Investment Pitches

Pitch Summary:
Finally, Endava is one of the better-managed IT outsourcers among its peers, with perhaps only EPAM being better managed among at least the US-listed stocks. The very tangible (for some) chill that has befallen the tech sector's once-rapid employment growth seems to be also impacting projects that Endava and other outsourcing companies were working on. As a result, the entire sector has fallen rather significantly. Given the indiscriminate selling of quality companies in the space, I decided to sell Thoughtworks, a slower-growing outsourcer with some suspicious foreign ties I wasn't previously aware of, and Grid Dynamics (GDYN), a much smaller company that I bought during the COVID pandemic after it went public via SPAC.

BSD Analysis:
The manager views Endava as a high-quality IT outsourcing company, ranking it among the best-managed firms in the sector alongside EPAM. The investment thesis is based on opportunistic buying during sector-wide weakness caused by tech employment slowdowns affecting outsourcing demand. The manager demonstrates conviction by swapping out lower-quality holdings (Thoughtworks and Grid Dynamics) to concentrate in what they view as a superior operator. The purchase appears to be a quality-focused value play, capitalizing on indiscriminate selling to acquire a well-managed company at attractive prices. The manager's comparison to EPAM suggests they expect similar operational excellence and margin expansion potential. This represents a consolidation strategy within the IT services space, focusing on the highest-quality operators. The timing suggests the manager believes current sector headwinds are temporary and that quality companies like Endava will emerge stronger.

Pitch Summary:
Propel Media (PROM) – trades on the expert market. We briefly covered it in our 2020 first quarter letter (link). At the time it had 246 million shares outstanding. It traded around $0.13 per share and earnings in 2018 were $23 million, or $0.09 per share. Earnings were being used to pay down debt. We sold the entire position at up to $0.29 in the second quarter of 2021 and explained our reasoning - we had achieved a decent gain and the business was declining – earnings had fallen to $0.04 per share in 2019 and the outlook was not positive. We felt fine about our decision as the stock rarely traded after implementation of Rule 15c2-11 forced it onto the expert market. In fact, between January 1, 2022 through April 30, 2023 it appears only about 20,000 shares traded. Most at $0.10 per share, which the fund actually bought, and about 1,000 shares at $0.01 and an even smaller amount at $0.0001. The only information we had received was in April 2022 when Propel communicated their decision to sell what had been their primary business for a $24 million note receivable, plus potential earnouts, in order to focus on their healthcare advertising business, DeepIntent. Apparently, we never updated our google alerts because on May 13 of this year we received an alert about IQVIA Holdings (IQV) acquisition of Propel Media potentially being blocked by the FTC (link). This was the first report that there even was a potential acquisition of Propel. What got our attention (massive understatement) was the reported price in the article of $700 to $800 million. Assuming no change in the outstanding shares that would be equal to $2.77 to $3.17 per share. Wow! A $0.10 stock possibly being worth $3 per share. We confirmed the share count at otcmarkets.com was essentially unchanged at just over 252 million. We unfortunately had no way to confirm the potential purchase price – we had to trust that the journalist actually had multiple sources and got it right. Would the stock price of an expert market illiquid security react to a Politico article noting a possible merger? If so, how long would it take? The price of a listed stock typically reacts within minutes or even seconds. An unlisted stock can take hours or occasionally a few days, but volume is usually only enough for a small investor to make a decent gain. Interestingly, the article did not contain ticker links so it did not show up on financial news platforms for Iqvia or Propel. As we write this neither company has mentioned the possible acquisition. More importantly, could we get shares in an illiquid, expert market security with public news of it possibly being acquired? It was a long shot but worth trying. We already had in place a 100,000 share "stink bid" at $0.01 per share for a while with no hits. Our broker said there were 5,000 shares available at $0.10 per share. While hardly meaningful we took them. Another 5,000 shares came on the market and we bought those too. Combined that was $1,000 plus commissions. Certainly not meaningful. We ended the day buying 20,000 shares at $0.10 per share. We raised our bid to $0.15 per share, which was the high bid, and waited. And waited. And waited. There were no sellers at all. Nearly a month goes by with nothing happening. On June 14 a small seller of 23,000 shares shows up at $0.30. We didn't want to cause a big price jump, but we decided to take them and keep our bid at $0.15. While we were making some progress, it was still not meaningful in relation to the fund's size. Then my broker called to say another seller showed up with 2,500 shares at $0.35 and he thinks there may be some size behind it, meaning the seller likely wants to sell more shares than what was being displayed. The broker engaged in negotiations with the selling broker and near the end of the trading day the fund purchased just over 300,000 shares at $0.25 per share. At cost, the $75,000 was still not significant, but if Propel were to be bought for $3 per share it would be nearly a $1 million gain. That is meaningful for Cedar Creek. The next day, June 15, we put out a bid for 200,000 shares at $0.25 to see if the seller was still there, with instructions to buy up to one million shares. Crickets. Bummer. A few hours later my broker emails me that he had negotiated a purchase of one million shares at $0.24. Now we are talking. We added another 750,000 later in the day. At day end, we owned over 2.1 million shares at a cost basis of roughly $0.25 per share. We added another 98,000 shares on June 16. We continued our due diligence (see below) and purchased another million shares the following week. That made it our 6th largest position at around 5% of the fund. We must have exhausted the seller because the ask jumped to near a $1 and less than 1,000 shares have traded in nearly a month. If the acquisition is consummated at the current terms, of roughly $3 per share, we would have a return of 12 times our cost basis, which works out to roughly a 50% gain for fund as a whole, net of fees. We had no idea what will happen. We expected both the seller and buyer to work diligently at alleviating any concerns the FTC had. On July 17 the FTC announced that they were suing to block the transaction (link). While approval would have been ideal, the FTC filing suit does not kill the deal. The FTC had done the same thing, with similar reasoning in the Microsoft / Activision Blizzard transaction and the courts sided against the FTC. A court date for the Iqvia / Propel Media matter was set for December 2023. Possible outcomes are: 1) The court rules in favor of Iqvia and Propel and the deal goes through!!! 2) The court rules in favor of the FTC and blocks the deal. That means Propel has to be valued on its own merits and maximum value is the price of the next best acquirer, which would most likely be below $700 to $800 million. For us to lose money, the value as a going concern or what the next strategic buyer would be willing to pay would have to be less than 1/10 of what IQVIA is willing to pay. That seems highly unlikely. We also think it is reasonable to conclude that it is more likely than not that Propel is profitable, or about to turn the corner on profitability. Why else would IQVIA pay $700 to $800 million? Our conclusion was that even if the deal does not close, we are gaining ownership in a fast-growing company at a very attractive price. At $0.24 per share the market cap is $60 million, which is not only less than 10% of what Iqvia is willing to pay, it is less than half our estimate of current revenue, and possibly two to three times earnings.

