Limbach Holdings, Inc. (LMB) Earnings Call Transcript & Summary

Good morning, and welcome to the Limbach Holdings Second Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions]. I will now turn the conference over to your host, Lisa Fortuna of Financial Profiles. You may begin.

Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the second quarter of 2026. The Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended June 30, 2026. documents as well as the 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. On today's call are 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 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 some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our second quarter 2026 earnings release and in our 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 now turn the call over to President and CEO, Mike McCann.

Good morning, and thank you for joining us. Yesterday, we reported our second quarter results as well as the acquisition of CYMCOR. Our results fell short of expectations, driven by project timing and ongoing softness in health care and institutional markets from elevated price sensitivity and market conditions pressuring gross margins. However, underlying customer demand remains healthy. We generated $182 million of bookings during the quarter, our third consecutive quarter of strong bookings, bringing the total bookings over the past 3 quarters to $616 million. While these market conditions have created near-term pressure, they also underscore the imports of building a more diversified, higher-quality business, and we're retaining action. Our focus is diversifying our end markets, expanding our geographic reach and leveraging our integrated platform in an effort to improve profitability. Moving on to strategy. For the past 5 years, we transformed Limbach. Today, that work allows us to shift from transformation to disciplined growth. Our objective now is to build a larger company with strong cash generation and higher returns over time. First, we are accelerating our efforts for expansion of data centers and industrial manufacturing. Building a national platform that mirrors the success we've achieved in our national health care platform. By diversifying our exposure across multiple attractive end markets, we believe we will reduce our reliance on any single vertical, better balance the business through market cycles and create a more resilient platform for long-term growth. Second, we continue to pursue a disciplined acquisition strategy that expands our presence in targeted vertical markets while extending our reach into attractive high-growth regions such as Texas, the Midwest and the Southeast. By broadening both our market and geographic exposure, we believe we're able to support customers across more locations, reducing concentration risk and strengthening our competitive position. Additionally, our acquisition philosophy is not built around buying fully optimized businesses. We're looking for companies with strong customer relationships and attractive strategic positions where we believe Limbach's integrated operating model can create additional value over time. We've already seen that approach produce positive results with Pioneer Power, where we've seen encouraging improvements in gross margin, approximately 1.5% from the first half of 2026 compared to when we acquired Pioneer Power in July of 2025. We believe each acquisition strengthens the economics of the entire platform because it expands cost relationships, increases cross-selling opportunities, broader geographic reach, enhances the value of our integrated operating model. Third, we are leveraging our integrated open model to connect capability across geographies and service lines, accelerating cross-selling opportunities and improving profitability. We believe our work at Pioneer Power demonstrates how disciplined integration and operational improvements and create meaningful value over time as we just noted. This integrated operating model also drives value creation from our acquisitions. For example, our target operational and pricing actions are underway in an effort to improve Pioneer Power's profitability and bring gross profit margin in lines to the company average over the next 2 to 3 years. We have a clear road map to improve results. By executing this plan, we expect to build a more resilient business with a broader set of growth drivers and less