Yet Another Value Podcast - $LMB: Limbach missed the data center boom. Is that the opportunity? | 1 Main Capital

Episode Date: September 1, 2026

Limbach spent three years turning itself from a general contractor into an owner direct services business, and the market loved it right up until this summer. Then organic revenue went down mid single digits, EBITDA fell 30%, guidance came down from $90m to $80m, and the stock lost half its value. Yaron Naymark of 1 Main Capital pitched me this name in June 2023, watched it 6.5x, sold most of it, and is back buying it after a 75% drawdown.His argument is that the EBITDA decline is fixed cost deleverage on a demand air pocket, not a broken business, and that the bigger story is the one Limbach missed. While FIX and EME compounded on data centers, Limbach stayed singularly focused on owner direct work and ended up with effectively zero data center exposure. The CYMCOR acquisition announced alongside Q2 is the first real move to fix that. I push back on the bear case that management knowingly bid a pile of low margin work, on whether owner direct is just general contracting by another name, on whether wage inflation from the data center boom is quietly eating them, and on whether a 2016 de-SPAC ever escapes the gravity of $10 per share. We finish on how Yaron invests around AI without pretending to know who wins: Limbach, IWG, and why he re-initiated KKR.Yaron's first Limbach pitch, June 2023: https://www.youtube.com/watch?v=m7GzW0ahswgThis episode is sponsored by Trata: https://www.trata.com/lmb. If you like this podcast, you are going to love Trata. It is two buysiders getting on the phone and talking through a stock they are both interested in, the reasons they want to get long, the reasons they are worried about it. They have a Limbach call from six months ago that holds up really well, and I asked one of its questions on this episode.Chapters:(00:00) Intro(00:56) Sponsor: Trata(01:50) Yaron Naymark, back for round six(03:09) What Limbach is and why he is double dipping(03:40) Enron, a SPAC, and the shift from general contracting to owner direct(06:32) Called a data center winner when management said otherwise(07:48) The air pocket: tariffs, Medicaid cuts, and paused projects(09:29) Why the stock is down 50% when EBITDA is down 30%(12:14) Organic versus headline revenue and the Pioneer Power deal(12:40) Double dipping on a stock you already made money on(16:57) The bear case: low margin bookings and general contracting by another name(22:31) Why FIX and EME ran and Limbach did not(24:42) Wage inflation, technicians, and whether owner direct contracts trap them(27:01) Did management get caught off guard between Q1 and Q2?(30:35) The $50m buyback nobody has touched(31:18) Why M&A beats buying back stock at six times EBITDA(33:55) The math behind a $200 three year price target(35:18) Could Limbach be the seller instead of the buyer?(38:09) Josh Horowitz, insider ownership, and the de-SPAC stigma(40:50) CYMCOR and the data center pull through(42:52) Investing around AI: Limbach, IWG, KKR, and the mega-alts(50:29) WrapYaron Naymark / 1 Main Capital: https://www.1maincapital.comLinks:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

Two and five Canadians will hear the words you have cancer. That's why every step and dollar raised matters. On September 19th, join thousands in Toronto for the Princess Margaret Cancer Foundation Walk. Challenge yourself, friends, and family to walk 21 kilometers in support of life-saving research. Together, we can carry the fire and help create a world free from the fear of cancer. Register today at pmcfwalk.ca. All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. Today we've got a great one. One of the people's favorite guests, your own Namark, is on. I thought it was the fifth time. It might be the sixth time because he already has a YafP shirt. So he's reping it during the podcast. And speaking of having him back on, we're having him back on again to talk about Limbaugh. The ticker there is LMB. He came on and pitched it in summer, 2003, went on an absolute tear. It's come back a lot over the past year. And he's going to talk about all about why he's double dipping. And hopefully I, as a three-year-old wiser podcast host, asking a lot of good questions on, hey, has the thesis

change? You know, there are a risk. The company really missed their earnings targets and their guidance so far this year. So are we properly addressing that? Why aren't they benefiting from the data center? All this sort of stuff. So I think you're going to enjoy it. Your own is one of the sharpest investors out there. I think you're going to enjoy the podcast based on all the emails I got. People are very excited for this one. So we're going to get there in one second. But first, a word from our sponsor, which is trata, t-r-r-t-com. Trada. Trada. Trada, if you're you like this podcast, you are going to love Trada. It is two bysiders hopping on the phone and talking about a stock that they are both interested in.

Sometimes one's short and one's long. Sometimes one's long, sometimes one's long and the other's long. Sometimes there's like, oh, I want to pull the trigger, but I'm not quite there. And they discuss all of the issues that they are seen in the business. The reasons they want to get long at, the reasons they are long at, the reasons they're worried about it, all that sort of stuff. So if you like this podcast, Trada is kind of like this podcast on steroids. You can go to Trada. that's t r a ta ta dot com slash lmb and guess what they have a limb b from it's from six months ago

but a lot of the questions and the risk that they're talking about in that interview actually hold up really well and i even ask one of them on this podcast so trotta dot com slash lmb if you want to check them out and thank you to trada for sponsor to this podcast now on to the main thing with your own name mark all right hello and welcome to you another value podcast i'm your host andrew walker with me today I'm happy to have on it. I thought it was the fifth time. It must be the sixth time because he's got the, he's got the AFP shirt on.

He surprised me. Your own name art from one main capital. Your own, how's it going? What's up, man? I almost wore the hat too, but. Well, I'm just excited. I don't have to spend the money on the money on the money on a shipping cost for the shirt.

