Investment Pitches

Pitch Summary:
AMT (American Tower Corp down -3.6%) – Shares of American Tower lagged in the quarter after a lackluster earnings report and a broader sell-off of in REIT's. Rising interest rates have hampered the REIT sector as 1) income investors can now find comparable yields from U.S. treasuries, and 2) debt financing for real estate has become considerably more expensive. In the fourth quarter earnings report, American Tower recorded a -$642 million impairment charge when VIL, American Tower's largest customer in India, was unable to make their scheduled payments. Management views India as more of an opportunistic growth driver and commented that they are open to all possibilities, including a partial equity sale of the India business. India is a very attractive market long term due to favorable demographics and a growing need for data, but it is encouraging to see that management is clear eyed in assessing this new market. Despite these temporary headwinds, American Tower's core business is strong. Management anticipates double digit AFFO growth in 2023 driven by solid organic leasing trends across the global portfolio including a meaningful step up in U.S. and Canadaian organic tenant billings in 2023. Longer term, we believe the ever-expanding need for data will drive more tower demand and density. American Tower has an incredibly attractive business model supported by long-term contracts with large communications companies which include annual price escalators.

BSD Analysis:
The manager maintains a bullish view on American Tower despite near-term headwinds, focusing on the company's strong core business fundamentals and secular growth drivers. While acknowledging legitimate concerns around rising interest rates impacting REIT valuations and the $642 million India impairment charge, the manager views these as temporary issues rather than structural problems. The investment thesis centers on AMT's dominant position in cell tower infrastructure, supported by long-term contracts with major telecommunications companies that include annual price escalators, providing predictable cash flow growth. Management's guidance for double-digit AFFO growth in 2023, driven by solid organic leasing trends and improved U.S./Canadian tenant billings, demonstrates the underlying business strength. The secular trend toward increased data consumption globally supports long-term tower demand and density growth. Management's pragmatic approach to the India market, including potential partial divestiture options, shows disciplined capital allocation. The manager appears confident that AMT's high-quality business model and defensive characteristics will ultimately drive outperformance once temporary headwinds subside.

Pitch Summary:
A10 Networks (ATEN down -11.1%) – The provider of cybersecurity and infrastructure solutions for on-premises, cloud and edge environments traded down during the quarter despite recording a record fourth quarter and full year revenue. The company still faces some challenges as they transition from a hardware focus to becoming software centric. Investors were likely concerned with ATEN's negative growth in their enterprise segment. Despite near term headwinds, we view the company as an attractively priced cybersecurity market leader with attractive margins and high returns on capital. The company continues to outpace their peers in the Application Delivery Controller (ADC) market and expects double digit earnings growth for the full year 2023.

BSD Analysis:
The manager maintains a bullish stance on A10 Networks despite recent underperformance, viewing the current weakness as a temporary disconnect from strong fundamentals. The investment thesis centers on ATEN's market leadership position in the Application Delivery Controller (ADC) space, where the company continues to outpace competitors despite broader industry challenges. While the hardware-to-software transition creates near-term execution risk and enterprise segment headwinds, the manager views this transformation as necessary for long-term value creation. Record Q4 and full-year revenue demonstrates underlying business strength, suggesting the stock decline represents a valuation opportunity rather than fundamental deterioration. Management's guidance for double-digit earnings growth in 2023 indicates confidence in the business trajectory despite transition challenges. The company's attractive margins and high returns on capital reflect the quality of the underlying franchise. The manager appears to be betting on successful navigation of the software transition while benefiting from ATEN's established market position in cybersecurity infrastructure.

Pitch Summary:
MSCI (MSCI Inc up +20.6%) – MSCI was a top performer in the first quarter supported by a strong Q4 earnings report, an optimistic outlook for 2023, and a flurry of bullish sell-side analyst reports. MSCI has proved to be a diversified all-weather franchise, increasing organic revenue by 9% in 2022 despite a volatile year that saw the S&P 500 closing down -18% after reaching depths as low as -25%. MSCI management appears optimistic based on their projected 4% to 10% increase in free cash flow for 2023. Growth in the ESG and climate segment is a major growth lever for MSCI and will be a focus for investors in 2023 and beyond. Longer-term, management believes this segment will grow at a mid to high 20% rate. This is an ambitious target for a segment that is already generating $228 million in revenue, but we believe it to be achievable. MSCI is an underappreciated ESG beneficiary and is positioned to benefit from the ESG movement. There is a growing trend for companies such as EV manufacturers and alternative energy providers to market themselves as ESG. They will rely on MSCI to assist them in providing measurable and concrete ESG characteristics and data to support these claims. We believe MSCI is a proven compounder with leading offerings in both the lucrative index data field and the emergent ESG data industry. This "compounder" quality is reflected in that approximately 97% of revenue is recurring, they have an attractive cash flow generation profile, and a history of creating value for shareholders with double digit annual EPS growth since 2014.

BSD Analysis:
The manager presents MSCI as a high-quality compounder with defensive characteristics and significant growth optionality through ESG expansion. The investment thesis highlights MSCI's resilient business model, demonstrated by 9% organic revenue growth in 2022 despite an 18% decline in the S&P 500, showcasing the all-weather nature of their franchise. The company's 97% recurring revenue base provides exceptional visibility and cash flow predictability, while management's projected 4-10% free cash flow growth for 2023 indicates continued momentum. The ESG and climate segment represents a compelling growth catalyst, with management targeting mid-to-high 20% growth rates from a $228 million revenue base. This positions MSCI to capitalize on the secular trend of companies seeking measurable ESG credentials, particularly in high-growth sectors like EVs and alternative energy. The company's dominant position in index data combined with emerging leadership in ESG data creates a powerful moat. Historical double-digit EPS growth since 2014 demonstrates management's execution capability and the compounding nature of the business model.

Pitch Summary:
Comfort Systems (FIX up 26.9%) – The national provider of HVAC installation, maintenance, and repair services, had an outstanding quarter. Driven by positive tailwinds from the trends in modular construction and American business reshoring, the company finds itself with more business than it can accommodate. Management highlighted that Comfort Systems has an order backlog that will keep them busy well into 2024. Their order book is completely full for 2023 and they are now booking projects for 2024. The reported jump in backlog was primarily due to a large order from a single customer in the modular construction business. The commitment is to support a large customer project where the company is seeking to get ahead of other businesses and the coming reshoring trends. One of the traits we most admire about Comfort Systems is their deep relationships with their customers. Comfort System's believes that this is only the beginning of the movement towards reshoring and, in the coming years, more businesses will develop new buildings and facilities in the U.S. to overcome recent global supply chain challenges. Finally, Comfort Systems announced the acquisition of South Carolina-based Eldeco. Edelco performs electrical design and construction services in the Southeast and is expected to contribute annualized revenue of $130 to $140M. The acquisition will be accretive to earnings in 2023 and 2024.

