Investment Pitches

Pitch Summary:
As the Big, Beautiful Bill (i.e., President Trump's tax bill) wound its way through Congress, we were bracing for large reductions to President Biden's Inflation Reduction Act ("IRA") and its bevy of green energy initiatives, one of which was the tax credits related to carbon, capture, use and sequestration ("CCUS"). Since the Trump administration took office, the Department of Energy has canceled many grants for the development of CCUS projects, and we surmised that the tax credits could be axed to generate revenue to fund other tax cuts. We held out hope though that since many of the CCUS hubs were located in red states (e.g., Texas) Republicans would rally to preserve the credits. To our surprise, they did just that. To our astonishment, Republicans actually raised the Sec. 45Q tax credit from $130/metric ton to $180/metric ton if carbon dioxide from direct air capture plants ("DAC") are used for enhanced oil recovery ("EOR"). Before, the higher credit was only available if DAC operators captured and sequestered the gas, but under the BBB, captured CO2 that's used for oil production will be eligible for the higher $180/metric ton credit. In EOR, oil producers inject liquids or gases into older oil fields to increase reservoir pressures. Doing so enhances oil recovery and lifts the amount of oil and gas ultimately recoverable from the field from 6-12% to 16-22%, a near doubling of the EUR. The injection wells will later be sealed, trapping the CO2 deep underground. By providing tax parity for how the carbon is used (i.e., sequester vs. used in EOR), the market's now free to determine the best use case for the CO2 captured. For OXY, EOR will become critical for the next phase of oil/gas development as the Permian basin matures, and CO2 will be a critical ingredient to lower the operating costs. This was a key ask by OXY's CEO Vicki Hollub and she's had many conversations with the President and Congress about the need to use DAC for EOR purposes. Fortunately, the intensive lobbying has paid off, and the Sec. 45Q credits were not only preserved, but enhanced. We expect to hear OXY announce the start of its first DAC facility, Stratos, in the coming months, and as it begins operations, the ongoing process improvement will do much to de-risk the venture and solidify the economics and viability of this nascent market. Selling carbon removal credits, producing sustainable aviation fuel and net-zero fuels, enabling EOR, and creating large scale carbon management programs will give OXY many synergistic advantages, and an imprimatur to operate freely. We're looking forward to seeing the advantages unfold soon.

BSD Analysis:
The manager presents a bullish thesis on Occidental Petroleum centered on the company's leadership position in carbon capture, utilization, and storage (CCUS) technology. The investment case was significantly strengthened when Republicans not only preserved but enhanced Section 45Q tax credits, raising them from $130 to $180 per metric ton for direct air capture used in enhanced oil recovery (EOR). This regulatory tailwind validates CEO Vicki Hollub's strategic lobbying efforts and positions OXY advantageously as the Permian Basin matures. EOR technology can nearly double oil recovery rates from 6-12% to 16-22%, making it critical for extending field life and reducing operating costs. OXY's upcoming Stratos DAC facility represents the first step in commercializing this technology, with multiple revenue streams including carbon removal credits, sustainable aviation fuel production, and large-scale carbon management programs. The manager expects the operational experience from Stratos to de-risk the venture and establish OXY's competitive moat in this emerging market. The convergence of favorable tax policy, technological leadership, and multiple monetization pathways creates significant synergistic advantages for OXY's long-term growth strategy.

Pitch Summary:
On May 15, Strathcona Resources ("SCR"), a Canadian oil and gas producer, commenced a hostile takeover for MEG Energy ("MEG"), our fund's largest position. Separate from the transaction (though part of its overall plan), SCR announced the day before a major divestiture of its natural gas assets, the proceeds of which will be used to repay all of its debt. Post-sale, SCR became a pure-play oil sands company with steam-oil assisted gravity drainage ("SAGD") operations in Cold Lake and Lloydminster. The future strategy was well received by the market as SCR shares rose to a near 52-week high at $30.92/share. The next day, SCR announced the bid for MEG, using the inflated SCR shares as partial consideration. At the time, MEG shares traded at $21.30/share, down 10% from the start of the year and mirroring the decline in oil prices. SCR's offer currently stands at 0.62 shares of SCR shares + $4.10 of cash for each share of MEG. At the unaffected price (i.e., the price before announcement) SCR is offering a total consideration of $23.72/share, a 9.3% premium. Prior to the public offer, SCR had quietly approached MEG on April 28 after acquiring 23.4M shares of MEG, or ~9.2% of MEG on the open market. If we calculate the value of the offer back on April 28, we can see that SCR effectively offered no premium for MEG's shares, an offer that the MEG board quickly and correctly rejected. Given the recent increase in SCR shares, the company is pitching the bid as one with a 9.3% premium. Opportunistic given oil prices and oil companies had fallen post-Liberation Day? Most definitely. So how has the market reacted? Today MEG shares are trading higher than SCR's offer, ending the quarter at ~$25.73/share. It's doing so because the market believes that once MEG was put "in play," a higher offer from either SCR or another acquirer will emerge. Other suitors may include some of the largest oil and gas producers in Canada, Cenovus, Suncor, CNQ, etc. MEG has undertaken a strategic review process, and we think the advisors will shop it around to see what's out there. As MEG conducts its evaluation, we're left to ponder what we think would be an appropriate premium for MEG shares. Oil sands have historically sold with a 20-40% premium, and in MEG's case it has actually received just such an offer from Husky Energy in late-2018 with a 44% premium. Obviously that offer was rejected, but MEG's situation today would warrant a similar premium. The company is lightly levered with only $815M in debt and a Christina Lake SAGD operation that is considered best-in-class, with a reserve life of ~50 years. The thesis on the company is fairly simple. If the company uses free cash flow ("FCF") to buyback stock, it will likely retire half of its shares in 5 years, and the stock will double. That's it. Yet, we've never thought that the company, with its single jewel of an asset would remain independent. This is what we wrote in our Q4 letter last year. Instead, because of Liberation Day and the resulting swoon in oil prices, MEG's shares declined along with other E&P producers, which proved to be too tempting for the opportunistic SCR. So would we be happy owning SCR shares? Sure. For the right price.

BSD Analysis:
The manager presents a compelling bull case for MEG Energy as a takeover target, emphasizing its position as the fund's largest holding. MEG operates a best-in-class SAGD oil sands operation at Christina Lake with approximately 50 years of reserve life and minimal leverage at only $815M in debt. The investment thesis is straightforward: if MEG continues its share buyback program using free cash flow, it could retire half its shares within five years, potentially doubling the stock price. However, the manager believes MEG's high-quality single asset makes it an inevitable acquisition target. Strathcona Resources' hostile bid at $23.72/share represents only a 9.3% premium, which the manager considers opportunistic given the post-Liberation Day oil price decline. The manager expects a higher offer, noting that oil sands historically trade at 20-40% premiums and MEG previously received a 44% premium offer from Husky Energy in 2018. With MEG shares already trading above the current offer at $25.73, the market anticipates either a higher bid from SCR or competing offers from major Canadian producers like Cenovus or Suncor.

