Q4 2020 Limbach Holdings Inc Earnings Call
Greetings and welcome to the Limbach Holdings fourth quarter and fiscal year 2020 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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A reminder, this conference is being recorded it is now my pleasure to introduce your host Jeremy Hellman of the equity group. Thank you. Sir Please go ahead.
Thank you very much and good morning, everyone yesterday afternoon, Limbach holdings announced its 2024th quarter and full year results and filed its form 10-K for the fiscal year ended December 31 2020.
And today the company will be reviewing those results and providing an update on current market conditions.
And he will be referring to a slide presentation accompanying this earnings call.
Orientation can be found and the investors section of the company's website at www Dot Limbach and dotcom.
The company encourages everyone to review the forward looking statement disclosure on slide two of the presentation with that I'll turn the call over to Charlie Baker, and the President and Chief Executive Officer of Limbach Holdings.
Good morning, and welcome everyone and thanks for joining us.
We're excited to review our results with you want to take your questions. Joining me today is our Chief Financial Officer, Jayme Brooks and for the first time, our Chief operating officer, Mike Mccann and thought it would be great to have Mike join us today to provide more color into our operational side of the business as we head into 'twenty. One he has supported with Jamie and I have to talk with you all.
Organization. He has made some terrific contributions to operational execution and I want to introduce them to our investors for bike the call before I go any further I want to Echo my message and thanks for the last quarter to be approximately 17000 employees at Limbach. Our success in 2020 was driven by our incredible group of people.
You are truly rose to the challenge and I get that.
And we're proud of all of you and what we have accomplished.
We were focused on staying safe and collecting cash and finding new business during a pandemic.
It works.
Limbach reported a strong year of profitable operations, and 2020 and continue to have substantial year over year growth of our owner direct segment and the fourth quarter, which is the core foundation of our strategic plan.
And we enter 'twenty, one with substantially improved capital structure. Following our successful refinancing which occurred subsequent to the close of the fiscal year.
As a result of the companies significantly reduced interest rates and a lower overall level of funded debt, we expect to realize approximately 4 million and reduced cash interest expense in fiscal 'twenty, one compared to 20.
When combined with our recent capital raise we are and a strong position to execute on many key initiatives, including the acceleration for.
Owner direct strategy digital transformation and pursuit of strategic growth.
Although we saw some deceleration in the fourth quarter due to a pause in decision, making by business owners and we think that was due in large part to the COVID-19 resurgence that took place towards the end of the year.
We anticipate that to be temporary and with millions of vaccine doses be given daily and we're optimistic that we'll be moving to a post COVID-19 environment.
And the near term the dynamic might drive some push and pull of revenue, but we don't believe it's a reflection on the border for more enduring market trends.
And supporting proof of that thinking is the American Institute of architects billing index. The recently released Abi score of 53.3 is up dramatically from the prior 12 month average of 41 point for.
The AI as other key measure the new project inquiry score jumped to 61 point to.
Scores above 50 indicate expansion and designers are busy that drives opportunity for firms like limbach.
From a macro level the pandemic has impacted the various non residential construction sectors differently, all of which reaffirms the soundness of our focus on diversity of end markets geography services and customers. We continue to see strength and large capex budgets and several of our core end markets, including data center.
Enters pharmaceutical R&D facilities and health care facilities.
Our new emerging sector indoor forming and controlled agriculture remains an attractive growth opportunity for which we are well positioned.
Several significant projects that we're tracking and other sectors that were deferred due to COVID-19 are now back and our pipeline is customers are seeing the dust cleared from the pandemic.
Across the end markets and tied to the pandemic there continues to be meaningful amount of opportunity and evaluating and enhancing indoor air quality and building air flow.
Our professional services group Limbach collaborative services is focused on guiding customers through the development and implementation of retrofits through engineered driven solutions.
We believe the ability to apply design and engineering driven approach to these opportunities is a huge differentiator when paired with our field capabilities.
Broadly speaking, we've experienced a steady progression of sales activity levels as we exit the first quarter for the <unk>.
Started the year until now our assessment is that the activity levels have been on an upward trend. The first quarter is seasonally limbach slowest quarter, and we don't expect 2021 will be any different to any significant degree.
From a construction perspective perspective, as we've repeatedly stated over the last year, we were focused on quality over quantity as.
