Investment Pitches

Pitch Summary:
Halliburton detracted from performance in the third quarter, as oil prices pulled back on increasing concerns about a slowdown in the U.S. and the global economy and continued headwinds from lower-than-expected growth in the Chinese economy. Halliburton reported second-quarter earnings that indicated a weakening North American market for its services, and this was reflected in the company's guide for the second half of the year, which showed the slower North American market continuing through the end of the year. We believe 2024 will mark the trough for Halliburton's North American market and it should benefit from improving demand from a strengthening natural-gas price and newly consolidated customers seeking to use the company's high-quality product offerings. We are also anticipating better-than-expected growth from its international markets, including offshore. We believe that the current valuation continues to reflect a significantly more negative outlook for the North American market than we view for 2025.

BSD Analysis:
Despite recent underperformance, the manager maintains strong conviction in Halliburton's cyclical recovery thesis. The fund views 2024 as a trough year for North American oilfield services, positioning for meaningful improvement in 2025 as natural gas prices strengthen and industry consolidation benefits market leaders. Halliburton's high-quality service offerings should capture disproportionate share as consolidated customers prioritize reliable partners over cost alone. International markets, particularly offshore drilling, provide additional growth drivers independent of North American land drilling activity. The manager believes current valuation reflects excessive pessimism about North American market recovery timing and magnitude. Halliburton's technology leadership in completion and production services positions the company well for the next upcycle in drilling activity. The fund likely appreciates the company's operational leverage to commodity price recovery and its ability to generate strong free cash flow during cyclical upturns. Current market conditions create an attractive entry point for a quality operator in a cyclical industry.

Pitch Summary:
Intercontinental Exchange contributed to fund performance in the third quarter, driven by continued strength in the company's Exchanges segment and expectations the Mortgage Technology segment's revenues have troughed ahead of an eventual recovery in U.S. housing market activity. Exchanges' revenues continue to be driven by growth in energy and interest rate futures trading volumes, with energy trading activity expected to remain elevated, primarily bolstered by increasing data center-driven electricity demand.

BSD Analysis:
The manager highlights ICE's diversified revenue streams providing both current strength and future recovery potential. The Exchanges segment demonstrates resilient growth driven by energy and interest rate futures trading, benefiting from market volatility and structural demand increases. Energy trading volumes are particularly compelling, supported by data center electricity demand creating sustained trading activity beyond typical commodity cycles. The Mortgage Technology segment appears to have reached a cyclical trough, positioning for recovery as housing market conditions improve and mortgage origination volumes normalize. ICE's market-leading positions in both energy derivatives and mortgage technology provide defensive characteristics with upside leverage to market recovery. The company's fee-based revenue model generates predictable cash flows while benefiting from increased market activity during volatile periods. The fund likely appreciates ICE's ability to compound returns through both organic growth and strategic acquisitions in adjacent financial technology markets.

Pitch Summary:
Trane Technologies contributed to performance in the third quarter. After reporting second-quarter earnings and revenue that exceeded consensus estimates in early August, the company's management appeared at multiple investor events in September where they spoke about opportunities for the HVAC market. There is strength in the commercial business related to improving energy-efficiency demand broadly and additional cooling opportunities in data centers. The residential business is beginning to recover after a period of weakness.

BSD Analysis:
The manager expresses strong confidence in Trane Technologies' positioning across multiple HVAC market segments. The company's recent earnings beat demonstrates solid execution, while management's investor event commentary highlights compelling growth drivers. The commercial HVAC business benefits from two key secular trends: increasing energy efficiency requirements and data center cooling demand driven by AI infrastructure buildout. These trends provide sustainable growth tailwinds beyond typical cyclical HVAC patterns. The residential recovery adds another positive catalyst as housing market conditions normalize. Trane's technology leadership in energy-efficient systems positions the company well for regulatory-driven replacement cycles and new construction standards. The fund likely views current valuation as attractive given the multiple growth drivers converging simultaneously. Data center cooling represents a particularly high-margin opportunity that should drive both revenue growth and margin expansion over the coming years.

