1 Main Capital, a boutique investment firm, released its fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund returned 3.4% net in the fourth quarter compared to 2.7% and 2.2% returns for the S&P 500 and Russell 2000 indexes, respectively. Since inception, the Fund’s annualized return stands at 20.8% compared to 13.7% and 7.3% for the indexes, respectively. 1MC aims for strong long-term performance while minimizing excess risk. The Portfolio’s performance since incepti ...

Summary of Limbach Holdings Conference Call Company Overview - Limbach Holdings is a building systems solutions firm that partners with building owners and facility managers to maintain critical mechanical, electrical, and plumbing (MEP) infrastructure [1][2] - The company operates in two segments: Owner-Direct Relationships (ODR) and General Contractor Relationships (GCR) [1][9] - Limbach has approximately 21 locations and 1,700 team members, utilizing a standardized platform for operations [2] Core Business Model - Limbach focuses on proactive sales, emphasizing long-term relationships with customers rather than short-term revenue maximization [4][22] - The company operates in six vertical markets: healthcare, industrial manufacturing, data centers, life sciences, higher education, and cultural entertainment [3][5] - Limbach aims to provide tailored solutions that ensure critical infrastructure operates efficiently, particularly in environments where temperature, humidity, and air quality are vital [3][4] Financial Performance and Strategy - The company reported that approximately one-third of ODR revenue comes from quick-burning work, while two-thirds is project-based with an average project size of $245,000 [9] - GCR projects are typically larger, averaging $2 million, but are more cyclical and competitive [10] - Limbach's strategic focus is on shifting revenue towards ODR, expanding margins through evolved offerings, and scaling through acquisitions [10][20] Market Dynamics - The competitive landscape includes OEM firms, contractors, and consulting firms, with Limbach positioning itself as system-agnostic and a one-stop shop for MEP solutions [7][8] - The company has seen stable demand across its verticals, with a focus on long-term relationships that can withstand short-term disruptions [5][22] - The healthcare and industrial manufacturing sectors have been identified as having the most penetration due to their critical infrastructure needs [23][24] Acquisition Strategy - Limbach has pursued both tuck-in acquisitions and geographic expansions, with a focus on companies that align with its long-term vision and customer base [18][19] - The recent acquisition of Pioneer Power Group is expected to enhance margins and expand capabilities in the industrial manufacturing sector [19][35] - The company aims to integrate acquired firms into its operational platform to drive value and improve margins over time [36][38] Future Outlook - Limbach is optimistic about growth opportunities, particularly in expanding its footprint and enhancing service offerings [21][43] - The company is focused on building a proactive sales team to enhance customer relationships and drive long-term value [39][42] - There is a belief that the market is still in the early stages of development, with significant potential for growth in both ODR and GCR segments [21][43] Key Metrics - Gross margins for ODR in 2024 were reported at 31.2%, significantly higher than GCR margins [34] - The company aims to improve margins for acquired firms like Pioneer Power, which currently operate below Limbach's average [35][36] Conclusion - Limbach Holdings presents a differentiated business model focused on long-term customer relationships and critical infrastructure maintenance, with a strategic emphasis on acquisitions and market expansion [43]

Core Viewpoint - Limbach Holdings, Inc. has appointed Nick Angerosa as Executive Vice President, National Customer Solutions, and Jay Sharp as Executive Vice President, Sales, effective January 13, 2026, to support its long-term growth strategy and enhance its position as a trusted building solutions provider [1][2]. Leadership Appointments - The appointment of Angerosa formalizes Limbach's focus on national account opportunities, aiming to improve consistency and increase lifetime customer value by integrating service and product offerings [2][3]. - Sharp will oversee Limbach's overall sales strategy and ensure alignment of selling resources with markets that offer higher returns, driving long-term business growth [4][5]. Company Strategy - Limbach aims to expand its data center and industrial and manufacturing verticals, transitioning towards proactive, consultative partnerships to serve both national and local customers [2]. - The company emphasizes deploying talent and capital where it generates the greatest risk-adjusted returns, reinforcing its commitment to delivering durable value for customers [2]. Company Overview - Limbach is a building systems solutions firm that partners with building owners and facilities managers, focusing on mission-critical mechanical, electrical, and plumbing infrastructure [6]. - The company operates primarily in six vertical markets: healthcare, industrial and manufacturing, data centers, life science, higher education, and cultural and entertainment, with approximately 1,700 team members across 21 offices in the eastern United States [6].

