Q4 2023 Limbach Holdings Inc Earnings Call
Operator: Good morning, and welcome to the fourth quarter and fiscal year 2023 Limbach Hldg earnings conference call and webcast. All participants will be in a listen-only mode.
Good morning, and welcome to the fourth quarter and fiscal year 2023 Limbach Holdings earnings conference call and webcast.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I will now turn the conference over to your host, Julie Kegley of Financial Profiles. You may begin.
I will now turn the conference over to your host Julie Cagley financial profiles you may begin.
Yeah.
Julie Kegley: Good morning, and thank you for joining us today to discuss Limbach Hldg's financial results for the fourth quarter of fiscal year 2023. Yesterday, Limbach issued its earnings release and filed its Form 10-K for the period ended December 31, 2023. Both documents, as well as an updated investor presentation, are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages investors to review the presentation in its entirety. With me on today's call are Michael McCann, President and Chief Executive Officer, and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open up the call to analyst questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities law. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases.
Good morning, and thank you for joining us today to discuss Limbach holdings financial results for the fourth quarter and fiscal year 2023.
Yesterday Limbach issued its earnings release and filed its Form 10-K for the period ended December 31st 2023.
Both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbach each dot com.
Management may refer to select slides during today's call and encourage investors to review the presentation and its entirety.
With me on today's call are Michael Mccann, President and Chief Executive Officer, and Jayme, Brooks Executive Vice President and Chief Financial Officer.
We will begin with prepared remarks, and then open up the call for analyst questions.
Before we begin I would like to remind you that today's comments will include forward looking statements under federal Securities laws forward looking statements are identified by words, such as will be intend believe expect anticipate or other comparable words and phrases statements that are not historical facts such as statements about expected.
Julie Kegley: Statements that are not historical facts, such as statements about expected improvement in profit and operating margins, are also forward-looking statements. However, actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our fourth quarter earnings release and investor presentation, which can be found on Limbach's investor relations website and has been filed on Form 8K with the SEC. With that, I will now turn the call over to Mike. Good morning, everyone.
Improvement in profit and operating margins are also forward looking statements actual results may differ materially from those contemplated by such forward looking statements.
A discussion of the factors that could cause a material difference in the companys results compared to these forward looking statements is contained in limbach and SEC filings, including reports on Form 10-K and 10-Q.
Please note that on today's call, we will be referring to some non-GAAP measures you can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our fourth quarter earnings release, and Investor presentation, which can be found on Linde box Investor Relations website and has been furnished on form 8-K with the SEC.
With that I will now turn the call over to Mike Magee.
Good morning, everyone I'd like to welcome our stockholders and analysts as well as those who maybe new to limbach.
Michael M. McCann: I'd like to welcome our stockholders and analysts, as well as those who may be new to Limbach. Thank you all for joining us on our call today. A few years ago, we saw an opportunity to leverage our construction and engineering service experience, relationships, and knowledge to build a pure-play building system solutions firm. Our objective was twofold. First, to transfer Limbach into a value-added solutions partner to building owners to command higher margins while delivering greater returns for our stockholders. And second, to position Limbach in a less competitive, volatile market, creating a stronger, more resilient company. Through disciplined execution of this strategy, today, we are partnering with building owners to provide critical services and or need to maintain uninterrupted operations in their facilities. We provide building owners with solutions and services to maintain and upgrade their mission-critical mechanical, electrical, and plumbing infrastructure. We are focused on six key vertical markets: Healthcare, Industrial Manufacturing, Data Centers, Life Science, Higher Education, and Cultural Entertainment.
Thank you all for joining our call today.
A few years ago, we saw an opportunity to leverage our construction and engineering service experience relationships and knowledge to build a pure play building system solutions for.
Our objective is two fold.
First the transfer of limbach into a value added solutions partner to building owners to command higher margins, while delivering greater returns for our stockholders.
And second to position limbach into a less competitive volatile markets, creating a stronger more resilient company.
Through disciplined execution of this strategy today, we were partnering with building owners to provide critical services.
And our need to maintain uninterrupted operations in their facilities.
We provide building honors with solutions and services to maintain and upgrade their mission critical mechanical electrical and plumbing infrastructure.
We were focused on six key vertical markets.
Care industrial manufacturing data centers.
Science higher education and cultural entertainment.
Michael M. McCann: These are large and growing markets with sustainable demand drivers where system failure is not an option. We operate in two business segments, our Owner Direct Relationship segment, or ODR, where we work directly with building owners to provide building system solutions, which now accounts for over 50% of our total revenue; and our General Contractor Relationship segment, or GCR, where we work directly with general contractors. We are focused on growing our ODR business for several reasons. First, our direct customer relationships give us access to key decision-makers. While the initial engagement may be small, we have a strong value proposition and the opportunity to build long-term relationships. As we become embedded into our customers' businesses, we're often on-site, collaborating with their teams to develop customized solutions that reduce costs and drive energy efficiency. This positions us to handle near-term maintenance needs and, at the same time, develop risk mitigation and cost-saving strategies for the future.
Is a large and growing markets with sustainable demand drivers where systems failure is not an option.
We operate in two business segments, our owner direct relationships segments of OTR, where we work directly with building owners to provide building systems solutions, which now accounts for 50% of our total revenue.
And our general contractor relationship segment or D C or wherever we work directly with general contractors.
We are focused on growing our OTR business for several reasons.
