Investment Pitches

Pitch Summary:
TMX is the largest exchange operator in Canada. As with FTI, Upslope also purchased TMX in early 2021. The thesis that TMX was well positioned to navigate a potential environment seeing heightened volatility and inflation has largely played out as expected. While valuation isn't offensive, I think there are better opportunities in "exchange-land" today (one discussed below).

BSD Analysis:
The manager exited TMX Group after successfully capturing the intended thesis from the early 2021 investment. The original positioning anticipated TMX would benefit from heightened market volatility and inflation, which materialized as expected over the holding period. While acknowledging that current valuation levels aren't problematic, the manager opted to rotate capital toward what he perceives as superior opportunities within the exchange sector. This represents a tactical reallocation rather than a fundamental concern with TMX's business model or prospects. The exit reflects active portfolio management focused on optimizing risk-adjusted returns across similar investment themes. The manager's reference to better opportunities in "exchange-land" suggests continued conviction in the sector while seeking more attractive entry points or growth profiles.

Pitch Summary:
FTI is a boutique consulting firm with expertise in restructuring, dispute, and other areas. Upslope first invested in FTI as a contrarian idea in Feb 2021 ("what's more out of favor during a speculative bubble than a restructuring consultant?"). The stock is one of Upslope's biggest contributors since inception, and until recently one of the portfolio's largest longs. After disappointing 1Q results, however, I exited the position and ultimately initiated a modest short. Rationale for the abrupt change: (1) contrarian thesis has played out and no longer holds (opposite is true), (2) long-time CEO has suddenly started selling big chunks of stock for the first time ever (that I can tell), (3) shares recently hovered ~27x EPS – expensive and right where they peaked during the 2008-9 financial crisis. While the restructuring cycle may have more to go, I think FTI shares will see serious multiple compression, and (4) increasingly choppy performance: over the last four quarterly earnings reports, shares have moved -8%, +11%, -19%, -9%. This is not entirely management's fault but it's notable.

BSD Analysis:
The manager executed a complete reversal on FTI Consulting, transitioning from a long-held contrarian position to a short after disappointing Q1 results. The original thesis centered on FTI being undervalued during the speculative bubble of 2021, positioning the restructuring consultant for eventual market normalization. However, the contrarian opportunity has now fully played out, with shares trading at expensive 27x EPS multiples matching 2008-9 crisis peaks. Key red flags include the longtime CEO's unprecedented stock sales and increasingly volatile quarterly performance swings. The manager expects significant multiple compression ahead despite potential continued restructuring cycle tailwinds. This represents a disciplined exit from a successful position that has run its course, with the short position reflecting conviction that valuation has become unsustainable.

Pitch Summary:
Last quarter we took a small position in First Horizon Bank. Although the stock only has a $6b market capitalization, the name might be familiar to some Canadian investors since it was an acquisition target of TD Bank which agreed to purchase the company in February 2022 at $25 per share. The rapid rise in interest rates over the past year, reduced the value of long term bonds, creating a massive drop in the equity of some regional banks which led to fears of a bank run because customer accounts are only officially insured to $250,000. The large depositors at the most vulnerable regionals rapidly moved their savings to the larger "too big to fail" national banks. The resulting turmoil saw TD get cold feet and walk away from the acquisition of First Horizon (although TD officially blamed it on "regulatory uncertainty"). With the TD deal off, First Horizon stock then crashed alongside the regional bank sector to $10 per share; less than its tangible book value. We believe First Horizon is being unfairly grouped in with its more troubled peers, despite having industry leading metrics and capital ratios (which are further improved by TD's $225m break fee payment). The bank is well funded with only 1/3rd of deposits uninsured and well diversified with the top 15 depositors representing just 1% of the total. First Horizon is focused in the US southeast, which is experiencing 2.6x GDP growth and 4x the population growth versus the US national average. The two biggest investor concerns of US regional banks today are their bond portfolio losses and their exposure to office real estate (due to work from home). First Horizon performs excellently on both measures. As previously mentioned, the US regional banking crisis was primarily caused by falling bond values. Thankfully, unlike recent bank failures, First Horizon has no significant bond losses hidden by held to maturity accounting (fair value vs book value for all assets is just a $383m difference or 4% of equity). With the termination of the TD acquisition, deposits have rebounded strongly with the company having its best month in May with deposits increasing by nearly half a billion dollars. In regards to wider regional banking concerns, we do not believe that US regulators and both political parties are willing to risk a widespread banking collapse and should even larger fears reemerge, they will quickly step into preemptively insure all deposits. In regards to commercial real estate, First Horizon has minimal exposure with just $2.8b in office loans outstanding, representing 21% of their CRE loan portfolio and 3% of total assets. Nearly half of this exposure is medical offices which have traditionally been recession resistant. Furthermore, the remaining non-medical office loans are also conservatively financed with a 59% loan to value ratio. We acquired our shares in First Horizon below tangible book value and at 6x trailing earnings. With the exception of the depths of the GFC in 2008 and the initial covid panic in 2020, this is the cheapest the stock has traded on these metrics in the past 30 years. Even with the Fed tightening and a possible recession, we believe this is an attractive valuation in light of our expected long term mid-teens return on equity. Five directors have acquired shares in the open market since the merger was called off in May, with no insider sales.

