Good afternoon, everyone. Gerry Sweeney from ROTH Capital Partners. Thanks for joining us for our 38th annual conference. I've got Mike McCann, CEO of Limbach here. Just by way of introduction, Limbach is a mechanical, electrical, and plumbing services company which provides mission-critical services for its clients. If it sounds familiar, it's right from your slide deck. Limbach designs, optimizes, delivers, and maintains custom-engineered solutions. Just using this as backdrop, I'll just jump right into the questions.
Okay.
What would be an ideal example of a customer? Let's start there.
A ll right, good. Maybe the best way to describe a customer relationship or an ideal one is part of our journey from a sales perspective. We do best with customers with scale. If it's a local customer that's got three or four facilities, we're effective, but not as effective if there was a customer that has 80 or 90 facilities. When I think about some of the large national healthcare players, I'm going to use, a lot of them are for-profit in the Nashville-type market. The ones that have the larger scale, there's a couple of things that we can really do for them. One is we can look at things from a more programmatic perspective.
We can still install and service locally, but nationally, we can look at it from what is your five-year capital development plan? How can we solve your very particular needs? Sometimes that's from an operational perspective, but also from a financial perspective as well too. We develop these programs. A lot of times, they're design-build projects or service and maintenance programs. If it's outside of our geography, we can still provide those services. If it's inside our geography, we get an additional benefit because we can install it as well too. Mission-critical customers within our six vertical markets that have scale, that's our ideal customer.
I think HCA is a prime example. Just taking a half a step back, I apologize. Just looking at the field of what's happening in the market today to say, craft labor is becoming more challenging or less availability, mechanical, electricians, plumbers, et c., and layered on top of that, you have more technology as well. How does that interplay with the business opportunity?
I feel like the business has changed quite a bit in the last 18, 24, and I would say the industry has changed a lot. Customers are looking for consistency across a broad profile. They'll pay up a little bit to get consistency across that footprint. For us, it's our ability to be viewed as that national provider at the end of the day. It's really tough for a local contractor in a very specific market to work well in this space. I think part of this is brought on by the data centers buying nationally. I see healthcare buying nationally as well too. Customers are really valuing quality and consistency, and that's why they're coming to some of the larger national players.
Whether they're public companies or they are private companies as well too, that has changed tremendously in the industry, and it's our job to position ourselves as a provider from a multiple footprint perspective that can give them that level of consistency.
Even on top of that, there's a complexity. I almost say this may be a little dated, but I used to say the days of maybe even a hospital or large mission-critical facility having internal operations or mastering internal operations, those are in the past. Is that a fair assumption?
It's very interesting. As we've repositioned ourselves at the national level, I can't tell you how many times customers come to us and say, "How do I take care of my facility? Can I augment staff? Can you help me hire staff as well?" There's a huge shortage of people from a local facility and staff perspective, and a lot of times they 'll deal with not the right amount of staff or the less perfect staff, and they'll allow us to come and run the program for them. Sometimes we'll actually be the service and technicians pulling the wire or servicing a piece of equipment. Sometimes we're managing a program for them.
The cut on labor or the challenge from a labor perspective, it's not even just craft labor, it's also labor from the owners in those facilities as well too. Again, we look at it, we don't have to install everything. We don't have to service every piece of equipment. Let's look at it from a super long-term approach and be that partner and allow them over time to trust us more and more from the amount of work and how much we manage for them.
Sticking with that national approach, you made some changes to your organizational structure, I think, earlier this year. I think you have someone in charge of national accounts, plus someone that's managing at the local level or the services. Maybe describe what the opportunity there and what the strategy is behind that move.
The moves that we made this year were really a culmination of our maturation based on the last three or four years. When we've gone from general contractor relationship, GCR, think new construction, to owner direct relationships, think existing building, the general contractor world for us was more of bidding. It was more transactional for us. In order to switch to the owner direct world, we had to hire sales staff, sometimes promote staff. The last three years, we've hired about 40 people each year. It's always tough every year. You're hiring staff, and you want performance as much as you can from them. We're not fully baked from a staff perspective, but we're not nearly making the hires that we made before.
In 2026, our objective was twofold from a sales investment perspective: invest in sales enablement. We have one executive in charge of that, and his job is to make the 120 salespeople as successful as possible, make them more productive they have in the past. His objective is to roll process tools, coaching, sales generation, and sometimes the most simplest way to look at it, he's there to go make the deal with the staff member. They make the seller successful. Our staff is commissioned sales reps, so we want to view this as an added benefit of working for a bigger company, quite frankly. That's one individual. The second individual is focused on national accounts.
