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Limbach Holdings, Inc. Announces First Quarter 2023 Results

Revenue from Owner Direct Relationships (“ODR”) Segment up 36.9% Year-over-Year

ODR Segment Accounted for Approximately 48.5% of Revenue and 60.7% of Consolidated Gross Profit

Consolidated Gross Margin Increased to 21.7%

Limbach Holdings, Inc. (Nasdaq: LMB) (“Limbach” or the “Company”) today announced its financial results for the quarter ended March 31, 2023.

2023 First Quarter Financial Overview Compared to 2022 First Quarter

  • Consolidated revenue was $121.0 million, an increase of 5.4% from $114.8 million.
  • Gross profit was $26.2 million, an increase of 43.0% from $18.3 million.
  • Net income of $3.0 million, or $0.27 per diluted share, compared to a net loss of $1.5 million, or $(0.15) per diluted share.
  • Adjusted EBITDA of $8.7 million, up 154.0% from $3.4 million.
  • Net cash provided by operating activities of $9.4 million, compared to net cash used in operating activities of $3.0 million.

Management Comments

Michael McCann, Limbach’s President and Chief Executive Officer, said, “We are off to a great start to the year as first quarter results reflected solid performance and execution in both of our operating segments. Our segment mix continued to benefit from the ODR contribution which, coupled with improved gross margin performance in each segment, resulted in a further increase in our consolidated gross margin. As our segment revenue contributions approach a 50/50 split, the higher growth in ODR, relative to the planned decline in General Contractor Relationships (“GCR”), also contributed to the year-over-year increase in total revenue.”

Mr. McCann continued, “Market conditions remain favorable as businesses in several of our primary end markets continue to invest in their building assets, such as data centers, hospitals, and manufacturing facilities. At the same time, our ability to flex between our customers’ capital and operating spending has us well positioned for any changes they make to their infrastructure investment plans. As we have noted previously, the tightness in industrial supply chains has also contributed to our ODR growth by driving demand for service and repair work necessary for customers to keep their systems operational until such time as new equipment replacement is available. When that time comes, we intend to leverage our role as an indispensable partner delivering value-added solutions to capture that replacement work.”

Mr. McCann concluded, “We are continuing to aggressively execute our plan and our first quarter results demonstrate how we believe that plan translates into expanding bottom-line results. While we are proud of this success, I want to emphasize that we are still in the early stages of our evolution. By continuing to evolve our customer relationships, centered on value-added solutions and proven success, while also maintaining an intense focus on maximizing the return on our own assets, we believe there is plenty of runway for further margin expansion, net income growth, and continued cash generation.”

First Quarter 2023 Results

The following are results for the three months ended March 31, 2023 compared to the three months ended March 31, 2022:

  • Consolidated revenue was $121.0 million, an increase of 5.4% from $114.8 million. ODR segment revenue of $58.7 million increased by $15.8 million, or 36.9%, while GCR segment revenue of $62.3 million was down $9.6 million, or 13.4%. The Company continued its strategic focus on expanding the ODR segment’s contribution to the business and improving GCR project execution and profitability by pursuing GCR opportunities that were smaller in scope and lower in contract value, shorter in duration, and where the Company can leverage its captive design and engineering services.
  • Gross margin increased to 21.7%, up from 16.0%. On a dollar basis, total gross profit was $26.2 million, compared to $18.3 million. ODR gross profit increased $5.9 million, or 59.4%, due to an increase in revenue at a higher margin of 27.1% versus 23.3% driven by project mix. GCR gross profit increased $2.0 million, or 23.5%, largely reflecting lower revenue at a higher margin. GCR gross margin improved to 16.6% from 11.6%.
  • Selling, general and administrative expenses increased by approximately $2.3 million, to $21.1 million, compared to $18.7 million. The increase in SG&A was primarily due to a $1.9 million increase associated with payroll related expenses, $0.8 million related to CEO transition costs, and a $0.5 million increase in stock compensation expense, partially offset by a $0.5 million decrease in rent related expenses and a $0.3 decrease in professional fees. As a percent of revenue, selling, general and administrative expenses were 17.4%, up from 16.3%.
  • Interest expense, net, was $0.7 million compared to $0.5 million. This increase was due to higher interest rates on outstanding debt despite a lower overall outstanding debt balance period-over-period.
  • Net income was $3.0 million as compared to a net loss of $1.5 million. Diluted income per share was $0.27 as compared to diluted loss per share of $(0.15). Adjusted EBITDA was $8.7 million as compared to $3.4 million, an increase of 154.0%.
  • Net cash provided by operating activities was $9.4 million as compared to net cash used in operating activities of $3.0 million. The increase in operating cash flows was primarily attributable to a $4.5 million positive variance in net income as noted above.