Pitch Summary:
UNH had a quarter from hell. On April 11, its stock closed at $599. About a month later, it lost over half its value, closing at $274. If the sudden evaporation of 55% of the firm's market capitalization was simply a matter of animal spirits resetting and the underlying business was unaffected, we might, with great effort, convince ourselves that this was merely a particularly dramatic display of the random walk of Wall Street. That is not what happened. In January, the company announced its 2024 results and affirmed its earnings guidance for the current year, projecting adjusted earnings would grow 7% in 2025. That was a lower-than-ideal growth rate, but the company was seeing greater healthcare utilization and dealing with unfavorable changes in Medicare payment rates. On April 7, the federal government announced that Medicare payment rates would increase by 5.1% for 2026, more than double the 2.2% it had originally proposed and materially greater than inflation. Medicare Advantage providers looked to recoup some of the margin compression they experienced in the last two years, and UNH's stock was close to its all-time high. On April 17, UNH announced first quarter adjusted earnings 4% above the prior year's, but unfortunately, UNH also revised down its earnings forecast for the full year to around $26 per share, down from $30. That is, instead of growing 7%, UNH now expected to shrink 6%, which implied an especially steep drop for the back end of the year. Then-CEO Andrew Witty gave two explanations for the change in prospects: 1) Its Medicare Advantage patients, particularly those who access Advantage through groups such as public employee retirees, consumed far more healthcare than expected. And 2) its OptumHealth division, which provides comprehensive care to its patients, added large slates of new enrollees from plans that exited the market, and those new patients were much sicker than expected, requiring more care. Perhaps these problems would be transitory. If public employee retirees were unusually crowding doctors' offices in the first quarter, maybe behavior would revert to norms over time. If seniors who had previously fallen through the gaps were now seen by Optum doctors, it would be expensive to treat right away, but then these members would be healthier next year and more profitable. It turned out the problems were not transitory. On May 13, the company announced that the increased medical usage had not only spread to other Medicare Advantage enrollees, but to its corporate and Medicaid members, particularly those with complex conditions. It pulled guidance entirely, and CEO Witty was fired with immediate effect—officially designated as a departure for "personal reasons"—and replaced by Stephen Hemsley, the company's éminence grise and CEO from 2006–2017. Witty was never ideally suited for this CEO role. He was previously the CEO of pharmaceutical giant GlaxoSmithKline, which is technically in the broader healthcare space, but drugs really are a different beast than insurance. Hemsley's many years running the core insurance business seems to be a better fit for the company's current challenges. Just two days later, on May 15, the Wall Street Journal reported that the Department of Justice was now investigating the company for criminal Medicare fraud for "upcoding" patients with medical conditions they did not have. On June 2, the Wall Street Journal ran the obligatory story lambasting Witty for being an absentee CEO who commuted by jet to Minnetonka, Minnesota, from Buckinghamshire, England, and was in over his head. Hemsley, who had started coming into the office to meet with senior executives almost daily since April, had essentially deposed Witty weeks before the formal announcement. Victory has a thousand fathers, defeat is an orphan. Where does this leave us today? The market value of UNH is around $280 billion. For that price, we are getting a company that earned $26 billion in 2024 and was originally projected to earn $27 billion this year, a real bargain at only 10 times earnings. Of course, management no longer thinks it can earn that, and for what it's worth, Wall Street analysts expect earnings to come in at about $20 billion, which is still a really attractive valuation. In some sense, the company's utilization challenges are similar to the one that Progressive faced post-pandemic when used-car prices skyrocketed and drivers got into more accidents. Progressive re-priced their policies to account for this, which hurt subscriber growth in the short term, but improved margins back to their target levels. Healthcare insurance isn't the same as auto insurance, but some of the same principles apply. UNH management is re-pricing its plans for 2026 to account for higher utilization, which should bring its margins back in line, likely giving up some growth, similar to Progressive. Given how low expectations are and how cheap the stock is, we don't think the company has to pull off anything miraculous for things to work out. The raw math is compelling, but the risks are real. A DOJ investigation is never good news. Is there more to the fraud investigation than meets the eye? How could the company, in a matter of weeks, go from a modestly rosy outlook to such a disastrous decline in guidance that resulted in firing the CEO? Has something structurally changed in the industry that we're not aware of that will permanently depress the business's economics? We're betting no. The health insurance industry is often the punching bag for the other stakeholders in the healthcare landscape and people frustrated with the American healthcare system. For decades, UNH managed to generate significant cash flow and grow it at a torrid rate despite a regular drumbeat of bad press. We continue to believe that industry fundamentals are powerful, and UNH in particular has excelled over decades. UNH provides coverage for 50 million people in the US and performs health services for over 100 million patients a year, almost a third of all Americans. We're cautiously optimistic they'll stabilize their business and the stock will eventually respond in kind.

BSD Analysis:
The managers present a compelling contrarian case for UnitedHealth Group following a dramatic 55% stock decline from $599 to $274. The thesis centers on valuation attractiveness, with the company trading at approximately 10x earnings based on 2024's $26 billion in earnings, or 14x if using Wall Street's reduced $20 billion estimate for 2025. The fund acknowledges significant operational challenges including higher-than-expected medical utilization across Medicare Advantage, corporate, and Medicaid segments, leading to earnings guidance cuts and CEO Andrew Witty's termination. However, they draw parallels to Progressive's successful repricing strategy post-pandemic, expecting UNH to similarly adjust 2026 plan pricing to restore margins. The managers view the leadership change to Stephen Hemsley, the former CEO with deep insurance experience, as positive for navigating current challenges. While acknowledging risks including the DOJ fraud investigation and structural industry concerns, they believe UNH's dominant market position serving 50 million covered lives and 100 million patients annually, combined with historically strong cash flow generation, supports their cautiously optimistic outlook for business stabilization and eventual stock recovery.

