Investment Pitches

Pitch Summary:
Alphabet contributed to portfolio performance in the second quarter, boosted by a strong earnings report featuring better-than-expected revenues across all businesses. The company's positive commentary on the long-term monetization of its AI investments, dividend initiation and increase in its share buyback program contributed to the strong performance. Additionally, evidence increasingly suggests that competitors' GenAI use cases have not disrupted Alphabet's search business, allowing the company to maintain its market leadership and attract incremental advertising dollars.

BSD Analysis:
The manager expresses strong confidence in Alphabet's resilient business model and AI monetization strategy. The investment thesis is built on three key pillars: robust financial performance across all business segments, successful AI investment monetization, and defensive market positioning. The manager highlights that competitive GenAI threats have not materially disrupted Alphabet's core search franchise, demonstrating the durability of their market leadership. The company's capital allocation strategy, including dividend initiation and expanded share buybacks, signals management confidence and shareholder-friendly policies. The ability to attract incremental advertising dollars despite AI competition validates the strength of Alphabet's advertising ecosystem. This defensive positioning combined with AI upside optionality creates an attractive risk-adjusted investment profile. The manager's bullish stance reflects confidence in both the core business resilience and emerging AI revenue opportunities.

Pitch Summary:
Nvidia contributed to portfolio performance in the second quarter as investors continued to view positively the new product roadmap for the rest of the year. The company sees accelerating demand for its GPU semiconductors from hyperscalers and enterprises. Nvidia's GPU semiconductors continue to be the industry-leading building blocks of the accelerated computing data center architecture to drive AI compute and applications.

BSD Analysis:
The manager maintains a bullish stance on Nvidia, highlighting the company's dominant position in AI infrastructure. The investment thesis centers on accelerating demand for Nvidia's GPU semiconductors from hyperscalers and enterprises building AI-enabled data centers. The manager emphasizes Nvidia's technological leadership, noting that their GPUs remain the industry-leading building blocks for accelerated computing architectures. The positive investor reception of Nvidia's product roadmap suggests continued innovation and market expansion opportunities. This positioning aligns with the broader secular trend toward AI adoption across industries. The manager's confidence appears well-founded given Nvidia's established market leadership and the structural shift toward AI computing. The investment benefits from both current demand acceleration and long-term AI infrastructure buildout trends.

Pitch Summary:
Founded in 1896 and headquartered in Switzerland, Roche is one of the world's largest biotechnology and diagnostics companies. The company produced over CHF 58 billion in revenue in 2023, just under half of which was generated in the U.S. Roche's drugs are used to treat conditions in a variety of areas, including oncology (about 43% of pharmaceuticals sales), neuroscience (about 19%), immunology (about 14%), hemophilia (about 9%) and others (about 15%). The company is also the leading provider of in-vitro diagnostics, with approximately 20% global-market share. Roche's scale and unique structure, having both a pharmaceutical portfolio (about 75% of group revenue) and a diagnostics business (about 25%), positions it as a pioneer in personalized healthcare. This evolving field uses diagnostic tests to determine which treatments will work best for patients. Approximately two-thirds of Roche's R&D projects focus on combining targeted therapies with companion diagnostics. Some of the quality characteristics we have identified for Roche include: A long and proven history in the research and development of innovative medicines; Economies of scale allow for cost advantages, with more than 29 billion diagnostic tests delivered and millions of patients treated with Roche medicines in 2023; Significant expertise in creating molecularly targeted therapies, particularly those to fight cancer; and Roche's ability to pair drugs with diagnostics can reduce up-front investments, shorten development timelines and boost the commercial potential of new products. We believe increased sales of certain products will lead to higher levels of free cash flow than are currently appreciated by the market. Considering Roche's about 4% dividend yield and our projections of higher future earnings, we view the company to be attractively valued with a normalized P/E of about 14x. We estimate this provides an approximately 30% upside to the share price at time of purchase. Catalysts we have identified for Roche, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include: Continued market share gains within oncology, including for Perjeta to treat breast cancer, Tecentriq for lung cancer, Venclexta for blood cancer and others; Increased penetration of Hemlibra for hemophilia and Ocrevus for multiple sclerosis; Further recognition of value and incremental use cases for portions of the diagnostics division. The pipeline of possible blockbuster developments, such as Roche's Brainshuttle technology used to deliver antibodies to treat neurological diseases, could become catalysts. While the pipeline assets are not (yet) reflected in our estimate of intrinsic value, at present we view these assets as "free options."

BSD Analysis:
Aristotle Capital presents a compelling bull case for Roche, emphasizing the company's unique dual structure combining pharmaceuticals (75% of revenue) and diagnostics (25% of revenue) that positions it as a leader in personalized healthcare. The manager highlights Roche's significant scale advantages, including delivery of 29 billion diagnostic tests and treatment of millions of patients in 2023, which creates cost efficiencies and competitive moats. The investment thesis centers on the company's ability to pair targeted therapies with companion diagnostics, reducing development costs and timelines while enhancing commercial potential. From a valuation perspective, the fund sees significant upside with a normalized P/E of 14x and approximately 4% dividend yield, estimating 30% price appreciation potential. Key catalysts include market share expansion in oncology through drugs like Perjeta, Tecentriq, and Venclexta, plus increased penetration of Hemlibra for hemophilia and Ocrevus for multiple sclerosis. The manager views pipeline assets like Brainshuttle technology as valuable "free options" not reflected in current valuation. This represents a strategic shift from Novartis to what they consider a more optimal pharmaceutical investment with superior growth prospects and structural advantages.

