Investment Pitches

Pitch Summary:
Our two most impacted holdings during this recent crisis were Zions Bancorporation and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an "earnings" event, not a "balance sheet" event. Zions and Schwab got caught up in the contagious fear around SVB's collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. Similarly, Schwab's retail deposit base is very sticky. Over 80% of their customers' cash is FDIC-insured, and the cash is spread across approximately 34 million brokerage accounts (average ~$10,000 in bank cash per account). Schwab has more balance sheet liquidity than deposits. In both cases, there appears to be a low risk of correlation among their respective client bases. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.

BSD Analysis:
FMI presents a compelling bull case for Charles Schwab following the banking sector selloff. The manager emphasizes Schwab's differentiated business model with a highly diversified retail deposit base spread across 34 million brokerage accounts averaging $10,000 each. The sticky nature of these deposits is reinforced by over 80% FDIC insurance coverage, providing significant stability during market stress. Schwab maintains superior balance sheet liquidity exceeding total deposits, offering substantial protection against potential outflows. FMI characterizes the market reaction as excessive given the fundamental differences between Schwab's retail-focused model and the concentrated commercial deposits that caused Silicon Valley Bank's failure. The firm has increased position size, viewing current valuations as attractive relative to the company's defensive characteristics and market-leading franchise.

Pitch Summary:
Our two most impacted holdings during this recent crisis were Zions Bancorporation and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an "earnings" event, not a "balance sheet" event. Zions and Schwab got caught up in the contagious fear around SVB's collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. We believe the similarities largely end there. Zions has a much more diverse deposit base than SVB. We estimate that half of Zions' deposit base are small and medium-sized business operating deposits, which have historically been quite stable and a competitive advantage. Nearly half of Zions' deposits are FDIC-insured, and the bank has ample liquidity to meet outflows without selling its securities portfolio. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.

BSD Analysis:
FMI maintains a bullish stance on Zions Bancorporation despite the regional banking crisis that impacted the stock. The manager emphasizes Zions' differentiated deposit profile compared to failed Silicon Valley Bank, highlighting that approximately 50% of deposits come from stable small and medium-sized business operating accounts. The bank maintains strong liquidity with nearly half of deposits FDIC-insured and sufficient balance sheet liquidity to handle outflows without forced asset sales. FMI views the market selloff as creating an attractive entry point, characterizing the impact as an earnings headwind rather than a fundamental balance sheet issue. The firm has increased its position size, demonstrating conviction in the investment thesis. Management quality and conservative balance sheet management are cited as key differentiators that should support long-term value creation.

Pitch Summary:
Booking Holdings (BKNG) is the world's largest online travel agency. It has a network effect business model, where Booking acts as an aggregator of supply (independent hotels) on one side and demand (leisure travelers) on the other. This aggregation of fragmented supply and demand allows them to charge a healthy 15% commission when a user books a room. It also allows them to outspend all other players on customer acquisition while still earning good returns on ad spend. Given Booking has to invest very little tangible capital, ROIC is over 80%. Booking has tremendous scale as the global number one. Booking is a capital-light business in a secularly growing industry, has a net cash balance sheet, and a solid management team. Travel continues to recover, with particular improvement in Europe (over 70% of sales), and Booking is taking market share from competitors. We find ~17 times normalized earnings (2024E) to be a punitive valuation. We believe Booking has a long runway for growth when the dust fully settles after COVID and the Ukraine war.

BSD Analysis:
FMI highlights Booking Holdings' dominant position in online travel with a powerful network effect business model connecting fragmented hotel supply with leisure demand. The 15% commission structure and ability to outspend competitors on customer acquisition while maintaining strong returns demonstrates the platform's competitive moat. With over 80% ROIC due to minimal capital requirements and global #1 scale, Booking exhibits exceptional capital efficiency. The company's net cash position and strong management provide financial flexibility during the travel recovery. European exposure (70%+ of sales) positions the company well for continued recovery, while market share gains from competitors enhance growth prospects. At 17x normalized 2024 earnings, FMI views the valuation as attractive for a high-quality platform with secular growth tailwinds.