A national account for us is going to come most likely from our three vertical markets, industrial manufacturing, healthcare, and data center, and a lot of times those relationships have borne out of local relationships. We're not calling somebody from scratch. We're calling somebody because we work with you in three locations, and we want to take it to a national approach. That individual is very focused on those, specifically in those three vertical markets, and they're there to connect dots. I look at both of these people working together and both of these type of strategic objectives working together. If it works right, we're making the local people, salespeople as successful as possible. At the same time, we're infusing national relationships into the local facilities and local relationships as well too.
Our objective is to get a core local growth rate combined with a national boost from those type of relationships as well too.
Can you give us an example of how you get into a customer and how the whole program emerges? I think you, generally speaking, start with a maintenance contract or someone, a site manager, and try and grow it from there. Is that correct? It may be changing a little bit .
Yes. When it comes to a local relationship, for us, it's not a matter of calling a lot of new customers at the end of the day. It's about penetrating and grabbing market share within these local relationships. What we do, I feel like it's different than others, is we put the time and effort in front of the account, and we install what we call an on-site account manager. Their job is to know the facility better than anybody else. Their job is, some days they're not busy, but they're walking mechanical rooms in different areas of the facility trying to figure out what the problems are so they can bring back to the facility staff and whatever staff at that local facility as well too. That's the added benefit for our strategy.
Usually, that leads to traditionally a maintenance contract, or that may lead to us being, having staff on-site to take care of issues. We want to learn the building the best that we can solve their problems, and be in position. Sometimes it takes a year or two to say, "Okay, I've got XYZ piece of equipment. The repair cost for the last two years has been half a million dollars in this one piece of equipment. Maybe it's time to replace that piece of equipment. Maybe it's a million-dollar piece of equipment to replace, but look at all this money that you've spent in the past and look how much you're going to spend in the future. B y the way, this piece of equipment is going to be more energy efficient. There's utility savings that can happen. By the way, I can get you a utility rebate."
You start adding up all these costs. A lot of times we look at like the combination, we do CapEx and OpEx. CapEx, we get in there. That's the recurring from a revenue perspective. Usually, it's from a maintenance contract, and that leads to capital projects. Ultimately come out of it. It's really the relationship between the two of those. We've realized in the last 18 months, sometimes we haven't been able to sell the capital project, and we started realizing, "T hat capital project gets funded from the national headquarters." We started learning our process. I gotta be up here at the national headquarters to realize, I can't let somebody sell my solution.
I need to be selling my solution directly to the end user. That's how our relationship, and we've learned over the last couple of years how you've got to sell at all levels. You've got to make sure it's very audience-specific. When we're talking to a CFO or a finance person, we're talking about return on invested capital, NPV. We're talking about all financial terms. We're talking to the facility manager, they're talking about downtime. They're talking about, "I'm giving you the best value." That's where our sales evolution has changed dramatically, and that's why you think about the two executives that Gerry mentioned as well before be cause they work together, but also it's different based upon the relationship that we have and where they're at in the organization as well too.
I always looked at it as having a longer sales cycle, but very, very sticky. Two questions on this front. One, how sticky is the relationship? T wo, does this strategy maybe speed up the sales cycle a little bit?
Yes. I would say we try to work with enough customers that gives us diversity. For us to be an OEM, for example, a lot of times in the existing building world, it's Trane or Johnson at the end of the day. For us to beat them, and we may not have the control system in place and the security system in place, we got to know the facility better than anybody else. For us, we look for a relationship from a year-over-year basis. How well is it at producing? Are we working our way up through the customer? A lot of our revenue ends up coming as an outgrowth of that existing maintenance contract, or it comes as an outgrowth of us having on-site staff. We track that internally.
From that mindset, it's pretty sticky from that standpoint. For us, our opportunity, we think we've learned a lot over the last three years. T he business is so different than it was five years ago. Every year, we're anticipating making certain changes, and we learn a little bit more. The more we zipper these organizations, the more it's going to allow us an ability to grow, and the more it's going to allow us to be stickier with the customers as well too. You've got to zipper top to bottom from a customer standpoint. If you zipper top to bottom from a customer standpoint, you start to understand customer buy decisions more than you have in the past.
Yes.
I'll just give you one example of this. We have a national relationship with one of our vertical markets healthcare provider. One of these customers, time after time, the spend for their OpEx fund was up and down every year, up and down, and we couldn't figure out. Well, recently we went back to that customer and they basically said to us, "Well, nobody plans accordingly. We don't know what's going to happen. W e fix a bunch of stuff. We run out of money. We wait a year. We fix it back again. Can you sit and develop a program over seven hospitals where the spend is more consistent?" I t seems like common sense, but when you're doing really well locally, you're thinking, "Well, it's never going to end. The gravy train's going to keep coming."
