Investment Pitches

Pitch Summary:
Our investment approach is designed to capitalise on gaps between stock prices and the intrinsic value of the businesses they represent. The bigger the gap, the more attractive the opportunity. Normally, the stockmarket sets the price while we focus on analysing the fundamentals of the business. Viewed through that lens, our investment in QXO may seem unusual on both fronts. In this case, there was no public market price—we invested through a private placement—and there was no business to analyse, just a $5 billion cash pile that has yet to be deployed. And yet, QXO is now the largest position in the Orbis Global Equity Strategy at nearly 7% of the portfolio. Why? Because in a deeper sense, QXO is a great example of what we do. In fact, it is remarkably similar to another investment we made almost 12 years ago—one which became the second-biggest contributor to the Strategy's performance over the past decade. At the time, the analyst recommending the stock wrote that it was "…a bit venture capital-like in that we are betting on an entrepreneur, a business plan, and a pile of cash". That investment was XPO Logistics, with a market value of just $468 million when the line above was written in 2012. Since then, XPO has evolved into three separate companies that are collectively worth more than $20 billion. Its shares returned 17x over the last 14 years, tripling the S&P 500's tech-fuelled boom. The entrepreneur behind both XPO and QXO is Brad Jacobs. Although we were just getting to know Brad in 2012, XPO was his third rodeo. Prior to XPO, he founded and ran United Rentals, and prior to that United Waste Systems. All three stocks handily beat the S&P 500 during (and after) Brad's tenure as CEO. We meet with more than our share of CEOs each year, and Brad is among the best we have seen. Over the years, he has consistently created shareholder value with a repeatable "playbook" for capital allocation and operational excellence. He also has a knack for building enduring teams that can continue to add value long after he has stepped down from day-to-day involvement. And perhaps most importantly, he always puts his own money on the line—$900 million in the case of QXO—which creates an unusually strong alignment of interests with fellow shareholders. That said, it would be too simplistic to say that our investment in QXO is merely a bet on Brad. There are many great companies run by great CEOs that we don't own because the price isn't right. We invested in QXO via a private placement in July 2024 at $9.14 per share, representing a 40% premium to book value. This was actually a smaller premium than we paid for access to XPO's cash pile back in 2012, so this time we are getting a better deal. It would also be too simplistic to say we are giving Brad a blank cheque. We would not have invested if we didn't share his enthusiasm for the specific opportunity that QXO is targeting—the building products distribution industry. It may not sound exciting—neither did XPO's trucking business—but that is often precisely what creates the opportunity. The industry is highly fragmented, with thousands of sub-scale distributors lacking a national footprint and leveraging antiquated technology (if any). In many ways it is reminiscent of the early days of XPO. At the beginning, XPO was in the truck brokerage business, connecting businesses that needed to move freight with the truckers who could do the moving. At XPO's inception, just 6% of those transactions were handled digitally, with the rest done by phone or fax. By 2023, the brokerage business—now a standalone company known as RXO—was 96% digital and has been an industry leader in that regard. In building products distribution, only about 4% of transactions are currently handled digitally, very similar to the truck brokerage business a decade ago. As with XPO, there is enormous scope to leverage technology to dramatically improve the customer experience. Building products distribution is also large (roughly $800 billion across US and Europe) and fast-growing (7% per annum over the last 5 years). Fragmented competition should yield ample M&A opportunities, where QXO can create substantial value by improving the operations of acquired businesses. As with XPO, there is also a large logistics and warehousing component. And disruption risk is low—no matter how compelling ChatGPT 5.0 may be, it won't provide your contractor with the tiles for your new bathroom. But you can bet that QXO will figure out clever ways to use AI to improve its own supply chain technology. Stepping back, it would be hard to come up with a better fit for the Brad Jacobs playbook. At this stage, the obvious challenge with analysing QXO is that it is mostly just a pile of cash and we don't know exactly what they intend to buy. What we do know is that QXO is currently looking at about a dozen potential acquisitions, and that they will deploy substantial amounts of capital going forward into acquisitions while keeping leverage low. Based on our assessment of the opportunity, we think QXO could be worth 2-5x book value, well above the 1.4x we paid. We get there by exploring a range of scenarios, and without getting too deep into the details, two critical variables are how much capital they can deploy and what rate of return they earn on that capital. The table provides a simple illustration. We believe QXO's valuation can end up in the shaded zone, which assumes that 80-90% of profits are reinvested and can earn 15-20% returns. If QXO—or any company—can do that over the longer term, they should be able to command a premium multiple. Said differently, a dollar in the hands of a skilled capital allocator like Brad Jacobs should be worth significantly more than a dollar in the hands of the average CEO. To be clear, our investment with XPO didn't deliver value in a straight line, and we don't expect QXO will be any different. As with the logistics business, there is a substantial cyclical element to building products and a severe recession would be negative for the business. Over the long term, however, it could present an opportunity if the downturn allows to scoop up acquisitions at favourable prices. Brad has also shown a willingness to make strategic pivots when opportunity presents, which can surprise the market and create volatility. At one point in 2015, XPO shares experienced a 40% peak-to-trough decline when the market was spooked by an acquisition that represented a shift away from its "asset-light" model and toward owning trucks. Although it worked out nicely in the end, it was not without a great deal of short-term pain. The range of outcomes is wide, but we believe that risk is mitigated by the attractive price we paid, our extensive understanding of Brad's playbook, the attractive attributes of the industry, and Brad's intention to run the company with modest leverage.

BSD Analysis:
Orbis has made QXO their largest position at nearly 7% of the portfolio, investing through a private placement at $9.14 per share representing a 40% premium to book value. The investment thesis centers on entrepreneur Brad Jacobs, who previously created massive shareholder value at XPO Logistics (17x returns over 14 years), United Rentals, and United Waste Systems. QXO targets the highly fragmented $800 billion building products distribution industry, which is growing at 7% annually and only 4% digitized, similar to XPO's early trucking brokerage opportunity. The fund believes QXO can achieve 2-5x book value through disciplined capital allocation, assuming 80-90% profit reinvestment earning 15-20% returns on deployed capital. With $5 billion in cash and a dozen potential acquisitions under review, QXO offers substantial M&A opportunities to consolidate sub-scale distributors lacking national footprint and modern technology. The investment carries cyclical risks given building products exposure, but Orbis views the attractive entry price, proven management playbook, and industry fragmentation as compelling risk-mitigated upside. Brad Jacobs has invested $900 million of his own capital, ensuring strong alignment with shareholders.