Balance Sheet

At March 31, 2023, we had cash and cash equivalents of $41.4 million. We had current assets of $212.3 million and current liabilities of $142.5 million at March 31, 2023, representing a current ratio of 1.49x compared to 1.42x at December 31, 2022. Working capital was $69.8 million at March 31, 2023, an increase of $2.9 million from December 31, 2022. At March 31, 2023, we had no borrowings against our revolving credit facility, $4.2 million for standby letters of credit, and carried a term loan balance of $19.6 million. During the quarter, we made $1.9 million of scheduled principal payments on our term loan, which reduced our outstanding balance.

Subsequent Events

On May 5, 2023, the Company entered into the Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with the lenders party thereto and Wintrust, which increased the Company's revolving commitments from $25.0 million to $50.0 million (the “Second A&R Wintrust Revolving Loan”), required the Company to repay the then outstanding principal balance of the Wintrust Term Loan using proceeds of the Second A&R Wintrust Revolving Loan and extended the maturity date of the revolving credit facility to February 24, 2028. Prior to the execution of this agreement, the Company repaid $9.6 million of the then outstanding balance under the Wintrust Term Loan with cash on hand. As of May 8, 2023, the Company had $10.0 million outstanding under the Second A&R Wintrust Revolving Loan. A copy of the Second A&R Credit Agreement was filed as Exhibit 10.6 within the Company's most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2023.

2023 Guidance

We affirm our guidance for FY 2023 as follows:

Revenue

$490 million - $520 million

Adjusted EBITDA

$33 million - $37 million

Conference Call Details

Date:

Tuesday, May 9, 2023

Time:

9:00 a.m. Eastern Time

Participant Dial-In Numbers:

Domestic callers:

(888) 645-4404

International callers:

(862) 298-0702

Access by Webcast

The call will also be simultaneously webcast over the Internet via the “Investor Relations” section of Limbach’s website at www.limbachinc.com or by clicking on the conference call link: https://event.choruscall.com/mediaframe/webcast.html?webcastid=kd2gH5Bz. An audio replay of the call will be archived on Limbach’s website for 365 days.

About Limbach

Limbach is a building systems solutions firm with expertise in the design, prefabrication, installation, management and maintenance of heating, ventilation, air-conditioning ("HVAC"), mechanical, electrical, plumbing and controls systems. With over 1,500 team members and 17 offices located throughout the United States, we partner with institutions with mission-critical infrastructures, such as data centers and healthcare, industrial & light manufacturing, cultural & entertainment, higher education, and life science facilities. With Limbach's full life-cycle capabilities, from concept design and engineering through system commissioning and recurring 24/7 service and maintenance, Limbach is positioned as a value-added and indispensable partner for building owners, construction managers, general contractors, and energy service companies.

Forward-Looking Statements

We make forward-looking statements in this press release within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations or forecasts for future events, including, without limitation, our earnings, Adjusted EBITDA, revenues, expenses, backlog, capital expenditures or other future financial or business performance or strategies, results of operations or financial condition, and in particular statements regarding the impact of the COVID-19 pandemic on the construction industry in future periods, timing of the recognition of backlog as revenue, the potential for recovery of cost overruns, and the ability of Limbach to successfully remedy the issues that have led to write-downs in various business units. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “will likely result,” “should,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or similar expressions. These forward-looking statements are based on information available to us as of the date they were made and involve a number of risks and uncertainties which may cause them to turn out to be wrong. Some of these risks and uncertainties may in the future be amplified by the COVID-19 outbreak and there may be additional risks that we consider immaterial or which are unknown. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Please refer to our most recent annual report on Form 10-K, as well as our subsequent filings on Form 10-Q and Form 8-K, which are available on the SEC’s website (www.sec.gov), for a full discussion of the risks and other factors that may impact any forward-looking statements in this press release.

 

LIMBACH HOLDINGS, INC.

Condensed Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended

March 31,

(in thousands, except share and per share data)

 

 

2023

 

 

 

2022

 

Revenue

 

$

121,009

 

 

$

114,822

 

Cost of revenue

 

 

94,782

 

 

 

96,482

 

Gross profit

 

 

26,227

 

 

 

18,340

 

Operating expenses:

 

 

 

 

Selling, general and administrative

 

 

21,050

 

 

 

18,734

 

Change in fair value of contingent consideration

 

 

141

 

 

 

 

Amortization of intangibles

 

 

383

 

 

 

399

 

Total operating expenses

 

 

21,574

 

 

 

19,133

 

Operating income (loss)

 

 

4,653

 

 

 

(793

)

Other (expenses) income:

 

 

 

 

Interest expense, net

 

 

(667

)

 

 

(486

)

Loss on disposition of property and equipment

 

 

(215

)

 

 

(36

)

Loss on early termination of operating lease

 

 

 

 

 

(817

)

Loss on change in fair value of interest rate swap

 

 

(156

)

 

 

 

Total other expenses

 

 

(1,038

)

 

 

(1,339

)

Income (loss) before income taxes

 

 

3,615

 

 

 

(2,132

)

Income tax provision (benefit)

 

 

622

 

 

 

(616

)

Net income (loss)

 

$

2,993

 

 

$

(1,516

)

 

 

 

 

 

Earnings Per Share (“EPS”)

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

Basic

 

$

0.29

 

 

$

(0.15

)

Diluted

 

$

0.27

 

 

$

(0.15

)

Weighted average number of shares outstanding:

 

 

 

 

Basic

 

 

10,475,364

 

 

 

10,420,690

 

Diluted

 

 

11,040,063

 

 

 

10,420,690

 

 

LIMBACH HOLDINGS, INC.

Condensed Consolidated Balance Sheets (Unaudited)

 
 

(in thousands, except share and per share data)

March 31, 2023

 

December 31, 2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

41,376

 

 

$

36,001

 

Restricted cash

 

113

 

 

 

113

 

Accounts receivable (net of allowance for credit losses of $278 and net

of allowance for doubtful accounts of $234 as of March 31, 2023 and December 31, 2022, respectively)

 

99,809

 

 

 

124,442

 

Contract assets

 

64,190

 

 

 

61,453

 

Income tax receivable

 

139

 

 

 

95

 

Other current assets

 

6,629

 

 

 

3,886

 

Total current assets

 

212,256

 

 

 

225,990

 

 

 

 

 

Property and equipment, net

 

18,694

 

 

 

18,224

 

Intangible assets, net

 

14,957

 

 

 

15,340

 

Goodwill

 

11,370

 

 

 

11,370

 

Operating lease right-of-use assets

 

18,055

 

 

 

18,288

 

Deferred tax asset

 

4,892

 

 

 

4,829

 

Other assets

 

346

 

 

 

515

 

Total assets

$

280,570

 

 

$

294,556

 

 

 

 

 

LIABILITIES

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

9,643

 

 

$

9,564

 

Current operating lease liabilities

 

3,639

 

 

 

3,562

 

Accounts payable, including retainage

 

60,194

 

 

 

75,122

 

Contract liabilities

 

44,875

 

 

 

44,007

 

Accrued income taxes

 

2,574

 

 

 

1,888

 

Accrued expenses and other current liabilities

 

21,572

 

 

 

24,942

 

Total current liabilities

 

142,497

 

 

 

159,085

 

Long-term debt

 

20,379

 

 

 

21,528

 

Long-term operating lease liabilities

 

15,374

 

 

 

15,643

 