Pitch Summary:
One recent partnership investment that we think serves as an example of the undiscovered, undervalued, high-quality companies we seek is Dadelo S.A. (DAD.PW) which trades on the Warsaw Stock Exchange. We accumulated shares in Dadelo between November 2024 and February 2025 as a Top 5 position at an average cost of 23.27 zł. As of the end of this prior quarter, Dadelo's shares had appreciated by +61% to 37.50 zł. At our time of purchase, we estimated that we were buying shares at 18x our estimate of 2024 net profit for a business that since 2017 has organically grown its annual revenues at a +39% CAGR, or by a factor of 11.7x, and is still currently growing its revenues at a rate of approximately +50% YoY. Dadelo is an omni-channel bicycle retailer that sells bicycles, parts, and accessories exclusively in Poland. Dadelo was founded in 2005 by a Polish entrepreneur. In 2016, Oponeo, the largest e-commerce tire retailer in Poland, acquired a 50% stake in Dadelo for 6 million zł, and then in 2019 acquired the remaining interest in Dadelo for 8 million zł. Oponeo took Dadelo public via IPO in 2020, raising 78.1 million zł from the sale of 4.6 million shares at 18.00 zł each while retaining 6.9 million shares or 59% ownership over Dadelo. Oponeo is a $285 million market capitalization company with an impressive history in its own right, having grown its revenues and profits over 250x since 2004 to become Poland's #1 seller of motor vehicle tires. Oponeo was co-founded by Ryszard Zawieruszyński and Dariusz Topolewski. Ryszard, a lifelong avid cyclist, stepped away from Oponeo in 2017 to become full-time President (i.e., CEO) of Dadelo and focus his efforts on building that business. Ryszard has been the key man behind Dadelo ever since, and owns approximately 18% of Dadelo's shares through his direct holdings and indirect ownership through Oponeo. Dadelo has always operated as an e-commerce company. It has only recently added brick-and-mortar stores to supplement its e-commerce sales. Dadelo has won 7% share of Poland's bicycle, parts, and accessories market to date, has become Poland's #1 bicycle retailer, and has earned excellent reviews from customers on well-regarded websites such as Opineo.pl. In our opinion, Dadelo has accomplished this by offering a strong three-pronged value proposition: (a) offering free 24-hour delivery for 95% of orders regardless of basket size; (b) offering among the widest SKU selections; and (c) offering among the lowest prices. We identified every major e-commerce competitor we could find and benchmarked their buying experiences against Dadelo's website Centrumrowerowe.pl. In short, we found that Dadelo was one of only two companies that offered 1-2 days shipping for all or nearly all of its products (the other company was Rowertour.com, which operates a similar e-commerce business model as Dadelo, though only generated one-eighth the revenues of Dadelo in the same comparable period for 2023). We imagine that convenience is the #1 most important value proposition for customers shopping online. Furthermore, Dadelo and Rowertour.com offered free shipping regardless of basket size, whereas all other major competitors either added shipping costs or only offered free shipping above a minimum basket size. Dadelo offered bicycle pre-assembly for a fee, whereas Rowertour.com did not offer this service. We also found that, among all major competitors, Dadelo consistently offered among the lowest prices across various SKUs and offered the third-highest SKU count behind Allegro and MTBIKER. However, given Allegro and MTBIKER indicated delivery times of 25 days and 42 days, respectively, for our same-SKU bicycle order to a Warsaw-based address, we wager most customers would rather select a different SKU or visit a store than wait weeks for delivery. The chief reason for the stark differences in delivery times is because of differences in inventory-management and order-fulfillment models. MTBIKER, which sells to all 27 EU countries, only holds roughly half of its inventory at its warehouses and utilizes just-in-time fulfillment for the other half. Allegro, often referred to as the "Amazon of Poland" servicing 6 CEE countries, is primarily a marketplace which utilizes vendor drop-shipping. Allegro only warehouses less than 10% of its platform SKUs. Based on our discussion with a former business product manager at Allegro, bicycles also aren't ideal SKUs for Allegro's warehouses because they take up a lot of cubic space relative to their margin and require costly, labor‑intensive handling. Dadelo, meanwhile, warehouses the vast majority of its SKUs, which allows it to offer 24-hour delivery for 95% of its orders. Based on our research, it appears that Dadelo possesses a strong competitive advantage through its operational relationship with Oponeo. Dadelo shares warehouse space with Oponeo and takes advantage of Oponeo's state-of-the-art warehousing practices. Not only would smaller competitors need to spend 80 million zł for comparable warehouse space, they would also need to compete with Oponeo's vendor management system and rapid SKU selection capabilities. Dadelo also leverages Oponeo's technology stack and IT infrastructure to support both its front-end customer interface and back-end operations, as well as Oponeo's marketing department for customer acquisition analysis and strategy. Finally, should Dadelo ever need financial assistance, Oponeo is available as a lender of last resort. In sum, Dadelo's CEO has the benefit of applying his 18 years of e-commerce experience under Oponeo, and Oponeo's scaled infrastructure, which has proven to be a tremendous asset, to his burgeoning Dadelo business. In 2023, Dadelo opened its first brick-and-mortar store on the outskirts of Warsaw. At 3,000 m2, the store is much larger than your typical bike shop, carries many SKUs across bicycles, parts, and accessories, and is generally well-designed (see here for detailed information). The store appears to be achieving the CEO's primary goal with these stores, which is to kill as much local competition as possible in order to accelerate Dadelo's market share growth. As of 2018, mom and pop bicycle shops possessed 45% of the entire ~4.8 billion zł Polish bicycle, parts, and accessories retail market, implying there is a lot of market share to be siphoned from these fragmented competitors to Dadelo's physical stores and e-commerce business. According to CEO Ryszard, before Dadelo opened its Warsaw store, there were around 300 mom and pop bicycle shops in the Warsaw area. After one year of Dadelo's store opening, around 50 of those shops went out of business. As Ryszard told us, "The people hate me from the cycling business. I take part in many races as well for the amateur, so I know the people. Many of them have their own small business, and they just say to me, 'Ryszard, we hate you.' This is the feedback." In February 2025, we met Ryszard at Dadelo's store in Warsaw. We also spent half a day visiting Dadelo's brick-and-mortar competitors. After visiting half a dozen mom and pop bike shops, it became abundantly clear that the customer experience between Dadelo's store and the typical mom and pop store is night and day. In comparison, we found the typical mom and pop shop to be tiny in size, very limited in SKUs, overcrowded with goods, poorly lit in some cases, and with higher priced goods. One store we visited had, in fact, gone out of business, though was not yet marked as such on Google Maps. Although we are biased, we found it to be objective fact that Dadelo's store was the best bicycle shop in Warsaw, and it wasn't close. This comparison also included our visits to big box retailers Decathlon and Sportano who, despite covering a wide spectrum of sporting goods and having nice stores, clearly catered to entry-level cyclists and lacked wide SKU selection. Dadelo's omni-channel model offers the additional advantage over big box competitors of offering customers the ability to scan QR codes attached to all SKUs so that customers can view the same item on Dadelo's website. This gives customers the added options of reading more information about the bicycle or accessory, saving the item in their cart, and buying online later after conducting their own research or other further consideration. Dadelo's revenue growth to date has been exceptional. As mentioned earlier, the company has organically grown its annual revenues at a +39% CAGR, or by a factor of 11.7x, since 2017. This growth was achieved entirely through e-commerce through 2022, and in 2023 began to include store revenues. To date, Dadelo has opened 4 stores, including 1 in 2023, 1 in 2024, and 2 so far in 2025, with plans to open at least another 16 stores over the next several years, which we discuss further below. In April 2025, Dadelo filed a new management incentive plan which offers senior management significant share awards if they continue growing Dadelo's revenues at high rates while remaining net profitable: We think these revenue targets tell us two things: first, the CEO is ambitious and wishes to continue growing revenues at a rapid pace; second, the CEO remains much more focused on market share than profits in the near- and intermediate-term. Based on our conversations with Dadelo, it appears the company is following a similar playbook as Oponeo did, which prioritizes aggressive market share growth today to ultimately maximize long-term profits once rapid revenue growth eventually slows. We anticipate that Dadelo will continue to engage in consistent actions such as lowering prices, increasing advertising spending, opening new stores aggressively, and taking other deliberate steps to secure customer loyalty. Looking at Oponeo's 20-year income statement history for clues, we observe sustained high revenue growth alongside volatile operating margins up until 2022. Since then, Oponeo's annual revenue growth has moderated down to around +10-13% while operating margins have risen to levels significantly higher than historical averages. Dadelo's management has commented that without present-day growth expenses towards categories of pricing, advertising, and store expansion, the company's steady state operating margin would be noticeably higher than its reported IFRS operating margin. Management anticipates margins improving toward this steady state level over the long-term as revenue growth moderates and Dadelo approaches market saturation. Historical data from Dadelo's existing stores, as well as recent interview comments from the CEO, help us estimate future revenues and suggest to us that management's 5-year revenue targets appear credible. We present our revenue forecasts in this context to illustrate that Dadelo's e-commerce segment only needs to grow its revenues at a CAGR of +13% over the next 5 years in order to achieve management's 5-year revenue targets and to reach management's 2029 revenue target of ~1 billion zł. This scenario assumes that new store openings align closely with the CEO's stated goals and perform in-line with our cohort revenue estimates. Should Dadelo's e-commerce revenue growth exceed a CAGR of +13%, then management's current 5-year plan could prove conservative. Dadelo recently disclosed H1 2025 YoY revenue growth of +50.4%, suggesting the company may already be pacing ahead of its 2025 revenue target. Last week on July 14, 2025, Dadelo's CEO made the following comments (translated from Polish) in an interview regarding the company's plans for future stores: "In September or October, we plan to open at least one store in southern Poland. I think it will be in Kraków, but we are also considering Katowice or Gliwice." "We plan to open four more showrooms in 2026, mainly in southern Poland." "Initially, we want to open stores in all cities with populations over 300,000, and later we will focus on those between 200,000 and 300,000. We have 20 such cities, but we are also considering opening additional stores in Warsaw and Silesia. We want the customer's route to the store to be as short as possible, meaning the distance between one store and another should not exceed 200 km. The goal is to achieve this in three years at the latest." "The value of the bicycle market in Poland, including bicycles, parts, accessories, and clothing, is estimated at approximately 4.5-5.0 billion złoty. These are significant numbers that show that we are a large market on a European scale. We define our goal as achieving a 35-40% share in this market, and we will continue to consistently strive to achieve it." Considering these comments, we think that assuming 4 store openings per year is reasonable, and could end up on the low side for years 2027 and 2028 based on the CEO's desire to have at least 20 stores a few years from now. The CEO can't seem to open new stores fast enough, which could suggest the existing stores are meeting or exceeding initial expectations. All of this, of course, rests on the assumption that new stores perform as well as the existing ones have. Lastly, in the same interview referenced above, Ryszard discussed future expansion to neighboring countries: "Assuming that in four years we will generate a turnover of one billion złotys, we will be able to use the money we earn to enter the Czech, Slovak, and Hungarian markets. By then, we will have the appropriate know-how and the capital to finance this expansion and achieve success abroad." Beyond growth implications, this statement also indicates that the CEO expects Dadelo to generate non-trivial sums of free cash flow by the end of this 4-year timeline. The key question for us is what long-term operating margins will stabilize at, which in turn informs our view of free cash flow per share and valuation. Gross margin, we estimate, should normally fall within a range of 28.0% to 32.0%. We think Dadelo should benefit materially from increasing bargaining power over suppliers, which should be offset by Dadelo reinvesting those profits into lower customer prices. Dadelo has already seen meaningful gross margin gains, increasing from 24.6% in 2017 to 31.8% in 2024. Operating expenses differ for the e-commerce and store models. We view e-commerce, which was responsible for virtually all operating profits in 2024 given both of Dadelo's stores were breaking even, as likely to increase its long-term operating margin to some extent through economies of scale gains over centralized employee costs. To estimate mature store margin, we look to Decathlon Group which we gather earns between 5.0% and 6.0% store-level operating margin, and Martes Sport, a Polish clothing, footwear, and sports equipment retailer, which last year earned a disclosed 7.6% operating margin. Clothing and apparel retailers in Poland typically generate between 10% and 12% operating margins, which is somewhat relevant for Dadelo given we estimate bicycle clothing comprises around 15-20% of company revenues. We think an operating margin range of between 5.0% and 8.0% is a fair estimate for a mature Dadelo store. Overall, we estimate long-term company operating margins of between 7.0% and 10.0%, with the high end reflecting closer to the steady state scenario we described earlier where revenue growth tapers off and management optimizes for profit. Applying this margin range at ~1 billion zł in revenue, we arrive at EPS estimates of roughly 4.00 to 6.00 zł after interest expense and taxes. However, we think there is a wide range of outcomes as to when management will pivot from optimizing for market share to optimizing for profit. In other words, we don't know if Dadelo might begin to consistently generate truly meaningful operating margins and free cash flow in 5 years or in 10 years. If management is correct about its ability to continue winning market share at attractive long-term returns on invested capital, we believe management's long-term approach represents the dominant strategy and one likely to maximize present value for investors. Given insider transactions are always worth monitoring, we took note of CEO Ryszard's recent insider purchases of 141,792 shares of Dadelo on the open market. Between May 22 and June 24, across 15 trading sessions, Ryszard purchased 141,792 shares at prices from 30.40 zł to 41.00 zł per share. These purchases represented incremental investment of roughly $1.3 million, on top of Ryszard's existing ~$20 million share ownership, which could be interpreted as a sign of confidence in Dadelo's outlook.