Pitch Summary:
Given the challenging nature of biotech, we have historically found very few attractive opportunities in the sector. Genmab, a relatively new holding in the Orbis International Equity Strategy, is an exception. The company's "DuoBody" technology is designed to develop promising new drugs in a repeatable manner. It helps discover and develop bispecific antibodies, which get used to treat diseases by simultaneously targeting two different antigens to improve precision and effectiveness. Only about a dozen such antibodies have been approved by the US Food and Drug Administration, with four of them incorporating Genmab technology—one from AbbVie, and the other three from Johnson & Johnson. Genmab also has three other proprietary technologies, and four other approved drugs that integrate their innovation. Genmab's track record of drug discovery and development productivity is extremely impressive. It's a testament to the repeatability of their process, the calibre of their platform, and the quality of their management team. The company is still run by its cofounder, Jan van de Winkel, who has an extensive background in the therapeutic antibody field and is also a substantial shareholder. We believe opportunities to invest in a biotech company with the above characteristics are rare. The market typically assigns a probability-adjusted value to assets that are in clinical development, which is rational given these assets will likely be the main driver of cash flow over the very long term. In the case of Genmab, however, this doesn't appear to be the case. As shown in the chart, Genmab's current market value is fully supported by drugs that are already commercialised—a proverbial "bird in hand"—but we pay nothing for those that we believe are still in the bush. This valuation anomaly is likely driven by the multiple myeloma drug Darzalex, a substantial royalty stream that will end around 2030. Taking a longer-term view, we are confident that Genmab's R&D machine can successfully reinvest Darzalex cash flows into developing entirely new drugs. If Genmab can generate anything close to its historical returns on R&D, the long-term upside for the stock could be substantial. And given the share price is fully underwritten by the existing suite of profitable products, the risk of capital impairment appears low.

BSD Analysis:
Orbis presents a compelling bull case for Genmab based on the company's proprietary DuoBody technology platform and proven track record in bispecific antibody development. The manager highlights that four of only twelve FDA-approved bispecific antibodies incorporate Genmab's technology, demonstrating the platform's competitive advantage and repeatability. The investment thesis centers on a significant valuation disconnect where the current market cap is fully supported by commercialized drugs, essentially providing free optionality on the pipeline. The Darzalex royalty stream, ending around 2030, provides substantial cash flows for R&D reinvestment. Management quality is emphasized through founder-CEO Jan van de Winkel's expertise and significant shareholding. The manager views this as a rare opportunity to invest in a biotech with proven commercial success at an attractive valuation. The downside risk appears limited given the existing profitable product portfolio underwrites the current share price.

Pitch Summary:
We also initiated a position in Primerica, Inc., a provider of life insurance and investment products to middle income customers in the U.S. and Canada. We believe Primerica is a steady earnings grower with significant competitive advantages trading at a cheap valuation due to its underappreciated business model. As the responsibility for retirement savings increasingly shifts to individuals, Primerica serves a growing need for financial planning in the underserved middle income customer segment. While most life insurers and financial planners target the wealthiest households, Primerica instead serves the less competitive middle-income segment, defined as the 54% of U.S. households with $30,000 to $130,000 of annual income. Primerica's 145,000 sales reps sell term life insurance underwritten by the company as well as mutual funds, annuities, and managed accounts on behalf of third-party asset managers. The company reinsures between 80% and 90% of the mortality risk for all term life insurance policies, thereby reducing the capital intensity and making the business model more akin to an asset-light broker than a traditional life insurer. The company's 26.5% ROE last year was more than double the 12.5% average ROE for other publicly traded life insurers. The company's primary competitive advantage is its multi-level distribution model that uniquely positions it to reach small customers in a cost-efficient manner. Primerica's sales reps are all independent contractors who are responsible for their own expenses (much like TWFG's insurance agents discussed earlier). Reps earn commissions on both their own sales and sales made by other reps that they've recruited, thereby encouraging growth in the sales force. This mostly variable cost structure enables the company to efficiently serve a large number of small customers. Primerica's unique sales model is difficult to replicate since it was built through decades of recruiting and brand-building. Primerica grew EPS at a 12% annualized rate over the last five years (adjusted for a recent accounting change) despite headwinds from uncertain equity markets and an unprofitable senior health business that was recently divested. We expect earnings to grow at a faster pace over the next few years from continued sales force growth, higher investment sales and asset-based fees, and ongoing share repurchases. The late Charlie Munger advised investors to "pay close attention to the cannibals – the businesses that are eating themselves by buying back their stock." Primerica fits this bill given that the share count has shrunk by over half since the company's IPO in 2010. We expect Primerica to continue buying back 4% to 5% of its shares each year, providing a meaningful tailwind to EPS growth. We believe our purchase of the stock at 12 times next year's earnings is a bargain for a high-quality, double-digit EPS compounder.

BSD Analysis:
The manager initiates a bullish position in Primerica, highlighting the company's unique positioning in the underserved middle-income market segment representing 54% of U.S. households. The investment thesis emphasizes Primerica's competitive advantages through its multi-level distribution model with 145,000 independent sales representatives, creating a cost-efficient structure to serve small customers. The company's asset-light business model, with 80-90% of mortality risk reinsured, generates superior returns with 26.5% ROE versus 12.5% for peer life insurers. Historical performance shows 12% annualized EPS growth over five years despite headwinds, with expectations for acceleration driven by sales force growth and higher asset-based fees. The manager particularly values the aggressive share repurchase program, with share count declining by over half since the 2010 IPO and expectations for continued 4-5% annual buybacks. At 12 times forward earnings, the manager views the valuation as attractive for a high-quality double-digit EPS compounder with significant competitive moats.