BSD Analysis:
The manager presents a compelling special situation opportunity in Propel Media, an illiquid expert market stock trading at $0.24 that could be acquired by IQVIA for $2.77-$3.17 per share. The thesis centers on a potential 12x return from the acquisition, representing approximately 50% upside for the entire fund. Even if the FTC blocks the deal, the manager argues the downside is limited given Propel's DeepIntent healthcare advertising platform appears to be approaching profitability with strong revenue growth. The manager estimates DeepIntent generated $110-146 million in revenue for 2022-2023 with improving margins, making the $60 million market cap attractive on a standalone basis. The position represents 5% of the fund and was accumulated through patient negotiation in an illiquid market. Key risks include FTC approval uncertainty and the manager's reliance on unconfirmed acquisition pricing from media reports. The asymmetric risk-reward profile appears favorable given the minimal downside relative to the substantial acquisition upside.

Pitch Summary:
Fund returns were hurt by the retrenchment in new-home construction, which sent lumber prices plummeting by approximately 70 percent in the back half of 2022. The Fund had entered the year with approximately 18.5 percent of Fund assets invested in five different lumber producers with Interfor (IFP.TO), at 8.4 percent and Resolute Forest Products (RFP), at 5.3 percent, being the two largest positions. Exceptionally high lumber pricing in recent years had been providing these companies with extraordinary cash flows, allowing both Interfor and Resolute to eliminate large amounts of debt from their balance sheets. However, despite the rapidly dwindling debt burden, both firms continued trading at extremely high cash flow yields. While we understood that lumber prices were unusually high and likely to decline over time, we were happy that balance sheets in the sector had been massively de-risked and were pleased that many of our lumber investments had been increasingly returning cash to shareholders through dividends and share repurchases that appeared highly accretive given the cash flows. Unfortunately, we held on to our position in Interfor, which began to sink lower as lumber declined – a function of higher mortgage rates taking a serious bite out of home construction, resulting in a decrease in lumber demand. We had been quite optimistic that our downside in Interfor would be limited, despite the high probability of declining lumber prices over time, given that the company was flowing significant operating cash flow onto the balance sheet, rapidly de-risking valuation. However, we were a caught a little off-guard when the company announced in October that it would acquire Chaleur Forest Products, a 350 million board-foot sawmill operation with two plants in New Brunswick Canada for $280 million. While we understand Chaleur is a modern, efficient and well-run operation, Interfor management appears to have paid a fairly full price of close to $650/thousand board foot for a mill with very few cost synergies with the rest of Interfor’s operations. Importantly, Interfor paid a valuation far above where the rest of Interfor’s operations were trading on a board-foot basis. The move appeared to be a departure from Interfor’s previous successful strategy of purchasing poorly performing assets with good cost synergies at low valuation levels during cyclical downturns and competently upgrading operations. While we certainly hope management will be able to pull a rabbit out of the Chaleur hat, for now the full-priced purchase has unfortunately left the investment community questioning management’s capital allocation proficiency. Furthermore, while the recently closed acquisition was conservatively funded with well-termed debt, it did put additional debt onto the company’s books just as the lumber markets cratered and cash flow in the industry was turning negative. Interfor was the Fund position with the worst impact on performance in 2022, with a decline in the value of the position costing an estimated 3.49 percentage points. Despite the losses, we currently intend to hold the Interfor position pending a recovery. While we certainly share investor concerns that the near-term home construction market is facing significant headwinds driven by surging mortgage rates, we believe that Interfor’s share price, having declined roughly 50 percent from the peak, now already discounts a fairly significant bear market in housing. Trading at just 55 percent of book value and at just $250 per thousand board foot of sawmill capacity, the stock represents excellent value substantially below replacement cost. And while competitors in recent years have spent in excess of $650/thousand board foot for new construction in the Southeast US, new supply additions have been quite limited. Additionally, historic high-cost supply from western Canada has continued to shut down, which will assist in balancing the market. Furthermore, while new home demand may experience a period of weakness driven by mortgage rate sticker shock, we believe strong nominal wage growth and new home price declines, driven by input price declines and homebuilder margin compression, will rapidly improve new home affordability. Long term demographics strongly favor growth in household formation, and a dearth of new supply of homes since the Global Financial Crisis has left the housing market structurally undersupplied. And of course, any declines in mortgage rates would certainly hasten the probability of a lumber market recovery.

BSD Analysis:
Interfor is a lumber producer riding one of the most cyclical commodities in the market. Housing demand, sawlog costs, and trade policy dictate profitability more than strategy decks. The North American footprint gives scale, but not insulation from price crashes. Cost structure flexibility is the key survival trait. Balance-sheet health determines whether downturns are endured or feared. This is not a steady compounder. It’s operating leverage to construction cycles. When lumber prices rise, Interfor’s earnings spike fast. When they fall, patience gets tested just as quickly.

Pitch Summary:
Outside of Hallador, two of the Fund’s other large energy-sector holdings, MEG Energy (MEG.TO) and International Petroleum Corporation (IPCO.TO), also performed well, benefitting from surging cash flows as oil prices soared higher in 2022, allowing each to substantially reduce debt and buy back shares at attractive, value-accretive prices. Gains on MEG and IPCO together added 6.95 percentage points to Fund returns. As both companies are extraordinarily well managed, and continue to sport strong free cash flow yields and long reserve lives, we continue to maintain our positions.

BSD Analysis:
International Petroleum is a small-cap E&P that wins only if management stays disciplined when oil prices cooperate. Its asset base spans Canada and Europe, offering diversification but not immunity from commodity swings. Free cash flow can be meaningful in strong pricing environments. The risk is always capital allocation — growth projects can destroy value faster than they create it. Balance-sheet management matters more than production headlines. This is not a scale supermajor. It’s torque to crude with execution risk layered on top. Shareholder returns look attractive when prices hold. IPC works if discipline outlasts temptation.

