Q1 2024 Limbach Holdings Inc Earnings Call
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Operator: Good morning and welcome to the first quarter 2024 Limbach Hldg earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal the 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.
Good morning, and welcome to the first quarter 2024, Limbach Holdings earnings conference call and webcast.
Speaker Change: All participants will be in a listen only mode.
Julie Kegley: Should you need assistance. Please signal the conference specialists by pressing the star key followed by zero.
Julie Kegley: I will now turn the conference over to your host Julie.
Operator: Julie Kegley a financial profiles you may begin.
Julie Kegley: Good morning, and thank you for joining us today to discuss Limbach Hldg's financial results for the first quarter of 2024. Yesterday, Limbach Hldgs issued its earnings release and filed its Form 10-Q for the period ended March 31, 2024.
Julie Kegley: Good morning, and thank you for joining us today to discuss Limbach holdings financial results for the first quarter of 2024.
Julie Kegley: Yesterday Limbaugh holdings issued its earnings release and filed this form tend to use for the period ended March 31st 2024, both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at Lindt backing Dotcom management may refer to select sides during today's call and encourage.
Julie Kegley: 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.
Julie Kegley: As investors to review the presentation in its entirety.
Speaker Change: With me on today's call or Michael Mccann, President and Chief Executive Officer, and Jamie Brooks Executive Vice President and Chief Financial Officer, We will begin with prepared remarks, and then open up the call for analysts questions.
Julie Kegley: 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 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 improvement in profit and operating margins, are also forward-looking statements.
Julie Kegley: 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 historical non-GAAP measures to the most directly comparable GAAP measures in our first quarter earnings release and in our investor presentation slide deck, both of which can be found on Limbach's investor relations website and have been furnished in the Form 8K filed with the SEC. With that, I will now turn the call over to Mike McCann.
Julie Kegley: 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 that words, such as will be in 10 believe expect anticipate where other comparable words and phrases statements that are not historical facts, such as statements of bad expected improvement.
Michael M. McCann: Profit and operating margins are also forward looking statements actual results may differ materially from those contemplated by such forward looking statements.
Julie Kegley: 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 limp box S. E C filings, including reports on Form 10-K and 10-Q.
Michael M. McCann: Please note that on today's call, we will be referring to some non-GAAP measures you can find the reconciliation of these historical non-GAAP measures to the most directly comparable GAAP measures and our first quarter earnings release and in our Investor Relations Investor presentation slide deck, both of which can be found on land box Investor Relations.
Julie Kegley: Website and had been furnished in the form 8-K filed with the S. E C with that I will now turn the call over to Mike Mccann.
Michael M. McCann: Good morning, everyone. Welcome to our stockholders and analysts, as well as those who may be new to Limbach. Thank you all for joining our call. Before we get to the highlights of the first quarter, I'd like to remind everyone of the key elements of our business strategy. First, we are shifting our business mix from General Contractor Relationships, or GCR, to Owner Direct Relationships, or ODR. Two, we are expanding margins to evolve service off, and three, we are scaling the business through strategic acquisition, whether those are tuck-ins, expansions to new geographies, or additional service offers. We focus on six key verticals, healthcare, industrial manufacturing, data centers, life science, higher education, and cultural entertainment. These industries require uninterrupted building operations that cannot fail.
Michael M. McCann: Good morning, everyone welcome to our stockholders analysts as well as those who may be new to Lubbock.
Speaker Change: Thank you all for joining our call today.
Michael M. McCann: We provide building owners with solutions and services to maintain and upgrade their mission-critical mechanical, electrical, and plumbing systems. We believe our strategy and core vertical focus is the best way to grow earnings and create shareholder value.
Michael M. McCann: Before we get into the highlights of the first quarter I'd like to remind every one of the key elements of our business strategy.
Michael M. McCann: First we are shifting our business mix, some general contractor relationships or G. C. R. The owner direct relationship or odier.
Michael M. McCann: Two we are expanding margins revolved service offerings.
Michael M. McCann: Three we are scaling the business strategic acquisitions.
Michael M. McCann: Those are tuck ins expansion of new geographies or additional service offerings.
Michael M. McCann: We focus on six key verticals healthcare industrial manufacturing data centers life Science higher education and culture Entertainment.
Michael M. McCann: Industries require uninterrupted building operations that cannot fail.
Michael M. McCann: We provide building owners with solutions that service to maintain and upgrade their mission critical mechanical electrical and plumbing infrastructure.
Michael M. McCann: We believe our strategy and core vertical focus is the best way to grow earnings and Creech stockholder value.
Michael M. McCann: So why do we see it this way.
Michael M. McCann: Our RDR segment is a higher-margin, lower-risk business model that is less impacted by macroeconomic trends. By shifting our business mix to the ODR segment versus the GCR segment, we are building a more stable, economically resilient business with a better long-term growth profile. Additionally, this business model does not require significant capital expenditure investment and is expected to generate strong free cash flows.
Michael M. McCann: Are already are segments of higher margin lower risk business model that is less impacted by macroeconomic trends by shifting our business next to the odier segment versus the G. C. R second.