Pitch Summary:
We participated in the IPO of TWFG, Inc., an insurance broker for personal and commercial insurance based in Texas. TWFG (an acronym for The Woodlands Financial Group) is the seventh-largest personal lines insurance agency in the U.S. with 410 branches across 17 states. As an independent agency, the company provides homeowners and auto insurance on behalf of over 300 carriers without taking any underwriting risk. The company has been growing quickly by helping captive agents working for a single carrier (such as State Farm or Allstate) make the transition to an independent agency model with the ability to sell policies from multiple carriers. This model is better for customers by offering them a broader range of insurance options and better for agents who can sell more policies. TWFG provides agents all the tools they need to sell insurance, including carrier relationships, technology, training, back-office and marketing support. Most of the company's agents are independent contractors that earn 80% of the sales commissions but are responsible for their own expenses, while TWFG keeps the remaining 20% of commissions. With relatively little overhead, TWFG enjoys a capital-light business model. The U.S. property and casualty insurance market is large with $956 billion of premiums and growing steadily with 6% annualized growth over the last 10 years (faster growth more recently). Premiums are evenly split between personal lines and commercial lines. Insurance is often a compulsory purchase required to get a mortgage or drive a car, so demand is resilient through economic cycles. Premiums typically rise each year to reflect higher repair and replacement costs, so industry growth is inflation-protected. Brokerage commission rates have been relatively steady at a mid-teens percentage of premiums, so commission revenue typically grows in line with premiums. The industry has been undergoing a structural shift from the captive to the independent distribution model, leading to faster growth for independent agencies such as TWFG. In homeowners' insurance, the share of premiums sold by independent agencies increased from 41% in 2011 to 49% in 2021, while the share sold by captive agencies fell from 51% to 35% over the same period. We expect this shift from captive to independent distribution will continue, which should further increase the addressable market for TWFG. TWFG was founded in 2001 by the company's CEO, Gordy Bunch. Bunch, a former insurance agent himself, has grown the business every year since inception while taking in little outside capital and retaining majority ownership. Over the last five years, the company's premiums and revenue have grown at a 19% annualized rate, more than twice as fast as the overall industry. With less than 1% share of a growing market, TWFG has a very long runway for growth. We expect TWFG will continue growing nearly 20% per year by adding agencies, both organically and through acquisitions. We believe that the 80/20 commission split is an attractive proposition for agents that delivers substantial value while allowing them to retain most of the economics. Additionally, TWFG has begun acquiring smaller agencies at favorable terms, leading to higher revenue and margins. We expect the company will use the IPO proceeds to accelerate the pace of these accretive acquisitions. We believe that TWFG's long track record of growth, large addressable market, capital-light business model, opportunities for accretive M&A, and a founder-CEO with significant skin in the game make for a compelling investment. We expect TWFG to double EBITDA within three years, which should lead to good upside in the stock.

BSD Analysis:
The manager presents a comprehensive bull case for TWFG, a newly public insurance brokerage benefiting from a structural shift in the industry. The investment thesis centers on the company's position as the seventh-largest personal lines insurance agency with 410 branches across 17 states, operating a capital-light model with 80/20 commission splits. The key driver is the ongoing industry transformation from captive to independent distribution, with independent agencies' market share growing from 41% to 49% in homeowners insurance over the past decade. TWFG has demonstrated exceptional execution with 19% annualized revenue growth over five years, more than double the industry rate, while maintaining less than 1% market share in a $956 billion market. The founder-CEO Gordy Bunch has grown the business consistently since 2001 with minimal outside capital, providing strong management credibility. The manager expects continued 20% annual growth through organic expansion and accretive acquisitions, with IPO proceeds accelerating M&A activity and a target to double EBITDA within three years.

Pitch Summary:
Shares of insurance software vendor Guidewire Software, Inc. outperformed after the company reported strong quarterly results and provided annual guidance that exceeded consensus expectations. New sales activity drove 19% growth in annual recurring revenue (ARR) on a fully ramped basis and 37% growth in subscription revenue during the recent quarter. Subscription gross margins expanded by 11 percentage points, and free cash flow margins reached 18%, up from 2% last year. We believe the company's multi-year cloud transition is substantially complete. ARR should benefit from new customer wins and migrations of existing on-premise software customers to InsuranceSuite Cloud. We also expect the company to shift R&D resources from infrastructure investment to product development, which should help drive cross-sales into the large installed base and potentially accelerate ARR over time. We believe Guidewire will remain the critical software vendor for the global property and casualty insurance industry, capturing 30% to 50% of its $15 billion to $30 billion total addressable market and generating margins above 40%.

BSD Analysis:
The manager maintains a strong bullish position on Guidewire Software, emphasizing the company's dominant position in the property and casualty insurance software market. The investment thesis is anchored by the successful completion of the multi-year cloud transition, which has driven significant margin expansion with subscription gross margins improving by 11 percentage points and free cash flow margins reaching 18%. The 19% growth in annual recurring revenue and 37% growth in subscription revenue demonstrate strong execution in the transition to a recurring revenue model. The manager expects continued growth from new customer wins and migrations of existing on-premise customers to the cloud platform. With a shift in R&D focus from infrastructure to product development, cross-selling opportunities within the large installed base should accelerate ARR growth. The company's critical role in the industry positions it to capture 30-50% of a $15-30 billion addressable market while generating margins above 40%.

Pitch Summary:
Shares of MercadoLibre, Inc., Latin America's leading e-commerce and fintech company, rose after the company reported strong quarterly results that beat expectations across the board. Revenue more than doubled on a constant currency basis and grew 42% in U.S. dollars. MercadoLibre continues to gain share in the e-commerce market due to its broad merchandise selection and unique logistics capabilities that enable faster delivery times than peers. In the recent quarter, Commerce revenue grew 131% on a constant currency basis with 83% growth in gross merchandise value, benefiting from higher advertising penetration and a more favorable geographic mix. Fintech revenue grew 92% on a constant currency basis with 86% growth in total payment volume and 37% growth in monthly active users, reaching 52 million. MercadoLibre is benefiting from product innovation in fintech and profitable underwriting in the fast-growing credit business, which we expect will drive continued margin expansion and earnings growth.