Pitch Summary:
Applied Materials detracted from performance in the third quarter as the stock was part of the general investor pullback in AI-related semiconductor names due to concerns about overall AI market growth in the near-term and profitability of the massive capex investments being made in AI infrastructure. The company delivered an inline quarter with solid execution, and it continues to benefit from a secular shift to highly complex semiconductors design and manufacturing. But there continue to be pockets of weakness and concerns that include weaker NAND manufacturing and potential for further trade restrictions on Chinese equipment purchases

BSD Analysis:
The manager maintains a constructive view on Applied Materials despite near-term headwinds affecting AI semiconductor equipment stocks. The fund acknowledges the company's solid operational execution and positioning to benefit from the secular trend toward more complex semiconductor manufacturing processes. However, the investment faces challenges from cyclical weakness in NAND memory manufacturing and geopolitical risks related to China trade restrictions. The manager appears to view current concerns as temporary, focusing on the company's long-term structural advantages in advanced semiconductor equipment. The position likely reflects confidence in Applied Materials' technology leadership and the eventual recovery in semiconductor capital expenditure cycles. The fund's retention of the position suggests belief that current valuation reflects excessive pessimism about AI infrastructure spending sustainability. Applied Materials' exposure to leading-edge semiconductor manufacturing should benefit from continued technology node advancement and increasing chip complexity requirements.

Pitch Summary:
In Q3, we added a position in Nestlé, a Swiss based packaged food company with strong market shares in baby food, coffee, chocolate, beverages, prepared dishes, and pet food. The company's major brands include Nestlé, Kit Kat, Toll House, Stouffer's, Gerber, Haagen Daz, and Perrier. Nestlé has a long history of earnings growth and has increased its dividend each year for the past 30 years. The share price declined from $140 eighteen months ago to below $100 when we made our investment. We believe the reasons for the decline are temporary. The company missed sales and earnings estimates in the past year as food inflation declined, and costs continued to rise. The company recently replaced its CEO from someone focused on strategy to an executive with product development and operations expertise. At its current price, the shares are trading at the low end of their historical valuation.

BSD Analysis:
Matrix initiated a position in Nestlé following a significant 29% decline from recent highs, viewing the selloff as a temporary setback rather than fundamental deterioration. The manager identifies the core issue as margin pressure from declining food inflation while costs remained elevated, creating a temporary earnings headwind. The recent CEO transition from a strategy-focused leader to an operations expert signals management's commitment to addressing operational efficiency and product innovation. Nestlé's 30-year dividend growth streak demonstrates exceptional capital allocation discipline and cash generation capabilities. The company's diversified portfolio of leading global brands across multiple food categories provides defensive characteristics and pricing power. Trading at historical valuation lows creates an attractive entry point for a quality consumer staples company with strong market positions. Matrix's contrarian approach capitalizes on temporary operational challenges while the underlying brand strength and market leadership remain intact.

Pitch Summary:
In Q3, we added to two Healthcare positions, Medtronic (MDT) and Becton Dickinson (BD). Both companies are very attractive in our valuation analysis. BD is a very well-run company that has not participated in the market's rally this year. The company's most recent quarterly results were ahead of expectations and during the quarter they announced an acquisition in critical care that they expect to be immediately accretive to earnings.

BSD Analysis:
Matrix added to Becton Dickinson based on compelling valuation and strong operational execution despite the stock's underperformance relative to the broader market rally. The manager emphasizes BD's quality management team and recent earnings beat, indicating solid fundamental performance that hasn't been reflected in the stock price. The company's strategic acquisition in critical care demonstrates proactive capital allocation focused on immediately accretive opportunities. This acquisition strategy suggests management's confidence in generating near-term value while expanding BD's presence in high-growth healthcare segments. The disconnect between strong operational results and stock performance creates an attractive entry point for value-oriented investors. BD's diversified medical technology platform across medical devices, life sciences, and interventional segments provides multiple revenue streams and growth opportunities. Matrix's conviction in adding to the position reflects confidence in the company's ability to deliver sustained earnings growth.

Pitch Summary:
In Q3, we added to two Healthcare positions, Medtronic (MDT) and Becton Dickinson (BD). Both companies are very attractive in our valuation analysis. We started the LCV position in MDT in the second quarter and added to it as more cash became available. The company's business results have improved this year as the number of medical procedures normalized from their decline during the pandemic.

BSD Analysis:
Matrix initiated and subsequently added to their Medtronic position based on attractive valuation metrics and improving business fundamentals. The manager highlights that medical procedure volumes have normalized following pandemic-related declines, which directly benefits Medtronic's core medical device business. This normalization trend represents a key catalyst for earnings recovery as healthcare utilization returns to pre-pandemic levels. The fund's decision to add to the position as cash became available suggests strong conviction in the investment thesis. Medtronic's diversified medical technology portfolio across cardiovascular, surgical, neuroscience, and diabetes segments provides multiple growth drivers. The company's established market position and innovation pipeline support long-term competitive advantages. Matrix's valuation-focused approach aligns well with Medtronic's current trading levels relative to normalized earnings potential.

Pitch Summary:
Similar to GOOG, PINS was a top detractor in the third quarter despite reporting solid second quarter results and giving guidance that, it seemed to us, fell within the growth framework issued at the September 2023 Investor Day. Specifically, second quarter Monthly Active Users (MAUs) were 522 million, up 12% year-over-year and 2 million better than estimates, Revenue was $854 million, $5 million better than estimates, and EBITDA was $180 million, $4 million better than estimates. Revenue guidance for the third quarter of $885-900 million (+17% growth) was slightly below expectations and seemed to be what drove the stock down despite being squarely within the company's 3-5-year guidance of mid-to high teens percentage revenue growth. We believe Pinterest to be an extremely well-positioned internet advertising platform. Users are increasingly coming to Pinterest to get inspiration for their home, their style, or upcoming travel, which often means they are actively looking for products and services to buy. The company currently has 522 million MAU's, 2/3 of whom are female (who continue to control the lion's share of household purchasing budgets), which positions the company well to continue to take share of future ad dollar allocations. Continued growth of MAU's and ARPU (grew 8% in the quarter), and the ramp of third-party relationships with Amazon and Google, should return the company to revenue growth rates approaching 20% for the coming years. In addition, strong cost controls should drive EBITDA margins back to the 2021 peak (40% v the current 21%), leading to strong growth in earnings and cash flow in the years to come.

BSD Analysis:
The manager views Pinterest's Q3 weakness as a temporary setback despite solid Q2 fundamentals that beat expectations across key metrics. The investment thesis centers on Pinterest's unique positioning as a high-intent advertising platform where users actively seek product inspiration for purchases. With 522 million MAUs growing 12% year-over-year and 2/3 female users controlling household spending decisions, Pinterest offers advertisers valuable demographic targeting. The manager emphasizes the platform's commercial intent advantage over traditional social media, as users come for shopping inspiration rather than entertainment. Strategic partnerships with Amazon and Google should accelerate monetization and drive revenue growth toward 20%. The path to margin expansion from current 21% EBITDA margins back to 2021 peaks of 40% through cost discipline creates significant earnings leverage. Despite Q3 guidance appearing conservative, the manager believes Pinterest remains on track for mid-to-high teens growth as outlined in their long-term framework.

Pitch Summary:
Google was our top detractor in the third quarter despite reporting second quarter results that were generally in line with expectations. The company reported slightly better revenue growth in Search, which grew 14% and continues to be resilient in the face of AI challengers, and Google Cloud, which grew 29% in the quarter. Service operating income margins of 40% and Cloud operating income margins of 11% were also both ahead of investors' expectations as management's cost-efficiency efforts drove operating leverage. YouTube revenue growth was slightly below expectations (+13% v. +16%) driven by tougher year-over-year comparisons and some general weakness in the Brand Advertising vertical. Finally, Cap Ex in the quarter of $13.2 billion was more than expected and likely the driver of the weakness in the stock as investors grapple with how much infrastructure investment will be required to achieve Google's AI goals. With its high margin business model (44% EBITDA margins last quarter), continued strength across its core Search and YouTube franchises, and continued growth and expanding profitability in its still relatively small Cloud business, we continue to view Alphabet as among the best-positioned secular growth franchises in the market. Additionally, GOOG shares trade at a compelling 19.5x the Street's 2025 EPS estimate, a discount to the Russell 1000 Growth Index.