Michael M. McCann: A more stable economically resilient business with a better long term growth profile. Additionally, this business model does not require significant capital expenditure investment is expected to generate strong free cash flows.
Michael M. McCann: By expanding and involving our service offerings, we believe that we can grow market share with existing customers and position Limbach for recurring revenue streams from these owner-direct relationships while flexing with our customer needs between operating and capital project budgets. All this equals a business with attractive organic and acquisition growth opportunities, less volatility, and more consistent execution. Our first quarter results demonstrate that our strategy is working. In Q1, gross profit increased by 18.5% over Q1 2023 to $31.1 million.
Michael M. McCann: By expanding and involving our service offerings, we believe that we can grow market share with existing customers and physician limbach for recurring revenue streams.
Michael M. McCann: Direct relationships or flex.
Michael M. McCann: Flexing with our customer needs between operating and capital project budgets.
Michael M. McCann: All this equals a business with attractive organic and acquisition growth opportunities less volatility.
Michael M. McCann: Consistent execution.
Michael M. McCann: Our first quarter results demonstrate that our strategy is working in Q1 gross profit increased by 18.5% over Q1 2023.
Michael M. McCann: 31.1 million.
Michael M. McCann: Additionally, gross margin increased to a record 26.1% compared to 21.7% last year. Adjusted EBITDA increased 35.4% over Q1 last year to $11.8 million. However, revenue was down slightly, which is a result of the intentional strategy to scale down the G-Share business in favor of ODR and, therefore, increased margins.
Michael M. McCann: Gross margin increased to a record 26.1% compared to 21.7 per cent last year.
Michael M. McCann: EBITDA increased 35.4% over Q1 last year to $11.8 million.
Michael M. McCann: Revenue was down slightly which is the result of the intentional strategy to scale down the G. Sir business in favor already are and therefore increase margins.
Michael M. McCann: Q1 is a seasonally slower quarter due to weather and customer budget constraints. We anticipated this and highlighted this in our last call. We began gaining momentum in March, and we expect to sustain this for the rest of the year with our seasonally stronger quarter. From a vertical market demand perspective, healthcare continues to be our top priority. The operational spending in healthcare tends to be steady, and we are starting to see signs from some of our customers that infrastructure spending is gaining momentum.
Michael M. McCann: Q1, as a seasonally slower quarter due to weather in customer budgets, we anticipated this and highlighted this in our last call.
Michael M. McCann: Begin gaining momentum in March and we should expect to sustain this for the rest of the year with our seasonally stronger quarters.
Michael M. McCann: From vertical market demand perspective health care continues to be a top priority.
Michael M. McCann: And spending a health care tends to be steady and when you're starting to see signs of some of our customers that infrastructure spending is gaining momentum.
Michael M. McCann: In fact, we're already working with our customers to build spend plans for fiscal year 2025. Another vertical market that continues to be very strong is industrial and manufacturing. We see a lot of work that is being done in the Midwest and the Southeast.
Michael M. McCann: In fact, we're already working their customers to build spend plans for fiscal year 2025.
Michael M. McCann: Another vertical market that seems to be very strong is industrial and manufacturing.
Michael M. McCann: We see a lot of work that is being performed in the Midwest and to the southeast we're seeing companies continue to invest and expand their production lines.
Michael M. McCann: We are seeing companies continue to invest and expand their production. The O2R business grew in Q1 as a result of the two acquisitions we made last year, in addition to substantial organic growth. We continue to accelerate the mixed shift to ODR from GCR, with ODR comprising 62.4% of revenue for the quarter, an increase of 55.1% against Q4. Keep in mind that last quarter we set a range for the year between 60 to 70 percent. We were already well within that range.
Michael M. McCann: The other two are business ruin Q1, as a result of the two acquisitions. We made last year. In addition to substantial organic growth. We continue to accelerate the mix shift to odier from G. C. R with odier, comprising 62.4% of revenue for the quarter, an increase of 55.1% against Q4 2023.
Michael M. McCann: Keep in mind that last quarter, we could arrange for the year between 60 to 70 per cent, we are already well within that range.
Michael M. McCann: In addition to increasing margins for roadier growth, we're expanding margins by evolving our service offer. For example, as I mentioned last quarter, we are investing approximately $4 million in portable HVAC rental equipment to provide urgent and critical system solutions for our customers. This strategic investment is designed to provide an additional service offering and grow our market share with existing customers. We're now just entering the cooling season.
Michael M. McCann: In addition to increasing margins throat ear growth, we're expanding margins by involving our service offerings.
Michael M. McCann: For example, as I mentioned last quarter were besting approximately $4 million and portable hva's rental equipment to provide urgent and critical system solutions for our customers.
Michael M. McCann: The strategic investment is designed to provide an additional service offering and grow our market share with existing customers were now just entering cooling season, we expect to see this new offering to take hold over the next few months and begin realizing revenue in the third quarter.
Michael M. McCann: We expect to see this new offering take hold over the next few months and begin realizing revenue in the third quarter. There is ample opportunity to grow our business with customers through our existing services as well. Our strategy is account-focused and customer-centric. This starts with establishing a daily on-site presence, which is typically focused on responding to operator expense needs.
