Investment Pitches

Pitch Summary:
Oil-Dri, a leading provider of branded and private label cat litter as well as other sorbent materials, outperformed as management has continued to successfully execute a multi-year transformation toward premiumization and operational excellence. This transformation, which has prioritized operational flexibility, shifts to higher-margin products and onshoring of packaging to insulate from tariffs, has created defensible moats for the company that are hard for competitors to replicate.

BSD Analysis:
The manager praises Oil-Dri's successful execution of a multi-year transformation strategy focused on premiumization and operational excellence. The investment thesis centers on the company's ability to shift toward higher-margin products while building operational flexibility and competitive moats. Management's strategic decision to onshore packaging operations provides insulation from tariff risks, demonstrating proactive risk management. The transformation has created defensible competitive advantages that the manager believes are difficult for competitors to replicate. This represents a classic value creation story through operational improvements and strategic repositioning. The company's focus on premiumization in the cat litter market aligns with consumer trends toward higher-quality pet products. The manager views this as a defensive, basic-needs business with improving fundamentals and competitive positioning.

Pitch Summary:
Shares of aerospace and defense manufacturer Ducommun rose as its missile franchise, representing roughly 25% of its defense revenue, is directly benefiting from the Pentagon's spending acceleration. Additionally, the company's expansion into engineered products creates pricing power and margin expansion that traditional manufacturers cannot replicate, allowing the company to grow end markets while expanding profitability in a rising defense spending environment.

BSD Analysis:
The manager views Ducommun as well-positioned to benefit from accelerated Pentagon spending, particularly through its missile franchise which comprises 25% of defense revenue. The investment thesis emphasizes the company's strategic expansion into engineered products, which creates differentiated pricing power and margin expansion opportunities. This positioning allows Ducommun to outperform traditional manufacturers by offering specialized capabilities that competitors cannot easily replicate. The manager sees the company benefiting from both top-line growth through expanding end markets and bottom-line improvement through margin expansion. The timing is favorable given the current geopolitical environment driving increased defense spending. The company's missile franchise provides direct exposure to priority defense spending areas. This represents a quality play within the defense sector with both growth and margin expansion potential.

Pitch Summary:
Exploration and production company Magnolia Oil & Gas saw shares rise as the sharp increase in oil prices drove a broad rally across US-based oil producers. As geopolitical tensions in the Middle East tightened the supply outlook, investors increasingly rewarded US producers for their leverage to higher commodity prices, potential for outsized cash generation and capacity for strong capital returns.

BSD Analysis:
The manager highlights Magnolia Oil & Gas as a key contributor benefiting from elevated oil prices driven by geopolitical tensions in the Middle East. The investment thesis centers on the company's leverage to higher commodity prices and its ability to generate outsized cash flows in the current environment. The manager emphasizes the company's capacity for strong capital returns to shareholders, which is particularly attractive given the current oil price environment. The position appears to be benefiting from broader investor preference for US-based oil producers amid supply concerns from Middle East conflicts. The timing of this outperformance aligns with the closure of the Strait of Hormuz and resulting supply disruptions. The manager views US energy independence as increasingly valuable in the current geopolitical climate. This represents a tactical play on energy security themes while capitalizing on the company's operational leverage to oil prices.

Pitch Summary:
Starboard has made a substantial investment in Dynatrace because we believe the Company is a high-quality, durable observability platform with a long runway for continued growth and an opportunity for significant margin expansion. We also believe the Company has significant strategic value as observability becomes more important in an AI-enabled world and the convergence of observability and security continues. In the recent software sell-off, it appears the market has ascribed significant near-term risk to Dynatrace. However, in our view, this perception does not appropriately reflect the reality of Dynatrace's durable and differentiated platform, its strong competitive positioning, or the growing importance of observability as enterprise AI adoption accelerates. We believe these factors make Dynatrace more important moving forward, not less. In fact, enterprise adoption of AI should ultimately result in accelerating revenue growth for Dynatrace. At the same time, we believe Dynatrace has opportunities to meaningfully improve operating efficiency, driving higher profitability and cash flow, while returning significant capital to shareholders. In sum, we believe Dynatrace has an opportunity for significant value creation, and we look forward to working with management and the Board of Directors towards this shared goal. Dynatrace is a leading observability player and the clear leader in Application Performance Monitoring, the largest category within the observability market. Dynatrace's end-to-end platform allows it to manage complex, heterogeneous environments spanning on-premise infrastructure, cloud environments, and both legacy and modern applications for its target large enterprise customer base. In these environments, reliability and integration are essential, and we believe Dynatrace is well positioned to be an observability vendor of choice for years to come. The Company's consumption-based pricing model further strengthens this positioning and helps insulate the business from the risk of declining software seat counts as AI usage inside large enterprises increases. While many software vendors are still adapting their pricing models to better align with usage, Dynatrace benefits from already having a business model tied to customer activity and the value it delivers. We see additional upside from continued adoption of the Dynatrace Platform Subscription model, which has grown to represent 70% of ARR since its launch in 2022. As customers add workloads and consolidate their observability environments, Dynatrace should be able to continue to increase wallet share, strengthen customer relationships, and gain market share from legacy vendors. Management recently noted that DPS customers' consumption growth is double that of non-DPS customers, and we believe the continuing shift towards DPS should provide a tailwind to net retention rates and, over time, revenue growth. We believe the rapid expansion of enterprise AI workloads will increase the need for observability solutions. Today, the adoption of AI agents remains nascent, with recent industry reports indicating fully scaled deployments at less than 5% of enterprises, suggesting a significant growth runway for end-to-end observability platforms like Dynatrace as penetration increases. As enterprises deploy more applications and more AI agents, the volume and complexity of telemetry data will grow materially. This growth should increase the value of platforms like Dynatrace that can ingest and interpret data across the full stack, particularly in large-scale, heterogeneous enterprise environments where reliability, trust, and actionable insights are of paramount importance. Looking forward, we believe the next major step in observability will be enabling more automated and autonomous remediation through the deployment of AI agents. The ability to move from detection to diagnosis to intelligent action, safely and at scale, should increasingly differentiate leading platforms. We believe Dynatrace is well positioned in this evolution with its Davis AI engine, a tool that has been a part of the Dynatrace platform for nearly a decade and reflects the Company's meaningful and sustained investment in applying AI to observability workflows. Combined with Dynatrace's strong incumbent position, we believe the Company is well positioned to help customers adopt more automated, AI-enabled operations over time. We believe Dynatrace should be able to generate at least 40% incremental margins on future revenue growth. We believe Dynatrace should target at least 500bps of adjusted operating margin expansion by FY2029. In closing, we believe Dynatrace represents an extremely attractive investment opportunity. Dynatrace has been incorrectly bucketed as a company exposed to significant AI risks; however, we believe the business is well positioned to benefit from enterprise AI adoption. In our view, Dynatrace can deliver both a re-acceleration of revenue growth and meaningful margin expansion over the next few years while returning significant capital to shareholders. If Dynatrace can execute on these opportunities, we believe Dynatrace can generate more than $3.30 of free cash flow per share by FY2029, nearly double FY2026 levels. At the same time, we believe Dynatrace's strategic value is only growing, and the Board must be open to all avenues of value creation.

