Limbach Holdings, Inc.LMB
Limbach Holdings, Inc. Fair Value Disclosure
Fair Value Measurements
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. The Company considers all highly liquid investments purchased with a maturity of 90 days or less on the date of purchase to be cash equivalents. Cash equivalents as of December 31, 2024 consisted of overnight repurchase agreements in which cash from the Company's main operating checking account is invested overnight in highly liquid, short term investments and certain investments in money market funds sponsored by a large financial institution. Cash equivalents as of December 31, 2023 consisted of overnight repurchase agreements, short term investments, one U.S. Treasury Bill and certain investments in money market funds. For the years ended December 31, 2024 and 2023, the Company recognized interest income in the aggregate of approximately $2.2 million and $1.2 million, respectively. The Company did not recognize interest income during the year ended December 31, 2022. The Company has not experienced any losses in its cash and cash equivalents and management believes the Company is not exposed to significant credit risk with respect to such accounts.
| Fair Value at Reporting Date Using | ||||||||||||||||||||||||||
| (in thousands) | December 31, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Overnight repurchase agreements | $ | 38,962 | $ | 38,962 | $ | — | $ | — | ||||||||||||||||||
| Money market fund | 4,000 | 4,000 | — | — | ||||||||||||||||||||||
| Total | $ | 42,962 | $ | 42,962 | $ | — | $ | — | ||||||||||||||||||
| December 31, 2023 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Overnight repurchase agreements | $ | 43,959 | $ | 43,959 | ||||||||||||||||||||||
| U.S. Treasury Bills | 10,000 | 10,000 | $ | — | $ | — | ||||||||||||||||||||
| Money market fund | 3,750 | 3,750 | — | — | ||||||||||||||||||||||
| Total | $ | 57,709 | $ | 57,709 | $ | — | $ | — | ||||||||||||||||||
Second A&R Wintrust Revolving Loan
The Company also believes that the carrying value of the Second A&R Wintrust Revolving Loan approximates its respective fair value due to the variable rate on such debt. As of December 31, 2024, the Company determined that the fair value of the Second A&R Wintrust Revolving Loan was $10.0 million. Such fair value was determined using discounted estimated future cash flows using level 3 inputs.
Earnout Payments
As a part of the total consideration for the Jake Marshall Transaction, the former owners of JMLLC and CSLLC were eligible to receive up to an aggregate of $6.0 million in cash, consisting of two tranches of $3.0 million, as defined in the purchase agreement, if the gross profit of the acquired companies equals or exceeds $10.0 million in (i) the approximately 12-month period from closing through December 31, 2022 (the “2022 Jake Marshall Earnout Period”) or (ii) fiscal year 2023 (the “2023 Jake Marshall Earnout Period”), respectively (collectively, the “Jake Marshall Earnout Payments”). To the extent, however, that the gross profit of the acquired companies was less than $10.0 million, but exceeds $8.0 million, during any of the 2022 Jake Marshall Earnout Period or 2023 Jake Marshall Earnout Period, the $3.0 million amount was to be prorated for such period. The Company initially recognized $3.1 million in contingent consideration, of which the entire balance was included in other long-term liabilities in the Company’s consolidated balance sheets on December 2, 2021. The fair value of contingent Jake Marshall Earnout Payments is based on generating growth rates on the projected gross margins of the acquired entities and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. In April 2023 and 2024, the Company made two separate payments in the amount of $3.0 million to the former owners of JMLLC and CSLLC related to the 2022 Jake Marshall Earnout Period and the 2023 Jake Marshall Earnout Period, respectively.
As a part of the total consideration for the ACME Transaction, the Company recognized $1.5 million in contingent consideration on the ACME Effective Date. The fair value of contingent ACME Earnout Payments is based on generating growth rates on the projected gross margins of ACME and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the ACME Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the ACME Effective Date, the ACME Earnout Payments associated with the ACME Transaction were valued utilizing discount rates between 12.96% and 21.64%. The discount rates were calculated using the build-up method with a risk-free rate commensurate with the term of the ACME Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage. In September 2024, the Company made a payment in the amount of $0.5 million to the former owner of ACME related to the First ACME Earnout Period.
As a part of the total consideration for the Industrial Air Transaction, the Company recognized $3.2 million in contingent consideration on the IA Effective Date. The fair value of contingent IA Earnout Payments is based on generating growth rates on the projected gross margins of Industrial Air and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the IA Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the IA Effective Date, the IA Earnout Payments associated with the Industrial Air Transaction were valued utilizing a discount rate of 13.68%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the IA Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage. In February 2025, the Company made a payment in the amount of $3.0 million to the former owner of Industrial Air related to the First Industrial Air Earnout Period.
As a part of the total consideration for the Kent Island Transaction, the Company recognized $4.4 million in contingent consideration on the Kent Island Effective Date. The fair value of contingent Kent Island Earnout Payments is based on generating growth rates on the projected gross margins of Kent Island and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the Kent Island Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Kent Island Effective Date, the Kent Island Earnout Payments associated with the Kent Island Transaction were valued utilizing a discount rate of 14.9%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the term of the Kent Island Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage.
