Investment Pitches

Pitch Summary:
The sole portfolio update for this quarter covers our investment in Netflix, Inc. common stock (NASDAQ: NFLX), a compounder that we have held for a little bit more than a year. When we made our investment in Netflix last year, I framed it as perfectly fitting Warren Buffett’s model for a great investment. So far, Netflix is sticking to the script. The “one-time huge, but solvable problem” Netflix faced was an abrupt slowdown in new member additions around the world. Netflix shocked financial markets when it reported that its global membership base declined by 203,000 members in the first quarter of 2022 and that it expected to lose an additional 2.0 million members in the following quarter. Barely more than a year later, Netflix is well on its way to solving its “problem” and proving its skeptics wrong. Netflix has grown its global membership base by 17.7 million members over the past 12 months, including by 5.9 million members in the second quarter of 2023. Most of the acceleration Netflix has seen in its membership growth trends thus far is due to the company’s initiatives to crackdown on password sharing between households. Another piece of Netflix’s solution to its “growth problem” is offering advertising-supported plans. The speed at which Netflix was able to execute is breathtaking. Netflix is aiming for sustained double-digit revenue growth, operating margin expansion and growing free cash flow. It also plans to allocate most of the free cash it generates to share repurchases.

BSD Analysis:
Netflix’s moat is global scale plus a recommendation engine that actually converts attention into viewing hours. Distribution is solved—nearly every connected screen ships Netflix-ready by default. Content spend is massive, but the data advantage lets Netflix amortize hits globally in a way legacy studios never could. Pricing power has quietly improved as churn proved lower than feared after increases and password controls. Advertising adds margin optionality without undermining the core subscription model. Competition is rationalizing, which reduces the subsidy wars that once masked Netflix’s advantages. The risk is creative fatigue—content quality must keep pace with volume. The bull case is steady ARPU expansion layered on global scale with improving free cash flow. Netflix wins by turning entertainment into a repeatable operating system, not a hit-driven gamble.

Pitch Summary:
The Fund heavily purchased energy-sector holdings in the first half of the year. The largest Fund purchase overall was Natural Gas Services (NGS), a Texas-focused energy logistics company that fabricates, rents, and maintains compression equipment for oil & gas companies. Shares in the company, which trade at a 45 percent discount to tangible book value, have been under selling pressure as executive turnover, rising debt-loads and descending gas prices have apparently generated some selling pressure in this historically sleepy stock. Fortunately, despite all the management transition noise, we were pleased to see that Steven Taylor, a former Hallibuton executive who has been instrumental in successfully and conservatively steering the company over many years, was re-assuming the CEO role. Although the $125 million market-cap company has seen debt increase from de-minimus levels to just over $60 million in just the last few quarters, we were pleased to see that the increase was made to fund a material expansion in larger horsepower compression rental equipment, the overwhelming majority of which has already been committed to multi-year contracts at strong rates to high quality customers. Furthermore, several competitors to NGS have been highly levered and are now facing rising interest expense and financial pressure as they endeavor to de-lever. As a result, these competitors have not been able to take full advantage of the strong compression market and expand their own rental fleets. Fortunately, NGS was well positioned with a debt-free balance sheet and has been capturing profitable share. With significant debt capacity at the company to put new equipment on profitable, long-term leases, NGS is planning to spend $150 million in capital expenditures this year. With new equipment requiring about six months from purchase-order payment to rental installation and with much of the ramp-up in business having occurred since late 2022, investors have not yet seen the cash flow impact in reported results, which has resulted in distorted cash flow valuation multiples. Normalized, we see free cash flow FCF returns on market value of the company in excess of 20 percent once the newly ordered equipment is fully installed, which we suspect could lead to a nice stock re-rating. With large investor representation on the company’s Board of Directors and high share ownership by the Chief Executive Officer, we believe corporate governance at the company is strong. At quarter end, the Fund held a 2.4 percent position in Natural Gas Services.

