceleration of the contracted work to maintain milestone completion dates, which could cause losses due to not meeting estimated production targets;
•installation productivity rates different than the rate that was estimated;
•changes in applicable tariffs, laws and regulations;
•delays caused by weather conditions;
•fraud, theft or other improper activities by suppliers, vendors, subcontractors, designers, engineers, consultants, joint venture partners, customers or our own personnel; and
•mechanical or performance problems with equipment.
Many of our customer contracts contain provisions that purport to shift some or all of the above risks from the customer to us, even in cases where the customer is partly at fault. We are not always able to shift this risk to subcontractors. Our experience has been that customers are willing to negotiate equitable adjustments in the contract compensation or completion time provisions if unexpected circumstances arise. However, customers may seek to impose contractual risk-shifting provisions more aggressively, which could increase risks and adversely affect our financial position, results of operations and cash flows.
OurA failureU.S. togovernment obtainshutdown newor agreementsdelays andin renewfederal existing agreementsappropriations could haveadversely a material adverse effect onaffect our business, financial conditionbusiness and results of operations.
Our business is affected by macroeconomic, political, and regulatory conditions that influence the markets in which we operate. While the majority of our revenue is derived from private sector customers, we also perform work under contracts with U.S. federal, state, and local government agencies. Any partial or full shutdown of the U.S. government, delays in appropriations, uncertainty regarding the availability of government funds, or interruptions in government operations could result in the suspension, delay, or termination of government contracts, postponement of payments under existing contracts, or delays in the award of new contracts.
In addition, our customers, suppliers, and partners may rely on government funding, approvals, or regulatory actions that may be suspended, delayed, or limited during a shutdown. These disruptions could postpone the start of projects, extend permitting timelines, or impact demand for our services. A prolonged or repeated government shutdown could also contribute to broader economic uncertainty, reduce public and private investment activity, and slow decision-making by our customers. There can be no assurance that government operations will continue without interruption, and any such disruptions could materially and adversely affect our financial condition, results of operations, liquidity, and overall business prospects.
Because we bear the risk of cost overruns on many of our contracts, we may experience reduced profitability or incur losses if actual costs exceed our estimates.
Many of our contracts are priced based on estimates and assumptions regarding future costs, including labor availability and wage rates; material, equipment, energy, and transportation costs; productivity levels; site conditions; permitting requirements; weather conditions; and other factors that are outside of our control. Inflationary pressures, including increases in labor, material, and equipment costs, as well as the imposition of tariffs or changes in trade policies, could increase our actual costs above those assumed at the time a contract is bid or negotiated. If our estimates or assumptions prove inaccurate, or if we are unable to effectively manage project execution, we may experience cost overruns that reduce project profitability or result in losses.
Actual costs and gross profit on our contracts may differ, sometimes materially, from original projections due to factors such as unanticipated site conditions; changes in labor availability, skill levels, or productivity; supply chain disruptions; increases in commodity prices; delays in obtaining permits or approvals; adverse weather conditions; failures by subcontractors, suppliers, or other third parties to perform as expected; or delays in identifying and addressing execution issues. Inflationary cost increases or tariffs that are not recoverable through contractual price adjustments or change orders could further compress margins, particularly on longer-duration projects.
Certain contracts also require us to meet specified completion dates or performance standards, and in some cases we guarantee project completion or acceptance by a defined schedule. Failure to meet these requirements may result in additional costs, reduced margins, or liability for liquidated or consequential damages. Performance issues on individual projects may also harm our reputation with customers and adversely affect our ability to secure future work.
Many of our contracts contain provisions that allocate or shift these risks to us, including in circumstances where the customer may be partially responsible. We are not always able to pass such risks through to subcontractors or suppliers. While customers may agree to equitable contract adjustments under certain circumstances, there can be no assurance that such relief will be granted. Increased use or stricter enforcement of risk-shifting contractual provisions, combined with sustained inflation or changes in tariff regimes, could materially and adversely affect our financial position, results of operations, and cash flows.
Our failure to obtain new customer agreements or renew existing agreements at current or more favorable terms could adversely affect our business, financial condition and results of operations.
Our business depends on our ability to secure new customer agreements and to renew existing agreements in order to maintain and grow revenue. The process for obtaining new work or renewing existing arrangements is often competitive, complex, and subject to lengthy sales and selection cycles. These processes are influenced by market conditions, customer budget constraints, timing of contract expirations, pricing pressures, and other factors that are outside of our control.
If we are unable to successfully compete for new agreements or renew existing agreements on acceptable terms, or if renewals are delayed, reduced in scope, or repriced at lower margins, our backlog, revenue, and operating results could be adversely affected. In addition, a reduction in awarded or renewed work could lead to lower utilization of our workforce and resources, which could further pressure margins and profitability.
Our business depends on our ability to win new agreements and renew existing agreements with customers. Agreement proposals and negotiations can be complex and frequently involve a lengthy sales and selection process, which is affected by a number of factors. These factors include market conditions, the timing of renewals, the pricing of these arrangements and other matters that are outside of our control. If negative market conditions arise, or we encounter other difficulties in obtaining new or repeat work, we may not be able to pursue certain projects or work, which could have a material adverse effect on our business, financial condition and results of operations.
TimingThe timing of the awardaward, commencement and performance of new contracts couldmay havecause anvariability adverse effect onin our operating results and cash flow.flows.
The timing of contract awards is inherently unpredictable and largely outside of our control. Project awards often involve competitive bidding processes and complex, lengthy negotiations, and may be affected by factors such as customer decisions to delay or cancel projects, financing conditions, governmental approvals, commodity price fluctuations, environmental conditions, and overall economic and market conditions. We may not win contracts that we pursue for a variety of reasons, including pricing, customer perceptions of our capabilities, competitive dynamics, or our unwillingness to accept certain contractual risks that is requested by the customer.
Although a significant portion of our revenue is derived from smaller, lower-risk projects, our results of operations may fluctuate from period to period depending on the timing and size of contract awards, the commencement of work on newly awarded projects, and the progress of work on larger contracts. Delays in the start or execution of awarded projects may result in revenue and cash flows being realized later than anticipated.
Uncertainty in the timing of project awards and execution may also make it difficult to efficiently align our workforce and resources with project demand. In anticipation of expected project activity, we may incur labor and overhead costs before revenue is realized. If anticipated projects are delayed or not awarded, these costs could adversely affect our profitability.
The timing of project awards is unpredictable and outside of our control. Project awards often involve complex and lengthy negotiations and competitive bidding processes. These processes can be impacted by a wide variety of factors, including a customer’s decision to not proceed with the development of a project, governmental approvals, financing contingencies, commodity prices, environmental conditions, and overall market and economic conditions. We may not win contracts that we have bid upon for any number of reasons, including price, a customer’s perception of our ability to perform, a competitor’s relationships and/or perceived technology advantages held by others. Many of our competitors may be more inclined to take greater or unusual risks or accept terms and conditions in a contract that we might not deem acceptable. Despite a significant portion of our project revenue being generated from smaller, more risk averse contracts, our results of operations may fluctuate quarterly and annually depending on whether, and when, large project awards occur, as well as the commencement and progress of work under large contracts already awarded. As a result, we are subject to the risk of losing new awards to competitors or the risk that revenue may not be derived from awarded projects as quickly as anticipated.
The uncertainty of the timing of project awards may also present difficulties in matching the size of our work crews with project needs. In some cases, we may maintain and bear the cost of more ready work crews than are currently required in anticipation of future needs for existing contracts or expected future contracts. If a project is delayed or an expected project award is not received, we would incur costs that could have a material adverse effect on our anticipated profit.
In addition, the timing of therevenue revenue,recognition, earningsearnings, and cash flows from ourcontracts contractsincluded in backlog couldmay be delayedaffected by afactors numbersuch of factors, includingas adverse weather conditions; delays caused by other subcontractorscontractors delaying the progression of proceeding work; delays in receiving material and equipment from suppliers and services fromor subcontractors; andsupply chain disruptions affecting the availability of materials or equipment; or changes in theproject scopescope. ofAny worksuch to be performed. Such delays, if they occur,delays could have a material and adverse effectseffect on our operating results and cash flows for current and futurethe periods until the affected contracts are completed.affected.
After the award of a contract, we may perform additional work that was not contemplated in ourthe original contract price, at the request or direction of the customer, without the benefit of an approved change order. Our contracts generally afford the customer the right to order such changed or additional work, and typically require the customer to compensate us for the additional work. If we are unable to successfully negotiate a change order, or fail to obtain adequate compensation for these matters, we could be required to record in the current period an adjustment to revenue and profit recognized in prior periods. Such adjustments, if substantial, could have a material adverse effect on our financial position, results of operations and cash flows.
Such adjustments, if substantial, could have a material adverse effect on our financial position, results of operations and cash flows.
We may be unable to recover additional claimed costs on projects, which could adversely affect our profitability and liquidity.
Our failure to adequately recover on claims brought by us against contractors, project owners or other project participants for additional contract costs could have a negative impact on our results of operations and financial condition, liquidity and on our credit facilities.
In certain circumstances, we assert or have asserted claims against project owners, contractors, owners,subcontractors, engineers, consultants, subcontractors or othersother parties involved in a project for additional costs exceedingincurred the contract price or for amounts not included inbeyond the original contract price. These types of claims occurmay duearise to matters such asfrom delays, inefficienciesinefficiencies, errors, or errorschanges in project scope caused by othersother orparties. changesThe from the initial project scope, allresolution of which may result in additional costs. Often, thesesuch claims canis be theoften subject ofto lengthy negotiations, arbitrationarbitration, or even litigation proceedings,litigation, and itthe is difficult to accurately predict whentiming and onultimate whatamount termsof theserecovery, claimsif willany, beare ultimatelyinherently resolved.uncertain.
