Limbach (LMB) 7 Aug 24 2024 Q2 Earnings call transcript
AInvestThursday, Aug 8, 2024 1:54 pm ET
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Limbach Holdings, a leading provider of engineering and construction solutions, reported a solid second quarter performance, marking a significant milestone in its strategic transformation. The company's earnings call, led by CEO Michael McCann and CFO Jayme Brooks, highlighted the company's focus on shifting towards maintenance, repairs, and upgrades of existing buildings, while also expanding its service offerings and strategic acquisitions.

Transitioning to High-Margin ODR Business

One of the key themes of the call was the company's strategic transition from General Contractor Relationships (GCR) to Owner Direct Relationships (ODR). This shift has been a deliberate move to lower risk and focus on high-margin work. The company's ODR revenue grew by 40.8% to $82.8 million, while GCR revenue declined by 40.3% to $39.5 million. This intentional mix-shift towards ODR has contributed to the company's gross profit and adjusted EBITDA growth.

Expanding Service Offerings and Acquisitions

Limbach Holdings is also investing in expanding its service offerings to better support its customers. The company has invested approximately $4 million in rental equipment for indoor climate control, including air cooled chillers and air handling units, to provide equipment procurement systems directly to customers. This service offering expansion has proven successful and is expected to continue with a 3-year plan to layer on additional value-added services.

Additionally, the company is focusing on strategic acquisitions to scale its business and expand its footprint. Although progress has been deliberate, the acquisition pipeline remains robust, with a strong focus on key verticals such as healthcare, industrial manufacturing, data centers, life sciences, higher education, and cultural entertainment. These industries require uninterrupted building operations, making Limbach's services essential.

Financial Highlights and Outlook

The financial highlights of the second quarter were impressive, with total revenue of $122.2 million, down slightly from $124.9 million in the previous year. However, the decline was intentional due to the strategic shift towards ODR. Total gross profit increased by 17.5% to $33.5 million, and total gross margin hit a record 27.4%. The company is targeting SG&A expense as a percentage of total revenue to be around 18% to 19% for 2024.

Looking ahead, Limbach Holdings is increasing its total revenue and adjusted EBITDA guidance for the full year 2024. The company now expects adjusted EBITDA to be in the range of $55 million to $58 million, up from its previous guidance of $51 million to $55 million. Total revenue guidance is now expected to be in the range of $515 million to $535 million, up from $510 million to $530 million. The company remains committed to its goal of achieving 65% to 70% ODR revenue as a percentage of total revenue.

Conclusion

In conclusion, Limbach Holdings' second quarter earnings call underscored the company's strategic shift towards high-margin ODR work, expansion of service offerings, and strategic acquisitions. The company's focus on mission-critical infrastructure and uninterrupted building operations has positioned it well for sustained profitability and continued growth. The potential for further margin expansion and strategic acquisitions in the future is encouraging, suggesting that Limbach Holdings is well on its way to achieving its business transformation goals.

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