Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Organization and Plan of Business Operations
Limbach Holdings, Inc. (the “Company,” “we” or “us”), is a Delaware corporation headquartered in Pittsburgh, Pennsylvania that was formed on July 20, 2016, as a result of a business combination with Limbach Holdings LLC (“LHLLC”). The Company’s condensed consolidated financial statements include the accounts of Limbach Holdings, Inc. and its wholly-owned subsidiaries, including LHLLC, Limbach Facility Services LLC, Limbach Company LLC, Limbach Company LP, Harper Limbach LLC, and Harper Limbach Construction LLC.
As of January 1, 2021, the Company renamed its existing two reportable segments to reflect our two distinct approaches to our customer base and to better align with our owner direct strategy. The previously named Construction Segment is now known as General Contractor Relationships (“GCR”); the previously named Service Segment is now known as Owner Direct Relationships (“ODR”). The Company operates in two segments that are based on the relationship with its customer, (i) GCR, in which the Company generally manages new construction or renovation projects that involve primarily heating, ventilation, and air conditioning (“HVAC”), plumbing, or electrical services awarded to the Company by general contractors or construction managers, and (ii) ODR, in which the Company provides maintenance or service primarily on HVAC, plumbing or electrical systems, building controls and specialty contracting projects direct to, or assigned by, building owners or property managers. This work is primarily performed under fixed price, modified fixed price, and time and material contracts over periods of typically less than two years.
The Company's customers operate in diverse industries including, but not limited to, healthcare, life sciences, data centers, industrial and light manufacturing, entertainment, education and government. The Company operates primarily in the Northeast, Mid-Atlantic, Southeast, Midwest, and Southwestern regions of the United States.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has caused significant disruption and volatility on a global scale resulting in, among other things, an economic slowdown and the possibility of a continued economic recession. In response to the COVID-19 outbreak, national and local governments around the world instituted certain measures, including travel bans, restrictions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The various governmental actions have abated over time, but remain applicable to Limbach's operations in various ways, often varying by state. In some instances, these orders continued to affect certain projects in our GCR and ODR segments into the first quarter of 2021. In limited instances, during fiscal 2020, projects chose to shutdown work irrespective of the existence or applicability of government action. In most markets, construction is considered an essential business and Limbach continued to staff its projects and perform work during fiscal 2020 and into 2021, and most of the projects that were in progress at the time shutdowns commenced have restarted. The Company’s branches are expecting building owners to maintain or retrofit current facilities in lieu of funding larger capital projects as the effects of the pandemic remain ongoing and uncertain.
During fiscal 2020 and the first quarter of 2021, the Company continued to take several actions to combat the adverse impacts that the COVID-19 outbreak had on our business including, but not limited to the following:
• Identification of projects that have been shut down and methods for seeking to preserve any contractual entitlement that may exist to recover monetary and time impacts;
• Establishment of a task force to identify possible types and areas of impact from COVID-19 for both shutdown and continuing operations;
• Examination of the Company's productivity and potential impact on gross profit as a result of COVID-19;
• Implementation of the Company's pandemic response plan;
• Implemented our furlough and work schedule reduction plans, as well as permanent reductions in force; and
• Temporarily suspended substantially all discretionary, non-essential expenditures, including but not limited to, auto allowances, deferral of rent ranging between 1 and 3 months; and
• A temporary 10% salary reduction for a select group of corporate and regional management, along with a 10% fee reduction in director compensation, and cost reduction opportunities identified by our external consultant.
During the month of July 2020, with the substantial restart and return of project and service work, the Company removed the 10% salary reduction for the select group of corporate and regional management, along with the fee reduction for director compensation, returned auto allowances, reinstated positions, removed schedule reduction plans and discontinued our hiring freeze. During the remainder of 2020 and into 2021, the Company reinstituted limited travel and in-person meetings, along with
encouraging employees to return to the office, field and training settings in a partial, flexible manner that is consistent with our Work From Home Policy and our COVID-19 Policy. The Company has remained steadfastly committed to our COVID-19 Policy as our work environment evolves in response to the changing landscape of the pandemic and in response to the increasing availability of vaccinations.
The ongoing effects of the pandemic, including decreased consumer confidence and economic instability, can make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and could cause constrained spending on our services, delays and a lengthening of our business development efforts, the demand for more favorable pricing or other terms, and/or difficulty in collection of our accounts receivable. Our clients may face budget deficits or other financial constraints that prohibit them from funding proposed and existing projects. During the fourth quarter of 2020 and the first quarter of 2021, several of our business units experienced slowdowns in the closing of sales related to the ongoing effects of the pandemic, which impacted our revenue and profitability. These impacts may continue as the pandemic persists. Further, ongoing economic instability in the global markets, including from the pandemic, could limit our ability to access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing business conditions or new opportunities. If economic conditions remain uncertain or weaken, or spending continues to be reduced, our financial condition and results of operations may be adversely affected.
The Company continues to take steps to minimize the adverse impacts of the COVID-19 pandemic on its business and to protect the safety of its employees, and the Company continues to emphasize wearing of masks, more frequent washing of hands and tools, social distancing, and work protocols. Limbach's COVID-19 Policy is based on the best practices provided by the Centers for Disease Control and Prevention (“CDC”) and Occupational Safety and Health Administration for essential workers. Our updated Work From Home Policy, along with the Company's business continuity planning and information technology enhancements enabled an orderly transition to remote work and facilitated social distancing for salaried employees. Although the Company has not mandated vaccinations for employees, it is encouraging all employees to be vaccinated, in accordance with CDC recommendations.
Testing and inpatient treatment for COVID-19 is covered under our medical plan and fees have been waived since the onset of the pandemic. Counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues.
Note 2 – Significant Accounting Policies
Basis of Presentation
Condensed Consolidated Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with instructions to the Quarterly Report on Form 10-Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2021.
Unaudited Interim Financial Information
The accompanying interim Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the periods presented are unaudited. Also, within the notes to the Condensed Consolidated Financial Statements, we have included unaudited information for these interim periods. These unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2021, its results of operations and its cash flows for the three months ended March 31, 2021. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from our audited financial statements included in our Annual Report on Form 10-K filed with the SEC on March 25, 2021, but is presented as condensed and does not contain all of the footnote disclosures from the annual financial statements.
Note 3 – Accounting Standards
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which affects general principles within Topic 740, and is meant to simplify and reduce the cost of accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and simplifies areas including franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, the incremental approach for intraperiod tax allocation, interim period income tax accounting for year-to-date losses that exceed anticipated losses and enacted changes in tax laws in interim periods. The changes are effective for annual periods beginning after December 15, 2020. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements or presentation thereof.
Also in October 2020, the FASB issued ASU 2020-10, Codification Improvements. The amendments in this update remove references to various FASB Concepts Statements, situates all disclosure guidance in the appropriate disclosure section of the Codification, and makes other improvements and technical corrections to the Codification. The amendments in Sections B and C of this amendment are effective for annual periods beginning after December 15, 2020, for public business entities, with early adoption permitted. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements or presentation thereof.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial instruments, including trade receivables and off-balance sheet credit exposure. Under this guidance, an entity is required to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. This ASU also requires disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The guidance is effective for smaller reporting companies on January 1, 2023 with early adoption permitted. The adoption of this standard will be through a cumulative-effect adjustment to retained earnings as of the effective date. Based on our historical experience, the Company does not expect that this pronouncement will have a significant impact in its financial statements or on the estimate of the allowance for doubtful accounts.
The FASB has issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020. This new guidance provides optional expedients for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform, on financial reporting. The risk of termination of the London Interbank Offered Rate (LIBOR), has caused regulators to undertake reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based that are less susceptible to manipulation. ASU 2020-04 is effective between March 12, 2020 and December 31, 2022.
In addition, in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this update refine the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting the reference rate reform guidance (both ASU 2020-04 and ASU 2021-01) on its consolidated financial statements. Management has identified that its credit agreement utilizes LIBOR as a benchmark rate. Management will continue to evaluate the impact of adopting reference rate reform as the LIBOR benchmark rate within the credit agreement is phased out.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity and amends the scope guidance for contracts in an entity's own equity. The ASU addresses how convertible instruments are accounted for in the calculation of diluted earnings per share by using the if-converted method. The guidance is effective for all entities for fiscal years beginning after March 31, 2024, albeit early adoption is permitted no earlier than fiscal years beginning after December 15, 2020. Management is currently assessing the impact of this pronouncement on its condensed consolidated financial statements.
