Business Overview and History

Limbach Holdings, Inc. (LMB) is a leading building systems solutions provider that partners with building owners and facility managers to address their mission-critical mechanical, electrical, and plumbing infrastructure needs. With a strong presence across the eastern United States, the company has carved out a unique niche in the industry, leveraging its expertise and innovative approach to drive consistent growth and profitability.

Limbach was founded in 1901 and has since evolved into a comprehensive building systems solutions provider, serving a diverse client base across six key verticals: healthcare, industrial and manufacturing, data centers, life science, higher education, and cultural and entertainment. The company’s focus on mission-critical infrastructure has enabled it to establish a reputation for delivering exceptional service and developing customized solutions that cater to the unique needs of its clients.

Limbach Holdings, Inc. was formed on July 20, 2016 as a result of a business combination with Limbach Holdings LLC. The company operates in two segments – Owner Direct Relationships (ODR) and General Contractor Relationships (GCR). In the ODR segment, Limbach performs owner direct projects and/or provides maintenance or service primarily on mechanical, plumbing or electrical systems, building controls and specialty contracting projects direct to, or assigned by, building owners or property managers. In the GCR segment, Limbach generally manages new construction or renovation projects that involve primarily mechanical, plumbing, or electrical services awarded to the company by general contractors or construction managers.

In recent years, Limbach has undergone a strategic transformation, shifting its business model to prioritize its Owner Direct Relationships (ODR) segment, which now accounts for over 65% of its total revenue. This shift has been a key driver of the company’s financial performance, as the ODR segment typically yields higher margins compared to its General Contractor Relationships (GCR) segment.

The company has faced various challenges throughout its history. In 2019, Limbach recognized a $4.36 million impairment charge on certain capital assets. In 2020, the company experienced the impacts of the COVID-19 pandemic, which disrupted its supply chain and project schedules. Limbach worked to mitigate these challenges through cost-saving initiatives and adjustments to its operations.

Despite these obstacles, Limbach has achieved several milestones. In 2021, the company completed a public offering, raising $22.77 million in net proceeds. This capital injection helped support Limbach’s strategic initiatives and growth plans. Additionally, in 2022 and 2023, the company made several acquisitions, including JMLLC, CSLLC, ACME, and Industrial Air, to expand its geographic footprint and service offerings.

Financial Performance

Limbach’s financial performance has been impressive, with the company consistently delivering strong results. In the latest reported quarter (Q3 2024), the company reported total revenue of $133.92 million, a 4.8% increase from the previous year’s quarter. The company’s ODR segment was the standout performer, with revenue growing 41.3% to $93.01 million, highlighting the success of its strategic shift. This growth was partially offset by a 33.9% decline in GCR revenue to $40.91 million, as the company continues to focus on higher-margin ODR work.

Gross profit for the quarter increased by 15.6% to $36.11 million, with the ODR segment accounting for $29.6 million, or 82.1%, of the total. The company’s gross margin expanded to 27%, up from 24.5% in the prior-year quarter, reflecting the higher-margin nature of its ODR business and the impact of recent acquisitions.

Net income for Q3 2024 was $7.48 million, while operating cash flow (OCF) was $4.93 million and free cash flow (FCF) reached $13.00 million.

For the fiscal year 2023, Limbach reported revenue of $516.35 million, net income of $20.75 million, OCF of $57.37 million, and FCF of $55.10 million.

The company’s overall gross profit margin improved from 23.0% in the first nine months of 2023 to 26.8% in the same period of 2024, primarily driven by the higher-margin ODR work and the company’s efforts to become more selective in the GCR projects it pursues. The ODR segment’s gross profit margin increased from 28.6% to 30.9% year-over-year, while the GCR segment’s gross profit margin decreased from 17.6% to 18.8% over the same period.

Selling, general and administrative (SG&A) expenses increased from 16.7% of total revenue in the first nine months of 2023 to 18.6% in the same period of 2024, primarily due to the inclusion of SG&A expenses from the ACME and Industrial Air acquisitions, as well as increases in payroll-related expenses and stock-based compensation.

Liquidity

Limbach’s balance sheet remains strong, with $51.16 million in cash and cash equivalents as of September 30, 2024. The company also had $10 million in borrowings under its revolving credit facility, with a weighted average interest rate of 5.72%. This solid liquidity position provides Limbach with the flexibility to invest in growth initiatives and pursue strategic acquisitions.

The company’s debt-to-equity ratio stands at 0.11, indicating a conservative capital structure. Limbach has $50 million available under its Second AR Wintrust Revolving Loan. The company’s current ratio and quick ratio are both 1.57, suggesting a strong ability to meet short-term obligations.

Growth Drivers and Acquisitions

Limbach’s growth strategy is centered around three key pillars: the continued expansion of its ODR segment, the evolution of its service offerings, and strategic acquisitions.

The company’s focus on ODR has been a transformative driver, allowing Limbach to build deeper, more collaborative relationships with building owners and facility managers. By providing a comprehensive suite of services, from maintenance and repair to capital planning and consulting, Limbach has positioned itself as an indispensable partner for its clients.

The strategic shift towards the ODR segment has yielded significant results. For the nine months ended September 30, 2024, ODR revenue accounted for 66.6% of the company’s total revenue, up from 49.1% in the same period in 2023. This shift has contributed to the company’s improved profitability, as evidenced by the expansion in gross profit margin.

In addition to organic growth, Limbach has actively pursued strategic acquisitions to drive expansion and enhance its capabilities. The recent acquisition of Kent Island Mechanical, a leading provider of building systems solutions in the Greater Washington, D.C. metro area, is a prime example of this strategy in action. The integration of Kent Island has strengthened Limbach’s presence in the region and allowed the company to leverage its expertise to cross-sell services to a broader customer base.

Outlook and Risks

Looking ahead, Limbach has provided an encouraging outlook for the full year 2024. The company has raised its revenue guidance to a range of $520 million to $540 million, up from its previous guidance of $515 million to $535 million. Additionally, the company has increased its adjusted EBITDA guidance to a range of $60 million to $63 million, up from the previous $55 million to $58 million. Limbach also expects full-year gross margin to be 26% to 27%, compared to the previous estimate of 24% to 26%.

While Limbach’s growth trajectory appears promising, the company is not without its risks. Like many businesses, Limbach has faced challenges related to supply chain disruptions and inflationary pressures, which could impact its margins and project timelines. Additionally, the company’s reliance on a limited number of large customers, as well as its exposure to the cyclical nature of the construction industry, could present potential headwinds.

Conclusion

Limbach Holdings has proven itself to be a formidable player in the building systems solutions industry, leveraging its expertise, strategic initiatives, and disciplined acquisition strategy to drive consistent growth and profitability. With a focus on mission-critical infrastructure, a strong balance sheet, and an encouraging outlook, Limbach appears well-positioned to capitalize on the continued demand for its services and further solidify its position as a leading provider in the market.

The company’s strategic shift towards the higher-margin ODR segment, while becoming more selective in the GCR projects it pursues, has contributed significantly to its improved profitability. However, the increase in SG&A expenses has partially offset the benefits of this strategic shift, and the company will need to continue to effectively manage its cost structure to further improve its bottom-line performance.

With more than 1,300 team members across 19 offices in the eastern United States, Limbach has established a strong regional presence. As the company continues to execute its growth strategy and capitalize on the opportunities in the building systems solutions market, it remains an intriguing option for investors seeking exposure to this dynamic sector.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.