Investment Pitches

Pitch Summary:
MarineMax (HZO) is a vertically integrated boat and yacht retailer and services company. It sells new and used boats in addition to providing financing, insurance, maintenance, and storage solutions. The company has more exposure to the higher end of the market with its yacht business and higher priced boats on average than its competitors. I expect the top end of the industry will be more resilient in a downturn than the mid-priced and lower priced segments. The company has recently been focused on growing the higher margin businesses and reducing the reliance on new boat sales. The recent acquisition of Midcoast Construction Enterprises, a marine construction company should provide the infrastructure needed to purchase and develop waterfront real estate to expand the marina business and in turn grow all associated businesses. I will be added long exposure and looking for entry points on weakness. Currently trading at a small multiple to earnings and cash on hand I believe this presents a favorable risk/reward entry for a long-term position. I believe the company is well positioned in a fragmented industry. I would like to see MarineMax collect waterfront real estate during a recession and build marinas to set the stage for strong performance into any recovery or economic upturn.

BSD Analysis:
The manager initiates a position in HZO based on its defensive positioning in the luxury marine segment and strategic transformation toward higher-margin services. The thesis emphasizes HZO's exposure to affluent customers who should prove more resilient during economic downturns compared to mid-market competitors. The recent Midcoast Construction acquisition provides vertical integration capabilities for marina development and waterfront real estate expansion. Management's focus on reducing reliance on cyclical new boat sales while growing recurring revenue streams through financing, insurance, and maintenance creates a more stable business model. Trading at attractive valuation metrics relative to earnings and cash position, the manager sees favorable risk-adjusted returns. The fragmented industry structure presents consolidation opportunities, particularly during recessionary periods when real estate acquisition becomes more attractive.

Pitch Summary:
The fund's top position is RCI Hospitality (RICK). RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 54 clubs across 13 states and an additional 13 sports-bar restaurants with the "Bombshells" concept that has recently began franchising. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. RICK has become the acquirer of choice for owners of these clubs across the country. As many current owners approach retirement, RICK has been producing cash at record levels and is in the unique position of being experienced in managing these assets efficiently, while having the cash or access to capital to roll up the top performing clubs with little to no competition. The US market has roughly 2200 of these clubs and 500 of those meet RICK's acquisition criteria. Management has proven to be excellent allocators of capital since a change in strategy in 2015. Utilizing the three main capital outlets of club acquisitions, share buybacks, and expanding the Bombshells concept, they have options to increase shareholder return in most economic environments. The company has a unique competitive advantage in a niche industry with a long runway for growth with adult nightclubs and an even longer runway with the franchising and expansion of the Bombshells concept. Some new ventures such as Ricks Cabaret, Steakhouse & Casino coming soon in Colorado and potential OnlyFans competitor website "AdmireMe" are low risk high reward ventures that could have the ability to strengthen the capital allocation strategy with more or even better / higher ROI outlets in the future. I have followed this company since 2016, started a small position in 2018 and took advantage of the market drop of 2020 to make this by far my largest holding. Management has set the stage for what looks to be a strong decade of growth.

BSD Analysis:
The manager presents a compelling bull case for RICK as a unique consolidation play in the adult entertainment industry. The thesis centers on RICK's monopolistic positioning due to limited licensing, creating excellent unit economics and barriers to entry. With 2,200 clubs in the US market and 500 meeting acquisition criteria, RICK has substantial runway for growth through roll-ups. Management's capital allocation strategy since 2015 demonstrates optionality across acquisitions, buybacks, and the Bombshells franchise expansion. The company generates strong cash flows and faces minimal competition for quality acquisitions as owners retire. New ventures like the Colorado casino and AdmireMe platform offer additional upside optionality. The manager's long-term conviction is evident through position sizing and adding during the 2020 downturn.

Pitch Summary:
Colliers has outperformed the market this year despite the stock being down ~15% from its mid-February highs. The company reported better than expected results and issued better than feared guidance, and the stock was briefly rewarded, before giving it all back over the following month. Investors are clearly worried about anything commercial real estate related given the enormous stress in the regional banking sector and a wall of debt coming due in 2024 that will require refinancing. Our belief is this will only have a slightly negative impact on Colliers EPS.

