Investment Pitches

Pitch Summary:
Sage Group, which was the largest contributor to relative performance both in the fourth quarter and for the full year, continues to demonstrate strong business momentum with organic revenue growth in the low double-digit range. More recently, in this past quarter, management guided for continued low double-digit revenue growth for their fiscal 2024, a function of Sage's strong value proposition of providing mission-critical software to small and medium-sized businesses. This level of growth, coupled with modest margin expansion, should, in our estimation, allow Sage to grow earnings at a mid-teens annualized rate going forward.

BSD Analysis:
Polen Capital maintains a bullish stance on Sage Group, highlighting the company's consistent execution and strong market position. The fund manager emphasizes Sage's mission-critical software offerings to SMBs, which provides defensive revenue characteristics and pricing power. The low double-digit organic revenue growth demonstrates the stickiness of Sage's customer base and the essential nature of their solutions. Management's guidance for continued growth in fiscal 2024 reinforces the sustainability of this trajectory. The combination of revenue growth and margin expansion creates a compelling earnings growth profile, with Polen projecting mid-teens annualized earnings growth. This positions Sage as a quality compounder with predictable cash flows and strong competitive moats in the fragmented SMB software market.

Pitch Summary:
Abbott Laboratories, a globally dominant healthcare business serving a broad range of end markets, was another position we added to in the period. The stock has come under pressure in recent quarters as the company has experienced a significant (expected) decline in sales tied to pandemic-era COVID testing. However, we feel this amounts to little more than a distraction, as the core business continues to perform very well. Nothing has changed around our expectations for long-term growth, yet the stock's valuation has compressed, making for an attractive opportunity to add to the position given the long-term durable growth profile of this business.

BSD Analysis:
Polen Capital views Abbott Laboratories as a globally dominant healthcare company with exposure to diverse end markets, providing defensive characteristics and growth opportunities. The fund added to their position during the quarter, taking advantage of stock weakness caused by the expected decline in pandemic-era COVID testing sales. Polen dismisses this revenue headwind as a temporary distraction, emphasizing that the core business continues performing well with unchanged long-term growth expectations. The managers see the valuation compression as an attractive entry point to increase their position size, given Abbott's durable long-term growth profile. This opportunistic approach reflects Polen's conviction in Abbott's fundamental business quality and their ability to capitalize on short-term market inefficiencies. The fund's confidence in Abbott's diversified healthcare platform and consistent execution makes it an attractive addition to their concentrated portfolio of high-quality growth companies.

Pitch Summary:
Amazon continues to showcase it's place as one of the most competitively advantaged companies in the world. The company has made significant progress in managing costs and better leveraging existing capacity, driving a strong recovery in its profitability. We think there's additional room for improvement. AWS growth seems to be stabilizing even while management continues to work with clients to optimize their infrastructure spend. Roughly 90% of global IT spending remains on premise. We believe this will eventually flip, with most IT spending ultimately moving to the cloud over time. We think AWS will be a significant beneficiary of this transition. Further, our investment case on company profitability driven by AWS and advertising continues to unfold, delivering nearly $8 billion in free cash flow over the trailing twelve months and a net margin of 5%. We expect both to move higher with the mix shift of more profitable businesses growing fastest continuing to take effect. At Amazon's current price, we believe the company is well positioned to deliver a mid-teens or higher total shareholder return for our clients over the next five plus years without a Herculean effort from the business. It simply needs to continue executing on current businesses and growing into the capacity it built during and immediately after the pandemic.

BSD Analysis:
Polen Capital maintains strong conviction in Amazon, emphasizing the company's competitive advantages and improving profitability trajectory through cost management and capacity optimization. The manager highlights Amazon's progress in driving operational efficiency, resulting in nearly $8 billion in trailing twelve-month free cash flow and 5% net margins, with expectations for continued improvement. AWS represents a key growth driver as cloud adoption accelerates, with Polen noting that 90% of global IT spending remains on-premise, creating a massive long-term opportunity as this shifts to cloud infrastructure. The investment thesis centers on the mix shift toward higher-margin businesses like AWS and advertising, which should drive expanding profitability over time. Polen's valuation assessment suggests Amazon can deliver mid-teens or higher total returns over the next five years through steady execution rather than requiring extraordinary performance. The company's pandemic-era capacity investments provide a foundation for growth as demand normalizes and utilization improves.

