Limbach Holdings, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2022, Limbach provided design, construction, installation, and maintenance of HVAC, mechanical, electrical, plumbing, and controls systems, primarily in the eastern and midwestern United States. Its two segments are General Contractor Relationships (GCR), serving general contractors and construction managers, and Owner Direct Relationships (ODR), serving building owners and property managers. The filing is an annual report, not a standalone fourth-quarter report.
Financial and operating metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $496.8 million | $490.4 million | +1.3% |
| Gross profit / margin | $93.7 million / 18.9% | $85.9 million / 17.5% | +9.1%; +1.4 percentage points |
| Operating income / margin | $12.0 million / 2.4% | $14.0 million / 2.9% | Income down 14.1% |
| Net income | $6.8 million | $6.7 million | +1.3% |
| Diluted EPS | $0.64 | $0.66 | Down 3.0% |
| Cash from operating activities | $35.4 million | $(24.2) million | Improved $59.6 million |
- Segment mix: GCR revenue fell 19.9% to $280.4 million; its gross margin improved to 13.8% from 13.0%. ODR revenue rose 54.2% to $216.4 million; its gross margin decreased to 25.5% from 28.9%. ODR generated $55.1 million of gross profit versus $38.6 million for GCR.
- Cash flow and liquidity: FY2022 investing cash outflow was $0.5 million and financing cash outflow was $13.4 million. Cash and cash equivalents were $36.0 million at year-end; working capital was $66.9 million and the current ratio was 1.42. Management reported $21.8 million of available revolver capacity, or $57.8 million in cash plus available capacity.
- Debt: Total debt, including finance leases and the sale-leaseback financing liability, was $31.8 million, compared with $40.0 million a year earlier. The term loan balance was $21.5 million; there were no revolver borrowings at year-end. The company reported compliance with financial maintenance covenants.
- Backlog: GCR backlog was $302.9 million, down from $337.2 million; ODR backlog was $108.2 million, up from $98.0 million. Management estimated that 68% of GCR and 92% of ODR backlog would convert to revenue in 2023. Separately, remaining performance obligations were $302.9 million for GCR and $90.0 million for ODR; these differ from backlog partly because certain cancelable options are excluded.
Material changes and unusual items
- Revenue growth reflected ODR expansion and the inclusion of Jake Marshall and Coating Solutions, acquired in December 2021. The acquisition contributed approximately $28.6 million of GCR and $34.3 million of ODR revenue in 2022 compared with 2021.
- Gross margin improved chiefly due to a greater share of higher-margin ODR work and a $1.3 million gross-profit write-up from settlement of a prior claim. Supply-chain delays, inflation, project delays, and lower labor productivity particularly affected GCR.
- SG&A increased 9.0% to $77.9 million, including acquired-company costs, a $2.2 million estimated loss-contingency accrual, and higher travel costs. A $2.3 million increase in the estimated Jake Marshall earnout liability was also recorded as an expense.
- Other items included an $0.8 million loss on early termination of an operating lease and a $0.3 million gain from the interest-rate swap’s fair-value change. FY2021 included a $2.0 million loss on early debt extinguishment.
- The company repurchased $2.0 million of common stock in 2022. The Pontiac property sale-leaseback was accounted for as financing, not as a completed sale; the related liability was approximately $5.4 million at year-end.
Outlook, commentary, and risks
Management’s 2023 priorities were improving profitability, operating cash flow, and liquidity; expanding owner-direct relationships and services; investing in employees; and improving GCR project selection and execution. Management gave no specific numerical revenue or earnings guidance in the supplied filing text. It said cash, expected operating cash flow, and available borrowing capacity should meet requirements for the next 12 months, while cautioning that working-capital needs, claims, and back-charge settlements could undermine those plans.
- The company continued winding down Southern California GCR and ODR operations, targeting a full exit in 2023 except for warranty obligations. It remains responsible under the underlying office lease through 2027 if the subtenant does not meet its obligations.
- Variable-rate debt exposes the company to higher interest costs. The term loan’s non-hedged portion carried an 8.50% rate at year-end; a $10.0 million interest-rate swap was in place.
- Key business risks include project cost overruns and estimate revisions, unapproved change orders and disputed claims, customer or project concentration, labor availability and union obligations, supplier delays and price inflation, and dependence on surety bonds and insurance.
- Contributions to multiemployer pension plans were $12.6 million in 2022. Some plans were reported as underfunded or in critical/endangered status; the company had not recorded a liability for plan underfunding and could not determine potential future withdrawal liability.
- A California subcontractor dispute with alleged damages exceeding $3.0 million remained unresolved after a January 2023 trial; the company had accrued an estimated loss at year-end. Management said it could not predict the ultimate resolution of ordinary-course legal matters.
- CEO Charles A. Bacon was scheduled to step down on March 28, 2023, with COO Michael McCann slated to succeed him.
Most important facts for investors to verify
- Whether ODR growth and margins can be sustained, and whether GCR margins improve as the company pursues smaller, more selective projects.
- Conversion and profitability of reported backlog and remaining performance obligations, including the effects of cancellations, delays, claims, and change orders.
- Cash conversion and working-capital trends, especially the substantial increase in accounts receivable despite positive operating cash flow.
- Current debt rates, covenant headroom, and liquidity after required principal payments and any further effects of variable interest rates.
- Final outcomes and cash exposure from the Bernards dispute, Jake Marshall earnout, multiemployer pension plans, self-insurance, and the Southern California lease/sublease.
The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to audit internal control effectiveness.