BSD Analysis:
Despite being a top detractor in Q3, the manager maintains conviction in Alphabet's long-term prospects, viewing the weakness as a buying opportunity. The Q2 results demonstrated resilience with 14% Search growth despite AI competition concerns and 29% Cloud growth with expanding margins. The manager emphasizes Alphabet's exceptional profitability with 44% EBITDA margins and strong competitive moats in Search and YouTube. While elevated $13.2B capex raised investor concerns about AI infrastructure costs, the manager views this as necessary investment for future growth. Google Cloud's 11% operating margins and continued expansion represent significant upside as the business scales. The 19.5x 2025 P/E multiple appears attractive relative to growth prospects and represents a discount to growth indices. The combination of dominant market positions, high margins, and reasonable valuation creates compelling risk-adjusted returns despite near-term AI investment headwinds.

Pitch Summary:
Alternative asset manager Blackstone was a top contributor in the third quarter following a relatively weak second quarter earnings report but accompanied by an optimistic outlook. BX delivered Distributable Earnings (DE) of $0.96 per share, dividends of $0.82 per share, and Fee Related Earnings (FRE) of $0.91 per share, all slightly below investor expectations of $0.98, $0.83, and $0.90 respectively. Fee-related performance revenues (FRPR) of $177mn were also below investor expectations of $221 million. Management anticipates a material step-up in Q4 FRE, driven by Corporate PE and Energy flagships. In terms of net realizations, management expects a lag between improving markets and a pickup in these revenues. Whatever the near-term brings for realizations, we continue to view Blackstone as offering an attractive risk/reward profile given its below-market valuation and consistent double-digit AUM growth driving recurring fee revenue growth, plus strong and consistent investment performance. Most of Blackstone's capital is long-dated or even permanent, most of its fees (which are high-margin and recurring) are not sensitive to market fluctuations, and the company has billions of dollars of uninvested capital available to put to work. BX's recurring fees provide a base of consistent earnings, while its opportunistic investing and harvesting add the ability to maximize investment returns, providing a strong foundation for long-term stock performance. Additionally, BX provides a 2% dividend yield at the current share price.

BSD Analysis:
The manager presents a contrarian bull case for Blackstone despite Q2 results that slightly missed expectations across key metrics. The investment thesis centers on the company's attractive risk/reward profile driven by consistent double-digit AUM growth and recurring fee revenue streams. The manager emphasizes Blackstone's structural advantages including long-dated or permanent capital, high-margin recurring fees insensitive to market fluctuations, and billions in uninvested capital for deployment. Management's guidance for Q4 FRE improvement driven by Corporate PE and Energy flagships provides near-term catalysts. The combination of below-market valuation, strong investment performance track record, and defensive business model creates compelling upside. The 2% dividend yield adds income while waiting for realization revenues to recover. Despite near-term headwinds in performance fees, the manager views the secular growth in alternative assets and Blackstone's market leadership as sustainable competitive advantages.

Pitch Summary:
Meta was a top performer in the third quarter after reporting a strong second quarter, including revenue of $39 billion (+22% y/y) and EPS of $5.16 (+73% y/y), both ahead of consensus expectations. Better than expected advertising revenue was driven by strength in key verticals including E-Commerce, Gaming and Entertainment, and Media. The company gave revenue guidance for Q3 that was ahead of investor expectations, driven by continued growth from Reels and Messaging (WhatsApp US users reached 100m+). META owns multiple social media platforms, each with more than one billion users, has an 81% gross margin, and generated $44 billion of FCF in 2023. Both its Facebook and its Instagram franchises have more than 2 billion Daily Active Users and generate the bulk of the company's revenue. Recently, the company's short form video offering, Reels, and public text-sharing app, Threads, achieved mass user engagement and growing advertiser adoption, which have helped return the company to strong revenue and free cash flow growth. Even after this year's 62% stock price appreciation, META shares trade at 23.5x Wall Street's consensus estimates for 2025 EPS, estimates that we think could prove to be too low.

