Investment Pitches

Pitch Summary:
Shares of Avantor declined 23% in the first quarter, as policy uncertainty around budget cuts for academic institutions and pharmaceutical companies weighed on the life sciences sector. With shares trading at valuations not previously seen in its history as a public company, we believe this is a dramatic overreaction as the market is essentially discounting a halting or meaningful slowdown in scientific progress at these levels. It is rare for companies benefiting from such strong secular growth trends to be valued at trough multiples on trough earnings, but that's exactly how we view AVTR today, and exactly why we've capitalized on recent weakness to continue building our position.

BSD Analysis:
Broyhill views Avantor's 23% decline as a compelling buying opportunity, arguing the market has overreacted to policy uncertainty concerns. The fund believes current valuations represent historic lows for the company, creating an attractive entry point for a business benefiting from long-term secular growth trends. The manager's assessment that the market is "discounting a halting of scientific progress" suggests extreme pessimism is embedded in the stock price. Avantor's exposure to life sciences research and pharmaceutical development positions it to benefit from continued innovation and drug discovery efforts. The combination of "trough multiples on trough earnings" for a secularly growing business creates an asymmetric risk-reward profile. Broyhill's decision to increase position size during the weakness demonstrates high conviction in the investment thesis. The fund appears to be betting that policy headwinds are temporary while the underlying growth drivers remain intact.

Pitch Summary:
Shares of Baxter gained 18% in the first quarter, as the company delivered strong results, with numbers moving higher despite tariff disruptions. We thought Baxter took a big step toward rebuilding confidence, with improved execution and visibility into the balance of the year. Management expects operational sales growth of 4% to 5% this year, which appears reasonable to us. The bigger question, which will require a few more quarters of execution, is if 4% or 5% is sustainable long-term. At 12x earnings, or just over half of the market's multiple, the consensus is taking the under. We are happy to take the other side of this one.

BSD Analysis:
Broyhill expresses bullish conviction on Baxter despite market skepticism, viewing the current valuation as an attractive contrarian opportunity. The company's ability to deliver strong results amid tariff headwinds demonstrates operational resilience and management execution capabilities. Management's guidance for 4-5% operational sales growth appears achievable and represents solid performance for a healthcare equipment company. The key investment question centers on sustainability of this growth trajectory, which Broyhill believes the market is underestimating. At 12x earnings, Baxter trades at a significant discount to broader market multiples, suggesting pessimistic expectations are already embedded in the stock price. The fund's willingness to "take the other side" indicates confidence that consensus estimates are too conservative. Improved execution and enhanced visibility provide a foundation for sustained performance, making the risk-reward profile attractive at current valuations.

Pitch Summary:
Shares of Philip Morris tacked on an additional 33% in the first quarter after returning 34% last year. The company reported a 53% increase in US ZYN shipments as production capacity increased, fueling a 250 basis point improvement in operating margins and illustrating the positive mix shift to smoke-free products. While we have reduced the position as shares have eliminated their discount to the market over the past year, PM remains our largest investment, with momentum accelerating in its business. Simply put, it's difficult to find another company better positioned for the current economic environment.

BSD Analysis:
Broyhill maintains a strong bullish stance on Philip Morris, highlighting exceptional operational momentum in the smoke-free products segment. The 53% surge in ZYN shipments demonstrates successful capacity expansion and growing consumer adoption of reduced-risk products. The 250 basis point margin improvement reflects the favorable economics of the product mix shift away from traditional cigarettes. Despite reducing position size as valuation premiums compressed, PM remains the fund's largest holding, indicating high conviction in the investment thesis. The manager's assessment that PM is uniquely positioned for the current economic environment suggests defensive characteristics combined with growth potential. Strong execution in the smoke-free transition positions the company to capture market share in a declining but profitable industry. The combination of margin expansion, volume growth, and strategic positioning creates a compelling investment narrative.

Pitch Summary:
The Fund's Q1 2025 performance was in part a function of arbitrary timing. Grown Rogue reported its 2024 earnings on March 31, 2025 in the evening, and its stock price dropped from around $0.52 to $0.41 the following day - it hovers at around US$0.47 as of this writing, putting the Fund down roughly -21% year to date. Why did the market seem to punish Grown Rogue? Grown Rogue's change of year end from October to December made it difficult for them to assemble comparative quarterly periods - very different from if they had moved from a September year end to a December one, in which they would already have a December quarterly financial statement. GR decided not to print a quarter over quarter of year over year comparison in its PR, which left investors unmoored during a time when many peers are struggling and Grown Rogue's two legacy markets of Oregon and Michigan are experiencing pricing pressure, which Grown Rogue is not immune to. The seemingly large drop between Q3 and Q4 revenues made it look like GR's business was rapidly deteriorating. This was compounded by poor investor communications from GR which exacerbated the problem. For example, GR's PR did not mention that Vireo consulting revenue was present in Q3 and not in Q4 - and it generally did not focus investors' attention on what really matters for Grown Rogue's ability to build long-term value: its continuing operating strength in mature markets like Oregon and Michigan. Generally any one press release is not a huge deal, but taking true fans of your company and making them unjustifiably nervous about the future is an own goal. Fundamentally, what we think the market "misses" about Grown Rogue (but which an increasing number of investors are starting to notice) is that its core operating performance in Oregon and Michigan allows us to underwrite its future profits in other markets with confidence. We do not expect profits to go up every year in mature markets because of natural cyclicality, but Grown Rogue has demonstrated that it can still generate cash in tough pricing environments while generating great returns over the course of a pricing cycle. In the current cannabis environment, Grown Rogue can profitably take advantage of two ways to enter a new market: a new/upgraded facility they build (such as Michigan and New Jersey), or step into a distressed facility at a discounted cost (such as their second facility in Oregon, which was bought from Acreage for $3m a few years ago and is generating significant return on investment even with lower Oregon pricing). This core capability is what drives value creation - pedantically focusing on fluctuations quarter over quarter or year over year misses the forest for the trees.

