Investment Pitches

Pitch Summary:
First American Financial (FAF), the second-largest title insurance provider in the U.S., is a quintessential value bucket example (buying a high-quality operator at an attractive valuation when their business is in a recession). While most people don't think about title insurance when purchasing a home, policies indemnify homeowners and lenders against title defects that could result in significant losses arising from back taxes, liens, and other claims. Rising mortgage rates over the past two years have weighed on First American shares, as 30-year fixed rate residential mortgages more than doubled from around 3% at the end of 2021 to more than 7% today. Residential refinance volumes plunged 85% by late 2022, while new purchase volumes fell more than 40%. As a result, FAF's earnings expectations are down nearly 50% relative to the cycle peak. However, the year-over-year decline in the Mortgage Bankers Association Purchase Index is getting "less bad," which is often when the share prices of good companies begin to recover (as long as the market considers the improvement to be sustainable). Meanwhile, management has taken several self-help steps to improve profitability. Examples include exiting unprofitable property and casualty operations and automating manual processes, which should boost margins. FAF shares trade at just 12X earnings, based on forecasts for the next 12 months. While a P/E ratio of 12X is in line with the insurance industry, we do not believe the broader industry has the same cyclical earnings upside as First American. Historically, title insurers have traded at 15X or higher early in a cyclical recovery.

BSD Analysis:
Heartland presents a compelling cyclical recovery thesis for First American Financial, the second-largest title insurance provider in the U.S. The manager views FAF as a high-quality operator trading at an attractive valuation during a business recession caused by rising mortgage rates. With 30-year mortgage rates doubling from 3% to over 7%, refinance volumes plunged 85% and purchase volumes fell 40%, driving earnings expectations down 50% from cycle peaks. However, the fund sees early signs of stabilization in the Mortgage Bankers Association Purchase Index decline rate. Management's self-help initiatives, including exiting unprofitable P&C operations and process automation, should enhance margins as the cycle turns. At 12x forward earnings, FAF trades in line with the broader insurance industry despite having superior cyclical upside potential. Historically, title insurers have commanded 15x+ multiples during early recovery phases, suggesting meaningful revaluation opportunity as housing market conditions normalize.

Pitch Summary:
Omnicell is one of the leading manufacturers of medication-adherence solutions for healthcare-delivery systems. Studies have shown that wasted medications alone cost hospitals nearly $800 million annually. Omnicell aims to solve this problem. Its products, which consist of automated dispensing systems, medication cabinets and pharmacy robotics, ensure the right medication gets to the right person in the right quantity, saving lives, money and headaches. This is the second consecutive quarter Omnicell has been among our top detractors as macroeconomic factors plaguing the company persist. Hospital budgets remain tight, leading to delays in purchases and slower upgrade cycles, causing Omnicell management to reduce guidance once again. Given ongoing uncertainty around demand, management announced a restructuring plan that will generate $45 million to $55 million in annual cost savings. Omnicell is in its toughest stretch since the 2008-2009 financial crisis. It is unlikely business will improve meaningfully until the economy does. Fortunately, the company has a solid balance sheet and remains cash flow positive. It also has a new CFO as of June 2023 which should bring some added discipline to expenses. Despite near-term challenges, the company's products and value proposition remain as relevant as ever. And if the past is prologue, sales will recover sharply as the economy heals, and the stock price should follow. This long-term perspective keeps us patient and excited about its future.

BSD Analysis:
Brown Capital maintains a long-term bullish view on Omnicell despite near-term cyclical headwinds affecting hospital capital spending. The fund's investment thesis is anchored on the company's mission-critical role in reducing the $800 million annual cost of medication waste in hospitals through automated dispensing systems and pharmacy robotics. While acknowledging the current challenging environment with tight hospital budgets causing purchase delays and guidance reductions, Brown Capital emphasizes Omnicell's strong fundamentals including a solid balance sheet and positive cash flow generation. The company's restructuring plan targeting $45-55 million in annual cost savings demonstrates proactive management. The addition of a new CFO in June 2023 should enhance expense discipline during this difficult period. Brown Capital draws parallels to the 2008-2009 financial crisis, suggesting that historical precedent supports a sharp recovery once economic conditions normalize. The fund's patient approach reflects confidence in the enduring value proposition of medication safety and cost reduction solutions in healthcare delivery systems.

