Investment Pitches

Pitch Summary:
Achieving net-zero emissions will require rapid electrification across all sectors. Batteries are a critical platform technology enabling this transition, but today, the overwhelming majority of iron-based cathode production (currently the prevailing choice for lithium-ion batteries) takes place in China. Mitra Chem is building the first North American lithium-ion battery materials product company that aims to accelerate lab-to-production timelines by 10x using machine learning to dramatically shorten the R&D timeline. In 2023, Mitra Chem announced a $60 million Series B financing led by General Motors to scale cathode materials production.

BSD Analysis:
Palihapitiya presents Mitra Chem as a strategic play on both the electrification megatrend and supply chain reshoring dynamics. The manager identifies a critical bottleneck in battery cathode production, where China currently dominates iron-based cathode manufacturing essential for lithium-ion batteries. Mitra Chem's value proposition centers on using machine learning to accelerate R&D timelines by 10x, potentially creating significant competitive advantages in time-to-market and cost efficiency. The company's positioning as the first North American lithium-ion battery materials producer addresses growing concerns about supply chain security and geopolitical risks. The $60 million Series B led by General Motors provides both validation and a strategic partnership with a major automotive OEM, suggesting strong commercial potential. This investment benefits from multiple tailwinds including the Inflation Reduction Act incentives, automotive electrification mandates, and national security considerations around critical mineral supply chains. The AI-driven approach to materials science represents a novel application of machine learning to traditionally capital-intensive industries.

Pitch Summary:
Over the past decade, the cost to produce electricity has fallen by roughly ~⅓ from 6.8c/kWh to 4.6c. Despite this, electricity prices, as paid by consumers, keep going up. The reason lies with the utility companies, which own an aging U.S. grid infrastructure. Over the past decade, the cost to deliver electricity over this grid has risen by ~65%, and it will require nearly a trillion dollars of upgrades over the next decade to bear the additional load of electrification. Meanwhile, an evolving climate with more extreme weather events is threatening the resiliency of existing grid infrastructure, with rampant outages and service interruptions that result in an increasing human toll. The solution? Turn homeowners into their own mini utilities. Palmetto is the fastest growing and largest private company in the US helping consumers become their own utility, starting with rooftop solar, storage and an app to manage it. Over time, Palmetto's goal is to operate a clean energy marketplace, acting as a one-stop-shop for power generation, storage, utilization and financing for millions of Americans.

BSD Analysis:
Palihapitiya identifies a compelling arbitrage opportunity in the residential energy market, where declining electricity production costs contrast sharply with rising consumer prices due to aging grid infrastructure. The manager highlights a structural problem requiring nearly $1 trillion in grid upgrades over the next decade, while extreme weather events increasingly threaten grid reliability. Palmetto's solution of turning homeowners into 'mini utilities' through distributed solar and storage directly addresses these pain points while capturing value from the cost differential. The company's positioning as the fastest-growing private residential solar company suggests strong execution and market traction. Their integrated approach combining solar installation, battery storage, and energy management software creates a comprehensive platform that could expand into a broader clean energy marketplace. The thesis benefits from favorable regulatory tailwinds, declining solar costs, and increasing consumer awareness of grid vulnerabilities. This investment aligns with the broader energy transition theme while offering a defensive hedge against utility rate increases.

Pitch Summary:
The world is becoming increasingly autonomous and interconnected, creating a pressing need for uninterrupted global connectivity. Terrestrial methods of scaling connectivity include fiber optic cables and cellular towers, but these are too expensive and capital intensive to scale effectively to more remote locations. Low Earth Orbit (LEO) satellites are the most economically viable method to achieve uninterrupted global connectivity, but this requires a constellation of thousands of satellites and an almost 24x7 launch method of sending these satellites into orbit cost effectively. Relativity Space is building a reusable launch system for this market, powered by 3D metal printing and a new methalox-fueled engine - promising a large factor decrease in cost and flexibility. In March 2023, Relativity launched Terran 1, the first 3D metal printed rocket with a methalox engine to reach space. Now, the company is focused on developing Terran R, a much larger 3D printed rocket with sufficient payload capacity to launch LEO satellites into orbit.