Michael M. McCann: There's ample opportunity to grow our business with customers to our existing services as well our strategies account focusing customer centric. This starts with establishing daily onsite presence, which is typically focused on responding to operator expense needs.
Michael M. McCann: But the account team is also focused on building customers' capital plans. One of our key accounts in a local market recently came to us with the need to quickly transition funding into capital products because we have an established relationship with them and they understand we are capable of providing engineered solutions. They quickly turned to us to develop a capital project funding plan under a sole-source design-build arrangement, thereby gaining competitive advantages relative to the competition in the marketplace and continuing to develop our long-term relationship with that company.
Michael M. McCann: But the account team is also focused on building customers capital plants.
Michael M. McCann: One of our key accounts in a local market recently came to us what they need to quickly transition funding into capital projects.
Michael M. McCann: Because we have an established relationship with them.
Michael M. McCann: And they understand we were cable providing engineered solutions. They quickly turned to us develop a capital project funding plan under a sole source design build arrangement, thereby gaining competitive advantages relative to the competition in the marketplace and continuing develop our longterm relationship with that customer.
Michael M. McCann: Turning to the progress on acquisitions, we're pleased with the contributions from the two we made last year, Acme Industrial and Industrial Air, and the growth they've contributed to our ODR business. As I mentioned earlier, one of the key strategies is scaling the business through strategic acquisitions. We currently have a robust pipeline of both Tuckins and Geographic Expansion Acquisition candidates, and we continue to evaluate them to find the right strategic fit, which is critical to the success of the acquisition.
Michael M. McCann: Turning to the progress on acquisitions, we're pleased with the contributions from the two we made last year, Acme industrial and industrial era.
Michael M. McCann: They've contributed to earlier business as.
Michael M. McCann: As I mentioned earlier, one of the key strategies scaling the business through strategic acquisitions. We currently have a robust pipeline, both tuck ins and geographic expansion acquisition generates.
Michael M. McCann: We continually evaluate them to find the right strategic fit which is critical to the access of the acquisition.
Michael M. McCann: We continue to be extremely selective about the business that we pursue, and our strong free cash flow and balance sheet will enable us to execute such acquisitions when we find the right target. I'll now turn it over to Jayme to provide detailed financial highlights before I return with additional commentary.
Michael M. McCann: You need to be extremely selective about the business that we pursue that are strong free cash flow balance sheet will enable us to execute such acquisitions, when we find the right target.
Jayme: I'll now turn it over Jamie to provide detailed financial highlights before I return with additional commentary Jamie.
Jayme L. Brooks: Thanks, Mike. Our first quarter 2024 earnings press release and Form 10-Q were filed yesterday and provide comprehensive details of the company's financials, so I will focus on the highlights from the first quarter.
Jayme: Hey, Mike our first quarter 2024 earnings press release, and Form 10-Q filed yesterday and provide comprehensive details at the company's financial.
Jayme: So I will focus on the highlights from the first quarter.
Jayme L. Brooks: During the quarter, we generated consolidated revenue of 119 million versus 121 million in Q1 of 2023. And, as expected, consolidated revenue declined by 1.7% due to our focus shift to our ODR segment. ODR revenue grew 26.5% to $74.3 million, while GCR revenue declined 28.2% to $44.7 million. As Mike indicated, the decline in GCR revenue is intentional, as we continue to execute our mixed-shift strategy to O
Jayme: During the quarter, we generated consolidated revenue of 119 million versus 121 million in Q1 of 2023.
Jayme L. Brooks: It is expected consolidated revenue declined by 1.7 per cent, each who are focused shipped to our earlier statement.
Jayme L. Brooks: Oh, Dear revenue grew 26.5% to 74.3 million well TCR revenue declined 28.2%.
Jayme L. Brooks: $44.7 million.
Jayme L. Brooks: <unk> indicated decline in D. C. R revenue is intentional.
Jayme L. Brooks: We continue to execute our mixes strategy to O D R.
Jayme L. Brooks: In the first quarter, ODR revenue was 62.4% of consolidated revenue, up from 48.5% last year. This is driving our gross profit and adjusted EBITDA results. Total gross profit increased 18.5% to $31.1 million for the quarter from $26.2 million in Q1 2023 because of the NIC shift to ODR. OER gross profit contributed 71.3% of the total gross profit dollars, or $22 million. ODR gross profit increased $6.2 million, or 39.3%, driven by higher revenue with expanded gross margins in Q1 to 29.8% vs. 27.1% in Q1 of 2023. VCR gross profit decreased $1.4 million, or 13.5%, due to lower revenue with our focus on smaller and shorter duration projects at higher margins.
Jayme L. Brooks: And the first quarter OTR revenue was 62.4% of consolidated revenue up from 48.5 per cent last year. This.
Jayme L. Brooks: This is driving our gross profit and adjusted EBITDA results.
Jayme L. Brooks: Total gross profit increased 18.5% to 31.1 million for the quarter from 26.2 million <unk> 2023, because of the Knicks fifth two O D R.
