Investment Pitches

Pitch Summary:
We're going to stay in South America, as we move to MercadoLibre. The company is most well known for its dominant position in Latin American e-commerce. As an aside, notice that for each of these companies I used the word "dominant". We look for fast-growing, profitable, founder led companies with dominant market positions. And MercadoLibre fits the bill. While there are often competitive concerns about Amazon and Shopee, both companies are retrenching to focus on profitability and competing with MELI is likely not the wisest use of dollars. Meanwhile, MELI will continue to invest in logistics and payments infrastructure, strengthening its flywheel. The company trades for about 25x forward EBIT which I don't think is that crazy considering the company has grown at a 50% CAGR over the past 7 years.

BSD Analysis:
The manager presents a confident bull case for MercadoLibre centered on its dominant market position in Latin American e-commerce and the competitive moat this creates. The investment thesis emphasizes the company's founder-led management and its ability to maintain market leadership despite potential competition from Amazon and Shopee, both of which are reportedly retrenching to focus on profitability rather than market share expansion. The manager views MELI's continued investment in logistics and payments infrastructure as a key competitive advantage that strengthens its business flywheel. The valuation argument is compelling, with the stock trading at 25x forward EBIT despite achieving an impressive 50% CAGR over the past seven years. This suggests the manager believes the market is reasonably valuing the company's growth prospects. The thesis relies on MELI's ability to continue investing in infrastructure while competitors pull back, potentially widening its competitive advantage.

Pitch Summary:
The company is the dominant mobile bank in Brazil. With over 90 million users, Nubank is a household name and is still growing quite fast. It's the 4th largest financial institution by users in Brazil and they are taking lots of market share in the credit card business, while also becoming increasingly sticky through new products like payroll lending. The management team is top notch, led by highly incentivized founder, David Velez and the company is expanding into Mexico and Colombia, hoping to get to Brazil-levels of penetration one day. At 200 million users and $100 in revenue per user, I think the company could easily get to $20 billion in revenue one day. At 30% banking margins, that's $6 billion in earnings. Using a 15x multiple, that leaves us with $90 billion in market value. I believe that is doable in 7 years, leaving us with a 17% CAGR.

BSD Analysis:
The manager presents a strong bull thesis for Nu Holdings based on its dominant position in Brazilian digital banking and significant expansion opportunities. With 90 million users, Nubank has achieved household name status and continues rapid growth while gaining credit card market share and improving customer stickiness through products like payroll lending. The investment case is anchored by founder-CEO David Velez's leadership and the company's expansion into Mexico and Colombia. The manager's financial projections are ambitious but methodical: scaling to 200 million users at $100 revenue per user would generate $20 billion in revenue, which at 30% banking margins translates to $6 billion in earnings. At a 15x multiple, this creates a $90 billion market value, representing a 17% CAGR over seven years. The thesis relies heavily on successful geographic expansion and the ability to replicate Brazil's penetration levels in new markets.

Pitch Summary:
The company has a dominant position selling hardware and software to police officers. Its new Taser 10 and Axon Body 4 will provide a top-line boost as the company continues to grow its recurring revenue business. With a visionary founder at the helm and plenty of runway left, the stock has never been cheap. That said, I see this company having the potential to do $10 billion in revenue one day as the international piece of the business develops and the company's optionality kicks in through further products such as Axon Records and Justice Premiere. At 30% steady-state margins, it's quite possible the company could do $3 billion in free cash flow one day. At 25x, that's a $75 billion company, over 4x from today's prices. I believe that will happen in 10 years, which would be a 15% CAGR, without adding back any cash accumulation.

BSD Analysis:
The manager presents a compelling long-term bull case for Axon based on its dominant market position in law enforcement technology and strong product pipeline. The thesis centers on the company's ability to scale from its current position to $10 billion in revenue through international expansion and new product launches like Axon Records and Justice Premiere. The manager projects impressive 30% steady-state margins leading to $3 billion in free cash flow, which at a 25x multiple would create a $75 billion valuation. This represents a 4x return over 10 years, translating to a 15% CAGR. The investment case is strengthened by the founder-led management team and the recurring revenue model from software and services. However, the manager acknowledges valuation concerns, noting the stock has "never been cheap," suggesting investors are paying a premium for quality and growth prospects.