Pitch Summary:
As we discussed in last quarter's commentary, Novo Nordisk is a newer addition to the strategy. Over the fourth quarter, we continued to build the position to an average weight. As a reminder, Novo Nordisk is a global pharmaceutical company based in Denmark and has long been the leader in developing insulin for diabetes patients. In recent years, the company's innovation into GLP-1 drugs has been shown not only to help diabetics control blood sugar levels but also to have significant efficacy in weight loss. Obesity has become a global epidemic, creating materially negative knock-on effects for humans that range from an increase in cardiovascular events and, thus, higher mortality to a lower general quality of life. We believe that, over time, payors will recognize the value of these obesity treatments to both patients and the overall healthcare system.

BSD Analysis:
Polen Capital has been building their position in Novo Nordisk to an average weight, viewing the Danish pharmaceutical company as a compelling growth opportunity. The fund's thesis centers on Novo's leadership in diabetes care through insulin development and their breakthrough innovation in GLP-1 drugs, which demonstrate dual efficacy for diabetes management and significant weight loss. Polen recognizes obesity as a global epidemic with severe health consequences including increased cardiovascular events and mortality, creating a massive addressable market. The managers believe healthcare payors will increasingly recognize the value proposition of these obesity treatments for both patient outcomes and overall healthcare system costs. This positions Novo Nordisk to benefit from a secular growth trend in obesity treatment while maintaining their dominant position in diabetes care, representing a compelling long-term investment opportunity in the expanding pharmaceutical market.

Pitch Summary:
Workday continues to compound by replicating its go-to-market strategy with high-value and known products into its addressable market. The company's initiatives into financials and expanding into other geographies required some patience, and the progress we have seen shows addressable market expansion that can allow for many years of outsized and compounding growth. The price, competitive advantages, and likelihood of outsized growth led us to size Workday as a larger position within the Portfolio.

BSD Analysis:
Polen Capital increased their Workday position, viewing it as a larger holding based on the company's successful addressable market expansion and compounding growth strategy. The manager emphasizes Workday's ability to replicate its proven go-to-market approach across new product areas and geographies, particularly highlighting progress in financial applications and international expansion. While these initiatives required patience from investors, Polen believes the demonstrated progress validates the strategy and creates a foundation for sustained outsized growth over many years. The investment thesis centers on Workday's competitive advantages in human capital management software and the company's ability to expand into adjacent markets while maintaining high-value product positioning. Polen's decision to size this as a larger portfolio position reflects confidence in the company's long-term compounding potential and the significant runway for continued market share gains across multiple geographies and product categories.

Pitch Summary:
Like Workday and Amazon, SAP's stock price rose significantly in Q4 after the company reported its Q3 2023 earnings. Importantly, SAP's transition to the cloud (a core part of our thesis on the business) continues at pace, and the company is seeing both robust cloud revenue growth and expanding cloud gross margins. Management is guiding cloud sales growth through 2025 in the mid-20% range, which we view as reasonable and attractive. We also view SAP as one of the more resilient software business models as it is an essential part of its customers' day-to-day operations and cannot easily be turned off or scaled back.

BSD Analysis:
Polen Capital maintains a bullish view on SAP, with the cloud transition serving as the core investment thesis. The fund is encouraged by the company's continued progress in cloud migration, evidenced by robust cloud revenue growth and expanding cloud gross margins following strong Q3 2023 earnings. Management's guidance for mid-20% cloud sales growth through 2025 is viewed as both reasonable and attractive by Polen. The managers particularly value SAP's business model resilience, noting that the software is essential to customers' daily operations and cannot be easily discontinued or reduced, providing defensive characteristics and recurring revenue stability. This combination of growth from cloud transition and defensive business model characteristics makes SAP an attractive holding in Polen's concentrated portfolio of high-quality growth companies.

Pitch Summary:
Regarding Novo Nordisk, we've covered the company for a long time and owned it many years ago, ultimately selling because of payor pricing pressure on the insulin business. What has changed the investment case for us, though, is the company's innovation into GLP-1 drugs, which not only help diabetics control blood-sugar levels but have also shown significant efficacy in weight loss. Novo Nordisk's best-known GLP-1 drugs, Ozempic (for diabetes) and Wegovy (for obesity), are already blockbusters, frequently grabbing headlines in global news publications for their significant results. GLP-1 drugs account for nearly 70% of Novo Nordisk's sales today. Obesity has become a global epidemic, creating materially negative knock-on effects for humans that range from an increase in cardiovascular events and, thus, lower mortality to a lower general quality of life. Our research shows that Novo Nordisk has the track record, management team, and expertise to develop this market. We believe that, over time, payors will recognize the value of these obesity treatments to both patients and the overall healthcare system.