BSD Analysis:
The manager maintains a bullish stance on Colliers despite recent volatility and sector headwinds. The company delivered better-than-expected results and guidance, demonstrating operational resilience. While the stock has retreated 15% from February highs due to broader commercial real estate concerns, the manager views this as temporary market sentiment rather than fundamental deterioration. The regional banking crisis and upcoming debt refinancing wall in 2024 are creating sector-wide pressure, but the manager believes Colliers' diversified business model will limit earnings impact. The position has been a modest contributor year-to-date, suggesting the manager's conviction remains intact despite macro challenges.

Pitch Summary:
But let's talk concrete examples. Consider Grown Rogue (Canada: GRIN) as a great example of the opportunity in cannabis. We invested in the company through a convertible debt deal that pays us 9% annual interest but allows us to convert into approximately 6% of the company. Grown Rogue is one of the most efficient indoor craft cannabis cultivators in the U.S., if not the world. My research shows that it is operational excellence that is in short supply, not limited licenses and that is what Grown rogue has mastered and gives it a competitive advantage. Further, Grown Rogue is free cash flow positive in both Oregon and Michigan despite fierce competition and low cannabis prices. And the company is working on entering other limited license markets, all the while growing at more than 25% a year in the most competitive markets in the country. I believe that if Grown Rogue can enter a few new markets, the company might be trading at TWO times estimated 2024 EBITDA. What other industry can we invest in a fast-growing company with durable cost advantages that generates free cash flow in an exciting growth market, get paid 9% interest and have the option to convert into the company at two times EBITDA? This is why I'm so focused on the sector and why it should pay to continue to be invested in cannabis.

BSD Analysis:
Edelheit presents Grown Rogue as a prime example of the cannabis investment opportunity, structured through a convertible debt instrument paying 9% annual interest with conversion rights to approximately 6% equity ownership. The manager emphasizes the company's operational excellence as its key competitive advantage, positioning it as one of the most efficient indoor craft cannabis cultivators globally. Despite operating in highly competitive markets with low cannabis prices, Grown Rogue maintains free cash flow positivity in both Oregon and Michigan while achieving over 25% annual growth. The company's expansion strategy focuses on entering additional limited license markets, which could drive significant value creation. Edelheit's valuation analysis suggests the company could trade at just 2x estimated 2024 EBITDA upon successful market expansion. The investment structure provides downside protection through the 9% coupon while offering substantial upside through the conversion option, creating an asymmetric risk-reward profile that exemplifies the manager's cannabis investment thesis.

Pitch Summary:
But the company I really want to highlight is HireQuest, which is our largest position. We first bought HireQuest when it was trading below $7 per share, and I'm equally if not more excited about the company at around $20 per share, and I want to tell you why. HireQuest is a staffing company for temporary day laborers, factory workers, dental hygienists, drivers and even executives. The key though is that instead of being a vertically integrated staffing company, HireQuest runs a franchise model. Over thirty years of experience has led founder/CEO Rick Hermanns and his team to develop what I believe to be a superior lean business model that he is using to roll up staffing companies that are either smaller mom-and-pop businesses or underperforming vertically integrated companies. HireQuest's business model is that they handle the accounts receivables that are owed to franchises, manage workers comp, and provide national accounts to the franchisees. The franchisees focus on matching temporary employees with employers. HireQuest can provide vast savings by having all the franchisees' employees under one workers comp policy, much more than any small sub-scale company can. To understand the HireQuest story and the accretive power of its model you only need to look at how the company came to be public. HireQuest was a thriving private company that took over a struggling and underperforming vertically integrated staffing company called Command Center, which was publicly traded. When you reverse engineer the merger financials, you realize that HireQuest was basically paid to go public. How? Well, it acquired Command Center and then turned around and sold off its branches as franchises, thus more than paying off the cost of the acquisition and then turned what was an inefficient staffing company into a lean and mean franchise business. HireQuest was able to convert former branch managers of Command Center into franchise business owners and dramatically increase their income. For anyone with hustle and those willing to operate under HireQuest's system, there was and still is a real opportunity to thrive. I believe the company's system of incentives is superior and is the key to its success. The only question was whether the Command Center acquisition was a "one-off" acquisition or could it be duplicated. The company then followed this up with a series of very accretive acquisitions during COVID. And the company has continued acquiring underperforming or small, inefficient operators and converting them to their model. To highlight just how much value HQI can create when they are buying these companies, check out its recent MRI acquisition, which it closed in December. It's important to note that HQI earned $0.91 per share in fiscal 2022. Imagine my surprise, upon reading that HireQuest would have earned $1.30 per share if the MRI acquisition had closed on January 1st, 2022, instead of December 2022. That's almost $0.40 per share of accretion and that is before HireQuest goes to work to integrate the company, improve its system and actively work to make it more profitable. This is one reason why I think HireQuest now has earnings power of $1.75 per share in earnings, almost all of which is free cash flow. This means HireQuest is trading at 11 times that earnings estimate. That multiple does not seem appropriate for a business with 60% operating margins and run by one of the best CEOs I've ever invested alongside of. It's important to note that insiders own over 60% of the company and are aligned as fellow shareholders. Another point to mention is that HireQuest earns a small percentage from its franchises who earn a small percentage from their temporary employees, so if there continues to be labor inflation, then HireQuest should benefit from that labor inflation. Also consider that even though this is a cyclical business, if employment falls and/or we enter a recession, HireQuest gets stronger. Why? Because they finance accounts receivable. When the economy weakens, HireQuest's accounts receivable balance falls and cash rises. And since their model is to acquire other staffing companies and to convert them to its best-in-class franchise model, cash goes up at exactly the time when valuations go down and companies may be looking for help or to be acquired. A reminder of the strength of its model is that the company was profitable in the second quarter of 2020, when our economy came to a complete halt during COVID. If you can be profitable during a once in a lifetime shutdown of the economy, you have one hell of a business. I believe the company is on its way to $2.50 to $3 per share in annual earnings. This is a business that needs little recurring capex as this is a service business, meaning that those earnings are pure free cash flow. While the stock may seesaw along with the market, it is building a free cash flow machine. What is that worth? I'm not sure, but I'm quite confident that it is not $20 per share. And with the right market conditions, this could easily trade at a 20 or 30 multiple.