Jayme L. Brooks: Oh, you are gross profit contributed 71.3 per cent of the total kroese profit dollars or $22 million.
Jayme L. Brooks: Oh D. R. Gross profit increased 6.2 million or 39.3 per cent driven by higher revenue with expanded gross margins in Q1, 29.8% versus 27.1% in Q1 of 2023.
Jayme L. Brooks: Easier gross profit decreased 1.4 million or 13.5 per cent.
Jayme L. Brooks: Lower revenue with our focus on smaller and shorter duration projects at higher market.
Jayme L. Brooks: This enabled GCR gross margins to expand to 20% from 16.6% in Q1 of 2023. As a result, gross margin on a consolidated basis for the first quarter was a record 26.1%, as Mike mentioned, up from 21.7% in the prior year. During the quarter, SG&A expense increased approximately $1.8 million to $22.9 million from $21 million in Q1 of 2023. As a percentage of revenue, SG&A expense was 19.2%, up from 17.4% in 2023.
Jayme L. Brooks: This enabled TCR gross margins to expand to 20 per cent from 16.6 per cent in Q1 of 2023.
Jayme L. Brooks: As a result gross margin on a consolidated basis for the first quarter was a record 26.1% as Mike mentioned.
Jayme L. Brooks: Up from 21.7% in the prior year.
Jayme L. Brooks: During the quarter SG&A expense increased approximately 1.8 million to 22.9 million from 21 million <unk> 2023.
Jayme L. Brooks: As a percentage of revenue SG&A expense was 19.2% up from 17.4% in 2023.
Jayme L. Brooks: Approximately $1.1 million of the $1.8 million increase was primarily due to our two new acquisitions that were not part of our company in Q1 of 2023. For 2024, we are still targeting SG&A expense as a percentage of consolidated revenue to be around 18-19% as we continue to invest in our ODR business to drive growth. Adjusted EBITDA for the first quarter was $11.8 million, up 35.4% from $8.7 million in Q1 of 2023. Adjusted EBITDA margins for the first quarter were 9.9%, up 37.7% from 7.2% in Q1 of 2023.
Jayme L. Brooks: Approximately 1.1 million of the 1.8 million increase was primarily due to our queue new acquisition. It would not part of our company and Q1 of 2023.
Jayme L. Brooks: For 2024, we are still targeting SG&A expense as a percentage of consolidated revenue to be around 18th 19% as we continue to invest in R. O D R business to dry throat.
Jayme L. Brooks: Adjusted EBITDA for the first quarter was 11.8 million up 35.4% from $8.7 million and he went up 2023.
Jayme L. Brooks: Adjusted EBITDA margin for the first quarter was 9.9% up 37.7% from 7.2% in Q1 of 2023.
Jayme L. Brooks: We had net income for the first quarter of $7.6 million or 64 cents per diluted share compared to $3 million or 27 cents per diluted share in 2023. This represents 153.5% growth in net income and does include a 2.4 million tax benefit related to the vesting of stock-based compensation awards that vested in the current period at a higher spike price than when they were granted. Turning to cash flow, we had $3.9 million operating cash outflow during the first quarter compared to an operating cash inflow of $9.4 million in 2023. This difference was primarily driven by the timing of billing and collections as it relates to accounts receivable.
Jayme L. Brooks: We had net income for the first quarter of $7.6 million or 64 cents per diluted share compared to 3 million or 27 cents per diluted share in 2023.
Jayme L. Brooks: This represents 153.5 per cent gross and net income and does include a 2.4 million tax benefit related to the best thing of stock based compensation awards invested in the current period at a higher state places than women zebra granted.
Jayme L. Brooks: Cash flows from investing activities reflected the purchase of $2 million of rental equipment in the quarter. The remaining investment of $2 million in rental equipment was on order at the end of the quarter, and we should see cast usage in Q2. Also, during the quarter, we had $5.2 million of cash outflow for taxes paid for the Net Share Settlement of Equity Award. Of this amount, $4.3 million of cash was paid to the taxing authorities directly by the company by withholding shares rather than selling the shares in the open market to cover the taxes.
Jayme L. Brooks: Turning to cash, though we had 3.9 million operating cash I also during the first quarter compared to an operating cash inflow at 9.4 million in 2023.
Jayme L. Brooks: This difference is primarily driven than the tiny a billing and collection as it relates to accounts receivable.
Jayme L. Brooks: Cash flows from investing activities reflected the purchase of 2 million of rental equipment in the corner.
Jayme L. Brooks: The remaining investment of $2 million in rental equipment with an order at the end of the quarter and we should see the Kathy usage and Q2.
Jayme L. Brooks: Also during the quarter, we had 5.2 million of cash outflow for the taxes paid for the net sure settlement of equity words.
Jayme L. Brooks: This amount 4.3 million of cash is paid for the taxi authorities directly by the company I was holding shares rather than selling the shares any open market to cover the taxes.