Recoveries related to claims may be material in the periods in which they are resolved or become probable and estimable. If actual recoveries are less than amounts previously estimated, we may be required to reduce or reverse previously recognized revenue or profit, which could result in significant volatility in our operating results and, in some cases, cause us to report losses in a given period. Conversely, settlements in excess of recorded estimates could increase revenue and profit in the period of resolution.
The potential impact of recoveries for claims may be material in future periods when they, or a portion of them, become probable and estimable or are settled and therefore these claims have the ability to negatively impact our results of operations and financial condition. For example, we could have estimated and reported a profit on a contract over several periods and later determined, that all or a portion of such previously estimated and reported profits were overstated due to the results of the settlement of a claim. If this occurs, the full aggregate amount of the overstatement would be reported for the period in which such determination is made, thereby offsetting all or a portion of any profits from other contracts that would be reported in such period, or even resulting in a loss being reported for such period. On a historical basis and in accordance with generally accepted accounting principles in the United States of America, we have used a detailed process in estimating and accounting for these claims and we believe that we have typically made reliable estimates of such claims. However, given the uncertainties associated with these types of claims, it is possible for actual recoveries to materially and adversely vary from estimates previously made, which may result in reductions or reversals of previously recorded revenue and profits. We could also recognize additional revenue and profits when the final settlements exceed our recorded estimates.
In addition, when these types of claims are made, we may be required to use or have used working capital to coverfund cost overruns pending the resolution of the relevantwhile claims remain unresolved and may incur additional costs whenin pursuing such potential recoveries. ADelays failureor tofailures recoverin onrecovering theseclaimed types of claims promptly and fullyamounts could haveadversely a negative impact onaffect our financial position, results of operations, cash flows and liquidity. Moreover,To ourthe useextent ofthat working capital tousage coverincreases costor overrunsprofitability relateddeclines toas pendinga claimsresult mayof impactunresolved claims, our ability to meetcomply with financial covenants under our credit agreement covenantsfacilities or limitto theaccess useavailable ofborrowing ourcapacity creditcould agreements.be Ifadversely weaffected. Any default under our credit agreements, itagreements could result in, among other things, usrestrictions noon longer being entitled to borrow under one or more of the credit agreements,borrowing, acceleration of the maturity of outstanding indebtedness under the agreements,indebtedness, foreclosure on collateralcollateral, securingor the obligations under the agreements or require usneed to enter intoobtain amendments and/or waivers to those credit agreements that may place additional requirements on usunfavorable and that cost us additional amounts payable to our lenders.terms.
We place significant decision makingdecision-making powers with our business units’ management, which presents certain risks that may cause the operating results of individual branches to vary.
We operate from various locations across the easternEastern and Midwestern regions of the United States, supported by corporate executives and services, with local business unit management retaining responsibility for day-to-day operations and adherence to applicable laws. We believe that our practice of placing significant decision makingdecision-making powers with local management is important to our successful growth and allows us to be responsive to opportunities and to our customers’ needs. However, this practice can make it difficult to coordinate procedures across our operations and presents certain risks, including the risk that we may be slower or less effective in our attempts to identify or react to problems affecting an important business issue than we would under a more centralized structure, or that we would be slower to identify a misalignment between a subsidiary’s and our overall business strategy. If a subsidiary location fails to follow our compliance policies, we could be made party to a contract, arrangement or situation with exposure to large liabilities or that has less advantageous terms than is typically found across the markets in which we operate. Likewise, inconsistent implementation of corporate strategy and policies at the local level could materially and adversely affect our financial position, results of operations, cash flows and prospects.
Acquisitions, divestitures, and other strategic transactions couldmay fail to achieve anticipated financial or strategic objectives,benefits and could disrupt our ongoing business, and adversely impactaffect our results of operations.
Management's Discussion & Analysis (MD&A)
New heading “Acquisition-related Retention Expense and Contingent Consideration”
New heading “Acquisition-related Retention Expense and Contingent Consideration”
Removed heading “Change in fair value of contingent consideration”
Removed heading “Change in Fair Value of Contingent Consideration”
Removed heading “Outlook for 2025”
Largest changes
“In 2024, the mechanical services industry experienced steady demand across key sectors, driven by continued investment in energy efficiency, infrastructure upgrades and maintenance of aging mechanical systems. However, the industry faced challenges related to economic uncertainty, labor shortages and supply chain volatility. Although the Company has been experiencing strong demand, these industry challenges continue to impact its business. …”see in full comparison
“The Company is closely monitoring evolving macroeconomic conditions and heightened geopolitical risks. During 2025, economic and trade policy uncertainty increased globally. Rising trade tensions and changes to trade policy (including tariffs), global conflicts, labor disruptions, and evolving regulations can contribute to inflationary pressures, supply chain disruptions, and pricing and lead-time volatility for certain materials and equipment. The Company continues to collaborate with suppliers and subcontractors to mitigate potential shortages and reduce supply and price volatility. …”see in full comparison
“The prices of products such as steel, pipe, copper and equipment from manufacturers are subject to fluctuation and increases. It is difficult to accurately measure the impact of inflation, tariffs and price escalation due to the imprecise nature of the estimates required. However, these effects are, at times, material to the Company’s results of operations and financial condition. …”see in full comparison
“Where appropriate, the Company seeks to mitigate these impacts by (i) incorporating cost escalation assumptions and/or escalation provisions into bids and proposals, (ii) limiting the acceptance period of bids, (iii) procuring materials and equipment earlier in the project lifecycle, including through fixed-price purchase orders where feasible, and (iv) negotiating with suppliers and subcontractors to manage pricing and delivery terms. …”see in full comparison
“The prices of key inputs used in the Company’s projects and service operations; such as steel, pipe, copper, and certain equipment and components, are subject to volatility, including increases driven by inflation, tariffs, supply constraints and price escalation. These factors can, at times, be material to its results of operations and financial condition, particularly on fixed-price projects and where equipment lead times extend beyond its procurement window. …”see in full comparison
“Goodwill is the excess of purchase price over the fair value of the net assets of acquired businesses. The Company assesses goodwill for impairment each year, and more frequently if circumstances suggest an impairment may have occurred. When the carrying value of a given reporting unit exceeds its fair value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value. If other reporting units have had increases in fair value, such increases may not be recorded. …”see in full comparison
Full comparison: every changed paragraph (130)
The discussion that follows includes a comparison of the Company’s results of operations and liquidity and capital resources for the fiscal years ended December 31, 20242025 and 2023.2024. TheIn accordance with Item 303(b) of Regulation S-K, the Company has elected to omit discussion of the earliest of the three years covered by the consolidated financial statements presented. For a discussion and analysis of fiscal year ended December 31, 20222023 and of changes from the fiscal year ended December 31, 20232024 to the fiscal year ended December 31, 2022,2023, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 20232024 (filed with the SEC on March 13,10, 20242025).
The Company is a building systems solutions firm that designs, delivers, and maintains mechanical (heating, ventilation, and air conditioning), electrical, plumbing, and controls (“MEPC”) systems. The Company partners with building owners and operators of mission-critical facilities across healthcare, industrial and manufacturing, data centers, life sciences, higher education, and cultural and entertainment markets. With approximately 1,500 team members across 21 offices throughout the Eastern and Midwestern regions of the United States, the Company strives to be an indispensable partner by combining its national capabilities with strong local execution and talent to deliver proactive, safe, and reliable solutions for complex facilities. Operating on a connected platform, the Company integrates engineering expertise with field execution to provide customized MEPC infrastructure solutions that address both operational and capital project needs, optimizing performance, enhancing reliability, and ensuring long-term safety.
The Company is a building systems solution firm that partners with building owners and facilities managers with mission critical mechanical (heating, ventilation and air conditioning), electrical, and plumbing infrastructure. The Company strives to be an indispensable partner to its customers by providing services that are essential to the operation of their businesses. The Company has approximately 1,400 team members in 20 offices across the eastern United States. The Company’s team members uniquely combine engineering expertise with field installation skills to provide custom solutions that leverage its full life-cycle capabilities, which allows it to address both the operational and capital projects needs of its customers.
•Life sciences, including organizations and companies whose work is centered around research and development focused on living thingsorganisms and biological systems;
The Company operates in two segments, (i) ODR, in which the Company performs owner direct projects and/or provides maintenance or service primarily on mechanical, plumbing or electricalMEPC systems, building controls and specialty contracting projects to existing buildings direct to, or assigned by, building owners or property managers,operators, and (ii) GCR, in which the Company generally manages new construction or renovation projects that involve primarily mechanical,MEPC plumbing, or electrical servicessystems awarded to the Company by general contractors or construction managers. The Company's work is primarily performed under fixed-price, modified fixed-price, and time and materials contracts over periods of typically less than two years.
The Company’s revenue is primarily derived from construction-type and services contracts to deliver MEPC systems services to its customers. Such work is primarily performed under fixed-price, modified fixed-price, and time and materials contracts over periods of typically less than two years.
