Limbach - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered record profitability: revenue $143.7M, diluted EPS $0.82, adjusted net income $13.8M, and adjusted EBITDA $20.8M, with consolidated gross margin expanding to 30.3% (+700 bps YoY), driven by continued mix shift to ODR and margin improvements in both segments.
• ODR revenue rose 21.4% YoY to $95.5M (66.5% of total), while GCR revenue declined 24.8% YoY to $48.2M; GCR margin benefited from ~$2.9M write-ups in Q4, a positive non-recurring tailwind to segment profitability.
• FY24 set records: net income $30.9M ($2.57 diluted EPS), adjusted net income $43.2M ($3.60 adj. EPS), and adjusted EBITDA $63.7M; ODR was 66.6% of FY revenue and 74.7% of gross profit dollars.
• Initial FY25 guidance: revenue $610–$630M and adjusted EBITDA $78–$82M; management expects ODR to be 70–80% of revenue, 10–15% organic top-line growth, seasonally softer Q1 then stronger H2.
• Stock reaction catalysts: accelerating ODR mix, sustained margin expansion, disciplined M&A with targeted EBITDA contribution (~$6M in 2025 from 2024 deals), and clearer FY25 growth/FCF targets (≥70% FCF conversion).

What Went Well and What Went Wrong

What Went Well

• Record Q4 adjusted EBITDA ($20.8M, +65.5% YoY) and consolidated gross margin (30.3%), reflecting higher-margin ODR mix, selective GCR pursuit, and acquisition contributions.
• ODR growth and mix: Q4 ODR revenue +21.4% YoY to $95.5M (66.5% of total); ODR gross margin expanded to 32.1% vs. 30.1% LY, underscoring strategy execution.
• Management tone on strategy: “We produced record gross profit, record net income and record adjusted EBITDA…by shifting our revenue mix to working directly for building owners, evolving our service offerings and scaling through acquisitions.” — CEO Michael McCann.

What Went Wrong

• SG&A deleverage: Q4 SG&A rose to 19.1% of revenue (from 17.5% LY), driven by payroll/incentives, though legal costs declined; FY SG&A 18.7% vs 16.9% LY.
• GCR revenue contraction: Q4 GCR revenue fell 24.8% YoY to $48.2M; while strategic, it weighs on top-line growth and increases reliance on ODR execution.
• Non-recurring dynamics: Q4 GCR margins benefited from ~$2.9M write-ups; management flagged Q1 2024 had ~$2M write-up, and Q1 2025 set to be similar to Q1 2024, highlighting some onetime elements and seasonality near-term.

Transcript

Speaker 3

Morning, and welcome to the fourth quarter and fiscal year 2024 Limbach Holdings earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. I will now turn the conference over to your host, Julie Kegley, of Financial Profiles. You may begin.

Julie Kegley (Senior VP)

Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the fourth quarter and fiscal year 2024. Yesterday, Limbach issued its earnings release and filed its Form 10-K for the period ended December 31, 2024. 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 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 your 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 statements 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 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 that 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 fourth quarter and fiscal year 2024 earnings release and in our investor presentation, both of which can be found on Limbach's investor relations website and have been furnished on the Form 8-K filed with the SEC.

With that, I will now turn the call over to President and CEO Michael McCann.

Michael McCann (President and CEO)

Good morning. Welcome to our stockholders, analysts, and interested investors. We appreciate you joining us today. Throughout 2024, our focus was creating value for our customers, driving margin expansion, and delivering record profitability for our stockholders by continuing to execute the three pillars of our strategy. Our first pillar is shifting our revenue mix from new construction projects in the general contractor or GCR segment to working directly for building owners in existing facilities in the owner-direct or ODR segment. In 2024, approximately 67% of total revenue came from our owner-direct segment, contributing 75% of total gross profit dollars. The second pillar is the evolution of our offerings, which expands our capabilities and increases our margins. In 2024, total gross margin increased meaningfully to 27.8% from 23.1% in 2023. Our third pillar is to scale our business through acquisitions.