As we look forward into 2020, one we've sold and can account for approximately 90% of our forecast construction revenue and gross profit, which is a good position to be and at this point and the year.
Looking at our 'twenty, one forecast a larger portion of our construction backlog burn and the second half of the year as compared to the first half.
So I want to note that none of these assumptions include any figures related to claims resolution.
And service in order to direct our coverage of revenue and gross profit forecast is less complete on a percentage basis. However, that's somewhat of a function of how the business model works and that segment. Many of these opportunities are sold and executed within a single reporting period or otherwise come and go on timelines that are much shorter than what we experienced and the construction.
Trucks and segment.
Even when the sales pipeline is full and the current sales pipeline looks encouraging there.
Naturally less revenue visibility because of the shorter project life cycles, there's just greater velocity, which is good.
With that said, we're certainly not waiting for the phone to ring, we've got over 1100 existing preventative maintenance customer relationships. The mine and we think theres plenty of room for revenue and profit growth there.
So with that let's move on to review our financial performance.
Please all along and a company presentation, starting on slide for for the full year total revenue increased by two 7% and 568 million construction segment revenue increased 6% year over year, while service segment revenue increased 10, 5% all resulting split.
And with 77, 6% construction and 22 point for survey.
Other revenue split may move back and forth quarter to quarter, depending on our project flows and the pace of sales activity.
Overtime, we do expect service to contribute more to the overall business than it has historically and we're still focused on driving towards a 50 50 revenue split when we look at several years for.
For 2020 gross margin improved 30 basis points to 14, 3%. This is driven primarily by the increased proportion of revenue from the service segment as well as continued expansion and service gross margin.
Gross margin expanded to 28, 5% for the year.
Compared with $24 seven and 2019.
And we continue to optimize project selection and are focused on additional gross margin expansion and the new work we are selling.
Overall, our gross profit increased 13, 2% to $81 4 million last year, we held SG&A relatively level at $63 6 million compared with $63 2 million a year ago.
We did benefit from aggressive cost cutting and Q2 related to COVID-19, and added back certain of those expenses along with recovery in the business activity over the summer and and the second half of the year.
However, those savings were offset by 6 million increase and performance based compensation expense interest.
The company's strong performance for 2020 and.
Keep in mind and 2019, the company did not accrue any amounts for incentive compensation program due to the company not meeting performance criteria for that year.
As a result, SG&A for 2020 understates. The current run rate, we have strategically increased investment and expansion of our other direct and services business and expect to return to a more normalized environment for expense lines such as Jennie.
Between growth and gross profit and flat SG&A and operating income improved to $17 2 million up from $8 1 billion and the prior year.
For the year adjusted EBITDA was $25 1 billion, which was an approximately 50% improvement from $16 8.002 million 19 net.
Net income was $5 8 million or 72 cents per diluted share versus a loss of $1 8 million or <unk> 23 cents per diluted share in 2019.
Moving to slide five.
Fourth quarter revenue was down six 1% to 134 million as compared to the prior year.
That decline was due to 14 per cent decline and construction segment revenue to $95 1 billion.
And mainly attribute that to activity levels that were somewhat reduced by Covid, which released five since the end of 2020 and into January one.
<unk> continued and certain branches workforce levels were reduced by 150, 200 heads or as much as 10% due to workers needed to quarantine at times.
And that resulted in a slowdown and the pace of effective project and assets and revenue.
That work will still be for forum and the revenue recognized for its just not the same schedule and purchase as we had anticipated. So it is not a lost opportunity.
Service segment revenue continued to demonstrate growth and offset some of the slippage and construction gaining 24, 8% to $35 3 million for the fourth quarter of 2020.
Although we recorded solid service growth and the quarter Covid was also a headwind for that segment.
Have you any lost revenue there is pent up demand is building mechanical systems still need to be serviced and repaired so and there's limited situations that we couldn't get into the building and it will still be a need for service work and as things are now opening up we expect to do that work.
Gross margin for the fourth quarter of 2020 was 14, 3% compared to 11, seven and the prior year period.
Construction segment gross margin on a dollar basis decreased $1 7 billion as a result of a decrease in revenue. Other project write downs were flat this quarter when compared to the same period and the prior year.
As a result construction segment gross margin was seven 4% for the fourth quarter of 2020 compared to seven 9% for the prior year period.