Pitch Summary:
Littelfuse (LFUS), a designer and manufacturer of circuit protection, power control, and sensing products for the automotive, industrial, medical, and consumer end markets, was added to the fund. We believe the company's dominant position in circuit protection and growing presence in automotive sensors and power semiconductors/components should benefit from ongoing efforts to solve power control and connection problems between the digital and physical worlds.

BSD Analysis:
The manager initiated a position in Littelfuse based on the company's strategic positioning at the intersection of digital and physical infrastructure. The investment thesis highlights Littelfuse's dominant market position in circuit protection, providing a stable foundation for growth. The company's expanding presence in automotive sensors and power semiconductors positions it to benefit from vehicle electrification and autonomous driving trends. The broader theme of solving power control and connection problems between digital and physical worlds suggests significant addressable market expansion. This secular growth opportunity spans multiple end markets including automotive, industrial, medical, and consumer applications. The combination of market leadership in core products and exposure to high-growth adjacencies supports the investment rationale.

Pitch Summary:
Chart Indsutries (GTLS), an industrial equipment manufacturer that provides cryogenic equipment for storage, distribution, and other processes within the industrial gas and LNG, hydrogen, helium, carbon capture and water treatment industries—was added to the fund. Strong forward demand for LNG and accelerating hydrogen opportunities coupled with company-specific improvement initiatives should benefit the company moving forward.

BSD Analysis:
The manager initiated a new position in Chart Industries based on compelling exposure to multiple energy transition themes. The investment thesis centers on the company's specialized cryogenic equipment serving critical applications across LNG, hydrogen, helium, carbon capture, and water treatment industries. Strong forward demand for LNG provides near-term visibility while accelerating hydrogen opportunities offer significant long-term growth potential. The company's positioning in carbon capture and water treatment also aligns with environmental sustainability trends. Company-specific improvement initiatives suggest management is focused on operational excellence and margin expansion. This appears to be a strategic play on the energy transition with multiple growth vectors and improving execution capabilities.

Pitch Summary:
A leading marketer of baby and young children's apparel in North America, declined amid a cautious consumer-spending environment and weak direct-to-consumer trends for the business during the quarter. We maintain our position as we believe the company has a strong brand in a stable category and that store rationalization efforts and an improving demographic backdrop can drive a sales recovery in the business in periods to come.

BSD Analysis:
Despite recent underperformance, the manager maintains conviction in Carter's based on fundamental strengths and improving prospects. The thesis rests on the company's strong brand position in the stable children's apparel category, which provides defensive characteristics during economic uncertainty. Current headwinds from cautious consumer spending and weak direct-to-consumer trends appear temporary rather than structural. The manager sees value in the company's store rationalization efforts, which should improve operational efficiency and profitability. An improving demographic backdrop with rising birth rates could provide a tailwind for sales recovery. The combination of brand strength, operational improvements, and favorable demographics supports the contrarian position despite near-term challenges.

Pitch Summary:
A provider of engineering and construction services to the telecommunications and cable television industries, benefitted from continued growth in its core business, funding tailwinds, and expanding margins as demand for wireline services continues to grow. We maintain a position as we believe the company remains well positioned for longer-term growth alongside secular trends for expanding fiber deployments to support faster broadband connectivity speeds and opportunities to deploy fiber to rural or underserved areas across the country.

BSD Analysis:
The manager expresses confidence in Dycom Industries as a beneficiary of secular telecommunications infrastructure trends. The investment thesis is built on the company's exposure to expanding fiber deployments driven by demand for faster broadband connectivity. Recent performance demonstrates the validity of this thesis with continued core business growth, supportive funding environment, and margin expansion. The long-term growth opportunity is particularly compelling given the need to deploy fiber to underserved rural areas across the country. This positions Dycom to benefit from both private sector broadband upgrades and government infrastructure initiatives. The combination of secular growth drivers and operational execution supports the manager's conviction in maintaining the position.

Pitch Summary:
A product and chemical transportation company focused on modern mid-sized vessels, appreciated amid global refinery shifts and geopolitical factors, boosted voyage lengths, and demand for product tankers. We maintain a position as we believe the company continues to operate from a position of strength, driven by recent shareholder-friendly capital allocation decisions, strong operating performance, and a favorable industry supply-demand backdrop.

BSD Analysis:
The manager maintains a bullish stance on Ardmore Shipping, citing multiple favorable industry dynamics driving performance. The thesis centers on the company's strategic positioning with modern mid-sized vessels that benefit from global refinery shifts and geopolitical disruptions extending voyage lengths. Management's shareholder-friendly capital allocation decisions demonstrate disciplined stewardship while strong operating performance validates execution capabilities. The favorable supply-demand backdrop in the product tanker market provides structural tailwinds. The combination of company-specific strengths and positive industry fundamentals supports the manager's conviction in maintaining the position. This appears to be a cyclical play benefiting from both operational excellence and favorable market conditions.