BSD Analysis:
Tidefall Capital presents a compelling contrarian thesis on First Horizon Bank, arguing the regional bank is unfairly punished alongside weaker peers despite superior fundamentals. The manager highlights the failed TD Bank acquisition at $25/share versus the current $10 price below tangible book value, creating a significant discount to intrinsic value. Key differentiators include industry-leading capital ratios enhanced by TD's $225M breakup fee, minimal uninsured deposit risk with only one-third uninsured, and geographic exposure to the high-growth Southeast US market. The bank's balance sheet appears resilient with minimal hidden bond losses ($383M fair value difference vs. 4% of equity) and conservative commercial real estate exposure at just 3% of total assets with 59% loan-to-value ratios. At 6x trailing earnings and below tangible book value, the valuation represents 30-year lows outside of crisis periods. Management confidence is evidenced by five directors purchasing shares post-merger termination with no insider selling. The thesis centers on mean reversion as regional banking fears subside and the market recognizes First Horizon's defensive positioning.

Pitch Summary:
Within diversified industrials, the only stock worth discussing this quarter is Siemens Energy, which was up 33% YTD through the start of trading on 6/22/2023 but closed the day with a 38% loss as a result of management withdrawing profit guidance due to the need for additional loss provisioning at the firm Siemens Gamesa (SGRE) wind turbine subsidiary. The provisioning was driven by a substantial increase in wind turbine components' failure rates, which management estimated to be greater than previously estimated. While potential costs remain under evaluation, they will likely be more than €1bn. Management expects to provide more details when they present third-quarter results on 8/7/23. On a call to discuss the issues, management confirmed that the issues originated with legacy-installed onshore turbines. The issue affects 15%–30% of the onshore installed turbines (representing>100GW at the end of March 2023), and management said that the flaws were in rotors and bearings. Although ENR is the only firm to announce quality issues of this magnitude, we would note that the entire industry suffers from quality issues and struggles to ramp up production to meet demand. Over the last five years, the industry has had to contend with the falling price of turbines as firms competed for market share, the rapid introduction of technology to bring down costs and grow turbine size, supply chain, logistics challenges, and material cost inflation. The financial results of the last three years show all four listed wind-turbine OEMs have suffered from quality issues. Given this, what matters for customers is how the turbine OEMs address the issues. The current demand for wind turbines is sufficient, and the supply chain is tight enough that it is difficult to see how this will have anything more than a minimal impact on the long-term commercial prospects of SGRE onshore. We would be surprised to see the €5.5bn backlog of onshore turbines shrink and have no expectation or reason to assume the €11.5bn offshore backlog will do anything but continue to grow. Theoretical charges of around €1bn represented about 5.3% of the firm's pre-announcement market capitalization. The sell-off post-announcement knocked off roughly €7.3 bn in value or 39% of the firm's market capitalization. Before the announcement, we valued the firm at roughly €30 to €35 a share. Although a complete and final reassessment of how events impact the firm's value awaits the information management suggested was forthcoming on the 8/7/23 call, we believe the firm to be worth roughly €18 to €20 assuming SGRE is worthless, an unlikely outcome. As such, we took the sell-off as an opportunity to add 2% to our position, reducing our average entry cost by 6%.

BSD Analysis:
Massif Capital views Siemens Energy's 38% single-day decline as an overreaction to wind turbine quality issues at subsidiary Siemens Gamesa. The manager acknowledges legitimate concerns over €1+ billion in provisioning costs affecting 15-30% of onshore turbines (>100GW installed base) due to rotor and bearing failures. However, they contextualize this within industry-wide quality challenges stemming from five years of price competition, rapid technology advancement, supply chain disruptions, and material cost inflation affecting all major wind OEMs. The investment thesis centers on market overreaction, with €1 billion in theoretical charges representing only 5.3% of pre-announcement market cap, while the selloff destroyed €7.3 billion (39%) in value. Strong demand fundamentals support the outlook, with €5.5 billion onshore and €11.5 billion offshore backlogs unlikely to shrink given tight supply chains and robust wind energy demand. Even assuming Siemens Gamesa becomes worthless (deemed unlikely), the manager values Siemens Energy at €18-20 per share versus the previous €30-35 target. The contrarian opportunity prompted a 2% position increase, reducing average cost by 6% while awaiting detailed third-quarter disclosure.

