Limbach Holdings Inc (LMB) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Limbach Holdings Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jeremy Hellman of The Equity Group. Thank you, sir. Please go ahead.

Thank you very much, and good morning, everyone. Yesterday afternoon, Limbach Holdings announced its 2020 fourth quarter and full year results and filed its Form 10-K for the fiscal year ended December 31, 2020. Today, the company will be reviewing those results and providing an update on current market conditions. The company will be referring to a slide presentation accompanying this earnings call. The presentation can be found in the Investors section of the company's website at www.limbachinc.com. The company encourages everyone to review the forward-looking statement disclosure on Slide 2 of the presentation.

With that, I'll turn the call over to Charlie Bacon, the President and Chief Executive Officer of Limbach Holdings.

Good morning, and welcome, everyone, and thanks for joining us. We're excited to review our results with you and to take your questions. Joining me today is our Chief Financial Officer, Jayme Brooks; and for the first time, our Chief Operating Officer, Mike McCann. I thought it would be great to have Mike join us today to provide more color into our operational side of the business as we head into '21. He has partnered with Jayme and I at the top of the organization. He has made some terrific contributions to our operational execution, and I want to introduce them to our investors. More for Mike to come.

Before I go any further, I want to echo my message of thanks from last quarter to the approximately 1,700 employees at Limbach. Our success in 2020 was driven by our incredible group of people. You truly rose to the challenge, and I could not be more proud of all of you and what we have accomplished. We were focused on staying safe, collecting cash and finding new business during a pandemic. It worked. Limbach recorded a strong year of profitable operations in 2020 and continue to have substantial year-over-year growth of our owner-direct segment in the fourth quarter, which is the core foundation of our strategic plan. We entered '21 with substantially improved capital structure following our successful refinancing, which occurred subsequent to the close of the fiscal year.

As a result of the company's significantly reduced interest rates and a lower overall level of funded debt, we expect to realize approximately $4 million of reduced cash interest expense in fiscal '21 compared to '20. When combined with our recent capital raise, we are in a strong position to execute on many key initiatives, including the acceleration of our owner-direct strategy, digital transformation and pursuit of strategic growth.

Although we saw some deceleration in the fourth quarter due to a pause in decision-making by business owners, we think that was due in large part to the COVID resurgence that took place towards the end of the year. We anticipate that to be temporary. And with millions of vaccine doses being given daily, we are optimistic that we'll be moving to a post-COVID environment.

In the near term, the dynamic might drive some push and pull of revenue, but we don't believe it's a reflection on the broader or more enduring market trends. A supporting proof of that thinking is the American Institute of Architects Building Index. The recently released ABI score of 53.3 is up dramatically from the prior 12-month average of 41.4. The AIA's other key measure, the New Project Inquiry Score, jumped to 61.2. Scores above 50 indicate expansion. When designers are busy, that drives opportunity for firms like Limbach.

From a macro level, the pandemic has impacted the various nonresidential construction sectors differently, all of which reaffirms the soundness of our focus on diversity of end markets, geography, services and customers. We continue to see strength and large CapEx budgets in several of our core end markets, including data centers, pharmaceutical R&D facilities and health care facilities.

Our new emerging sector, indoor farming and controlled agriculture, remains an attractive growth opportunity for which we're well positioned. Several significant projects that we are tracking in other sectors that were deferred due to COVID are now back in our pipeline as customers are seeing the dust clear from the pandemic.

Across end markets and tied to the pandemic, there continues to be meaningful amount of opportunity in evaluating and enhancing indoor air quality and building airflow. Our professional services group, Limbach Collaborative Services, is focused on guiding customers through the development and implementation of retrofits through engineered-driven solutions. We believe the ability to apply design- and engineering-driven approach to these opportunities is a huge differentiator when paired with our field capabilities.

Broadly speaking, we've experienced a steady progression of sales activity levels as we exit the first quarter. From the start of the year until now, our assessment is that the activity levels have been on an upward trend. The first quarter is seasonally Limbach's slowest quarter, and we don't expect 2021 will be any different to any significant degree.

From a Construction perspective, as we've repeatedly stated over the last year, we are focused on quality over quantity. As we look forward into 2021, we've sold and can account for approximately 90% of our forecast Construction revenue and gross profit, which is a good position to be in at this point in the year.

