Limbach Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Limbach provides building systems construction, service, and maintenance, principally in the Northeast, Mid-Atlantic, Southeast, and Midwest. Its segments are General Contractor Relationships (GCR) and Owner Direct Relationships (ODR).
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $121.0 million | $114.8 million |
| Gross profit / margin | $26.2 million / 21.7% | $18.3 million / 16.0% |
| Operating income (loss) | $4.7 million | $(0.8) million |
| Net income (loss) | $3.0 million | $(1.5) million |
| Diluted EPS | $0.27 | $(0.15) |
| Cash from (used in) operations | $9.4 million | $(3.0) million |
- Revenue rose 5.4%. GCR revenue declined 13.4% to $62.3 million; ODR revenue grew 36.9% to $58.7 million.
- GCR gross profit increased 23.5% to $10.3 million, with segment margin rising to 16.6% from 11.6%. ODR gross profit increased 59.4% to $15.9 million, with segment margin rising to 27.1% from 23.3%.
- SG&A rose 12.4% to $21.1 million, or 17.4% of revenue versus 16.3%. The filing attributes the increase mainly to payroll, CEO transition costs, and stock compensation.
- Interest expense increased to $0.7 million from $0.5 million, reflecting higher borrowing rates. The 2023 results also included a $0.2 million disposal loss and a $0.2 million interest-rate-swap loss; 2022 included a $0.8 million loss on early lease termination.
Financial position and liquidity
- At March 31, cash and cash equivalents were $41.4 million; current assets were $212.3 million and current liabilities $142.5 million. Working capital was $69.8 million and the current ratio was 1.49.
- Total debt, including finance leases and the sale-leaseback financing liability, was $30.7 million, compared with $31.8 million at year-end. The Wintrust term loan balance was $19.6 million; no revolving borrowings were outstanding at quarter-end. The company reported compliance with its financial covenants.
- Net cash from operations improved by $12.3 million year over year. Management attributed much of the change to accounts-receivable timing, including a $10.0 million receipt from a claim resolution; this was partly offset by movements in contract balances and payables. Capital expenditures, net of asset-sale proceeds, were $0.8 million.
- Quarter-end available funding capacity was reported as $62.2 million, including $41.4 million cash and $20.8 million net availability on the existing revolver after letters of credit.
Backlog, outlook, and material developments
- Backlog at March 31 was $285.7 million for GCR, down from $302.9 million at December 31, 2022, and $120.2 million for ODR, up from $108.2 million. The company estimated about $261.0 million of total backlog would be recognized as revenue during the remainder of 2023. Remaining performance obligations were $285.7 million for GCR and $101.2 million for ODR; these differ from backlog, including because certain cancellable ODR arrangements are excluded.
- Management’s stated priorities for 2023 are improving profitability, operating cash flow, and liquidity; growing ODR and direct owner relationships; investing in its workforce; and selecting GCR work more carefully. The filing does not provide numeric full-year revenue or earnings guidance.
- Management expected elevated inflation and supply-chain delays to continue through 2023, though at lower inflation levels than in 2022. It cited pricing, productivity, and cost-saving actions as partial offsets and expected higher interest expense. Delays in critical equipment could affect projects and backlog conversion.
- The company continued winding down Southern California operations and expected to exit the region during 2023, apart from warranty obligations. It remains liable on the underlying office lease if its subtenant does not meet its obligations.
- CEO Charles A. Bacon III stepped down March 28, 2023; former COO Michael M. McCann became CEO. The filing says SG&A included $0.8 million of CEO transition costs.
- Subsequent financing: On May 5, 2023, the company entered into a new $50 million secured revolving facility, replacing the prior $25 million revolver and maturing in February 2028. The company repaid the then-outstanding term loan using cash and revolver proceeds; as of May 8, $10.0 million was outstanding on the new revolver.
Risks, contingencies, and unusual items
- A California lawsuit by Bernards Bros. alleges damages exceeding $3.0 million. A trial before a private referee occurred in January 2023, with no formal resolution reported. The company had recorded a loss contingency at year-end 2022 and said there had been no change since its 10-K.
- Potential earnout payments related to the Jake Marshall acquisition were estimated at approximately $5.5 million at March 31. The company paid $3.0 million in April 2023 for the 2022 earnout period.
- The company had approximately $109.4 million of surety bonds outstanding. It participates in about 40 multiemployer pension plans; some are in critical status, and potential withdrawal liability cannot be determined from the filing.
- Management identified risks including project cost overruns, claims and change-order recovery, customer payment delays, labor and supplier availability, inflation, variable-rate debt, covenant compliance, and the timing of contract work. It stated that no material changes had occurred in the risk factors from its 2022 Form 10-K.
Important facts for investors to verify
- Whether ODR growth and improved segment margins persist, and how GCR backlog reduction affects future revenue and profitability.
- How much of the operating cash-flow improvement reflects recurring collections versus the $10.0 million claim receipt and other working-capital timing.
- The status and potential financial effect of the Bernards litigation and the remaining acquisition earnout obligations.
- Post-quarter debt balances, borrowing costs, available capacity, and covenant headroom under the new revolving facility.
- Whether supply-chain, inflation, labor, and Southern California lease risks affect project execution, liquidity, or backlog conversion.