Investment Pitches

Pitch Summary:
Builder's First Source (BLDR) 4.25% Senior Unsecured Notes due 2/1/32 – Publicly-traded Builder's First Source is a leading supplier of manufactured building materials, including lumber, windows and doors, metal, and concrete products. The company has had strong performance, benefiting from robust demand for new home construction. Operating in a fragmented market, the company has grown organically and via acquisition. At the end of 3Q24, gross leverage was 1.5x EBITDA and net leverage was 1.4x EBITDA with interest coverage over 10x, a very solid credit. During 4Q24, we purchased the 4.25% bonds in the low 90s at a yield-to-worst (YTW) of 5.79%, in line with other high yield bonds of similar credit quality and maturity. Given the company's high cash flow and stable operations, the company may seek to refinance the debt stack early or may attract attention either as a strategic purchase or Leveraged Buyout (LBO) candidate. The significant discount to par provides attractive optionality in the event of an early repayment, either as a result of a change of control, which might result in a significant capital gain if repayment were required at a price of 101, or, potentially, the company's decision to call the bond early, most likely in February 2031 when the bond 'goes current', which would result in a 6.08% yield.

BSD Analysis:
CrossingBridge identifies Builder's First Source as an attractive credit opportunity in the building materials sector, capitalizing on strong housing market fundamentals and exceptional credit metrics. The company's 1.4x net leverage and 10x interest coverage ratios demonstrate conservative financial management despite operating in a cyclical industry. The fund's purchase in the low 90s creates compelling optionality, with potential for significant capital appreciation through early refinancing or M&A activity. The fragmented building materials market presents consolidation opportunities, making BLDR an attractive LBO or strategic acquisition target. Strong cash generation and market-leading position in residential construction provide defensive characteristics. The 5.79% yield-to-worst offers attractive current income while the discount to par creates upside potential through various exit scenarios. CrossingBridge's thesis combines credit quality with event-driven optionality in a recovering housing market.

Pitch Summary:
Magnite Inc. (MGNI) SOFR+375 bp First Lien Term Loan due 2/6/31 – Magnite is the world's largest independent sell-side advertising platform for connected TV, online video, display, and audio. It is a public company and, as of 9/30/24, cash on the balance sheet exceeded the outstanding amount of the First Lien Term Loan, making it a very solid credit. We initially participated in this loan when it was issued at SOFR+450 bp at a price of 99 in February 2024. We maintained our position when it was repriced in September 2024 at SOFR+375. It is interesting to note that, marking the position to par at the time of the repricing, we had achieved an 11.50% annualized rate of return through the holding period. In late October 2024, we added to our position at a price of 100.625. The 6.45% expected yield to the next repricing date, in March 2025, was attractive at 200 bp over the Treasury rate for that maturity. However, by way of example of the loan's cushion bond-like characteristics, the yield would rise to 7.19% if the loan were called at par on 12/31/25 – providing a higher rate of return, like a cushion bond, if it remained outstanding longer.

BSD Analysis:
CrossingBridge presents a compelling credit investment in Magnite's term loan, emphasizing the company's dominant position in the connected TV advertising technology space. The fund highlights exceptional credit quality with cash exceeding outstanding debt, creating a virtually risk-free investment profile. The manager's strategy demonstrates tactical execution, capturing an 11.50% annualized return through the repricing cycle while maintaining exposure to attractive floating-rate yields. The loan's cushion bond characteristics provide optionality for enhanced returns if refinancing is delayed. With 200 basis points over Treasury rates and potential yield expansion to 7.19% under extended scenarios, the investment offers compelling risk-adjusted returns. The connected TV advertising market represents a secular growth opportunity as traditional media shifts digital. CrossingBridge's position sizing and timing reflect disciplined credit selection in a premium-quality issuer.

Pitch Summary:
We exited the long-held name in favor of French food and beverage maker Danone, a higher-growth idea in consumer staples, known for such brands as Evian spring water and Dannon yogurt. The management team in place for the last three years is focused on high-quality volume and gross margin improvements to drive growth, supported by transformation of its product portfolio and reinvestments. Danone is also focused on categories such as medical nutrition less vulnerable to private label competition and backed by strong demographic trends.

BSD Analysis:
ClearBridge swapped Nestle for Danone as a higher-growth consumer staples play, betting on a successful management turnaround story. The current management team, in place for three years, is executing a focused strategy centered on high-quality volume growth and gross margin improvement through portfolio transformation and strategic reinvestments. The investment thesis emphasizes Danone's strategic focus on defensive categories like medical nutrition, which are less susceptible to private label competition and benefit from favorable demographic trends. This positioning provides both defensive characteristics and growth potential in an increasingly competitive consumer staples environment. The manager views this as a more compelling growth opportunity compared to Nestle, where growth appears to have peaked under previous leadership.

Pitch Summary:
China's struggle through a post-pandemic recovery has not impacted every sector the same way, presenting an opportunity to purchase Hong Kong-based Lenovo, also in the structural growth category, during the quarter. Lenovo is a global technology hardware company with a leading market share in personal computers. The PC business is set to go through a multiyear growth recovery driven by an operating system upgrade cycle and the introduction of higher-priced AI-based PCs. The server and storage segment is also expected to rebound this year, creating an additional channel for market share gains.

BSD Analysis:
ClearBridge opportunistically added Lenovo during China's post-pandemic struggles, viewing it as a structural growth play with multiple recovery catalysts. The company maintains a leading global market share in personal computers, positioning it well for the anticipated multiyear PC growth recovery. Key growth drivers include the operating system upgrade cycle and the introduction of higher-priced AI-enabled PCs, which should drive both volume and margin expansion. Additionally, the server and storage segment is expected to rebound, providing another avenue for market share gains and revenue growth. The timing appears strategic, as the manager is capitalizing on broader Chinese market weakness to acquire a global technology leader at attractive valuations. This position reflects confidence in secular technology trends despite regional economic headwinds.