Looking at our '21 forecast, a larger portion of our Construction backlog will burn in the second half of the year as compared to the first half. Also, I want to note that none of these assumptions include any figures related to claims resolution.

In Service and owner-direct, our coverage of revenue and gross profit forecast is less complete on a percentage basis. However, that's somewhat of a function of how the business model works in that segment. Many of these opportunities are sold and executed within a single reporting period or otherwise come and go on time lines that are much shorter than what we experienced in the Construction segment.

Even when the sales pipeline is full and the current sales pipeline looks encouraging, there's naturally less revenue visibility because of the shorter project life cycles. There's just greater velocity, which is good.

With that said, we're certainly not waiting for the phone to ring. We've got over 1,100 existing preventative maintenance customer relationships to mine, and we think there's plenty of room for revenue and profit growth there.

So with that, let's move on to review our financial performance.

Please follow along in the company presentation, starting on Slide 4. For the full year, total revenue increased by 2.7% to $568 million. Construction segment revenue increased 0.6% year-over-year, while Service segment revenue increased 10.5%. Our resulting split was 77.6% Construction and 22.4% Service. While the revenue split may move back and forth quarter-to-quarter, depending on our project flows and the pace of sales activity, over time, we do expect service to contribute more to the overall business than it has historically. And we are still focused on driving towards the 50-50 revenue split when we look out several years.

For 2020, gross margin improved 130 basis points to 14.3%. This was driven primarily by the increased proportion of revenues from the Service segment as well as continued expansion in Service gross margin. Gross margin expanded to 28.5% for the year compared with 24.7% in 2019. As we continue to optimize project selection, we are focused on additional gross margin expansion on the new work we are selling.

Overall, our gross profit increased 13.2% to $81.4 million. Last year, we held SG&A relatively level at $63.6 million compared with $63.2 million a year ago. We did benefit from aggressive cost cutting in Q2 related to COVID-19 but added back certain of those expenses along with recovery in the business activity over the summer and in the second half of the year. However, those savings were offset by $6 million increase in performance-based compensation expense due to the company's strong performance in 2020. And keep in mind, in 2019, the company did not accrue any amounts for incentive compensation program due to the company not meeting performance criteria for that year.

As a result, SG&A for 2020 understates the current run rate. We have strategically increased investment in the expansion of our owner-direct and Services business and expect to return to a more normalized environment for expense lines such as T&E. Between growth and gross profit and flat SG&A, operating income improved to $17.2 million up from $8.1 million in the prior year.

For the year, adjusted EBITDA was $25.1 million, which was an approximately 50% improvement from $16.8 million in 2019. Net income was $5.8 million or $0.72 per diluted share versus a loss of $1.8 million or $0.23 per diluted share in 2019.

Moving to Slide 5. Fourth quarter revenue was down 6.1% to $130.4 million as compared to the prior year. That decline was due to 14% decline in Construction segment revenue to $95.1 million. We mainly attribute that to activity levels that were somewhat reduced by COVID, which really spiked into the end of 2020 and into January. While jobs continued in certain branches, workforce levels were reduced by 150 to 200 heads or as much as 10% due to workers needing to quarantine at times. The net result was a slowdown in the pace of effective projects and assets on revenue. That work will still be performed, and the revenue recognized, which just not on the same schedule as we had anticipated. So it is not a lost opportunity.

Service segment revenue continued to demonstrate growth and offset some of the slippage in Construction, gaining 24.8% to $35.3 million for the fourth quarter of 2020. Although we recorded solid Service growth in the quarter, COVID was also a headwind in that segment. We view any lost revenue there as pent-up demand as building mechanical systems still need to be serviced and repaired. So in those limited situations that we couldn't get into the buildings, there will still be a need for service work. And as things are now opening up, we expect to do that work.

Gross margin for the fourth quarter of 2020 was 14.3% compared to 11.7% in the prior year period. Construction segment gross margin on the dollar basis decreased $1.7 million as a result of a decrease in revenue, although project write-downs were less this quarter when compared to the same period in the prior year. As a result, Construction segment gross margin was 7.4% for the fourth quarter of 2020 compared to 7.9% for the prior year period.