Pitch Summary:
Most positively impacting Fund returns in the year were gains in the Fund’s position in Hallador Energy Company (HNRG). The 7 million ton per annum Indiana-based thermal coal producer, which started the year as a $75 million market cap company, added 5.97 percentage points to Fund returns. We significantly grew the position in the first half of 2022 as shares began climbing to eventually more than triple in value. The levered company, with $108 million in debt, had been trading at about half of tangible book value as it struggled with depressed margins as cost inflation ate into profits after much of its coal production for the year had been contracted out at modest pricing prior to the run-up in coal. Fortunately, the company was able to get through the margin squeeze, repricing a substantial portion of its coal at excellent prices starting in September. We believe Hallador should now be able to generate pretax operating cash flow (EBITDA) of $160 million on contracted business in 2023, allowing the company to potentially repay the entirety of its debt. Furthermore, during the year Hallador was able to pull off what appears to be an extraordinarily bargain priced purchase of the Merom Generating Station. The reportedly well-maintained, one-gigawatt coal-fired power plant, with potential for many years of additional service, was acquired at a price well below carried book value from a seller whose new management team we understand decided to shift strategy in favor of green energy. With new coal power plants reportedly costing in excess of $3,000 per Kilowatt ($3 billion per gigawatt) in 2008 (few new plants have been built since), we think Hallador shareholders may be the recipients of a great deal. The plant, located just a few miles down the road from Hallador’s mining infrastructure, should provide the ability for Hallador to vertically integrate operations and broaden its potential customer base, adding the ability to convert coal and sell the electricity to a myriad of new buyers on the increasingly hungry grid. At year-end, Hallador was the largest position in the Fund, comprising 7.54 percent of Fund assets.

BSD Analysis:
Hallador Energy is successfully executing a transformational pivot from a traditional coal producer to an integrated independent power producer in early 2026. The company is capitalizing on the "unbalanced energy equation" created by the retirement of dispatchable generators, with its subsidiary, Hallador Power, offering a reliable counterpoint to intermittent renewable sources. Significant forward sales contracts for 2026 at an average price of over $44 per MWh provide strong revenue visibility and a defensive buffer against spot market volatility. Management is aggressively targeting the booming data center market in Indiana, where electricity scarcity is driving a massive premium for reliable, base-load power. Strategic debt reduction and the restructuring of the Sunrise Coal division have significantly improved the balance sheet, creating a stable platform for future acquisitions of dispatchable assets. While the coal segment faces structural headwinds, Hallador’s vertical integration and focus on high-demand industrial power sales position it as a unique beneficiary of the evolving energy landscape.

Pitch Summary:
Paywalled (Hershey faces rapidly growing competition from one of the world’s youngest, most talented, and most influential entrepreneurs: 25-year-old YouTube star Jimmy Donaldson, AKA MrBeast. His new chocolate brand, Feastables, has waged an all-out war against Hershey in retail and on social media — and is winning.) Update 3/21/24 - Follow-up report: Hershey is losing in competition.

BSD Analysis:
Hershey is a leading confectionery and snacks manufacturer. The bear case focuses on margin pressure from cocoa price inflation, slowing volume growth in North America, and questions about the sustainability of price-driven gains. Recent commodity spikes have dramatically raised input costs, and while Hershey has pushed through pricing, elasticity risks are rising. Expansion into salty snacks diversifies revenue but remains small relative to chocolate. With valuation near historical highs, any sign of margin compression or demand weakness could drive multiple contraction. Regulatory and ESG scrutiny on sugar content add another layer of risk.

Pitch Summary:
Newpark Resources should see significant earnings growth from its DURA-BASE® composite mat over the next decade. Combine that earnings growth with the potential for multiple expansion as the legacy oilfield fluids business is divested or shuttered and you have a company that could be worth multiples of its current value in the next few years. Today, Newpark has two operating segments: Fluids and Industrial. The industrial business primarily derives its revenues from the rental and sale of worksite access matting systems (aka DURA-BASE®). These engineered thermoplastic mats are designed to lock together to form a structurally-sound work surface that provides protection for workers and equipment. Composite mats are displacing legacy work surface technologies like timber. Traditional timber ground protection mats only last up to three years, are prone to rotting, contain splinters and nails, do not lock together, and weigh 3x as much per square foot covered. Composite mats can be laid faster with less people and equipment, conform to the ground, can be cleaned after use, and can be infinitely recycled once they reach the end of their 12-year life. Worksite mats are used by over twenty different industries, but the industry driving the growth is power transmission. Composite mats currently have only ~15% share of the worksite access market (and most of this adoption has occurred over the past 5 years) while the rest of the market belongs to timber. We expect composite will continue to take market share from timber. Combine the share gains with the high-single-digit growth we expect from the power transmission market, and Newpark should be able to grow its industrial segment at a high-single-digit/low-double-digit rate for the next several years. Moreover, the industrial segment generates EBITDA margins above 30%. We believe these margins should be sustainable over the medium-term given the demand for composite mats and Newpark's scale advantages. The Fluids business sells drilling, stimulation, and completion fluids to oil and gas markets. This business is profitable, but it is capital-intensive and very cyclical. Fluids accounts for most of Newpark's revenues and assets, but a small percentage of the company's profits. Management is in the process of shrinking this business and has announced strategic alternatives for the division. The Fluids segment has $210 million dollars of working capital, a large portion of which should be released as cash as the business is right-sized or paid for by an acquirer. Management has pulled $100 million in cash out of this business over the past year and used the proceeds to fund growth in the Industrial segment and to buy back stock. Additionally, as the Fluids segment has shrunk, management has been able to reduce corporate costs (down 27% versus 2019). Over time, we expect the Industrial segment to overtake Fluids in revenue; we also expect industry classification systems such as Bloomberg and MSCI to reclassify Newpark as an industrial company. In our view, the industry reclassification will bring in new investors and cause Newpark shares to re-rate closer specialty rental peers like WillScot Mobile Mini (WSC) and McGrath RentCorp (MGRC), which trade at low-double-digit EV/EBITDA multiples. (Newpark trades below 7x today, and closer to 4x if you give the company credit for the value of the Fluid segment's working capital.)