BSD Analysis:
The manager presents a strong bull case for Comfort Systems USA, emphasizing the company's exceptional demand environment driven by two powerful secular trends: modular construction and American business reshoring. The investment thesis is supported by concrete evidence of robust order flow, with the company's backlog extending well into 2024 and their 2023 order book completely full. This visibility provides significant earnings predictability and demonstrates the company's pricing power in a supply-constrained market. The reshoring trend represents a multi-year tailwind as companies seek to reduce supply chain vulnerabilities by building domestic facilities. Management's strategic focus on deep customer relationships has positioned the company to capture outsized share of this opportunity. The Eldeco acquisition adds $130-140 million in annualized revenue and expands their electrical services capabilities in the Southeast, demonstrating disciplined capital allocation. With accretive earnings expected from the acquisition in 2023-2024, the company appears well-positioned to compound growth through both organic expansion and strategic M&A.

Pitch Summary:
Perion Network (PERI up +56.4%) – Our investment in the Israeli based ad-tech company has now been a top performer for two quarters in a row. In February, Perion announced full year 2022 earnings which included guidance for 14% revenue and EBITDA growth in 2023. This implies meaningful growth in a challenging environment where their peers continue to struggle. Despite the stock's strong performance, Perion is still trading at a modest 19x earnings. In addition to the optimistic growth outlook, Perion seems to be benefiting from anticipation of Bing's new ChatGPT driven search engine. Bing is Perion's largest customer. We, along with Perion's management, believe that the "new Bing" offers a meaningful growth opportunity. The more users convert to Bing, the more publishers will advertise on the platform and drive Perion revenue. On Microsoft's Q4 earnings call, CFO Amy Hood discussed the impact of growing Bing market share: "every percentage point of share it gains in search equals roughly $2 billion in additional advertising revenue." It is difficult to envision a scenario where Perion is not a direct beneficiary of Bing's success. A notable announcement during the quarter was the departure of CEO Doron Gerstel who will step down on July 31st. Gerstel has served as the CEO for six years and was initially recruited to turn the company around. He has exceeded expectations. Gerstel stated he "needed time to re-energize" after having been CEO of five different companies since 1999. Gerstel is certainly a big loss, but we believe his successor, Tal Jacobson, is a credible and proven replacement. Jacobson was recruited from Similar Web in 2018 to help revamp Perion's search business. As the General Manager of CodeFuel, Tal transformed Perion's search advertising from a fledgling business unit in decline into a significant driver of Perion's soaring market share by cementing the strategic relationship with Microsoft and winning Microsoft Advertising Global supply partner of the year award. We believe Tal is an ideal successor. Hiring internally is the right decision and Jacobson is the obvious internal candidate. Long term growth remains attractive as Perion continues to incubate new products and technologies in what they call the "explore execution model". Perion continues to be an exciting growth story at a great price.

BSD Analysis:
The manager presents a compelling bull case for Perion Network, highlighting the company's strong operational momentum with 14% revenue and EBITDA growth guidance for 2023 despite challenging industry conditions. The investment thesis centers on Perion's strategic relationship with Microsoft's Bing search engine, particularly the potential upside from ChatGPT integration driving market share gains. With Microsoft noting that each percentage point of Bing market share equals $2 billion in additional advertising revenue, Perion stands to benefit significantly as Bing's largest customer. The CEO transition from Doron Gerstel to internal candidate Tal Jacobson appears well-managed, with Jacobson having successfully transformed Perion's search business and strengthened the Microsoft partnership. At 19x earnings despite strong performance, the valuation remains attractive for a growth story. The company's "explore execution model" for new product development suggests sustainable long-term growth potential. The manager's confidence in Perion as a direct beneficiary of Bing's success, combined with the company's proven execution track record, supports the bullish stance.

Pitch Summary:
Washtec is a EUR 530m market capitalised German manufacturer of car washing products, including rollovers, wash tunnel conveyor systems and jet washes. We have followed the company for many years and have in fact been shareholders twice since the 1997 public listing, having previously bought shares in 2004 and 2010. The company came back onto our radar screen a couple of years ago and the price decline that the shares experienced between mid-2021 and today has finally given us the opportunity to invest again in this interesting story. We believe Washtec exhibits many likeable characteristics, including a dominant market position in Europe, an interesting growth opportunity in North America, historically high post-tax returns on capital of around 20% and good cash generation, and we are also convinced that the operating margin decline that the company faced in 2022 will prove to be temporary, making it a good time for investors to look at this under-researched company. The Washtec product range comprises all types of washing equipment as well as the associated peripheral components, washing chemicals and water reclaim systems, and the company is the global market leader with an installed base of 40k units. Washing equipment accounts for 87% of the EUR 482m revenues the company reported in 2022 and includes machinery but also services and spare parts which, together with the 12% of sales represented by chemicals, makes about one third of the business recurring. About 45% of the company revenues are generated by key accounts, including global petrol companies and large car dealerships, with the largest customer accounting for slightly more than 10% of total sales. Europe represents 74% of external revenues, and the company is the clear market leader in the region with an estimated share of around 35%, significantly higher than that of key competitors Christ and Istobal, especially in the key German and French markets which represent circa 40% of total sales. While Europe is a consolidated, oligopolistic market, North America, which accounts for 22% of sales, is much more fragmented and Washtec commands a 15% market share there. Washtec's lack of scale in North America is reflected in an operating profitability which is in the low to mid single digit levels, compared to the double digit margins achieved in Europe. We believe this gap will converge as the company continues to grow strongly in the region, and we expect profitability there to move towards the healthy levels achieved by Europe over time. Not only do we like the strong competitive position the business has in Europe, but we also believe it is very sustainable. In fact, the industry is characterised by strong barriers to entry represented by the importance of a wide and efficient service network: car wash operators are focussed on minimising machine downtime, so the ability of a supplier like Washtec to provide quick and reliable service, repair and spare parts is a clear competitive advantage that is difficult to replicate. Washtec's management is well aware of this, and we believe they are doing the right thing by investing to expand their North American sales and service network. While the company has historically been conservative when it comes to acquisitions and it prioritises organic growth, we believe being a consolidator in the US market would make strategic sense for Washtec, and we would definitely be supportive should management find a strategic target at the right price in the region. The company has a very solid balance sheet with only about EUR 25m in net debt excluding leases, so we are convinced the financing of a potential acquisition would not be a problem. Moreover, while we do not believe technology represents a strong barrier to entry, Washtec is ahead of competition when it comes to digitalising their offering and connecting the machines to the cloud. This gives the company an opportunity to differentiate their products and allow customers to address potential issues more rapidly and to reduce machine downtime. Thanks to its relatively low fixed asset intensity and working capital needs, Washtec has historically achieved attractive post-tax returns on capital of approximately 20%. In 2022 the business suffered due to a mix of cost increases and low availability of parts and service providers, which caused the operating margin to decline to 7.9% from 10.6% in 2021. Moreover, the company added inventories to be able to fulfil orders and further cement their reputation of being a reliable supplier, which has inflated working capital. We are convinced these issues are temporary in nature, and expect return on capital metrics to gradually move back to around 20% from the 15% achieved last year. In fact, Washtec has already pushed through double-digit percentage price increases to customers, which took time given some contracts, especially with key accounts, tend to have a fixed price formula and therefore required extensive renegotiation. We therefore expect operating profit margins to revert back to a double-digit margin level in 2024 and inventories to be reduced this year, which will help the working capital to sales ratio to come down by a couple of percentage points to circa 21%, in line with 2021. Both these factors will contribute to a significant expected improvement in cash generation, which supports the circa 5.5% dividend yield the shares currently offer. As it is often the case with many German companies, Washtec's management team does not own a significant number of shares in the company but given the CEO's four year track record we are confident in the trajectory of the business and expect low single digit revenue growth this year as the new CFO's clear focus is on restoring profitability. The shares declined by almost 40% in 2022 and despite being up circa 20% year to date, we believe the market is not pricing in the improving profitability outlook of the company nor the intrinsic quality of the business, potentially helped by the fact that the stock is only covered by three regional brokers. We believe a solid, high return, market leading business on an operating recovery trajectory like Washtec should be valued at 18 times enterprise value to net operating profits after tax, which points to an upside to the current share price of around 30% to the end of 2024.