BSD Analysis:
Palihapitiya presents a compelling thesis for Relativity Space centered on the growing demand for global satellite connectivity and the company's innovative manufacturing approach. The manager identifies a clear market opportunity in LEO satellite deployment, where traditional terrestrial infrastructure is economically unviable for remote locations. Relativity's competitive advantage lies in its proprietary 3D metal printing technology and methalox-fueled engines, which promise significant cost reductions and operational flexibility compared to traditional rocket manufacturing. The company achieved a notable milestone in March 2023 with the successful launch of Terran 1, demonstrating technical feasibility of their 3D-printed rocket concept. The development of Terran R represents the next phase of scaling, targeting larger payload capacities essential for commercial satellite constellation deployment. This investment aligns with broader trends in space commercialization and the increasing demand for satellite-based internet services. The thesis benefits from secular tailwinds in the space economy and potential government contracts supporting national security objectives.

Pitch Summary:
Darling Ingredients Inc. (DAR), the largest publicly traded company turning edible by-products and food waste into sustainable products and a leading producer of renewable energy, was one of the top detractors in the Small Cap strategy in the third quarter. The stock has been under increased pressure in recent weeks, as fears regarding new industry supply of renewable diesel and the lack of government support have increased. We have been owners of Darling for over 17 years, and the story has always been a bit complicated for short-term traders. Over time and through thoughtful leadership and capital allocation, the company has built a vertically integrated growth engine with attractive returns on capital while consolidating the industry and driving innovation. We expect EBITDA to grow year over year >50% in 2023 and continue to expand over the next 2-3 years as recent M&A and growth capex drive deleveraging and free cash flow. The company is currently constructing Sustainable Aviation Fuel (SAF) capacity expected to come online in 4Q24 and is evaluating further SAF expansion for the future, as growth and incentives in that market provide significant margin expansion and return on investment. With EBITDA approaching $2 billion next year and the enterprise value of the business at quarter end of ~$12.8 billion, the stock is trading at its lowest EV/EBITDA multiple since 2012. Other valuation methodologies suggest a similarly low multiple relative to history. We look for continued execution and strong fundamentals to trump headline noise over the coming years and produce a sufficient return for shareholders.

BSD Analysis:
SouthernSun maintains strong conviction in Darling Ingredients despite recent stock pressure from renewable diesel supply concerns and government policy uncertainty. As a 17-year holding, the firm appreciates the company's transformation into a vertically integrated sustainable products leader with attractive capital returns. Management expects explosive EBITDA growth exceeding 50% in 2023, with continued expansion over the next 2-3 years driven by recent acquisitions and growth investments. The upcoming Sustainable Aviation Fuel capacity launch in Q4 2024 represents a significant margin expansion opportunity with strong government incentives. Trading at its lowest EV/EBITDA multiple since 2012 despite approaching $2 billion in EBITDA, the stock appears significantly undervalued. SouthernSun believes strong execution and fundamentals will overcome near-term headline noise, positioning the company for substantial shareholder returns.

Pitch Summary:
Dycom Industries, Inc. (DY), a leading provider of engineering and construction services to the telecommunications and utility industries, was the top detractor in the Small Cap strategy, despite delivering solid revenue (+7%) and adjusted EBITDA growth (+25%). Management expects flat revenue growth next quarter due to a moderation in spending from two large customers (AT&T and Frontier), but a very strong demand environment in 2024 - driven partly by unprecedented government funding through the ARPA, RDOF, and BEAD programs. Profitability continues to improve from the depressed levels of the last few years, and we continue to believe there is further room for margin expansion. Our meetings and construction site visits with management this quarter in Nashville, TN gave us a renewed appreciation for the difficulty of managing construction projects and a deeper conviction that Steve Nielsen, CEO has a deep understanding of the industry and a decision-making framework driven by shareholder returns. With only 43% of the homes in the U.S. passed with fiber, we continue to believe there is a long runway for fiber penetration, and Dycom is well-positioned to engineer and construct these fiber networks.

BSD Analysis:
Despite near-term stock underperformance, SouthernSun maintains conviction in Dycom Industries based on strong fundamentals and long-term growth prospects. The company delivered solid revenue growth of 7% and impressive 25% adjusted EBITDA growth, with profitability recovering from previous lows. While management expects temporary revenue moderation from key customers AT&T and Frontier, the outlook for 2024 appears robust driven by unprecedented government funding through ARPA, RDOF, and BEAD programs. With only 43% of U.S. homes currently passed by fiber infrastructure, Dycom is well-positioned to capitalize on the multi-year fiber buildout opportunity. Management's site visits reinforced confidence in CEO Steve Nielsen's industry expertise and shareholder-focused decision-making, supporting the firm's belief in continued margin expansion and strong returns from this infrastructure play.

Pitch Summary:
Murphy USA, Inc. (MUSA), a leading retailer of gasoline and convenience merchandise, was one of the top contributors in the Small Cap strategy in the third quarter. In our view, MUSA reported solid results for the second quarter of 2023, as it continues to benefit from its position as a low-cost, high-volume retailer of fuel. Fuel margins in the c-store industry have shifted higher in recent years due to cost and volume pressures faced by marginal, independent retailers, who as a group, comprise a large percentage of domestic fuel marketers. Due to its advantaged locations on Walmart outparcels, the small footprint for most of their stores, and low labor business model, MUSA disproportionately benefits from these higher fuel margins. We visited with management at their company headquarters recently and reviewed the business's competitive position and its capital allocation outlook. Driven by its value proposition to consumers, MUSA continues to grow on a same-store basis and management sees a continued opportunity for new store additions and "raze and rebuild" of older stores. Management also continues to repurchase shares with excess cash flow, somewhat against the grain of an industry that has seen significant consolidation in recent years. In what we believe is evidence of capital discipline and owner orientation, since its spin in 2013, MUSA management has bought back over 50% of its shares outstanding while completing just one bolt-on acquisition.

BSD Analysis:
SouthernSun views Murphy USA as a compelling investment benefiting from structural advantages in the fuel retail industry. The company's strategic positioning at Walmart outparcels provides high-traffic locations with lower real estate costs, while its small-format stores and low-labor model create operational efficiency. Rising fuel margins across the industry, driven by pressure on independent competitors, particularly benefit MUSA's high-volume business model. Management's disciplined capital allocation stands out in a consolidating industry, with over 50% of shares repurchased since the 2013 spinoff while maintaining growth through new store development and store upgrades. The combination of same-store sales growth, expansion opportunities, and shareholder-friendly capital allocation creates a compelling value proposition for long-term investors.

Pitch Summary:
When I started reading about Lincoln Electric, I thought I had found the next big 3D printing company that no one had heard of. As I started reading transcripts from the CEO speaking at different events, something else jumped off the page. Lincoln Electric was working on commercializing an EV charger, and management sounded very excited about it. I couldn't understand it – why would a welding company with a huge opportunity in additive manufacturing get involved with EV charging? Well, it turns out that the power-management system inside a welding machine is almost identical to the one found inside the large public DC fast chargers popping up all over North America, and Lincoln Electric makes tens of thousands of these power-management systems annually in Cleveland. It always had the technology but not the interest in the EV charging market until the Biden Administration made US$7.5 billion in stimulus dollars available to build out a U.S. public charging network. The funding came with some very strict requirements around domestic content and reliability, and as an established 100-year-old welding company in the U.S., it was already compliant. After some due diligence, Lincoln Electric realized its chargers would be faster, more durable and more reliable than anything currently on the market. With very little investment, it decided to devote some of its existing manufacturing capacity to making chargers, and expects to start selling them in 2024 for US$100k per charger. Lincoln Electric initially had my interest, but now it had my attention. It sounded like a huge opportunity, but no one was talking about it. Other than a press release from the White House naming Lincoln Electric as a domestic charging manufacturer, it was difficult to find any information on it. When we eventually spoke to management after doing our own digging, they were very confident about their charger being the best in the industry, but refused to promote it until they were sure it worked on every vehicle. They didn't want their century-old welding brand damaged by some communication issue with an automaker. Sensing we were longer-term shareholders, they invited us to Cleveland to show us all the other parts of the business they were excited about, too. On a snowy day last March, we flew to Cleveland for a 3.5-hour tour of the Euclid, OH facility. We saw giant welding arms and tried out the new welding collaborative robots at the automation facility. One of the most-exciting things we learned about was on the general factory floor – Lincoln Electric has an employee profit-sharing program that creates a culture where everyone thinks and acts like business owners. Unsurprisingly, that last one resonated well with us. We walked away confident that even if the charger opportunity never played out, this was a business we were happy to own for the long term. But why did the opportunity exist? Because the market isn't incentivized to care about Lincoln Electric. The company generates so much free cash that it doesn't have to come to the equity or debt markets to raise capital. This means the banks aren't interested in Lincoln because they won't earn banking fees. It isn't a big index weight, so sell-side analysts who cover Lincoln Electric don't get a lot of questions about it and therefore won't use their limited time to dig deeper on a name that doesn't generate much trading commissions. Lastly, management aren't promotional and have a clear preference for long-term shareholders, so they try hard to discourage any short-term investors from owning their stock based on a single idea. All of this meant that we got to buy Lincoln Electric stock at price that was 17x the earnings of the base business, which excluded any upside from chargers – a true call option.