Service segment gross margin was 32, 8% compared to 26, 3% and the prior year as service work project mix trended towards larger jobs, which carried higher pricing and.
On a dollar basis total gross profit and the fourth quarter of 2020 with $18 7 million compared with $16 2 million for the prior year period.
Fourth quarter 2020, SG&A expense was $16 million as compared to $13 5 million for prior year periods.
The increase in SG&A expense was primarily due to the reversal of $4 3 million of our credit performance based compensation expense for the nine months ended September 32019, and the fourth quarter of 2019 do you see the company not meeting the performance criteria for that year.
Also provided for a benefit and four 3 million to adjusted EBITDA for the fourth quarter of 2019, when comparing it to adjusted EBITDA and $4 5 billion for the fourth quarter 2020.
Slide six highlights our balance sheet and working capital the company had no borrowings against its $14 million revolver credit facility as of December 31, 2020, other than for standby letters of credit totaling $3 4 million and a cash and cash equivalents was $42 one net.
Subsequent to the ear and and we raised approximately $23 million due and common stock equity offering that issue and together with some moderate modest to warrant exercises and increase our share count to 10.2 million as of February 10 2021.
Our pro forma equity capitalization table on slide seven.
And at the end of February we closed on a refinancing of our credit facility. The new term loan carries a much lower interest rate and we expect the annual cash interest savings to be approximately $4 million in 2020, one and comparison of the new credit facility with our old facility can be found on slide eight.
Lastly, I wanted to touch on margins going forward from a qualitative perspective, we expect our audio strategy and our push for a 50 50 business mix will create an upward trend and our gross margin and also our adjusted EBITDA, but want to remind everyone did that just takes time and may not be linear quarter to quarter.
In addition to the pick up and the business mix. We are also focused on simply bogie and construction projects that are better margins and that means walking away from opportunities that don't fit our desire and return profile and and.
Any given quarter and may be working on projects that were booked a year and Marco so even as we secure higher margin work now our reported margin will lag and just a reminder, it will take some quarters and fully realized in our financials and the best way to gauge our progress as they focus on full year over year for adults.
And I'll hand, it off to Mike now.
Thanks, Jamie I want to spend some time discussing our project selection as the primary determinant of our success as a business.
And our strategy is built on shifting to a more balanced revenue stream between general contractors and building owners. We're also focused on diversifying our revenue by increasing the number of transactions and the past and revenue was very dependent upon large construction projects that lasted multiple years, the shorter duration projects and smaller size of contracts will enable the company.
And to better manage risk factors and drive higher gross margins. We are already seeing these results and the work that we booked and the last 18 months.
Our sales and marketing efforts have been refocused to building owners and leveraging our maintenance relationships and base as well as targeting new owners with large capital programs and.
In addition, limbach is looking to better leverage existing relationships, both through servicing new geographies with professional services and expanding additional offerings the.
The company has been very careful to ensure the overall strategy is complemented by both sales and operational risk management practices.
Over the past 18 months the company instituted new risk management practice relative to sales pursuits, it's been clearly communicated to our staff and sales efforts must match, our owner direct expansion strategy.
We are evolving the sales culture for the company from a transactional base construction project focus to a solutions based owner direct account management focus.
We expect individual project sales pursuits to be and outcome of cultivating those accounts.
Once the sales pursuit has identified there's a rigorous risk management process in place to make sure the operational capabilities and the team and location match the opportunity presented.
Due to the fact that we've established relationships for the major stakeholders prior to the sale we have much better leverage once a project is sold or the services rendered and all of this improves profitability evidenced as reflected in the owner direct profit margins, which continued to improve reaching 28, 5% and 2020.
I want to wrap up with a comment on our backlog and sales pipeline, which is highlighted on slide nine from a macro perspective activities improving over the first few months of 2021, we've seen an increase and proactive opex spending large capital projects appear to be funded you're building owners are slow to release projects. We anticipate this pent up demand will be real.
Lives over the next few months and will result in a multitude of sales opportunities for limbach.
We have recently seen seen deferred projects starting to get back on schedule and overall pipeline activity is healthy Q for softness had some impact as well, but even given a normal level of Q4 sales activity. Our focus on project selection was expected to result in backlog moderation.
Given where our projects calendar for 2021 stands now we expect our second half work to exceed the first half work and that dynamic to be more pronounced and it has and the past.
