Limbach Holdings, Inc. Q1 FY2026 Earnings Call

Good morning, and welcome to the Limbach Holdings First Quarter 2026 Earnings Conference Call and Webcast. Operator provided instructions. I will now turn the conference over to your host, Lisa Fortuna of Financial Profile. You may begin.

Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the first quarter of 2026. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended March 31, 2026. 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 its investors to review the presentation in its entirety. 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 the call to 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 those about expected financial performance, 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 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 on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our first quarter 2026 earnings release and in our investor presentation, both of which can be found on Limbach's Investor Relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll turn the call over to President and CEO, Mike McCann.

Good morning, and welcome to our stockholders, analysts and interested investors. We appreciate you joining us today. Yesterday, we reported our first quarter 2026 results, which were in line with the expectations we discussed on our last earnings call in March. Before turning to the details of the quarter, I want to briefly recap where we've been and where we're headed. Our long-term vision and strategy are to become an indispensable building systems solutions partner for our customers' mission-critical facilities. We provide cost-effective, innovative and dependable services designed to support uninterrupted operations. We operate as an integrated organization that aligns our people, capabilities and service offerings. Our culture is built on the value of caring. At Limbach, our people care about our customers and are dedicated to delivering and maintaining systems that support some of their most critical assets while staying safe. Over the last five years, we've transitioned and scaled our business to focus on direct relationships with building owners. This has raised our margin profile, improved the quality of our revenue and deepened our relationships with customers who operate mission-critical facilities. Our revenue mix between ODR and GCR has stabilized, reflecting progress toward what we view as the optimal balance between the two business segments. Going forward, we intend to continue to prioritize ODR growth while selectively pursuing high-quality GCR opportunities where customer, partner, risk profile and end market align with our strategy, particularly in data centers where demand is accelerating rapidly. As we move forward into 2026, our focus is on scale and growth. We see significant opportunities to deepen and expand our customer relationships, supported by the strong foundation we have built over the previous five years. Now turning to our first quarter results. First quarter revenue was $138.9 million, in line with our expectations. Although total revenue growth was 4.3%, organic revenue was down as expected, decreasing by 13.4%. As previously discussed, the results reflect the impact of lower bookings in the middle of 2025 and normal seasonal patterns among industrial customers. The revenue mix was 71.9% ODR and 28.1% GCR, with ODR revenue growing 10.4% and organic ODR revenue declining 5.4%. Total gross margin was 22.4%, primarily due to lower fixed cost absorption in our ODR segment from lower revenue during the quarter, the absence of higher net project write-ups that benefited the prior year period, which is largely timing related, and the current lower gross margin profile of Pioneer Power. Adjusted EBITDA was $8.7 million, which was also in line with our expectations. As anticipated, we experienced a cash outflow due to the lower net income and higher working capital needs in Q1. Q1 bookings were exceptionally strong at $209 million, generating a book-to-bill ratio of 1.5. Approximately 27% of bookings came from data center opportunities, reflecting strong demand in this vertical and the value of Limbach's existing customers with brand-name hyperscaler customers. As a reminder, in 2026, we remain highly focused on our three strategic growth pillars: ODR organic and total revenue growth, margin expansion through evolved customer solutions, and scaling the business through acquisitions. While first quarter organic revenue was down as expected, the more important development in the quarter was the acceleration of demand. Over the past two quarters, we recorded more than $434 million of bookings, including $209 million in Q1 of 2026 and $225 million in Q4 of 2025. Our Q1 2026 book-to-bill ratio of 1.5x is a strong indicator that revenue momentum is building as we move through 2026. We believe the strength of these bookings reflects the traction we are getting from recent investments in our national sales, vertical market teams, customer solution teams as well as our ability to serve increasingly complex mission-critical facilities. Earlier this year, we invested in dedicated sales enablement tools to support productivity. This type of sales support is only possible in an organization that works collaboratively and shares best practices. During the first quarter, we rolled out an updated sales process system designed to better highlight what differentiates Limbach in the marketplace. We also continue to invest across three national vertical market teams. The healthcare team is now fully built and delivered strong bookings over the past two quarters, positioning revenue to accelerate in the second half as those bookings convert. In addition, during the first half of the year, we are focused on adding resources to our data center team, combining experienced Limbach employees with new hires to drive scale and deepen existing customer relationships. Our second pillar is to expand margins by driving more evolved customer solutions. We differentiate ourselves from our competition by delivering creative integrated solutions that solve real business problems. Our strategy is focused on six core customer solutions, including integrated facility planning, service and maintenance, replacement equipment and retrofits, rental equipment, MEPC infrastructure upgrades and energy efficiency decarbonization projects. Over time, our goal is to deliver all six customer solutions at both the national and local level across our customer base. By bundling these offerings, we can create a more comprehensive solution for customers while layering on incremental margin. Our third strategic pillar is targeted acquisitions, designed to extend the Limbach brand, strengthen our market presence and expand our capabilities. By pursuing disciplined acquisitions, we seek to diversify our vertical