BSD Analysis:
The manager presents a compelling bull case for MercadoLibre, highlighting the company's dominant position in Latin America's e-commerce and fintech markets. The investment thesis is supported by exceptional growth metrics, with revenue more than doubling on a constant currency basis and strong performance across both commerce and fintech segments. The company's competitive advantages include broad merchandise selection and unique logistics capabilities that enable faster delivery than competitors. Commerce revenue growth of 131% and fintech revenue growth of 92% demonstrate the company's ability to capture market share across multiple verticals. The expansion to 52 million monthly active users and 86% growth in payment volume illustrates the network effects driving the business. The manager expects continued margin expansion and earnings growth driven by product innovation in fintech and profitable credit underwriting, positioning MercadoLibre for sustained outperformance.

Pitch Summary:
Fair Isaac Corporation is a data and analytics company focused on predicting consumer behavior and is best known for its ubiquitous FICO scores. Like last quarter, shares increased after the company reported solid financial results and raised annual guidance. Management recently spoke at several conferences and was optimistic about both the scores and software businesses. Fair Isaac is a perceived beneficiary of lower interest rates, so the stock has likely gotten a boost from recent rate cuts. Mortgage originations are running 50% below the long-term historical average, so we estimate that a return to normal activity would increase Fair Isaac's earnings by half. We continue to own the stock because of the company's significant competitive advantages and expect that consistent earnings growth will drive attractive returns for the stock over the long term.

BSD Analysis:
The manager maintains a bullish stance on Fair Isaac Corporation, emphasizing the company's dominant position in credit scoring through its ubiquitous FICO scores. The investment thesis centers on the company's significant competitive advantages in predicting consumer behavior and data analytics. The manager highlights that mortgage originations are currently running 50% below historical averages, creating substantial upside potential as a return to normal activity could increase earnings by half. Recent rate cuts provide additional tailwinds as Fair Isaac is positioned to benefit from lower interest rates. The company has demonstrated strong execution with solid financial results and raised guidance, while management remains optimistic about both the scores and software businesses. The manager expects consistent earnings growth to drive attractive long-term returns for shareholders.

