Investment Pitches

Pitch Summary:
Lastly, we added a position in another data company in Red Violet (ticker: RDVT) in the quarter. Unlike Clarivate, which provides a suite of niche, high value services to a few particular industries, Red Violet is focused on being an "arms dealer" of personal identity data that powers other data service company solutions. They do this for a variety of end-markets: financial/corporate (AML, KYC), real estate, collections, investigative, retail, etc. The Red Violet management team built two of the other three players in the industry and have "gotten the gang back together," only this time they have built a cloud-first architecture and have high inside ownership. We have followed the small (~$300m market cap), thinly traded company for a long time and had an opportunity to take a meaningful stake via secondary by a charitable foundation shareholder at a cost just under $19. Growing 20% as of 1Q24, Red Violet seeks to maintain its high growth rate via efforts to move up-market towards enterprise customers as well as reaping gains from recently entered verticals such as government, legal, and marketing.

BSD Analysis:
Red Violet offers exposure to a specialized data infrastructure business with experienced management and strong growth prospects. The company's role as an "arms dealer" for personal identity data creates a valuable position in the data ecosystem, serving multiple end markets including financial services, real estate, and government. The management team's track record of building two other successful companies in this space provides confidence in execution capabilities. The cloud-first architecture and high insider ownership align management interests with shareholders. At a $300 million market cap with 20% growth, the company appears well-positioned to benefit from increasing demand for identity verification and compliance solutions. The recent expansion into government, legal, and marketing verticals, combined with the move toward enterprise customers, should drive continued growth and margin expansion.

Pitch Summary:
We also added a position in Clarivate (ticker: CLVT), a data services provider that operates across academic research, intellectual property, and life sciences. We came to the investment from cross-work in another holding, Research Solutions (ticker: RSSS). Ultimately this company sucks in data from participants in the industry, aggregates it, and provides value added services and tools back to those industry participants. The power is in providing customers access to the aggregate. This was a private equity roll-up of a bunch of different data assets that paid too little attention to product innovation, leading to a period of stagnating growth and repeatedly missing guidance. The business of selling many tools and services on a pile of fixed cost assets (data) remains tremendous as can be seen by Clarivate's mid-to-high 30% EBITDA margins and strong returns on invested capital. With new management and board members in place and 18 months of an "investment cycle" under their belt, we view the risk/reward of CLVT to be favorable at these levels, with a strong upside case if they can reinvigorate growth to their target levels.

BSD Analysis:
Clarivate represents a compelling data aggregation business with strong underlying economics but temporary execution challenges. The company's model of collecting industry data, aggregating it, and providing value-added services creates significant competitive moats and pricing power. The mid-to-high 30% EBITDA margins and strong returns on invested capital demonstrate the inherent quality of the business model. Previous management's focus on financial engineering over product innovation led to growth stagnation, but new leadership and 18 months of investment in the platform should drive improved performance. The fixed-cost nature of data assets provides significant operating leverage as growth resumes. This investment offers attractive risk-adjusted returns with a clear path to value creation through operational improvements and renewed growth momentum.

Pitch Summary:
Advanced Auto Parts (ticker: AAP) is the third wheel in a very profitable industry of retail/commercial selling of replacement auto parts. Autozone and O'Reilly have shown how to do this well whereas AAP has shown how NOT to. We think new management, a new Board, and a fiendishly simple strategic plan is a path toward a double in the stock price. We consider the downside here to be boredom if the "fiendishly simple" part proves to be more durable than we anticipate.

BSD Analysis:
The manager identifies a classic turnaround opportunity in the automotive aftermarket industry. Advanced Auto Parts operates in a structurally profitable sector, as demonstrated by the success of AutoZone and O'Reilly, but has significantly underperformed due to poor execution. The recent installation of new management and board members, combined with a simplified strategic approach, creates the foundation for operational improvement. The manager's confidence in a potential double reflects the significant gap between AAP's current performance and industry best practices. The downside risk appears limited given the defensive nature of the automotive aftermarket and the company's market position. This represents a straightforward value play where improved execution in a proven business model could drive substantial returns.