Jayme L. Brooks: This was done as part of our focus on capital allocation to create stockholder value. Based on the stock prices on the vesting dates of these awards, the company would have issued 88,295 shares of common stock in the open market if the company did not elect the withhold-to-cover method. Pre-cash flow for the quarter was $11.8 million compared to $6.6 million in Q1 2023, an increase of 77.5%, which we define as cash flow from operations minus changes in working capital, minus capital expenditures, excluding our investment in rental equipment, which is approximately $2 million in Q1.
Jayme L. Brooks: This was done as part of our focus on Capitol application to create stockholder value.
Jayme L. Brooks: Based on the stock prices on the desk being dates. These awards. The company would have issued 88295 shares of common stock into the open market. If the company did not elect there was hold to cover method.
Jayme L. Brooks: Free cashless quarter, it was $11.8 million compared to 6.6 million. Thank you 120, 23, an increase of 77.5 per cent, which we define as cash flow from operations minus changes in working capital.
Jayme L. Brooks: Capital expenditures, excluding our investment in rental equipment, which is approximately 2 million in Q1.
Jayme L. Brooks: The free cash flow conversion of adjusted EBITDA for the first quarter was 100.3% versus 76.4% in the first quarter of last year. We continue to target a free cash flow conversion rate of approximately 70% for 2024, excluding our investment in rental equipment, which is approximately $4 million. We continue to expect CAPEX for 2024, excluding the investment in rental equipment, to be approximately $3 million due to the acceleration of our ODR strategy.
Jayme L. Brooks: The free cash flow conversion of adjusted EBITDA for the first quarter was 100.3 per cent versus 76.4% in the first quarter last year.
Jayme L. Brooks: We continue to target a free cash flow conversion rate of approximately 70 per cent for 2024, excluding our investment in rental equipment, which is approximately $4 million.
Jayme L. Brooks: We continue to expect Capex for 2024, excluding investment and original equipment to be approximately $3 million due to the acceleration of our OTR strategy.
Jayme L. Brooks: Turning to our balance sheet, at the end of Q1, we had $48.2 million in cash and cash equivalents and $10 million borrowed on our $50 million revolving credit facility at a weighted average interest rate of 5.7%. Our balance sheet remains strong, and we are well positioned to make the necessary investments to drive our ODR expansion and acquisition strategy. Now, I'll turn it back to Mike for closing remarks. Thank you, Jayme.
Jayme L. Brooks: Turning to our balance sheet at the end of Q1, we had $48.2 million in cash and cash equivalents and 10 million borrowed on our 50 million dollar revolving credit facility at a weighted average interest rate is 5.7 per cent.
Jayme L. Brooks: Our balance sheet remains strong and we are well positioned to make the necessary investment to drive our odier expansion an acquisition strategy.
Mike: Now, let's turn it back to make for closing remarks.
Michael M. McCann: Thank you, Jayme. 2024 is off to a great start, and I'm very optimistic about Limbach's future. Not only in 2024 but for years ahead, there is still a tremendous opportunity to grow our wallet share with customers. We continue to evolve the company and shift towards a greater focus on working directly for building owners. We have added dedicated account and sales staff in order to become embedded with our top customers and partners with them for years to come.
Mike: Thank you Jamie 2024 is off to a great start and I'm very optimistic about limbaugh future not only 2024, but for years ahead, there's still tremendous opportunity to grow our wallet share with customers, we continually evolve the company and shift towards a greater focus on working directly for building owners.
Michael M. McCann: We've added dedicated account and sales staff in order to become embedded with our top customers and partnering with them for years to come.
Michael M. McCann: Because of the progress we made in Q1 and our optimism about the rest of the year, we are increasing our guidance. We now expect ODR to be 65 to 70% of total revenue. That's an increase from 60% on the low end and implies ODR revenue growth of 25 to 36%. We are also increasing our adjusted EBITDA guidance to $51 to $55 million, up from $49 to $53 million. As a result, we expect to see full-year adjusted EBITDA margins in the range of 9.6% to 10.8% for 2024 based on our unchanged full-year total revenue guidance of $510 to $530 million.
Michael M. McCann: Because of the privacy meeting to one and her optimism about the rest of the year, we're increasing our guidance, we now expect <unk> to be.
Michael M. McCann: 65 to 70 per cent of total Rover, that's an increase from 60 per cent on the low end and.
Michael M. McCann: In in place Odier revenue growth of 25 to 36 per cent were also increasing our adjusted EBITDA guidance to $51 million to $55 million up from $49 million to $53 million.
Michael M. McCann: As a result, we expect to see full your adjusted EBITDA margin in the range of 9.6 per cent to 10.8% for 2024.
Michael M. McCann: Based on our unchanged full your total revenue guidance of $510 million to $530 million.
Michael M. McCann: I think it's important that investors see Lumbagas more than a mix-shift story. We are transitioning as fast as possible to our optimal mix. Once that optimal mix shift between ODR and G-SER is achieved, top-line consolidated revenue should reflect our growth both organically and from acquisitions. We continue to be excited by our prospects, the long runway of growth we anticipate, and by this significant opportunity we have to create shareholder value.
Michael M. McCann: I think it's important that investors superbug is more than a mixture of story, we're transitioning as fast as possible tore up little mix once it up a little mixture between <unk> top line could solider revenue should reflect our gross both organically from acquisitions.