Because I was like, oh, I want another. I need another. No, it's one time only. You're on super excited to have you back on. If my Twitter DMs and everything are any indication, everybody's excited to have you back on. It's been a while, but we're going to talk about a stock before we get

there at disclaimer, remind everyone, nothing on this podcast investing advice. There's a disclaimer in the show notes, disclaimer at the end of the podcast. That out the way, your own. This is actually the second time we're going to talk about this company, Limbaugh. You and I talked about it. I had to look it up June, 2003. I wasn't sure if it was a fever dream. We talked a lot about Limbaugh. This stock did incredibly well. You know, I think it was up like 6.5x over the next two and a half years after we discussed it. And it's come back quite a bit since then. It's down about 75% from the peak. it's still up 80% from the first pitch. So, you know, if you held one in a coma, you're still pretty happy.

But you are back in the stock, double dipping on the stock and when it's come on the podcast. So that's a huge overview for everyone. And I'll just toss it over to you. What is Lindbach and why are you kind of double dipping here? Yeah. So I, like you said, I thought the setup was really, really compelling in 2023 when we spoke about it. I think it's back to being almost as compelling now as it was back then. which is why I want to talk to you about it.

For those, maybe I'll kind of give a history of the company and the overall pitch instead of assuming people watch the 2023 version. It was three years ago and I was one of the two people on the podcast and I could barely remember it. So I'm sure the listeners might appreciate that too. So I'll just give a kind of a quick overview of the history of the company and how we got to where we are and why it starts compelling now and then we can go into Q&A from there. So HVAC is an MEP contractor, mechanical, electric, and plumbing contractor.

They specialize on mechanical side. It's primarily HVAC for emission critical infrastructure assets, think hospitals, advanced manufacturing facilities, and the likes. Company is very old. It's over 100 years old. It was founded by a guy with the last name, Limbach. he eventually sold it and ended up in the hands of Enron. Enron went bankrupt.

Private equity firm bought it at a bankruptcy and then brought it public in 2016 by merging it with a SPAC. And the vision for the company when it came public was to roll up small kind of local contractors over time at attractive multiples, very fragmented end market. And typically the smaller players trade for four to five times EBITDA. Now it's might be crept up to five to six times EBITDA. but there was a long runway for consolidation, and the public vehicle was meant to do that. It was run by a CEO at the time who the company had some issues on the general contractor side.

They took some major new construction projects, and they had major projects right down on them. They lost a bunch of money, became a kind of a distressed equity going into COVID, and then they managed to dig their way out of that distress through good earnings growth. and free cash flow generation, delivering the balance sheet, and now it's back to being a consolidation and roll-up story. Over that period, the CEO was replaced in early 2023. The former COO, Mike McKin, was promoted to CEO. And Mike had started a transition at the time when he was COO,

but continued it as CEO of transitioning the company from GC, primarily GC business, where they're working on major new construction projects to owner direct business where they're working on upgrades, repairs, retrofits, adding a wing to a hospital, and really doing work directly for the building owners, which tend to be more working capital efficient and higher margin projects and less susceptible to kind of blow up risk. And that transition went really well for that, right? You know, when it came public, the business was probably 80-20 on the GC side,

and as it last year, it was probably 75, 25 on the owner of the rec side. And so margins expanded from low single-digit EBITDA margins to low double-digit EBITDA margins that made some acquisitions along the way, grew nicely, and everything was going great for the stock. At one point last year, Lindbach was caught up as a data center winner, wrongfully so. Mind you, at the time, the company was not pursuing and was vocal and not benefiting significantly from data center business, but a lot of their competitors and other MEPs in the space were benefiting tremendously from data centers and people assumed Limbaugh would benefit

from it as well. But the company was singularly focused on capitalizing on its owner-direct relationships, which were growing very nicely up until they hit the recent speed bump, and really just staying out of trouble with the general contractor side. So even though there's tons of demand for new data center work, and that work, has come with relatively attractive margins for the private and public competitors doing that work because the hyperscalers and neoclods are more focused on quality and speed rather than absolute cost. Not that they're throwing money at every problem and not that they're not looking at what things

cost, but they really care about quality and speed. So the margins have been fine. But I think Limbock was singularly focused on avoiding GC and transitioning the business to OVR, are and they kind of missed a big trend in hindsight and focus exclusively on the owner of direct relationships. And they hit an air pocket on the owner of direct side. Demand slowed down. I think it was a combination of trade war tariff related stuff last year with the buildback better bill. They introduced Medicaid cuts to the health care vertical, which is a big vertical for Limbach. And then just the general Iran war this year, higher oil prices, general,

macro stuff where discretion more discretionary projects in nature were either put on pause or hold temporarily and they hit an air pocket in demand. So that air pocket translated into an organic decline of revenue of kind of low to mid single digits in the first half of this year. And EBITDA was down much more than revenue. So revenue was down, call it, I don't know, 5%. EBITDA was down 30% in the first half of this year, year over year. And a big chunk of that decline in EBITDA margin was fixed cost de-leverage. So there's a fixed cost base here. If you get rid of the fixed costs, they're hard to bring back.

And the company view this slow down is temporary. So they didn't want to take an ax to costs. So you got a massive de-leverage on the fixed cost side. And that led to EBITDAB, be down 30 year over year. the stock was not relatively, was not particularly expensive going into the first half of this year. But since they reported down 30 in the first half, the stock's down probably 50% after the kind of the second quarter results, where they took guidance down from 90 million of EBITDA for the year to 80 million of EBITDA for the year. So we're looking at a low double-digit reduction of EBITDA guidance for the year with a stock down 15.