BSD Analysis:
EdgePoint's investment thesis centers on Lincoln Electric's dual opportunity in 3D printing and EV charging infrastructure, both leveraging the company's core power electronics expertise from welding technology. The manager discovered Lincoln Electric's ability to 3D print large industrial components (226kg nickel-alloy parts) for companies like Chevron, addressing supply chain bottlenecks with domestic manufacturing capabilities. More compelling is the EV charging opportunity, where Lincoln Electric can repurpose its existing power management systems used in welding equipment for DC fast chargers, targeting the $7.5 billion Biden Administration charging network buildout. The company's century-old reputation, domestic manufacturing compliance, and superior charger specifications (faster, more durable, more reliable) position it advantageously in a market with strict domestic content requirements. EdgePoint values the disciplined management approach, employee profit-sharing culture, and strong free cash generation that eliminates capital market dependence. At 17x earnings excluding any EV charging upside, the investment represents an asymmetric risk-reward profile with multiple expansion catalysts. The market's neglect due to limited analyst coverage and management's anti-promotional stance creates the pricing inefficiency EdgePoint exploits.

Pitch Summary:
Boston Beer Company, Inc. (SAM) reported results that were better than market expectations and was the top contributor in the Small Cap strategy in the third quarter. The company continues to fight headwinds in the hard seltzer category with its Truly brand. However, the Twisted Tea brand is now significantly larger than Truly and continues to produce excellent results. Management is steering a multi-year effort to enhance the efficiency of its manufacturing processes that we believe is likely to produce margin improvement. The company continues to launch new innovations; we believe these innovations will produce results in the long term, though the timing of the benefits is difficult to predict. Management continues to govern the balance sheet prudently, with no debt, and they recently began repurchasing shares with excess cash flow for the first time in several years. We remain confident their efforts to grow the brands, improve the efficiency of operations, and allocate the company's capital effectively will reward investors over time.

BSD Analysis:
SouthernSun maintains a bullish stance on Boston Beer despite ongoing challenges in the hard seltzer market with the Truly brand. The firm highlights the strength of Twisted Tea, which has become the company's largest brand and continues delivering strong performance. Management's multi-year manufacturing efficiency initiative is expected to drive margin expansion over time. The company's debt-free balance sheet provides financial flexibility, and the recent resumption of share repurchases after several years demonstrates disciplined capital allocation. While new product innovations may take time to materialize, SouthernSun believes the combination of brand growth, operational improvements, and effective capital deployment will generate attractive returns for long-term investors.

Pitch Summary:
Verisk Analytics Inc., a supplier of data analytic solutions for the insurance market, edged forward by 5%. Second quarter revenues were above sell-side expectations, driven by broad-based revenue upside across Underwritings & Ratings as well as Claims. Management increased full year guidance.

BSD Analysis:
The manager expresses confidence in Verisk Analytics following revenue outperformance and raised guidance. The company demonstrated broad-based strength across its core insurance analytics segments, with both Underwritings & Ratings and Claims exceeding expectations. This diversified revenue growth indicates strong demand for Verisk's data analytics solutions across the insurance value chain. Management's decision to increase full-year guidance reflects confidence in sustained market demand and the company's competitive positioning. Verisk benefits from the insurance industry's increasing reliance on data-driven decision making and risk assessment. The company's proprietary datasets and analytics capabilities create significant barriers to entry and customer stickiness. Strong execution across multiple business lines and positive guidance revision suggest continued momentum in the data analytics market for insurance applications.

Pitch Summary:
Synopsys Inc., a supplier of electronic design automation software for use in designing and testing integrated circuits, rose 6%. Fiscal fourth quarter results were solid and management raised forward guidance. Despite macroeconomic concerns, their customers remain focused on developing next generation semiconductors with their electric design automation tools.

BSD Analysis:
The manager maintains a bullish stance on Synopsys based on solid quarterly execution and raised guidance despite broader macroeconomic headwinds. The company's electronic design automation software remains essential for semiconductor development, providing defensive characteristics in a challenging environment. Customer commitment to next-generation semiconductor development demonstrates the mission-critical nature of Synopsys' tools and the secular growth in chip complexity. Management's decision to raise forward guidance reflects confidence in sustained demand for their EDA solutions. The company benefits from long-term technology trends including AI, 5G, and automotive electrification that drive semiconductor innovation. Synopsys' market-leading position in EDA tools creates high switching costs and recurring revenue streams. The 6% quarterly performance suggests investors recognize the company's resilient business model and growth prospects in the semiconductor design ecosystem.

Pitch Summary:
RenaissanceRe Holdings Ltd., a provider of reinsurance and insurance products, gained 6%. Its second quarter numbers were solid across underwriting, property catastrophe premiums, investment income, and fee income. While there was an impact from severe storms during the quarter, RenRe's losses were modest.

BSD Analysis:
The manager expresses confidence in RenaissanceRe's diversified reinsurance business model following strong quarterly performance. The company demonstrated solid execution across multiple revenue streams including underwriting, property catastrophe premiums, investment income, and fee income. Despite experiencing severe storm impacts during the quarter, RenRe's modest losses highlight the effectiveness of their risk management and underwriting discipline. The company's ability to generate consistent returns across different market conditions reflects their sophisticated approach to catastrophe risk assessment and pricing. RenaissanceRe's strong capital position and experienced management team position them well to capitalize on favorable reinsurance market dynamics. The 6% quarterly gain suggests the market recognizes the company's operational excellence and resilient business model. Continued strength in property catastrophe premiums should support future profitability.

Pitch Summary:
Cheniere Energy Inc. operates liquefied natural gas terminals in Louisiana and Texas. The company reported a solid quarter and raised forward guidance, which contributed to its 10% return. During the quarter, Cheniere bought back stock and paid down debt. Although these amounts did not meet Street expectations, management is building cash to fund projects and plans to accelerate their share repurchases in the back half of the year.

BSD Analysis:
The manager maintains a positive outlook on Cheniere Energy following solid quarterly results and raised guidance. The company's LNG terminal operations in Louisiana and Texas continue to generate strong cash flows, enabling both debt reduction and share repurchases. While the pace of capital returns fell short of Street expectations, management's strategic cash accumulation for project funding demonstrates disciplined capital allocation. The planned acceleration of share repurchases in the latter half of the year should provide additional shareholder value. Cheniere benefits from long-term LNG export contracts and growing global demand for natural gas. The company's strategic positioning in the expanding LNG market, combined with improving balance sheet metrics, supports the bullish thesis. Strong operational execution and forward guidance raise reflect management confidence in the business trajectory.

Pitch Summary:
CrowdStrike Holdings Inc., a provider of cloud-delivered protection across endpoints and cloud workloads, surged ahead by 14%. They reported a very solid fiscal second quarter that was driven by increased demand for CrowdStrike's cloud, identity, and next generation Security Information and Event Management (SIEM) products. Guidance was raised for the full year based on a strong pipeline, sales execution, and platform demand.

BSD Analysis:
The manager presents a bullish view on CrowdStrike based on strong quarterly execution and raised guidance. The company demonstrated robust demand across its core cybersecurity platform, particularly in cloud, identity, and SIEM solutions. Management's decision to raise full-year guidance reflects confidence in their sales pipeline and platform adoption trends. The 14% quarterly return suggests the market responded positively to these fundamentals. CrowdStrike appears well-positioned to capitalize on continued enterprise digital transformation and heightened cybersecurity awareness. The company's cloud-native architecture and comprehensive platform approach provide competitive advantages in the growing cybersecurity market. Strong sales execution and expanding product demand indicate sustainable growth momentum.

Pitch Summary:
Vestis Corporation supplies workplace uniforms and supplies to various industries across the United States and Canada. Auto shops, factories, retailers, and other customers contract Vestis to deliver, pick-up, and launder uniforms and other supplies on a recurring basis. This is an industry that has been around for decades but has historically been made up of local family-controlled operators. The industry is highly fragmented, where the top three firms (Cintas, Vestis, and UniFirst) control around 25% of the market. Vestis is recession-resistant and earns high returns on incremental invested capital due to its route-based business model. Adding additional stops on each route comes with no additional fixed costs, and additional sales per stop are highly margin accretive. Because uniforms can be a form of corporate branding and identity, uniform services also have high retention rates in their customer base. These tend to be great businesses. Unless you contract with Aramark, or regularly look at recent spin-offs, you may not have heard of Vestis. The company in its current form has only existed for a short time. At the end of September, Vestis was spun out from Aramark as an independent company. Aramark provides food services and food facility management to large entities, like hospitals and universities. Its uniform services segment (now Vestis) was generally unrelated to the rest of the business and did not share many synergies according to management. As a result, it was never a true focus of Aramark to really spend time growing or to properly invest in the business. Aramark decided that Vestis would be better off as an independent company with separate management. The new management team has excellent experience, with some directors and officers having prior roles with the industry leader, Cintas. As is typical of spin-offs, shares of Vestis declined quickly after its spin from Aramark. Investors who owned Aramark received the shares of Vestis, a uniform services business that had little to do with their intended food service holding. For a myriad of reasons, a large number of investors sold their Vestis shares due to neglect or constraint. This effect of idiosyncratic price action is well-documented, and I believe this is why we were able to purchase shares of Vestis at a significant discount to their intrinsic value. Even so, Vestis still has a lot of "wood to chop" before realizing its full value.

BSD Analysis:
The manager identifies Vestis as an attractive spin-off opportunity in the fragmented uniform services industry, where the top three players control only 25% of the market. The company operates a recession-resistant, route-based business model with high incremental returns on capital, as additional stops require no incremental fixed costs and generate margin-accretive revenue. Customer retention rates are high due to uniforms serving as corporate branding and identity. Vestis was spun out from Aramark in September, creating a classic spin-off dynamic where unwanted shares were sold by food service-focused investors who had no interest in the uniform business. The new management team brings valuable industry experience from market leader Cintas, positioning the company to better focus on growth and investment compared to its neglected status within Aramark. The manager capitalized on the typical post-spin-off selling pressure to acquire shares at a significant discount to intrinsic value. While acknowledging substantial work remains to realize full value, the combination of attractive business fundamentals and technical mispricing creates a compelling investment opportunity.

Pitch Summary:
Safety Insurance Group, Inc. is a P&C insurer that serves private and commercial customers in Massachusetts, Maine, and New Hampshire. Their primary offering is private passenger and commercial auto insurance, as well as homeowners insurance. Their average combined ratio over the last decade has been 97%, and a slightly better 96% over the last twenty years. For the uninitiated, this means that for every dollar that Safety earns in premiums, the company only pays out 97 cents in claims and expenses, on average. Furthermore, this means that Safety is a profitable underwriter, which is uncommon in the industry. The average P&C company typically has a combined ratio of around 100, forgoing underwriting profits while trying to make up for it on the backend from their investment returns. Safety does not typically increase reserves for prior loss years, and nearly all of their investment portfolio is invested in fixed-income securities with low duration. It is clear that Safety operates in a very conservative manner. Safety's returns have historically shown little correlation with the rest of the market, and most of our return from the position was generated while the market was declining in late October. How could then, a small, risk-averse, and boring property and casualty insurer be so interesting? Upon further research, the events that drove this opportunity did not happen in the weeks preceding the quarter, but rather all the way back in March. During the regional banking crisis, banks like SVB, Signature, and First Republic saw their share prices rapidly decline. This decline bled over into the rest of the regional banks, and then the financial sector more broadly. As a result, mutual funds who focused on small-cap financials had terrible performance stemming from their regional bank holdings. As is typical in investment management, investors began to redeem, which forced the managers of these funds to liquidate all of their positions. As a small-cap financial, our internal estimates show that Safety was a part of this unlucky group of securities and was heavily sold despite not being directly impacted by the regional bank failures. Companies that were only tangentially affected by the crisis and widely covered by the investment industry, such as Visa and Mastercard, saw their share prices rebound relatively quickly. Companies that were directly affected, like other regional banks, have still not seen their share prices recover as of today. On the other hand, insurance companies, and specifically smaller insurance companies, were not directly affected but also did not see their share prices immediately rise in the aftermath. The aforementioned combined ratio was particularly high for the industry this year, as claims for damages were being paid out on inflated costs relative to premiums collected years ago. However, this is just part of the insurance cycle. Insurance is a unique and specialized industry. Most generalists avoid financials due to their idiosyncrasies, which means that the market participants driving the bid and ask over the long run are specialists. However, as detailed above, the specialists who covered financials were washed out of these names and had no capital to correct any mispricing. This is nearly a textbook definition of a fire sale. It is my opinion that, because of this, we had the opportunity to purchase shares in Safety for less than 10 times normalized earnings several months after its liquidity event. An improvement in sentiment surrounding P&C insurers and rate increases have helped bring some interest back to Safety, but I still think the shares are undervalued as of today.

