Q1 2022 Limbach Holdings Inc Earnings Call
Greetings and welcome to the Limbach Holdings first quarter 2022 earnings at this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation to ask a question. Please press star one on your telephone keypad, you can press star two to remove yourself from the queue.
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I will now turn the conference over to our host Jeremy Hellman of the equity group. Thank you you may begin.
Thank you very much and good morning, everyone yesterday, Limbach Holdings announced its first quarter 2022 results and filed its Form 10-Q for the quarter ended March 31 2022.
During this call the company will be reviewing those results providing an update on current market conditions. Today's discussion may contain forward looking statements and actual results may differ from any forecast projections or similar statements made during the earnings call listeners are reminded to review the Companys annual report on Form 10-K, and quarterly reports on Form 10-Q for risk factors that.
It may cause the actual results to differ from forward looking statements made during the earnings call with that I'll turn the call over to Charlie Bacon, The President Chief Executive Officer of Limbach Holdings.
Morning, everyone and thanks for joining US joining me today is our Chief Financial Officer, Jayme, Brooks, Our Chief operating Officer, Michael Virginia.
Matt <unk> executive Vice President of acquisitions and capital markets personal conflict.
Joining us for the call. This morning, it will be available later today and this week if there are any follow up questions.
I'll be covering our business highlights.
<unk>.
Our financial guidance for 2020 to Jamie.
Jamie and Mike will discuss our financial and operating results.
I'll also provide an update on the continued integration of drink Marshall will discuss the current acquisition environment and pipeline.
We have many employees joining us for this call.
I think collectively we've worked our way through the past to Covid impacted years, while improving our operations across the board.
Our strategy to Pi margin OTR services through improving our PCR institution, what breakeven is for you.
Incredible effort.
All of this has been occurring.
We care for value, which led to another pure you a terrific space.
We closed out 2021 had a sport fashion.
Solid execution, which you saw us deliver our financial guidance that we provided earlier.
Sure.
Keeping our financial goals, all while successfully executing a transformational strategic change in our business and dealing with the impacts of the pandemic.
We firmly believe the results of the last two years confirmed the validity of the strategic shift and our ability to successfully execute on that plan.
Ladies.
The OTR business more.
Predictable revenue higher margins less risk of execution.
Sure.
That fits this profile should trade at much higher multiples of revenue and cash flow with the TCR focused business.
Fourth quarter results will reflect the volatility that is characteristic to our industry, but we firmly believe that the long term trend of moving through the older direct model.
Sure execution will continue to improve results.
On our last call. We also noted that we expected 2022 to be similar to 2021.
Stronger second half and that continues to be our expectation.
Our guidance for the year. We currently expect revenue to be in the range of 510 million to $540 million and adjusted EBITDA to be in a range of 25 to 29 billion.
Our goal is to close on at least one acquisition. This year. However, the 'twenty two guidance does not include the financial impact of that transaction.
Any acquisition within the calendar year.
Yes.
Before I hand, the call off to Jamie and Mike to address finance and operations I wanted to touch on the general economic picture impacting the business.
We think the demand picture of our primary market sectors remains positive.
Based on the recent <unk> second quarter outlook, along with the American Institute of Architects billing Index report.
What we're seeing on the ground healthcare was forecasted for steady expenditures, but there could be a shift of capital for greenfield construction to retrofitting facilities due to rising utility costs, which should be positive for us.
Data center spend is expected to accelerate and we are continuing to enjoy a solid relationship with one of the major data center operators.
Our Boston area operations, we're seeing good levels of research and develop facility demand.
<unk> second pharmaceutical industry.
We also have greater opportunity some manufacturing in the industrial sector through the acquisition of <unk> partial or we expect there to be a steady increase in activity alongside onshoring of manufacturing investment.
In the near term tightening supply chain appears to be driving more building owners, both capital to maintaining the upfront about existing assets.
It's positive for our OTR business, especially with our TNF work, which is small but growing part of our business. We realized a 46, 8% improvement over the same quarter of last year with TNF services.