Now, why is a stock down 50? I think if the company was a company that chose not to guide annually and just reported EBITDA down 35 or 30 or whatever it was for the first half, I think the stock, you could fairly say EBITDA is down 30, stock should be down 30. No real leverage here. So like the enterprise value is the market cap, effectively. And so why is the stock down 50 and not 30? I think the stock's down 50 because of the way.

they guided the back half, which is down 30 in the first half, up 20 in the second half year over year, seems unrealistic. And for public market investors, it's very hard to own a stock where you think they might miss or guide down again. And so it seems like they didn't guide down enough, 90 to 80. 80 still seems unrealistic. And so there's no valuation support for a stock where people think numbers are going to keep coming down and they're going to keep missing.

And so I think that's why the stock is down 50. So I think if there was no guidance given for the back half, I think stock would probably be down 30. Given that the guidance seems unrealistic, I think stock is down 50. I think it's the wrong reaction because actually the guidance is achievable for the full year. And even if they happen to miss, I don't think it's by much. And I think next year is set up for a pretty good growth year. So I think the consolidation, capital allocation, capital deployment opportunity is still there. I think to pre-Q2 earnings, pre this blow-up, you were buying it at a reasonable evaluation

with a thesis that this is an organic growth story over time plus capital allocation can generate pretty good IRAs. Here, I think you're buying it at a valuation where you don't need to even bet on capital allocation, creating value from here. I think it's too cheap for the business that exists today under the umbrella. And you can get a, you get a, you're basically buying the business. for a steep discount to its, you know, fair market price with the opportunity to also deploy capital and create value that way. So I think you could benefit from multiple expansion on the

base business from here plus value creation from capital allocation, plus there's a cherry on top which they're now finally starting to go after data center business. And if they do go after data center business and get it, which I think they will, you can get a multiple expansion from just the core business plus additional multiple expansion from having increased data center exposure plus the value creation from M&A. So I think you could get a triple whammy year of highly asymmetric upside returns over pretty short duration if things go as I expect. And if not, I think you have valuation support on the downside.

So I'll stop there. I'm sure you have a lot of. That was a fantastic overview. Let me just, I want to do a clarifying question. Then I've got a bunch of questions. You mentioned first half. Revenue down, Iba down a lot more. And I think like headline revenue when I was prepping,

headline revenue is off. And I just want to bridge that because I think that will impact a lot of the questions. What happened is they've done some acquisitions. So organic revenues down, but just like headline revenue is up. And you can correct me from wrong or anything. Yeah, they bought a company called Pioneer Power, which led the headline revenue out.

Perfect. Let me start with a actually not Limbock specific question, but this is a double dip for you, right? So you bought it well a few years ago, wrote it up. I think you pretty much exited. exit the most, whatever it is, and now the stock came back and you basically pulled back. And I have found the stocks I've done the best and worst on historically have been stocks where I double dip, right? The stock's done well, I buy it, I sell it, comes back down, I buy it

again. Sometimes I do the best because I know that name really well. And then sometimes I do the worst because, you know, if the stock goes from 50 to 100 and back to 50, sometimes there's a new risk that is crept in between the 100 to 50 and the second. And when, you know, When I come in and I have my kind of first time around lens with it, that risk wasn't visible or it was small and that risk has gotten like a lot bigger now. And I'm kind of dismissive of it because I say, oh, I know this, I've addressed it. I haven't updated my mental model. I haven't updated my understanding for the business and I'm taking on a risk that I maybe

don't fully appreciate and that's come back to bite me a few times. So I guess my first question would be like, what gives you the confidence here that this is kind of more the first than the second. And obviously I've got lots of questions on the business, but that was just a high-level thought I wanted to ask. Yeah, look, I think the first time I bought it, it was margin expansion plus multiple expansion plus capital allocation. We're back at the thesis is basically the same.

Now, the multiple today is a little bit higher than the first time we spoke about it. Margins are reasonably higher, but it's a really, good balance sheet. The end market is on fire. Their private market competitors and their public peers are seeing massive amounts of demand and organic growth and margin expansion. This is an end market that's not a melting ice cube end market. There's going to be a need for this service for the decades to come. And so we have really good valuation support. We have a really clean balance sheet. We have an end market that's on fire. And Lindbach has labor that's in a high demand and short supply right now. I think there's explainable reasons for why revenue was down in the first half.

You know, they had really good bookings over the last three quarters. Those bookings were slow to burn and that caught them off guard. But I think they have pretty good visibility into those bookings burning in the back half. And I think there's reasons to be really optimistic that they're going to win data center business as well. I think the pipeline's in pretty good shape. If you speak to private guys and public guys, there's lots of business to go around. the really big players, especially on the fabrication side, are capacity constrained right now. Limbuck has a lot of excess capacity on the fabrication side, and they can benefit from that.

And so I do think there's lots of reasons to believe that their current core end markets, healthcare, et cetera, have normalized that are going to return to growth. I think there's lots of reasons to believe data, they'll capitalize from data center. And if they don't return to growth in their core verticals and or capitalize on data center, I think there's probably some costs to cut. And so you can get margin back that way. And I think there's a base level of EBITDA here that is extremely supportive of the current enterprise value. And that provides downside protection.

If you can generate a base level of EBITDA that justifies today's market cap at a minimum in almost any environment you could imagine, I think it's hard to really get blown up. Now, I'm not saying that, look, they took EBITDA guidance for the year down from 90 to 80. If they come out and print a 70 or a 65, the stock's going lower for sure. But I still think at 65, this is probably, there's probably upside, not downside, right? If you're looking at 65 of EBITDA, plus five of stock. Less five of CAPX. You're still at 55 of pre-tax earnings.

