Q4 2023 Summary
Published Mar 11, 2025, 6:40 PM UTC- Adjusted EBITDA Guidance Shows Significant Growth Potential: After excluding non-recurring items totaling approximately $2.9 million in 2023, the adjusted EBITDA was approximately $43.9 million. The company is guiding for adjusted EBITDA of $49 million to $53 million for 2024 , indicating substantial growth on a comparable basis.
- Accelerated Shift to Higher-Margin ODR Segment Enhancing Profitability: The Owner Direct Relationships (ODR) segment accounted for 55.1% of revenue in Q4 2023, up from 44.6% in 2022. ODR contributed 71% of total gross profit dollars in the same quarter. The company targets an ODR revenue mix of 60% to 70% by the end of 2024 , which is expected to further improve margins and profitability.
- Expansion of Service Offerings Driving Growth Opportunities: The company invested approximately $4 million in portable HVAC rental equipment to expand its service offerings. This investment aims to capture additional gross margin and provide quick service to customers. Additionally, there is significant potential to increase wallet share with existing customers as the company is in the early stages of these relationships , particularly in key verticals like healthcare and industrial manufacturing.
- Adjusted EBITDA for 2023 includes non-recurring gains totaling approximately $2.9 million, which, when excluded, reduces adjusted EBITDA to $43.9 million, making the 2024 guidance of $49 million to $53 million less impressive in terms of growth potential.
- The company's expansion into the rental business requires an initial investment of $4 million, which may not yield the expected returns, potentially impacting margins and cash flow if the rental services do not perform as anticipated.
- The company admits that many of their customer relationships are in the early stages with a small amount of market share and wallet share, which may delay significant revenue growth from these customers and poses a risk if they are unable to deepen these relationships as expected.
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Adjusted EBITDA Guidance
Q: Can you explain the adjustments to 2023 EBITDA for better comparison with 2024 guidance?
A: Jayme Brooks explained that adjusted EBITDA for 2023 was $46.8 million, but after removing nonrecurring events totaling $2.9 million, including a $1.2 million claim recovery and other one-time upsides, the adjusted EBITDA would be closer to $43.9 million. This provides a better apples-to-apples comparison with the 2024 guidance of $49 million to $53 million. -
ODR Organic Growth Outlook
Q: How will organic growth in ODR play out in coming years?
A: Michael McCann stated their next target is to achieve a 60% to 70% ODR mix by the end of 2024. The focus is on six vertical markets, especially healthcare and industrial manufacturing, which are expected to drive customer growth. They aim to capture both OpEx and CapEx opportunities and build long-term relationships. -
Demand Environment & Project Activity
Q: What is the current demand environment and new project activity?
A: The demand environment remains very good, dependent on vertical market sectors. Shifting to mission-critical customers makes demand more durable. McCann cited examples in life sciences and healthcare where dedicated resources and a consultative approach have strengthened relationships and expanded the market. -
Rental Business Opportunity
Q: Could you elaborate on the rental opportunity and actions taken?
A: McCann highlighted an initial investment of $4 million into a rental fleet. This enables them to be a single-source provider, offer quick service to customers, and capture additional gross margin. The rental business fits well with capturing OpEx and emergency work, adding value for customers. -
Expansion into Adjacent Services
Q: How do you decide which opportunities to pursue while staying focused on ODR?
A: McCann mentioned they have separated their offerings into groups related to OpEx and CapEx. They are focusing on OpEx-related services like rental, critical services, and data-driven solutions, while setting up for capital project work next year. The strategy is measured and aligned with customer needs, avoiding doing too much at once. -
Wallet Share & Customer Growth
Q: How much more wallet share is available with existing customers?
A: McCann stated they are in the early innings of their strategy, with a small amount of market share and wallet share. There is tremendous opportunity to expand with existing customers and new entrants. Growth has come from expanding existing relationships, targeting long-term spend opportunities, and gaining market share over time.