Construction-type contract revenue is primarily derived from fixed-price and modified fixed-price contracts. For the majority of these contracts, the Company’s performance obligations are satisfied over time because the customer controls the asset as it is created or enhanced or because the Company’s performance does not create an asset with an alternative use and the Company has an enforceable right to payment for performance completed to date. For contracts satisfied over time, the Company recognizes revenue using an input method based on costs incurred relative to total estimated costs at completion (the cost-to-cost method), which management believes depicts the transfer of control of services to the customer. The Company believes its extensive experience with MEPC systems projects, together with its internal cost estimation and review processes, enables it to reasonably estimate contract costs and mitigate the risk of cost overruns.
With respect to service contracts, the Company’s service arrangements generally include (i) fixed-price service contracts, typically for maintenance, repair and retrofit work over a period, commonly one year, and (ii) time and materials or similar service work performed on an as-needed basis. Revenue from fixed-price service contracts is generally recognized over time on a systematic basis that depicts performance over the contract term, which is typically on a straight-line basis when services are provided evenly over the contract period. Revenue derived from time and materials and other service work is recognized when the services are performed.
The Company generates revenue principally from fixed-price construction contracts to deliver mechanical, plumbing, and electrical construction services to its customers. The duration of the Company’s contracts generally ranges from three months to two years. Revenue from fixed price contracts is recognized on the cost-to-cost method, measured by the relationship of total cost incurred to total estimated contract costs. Revenue from time and materials service contracts is recognized as services are performed. The Company believes that its extensive experience in mechanical, plumbing, and electrical projects, and its internal cost review procedures during the bidding process enable it to reasonably estimate costs and mitigate the risk of cost overruns on fixed price contracts.
The Company generally invoices customers on a monthly basis,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.
Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs for the Company’s administrative, estimating, human resources, safety, information technology, legal, finance and accounting team members and executives. Also included in SG&A expenses are non-personnel costs, such as travel-related expenses, legal and other professional fees and other corporate expenses to support the growth of the Company's business and to meet the compliance requirements associated with operating as a public company. Those costs include 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 of 2002.
Acquisition-related Retention Expense and Contingent Consideration
As part of the acquisition of Pioneer Power, the Company implemented retention arrangements for certain key employees of the acquired business. Retention-related compensation is recognized as expense ratably over the service period, which runs through December 2027, and is contingent on continued employment.
Change in fair value of contingent consideration
Certain of the Company's prior acquisitions include contingent earnout arrangements in which the Company may be required to make additional payments contingent upon the acquired businesses achieving specified performance targets over specified periods. The change in fair value of contingent consideration relates to the remeasurement of the contingent consideration arrangements resulting from eachthe acquisitions of theeach JakeACME Marshall,Industrial Piping, LLC (“JMLLCACME”), CoatingIndustrial Solutions,Air, LLC (“CSLLC”,Industrial together with JMLLC, the “Jake Marshall TransactionAir”), the ACME Transaction, the Industrial Air Transaction, the Kent Island Transaction and the Consolidated MechanicalMechanical. Transaction.The Ascarrying partvalues of the total consideration for the Jake Marshall, ACME, Industrial Air, Kent Island and Consolidated Mechanical transactions,Earnout the Company initially recognized $3.1 million, $1.5 million, $3.2 million, $4.4 million and $0.8 million, respectively, in contingent consideration associated with their respective earnout payments. The carrying values of the Jake Marshall, ACME, Industrial Air, Kent Island and Consolidated Mechanical earnout paymentsPayments are subject to remeasurement at fair value at each reporting date through the end of the respective earnout periods with any changes in the fair value reported as a separate component of operating income in the consolidated statements of operations. See Note 9 – Fair Value Measurements in the accompanying notes to the Company’s consolidated financial statements for further information.information on the Company’s contingent earnout arrangements.
Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including favorable leasehold interests and certain customer relationships. As a result of the Jake Marshall Transaction, the Company recognized, in the aggregate, an additional $5.7 million of intangible assets associated with customer relationships with third-party customers, the acquired trade name and acquired backlog. As a result of the ACME Transaction, the Company recognized, in the aggregate, an additional $2.8 million of intangible assets associated with customer relationships with third-party customers and the acquired trade name, inclusive of the impact of certain measurement period adjustments. As a result of the Industrial Air Transaction, the Company recognized, in the aggregate, an additional $8.7 million of intangible assets associated with customer relationships with third-party customers, the acquired trade name, trademarks and intellectual property and the acquired backlog. In addition, as a result of the Kent Island Transaction, the Company recognized, in the aggregate, an additional $10.7 million of intangible assets associated with customer relationships with third-party customers, the acquired trade name and the acquired backlog. Lastly, as a result of the Consolidated Mechanical Transaction, the Company recognized, in the aggregate, an additional $10.1 million of intangible assets associated with customer relationships with third-party customers and the acquired trade name.
Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including favorable leasehold interests and certain customer relationships. Each of the Jake Marshall, LLC (“Jake Marshall”), ACME, Industrial Air, Kent IslandIsland, Consolidated Mechanical and ConsolidatedPioneer Mechanical-relatedPower-related intangible assets were recorded under the acquisition method of accounting at their estimated fair values at the acquisition date. See Note 3 – Acquisitions in the accompanying notes to the Company’s consolidated financial statements for further discussion of the Company’s acquired intangible assets as a result of the KentPioneer IslandPower and Consolidated Mechanical Transactions.Transaction. In addition, see Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s consolidated financial statements for further information on the Company’s intangible assets.
Other (expenses) income consists primarily of interest expense incurred in connection with the Company'sCompany’s debt,indebtedness, agains lossand associatedlosses withon the early terminationdispositions of anproperty operating lease, gains or losses associated with the disposition of property,and equipment, changes in the fair value of the Company’s interest rate swaps, losses associated with the early extinguishment of debtswap, and interest income earned from itson overnight repurchase agreements, money market investments, and U.S. Treasury Bills and the Company's interest rate swap agreement.bills. Deferred financing costs are amortized to interest expense using the effective interest method.
The Company is taxed as a C corporationcorporation, and its financial results include the effects of federal income taxes, which will beare paid at the parent level.
The Company’s provision for income taxes (including federal, state and local income taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with Accounting Standards Update (“ASC”) Topic 740 -— Income Taxes, which requires the use of thean asset and liability method.approach. Under this method,approach, 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 valuesamounts of existing assets and liabilities and their respective tax bases, using enacted tax rates expected to be applicableapply in the yearsperiods in which thethose temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recordedincluded in the provision for income taxes.
In order to provide a more meaningful period-over-period discussion of period-over-period changes in the Company’s operating results, the Company may discuss amountsthe generatedimpact orof incurredacquisitions (revenues,on revenue, gross profit, selling, general and administrative expenses, and operating income)income. from companies acquired. The amounts discussed reflect theBecause acquired companies’businesses operatingare resultsincluded in the currentCompany’s reported periodresults only forfrom their respective acquisition dates, the timesize periodand thesetiming entitiesof wereacquisitions may affect the comparability of period-over-period results. Accordingly, such comparisons may not ownedbe byfully theindicative Companyof ongoing trends in the comparableCompany’s prioroperating reported period.performance.
On July 1, 2025, the Company completed an acquisition of Woodbury, Minnesota-based mechanical contractor, Pioneer Power, for a purchase price at closing of $66.1 million. Pioneer Power is a provider of industrial and institutional mechanical solutions serving healthcare, food, power/utility, oil refining and other select markets in the greater Twin Cities region of Minnesota and upper Midwestern region. The acquisition further expands the Company’s footprint and extends its reach into new geographic markets in the upper Midwestern region.
During 2023, the Company acquired two companies for total cash consideration of $15.3 million, net of cash acquired and inclusive of certain measurement period adjustments. On July 3, 2023, the Company completed an acquisition of Chattanooga, TN-based specialty industrial contractor, ACME, for a purchase price at closing of $5.0 million in cash. The transaction also provided for an earnout of up to $2.5 million potentially being paid out over 2024 and 2025. ACME specializes in performing industrial maintenance, capital project work, and emergency services for specialty chemical and manufacturing customers, and is a leading mechanical solutions provider for hydroelectric producers. On November 1, 2023, the Company completed an acquisition of Greensboro, NC-based specialty mechanical contractor, Industrial Air, for a purchase price at closing of $13.5 million in cash. The transaction also provided for an earnout of up to $6.5 million potentially being paid out over 2025 and 2026. Industrial Air serves industrial customers throughout the Southeast United States and along the Eastern seaboard, focusing on delivering engineered air handling systems, including air condition and air filtration, along with controls systems and maintenance work. In addition, Industrial Air manufactures a wide range of components for air conditioning and filtration systems.
On September 3, 2024, the Company completed an acquisition of Laurel, MD-based specialty mechanical contractor, Kent Island Mechanical, for a purchase price at closing of $15.0 million. The transaction also provided for an earnout of up to $5.0 million potentially being paid out over 2025 and 2026. Kent Island is a leading provider of building systems solutions in the Greater Washington, DC metro area, including suburban Maryland and Northern Virginia. Kent Island excels in designing, engineering, installing, servicing, and maintaining mechanical and plumbing systems for complex facilities. The acquisition expands the Company’s market share within its existing operating footprint, provides further exposure to an attractive customer base and supports the Company's continued ODR growth strategy.
