Limbach - Earnings Call - Q2 2021

Transcript

Speaker 0

Greetings, and welcome to Limbach Holdings Second Quarter twenty twenty one Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jeremy Hellman of The Equity Group.

Please go ahead.

Speaker 1

Thank you very much, and good morning, everyone. Yesterday, Limbach Holdings announced its 2021 results and filed its Form 10 Q for the fiscal quarter ended 06/30/2021. During this call, the company will be reviewing those results and providing an update on current market conditions. Today's discussion may contain forward looking statements, and actual results may differ from any forecast, projections or similar statements made during the earnings call. Listeners are reminded to review the company's annual report on Form 10 ks and quarterly reports on Form 10 Q for risk factors that may cause the actual results to differ from forward looking statements made during the earnings call.

Beginning with this year's first quarter, Limbach has updated the naming of its reportable segment financial results to more closely align with its evolving business model and relationships with building owners. The two reportable segments are now general contactor relationships, which are referred to as GCR and owner direct relationships or ODR. These segments align to the prior construction and service segments respectively. A complete description of each reportable segment can be found in the Form 10 Q. This renaming of the reportable segments does not create any material differences when applied to prior periods.

With that, I'll turn the call over to Charlie Bacon, the President and Chief Executive Officer of Limbach Holdings.

Speaker 2

Good morning, everyone, and thanks for joining us. Joining me today is our CFO, Jamie Brooks. We also have our COO, Mike McCann and our Executive Vice President, Matt Katz also on hand for the Q and A session, which will follow our prepared remarks. The quarter and year to date results continue to demonstrate solid progress in our ODR segment, the growth of which is quarter hour strategy of transforming the business to be more aligned with direct to building owner revenue and the resulting recurring income streams. We also realized progress on the GCR front too with solid sales during the quarter, enabling us to have our forecasted 2021 revenue for the segment fully covered at this point, including amounts recorded in backlog and with customer commitments.

As a reminder, we are targeting 50% of our revenue to come from building owners through our ODR segment by 2025. The remaining 50% is to come from our GCR segment projects with the net expected results being significantly improved profitability. Our ODR segment has historically provided higher margins for our company. We're making substantial progress towards our business mix goal. ODR sales increased roughly 28% to 38,000,000 during the second quarter, up from $30,000,000 in the first quarter.

The prior period in 2020, our ODR sales grew by approximately 27%. I should note sales at the beginning of the second quarter started off slow, but May and June sales showed improvement with our ODR pipeline continuing to grow. We realized strong maintenance based sales in the ODR segment during the quarter with improvement in our renewal rates and an increase in our ODR project sales. Pull through revenue from our maintenance base during the period also improved, which appears to be driven by pent up demand for our core maintenance services. We're also exceeding gross margin performance in our ODR segment with year to date margin of 29.3%.

You may recall from previous statements, our ODR gross margin should be in the 25 to 28% range. Our ODR teams are executing and exceeding expectations. On the ODR front, I want to point out two very important moves we made earlier this year. First, as we discussed in our last call, we made further investments in our largest sector, healthcare, highlighted by our new office in Nashville, which is the hub of for profit healthcare in The USA and we recruited a regional vice president who has great relationships with our targeted customer base. With this investment, we are also expanding our services within healthcare to include professional services for building assessments and program management services.

By combining our mechanical, electrical, plumbing, engineering and installation knowledge with program management services, we are creating a unique offering in the marketplace. The healthcare sector remains well suited for us since MEP systems can be upwards of 50% of the value of many healthcare projects. These healthcare clients are very concerned about system install and operating cost. These new services will help customers make better decisions. We expect this approach will place us in an ideal situation to pick up the installation services.

The second important move we made was to focus on indoor environmentally controlled agriculture, which reflects on our strategy of staying on the top emerging trends and growth opportunities. On our last call, mentioned, we expected to have upwards of eight farms underway. Since our last call, we have secured five of the eight and several others are in the proposal stage. This market is very active and we are finding the farm management teams value our strategic insights and industry expertise. These projects require unique engineering solutions and there is considerable maintenance requirements, which is ideal for us.

