Investment Pitches

Pitch Summary:
TrueBlue is a leading provider of staffing and recruitment solutions for blue collar manufacturing, transportation, and warehouse roles. While overall U.S. employment remains very strong, demand for contingent workers has turned lower since the end of last year. Investors have pushed the stocks of public staffing firms sharply lower, and the industry appears to be one of the few that is pricing in a recession. After the company recently posted a first quarter 2023 loss, TrueBlue's shares fell to the lowest levels reached since the 2020 COVID lockdowns. Management expects profitability to rebound sequentially in the seasonally stronger second quarter. While we expect operating performance to further deteriorate in 2023 with a weakening economy, TrueBlue has historically remained profitable even during tough times. The company carries no debt and has been a reliable generator of free cash flow. The stock was trading for 7x operating profit and 9x normalized free cash flow at the time of our purchase.

BSD Analysis:
Palm Valley's TrueBlue investment represents a contrarian bet on a cyclical staffing company trading at distressed valuations. The fund acquired shares after they fell to COVID-era lows following a Q1 2023 loss, with the stock trading at attractive multiples of 7x operating profit and 9x normalized free cash flow. The manager's thesis acknowledges near-term headwinds from weakening contingent labor demand but emphasizes TrueBlue's historical resilience during economic downturns. The company's debt-free balance sheet and consistent free cash flow generation provide downside protection. While the manager expects further operational deterioration in 2023, the investment appears predicated on the staffing industry being one of the few sectors already pricing in recessionary conditions. The position reflects Palm Valley's value-oriented approach of buying quality businesses at cyclical lows with strong balance sheets.

Pitch Summary:
We acquired small stakes in two new names during the quarter: Advance Auto Parts (ticker: AAP) and TrueBlue (ticker: TBI). Advance Auto Parts is an automotive aftermarket parts provider serving professional installers and do-it-yourself customers. Palm Valley briefly owned the stock during the 2020 lockdowns, when the shares quickly reached our valuation. Advance has almost 5,000 U.S. locations. Margins for the business have been inferior to those of O'Reilly and AutoZone, two leading competitors. This is due both to customer mix and operating efficiency. The shares of Advance plummeted from a high of $230 reached in January 2022 to the $60's in June 2023. Profitability is being negatively impacted by pricing decisions designed to bolster market share in the professional sales channel. As a result, the firm reduced earnings guidance and its dividend. Auto parts retailers have historically been recession-resistant and are benefiting from the expanding average age of vehicles. While there remain risks, such as growth in electric vehicles that require fewer parts, we believe Advance's stock is cheap based on normalized earnings. Furthermore, we expect its balance sheet to improve later this year as inventories decline and operating margins rise.

BSD Analysis:
Palm Valley initiated a position in Advance Auto Parts after the stock declined from $230 to the $60s, representing a 74% decline from its January 2022 peak. The fund's thesis centers on the company being undervalued based on normalized earnings despite current margin pressures from aggressive pricing to gain professional channel market share. The manager acknowledges AAP's operational inefficiencies compared to peers O'Reilly and AutoZone but sees this as a temporary headwind. The investment is supported by secular tailwinds including an aging vehicle fleet that drives aftermarket demand and the historically recession-resistant nature of auto parts retail. While electric vehicle adoption poses a long-term risk, the manager expects near-term balance sheet improvement through inventory normalization and margin recovery. The position appears opportunistic, capitalizing on market pessimism following reduced guidance and dividend cuts.

Pitch Summary:
Applied Materials has been on the Focus List since 2019. It is the leading semiconductor capital-equipment manufacturer, with 20% market share, and specialises in deposition and etch machines – but this obscures the whole picture. For the most part, Applied Materials does not directly compete with other capital-equipment manufacturers such as ASML (with 16% market share). Semiconductor manufacturing involves thousands of steps, in which individual equipment manufacturers have very high market share. 75% of AMAT's equipment revenue comes from products in which it has >50% market share, for instance. Often this is the result of painstaking co-development with customers stretching back decades. Applied Materials is benefitting from a number of secular drivers. Global economic growth is one. As the world digitises and adopts generative-AI tools, the use of semiconductors is rising. In addition, as semiconductor manufacturing has become more complex, equipment intensity is rising. For many decades, semiconductor manufacturers spent 10–12% of their revenue on equipment. But that figure rose to 17% in 2022, with industry participants expecting this figure to remain at elevated levels for the foreseeable future. This increase in capital equipment spending means more revenue for Applied Materials. Demand is also being bolstered by the increasing desire of governments to shift reliance away from Taiwan, and Asia more broadly, for semiconductor manufacturing. 90% of the world's most advanced semiconductors are manufactured in Taiwan, a situation that the US in particular views as undesirable. This view has led to ~USD 400 billion of incentives and grants being announced by governments to boost domestic semiconductor manufacturing over the next five years. This robust demand, combined with the persistently high market share of companies like Applied Materials, has led to high returns. Applied Materials' operating margin was 30% in 2022, up from 27% in the last cyclical peak of 2018. There are, of course, threats to Applied Materials' business. First, semiconductor capital-equipment manufacturing remains cyclical. Government incentives to shift semiconductor manufacturing will not last forever. Second, in the short term Applied Materials is losing out from the decoupling of the Chinese and Western semiconductor ecosystems. Applied Materials' revenue from China peaked at 36% of the total in the third quarter of 2021, but is now down to 21%. US Department of Commerce restrictions have made it more difficult for Chinese semiconductor manufacturers to access equipment from companies like Applied Materials or Lam Research. We do not foresee this trend reversing. However, the decline in Chinese revenues has been offset by strength in other geographies that are trying to reduce their reliance on Asian manufacturing. We view Applied Materials' management team as well qualified to navigate these challenges. In CEO Gary Dickerson, Applied Materials has a leader who has continuously invested for the long term. Applied Materials was one of the first companies to establish a separate business unit focused on serving companies that manufacture on the 'lagging edge': older yet still important semiconductor technologies used in industries like autos and industrials. Applied Materials' gains in market share here have enabled it to weather the current downturn in semiconductor markets better than their peers. This is because lagging-edge growth has proved resilient. The company has also invested heavily in its Services business, where revenue per installed tool increased 1.5x between 2015 and 2021. Services is a less cyclical business than selling capital equipment and should dampen some of the volatility in Applied Materials' revenue. The Applied Materials management team are taking a proactive approach to sustainability. Semiconductor manufacturing itself still has a long road to travel to get to net zero. In Applied Materials' case, Scope 3 emissions are difficult to reduce because of one large customer doing most of its manufacturing in Taiwan, where over one third of the grid is powered by coal. Applied Materials, although yet to set a net-zero target, have been driving the semiconductor industry to take a system-wide approach to net zero through the SEMI trade body. They have also set a 2030 target of reducing their Scope 1 and 2 emissions by 50% (from a 2019 baseline). We expect a net-zero commitment from Applied Materials very soon.