On September 3, 2024, the Company completed an acquisition of Laurel, Maryland-based specialty mechanical contractor, Kent Island, for a purchase price at closing of $15.0 million. The transaction also provided for an earnout of up to $5.0 million potentially being paid out over 2026 and 2027. Kent Island is a leading provider of building systems solutions in the Greater Washington, DC metro area, including suburban Maryland and Northern Virginia. Kent Island excels in designing, engineering, installing, servicing, and maintaining mechanical and plumbing systems for complex facilities. The acquisition expands the Company’s market share within its existing operating footprint, provides further exposure to an attractive customer base and supports the Company's continued ODR growth strategy.
Divestitures
In February 2022, the Company announced its strategic decision to wind down its Southern California operations. The decision was made to better align the Company’s customer geographic focus and to reduce losses related to unprofitable locations. During 2023, the Company executed the closeout phases on its remaining Southern California business unit projects and has fully exited the Southern California region aside from certain operational warranty obligations. However, the Company is party to the terms of a sublease agreement for its leased premises in Southern California through April 2027 and remains obligated under the original lease for such office space in the event the sublessee fails to satisfy its obligations under the sublease agreement. See Note 14 – Leases in the accompanying notes to the Company’s consolidated financial statements for further information on the Southern California Sublease.
The Company manages and measures the performance of its business in two operating segments: ODR and GCR. Segment information is prepared on the same basis that the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company’s CODM comprisesis comprised of its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer.
In accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all of the ODR work performed at its branches into one ODR reportable segment and all of the GCR work performed at its branches into one GCR reportable segment. All transactions between segments are eliminated in consolidation.
Total revenue for the year ended December 31, 2025 increased by $128.0 million, or 24.7%, to $646.8 million, compared to $518.8 million for the year ended December 31, 2024. The increase in revenue was primarily attributable to the impact of recent acquisitions completed in the second half of 2024 and July 2025. The Company’s organic operations increased $18.9 million and the incremental increase from acquisition-related revenue for 2025 was $109.1 million. Acquisition-related revenue represents incremental revenue generated in 2025 by acquired businesses only for the twelve-month period subsequent to their respective acquisition dates. After such period, the results of acquired businesses are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis.
ODR revenue for the year ended December 31, 2025 increased by $140.2 million, or 40.6%, to $485.7 million, compared to $345.5 million for the year ended December 31, 2024. This increase was driven by the Company’s continued focus on accelerating growth within its ODR business, as well as incremental revenue contributions from the Pioneer Power, Consolidated Mechanical and Kent Island acquisitions. These acquisitions contributed approximately $81.4 million of the ODR revenue increase during 2025. The remaining increase of $58.8 million reflects organic growth driven by higher project volume within the Company’s ODR segment.
GCR revenue for the year ended December 31, 2025 decreased by $12.2 million, or 7.0%, to $161.1 million, compared to $173.3 million for the year ended December 31, 2024. The decrease in year-over-year GCR revenue was primarily attributable to the Company’s continued execution of its strategic mix-shift toward ODR work, which resulted in lower GCR organic revenue of $39.9 million. This decline was partially offset by an incremental increase in GCR acquisition-related revenue of approximately $27.7 million from the Pioneer Power, Consolidated Mechanical and Kent Island acquisitions during 2025.
Total revenue for the year ended December 31, 2024 increased by $2.4 million compared to the year ended December 31, 2023. ODR revenue increased by $83.5 million, or 31.9%, while GCR revenue decreased by $81.1 million, or 31.9%. The increase in year-over-year ODR segment revenue primarily was due to the Company's continued focus on the accelerated growth of its ODR business. In addition, ODR segment revenue increased in the aggregate by approximately $31.5 million due to the ACME and Industrial Air transactions. These entities were not acquired entities of the Company for the full year ending December 31, 2023. The decrease in year-over-year GCR segment revenue was primarily due to the Company’s continued focus on the execution of its mix-shift strategy to ODR. The Kent Island and Consolidated Mechanical transactions did not have a material impact on revenue for the year ended December 31, 2024 due to timing of when these entities were acquired.
The Company's gross profit for the year ended December 31, 2025 increased by $25.0 million, or 17.4%, to $169.3 million, compared to $144.3 million for the year ended December 31, 2024. The increase was primarily driven by higher gross profit in the ODR segment, partially offset by lower total gross margins.
ODR gross profit increased $22.1 million, or 20.5%, primarily due to an increase in revenue, despite lower segment gross margins of 26.7% versus 31.2% year-over-year. The decrease in ODR gross margin was primarily attributable to the impact of certain acquisitions, which operate at lower gross margin profiles relative to the Company’s organic ODR operations, as well as ODR-related project write-ups recognized in 2024 that did not recur in the current year. Management continues to integrate these acquired operations into the Company’s broader operating model with the objective of improving profitability over time.
GCR gross profit increased $2.9 million, or 8.0%, driven by higher segment gross margins of 24.5% compared to 21.1% year-over-year, despite lower GCR segment revenue. The increase in GCR gross margin reflects the Company’s continued selectivity in pursuing GCR projects.
As a result, total gross profit margin decreased to 26.2% for the year ended December 31, 2025 from 27.8% for the year ended December 31, 2024, primarily due to lower ODR segment margins associated with the inclusion of acquired entities, partially offset by improved GCR segment margins.
The Company's gross profit for the year ended December 31, 2024 increased by $25.0 million, or 20.9% compared to the year ended December 31, 2023. ODR gross profit increased $31.7 million, or 41.6%, due to the combination of an increase in revenue, higher margins driven by contract mix and as a result of the ACME and Industrial Air transactions. These entities were not acquired entities of the Company for the full year ending December 31, 2023. GCR gross profit decreased $6.7 million, or 15.5%, primarily due to lower revenue despite higher margins. The total gross profit percentage increased from 23.1% for the year ended December 31, 2023 to 27.8% for the year ended December 31, 2024, mainly driven by the mix of higher margin ODR segment work, the Company becoming more selective when pursuing GCR work, and net material gross profit write-ups. The Kent Island and Consolidated Mechanical transactions did not have a material impact on gross profit for the year ended December 31, 2024 due to timing of when these entities were acquired.
The Company also recorded revisions in its contract estimates for certain ODR and GCR projects. During the year ended December 31, 2024,2025, the Company recorded material gross profit write-upswrite-downs on fourtwo ODR segment projects for a total of $3.9$1.1 million that had a net gross profit impact of $0.5 million or more. During the year ended December 31, 2024,2025, the Company recorded material gross profit write-ups on three GCR projects for a total of $3.3 million and material gross profit write-downs on two GCR projects for a total of $1.4$2.2 million.
During the year ended December 31, 2023,2024, the Company recorded a material gross profit write-downwrite-ups on onefour ODR segment projectprojects for a total of $1.0$3.9 million that had a net gross profit impact of $0.5 million or more. During the year ended December 31, 2023,2024, the Company recorded material gross profit write-ups of $2.2$3.3 million on twothree GCR projects and material gross profit write-downs on two GCR projects for a total of $1.3$1.4 million.
The Company's total SG&A expense for the year ended December 31, 20242025 increased by approximately $9.8$12.3 million, or 11.2%12.7% compared to the year ended December 31, 2023.2024. The increase in total SG&A was primarily driven by $9.3 million of SG&A expenses associated with the acquired entities. Acquisition-related SG&A represents SG&A expenses incurred in 2025 by acquired businesses only for the twelve-month period subsequent to their respective acquisition dates. After such period, the results of acquired businesses are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis. Organic SG&A increased $3.0 million primarily due to a $6.5 million increase associated with payroll and incentive related expenses, $4.1 million of collective expenses incurred from the ACME and Industrial Air entities that were not acquired entities of the Company for the full fiscal year 2023, a $0.9$1.2 million increase in non-cash stock-based compensation expenseexpenses and a $0.7$1.1 million increase forin professionalbad servicesdebt fees.expense Partlyassociated offsettingwith thisthe increasewrite-off wasof acertain $1.0customer millionreceivables decreasethat inwere deemed uncollectible. Although total SG&A relatedexpense toincreased CEOperiod-over-period, transition costs recognized in 2023. Additionally,total SG&A expense as a percentage of revenue wasdecreased to 16.9% for the year ended December 31, 2025 as compared to 18.7% for the year ended December 31, 2024 andprimarily 16.9%due forto the yearincreased endedrevenue Decemberin 31,2025 2023.as a result of the Pioneer Power acquisition.
Acquisition-related Retention Expense and Contingent Consideration
Acquisition-related retention and contingent consideration expenses were $2.0 million and $3.8 million for the years ended December 31, 2025 and 2024, respectively. For the year ended December 31, 2025, these expenses included approximately $0.2 million of acquisition-related retention expense associated with the Pioneer Power transaction, which was not incurred in the prior year. As part of the Pioneer Power acquisition, the Company entered into retention agreements with certain key employees of the acquired business. Retention-related compensation is recognized as expense ratably over the requisite service period, which extends through December 2027, and is contingent upon continued employment.
Change in Fair Value of Contingent Consideration
TheIn changeaddition, the Company recognized a $1.8 million increase in the fair valuesvalue of the Company’s earnout payment contingent consideration was a loss of $3.8 million and $0.7 million forduring the yearsyear ended December 31, 20242025, compared to a $3.8 million increase during the year ended December 31, 2024. The change in the fair value of contingent consideration represents a non-cash expense and 2023, respectively. These increases to the contingent liability werewas primarily attributable to updated estimates regarding the probability of meetingachieving the gross profit marginstargets associated withunderlying the contingent considerationearnout arrangements for the acquisitions as of December 31, 20242025 and 2023.2024.