Thanks, Mike and again, thanks for joining us this morning.
As you've heard throughout our prepared remarks, we are optimistic that the pandemic for should be behind us, but we all know that can change quickly.
And I stated before.
It became clear our services are essential during pandemics, but we look forward to having the pandemic behind us with that in mind as we have done in the past, we think it's prudent to hold off and providing guidance for now and where does.
Is it that when we report Q1 results.
Before we move to Q&A, let me hit a few final issues starting with the impacts of the New administration of Washington D. C. The government injection of a massive amount of stimulus via the recent pet recently passed stimulus Bill appears to have created more opportunities for limbach, while also diverting our competition for projects that we're not interested in.
One example is the funding being provided for schools, which is set at 125 billion for public schools and $2 75 billion for private schools and updated ventilation systems with specific we cited as an area of funds should be used for there's also funding, which will benefit the health care industry, which was our largest end market.
Funds are being made available for health care data center, Modernizations and replace revenues hospitals losses, a variety of day to day medical procedures, which were crowded out by Covid patients.
Overall, there was a massive simple money going into the economy as a whole and all branches and all of our branches or it will be actively pursuing opportunities, which makes sense for limbach.
We're also actively monitoring the much discussed upcoming infrastructure package.
Apparently there will be elements of green investments building system retrofits to reduce energy and water consumption may also be part of the package. If that is the case, we are well positioned to take advantage of those opportunities and will further accelerate our older direct expansion.
As mentioned earlier, we are well positioned with refinancing behind us and the recent equity raise and that means we are primed and ready to play offense.
We're focused on our sales and marketing effort.
And we will do with clarity as it pertains to profit driven and risk appropriate project selection and.
The diversity of our operations continues to serve us well as several of our key end markets are very active offsetting relative weakness and others.
Also continue to prioritize innovation by evaluating emerging opportunities indoor for me is a great example of this we established and early beachhead and that space and now as the industry gains momentum, we expect to win more work there.
Indoor forming as a perfect market opportunity to provide all of our services, including the annuity income maintenance and services. We also believe this sector will be beyond CBD production.
Lastly, returning against where our balance sheet and desire to play offense and want to touch on M&A before opening up the call to your questions.
We'll be guided by our ability to identify and diligence opportunities that meet our acquisition criteria with respect to our business model market position and valuation parameters.
Parameters are narrower and certain respects and consistent with the business model objectives. We've described for limbach.
Our timeline will be dictated by our underwriting requirements and not the other way around the performance of many potential toward companies during the 2020 period presents both challenges and opportunities and and M&A context, while we're not starting from cold.
<unk> prospecting perspective, we do need to get comfortable understanding the last 15 months, even in the case of businesses, we've known for several years.
With that we're available to take your questions.
So for US now open for questions.
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Our first question is coming from Rob Brown of Lake Street Capital markets. Please go ahead.
Hi, good morning.
Good morning, Robin and Rob.
I just wanted to get a little more color on the pipeline and maybe.
Particular owner direct I think you talked about a fair number of projects that were funded but but haven't been sort of launched yet and maybe you can just some color of what you see and the pipeline at the moment and and how you see that developing over the year.
Yes sure.
Yes, when you look back at Q4, we continued to book work, but some other projects that we were tracking and talk to our customers about they just weren't making some decisions the way we had expected.
But what's interesting over the past really since.
Mid February coming into March and Theres been a tremendous uptick and I don't know if that's because of our confidence due to the no vaccines.
The election, we all understand you know who's sitting in the White house, and what that could mean to us.
But the spigot has opened back up which is just wonderful to see so decisions are coming forward.
And this includes some projects that.
We were tracking that we'll put on the back burner that all of a sudden you were just having conversations with the customers. They are ready to get going again. So the pipeline has opened back up Rob and it's just great to see.
Okay, Okay great.
And then and you talked to kind of Directionally about margin improvement.
What's sort of your view on where say EBITDA margin can go as the strategy plays out of of shifting the mix and you know called.
Called <unk> three to four years out where do you think the EBITDA margin could get to.
So when you look at both segments. When you look at the Ods. We're obviously only direct strategy segment the growth and margin has just been terrific and.
We hit 28 point.
5% last year, Yeah, we think the range of 25% to 28%, where we're hitting our stride. There. We think that's where we should be is there more room for improvement possibly.