BSD Analysis:
Natural Gas Services Group’s moat is niche compression expertise in upstream gas production. Its fleet supports producers who need reliability more than scale. Revenue is tied directly to drilling and production activity, making it cyclical by design. Utilization rates dictate margins more than pricing power. Capital intensity requires disciplined fleet management. Customer concentration can amplify volatility. Industry consolidation helps pricing, but not immunity from commodity swings. The bull case is sustained U.S. gas activity and LNG-driven demand. This is operating leverage to gas cycles—not a structural compounder.

Pitch Summary:
AI wannabe (company's AI does not work, it is operated all by humans); misled investors (the restaurant business is a disaster and the claimed massive backlog is a joke); executives are selling $9.8m of shares; Update 4/10/24 - Filed new $150mil ATM, as expected. Target price: $1 per share.

BSD Analysis:
AI-driven audio software firm with a business model still unproven at scale. The company leans heavily on hype around generative AI, but recurring revenue is modest and customer adoption is limited beyond pilots. The short thesis highlights weak unit economics, heavy cash burn, and dependence on raising capital. As larger AI players integrate similar voice solutions, SoundHound risks commoditization.

Pitch Summary:
RILY is making managerial decisions that are detrimental to APLD; the board is controlled by RILY; raised low-cost financing to 'accelerate growth' but paid-off debt two years ahead of its maturity; insider trades; potential legal blowback from the CEO's sexual harassment allegation;

BSD Analysis:
Applied Digital builds data centers, pivoting from crypto to AI hosting. Bears question customer concentration, credibility of large deals, and capex intensity. Past pivots appear opportunistic. Heavy financing needs risk dilution, while hyperscalers pose existential competitive threats.

Pitch Summary:
The CEO bought the shares using funds from APLD prior to market moving news; insider trades; Update 8/21/23 - Overstated financials; its acquisition of BEBE is impaired under GAAP; BEBE should be consolidated considering the control RILY has on it; Update 11/14/23 - Follow-up report: Undisclosed linkages and loans related to Prophecy Asset Management Update 12/11/23 - Follow-up observations published. Update 12/26/23 - Follow-up twitter threads. Update 5/20/24 Follow-up note: The company under full control of RILY should be consolidated. Thus, the company's liability is understated.

BSD Analysis:
B. Riley Financial combines investment banking, brokerage, and lending with a large balance sheet of illiquid investments. Short reports argue that earnings quality is poor, relying heavily on asset marks that may not reflect true economic value. Rising interest rates and tighter credit have exposed refinancing risks, while leverage magnifies small valuation changes across loan portfolios. Recent scrutiny of its SPAC exposures and loans to distressed borrowers has intensified concern about transparency and sustainability of cash flows.