BSD Analysis:
The manager maintains a bullish stance on Meta despite significant year-to-date gains, citing exceptional Q2 results with 22% revenue growth and 73% EPS growth that beat expectations. The investment thesis rests on Meta's dominant social media ecosystem with multiple platforms exceeding 1 billion users each, generating substantial advertising revenue with 81% gross margins. The manager emphasizes the successful monetization of newer products like Reels and Threads, which are driving incremental growth beyond the core Facebook and Instagram platforms. With $44 billion in 2023 free cash flow and WhatsApp reaching 100 million US users, Meta demonstrates strong execution across its portfolio. The 23.5x 2025 P/E multiple appears reasonable given the growth trajectory and margin profile. The manager believes consensus estimates may be conservative, suggesting upside potential despite the stock's 62% appreciation.

Pitch Summary:
Shopify was our biggest contributor in the third quarter following a strong second quarter earnings report that included better than expected revenue growth and substantial margin expansion. Gross merchandise value (the value of all items sold on the platform) growth of 22% was three percentage points above investor estimates, revenue of $2.0 billion was $50 million better and free cash flow of $333 million was $80 million better. A combination of new merchants to the company's platform, increased adoption of SHOP's offerings by existing merchants, and e-commerce market share gains are driving this revenue growth and profitability. Last year, 10% of US retail e-commerce sales flowed through SHOP, second only to Amazon, and the company is still enjoying significant tailwinds as retail merchants of all sizes adopt SHOP's software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services, such as its digital wallet Shop Pay, should continue to drive revenue growth of more than 20% per year over the next several years, accompanied by re-acceleration of operating margin growth and FCF generation.

BSD Analysis:
The manager presents a compelling bull case for Shopify based on strong Q2 2024 results that exceeded expectations across key metrics. The 22% GMV growth, $2.0B revenue (+$50M vs estimates), and $333M free cash flow (+$80M vs estimates) demonstrate robust execution. The manager highlights Shopify's dominant market position, capturing 10% of US e-commerce sales behind only Amazon, with significant runway for growth as merchants adopt their comprehensive software suite across multiple sales channels. The thesis centers on sustained 20%+ revenue growth driven by e-commerce expansion, new product development like Shop Pay, and margin expansion. The combination of market share gains, platform adoption, and operating leverage creates a multi-year growth trajectory. At current levels, the stock appears well-positioned to benefit from the secular shift to e-commerce and Shopify's expanding ecosystem of merchant services.

Pitch Summary:
Alphabet's Google (GOOGL), the largest media company in the world, generates nearly twice the ad revenue of the second-largest media company (Facebook). Alphabet reported mixed Q2 earnings results, with capital expenditures coming in above estimates. The Company is also facing increased regulatory scrutiny. Shares trade at an attractive valuation despite healthy growth potential, an overcapitalized balance sheet, and significant value in Cloud, Other Bets, and new advertising products.

BSD Analysis:
The manager maintains a bullish view on Alphabet despite near-term execution concerns and regulatory challenges. Google's dominant position as the world's largest media company, generating twice the advertising revenue of Facebook, demonstrates exceptional market power and scale advantages. While Q2 earnings showed mixed results with elevated capital expenditures, the manager views this as investment in future growth opportunities rather than operational inefficiency. Regulatory scrutiny represents a persistent overhang but appears manageable given the company's resources and legal expertise. The investment thesis centers on attractive valuation relative to the company's growth potential and financial strength. Alphabet's overcapitalized balance sheet provides significant financial flexibility for strategic investments and shareholder returns. The manager sees substantial embedded value in Google Cloud, Other Bets portfolio, and emerging advertising products that may not be fully reflected in current market pricing. This combination of market leadership, financial strength, and undervalued growth optionality creates a compelling long-term investment opportunity.