BSD Analysis:
The manager presents a compelling transformation story for Newpark Resources, centered on the growth potential of its DURA-BASE composite mat business. The thesis hinges on market share gains from timber to composite mats, which offer superior durability (12-year vs 3-year life), operational efficiency, and environmental benefits. With composite mats holding only 15% market share despite clear advantages, significant runway exists for expansion. The industrial segment's 30%+ EBITDA margins provide attractive unit economics, while management's strategic divestiture of the cyclical fluids business should unlock $210 million in working capital and enable multiple re-rating. The power transmission industry's high-single-digit growth provides a favorable tailwind for the core growth driver. At below 7x EV/EBITDA (4x adjusted for fluids working capital), the valuation appears compelling relative to specialty rental peers trading at low-double-digit multiples. The anticipated industry reclassification from energy to industrials could attract new investor bases and drive valuation expansion.

Pitch Summary:
Service fee is far higher compared to peers, likely to suffer ~30% decline in service fees; EPS is going negative in 18 months; multi-years of net losses are uncommon for such 'safe' businesses;

BSD Analysis:
SCI is North America’s largest funeral and cemetery operator. Shorts highlight slowing growth post-pandemic, rising cremation adoption, and leverage. Pandemic-era demand boosted earnings, but normalization has arrived. Capex for cemeteries is ongoing, and competition from cheaper cremation erodes pricing. Multiple looks rich for a low-growth model.

BSD Analysis:
The manager added to Interactive Brokers in the mid-$70s, reaching the 10% portfolio allocation limit established by risk management protocols. The investment thesis centers on the company's ability to sustain elevated net interest income in a higher-for-longer rate environment, contrary to market skepticism. Recent economic strength and labor market data support the manager's view that rate cuts are unlikely in the near term, benefiting IBKR's interest income. The manager highlights that investors are overlooking positive trends in trading volume and margin loans, creating a valuation disconnect. The current environment of rising stock prices and elevated interest rates represents an optimal operating backdrop for the business model. Monthly KPI metrics provide transparency into business momentum that the market appears to be ignoring. The position was initiated in summer 2022 with a published write-up, demonstrating long-term conviction. The decision to reach maximum allocation limits reflects high confidence in the risk-adjusted return potential.

Pitch Summary:
We initiated an investment in Gogo in Q1 and published a write-up on the stock in April 2023. Gogo's stock price declined by over 15% in the middle of the quarter and we used that opportunity to significantly increase our ownership. We could not find a good reason as to why the stock declined and within a few weeks, the stock price reversed and hit a new 52-week high price.

BSD Analysis:
The manager initiated a position in Gogo during Q1 2023 and published detailed research supporting the investment thesis. When the stock declined over 15% mid-quarter without fundamental justification, the manager demonstrated conviction by significantly increasing the position size. This opportunistic buying during unexplained volatility reflects disciplined value investing principles and confidence in the underlying research. The rapid reversal to new 52-week highs within weeks validated the manager's assessment that the decline was technically driven rather than fundamentally justified. The position sizing increase during weakness demonstrates the manager's willingness to add to high-conviction ideas when market inefficiencies create attractive entry points. This investment approach showcases the manager's ability to separate market noise from fundamental value. The quick recovery to new highs suggests the manager correctly identified a temporary dislocation in a quality business. The reference to a published write-up indicates thorough fundamental analysis supporting the investment decision.

Pitch Summary:
Adobe is another long-time holding that we sold in the quarter. Last year Adobe announced the acquisition of Figma which made sense from a strategic standpoint but the deal's valuation and financing were puzzling. Adobe agreed to pay a 50x ARR multiple for Figma which represented a peak software industry multiple – but the company inked this deal after software industry valuation multiples collapsed. Additionally, Adobe financed most of the acquisition with the issuance of shares, materially diluting existing investors. Capital allocation mistakes can destroy shareholder value over time even if the core business is world class. We viewed the Figma deal as a red flag although we felt that the stock was too cheap to sell at the time. That changed in 2023 as Adobe's stock rallied along with other software companies due to the current excitement over artificial intelligence. Adobe's valuation re-rated in the first half of 2023, providing an opportunity to exit the position.

BSD Analysis:
The manager exited Adobe due to concerns over capital allocation discipline, specifically the Figma acquisition announced in 2022. While strategically sound, the deal's 50x ARR multiple represented peak software valuations despite being negotiated after industry multiples had collapsed, demonstrating poor timing and valuation discipline. The share-financed structure materially diluted existing shareholders, compounding the value destruction. The manager identified this as a red flag for management's capital allocation framework, recognizing that even world-class businesses can destroy shareholder value through poor M&A decisions. Despite these concerns, the manager maintained the position while the stock traded at attractive valuations. The 2023 AI-driven rally in software stocks provided valuation expansion that enabled an opportunistic exit. This demonstrates patience in waiting for favorable exit conditions while maintaining conviction in the fundamental concerns. The sale reflects disciplined risk management when capital allocation red flags coincide with rich valuations.

Pitch Summary:
We have owned Mastercard on and off since inception. We re-initiated the position in summer 2022 during the broader market sell-off. The stock traded off to an attractive valuation and we believed the tailwinds from a reopening of international travel still had legs. This was a small portfolio position and the stock has appreciated in the year we have owned it. The stock's valuation is once again rich and the tailwinds from international travel and consumer spending appear to be tapering. We sold the position because we believe other opportunities within our existing portfolio will generate superior returns.

BSD Analysis:
The manager executed a tactical trade in Mastercard, capitalizing on the 2022 market sell-off to re-enter at attractive valuations. The investment thesis was predicated on international travel reopening tailwinds and consumer spending recovery following pandemic disruptions. The position generated positive returns over approximately one year of ownership, validating the entry timing during market distress. However, the manager recognized that valuation expansion had eliminated the margin of safety, with the stock returning to rich multiples. The exit decision was driven by opportunity cost considerations rather than fundamental deterioration, as the manager identified better risk-adjusted returns elsewhere in the portfolio. This demonstrates disciplined capital allocation and willingness to rotate into higher-conviction ideas. The trade exemplifies the manager's tactical approach to quality companies during market dislocations. The successful round-trip investment showcases timing discipline and recognition of when investment tailwinds are fully reflected in valuations.