But that's obviously great news for us.
The construction segment, we are laser focused on quality of earnings.
Not so much top line growth, it's all about execution.
Mike <unk>, our Chief operating officer, Donna just a splendid job and introducing risk management processes over the past year and a half and we think there's another 150 to 200 basis points, we can wring out of construction and if not more as we continue to prove out.
Selection and execution, so when you get right down to EBITDA we're.
We're going to continue to rapidly grow the owner direct and service component construction, we'll see moderate growth we might even pulled back just a little bit. It's all about quality of earnings on construction and we think again, we can drive about 150 to 200 basis points on that side, so dropping right down to EBITDA.
We believe there's another 150 to 200 basis points that we could see here and the near term improvement.
Okay, great. Thank you and then and then lastly, just on and kind of some of the trends and the industry.
Has COVID-19 changed the the view on kind of the digital transformation and Thomas sustainability efforts.
And if not even just COVID-19, but the environment how has that been changing and what are you seeing in terms of the customer interest in those segments.
And look from a Covid perspective, I think we've all learned a lot from it and what we're excited about is our Oh.
Virtual Tech play, which is really not necessarily showing up and are building, but instead doing service.
Service calls remotely, which we're ramping up so that's one play and that we were actually looking at that prior to the COVID-19 impact, but it accelerated with COVID-19, because we couldnt get into certain buildings back in March April and May so.
The benefit of that it will drive.
Less expense for the owner in terms of us having to jump and a van and drive it across the city and we charge for all that time and now it's a phone call and we believe that's going to lead to a very nice subscription service type model, we're still playing with that we're not we're not 100% there yet, but we're working on developing models.
And from Oh.
A green or sustainability perspective, I'm not so sure that's coming out of Covid, but clearly the administration is pushing for that.
We do a tremendous amount of energy retrofits, we've been doing it for decades. So we're waiting patiently to see what comes out of this infrastructure Bill.
But you know over the past week here I think we've all heard a lot of points around sustainability Green and in fact, just last night one of our associations that we participate and shared some information on the.
Concept of the infrastructure Bill and there was roughly a 130 billion out of the three trillion debt was noted to be around energy.
Energy improvement sustainability, it's not defined we still have to understand it but if there's going to be very nice incentives laid out for building retrofits. That's perfect for us I mean, we have all of those owner relationships, we know their buildings and we could start marketing how they.
And take advantage of what of those incentives might be so we're we're pretty pumped up about what that could mean for us and that's probably looking at revenue by the way.
And by the time, a bill assuming it happens.
It's probably revenue for 'twenty two 'twenty three.
Not so sure it'll impact so much for 'twenty one.
Rob did that answer the question.
Yes. It did thank you and I'll turn it over.
Thank you Ralph.
Thank you. Our next question is coming from Gerry Sweeney of Roth Capital. Please go ahead.
Hey, good morning, Jamie Charlie Thanks for taking my call good.
Sure.
Question and hopefully this.
And articulate.
Appropriately.
On the labor side, we have service we have construction it sounds like.
Activities.
Re engaging.
How how do we look at labor on the service side, obviously and the past filings.
And final qualified good labor was an issue when the market accelerated a couple of years ago.
Do you have the same issues or potential issues on the service side or those.
And please on the service side.
Say more permanent you don't necessarily have to go to.
Union Hall for et cetera, how do we look at that on that and go forward basis.
I think it's a good question Jerry would you think about our growth that we're looking at like you want to respond to low sure. Thanks Jerry.
I think a couple of things I think overall, you know where.
For a good stable labor labor levels, both from a construction and owner direct perspective, I think the other interesting thing that we've done is we wanted to deploy our best talent and we've been able to utilize the talent across both perspectives, both on a direct and construction.
So we've been able to leverage our talent I guess is the best way that I can say that were still being obviously disciplined on what we're doing.
But we definitely had been able to share labor back and forth and that's really been helping to help us and and and maximize returns and stabilize as we shift.
Got it and then just sticking with the service side you. Charlie you had mentioned I think 1100 preventive maintenance contracts.
If that grows just I'm going to throw a number out there, let's say 500, we don't even I won't put a timeframe on it but that's not really the one other question, but the point of the question really is.
And as those preventive maintenance contracts and expand if there are sort of.
And absorption of overhead and increased margin potential for the segment because you have more of that.