In 2024, we completed two strategic acquisitions, which should add approximately $6 million to our adjusted EBITDA in 2025. We maintained a disciplined approach by focusing on six mission-critical market verticals that drive consistent demand across economic cycles. Among these, healthcare has emerged as our largest and most significant vertical, where we play a critical role in ensuring the operational continuity of medical facilities, enabling them to deliver life-saving care. According to the American Hospital Association, the U.S. healthcare market needs hundreds of billions of dollars in capital investment to address its infrastructure deficiencies, workforce challenges, and technological gaps while ensuring readiness for future public health emergencies. Each of our 20 locations prioritizes healthcare services, and we are actively expanding our national footprint in this sector. This growth positions us to become a trusted enterprise partner, delivering comprehensive solutions across the markets we serve.

We have seen recurring revenue develop for these customers as those relationships evolve. One great example is a hospital group in the Philadelphia market, which has over 1,000 licensed beds. We have been working at this facility for several years. The last year, we decided to double down on the account and add a dedicated on-site account manager. After six months of extreme focus, we built a strong relationship with the facility manager, proactively inspecting areas of the hospital that experienced deferred maintenance. Things finally started to break free after several system failures, and we started to see a much larger transaction volume. Right now, we're in the process of repairing and replacing their entire steam system, while the facility is being supported by temporary heating equipment. Our long-term go-to-market approach with customers puts Limbach in a position to capture this revenue and continue cultivating this long-term relationship.

Our second largest vertical has become industrial manufacturing. As a result of our strategic acquisitions over the past few years, we partner with facility owners to support their complex systems in order to ensure the lines and manufacturing processes continue running smoothly in the existing facilities. Our company is well poised to address significant upgrades to systems and facilities, from compliance with regulatory standards to the possibility of increased reshoring and nearshoring to address supply chain resilience. One of our larger customers in this space has multiple manufacturing facilities in several states. They base their infrastructure program directly around our engineered solutions and equipment lines, which controls temperature and humidity while filtering and cleansing the air and the environment. They trust our ability to provide installed solutions around our equipment, evidenced by our growing install base in most of their locations.

We collaborate with this customer to resolve their business challenges as a partnership. In our other four verticals, we continue to see growth opportunities as existing buildings age and need either critical repair work or an upgraded building system solution to keep the building's environment at optimal temperature and humidity levels. One of our largest customers traditionally has a $1.5 billion infrastructure budget and is still unable to be as proactive as they need to be in order to avoid equipment failures. To support these systems, we've placed an incredible staff of people specializing in mission-critical work within these key facilities, making us an integral team member to the existing building owner. In many cases, particularly due to labor concerns from the owner, we've augmented their staff. As a building system solutions firm, we typically go to market differently than a contractor.

We are expanding wallet share with our existing customers within their existing facilities and solving complex problems with engineered solutions. We focus on large-scale customers with multiple facilities by assigning an on-site account manager to learn the building and earn the trust of the customer through day-to-day problem-solving. We assign additional resources to augment our customers' building staff through either a master service agreement or a maintenance contract. Once we have built that relationship, we offer our capital planning services, allowing us to develop a long-term vision for the building and related capital projects. Our objective is to build an entire account team that becomes an indispensable partner to the customer, focusing on future long-term repeatable revenue opportunities. This is an important differentiator for Limbach. We are often compared to engineering construction companies.

However, while our competition is focused on new construction, we have spent the last five years transitioning our business to working directly with building owners in existing facilities. We are now delivering on demand repairs and system solutions for their existing facilities. We're building a unique long-term model with durable demand, allowing for shorter sales cycles. In our past GCR model, backlog was critical to our future, as the projects could last up to three years in duration under a fixed price agreement, whereas now we're able to share price increases on materials with our customers. With our ODR focus, we have gone a different direction, building a durable model by collaborating with building owners, providing quick-hit repair-type work on a T&M basis, along with building system solutions that provide value to our customers and drive higher margin.