Michael M. McCann: We continue to be excited by her prospects the long run away of growth, we envision and by the significant opportunity we have to create stockholders value.
Speaker Change: Thank you.
Operator: And with that, we'll open up the line for questions and answers. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. 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 star key.
Michael M. McCann: And with that will open up for question and answer session.
Operator: If you'd like to ask a question. Please press star one on your telephone keypad.
Operator: Confirmation tone would indicate that your line isn't the question queue.
Operator: You May press Star too 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 starkey.
Operator: Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a moment to poll for questions, and our first question comes from Rob Brown with Lake Street Capital. Please state your question.
Operator: Once again to ask a question press star one on your telephone keypad will pause for a moment to pull for questions.
Operator: And our first question comes from Rob Brown with Lake Street Capitol Police State your question.
Robert Duncan Brown: What are you ready to me.
Robert Duncan Brown: Good morning.
Michael M. McCann: And congratulations on all the progress. On the ODR growth, a pretty strong outlook there. I'm just wondering if you could give a sense of some of the macro themes driving that. Is this a catch-up in spending, or is this really... kind of growth driven by your new sales effort, and kind of focus on the customer strategy. Sure, Rob.
Robert Duncan Brown: Congratulations on the all the progress I'll be audiard growth pre strong outlook. There just wonder if you could.
Rob: So to some of the macro themes driving that is is this the ketchup and spending or is this really.
Michael M. McCann: Driven growth driven by your new sales effort.
Michael M. McCann: Focus on the customer stroke.
Michael M. McCann: Sure, Rob. Great question. From an ODR growth perspective, a lot of this really comes down to our strategy, which is to focus on six key vertical markets where the demand is durable. We're working in mission critical facilities where their operations can't go down. So probably the best way to characterize this is just I'm going to highlight three different vertical markets that are very important to us. One is health care. We made a big investment from a sales perspective to capture the OPEC spend.
Rob: Sure Great question from it Odier growth perspective, what this really comes down to our strategy, which is to focus on 60 vertical markets, where the demand is durable we're working ambition critical facilities, where their operations can't can't go down so probably the best way to characterize this is just.
Michael M. McCann: A highlight three different vertical markets that are very important to us one is health care, we made a big investment for a sales perspective to capture the Opex spin there's been a lot of deferred maintenance that we've been able to capture him and I would tell you even looking out into the next year or so we're starting to build budget right now and we're starting to see capital projects.
Michael M. McCann: There's been a lot of deferred maintenance that we've been able to catch. And I would tell you, even looking out into the next year or so, we're starting to build budgets right now, and we're starting to see capital projects re-energized. Industrial manufacturing is still very strong, and a lot of that comes from the Midwest and Southeast.
Michael M. McCann: Re-energized industrial manufacturing is still very strong a lot of that comes in the Midwest and southeast tremendous opportunity of that as well too and that's from a couple of the acquisitions that we did we've been able to capture that vertical market and the last thing I Wanna highlight as data center. So a lot of these data centers.
Michael M. McCann: There is a tremendous opportunity for that as well, too, and that's from a couple of the acquisitions that we did. We've been able to capture that vertical market. The last thing I want to highlight is data centers. So a lot of these data centers get old quick. Their equipment is about a quarter of the size, from a runtime perspective, so it needs to be replaced quickly. We've got lots of questions from a lot of customers on relatively new data centers where there are upgrades that need to happen.
Michael M. McCann: Old quick their equipment is about a quarter of the from a runtime perspective. So it's it needs to be replaced quickly. We've got lots of questions from a lot of customers on relatively new data centers, where there's upgrades that need to happen. So I think that's going to be another opportunity as we as we as we look for further down the line. So.
Michael M. McCann: So I think that's going to be another opportunity as we look further down the line. So, you know, I definitely think it really comes down to our focus on those mission-critical vertical markets where their infrastructure is absolutely critical to their operation.
Michael M. McCann: So you know like.
Michael M. McCann: I definitely think it really comes down to our focus on those mission critical <unk> vertical markets, where their infrastructure is absolutely critical to the operation.
Michael M. McCann: Great, thank you. And then maybe the rental business you highlighted a bit. How much more CapEx do you think that requires, or how do you see that growing, or is this just a nice adder to the service activity that you do, and it will be kind of the CapEx for this year, and don't expect more than that?
Speaker Change: Great. Thank you and then maybe the rental business you you highlighted a bit.
Michael M. McCann: How much more capex do you think that requires or do you see that growing or is this just choose today to add her to the service activity that you do it and it will be kind of the capex for this year that don't expect more than that.
Jayme L. Brooks: The rental equipment we purchased is cooling-based; it's not heating-based. So right now, as things start to get really warmer in our markets, starting from the south up to lead to the northeast, we anticipate that equipment will start to move. So the reason why we invested in this equipment, you think about it, we're in a building, we've invested in these on-site account managers. We are currently, and in the past, have captured the
Michael M. McCann: You know the the rental equipment. They we purchased it's really it's cooling base, it's not heating base. So right now as things start to get really warmer in our markets starting from the south up relate to the northeast.
