Dear Fellow Partners:
The Summers Value Fund LP (“the Fund”) returned 41.7% net 1 in the second quarter of 2026, outperforming the Russell 2000 Index ETF (IWM), which returned 21.4%, and the Russell 2000 Value Index ETF (IWN), which returned 17.1%. Year-to-date, the Fund returned 37.8% net 1 compared to 22.5% for the Russell 2000 Index ETF and 22.8% for the Russell Value Index ETF. Since inception in 2018, the Fund has generated an annualized return of 15.7% net 1 compared to 9.1% for the Russell 2000 Index ETF and 8.7% for the Russell 2000 Value Index ETF.
Fund Commentary
The second quarter represented the Fund’s best quarter since inception, and the Fund was profitable on both the long and the short sides of the portfolio. We manage a concentrated portfolio and stock picking will always be the primary source of our returns. The environment for our strategy was very favorable over the past twelve months. Decades of underperformance had left small-cap stocks trading at a steep discount to their large-cap peers. Additionally, healthcare stocks were out of favor a year ago amid proposals from the new administration that weighed on the sector. That backdrop produced a wide set of attractive opportunities, and we were able to source several special situations at very low valuations.
Market conditions have since improved as the regulatory overhang on the healthcare sector has lifted, M&A activity has increased, and small cap companies are showing strong revenue and profit growth. A number of our investments benefited from idiosyncratic catalysts including acquisitions, new product launches that outperformed expectations, and strong operating trends. While the environment today is more balanced for sourcing new ideas, we continue to identify and evaluate under the radar special situations that fit our investment framework.
The largest contributors to the Fund’s performance in the second quarter included Liquidia (LQDA), Electromed (ELMD) and Avanos Medical (AVNS). Liquidia’s launch of Yutrepia continues to outpace investor expectations, a trend we expect will continue. The litigation overhang should be resolved in the near term; we expect a decision favoring the company, which could unlock further gains. Electromed reported strong fiscal third quarter results in May, handily beating expectations on both revenue and net income. Avanos appreciated by roughly 70% in April following its acquisition by American Industrial Partners (private equity) for $25 per share. The Fund recognized a total gain on Avanos of 106% during our holding period of approximately nine months.
The only detractor in the quarter was Embecta (EMBC). Shares declined after the company announced the loss of a major pharmacy customer in May and cut its dividend on a diminished cash flow outlook. We underestimated both the risk of losing a longstanding customer and the overall fragility of the business model.
Our top five holdings at quarter-end were Liquidia, Electromed, AnaptysBio (ANAB), Consensus Cloud Solutions (CCSI), and Halozyme (HALO). The Fund ended the quarter with AUM of $62 million.
The Fund’s current positioning is weighted toward pharmaceutical and biotechnology companies, which represent over 50% of our exposure. Within this group, we have significant exposure to royalty business models, which we favor for their high margins, asset-light structure, and strong cash flow generation. We have had success investing in royalty companies historically including BioSpecifics and Emisphere, which were acquired for healthy premiums in 2020. We have also been invested in Ligand since 2023, and it has been a multi-bagger over our holding period driven by a strong new product launch cycle. Our current royalty companies possess unique catalysts that we believe will unlock shareholder value in the future including new product cycles and litigation events.
Trading activity in the period was elevated relative to normal levels. We initiated AnaptysBio in April on the thesis that its litigation with GSK would be resolved and either 1) drive higher-than-expected profits in future periods or 2) result in the acquisition of the company. We exited Avanos following the acquisition announcement, as we did not expect to reach long-term capital gain status on our shares. We exited Embecta following its customer loss and revised outlook. The short-term loss on Embecta offset a portion of our short-term gains on Avanos. We also sold Theravance in June following its acquisition by Zymeworks, realizing a 25% short-term capital gain. We ended the quarter with approximately 13% in cash.
As a reminder, the entirety of my family’s liquid net worth is invested alongside yours in the Summers Value Fund. That alignment of interests has been an important driver of our success over time.
Position Update
Consensus Cloud Solutions (CCSI) – $695 million market cap Consensus Cloud Solutions is a leading provider of cloud-based fax services to the healthcare sector under its well-recognized eFax brand. Faxing remains an important means of communication in the healthcare ecosystem with billions of pages sent each year. Faxing, while a legacy technology, allows industry participants to communicate in a HIPAA-compliant manner. Many hospitals and clinics still rely on physical fax machines while Consensus’ cloud-based service feels more like sending an email.
Consensus was a busted spin-off from J2 Global when we started buying shares two years ago. The stock had declined from $65 to a low of $12 following missed expectations and an accounting restatement. At its low, the stock traded at 2.5x GAAP earnings. We began building our position at $16, or 3.5x GAAP earnings. Despite selling legacy technology into an industry in secular decline, the company had several attributes we found appealing: high margins, low customer churn, and strong free cash flow generation. After years of a declining share price, investor expectations and sell-side coverage were almost non-existent, which helped create the mispricing.
In 2024, management mapped out a plan to grow the corporate healthcare business and has been executing well against that initiative. Key to the plan was taking share from non-cloud-based competitors, alongside upselling additional features including a new AI tool that automates the extraction and structuring of data from unstructured fax documents. Growth has resumed in recent quarters, including 8% growth in the first quarter. In addition, management has been actively paying down debt and repurchasing shares with free cash flow. Since the spin-off, the company has paid down over $200 million of debt while repurchasing almost $75 million of stock. Going forward, we expect more capital to be allocated toward share repurchases. With over $100 million of free cash flow expected this year, buybacks could be a meaningful driver of future earnings growth.
CCSI has re-rated to 7.5x current-year GAAP earnings as investor interest has grown. We believe further appreciation is possible if management continues to drive higher-than-expected revenue and profits in future periods. Our price target on CCSI is $58, representing 50% upside from the current price.
In Closing
I would like to express my sincere appreciation to those investors who added to their accounts this year. One of our greatest competitive advantages is a patient, long-term oriented investor base, which allows us to underwrite special situations others may not have the time horizon to pursue. Our strategy has ample capacity, and we welcome like-minded individuals to join the partnership. Interested parties may contact Alison Tomlinson at atomlinson@summersvalue.com .
Sincerely,
Andrew Summers, CFA
Managing Partner
Original Post
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
