Investment Pitches

Pitch Summary:
Our biggest negative contributor this quarter was Torrid Holdings. We reviewed our thesis on Torrid in our last quarterly letter and that has not changed, so we will not rehash that here. In the interval between that letter and this update, the company did report earnings. Though we did not view the results as a disaster, numbers did come down due to tariff impacts and a weaker consumer. That said, the key levers to our differing perspective, which center around projected margin expansion from eliminating the weaker portion of their store base, revenue retention from closed stores going to adjacent stores or online, and additional margin expansion from growing sub-brand sales would appear to be generally intact. The company continues to project meaningful EBITDA margin and free cash flow expansion into 2026 and beyond due to these factors. However, we will now see that expansion off of a lower base. Though our thesis does not seem to be broken, shares of Torrid have not stopped falling since Sycamore’s secondary, which we thought would only lead to a temporary decline. Stock price action like this is certainly very concerning to us. Though we have a hard time believing the fundamentals of the business are deteriorating as fast as the stock price is indicating, we do have to concede when leverage is involved on micro-cap retailers, things can deteriorate quickly in a worst-case scenario. At current prices of around $1.50, if the company comes anywhere near its EBITDA and free cash flow goals over the next several years, the upside to this stock could be enormous. In that scenario, it could either buy back its entire company or pay back all of its debt in less than four years. It could also do some combination of both. That said, we are closely monitoring progress and managing our risk exposure on this position. Embarking on a major business model transition during a very difficult macro period with debt on the balance sheet is not easy and the risks are high.

BSD Analysis:
Torrid operates in a tough retail environment, but its plus-size niche gives it real loyalty and pricing power that broader apparel players envy. Margin stability is improving as the company tightens inventory and pulls back on aggressive discounting. The brand still needs creativity and momentum, but the customer base is sticky. The stock trades at crisis levels despite stabilizing fundamentals. If Torrid can reignite product demand, the operating leverage is enormous. Not a clean story, but far from hopeless. A contrarian consumer recovery setup.

Pitch Summary:
Arq is one of the largest producers of activated carbons in the United States. Activated carbons are used by a wide variety of industries with the end goal of purifying and removing contaminants in water, air, and soil. Arq owns the Five Forks Mine in Saline, LA, which primarily produces lignite coal, the principal input into the company’s powdered activated carbon (PAC) products. In 2023, the company purchased feedstock in Corbin, KY giving it access to high quality recovered bituminous coal reserves, the principal input into the company’s granulated activated carbon (GAC) products. We find that Arq is extremely well positioned in the current environment given that it is the only domestic activated carbon producer with a fully vertically integrated supply chain. Historically, the company’s primary revenue source has been the slow-growing PAC business. We have been impressed with CEO Robert Rasmus’s management of the more mature PAC business since his arrival in July 2023. Rasmus’s focus has been on eliminating negative margin PAC contracts and cutting operating expenses, which has resulted in gross margins expanding from 28% to over 39% in the last twelve months, leading the company to generate positive operating cash flow in FY24. However, our bull-case is centered around growth prospects for the emerging GAC segment. Arq has spent over $80M on the construction of a granulated activated carbon (GAC) plant at its Red River Facility in Louisiana. The company recently announced that it has commissioned its first GAC line at the facility and expects to ramp up production to its nameplate capacity of 25M lbs (all incremental) in 6 months. Importantly, GAC is higher quality than PAC due to its longer contact time, mechanical strength, and more uniform absorption control – as such, it demands a higher price in the market and exposes the company to large new market opportunities. Arq has also fully permitted a second line that will produce an additional 25M lbs of GAC that has yet to break ground. The industry outlook for the GAC market is currently shaped by supply shortages with minimal capacity entering the market. However, there is reason to believe demand for GAC could accelerate meaningfully. One of the largest opportunities for GAC is in managing contaminant levels of PFAS in municipal drinking water. The EPA, under the Safe Drinking Water Act, recently proposed maximum contaminant levels for PFAS within municipal drinking water, and while the compliance deadline is likely to be extended from 2029 to 2031, we foresee increased GAC demand from institutions looking to get ahead of this regulatory change. Arq anticipates the demand for GAC could increase 3-5x for the water market as a result of this regulation. With strong demand for GAC expected going forward and minimal capacity (which would require a long lead time) being brought online, we anticipate revenue growth acceleration and non-linear profitability growth for Arq in the coming years. We initiated a small position in ARQ in March but started aggressively accumulating shares in May after the company reported its 1Q25 earnings, where gross margins came in lower than consensus as a result of start-up costs associated with its new GAC line. We viewed the margin miss as temporary, as the company had been incurring overhead costs related to the GAC line while producing little to no GAC revenue. At $3.66 per share, we found that there to be very little downside, based solely on the company’s legacy PAC operations with no value being placed on the company’s future earnings from the significant GAC growth opportunity. Arq remains a top 5 position for the fund today.

