Yet Another Value Podcast 对 $LMB 的判断变化

we're having him back on again to talk about Limbach. The ticker there is LMB. He came on and pitched it in summer 2023. 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

hey has the thesis changed you know there are risks 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

And guess what? They have a limbach from it's about from six months ago. But a lot of the questions and the risk that they're talking about in that uh interview actually hold up really well and I even asked one of them on this podcast.

This is actually the second time we're going to talk about this company, Limbach. We, you and I talked about it. I had to look it up. June 2023. I wasn't sure if it was a fever dream. We talked a lot about Limbach. This stock did incredibly well. you know, I 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. Uh it's still up 80% from the first pitch. So, you know, if you held one, 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.

What is Limbach and why are you kind of double dipping here? 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. U, which is why I I, you know, wanted to talk to you about it.

Um, 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 I think stocks compelling now and then we can go into Q&A from there.

Um, so, uh, HVAC is an MEP contractor, mechanical, electric, electric and and plumbing contractor. Um, they specialize on the mechanical side and primarily HVAC for mission critical infrastructure assets. think uh hospitals uh advanced manufacturing facilities and the likes.

Um company's very old. It's over 100 years old. Was founded by a guy with the last name Limbach. Um he eventually sold it um and ended up in the hands of Enron. Enron went bankrupt. Private equity firm bought it at a bankruptcy and then brought [clears throat] it public in 2016 by merging it with a spa.

And um 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 you know four to five times EBITDA. Now it's maybe crept up to five to six times EBITDA um but there was a long runway for consolidation and the public vehicle was meant to do that.

Um it was run by a CEO at the time who um the company had some issues on on the general contractor side. They took some major new construction projects and they had major project write downs on them. They lost a bunch of money became a kind of a distressed equity going into COVID. Um, and then they managed to dig their way out of that distress through uh, good earnings growth and free cash flow generation, delevering the balance sheet, and now it's back to being a consolidation and rollup story.

Um, over that period, the CEO was replaced in early 2023. Um the former COO Mike McCann 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 um 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 um and and really doing work directly for the building owners which are uh 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 them, right? Um you know, when it came public, the business was probably 8020 uh on the GC side and as of last year was probably 7525 on the owner direct side. And so margins expanded from low singledigit EBIDA margins to low double-digit EBIDA margins. that made some acquisitions along the way. Grew nicely and everything was going great for the stock.

Um, at one point last year, uh, Limbach was caught up as a data center winner. Um, wrongfully so. Uh, mind you, at the time, the company was not pursuing and was was vocal about not benefiting significantly from data center business, but, uh, a lot of their competitors and other MEPs in the space were benefiting tremendously from data centers. people assuming Limbach 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 this they hit the recent speed bump and um 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 um and that work has come with relatively attractive margins for the private and public competitors doing that work uh because you know the hyperscalers and neoclouds are more focused on quality and speed rather than absolute cost. Not that they're throwing money at every problem and not not that they're not looking at what things cost but they really care about quality and speed. So the margins have been fine. Uh but I think Limbach was singularly focused on avoiding GC and transitioning the business to ODR and they they kind of missed a big trend um in hindsight and and focused exclusively on the owner direct relationships and they hit an air pocket on the owner direct side.

Demand slowed down. I think it was a combination of trade war tariff related stuff um last year with uh the build back better bill that introduced Medicaid cuts to the healthcare 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 um that air pocket translated into an organic decline of revenue of kind of low to mid-s single digits in the first half of this year and um Ibida was down much more than revenue. So revenue was down call it I don't know 5% was down 30% in the first half of this year year-over-year

um and a big chunk of that decline in Ebida margin was fixed cost deleverag so there's a fixed cost base here if you get rid of the fixed cost they're hard to bring back and the company viewed this slowdown as temporary so they didn't want to take an ax to costs so you had a massive delever on the fixed cost side and that led to Ibodi down 30 year-over-year

Um the stock was not relative was not particularly expensive going into the first half of this year. Uh but since they uh reported down 30 in the first half u the stocks down probably 50% after the kind of the 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 50.