Jayme L. Brooks: We anticipate that equipment start to move so the reason why we invested in this equipment you think about it you know we're in a building we've invested these onsite account managers.
Jayme L. Brooks: We are currently in the past have captured the quick repair work and.
Jayme L. Brooks: And our goal is to capture, obviously, capital projects. But there's a gap between repair work and capital projects. A lot of time is filled by that rental business, rental equipment. So it's more about providing a complete offering that's that end-to-end from repair to replacement in that middle location as well, too. Jayme, anything you want to add? Yeah, and Rob, we had flagged
Jayme L. Brooks: Our goal is to capture obviously the capital projects, but there's a gap between repair work and capital projects. A lot of time is filled by that rental business original equipment.
Jayme: So it's more about providing a complete offering that's that and to and from repaired a replacement and that that middle location as well to change anything you wanted to yeah, <unk>, we had uhm five $4 million for equipment. This year, we actually pay cash out of $2 million during the first quarter uhm, but it it is an order so uhm, you'll see the rest of that.
Jayme L. Brooks: Yeah, and Rob, we had flagged $4 million for equipment this year. We actually paid cash out of $2 million during the first quarter, but it is on order. So you'll see the rest of that cash flow that will hit most likely in Q2 as we receive that product. So at this time, we've designated, you know, $4 million as our budget for the year of rental equipment. But as Mike said, as we get further into that, the hot months, if there's, you know, a need and an opportunity, we may re-assess that and look to maybe expand the fleet.
Jayme L. Brooks: Cash, though that will hit <unk>, most likely and keeps you repeat your feat that product. So at this time, we we've designated 4 million is our our budget for the year.
Jayme L. Brooks: Uhm rental equipment, but as Mike said as we get further into that the hot Hot months. If there's you know I needed an opportunity. We may re that's that's that's looked at maybe expand the fleet.
Michael M. McCann: Okay, great. And then lastly, in the M&A environment, I know you've looked at things for quite a while. How active do you expect to be there, or is it more opportunistic as you find things in the mature market?
Speaker Change: Okay, Great and then lastly, M&A environment I know you <unk>.
Michael M. McCann: For quite a while how how active do you expect to be there or is it more opportunistic as you as you find things are they are they mature.
Michael M. McCann: Our goal is to be selective and to be opportunistic. So, there's definitely a robust pipeline out there. I would also highlight, obviously, the two that we did last year, which are industrial air and Acme Industrial. Those are working out very well.
Speaker Change: You know our goal is to be selective and to be opportunistic. So there's definitely robust pipeline out there.
Michael M. McCann: I <unk> and I would also highlight obviously the two that we did last year, which is industrial or an acme industrial.
Michael M. McCann: Those those are working out very well very excited about the customer penetration so for us, it's really making sure that we get the right fit that we're able to integrate with the company you'd get synergy not necessarily just from the deal, but how that how that company now fits into the overall overall when buck So Ah still robust pipeline were being extremely.
Michael M. McCann: We're very excited about the customer penetration. For us, it's really making sure that we get the right fit, that we're able to integrate with the company and get synergy, not necessarily just from the deal, but how that company now fits into the overall Limbach. So, still a robust pipeline. We're being extremely selective, but our goal is to make acquisitions.
Michael M. McCann: Collective, but our goal is to do acquisitions so.
Robert Duncan Brown: Okay, great. Thank you. I'll turn it over to you.
Speaker Change: Okay, great. Thank you I'll turn it over.
Speaker Change: Thank you.
Operator: Thanks, and a reminder to ask a question, press star 1. To remove yourself from the queue, press star 2. Our next question comes from Jerry Sweeney with Roth Capital Partners. Please state your question.
Speaker Change: Thanks for the reminder to ask a question press star one to remove yourself from the queue press start to.
Operator: Our next question comes from Jerry Sweeney with Roth Capital Partners Police to your question.
Operator: Hi, this is Brandon Rogers on behalf of Gerard Sweeney. Thanks for taking my question.
Speaker Change: Hi, This is Brittany Rogers on for jurors waiting thanks for taking my question is.
Brandon Rogers: Thank you so.
Brandon Rogers: So, you guys are successfully navigating the shift to ODR. You raised the percentage revenue to 65 to 70%. When do you expect to reach the optimized segment mix? And once you reach that optimized mix, where do you see margins and revenue at?
Brandon Rogers: So you guys are successfully navigating the shift Oh D. R me raised as a percentage of revenue 65 to 70 per cent. When do you expect to reach the optimize segment mix <expletive> and once you reach that optimize mix, where do you think where do you see marches and red.
Brandon Rogers: We knew that.
Michael M. McCann: Great question. As you stated, we adjusted from the 60% to 70% target to 65% to 70%. So, we're definitely trying to make that transition as fast as possible. And how we're doing that is really in a couple of different pieces.
Speaker Change: Great question from it from them as you stated we've readjusted from the 60 70 per cent target to 65 to 70. So we're definitely trying to make that transition as fast as possible and and how we're doing that is really a couple of different double a different.