BSD Analysis:
Polen Capital re-initiated a position in Novo Nordisk after previously exiting due to insulin pricing pressures, now attracted by the transformative GLP-1 drug opportunity. The manager highlights the dramatic shift in Novo's business model, with GLP-1 drugs now representing nearly 70% of sales, fundamentally changing the investment proposition. Blockbuster drugs Ozempic and Wegovy have demonstrated significant efficacy for both diabetes management and weight loss, addressing the global obesity epidemic that affects cardiovascular health and quality of life. Polen's research indicates Novo Nordisk possesses the necessary track record, management expertise, and development capabilities to capitalize on this massive market opportunity. The investment thesis anticipates growing payor recognition of the value proposition these treatments offer to both individual patients and the broader healthcare system through reduced long-term medical costs. This represents a compelling example of pharmaceutical innovation creating substantial new addressable markets while addressing critical global health challenges.

Pitch Summary:
Amazon, which saw significant price appreciation throughout much of 2023, saw its share price increase materially in Q4 following the company's Q3 2023 earnings report. We have yet to see the long-awaited re-acceleration in AWS (Amazon Web Services) revenue growth. However, in our estimation, the segment's growth has likely bottomed, and we could see accelerating growth in 2024. Further, Amazon's e-commerce business has gradually re-accelerated from 2022's levels and, perhaps most importantly, the company's margins and free cash flow have rebounded materially from last year. This rebound in margins and free cash flow at Amazon has been a key component of our long-term thesis for the business, and we expect the improvement in these metrics to continue into 2024 and beyond (though perhaps not linearly) as the company continues to optimize costs and capital expenditures. Our position in Amazon reflects our positive long-term expectations of the business, and it is currently our largest absolute weight in the Portfolio. Amazon continues to showcase its place as one of the most competitively advantaged companies in the world, according to our research. Over the past few years, the company has made significant progress in managing costs and better leveraging existing capacity, driving a strong recovery in its profitability. Still, we think there's additional room for improvement. Even after a solid run in the stock through 2023, we believe Amazon remains among one of the most attractively valued businesses in the market today. Our research shows that it is well positioned to deliver a mid-teens or higher total shareholder return for our clients over the next five-plus years without a Herculean effort from the business. It simply needs to continue executing on current businesses and growing into the capacity it built during and immediately after the pandemic.

BSD Analysis:
Polen Capital holds Amazon as their largest position, viewing it as one of the most competitively advantaged companies globally. The fund expects AWS growth to re-accelerate in 2024 after likely bottoming out, while the e-commerce business continues recovering from 2022 levels. Most importantly, Polen highlights the material rebound in margins and free cash flow as validation of their long-term thesis, expecting continued improvement as Amazon optimizes costs and capital expenditures. Despite the stock's strong 2023 performance, the managers believe Amazon remains attractively valued and well-positioned to deliver mid-teens or higher total shareholder returns over the next five years. The fund's confidence stems from Amazon's ability to grow into the capacity built during the pandemic while executing on existing businesses, suggesting a relatively low-risk path to strong returns given the company's competitive moat and operational leverage.

Pitch Summary:
MSCI helps clients by offering investment decision support tools, including indices, portfolio risk, performance analytics, and corporate governance products and services. We believe that MSCI is one of the most competitively advantaged businesses today. These competitive advantages consist of being an industry "standard" business, serving as a required reference point for asset managers and asset allocators alike and creating powerful network effects. MSCI serves as a 3rd party, independent and objective reference point within an industry that requires one. It also executes a contributory data model whereby the company takes in raw data from the industry, refines and packages it, and sells it back to industry participants. As we see it, CEO Henry Fernandez is an excellent allocator who has expanded the company's moat. Historically, the company's share price has kept us on the sidelines. At roughly 32x free cash flow, though, we believe that the company is priced fairly. We expect solid double-digit earnings growth for many years while seeing a path for potentially higher growth through significant optionality from ESG, climate, and private market offerings.