Pitch Summary:
The other three Japan additions fall into this category — Asics, Tokio Marine and Nippon Sanso Holdings, an industrial gases supplier. All three stand to benefit from both company-specific actions as well as broader reforms in the Japanese market aimed at improving return on equity and shareholder engagement while promoting M&A activity.

BSD Analysis:
ClearBridge added Nippon Sanso Holdings as part of their structural growth allocation in Japan, positioning it to benefit from both company-specific improvements and broader Japanese market reforms. As an industrial gases supplier, the company operates in a typically stable, cash-generative business with defensive characteristics. The investment thesis centers on the company's ability to benefit from Japan's ongoing corporate governance reforms focused on improving return on equity and enhancing shareholder engagement. The manager expects these reforms to drive more aggressive capital allocation and potential M&A activity. While specific company fundamentals weren't detailed, the position reflects confidence in Japan's authentic commitment to improving corporate profitability and shareholder returns across the industrial sector.

Pitch Summary:
Tokio Marine is a top global property and casualty insurer. M&A among its smaller rivals in the past few years has created greater parity but Tokio Marine remains the largest insurer by market cap due to its larger overseas portfolio, mostly based in the U.S. We see three sources of price appreciation for the company going forward: premium increases in its domestic P&C business, the selling off of cross holdings that could unlock up to 30% of the company's current value and bolt-on acquisitions funded by its high cash generation.

BSD Analysis:
ClearBridge views Tokio Marine as a compelling structural growth opportunity within the Japanese insurance sector. Despite increased competition from M&A consolidation among smaller rivals, the company maintains its leadership position through its substantial overseas portfolio, particularly in the U.S. market. The investment thesis rests on three distinct value creation drivers: domestic premium increases in the P&C business, significant value unlock potential through cross-holding divestments worth up to 30% of current market cap, and strategic bolt-on acquisitions funded by strong cash generation. This multi-faceted approach to value creation, combined with the company's global diversification and strong balance sheet, positions it well to benefit from both Japanese corporate reforms and international growth opportunities.

Pitch Summary:
Asics is a specialty running shoe designer whose newer management is committed to bringing the business back to industry-like profitability. In addition to its iconic running shoes, the company also develops footwear for the sports lifestyle and health/comfort markets. With better operational focus, inventory management and a move to specialty sales channels, we believe Asics's well-known quality will allow it to sell more products with better pricing and margins, leading to significant earnings growth.

BSD Analysis:
ClearBridge added ASICS as a structural growth play within their Japanese equity allocation, betting on a management-led turnaround story. The investment thesis focuses on new management's commitment to restore industry-level profitability through operational improvements. Key value drivers include enhanced operational focus, better inventory management, and a strategic shift toward specialty sales channels. The manager believes ASICS can leverage its strong brand quality and reputation to achieve better pricing power and margin expansion. This represents a classic restructuring opportunity where improved execution should drive significant earnings growth. The position aligns with ClearBridge's confidence in Japan's broader corporate governance reforms and management accountability improvements.

Pitch Summary:
In the secular bucket, we purchased Terumo, a Japanese manufacturer of medical equipment for blood management, cardiac and vascular procedures as well as general hospital uses. Its core cardiovascular and vascular device business is growing at above-market rates due to better patient outcomes and improved hospital economics. New product launches in its blood and cell technologies business should further bolster Terumo's growth. We see the company expanding margins through steady growth in core markets, new business and more aggressive M&A that is possible under its new CEO.

BSD Analysis:
ClearBridge initiated a position in Terumo as part of their secular growth bucket, viewing it as a beneficiary of Japan's corporate governance reforms. The manager highlights the company's core cardiovascular and vascular device business growing above market rates, driven by superior patient outcomes and improved hospital economics. New product launches in blood and cell technologies are expected to provide additional growth catalysts. The investment thesis centers on margin expansion through organic growth in core markets and more aggressive M&A activity under new leadership. This position reflects the manager's conviction in Japan's authentic move toward improved profitability and capital allocation. The timing appears opportunistic given the broader Japanese market reforms aimed at enhancing shareholder returns.