We continue to evolve and optimize our business mix towards ODR segment to create a high-margin, sustainable business with a repeatable revenue across all cycles. Our M&A strategy is a key part of our growth. As I noted earlier, as a result of past acquisitions, industrial manufacturing has become our second largest vertical. To that end, most recently, we acquired Consolidated Mechanical in December, a leading provider of industrial facility system solutions serving Kentucky, Michigan, and Illinois, expanding our owner-direct relationships and footprint. Other than our typical system integration, which is nearly complete, the cultural fit has allowed us to integrate quickly, and we've added focused sales resources that can help expand wallet share with already existing building owners. We believe the breadth of our national resources, combined with local relationships, will enable us to expand both quality and quantity of their gross profit contribution.

Over the past three years, we've acquired five companies, and with each acquisition, our process has become more efficient and repeatable. Our goal is to fully integrate each acquired company into our shared systems and strategy within two to three years of closing. Expanding into new geographic areas through these acquisitions helps Limbach grow its footprint and better serve our national customers, many of whom operate in more than 10 states. This approach is expected to drive revenue growth, reduce sales costs, and ultimately leverage our SG&A. We have a strong pipeline of acquisitions opportunities that meet our criteria of fitting culturally, filling a niche, prioritizing building on relationships, and are accretive on a free cash flow basis. Our target is to acquire $8-$10 million in adjusted EBITDA per year and apply our scalable value creation process to drive growth and long-term impact.

As we continue to execute our strategy, our mix-shift should normalize to approximately 80% owner-direct revenue and 20% general contractor revenue. In 2025, we expect our ODR revenue to land between 70%-80% of total revenue for the full year. Once our mix reaches 80/20, we believe we'll begin to generate considerable consolidated revenue growth. Over time, we anticipate our evolved offerings will expand our gross margins to comparable levels of OEMs that provide similar solutions to those offered by the company, which tend to be in the 35%-40% range. Looking forward to 2025, we expect organic top-line revenue growth to be in the 10%-15% range for the full year. When we layer on two acquisitions from 2024, we anticipate total revenue in the range of $610 million-$630 million.

Over the past few years, as we continued our shift towards ODR revenue, which has seen more seasonality in the business, the first quarter tends to be our softest quarter, with the second half of the year being stronger than the first half of the year. Going into 2025, we expect the same seasonality, with Q1 2025 being similar to Q1 2024, with an even stronger second half of the year. With our expected revenue growth for 2025 and the continued focus on improving our total gross margin, we expect adjusted EBITDA for 2025 to be in the range of $78 million-$82 million. While 2024 was a very strong year for execution and results, we are still in the early innings of shifting to our three-pillar strategy.

There are plenty of growth opportunities ahead with geographic footprint expansion, gross margin opportunity both for mix shift and evolving our offerings, and tremendous opportunity for mission-critical owners with aging infrastructure. I'd like now to turn the call over to Jayme for our financial results.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Thank you, Michael. Our Form 10-K and earnings press release filed yesterday provides comprehensive details of our finance results, so I will focus on the highlights for the full year and fourth quarter. All comparisons are full year 2024 versus 2023 and fourth quarter 2024 versus fourth quarter of 2023, unless otherwise noted. For the year, we generated total revenue of $518.8 million compared to $516.4 million in 2023. Total revenue growth was nearly flat at 0.5%, while ODR revenue grew 31.9% and GCR revenue declined 31.9%.

As we have said before, the GCR revenue decline is by design as we execute our mix-shift strategy towards ODR. ODR revenue accounted for 66.6% of total revenue for the year, up from 50.7% in 2023. During the quarter, we generated total revenue of $143.7 million versus $142.7 million in 2023. Total revenue growth was nearly flat at 0.7%, while ODR revenue grew 21.4% and GCR revenue declined 24.8%. In the fourth quarter, ODR revenue was 66.5% of total revenue, up from 55.1% in 2023. Our ODR backlog at quarter end was $225.3 million compared to $147 million at December 31, 2023. GCR backlog was $140 million compared to $186.9 million at December 31, 2023. The increase in ODR backlog and the decrease in GCR backlog are due to our continued focus on accelerating the growth of our high-margin ODR business.