That business and you're just leveraging some of the internals or does that.
Is that a potential other statements like that.
Well I think the way to look at a jewelry 15 harder and I think some reasonable targets for actually over the next couple of years.
We've already put a lot of resources in place to sell these preventative agreements we've been doing it now for several years and it's paying off you know.
The beauty of having those preventative maintenance contracts. It's it's the foundation of our core service business, you get that pull through and it's just amazing writer in the building and there's something that breaks or they decided they want to replace something and now we've got some new technology that we're deploying to help them with asset management.
And we're gonna be able to help project their capital planning, so we'll actually be able to have a better handle on our own.
Revenue flows off those preventative maintenance contracts as we continue to grow that digital solution.
So having said that.
I think when you look at SG&A and being able to wring out more on the owner direct.
I would suggest to you that our gross profit margins at 28, 5% this past year very strong.
Kind of suggesting I think that range is going to be 25% to 28%. That's a good range for us.
But.
We're going to keep investing we're not going to back off. We this is our future. It's all about expansion of owner direct it's high margin good cash flow and so as we continue to grow we had 15 order and we're just going to continue to expand our sales force as well as execution force for management to grow that.
Segment, so there could be some savings on SG&A, but I think it would be prudent for us to keep investing and expanding okay. I got it and I'll look at it more as the opportunity to pull through for more business.
I got it but that's helpful.
It was just more curious and I found and then on the on I think you've described I think.
I think it was the construction side 150 to 200 basis points is that on a barge and side is that just more of a function of.
Older contracts moving through backlog coming to completion, and just being refilled with newer contracts with higher margin.
Or is there some execution.
A change that's going on internally to drive some day.
Yeah.
Thanks Jerry.
This one I think it's both sides of it. It's project selection has been critical to us for being very disciplined making sure that we don't sell our capacity I think on the other side of things too from a risk management perspective, once we do get the project.
We've got definitely rigorous procedures and process to make sure that we're maximizing the opportunity and we're proactive and both performing the work and closing it out so I'd say, it's really on both sides of the spectrum is we've been focused on.
Jewelry, I'm, just going to add something else.
Response, you know what's interesting about all the risk management processes, we've put in place and quality of earnings over the past year.
We have talked about claims on previous calls we have no new substantial claims.
Going into this year and it's great to see we do have some legacy stuff that we continue to work on.
We've had some pursuit of COVID-19 impacts, but that's minor in nature, and it's kind of a.
It's not the other 100% that's going to be pay.
Paid and funded but as.
And as far as execution, we're not we're not getting into these projects that are setting us back I think Mike has done a great job at just orchestrating we're going after smaller work get in and get out let's make good margin and let's collect our cash and it's working at it.
Yeah, absolutely and.
I was just.
And it's sometimes a little better focus on pricing.
<unk> selection.
And drive better margins.
Yeah, you don't sound very confident that 150 to 200 basis points and.
Just wanted to see what where that confidence and what's coming from.
And that's.
Yep.
Hopefully we answered that question for sure no problem.
That's it for me so I do appreciate it thank you.
Hi, Gerry thanks.
Thank you. Our next question is coming from Adam Thalheimer with Davis. Please go ahead.
Hey, good morning, Thanks for taking the questions.
Hi, Adam and good morning, Hey.
Hey, Charlie I'm really interested in your comments that.
The decision, making firming up kind of mid February into March are those are those projects for the 2021 construction season, and when would those jobs start.
And while it's a combination of both construction and the owner direct and just a real uptick so the owner direct that will happen. This year I mean again, it's very short cycle work some of them are larger and might take a couple of months of planning and getting equipment and such and then you execute it but at this point you know a lot of what we're looking at is burning this year when you look at.
The construction segment.
Some of the projects, we're looking at yes, they do happen fairly quickly we've got a couple of customers that significant customers that all of a sudden and started talking to us about getting some projects underway and let's go which is great and what is let's go meet where you still have the planning work to do it's going to take several months to you'll get things organized.
And then we'll burn and the second half for the year, we do expect to see our second half construction revenue to ramp up compared to the first half. It's just the way the existing backlog as well as what we see in the pipeline for sales. So so burned this year, but I'd suggest to you on the construction side, that's building a backlog for 'twenty two into 'twenty.
Three.
Okay and.