BSD Analysis:
Bengal Capital maintains a strong bullish stance on Grown Rogue despite recent market volatility, viewing the Q1 2025 stock decline as a temporary reaction to poor investor communications rather than fundamental deterioration. The manager emphasizes that Grown Rogue's core operating strength in mature markets like Oregon and Michigan provides a reliable foundation for underwriting future expansion profits. The company's proven ability to generate cash flow in challenging pricing environments and deliver strong returns across pricing cycles differentiates it from struggling peers. Bengal highlights Grown Rogue's strategic flexibility in market entry, either through building new facilities or acquiring distressed assets at attractive valuations, as demonstrated by their $3 million Oregon acquisition from Acreage. The fund views the market's focus on quarterly fluctuations as missing the broader value creation story. Bengal's conviction appears unshaken by short-term volatility, positioning this as a long-term value play in the cannabis sector. The manager's detailed defense suggests high conviction despite recent underperformance.

Pitch Summary:
I believe with the tariffs that Costco stock has barely been impacted but they are extremely vulnerable to recessionary scenarios and aren't as defensive as individuals believe. First, their consumer base is no longer as purely upper middle class as it used to be and will be more exposed to the cyclical nature of retail. Their "sell in-bulk" nature makes this exposure much worse. Unlike Walmart, if I just got laid off, I don't need to go buy 50 rolls of toilet paper and this makes them much less defensive than Walmart and much more cyclical for low-income consumers (which has slowly made up more and more of their consumer base due to a very slow increase in annual fees). They are currently trading at 55x+ earnings, and I don't usually like to short cult stocks but with expected growth of 11% (I am highly skeptical of this number as they have only grown in the single digits since 2022) and an economic contraction on the horizon, it seems extremely likely to me that they will not be able to hold this valuation for much longer. If we take into account Canada boycotting American goods (Costco's second largest footprint outside of the US, having over 100+ stores) and probably ~8%-10% of goods coming from China along with a 10% tariff on 30% of goods, it is unlikely this bodes well for Costco over the next 9 months. Combining that with a lofty valuation (and no Charlie Munger to tout their horn), we could see a serious pull back. This is set up as a hedge for the portfolio and we will be fine if these expire worthless.

BSD Analysis:
The manager presents a contrarian bear case against Costco through put options, challenging the conventional wisdom of its defensive characteristics. The thesis centers on Costco's evolving customer base becoming more economically sensitive as lower-income consumers comprise a larger portion due to minimal fee increases. The bulk-purchase model becomes a liability during economic stress, as unemployed consumers avoid large upfront purchases unlike Walmart's smaller basket options. Trading at 55x+ earnings with questionable 11% growth expectations (versus single-digit growth since 2022) suggests significant valuation risk during economic contraction. Tariff impacts appear underappreciated, with potential Canadian boycotts affecting 100+ stores and 10% tariffs on 30% of goods creating margin pressure. The manager acknowledges reluctance to short "cult stocks" but sees valuation disconnect as unsustainable. Without Charlie Munger's advocacy, the stock lacks its historical champion during potential downturns. Positioned as portfolio hedge, the manager accepts total loss risk while targeting significant downside protection.

Pitch Summary:
I decided to try my hand at Sweden again, and this time it went much better than previous endeavors. Intellego at face value looks like a disaster waiting to happen. The company sells dosimeters which measure UV-C for disinfection in hospitals and for industrial casting uses. The company was pushed by short sellers as being fraudulent due to high receivables and this is something that we believe is wrong. They continue to score extremely impressive contracts and are trading for nothing compared to their growth despite the double in valuation we have experienced. I believe the CEO currently owns shares on margin and the company recently hired Deloitte to prove they aren't committing any sort of fraud (this isn't a common occurrence). As with many of our stocks, this one is highly shorted (we love a bit of hair on an investment combined with our research and conviction).

