{ "docId": "019dd923-622c-750b-8b99-b80c260b0389", "docSlug": "dee45f9e8542", "documentTitle": "Limbach Holdings, Inc. (LMB)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2025-07-22 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 13, "pageCount": 86, "prevPage": 12, "nextPage": 14, "slideType": "executive_summary", "function": "summarize", "density": "dense", "nDataPoints": 5, "notes": "The slide uses a red border to highlight critical findings, typical of activist short-seller research.", "elementsJson": [ "paragraph", "callout_box" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-b80c260b0389/13", "deckHref": "/decks/019dd923-622c-750b-8b99-b80c260b0389", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-b80c260b0389.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-b80c260b0389#slide-13", "components": [ { "bbox": null, "kind": "callout", "text": "We believe one of the clearest signs of aggressive accounting at Limbach is the disconnect between its steadily rising adjusted earnings and stagnant free cash flow.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-5370-75b3-9c60-d95895b850a8", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "EBITDA to FCF conversion rate: 60%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-5370-75b3-9c60-df045151bbdc", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.28, "w": 0.96, "x": 0.02, "y": 0.35 }, "kind": "paragraph", "text": "Recent Lawsuit Highlights Need To Consider Working Capital When Evaluating Free Cash Flow\nA recent lawsuit filed by Limbach subsidiary Jake Marshall underscores why evaluating working capital is crucial. After a prime contractor abandoned a project where Jake Marshall was a subcontractor, Jake Marshall was left with a $4.6 million unpaid balance, $3.4 million of which was from unapproved change orders. Because Jake Marshall's contract required written approval for such changes, we believe that amount is likely unrecoverable. Under cost-to-cost accounting, Limbach would have recognized profit as work progressed on the project but now may never collect the cash due for work performed, highlighting the need to evaluate working capital when assessing Limbach's free cash flow.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "05fdc041-6db8-4acd-87ce-1e248242b3c5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.35, "w": 0.96, "x": 0.02, "y": 0.63 }, "kind": "paragraph", "text": "Other Accounting And Financial Reporting Concerns\nLimbach's allowance for credit losses appears insufficient. At 0.4% of gross A/R, Limbach's allowance for credit losses is among the lowest relative to peers, which may be inflating the Company's reported earnings. If Limbach maintained a reserve more in line with peer averages, its annual provision expense would likely be higher, reducing earnings. We believe Limbach's disclosures on revenue in its MD&A are weak, especially when stacked up against some of its peers. Limbach simply reports ODR vs. GCR segment revenue, while Comfort Systems (NYSE:FIX) breaks out its revenue by service, customer type, and activity type. EMCOR Group (NYSE:EME) even presents a sector breakdown by segment. These additional layers of detail provide investors with a clearer view of underlying business drivers and risk exposures. Limbach's limited disclosure, by contrast, makes it difficult to assess the sector concentration of its revenue base. We also highlight how Limbach reported a material weakness in its internal control over financial reporting from 2016 to 2018, illustrating the challenges of managing an accounting function within a large contractor.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "372bccb2-7415-451b-867c-2a5cb878e859", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "paragraph", "text": "While the Company claims an 80% EBITDA to FCF conversion rate over the past six years, our Spruce Point-adjusted FCF analysis suggests the true figure may be less than 60%. We believe one of the clearest signs of aggressive accounting at Limbach is the disconnect between its steadily rising adjusted earnings and stagnant free cash flow. Despite acquiring five companies between 2021 and 2024, our calculation for Limbach's LTM free cash flow is over $17 million below its 2020 level.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b770231f-48da-4a1d-a7b2-f352acb739e4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.045, "w": 0.365, "x": 0.318, "y": 0.055 }, "kind": "title", "text": "Executive Summary, Cont'd.", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f510e37d-386b-4796-8615-0d83628c7ea7", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Executive summary", "slug": "executive-summary", "agent": null, "layer": "slide", "matchId": "8eb804a6-84fd-479a-aebd-fa5d6e511f55", "evidence": "This slide is an executive summary, which is a common section in business presentations.", "confidence": 0.9 } ], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "f1648cfd-f1c6-4e0f-986f-636c9878d6b9", "evidence": "The slide explicitly identifies 'aggressive accounting' and 'material weakness' as key risks to investors.", "confidence": 0.9 } ], "arcBeats": [ { "to": 19, "from": 5, "beatId": "32ad1395-b980-4b6c-83f9-8323d778a736", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Problem & Complication", "beatSlug": "consultants-gambit-problem-complication", "evidence": "The document highlights several problems and complications with Limbach's financials and operations, including connections to high-profile fraud cases and generous stock-based compensation", "position": 0, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }