Limbach Holdings, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2022. Limbach provides building-system construction, service and maintenance, operating through General Contractor Relationships (GCR) and Owner Direct Relationships (ODR). Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $116.1 | $121.0 | $230.9 | $234.4 |
| Gross profit / margin | $21.3 / 18.4% | $18.7 / 15.4% | $39.7 / 17.2% | $35.9 / 15.3% |
| Operating income / margin | $1.5 / 1.3% | $1.4 / 1.1% | $0.7 / 0.3% | $1.3 / 0.6% |
| Net income (loss) | $0.9 | $0.7 | $(0.7) | $(1.6) |
| Basic and diluted EPS | $0.08 | $0.07 | $(0.06) | $(0.16) |
| Operating cash flow | Not provided separately | Not provided separately | $12.6 | $(24.6) |
Balance sheet and liquidity at June 30, 2022
- Cash and cash equivalents were $19.6; current assets $201.9 and current liabilities $142.1, producing working capital of $59.8 and a current ratio of 1.42.
- Reported total debt was $34.9, including $25.7 under the term loan, $3.5 drawn on the revolving facility and $5.7 in finance leases. Current debt was $9.9 and long-term debt was $24.7.
- The $25.0 revolving facility had $18.2 of reported remaining availability after $3.5 of borrowings and $3.3 of letters of credit. Total available funding capacity, including cash, was $37.8.
- Six-month investing cash flow was $(0.3); financing cash flow was $(7.2). Cash, cash equivalents and restricted cash increased $5.2 during the period.
Material changes versus comparable periods
- Q2 revenue declined 4.0%; six-month revenue declined 1.5%. GCR revenue fell 24.2% in Q2 and 19.8% for the half, while ODR revenue rose 48.7% and 49.5%, respectively. The Jake Marshall acquisition contributed to both segments, particularly ODR.
- Gross profit and gross margin increased in Q2 and the first half despite lower revenue, reflecting a greater contribution from higher-margin ODR work and a $1.3 gross-profit write-up on a GCR project related to a prior claim settlement. ODR margins themselves were lower year over year.
- SG&A rose 8.5% in Q2 and 8.9% for the half, including acquired-business costs; SG&A as a share of revenue increased to 16.1% and 16.2%, respectively.
- Six-month net loss narrowed to $0.7 from $1.6. Other expense improved year over year, principally because the prior-year period included a $2.0 debt-extinguishment loss and interest expense declined following refinancing. The 2022 period included a $0.8 loss for terminating the Pittsburgh office lease.
- Operating cash flow improved substantially from the prior-year outflow, largely due to working-capital timing: contract liabilities increased $13.1 and contract assets declined $8.9. Accounts receivable increased $11.8 and used cash.
- GCR backlog was $308.8 at June 30 versus $337.2 at year-end 2021; ODR backlog was $119.3 versus $98.0. Remaining performance obligations were $308.8 for GCR and $102.1 for ODR.
Outlook, management commentary and risks
- Management expects to fully exit Southern California operations during 2022, citing geographic focus and a desire to reduce losses from unprofitable locations.
- The company reported supply-chain and equipment-delivery delays, inflation in materials, fuel and other commodities, and reduced labor productivity and efficiency, particularly in GCR. Management said these conditions delayed revenue and could persist through the rest of 2022; no numerical revenue or earnings guidance is provided.
- Management stated that cash, expected operating cash generation and revolver availability should meet working-capital and capital needs for at least the next 12 months. It reported compliance with financial maintenance covenants at June 30. The filing cautions that this assessment depends in part on continued lender support and that evolving disruptions could affect liquidity and results.
- The credit facility is secured and includes leverage, fixed-charge-coverage and capital-expenditure covenants. A July 2022 subsequent event was a $10.0 notional interest-rate swap, effective July 14, with a 3.12% fixed rate and termination in July 2027.
- Risks include project delays or cancellations, cost escalation, contract-estimate uncertainty, severe weather and economic disruption. The filing also discusses potential cyber risks related to the Ukraine conflict and possible obligations from multiemployer pension plans; the amount and timing of any withdrawal liability cannot be determined.
- Legal matters include a California subcontracting dispute with claimed damages exceeding $3.0 and a Massachusetts arbitration involving an alleged project overbilling of just over $0.3 plus unquantified audit costs. Management said losses were not probable or reasonably estimable and recorded no contingencies for these matters. The company had approximately $120.1 of surety bonds outstanding.
- The company recorded a $0.8 expense from remeasuring Jake Marshall contingent consideration in Q2; estimated maximum exposure was approximately $3.9 at June 30. The filing also reports no goodwill or intangible-asset impairment in the periods presented.
Important facts for investors to verify
- Whether GCR revenue and backlog stabilize as Southern California exits and project selection shifts toward smaller, shorter-duration work.
- Whether ODR growth can continue and translate into sustainable margins and cash generation, separating organic growth from Jake Marshall’s contribution.
- Whether supply delays, inflation, labor constraints and contract-estimate revisions affect project execution, gross margins, and conversion of backlog into revenue.
- Whether working-capital cash inflows are repeatable; six-month operating cash flow benefited from changes in contract assets and liabilities, while receivables consumed cash.
- Debt, borrowing availability, interest-rate exposure and covenant headroom, including the impact of future required payments and the new swap.
- Potential outcomes and developments in the disclosed legal matters, contingent earnout, surety obligations, self-insurance reserves and multiemployer pension exposure.