Pitch Summary:
On the plus side, KBR (ticker: KBR) has been a strong performer so far YTD on the back of an investor day in the second quarter that highlighted the success of the last four-year plan (2020-2023) before laying out ambitious but credible targets for the next 4 years (2024-2027). Since 2020, KBR has pivoted their commercial business away from high-risk EPC projects to a more differentiated IP-first consulting approach that now sees 20% EBIT margins and contributes 40% of their overall profitability. KBR has cleaned up their balance sheet by settling convertible notes and warrants and now sits at a healthy 2x net leverage. With the upcoming ramp of a $20B government services contract with the U.S. army, the company is well positioned to generate cash and return value to shareholders.

BSD Analysis:
KBR represents a successful business transformation story with strong execution on strategic initiatives. The company's pivot from high-risk EPC projects to IP-focused consulting has dramatically improved margins to 20% EBIT while reducing operational risk. The balance sheet cleanup and reduction to 2x net leverage provides financial flexibility for growth and shareholder returns. The $20 billion U.S. Army contract represents a significant revenue catalyst that should drive cash generation over the coming years. Management's track record of delivering on four-year strategic plans and setting credible targets for 2024-2027 instills confidence in continued execution. The combination of improved business quality, strong balance sheet, and visible growth from government contracts creates an attractive investment profile with multiple drivers of value creation.

Pitch Summary:
Viasat (ticker: VSAT) has no friends. We are in the limbo of waiting for the launch of two satellites, with essentially $1 billion of cost sitting around in warehouses. We expect those satellites to be in service mid-25 and late-25. There is no growth until then, as the company has slowly abandoned the rural broadband market to allocate limited capacity to their commercial markets. There is tremendous "not being monetized" value in the Viasat/Inmarsat combination given commercial and defense opportunities in space in the decades ahead, but a pair of satellite failures has clearly given Starlink and eventually Kuiper a complete 4 year "gimme" to develop as formidable competitors. Irrelevant at current stock price. The defense business is arguably worth 2x the current market cap.

BSD Analysis:
The manager presents a contrarian view on Viasat, acknowledging the company's current challenges while highlighting significant undervalued assets. The $1 billion in satellite infrastructure represents substantial sunk costs that should generate meaningful returns once operational in 2025. The Viasat/Inmarsat combination creates a unique platform for commercial and defense space opportunities over the coming decades. While competitive pressures from Starlink and Amazon's Kuiper are real concerns, the manager argues these are already reflected in the depressed valuation. The defense business alone appears to justify the current market capitalization, providing significant downside protection. This represents a classic turnaround situation where patient capital could be rewarded as operational assets come online and the market recognizes the strategic value of the combined entity.

Pitch Summary:
We have reset our position in Compass Minerals (ticker: CMP) to 2.5% from 5%. The valuation being accorded to its two "irreplaceable" U.S. assets in salt and sulfate of potash are worth multiples of the current value of the stock, but weather headwinds have sucked the life out of the equity. Said another way, the company has been idiotically run and managed with a mindset that weather is NOT an issue in agriculture and de-icing salt and that has cost us dearly to date. A 72-year-old Board member has stepped in as CEO with a very obvious mission: reduce costs and sell the company. We again would note the Koch family paying $36 per share for a 17% share in the company, among other unhappy people.

BSD Analysis:
The manager maintains conviction in Compass Minerals despite reducing position size due to execution disappointments. The investment thesis centers on the significant undervaluation of the company's irreplaceable salt and sulfate of potash assets, which are trading at fractions of their intrinsic worth. Poor management decisions regarding weather risk management have created temporary headwinds, but new leadership with a clear mandate to cut costs and explore strategic alternatives represents a potential catalyst. The Koch family's $36 per share investment at a 17% stake provides a valuable reference point for fair value and validates the asset quality. While weather volatility remains a concern, the combination of irreplaceable assets, new management focus, and strategic interest from sophisticated investors creates an attractive risk-adjusted opportunity.

Pitch Summary:
E.W. Scripps (ticker: SSP) is too stupid cheap and too levered. We think both will be relieved to a great degree by an upcoming sale of their Bounce network, which could be sold for more than their current market cap. We also note Berkshire Hathaway and the Scripps family are key variables here being underestimated in the public opinion of balance sheet resolution for the company. A complete miss in national advertising trends in the past year has developed into a hairier balance sheet to which we generally feel comfortable. We again have been slowly in and out of the equity several times over the past seven years with solid results. This time around has been a little stickier.