First our direct customer relationships gives us access to key decision makers, while the initial engagement may be small we have a strong value proposition and the opportunity to build long term relationships.
As we become embedded into our customers' businesses, where often onsite collaborating with their teams to develop customized solutions that reduce cost and drive energy efficiencies.
This positions us to handle near near term maintenance needs at the same time developed risk mitigation and cost saving strategies for the future.
Michael M. McCann: By adding more value over time, we can become an indispensable partner to our customers, helping them avoid their biggest nightmare, business disruption due to systems failure. In turn, with these types of ODR relationships, we generate recurring revenue at higher margins. As we grow our ODR business, this gives us the opportunity to become more selective when evaluating our lower-margin GCR projects, and as a result, we expect GCR revenue to decline. We are focused on building relationships with our top five building owners in each of our locations.
By adding more value over time, we become we can become an indispensable partner to our customers.
Hoping them avoid their biggest nightmare business disruption due to systems failure.
In turn with these types of OTR relationships, we generate reoccurring revenue at higher margins.
We grow our OTR business. This gives us the opportunity to become more selective.
When evaluating our lower margin TCR projects and as a result, we expect you see our revenue decline.
We are focused on building relationships with our top five building owners in each of our locations.
Michael M. McCann: Our target customers have multiple facilities, which opens the door to developing long-term, mutually beneficial relationships. A recent example of our successful ODR model at work is with one of our Florida healthcare facilities. Our relationship started out as a small engagement, and they are now one of our top five customers for one of our Florida locations.
Our target customers at multiple facilities, which opens the door to developing long term mutually beneficial relationships.
A recent example of our successful OTR model at work is with one of our Florida health care facilities.
Our relationship started out with a small engagement and they are now one of our top five customers for one of our Florida locations.
Michael M. McCann: We have fully embedded teams working on site closely with this customer on all aspects of OPEX and CAPEX planning and decisions, where we can have a tangible impact on their operational goals. We are executing our strategy from an advantaged position between property managers who act as pure generalists, OEMs who sell proprietary equipment, and traditional contractors. Our objective is to provide unbiased, objective analysis and recommendations on the integrity and opportunities to improve their entire system, including HVAC, electrical, plumbing, and engineered systems.
Fully embedded teams working on site closely with disgust customer on all aspects of Opex and Capex planning decisions, where we can have a tangible impact on their operational goals.
We are executing our strategy from an advantaged position between property managers, who act as pure generalist Oems, who sell proprietary climate and traditional contractors.
Our objectives to provide unbiased.
Objective analysis and recommendations on the integrity and opportunities to improve their entire system.
<unk> HVAC electrical plumbing and.
Engineered systems. This is where we add value our customers know where it goes to recommend after more cost effective solutions to ensure uninterrupted service.
Michael M. McCann: This is where we add value. Our customers know our goal is to recommend optimal, cost-effective solutions to ensure uninterrupted service. We believe our ODR business has significant organic growth opportunities as we continue to expand our customer relationships. For example, as I indicated in our earnings press release in 2024, we have invested approximately $4 million in portable HVAC rental equipment to provide urgent and critical system solutions for our customers. This is a strategic investment to expand our service offerings and grow our market share with existing customers. Strategic acquisitions are also an important component of a long-term growth plan. We take a disciplined and selective approach to acquiring companies that meet four key criteria, expanding our geographic footprint and service capabilities, supporting our ODR growth strategy, and most importantly, their good cultural fit.
We believe our OTR business has significant organic growth opportunities as we continue to expand our customer relationships for example.
Well as I indicated in our earnings press release in 2024, we have invested approximately $4 million in portable HVAC rental equipment to provide urgent and critical system solutions for our customers. This is a strategic investment to expand our service offerings and grow our market share with existing customers.
Strategic acquisitions are also an important component for our long term growth plan.
We take a disciplined and selective approach to acquiring companies that meet four key criteria.
Expanding our geographic footprint and service capabilities supporting our OTR growth strategy and most importantly, they are a good cultural fit.
Michael M. McCann: We're establishing a track record of making acquisitions that follow our specific strategy. And in 2023, we made two acquisitions, Acme Industrial and Industrial Air. Acme was a tuck-in acquisition that provided new owner-direct relationships with on-premise teams at Fortune 500-caliber customers and manufacturing verticals.
We are establishing a track record of making acquisitions that follow our specific strategy.
And in 2023, we've made two acquisitions Acme industrial industrial air.
He was a tuck in acquisition that provided new owner direct relationships with on premise teams at fortune 500 caliber customers.
Manufacturing vertical industrial or expand our geographic footprint in North Carolina, providing additional OTR customer relationships with customer consumer goods, our textile manufacturing facilities.
Michael M. McCann: Industrial Air expanded its geographic footprint in North Carolina, providing additional ODR customer relationships with consumer goods or textile manufacturing facilities. We believe that successful strategic acquisitions, along with organic growth, will drive profitability and create shareholder value. Now that I've outlined our strategy and how we create value, I'd like to talk about 2023 because Limbach had a great year. The company demonstrated significant earnings growth in cash flow while maintaining a strong balance sheet by accelerating our mixed shift ODR from GCR ahead of schedule, which we see as definitive evidence of the success of our mixed shift strategy. ODR accounted for 50.7% of our full-year revenue for 2023, exceeding our 50% ODR target. We're making great progress towards our 2024-25 ODR revenue target of more than 70%, as we exited the year with ODR revenue accounting for 55.1% of the fourth quarter.