Service segment gross margin was 32.8% compared to 26.3% in the prior year as service work project mix trended towards larger jobs, which carried higher pricing. On a dollar basis, total gross profit in the fourth quarter of 2020 was $18.7 million compared with $16.2 million for the prior year period.

Fourth quarter 2020 SG&A expense was $16 million as compared to $13.5 million the prior year period. The increase in SG&A expense was primarily due to the reversal of $4.3 million of accrued performance-based compensation expense for the 9 months ended September 30, 2019, in the fourth quarter of 2019, due to the company not meeting the performance criteria for that year. This also provided for a benefit of $4.3 million to adjusted EBITDA for the fourth quarter of 2019 when comparing it to adjusted EBITDA of $4.5 million for the fourth quarter of 2020.

Slide 6 highlights our balance sheet and working capital. The company had no borrowings against its $14 million revolver credit facility as of December 31, 2020, other than for standby letters of credit totaling $3.4 million and a cash and cash equivalents was $42.1 million. Subsequent to the year-end, we raised approximately $23 million through a common stock equity offering. That issuance, together with some modest warrant in exercises, increased our share count to 10.2 million as of February 10, 2021. Our pro forma equity capitalization table is on Slide 7.

And at the end of February, we closed on a refinancing of our credit facility. The new term loan carries a much lower interest rate, and we expect the annual cash interest savings to be approximately $4 million in 2021. A comparison of the new credit facility with our old facility can be found on Slide 8.

Lastly, I want to touch on margins going forward from a qualitative perspective. We expect our ODS strategy and our push for a 50-50 business mix will create an upward trend in our gross margin and also our adjusted EBITDA. So I want to remind everyone that, that shift takes time and may not be linear quarter-to-quarter.

In addition to the pickup of the business mix, we are also focused on simply booking construction projects that are better margins. That means walking away from opportunities that don't fit our desired return profile. In any given quarter, we may be working on projects that were booked a year or more ago. So even as we secure higher-margin work now, our reported margin will lag. So just a reminder, it'll take some quarters to fully realize it in our financials. And the best way to gauge our progress is to focus on full year-over-year results.

I'll hand it off to Mike now.

Thanks, Jayme. I want to spend some time discussing our project selection as the primary determinant of our success as a business. Our strategy is built upon shifting to a more balanced revenue stream between general contractors and building owners. We are also focused on diversifying our revenue by increasing the number of transactions. In the past, our revenue was very dependent upon large construction projects that lasted multiple years. The shorter-duration projects and smaller size of contracts will enable the company to better manage risk factors and drive higher gross margins. We're already seeing these results in the work that we booked in the last 18 months.

Our sales and marketing efforts have been refocused to building owners, leveraging our maintenance relationships and base as well as targeting new owners with large capital programs. In addition, Limbach is looking to better leverage existing relationships, both through servicing new geographies with professional services and expanding additional offerings. The company has been very careful to ensure the overall strategy is complemented by both sales and operational risk management practices.

Over the past 18 months, the company instituted a new risk management practice relative to the sales pursuits. It's been clearly communicated to our staff that sales efforts must match our owner-direct expansion strategy. We are evolving the sales culture of the company from a transactional-based construction project focus to a solutions-based owner-direct account management focus. We expect individual project sales pursuits to be an outcome of cultivating those accounts. Once the sales pursuit is identified, there's a rigorous risk management process in place to make sure the operational capabilities of the team and location match the opportunity presented.

Due to the fact we've established relationships with the major stakeholders prior to the sale, we have much better leverage once the project is sold or the services rendered. All of this improves profitability. Evidence is reflected in the owner-direct profit margins, which continue to improve, reaching 28.5% in 2020.

I want to wrap up with a comment on our backlog and sales pipeline, which is highlighted on Slide 9. From a macro perspective, activity is improving. Over the first few months of 2021, we've seen an increase in proactive OpEx spending. Large capital projects appear to be funded, yet building owners are slow to release projects. We anticipate this pent-up demand will be realized over the next few months and will result in a multitude of sales opportunities for Limbach.

We have recently seen deferred projects starting to get back on schedule, and overall pipeline activity is healthy. Q4 softness had some impact as well. But even given a normal level of Q4 sales activity, our focus on project selection was expected to result in backlog moderation.