BSD Analysis:
The manager presents a compelling value opportunity in Safety Insurance, a regional P&C insurer trading at an attractive valuation following forced selling during the banking crisis. Safety demonstrates superior underwriting discipline with a 97% combined ratio over the past decade, significantly outperforming the industry average of 100%, indicating profitable underwriting operations. The company's conservative approach includes minimal reserve increases and a low-duration fixed-income portfolio, providing stability and low market correlation. The investment thesis centers on a technical mispricing caused by indiscriminate selling from small-cap financial funds during the regional banking crisis, despite Safety having no direct exposure to the troubled banks. The manager acquired shares at less than 10x normalized earnings during this fire sale environment. With improving P&C sentiment and rate increases providing tailwinds, the position has already generated strong returns while the manager believes shares remain undervalued. The opportunity exemplifies the manager's strategy of capitalizing on non-economic selling pressure from constrained institutional investors.

Pitch Summary:
We also made an investment in Lantheus, which offers a portfolio of diagnostic health care products, primarily serving the complex nuclear imaging market. The company also has a pipeline of disruptive nuclear therapeutics (radiopharmaceuticals), creating a unique combination of strong profitability and cash flow generation with attractive growth opportunities in pipeline and existing products. The operational and logistical challenges of operating in nuclear medicine provide Lantheus a durable moat in this emerging therapeutic market.

BSD Analysis:
The manager added Lantheus as a new healthcare position, attracted to its specialized focus on nuclear imaging and radiopharmaceuticals. The investment thesis combines current profitability from established diagnostic products with significant growth potential from the therapeutic pipeline. Lantheus operates in a highly specialized market with substantial barriers to entry due to operational and logistical complexities of nuclear medicine. This creates a durable competitive moat that protects market share and pricing power. The company's pipeline of disruptive nuclear therapeutics represents a significant growth catalyst in an emerging therapeutic market. The combination of strong cash flow generation from existing products and pipeline optionality provides an attractive risk-adjusted return profile. The nuclear medicine specialization requires significant expertise and infrastructure, limiting competitive threats. The emerging radiopharmaceutical market offers substantial long-term growth opportunities as new therapeutic applications are developed.

Pitch Summary:
New addition McGrath RentCorp is a scaled operator in the attractive modular office and portable storage market. The company can follow industry leader Willscot Mobile Mini's strategies in price leadership, value-added products/services, delivery/installation profitability improvements and accretive capital allocation in rolling up smaller players. McGrath generates about 70% of operating earnings from modular space rental and 30% from its electronic test equipment rental portfolio.

BSD Analysis:
The manager initiated a position in McGrath RentCorp, viewing it as a scaled operator in the attractive modular office and portable storage market. The investment thesis is based on McGrath's ability to replicate the successful strategies of industry leader Willscot Mobile Mini, including price leadership and value-added services. The company has clear opportunities for margin improvement through enhanced delivery and installation profitability. The fragmented market structure provides accretive acquisition opportunities for capital allocation. McGrath's diversified revenue stream, with 70% from modular space rental and 30% from electronic test equipment, provides stability and cross-selling opportunities. The modular office market benefits from secular trends toward flexible workspace solutions. The manager sees potential for operational leverage as the company scales its platform and improves service delivery efficiency.

