Financial Performance Overview

Limbach Holdings, Inc. is a leading provider of building systems solutions, specializing in mechanical, electrical, and plumbing infrastructure for mission-critical facilities. The company operates in two main segments: Owner Direct Repair (ODR) and General Contracting and Renovation (GCR).

In 2024, Limbach generated total revenue of $518.8 million, a 0.5% increase from the prior year. This growth was driven by a 31.9% increase in ODR revenue, which offset a 31.9% decline in GCR revenue. The shift towards higher-margin ODR work has been a strategic focus for the company.

Gross profit increased by 20.9% to $144.3 million, with the gross profit margin expanding from 23.1% to 27.8%. This improvement was due to the higher-margin ODR work, selective pursuit of GCR projects, and material gross profit write-ups on certain projects.

Selling, general and administrative (SG&A) expenses increased by 11.2% to $97.2 million, primarily due to higher payroll, incentive, and acquisition-related costs. As a percentage of revenue, SG&A rose from 16.9% to 18.7%.

The company recorded a $3.8 million increase in the fair value of contingent consideration related to recent acquisitions, compared to a $0.7 million increase in the prior year. Amortization of intangibles also increased by $2.8 million due to the acquisitions.

Other income, net, was $1.3 million, compared to $1.2 million in expenses the prior year. This was driven by higher interest income and a gain on the sale of property and equipment.

The company’s effective tax rate decreased from 26.1% to 22.7%, primarily due to the impact of excess tax benefits on stock-based compensation.

Overall, net income for the year increased by 48.7% to $30.9 million, reflecting the company’s improved operational performance and strategic shift towards higher-margin ODR work.

Segment Performance

The ODR segment, which focuses on owner-direct projects and maintenance/service work, saw revenue increase by 31.9% to $345.5 million. Gross profit in this segment grew by 41.6% to $107.8 million, with the gross margin expanding from 29.0% to 31.2%. This improvement was driven by the ACME and Industrial Air acquisitions, as well as the company’s continued focus on growing its ODR business.

In contrast, the GCR segment, which handles new construction and renovation projects, experienced a 31.9% decline in revenue to $173.3 million. Gross profit in this segment decreased by 15.5% to $36.5 million, though the gross margin improved from 17.0% to 21.1%. The company has been more selective in pursuing GCR work, focusing on smaller, higher-margin projects.

Backlog and Outlook

Limbach’s ODR backlog increased from $147.0 million to $225.3 million, as the company continues to prioritize the growth of this higher-margin segment. The GCR backlog decreased from $186.9 million to $140.0 million, reflecting the company’s strategic shift away from larger, riskier construction projects.

Looking ahead, Limbach is focused on three key objectives: 1) improving profitability and generating quality growth in its operations by shifting to the ODR segment; 2) expanding margins through evolved service offerings; and 3) scaling the business through strategic acquisitions.

The company believes it is well-positioned to capitalize on the strong demand in its core markets, which include healthcare, industrial, data centers, life sciences, higher education, and cultural/entertainment facilities. However, it continues to monitor the impact of economic uncertainty, labor shortages, supply chain volatility, and rising interest rates on its business.

Acquisitions and Divestitures

In 2023, Limbach acquired two companies: ACME, a specialty industrial contractor, and Industrial Air, a specialty mechanical contractor. These acquisitions expanded the company’s geographic footprint and capabilities, contributing to the growth in the ODR segment.

In 2024, the company completed two additional acquisitions: Kent Island Mechanical, a provider of building systems solutions in the Washington, D.C. metro area, and Consolidated Mechanical, a specialty mechanical contractor serving the industrial, power, and commercial markets. These transactions further strengthened Limbach’s market position and supported its continued ODR growth strategy.

The company also continued to wind down its Southern California operations in 2023, aligning its geographic focus and reducing losses from unprofitable locations.

Risks and Challenges

Limbach faces several key risks and challenges, including:

• Cybersecurity threats and IT system failures, which could disrupt operations and lead to financial and reputational harm
• Compliance with various state, local, and federal regulations, including those related to government contracting
• Potential changes in environmental, safety, and health regulations that could increase costs
• Reliance on immigrant labor and the risk of non-compliance with immigration laws
• Tax matters, including changes in corporate tax laws and disagreements with taxing authorities

The company has implemented a comprehensive cybersecurity risk management program and has designated its Board of Directors as primarily responsible for oversight of cybersecurity risks. Limbach also maintains robust processes to manage compliance with applicable laws and regulations.

Conclusion

Limbach Holdings delivered strong financial performance in 2024, driven by its strategic focus on the higher-margin ODR segment and selective pursuit of GCR projects. The company’s recent acquisitions have further strengthened its market position and capabilities, positioning it for continued growth and profitability improvement.

While the company faces various risks and challenges, it has demonstrated its ability to navigate industry headwinds and adapt its business model to capitalize on evolving market opportunities. Limbach’s focus on providing mission-critical building systems solutions, coupled with its disciplined approach to operations and strategic initiatives, suggests the company is well-positioned to create value for its stakeholders in the years ahead.