Pitch Summary:
Manhattan Associates is a leader of supply-chain execution and omnichannel software. The company's solutions optimize all facets of a supply-chain ecosystem, providing real-time inventory visibility, demand planning and forecasting, labor scheduling, and tools that improve customer engagement. Today's consumers expect options when shopping beyond the traditional buy online/ship to home. They want to buy online and pick up in store, curbside or another location, all with flexible returns. They also want the visibility provided by real-time tracking and regular notifications. These changing consumer preferences require a more sophisticated and flexible supply-chain operation, which Manhattan provides. Manhattan has performed admirably over the years and this quarter was no exception. Quarterly earnings results exceeded expectations across the board, with revenue rising 20% and non-GAAP operating margins expanding 450 basis points year over year, well above consensus estimates. All key performance indicators—client adds, win rates and new bookings—were strong. Manhattan's pivot to a cloud-first company which began in 2017 continues to pay dividends, with cloud-subscription revenue rising 44% during the quarter and now comprising nearly 30% of overall revenue. On top of tremendous management execution, we believe Manhattan is benefitting from the post-pandemic push by businesses to modernize their supply chains. We have owned Manhattan Association since 2016 and feel even better about its prospects today.

BSD Analysis:
Brown Capital maintains strong conviction in Manhattan Associates as a supply chain software leader benefiting from secular omnichannel trends. The fund's thesis centers on evolving consumer expectations for flexible fulfillment options including buy-online-pickup-in-store, curbside delivery, and real-time tracking capabilities. Manhattan's comprehensive platform addresses these needs through inventory visibility, demand forecasting, and labor optimization tools. The company delivered exceptional Q4 results with 20% revenue growth and 450 basis points of operating margin expansion, significantly exceeding consensus estimates. The successful cloud transformation initiated in 2017 is accelerating with 44% cloud subscription revenue growth, now representing 30% of total revenue. Strong operational metrics including client additions, win rates, and new bookings validate market demand. Brown Capital views the post-pandemic supply chain modernization cycle as a multi-year tailwind for Manhattan's solutions. The fund's eight-year holding period since 2016 reflects confidence in management execution and the company's competitive positioning.

Pitch Summary:
Shopify is the second-largest cloud-based e-commerce software platform in the U.S., with 10% market share. Shopify provides upstarts and Fortune 500 companies alike with turnkey solutions to help individuals and businesses run their online stores. The range of services includes web design, inventory management, payment processing, analytics and reporting, among others. We believe the company is the most attractive alternative to Amazon and has an addressable market greater than $150 billion. Shopify released stellar results this quarter, growing revenue 25% with meaningful margin expansion and management indicating more to come. Notably, the third quarter was Shopify's first full quarter after deciding in May 2023 to abandon its in-house fulfillment and logistics ambitions which put significant pressure on margins. Additionally, competitive concerns from Amazon's "Buy With Prime" initiative that launched in April 2022 also abated. The feature allows merchants selling outside of Amazon to access its fulfillment network and enjoy Prime benefits such as free deliveries and returns, posing a threat to Shopify's payment-processing revenue. Instead of duking it out, Shopify and Amazon reached a partnership agreement in September that preserves customer choice and, to our knowledge, keeps Shopify's payment revenues intact. With these key concerns in the rear-view mirror, Shopify should have a clear path to double-digit revenue growth and margin expansion for years.

BSD Analysis:
Brown Capital presents a compelling bull case for Shopify as the leading Amazon alternative in e-commerce infrastructure. The fund highlights Shopify's dominant 10% U.S. market share and massive $150+ billion addressable market opportunity. Key catalysts include the strategic decision to exit capital-intensive fulfillment operations in May 2023, which immediately improved margins and operational focus. The 25% quarterly revenue growth with margin expansion demonstrates strong execution post-restructuring. The September partnership agreement with Amazon's "Buy With Prime" initiative eliminates a major competitive threat while preserving Shopify's payment processing revenues. Brown Capital views this as a watershed moment that clears the path for sustained double-digit revenue growth and margin expansion. The fund emphasizes Shopify's comprehensive platform offering spanning web design, inventory management, payment processing, and analytics as a differentiated value proposition for merchants of all sizes.

