Limbach Holdings, Inc. Q3 FY2025 earnings call

Core Pillars - Scaling ODR business: Focus on working with owners of mission-critical facilities in existing building environments for routine maintenance, repairs, small capital projects, etc. - Enhancing profitability: Introducing expanded product and service offerings to expand wallet share with owner-direct customers. - Strategic M&A: Aimed at extending brand reach, strengthening market presence, and expanding capabilities through targeted acquisitions. ### ODR Revenue Composition: ODR represents 76.6% of total revenue in Q3 2025 and 74.1% year-to-date, aligning with the targeted 70%-80% range for the year. It has two main revenue streams: ~1/3 quick-burning (maintenance contracts, work orders, T&M) and ~2/3 fixed-price projects (average size ~$245,000). ### Business Transformation: Shift from GCR to ODR means a larger portion of revenue comes from quick-burning shorter-term projects not captured in backlog. ### Vertical Markets: - Healthcare: Spending patterns normalizing with capital projects from facility assessments; a national healthcare owner engaged for 20 location assessments led to $12 million in capital projects. - Industrial manufacturing: Benefiting from seasonal shutdowns and facility upgrades. - Data center: Focused on supporting hyperscale operators in the Columbus, Ohio market. - Life science and higher education: Clients starting to communicate spending needs for the coming year. - Culture and entertainment: Consistent spending with key customers, with a large client planning to expand budgets in 2026. ### Sales and Marketing: - Invested in building the sales team over the past 3 years (≈120 hires). - Provide professional services like MEP engineering, facility assessments, etc., which are attractive to national customers and drive margin expansion. - Expanding services portfolio, including professional services and solutions-based selling, to achieve long-term gross margins in the 35%-40% range.

In the third quarter of 2025, Limbach Holdings generated total revenue of $184.6 million, compared to $133.9 million in the third quarter of 2024. Total revenue growth was 37.8%. ODR revenue grew 52% to $141.4 million, accounting for 76.6% of total revenue for the quarter, up from 69.4% in Q3 2024. GCR revenue increased 5.6% to $43.2 million. Total gross profit for the quarter increased from $36.1 million to $44.7 million. ODR gross profit comprised approximately 80% of the total gross profit dollars, increasing $6 million or 20.3%. GCR gross profit increased $2.5 million or 39.3%. ODR revenue growth of 52% included 39.8% from acquisitions and 12.2% organic growth, while GCR organic revenue decreased 19.5% as the company shifted towards ODR.

Limbach Holdings reaffirms its 2025 guidance of total revenue in the range of $650 million to $680 million and adjusted EBITDA of $80 million to $86 million. Updates to underlying assumptions reflect current market conditions. Total ODR revenue is expected to be 70%-80% of total revenue, with total ODR revenue growth 40%-50% and organic growth 20%-25%. Pioneer Power's revenue performance exceeded initial expectations, and efforts are underway to integrate it into Limbach's platform to expand margins over time. Total gross margin is projected to be 25.5%-26.5% due to Pioneer's lower margin profile. SG&A as a percentage of revenue is expected to be between 15%-17%.

Integration Challenges: Difficulties in integrating acquired companies like Pioneer Power to achieve expected margins as the company works to align their gross margin with Limbach's operating model. ### Market Fluctuations: Impact of market fluctuations on spending patterns in vertical markets, which can affect revenue and margin performance. ### Revenue Mix Shift Impact: The shift in revenue mix from GCR to ODR may impact financial performance, such as changes in gross margin due to the lower margin profile of certain acquisitions, and potential challenges in predicting future revenue based on backlog alone.

Q: So it looks like $47.3 million of Q3 revenue was acquisition-related, $37 million of that ODR, $10.3 million GCR. Can you give us a sense in terms of how much revenue Pioneer contributed to that $47 million and the split between ODR and GCR within Pioneer?

A: Yes. The Pioneer Power's contribution to the $47 million is closer to $60 million for the second half of 2025, heavily weighted from the owner direct side.

