Limbach Holdings, Inc. Reports Third Quarter 2022 Results

Limbach Holdings, Inc. Reports Third Quarter 2022 Results

Limbach Holdings, Inc. Reports Third Quarter 2022 Results 150 150 Limbach | An integrated building systems solution firm for mechanical, electrical and plumbing building systems

Revenue from Owner Direct Relationships (“ODR”) Segment up 52.2% Year-over-Year

ODR Segment Accounted for Approximately 48.8% of Revenue and 61.2% of Consolidated Gross Profit

Consolidated Gross Margin Increased to 20.3%

Company Tightens Revenue Guidance and Increases Adjusted EBITDA Guidance

Conference Call Scheduled for 9:00 am ET on November 10, 2022

WARRENDALE, Pa. –
Limbach Holdings, Inc. (Nasdaq: LMB) today announced its financial results for the quarter ended September 30, 2022. The Company reported consolidated revenue of $122.4 million, compared with $129.2 million during the third quarter of 2021. ODR segment revenue accounted for 48.8% of consolidated revenue in the third quarter of 2022, up from 30.4% in the comparable period, and increased 52.2% over the third quarter of 2021, while contributing approximately 61.2% of consolidated gross profit. GCR segment revenue of $62.7 million was down $27.3 million, or 30.3% as the Company continues to focus on its risk management strategy and improved gross profit. Consolidated gross margin improved to 20.3% from 18.9% for the third quarter of 2021, and gross profit increased to $24.9 million from $24.5 million. Net income was $3.6 million as compared to $4.0 million in the third quarter of 2021. Adjusted EBITDA was $10.2 million, up 25.7% from $8.1 million in the third quarter of 2021.

Charlie Bacon, Limbach’s President and Chief Executive Officer, said, “We had a solid third quarter as the evolution of our business to an ODR-centric strategy continued at an accelerated pace. The diversity of our business, along with the essential nature of the services we provide, has us well-positioned for the current environment. Building owners continue to prioritize service, maintenance and repairs of existing equipment in mission critical building systems in response to ongoing global supply chain issues. As the supply chain issues ease, and new equipment becomes readily available, we expect to see a demand in replacements of aged out equipment.”

Mr. Bacon continued, “Consolidated gross margin of 20.3% is a record for Limbach and demonstrates our ability to execute at industry-leading levels. Coupling this solid field execution with a sharp focus on billing and working capital management enabled us to deliver strong operating cash flow of $10.8 million during the quarter. This brings our year-to-date operating cash flow to $23 million, allowing us to focus on reducing our debt without negatively impacting our ability to internally fund potential acquisitions.”

Mr. Bacon concluded, “We are on track to achieve our financial guidance for the year, including an upward revision to our Adjusted EBITDA range. Our performance is testament to our solid execution of the strategic plan we put in place in 2019, including effective risk management policies. We look forward to concluding the year with solid momentum on which we can build on our financial performance and cash flow generation in 2023.”

The following are results for the three months ended September 30, 2022 compared to the three months ended September 30, 2021:

  • Consolidated revenue was $122.4 million, a decrease of 5.3% from $129.2 million. ODR segment revenue of $59.7 million increased by $20.5 million, or 52.2%, while GCR segment revenue of $62.7 million was down $27.3 million, or 30.3%. 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 size, shorter in duration, and where the Company can leverage its captive design and engineering services.
  • Gross margin increased to 20.3%, up from 18.9%. On a dollar basis, total gross profit was $24.9 million, compared to $24.5 million. GCR gross profit decreased $3.1 million, or 24.4%, largely reflecting lower revenue at a higher margin. GCR gross margin improved to 15.4% from 14.2%. ODR gross profit increased $3.5 million, or 29.9%, due to an increase in revenue, despite a lower margin of 25.5%, versus 29.8%, driven by project mix and timing in the third quarter of 2021.
  • Selling, general and administrative expenses increased by approximately $0.4 million, to $18.7 million, compared to $18.3 million. This increase included costs incurred by the newly acquired Jake Marshall entities, partially offset by a decrease in payroll and rent related expenses. As a percent of revenue, selling, general and administrative expenses were 15.3%, up from 14.2% in the second quarter of 2021.
  • Interest expense, net, increased by approximately $0.1 million, to $0.5 million, compared to $0.4 million. The increase was driven by increased interest rates on the Company’s variable rate debt. During the third quarter of 2022, the Company entered into an interest rate swap contract to hedge its exposure to interest rate risk on a portion of its variable rate borrowings under its term loan facility. The Company recorded a $0.3 million gain on the change in fair value of its interest rate swap during the period.
  • Net income for the third quarter of 2022 was $3.6 million as compared to $4.0 million in the third quarter of 2021. Diluted income per share was $0.34 as compared to $0.38. Both net income and diluted earnings per share were impacted by certain restructuring charges and other costs that are not included in the prior periods as outlined in the Reconciliation of Net Income to Adjusted EBITDA table.
  • Adjusted EBITDA was $10.2 million for the third quarter of 2022 as compared to $8.1 million for the same period of 2021, an increase of 25.7%. Adjusted EBITDA for the three and nine-month periods ended September 30, 2022 include adjustments for certain restructuring and other costs that are not included in the prior periods.
  • Net cash provided by operating activities was $10.4 million for the third quarter of 2022 as compared to $7.8 million for the same period of 2021. The increase in operating cash flows was primarily attributable to an increase in our overbilled position as of September 30, 2022 and timing of payments.

