Limbach Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Limbach provides building systems construction, installation, maintenance and service, principally for HVAC, plumbing, electrical and control systems. Its segments are General Contractor Relationships (GCR; formerly Construction) and Owner Direct Relationships (ODR; formerly Service).
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $113.3 million | $138.8 million; down 18.3% |
| Gross profit / margin | $17.2 million / 15.2% | $18.2 million / 13.1% |
| Operating income (loss) | $(0.02) million | $1.3 million |
| Net income (loss) | $(2.3) million | $(0.05) million |
| Basic and diluted loss per share | $(0.25) | $(0.01) |
| Operating cash flow | $(17.4) million | $3.5 million provided |
| Cash and cash equivalents at quarter-end | $37.2 million | $42.1 million at Dec. 31, 2020 |
| Total debt, including current portion | $35.4 million | $45.5 million at Dec. 31, 2020 |
| Working capital / current ratio | $61.3 million / 1.46 | $49.1 million / 1.33 at Dec. 31, 2020 |
GCR revenue was $84.8 million, down 22.5%; gross profit was $9.4 million, with an 11.1% margin. ODR revenue was $28.5 million, down 2.5%; gross profit rose 8.2% to $7.8 million, with a 27.4% margin. Total gross margin improved mainly due to a greater contribution from higher-margin ODR work, slightly higher GCR margins and lower GCR project write-downs. SG&A increased 2.1% to $17.1 million and rose to 15.1% of revenue from 12.1%.
Operating cash use reflected decreases in contract liabilities and accounts payable, and an increase in contract assets and other current assets. Financing cash flow was $12.4 million, including equity and debt proceeds. Investing cash flow was approximately break-even.
Material changes and financing
- On February 24, 2021, the company refinanced its prior debt with a $30 million senior secured term loan and a $25 million senior secured revolving facility, maturing in February 2026. No revolver borrowings were outstanding at quarter-end; available capacity after $3.4 million of letters of credit was $21.6 million.
- The new term loan had $29.5 million outstanding at March 31, 2021, plus finance lease obligations included in reported debt. The company reported compliance with the Wintrust facility’s covenants at quarter-end. The agreements include leverage and fixed-charge coverage tests and limits on capital expenditures.
- The refinancing resulted in a $2.0 million loss on early extinguishment. Net interest expense fell to $1.3 million from $2.2 million, as the new financing replaced prior high-cost debt.
- A February public offering raised approximately $22.8 million in net proceeds, including the over-allotment; warrant exercises provided a further $2.0 million. Shares outstanding increased to 10.25 million at March 31, from 7.93 million at December 31, 2020.
- The company had breached the prior term loan’s collateral coverage covenant at December 31, 2020, with collateral coverage of $37.9 million against $39.0 million of term debt. Lenders waived that breach in February 2021; the prior facilities were subsequently refinanced.
Outlook, risks and unusual items
- No formal earnings or revenue guidance is provided. Management said cash, expected operating receipts and available Wintrust borrowing capacity were expected to cover working capital and capital expenditure needs for at least the next 12 months, assuming continued lender support.
- Backlog at March 31 was $393.6 million for GCR and $52.9 million for ODR. The company expected to recognize approximately $270.5 million of total backlog by year-end 2021. Remaining performance obligations were $431.0 million; management estimated 56% of GCR and 94% of ODR obligations would be recognized during 2021. Timing depends in part on customer and project conditions.
- Management said the continuing COVID-19 effects slowed sales closings in several business units during late 2020 and Q1 2021, affecting revenue and profitability. Customer budget constraints, project delays, pricing pressure, collection difficulties and restricted capital access could continue to affect results.
- Q1 GCR project estimate revisions included $0.7 million of gross-profit write-downs and $0.7 million of write-ups on projects with material individual impacts. The prior-year quarter had $3.2 million of such write-downs and $1.0 million of write-ups.
- Other exposures include approximately $160.7 million of outstanding surety bonds, construction-related litigation, and potential multiemployer pension plan contribution or withdrawal liabilities. Management said it was not aware of significant current liabilities from the pension plans, but could not determine potential future withdrawal liability.
- Material risks include construction cost inflation and price volatility, weather and seasonality, project cost estimates, working-capital fluctuations, and continuing pandemic uncertainty. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the sharp operating cash outflow and contract-working-capital movements reverse, and whether receivables and contract assets are collected as expected.
- Progress in stabilizing GCR revenue and maintaining project margins, alongside continued ODR growth and service-contract performance.
- Compliance with Wintrust leverage and fixed-charge coverage covenants, actual borrowing availability, and the cost of variable-rate debt.
- Conversion and timing of backlog into revenue and cash, including any customer cancellations, project delays or unapproved change orders and claims.
- Potential financial effects of COVID-19, litigation, surety obligations, material costs and multiemployer pension exposure.