Limbach Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Limbach provides mechanical, electrical and plumbing construction, maintenance and facility services through Owner Direct Relationships (ODR) and General Contractor Relationships (GCR). Amounts below are in U.S. dollars; financial figures are rounded to millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $119.0 million | $121.0 million; down 1.7% |
| Gross profit and margin | $31.1 million; 26.1% | $26.2 million; 21.7% |
| Operating income | $6.5 million | $4.7 million |
| Net income | $7.6 million | $3.0 million |
| Diluted EPS | $0.64 | $0.27 |
| Operating cash flow | $(3.9) million | $9.4 million provided |
| Cash and cash equivalents at period end | $48.2 million | $59.8 million at December 31, 2023 |
| Total reported debt | $22.3 million | $22.7 million at December 31, 2023 |
| Working capital / current ratio | $75.0 million / 1.60 | $71.9 million / 1.50 at December 31, 2023 |
Gross margin improved as ODR contributed a larger share of revenue and margins, alongside acquired-business contributions and more selective GCR project pursuit. SG&A increased 8.7% to $22.9 million, and equaled 19.2% of revenue versus 17.4% a year earlier. Q1 net income included a $0.3 million income tax benefit; the effective tax rate was negative 4.5%, materially affected by discrete excess tax benefits on stock-based compensation.
Operating cash use reflected a $16.2 million working-capital outflow, particularly payment timing in accounts receivable and accrued expenses. Investing activities used $2.0 million, principally for equipment purchases; financing activities used $5.7 million, including $5.2 million of taxes paid on net-share settlement of equity awards. Cash, cash equivalents and restricted cash declined $11.6 million during the quarter.
At March 31, the $50.0 million revolving facility had $10.0 million drawn and $5.2 million of letters of credit outstanding, leaving $34.8 million of stated availability. Together with cash, reported total available funding capacity was $83.1 million. Limbach reported compliance with its financial covenants. Its debt includes revolving borrowings, vehicle finance leases and a sale-leaseback financing liability.
Material changes and operating indicators
- ODR revenue rose 26.5% to $74.3 million; GCR revenue fell 28.2% to $44.7 million. Management attributed ODR growth to its owner-direct strategy and the ACME and Industrial Air acquisitions, both acquired after Q1 2023.
- ODR gross profit increased 39.3% to $22.2 million, with a 29.8% segment margin versus 27.1%. GCR gross profit decreased 13.5% to $8.9 million, despite higher project margins, primarily because of lower revenue.
- ODR backlog was $158.8 million, up from $147.0 million at year-end; GCR backlog was $163.0 million, down from $186.9 million. Management said the GCR decrease reflected deliberate selection of smaller, higher-margin work. It estimated 92% of ODR and 68% of GCR backlog would be recognized as revenue during the rest of 2024.
- Remaining performance obligations were $139.5 million for ODR and $163.0 million for GCR. These are not identical to backlog; certain cancellable ODR arrangements and unexercised options are excluded.
Outlook, risks and unusual items
No numerical revenue or earnings guidance is provided. Management reaffirmed its strategic focus on ODR growth, improved profitability, workforce development and strategically complementary acquisitions. For GCR, it intends to emphasize smaller, shorter-duration and higher-margin projects and reduce exposure to large, complex work. The company expects cash and borrowing availability, together with operating cash generation, to support working-capital and capital requirements for at least the next 12 months.
- Management cited persistent inflation, elevated labor costs, supply-chain disruption and higher interest rates, although inflation was lower than in 2023. Delays in critical equipment could postpone work or lead customers to seek contract termination.
- Construction revenue and profit depend on cost-to-cost estimates. Q1 included $2.0 million of gross-profit write-ups on two ODR projects; no material write-downs were reported. Claims and unapproved change orders had an estimated net realizable value of $19.3 million, and resolution or billing may be delayed, including by disputes.
- Other Q1 items included a $0.6 million loss from increased fair value of contingent consideration, a $0.5 million gain on property disposals, $0.6 million of interest income and a $0.1 million gain on the interest-rate swap.
- Potential exposures include ordinary-course litigation, approximately $90.0 million of outstanding surety bonds, self-insurance claims and obligations related to about 40 multiemployer pension plans. Management said it was not aware of significant liabilities arising from plans identified as critical, but could not determine potential future withdrawal liability.
- Management reported no material change in previously disclosed risk factors and concluded disclosure controls were effective at quarter-end.
Investor verification points
- Assess whether ODR growth and gross-margin improvement are sustainable, including the effect of acquisitions and the Q1 project estimate write-ups.
- Track GCR backlog conversion, further backlog changes and the timing and collectability of receivables, contract assets, claims and change orders.
- Reconcile reported earnings with cash conversion and monitor working-capital movements, particularly accounts receivable, payables and accrued liabilities.
- Review borrowing availability, covenant headroom, interest-rate exposure and future earnout payments; a $3.0 million Jake Marshall earnout payment was made in April 2024.
- Monitor inflation, labor and equipment availability, project cost overruns, customer concentration, surety capacity, litigation and multiemployer pension exposure.