Limbach Holdings Inc (LMB) 2018 Q2 法說會逐字稿

Greetings, and welcome to Limbach Holdings Q2 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jeremy Hellman of The Equity Group. Please go ahead.

Thank you very much, and good morning, everyone. Yesterday, Limbach Holdings issued the announcement of its 2018 second quarter results and filed its Form 10-Q. The company will also be using a slide presentation to accompany this earnings call. Presentation can be found in the Investors section of the company's website at www.limbachinc.com. Company encourages everyone to review the forward-looking statement disclosure on Slide 2 of the presentation.

With that, I'd like to turn the call over to Charlie Bacon, CEO of Limbach Holdings. Please go ahead, Charlie.

Hey, thank you, Jeremy. Good morning to all. Joining me today is John Jordan, our Chief Financial Officer. As Jeremy noted, we have a slide presentation to accompany our prepared remarks, we hope you find the additional material helpful. We'll make a point of referencing which slide we're on as we go along. I'll start with Slide 2 and remind everybody to review our forward-looking disclosure.

Now turning to Slide 3. We have summarized the main themes that our discussion will focus in on: number 1, strong project execution across the great majority of our business, sales performance and backlog build-up. Later on, I will provide details on our strong performance and discuss some issues we faced in our Mid-Atlantic branch and our recovery process; number 2, our Construction segment growth is exceeding our planned pace, with some interesting sales-related developments; number 3, our Service segment is on-pace to exceed $100 million of revenue this year, exceeding our internal yearly plan; and fourth, our M&A focus is producing quality opportunities around our stated objectives; number 5, we'll also discuss some general important updates around risk management and operational excellence; and number 6, John will review key items on our financial statements.

Moving on to Slide 4. Consolidated organic revenues increased 18.4% year-over-year to $139.5 million. Revenue growth was led by our business units in Southern California, New England, Ohio and Orlando. In fact, 8 of our 10 business units generated strong year-on-year growth in revenue. Midway through the year, our top line revenue is tracking ahead of our initial goal for the year, so we are certainly pleased with that statistic. Based on that, along with the excellent tracking of our sales year-to-date, we're raising our revenue guidance again. Our new 2018 revenue guidance is in the range of $530 million to $550 million.

Additionally, in light of the write-downs in our Mid-Atlantic branch, we're taking a conservative approach with respect to our bottom line 2018 adjusted EBITDA guidance, which we are lowering to a range of $18 million to $20 million. I want to note we're pursuing several claims in outstanding change orders in the Mid-Atlantic branch, due to the impacts caused by third parties. The value of the claims and outstanding change orders are in the magnitude of $10 million, and we expect to resolve those matters in future reporting periods.

We have recorded $3.5 million associated with change order directives, where there is entitlement. We have no amount recorded around claim values or any settlement that would result in future period write-offs.

In the chart on the right, we provide some additional detail on gross margins. The issues in our Mid-Atlantic branch that were discussed last quarter continued, resulting in $3.6 million of additional write-downs. Several large-scale projects that contributed to those write-downs were substantially completed in the second quarter.

We have taken aggressive steps to address these issues, such as bringing in key operational leadership from other branches to support our recovery, and we are confident that we're doing all that we can to aggressively manage the situation. I want to also share that the Mid-Atlantic branch is having success on other projects with significant write-ups over the past year. We maintain terrific talent in the business unit, and rest assured they are working hard to work through this challenging period.

Now let's turn to Slide 5. We've provided segmentation of our Construction 2018 revenue and the bridge needed to achieve our forecast for the year. As you can see, we have 96% of our updated 2018 Construction segment revenue forecast already recognized as revenue in the first half, or in backlog. We are very confident that the remaining $18.6 million needed to hit our forecast will be realized either from promised, but unbooked work, new business wins or change orders.

You will note on the slide that we have construction backlog of $443.5 million, plus another $381 million of promised backlog that will be recorded as sales in future periods. This is the largest promised amount for the company in any past period. Q2 was a remarkable sales quarter. We should also note that we're continuing to see our robust pipeline of new construction opportunities, and we're currently tracking over $3.1 billion in such opportunities for the next several years. We are not seeing any slowdown in any of our sectors or locations, which is providing us with positive visibility at least through 2021.

It is important to note that our projects typically are in preconstruction for 3 to 12 months and construction periods typically require 12 to 24 months. We should also note that our increased -- that we are increasing our margin pricing in our business units, where we have adequate backlog. Collectively, booked gross profit is approximately 140 basis points over 2017.