BSD Analysis:
Ennismore presents a compelling turnaround thesis for Washtec, a German car wash equipment manufacturer trading at EUR 530 million market cap. The fund manager highlights the company's dominant 35% market share in Europe and significant growth opportunity in the fragmented North American market where it holds only 15% share. The investment case centers on margin recovery from temporary 2022 pressures that compressed operating margins from 10.6% to 7.9% due to cost inflation and supply chain disruptions. Management has implemented double-digit price increases and the fund expects margins to normalize to double-digit levels by 2024 as working capital normalizes. The business model benefits from recurring revenue streams (one-third of sales from services, spare parts, and chemicals) and strong competitive moats through its extensive service network that minimizes customer downtime. With historically attractive 20% post-tax returns on capital, minimal net debt of EUR 25 million, and a 5.5% dividend yield, the fund sees 30% upside potential based on 18x EV/NOPAT valuation by end-2024. The under-researched nature of the stock, covered by only three regional brokers, may contribute to the valuation discount despite the quality franchise characteristics.

Pitch Summary:
Paywalled (An investigation by The Bear Cave has uncovered that amid numerous scandals and horror stories the Airbnb platform has shifted towards professionally managed properties, many of which are now gearing to directly compete against the company.)

BSD Analysis:
Airbnb faces regulatory restrictions, supply pressures, and leisure-travel cyclicality. Many cities are tightening short-term rental laws, limiting growth. Hotels and OTAs are regaining share post-COVID. While margins improved, increased marketing spend may erode profitability. Valuation assumes secular growth, leaving shares vulnerable if regulation or consumer habits shift.

Pitch Summary:
Axon is most famous for popularizing the Taser. In fact, the company's old ticker symbol was TASR, until it started expanding into new product categories and updated the ticker to AXON. The founding story is quite unique. Rick Smith was at Harvard when two of his friends from high school were shot dead. While grieving, he wondered if there was a non-lethal weapon that could solve the problem of gun violence. He kept thinking about the idea and eventually found the inventor of the Taser, Jack Cover, to team up with. Mr. Cover was a NASA engineer and had been working on his idea for nearly 20 years by the time Rick Smith reached out. But the story goes back even further. Some of Jack Cover's inspiration was a 1911 children's book called Tom Swift's Electric Rifle (TSER – Mr. Cover later added an "A" to the name). Rick Smith and his brother, Tom, set out, with the help of Jack Cover, to improve the Taser in 1993. The original Taser actually used gunpowder so it was officially labeled a firearm which really depressed sales. So the Smiths decided to use compressed nitrogen and sales eventually took off. One early marketing stunt the company did was to pay cops to teach citizens how to use Tasers and thereby sell more devices. Now, Tasers account for just under 50% of the company's $1.2 billion in revenue and the new Taser 10 should be released here pretty soon. As mentioned, for 24 years the company was named Taser International, but it rebranded in 2017 to Axon. Over the past decade, Axon has diversified its business and now the overarching mission is to protect life. In fact, Rick Smith set out a moonshot goal to decrease the number of police related deaths by 50% over the next decade. One of the main products that Axon offers is body-worn cameras for law enforcement officers. These cameras are designed to record video and audio of interactions between officers and the public, which can be used for evidence in criminal cases and to improve officer training and accountability. A key feature of Axon's body-worn camera system is its cloud-based storage and management platform, Evidence.com. This platform allows agencies to securely store and manage their video and audio evidence, as well as other types of digital evidence such as documents and photos. Evidence.com also includes a range of tools and features for analyzing and organizing evidence, including redaction tools and automatic tagging of important events. Apparently, the library of footage in Evidence.com is 22x the size of Netflix's entire catalog In addition to body-worn cameras, Axon also offers a range of other products and services for public safety agencies, including in-car video systems, a portal for citizens to upload police-related videos, evidence management software, and training and consulting services. Now that we have a sense of the business, let's run Axon through the checklist: 1. Founder Rick Smith has been at the helm since the beginning. I believe he is a fantastic leader and a real visionary. His brother is no longer involved with the company but actually started a somewhat competing company in the non-lethal weapon space, called Wrap. The idea was to use a silky substance to tangle intruders or criminals. So basically, Spiderman. Recently, Tom left Wrap and now works for a jet-sharing company called Set Jet. 2. Competitive advantage Axon has several competitive advantages. One of these is its strong brand and reputation, which has been built up over the years through its commitment to providing high-quality products and services to public safety agencies. The company has a stronghold with police stations, as roughly 85% of all stations are active buyers of Axon products. You can think of these stations like an installed base where Axon can continue to sell new models of Taser, more storage for Evidence.com and more sensors and cameras for officers. It's not a perfect example, but Axon's business model is similar to Apple's with hardware upgrades and an incredibly captive audience because of sticky software. 3. CAP trajectory The company continues to innovate and roll out new products. The Taser 10 is highly anticipated and to further the Apple analogy, a whole lot of customers will be reflexively upgrading because it's an Axon product. But the company is certainly not resting on its laurels. It's currently building VR training systems and drones for de-escalation, crime scene reconstruction, and search-and-rescue. 4. Large and growing market The company pegs its own market at $50 billion, $10 billion of which is from evidence management. The thesis here is that Axon will just penetrate the wallet share of police stations even more deeply. This isn't necessarily a land-and-expand type of business because Axon is already such a cognitive referent in the industry. However, as the company upgrades its products and stations need more and more storage for evidence back-ups, Axon has plenty of runway left. 5. Recurring revenue About 45% of the company's revenue is from Taser, which is non-recurring. But another 40% is recurring revenue made up from three sources: Evidence.com, Axon Records, and Axon Respond. Evidence.com is the cloud storage solution. Axon Records is a dynamic reporting system that enables officers to streamline their workflows for citations or managing evidence. And Axon Respond is a physical asset management software that shows police stations where all of their officers are for efficient routing. What's amazing is that annual recurring revenue has grown at a 51% CAGR over the last 6 years and now makes up nearly $500 million in revenue. 6. Limited competition Some of Axon's main competitors include Motorola Solutions, Digital Ally, and WatchGuard Video. These companies offer similar products and services to Axon, including body-worn cameras, in-car video systems, and evidence management software. But Axon is certainly the dominant player. In reality, it's incredibly rare that a company has zero competition. But I love looking for singular companies, where they are so dominant that they might as well have no competition. I believe Axon fits this bill. 7. Financial strength The company has $550 million in net cash and it did $180 million in free cash flow last year. While stock-based comp is pretty high at $100 million, a majority of that is from Rick Smith's long-term equity incentive package. 8. Diversified ecosystem The company doesn't have any 10% customers for revenue or receivables. It also doesn't rely too heavily on any specific supplier. 9. Organic growth The company is extremely selective about its acquisitions. It only has $45 million in goodwill and will do small tuck-ins acquisitions for technology like buying a photo-sharing service called Familiar in 2013 to help build out Evidence.com. 10. Mission critical or consumer surplus Police stations wouldn't be in compliance with federal laws without their Axon products. The constant video streams and storage is a prime example. Sure, there are alternative products but they won't work seamlessly with everything else. I keep coming back to the Apple example but I think the hardware/software integrations are very underappreciated. 11. Is it understandable? The business is fairly straight-forward. About 40% is from physical Tasers and cartridges, 35% comes from Evidence.com, and the remainder is from sensors like Axon body and dashboard cams. Axon has a virtual salesforce to sell these products and also uses distributors that receive a small mark-up. 12. Would I be proud? While there have been roughly 1,000 Taser related deaths since 2000, the company's goal of cutting police related deaths in half is certainly worthy. In context, just last year, there were nearly 1,100 police related deaths. I believe Axon is headed in the right direction and even the mere presence of body cams creates more accountability. Axon is a perfect example of a company with the qualitative characteristics that I look for . A dominant position in a large market, incredible economics, a founder at the helm, a good chunk of recurring revenue, a strong and growing competitive advantage, and a strong preference to internally innovate.