We believe that successful strategic acquisitions, along with organic growth will drive profitability and create shareholder value.
Now that I've outlined our strategy and how we create value I'd like to talk about 2023, because went back had a great year.
The company demonstrated significant earnings and cash flow, while maintaining a strong balance sheet by accelerating our mixed shift the OTR from G. C are ahead of schedule, which we see as definitive evidence of the success of our mixed shift strategy.
Oh, Dear accounted for 57% of our full year revenue for 2023.
Exceeding our 50% OTR target, we're making great progress towards our 2024 25 O D. Our revenue target of more than 70%.
As we exited the year with Yoda, our revenue accounting for 55, 1% for the fourth quarter.
We expanded total gross margins by 420 basis points in 2023 to 23, 1% from 18, 9% in 2022.
Michael M. McCann: We expanded total gross margins by 420 basis points in 2023 to 23.1% from 18.9% in 2022. ODR gross margins were 29% for the year, which exceeded our target range of 25 to 28%. GCR margins were 17% for the year, also exceeding our target range of 12 to 15%, as we honed in on our focus on a high-margin, quick-hitting project. I'll now turn it over to Jayme to provide detailed financial highlights before I return with additional commentary. Thank you, Mike.
<unk> gross margins were 29% for the year, which exceeded our target range of 25% to 28% G.
G C. Our margins were 17% for the year also exceeding our target range of 12% to 15% as we hold in our focus on our high margin quick hitting projects.
I'll now turn it over to Jamie to provide detailed financial highlights before I return with additional commentary Jamie.
Thank you, Mike our fourth quarter, and 23 earnings press release, and Form 10-K, which were filed yesterday provide comprehensive details of the company's financial.
So I will focus on the fourth quarter and full year 2023 highlights.
During the quarter, we generated consolidated revenue of $142 7 million versus $143 5 million in 2022.
Jayme L. Brooks: Our fourth quarter and full year 2023 earnings press release and Form 10-K, which were filed yesterday, provide comprehensive details of the company's financials. So I will focus on the fourth quarter and full year 2023 highlights. During the quarter, we generated consolidated revenue of $142.7 million versus $143.5 million in 2022. Consolidated revenue declined by 0.6% as ODR revenue grew 22.8% and GCR revenue declined 19.4% as we executed our mixed-shift strategy toward ODR. In the fourth quarter, ODR revenue was 55.1% of consolidated revenue, up from 44.6% in 2022. For the year, we generated consolidated revenue of $516.4 million compared to $496.8 million in 2022. Revenue grew 3.9% as ODR revenue grew 21.1% and GCR revenue declined 9.3%. ODR revenue accounted for 50.7% of consolidated revenue for the year, up from 43.6% in 2022.
Consolidated revenue declined by 6% and the OTR revenue grew 22, 8% and G. C. Our revenue declined 19, 4%.
We executed our mix his strategy towards OTR in.
In the fourth quarter <unk> revenue was 55, 1% of consolidated revenue up from 44, 6% in 2022.
For the year, we generated consolidated revenue of $516 4 million compared to $496 8 million in 2022.
Revenue grew three 9% and OTR revenue grew at 21, 1% and you see our revenue declined nine 3%.
Oh, Dr revenue accounted for 57% of consolidated revenue for the year up from 43, 6% in 2022.
Gross margin on a consolidated basis for the fourth quarter was 23, 3% up from 24% in 2022.
<unk> gross profit increased $6 4 million or 36, 8% driven by higher revenue with expanded gross margin in Q4 to 31% versus 27% in 2022.
You see our gross profit decreased $2 3 million or 19, 1% Youtube where revenue with a focus on high quality quick turning projects.
You see our gross margins were flat at 15% year over year.
Jayme L. Brooks: Gross margin on a consolidated basis for the fourth quarter was 23.3%, up from 20.4% in 2022. ODR gross profit increased $6.4 million, or 36.8%, driven by higher revenue and an expanded gross margin in Q4 to 30.1% vs. 27% in 2022. GCR gross profit decreased $2.3 million, or 19.1%, due to lower revenue due to their focus on high-quality, quick-turning projects. DCR growth margins were flat at 15% year-over-year.
For the year gross margin on a consolidated basis with 23, 1% up from 18, 9% in 2022.
Gross profit increased 21 million or 38% driven by an increase in revenue and expanding gross margin of 29% from 25, 5% in 2022.
You see our gross profit increased $4 6 million or 11, 9% due to higher margins.
Although revenue declined in the Gcs segment gross margin expanded to 17% for the year versus 13, 8% in 2022.
Jayme L. Brooks: For the year, gross margin on a consolidated basis was 23.1%, up from 18.9% in 2022. ODR gross profit increased $21 million, or 38%, driven by an increase in revenue and expanded gross margins of 29% from 25.5% in 2022. DCR gross profit increased $4.6 million, or 11.9%, due to higher margins. Although revenue declined in the GCR segment, gross margin expanded to 17% for the year versus 13.
As I mentioned earlier, the OTR segment made up 55, 1% of consolidated revenue for the quarter.
However, the OTR segment contributed 71% of the total gross profit dollars or $23 7 million for the quarter. This is the mix shift strategy.
During the quarter SG&A expense increased approximately $3 2 million to 25 million from $21 8 million in 2022.
As a percentage of revenue SG&A expense was 17, 5% up from 15, 2% in 2022.