Keep in mind that the backlog in the ODR segment does not reflect our complete book of business. Many ODR projects are short-term in nature and can be sold and executed within the quarter. Total gross profit for the year increased 20.9% from $119.3 million to $144.3 million, reflecting our focus on growing our ODR segment. Total gross margin on a consolidated basis for the full year was 27.8%, up from 23.1% in 2023, driven by the combination of higher margin ODR revenue, higher quality GCR work, and the contribution from our acquisitions. ODR gross profit contributed $107.8 million, or 74.7% of the total gross profit dollars. ODR gross profit increased $31.7 million, or 41.6%, driven by higher revenue and expansion of our ODR gross margins to 31.2% from 29% in 2023.

GCR gross profit declined $6.7 million, or 15.5%, due to our selectivity of higher quality projects, which increased our GCR gross margins to 21.1% from 17% in 2023. Total gross profit for the quarter increased 30.8% from $33.3 million to $43.6 million, again reflecting our ongoing emphasis on ODR. Total gross margin on a consolidated basis for the fourth quarter was 30.3%, up from 23.3% in 2023, mainly due to the mix of higher margin ODR revenue, higher quality GCR work, and the impact from our acquisitions. ODR gross profit contributed $30.6 million, or 70.2% of the total gross profit dollars. ODR gross profit increased $6.9 million, or 29.3%, driven by higher revenue and expanded gross margins of 32.1% versus 30.1% in 2023. GCR gross profit increased $3.3 million, or 34.5%, driven by our focus on better quality projects and expanding gross margins to 26.9% versus 15% in 2023.

For the year, SG&A expense was $97.2 million, an increase of approximately $9.8 million from $87.4 million in 2023. As a percentage of revenue, SG&A expense was 18.7%, up from 16.9% in 2023. The increase was driven primarily by higher payroll and incentive-related expenses and costs incurred due to Acme and Industrial Air transactions, which were not acquired entities for the full year of 2023. For 2025, we are targeting SG&A expense as a percentage of revenue to be around 18%-19% as we continue to invest in our ODR business to drive growth. During the quarter, SG&A expense increased approximately $2.4 million to $27.4 million from $25 million in 2023. As a percentage of revenue, SG&A expense was 19.1%, up from 17.5% in 2023. The increase was driven by a $2.8 million increase in payroll and incentive-related expenses, offset by a decrease in legal costs.

Interest expense for Q4 was $0.5 million and $1.9 million for the year. Interest income for the quarter was $0.5 million and $2.2 million for the year, driven by the company's investment strategy in placing our excess cash in overnight repurchase agreements, U.S. Treasury bills, and money market funds. For the year, adjusted EBITDA was $63.7 million, up 36.1% from $46.8 million in 2023, and we exceeded the top end of our 2024 adjusted EBITDA guidance of $60 million-$63 million. Adjusted EBITDA margin for the year was 12.3% compared to 9.1% in 2023. Adjusted EBITDA for the fourth quarter was $20.8 million, up 65.5% from $12.6 million in 2023. Adjusted EBITDA margin for the fourth quarter was 14.5% compared to 8.8% in 2023. For the year, net income grew 48.8% from $20.8 million to $30.9 million, and earnings per diluted share grew 46% from $1.76 to $2.57.

Adjusted net income grew 48.2% from $29.2 million to $43.2 million, and adjusted earnings per diluted share grew 45.2% from $2.48 to $3.60. Net income for the fourth quarter grew 87.5% from $5.2 million to $9.8 million, and earnings per diluted share grew 86.4% from $0.44 to $0.82. Adjusted net income grew 70.9% from $8.1 million to $13.8 million, and adjusted earnings per diluted share grew 69.1% from $0.68 to $1.15. Turning to cash flow, our operating cash flow during the fourth quarter was $19.3 million compared to $13.9 million in 2023, representing a 38.7% increase. Operating cash flow for the year was $36.8 million compared to $57.4 million in 2023, representing a 35.9% decrease due to the timing of differences in certain accounts receivable.

Free cash flow, defined as cash flow from operating activities, less changes in working capital and capital expenditures, excluding our investment in rental equipment for the year, was $52.3 million compared to $36.7 million in 2023, an increase of 42.6%. The free cash flow conversion of adjusted EBITDA for the year was 82.1% versus 78.4% in 2023. For 2025, we are continuing to target a free cash flow conversion rate of at least 70%, which again we define as cash flow from operations minus changes in working capital minus capital expenditures, excluding our investment in rental equipment, divided by adjusted EBITDA. We expect CAPEX for 2025 to have a run rate of approximately $4 million, primarily because of our acceleration of our ODR strategy. This amount excludes an additional investment of $3.5 million in rental equipment in the first half of 2025.