See Note 9 – Fair Value Measurements in the accompanying notes to the Company’s consolidated financial statements for further information on the Company's earnout arrangements.
Total amortization expense for the year ended December 31, 2025 increased by approximately $3.7 million compared to the year ended December 31, 2024. The year-over-year increase in amortization expense was a result of the Pioneer Power, Consolidated Mechanical and Kent Island acquisitions, which resulted in higher amortization expense in the current year period as the related intangible assets from the acquisitions were not included in, or were included for only a portion of, the prior-year comparative period.
See Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s consolidated financial statements for further information on the Company's intangible assets.
Total amortization expense for the year ended December 31, 2024 increased by approximately $2.8 million compared to the year ended December 31, 2023. As a result of the ACME, Industrial Air and Kent Island transactions, the Company acquired certain intangible assets in which it recognized an increase of approximately $3.1 million of amortization expense year-over-year. See Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s consolidated financial statements for further information on the Company's intangible assets.
Other Income (Expenses) Income
Total other expenses for the year ended December 31, 2025 was approximately $0.8 million as compared to total other income of $1.3 million for the year ended December 31, 2024. The change period-over-period was primarily driven by a $1.3 million increase in interest expense related to greater borrowings under the Company’s revolving credit facility to partially finance the Pioneer Power Transaction, and higher financing costs associated with a larger vehicle fleet period-over-period, as well as a $1.4 million decrease in interest income due to reduced cash and cash equivalent balances period-over-period and lower yields on invested balances. Partially offsetting these changes was a $0.7 million increase in gains associated with the disposition of certain property and equipment as part of the Company’s ongoing asset management and fleet optimization efforts.
Total other income for the year ended December 31, 2024 was $1.3 million as compared to total other expenses of $1.2 million for the year ended December 31, 2023. The increase in total other income (expenses) primarily was driven by a $1.0 million increase in interest income related to the Company's overnight repurchase agreements, investments in U.S. Treasury Bills and money market funds. In addition, during the year ended December 31, 2024, the Company recognized a gain of $1.0 million related to the sale of certain property and equipment compared to $0.1 million recognized in 2023. The increase in total other income (expenses) also included a $0.3 million loss on early debt extinguishment recognized during 2023.
The Company’s income tax provision was $9.1$9.6 million and $7.3$9.1 million for the years ended December 31, 20242025 and 2023,2024, respectively, and it had a 22.7%19.7% and 26.1%22.7% effective tax rate over those same periods, respectively. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate year-over-yearperiod-over-period was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items. In particular, the Company’s effective rate for the yearyears ended December 31, 20242025 and 20232024 were materially impacted by “excess tax benefits on stock-based compensation” recognized discretely during the first quarter of each year.year Thisas benefita reducedresult of the effective tax rate by 35.1% and 10.2% for the three months ended March 31, 2024 and 2023 respectively, with the impact varying in prior years. The increase in the 2024 effective rate reduction is primarily related to the higherCompany’s stock price ofat the CompanyRSU vesting dates resulting in increased tax deductions for the Company upon vesting of equity incentive awards.Company. See also Note 11 – Income Taxes in the accompanying notes to the Company’s consolidated financial statements.
The Company refers to its estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue it had recognized under such contracts, as “backlog.” Backlog includes unexercised contract options. The Company’s backlog includes projects that have a written award, a letter of intent, a notice to proceed or an agreed uponagreed-upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between the Company’s backlog and remaining performance obligations is due to the portion of unexercised contract options that are excluded, under certain contract types, from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. InWhile additionbacklog provides a measure of work expected to be performed in future periods, it is not necessarily a reliable indicator of future revenue or overall performance of the Company. A substantial portion of the Company’s backlog,contracts, itparticularly haswithin its ODR operations, are short-cycle in nature and may be awarded and substantially completed within a substantialshort amountperiod offollowing contractsaward. withThese projects typically have short lead times that book-and-bill within the same reporting period and rapid burn rates and, as a result, are generally not included in reported backlog. Consequently, fluctuations in reported backlog may not correlate with changes in overall market demand, revenue generation, or operational performance. Additional information related to the Company’s remaining performance obligations is provided in Note 4 — Revenue from Contracts with Customers in the accompanying notes to its consolidated financial statements. See also “Item 1A. Risk Factors — Our contract backlog is subject to unexpectedadjustments, adjustmentsdelays and cancellations and could be an uncertain indicator of our future earnings.”
The Company’s ODR backlog was $225.3$255.8 million and $147.0$225.3 million as of December 31, 20242025 and 2023,2024, respectively. These amounts reflect unrecognized revenue expected to be recognized over the remaining terms of its service contractsconstruction-type and projects.service contracts. Based on historical trends, the Company currently estimates that 86%84% of its ODR backlog as of December 31, 20242025 will be recognized as revenue during 2025.2026. The Company believes itsCompany's ODR backlog increased due to its continued focus on the accelerated growth of its ODR business.business and as a result of backlog contributions resulting from the Pioneer Power Transaction.
The Company’s GCR backlog was $140.0$141.8 million and $186.9$140.0 million as of December 31, 20242025 and 2023,2024, respectively. Projects are brought into backlog once the Company has been provided a written confirmation of award and the contract value has been established. At any point in time, the Company has a substantial volume of projects that are specifically identified and advanced in negotiations and/or documentation, however those projects are not booked as backlog until the Company has received written confirmation from the owner or the general contractor / construction manager of their intention to award it the contract and they have directed the Company to begin engineering, designing, incurring construction labor costs or procuring needed equipment and material. The Company’s GCR projects tend to be built over a 12- to 24-month schedule depending upon scope and complexity. Most major projects have a preconstruction planning phase, which may require months of planning before actual construction commences. The Company is occasionally employed to deliver a “fast-track” project, where construction commences as the preconstruction planning work continues. As work on the Company’s projects progress, it increases or decreases backlog to take into account its estimate of the effects of changes in estimated quantities, changes in conditions, change orders and other variations from initially anticipated contract revenue, and the percentage of completion of the Company’s work on the projects. Based on historical trends, the Company currently estimates that 72%77% of its GCR backlog as of December 31, 20242025 will be recognized as revenue during 2025.2026. Additionally, the reduction in GCR backlog has been intentional as the Company looks to focus on higher margin projects than it has done historically, as well as its focus on smaller, higher margin owner direct projects.
The Company is closely monitoring evolving macroeconomic conditions and heightened geopolitical risks. During 2025, economic and trade policy uncertainty increased globally. Rising trade tensions and changes to trade policy (including tariffs), global conflicts, labor disruptions, and evolving regulations can contribute to inflationary pressures, supply chain disruptions, and pricing and lead-time volatility for certain materials and equipment. The Company continues to collaborate with suppliers and subcontractors to mitigate potential shortages and reduce supply and price volatility. The Company anticipates an elevated level of uncertainty with respect to inflation and other macroeconomic trends for the foreseeable future.
In 2024, the mechanical services industry experienced steady demand across key sectors, driven by continued investment in energy efficiency, infrastructure upgrades and maintenance of aging mechanical systems. However, the industry faced challenges related to economic uncertainty, labor shortages and supply chain volatility. Although the Company has been experiencing strong demand, these industry challenges continue to impact its business. The Company experienced elevated levels of cost inflation during 2023, which has continued into 2024, although at lower levels than those experienced in 2023. These headwinds have been partially mitigated in 2023 and 2024 by pricing actions taken in response to the inflationary cost environment, supply chain productivity improvements and cost savings initiatives. Economic conditions contributed to increases in interest rates during 2023; however, interest rates remained stable in the first half of 2024 and the Federal Reserve reduced its benchmark interest rate by a total of 100 basis points in the second half of 2024. Future interest rate changes would raise or lower the rates the Company pays on its leased fleet vehicles and borrowings under the Second A&R Wintrust Revolving Loan. However, the Company is party to an interest rate swap arrangement to manage the risk associated with a portion of its variable-rate revolving loan. Also, the ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have increased global economic and political uncertainty and the conflict in the Middle East may add to these issues.
While the impact of these factors remains uncertain, theThe Company continues to evaluate the extent to which theythese conditions may impact its business, financial conditioncondition, orand results of operations. There can be no assurance that the Company's actions will serve to mitigate such impacts in future periods. In periods of economic uncertainty, businesses and organizationscustomers may delay or cancel large capital projects, such as new construction or major mechanical system upgrades. TheAt the same time, the Company’s serviceservice, contractsmaintenance, and maintenancerepair work oftenmay remain stable or even increase,increase as customers prioritize maintaining existing systems over capital-intensive replacements. Further,Economic economic downturnsuncertainty may also lead to increased competition and pricing pressures,pressure, impactingwhich could adversely affect revenue and margins. The Company believes that its diversified serviceservices offeringsand customer base help reduce its exposure to market volatility. While the Company believes its remaining performance obligations aregenerally firm,represent firm commitments, project timing may shift due to customer scheduling decisions and its customers have not provided the Companyavailability withand indications that they no longer wish to proceed with planned projects, prolonged delays in the receipttiming of critical equipmentequipment, prolonged delays could result in the Company's customers seeking to defer, modify, or terminate existing or pending agreements. Any of these events could have a material adverse effect on the Company’s business, financial condition and/or results of operations.