Turning now to Slide 6. On this slide, we provide historical Construction EBIT and Construction backlog performance. If you look to the right, you could see the impact of that promised work. When combined with our June 30 backlog, we're approaching $830 million of backlog for future periods. The slide reinforces that Q2 was a very strong quarter for sales.

Let's move on to Slide 7. I want to highlight a significant win during the quarter. As noted in previous presentations, we successfully completed the Detroit Red Wings arena last year and earlier this year, we opened up a new office in Downtown Detroit. We have been targeting several major projects through different general contractors in the Downtown area, and we wanted to show our commitment to the Detroit community and leverage our reputation coming off of the Red Wings project, the largest contract in the company's history. Our first major project pursuit in the region was the Wayne County Justice Center, with the same general contractor, Barton Malow, that we worked for on the Red Wings project.

Key to this project is a major Detroit commercial developer, Bedrock. Bedrock was present at our sales presentation for the Justice Center. At the conclusion of the presentation, Bedrock was so impressed, they asked us to continue our dialogue about other projects they have underway in Detroit. The outcome of those discussions led to the award of the Justice Center project, and the 60-story Hudson tower project, which, as planned, will be the tallest building in Detroit.

We've also started budgeting work on 2 other major projects being developed by Bedrock, a 1.5 million square foot mixed-use project, known as the Monroe Block and a Central Utility Plant. While the last 2 projects are not far enough along to project a budget, we anticipate that all 4 projects will total in excess of $200 million for the base building work. We expect that we will also secure future interior fit out work on the tower and the mixed-use projects. This promised backlog is expected to provide coverage for our Michigan business unit for the next 5-plus years.

Similar to Red Wings project, a good portion of this work will be subcontracted out, allowing us to efficiently finish the work. These contract awards are a testament to our approach towards business, how we treat our customers, our outstanding front-end engineering services and our solid reputation for quality delivery of our work and as another example of Limbach moving upstream, building relationships with building owners.

I refer to this internally as being in pole position. Pole position is where the building owners select Limbach and assign us to general contractors. I should also note that we continue our sales with other serial building owners. Hospital Corporation of America awarded us a new contract for a new hospital in the greater Orlando area, and Disney continues to feed us work at its Orlando parks.

Our relationships with building owners continues to expand, Bedrock being the latest, large customer addition. As a reminder, when we discuss promised work, these are projects where we have entered into preconstruction agreements with customers or we have engaged in engineering activity to arrive at the design and associated pricing. Not all of these opportunities will materialize as firm projects to be booked into backlog, but experience suggests that most eventually will.

And those projects will be booked into backlog once the budget has been agreed to and we've received either a contract or a letter of intent finalizing the value of the project. Especially with large projects, it's important to keep in mind that we don't necessarily book all pieces of it into backlog at once, rather as each element moves through the preconstruction design work, we then flow it into backlog as noted above.

For example, with the Red Wings project, we booked that project into backlog over a period of 6 months, and were actually on site doing work for 24 months. So the large projects, they come into backlog as we secure the paperwork, and then we move forward.

I don't have a slide on the electrical update, but I would like to just give you a quick set of comments on where we stand on the electrical services front. We are now offering electrical services at 4 of our business units. We're self-performing electrical only at our Mid-Atlantic business unit, and it's going extremely well. With the other business units, subcontracting out the electrical work. As part of our acquisition search, we are searching for electrical contractor tuck-ins.

Now let me move on to Slide 8. We address performance with our Service business, which really is going outstanding, really, really well. Service revenue in Q2 was up 19.3% year-over-year to $25.8 million. As was the case in the Construction segment, this exceeded our internal growth forecast for the quarter. Sales and maintenance contracts increased 26.7% year-over-year from $1.63 million to $2.13 million, and that's for the first half, growing our maintenance base to a record $14.1 million, with margins in line with our plan.

Our time and material work, often called spot, grew a healthy 22.7% with margins increasing by 280 basis points over 2017. The service project sales were up 47.4% year-over-year with margins, unfortunately, down 240 basis points, but that's based on taking on several, larger service-related projects.