Core Insights - The Wasatch Micro-Cap Fund reported a return of 9.52% in Q3 2025, underperforming the benchmark Russell Microcap® Growth Index, which returned 19.93% [1] Company Performance - Limbach Holdings, Inc. (NASDAQ:LMB) had a one-month return of 19.88% but experienced a 10.91% decline over the past 52 weeks, closing at $79.03 per share with a market capitalization of $918.809 million on December 17, 2025 [2] - Limbach Holdings was a leading detractor from the fund's performance due to poor communication regarding earnings guidance from a recent acquisition and organic growth outlook [3] Strategic Shifts - Limbach Holdings is shifting its business model from working with general contractors to establishing direct relationships with building owners, which is expected to be more profitable and stable [3] Market Sentiment - The market's negative reaction to Limbach's guidance was viewed as overstated, and the fund maintains a positive long-term outlook on the stock, having increased its position [3] - Limbach Holdings was held by 23 hedge fund portfolios at the end of Q3, an increase from 19 in the previous quarter, indicating growing interest despite its challenges [4]

Core Viewpoint - Limbach Holdings, Inc. (LMB) is transitioning from a low-margin contractor model to a higher-margin building systems partner model, indicating a positive shift in its business strategy [1]. Company Summary - Limbach Holdings is focusing on enhancing its profit margins by moving away from low-margin contracting activities [1]. - The company is positioning itself as a building systems partner, which is expected to yield better financial performance [1]. Industry Context - The shift in business model reflects broader trends in the construction and building systems industry, where companies are increasingly seeking higher-margin opportunities [1].

Core Insights - Artificial intelligence (AI) is identified as the greatest investment opportunity of the current era, with a strong emphasis on the urgency to invest now [1][13] - The energy demands of AI technologies are significant, with data centers consuming as much energy as small cities, leading to concerns about power grid capacity and rising electricity prices [2][3] Investment Opportunity - A specific company is highlighted as a critical player in the AI energy sector, owning essential energy infrastructure assets that are poised to benefit from the increasing energy demands of AI [3][7] - This company is not a chipmaker or cloud platform but is positioned as a "toll booth" operator in the AI energy boom, collecting fees from energy exports and benefiting from the onshoring trend driven by tariffs [5][6] Financial Position - The company is noted for being debt-free and holding a significant cash reserve, amounting to nearly one-third of its market capitalization, which positions it favorably compared to other energy firms burdened by debt [8][10] - It also has a substantial equity stake in another AI-related company, providing investors with indirect exposure to multiple growth opportunities without the associated premium costs [9] Market Trends - The company is strategically aligned with several market trends, including the AI infrastructure supercycle, the surge in U.S. LNG exports, and the focus on nuclear energy as a clean power source [14] - The influx of talent into the AI sector is expected to drive continuous innovation and advancements, making investments in AI a strategic move for future growth [12] Valuation and Potential Returns - The company is trading at less than 7 times earnings, which is considered exceptionally low for a business involved in both AI and energy sectors, indicating significant upside potential [10][11] - There is a projection of potential returns exceeding 100% within 12 to 24 months, making it an attractive investment opportunity [15]

Core Thesis - Limbach Holdings, Inc. is experiencing a significant stock price increase, rising from $4 in 2019 to over $110, driven by favorable construction cycles and a shift towards owner-direct relationships (ODR) [2] - The market may be overestimating the defensiveness and durability of ODR-driven growth, which now constitutes 70% of revenue [3] Revenue and Growth Analysis - ODR revenue primarily consists of large discretionary retrofit and upgrade projects rather than recurring maintenance, making it vulnerable to the weakening non-residential construction cycle [3] - ODR orders have shown a decline, falling from +33% in Q1 2025 to -8% in Q2, while GCR orders dropped by 55%, indicating a contraction in demand [3] - Historical growth rates of ODR, which averaged a 20% organic CAGR, were significantly influenced by a strong industry upcycle and may not be sustainable moving forward [4] Future Outlook - Sustainable growth is expected to align with mid-single-digit trends in non-residential construction, with limited margin expansion anticipated after a period of favorable pricing conditions [5] - Current margins are near industry ceilings, and with rising competitive pressures, Limbach's true earnings potential is likely lower than market expectations, suggesting a fair value estimate of $58 per share [5]