BSD Analysis:
The manager presents a compelling value thesis on E.W. Scripps, emphasizing the company's extreme undervaluation relative to asset value. The upcoming Bounce network sale represents a significant catalyst that could unlock value exceeding the current market capitalization. The presence of sophisticated investors like Berkshire Hathaway and the founding Scripps family provides additional validation of the investment thesis. While the company faces near-term headwinds from advertising market weakness and elevated leverage, the manager's track record of successful trading in this name over seven years demonstrates deep familiarity with the investment. The current balance sheet concerns appear manageable given the asset monetization opportunity. This represents a classic deep value play with a clear catalyst for value realization.

Pitch Summary:
ISS A/S is a facility management company, specializing in services that are non-core to their customers. Its services include routine and specialized cleaning, food management and catering, building management, security, and other services. We like the company's scale, focus, geographic footprint, wide array of services, employee base, and sticky customer relationships. Its focus on services that are non-core to its customers allows for the company to benefit from the trend of outsourcing these types of services. The company executed well throughout the pandemic showing consistent progress towards its goals including growth, margins, free cash flow, and financial leverage. The company has improved margins and is entering a relatively more normalized operating environment, and it continues to trade at an attractive discount to our estimate of fair value.

BSD Analysis:
Vulcan Value Partners initiated a position in ISS A/S, recognizing the company's leading position in global facility management services with strong competitive advantages. The manager's thesis centers on ISS's comprehensive service offering including cleaning, catering, security, and building management - all non-core functions that customers increasingly prefer to outsource. Vulcan highlights the company's scale advantages, geographic diversification, extensive employee base, and sticky customer relationships as key competitive moats. The investment case emphasizes the secular outsourcing trend for non-core services, positioning ISS to benefit from continued market growth. The manager notes strong pandemic execution with consistent progress on growth, margins, free cash flow, and financial leverage metrics. With improved margins and a more normalized operating environment emerging, ISS appears well-positioned for continued performance. The combination of defensive business characteristics, secular tailwinds, and attractive valuation relative to fair value estimates makes this an appealing investment opportunity in the commercial services space.

Pitch Summary:
Sdiptech acquires and develops niche infrastructure companies that contribute to more sustainable, efficient, and safe societies. Today, Sdiptech is a collection of approximately 40 operating businesses. We believe these businesses are positioned well to compete and possess a natural ability to grow their competitive moats. Sdiptech's management team has appropriately navigated the varied markets over the past few years and has consistently operated with the long-term in mind. Over the last two years, the stock price has traded at a substantial discount to our estimate of fair value. We followed our discipline and added to the position accordingly. The recent share price increase could be attributed to the company's consistently strong operating performance.

BSD Analysis:
Vulcan Value Partners views Sdiptech as an attractive infrastructure technology consolidator with a portfolio of approximately 40 niche operating businesses focused on sustainability, efficiency, and safety solutions. The manager's thesis centers on the quality of Sdiptech's underlying businesses, which are well-positioned competitively with natural abilities to grow their competitive moats over time. Vulcan emphasizes management's long-term operational approach and their successful navigation of varied market conditions in recent years. The investment case appears to be driven by valuation opportunity, as the stock traded at a substantial discount to fair value estimates over the past two years, prompting position additions. Recent share price appreciation reflects the company's consistently strong operating performance across its diversified portfolio. The infrastructure focus on sustainable and efficient solutions aligns with secular trends, while the decentralized business model provides diversification and growth optionality. This appears to be a quality compounder purchased at attractive valuations with strong management execution.

Pitch Summary:
CarMax is the largest used car retailer in the United States. The company has the third largest wholesale business in the U.S. and a large captive finance business. We believe that CarMax's omnichannel approach is a competitive advantage that will enable the company to continue taking market share in a highly fragmented market. This strategy enables the company to generate higher and more stable levels of profit per used vehicle sold and generate solid returns on capital. A significant portion of the used car market is made up of small independent dealerships without resources to invest in digital infrastructure. Another significant portion of the market is made up of digital-only retailers, who are now focused on profitability at the expense of volume. CarMax continues to invest in its digital infrastructure which has improved its customer experience. These investments have made it easier to buy, sell and finance vehicles. Over the last two years, management has focused on de-leveraging the company's balance sheet and right sizing the firm, which has significantly de-risked the business and positioned CarMax well for when volumes normalize. We believe that the combination of a leaner cost structure and an improved competitive position will strengthen the company's prospects.