Given where our projects calendar for 2021 stands now, we expect our second half work to exceed the first half work and that dynamic to be more pronounced than it has in the past.

Thanks, Mike. And again, thanks for joining us this morning. As you've heard throughout our prepared remarks, we are optimistic that the pandemic will soon be behind us, but we all know that can change quickly. As I've stated before, it became clear our services are essential during pandemics, but we look forward to having the pandemic behind us. With that in mind, as we have done in the past, we think it's prudent to hold off on providing guidance for now, and we'll revisit that when we report Q1 results.

Before we move to Q&A, let me hit a few final issues, starting with the impacts of the new administration in Washington, D.C. The government injection of a massive amount of stimulus via the recently passed stimulus bill appears to have created more opportunities for Limbach while also diverting our competition to projects that we're not interested in. One example is the funding being provided to schools, which is set at $125 billion for public schools and $2.75 billion for private schools. Updating ventilation systems was specifically cited as an area of funds should be used for.

There is also funding, which will benefit the health care industry, which is our largest end market. Funds are being made available for health care data center modernizations and to replace revenues hospitals' loss as a variety of day-to-day medical procedures, which were crowded out by COVID patients. Overall, there was a massive sum of money going into the economy as a whole, and all branches -- and all of our branches are and will be actively pursuing opportunities, which make sense for Limbach.

We're also actively monitoring the much-discussed upcoming infrastructure package. Apparently, there will be elements of green investment. Building system retrofits to reduce energy, and water consumption may also be part of the package. If that is the case, we are well positioned to take advantage of those opportunities and will further accelerate our owner-direct expansion.

As mentioned earlier, we are well positioned with the refinancing behind us and the recent equity raise, and that means we are primed and ready to play offense. We're focused on our sales and marketing effort, and we'll do with clarity as it pertains to profit-driven and risk-appropriate project selection. The diversity of our operations continues to serve us well as several of our key end markets are very active, offsetting relative weakness in others.

We also continue to prioritize innovation by evaluating emerging opportunities. Indoor farming is a great example of this. We established an early beachhead in that space. And now, as the industry gains momentum, we expect to win more work there. Indoor farming is a perfect market opportunity to provide all of our services, including the annuity income maintenance services. We also believe this sector will move beyond CBD production.

Lastly, we're turning again to our balance sheet and desire to play offense. I want to touch on M&A before opening up the call to your questions. We'll be guided by our ability to identify and diligence opportunities that meet our acquisition criteria with respect to our business model, market position and valuation. Our parameters are narrow in certain respects and consistent with the business model objectives we've described for Limbach. Our time line will be dictated by our underwriting requirements and not the other way around. The performance of many potential target companies during the 2020 period presents both challenges and opportunities in an M&A context. While we're not starting from cold from a perspective -- prospecting perspective, we do need to get comfortable understanding the last 15 months, even in the case of businesses we've known for several years.

With that, we're available to take your questions.

(Operator Instructions) Our first question is coming from Rob Brown of Lake Street Capital Markets.

Just wanted to get a little more color on the pipeline, and maybe particular owner-direct. I think you talked about a fair number of projects that were funded but haven't been sort of launched yet. And maybe just some color what you see in the pipeline at the moment and how you see that developing over the year.

Yes. Sure. Yes, when you look back at Q4, we continue to book work, but some of the projects that we were tracking and talk to our customers about, they just weren't making some decisions the way we had expected. But what's interesting over the past, really since mid-February coming into March, there's been a tremendous uptick. And I don't know if that's because of confidence due to the vaccines, the election. We all understand who's sitting in the White House and what that could mean to us. But the spigot has opened back up, which is just wonderful to see. So decisions are coming forward. And this includes some projects that we were tracking that were put on the back burner that all of a sudden, we're just having conversations with the customers. They're ready to get going again. So the pipeline has opened back up, Rob, and it's just great to see.

Okay. Okay. Great. And then you talked kind of directionally about margin improvement. What's sort of your view on where, say, EBITDA margin can go as your strategy plays out of shifting the mix? And call it, 3 to 4 years out, where do you think the EBITDA margin can continue?