Pitch Summary:
Fortune Brands (FBIN) has one of the highest quality portfolios of branded building products in the world. Recognizable brands include Moen, Therma-Tru, Larson, Master Lock, and Sentry Safe. The stock traded down on housing-related macro concerns, along with an overhang from the company's now-completed spinoff of its lower-quality cabinetry business. Brand, innovation, and distribution strength are key differentiators, as the company has a leading market position in the attractive and consolidated global plumbing market. R&R accounts for over two thirds of the revenue mix, which should perform more defensively given the lower-ticket nature of the products. The company has a strong track record of organic growth, margin expansion, and a strong (mid-teens) return on invested capital (ROIC). Organic sales growth averaged 7% annually over the last decade, approximately 2-3% above estimated end-market growth. The company is embracing simplification and capital returns, which should be accretive to shareholder value. On 2024 estimates, the stock trades at only 14 times earnings per share (EPS).

BSD Analysis:
FMI views Fortune Brands as a high-quality building products company trading at an attractive valuation due to housing market concerns. The portfolio of leading brands including Moen and Therma-Tru provides strong market positions in consolidated markets, particularly plumbing. With over two-thirds of revenue from repair and remodel activities, the business model offers defensive characteristics through lower-ticket purchases. The company's mid-teens ROIC and 7% annual organic growth (2-3% above market) demonstrate operational excellence and market share gains. Recent simplification efforts and capital return focus should enhance shareholder value creation. At 14x 2024 earnings, the valuation appears compelling for a quality franchise with defensive end-market exposure.

Pitch Summary:
UnitedHealth Group (UNH) is the largest, best-managed, and most-diversified managed care organization in the U.S. and is among the largest providers of health services and technology through its fast-growing Optum businesses. In managed care (health insurance), UNH is the number one national provider in the rapidly expanding Medicare Advantage market, in addition to the number one or number two positions in most other sub-segments. Today, scale is more important than ever in delivering top benefits at competitive prices. Scaled buying power (and network building) ensures the most visibility into medical costs at a given site-of-care and scaled investment gives UNH the most enhanced capabilities (tools and technology, typically from Optum) that nudge participants towards lower cost sites-of-care. We view the forward valuation (17 times 2024E EPS) and long-term growth algorithm as attractive.

BSD Analysis:
FMI presents UnitedHealth Group as a dominant managed care leader with significant competitive advantages through scale and diversification. The company's #1 position in Medicare Advantage and top-two rankings across most health insurance segments provide substantial negotiating power and cost visibility. The integration with Optum's health services and technology platforms creates synergies that drive participants toward lower-cost care delivery sites. At 17x forward earnings, FMI views the valuation as attractive relative to the company's long-term growth prospects and market-leading position in the expanding healthcare sector. The scale advantages become increasingly important in today's competitive healthcare landscape.

Pitch Summary:
Our two most impacted holdings during this recent crisis were Zions Bancorporation and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an "earnings" event, not a "balance sheet" event. Zions and Schwab got caught up in the contagious fear around SVB's collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. We believe the similarities largely end there. Similarly, Schwab's retail deposit base is very sticky. Over 80% of their customers' cash is FDIC-insured, and the cash is spread across approximately 34 million brokerage accounts (average ~$10,000 in bank cash per account). Schwab has more balance sheet liquidity than deposits. In both cases, there appears to be a low risk of correlation among their respective client bases. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.

BSD Analysis:
FMI views Charles Schwab as unfairly punished during the banking crisis, emphasizing the discount broker's differentiated business model and deposit characteristics. With over 80% of customer cash FDIC-insured and deposits spread across 34 million retail brokerage accounts averaging $10,000 each, Schwab's deposit base demonstrates significant stickiness and diversification. The firm's balance sheet liquidity exceeds total deposits, providing substantial financial flexibility. FMI characterizes the crisis impact as an earnings headwind rather than a fundamental balance sheet issue, leading them to add to the position amid what they view as excessive market punishment and attractive risk/reward dynamics.

Pitch Summary:
Our two most impacted holdings during this recent crisis were Zions Bancorporation and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an "earnings" event, not a "balance sheet" event. Zions and Schwab got caught up in the contagious fear around SVB's collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. We believe the similarities largely end there. Zions has a much more diverse deposit base than SVB. We estimate that half of Zions' deposit base are small and medium-sized business operating deposits, which have historically been quite stable and a competitive advantage. Nearly half of Zions' deposits are FDIC-insured, and the bank has ample liquidity to meet outflows without selling its securities portfolio. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.