Pitch Summary:
We currently have one problem position on the books among our metals and mining positions: Centaurus Metals (CTM AU), our sole Nickel focused position. We aggressively built CTM AU into a 6% position last year, at its peak, only to have the stock sell off as much as 50% and ,as of the writing of this letter, down 36%. One of the challenges with metal and mining stocks is that every metal and mine is different. This means, in essence, every time you venture into a new metal, you are taking on the challenge of effectively learning a new industry. Admittedly, there are similarities, but there are also impactful nuances. Our aggressive build last year into CTM should probably have been tempered by a little more humility. We have carefully reassessed CTM and decided that, although we may have been overly aggressive in our position build given the firm's timeline to production and offtake constraints, our assessment of the deposit's prospectivity was accurate. With a combination of Measured & Indicated and Inferred Nickel Equivalent of 1,049 Kt and a grade of 0.97% CTM has the sixth-highest percentage of payable Nickel to recoverable Nickle of the 15 projects we currently track. Additionally, during the second quarter, CTM management struck a deal with Vale (the previous owner of the deposit) to take back control of 100% of the mine's offtake, meaning that of the projects we follow, CTM is the only one that is an open pit nickel sulfide project, with more than 1Mt NiEq and a sub $500m capex cost that also retains 100% of their offtake rights. The offtake rights are essential because they significantly broaden the strategic pathways available to CTM management to fund and de-risk the development of the Jaguar deposit against the backdrop of robust demand growth for nickel sulfate products globally due to growing battery demand. Our execution missteps don't come without a cost, the most obvious being our significant unrealized loss. Additionally, in our reassessment of the asset, we have significantly reduced our bull, base, and bear case, reducing our expected value from $3.63 per share to $2.56 per share, a drop of 30%. At the current price, that represents a 183% return, but our average entry price represents a far more benign 80% return. Although the asset remains highly attractive, given the challenges associated with junior mining, this is a less robust risk-adjusted return than we would usually like to see from our junior mining investments. As we have noted before, with real assets, we are back at the racetrack, winning by betting on the horse with the most mispriced odds, not necessarily the horse that wins. Within this context, we did not buy as well as we should have.

BSD Analysis:
Massif Capital provides a candid assessment of Centaurus Metals, acknowledging execution mistakes while maintaining conviction in the underlying asset quality. The manager admits to overly aggressive position sizing in a 6% allocation that subsequently declined 36-50%, highlighting the learning curve challenges in nickel mining. However, fundamental reassessment confirms the Jaguar deposit's attractiveness with 1,049 Kt of nickel equivalent resources at 0.97% grade, ranking sixth-highest in payable-to-recoverable nickel ratios among 15 tracked projects. The key catalyst involves regaining 100% offtake control from Vale, making CTM unique as the only open-pit nickel sulfide project exceeding 1Mt NiEq with sub-$500M capex and full offtake rights. This positioning provides strategic flexibility for funding and de-risking development amid growing battery-driven nickel sulfate demand. Despite reducing price targets 30% to $2.56 per share, the manager sees 183% upside from current levels, though acknowledges the 80% return from average cost represents suboptimal risk-adjusted returns for junior mining. The thesis balances asset quality recognition with honest assessment of timing and execution challenges.

Pitch Summary:
Unlike AES, Polaris, our other utility exposure, has generated a total return of 5.9% this year, driven entirely by its 8.5% gain in the second quarter. This great second-quarter move is explained primarily by the market's reaction to the company's strong first-quarter results. We suspect the move was powered by the year-over-year first-quarter revenue growth, which was 25%, and year-over-year net income growth of 88%. The revenue growth is the first evidence that the firm's long-term growth strategy is beginning to pay dividends. When we first invested in Polaris in 2019, we expected, based on discussions with management and assessing the opportunity set of small and mid-size electricity-generating assets in Latin America, that the growth potential for a platform aggregating such assets was robust. Covid threw a wrench into management's timelines, but we remained patient and believe last year's burst of activity represented a potential shift in a slow-moving train. The revenue growth during the first quarter was driven by long-planned expansions of existing assets and growth via acquisitions made last year. The firm's Nicaraguan Geothermal facility's expansion started up in December and produced a 10% increase in MWh versus the same quarter last year. In addition, acquisitions of a Dominican solar facility and an Ecuadorian hydroelectric plant last year produced an additional 25,000 MWh of electricity, a 14% contribution relative to the first quarter of 2022. Polaris continues to pay a dividend of roughly 5.5%, which has been stable since the fourth quarter of 2017. Additionally, the firm has several more capacity additions coming online in the next 24 months, totaling between 60 and 70 MW. This capacity expansion comes with offtake agreements that should increase firm EBITDA by 26%. Management also remains focused on its long-term goal of doubling EBITDA by 2028 to roughly $100 million. The goal is ambitious, but we are comforted by the fact that expansion of existing assets can get the firm 50% of the way to its goal. Currently, its stock is trading at just 4.7x the potential EBITDA arising from the organic EBITDA component of the growth plan. We remain uncomfortable with Polaris's interest costs, which have a weighted average of roughly 10% and an operating income coverage ratio of just 2x. At the same time, the debt is all at the project level and thus non-recourse to the company, providing some insulation in various worst-case scenarios. We would like to see Polaris suspend the dividend for a few years and accelerate the debt repayment. While our engagement with them has always been informative and productive, we have no expectation they will take our input on the matter.