BSD Analysis:
The manager presents a comprehensive bull case for Axon Enterprise, emphasizing the company's dominant market position in law enforcement technology. The investment thesis centers on Axon's ecosystem approach, where hardware sales (Tasers, body cameras) create a captive customer base for high-margin recurring software services like Evidence.com cloud storage. The manager highlights impressive recurring revenue growth of 51% CAGR over six years, now representing $500 million annually. Founder-CEO Rick Smith's visionary leadership and mission to reduce police-related deaths by 50% provides both strategic direction and ESG appeal. The company's financial strength is solid with $550 million net cash and $180 million free cash flow generation. Axon's competitive moat appears durable, with 85% of police stations as active customers and high switching costs due to integrated hardware-software solutions. The manager sees significant runway in a $50 billion addressable market, particularly in evidence management worth $10 billion.

Pitch Summary:
One of our top 5 holdings is Alphawave Semiconductors, and it is our stock in focus for this letter. The company IPO'd as 'Alphawave IP' near the peak of the GME/SPAC craze, raising a war chest of around 500 mn EUR. Fast forward 18 months later and we see a totally different company: they have emptied their war chest on acquisitions (as promised), and the stock has lost over 70% of its market cap as the craze has faded. It now trades a bit above its original cash value, even though the company was really an Intelectual Property royalty harvesting company that was well able to grow and generate cash without making acquisitions. So what did they spend it on? A handful of acquisitions, of which two stand out: 1) a company allowing them to use their own IP instead of licensing it out (OpenFive) and 2) an Israeli 0 revenue optics developer (Banias) that was co-founded by a successful serial entrepreneur. Especially the latter raised a lot of eyebrows, with the company not expecting revenue from it in the coming two years. It surely put pressure on the stock when it was announced and it should be said that this might be their weakest acquisition. But while I am usually really (Really) skeptical about synergy-inspired acquisitions, Alphawave makes a good case about their strategy: 1) growing their customer base aggressively and 2) expanding vertically around their IP. Both are greatly helped by these acquisitions. However, even without any synergies the sum of [Alphawave IP] + [OpenFive] + [Banias maybe working out] is attractive enough to be interesting; very high growth, attractive earningsyield on the horizon and a solid cash/cashflow position. At the bottom-line we see a very fast grower that could reach a P/E of 10 within 24 months (if the stock doesn't go up), which is extremely cheap. The share going up near 10% last two weeks does not in the least inspire us to reduce our position in Alphawave.

BSD Analysis:
The manager presents a compelling value thesis on Alphawave Semiconductors, viewing the 70% decline from IPO highs as creating an attractive entry point. The fund manager acknowledges the company's aggressive acquisition strategy using its IPO proceeds, particularly highlighting the OpenFive acquisition for vertical integration and the speculative Banias investment in Israeli optics technology. Despite skepticism about synergy-driven deals, the manager believes the combined entity offers significant growth potential with attractive earnings yield prospects. The valuation argument centers on the company potentially trading at 10x P/E within 24 months if the stock remains flat, which the manager considers extremely cheap for a high-growth technology company. The recent 10% price appreciation has not deterred the manager from maintaining the position, suggesting strong conviction in the long-term value proposition. The thesis relies on successful execution of the customer base expansion and vertical integration strategy around their intellectual property portfolio.