So when you look at both segments, when you look at the ODS, we're obviously owner-direct strategy segment, the growth in margin has just been terrific. And we hit 28.5% last year. We think the range of 25% to 28%, we're hitting a stride there. We think that's where we should be. Is there more room for improvement? Possibly. But that's obviously great news for us.

On the Construction segment, we are laser-focused on quality of earnings, not so much top line growth. It's all about execution. Mike McCann, our Chief Operating Officer, has done just a splendid job at introducing risk management processes over the past 1.5 years. And we think there's another 150 to 200 basis points we can wring out of construction, if not more, as we continue to prove out selection and execution.

So when you get right down to EBITDA, we're going to continue to rapidly grow the owner-direct and Service component. Construction, we'll see moderate growth. We might even pull back just a little bit. It's all about quality of earnings on Construction. We think, again, we can drive at 150 to 200 basis points on that side. So dropping right down to EBITDA, we believe there's another 150 to 200 basis points that we can see here in the near-term improvement.

Okay. Great. And then lastly, just on kind of some of the trends in the industry. Has COVID changed the view on kind of the digital transformation and some of the sustainability efforts? I guess, not even just COVID, but the environment. How has that been changing? And what are you seeing in terms of the customer interest in those segments?

Yes. Look, from a COVID perspective, I think we've all learned a lot from it. And what we're excited about is our virtual tech play, which is really not necessarily showing up at a building but instead doing service calls remotely, which we're ramping up. So that's one play. And that -- we're actually looking at that prior to the COVID impact, but it accelerated with COVID because we couldn't get into certain buildings back in March, April and May.

So the benefit of that, it will drive less expense for the owner in terms of us having to jump in a van, drive it across the city. And we charge for all that time, and now it's a phone call. We believe that's going to lead to a very nice subscription service-type model. We're still playing with that. We're not 100% there yet, but we're working on developing models.

From a green or sustainability perspective, I'm not so sure that's coming out of COVID. But clearly, the administration is pushing for that. We do a tremendous amount of energy retrofits. We've been doing it for decades. So we're waiting patiently to see what comes out of this infrastructure bill. But over the past week here, I think we've all heard a lot of points around sustainability, green. And in fact, just last night, one of our associations that we participate and shared some information on the concept of the infrastructure bill. And there was roughly $130 billion out of the $3 trillion that was noted to be around energy. Energy improvement, sustainability it's not defined. We still have to understand it. But if there's going to be very nice incentives laid out for building retrofits, that's perfect for us. I mean we have all of those owner relationships. We know their buildings, and we could start marketing how they can take advantage of whatever those incentives might be. So we're pretty pumped up about what that could mean for us.

And that's probably looking at revenue. By the way, I'm guessing about the time a bill, assuming it happens, it's probably revenue for '22-'23. I don't -- I'm not so sure it will impact so much for '21. Rob, did that answer the question?

Yes.

Our next question is coming from Gerry Sweeney of ROTH Capital.

Question -- and hopefully, this -- I can articulate this appropriately. On the labor side, we have Service, we have Construction. It sounds like activity's reengaging. How do we look at labor on the Service side? Obviously, in the past, finding qualified good labor was an issue when the market accelerated a couple of years ago. Do you have the same issues or potential issues on the Service side? Or are those employees on the Service side will stay more permanent. You don't necessarily have to go to union halls, et cetera? How do we look at that on a go-forward basis?

Right. I think it's a good question, Gerry, when you think about our growth that we're looking at. Mike, do you want to respond to that?

Sure. Thanks, Gerry. I think a couple of things. I think overall, we're at good stable labor levels both from a Construction and owner-direct perspective.

I think the other interesting thing that we've done is we wanted to deploy our best talent. And we've been able to utilize the talent across both perspectives, both owner-direct and construction. So we've been able to leverage our talent, I guess, is the best way that I can say that. We're still being obviously disciplined on what we're doing. But we've definitely been able to share labor back and forth, and that's really been helpful to help us and maximize returns and stabilize as we shift.

Got it. And then just sticking with the Service side. You -- Charlie, you had mentioned, I think, 1,100 preventative maintenance contracts. If that grows, just -- I'm going to throw a number out there, let's say, 1,500. We don't even -- I won't put a time frame or anything on it because that's not really the point of the question. But the point of the question really is, as those preventative maintenance contracts expand, is there sort of an absorption of overhead and increased margin potential for the segment because you have more of that, that business and you're just leveraging some of the internals? Or is that a potential? I'll just leave it like that.