In addition, the U.S. federal government experienced a lapse in appropriations that resulted in a partial shutdown from October 1, 2025 through November 12, 2025. This government shutdown included delays in the approval and funding of federally sponsored projects, interruptions in the issuance of new contracts, and deferred decision-making by government agencies. The Company experienced impacts to its operations as a result of the shutdown; however, those impacts were not material to its financial position or results of operations for 2025. The Company continues to monitor for any potential near-term effects on project timing, awards, or customer procurement activity.
What changed in the latest 10-Q
Risk Factors
The financial condition and results of operations of the Company may be affected by a number of factors, whether currently known or unknown, including, but not limited to, those described under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. These risks could materially and adversely affect the Company’s business, financial condition, cash flows, and results of operations. The Company may also be subject to additional risks and uncertainties that are not currently known or that, due to future developments, may become material.
Except for the risk factor disclosed in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, which is incorporated herein by reference, there have been no material changes to the risk factors disclosed in the 2025 Annual Report.
Removed heading “Our dependence on subcontractors and suppliers, including risks associated with increased supplier and subcontractor consolidation, labor market conditions and cost inflation, could increase costs disrupt project execution, and adversely affect our profitability and cash flows.”
Largest changes
“Our dependence on subcontractors and suppliers, including risks associated with increased supplier and subcontractor consolidation, labor market conditions and cost inflation, could increase costs disrupt project execution, and adversely affect our profitability and cash flows.”see in full comparison
“Labor shortages, wage inflation and increased costs for subcontracted services, as well as sustained increases in supplier or subcontractor pricing or changes in payment terms, may increase project costs, reduce profitability and increase working capital requirements. …”see in full comparison
“The markets in which we source materials, equipment and, in certain instances, subcontracted services, have experienced, and may continue to experience, consolidation. As a result, a smaller number of suppliers and subcontractors may have increased bargaining power, which could enable them to impose less favorable terms, including pricing increases, more restrictive payment terms, reduced flexibility, or limitations on availability, capacity or service levels. …”see in full comparison
“Our ability to bid on and perform contracts depends, in part, on obtaining commitments from subcontractors and suppliers for labor, materials, and equipment at prices and on terms consistent with our bids. If we are unable to obtain such commitments, or if commitments are withdrawn, delayed, or provided on unfavorable terms, we may be unable to pursue certain projects or may experience reduced margins or losses on awarded contracts. …”see in full comparison
“The financial condition and results of operations of the Company may be affected by a number of factors, whether currently known or unknown, including, but not limited to, those described under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. These risks could materially and adversely affect the Company’s business, financial condition, cash flows, and results of operations. The Company may also be subject to additional risks and uncertainties that are not currently known or that, due to future developments, may become material.”see in full comparison
“We rely extensively on third-party subcontractors to perform a significant portion of the work on many of our contracts and on third-party suppliers to provide equipment and materials required for project execution. If we are unable to retain qualified subcontractors or suppliers, or if they fail to perform as expected, our ability to execute projects efficiently and profitably could be adversely affected. Although subcontractors and suppliers perform portions of the work, we generally remain contractually responsible to our customers for their performance.”see in full comparison
Full comparison: every changed paragraph (8)
The financial condition and results of operations of the Company may be affected by a number of factors, whether currently known or unknown, including, but not limited to, those described under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025. These risks could materially and adversely affect the Company’s business, financial condition, cash flows, and results of operations. The Company may also be subject to additional risks and uncertainties that are not currently known or that, due to future developments, may become material.
Except for the risk factor disclosed in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, which is incorporated herein by reference, there have been no material changes to the risk factors disclosed in the 2025 Annual Report.
Except as set forth below, there have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
Our dependence on subcontractors and suppliers, including risks associated with increased supplier and subcontractor consolidation, labor market conditions and cost inflation, could increase costs disrupt project execution, and adversely affect our profitability and cash flows.
We rely extensively on third-party subcontractors to perform a significant portion of the work on many of our contracts and on third-party suppliers to provide equipment and materials required for project execution. If we are unable to retain qualified subcontractors or suppliers, or if they fail to perform as expected, our ability to execute projects efficiently and profitably could be adversely affected. Although subcontractors and suppliers perform portions of the work, we generally remain contractually responsible to our customers for their performance.
Our ability to bid on and perform contracts depends, in part, on obtaining commitments from subcontractors and suppliers for labor, materials, and equipment at prices and on terms consistent with our bids. If we are unable to obtain such commitments, or if commitments are withdrawn, delayed, or provided on unfavorable terms, we may be unable to pursue certain projects or may experience reduced margins or losses on awarded contracts. In addition, if subcontractors or suppliers fail to deliver materials, equipment, or services in accordance with agreed terms, we may be required to obtain alternative sources at higher cost or incur delays and other unanticipated expenses.
The markets in which we source materials, equipment and, in certain instances, subcontracted services, have experienced, and may continue to experience, consolidation. As a result, a smaller number of suppliers and subcontractors may have increased bargaining power, which could enable them to impose less favorable terms, including pricing increases, more restrictive payment terms, reduced flexibility, or limitations on availability, capacity or service levels. Increased concentration among suppliers and subcontractors may also reduce competition, limit our ability to negotiate commercially favorable arrangements, increase our dependence on a narrower group of counterparties, and constrain our ability to secure materials or services on advantageous terms. In certain circumstances, we may be unable to pass through increased costs or less favorable terms to our customers.
Labor shortages, wage inflation and increased costs for subcontracted services, as well as sustained increases in supplier or subcontractor pricing or changes in payment terms, may increase project costs, reduce profitability and increase working capital requirements. Any disruptions in availability, delays in delivery, failures in performance, or inability to obtain materials or subcontracted services on acceptable terms could impair our ability to execute projects, meet customer expectations or competitively price our services, and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Management's Discussion & Analysis (MD&A)
New heading “Comparison of Results of Operations for the six months ended June 30, 2026 and 2025”
New heading “Selling, General and Administrative”
New heading “Acquisition-Related Retention Expense and Contingent Consideration”
New heading “Amortization of Intangibles”
New heading “Other (Expenses) Income”
Largest changes
“Comparison of Results of Operations for the six months ended June 30, 2026 and 2025”see in full comparison
“Acquisition-Related Retention Expense and Contingent Consideration”see in full comparison
“•Gross profit margin was also negatively impacted by lower net project write-ups compared to the prior year period and competition for skilled labor and materials associated with construction activity in data center markets. The Company expects gross profit margins to improve during the remainder of 2026; however, margins are expected to remain below the levels achieved during the comparable periods of 2025.”see in full comparison
“•Gross profit margin was also negatively impacted by lower net project write-ups compared to the prior year period and competition for skilled labor and materials associated with construction activity in data center markets. The Company expects gross profit margins to improve during the remainder of 2026; however, margins are expected to remain below the levels achieved during the comparable periods of 2025.”see in full comparison
Full comparison: every changed paragraph (96)
The Company is a building systems solutions firm that designs, delivers, and maintains mechanical (heating, ventilation, and air conditioning), electrical, plumbing, and controls (“MEPC”) systems. The Company partners with building owners and operators of mission-critical facilities across healthcare, industrial and manufacturing, data centers, life sciences, higher education, and cultural and entertainment markets. WithAs of June 30, 2026, the Company had approximately 1,600 team members across 21 offices throughout the Eastern and Midwestern regions of the United States,States. theThe Company strives to be an indispensable partner by combining its national capabilities with strong local execution and talent to deliver proactive, safe, and reliable solutions for complex facilities. Operating on a connected platform, the Company integrates engineering expertise with field execution to provide customized MEPC infrastructure solutions that address both operational and capital project needs, optimizing performance, enhancing reliability, and ensuring long-term safety.
Amortization expense represents periodic non-cash charges that consist of amortization of various intangible assets primarily including customer relationships, backlog, trade name, trademarks and intellectual property and favorable leasehold interests and certain customer relationships.interests. Each of the Jake Marshall, ACME, Industrial Air, Kent Island, Consolidated Mechanical and Pioneer Power-related intangible assets were recorded under the acquisition method of accounting at their estimated fair values at the acquisition date. See Note 5 – Goodwill and Intangible Assets in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s intangible assets.
The Company’s provision for income taxes (including federal, state and local income taxes) is calculated based on the estimated annual effective tax rate. The Company accounts for income taxes in accordance with Accounting Standards Update (“ASC”) Topic 740 —– Income Taxes, which requires an asset and liability approach. Under this approach, 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 amounts of existing assets and liabilities and their respective tax bases, using enacted tax rates expected to apply in the periods in which those temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are included in the provision for income taxes.
On July 1, 2025, the Company completed an acquisition of Woodbury, Minnesota-based mechanical contractor, Pioneer Power, Inc. (“Pioneer Power”),. forSee aNote purchase3 price– atAcquisition closingin ofthe $66.1accompanying millionnotes paid through a combination of available cash andto the Company’s revolvingcondensed creditconsolidated facilityfinancial (thestatements “Pioneerfor Powerfurther Transaction”).information. Pioneer Power is a provider of industrial and institutional mechanical solutions serving healthcare, food, power/utility, oil refining and other select markets in the greater Twin Cities region of Minnesota and upper Midwest region. The acquisition further expanded the Company’s footprint in the core Midwest region and extendsextended its reach into new geographic markets in the upper Midwest. See Note 3 – Acquisition in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s acquisition of Pioneer Power.