Pitch Summary:
SmartRent (SMRT): A few months ago, I drove down to Scottsdale, Arizona to meet with the SmartRent team (see our original investment memo here; LINK). Lucas (CEO), Hiroshi (CFO) and Brian (IR), were generous enough to spend a few hours with me, and I left even more confident that the business is on the cusp of producing significant free cash flow in just a few months. It was coincidental timing as well, since a new short report targeting the company had just come out a few days earlier. Short reports on our companies are not new to us. During our ownership, nearly every single investment has been subject to a short-seller report at some point. Most of our companies are still developing, and therefore have a higher likelihood of the market misunderstanding their business models. But I actually think this aspect is a benefit (even if annoying at the time), since it overtly allows us to understand what controversies or concerns the company needs to overcome, for the stock to appreciate. In SmartRent's case, I had a cordial call with the short report's author prior to meeting with management. I think the primary concerns revolve around whether they can keep growing the number of units they deployed per quarter, and how much of their existing base is from RET Ventures (their original seed investor) promoting the service to their own LPs. The crux of both of these concerns is the same – that the company won't be able to scale to a large enough customer base, to cover their costs and reach profitability. I suspect what these short proponents are missing, is that the slowing unit growth is a conscious strategic decision, rather than a negative byproduct of the product's limited appeal. For example, Lucas told me earlier this year, that they restructured the sales & account management KPIs, to give greater emphasis on increasing existing customer lifetime values (getting them to buy add-on products, raising software ARPUs, etc.), instead of unit growth. This is underpinned by management's laser-focus on getting profitable, as quickly as possible. For example, sales & marketing per new booked unit have increased from $64/unit in 2021, to $74/unit in 2022, to an estimated ~$93/unit this year. Obviously, the cost of acquiring new units is increasing. It's a natural fact of the business maturing – SmartRent already counts 15 of the top 20 real estate owners as customers. Each of these customers own ~70,000 units on average. Meanwhile SmartRent has another 573 customers, who own ~5.9M units between them. This equates to an average ~10,000 units each. By definition for SmartRent to grow from here, they'll have to penetrate further into this "long-tail" of US real estate owners. The problem is whether selling to a 70K unit owner or a 10K unit owner, the marketing costs are the same. A sales representative needs to devote ~6 months – 2 years of their efforts, launch pilot deployments, multiple meetings, etc. before the owner is usually comfortable signing on for this new product. But this cost is amortized across fewer units for incremental "long-tail" customers. Note, the return on this customer acquisition cost is still highly positive, with SmartRent generally earning back their cost < 1 year after the contract's signed. But it's still more expensive than what it was a few years ago. The low-hanging fruit has already been picked. The other issue is that "long-tail" owners generally take longer to sign on. In the US, the majority of these smaller owners are still family-run businesses and tend to resist change. Unlike the large institutional owners who are public companies / REITs and professionally managed, the smaller owners have multiple conflicts that make them a tougher sell. For example, they tend to care about the upfront capital cost a lot more (given lower access to cheap funding vs. institutional owners), even if the project ROIs are highly attractive. They're hesitant to take a large chunk of cash out of their own pocket, to make this capital investment. Or they simply don't want to change what's worked so far, and therefore will be resistant to adopting new technology, until they're forced to by competition. This is why it was smart for SmartRent to partner with RET Ventures too. In my opinion, having RET Ventures push the product to their owns LPs, who are among the largest real estate owners in the US, was arguably what allowed SmartRent to corner this market in the first place. It got SmartRent to critical mass – it's the customer relationships and a reliable brand that give them an advantage in this business. The software itself is relatively commoditized, as there are several startups that have a similar product. But the reason why SmartRent has more units deployed than all the competition combined, is that new customers prefer to go with the solution that the industry thought leaders are using. Just as the old maxim is "nobody ever got fired for buying IBM," in this vertical it's "nobody ever got fired for buying SmartRent". In return for originally giving RET Ventures LPs a discount, SmartRent got the best marketing they could ask for, in return. Companies like UDR and MAA are the industry thought leaders and have been promoting SmartRent's product at conferences, touting the high returns they're getting by deploying the product on earnings calls, talking about the staff efficiencies achieved, and generally crediting the product for improved profitability. The RET Ventures cross-promotion is a feature, not a bug, of this relationship. The shorts point to RET Ventures exiting SmartRent stock as a sign that these customer relationships are at risk. But the fact is that the shares weren't sold, but rather distributed to their LPs in-kind. RET's venture fund was simply coming up towards the end of its life. These distributions have been going on since two years ago, and just finished in February (LINK). These LPs are the same customers of SmartRent, and are now direct shareholders. Second, I posed this question to Lucas when we met, and he responded that none of RET's LPs have cancelled, or even shown any indication of wanting to leave. In fact, they continue to sign up new units for deployment. Having said all this, the goal of the company is to get to profitability as quickly as possible. And given the rising cost of acquiring new units, it's much easier to achieve this via pricing increases instead. ARPU growth is a far more important lever, than unit growth for this reason. Software ARPU has doubled in the last two years – from $2.76 in 2021 to $5.41 this past quarter. This contributed to a +48% operating margin improvement over that time period. What gets us excited though, is the rates that new contracts are being signed at. SmartRent just reported that new booked units are priced at $9.04 per month, or +67% above the average rates today. These new booked units will be deployed over the next couple of years, while existing contracts will also renew at higher rates and continue to add-on new products. This should bring average ARPU closer to the new rates over time. The company is also becoming more asset-light, by working with ADI Global as their primary distributor (LINK). This is set to free up at least ~$20M of capital for SmartRent, while putting the new customer sales function on ADI, which has a broader marketing reach with smaller real estate owners. Since courting and servicing the long-tail customers has a lower return than the large early adopters, it makes sense for SmartRent to partner with a distributor that has the scale & willingness to do so. In addition, SmartRent also started allowing smaller owners to "self-install" the product in their units, thereby saving on installation & labor costs. These changes are already having an impact. Just last quarter, the company was able to free up ~$21M in working capital. Additionally, SmartRent stated that this benefit does not take into the ADI deal, but rather only from improvements in their internal demand forecasting. These changes are significant for a company that has an enterprise value of just ~$380M. A few weeks ago, the company officially confirmed that they'll be EBITDA positive in the fourth quarter, and plans to generate free cash flow early next year (LINK). All considered, it looks like SmartRent is on track to generate ~$35M in free cash flow next year, and over $50M in 2025. At those rates, the company would produce ~9% - 13% FCF yields, while growing software revenue at above 25% CAGRs in the medium term, with 0% historical customer churn. In fact, I wouldn't be surprised if the company starts returning a portion of its sizable $210M cash balance (36% of its market value) to shareholders in the near term. When I asked Lucas about potential share buybacks recently, he seemed very excited about the idea. As the company gets closer to being free cash flow positive, there will be less and less incentive to keep such a large cash buffer on the balance sheet. It's possible that shareholders will see a portion of their investment returned sooner than expected.