BSD Analysis:
Polen Capital initiated a position in MSCI, viewing it as one of the most competitively advantaged businesses in the market with powerful network effects and industry-standard positioning. The manager emphasizes MSCI's role as an essential third-party reference point for asset managers and allocators, creating a contributory data model where the company aggregates industry data, refines it, and redistributes it back to participants. This business model generates significant barriers to entry and pricing power due to MSCI's embedded position in investment workflows. Polen praises CEO Henry Fernandez as an excellent capital allocator who has successfully expanded the company's competitive moat over time. The valuation at approximately 32x free cash flow is considered fair for the quality of the franchise, with expectations for solid double-digit earnings growth. The investment thesis includes significant optionality from emerging growth areas including ESG products, climate analytics, and private market offerings, which could drive above-average growth rates.

Pitch Summary:
Workday's stock price was weak coming into the quarter. At the company's investor day in late September, management provided medium-term annual revenue guidance of 17-19%. Many investors were likely expecting annual revenue guidance of 20%+, so the 17-19% guidance may have been viewed as a tad disappointing. Following the investor day, Workday's stock price rose significantly during Q4, buoyed by the company's fiscal Q3 2024 earnings report, which was better than anticipated and included management raising revenue guidance for their fiscal 2024. We view the long-term guidance provided at the investor day as likely to be conservative, with ample room for Workday to continue taking share in the $100bn+ global HCM (human capital management) market. We remain confident in Workday's ability to generate 20%+ annualized earnings growth over the next three to five years.

BSD Analysis:
Polen Capital maintains a bullish stance on Workday despite initial market disappointment with management's 17-19% medium-term revenue guidance. The fund views this guidance as conservative, believing the company has significant opportunity to capture market share in the $100+ billion global human capital management market. The manager's confidence was reinforced by Workday's strong Q3 2024 earnings report, which exceeded expectations and prompted management to raise fiscal 2024 revenue guidance. Polen expects Workday to deliver 20%+ annualized earnings growth over the next three to five years, suggesting the company's competitive position in enterprise cloud applications remains strong. The fund sees the initial stock weakness as temporary, with the subsequent Q4 rally validating their thesis about the company's underlying fundamentals and growth trajectory.

Pitch Summary:
Regarding Siemens Healthineers, the fundamentals are intact despite many moving parts from the decline in COVID-19 antigen testing revenues. To put this in perspective, COVID-19 testing revenues have fallen from €680m last year to €4m in the past quarter. Adjusting for some of these non-recurring events shows comparable revenue growth of 11%. Beginning in 2024, we expect headwinds from COVID-19 antigen testing and costs from the Corrindus acquisition to abate, revenues to accelerate, and margins to expand across all divisions.

BSD Analysis:
Polen Capital maintains confidence in Siemens Healthineers despite near-term headwinds from declining COVID-19 testing revenues and acquisition integration costs. The manager provides clear context on the magnitude of COVID-19 revenue decline, falling from €680 million to just €4 million quarterly, demonstrating the significant but temporary impact on reported results. When adjusting for these non-recurring factors, the underlying business shows healthy 11% comparable revenue growth, indicating strong fundamental performance in core operations. Polen's forward-looking perspective anticipates meaningful improvement beginning in 2024 as COVID-related headwinds fully abate and integration costs from the Corrindus acquisition normalize. The investment thesis centers on the company's ability to accelerate revenue growth and expand margins across all divisions once these temporary factors resolve. This represents a classic example of Polen's approach to looking through short-term noise to focus on underlying business fundamentals and long-term earnings power.

Pitch Summary:
LVMH has enjoyed a terrific recent environment for luxury, with industry sales growing the fastest in over a decade. Growth drivers have been demand from China, rising emerging markets income, strong pricing power, and increased penetration in younger generations. Over the past five years, the company has compounded underlying earnings per share growth at 22%. LVMH owns some of the world's strongest luxury brands, but the tailwinds over the past decade are fading, and we do not believe that earnings will compound at the same rates over the next five years. Our more sober view on future growth rates appears to have been adopted by the market as well, with the company's share price declining about 20% this quarter. This does not change our views on the long-term prospects for this business, though. We think LVMH is very reasonably valued and is well positioned to drive strong long-term growth.