BSD Analysis:
The manager presents Intellego as a contrarian value play in the Swedish market, acknowledging it "looks like a disaster" while maintaining strong conviction. The company operates in the specialized UV-C dosimeter market for hospital disinfection and industrial applications, continuing to win impressive contracts despite short seller attacks alleging fraud. The manager dismisses fraud concerns, noting the company's proactive hiring of Deloitte for verification, which suggests management confidence in their accounting practices. Despite already doubling in value, the manager believes the stock trades at a significant discount to growth potential. The high short interest creates potential for a squeeze if the company continues executing on contract wins. The CEO's margin ownership and Deloitte engagement indicate management alignment and transparency efforts. The manager's willingness to invest in Sweden again after previous disappointments suggests high conviction in this specific opportunity within the UV-C disinfection market.

Pitch Summary:
This isn't a particularly new holding for the company, but it has been one that we have slowly built a position in since August/September. The company manufactures and sells a three-lead heart monitor and supplies technology that helps in predictability of heart related issues. It can be worn for 30 days and they maintain a 99% retention rate. The device is the best in its class, and they have grown at a solid 25%+ clip to $13mm in revenue that is likely to increase in the near future. In the fall of 2023/early 2024 they began switching their company to focus on providing AI benefits for their device and allowing for a TAAS/SAAS conversion which slowed down sales initially but has led to a large amount of pilot studies taking place. This SAAS conversion has allowed the gross margin to expand significantly, which I expect to continue through the year. They have a large debt load with a lot of convertibles and preferred stock but seem to have avoided bankruptcy. The pilot studies are key to the thesis and will allow for rapid revenue expansion, leading to highly accretive cash flow since their operating model has become extremely fixed. they are able to target their relatively toxic preferreds. I believe there is a high chance by this time next year the company will be producing $25mm-$30mm in ARR with $6mm+ in FCF. Although there will definitely be dilution, if we assume a safe bet of 80% dilution (which I actually believe is much higher than what's realistic) we end up with a company trading at $20mm fully diluted ($40mm EV, not including paying off preferreds and debt) growing at 30%+ per year (and most likely even faster once they win these pilot studies) with a highly accretive FCF model, most likely newly refinanced debt, and the ability to pay down their term loans. The good news is that these pilot studies beginning full ramp are weeks away not months away and they are in an extreme inflection point. The company could begin to experience growth well beyond 30% and this would push the valuation to insane heights as a company like this should be trading at 8x revenue once they show an ability to produce consistent cash flow. We never take on companies this small, but the opportunity is too good to pass up and could lead to a 10x-20x in the next 18-24 months.

BSD Analysis:
The manager presents Biotricity as a compelling turnaround story transitioning from hardware sales to a SaaS model with significant margin expansion potential. The company's three-lead heart monitor achieves best-in-class performance with 99% retention rates and 25%+ revenue growth to $13mm. The strategic pivot to AI-enhanced TAAS/SaaS offerings initially slowed sales but has generated multiple pilot studies that could drive rapid revenue acceleration. Despite acknowledging substantial debt and preferred stock issues, the manager sees the company avoiding bankruptcy and positioned for an inflection point. The thesis centers on pilot study success driving ARR from $13mm to $25-30mm within 12 months, generating $6mm+ FCF on a fixed cost base. Even assuming 80% dilution, the manager calculates attractive valuation metrics at 8x revenue for a cash-generating SaaS business. The "weeks not months" timeline for pilot study results suggests near-term catalysts, with potential 10-20x returns justifying the small-cap risk exception.

Pitch Summary:
Global Atomic finally slowed down mine construction and we have had a serious change in the underlying scenario for Niger. Since January, Chinese companies have been kicked out, the US has increased their presence in the country, Starlink was introduced to the country, the DFC reinitiated contact with the company, the US is pushing for integration into Africa with a peace deal with Rwanda and DRC including critical minerals, there is a huge push for bigger DFC influence, and all signs are looking towards GLO being included (and approved) on the next credit committee meeting. This would be an extreme catalyst on the stock that I believe could lead to an increase that is hard to fathom right now. They are still in talks with a JV but I believe that all signs point towards a GLO/DFC partnership with a small raise or royalty deal after CC approval.

BSD Analysis:
The manager presents a compelling geopolitical thesis for Global Atomic centered on dramatically improved conditions in Niger following Chinese company expulsions and increased US presence. The introduction of Starlink and renewed DFC (Development Finance Corporation) engagement signals stronger Western alignment in the region. The manager views potential DFC approval at the next credit committee meeting as an "extreme catalyst" that could drive substantial price appreciation. The geopolitical shift toward US-Africa integration, particularly around critical minerals, positions Global Atomic favorably for strategic partnerships. While joint venture discussions continue, the manager expects a DFC partnership structure with minimal dilution through small raises or royalty arrangements. The uranium mining assets in Niger appear increasingly valuable given Western efforts to secure alternative supply chains away from Chinese influence, creating a strategic premium for Global Atomic's assets.