Pitch Summary:
With a 10% market share, Stewart Information Services (STC) is the smallest of the four companies enjoying an oligopoly in the title insurance industry. While most people don't think about title insurance when purchasing a home, policies indemnify homeowners and lenders against title defects that could result in significant loss arising from back taxes, liens, and other claims. Ever since a proposed sale to larger peer First American Financial was blocked by the Federal Trade Commission in 2019, STC has been in need of a new direction. Since being named CEO that same year, Fred Eppinger has set out to improve the company's margin structure and take market share. These operational improvements, however, have been hidden by lower top-line volume as rising mortgage rates have curtailed home transactions. As a result, STC shares fell to nearly 90% of book value, well below its 10-year average of 1.3X. As housing sales normalize over time and revenues recover, we view STC's earnings to have significant upside and the stock should trade closer to its historic average. Moreover, the realization of its improved margin structure could result in a multiple that's closer to peers First American Financial and Fidelity National Financial, which have historically traded at a premium to STC.

BSD Analysis:
Heartland sees Stewart Information Services as an undervalued play on housing market recovery within the oligopolistic title insurance industry. The fund believes CEO Fred Eppinger's operational improvements since 2019 have been masked by cyclical headwinds from rising mortgage rates that curtailed transaction volumes. Trading at 0.9x book value versus a 10-year average of 1.3x, the stock appears oversold given the company's 10% market share in a four-player oligopoly. The investment thesis hinges on housing market normalization driving revenue recovery while improved margin structure from operational enhancements becomes visible. The fund expects the stock to re-rate closer to historical averages and potentially achieve valuation multiples similar to larger peers First American Financial and Fidelity National Financial. This represents a classic cyclical value opportunity where temporary headwinds have created an attractive entry point for a structurally improved business.

Pitch Summary:
Conversely, when the GLP-1 clinical trial data came out, investors immediately abandoned holdings like Dexcom (DXCM), which manufactures and markets continuous glucose monitors, or CGMs, used to track the blood sugar of people with diabetes. Investors feared that the company's market opportunity would shrink dramatically as the adoption of GLP-1 drugs rises. Beginning in August, after the first of the trial results came public, Dexcom declined nearly 30% peak to trough, and stock prices of many other medical device companies dropped well over 20%. However, since bottoming in mid-October, Dexcom's stock price has rallied more than 60%. In fact, Dexcom was a top contributor during the fourth quarter, rising more than 30% and managed to close up 10% for the year after being down double-digits at one point. So what happened to spur Dexcom's rebound? Results from an additional study presented in November at the annual American Heart Association meeting in Philadelphia and published in the New England Journal of Medicine contained important caveats about GLP-1s. A notable one was high patient-discontinuation rates, which alleviated the doomsday concerns priced into many of the medical-device companies. For its part, Dexcom released internal data showing increased use of CGMs in Type 2 diabetics on GLP-1 therapy. Management also announced a $500 million stock buyback and continued its string of stellar earnings results during the quarter. Our research is ongoing, but our preliminary conclusion is that GLP-1s are unlikely to be the panacea some anticipate. They will impact treatment protocols, but we believe they can coexist with other therapies, so we have maintained our positions in Dexcom and Insulet, the two holdings most at risk from GLP-1s. The important takeaway is that being slow to sell EGCs like Dexcom is often a wise strategy. Durability and sustainability are hallmarks of EGCs, and we carefully select our holdings based in part on their ability to withstand threats to their business models.

BSD Analysis:
Brown Capital maintains a bullish stance on Dexcom despite initial market fears about GLP-1 obesity drugs threatening the CGM market. The fund's thesis centers on the coexistence of GLP-1 therapies with continuous glucose monitoring rather than replacement. Key supporting evidence includes high patient discontinuation rates for GLP-1 drugs and Dexcom's internal data showing increased CGM usage among Type 2 diabetics on GLP-1 therapy. The company's strong fundamentals are evidenced by stellar quarterly earnings, a $500 million share buyback program, and management execution. Brown Capital views the 30% peak-to-trough decline as an overreaction, with the subsequent 60% rally validating their patient approach. The fund emphasizes Dexcom's durability as an Exceptional Growth Company with the ability to withstand competitive threats. This defensive positioning reflects confidence in the company's long-term market opportunity in diabetes management technology.

