Investment Pitches

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.

Pitch Summary:
Now about our investment in Jungfraubahn shares. In 1893, the Swiss industrialist Adolf Guyer-Zeller requested permission to build a cog railway from Wengernalp station (1,874 m a.s.l.) through Kleine Scheidegg to the summit of the Jungfrau (3,454 m a.s.l.). The route was to run through a tunnel inside the Eiger and Mönch mountains. Construction began in 1896 and was completed in 1912. When I first visited the site in the 1990s and went up the Jungfrau, it was an unforgettable experience. The view from the window of the intermediate station in the middle of the Eiger's fabled north face made a particularly big impression on me as someone who used to do a lot of rock climbing in my youth. As a side note, one of the four climbers who were the first to climb the north face of the Eiger in 1938 was Heinrich Harrer. A few years earlier he had spent his Seven Years in Tibet. Harrer wrote a great book about the conquest of the Eiger, The White Spider. Today the railway is owned and operated by Jungfraubahn, which is one of the leading tourist-oriented companies in Switzerland and the largest mountain railway company. In addition to the original railway on the Jungfrau, the company operates and owns still other railways and cable cars around Grindelwald and Wengen, ski slopes, ski tows and winter sports equipment, a hydroelectric power station, restaurants, shops, and car parks. Altogether, and especially thanks to the Jungfrau railway, this is perhaps the biggest tourist attraction in the Alps. From an investment point of view, the company caught our attention during the covid pandemic. Its operations were temporarily suspended and its share price responded by plummeting sharply. The situation today is that the winter season is hitting new all-time highs and the summer season is gradually returning to its previous levels. The share price, meanwhile, remains well below its pre-covid highs and seems to us attractive. We think this is a unique business, essentially a local monopoly (sort of like the Eiffel Tower in Paris), with high margins and a decent ability to pass on inflation to its customers. It is a smaller and less liquid company, however, and will therefore be one of the smallest positions in our portfolio. On the other hand, an advantage is that the size of our fund allows us to invest even in relatively small companies at times. In short, we bought a piece of Switzerland and now we are joint owners of the largest Alpine tourist attraction, which also is very profitable.

BSD Analysis:
Vltava Fund initiated a position in Jungfraubahn, viewing it as a unique monopolistic tourism asset in the Swiss Alps. The company operates the historic Jungfrau Railway and extensive mountain infrastructure including cable cars, ski facilities, restaurants, and hydroelectric power generation. The fund identified an attractive entry opportunity during COVID-19 when operations were suspended and shares plummeted, despite the business showing strong recovery with winter seasons hitting all-time highs. Management views this as essentially a local monopoly comparable to the Eiffel Tower, with high margins and pricing power to pass through inflation. The diversified tourism infrastructure provides multiple revenue streams beyond just railway operations. While acknowledging limited liquidity and smaller position sizing, the fund appreciates their ability to invest in unique, smaller companies. The investment represents a bet on Swiss tourism recovery and the enduring appeal of this iconic Alpine destination with strong defensive characteristics.

Pitch Summary:
We sold the rest of our shares in the Canadian company Magna International and opened a new position in the Swiss company Jungfraubahn. We have twice had Magna in our portfolio. The first time was during 2004–2006 and then again since 2015. We sold it the first time precisely because we were not satisfied with the asset allocation made by management and the main controlling shareholder. After a few years, we re-entered the company after the original main shareholder and founder sold his shares and at the same time the entire management was replaced. While we consider the new managers and their actions both in terms of running the company and in terms of asset allocation to be very good and there has been little to fault them for in the period of just over 7 years, the company's results have remained below our expectations. This is probably because the overall characteristics of the company's business type have been less profitable and less attractive than we had originally anticipated. Magna has turned out to be a rather enigmatic stock, as times of high expectations alternated with moments of disappointment. Gradually, we were losing our justification for holding the stock any longer until it disappeared from the portfolio altogether. Our gain on Magna since 2015 has been just over 50%. Even though we have only held the full position for about 4 years, it has been a disappointment.