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

So I I think if there was no guidance given for the back half, I think the stock would probably be down 30. Given that the guidance seems unrealistic, I think the stock is down 50. I think it's the wrong reaction because I actually think 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 uh allocation capital deployment opportunity is still there. I think to preQ2 earnings pre this blow up you were buying it at a reasonable valuation with the thesis that this is an organic growth story over time plus capital allocation can generate pretty good IRS 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 you get a you're basically buying the business for a steep discount to it 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 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. I think you could get a triple whammy here of highly asymmetric upside uh returns over a pretty short duration if things go as I expect and if not I think you have valuation support on the downside.

You mentioned uh first half revenue down ebida down a lot more and I think like headline revenue when I was prepping headline revenue is up 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 acquisition so organic revenue is down but just like headline revenue is up. Can and you can correct me if I'm wrong or anything. I just want

Yeah, they bought a company called Pioneer Power which led to headline revenue up. Yeah, this is a double dip for you right? So you bought it well a few years ago wrote it up I I think you pretty much exited exited most whatever it is and now the stock came back and you basically pulled back

what gives you the confidence here that this is kind of more the first than the second the re the first time I bought it, it was it was margin expansion plus multiple expansion plus capital allocation. We're back at the thesis is basically the same. Now, the the the multiple today is a little bit higher than the first 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 the 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 um Limbach has labor that's in high high demand and short supply right now.

Um, 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 pipelines'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 on the fabrication side are capacity constrained right now. Limbach has a lot of excess capacity on the fabrication side and they could benefit from that.

And so I I do think there's lots of reasons to believe that their their current core end markets healthcare etc have normalized and are going to return to growth. I think there's lots of reasons to believe data they'll 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 cost to cut and so you can get margin back that way and I think there's a base level of ibida here that is extremely supportive of the current uh enterprise value and that provides downside protection right if you can generate a base level of ibida that pro that 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 Ebida guidance for the year down from 90 to 80. If they come out and print a 70 or a 65, the stock's going

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.

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, tariffs, healthcare, 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 billings burning through. And I think the bear and you know one way you can see this is they guide for the year let's just call it 750 is the me 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 IBID downs right so all the bears and the people that are worried are saying hey these guys are bidding on really low margin business and it's destroy 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 correlary to that would be hey even once you burn off this low margin margin book of business. You've now got a management team that kind of uh 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.

general contracting in another name sounds bad if you're talking about Limbach, but you look at other other general contracting stocks right now, they're trading at 10 to 25 times Ebida because of the data center tailwind. So, um 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 there's a case to make that there's upside for the stock.

Um, 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 delever. 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 cost 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, Ebida down 30 is explainable to me based on a delever and you're layering in pioneer power which was the acquisition which is a much lower margin business than the core was and they they plan to get margins up there over time.

In the back half, margins are expected to be fine, and that's because revenue is expected to grow organically because they're going to increase the burn. Um, we'll see. Uh, I I I still think gross margins will probably be down year-over-year, but you're going to leverage SGNA, and so even margins should be pretty good. Um, and so we'll see what happens to gross margins in the back half.

I think the bears, the look, the short write up was good. Um, 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 you I my view was that they have more intraquarter kind of short duration business that they're winning and burning that never shows up in the backlog or bookings intraquarter. 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 va organic growth. Um, and I I really do believe this was an air pocket in demand that'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 um you know point I'll make is that Mike who's the 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 at one point when the stock was 150 bucks guy was worth like $40 million on paper. Okay. 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 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 they did 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 just taking on a lot of data center work at really good margins. A lot of MEPs have have 30% 30% of their business in data centers now 40% 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 um you know, I 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.

over the past what is it 3 years fix up 800% EM up 250% 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 uh so I I guess my two questions on that would be a shouldn't a rising tide kind of lift all boats because if Fix and EMA are just doing all data centers like yes Limbach 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 bidding on this healthcare because everyone's focused on data center. That seems kind of reasonable to me.

And then my second correlary, and this relates to the bare 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 wholehog after data center, can we really trust that it's going to be at like really good economic levels as they kind of take take share from fix or em or whoever they want to take.

But, um, a rising tide should lift all boats who are playing that tide. Um, so if you're 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 if you have higher labor costs without the pricing power or the demand uplift that comes from the data center work, what you're 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. they're 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.

