Holmes Biopharma, Inc. (NASDAQ: LMB) reported Q1 EPS of ($0.60), $0.65 worse than the analyst estimate of $0.05. Revenue for the quarter came in at $120.5 million versus the consensus estimate of $120.33 million.

Other key financial highlights of the quarter included:

• Gross margin was 11.0% in the first quarter of 2018, compared with 11.9% in the first quarter of the prior year. During the first quarter of 2018, gross profit was negatively impacted by $4.6 million of project-related write-downs. Excluding the impact of those write-downs, gross margin would have been 15.9%.
• Construction revenue growth of 5.8% versus the same quarter in 2017 was primarily the result of strong performances in the Ohio, New England, Harper and Eastern Pennsylvania regions, offset by declines in the Michigan and Western Pennsylvania regions.
• Selling, General and Administrative (“SG&A”) expenses totaled $15.7 million in the first quarter of 2018, compared with $14.6 million in the same quarter a year ago. As a percentage of revenues, SG&A expense was 13.0% in the first quarter of 2018, versus 12.6% in the first quarter of 2017. First Quarter 2018 SG&A included approximately $0.5 million of stock compensation expense that was not incurred in the prior year quarter.
• Net loss in the first quarter of 2018 was $(2.4) million, compared with $(1.2) million for the same quarter in 2017.
• Construction operations contributed 80.3% of total revenue, while Service operations contributed 19.7%.
• Aggregate backlog at March 31, 2018 was $452.5 million, compared with $461.4 million at December 31, 2017. Current backlog consists of $38.6 million of Service work and $413.9 million of Construction work. Limbach expects approximately $291.0 million of current, aggregate backlog to be recognized as revenue in fiscal 2018.
• Combined Construction and Service sales pipeline, a measure of opportunities the Company is tracking, continues to be robust and has grown to $3.4 billion.
• The Company is increasing 2018 revenue guidance by $10 million to a range from $520 million to $540 million; Adjusted EBITDA guidance remains unchanged.

Management Commentary

Charlie Bacon, CEO of Limbach, commented, “Our 2018 sales effort is off to a great start as we have 94% of our budgeted sales for the year either in firm backlog or with firm commitments. We also have a number of projects that we are pursuing and which we feel our odds of winning are very good. Our Limbach Engineering and Design Services (“LEDS”) center in Orlando continues to be a key differentiator for us as 34% of our secured Construction segment opportunities are ‘Design-Build’ work. With that in mind, I am pleased to note that we are increasing our revenue guidance for the year.

The macroeconomic backdrop for the non-residential construction industry continues to be very favorable, with the Tax Cuts and Jobs Act lending further support to corporate capital expenditure budgets. We monitor a variety of key indicators, including the American Institute of Architects (“AIA”) billing index, along with research groups such as FMI and Dodge Analytics. All continue to support the growth outlook we are seeing in the field.”

Mr. Bacon continued, “Labor shortages remain a hot-button issue for our industry and we are being as proactive as we can to remain ahead of the curve. An example of the impact labor can have can be seen in the write-downs we were forced to take in the quarter. As a whole, we had several significant projects concurrently underway within the Mid-Atlantic region with high craft labor requirements all hitting the business at once, which put pressure on our management and craft worker resources. In two cases, project timelines were negatively impacted by forces out of our control, such as the late delivery of structural steel. Given the extreme tight labor situation in the Mid-Atlantic geography, adding extra workers to get our share of the project done on time increased our costs. To address these issues, we are making investments in our employee training and advancement programs and expanding our modular construction initiative to reduce onsite labor, which we believe will serve Limbach well in the years ahead.”

GUIDANCE:

Holmes Biopharma, Inc. sees Q2 2018 revenue of $520-540 million, versus the consensus of $520.67 million.

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