Pitch Summary:
AppLovin Corporation (Nasdaq: APP) is a quality business that has experienced rapid growth: its revenues have more than doubled over the past three years, growing at a 31.3% annual rate. However, nestled within the company is a software business that has increased its revenues from $207 million in 2020 to $1.8 billion in 2023, an 8.9x increase, which equates to a phenomenal 107% annual growth rate. Below we break down AppLovin's business and look at why the business is one of the Fund's top holdings. AppLovin is a leading advertising network and mediation provider for mobile apps. It is perhaps best to use an example to illustrate what APP does. Let's say you are playing a mobile game such as Candy Crush. As you progress through the various levels of the game you are intermittently shown ads. These could be static or video banner ads, playable interstitial ads (i.e., full screen ads where you can sample the gameplay of another game), or rewarded ads (where you get an in-app reward for watching the ad). AppLovin is the intermediary that connects advertisers (primarily game publishers, but also non-gaming advertisers) with in-game ad slots (i.e., the in-game moments where ads can be shown to gamers). APP, via AI-powered ad targeting, shows the right ad to the right person at the right time, with the goal of maximising the chances that the user will convert (i.e., click on the ad and download the advertised game). Business overview AppLovin has two key businesses: 1) Software Platform (i.e., the ad tech business discussed above) which enables advertisers (i.e., app developers), via AI-powered advertising solutions, to acquire users for their apps. It also provides solutions to publishers of apps to monetise their ad inventory. APP's platform reaches 1.4 billion users every day, and the Software Platform segment contributes 56% of company revenue and 85% of EBITDA. 2) Apps (i.e., the mobile gaming business) is a portfolio of more than 100 mobile games primarily in the casual and hypercasual genres. APP initially acquired these mobile game publishers as a means to gather first-party data to feed its ad-tech algorithms, but since acquiring MoPub from Twitter in early 2022, the company has de-emphasised this segment. The Apps segment is a stable contributor to earnings but it's a business we believe APP would sell if it received the right price. Apps comprises the remaining 44% of company revenue and 15% of EBITDA. APP's Software Platform is the main driver of business value for the company and consists of a number of ad tech tools which we will explore below. AppDiscovery AppLovin's AppDiscovery product, which comprises around 65-70% of the company's software revenues, is a mobile ad network utilised by advertisers, mostly mobile game publishers, to drive installs for their games and thus grow their user bases. MAX MAX, which represents around 20-25% of software revenues, is a mediation platform for app publishers. What does this mean? Well, mobile apps can monetise in two ways: 1) in-app purchases; and 2) in-app advertising. Mediation is focused on the latter, helping game publishers monetise their in-app inventory. A mediation platform such as MAX acts as a market-marker for ad placements, dutifully connecting ad demand (i.e., advertisers) with ad supply (i.e., game publishers with ad slots in their games where ads can be inserted). The mechanics behind a mediation platform like MAX are as follows: An app developer that wants to monetise their in-app inventory will integrate a mediation software development kit (SDK) into their app. This will allow the app to send bid requests to advertising partners when an impression is available, and will handle the auction process, ad placement, reporting, and yield optimisation functions. Notably, app developers typically only use one mediation provider, allowing them to interface with multiple ad networks via a single mediation SDK. This is important as it reduces the latency that comes with multiple SDK integrations and improves yield optimisation by ingesting bids from multiple ad networks. An advertiser (typically also a mobile app developer) that wants to run an app install ad campaign will integrate with one or more ad networks (e.g., such as APP's AppDiscovery) and then buy ad impressions from mediation partners. These purchases happen via a real-time auction. APP's MAX platform benefits from network effects: the more ad networks that integrate into MAX's mediation platform, the more bids that can be made for an ad slot in the auction. This maximises the chance of a better price being received by the publisher who is auctioning off that ad slot, thus attracting more publishers to MAX. More publishers lead to more inventory that advertisers can bid on, drawing more advertisers to the platform in a virtuous cycle. Furthermore, it can be an involved undertaking from an engineering standpoint to change mediation providers, creating switching costs. Additionally, publishers grow accustomed to the interface of a mediation provider that creates further friction when switching providers, another form of lock-in to a mediation platform. App install advertising is arguably the most performance-driven segment of the advertising world: app install budgets are uncapped, with advertisers continuing to spend so long as the return on ad spend (ROAS) exceeds their target. Put another way, a mobile gaming advertiser will only curtail their spend if the ROAS falls below their target level. This means that app install campaigns tend to be "always on", with advertisers shifting spend between various ad networks based on ROAS performance. The corollary here is that app install advertising is not a zero-sum game, but rather improvements in AppLovin's targeting capabilities will attract incremental advertiser dollars and expand the overall market. How does AppLovin make money? An ad network such as AppDiscovery does not charge a take rate in the way that typical Demand Side Platforms (DSP) do, but rather is a spread business. This is how it works: Publishers get paid based on the number of ad impressions they serve (i.e., on a CPM basis, which refers to the cost per thousand ad impressions shown to users). For example, if they serve an advertiser's ad to 1,000 users, they might receive $1 (in which case the CPM for that ad would be $1). This is irrespective of whether those ad impressions drive successful app install outcomes for the advertiser. Advertisers, on the other hand, only want to pay for impressions that successfully deliver an install or some other action. An ad network like AppDiscovery will buy ad impressions on behalf of an advertiser running a user acquisition campaign. These ads are bought on a CPM basis, but from the advertiser's perspective they are effectively paying a Cost Per Install (CPI) or some other action. The ad network will spend up to the advertiser's budget buying ad impressions and deliver a number of installs that (hopefully) meets or betters the targeted CPI. The ad network's net revenue – that is, the spread – is equal to the advertiser's budget less the CPMs paid to publishers to deliver on that advertiser's campaign objectives. For example, an advertiser allocates a $1,000 budget to AppDiscovery with the objective of 500 installs, for a CPI of $2. If AppDiscovery can deliver 500 installs by purchasing $800 worth of ad impressions, it keeps the $200 as net revenue. If through targeting improvements it can now deliver 500 installs by buying only $700 of ad impressions, AppDiscovery's net revenue increases to $300. Accordingly, an ad network can increase its spread by reducing the amount of money it pays away to publishers to achieve campaign objectives. Thought of another way, if the ad network becomes more efficient – that is, by showing ads to users that have a higher likelihood of converting – then less ads need to be purchased to achieve that advertiser's app install campaign goals. This means that for a given number of app installs, less dollars end up in publishers' coffers. Ad networks typically keep most of this higher spread, sharing just enough upside with the advertiser to entice them to increase their budget allocation to the network. APP has in the past commented that the average industry spread is 20-25% of ad spend but has refrained from sharing AppDiscovery's spread. APP's MAX mediation business makes money via a 5% mediation fee for in-app header bidding from non-AppDiscovery ad networks (it does not charge fees for waterfall bidding). From speaking to industry experts, the market is expected to entirely shift over to in-app bidding this year, compared to just half the market using in-app bidding in 2023 (this has been a tailwind for APP given in-app bidding attracts the 5% fee). Financial highlights APP's financial performance has been nothing short of extraordinary. If we home in on the company's software segment, we can see that Software Platform revenues grew at a 107% annual rate between FY20 and FY23. This wasn't off a small base, either. The software business was doing over a billion dollars of revenue in FY22 yet still managed to grow by 75% year-over-year in FY23, adding $793 million of incremental revenue dollars. This is the equivalent of adding the entire revenue base of an Australian business like CAR Group Limited, the owner of carsales.com, in a single year! Even more impressive is how profitable this growth is. Over the last year, for each dollar of incremental software revenue AppLovin generated, around 85 cents dropped through as profit. The Software Platform business boasts 73% adjusted EBITDA margins, which can increase further to the extent that the business continues to scale its topline. There are few companies in the world that are as profitable as AppLovin is. The enormous financial success of AppDiscovery has been driven by AXON, the AI/machine learning (ML) tool that powers AppDiscovery. AXON 1.0 was launched in late 2020. It was an ML model that drove significant growth in APP's Software Platform revenues. Our understanding is that AXON 1.0 was useful for mobile gaming but less extensible to non-gaming ad markets. AXON 2.0 was launched in mid-2023 and similarly drove a step function increase in growth for AppDiscovery, even off a much larger base of revenue dollars. AXON 2.0 is a neural network/deep learning model that utilises recent AI breakthroughs to further improve ad targeting beyond what was possible with AXON 1.0. Notably, AXON 2.0 is better set up to be used not just in mobile gaming, but in other verticals such as connected TV (CTV) and e-commerce. This has implications for APP's total addressable market (TAM), which we believe could expand by more than 3x, from sub-$30 billion for mobile gaming app installs to over $100 billion when including CTV and retail media. If we were to take the c.$7 billion of gross ad spend for AppDiscovery, it equates to only a 7% penetration rate of this expanded TAM, signalling headroom for further growth. AXON 2.0's almost magic-like ability to turbocharge AppLovin's growth can be put down to smart AI-talent being combined with an industry-leading data set. To replicate APP's moat would require not just finding talented software engineers, but rebuilding the data trove APP obtains via its MAX mediation platform, which has around 60% share of mediation SDKs. MAX's dominance in the mediation space confers a number of subtle advantages that are extremely difficult to replicate. MAX is able to observe mediation data in real-time such as the bid amounts of each ad network as well as the price at which ads are clearing in the auction. Given that MAX commands approximately 60% share of mediation SDKs, it is privy to twice the number of auctions as the next largest competitor, Unity's LevelPlay, which has 30% share of the mediation market. This allows MAX to observe twice the number of bids. Advertisers also share data with APP, and they likely only do this because MAX is a scaled player. Why is this mediation data so valuable? Because following Apple's ATT changes, which deprecated the IDFA, advertisers lost access to device-level events stream data that could allow them to target the highest LTV users with impressive accuracy. Prior to Apple's changes, advertisers could direct their ad dollars at users that were known to be big in-game spenders (referred to as "whale hunting"). In the current post-ATT paradigm, advertisers no longer have access to that data (this was very damaging to their targeting capabilities and user acquisition unit economics). Advertisers had to shift from deterministic ad targeting to a probabilistic methodology that uses other signals to inform an advertiser's bid amounts. This mediation data is fed into the AXON machine learning algorithm, allowing AppDiscovery to deliver ROAS outcomes at a scale that other user acquisition tools struggle to match. In this sense, APP is using AppDiscovery to monetise the valuable data it gleans via its MAX mediation activities. The corollary of this is that if a competitor were to want to compete against APP's AppDiscovery business, they would need to build up mediation scale, a prospect that would be incredibly difficult at this stage due to the network effects and switching costs. Much like other ad buying and targeting tools such as Google's Performance Max and Meta's Advantage+, AXON 2.0 is a black box. The company is extremely vague and secretive about its workings. This creates an element of trust that is necessary when trying to underwrite the future growth trajectory of the business, a proposition that while uncomfortable, is made more palatable by APP management's stellar execution. We met APP Founder and CEO Adam Foroughi a number of years ago in San Francisco and have spoken with former AppLovin employees. From these discussions, it is clear that Foroughi is a highly competent and driven leader who has assembled a high-performing team. The company has a hard-charging, no-nonsense culture that is sometimes described as brutal, but also rewarding by being around A-grade individuals who are similarly putting in the hard yards. We continue to like the path ahead for APP given the opportunity for incremental improvements to AXON's targeting capabilities which should drive a further uplift in ad revenues, as well as the potential to expand into new verticals such as e-commerce and CTV. Despite more than doubling from the August 2024 lows, APP still trades on just 36x earnings. With the company targeting 20-30% growth for its ad network business over a multi-year period, the stock does not appear expensive.