Pitch Summary:
Worldline SA (WLN FP) is a provider of payment and other transaction processing services. The relatively weak European macro environment, coupled with regulatory headwinds in Germany and an evolving competitive landscape have negatively impacted growth.

BSD Analysis:
The manager expresses concerns about Worldline's near-term prospects due to multiple headwinds affecting the European payments industry. The company operates in payment and transaction processing services, a typically resilient business model, but faces significant challenges in its core markets. Weak European macroeconomic conditions are likely constraining transaction volumes and merchant activity, directly impacting revenue growth. Regulatory pressures in Germany, a key market, create additional operational complexity and potential margin compression. The evolving competitive landscape suggests intensifying pressure from fintech disruptors and established players, potentially eroding market share and pricing power. These combined factors appear to be materially impacting the company's growth trajectory and profitability outlook. The manager's bearish stance reflects concerns that these headwinds may persist longer than initially anticipated, making near-term performance recovery challenging.

Pitch Summary:
Samsung (005930 KS) is a diversified technology company with leading positions in semiconductors, display panels, mobile phones, consumer electronics, and appliances. Samsung's stock price declined in Q3 due to several factors, including weakening demand for consumer electronics, continued challenges in the semiconductor industry, and supply chain disruptions. As the largest company in the three-player DRAM oligopoly with 43% market share, we believe Samsung is well positioned as DRAM demand is expected to grow high-single-digits over time, driven by growth in AI, cloud computing, and internet connected devices.

BSD Analysis:
Despite recent headwinds, the manager maintains conviction in Samsung's long-term prospects based on its dominant market position and secular growth drivers. The company's diversified technology portfolio provides multiple revenue streams across semiconductors, displays, mobile devices, and consumer electronics. Samsung's commanding 43% market share in the DRAM oligopoly represents a significant competitive moat in a critical technology component. The manager acknowledges near-term challenges including weak consumer electronics demand and semiconductor industry pressures but focuses on structural growth opportunities. AI adoption, cloud computing expansion, and IoT device proliferation should drive high-single-digit DRAM demand growth over time. Samsung's scale advantages and technological leadership position it to capture disproportionate value from these trends. The current stock price decline appears to create an attractive entry point for a company with strong long-term fundamentals and market-leading positions across multiple technology segments.

Pitch Summary:
Qantas (QAN AU), the larger of the two major Australian airlines, performed well on positive earnings news and a continued favorable outlook. Having repurchased 9% of the company's shares for the second consecutive year, Qantas announced an additional A$0.4 billion buyback. The valuation for this well-positioned airline remains attractive.

BSD Analysis:
The manager maintains a bullish stance on Qantas based on strong operational performance and aggressive capital return strategy. The airline demonstrated solid earnings growth with a positive forward outlook, indicating successful navigation of post-pandemic recovery challenges. Qantas's substantial share buyback program, totaling 9% of shares repurchased for two consecutive years plus an additional A$0.4 billion authorization, reflects strong cash generation and management confidence. This capital allocation strategy should drive earnings per share growth and support valuation expansion. As the dominant player in the Australian aviation duopoly, Qantas enjoys competitive advantages and pricing power in key domestic routes. The manager views current valuation levels as attractive relative to the company's market position and cash flow generation capabilities. The combination of operational improvements and shareholder-friendly capital allocation creates a compelling investment proposition.

Pitch Summary:
Ericsson (ERIC) is the largest vendor of hardware and software for operating wireless networks outside of China. Sentiment is improving on signs of revenue stabilization and margin improvement, including evidence of recovery in the important North American market.

BSD Analysis:
The manager expresses optimism about Ericsson's turnaround prospects based on fundamental business improvements. As the dominant wireless network infrastructure provider outside China, Ericsson holds a strategic market position in global telecommunications. The company is showing early signs of operational recovery with revenue stabilization after a challenging period. Margin improvement indicates better cost management and pricing discipline in competitive markets. The recovery in North America, a critical high-margin market, suggests strengthening demand for 5G infrastructure investments. Improving sentiment reflects growing investor confidence in the company's ability to navigate industry headwinds. The manager appears to view current valuation levels as attractive given the company's market leadership and emerging recovery trends.