BSD Analysis:
Arq is an environmental-tech microcap attempting to commercialize cleaner carbon-based products using waste-conversion IP. The science is intriguing, the TAM is large, and early commercial interest is legit — but scaling risk is extreme. The balance sheet is tight, making execution the difference between a home run and a wipeout. The stock trades like a distressed option, which is exactly what it is. Bears dismiss the tech; bulls see a misunderstood industrial innovator. If Arq lands a major commercial contract, everything changes quickly. High-risk, binary, asymmetric.

Pitch Summary:
ClearPoint is a company that provides both hardware and consumables to allow for the precise delivery of drugs to the brain and spine, with a particular focus on cell and gene therapies. The company offers both navigation systems (hardware) and a variety of accessories (consumables). Because its technologies are critical to various cell and gene therapies, they are initially used in clinical trials and eventually become an integral component to the delivery of these drugs when and if they are approved by FDA. This creates a long-term growth opportunity, characterized by high switching costs on a variety of recurring revenue streams. In many ways, ClearPoint is emblematic of many of our current holdings in the healthcare space, which are characterized by strong business models, high growth potential, and substantial embedded optionality, but have fallen very much out of favor relative to high-growth stocks in other sectors during the current healthcare sector downturn. In the case of ClearPoint, some of that optionality began to pay off this quarter because uniQure (QURE), one of ClearPoint’s partners, reported excellent clinical data for its Huntington’s Disease drug, which dramatically increased the odds of its eventual approval and reimbursement. If approved, this drug will have a profound impact on patients and provide a meaningful revenue stream to ClearPoint. It also serves as a proof point and source of optimism for other neurological cell and gene therapies that have integrated ClearPoint protocols into their therapies. We owned ClearPoint going into the uniQure news and continue to hold a position, as it remains a strong platform going forward with large growth prospects. Though no longer optically cheap, the valuation is reasonable if the company’s pipeline continues to come to fruition and its installed base of hardware continues to expand. In addition, the market cap has now moved from well below $500M to over $800M, which brings shares of ClearPoint onto the radar of larger institutional small-cap funds, of which few seemed to own any stock prior to this recent move. This fits the paradigm of our core holdings that are ejecting out of micro-cap into what we would call the small-cap sweet spot.

BSD Analysis:
ClearPoint is carving out a real niche in MRI-guided neurosurgery, giving it a strong foothold in a highly specialized, high-margin medical workflow. Recurring disposables and service revenue provide long-term stability as the installed base grows. Adoption is slow but steady — typical for neurosurgical tech — and hospital stickiness is strong once integrated. Financials are still choppy, but the underlying business is moving in the right direction. The market prices CLPT as if it’s stalled, but clinical value and procedural momentum keep improving. Execution matters, but the technology moat is real. A small but compelling med-tech compounder in the making.