BSD Analysis:
Polen Capital maintains a constructive long-term view on LVMH despite acknowledging a moderation in growth expectations and a 20% quarterly stock decline. The manager recognizes LVMH's exceptional historical performance, with 22% compound earnings per share growth over five years, driven by robust demand from China, emerging market wealth creation, strong pricing power, and successful penetration among younger consumers. However, Polen demonstrates realistic expectations by acknowledging that the extraordinary tailwinds supporting luxury goods over the past decade are diminishing, making similar growth rates unlikely over the next five years. The recent market correction appears to reflect this more tempered outlook, bringing valuation to reasonable levels. Despite moderating growth prospects, the investment thesis remains intact based on LVMH's portfolio of world-class luxury brands and strong competitive positioning. The manager views the current valuation as attractive for long-term wealth creation, even with more modest growth expectations going forward.

Pitch Summary:
With respect to Adobe, the most recent quarter delivered more of the same with constant currency revenue growing 13%, margin expansion, and over 2% of shares outstanding repurchased for non-GAAP earnings growth of over 20%. We believe its approach to GenAI through Firefly, which guarantees safe content because it trains on Adobe Stock, will continue to be attractive to enterprises. The counter to GenAI, and something we are keeping an eye on with Alphabet and Adobe, is that it requires heavy investment. While both businesses can leverage their scale and manage costs in other areas, we expect the investment in future growth through GenAI will weigh on company-wide margins over the near term. In the case of Adobe, we remain convicted in the business, as evidenced by its large position size after the trim. We believe the company is fairly priced, but after appreciating by more than 50% year to date, we felt that a super-sized position was no longer warranted and decided to use Adobe to fund the MSCI purchase.

BSD Analysis:
Polen Capital maintains strong conviction in Adobe despite trimming the position after significant year-to-date appreciation exceeding 50%. The manager highlights Adobe's consistent operational excellence with 13% constant currency revenue growth, margin expansion, and aggressive share repurchases of over 2% of outstanding shares, resulting in non-GAAP earnings growth exceeding 20%. Adobe's GenAI strategy through Firefly represents a competitive advantage, particularly the safe content guarantee from training on Adobe Stock, which appeals to enterprise customers concerned about content liability. However, Polen acknowledges the substantial investment requirements for GenAI development will pressure near-term margins across the company. The position trim reflects portfolio management discipline rather than fundamental concerns, as the manager considers Adobe fairly valued but no longer warranting an oversized allocation. The decision to use Adobe proceeds to fund the MSCI purchase demonstrates active portfolio optimization while maintaining meaningful exposure to Adobe's long-term growth prospects.

Pitch Summary:
Both Alphabet and Adobe's businesses continue to perform well. In the case of Alphabet, management is leaning heavily into the fact that they have been an AI business for some time. During the most recent quarter, the company generated ~$75 billion in revenue, an increase of 9% in constant currency. Despite the hype around ChatGPT and Bing, Google's dominant search share was unaffected, and Search remains the largest contributor to Alphabet's revenue growth and profitability. With over $20 billion in free cash flow during the quarter, we continue to admire the company's ability to reinvest capital into areas other than Search, such as YouTube, Google Cloud Platform, and other bets. Management appears to be replying to Microsoft's attack fervently and from a position of strength.

BSD Analysis:
Polen Capital maintains a bullish stance on Alphabet, emphasizing the company's established AI capabilities and resilient search dominance. The manager highlights Alphabet's impressive quarterly performance with $75 billion in revenue growing 9% in constant currency, demonstrating the company's fundamental strength. Despite competitive pressures from Microsoft's ChatGPT and Bing initiatives, Google's search market share remains intact, continuing to drive the majority of revenue growth and profitability. The company's robust cash generation of over $20 billion in quarterly free cash flow provides substantial flexibility for strategic reinvestment across growth areas including YouTube, Google Cloud Platform, and experimental ventures. Polen views management's response to competitive threats as both aggressive and strategically sound, leveraging the company's dominant market position. The investment thesis centers on Alphabet's ability to maintain search leadership while successfully diversifying revenue streams through AI integration and cloud services expansion.

Pitch Summary:
XPEL is a leader in the automotive paint protection film ("PPF") market. The company distributes the film along with other automotive products globally. In 2022, 59% of revenue came from the U.S. and 41% from international markets. PPF has seen increasing adoption over the past 5-10 years as car enthusiasts look to the product to protect their vehicles from rock chips, tree sap, hail, UV damage, and salt. XPEL PPF is installed and sold by XPEL-authorized, certified, and trained professionals. The company also provides automotive window film, which protects and tints vehicle windows. In recent years, XPEL has developed products for boats, planes, and architectural windows. We think XPEL is a uniquely competitively advantaged business with a great management team that has evolved and grown the category. The future earnings growth story will be primarily driven by broader adoption, increasing popularity of PPF, and international expansion.