Jayme L. Brooks: As I mentioned earlier, the ODR segment made up 55.1% of consolidated revenue for the quarter. However, the ODR segment contributed 71% of the total gross profit dollars, or $23.7 million for the quarter. This is the mixed-shift strategy.
Well there are some smaller puts and takes the increase was driven primarily by higher payroll and incentive related expenses associated with accelerating our <unk> strategy.
As well as expense incurred as a result of the acquisition of Acme and industrial Air.
Jayme L. Brooks: During the quarter, SG&A expense increased approximately $3.2 million to $25 million from $21.8 million in 2022. As a percentage of revenue, SG&A expense was 17.5%, up from 15.2% in 2022. While there are some smaller puts and takes, the increase was driven primarily by higher payroll and incentive-related expenses associated with accelerating our ODR strategy, as well as expenses incurred as a result of the acquisitions of Acme and Industrial Air. For the year, SG&A expense increased by approximately $9.5 million to $87.4 million compared to $77.9 million for 2022.
For the year SG&A expense increased by approximately $9 5 million to $87 4 million compared to $77 9 million for 2022.
As a percentage of revenue SG&A expense was 16, 9% up from 15, 7% in 2022.
The increase was driven primarily by higher payroll and incentive related expenses associated with accelerating our OTR strategy.
An increase in stock based compensation expense and expenses incurred as a result, the acme in industrial acquisition.
For 2024, we are targeting SG&A expense as a percentage of revenue to be around 18% to 19% as we continue to invest in our OTR business to drive growth.
Jayme L. Brooks: As a percentage of revenue, SG&A expense was 16.9%, up from 15.7% in 2022. The increase was driven primarily by higher payroll and incentive-related expenses associated with accelerating our ODR strategy, an increase in stock-based compensation expense, and expenses incurred as a result of the ACME and industrial acquisitions. For 2024, we are targeting SG&A expense as a percentage of revenue to be around 18 to 19% as we continue to invest in our ODR business to drive growth. Interest expense for Q4 was $0.4 million, and $2 million for the year.
Interest expense for Q4 was <unk> 4 million and 2 million for the year.
Interest income for the quarter was 26 million and $1 2 million for the year.
Driven by the company's investment strategy, and placing our excess cash and overnight repurchase agreement U S Treasury bills and money market fund.
Adjusted EBITDA for the fourth quarter was $12 6 million up eight 8% from $11 6 million in 2022.
Adjusted EBITDA margin for the fourth quarter was eight 8% compared to eight 1% in 2022.
Yeah.
For the year adjusted EBITDA was $46 8 million up 47, 3% from $31 8 million in 2022.
Jayme L. Brooks: Interest income for the quarter was $0.6 million and $1.2 million for the year, driven by the company's investment strategy in placing excess cash in overnight repurchase agreements, U.S. Treasury bills, and money market bonds. Adjusted EBITDA for the fourth quarter was $12.6 million, up 8.8% from $11.6 million in 2022. Adjusted EBITDA margins for the fourth quarter were 8.8% compared to 8.1% in 2022. For the year, adjusted EBITDA was $46.8 million, up 47.3% from $31.8 million in 2022, and we exceeded our 2023 adjusted EBITDA guidance of $42 to $45 million. Adjusted EBITDA margins for the year were 9.1% compared to 6.4% in 2022. Net income for the fourth quarter was $5.2 million, or $0.44 per diluted share, compared to $3.8 million, or $0.35 per diluted share, in the fourth quarter of 2017. This represents 37.8% growth in net income and 25.7% growth in diluted EPS. For the year, net income was $20.8 million, or $1.76 per diluted share, compared to $6.8 million, or $0.64 per diluted share, in 2022, representing 205.3% growth in net income and 175% growth in diluted EPS.
And we exceeded our 2023, adjusted EBITDA guidance of $42 million to $45 million.
Adjusted EBITDA margin for the year was nine 1% compared to six 4% in 2022.
Net income for the fourth quarter was $5 2 million or <unk> 44 cents per diluted share.
Compared to $3 8 million or 35 cents per diluted share in 2022.
This represents 37, 8% growth in net income and 25, 7% growth in diluted EPS.
For the year net income was $20 8 million.
Our $1.76 per diluted share.
Impaired to $6 8 million or 64 cents per diluted share in 2022.
Representing 205, 3% growth in net income and 175% growth in diluted EPS.
Turning to cash flow, our operating cash flow during the fourth quarter was $13 9 million compared to $12 4 million in 2022.
Representing a 12, 2% increase.
Operating cash flow for the year was $57 4 million compared to $35 4 million in 2022.
Representing a 62, 2% increase.
Free cash flow defined as cash flow from operating activities less changes in working capital and capital expenditures for the year was $36 7 million compared to $23 4 million in 2022.
An increase of 56, 6%.
The free cash flow conversion of adjusted EBITDA for the year was 78, 4% versus 73, 8% in 2022.
Free cash flow conversion of net income with over 100%.
For 2024, we are continuing to target a free cash flow conversion rate of approximately 70%, which we define as cash flow from operations minus changes in working capital minus capital expenditures.
Jayme L. Brooks: Turning to cash flow, our operating cash flow during the fourth quarter was $13.9 million compared to $12.4 million in 2022, representing a 12.2% increase. Operating cash flow for the year was $57.4 million compared to $35.4 million in 2022, representing a 62.2% increase. Free cash flow, defined as cash flow from operating activities, less changes in working capital and capital expenditures, for the year was $36.7 million compared to $23.4 million in 2022, an increase of 56.6%. The free cash flow conversion of adjusted EBITDA for the year was 78.4% versus 73.8% in 2022. Free cash flow conversion of net income was over 100%.
