Limbach Holdings Reports Fourth Quarter and Fiscal Year 2018 Results

Compared to Prior Year, Q4 2018 Revenues up 15.2% and FY 2018 Revenues up 12.5%;
Aggregate Backlog of $559.7 million at Year End

Conference Call Scheduled for 9:00 am ET Tuesday April 16, 2019

Limbach Holdings, Inc. (Nasdaq: LMB) (“Limbach” or the “Company”) today announced its financial results for the quarter and year ended December 31, 2018. Total fourth quarter 2018 revenues increased 15.2% from the prior year period to $151.4 million. FY 2018 revenues increased 12.5% from the prior year to $546.5 million.

The following are other key financial highlights of FY 2018:

• Construction segment revenue increased 12.0% compared to the prior year to $438.2 million, primarily resulting from continued strong activity in the New England, Florida, Southern California and Ohio regions, which was partially offset by declines in the Michigan and Western Pennsylvania regions.
• Service segment revenue increased 14.8% compared to the prior year to $108.3 million, resulting from growth in the Florida, Mid-Atlantic, Michigan and Eastern Pennsylvania regions, which was partially offset by a decline in the Southern California region.
• Gross margin was 10.9%, compared with 13.5% in the prior year. The decrease was caused primarily by $16.0 million of net project-related write downs in the Company’s Mid-Atlantic region. Excluding the impact of the Mid-Atlantic region’s full year 2018 results, gross margin would have been 15.2%.
• Selling, general and administrative (“SG&A”) expenses totaled $57.1 million in 2018, up from $56.0 million in 2017. As a percentage of revenues, full year SG&A expenses were 10.4% in 2018, compared with 11.5% in 2017.
• Net loss attributable to the Company’s common stockholders was $4.0 million, compared with $0.9 million for the prior year.
• Aggregate backlog at December 31, 2018 was $559.7 million, compared with $461.4 million at December 31, 2017. Backlog at December 31, 2018 consisted of $505.5 million of Construction segment work and $54.2 million of Service segment work. The Company expects approximately 60.1% of current Construction backlog to be recognized as revenue in the current fiscal year.
• Subsequent to year-end, on April 12, 2019, the Company refinanced its prior outstanding indebtedness with a senior secured credit facility with a lending syndicate led by Colbeck Capital Management, LLC (“Colbeck”). Key terms of the credit facility include:
  • $40 million term loan, fully-drawn at closing;
  • $25 million delayed draw term loan to support future acquisitions;
  • Interest rate of either LIBOR (with a 2.00% floor) +800 basis points (fixed spread) or a base rate (with a 3.00% minimum) +700 basis points; and
  • No amortization for 18 months, allowing the Company to enhance cash flow.
• In connection with the senior secured credit facility, the Company issued warrants to certain lenders thereunder to purchase up to an aggregate of 263,314 shares of the Company’s common stock at an exercise price of $7.63 per share, all or a portion of which would become exercisable in the event of any draw under the delayed draw term loan. The warrants have a five-year term.
• In conjunction with the senior secured credit facility, on April 12, 2019, the Company also entered into a revolving credit facility with Citizens Bank. Key terms of the revolving credit facility include:
  • $15 million total borrowing capacity, with $14 million available but undrawn at closing; and
  • Interest rate of either LIBOR (with a 2.00% floor) +300 to 350 basis points or a base rate (with a 3.00% minimum) +200 to 250 basis points.

Management Commentary

Charlie Bacon, CEO of Limbach, commented, “While 2018 had its challenges, we closed the year with a solid fourth quarter, providing us with excellent momentum going into 2019. The challenges we faced in our Mid-Atlantic region in 2018 drove the implementation of some important improvements throughout our entire operations that we are confident have strengthened our business for the long-run. Our Service segment continues to fire on all cylinders and we are focused on expanding that segment, both in terms of its capabilities, via deploying new technologies, and customer base, through enhancing existing relationships with large regional and national footprint customers while also focusing on attracting new customers.”