Pitch Summary:
The RealReal was our largest contributor to performance in the quarter. The company is the leader in online consignment of second-hand luxury goods and is well positioned to capitalize on secular growth trends within the expanding resale and circular economy. We also believe that RealReal has several strong competitive advantages, such as its 1M+ active buyer base (network effects) and an inbound processing/authentication infrastructure that would be very costly to replicate. RealReal’s second quarter results marked a transformational quarter for the company, with GMV and revenue rising by 14%. Importantly, the number of consignors on the platform in the quarter grew double digits to an all-time high. Supply unlock is crucial for what we believe to be a sustainable double-digit top-line growth rate going forward, as the company’s historical sell-through rate has been 90%. The company is also a true beneficiary of improvements in AI. Some examples include: • Athena, the company’s proprietary AI Machine vision learning tool, enables more efficient authentication and assists with item descriptions when an item is listed on the website. Not only does this reduce the cost per item listed, but it also reduces the number of days for an inbound item to be processed, which could increase the velocity of items sold, leading to higher revenue and better leverage on fixed costs. Athena currently only touches 20% of total units as of 2Q25, and the company believes it will touch 30-40% of units by the end of the year. • Elevating the shopping experience in search through increased personalization. We believe that conversion will likely increase as more relevant items and recommendations are displayed to RealReal’s buyer base, helping them cut through the noise of the nearly 2.4M items listed on the website. The RealReal also demonstrated substantial operating leverage this past quarter. The company reported a 4.1% EBITDA margin in the quarter on 14% Y/Y revenue growth with roughly comparable gross margins v. last year, implying a 42.5% incremental EBITDA margin. Through further double-digit top line growth and improved operational efficiencies, we see the gap between the company’s high gross margins (74%) and EBITDA margins shrinking over time. We started to buy shares aggressively in RealReal after its 1Q25 earnings call, when the stock fell nearly 30% for what we thought was a relatively benign quarter. The RealReal exemplifies most of the characteristics we look for in a core growth stock, namely one that is out of favor, has real competitive advantages, and maintains a strong and sustainable long-term growth profile. We also believe RealReal is underappreciated by the Street due to its non-linear earnings growth potential driven by improving fixed-cost leverage.

BSD Analysis:
The RealReal is still clawing through a painful restructuring, but unit economics are finally stabilizing and consignment mix is improving. Luxury resale demand is secular, but the operational complexity of authentication makes scaling messy. Liquidity risk is very real, yet the stock is priced like failure is imminent. Any stabilization in growth or gross margins can trigger an outsized rebound. This is a turnaround with razor-thin room for error. Still, the brand has equity and the category remains attractive. High-risk deep-value consumer tech.

Pitch Summary:
We exited our longstanding holding in TotalEnergies (TTE). While Total remains a well-run company, we see aggressive buybacks and growth spending making dividend coverage too thin in a weak oil market.

BSD Analysis:
TotalEnergies is the most balanced of the European supermajors, blending low-cost upstream, profitable LNG, and a credible renewable portfolio. Cash flow is robust, capital discipline is tight, and the strategy is actually coherent — unlike some peers’ transition theater. TTE trades at a chronic Europe discount despite delivering consistently. LNG exposure alone gives it a decade of growth visibility. A structurally underpriced global energy powerhouse. If it were U.S.-listed, it would trade at a very different multiple.

Pitch Summary:
Lastly, we bought Hormel (HRL), a grocery mainstay with protein-heavy offerings, that is well-positioned for favorable consumer trends.

BSD Analysis:
Hormel is a slow-but-stable branded food company that’s been caught in cost inflation and uneven execution, but the franchise remains intact. Spam, Skippy, and its protein lines offer durable cash flow, and innovation cycles are picking up. The company has been overly conservative, but that conservatism keeps the balance sheet pristine. Growth won’t impress anyone, yet Hormel’s margin expansion potential is real once commodity pressures ease. HRL is a safe, defensive staple still priced for pessimism. Not a rocket, but not a value trap either.

Pitch Summary:
We initiated Equity Lifestyle Properties (ELS), a REIT with a nationwide portfolio of manufactured housing and RV properties, where it collects rent on the plots of land.

BSD Analysis:
ELS owns manufactured housing and RV communities — one of the most defensive and supply-constrained real estate categories in the U.S. Rent growth is steady, churn is minimal, and demographic trends are a powerful tailwind. The model works in every macro environment because relocating your home is expensive and impractical. The stock rarely looks cheap, but it’s almost always right. ELS is a sleep-at-night REIT with premium-quality cash flows. A slow-and-steady compounding monster.

Pitch Summary:
ConocoPhillips (COP), a pure-play oil and gas producer nearing the end of a major investment cycle. Three large projects coming online are expected to generate $3 billion in annual cash flow, while reduced capital spending adds another $3 billion. Conoco also holds, in our view, the deepest remaining high-quality drilling inventory in the Permian Basin.

BSD Analysis:
ConocoPhillips is one of the cleanest large-cap E&Ps, with low breakevens, strong shale exposure, and disciplined capital returns. The company consistently prints free cash flow even at mid-cycle oil prices. Its global portfolio gives it optionality without bloated overhead. COP doesn’t chase growth; it monetizes it. The market worries about long-term demand, but near-term supply constraints make COP’s asset base incredibly valuable. A top-tier operator built for high-return consistency.