BSD Analysis:
Vulcan Value Partners initiated a position in CarMax, recognizing the company's dominant position as the largest U.S. used car retailer with significant competitive advantages. The manager's thesis emphasizes CarMax's omnichannel approach as a key differentiator in a highly fragmented market, enabling higher and more stable profit per vehicle and solid returns on capital. Vulcan highlights the competitive landscape where small independent dealers lack digital infrastructure resources, while digital-only competitors are sacrificing volume for profitability. The investment case centers on CarMax's continued digital infrastructure investments that enhance customer experience across buying, selling, and financing vehicles. The manager views recent balance sheet deleveraging and operational right-sizing as significant de-risking measures that position the company well for volume normalization. With the third-largest wholesale business and substantial captive finance operations, CarMax appears well-positioned to gain market share. The combination of a leaner cost structure and improved competitive positioning should drive stronger prospects as market conditions normalize.

Pitch Summary:
Qorvo is a leader in radio frequency (RF) systems and power management solutions for mobile devices, wireless infrastructure, aerospace and defense, the Internet of Things, and various other applications. Qorvo's chipsets are a small cost but are critical components in modern mobile devices. As data needs increase and telecommunications technology continues to evolve and become more complex, more RF content is needed in each device. The complexity and barriers to entry intensify as content requirements increase and space constraints become more pronounced. Qorvo operates in an oligopoly with only a small number of companies capable of producing these increasingly complex chipsets at scale. Qorvo should also benefit as growth accelerates in adjacent markets and these markets eventually become a larger piece of the business through the adoption of the Internet of Things, satellite, Wi-Fi, and other markets. The company has faced headwinds over the past few years including lower demand in China, excess inventory in the channel, and factory underutilization; but secular tailwinds should drive growth and, in turn, margin expansion.

BSD Analysis:
Vulcan Value Partners initiated a position in Qorvo, viewing the company as a leader in the critical RF semiconductor space with strong competitive positioning. The manager's thesis centers on Qorvo's oligopolistic market position, where only a few companies can produce increasingly complex RF chipsets at scale for modern mobile devices. As telecommunications technology evolves and data needs increase, more RF content is required per device, creating secular growth drivers despite space constraints. Vulcan recognizes near-term headwinds including reduced China demand, channel inventory issues, and factory underutilization, but believes these are temporary challenges. The investment case emphasizes expanding addressable markets through Internet of Things, satellite, and Wi-Fi adoption, which should diversify revenue streams beyond mobile. The manager expects secular tailwinds to drive both growth and margin expansion as the company benefits from its technical capabilities and market position. This appears to be a contrarian investment during a cyclical trough with strong long-term fundamentals.

Pitch Summary:
Planet Fitness pioneered the "high value, low price" (HVLP) gym model and operates over 2,500 gyms globally with 18.7 million members. Their straightforward, no-frills approach offers excellent value, appealing to a diverse and casual fitness demographic. Members enjoy a clean environment, regularly updated equipment, and accessible pricing starting at $10 per month, with their premium "Black Card" membership providing extensive benefits and access to all locations. Planet Fitness captured roughly 90% of U.S. gym membership growth from 2011-2019. The company's dominant scale coupled with high advertising spend drives powerful growth, and the company plans to double its number of U.S. locations. Planet Fitness demonstrates robust same-store sales growth, high EBIT margins, strong returns on capital, and excellent free cash flow conversion.

BSD Analysis:
Vulcan Value Partners initiated a position in Planet Fitness, recognizing the company's dominant position in the budget fitness segment through its proven "high value, low price" model. The manager highlights Planet Fitness's impressive market capture of 90% of U.S. gym membership growth from 2011-2019, demonstrating the effectiveness of their accessible pricing strategy starting at $10 monthly. The investment thesis centers on the company's significant expansion runway, with plans to double U.S. locations, supported by powerful scale advantages and high advertising spend that drives growth. Vulcan emphasizes the company's strong operational metrics including robust same-store sales growth, high EBIT margins, strong returns on capital, and excellent free cash flow conversion. The franchise model targeting casual fitness demographics appears well-positioned for continued market share gains in the fragmented fitness industry. The manager views the combination of proven unit economics, expansion potential, and strong financial metrics as attractive at current valuations.