Note 4 – Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable and the allowance for doubtful accounts are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Accounts receivable - trade
|
$
|
83,394
|
|
|
$
|
86,033
|
|
|
Allowance for doubtful accounts
|
(239)
|
|
|
(266)
|
|
|
Accounts receivable, net
|
$
|
83,155
|
|
|
$
|
85,767
|
|
Note 5 – Contract Assets and Liabilities
The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.
Contract assets include amounts due under retainage provisions and costs in excess of billings and estimated earnings. The components of the contract asset balances as of the respective dates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Change
|
|
Contract assets
|
|
|
|
|
|
|
Costs in excess of billings and estimated earnings
|
$
|
36,586
|
|
|
$
|
31,894
|
|
|
$
|
4,692
|
|
|
Retainage receivable
|
32,498
|
|
|
35,204
|
|
|
(2,706)
|
|
|
Total contract assets
|
$
|
69,084
|
|
|
$
|
67,098
|
|
|
$
|
1,986
|
|
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld, typically 10%, pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.
Contract assets represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Contract assets result when either: 1) the appropriate contract revenue amount has been recognized over time in accordance with ASC Topic 606, but a portion of the revenue recorded cannot be currently billed due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions; decreases normally result from resolutions and subsequent billings.
The current estimated net realizable value on such claims and unapproved change orders as recorded in contract assets and contract liabilities in the condensed consolidated balance sheets was $40.8 million and $33.6 million as of March 31, 2021 and December 31, 2020, respectively. The Company anticipates that the majority of such amounts will be approved or executed within one year. The resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings.
Contract liabilities include billings in excess of costs and estimated earnings and provisions for losses. The components of the contract liability balances as of the respective dates were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Change
|
|
Contract liabilities
|
|
|
|
|
|
|
Billings in excess of costs and estimated earnings
|
$
|
37,314
|
|
|
$
|
46,020
|
|
|
$
|
(8,706)
|
|
|
Provisions for losses
|
481
|
|
|
628
|
|
|
(147)
|
|
|
Total contract liabilities
|
$
|
37,795
|
|
|
$
|
46,648
|
|
|
$
|
(8,853)
|
|
Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue.
Provisions for losses are recognized in the condensed consolidated statements of operations at the uncompleted performance obligation level for the amount of total estimated losses in the period that evidence indicates that the estimated total cost of a performance obligation exceeds its estimated total revenue.
The net overbilling position for contracts in process consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Revenue earned on uncompleted contracts
|
$
|
707,647
|
|
|
$
|
752,564
|
|
|
Less: Billings to date
|
(708,375)
|
|
|
(766,690)
|
|
|
Net overbilling
|
$
|
(728)
|
|
|
$
|
(14,126)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
Costs in excess of billings and estimated earnings
|
$
|
36,586
|
|
|
$
|
31,894
|
|
|
Billings in excess of costs and estimated earnings
|
(37,314)
|
|
|
(46,020)
|
|
|
Net overbilling
|
$
|
(728)
|
|
|
$
|
(14,126)
|
|
We recorded revisions in our contract estimates for certain GCR projects. For projects having revisions with a material gross profit impact of $0.25 million or more, this resulted in: (1) gross profit write downs on two GCR segment projects of $0.7 million for the three months ended March 31, 2021, one of which was within the Southern California region for a total of $0.2 million and the other was within the Eastern Pennsylvania region for a total of $0.5 million, and (2) gross profit write ups of $0.7 million on two GCR segment projects for the three months ended March 31, 2021. There were no material gross profit write ups or write downs of $0.25 million or more on ODR segment projects.
For the three months ended March 31, 2020, we recorded revisions in our contract estimates for certain GCR segment projects. Individual GCR segment projects with revisions having a material gross profit impact of $0.25 million or more resulted in: (1) gross profit write downs on six projects totaling $3.2 million for the three months ended March 31, 2020, four of which were within the Southern California region for a total of $2.5 million, and (2) gross profit write ups totaling $1.0 million on two projects for the three months ended March 31, 2020.
Note 6 – Goodwill and Intangibles
Goodwill was $6.1 million at March 31, 2021 and December 31, 2020. The goodwill is associated with the Company's ODR segment. Intangible assets are comprised of the following:
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|
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|
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|
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|
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(in thousands)
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net intangible
assets, excluding
goodwill
|
|
March 31, 2021(1)
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
Customer Relationships – ODR
|
$
|
4,710
|
|
|
$
|
(3,212)
|
|
|
$
|
1,498
|
|
|
Favorable Leasehold Interests(2)
|
190
|
|
|
(71)
|
|
|
119
|
|
|
Total amortized intangible assets
|
4,900
|
|
|
(3,283)
|
|
|
1,617
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
Trade Name
|
9,960
|
|
|
—
|
|
|
9,960
|
|
|
Total unamortized intangible assets
|
9,960
|
|
|
—
|
|
|
9,960
|
|
|
Total amortized and unamortized assets, excluding goodwill
|
$
|
14,860
|
|
|
$
|
(3,283)
|
|
|
$
|
11,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net intangible
assets, excluding
goodwill
|
|
December 31, 2020(1)
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
Customer Relationships – ODR
|
$
|
4,710
|
|
|
$
|
(3,112)
|
|
|
$
|
1,598
|
|
|
Favorable Leasehold Interests
|
530
|
|
|
(407)
|
|
|
123
|
|
|
Total amortized intangible assets
|
5,240
|
|
|
(3,519)
|
|
|
1,721
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
Trade Name
|
9,960
|
|
|
—
|
|
|
9,960
|
|
|
Total unamortized intangible assets
|
9,960
|
|
|
—
|
|
|
9,960
|
|
|
Total amortized and unamortized assets, excluding goodwill
|
$
|
15,200
|
|
|
$
|
(3,519)
|
|
|
$
|
11,681
|
|
(1) The Backlog-Construction intangible asset previously shown at December 31, 2020 has been fully amortized. Accordingly, its gross carrying amount of $4.8 million and corresponding accumulated amortization of $4.8 million have been removed from the table.
(2) The gross carrying amount and accumulated amortization associated with our Favorable leasehold interests intangible asset was reduced by $0.3 million due to the lease termination of our Western Pennsylvania office associated with the intangible asset.
The definite-lived intangible assets are amortized over the period the Company expects to receive the related economic benefit, which for customer relationships is based upon estimated future net cash inflows. The Company has previously determined that its trade name has an indefinite useful life. The Limbach trade name has been in existence since the Company’s founding in 1901 and therefore is an established brand within the industry.
Total amortization expense for these amortizable intangible assets was $0.1 million for both the three month periods ended March 31, 2021 and 2020.
The Company did not recognize any impairment charges on its goodwill or intangible assets for the three months ended March 31, 2021 or March 31, 2020.
Note 7 – Debt
Long-term debt consists of the following obligations as of:
|
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|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
|
2019 Refinancing Term Loan - term loan payable in quarterly installments of principal, (commencing in September 2020) plus interest through April 2022
|
$
|
—
|
|
|
$
|
39,000
|
|
|
2019 Refinancing Revolving Credit Facility
|
—
|
|
|
—
|
|
|
Wintrust Term Loan - term loan payable in quarterly installments of principal, (commencing in March 2021) plus interest through February 2026
|
29,500
|
|
|
—
|
|
|
Wintrust Revolver Loan
|
—
|
|
|
—
|
|
|
Finance leases – collateralized by vehicles, payable in monthly installments of principal, plus interest ranging from 4.70% to 6.45% through 2025
|
5,879
|
|
|
6,459
|
|
|
Total debt
|
35,379
|
|
|
45,459
|
|
|
Less - Current portion of long-term debt
|
(8,473)
|
|
|
(6,536)
|
|
|
Less - Unamortized discount and debt issuance costs
|
(318)
|
|
|
(2,410)
|
|
|
Long-term debt
|
$
|
26,588
|
|
|
$
|
36,513
|
|
The Company refinanced its 2019 Refinancing Term Loan and 2019 Refinancing Revolving Credit Facility on February 24, 2021, described below and therefore had no amounts outstanding under these agreements at March 31, 2021. Accordingly, the Company recognized a loss on the early debt extinguishment related to the refinancing of $2.0 million. This loss consisted of
the write-off of $2.6 million debt issuance and debt discount costs, the reversal of $2.0 million CB warrants liability due to the warrants being cancelled on the refinancing date and the prepayment penalty and other extinguishment costs of $1.4 million.