Excluding our investment in rental equipment, which is currently approximately $4 million.
I did by adjusted EBITDA.
We expect Capex for 2024, excluding the investment in rental equipment.
The run rate of approximately 3 million, primarily because of the acceleration of our OTR strategy.
Turning to our balance sheet at the end of Q4, we had $59 8 million in cash and cash equivalents and short and long term debt net of debt discount of $22 3 million.
Our balance sheet remains strong and we are well positioned to make the necessary investments to continue to work towards our OTR expansion and acquisition strategy.
Now I will turn it back to Mike for closing remarks.
Thank you Jamie before opening up the call to questions I'll cover our full year 2020 for guidance and modeling considerations.
Jayme L. Brooks: For 2024, we are continuing to target a free cash flow conversion rate of approximately 70%, which we define as cash flow from operating expenditures minus changes in working capital minus capital expenditures excluding our investment in rental equipment, which is currently approximately $4 million, divided by adjusted EBITDA. We expect CAPEX for 2024, excluding the investment in rental equipment, to have a run rate of approximately $3 million, primarily because of the acceleration of our ODR strategy. Turning to our balance sheet, at the end of Q4, we had $59.8 million in cash and cash equivalents, and short and long-term debt net of debt discount of $22.3 million.
For the full year 2024, we expect revenue of 510 million to $530 million.
And adjusted EBITDA of $49 million to $53 million.
And to help with modeling and you're targeting segment revenue mix to be 60 to 70 per cent for Ot or by the end of 2024.
What do you see are being between 30 to 40 per cent.
As we continue to ship the revenue and be selective with TCR projects. We expect total gross profit margins to land between 24% to 26% for 2024.
Although there's always demand for building maintenance and repair there's some level of seasonality to our business. The fourth quarter is usually stronger than the first quarter on the back half of the year is usually stronger than the first half.
We also expect revenue and EBITDA to gain momentum after the first quarter.
Michael M. McCann: Our balance sheet remains strong, and we are well positioned to make the necessary investments to continue to work towards our ODR expansion and acquisition strategy. Now, I will turn it back to Mike for closing remarks. Thank you, Jayme.
We continue to see strong secular tailwind from deferred maintenance and capital projects coming to the forefront.
2023 was a year of significant growth and achievement.
We believe we are in the early innings of our long term opportunity. We are excited about 2024 and are positioned for continued progress on all three pillars of our strategy.
Michael M. McCann: Before opening up the call to questions, I'll cover our full year 2024 guidance and modeling considerations. For the full year 2024, we expect revenue of $510 million to $530 million and adjusted EBITDA of $49 to $53 million. And to help with modeling, we are targeting segment revenue mix to be 60% to 70% for ODR by the end of 2024, with GCR being between 30% to 40%. As we continue to ship revenue and be selective with GCR projects, we expect total gross profit margins to land between 24 to 26 percent for 2024. Although there is always demand for building maintenance and repair, there is some level of seasonality in our business. The fourth quarter is usually stronger than the first quarter, and the back half of the year is usually stronger than the first half.
We need to continue to shift the mix by growing organically as well as expanding our margins to revolved offerings and market share growth through strategic acquisitions.
Finally, I want to thank all the employees are excellent performance in 2023 was a direct result of your hard work and dedication.
That concludes our prepared remarks, operator, please begin the Q&A session.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Okay.
Michael M. McCann: We also expect revenue and EBITDA to gain momentum after the first quarter because we continue to see strong secular tailwinds from deferred maintenance and capital projects coming to the forefront. 2023 was a year of significant growth and achievement. We believe we are in the early innings of our long-term opportunity. We are excited about 2024 and are positioned for continued progress on all three pillars of our strategy. We need to continue to shift the mix by growing organically as well as expanding our margins through evolved offerings and market share growth through strategic acquisitions. Finally, I want to thank all the employees.
Thank you. Our first question comes from the line of Rob Brown with Lake Street Capital. Please proceed with your question.
Good morning, and congratulations on a strong progress.
Good morning, Rob Hi, Rob.
Oh, that's a good follow up a little bit more on the OTR kind of word grant Ganic growth view, how do you sort of see the organic growth in that business are kind of playing out for the next years.
Sure.
You know as we mentioned earlier today. Our next target is by the end of 2024 to get to a 60 to 70 per cent ONEOK mix. So right now our focus is really within our six vertical markets.
And our strategy is really a baseball and embedding our.
Operator: Our excellent performance in 2023 was a direct result of your hard work and dedication. That concludes our prepared remarks. Operator, please begin the Q&A session. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Our key personnel into those facilities to make sure that were.
Really capturing all the opex as much as possible.
If you look at the future years I think we are thinking about how we can not only capture the opex, but the capex as well too and then kind of tied together in a bowl with an account manager so.
I look at things too from a vertical market, we're very disciplined to our six vertical markets.
Robert Duncan Brown: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Rob Brown with Lake Street Capital. Please proceed with your question. Good morning and congratulations on your strong progress. Good morning, Rob. Hi Rob.
A couple of them right now that you know we're very focused on one is health care.
And the second is industrial and manufacturing those are two vertical markets that are very important to us that are going to really help us drive our customer growth.
And even from a healthcare perspective, that's usually a.
