$LMB: Limbach missed the data center boom. Is that the opportunity? | 1 Main Capital

Episode Summary

Executive Summary: Andrew Walker and Euro Nammack revisit Limbach (LMB), arguing the post-pullback stock remains attractive after a disappointing first half driven by organic revenue softness, margin deleverage, and guidance cuts. Nammack sees the weakness as temporary, believes data center exposure and acquisitions can reaccelerate growth, and views today’s valuation as offering downside protection plus multiple expansion potential.

Main Topics: Limbach business model and transformation (Priority: 5/5): Limbach is a century-old HVAC/MEP contractor that shifted from risky general contracting toward higher-margin owner-direct work, improving margins and balance-sheet quality over time. Why the stock sold off in 2025 (Priority: 5/5): The company missed expectations as organic demand softened, backlog burned slower than expected, and fixed-cost deleverage hit EBITDA harder than revenue. Bear case: low-margin work and management credibility (Priority: 5/5): The discussion focuses on whether Limbach chased low-margin business to fill an order air pocket and whether management underestimated the severity of the slowdown. Data center opportunity (Priority: 5/5): Limbach has had little data center exposure so far, but management has begun moving into the space via program management and could benefit from industry tailwinds and higher margins. Capital allocation and M&A (Priority: 4/5): Nammack argues acquisitions at 5-6x EBITDA can be more attractive than buybacks, supporting scale, diversification, and long-term compounding. Valuation, upside, and downside protection (Priority: 5/5): The thesis is that current valuation already implies pessimism, while next-year recovery, M&A, and data center wins could drive substantial upside. AI lens on portfolio construction (Priority: 3/5): Nammack explains how he is positioning around AI by avoiding obsolescence risk and favoring businesses likely to be AI-neutral or AI-beneficiaries.

Key Arguments: Limbach’s core shift from general contracting to owner-direct work improved margins and lowered blow-up risk, making the business structurally better than in its distressed past. The 2025 slowdown looks more like a temporary air pocket than a permanent demand problem, driven by macro/tariff, healthcare, war/oil, and project timing issues. EBITDA fell much faster than revenue because fixed costs were not cut immediately; that makes the earnings decline explainable without implying a broken model. Management’s guidance cut was painful, but Nammack believes the back half is achievable and, even if they miss modestly, the stock still has valuation support. The market may be underestimating the potential for Limbach to win meaningful data center business, especially after the SimCorp acquisition and growing capacity in fabrication. Acquisitions are a better near-term use of capital than buybacks because the company can buy businesses at 5-6x EBITDA in a fragmented industry and compound value over time. Even if the business remains under pressure, the balance sheet, cash generation, and potential strategic value limit permanent downside. Management credibility is a concern after the Q1/Q2 sequence, but Nammack argues the team was genuinely surprised by slower backlog burn rather than intentionally masking problems.

Data Points: First-time pitch timing: June 2023 - Walker and Nammack originally discussed Limbach then. Stock performance after first pitch: Up about 6.5x over the next 2.5 years - Used to explain why the prior call was successful. Pullback from peak: Down about 75% - The stock retraced sharply from its highs before this revisit. Remaining gain vs first pitch: Up about 80% - Despite the drawdown, the stock still outperformed the initial entry price. Organic revenue change in first half of 2025: Down low- to mid-single digits / about 6% - Nammack attributes this to demand softness and slower project burn. EBITDA change in first half of 2025: Down about 30% year over year - Explained primarily by fixed-cost deleverage. Revenue guidance: Approximately $750 million midpoint, later raised to about $780 million on a headline basis - Headline growth was aided by acquisition accounting, while organic trends were weaker. EBITDA guidance: Reduced from $90 million to $80 million - Second-quarter results forced a guidance reset. Stock reaction to guidance reset: Down about 50% - The market punished the stock more than the EBITDA decline alone might suggest. Owner-direct mix shift: From roughly 80/20 GC-heavy at IPO to about 75/25 owner-direct by last year - Shows the strategic transformation toward more stable, higher-margin work. Margin profile shift: Low-single-digit EBITDA margins to low-double-digit EBITDA margins - Result of the business mix moving toward owner-direct projects. Potential 2026 EBITDA upside case: $100 million+ to $120 million on an organic basis - Nammack’s upside scenario if data center wins and organic recovery materialize. SimCorp acquisition: Bought for $30 million; expected to contribute about $4 million of EBITDA - A new data center-focused program management business. Buyback authorization: $50 million announced in December 2025 - Walker and Nammack discussed whether the company would actually execute on it. Long-term FCF target: $10 per share by 2030 - Nammack’s valuation framework for reaching a $200 stock price at 20x FCF. Target valuation example: $200 per share - Derived from $10/share free cash flow and a 20x multiple. Peer valuation range: About 10x to 25x EBITDA - Used to argue Limbach could rerate if execution improves and data center exposure rises. High data center penetration among peers: 30% to 60% of business - Some competitors already derive substantial revenue from data centers, unlike Limbach.

Pivotal Quotes: "I think it's back to being almost as compelling now as it was back then." — Euro Nammack: His thesis for revisiting Limbach after the post-peak drawdown. "What we're looking at a low double-digit reduction of EBITDA guidance for the year with a stock down 50." — Euro Nammack: Explaining why the selloff may have overshot the fundamental deterioration. "I really do believe this was an air pocket in demand. It's not durable and sustainable for the business." — Euro Nammack: His core rebuttal to the bear case that the business model has been permanently impaired.

Implications: For listeners, Limbach is framed as a volatile but potentially asymmetric setup: a repaired business temporarily hit by demand softness, with possible upside from data centers and M&A. More broadly, the episode highlights how execution, end-market mix, and capital allocation can outweigh headline growth narratives.