BSD Analysis:
Starboard Value presents a compelling bull case for Dynatrace, arguing the market has incorrectly positioned the company as vulnerable to AI disruption when it should actually benefit from enterprise AI adoption. The fund highlights Dynatrace's leadership position in application performance monitoring and its consumption-based pricing model that aligns with customer value creation. Key growth drivers include the Dynatrace Platform Subscription model representing 70% of ARR, with DPS customers showing double the consumption growth of legacy customers. The thesis centers on significant margin expansion opportunities, targeting 500 basis points of operating margin improvement by FY2029 through sales efficiency gains and R&D optimization. Starboard projects free cash flow per share could reach $3.30 by FY2029, nearly doubling from current levels, while advocating for aggressive share repurchases given the attractive valuation. The convergence of observability and cybersecurity creates additional strategic optionality for the platform.

Pitch Summary:
We initiated a new position in Mastercard, a leading global payments company, with a highly scalable, asset-light business model, strong brand equity, and exposure to long-term secular growth in electronic payments globally. The company benefits from meaningful pricing power, supported by its position within a rational, quasi-oligopolistic market structure and ongoing product innovation, which has historically enabled low-single-digit price increases annually. Mastercard's revenues are highly repeatable, driven by the processing of over 200 billion transactions each year across more than three billion cards in circulation. Importantly, approximately a quarter of revenue is tied to transaction counts rather than dollar volumes, providing resilience during periods of lower consumer spend per transaction. From a growth perspective, Mastercard generates roughly 65% of revenue outside the United States and is well-positioned to benefit from continued GDP and PCE growth, the secular shift in consumer payments toward digital, expansion in commercial and new payment flows, and increasing contributions from value-added services. Together, these drivers support the potential for sustained double-digit revenue growth over time. In January, President Trump's announced support for a 10% cap on credit card interest rates, which along with the proposed Credit Card Competition Act (CCCA) created a share price dislocation, offering us an attractive entry point into a high quality earnings compounder. We view the ultimate risk of these proposals as limited, given Mastercard's role as a global payment network rather than a lender, its diversified revenue base with significant non U.S. exposure, and the substantial political, technical, and economic hurdles to implementation. Other key risks we are monitoring include moderating consumer spending and the potential impact of stablecoins on card networks. Card usage has historically proven resilient during periods of moderating consumer spending given deeply ingrained payment behaviors, a meaningful mix of non discretionary spend, and Mastercard's operating flexibility to protect earnings if volumes soften. We are monitoring emerging technologies such as stablecoins and other alternative payment mechanisms, though we view the risk of near to intermediate term disintermediation as modest given limited consumer protections and acceptance, while Mastercard is positioned to participate through crypto partnerships and settlement capabilities.

BSD Analysis:
SGA initiated a new position in Mastercard, viewing it as a high-quality earnings compounder with a highly scalable, asset-light business model and strong secular growth drivers. The manager emphasizes Mastercard's meaningful pricing power within a rational, quasi-oligopolistic market structure, enabling consistent low-single-digit annual price increases. The investment thesis centers on highly repeatable revenues from processing over 200 billion transactions annually across three billion cards, with approximately 25% of revenue tied to transaction counts rather than dollar volumes, providing resilience during spending downturns. SGA highlights Mastercard's 65% non-U.S. revenue exposure and positioning to benefit from GDP growth, digital payment adoption, commercial payment expansion, and value-added services growth. The manager views regulatory risks from proposed credit card interest rate caps and competition acts as limited given Mastercard's role as a payment network rather than lender, plus significant implementation hurdles. SGA sees the regulatory-driven price dislocation as an attractive entry point, expecting sustained double-digit revenue growth supported by secular electronic payment trends and global expansion opportunities.