So to sum up our ODR progress, we expect to see revenue growth within the segment in excess of 25% year over year, while margins are exceeding our previously communicated ranges driven by strong execution. Sales are picking up and our maintenance base is expanding at a strong rate. We were disappointed with our slower sales than expected earlier in the year, but that appears to be behind us so long as the Delta variant doesn't cause large impacts to the economic expansion The U. S. Economy is enjoying.

Returning to the GCR segment, sales have exceeded expectations for the quarter and year to date. Healthcare continues to be our strongest market sector with several new hospital projects being sold, including several in our Florida region. While we have a few larger projects that were brought into backlog, most of our sales in Q2 were smaller projects, which aligns with our risk management strategies. At this point, we have sold including amounts recorded in backlog and with customer commitments, what we need to reach our segment forecast for 2021. And sales going forward are mainly targeted for building backlog for 2022 and beyond.

Overall, execution of our work this quarter continued with project exit margins improving, even though we experienced higher cost of materials and delays in our supply chain for equipment from manufacturers on specific projects. So far this year, we're able to mitigate those impacts of higher costs and shortening the period during which our proposal prices are valid to limit our exposure and increased costs in the supply chain among other efforts. To be clear, our proposals are now limiting the length that the proposal will be valid, therefore supporting any sort of increase in prices in future periods. Before I pass this call on to Jamie, I want to discuss our updated guidance, which we are tightening based upon reported results at mid year and visibility for the remaining six months. When we introduced guidance last quarter, we noted that activity levels look to be picking up, but that we had yet to see that to be a durable trend.

While overall activity levels have continued to improve, there remain pockets of softness that could delay achievement of our expected results. Based upon the revenue burn projections and as we mentioned in previous earnings release, we are expecting heavier revenue and profit recognition in Q3 and 2021. We are also expecting improvement in our GCR margins based upon the quality of work sold over the past eighteen months. As noted in our press release yesterday, our revised guidance is now $480,000,000 to $510,000,000 and adjusted EBITDA guidance between 23,000,000 and 25,000,000 Both of those ranges are consistent with our previous guidance and reflect a tightening within those prior estimates. Underpinning our updated guidance is the improved confidence that stems from the combination of our reported results to date and work currently scheduled for the second half of the year.

As noted earlier, we have all of our forecasted GCR work for the year in backlog and with customer commitments. Our ODR segment consisting of booked backlog, customer commitments, contract maintenance space and pull through work is not far behind. I want to close with a comment on the COVID-nineteen Delta variant. During our second quarter last year, the pandemic had a significant impact on our business. Generally, economic activity across the country slowed, which impacted our work activity somewhat.

However, our business was deemed essential, which allowed us to maintain lower, but regular levels of operation. On the other hand, our SG and A expenses were lower than it would have otherwise have been due to operating reductions we implemented in response to the pandemic. We were also awarded emergency response work, which aided our results last year, but that work was short term and non recurring. As we speak with you today, we are monitoring the COVID-nineteen delta variant, including both positive and negative short term impact. However, we are focused on expanding long term recurring business that will build a stronger company when the economy returns fully to a normal cadence.

So with that, let me turn the call over to Jamie.

Speaker 3

Thanks, Charlie. Total second quarter revenue of $121,000,000 was down 10.5% as compared to the prior year and up 6.8% from the first quarter of this year. For the six month period, total revenue was $234,400,000 a decline of 14.5% compared to the same period last year, which is consistent with our plan and guidance for the full year. By segment, GCR revenue of $87,600,000 was down 17.4 from last year's second quarter and up 3.2% versus the first quarter of this year. For the six month period, GCR revenue declined 20% to $172,400,000 compared to last year's second quarter.

