Q1 2021 Limbach Holdings Inc Earnings Call
Greetings and welcome to the Limbach Holdings Q1 fiscal year 2021 earnings call. At this time all participants are in a listen only mode of question and answer session will follow the form of presentation, if you'd like to ask a question. Please press star one on your telephone keypad.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now like to turn the conference over to your host Jeremy Hellman of the equity group. Thank you you may begin.
Thank you very much and good morning, everyone.
Earlier this morning, Limbach Holdings announced its first quarter 2021 results from filed its form 10-Q for the fiscal quarter ended March 31, 2021 day.
During this call of the company, we will be reviewing those results of providing an update on current market conditions.
Today's discussion may contain forward looking statements and actual results may differ from any forecast projections of similar statements made during the earnings call.
This noise of reminded to review the company's annual report on form 10-K, and quarterly reports on form 10-Q for risk factors that may cause the actual results to differ from forward looking statements made during this call.
Beginning with this years first quarter of Limbach is update of the naming of its reported reportable segment financial results to more closely align with its evolving business model on relationships with building owners. The two reportable segments are now of general contractor relationships, which is referred to as G. C. R and owner direct relationships are O D. R.
The segments aligned to the fire of construction in the service segments respectively.
Complete description of each reportable segment can be found on the 10-Q filed this morning, the renaming of the reportable segments does not create any material differences when applied to prior periods with that I'll turn the call over to Charlie Bacon of President and Chief Executive Officer of Limbach Holdings.
Good morning, everyone and thanks for joining US joining me today is our CFO Jayme Brooks, our CFO, Mike Mccann and our executive Vice President of the bad Cats.
We have of winning growth plan underway that is focused on improving earnings and cash generation last year was an important year for us to deliver improved results and to accomplish certain strategic milestones and we are successfully where we're successful debt. This year is about continuing those improvements and furthering the overall progress of growth of <unk>.
The owner direct strategy.
We view the 2021 year as a transformational year for the block of one where we continue to drive value for our shareholders.
Over the past 18 to 24 months, we've revamped our sales approach the focus on maximizing our returns on the box proven and talented human capital we.
We focused on securing projects that have smart risk profiles, where we have clear opportunities to deliver improved gross margins.
When we spoke with you a month of the half ago. We noted that business conditions look to be normalizing after a frustrating winter and that trend has continued the American Institute of architects billing index continues to be a favorable indicator. The March Abi score was $55 six up from 53 three in the month prior.
The other key measure of the New project inquiry score jumped again, the $66 nine from 61 point to one month ago and both cases scores above 50 indicate expansion.
On the other indicators the Dodge momentum index, which hit a 12 year high in April healthcare and laboratory projects dominated the institutional planting sector, which we believe means more opportunities for limbach.
The two of our major end markets. The Index report commented that the score is 50% higher on a year over year basis.
These data points reinforce the strengthening economic backdrop within which we have the opportunity to accomplish the strategic goals, we have for the company over.
Over the next few years, we intend to drive our business two of roughly 50 50 revenue split between <unk> and OTR work, which will boost profitability.
In the <unk> segment of our focus is on smart growth, which we believe will lead to improved bottom line profitability.
The indices noted above show that more projects are coming on line in the next six to 12 months of healthy GCE, our opportunity pipeline enables us to be very selective as we determine which projects to pursue.
And the OTR segment, we're working to prudently accelerate growth in order to drive that 50, 50 revenue mix again as the data I referenced indicates we're operating of a strong demand environment, which helps us accelerate growth in that business segment.
To do that we're focused on generating more revenue and margin from existing customer accounts through traditional service projects and from energy efficiency projects, such as installing new building technology systems and deploying our predictive analytics solution.
Under the by the administration, we expect to see Congress to provide incentives for building owners to improve energy efficiency and sustainability.
A recent report by Morgan Stanley Analyst pegged as an immense building cycle worth upwards of $350 billion in the U S and European markets the expect.
Enhanced building monitoring to be a significant driver of facilities service work, adding as much as 30% of the overall service margin.
This is of great opportunity for Limbach.