Pitch Summary:
Fund returns were hurt by the retrenchment in new-home construction, which sent lumber prices plummeting by approximately 70 percent in the back half of 2022. The Fund had entered the year with approximately 18.5 percent of Fund assets invested in five different lumber producers with Interfor (IFP.TO), at 8.4 percent and Resolute Forest Products (RFP), at 5.3 percent, being the two largest positions. Exceptionally high lumber pricing in recent years had been providing these companies with extraordinary cash flows, allowing both Interfor and Resolute to eliminate large amounts of debt from their balance sheets. However, despite the rapidly dwindling debt burden, both firms continued trading at extremely high cash flow yields. While we understood that lumber prices were unusually high and likely to decline over time, we were happy that balance sheets in the sector had been massively de-risked and were pleased that many of our lumber investments had been increasingly returning cash to shareholders through dividends and share repurchases that appeared highly accretive given the cash flows. Unfortunately, we held on to our position in Interfor, which began to sink lower as lumber declined – a function of higher mortgage rates taking a serious bite out of home construction, resulting in a decrease in lumber demand. We had been quite optimistic that our downside in Interfor would be limited, despite the high probability of declining lumber prices over time, given that the company was flowing significant operating cash flow onto the balance sheet, rapidly de-risking valuation. However, we were a caught a little off-guard when the company announced in October that it would acquire Chaleur Forest Products, a 350 million board-foot sawmill operation with two plants in New Brunswick Canada for $280 million. While we understand Chaleur is a modern, efficient and well-run operation, Interfor management appears to have paid a fairly full price of close to $650/thousand board foot for a mill with very few cost synergies with the rest of Interfor’s operations. Importantly, Interfor paid a valuation far above where the rest of Interfor’s operations were trading on a board-foot basis. The move appeared to be a departure from Interfor’s previous successful strategy of purchasing poorly performing assets with good cost synergies at low valuation levels during cyclical downturns and competently upgrading operations. While we certainly hope management will be able to pull a rabbit out of the Chaleur hat, for now the full-priced purchase has unfortunately left the investment community questioning management’s capital allocation proficiency. Furthermore, while the recently closed acquisition was conservatively funded with well-termed debt, it did put additional debt onto the company’s books just as the lumber markets cratered and cash flow in the industry was turning negative. Interfor was the Fund position with the worst impact on performance in 2022, with a decline in the value of the position costing an estimated 3.49 percentage points. Despite the losses, we currently intend to hold the Interfor position pending a recovery. While we certainly share investor concerns that the near-term home construction market is facing significant headwinds driven by surging mortgage rates, we believe that Interfor’s share price, having declined roughly 50 percent from the peak, now already discounts a fairly significant bear market in housing. Trading at just 55 percent of book value and at just $250 per thousand board foot of sawmill capacity, the stock represents excellent value substantially below replacement cost. And while competitors in recent years have spent in excess of $650/thousand board foot for new construction in the Southeast US, new supply additions have been quite limited. Additionally, historic high-cost supply from western Canada has continued to shut down, which will assist in balancing the market. Furthermore, while new home demand may experience a period of weakness driven by mortgage rate sticker shock, we believe strong nominal wage growth and new home price declines, driven by input price declines and homebuilder margin compression, will rapidly improve new home affordability. Long term demographics strongly favor growth in household formation, and a dearth of new supply of homes since the Global Financial Crisis has left the housing market structurally undersupplied. And of course, any declines in mortgage rates would certainly hasten the probability of a lumber market recovery.

BSD Analysis:
Interfor is a lumber producer riding one of the most cyclical commodities in the market. Housing demand, sawlog costs, and trade policy dictate profitability more than strategy decks. The North American footprint gives scale, but not insulation from price crashes. Cost structure flexibility is the key survival trait. Balance-sheet health determines whether downturns are endured or feared. This is not a steady compounder. It’s operating leverage to construction cycles. When lumber prices rise, Interfor’s earnings spike fast. When they fall, patience gets tested just as quickly.

Pitch Summary:
Outside of Hallador, two of the Fund’s other large energy-sector holdings, MEG Energy (MEG.TO) and International Petroleum Corporation (IPCO.TO), also performed well, benefitting from surging cash flows as oil prices soared higher in 2022, allowing each to substantially reduce debt and buy back shares at attractive, value-accretive prices. Gains on MEG and IPCO together added 6.95 percentage points to Fund returns. As both companies are extraordinarily well managed, and continue to sport strong free cash flow yields and long reserve lives, we continue to maintain our positions.

BSD Analysis:
International Petroleum is a small-cap E&P that wins only if management stays disciplined when oil prices cooperate. Its asset base spans Canada and Europe, offering diversification but not immunity from commodity swings. Free cash flow can be meaningful in strong pricing environments. The risk is always capital allocation — growth projects can destroy value faster than they create it. Balance-sheet management matters more than production headlines. This is not a scale supermajor. It’s torque to crude with execution risk layered on top. Shareholder returns look attractive when prices hold. IPC works if discipline outlasts temptation.

Pitch Summary:
Most positively impacting Fund returns in the year were gains in the Fund’s position in Hallador Energy Company (HNRG). The 7 million ton per annum Indiana-based thermal coal producer, which started the year as a $75 million market cap company, added 5.97 percentage points to Fund returns. We significantly grew the position in the first half of 2022 as shares began climbing to eventually more than triple in value. The levered company, with $108 million in debt, had been trading at about half of tangible book value as it struggled with depressed margins as cost inflation ate into profits after much of its coal production for the year had been contracted out at modest pricing prior to the run-up in coal. Fortunately, the company was able to get through the margin squeeze, repricing a substantial portion of its coal at excellent prices starting in September. We believe Hallador should now be able to generate pretax operating cash flow (EBITDA) of $160 million on contracted business in 2023, allowing the company to potentially repay the entirety of its debt. Furthermore, during the year Hallador was able to pull off what appears to be an extraordinarily bargain priced purchase of the Merom Generating Station. The reportedly well-maintained, one-gigawatt coal-fired power plant, with potential for many years of additional service, was acquired at a price well below carried book value from a seller whose new management team we understand decided to shift strategy in favor of green energy. With new coal power plants reportedly costing in excess of $3,000 per Kilowatt ($3 billion per gigawatt) in 2008 (few new plants have been built since), we think Hallador shareholders may be the recipients of a great deal. The plant, located just a few miles down the road from Hallador’s mining infrastructure, should provide the ability for Hallador to vertically integrate operations and broaden its potential customer base, adding the ability to convert coal and sell the electricity to a myriad of new buyers on the increasingly hungry grid. At year-end, Hallador was the largest position in the Fund, comprising 7.54 percent of Fund assets.

BSD Analysis:
Hallador Energy is successfully executing a transformational pivot from a traditional coal producer to an integrated independent power producer in early 2026. The company is capitalizing on the "unbalanced energy equation" created by the retirement of dispatchable generators, with its subsidiary, Hallador Power, offering a reliable counterpoint to intermittent renewable sources. Significant forward sales contracts for 2026 at an average price of over $44 per MWh provide strong revenue visibility and a defensive buffer against spot market volatility. Management is aggressively targeting the booming data center market in Indiana, where electricity scarcity is driving a massive premium for reliable, base-load power. Strategic debt reduction and the restructuring of the Sunrise Coal division have significantly improved the balance sheet, creating a stable platform for future acquisitions of dispatchable assets. While the coal segment faces structural headwinds, Hallador’s vertical integration and focus on high-demand industrial power sales position it as a unique beneficiary of the evolving energy landscape.

Pitch Summary:
Paywalled (Hershey faces rapidly growing competition from one of the world’s youngest, most talented, and most influential entrepreneurs: 25-year-old YouTube star Jimmy Donaldson, AKA MrBeast. His new chocolate brand, Feastables, has waged an all-out war against Hershey in retail and on social media — and is winning.) Update 3/21/24 - Follow-up report: Hershey is losing in competition.

BSD Analysis:
Hershey is a leading confectionery and snacks manufacturer. The bear case focuses on margin pressure from cocoa price inflation, slowing volume growth in North America, and questions about the sustainability of price-driven gains. Recent commodity spikes have dramatically raised input costs, and while Hershey has pushed through pricing, elasticity risks are rising. Expansion into salty snacks diversifies revenue but remains small relative to chocolate. With valuation near historical highs, any sign of margin compression or demand weakness could drive multiple contraction. Regulatory and ESG scrutiny on sugar content add another layer of risk.

Pitch Summary:
Service fee is far higher compared to peers, likely to suffer ~30% decline in service fees; EPS is going negative in 18 months; multi-years of net losses are uncommon for such 'safe' businesses;

BSD Analysis:
SCI is North America’s largest funeral and cemetery operator. Shorts highlight slowing growth post-pandemic, rising cremation adoption, and leverage. Pandemic-era demand boosted earnings, but normalization has arrived. Capex for cemeteries is ongoing, and competition from cheaper cremation erodes pricing. Multiple looks rich for a low-growth model.

Pitch Summary:
Misleading shareholders and lack of transparency; risky financial situation (high-risk, payment-in-kind loans and cash shortfalls); business slowdown (decline in loan originations); dividend strategy and long-term viability is likely to deteriorate; Update 8/9 - Follow-up tweet

BSD Analysis:
Runway Growth Finance is a BDC focused on venture lending. Short risk lies in credit concentration, borrower stress, and rate sensitivity. Venture-backed borrowers face funding gaps and higher defaults, while leverage magnifies NAV risk. Dividends could prove unsustainable if credit losses mount.

Pitch Summary:
We maintained conviction that traditional energy sources (fossil fuels) will remain in high demand during the long-term transition to renewables, and ET is an attractive operator in the space. We trimmed our position slightly from ~7% to ~4.5%, to decrease exposure slightly and raise cash for new buys. In Q2 we held multiple calls with the head of investor relations, where we received useful information about future dividend payouts and more detailed understanding of their Permian Basin developments.

BSD Analysis:
Energy Transfer enters 2026 with an aggressive capital investment outlook, projecting $5.0 billion to $5.5 billion in growth capital primarily dedicated to natural gas network expansion. Management expects to generate between $17.3 billion and $17.7 billion in consolidated adjusted EBITDA for the year, fueled by major projects like the Nederland Flexport NGL expansion and the Mustang Draw processing plants coming online. The partnership continues to target a long-term annual distribution growth rate of 3% to 5%. For 2026, the investment case is bolstered by the 516-mile Transwestern Pipeline expansion, positioning Energy Transfer as the dominant midstream player for the Permian Basin’s burgeoning southwestern markets.

Pitch Summary:
We see strong earnings growth for Lilly based on high demand for their existing drugs and strong earnings potential with Mounjaro. The efficacy of Eli Lilly’s top drugs is far higher than top competing peers, and we are especially interested in the potential of Mounjaro, which is Lilly’s answer to the very popular obesity drug Ozempic. We see potential that Mounjaro could surpass Ozempic’s sales, since Mounjaro has higher efficacy and acts on both GIP & GLP-1 receptors (whereas Ozempic only acts on GLP-1).

BSD Analysis:
Eli Lilly has officially entered a "post-GLP-1 diversification" phase for 2026, recently announcing the acquisition of Orna Therapeutics to pioneer in vivo CAR-T and circular RNA treatments. While obesity treatments remain the current earnings engine, the 2026 roadmap is defined by the launch of Orforglipron, an oral GLP-1 candidate intended to de-bottleneck manufacturing constraints. Strategic catalysts for the year include an inflection in the margin profile as the product mix shifts toward specialty oncology and immunology. With a "Strong Buy" sentiment, Lilly is utilizing its massive cash generation to hedge against potential price pressures on Mounjaro/Zepbound by building out the industry's most robust cardiometabolic and genetic medicine pipelines.

Pitch Summary:
C3.ai is an innovator growing quickly, but they’re far from profitable. Kate had some questions about sizable accounting discrepancies she noticed between GAAP and adjusted earnings-per-share. The answers given by C3.ai’s team were not very convincing, and weeks later they were mentioned in the press for accounting issues that needed fixing. We think the risks currently outweigh the benefits.

BSD Analysis:
C3.ai is navigating a complex fiscal 2026, recently narrowing its full-year revenue guidance to a range of $289.5 million to $309.5 million. The company's Federal business remains a bright spot, with bookings in defense and aerospace surging 89% year-over-year despite broader macroeconomic headwinds. However, some analysts project a potential revenue contraction this year as the firm transitions toward its next-generation Agentic AI Platform. Management is prioritizing "clear pathways to cash generation," focusing on the 100+ customer agreements jointly closed with Microsoft. For 2026, the primary test will be converting its massive deal pipeline into sustainable, non-GAAP profitability as enterprises move from AI pilots to scaled deployment.