Pitch Summary:
You can read more about this investment on the Rogue Funds blog here. The company released their first long term trial results in early January and showed zero safety concerns. Despite this being one of the more confident positions for us, it has been an extremely frustrating ride for the Fund and has caused a severe drag in performance that I am not proud of. The current valuation is frankly ludicrous. They delayed NDA filing to June and right after the NDA they will get the July results back, which I expect to be great. They will most likely have to push for a raise to get to PDUFA (likely Q2 of 2026 unless the FDA speeds up approval timelines). In the meantime, after the NDA I still expect a rise in the stock price as they are extremely undervalued to their market potential. After the July study results, if they turn out to be good, it will be very hard to see why they would not be an obvious take-out target. Even with a raise, I still expect the company to have 5x-8x upside from where they are today.

BSD Analysis:
The manager maintains strong conviction in Achieve Life Sciences despite significant underperformance that has dragged fund returns. The investment thesis rests on positive long-term trial results showing zero safety concerns for their smoking cessation drug cytisinicline. Key catalysts include the June NDA filing and July study results, which the manager expects to be positive. The manager views current valuation as "ludicrous" relative to market potential, suggesting significant undervaluation. Post-NDA filing should provide near-term price appreciation, while positive July results could position the company as an acquisition target. The manager acknowledges dilution risk from necessary fundraising to reach PDUFA in Q2 2026, but still projects 5x-8x upside potential. The frustration expressed suggests this position has tested the manager's patience, yet conviction remains high based on fundamental value versus market pricing.

Pitch Summary:
ASPI has begun full production for all three of their plants and the stock price has re-rated positively in response. I believe that Silicon-28 will be sold in the coming weeks, and that Ytterbium will be sold at the end of Q2 or beginning of Q3. This will drive real revenue into the company and will also most likely lead to a serious catalyst in the stock price. I expect a TerraPower deal at any moment, and I believe it is highly likely before Q2 ends. The realization of revenue this quarter combined with a TerraPower deal will most likely have extreme upwards pressure on the stock price, which has a short interest of 35%. I expect Iceland to kick off within the next 3 months and QLE spinoff to happen in late Q3 early Q4. In Q3 I expect the NECSA MOU to finalize and lead to a kickoff of the uranium pilot plant. This is a continuous stream of massive catalyst events occurring all the way through Q4. Their ability to commission Ytterbium (along with their proof via revenue) will show high viability of their ability to enrich HALEU, becoming the only viable option for HALEU for the next half decade. This is easily our biggest position at this point, and I still believe it has a ton of upside despite the strong appreciation in the price already. When revenue begins hitting this quarter, I believe the sky's the limit with this position.

BSD Analysis:
The manager presents an extremely bullish thesis on ASP Isotopes, positioning it as the fund's largest holding with significant upside potential. The investment case centers on multiple near-term catalysts including imminent Silicon-28 and Ytterbium sales, a potential TerraPower partnership, and expansion into Iceland operations. The manager emphasizes ASPI's unique positioning as the only viable HALEU enrichment option for the next five years, creating a potential monopolistic advantage in the nuclear fuel market. With 35% short interest, the stock appears positioned for a potential squeeze as revenue materializes. The continuous stream of catalysts through Q4 2025, including the NECSA MOU and uranium pilot plant, suggests sustained momentum. However, the pre-revenue nature and execution risk on multiple simultaneous projects present significant downside scenarios that the manager appears to discount.

Pitch Summary:
Modine Manufacturing Company (MOD) is an over 100-year-old thermal management company based in Racine, WI. The company started out producing heat exchangers for tractors but quickly expanded into the automotive market and became a major supplier of heat exchangers to leading car manufacturers. As demand for automobiles increased significantly throughout the 20th century, Modine expanded operations globally. However, as the automotive market matured and became more competitive, MOD's growth slowed, and the company went through numerous restructurings to take cost out of the business. The company attempted to diversify into the HVAC industry by buying Airedale in 2005 and Luvata in 2016, but management lacked a clear strategic vision, and the legacy automotive business continued to attract most of the time and resources. In December 2020, MOD's board decided new leadership was needed and hired Neil Brinker as CEO. Brinker was previously COO at Advanced Energy (AEIS) and had experience working at Idex Corporation (IEX) and Danaher (DANH) - both high performing industrials (we have been owners of AEIS and IEX and think highly of their business culture). After assessing the business, Brinker decided the company needed to move away from its legacy automotive parts businesses and shift resources into HVAC. He quickly implemented operational changes including reorganizing the business into 6 business units, hiring new general managers, implementing 80/20, and divesting low growth, low-margin automotive businesses. The changes yielded quick results with Adjusted EBITDA rising roughly 80% over three years. Following the reorganization, the business reports in two segments: Climate Solutions (~58% of EBITDA) and Performance Technologies (~42% of EBITDA). The climate solutions segment designs and manufactures HVAC products such as coils, commercial indoor air quality units, and data center air handlers, chillers, and CDUs. The performance technologies segment includes legacy heat exchanger products for automotive, commercial vehicle, and off-highway applications, as well as smaller, but secularly growing heat exchangers for commercial generators and public transportation electric vehicles. We attended the company's investor day in late 2024 and were impressed by both the management team's strength and the business outlook, which included a three-year target of nearly doubling Adjusted EBITDA. However, the share price at the time did not meet our return hurdle, so we stayed disciplined. In January, the launch of the DeepSeek R-1 LLM model in China raised concerns about the data center infrastructure required to train AI models, causing a sharp drop in MOD's stock price. We reassessed the business and determined that even under a scenario of reduced data center infrastructure demand, MOD met our return hurdle, and we purchased shares accordingly.