Mr. Bacon concluded, “Our Construction business is also performing well. Eight of our ten business units recorded revenue growth in 2018, with seven of the ten delivering strong EBIT results. We closed 2018 with record backlog of over $559 million. We also had additional promised work of approximately $380 million as of December 31, 2018, giving us solid revenue coverage for 2019 as well as a great jump start on our 2020 and 2021 bookings. Lastly, our refinancing is now complete, providing us the balance sheet to continue expanding our business. We are excited about the road ahead.”

Fourth Quarter 2018 Summary

Revenue

Fourth quarter 2018 revenue of $151.4 million was up 15.2% compared to $131.4 million for the prior year period, as both the Construction and Service segments exhibited growth. Construction segment revenue of $118.3 million was up 9.6%, while Service segment revenue of $33.1 million was up 40.7%.

Gross Margin

Gross margin for fourth quarter 2018 was 13.0%, compared to 15.9% in the prior year period. Service segment gross margin was 20.2%, compared to 26.0% in the prior year period, as Service work project mix trended toward larger jobs which carried somewhat lower pricing. Construction segment gross margin on a dollar basis decreased $1.8 million as project write downs experienced in previous quarters continued, albeit on a much smaller scale compared to the third quarter. As a result, Construction segment gross margin was 11.0% for fourth quarter 2018 compared to 13.7% for the prior year period. On a dollar basis, total gross profit in the fourth quarter of 2018 was $19.7 million, compared with $20.9 million for the prior year period.

SG&A Expense

Fourth quarter 2018 SG&A expenses were $14.4 million, compared to $15.1 million in the prior year period. The decrease in SG&A expenses was primarily due to the absence of incentive accruals that were incurred in the prior year period. As a percentage of total revenue, fourth quarter 2018 SG&A expenses accounted for 9.5%, compared to 11.5% in the prior year period, primarily as a result of the Company’s ability to hold expenses relatively level while revenues continued to grow.

Net Income attributable to the Company’s common stockholders

Net income attributable to the Company’s common stockholders for fourth quarter 2018 was $3.4 million, compared to $1.0 million in the prior year period. Earnings per share for fourth quarter 2018 was $0.44 for both basic and diluted, compared to $0.13 basic and $0.12 diluted in the prior year period.

Full year 2018 Summary

Revenue

For the full year 2018, revenue was $546.5 million, up 12.5% from $485.7 million for the prior year. Construction segment revenue of $438.2 million was up 12.0% from the prior year, while Service segment revenues of $108.3 million were up 14.8% from the prior year.

Gross Margin

Gross margin for the full year 2018 was 10.9%, compared to 13.5% in the prior year. Service segment gross margin was 21.0%, compared to 22.1% in the prior year. During FY 2018, Construction segment gross margin was negatively impacted by net write downs of approximately $13.2 million on ten projects, which includes $14.3 million of net write downs in the Mid-Atlantic region. As a result, Construction segment gross margin was 8.4% for the full year 2018, compared to 11.4% for the prior year. Excluding the Mid-Atlantic region from full year 2018 results, gross margin would have been 15.2%. In addition, in 2018, one project in the Service segment within the Mid-Atlantic region experienced a write down of $1.7 million. On a dollar basis, total gross profit for the full year 2018 was $59.4 million, compared to $65.6 million for the prior year.

SG&A Expense

SG&A expense for the full year 2018 was $57.1 million, compared to $56.0 million in the prior year. Significant increases in 2018 SG&A expense included a $2.6 million increase in salary and benefit expenses related to increased staffing at multiple locations and additional leased properties, which contributed $1.2 million of added SG&A expense. The increase was offset by a $3.2 million reduction in incentive compensation expense and a $1.5 million reduction in professional fees. As a percentage of total revenue, SG&A expense for the full year 2018 accounted for 10.4%, compared to 11.5% in the prior year.