Pitch Summary:
DCP Midstream ("DCP") is an oil and gas pipeline company that was set up as a joint venture between Phillips 66 and Enbridge. In August 2022, Phillips 66 acquired most of Enbridge's ownership and announced an offer to buy the rest of the company for $34.75 per share. This was notable because Phillips 66 demonstrated its appetite to buy DCP via the Enbridge transaction. Also, the offer price was made at the closing share price (no premium), leaving room for a bump to the price. Finally, DCP Midstream is a strategic asset because it was already integrated with the Phillips 66 natural gas liquids value chain. There were several signs pointing to a negotiated merger contract as a highly likely outcome. The only question was the final price. After conducting a valuation analysis, we were comfortable with holding the stock even if the deal fell through. There was limited downside to the pre-offer share price but there was ample room for a higher offer price which framed a nice risk/reward setup. In January, DCP Midstream announced that the deal was negotiated at a price of $41.75, a 20% bump from the original $34.75 offer. We purchased DCP shares for around $38 per share. If you include $4.04 in dividends received, we roughly earned a 19% return (25% IRR) on this investment.

BSD Analysis:
The manager executed a successful merger arbitrage strategy on DCP Midstream, capitalizing on a non-binding acquisition offer from majority owner Phillips 66. The investment thesis centered on the strategic rationale for consolidation, given DCP's integration with Phillips 66's natural gas liquids value chain and the acquirer's demonstrated appetite through the prior Enbridge transaction. The manager identified an asymmetric risk/reward setup with limited downside to the pre-offer price and significant upside potential from price negotiations. The initial offer at closing price with no premium signaled room for improvement through the independent committee negotiation process. The investment generated a 19% return (25% IRR) when the final deal price increased 20% from the original offer to $41.75 per share. This case study demonstrates the manager's expertise in event-driven situations where majority owners seek to consolidate ownership. The successful outcome validates the manager's ability to identify situations with high probability of closure and negotiate price improvements.

Pitch Summary:
CXI is one of only three major suppliers of foreign currency banknotes in the United States and of US dollar banknotes internationally. Banknotes are typically used for travel and the Covid induced downturn masked major market share gains made by the company after its key competitor Travelex exited. CXI is run by its Founder Randolph Pinna, who owns 21% of the company and has high integrity, delights customers, and a 35 year track record of building two banknotes businesses that have delivered strong shareholder returns. The company trades on 10x net profits today and we expect earnings to double over the next three years as travel recovers and new businesses bear fruit. That puts the stock on just 4x our estimate of profits in three years' time when cash generated in the interim is included. We started buying shares at US$14/shr in mid-2022, it trades at US$18.5/shr today, and we believe intrinsic value will be US$55/shr in three years. CXI reported strong results in the quarter, with revenues up 30% y/y and EBIT up 44%. The outlook for travel this summer continues to be positive. We see two key opportunities for the business which investors underappreciate. The first opportunity is to invest in growing outside the US. In 2021 CXI became one of only three companies licensed to export US dollars from the Federal Reserve across the world. We estimate this market is worth around $380mm in annual revenues and is dominated by Bank of America, whose heightened compliance costs have caused it to retrench from smaller clients for several years. CXI's lower cost base gives it an advantage and we believe the Fed is now guiding the company on its expansion. As a result, CXI recently won major customers across Europe, North America, Brazil, and Singapore. We believe that the company will take a substantial share of this $380mm market in the coming years, which compares with its total revenues of $75mm today. CXI is now also in discussions with the European Central Bank and the Bank of Canada to form similar relationships, although the market sizes for the euro and Canadian dollar are smaller. The company's second large opportunity is to deploy the cash that has built up on its balance sheet. CXI holds $101mm of cash and $15mm of debt, a sizable amount of net cash compared to its $120mm market cap. We estimate that $80mm of this cash needs to be held as physical banknotes so should be thought of as inventories, meaning excess cash that could be deployed is closer to $20mm. Still, increasing the amount of credit financing these inventories from $15mm to $40mm would result in a still conservative 0.5x loan-to-value ratio and free up an additional $25mm in excess cash. That would bring total deployable cash up to $45mm while still leaving a strong balance sheet with no debt beyond modest inventory financing. We believe that management is cognizant of how it can use this cash and will do so in a disciplined manner. As the cross-border travel recovers, the growth of CXI's international business accelerates, and management deploys cash, we believe the company's revenue and earnings growth will result in investors appreciating the far stronger competitive position and opportunities the company finds itself with post the Covid downturn.

BSD Analysis:
The manager presents a compelling bull case for Currency Exchange International, emphasizing the company's oligopoly position as one of only three major US banknote suppliers and beneficiary of competitor Travelex's exit. The investment thesis centers on two key growth drivers: international expansion through Federal Reserve licensing and efficient capital deployment. CXI's exclusive Federal Reserve license positions it to capture significant share of the $380mm international USD banknote market, currently dominated by Bank of America which is retreating from smaller clients due to compliance costs. Recent customer wins across Europe, Brazil, and Singapore validate this expansion strategy. The company's strong balance sheet with $101mm cash versus $120mm market cap provides substantial deployment optionality, with management able to increase inventory financing while maintaining conservative leverage. Trading at 10x current earnings with expected doubling over three years creates an attractive 4x forward multiple including interim cash generation. Founder-CEO Randolph Pinna's 21% ownership and 35-year track record provide strong alignment and execution confidence. Recent quarterly results showing 30% revenue growth and 44% EBIT growth demonstrate operational momentum as travel recovery accelerates.