BSD Analysis:
Generation Investment Management presents a compelling bull case for Applied Materials (AMAT), emphasizing the company's dominant market position in semiconductor capital equipment manufacturing. The fund highlights AMAT's 20% overall market share and more importantly, its commanding >50% market share in 75% of its equipment revenue streams, built through decades of customer co-development. The investment thesis centers on multiple secular growth drivers including AI adoption, increasing equipment intensity in semiconductor manufacturing (rising from 10-12% to 17% of fab revenue), and government incentives for domestic chip production totaling ~$400 billion over five years. Generation notes AMAT's improving profitability with operating margins expanding from 27% in 2018 to 30% in 2022 despite cyclical headwinds. The fund acknowledges near-term challenges including cyclical industry dynamics and reduced Chinese revenue exposure (declining from 36% to 21% due to export restrictions), but views management's strategic investments in lagging-edge technologies and services as effective diversification strategies. CEO Gary Dickerson's long-term focus and the company's proactive sustainability initiatives through industry trade bodies further support the investment case.

Pitch Summary:
This investment narrative lies behind the enthusiasm for Nvidia, this year's stock market darling. Nvidia, which designs and develops graphics processors, is up more than 200% year-to-date. We do not hold this stock, which is trading on nearly 200x historic earnings per share, but we do own both Microsoft and Alphabet on more reasonable valuations. Both businesses have been integrating AI into their products for years; it is highly likely that the progress made in the past few months will, in different ways, enhance each company's potential. But there is also a risk that the market expects jam today. If a recession starts to impact IT and advertising budgets, the narrative currently driving the tech behemoths will likely change once again.

BSD Analysis:
The manager holds a bullish view on Alphabet, positioning it alongside Microsoft as a reasonably valued play on the artificial intelligence theme. The investment thesis emphasizes Alphabet's multi-year history of AI integration across its product ecosystem, suggesting the company is well-positioned to capitalize on recent technological advances. The manager believes Alphabet's established AI capabilities will enhance the company's business potential in various ways as the technology continues to evolve. The analysis acknowledges potential headwinds, particularly noting that advertising budgets could face pressure in a recessionary environment, which would directly impact Alphabet's core revenue streams. The position reflects a disciplined approach to AI investing, choosing established technology leaders with reasonable valuations over speculative momentum plays. The manager's confidence in Alphabet's AI foundation suggests they view the company as a sustainable beneficiary of the ongoing artificial intelligence revolution rather than a short-term beneficiary of market hype.

Pitch Summary:
This investment narrative lies behind the enthusiasm for Nvidia, this year's stock market darling. Nvidia, which designs and develops graphics processors, is up more than 200% year-to-date. We do not hold this stock, which is trading on nearly 200x historic earnings per share, but we do own both Microsoft and Alphabet on more reasonable valuations. Both businesses have been integrating AI into their products for years; it is highly likely that the progress made in the past few months will, in different ways, enhance each company's potential. But there is also a risk that the market expects jam today. If a recession starts to impact IT and advertising budgets, the narrative currently driving the tech behemoths will likely change once again.

BSD Analysis:
The manager maintains a bullish stance on Microsoft, viewing it as a more reasonably valued alternative to the AI hype surrounding Nvidia. The thesis centers on Microsoft's established AI integration capabilities, having incorporated artificial intelligence into their products for years prior to the current market enthusiasm. The manager believes Microsoft's long-term AI development positions the company to benefit from recent technological progress in ways that will enhance its business potential. However, the analysis acknowledges cyclical risks, noting that a potential recession could impact IT budgets and alter the current narrative driving large technology companies. The position reflects a value-conscious approach to AI exposure, seeking to capture the theme through established players trading at more reasonable multiples rather than chasing momentum in overvalued names. The manager's confidence in Microsoft's AI capabilities suggests they view the company as well-positioned for the long-term transformation of the technology landscape.