BSD Analysis:
Bristlemoon presents a compelling bull case for AppLovin based on its exceptional growth trajectory and AI-powered competitive moat. The fund highlights APP's software platform revenue growth of 107% annually from 2020-2023, driven by the AXON 2.0 AI targeting algorithm that has created a step-function improvement in ad performance. The investment thesis centers on APP's dominant position in mobile app mediation through its MAX platform (60% market share) which provides proprietary data that feeds into AXON's machine learning capabilities. This creates a powerful flywheel effect where better targeting attracts more advertisers, generating more data to improve targeting further. The fund emphasizes APP's extraordinary profitability with 73% EBITDA margins and 85% incremental profit conversion on new revenue. Management sees significant TAM expansion opportunity as AXON 2.0 extends beyond mobile gaming into connected TV and e-commerce, potentially tripling the addressable market to over $100 billion. Despite the stock's strong performance, Bristlemoon views the 36x P/E multiple as reasonable given the company's 20-30% targeted growth rate and structural competitive advantages.

Pitch Summary:
AIA Group is a Hong Kong-listed insurer with ties to legacy US insurer AIG which failed during the global financial crisis. AIA has always been managed separately though and has built an admirable business serving clients across Asia. Its largest market is Hong Kong though its 20% exposure to China is still meaningful. In general, it dominates its core markets and continues to grow at a mid-single-digit rate as demand for its policies grows along with the increasing wealth in the region. We purchased the shares after they had fallen by half and the stock currently yields 3% while trading at a low multiple of earnings. It is the sort of company that we have been buying. In general, after falling for four straight years, the Hong Kong indexes are pretty washed out which means that there is not much premium attached to these higher-quality names. Much like Tencent, which we have discussed before, AIA is managed effectively for its shareholders, the balance sheet is sound, and the business' dominance provides a moat in an industry with tailwinds.

BSD Analysis:
Centerstone presents a compelling value opportunity in AIA Group, a dominant pan-Asian life insurer that has been unfairly punished alongside broader Hong Kong market weakness. The manager emphasizes AIA's operational independence from its troubled former parent AIG and highlights the company's strong competitive positioning across Asian markets. With shares down 50% and trading at attractive valuations while yielding 3%, the investment thesis centers on quality at a discount. The fund appreciates AIA's effective shareholder-oriented management, solid balance sheet, and defensive moat in an industry benefiting from rising Asian wealth. Mid-single-digit growth rates appear sustainable given demographic tailwinds and increasing insurance penetration across the region. The contrarian positioning in washed-out Hong Kong markets provides additional upside potential as sentiment eventually recovers.

Pitch Summary:
Worst Performing – Assaí. This year, Assaí's stock has fallen ~55% as of this writing. This is hugely disappointing. The loss is driven by 1) FX (~15% of the 55%) 2) Brazil's central bank raising rates, bucking the global trend of rate cutting 3) Aggressive promotions by the competitors 4) An odd issue with that tax authority. On the first issue, FX is not something we particularly hedge or control for, we bake into our assumptions that when investing in Emerging Markets, the FX movement will go against us, and the internal rate of return should make up for it. On interest rates, Brazil's inflation is still hovering around 4% which has led the central bank to raise rates. As a reminder, Brazil hiked rates faster than the rest of the globe, and was already at 13.75% by the end of 2022. Rates were cut to 10.5% during this year but were hiked again to 10.75% in the September meeting. This is a frustrating turn of events, and I do wonder how Brazil can sustain the highest real interest rates globally. Despite the increased rates, I'm confident Assaí will end the year with significantly less net leverage than when it started. On the competitive front, Assaí's largest competitor, Atacadão, has launched an aggressive installment payment campaign. This appears to be a desperate move by a competitor losing market share and stressing an already fragile balance sheet. I'm pleased that Assaí is not following suit. Lastly, the tax authority suggested, through a regulatory notice, that Assaí was responsible for a tax claim related to CBD (from which Assaí was spun off). Although Assaí swiftly resolved this issue, the damage to the stock was already done. Considering all the above, it's a fair question to ask – is our thesis on Assaí broken? My answer is no, but the investment IRR is less than what we initially expected. In hindsight, I should have trimmed the position significantly when we saw the central bank telegraphing their hike. Nevertheless, Assaí remains a well-managed company in a non-discretionary sector that is growing and deleveraging, supported by an appropriately incentivized management team. I still believe EPS will compound at over 20% in the coming years, and with a modest 8.5x P/E ratio for 2025, the stock should work from here.