BSD Analysis:
Sohra Peak Capital Partners presents a compelling bull case for Dadelo, Poland's leading bicycle retailer, acquired at 18x 2024 earnings with shares appreciating 61% since purchase. The manager's thesis centers on Dadelo's dominant competitive position through superior logistics, offering 24-hour delivery on 95% of orders while competitors require weeks, enabled by shared infrastructure with parent company Oponeo. The company has achieved exceptional 39% revenue CAGR since 2017 and maintains 7% market share in Poland's fragmented bicycle market. Management's aggressive expansion strategy targets 20+ stores and 35-40% market share, with recent store openings successfully displacing local competitors. The investment case relies on Dadelo replicating Oponeo's playbook of prioritizing market share growth before margin optimization. Key risks include execution of store expansion plans and timing of the pivot to profitability optimization. Recent insider buying by the CEO and 50%+ current revenue growth suggest strong operational momentum supporting the long-term value creation thesis.

Pitch Summary:
Occidental Petroleum (“OXY”) received a major legislative tailwind when Republicans unexpectedly preserved and enhanced the Section 45Q tax credit for carbon capture, utilization and sequestration (“CCUS”). The credit was increased from $130/ton to $180/ton when CO₂ captured from direct air capture (“DAC”) plants is used for enhanced oil recovery (“EOR”). Previously, the higher credit applied only to permanent sequestration, not EOR. The new parity enables the market to determine optimal CO₂ use. OXY lobbied heavily for this change, which will materially improve the economics of DAC-linked EOR—critical for extending the life of mature Permian assets. The company is expected to announce the start-up of its first DAC facility, Stratos, in the coming months. As Stratos scales, process improvements should reduce costs and de-risk OXY’s emerging carbon management business. By integrating carbon removal credits, sustainable aviation fuels, net-zero fuels, and EOR, OXY aims to build a synergistic low-carbon energy platform.

BSD Analysis:
Occidental is a shale titan with a huge bet on carbon capture that could become a generational moat if the economics land. The Permian assets throw off strong free cash flow even at mid-cycle prices. Berkshire’s stake provides a sentiment anchor and validation of the long-term strategy. Debt continues to fall, enabling larger shareholder returns over time. Oxy’s CCUS strategy is ambitious, but if it works, Oxy becomes the low-carbon preferred producer globally. Investors still price it like a standard E&P. This is a high-conviction, high-optionality energy story.

Pitch Summary:
Strathcona Resources (“SCR”), a Canadian oil and gas producer, commenced a hostile takeover attempt of MEG Energy. The day before launching the bid, SCR divested its natural gas assets and became a pure-play oil sands company. This repositioning was well received by the market as SCR shares hit a near 52-week high. SCR’s initial offer—0.62 SCR shares + $4.10 cash—represented virtually no premium when first approached in April. SCR increased its credit facility to $3B with an additional $250M accordion feature, likely to provide flexibility to raise the cash portion of the bid. The company has a history of using ~75% of its borrowing facility in prior acquisitions, implying ~$2.4B of deployable debt capacity. This suggests SCR could increase its cash consideration significantly, potentially supporting an offer in the high-$20s per share for MEG. SCR’s long-term strategy centers on consolidating oil sands assets and eventually becoming an attractive target for supermajors once shale declines and reserve scarcity intensifies.