Again, this is consistent with our guidance and internal plan. ODR segment revenue of $33,500,000 in the second quarter grew 14.4% compared with the same period last year and 17.3% compared with the first quarter this year. ODR segment revenue accounted for 27.7% of the total consolidated revenue during the quarter. For the six months, ODR revenue was $62,000,000 up from $58,500,000 for the same period last year. Gross margin was 15.4% in the second quarter, up from 15% last year.

OER segment margin continued to be a bright spot, outpacing our expectations at 29.3%. GCR segment margin slipped to 10.1% compared with 11.5% a year ago. The decline this quarter compared to last year was primarily due to projects burning at lower margins. From a project execution perspective, net write downs improved from $2,000,000 last year to $1,100,000 in Q2 this year. SG and A was $17,200,000 in the quarter, up from $13,800,000 last year, when our operations were significantly impacted by pandemic driven cost cutting.

Second quarter SG and A expense was the level with the was in level with our first quarter and consistent with the full year expectations we discussed on our last earnings call. Interest expense during the second quarter was 450,000 compared with $2,100,000 a year ago. This marks the first full quarter since we entered into our current credit facility in February. So this quarter's financing expense represents the first full quarter for purposes of modeling the run rate of our finance expense. For the 2021, adjusted EBITDA was $3,600,000 compared to $8,100,000 for the same quarter last year and $2,100,000 in the 2021.

The 2020 benefited significantly from certain SG and A expense categories, such as payroll costs and travel and entertainment being unusually low due to the reductions taken as a result of the pandemic. Adjusted EBITDA for the first six months of twenty twenty one was 5,600,000 compared with $11,800,000 in the year ago period. Net income for the quarter was $732,000 or $07 per diluted share versus net income of $2,900,000 or $0.37 per diluted share for Q2 twenty twenty. Total backlog on June 30 was $439,500,000 compared to $4,000,046,500,000 as of March 31 and $444,400,000 as of 12/31/2020. On June 30, GCR and ODR segment backlog accounted for $37,078,900,000.0 dollars and $60,600,000 of the consolidated total, respectively.

Shifting to the balance sheet and cash flow. Our current ratio on June 30 was 1.45, which compares with 1.46 as of March 31 and one point three three as of 12/31/2020. We had cash and cash equivalents of $27,700,000 and $33,500,000 of total debt as of 06/30/2021. Dollars 8,500,000.0 of that total debt was classified as current and $24,700,000 net of issuance cost was classified as long term. Shifting to working capital, we had cash usage from operations this quarter of seven point two million dollars bringing our year to date cash usage from operations to $24,600,000 The primary drivers of this year to date usage was an increase in our accounts receivable due to the timing of billings and collections, a decrease in our accrued expenses and other current liabilities due to timing of payments, and a decrease in our overbilled position due to the reduction in GCR revenue in 2021 and the timing of contract billings and the recognition of contract revenue.

These decreases were offset primarily by an increase in our accounts payable, including retainage as compared to the prior year period. I'll turn the call back to Charlie now.

Speaker 2

Thanks, Jamie. I want to close with some thoughts about the general macro conditions, our strategic direction and our overriding vision for Limbach. Concerning the market outlook, the American Institutes of Architects inquiry, design contracts and billing indexes all remain in very positive territory with the inquiry index recently hitting 72, a strong indicator of continued industry expansion. The Construction Industry Roundtable's third quarter sentiment index is at an all time high of 79.7 with the design index at 86.8. A year ago, these indexes stood at fifty two point one and forty nine point three.

This points to a continued robust period for the industry over the next nine to twelve months, allowing us to build strong selective backlog for 2022 and beyond. Now turning to our strategic direction. First, our emphasis on growing our ODR business is well underway and having the intended impacts on our margins. We previously stated in 2021, this was going to be our year of transition for the company as we focused aggressively on growing our ODR segment, while overhauling how we approach GCR and we are executing that strategy. While recent COVID developments represent a headwind, we fully expect to end 2021 with ODR making up the largest portion of our revenue it ever has and contributing greater than 50% of our consolidated gross profit.