Pitch Summary:
National Fuel Gas (NFG) is another existing holding we added to in the quarter. NFG is an energy company, with regulated utility assets, involved in the production, transportation, and distribution of natural gas. The stock's correlation with natural gas prices has been high, so it wasn't too surprising when the stock fell as natural gas prices declined following last year's benign winter. But prices are expected to rebound in the coming months now that the supply issue has been addressed with the steep drop in oil gas rig counts. Demand is also set to improve starting in 2025 with the onset of more U.S. liquefied natural gas (LNG) exports. Meanwhile, this is a well-run business with a track record of financial soundness. NFG, for instance, has raised dividends for 53 consecutive years because of the consistent cash flow generation from its midstream and utility segments. Yet, when looking at valuations, we see a disconnect. NFG is trading at a 20% discount to its historical valuations compared with traditional oil and gas exploration and production stocks. The relative premium it typically garners is a function of the company's ability to leverage its pipeline infrastructure to capitalize on higher natural gas prices and the stability of non-energy cash flows. We are positioning the portfolio to take advantage of this opportunity.

BSD Analysis:
Heartland views National Fuel Gas as an undervalued energy utility positioned to benefit from improving natural gas fundamentals. The fund sees the recent decline as temporary, driven by weak natural gas prices following a mild winter, but expects a rebound as supply constraints from reduced rig counts and increased LNG export demand starting in 2025 support pricing. The company's diversified business model, combining regulated utility operations with midstream assets, provides stable cash flows evidenced by 53 consecutive years of dividend increases. Trading at a 20% discount to historical valuations relative to traditional E&P companies, NFG appears mispriced given its infrastructure advantages and non-energy cash flow stability. The fund is adding to the position to capitalize on this valuation disconnect. The investment thesis centers on both cyclical natural gas price recovery and the company's defensive utility characteristics providing downside protection.

Pitch Summary:
Mohawk (MHK), the leading manufacturer of flooring products such as carpet, tile, wood, and vinyl products for the residential and commercial markets, ran into stiff headwinds in recent years as inflation increased costs on source materials. This compressed MHK's margins, and the stock price was nearly cut in half between June 2021 and early this year. We believe the worst of those pricing pressures are behind the business, which stands to benefit from the ongoing growth in home remodeling and office space conversions as the commercial real estate market struggles with hybrid work. After initiating a position in Mohawk this Spring, we added to it during the quarter as the market sold off. While it's not ideal that MHK continued to fall, the slide has allowed us to build an over 2% allocation in a name our research indicates is a long-term alpha generator at a compelling valuation. Mohawk is priced at half of sales, less than tangible book value, and 9X our estimate of '23 earnings. With ample free cash flow and active share buybacks, we believe MHK possesses favorable risk-reward characteristics.

BSD Analysis:
Heartland presents a compelling turnaround thesis for Mohawk Industries, viewing the flooring manufacturer as oversold following margin compression from inflationary pressures. The fund believes the worst of input cost headwinds are behind the company and sees multiple catalysts ahead, including growth in home remodeling and office space conversions driven by hybrid work trends. The valuation appears attractive at 0.5x sales, below tangible book value, and 9x estimated 2023 earnings. Management's capital allocation through share buybacks and strong free cash flow generation support the investment case. The fund has been opportunistically adding to the position during market weakness, building it to over 2% of the portfolio. This contrarian bet on a cyclical recovery in flooring demand appears well-timed given the compelling risk-reward profile at current levels.

Pitch Summary:
Danaher has long checked three of Mar Vista's qualitative boxes for investment: durable competitive advantages, above average compounding of intrinsic value, and a superior capital allocation strategy. Recently, after material underperformance over the last two years, the fourth criteria were met: stock trades at a discount to our estimate of fair value. This global leader in biotechnology, life sciences, and diagnostics has established strong barriers to entry for each of its businesses. These include a loyal customer base, recurring revenues, and proprietary technology protected by patents and copyrights. Once Danaher's tools are selected for the clinical trial process of a new drug, they tend to remain in use throughout a successful drug's lifecycle. Moreover, Danaher's well-defined culture, rooted in the Danaher Business System ("DBS"), provides lasting advantages through a focus on continuous innovation, margin expansion, efficient marketing practices, and capital efficiency, all of which have consistently increased shareholder value across a diverse range of businesses. We anticipate several secular growth trends that will drive high-single-digit revenue and double-digit free cash flow growth over time. While the bioprocessing industry is currently undergoing a temporary adjustment following the COVID-era boom, a secular shift towards biologics and genomics in medicine is expected to significantly expand Danaher's market opportunities. The continued innovation and adoption of molecular diagnostics, the demand for faster and more accurate test results, and a growing installed customer base should fuel strong demand for Danaher's diagnostic products. Danaher's well-defined capital allocation strategy is poised to further accelerate intrinsic value growth. The company has a proven track record of acquiring assets, optimizing their returns on capital through the DBS process, and often divesting these assets to benefit shareholders. The spinoff of Veralto, Danaher's water quality and product quality/innovation division, will reshape the company's revenue mix. Biopharmaceutical manufacturing tools will account for almost one-third of revenues post-spinoff. Challenges such as excess inventory from the COVID-era boom, reduced biotech funding, delays in gene and cell-based therapies, and softer demand from China have all pressured Danaher's fundamentals and stock price since late 2021. However, we view these headwinds as primarily cyclical rather than secular, and we anticipate growth to regain momentum in the coming year. Given the stock's nearly one-third decline over the past two years and its modest discount to estimated fair value, we established a new position in our portfolio.