BSD Analysis:
Strathcona is the aggressive consolidator reshaping the Canadian upstream landscape. Private-equity discipline runs through the business: cost control, scale, and optimization. Its diversified portfolio — heavy oil, thermal, Montney — gives it resilience across commodity cycles. The company is still new to public markets, so institutional ownership hasn’t fully adjusted. Cash flow power is significant, and future capital return potential is large. Strathcona is built to get bigger, leaner, and more profitable. A heavyweight in the making.

Pitch Summary:
On May 15, Strathcona Resources (“SCR”), a Canadian oil and gas producer, commenced a hostile takeover for MEG Energy (“MEG”), our fund’s largest position. Separate from the transaction (though part of its overall plan), SCR announced the day before a major divestiture of its natural gas assets, the proceeds of which will be used to repay all of its debt. Post-sale, SCR became a pure-play oil sands company with steam-oil assisted gravity drainage (“SAGD”) operations in Cold Lake and Lloydminster. The future strategy was well received by the market as SCR shares rose to a near 52-week high at $30.92/share. The next day, SCR announced the bid for MEG, using the inflated SCR shares as partial consideration. At the time, MEG shares traded at $21.30/share, down 10% from the start of the year and mirroring the decline in oil prices. SCR’s offer currently stands at 0.62 shares of SCR + $4.10 cash for each share of MEG. At the unaffected price (i.e., pre-announcement), SCR is offering a total consideration of $23.72/share, a 9.3% premium. Prior to the public offer, SCR quietly approached MEG on April 28 after acquiring ~9% of MEG on the open market. If we calculate the value of the offer back on April 28, SCR effectively offered no premium for MEG’s shares, an offer MEG’s board correctly rejected. Given the recent increase in SCR shares, the company is pitching the bid as one with a 9.3% premium—opportunistic given oil prices and producers had fallen post-Liberation Day. MEG shares now trade above SCR’s offer because the market expects a higher bid from SCR or another acquirer such as Cenovus, Suncor, or CNQ. MEG has begun a strategic review. As MEG evaluates options, we ponder an appropriate premium. Oil sands assets have historically sold at 20-40% premiums. Husky previously bid with a 44% premium in 2018. Today, MEG’s strong balance sheet (only $815M of debt) and best-in-class Christina Lake SAGD asset support a similar premium. The thesis is simple: if MEG uses free cash flow to buy back stock, it will likely retire half its shares in 5 years and the stock will double. We’ve long doubted MEG would remain independent due to its single high-quality asset. Liberation Day-induced oil price declines pushed the stock lower, making MEG vulnerable to opportunistic bidders like SCR. Would we be happy owning SCR shares? Yes—for the right price. SCR is a roll-up created by Waterous Energy Fund (“WEF”), which has systematically acquired unwanted assets to form one of Canada's largest producers. SCR is now debt-free after selling Montney for $2.84B. Combining MEG and SCR makes strategic sense, though SCR produces more yet generates lower cash flow and carries off-book management expenses paid through WEF. SCR has also increased its credit facility to $3B (with $250M accordion), suggesting capacity to raise the cash portion of its offer. At $4.10/share cash, SCR would borrow ~$960M, but facility size suggests ability to raise cash consideration substantially. Historical SCR deals use ~75% of the facility, implying ~$2.4B borrowing capacity—enough to raise cash consideration to ~$10/share (≈$29/share total). MEG’s advisors will evaluate higher bids. As the offer stands, the premium is too small and shareholders will reject it. We will not tender before the September 15 deadline.

BSD Analysis:
MEG is one of Canada’s highest-quality heavy oil producers, benefiting from strong operating efficiency and leverage to improving differentials. Its Christina Lake project remains a world-class SAGD asset. Deleveraging is unlocking meaningful free cash flow, setting up for stronger shareholder returns. Heavy oil demand is more durable than the market assumes, especially with global supply tightening. MEG’s cost structure gives it serious torque to oil prices. Investors often underestimate how clean the story has become. High-operating-leverage energy exposure without the balance sheet drama.

Pitch Summary:
During the quarter, the Fund increased its exposure to Australian diversified developer and asset manager Lendlease Group. Founded in the late 1950s, Lendlease established itself as a leading Australian real estate developer and construction company, but a long history of overseas expansion resulted in capital allocation missteps and volatile earnings. As a result, the company’s shares now trade near levels last seen during the Global Financial Crisis, despite the strength of its core Australian operations. Management has embarked on a major simplification strategy, including asset sales, cost reductions, balance-sheet deleveraging, and share buybacks. Fund Management estimates net asset value of approximately A$10 per share, well above the prevailing share price in the low A$5 range.

BSD Analysis:
Lendlease is a deep-value, diversified global property and construction giant whose stock is an asymmetric recovery bet on its massive, high-value urban regeneration and development pipeline. The core thesis is driven by the company's successful completion of a global corporate restructure, which simplifies the business and focuses resources on its core, high-return markets (Australia, Europe, Asia). The company maintains an unassailable moat in complex public-private development partnerships (e.g., major U.S. military housing projects), ensuring long-term, contracted revenue streams. The stock is a conviction bet on the eventual closing of the discount to Net Tangible Assets (NTA) as its development pipeline is successfully executed.

Pitch Summary:
Supernus Pharmaceuticals announced an opportunistic acquisition of Sage Therapeutics, which will be funded by Supernus’ $460 million net cash balance. Sage is a company which makes the first and only F.D.A. approved treatment for postpartum depression and, itself, possesses net cash in excess of $420 million as of its most recent filing.

BSD Analysis:
Supernus Pharmaceuticals is a deep-value, specialized biopharma pure-play whose stock is an asymmetric recovery bet on the successful expansion of its Central Nervous System (CNS) franchise. The core thesis is driven by the successful launch and patent protection of Qelbree (non-stimulant ADHD treatment) and Trokendi XR. The company is defensively positioned, with 48% institutional ownership, signaling professional money's belief in the long-term value of its specialized portfolio. Despite a recent 18.4% stock dip, the underlying demand for its psychiatric and neurological drugs is non-cyclical. The stock is a leveraged play on successful pipeline expansion and the inherent value of its established CNS brands.

Pitch Summary:
Cantaloupe Inc. (“CTLP”) is a leading provider of payments hardware and software solutions to the unattended and self-service retail sector. The company’s end markets have expanded over the years from a focus on vending machine transactions, which entail small transaction sizes, to a range of micro markets entailing larger transaction sizes. Importantly, the combination of higher transaction volumes and values, from which CTLP earns a spread, have been a tailwind for CTLP’s operating performance. CTLP has a history of competing well in an industry benefiting from automation and labor-saving trends and the growth of self-serve commerce. During the second quarter, not long after the Fund established its CTLP position, Providence Equity Partners, a technology-focused private equity firm, agreed to pay $848 million to acquire CTLP. The cash offer, priced at a meaningful premium to the then-prevailing trading price and within our estimated range of net asset value for the company, has been accepted by CTLP’s board of directors.

BSD Analysis:
Cantaloupe is a high-growth, cloud-based unattended retail technology pure-play whose stock is a conviction bet on the structural digitization of vending and micro-markets. The core moat is its end-to-end SaaS platform, which provides a crucial operating system for managing payments, logistics, and inventory across over 1.3 million devices. The company's massive scale and focus on high-margin recurring subscription revenue ensure stability. Cantaloupe is successfully converting its customer base to its advanced Seed software, driving higher Average Revenue Per User (ARPU). The stock is a conviction bet on the inevitable, multi-year shift to cashless, automated retail.