Pitch Summary:
ISS A/S is a facility management company, specializing in services that are non-core to their customers. Its services include routine and specialized cleaning, food management and catering, building management, security, and other services. We like the company's scale, focus, geographic footprint, wide array of services, employee base, and sticky customer relationships. Its focus on services that are non-core to its customers allows for the company to benefit from the trend of outsourcing these types of services. The company executed well throughout the pandemic showing consistent progress towards its goals including growth, margins, free cash flow, and financial leverage. The company has improved margins and is entering a relatively more normalized operating environment, and it continues to trade at an attractive discount to our estimate of fair value.

BSD Analysis:
Vulcan initiated a position in ISS A/S, attracted to the company's leading position in facility management services and its ability to benefit from ongoing outsourcing trends. The fund values ISS's comprehensive service offering including cleaning, catering, building management, and security services that are non-core to customer operations, creating natural outsourcing demand. The company's global scale, geographic footprint, and large employee base provide competitive advantages in serving multinational clients with complex facility needs. ISS demonstrated operational resilience during the pandemic while making consistent progress on key metrics including growth, margins, free cash flow generation, and financial leverage reduction. The sticky nature of customer relationships in facility management creates predictable revenue streams and high switching costs. Vulcan sees the company well-positioned as operating conditions normalize, with improved margins and a strengthened balance sheet. The investment thesis centers on ISS's ability to capture market share in the growing facility management outsourcing market while generating attractive returns on capital. The stock's discount to estimated fair value provides an attractive entry point for a quality business with defensive characteristics and steady cash flow generation.

Pitch Summary:
CoStar Group is a premier information services provider to the commercial and residential real estate industries. It is founder led, sells access to mission critical data and information assets, and is supported by a largely recurring, subscription-based revenue model. While it is difficult to pinpoint the exact reason for the stock's underperformance over the last quarter, its operating results continue to impress us. Therefore, with a stable value, we followed our discipline and added to our position.

BSD Analysis:
Vulcan maintains a bullish stance on CoStar Group despite recent stock underperformance, viewing the company as a dominant information services provider with strong competitive positioning. The fund values the founder-led management structure and the company's mission-critical data assets that generate largely recurring, subscription-based revenues. CoStar's information services are essential to commercial and residential real estate professionals, creating high switching costs and pricing power. The company's impressive operating results continue to validate the investment thesis despite temporary market weakness. Vulcan's decision to add to the position during underperformance reflects confidence in the stable intrinsic value and long-term prospects. The subscription-based business model provides predictable cash flows and high customer retention, supporting sustainable growth and profitability. CoStar's comprehensive database and analytics platform create significant barriers to entry in the real estate information services market. The fund's disciplined approach of buying during periods of stock weakness while fundamentals remain strong demonstrates conviction in the company's competitive advantages and growth trajectory.

Pitch Summary:
During the first quarter, Alphabet's revenue growth accelerated and margins expanded. The company continues to introduce new search pathways with advanced models and algorithms that are 100 times more efficient than they were 18 months ago. Disruption risks to core search from generative AI have not completely abated, but Alphabet's technical prowess and historical investments in leading technologies are becoming more apparent.

BSD Analysis:
Vulcan maintains a bullish view on Alphabet, highlighting the company's accelerating revenue growth and margin expansion as evidence of strong operational execution. The fund recognizes Alphabet's significant technological advancement, with new search algorithms demonstrating 100x efficiency improvements over just 18 months, showcasing the company's innovation capabilities. While acknowledging that generative AI disruption risks to core search remain a concern, Vulcan believes Alphabet's technical expertise and historical technology investments position the company well to adapt and compete. The manager sees the company's deep AI research capabilities and massive computational resources as competitive advantages in navigating the evolving search landscape. Alphabet's ability to integrate advanced AI models into its search platform while maintaining market leadership demonstrates the strength of its technological moat. The combination of accelerating growth, expanding margins, and technological leadership supports the investment thesis despite ongoing industry transformation. Vulcan's confidence in management's ability to leverage AI as an opportunity rather than a threat reflects the company's track record of successfully adapting to technological shifts.

