Limbach Holdings Reports Fourth Quarter and Fiscal Year 2021 Results

Continued Growth in Owner Direct Relationships (ODR) Segment Revenue; Up 10.3% year-over-year

ODR Segment Accounted for Approximately 47.1% of Consolidated Gross Profit for FY 2021

FY 2021 Gross Margins Improved to 17.5%; Diluted EPS of $0.66

Conference Call Scheduled for 9:00 am ET on March 17, 2022

Limbach Holdings, Inc. (Nasdaq: LMB) (“Limbach” or the “Company”) today announced its financial results for the year ended December 31, 2021. Net income was $6.7 million for fiscal year 2021 as compared to $5.8 million for fiscal year 2020. Consolidated revenue was $490.4 million, a 13.7% decrease compared to fiscal year 2020. ODR⁽¹⁾ segment revenue was up 10.3% year-over-year and accounted for 28.6% of consolidated revenue in 2021 compared to 22.4% in fiscal year 2020. Consolidated gross margin of 17.5% increased 320 basis points year-over-year as a result of a shift in mix to the ODR segment and increased GCR⁽¹⁾ margins despite lower total revenue. In 2021, the ODR segment accounted for approximately 47.1% of consolidated gross profit.

Charlie Bacon, Limbach’s President and Chief Executive Officer, said, “Limbach posted improvement for the year, with our numbers excelling in the back-half of 2021 driven by continued growth of our ODR business, combined with significantly-improved GCR margins. ODR revenue drives higher margins, and our stated goal has been to continuously drive a greater mix of our total revenue towards this segment. Our GCR business remains an integral part of our operations and as our recent results demonstrate, our emphasis on risk management and project selection is yielding solid gross profits. For the year, GCR gross profit improved by approximately $0.3 million despite an approximate 21% decline in segment revenues. Our improved results occurred despite the labor disruptions and supply chain impacts due to COVID-19.”

Mr. Bacon continued, “The integration process at Jake Marshall, which we acquired in December 2021, is proceeding as expected. We continue to diligently pursue additional opportunities like Jake Marshall in our other target geographies.”

Mr. Bacon concluded, “Entering 2022, proposal activity is above levels at this time a year ago, allowing us to secure a range of project wins in both of our segments while also being selective on pricing. Our recent results reinforce the validity of our bottom-line focused approach, with our 2022 sales and project scheduling governed by our risk management methodology.”

^{(1) As of January 1, 2021, Limbach renamed its existing two reportable segments to reflect our two distinct approaches to our customer base and to better align with our owner direct strategy. The previously named Construction Segment is now known as General Contractor Relationships (“GCR”) and the previously named Service Segment is now known as Owner Direct Relationships (“ODR”).}

The following are results for the three months ended December 31, 2021, compared to the three months ended December 31, 2020:

• Fourth quarter 2021 revenue of $126.8 million was down 2.7% compared to $130.4 million. GCR segment revenue of $87.7 million was down 7.7%, while ODR segment revenue of $39.1 million was up 10.6%.

• Gross margin increased to 20.1%, up from 14.3%. This increase was mainly driven by total net gross profit write-ups of $2.6 million compared to total net gross profit write-downs of $2.9 million in the prior year quarter. GCR gross profit increased $7.3 million, or 103.3%, due to higher margins despite lower revenue. ODR gross profit was relatively flat. On a dollar basis, total gross profit was $25.5 million, compared to $18.7 million.

• SG&A expense increased approximately $2.8 million, to $18.8 million, compared to $16.0 million. This increase was characterized by temporary, lower operating expenses resulting from pandemic-driven operational reductions in 2020. As a percent of revenue, SG&A expense was 14.8%, up from 12.3%.

• Interest expense, net was $0.4 million compared to $2.2 million. This significant decrease was due to our refinancing of the 2019 debt facilities in February 2021, replacing them with debt facilities that carry a lower cost of financing.