Where that ultimately lands will be a function of our final business mix, but based upon current projections, we expect to exit this year with gross margin improving approximately 150 basis points versus 2020. That is a level of improvement we've been talking about for some time. Second, we are rightsizing our GCR business and are confident the changes we have made to our corporate culture in that segment, particularly in terms of our sales and project evaluation approach have changed for the better. During the second quarter, we saw GCR sales pick up quite a bit, leaving us confident that we'll be able to resume growing that segment and be able to do so with much improved bottom performance. We will remain firmly committed to operating the GCR segment with a bottom up profitability mindset and expect it will yield solid results going forward.

Third, we'll continue to focus on market diversity. As we've seen over the last year and a half, our end markets have each reached uniquely or reacted uniquely to the pandemic with some negatively impacted in the near term such as higher ed, while others such as healthcare have seen the demand and thus facilities need increase. This also includes our entertainment and R and D sectors. We're also keenly focused on the emerging sectors where we think Limbach offers a compelling value proposition for building owners. Indoor agriculture is such an example.

Lastly, I want to reiterate the progress we are making against our key deliverables. Driving growth in our ODR segment is a top priority. You've heard us discuss at every turn. As Jamie highlighted, ODR segment revenue grew 14.4% in the second quarter compared to the same period last year and 17.3% compared to the first quarter this year. ODR revenues account for 27.7% of our consolidated total in the second quarter.

So we're making solid progress driving our mix shift towards the fiftyfifty goal. We've also stabilized our GCR operations. Our net write up write down performance has improved and we're just about done burning old business that was booked before we instituted our new project gating criteria. Coupled with the sales and backlog commentary, we already noted, we are firm in our belief that 2021 will be the low point for the segment. Turning to our expenses, our SG and A expenses for Q2 was virtually unchanged from Q1 and tracking to the full year estimates we discussed last quarter.

So we think we have our operating expenses well in hand, thanks to Jamie and her team. While the Delta variant is certainly occupying its share of the headlines, we are encouraged to see an infrastructure bill advancing in Congress. As this becomes a reality, we expect several submarkets within the non residential section of construction will benefit as significant funds are made available for capital projects. To our Limbach and Harper teams, thank you for your hard and smart work this past year. Change and transformation isn't easy, especially working remotely.

We are achieving what we said we would. Again, thank you. With that, we're available to take your questions.

Speaker 0

Thank you. At this time, we'll be conducting a question and answer session. Our first question today is from Rob Brown of Lake Street Capital Markets. Please proceed with your question.

Speaker 4

Hi, good morning and nice job on the quarter.

Speaker 2

Good morning, Rob.

Speaker 3

Hi, Rob. Thank you.

Speaker 5

Yeah. I just wanted to kind

Speaker 4

of follow-up on your comments about the GC business. I think margins in the quarter, did you say that this was

Speaker 6

sort of going be the

Speaker 4

low point in terms of margins? And I guess how do you see the gross margins in that business trending over the next quarters?

Speaker 2

Yeah. I'm going have Mike respond to that, our

Speaker 5

Chief Operating Officer. Thanks, Rob. I think from a margin perspective, I think we talked about this a little bit, but the as we the work that we've sold before our more rigorous risk management procedures and processes, that work is really starting to burn off. As the work that we have sold in 2020 and 2021 is based upon, obviously, very close watch from a management perspective, should produce higher margin and we anticipate that as we go forward. So we're very careful from a size of projects.

We're looking for controlled outcomes as much as we can. The other thing too that we've really looked forward to is not just nary the criteria. We look at things like new vertical market sectors that we're in, for example, the indoor agriculture that we mentioned before. Whether it's size or specific new vertical market sectors, we are looking to make sure that we are looking at that from a risk management perspective. So long story short, I think as that newer, more rigorous risk management work starts to come into play, the margins will pick up as we go through the back half.