Pitch Summary:
Sdiptech acquires and develops niche infrastructure companies that contribute to more sustainable, efficient, and safe societies. Today, Sdiptech is a collection of approximately 40 operating businesses. We believe these businesses are positioned well to compete and possess a natural ability to grow their competitive moats. Sdiptech's management team has appropriately navigated the varied markets over the past few years and has consistently operated with the long-term in mind. Over the last two years, the stock price has traded at a substantial discount to our estimate of fair value. We followed our discipline and added to the position accordingly. The recent share price increase could be attributed to the company's consistently strong operating performance.

BSD Analysis:
Vulcan maintains a bullish stance on Sdiptech, viewing the company as a well-managed collection of niche infrastructure businesses with sustainable competitive advantages. The fund appreciates management's long-term orientation and ability to navigate varied market conditions while building a portfolio of approximately 40 operating companies focused on sustainability, efficiency, and safety themes. These businesses benefit from natural moat-widening characteristics, positioning them well for continued competitive success in their respective niches. Vulcan has been opportunistic in adding to the position during periods when the stock traded at substantial discounts to estimated fair value over the past two years. The recent share price appreciation reflects the company's consistently strong operating performance across its diversified portfolio of infrastructure assets. The investment thesis centers on Sdiptech's ability to acquire and develop specialized businesses that benefit from secular trends toward sustainability and infrastructure modernization. Management's proven track record of value creation through disciplined capital allocation and operational improvements supports the long-term investment case. The company's focus on essential infrastructure services provides defensive characteristics while offering growth potential through both organic expansion and strategic acquisitions.

Pitch Summary:
CarMax is the largest used car retailer in the United States. The company has the third largest wholesale business in the U.S. and a large captive finance business. We believe that CarMax's omnichannel approach is a competitive advantage that will enable the company to continue taking market share in a highly fragmented market. This strategy enables the company to generate higher and more stable levels of profit per used vehicle sold and generate solid returns on capital. A significant portion of the used car market is made up of small independent dealerships without resources to invest in digital infrastructure. Another significant portion of the market is made up of digital-only retailers, who are now focused on profitability at the expense of volume. CarMax continues to invest in its digital infrastructure which has improved its customer experience. These investments have made it easier to buy, sell and finance vehicles. Over the last two years, management has focused on de-leveraging the company's balance sheet and right sizing the firm, which has significantly de-risked the business and positioned CarMax well for when volumes normalize. We believe that the combination of a leaner cost structure and an improved competitive position will strengthen the company's prospects.

BSD Analysis:
Vulcan initiated a position in CarMax, attracted to the company's dominant market position and omnichannel competitive advantages in the fragmented used car market. The fund sees CarMax benefiting from its scale and digital infrastructure investments that smaller independent dealers cannot match, while digital-only competitors sacrifice volume for profitability. The company's integrated approach combining retail, wholesale, and financing operations generates higher profit per vehicle and more stable returns on capital than traditional competitors. Management's recent focus on balance sheet deleveraging and operational right-sizing has significantly de-risked the business model while improving the cost structure. Vulcan believes CarMax is well-positioned to gain market share as the industry consolidates, with its omnichannel strategy providing superior customer experience through easier buying, selling, and financing processes. The company's third-largest wholesale business and captive finance arm provide additional revenue streams and competitive moats. With normalized volumes expected to return, the combination of improved operational efficiency and strengthened competitive positioning should drive superior returns. The investment thesis centers on CarMax's ability to capitalize on industry fragmentation while benefiting from cyclical recovery in used car volumes.

Pitch Summary:
Qorvo is a leader in radio frequency (RF) systems and power management solutions for mobile devices, wireless infrastructure, aerospace and defense, the Internet of Things, and various other applications. Qorvo's chipsets are a small cost but are critical components in modern mobile devices. As data needs increase and telecommunications technology continues to evolve and become more complex, more RF content is needed in each device. The complexity and barriers to entry intensify as content requirements increase and space constraints become more pronounced. Qorvo operates in an oligopoly with only a small number of companies capable of producing these increasingly complex chipsets at scale. Qorvo should also benefit as growth accelerates in adjacent markets and these markets eventually become a larger piece of the business through the adoption of the Internet of Things, satellite, Wi-Fi, and other markets. The company has faced headwinds over the past few years including lower demand in China, excess inventory in the channel, and factory underutilization; but secular tailwinds should drive growth and, in turn, margin expansion.