2019 Refinancing Agreement
On April 12, 2019 (the “Refinancing Closing Date”), Limbach Facility Services LLC (“LFS”) entered into a financing agreement (the “2019 Refinancing Agreement”) with the lenders thereto and Cortland Capital Market Services LLC, as collateral agent and administrative agent and CB Agent Services LLC, as origination agent (“CB”). The 2019 Refinancing Agreement consisted of (i) a $40.0 million term loan (the “2019 Refinancing Term Loan”) and (ii) a new $25.0 million multi-draw delayed draw term loan (the “2019 Delayed Draw Term Loan” and, collectively with the 2019 Refinancing Term Loan, the “2019 Term Loans”). Proceeds from the 2019 Refinancing Term Loan were used to repay the then existing Credit Agreement, to pay related fees and expenses thereof and to fund working capital of the 2019 Refinancing Borrowers (defined below). Management intended for proceeds of the 2019 Delayed Draw Term Loan to be used to fund permitted acquisitions under the 2019 Refinancing Agreement and related fees and expenses in connection therewith.
LFS and each of its subsidiaries were borrowers (the “2019 Refinancing Borrowers”) under the 2019 Refinancing Agreement. In addition, the 2019 Refinancing Agreement was guaranteed by the Company and LHLLC (each, a “Guarantor”, and together with the 2019 Refinancing Borrowers, the “Loan Parties”).
The 2019 Refinancing Agreement was secured by a first-priority lien on the real property of the Loan Parties and a second-priority lien on substantially all other assets of the Loan Parties, behind the 2019 ABL Credit Agreement (as defined below). The respective lien priorities of the 2019 Refinancing Agreement and the 2019 ABL Credit Agreement were governed by an intercreditor agreement.
2019 Refinancing Agreement - Interest Rates and Fees
The interest rate on borrowings under the 2019 Refinancing Agreement was, at the 2019 Refinancing Borrowers’ option, either LIBOR (with a 2.00% floor) plus 11.00% or a base rate (with a 3.00% minimum) plus 10.00%. At February 24, 2021 and March 31, 2020, the interest rate in effect on the 2019 Refinancing Term Loan was 13.00%.
2019 Refinancing Agreement - Other Terms and Conditions
The 2019 Refinancing Agreement was set to mature on April 12, 2022, subject to certain adjustment. Required amortization was $1.0 million per quarter and commenced with the fiscal quarter ending September 30, 2020. There was an unused line fee of 2.0% per annum on the undrawn portion of the 2019 Delayed Draw Term Loan, and there is a make-whole premium on prepayments made prior to the 19-month anniversary of the Refinancing Closing Date. This make-whole provision guaranteed that the Company would pay no less than 18 months’ applicable interest to the lenders under the 2019 Refinancing Agreement.
The 2019 Refinancing Agreement contained representations and warranties, and covenants which were customary for debt facilities of this type. Unless the Required Lenders (as defined in the 2019 Refinancing Agreement) otherwise consented in writing, the covenants limited the ability of the Company and its restricted subsidiaries to, among other things, (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company’s affiliates, (vii) sell assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.
In addition, the 2019 Refinancing Agreement included customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company failed to comply with the terms of the 2019 Refinancing Agreement or if other customary events occur.
Furthermore, the 2019 Refinancing Agreement also contained two financial maintenance covenants for the 2019 Refinancing Term Loan, including a requirement to have sufficient collateral coverage of the aggregate outstanding principal amount of the 2019 Refinancing Term Loans and as of the last day of each month for the total leverage ratio of the Company and its Subsidiaries (the “Total Leverage Ratio ”) not to exceed an amount beginning at 4.25 to 1.00 through June 30, 2019, and stepping down to 2.00 to 1.00 effective July 1, 2021. From July 1, 2019 through September 30, 2019, the Total Leverage Ratio may not exceed 4.00 to 1.00. In addition, the parties to the 2019 Refinancing Agreement entered into an amendment which, among other changes, revised the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement. The 2019 Refinancing Agreement contained a post-closing
covenant requiring the remediation of the Company’s material weakness, as described in Item 9A of its 2018 Annual Report on Form 10-K, no later than December 31, 2020 and provision for updates as to the progress of such remediation, provided that, if such remediation has not been completed on or prior to December 31, 2019, (x) the Company shall be required to pay the post-closing fee pursuant to the terms of the Origination Agent Fee Letter (as defined in the 2019 Refinancing Agreement) and (y) the applicable margin shall be increased by 1.00% per annum for the period from January 1, 2020 until the date at which the material weakness is no longer disclosed or required to be disclosed in the Company’s SEC filings or audited financial statements of the Company or related auditor’s reports.
In connection with the 2019 Refinancing Amendment Number One and Waiver, dated November 14, 2019, the parties amended certain provisions of the 2019 Refinancing Agreement, including, among other changes to: (i) require, commencing October 1, 2019, a 3.00% increase in the interest rate on borrowings under the 2019 Refinancing Agreement; (ii) require the approval of CB and, generally, the lenders representing at least 50.1% of the aggregate undrawn term loan commitment or unpaid principal amount of the term loans, prior to effecting any permitted acquisition; (iii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 and thereafter through the term of the 2019 Refinancing Agreement; and (iv) require the liquidity of the loan parties, which is generally calculated by adding (a) unrestricted cash on hand of the Loan Parties maintained in deposit accounts subject to control agreements granting control to the collateral agent for the 2019 ABL Credit Agreement, to (b) the difference between (1) the lesser of (x) $15 million, as adjusted from time to time, and (y) 75% of certain customer accounts resulting from the sale of goods or services in the ordinary course of business minus certain reserves established by the Administrative Agent and (2) the sum of (x) the outstanding principal balance of all revolving loans under the 2019 ABL Credit Agreement plus (y) the aggregate undrawn available amount of all letters of credit then outstanding plus the amount of any obligations that arise from any draw against any letter of credit that have not been reimbursed by the borrowers or funded with a revolving loan under the 2019 ABL Credit Agreement (the “Loan Parties Liquidity”), as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000. As a condition to executing the 2019 Refinancing Amendment Number One and Waiver, the loan parties will be required to pay a non-refundable waiver fee of $400,000 and a non-refundable amendment fee of $1,000,000 (the “PIK First Amendment Fee”, which shall be paid in kind by adding the PIK First Amendment Fee to the outstanding principal amount of the term loan under the 2019 Refinancing Agreement as additional principal obligations thereunder on and as of the effective date 2019 Refinancing Amendment Number One and Waiver).
During December 2020, the Company was not in compliance with the collateral coverage debt covenant as defined by the Term Loan financing agreement. The Company was required to maintain at all times a Collateral Coverage Amount (as defined in the Term Loan Financing Agreement) equal to or greater than the aggregate outstanding principal amount of the Term Loans. The Company calculated its Collateral Coverage amount at $37.9 million as of December 31, 2020, the aggregate outstanding principal amount of Term Loans was $39.0 million as of that same date for an excess of debt over collateral of $1.1 million. On February 1, 2021, the Company, LFS and LHLLC entered into a Waiver - Collateral Coverage Amount (December 2020) ("December 2020 Waiver") with the lenders party thereto and Cortland Capital Market Services LLC as collateral agent and administrative agent. The December 2020 Waiver includes a waiver of the Company's compliance with the Collateral Coverage Amount for the month ending December 31, 2020. The lender waived the event of default arising from this noncompliance as of December 31, 2020, while reserving its rights with respect to covenant compliance in future months.