BSD Analysis:
Mar Vista initiated a new position in Danaher after the stock met their fourth investment criteria of trading at a discount to fair value following a one-third decline over two years. The fund emphasizes Danaher's strong competitive moats including customer loyalty, recurring revenues, and proprietary technology that creates switching costs once tools are integrated into drug development processes. The Danaher Business System provides operational advantages through continuous innovation, margin expansion, and capital efficiency across diverse businesses. Management expects secular growth from the shift toward biologics and genomics, molecular diagnostics adoption, and an expanding customer base to drive high single-digit revenue and double-digit free cash flow growth. The upcoming Veralto spinoff will increase focus on higher-growth biopharmaceutical manufacturing tools. Current headwinds from COVID inventory normalization, reduced biotech funding, and China weakness are viewed as cyclical rather than structural challenges.

Pitch Summary:
Alphabet's second quarter financial results beat expectations on both revenue and earnings, demonstrating accelerating fundamental performance against low expectations. Notably, YouTube is returning to positive revenue growth, search performance is accelerating, and cloud profitability is improving. As a leader in generative AI, Alphabet benefits from one of the most disruptive trends in technology. Its data advantage, global two-way distribution, cloud infrastructure, and willingness to invest in AI are critical competitive moats. These factors position Alphabet to improve and disrupt general search with more personalized, conversational, and interactive AI experiences. Over the near-term, the company's durable advantages and upside potential from expense management should allow intrinsic value to compound mid-teens, barring a recession.

BSD Analysis:
Mar Vista emphasizes Alphabet's strong fundamental momentum with second quarter results beating expectations across revenue and earnings. The fund highlights improving trends across key business segments including YouTube's return to positive growth, accelerating search performance, and improving cloud profitability. Alphabet's leadership position in generative AI provides significant competitive advantages through superior data assets, global distribution network, cloud infrastructure, and substantial AI investment capabilities. These moats enable the company to enhance search experiences with personalized, conversational AI features that could disrupt traditional search paradigms. Management expects mid-teens intrinsic value growth driven by durable competitive advantages and potential expense management upside. The company's diversified revenue streams and AI leadership position it well for continued market share gains.

Pitch Summary:
Intuit is reaping the rewards of the transition to digitally-driven, cloud-based solutions, in conjunction with a steady macroeconomic environment for small businesses. QuickBooks provides a comprehensive array of indispensable business applications that foster heightened productivity and efficiency gains for small business proprietors. This suite of small business applications not only attracts new subscribers to the QuickBooks ecosystem but also encourages existing customers to further embrace additional solutions. Furthermore, Intuit's TurboTax offerings persistently wrest market share from premium-priced tax service providers, significantly expanding TurboTax's addressable market. Intuit is strategically positioned to capitalize on the emerging trend surrounding generative AI, having seamlessly integrated generative AI features and functionality into its product suite. Given these factors, we maintain our conviction that Intuit is well-positioned to achieve upper-teens growth in intrinsic value over our investment horizon.

BSD Analysis:
Mar Vista highlights Intuit's successful execution in the digital transformation of small business and tax preparation markets. The QuickBooks ecosystem creates strong customer stickiness through comprehensive business applications that drive productivity gains for small business owners. The platform strategy encourages both new customer acquisition and expansion within existing accounts through cross-selling additional solutions. TurboTax continues gaining market share from higher-priced tax service providers, expanding the addressable market. The integration of generative AI capabilities across the product suite positions Intuit to capitalize on emerging technology trends while enhancing customer value proposition. Management expects these factors to drive upper-teens intrinsic value growth, supported by the recurring nature of the business model and strong competitive positioning in essential small business software.