BSD Analysis:
SouthernSun's investment in MOD represents a successful turnaround story under CEO Neil Brinker's leadership since December 2020. Brinker's pedigree from high-performing industrials Advanced Energy, Idex, and Danaher provided the operational expertise needed for MOD's transformation. His strategic pivot from legacy automotive to higher-growth HVAC markets drove impressive results, with Adjusted EBITDA rising 80% over three years through business reorganization, management changes, and 80/20 implementation. The current business structure focuses on Climate Solutions (58% of EBITDA) including data center cooling equipment and Performance Technologies (42% of EBITDA) covering automotive and emerging electric vehicle applications. Management's ambitious three-year target of nearly doubling EBITDA demonstrates confidence in the transformation's sustainability. The fund's disciplined approach was evident in waiting for an attractive entry point, which materialized when AI infrastructure concerns from DeepSeek's launch created temporary stock weakness. Even under conservative data center demand scenarios, MOD's diversified thermal management portfolio and operational improvements provide compelling risk-adjusted returns at current valuations.

Pitch Summary:
Extreme Networks, Inc. (EXTR) was a new addition to the Small Cap strategy in the first quarter of 2025. Extreme Networks is one of the top 3 players in the networking industry. While the industry has been dominated by Cisco and Hewlett Packard (HPE), who together have >60% share, both Cisco and HPE have developed their product/architecture with "data-centers" in mind. However, EXTR has taken a different tact and developed their architecture with a distributed environment as their target market. We believe EXTR has the opportunity to grow revenues in the low double-digit range and disrupt the industry due to product, distribution, and pricing advantages. Extreme Networks believes that they have the best fabric-technology product for distributed networks, and we believe that they are well positioned for growth (especially in some specific market verticals) as customers adopt WiFi 6E and WiFi 7 which add capacity, security and cloud-based services. We believe EXTR offers the best technology for college campuses, stadiums, hospitals, trade fairs, and many distributed operational environments such as factories and distribution centers operating a plethora of Internet of Things (IoT) devices related to automation and shop floor applications. EXTR's opportunity for growth may also come due to Cisco's and HP's reputably poor customer service, and because both of the large players are currently distracted by the integration of large acquisitions. One of EXTR's growth strategies is to dis-aggregate hardware sales from service and support relationships. EXTR is offering some customers the opportunity to go straight to the manufacturer of network equipment without taking margin for themselves. This can represent big savings for the customer, and EXTR's end-game is to win the service and support business which has high margins and recurring revenues. It is estimated that Cisco and HP earn approximately 60% margins on hardware sales, thus creating an opportunity for EXTR to disrupt the industry and offer attractive pricing to customers along with superior customer service. One of EXTR's hallmarks is that they are easy to do business with – especially when compared to Cisco. Many small to mid-size companies outsource their IT services to Managed Service Providers (MSPs). If the MSP is using Cisco products for their customers, the MSP has a complex job of keeping up with Cisco licenses on every piece of equipment, and if the MSP loses a customer, they are still obligated to pay support for that equipment to Cisco. EXTR makes this process much easier and much less risky for MSPs, and EXTR believes that this important feature of the relationship will allow them to grow revenues in this channel. Over the past few quarters, EXTR has won new business with Kroger, Washington University in St. Louis, the University of Pennsylvania Medical system, John Deere, the Dubai Convention Center, the Minnesota Vikings, and the Bank of Indonesia among others. We will continue to monitor their wins (and losses) in each of the verticals that are important to their success. EXTR has consistently generated cash from operations, and they have a small amount of net debt ($38 million) as of the end of 2024. We believe that the company can grow the top line in the low double-digits and improve operating margins as they increase the mix of cloud-based, recurring revenues with higher margins.

BSD Analysis:
SouthernSun initiated a position in EXTR based on its differentiated positioning as a top-three networking player focused on distributed environments rather than data centers like dominant players Cisco and HPE. The company's fabric-technology architecture is optimized for distributed networks, positioning it well for WiFi 6E/7 adoption across verticals like campuses, stadiums, hospitals, and IoT-heavy industrial environments. EXTR's disruptive strategy includes disaggregating hardware from high-margin service relationships, leveraging Cisco and HPE's estimated 60% hardware margins to offer competitive pricing while capturing recurring service revenues. The company's ease of doing business, particularly with Managed Service Providers, contrasts favorably with Cisco's complex licensing requirements and creates a competitive moat. Recent customer wins including Kroger, Washington University, University of Pennsylvania Medical, John Deere, and others validate the market traction across key verticals. EXTR maintains a strong balance sheet with consistent cash generation and minimal net debt of $38 million. The fund expects low double-digit revenue growth with margin expansion as the company increases its mix of higher-margin cloud-based recurring revenues.