2019 Refinancing Agreement - CB Warrants
In connection with the 2019 Refinancing Agreement, on the Refinancing Closing Date, the Company issued to CB and the other lenders under the 2019 Refinancing Agreement warrants (the “CB Warrants”) to purchase up to a maximum of 263,314 shares of the Company's common stock at an exercise price of $7.63 per share subject to certain adjustments, including for stock dividends, stock splits or reclassifications. The actual number of shares of common stock into which the CB Warrants were exercisable at any given time were equal to: (i) the product of (x) the number of shares equal to 2% of the Company’s issued and outstanding shares of common stock on the Refinancing Closing Date on a fully diluted basis and (y) the percentage of the total 2019 Delayed Draw Term Loan made as of the exercise date, minus (ii) the number of shares previously issued under the CB Warrants. As of the Refinancing Closing Date through February 24, 2021, no amounts had been drawn on the 2019 Delayed Draw Term Loan, so no portion of the CB Warrants was exercisable. The CB Warrants were to be exercised for cash or on a “cashless basis,” subject to certain adjustments, at any time after the Refinancing Closing Date until the expiration of such warrant at 5:00 p.m., New York time, on the earlier of (i) the five (5) year anniversary of the Refinancing Closing Date, or (ii) the liquidation of the Company.
Accounting for the 2019 Term Loans and CB Warrants
The CB Warrants represented a freestanding financial instrument that was classified as a liability because the CB Warrants met the definition of a derivative instrument that does not meet the equity scope exception (i.e., the CB Warrants were not indexed to the entity’s own equity). In addition, the material weakness penalty described above was evaluated as an embedded derivative liability and bifurcated from the 2019 Term Loans as it represented a non-credit related embedded feature that provides for net settlement. Both the CB Warrants liability and the embedded derivative liability were required to be initially and subsequently measured at fair value. The initial fair values of the CB Warrants liability and the embedded derivative liability approximated $0.9 million and $0.4 million, respectively, on the Refinancing Closing Date. The Company estimated these fair values by using the Black-Scholes-Merton option pricing model and a probability-weighted discounted cash flow approach.
The CB Warrants liability was included in other long-term liabilities. The Company remeasured the fair value of the CB Warrants liability as of December 31, 2020 and February 24, 2021 prior to the refinancing date and recorded any adjustments as other income (expense). At February 24, 2021 and December 31, 2020, the CB Warrants liability was $2.0 million. For the three months ended March 31, 2021 and March 31, 2020, the Company recorded other income of $14 thousand and $0.2 million, respectively, to reflect the change in fair value of the CB Warrants liability.
The proceeds for the 2019 Term Loan were first allocated to the CB Warrants liability and embedded derivative liability based on their respective fair values with a corresponding amount of $1.3 million recorded as a debt discount to the 2019 Term Loans. In addition, the Company incurred approximately $3.9 million of debt issuance costs, including $1.4 million related to the first amendment, for the 2019 Term Loans that have also been recorded as a debt discount. The combined debt discount from the CB Warrants liability, embedded derivative liability and the debt issuance costs were being amortized into interest expense over the term of the 2019 Term Loans using the effective interest method and were expensed on the refinancing date as a loss on early debt extinguishment. The Company recorded interest expense for the amortization of the CB Warrants liability and embedded derivative debt discounts of $0.1 million for both the three months ended March 31, 2021 and 2020, and recorded an additional $0.1 million and $0.4 million of interest expense for the amortization of the debt issuance costs for the three months ended March 31, 2021 and March 31, 2020, respectively.
2019 ABL Credit Agreement
On the Refinancing Closing Date, LFS also entered into a financing agreement with the lenders thereto and Citizens Bank, N.A., as collateral agent, administrative agent and origination agent (the “2019 ABL Credit Agreement” and, together with the 2019 Refinancing Agreement, the “Refinancing Agreements”). The 2019 ABL Credit Agreement consisted of a $15.0 million revolving credit facility (the “2019 Revolving Credit Facility”). Proceeds of the 2019 Revolving Credit Facility were to be used for general corporate purposes. On the Refinancing Closing Date, the Company had nothing drawn on the ABL Credit Agreement and $14.0 million of available borrowing capacity thereunder (net of a $1.0 million reserve imposed by the lender).
The 2019 Refinancing Borrowers and Guarantors under the 2019 ABL Credit Agreement were the same as under the 2019 Refinancing Agreement. The 2019 ABL Credit Agreement was secured by a second-priority lien on the real property of the Loan Parties (behind the 2019 Refinancing Agreement) and a first-priority lien on substantially all other assets of the Loan Parties.
2019 ABL Credit Agreement - Interest Rates and Fees
The interest rate on borrowings under the 2019 ABL Credit Agreement was, at the 2019 Refinancing Borrowers’ option, either LIBOR (with a 2.0% floor) plus an applicable margin ranging from 3.00% to 3.50% or a base rate (with a 3.0% minimum) plus an applicable margin ranging from 2.00% to 2.50%. At February 24, 2021 and March 31, 2020, the interest rate in effect on the 2019 ABL Credit Agreement was 5.25%.
2019 ABL Credit Agreement - Other Terms and Conditions
The 2019 ABL Credit Agreement was set to mature on April 12, 2022. There was also an unused line fee ranging from 0.250% to 0.375% per annum on undrawn amounts.
The 2019 ABL Credit Agreement contained representations and warranties, and covenants which are customary for debt facilities of this type. Unless the Required Lenders otherwise consented in writing, the covenants limited the ability of the Company and its restricted subsidiaries to, among other things, generally, to (i) incur additional indebtedness or issue preferred stock, (ii) pay dividends or make distributions to the Company’s stockholders, (iii) purchase or redeem the Company’s equity interests, (iv) make investments, (v) create liens on their assets, (vi) enter into transactions with the Company’s affiliates, (vii)
sell assets other than in the ordinary course of business or another permitted disposition of assets and (viii) merge or consolidate with, or dispose of substantially all of the Company’s assets to, other companies.
The 2019 ABL Credit Agreement included customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company failed to comply with the terms of the 2019 ABL Credit Agreement or if other customary events occur.
The 2019 ABL Credit Agreement also contained a financial maintenance covenant for the 2019 Revolving Credit Facility, which is a requirement for the Total Leverage Ratio of the Company and its Subsidiaries not to exceed an amount beginning at 4.00 to 1.00 through September 30, 2019, and stepping down to 1.75 to 1.00 effective July 1, 2021. In addition, the parties to the 2019 ABL Credit Agreement entered into an amendment which, among other changes revises the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of such agreement.
In connection with the 2019 ABL Credit Amendment Number One and Waiver, the parties amended certain provisions of the 2019 ABL Credit Agreement, including, among other changes to (i) require the approval of the origination agent and, generally, the lenders representing at least 50.1% of the aggregate undrawn revolving loan commitment or unpaid principal amount of the term loans, prior to effecting any permitted acquisition; (ii) revise the maximum permitted Total Leverage Ratio, starting at 3.30 to 1.00 on October 1, 2019 with a peak ratio of 4.25 during March 2020 along with varying monthly rates culminating in the lowest Total Leverage Ratio of 2.00 to 1.00 on April 1, 2021 through the term of the 2019 ABL Credit Agreement; and (iii) require the Loan Parties Liquidity as of the last day of any fiscal month ending on or after November 30, 2019, of at least $10,000,000, as described above in the Amendment Number One to 2019 Refinancing Agreement and Waiver. As a condition to executing the 2019 ABL Credit Amendment Number One and Waiver, the loan parties were required to pay a non-refundable waiver fee of $7,500.
As noted above in the section titled: 2019 Refinancing Agreement - Other Terms and Conditions, the Company was subject to cross-default under our 2019 Revolving Credit Facility as a result of our failure to satisfy the Collateral Coverage Amount as defined in the Term Loan Financing Agreement, which required the company to obtain a waiver. Accordingly, on February 1, 2021, the Company, LFS and LHLLC entered into a Waiver - Collateral Coverage Amount (December 2020) (“December 2020 Waiver”) with the lenders party thereto and Citizens Bank, N.A., as collateral agent and administrative agent. The December 2020 Waiver includes a waiver of the Company's compliance with the Collateral Coverage Amount for the month ending December 31, 2020. The lender has waived the event of default arising from this noncompliance as of December 31, 2020, while reserving its rights with respect to covenant compliance in future months.