We ended the quarter with Service segment backlog at $47.2 million, which is a sequential increase of 22.3%. Two other points to note within Service. From a leadership perspective, as this business grows, we are looking forward to make sure we have the right leaders in place to continue our rapid organic growth. We secured, during the first half of 2018, 2 outstanding leaders for our Mid-Atlantic and Western PA business units. We're really pleased these outstanding Service business leaders agreed to join us.

We have also launched a focused effort to expand our building automation offering under our Service segment. Installing new building control systems or retrofielding -- retrofitting older buildings with state-of-the-art systems, typically leads to a maintenance contract. While we have this offering today in the majority of our business units, we want to rapidly expand this offering too, which will lead to additional growth in the overall Service business. So our Service business is really humming. The Service segment is delivering the planned growth at both the top and bottom lines, and we are rapidly expanding our contracted maintenance base, which is mission-critical for a healthy Service business, and we continue to make the proper strategic and tactical moves to achieve our strategic growth plan.

Now moving on to Slide 9. On our acquisition front, we continue to be aggressive in our efforts to find the right companies that meet our criteria and tie-in with our strategic plan. The criteria are, just to remind everybody: one, cultural compatibility; two, management staying on; three, financial transaction being within our multiplier target range. The strategic focus remains regional -- I'm sorry, the strategic focus with regional targets remains the Southeast, Texas and the Pacific Northwest; two, sector expansion namely in the industrial and data centers; and three, construction trade expansion with service tuck-ins within our existing geographies.

So where do we stand? Our M&A team is working hard and we've reviewed over 100 companies and are actively continuing our examination of approximately 30 businesses in our pipeline. We are in various late-stage discussions with several attractive companies that fit our criteria and strategic plan. In all cases, these businesses were not for sale prior to our discussions with them. Unfortunately, under those circumstances, it just takes longer for owners to reach the finish line.

I need to stress, we are not going to move on a deal just to get a deal done. We're remaining focused on our criteria and strategic plan. We believe we are still on track to complete a transaction this year. We have also geared up our finance team to handle purchase accounting and brought into the center an experienced integration finance manager. We have also tagged a senior operational manager to lead the overall integration, once we commence the activity.

Now on to Slide 10. Before I hand this over to John for his review of our financial results, let me add a couple of points about operational excellence and risk management. One, we've just about doubled our staff for our office and field since the end of the recession and we expect that growth to continue to track in a similar fashion. We've expanded our leadership development program this year to include 25 rising stars in the organization, up from our last class of 15. These individuals will more than likely move into senior management positions in the future, fueled by the organic growth we are enjoying or to assist with integration of newly acquired companies.

We have added resources to our Limbach University staff in an effort to increase our classroom and online training programs. The additions include 2 senior operational staff, a finance trainer and a program development resource. The 2 senior operational staff and the finance trainer will be playing dual roles. In addition to training, they'll also be providing internal audit services to drive operational excellence.

We also announced in Q2, a new board member, Laurel Krzeminski, the former CFO of publicly-traded Granite Construction. We continue to evolve our board, attracting strong talent with resumes tied to supporting our growth agenda. Laurel attended her first board meeting on August 8, she provided terrific input and suggestions. It's great to have her on board.

At this point, I'll hand it over to John now for his review of financial results and our balance sheet.

Thanks, Charlie. Good morning, everyone. Before getting into details, I just want to remind everyone to please see our 10-Q for a full breakdown of our results, and also note that the presentation accompanying our remarks contains several appendix pages, which contain further data we think you will find helpful.

Turning now to Slide 11. As previously mentioned for the quarter, our consolidated revenues were $139.5 million, up 18.4% versus the prior year. That consolidated revenue figure also exceeded our internal forecast for the quarter. Year-to-date revenue was $260.1 million, which is an 11.6% increase over the first 6 months of 2017.

In the quarter, Construction segment revenues were up 18.2%, while Service segment revenues were up 19.3%. Construction operations accounted for 81.5% of revenue, while Service accounted for 18.5%. Gross margin in our Construction segment was 8.4% compared to 11.4% in the second quarter of 2017. Excluding write-downs, Construction gross margin would've been 12% in the quarter.

Service segment margins were up 330 basis points coming in at 24.4%. That helped offset some of the impact of the Mid-Atlantic breakdowns. Excluding the Mid-Atlantic business unit, consolidated gross margin for the quarter would've been 14.8%.