BSD Analysis:
The manager presents a compelling bull case for SmartRent based on an imminent inflection to profitability and strong unit economics. The thesis centers on the company's strategic pivot from unit growth to ARPU expansion, with software ARPU doubling from $2.76 to $5.41 over two years and new contracts pricing at $9.04 monthly (+67% premium). Management's focus on profitability over growth appears prudent given rising customer acquisition costs as they target smaller "long-tail" property owners. The partnership with ADI Global as primary distributor should improve capital efficiency while expanding reach to smaller customers. With confirmed Q4 EBITDA positivity and projected $35M+ free cash flow in 2024, the company trades at attractive 9-13% FCF yields. The $210M cash balance (36% of market cap) provides significant downside protection and potential for shareholder returns. Zero historical customer churn and 25%+ software revenue growth projections support the quality of the recurring revenue model.

Pitch Summary:
Lastly, another position we initiated in 2023 was Disney (DIS). On the surface, there are several reasons to be skeptical about investing in Disney at this moment in time: the complexities of navigating the shift from linear TV to streaming, lower profit margins associated with Disney+, recessionary fears dampening growth across theme parks, and of course the company's more recent entanglement in the political culture wars. Late in 2023, the activist investor Nelson Peltz (whose firm, Trian, owns $3 billion worth of Disney shares) launched a proxy battle against Disney and its CEO, Bob Iger. Clearly, the sharks are circling; it's a messy situation. And yet, it's these messy situations where we can often find value if we expand our lens over the next couple of years. Given its recent earnings decline, Disney's valuation has risen above historical standards. While the market has soured on the near-term earnings decline (driven mainly by its unprofitable streaming segment and the decline across its traditional TV operations) we believe the market is being short-sighted: Disney owns an impressive basket of IP and assets, and with some reasonable cost adjustments, the company could be on much more even footing. In fact, we tend to agree with Nelson Peltz's assessment of the situation: The company could achieve "Netflix-like" margins at its Disney+ streaming service with strategic cuts that could unlock a great deal of value for investors. In certain ways, the biggest catalyst for Disney shares over the next couple of years could come down to management. With Bob Iger back at the helm, we believe the company is turning a corner and headed in the right direction. At a recent Dealbook summit, Iger doubled-down on his view that the company must return to its roots of quality storytelling over what he called "messaging." "Creators lost sight of what their No. 1 objective needed to be," Iger said. "We have to entertain first. It's not about messages." Cost cuts of course reduce expense and helps the bottom line in the short-term. The downside to cost cutting measures is that it can result in lower quality products due to lack of investment. In Disney's case, however, we believe a significant amount of corporate bloat led to sub-standard content, and counterintuitively, cost cutting could help in the long term: the company will be forced to become more focused on creating high quality content (while not wasting money) like they used to. Perhaps foolishly, the company has found themselves embroiled in the culture wars, which has been a net negative for shareholders. However, we believe when the news cycle shifts—and they resume building a slate of high-quality content—we could see a rebound in the market's views towards the equity. In our view, Disney has obsessively loyal fans and a vastly underappreciated basket of IP. With the right tweaks from management, we believe we could see a significant unlocking of value for shareholders. This is another example of a company whose assets we have long admired, and 2023 gave us the opportunity to buy the stock, which is still down more than 50% from its highs in 2021.

BSD Analysis:
Nightview Capital initiated a position in Disney during 2023's turmoil, viewing the situation as a classic contrarian opportunity. The fund acknowledges near-term headwinds including streaming losses, linear TV decline, theme park concerns, and political controversies, but believes the market is being short-sighted about Disney's valuable IP portfolio and assets. With Bob Iger's return as CEO and his renewed focus on quality storytelling over messaging, management appears committed to returning to Disney's core strengths. The fund agrees with activist investor Nelson Peltz that Disney+ could achieve Netflix-like margins through strategic cost cuts, potentially unlocking significant value. They believe corporate bloat has led to substandard content, and paradoxically, cost cutting could improve long-term content quality by forcing focus. Trading down over 50% from 2021 highs, Disney offers an attractive entry point for a company with loyal fans and underappreciated intellectual property assets.