Pitch Summary:
Alibaba Group Holding ( BABA 0.37%↑) announced its most significant organizational overhaul in its 24-year history. The company will be restructured as a holding company with six individual business units, each with the ability of raising funds independently. This announcement sets the stage for IPOs and spin-offs, potentially unlocking significant shareholder value. The market welcomed the announcement as shares appreciated north of 18% into the end of the quarter. At the time of writing, the development is still ongoing, with only a general plan having been announced. While we have minor concerns about future costs and data sharing-synergies, we view this as an overall net positive for the company (and our investment) in three major ways: 1. Greater Business Agility Alibaba's mission has always been to help small and medium sized businesses succeed. In doing so, they became a large business with many capabilities and resources. When we originally invested in Alibaba, we were attracted to this duality; the resilience that comes with a large business and the innovation that comes from entrepreneurs and small businesses. However, as Alibaba grew in size and scope, decision-making at the operational level became overly bureaucratic and complex. During a call discussing the reorganization, CEO Daniel Zhang told investors, "We believe this will allow all of our businesses to become more agile, enhance their business decision-making, and respond faster to market changes." In a letter to employees, Zhang said that the holding company structure made sense for Alibaba since the nature of the six business groups were different, with various stages of development and disparate needs. 2. Easing Regulatory Concerns Since late 2020, Beijing had become increasingly concerned over the concentration of power of large tech companies. Alibaba, in particular, was targeted with the unexpected suspension of the $37B Ant IPO; set to be the world's largest IPO at the time. In 2021, Chinese regulators fined Alibaba a record $2.8B following an anti-trust investigation for monopolistic practices. New policies were then announced targeting data collection practices such as the personal information protection law (PIPL), further signifying Beijing's resolution to curb the influence of Chinese internet firms. The decision to restructure is compatible with the general desire to avoid antitrust scrutiny moving forward. Splitting Alibaba into different business lines could help insulate the entire enterprise from future government regulations on specific sectors. It also helps remove the perception of Alibaba as a monopolistic entity that could one day potentially rival the CCP's influence on general society. In summary, smaller companies make for smaller targets from a regulatory risk standpoint. 3. Potential Valuation Re-rating Dividing the business into six units allows the market to value each unit, potentially removing the "conglomerate discount" common in businesses with multiple non-adjacent segments. As such, we believe that the restructuring will motivate investors to value Alibaba using a sum-of-the-parts valuation over time. IPOs provide further upside for the valuation as they are typically promoted with high-profile roadshows that increase sentiment and liquidity for the offering.

BSD Analysis:
Jack Beiro presents a compelling bull case for Alibaba following its historic corporate restructuring announcement. The manager views the reorganization into six independent business units as a strategic catalyst that addresses three key value drivers. First, the restructuring should enhance operational agility by reducing bureaucratic complexity that had hindered decision-making as the company scaled. Second, the breakup mitigates regulatory risk by creating smaller, less threatening entities that are less likely to attract antitrust scrutiny from Beijing, addressing a major overhang since the $37B Ant IPO suspension and $2.8B fine. Third, the sum-of-the-parts structure should eliminate the conglomerate discount and potentially unlock value through future IPOs and spin-offs. The market's immediate 18% appreciation validates the thesis, though Beiro acknowledges concerns about potential cost increases and lost synergies. The restructuring represents a fundamental shift that could reposition Alibaba for sustainable growth while reducing regulatory headwinds.

Pitch Summary:
The SaaS industry has been weak; the company's average contract value is massively inflated; intense competition; company's technology is likely to be obsolete due to AI development; Update 4/10 - Follow-up report published.

BSD Analysis:
Sprout Social offers SaaS tools for social media management. Concerns include slowing customer growth, rising churn, and intensifying competition from Salesforce and smaller rivals. Margins remain pressured by heavy marketing spend, while valuation is lofty. Questions remain on whether the platform can sustain premium pricing in a crowded space.

Pitch Summary:
Our biggest contribution in the past six months came from Sitoy, one of the leading OEM producers of luxury handbags in the world, supplying companies such as Coach, Lacoste, and Fossil. At one point seen as a quality company trading at 3x net worth, they experienced a 50% drop in sales in the past few years, with the market cap falling from $6 billion HKD to around $400m HKD recently. This past September, at the latter valuation, they announced a $100m HKD half-year profit on improved orders and a 40% YoY revenue rise, and investors didn't seem to notice until they posted another $100m HKD profit for the six months ending December 2022 There are very few people sifting through this type of situation overseas, and many of the shrewd value investors who trade the stock have taken profits with the expectation of inventory destocking at many retailers in Europe and the US. Despite its rise, the stock remains relatively cheap at 4x earnings with a 10% dividend yield (this type of valuation is exceedingly rare to find on the NYSE), and if earnings don't immediately and dramatically recede there could still be upside from this price. We retain a position after its 2% contribution this quarter.

BSD Analysis:
The manager presents a compelling turnaround story in Sitoy, a luxury handbag OEM manufacturer that experienced severe distress with a 50% sales decline and market cap collapse from $6 billion HKD to $400 million HKD. The investment thesis centers on a dramatic operational recovery, with the company posting consecutive $100 million HKD half-year profits and 40% year-over-year revenue growth. The valuation metrics are exceptionally attractive at 4x earnings and a 10% dividend yield, representing the type of deep value opportunity rarely available in US markets. The manager acknowledges the position benefited from limited overseas coverage and investor skepticism about sustainability. While recognizing potential headwinds from retail inventory destocking, the manager maintains conviction in the turnaround story and retains the position despite recent gains. The investment exemplifies the manager's strategy of capitalizing on overlooked international opportunities with asymmetric risk-reward profiles.

Pitch Summary:
On January 12, 2023, Opera Ltd. approved a special dividend of $0.80 per ADR share. A special dividend is a one-time lump-sum payment, and Opera's equated to a one-day return of 12.9%. This dividend continued the shareholder-friendly ways of Opera management that had been an integral part of our investment case. The company is producing cash and sending it to shareholders, and these types of investments are rare. By having a concentrated investment in Opera, the Frank Value Fund disproportionally benefits from shareholder friendly events relative to investing in an index. Of course, you won't find Opera in almost any index, and if you can, its heavy insider-ownership precludes it from being a major part. Though volatile, Opera's share price has appreciated materially since our initial investment in April 2022. The company has authorization to repurchase over 50% of the float (shares held by everyone but insiders.) The excess cash required for special dividends and share repurchases comes from rapid growth in the company's web-browsing business. The hype over artificial intelligence applications like Chat GTP have alerted users to their choice in web browsers, and Opera's early adoption of new technology is consistently winning customers in developed countries. When we purchased Opera it was at a "deep-value" price. Now, as Opera's valuation has increased, its mid-teens revenue growth expectations still place it at a discount to other growth companies.

BSD Analysis:
The manager presents a compelling bull case for Opera Ltd., emphasizing the company's exceptional shareholder-friendly capital allocation policies. The $0.80 special dividend delivered an immediate 12.9% return, demonstrating management's commitment to returning cash to shareholders. Opera's authorization to repurchase over 50% of the float provides significant upside potential through share count reduction. The company benefits from secular growth in web browsing driven by AI adoption, with Opera's early technology integration winning market share in developed markets. The manager highlights Opera's transformation from a deep-value opportunity to a growth story, yet still trading at a discount to peers despite mid-teens revenue growth expectations. The concentrated position allows the fund to capture disproportionate benefits from value-realizing catalysts that wouldn't be available through index investing. The heavy insider ownership structure creates an alignment of interests while limiting institutional competition for shares.