Turning to our balance sheet, as of December 31, we had $44.9 million in cash and cash equivalents and total debt of $27.2 million, which includes $10 million borrowed on our revolving credit facility at a hedge rate of 5.72%. Our balance sheet remains strong, and we are well-positioned to support our strategy of generating ODR growth and margin expansion, which we believe will create significant long-term value for our stockholders. In addition, our balance sheet supports our acquisition strategy by providing the capital to make our opportunistic decisions for growth. That concludes our prepared remarks. I'll now ask the operator to begin Q&A.

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from a line of Robert Brown with Lake Street Capital. Please proceed with your question.

Robert Brown (Co-Founder, Partner and Equity Research)

Hi, Jayme. It's Jayme.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Good morning.

Michael McCann (President and CEO)

Good morning.

Robert Brown (Co-Founder, Partner and Equity Research)

Just wanted to touch on the organic growth you talked about in 2025, 10-15%. Is that the ODR business in particular, or is that the overall business in total? I guess what would be the organic growth of ODR?

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

That's the overall—oh, sorry. I'm hearing you very well. That's the overall top line.

Robert Brown (Co-Founder, Partner and Equity Research)

Okay, great. What's sort of the implied ODR organic growth?

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

You broke up again. I'm sorry, Robert.

Mr. Brown, are you still connected?

Robert Brown (Co-Founder, Partner and Equity Research)

Yeah, sorry. Can you hear me? I think I lost you.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Yes, now I can hear you. Okay, sorry about that.

Robert Brown (Co-Founder, Partner and Equity Research)

I apologize. Just wanted to know the implied organic growth in the ODR segment.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

We're looking at it from kind of the perspective of both the top line, just from once we do our acquisitions as well as layering that in. So we've gotten into specifically commented on a percentage growth. I would assume you could see maybe 23%-46% if you take the top end and the low end of the range that we provided from an adjusted EBITDA and revenue perspective.

Robert Brown (Co-Founder, Partner and Equity Research)

Okay, good. Thank you. Then on the gross margin comment about kind of getting to OEM-level gross margins, just wanted to get a sense of what you need to sort of do to get there.

Is that a kind of long-term goal, or what additional kind of services would you need to get to that point?

Michael McCann (President and CEO)

Yeah, Robert, it's definitely a long-term goal. Our margin journey really, there's two pieces to it. Maybe there's more than two pieces, but the first piece has been shifting to the revenue as much as the owner-direct segment. That's going to get us a natural lift. The second part of it is building our channel and our connected integrated platform among all of our locations. Acquisitions, of course, will help that. Being able to offer new evolved offerings through our sales chain, our integrated sales chain. It's going to be a combination of both. It's going to be a combination of really getting to that optimal mix plus from an evolved offerings perspective. It is very much a long-term perspective on where gross profits would go to.

Robert Brown (Co-Founder, Partner and Equity Research)

Great. Thank you. I'll turn it over. Thank you.

Michael McCann (President and CEO)

Our next question comes from a line of Gerry Sweeney with Roth Capital. Please proceed with your question.

Gerard Sweeney (MD and Senior Research Analyst)

Good morning, Jamie and Mike. Thanks for taking my call.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Good morning.

Michael McCann (President and CEO)

Thanks, Gerry.

Gerard Sweeney (MD and Senior Research Analyst)

Question on ODR. Hopefully, I can ask this the right way. When you're looking at existing customers, where are you in terms of hitting that truly, we'll say, trusted advisor level as opposed to getting into the maintenance contracts and developing that relationship? I'm just trying to see where you are in terms of existing customers and growing into that sort of long-term goal or target with them.

Michael McCann (President and CEO)

Yeah, I mean, we've got a long way to go. Maybe the best way to do this is to kind of go back to the example that I covered in the prepared remarks.