Rob, it's

Speaker 2

been interesting. We've installed this whole gating procedure on new work. And every Friday morning, have this review call where the business units have to present their opportunities and there's criteria that they have to abide by. And we see the calls actually increasing. We're seeing more and more projects go through that, which is an indication the pipeline is improving, but also the quality of the opportunities are improving too, because they know they're not going to get the projects approved if we don't like the numbers.

The other thing I'll just point out, we have this new indoor agriculture sector that we've ramped up over the past year. And actually every one of those projects are going through that review process. We just approved and we secured a small farm $500,000 It's a quick hitting equipment install in an existing building. And that's kind of the rigor we're putting into it. Anything that we're looking at that we're either it's kind of new to the company maybe or just has some aspect that it's new to what we're used to doing has to go through that rigor.

So the outcome of all of that, we are seeing continued improvement in upside and the proof of that really is just when you look at the work booked over the past eighteen to twenty four months, we're seeing a consistent pattern of upside coming We still have some legacy stuff we're working off, but that backlog that we sold years ago just about through the books. But it's very encouraging to see a leading indicator of the newer work produce upside.

Speaker 4

Okay, great. And then on the Owner Direct business, you talked a lot about some pent up demand coming through on the maintenance side and really good growth in general in this business. What's sort of the visibility about continued growth there? And I think you said 25% plus growth. Do you see that kind of continuing here for the rest of the year and into next year?

Speaker 2

It was interesting last year, during 2020, like Lindbach and I guess everybody else, we all pulled back on expenses to minimize because we weren't certain of our future, right? So everybody pulled back. And we also saw the building owners pull back last year a bit that they weren't spending typically what they had spent in the past. But the reality is you can't neglect that for too long. Sooner or later you have to repair things.

It just things break or they reach their life expectancy. So where they held back last year, that's why I'm suggesting the pent up demand is fueling our growth. On top of quite frankly, we've invested heavily in more sales resources, more management to expand the ODR segment. So our growth projections, we still believe there's so much more in front of us. And that's why we're continuing our investment and we expect our investment to continue to ramp up.

Speaker 4

Okay. Thank you. And then just wanted to touch on the supply chain and cost issues that you talked about. How much are you seeing those? Are they getting kind of better or worse at this point?

And I guess what's sort of the risk that as costs move, how much risk are you exposed to as costs move?

Speaker 5

Rob, I'll take that one. I think it's been kind of interesting from a period of time in Q3, Q4 'twenty, we started to see that acceleration from a cost perspective, whether that's in our business, it's copper, chips was another big piece of it as well. One of the things that really helped us is we were strategic and selective in Q4 and Q1. So lots of, you know, the work that could have been affected weren't wasn't necessarily affected as much during that period of the time. The one thing that we've done internally is very important is from an awareness and training perspective to make sure that people understand that our proposals that used to be good for sixty to ninety days maybe only be good for five days.

So that's one of the most important things. We have to qualify our proposals. The other thing from a customer perspective too with the volatility is they have to order equipment and materials immediately, where in the past things would go through a bit of a process. So we've been using that not only from a risk management perspective, but from a leverage perspective in order to make sure that we can get sales going. So there's a lot internally that we're thinking about, whether that's qualifying proposals, whether that's using that to break out packages to get sales run early, whether that's equipment or materials after we have to procure early.

So the initial shock of that period of time between when those materials started accelerated, now I think we've got our staff really laser focused on making sure that we mitigate that risk and leverage this opportunity as well.

Speaker 0

Thank you very much for the color. I'll turn it over. Thanks, Rob. The next question is from Yaron Naymark of OneMain Capital. Please proceed with your question.

Speaker 7

Hey, guys. Good morning, Aaron. Given it sounds like working capital has eaten up a decent amount of the cash this year. Do you guys think you can get some of that back between now and year end? Do you think I mean, do you think the year is a positive free cash flow year?

Or is it going to end up being a negative free cash flow year?

Speaker 3

Hi, Erin. This is Jamie. Yeah. With the guidance that we're providing for the back half of the year, obviously, that's our strong half of the quarter. So from an EBIT perspective and EBITDA perspective, you're going to see generation of income.