BSD Analysis:
Polen Capital initiated a position in XPEL, viewing it as a uniquely positioned leader in the growing automotive paint protection film market. The company benefits from increasing adoption of PPF over the past 5-10 years as car enthusiasts seek to protect their vehicles from various environmental damages. XPEL's competitive advantage stems from its authorized dealer network of certified and trained professionals, creating barriers to entry and ensuring quality installation. The company's geographic diversification with 59% U.S. and 41% international revenue provides balanced exposure, while product expansion into boats, planes, and architectural applications demonstrates growth optionality. Polen credits management with successfully evolving and growing the category, positioning the company to benefit from broader PPF adoption, increasing popularity, and international expansion opportunities.

Pitch Summary:
We bought a new position in Progyny, a company owned in our U.S. strategies for some time. They are a leading provider of fertility benefit solutions, and through their differentiated approach, their clients can pursue the most effective treatment and achieve optimal outcomes. We believe the company has only a mid-single digit share of its potential total addressable market and is the most dominant player within the fast-growing managed care category. They are already profitable, earn high returns on incremental capital, and have plenty of runway to grow top-line growth as they continue to win new clients and add new services.

BSD Analysis:
Polen Capital added Progyny to their Global SMID strategy, leveraging their existing experience with the company in U.S. strategies. The manager views Progyny as the dominant player in fertility benefit solutions with a differentiated approach that delivers superior treatment outcomes for clients. With only mid-single digit market share penetration of the total addressable market, Polen sees substantial growth runway in the fast-growing managed care category. The company's existing profitability combined with high returns on incremental capital demonstrates strong unit economics and capital efficiency. Polen's confidence is reinforced by multiple growth vectors including new client wins and service expansion opportunities, suggesting a compelling long-term growth trajectory in an underpenetrated market.

Pitch Summary:
We bought a new position in Morningstar, a leader in providing investment management and wealth management data, software, and solutions to the financial services industry. Management has spent the last four years investing heavily in several business lines, like private markets data and ESG, that have depressed margins in the near term but should provide durable growth opportunities for many years. As the company reaps the benefits from these investments over the coming years, we expect margins to track towards their prior levels of 20-25% from current low-to-mid teens. Combined with low-double-digit revenue growth and management's long history of opportunistic share buybacks, we think this should translate into healthy EPS growth over our holding period.

BSD Analysis:
Polen Capital initiated a position in Morningstar, viewing it as a leader in financial services data and software with significant margin expansion potential. The manager appreciates management's strategic investments over the past four years in high-growth areas like private markets data and ESG, which have temporarily depressed margins but should drive durable long-term growth. Polen expects margins to recover from current low-to-mid teens levels back toward historical ranges of 20-25% as these investments mature and scale. The combination of low-double-digit revenue growth, margin expansion, and management's track record of opportunistic share buybacks creates a compelling setup for healthy EPS growth. This investment reflects Polen's willingness to invest through temporary margin compression when the long-term fundamentals and competitive positioning remain strong.

Pitch Summary:
In September, publishers named Dollar General the Worst Retail Job in America. The headlines exposed "rat infestations, blocked fire exits, expired kids' food, machete-wielding and watermelon-throwing shoppers and other nightmares" and Dollar General was going to spend a mere $150 million to fix it. The market speculated: "If DG cannot handle its current store base, will it need to slow store growth?" and "Is $150 million really going to be enough?" The wrong answer to either question would be dire. Rather than join the cause to panic sell first and ask questions later, we re-underwrote the position and stress-tested our thesis. When the pandemic forced us into our homes, many living in urban areas decided to try out the countryside, reversing a decade-long trend of urbanization. According to the US Census from 2021 to 2022, the largest US cities saw the greatest concentrations of residents moving out. For Dollar General, this means that there are now more rural areas to build new stores. So long as there are growing pockets of rural development, we do not see a need for Dollar General to slow store growth. But execution remains a crucial ingredient to DG's success. In a back-of-the-envelope calculation, the $150 million labor investment equates to about $14 a day per store assuming the investment is split evenly between stores. This shorthand calculation was commonly cited alongside criticisms of DG's store conditions, but it fails to appreciate that not every single store needs a facelift. In June, management began piloting a new strategy called Smart Teams where district managers choose 2-4 of their district's best inventory stockers to clean up the worst stores in the district. After a successful pilot, the strategy was deployed across the store base over the last quarter. We expect the investment to reduce inventory shrink and improve same-store sales, metrics that have plagued the stock this year.