Pitch Summary:
Endor has around 60% market share in the premium segment of the sim racing market. The company makes racing wheels, pedals, and other hardware for gamers playing motorsport games like Gran Turismo. The company is run by industry pioneer Thomas Jackermeier, has the leading culture, brand and technology, and several catalysts coming in H2. Jackermeier owns 50% of the company and even bought €7.7mm more shares in 2021 at more than double today's prices. Despite this, the stock has declined around 60% over the last 18 months after the company made several mistakes, which it is correcting. We believe that even moderately successful execution from here puts the stock on a mid-single digit multiple of earnings in three years and that as the leading company in a high growth and premium consumer goods industry it will trade for a double digit multiple at that point. Our cost basis is €16.5/shr, the stock trades at €7.5/shr today, and we estimate intrinsic value will be €30/shr in three years. Our intrinsic value estimate has reduced from over €50/shr as we think there is a greater risk that management fail to fully capitalize on the company's leading position. Our best expectations remain unchanged. We estimate that the sim racing industry has grown at 25% p.a. for the last decade, propelled by the growth in gaming, Formula 1, and equipment and games that are becoming so realistic the younger F1 drivers train on them extensively. Endor not only has the industry pioneer as CEO and leading group of people, but unique partnerships with Formula 1, World Rally Car, NASCAR, Gran Turismo, Porsche, BMW, and Bentley. As one example, Endor is featured prominently in the upcoming Gran Turismo movie, and players in the game can directly access the Endor webstore. Despite these advantages, the company has made mistakes and we could have mitigated some of these with our position sizing. Endor's first mistake was how it managed its supply chain. When the global chip shortage hit the company ran out of chips, causing all key products to be out of stock from June 2022 until April this year. As a result, revenues were down 63% in Q1 against a tough comparable period, and Q2 will likely be poor too. The company also had to write down some chips it purchased over the last year because their market prices have now declined. We were aware of how Endor's quarterly results were going to be throughout this period as we have data which allows us to estimate the company's sales in real-time. However, we did not reduce our position as we believed that investors would look through these disappointing but temporary product shortages and focus on the longer-term prospects of the company. We also did not want to reduce our position ahead of what could be the most material product launch in the company's history in H2. Endor's second misstep was harder to anticipate. The company correctly paid US sales taxes but incorrectly added it to revenues rather than subtracting it. This embarrassing error was caught but resulted in 2022 revenues being lowered from €124mm to €118mm. That further hurt the stock. The silver lining to these mistakes is that they have led to meaningful changes that will strengthen the company. The CFO, FD, and Head of Bookkeeping are all being replaced. An ERP system is being implemented that will lead to more robust checks. A former manager at Siemens was appointed CTO twelve months ago and has been a success. He has now taken over as COO. Products can now use a variety of chips. A second manufacturer in China has been found which has reduced costs. Endor believes there are also some mitigating circumstances given revenues have multiplied tenfold since 2016 and headcount has multiplied by four. The company is small and was low down the priority list for chip manufacturers when there were unprecedented shortages. The extent of these ramifications surprised us. This type of execution is of course not what we expect from our businesses. We will closely monitor the company's operations to better understand whether these mistakes are a one-off or likely to be repeated. The company's new hires will likely help it improve operational processes and checks, but we have reduced our expectations in our base and bearish cases going forwards. Our best expectations remain unchanged as the growth and opportunities for the sim racing industry have proved better than we initially expected. Endor is now accelerating the build out of its management team and operations, which should enable it to capitalize on being the leader in an attractive industry with a long runway for growth. The stock price has declined to reflect its mistakes, but in our view does not price in any return to normality or the terrific long term future of the company. We believe there are several catalysts coming in H2 and that three years from now the stock will be worth a multiple of where it is trading at today.

BSD Analysis:
The manager maintains a bullish stance on Endor AG despite significant operational setbacks, viewing the 60% stock decline as an overreaction that creates an attractive entry point. The thesis centers on Endor's dominant 60% market share in premium sim racing hardware and strong industry tailwinds, with the sim racing market growing 25% annually over the past decade. Key competitive advantages include exclusive partnerships with Formula 1, NASCAR, Gran Turismo, and luxury automotive brands like Porsche and BMW. The manager acknowledges serious execution failures including supply chain mismanagement during the chip shortage and accounting errors that reduced reported 2022 revenues from €124mm to €118mm. However, management changes including new CFO, COO, and implementation of ERP systems are expected to strengthen operations. With the stock trading at €7.5 versus a €30 three-year intrinsic value target and upcoming H2 catalysts, the manager sees significant upside potential despite reduced expectations in base and bear cases. The 50% insider ownership by CEO Thomas Jackermeier, who purchased €7.7mm additional shares at double current prices, provides alignment and confidence in the long-term prospects.

Pitch Summary:
Misleading shareholders and lack of transparency; risky financial situation (high-risk, payment-in-kind loans and cash shortfalls); business slowdown (decline in loan originations); dividend strategy and long-term viability is likely to deteriorate; Update 8/9 - Follow-up tweet

BSD Analysis:
Runway Growth Finance is a BDC focused on venture lending. Short risk lies in credit concentration, borrower stress, and rate sensitivity. Venture-backed borrowers face funding gaps and higher defaults, while leverage magnifies NAV risk. Dividends could prove unsustainable if credit losses mount.

Pitch Summary:
Now, three years later, I have the same amazement about Grown Rogue (OTC: GRUSF). On the face of it, Grown Rogue looks tiny and insignificant. The stock is a penny cannabis stock and a very illiquid one at that, trading around C$0.23 per share. Its volume has recently risen from almost nonexistent to 53,000 shares a day. But even that is only about C$10,000 a day in total trading volume! Why in the world would you buy a stock that is that illiquid? In a nutshell, the company has a competitive cost advantage over much larger cannabis companies when it comes to producing high quality indoor cannabis flower and their growth is poised to explode from 30% year over year growth to potentially over 100% growth at a time when most cannabis companies are retrenching and showing little if any growth at all. I believe Grown Rogue is the most efficient indoor cannabis cultivator that is publicly traded in the world. My research shows that it is operational excellence that is in short supply in the cannabis industry, not limited licenses and that is what Grown Rogue has mastered and gives it a competitive advantage. Grown Rogue produces the #1 flower in Oregon, a market with sophisticated consumers and a legacy market where if you don't produce the best flower, it won't sell. But Grown Rogue's secret sauce is producing this high-quality flower for less than $600 a pound inclusive of all expenses. They've taken that formula and entered Michigan, where they are now around a top 5 flower producer. One advantage is that all Grown Rogue does is cultivate. They do not do retail and they do not do edibles. Their recent earnings tell the tale of the company's performance in a time of struggling cannabis companies. Grown Rogue recently reported record revenue growing almost 30%, record EBITDA and free cash flow in their latest quarter. And now the company is on the move beyond Oregon and Michigan. The company signed a strategic partnership with Goodness Growth, a struggling MSO, that needed help with their cultivation. Grown Rogue will receive at least 20% of any improvement in operating income from Maryland and Minnesota for the help in cultivation. That's right, Grown Rogue is now receiving royalty income from two limited license states, one which just went adult use and the other which goes adult use in the next year or so. I believe that the Goodness deal is just the beginning for Grown Rogue entering another 10-12 limited license states with their Oregon quality flower, but more importantly at Oregon cost as well. I believe the company is on a path towards $40 to $50 million in EBITDA and $15 to $20 million in free cash flow on a current market cap of approximately $30 million. At that valuation, I could care less about the liquidity. But it is even better for Mindset investors because we negotiated a convertible debt deal in December, where we get paid a 9% yield and can convert into the stock at C$0.20 CAD. The stock is currently trading above that at $C0.22 per share. Please note that we value our convert at our cost position for now to be conservative. And now we are investing in Grown Rogue in another convertible that again pays 9% and converts into the stock at C$0.24 per share and includes an additional warrant at C$0.28 per share. We are essentially getting paid while we wait for a company that has the potential to go up by more than 10 times in value.