Year-to-date, the Mid-Atlantic branch has recognized write-downs of $8.1 million. Year-to-date gross margin without Mid-Atlantic is 15.2%. Needless to say, without these write-downs, the year-to-date net income and adjusted EBITDA would have been dramatically better at $3.7 million and $8.3 million, respectively.

Claims on several projects in Mid-Atlantic are being assembled or have been submitted, which may provide some recovery in the future. Our 2018 guidance does not assume any claim recovery.

During the quarter, selling and general administrative expenses were $13.7 million compared to $12.8 million in the second quarter of 2017. The increase in SG&A was due primarily to expenses associated with the stock-based incentive compensation plan, which we did not have in the second quarter of 2017. The company's long-term incentive plan for management, which drives the stock-based compensation expense, aligns management's incentive plan with the goals of the shareholders. SG&A was 9.8% of revenue in the second quarter, down from 10.9% in the second quarter of 2017. We expect to see increased leverage of the SG&A going forward, which will contribute to improved bottom line results. For the quarter, our effective tax rate was 29.2% compared to 37.7% a year ago.

At the end of the quarter, our total backlog was $492.5 million, of which, $443.5 million was Construction and $47.2 million was Service. Our estimated backlog revenue burn together with the Construction revenue that we have recognized so far in the first half of 2018 provides 96% coverage for our 2018 expected Construction revenue, and that excludes the incremental coverage resulting from the committed work that has not yet been booked into backlog.

Moving to Slide 12. Working capital decreased from December 31, 2017. The main drivers of that decrease were the reclassification of the company's bridge loan from long term to short term, the usage of cash to pay down our revolver and an increase in net over-billings, which are classified as a short-term liability. While the increase in the net overbill position increases the current liability, it is a good sign for future cash generation opportunities.

Regarding the bridge loan reclassification, as you recall, we completed the buyback of the preferred stock in January by expanding our credit facility to include a loan that matures in April of 2019. As a result of the maturity now being within the 12-month period, the balance was reclassed to a current liability, which negatively impacted working capital.

With that, I'll turn things back over to Charlie.

Thanks, John. All right, folks, I'm going on to Slide 13 now. This slide and Slide 14 are the ones you see from us in all of our presentations, updated to reflect FMI's second quarter 2018 report. The key message here is that market forecast for the sectors we focus on remains strong. That is helping fuel our excellent sales activity and is also resulting in an upward pricing basis, and we are really happy with the state of our industry right now, it's just terrific for the next several years, rock-solid.

Finally on Slide 15 to wrap up, we are raising our revenue guidance for the year given the strong sales performance we discussed. We now expect 2018 revenues to be in the range of $530 million to $550 million. At the same time we're going to take a conservative approach with respect to our bottom line, given the Mid-Atlantic issues we have discussed. With that in mind, we're reducing our 2018 adjusted EBITDA guidance to a range of $18 million to $20 million.

Both our revenue and adjusted EBITDA guidance ranges do not include any contribution from potential acquisitions or any claim recovery from the Mid-Atlantic projects. Based upon our strong organic growth and our acquisition pipeline, we remain on-track for the company revenues to be north of $1 billion in 2021 and delivering adjusted EBITDA in excess of $50 million.

We also note that we'll be at the D.A. Davidson 17th Annual Diversified Industrials & Services Conference, which we'll be attending in September. In addition to that event, we're always available for calls with investors and analysts. I think, for those of you on the call, know we're open for that. So if you have some questions, feel free to reach out to us.

With that, operator, I will open it up for Q&A.

(Operator Instructions) Our first question today comes from Bill Newby of D.A. Davidson.

I guess, just starting on the problem projects, Charlie. At this time, how many of these are still ongoing? And I think last quarter, you had said that most of them should be completed by Q3, is that still the expectation? Or are they going to drag on a little bit longer?

Yes, I mean, the good news, Bill is, the big problem jobs that we -- the one with the steel delay, that's done. They played their first game in the first week of July. We've got some odds and ends we're finishing up like punch lists and stuff like that, but the main bulk of construction was completed in early July. We have another project that we've wrapped up, which was an apartment building and that's done and then just a couple of other jobs that were in the queue nearing completion.

But the good news is, we have good visibility on those projects. I can't sit here for certain and say there's nothing else that's going to come out of the woodwork, but certainly, prior to following this -- filing the Q, everything was reported that we knew of. And at this point, I think we've got excellent oversight, labor is coming down in terms of quantity, because that was a big issue for us. We just had these jobs stack up against each other and the good news is, it's really let off.