BSD Analysis:
Vltava Fund exited their position in Magna International after holding it twice over nearly two decades, citing persistent underperformance despite competent management. The fund initially sold in 2006 due to poor capital allocation by the original controlling shareholder, then re-entered in 2015 after management changes. While the new leadership demonstrated strong operational and capital allocation skills over seven years, the company's fundamental business characteristics proved less profitable than anticipated. The automotive supplier generated only 50% returns over an 8-year period, significantly underperforming expectations. The fund describes Magna as "enigmatic" with alternating cycles of hope and disappointment, ultimately leading to a complete exit. This case illustrates how even good management cannot overcome challenging industry dynamics and structural business limitations. The decision reflects disciplined portfolio management, cutting losses when investment thesis no longer holds despite respectable absolute returns.

Pitch Summary:
Henry Schein is the largest distributor of dental and medical products and services globally. Headquartered in Melville, New York, the company serves over one million customers and employs over 20,000 people. Henry Schein is committed to helping its customers — largely dental practices and physician offices — operate efficient and successful businesses, thereby allowing them to deliver better clinical care. Over the years, the company has transformed itself from a pure mail-order business in the 1980s to a full-service solutions provider of consumables, equipment, software, specialty products and services. Henry Schein has been on our Focus List since 2010. Close to 4% of your portfolio is invested in the company. We rank Henry Schein a BQ1, the highest quality score in our framework. This is for a few reasons. First, Henry Schein's business provides essential services for dentists and physicians, the majority of which continue to be small business owners. These customers derive value from using Henry Schein as a one-stop shop to help them run their practice. The company's distribution network sells over 300,000 SKUs (stock keeping units) to over one million dentist and physician offices in the US, Europe and certain other geographic markets. Over 90% of those customers globally receive next-day service. We believe this service and network is difficult to replicate. Second, the company is a beneficiary of several long-term trends in both their dental and medical segments. In dental, Henry Schein is in a unique position to capitalise on an important trend: the digitalisation of the dental office. The company helps dentists digitalise their practice with equipment and software, which improve the customer experience and help drive better clinical outcomes. Digitalisation also has the potential to make it easier for providers to minimise inefficiencies. This is particularly important for small businesses, which often find it hard to make productivity improvements. In their medical segment, Henry Schein is a beneficiary of a trend to shift the delivery of care away from expensive, acute hospital settings into more affordable and accessible settings such as physician offices and smaller surgical centres. Third, Henry Schein is in a good position to leverage existing relationships with customers to drive the sales of more profitable products. Over the past five years, for instance, the company has built out its software and specialty offerings. These markets are growing twice as fast and are approximately three times more profitable than their core distribution business. They already represent a third of the company's profits. Penetration is still low, however — so we think this could represent a significant opportunity for the company. Henry Schein is the only company offering a full suite of proprietary software to help drive their customers' profitability and productivity. We also believe that Henry Schein is well managed. The company has a strong culture, cultivated by an experienced management team, led by CEO Stanley Bergman. This strong culture is a crucial tenet of our investment case in this company. Distribution businesses are often relationship-based. Henry Schein has a network of 3,000 tenured sales representatives globally. We believe this to be a key source of their competitive advantage. Over the decade-plus that we have covered this company, we have often asked ourselves the following question: what makes the culture of Henry Schein so unique? To answer this question, we have spoken with many ex-employees. The feedback has always been consistent. The company has a strong mission and values-based culture, and a corresponding belief that their people are their greatest asset. This strong culture has translated to low employee turnover relative to the industry average. At a recent investor day, we were surprised at the tenure and depth of experience of employees below the senior leadership level. Many of these leaders were retained from companies acquired by Henry Schein over the decades. Henry Schein has demonstrated a long-standing commitment to sustainability encompassing all their stakeholders. Take diversity, for example. At a customer level, Henry Schein was one of the early founders of the American Dental Association's Institute for Diversity Leadership nearly two decades ago, an organisation that funds leadership training and mentorship programmes for under-represented racial and gender groups. As for employees, diversity and inclusion goals are linked to compensation metrics all the way to director and VP levels. The company has also set itself a target to increase representation of all under-represented groups by 2030. In 2017 it signed up for Paradigm for Parity, a commitment to gender parity of the senior leadership team (including directors and VPs) by 2030. From a social perspective, the company has formed many public-private partnerships over the years to improve access to healthcare services among typically underserved populations. In 2015 Henry Schein co-founded the Pandemic Supply Chain Distribution Network, a public-private partnership to improve the efficiency of the supply chain for personal protective equipment (PPE) in the event of a pandemic. The company is a participant of the White House's COVID-19 Supply Chain Task Force. They also played a crucial role in securing supply and distributing PPE and test kits during the COVID-19 pandemic. We believe all of these efforts and initiatives have helped to drive a strong culture, and in turn engage, motivate and retain employees. On the environmental side, the company has committed to science-based targets and net zero by 2050. It has made good progress on these objectives. Their focus on climate change extends to their customers. For instance, their 'Practice Green' initiative offers customers solutions to become more sustainable. We continue to engage with the company to drive to more ambitious long-term climate-related targets. Against all these positives, our investment thesis in this company is not without challenges. Over the past decade, Henry Schein's dental and medical customers have consolidated. As a result, they can drive lower prices from their distributors. Henry Schein has offset these pressures by shifting their business towards higher-margin and faster-growing markets. The company has also fended off competition from online distributors by investing in their own e-commerce and digital-marketing capabilities. On the whole, our research on the dental and medical industries continues to drive our conviction in Henry Schein. Over the years we have interviewed industry experts, attended industry conferences, spoken with competitors and customers, and analysed market datasets. This has reinforced our conviction on the opportunity in the industry and in this company. We believe that in the long term, Henry Schein will benefit from a society-wide need to provide higher-quality, more efficient and more affordable care to all. As such, Henry Schein sits well within our 'system positive' framework of healthcare companies that deliver high-quality products and services, improve societal well-being and make a fair but not excessive return.