Late in the quarter, we announced the further investment in the health care sector with opening up on office in Nashville, which is the hub for many large hospital chains. We believe fulltime presence there helps us better service those customers on to further expand both our OTR and <unk> segment health care revenues.
Many of you have heard me reference opportunities in the emerging indoor agriculture area, which plays to our strength and highly engineered air handling solutions building automation and ongoing maintenance. This is an end market, which is rapidly expanding and evolving is becoming apparent that indoor agriculture is the future of forming and we are well positioned.
<unk> to be an integral part of its growth.
We believe the sector is ideal for limbach for several reasons first the building owners understand the importance of indoor air quality and humidity control and budget for it Accordingly second the size of the projects is in our sweet spot at 2% to $7 million and third the facilities require ongoing maintenance we expect.
To have as many as eight active indoor AG projects in the second half of this year. We're on the early innings of this opportunity and we're building a strong resume.
This furthers our core strategy to be diversified and move human capital resources into sectors that are attractive.
We still expect this year to be more second half weighted than has historically been the case in terms of revenue and profits that's largely a function of the pause the industry experienced late last year into January and February.
As we speak with you today I described the current conditions in our industry is healthy the.
The impact of COVID-19 appears to be receding and projects awards are moving towards a more normal activity state.
March seems to have been a tipping point for the return to some normality with our customer base.
The customer delays in awarding certain OTR contract did impact our expected <unk> revenue in Q1 by approximately $7 million.
The good news is we are seeing the customers pick up the pace of decision making.
The <unk> maintenance and small projects can only be deferred for so long eventually replacement of equipment and upgrade projects must move forward with the push to get people back into office buildings educational facilities and entertainment venues, we're seeing a dramatic pickup in momentum.
We also accomplished an important refinancing of Q1 that did result in some non recurring expense, which impacted our results going forward the refinancing will dramatically.
Reduce the interest expense and increase free cash flow, which Jamie will touch on.
So with that I'll turn it over to Jamie.
Charlie.
First quarter total revenue was down 18, 3% to $113 3 million as compared to the prior year that decline was primarily due to our intentional shift to a more rigorous project selection progress.
That emphasize the risk mitigation improved profitability and aligning our volume with our construction tally.
That shift resulted in D C. Our revenue declining 22, 5% to $84 8 million.
OTR segment revenue was essentially flat at $28 5 million compared with $28 3 million last year.
Over the year segment revenue accounted for 25, 2% of the total consolidated revenue.
We did experience some COVID-19 related impact on sales in our <unk> segment in the fourth quarter and into the B.
Meaning of the first quarter, which impacted our revenue.
So the our sales in March were strong the book too late to recognize as revenue in that quarter.
Total gross margin was 15, 2% in the first quarter up from 13, 1% last year.
I'd also say, we're happy to see that improvement, which is the function of two primary drivers.
First the increasing portion of our revenue coming from our higher margin OTR segment and the.
Second solid execution in our D C. Our statement.
This quarter there were no net write downs generated in the Gcs segment, which is the cleanest quarter in two years.
SG&A was $17 1 million in the quarter up from $16 8 million last year.
As of noted previously last year's SG&A was lower than we would normally expect as he made adjustments in 2020 due to the uncertainty of COVID-19 impact on the business.
We expect line items like travel to normalize this year, while we continue to invest in our owner direct strategy.
With that said, we're glad to have timing differences between quarters with respect to SG&A expense. The annualized in Q1 is a reasonable indicator of where we expect the end up for the full year.
Interest expense during the first quarter with $1 3 million compared to $2 2 million a year ago.
We completed the refinancing of our debt facilities at the end of February to the core.
Nearly interest expense number reflects not only of lower interest rate, but also of interest on a reduced debt level of $30 million as well as reduced low ha.
Additionally, monthly scheduled principal payments of 500000 started March 31.
The amortization payments and the lower interest rate and fees will drive down our total interest expense going forward.
The starting in Q2, you should be able to model the interest expense related to the credit facility using the interest rate and the outstanding balance along with the scheduled principal payments of 500 K per month.