• Net income was $4.3 million as compared to $0.4 million. Diluted income per share was $0.41 as compared to $0.05. The increase in net income was primarily attributable to increased gross profit on lower revenue, as well as the aforementioned decrease in net interest expense.

• Adjusted EBITDA was $9.5 million as compared to $4.5 million, an increase of 112.5%. The increase in Adjusted EBITDA was primarily attributable to the $6.9 million increase in gross profit, partially offset by a $2.8 million increase in selling, general and administrative expense.

The following are results for the year ended December 31, 2021, compared to the year ended December 31, 2020:

• Consolidated revenue was $490.4 million, a decrease of 13.7% from $568.2 million. GCR segment revenue of $350.0 million was down 20.6%, while ODR segment revenue of $140.3 million was up 10.3%. The decrease in GCR revenue was primarily due to our continued focus on improving project execution and profitability by pursuing opportunities that are smaller in size, shorter in duration, and where we can leverage our captive design and engineering services.

• Gross margin increased to 17.5%, up from 14.3%. This increase was mainly driven by the mix of higher margin ODR segment work, coupled with improved GCR segment margins. GCR gross profit was relatively flat. ODR gross profit increased $4.2 million, or 11.7%, due to an increase in revenue at higher margins. On a dollar basis, total gross profit was $85.9 million, compared to $81.4 million. In addition, the increase in gross margin was also attributable to total net gross profit write-ups of $0.4 million compared to total net gross profit write-downs of $7.9 million.

• SG&A expense increased approximately $7.8 million, to $71.4 million, compared to $63.6 million. This increase was characterized by temporary, lower operating expenses resulting from pandemic-driven operational reductions in 2020 and increased professional fees, which included costs for our acquisition and compliance requirements. As a percent of revenue, SG&A expense was 14.6%, up from 11.2%.

• Interest expense, net was $2.6 million compared to $8.6 million. This significant decrease was due to our refinancing of the 2019 debt facilities in February 2021, replacing them with debt facilities that carry a lower cost of financing.

• Net income for the year was $6.7 million as compared to $5.8 million. Diluted income per share was $0.66 as compared to $0.72. The increase in net income was primarily attributable to increased gross profit on lower revenue as well as the aforementioned decrease in net interest expense.

• Adjusted EBITDA was $23.3 million as compared to $25.1 million, a decrease of 7.3%. The decrease in Adjusted EBITDA was primarily attributable to a $7.8 million increase in selling, general and administrative, partially offset by a $4.5 million increase in increased gross profit.

• Net cash used in operating activities was $24.2 million as compared to net cash provided by operating activities of $39.8 million. The decrease in operating cash flows was primarily attributable to a decrease in our overbilled position due to the reduction in GCR revenue in 2021, the timing of change order conversions, and the recognition of contract revenue, partially offset by an increase in non-cash operating activities and net income.

Balance Sheet and Backlog

At December 31, 2021, we had cash and cash equivalents of $14.5 million. We had current assets of $192.9 million and current liabilities of $129.7 million at December 31, 2021, representing a current ratio of 1.49x compared to 1.33x at December 31, 2020. Working capital was $63.2 million at December 31, 2021, an increase of $14.0 million from December 31, 2020. At December 31, 2021, we had no borrowings against our revolving credit facility, other than for standby letters of credit totaling $3.4 million, and carried a term loan balance of $34.9 million.

Aggregate backlog at December 31, 2021 was $435.2 million as compared to $444.4 million as of December 31, 2020. At December 31, 2021, GCR segment backlog accounted for $337.2 million of the consolidated total, a decrease of 14.3% compared to GCR segment backlog at December 31, 2020 of $393.5 million. The reduction in GCR backlog has been intentional as we look to focus on higher margin projects than we have historically, as well as our focus on smaller, higher margin owner direct projects. As of December 31, 2021, GCR backlog included approximately $33.8 million of backlog associated with the operations of the entities acquired in the Jake Marshall Transaction.