At March 31, 2021 and December 31, 2020, the Company had irrevocable letters of credit in the amount of $3.4 million with its lender to secure obligations under its self-insurance program.
Accounting for the 2019 ABL Credit Agreement
The Company incurred approximately $0.9 million of debt issuance costs for the 2019 ABL Credit Agreement that had been recorded as a non-current deferred asset. The deferred asset was amortized into interest expense over the term of the 2019 Term ABL Credit Agreement using the effective interest method and then expensed on the refinancing date as a loss on early debt extinguishment. The Company recorded interest expense of $23 thousand and $0.1 million for the amortization the debt issuance costs for the three months ended March 31, 2021 and 2020, respectively. As of February 24, 2021, the Company had nothing drawn on the 2019 ABL Credit Agreement.
Wintrust Term and Revolving Loans
On February 24, 2021, LFS, LHLLC and the direct and indirect subsidiaries of LFS from time to time included as parties to the agreement (the “Guarantors”) entered into a Credit Agreement (the “Credit Agreement”) by and among the LFS, LHLLC, Guarantors, the lenders party thereto from time to time, Wheaton Bank & Trust Company, N.A., a subsidiary of Wintrust Financial Corporation (collectively, “Wintrust”), as administrative agent and L/C issuer, Bank of the West as documentation agent, M&T Bank as syndication agent, and Wintrust as lead arranger and sole book runner.
In accordance with the terms of the Credit Agreement, Lenders provide to LFS (i) a $30.0 million senior secured term loan (the “Term Loan”); and (ii) a $25.0 million senior secured revolving credit facility with a $5.0 million sublimit for the issuance of letters of credit (the “Revolving Loan” and, together with the Term Loan, the “Loans”). Proceeds of the Loans were used to
refinance certain existing indebtedness, finance working capital and other general corporate purposes and fund certain fees and expenses associated with the closing of the Loans.
The Revolving Loan bears interest, at the LFS’s option, at either LIBOR (with a 0.25% floor) plus 3.5% or a base rate (with a 3.0% floor) plus 0.50%, subject to a 50 basis point step-down based on the ratio between the senior debt of the Company and its subsidiaries to the EBITDA (earnings before interest, income taxes, depreciation and amortization) of the LFS and its subsidiaries for the most recently ended four fiscal quarters (the “Senior Leverage Ratio”). The Term Loan bears interest, at LFS’s option, at either LIBOR (with a 0.25% floor) plus 4.0% or a base rate (with a 3.0% floor) plus 1.00%, subject to a 50 (for LIBOR) or 75 (for base rate) basis point step-down based on the Senior Leverage Ratio.
LFS is required to make principal payments on the Term Loan in $0.5 million installments on the last business day of each month commencing on March 31, 2021 with a final payment of all principal and interest not sooner paid on the Term Loan due and payable on February 24, 2026. The Revolving Loan will mature and become due and payable by LFS on February 24, 2026.
The Loans are secured by (i) a valid, perfected and enforceable lien of the Administrative Agent on the ownership interests held by each of LFS and Guarantors in their respective subsidiaries; and (ii) a valid, perfected and enforceable lien of the Administrative Agent on each of LFS and Guarantors’ personal property, fixtures and real estate, subject to certain exceptions and limitations. Additionally, the re-payment of the Loans shall be jointly and severally guaranteed by each Guarantor.
The Credit Agreement contains representations and warranties, covenants and events of default that are customary for facilities of this type, as more particularly described in the Credit Agreement. The Loans also contain three financial maintenance covenants, including (i) a requirement to have as of the last day of each quarter for the senior leverage ratio of the Company and its Subsidiaries (the “Total Leverage Ratio”) not to exceed an amount beginning at 2.25 to 1.00 through December 31, 2021, and stepping down to 2.00 to 1.00 at all times thereafter, (ii) a fixed charge coverage ratio of not less than 1.20 to 1.00 as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2021, and (iii) no unfinanced capital expenditures, except for unfinanced capital expenditures in the ordinary course of business not exceeding in the aggregate $4.0 million during any fiscal year; and no default or event of default (as defined by the agreement) has occurred and is continuing, 50% of any portion of this annual limit, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next following fiscal year as stipulated by the agreement. LFS and its affiliates maintain various commercial and service relationships with certain members of the syndicate and their affiliates in the ordinary course of business. As of March 31, 2021, the Company was in compliance with all debt covenants as required by the Wintrust Loans.
The following is a summary of the additional margin and commitment fees payable on the available term loan and revolving credit commitment:
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|
Level
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|
Senior Leverage Ratio
|
|
Additional Margin for
Prime Rate loans
|
|
Additional Margin for
Prime Revolving loans
|
|
Additional Margin for Eurodollar Term loans
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|
Additional Margin for Eurodollar Revolving loans
|
|
Commitment Fee
|
|
I
|
|
Greater than 1.00 to 1.00
|
|
1.00
|
%
|
|
0.50
|
%
|
|
4.00
|
%
|
|
3.50
|
%
|
|
0.25
|
%
|
|
II
|
|
Less than or equal to 1.00 to 1.00
|
|
0.25
|
%
|
|
—
|
%
|
|
3.50
|
%
|
|
3.00
|
%
|
|
0.25
|
%
|
`
Note 8 – Equity
The Company’s second amended and restated certificate of incorporation currently authorizes the issuance of 100,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares of preferred stock, par value $0.0001. The Public, Private and $15 Exercise Price Sponsor warrants were issued in conjunction with the initial public offering and the Merger and Additional Merger warrants were issued in conjunction with the business combination.
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March 31, 2021
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|
December 31, 2020
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|
Public Warrants(1)(5)
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2,140,219
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|
|
2,300,000
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|
|
Private Warrants(1)(5)
|
99,000
|
|
|
99,000
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|
|
$15 Exercise Price Sponsor Warrants(2)(5)
|
600,000
|
|
|
600,000
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|
|
Merger Warrants(3)(6)
|
629,643
|
|
|
631,119
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|
|
Additional Merger Warrants(4)(6)
|
935,068
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|
|
946,680
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|
Total
|
4,403,930
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|
|
4,576,799
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|
(1) exercisable for one-half of one share of common stock at an exercise price of $5.75 per half share ($11.50 per whole share)
(2) exercisable for one share of common stock at an exercise price of $15.00 per share
(3) exercisable for one share of common share at an exercise price of $12.50 per share
(4) exercisable for one share of common stock at an exercise price of $11.50 per share
(5) issued under a warrant agreement dated July 15, 2014, between Continental Stock Transfer and Trust Company, as warrant agent, and the Company
(6) issued to the sellers of LHLLC
On May 24, 2020 the Board of Directors approved further amendments to the Company's amended and restated Omnibus Incentive Plan to increase the number of shares of the Company's common stock that may be issued pursuant to awards by 500,000, for a total of 1,650,000 shares, and extend the term of the plan so that it will expire on the tenth anniversary of the date the stockholders approve the Amended Incentive Plan. The amendments were approved by the Company's stockholders at the Annual Meeting held on July 14, 2020.
See Note 17 - Management Incentive Plans for RSUs granted, vested, forfeited and remaining unvested.
Upon approval of the Company's stockholders on May 30, 2019, the Company adopted the Limbach Holdings, Inc. 2019 Employee Stock Purchase Plan (“the ESPP”). On January 1, 2020, the ESPP went into effect. The ESPP enables eligible employees, as defined by the ESPP, the right to purchase the Company's common stock through payroll deductions during consecutive subscription periods at a purchase price of not less than 85% of the fair market value of a common share at the end of each offering period. Annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to ten percent of the participant's compensation or $5,000, whichever is less. Each offering period of the ESPP lasts six months, commencing on January 1 and July 1 of each year. The amounts collected from participants during a subscription period are used on the exercise date to purchase full shares of common stock. Participants may withdraw from an offering before the exercise date and obtain a refund of amounts withheld through payroll deductions. Compensation cost, representing the 15% discount applied to the fair market value of common stock, is recognized on a straight-line basis over the six-month vesting period during which employees perform related services. Under the ESPP 500,000 shares are authorized to be issued. In July 2020 and January 2021, the Company issued 30,825 and 8,928 shares of its common stock, respectively, to participants in the ESPP who contributed to the plan through the June 30, 2020 and December 31, 2020 offering periods, respectively. Stock compensation expense related to the ESPP was $17 thousand for the three months ended March 31, 2021. As of March 31, 2020, no shares had been issued under the ESPP.
