Limbach Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Limbach provides building systems construction and facility services, reported through General Contractor Relationships (GCR) and Owner Direct Relationships (ODR). Unless noted, amounts are in millions of dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $122.4 | $129.2 | $353.3 | $363.5 |
| Gross profit / margin | $24.9 / 20.3% | $24.5 / 18.9% | $64.5 / 18.3% | $60.4 / 16.6% |
| Operating income | $5.4 | $6.1 | $6.1 | $7.4 |
| Net income | $3.6 | $4.0 | $3.0 | $2.4 |
| Diluted EPS | $0.34 | $0.38 | $0.28 | $0.24 |
- Segment mix: Q3 GCR revenue fell 30.3% to $62.7 million; ODR rose 52.2% to $59.7 million. For the nine months, GCR revenue declined 23.4% to $200.9 million while ODR grew 50.5% to $152.4 million.
- Cash flow: Operating activities provided $23.0 million in the first nine months, versus $16.8 million used in the prior-year period. Cash and cash equivalents were $28.4 million at September 30, 2022, up from $14.5 million at year-end 2021. Investing activities used $0.3 million and financing activities used $8.8 million.
- Debt and liquidity: Total debt, including finance leases and the sale-leaseback financing liability, was $33.9 million; the balance sheet reported $9.7 million current and $23.5 million long-term debt, net of unamortized costs. No revolving borrowings were outstanding at quarter-end; net revolver availability after letters of credit was $21.7 million. Working capital was $63.3 million and the current ratio was 1.43.
Material changes and notable items
- Revenue fell 5.3% in Q3 and 2.8% year to date, as ODR growth and the Jake Marshall acquisition only partly offset lower GCR activity. Management cited regional GCR declines, the Southern California wind-down, and equipment-delivery delays that pushed revenue into future periods.
- Gross margin improved, largely due to a higher share of ODR work. Nine-month gross profit also included a $1.3 million write-up from settlement of a prior claim. Q3 operating income decreased despite higher gross profit, reflecting higher operating costs, including contingent-consideration remeasurement and acquired-asset amortization.
- For the nine months, net income increased despite lower operating income, mainly because prior-year results included a $2.0 million loss on early debt extinguishment. Interest expense was lower year over year, while the 2022 period included an $0.8 million loss on early termination of the Pittsburgh lease.
- The company recorded $1.2 million of nine-month expense from increasing the estimated fair value of Jake Marshall earnout consideration; estimated maximum exposure was approximately $4.2 million at quarter-end.
- On September 29, Limbach completed a Pontiac property sale-leaseback, but accounted for it as a financing transaction rather than a sale. The financing liability was approximately $4.9 million net of issuance costs; the associated lease has a 25-year primary term.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management said cash, anticipated operating cash generation, and available revolver capacity should meet working-capital and capital needs for at least the next 12 months, and reported compliance with credit-facility financial covenants.
- Backlog at September 30 was $332.8 million for GCR and $124.5 million for ODR, versus $337.2 million and $98.0 million, respectively, at December 31, 2021. Management expected approximately $140.9 million of total backlog revenue to be recognized by year-end. Remaining performance obligations were $332.8 million for GCR and $106.5 million for ODR; most were expected to be recognized within 24 months, subject to project timing.
- Management cited inflation, material and equipment cost increases, supply-chain delays, labor productivity challenges, and possible project delays or cancellations as risks. It also noted seasonality and weather-related variability, customer collection and working-capital exposure, variable-rate debt, surety and self-insurance obligations, and potential multiemployer pension withdrawal liabilities.
- Outstanding surety bonds were approximately $115.6 million. The company disclosed ongoing ordinary-course disputes, including a California lawsuit alleging damages above $3.0 million and a Boston project arbitration involving an alleged overbilling of just over $0.3 million plus unquantified audit costs. Management said losses in these matters were neither probable nor reasonably estimable and recorded no loss contingency.
- The company announced a share repurchase authorization of up to $2.0 million through September 29, 2023; no shares had been repurchased by quarter-end. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether delayed equipment deliveries, inflation, and labor constraints continue to defer or reduce GCR project revenue and margins.
- Whether ODR growth is sustainable and can offset the ongoing decline and planned exit of Southern California operations.
- Cash conversion and working-capital trends, particularly receivables, contract assets, contract liabilities, and customer collections.
- Debt repayment, variable-rate interest exposure, covenant headroom, and the long-term cost and obligations of the Pontiac financing arrangement.
- Final Jake Marshall earnout amounts, resolution of disclosed legal disputes, and any liabilities arising from surety, self-insurance, or multiemployer pension plans.