Pitch Summary:
Amazon's almost 30-year journey has been one of constant evolution, driven by innovation, and guided by the long-term vision of its founder, Jeff Bezos. The business developed in its early years with an initial focus on selling books before eventually expanding into other product categories, including music, electronics and beyond. Over time it has shifted from a goods retailer to services platform as it gave external parties access to its marketplace (3P sellers account for ~55% of all unit sales) and other operational capabilities (such as Fulfilled by Amazon or Buy With Prime). The company has a long track record of creating disruptive products – as it did with the Kindle and Alexa – and entirely new markets – as it has done with AWS and cloud computing. Amazon has a distinct corporate culture enshrined in 16 leadership principles, which provide a framework for decision-making, problem-solving and collaboration across the organisation. Amazon's corporate workforce largely consists of small, autonomous "two-pizza" teams that utilise a common set of standardised, shared functions or "services". Teams comprise a mixture of multi-disciplinary roles and are empowered to make decisions quickly, iterate on ideas, and drive innovation in their respective areas. Amazon has consistently demonstrated its willingness to forgo immediate profitability in favour of maximising future opportunities. The company famously took >8 years to realise its first annual profit, prioritizing the development of its platform and improvement of the customer experience. Facing capacity constraints in 2014, Amazon decided to embark on the build-out of its own logistics network. While this weighed on profitability in the short term, it established a strong competitive advantage, and by 2021 Amazon was shipping more parcels across the USA than FedEx. Similarly, Amazon's cloud computing business, AWS, was initially met with scepticism, but the company persisted in investing heavily in its development and expansion, and today the division generates over $80bn revenue per annum. Looking forward, we expect the company will continue to invest in big bets across healthcare, advertising, media and logistics in pursuit of its next growth pillar. In summary, Amazon's success lies in its constant evolution and drive to innovate. Its distinct corporate culture promotes entrepreneurship and challenges the status quo. A decentralised operational structure empowers agile teams and enables rapid scaling without adding complexity, and Amazon's capacity to invest for the long term, exemplified by the buildout of its fulfilment and logistics infrastructure and AWS, is a key competitive advantage versus more myopic competitors. With a commitment to thinking long term and willingness to be misunderstood, we expect Amazon will continue to thrive.

BSD Analysis:
Magellan presents Amazon as the quintessential long-term innovation machine, emphasizing the company's unique cultural DNA and operational structure as sustainable competitive advantages. The analysis highlights Amazon's transformation from a book retailer to a diversified technology platform, with third-party sellers now representing 55% of unit sales and AWS generating over $80 billion in annual revenue. The fund particularly values Amazon's decentralized "two-pizza team" structure and 16 leadership principles that foster rapid innovation and decision-making. Amazon's willingness to sacrifice short-term profitability for long-term market position is exemplified by its 8-year path to profitability and the strategic logistics network buildout that now rivals FedEx. The managers see continued investment opportunities across healthcare, advertising, media, and logistics as Amazon pursues its next major growth pillar. This represents a classic quality growth investment where cultural moats and long-term thinking create sustainable competitive advantages.

Pitch Summary:
Netflix has seen a return to the Magellan Global Strategy as the strategic shift to capture the value of password sharing and add an ad-supported service is now in place. In early 2022 we had little conviction on the success of this shift, but it now seems to be moving quickly to a point of material reacceleration on earnings and margin capture. The FX headwind of its large USD cost base against many international sources of revenue is also behind us and the prospect of Netflix leveraging its ~$17B of content spend across a wider revenue capture should drive significant growth in earnings and cash flows, as well as material upgrades to expectations, over the coming years.

BSD Analysis:
Magellan has re-initiated a position in Netflix after gaining conviction in the company's strategic transformation around password sharing monetization and ad-supported tiers. The managers believe Netflix is approaching an inflection point where these initiatives will drive material earnings acceleration and margin expansion. With foreign exchange headwinds now subsiding, the fund sees significant leverage potential from Netflix's substantial $17 billion content investment base across expanded revenue streams. The timing appears strategic as the company transitions from investment mode to monetization of its platform investments. This represents a classic Magellan approach of waiting for operational clarity before committing capital. The managers expect material earnings upgrades as these revenue diversification efforts gain traction. Netflix's ability to extract more value from its existing content library through multiple revenue channels should drive meaningful cash flow growth over the coming years.