On February 10, 2021 the Company entered into an underwriting agreement (“Underwriting Agreement”) with Lake Street Capital Markets, LLC (“Underwriter”) relating to an underwritten public offering (the “Offering”). On February 12, 2021 the Company sold to the Underwriter 1,783,500 shares of its Common Stock. The Underwriting Agreement provided for purchase and sale of the Shares by the company to the Underwriter at a price of $11.28 per share. The price to the public in the Offering was $12.00 per share. In addition, under the terms of the Underwriting Agreement, the Company granted the Underwriter a 30-day option to purchase up to an additional 267,525 shares of Common Stock to cover over-allotments, if any, on the same terms and conditions. The net proceeds to the Company from the Offering after deducting the underwriting discounts and commissions were approximately $19.8 million. On February 18, 2021, the Company received approximately $3.0 million of net proceeds for the sale of 267,525 shares in connection with the exercise of the over-allotment option.
Note 9 – Fair Value Measurements
The Company measures the fair value of financial assets and liabilities in accordance with ASC Topic 820 – Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
•Level 1 — inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date;
•Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities; and
•Level 3 — unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company believes that the carrying amounts of its financial instruments, including cash and cash equivalents, trade accounts receivable and accounts payable consist primarily of instruments without extended maturities, which approximate fair value primarily due to their short-term maturities and low risk of counterparty default. We also believe that the carrying value of the 2019 Refinancing Agreement term loan and 2021 Wintrust Term Loan approximates its fair values due to the variable rate on such debt. As of February 24, 2021 and December 31, 2020, the Company determined that the fair value of its 2019 Revolving Agreement term loan was $39.0 million. As of March 31, 2021, the Company determined that the fair value of its 2021 Wintrust Term Loan was $29.5 million. There were no outstanding borrowings on the Company's 2019 ABL Credit Agreement revolver at February 24, 2021 and December 31, 2020. Such fair values were determined using discounted estimated future cash flows using level 3 inputs.
Note 10 – Earnings per Share
Diluted EPS assumes the dilutive effect of outstanding common stock warrants and RSUs using the treasury stock method.
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|
|
|
|
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|
|
Three months ended March 31,
|
|
(in thousands, except per share amounts)
|
|
2021
|
|
2020
|
|
EPS numerator:
|
|
|
|
|
|
Net loss
|
|
$
|
(2,282)
|
|
|
$
|
(52)
|
|
|
|
|
|
|
|
|
EPS denominator:
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|
|
|
|
|
Weighted average shares outstanding – basic
|
|
9,218
|
|
|
7,798
|
|
|
Impact of dilutive securities
|
|
—
|
|
|
—
|
|
|
Weighted average shares outstanding – diluted
|
|
9,218
|
|
|
7,798
|
|
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
|
Basic
|
|
$
|
(0.25)
|
|
|
$
|
(0.01)
|
|
|
Diluted
|
|
$
|
(0.25)
|
|
|
$
|
(0.01)
|
|
The following table summarizes the securities that were antidilutive or out-of-the-money, and therefore, were not included in the computations of diluted loss per common share:
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|
|
|
|
|
|
Three months ended March 31,
|
|
|
2021
|
|
2020
|
|
In-the-money warrants
|
365,556
|
|
|
—
|
|
|
Out-of-the-money warrants (see Note 8)
|
600,000
|
|
|
4,576,799
|
|
|
Service-based RSUs (See Note 17)
|
143,647
|
|
|
70,120
|
|
|
Performance and market-based RSUs(1)
|
90,729
|
|
|
—
|
|
|
Employee Stock Purchase Plan
|
3,627
|
|
|
—
|
|
|
Total
|
1,203,559
|
|
|
4,646,919
|
|
(1) For the quarter ended March 31, 2021 and 2020, certain PRSU and MRSU awards were not included in the computation of diluted loss per share because the performance and market conditions were not satisfied during the periods and would not be satisfied if the reporting date was at the end of the contingency period.
Note 11 – Income Taxes
The Company is taxed as a C corporation.
For interim periods, the provision for income taxes (including federal, state, local and foreign taxes) is calculated based on the estimated annual effective tax rate, adjusted for certain discrete items for the full fiscal year. Cumulative adjustments to the Company's estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
The effective tax benefit rate for the three months ended March 31, 2021 and March 31, 2020 was 31.2% and 92.4%, respectively. No valuation allowance was required as of March 31, 2021 or December 31, 2020.
The Company had previously recorded a liability for unrecognized tax benefits (“UTB”) related to tax positions taken on its various income tax returns in open tax periods. If recognized, a portion of unrecognized tax benefits would favorably impact the effective tax rate that is reported in future periods. The Company filed to change an improper tax method of accounting in the fourth quarter of 2020 related to the UTB that affords the Company IRS audit protection in past periods. Therefore, the total unrecognized tax benefits were reduced in the fourth quarter of 2020.
The following is a reconciliation of the beginning and ending unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
1,130
|
|
|
Gross increases in prior period tax positions
|
—
|
|
|
—
|
|
|
Gross increases in current period tax positions
|
—
|
|
|
—
|
|
|
Decreases related to prior year tax positions
|
—
|
|
|
(1,130)
|
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
—
|
|
Note 12 – Operating Segments
The Company determined its operating segments on the same basis that it assesses performance and makes operating decisions. The Company manages and measures the performance of its business in two distinct operating segments. As of January 1, 2021, the Company renamed its existing two reportable segments to reflect its two distinct approaches to our customer base and to better align with our owner direct strategy. The previously named Construction Segment is now known as General Contractor Relationships (“GCR”); the previously named Service Segment is now known as Owner Direct Relationships (“ODR”). These segments are reflective of how the Company’s Chief Operating Decision Maker (“CODM”) reviews operating results for the purposes of allocating resources and assessing performance. The Company's CODM is comprised of its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM evaluates performance based on income from operations of the respective segments after the allocation of Corporate office operating expenses. In accordance with ASC Topic 280 – Segment Reporting, the Company has elected to aggregate all of the construction activity into one GCR reportable segment and all of the service branches into one ODR reportable segment. All transactions between segments are eliminated in consolidation. Our corporate department provides general and administrative support services to our two operating segments. The CODM allocates costs between segments for selling, general and administrative and depreciation expense.
All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled. Interest expense is not allocated to segments because of the corporate management of debt service including interest.