We expect that trend to continue while the supply chain issues delayed equipment replacements.
While we have been impacted by supply chain driven.
But delays these high margin TNF services offset some of the equipment delay impacts.
As I've stated in the past.
Our services are essential.
Humans need what we do.
Air conditioning water power.
And building automation that control the environment, we create.
We are diverse we have built a diverse business, allowing us to shift assets to where the opportunities exist from sectors geographies, we move where the business opportunities are present.
Pandemic response back to 2020, and how we've executed its great proof of that.
Finally, we continue to evolve we keep evolving the business, which has supported a 120 plus years of operation and right now, we're indicating that through our OTR transformation as well as its digital strategy.
In the context of all these trends with how we operate the business Limbach is well positioned and we expect to see improving operating results with that I'll hand, it off the JV.
Thanks, Charlie our earnings press release, and our Form 10-Q contain a detailed review of our financials with that in mind I will focus my discussion on areas.
With gross margin.
For the first quarter OTR gross margin was 23, 3% and you see our gross margin was 11, 6% free consolidated gross margin of 16% this compared to 15, 2% in Q1 of last year and 21% in Q4 of 2021.
As we noted on our last call. The consolidated gross margin for Q4, and it did sort of an ideal mix of job cycle timing and the positive impact from a disputed claim settlement.
<unk> margin of 11, 6% in Q1 increased 50 basis points year over year due to a generally improving execution.
Did you see our margin it was solidly in the middle of the 11% to 12% range that we talked about on the Q4 call as being appropriate for modeling long term.
The OTR gross margin will fluctuate based on mix of services provided in any given period. For example project work is delivered at a lower gross profit percentage compared to T. N. M work. So the relative mix of work will impact the gross profit percentage in any given quarter that was the case this quarter, which is why the LDR gross margin.
Below the long term range of being between 25% to 28%.
Our SG&A expense for the quarter was $18 7 million.
First quarter SG&A like approximately level with the fourth quarter and increased one 6 million from the prior year quarter.
Similar to the fourth quarter, the high SG&A level due to an overall normalization of operation.
Paired with a prior year that was detected by Covid.
In addition, we incurred a full quarter of Jason Marshall SG&A this quarter as well as certain expenses related to the restructuring of several business units.
During the quarter. The continued assessment of our operational expenses identified a number of areas to target for cost reduction.
These include further centralization of certain services a reduction in our real estate footprint and an evaluation of areas, where we believe we can further streamlined certain corporate management services.
For the full year, we expect to incur approximately $4 million to $5 million of costs related to several improvement initiatives, which includes the wind down of our southern California operation and the GC or business segment in our Eastern Pennsylvania branch as well as other nonrecurring costs associated with these cost saving initiatives.
These costs will be included in the add back for adjusted EBITDA and those incurred for the first quarter or in the adjusted EBITDA reconciliation table, which is found in our earnings release.
A significant portion of these nonrecurring expenses will run through SG&A.
Just think one cost savings example, we have been assessing our real estate needs in light of flexible remote work schedules.
Focus on markets, where we can reduce our firm and are actively taking steps to rightsize those spaces. During the quarter. We determined the lease of our corporate office in Pittsburgh Kids will be combined with our operational office, the total cash and noncash termination expense for the quarter was approximately $8 million.
But this will save us just under half a million dollars per year of lease expense going forward.
These expected cost savings and the add backs to EBITDA are reflected in the guidance Charley presented earlier.
We currently have other cost reduction initiatives in place and expect to see further cost savings from these initiatives during the year.
Not realize a full year effect of those reductions until 2023.
As such we believe using Q1 as a quarterly run rate for SG&A should be reasonable and there will be some fluctuation over the full year as we incur these one time related cost to our cost reduction initiatives as well as realizing long term impact of those cost savings.
Turning to the balance sheet and cash flow at March 31st our balance sheet continues to be strong. We ended the quarter with cash of $18 1 million and had outstanding debt, including the short term portion of $47 7 million. The senior leverage ratio continued to be under two times, our adjusted EBITDA.