BSD Analysis:
Massif Capital highlights Polaris Renewable Energy as a successful Latin American renewable energy consolidation play showing strong execution on its growth strategy. The company delivered impressive Q1 results with 25% revenue growth and 88% net income growth, validating management's long-term aggregation thesis in small-to-mid-size regional power assets. Growth drivers include a 10% MWh increase from the expanded Nicaraguan geothermal facility and 25,000 MWh contribution from recent Dominican solar and Ecuadorian hydro acquisitions. The investment case centers on visible growth with 60-70 MW of contracted capacity additions over 24 months, backed by offtake agreements that should boost EBITDA by 26%. Management targets doubling EBITDA to $100 million by 2028, with organic asset expansions providing 50% of the growth pathway. At 4.7x potential organic EBITDA, the valuation appears attractive for a growing renewable platform. However, the manager expresses concern over the 10% weighted average cost of debt and thin 2x interest coverage, though project-level non-recourse structure provides downside protection. The 5.5% dividend yield offers income while growth materializes.

Pitch Summary:
In the case of AES, we have a heavily US-focused utility with significant exposure to regulated and unregulated markets and a significant commitment to building out renewable energy. The firm also has some exposure to electricity markets in South America and exposure to electricity storage markets in the form of its ownership stake in Fluence (FLNC). Despite being one of the larger US utilities, the firm has trailed the sector (as measured by the IXUTR Index) dramatically this year. The IXUTR Index is down 5% while AES is currently down roughly 27%. In some regards, one might assert this significant relative underperformance is a negative catch-up to the rest of the industry, having outperformed the Index last year by roughly 17%. The relative performance explanation is likely a reality but indicates more value-agnostic selling in the market than warranted. This explanation is supported, it would seem, when one breaks down the firm's YTD performance in the context of a factor model, which indicates that factor exposure accounts for only 4% of the decline, with the rest explained by idiosyncratic companies' factors. From a portfolio management perspective, the questions thus become, "Are we holding a value trap and are there idiosyncratic reasons to justify this sell-off?" We think not. At a very simple level, the value in AES versus the sector is clear. While the sector index traded at a P/E of 19.9x as of the end of the second quarter, roughly 21% above the industry quarterly average dating back to 6/2002, AES trades at a 28% discount to its quarter-end average P/E over the same period. Furthermore, when the stock peaked at approximately$29 in December 2022, it was trading at a P/E of 11x versus the index at 20x. Over the last 20 quarters, AES operating margins also outperformed the index's operating margins by an average of 5.3% (and a median of 4.8%). Digging deeper does not, in our minds, explain the relative underperformance in any more value-cognizant way. Admittedly, the global regulated and unregulated business of AES versus most traditional US peers carries with it political and currency risks. However, in our opinion, these are rather minor and offset by the non-recourse nature of the financial risks that occur at those entities. Furthermore, the firm's 64-gigawatt project pipeline, of which 80% is US-based renewable and storage projects, which are all likely to benefit from tax-credit provisions of the inflation reduction act (IRA), is one of the largest in the industry. We cannot explain the aggressive move to the downside via company-specific factors. The firm hosted its 2023 investor day during the second quarter, and the critical takeaway across most sell-side research we reviewed appears to be the revision of EPS CAGR over the 2023 to 2027 period from 7%–9% to 6%–8%. Admittedly a downside revision, but it comes after the stock had already fallen 22%. There is no question the market is a forward-looking, discounting mechanism, so perhaps the fall represents the expectations of the market of that revision, subsequently confirmed. In our opinion, that seems to ascribe too much precision to the market's rationality or lack thereof. The stock price move to the downside seems overdone. Were it simply to trade in line with peers, on a P/E basis, it would be priced between $27 and $28 per share. We maintain our positive outlook and expect the firm to be worth $30 to $35 per share in the fullness of time.

BSD Analysis:
Massif Capital presents a compelling contrarian case for AES Corporation, arguing the utility's 27% decline significantly exceeds fundamental justification. The manager emphasizes AES trades at a 28% discount to its historical P/E average while the sector trades 21% above its long-term average, creating an attractive valuation gap. Factor analysis reveals only 4% of the decline stems from systematic factors, with 96% attributed to company-specific issues that management cannot identify as warranted. AES maintains superior operating margins, outperforming the sector by 5.3% on average over 20 quarters, while possessing one of the industry's largest renewable project pipelines at 64 gigawatts. The portfolio benefits significantly from Inflation Reduction Act tax credits, with 80% of projects US-based renewables and storage. Management's modest EPS growth revision from 7-9% to 6-8% appears insufficient to justify the severe selloff, particularly given the stock's prior 22% decline. The thesis centers on mean reversion to sector valuation multiples, suggesting 35-40% upside potential to the $30-35 target range.