That's kind of a perfect example of where we're at. We've got that hospital group in the Philadelphia market. We had the account, and I think our whole objective the last couple of years is, like, let's place resources there and let's really capture this relationship. Typically, the relationships are built on some sort of quick repair work that happens off some total system failure. That really starts the spend process going. I think once the spend process happens, then the outlook is, how can we avoid these situations in the future? How can we proactively build your capital plan? I would say most of our customers are kind of a perfect example of that. We've started to really see the recurring revenue start to come in, the OPEX-type work.

I think the outlook, I think, as we go deeper in the year is, how can we get to the point where we're starting to plan those budgets?

Gerard Sweeney (MD and Senior Research Analyst)

Got it. How does the environment sort of play into that in terms of availability of skilled technicians, HVAC, etc.? I mean, it feels as though there's less and less maybe of people available in that space, and systems are becoming more and more complicated. I mean, does this sort of play into this maybe longer theme of you being a trusted advisor for some of these multi-location clients?

Michael McCann (President and CEO)

Absolutely. Our labor story is a lot different than a lot of other companies in the E&C space. Our field labor has shifted from production-type labor to super specialized labor.

Obviously, even from a productivity perspective, the dollars per hour of our labor has gone up significantly from a profitability perspective and obviously from a cost that we've been able to pass that along. That has been our focus, having super technical people that take care of these customers, understand complex systems. In many cases, the owners cannot work on these systems. They need us to come in and help them and advise them. Always through these critical repairs and complex issues is when we really start to develop that relationship. I think our specialized labor is important now and will continue to be important in the future. Just our approach of how we've gone to existing building mission-critical spaces. That is going to play really well, I think, into our future.

Gerard Sweeney (MD and Senior Research Analyst)

Got it. One more.

Obviously, I mean, ODR has been great, and I don't want to—I don't want this to come out in any other way, but is there a way to even speed this up to get deeper penetration, invest more in account managers, etc.? I think there's probably even an ability to spread more services across more branches. Just how does that play out in the next couple of years then in terms of growth?

Michael McCann (President and CEO)

Yeah. A couple of things. One thing is we've learned that this strategy takes time. I think it's not necessarily easy entry for people that are not focused on existing infrastructure. It takes three, four years. It's a very, I think, building block type strategy. You've got to earn that trust.

Just because you've done a large construction project doesn't mean that they're going to have you start working on the existing infrastructure. It's taken us three to five years to get to that point. I think going forward, our growth profile kind of looks like this. Locally, we want to get to the point where we're starting to penetrate those capital planning budgets, co-authoring, authoring. We get a lot more visibility in the future, and we're able to have a nice mix between OPEX and CAPEX budget. The other piece of it is our whole goal from an acquisition strategy and from an organic location strategy is to get on the same integrated platform, both from a systems and a strategy perspective. Over time, as we develop footprint, we're going to be able to be a national provider to some of these large spend-type customers, national customers.

That's another area that's going to start to accelerate that allows us to sell capital projects on a much larger scale and to kind of leverage this local and type national type relationship. I think that's when things really start to take off.

Gerard Sweeney (MD and Senior Research Analyst)

Got it. Super helpful. Okay. That's it for me. I appreciate it. I'll jump back into you.

Michael McCann (President and CEO)

Thank you, Gerry.

As a reminder, if you would like to ask a question, press Star one on your telephone keypad. Our next question comes from a line of Brian Brophy with Stifel. Please proceed with your question.

Brian Brophy (VP and Associate)

Thanks. Good morning, everybody.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Good morning.

Michael McCann (President and CEO)

Good morning.

Brian Brophy (VP and Associate)

Wanted to ask kind of a clarifying question here on the first quarter. I think you guys said flat revenue one Q25 relative to one Q24. Did I hear that correctly? And was that an ODR comment, or was that a total revenue comment?

Any clarity there would be helpful.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

We said basically it'd be similar to Q1. Q1 of 2025 would be similar to Q1 of 2024. If you keep in mind, in Q1 of 2024, we did have $2 million of a write-up in that quarter. So just kind of top line, bottom line, we expect it to be similar.

Brian Brophy (VP and Associate)

Okay. And that's total revenue?

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Yes.