Our net under build position declined $13 3 million from December 31 to $7 9 million and we are confident that the significant reduction in our under bill position shows that we are making progress working toward a mutual billing position as we do so we expect working capital to be positively.
<unk> in the long term.
We can assume $3 million of cash from operating activities. During the first quarter, which is a dramatic improvement from the first quarter a year ago, Let me use $17 4 million of cash.
During the first quarter, if we start with the net loss.
Add back primary noncash operating activities at $4 7 million.
And then subtract 200000 for capital expenditures during the quarter the business generated $3 million of cash flow before taking working capital changes into account.
As we suggested in Q4 this is a reasonable way to view cash generated from the operation of the business.
Based on the projected earnings this year less capital expenditures, we expect positive cash generation from that business in 2022 before working capital changes in our debt amortization payments.
I want to emphasize the nature of our business is such that working capital will fluctuate in the short term due to project timing.
<unk>.
Overtime, we do expect working capital to have a modestly positive impact on the business as we shift our model two O D artwork and smaller projects.
I'll now pass the call to Mike.
Thanks, Jamie and good morning, continuing with Charlie was early comments about market activity, we see two primary themes in the market.
First the short term repair work in retrofit work, our customers are well aware of the current supply chain issues.
So they know they simply can't afford to have their equipment fail due to that fact, we've been focused on direct building on our relationships and we are in good position to capitalize on this lack of optionality in our trusted relationships.
Second is that our customers are starting to realize that deferred capital expenditures on building systems infrastructure that accrued during the pandemic can continue.
At some point existing systems cannot be repaired any further need to be replaced.
Given the overall strength of demand in the market building owners, though there are effectively in competition with each other to lockdown commitments for scarce capital equipment.
The net result for us as an active sales pipeline. We are seeing both increased backlog from larger infrastructure projects and quick hitting revenue from repairs and maintenance.
No first quarter product sales were up 74, 4% from last year's first quarter, which was really great to see.
At March 31, OTR segment backlog was $106 9 million up from $52 9 million a year ago, a 102% increase.
Additionally, yoda, our backlog grew sequentially by nine 1%, which reflects the continuing focus on consistent sales activity.
We think we're well positioned to deliver solid year on year growth in <unk> revenue in 2022.
For the full year, we expect to see <unk> account for an increasing portion of overall revenues as we track towards our 2025 goal of a 50 50 segment revenue split.
Recall that in 2021, the OTR segment contributed $28 $628 six of revenues.
From 22, 4% in the prior year.
So we feel good about the overall trend we expect the percentage split in 2022 to be in the range of 32% to 37%.
While our backlog has benefited from an active sales pipeline I also want to note that due to supply chain delays that backlog has taken more time than normal to convert to revenue.
That is a primary driver behind our second half weighted outlook for the year.
But we have the business in hand, and we continue to see good evidence of our strategy, becoming reality our local branches are continuing to look to maximize the return on the resources that is naturally driven them towards ODI revenue and it is comparative attractive margins.
There is ample demand for those small projects across many of our market segments and met many of our branches.
First quarter GCI segment margin was 11, 6%.
Up from 11, 1% a year ago.
Keeping with our emphasis at longer time periods offer the best lens with which to evaluate our business trailing 12 months segment gross margin gross margin is 13, 2% compared with 10, 5% at this time a year ago.
When we merge these two themes of OTR expansion and improved TCR execution, we have confidence that we're going to continue to deliver growth in revenue and generate improved bottom line contributions the OTR sales momentum and market demand will continue to drive the company closer to a 50 50 <unk> revenue mix.
Let me hand, this over to Charlie for comments on our acquisition activities that wrap up for Q&A. Thanks, Mike.
We want to chase Marshall and how that's drawing the integration is proceeding well and is on schedule, which is a testament to the focus of the termination of everyone involved in side both organizations.
The partnership gets stronger every day, because we continue to find new ways to work together as one property.