BSD Analysis:
The manager maintains a bullish stance on Assaí despite a devastating 55% decline, attributing the weakness to temporary headwinds rather than fundamental deterioration. The thesis rests on Assaí's market leadership in Brazil's non-discretionary cash-and-carry sector, with management executing effective deleveraging while competitors struggle. Brazil's aggressive monetary tightening cycle creates near-term pressure, but the manager views this as transitory given unsustainable real interest rates. Competitive dynamics appear favorable, with Atacadão's desperate promotional tactics signaling market share losses and balance sheet stress. At 8.5x 2025 P/E with projected 20%+ EPS growth, the valuation offers compelling risk-adjusted returns. The manager acknowledges execution risk around interest rate timing but remains confident in the fundamental business quality and long-term growth trajectory.

Pitch Summary:
Best Performing – Sea Limited was the best performing stock this quarter. Sea is up ~132% (through Sep 24). The reasons behind Sea's performance are quite clear 1) after several years, each part of the business has started to grow 2) Competition has been tamer than expected 3) Each business is profitable or close to it. Going into 2025, it seems that the competitive environment for Shopee (Sea's ecommerce arm) is benign, but we are watching closely for any changes here. Depending on the account, we are now break-even or slightly profitable on our Sea position. This doesn't sound like much at all but considering the stock fell ~90% during the time we have owned it, I think this is a positive example of our position management.

BSD Analysis:
The manager presents a bullish recovery thesis on Sea Limited after enduring significant losses. The investment case centers on a fundamental business turnaround across all three operating segments, with each division returning to growth and approaching profitability. The competitive landscape for Shopee has stabilized, reducing the intense pricing pressure that previously weighed on margins. The manager demonstrates disciplined position management, maintaining conviction through a 90% drawdown and now approaching breakeven. The 132% quarterly performance validates the thesis that Sea's diversified platform model can generate substantial returns once operational leverage kicks in. However, the manager acknowledges ongoing competitive risks that require close monitoring.

Pitch Summary:
Digital Realty Trust Inc. is a global leader in data center solutions, offering a comprehensive portfolio of colocation, interconnection, and cloud-enabling services. With over 300 data centers across six continents, the company provides critical infrastructure that supports the exponential growth of data-driven technologies, including cloud computing, AI, and big data. Digital Realty's commitment to sustainability and innovation has positioned it as a trusted partner for enterprises, service providers, and tech giants seeking to scale their digital operations while minimizing their environmental impact. The company's business model is built on leasing data center space and services to a diverse range of customers, from small businesses to Fortune 500 companies. Digital Realty's expansive global footprint, coupled with its ability to offer customizable and scalable solutions, has allowed it to capture a significant share of the growing data center market. As AI applications and cloud services proliferate, demand for data processing, storage, and connectivity continues to surge, driving revenue growth for Digital Realty. Furthermore, the company's interconnection services, which allow clients to directly connect to cloud providers and networks, provide an additional revenue stream and competitive advantage. Digital Realty's strategic focus on sustainability also differentiates it from competitors. The company has been at the forefront of adopting renewable energy sources for its data centers and aims to achieve carbon neutrality by 2030. This commitment aligns with the increasing demand from tech companies to operate more sustainably, making Digital Realty an attractive partner for environmentally-conscious businesses. With strong financial performance, a growing global footprint, and a clear focus on innovation and sustainability, Digital Realty is well-positioned to capitalize on the ongoing digital transformation across industries.

BSD Analysis:
Tall Oak positions Digital Realty as a premier beneficiary of the AI infrastructure boom, emphasizing the company's global scale with over 300 data centers across six continents as a key competitive moat. The manager highlights Digital Realty's diversified revenue model combining colocation, interconnection, and cloud-enabling services, which provides multiple growth vectors and customer stickiness. The interconnection services are particularly valuable, offering direct connectivity between clients and cloud providers while generating higher-margin revenue streams. Digital Realty's sustainability leadership, targeting carbon neutrality by 2030, aligns with corporate ESG mandates and positions the company as a preferred partner for environmentally-conscious tech giants. The global footprint enables the company to serve multinational clients with consistent service quality and scalable solutions across regions. As AI workloads drive exponential growth in data processing, storage, and connectivity requirements, Digital Realty's infrastructure becomes increasingly mission-critical. The company's ability to offer customizable solutions from small businesses to Fortune 500 companies demonstrates operational flexibility and market penetration across customer segments.

Pitch Summary:
Vistra Corp is a leading energy company that provides essential resources to customers, businesses, and communities from California to Maine. Based in Irving, Texas, Vistra is a leader in energy transformation with a focus on reliability, affordability, and sustainability and takes an innovative, customer-centric approach to its retail business. The company's integrated business model combines power generation with retail electricity, serving about 51 million customers across competitive U.S. states. This model allows Vistra to generate consistent free cash flow, supporting robust shareholder returns. Vistra has a significant focus on decarbonization, aiming for a 60% emission reduction by 2030 and net-zero emissions by 2050. Its portfolio includes a mix of natural gas, nuclear, solar, and battery energy storage assets, emphasizing the importance of reliable, dispatchable power generation to support grid stability. The company is expanding its nuclear generation fleet and renewable energy assets, including solar and battery storage projects, to capitalize on the growing demand for clean energy.

BSD Analysis:
Tall Oak presents Vistra as a compelling play on the AI-driven energy demand surge, positioning the company as a critical infrastructure provider for data centers. The manager emphasizes Vistra's integrated business model combining power generation with retail electricity as a competitive advantage that generates consistent free cash flows and supports robust shareholder returns. The company's diversified energy portfolio spanning natural gas, nuclear, solar, and battery storage provides both reliability and growth optionality in the evolving energy landscape. Vistra's aggressive decarbonization targets (60% emission reduction by 2030, net-zero by 2050) align with corporate sustainability mandates driving data center partnerships. The expansion of nuclear generation and renewable assets positions Vistra to capitalize on the massive power requirements of AI infrastructure. With 51 million customers across competitive U.S. markets, the company benefits from both regulated utility-like cash flows and merchant power upside. The thesis centers on Vistra being a direct beneficiary of the structural shift toward AI computing and the associated exponential growth in electricity demand.