Well, I think the way to look at it, Gerry, 1,500, I think, is a reasonable target here, actually, over the next couple of years. We've already put a lot of resources in place to sell these preventative agreements. We've been doing it now for several years, and it's paying off.

The beauty of having those preventative maintenance contracts, it's the foundation of a core service business. You get that pull-through. And it's just amazing, right? You're in the building, and there's something that breaks or they decided they want to replace something. And now we've got some new technology that we're deploying to help them with asset management. We're going to be able to help project their capital planning. So we'll actually be able to have a better handle on our own revenue flows off those preventative maintenance contracts as we continue to grow that digital solution.

So having said that, I think when you look at SG&A and being able to wring out more on the owner-direct, I would suggest to you that our gross profit margins at 28.5% this past year, very strong. I'm kind of suggesting, I think that range is going to be 25% to 28%. That's a good range for us.

But we're going to keep investing. We're not going to back off. We -- this is our future. It's all about expansion of owner-direct. It's high margin, good cash flow. And so as we continue to grow, we had 1,500, we're just going to continue to expand our sales force as well as execution for us and management to grow that segment. So there could be some savings on SG&A, but I think it would be prudent for us to keep investing and expanding.

Okay. I got it. I'll look at it more as the opportunity to pull through more business, which I got, but that's helpful. I was just more curious on that front. And then on -- I think you described, I think it was the Construction side, 150 to 200 basis points. Is that -- on the margin side, is that just more of a function of older contracts moving through backlog, coming to completion and just being refilled with newer contracts with higher margin? Or is there some execution or change up that's going on internally to drive some of that as well?

Thanks, Gerry. I'll take this one. I think it's both sides of it. It's -- project selection has been critical to us. We're being very disciplined, making sure that we don't outsell our capacity.

I think on the other side of things, too, from a risk management perspective, once we do get the project, we've got definitely rigorous procedures and process to make sure that we're maximizing the opportunity. And we're proactive on both performing the work and closing it out. So I'd say it's really on both sides of the spectrum is we've been focused on.

Gerry, I'm just going to add something else to that response. What's interesting about all the risk management processes we've put in place and quality of earnings, over the past year, we have talked about claims on previous calls. We have no new substantial claims going into this year, and it's great to see. We have some legacy stuff that we continue to work on. We've had some pursuit of COVID impacts, but that's minor in nature, and it's kind of a -- it's not 100% that, that's going to be paid and funded.

But as far as execution, we're not getting into these projects that are setting us back. I think Mike's done a great job at just orchestrating -- we're going after smaller work. Get in, get out. Let's make good margin, and let's collect our cash. And it's working. So...

Yes. Absolutely. And I was just sometimes a little better focus on pricing for what project selection can drive better margins and...

Yes. Yes.

You sound very confident that 150 to 200 basis points. And I just wanted to see where that confidence was coming from. That's all.

Yes. Yes. So hopefully, we answered that question for you. Sure.

Yes. Perfect. Perfect. That's it for me.

All right, Gerry. Thanks.

Our next question is coming from [Adam Selheimer] of [Costa Davis].

Charlie, really interested in your comments that the decision-making firming up kind of mid-February into March. Are those projects for the 2021 construction season? Or when would those jobs start?

Well, it's a combination of both Construction and the owner-direct, just a real uptick. So the owner-direct, that will happen this year. I mean, again, it's very short-cycle work. Some of them are larger. It might take a couple of months of planning and getting equipment and such. And then you execute it. But at this point, a lot of what we're looking at is burning this year.

When you look at the Construction segment, some of the projects we're looking at, yes, they do happen fairly quickly. We've got a couple of customers that -- significant customers that all of a sudden started talking to us about getting some projects underway, and let's go, which is great. Now what does "let's go" mean? Well, you still have the planning work to do. It's going to take several months to get things organized and then will burn in the second half of the year.

We do expect to see our second half Construction revenue to ramp up compared to the first half. It's just the way the existing backlog as well as what we see in the pipeline for sales. So some of it will burn this year, but I'd suggest to you, on the Construction side, that's building our backlog for '22 into '23.