Pitch Summary:
After being a top contributor in Q4, Salesforce was a detractor from performance during the quarter as investor sentiment remained cautious following a quarter that merely met its guidance targets. While retention rates remain high and net new annual order value has accelerated, the company did not deliver a Q4 beat, and management's guidance left near-term growth expectations ambiguous and subdued for the first half of the fiscal year. However, based on bookings strength, they brought forward the timing of accelerated revenue growth to the second half of the fiscal year (ending January 2027). This reinforced concerns that revenue reacceleration remains back-end loaded, prolonging uncertainty around the timing of a return to double digit organic growth. Additional pressure stemmed from mixed feedback around the pace of Agentforce adoption. While customers and partners broadly agree that Salesforce is well-positioned to win in agentic AI, implementation complexity, customer data readiness challenges, and customer hesitance over industry-wide consumption-based pricing models have resulted in a more measured adoption curve than many investors had hoped for. Despite the market's perceived AI disruption risk, Salesforce's core franchises remain highly embedded with strong renewal rates, and indicators such as improving pipeline conversion, stabilizing bookings trends, and accelerating capital return through a record share repurchase program support confidence in the durability of cash flows. As execution improves and visibility into the second half reacceleration strengthens, we believe the company will be increasingly well positioned to deliver accelerating mid-teens earnings growth over the next three years and counter overly pessimistic fears embedded in its valuation.

BSD Analysis:
SGA maintains a bullish long-term view on Salesforce despite near-term execution challenges and cautious investor sentiment. The manager acknowledges the company merely met Q4 guidance targets without delivering a beat, with management guidance leaving near-term growth expectations subdued for the first half of fiscal year. While revenue reacceleration remains back-end loaded to the second half, SGA emphasizes strong underlying fundamentals including high retention rates and accelerated net new annual order value. The investment thesis centers on Salesforce's highly embedded core franchises with strong renewal rates and improving operational metrics like pipeline conversion and stabilizing bookings trends. SGA notes mixed feedback on Agentforce adoption pace due to implementation complexity and customer data readiness challenges, but views Salesforce as well-positioned to win in agentic AI long-term. The manager highlights accelerating capital returns through record share repurchases as supporting cash flow durability. With improving execution visibility and second-half reacceleration expectations, SGA expects mid-teens earnings growth over three years, viewing current valuation as overly pessimistic.

Pitch Summary:
Intuit was a detractor from performance during the quarter amid AI disruption fears and to a lesser degree, uncertainty surrounding potential credit card regulatory changes that might impact advertiser spending on its Credit Karma platform. Intuit's quarterly results were solid and execution across TurboTax and QuickBooks remained strong, although management maintained full-year guidance despite better-than-expected first half performance, which is consistent with its historical practice ahead of tax season. Ongoing debate around AI driven disruption to tax preparation and accounting workflows weighed on the stock despite improving fundamentals. Despite the near-term uncertainty, Intuit's resilience is supported by the recurring, legally required nature of tax filing and the essential role of QuickBooks for SMB financial records. The company's early investments in data and GenAI, along with its hybrid human expert-assisted Live offerings, position it to capture share in both tax preparation and small-business accounting. The company's proprietary data, strong retention, and deep integration across consumer and small business workflows position it well to embed AI across its software suite in ways that enhance, rather than displace, its core products. Intuit has ample AI monetization opportunities which should support further margin improvement and position the company well for double-digit earnings and revenue growth in the years ahead.

BSD Analysis:
SGA maintains a bullish stance on Intuit despite AI disruption fears weighing on the stock during the quarter. The manager emphasizes solid quarterly results and strong execution across TurboTax and QuickBooks, though acknowledges market concerns about AI-driven disruption to tax preparation and accounting workflows. The investment thesis centers on Intuit's defensive characteristics, including the legally required nature of tax filing and QuickBooks' essential role in SMB financial record-keeping. SGA highlights the company's early investments in data and GenAI, along with hybrid human expert-assisted Live offerings, as positioning Intuit to capture market share. The manager views Intuit's proprietary data, strong customer retention, and deep workflow integration as competitive advantages that enable AI enhancement rather than displacement of core products. With ample AI monetization opportunities supporting margin improvement, SGA expects Intuit to deliver double-digit earnings and revenue growth, making it well-positioned despite near-term AI disruption concerns.

Pitch Summary:
Microsoft was a detractor from performance during the quarter as investor expectations around cloud acceleration and AI-driven upside moderated. While revenue grew 15% and EPS was up 21% in constant currency, Azure growth modestly missed elevated expectations, and management commentary suggested cloud growth is being actively managed through capital allocation rather than demand constrained. This shift reduced confidence in near-term upside, particularly as guidance implied a more stable, but less surprising, growth trajectory. Investor sentiment was further pressured by rising capital intensity tied to AI investments. We believe Microsoft's entrenched enterprise position, recurring revenue base, and deep integration across productivity, cloud, and security provide significant long-term advantages that are difficult to replicate. As clarity improves around AI returns and cloud growth reaccelerates, we remain confident in Microsoft's ability to generate strong double-digit earnings and revenue growth over the long-term.

BSD Analysis:
SGA maintains a bullish long-term view on Microsoft despite near-term performance headwinds and moderated investor expectations around cloud acceleration. The manager acknowledges Azure growth modestly missing elevated expectations and management's commentary suggesting cloud growth is being actively managed through capital allocation rather than demand constraints. While rising capital intensity from AI investments has pressured sentiment, SGA emphasizes Microsoft's entrenched enterprise position and recurring revenue base as key competitive advantages. The investment thesis centers on Microsoft's deep integration across productivity, cloud, and security platforms, creating significant switching costs and long-term value. SGA views the current moderation in growth expectations as temporary, expecting clarity around AI returns and cloud reacceleration to drive renewed confidence. The manager remains confident in Microsoft's ability to generate strong double-digit earnings and revenue growth over the long term, supported by its dominant market position and comprehensive technology ecosystem.