Pitch Summary:
We also added SMC, a Japanese industrial company, which is the dominant player in its market and has high profit margins. When the shares fell due to issues that are temporary in nature, we thought it was a good time to buy in.

BSD Analysis:
The managers opportunistically added SMC Corporation during a temporary share price decline, viewing the weakness as disconnected from fundamental value. SMC holds a dominant market position in industrial automation and pneumatic technology, which provides pricing power and competitive advantages. The company's high profit margins reflect its market leadership and operational efficiency in specialized industrial equipment. The managers characterized the issues causing the share price decline as temporary, suggesting confidence that underlying business fundamentals remain intact. This combination of market dominance, strong profitability, and temporary valuation dislocation created an attractive entry point for a quality industrial company with sustainable competitive advantages.

Pitch Summary:
Tech giant Tencent operates a 'super app' that is both the number one online gaming and social media platform in China. Despite the difficult economic environment, it has continued to increase sales and push profit margins higher. We feel Tencent looks cheap versus comparable global companies.

BSD Analysis:
The managers added Tencent following their China research trip, attracted by the company's dominant market position and resilient financial performance. Tencent's 'super app' ecosystem combines the leading online gaming platform with China's top social media network, creating powerful network effects and user engagement. Despite challenging economic conditions in China, the company has demonstrated operational excellence by continuing to grow sales while expanding profit margins. The valuation appears attractive when compared to global technology peers with similar market positions and growth profiles. Tencent's diversified revenue streams, dominant market share, and proven ability to navigate difficult environments make it a compelling investment opportunity in the Chinese technology sector.

Pitch Summary:
Since 2020, Anta has been converting its wholesale-led growth strategy towards retail customers. This has pushed up sales growth and profit margins. We expect low double-digit annualised sales growth at Anta over the next five-or-so years, led by ongoing store expansion and faster growth at its smaller brands. Yet its shares trade at 20% below their five-year average.

BSD Analysis:
The managers initiated a position in Anta Sports following a research trip to China, attracted by the company's successful strategic transformation. Since 2020, Anta has shifted from a wholesale-focused model to direct retail operations, resulting in improved sales growth and higher profit margins. The managers project low double-digit annual sales growth over the next five years, driven by continued store expansion and accelerated growth from smaller brand portfolios. The valuation opportunity is compelling, with shares trading 20% below their five-year average despite the positive operational transformation. This combination of strategic repositioning, growth prospects, and attractive valuation creates a favorable risk-reward profile in the Chinese sportswear market.

Pitch Summary:
As a critical supplier of tools and services to the semiconductor supply chain, Synopsys is benefiting from the move towards larger and more complex chips, while the market seems to have overlooked the value of its merger with Ansys. We added to our position.

BSD Analysis:
The managers view Synopsys as a strategic beneficiary of semiconductor industry evolution, particularly the trend toward larger and more complex chip designs. As a critical supplier of electronic design automation tools and services, Synopsys occupies an essential position in the semiconductor supply chain. The recent merger with Ansys appears undervalued by the market, presenting an opportunity for value realization. The managers' decision to add to their position during weakness demonstrates conviction in the company's long-term prospects. The semiconductor industry's increasing complexity should drive sustained demand for Synopsys' specialized tools and services, supporting revenue growth and market position expansion.

Pitch Summary:
Amazon continues to take market share in online retailing and is increasing the profitability of its US and international arms. Its cloud computing division alone generates revenues of more than $100 billion per annum and is growing at 18% a year with expected profit margins in the mid-30s. Yet the company is now on its cheapest valuation versus expected profits in a decade.

BSD Analysis:
The managers maintain a bullish stance on Amazon despite recent underperformance, viewing current weakness as temporary. They highlight Amazon's continued market share gains in e-commerce and improving profitability across both domestic and international retail operations. The cloud computing division (AWS) stands out as a key growth driver, generating over $100 billion in annual revenue with robust 18% growth and expected profit margins in the mid-30s. The compelling valuation story centers on Amazon trading at its cheapest level relative to expected earnings in a decade, suggesting significant upside potential. This combination of operational momentum, strong cloud fundamentals, and attractive valuation creates a compelling investment opportunity despite near-term headwinds.

Pitch Summary:
Another example is QXO, which is run by business-guru Brad Jacobs. QXO is a PIPE that we were able to add to the portfolio below $10 per share; QXO ended the quarter near $16.

BSD Analysis:
Hood River Capital Management identified an attractive investment opportunity in QXO, a PIPE (Private Investment in Public Equity) led by renowned business executive Brad Jacobs. The fund acquired shares below $10 and witnessed a 60% appreciation to approximately $16 by quarter-end. Brad Jacobs' track record as a successful business builder and operator provides significant credibility to the investment thesis. His previous successes in building and scaling companies across various industries suggest strong execution capabilities for QXO's business services platform. The PIPE structure allowed Hood River to access shares at a discount to public market pricing, demonstrating their ability to identify unique investment vehicles. The rapid appreciation from below $10 to $16 indicates strong market validation of the investment opportunity. This position exemplifies the fund's strategy of backing proven management teams with strong operational track records in building scalable business platforms.

Pitch Summary:
One of these was with Applied Digital Corporation (APLD). The stock was already in our portfolio, but in September we added to the position by co-investing with NVIDIA at a discounted $3.20 per share; APLD closed out the quarter above $8.

BSD Analysis:
Hood River Capital Management demonstrates strong conviction in Applied Digital Corporation by increasing their position through a co-investment opportunity with NVIDIA. The fund acquired additional shares at $3.20 per share in September, representing a significant discount to the quarter-end price above $8.00. This transaction suggests the managers identified substantial value in APLD's digital infrastructure business, particularly given NVIDIA's participation as a co-investor. The 150%+ appreciation from the purchase price to quarter-end indicates the fund's ability to capitalize on unique market inefficiencies. APLD's focus on high-performance computing infrastructure aligns with the growing demand for AI and data center capabilities. The partnership with NVIDIA, a leader in AI hardware, validates APLD's strategic positioning in the digital infrastructure space. This investment exemplifies the fund's approach of leveraging broker relationships and management connections to access attractive opportunities.