>> Yeah, it's wages and materials. I mean, the OES are also taking up. Um, 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. Um, and so if you can get 10 or 15% organic growth, you can offset a lot of inflationary pressures because there are fixed costs to leverage for sure. But if you're seeing revenue decline 6% year-over-year, that's where the inflationary pressures really eat up your margin.

Um, 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 Ebida Ebidow 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 as for the margin, um you said, you know, you said something, you repeated something that 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 Pioneer Power being now reflected in the consolidated results. um and um and and and having fewer project writeups from projects that were ending in this period than last year. Um and then a big fixed cost delever. 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's definitely guiding to significant gross margin expansion in the second half versus the first half. And if they do that, I think that calls into question whether the new business they're taking on is really at a no at a known lower margin than prior business. I'm not sure of that.

Do you think the company was surprised by the results that how bad it got in H in Q2? because you know Q1 they reaffirm guidance and when I read when I read that call they're kind of talking hey Q1 was a blip everything's under control pioneer is coming better Q2 I mean they slash the guidance and you go read the call and they say 2026 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 do you think they were surprised and does that give you any worries that like they maybe don't have their hand on their hands on how big a problem this was or is

yes I I do think they were surprised. In fact, on the Q1 call, they said something like, "We're comfortable with Q2 uh consensus estimates, which is probably what got me and other longs in trouble. I I did own the stock going into the Q2 blow up. I didn't just reinitiate on the down 50, but I have added to the position substantially in the last few weeks."

Um, I think the fact that they said they're comfortable with Q2 made it seem like Q1 really was a blip 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 Ebida for the year when they said Q2 was they were comfortable with Q2 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 at normal burn rates and customers were dragging their feet, some voluntarily, some involuntarily. The voluntary side is, hey, macro, more more tariffs, potentially war. Let's put a pause on this project. Involuntarily, 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 I'm guessing for Q3 they probably have decent visibility into that. I mean when when 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 uh 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 6 to9 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 there and and even better yet like well if that happens and they win a hundred or $200 million of 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 you know 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. Um, 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 cap allocation briefly in that answer. The company comes out with a $50 million share buyback in December of 2025, I think, and they haven't executed anything on that so far. Do you think like obviously you think the shares are attractive? Do you think they they're executing on that now it's an unleed 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 you every company should have a buyback and a shelf in place. Like every every public company should have an ATM ready to go and a buyback ready to go.

Um but when you're in a consolidating end market and you could buy stuff at five or six times EVA with no capex. Um even if you're only trading at six times EBA right now, which Limbach 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. Um 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 more is a more attractive use of cash than buying your stock back at six times. Um and I 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.

Um 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 EBIDA. And so I think acquisitions are a better use of cash um than buying back stock even at these levels. Now if they were if they were trading at two times IDA, I think the math obviously changes on that.

But um the reality is look for an MEP they're large you know 750 800 million in revenue um is their current scale. Uh, Comfort Systems is 11 or 12 billion of revenue. Uh, MC Cor is, you know, tens of billions as well. There's private guys I've spoken to that are five to eight 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. Um, but I think it smooths out your revenue. It gives you kind of more uh operating leverage on your fixed costs and lower cost of capital. So, I think I think buying stuff makes more sense right now.

That was an awesome answer. No, that that you No, because my first thought is, oh, they did something in December and then earnings miss, earnings miss, earnings miss. I mean, I 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 trend coming, but I I think your answer was much better and much more rational.

uh you know I I I was reading a tro call to 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 a 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 um through some organic growth and layering on acquisitions. And if that trades for 20 time 10, there are 200. And that's basically the math.

Cool. Okay. And obviously stock's 40 today. So if it does that, it's uh it looks Yeah. I mean, look, 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 that, you know, all their competitors are seeing.

So um like I said the peers are trading for 10 to 25 times EBITDA. Um you know Comfort is uh a non-union shop with much more scale and better margins. That's on the high end that's at 20 plus times EBITDA. More is at 15. Uh you have Legions which is newly public. Blackstone brought to public it's at like 13 times EBITDA. Um but there's lots of kind of smaller and midsize players. They're at 12 15 times EBITDA. I don't think it's crazy for limb box to get there.