Pitch Summary:
Gray Television is the second largest broadcast company in the U.S., located across the country in 113 markets, reaching 36% of U.S households. The company appears attractively positioned, with 70% of its markets with the #1-ranked local TV stations and another 20% with the second-ranked station. Gray has a good distribution profile, growing its retransmission revenue in the mid-single digits over the past five years. Given their strong local stations, the company leads the industry in political revenue during election cycles. The stock price is down more than 60% from its 52-week high as the marketplace has been concerned about limited political revenue this year along with ongoing fears of a pullback in advertising spending from economic weakness. However, we see the potential for earnings and free cash flow to dramatically improve next year as political advertising reaccelerates and retransmission contracts are expected to renew at favorable rates. In addition, Gray recently spent $200M to develop Assembly, a state-of-the-art Film & TV studio, with 20 sound stages on 43 owned acres in Atlanta. NBC Universal signed a 15-year lease to manage the studio for Gray and will begin filming new TV series and movies in the back half of this year. There are low expectations in Gray's stock price from the Assembly asset, as no analysts are currently including any future economics in their business projections. We agree with management's outlook of meaningful free cash flow generation from the Assembly asset upon maturity. In addition to lifting the long-term free cash flow power of the company, it should also materially reduce the cyclicality in non-election years. While the company has a higher debt load from prior station acquisitions, there are limited maturities over the next couple of years. We see strong free cash flow generation over the next five years (potentially >$2.5B) that could allow the company to rapidly delever over time. With greater than 50% forward earnings and free cash flow yield, Gray's long-term upside potential is multiples of the current share price.

BSD Analysis:
Miller Value Partners views Gray Television as an undervalued broadcast leader with multiple catalysts for earnings recovery and growth. The company's dominant market position with 70% #1-ranked stations and 20% #2-ranked stations across 113 markets provides pricing power and political advertising leadership. The 60%+ stock decline reflects concerns about cyclical political revenue and advertising weakness, creating an attractive entry point. The fund expects dramatic earnings improvement in 2024 from political advertising reacceleration and favorable retransmission contract renewals. The Assembly studio development represents an underappreciated asset with NBC Universal's 15-year management lease providing stable cash flows and reduced cyclicality. Analysts are not modeling any economics from Assembly, creating potential upside surprise as the asset matures. Strong projected free cash flow generation of >$2.5B over five years should enable rapid deleveraging despite current debt levels from acquisitions. The >50% forward earnings and free cash flow yield suggests significant valuation disconnect, with long-term upside potential of multiple times current share price as fundamentals normalize.

Pitch Summary:
During the quarter, we initiated positions in Western Alliance (WAL) and Gray Television (GTN). Western Alliance is a leading national commercial bank with strong regional markets. The company has a capital-light business model (less branch focus). Following the Silicon Valley Bank collapse, Western Alliance saw significant share price weakness as the marketplace tried to draw similarities between the two companies. While initially experiencing deposit weakness, that has subsided and returned to growth as Western has a significantly more diversified business model with long-term customers having multiple products and services. The company's underwriting capabilities and operations are best-in-class in our opinion. Management also appears fully aligned with shareholders and focused on shifting underwriting to a lower risk portfolio of loans. The company has taken incremental actions that should have accretive benefits to enhance capital ratios starting this quarter and further improving into 2024. Western's share price is down 60%+ from its 52-week high, a deep discount to book value and 30%+ normalized earnings yield. We anticipate Western's earnings troughing in the near term and improving over the next 6 to 12 months. Long-term growth should remain above the peer group, ROAs at the high end of the industry, supporting Return on Tangible Common Equity (ROTCE) of 18-20%, with possible upside to 20-22% as the mortgage market improves over time. Both estimates are nicely above consensus long-term expectations. Over the next 3-5 years, returning to normalized EPS and valuation expanding back towards its historical average would support upside potential near three times current price levels.

BSD Analysis:
Miller Value Partners sees Western Alliance as a high-quality regional bank unfairly punished due to Silicon Valley Bank contagion fears. The fund emphasizes the bank's diversified business model with long-term customer relationships across multiple products, contrasting with SVB's concentrated deposit base. Management's best-in-class underwriting capabilities and operational excellence provide competitive advantages in the current environment. The shift toward lower-risk loan portfolios and capital enhancement initiatives should drive improving fundamentals through 2024. Trading at a deep discount to book value with a 30%+ normalized earnings yield, the valuation appears compelling following the 60%+ decline from highs. Superior ROA metrics and projected 18-22% ROTCE significantly exceed peer group performance and consensus expectations. The fund anticipates earnings will trough near-term before recovering over 6-12 months as deposit stability returns. Long-term upside potential of 3x current levels assumes normalized earnings and historical valuation multiples, supported by above-peer growth and profitability metrics.