BSD Analysis:
Broyhill maintained conviction in Dollar General despite negative media coverage highlighting operational challenges and poor working conditions across stores. The fund viewed the market's panic selling as an overreaction, conducting thorough re-underwriting rather than following the crowd. Their contrarian thesis centers on demographic tailwinds from urban-to-rural migration post-pandemic, creating expanded addressable markets for new store development. The $150 million investment in labor and store conditions, while criticized as insufficient, represents a targeted approach through the Smart Teams strategy rather than blanket spending across all locations. Broyhill expects this operational improvement initiative to address key pain points of inventory shrinkage and same-store sales growth that have pressured the stock. The fund's analysis suggests the market misunderstood both the scope of problems and the efficiency of proposed solutions. Their willingness to add to the position during weakness demonstrates strong conviction in the long-term rural retail opportunity.

Pitch Summary:
We initiated a position in TravelSky, a Chinese aviation software company similar to Amadeus in Europe. The company has an almost monopolistic position in China and benefits from increased domestic and international travel by Chinese citizens. Per capita consumption of air travel remains low in China and was particularly depressed during COVID-19. The company also benefits from the build-out of airports in the country by providing systems and software. We think valuation is very attractive and is arguably at less than 10x normalized earnings. We expect revenue recovery and corresponding margin expansion as travel resumes and the company monetizes various opportunities.

BSD Analysis:
Polen Capital initiated a position in TravelSky, viewing it as a compelling recovery play in Chinese aviation technology with monopolistic characteristics. The company's dominant position in China's aviation software market, similar to Amadeus in Europe, provides significant competitive advantages and pricing power. Polen sees substantial upside from the recovery in Chinese domestic and international travel from depressed COVID-19 levels, particularly given the low per capita air travel consumption that suggests long-term growth potential. The company's involvement in China's airport infrastructure build-out provides additional revenue streams beyond core travel booking systems. At less than 10x normalized earnings, Polen views the valuation as very attractive for a business with monopolistic characteristics and significant operating leverage as travel volumes recover.

Pitch Summary:
If you were not following the saga that was the acquisition of Activision Blizzard by Microsoft, we invite you to breeze through our play-by-play write-up of the merger here: ATVI: Anti-Trust Gone Wild. At the time of this write-up, the Federal Trade Commission (FTC) had just been denied its request for a preliminary injunction, or a request that Microsoft's acquisition of Activision be delayed until the FTC could finish its suit to block the deal. After the FTC's denial, the UK's Competition and Markets Authority (CMA), which previously vetoed the acquisition, announced its willingness to reconsider remedies offered by Microsoft. We will pick up there. Following the loss, the FTC trudged on. It appealed Judge Corley's denial of the preliminary injunction and lost, then took the case back in-house to its administrative law judge. Why they would do this – we aren't sure. The FTC's administrative proceeding will eventually end up back in the district court where it was previously shot down. It's a losing game. A month after the CMA showed willingness to reconsider the deal, Microsoft submitted a revised deal for review which included the transfer of cloud gaming rights to Ubisoft. The CMA accepted the revised deal and the deal closed at the originally agreed-upon price of $95 on October 13th.

BSD Analysis:
Broyhill successfully navigated the complex regulatory landscape surrounding Microsoft's acquisition of Activision Blizzard, demonstrating strong merger arbitrage expertise. The fund correctly anticipated that regulatory challenges from the FTC and UK's CMA would ultimately fail, despite initial setbacks and prolonged uncertainty. Their analysis proved prescient as the deal closed at the original $95 price after Microsoft addressed cloud gaming concerns by transferring those rights to Ubisoft. The position generated significant alpha as a top contributor to quarterly performance, validating Broyhill's thesis that regulatory opposition was politically motivated rather than substantively grounded. This successful merger arbitrage play showcased the fund's ability to analyze complex antitrust situations and regulatory dynamics. The investment required patience and conviction through multiple regulatory challenges and appeals. Broyhill's detailed tracking of the legal proceedings and regulatory developments enabled them to maintain conviction when others may have capitulated.