For the first quarter of 2021, adjusted EBITDA was $2 1 million compared to $3 7 million for the same quarter last year and also note that Q1 of 2020 had not yet felt the impact of the pandemic in the first quarter is typically our weakest seasonality.
Net loss of the quarter with $2 3 million or a loss of 25 cents per diluted share versus the loss of 52000 or a loss of one cents per diluted share for Q1 2020.
The one time refinancing charge contributed $2 million to the life of approximately 15 cents per share.
In terms of seasonality the first quarter and the first half of the year have always been weaker than the second half of the year as Charlie noted business activity is robust and as projects continue to be book, we expect to see a much more pronounced split in the second half of the year relative to what was experienced in the past.
Over the past several years, we've consistently reported approximately 52% of consolidated revenue in the second half.
This year, we think that split could be at least three percentage points higher or more for the second half.
We expect an even larger impact in terms of margin as OTR makes up a larger portion of our mix in the second half of that naturally implies a similar distribution of our adjusted EBITDA.
Total backlog on March 31, with $446 5 million as compared to $444 4 million as of December 31, 2020.
On March 31, <unk> and OTR segment background of backlog accounted for.
$393 6 million and $52 9 million of the consolidated total of respectively.
Shifting to the balance sheet and the cash flow. Our current ratio on March 31 was 146, which compares to 133 as of December 31 2020.
We had cash and cash equivalents of $37 2 million.
$35 4 million of total debt.
$8 5 million of total debt was classified as current and $26 6 million net of issuance costs was classified as long term.
As I mentioned earlier in February we completed the refinancing of our senior credit facilities.
The new credit facilities consist of $25 million of the revolving credit facility and a $30 million term loan the.
The rate on the term debt is LIBOR, plus 4% or prime plus 1% with a minimum of five or four of <unk>, two five per cent and a prime rate floor of 3%.
The reduction in interest rate the reduced debt balance and the greater term loan amortization should meaningfully reduce our cash interest expense this year.
It will also contribute to improved cash flow before the scheduled term loan amortization.
We also completed an equity offering in February debt raised net proceeds of $22 8 million through the issuance of $2 1 million shares of common stock at a growth offering price of $12 per share.
We are looking to deploy these proceeds to support our owner direct strategy and to support possible acquisitions.
Shifting to working capital we had of cash usage from operations. This quarter of $17 4 million. The primary driver was the usage was a decrease of $13 4 million and our net over of billing position.
We're continuing to focus on cash and our billing cycles and are maintaining the discipline, we implemented the year ago.
However, we expect to continue to have ebbs and flows and our cash from operations, depending on the timing of revenue and the lifecycle and size of projects in any given reporting period.
Additionally, net cash used during the quarter related to the refinancing and the first amortization payment and that totaled of 11 6 million.
As we announced in our press release, we expect consolidated revenue for 2021 to be in the range from 480 million to $520 million with an adjusted EBITDA of between $23 million and $27 million.
The on providing the typical guidance our goal is to help investors further understand the business model transition and in particular, where the company is on that transition continuum.
This year, we're expecting gcs revenue in the range of $330 million to $350 million.
The buildup to that range starts with the $85 million in revenue that we earned in Q1.
And the revenue scheduled to be earned this year on work already in the D. C. Our backlog, which was the $393 6 million as of March 31.
The promised and probable work that hasnt, yet been booked into backlog of pending written documentation.
Any ordinary course change order activity.
What's left to fill the revenue GAAP isn't very much and we think the current opportunity set is large enough for us to win and execute that work this year.
The G C. Our revenue range is as expected below the $440 million in construction revenue that we generated in 2020.
Approximately $80 million of the $440 million in revenue from last year with low margin work and it would not meet our current project selection criteria in terms of risk labor allocation and pricing.
You see our gross margin should be in the range of 10, 5% to 11 five per cent for the full year.
That's a modest increase year over year and on the path to our intermediate term goal.
In the OTR segment, we expect to earn 145 $270 million of revenue this year.
The buildup to that range is the $29 million in revenue we earned in Q1.
The revenue expected to be earned this year from the execution of the $53 million in Ot our backlog as of March 31.
And the unearned maintenance base revenue together with the associated spot and PNM work.