BSD Analysis:
Edelheit presents a compelling bull case for HireQuest, emphasizing its unique franchise-based staffing model that differentiates it from traditional vertically integrated competitors. The manager highlights the company's proven ability to acquire underperforming staffing businesses and convert them to profitable franchises, as demonstrated by the Command Center acquisition where HireQuest was essentially "paid to go public." The recent MRI acquisition showcases the model's accretive power, adding nearly $0.40 per share in earnings. With 60% operating margins and earnings power estimated at $1.75 per share, the stock trades at just 11x earnings despite generating substantial free cash flow. The franchise model creates defensive characteristics during economic downturns as accounts receivable convert to cash precisely when acquisition opportunities emerge at attractive valuations. Edelheit notes the company's resilience during COVID-19, remaining profitable even during the economic shutdown. With insider ownership exceeding 60% and potential earnings growth to $2.50-$3 per share, the manager sees significant upside from current levels around $20.

Pitch Summary:
Exaggerated monthly active user number (claimed 80mil vs. estimated 29mil, unjustified when compared against other platforms); the company claimed it can't track user numbers reliably; the company could be quadruple-counts the same user as an active user; inflated user base; Update 5/16 - Q1 results affirmed the concerns: MAU figure declined 40%.

BSD Analysis:
Rumble positions as an alt-tech video platform. Bears question monetization, advertiser adoption, and reliance on political cycles.

Pitch Summary:
In February 2023, Appleseed Fund took a position in Synovus, a Georgia-based regional bank; retrospective vision being 20/20, our timing with this initial purchase was poor. Synovus' business performed admirably in 2022 with an expanding net interest margin, achievement of its annual cost and revenue benefits from its 2020 restructuring program, improved non-performing loans, and accelerating loan growth. The business clearly was performing well, and the stock market had not given the Company much credit when we took a partial position earlier this year at attractive valuations. Indeed, the banking crisis that began the next month wiped out several well-respected regional banks (e.g., Silicon Valley Bank, Signature Bank) and a global bank (e.g., Credit Suisse). The instability in the financial services sector caused investors to throw the baby (Synovus) out with the bath water, despite the attractive economics and compelling valuation associated with Synovus. Today, we believe Synovus to be well capitalized and with strong risk controls. At current levels, we think the risk/return characteristics of this business are that much more attractive, but the entry point on this investment has thus far proved to be early and a little painful.