And Bill, I'm just going to go a little further with my response. In this market, we didn't totally turn off the sales spigot but earlier this year -- actually I think it was Q4, we just started throttling it back, and then in Q1 we really throttled it back. And we just wanted to catch our breath with labor and just see the business stabilize and at this point, we have visibility on that. The good news is, the labor's coming down to more manageable levels.

Okay, I guess, that was -- my next question is that during these times, I mean, do you slow down the bidding process in that region? It sounds like you have, so I guess is it fair to say that a lot of the stuff that you guys have picked up this quarter and the stuff -- or the commitments that you haven't yet recognized in backlog, that's all stuff that your -- I guess, other regions outside the Mid-Atlantic?

Yes. Yes, I mean they picked up some work, but it's not -- in this quarter, no. The answer is the bulk of the sales came from other regions, Florida, Michigan. As I noted, in my presentation, obviously the Michigan stuff is huge. But it's been a real strong environment across the board. But in D.C., we just backed off the accelerator.

And I guess, I mean, you said in the presentation, Charlie that $380 million, that's -- it's a really big number for you guys. Is it -- is there any specific industries that are driving that? I mean, you called out a couple of regions, but, I mean, we keep hearing people talk about health care coming back and education being strong, is there anything to call out there?

Yes, well, there is 2 health care projects that we secured a promise. One was the HCA, Hospital Corporation of America project down in the Orlando area and then there's another project up in Michigan, another health care project that we secured in terms of pre-con. And hopefully, later this year, we'll agree upon budgets and move it into backlog. The nice thing about the Michigan information that I just shared, not all those projects are happening at once. It's kind of a staged program and like Disney or HCA, this Bedrock group just knew of our reputation, that Red Wings job just went so well. I think everybody was blown away on how we executed the front-end and then how we closed it out so well.

I remember calling up the President of Barton Malow -- had walked the job 39 days before opening and there was still a lot of work to do on the arena, and I just wanted to see how we were doing and it was so funny and he said, "You guys are in great shape, but do you have any electricians?" I'll never forget the line. We finished so strong that the reputation up in that marketplace is just stellar and this developer just decided, you know what? I'm going to go around the general contractors, I'm going to lock you guys up. You're the cream of the crop, I love what you're doing on the front-end -- and by the way, we've done work with them before, but this is new at this scale, but it just was a heck of a pat on the back.

But it's 5 years of business, it's not all happening in one fell swoop, which gave me a lot of comfort. Plus, like we did on the Red Wings, we'll be subcontracting out a decent portion of the work on the Red Wings, about 40% of that project was subbed out to regional-based contractors and even some competitors. We intend on doing that again with these other major projects. Bill, does that give you enough color on that?

(Operator Instructions) Our next question come from Steve Dyer of Craig-Hallum.

I just want to make sure my assumptions are correct that just kind of the EBITDA guidance for the rest of the year basically assumes, or implies, no recoveries from these write-downs, but also that there won't be any more write-downs, is that sort of what's baked in that?

We have some contingency in the number. I wish I could sit here today and say I have a perfect crystal ball, we're not going to see anything else. Certainly, we don't know of anything right now. But in normal course of business, Steve, and for those that have been in the E&C space, every month we have a detailed branch review with every business unit. So John Jordan and our COO, Kris Thorne, go through each business unit and ask the probing questions, how things are going? What's going on here? Looking at labor forecast, all that. And usually in those calls, there's always upside, downside, we call it and we have an upside, downside report.

And obviously, net-net, we want to see up. But John, when he put the forecast together with the management team, we put in some contingency, just in case something comes out of the woodwork. Having said that, when I look at where we're at with June 30 sales at 96% coverage, the promise work, that work will be coming into backlog here over the next number of months or quarters, but it will add to revenue this year. So sitting at 96% right now, it's just -- we're in a great position. So we'll have to see how that plays out. And as we go forward, what additional revenues will be coming into the business that might kick us up even more and help us with improving that bottom line.

And I look at my Service business, we did $57 million in the first 6 months of the year and the forward indicators on the Service sales were just terrific, which means revenue throughout the course of the year. And I -- when I look at the Service side of the business, I -- the weather conditions in most of our markets, it's been a crazy weather period again. A lot of storms. It's usually good for us, I hate to say it, but it's good for us.