Pitch Summary:
Another company significantly off its all-time highs we believe has the potential for a significant rebound is Zillow (Z). The dominant U.S. portal for residential real estate with 63% market share of consumer traffic, they are the premier platform company in their industry. This is double the traffic of their closest competitor RedFin and over 80% of that traffic comes organically, directly, and for free with less than 5% of users coming from paid search engine marketing or digital ad spend. Traffic to their website was most recently an average of 224 million monthly unique users and while monetization has lagged, we believe they are positioning themselves as entrenched players in several income streams. We believe the market has failed to accurately incorporate this progress in the current trading value. We believe the company is perfectly poised to benefit from a world where buyers' agents are less prevalent and recent class action lawsuits against the NAR may be accelerating this process. Currently, the majority of Zillow's business comes from advertising fees paid by real estate agents, but they have made solid inroads into distributing mortgage products and we believe they have a solid opportunity to capture a variety of income streams (insurance, moving services, furnishing / interior decoration services, and others). Rentals is also a solid growth engine with revenues up 34% yoy and Zillow remains the #1 most visited rentals platform in the country. Zillow has also successfully exited their foray into home purchasing through the cessation of their iBuying program. We believe management accurately identified their mistakes, cut their losses, and decided to focus on more profitable and scalable opportunities. This quick realization provides us confidence in management's ability to remain nimble and work to identify the best ways to monetize their dominant platform position. Overall, we believe Zillow is perfectly positioned to benefit from a drop in mortgage rates, leading to a material boost in listings and ultimately increased revenue for Zillow. While valuation is complex at this stage of profitability, we believe the combination of a somewhat out of favor industry, dominant position, and the future opportunities available for increased efficiency in a notoriously inefficient marketplace have the potential to produce outsized gains for several years going forward.

BSD Analysis:
Nightview Capital sees Zillow as a dominant real estate platform trading significantly below fair value with 63% market share and 224 million monthly users. The fund believes the market undervalues Zillow's diversification beyond agent advertising fees into mortgage products, rentals (up 34% YoY), and potential expansion into insurance and moving services. Management's decision to exit the unprofitable iBuying program demonstrates strategic discipline and focus on scalable opportunities. The fund expects Zillow to benefit from structural changes in real estate, including reduced prevalence of buyers' agents accelerated by NAR lawsuits. With over 80% organic traffic and minimal paid marketing spend, Zillow maintains a strong competitive moat. The combination of an out-of-favor industry, dominant market position, and multiple monetization opportunities in an inefficient marketplace creates potential for outsized returns as mortgage rates decline and listing activity increases.

Pitch Summary:
Airbnb (ABNB), for instance, is a current position that has offered relatively stagnant returns since its IPO, but one that we believe may reach escape velocity in 2024 and beyond. Airbnb offers a classic example of a company that was strengthened by crisis: In 2020, at the onset of the pandemic, the company saw revenues decline precipitously. Acting swiftly, management right-sized the company's cost structure while enabling future growth on the platform by prioritizing the needs of its customers (i.e. hosts). In our view, Airbnb is now fostering a renaissance of travel: total nights booked on the platform will near 450 million in 2023, revenue growth remains solid, and cash flows are inflecting due to operating leverage. Airbnb will close out 2023 with roughly $3.6 billion of EBITDA, according to company filings.

BSD Analysis:
Nightview Capital views Airbnb as a compelling turnaround story that emerged stronger from the pandemic crisis. The fund believes the company's swift cost restructuring during 2020 while maintaining focus on host satisfaction positioned it well for recovery. With nearly 450 million nights booked in 2023 and approximately $3.6 billion in EBITDA, Airbnb demonstrates strong operational leverage as travel demand rebounds. The fund sees the company as fostering a "renaissance of travel" and expects it to reach "escape velocity" in 2024 after stagnant post-IPO performance. Management's crisis response and platform prioritization of customer needs provides confidence in the business model's resilience. The combination of solid revenue growth and improving cash flow generation through operating leverage makes this an attractive position for the travel and entertainment vertical they're targeting.

Pitch Summary:
Our long-term vision and conviction in Tesla over the next several years has not changed. We continue to believe Tesla is destined to become a dominant leader across multiple industries, and we see a path to Tesla evolving into one of the most valuable (if not the most valuable) companies in the world. In short, our view of where Tesla is headed by 2030 is unchanged, and we believe the company offers one of the best risk/reward opportunities in the market for anyone with a 5+ year view. However, looking back two years ago, it's clear that our internal projections for Tesla's growth trajectory (and profitability) over the 2022—2024 were aggressive. Forecasting the future cash flows of a complex manufacturing firm disrupting a legacy industry is a notoriously challenging endeavor. But we pride ourselves on getting the details right as close as possible. And clearly, our forecasting was off. There were two main areas that we did not accurately predict while modeling out the previous two years: First, Tesla has chosen a strategy of lowering prices aggressively to win market share. However, we did not expect that the company would appear so unwilling to advertise its products before cutting prices. A small amount of advertising, in our view, could have potentially educated and informed customers who do not understand the full benefits of EV ownership (including the long-term savings associated with owning a Tesla vs. an ICE vehicle). While this was successful in increasing volume growth it had a negative impact on the P&L. Second, two years ago we simply did not anticipate how polarizing Elon Musk and the overall Tesla brand would become. In our view, Musk's purchase of Twitter/X has been a net-negative for Tesla's overall brand premium, demand for Tesla products, and morale among many Musk-owned properties. Regardless of one's personal opinions on Musk individually or his political views, many institutional investors appear to remain wary of Musk, which puts a damper on valuation and share prices in the short-term. Ultimately, the business value wins out, but these outside factors have kept the share price depressed longer than we anticipated. With this being said, none of the above on Tesla affects our long-term thesis on the company. Every company inevitably faces challenges in the short-term, and we believe Tesla will emerge from this period stronger than before. In particular, we believe the company's energy storage division, its robotics ambitions, and its supercharging network are not properly valued by most investors, and the share price is currently trading significantly below our intrinsic value.

