Limbach Increases 2024 Revenue Outlook

Limbach Holdings (LMB 12.42%)The company, which is a provider of building systems, engineering and construction services, announced its earnings for the third quarter of 2024 on November 5, and demonstrated a strong performance in its strategic areas. The company reported adjusted earnings per share of $0.62 and total revenue of $133.9 million. This performance highlights the company’s active shift towards the high-margin Owner Direct Relations (ODR) segment. Overall, this quarter demonstrated strong execution of business strategies despite challenges in other areas.

Source: Analyst estimates for the quarter provided by FactSet.

Overview of Limbach’s Work

Limbach Holdings specializes in providing building systems and services across sectors including healthcare, education and commercial buildings. It focuses on the design, engineering and maintenance of mechanical, electrical and plumbing systems directly to building owners through its Owner Direct Relationships (ODR) segment. This approach provides higher margins and recurring revenue by reducing dependence on intermediaries.

The company has recently emphasized growing its ODR segment and making strategic acquisitions to expand its market reach. Success in these areas is critical to continued profitability and growth.

Quarterly Highlights

Limbach’s third quarter performance showed a strong focus on expanding its ODR segment. Revenues Revenue from ODR increased 41.3% to $93.0 million and accounted for 69.4% of total revenue. This focus led to a 53.8% increase in gross profit in the segment, with margins rising to 31.9%. This growth underscores the company’s prioritization of high-margin, direct customer relationships, which distinguishes it from less profitable operations.

In contrast, the General Contractor Relations (GCR) segment saw a 33.9% revenue decline to $40.9 million due to the company’s deliberate strategy to deemphasize this low-margin business. Segment margins decreased from 19.3% to 15.8%; This reflects a focus on moving away from less profitable projects.

Limbach faced challenges in managing costs as selling, general and administrative (SG&A) expenses increased to $2.8 million, or 17.7% of revenue, compared to the previous 16.4%. Strategic acquisitions and increased personnel expenses were effective in this increase. The acquisition of Kent Island Mechanical expanded its capabilities and market share, particularly in the Washington DC area, in line with the ODR growth strategy.

Financially, the company reported a significant decrease in net operating cash flow to $4.9 million compared to $17.2 million in the prior year, due to changes in working capital. However, it maintained financial stability with $51.2 million in cash and improved working capital.

Looking Forward

Limbach Holdings increased its 2024 revenue forecast to $520 million-$540 million and adjusted its EBITDA forecast to $60 million-$63 million.

Investors need to closely monitor the company’s performance on ODR and the impact of new acquisitions, as these are expected to be built on a high-margin, recurring revenue framework.