Condensed consolidated segment information for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Statement of Operations Data:
|
|
|
|
|
Revenue:
|
|
|
|
|
GCR
|
$
|
84,804
|
|
|
$
|
109,486
|
|
|
ODR
|
28,540
|
|
|
29,286
|
|
|
Total revenue
|
113,344
|
|
|
138,772
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
GCR
|
9,395
|
|
|
10,982
|
|
|
ODR
|
7,834
|
|
|
7,242
|
|
|
Total gross profit
|
17,229
|
|
|
18,224
|
|
|
|
|
|
|
|
Selling, general and administrative:
|
|
|
|
|
GCR
|
9,114
|
|
|
10,174
|
|
|
ODR
|
7,354
|
|
|
6,330
|
|
|
Corporate
|
677
|
|
|
295
|
|
|
Total selling, general and administrative
|
17,145
|
|
|
16,799
|
|
|
Amortization of intangibles
|
104
|
|
|
143
|
|
|
Operating (loss) income
|
$
|
(20)
|
|
|
$
|
1,282
|
|
|
|
|
|
|
|
Operating (loss) income for reportable segments
|
$
|
(20)
|
|
|
$
|
1,282
|
|
|
|
|
|
|
|
Less unallocated amounts:
|
|
|
|
|
Interest expense, net
|
(1,264)
|
|
|
(2,158)
|
|
|
Loss on early debt extinguishment
|
(1,961)
|
|
|
—
|
|
|
(Loss) gain on sale of property and equipment
|
(86)
|
|
|
29
|
|
|
Gain on change in fair value of warrant liability
|
14
|
|
|
161
|
|
|
Total unallocated amounts
|
(3,297)
|
|
|
(1,968)
|
|
|
Loss before income taxes
|
$
|
(3,317)
|
|
|
$
|
(686)
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
GCR
|
$
|
1,036
|
|
|
$
|
1,030
|
|
|
ODR
|
355
|
|
|
331
|
|
|
Corporate
|
104
|
|
|
143
|
|
|
Total other data
|
$
|
1,495
|
|
|
$
|
1,504
|
|
Summarized segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
|
Three months ended March 31, 2020
|
|
(in thousands)
|
GCR
|
|
ODR
|
|
Total
|
|
GCR
|
|
ODR
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
84,804
|
|
|
$
|
28,540
|
|
|
$
|
113,344
|
|
|
$
|
109,486
|
|
|
$
|
29,286
|
|
|
$
|
138,772
|
|
|
Gross Profit
|
9,395
|
|
|
7,834
|
|
|
17,229
|
|
|
10,982
|
|
|
7,242
|
|
|
18,224
|
|
|
Selling, general and administrative
|
9,114
|
|
|
7,354
|
|
|
16,468
|
|
|
10,174
|
|
|
6,330
|
|
|
16,504
|
|
|
EBIT
|
281
|
|
|
480
|
|
|
761
|
|
|
808
|
|
|
912
|
|
|
1,720
|
|
Reconciliation of segment gross profit to consolidated loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
(in thousands)
|
2021
|
|
2020
|
|
Total gross profit from reportable segments
|
$
|
17,229
|
|
|
$
|
18,224
|
|
|
Selling, general and administrative
|
(17,145)
|
|
|
(16,799)
|
|
|
Amortization of intangibles
|
(104)
|
|
|
(143)
|
|
|
Total other expenses
|
(3,297)
|
|
|
(1,968)
|
|
|
Loss before income taxes
|
$
|
(3,317)
|
|
|
$
|
(686)
|
|
Note 13 - Leases
The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets.
The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For our leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with our real estate leases, the Company uses quoted borrowing rates on our secured debt.
The following table summarizes the lease amounts included in our condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Classification on the Condensed Consolidated Balance Sheets
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Assets
|
|
|
|
|
|
|
Operating
|
Operating lease right-of-use assets (a)
|
|
$
|
17,900
|
|
|
$
|
18,751
|
|
|
Finance
|
Property and equipment, net (b)
|
|
5,654
|
|
|
6,242
|
|
|
Total lease assets
|
|
|
$
|
23,554
|
|
|
$
|
24,993
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
Current operating lease liabilities
|
|
$
|
4,145
|
|
|
$
|
3,929
|
|
|
Finance
|
Current portion of long-term debt
|
|
2,473
|
|
|
2,536
|
|
|
Noncurrent
|
|
|
|
|
|
|
Operating
|
Long-term operating lease liabilities
|
|
14,442
|
|
|
15,459
|
|
|
Finance
|
Long-term debt
|
|
3,406
|
|
|
3,923
|
|
|
Total lease liabilities
|
|
|
$
|
24,466
|
|
|
$
|
25,847
|
|
(a) Operating lease assets are recorded net of accumulated amortization of $12.9 million at March 31, 2021 and $11.9 million at December 31, 2020.
(b) Finance lease assets are recorded net of accumulated amortization of $5.4 million at March 31, 2021 and $5.3 million at December 31, 2020.
The following table summarizes the lease costs included in our condensed consolidated statements of operations for the three and months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three months ended March 31,
|
|
(in thousands)
|
Classification on the Condensed Consolidated Statement of Operations
|
|
2021
|
|
2020
|
|
Operating lease cost
|
Cost of revenue(a)
|
|
$
|
690
|
|
|
$
|
880
|
|
|
Operating lease cost
|
Selling, general and administrative(a)
|
|
584
|
|
|
383
|
|
|
Finance lease cost
|
|
|
|
|
|
|
Amortization
|
Cost of revenue(b)
|
|
674
|
|
|
666
|
|
|
Interest
|
Interest expense, net(b)
|
|
86
|
|
|
92
|
|
|
Total lease cost
|
|
|
$
|
2,034
|
|
|
$
|
2,021
|
|
(a) Operating lease costs recorded in cost of sales includes $0.1 million and $0.2 million of variable lease costs for the three months ended March 31, 2021 and 2020, respectively. In addition, $0.1 million of variable leases costs are included in Selling, general and administrative for both the three months ended March 31, 2021 and 2020. These variable costs consist of our proportionate share of operating expenses, real estate taxes and utilities.
(b) Finance lease costs recorded in cost of revenue for the three months ended March 31, 2021 and 2020 includes $0.6 million and $0.7 million of variable leases costs. These variable lease costs consist of fuel, maintenance, and sales tax charges. No variable lease costs for finance leases were recorded in selling, general and administrative.
Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending (in thousands):
|
Finance
Leases
|
|
Operating
Leases
|
|
Remainder of 2021
|
$
|
2,093
|
|
|
$
|
3,710
|
|
|
2022
|
2,339
|
|
|
4,616
|
|
|
2023
|
1,343
|
|
|
3,516
|
|
|
2024
|
532
|
|
|
2,917
|
|
|
2025
|
11
|
|
|
2,409
|
|
|
Thereafter
|
—
|
|
|
4,042
|
|
|
Total minimum lease payments
|
$
|
6,318
|
|
|
$
|
21,210
|
|
|
Amounts representing interest
|
(439)
|
|
|
|
|
Present value of net minimum lease payments
|
$
|
5,879
|
|
|
|
The following is a summary of the lease terms and discount rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
Weighted average lease term (in years):
|
|
|
|
|
|
Operating
|
|
5.31
|
|
5.48
|
|
Finance
|
|
2.61
|
|
2.78
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
|
Operating
|
|
4.83
|
%
|
|
4.83
|
%
|
|
Finance
|
|
5.49
|
%
|
|
5.50
|
%
|
The following is a summary of other information and supplemental cash flow information related to finance and operating leases for the three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2021
|
|
March 31, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
1,225
|
|
|
$
|
1,239
|
|
|
Operating cash flows from finance leases
|
|
86
|
|
|
92
|
|
|
Financing cash flows from finance leases
|
|
667
|
|
|
652
|
|
|
Right-of-use assets exchanged for lease liabilities:
|
|
|
|
|
|
Operating leases
|
|
$
|
156
|
|
|
$
|
—
|
|
|
Finance leases
|
|
87
|
|
|
337
|
|
|
Right-of-use assets disposed or adjusted modifying operating leases liabilities
|
|
$
|
36
|
|
|
$
|
344
|
|
|
Right-of-use assets disposed or adjusted modifying finance leases liabilities
|
|
$
|
—
|
|
|
$
|
(41)
|
|
Note 14 – Self-Insurance
The Company purchases workers’ compensation and general liability insurance under policies with per-incident deductibles of $250 thousand and a $4.4 million maximum aggregate deductible loss limit per year.
The components of the self-insurance liability as of March 31, 2021 and December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
As of
March 31, 2021
|
|
As of
December 31, 2020
|
|
Current liability — workers’ compensation and general liability
|
$
|
170
|
|
|
$
|
197
|
|
|
Current liability — medical and dental
|
524
|
|
|
764
|
|
|
Non-current liability
|
890
|
|
|
890
|
|
|
Total liability shown in Accrued expenses and other current liabilities
|
$
|
1,584
|
|
|
$
|
1,851
|
|
|
Restricted cash
|
$
|
113
|
|
|
$
|
113
|
|
The restricted cash balance represents an imprest cash balance set aside for the funding of workers' compensation and general liability insurance claims. This amount is replenished either when depleted or at the beginning of each month.
Note 15 – Commitments and Contingencies
Legal. The Company is continually engaged in administrative proceedings, arbitrations, and litigation with owners, general contractors, suppliers, and other unrelated parties, all arising in the ordinary courses of business. In the opinion of the Company’s management, the results of these actions will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
On November 13, 2019, claimant, Lanzo Trenchless Technologies, Inc. - North, filed a Demand for Arbitration in the state of Michigan against the Company's wholly-owned subsidiary, Limbach Company LLC. The demand seeks damages in excess of $0.4 million based upon the allegation that Limbach breached a construction contract by improperly terminating Lanzo’s subcontract, and for withholding payment from Lanzo based upon deficient performance. Limbach has asserted a counterclaim seeking damages caused by Lanzo’s deficient performance. A binding arbitration proceeding is scheduled for July of 2021.