Pitch Summary:
Nabors's underperformed during the quarter due to a pullback in domestic drilling activity from recent weakness in the oil market. The lack of incremental capacity by the land drillers over the past couple of years should allow rig margins and cash flow generation to remain strong in the near term and we expect the spending environment to improve over the coming 6-12 months. Meanwhile, we think the market is overlooking Nabors's international operations, proprietary drilling solutions segment, and new energy transition businesses. These efforts have the potential to contribute meaningfully to total company profitability and free cash flow over the next 3-5 years. With the recent pullback in the shares, Nabors's market cap is now below its expected 2023 EBITDA and supports an attractive >40% free cash flow yield. Over the past 4 years, management has significantly improved the balance sheet, having reduced debt by $1.8B since early 2018. Nabors should end the year below 2x net debt leverage, and looks well positioned to deliver $400M+ a year of annual debt reduction; combined, this should unlock significant equity value over the next few years.

BSD Analysis:
Miller Value Partners views Nabors as an undervalued energy services play with multiple value drivers beyond domestic drilling operations. The fund believes limited incremental capacity in land drilling should support strong rig margins and cash flow generation despite near-term oil market weakness. International operations, proprietary drilling solutions, and energy transition businesses represent underappreciated growth catalysts that could meaningfully contribute to profitability over 3-5 years. The valuation appears compelling with market cap below expected 2023 EBITDA and a >40% free cash flow yield following the recent share price decline. Management's balance sheet improvement is notable, having reduced debt by $1.8B since 2018 and targeting sub-2x net debt leverage. The company's ability to generate $400M+ annual debt reduction should unlock significant equity value as leverage normalizes. The fund expects the spending environment to improve over 6-12 months, providing cyclical tailwinds to complement the structural improvements.

Pitch Summary:
Our two largest detractors during the quarter were Quad Graphics (QUAD) and Nabors Industries (NBR) with share prices down 12.1% and 23.5%, respectively, during the quarter. Shares of both companies are significantly mispriced in our opinion, providing potential long-term upside multiples of their current share prices. Quad's transformation from a printing company to a marketing experience company continues to pick-up steam. The company has built out an extensive marketing solutions portfolio that provides not only high-volume print, but content, digital, technology and analytic solutions to their clients. We see significant long-term opportunity as the company further expands its services to the 2,900 large corporate clients. With a market cap near $200M the shares look severely mispriced to us, versus the company's $3B+ revenue base. Current valuation is extremely attractive at .2x Enterprise to Revenue and 3.5x Enterprise to Earnings Before Income, Taxes, Depreciation, and Amortization (EBITDA). With limited Wall Street coverage, we see significant upside potential as the marketplace becomes more familiar with Quad's attractive positioning and long-term growth story.

BSD Analysis:
Miller Value Partners sees Quad Graphics as severely undervalued despite successful business transformation from traditional printing to comprehensive marketing solutions. The company has evolved into a marketing experience provider offering content, digital, technology, and analytics services beyond high-volume print capabilities. With 2,900 large corporate clients and a $3B+ revenue base, the current $200M market cap appears disconnected from fundamentals. The valuation metrics are compelling at 0.2x Enterprise-to-Revenue and 3.5x Enterprise-to-EBITDA, suggesting significant mispricing. Limited Wall Street coverage creates an information gap that the fund believes will close as the market recognizes the transformation story. The expansion of services to existing corporate clients provides a clear growth runway with established relationships. Management's execution of the pivot from legacy printing to diversified marketing solutions positions the company for multiple expansion as the business model gains recognition.

Pitch Summary:
During the quarter, our largest positive contributor was Gannett (GCI), whose share price rose in excess of 20%. Management's quick action undertaking an aggressive $240M cost reduction program have begun to offset inflationary pressures and stabilize their transformation plan. This point in time for Gannett appears remarkably similar to The New York Times transformation 10 years ago. NY Times' share price rose 10-fold since then as the company successfully eliminated $1B corporate debt and scaled their digital subscribers to stabilize cash flow generation and return to growth. We believe Gannett potentially has a greater monetization opportunity due to their larger 180M monthly visits to their digital platforms. By further expanding their digital offerings and developing new high-margin content partnerships, Gannett appears positioned to return to growth over the next 12-18 months. In addition, Gannett recently announced an anti-trust lawsuit against Google which follows similar actions by the European Central Bank (ECB) and various states. Winning the case has the potential to accelerate the transformation, as anti-trust cases have treble damages which can award up to three times compensatory damages, potentially leading to a future award well in excess of $1B, versus a current market capitalization of approximately $370M.

BSD Analysis:
Miller Value Partners views Gannett as a compelling turnaround story drawing parallels to The New York Times' successful transformation a decade ago. The fund highlights management's aggressive $240M cost reduction program as a key catalyst to offset inflation and stabilize operations. With 180M monthly digital platform visits, Gannett possesses significant monetization potential that could exceed The New York Times' achievement. The digital transformation strategy focuses on expanding offerings and developing high-margin content partnerships to drive growth over the next 12-18 months. A major catalyst is the pending anti-trust lawsuit against Google, which could result in treble damages potentially exceeding $1B against a current market cap of only $370M. The fund sees this as a transformational opportunity similar to successful media company pivots from print to digital. Management's execution of the cost reduction program and digital subscriber scaling appears to be progressing as planned.