As a part of the total consideration for the Consolidated Mechanical Transaction, the Company recognized $0.8 million in contingent consideration on the Consolidated Mechanical Effective Date. The fair value of contingent Consolidated Mechanical Earnout Payments is based on generating growth rates on the projected gross margins of Consolidated Mechanical and calculating the associated contingent payments based on achieving the earnout targets, which are reassessed each reporting period. The Company determined the initial fair value of the Consolidated Mechanical Earnout Payments based on the Monte Carlo Simulation method, which represented a Level 3 measurement. As of the Consolidated Mechanical Effective Date, the Consolidated Mechanical Earnout Payments associated with the Consolidated Mechanical Transaction were valued utilizing a discount rate of 10.4%. The discount rate was calculated using the build-up method with a risk-free rate commensurate with the
term of the Consolidated Mechanical Earnout Payments based on the U.S. Treasury Constant Maturity Yield and certain metric risk premiums determined with reference to a long-term risk free rate, a weighted average cost of capital and certain adjustments for operational leverage.
Based on the Company’s ongoing assessment of the fair value of contingent earnout liabilities, the Company recorded a net increase in the estimated fair value of such liabilities of $3.8 million, $0.7 million and $2.3 million for the years ended December 31, 2024, 2023 and 2022, respectively, which was presented in the change in fair value of contingent consideration in the Company's consolidated statements of operations. The Company determined the fair value of the earnout payments by utilizing the Monte Carlo Simulation method, which represents a Level 3 measurement.
The following table presents the carrying values of the Company's contingent earnout payment obligations included in the accompanying consolidated balance sheets, which approximated fair value at December 31, 2024 and 2023.
| Fair Value at Reporting Date Using | ||||||||||||||||||||||||||
| (in thousands) | December 31, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Accrued expenses and other current liabilities: | ||||||||||||||||||||||||||
First IA Earnout Period(1) | $ | 3,000 | $ | — | $ | — | $ | 3,000 | ||||||||||||||||||
| First Kent Island Earnout Period | 2,297 | — | — | 2,297 | ||||||||||||||||||||||
| First Consolidated Mechanical Earnout Period | 402 | — | — | 402 | ||||||||||||||||||||||
| Second ACME Earnout Period | 1,713 | — | — | 1,713 | ||||||||||||||||||||||
| Other long-term liabilities: | ||||||||||||||||||||||||||
| Second IA Earnout Period | 3,222 | — | — | 3,222 | ||||||||||||||||||||||
| Second Kent Island Earnout Period | 2,201 | — | — | 2,201 | ||||||||||||||||||||||
| Second Consolidated Mechanical Earnout Period | 355 | — | — | 355 | ||||||||||||||||||||||
| Total | $ | 13,190 | $ | — | $ | — | $ | 13,190 | ||||||||||||||||||
| Fair Value at Reporting Date Using | ||||||||||||||||||||||||||
| December 31, 2023 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
| Accrued expenses and other current liabilities: | ||||||||||||||||||||||||||
2023 Jake Marshall Earnout Period(2) | $ | 3,000 | $ | — | $ | — | $ | 3,000 | ||||||||||||||||||
First ACME Earnout Period(3) | 429 | — | — | 429 | ||||||||||||||||||||||
| First IA Earnout Period | 2,290 | — | $ | — | 2,290 | |||||||||||||||||||||
| Other long-term liabilities: | ||||||||||||||||||||||||||
| Second ACME Earnout Period | 1,188 | — | — | 1,188 | ||||||||||||||||||||||
| Second IA Earnout Period | 875 | — | — | 875 | ||||||||||||||||||||||
| Total | $ | 7,782 | $ | — | $ | — | $ | 7,782 | ||||||||||||||||||
(1) In February 2025, the Company made a $3.0 million payment to the former owner of Industrial Air related to the First IA Earnout Period.
(2) In April 2024, the Company made a $3.0 million payment to the former owners of JMLLC and CSLLC related to the 2023 Jake Marshall Earnout Period.
(3) In September 2024, the Company made a payment in the amount of $0.5 million to the former owner of ACME related to the First ACME Earnout Period.
Interest Rate Swap
The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value analysis also considers a
credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The fair value of the interest rate contract has been determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The interest rate swap is classified as a Level 2 item within the fair value hierarchy. As of December 31, 2024, the Company determined that the fair value of the interest rate swap was approximately $0.2 million and is recognized in other assets on the Company's consolidated balance sheets. For the years ended December 31, 2024, 2023 and 2022, the Company recognized gain of less than $0.1 million, a loss of $0.1 million and a gain of $0.3 million, respectively, on its consolidated statements of operations associated with the change in fair value of the interest rate swap arrangement.
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.