It doesn't go up and down very much dependable vertical market understand the capabilities, we're bringing to the marketplace industrial manufacturing obviously, it's been very strong for us as well too. So it really comes down to making sure that we're building. These long term relationships with the strong foundation and allowing those it really growing with.
Michael M. McCann: I just wanted to follow up a little bit more on the ODR, kind of organic growth view. How do you sort of see organic growth in that business kind of playing out? Sure, you know, as we mentioned earlier today, our next target is by the end of 2024 to get to a 60 to 70% ODR mix. So, right now, our focus is really within our six vertical markets. And our strategy is really based on embedding our key personnel into those facilities to make sure that we're really capturing all the OpEx as much as possible. If you look out to future years, I think we are thinking about how we can not only capture the OpEx but the CapEx as well too, and then kind of tie it together in a bow with an account manager.
Those customers over a period of time.
Okay. Okay, great. Thank you and and you talked a little bit about our rental business expanding and maybe some of the some of the service expansions you're doing could you elaborate on sort of what that rental opportunity is in and what you're doing there.
Yeah, absolutely we're excited about this.
He's had three pillars mixed shift involved offerings.
<unk> expanded margins and strategic acquisitions, we've talked a lot about obviously the mixed shift in acquisitions, but the second pillar of our strategy. I think this is just one piece of that that will allow us so.
Michael M. McCann: So I look at things too from a vertical market perspective. We're very disciplined about our six vertical markets. A couple of them right now that we're very focused on, one is healthcare, and the second is industrial manufacturing. Those are two vertical markets that are very important to us that are going to really help us drive our customer growth. And even from a healthcare perspective, it doesn't go up and down very much.
Yeah at the end of the day were there in front of those customers and having them having the capability of having.
Our initial rental fleet allows us to be much more of a single source provider for before we'd have to go to a supplier to get that rental now we've made the initial investment and a $4 million into the rental fleet will be able to offer a quick service to these customers able to capture the additional gross margin that comes from it as well too so it's.
Michael M. McCann: It's a dependable vertical market, understand the capabilities we're bringing to the marketplace. Industrial manufacturing, obviously, has been very strong for us as well. So it really comes down to making sure that we're building these long-term relationships with a strong foundation and allowing those relationships and really growing with those customers over a period of time. Okay, great. Thank you. And you talked a little bit about the rental business expanding and maybe some of the service expansions you're doing. Could you elaborate on sort of what that rental opportunity is and, Yeah, absolutely. We're excited about this. You know, we've always had three pillars.
We feel like it's a really good fit with capturing that opex in that emergency style type work.
And they're going to be a real value added offering for our customers.
Okay, Great and then last question is more of on the overall demand environment I know you're shifting to order direct to service. So maybe that's helping but what do you see in terms of the demand environment.
How much is there a shift in the demand environment.
So still seeing strength in the new a new project activity.
Sure.
The demand environment is still really good.
Sometimes it's dependent on the vertical market sector and again I think one of the key reasons that we really shifted our business to these mission critical type customers is because that demand becomes durable.
Michael M. McCann: Mixed shift, evolved offerings, and expanded margin and strategic acquisitions. We've talked a lot about, obviously, the mixed shift and acquisitions, but the second pillar of our strategy, I think this is just one piece of that that will allow us. At the end of the day, we're there in front of those customers, and having the capability of having our initial rental fleet allows us to be much more of a single-source provider than before. Before, we'd have to go to a supplier to get that rental.
So.
Are we the best way to kind of explain this kind of goes with our strategy to give a couple of customers examples and one of the customers examples in winter for vertical markets with a life science.
Customer and it's interesting we dealt with that customer declared ourselves put our resources in front of the customer and that's the first thing that that customer told us that.
A lot of a lot of clients or suppliers make.
Michael M. McCann: Now we've made the initial investment of $4 million into the rental fleet, and we'll be able to offer quick service to these customers and capture the additional gross margin that comes from it as well. We feel like it's a really good fit with capturing that OPEX and that emergency-type work, and it's going to be a real value-added offering for our customers. Okay, great.
Make this promise, but when the big job comes they leave all their resources and move on and one thing. We ensured this customer is that we're going to dedicate resources and we're going to stick with you.
And it's amazing I think you start to see the P. O is coming in and they just want that attention. So.
I'll give you a health care example, as well too which as you know we're not working on an older facility and the mid Atlantic market and one of the customers felt trapped there they had supplier that was.
Michael M. McCann: And the last question's more on the overall demand environment. I know you're shifting to order-directed service, so maybe that's helping, but what do you see in terms of the demand environment? How much of a shift is there in the demand environment? So you'll see strength in the new project. Sure, the demand environment is still really good.
The OEM supplier that was giving them a decent amount of a little bit of attention by the end of the day, they felt trapped by the proprietary products and services.
We've been really able to expand our market because we've got this consulted type.
Relationship as opposed to a transactional relationship where they feel like they're stuck.
Michael M. McCann: You know, sometimes it's dependent on the vertical market sector, and again, I think one of the key reasons that we've really shifted our business to these mission-critical type customers is because that demand becomes durable. Probably the best way to kind of explain this is to give a couple of customer examples. And one of the customer's examples in one of our vertical markets was a life science customer. And it's interesting; we sat with that customer, declared ourselves, and put our resources in front of the customer. And the first thing that that customer told us is that a lot of clients or suppliers make this promise, but when the big job comes, they leave all their resources and move on. And one thing we assured this customer is that we're going to dedicate resources, and we're going to stick with you. And It's amazing. I think you start to see the POs coming in, and they just want attention.