BSD Analysis:
Vulcan initiated a position in Qorvo, viewing the company as a beneficiary of increasing RF content complexity in mobile devices and emerging technologies. The fund recognizes Qorvo's position in an oligopolistic market where only a few companies possess the technical capabilities to produce increasingly sophisticated chipsets at scale. As telecommunications technology evolves and data requirements grow, each device requires more RF content, creating a secular growth driver for Qorvo's solutions. The company's small but mission-critical components provide pricing power despite representing a minimal cost to device manufacturers. Vulcan sees significant opportunity in adjacent markets including Internet of Things, satellite communications, and Wi-Fi applications that should diversify revenue streams beyond mobile. While acknowledging recent headwinds from China demand weakness, channel inventory issues, and factory underutilization, the fund believes secular trends will drive recovery and margin expansion. The increasing complexity and space constraints in modern devices create higher barriers to entry, strengthening Qorvo's competitive position. The investment thesis centers on the company's technical leadership in an essential technology experiencing accelerating adoption across multiple end markets.

Pitch Summary:
Planet Fitness pioneered the "high value, low price" (HVLP) gym model and operates over 2,500 gyms globally with 18.7 million members. Their straightforward, no-frills approach offers excellent value, appealing to a diverse and casual fitness demographic. Members enjoy a clean environment, regularly updated equipment, and accessible pricing starting at $10 per month, with their premium "Black Card" membership providing extensive benefits and access to all locations. Planet Fitness captured roughly 90% of U.S. gym membership growth from 2011-2019. The company's dominant scale coupled with high advertising spend drives powerful growth, and the company plans to double its number of U.S. locations. Planet Fitness demonstrates robust same-store sales growth, high EBIT margins, strong returns on capital, and excellent free cash flow conversion.

BSD Analysis:
Vulcan initiated a position in Planet Fitness, attracted to the company's disruptive "high value, low price" business model that has proven highly successful in capturing market share. The fund sees significant growth potential as Planet Fitness plans to double its U.S. location count from current levels, supported by strong unit economics and franchise expansion. The company's dominant market position is evidenced by capturing 90% of U.S. gym membership growth during 2011-2019, demonstrating the appeal of its accessible pricing model starting at $10 monthly. Planet Fitness benefits from powerful operating leverage through its franchise model, generating high EBIT margins and strong returns on capital while maintaining excellent free cash flow conversion. The company's scale advantages enable significant advertising spend that drives brand awareness and membership growth in a fragmented fitness industry. With 18.7 million members across 2,500+ locations, Planet Fitness has built a sustainable competitive moat through its unique positioning targeting casual fitness users. The combination of robust same-store sales growth and expansion runway creates multiple avenues for value creation.

Pitch Summary:
NICE is a global enterprise software company that provides mission-critical contact center software. NICE was a material contributor last quarter. As we said last quarter, the company continues to perform well, and fundamentals are strong. Cloud revenue has grown in line with our expectations. We believe that generative AI will continue to drive cloud adoption and that AI is an opportunity rather than a threat to NICE's business. As the leading platform in the space, the company has many competitive advantages that position them well to win. Cloud penetration is in the low 20% range today and AI will likely accelerate cloud adoption, which should benefit NICE. We believe that this growth will more than offset any seat count attrition due to automation. Furthermore, data and customer examples show AI is driving higher levels of revenue per customer and that AI specific product adoption is increasing rapidly. We followed our discipline and added to our position during the quarter.

BSD Analysis:
Vulcan maintains a bullish stance on NICE, viewing the company as a dominant player in mission-critical contact center software with strong competitive positioning. The fund sees generative AI as a catalyst rather than a threat, believing it will accelerate cloud adoption and drive revenue growth. With cloud penetration currently in the low 20% range, NICE has significant runway for expansion as enterprises migrate from on-premise solutions. The manager highlights that AI is already demonstrating tangible benefits through higher revenue per customer and rapid adoption of AI-specific products. NICE's market-leading position and technical advantages should enable it to capture disproportionate value as the industry evolves. Despite recent underperformance that created a buying opportunity, the underlying fundamentals remain robust with cloud revenue growing in line with expectations. The fund's decision to add to the position during weakness reflects confidence in the long-term thesis and the company's ability to monetize the AI transformation.