The rest of the revenue to be earned will likely come from owner direct projects.
From a margin perspective, we still believe the normalized range for OTR gross margin is 25% to 28%.
We performed better in recent quarters, but we expect some margin dilution as the relative growth rate of OTR project work accelerates.
For both G C R and OTR timing is a consideration of this year. How every every one of our operations is focused on the OTR market.
I'll hand, it over to Mike now.
I'm going to provide updates on our OTR expansion or continue to see our risk management controls both of which continue to trend in the right direction.
We're seeing success of realigning our local leadership teams to focus on OTR expansion and improved returns from our TCR customer base.
We are driving the business to focus on getting more share of wallet from our 1100 plus contracted OTR maintenance agreements. This should result in more high margin <unk> revenue with little additional sales expense.
On the GCI front, we're only working for customers, where we of relationship that has historically proven to deliver strong financial outcomes.
We've become very selective and want to make sure that all customers and project opportunities measure up to our criteria.
We've just about cycled through the old lower margin TCR work and there is a much more backlog we.
We expect the residual work to account for more than 5% of our TCR revenue this year.
As this less profitable higher risk business has burned off of replacement only with projects that meet new more stringent risk of margin.
Profiles with customers that appreciate the value of limbach creates our backlog levels also reflect comfortable labor levels maximizing our returns with the proven limbach management of craft workers.
By design of our current backlog levels are lower than they were a year. Margo. However, we believe the risk adjusted profitability is better the quality of that backlog together with the better work. We're now selling should allow us to improve gross margins into the future.
Our overriding strategy is to secure smaller projects with schedules the complete within a reasonable amount of time.
Projects with shorter schedules help mitigate the risk of material and labor cost increases with these type of projects. We are of great track record of higher margin outcomes fewer claims that we tend to be paid properly.
We have a few large scale projects, we're pursuing but only where we are of a successful track record in available at Limbach labor resources, the risk management processes, we have in place are working rigs.
Regarding the claims we mentioned in the past.
We continue to progress each of the issues.
With our strong balance sheet, we're prepared to go the distance of on these claims to maximize the returns I also need to know.
We have no new projects have moved into significant claim status in the past 12 months to reinforce we're focused on improving margins across all lines of service. It starts with sales and it's great to see the momentum pick up again.
Lastly, I'm pleased to note that our Q1 resulted in a net neutral impact from write up in write downs. This further reinforces we're going in the right direction with our strategic and operational plan I'll hand, it off the map now.
Thanks, Mike from an M&A perspective, we are evaluating a number of opportunities and it's just a really interesting time to be in the market doing that I think we've got great clarity on our strategic objectives.
Looking for businesses that support our own transition to the OTR business model, we're looking for businesses that expand our operating footprint into new and adjacent geographies the.
Share, our cultural and core values and that provide for two way exchange of expertise and capabilities.
We're much more focused on grabbing front end opportunities than back of house opportunities and of course, we're also looking for good relative and absolute value.
When we step back and we look at the broader landscape right now we see some trends that are sometimes conflicting in which youre, making for some interesting conversations and process dynamics.
Most obvious is obviously the the degree to which COVID-19 has impacted profitability of other contractors. There are some great companies that just had a tough year in 2020. They are seeing the proverbial green shoots and the resulting growth in backlog, but that backlog won't convert to revenue for another quarter or more and so earnings on a TTM basis haven't quite caught up to the <unk>.
The value of those businesses.
Then there's the capital gains tax dynamic where these business owners of both terrified, but also pretending not to be when they are engaged with US everyone seems to think that an increase in the capital gains tax rates more likely than not and so there is a sense of urgency on the part of sellers, but the relative shift in leverage between buyer and seller as a result of that.
Isn't as apparent as you would expect so for us that means we're continuing to explore multiple opportunities in parallel. We're also remaining disciplined and we're trying to remain flexible where we need to be and where we have to be.
But without a doubt of stronger balance sheet and the stronger macroeconomic backdrop has been supportive of our efforts. We look forward to keeping the updated on the activities and at the right time on the successes.
So all of a few closing thoughts I'd like to share.