BSD Analysis:
Generation Investment Management presents a compelling bull case for Henry Schein, the world's largest dental and medical products distributor. The fund's thesis centers on the company's dominant market position serving over one million customers with next-day delivery of 300,000+ SKUs, creating a difficult-to-replicate distribution network. Henry Schein benefits from multiple secular tailwinds including dental office digitalization and the shift of medical care from expensive hospitals to lower-cost physician offices and surgical centers. The company is strategically pivoting toward higher-margin software and specialty offerings that grow twice as fast and generate three times the profitability of core distribution, already representing one-third of profits despite low penetration rates. Management quality appears strong under CEO Stanley Bergman, with a values-driven culture that has resulted in low employee turnover and a tenured sales force of 3,000 representatives globally. The investment faces headwinds from customer consolidation pressuring margins and online competition, but Henry Schein has successfully offset these through strategic repositioning and digital investments. Generation's decade-plus coverage and extensive industry research reinforces their conviction in the company's ability to capitalize on society's need for more efficient, affordable healthcare delivery.

Pitch Summary:
TrueCar is a well-known third-party marketing and lead-generation technology company for automobile dealers. After undergoing some significant operational hiccups several years ago that culminated with the loss of its largest customer, the company has recently stabilized the business and gotten back into the good graces of the dealer community, while still providing value to the automobile buying customer. With a new leadership team and its new TrueCar+ program, which gives consumers the ability to go through the whole car buying process, including financing, without even stepping into the dealership, we believe the company is well-positioned to start growing its dealership count again and take advantage of an auto industry that is likely at the tail end of a tumultuous period, where supply chain issues led to a very limited amount of inventory of new cars and extremely high used car pricing. Macroeconomic weakness could limit the upside in the near-term, but with the valuation of TrueCar trading at a small premium to the cash they have on the balance sheet, we like the risk-reward at these levels.

BSD Analysis:
Jacob Asset Management sees TrueCar as a turnaround story with compelling risk-adjusted returns at current valuations. The manager believes the company has successfully navigated past operational challenges and rebuilt relationships with dealers after losing its largest customer. The investment thesis hinges on TrueCar's new leadership team and the launch of TrueCar+, which enables a complete digital car buying experience including financing without dealership visits. This positions the company to benefit from the automotive industry's recovery as supply chain issues normalize and inventory levels improve. The manager views the current environment as an inflection point where TrueCar can resume dealer count growth after a period of stabilization. The valuation appears attractive, trading at only a small premium to cash on the balance sheet, providing significant downside protection. While acknowledging near-term macroeconomic headwinds, the manager believes the risk-reward profile is favorable given the company's operational improvements and strategic positioning for industry recovery.