Really only just started to exploit the potential sales marketing and operational opportunities.
The <unk> leadership team has also been a valuable from a perspective of warfare, you're twice for industrial markets.
Application capabilities.
Special Thanks to the team in Chattanooga.
<unk>, it's been a great team effort.
Industrial institutional markets continue to strengthen in the Tennessee region.
As you've seen elsewhere <unk> backlog conversion to revenue has experienced a modest shift to the right mostly on one larger project, but received quick replenishment of sales pipeline overall, and a steady growing base of bread and butter of industrial maintenance activity. It was a lot of upside of those markets and over the next year.
Every year's we expect that we have the right team to capture it.
We'd love to find a local and regional tuck in acquisition type opportunities for both product and service providers to further expand <unk> capabilities and we'll see what the market has to offer.
We continue to evaluate a steady stream of acquisition opportunities with dominant privately owned businesses.
As we've said before we are discriminating buyers and I don't think that's materially.
Opportunity set.
If we're going to spend capital, we want to do it thoughtfully and with maximum impact.
Well, we'd like to get more than one fueled Douglas.
Or any perspective also towards company quality will be the key determinant.
Our success there.
As we noted earlier, we feel good about the continued improvement.
<unk> of our overall execution.
Our <unk> transition has us well positioned to benefit from current market dynamics as evidenced by growth of the project sales of over 74% from last year as Mike noted.
<unk> backlog was up significantly from last year and improved 91% for Q4 'twenty. One so we are certainly feeling great.
Terrific momentum of the business.
You've also heard US talk about 50 50 segment revenue split.
That continues to be our goal we're focused on organic growth efforts on Vod or model and also continuing to look for acquisitions that include a significant 40 or performance.
In <unk>, we continue to expect realized gross profit margins to the 25% to 28% range just to be clear that range is what we expect to see over the long term in any given quarter, we may see margins move above or below that range due to timing of our workflows in <unk>.
<unk>, we are emphasizing gross profit dollars are allocated resources.
Where we have proven execution, we expect to realize GTR grow sports can be 11% to 12% range.
As we continue to see <unk> contribute a greater portion of our revenues with a 50 50 split.
We also expect to see an upward bias in our group's forges as Jamie commented, we are working aggressively to achieve and maintain our SG&A right size.
Long term, we expect SG&A to run at approximately 13% to 13, 5% of revenue, which reflects a combination of efficiencies and operating leverage from scaling up the business up to a 50 50 split.
In terms of M&A assumptions embedded in our goals, we see plenty of opportunities available to us from an operational perspective, we feel good about our ability to integrate anywhere from one to three acquisitions per year.
So our integration of AI portion demonstrates our branch based model facilitates the bolt on of acquired businesses without any disruption to any of our other operating units, while concurrently allowing for exchange of best practices.
One last point I would like to reiterate is that we're optimistic and confident about the business.
Each one of us on the call here today, along with several board members and other executives made open market stock purchases earlier in the second quarter.
Many of US did as well throughout 2021, we are firmly committed to executing our strategy and delivering on our financial growth targets with that we'll take your questions.
Thank you and at this time, we will conduct a question and answer session.
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One moment, please while we poll for questions.
Our first question comes from Rob Brown with Lake Street Capital markets. Please state your question.
Hi, good morning.
Robert I Wonder if you can comment a little further on the service shift in terms of what Youre seeing.
Some equipment delays flow through and how youre seeing that.
Service business ramping and how do you sort of see that playing out throughout the year here.
Thanks, Rob for the question.
One of the things that we've definitely seen a significant shift I think.
I would especially since from an internal perspective, where.
We're really trying to make sure that from a capital allocation work allocating to the highest gross profit opportunity and thats kind of bled our business towards increase.
Increasing resources to the owner direct side.
We're seeing really two different things from a market perspective is short term quick hitting PNM work built from our maintenance space that continues to increase at the same time from a larger project capital.
Spend perspective, I think with rising energy prices and inflation.