Pitch Summary:
Waste Management (WM) was a top contributor to returns during the quarter after reporting solid quarterly results. Revenue was slightly below expectations largely due to challenges within WM Healthcare Solutions and depressed recycling commodity prices, while adjusted EBITDA and FCF were ahead of expectations, underscoring the strength of WM's core business. The company's vertically integrated asset base, particularly its ownership of scarce landfill and transfer station infrastructure, continued to support pricing growth above cost inflation, driving margin-accretive growth in a mixed macro environment. Integration challenges at WM Healthcare Solutions are being addressed through operational fixes, pricing actions, and cost synergies, with management confident in improved growth as the year progresses. We will be monitoring for evidence of success in these initiatives. With capital spending on high-return renewable natural gas (RNG) investments beginning to roll off while the profit contribution starts to ramp up, we have high visibility to strong free-cash-flow growth the next few years. We continue to view WM as well-positioned to deliver double-digit earnings growth over the next three years.

BSD Analysis:
SGA maintains a bullish stance on Waste Management, emphasizing the company's vertically integrated asset base and scarce infrastructure as key competitive advantages. The manager highlights solid quarterly results with adjusted EBITDA and free cash flow ahead of expectations, demonstrating core business strength despite revenue headwinds from healthcare solutions challenges and depressed recycling commodity prices. The investment thesis centers on WM's pricing power through ownership of scarce landfill and transfer station infrastructure, enabling pricing growth above cost inflation and margin-accretive growth. SGA notes management's confidence in addressing healthcare solutions integration challenges through operational fixes and cost synergies. A key catalyst is the transition from capital-intensive renewable natural gas (RNG) investments to profit contribution, providing high visibility to strong free cash flow growth. The manager expects WM's defensive characteristics and infrastructure advantages to support double-digit earnings growth over the next three years, making it an attractive compounder in the waste management sector.

Pitch Summary:
CPKC was a contributor to performance during the quarter, as solid operational execution helped offset end-of-year volume softness. While certain end markets such as automotive, forest products, and intermodal remained pressured by macro factors and supply chain disruptions, strong Precision Scheduled Railroading (PSR) execution drove meaningful margin strength, with management highlighting service metrics and discipline around controllable costs. Confidence improved around a 2026 inflection, supported by multiple factors including a record Canadian grain crop expected to move in the first half of 2026, easing auto chip shortages, and tariff headwinds for aluminum and paper beginning to lap in the second half of the year. The U.S. government's focus on removing non-domiciled truckers and commercial drivers license (CDL) applicants from the labor pool seems to be driving freight transportation costs higher and creating a favorable pricing environment for the company. CPKC is also planning a 5% share repurchase program at attractive prices. CPKC's unique tri-national network spanning the U.S., Canada, and Mexico, positions the company to benefit disproportionately from an eventual freight and industrial demand recovery, as well as long-term growth trends from cross-border trade and nearshoring. Structural pricing power is supported by rail's cost advantage versus trucking, a consolidated industry structure, and recurring contractual relationships with essential shippers. In addition, ongoing PSR initiatives, longer lengths of haul, and network scale benefits from the Kansas City Southern transaction support sustained margin expansion and the potential for double-digit earnings growth over the next three years.

BSD Analysis:
SGA maintains a bullish outlook on Canadian Pacific Kansas City, emphasizing the company's unique tri-national network spanning the U.S., Canada, and Mexico as a key competitive advantage. The manager highlights solid operational execution through Precision Scheduled Railroading (PSR) driving meaningful margin strength despite volume softness in certain end markets. SGA sees multiple catalysts for a 2026 inflection, including a record Canadian grain crop, easing auto chip shortages, and lapping tariff headwinds. The investment thesis centers on CPKC's positioning to benefit disproportionately from freight recovery and long-term nearshoring trends. Structural pricing power is supported by rail's cost advantage versus trucking, consolidated industry structure, and recurring contractual relationships. The manager notes favorable dynamics from U.S. government actions affecting trucking labor supply, creating a better pricing environment. With ongoing PSR initiatives, longer haul lengths, and network scale benefits from the Kansas City Southern acquisition, SGA expects sustained margin expansion and potential for double-digit earnings growth over three years.

Pitch Summary:
Arm Holdings was a top contributor to returns during the quarter. Shares responded positively following strong fiscal third quarter results, with revenue and royalty growth exceeding expectations, driven by accelerating data center adoption, and rising penetration of Arm's CSS platform in smartphone, automotive, and infrastructure segments. Importantly, management reiterated confidence in sustaining approximately 20% royalty growth longer term, reinforcing the market's confidence in Arm's structural growth profile. While near term concerns around smartphone unit softness due to higher memory costs persisted, company commentary highlighted that Arm's royalty economics are increasingly skewed toward high end devices, where royalties per unit are significantly higher, allowing royalty growth even in a declining unit environment. In parallel, investor focus sharpened on Arm's expanding role in AI, particularly as CPUs take on a critical coordination role in agentic workflows. Growing adoption by hyperscalers, including broader use of Arm CPUs for AI adjacent workloads, reinforced this narrative. These developments reinforced our thesis that Arm is becoming a foundational architecture not only for mobile computing but also for AI driven data center, edge, and embedded applications. With strong pricing power, highly recurring revenues, and expanding royalty rates as Arm captures more value across the compute stack, we continue to view the company as a high-quality, long-term compounder well-positioned to benefit from the proliferation of AI and power efficient computing.