And then is there an issue with equipment availability, I mean, I've heard that and other.
Kind of construction segments.
And we haven't seen that necessarily.
And I think a lot of this depends on obviously the size of work and the duration of the work, but currently right now from equipment perspective, and we've seen the ebbs and flows from the manufacturers, but there hasn't been a factor that we've seen and our business. So far okay. Good and then just lastly curious on and so on I E Q projects.
I'm trying to figure out if you know is that a fad and once the vaccine rolls out.
You know that those kind of requests kind of fade away or do you think that's that's here is day, it's durable and youre going to see a lot of those and the next couple of years.
I'm sorry, Adam are you referring to pharmaceutical.
Indoor air quality.
So sometimes we throw around acronyms.
And by a Q yeah exactly.
Yeah, so for indoor.
You know, it's going to continue I think parents and K through 12 or going to continue to pressure school boards to make sure of the buildings for safe.
The amount of money.
We've got a couple of districts that we're working with right now where we're on a T and M type basis, just going from building to building to building, putting and bipolar ionization systems.
There was another district that I recently heard auto.
Branch call, where the district at $13 billion and they were trying to figure out how to spend it and where could they go with indoor air quality.
And they just hit us with it and.
And we're working with them and try to offer the solutions that they need.
But we're seeing those opportunities thrown at us as well as talking to them, but I think I think near term call. It this year there'll be quite a bit of that going into 'twenty. Two 'twenty three I don't have a clear enough crystal ball, but I do think there'll be a legacy mindset, how do we make sure indoor air quality is good now the other part that.
And that has to do with schools, I think and and office buildings right I think everybody's trying to figure out how buildings are going to be restocked and reprogrammed with hotel ing the impact of remote work for just announced the other day massive reduction of real estate quite frankly, we're thinking the same way, we believe and remote working with accuracy productivity.
And proof.
So we don't need as much real estate, either and we're looking at that as their leases come up so what does that mean, though to indoor construction and the commercial space and what has to happen to retrofit those new spaces with proper indoor air quality they'll probably be.
A lag there going into this.
And the second half of this year into next year, Mike do you have any other thoughts about that yeah. I think what's interesting and 2020 was that there was a lot of reactive and decisions that were made I think as one of the key things that we've seen as we've gone into 'twenty, one as people have taken a proactive stance.
I think it's going to be interesting to see over the next two or three years, but definitely this year, there's proactive pieces of it too. That's the first piece that we really say seen in 2021 as I mentioned before and the Opex and Capex is coming but I think the opex piece of its specific related to air quality, they've taken a much more proactive approach.
And as opposed to reactive approach that they took in 2020, alright. So I don't want put words in your mouth, but I guess the way I read that would be that they were doing kind of smaller ticket items last year, and upgrading filters, but but more of those types, but maybe this year you're seeing for.
Fewer projects, but the ones that are moving forward or are larger ticket.
Projects.
Yeah, I'd say, it's a little bit of both but yes, I think there is more apt to tuner for larger projects to come out of that where you're right and the other ones for smaller reactive so interesting okay.
Okay. Thanks for the time.
You bet. Thanks.
Our next question is coming from John all of them.
And that those investors. Please go ahead.
Hi, good morning, everybody. Thanks for the call today are quick question morning, joining me.
A quick question for Jamie So.
And then the cash interest expense savings are clear and.
Curious what the.
And whether cash interest going forward will mirror. The GAAP results there was a lot of extra amortization there.
And in prior years, so I think I'm, hoping our GAAP savings and for cat.
GAAP equals cash savings will be huge so far if you can comment on that.
Yes, and then Youre, correct and that and what.
And you have to keep in mind when looking at the interest expense line items that you've got debt issuance costs. We had our amendment cost those all are in and run through that line items. So last year and looking at the $8 6 million and interest expense. You can you know you can kind of look at it and modeling about two thirds of that is actual cash interest.
And the other is.
And the debt issuance costs and other cost of goods to amortized for that line items.
Right, but in 2000 and going forward yes.
Yes.
Cash interest those let's just take a round number for percent of $30 million million too is that does that approximate what the GAAP interest.
Reported GAAP interest is gonna be.
And we had put that number out there.
And you can look at modeling and based on the fees that are in the agreement, it's how we paid and principal and.
And then again the interest rate is low right.
Alright, okay.
