Limbach Holdings’ Data Center Strategy and 2027 Margin Outlook Clash in Earnings Call

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $173.5M, up from $142.2M in Q2 2025 (primarily due to Pioneer Power acquisition)
• EPS: $0.39 per diluted share, down from $0.64 in Q2 2025
• Gross Margin: 21.5%, down from 28% in the prior year quarter

Guidance:

• Revenue for fiscal 2026 expected to be $760M to $790M.
• Adjusted EBITDA for fiscal 2026 expected to be $78M to $84M.
• Expects to convert at least 75% of adjusted EBITDA into free cash flow.
• CapEx run rate expected to be approximately $5M.
• Revised outlook excludes contribution from SimCorp acquisition and future acquisitions.

Business Commentary:

Revenue and Bookings Performance:

• Limbach Holdings reported total revenue of $173.5 million for Q2 2026, compared to $142.2 million in Q2 2025, with ODR revenue growing 17.9% to $128.4 million.
• The company generated $182 million in bookings during the quarter, marking the third consecutive quarter of strong bookings, totaling $616 million over the past three quarters.
• This growth was driven by the acquisition of Pioneer Power and continued strong demand in certain vertical markets, despite challenges in healthcare and institutional sectors.

Gross Margin Challenges:

• The company's total gross profit decreased 6.4% to $37.3 million, with a total gross margin decline to 21.5% from 28% in the prior year quarter.
• The decrease was primarily due to the lower margin profile of Pioneer Power and lower net project write-ups, along with competition for skilled labor and materials in data center markets.

Strategic Focus on Diversification:

• Limbach is focused on diversifying its end markets, expanding geographically, and leveraging its integrated platform to improve profitability.
• The company is investing in data centers and industrial manufacturing, aiming to reduce reliance on any single vertical market and create a more resilient platform for long-term growth.

Acquisition Strategy and Integration:

• The acquisition of SimCorp is expected to enhance Limbach's geographic footprint and ability to serve national data center customers, with SimCorp's program management services overseeing budgets exceeding $8 billion.
• The integration of Pioneer Power has shown initial improvements in gross margin, with a target to align with company average margins over the next two to three years.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledges near-term challenges: 'results fell short of expectations driven by project timing and ongoing softness in healthcare and institutional markets.' However, they express confidence in the strategic plan: 'we have confidence in the acquisition of SimCorp... Our strategy is straightforward, broaden our geographic reach, deepen customer relationships, expand to attractive end markets...'

Q&A:

• Question from Chris Moore (CJS Securities): So maybe we'll just start with the – good morning – with the ODR Organic Revenue Guide. So you stated, Mike, basically some softness in the healthcare market – Is it project timing? Can you get into it a little bit deeper in terms of the lower revenue growth that you're thinking about for 26? And does that carry over into 27?
  Response: Confidence in guidance is driven by strong bookings over the last three quarters ($616M). Each vertical has different price sensitivity; institutional healthcare is challenged but market share and bookings are still being gained.

• Question from Chris Moore (CJS Securities): The GCR margin had been pretty strong as you kind of more and more look to avoid the lower margin third-party work. It was pretty low this quarter. I know there was project timing, the pioneer work. Is there something more strategic in temporarily doing the data center work even if it's a third-party data center work even if it's lower margin to help you you know kind of gain further expertise in that vertical that would seem to fit with with the sim core acquisition
  Response: GCR margin dip (14.5%) is primarily a timing issue due to a low backlog at the end of Q2 2025 and rebuilding sales. Diversification into data centers is strategic to increase revenue and margin over time, as the company is currently under-indexed in that market.

• Question from Chris Moore (CJS Securities): And maybe just my last one, kind of more big picture. Just how are you looking at 26? Is it, you know, kind of a 26 versus 27. Is 26 a full reset from an EBITDA perspective, a partial reset, no reset at all, just trying to kind of understand what's happening here, how that would translate into how everybody's been thinking about 27?
  Response: Guidance was reset for 2026 due to lower gross profit from timing and price sensitivity, despite higher revenue. The company is making adjustments to build a more resilient model for 2027, focusing on vertical diversity, geographic expansion, and operating model efficiency.