BSD Analysis:
The manager maintains a bull stance on Synovus despite acknowledging poor entry timing ahead of the March 2023 banking crisis. The investment thesis is grounded in strong 2022 operational performance including expanding net interest margins, successful execution of the 2020 restructuring program delivering cost and revenue benefits, improving asset quality with reduced non-performing loans, and accelerating loan growth. The manager viewed the stock as undervalued when initially purchased, believing the market wasn't properly crediting the company's operational improvements. The subsequent banking sector contagion from Silicon Valley Bank and Credit Suisse failures created indiscriminate selling pressure that unfairly impacted high-quality regional banks like Synovus. The manager emphasizes Synovus' strong capitalization and risk management as differentiating factors from the failed institutions. The significant price decline has actually improved the risk/return profile, creating a more attractive opportunity despite the painful entry timing. This represents a conviction buy where sector-wide fears have created value in a fundamentally sound regional bank.

Pitch Summary:
Stanley Black & Decker is the world's largest tool manufacturer. It produces power tools, hand tools, storage, digital tool solutions, lifestyle products, outdoor products, engineered fasteners, and other industrial equipment. 2022 was quite a forgettable year for the Company with its stock price falling by roughly 60%. Due to supply chain issues, bloated inventories, inflationary pressures, and weaker demand, the Company badly missed its original 2022 guidance. With recessionary fears, waning earnings momentum, a more elevated leverage profile, and reliance on the U.S. construction market, it is of no surprise how poorly the stock price behaved last year. In our view, the sell-off has been excessive with the stock price trading near March 2020 pandemic lows and at levels otherwise not seen since early 2014. We view the stock at washed-out levels with a favorable profile going forward.

BSD Analysis:
The manager presents a contrarian bull case for Stanley Black & Decker, viewing the 60% stock decline in 2022 as an excessive overreaction to temporary operational challenges. The investment thesis is built on the company's dominant position as the world's largest tool manufacturer with a diversified product portfolio spanning power tools, hand tools, and industrial equipment. The manager acknowledges significant 2022 headwinds including supply chain disruptions, inventory bloat, inflation, and weakened demand that caused the company to miss guidance. However, these operational issues are viewed as cyclical rather than structural problems. The stock's valuation has reached distressed levels, trading near March 2020 pandemic lows and at prices not seen since 2014. This represents a classic deep value opportunity where temporary cyclical pressures have created an attractive entry point for a market-leading industrial franchise. The manager expects the company's operational challenges to resolve as supply chains normalize and demand recovers.

Pitch Summary:
Medtronic is the world's largest device manufacturer, and it holds the number one or number two market share in most of its product segments. Medtronic's business is heavily weighted towards complicated in-patient procedures, which are typically quite profitable. Industry dynamics are quite attractive with an aging global population and the growth of improved healthcare in emerging markets; furthermore, most of its segments are highly concentrated with just 2-3 players that split each segment's market share, affording the key participants with significant economies of scale and pricing power. The Company has been recently addressing several temporary headwinds including a strong dollar, inflation, a delayed recovery in surgical volumes from the coronavirus pandemic, and supply chain issues. Once these issues reach the rearview mirror, the Company's growth and margin expansion plans should transform into reality.

BSD Analysis:
The fund manager presents a compelling bull case for Medtronic based on its dominant market position and attractive industry dynamics. The thesis centers on Medtronic's leadership position as the world's largest medical device manufacturer with #1 or #2 market share across most segments. The manager highlights the company's focus on profitable in-patient procedures and benefits from an aging global population driving healthcare demand in emerging markets. The concentrated market structure with only 2-3 players per segment provides significant pricing power and economies of scale. Current headwinds including FX impacts, inflation, delayed surgical volume recovery, and supply chain issues are viewed as temporary obstacles. The manager expects these transitory challenges to resolve, allowing the company's growth and margin expansion initiatives to materialize. This represents a classic value opportunity where temporary operational challenges have created an attractive entry point for a high-quality healthcare franchise.