exposure to any single market and higher margins. Execution of these strategic initiatives expands our national footprint, strengthens customer relationships, increases the scale advantages of our platform. It should strenghten our purchasing power, national account capabilities, operating leverage and our ability to allocate capital efficiently. We believe these advantages will compound over time, creating a larger, higher-quality business with more durable earnings and a stronger long-term shareholder value. Importantly, our balance sheet and liquidity provides us with the flexibility to execute this strategy in a disciplined manner. Yesterday's acquisition of CYMCOR is an excellent example of our disciplined approach to capital allocation and drives 3 of our strategic initiatives I've been describing. This acquisition expands Limbach's geographic footprint, handsets is ability to serve national and multi-site data center customers and increases engagement with building owners early with facility life cycle. Equally important with our integrated operating model -- it creates significant cross-selling and pull-through project booking opportunities by connecting complementary service offerings across both organizations, expanding access to new data center customers and generating additional growth within Limbach's existing markets. Through its national program management services. CYMCOR currently oversees project budgets for customers that have a tumor value exceeding $8 billion. We believe this early engagement with customers will create meaningful opportunities for Limbach to provide engineering, construction, commissioning, maintenance and other life cycle services. We have confidence in the acquisition of CYMCOR as its business model closing mirrors Limboxs-proven Healthcare forger management platform. which we expect will provide us the ability to drive value in the data center, mission-critical market. Over the last 12 months, our health care program management platform generated approximately $3 million of professional service revenue and pulled through approximately $60 million in project bookings, resulting in 20x pull-through multiple. Looking forward, we currently expect Symcor to generate $12 million of program management revenue and $4 million of adjusted EBITDA in 2027. Moving on to our verticals. Healthcare, while at a macro level, health care spending remains pressured by budget constraints and delayed decision-making, we continue to strengthen our position by engaging earlier with national customers a facility planning and long-term table programs. Those relationships continue to generate larger, more strategic opportunities over time. Industrial demand in our industrial markets remain strong and increasingly complement our data center strategy. as both are benefiting from sustained investment in power, manufacturing and mission-critical infrastructure. Lastly, data centers. We continue to view data centers as an attractive long-term growth opportunity. We are steadily investing in the capabilities, customer relationships and professional services platform necessary to establish Limbach as a trusted long-term partner. Before I turn the call over to Jamie, let me close by putting today's results into a broader context of where we're taking Limbach. Despite our near-term challenges, we remain confident in Limbach's long-term direction and our ability to generate shareholder value. We believe the actions we're taking from investing in our national platform to expand our capabilities through disciplined acquisitions like CYMCOR are building a stronger, more diversified, higher-quality company with greater long-term earnings power. Our strategy is straightforward, broaden our geographic reach, deepen customer relationships, expanding in attractive end markets and leverage our integrated operating model to create a business that generates higher returns and compound value over time. We've ingested our expectations to reflect the business environment as we see it today. We believe our responsibility is straightforward, execute against the plan, continue allocating capital with discipline and build a business that is stronger, more valuable. We understand that execution is 1 of our most important measures of success. We are focused on providing continued and better executions. With that, I'll turn the call over to Jayme to review our financial results and updated outlook.