Okay. And then what -- is there an issue with equipment availability? I mean I've heard that in other kind of construction segments.

Adam, we haven't seen that necessarily. And I think a lot of this depends on obviously the size of work and the duration of the work. But currently, right now, from an equipment perspective, we've seen the ebbs and flows from the manufacturers, but there hasn't been a factor that we've seen in our business so far.

Okay. Good. And then just lastly, curious on -- so on IAQ projects, I'm trying to figure out if -- is that a fad? And once the vaccine rolls out, those kind of requests kind of fade away? Or do you think that's here to stay, it's durable, and you're going to see a lot of those in the next couple of years?

I'm sorry, Adam, are you referring to pharmaceutical?

Oh, no, indoor air quality.

Oh, I'm sorry, yes. So sometimes we throw out a lot of acronyms. There's so many of them.

IAQ, yes. Exactly.

Yes. Indoor -- I think it's going to continue. I think parents in K-12 are going to continue to pressure school Boards to make sure the buildings are safe. The amount of money -- we've got a couple of districts that we're working with right now, where we're on a T&M-type basis just going from building to building to building, putting in bipolar ionization systems.

There was another district that I recently heard on a branch call where the district had $13 million, and they were trying to figure out how to spend it and where could they go with into air quality. And they just hit us with it. And so we're working with them trying to offer them the solutions that they need. But we're seeing those opportunities thrown at us as well as talking to them.

But I think near term, call it, this year, there'll be quite a bit of that. Going into '22, '23, I don't have a clear-enough crystal ball. But I do think there'll be a legacy mindset, how do we make sure indoor air quality is good.

Now the other part that -- that has to do with schools. I think in office buildings, right, I think everybody's trying to figure out how buildings are going to be restacked and reprogrammed with hoteling, the impact of remote work. Ford just announced the other day massive reduction in real estate. Quite frankly, we're thinking the same way. We believe in remote working. We've actually seen productivity improve. So we don't need as much real estate either, and we're looking at that as our leases come up.

So what does that mean, though, to indoor construction in the commercial space? And what has to happen to retrofit those new spaces with proper indoor air quality? There'll probably be a lag there going into the second half of this year into next year.

Mike, do you have any other thoughts about that?

Yes. I think what's interesting in 2020 was that there was a lot of reactive decisions that were made. I think -- as one of the key things that we've seen as we've gone into '21 is people have taken a proactive stance. So I think it's going to be interesting to see over the next 2 or 3 years. But definitely, this year, there's proactive pieces of it, too. That's the first piece that we've really seen in 2021, as I mentioned before, the OpEx. The CapEx is coming, but I think the OpEx piece of it specifically related to air quality, they've taken a much more proactive approach as opposed to the reactive approach that they took in 2020.

All right. So I don't want to put words in your mouth, but I guess the way I read that would be that they were doing kind of smaller-ticket items last year, upgrading filters, but more of those types. But maybe this year, you're seeing fewer projects, but the ones that are moving forward are larger-ticket projects.

Yes. I'd say it's a little bit of both. But yes, I think there's more aptitude or -- for larger projects to come out of that where you're right, the other ones were small or reactive. So...

Our next question is coming from Jon Old of Long Meadow Investors.

A quick question for Jayme. So the cash interest expense savings are clear. I'm curious what the -- whether cash interest going forward will mirror the GAAP results. There was a lot of extra amortization in there in prior years. So I think -- I'm hoping our GAAP savings -- if GAAP equals cash, the savings will be huge. So I wonder if you could comment on that.

Yes. No, you're correct in that. What is -- you have to keep in mind when looking at the interest expense line item is that you've got debt issuance costs. We had our amendment costs. Those all are in -- run to that line item.

So last year, when looking at the $8.6 million in interest expense, you can kind of look at it by modeling, about 2/3 of that is actual cash interest, and the other is the debt issuance cost and other cost that gets amortized through that line item.

Right. But in 2000 -- going forward, if your cash interest is, let's just take a round number, 4% of $30 million, $1.2 million, is that -- does that approximate what the GAAP interest -- your reported GAAP interest is going to be?

Yes. We haven't put that number out there but you can -- I mean you can look at modeling it based on the fees that are in the agreement. It's how we pay down principal. And then again, the interest rate is a lower rate.