BSD Analysis:
SGA maintains a bullish stance on Arm Holdings, viewing it as a foundational architecture provider positioned to benefit from AI proliferation and power-efficient computing trends. The manager highlights Arm's strong Q3 results with revenue and royalty growth exceeding expectations, driven by accelerating data center adoption and rising penetration across smartphone, automotive, and infrastructure segments. Management's confidence in sustaining approximately 20% royalty growth reinforces the structural growth profile. The investment thesis centers on Arm's expanding role in AI, particularly as CPUs become critical for agentic workflows, with growing hyperscaler adoption for AI-adjacent workloads. SGA emphasizes Arm's strong pricing power, highly recurring revenue model, and expanding royalty rates as the company captures more value across the compute stack. The manager views current smartphone unit softness as manageable given royalty economics skewed toward higher-end devices with significantly higher per-unit royalties. This positioning supports SGA's view of Arm as a high-quality, long-term compounder in the AI and mobile computing ecosystem.

Pitch Summary:
We initiated a new position in leading global payments and financial services company American Express during the quarter following a break in the stock price driven in part by market concerns around the potential impact of artificial intelligence on white collar employment and the downstream implications for credit card spending which we believe are overblown. We believe these fears created an attractive opportunity to invest in a high-quality, affluent customer base that supports attractive long-term growth. American Express's differentiated customer base, characterized by higher average spend levels and lower credit risk, supports attractive pricing power with merchants and consumers. The company's revenues are highly recurring, underpinned by long-standing customer relationships and billings retention in the high 90s, which has historically translated into low churn even during periods of economic stress. From a growth standpoint, American Express has gained market share in the U.S. as its merchant network has reached near parity with Visa and Mastercard and has improved engagement with younger demographics. Internationally, the company's relatively underpenetrated merchant footprint provides a clear runway for continued billings growth, which has been the fastest-growing part of the business. While near-term concerns include potential pressure on consumer spending and subdued SME trends, credit metrics remain solid and normalized, and the company's operating leverage should allow it to deliver mid-teen earnings growth over time, even if revenue growth moderates.

BSD Analysis:
SGA initiated a new position in American Express, viewing market concerns about AI's impact on white-collar employment and credit card spending as overblown and creating an attractive entry opportunity. The investment thesis centers on American Express's differentiated, affluent customer base characterized by higher average spend levels and lower credit risk, which supports attractive pricing power with both merchants and consumers. Key competitive advantages include highly recurring revenues underpinned by long-standing customer relationships and billings retention in the high 90s, translating to low churn even during economic stress. Growth drivers include U.S. market share gains as the merchant network reaches near parity with Visa and Mastercard, improved engagement with younger demographics, and significant international expansion opportunities given the relatively underpenetrated merchant footprint globally. The international business represents the fastest-growing segment with clear runway for continued billings growth. While near-term headwinds include potential consumer spending pressure and subdued SME trends, credit metrics remain solid and normalized. The company's operating leverage positions it to deliver mid-teen earnings growth over time, even with moderating revenue growth, supported by its premium customer base and expanding merchant acceptance.

Pitch Summary:
Microsoft was a detractor from performance during the quarter as investor expectations around cloud acceleration and AI-driven upside moderated. While revenue grew 15% and EPS was up 21% in constant currency, Azure growth modestly missed elevated expectations, and management commentary suggested cloud growth is being actively managed through capital allocation rather than demand constrained. This shift reduced confidence in near-term upside, particularly as guidance implied a more stable, but less surprising, growth trajectory. Investor sentiment was further pressured by rising capital intensity tied to AI investments. We believe Microsoft's entrenched enterprise position, recurring revenue base, and deep integration across productivity, cloud, and security provide significant long-term advantages that are difficult to replicate. As clarity improves around AI returns and cloud growth reaccelerates, we remain confident in Microsoft's ability to generate strong double-digit earnings and revenue growth over the long-term.

BSD Analysis:
Despite near-term performance headwinds, SGA maintains a bullish long-term outlook on Microsoft based on the company's entrenched competitive position and diversified growth drivers. The quarter's weakness reflected moderated investor expectations around cloud acceleration and AI-driven upside, with Azure growth modestly missing elevated expectations. Management commentary suggested cloud growth is being actively managed through capital allocation rather than being demand-constrained, implying a more stable but less surprising growth trajectory. Rising capital intensity tied to AI investments further pressured sentiment in the near term. The investment thesis centers on Microsoft's entrenched enterprise position, highly recurring revenue base, and deep integration across productivity, cloud, and security solutions that create significant competitive advantages. These structural moats are difficult for competitors to replicate and provide pricing power and customer stickiness. Key value drivers include the company's dominant position in enterprise software, growing cloud infrastructure business, and expanding AI capabilities across its product portfolio. As clarity improves around AI investment returns and cloud growth reaccelerates, SGA expects Microsoft to deliver strong double-digit earnings and revenue growth over the long term, supported by its diversified technology platform and market-leading positions.