BSD Analysis:
Nightview Capital maintains a strong bullish long-term thesis on Tesla despite acknowledging forecasting errors in their 2022-2024 projections. The fund believes Tesla will become one of the world's most valuable companies by 2030, driven by multiple business segments beyond automotive. Management admits they underestimated two key factors: Tesla's aggressive pricing strategy without advertising support, and the negative brand impact from Elon Musk's Twitter acquisition and polarizing public persona. The fund emphasizes that Tesla's energy storage division, robotics ambitions, and supercharging network remain undervalued by the market. They highlight the next-generation platform targeting $20,000 vehicle cost and potential for maintaining Model Y-like margins at lower price points. Despite near-term headwinds including brand perception issues and institutional investor wariness, Nightview sees the current share price as trading significantly below intrinsic value and expects the business fundamentals to ultimately drive valuation.

Pitch Summary:
During the quarter, we started a position in Blackstone, a leading alternative asset manager. We believe there are a number of attractive growth drivers for the private asset industry, and Blackstone's brand and investment track record position it very well for continued strong asset gathering. Blackstone's mix of business also provides a level of comfort against an uncertain backdrop. Its real estate business would benefit if interest rates fall while its credit business has seen outsized growth in a higher rate environment. As the IPO market continues to recover, we expect deal activity to return.

BSD Analysis:
The manager initiated a new position in Blackstone based on secular growth trends in alternative asset management and the company's market-leading position. The investment thesis centers on Blackstone's superior brand recognition and track record, which should drive continued asset gathering in an expanding private markets industry. The manager appreciates Blackstone's diversified business model, which provides defensive characteristics across different market environments. The real estate platform offers upside potential if interest rates decline, while the credit business has demonstrated strong growth in the current higher-rate environment. This diversification reduces dependence on any single market cycle or interest rate scenario. The manager expects deal activity to recover as IPO markets normalize, benefiting Blackstone's private equity and exit strategies. The combination of secular industry growth, market leadership, and business model diversification creates multiple paths to value creation. Blackstone's scale and reputation provide competitive advantages in fundraising and deal sourcing that should compound over time.

Pitch Summary:
We recently added more exposure to this subsector with the purchase of TFI International (TFII). In the case of TFII, we see a major opportunity to improve the profitability of the LTL business it acquired from UPS. During the third quarter, there was a major change in the less-than-truckload industry. Yellow Corp (formerly a top five carrier by revenue and volume), filed for bankruptcy following years of financial challenges. Based on intra-quarter conference calls and regulatory filings, we believe both of our holdings have seen a good sequential step up in volumes. We are hoping to see a positive impact on pricing (as capacity has been removed from the industry) and profitability (as networks that were underutilized during the economic downturn were well positioned to accept new volume). Third quarter results from Saia and TFII should be very interesting.

BSD Analysis:
The manager initiated a position in TFI International as a new exposure to the LTL freight sector, with the investment thesis focused on operational improvement opportunities and industry consolidation benefits. The primary catalyst is TFI's acquisition of UPS's LTL business, which the manager believes offers significant profitability enhancement potential through operational optimization and integration. Yellow Corp's bankruptcy provides an additional tailwind by removing major industry capacity and creating market share opportunities for remaining players. The manager expects TFI to benefit from both volume increases as displaced Yellow freight seeks new carriers and pricing improvements as industry capacity tightens. TFI's underutilized network capacity positions it well to absorb new volumes efficiently, driving margin expansion. The timing appears strategic, as the company can leverage industry disruption while executing on the UPS LTL integration. Early volume indicators from conference calls and filings suggest the thesis is developing favorably. The manager anticipates strong third-quarter results reflecting these combined operational and industry dynamics.

Pitch Summary:
We have written about our holding in Saia, a 'less-than-truckload' (LTL) freight company, before. We recently added more exposure to this subsector with the purchase of TFI International (TFII). For Saia, we have been constructive for a long time in their ability to work towards being a best-in-class national carrier, which should result in both higher revenue and better profitability. During the third quarter, there was a major change in the less-than-truckload industry. Yellow Corp (formerly a top five carrier by revenue and volume), filed for bankruptcy following years of financial challenges. Typically, LTL bankruptcies end up being a liquidation process, rather than a reorganization process. Customers (shippers) tend to leave at the first sign of trouble: nobody wants their freight sitting by the roadside in the middle of nowhere. Technically, Yellow is currently under a reorganization process, rather than a liquidation process - but it seems to have played out in a fairly similar way to outright bankruptcy, with drivers being laid off and terminals closed. Yellow's freight is now being shipped by other companies. Based on intra-quarter conference calls and regulatory filings, we believe both of our holdings have seen a good sequential step up in volumes. We are hoping to see a positive impact on pricing (as capacity has been removed from the industry) and profitability (as networks that were underutilized during the economic downturn were well positioned to accept new volume).