It has kind of led to our strategy as well too because larger construction projects are taking longer they're worried about inflationary cost and it's kind of pushed potentially those building owners to think about the capital expenditure and infrastructure projects, which has really helped us from that perspective.
I also think you have the.
The whole energy and utility jump and expense, causing holders to see the opportunity for energy retrofits, Rob we're pretty excited about that I mean, we have the customer relationships that will be able to leverage that as customers think about improvement two facility.
Cost reduction.
With the utility costs.
We think it's an excellent opportunity for us to take advantage of them.
Okay, great. Thank you and then and then maybe just the SG&A cost you talked a lot about some of the efforts to.
To improve there and get some leverage.
Do you see getting leverage in the SG&A costs. This year over last year or is that more of a 2023.
Right.
That's going to be more long term than granted trying to tell you about that 13 to 13, a half as a long term range as we get closer to the 50 50 split so we will be realizing a partial.
Partial savings this year as we as they actually realize the cost savings is in a full year impact won't be until 2023.
Rob It's a major focus so I mean, we did step back over the past quarter and take a very hard look.
How we are deploying SG&A and I think we've made some great moves both in terms of some reduction of personnel et cetera, as well as looking at just how we're deploying those SG&A dollars and I'm just kind of reinforce we're shifting.
<unk> over to <unk>, we're just getting much better returns as your numbers demonstrate.
I think there is a very short focus on leveraging that with a 13 to 13, 5%.
Yes long term I'd actually refer to as maybe <unk> will get there.
Sure.
It's definitely actively being after the floor.
Okay, great. Thanks for the color I'll turn it over thanks.
Okay.
Our next question comes from Chip Moore with <unk>. Please go ahead.
Hi, good morning, Thanks for taking the question.
Sure.
Good morning.
Just curious if you could expand a little bit on.
Revenue visibility for the year.
How do we think about handicapping some of the risks, whether it's supply chain or for the back row.
Concerns that you touched on in the back half of the year.
Backlog coverage is something like 80%, so it's a very good but.
Leading indicators are good but just what he has got some of those potential risks in the back half.
The backlog coverage with both of our segments.
The year fairly strong so we're really happy with what we see.
But what I will share with you your sales for.
For the especially the <unk> side of the equation or really up year on year, you heard those percentages.
Backlog up 2% year on year, but I'll comment, but both of April just continue to see very strong sales on Vod or front actually improved over what we saw the first three months of the year. So it's really.
Good to see that our strategy around <unk> is taking off.
So backlog right now see fairly strong we're satisfied with where we stand today for the year.
Tied back to the guidance I provided but also sales, especially on the <unk> front continue to remain extremely strong.
That's helpful Charlie.
And maybe for my follow up more.
More so on cake Marshalls, specifically it looks like things are going very well there you talked about maybe adding looking to add some.
Lots of resources there.
Give us an update on the end market I know I believe.
The major automotive Oems I think there is an existing customer that's talking about building a new production site, a new battery plant in the Chattanooga area, just maybe some more end market.
These segments predict Marshall.
Yes.
Tennessee market has actually been on fire right now similar to a couple of your markets Reverberatory business.
But what's happening with manufacturing Tennessee.
We're thrilled that we did this deal and the <unk>.
So to assist <unk> and he's working in partnership with US. He actually have said that our senior management conference recently and offered a lot of insights on how we can help limbach, which would focus was credited to Europe .
But going back to the particular market conditions down there first of all Jay Marshall is very good shape backlog wise they are exceeding our expectations for the year already up what would you take into account what's happening with Ford.
The battery plants I mean, those are multiple billions of opportunity to us you've had conversations with those customers right.
Right now we're going to be very careful about labor of supply.
To make sure we don't oversell, our capacity to deliver but right now they're a great shape, but obviously when you have those types of market dynamics supply and demand curves will clearly in our favor.
So you could see improvements margins happening into the future as that market continues to.
Throw out so much opportunity to us. So we're very pleased with how things are going to alere as the manufacturing industrial side.
We're pretty pumped up about it.