market exposure, broaden our geographic reach and add new offerings that enhance and scale our customer solutions. Given robust demand from customers with national operations who are increasingly seeking partners with comparable geographic reach and technical capabilities, we believe there's an opportunity to further refine our acquisition strategy. We're actively evaluating acquisitions and are open to larger acquisitions where the strategic rationale is compelling. Many of our customers operate nationally and increasingly want partners whose geographic footprint and technical capabilities can match the scale of their own businesses. We are focused on businesses that expand and extend our local service capabilities, deepen our presence in attractive geographies and enhance our ability to deliver mission-critical solutions across a larger national platform. Our integration of Pioneer Power is progressing well. Pioneer expands our capabilities, broadens our customer base and gives us additional avenues to participate in high-growth mission-critical end markets, including data centers. We're in the process of increasing gross margin at Pioneer Power to align with our company average. Our key strategic priorities to achieve this include reviewing and renegotiating existing contracts for better pricing, optimizing project mix by prioritizing revenue by specific target margins, leveraging cross-selling opportunities and implementing Limbach sales and operating tools. We expect Pioneer's margins to begin improving in 2026 with continued progress over the next two to three years. From a macro perspective, conditions were generally favorable in the first quarter. We believe the optimal mix for Limbach is centered on three key areas: institutional markets led by healthcare and higher education, industrial markets and data centers. Our experience in 2025 reinforces that market vertical diversification and geographic expansion will make our business model more resilient. Starting with healthcare, customers remain focused on near-term mission-critical spending while thoughtfully planning longer-term capital investments. As discussed last quarter, D.C. policy changes extended budgeted timelines for several of our customers. We are now seeing those budgets normalize with spending expected to pick up in the second half of the year and align with historical patterns. At the national level, our team is gaining traction with key customers and aligning sales efforts with anticipated funding releases. Locally, customers remain disciplined in how they allocate capital, prioritizing investments to maintain and upgrade critical systems. Our local engineering expertise and solution-oriented approach remain key differentiators, and it's our responsibility to structure opportunities that clearly meet each customer's ROI requirements. Jake Marshall was a key contributor to our margin expansion over the last four years. They have been focused on building relationships in the healthcare sector. This momentum continued in the first quarter with the award of a multiphase renovation project at a Chattanooga-based facility, further strengthening our presence with this customer. Our Chattanooga team has successfully deployed multiple customer solutions, including maintenance agreements, rental fleet utilization and on-site account management. These solutions enabled us to win this significant infrastructure project. Turning to data centers, we want to emphasize that Limbach has long-standing, more than ten-year relationships with brand-name hyperscaler customers, and we are focused on building on that foundation as demand accelerates. What has changed is the scale and urgency of demand in the market and our ability to bring a broader, more coordinated set of capabilities to those customers. As mentioned on our fourth quarter call, we were awarded a unique infrastructure data center project. Additionally, in the first quarter, we successfully won a similar but even larger project from one of the hyperscalers in the market. We will be providing a fabricated package encompassing steel structures, piping systems and the execution is expected to be rapid. We anticipate the final contract value of this project to exceed $30 million and expect to generate the revenue over the next few quarters. Our experience and disciplined approach has made us highly selective around customer quality, contract structure, project execution risk and partner alignment. We are approaching this opportunity with discipline. We're not pursuing growth for growth's sake. We are pursuing data center work where we believe Limbach has a differentiated right to win and where the risk-adjusted return profile is attractive. One of the key value creation initiatives of Pioneer Power is expanding its reach into the data center market. In the first quarter, we were awarded one of the initial projects within an existing data center, which is expected to provide immediate contributions beginning in the second quarter. The contract value is approximately $6 million, features a rapid execution schedule, and involves a complete retrofit of the space to support new server installation. Layering data center work into Pioneer's existing customer profile remains an important driver of the margin expansion over time. We continue to see meaningful opportunities within this vertical market and expect momentum to build through the year. To support this growth, we are developing a dedicated data center vertical market team focused on leveraging both our fabrication resources and our available field talent. Industrial manufacturing activity began to show meaningful momentum starting in April with our strength in this vertical beginning to translate into new opportunities. Our other vertical markets are trending in a positive direction, though we expect most of the growth to come in the latter part of the year. Moving to our outlook. We are reaffirming the full year guidance we provided for 2026 back in March. We expect revenue between $730 million and $760 million, implying year-over-year growth of 13% to 17%. Adjusted EBITDA of $90 million to $94 million, implying year-over-year growth of 10% to 16%. The following underlying assumptions support this guidance: total organic revenue growth of 4% to 8%, ODR organic revenue growth of 9% to 12%, ODR as a percentage of total revenue to be in the range of 75% to 80%, reflecting the stabilization of the mix shift, total gross margin of 26% to 27%, SG&A expense as a percentage of total annual revenue to be 15% to 17% and free cash flow to be 75% of adjusted EBITDA. For the second quarter of 2026, we expect sequential improvement in revenue and adjusted EBITDA and are comfortable where the consensus expectations currently stand. With that, I'll turn the call over to Jayme to walk through the financials in more detail.