Pitch Summary:
One recent partnership investment that we think serves as an example of the undiscovered, undervalued, high-quality companies we seek is Dadelo S.A. (DAD.PW) which trades on the Warsaw Stock Exchange. We accumulated shares in Dadelo between November 2024 and February 2025 as a Top 5 position at an average cost of 23.27 zł. As of the end of this prior quarter, Dadelo’s shares had appreciated by +61% to 37.50 zł. At our time of purchase, we estimated that we were buying shares at 18x our estimate of 2024 net profit for a business that since 2017 has organically grown its annual revenues at a +39% CAGR, or by a factor of 11.7x, and is still currently growing its revenues at a rate of approximately +50% YoY. Dadelo is an omni-channel bicycle retailer that sells bicycles, parts, and accessories exclusively in Poland. Dadelo has won 7% share of Poland’s bicycle, parts, and accessories market to date, has become Poland’s #1 bicycle retailer, and has earned excellent reviews from customers on well-regarded websites such as Opineo.pl. We believe Dadelo has accomplished this by offering free 24-hour delivery for 95% of orders regardless of basket size, offering among the widest SKU selections, and offering among the lowest prices. Based on our research, it appears that Dadelo possesses a strong competitive advantage through its operational relationship with Oponeo, which provides state-of-the-art warehousing, technology infrastructure, and vendor management capabilities that would be extremely difficult for smaller competitors to replicate.

BSD Analysis:
Dadelo appears to be a smaller, under-followed consumer or commerce name, which typically means the opportunity and the risk both come from execution rather than macro magic. In these businesses, the key investment variables are unit economics (gross margin, fulfillment costs, CAC), repeat purchase behavior, and whether the brand or platform has any real defensibility. If management can scale profitably—especially by growing repeat customers and improving logistics—earnings can inflect quickly. If not, the stock becomes hostage to discounting, rising marketing costs, and working-capital pressure. Investors should focus on cash conversion, inventory discipline, and evidence of durable demand rather than top-line noise. Small caps can look cheap right before they dilute, so balance-sheet runway matters as much as the product. If the business is proving it can generate cash while growing, that’s when the story becomes investable.

Pitch Summary:
eDreams is a leading European online travel agency that has reinvented itself around Prime, a paid subscription launched in 2017 that now drives ~71% of revenue and over 7.2M members. Prime members book more often at lower acquisition cost, shifting the model from transaction-led to recurring, high-margin revenue. FY2025 Cash EBITDA reached ~€180M (+49% YoY) on €718M revenue as operating leverage kicked in; FCF was ~€100M, enabling deleveraging and ~€80M of buybacks (~9% of float). Management guides to €215–220M Cash EBITDA and >€120M FCF in FY2026, with Prime expansion from 10 to more countries within a 44-market footprint. Penetration is still low (~3.7% of EU households), leaving a long runway for subscriber and ARPU growth (incl. Prime Plus). At €8.27, shares trade near ~10–12× forward P/E and mid-single-digit EV/EBITDA, implying >100% upside if execution continues and the market re-rates the subscription economics. The model has proven resilient through recent macro volatility versus traditional OTAs. Management is channeling rising cash generation into buybacks and balance-sheet strengthening, with net debt/EBITDA trending toward ~1.6× and potential net cash by 2027–28. The pitch frames eDreams as a “value + growth” setup: subscription-style predictability at OTA valuations.

BSD Analysis:
Main risks are macro/travel shocks, competitive subscription responses from larger peers (Booking/Expedia), churn as cohorts mature, and EU regulatory noise. The bear case argues Prime’s growth could slow as early adopters saturate and marketing needs to rise to sustain net adds, pressuring margins; airline distribution disputes can also flare. Still, the cash inflection and buybacks provide downside ballast, and the first-mover subscription advantage (scale, data, tech) raises barriers for copycats. If FY2026 guidance is met, the multiple looks too low for a recurring, high-margin model; if growth wobbles, the current valuation already embeds caution.

Pitch Summary:
Tencent is a dominant Chinese digital platform anchored by WeChat/Weixin’s ~1.4B users and leadership in gaming, fintech (WeChat Pay), online ads, and cloud. The pitch argues the market undervalues Tencent’s core operations (ex-investments) at roughly a legacy-tech multiple despite accelerating monetization from WeChat Video Accounts, mini-program commerce, and a recovering ads cycle. AI is framed as a “growth multiplier”: Tencent’s HunYuan model and rising AI capex are already lifting ad CTRs, speeding content creation, improving game development, and enabling higher-value AI cloud services. Management is returning large amounts of capital via buybacks while margins sit near cycle highs; regulatory headwinds have eased versus 2021–22. Base case envisions steady WeChat ARPU growth, mid-single-digit gaming CAGR with global expansion, and improving cloud mix, taking EBIT from ~RMB 208B (2024) to ~RMB 299B in ~3 years. Upside case embeds broader AI deployment, pushing EBIT >RMB 390B and margins >40%, justifying a rerate. Investment stakes (~RMB 851B) offer additional SOTP support alongside optional divestments. Net, the setup is a durable compounder with asymmetric AI optionality and multiple paths to value realization.

BSD Analysis:
Key risks center on execution and policy: WeChat monetization could bump into user-experience limits as ad load rises; Douyin/Kuaishou competition may siphon ad budgets and attention. Gaming remains hit-driven; aging tentpoles, slower approvals, or new rules on monetization/time limits could crimp growth, while geopolitical scrutiny can hinder overseas M&A/publishing. Cloud price wars may cap margins even as AI workloads grow. China macro/regulatory shifts can reprice platform risk or push further stake divestitures that don’t yield cash. That said, low incremental CAC on WeChat, proven live-ops in games, improving ads signal, and material buybacks create downside buffers; AI-driven efficiency and monetization provide upside torque.

Pitch Summary:
SeaStar Medical is a small-cap medtech developing the Selective Cytopheretic Device (SCD) for immune modulation in critically ill patients. Its pediatric product (QUELIMMUNE) is FDA-approved under HDE and being adopted at children’s hospitals, while the adult AKI pivotal trial is 50% enrolled with interim data due late Q3 2025. Valuation is just $19M market cap with $10M cash, low burn, and warrants outstanding. Pediatric TAM is ~$100M with strong survival benefits, while adult TAM is $4.5B. Upside scenarios include 4–5x returns on adult approval, while downside is partially supported by pediatric business and NOLs. Risks include trial failure, capital raises, warrant overhang, and competition. Still, platform potential across AKI, cardiorenal, ESRD, and sepsis is large, with NIH grants and strong safety record. Pitch frames as asymmetric bet with limited downside.

BSD Analysis:
BSD case: ICU is a binary biotech-like play but with downside cushioned by pediatric approval and optionality. Market cap < $20M underprices platform optionality in multi-billion TAM.

Pitch Summary:
Ulta Beauty has a strong brand presence in the U.S., holding about a twenty percent market share in the cosmetics and fragrance industry. The company remains in a growth phase, and as such invests about a third of its operating cash flow into new store openings while returning the remainder of operating cash flow to shareholders in the form of stock buybacks. While the company had a free cash flow yield of only six percent when we took the purchased the stock, we believe that the company can effectively grow free cash flow per share through a combination of a high incremental return on capital for new store openings and share count reduction from stock repurchases.