Pitch Summary:
As explained in our June 2021 letter, Regeneron is a drugmaker who combine their ability to humanise the mouse genome and the largest genomic database in the world to develop new medicines, particularly monoclonal antibodies. The general public probably best knows them for the (then) experimental antibody cocktail given to President Trump when he had COVID-19, however their drug development record is far more extensive. Historically the core drug at Regeneron is EYLEA – a drug injected into the back of the eye to treat wet age-related macular degeneration (AMD), the leading cause of blindness in old people. EYLEA is one of several VEGF inhibitors that have dramatically reduced the cliché of "old-and-blind". For over a decade, EYLEA has been the preferred anti-VEGF treatment mostly owing to its less frequent dosing vis-à-vis other agents (it is typically taken once every eight weeks). It has been injected nearly 60 million times into peoples' eyeballs since it was launched. Because blindness in old people is very expensive (think of the care costs), and EYLEA has significantly decreased the treatment burden for patients with wet AMD, Regeneron has been able to charge a lot for the drug. In Australia it is amongst the biggest single costs in our socialised pharmaceutical purchase scheme. There are however other drugs – most notably Dupixent – a drug discovered by Regeneron, developed largely at Sanofi's expense and hence half owned by Sanofi. This deals with a wide range of type 2 inflammatory diseases, including atopic dermatitis, and if all goes well will wind up being one of the largest drugs in the world by revenue (probably behind the GLP-1 agonists). Beyond that, there are other important drugs such as Libtayo, which effectively unblocks the immune system's response to certain types of cancer. Regeneron plan to mix-and-match Libtayo with a wide range of other anti-cancer agents, and expect it to generate lots of revenue as these programs bear fruit. The last year has been mostly extremely good for Regeneron with several pivotal trials producing very compelling results leading to actual and probable label expansions for Dupixent and other drugs across the portfolio. Perhaps the most important result was in March 2023. Regeneron and Sanofi announced phase 3 results which demonstrate Dupixent's ability to treat chronic obstructive pulmonary disease (COPD). This is the first new approach to COPD in over a decade and is a potentially enormous market. By some measures COPD is the third leading cause of death worldwide. Dupixent is already a drug with over $10 billion revenue. It can and should be much larger. However, the overwhelming issue with Regeneron as far as the market is concerned is that EYLEA is nearing the end of its patent/market exclusivity and is expected to face increased competition from various branded/generic agents. In the last decade, many attempts have been made to beat EYLEA's dosing frequency but have generally not achieved the same visual gains. Over several years, Regeneron developed a higher-dose formulation of EYLEA (aflibercept 8 mg) with the aim of reducing the treatment burden even further while maintaining the safety and efficacy of the original drug. According to the company, the drug was very difficult to formulate as the protein is viscous and must be injected into the eye. In two pivotal trials, aflibercept 8 mg demonstrated that the vast bulk of patients on an 8-week EYLEA dosing regimen could be rapidly moved to, and maintained on, a 12 or 16-week dosing regimen using the high-dose formulation, with no change in efficacy or safety. Many of the patients in these trials achieved as low as two doses of the high-dose formulation each year. At this point, aflibercept 8 mg appears to have a truly best-in-class profile with patent protection that could last for many years to come. High-dose EYLEA should reduce the (considerable) costs of administering the drug, increase the overall safety and convenience of an anti-VEGF treatment regimen for a patient (by requiring fewer injections each year), and might improve compliance (thus reducing the number of blind people who need care). Regeneron should be able to charge for that. Alas not all has gone well. Late in June, the FDA issued a "Complete Response Letter" to Regeneron in relation to high dose EYLEA. A Complete Response Letter is usually, though not always, a total rejection which means the drug will never see the market and stocks fall very sharply on Complete Response Letters. Immediately Regeneron became our biggest detractor in the quarter. This stresses us only a little. According to the company, the rejection was "solely" due to an ongoing inspection at their contract syringe filler (which is now known to be Catalent), and the FDA did not identify any concerns with the drug substance itself, or the design of the pivotal trials. Our judgement is that Regeneron management have told the truth in the past – both positive and negative - and that they are telling the entire truth in this case. If it is just a manufacturing issue the drug should be approved this year though we do not know when. Manufacturing issues with syringes that are injected into the eye are serious. Any mistake in sterility or otherwise would likely involve the client going blind – an unacceptable outcome. Furthermore we believe Regeneron's profit share from Sanofi will grow quickly, driven by Dupixent. Libtayo's recent cancer approvals are a bonus. As long as EYLEA sales don't fall of a cliff prior to the high-dose version being available then Regeneron's profits should continue to rise. And that is before a pipeline arrives that we think is very promising. There is a question as to whether we should buy more Regeneron – but there are two concerns. a) We are already very large in the stock. b) There is a nightmare scenario where the manufacturing issues at Catalent for high dose Eylea also infect the current low dose product. This scenario is unlikely but would result in the new competitive products getting a large foothold and would thus sharply reduce medium term Regeneron profits.

BSD Analysis:
Bronte Capital maintains conviction in Regeneron despite recent FDA setbacks, viewing the Complete Response Letter for high-dose EYLEA as a temporary manufacturing issue rather than a fundamental drug problem. The manager emphasizes Regeneron's diversified pipeline beyond EYLEA, particularly highlighting Dupixent's massive potential with over $10 billion in current revenue and recent COPD approval representing the first new treatment approach in a decade for the third leading cause of death globally. The fund appreciates Regeneron's unique platform combining humanized mouse genome technology with the world's largest genomic database for drug discovery. While EYLEA faces patent expiration concerns, the high-dose formulation could extend dosing intervals to 12-16 weeks and provide years of additional patent protection. The manager trusts management's transparency regarding the FDA rejection being solely manufacturing-related at Catalent, expecting approval within the year. Growing profit-sharing from Sanofi on Dupixent and Libtayo's cancer approvals provide additional upside catalysts. However, position sizing constraints and potential manufacturing contamination risks for existing EYLEA products represent key concerns for further accumulation.