You're looking at 45 of free cash flow. That's four bucks a share. And you're trading it 10 times that number today with a net cap, with a very clean balance. it's worth more than 10 times earnings, right? Like after you take a massive haircut to EBITDA. So I think if they still, you know, if they print 65 instead of 80, it would be a disaster near term for the stock. But I think you have a really good margin of safety because even in that scenario, I think

you could underwrite upside from that scenario, not downside from the current share price. So that actually goes nicely into the, I think the main question. I got a lot of people ahead, even especially late last year, there were a lot of bears. There was a short report on Vic that I thought was very. very good. There were a few other short reports floating around. And I think a lot of the bears and a lot of people looking at the stock say, hey, what happened here is there was an air pocket in orders in kind of the summer of 2025, as you alluded to, Tara, self-care, all this sort of stuff. And management panicked and took on a lot of new billings that were extremely low margin.

And what you're seeing now is all those buildings burning through. And I think the bear can, and, you know, one way you can see this is they guide for the year. let's just call it 750 is the midpoint of the guide. They actually take that up to about 780 when they guide for the full year in Q2, but they're taking EBITDA downs, right? So all the bears and the people are worried are saying, hey, these guys are bidding on really low margin business and it's destroying them. And I think they're worried that management doesn't have a handle on just how low margin

or how aggressive they were. And then I think the second corollary to that would be, hey, even once you burn off this low margin book of business, you've now got a management team that kind of has, proven they will go bid for low margin business or they don't realize that it's low margin business, which is even bigger concern. But I think people are worried like the, the hey, this is a great business. O'DNR is awesome. owning the relationship. I think they're worried it's general contracting and another name. We can talk about labor inflation and everything,

but I think that's the real high level worried people are getting here. So I tell us a lot out there. I'd love to hear what you're thinking about that. Look, general contracting in another name sounds bad if you're talking about Limbaugh, but you look at other general contracting stocks right now. They're trading it 10 to 25 times EBITDA because of the data center tailwind. So even if this is a general contracting name and it becomes a general contracting name because it wins a bunch of data center work, I think there's a case to make that there's upside for the stock. I would be more concerned about the bookings that they took on over the last few quarters.

if we saw in the first half of this year, revenue up, margins down substantially. What we saw was revenues down organically, right? And there's a big fixed cost base. There's a big de-leverage. And you don't cut costs immediately when revenue declines for a couple quarters. If you really think it's coming back, because it's going to be hard to layer the costs back in to grow. So if you think this is a growing in market, you don't just cut a massive amount of cost after one or two quarters of a slowdown.

So organic revenue down six, EBidah down 30 is explainable to me based on a de-leverage, and you're layering in pioneer power, which was the acquisition, which is why they grew revenue on a headline basis, which is a much lower margin business than the core was. And they plan to get margins up there over time. In the back half, margins are expected to be fine, and that's because revenues expected to grow organically because they're going to increase the burn. we'll see, I still think gross margins will probably be down year over year, but you're going to leverage SG&A, and so even that margins should be pretty good.

And so we'll see what happens to gross margins in the back half. I think the bears, look, the short write-up was good. I think what I missed and what other longs probably missed was that as the business was transitioning towards more owner direct, we became probably a little. overly dismissive of weak bookings because my view was that they have more intracorder kind of short duration business that they're winning and burning that never shows up in the backlogger bookings intra quarter. And so I was less concerned about that than the bears were. The bears turned out to be right over the short term. I still think on a long term basis,

there's a lot of value to be created here at the MA and organic growth. And I really do believe this was an air pocket in demand. It's not durable and sustainable for the business. And the important thing is they have a good balance sheet. They're not in distress. They're going to, you know, they're going to grow their way out of this, deploy their capital in an efficient manner out of this. And, you know, a point I'll make is that Mike, who's a CEO, he's never made a lot of cash comp, right? He worked his way up this company to eventually become COO to eventually become CEO. And at one point when the stock was $150, that guy was worth like $40 million on paper. And he's never made, a lot of money. He didn't sell a single share. And when you ask him why, it's because he told

you that, and he told me back then and he tells me today, he's a true believer in the long-term value creation opportunity here. And he's in it for the long run. The guy didn't sell a single share. So he's a believer. I do believe in the long-term value creation opportunity here as well. It doesn't mean there won't be bumps along the way. Doesn't mean they won't make mistakes, which they did of being overly focused on the ODR side and avoiding all the data center stuff. There's lots of public and private guys, like I said, who are taking on a lot of data center work at really good margins. A lot of MEPs have 30% of their business in data centers now, 40%, 50%, 50%, 60%, we effectively have zero. And so if we get our fair share of data center work, that implies substantial growth from these levels with really good operating leverage.

You could be looking at 100 million plus of EBITDA next year, 120 million of EBITDA on an organic basis plus you layer on acquisitions. And, you know, I think there's massive upside if those scenarios play out. I don't think there's a lot of downside fundamentally if those scenarios don't play out. No, you know, I think let's talk data centers for a second because my first note when I was like ramping up prepping for this podcast was I don't understand why this business isn't firing all on all cylinders, right? Because fix, EME, you know, I've got the number somewhere. But, you know, over the past, what is it, three years, fix up 800 percent, EME up 250 percent. And you know, Limbach up 16% right and it's even starker on a one-year basis and I didn't realize that they had no

data center business. So I guess my two questions on that would be a, shouldn't a rising tide kind of lift all boats because of Fix and EMA are just doing all data centers like yes, Limback doesn't have the data center business but a lot of their competitors are going to the data centers and like shouldn't it just be there's more demand. Hey, we're still doing the healthcare. We're not getting the crazy amounts that data center is getting but you know we're the only one betting on this healthcare because everyone's focused on data center. It seems kind of reasonable to me. And then my second corollary, and this relates to the bear case we put, you know, they did just seemingly get a lot of low margin business that's kind of burning off. But if they're going

whole hog after this data center business, is there any concern now that, hey, this management team just did a lot of low margin business in response to low bookings? If they're going a whole hog after data center, can we really trust that it's going to be at like really good economic levels as they kind of take share from fix or EME or whoever they want to take. Yeah. So a couple questions in there. If I miss, some of the answers refocus me. But a rising tide should lift all boats who are playing that tide.