Pitch Summary:
HDFC Bank was a detractor from performance during the quarter following earnings as deposit growth fell short of market expectations. Sentiment was further pressured by the unexpected resignation of the bank's non-executive chairman, which contributed to elevated volatility despite swift action by regulators and the board to reaffirm confidence and the absence of any material operational, financial, or governance issues. Additional headlines related to legacy compliance matters added to near-term noise, despite appearing isolated and non-systemic in nature. Fundamentally, results were solid with net income up 12% backed by good asset quality. Guidance was constructive as management reiterated earnings growth for March and the next fiscal year earnings growth. Asset quality continues to be strong, cost of funding remains well-controlled, and management has reiterated its focus on improving the loan to deposit ratio. As liquidity conditions in India normalize and merger related disruptions fade, we expect loan growth to reaccelerate, margins to stabilize, and operating leverage to improve. Given HDFC Bank's scale, brand strength, and long history of disciplined execution, we see the recent weakness as sentiment driven, and we continue to view the bank as a high-quality, long-term compounder supporting mid-teen earnings and revenue growth.

BSD Analysis:
SGA maintains a bullish long-term view on HDFC Bank despite near-term sentiment challenges and performance headwinds. The quarter's weakness was driven by deposit growth falling short of expectations and governance-related volatility from the non-executive chairman's resignation, though regulators and the board quickly reaffirmed confidence with no material operational or financial issues identified. Fundamentally, the bank delivered solid results with 12% net income growth backed by strong asset quality and constructive management guidance for continued earnings growth. The investment thesis centers on HDFC Bank's dominant market position, scale advantages, brand strength, and long history of disciplined execution in the Indian banking sector. Key value drivers include strong asset quality, well-controlled cost of funding, and management's focus on improving the loan-to-deposit ratio. As liquidity conditions in India normalize and merger-related disruptions fade, SGA expects loan growth reacceleration, margin stabilization, and improved operating leverage. The recent weakness is viewed as sentiment-driven rather than fundamental deterioration, positioning the bank as a high-quality, long-term compounder capable of delivering mid-teen earnings and revenue growth over time.

Pitch Summary:
Adyen was a detractor from performance during the quarter following fourth quarter results and a more cautious 2026 outlook. Fourth quarter revenue missed expectations by 2-3 pts, and 2026 revenue guidance was lowered from "low-to-mid 20s" to 20-22%, less than three months following the company's capital markets day, raising concerns regarding the consumer spending environment and competition. However, we believe the revenue miss and guidance cut were a result of poor communication by management, not a significant deterioration in market volumes or competitive pressures. The initial guide was issued before the company conducted its rigorous annual reviews with customers, and therefore more preliminary than the company led investors to believe. In reality, the slight cut to guidance was the result of the timing of customers' rollouts of new markets and incremental Adyen products, not lost business. Despite the disappointment, we remain confident in Adyen's long-term outlook. The company continues to demonstrate strong pricing power, supported by higher authorization rates, lower fraud and chargebacks, and a lower total cost of ownership for merchants through its single, fully integrated platform. Revenues are highly repeatable, underpinned by billions of transactions annually and very low customer attrition. These strengths position Adyen well to capture secular growth in global electronic payments, omnichannel commerce, and an expanding mix of local and alternative payment methods supporting 20% sales and earnings growth over the next 3 years.

BSD Analysis:
Despite near-term performance headwinds, SGA maintains a bullish long-term view on Adyen based on strong competitive positioning and secular growth drivers. The company's Q4 revenue miss and 2026 guidance reduction from "low-to-mid 20s" to 20-22% were attributed to poor management communication rather than fundamental deterioration. The guidance cut reflected timing of customer rollouts for new markets and incremental products, not lost business or competitive pressures. The investment thesis centers on Adyen's differentiated value proposition through its single, fully integrated payments platform that delivers higher authorization rates, lower fraud and chargebacks, and lower total cost of ownership for merchants. Key competitive advantages include strong pricing power, highly repeatable revenues underpinned by billions of annual transactions, and very low customer attrition rates. The company is well-positioned to capture secular growth in global electronic payments, omnichannel commerce, and expanding local and alternative payment methods. Despite the near-term guidance disappointment, SGA expects Adyen to deliver 20% sales and earnings growth over the next three years, supported by its platform advantages and market expansion opportunities.

Pitch Summary:
CPKC was a contributor to performance during the quarter, as solid operational execution helped offset end-of-year volume softness. While certain end markets such as automotive, forest products, and intermodal remained pressured by macro factors and supply chain disruptions, strong Precision Scheduled Railroading (PSR) execution drove meaningful margin strength, with management highlighting service metrics and discipline around controllable costs. Confidence improved around a 2026 inflection, supported by multiple factors including a record Canadian grain crop expected to move in the first half of 2026, easing auto chip shortages, and tariff headwinds for aluminum and paper beginning to lap in the second half of the year. The U.S. government's focus on removing non-domiciled truckers and commercial drivers license (CDL) applicants from the labor pool seems to be driving freight transportation costs higher and creating a favorable pricing environment for the company. CPKC is also planning a 5% share repurchase program at attractive prices. CPKC's unique tri-national network spanning the U.S., Canada, and Mexico, positions the company to benefit disproportionately from an eventual freight and industrial demand recovery, as well as long-term growth trends from cross-border trade and nearshoring. Structural pricing power is supported by rail's cost advantage versus trucking, a consolidated industry structure, and recurring contractual relationships with essential shippers. In addition, ongoing PSR initiatives, longer lengths of haul, and network scale benefits from the Kansas City Southern transaction support sustained margin expansion and the potential for double-digit earnings growth over the next three years.

