Limbach raised earnings forecast for 2024

Limbach Holdings (LMB 11.21%)The building systems, engineering and construction services provider reported third-quarter 2024 earnings on Nov. 5, demonstrating strong performance in its strategic areas. The company reported adjusted earnings per share of $0.62 and total revenue of $133.9 million. These results highlight the company’s effective transition into the highly profitable owner direct relations (ODR) segment. Overall, the quarter reflected strong execution of business strategies despite challenges in other areas.

Source: Analyst estimates for the quarter provided by FactSet.

Limbach Business Overview

Limbach Holdings specializes in offering building systems and services to a variety of sectors including healthcare, education and commercial buildings. Its primary focus is the design, engineering and maintenance of mechanical, electrical and plumbing systems aimed directly at building owners through the Owner Direct Relations (ODR) segment. This approach provides higher profits and regular income, reducing dependence on intermediaries.

The company has recently focused on developing its ODR segment and strategic acquisitions to expand its market presence. Success in these areas is critical to continued profitability and growth.

Quarterly indicators

Limbach’s third-quarter results demonstrated a strong focus on expanding its ODR segment. Income from ODR grew by 41.3% to $93.0 million, accounting for 69.4% of total revenue. This focus resulted in a 53.8% increase in gross profit in the segment, with margins increasing to 31.9%. This growth underscores the company’s prioritization of high-margin, direct-to-customer interactions, which differentiates it from less profitable operations.

Conversely, in the General Contractor Relations (GCR) segment, revenue fell 33.9% to $40.9 million due to the company’s deliberate strategy to reduce emphasis on this low-margin business. Segment margins fell from 19.3% to 15.8%, reflecting a deliberate shift away from less profitable projects.

Limbach faced challenges in managing expenses, with selling, general and administrative (SG&A) expenses increasing by $2.8 million, or 17.7% of revenue, up from 16.4% previously. This growth was driven by strategic acquisitions and increased personnel costs. The acquisition of Kent Island Mechanical expanded its capabilities and market share, particularly in Washington, D.C., consistent with its ODR growth strategy.

Financially, the company reported a significant decline in net operating cash flow to $4.9 million from $17.2 million in the prior year due to changes in working capital. However, it remained financially stable, holding $51.2 million in cash and increasing its working capital.

Looking to the future

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

Investors should closely monitor the company’s ODR performance and the impact of new acquisitions as they are expected to build on its highly profitable recurring revenue structure.