BSD Analysis:
FMI maintains a bullish stance on Zions Bancorporation despite the regional banking crisis that impacted the stock. The manager emphasizes Zions' differentiated deposit profile compared to failed Silicon Valley Bank, highlighting that approximately 50% of deposits come from stable small and medium-sized business operating accounts. With nearly half of deposits FDIC-insured and sufficient liquidity to avoid forced asset sales, FMI views recent weakness as an earnings impact rather than a balance sheet threat. The fund added to the position, viewing the sell-off as creating an attractive risk/reward opportunity. Management quality and conservative balance sheet positioning support the investment thesis during this period of sector volatility.

Pitch Summary:
Booking Holdings (BKNG) is the world's largest online travel agency. It has a network effect business model, where Booking acts as an aggregator of supply (independent hotels) on one side and demand (leisure travelers) on the other. This aggregation of fragmented supply and demand allows them to charge a healthy 15% commission when a user books a room. It also allows them to outspend all other players on customer acquisition while still earning good returns on ad spend. Given Booking has to invest very little tangible capital, ROIC is over 80%. Booking has tremendous scale as the global number one. Booking is a capital-light business in a secularly growing industry, has a net cash balance sheet, and a solid management team. Travel continues to recover, with particular improvement in Europe (over 70% of sales), and Booking is taking market share from competitors. We find ~17 times normalized earnings (2024E) to be a punitive valuation. We believe Booking has a long runway for growth when the dust fully settles after COVID and the Ukraine war.

BSD Analysis:
FMI presents a strong bull case for Booking Holdings based on its dominant network effects and exceptional capital efficiency. The company's position as the world's largest online travel agency creates powerful competitive advantages through scale economics in customer acquisition and supplier relationships. The ability to charge 15% commissions while maintaining superior returns on advertising spend demonstrates significant pricing power and market leadership. Booking's asset-light model generates exceptional returns on invested capital exceeding 80%, highlighting the quality of the business franchise. The company's geographic diversification with over 70% European exposure positions it well for continued travel recovery. FMI views the 17x normalized earnings multiple as attractive given the secular growth in online travel penetration and Booking's market share gains. The net cash balance sheet provides financial flexibility during the recovery period while positioning the company for potential acquisitions or increased capital returns.

Pitch Summary:
Fortune Brands (FBIN) has one of the highest quality portfolios of branded building products in the world. Recognizable brands include Moen, Therma-Tru, Larson, Master Lock, and Sentry Safe. The stock traded down on housing-related macro concerns, along with an overhang from the company's now-completed spinoff of its lower-quality cabinetry business. Brand, innovation, and distribution strength are key differentiators, as the company has a leading market position in the attractive and consolidated global plumbing market. R&R accounts for over two thirds of the revenue mix, which should perform more defensively given the lower-ticket nature of the products. The company has a strong track record of organic growth, margin expansion, and a strong (mid-teens) return on invested capital (ROIC). Organic sales growth averaged 7% annually over the last decade, approximately 2-3% above estimated end-market growth. The company is embracing simplification and capital returns, which should be accretive to shareholder value. On 2024 estimates, the stock trades at only 14 times earnings per share (EPS).

BSD Analysis:
FMI presents a compelling value opportunity in Fortune Brands following housing-related market pessimism and portfolio simplification. The company's portfolio of leading brands including Moen and Therma-Tru provides strong competitive positioning in consolidated markets with significant barriers to entry. The defensive nature of the business is highlighted by over two-thirds revenue exposure to repair and remodel markets, which typically demonstrate resilience during economic downturns due to lower ticket sizes. Fortune Brands' historical outperformance of end-markets by 2-3% annually demonstrates pricing power and market share gains. Strong capital allocation discipline is evidenced by mid-teens ROIC and management's focus on simplification following the cabinetry spinoff. The 14x 2024 earnings multiple appears attractive given the quality of the franchise and long-term secular growth drivers in housing renovation markets.

Pitch Summary:
UnitedHealth Group (UNH) is the largest, best-managed, and most-diversified managed care organization in the U.S. and is among the largest providers of health services and technology through its fast-growing Optum businesses. In managed care (health insurance), UNH is the number one national provider in the rapidly expanding Medicare Advantage market, in addition to the number one or number two positions in most other sub-segments. Today, scale is more important than ever in delivering top benefits at competitive prices. Scaled buying power (and network building) ensures the most visibility into medical costs at a given site-of-care and scaled investment gives UNH the most enhanced capabilities (tools and technology, typically from Optum) that nudge participants towards lower cost sites-of-care. We view the forward valuation (17 times 2024E EPS) and long-term growth algorithm as attractive.