Number one market diversity.
We built our company company to be diverse and operate in a variety of end markets. Many of which are seeing strong demand, we're going to take advantage of the indoor agricultural.
Which further diversifies the business, we believe that diversification is very important and it served us well through the pandemic. We also intend to take advantage of the possible upcoming energy expansion of retrofit projects, especially with the new technologies, we're employing the.
The macroeconomic picture for Limbach is very bright.
Number two.
The audio of growth and overall margin improvement of.
Our strategy to grow all your maximize of of origins with both <unk> and <unk> is simple and smart.
As each quarter goes by our results are proving out our strategic direction.
Number three inflation and labor conditions, we're closely watching the inflationary pressures of the commodity of labor markets are vastly improved risk controls incorporate these and other factors and allow us to take appropriate action with pricing and contract terms.
Finally, I want to thank one of our board members was the lottery sweats for smart contributions over the years.
As noted in the earnings release this morning, Larry will be leaving our board once we find a successor.
Nominating and governance committee will be following the process laid out in our bylaws.
The committee will be searching to further diversify our board while seeking experienced tied to the strategic direction of the company.
Again, I want to thank Larry for all of his contributions.
2021 is the new paradigm for Limbach on number of initiatives, we have undertaken or beginning to crystallize and we look forward to continuing to update everyone on our progress with that we will take your questions.
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So a couple of questions. The star Keys, one moment. Please open the call for questions.
Our first question comes from the line of Rob Brown with Lake Street Capital markets. Please proceed with your question.
Good morning.
The first question has to do with predictability.
Given given the you're talking about of pretty backend loaded year, how much visibility do you have at this point of how predictable is your business.
Seems like.
On the near term it's of little still on a predictable, but really how much visibility do you have.
And the business at this point.
Yes, I'm going to start off with just when you look at our backlog with the <unk> segment. We're in really good shape I mean, we've sold what we needed to sell we've got a bit more to close but we're pretty much there and then when you look at the OTR piece, you've got to break it down from the standpoint of we've already burned.
Through $29 million of revenue, we have $53 million of backlog in that segment and then you also have to take into account the maintenance space that we have.
Which is north of $15 million and that generally brings through about a multiple of three to four times additional revenue when you start adding up all of those numbers, you'll see that we're pretty much out of about $130 million and that doesn't include the new project sales. So when you start looking at the.
Breakdown of the guidance.
Jamie was helping build up to the overall guidance.
The 145 to 170 million is is there and it's just all of the question of timing and execution the sales that we're making right now.
In Q2, right Q1, Q2 that work will actually burn in Q3 and Q4 I'll give you. An example of one customer.
March was a pretty interesting month for us our sales were terrific on both segments, but.
The pipeline just opened up the force it opened up.
And one customer in particular started asking us to quote one to 3 billion of week now we're not being awarded that at that piece, just yet, but the budgeting of the pricing indicates their pent up demand for more of service.
Smaller project type work, which continues to.
Create our perspective that the year, it's going to be another good year.
But it is going to be time towards the back half Rob and that's the way we're looking at the right now.
Okay. Thank you. Thank you for the color.
And then in terms of the the SG&A expenses, Jamie I think you guided those up a fair amount.
Just sort of wanted to get a sense of of what's driving that and given the given the revenue levels you were talking about I.
I guess, what's the what's the Levered debt gets you to the the EBITDA you talked about is it.
Is it really the margin expansion in the in the OTR segment, or maybe just give us a sense of how you get there with debt.
Expanding SG&A cost level.
Yes, so for the last year. The we obviously with COVID-19 had cut back on initially when the impact hit in March and not knowing where hell of the company was going to weather through it we really cut back across the company on.
The travel went to basically zero and as well with head count on.
Any kind of initiatives were put on hold and so the new run rates really the reflective for the for Q1 is everything.
Everything kind of coming back to normal.
Kind of a normal travel rates as well as just the initiatives that we're putting our dollars back into investing into the company for our growth initiatives.
Okay. Good and then last question is on the inflation commentary Charlie that you had are you seeing.