Pitch Summary:
Genus is an English company that sell "genetically elite" breeding stock to commercial pork, dairy and beef producers. "Elite" simply means animals that convert grain to pork in a piggery or grass to dairy more efficiently. Genus is the clear world leader in pig genetics. Genus (through the "Pig Improvement Company") breeds superior pigs using conventional phenotypic selection and genomic prediction in extremely biosecure "nucleus" farms around the world, and disseminate their genetics usually in the form of fresh semen or a live breeding animal. Animals are selected for characteristics such as feed conversion, fertility, disease resistance and meat character. Every year, the genetic merit of Genus's animals has improved. Selling semen as a service (SaaS) turns out to be a wonderful business: 1. The cost of semen is trivial (~$5 per dose) in relation to the total cost of pork production, but radically improves the producer's economics. 2. It is a sticky business. Unless a competitor offers truly better genetics, there is no reason to risk your whole production. 3. Over 82% of Genus's porcine volumes globally are sold under royalty agreements, which are less sensitive to the pork production cycle. 4. Genus benefits from several long-term tailwinds, such as global growth in animal protein consumption and technification of protein production. 5. Due to superior genetics, Genus have been taking share in a consolidating breeding stock market. Unfortunately, China, by far the world's largest producer (and consumer) of pork and one of Genus's most important markets, is currently facing a significant but hopefully cyclical downturn. In 2021, the live pig price in China declined sharply and has remained below the cost of production for most producers for the better part of two years. Whilst margins are negative, producers are far less willing to replace/expand their breeding stock, or have decided to exit the market totally. This has suppressed the demand for Genus's pig genetics. Generally speaking, Chinese pork producers are break-even at a hog price 6x the corn price (or roughly 18 RMB/kg). As you can see, producers are still in loss-making territory and have been for most of the last two years. The downturn has been driven primarily by three factors: 1. Lower consumer demand for pork due to COVID-19 lockdowns, placing downward pressure on the per-kilogram price of pork. 2. An oversupply of slaughter pigs caused by (producers' fear of) widespread African Swine Fever, placing additional downward pressure on the price of pork. 3. A tight labour market and higher feed (corn) prices, significantly increasing the input costs (and break-even point) for most producers. In the meantime, Genus have been investing to significantly increase their porcine capacity in China for when the live pig price and the confidence of the piggery owners returns. It seems a fair bet that the Chinese will continue to eat increasing amounts of pork over time. Genus's reported profits and cash flows have also been suppressed by a number of long-term strategic investments, including the development of a CRISPR-edited pig resistant to the Porcine reproductive and respiratory syndrome virus, arguably the most devastating disease affecting the porcine industry globally. Genus are expecting to complete their final submissions to the US FDA over the summer. Between what we think is a cyclical downturn in the Chinese industry and a period of oversized investment in new technology Genus's profitability has been suppressed. We are confident that Chinese pig demand will increase. We are less confident that the CRISPR-edited pig will be a great success – though genetically edited corn has been an astonishingly profitable business for decades – and there is a better than even chance that Genus is on the beginning of a multi-decade upturn. The stock has been a loser – but there is little here other than the share price – to indicate that we are on the wrong path.

BSD Analysis:
Bronte Capital presents a compelling long-term thesis on Genus despite near-term headwinds. The fund highlights Genus's dominant position in pig genetics with a sticky, high-margin business model where semen costs only $5 per dose but dramatically improves producer economics. The company benefits from structural tailwinds including global protein consumption growth and industry consolidation, with 82% of volumes under royalty agreements providing cyclical protection. Current weakness stems from a cyclical downturn in Chinese pork markets, where producers have operated below breakeven for two years due to COVID demand destruction, African Swine Fever oversupply, and elevated feed costs. However, the manager views this as temporary, noting Genus is investing in Chinese capacity expansion and developing CRISPR-edited pigs resistant to major diseases. The FDA submission for gene-edited livestock represents a potential multi-decade growth catalyst, similar to genetically modified crops. While profitability remains suppressed by strategic investments and cyclical factors, the fundamental business quality and long-term demand drivers remain intact.

Pitch Summary:
Elevance (formerly known as Anthem) is the largest healthcare insurance company in United States by medical membership, covering 47 million lives. Two thirds of its customers are covered under commercial and specialty arrangements, and the other third is covered under government programs such as Medicare and Medicaid. The managed care industry is large, with healthcare spending of $4 trillion annually, and we believe that scale and expertise are important for success in this industry. We think Elevance's size and scale allows it to continue to invest in technology and benefit design to maintain its competitive position.

BSD Analysis:
Vulcan Value Partners initiated a position in Elevance Health, recognizing the company's dominant market position as the largest healthcare insurer in the United States by membership. The investment thesis is built on Elevance's massive scale advantage, covering 47 million lives across a diversified mix of commercial, specialty, and government programs. The fund emphasizes the importance of scale in the managed care industry, where size enables better risk pooling, negotiating leverage with providers, and investment capacity for technology and innovation. Operating in a $4 trillion healthcare market provides substantial addressable market opportunity for continued growth. Elevance's balanced exposure between commercial insurance and government programs (Medicare/Medicaid) provides diversification across different customer segments and payment models. The company's scale advantages allow for continued investment in technology infrastructure and benefit design innovation, which are critical for maintaining competitive positioning in an evolving healthcare landscape. This represents a defensive healthcare play with scale advantages and exposure to growing healthcare spending trends.

Pitch Summary:
EnerSys is a global leader in stored energy solutions for industrial applications. Pandemic related supply chain issues slowed revenue growth, depressed margins, and decreased free cash flow. Management has done a good job recapturing higher input costs. At their recent investment day, they confirmed that their growth drivers remain in place, though they may develop slower than the company originally forecast.

BSD Analysis:
Vulcan Value Partners maintains a constructive view on EnerSys despite recent operational challenges, recognizing the company's leadership position in industrial energy storage solutions. The investment thesis is based on EnerSys's market-leading position in stored energy solutions for critical industrial applications, providing exposure to growing demand for backup power and energy storage. While pandemic-related supply chain disruptions temporarily impacted financial performance through slower revenue growth, compressed margins, and reduced free cash flow, management has demonstrated effective cost management by successfully recapturing higher input costs through pricing actions. The recent investor day provided reassurance that fundamental growth drivers remain intact, though the timeline for realization may be extended. EnerSys benefits from secular trends including grid modernization, renewable energy integration, and increasing demand for reliable backup power across industrial applications. The company's established market position and customer relationships provide competitive advantages in a specialized industrial market. This represents a recovery play on a market leader working through temporary operational headwinds while positioned for long-term growth in energy storage markets.