Brian Brophy (VP and Associate)

Okay. That's helpful. Thanks. I guess, can you help us with, I guess, what gives you guys confidence in re-accelerating growth here later in the year?

Michael McCann (President and CEO)

Yeah. It's a similar pattern that we've seen. There's a good degree of seasonality that happens within the business. I think that piece of it.

I think the other part of it too is obviously getting our mix to the point where now we're starting to see that owner-direct revenue start to translate to top line, where in past years, we've been kind of holding back that total revenue. I think the other factor is obviously factoring the two acquisitions as well too. So it's a combination of maybe the three of those things working together where we feel the confidence from that perspective.

Brian Brophy (VP and Associate)

Okay. That's helpful. Then question on GCR gross margins in the quarter. They were notably better than we were expecting. Is there anything that was more one-time in there? I think you guys mentioned some net material write-ups, gross profit write-ups in the release. Did that have anything to do with driving the GCR margin in the quarter?

Michael McCann (President and CEO)

Yeah.

Our GCR, a lot of it depends on what work is being executed and being finalized within that quarter. Obviously, we've been super selective, and I think that has helped us tremendously as well too, as well as trying to obviously de-risk these projects as much as we can.

Jayme Brooks (CFO, Public Company, Qualified Financial Expert and MBA)

Yeah. On the GCR side, we did have about, I think it was around $2.9 million of a write-up within the quarter itself in Q4 that did benefit those margins.

Brian Brophy (VP and Associate)

Okay. That's helpful. I wanted to ask about your kind of account manager hiring plans this year. Are you guys planning on continuing to add folks at this point, and how should we be thinking about that impacting your SG&A for 2025?

Michael McCann (President and CEO)

Yeah. We're still in investment mode from an account perspective.

Every year, we're always looking to figure out how can we continue to accelerate that growth from an owner-direct perspective as well too. Part of that is obviously making sure that we have enough people on these accounts. Our strategy has been very different than others. Our focus on existing building, aging infrastructure, making sure that we're on the account every single day is really important. The specialization of our labor, I think, as well too. Then really building that long-term plan as well too. We want to make sure that we're at the accounts as much as we can to capture relationships and make it as sticky as possible as well too.

Brian Brophy (VP and Associate)

Okay. Maybe pivoting a little bit, thinking bigger picture here. Can you talk about the opportunity to grow your MSA count? You're in about 20 MSAs today.

Where can this go over time? Is that primarily going to be a function of M&A, or is there an opportunity to greenfield here as well?

Michael McCann (President and CEO)

Yeah. We have a lot of footprint. Just if you looked at our map, there are at least 20 or 25-plus type MSAs that we could be in that are great markets for us as well too. I think about where we are at in the middle of the country from an industrial manufacturing. We have really just started to take a look at being able to capture that. I think a good chunk of it will come from M&A. Every once in a while, if there is a customer that wants us to be in an area that we have the talent in place, they want to be in the area.

We have in the past done organic startups, but I would say the majority is going to come from an acquisition perspective.

Brian Brophy (VP and Associate)

Okay. That's helpful. Then I think last one for me. Can you just remind us how much data center exposure do you guys have? Where is that exposure? How much of that is new construction related? How are you thinking about the long-term opportunity in that market?

Michael McCann (President and CEO)

Yeah. We are very different from a data center perspective. About three years ago, we essentially, in one of our locations, we were building data centers, and we basically turned the faucet off and stopped building those data centers, which our location at the time was wondering what we were doing. From a new construction perspective, two or three years ago, we stopped from that perspective.

Our data center work that we have is existing building data center work, existing infrastructure. There's only a couple of markets that we're even able to take advantage of that: Columbus and a little bit in the Northern Virginia market. It hasn't been a big part of our past. I think in the future, it's just a matter of watching that infrastructure age and then being a partner for those types of facilities.

Brian Brophy (VP and Associate)

Very helpful. I'll pass it on. Thank you.

Michael McCann (President and CEO)

Thank you.

We have no further questions at this time. Mr. McCann, I'd like to turn the floor back over to you for closing comments.

Thank you for listening today and for your continued interest in Limbach. We look forward to seeing many of you at the UBS Services Conference this week and at the Roth Conference next week. Hope everybody has a great day.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.