And what's nice to is you know, we're not competing against the less sophisticated competition, we're competing against an OEM as well too. So there's so many different examples and I always break it down you know our model is not based upon you know we want our model to be as resilient as possible not based upon macroeconomic demands.
And it really comes down to individual customers and these individual vertical markets, where they absolutely need as we build a relationship and demand becomes durable over time.
Okay, great. Thank you I'll turn it over.
Thank you Rob.
Thank you. Our next question comes from the line of Gerry Sweeney with Roth Capital. Please proceed with your question.
Hi, Good morning, Jamie and Mike Thanks for taking my call.
Good morning, good morning.
I just wanted to stick on on some of the same topics, Robert just mentioned and specifically your OTR gross.
Michael M. McCann: So I'll give you a healthcare example as well, too, which is that we're working in an older facility in the Mid-Atlantic market. And one of the customers felt trapped that they had an OEM supplier that was giving them a decent amount of, a little bit of attention, but at the end of the day, they felt trapped by proprietary products and services. And we've been really able to expand our market because we've had this consultative type relationship as opposed to a transactional relationship where they feel like they're stuck. And what's nice, too, is that we're not competing against less sophisticated competition; we're competing against an OEM as well. So there are so many different examples, and I always break them down.
And Mike I think you and I've talked a little bit about this but I wanted to touch it.
Just get freshened up I'm just curious how deep you are with some of your current customers I think there's a wallet share play here so.
My question is this you know how much more wallet share do you have with existing customers.
How much growth can come from wallet share and then the third part sorry.
Just maybe new entrants or new opportunities new customers et cetera.
Sure.
You know what's interesting I've always said before that we're in the early innings of our strategy and some sense that really equates to where we are from a customer basis perspective. So.
We've talked with tons of customers.
Based upon describing what we do.
There's no doubt in my mind that they desire to have the type of services and relationships that we want to have with our customers. So.
Michael M. McCann: Our model is not based upon, we want our model to be as resilient as possible, not based on macroeconomic demands. And it really comes down to these individual customers in these individual vertical markets where they absolutely need us. We build a relationship, and demand becomes durable over time. Okay, great. Thank you. I'll turn it over to you.
I look at it from where we've grown from a just from our already our revenue segment a lot of that has really come from the expansion of existing relationships. So.
At the end of the day, we're targeting relationships that have long term spend opportunity multiple buildings I mentioned some of this in the script, but.
Operator: Thank you, Rob. Thank you. Our next question comes from the line of Jerry Sweeney with Roth Capital. Please proceed with your question. Cammie and Mike, and Mike.
Where we're very much in the early stages of those relationships with their customers. So I would tell you come back around your wallet share question. Why are these customers, we have a small amount of market share and wallet share, but there's a tremendous amount of opportunity and there is the demand there to expand it.
Gerard J. Sweeney: Good morning. Good morning. I just wanted to stick around.
Operator: Thanks for joining us. Have a great day. Thanks, and Mike, I think you and I have talked a little bit about, curious how deep you are, and Walt Sheridan. And I'm Michael McCann.
Expand it it's up to us to make sure that we get you to dedicate those resources that example, I used previously before about that life science customers kind of a perfect example.
Unnamed: Thank you. My question is... how much more Wild Shared? How much is this ODR?
Unnamed: The third part, sorry, is just maybe new entrants. Sure. You know, it's interesting.
It's going to start with some smaller P o's and it's going to build to larger capital projects over a period of time below these have that steady opex work is that top deck.
Michael M. McCann: I've always said before that we're in the early innings of our strategy. In some sense, that really equates to where we are from a customer base perspective. So, we've talked to tons of customers, and based on describing what we do, there's no doubt in my mind that they desire to have the type of services and relationships that we want to have with our customers. So, I look at it from where we've grown from just in our ODR revenue segment. A lot of that has really come from the expansion of existing relationships.
Capex worked builds over a period of time, so from just from a new opportunity even from a customer basis a lot of those relationships right. Now are based on recommendations. So working on a lake facility or health care facility.
Everybody knows everybody and if they see that we're doing a good job of providing a high level of service. We've had we started out people call and say can you come over to my building as well too. So it's very much in the early innings.
Michael M. McCann: So, at the end of the day, we're targeting relationships that have long-term spend opportunities and multiple buildings. I mentioned some of this in the script, but we're very much at the early stages of those relationships with our customers. So, I would tell you to come back around to your wallet share question.
And theres, a tremendous opportunity to gain market share and wallet share as we continue our journey.
Michael M. McCann: A lot of these customers, we have a small amount of market share and wallet share. So, there's a tremendous amount of opportunity, and there's the demand there to extend it, expand it, it's up to us to make sure that we get you to dedicate those resources. That example I used previously about that life science customer is kind of a perfect example. It's going to start with some smaller POs, and it's going to build to larger capital projects over a period of time, but we'll always have that steady OpEx work as that CapEx work builds over a period of time. So just from a new opportunity, even from a customer basis, a lot of those relationships right now are based on recommendations So working at a lakeside facility or healthcare facility, everybody knows everybody.
Got it and then the follow up with Peter This is just discussing opportunities to expand into some adjacent services, obviously rentals Prime example.
Just curious.
What are the opportunities, but I think also as importantly.