Pitch Summary:
Live Oak Bancshares, Inc. (LOB) was a top detractor in the first quarter in the Small Cap strategy. Live Oak continues to execute well on its unique approach of lending to small businesses as evidenced by the reported $1.4 billion of loan originations in the fourth quarter, which was the second highest quarter of originations in the company's history. Management also reported continued strength in the loan pipeline and positive small business sentiment based on both government surveys as well as Live Oak's own internal surveys. The stock has been under pressure primarily due to the elevated provision for loan losses that the company has recorded in recent quarters as well as the macro environment and increased probability for a recession in the US. Much of the provision expense relates to loans originated between 2020 and 2022 when interest rates were at historically low levels. The vast majority of Live Oak's loans are floating rate, and borrowers have had to absorb the rapid increase in interest rates that occurred primarily during 2023. Approximately 70% of defaults were loans that had interest rate increases of 4% or more since origination. While Live Oak may continue to record elevated provision for loan losses for a few more quarters, we believe that recent trends are part of a normal credit cycle and not indicative of lower credit standards. We believe Live Oak's differentiated model of leveraging leading edge technology to deliver superior service to small business borrowers will allow it to create significant value to shareholders over the long-term.

BSD Analysis:
SouthernSun maintains a bullish long-term view on LOB despite near-term credit pressures, emphasizing the bank's unique and differentiated small business lending model. The company continues executing well with $1.4 billion in Q4 loan originations representing the second-highest quarter in company history, supported by strong pipeline and positive small business sentiment. Current stock weakness stems from elevated loan loss provisions rather than fundamental business deterioration. The credit issues are largely attributable to loans originated during 2020-2022's historically low rate environment, with floating-rate borrowers absorbing rapid rate increases in 2023. Notably, 70% of defaults correlate with loans experiencing 4%+ rate increases since origination, suggesting rate sensitivity rather than credit quality issues. The fund views current provision trends as part of a normal credit cycle rather than indicative of deteriorating underwriting standards. LOB's competitive advantage lies in its technology-driven platform that delivers superior service to small business borrowers, creating sustainable long-term value creation potential for shareholders.

Pitch Summary:
Boot Barn Holdings, Inc. (BOOT) was the top detractor in the Small Cap strategy after a very strong performance in 2024. In our opinion, BOOT's results have been excellent when looking back over longer periods of time. Over the last 5 years, their EBITDA/share has grown at a 23% CAGR. In our opinion, the stock has been hit hard recently by concerns about the health of the consumer and concerns about rising costs due to tariffs on imports. The company imports approximately 30% of their products from China; however, management expects to be able to offset the impact of tariffs with pricing, and they believe that their competitors will face similar challenges. As we look forward, we believe BOOT has a strong market position, robust growth plans for new stores, a track record of improving margins, and a clean balance sheet.

BSD Analysis:
SouthernSun maintains conviction in BOOT despite recent underperformance, emphasizing the company's exceptional long-term track record with EBITDA per share growing at a 23% compound rate over five years. The recent stock decline reflects market concerns about consumer health and tariff impacts rather than fundamental deterioration. While BOOT imports approximately 30% of products from China, management expects to offset tariff costs through pricing actions, with competitors facing similar challenges creating a level playing field. The investment thesis centers on BOOT's strong competitive market position in the western and work wear retail segment. The company maintains robust expansion plans for new store openings, demonstrating confidence in its growth trajectory. BOOT's track record of margin improvement reflects operational excellence and pricing power. The clean balance sheet provides financial flexibility to navigate near-term headwinds while continuing strategic investments in growth initiatives.

Pitch Summary:
The Timken Company (TKR), a global leader in engineered bearings and industrial motion products, was a top contributor in the first quarter. Organic revenue declined 3%, largely due to softer demand in Europe, and adjusted EBITDA fell 9% — a slightly better result than expected, aided by cost-saving initiatives. Demand for TKR's wind turbine bearings in China has finally stabilized and changes made to the product to lower cost have helped regain market share and increase profitability. Management remains cautious on the 2025 demand outlook and is proactively targeting approximately $75 million in cost reductions through workforce adjustments and accelerated footprint optimization. Separately, the company announced that its CEO, who had been in the role for just six months, would be stepping down. Following conversations with the company, we believe the decision was driven by personal reasons rather than performance or strategic misalignment. The former CEO, Rich Kyle, has returned as interim CEO while the board conducts a search for a permanent successor. While near-term challenges persist—including softness in certain end markets, tariff headwinds, and a leadership transition, we believe TKR remains a compelling long-term investment. The company's diversified portfolio of niche, market-leading engineered bearings and industrial motion products, solid financial flexibility (net debt/EBITDA of 2x), and attractive valuation at a low double-digit multiple of EPS support our positive outlook.