Pitch Summary:
We've recently been adding to Citigroup (C). After perennially disappointing for decades, even the most bullish financial investors aren't interested (a good thing in our view!). CEO Jane Fraser is making all the right moves: exiting underperforming consumer businesses, investing to improve the tech and operating infrastructure, returning capital to shareholders. These actions should result in improving returns on equity. The market reaction is a giant shrug. We should start to see serious cost improvements in late 2024 accompanied by improving returns on equity. The stock trades at ~$46, 55% of its $85 tangible book value. The company is confident it can reach 11-12% return on tangible common equity by 2025 when it's tangible book should be greater than $100. If it reaches its return target, as we believe, Citi should trade back to tangible book, implying a more than double over the next couple years. Meanwhile, you collect the 4.5% annual dividend, which is currently a better yield than long-term treasuries.

BSD Analysis:
Patient Capital is increasing their Citigroup position, viewing the widespread investor apathy as a contrarian opportunity after decades of underperformance. The manager believes CEO Jane Fraser's strategic transformation is underappreciated by the market, including exits from underperforming consumer businesses, technology infrastructure investments, and capital returns to shareholders. Trading at $46, or just 55% of tangible book value ($85), Citigroup offers compelling valuation metrics. Management's target of 11-12% return on tangible common equity by 2025, with tangible book value exceeding $100, suggests significant upside potential. If successful, the stock could double as it normalizes to tangible book value. The 4.5% dividend yield provides attractive income while waiting for the turnaround to materialize, exceeding long-term Treasury yields. Cost improvements expected in late 2024 should drive ROE expansion and validate the investment thesis.

Pitch Summary:
We also bought Western Alliance (WAL $41). We initiated the Western Alliance position during the second bank selloff in May. The stock reflected the risk of a bank run. We thought these concerns were overdone since the company published frequent positive deposit updates. We were able to buy the stock at 3-4x earnings believing it should normalize at least back to its April price in the $40s.

BSD Analysis:
Patient Capital opportunistically initiated a position in Western Alliance during the May banking sector selloff when bank run fears created an attractive entry point. The manager viewed market concerns as excessive, particularly given the company's transparent communication through frequent positive deposit updates that demonstrated deposit stability. At the $41 purchase price, the stock traded at an extremely attractive 3-4x earnings multiple, suggesting significant undervaluation. The investment thesis relies on normalization of banking sector sentiment and WAL's fundamental strength returning the stock to previous levels. The manager's confidence was bolstered by the company's proactive investor communication during the crisis. This represents a contrarian bet on a quality regional bank during a period of sector-wide distress. The low valuation multiple provides substantial downside protection while offering meaningful upside as banking fears subside.

Pitch Summary:
Interactive Corp (IAC) is our most material new position with a 2.5% weight. The market gave us the opportunity to buy a company with an excellent capital allocation track record around the price of its liquid securities, MGM Resorts International (MGM), Angi Inc. (ANGI) and cash. This means we got the rest of the company, including Dotdash Meredith, Care.com and Turo, and all future value creation nearly for free. At $69, the stock remains well below the 2021 highs ($179) and our assessment of what it's worth. We like the collection of businesses, see significant opportunity in each one and believe management will continue to grow shareholder value.

BSD Analysis:
Patient Capital initiated a 2.5% position in IAC, viewing it as an exceptional value opportunity where they acquired the company at approximately the value of its liquid holdings alone. The manager highlights IAC's proven capital allocation track record and believes they essentially received the operating businesses (Dotdash Meredith, Care.com, Turo) and future value creation for free. At $69 per share, the stock trades at a significant 61% discount to its 2021 highs of $179, suggesting substantial recovery potential. The investment thesis centers on management's ability to unlock value across the diverse portfolio of digital businesses. The manager expresses confidence in both the individual business opportunities and management's track record of creating shareholder value through strategic capital allocation. This represents a classic value play on a diversified internet holding company trading below the sum of its parts.

Pitch Summary:
We maintained conviction that traditional energy sources (fossil fuels) will remain in high demand during the long-term transition to renewables, and ET is an attractive operator in the space. We trimmed our position slightly from ~7% to ~4.5%, to decrease exposure slightly and raise cash for new buys. In Q2 we held multiple calls with the head of investor relations, where we received useful information about future dividend payouts and more detailed understanding of their Permian Basin developments.

BSD Analysis:
Energy Transfer enters 2026 with an aggressive capital investment outlook, projecting $5.0 billion to $5.5 billion in growth capital primarily dedicated to natural gas network expansion. Management expects to generate between $17.3 billion and $17.7 billion in consolidated adjusted EBITDA for the year, fueled by major projects like the Nederland Flexport NGL expansion and the Mustang Draw processing plants coming online. The partnership continues to target a long-term annual distribution growth rate of 3% to 5%. For 2026, the investment case is bolstered by the 516-mile Transwestern Pipeline expansion, positioning Energy Transfer as the dominant midstream player for the Permian Basin’s burgeoning southwestern markets.