How do you decide what to what opportunities to pursue I mean, given your size you're still small cap you've got some great wall share to go but how do you decide you know what is the appropriate business to go after and while still staying focused on that.
Core OTR opportunity.
Sure so in our in our Investor deck, we have a new slide that talks about our unique offerings.
Slide 10 in there.
And there's I think 10 different offerings.
And the way that we've kind of separated out Jerry is that there is.
Three or four of them that are directly related to opex at the rental critical services.
Data driven solutions there.
There is a group of them, that's really related to the Capex, which is M. P infrastructure projects and equipment upgrades and products, we have R. P M.
Michael M. McCann: And if they see that we're doing a good job of providing a high level of service, we've had, we started to have people call and say, can you come over to my building as well? So it's very much in the early innings, and there's a tremendous opportunity to gain market share and wallet share as we continue our journey.
The services that we're doing a program management and then there's kind of a more evolved offerings. So we've kind of separated in our mind I agree you can't do everything at one Gotta make sure it's very measured and it's got to make sure that aligns with the customers so far.
Gerard J. Sweeney: I'm curious, you know, what the opportunities are, but I think also as... How do you decide what... Given your size, you're still, you know, a small cat, but you've got some great wild share to go. How do you decide, you know, what is... while still staying? Sure, so in our investor deck, we have a new slide that talks about our unique offer. Slide 10 is there. And there are, I think, 10 different offerings, and the way that we've kind of separated this out, Jerry, is that there are three or four of them that are directly related to OPEX. It's the Rental Critical Service. Data-Driven Solutions
Very much thinking about this opex.
Type of smaller project work and then we're really setting ourselves up for next year for the capital project work in and against some of these more bolt offering so it's a very measured strategy.
Over a period of time, we're always trying not to do too much at once.
Got it.
And maybe one quick question for Jamie Obviously, you know you gave the guidance of $49 million to $53 million on it.
The adjusted EBITDA side.
I believe there are a couple of add backs or write ups of projects and sort of for lack of better term one timers in 2023.
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I apologize I had it right in front of me, but I think it was especially in Q3.
Michael M. McCann: There is another group of them that's really related to CAPEX, which is MEP Infrastructure Projects, Equipment Upgrades, and Products. We have our PM services that we're doing, our program management. And then there's kind of the more evolved offering.
Could you go over some of those.
Add backs from 2023, because I think that gives a little bit better apples to apples comparison on the EBITDA increase in projected EBITDA increase of 24 over 23.
Yes, great point, Jerry So yeah, our adjusted EBITDA was at $46 8 million and then we did have some nonrecurring events that we did talk about and disclose where we had the claim recovery in California that we had an upside from that of $1 2 million and then we also had.
Michael M. McCann: So we've kind of separated in our minds. I agree, can't do everything at once. Got to make sure it's very measured, and it's got to make sure that it aligns with the customers.
Michael M. McCann: So, very much thinking about this OPEX type of smaller project work. And then we're really setting ourselves up for next year for the capital project work and against some of these more evolved offerings. So it's a very measured strategy over a period of time. We're always trying not to do too much at once.
Some projects and some other upsides that we took there would be nonrecurring as well and that was about another $1 2 million in Q3, and then we also had about 500000 so in total.
Michael M. McCann: And maybe one quick question for Jayme, obviously, you know, you gave the guidance. I believe there are a couple of add-ons or write-ups and projects. I apologize, I had a..., especially in Q3. All right, could you go over some of those comments? https://www.youtube.com Jack de Vida Yes, a great point, Jerry.
And if you look at that then the adjusted EBITDA really is closer to like 43.9, if you take out those one time events.
Got it Super helpful.
Excuse me a few minutes so I appreciate it I'll jump back in queue.
Yeah.
Thank you.
Thank you there are no further questions at this time I'd like to turn the floor back over to Michael Mccain for closing comments.
Jayme L. Brooks: So yeah, our adjusted EBITDA was $46.8 million. And then we did have some non-recurring events that we did talk about and disclose where we had the claim recovery in California, and we had an upside from that of $1.2 million. And then we also had some projects and some other upsides that we took that would be non-recurring as well. And that was about another $1.2 million in Q3. And then we also had about $500,000. So in total, you know, if you look at that, then the adjusted EBITDA really is closer to $43.9 if you take out those one-time events.
Thank you all for your continued interest in Limbach, we look forward to seeing many of you at the Roth Conference next week.
Do you have any additional questions. Please reach out to Julie K Lee at financial profiles.
Thank you and have a great day.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Gerard J. Sweeney: Thank you. That was super helpful. I'll jump back in to you, thanks.
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Michael M. McCann: Thank you. Thank you. There are no further questions at this time. I'd like to turn the floor back over to Michael McCann for closing comments. Thank you all for your continued interest in Limbach. We look forward to seeing many of you at the Roth conference next week. If you have any additional questions, please reach out to Julie Kigley at Financial Profiles.
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Operator: Thank you, and have a great day. This concludes today's telecom. You may disconnect your lines at this time. Thank you for your participation. www.jefferyheavystream.com I have no ideas what to do now, so this is also my prequel to my legal vision of what the modern game of the series is. Thank you for watching. Oh, FCPE Vision FCPE 1.0 MMM MMM MMM MMM MMM, Jim Blumenthal, Jayme Brooks, and Michael Kemp See more at rip.org, Mmm, mmm The End. Do not forget and subscribe to my contributory channel on YouTube, and all digital! [inaudible]
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