BSD Analysis:
The manager maintains a long-term bullish thesis on Saia's transformation into a best-in-class national LTL carrier, with the recent Yellow Corp bankruptcy creating a significant industry catalyst. The investment case centers on Saia's operational excellence and network expansion capabilities, positioning it to capture market share and improve profitability. Yellow's bankruptcy represents a major capacity reduction in the LTL industry, as the company was a top-five carrier by volume and revenue. The manager notes that LTL bankruptcies typically result in permanent capacity loss rather than reorganization, as customers quickly abandon carriers showing financial distress. This industry consolidation should benefit surviving players like Saia through higher volumes and improved pricing power. The manager expects Saia's underutilized network capacity to efficiently absorb displaced freight, driving both revenue growth and margin expansion. Early indicators from conference calls and filings suggest volume increases are already materializing. The thesis combines long-term operational improvement with a favorable industry structure shift.

Pitch Summary:
CSX - Freight company CSX underperformed over the quarter as weekly shipping volumes failed to show the increase that had been anticipated. In addition, the company announced that its chief operating officer was leaving. This is an important role in this business and the stock was hit on the day of the news. CSX subsequently announced it had hired an experienced replacement to fill the vacancy.

BSD Analysis:
The manager presents a neutral assessment of CSX following disappointing quarterly performance driven by weaker-than-expected freight volumes and management turnover. The investment case faces near-term headwinds as shipping volumes have not recovered as anticipated, reflecting broader economic uncertainty affecting freight demand. The departure of the chief operating officer created additional investor concern, given the critical importance of operational leadership in railroad efficiency and service quality. However, the company's quick hiring of an experienced replacement suggests management continuity and operational stability. The manager's tone implies a wait-and-see approach, monitoring whether volume trends improve and the new COO can maintain operational excellence. CSX's performance appears tied to broader economic recovery and freight demand normalization. The manager seems to view current challenges as cyclical rather than structural, but requires evidence of volume recovery before becoming more constructive on the investment thesis.

Pitch Summary:
Dexcom - Excitement about the potential for novel 'GLP-1' diabetes drugs sent Dexcom's shares lower. Novo Nordisk and Eli Lilly both have drugs that not only treat Type 2 diabetes but can also be used to treat obesity. Novo Nordisk released data showing that these drugs could also be used to lower certain cardiovascular risks, because of weight loss. As the market believed these drugs would be more widely adopted, they also believed that the use of other tools to manage and treat diabetes, like pumps and CGMs (continuous glucose monitors) would be lower. We believe that this is not the case; rather, CGMs have a role to play in helping manage the adoption of these new GLP-1 drugs. Indeed, in early September Dexcom published data regarding the increase in adoption of CGMs by patients who are on GLP-1 therapy. We see the sell off in Dexcom as overdone and continue to hold the stock.

BSD Analysis:
The manager maintains a contrarian bullish view on DexCom despite market concerns about GLP-1 diabetes drugs potentially reducing demand for continuous glucose monitors. The investment thesis challenges the market's assumption that GLP-1 drugs like those from Novo Nordisk and Eli Lilly will cannibalize CGM usage. Instead, the manager argues that CGMs play a complementary role in optimizing GLP-1 therapy outcomes, supported by DexCom's own data showing increased CGM adoption among GLP-1 patients. The manager views the stock's decline as an overreaction to competitive fears, creating an attractive entry point. The thesis rests on the belief that diabetes management will become more sophisticated rather than simplified, requiring multiple tools working in concert. DexCom's technology provides valuable real-time glucose data that enhances the effectiveness of GLP-1 treatments. The manager's conviction suggests confidence in DexCom's ability to demonstrate complementary value rather than competitive displacement in the evolving diabetes care landscape.

Pitch Summary:
Meta - Even before the company released consensus-beating earnings for the second quarter, our investment thesis had begun to shift from Meta being a contrarian turnaround story to an outright growth story. Its near-term recovery is increasingly well understood. The benefits of Meta's cost cutting are clear and the market now appreciates that that the deceleration in its growth was due to its pivot to Reels (a short video format) and a transitory loss of ad efficacy due to Apple's privacy changes. In our view, however, the durability of its core business and the new growth opportunities that lie before it are still being underestimated. From this point, we think investors will begin to appreciate that Meta's significant incremental investment in AI and datacentre infrastructure will lead to meaningful new revenue opportunities both through growing in its existing markets as well as in entirely new product categories.

BSD Analysis:
The manager has evolved their Meta thesis from a contrarian turnaround play to a growth story, reflecting the company's successful operational recovery. The investment case rests on Meta's demonstrated cost discipline and the market's growing recognition that previous growth headwinds were temporary, specifically the Reels transition and Apple's iOS privacy changes. The manager believes the market still underappreciates two critical factors: the resilience of Meta's core advertising business and the revenue potential from AI investments. Meta's substantial capital allocation toward AI and data center infrastructure is viewed as creating new monetization opportunities beyond traditional advertising. The thesis suggests Meta can both expand within existing social media markets and enter entirely new product categories through AI capabilities. The manager's confidence stems from the company's proven ability to navigate platform transitions and monetize user engagement across multiple formats.