Thank you, Mike. Our Form 10-Q and earnings press release filed yesterday, provides comprehensive details of our financial results. So I will focus on the highlights of the second quarter of 2026, and with all comparisons versus the second quarter of 2025 unless otherwise noted. We've generated total revenue of $173.5 million compared to $142.2 million in Q2 2025. The increase was primarily due to the $30.9 million revenue contribution from Pioneer Power. Our revenue grew 17.9% to $128.4 million with ODR acquisition-related revenue increasing 21.3% and partially offset by a 3.4% decrease in ODR organic revenue. ODR revenue accounted for 74% of total revenue during the quarter. GCR revenue increased 35.3% and to $45 million with acquisition-related revenue increasing 23.3% and organic revenue increasing 12%. Total gross profit decreased 6.4% from $39.8 million to $37.3 million. Total gross margin was 21.5%, down from 28% in the prior year quarter. ODR gross profit decreased 2.6% or $0.8 million and LDR gross margin was 24% compared to 29% in the prior year period. DCR gross profit decreased 20.7% and or $1.7 million and GSR gross margin was 14.5% from 24.7%. The decrease in both segment gross margin percentages was primarily driven by the current lower margin profile of Pioneer Power. Pioneer Tile continues to perform in line with the company's integration expectations and management expects gross margins to improve as 2026 progresses. Operational and pricing improvement initiatives are underway to enhance profitability at Pioneer Power with the goal of bringing gross margins in line with the company average over the next 2 to 3 years. Gross profit margin was also negatively impacted by lower net project write-ups compared to the prior year period and competition for skilled labor and materials associated with construction activity in the data center market. SG&A expense for the second quarter was $28.1 million, an increase of approximately $1.5 million from $26.6 million. The increase was primarily driven by incremental SG&A expense associated with Pioneer Peril and an aggregate $0.6 million increase in total stock-based compensation and payroll-related expenses. As a percentage of revenue, SG&A expense decreased 16.2% and compared to 18.7% in the second quarter of 2025. Net income for the second quarter decreased 38.8% from $7.8 million to $4.7 million and earnings per diluted share was $0.39 compared to $0.64. Adjusted net income decreased 32.1% to $7.6 million compared to $11.3 million and adjusted diluted earnings per share decreased from $0.93 to $0.64. Adjusted EBITDA for the quarter decreased 22.3% to $13.9 million compared to $17.9 million. Adjusted EBITDA margin was 8% compared to 12.6% in Q2 last year, primarily driven by the lower gross profit and higher SG&A expense. Turning to cash flow. Net operating cash inflow during the quarter was $18.7 million, representing our second highest second quarter operating cash flow since becoming a public company. This compares to $2 million in the year ago period and was driven by net income of $4.7 million. $9.6 million noncash adjustments and $4.4 million increase from working capital. Free cash flow defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, was $13.7 million in the second quarter compared to $16.1 million in Q2 last year, representing a $2.4 million decrease this free cash flow conversion of adjusted EBITDA for the quarter was 98.2% versus 89.7% last year. Turning to our balance sheet. As of June 30, we had $17.5 million in cash and cash equivalents and total debt of $41.1 million, which includes $17.5 million borrowed on our revolving credit facility. Total liquidity, defined as cash and availability on our revolving credit facility was $93.1 million at the end of the second quarter. And on July 24, 2026, the company amended its credit agreement to increase the aggregate principal amount of available borrowings and under its revolving credit facility from $100 million to $125 million, providing an additional $25 million in potential availability. As Mike mentioned, yesterday, the company completed its acquisition of CYMCOR for a purchase price of $30 million, subject to typical post-closing adjustments. The acquisition was funded through a combination of available cash and borrowing under our revolving credit facility. Since the acquisition occurred after the end of the second quarter, the balance sheet as of June 30, 2026, do not include the funding impact of CYMCOR. Moving to our outlook. Our revised outlook is based on our strong bookings, projects currently underway and the visibility we have into the balance of the year, and we believe it is appropriately reflects the current operating environment and so this is us to execute successfully. Accordingly, we've increased our revenue outlook to reflect the timing of project commencements and execution during the remainder of 2026. The while lowering our adjusted EBITDA range to reflect the near-term margin and execution headwinds I described earlier. This revised guidance excludes any contribution from the recently completed CYMCOR acquisition or future acquisitions. For fiscal 2026, we now expect revenue of $760 million to $790 million and adjusted EBITDA of $78 million to $84 million. Our outlook is based on the following operating assumptions. Total organic revenue growth of 9% to 14%. ODR revenue as a percentage of total revenue of 70% to 80% and ODR organic revenue growth 6% to 10%, gross margin percentage of 23% to 24%; and SG&A expense as a percentage of total revenue of 15% to 16%. Importantly, our expectations for cash generation remain unchanged. We continue to expect to convert at least 75% of adjusted EBITDA into free cash flow through disciplined working capital management for fiscal 2026 and expect CapEx to have a run rate of approximately $5 million. This concludes our prepared remarks. I'll now ask the operator to begin Q&A.