Right. Okay. And just a question on -- we still had a large amount of net write-downs this year. Shouldn't that be coming to an end? Maybe that's for Mike. And what do you think -- what does that look like for '21? I think we would have moved through most of the old legacy projects that were creating the problems.

Yes. I think the key with that is, is that we've really focused -- sometimes these things take time to burn off. But the key thing to point out is really for the last 12 to 18 months, we've focused on different risk management associated with sales pursuits, so much more rigorous.

I think you're correct in saying that based upon those into 2021 that due to the selection, due to being disciplined, based upon both our strategy as well as the operational capabilities of our team that we'll have a lot more consistency going forward.

Okay. But that -- but should that number be close to 0? I mean in a -- once you feel like you've gotten all your risk management and discipline with respect to projects, should that be close to 0 going forward?

When you look at the nature of our business, you have net write-ups. You have some write-downs. It's the nature of what we do. But from the standpoint of what we've seen coming out of Mid-Atlantic and SoCal, where we took those hits, that work is wrapping up, done. I'm very pleased I could report that the big airport terminal project that we've been working on out of L.A., it was extended by about 4 months due to COVID. The state of California and requirements by the city of Los Angeles really stopped the progress of that project, and we had to continue to man it and do certain things. But they received their certificate of occupancy in February, which was great news. And at this point, we're just doing punchless.

So all that work, Jon, that we were reporting on over the past number of periods has wrapped up. And -- but I think as we go forward, the risk management process, I would expect to see net write-ups with everything that we've put in place. But occasionally, we're going to have a write-down we're going to have to deal with.

No. I understand that. I just mean overall on a net basis.

Yes. No, we're -- look, the other -- if you step back and look at where we got into trouble, it was the labor conditions, which I've talked about in numerous other calls. We definitely have that under control. But from the standpoint of scale of the projects that we're looking at today, we're really focused on -- smaller is the way to go and avoiding those large, long-duration projects where we do everything right, but we get caught up in problems due to others. And then we're in that claim situation. And as I reported earlier, over the past year, we haven't seen any new significant claims come into play. Here and there, there's a couple of things we pursue because we owe some money but nothing on the magnitude of what we've seen over the past number of years.

And I just want to clarify something. We are pursuing COVID recovery where we see the opportunity. We were impacted on some of our projects due to COVID work rules, logistics on projects, things like that. And that probably cost us a couple of bucks through 2020, but where we see the opportunities to pursue it, we're doing it. But as far as going forward, I think Mike's done a splendid job at really introducing these risk management processes. That's just making us a lot sharper on what we're selecting. And again, size is important, and we're looking at smaller work going forward.

Okay. Last one for me. So you've now -- you've raised a significant amount of cash. You've got the debt refinance, some money coming in from warrant proceeds, et cetera. So you're just kind of loaded for bear. I know you're going to -- you have to be disciplined. Just wanted to get a little more color on the M&A pipeline and sort of what you're expecting to accomplish this year. I know you can't make these things happen. It's the pricing and all that doesn't work. But what are your -- trying to be a little more specific as to your expectations for the M&A pipeline for this year?

Sure. So we had priorities last year that we had to tackle, right? The goals were get the refi done. We decided to do the capital raise to reinforce our balance sheet. And now we're absolutely focused on seeing where we could go with acquisitions.

The pipeline -- through the course of the past couple of years, we maintained relationships with some businesses that we enjoyed having discussions with, and we're resurrecting those discussions today in a more aggressive stance. We have to get our arms around everything that's happened to them over the past year with COVID. But we're active. It's happening, and we've resourced it. So we're excited about where we're going with that. But it's going to take some time to make sure we find the right opportunities at the right valuation.

(Operator Instructions) We're showing no additional questions in queue at this time. I'd like to give the floor back over to management for closing comments.

Look, thank you, everyone, for joining us today. We're very proud of what we accomplished with our progress in 2020. And it was a very successful year for the company, and we've laid the proper foundation for that to continue. I'm excited about all the moves we've made, the progress, all of that. And we look forward to talking to you here very shortly with the results of Q1. All the best.

Ladies and gentlemen, thank you for your participation and interest in Limbach Holdings. You may disconnect your lines at this time, and have a wonderful day.