But I'm wondering if the Tax Cuts and Jobs Act, with taking advantage of CapEx spending and being able to write it off immediately up to a certain limit, if that's accelerating Service projects, because we just see the pipeline expanding and certainly, the T&M work, the spot work, the small projects are just hitting much quicker. So again, I think John's done a good job, at a conservative view of the forecast, but the Service business -- it's really humming, and I'm really, really pleased how that's looking.

On the claims, we're submitting them, it's going to take time. Will anything get resolved this year? I'd love to see it happen, but I -- we would be irresponsible to project that into -- well, we don't bring claims into our forecast. It's always -- if we get the claim and it results in dollars, our track record's been pretty good. We will then take that as upside on a future period, so we're not projecting anything. Could something happen in this year? Maybe, but I'm not counting on it.

Got it. Okay. And then you'd kind of alluded to my last question, which is basically, I think you had indicated only $217 million of that backlog is expected to be converted to revenue in 2018 and the midpoint of guidance, I guess, for the back year -- the back half is like $280 million, so how do you -- what's the bridge between those 2, if you could?

John?

Sure. Steve, the bridge is our continued Service revenue, which we expect to do in excess of $50 million in the second half of the year as well as new sales that will be booked and burned and recognized as revenue to get us to that $530 million to $550 million range.

And Steve, we did have a very strong June. We're -- we have visibility, obviously, on July and August at this point and things are progressing well. I'm not going to go any further with my comments on Q3, but between the backlog cover and what we see in promise work that will be materializing into revenue yet this year, and then the additional sales that we're looking at, it's looking very strong.

(Operator Instructions) The next question is from Eric Gomberg of Dane Capital Management.

Just want to get a better understanding of the margin profile of the backlog. At this point, obviously, Mid-Atlantic hurt you this year, but as we look into 2019 and the back half of this year, how should we think about kind of normalized margins? Are they in line with what you would have reported, if not for Mid-Atlantic? Just trying to get a sense of what you're -- kind of what you're earnings power is, if there's nothing that goes wrong, like Mid-Atlantic this year.

Sure. Eric, if you recall a couple of years ago, when we first met, and we were presenting the company to the market, we talked about improved times being in the range of 15% to 16%. When we isolate the impacts of Mid-Atlantic, pull that out -- we're at -- John, I believe was 15.2%?

15.2%.

15.2%. So we're right in that range. And then when you look at kind of a forward indicator in terms of what we have in backlog. So in 2017 compared to 2018, we're 140 basis points better, and the work that we sold in 2016, 2017, right at those lower margins, are now coming through and we are producing 15.2%. So we see the opportunity to continue improvement on the margin. 15% to 16% is a good normalized range, we believe. Could we see better than that? The opportunity is there. What we are doing strategically within the business units, certain business units are just sitting, primed with backlog, they're in good shape moving into 2019.

And what we're saying is, "All right, let's push it more." Let's push that margin more. And they are, in fact, doing that on certain projects where we believe we have a very good chance at securing the job at the higher margin. So it's selective, but we are pushing upward. But the bottom line results -- I'm very disappointed in having to deal with the recovery on Mid-Atlantic, but when you look at the rest of the business, we're at 15.2%. We're at where we said we would be. And I see visibility on improving that even further.

Eric, one other point on that, if you go back to the remarks, our Service margin was up 330 basis points in the quarter. So not only is Construction driving the increased margin, but the Service business is -- while it's a smaller percentage of the total business, it is really contributing to that bottom line and that gross profit, because of that improvement in the margin on those projects.

Okay. And assuming you had higher gross margins, are there any associated higher operating expenses? Or does that just flow through kind of 100% incremental profitability?

Well, I mean, year-on-year, our SG&A is looking better. We are leveraging it and when we look at some of the comments we've made in the past about public company expense, where we had nonrecurring that truly is -- we've weaned off that. So that's all good news. And then when you look at going forward, I talked about investment in training and development, we've taken a couple of core operational managers from the business, and we're moving them into the center for training and development. We've got a lot of new people that we have brought on board, and we're going to continue to bring on more people on board as we grow our company. Not to mention, the acquisitions and working through integration.

So we decided to make the investment in bringing a couple of senior guys into the center. They're experts at what Limbach does, and we think they're going to be remarkable teachers. But more important, this is the most -- this is the part that really excited me about them accepting these roles, they're actually going to go out and audit our business and check to make sure what the individuals were taught, they're actually executing.