Pitch Summary:
Innovative Food Holdings is a nationwide specialty food distributor to the food service industry. It is our sixth largest position and has a market cap of $95m. Like many transportation industries that get certain items from point A to point B, the food distribution system is no different. It is separated into bulk shipping – called broadline food distributors and specialty shipping – called specialty food distributor The job of the food distributor is transporting food from the beginning of the supply chain - farms, ranches, factories, etc. – directly to the end of the supply chain – restaurants, cafeterias, airports etc. (any food that is bought outside of a grocery store). In broadline food distribution there are three major players – Sysco, US Foods and Performance Food Group – that dominate the industry. These "big three" control over 50% of the food distribution market and are names that you probably recognize as their trucks are frequently seen driving around town. These broadline food distribution companies connect mass production food operations – large cattle farms, rice manufactures, etc. – to restaurants, cafeterias, airports, etc. As Bill Bennet - CEO of Innovative Food Holdings – broadly puts it 'You can think of broadline food distributors as the Wal-Mart of food service distribution. They are very good at selling core commodities that everyone wants very cheaply. They specialize in breadth not depth of offerings. They are not very good at finding and selling niche food products that especially unique customers might be targeting.' Simply put, it's just too hard for broadline food distributors to maintain a large number of relationships with these niche food vendors. Additionally, it's not worth their time as it requires a lot of hand holding that doesn't pay off in meaningful revenue for these massive broadline food distribution companies. An example of a niche food producer that isn't worth the time for broadline food distributors is 'Ham Sweet Farm' who sells grassfed lamb – an item that is ordered infrequently by a small number of customers – out of Michigan (pictured on the right). This is where Innovative Food Holdings steps in. The specialty food distribution industry is highly fragmented amongst many players – mainly just locally delivering niche food products (such as grassfed lamb from 'Ham Sweet Farm'). Unlike most specialty food distributors, Innovative Food Holdings actively searches for these "mom and pop" specialty food producers – such as 'Ham Sweet Farm' – who are only selling locally and offers them the ability to be plugged into a nationwide sales pipeline. By being in business for over two decades, Innovative Food Holdings has developed a symbiotic relationship with the broadline food distributors – Sysco, US Foods, Performance Group, etc. Innovative Food Holdings will do the work the broadline food distributors don't want to do – find specialty food producers, vet them and bring them up to packaging and health standards. They then add these specialty food producers such as 'Ham Sweet Farm' to the broadline food distributors' nationwide sales catalog. This is a win-win for everyone involved. Now, 'Ham Sweet Farm' can sell their grassfed lamb nationwide – drastically increasing their sales – and the broadline food distributors can offer grassfed lamb to their end customers – increasing the depth of their offerings – without having to do the tedious work. Before we dive further into how Innovative Food Holdings has begun to entrench their niche in the specialty food distribution industry, let's first go over their recent transformation. Innovative Food Holdings outstanding board – more on them later – in early 2023 decided it was time to bring in a new CEO – Bill Bennett – and management team. Despite Innovative Food Holdings impressively growing their revenue over the past two decades, the prior management team made poor capital allocation decisions by trying to build direct-to-consumer e-commerce businesses which lost $12m over five years – ultimately pulling Innovative Food Holdings away from their core competency. I have spent time with Bill in person and spoke with him many times over the past year – getting to know him well. Bill is the level headed, common sense, astute capital allocator – having the characteristics of the A+ capital allocator referred to in the opening section – that Innovative Food Holdings desperately needed in order to focus on and thrive in their core specialty food distribution business. Bill comes from a more corporate background – Kroger, Wal-Mart, S.C Johnson and General Mills – which often scares small, public company investors. They worry that someone coming from a more structured background will not be able to adapt to the more entrepreneurial lifestyle of running a small company. I had this concern too until I really got to know Bill. I learned that he left the corporate world because he wanted to do something on his own whether it be a start-up or a smaller company. He wanted to step into a situation where he could "eat what he cooked." Bill saw that Innovative Food Holdings had a great core business alongside an incredible board. It just needed some cleaning up and professionalization in order to unleash the underlying profitable business. As Hugh Evans, an investor I deeply respect with over 30 years of experience in the small, public company industry, told me when we were discussing whether River Oaks Capital should buy ownership in Innovative Food Holdings, "In my experience, 75% of the time a corporate CEO coming to small, public company completely fails, the other 25% of the time it becomes an astonishingly good investment." I have had a very similar experience as well. I believe with Bill and the team he has brought in – including Brady Smallwood who he worked with at Kroger and Gary Schubert who he worked with at Wal-Mart – we have a very good chance at achieving the 25% outcome. When Bill stepped in on day one he didn't realize how dire the financial situation of Innovative Food Holdings had become saying "four alarm fires were going off on day one." They started the turnaround by outlining what their two core competencies are: 1. A special food distribution marketplace to all national food sales channels – their competitors mostly just distribute locally 2. Their ability to find and train new small food vendors – such as 'Ham Sweet Farm' Bill and his team then laid out a three phase plan that revolved around these core competencies. Phase 1: Stabilize This entails fixing pricing and margins (which astonishingly hadn't been adjusted for the past few years of inflation), divesting non-core assets (specifically the e-commerce businesses and unused buildings), cutting costs by reviewing every check that goes out the door and reducing headcount. Phase 2: Build a Foundation for Growth This means adding new broadline food distributors (more on this below), adding new specialty food vendors and executing small, inexpensive tuck-in acquisitions. Phase 3: Grow and Scale Once they have built a solid foundation and proven their ability to grow both organically and through acquisitions on a smaller scale, then begin to significantly grow their revenue and free cash flow – leveraging the asset light nature of their core business and consolidating their industry through more acquisitions. Bill has done an outstanding job and has nearly fully