Labor price inflation at this point and or labor shortages or what's the labor conditions right now how quickly can you adjust price. If you are seeing issues there.
This is Mike I'll take that one I think that.
The good thing with our our strategy going forward is we're looking to secure smaller projects of the schedules that are going to move much quicker. So that will allow us from a labor perspective too.
To make sure that as price correctly I think the other key thing to note too is we're making sure that our labor levels match on.
Our craft workers are current craft workers and we're ultimately trying to maximize returns. So ultimately the quicker projects will help us navigate that.
Okay. Thank you I'll sort of just another comment or pricing services, we get weekly updates into our estimating system every week on any sort of commodity pricing. So we're ahead of it and when we buy out of our projects meeting when we're approaching an award.
Lord of the project, we have a pretty good firm handle on what we're looking at for the materials of the equipment. So we budget debt accordingly.
But we also have some contingency.
In our estimates to allow for the variables that have been included in it could be used for inflationary expense. If we have to see something just bounce up a little bit more but I think we've got a pretty good handle on it I just want to reinforce what Mike said, the smaller projects there get in and get out right. So we budget them, we get the approve.
All of the proceed we've got our estimates locked in and off we go but they're not these long duration projects that take two years from three years to build generally you get some of these projects on in six to 12 months in and out on and Thats, a big part of our focus we are still going to do some large projects.
The only with the proven resources, we have on the company, where we've executed successfully on large projects of the past and of course, we're looking at those.
Inflationary concerns on the bigger jobs to make sure we're having clear understanding with our customer base, the things could be impacted or we'd have to talk to them about.
Okay. Thank you I'll turn it over.
And once again as a reminder, if you'd like to ask the question. Please press star one on your telephone keypad whats the end of if you would like to ask the question. Please press star one on the telephone keypad. Our next question comes from the line of Donald with Longmeadow investors. Please proceed with your question.
Hi, everyone. Thanks, Thanks for the call.
Just a quick question on on the TCR gross margin I think correct me if I'm wrong Jamey, if I heard you right.
I think you mentioned the sort of targeted.
Targeted sort of 10, 5% to let of net 11% gross margin.
Okay.
Last year it was 10 two.
That included about two points of write downs, which hopefully now thats behind us based on the first quarter, which was great news.
And you're taking out $80 million of.
I don't know very low the very low margin revenue.
So shouldnt I mean shouldn't that number be closer to 13%, 14% of if you just do the math the add back to.
The write downs and then take out the 80, and then just improve the general margin could seem to be.
Can it be higher as of yet.
Tim.
On the opportunity John look it's great question, and when you step back and do the math of where Youre doing it.
I think we've done a great job at improving execution and we're starting to see that flow through the gross margin numbers better selection better execution of the field.
We've got some run room in front of us.
To continue to prove out that we're doing all the right things and I firmly believe we are.
So the way you are looking at it I think youre correct, we're going to continue to see improvement here, but we're trying to stay conservative here on our thinking and let's continue to prove out our results every quarter, we're improving the.
The quarter, we just had with no net write downs right. That's the first time that's happened for us in two years. So what we put in place 18 months ago. It is now proving out very positive outcomes. So we will continue to update that as we work through the year.
But youre thinking of is correct.
Okay got John its Matt, let me just add to that.
As we take the approach of booking good work conservatively, we're going to carry that work.
Probably at a more conservative margin through the majority of the lifecycle and as we eliminate the risk items from the scope and we complete that work and feel good about the labor productivity the material cost the subcontractor productivity, we'll start to think about whether or not we can take the margin is up but probably not until the project is 60 or 75.
Percent.
The last thing we want to do is feel good about of job in the first 25% and book it at 10 points and take it to 11 and then find out we've got a problem later and have to bring it down again. So I think we just want to be really careful of that when we really recognize the upside opportunities we want to make sure. We've taken the risk items off the table John on the other thing I just want to add to kind of when you think about the future.
<unk> with how the company is executing so of existing book of businesses being executed much better than of the past, which is obviously great news.
But the indexes indices that I shared with everybody. During my prepared remarks are indicating strong uptick for the industry, which is going to take.