Our Form 10-Q and earnings press release filed yesterday provide comprehensive details of our financial results. I'll focus on the highlights of the first quarter of 2026 with all comparisons versus the first quarter of 2025, unless otherwise noted. We generated total revenue of $138.9 million compared to $133.1 million in Q1 of 2025. The increase was primarily due to $23.5 million revenue contribution from Pioneer Power. ODR revenue grew 10.4% to $99.8 million, with ODR acquisition-related revenue increasing 15.8%, partially offset by an expected 5.4% decrease in ODR organic revenue. ODR revenue accounted for 71.9% of total revenue during the quarter. As expected, GCR revenue declined by 8.6% to $39.0 million from GCR organic revenue decreasing by 30.2%, partially offset by a 21.6% increase in GCR acquisition-related revenue. Total gross profit decreased 15.1% from $36.7 million to $31.2 million. Total gross margin on a consolidated basis was 22.4%, down from 27.6% in the prior year quarter. Excluding Pioneer Power, total gross margin would have been 25% due to the lower margin profile of Pioneer Power. As Mike mentioned earlier, our acquisition integration strategy is focused on improving Pioneer Power's gross margin to align with our broader operating model over the next two to three years. ODR gross profit comprised 73.7% of total gross profit dollars or $23.0 million. ODR gross profit decreased 12.1% or $3.2 million and ODR gross margin was 23% compared to 28.9% in the prior year period. The decrease in gross margin was primarily due to lower fixed cost absorption as a result of higher fixed costs and seasonally lower revenue, the absence of higher net project write-ups in Q1 2026 compared to the first quarter of 2025, and Pioneer Power's current lower gross margin profile. Project write-ups are typically recorded when projects are at or near the end of their life cycle to reflect strong execution. During the first quarter of 2025, more projects were at or near the end of their life cycle than in the first quarter of 2026. Additionally, we incurred higher fixed costs impacting the cost of revenue in the first quarter of 2026, primarily due to the increase in the size of our vehicle fleet and increase in our insurance premiums as well as increases in tools, supplies and safety costs. As revenue levels increase in 2026, we expect fixed cost absorption to improve. GCR gross profit decreased 22.5% from $10.6 million to $8.2 million. GCR gross margin decreased from 24.7% to 21%. The decrease was due to lower gross margin work associated with Pioneer Power and lower total net project write-ups in the first quarter of 2026 compared to the first quarter of 2025, similar to ODR. SG&A expense for the first quarter was $28.1 million, an increase of approximately $1.6 million from $26.5 million. The increase was primarily driven by an increase in payroll-related expenses. As a percentage of revenue, SG&A expense increased to 20.2% compared to 19.9% in the first quarter of 2025. Interest expense increased $0.2 million to $0.7 million, driven by higher borrowings under the company's revolving credit facility to finance working capital as well as higher financing costs associated with a larger vehicle fleet. Net income for the first quarter decreased 57.1% from $10.2 million to $4.4 million and earnings per diluted share was $0.36 compared to $0.85. Adjusted net income decreased 42.6% to $7.8 million compared to $13.5 million and adjusted diluted earnings per share decreased 42.9% from $1.12 to $0.64. Adjusted EBITDA for the quarter decreased 41.7% to $8.7 million compared to $14.9 million. Adjusted EBITDA margin was 6.2% compared to 11.2% in Q1 last year, primarily driven by the lower gross profit and slightly higher SG&A expense. Turning to cash flow. Net operating cash outflow during the first quarter was $7.8 million compared to a $2.2 million cash inflow in the year-ago period, driven by lower net income and higher working capital. The primary drivers of the reduction in operating cash during the quarter were incentive compensation payments, contingent consideration payments related to prior acquisitions and prepaid insurance premiums. Additionally, as part of our capital allocation to offset stock issuances for our long-term incentive plan, we used $5.8 million of cash to pay employee taxes related to the shares withheld to cover their taxes. Free cash flow, defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, was $7.7 million in the first quarter compared to $15.0 million in Q1 last year, representing a $7.4 million decrease. The free cash flow conversion of adjusted EBITDA for the quarter was 88.7% versus 101.1% last year. As Mike already mentioned, for the full year 2026, we continue to target a free cash flow conversion rate of at least 75% of adjusted EBITDA and expect CapEx to have a run rate of approximately $5.0 million. Turning to our balance sheet. As of March 31, we had $15.8 million in cash and cash equivalents and total debt of $57.0 million, which includes $32.4 million borrowed on our revolving credit facility and $7.0 million of standby letters of credit. As a reminder, at the end of June last year, we expanded our revolving credit facility from $50.0 million to $100.0 million in principal amount borrowings. Total liquidity, defined as cash and availability on our revolving credit facility, was $76.4 million at the end of the first quarter. This concludes our prepared remarks. I'll now ask the operator to begin Q&A.