The piece that's going to fluctuate is going to be the working capital. So we need to depending on the timing of when those sales were actually recognized and we can bill that revenue, that's the piece that'll just have to fluctuate. As well, if you recall, we did over last year, we were able to accrue our some payroll taxes because of the CARES Act, and so we do have a payment of $3,000,000 that's due at the end of next year due in December, on that as well if that doesn't change from a, regulation perspective. So we're gonna see what you know, from a cash flow, we've got income coming in.

Speaker 7

Got it. But if you hit your guidance, it sounds like we could still be negative free cash flow for the year just based on not also working capital unwinding?

Speaker 3

No. If you look at I mean, we have if you take the results that we need to do to get to that EBITDA of the 23,000,000 to $25,000,000 that will go to the bottom line from a cash flow perspective, depending on the we have the working capital adjustments.

Speaker 7

Got it. Okay. And then I think you guys said on the call you expect about 150 basis points of gross margin improvement this year. Was that for the overall company or for construction? Or sorry, GCR, not construction.

Speaker 3

Yes. That's most likely for the GCR piece of it. Because to to exit to hit our total number, you're gonna see an input improvement in our overall gross margin.

Speaker 7

Got it. Okay. And then on the ODR side, so for the last three years, I think you guys have grown that at around 10% a year. In the first half, you guys grew it at around 6% year over year. And you guys highlighted some a lot of uncertainties in the back half with the Delta variant.

I mean, what's the thought process for guiding to 25% year over year growth for this segment? Mean, it doesn't like you have a lot of visibility into it. So why guide that aggressively for this segment?

Speaker 2

Yaron, actually from a sales perspective, while the GCR portion which we stated is pretty much sold for the year were there. And anything we add to GCR sales if we choose to do that would be accretive. When you look at the ODR component, we're just about there too here sitting in July. I mean sales continue to improve. And when you take a look at what we've sold, the trend of sales and the pipeline tied to our maintenance base and the traditional pull through we get, the pull through actually has increased nicely here.

We're able to project out the year and see the nice growth trends coming through. So the growth is there based on the sales that we have in project backlog for Owner Direct, plus the maintenance space has continued to grow in terms of sales. The sales have actually been very good. And also you got the pull through that's just coming through with that pent up demand. So it's actually we're pretty pumped up about where the ODR is going and the growth factors are there.

We also added a lot more people, Yaron, to staff here over the past year, right? So we really pulled back last year. But this year, we did put on more management and sales staff in ODR earlier in the year. And again, we're going to continue to invest right at the '22 to not stop the growth. We just see so much opportunity.

Speaker 7

Right. Yeah, I mean, just seems like given the history with the company of not being very consistent in achieving its guidance, it just seems a little aggressive to guide for 25% growth given the first half of the year. But hopefully, you guys hit it. And then the last question I have is, I know you talked about this being a transition year. It seems like there have been a lot of transition years since you guys came public in 2016.

I think there's a little bit of just a challenged relationship between the company in general and public market investors. And I guess this is a question to you Charlie. I mean, I'm trying to understand the hesitancy of engaging with your investors about your the potential new Board addition. It would just be such an easy way to restore credibility with investors in public markets. So just really trying to understand the hesitancy of engaging with your existing investors as you guys are making that decision about Board members.

Thanks.

Speaker 2

Sure, Yaron. One of the things that I'm really pleased with actually is our nominator and governance committee that's running our search for our new member. There's been some good conversation between management and the committee. The committee is running the search. And one of the things that we highlighted was the issue of our strategic plan and the importance of finding credible candidates that can help us drive all the things we've laid out from a growth perspective, including organic as well as acquisition.

And they've done, I think a great job at producing some real stellar candidates. They're working it aggressively. I think our Chairman has done a really smart job at thinking through all the constituents out there and he's got a heck of a nice pipeline of candidates. So they're still working through the process, but that's probably as far as I can go with the update right now.