Pitch Summary:
Braze is a leading marketing technology company that enables companies to engage with customers using contextual messages in a real-time, relevant fashion. As it's become increasingly challenging to obtain third-party data, companies have prioritized maximizing their own information flow to run their business successfully. While the customer marketing software market is quite competitive, Braze has one of the most robust, most mobile-friendly technology stacks in the industry, servicing more than 1,000 clients, reaching more than 3.5 billion end users, thanks in part to a strong partner network that includes several major system integrators.

BSD Analysis:
Jacob Asset Management initiated a position in Braze, viewing it as a leading marketing technology platform well-positioned to benefit from the shift toward first-party data utilization. The manager highlights Braze's competitive advantages including its robust and mobile-friendly technology stack, substantial client base of over 1,000 customers, and impressive reach of 3.5 billion end users. The investment thesis centers on companies' increasing need to maximize their own data flows as third-party data becomes harder to obtain. Despite operating in a competitive customer marketing software market, Braze's strong partner network including major system integrators provides additional distribution advantages. The timing appears strategic as businesses prioritize customer engagement solutions that can deliver contextual, real-time messaging across multiple channels. The manager's confidence in adding this position across multiple funds suggests strong conviction in the company's market position and growth prospects.

Pitch Summary:
We bought shares in Charles Schwab Corporation as they declined meaningfully in March. Schwab is the premier asset-gathering franchise in the brokerage industry, with particular strength in the advisory market. As one of the top two players in the retail side of the market, it has the scale economies to be a low-cost provider and compete with newcomers intent on industry disruption. In the advisory segment, where it serves independent advisors, it delivers the gold standard in service and product breadth. We believe its moat is wide, and it should grow at a healthy pace for the foreseeable future. As part of its brokerage model, Schwab operates a meaningfully sized bank, where its brokerage clients maintain deposits as part of their cash management. With over $300 billion in deposits and $500 billion in assets, if it were an independent bank, it would be one of the largest in the country. As interest rates have risen, many clients have been moving cash from low-yield bank accounts to higher-yielding alternatives, such as money-market funds. The industry calls this process cash "sorting." For Schwab, cash sorting began about 18 months ago, and a large part of its recent stock price drop can be attributed to investor concerns that this process may accelerate. The difference for Schwab, compared to all other banks, is that when depositors pull money out, they are mostly just moving it over to other parts of Schwab! Thus, unlike traditional banks, Schwab doesn't lose assets in the sorting dynamic. In fact, like U.S. Bancorp, Schwab appears to be a net beneficiary from the recent mini-panic in that new asset inflows have picked up as individuals flee to safety. This dynamic does cause some disruption at the bank entity, though, as client cash remains within Schwab's total but is no longer available as deposits to fund the bank's securities portfolio. We think Schwab has more than sufficient liquidity to deal with this. The realistic worst-case outcome is that total earnings are moderately suppressed for a period as funding costs go up, and Schwab earns less profit for every dollar invested in deposit alternatives, as compared to what it earns per dollar deposited in the bank. Despite this headwind, we believe that as long as Schwab can grow total investment assets under its umbrella over time, its earning power should also grow.

BSD Analysis:
Madison initiated a position in Charles Schwab during March's market decline, viewing it as the premier asset-gathering franchise in brokerage with a wide competitive moat. The managers emphasize Schwab's dominant market position as one of the top two retail players with scale economies enabling low-cost provision and competitive advantages against disruptors. They highlight the company's gold standard service in the advisory segment serving independent advisors. The key insight is Schwab's unique business model advantage during cash sorting - when clients move deposits to higher-yielding alternatives, the assets typically remain within Schwab's ecosystem rather than leaving entirely like traditional banks. With over $300 billion in deposits and $500 billion in assets, Schwab operates one of the largest banks in the country as part of its integrated model. While acknowledging near-term earnings pressure from higher funding costs, Madison believes Schwab's asset-gathering capabilities and client stickiness position it for long-term growth as total investment assets expand.