So if you're benefiting, if you're getting data center work, yes, the rising tide helps you. If you're not getting data center work, the demand from the data centers is pushing labor and material costs higher and making things more inflationary in nature. And so if you have higher labor costs without the pricing power or the demand uplift that comes from the data center work, what your, you know, your core customer is getting squeezed. They're seeing prices go up massively. They're pushing back on you on price. You have inflationary costs on your income statement and deflationary pressure, or not deflationary pressures, but less pricing power with your end customer that's not seeing that demand that the data center customers are seeing.

And so that actually hurts you. If I can just jump in right there, that is one thing I thought about when, like, ODR, which you said, you know, it's you build a relationship with the building owner. I wondered if like, because there's so much demand for, you know, HVAC is a very popular thing and all these guys are making huge amounts of money. You know, you'll hear about people making like $150,000 a year as an air conditioner technician. I wonder if ODR actually hurt them because all their texts were like, hey, we're going to go make $20 more per hour work on a data center unless you increase. And then Limbock sitting there with massive wage inflation. and relationship with these owners and basically long-term contracts with these owners and say, hey, we can't pass any of this through so they kind of get the double dip there.

Yeah, it's wages and materials. I mean, the OEs are also taking no price. And so I do think you could make it up with volume and with work where the data center work, I think is equal to higher margin than the other stuff. And so if you can get 10 or 15% organic growth, you can offset a lot of inflationary pressures because there are fixed cost to leverage for sure. But if you're seeing revenue decline 6% year every year, that's where the inflationary pressures really eat up your margin.

And I do think if you believe this business was, you know, if the current revenue run rate of the first half was the true run rate of the business, I do believe there are costs that would be taken out to protect margin a little bit. I don't think EBITDA would have been down 35 if you believe that this wasn't temporary and this was permanent.

But I don't think they believe that. I don't believe that. As for the margin, you said, you know, you said something, you repeated something if the shorts are asserting, which I'm not certain of. You're saying the bookings they took on were knowingly lower margin. We know gross margins were down, but the company has attributed a majority of the reduction in gross margins to pioneer power being now reflected in the consolidated results. And having fewer project write-ups from projects that were ending in this period than last year. And then a big fixed cost to leverage. So I think the combination of those things explains a majority of the gross margin reduction. We'll see what happens to gross margins in the back half. But the company is definitely guiding to significant gross margin expansion in the second half or is the first half. And if they do that, I think that calls into question whether the new business are taking on is really at a known lower margin than prior business.

I'm not sure of that. No, that sounds great. Let me just ask again, I think some of this is how you feel about management, right? And I do, I went and read the Q1 and Q2 calls and flipped through the Q425 call. Do you think the company was surprised by the results that, how bad it got in Q2? Because, you know, Q1, they reaffirmed guidance. And when I read, when I read that call, they're kind of talking, hey, Q1 was a blip. Everything's under control.

Pioneers come better. Q2, I mean, they slash the guidance. And you go read the call and they say, 200026 is a reset year. We're going into next year. We're making the adjustments. And that's just a difference of three months, right? So do you think they were surprised? And does that give you any worries that they maybe don't have their hands on how big a problem this was or is?

Yes, I do think they were surprised. In fact, on the Q1 call, they said something like we're comfortable with Q2 consensus estimates, which is probably what got me in other lungs and trouble. I did own the stock going into the Q2 blowout. I didn't just reinitiate on the down 50. but I have added to the position substantially in the last few weeks. I think the fact that they said they're comfortable with Q2 may have seemed like Q1 really was a blit,

and they were expecting a strong recovery into Q2 and then even stronger recovery into the back half, which is typical. I mean, the business typically is a second half weighted. This year it's much more second half weighted than in prior years, but it seemed much more realistic to be able to hit the 90 of EBITO for the year when they said Q2 was, they were comfortable with Q2. two numbers. I think they were surprised by the slow burn. So they had bookings. They went into

backlog. They expected that backlog to burn at normal burn rates. And customers were dragging their feet, some voluntarily, some involuntarily. The voluntary side is, hey, macro, more tariffs, potentially, or let's put a pause on this project, involuntary, hey, we really want to do this work, but we're having a hard time sourcing electricians for the electrical component of this job. So we can't do the mechanical component until we sort that. out. And so I think the burn rates were below what they were expecting. I think they have really scrubbed the numbers. And it seems to me like they really believe the burn rates are going to pick up in the back half. I'm guessing for Q3, they probably have decent visibility into that. I mean,

when projects have started already, you probably have more visibility into projects that haven't started yet. For Q4, it remains to be seen. But from talking to other competitors, but both public and private, it seems like they've all seen similar trends in the non-data center side of their business over the last six to nine months. And it seems like things are starting to normalize. And so there's reason to believe that the burn rates will pick up. The company will hit the back half. If they hit the back half, that looks like that's the real run rate of the business, not the first half. And we're right back to where we were before the blow up. And there's an even, and even better yet, like, if that happens and they win $100 or $200 million a data center

business for next year, then all of a sudden this becomes a data center play again with massive operating leverage and organic growth plus the capital allocation story. And this goes right back to even well higher than where it was right before this blow up. So there are scenarios where stock doubles or triples over six or nine months. There's also a scenario where they blow up again and the stock's down. But even if it's down from here, I don't think you're permanently impaired. I think there's reason to be hopeful from that level. You mentioned capital allocation briefly in that answer. The company comes out with a $50 million share buyback in December of 2025, I think.