Balance Sheet and Backlog

At September 30, 2022, we had cash and cash equivalents of $28.5 million. We had current assets of $209.3 million and current liabilities of $146.0 million at September 30, 2022, representing a current ratio of 1.43x compared to 1.49x at December 31, 2021. Working capital was $63.3 million at September 30, 2022, an increase of $0.1 million from December 31, 2021. At September 30, 2022, we had no borrowings against our revolving credit facility and $3.3 million for standby letters of credit, and carried a term loan balance of $23.3 million. During the quarter, we made $2.4 million of required principal payments on our term loan which reduced our outstanding balance.

Total backlog at September 30, 2022 was $457.3 million as compared to $435.2 million as of December 31, 2021. At September 30, 2022, GCR and ODR segment backlog accounted for $332.8 million and $124.5 million of that consolidated total, respectively. At December 31, 2021, GCR and ODR segment backlog accounted for $337.2 million and $98.0 million of that consolidated total, respectively.

Common Stock Repurchase Program

As previously announced on September 30, 2022, the Company authorized a share repurchase program in an effort to return value to its stockholders. Under this program, the Company is authorized to repurchase up to $2.0 million of its outstanding common stock. The share repurchase authority is valid for one-year through September 29, 2023.

2022 Guidance

We tightened revenue guidance and increased Adjusted EBITDA guidance for FY 2022 as follows:

Current

Previous

Revenue

$510 million – $530 million

$510 million – $540 million

Adjusted EBITDA

$27 million – $30 million

$25 million – $29 million

With respect to projected 2022 Adjusted EBITDA, a quantitative reconciliation is not available without unreasonable effort due to the high variability, complexity and low visibility with respect to taxes and other items, which are excluded from Adjusted EBITDA. We expect the variability of this item to have a potentially unpredictable, and potentially significant, impact on future GAAP financial results.

Conference Call Details

Date:

Thursday, November 10, 2022

Time:

9:00 a.m. Eastern Time

Participant Dial-In Numbers:

Domestic callers:

(877) 407-6176

International callers:

(201) 689-8451

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=FfcRgx4q. An audio replay of the call will be archived on Limbach’s website for 365 days.

About Limbach

Limbach is an integrated building systems solutions firm whose expertise is in the design, modular prefabrication, installation, management and maintenance of heating, ventilation, air-conditioning (“HVAC”), mechanical, electrical, plumbing and controls systems. Our market sectors primarily include the following: healthcare, life sciences, data centers, industrial and light manufacturing, entertainment, education and government. With 16 offices throughout the United States and 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 essential 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 2022 and 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

September 30,

Nine Months Ended

September 30,

(in thousands, except share and per share data)

2022

2021

2022

2021

Revenue

$

122,357

$

129,177

$

353,299

$

363,540

Cost of revenue

97,503

104,714

288,785

303,158

Gross profit

24,854

24,463

64,514

60,382

Operating expenses:

Selling, general and administrative

18,688

18,302

56,113

52,679

Change in fair value of contingent consideration

386

1,151

Amortization of intangibles

386

87

1,184

295

Total operating expenses

19,460

18,389

58,448

52,974

Operating income

5,394

6,074

6,066

7,408

Other (expenses) income:

Interest expense, net

(547

)

(424

)

(1,511

)

(2,140

)

Gain (loss) on disposition of property and equipment

150

(49

)

262

(41

)

Loss on early termination of operating lease

(849

)

Loss on early debt extinguishment

(1,961

)

Gain on change in fair value of interest rate swap

298

298

Gain on change in fair value of warrant liability

14

Total other expenses

(99

)

(473

)

(1,800

)

(4,128

)

Income before income taxes

5,295

5,601

4,266

3,280

Income tax provision

1,654

1,615

1,275

844

Net income

$

3,641

$

3,986

$

2,991

$

2,436

Earnings Per Share (“EPS”)

Earnings per common share:

Basic

$

0.35

$

0.39

$

0.29

$

0.25

Diluted

$

0.34

$

0.38

$

0.28

$

0.24

Weighted average number of shares outstanding:

Basic

10,444,987

10,266,486

10,429,671

9,915,966

Diluted

10,690,434

10,491,863

10,595,061

10,145,470

LIMBACH HOLDINGS, INC.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

September 30, 2022

December 31, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

28,419

$

14,476

Restricted cash

113

113

Accounts receivable (net of allowance for doubtful accounts of $349 and

$263 as of September 30, 2022 and December 31, 2021, respectively)

110,998

89,327

Contract assets

65,266

83,863

Income tax receivable

214

114

Other current assets

4,318

5,013

Total current assets

209,328

192,906

Property and equipment, net

19,131

21,621

Intangible assets, net

15,723

16,907

Goodwill

11,370

11,370

Operating lease right-of-use assets

19,272

20,119

Deferred tax asset

5,407

4,330

Other assets

516

259

Total assets

$

280,747

$

267,512

LIABILITIES

Current liabilities:

Current portion of long-term debt

$

9,719

$

9,879

Current operating lease liabilities

3,602

4,366

Accounts payable, including retainage

63,787

63,840

Contract liabilities

42,522

26,712

Accrued income taxes

2,264

501

Accrued expenses and other current liabilities

24,140

24,444

Total current liabilities

146,034

129,742

Long-term debt

23,473

29,816

Long-term operating lease liabilities

16,532

16,576

Other long-term liabilities

1,838

3,540

Total liabilities

187,877

179,674

STOCKHOLDERS’ EQUITY

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

10,447,660 issued and outstanding as of September 30, 2022 and 10,304,242 at December 31, 2021

1

1

Additional paid-in capital

87,045

85,004

Retained Earnings

5,824

2,833

Total stockholders’ equity

92,870

87,838

Total liabilities and stockholders’ equity

$

280,747

$

267,512

LIMBACH HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended

September 30,

(in thousands)

2022

2021

Cash flows from operating activities:

Net income

$

2,991

$

2,436

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

Depreciation and amortization

6,173

4,353

Provision for doubtful accounts

235

126

Stock-based compensation expense

1,980

2,016

Noncash operating lease expense

3,336

3,152

Amortization of debt issuance costs

100

251

Deferred income tax provision

(1,077

)

391

(Gain) loss on sale of property and equipment

(262

)

41

Loss on early termination of operating lease

849

Loss on change in fair value of contingent consideration

1,151

Loss on early debt extinguishment

1,961

Gain on change in fair value of interest rate swap

(298

)

Gain on change in fair value of warrant liability

(14

)

Changes in operating assets and liabilities:

Accounts receivable

(21,906

)

(12,678

)

Contract assets

18,597

(5,095

)

Other current assets

698

(1,243

)

Accounts payable, including retainage

(53

)

4,131

Prepaid income taxes

(101

)

(217

)

Accrued taxes payable

1,763

(1,426

)

Contract liabilities

15,810

(9,645

)

Operating lease liabilities

(3,264

)

(3,036

)

Accrued expenses and other current liabilities

(3,612

)

(2,173

)

Other long-term liabilities

(130

)

(112

)

Net cash provided by (used in) operating activities

22,980

(16,781

)

Cash flows from investing activities:

Proceeds from sale of property and equipment

442

421

Purchase of property and equipment

(725

)

(687

)

Net cash used in investing activities

(283

)

(268

)

Cash flows from financing activities:

Proceeds from Wintrust Term Loan

30,000

Payments on Wintrust and A&R Wintrust Term Loans

(11,571

)

(3,500

)

Proceeds from A&R Wintrust Revolving Loan

15,194

Payments on A&R Wintrust Revolving Loan

(15,194

)

Payments on 2019 Refinancing Term Loan

(39,000

)

Proceeds from financing transaction

5,400

Payments on financing liability

(7

)

Prepayment penalty and other costs associated with early debt extinguishment

(1,376

)

Proceeds from the sale of common stock

22,773

Proceeds from the exercise of warrants

1,989

Payments on finance leases

(2,051

)

(1,966

)

Payments of debt issuance costs

(427

)

(593

)

Taxes paid related to net-share settlement of equity awards

(363

)

(401

)

Proceeds from contributions to Employee Stock Purchase Plan

265

278

Net cash (used in) provided by financing activities

(8,754

)

8,204

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

13,943

(8,845

)

Cash, cash equivalents and restricted cash, beginning of period

14,589

42,260

Cash, cash equivalents and restricted cash, end of period

$

28,532

$

33,415

Supplemental disclosures of cash flow information

Noncash investing and financing transactions:

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

$

$

156

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

2,171

846

Right of use assets disposed or adjusted modifying operating lease liabilities

2,396

47

Right of use assets disposed or adjusted modifying finance lease liabilities

(77

)

Interest paid

1,425

2,138

Cash paid for income taxes

$

768

$

2,096

LIMBACH HOLDINGS, INC.