• Question from Tomo Sano (J.P. Morgan): Could you give us more color on healthcare institutions, the environment, especially on the gaining market share versus pricing sensitivity you talk about, Mike? So how should we look at that environment and strategic initiatives in the back half in 2027, please?
  Response: Healthcare environment remains challenged by policy impacts and construction inflation. The company is focused on helping customers navigate short-term challenges through early engagement and account management, while investing in vertical market diversity to balance exposure.

• Question from Tomo Sano (J.P. Morgan): And on data center work beyond mixed and gross opportunities, could you provide more color and details on gross margin profiles and key costs, overrun risks, and the contract structure mix, please?
  Response: Data center work is time and schedule-driven, with customers willing to pay for speed. The SimCorp acquisition is a strategic jumpstart; margins are expected to improve as the company influences the value stream earlier in the project lifecycle.

• Question from Tomo Sano (J.P. Morgan): And if I may squeeze the last one, Mike, in SIMCOR acquisitions, could you talk about more opportunities for both growth as well as the margin profiles, and then how you manage the execution risk with the Pioneer integrations as well.
  Response: SimCorp provides professional services revenue and significant pull-through potential (similar to the healthcare model). Pioneer Power is performing as expected, with margin improvement expected over the next 2-3 years as per the integration roadmap.

• Question from Roth Capital (Questioner): Just wanted to dig in a little bit more with SimCorp. Wanted to understand when they're brought into a project, how much visibility they have, and their ability to maybe bring LIMBOC services into that equation, and how long would it take to sort of translate some of that professional services revenue into additional services for LIMBOC?
  Response: SimCorp is engaged very early in the process (real estate planning, budget management). The path to pull-through is similar to healthcare, with immediate opportunities in fabrication, procurement, and service work post-construction, though the timing varies.

• Question from Roth Capital (Questioner): Is SimCorp geographically concentrated in the Texas area, or do they have projects all over?
  Response: SimCorp has a presence in Texas (Dallas, Fort Worth) and the Southeast (Atlanta, Charlotte, Northern Virginia, Richmond). This provides Limbach with a foothold in new, attractive markets for potential future acquisitions and geographic expansion.

• Question from Roth Capital (Questioner): And then ODR, healthcare, intermed markets, obviously it sounded like there's some pressure on that front on spending as well as some costs. How do you recapture those margins? Is this a pricing game? And at some point, do the healthcare companies just have to absorb these costs?
  Response: Healthcare customers are methodical and slow to change purchasing behavior. The company focuses on helping them with long-term planning and portfolio optimization. Margin improvement will come from diversifying into higher-growth verticals and geographies to better absorb fixed costs.

• Question from Rob Brown (Lake Street Capital): I just wanted to follow up a little bit on the margin question. You outlined some of the things you're doing, but how long does that take to kind of cycle through, and is this something that you can see improvement in 27, or what's the duration of the margin improvement?
  Response: Margin improvement is expected as sales recovery (project timing) materializes. Diversifying into high-growth verticals and geographic expansion should help. The company is looking for increased margin opportunities in 2027 based on the current business mix.

• Question from Rob Brown (Lake Street Capital): And then on the SimCorp pull-through in the data center market, is that something that takes, you know, projects are moving quickly in that market, I understand, but how long does that take to kind of work through the system and just a sense of how SimCorp kind of works on the timing aspect of it?
  Response: The company is working with existing program managers in the data center market. Pull-through timing varies, but Limbach will be opportunistic and immediately seek integration opportunities post-acquisition, likely engaging with customers within days.

• Question from Brian Brasi (CFO): Can you give us a sense for how fast SimCore has been growing?
  Response: SimCorp has been growing steadily in earnings but was constrained by staffing recruitment challenges. The acquisition allows Limbach to immediately add staff to drive higher-quality, high gross margin revenue.

• Question from Brian Brasi (CFO): And then circling back to GCR gross margins for a minute, obviously it was a little bit of a disappointment. Were there one or two projects in particular that drove the lower gross margin, or was it more broad-based than that?
  Response: The lower GCR gross margin (14.5%) was not due to execution but to project starting timing. The backlog has doubled since the end of Q2 2025, and the company anticipates margin improvement as projects start in 2027.

• Question from Brian Brasi (CFO): And then I guess bigger picture with GCR now back to more of a growth mode. How are you thinking about the long-term mix between the two segments?
  Response: The company is adjusting its long-term segment mix guidance from 75-80% ODR to 70-80% ODR, seeking a balanced approach while finding the right vertical and geographic mix.