BSD Analysis:
SGA maintains a bullish stance on CPKC based on strong operational execution and improving fundamental outlook despite near-term volume softness. The company's Precision Scheduled Railroading (PSR) execution drove meaningful margin strength through disciplined cost control and improved service metrics. Multiple catalysts support confidence in a 2026 inflection, including a record Canadian grain crop expected to move in H1 2026, easing auto chip shortages, and lapping of tariff headwinds for aluminum and paper in H2. The investment thesis centers on CPKC's unique tri-national network spanning the U.S., Canada, and Mexico, positioning the company to benefit disproportionately from freight recovery and long-term cross-border trade and nearshoring trends. Structural competitive advantages include rail's cost advantage versus trucking, consolidated industry structure, and recurring contractual relationships with essential shippers. Key value drivers include ongoing PSR initiatives, longer lengths of haul, and network scale benefits from the Kansas City Southern transaction. The company's 5% share repurchase program at attractive prices provides additional shareholder value creation while the favorable freight pricing environment supports margin expansion and potential for double-digit earnings growth over the next three years.

Pitch Summary:
Taiwan Semiconductor Manufacturing Company (TSMC) was a top contributor to performance during the quarter as its central role in AI-driven semiconductor demand continued. The company delivered margins that proved more resilient than feared and management reaffirmed roughly 30% revenue growth for the year. The company also raised its AI revenue growth outlook to a mid-to-high-50% CAGR through 2029, underscoring its integral role in accelerating AI infrastructure demand, and the positive outlook continued to be supported by a strong January sales report. TSMC's leadership in cutting-edge process nodes remains undisputed. Strategic steps to diversify manufacturing outside Taiwan, including new facilities in the U.S., Japan and Germany, further strengthen TSMC's position. With its technology leadership, strong customer relationships, and disciplined execution, TSMC remains well-positioned to deliver strong double-digit revenue and earnings growth over the coming years.

BSD Analysis:
SGA maintains a bullish outlook on TSMC based on the company's dominant position in AI-driven semiconductor demand and strong fundamental execution. The foundry leader delivered resilient margins and reaffirmed approximately 30% revenue growth for 2026, while raising AI revenue growth outlook to a mid-to-high-50% CAGR through 2029. This aggressive AI growth trajectory underscores TSMC's integral role in accelerating AI infrastructure demand, supported by strong January sales momentum. The investment thesis centers on TSMC's undisputed leadership in cutting-edge process nodes, which provides sustainable competitive advantages in the AI chip manufacturing ecosystem. Strategic geographic diversification through new facilities in the U.S., Japan, and Germany strengthens the company's position while addressing geopolitical risks. Key value drivers include technology leadership, strong customer relationships with leading chip designers, and disciplined operational execution. The combination of AI-driven demand acceleration and TSMC's manufacturing capabilities positions the company to deliver strong double-digit revenue and earnings growth over the coming years.

Pitch Summary:
Arm Holdings was a top contributor to returns during the quarter. Shares responded positively following strong fiscal third quarter results, with revenue and royalty growth exceeding expectations, driven by accelerating data center adoption, and rising penetration of Arm's CSS platform in smartphone, automotive, and infrastructure segments. Importantly, management reiterated confidence in sustaining approximately 20% royalty growth longer term, reinforcing the market's confidence in Arm's structural growth profile. While near term concerns around smartphone unit softness due to higher memory costs persisted, company commentary highlighted that Arm's royalty economics are increasingly skewed toward high end devices, where royalties per unit are significantly higher, allowing royalty growth even in a declining unit environment. In parallel, investor focus sharpened on Arm's expanding role in AI, particularly as CPUs take on a critical coordination role in agentic workflows. Growing adoption by hyperscalers, including broader use of Arm CPUs for AI adjacent workloads, reinforced this narrative. These developments reinforced our thesis that Arm is becoming a foundational architecture not only for mobile computing but also for AI driven data center, edge, and embedded applications. With strong pricing power, highly recurring revenues, and expanding royalty rates as Arm captures more value across the compute stack, we continue to view the company as a high-quality, long-term compounder well-positioned to benefit from the proliferation of AI and power efficient computing.

BSD Analysis:
SGA maintains a bullish stance on Arm Holdings based on strong fundamental execution and expanding market opportunities. The company delivered impressive Q3 results with revenue and royalty growth exceeding expectations, driven by accelerating data center adoption and rising penetration of Arm's CSS platform across multiple segments. Management's confidence in sustaining approximately 20% royalty growth longer-term reinforces the structural growth profile. The investment thesis centers on Arm's transition from mobile-centric to a foundational architecture for AI-driven computing across data centers, edge, and embedded applications. Key value drivers include strong pricing power, highly recurring revenue streams, and expanding royalty rates as Arm captures more value across the compute stack. The company's royalty economics are increasingly skewed toward high-end devices with significantly higher per-unit royalties, providing resilience even in declining unit environments. Growing hyperscaler adoption for AI-adjacent workloads and CPUs' critical role in agentic workflows position Arm as a key beneficiary of AI proliferation and power-efficient computing trends.