Q: So the $60 million you're talking about for the second half, it looks like the bulk of that is in ODR. Am I looking at that correctly?

A: Yes.

Q: Just -- I got it that the gross margins are -- should be coming up there. Why are they -- within their ODR segment, why are they lower at this point in time? Do they do different work for clients? Are they focused on a different vertical? Just any thoughts there?

A: It's interesting. A lot of times with acquisitions, increasing margin is the goal. Pioneer runs a good business with relationships, and it's a matter of understanding benchmarking. Also, their way of going to market and the need for aligning with Limbach's playbook to expand margins over time.

Q: I appreciate all the additional disclosure here. When I try to, I guess, back out PPI from ODR, it looks like gross margins kind of on the core business were down a little bit from a year ago. Is that correct? And can you give us, I guess, a sense of the magnitude and what the driver was?

A: Margins fluctuate quarter-to-quarter based on the mix of work. It's related to the combination of quick-burning work and fixed-price projects within the quarter.

Q: Can you give us a sense on ODR organic growth in the first half of the year? I guess the 20% to 25% guidance for 2025 seems to imply an acceleration in the fourth quarter. I just want to understand if that is accurate and what's driving that acceleration?

A: Year-to-date, ODR organic growth is 14.4%. The acceleration in Q4 is due to continuing quick burning work, budgets needing to be spent by year-end, and the sales team investment over the past 3 years positioning us to have visibility into Q4.

Q: In your opening comments, you mentioned the $12 million of capital projects that were awarded from this facility assessment award that you talked about last quarter. Do you anticipate that potentially driving further awards? Or do you think that's kind of the extent of the opportunity and additional follow-on awards from these facility assessments?

A: Yes. This is exciting. Work often starts with professional services like facility assessment and engineering in national relationships. The $12 million from 20 assessments at four sites is just the start, with opportunities for multiple customers from more assessments to bring in further work.

Q: Past 3 years, you've talked about hiring about 40 salespeople a year. Curious how you're thinking about investing in the sales staff this year relative to kind of the prior pace.

A: We've made ≈120 hires over the past 3 years. We'll continue to support the sales staff, focusing on sales enablement next year, providing resources and connections to make them successful, similar to traditional sales staff investment.

Q: Kind of back to the organic growth, how do you think about the longer-term organic growth? It was the guidance tweaked it down a little bit this quarter. But what do you sort of think of as the long-term organic growth and what needs to happen to kind of get there?

A: From an organic growth perspective, we'll continue to push towards owner direct and build a long-term sales team. We haven't given a long-term target yet, but the 20%-25% organic growth guidance for 2025 gives insight, and we're investing for the future.

Q: On kind of the opportunity for margin improvement overall, and I guess at Pioneer, how -- what's sort of the time line of that? And maybe what's -- can you get gross margins back to sort of where they've been? Is that the goal?

A: For Pioneer, transitioning to Limbach's accounting and operating system can take up to a year. We look at gross profit benchmarking and there are opportunities to improve margins. Overall, it's about selling proactively, leveraging OpEx work to transition to capital projects with high margin potential.

Q: How much visibility do you have in ODR? Like as of today, can you see out to the end of the year? Obviously, there could be some emergency work, et cetera. But what does visibility in ODR really look like?

A: Visibility in ODR is based on a dynamic between 1/3 quick-burning work (relatively consistent) and 2/3 fixed-price small projects. We focus on core customers' spend profiles and have sales staff with pipelines, so visibility depends on the mix and customers' budget dynamics.

Q: Switching gears, you talked a little bit about local growth or developing relationships on the local level, which certainly has its benefits, but also looking to develop national relationships. How far along are you on the ladder on the sort of national relationship in terms of sales, building that out? There are different animals, local and national.

A: It's been about 4-5 years. We started with healthcare and are now seeing success, like the $12 million from facility assessments, as customers trust us more. We plan to apply the same blueprint to other verticals like industrial manufacturing and data center to build national relationships.