They haven't executed anything on that so far. Do you think, obviously you think the shares are attractive? Do you think they're executing on that now it's an own-lubbered balance sheet? Or do you think they're waiting for full stabilization before they go for that? Yeah. I don't think they're executing on it. I know why every company should have a buyback and a shelf in place. Like every public company should have an ATM ready to go and a buyback ready to go.

All these mean stocks that didn't have ATMs and their stocks are screaming, like, we don't know how to issue shares. You're like, how it takes 100 bucks to file this thing? Like, how did you not have this ready to go? Right. But when you're in a consolidating end market, then you could buy stuff at five or six times EBITDA with no cap X. even if you're only trading at six times you without right now, which Limbaugh is, there's not that much value creation day one because you don't have the spread between

you're paying six and you're worth 10. But it diversifies you. It gives you more scale, more operating leverage, and more diversification and more scale comes traditionally with a lower cost of capital and a more predictable business. And so I think there's reasons why buying stuff at six times potentially is a more attractive use of cash than buying your stock back at six times. And I think they're focused on M&A. So I would be surprised if they're buying back stock.

I think they're focused on acquisitions. And I do think the platform is worth significantly more than six times. So even though it's not trading there today, you are creating future value for whenever you do eventually get rerated back to eight or 10 or 12 or 15 times in that. And so I think acquisitions are a better use of cash than buying back stock even at these levels. Now, if they were trading it two times EBITDA, I think the math obviously changes on that. But the reality is, look, for MEP, they're large, you know, $750, $800 million of revenue is their current scale. Comfort systems is $11 or $12 billion of revenue.

M-CORs, you know, tens of billions as well. There's private guys I've spoken to that are $5 to $8 billion of revenue. They're still pretty small. It's a consolidating end market. There's lots of room to kind of get bigger via M&A. But I think it smooths out your revenue. it gives you kind of more operating leverage on your fixed costs and lower cost of capital. So I think buying stuff makes more sense right now.

That was an awesome answer. No, because my first thought is, oh, they did something in December and then earnings miss, earnings miss, earnings miss. I mean, I think two of the three worst days the stocks ever had was Q1 and Q2 earnings of this year. They were down 30%. So my first thought is, oh, they did that and then they saw the train coming. But I think your answer was much better and much more rational. You know, I was reading a Trotta Coulsa Prep for this.

And one of the things that somebody was saying, now the stock was actually higher than this, but they were saying, hey, I like this stock because what you get at the end is you get, construction isn't going away, right? So you have an enduring recurring revenue. If you have those owner relationships, you're hoping that's kind of recurring revenue. The building is there. They're going to need somebody. You have an enduring recurring revenue.

And as you mentioned, 700 million revenue business, it's a peers are 5 to 10 billion. You've got a huge M&A engine. and they were like, I like that for a compounding business. I think one of your letters talked about a $200, three-year price target. Can you kind of walk me through the math to get to a $200 on an enduring recurring revenue business? Yeah. I mean, so I thought at that time and I still think currently that you can get to $10 a share of free cash flow by 2030 through some organic growth and layering on acquisitions. and if that trades for 20 times 10, they're at 200.

I mean, that's basically the math. Cool. Okay. And obviously, stock's 40 today. So if it does that, it looks, you could argue that the business is worth 15, not 20. You could argue the business is worth 25, not 20. But, you know, I think 20 is a reasonable multiple for a very clean balance sheet in an end market that's not going away over time. That's benefiting from the data center buildout tailwinds to, you know, all their competitors are seeing.

So like I said, the peers are trading for 10 to 25 times EBDA. You know, comfort is a non-union shop with much more scale and better margins. That's on the high end. That's at 20 plus times EBITDA. M-Corps is at 15. You have legions, which is newly public, Blackstone brought a public. It's at like 13 times EBITDA. But there's lots of kind of smaller and mid-sized players.

They're at 12, 15 times EBITDA. I don't think it's crazy for Limbaugh. to get there. Do you, what about the other way? You know, we mentioned consolidating industry. I mean, there's, if you're fixed or your EME, I mean, I don't know these businesses that well, but don't you have to look at your multiple and look at Limbox multiple and say, hey, we buy them, we get some fabrication, you know, we are already in the data center. We get a lot of capacity that we can kind of shift into our big data center business. We get the multiple arbitrage that everybody likes. There's obviously synergies there.

What about going the reverse way in Limbach selling? Do you think there's anything to that? Or you can also say, hey, I know the people here. You mentioned the management team didn't sell a share when the stock was higher. They're true believers. They want to go attack this upside here. Yeah. So there's definitely reasons to argue for Limbock getting larger through acquisitions and

creating value that way. For that to be realistic, they have to execute on the core business, right? you can't be struggling to grow in an end market where all your peers are growing and at this size company especially and for there to be a real public market story. So the underlying business has to execute and execute just needs to mean low single digit organic growth with flat to growing margins, not on the gross margin side, but leveraging SG&A. If you could do that and deploy capital well, I think this is an amazing public market story here. There's no need sell the company. If they continue having execution issues, I do think there's a reason to believe