Suddenly about Tennessee.
Exporting their knowledge of manufacturing and industrial.
Mainly in our Midwest markets through a lot of opportunity right now for the Ohio, and Michigan markets, which a portion will be hoping to slump, especially with pre fabrication and modular components.
Perfect.
I appreciate it thank you very much thanks.
Thanks, Joe.
Okay.
Our next question comes from Gerry Sweeney with Roth Capital. Please go ahead.
Hey, good morning, Charlie Jamie and Mike Thanks for taking my call.
Right.
That wanted to stay on the OTR topic, obviously, it's a focus of yours, but I wanted to see if you could give us maybe a little details on your thoughts on maybe how you're going to market with that strategy what.
What's the competitive environment looks like and how you are differentiating yourself.
And from some of the competition.
This is a long question I apologize and maybe even if some regions are better suited for the business today as opposed to other areas.
You can develop those areas.
I apologize long question lots of impact there but.
I think it's important.
Sure.
The proponents of that question by fiscal Cliff will just as protected Viper support but already.
That's great.
You get the gist, so absolutely so noted.
One.
We put more feet on the street over the past number of years and that's allowed us to go into buildings.
Didn't have a presence.
With new customers.
We targeted or account management looking for those <unk> relationships, where it's not just one building multiple buildings.
So that's going really really well number two expansion of what I call, but wallet share. So we have over 1200 owner direct relationships and what we're looking to do is what else can we do for them. So we have our traditional core service offerings with that resource.
Look there is opportunity for us to actually act as what we call MEP Prime where if there is essentially utility help right you really don't mutual contract or we can do that for you because it's minor.
The nature of SKU or drive what we're more focused on mechanical electrical plumbing and building automation.
Love that so we're having great success.
Sharing those concepts with owners and they are buying.
Finally, we're also expanding products and services that we can offer the customer. So we are working aggressively on our digital transformation.
We've talked about this in the past predictive analytics digital asset management, there was a lot of different things we can provide.
Take one step further.
We recently have advantaged crude off site and we brainstormed, we have all these relationships.
Can we sell them.
So we started talking about different things that we do today in our business extremely well.
And I'll put this out there is something like 60, we are experts at safety of so many regards we are the leaders of the industry why can't we export some of those services. We're building over that needs additional coverage. There's also things like program management that we distorted in Nashville last year that's gone.
Sri well with our health care customers can be stock offering those program management services to other types of above market sectors. So there is a host of things we're doing to expand what I called wallet share.
We're more feet on the street grabbing more market share selling a different additional products and services. So all of that is to continue to add up to the rapid growth of the <unk> segment.
When you talk about more feet on the street.
Sell directly to the building manager or is there an opportunity to sell to building owners, especially if they own a portfolio of buildings.
Yes.
Towards getting into the C suite, if that's an option for us to work hard to figure out how do we get to the cheapest search bakers, but sometimes it's the facility's engineer.
But just sort of story last night, one of our employees actually was epic dinner at a restaurant in Clearwater, Florida.
They overheard at the next table somebody talk to you about our company.
Couldn't help herself forget over there and have a conversation with with the individual.
Introduce yourself.
The company what she just store tours out he was the facility's director of a major resort, where we're doing some work directly for the older and he was CTO of praises rexam circulated that email us too.
Our key managers of the business lift or is it just a great story.
The point I'm, making here as well.
We are working at all levels, whether it's a facility's director, we're getting into the C suite and I made a comment a moment ago, we're looking to really latch onto customers that app.
Multiple building facilities not just a one off opportunity. So all of that is through the continued rollout was to rapidly grow the <unk> segment.
Are there areas within your sort of footprint that OTR is more.
Better positioned for growth and then certain other areas that maybe you had to make some investment and just curious if you or you're just seeing broad across the board type of growth.
Gary one of the areas that we're really seeing that and I would sort of really a vertical market sector. We've looked at all of our local businesses and I think from a national approach focused on healthcare healthcare is one of the sectors and I think from one of our competitive advantages is we're able to offer our full suite of services in our connected approach.
There is not multiple people showing up to sell controls or maintenance or projects.
I think we look at that health care sector and there are a lot of other mission critical sectors that we look at it as well, but we're looking at those where we can offer those services, where it's mission critical where they need the need is as important maybe even more important than price and I think from a even a bigger picture approach we want to be in the facility move.
And I would be doing the smaller work and when we're there and we're connection we have that trusted relationship. If there is a larger project that comes along and maybe it's on a TCR sector that were embedded in that facility and we can capitalized so.
We're looking for mission critical type healthcare vertical market sectors in health care. Luckily is is really a sector in all of our branches, where we can offer those services and be there for the life of the building and especially as that facility grows as well too we're there and we're trusted.
Got it.
That's really helpful, especially the mission critical on pricing a secondary sort of notion of some of that business you are looking for so I.
I'll jump back in queue, but I appreciate it. This is a this has been helpful on the OTR side.
Thanks.
Thank you and just a reminder to ask a question at this time press star one on your telephone keypad, perhaps start to remove yourself from the queue.
Our next question comes from John <unk> with Longmeadow investors. Please state your question.
Good morning, everyone.
Okay.
Yeah first.
First question for Jamie Real quick just sort of a follow up on the <unk>.
Savings. So you you talked about one specific example on the lease costs that youre looking at going into 'twenty three what.
What do you think the total overall run rate.
Dollar savings could.
It would be as we head into the following year.
Yes, we haven't specifically called out by 'twenty three is going to look like and it's basically from that timing as the real estate is really probably the most tricky piece to factor in because we're looking to the assembly.
Or terminations to get out of the lease space. So that's why we kind of put out the guidance at the long term outlook footwear SG&A could land when we get to that 50 50 split.
Okay Alright.
You just mentioned a half a million per year leases you don't have the total number for all the all of the areas Youre looking at.
Yes, we're still yet we're working through that drop we're actively marketing several of our properties for years. So please.
Various transactions.
You did a really great job southern California job with dedicated that property I mean that was a really good outcome and then the Pittsburgh, which was space was also terrific very very pleased.
And then the other properties that are on the market, we're seeing interest and we're working with a group that I think is just a terrific job at marketing the property. So that's going to help us, but John just to be clear the savings go beyond real estate right.
That's just a very small player.
Looking at other aspects of cost reduction.
We've got a healthy list, we're checking off of excited about the progress right.
Alright, So your margin target is for 2025.
For that.
Both of <unk> yeah.
Yeah, Yeah, Yeah, we're working towards sleepovers rather.
Working at home and then yeah.
And then another question I mean, I noticed I mean, obviously the use of the revolver is in the balance sheet.
The average balance for the 10-Q was virtually.
Nothing was like <unk>, one so obviously you used it right at the end of the quarter or is it still in place or since paid that down.
We plan to pay that down and then also add.
Just to add items to point out too as well on our term debt that we had a payment that <unk> can do for excess cash flow payment as well as we had some clear claim recovery.
Per our agreement, we need to pay down our term debt with that and that was about $5 5 million that actually took place near the end of April and so youll see that come down from the term debt here, Let's say post Q2, but then that's where we look to leverage our revolver. So that we can borrow it back based on the revolver.
It actually we are only borrowing it Linda recovering off.
Different needs of cash yeah.
Okay. Okay. Good.
And then obviously it.
The VCR segment is obviously declining and that's planned but do you see that leveling off at some point this year.
Or is that just going to continue to sort of.
As a percentage it's going to go down hopefully those yard grows rapidly.
But.
At some point does it.
<unk> is it sort of stopped going down and stay flat or grow modestly.
John Thanks for that yes, we expect that to be flat plus or minus a few basis point.
I think we're really focused on getting the best return from a gross profit perspective, and allocating our resources accordingly, and that may tend to drive.
Each individual opportunity to the to the higher gross profit, but more or less we're looking to be relatively flat job with disciplined with footings of the business' sales was interesting over the past couple of months, we have some interesting opportunities that we're pursuing.