Pitch Summary:
PROG Holdings (Progressive) provides lease-to-own financing to retailers and their non-prime customers. As the Federal Reserve raised interest rates in response to higher inflation levels, loan write-offs exceeded the company's historical levels. In response, management tightened their underwriting standards, and write-offs have returned to their optimal range. While tightening credit has put pressure on revenues, it has been positive for both earnings and free cash flow. Progressive's short-duration financing model generates significant free cash flow. We think their counter-cyclical business model is poised to take advantage of a weaker credit environment.

BSD Analysis:
Vulcan Value Partners maintains conviction in PROG Holdings despite recent credit challenges, viewing the company's response as evidence of disciplined management and a strengthening business model. The investment thesis centers on Progressive's lease-to-own financing model serving non-prime customers, a market segment with limited financing alternatives. Management's proactive tightening of underwriting standards in response to elevated write-offs demonstrates risk management discipline and has successfully returned credit metrics to optimal levels. While revenue growth has been pressured by tighter credit standards, the focus on profitability and cash flow generation has improved the business quality. The short-duration financing model provides rapid cash conversion and limits credit exposure. Vulcan views Progressive's business as counter-cyclical, positioned to benefit from a weaker credit environment where traditional lenders retreat and demand for alternative financing increases. The combination of disciplined underwriting, strong free cash flow generation, and market positioning in economic uncertainty creates an attractive risk-reward profile for patient investors.

Pitch Summary:
Medpace is exceeding our expectations. New business awards, revenue growth, earnings growth, and free cash flow production are strong, despite the challenges in the biotech funding environment.

BSD Analysis:
Vulcan Value Partners expresses strong satisfaction with Medpace's performance, noting the company is exceeding expectations across multiple key metrics. The investment thesis appears validated by robust new business awards, demonstrating Medpace's competitive positioning in the clinical research organization (CRO) market. Strong revenue growth, earnings expansion, and free cash flow generation indicate effective operational execution and margin management. The fund's positive commentary is particularly noteworthy given the challenging biotech funding environment, suggesting Medpace's resilience and market share gains during industry headwinds. As a CRO, Medpace benefits from pharmaceutical and biotech companies' need to outsource clinical trials, providing exposure to the growing drug development market. The company's ability to maintain strong performance despite sector challenges indicates a differentiated service offering and strong client relationships. This represents a play on the outsourcing trend in pharmaceutical development with Medpace demonstrating superior execution relative to peers.

Pitch Summary:
SmartRent provides hardware and software that enables the digital transformation of the apartment industry. Demand for its products remains strong and deployed units continue to increase. Supply chain issues have been a significant headwind but have dramatically improved and order fill rates for components have normalized. There is a significant backlog of units to be installed from their existing customer base. We expect these installations to occur over the next several years. In addition, we expect SmartRent to continue booking new customers. As additional units are installed, the mix of high margin recurring subscription revenue should grow, leading to a corresponding margin expansion.

BSD Analysis:
Vulcan Value Partners maintains a bullish stance on SmartRent, viewing the company as a key beneficiary of digital transformation in the apartment industry. The investment thesis centers on SmartRent's integrated hardware and software platform that modernizes property management and tenant experiences. Strong underlying demand and growing deployed units validate the market opportunity and product-market fit. The fund notes that previous supply chain headwinds have largely resolved, with normalized component fill rates removing a key operational constraint. A significant installation backlog from existing customers provides near-term revenue visibility and growth momentum over the next several years. The business model evolution toward higher-margin recurring subscription revenue creates an attractive margin expansion opportunity as the installed base grows. New customer acquisition combined with existing customer expansion should drive sustained growth. The digital transformation of real estate represents a large addressable market with SmartRent positioned as an early leader. This appears to be a growth play on PropTech with improving unit economics and a transition to more predictable recurring revenue streams.

Pitch Summary:
Dun & Bradstreet, another company we have owned in the past, is a global provider of business decisioning data and analytics that their customers use to determine the financial viability of their suppliers and enhance their sales efforts. The company maintains a proprietary database of approximately 400 million records on public and private business worldwide. Dun & Bradstreet possesses unique proprietary data assets as only a small percentage of the world's businesses have public financials. Their products are built into a client's workflow process which creates high switching costs as evidenced by a 96% customer retention rate, and its asset light model produces robust free cash flow. We are pleased to add Dun & Bradstreet to our portfolio.

BSD Analysis:
Vulcan Value Partners re-established a position in Dun & Bradstreet, recognizing the company's unique competitive position in business data and analytics. The investment thesis is anchored on D&B's proprietary database of approximately 400 million business records globally, creating a significant data moat that would be extremely difficult and expensive for competitors to replicate. The fund emphasizes the mission-critical nature of D&B's services for supplier risk assessment and sales enhancement, which are embedded into client workflows and create substantial switching costs. The exceptional 96% customer retention rate validates the stickiness of D&B's products and the value proposition for clients. The asset-light business model generates robust free cash flow, providing attractive returns on invested capital and flexibility for capital allocation. D&B's unique position in providing financial data on private businesses, where public information is scarce, creates a defensible competitive advantage. Vulcan's previous ownership experience demonstrates familiarity with the business model and confidence in the long-term value proposition. This represents a classic data monopoly play with strong recurring revenue characteristics and defensive business fundamentals.

Pitch Summary:
Genpact is an IT services company that was spun out of General Electric several years ago. Genpact focuses on business process outsourcing (BPO) and technology digitalization markets. It has a diverse client base that is spread across multiple industries. Complexity within the IT space is growing rapidly, and Genpact plays an important role in helping customers navigate the complexity. We have owned Genpact in the past and are happy to have the opportunity to own it once again.