Pitch Summary:
PPL Corp: Announced a joint venture with Blackstone to build, own, and operate natural gas generation assets for data centers under long-term contracts in the PJM Interconnection (a regional transmission organization).

BSD Analysis:
PPL is in the middle of a slow but credible turnaround, refocusing its portfolio on regulated U.S. utilities after unwinding years of complexity. Earnings visibility is improving, and the balance sheet is healthier than the stock’s valuation suggests. The market still treats PPL like a structurally impaired operator, which no longer matches reality. Rate base growth is clear, and cost discipline is sticking. Not glamorous, but extremely stable. A defensive utility with rerating potential.

Pitch Summary:
Sempra: Sold a 45% interest in its infrastructure platform, simplifying the business and funding utility growth. The company also reached a final investment decision (FID) on its Port Arthur LNG Phase 2 project. SRE affirmed guidance at the high end or above projected EPS CAGR of 7%-9% for 2025-2029.

BSD Analysis:
Sempra brings a rare blend of regulated stability and LNG export optionality — a combination that quietly boosts its long-term growth profile. Its utilities in Texas and California enjoy constructive frameworks and strong capex visibility. The LNG buildout in Mexico is a strategic asset with multi-decade tailwinds. Sempra won’t deliver flashy growth, but it will deliver consistent earnings and rising cash flow. The balance sheet is strong enough to support its ambitions. A top-tier utility with real strategic upside.

Pitch Summary:
Entergy: 2Q earnings topped expectations. The company increased its capital plan and raised its long-term EPS guidance.

BSD Analysis:
Entergy operates some of the most reliable low-carbon baseload assets in the South, with constructive regulation and clear rate-base growth. Its nuclear fleet gives it margin stability most utilities envy. The company is quietly executing better than peers, reducing risk while improving returns. It’s not a growth rocket, but visibility is extremely high. Investors undervalue the durability of Entergy’s model. This is a clean, predictable compounder in a sector built for steady returns.

Pitch Summary:
Enbridge: ENB now expects to be toward the high end of its guidance range and announced several new natural gas projects.

BSD Analysis:
Enbridge remains a North American midstream heavyweight, delivering stable, regulated cash flows year after year. The company’s pipeline network is irreplaceable, yet the stock trades like its assets are melting ice cubes. Debt is high, but cash generation and rate stability more than cover it. The utility acquisitions broaden the earnings base and support dividend longevity. Growth will never be exciting — but consistency has real value. ENB remains a defensive cash-flow compounder trading at an income-investor discount.

Pitch Summary:
Miller Howard initiated a position in Crown Castle (CCI) during Q3 2025, citing its attractive valuation, improving balance sheet, and positioning to benefit from rising U.S. data demand driven by AI-related infrastructure growth. The firm expects operating leverage to amplify as leasing activity improves following portfolio restructuring and management’s renewed focus on core tower and fiber assets. The company’s dividend yield remains high, and management reaffirmed its commitment to dividend growth.

BSD Analysis:
Crown Castle sits in a painful 5G digestion phase, but its tower assets remain cash-flow machines with long-term contracted revenue. Small-cell deployment has been slower than promised, creating a cloud over the story. Yet tower economics are remarkably durable — and CCI’s fiber footprint gives it optionality peers lack. The dividend is hefty, the balance sheet manageable, and the market has already priced in a lost decade. When carrier capex stabilizes, sentiment improves sharply. CCI is not broken; it’s a temporarily unloved infrastructure play with a very high floor.

Pitch Summary:
While recurring revenues have cushioned the downside for our Health Care holdings, our thesis is that equipment sales will eventually normalize in end markets where we see long-term structural growth. Medistim, whose equipment is used to monitor blood flow during open-heart and vascular surgeries, operates in a market that is already showing early signs of recovery. The trajectory of the company’s earnings and sales, which are linked to the number of procedures in which its equipment is used, follows a pattern familiar to many Health Care businesses in recent years: expectations grew rapidly during the pandemic before dropping in 2022, as macroeconomic challenges reverberated throughout the sector. This year, though, utilization and orders of its equipment have improved. The underlying need for its equipment also isn’t going away. Rather, Medistim’s main challenge is growing its addressable market. The company is investing in a sales and service network and reducing its reliance on third-party suppliers, moves that we think make sense.