BSD Analysis:
SouthernSun maintains a bullish stance on TKR despite near-term headwinds, viewing it as a compelling long-term investment opportunity. The company demonstrated resilience with better-than-expected EBITDA performance aided by proactive cost management initiatives. TKR's wind turbine bearing business in China has stabilized, with product cost reductions helping regain market share and improve profitability. Management is taking decisive action with $75 million in targeted cost reductions through workforce optimization and footprint rationalization. While the CEO transition creates temporary uncertainty, the fund believes it was driven by personal rather than performance issues, with experienced leadership returning as interim CEO. The investment thesis rests on TKR's diversified portfolio of niche, market-leading engineered bearings and industrial motion products. The company maintains solid financial flexibility with a conservative 2x net debt-to-EBITDA ratio and trades at an attractive low double-digit EPS multiple, providing compelling risk-adjusted returns despite current market softness.

Pitch Summary:
Enerpac Tool Group Corporation (EPAC) was the top contributor in the Small Cap strategy. This management team, led by CEO Paul Sternlieb, has done an excellent job improving profitability since he took the position 4 years ago. Over the past three years, EBITDA per share has grown at a 24% compounded rate. Leadership has begun to put more focus on commercial effectiveness and excellence, and they are beginning to see results, evidenced by recent organic growth. Also, many of EPAC's products are used in infrastructure construction, and they are finally beginning to see meaningful project activity in U.S. infrastructure which could help their sales in the coming quarters. In our opinion, the keys to success going forward are continued commercial and operational execution and how they will use the cash generated from this high margin business. The company continues to evaluate bolt-on M&A candidates; but, in the absence of good M&A targets, we will look for continued share buybacks.

BSD Analysis:
SouthernSun highlights EPAC as a top performer driven by strong management execution under CEO Paul Sternlieb over the past four years. The company has demonstrated impressive profitability improvement with EBITDA per share growing at a 24% compound rate over three years. Management's focus on commercial effectiveness is yielding tangible results through organic growth acceleration. The investment thesis centers on EPAC's exposure to U.S. infrastructure spending, which is finally translating into meaningful project activity that should benefit sales in coming quarters. The company operates a high-margin business model that generates substantial cash flow. Management maintains optionality for value creation through bolt-on acquisitions while returning capital to shareholders via buybacks when attractive M&A targets are unavailable. The fund views continued operational execution and disciplined capital allocation as key success factors going forward.

Pitch Summary:
Modine Manufacturing Company (MOD) is an over 100-year-old thermal management company based in Racine, WI. The company started out producing heat exchangers for tractors but quickly expanded into the automotive market and became a major supplier of heat exchangers to leading car manufacturers. As demand for automobiles increased significantly throughout the 20th century, Modine expanded operations globally. However, as the automotive market matured and became more competitive, MOD's growth slowed, and the company went through numerous restructurings to take cost out of the business. The company attempted to diversify into the HVAC industry by buying Airedale in 2005 and Luvata in 2016, but management lacked a clear strategic vision, and the legacy automotive business continued to attract most of the time and resources. In December 2020, MOD's board decided new leadership was needed and hired Neil Brinker as CEO. Brinker was previously COO at Advanced Energy (AEIS) and had experience working at Idex Corporation (IEX) and Danaher (DANH) - both high performing industrials (we have been owners of AEIS and IEX and think highly of their business culture). After assessing the business, Brinker decided the company needed to move away from its legacy automotive parts businesses and shift resources into HVAC. He quickly implemented operational changes including reorganizing the business into 6 business units, hiring new general managers, implementing 80/20, and divesting low growth, low-margin automotive businesses. The changes yielded quick results with Adjusted EBITDA rising roughly 80% over three years. Following the reorganization, the business reports in two segments: Climate Solutions (~58% of EBITDA) and Performance Technologies (~42% of EBITDA). The climate solutions segment designs and manufactures HVAC products such as coils, commercial indoor air quality units, and data center air handlers, chillers, and CDUs. The performance technologies segment includes legacy heat exchanger products for automotive, commercial vehicle, and off-highway applications, as well as smaller, but secularly growing heat exchangers for commercial generators and public transportation electric vehicles. We attended the company's investor day in late 2024 and were impressed by both the management team's strength and the business outlook, which included a three-year target of nearly doubling Adjusted EBITDA. However, the share price at the time did not meet our return hurdle, so we stayed disciplined. In January, the launch of the DeepSeek R-1 LLM model in China raised concerns about the data center infrastructure required to train AI models, causing a sharp drop in MOD's stock price. We reassessed the business and determined that even under a scenario of reduced data center infrastructure demand, MOD met our return hurdle, and we purchased shares accordingly.

BSD Analysis:
SouthernSun initiated a position in Modine following a successful turnaround under CEO Neil Brinker's leadership since December 2020. Brinker's pedigree from Advanced Energy, Idex, and Danaher brings proven operational excellence to the transformation. The strategic pivot from legacy automotive to higher-growth HVAC markets has delivered impressive results, with Adjusted EBITDA rising approximately 80% over three years. The reorganization into Climate Solutions (58% of EBITDA) and Performance Technologies (42% of EBITDA) provides better focus and accountability. Climate Solutions benefits from secular data center growth trends, while Performance Technologies captures electric vehicle and commercial generator demand. Management's three-year target of nearly doubling EBITDA demonstrates confidence in the strategic direction. The DeepSeek-driven stock decline created an attractive entry point, with the investment thesis remaining intact even under conservative data center demand scenarios. Modine's thermal management expertise positions it well for multiple growth vectors in an increasingly electrified economy.