Pitch Summary:
I have previously described Ranger as a company that provides proverbial "picks and shovels" to the energy industry. It is an onshore domestic oil services company that helps E&Ps service their wells, once drilled. While energy is a volatile, commodity-driven business, Ranger is a small, well-run, now unlevered company that should stay pretty busy as long as oil stays above, say, $50-60/barrel, which is a reasonable long-term assumption. Last year, Ranger generated $100 million of EBITDA on $700 million of sales, and it should do better this year. The business requires some capex, so the free cash flow of the business is around $70 million. Ranger has paid down its debt from over $75 million a year ago to almost zero today. Ranger's market cap is $300 million, so the business is trading at 3x EBITDA and just over 4x Free Cash Flow. Now that its balance sheet is clean, it will start to buy back shares. At the current pace of FCF generation, it could buy back approximately 2% of its shares every month. With a low float and high insider ownership, it may not take much for the stock to re-rate.

BSD Analysis:
The manager identifies Ranger Energy Services as an attractively valued "picks and shovels" play in the energy sector, providing essential well servicing to E&P operators. The investment thesis hinges on compelling valuation metrics, with the company trading at only 3x EBITDA and 4x free cash flow despite generating $100 million EBITDA on $700 million revenue. A significant catalyst exists through the company's debt reduction from $75 million to near-zero, enabling aggressive share repurchases of approximately 2% monthly. The business model provides relative stability within the volatile energy sector, requiring oil prices above $50-60 per barrel to remain profitable. Low float and high insider ownership create favorable technical dynamics for potential re-rating. The manager views the combination of strong cash generation, clean balance sheet, and shareholder-friendly capital allocation as compelling drivers for outperformance.

Pitch Summary:
Delek is a holding company that owns four refineries, about 250 gas stations, and 34.3 million shares of publicly traded Delek Logistics Partners, LP (NYSE: DKL), its captive master limited partnership, which owns a series of oil pipelines and infrastructure assets. Delek has 67 million shares outstanding and recently traded at $21.50 per share, putting its market cap at just over $1.4 billion. I estimate it has around $300 million in net debt (thought the balance sheet is opaque because DK consolidates DKL's financials), so its enterprise value is $1.75 billion. What are investors getting for $1.75 billion? Well, for starters, DK's position in DKL, which recently traded at $48/sh, is worth $1.65 billion. So, the adjusted enterprise value (or "stub value" in special situation parlance), taking into account net debt as well Delek's DKL position, is approximately $100 million. The gas stations are likely worth $300-$400 million, based on recent comparable transactions. And I think the refineries could be worth another $1.5 to 2 billion or more ($22- 30/sh), triangulating from a number of valuation approaches. All in, DK appears to be a fifty-cent dollar, with essentially all of its market cap covered by its ownership position in DKL, little debt at the parent company, and significant free cash flow. We have all seen "sum of the parts" stories trade at large discounts to intrinsic value for long periods of time. Importantly, there is a catalyst to unlock the value in this case, and it doesn't rely on activists or other outside factors. The company has made it clear through its actions and messaging that it is focused on unlocking this sum-of-the-parts value on its own. Consider some of the recent messaging by the company: • "Evaluating opportunities across Delek US business segments to unlock value for shareholders" – April 2023 investor presentation • "CEO transition completed - Shareholder friendly actions taken immediately…Near term focus on centered around unlocking 'Sum of the Parts' disconnect" – December 2022 investor presentation While working to unlock this value (likely through a transaction to take their ownership of DKL below 50% so they can cease to consolidate it and an outright sale of the gas station portfolio), the company is utilizing a further lever to increase shareholder value, which is to repurchase shares with cash flow. There are some risks and red flags, including recent management turnover, fears about capital allocation outside of the SOTP-unlocking strategy (the company has indicated it might purchase another refinery to bulk up the core once they divest some of the ancillary parts), and lower-than-hoped-for share repurchase guidance for 2023. I believe we are being well-compensated for these risks in the form of DK's current valuation.

BSD Analysis:
The manager presents a compelling sum-of-the-parts value play in Delek US Holdings, identifying a significant discount to intrinsic value. The investment thesis centers on DK trading at approximately $1.4 billion market cap while owning $1.65 billion worth of DKL shares alone, creating a "stub value" of only $100 million for the remaining assets. The manager estimates gas stations worth $300-400 million and refineries valued at $1.5-2 billion, suggesting substantial upside potential. A key catalyst exists through management's explicit commitment to unlocking shareholder value via asset divestitures and share repurchases. The company generates significant free cash flow and maintains low parent-level debt, providing financial flexibility. However, risks include recent management turnover and potential capital allocation missteps. The manager views current valuation as providing adequate compensation for these risks, with multiple value-unlocking levers in motion.

Pitch Summary:
The Small Cap Fund fell (1.2%) during the first quarter. As an example of the above dynamic, our position in RF Industries ("RFIL") fell almost 14% in the quarter. RFIL is a manufacturer and distributer of RF connectors and cables, and custom copper and fiber assemblies. New management came in 5 years ago and have grown the company through acquisitions. I think of the business in two buckets. The largest and most profitable has been their distribution business of more basic products into the telecom market. This includes things like coax cables, connectors, and hybrid fiber optic cables. The second bucket is their specialized product business which includes the production of thermal cooling control systems and small cell shrouds. While the "basic" business has produced relatively stable growth and profitability, the "specialized" business has yet to find the promised land. The company is being overly penalized for losses in the "specialized" business. Their "RF Connector & Cable Assembly" segment is generating around $40mm in revenue at ~10% EBITDA margins, so $4mm in EBITDA. Their "Custom Cabling Manufacturing & Assembly" segment produced $54mm of revenue last year but only $2.9mm of EBITDA (a 5.4% margin). More importantly, revenue came in at just $9mm last quarter and EBITDA was a loss of $0.8mm. Simplistically we can say that the value of the RF business is being dragged down by losses in their Custom business. But the Custom business consists of their profitable hybrid fiber product line as well as the troubled cooling/small cell ones. We do not have a breakout of the two, but we do know that this segment produced $7.6mm of EBITDA in 2018 and $3.9mm in 2019 before they acquired Schroff Tech (the original cooling/small cell manufacturers). The million-dollar question is when to pull the rip cord on cooling/small cell. While it has a great story, the company just has not been able to execute on it. My preference would be for them to sell the division and not get caught up in the sunk cost fallacy. Management has always been thoughtful and I believe they are taking the right steps. For instance, they are in the process of streamlining operations by consolidating their West Coast operations into one facility and will do the same to the East Coast operations later this year. They have outlined $3mm of annualized savings when all is said and done. To be clear, I am not underwriting an incremental $3mm to the bottom line, but am encouraged by these operational initiatives. Now one might ding RFIL for acquiring Schroff Tech as it was clearly a swing and a miss. It is important to keep in mind that this was a relatively small acquisition at just $4mm. More recently they acquired another RF component business, Microlab, for $25mm funded with cash on the balance sheet and 5-year debt fixed at 3.76%. Revenue and earnings from Microlab have rebounded from when they acquired it in 2020 and it appears that they bought it for just 4-5x EBITDA. The Chairman of the Board and largest shareholder is Mark Holdsworth, a co-founder of Tennenbaum Capital Partners (a multi-billion dollar private equity firm). In summary I think we have an attractively priced business with a good management team and proven capital allocator. With a little patience I think we can see earnings and valuation recover to more reasonable levels.