BSD Analysis:
Vulcan Value Partners re-initiated a position in Genpact, a business process outsourcing and technology digitalization company spun out from General Electric. The investment thesis centers on Genpact's positioning to benefit from increasing IT complexity across industries, where the company serves as a critical partner helping clients navigate digital transformation challenges. The fund values Genpact's diversified client base across multiple industries, which provides revenue stability and reduces concentration risk. As a GE spinoff, Genpact likely benefits from established processes and enterprise-grade capabilities while operating as an independent entity. The growing complexity in the IT space creates a favorable tailwind for BPO and digitalization services, positioning Genpact to capture market share in expanding addressable markets. Vulcan's previous ownership experience suggests familiarity with management and business fundamentals, providing confidence in the re-entry decision. This appears to be a play on the secular trend toward IT outsourcing and digital transformation, with Genpact positioned as a beneficiary of increasing enterprise IT complexity.

Pitch Summary:
SS&C provides mission critical software and services primarily to the financial services and healthcare industries. The company has a highly recurring revenue stream supported by revenue retention rates in the mid 90% range. Operating margins have exceeded 35% for more than 15 years. SS&C is run by its founder, Bill Stone, whose capital allocation track record has been exceptional. SS&C has been investing in sales and marketing, improved customer service, product development and leadership, which are starting to yield results. We are happy to own the business once again.

BSD Analysis:
Vulcan Value Partners re-established a position in SS&C Technologies, demonstrating confidence in this mission-critical software provider to financial services and healthcare sectors. The investment thesis is built on SS&C's exceptional business quality metrics, including highly recurring revenues with mid-90% retention rates and consistently strong operating margins exceeding 35% for over 15 years. The fund places significant emphasis on founder-led management under Bill Stone, highlighting his exceptional capital allocation track record as a key differentiator. Recent investments in sales, marketing, customer service, and product development are beginning to show positive results, suggesting potential for accelerated growth. The company's mission-critical nature creates high switching costs and customer stickiness, providing defensive characteristics and predictable cash flows. Vulcan's previous ownership experience and willingness to re-enter the position indicates strong conviction in the long-term value proposition. This represents a quality growth play with strong recurring revenue characteristics and proven management execution.

Pitch Summary:
Fiserv, a company we have owned in the past, is a global payments solutions and financial services provider. Their business consists of three segments: merchant acceptance, payments processing, and core bank processing. Each of these segments provides essential products and services to the customers. Fiserv's products have high switching costs, which aids in customer retention and increases the stickiness of their revenues. Currently, the company is generating over $3 billion of free cash flow annually, allowing management to invest in research and development, opportunistic M&A, and returning cash to shareholders. We are pleased to have the opportunity to purchase this company at a discount to our estimate of intrinsic value.

BSD Analysis:
Vulcan Value Partners initiated a new position in Fiserv, viewing it as an attractive opportunity to purchase a high-quality financial technology company at a discount. The fund highlights Fiserv's diversified business model across three essential segments: merchant acceptance, payments processing, and core bank processing. The investment thesis centers on the company's competitive moat through high switching costs, which creates sticky customer relationships and predictable revenue streams. Fiserv's strong cash generation of over $3 billion annually provides management with significant flexibility for capital allocation across R&D, strategic acquisitions, and shareholder returns. The fund's familiarity with the company from previous ownership suggests confidence in management and business fundamentals. The emphasis on purchasing at a discount to intrinsic value aligns with Vulcan's value-oriented investment approach. This appears to be a classic value play on a quality fintech company with defensive characteristics and strong free cash flow generation.

Pitch Summary:
Advantage Solutions warrants special attention, because the company came public as a SPAC, and this is the first SPAC that we have bought. SPACs are sometimes known as "blank-check" companies, and I tend to think of them as an unattractive place to look for investments. Over the past few years, many SPACs appeared, overpaid for questionable assets, and as a whole – lost money for investors who bought them. This is usually not an attractive hunting ground for Curreen, but SPACs burned enough investors that at least one baby was thrown out with the bathwater. Advantage Solutions was the kind of ugly duckling that we love – an excellent business, misunderstood enough to be far too inexpensive, with the additional positive of both the CEO and Chairman buying the stock. The company markets products that are sold in stores. It is one of the largest U.S. providers of in-store sampling (for example: would you like to try this amazing cheese?). Advantage Solutions also does in-store aisle checks for brands (to ensure that they are getting the display prominence that they paid for), provides in-store marketing displays, and represents brands at store headquarters to get the brands' products onto store shelves. Historically this has been an excellent business earning high returns on capital, with free cash flow driving growth through acquisitions. Then COVID hit. Many of Advantage Solutions' in-store services evaporated, and revenues and profits dropped. As COVID receded, the higher cost and increased difficulty in hiring entry-level employees (the boots on the ground in the stores) continued to pressure the company's profit margins and has hampered its ability to grow. Advantage Solutions also has a large debt burden, as its grow-by-acquisition model was not solely financed with free cash flow. The good news on this debt is that it has few financial covenants that will force the company to go hat in hand to its lenders if operating profits continue to be weak (the lenders probably do not see this as good news), and its debt does not begin to mature until 2028. At first glance, Advantage Solutions looks like a troubled SPAC, with weak operating results and an over-levered balance sheet. I see it as an excellent business that is working to fix temporary problems, with covenant-light debt that gives it the time it needs to return to strong profitability and potentially even restart its growth-by-acquisition engine. The price we paid was less than 10x my estimate of trough cash earnings (acquisition amortization reduces GAAP-accounting figures), and I expect meaningfully higher earnings in the coming years. If the future turns out worse than I expect, our low purchase price offers a lot of protection.