BSD Analysis:
FMI presents a strong bull thesis for UnitedHealth Group based on its dominant market position and diversified business model. The company's leadership in Medicare Advantage, a rapidly growing segment, provides significant competitive advantages through scale economics in both cost management and network development. The integration of Optum's health services and technology platforms creates unique capabilities to direct patients toward lower-cost care settings while improving outcomes. UNH's market-leading positions across multiple managed care segments demonstrate the sustainability of its competitive moat. The forward valuation of 17x 2024 estimated earnings appears attractive given the company's growth prospects and defensive characteristics. FMI emphasizes the increasing importance of scale in healthcare, positioning UNH to benefit from industry consolidation trends and regulatory changes favoring larger, more efficient operators.

Pitch Summary:
Our two most impacted holdings during this recent crisis were Zions Bancorporation and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an "earnings" event, not a "balance sheet" event. Zions and Schwab got caught up in the contagious fear around SVB's collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. Similarly, Schwab's retail deposit base is very sticky. Over 80% of their customers' cash is FDIC-insured, and the cash is spread across approximately 34 million brokerage accounts (average ~$10,000 in bank cash per account). Schwab has more balance sheet liquidity than deposits. In both cases, there appears to be a low risk of correlation among their respective client bases. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.

BSD Analysis:
FMI presents a compelling bull case for Charles Schwab following the banking sector volatility. The manager emphasizes Schwab's differentiated business model with a highly diversified retail deposit base spread across 34 million brokerage accounts averaging $10,000 each. The sticky nature of these deposits is reinforced by over 80% FDIC insurance coverage, providing significant stability during market stress. Schwab maintains superior balance sheet liquidity exceeding total deposits, offering substantial protection against potential outflows. FMI characterizes the market selloff as creating an attractive risk-reward opportunity, viewing the impact as temporary earnings pressure rather than structural balance sheet concerns. The firm has increased position size, demonstrating confidence in management quality and the long-term competitive positioning of the discount brokerage franchise.

Pitch Summary:
Our two most impacted holdings during this recent crisis were Zions Bancorporation and discount broker Charles Schwab. We believe both have sticky deposit bases, best-in-class management teams, conservative balance sheets, and attractive valuations. In both cases, outside of absolute contagion/panic resulting in a run on their deposits (a very low probability tail risk), we view the impact on the businesses as more of an "earnings" event, not a "balance sheet" event. Zions and Schwab got caught up in the contagious fear around SVB's collapse due to some optical similarities between their balance sheets (namely bonds carried at mark-to-market losses), and Zions being a West Coast regional bank. We believe the similarities largely end there. Zions has a much more diverse deposit base than SVB. We estimate that half of Zions' deposit base are small and medium-sized business operating deposits, which have historically been quite stable and a competitive advantage. Nearly half of Zions' deposits are FDIC-insured, and the bank has ample liquidity to meet outflows without selling its securities portfolio. Although there will likely be some profit headwinds that stem from this crisis, we viewed the large declines in these shares as overly punitive, and thus believe the risk/reward for each is increasingly attractive. We have added to both positions.

BSD Analysis:
FMI maintains a bullish stance on Zions Bancorporation despite the regional banking crisis that impacted the stock. The manager emphasizes Zions' differentiated deposit profile compared to failed Silicon Valley Bank, highlighting that approximately 50% of deposits come from stable small and medium-sized business operating accounts. The bank maintains strong liquidity with nearly half of deposits FDIC-insured and sufficient balance sheet liquidity to handle outflows without forced asset sales. FMI views the market selloff as creating an attractive entry point, characterizing the impact as an earnings headwind rather than a fundamental balance sheet issue. The firm has increased its position size, demonstrating conviction in the investment thesis. Management quality and conservative balance sheet management are cited as key differentiators that should support long-term value creation.

Pitch Summary:
Our only sizable addition in the quarter was a position established in Kato Works, a maker of heavy construction equipment, which is up 31% from our average purchase price of ¥789 and contributed 0.65% to overall fund performance. I continue to hold Kato Works in our portfolio as it trades well below its intrinsic value of ¥2,000 per share.