Operator provided instructions. The first question comes from the line of Rob Brown with Lake Street Capital.

First question is on your gross margin trends. You addressed some of the ins and outs, but what's the timing of the improvement at Pioneer this year? I know you gave a two- to three-year window, but how much improvement can you see this year from Pioneer integration?

Rob, from a Pioneer Power perspective, we've discussed this before. The first piece was integration of systems, processes and the accounting system, which was really completed last year. This year, the focus is on gross profit improvement. We're dedicating resources to the best accounts, analyzing them and renegotiating agreements where appropriate. We also plan to infuse some data center work on top of their industrial and institutional markets. Those changes will take some time to play out. I expect improvement to be more evident toward the back half of the year. The team and management are taking proactive steps and pulling multiple levers in a coordinated effort. We're optimistic about Pioneer Power margin improvement.

Okay. Great. And then on the bookings, strong bookings in the quarter, particularly in data center. It seems like you're early in that effort. How much opportunity do you see in the data center vertical as you get your national accounts teams in place?

We've been pleased with the last two quarters—$434 million booked. From a data center perspective, there's significant need for people who work in mission-critical environments. We're leveraging relationships we've had for many years. We're off to a strong start in Q1 and see a lot more opportunity. As we continue to dedicate resources, our national vertical market team will further develop relationships and clarify where we fit. The mission-critical skill set translates well to data centers. We haven't provided a forward-looking percentage, but we're pleased with the 27% contribution in Q1 and see substantial opportunity. Customers are looking for national contractors with a footprint that aligns with theirs and strong mission-critical expertise. The combination of those factors should be favorable for us this year and over the next couple of years.

Next question comes from the line of Chris Moore with CJS Securities.

Maybe one more follow-up on the data center. It sounds like the lead times for converting the data center orders, at least on these orders, is a little bit quicker than the average bookings. Is that fair?