Condensed Consolidated Segment Operating Results (Unaudited)

Three Months Ended

September 30,

Increase/(Decrease)

(in thousands, except for percentages)

2022

2021

$

%

Statement of Operations Data:

Revenue:

GCR

$

62,653

51.2

%

$

89,950

69.6

%

$

(27,297

)

(30.3

)%

ODR

59,704

48.8

%

39,227

30.4

%

20,477

52.2

%

Total revenue

122,357

100.0

%

129,177

100.0

%

(6,820

)

(5.3

)%

Gross profit:

GCR(1)

9,648

15.4

%

12,754

14.2

%

(3,106

)

(24.4

)%

ODR(2)

15,206

25.5

%

11,709

29.8

%

3,497

29.9

%

Total gross profit

24,854

20.3

%

24,463

18.9

%

391

1.6

%

Selling, general and administrative:

GCR(1)

8,496

13.6

%

9,586

10.7

%

(1,090

)

(11.4

)%

ODR(2)

9,386

15.7

%

8,013

20.4

%

1,373

17.1

%

Corporate

806

0.7

%

703

0.5

%

103

14.7

%

Total selling, general and administrative

18,688

15.3

%

18,302

14.2

%

386

2.1

%

Change in fair value of contingent consideration (Corporate)

386

0.3

%

%

386

100.0

%

Amortization of intangibles (Corporate)

386

0.3

%

87

0.1

%

299

343.7

%

Total operating income

$

5,394

4.4

%

$

6,074

4.7

%

$

(680

)

(11.2

)%

(1) As a percentage of GCR revenue.

(2) As a percentage of ODR revenue.

LIMBACH HOLDINGS, INC.

Condensed Consolidated Segment Operating Results (Unaudited)

Nine Months Ended

September 30,

Increase/(Decrease)

(in thousands, except for percentages)

2022

2021

$

%

Statement of Operations Data:

Revenue:

GCR

$

200,921

56.9

%

$

262,304

72.2

%

$

(61,383

)

(23.4

)%

ODR

152,378

43.1

%

101,236

27.8

%

51,142

50.5

%

Total revenue

353,299

100.0

%

363,540

100.0

%

(10,241

)

(2.8

)%

Gross profit:

GCR(1)

26,700

13.3

%

31,034

11.8

%

(4,334

)

(14.0

)%

ODR(2)

37,814

24.8

%

29,348

29.0

%

8,466

28.8

%

Total gross profit

64,514

18.3

%

60,382

16.6

%

4,132

6.8

%

Selling, general and administrative:

GCR(1)

25,042

12.5

%

27,770

10.6

%

(2,728

)

(9.8

)%

ODR(2)

29,091

19.1

%

22,893

22.6

%

6,198

27.1

%

Corporate

1,980

0.6

%

2,016

0.6

%

(36

)

(1.8

)%

Total selling, general and administrative

56,113

15.9

%

52,679

14.5

%

3,434

6.5

%

Change in fair value of contingent consideration (Corporate)

1,151

0.3

%

%

1,151

100.0

%

Amortization of intangibles (Corporate)

1,184

0.3

%

295

0.1

%

889

301.4

%

Total operating income

$

6,066

1.7

%

$

7,408

2.0

%

$

(1,342

)

(18.1

)%

(1) As a percentage of GCR revenue.

(2) As a percentage of ODR revenue.

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 to Adjusted EBITDA

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

2022

2021

2022

2021

Net income

$

3,641

$

3,986

$

2,991

$

2,436

Adjustments:

Depreciation and amortization

2,025

1,389

6,173

4,353

Interest expense, net

547

424

1,511

2,140

Non-cash stock-based compensation expense

806

703

1,980

2,016

Loss on early debt extinguishment

1,961

Change in fair value of interest rate swap

(298

)

(298

)

Change in fair value of warrants

(14

)

Loss on early termination of operating lease

849

Income tax provision

1,654

1,615

1,275

844

Acquisition and other transaction costs

45

243

Change in fair value of contingent consideration

386

1,151

Restructuring costs(1)

1,398

4,324

Adjusted EBITDA

$

10,204

$

8,117

$

20,199

$

13,736

(1) Includes restructuring charges within our Southern California and Eastern Pennsylvania branches as well as other cost savings initiatives throughout the company.

Investor Relations

The Equity Group, Inc.

Jeremy Hellman, CFA

Vice President

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