BSD Analysis:
The manager maintains a bullish stance on RF Industries despite recent underperformance, viewing the 14% quarterly decline as an overreaction to struggles in the specialized products division. The core RF connector and cable assembly business generates stable $40mm revenue with healthy 10% EBITDA margins, while the custom cabling segment faces temporary headwinds from the troubled cooling/small cell operations. Management is taking appropriate operational steps including facility consolidation targeting $3mm in annual savings and potentially divesting underperforming assets. The manager appreciates the successful Microlab acquisition at an attractive 4-5x EBITDA multiple and the strong leadership of Chairman Mark Holdsworth, co-founder of multi-billion dollar PE firm Tennenbaum Capital. The investment thesis centers on the market's overpenalization of a fundamentally sound business with competent management and attractive valuation metrics. The manager expects patience to be rewarded as operational improvements drive earnings recovery and valuation normalization.

Pitch Summary:
I started buying Wesco ("WCC") at the end of last year. I continued adding this year and have made it a mid-level position. WCC is a $23bn distributor of electrical, communications, and utility products. They completed the acquisition of Anixter in 2020, which doubled the size of the company and gave them exposure to higher-growth end markets. By all accounts, this acquisition has been a homerun. Cross-selling synergies initially targeted at $170mm hit over $700mm by end of 2022 and management is currently targeting $1.2bn. Similarly, cost savings set at $200mm within 3 years are expected to reach over $300mm in 2023. WCC seems ideally positioned to succeed in the current environment. Their communications and security solutions division accounts for 30% of their revenue and will benefit from increasing demand of automation, connectivity (5G, LTE, remote/hybrid work), and digitalization. Utility and broadband represent another 29% of their revenue and will benefit from grid modernization, green energy, and rural broadband initiatives. The electrical and electronic solutions segment, representing 40% of revenue, is perhaps the most cyclical of the bunch. Revenue in this segment is split amongst construction, industrial, and original equipment manufacturers. Construction predominately serves non-residential projects and includes things like electrical, solar, and network/security projects which should grow over time. Industrial is relatively diversified across various industries including metals/mining, food/beverage, chemicals, and oil/gas. All three segments should benefit from increasing public sector infrastructure spending coming out of the $1.2 trillion Infrastructure Investment & Jobs Act, $369 billion Inflation Reduction Act, $53 billion CHIPS and Science Act, and $20 billion Rural Digital Opportunity Fund. Management believes that they can achieve mid-single digit organic revenue growth which consists of base market growth plus a 1-2 percentage points for their secularly growing end-markets and another 1-2 for share gains. They have the goal of reaching 10% EBITDA margins which would bring them closer to other leading industrial distributors. While performance has been strong (revenue grew 18% last year organically and EBITDA margins expanded from 6.3% to 7.9%), the economic outlook is obviously a little more daunting. Using LTM figures WCC is trading at just 8x EPS. Management plans to allocate 40% of its operating cashflow to share returns (they have a $1bn share repurchase authorization which represents ~15% of market cap) with another 40% towards value creation through investments/M&A.

BSD Analysis:
The manager presents a compelling bull case for Wesco, highlighting the successful integration of the Anixter acquisition which has exceeded synergy targets by over 4x. The company operates across three diversified segments with exposure to secular growth themes including 5G infrastructure, grid modernization, and government infrastructure spending. WCC trades at an attractive 8x LTM earnings despite strong operational performance with 18% organic revenue growth and 160bps EBITDA margin expansion. The manager appreciates management's disciplined capital allocation strategy, returning 40% of operating cash flow to shareholders while investing another 40% in growth initiatives. The investment thesis centers on WCC's positioning to benefit from multi-trillion dollar government infrastructure programs while achieving operational leverage through margin expansion toward the 10% EBITDA target. The valuation appears compelling relative to the company's diversified end-market exposure and proven execution track record.

Pitch Summary:
First Republic Bank was a significant detractor from performance during the quarter. The Company is a retail bank with a sterling underwriting track record headquartered in Northern California. First Republic became collateral damage in the collapse of Silicon Valley Bank, which - unlike First Republic - is a commercial bank, but like First Republic happens to be headquartered in Northern California. Regardless of how irrational it was for depositors to panic and pull their deposits from First Republic, the long-term damage to the Company's franchise is real and we have not added to our positions in First Republic since Silicon Valley Bank's failure. We rarely invest in banks. First Republic was the only bank in our large cap portfolios in the past decade. We were attracted to First Republic because it was one of the most responsibly run banking outfits in the country, and it also happened to be growing. This compares to our large cap growth investment universe that is bereft of banks because most banks have been regulated into providing commodity-like levels of service, while barely posting GDP-like loan growth against a monetary The Hunger Games backdrop of de-minimis nominal and real yields. After First Republic it is unlikely that we will consider investing in banks for the foreseeable future, or at least until regulatory and market structures change.

BSD Analysis:
Wedgewood Partners suffered significant losses on First Republic Bank during the banking crisis of March 2023. The fund was attracted to FRC's conservative lending practices and white-glove service to wealthy clients, viewing it as a best-in-class operator with exceptional credit quality. However, the manager admits to focusing on the wrong side of the balance sheet - analyzing loan quality rather than deposit stability. The collapse of Silicon Valley Bank triggered an irrational deposit run on First Republic despite its superior fundamentals. The fund acknowledges this as a major mistake and has not added to the position since the crisis began. Management now views the stock as a long-dated call option on the bank's survival, dependent on regulatory support and the ability to remain independent. The experience has soured Wedgewood on the entire banking sector for the foreseeable future.