Pitch Summary:
We see strong earnings growth for Lilly based on high demand for their existing drugs and strong earnings potential with Mounjaro. The efficacy of Eli Lilly’s top drugs is far higher than top competing peers, and we are especially interested in the potential of Mounjaro, which is Lilly’s answer to the very popular obesity drug Ozempic. We see potential that Mounjaro could surpass Ozempic’s sales, since Mounjaro has higher efficacy and acts on both GIP & GLP-1 receptors (whereas Ozempic only acts on GLP-1).

BSD Analysis:
Eli Lilly has officially entered a "post-GLP-1 diversification" phase for 2026, recently announcing the acquisition of Orna Therapeutics to pioneer in vivo CAR-T and circular RNA treatments. While obesity treatments remain the current earnings engine, the 2026 roadmap is defined by the launch of Orforglipron, an oral GLP-1 candidate intended to de-bottleneck manufacturing constraints. Strategic catalysts for the year include an inflection in the margin profile as the product mix shifts toward specialty oncology and immunology. With a "Strong Buy" sentiment, Lilly is utilizing its massive cash generation to hedge against potential price pressures on Mounjaro/Zepbound by building out the industry's most robust cardiometabolic and genetic medicine pipelines.

Pitch Summary:
C3.ai is an innovator growing quickly, but they’re far from profitable. Kate had some questions about sizable accounting discrepancies she noticed between GAAP and adjusted earnings-per-share. The answers given by C3.ai’s team were not very convincing, and weeks later they were mentioned in the press for accounting issues that needed fixing. We think the risks currently outweigh the benefits.

BSD Analysis:
C3.ai is navigating a complex fiscal 2026, recently narrowing its full-year revenue guidance to a range of $289.5 million to $309.5 million. The company's Federal business remains a bright spot, with bookings in defense and aerospace surging 89% year-over-year despite broader macroeconomic headwinds. However, some analysts project a potential revenue contraction this year as the firm transitions toward its next-generation Agentic AI Platform. Management is prioritizing "clear pathways to cash generation," focusing on the 100+ customer agreements jointly closed with Microsoft. For 2026, the primary test will be converting its massive deal pipeline into sustainable, non-GAAP profitability as enterprises move from AI pilots to scaled deployment.

Pitch Summary:
AMD already has a significant 3% weighting in Core portfolios, so we maintained our positioning. Our holdings have posted a ~20% gain through June 30. AMD conceded NVIDIA’s dominance in GPU but made the case for CPU chips being instrumental in generative AI’s long-term growth path. If GPUs are important for early stage ‘training’ of AI models, CPUs will be instrumental for inference.

BSD Analysis:
AMD is executing a "pivot to parity" in 2026, with all eyes on the second-half rollout of the MI450 AI chip lineup. For Q1 2026, the company issued revenue guidance of $9.8 billion (±$300 million), including initial sales of the MI308 accelerator for the China market. Analysts view AMD as the most compelling AI trade for 2026, citing a "sizeable valuation gap" compared to NVIDIA and the potential for a massive revenue spike if MI450 production meets institutional demand. Management recently appointed Ariel Kelman as CMO to lead the AI market-share capture strategy. With a forecast EPS growth rate of 30.7%, AMD’s investment thesis centers on its ability to offer high-performance alternatives to hyperscalers currently facing NVIDIA supply constraints.

Pitch Summary:
WestEnd added to our NVIDIA position in April following our meetings, making it the largest holding in Core Portfolios. The stock has risen more than +80% through June 30. No single company may be more important to generative AI than NVIDIA, given their place as the inventor of the graphics processing unit (GPU) in 1999. The logic here is simple: companies need GPUs to fold AI into their business models, and no company on the planet matches NVIDIA’s capability and sophistication in producing them. Risks include ongoing trade and technology tensions between the U.S. and China and some GPU competition from AMD, but neither pose a short-term headwind to demand, which has been soaring.

BSD Analysis:
NVIDIA enters 2026 as the world’s most valuable company, recently reporting record-breaking Q3 fiscal 2026 revenue of $57.0 billion, a 62% increase year-over-year. Data Center revenue reached an unprecedented $51.2 billion, driven by the "off the charts" demand for the Blackwell architecture and a strategic pivot toward sovereign AI infrastructure. Management has issued a robust Q4 2026 revenue guidance of $65.0 billion, with a target to exit the year with non-GAAP gross margins in the mid-70% range as supply chain efficiencies for CoWoS packaging improve. The primary catalyst for 2026 is the transition to the Rubin architecture, which integrates the Vera CPU and Bluefield-4 DPU to deliver a fivefold performance leap over Blackwell. NVIDIA has returned $37.0 billion to shareholders in the first nine months of the fiscal year and maintains a remaining buyback authorization of over $62 billion, solidifying its status as the definitive "AI factory" provider for the global economy.