So we have that in place today, but we expect even more growth, we've got the acquisitions coming on board. So we think this is the right move to make sure we build a sustainable, viable business. So there will be some incremental uptick in overhead in that investment. But it's not going to be that large. I think spread out over the whole organization, it's a damn smart investment to make sure we execute and execute well.

Other than that, we do expect to leverage the likes of the C-suite, and we'll continue to grow our business. As I mentioned at the tail end of the call, our organic growth is absolutely there and I don't see it letting up. And then on the acquisition front, we've got different opportunities in the hopper, that we're in late-stage conversations on. We're going to be hitting $1 billion here, as I suggested by 2021 or into 2021. And we need to make these investments. But I really see the rest of the overhead structure being leveraged.

I guess -- comments about our finance team, I'm maybe going too far, but I think John has done a very smart job at adding some great people to his finance team. And I also commented earlier that we've added someone for finance integration and also training and development on finance. So I think we're making the right moves and we're being very careful on our SG&A dollars, including looking at where we could redeploy dollars today in areas that we think we'd get a better bang for our buck.

I'm going to go too far here, Eric, and I'll shut down in a second, but we believe there's a lot in what data mining we could do in the business. So we are looking at what we can do to take our viewpoint finance tool and provide better real-time information to foremen, to project managers, getting them the information so they can make better decisions and then globally, the company could be looking at that data to make better informed decisions. We have good data today, we just want to take it to the next level. I'll stop there. I could go on -- I get excited about what we're doing in kind of refining the business. But I'll stop there.

All right. That was probably more than I was asking. I was just trying to get a better sense if you had gross margins that were 200 basis points higher. That -- I mean, it sounds like your OpEx is normal course of growing OpEx, but you wouldn't have any associated additional OpEx if your gross margins were higher. If you...

No, Eric. In the quarter, our revenue increased substantially from the first quarter of '18 as well as from the second quarter of 2017. But our percentage of -- our SG&A as a percentage of revenue decreased to 9.8%. So we're starting to see that the leverage of the SG&A that Charlie was referring to, actually coming through in the second quarter. So we had a substantial decrease in the SG&A from last quarter -- from the first quarter of '18 to the second quarter of '18. And we continue to think that we can really leverage that well and use that leverage and the improved gross profit to really get that bottom line back to the levels that we think it should be.

All right. Okay, and just one other thing. Any color you can give on the size of potential M&A deals that you're looking at right now? In terms of whether revenue or EBITDA, margin profile or anything like that?

Yes, Eric, I mean, the companies we're looking at, they're ranging -- we've looked at some companies over $100 million in revenue, we've got some nice companies we're looking at in that $75 million to $100 million range. Some of them are down to $25 million to $50 million range. So there's a number of them that we're looking at and then on the Service business side, we are talking to different owners and they tend to be smaller businesses, but we're looking at businesses in the $10 million to $20 million range on the Service side and a couple of them are very attractive and we're in the early stages with those.

But yes, I mean, does that answer the question? I mean, it's a little bit all over the board. We're not having any conversations with anybody with $200 million, $300 million. Maybe someday in the future we will, but not right now, we're looking at kind of that incremental set of steps.

Okay, but on an $18 million to $20 million EBITDA base, still could be somewhat meaningful?

Yes.

Yes, absolutely.

(Operator Instructions) There appears to be no additional questions at this time. I would like to turn the call back to Charles Bacon for closing remarks.

Well, folks, thank you for your interest in Limbach. And our year -- we're disappointed with Mid-Atlantic and the impact it's had on us, and we're working hard to recover. And our customers are well aware of what we need to do in order to claw back. So it's unfortunate that we've had to deal with that, but when I look at the overall business and how we're really just -- it's humming on all cylinders in the rest of the business units, we're quite pleased with our progress.

And on the M&A front, we are working that super aggressive. But I'm only going to do a deal if it's proper and the deals where we are in late-stage discussion on, we are working with those owners. It just takes time and just please remember, these businesses were not for sale, we're not chasing books, there isn't an investment banker on the other side of the table, so unfortunately, it just takes a bit more time. But we think we're doing it properly, and we like what we have on our radar screen.

So look forward to having conversations with all of you from time to time. Please feel free to reach out to us if you want to ask us some other questions. And we're always open to have dialogue with people. Thank you very much.

This concludes today's conference. You may now disconnect your lines. Thank you for your participation.