[Operator Instructions] First question comes from Chris Moore with CJS Securities.

Maybe we'll just start with the ODR organic revenue guide. So you've stated Mike basically some softness in the health care market. Is it project timing? Is it kind of -- can you get into it a little bit deeper in terms of the lower revenue growth that you're thinking about for '26? And does that carry over into '27. Just trying to understand kind of how you're seeing the health care industrial side of things at this point?

Yes. So what kind of gives us confidence from a guidance perspective, not just from an ODR organic, but a total organic is our strong bookings that we've had over the last 3 quarters. So we sold $660 million from Q4, Q1 and Q2. So that gives us some confidence. So for us, we continue to generate healthy bookings. I think each vertical market is a little bit different as far as the price sensitivity perspective as well, too. Institutional health care these separate markets are challenged. We are still gaining market share and picking up bookings. But again, the price sensitivity of that is definitely impacted as well, too. But as far as just from a guidance perspective, whether that's ODR or total revenue, the bookings is the biggest thing that gives us confidence, and we hope to continue the momentum from those bookings that leads us into kind of getting off to a strong start next year too.

Got it. Okay. I'll leave that 1 there. The GCR margin had been pretty strong as you kind of more and more look to avoid the lower-margin third-party work it was pretty low this quarter. I know there was project timing, the Pioneer work. Is there something more strategic in temporarily doing the data center work, even if it's a third-party data center work, even if it's lower margin to help you kind of gain further expertise in that vertical that would seem to fit with the CYMCOR acquisition?

Yes, there's a couple of things going on, I think, specifically with the GCAR margin. We had a pretty low point at the end of Q2 from a backlog perspective, from a TCR perspective. And we've been rebuilding. Obviously, we are we're still pointed significantly towards owner-direct concentration. But regardless, our model has some TCR that's a part of that. So it really comes down at the end of 2025, we finished up a lot of work. And then we've started to rebuild from a sales and backlog perspective, and that obviously affects the timing. And that's why ultimately, it's -- we're 14.5% in Q2 more than anything. So I would say that's really predominantly from a timing perspective. No, I would tell you, I think diversity is really important to us. We're heavily weighted towards institutional industrial markets. Our ability to tap penetration with the data center market helps us in a number of different ways. We're -- I would say we're under-indexed from a data center perspective. And if we can increase that percentage I think that will help not only revenue growth but also help margins as well too and help us absorb fixed costs.

Got it. And maybe just my last one, kind of more big picture. Just how are you looking at '26? Is it kind of a '26 versus '27? Is '26 a full reset from an EBITDA perspective a partial reset no reset at all? Just trying to kind of understand what's happening here, how that would translate into how everybody has been thinking about '27?

Yes. I definitely think, from what we knew, we felt like we had to reset from a guidance perspective. Even though revenue is up, GP is down. And again, that's part of that is timing as well as price sensitivity. So from a 2027 perspective, we're looking to make sure that our model is built upon and is resilient. And I think there's 3 core things that we're looking at. Vertical market diversity, which we touched upon a little bit from a data center perspective. Geographic expansion. We want to continue to acquire really good companies and then really emphasize our operating model, how can we operate efficiently together through all of our locations. So we think it's a reset. We think going into next year that we're making adjustments that we need to really make sure that we have a super resilient model as we go into next year.

Tomo Sano with JPMorgan.

Could you give us more color on health care institutions, the environment, especially on the gaining market share versus pricing sensitivity you talked about -- so how should we look at that environment and strategic initiatives in the back half in 2027, please?

Yes, absolutely. So it's still a challenged environment for sure. They're still impacted by things that happen from a policy perspective in 2025. We're trying -- I think they're trying to navigate what does the new normal look for them. It's our job to guide them to make -- ultimately make the right decisions. So the other thing that they're also impacted is, what happens is if there's data activity in the market, that causes overall construction inflation and makes the cost of what they have to do even more challenging as well, too. So for us, I actually think vertical market diversity for us will not only help Limbach, but also helps from a perspective of some of our other clients as well, too. So we're not looking at a dramatic change. I think over time, they'll be able to adapt and then we want to be there with them to adapt as well. So we spent a lot of time from investing in on-site account managers, but those are spread against all of our vertical markets as well as our customers, but it's certainly -- we found that model most impactful from a health care perspective. For us, it's a great long-term market. Sometimes it's not the market the data center is, but it's really important for us to balance as well, too. So we still really believe in it. It's just helping our customers navigate kind of short term and continue to stick with them as well, too.