implemented phase I and is well into phase 2. But before we get into how they are implementing phase II. Let's dive a little further into how their two core competencies work. As mentioned, Innovative Food Holdings has deep connections with the broadline food distributors – Sysco, US Foods, Performance Group, etc. So, whenever a restaurant wants to order grass feed lamb from a broadline food distributor such as US Foods, 'Ham Sweet Farm' appears in the restaurant's US Foods catalog – even though the order is being fulfilled by Innovative Food Holdings – who gets 'Ham Sweet Farm' to overnight ship the order to the restaurant via FedEx. This is referred to as 'drop shipping' and it involves essentially no working capital or inventory for Innovative Food Holdings. In fact, the restaurant never knows that Innovative Food Holdings is involved in the transaction. Additionally, Bill and his team actively search the U.S to meet niche food vendors such as 'Ham Sweet Farm' and get them into their food catalog. Bill and his team will continue to tirelessly travel to find new niche food vendors to organically grow revenue. However, revenue growth can become exponential as Bill and his team integrate each siloed division of their company onto one platform and then start adding tuck-in acquisitions. Over a decade ago, Innovative Food Holdings acquired a Chicago-based local specialty food distribution company called Artisan Specialty Foods for ~$1.0m-$1.5m. Artisan Specialty Foods bought from local mom-and-pop niche food vendors similar to 'Ham Sweet Farm' but only distributed their products to 450 customers in the Chicago area. Once Innovative Food Holdings took over, they plugged Artisan Specialty Foods' products into their national sales catalog connected with the broadline food distributors. Artisan Specialty Foods' revenue doubled quickly from $5m per year to $10m+ – as they were no longer just selling products to the Chicago area. When Bill and his team took over, they observed the enormous synergistic growth potential that is possible by buying local specialty food distributors – such as Artisan Specialty Foods – and immediately doubling their sales by plugging them into their national pipeline. Bill also observed that before he was hired they were not taking advantage of cross-selling opportunities by selling Innovative Food Holdings' other nationwide niche food vendors' products into the Chicago market via Artisan Specialty Foods. Furthermore, Artisan Specialty Foods had 1,200 new items Innovative Food Holdings could add to their already 7,000+ item food catalog they offer to broadline food distributors – further enhancing their value add to the broadline food distributors. Bill and his team realized they could build an even more formidable portfolio offering by doing small, synergistic tuck-in acquisitions of local specialty food distributors – Phase 2 of their plan. They have done just that over the past few months by acquiring Golden Organics – located in Denver, Colorado - for ~$1.6m with ~$7m of revenue and LoCo Food Distribution – based in Fort Collins, Colorado – for ~$350k with ~$5m of revenue. These were both wonderfully synergistic acquisitions as Golden Organics has 800 items that Bill and his team can add to their national catalog – they have previously done very little in the organic space - additionally Golden Organics can now cross-sell the 8,000+ items in Innovative Food Holdings' catalog to the Denver area. The same goes for LoCo Food Distribution, which brings in 500 new items to add to Innovative Food Holdings' portfolio and offers the same cross-selling opportunity. Bill and his team plan on doing a few of these tuck-in acquisitions initially at very favorable valuations – 3-5x free cash flow to equity – to prove out the concept of their synergistic nature – showing they can double the revenue of the acquired company in 1-3 years while increasing their portfolio offering to the broadline food distributors. If this works as planned, they will then begin to ramp up the number of tuck-in acquisitions per year. As Bill said to me a few weeks ago, "this company will look unrecognizable in six months from where it was when I took over." The tuck-in acquisitions play a part in Bill's statement but the real major transformation is from their recent contract as the sole gourmet cheese provider for a top 10 retailer in the U.S. This is where River Oaks Capital stepped in. Bill and his team raised ~$3.25m – at $1.60 per share (the market price at the time) – to build up inventory of gourmet cheese and buy the equipment needed to process the cheese. The payback on the equipment will be less than one year as it will dramatically lower operating costs. The Innovative Food Holdings board reached out to River Oaks Capital for us to invest alongside them in the equity raise and I immediately agreed as it was the board themselves who were so excited about the new opportunity. Bill and his team haven't quantified the total revenue this gourmet cheese contract could produce but have said it's in the 'tens of millions of dollars' – very meaningful for an ~$70-$80m per year revenue business. River Oaks Capital invested at a market cap of ~$80m. If you include the gourmet cheese contract plus the two tuck-in acquisitions, it seems Innovative Food Holdings will hit ~$100m of revenue by the end of 2025 which should translate to $6-$7m of free cash flow to equity in the next 1-2 years – an 8-9% free cash flow to equity yield (11-13 P/E ratio). At first glance, this may appear to below the typical margin of safety we desire for a wonderful business – $0.70 or less on the dollar – but there are a few factors to consider: First off, their ability to grow their drop shipping business with nearly zero additional invested capital. This requires virtually no working capital and very few employees – allowing future revenue growth to convert to significantly more free cash flow. For example, Innovative Food Holdings recently partnered with a new major broadline food distributor and it only required them to hire 1 new employee. Secondly, their ability to do dozens more tuck-in acquisitions of specialty food distributors. If they can continue to acquire small, specialty food distributors at 3-5x free cash flow to equity (before synergies) and then double the revenue of the acquiree, the returns could be astronomical – they already have a large pipeline of potential targets lined up. Thirdly, the sale leaseback of their Pennsylvania warehouse they own will make them a debt-free company. They only use about ~25% of the capacity of the warehouse, which is valued between $15-$18m and should be sold this year. They will use the proceeds – which will be un-taxed due to their $20m in Net Operating Losses – to pay down their ~$9m of debt and then have $6m+ of excess cash. Lastly, and probably most importantly, Bill, his team and the board. The downside protection given to us by having an A+ management team alongside the most shareholder friendly board is extremely valuable. I have gotten to know a few of the board members well and not only do they have extensive experience in properly returning capital to shareholders but they own over 50% of the company. Furthermore, James Pappas – chairman of the board – has a deep expertise in the food industry. Going forward, every decision the board makes will be the most logical and shareholder friendly choice.