that this should be consolidated into a larger player. There's a bunch of private guys, like I said, were much larger. There's a few public guides that would make sense for. I think I don't think comfort is one of those. I do think M-Corps could be a consolidator. I do think allegiance realistically could be. Those are both union shops. Limbach is a union shop as well. Comfort systems is not. It's a marriage shop. They have almost no union. I mean, I think they probably have five union employees in the entire company or something like that. And so I don't think comfort would. But I do think MCOR over a decade ago at this point probably kick the tires on Limbach and didn't do anything. Is there a shot they do something again? Yes, if you put it for sale sign for

sure, I think it's hard to do non-friendly takeovers in a business where all your talent kind of walks out the door every day. But I do think if you put a for sale sign up, there would be lots of bidders here at a premium to the current share price, for sure. Okay. Last question that we can maybe talk about other stuff. And by the way, there's public company costs as well, right? So like if they do 80 of EBITDA, you're really bidding off of 90 or 95. You're not bidding off of 80 at that point. Yeah. And with a higher multiple to the acquire. I've noted Josh Horowitz is the chairman here who I've met like twice, but, you know, he's a fellow small value investor, but it's not loss of me. Like, I think this is his third chairmanship.

And the first one was BDMS, which sells to private equity for, if I remember correctly, a massive premium. Another board he's in sold. And then another board he's on BKTI is like the best performing small cap of the past year or 18 months or something. So, you know, he owns a decent bit of stock here. I do have to think he's the chairman. He's probably driving a lot of shots.

Mike, the CEO, even after this down, he, owns a lot of stock. So I'd have to think everybody looks at this and they really aren't believers or they think the story might be marred looks at that. Last thing. And then we can talk about anything else for like five or ten minutes ago. But, you know, I do remember the first podcast. My whole thing was your own. This is a former SPAC and like all former SPACs just blow up. Now, this was DESPacked in 2016, right? And all the people from the DSPAC are effectively gone at this point. But does it worry you in the back of your mind? Like, oh, man, it's still 10 years ago. And, you know, all SPACs, there, there's just this gravitational pull towards $10 per share is always the D-SPAC price.

Is that gravitational pull 10 years later? Have you escaped Gravity's field or is that worrying? You have the occasional winners. You have restaurant brands, right? QSR Burger King, came public via SPAC. You have API Group was done through SPAG and Martin Franklin's back. I think there's some SPAC winners. I think there's a lot of SPAC trash, but I think this one bucks the trend. I think like I said, it's not, it's an end market that's not going anywhere. It's not a melting ice cube end market. They're not the number one or number two or number three player in the space, but it's a rapidly consolidating end market. And they could be a consolidator or a consolidate ATE.

And I think we're buying it at a valuation with a very wide margin of safety because the multiple is very low. There's levers to pull to cost if this is the current, the actual run rate of the business. and I think there's reasons to be optimistic that they'll win data center business over time as well. No, it makes absolute total sense. I just, I laugh because, you know, every now and then I'll see something that despaq eight years ago and they'll report poor earnings and the stock will go from, you know, 18 to 10. And I'll just laugh to us like the inevitable lifestyle, everything that's a despack eventually goes back to 10. Now, if you think about it, this would, if I remember correctly,

despax in 2016 by 2019, I think it hits $4 per share. And then begins to run. So maybe it's already done to D-SPAC. It's too far away, but just something I thought about. Absolutely. It had a lot of blowups along the way, for sure. Anything else in your mind? They bought a company called SimCorp.

Alongside Q2 earnings, yep. Sorry, what you said? Alongside their Q2 earnings, they announced that. Yep. It's a program management business that focuses on data centers. They've done program management in the healthcare vertical. And the program management business by itself isn't that big. They basically advise people who are building data centers and charge a fee to help manage the project

and make sure it's done on time and under budget and the likes. It's $4 million of EBITDA they're expecting from it. They paid $30 million. So it's a higher multiple than the MEP businesses they're typically buying. The interesting thing is normally they see significant pull-through work from the program management business. So you advise the builder of the data center, and that gives you a foot in the door to bid on the work that you're advising them on. And so if they see similar pull through from SimCore that they've seen in the healthcare program management business, I think it's like a 20x

pull through multiple is what they've seen historically. And so if they see that kind of pull through here, you're looking at a few hundred million dollars of data center revenue, which will put you at about 25 or 20 percent of the business in data centers, which is on the lower end of the, what you hear their peers get, plus the non pull through work that they're just bidding on through an ordinary course business. So you really could see their data center business go from zero to hundreds of millions of dollars potentially. That's a dream case, but it's possible.

It's not completely unrealistic. And if they do that, there's massive growth ahead here. And if they don't do that, I still think you have downside support in the form of valuation protection and markets that are stabilizing and coming back, cost the cut if none of those take place, strategic buyers if none of that takes place, a clean balance sheet, and the ability to do acquisitions that attract them multiple. So lots of ways to win here. And I think it's a really good risk reward for that reason.

Let me switch topics completely. I have two questions on AI for you, not really to Lindbach, just in general. As someone who, look, I know your portfolio, you and I've talked every now and then about companies, I've seen your letters, somebody who invents. us in largely AI physical world businesses. You know, you've been on the podcast twice for IWG. This is your second time on Limbaugh. We had another one that is a very physical business that I will not mention, but very real world business. And I see your letters, right? How are you viewing the world in the state of investing kind of outside of AI? Ignoring the existential dread of,

oh, I didn't buy. Actually, you and I are on a thread where we joked. We should have just bought Micron 2X lever at ETF. But ignoring the, hey, I missed the trade. How do you are like viewing the world when you're kind of investing in the non-AI businesses these days? Yeah, I'm trying to avoid businesses that are obviously going to be negatively impacted by AI and might go away over time because of AI. I'm trying to buy businesses that will be benefited, that will benefit from overtime from AI, but not in a rapidly changing kind of business model or end market that's hard to predict, right?

things that have obsolescence risk. I've always tried avoiding things that are rapidly changing, hard to kind of think about what the business might look like five to ten years out. I'm avoiding. I'm trying to buy businesses that are going to either be AI neutral or AI winners, but that are not currently being valued like AI winners are neutral over time. So, I mean, two obvious examples, there are three obvious examples of them that in the portfolio right now, Limbock is one.