And we were given what's referred to as last book.
<unk> taken for this price and we said absolutely no.
And I'm, so happy we did that because it's the right position what our backlog is strong to get growth.
Good shape, but.
We're rolling <unk>.
We're all about creating more bottom line of the G Star side. So we see the right opportunities in our markets that execute and execute well, we'll take that business on where we see margins low and we just we're going to wait or deployed over to OTR. It just makes perfect sense, we got it back sports maternal flu humor.
Capital assets that we have that's that's the focus.
Right.
Okay. That's all for me. Thank you very much extra thank you.
Our next question comes from George Melas with N K H management. Please go ahead.
Thank you and thanks for taking my question.
On the <unk>.
You gave us sort of certain long term.
Gross margin.
No.
Our range for the business is 25 to 228.
Given the fact that the business right now is quite big rate this quarter was $42 million.
Very puzzled by.
Quarter to quarter fluctuation in the gross margin.
I mean at some point last year. It was 29% that was 2008.
Can you help me understand why business of that size that has so many small project.
That much fluctuation in gross margin.
Sometimes it's project timing because some of the projects are larger in scale.
George So you might have a project thats moving along.
The larger projects.
Margins are going to be smaller just the nature of some of those deals. The majority of what we do though are the smaller projects that are very high margin, but it's a timing issue. So we saw the fourth quarter are right. There was a terrific quarter. The first quarter, we saw some big work going through the books.
We expect to see some write offs does not work wraps up but that happens in future quarters. So the fluctuation from quarter to quarter will be there, but the general trend should be in the 25% to 28% range.
I'd say that for quite some time.
But is there any special payments or special clause.
You know in the past few quarters in today's quarter.
Blaine.
Actuation.
No not really Mike do you have any further comments on that now just like you said, it's based on project mix lifecycle, depending on we have multiple sources of owner direct revenue from small projects to maintenance to larger projects. So all depends on the mix in a particular quarter. George I don't we are live on a quarter to quarter World right, which you will get that but theres going to be.
Actuation with your quarter to quarter.
We've been demonstrating.
I guess a couple of years, but the good news is the overall trend continues to show upward movement, which is just great to see versus what we had expected to see so.
If you look at the 43 million this quarter.
Jack.
How many P O.
Oh, my goodness, there's hundreds of small projects.
Once a day or two but.
It's.
Actually 100 skews some of the projects are with $10000 Georges small hit it out Europe .
So what would be the.
These projects.
Yes, Thank you and thank you recognize revenue in this quarter.
Uh huh.
There is some work we're doing for the TVA, which are large scale projects of.
That's what the lower end.
We have some other projects out there that.
Probably.
$2 million to $3 million rates that might be over lower and when I say low rent Youll 15, 18, 20% type of range. So if those projects are burning and maybe some small projects or purchase quick that could impact sales going down to the 23% number that you just saw in our numbers. This particular period.
We do expect again that range of 25% to 28% that's the way people should be modeling out our business.
Okay. Thanks for taking my question.
Okay George.
Thank you there are no further questions at this time I'll turn it back to management for closing remarks.
Alright, I want to thank everybody for joining us today.
All of US here at the company the board of Directors, our senior management and many of our shareholders are excited about our strategic direction and what that means for our future. We have established the proper foundation of this practices growth in both our topline and bottom line.
With our continued track record of execution and.
And we have a terrific trajectory. We firmly believe we are undervalued our peers are trading at multiples more than twice our current multiple and as we continue to execute our plan, we expect that gap to narrow.
There is incredible value share and Thats why a number of insiders have continued to buy our shares.
We look forward to speaking to you again, when we report our second quarter results in August .
You have any additional questions. Please reach out to Matt Katz, who will be back in the saddle later today.
Our Investor Relations firm the equity group their contact information can be found on our investor page on our website again. Thank you for your Richardson law Buck.
Okay.
That concludes today's conference all parties may disconnect have a good day.