And just a question on and we still have a.
Large amount of net write downs and this year.
Shouldn't that be coming to us and.
And maybe that's for Mike.
What do you think what does that look like for.
And for 'twenty one.
We would have flow through most of the old legacy.
Jackson and creating the problems.
Yeah, I think the key with that is is that we've really focused sometimes these things take time to burn off for the key thing to point out is really for the last 12 to 18 months, we focused on <unk>.
A different risk management associated with sales pursuits.
So much more rigorous I think youre correct in saying that based upon those that into 2021 debt due to the selection due to being disciplined based upon both our strategy as well as the operational capabilities of our team and we're up a lot more consistency going forward.
Okay and then.
That's what should that number be close to zero.
Yeah.
Yeah.
Once you feel like you've gotten it all your risk management.
And debt.
Disciplined and law perspective.
Projects for that precede that.
Close to zero going forward.
When you look at.
And the nature of our business you have net write ups you have some write downs. It's the nature of what we do know from standpoint of what we've seen coming out of mid Atlantic and.
And so Cal where we took those hits.
That work is wrapping all done and I'm very pleased and I can report that the Big Airport terminal project that we've been working run out of the way.
It was extended by about four months due to Covid.
The state of California, and requirements by the city of Los Angeles really.
Stop the progress of that project and we had to continue to manage and do certain things, but they received their certificate of occupancy and February which was great news and at this point, we're just doing partial and so all that work John that we will reported over the past couple of periods has.
<unk> up and but I think as we go forward the risk management process I would expect to see your debt write ups.
And with everything that we've put in place, but occasionally we're going to have a write down and we're going to have to deal with.
No I understand I, just mean overall non-GAAP basis.
Yeah no.
Look.
The other the other if you step back and look at where we got into trouble.
It was the labor conditions, which I've talked about and numerous other pools.
We definitely have that under control, but from a standpoint of scale of the projects that we're looking at today.
We're really focused on smaller is the way to go and avoiding those large long duration projects, where we do everything right, but we get caught up and problems due to others and then we're in that claim situation and as I reported earlier over the past year, we haven't seen any new.
Significant claims come into play here and there there's a couple of things we pursue cost some money, but nothing on the magnitude of what we've seen over the past number of years.
And I just want to clarify something we are pursuing COVID-19 recovery, where we see the opportunity.
We were impacted on some of our projects due to COVID-19.
Logistics on projects and things like that.
And that probably cost us a couple of bucks through 2020, but where we see the opportunities to pursue it we're doing it but as far as going forward I think Mike stone to split the job it really introducing these risk management processes and Thats, just making us a lot sharper on what we're selecting and again size is important and we're looking at smaller work going forward.
Okay and last one for me.
So you've now got you've raised guidance.
And that of cash you've got the debt refinance.
And some money coming in from warrant proceeds et cetera.
Loaded for bear I know youre going to be have to be disciplined I just wanted to get a little more color on the M&A pipeline and.
And what you're expecting to accomplish this.
This year.
And make these things happen that price all that doesn't work, but what are your share.
That would be a little more specific as for your expectations for.
For the M&A pipeline.
Sure.
So we had priorities last year that we had to tackle right goals, where get the refi done we decided to do the capital raise to reinforce our balance sheet and now we're absolutely focused on C, where we could go with with acquisitions.
Pipeline through the course of the past couple of years, we maintain relationships with some businesses that we.
Enjoyed having discussions with and we we're resurrecting those discussions today and a more aggressive stance.
We have to get our arms around everything that's happened to them over the past year with Covid, but we're active it's happening and we have resource and so we're excited about where we're going with that but it's going to take some time to make sure we find the right opportunities at the right valuation.
Okay. Thank you very much.
Thank you John.
And ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time.
And also a moment for any additional questions.
Okay.
Were showing no additional questions in queue at this time I would like.
We're back over.
And comments.
Look thank you everyone for joining us today, we're very proud of what we accomplished with our progress in 2020.
And it was a very successful year for the company and we've laid the proper foundation for that to continue.
I'm excited about all the moves we've made the progress all of that and we look forward to talking to you here very shortly with the results for Q1 and.
All the best.
Ladies and gentlemen, thank you for your participation and interest and Limbach Holdings. You may disconnect. Your lines at this time and have a wonderful day.
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Okay.
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Yes.
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