• Question from Chris Moore (CJS Securities): just one question on bookings. There's three straight quarters of good bookings. I know that calendar Q3 last year was the challenge, and that's what created the soft Q1-26. You're only a month into... Q3 so far. Any thoughts in terms of July and when did things, you know, kind of go soft last year in Q3? Was it later in the quarter or just trying to get a sense of visibility for Q3 bookings?
  Response: Q3 2025 was unique due to policy impacts across higher ed, healthcare, and manufacturing, causing customer compression late in the quarter. The last three quarters have shown a steady booking pace, which is the focus for closing the year.

Contradiction Point 1

Data Center Market Strategic Rationale

Conflicting explanations for the strategic value of lower-margin data center work.

What questions does Chris Moore from CJS Securities have for management? - Chris Moore (CJS Securities)

2026Q2: The low GCR margin was primarily due to timing and a low backlog at the end of Q2 2025, not execution. Diversification is important; the company is under-indexed in data centers. Increasing penetration in this high-growth market can help revenue growth and margin absorption. - [Jamie Brooks](CFO)

Is there a strategic rationale for temporarily pursuing third-party, lower-margin data center work to build expertise in that vertical, aligning with the SimCorp acquisition? - Chris Moore (CJS Securities)

2026Q2: The low GCR margin was project timing related... Diversifying into the data center market is important for revenue growth and margin improvement. - [Michael McCann](CEO)

Contradiction Point 2

Margin Outlook for 2027

Inconsistent factors cited for achieving margin improvement in 2027.

Rob Brown (Lake Street Capital) - Rob Brown (Lake Street Capital)

2026Q2: Margin improvement potential for 2027 is based on two factors: 1) Project timing related to sales performance in mid-2025, and 2) Diversification into higher-margin verticals and geographic expansion. - [Jamie Brooks](CFO)

How long will the margin improvement take to cycle through, and will this be visible by 2027? - Rob Brown (Lake Street Capital)

2026Q2: Margin improvement is expected if the company continues to perform well and project timing aligns. - [Michael McCann](CEO)

Contradiction Point 3

Timeline for Pioneer Power Gross Margin Improvement

Contradiction on when margin improvement will be realized post-acquisition.

Tomo Sano (J.P. Morgan) - Tomo Sano (J.P. Morgan)

2026Q2: Pioneer Power is performing as expected, with margins on track to improve over the next 2-3 years per the integration plan. - [Mike McCann](CEO)

What growth and margin opportunities does the SimCorp acquisition offer, and how are execution risks in the Pioneer integration being managed? - Tomohiko Sano (JPMorgan Chase & Co)

2025Q4: Key actions: Resource optimization, contract renegotiation, sales enablement... Expect impact in 2H 2026, with full alignment over 2–3 years. - [Mike McCann](CEO)

Contradiction Point 4

Growth Contribution and Timing from National Accounts

Contradiction on when significant revenue acceleration from national account strategy will occur.

Chris Moore (CJS Securities) - Chris Moore (CJS Securities)

2026Q2: The outlook reflects these near-term pressures but confidence in momentum from recent bookings to lead into a strong start next year. - [Mike McCann](CEO)

How do you expect the lower revenue growth projected for 2026 to impact 2027, particularly in the healthcare and industrial sectors? - Brian Brophy (Stifel, Nicolaus & Company, Incorporated)

2025Q4: Some growth is built into 2026 (e.g., healthcare projects sold in 2025), but real acceleration is expected in 2027. - [Mike McCann](CEO)

Contradiction Point 5

Data Center Project Margin Profiles

Contradiction on the margin quality of data center work.

Chris Moore (CJS Securities) - Chris Moore (CJS Securities)

2026Q2: Diversification is important; the company is under-indexed in data centers. Increasing penetration in this high-growth market can help revenue growth and margin absorption. - [Jamie Brooks](CFO)

Is the temporary, third-party, lower-margin data center work strategically aimed at building expertise in this vertical to align with the SimCorp acquisition? - Chris Moore (CJS Securities)

2026Q1: Margins on past data center work have been very good, if not better than ODR targets. - [Michael McCann](CEO)