At the end of the day, there's financial decisions that get made, and that's why kind of a long story short, I'm rambling here is, zippering the relationships is what really, really matters.
I've got one or two more questions on maybe the market and growth opportunity. I'm not sure if you're going answer this, but I used to ask it before. Y ou have your customer base, and I still think you're in the very, very, very early innings of penetrating that customer base. I think at one point, top 10 customers, how deeply penetrated are you into them?
This is what we've realized. If we had a 10% share on a customer that just is locally, we've realized as we connect the dots nationally, that 10% share locally is like 1% from a national perspective. Bringing in the national relationships allows us to feel like we're even more early innings, and we're more accessed from a capital perspective as well too. For us, we've been a mixshift story for the last four or five years almost. This year I've had even a lot of people I've had one-on-ones today. We've had a bunch of them, is our mode right now, 2026, 2027, 2028, is finally getting to the point where we're scaling and growing.
We want to take advantage of the relationships that we've built. Our mixshift is normalizing, and finally, we feel like we're in growth mode from that perspective. We're going to do it locally, we're going to do it nationally, and we're also going to do it from acquisitions as well too.
Perfect acquisitions. W hen you look at acquisitions, what is the opportunity or what are you looking for? Obviously, I think there's a service component, maybe a technology component, but then there's also a geographic perspective.
Yes. We want our acquisitions to fit with our strategy, this national reach local relationships. That's our mindset, and being an indispensable partner to building owners. What does that mean? That means they got to have us. They can't operate without us, and they depend on us. For us to do that, how we're going to make our M&A strategy fit together is, if we're going to have local relationships, even though we have national presence, we're still going to have to be in MSAs that we're not in right now. We're going to need additional geographic footprint. That's still going to be, I would say, number one from a capital usage perspective, but also from an M&A perspective as well too.
We've got a lot of footprint in the Southeast, the Midwest, which we feel like are going to be really, really good candidates. That's the primary. I would say the secondary is there are professional services that can speed up our vertical market penetration. Just give you an example of this. In the healthcare vertical market, we built our own professional services company. Program management, commissioning, staff augmentation, and engineering. We hired people to do that. We've made the investment already there. From data center and industrial, can we invest in consulting, boots on the ground consulting companies, might be a commissioning company, that can speed up those two verticals as well too. Lastly, I'll say too is, when I look at our organic, I want to make sure the M&A matches up. I'll just give you an example.
If I've got a national customer that says, "I really want you to be in this state," that isn't going to immediately drive us to making a deal we don't want to make, but it'll lead us to there's additional value creation if we can make that deal. Our goal is to make sure that these M&A fit really nicely together with our overall strategy. It's either geographic footprint or it's a very specific professional service that expands our vertical market and expands our relationships, quite frankly.
Is that professional services more like a consulting aspect or?
The best way I would say it, think about it as maybe commissioning or on-site engineering. Those are the type of companies. What we're not looking for is, we have engineering in all of our locations. We've been doing engineering for a long time. We're not looking for people to produce drawings. We're looking for people to have C-suite relationships, VP-level relationships, where we can extend our reach from commissioning, and those type of services.
Switching gears a little bit, maybe to the margin front. Obviously, as you get deeper into your clients, you understand the equipment more, the world's changing, more technology. You've also, at the same time, talked about driving margins into the mid-30s and 40, maybe even 40% over time. I think some of that is technology- driven, some of it is probably adding to your service portfolio. W hat's the opportunity from that perspective?
Sure. If you look at our margins, one thing to remember is every time we do a geographic expansion, the margins are less than our margins. If you've seen our Q4 deck, we probably provide some additional information. We've done six deals since December 2021. If you'd remove those six deals from our business, our margin's about 28% overall, 28.2%, and our goal is to get the 28% to 35% to 40%. I'll get to how we're going to work on that after this. Every acquisition, we're going to end up in a margin climb, and it's our job to describe how those two end up working together.
One easy way is if we have a full geographic footprint, that automatically will shift our margin up. T hat's base point number one, b ut if you look at just our legacy businesses, getting it from 28% to 35% to 40%, there's a couple of key things, and it really comes down to providing customer solutions that cannot be commoditized, engineered solutions with our ability to install it. On a national level, it's probably a perfect relationship. If you think about some of the national healthcare providers, we can make a really good margin by providing design-build services that we never install. If it lines up with a geographic location, we get a double markup on that from an installation perspective.