Yes. One example in the prepared remarks was a fabrication project, which is a very quick burn and will book in the next several quarters. It depends on the work, but data center work often emphasizes speed to market. There is a reasonable setup period, but many of these fabrication-type projects move quickly. We won several fabrication projects that encompass steel, piping and other structures where the customer is looking to us for capacity and speed. Those particular opportunities should burn fast.

Terrific. Are the margins there consistent with your ODR targets?

The work we've done in the past shows the margins have been really good. We wouldn't enter this vertical if we felt the margins weren't as good, if not better. We'll be very selective, measured and disciplined as with our overall strategy. The margin opportunity is meaningful when projects are delivered on time and at a high level of quality.

On the guide, ODR organic growth is 9% to 12% versus 17% last year. Last year you had a big Q4. Is there a similar expectation in 2026 that organic ODR builds in Q2 through Q4?

Yes, it should build throughout the year in a cadence similar to last year. Institutional and industrial customers tend to backload spending, with industrial strength showing up beginning in April and institutional spending picking up in the back half of the year. Layering in data center work could have a different, less backloaded profile, but a good portion of our revenue this year comes from institutional and industrial markets, so we expect a build similar to last year.

Next question comes from the line of Brian Brophy with Stifel.

Congrats on the data center activity. Awards are hard to predict, but was the data center activity this quarter unusually high? Given the demand environment, could this potentially grow from this level? How sustainable do you think this level of activity is?

It's tough to say precisely, but the opportunity is there. We need to determine our cadence as we get more quarters under our belt. We're off to a good start and haven't encountered customers lacking demand. There's substantial spend and need for quality, speed to market and mission-critical expertise, all of which play to our strengths. We believe demand is present for us to take advantage of.

It sounds like fabrication work is part of the awards. Do you have enough capacity currently to support what's being awarded, or is more CapEx needed? At what point would you need to add more fabrication capacity?

We have a decent amount of capacity and, if anything, excess capacity today. When we purchased Jake Marshall in late 2021, they had a large fabrication facility—nearly 14 acres—so we have significant capability. We also have other shops at different locations. When competitors are filled, we have available capacity and can show customers that. I'd welcome discussing additional CapEx because that would mean our shop is filled up. For now, we're focused on using and filling the capacity we have. Several of these jobs we could handle concurrently, and we also have overflow capability.

Next question comes from the line of Tomo Sano with JPMorgan.

Could you talk about industrial manufacturing situations? You mentioned you're seeing meaningful momentum starting in April. What exactly are you seeing? Any more color would be appreciated.

A lot of our industrial manufacturing work comes from our acquisitions: Pioneer Power in Minneapolis, Consolidated in Kentucky, and Jake Marshall in Chattanooga. As we acquire companies that work in that space, a pattern emerges where spend begins to ramp in April. Some of this is seasonal. As we continue to acquire in this vertical, we expect to see that pattern continue. We're optimistic about the work this year.

A follow-up on national versus local sales contribution. Last quarter you discussed investing in two senior executives, one focused on local sales enablement and one on national relationships. How much of the $209 million in Q1 bookings was driven by national account relationships versus local sales? Are you seeing the national strategies begin to contribute meaningfully?

We didn't provide a specific breakout, but there is a good mix between national and local, still more heavily locally weighted but with increasing national contribution. The investments have been successful: one executive focuses on local sales enablement and another on national accounts. They collaborate closely with local branches. As we expand our footprint and national account exposure, overlap and synergy increase. Having both local and national capabilities is proving to be a differentiator and should be a game changer as we add resources.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Mike McCann for closing comments.

In closing, our strategic priorities for 2026 are the following: ODR organic revenue growth and total revenue growth, margin expansion through evolved customer solutions, smart capital allocation and scale through acquisitions. Our first quarter book-to-bill ratio of 1.5x, expanding data center opportunities, growing national account relationships and a healthy acquisition pipeline all reinforce our confidence in our strategy. We believe Limbach remains in the early stages of building a larger, more valuable, more durable building systems solutions platform, and we're focused on executing that opportunity with discipline. Our model combines engineering expertise with direct execution, enabling us to partner with customers through multiyear consultative capital planning efforts that extend beyond traditional backlog. We believe this is a differentiated approach and supports sustained growth and shareholder value creation. Thank you again for your interest in Limbach, and have a great rest of your day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.