Pitch Summary:
We exited Match Group in early 2021 after shares tripled from the 2020 lows. Like many covid beneficiaries Match was unwise with its capital allocation during this tech bubble and embarked on a massively overpriced and distracting acquisition in South Korea that ultimately led to the CEO abruptly 'resigning'. Despite weak execution, Match's core dating apps, Tinder and Hinge, continue to strengthen and speak to the importance of scale in the industry. After years of dominance in English speaking countries, Hinge is now officially expanding internationally and is quickly moving up the app store rankings. The demand is certainly there; for example, in November, Hinge became the number three most downloaded app in the Nordics despite having only fully launched in just Sweden. Bumble is the app most directly feeling the heat and in late 2022, they rolled out their 'Compliments' feature which lets men write to women prior to matching, directly contradicting their longtime marketing of only allowing women to make the first move. Tinder currently produces 6x the revenue of Hinge but we expect this gap to narrow. Hinge is by far and away the best relationship focused dating app. Its tagline 'designed to be deleted' strongly resonates with its users who are older and have higher incomes than those of Tinder. We believe that the market is underestimating the network effects of Hinge and the online dating industry in aggregate. Match currently trades at 16x 2023 estimates, an attractive price if growth can continue at even a fraction of its prior level. Although not required for our Match thesis to succeed, we also believe investors may be missing a potential upside surprise. In late 2022, the EU Digital Markets Act entered into force, targeting gatekeepers to ensure 'fair competition and more choice for users'. Most legal analysts expect that mobile platforms will move to offer third party app stores by the full application of the Law in March 2024. It is our view that rather than risk users flocking to third party app stores, Apple and Google may unexpectedly announce a global change in app store commission rates that reduce app stores fees from today's 30% to a more sustainable number. Match Group is one of the highest app store payers in the world with $600m spent on fees last year. As a proportion of revenue, Match's app fees are significantly higher than the larger players like Spotify and Netflix which are primarily web based signups, meaning Match Group would be disproportionately positively affected by any app store policy reduction.

BSD Analysis:
The manager re-enters Match Group after previously exiting at higher levels, focusing on the core strength of Tinder and Hinge despite management missteps. The investment thesis centers on Hinge's international expansion potential and superior positioning in relationship-focused dating. Hinge's rapid adoption in new markets (becoming #3 downloaded app in Nordics) demonstrates strong product-market fit beyond English-speaking countries. The competitive dynamics favor Match, with Bumble forced to abandon its core differentiation by copying Hinge features. At 16x 2023 estimates, the valuation appears reasonable for a company with strong network effects and market-leading positions. The manager identifies a potential catalyst through EU Digital Markets Act implementation, which could force Apple and Google to reduce app store fees from 30%. Given Match's $600 million annual app store payments, any fee reduction would provide significant margin expansion and disproportionate benefit versus competitors with more web-based signup models.

Pitch Summary:
With the Nintendo Switch entering its seventh year, investors are growing fearful of the upcoming console cycle. Contrary to recent press reports, we are confident that the next generation of the Switch will remain backwards compatible. When combined with world class IP, a unified hardware strategy and an expanding online network, Nintendo is likely to experience a smooth transition. The Switch has now shipped 122 million units, outselling the PS4 and more than doubling the sales of the Xbox One. Nintendo is increasingly moving to an iPhone-like upgrade cycle where developer and customer buy-in is more assured. Switch online memberships launched in late 2018 and have already increased to 36 million accounts, providing over a billion dollars in extremely high margin, recurring revenue. The recent success of the Super Mario Bros movie, which despite having just tepid reviews from critics, has become the highest grossing video game adaptation of all time and is likely to end up with box office revenue inline with a Marvel film. This is just a small selection of Nintendo's massive library of characters and helps demonstrate the unrivaled level of IP that is hidden at the company. We expect more video adaptations will follow and bring additional demand for consoles and in person experiences such as the recently unveiled Super Nintendo world at Universal Studios. The shares today trade at 11x trailing earnings, ex-cash which we believe does not reflect the Disney-like flywheel qualities that are emerging.

BSD Analysis:
The manager presents a compelling bull case for Nintendo centered on the company's transition to a more sustainable console cycle model. The thesis hinges on backwards compatibility for the next Switch generation, which would create an iPhone-like upgrade ecosystem that retains developer and customer loyalty. Nintendo's hardware success is impressive with 122 million Switch units sold, significantly outperforming competitors. The recurring revenue stream from Switch Online (36 million subscribers generating over $1 billion) provides high-margin stability. The manager highlights Nintendo's undervalued intellectual property portfolio, evidenced by the Super Mario Bros movie's record-breaking performance as a video game adaptation. At 11x trailing P/E ex-cash, the valuation appears attractive for a company developing Disney-like content monetization capabilities across multiple platforms including theme parks and media.