Pitch Summary:
Constellation Energy - This nuclear power/clean energy supplier is one of our highest-conviction holdings. So we were pleased to see our thesis continuing to play out over the quarter. Good news on earnings is being driven by its customers' willingness to pay more given volatility in energy prices and, perhaps more importantly, by the fact that Constellation is seen as a reliable supplier. Its reliability and focus on clean energy also make it an indirect beneficiary of the AI wave as energy-intensive data centres are being built in the states that Constellation serves.

BSD Analysis:
The manager maintains a high-conviction bullish stance on Constellation Energy, viewing it as a premier nuclear power and clean energy supplier. The investment thesis centers on the company's reliability premium, where customers are willing to pay higher rates for stable energy supply amid market volatility. The manager highlights two key value drivers: direct pricing power from energy market volatility and indirect benefits from AI-driven data center expansion in Constellation's service territories. The nuclear power focus positions the company well for the clean energy transition while providing baseload reliability that renewable sources cannot match. The AI infrastructure boom creates a secular tailwind as data centers require consistent, high-capacity power supply. The manager's decision to take profits after strong performance suggests disciplined portfolio management while maintaining conviction in the long-term thesis.

Pitch Summary:
Investor Jeremey Hoskings coined 'the capital cycle' to describe how investors could profit when investment retreats and supply contracts. Perhaps trauma is a necessary condition for this process to occur. I made two investments this year in industries which fit the bill. The first is Ashtead, an equipment rental business that almost went bust in 2009. The second is Vistry, a homebuilder in Britain, where the housing crisis is arguably even more severe than America's. Both companies enjoy secular tailwinds, earn high returns on capital and have low valuations matched with plans to buy back stock. Vistry, the British homebuilder which has gone all in on the 'Partnership Model', in which it pre-sells large volumes of homes in exchange for a bulk discount. The proceeds free up capital, which Vistry plans to use to buy back GBP 1 billion of stock in the next three years, equal to a quarter of its current market cap.

BSD Analysis:
The manager's investment in Vistry represents another capital cycle opportunity in the UK homebuilding sector, which faces an even more severe housing crisis than the US market. The investment thesis centers on Vistry's innovative "Partnership Model," where the company pre-sells large volumes of homes at bulk discounts, generating immediate cash flow and reducing execution risk. This business model differentiation provides Vistry with a competitive advantage in capital efficiency and cash generation compared to traditional homebuilders. The manager is particularly attracted to the company's aggressive capital return strategy, with plans to repurchase £1 billion in stock over three years, representing 25% of current market capitalization. This substantial buyback program, combined with high returns on capital and attractive valuation, suggests significant value creation potential. The secular tailwinds from the UK housing shortage provide a favorable backdrop for sustained demand, while the Partnership Model offers a more capital-efficient approach to capturing this opportunity.

Pitch Summary:
Investor Jeremey Hoskings coined 'the capital cycle' to describe how investors could profit when investment retreats and supply contracts. Perhaps trauma is a necessary condition for this process to occur. I made two investments this year in industries which fit the bill. The first is Ashtead, an equipment rental business that almost went bust in 2009. The second is Vistry, a homebuilder in Britain, where the housing crisis is arguably even more severe than America's. Both companies enjoy secular tailwinds, earn high returns on capital and have low valuations matched with plans to buy back stock.

BSD Analysis:
The manager's investment in Ashtead represents a classic capital cycle play, targeting an industry that experienced severe trauma during the 2009 financial crisis and subsequently underwent significant supply contraction. The thesis is built on the premise that equipment rental companies like Ashtead, which nearly collapsed in 2009, have since consolidated and rationalized capacity, creating favorable supply-demand dynamics. The manager identifies secular tailwinds supporting the equipment rental industry, likely driven by increased outsourcing of equipment needs and infrastructure investment. Ashtead's ability to generate high returns on capital suggests strong operational efficiency and market positioning in a consolidated industry. The combination of attractive valuation metrics and active share buyback programs indicates management's confidence in the business and commitment to returning capital to shareholders. This investment exemplifies the manager's contrarian approach of investing in industries where past trauma has created structural advantages for survivors.

Pitch Summary:
Our investment in Amazon is a bet that someone can. Andy Jassy took the reins of Jeff Bezos' sprawling empire in 2021 at a time when its profits were severely depressed. When I first heard Jassy speak, he sounded hesitant and diffident, giving rambling answers and hiding behind corporate jargon. But there is steel behind his soft demeanour. Bit by bit, he has chipped away at the excesses. He reduced headcount and laid down the lay on working in the office. He shut down middling projects, reminding everyone that one of Amazon's greatest strengths is to experiment lots, fail quickly and move on. Amazon under Jassy is focusing on a smaller number of big bets. I am most impressed with the creation of 'Amazon 3PL' (link) and 'Buy with Prime' (link). Rather than shutting down the excess logistics capacity built during COVID, Jassy leaned into it and flipped Amazon's retail business model on its head. Merchants don't have to sell through Amazon.com anymore. Now, anyone, anywhere, with a store online can avail themselves of Amazon's same-day and next-day fulfilment. And why wouldn't they, given consumers convert more and spend more frequently when their shopping arrives faster (link)? Jassy's move has increased Amazon's TAM, given it more volume to operate efficiently and widened its moat. Analyst Ben Thompson describes Jassy's vision as "Amazon as a Service" (link), which seems apt as higher-margin third-party sales are on the cusp of overtaking first-party sales. I suspect Jassy's 'year of efficiency' is only just beginning.