I think it's peers that are benefiting from AI, from data center buildouts, are trading at much higher multiples and are seeing really good organic growth. And so you could get the faster growth and the higher multiple, the double wham here, plus capital allocation and all the likes. So that that's a potential AI beneficiary that's not being valued like it right now. And I think it's possible to get that. I don't know, IWG would be spoken about on the pot a few times now. I think that's being viewed as an AI loser, right?

All office jobs are going away. And if office jobs go away, there's no need. need for office base. I think there'll be an AI beneficiary, not immediately, but over time, as the workforce becomes more productive through the use of AI, companies might want to shrink or flatten out their headcount. And in a world where you're no longer growing your head count over time and maybe even reducing it, it's hard to sign a 10-year lease if you don't have visibility into what your footprint's going to look like in 10 years. And that's going to push, you know, today a low single digit percentage of office space is utilized on a short-term rental

basis. I think it's going to move to a much higher percentage over time. And IWG is not viewed as an AI winner right now. I think it will be. And then KKR, which I reinitiated this year, which has obviously a portfolio of businesses that it owns and that it is lent to over time and the markets have been nervous about the AI exposure of the software companies and private equity firms and private credit firms portfolios. And I reinitiated the position with the view that I think the existing portfolios are what they are, right? People understand that asset managers will be hurt by some stuff that they bought before AI was a thing. And I think the firms that are best positioned to survive that are the ones with the longest track records and the most blue chip name. that are likely going to be given a pass for a bad vintage or two

because they have 10 vintages before that, they did very well. And they have so much operating history as being good investors that I think they will continue to be durable, while smaller mid-market firms that have fewer vintages might be given less rope to kind of work with for making bad investments. And so I think you're going to see a consolidation of mid-market firms going away. it's going to continue to push more and more uphill towards, well, either downhill to do startups that didn't get hurt by the AI stuff or by the incumbents, the blue chip, kind of the mega alt.

And so I think mega alt are going to be beneficiaries of taking share within private equity and alternatives, but also taking share from passive. In a world where business and economy is rapidly evolving because of AI, you could make the case. owning passive gets harder, right? Do you really want to own all the businesses that are AI losers? Don't you want active managers to select for you the businesses that could really do well based on making investments in AI and the AI winners? So I, and there's lots of other reasons. I think it's interesting also.

But I think the mega-altz are going to be AI winners long-term. And so that's three ways it manifests in the portfolio today that I could think of offhand. I'm trying to avoid the melting ice cubes. You said a lot of interesting stuff. I'll just riff off the two last thing you said on the mega alt. Like, A, I think it's very interesting. The mega alts have, you know, one thing with AI, I think is going to be huge. It's proprietary data.

Now, data is the new ILP. We're saying that 10 years ago. So maybe there's nothing new. But they have extremely sophisticated, extremely unique data from decades of deals, diligence, owning companies, all that sort of stuff. Like I could imagine a world where AI, you know, if you and I tomorrow were like, hey, forget being a burgeoning media empire, Andrew, forget living in Miami and living the good life your own.

Let's go start a private equity shop. A, that would be very hard. But B, if we're competing in KKR bid something, like they've got decades of data that AI has scraped and we do not. Like, I guess they have huge advantages there, huge advantages of talent, all that sort of stuff. So that's one. And then two, on the active manager, that's really interesting.

Like, hey, that's been the argument for years against passive, right? Like it owns everything. So it owns a bunch of the junk. But, you know, it's a very, very difficult bogey. to beat. It is interesting thing. Doesn't make it easier or harder for active managers to outperform because they can avoid quote unquote the junk versus, you know, maybe some of the junk

is, that's the benefit of evidence. That's really interesting. There's so many verticals that there's massive growth I had for the mega-alls specifically, right? The high net worth retail channel is just starting to take off. That could be a massive opportunity for them. KKR has the largest age alternatives business globally. but institutions have a very low allocation to alternatives in Asia today,

relative to like the U.S., where lots of institutions are 25, 30, 40, 50% allocated to alt and privates. In Asia, you're looking at probably a mid-to-high single-digit percentage of institutional capitals allocated to Alt. So there's massive growth ahead there. Take care of benefit from that is the largest Asian alternative asset manager. Europe is similarly underpenetrated, not as much as Asia, but below the U.S. They have a big European business. I think there's a lot of growth ahead in the U.S. in credit, infrastructure, and real estate for KKR specifically to catch up to the

Blackstones and Brookfields of the world in those strategies. And then even their most legacy, most mature U.S. private equity business is still growing in a nice clip. So lots of growth ahead from lots of different avenues. I think the private credit scare gave me an opportunity to reinitiate a position in a business that I sold a couple of years ago at an attractive price. But those are the kind of the names that they're going to be here in five years, 10 years, 20 years, that I think will be either neutral or AI winners from AI

at compelling valuations with good balance sheets. That's kind of what I'm looking. Well, let's wrap it up there, your own name are one main capital. Thanks so much for coming on. Thanks for wearing the shirt, representing the brand. And looking forward to having you on again soon. Thanks, Matt. Bye, buddy.

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