BSD Analysis:
Long procedure-driven annuities (disposables, service) and a niche leadership position make Medistim a steady compounder as cardiac and vascular volumes normalize. Investment in direct sales should expand TAM and lift gross margins; supply-chain insourcing de-risks execution. Key watch items: hospital capital budgets, competitor innovation, and reimbursement dynamics. Overall, fundamentals point to durable mid-teens ROCE and healthy FCF conversion.

Pitch Summary:
At Carl Zeiss Meditec, recurring revenue reached a high of 51% of total company sales for the first nine months of the year, up from 43% a couple years ago. The German company specializes in intraocular lenses, which are implants used in cataract surgery; it also supplies high-precision microscopes for surgeons performing procedures on very small structures, such as those in the brain or eye. Demand for its products has been soft this year, particularly in China. Management also said last month that it expects the global macroeconomic environment “to remain volatile” and doesn’t foresee a rapid recovery in spending on equipment or elective procedures. Long term, however, demographic trends look favorable for the global vision-care market, and Carl Zeiss’s strong competitive advantages—its technological leadership, brand trust, and large global installed base—position it to be a key beneficiary of the growing demand for eye surgeries and increasing number of people who can afford them. The stock looks attractively valued relative to that growth opportunity.

BSD Analysis:
Zeiss Meditec combines a growing recurring mix (consumables, services) with category leadership in ophthalmic surgery hardware, providing downside resilience and leverage to procedure recovery. China softness and macro caution cap near-term growth, but aging demographics and premium IOL penetration are secular tailwinds. Expect margin normalization as mix shifts and supply chains stabilize; watch FX and competitive pricing. Attractive risk/reward versus medtech peers on quality and installed-base moat.

Pitch Summary:
Take Sysmex, which is a global leader in its niche and has 78% recurring sales. The Japanese company supplies diagnostic analyzers and the reagents that allow these devices to perform blood analysis, urinalysis, and other testing. Sysmex’s recurring sales come from its reagents and from servicing its installed devices. Increased testing, growth in emerging economies such as India, and the company’s large installed base should help revenue grow by mid to high single digits over the long term. Recent share-price weakness, mostly related to short-term growth challenges, including the transition to a new supply-chain and order-processing system, as well as policies in China that pressured health-care spending, gave us an opportunity to add this high-quality company at an attractive valuation.

BSD Analysis:
Sysmex remains the global leader in hematology analyzers with a razor–razorblade consumables model that delivers elite recurring revenue. Emerging-market diagnostic expansion is a major tailwind, and new oncology/molecular products provide credible adjacent growth. Currency swings and regulatory noise pressured sentiment, but the underlying business remains exceptionally stable with strong margins and best-in-class returns. Sysmex is one of Japan’s most durable med-tech compounders, still trading below intrinsic value due to temporary macro softness.

Pitch Summary:
Franco-Nevada contributed positively to returns over the past five years, driven by stable royalties and strong gold price exposure. EdgePoint highlights its asset-light model and diversified revenue base across jurisdictions.

BSD Analysis:
Franco-Nevada remains a best-in-class royalty business with exceptional balance sheet strength and 80%+ EBITDA margins. It provides leveraged exposure to rising gold prices with minimal operational risk.

Pitch Summary:
Mattel contributed to portfolio performance, supported by intellectual property monetization and strong brand portfolio performance. EdgePoint continues to view Mattel as an undervalued brand owner with licensing optionality.

BSD Analysis:
Mattel’s brand portfolio strength and IP monetization potential make it a long-term value play in consumer discretionary. Recent film-driven momentum and margin improvements enhance earnings visibility.

Pitch Summary:
SAP SE was a top contributor to EdgePoint’s returns, driven by its transformation to cloud-based recurring revenue models and consistent HR software demand. EdgePoint views SAP as a durable global leader in enterprise resource planning software with long-term margin expansion potential.

BSD Analysis:
SAP’s ongoing shift to the cloud strengthens its annuity revenue base and operating leverage. With robust demand for digital transformation and HR automation, it offers steady mid-teens EPS growth and expanding margins.

Pitch Summary:
TE Connectivity was among the top contributors to the EdgePoint Global Portfolio over the past five years, benefiting from growth in electronic car components and industrial connectivity. The fund highlights its solid balance sheet and strong demand in electrification trends.

BSD Analysis:
TE Connectivity continues to benefit from structural electrification and automotive technology adoption. Its diversified exposure to data, energy, and transport markets drives resilient earnings growth. Trading around 16x forward P/E with strong FCF, the company remains a high-quality industrial compounder.