BSD Analysis:
River Oaks Capital presents a compelling turnaround story in Innovative Food Holdings, a specialty food distributor operating in a fragmented niche market. The fund manager's thesis centers on new CEO Bill Bennett's transformation of the company from a struggling entity with failed e-commerce ventures to a focused specialty food distribution platform. Bennett's three-phase plan (Stabilize, Build Foundation, Grow & Scale) appears well-executed, with the company moving from Phase 1 to Phase 2. The drop-shipping model creates an asset-light business with minimal working capital requirements, while recent acquisitions (Golden Organics, LoCo Food Distribution) demonstrate the synergistic potential of doubling acquired companies' revenue by plugging them into the national distribution network. The major gourmet cheese contract with a top 10 U.S. retailer represents a significant growth catalyst. At an 8-9% free cash flow yield with substantial growth optionality through tuck-in acquisitions at 3-5x FCF multiples, the investment offers compelling risk-adjusted returns backed by a shareholder-friendly board owning over 50% of the company.

Pitch Summary:
Teleperformance is a leading global Business Process Outsourcing (BPO) provider, which we believe investors are now treating like a commoditized call center business, and therefore likely to be an eventual loser to AI. As a result, its P/E multiple collapsed from 8x to 5x over the course of 2024. This multiple compression has not been driven by the results, though, as Teleperformance continues to outperform even more value-add peers. For example, Teleperformance is expected to have delivered about 3% organic topline growth in 2024, ahead of the flat organic growth from Accenture, which is not perceived to be under threat from AI and has a forward P/E of 27x. While AI brings uncertainty to any people-driven business like Teleperformance, we believe the company will continue to post strong results in the future due to its advantages. First, Teleperformance is a technology leader in a highly fragmented space. As the largest BPO, Teleperformance still only commands a high-single-digit market share, and much of the market is comprised of smaller players that cannot afford to invest behind new technologies like AI. Teleperformance has a long history of helping clients automate as much as possible. While this has historically cannibalized a mid-single-digit percentage of revenue annually, Teleperformance has managed to grow organically at a 9% rate over the past decade, as its capabilities have allowed it to consistently gain market share. We expect this dynamic to continue, especially in an underpenetrated market where only about 28% of customer work that could be outsourced is being done so today. Second, we believe the market underestimates the complexity of Teleperformance's work. Only about half of the company's revenues come from customer service, and only 5% of that is basic chat services. Teleperformance is helping its customers replace some of this volume over time with AI, but it is likely to be offset with increasingly complex and higher margin work, as has been the case historically. To be clear, AI creates real uncertainty for Teleperformance's future, and so we continue to extensively research this topic. To date, we have evaluated commentary from more than 40 experts in the industry, ranging from former employees of Teleperformance and peers to major customers and AI challengers. Our checks have come back strongly positive on the opportunity for Teleperformance to be a winner in the future as it has been in the past. With Teleperformance, we own a high return on capital business, with a flexible cost base. The company has a long history of growing organically at a high-single-digit rate, with a high 90% customer retention rate and mid-teens EPS growth. At 5x earnings, we think the reward outweighs the risk.

BSD Analysis:
Lyrical identifies Teleperformance as a misunderstood AI beneficiary trading at an extreme 5x P/E multiple, down from 8x due to AI disruption fears. The manager's extensive research, including interviews with 40+ industry experts, supports their contrarian view that Teleperformance will emerge as an AI winner rather than victim. The company's competitive advantages include technology leadership in a fragmented market, with only high-single-digit market share despite being the largest BPO provider. Historical evidence shows Teleperformance has successfully navigated automation waves, maintaining 9% organic growth over the past decade while helping clients automate processes. The underpenetrated market opportunity remains substantial, with only 28% of outsourceable work currently being outsourced. Revenue complexity is underappreciated, with only half from customer service and merely 5% from basic chat services. The company's 90% customer retention rate and mid-teens EPS growth history demonstrate execution quality and client stickiness. At 5x earnings for a high-ROIC business with flexible cost structure, the risk-reward appears highly favorable.

Pitch Summary:
Samsung Electronics is an industry leader in three business lines: Device Solutions – DRAM/NAND memory chips and leading-edge semiconductor foundries; Consumer Electronics – including televisions and appliances; and Information Technology and Mobile Communications – mostly mobile phones. The company's crown jewel is its Device Solutions business, where it is the largest global producer of memory chips and where it has consistently maintained a technology lead by investing significantly more in R&D than its peers. With AI deployment requiring more and more memory chips, it would be reasonable to expect that Samsung would be an AI beneficiary. However, AI favors a kind of memory chip technology called High Bandwidth Memory (or HBM) where Samsung is not the leader. This has caused Samsung's memory margin to fall from a historical 10%+ margin advantage over its peer SK Hynix to an 18% margin disadvantage in the fourth quarter of 2024. This is largely driven by SK Hynix's dominant position in higher margin HBM chips and by Samsung's incremental R&D spend in its attempt to catch up. With significantly more scale and 70% more R&D spending than peers, we expect Samsung to close the technological gap in the near term and capture the benefits of AI demand. The company believes its technology will be on par with the competition by the end of 2025. It's worth highlighting that, prior to AI, Samsung was the technology leader in HBM, before it shifted its focus away from this area of the market, which was relatively small and growing slowly. In 2024, the HBM market tripled to about $15 billion due to AI-related demand, and the market is expected to continue growing quickly. At the end of the year, Samsung traded for 10x its earnings, which we believe are depressed, and below book value. The company also has about 25% of its market cap in cash and investments. We think this is exceptionally cheap for a company that has posted 7% earnings growth over the past 15 years, well above that of the EAFE.

BSD Analysis:
Lyrical presents a compelling contrarian case for Samsung Electronics, viewing the 38% stock decline as an overreaction to temporary AI-related headwinds. The manager's thesis centers on Samsung's dominant market position in memory chips and its superior R&D capabilities, with 70% more spending than peers, positioning it to recapture HBM leadership by end-2025. The valuation appears exceptionally attractive at 10x depressed earnings and below book value, with 25% of market cap in cash providing downside protection. Samsung's historical 7% earnings growth over 15 years demonstrates consistent execution capability. The AI memory boom, with HBM market tripling to $15 billion in 2024, creates a massive addressable market opportunity. While SK Hynix currently leads in HBM, Samsung's scale advantages and technology heritage suggest the competitive gap is temporary rather than structural. The manager's confidence in Samsung's ability to close the technology gap reflects deep fundamental research and understanding of the semiconductor cycle dynamics.

Pitch Summary:
However, we are taking it a step further with a recent investment we made in Landbridge. This company owns 273,000 acres in the Delaware Basin, which is in the western Permian Basin of Texas. The company is operated as a royalty company, similar to Texas Pacific Land (check out what TPL's share price has done over the past few decades). While they are cashing in on royalties on oil and gas production, water transportation and water processing have become a large part of the business. Hydraulic fracturing requires large amounts of water and also produces large amounts of wastewater that needs to be processed. This activity has produced enough profit to justify an acquisition in Landbridge, but the opportunity lies in data centres. West Texas is sparsely populated, land is cheap, the air is dry, there is a friendly regulatory environment and a lot of fibre optic infrastructure runs through West Texas. Then energy in the form of wind, solar and gas is cheap and nearby. This makes it ideal for a hyperscaler to operate a data centre there. All that is needed is water to cool the data centre. The water, land and energy can all be provided by Landbridge's ecosystem, of course. Landbridge recently signed its first lease agreement for such a data centre, which will take up about 2000 acres. Landbridge's share price is up 110% since our purchase earlier in 2024. However, if the full potential of Landbridge were to be realized, the company could be worth 10x the current share price.