BSD Analysis:
The manager presents a growth-oriented investment thesis on Ulta Beauty, highlighting the company's dominant market position with 20% share in the U.S. cosmetics and fragrance market. The investment case emphasizes Ulta's expansion strategy, with one-third of operating cash flow dedicated to new store openings that generate high incremental returns on capital. Despite a modest 6% free cash flow yield at purchase, the manager expects meaningful per-share growth through two key drivers: profitable store expansion and share count reduction via buybacks. The thesis reflects confidence in Ulta's ability to maintain market leadership while executing disciplined growth investments. The balanced capital allocation approach, splitting cash flow between growth investments and shareholder returns, demonstrates management's focus on long-term value creation. This pitch represents a quality growth play on a market-leading retailer with sustainable competitive advantages and clear expansion opportunities. The emphasis on per-share metrics suggests the manager values both organic growth and capital efficiency in driving shareholder returns.

Pitch Summary:
Altria is a mature business in the cigarette, cigar and smokeless tobacco industry with operating margins of about fifty percent. While the cigarette market in the United States is in decline, the smokeless tobacco market is experiencing growth, and as such the company has been able to hold revenues relatively steady over the past several years. We believe the company's stock to be reasonably priced with a free cash flow yield of just under ten percent and a dividend yield of almost seven percent, and the company has what we believe to be conservative capital allocation as it returns effectively all of its free cash flow to shareholders via stock buybacks and dividends.

BSD Analysis:
The manager presents a value-oriented thesis on Altria, emphasizing the company's exceptional profitability with 50% operating margins and attractive shareholder returns. Despite secular decline in cigarettes, the fund highlights revenue stability driven by growth in smokeless tobacco products. The investment case centers on compelling valuation metrics, with a nearly 10% free cash flow yield and 7% dividend yield providing substantial income generation. The manager appreciates Altria's disciplined capital allocation strategy, returning virtually all free cash flow to shareholders through dividends and buybacks. This pitch reflects a classic value play on a mature, cash-generative business trading at reasonable multiples. The thesis balances acknowledging industry headwinds with recognizing the company's ability to maintain financial performance through product mix evolution. The emphasis on conservative management and shareholder-friendly policies suggests confidence in sustained returns despite challenging operating conditions.

Pitch Summary:
IDN was pitched in December, at a time when there were no write-ups or X mentions. It was trading near historic lows despite landing major business from top-tier customers and benefiting from strong secular tailwinds. Since then, it has started to gain attention from high-profile social media figures. Among other points, the thesis emphasized that rising identity fraud reports, which are highly correlated with IDN's revenues two quarters ahead, combined with the company's expansion into new verticals, would lead to reaccelerating growth and inflecting margins. In short, with significant beats across the board starting in Q4, the company finally inflected after years of decelerating SaaS growth, even without Meta, the unnamed multinational social media company I suspect IDN will eventually sign. However, while identity fraud reports continue to rise, implying growth might pick up in the back half of the year, valuation

BSD Analysis:
The manager initiated a position in Intellicheck at $2.52 when the stock was trading near historic lows and garnering minimal attention. The core thesis centered on the strong correlation between rising identity fraud reports and IDN's revenue growth with a two-quarter lag, positioning the company to benefit from secular tailwinds in identity verification. The manager highlighted the company's success in landing major enterprise customers and expanding into new verticals as key growth drivers. IDN delivered on the thesis with significant earnings beats starting in Q4, marking an inflection point after years of decelerating SaaS growth. The position generated a 108% return, validating the contrarian entry timing and fundamental analysis. However, the manager is exiting due to valuation concerns despite continued positive fraud report trends that suggest potential growth acceleration in the latter half of the year. The thesis also anticipated a potential partnership with Meta, which has not yet materialized but remains a possible catalyst.

Pitch Summary:
ENDI's operational performance continues to be exceptionally strong, particularly within its CrossingBridge subsidiary. As of June 30, CrossingBridge's Assets Under Management (AUM) surpassed $4 billion, a substantial increase from $3.4 billion at the start of the year. The subsidiary publicly reports AUM on their website on a monthly basis at crossingbridgeadvisors.com. Earlier this year, ENDI sold 25% of CrossingBridge at a $104 million valuation. Consequently, you can think of ENDI's share of that current AUM to be $3 billion (75% of $4 billion). ENDI also has approximately $52 million in cash and investments as of the March 31, 2025 reporting period and adjusting for the post-quarter partial subsidiary sale. The company also carries $10 million of debt. Their current market cap is $85 million. At the current stock price of $16 per share, the market is valuing that $3 billion of growing AUM at $43 million. If we adjust for the valuation of the partial subsidiary sale, the market is pricing the CrossingBridge asset significantly lower than what sophisticated third-party investors paid earlier this year when AUM was 15% lower. The bottom line is that we continue to have a long way to go to for ENDI to get to fair value. And, as the company continues to perform well operationally, that fair value continues to increase as well.

BSD Analysis:
The manager presents a compelling value proposition for ENDI Corp based on a significant disconnect between market valuation and intrinsic worth of its CrossingBridge subsidiary. The investment thesis hinges on strong operational performance, with AUM growing from $3.4 billion to over $4 billion in just six months, demonstrating the asset management business's momentum. A recent third-party transaction valued CrossingBridge at $104 million when AUM was 15% lower, yet the market currently values ENDI's 75% stake at only $43 million despite higher AUM levels. The manager's sum-of-the-parts analysis reveals the valuation gap: ENDI trades at an $85 million market cap while holding $52 million in cash, $10 million in debt, and a growing asset management business worth significantly more than current market pricing suggests. The transparent monthly AUM reporting provides real-time validation of business growth and performance. With CrossingBridge continuing to scale and generate increasing fee income, the manager sees substantial upside as the market eventually recognizes the subsidiary's true value. The combination of strong operational execution and persistent undervaluation creates an attractive risk-adjusted opportunity.