Pitch Summary:
We recently took a position in Gulf Marine Services PLC, a London-listed owner of 15 self-elevating, self-propelled support vessels. These "SESVs" support all manner of offshore activity in the oil & gas and renewable energy sectors. Gulf Marine's fleet is one of the industry's youngest, and is chartered to a blue-chip roster of national oil companies and energy giants, mostly in the Middle East. To be clear, we did not buy Gulf Marine Services for its fleet. While good quality, there is nothing particularly unique about these vessels. We bought Gulf Marine Services because its shares trade at a giant discount to fair value thanks to the company's small size, strange listing status (London-listed, Abu Dhabi-based, operates in US Dollars), and checkered past. Gulf Marine Services got into trouble a few years back, going on a debt-fueled acquisition spree and buying several vessels just in time for energy prices to plunge and vessel day-rates to fall. By the end of 2020, the company was drowning in $406 million in net debt atop only $50 million in EBITDA. Out went management! New management's top priority was to reduce debt and did they ever. From 2020 to the end of 2025, net debt declined by $250 million. Meanwhile, industry conditions stabilized, EBITDA climbed to $113 million, the company's revenue backlog increased to record levels, and 2025 day-rates climbed 11% over 2024 levels. With leverage in check and highly visible cash flows, GMS entered 2026 ready to resume capital distributions to shareholders and make modest growth investments. With shares trading at just 4x EBITDA and at a 20% forward free cash flow yield, I believed that shares could double as these catalysts played out. And then...Iran. Apologies if you sick of the topic; I am. When hostilities broke out, Gulf Marine Services was forced to evacuate four of its SESVs operating in Qatari waters. Fearful that the company's vessels would be idled for months on end, investors sent GMS shares down 35% from their February peak. Shares have since recovered some of their losses, but remain well off the highs. I see this decline as an opportunity to buy GMS shares while they are discounted due a headwind that while serious, will not be permanent. At under GBp 18 per share, the market is valuing GMS at an enterprise value of $430 million. The company's current revenue backlog translates to about $396 million in cash flow before interest and taxation, meaning the market is assigning little value to the company's assets and operations once its current revenue backlog is completed. Per the company, evacuated crews and client personnel are gradually returning to the evacuated vessels. I don't know when conditions in the region will normalize. Things could easily get worse before they get better. But while it trades at such a large discount to the value of its vessels, I am convinced Gulf Marine Services shares are attractively priced for the level of risk.

BSD Analysis:
The manager presents Gulf Marine Services as a classic value opportunity created by temporary disruption and structural inefficiencies. The company successfully executed a dramatic deleveraging, reducing net debt by $250 million while growing EBITDA from $50 million to $113 million, demonstrating strong operational execution under new management. The fundamental business appears robust with record backlogs, improving day-rates up 11% in 2025, and blue-chip customer base. At 4x EBITDA and 20% free cash flow yield before the Iran conflict, valuation was already compelling. The geopolitical disruption has created an even more attractive entry point, with shares down 35% despite the temporary nature of vessel evacuations. At current enterprise value of $430 million versus $396 million in contracted cash flows, the market assigns minimal value to the fleet and future operations. The combination of young fleet assets, improving industry fundamentals, and temporary discount from geopolitical concerns creates an asymmetric risk-reward profile. While timing of normalization remains uncertain, the manager views current prices as attractive for the risk level.

Pitch Summary:
Our other Mc-investment, McDermott International, is making good progress in its turnaround. McDermott is an energy engineering and construction firm with a long and storied history, but plenty of recent struggles. After entering bankruptcy in early 2020, McDermott emerged into the teeth of the Covid era with its deeply depressed oil prices and activity. Things were tough, but the company muddled through by selling assets, finishing up unprofitable contracts, and building toward a profitable future. 2025 was a great year for McDermott. The company reported EBITDA up 38% from 2024, strong cash flow, and good backlog development. And now, Iran. Not a pleasant environment for an oil & gas contractor with extensive operations in the Middle East. Fortunately, McDermott believes that disruptions and delays due to the war will be temporary and still expects a successful 2026. McDermott expects adjusted EBITDA to rise 21% this year to $520 million at a 6.5% margin. By year-end, the legacy fixed-price projects that proved so troublesome will be all but a memory, comprising only 1.4% of backlog. By 2028, McDermott hopes to produce EBITDA of $701 million at an 8% margin. On today's enterprise value of around $2 billion, the 2028 business plan would result in an EV/EBITDA multiple of 2.9x. Now, McDermott has some issues to address along the way, the most urgent one being the company's balance sheet, which is still weak despite remarkable improvements in its operating profitability. McDermott is currently seeking to refinance its long-term debt, due in 2027. Though I am cognizant that any new loan will likely carry a high effective rate and may involve some equity dilution, I am confident that the company will be able to refinance this debt and that it will be well worth it. Extending these loan maturities will give McDermott the runway it needs to continue its turnaround. I expect news on the refinancing soon, which could serve as a catalyst for McDermott shares. While McDermott is on a good trajectory, shares remain deeply discounted due to their illiquidity and the company's financial footing. As milestones are achieved (refinancing, consistent GAAP profitability, positive shareholder equity, a return to SEC filer status, an exchange listing) I expect this risk premium to diminish and for shares to respond appropriately.

BSD Analysis:
The manager presents a compelling turnaround story for McDermott International, emphasizing the dramatic operational improvement following bankruptcy emergence. EBITDA surged 38% in 2025 with strong cash flow generation and backlog development, demonstrating successful execution of the restructuring plan. The forward outlook appears robust, with management targeting 21% EBITDA growth to $520 million in 2026 and $701 million by 2028 at 8% margins. At current enterprise value of $2 billion, the 2028 targets imply an attractive 2.9x EV/EBITDA multiple. The elimination of problematic fixed-price contracts reduces execution risk going forward. However, balance sheet weakness remains the key challenge, with 2027 debt maturities requiring refinancing likely at high rates and potential equity dilution. The manager views multiple catalysts ahead including debt refinancing, GAAP profitability, and eventual exchange listing that should reduce the illiquidity discount. Despite geopolitical headwinds from the Iran conflict, the long-term value proposition appears compelling for patient investors.