BSD Analysis:
Capicraft presents a compelling thesis on Landbridge as a unique play on the AI infrastructure boom through its strategic land holdings in the Delaware Basin. The manager highlights the company's evolution from a traditional oil and gas royalty business model to a diversified platform providing critical resources for data center development. The investment thesis centers on Landbridge's ability to provide the essential trinity of land, water, and energy that hyperscalers need for data center operations in West Texas. The recent signing of their first data center lease agreement covering 2,000 acres validates this strategic pivot and demonstrates early execution of the thesis. With the stock already up 110% since purchase, the manager maintains conviction that full realization of the data center opportunity could drive 10x returns from current levels. The comparison to Texas Pacific Land provides historical context for the potential of well-positioned land royalty companies in Texas. This represents a contrarian approach to AI investing, focusing on essential infrastructure rather than the crowded hyperscaler space.

Pitch Summary:
Sandridge is SCC's largest energy holding and was down 9% during the first 3 quarters of 2024. The long thesis here remains that the secular decline in O&G drilling will support carbon-based energy prices going forward (in other words, if you own O&G assets, then ESG is your friend). With legendary investor Carl Icahn as its largest shareholder (he owns 13%) and Icahn's former lieutenant Jonathan Frates as its board chairman, Sandridge did an admirable job steering the company away from the abyss of bankruptcy in April 2020 (when, recall, the price of oil dropped to NEGATIVE $40/bbl). The company has cut unnecessary expenses to the bone ("high-grading" SD's well inventory in fact, not just as a management talking point), thereby maximizing free cash flow conversion. SD has also done a great job recompleting and reactivating dormant wells. SD's annual PDP decline is expected (by the company) to remain in the single digits (%age annually) over the next 10 years. In Q3, SD acquired additional production and acreage in the Western Anadarko basin (in Oklahoma) for a cost of $144MM, which is equal to 70% of their cash balance as of the end of Q1 2024. Should oil prices increase over the next 3-5 years, this acquisition should redound to SD's benefit.

BSD Analysis:
Seven Corners Capital's thesis on SandRidge Energy centers on the contrarian view that ESG-driven capital constraints will ultimately benefit existing oil and gas producers through reduced supply and higher commodity prices. The company's survival through the 2020 oil price collapse demonstrates operational resilience and management quality under Carl Icahn's oversight. Aggressive cost-cutting and well inventory optimization have maximized free cash flow conversion, positioning the company to benefit from any commodity price recovery. The low single-digit annual decline rate provides production stability compared to higher-decline shale plays. The recent $144 million Western Anadarko acquisition represents strategic expansion at attractive valuations, though it consumed significant cash resources. This represents a leveraged bet on oil price recovery driven by supply constraints rather than demand growth.

Pitch Summary:
Rocket Companies, which was up 32% YTD in 2024, represents the newest large position in the SCC Composite Portfolio, having been purchased in December 2022. RKT represents a play on a future decline in mortgage rates if and when inflation becomes subdued again. RKT shareholders should take a measure of comfort in the fact that the company is ultimately helmed by founder Dan Gilbert, who owns 1.85 billion shares of stock (on an as-converted basis) through Rock Holdings Inc.

BSD Analysis:
Seven Corners Capital's investment in Rocket Companies represents a cyclical bet on mortgage market recovery tied to eventual interest rate normalization. The 32% year-to-date performance suggests early validation of the thesis as markets begin pricing in potential rate cuts. The investment timing in December 2022 appears well-positioned to capture the mortgage origination cycle upturn when rates eventually decline and refinancing activity resurges. Founder Dan Gilbert's massive 1.85 billion share ownership provides strong alignment with minority shareholders and suggests confidence in the long-term business model. The company's technology-driven platform and market-leading position in digital mortgage origination should benefit disproportionately from volume recovery. This represents a leveraged play on housing market normalization with strong insider ownership providing downside protection.

Pitch Summary:
Turning Point Brands, up 65% YTD in 2024, is an old standby in the SCC portfolio, having originally been purchased back in Q3 of 2016 (via SCC's investment in Standard Diversified [SDI], which then owned a majority stake in TPB and subsequently merged into TPB in mid-2020). The investment thesis remains that the company enjoys the benefit of a steady compounding business model via its Zig-Zag and Stoker's brands (the waters have recently been muddied by the struggles of its NewGen brands segment, which is now a de minimis portion of the overall pie at TPB). In my opinion, the company could become the target of one or more activist investors, with the thesis possibly involving (A) the separation of TPB's legacy cashflowing business (i.e., its Stoker's MST / chewing tobacco and Zig Zag rolling paper businesses) from its perpetually struggling "New Gen" vaping business and/or (B) a substantial increase in the dividend along with a consequent decrease in TPB's practice of taking equity stakes in other companies.

BSD Analysis:
Seven Corners Capital views Turning Point Brands as a steady compounding opportunity built around durable legacy tobacco brands. The 65% year-to-date performance validates the long-term thesis centered on Zig-Zag rolling papers and Stoker's smokeless tobacco products, which generate consistent cash flows. The manager identifies potential activist catalyst opportunities, particularly around separating the profitable legacy operations from the struggling NewGen vaping segment that has become a value detractor. The suggestion of increased dividend payments and reduced external investments indicates management could optimize capital allocation to enhance shareholder returns. With the NewGen business now representing a minimal portion of overall value, the core tobacco assets appear well-positioned to continue generating steady returns. This represents a classic value play where operational focus and capital discipline could drive meaningful re-rating.

Pitch Summary:
GNW increased 2.2% YTD in 2024, following a period of significant outperformance during the preceding 8 quarters vis-a-vis the S&P 500. GNW trades at a discount to its 81% ownership stake in Enact Holdings (ticker ACT), which at the end of Q1 was valued at $4.6 billion (or 30% greater than GNW's $3.5 billion aggregate enterprise value, up from 17% six months ago). The SCC long thesis on GNW involves the eventual separation of GNW's ACT stake from GNW's generally unprofitable long-term care & life and annuity operations. Longer term could see GNW's Life & Annuity business (L&A) value unlocked via a de-stacking transaction (currently L&A is trapped below the long-term care business in the org chart and the applicable insurance regulators must bless any de-stacking). The company has been actively repurchasing its stock in recent quarters.