Net Loss attributable to the Company’s common stockholders

Net loss attributable to the Company’s common stockholders for the full year 2018 was $4.0 million, compared to net loss of $0.9 million in the prior year. Net loss per share for the full year 2018 was $0.52 for both basic and diluted, compared to $0.13 for both basic and diluted for the prior year.

Backlog

Aggregate backlog at December 31, 2018 was $559.7 million, compared to $461.4 million at December 31, 2017. Backlog at December 31, 2018 consisted of $505.5 million of Construction segment work and $54.2 million of Service segment work. The Company expects approximately 60.1% of current, Construction backlog to be recognized as revenue in 2019.

Balance Sheet and Refinancing

Subsequent to year-end, on April 12, 2019, the Company refinanced its outstanding indebtedness with a new senior secured credit facility with a lending syndicate led by Colbeck. Maturing on April 12, 2023, subject to adjustment, the new facility has a total capacity of $65 million, $40 million of which is a term loan that was drawn at closing and $25 million of which comprises a delayed-draw term loan to support acquisitions, which is currently undrawn. The new facility has an interest rate of either LIBOR (with a 2.00% floor) plus 800 basis points (fixed spread) or a base rate (with a 3.00% minimum) plus 700 basis points and no amortization payments for 18 months, allowing the Company to enhance its near-term cash flow. In connection with the senior secured credit facility, the Company issued warrants to certain lenders thereunder to purchase up to an aggregate of 263,314 shares of the Company’s common stock at an exercise price of $7.63 per share, all or a portion of which would become exercisable in the event of any draw under the delayed draw term loan. The warrants have a five-year term.

In conjunction with the senior secured credit facility noted above, the Company entered into a three-year revolving credit facility with Citizens Bank. Citizens Bank was a member of the bank group whose debt was retired with the proceeds of the new senior credit facility. The revolver has $15 million of total borrowing capacity with $14 million available which is undrawn. The senior secured credit facility provided excess cash which, when combined with the revolver, provides adequate liquidity and working capital to support the Company’s operations. The revolver interest rate is either LIBOR (with a 2.00% floor) plus 300 to 350 basis points or a base rate (with a 3.00% minimum) plus 200 to 250 basis points.

Access by Webcast

The call will also be simultaneously webcast over the Internet via the “Investor Relations” section of LMB’s website at www.limbachinc.com or by clicking on the conference call link: https://78449.themediaframe.com/dataconf/productusers/lmb/mediaframe/26937/indexl.html.

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

About Limbach

Founded in 1901, Limbach is the 9^th largest mechanical systems solutions firm in the United States as determined by Engineering News Record. Limbach provides building infrastructure services, with an expertise in the design, installation and maintenance of HVAC and mechanical, electrical, and plumbing systems for a diversified group of commercial and institutional building owners. Limbach employs more than 1,700 employees in 14 offices throughout the United States. The Company’s full life-cycle capabilities, from concept design and engineering through system commissioning and recurring 24/7 service and maintenance, position Limbach 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 timing of the recognition of backlog as revenue, the potential for recovery of cost overruns, the ability of the Company to successfully remedy the issues that have led to write-downs in its Mid-Atlantic branch, and the benefits expected by the Company’s new senior secured credit facility and revolving credit facility. 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. 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.

Non-GAAP Financial Measure

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 (loss) 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 (loss) 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 Adjusted EBITDA to net income (loss), the most comparable GAAP measure, is provided below.

Investor Relations:
The Equity Group Inc.
Jeremy Hellman, CFA
Senior Associate
(212) 836-9626 / jhellman@equityny.com
Or
Limbach Holdings, Inc.
John T. Jordan, Jr.
Executive Vice President and Chief Financial Officer
(301) 623-4799 / john.jordan@limbachinc.com

Source: Limbach Holdings, Inc.

Released April 15, 2019