BSD Analysis:
The manager presents a compelling contrarian cannabis investment thesis centered on operational excellence rather than regulatory advantages. Grown Rogue's competitive moat lies in its exceptional cost structure, producing premium cannabis flower for under $600 per pound while maintaining #1 market position in Oregon's sophisticated market. The company's focused cultivation-only strategy avoids the capital intensity and complexity of vertical integration. Recent financial performance demonstrates strong execution with 30% revenue growth and record EBITDA generation while peers struggle. The strategic partnership with Goodness Growth provides royalty income from limited license states, creating a scalable expansion model. The manager projects dramatic EBITDA growth to $40-50 million against a $30 million market cap, suggesting significant undervaluation. The convertible debt structure provides downside protection with 9% yield while maintaining substantial upside participation through conversion features and warrants.

Pitch Summary:
In last quarter's letter, I highlighted our largest position, HireQuest (NASDAQ: HQI), a franchise staffing company for temporary day laborers, factory workers, dental hygienists, drivers and even executives. HireQuest was added to the Russell 3000 index in the second quarter and that combined with continued strong earnings drove the stock up another 25%, following on the strong first quarter performance. The stock is up almost 60% for the year. I remain bullish and will simply repeat what I wrote last quarter, with the only added note that the stock now trades around $25 per share: I believe the company is on its way to $2.50 to $3 per share in annual earnings. This is a business that needs little recurring capex as this is a service business, meaning that those earnings are pure free cash flow. While the stock may seesaw along with the market, it is building a free cash flow machine. What is that worth? I'm not sure, but I'm quite confident that it is not $20 per share. And with the right market conditions, this could easily trade at a 20 or 30 multiple.

BSD Analysis:
The manager maintains a strong bullish stance on HireQuest, emphasizing its asset-light franchise model that generates high-quality free cash flow. The company operates as a staffing franchisor across multiple employment segments, from temporary laborers to executives, providing diversified revenue streams. The manager highlights the business's exceptional capital efficiency, noting minimal recurring capex requirements due to its service-based nature. With projected earnings of $2.50-$3.00 per share, the current valuation appears attractive given the company's free cash flow generation capabilities. The recent Russell 3000 inclusion provides institutional validation and improved liquidity. The manager's confidence in a potential 20-30x multiple suggests significant upside from current levels. The 60% year-to-date performance demonstrates strong operational execution and market recognition of the company's value proposition.

Pitch Summary:
Japan Exchange Group ("JEG") is the largest operator of financial (equities and derivatives) exchanges in Japan. The quick thesis: (1) Attractive business model, similar to other global exchanges – monopolistic competitive position, steady growth, high margins (66% EBITDA), and defensive/volatility-linked model. This part of the thesis is straightforward, and I won't elaborate further here. (2) Likely accelerated growth ahead due to recent and expected changes to Japanese equity market structure and evolving institutional investor flows (e.g. re-allocation from China). This is core to the thesis, and I will discuss it in greater detail below. (3) Attractive absolute + relative valuation, despite a relatively better backdrop and superior balance sheet (1.5x net cash) – 11x EBITDA, 5%+ FCF yield. Modest valuation due to lower historical growth and history of fits/starts in Japan. The Japanese equity market is currently experiencing a revival due to the convergence of a number of factors: rising commitment to corporate governance reform (after decades of desperately needing such reform), redirected investment away from China (with institutions generally underinvested in Japan to begin with), upcoming reform to individual retirement programs (huge boost to tax incentives for "NISA" plans, starting in Jan 2024; notably, the domestic population has about 1/4 and 1/2 the exposure to stocks as Americans and Europeans, respectively), the Nikkei 225 finally approaching its 30-year+ high, and investments from Warren Buffett and other higher-profile investors. While I acknowledge this could all be a trap and the end of a good run, the "long Japan" thesis makes a lot of sense to me. As relates to JEG, I'd be concerned if it were trading at a premium to global peers, with heroic underlying growth assumptions – but the opposite appears true. While many Japan-focused investors have focused on deep value stocks, JEG is interesting because of both the quality of the business (classic exchange model) and the central role it's playing in the Japan renaissance itself. The Tokyo Stock Exchange (TSE), owned by JEG, is a key driver of the biggest piece of the puzzle – corporate governance reform. TSE has helped drive reform by implementing a new market tiering system that encourages higher corporate governance standards and "constructive dialogue with global investors." TSE believes these efforts should improve market valuations and increase domestic and global investor participation. With about 35% of revenue tied to domestic equities, JEG would benefit directly from success here, as both valuations and trade velocity increase, driving JEG revenue growth. Outside of equities, JEG could also see accelerated growth in its JGB and recently-launched ST interest rate futures businesses – areas that tend to thrive with macro volatility. Despite the potential tailwinds, JEG shares trade at an attractive relative and absolute valuation. I believe this is due to the many false starts Japan has had over the past 3+ decades. JEG revenue growth has historically been…tepid, at best (low single-digit) – largely due to lack of interest in the Japanese market. While I understand investor hesitation to underwrite an acceleration, the convergence of all the factors noted above strongly suggests an acceleration is likely. JEG's relatively modest valuation seems particularly compelling in this context. Key risks for JEG shares include: FX, continued sluggish trading volumes, elevated technology expenses and/or system failures, regulation, business model exposure to broader market valuations.