The Company manages and measures the performance of its business in two operating segments: ODR and GCR. Segment information is prepared on the same basis that is used by the Company’s Chief Operating Decision Maker (“CODM”) reviewsto operatingassess results for the purposes of allocating resourcesperformance and assessingallocate performance.resources. The Company’sCompany's CODM is comprised of its President and Chief Executive Officer and Executive Vice President and Chief Financial Officer. The Company’s CODM evaluates segment performance and makes resource allocation decisions primarily based on gross profit. Gross profit is a key measure used by the CODM in the annual budgeting and forecasting process, as well as in periodic reviews of actual operating results compared to planned performance. The CODM uses the Company's gross profit measure to assess the operating performance of its reportable segments, establish business priorities, and make decisions regarding the allocation of capital and other resources among those segments.
Comparison of Results of Operations for the three months ended MarchJune 31,30, 2026 and 2025
The following table presents operating results for the three months ended MarchJune 31,30, 2026 and 2025 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:
(3)Included within selling, general and administrative expenses was $1.9$2.1 million and $1.6 million of non-cash stock-based compensation expense for the three months ended MarchJune 31,30, 2026 and 2025, respectively.
Revenue•Total for the three months ended March 31, 2026revenue increased by $5.8$31.2 million, or 4.3%, to $138.9 million, compared to $133.1 million for the three months ended March 31, 2025. The increase in revenue was21.9%, primarily attributabledue to the acquisition of Pioneer Power, which contributed $23.5$30.9 million of acquisition-related revenue forfrom acquired operations during the three months ended MarchJune 31,30, 2026. Acquisition-related revenue represents incremental revenue generated in 2026 by an acquired business only forduring the twelve-month period subsequent tofollowing its respective acquisition date. After such period,Thereafter, the results of an acquired businessesbusiness are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis. This increase was offset by a revenue decline in the Company’s organic operations of $17.8 million for the three months ended March 31, 2026. The decline in organic revenue reflects the impact of lower bookings in the middle of 2025 and normal seasonal patterns among industrial customers. More recent booking activity has strengthened significantly, which the Company expects will drive revenue growth as the year progresses.
Revenue generated from the Company’s organic operations increased slightly by $0.3 million, or 0.2%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The Company expects the timing of project commencements and execution within its existing backlog, together with currently expected future bookings, to support organic revenue growth during the remainder of 2026.
•ODR revenue for the three months ended March 31, 2026 increased by $9.4$19.5 million, or 10.4%, to $99.8 million, compared to $90.4 million for the three months ended March 31, 2025. This increase was17.9%, primarily attributabledue to the acquisition of Pioneer Power, which contributed approximately $14.3$23.2 million in ODR revenue in the currentthree period.months ended June 30, 2026. The Company’s ODR organic ODR operationsrevenue decreased approximately $4.9$3.7 million, primarily due to the timing of sales and backlog burn across certain markets.million.
•GCR revenue for the three months ended March 31, 2026 decreasedincreased by $3.7$11.8 million, or 8.6%, to $39.0 million, compared to $42.7 million for the three months ended March 31, 2025. The decrease in period-over-period GCR revenue was35.3%, primarily attributabledue to lower GCR organic revenue of $12.9 million. This decline was partially offset by an incremental increase in GCR acquisition-related revenue of approximately $9.2$7.8 million from the Pioneer Power acquisition.acquisition, as well as an increase in GCR organic revenue of $4.0 million.
The Company's gross profit for the three months ended March 31, 2026 decreased by $5.5 million, or 15.1%, to $31.2 million, compared to $36.7 million for the three months ended March 31, 2025. The decrease was primarily driven by lower gross margin percentages in both our ODR and GCR segments.
ODR•Total gross profit decreased $3.2by million,$2.5 ormillion 12.1%,primarily as segment margins declineddue to 23.0%lower fromgross 28.9%margin percentages in theboth priorour yearODR period,and despiteGCR higher revenue.segments. The decrease in segment gross margin percentages was primarily driven by lower fixed cost absorption due to seasonal revenue levels and higher fixed costs, the absence of higher net project write-ups that benefited the prior-year period and the current lower margin profile of Pioneer Power. AsPioneer Power continues to perform in line with the Company advances itsCompany’s integration strategyexpectations of Pioneer Power,and management expects gross margins to improve as 2026 progresses. Operational and pricing improvement initiatives are underway to enhance profitability at Pioneer PowerPower, with the goal of bringing gross margins in line with the CompanyCompany’s historical average over the next two to three years.
•Gross profit margin was also negatively impacted by lower net project write-ups compared to the prior year period and competition for skilled labor and materials associated with construction activity in data center markets. The Company expects gross profit margins to improve during the remainder of 2026; however, margins are expected to remain below the levels achieved during the comparable periods of 2025.
GCR gross profit decreased $2.4 million, or 22.5%, reflecting lower revenue and a decline in segment gross margin to 21.0% compared to 24.7% in the prior year period. The decrease in gross margin was primarily due to lower margin work associated with Pioneer Power and the absence of higher total net project write ups that benefited the prior-year period.
As a result, total gross profit margin decreased to 22.4% for the three months ended March 31, 2026 from 27.6% for the same period in 2025.
The Company recorded revisions in its contract estimates for certain ODR and GCR projects; however, the Company did not record any material gross profit write-ups or write-downs that had a net gross profit impact of $1.0 million or more during the three months ended MarchJune 31,30, 2026 and 2025.
Selling, General and Administrative (“SG&A”)
The Company's total •SG&A expenses for the three months ended March 31, 2026expense increased by approximately $1.6$1.5 million, or 6.0%,5.6%, comparedprimarily due to the three months ended March 31, 2025. The increase in total SG&A included $0.6$0.7 million of acquisition-related SG&A expenses associated with the Pioneer Power.Power acquisition. Acquisition-related SG&A represents SG&A expenses incurred in 2026 by an acquired business only forduring the twelve-month period subsequent tofollowing its respective acquisition date. After such period, the results of acquired businesses are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis. OrganicThe increase in organic SG&A increasedexpense was approximately $1.0$0.8 millionmillion, primarily due to a $1.6$0.6 million increase in payrolltotal relatedstock-based expenses, partly offset by a $0.3 million decrease in travelcompensation and entertainmentpayroll related expenses. SG&A expense, asAs a percentage of revenue, increasedSG&A expense decreased to 20.2%16.2% forfrom 18.7% in the threeprior-year months ended March 31, 2026 as compared to 19.9% for the three months ended March 31, 2025.period.
Acquisition-related retention and contingent consideration expenses were $0.1$0.2 million and $0.4$0.8 million for the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively. For the three months ended MarchJune 31,30, 2026, these expenses included approximately $0.1 million of acquisition-related retention expense associated with the Pioneer Power transaction,acquisition. whichIn wasconnection not incurred inwith the prior year period. As part of the Pioneer Power acquisition, the Company entered into retention agreements with certain key employees of the acquired business. Retention-relatedRetention compensation expense is recognized as expense ratably over the requisite service period, which extends through December 2027, and is contingent upon continued employment.
In addition, theThe Company also recognized a less than $0.1 million increase in the fair value of contingent consideration during the three months ended MarchJune 31,30, 2026, compared to a $0.4$0.8 million increase during the three months ended MarchJune 31,30, 2025. The changeChanges in the fair value of contingent consideration represents arepresent non-cash expenseexpenses and waswere primarily attributable to updatedupdates estimates regardingin the estimated probability of achieving the gross profit targets underlying the related earnout arrangements as of March 31, 2026 and 2025.arrangements.
Total•Amortization amortizationof expenseintangibles for the three months ended March 31, 2026 and 2025 was $1.8 million and $1.9 million, respectively. Thedecreased period-over-period decrease in amortization expense was primarily due to certain finite-lived intangible assets becoming fully amortized. This decrease was partially offset by incremental amortization expense relatedassociated towith intangible assets recognized in connection with the Pioneer Power acquisition, which was not included in the prior-year period.acquisition.
See Note 5 -– Goodwill and Intangibles in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company'sCompany’s intangible assets.
•Interest expense increased $0.2 million primarily due to higher average borrowings under the Company’s revolving credit facility and increased financing costs associated with a larger vehicle fleet compared to the prior-year period.
•Interest income decreased $0.3 million primarily due to lower average cash and cash equivalent balances and reduced yields on invested balances compared to the prior-year period.
•Gain on disposition of property and equipment decreased $0.3 million primarily due to various gains recognized in both periods, none of which were individually material.
Total other expenses for the three months ended March 31, 2026 increased approximately $0.5 million as compared to total other income for the three months ended March 31, 2025. The change period-over-period was primarily driven by a $0.4 million decrease in interest income due to reduced cash and cash equivalent balances period-over-period and lower yields on invested balances, as well as a $0.2 million increase in interest expense related to greater borrowings under the Company’s revolving credit facility and higher financing costs associated with a larger vehicle fleet period-over-period.
The Company recorded an income tax benefitprovision of $3.7$1.8 million for the three months ended MarchJune 31,30, 2026 compared to $2.2$3.0 million for the three months ended MarchJune 31,30, 2025. The effective tax rate was (505.6)% and (27.8)%27.9% for both the three months ended MarchJune 31,30, 2026 and 2025, respectively. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate period-over-period was primarily due to state income taxes, tax credits, other permanent adjustments and discrete tax items. InSee particular,Note 10 – Income Taxes in the accompanying notes to the Company’s effectivecondensed rateconsolidated financial statements for theadditional three months ended March 31, 2026 and 2025 were materially impacted by “excess tax benefits on stock-based compensation” recognized discretely during the first quarter of each year as a result of the Company’s stock price at the RSU vesting dates resulting in increased tax deductions for the Company. This benefit reduced the effective tax rate by 533.3% and 53.5% for the three months ended March 31, 2026 and 2025 respectively, with the impact varying in prior years.information.