Pitch Summary:
F5 (FFIV) sells application networking and security software, as well as data center appliances. The company's stock price rebounded sharply in Q3 after reporting a growing pipeline and better close rates in subscription software sales. F5 has no debt, trades at an attractive valuation, and is benefiting from an improving gross margin and lower operating expenses.

BSD Analysis:
The manager presents a bullish case for F5 based on operational improvements and financial strength. The company demonstrated strong momentum with a growing sales pipeline and improved subscription software conversion rates, indicating successful business model transition. F5's debt-free balance sheet provides financial flexibility and reduces risk during uncertain market conditions. The combination of attractive valuation metrics with expanding gross margins and declining operating expenses suggests improving profitability trends. The manager views the sharp Q3 rebound as validation of the company's strategic execution in application networking and security software markets. This positioning in critical enterprise infrastructure appears well-suited for sustained demand growth. The investment thesis centers on F5's ability to capitalize on digital transformation trends while maintaining strong financial fundamentals.

Pitch Summary:
HealthEquity, Inc. (HQY) was also among the largest detractors. The company is the largest U.S. non-bank custodian for health savings accounts (HSAs). Along with their primary business of offering HSAs, the company facilitates employer-sponsored lifestyle and commuter benefits. The stock traded lower during the quarter, likely because investors were expecting an environment of lower interest rates. Some investors think a lower interest-rate environment would reduce the company's income earned from some of the money held on deposit for customers. But we've taken a close look at how the company invests its cash and believe that HealthEquity's income is less sensitive to small interest-rate declines than many investors expect. Further, our reasons for owning the company were never based on a specific interest-rate outlook. Instead, we think HealthEquity is poised for long-term growth as more employers offer HSAs to their employees.

BSD Analysis:
Wasatch demonstrates deep fundamental analysis of HealthEquity's business model, dismissing market concerns about interest rate sensitivity as overblown. The managers have conducted detailed research into the company's cash investment strategy and concluded that income sensitivity to rate changes is less than market perception suggests. Their investment thesis focuses on secular growth drivers rather than interest rate dependency, specifically the increasing adoption of HSAs by employers seeking cost-effective healthcare benefits. HealthEquity's market-leading position as the largest non-bank HSA custodian provides competitive advantages and scale benefits in a growing market. The expansion into lifestyle and commuter benefits demonstrates the company's ability to cross-sell additional services to existing clients. Wasatch's long-term perspective on HSA adoption trends appears well-founded given the structural shift toward consumer-directed healthcare and high-deductible health plans. The company benefits from demographic trends and regulatory tailwinds supporting HSA growth regardless of interest rate environment.

Pitch Summary:
Another significant detractor was Medpace Holdings, Inc. (MEDP). Medpace is a contract research organization (CRO) supplying clinical development services to small biotech businesses. In its most recent quarterly report, Medpace reported results below expectations. New business wins were lower than anticipated due to the general biotech funding environment and a few client-specific cancellations. As a result, the stock gave up some ground this quarter. However, nothing has changed in our long-term working thesis. We continue to believe the firm has a long runway for growth as biotech innovation pushes forth and more biotech firms turn to Medpace for development services.

BSD Analysis:
Despite near-term headwinds, Wasatch maintains strong conviction in Medpace's long-term prospects, viewing current weakness as cyclical rather than structural. The managers correctly identify that disappointing results stem from broader biotech funding challenges and isolated client cancellations rather than fundamental business deterioration. Medpace's focus on small biotech companies positions it well to benefit from the ongoing innovation wave in biotechnology and pharmaceutical development. The CRO industry benefits from increasing outsourcing trends as biotech companies seek to minimize fixed costs and access specialized expertise. Wasatch's unwavering thesis suggests they view the current biotech funding environment as temporary, with eventual recovery driving renewed demand for Medpace's services. The company's specialized focus on smaller biotech clients may provide competitive advantages and higher growth potential compared to larger CROs serving big pharma. The long runway for growth reflects the expanding pipeline of biotech innovations requiring clinical development services.