Pitch Summary:
Liquidia has navigated a complex landscape for years, marked by patent disputes and FDA approval delays for their flagship drug, Yutrepia. Today, everything is about Yutrepia's product launch and their prospects to penetrate a previously monopolistic market. For Liquidia, that uncertainty has always been a buying opportunity. Shares are 200% higher today than our original purchase price more than three years ago. Yutrepia finally received FDA approval for Yutrepia in late May and officially launched soon thereafter. Interestingly, despite this significant milestone, Liquidia's stock price experienced a dramatic but temporary dip, falling from over $19 in early June to $12.46 by the end of the second quarter. This decline was primarily driven by investor apprehension regarding the initial commercial rollout and concerns about a potential competitor still years away from market entry. Since then, the narrative has rapidly changed again and today shares trade for nearly $18. Initial reports for Yutrepia's June prescription numbers are exceptionally strong and well above expectations. While it's still early days, this robust start validates our confidence in Liquidia management's sales force and their go-to-market strategy, confirming the significant unmet need Yutrepia addresses in the market. I first highlighted Liquidia in our Q4 2022 letter. The issues then were a variety of patent disputes with competitor United Therapeutics. To date, United Therapeutics has failed in each of those legal cases but had succeeded in delaying Liquidia's launch and FDA approval. Lawfare worked extremely well in this situation. There are still two long-shot legal challenges from United Therapuertics. Both of these cases are highly likely to be resolved in Liquidia's favor. But, as we have seen in this long saga, anything can happen. Fortunately, with Yutrepia now on the market, these legal tactics are far less impactful than before. Beyond legal issues, Liquidia shares had dropped in early June due to the announcement of a successful phase two trial from a potential future competitor. On June 10, 2025, a company named Insmed announced outstanding results for its experimental PAH therapy. Both Liquidia and United Therapeutics shares dropped in response while Insmed shares rose more than 40%. Insmed's drug, TPIP, is a dry powder treprostinil drug administrated via an inhaler and designed to be a once-daily treatment. As a reminder, Liquidia's Yutrepia delivers treprostinil via an inhaler three to five times a day. Obviously, all things being equal, a once daily treatment would be much more attractive to patients, which is why the results hurt Liquidia's stock price. However, a closer look, as pointed out by a Raymond James analyst, reveals potential issues with Insmed's trial design that may have artificially inflated the results. The analyst noted that the trial patients presented with more severe cases and appeared "under-treated at baseline versus key PAH studies, potentially favoring treatment response." This raises questions about the comparability and true efficacy of Insmed's findings. It's worth considering the timing of Insmed's $750 million stock offering following these Phase 2 results and whether that fundraising prospect played into the design of the trial. Regardless, Insmed still needs to conduct a Phase 3 trial, which isn't expected to begin until next year, followed by an FDA approval requirement. Even assuming a best-case scenario with strong Phase 3 results, TPIP is unlikely to reach the market for many years. By then, Liquidia's next-generation drug, L606, which has also shown very strong clinical trial results to date, is expected to be available. Is Insmed simply telling a good story at the moment, or are they are future threat to Liquidia? Only time will tell but my initial perspective is one of guarded skepticism. In the meantime, I am continuing to monitor Liquidia's Yutrepia launch. We have been rewarded for our patience over the past three years, despite several bouts of volatility. I continue to be optimistic in the company, its leadership, and the prospects for its stock.

BSD Analysis:
The manager maintains a bullish stance on Liquidia Therapeutics following the successful FDA approval and launch of Yutrepia, their flagship PAH therapy. The investment thesis centers on Liquidia's ability to penetrate a previously monopolistic market dominated by United Therapeutics, with early prescription data exceeding expectations and validating the go-to-market strategy. The manager demonstrates conviction through a three-year holding period that has generated 200% returns despite significant volatility from patent litigation and regulatory delays. Recent share price weakness from $19 to $12.46 was driven by investor concerns about competitive threats from Insmed's Phase 2 trial results, but the manager views this as temporary noise given Insmed's drug is years away from market entry. The analysis highlights potential flaws in Insmed's trial design and questions the timing of their $750 million fundraising, suggesting the competitive threat may be overstated. With Yutrepia now commercially available and Liquidia's next-generation L606 drug showing strong clinical results, the manager sees continued upside potential. The position benefits from reduced legal risk now that the product has launched, shifting focus to commercial execution and market penetration.

Pitch Summary:
Peloton was founded in 2012 and started selling their first product, an internet-connected stationary cycle, about two years later. The Peloton Bike was a high-end premium cycle for a mid-high-end price. The twist was that it was a connected bike, with a huge touch screen and a constant feed of live and on-demand classes of all sorts and all levels, led by mini-celebrity star instructors. Peloton paid star-level salaries to hire the best of the best, and pretty soon, a person could choose from thousands of past classes or join a live one, competing against others or just against themselves. Over time, Peloton added new products, such as the Peloton Tread, a high-end treadmill, and new classes, such as yoga or outdoor running. The Peloton hardware was definitely high-end and attracted a hard-core, cult-like following, which is of course quite positive for any consumer-oriented business. They grew very rapidly, expanding product categories, geographies, and demographics. A chart of their revenue was basically straight up and to the right, having doubled revenue each year for a few years in a row. The mix of high-end exercise bikes and treadmills with a huge library of live and on-demand classes set them up as competition to both traditional equipment makers (such as NordicTrack and Nautilus) as well as boutique gym classes (such as SoulCycle and Flywheel), and Peloton was winning. The business model was to sell the exercise machines at cost and make money on the monthly subscriptions, leveraging the fixed costs of their instructors, studios, and streaming platform over hundreds of thousands of monthly subscribers. I found the core of this business model to be very attractive; indeed, the business model is what attracted me to research Peloton in the first place. In theory, as they scaled their customer base, they would become hugely profitable as they amortized relatively fixed costs over more and more monthly subscriptions. In various interviews over the years, management had revealed that Peloton was already profitable and cash-flow positive by the end of 2015, quite early in the startup cycle. In 2018, management repeated that they were 'effectively profitable' on an adjusted basis. First of all, it turned out that 'effectively' profitable was not all that effective. At times, I have been guilty of using adjusted numbers myself, and there are definitely times where that is a legitimate way of analyzing a company. In this case, however, Peloton was guilty of using EBE, Earnings Before Expenses. Basically, Peloton was not profitable by any stretch of the imagination, unless you agreed to ignore their sales and marketing expense. Which is patently ridiculous. Given the huge expense they were incurring to sell and market their product, they were not at all profitable, and in fact, the losses were getting worse. Their lack of profitability did not have to totally negate the possibility of investing in them. Truth be told, at this early stage of their lifecycle as a rapidly growing company, it was quite understandable if they were not yet profitable. They had decent gross margins; they were not actually selling the equipment at breakeven anymore, but turning a nice profit on the equipment itself, in addition to the strong and growing margins on the monthly subscriptions. Investment for the future by growing their customer base through outsized sales and marketing efforts was an understandable strategy. But given the lack of profitability, the nosebleed valuation at which they went public was the nail in the coffin. Peloton IPO'd on September 26, 2019 at $29 a share. Even after closing down the first day and gradually drifting lower over its first month of public trading, it still fetched a market cap of about $6 billion. For a company making about $1 billion in revenue (although rapidly growing), and losing about $200 million a year. Sure, things could work out, but only if everything lined up perfectly. However, it is quite rare for everything to go perfectly. As deep value investors, our first mantra has to be that valuation always matters, and at that price, we were not interested. Perhaps the most interesting part is that now, at a much lower valuation and multiple changes of management, Peloton may finally make sense as an investment. They should be able to turn themselves back to profitability with proper management, although time will tell if they actually execute. If they do, they still have a core of loyal fans, with 3 million customers paying monthly subscription fees bringing in a gross profit of more than $1 billion annually. Equipment sales are back to being profitable on a gross margin basis and has room to improve further. If they can control costs like a normal company (that's a big if, although it shouldn't be), they can become a highly profitable and growing company. At the present market cap of $2.7 billion, it may actually make sense as an investment.

BSD Analysis:
The manager presents a comprehensive case study of Peloton, initially rejecting the investment at IPO due to valuation concerns despite an attractive business model. The connected fitness platform with subscription revenue streams showed promise with cult-like customer loyalty and rapid growth, but management's misleading profitability claims and excessive $6 billion valuation at $1 billion revenue created unacceptable risk. The subsequent COVID boom validated the business model temporarily, driving the stock to $170 before management's poor execution during the pandemic surge led to massive overcapacity, cost overruns, and eventual collapse to current levels around $6.77. With 3 million subscribers generating over $1 billion in gross profit annually and a reduced $2.7 billion market cap, the manager now views Peloton as potentially attractive if management can demonstrate proper cost discipline. The case reinforces the critical importance of valuation discipline in growth investing, showing how even compelling business models can destroy value when purchased at excessive multiples.