ODR segment backlog accounted for $98.0 million of the consolidated total, an increase of 92.5% compared to ODR segment backlog of $50.9 million at December 31, 2020. Our ODR backlog increased due to our continued focus on ODR growth, as well as lower sales in this segment during the fourth quarter of Fiscal 2020 because of macroeconomic uncertainty related to COVID-19. In addition, as of December 31, 2021, ODR backlog included approximately $22.6 million of backlog associated with the operations of the entities acquired in the Jake Marshall Transaction.

Backlog includes unexercised contract options that are not included in the Company’s remaining performance obligations. At December 31, 2021, remaining performance obligations of the Company's GCR and ODR segment contracts were $337.2 million and $81.2 million, respectively. The Company estimates that 65% and 52% of our GCR and ODR segment remaining performance obligations as of December 31, 2021, respectively, will be recognized as revenue during 2022, with the substantial majority of remaining performance obligations to be recognized within 24 months, although the timing of the Company’s performance is not always under its control.

Conference Call Details

Access by Webcast

The call will also be simultaneously webcast over the Internet via the “Investor Relations” section of Limbach’s website at www.limbachinc.com or by clicking on the conference call link: https://themediaframe.com/mediaframe/webcast.html?webcastid=PiFFyhm2 An audio replay of the call will be archived on Limbach’s website for 365 days.

About Limbach

Limbach is an integrated building systems solutions firm whose expertise is in the design, modular prefabrication, installation, management and maintenance of heating, ventilation, air-conditioning (“HVAC”), mechanical, electrical, plumbing and controls systems. Our market sectors primarily include the following: healthcare, life sciences, data centers, industrial and light manufacturing, entertainment, education and government. With 23 offices throughout the United States and Limbach's full life-cycle capabilities, from concept design and engineering through system commissioning and recurring 24/7 service and maintenance, Limbach is positioned as a value-added and essential partner for building owners, construction managers, general contractors and energy service companies.

Forward-Looking Statements

We make forward-looking statements in this press release within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations or forecasts for future events, including, without limitation, our earnings, Adjusted EBITDA, revenues, expenses, backlog, capital expenditures or other future financial or business performance or strategies, results of operations or financial condition, and in particular statements regarding the impact of the COVID-19 pandemic on the construction industry in the first quarter and future periods, timing of the recognition of backlog as revenue, the potential for recovery of cost overruns, and the ability of Limbach to successfully remedy the issues that have led to write-downs in various business units. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “will likely result,” “should,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or similar expressions. These forward-looking statements are based on information available to us as of the date they were made and involve a number of risks and uncertainties which may cause them to turn out to be wrong. Some of these risks and uncertainties may in the future be amplified by the COVID-19 outbreak and there may be additional risks that we consider immaterial or which are unknown. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Please refer to our most recent annual report on Form 10-K, as well as our subsequent filings on Form 10-Q and Form 8-K, which are available on the SEC’s website (www.sec.gov), for a full discussion of the risks and other factors that may impact any forward-looking statements in this press release.

(1) As a percentage of GCR revenue.

(2) As a percentage of ODR revenue.

(1) As a percentage of GCR revenue.

(2) As a percentage of ODR revenue.

Non-GAAP Financial Measures

In assessing the performance of our business, management utilizes a variety of financial and performance measures. The key measure is Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income plus depreciation and amortization expense, interest expense, and taxes, as further adjusted to eliminate the impact of, when applicable, other non-cash items or expenses that are unusual or non-recurring that we believe do not reflect our core operating results. We believe that Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance for the current period and our ability to generate cash flows from operations that are available for taxes, capital expenditures and debt service. We understand that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA, however, may not be comparable to similarly titled measures reported by other companies. When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute for net income calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes. A reconciliation of net income to Adjusted EBITDA, the most comparable GAAP measure, is provided below.

We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” Backlog includes unexercised contract options.

Reconciliation of Net Income to Adjusted EBITDA

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