Limbach Holdings, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018, compared with 2017. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement.
Business context
Limbach is a U.S. commercial specialty contractor providing HVAC, plumbing, electrical, building-controls, construction, and maintenance services. It reports Construction and Service segments. Construction generated 80.2% of 2018 revenue; Service generated 19.8%.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $546.5 million | $485.7 million |
| Gross profit / margin | $59.4 million / 10.9% | $65.6 million / 13.5% |
| Operating income | $1.1 million | $6.0 million |
| Net income (loss) | $(1.8) million | $0.7 million |
| Net loss per common share | $(0.52) | $(0.13) |
| Cash from operating activities | $25.3 million | $(4.1) million |
| Cash and cash equivalents at year-end | $1.6 million | $0.6 million |
| Working capital / current ratio | $22.8 million / 1.13 | $30.8 million / 1.23 |
| Total debt, including capital leases | $27.2 million | $27.1 million |
- Construction revenue increased 12.0% to $438.2 million; Service revenue increased 14.8% to $108.3 million.
- Construction gross profit fell 18.0% to $36.7 million, with segment margin declining to 8.4% from 11.4%. Service gross profit rose 9.0% to $22.7 million, while its margin slipped to 21.0% from 22.1%.
- Construction backlog was $505.5 million, up from $426.7 million; management expected about $303.9 million to be recognized in 2019. Service backlog was $54.2 million, up from $34.7 million, and was expected to be recognized in 2019.
Material changes, outlook, and unusual items
- Project estimate revisions: 2018 included $16.6 million of gross-profit write-downs on 14 Construction projects and $1.7 million on one Service project, partly offset by write-ups of $3.3 million and $0.5 million, respectively. The company is pursuing recovery related to delays and disruptions but did not recognize potential recoveries.
- Cash flow: Operating cash flow improved substantially, with management citing stronger billing and collections, favorable billing terms, and a $22.3 million increase in the net overbilled position. The cash-flow improvement should be assessed in light of these working-capital movements.
- Debt and liquidity: The company breached certain debt covenants in Q3 2018 after project write-downs; lenders waived the breaches and accelerated existing facility maturities. At December 31, the company reported $14.3 million on its term loan, $7.7 million on its bridge loan, no revolver borrowings, and $19.1 million of net revolver availability after letters of credit. The filing states that the April 12, 2019 refinancing repaid the prior facilities and provided a $40 million term loan, a $25 million delayed-draw term loan, and a $15 million revolving facility. The refinancing carries high variable-rate pricing and restrictive covenants. Management said the refinancing alleviated substantial doubt about the company’s ability to continue as a going concern for at least 12 months from issuance.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end because monthly project reviews and work-in-process reviews did not reliably identify claims and pending change orders. Remediation remained in progress. The 2019 refinancing requires remediation of the weakness by December 31, 2020, with potential fees and a rate increase if not completed by the specified deadline.
- Contingency: A $30 million lawsuit settlement relating to a vehicle accident was paid entirely by insurance carriers in February 2019; the company reported no monetary exposure.
- Pensions and labor: Contributions to approximately 40 multiemployer pension plans and related programs were $43.8 million in 2018, versus $36.9 million in 2017. Some plans were reported as underfunded or in critical/endangered status; potential withdrawal liability was not quantified, and no underfunding liability was recorded.
- Management commentary: Management expected operating cash flow to remain positive as projects mature and collections continue. The filing cites an industry forecast of generally stable or inflation-level growth through 2022 in the company’s core sectors; it provides no specific company revenue or earnings guidance.
- Other risks: Customer concentration (one Construction customer represented about 18% of 2018 revenue), fixed-price project cost overruns, labor availability and costs, weather, materials prices and tariffs, bonding capacity, customer payment delays, and variable-rate debt could affect results and liquidity.
Most important facts for investors to verify
- Whether project reviews and work-in-process controls have been remediated, and whether claims and pending change orders are being accounted for promptly and accurately.
- Whether the refinancing’s covenants, high interest costs, and scheduled amortization can be met while maintaining adequate liquidity.
- Whether Construction margins stabilize after the significant 2018 project write-downs, and whether any claimed cost recoveries become collectible.
- How much reported operating cash flow reflects sustainable collections and operations versus billing and contract-balance timing.
- The funding condition of multiemployer pension plans, potential contribution increases or withdrawal liabilities, and the company’s exposure to major customers.