Other long-term liabilities

 

3,083

 

 

 

2,858

 

Total liabilities

 

181,333

 

 

 

199,114

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

Common stock, $0.0001 par value; 100,000,000 shares authorized, issued

10,732,955 and 10,471,410, respectively, and 10,553,303 and 10,291,758

outstanding, respectively

 

1

 

 

 

1

 

Additional paid-in capital

 

88,611

 

 

 

87,809

 

Treasury stock, at cost (179,652 shares at both period ends)

 

(2,000

)

 

 

(2,000

)

Retained earnings

 

12,625

 

 

 

9,632

 

Total stockholders’ equity

 

99,237

 

 

 

95,442

 

Total liabilities and stockholders’ equity

$

280,570

 

 

$

294,556

 

 

LIMBACH HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

Three Months Ended

March 31,

(in thousands)

 

2023

 

 

 

2022

 

Cash flows from operating activities:

 

 

 

Net income (loss)

$

2,993

 

 

$

(1,516

)

Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:

 

 

 

Depreciation and amortization

 

1,922

 

 

 

2,062

 

Provision for credit losses / doubtful accounts

 

52

 

 

 

56

 

Stock-based compensation expense

 

1,133

 

 

 

599

 

Noncash operating lease expense

 

976

 

 

 

1,157

 

Amortization of debt issuance costs

 

38

 

 

 

32

 

Deferred income tax provision

 

(63

)

 

 

(77

)

Loss on sale of property and equipment

 

215

 

 

 

36

 

Loss on early termination of operating lease

 

 

 

 

817

 

Loss on change in fair value of contingent consideration

 

141

 

 

 

 

Loss on change in fair value of interest rate swap

 

156

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

 

24,581

 

 

 

(19,698

)

Contract assets

 

(2,737

)

 

 

8,320

 

Other current assets

 

(2,743

)

 

 

(2,130

)

Accounts payable, including retainage

 

(14,929

)

 

 

(105

)

Prepaid income taxes

 

(44

)

 

 

(47

)

Accrued taxes payable

 

686

 

 

 

(501

)

Contract liabilities

 

868

 

 

 

7,732

 

Operating lease liabilities

 

(934

)

 

 

(1,117

)

Accrued expenses and other current liabilities

 

(3,170

)

 

 

1,419

 

Other long-term liabilities

 

225

 

 

 

(4

)

Net cash provided by (used in) operating activities

 

9,366

 

 

 

(2,965

)

Cash flows from investing activities:

 

 

 

Proceeds from sale of property and equipment

 

101

 

 

 

39

 

Purchase of property and equipment

 

(923

)

 

 

(169

)

Net cash used in investing activities

 

(822

)

 

 

(130

)

Cash flows from financing activities:

 

 

 

Payments on Wintrust and A&R Wintrust Term Loans

 

(1,857

)

 

 

(1,857

)

Proceeds from A&R Wintrust Revolving Loan

 

 

 

 

9,400

 

Payments on finance leases

 

(639

)

 

 

(660

)

Taxes paid related to net-share settlement of equity awards

 

(847

)

 

 

(363

)

Proceeds from contributions to Employee Stock Purchase Plan

 

174

 

 

 

165

 

Net cash (used in) provided by financing activities

 

(3,169

)

 

 

6,685

 

Increase (decrease) in cash, cash equivalents and restricted cash

 

5,375

 

 

 

3,590

 

Cash, cash equivalents and restricted cash, beginning of period

 

36,114

 

 

 

14,589

 

Cash, cash equivalents and restricted cash, end of period

$

41,489

 

 

$

18,179

 

Supplemental disclosures of cash flow information

 

 

 

Noncash investing and financing transactions:

 

 

 

Right of use assets obtained in exchange for new operating lease liabilities

$

742

 

 

$

 

Right of use assets obtained in exchange for new finance lease liabilities

 

1,402

 

 

 

864

 

Right of use assets disposed or adjusted modifying operating lease liabilities

 

 

 

 

(1,276

)

Right of use assets disposed or adjusted modifying finance lease liabilities

 

(1

)

 

 

(19

)

Interest paid

 

657

 

 

 

459

 

Cash paid for income taxes

$

44

 

 

$

9

 

 

LIMBACH HOLDINGS, INC.