Pitch Summary:
Also in information technology (IT), we added nCino, another founder-led, modern banking cloud platform for commercial lending management. With a sticky, vertical software-as-a-service model, the company has increased its potential customer base by expanding into retail, mortgage and international markets. We believe the company is well-positioned to expand margins and re-accelerate sales as the backdrop for its banking customers normalizes after the regional banking crisis.

BSD Analysis:
The manager added nCino as a new position, attracted to its founder-led management and specialized banking cloud platform. The investment thesis focuses on nCino's sticky vertical SaaS model in commercial lending management, which provides high customer retention and recurring revenue visibility. The company has successfully expanded its addressable market by moving into retail banking, mortgage, and international markets, demonstrating platform scalability. The manager sees significant margin expansion potential as the company scales and leverages its technology infrastructure. The timing appears opportunistic, with the manager expecting sales re-acceleration as the banking sector normalizes post-regional banking crisis. The vertical specialization in banking software creates switching costs and competitive advantages. The founder-led structure suggests strong execution capability and long-term vision alignment.

Pitch Summary:
Klaviyo is a founder-led software and database platform that provides marketing automation solutions primarily to smaller e-commerce customers. Leveraging a tight integration with e-commerce enablement provider Shopify and a disruptive technology architecture, Klaviyo has experienced rapid growth in a sizable core market, with opportunities to add additional products and customer groups, including the fitness/wellness market, and to expand internationally. Throughout its history, Klaviyo has managed to balance a robust growth rate with disciplined investment and has a path to meaningful long-term profitability.

BSD Analysis:
The manager initiated a position in Klaviyo, highlighting its founder-led leadership and strong market positioning in marketing automation for e-commerce. The investment thesis centers on Klaviyo's tight integration with Shopify, which provides a competitive moat and access to a large customer base. The company's disruptive technology architecture has enabled rapid growth in the core e-commerce marketing market. Key growth drivers include expansion into adjacent markets like fitness/wellness and international expansion opportunities. The manager emphasizes Klaviyo's disciplined approach to balancing growth with profitability, suggesting strong unit economics. The transition from private placement to IPO indicates the manager's conviction in the long-term opportunity. The path to meaningful profitability provides downside protection while maintaining upside potential in a large addressable market.

Pitch Summary:
M3, based in Japan and owned since 2019 in the International All Company strategy, helps pharmaceutical companies market products to physicians and test new medicines, as well as assisting employers of doctors and pharmacists in finding candidates. In Japan, M3 dominates digital marketing to physicians. All major Japanese pharmaceutical companies are customers and there is an opportunity to expand the number of drugs featured on M3's website MR-kun. M3 is benefitting from a long-term structural change in pharmaceutical marketing, as drug companies seek to cut costs by switching to digital marketing. We think that M3 is an EGC because it dominates an area that saves its customers time and money. Expertise with health care and information systems has allowed the development of clinical-trial and employment services by M3. M3 is currently experiencing weaker-than-expected revenue and earnings due primarily to the overseas business. Operational challenges are prompting the company to restructure the clinical trials business in North America. We expect a reacceleration of sales growth in the near future, and we remain enthusiastic about M3's dominant market position and its ability to add new services.

BSD Analysis:
Brown Capital Management views M3 as an Exceptional Growth Company benefiting from the structural shift toward digital pharmaceutical marketing in Japan, where it maintains a dominant position. Held since 2019, M3 serves all major Japanese pharmaceutical companies through its MR-kun platform, with opportunities to expand drug listings and capture increasing digital marketing spend as companies seek cost efficiencies. The company's expertise in healthcare information systems has enabled successful expansion into clinical trial services and physician/pharmacist recruitment, creating multiple revenue streams within the healthcare ecosystem. Current headwinds include weaker-than-expected performance in overseas operations, particularly operational challenges in the North American clinical trials business that are prompting restructuring efforts. Despite near-term revenue and earnings pressure contributing to quarterly underperformance, the manager expects sales growth reacceleration driven by M3's dominant market position and ability to continuously add new services. The long-term thesis remains compelling based on the irreversible digitization trend in pharmaceutical marketing and M3's platform advantages in Japan.