BSD Analysis:
The manager presents a contrarian bull case for Advantage Solutions, viewing it as a quality business temporarily impacted by COVID-19 rather than a fundamentally flawed SPAC. The investment thesis centers on the company's historically strong business model of providing in-store marketing services, including sampling programs and retail merchandising, which generated high returns on capital and funded growth through acquisitions. The manager acknowledges current headwinds including margin pressure from higher labor costs and hiring difficulties, as well as a leveraged balance sheet from the acquisition-driven growth strategy. However, he views these as temporary issues, emphasizing the covenant-light debt structure that doesn't mature until 2028, providing time for operational recovery. The valuation appears attractive at less than 10x estimated trough cash earnings, with insider buying from both the CEO and Chairman providing additional confidence. The manager expects meaningful earnings recovery as post-COVID operational challenges normalize and the company potentially restarts its acquisition engine.

Pitch Summary:
RCM Technologies is a diversified talent services holding company. The company operates in three segments: healthcare, Life Sciences and Information Technology (LS&IT), and Engineering. The company has a strong history of high-quality capital allocation, including smart M&A and opportunistic share buybacks. Recent commentary from the Q1 earnings call suggests that their Engineering business has built a backlog for 2023 that will materialize in future quarters. After their 4Q earnings back in March, they noted "Material Weaknesses in Internal Control Over Financial Reporting" which caused the stock to drop 30%. I spoke with their CFO, Kevin Miller, about this after they submitted the filing. Kevin noted that the material weakness identified was related to their use of a third-party consultant to assist with the creation and ongoing development of their SAP accounting system. This work allowed those third-party consultants access to their accounting system, which is what caused the auditors to note a Material Weakness in Internal Controls. This came up during their most recent audit in 2022, and they are in the process of rectifying it in 2023, as they laid out in the 10-K. Currently, it is projected to be rectified in 2Q or 3Q of 2023. It seems highly unlikely that any material misstatements of their financials were made, and this material weakness should be resolved later this year with no impact on their financials. RCM Technologies Healthcare segment is focused on providing nurses and other healthcare professionals with long-term and short-term staffing and placement services to hospitals, schools, and long-term care facilities. Since COVID, they have had success securing contracts with large school systems across the country in order to provide them with staffing for nurses, therapists, and other healthcare professionals at these schools. The Healthcare segment's revenues have more than doubled since 2020, driven largely by the school segment. Recent weakness in their Healthcare business was driven by lapping some COVID-related demand spikes that are soon to be behind them. Overall, as COVID has become endemic, the school system's demand for nurses and therapists has slowed, but I believe we have stabilized around Q1 levels, as suggested by management in the Q1 conference call. There is a huge opportunity in this space to expand to other School systems around the county, as they currently only service a small number of larger school systems. The total TAM of the school segment is likely 10–20x their current market share. On top of a large TAM in front of them, they have a huge opportunity to provide behavioral therapists to school systems, which are increasingly in demand by school systems to provide support to their students for behavioral and social issues. I believe we will see behavioral therapist demand outpace nurse demand in the future as more schools look to put in resources capable of supporting their students emotional health. In the field of engineering, RCM Technologies offers a diverse range of services, including product design, development, and testing, as well as technical staffing and consulting. They assist clients in sectors such as aerospace, automotive, energy, manufacturing, and telecommunications. They have increasingly positioned their engineering business to be supportive of the shift to alternative energy. As new renewable energy resources and the shift to electric vehicles approach, there is a huge need for utilities to upgrade their transmission infrastructure. RCM Technologies Engineering Group has expertise in supporting a wide array of energy projects in the generation and transmission segments, including projects in solar, biofuels, fuel cells, batteries, substations, and transition upgrades. The engineering segment is well positioned in North America. Outside of that, RCM Technologies has recently launched an engineering office in Germany, which could be a launching pad for developing a business in Europe. With regard to the Life Sciences and Information Technology (LS&IT) segment, RCM Technologies offers IT staffing, consulting, project management services, and life sciences support to assist businesses in various technology-related initiatives. They provide skilled IT professionals who can support clients in areas such as software development, data management, cybersecurity, and infrastructure management. This segment focuses on providing a full suite of IT services to middle-market companies within various industries. The LS&IT segment is the smallest of the three segments but has the highest gross margins at 34.5% (vs. 30% in Healthcare and 22% in Engineering). The segment has been an extremely reliable and consistent part of their business, generating roughly $3m / quarter of gross profit for RCM but growing only a few percent a year since 2020. In a way, you can think of the LS&IT segment as a cash cow that helps feed the faster-growing Healthcare and Engineering segments.

BSD Analysis:
The manager presents a comprehensive bull case for RCM Technologies, a diversified talent services company operating across healthcare, engineering, and IT segments. The investment thesis centers on the company's strong capital allocation track record, including strategic M&A and opportunistic share buybacks, with management having repurchased 11% of shares over the past 12 months. The healthcare segment has experienced significant growth, with revenues more than doubling since 2020 driven by contracts with school systems for nursing and therapeutic services, representing a massive TAM expansion opportunity of 10-20x current market share. The engineering segment is well-positioned for the renewable energy transition, providing services across solar, biofuels, and grid infrastructure projects, with recent European expansion through a German office. Despite a temporary 30% stock decline due to internal control issues related to SAP system implementation, the manager views this as a technical matter with no financial impact that should be resolved by Q3 2023. At 6.7x EV/EBITDA, the valuation remains attractive despite the stock's 68% Q2 rally, with strong engineering backlog expected to drive second-half 2023 performance.