Pitch Summary:
Microsoft continues to occupy a strong position, poised to capture market share as businesses, both large and small, navigate the transition to a digital-first landscape and embrace generative AI-driven solutions. The company's commanding presence in the enterprise arena, combined with its comprehensive product portfolio encompassing Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS), establishes it as a crucial provider of IT solutions for companies of all scales. Microsoft is effectively executing its strategy in a sizable market opportunity by offering businesses a roadmap for digital transformation and adoption of cutting-edge AI-driven solutions, such as ChatGPT, while enhancing productivity and reducing costs. Consequently, we anticipate that Microsoft's solutions should exhibit resilience even in a more challenging macroeconomic environment, supporting low double-digit growth in intrinsic value within our investment horizon.

BSD Analysis:
Mar Vista maintains strong conviction in Microsoft's positioning to capitalize on digital transformation and generative AI adoption across enterprises. The fund emphasizes Microsoft's comprehensive cloud platform spanning IaaS, PaaS, and SaaS offerings, which creates a one-stop solution for businesses of all sizes. The integration of AI capabilities, particularly through ChatGPT partnerships, provides a competitive advantage in helping customers enhance productivity while reducing costs. Microsoft's dominant enterprise presence and broad product portfolio create significant switching costs and cross-selling opportunities. Management believes these solutions will prove resilient during economic downturns as companies prioritize efficiency and digital capabilities. The fund expects low double-digit intrinsic value growth driven by the secular shift to cloud computing and AI-powered productivity tools.

Pitch Summary:
Oracle's stock experienced a downturn following the release of its fiscal Q1 2024 quarterly results. Despite the market's response, which had priced in high expectations leading up to the report, we maintain our confidence in Oracle's ability to achieve double-digit growth in intrinsic value over our investment horizon. This optimism is grounded in Oracle's ongoing strategic shift towards cloud-based solutions. Its OCI Gen 2 solution, particularly well-suited for generative AI workloads, stands out and the company is making notable strides in both mindshare and market share within the hyperscale cloud sector. Furthermore, Oracle's significant, decade-long investments to modernize its back-office Enterprise Resource Planning (ERP), supply chain management, and HR application suites for the cloud are bearing fruit, leading to substantial market share gains in the strategic back-office application arena.

BSD Analysis:
Mar Vista remains bullish on Oracle despite the post-earnings decline, viewing the sell-off as a result of overly high expectations rather than fundamental deterioration. The fund emphasizes Oracle's successful cloud transformation strategy, particularly highlighting the OCI Gen 2 platform's competitive positioning for generative AI workloads. This positions Oracle to capture share in the rapidly growing hyperscale cloud market. The decade-long investment in modernizing enterprise applications for cloud deployment is generating substantial returns through market share gains in strategic back-office applications including ERP, supply chain, and HR systems. Management expects these cloud migration trends and AI positioning to drive double-digit intrinsic value growth over their investment horizon. The company's focus on high-value enterprise applications provides pricing power and customer stickiness.

Pitch Summary:
Apple's stock faced downward pressure due to concerns among investors regarding diminishing smartphone demand, intensified competition from Huawei, and the Chinese government directives limiting iPhone usage by government officials. Despite these short-term challenges, our conviction in the company's enduring competitive advantages remains steadfast. Apple derives substantial benefits from its extensive ecosystem, boasting an installed base exceeding 2 billion devices and over 1 billion paying subscribers for monthly services. We anticipate that this robust Apple ecosystem should underpin a more predictable cash flow trajectory, fostering high single-digit growth in intrinsic value over our investment horizon.

BSD Analysis:
Mar Vista maintains strong conviction in Apple despite the 11.61% quarterly decline driven by smartphone demand concerns, Huawei competition, and Chinese government restrictions on iPhone usage. The fund emphasizes Apple's durable competitive advantages centered on its extensive ecosystem with over 2 billion devices and 1 billion paying service subscribers. This ecosystem creates significant switching costs and recurring revenue streams that should provide more predictable cash flows. Management views current headwinds as temporary challenges rather than structural threats to the business model. The services business continues to grow and provides higher-margin recurring revenue that reduces dependence on hardware upgrade cycles. Mar Vista expects high single-digit intrinsic value growth over their investment horizon, supported by the ecosystem's network effects and customer loyalty.