Pitch Summary:
Limbach Holdings (LMB) was the Fund's largest winner in 2020 and remains one of our most lucrative investments to date. In my Q2'21 letter, I detailed numerous concerns regarding the company's CEO, that eroded my trust, ultimately leading me to exit the position entirely by Q3'21. In January of this year, LMB announced that its former CEO would be replaced by then-COO, Michael McCann, at the end of Q1. I believed that Mike was the right leader for this business (along with other executives of the company) and acted quickly to make LMB a large holding for the Fund once again. As a reminder, LMB is a leading specialty contractor that offers design, engineering, construction, installation, and maintenance services to commercial and industrial clients across the US. The company specializes in HVAC, mechanical, electrical, plumbing and control systems for institutions with mission-critical infrastructures such as hospitals and data centers. Since going public in 2016, the company has strategically transitioned from general contractor relationships (GCR) to owner-direct relationships (ODR). In GCR, LMB manages new construction projects or major renovations awarded by GCs. Conversely, ODR involves providing maintenance services or managing smaller renovations assigned by building owners or property managers. GCR projects are typically measured in years, working capital intensive and characterized by low margins with high margin volatility. In contrast, ODR projects are shorter in nature, requiring less inventory / receivable build, and offering margins not only more predictable, but also 2-3x higher than GCR. The margin discrepancy stems from building owners with mission critical infrastructure exhibiting greater loyalty and reduced price sensitivity compared to GCs, since they view LMB as a trusted strategic partner – especially when it comes to ensuring uninterrupted operations at their facilities. While ODR accounted for only 20% of revenues and 30% of gross profits in 2017, it now represents approximately 50% of revenues and 65% of gross profits. This shift can be attributed to several factors. Firstly, LMB has become increasingly selective in pricing and accepting new GCR projects, resulting in a 40% decline in GCR revenues and 20% decrease in gross profits over the past three years. Secondly, LMB has invested in SG&A to drive mid-teens organic revenue growth in ODR revenues during the same period. Lastly, the company made a 2021 acquisition that was largely ODR focused. The transition resulted in a doubling of EBITDA margins from 3% in 2017 to 6% presently, and led to improved free cash flow conversion. Going forward, management anticipates that ODR revenues should grow in the teens, while GCR revenues should shrink in the single digits. The ongoing business mix shift alone should lead to significant EBITDA margin expansion from current levels. Furthermore, LMB ended 2022 in a net cash position and continues to pursue acquisitions at multiples that promise significant EBITDA and FCF per share growth as they occur. The Fund's average cost upon reinitiating its position is approximately $12 per share, equating to roughly 3x and 5x 2023 projected EBITDA and FCF. For comparison, LMB's peers are valued at 10-12x EBITDA and 15-20x earnings by the public markets. Exceptional investments often benefit from both EPS growth and multiple expansion. I believe LMB can deliver on both fronts and eagerly await to see the company's performance in the coming years.

BSD Analysis:
The manager presents a compelling reinvestment thesis in Limbach Holdings following CEO transition to Michael McCann, whom he views as the right leader. The core investment case centers on the company's successful business model transformation from low-margin, volatile general contractor relationships (GCR) to higher-margin, predictable owner-direct relationships (ODR) with mission-critical infrastructure clients. This strategic shift has dramatically improved the business quality, with ODR growing from 20% to 50% of revenues while representing 65% of gross profits, driving EBITDA margins from 3% to 6%. The company trades at attractive 3x EBITDA and 5x FCF multiples versus peers at 10-12x EBITDA, suggesting significant valuation upside. With ODR revenues expected to grow in the teens and continued margin expansion from the ongoing business mix shift, plus a net cash balance sheet enabling accretive acquisitions, the manager expects both earnings growth and multiple expansion. The previous successful investment history and current compelling valuation provide confidence in strong future returns.

Pitch Summary:
In the first quarter, the Fund initiated a position in dentalcorp Holdings (DNTL), Canada's largest operator of dental practices, with over 1,800 dentists serving 2 million active patients across 500 locations. The company was established in 2011 by its CEO, Graham Rosenberg, who went on to partner with several institutions to accelerate growth through acquisition, before going public in 2021. Currently, Rosenberg holds a 5% stake in the company (35% voting power), while private equity firm L Catterton owns 40% (28% voting power). Dental service organizations (DSOs), are solid businesses that own dental practices, employ medical staff, and manage operations. They benefit from a highly diversified, predominantly cash-paying customer base and are resistant to technological disruption or economic fluctuations. In fact, Canadian per capita dental expenditures have grown at 1.5x the rate of GDP over the last 45 years, increasing in 43 of those years. DSO's underlying business stability enables them to support high leverage, making them ideal private equity rollups. Additionally, the pool of potential acquisition targets is extensive, with roughly 95% of Canada's 15k practices independently operated by dentists either approaching retirement or increasingly preferring to focus on patient care rather than practice management. A typical practice generates $2.5 million in revenue and $400k in EBITDA, and is acquired for 6-8x EBITDA, with 75% paid in cash and 25% in DNTL equity. Larger, multi-location acquisitions are acquired for 8-10x EBITDA. Following acquisition, DNTL typically experiences a 10-15% increase in EBITDA due to purchasing scale, technology implementation, and operational efficiency. Dentists who sell their practices usually sign 5-year employment agreements, with 95% renewal rates. In addition to receiving DNTL equity, dentists' compensation is based on performance of their individual practice, where they participate in 20% of the EBITDA upside/downside from target levels. DNTL's resilient business model and attractive growth profile contributed to its well-received 2021 IPO, priced at $14, with investors pushing the stock price to $18+ within the year. However, the company's stock was hit hard in 2022 due to its low float during the duration unwind, causing shares to plumet to $6. On the way down, insiders purchased $700k worth of stock on the open market at $11 per share. In November 2022, the company announced a strategic review in response to unsolicited expressions of interest, presumably from several PE buyers familiar with and fond of the DSO model. Notably, the L Catterton directors were not part of the strategic alternatives committee, suggesting potential interest in reacquiring the company. KKR and Blackstone, both active in the DSO space, could also be logical acquirors of DNTL. Last month, DNTL reported strong Q4 results and provided an optimistic outlook for 2023. In its earnings release, the company disclosed that certain loans given to management by the company, used to buy shares in the IPO, were modified such that they would be forgiven if the company is sold. Based on these factors, I believe it is likely that the company will be sold for a significant premium relative to the prices at which the Fund acquired its position. However, if the business chooses to remain public, I anticipate that it will be able to acquire practices at lower multiples than those paid in the recent past, allowing it to grow its FCF per share at attractive rates. In either scenario, I believe that we will generate attractive returns.

BSD Analysis:
The manager presents a compelling bull case for dentalcorp Holdings, Canada's largest dental service organization with over 500 locations. The thesis centers on the company's defensive business model with cash-paying customers and resistance to economic cycles, supported by Canadian dental expenditures growing at 1.5x GDP over 45 years. The rollup strategy appears attractive with extensive acquisition opportunities (95% of Canada's 15k practices are independently operated) at reasonable 6-8x EBITDA multiples, generating 10-15% EBITDA improvements post-acquisition through operational efficiencies. The strategic review announced in November 2022 following unsolicited interest suggests potential private equity buyers like KKR or Blackstone may acquire the company at a premium to current levels. Management alignment is strong with insider purchases at $11 and loan forgiveness provisions tied to a sale. The stock has fallen from IPO levels of $14-18 to $6 due to duration unwind pressures, creating an attractive entry point for either a takeout scenario or continued public market execution.