BSD Analysis:
The manager established a new position in Kato Works, a Japanese heavy construction equipment manufacturer, at an average price of ¥789 per share. The position has already generated strong returns, appreciating 31% and contributing 0.65% to fund performance in the quarter. The manager maintains a bullish stance with a target intrinsic value of ¥2,000 per share, representing significant upside potential of approximately 153% from the purchase price. This investment aligns with the fund's strategy of targeting undervalued Japanese companies trading below intrinsic value. The position benefits from the broader thesis that Japanese companies are trading at unjustifiably low valuations despite improved operational efficiency and capital allocation. The manager continues to hold the position, suggesting confidence in further appreciation toward the calculated intrinsic value.

Pitch Summary:
Medmix (Switzerland) is a business we know well as it was formerly Sulzer's applicators business and spun out as a standalone company in September 2021. We held Medmix shares briefly following the spin-off, but exited the position above CHF 40 per share in the fourth calendar quarter of 2021 as it was near our estimate of intrinsic value. Medmix manufactures high-precision delivery devices for the mixing, application and injection of liquids serving the dental, construction, chemical and the health care markets. The products Medmix sells typically represent 1-2% of the end market cost of its customers' products and are considered mission critical to its customers, leading to stable growth and attractive high-teens EBITA margins. Medmix's share price declined more than 60% in 2022, mostly due to Victor Vekelsberg, a Russian oligarch, who is Medmix's largest shareholder (40% stake) and has also been personally sanctioned by both the EU and the U.S. These sanctions had no material impact on Medmix's operations, but in May 2022 the Polish government deemed Medmix to be "Russian controlled" and forced it to cease operations in the country, which resulted in the closure of a plant that accounted for approximately 15% of group revenues. This had an adverse impact on profitability in 2022 and will have more limited impact on 2023 results. By 2024, the Polish capacity should be completely moved to Spain. We estimate that the loss of the Polish plant will reduce group-wide EBIT by 5-7% over the mid term, compared to a 60% decline in share price last year. This situation provided us with a compelling opportunity to invest in a high-quality, niche business.

BSD Analysis:
The manager identifies a compelling value opportunity in Medmix following geopolitical-driven selling pressure that created a significant disconnect between fundamental impact and share price decline. The company operates in an attractive niche with mission-critical products representing only 1-2% of customer costs, enabling pricing power and defensive demand characteristics. High-teens EBITA margins reflect the specialized nature and value-add of the precision delivery devices across dental, healthcare, construction, and chemical end markets. While the Russian oligarch ownership and Polish plant closure created operational disruption, the manager estimates only 5-7% mid-term EBIT impact versus a 60% share price decline. The planned capacity relocation to Spain by 2024 should restore operational efficiency. This temporary dislocation in a high-quality, niche industrial business with stable end markets presents an attractive risk-reward opportunity for patient capital.

Pitch Summary:
Kansai Paint (Japan) is the market leader and largest paint and coatings manufacturer in Japan. Its products are used primarily for automobiles, construction and ships along with bridges and residential housing. The majority of the company's business comes from Japan, but it also has customers in Europe, the U.S., China and India. We view the paint industry as attractive due to its consistent profitability across both industry participants and time. While each segment of the industry is different, the business is characterized by high technological barriers to entry, strong brand recognition, strong customer relationships, healthy degrees of maintenance revenue, and moderate to low capital requirements. In addition, globally the industry is consolidated, so pricing tends to be rational. We like that Kansai Paint has strong market positions in emerging markets as the majority of operating profit comes from these areas. The company has leading market positions in India and South Africa as well as good exposure throughout emerging Asia. Lastly, we are pleased with Kansai's management team, which has kept costs under control while successfully expanding outside of the company's home market, and we appreciate its focus on operating margins and return on equity.

BSD Analysis:
The manager presents Kansai Paint as an attractive play on the structurally appealing paint and coatings industry. The company benefits from classic defensive industry characteristics including high barriers to entry, strong customer relationships, and rational pricing dynamics in a consolidated global market. Kansai's market leadership position in Japan provides a stable foundation, while emerging market exposure offers superior growth potential. The strategic focus on India and South Africa, where the company holds leading positions, capitalizes on faster-growing economies with expanding infrastructure and automotive markets. Management's demonstrated ability to expand internationally while maintaining cost discipline and focus on profitability metrics suggests strong capital allocation and operational execution. The combination of defensive industry dynamics, emerging market growth exposure, and quality management creates an attractive risk-adjusted return profile.