The six to 12 months for architects six to nine months for architects and engineers to create the designs of the owners can go out and start getting folks like us engaged.
On the way we're looking at the right now is you're going to see a nice uptick.
The jump in those indices is rather dramatic and I think that's very important to understand that is going to give us a lot more opportunities to look at which means we can become even more selective on what we want to take on and quite frankly, we should see margin improvement because of the expansion of the marketplace.
No.
Q3, Q4, we're going to be I think exciting quarters for us.
And we will help us really define where we're going in 'twenty. Two we're going to continue to rapidly grow the OTR because we just see that as really the <unk>.
The play and put our resources against at the same time with construction, yes, there has been.
What is the healthy look at our backlog on how we're looking at it.
As we go forward and we continue to prove out our execution construction will go back into growth mode, but that's probably looking at 22 right now right. So this year.
Steady leverage out of our human capital to the best we can with margin and continue to contribute better numbers of the bottom line or that all makes sense.
Okay. Thanks.
And that can maybe segue into the next question, which I think I've asked you before so.
So this feels like a year the the construction.
So call of destruction sorry.
Sort of being reset.
On the sort of establishes a new base so.
This gets sort of my question of the 50 50 mix goal in five years.
Well.
Obviously, you don't you can't be exact but the roadmap for that obviously you can get there by shrinking the construction to $200 million.
And then on.
The direct being $200 million or it can grow to $600 million anyway. So.
From from this base.
Would you expect the.
The <unk> business.
You continue to grow modestly.
No.
I'm just trying to get a feeling for what is what's the roadmap.
Sure.
Look on another good question from the standpoint of how do you look at where we're taking the so the <unk>. We're obviously expecting continued very nice growth.
Year on year were to continue of pushed out as heavy as we can.
So it has some catching up to do with the construction piece to get to that 50 50, but as I just stated.
Of the current burn rate that we provided some information on between 330 and $350 million. That's a good run number for US right now with the quality of talent project management that we have in place we want to again leverage that and maximize the return of that talent.
As Mike continues to Shepherd the business in terms of execution and we continue to see improved results will start biting off more so I think the way to look at it is I would expect through 'twenty true to start seeing growth come back to the <unk> piece.
But we're going to continue we'll provide commentary around that how we're doing we will see how the margins are but as we see good execution continue.
And each of the business units will push those business units for some growth in certain segments. So the bottom line is this we do expect to see growth of construction in the future. This year, though we're going to continue to prove out our execution.
Okay, great. Thanks, and then just the last one from me.
So obviously to get I mean.
This is going to be more from Matt.
Curt.
To get to that mix, obviously, a big part of that is going to be acquisitions.
The acquisitions.
So I'm just.
I'm, hoping that.
This can be the list can be of cash generative business and.
Yeah.
And then you can deploy those resources into into acquisitions I mean, Matt.
Again, just for everyone.
Okay.
Realistically how.
Much can we get done.
And of the year, obviously youre kind of tip.
Take it slow ticket the discipline and all that stuff, but.
But.
You know.
One.
I want to hear the turning into a cash generating self.
Yes.
Why will the starts to generate cash by something generate more cash by something.
How do you see that evolving just sort of your roadmap for success in that area.
John So if you look at the OTR revenue range that Jamie provided earlier of $1 50 to 170, <unk> basically imply the growth rate a little bit north of 30% relative to last year's number.
This year, we view that as being an organic opportunity if we get an M&A deal done this year that would obviously be supplemental on incremental to that but as that number starts to approach $1 50, 160 170, yeah, it'll become just law of big numbers right it'll become more challenging to continue to grow that business.
In the mid to high teens.
On an organic basis, and so I think.
M&A in particular for OTR will be important to deal with we want to continue to grow that segment at those kinds of growth rates.
The market is reasonably supportive right now from an M&A point of view as I mentioned, there are some sort of weird dynamics between.
COVID-19 in the rearview mirror of capital gains tax increases looking forward and all of that will get sorted out here hopefully before too long and certainly this year, but I think the market opportunity for us in M&A over the next couple of years will offer Rob <unk>.
Certainly enough volume to hopefully see.