BSD Analysis:
Seven Corners Capital's thesis on Genworth Financial centers on a classic sum-of-the-parts value realization opportunity. The company trades at a significant discount to its 81% stake in Enact Holdings, creating an immediate 30% value gap based on current market valuations. The core catalyst involves separating the valuable mortgage insurance business (ACT) from the struggling long-term care operations that have historically weighed on the parent company's valuation. The potential de-stacking of the Life & Annuity business represents additional upside, though regulatory approval adds complexity to the timeline. Active share repurchases demonstrate management's recognition of the valuation disconnect. This represents a patient capital opportunity where corporate restructuring could unlock substantial embedded value for shareholders willing to wait for regulatory and strategic execution.

Pitch Summary:
PSHZF, led by billionaire hedge fund manager Bill Ackman, finished Q3 2024 up 3.3% on the year, underperforming a 5.6% increase in its NAV (thus, PSH's discount to NAV increased to 31%): The long thesis continues to be two-fold: (1) a bet that Bill Ackman will outperform the overall market with his stock picking and uncanny ability to make huge sums via hedging; and (2) more importantly over the near to intermediate term, the closing of the sizable NAV discount. Simply closing the current discount would result in a ~45% appreciation in the stock, assuming NAV were to remain constant. In PSH's annual report for 2023, Ackman described some changes to the overall Pershing Square structure, aimed at lessening (or hopefully eventually eliminating) the NAV discount, which included a future reduction in fees charged to PSH investors under the Investment Management Agreement (IMA). In late July, PSH postponed the launch of a U.S. closed-ended fund called Pershing Square USA, Ltd., which was expected to largely mirror PSH in its investment strategy and hedging and asymmetric investment approach. Ackman stated he intended to revise the structure of PSUSA to make it more amenable to US-based investors, with an expected re-launch date TBD.

BSD Analysis:
Seven Corners Capital maintains a bullish stance on Pershing Square Holdings, viewing it as a dual-play investment opportunity. The primary thesis centers on capturing value from the substantial 31% discount to NAV, which if closed would generate approximately 45% appreciation independent of underlying performance. The manager expresses confidence in Bill Ackman's stock-picking abilities and hedging expertise as a secondary value driver. Recent structural changes to reduce management fees and the planned launch of a US-focused vehicle demonstrate management's commitment to addressing the persistent discount. The postponement of Pershing Square USA suggests tactical flexibility in optimizing the structure for different investor bases. This represents a classic closed-end fund arbitrage opportunity with the added benefit of exposure to a proven hedge fund manager's concentrated portfolio strategy.

Pitch Summary:
Assurant, a significantly smaller company with a market cap of $10 billion compared to Travelers' $50 billion, has a unique business model. It specializes in two niche insurance types – extended service contracts for consumer electronics and lender-placed home insurance. Despite the apparent dissimilarity, both businesses share a common trait - the separation between the decision-maker and the payer - a factor contributing to Assurant's healthy profitability. In the case of extended service contracts, the rates are negotiated with mobile service providers and paid for by customers who choose to add this feature to their mobile plans. Mobile operators are encouraged to upsell this service through commissions and profit share arrangements. Lenders force lender-placed home insurance onto homeowners who need to get adequate insurance on their own. Lenders care only about the quality of the insurance provider and not about the cost of the insurance passed onto homeowners. Selling a product to a party that cares about the quality more than the price generally results in healthy profitability for the provider. Assurant's lender-placed home insurance is no exception, with the margins from this business usually hovering around 10% — a very healthy level for an insurance company. When we bought the company ten years ago, these lines of business represented roughly 60% of premiums, with the remainder made up of health insurance, employee benefits, and pre-need funeral expenses coverage. These were all sold off in a series of transactions for a total of around $2.3 billion. In exchange, Assurant purchased The Warranty Group for $2.5 billion in cash and shares. The acquired company had a significant presence in extended service contracts and automotive extended services coverage. These transactions, which took place between 2016 and 2021, have significantly reshaped Assurant's business. The company, while remaining roughly the same in terms of premiums, is now more concentrated in segments where it has clear competitive advantages and a healthier level of profitability. The combined expense ratio has improved, dropping from roughly 100% of premiums to around 95%, indicating a more efficient operation. Regarding the shareholder return drivers, margin expansion and shareholder returns have been the primary source of value over the last decade. Growth in premiums is relatively pedestrian at 2%, but the M&A transactions obscure it. The core segments of extended warranty and global housing have shown steady growth, averaging 4% per year since the acquisition of The Warranty Group. Unlike with Travelers, we did benefit from slight multiple expansion, but arguably, in this case, it is warranted given the improvement in the underlying business quality.

BSD Analysis:
Firebird's thesis on Assurant centers on the company's transformation into a focused specialty insurer with superior economics through strategic portfolio reshaping. The manager identifies a key competitive advantage in Assurant's business model where decision-makers and payers are separated, creating pricing power and healthy margins around 10%. Through disciplined M&A between 2016-2021, management divested lower-margin businesses for $2.3 billion and acquired The Warranty Group for $2.5 billion, concentrating in extended warranties and lender-placed insurance. This transformation improved the combined expense ratio from 100% to 95%, demonstrating operational efficiency gains. The core segments now generate 4% annual growth with sustainable competitive moats. The manager views the slight multiple expansion as justified given the improved business quality and margin profile. Assurant represents a successful business transformation story with management executing value-creating capital allocation in niche insurance markets with structural advantages.