Pitch Summary:
We exited our position in Polaris Industries, Inc. (PII) in the first quarter. Outsized tariff risk was the key reason for our exit. To put it in perspective, in 2024 Polaris generated $506 million in EBITDA; they currently manufacture approximately $2 billion of product in Mexico with additional products and parts coming from Asia/China. Although we suspect they will work hard to minimize the impacts and move production around, we cannot clearly quantify the impact at this point. Polaris has struggled over the past few years due to slower demand exacerbated by high levels of channel inventory. Consumers have been reluctant to make big-ticket discretionary purchases after the impact that inflation has had on their discretionary income and in this environment of higher interest rates. With the magnitude of PII's tariff risk, a balance sheet with less flexibility than we would like, and a weak outlook for consumers, we chose to exit the position and allocate cash to new and existing holdings in the portfolio.

BSD Analysis:
SouthernSun executed a full exit from Polaris due to multiple converging headwinds that created an unfavorable risk-reward profile. The primary concern centers on massive tariff exposure, with approximately $2 billion in Mexican production plus additional Asian/Chinese sourcing against only $506 million in 2024 EBITDA. This creates potentially devastating margin compression that management cannot easily mitigate through production relocation in the near term. The company already faces secular challenges from weakened consumer demand for big-ticket discretionary purchases amid inflation and higher interest rates. Elevated channel inventory levels compound the demand weakness, suggesting a prolonged recovery timeline. Polaris's balance sheet lacks the flexibility needed to navigate this challenging environment effectively. The combination of tariff risk, consumer weakness, inventory overhang, and financial constraints created an untenable investment thesis, prompting the complete position exit in favor of better risk-adjusted opportunities.

Pitch Summary:
U.S. Physical Therapy, Inc. (USPH) was a top detractor in the SMID Cap strategy. Many things are going well at USPH; they have grown the top line at a 10% CAGR for the past 5 years, seen continued strong demand and improving productivity at their clinics, and the Industrial Injury Prevention business has shown good organic growth. However, in our opinion, they have two challenges: first, wages for front office and for clinical employees continue to rise; second, even though they have had good results in their negotiations with private payers (i.e. insurance companies), Medicare had yet another series of reimbursement cuts this year, and Medicare is about 30% of their business. As a result, EBITDA has been flat to declining (slightly) over the past 5 years. 2025 is the last year of mandated Medicare reimbursement cuts, and we believe management can navigate the rate environment as we move forward. In addition, we can see that the challenges in the market have adversely affected competition, and we believe USPH is in a position to grow it's moat in this current environment.

BSD Analysis:
SouthernSun acknowledges near-term headwinds for U.S. Physical Therapy while maintaining a constructive long-term view based on competitive positioning. The company has demonstrated solid operational execution with 10% revenue CAGR over five years, strong clinic demand, and improving productivity metrics. The Industrial Injury Prevention segment provides additional growth diversification with good organic expansion. Current margin pressure stems from wage inflation and Medicare reimbursement cuts, with Medicare representing 30% of the business. However, 2025 marks the final year of mandated Medicare cuts, potentially providing relief going forward. Management's success in private payer negotiations suggests pricing power with commercial insurers. The challenging reimbursement environment is creating competitive disruption, positioning USPH to expand its market moat as weaker competitors struggle. The company's scale advantages and operational expertise should enable market share gains in a consolidating industry.

Pitch Summary:
Boot Barn Holdings, Inc. (BOOT) was the top detractor in the SMID Cap strategy after a very strong performance in 2024. In our opinion, BOOT's results have been excellent when looking back over longer periods of time. Over the last 5 years, their EBITDA/share has grown at a 23% CAGR. In our opinion, the stock has been hit hard recently by concerns about the health of the consumer and concerns about rising costs due to tariffs on imports. The company imports approximately 30% of their products from China; however, management expects to be able to offset the impact of tariffs with pricing, and they believe that their competitors will face similar challenges. As we look forward, we believe BOOT has a strong market position, robust growth plans for new stores, a track record of improving margins, and a clean balance sheet.

BSD Analysis:
Despite recent underperformance, SouthernSun maintains conviction in Boot Barn's long-term value proposition based on exceptional historical execution. The company has delivered impressive 23% EBITDA per share CAGR over five years, demonstrating strong operational leverage and market share gains. Current weakness appears driven by macro concerns around consumer health and tariff impacts rather than company-specific fundamentals. Management's expectation to offset tariff costs through pricing appears reasonable given Boot Barn's strong brand positioning and the likelihood that competitors face similar pressures. The company's expansion strategy remains intact with robust new store growth plans supported by a clean balance sheet. Boot Barn's track record of margin improvement suggests management can navigate the current challenging environment. The western lifestyle retail niche provides defensible market positioning with limited direct competition at scale.