Two the three deals a year over the next couple of years.
At least.
And sort of reiterate your comments before about needing to maintain discipline and thoughtfulness on strategically and financially, but if I just look at the number of opportunities in the market and think about how many of them have been on spec for US. There is a strategy. There there is enough volume among the.
That universe that I think we can act and the there is there's enough there that this isn't a one every other year or one every couple of years type of approach, we're seeing some things that are interesting.
We want to be measured in terms of how we do it.
But the limiting factor wont be our inability to find businesses that are on target.
It will be our ability to integrate them thoughtfully.
Be disciplined strategically and make sure that we're carefully managing the balance sheet as a result, so I think once we get momentum behind the effort.
Hopefully doing a couple of every 12 months is a realistic objective and as we said before I think these are deals that at least in the near term or probably $50 million to $100 million of revenue and might have three to five $3 million to $6 million of normalized EBITDA and a decent portion of that is going to be OTR like and some of that will be more.
The <unk> like but it'll be new limbach <unk> not old limbach construction. So focused on good end markets for good customers good risk management practices, but a heavy dose of owner direct work at the same time.
I also want to just reinforce that post the refinancing we've hit the road hard out there and we're talking to people of.
That's logged quite of few airplane models here over the past couple of months engaging with face to face conversations so it's.
It's coming together.
Thanks, a lot.
I'll step back I appreciate I appreciate your comments thanks.
Thanks, Sean.
Yeah.
And what's going on as a reminder, if you'd like to ask the question. Please press star one on your telephone keypad. Once again, if you'd like to ask the question. Please press star one what are your total.
From Keybanc. Please.
Our next question comes from the line of Richard <unk> with <unk> Capital Advisors. Please proceed with your question.
Yes. Thank you for your increased transparency.
The businesses in the way you look at it I think it's very helpful.
I am a little bit concerned about the.
Considerable discussion of acquisitions.
Can you describe how you view, making the acquisitions what metrics you use versus lets say I know it sounds silly since you sold stock earlier in the year, but your stock is down since then and I'm just wondering.
How you look at.
Repurchasing your own stock versus buying another company.
So rich just from a practical perspective, there are limitations on our ability to repurchase stock that are imposed by the terms and conditions of our new senior credit facility, we have greater flexibility now than we did under the prior facility, but there are still certain conditions precedent and conditions.
We would need to meet before we could use excess cash flow to repurchase stock.
And those are those are in the credit agreement and I can point you to them. If we wanted to connect offline.
We're obviously always thinking about how to deploy capital both internally and externally on the focus thus far for a variety of reasons has been really on sales.
Resources.
And some other internal resources as we focus on OTR.
We've been looking at deals for three and a half years now and have been very patient about.
Pursuing those we've obviously been working through some balance sheet challenges from time to time too, but I think we've got pretty good clarity and pretty good discipline around what we think would be accretive to the business both financially and strategically.
We're going to do a deal when it makes sense.
For both of those criteria and not just because there is sort of a.
There are a lot of fun and we just wanted to get a new site and Tim has done that we can put on the desk right.
We're seeing valuations in the market for what we think are very good businesses that are very accretive.
Our OTR strategy that are trading in the range of somewhere between four in the quarter for the App, maybe as much as five times, we've seen some businesses that we really liked that we're going to trade for greater multiples and we're just not in the market to buy businesses for 556 times in this market or perhaps even any market will.
To see.
But it's always a balancing act and we've always tried to maintain a lot of discipline around that.
We do have some restrictions on where we can allocate capital under the credit agreement on but there will come a time, where that's an option too and we will have the way that into the mix.
Thank you.
And with that we'll conclude our question and answer them.
Session and I would like to turn the call back over to management for any closing remarks.
Just want to thank everybody for joining us this morning.
We're pretty excited about our strategy and what we've laid out for everyone where.
Executing it we're doing what we said we were going to do.
And we're very very excited about this year as.
As we see on margin improvement and the pipeline improving.
There's a number of other things we mentioned on today's comments that really indicate a bright future for the company. So thank you for your interest and we look forward to talking to you on the next quarterly call.
And this concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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Yes.
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