Do you What about the other way? You know, we mentioned consolidating industry. I mean, there's if you're fix or your emse don't you have to look at your multiple and look at limbox multiple and say hey we buy them uh 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 and limbox 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 uh they want to go attack this upside here."

Yeah. So, there's definitely reasons to argue for Limbach 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 for at this size company especially and for for there to be a real public market story. So the underlying business has to execute and execute just needs to mean low singledigit organic growth with flat to growing margins. Um not on the gross margin side but leveraging SGNA. If you could do that and deploy capital, well, I think this is an amazing public market story here. There's no need to sell the company. If they continue having execution issues, I do think there's reason to believe that this should be consolidated into a larger player.

There's a bunch of private guys, like I said, who are much larger. There's a few public guys this would make sense for, I think. Um, I don't think Comfort is one of those. Um, I do think MCOR could be a consolidator. I do think Allegiance realistically could be. Uh those are both union shops. Limbach is a union shop as well. Um 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. Um and so I don't think Comfort would uh but I I do think MCO over a decade ago at this point probably kicked the tires on Limbach and didn't do anything. Is there a shot they do something again? Yes. If you put a for sale sign, for sure. I I think it's hard to do um non-friendly takeovers in in in a in a business where all your talent kind of walks out the door every day. Um but I do think if you put a for sale sign up, there would be lots of bears here at a at a premium to the current share price for sure.

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.

I've noted uh Josh Horitz is the chairman here who I've met like twice but you know he's a fellow small value investor but it's not lost to 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 I I he owns a decent bit of stock here. I do have to think he's the chairman. He's probably driving a lot of the shots. Mike, the CEO, even after this down, he owns a lot of stocks. So, I'd have to think everybody looks at this and that 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 10 minutes if you But, you know, I do remember the first podcast, my my whole thing was your own. This is a former spa and like all former spacks just blow up. Now, this was dispacked in 2016, right? and all the people from the dispack 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 spacks they're they're uh there's just this gravitational pull towards $10 per share is always the dispack price." Is is that gravitational pull 10 years later. Have you escaped Gravity's field or is that

Um I think there's some spack winners. I think there's a lot of spack trash, but I I I think this one bucks the trend. Um 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 it's a rapidly consolidating end market and they could be a consolidator or a consolidate. Um 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 if to cut costs if this is the current the actual run rate of the business and I I think there's reasons to be optimistic that they'll win data center business over time as well.

no makes absolute total sense. I just I laugh because uh you know every now and then I'll see something that despacked 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. I like the the inevitable lifestyle everything that's a dspec eventually goes back to 10. Now this went If you think about it this way, if I remember correctly, dispacks in 2016. By 2019, I think it hits $4 per share and then begins to run. So maybe it's already done the dispack. It's too far away, but just something I thought about.

Absolutely. It had a lot of blowups along the way for sure. Um they bought a company called Simcore. Um alongside Q2 earnings. Yep.

Alongside their Q2 earnings, they announced that. Yep. Um it's a program management business that focuses on data centers. Um they've done program management in the healthcare vertical and the program management business by itself isn't that big. They basically like 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 in bud under budget and the likes. Um it's 4 million of they're expecting from it. They paid 30 million bucks. So it's a higher multiple than the MEP businesses they're typically buying.

Uh the interesting thing is normally they see significant pullthrough work um 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 pullthrough 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 of data center revenue, which will put you at about 25 or 20% of the business in data centers, which is on the lower end of what you hear their peers get, plus the non-pullthrough work that they're just bidding on through an ordinary course business. So you you really could see this their data center business go from zero to hundreds of millions of dollars potentially. That's a you know, a dream case, but it's possible. It's not it's not unre completely unrealistic and um you know if they do that there's massive growth ahead here and if [clears throat] 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 to cut if none of those take place strategic buyers if none of that takes place a clean balance sheet and the ability to to do acquisitions and attracting multiples so lots of ways to win here um and I think it's a really good riskreward for that

I mean two obvious or three obvious examples of them in that in the portfolio right now uh Limbach is one. I think the the the its 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 and the higher multiple the double whammy 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 they they get that.