Pitch Summary:
Colliers International Group (Canada) was established in 2004 as the commercial property services division of the residential real estate services firm FirstService before it was spun off in 2015. The company is the fourth-largest global diversified real estate services firm. In our view, Colliers is a leader in commercial real estate (CRE) services, sustaining a long history of through-cycle, double-digit growth and increasing profitability. Over time, the company has grown at or ahead of peers on an organic basis, and its asset management business reached around $98 billion in assets under management at the end of 2022. In addition to organic growth, Colliers's management team is also supplementing growth through mergers and acquisitions with a proven and highly repeatable approach, which they have successfully used across different end markets and locations. We believe Colliers's unique equity-retention approach allows the company to successfully diversify its service offerings more rapidly than its competitors, which typically target scale-driven acquisitions. We also appreciate that Colliers's business mix is shifting toward what we view as higher margin and more recurring activities with less cyclicity, such as asset management and outsourcing and advisory. Recent macroeconomic concerns have caused a sell-off in all CRE firms, which gave us an attractive opportunity to invest in Colliers.

BSD Analysis:
The manager identifies Colliers as an attractively valued leader in commercial real estate services following sector-wide selling pressure. The company's track record of through-cycle double-digit growth and peer-leading organic expansion demonstrates operational excellence and market share gains. The $98 billion asset management platform provides high-quality recurring fee income with attractive margins. Management's proven M&A strategy, utilizing unique equity-retention structures, enables faster service diversification compared to competitors focused on scale acquisitions. The strategic shift toward higher-margin, recurring revenue streams like asset management and advisory services should improve earnings quality and reduce cyclical exposure. The recent CRE sector selloff created an opportunistic entry point for a quality franchise with defensive characteristics and long-term growth potential.

Pitch Summary:
Software AG, an enterprise software company based in Germany, was a top detractor for the period. The share price of Software AG fell after the company released full-year results in January. For the fourth calendar quarter, revenue outpaced market expectations, while margins in the Digital Business Platform (DBP) business came in shy of forecasts. However, the company's results for the full year were solid, from our perspective, and overall performance exceeded our estimates. Excluding the impact from its recent acquisition of StreamSets, Software AG's total product revenue rose 7% year-over-year and its bookings advanced 15%, while its adjusted operating profit margin gained 160 basis points and finished 2022 at 21.2%. By segment, DBP revenues and bookings grew 7% and 12%, respectively. Concurrently, A&N (Adabas & Natural) segment revenues increased by 8%, and bookings rose 23% from the prior year. Furthermore, annual recurring revenue grew 10% on an organic basis. However, we were somewhat disappointed by management's 2023 guidance of total product revenue growth of 6-10% for the full year and an operating profit margin range of 16-18%, which were below the original levels aimed for in Software AG's strategic plan known as Helix. When we spoke with CEO Sanjay Brahmawar and CFO Daniela Bunger, they explained that the margin compression was due to both a faster than expected SaaS transition as well as standard cost inflation on salaries and other expenses. Although the SaaS transition should ultimately add value to the company, to address near-term concerns, management is implementing a cost-efficiency program that includes a 4% headcount reduction, process simplification and discretionary expense cuts. We believe these steps will benefit Software AG and significantly improve its results going forward.

BSD Analysis:
Despite near-term headwinds, the manager maintains conviction in Software AG's long-term value proposition. The company delivered solid fundamentals with 7% organic revenue growth, 15% bookings growth, and 160 basis points of margin expansion to 21.2%. Both Digital Business Platform and legacy A&N segments showed healthy growth momentum, with 10% organic ARR growth demonstrating recurring revenue strength. While 2023 guidance disappointed relative to the Helix strategic plan, management's explanation of SaaS transition timing and cost inflation appears credible. The proactive cost-efficiency program, including 4% headcount reduction and process optimization, should restore margin trajectory. The faster-than-expected SaaS transition, while pressuring near-term margins, positions the company for higher-quality recurring revenue streams and improved long-term valuation multiples.