Pitch Summary:
Travelers Co (TRV), a part of our portfolio since 2013, is a traditional regulated insurer. It stands out in the market by selling commercial and personal property/casualty insurance through a network of independent agents and brokers. While this approach may seem outdated to consumers accustomed to online comparison sites, it remains a dominant form of distribution for most insurance lines. Commercial, workers' compensation, and other lines are an area of strength for Travelers, which is 80%+ reliant on independent agents primarily because small and middle market businesses rely on the agents to understand each company's unique situation and tailor the insurance offering to the needs. Last year, Travelers' segment breakdown looked like 2013, with more than half of the premiums generated by the commercial insurance lines. Curiously, one area of outstanding growth has been personal auto insurance, where the company continues to effectively compete despite strong competition from DTC operators such as Geico and Progressive. Over the last decade, Traveler's gross written premiums grew by 5.9% per annum, precisely in line with the growth of the overall P&C market. Underlying profitability also stayed roughly the same, with the combined ratio, a key measure of insurance company profitability, fluctuating between 90% and 100% for most years, including the most recent period showing profitability. The company's solid yet admittedly unremarkable performance raises the question of why we owned it for the last decade and, more importantly, why we think it is the right company to own going forward. The answer is in capital allocation. Over the ten years, Travelers generated $57 billion of operating cash flow, which happens to be roughly equivalent to the company's current market cap. $30 billion was returned to shareholders as dividends and buybacks, with the remainder added to the investment portfolio that now stands at $90 billion and supports insurance operations. Thanks to the repurchases, shares outstanding declined by nearly 30%, one of the main reasons Travelers shares have a compounded return of over 11% per annum despite premiums and operating cash flows growing at a single-digit pace. Equally important, the contribution of multiple changes to Traveler's investor returns has been negative, whereas the S&P 500's 13% per annum primarily resulted from multiple expansion. We feel a lot more comfortable with the fact that Travelers can replicate this performance over the next decade than the S&P 500, which will eventually have to deal with the mathematical impossibility of continuous multiple expansion.

BSD Analysis:
Firebird presents a compelling long-term thesis on Travelers based on superior capital allocation rather than operational excellence. The manager highlights that despite modest 5.9% annual premium growth matching industry averages, the company has generated exceptional shareholder returns of 11% annually through disciplined buybacks and dividends. The key insight is that Travelers returned $30 billion to shareholders over ten years while generating $57 billion in operating cash flow, reducing share count by 30%. Unlike the broader market's reliance on multiple expansion, Travelers' returns came from fundamental value creation through capital allocation. The manager emphasizes the sustainability advantage of this approach versus the S&P 500's mathematically unsustainable multiple expansion. The independent agent distribution model, while seemingly outdated, provides competitive advantages in commercial lines where relationships and customization matter. This positions Travelers as a steady compounder with predictable cash generation and shareholder-friendly management.

Pitch Summary:
M2S Group (MSGPIN) – Familiar with the predecessor to M2S, it did not take long for us to get up to speed; this reflects the fact that if you've been around long enough, you see high yield opportunities repeat. M2S is a producer of specialty coatings and chemicals used in thermal printing of labels and tags. Major customers include Amazon, Delta Airlines, FedEx, Starbucks, Dunkin Donuts, Walmart, etc. To refinance its existing debt and fund a major acquisition, MS2 hired Jefferies to raise an $870 mm leveraged loan. In order to win the mandate, Jefferies backstopped the financing with the expectation that the "hot" leveraged loan market would accept loose financing terms and aggressive pricing. The syndication process dragged on longer than usual, causing Jefferies to feel pressure that it might have to fund the loan. Push-back by prospective lenders resulted in improved lender protections in the credit agreement and a reduction in the offer price from 99 to 93, increasing the yield-to-maturity to over 12.00%. CrossingBridge participated in the M2S Group SOFR + 475 bp $870 mm First Lien Term Loan due 8/22/31. Rubric Analysis: Is It a Good Business? Following the acquisition, the company became the only vertically integrated participant and remains a market leader. In addition to the cross-selling and margin benefits of vertical integration, the acquisition also provides the company with greater insight into the supply chain, demand trends, and the development of new products. Generally, labels add little to the total end-user cost, providing the company with pricing power. At the same time, increased use of labels, especially in the foodservice, medical, and transportation markets, can have dramatic efficiency benefits. Due to systems and printer integration requirements, customer relationships tend to be long term and very "sticky." These are characteristics of a good business. Is There a Margin of Safety? Based on historic financial results, pro forma for the acquisition, the company appears to have significant ability to repay debt via future cash flows, after scheduled debt service payments and maintenance capital expenditures. Is There Alignment of Interests? The private equity sponsor has a 25-year track record in middle-market private equity, investing $9.2 bn via six funds, giving us some level of confidence. Since its initial acquisition, the company has used free cash flow to repay debt and the sponsor has stated its intention to continue this practice subject to growth opportunities. The strong covenant package constrains the ability of the company to increase leverage or pay dividends that would be detrimental to lenders. Is There a Good Track Record of Capital Allocation? The 2017 Chapter 11 cleansed the capital structure and allowed the company to sell unprofitable and non-core operations. Since 2021, the company has made two transformative acquisitions that successfully accelerated growth across capabilities and end-markets. That said, as noted above, a strong set of covenants imposes limits on the company's capital allocation plans.

BSD Analysis:
CrossingBridge identifies an attractive leveraged loan opportunity in M2S Group, leveraging their historical knowledge of the predecessor company Appvion. The fund participated in the $870 million first lien term loan at SOFR + 475 bps, benefiting from syndication difficulties that drove the price down from 99 to 93, yielding over 12% to maturity. M2S operates as the only vertically integrated producer of specialty thermal printing chemicals, serving blue-chip customers like Amazon, FedEx, and Starbucks. The business model features pricing power due to labels representing minimal end-user costs, sticky customer relationships from system integration requirements, and growing demand in foodservice, medical, and transportation markets. The company demonstrates strong cash flow generation with a history of debt repayment since the 2017 bankruptcy cleansing. The experienced private equity sponsor has a 25-year track record managing $9.2 billion across six funds. Strong covenant protections limit leverage increases and dividend payments, aligning interests between debt and equity holders while providing downside protection for lenders.