Pitch Summary:
AMD already has a significant 3% weighting in Core portfolios, so we maintained our positioning. Our holdings have posted a ~20% gain through June 30. AMD conceded NVIDIA’s dominance in GPU but made the case for CPU chips being instrumental in generative AI’s long-term growth path. If GPUs are important for early stage ‘training’ of AI models, CPUs will be instrumental for inference.

BSD Analysis:
AMD is executing a "pivot to parity" in 2026, with all eyes on the second-half rollout of the MI450 AI chip lineup. For Q1 2026, the company issued revenue guidance of $9.8 billion (±$300 million), including initial sales of the MI308 accelerator for the China market. Analysts view AMD as the most compelling AI trade for 2026, citing a "sizeable valuation gap" compared to NVIDIA and the potential for a massive revenue spike if MI450 production meets institutional demand. Management recently appointed Ariel Kelman as CMO to lead the AI market-share capture strategy. With a forecast EPS growth rate of 30.7%, AMD’s investment thesis centers on its ability to offer high-performance alternatives to hyperscalers currently facing NVIDIA supply constraints.

Pitch Summary:
WestEnd added to our NVIDIA position in April following our meetings, making it the largest holding in Core Portfolios. The stock has risen more than +80% through June 30. No single company may be more important to generative AI than NVIDIA, given their place as the inventor of the graphics processing unit (GPU) in 1999. The logic here is simple: companies need GPUs to fold AI into their business models, and no company on the planet matches NVIDIA’s capability and sophistication in producing them. Risks include ongoing trade and technology tensions between the U.S. and China and some GPU competition from AMD, but neither pose a short-term headwind to demand, which has been soaring.

BSD Analysis:
NVIDIA enters 2026 as the world’s most valuable company, recently reporting record-breaking Q3 fiscal 2026 revenue of $57.0 billion, a 62% increase year-over-year. Data Center revenue reached an unprecedented $51.2 billion, driven by the "off the charts" demand for the Blackwell architecture and a strategic pivot toward sovereign AI infrastructure. Management has issued a robust Q4 2026 revenue guidance of $65.0 billion, with a target to exit the year with non-GAAP gross margins in the mid-70% range as supply chain efficiencies for CoWoS packaging improve. The primary catalyst for 2026 is the transition to the Rubin architecture, which integrates the Vera CPU and Bluefield-4 DPU to deliver a fivefold performance leap over Blackwell. NVIDIA has returned $37.0 billion to shareholders in the first nine months of the fiscal year and maintains a remaining buyback authorization of over $62 billion, solidifying its status as the definitive "AI factory" provider for the global economy.

Pitch Summary:
Changes to FDA requirement enables consumer to bypass the company; the current business practice could result in a serious legal risk; the company's main product is 'commoditized'.

BSD Analysis:
Hims & Hers Health operates a telehealth platform for wellness and lifestyle prescriptions. The short thesis raises concerns around customer acquisition costs, sustainability of growth once pandemic tailwinds fade, and regulatory risk in online prescription models. Bears argue the business is marketing-heavy with low switching costs and limited moat.

Pitch Summary:
Inferior technology in a hyper-competitive market; all the main points of the bull thesis are flawed; the main business is destined to fall, similar to pagers and pay-phones; burning cash; never generated free cash flow;

BSD Analysis:
Viasat faces execution challenges in integrating Inmarsat, managing leverage, and sustaining growth in satellite broadband. Short reports emphasize capital intensity, slow payback periods, and competitive pressures from Starlink. Bears also highlight risks from satellite launch failures and capacity constraints.

Pitch Summary:
The actual transaction was for the benefit of the CEO, who deceived investors by getting rid himself of a failing business plus his personal debts; lofty and missing financial forecasts;

BSD Analysis:
Applied Digital develops data centers for high-performance computing and crypto mining. Shorts cite overreliance on volatile crypto demand, capital intensity, and weak customer contracts. Questions remain on long-term profitability as competition in AI hosting grows.