And on data center work beyond mix and growth opportunities, could you provide more color and details on gross margin profiles and key cost overrun risk and the contract structure mix, please?

Yes, absolutely. So as we talked about from a health care perspective, institutional customers, it's very cost driven. Data center wars it's time and schedule. So they'll pay up for somebody who's going to move really quickly. And in some sense, that's our opportunity as I look at really in 2027. I think the acquisition of CYMCOR is really important to kind of jump start up from a data center perspective. If we're able to provide the solutions, which is speed to market, there will be opportunities for us from a margin perspective as well, too. But -- that's why, again, I think CYMCOR is really important to kind of use that as a jumping off point. We've made some progress around the last several quarters. We've talked about various fabrication projects. But a lot of times those projects, we'd be in a little bit later versus -- from a professional services perspective, we're way earlier in the process and our ability to influence and use our customer solutions, I think, is going to be super impactful.

And if I may squeeze the last one, Mike, and CYMCOR acquisitions, could you talk about more opportunities for both growth as well as the margin profiles and then how you manage the execution risk with the Pioneer integration as well?

Okay. Yes. So CYMCOR, we've had some success with our health care program management platform. We started that organically about 4 or 5 years ago. It took a long time -- but we've seen a lot of success about $3 million of professional services revenue has been pulling for about $60 million of project bookings. So a big time multiple from a pull-through perspective. And we've seen our ability to influence early. And we could have started that organically from a data center perspective, but we saw a great opportunity from a CYMCOR perspective of not only getting a very solid business that doesn't have the execution risk that a contractor would as well as the opportunity for pull-through in a very hot market. So those combination of those factors, we're not only excited about the earnings that we'll get on professional services revenue, but the potential for pull-through is definitely there as well, too. I think the other question was Pioneer Power. We are -- they're performing as we expected. In the prepared remarks, I talked about their margin being 150 basis points improvements when we purchased them. So I've always pointed people to the Jake Marshall example that we have in our Investor Day. It takes time, especially the first year or 2. So it's on track, and we're looking for ways to improve and kind of following our model that we've done with the other acquisitions as well, too.

Gerry Sweeney with ROTH Capital.

Just wanted to dig in a little bit more with CYMCOR. I wanted to understand when they're brought into a project, how much visibility they have and their ability to maybe bring Limbach services into that equation. And how long would it take to sort of translate some of that professional services revenue to -- into additional services for Limbach.

Absolutely, so they're in very early. Sometimes they're out there from a real estate perspective of just helping the customer plan super early. Customers -- data center customers go to CYMCOR. A lot of it comes down to their ability to manage the budget for them cost controls, understanding what the right long-term outcome. And a lot of times, that is from doing multiple projects with the same customer as well, too. So there are so many aspects of visibility we'll get from this. And the 1 thing we learned on the health care side, what is really important is the ability to understand where value can be driven through the process and how people purchase as well, too. So we're still -- from a data center, we're not where we need to from a health care perspective and data center gives us insight of where we're able to add from a value train process as well, too. So for us, the way that we approach it is going to be very similar to health care. There's probably going to be some immediate opportunities. I think the fact that this -- the data center is exploding right now from a demand perspective, we'll look at things like fabrication, procurement opportunity to perform projects. After a building is completed, there's a lot of opportunity for service mantrance and retrofit projects as well, too. So it's up to us, the opportunity is there. It's just for us basically to capitalize on, and that's ultimately going to drive the -- it's going to drive kind of when the pull-through starts as well too. But we're very excited about, and we think it's the right thing to do as far as kind of being the linchpin to really kicking off our data center for local market.

Is CYMCOR geographically concentrated in the Texas area? Or do they have projects all over?