BSD Analysis:
The manager presents a compelling turnaround thesis on Amazon under CEO Andy Jassy's leadership, focusing on operational efficiency and strategic repositioning. The core investment rationale centers on Jassy's decisive cost-cutting measures, including headcount reduction and project rationalization, which mirror successful efficiency drives at other tech giants like Meta. The manager is particularly bullish on Amazon's strategic pivot to "Amazon as a Service," leveraging excess logistics capacity built during COVID to create new revenue streams through Amazon 3PL and Buy with Prime services. This transformation expands Amazon's total addressable market by allowing any online merchant to access Amazon's fulfillment network, not just those selling on Amazon.com. The shift toward higher-margin third-party services is viewed as a sustainable competitive advantage that increases operational efficiency while widening Amazon's economic moat. The manager sees this efficiency drive as just the beginning of a broader transformation that should drive margin expansion and profit recovery.

Pitch Summary:
In September, we initiated a new position in Fortrea, a late-stage contract research organization ("CRO") that was spun out of Labcorp at the end of the second quarter. In simple terms, a CRO helps drug companies design, run, and manage clinical trials. Due largely to technical dynamics following the spin, as well as a clunker of a first quarter as an independent company, the stock has traded off substantially, creating an opportunity for us. Fortrea is a new issue but its predecessor company, Covance, goes back 30 years and is considered one of the CRO pioneers; it was acquired by Labcorp in 2014. In January 2023, Tom Pike was hired as CEO of Fortrea ahead of the third-quarter separation. Tom's deep industry experience is key to our investment thesis. He previously led CRO-industry bellwether Quintiles through its May 2013 IPO and, three years later, its acquisition by IMS Health for $9 billion. His track record at Quintiles was consistently good. At Fortrea, there are a lot of duplicate costs weighing on margins, as the company is building out its own infrastructure while still paying Labcorp under a two-year transition service agreement. As management gets its cost structure in order, we anticipate that the company will be able to get EBITDA margins from 9% in 2023 to industry benchmarks in the mid- to high teens. If it does, which we anticipate happening in 2025, we can see the stock trading into the low-$50s on a fundamental basis, and potentially much higher if it's acquired based on recent transaction multiples. We're really excited about this opportunity.

BSD Analysis:
Penn Davis McFarland initiated a position in Fortrea following its spinoff from Labcorp, viewing the post-spin technical selling and weak initial performance as creating an attractive entry point. The firm's thesis centers on CEO Tom Pike's proven track record, having successfully led Quintiles through its IPO and eventual $9 billion sale to IMS Health. The investment case relies on significant margin expansion as Fortrea eliminates duplicate costs from its transition service agreement with Labcorp and builds operational independence. Management expects EBITDA margins to improve from 9% to mid-to-high teens by 2025, aligning with industry benchmarks. The firm sees fundamental value in the low-$50s range, with additional upside potential from acquisition activity given recent transaction multiples in the CRO space. The 30-year heritage of the underlying Covance business provides operational credibility in the specialized clinical trials market. This appears to be a classic spinoff opportunity where temporary technical pressures have created a disconnect between price and intrinsic value.

Pitch Summary:
Over the past 16 months, Eagle built positions in three energy stocks: ConocoPhillips, Shell, and Occidental Petroleum ("Oxy"). Our investments performed well during the quarter, and we believe the long-term opportunity is underappreciated. Our thesis has three aspects. First, the long-term supply and demand balance for oil is attractive. Second, the companies we own have quality, long-duration assets that are well-positioned on the global cost curve. Finally, the management teams we're backing are allocating capital well and in alignment with shareholders. ConocoPhillips and Oxy have privileged low-cost inventory positions that enable growth over the next decade, followed by a long plateau. Shell and Oxy each have checkered pasts. However, Shell's new leadership is highly focused on return on capital and better maximizing the value of its assets. Oxy's management, no doubt influenced by its 26% shareholder Berkshire Hathaway, is deploying its prodigious free cash flow into redeeming its preferred securities and buying back stock. On average, our three holdings returned almost 11% of their market caps to shareholders over the past year. Over the coming 5-10 years, we expect an attractive combination of modest production growth and significant ongoing cash distributions.

BSD Analysis:
Eagle Capital's bullish stance on Occidental Petroleum centers on the company's privileged low-cost inventory position and dramatically improved capital allocation under Berkshire Hathaway's influence. Like ConocoPhillips, Oxy possesses advantaged assets that enable growth over the next decade followed by a sustained production plateau. The 26% ownership stake by Berkshire Hathaway has clearly influenced management's capital discipline, with the company deploying "prodigious free cash flow" into preferred security redemptions and share buybacks. This represents a marked transformation from Oxy's troubled past, demonstrating management's newfound focus on shareholder value creation. The company's 11% shareholder return yield reflects this disciplined approach to capital allocation. Eagle acknowledges Oxy's "checkered past" but emphasizes the positive influence of Berkshire's involvement in driving more rational capital deployment. The combination of low-cost, long-duration assets and improved capital allocation positions Oxy for attractive returns over the next 5-10 years through modest production growth and significant ongoing cash distributions.