Michael M. McCann: So, this year, we've invested in sales resources and on-site account managers to really capture that OPEX. Our goal is to make additional investments from a capital project perspective, especially going into 2025, which will really help continue to accelerate that revenue growth. So, from a long-term perspective, in our deck, we've pointed beyond 2024, getting to a point where it's approximately 80% donor direct, 20% GCR.
Speaker Change: Different pieces for this year, we've invested in it sales resources onsite account managers to really capture that Opex. Our goal is to make additional investments from a capital project.
Michael M. McCann: Project perspective, especially going into 2025, what's really will help continue tolerate that revenue growth. So.
Michael M. McCann: <unk> from a long-term perspective in our deck, we pointed to beyond 2024, I'm getting to a point where it's.
Michael M. McCann: So, we're moving as fast as possible in order to get the optimal mix. Obviously, once we achieve that mix, there's a lot more margin expansion on top of that. And I think also from a margin expansion source, not just the mix, but it's also our ability to introduce service offerings as well. And obviously, finishing and getting to that optimal mix, having the right offerings, there's a pick-up, I think, on both sides.
Michael M. McCann: <unk> is approximately 80 80 per cent owner direct 20 per cent to use you are so we're moving as fast as possible in order to get the optimal mix, obviously once we achieve that mix.
Michael M. McCann: A lot more margin expansion on top of that and I think also from a margin expansion stores not just the mix, but it's also our ability to introduce service offerings as well too.
Michael M. McCann: Finishing getting to that Abdul mix, having the right offerings, there's a pick up I think on both sides of it.
Brandon Rogers: Awesome. Thank you for the color. And then just one more for me.
Speaker Change: Awesome. Thank you for a color.
Speaker Change: And then just one more for me let me just first actually acquisition is a little bit but can you just discuss how the successful acquisition integration with Acme industrial area and.
Speaker Change: I just thought you mentioned a robust pipeline is there any ideal targets that you have coming down to buy for the next three to six months, maybe nine months ago.
Michael M. McCann: You discuss acquisitions a little bit, but can you just discuss the successful acquisition integration with Acme and Industrial Air? And you mentioned a robust pipeline. Are there any ideal targets that you have coming down the pipe in the next three to six months, maybe nine months out?
Speaker Change: Sure. So just to talk a little bit about both of the the deals that we've done so industrial are very much in the industrial manufacturing space. A couple of key components, which is made that deal successful. So far is the ability to have it concentrated owner direct base.
Michael M. McCann: Sure. So, I just want to talk a little bit about both of the deals that we've done. So, industrial air, very much in the industrial manufacturing space. A couple of key components which have made that deal successful so far is their ability to have a concentrated owner-direct base that is expandable. They also have an equipment line that allows us to have an installed base similar to an OEM. Between customers, the equipment offering that they have, and I would also say that from a cultural fit as well too.
Michael M. McCann: That is expandable. They also have any equipment line that allows us to have an installed base similar to an O M b.
Michael M. McCann: Between customers.
Michael M. McCann: The equipment offering that they have and I would also tell from a cultural fit as well to those three components have really you know we're excited about not only the opportunity right now, but also the future opportunities industrially from.
Michael M. McCann: Those three components have really, you know, we're excited about not only the opportunity right now, but also the future opportunities. From an ACME perspective, they are also in the industrial vertical market, hydro, different types of industrial manufacturing, so they've introduced us to several new clients with future spend down the line as well, too. So cultural fit, owner-direct customers, and expansion opportunities are really the three key components that both of those deals have.
Michael M. McCann: [noise] and Acme perspective, they are also in the industrial vertical market.
Michael M. McCann: Uhm hydro different types of industrial manufacturing, so they've introduced us to several new clients with future spend down the line as well too so cultural fit overdraft customers expansion opportunities. Those are really the three key components that both of those deals have so looking down the line we are continuing to.
Michael M. McCann: So looking down the line, we're continuing to look through plenty of opportunities in a robust pipeline. We're trying to be selective, and obviously, we want to get deals done, but we want to get the right deals done.
Michael M. McCann: Look through a plenty of opportunities are robust pipeline, we're trying to be selective and obviously, we are trying to we wanna get deals done, but we want to get the right deals done so.
Brandon Rogers: Awesome. Thank you so much. Appreciate you taking my questions. I'll take the rest offline.
Speaker Change: Awesome. Thank you so much I appreciate you taking my questions I'll take the rest of them.
Operator: Thank you, and there are no further questions at this time. I'll hand the floor back to Mike McCann for closing comments.
Speaker Change: Thank you and there are no further questions at this time I'll hand, the floor back to Mike Mccann for closing comments.
Michael M. McCann: Thank you all for your participation today and for your continued interest in Limbach. If you have any additional questions, please reach out to Julie Kegley at Financial Profiles. Thank you, and have a great day!
Michael M. McCann: Thank you all for your participation today and for your continued interest in Limbach.
Michael M. McCann: Do you have any additional questions. Please reach out to Julie Kegley and financial profiles. Thank you and have a great day.
Operator: Thanks, this concludes today's call. All parties may disconnect.
Michael M. McCann: Thanks. This concludes today's call all parties may disconnect.