Pitch Summary:
TeamViewer, a German remote access and remote-control computer software company, was a top contributor to the Fund's performance for the quarter. During the quarter, TeamViewer released results for fiscal-year 2022 that slightly exceeded billings guidance and came in at the high end of the guided profitability range, thereby surpassing both our and the market's expectations. TeamViewer's core SMB business demonstrated accelerated growth of 18% in the fourth quarter thanks to successful upsell campaigns and strong pricing. At the same time, the company's burgeoning Enterprise offering continued to demonstrate strong progress, and its billings grew by 42% for the fiscal year. The company's adjusted EBITDA margin hit the upper end of guidance at 47% in 2022, reflecting stable margins year over year despite a significant increase in marketing expenditure related to agreements with Manchester United and Mercedes Formula 1. Looking ahead, management anticipates stable margins in 2023 despite an increase in R&D spending. There is also significant margin upside potential if the company is able to successfully downgrade its sponsorship with Manchester United, as stipulated in a recently reached agreement. The company announced it will be shifting to a revenue-based guidance framework and provide more disclosure around its annual recurring revenue to increase transparency. We view this change positively. Finally, TeamViewer bought back roughly EUR 300 million of shares in 2022 (over 10% of outstanding shares) at an average price of around EUR 12.50 per share. The company simultaneously paid down significant net debt during the fiscal year, which brought its leverage in line with mid-term targets, providing the opportunity for a new share buyback program of up to EUR 150 million in 2023. We believe management is taking the right steps to continue to improve TeamViewer's financial performance and that it remains an attractive investment.

BSD Analysis:
The manager presents a compelling bull case for TeamViewer based on strong operational execution and financial performance. The company exceeded expectations across key metrics, with SMB business accelerating to 18% growth and Enterprise billings surging 42% annually. The 47% adjusted EBITDA margin demonstrates operational efficiency despite increased marketing spend on high-profile sponsorships. Management's shift to revenue-based guidance and enhanced ARR disclosure signals improved transparency and confidence. The aggressive capital allocation strategy, including EUR 300 million in buybacks (10%+ of shares) and debt reduction, reflects strong cash generation and shareholder-friendly management. The potential margin upside from reducing Manchester United sponsorship costs provides additional value creation opportunity.

Pitch Summary:
Envista Holdings is a leading dental products manufacturer. You may recall this was a successful investment dating back to 2020 that we sold less than a year ago. During the tumult in smaller capitalization companies in the first quarter, the share price once again met our criteria for investment, and its strong fundamentals matched our expectations. Unfortunately, the market began to agree with our assessment of attractiveness before we could build a full position. This is both a high-quality problem and a reality for investors as value conscious as we are.

BSD Analysis:
Oakmark re-entered Envista Holdings, a leading dental products manufacturer, after previously holding it successfully from 2020 until selling less than a year ago. The small-cap market volatility in Q1 2023 created another attractive entry opportunity when shares met their investment criteria. The managers confirm that Envista's strong fundamentals aligned with their expectations, validating their previous analysis. However, they note the challenge of building a full position as the market quickly recognized the company's attractiveness, driving prices higher. This demonstrates both the quality of their investment selection process and the competitive nature of value investing in efficiently priced markets. The brief commentary suggests confidence in Envista's business model and management execution within the dental products industry.

Pitch Summary:
Intercontinental Exchange is one of the largest and most successful financial exchange operators. The company was created through a series of shrewd acquisitions under founder and CEO Jeff Sprecher. We believe Sprecher is an excellent CEO with a history of astute capital allocation and an ability to adapt to opportunities and competitive threats. Today, Intercontinental Exchange competes in three primary segments: exchanges, fixed income/data services and mortgage technology. We believe each of these businesses exhibits attractive economic characteristics and will grow earnings faster than GDP over time. Investors today are concerned about Intercontinental Exchange's mortgage segment as rising interest rates have depressed origination volumes. We agree that this segment will be pressured in the near term. However, only 7% of trailing 12-month revenues are sensitive to mortgage volumes, and we believe they will eventually revert to historical norms. Today, however, Intercontinental Exchange sells for what we believe is an underserved discount to its exchange peers and private market valuations.

BSD Analysis:
Oakmark views Intercontinental Exchange as a premier financial infrastructure company built through strategic acquisitions under founder-CEO Jeff Sprecher's leadership. The managers praise Sprecher's capital allocation track record and adaptability to market opportunities and threats. ICE operates across three segments: exchanges, fixed income/data services, and mortgage technology, each exhibiting attractive economic characteristics with above-GDP growth potential. While acknowledging near-term pressure on the mortgage segment due to rising interest rates, they note this represents only 7% of revenues and expect normalization over time. The current valuation represents an undeserved discount to exchange peers and private market valuations, creating an attractive entry opportunity. The investment thesis combines high-quality business economics, proven management execution, and temporary valuation dislocation due to cyclical mortgage market concerns.