Pitch Summary:
American Tower struggled this quarter in response to the Fed's higher-for-longer interest rate stance pressuring the stock down -15.21% in the quarter. Higher-cost debt creates a modest headwind for free cash flow growth and lowers the present value of American Tower's long duration assets. Other factors pressuring American Tower's stock include slowing 5G investment spend, skepticism over DISH Networks' ability to fulfill its spectrum buildout requirements, and a stronger dollar dampening the value of international cash flows. While higher rates are creating a 2-3% headwind to near-term free cash flow growth, we believe American Tower's secular growth and value drivers remain intact and the stock price represents an appropriate margin of safety, or discount to intrinsic value.

BSD Analysis:
Mar Vista maintains conviction in American Tower despite the 15.21% quarterly decline driven by higher interest rate concerns. The fund acknowledges multiple headwinds including higher debt costs creating a 2-3% drag on free cash flow growth, reduced present value of long-duration assets, slowing 5G investment, DISH Network execution concerns, and foreign exchange pressures from a stronger dollar. However, management emphasizes these are primarily rate-driven pressures rather than fundamental business deterioration. The secular growth drivers for tower infrastructure remain intact, supported by ongoing wireless data demand and network densification needs. At current levels, the fund believes the stock trades at an attractive discount to intrinsic value, providing an appropriate margin of safety for long-term investors.

Pitch Summary:
Mettler-Toledo detracted from performance given its -15.52% decline for the quarter. The full-year guidance for Mettler-Toledo has been revised downward to reflect flat growth, compared to previous expectations of a 5% increase. The entire sector of laboratory equipment and supplies is undergoing a transition away from the extraordinary demand seen during the Covid-19 era. However, Mettler-Toledo stands out by continuing to capture market share, implement price increases exceeding cost trends, generate high-margin servicing revenue, and optimize operational costs. We believe that the challenges affecting Mettler-Toledo's growth in 2023-2024 are temporary and anticipate a return to growth. Nevertheless, we maintain a vigilant watch on critical metrics, including developments in China, biotechnology funding and expenditure, the biopharmaceutical processing sector, and industry-wide inventory levels.

BSD Analysis:
Mar Vista maintains a bullish stance on Mettler-Toledo despite the company's 15.52% quarterly decline and downward revision of full-year guidance to flat growth. The fund acknowledges the laboratory equipment sector is transitioning away from COVID-era demand levels but emphasizes Mettler-Toledo's competitive differentiation. The company continues to gain market share while implementing pricing power that exceeds cost inflation, generating high-margin service revenues, and optimizing operations. Management views the current growth challenges as temporary cyclical headwinds rather than structural issues. The fund is closely monitoring key metrics including China developments, biotech funding levels, biopharmaceutical processing demand, and industry inventory normalization. This position reflects confidence in the company's long-term fundamentals despite near-term sector pressures.

Pitch Summary:
During the quarter, we started a new position in NextEra Energy (NEE), the owner of Florida Power & Light (FPL), a regulated utility, and NextEra Energy Resources, the largest unregulated alternative power producer (wind, solar, battery) in the United States. FPL has benefitted from Florida's population and business growth. In addition, Florida's regulators have been business-friendly and allowed the utility to raise rates, earn a good profit, and build out its infrastructure. As a result, NextEra has historically shown earnings and dividend growth above the Utility group average. On September 30, the current dividend yield was 3.3%. NEE disclosed some business setbacks after our initial partial purchase causing the stock price to decline further. We are very comfortable that they have a best-in-class franchise, and we are slowly continuing to build our position into the stock price weakness. We are upbeat about NextEra and the utility group in general after its poor performance this year.

BSD Analysis:
Matrix initiated a position in NextEra Energy, viewing it as a best-in-class utility franchise with superior growth characteristics. The investment thesis is built on NEE's dual business model: Florida Power & Light benefits from Florida's robust population and business growth, while NextEra Energy Resources operates as the largest renewable energy producer in the US. The company has historically delivered above-average earnings and dividend growth compared to utility peers, supported by business-friendly Florida regulators who have allowed rate increases and infrastructure investment. With a 3.3% dividend yield, NEE offers attractive income generation. Despite recent business setbacks that caused further price declines after their initial purchase, Matrix views this as an opportunity to build their position at attractive valuations. The fund manager believes the utility sector is positioned for strong gains following significant 2023 underperformance, making NEE an opportunistic value play in a recovering sector.