Comparison of Results of Operations for the six months ended June 30, 2026 and 2025
The following table presents operating results for the six months ended June 30, 2026 and 2025 in dollars and expressed as a percentage of total revenue (except as indicated below), as compared below:
(1)As a percentage of ODR revenue.
(2)As a percentage of GCR revenue.
(3)Included within selling, general and administrative expenses was $3.9 million and $3.2 million of non-cash stock-based compensation expense for the six months ended June 30, 2026 and 2025, respectively.
Revenue
•Total revenue increased by $37.0 million, or 13.4%, primarily due to the acquisition of Pioneer Power, which contributed $54.5 million of revenue from acquired operations during the six months ended June 30, 2026.
Acquisition-related revenue represents revenue generated by an acquired business during the twelve-month period following its acquisition date. Thereafter, the results of an acquired business are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis.
This increase was partially offset by a $17.5 million decline in revenue from the Company’s organic operations for the six months ended June 30, 2026. The Company expects the timing of project commencements and execution within its existing backlog, together with currently expected future bookings, to support organic revenue growth during the remainder of 2026.
•ODR revenue increased by $28.9 million, or 14.5%, primarily due to the acquisition of Pioneer Power, which contributed approximately $37.5 million in ODR revenue in the current period. The Company’s organic ODR operations decreased approximately $8.6 million.
•GCR revenue increased by $8.1 million, or 10.6% primarily due to an incremental increase in GCR acquisition-related revenue of approximately $17.0 million from the Pioneer Power acquisition. This increase was partially offset by lower GCR organic revenue of $8.9 million.
Gross Profit
•Total gross profit decreased by $8.1 million, or 10.6%, primarily due to lower gross margin percentages in both our ODR and GCR segments. The decrease in segment gross margin percentages was primarily driven by the lower margin profile of Pioneer Power. Pioneer Power continues to perform in line with the Company’s integration expectations and management expects gross margins to improve as 2026 progresses. Operational and pricing improvement initiatives are underway to enhance profitability at Pioneer Power, with the goal of bringing gross margins in line with the Company’s historical average over the next two to three years.
•Gross profit margin was also negatively impacted by lower net project write-ups compared to the prior year period and competition for skilled labor and materials associated with construction activity in data center markets. The Company expects gross profit margins to improve during the remainder of 2026; however, margins are expected to remain below the levels achieved during the comparable periods of 2025.
The Company recorded revisions in its contract estimates for certain ODR and GCR projects; however, the Company did not record any material gross profit write-ups or write-downs that had a net gross profit impact of $1.0 million or more during the six months ended June 30, 2026 and 2025.
Selling, General and Administrative
•SG&A expense increased $3.1 million, or 5.8%, due to $1.3 million of SG&A expenses associated with the Pioneer Power acquisition. Acquisition-related SG&A represents SG&A expenses incurred by an acquired business during the twelve-month period following its respective acquisition date. After such period, the results of acquired businesses are included within the Company’s organic operations, and period-over-period changes are discussed on a combined basis. The increase in organic SG&A expense was approximately $1.8 million, primarily due to a $1.8 million increase in payroll related expenses and a $0.7 million increase in stock-based compensation expense, partially offset by a $0.7 million decrease in professional services related expenses. As a percentage of revenue, SG&A expense decreased to 18.0% from 19.3% in the prior-year period.
Acquisition-Related Retention Expense and Contingent Consideration
Acquisition-related retention and contingent consideration expenses were $0.4 million and $1.2 million for the six months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, these expenses included approximately $0.2 million of acquisition-related retention expense associated with the Pioneer Power acquisition. In connection with the acquisition, the Company entered into retention agreements with certain key employees of the acquired business. Retention compensation expense is recognized ratably over the requisite service period, which extends through December 2027, and is contingent upon continued employment.
In addition, the Company recognized a $0.2 million increase in the fair value of contingent consideration during the six months ended June 30, 2026, compared to a $1.2 million increase during the six months ended June 30, 2025. Changes in the fair value of contingent consideration represent non-cash expenses and were primarily attributable to updates in the estimated probability of achieving the gross profit targets underlying the related earnout arrangements.
See Note 8 – Fair Value Measurements in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s earnout arrangements.
Amortization of Intangibles
•Amortization of intangibles decreased period-over-period primarily due to certain finite-lived intangible assets becoming fully amortized. This decrease was partially offset by incremental amortization expense associated with intangible assets recognized in connection with the Pioneer Power acquisition.
See Note 5 – Goodwill and Intangibles in the accompanying notes to the Company’s condensed consolidated financial statements for further information on the Company’s intangible assets.
Other (Expenses) Income
•Interest expense increased $0.4 million in the period-to-period comparison primarily due to higher average borrowings under the Company’s revolving credit facility and increased financing costs associated with a larger vehicle fleet compared to the prior-year period.
•Interest income decreased $0.7 million primarily due to lower average cash and cash equivalent balances and reduced yields on invested balances compared to the prior-year period.
•Gain on disposition of property and equipment decreased $0.4 million primarily due to various gains recognized in both periods, none of which were individually material.
Income Taxes
The Company recorded an income tax benefit of $1.8 million for the six months ended June 30, 2026 compared to an income tax provision of $0.8 million for the six months ended June 30, 2025. The effective tax rate was (24.9)% and 4.2% for the six months ended June 30, 2026 and 2025, respectively. The Company’s effective tax rate differed from the U.S. federal statutory tax rate in each period primarily due to state income taxes, federal tax credits, other permanent adjustments and discrete excess tax benefits related to RSU vestings recognized during the first quarter of each year. See Note 10 – Income Taxes in the accompanying notes to the Company’s condensed consolidated financial statements for additional information.
The Company refers to its estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue it had recognized under such contracts, as “backlog.” Backlog includes unexercised contract options. The Company’s backlog includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. Additionally, the difference between the Company’s backlog and remaining performance obligations is due to the portion of unexercised contract options that are excluded, under certain contract types, from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. While backlog provides a measure of work expected to be performed in future periods, it is not necessarily a reliable indicator of future revenue or overall performance of the Company. A substantial portion of the Company’s contracts, particularly within its ODR operations, are short-cycle in nature and may be awarded and substantially completed within a short period following award. These projects typically have short lead times and rapid burn rates and, as a result, are generally not included in reported backlog. Consequently, fluctuations in reported backlog may not correlate with changes in overall market demand, revenue generation, or operational performance. Additional information related to the Company’s remaining performance obligations is provided in Note 4 —– Revenue from Contracts with Customers in the accompanying notes to its condensed consolidated financial statements.
LMB insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 3 Form 4 filings (3 insiders, 3 trade dates, 10,260 shares, about $515.9K) and open-market sales in 5 filings (2 insiders, 5 trade dates, 21,281 shares, about $1.7M; 5 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: -11,021 (purchases minus sales); net value about -$1.2M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-15 | Sharp Jay |
Open-market sale |
5,094 | $50.21 | $255.8K |
| 2026-09-15 | Krzeminski Laurel J |
Open-market purchase | 500 | $50.58 | $25.3K |
| 2026-09-15 | Palm Global Small Cap Master Fund Lp |
Open-market purchase | 662 | $51.25 | $33.9K |
| 2026-09-15 | Palm Global Small Cap Master Fund Lp |
Open-market purchase | 212 | $50.66 | $10.7K |
| 2026-09-15 | Palm Global Small Cap Master Fund Lp |
Open-market purchase | 3,346 | $50.61 | $169.3K |
| 2026-09-14 | Gaboury David Richard |
Open-market purchase | 1,940 | $51.35 | $99.6K |
| 2026-09-11 | Palm Global Small Cap Master Fund Lp |
Open-market purchase | 2,600 | $49.01 | $127.4K |
| 2026-09-11 | Palm Global Small Cap Master Fund Lp |
Open-market purchase | 1,000 | $49.59 | $49.6K |
| 2026-06-15 | Sharp Jay |
Gift |
720 | — | — |
| 2026-06-15 | Sharp Jay |
Open-market sale |
2,021 | $80.34 | $162.4K |
| 2026-06-15 | Sharp Jay |
Open-market sale |
1,862 | $79.67 | $148.3K |
| 2026-06-15 | Sharp Jay |
Open-market sale |
788 | $78.46 | $61.8K |
| 2026-06-15 | Sharp Jay |
Open-market sale |
200 | $81.32 | $16.3K |
| 2026-04-30 | Brooks Jayme L. |
Open-market sale |
3,440 | $100.00 | $344.0K |
| 2026-04-24 | Brooks Jayme L. |
Open-market sale |
2,173 | $100.05 | $217.4K |
| 2026-04-13 | Brooks Jayme L. |
Open-market sale |
5,703 | $85.43 | $487.2K |
Well-known investors holding LMB (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 218,928 | $16.9M | 0.01% | Added 183% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 151,108 | $11.6M | 0.02% | New position |
| Renaissance Technologies | 2026-06-30 | 77,771 | $6.0M | 0.01% | Reduced 40% |
| Millennium Management (Israel Englander) | 2026-06-30 | 70,576 | $5.4M | 0.0% | Added 239% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 8,929 | $687.5K | 0.0% | Added 1% |
| Two Sigma Investments | 2026-06-30 | 4,795 | $369.2K | 0.0% | Reduced 65% |