Financial Data and Key Metrics Changes - Total revenue for Q3 2025 was $184.6 million, a 37.8% increase from $133.9 million in Q3 2024 [30] - ODR revenue grew 52% to $141.4 million, with 39.8% from acquisitions and 12.2% organic growth [30] - GCR revenue increased 5.6% to $43.2 million, with a 25.1% growth from acquisitions but a 19.5% organic revenue decrease [30] - Total gross profit rose 23.7% from $36.1 million to $44.7 million, while total gross margin decreased to 24.2% from 27% [31] - Net income increased 17.4% from $7.5 million to $8.8 million, with adjusted earnings per diluted share growing 15.4% from $0.91 to $1.05 [33] Business Line Data and Key Metrics Changes - ODR revenue accounted for 76.6% of total revenue in Q3 2025, up from 69.4% in Q3 2024 [30] - ODR gross profit comprised approximately 80% of total gross profit dollars, increasing by $6 million or 20.3% [31] - GCR gross profit increased by $2.5 million or 39.3%, driven by higher margins of 20.8% compared to 15.8% [32] Market Data and Key Metrics Changes - In the healthcare sector, spending patterns are normalizing, with a national healthcare owner engaging the company for $12 million in capital projects across four sites [19] - The industrial and manufacturing markets continue to see seasonal shutdowns and facility upgrades, benefiting the company’s local business models [20] - The life science and higher education markets have shown cautious spending, but clients are beginning to communicate anticipated needs for the coming year [21] Company Strategy and Development Direction - The company’s growth strategy is focused on three pillars: scaling owner-direct relationships, enhancing profitability through expanded offerings, and strategic M&A [5][7] - The shift towards owner-direct relationships has diversified revenue streams and reduced risk, with ODR revenue expected to remain between 70%-80% of total revenue [12] - The company aims to improve margins through proactive sales teams and operational enhancements post-acquisition [16][18] Management's Comments on Operating Environment and Future Outlook - Management noted that while some customers experienced temporary delays in capital spending, spending patterns are normalizing as the year progresses [19] - The company is reaffirming its 2025 guidance of total revenue between $650 million and $680 million, with adjusted EBITDA of $80 million to $86 million [27] - Total organic revenue growth is expected to be in the range of 7-10%, down from previous expectations of 10-15% [28] Other Important Information - The company has made significant investments in building its sales team, which has resulted in higher SG&A relative to peers, but is expected to yield results [23] - The company’s balance sheet remains strong, with total liquidity of $70.3 million as of September 30 [35] Q&A Session Summary Question: Revenue contribution from Pioneer Power - Management indicated that Pioneer Power is expected to contribute closer to $60 million for the second half of 2025, primarily from the industrial segment [37][38] Question: Gross margins within ODR segment - Management acknowledged that gross margins are currently lower due to the nature of work and the transition of Pioneer Power, but they see opportunities for improvement [39][40] Question: SG&A as a percentage of revenue - Management noted that while SG&A as a percentage of revenue has decreased, there will be necessary investments going into 2026 [41] Question: Organic growth expectations - Management confirmed that organic ODR growth year-to-date is 14.4%, with expectations for acceleration in Q4 due to budget spending [43][44] Question: Future visibility in ODR - Management expressed confidence in visibility for ODR, emphasizing the mix of quick-burning work and fixed-price projects [55][56] Question: National relationship development - Management highlighted the progress made in building national relationships, noting that trust has been established with larger clients [57][58]

Company Overview - Limbach specializes in revitalizing and maintaining mission-critical systems in existing facilities [6] - The company operates in six distinct vertical markets across 17 Metropolitan Statistical Areas [19] - Limbach combines engineering expertise with skilled craftsmanship to deliver integrated solutions [16] Financial Performance and Strategy - Limbach is shifting its revenue mix towards Owner Direct Relationships (ODR), targeting ~80% ODR revenue [31] - Gross Margin has expanded nearly 1,480 bps from FY 2019 to FY 2024, reaching 27.8% [32] - Adjusted EBITDA Margin has increased more than 4x from 3.0% to 12.3% over the period from FY 2019 – FY 2024 [32] - The company's 2025 guidance projects total revenue between $650 million and $680 million, with ODR revenue accounting for 70% to 80% of the mix [68] - 2025 Adjusted EBITDA is projected to be $80 million to $86 million, with an Adjusted EBITDA Margin of 12% to 13% [68] Acquisitions and Growth - Limbach aims to add $8 million to $10 million of Adjusted EBITDA on a full-year basis through strategic acquisitions [49] - Pioneer Power Inc (PPI) is expected to contribute annualized revenue of approximately $120 million and Adjusted EBITDA of $10 million beginning in 2026 [58] - Consolidated Mechanical is expected to contribute annualized revenue of approximately $23 million beginning in 2025, and EBITDA of $4 million per annum [63]

Company Performance - Limbach reported quarterly earnings of $1.05 per share, missing the Zacks Consensus Estimate of $1.09 per share, but showing an increase from $0.62 per share a year ago, representing an earnings surprise of -3.67% [1] - The company posted revenues of $184.58 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 0.07%, and up from $133.92 million year-over-year [2] - Over the last four quarters, Limbach has surpassed consensus EPS estimates three times and topped consensus revenue estimates two times [2] Future Outlook - The current consensus EPS estimate for the coming quarter is $1.30 on revenues of $199.65 million, and for the current fiscal year, it is $4.43 on revenues of $659.43 million [7] - The estimate revisions trend for Limbach was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - Limbach operates within the Zacks Building Products - Miscellaneous industry, which is currently ranked in the bottom 39% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Limbach's stock performance [5]