Limbach Holdings, Inc. — FY2021 Form 10-K
Business and period: Limbach provides building-system design, construction, installation and maintenance services, including HVAC, plumbing, electrical and controls. This 10-K covers the fiscal year ended December 31, 2021, with comparison to FY2020; it is not a standalone fourth-quarter report. The company reports General Contractor Relationships (GCR) and Owner Direct Relationships (ODR).
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $490.4 million | $568.2 million |
| Gross profit / margin | $85.9 million / 17.5% | $81.4 million / 14.3% |
| Operating income / margin | $14.0 million / 2.9% | $17.2 million / 3.0% |
| Net income | $6.7 million | $5.8 million |
| Diluted EPS | $0.66 | $0.72 |
| Cash from operating activities | $(24.2) million | $39.8 million |
- Segment results: GCR revenue declined 20.6% to $350.0 million, while gross margin improved to 13.0% from 10.2%. ODR revenue grew 10.3% to $140.3 million, with gross margin of 28.9% versus 28.5%.
- Profitability: Gross profit rose 5.6% despite lower consolidated revenue, reflecting improved GCR margins and a greater share of higher-margin ODR work. SG&A increased 12.3% to $71.4 million, including higher stock compensation, professional fees, travel and rent.
- Cash flow and liquidity: Operating cash outflow was driven primarily by a $47.9 million working-capital use, including growth in contract assets and a reduction in contract liabilities. Year-end cash and cash equivalents were $14.5 million. Net working capital was $63.2 million and the current ratio was 1.49.
- Debt and capacity: Total debt, including finance leases, was $40.0 million at year-end, versus $45.5 million in 2020. The company had $34.9 million outstanding under its Wintrust term loan and no revolver borrowings. Available funding capacity, including cash and net revolver availability after letters of credit, was reported as $36.1 million. It was in compliance with financial maintenance covenants at year-end.
Changes and material events
- Revenue fell 13.7%, primarily because of planned GCR reductions and lower activity across multiple regions. Management said it was deliberately prioritizing smaller, shorter-duration and higher-margin projects.
- Backlog at December 31, 2021 was $337.2 million for GCR, down from $393.5 million, and $98.0 million for ODR, up from $50.9 million. Management estimated 65% of GCR backlog and 69% of ODR backlog would convert to revenue in 2022; backlog can change or be canceled.
- The December 2021 Jake Marshall and Coating Solutions acquisition cost $21.3 million at closing, with $3.1 million of contingent consideration recorded at acquisition and up to $6.0 million of potential earnout payments. The acquired companies contributed only from December 2 through year-end.
- The company refinanced its prior high-cost debt in February 2021 and amended its Wintrust facility in December in connection with the acquisition. FY2021 included a $2.0 million loss on early debt extinguishment; lower interest expense helped reduce total other expenses.
- In February 2022, Limbach announced it would wind down its Southern California operations during 2022 to reduce losses and align its geographic focus.
Outlook, risks and unusual items
Management provided no quantified FY2022 revenue or earnings guidance. Its stated priorities were improving profitability, operating cash flow and liquidity; expanding ODR; and selecting GCR projects with more favorable risk and return. Management also expects claims and back-charge recoveries to matter to future profitability and liquidity, while cautioning that timing and outcomes are uncertain. It plans to continue pursuing synergistic acquisitions.
- Supply-chain disruption, equipment delivery delays, materials shortages, rising commodity costs and labor constraints affected operations; fourth-quarter equipment delays pushed revenue into future periods. Management expected these pressures to continue into 2022.
- Contract estimates, claims, change orders and project cost-to-complete judgments can cause revenue or profit reversals. Contract assets included $38.1 million of estimated net realizable value related to claims and unapproved change orders; collection and resolution timing remain uncertain.
- Customer concentration is material: two GCR customers represented approximately 17% and 12% of FY2021 consolidated revenue.
- The company contributes to approximately 40 multiemployer pension plans; contributions were $14.3 million in 2021. Some plans are underfunded or in critical/endangered status, and future contribution increases or withdrawal liabilities are uncertain. No underfunding liability was recorded in the financial statements.
- Other disclosed risks include project overruns, subcontractor and supplier performance, bonding and insurance availability, workforce retention and safety, variable-rate debt, covenant compliance, pandemic-related disruptions, and weather. The filing describes ongoing legal matters; management did not record loss contingencies for certain identified disputes because losses were not considered probable or reasonably estimable at year-end.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective. The acquired businesses were excluded from the 2021 internal-control assessment because they were acquired in December.
Important facts for investors to verify
- Whether the large FY2021 operating cash outflow reverses as contract assets are billed and collected and contract liabilities normalize.
- How much of the reported backlog converts to revenue and cash, particularly the ODR amount, and how much is cancellable or subject to project changes.
- The status, expected timing and recoverability of claims and unapproved change orders, and their potential effect on earnings and liquidity.
- Whether ODR growth and higher GCR margins persist while revenue is lower and SG&A remains elevated.
- The financial and operational effects of the Southern California exit, including any related costs or asset impacts.
- Wintrust loan terms, variable-rate exposure, covenant headroom and remaining acquisition earnout obligations.
- Whether acquisition performance meets the earnout thresholds and whether integration, acquired goodwill and intangible-asset values remain supportable.