BSD Analysis:
The manager presents Japan Exchange Group as a high-quality exchange business positioned to benefit from Japan's equity market renaissance. The investment thesis rests on JEG's monopolistic position with 66% EBITDA margins and defensive characteristics, combined with multiple structural tailwinds converging simultaneously. Key catalysts include corporate governance reforms driven by TSE's new market tiering system, capital reallocation away from China toward underinvested Japan, and upcoming NISA retirement plan reforms boosting domestic equity participation. With Japanese retail investors holding only 25-50% of the stock exposure of Americans and Europeans respectively, significant room for growth exists. At 11x EBITDA and 5%+ FCF yield with 1.5x net cash, valuation appears attractive despite the improving backdrop. The manager acknowledges Japan's history of false starts but believes the convergence of factors creates a compelling setup. JEG directly benefits from increased trading volumes and valuations through its 35% domestic equity revenue exposure, while also positioned for growth in JGB and interest rate futures during volatile periods.

Pitch Summary:
Garmin is a leading technology business mostly known today for its smartwatches and fitness trackers (about half of sales), as well as navigation and communication systems (serving consumer, aviation, marine, and automotive end markets). There are three key reasons I believe the stock is interesting, and I'll elaborate further on each below: (1) Surprisingly high-quality business – both qualitatively and financially – despite appearance as a consumer "widget" maker. This doesn't make shares compelling today, but it means the investment should work out fine if I'm wrong on some of the factors noted below. (2) Positioned to benefit from both existing secular trends and emerging changes to public health – rising interest in outdoors, adoption of health-tracking devices, new weight-loss drugs. (3) Valuation is reasonable on conservative estimates that discount a credible management team's outlook and the prospect of accelerated demand for health-tracking devices. First, why would I describe a (mostly) consumer hardware business as "quality"? Due to quirks of its engineering-focused culture and a history of long-term involvement by its co-founders, Garmin is a classic "riches in niches" story. Its products mostly target niche markets – e.g. ultra-marathoner tracking, cockpit controls, marine navigation. This has earned Garmin a somewhat narrow, but extremely loyal user base and a brand that is the gold standard in its categories. It has also helped Garmin effectively hold its own against competitors both small and (extremely) large, such as Apple and Google (Fitbit). Garmin has a history of owner-operator style management that continues to this day. One of the co-founders is the Executive Chairman and still owns 10% of shares. The other co-founder sadly passed away, but his son is on the board and the family still owns 10%. The CEO joined the company in 1989 – practically a co-founder himself. Due to all of this, Garmin has a track record of focusing on the long-term and doing right by its customers. As an example: the company is one of the few today that arguably under-monetizes its retail customers by charging only for hardware and offering the software/network for free. I consider this both an advantage and potential opportunity. They also have an intense focus on feature improvement that further bolsters the brand and customer loyalty advantages. Financially, Garmin also exhibits a number of quality factors. While cyclically exposed, the company has a long-term track record of mid-single digit+ organic growth and steady mid/high-teen ROIC (again, steady despite competing against big tech behemoths). The balance sheet is rock solid, with ~2x net cash. Looking ahead, I believe Garmin will continue to benefit from the long-term secular trends it has for some time (e.g. rising consumer interest in the outdoors and adoption of health-tracking devices). More interestingly, Garmin appears exceptionally positioned to benefit from emerging changes to public health (e.g. GLP-1 weight-loss drugs). Should we see a genuine revolution on this front, I believe we will see a wave of consumer interest in health and fitness. Will people actually exercise more? I don't know. But, I am fairly sure that people will be interested in…signaling good health. As the gold standard for fitness tracking, Garmin seems the best choice on this front. A Garmin signals you're serious about running, swimming, or biking; an Apple signals you're available via text/email anytime, anyplace (sorry). Valuation-wise, Garmin shares appear reasonable enough at 18x 2024 EPS (LT range of ~13-24x) and 12x EBITDA (typical range of ~8-15x). Despite a credible management team, consensus seems to discount some key growth initiatives – most notably in the Auto segment. While Auto is currently the smallest unit in terms of revenue (~7%), management is pointing to a 40% revenue CAGR over the next several years. While margins will be modest, this growth is underpinned by recent wins with BMW (infotainment-related) and others. Flipping the unit's 2022 loss of ~$80mm to a positive contribution by 2024/2025 would have a meaningful impact on the bottom-line. No need to get too far ahead of ourselves, but the reemergence of a serious Auto unit due to the company's ability to play a role in electric vehicle consoles and/or navigation could be an interesting longer-term opportunity. I note that Garmin has a solid history of reinventing itself. For Garmin's core Fitness and Outdoor units, consensus estimates also appear reasonable or even conservative, as a simple reversion to pre-2020 growth rates (i.e. no upside from developments in public health) seems to be assumed. Aside from the obvious cyclical risk of any consumer discretionary, Garmin also faces other potential risks. Most of its manufacturing is in Taiwan. Here, I worry about the impact that rising tensions and noise might have on the stock, even if a hot conflict never actually unfolds. The company is also still emerging from its COVID hangover. Like many other consumer discretionary companies – especially those with a fitness/outdoor focus – Garmin saw boom-times during the pandemic. While inventories have stabilized, they are still elevated vs. historical levels (there appears to be good reason for this). Lastly, Garmin competes head-to-head against much larger competitors – some of whom may care less about competing profitably in select categories. Despite these risks, I think Garmin shares represent an attractive opportunity that fits very well with Upslope's defensive portfolio.

BSD Analysis:
The manager presents a compelling bull case for Garmin built on three pillars: business quality, secular tailwinds, and reasonable valuation. Despite appearing as a consumer hardware company, Garmin operates a "riches in niches" strategy with dominant positions in specialized markets like ultra-marathon tracking and marine navigation, creating loyal customer bases and pricing power against tech giants. The owner-operator management structure, with co-founders still holding 20% combined ownership, ensures long-term focus and customer-centric decisions. Financially, the company demonstrates mid-single digit organic growth, mid-to-high teen ROIC, and a fortress balance sheet with 2x net cash. The investment thesis centers on Garmin's positioning for the GLP-1 weight-loss drug revolution, where health signaling behavior could drive significant demand for premium fitness tracking devices. At 18x 2024 EPS and 12x EBITDA, valuation appears reasonable given the Auto segment's potential 40% revenue CAGR and conservative consensus estimates for core segments.