On January 23, 2020, plaintiff, Bernards Bros. Inc., filed a complaint against Limbach Holdings, Inc. in Superior Court of the State of California for the County of Los Angeles against Limbach Holdings, Inc. The complaint alleges that our Southern California operations refused to honor a proposal made to Bernards to act as a subcontractor on a construction project, and that, as a result of the wrongful failure to honor the proposal, Bernards suffered damages in excess of $3.0 million, including alleged increased costs for hiring a different subcontractor to perform the work. The Company is vigorously defending the suit, which is currently set for trial to take place in February 2022.
On April 17, 2020, plaintiff, LA Excavating, Inc., filed a complaint against our wholly-owned subsidiary, Limbach Company LP, and several other parties, in Superior Court of the State of California, for the County of Los Angeles. The complaint seeks damages of approximately $1.0 million for alleged failure to pay contract balances and extra work ordered by Limbach, as well as seeks to enforce payment obligations under payment and stop notice release bonds. The Company disputes the allegations and intends to vigorously defend the suit, which is currently set for trial in November of 2021.
In July of 2020, plaintiff, Kimball Construction Co., Inc., filed a complaint against our wholly-owned subsidiary, Limbach Company LLC in circuit Court for Montgomery County, Maryland. The complaint seeks damages of approximately $1.7 million for alleged failure to pay contract balances and extra work, as well as to enforce payment obligations under a payment bond issued by Limbach's surety provider. The Company disputes the allegations and intends to vigorously defend the suit, which is currently set for trial to take place sometime in the second quarter of 2021.
Surety. The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, payment and performance bonds (“Surety Bonds”) as a condition to the award of such contracts. The Surety Bonds secure our payment and performance obligations under such contracts, and we have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of Surety Bonds issued on our behalf. In addition, at the request of labor unions representing certain of our employees, Surety Bonds are sometimes provided to secure obligations for wages and benefits payable to or for such employees. Public sector contracts require Surety Bonds more frequently than private sector contracts, and accordingly, our bonding requirements typically increase as the amount of public sector work increases. As of March 31, 2021, the Company had approximately $160.7 million in surety bonds outstanding. The Surety Bonds are issued by surety companies in return for premiums, which vary depending on the size and type of bond.
Collective Bargaining Agreements. Many of the Company’s craft labor employees are covered by collective bargaining agreements. The agreements require the Company to pay specified wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If the Company withdraws from any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the Company could incur additional liabilities related to these plans. Although
the Company has been informed that some of the multi-employer pension plans to which it contributes have been classified as “critical” status, the Company is not currently aware of any significant liabilities related to this issue.
Note 16 – Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. The Company’s remaining performance obligations includes projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions.
As of March 31, 2021, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's GCR and ODR segment contracts were $393.6 million and $37.4 million, respectively. As of December 31, 2020, the aggregate amount of the transaction prices allocated to the remaining performance obligations of the Company's GCR and ODR segment contracts were $393.5 million and $35.7 million, respectively.
We estimate that 56% and 94% of our GCR and ODR segment remaining performance obligations as of March 31, 2021, respectively, will be recognized as revenue during 2021, with the substantial majority of remaining performance obligations to be recognized within 24 months, although the timing of the Company's performance is not always under its control.
Additionally, the difference between remaining performance obligations and backlog is due to the exclusion of a portion of the Company’s ODR agreements under certain contract types from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to backlog is provided in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
Note 17 – Management Incentive Plans
The Company initially adopted the Omnibus Incentive Plan on July 20, 2016 for the purpose of: (a) encouraging the profitability and growth of the Company through short-term and long-term incentives that are consistent with the Company’s objectives; (b) giving participants an incentive for excellence in individual performance; (c) promoting teamwork among participants; and (d) giving the Company a significant advantage in attracting and retaining key employees, directors and consultants. To accomplish such purposes, the Omnibus Incentive Plan provides that the Company may grant options, stock appreciation rights, restricted shares, restricted stock units, performance-based awards (including performance-based restricted shares and restricted stock units), other share based awards, other cash-based awards or any combination of the foregoing.
Following the further amendment and restatement of the Omnibus Incentive Plan upon approval of the Company's stockholders on July 14, 2020, the Company has reserved a total of 1,650,000 shares of its common stock for issuance under the Omnibus Incentive Plan. The number of shares issued or reserved pursuant to the Omnibus Incentive Plan will be adjusted by the plan administrator, as they deem appropriate and equitable, as a result of stock splits, stock dividends, and similar changes in the Company’s common stock. In connection with the grant of an award, the plan administrator may provide for the treatment of such award in the event of a change in control. All awards are made in the form of shares only.
Service-Based Awards
During the first three months of 2021, the Company granted 118,232 service-based RSUs to its executives, certain employees, and non-employee directors under the Omnibus Incentive Plan.
The following table summarizes our service-based RSU activity for the three months ended March 31, 2021:
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Awards
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Weighted-Average
Grant Date
Fair Value
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Unvested at December 31, 2020
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285,799
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|
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$
|
6.32
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|
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Granted
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118,232
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|
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11.25
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Vested
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(106,383)
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|
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6.66
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|
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Forfeited
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—
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|
|
—
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|
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Unvested at March 31, 2021
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297,648
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|
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$
|
8.57
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Performance-Based Awards
During the first three months of 2021, the Company granted 180,034 performance-based RSUs (“PRSUs”) to its executives and certain employees under the Omnibus Incentive Plan. The Company will recognize stock-based compensation expense for these awards over the vesting period based on the projected probability of achievement of certain performance conditions as of the end of each reporting period during the performance period and may periodically adjust the recognition of such expense, as necessary, in response to any changes in the Company’s forecasts with respect to the performance conditions. For the three months ended March 31, 2021, the Company recognized $0.2 million of stock-based compensation expense related to outstanding PRSUs. For the three months ended March 31, 2020, the Company did not recognize any stock-based compensation expense related to any outstanding PRSUs.
The following table summarizes our PRSU activity for the three months ended March 31, 2021:
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Awards
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Weighted-Average
Grant Date
Fair Value
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Unvested at December 31, 2020
|
99,500
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|
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$
|
4.23
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|
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Granted
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180,034
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12.31
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Vested
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—
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|
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—
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Forfeited
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—
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|
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—
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Unvested at March 31, 2021
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279,534
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|
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$
|
9.43
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Market-Based Awards
On September 4, 2020, the Compensation Committee (the “Committee”) of the Board of Directors of the Company approved amendments to certain restricted stock units initially awarded on August 30, 2017 by the Company to certain employees. Pursuant to the amendment adopted on September 4, 2020, the measurement period was extended to July 16, 2022. In addition to the market performance-based vesting condition, the vesting of such restricted stock unit is subject to continued employment from August 1, 2017 through the later of July 31, 2019 or the date on which the Committee certifies the achievement of the performance goal. The Company has accounted for this amendment as a Type I modification and will recognize approximately $0.2 million of incremental stock-based compensation expense over 1.26 years based on an updated Monte Carlo simulation model.
The following table summarizes our market-based RSU (“MRSUs”) activity for the three months ended March 31, 2021:
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Awards
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Weighted-Average
Grant Date
Fair Value
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Unvested at December 31, 2020
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102,500
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$
|
8.26
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Granted
|
—
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|
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—
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|
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Vested
|
—
|
|
|
—
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|
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Forfeited
|
—
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|
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—
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|
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Unvested at March 31, 2021
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102,500
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|
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$
|
8.26
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Total recognized stock-based compensation expense amounted to $0.7 million and $0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. The aggregate fair value as of the vest date of RSUs that vested during the three months ended March 31, 2021 and 2020 was $1.3 million and $0.4 million, respectively. Total unrecognized stock-based compensation expense related to unvested RSUs which are probable of vesting was $4.2 million at March 31, 2021. These costs are expected to be recognized over a weighted average period of 2.16 years.