Condensed Consolidated Segment Operating Results (Unaudited)

 

 

Three Months Ended

March 31,

 

Increase/(Decrease)

(in thousands, except for percentages)

2023

 

2022

 

$

 

%

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

GCR

$

62,291

 

51.5

%

 

$

71,932

 

 

62.6

%

 

$

(9,641

)

 

(13.4

) %

ODR

 

58,718

 

48.5

%

 

 

42,890

 

 

37.4

%

 

 

15,828

 

 

36.9

%

Total revenue

 

121,009

 

100.0

%

 

 

114,822

 

 

100.0

%

 

 

6,187

 

 

5.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

GCR(1)

 

10,318

 

16.6

%

 

 

8,358

 

 

11.6

%

 

 

1,960

 

 

23.5

%

ODR(2)

 

15,909

 

27.1

%

 

 

9,982

 

 

23.3

%

 

 

5,927

 

 

59.4

%

Total gross profit

 

26,227

 

21.7

%

 

 

18,340

 

 

16.0

%

 

 

7,887

 

 

43.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

21,050

 

17.4

%

 

 

18,734

 

 

16.3

%

 

 

2,316

 

 

12.4

%

Change in fair value of contingent consideration

 

141

 

0.1

%

 

 

 

 

%

 

 

141

 

 

100.0

%

Amortization of intangibles

 

383

 

0.3

%

 

 

399

 

 

0.3

%

 

 

(16

)

 

(4.0

) %

Total operating income

$

4,653

 

3.8

%

 

$

(793

)

 

(0.7

) %

 

$

5,446

 

 

686.8

%

  1. As a percentage of GCR revenue.
  2. As a percentage of ODR revenue.
  3. Included within selling, general and administrative expenses was $1.1 million and $0.6 million of stock based compensation expense for the three months ended March 31, 2023 and 2022, respectively.

Non-GAAP Financial Measures

In assessing the performance of our business, management utilizes a variety of financial and performance measures. The key measure is Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income plus depreciation and amortization expense, interest expense, and taxes, as further adjusted to eliminate the impact of, when applicable, other non-cash items or expenses that are unusual or non-recurring that we believe do not reflect our core operating results. We believe that Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance for the current period and our ability to generate cash flows from operations that are available for taxes, capital expenditures and debt service. We understand that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA, however, may not be comparable to similarly titled measures reported by other companies. When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute for net income calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes. A reconciliation of net income to Adjusted EBITDA, the most comparable GAAP measure, is provided below.

We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” Backlog includes unexercised contract options.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

 

 

 

 

 

 

 

Three Months Ended

March 31,

(in thousands)

 

2023

 

 

2022

 

Net income (loss)

$

2,993

 

$

(1,516

)

 

 

 

 

Adjustments:

 

 

 

Depreciation and amortization

 

1,922

 

 

2,062

 

Interest expense, net

 

667

 

 

486

 

Non-cash stock-based compensation expense

 

1,133

 

 

599

 

Change in fair value of interest rate swap

 

156

 

 

 

CEO transition costs

 

811

 

 

 

Loss on early termination of operating lease

 

 

 

817

 

Income tax provision (benefit)

 

622

 

 

(616

)

Acquisition and other transaction costs

 

 

 

153

 

Change in fair value of contingent consideration

 

141

 

 

 

Restructuring costs(1)

 

240

 

 

1,435

 

Adjusted EBITDA

$

8,685

 

$

3,420

 

  1. For the three months ended March 31, 2023, the majority of the restructuring costs related to our Southern California and Eastern Pennsylvania branches. For the three months ended March 31, 2022, the majority of the restructuring costs related to our Southern California and Eastern Pennsylvania branches and nominal restructuring costs related to cost initiatives throughout the company.

 

Contacts

Investor Relations

The Equity Group, Inc.

Jeremy Hellman, CFA

Vice President

(212) 836-9626 / jhellman@equityny.com

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