Pitch Summary:
In Q3, we started a new position in RTX Corp., formerly Raytheon Technologies, an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. The company was formed in 2020 through the combination of Raytheon Company and the United Technologies Corporation aerospace businesses. We had previously owned United Technologies and were impressed with their CEO, Greg Hayes, now the CEO of RTX. The opportunity to purchase RTX came after the company disclosed a problem with an engine component that will result in a significant charge to inspect and replace. This is a fixable issue requiring time and money, but we believe the price decline provided a good opportunity to start a position in this highly profitable, well-managed company.

BSD Analysis:
Matrix initiated a new position in RTX Corp following a significant price decline caused by disclosed engine component issues requiring inspection and replacement charges. The fund manager views this as a temporary, fixable problem that created an attractive entry point for a fundamentally strong company. Matrix has prior positive experience with the management team, particularly CEO Greg Hayes from their previous ownership of United Technologies. The investment thesis centers on RTX being a highly profitable, well-managed aerospace and defense company serving commercial, military, and government customers globally. The manager believes the market overreacted to what they consider a manageable operational issue. RTX was formed through the 2020 merger of Raytheon and United Technologies' aerospace businesses, creating a diversified defense contractor. The contrarian approach of buying during temporary setbacks aligns with Matrix's value-oriented investment philosophy.

Pitch Summary:
During the quarter, we started a new position in NextEra Energy (NEE), the owner of Florida Power & Light (FPL), a regulated utility, and NextEra Energy Resources, the largest unregulated alternative power producer (wind, solar, battery) in the United States. FPL has benefitted from Florida's population and business growth. In addition, Florida's regulators have been business-friendly and allowed the utility to raise rates, earn a good profit, and build out its infrastructure. As a result, NextEra has historically shown earnings and dividend growth above the Utility group average. On September 30, the current dividend yield was 3.3%. NEE disclosed some business setbacks after our initial partial purchase causing the stock price to decline further. We are very comfortable that they have a best-in-class franchise, and we are slowly continuing to build our position into the stock price weakness. We are upbeat about NextEra and the utility group in general after its poor performance this year.

BSD Analysis:
Matrix initiated a position in NextEra Energy, viewing it as a best-in-class utility franchise with superior growth characteristics. The company benefits from Florida's robust population and business growth, supported by business-friendly regulators that allow rate increases and infrastructure investment. NextEra's dual platform includes regulated utility FPL and the largest unregulated renewable energy producer in the US through wind, solar, and battery storage. The company has delivered above-average earnings and dividend growth compared to utility peers, with a current 3.3% dividend yield. Despite recent business setbacks that caused additional price weakness, Matrix is using the decline to build their position gradually. The manager sees significant value in the utility sector after poor 2023 performance and believes NextEra's franchise quality positions it well for future outperformance.

Pitch Summary:
In Q3, we started a new position in RTX Corp., formerly Raytheon Technologies, an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. The company was formed in 2020 through the combination of Raytheon Company and the United Technologies Corporation aerospace businesses. We had previously owned United Technologies and were impressed with their CEO, Greg Hayes, now the CEO of RTX. The opportunity to purchase RTX came after the company disclosed a problem with an engine component that will result in a significant charge to inspect and replace. This is a fixable issue requiring time and money, but we believe the price decline provided a good opportunity to start a position in this highly profitable, well-managed company.

BSD Analysis:
Matrix initiated a new position in RTX Corp following a significant price decline caused by disclosed engine component issues requiring inspection and replacement charges. The fund manager views this as a temporary, fixable problem that created an attractive entry point for a fundamentally strong company. Matrix has confidence in CEO Greg Hayes, having previously owned United Technologies before the 2020 merger that created RTX. The company operates across commercial, military, and government aerospace markets through its diversified platform. The manager emphasizes RTX's high profitability and strong management quality as key investment drivers. This represents a classic value opportunity where temporary operational challenges have created a disconnect between price and intrinsic value. The aerospace and defense sector benefits from long-term secular growth trends and RTX's market-leading positions across multiple end markets.