We're able to mark up the overall project and mark up our self-perform, and that's because we're providing a high-level customer solution to them. Same thing too, we have an acquisition in North Carolina that provides air handling equipment. Very specialized, dirty air- type environment. They provide an overall project, and they also provide margin on top of specific components. It's two things. It's margin layering. It's as well as selling at a different level and selling it more from a financial return perspective than a commoditization level.
Before I open it up for questions, this would not be a conference in 2026 if I didn't ask, what is your data center opportunity?
Never been asked before. For us, we've been really careful in the data center perspective. We've been working in and around data centers for probably 10 years in the Columbus market. We've done new builds. We've done infrastructure. We've done service and maintenance. We've done retrofit work. We've been really careful, though, to extend that beyond this. One thing I think started to change at the end of last year is there's so much money to be spent in the data center market, and they can't find enough people to do it.
We had started to see some of our customers, some of the hyperscalers and the co-locators saying, "We really need you to do, provide services, not only more in the Columbus market, but outside of the market as well too." That's why we're building a vertical market team, not only to do work within that local market, but also to extend beyond that as well too. It's going to be infrastructure work, fabrication work, retrofit work, service and maintenance work. Right now, data centers represents less than 5%. We've been very careful not to give too much information from future periods, but we wouldn't be building a vertical market team if we didn't think there was a really good opportunity.
It's a growth avenue, but there's plenty of opportunity.
Correct.
Especially with your other healthcare, etc . Limbach is my top pick for 2026. There's no pressure. Just got to perform the next couple quarters. With that, an y questions from the audience? I got more questions if you don't. That's all right. What do you think the street doesn't get with your story? You switch from GCR shrunk, ODR much larger, but I think there were some questions about some bigger projects in ODR and I think some grumblings that maybe the way you positioned ODR was maybe not exactly the way some people would see it.
Yes. For us, we're building a long-term strategy that may not fit short-term excitement from that standpoint. To your question on project size, one thing we provide some additional information.
Yes.
As an example, our owner direct projects average project size at $240,000. Even on the GCR size, project size, it's $2.7 million. The projects are very small. 27% of our owner direct revenue in 2025 was quick burning, which a lot of people classify as that recurring revenue. We have described it the same way, but I think providing that additional metrics information, I feel like is giving, hopefully, investors additional information.
I think no different than from a margin perspective, segmenting the revenue, providing different margin profile, just giving the right amount. We're always been very careful not to give out the right amount of information, and that's just been one of the things that as we've gone further along, we've realized, what's the right information for investors to make the right decision? But I think at the end of the day, it really comes down to is we're building a long-term model. We want to be in growth mode. Just like anybody else, I'm sure people are in a position to see what that looks like, and w e're building it not only locally, but nationally to deliver on that.
On that front, you said what's the average size ODR? $240,000?
Yes.
Is it fair to say that you may have one client with multiple projects.
Yes. If we have one client, we could have maintenance projects. We look for all these things to feed off like a spider web.
Yes.
What we don't want to do is we don't want to do a $5 million project for somebody we're not going to work with or there's not continuous work. I'll tell you, even the GCR projects, as we look forward, a lot of those are relationships that we've had that have almost come from the owner direct. Maybe six or seven years ago, we would've said the owner direct work's coming from the GCR. It's almost like the other way around right now. We're in an owner. There's all different various transactions. We get 15 different, 20 different transactions from ODR, GCR, to maintenance to service that all kinda spider web off that relationship.
Got it. Time for one more question. I'll ask it.
Go ahead.
Acquisition playbook. Pioneer Power, largest acquisition. It's probably brought margins down a little bit, but significantly larger than your previous acquisitions. Great, I think business, new MSA. How do you integrate that? How do you take a Pioneer Power and take it from, I think margins in the low teens to, you know, 28, 29, 30%?
We look at it in two pieces. The first piece is, and we've learned over time, is get what we call phase one done as soon as possible. Systems, people, benefits, accounting system, get that out of the way as soon as possible, and that's really what we spent the back half of last year on. The second phase is value creation. Value creation in the simplest terms is we want to raise the margins and raise the margins significantly. We're okay with static revenue if we get tremendous return from a gross margin perspective. We follow a bunch of different steps in part of our playbook, whether that's concentrating on certain customers, renegotiating contracts, adding sales team.
We have a slide in the investor deck that talks about the first acquisition we did in December 2021, where we took the margins from 13.4% to 28%+. Hopefully people can use that as an example of what Pioneer could be.
Mike, thank you very much.
Thank you.
Appreciate it.