Speaker 7

Yeah. I would just say what you guys think is important and what your shareholders think is important. There might be some overlap, but there might be not be some overlap. And I think engaging with shareholders is a healthy dialogue to have, especially given the history you guys have over the last five years. What you guys think might be the right candidate might not necessarily be what public market investors think and they're your partners at the end of the day.

So I think it's just a very easy way to help restore credibility with your investors. And it blows my mind that the committee is choosing not to take that action. But hopefully they change path on that. Thanks for the time. Thank you.

That's the end of my question.

Speaker 0

Our next question is from Mike Hughes of SGF Capital. Please proceed with your question.

Speaker 6

Yes. I actually wanted to follow-up on the last caller's question. On the 25% growth for the ODR segment. I believe that segment was recast from you previously referred to it as services. So that line item did about $127,000,000 in revenue last year and if it grew 25% this year, you'd get to a little less than $160,000,000 Year to date, you've done $62,000,000 So that implies a run rate in the back half of $48,500,000 a quarter, which would be up from $33,500,000 you just did.

So have you ever had that magnitude of a step up going from $33,500,000 quarterly run rate to 48,500,000.0

Speaker 2

That's obviously quite a bit of growth, Mike, thanks for the question. When you look at our SG and A numbers too, you'll see that we've invested in the ODR segment and that includes both management oversight as well as resources out in the field. So we're prepared for it. We've been working it hard. This has been our core growth strategy.

Last year, we backed off a bit because of what was going on around us. But this year, once we saw things were opening up, we went and made the further investment to expand it. So the sales are coming in. We had a nice jump in sales in Q2 and there's visibility on that continuing. The nice thing is the beauty of that sector or segment rather, you got your maintenance base and that's the part that you're in with the customer.

They have needs. They call us up and this pent up demand where they held off last year is just emerging. They need to change our cooling towers, chillers, air handlers, all of that equipment eventually expires or has to be rebuilt. And that's where we come into play. So our contract base keeps growing.

That's the preventative maintenance base. And then you have what's the traditional pull through that comes through those relationships. And that's fueling the growth along with working with different customers. I mentioned last call and this call what we did in Nashville. What we're working there is selling to our customer base, the healthcare customers, our direct services.

So how we can help them with their maintenance, larger capital programs. We can actually do the work direct. They don't need to hire a general contractor. We can actually do that work for them. And then I also mentioned in today's prepared remarks, we've introduced new services to those customers called program management services.

And that's where customers typically hire an architect or an engineer to come in, do some analysis work for their needs. But the reality is they don't really understand mechanical electrical plumbing the way we do. And we went to our customers last year, we started asking questions, would that be of value to you if we were able to combine all of our knowledge of MEP installation with that front end engineering program management to help you make better informed decisions? And there was a resounding, yes, we would love to have that. So we went into the market, we found the Vice President that we retained.

He's sitting in Nashville and we've already secured some nice program management related work through his endeavors. So we're very excited about that. And all of that's quick hitting. It's not like you got months to go before you start a big project. You actually get the award and you do it.

So all of that is fueling the pent up demand, the new services, the focus on healthcare expansion and even indoor agriculture. A lot of that work is going on a direct. So it's pretty exciting what's in front of us. I think we're hitting all the right levers.

Speaker 6

Okay. I appreciate everything you just said. So in that segment, the revenue was $28,500,000 in the first quarter, you just did 33,500,000.0 to ramp to $48,500,000 a quarter, which is exactly what the guidance implies, actually you say in excess of 25%. So mathematically, it might even be north of that. Maybe to give us more comfort, what was the revenue run rate in that business in the month of July?

Were you out of 15,000,000 or $16,000,000 revenue run rate in July?

Speaker 2

We're not going to comment on the July numbers just yet, but from the standpoint of increase, we have the visibility based on the backlog. So the ramp up is there. Again, it's work that we have and then the work selling we're today will earn in Q4. So it's the work we've already sold. You saw the sales ramp up in Q2.

That work is now being burnt in Q3. Plus you have the maintenance space and all the other things we already have in backlog. So you can see how that's all ramping up. Again, sold $38,000,000 in Q2, which you can see how you add in the other existing things we already have in the business, again maintenance space, you can see how you get north of 40,000,000 and approaching 50

Speaker 6

Okay. Okay. And then just a follow-up on the prior question about just the sustainability. So how much of this is just work that was pushed out so the business generate 45,000,000 to $50,000,000 in quarterly revenue for the September quarter and then it bleeds off and we're back to the 30,000,000 to $35,000,000 level by the middle of next year. How do you see that playing out?

Could that happen?

Speaker 2

Look, I do think the pent up demand, There's a catch up of hearing your auto dealers are saying their lots are going to be full again in the 2022. So kind of the same thing. Things choked a little bit because of the pandemic. We're catching up with that. But the other thing we're doing, again, is we're investing in additional sales resources to get new customers.

One of our big customers is Disney. And we're having active conversations with them. I was actually at Epcot two weeks ago for a management meeting. We actually had our meeting right at Disney. We're doing quite a bit of work there.

And there was just, park was packed and I just saw the earnings They just released them I read earlier this morning, Disney's results. And while they haven't committed that their CapEx is going to be increasing, clearly we know what they want to do with the parks, which were pretty intimate to the Disney thinking in terms of future project work, not too close, but close enough to understand the trends. We think the spend is going to increase as their parks continue to do well. So it's I think we're going to see the pent up demand probably catch up.

But I also think everything else we're doing with investments will allow that growth to continue. It's our big focus, Mike. It's the ODR revenue, the margins it's generating is clearly the right answer for our company.

Speaker 6

Okay. And then I appreciate that you're kind of tightening up the proposal process where you only honor a proposal for, I think you said as short as a five day timeframe. I guess my concern on that front would be we've probably had more inflation than anyone expected six months ago and just the nature of your business what you booked in the backlog six months ago maybe starts to flow through into revenue in the back half of this year. And the cost component probably is higher than you envisioned at that point. So give us some comfort on why that would not be the case?

Speaker 2

Yeah, a couple of things. One, as we were looking at our business plan last year, we actually had our GCR segment pretty much sold. We sold some things in Q4 into Q1, but we didn't need a lot of sales during that period, because we had the year really progressing nicely. So the nice thing is, we didn't have to sell stuff and then get bit going into the New Year where maybe commodity prices would have hurt us. So there's a little bit of that that happened, but I think we were fortunate that we didn't have to sell a lot.

So as a result, the new sales we're getting right now, we did have a very good booking in Q2. We were well aware of what we were looking at in terms of the steel, the coil steel pricing, copper pricing and obviously the equipment. We look to lock in the equipment with our proposal. So I think we're in decent shape, but there could be here and there we could see some element of that hurting us. But as we said, so far we've been able to mitigate those increases in the first half of the year.

Mike, do you

Speaker 5

have anything else to Sure. Share with I think if you look at work, I think your question related to the last six months of sales. So one of the things that we have limited the timeline on our proposals. We've also had the strategic conversation with our customers procure immediately. And whether that's storage of that material, whether that's decisions that need to be made, we've been keyed in on that early conversation where I think in the past, when we weren't through these periods of times, that the procurement would take months after that.

So it's immediate procurement. And I think the limiting of the days on the number of proposal has been received positively from our customers because that also heightens them to understand that there's important decisions have to be made. So pushing the decision making process both internally and really most important externally from our customers is really what we've done, especially in the last six months to make sure that everybody's aware of the fluctuation or potential fluctuation.

Speaker 6

Okay. Thank you for your time.

Speaker 2

Thanks, Blaine.

Speaker 6

This concludes our question and answer session. I would like

Speaker 0

to turn the call back to CEO, Charlie Bacon, for closing remarks.

Speaker 2

Well, thank you everyone for joining us today. We look forward to speaking with you again when we report the third quarter results in November. Thanks again for your interest in Limbach. All the best.

Speaker 0

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