Pitch Summary:
American Water Works Company, Inc. Founded in 1886 and headquartered in New Jersey, American Water Works is the largest and most geographically diverse water (about 92% of regulated sales) and wastewater (about 8%) utility in the U.S. The company serves a population of approximately 14 million people across 14 states, with operations that span 53,700 miles of pipe, 540 water-treatment plants, 1,200 groundwater wells, 1,700 pumping stations and 74 dams. The company expects to invest between $16 billion and $17 billion from 2024-2028 as it replaces and upgrades infrastructure (often decades old) to improve the efficiency and sustainability of its operations. High-Quality Business Some of the quality characteristics we have identified for American Water Works include: • Stable and predictable revenues due to the essential need for water and its structure as a regulated monopoly with long-term service contracts; • A history of growing cash returns to shareholders (about 8% annualized dividend increases over the past five years); • Economies of scale that provide advantages in pursuing new customers via acquisitions; and • Constructive relationships with regulators that support timely cost recovery and the ability to gain approval for continued investments. Attractive Valuation Based on our estimates of normalized earnings and the company's targeted 55%-60% dividend payout ratio, we view shares as attractively valued. We believe opportunities for American Water Works to further enhance its revenues and profitability through infrastructure improvements and acquisitions are not fully appreciated by the market. Compelling Catalysts Catalysts we have identified for American Water Works, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include: • Completion of infrastructure upgrades—including the planned replacement of nearly 2,100 miles of mains and collection pipes between 2024-28—should increase reliability, as well as the value of American Water's assets, enhancing profit levels permitted by regulators; • Well positioned to further consolidate the highly fragmented water utility industry via acquisitions, as increasing regulation and fiscal challenges may drive more municipalities to sell their water assets; and • Further penetration of wastewater services, which is a small but growing portion of American Water Works' operations.

BSD Analysis:
Aristotle Capital presents a compelling bull case for American Water Works, positioning it as a high-quality regulated utility with multiple growth catalysts. The manager emphasizes the company's dominant market position as the largest water utility in the U.S., serving 14 million customers across 14 states with extensive infrastructure assets. The investment thesis centers on three key drivers: a massive $16-17 billion infrastructure upgrade program through 2028 that should enhance asset values and regulatory returns, consolidation opportunities in the fragmented municipal water market, and expansion into wastewater services. The fund views the shares as attractively valued based on normalized earnings and the company's 55-60% dividend payout target, with the market underappreciating growth opportunities from infrastructure investments and acquisitions. The manager highlights the utility's defensive characteristics including stable revenues from essential services, regulated monopoly structure, and strong regulatory relationships that support timely cost recovery. The 8% annualized dividend growth over five years demonstrates consistent capital returns to shareholders. This appears to be a classic value play on a defensive utility with multiple organic and inorganic growth levers.

Pitch Summary:
Microchip Technology develops, manufactures and sells smart, connected and secure embedded control solutions used by its customers for a wide variety of applications. With over 30 years of technology leadership, Microchip's broad product portfolio is a Total System Solution for its customers that can provide a large portion of the silicon requirements in their applications. Total System Solution is a combination of hardware, software and services that helps customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Microchip's synergistic product portfolio empowers disruptive growth trends, including 5G, data centers, sustainability, Internet of Things and edge computing, advanced driver assist systems and autonomous driving, and electric vehicles in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial. We believe Microchip's Total System Solution will continue to support industry share gains and margin expansion as end-market demand for industrial and Internet of Things compute needs begins to recover from current lows. Management has accelerated the drawdown of high customer inventory levels by shutting down manufacturing facilities, and current industry data as well as commentary from peers indicates that overall end demand is seeing early signs of improvement. The company has a demonstrated track record of margin expansion, and we expect to see gross margins trough at the current level and, through internal efficiencies and pricing initiatives for its Total System Solution, expand and drive increasing operating margins and higher levels of free cash flow.

BSD Analysis:
The manager presents a compelling turnaround story for Microchip Technology centered on the company's differentiated Total System Solution approach. The investment thesis relies on the cyclical recovery in industrial and IoT markets after inventory destocking, with early signs of demand improvement emerging. Microchip's 30+ year technology leadership and comprehensive hardware-software-services offering provides competitive advantages and pricing power. The company's exposure to secular growth themes including 5G, data centers, electric vehicles, and autonomous driving offers multiple expansion opportunities. Management's proactive inventory management through facility shutdowns demonstrates operational discipline. The manager expects gross margins to trough at current levels before expanding through operational efficiencies and pricing initiatives. The diversified end-market exposure across automotive, aerospace, communications, and industrial provides stability while positioning for the IoT recovery.

Pitch Summary:
Boston Scientific is a global developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. The company develops cardiovascular and cardiac rhythm management products, including imaging catheters, imaging systems and guidewires. It also makes devices used for electrophysiology, endoscopy, pain management (neuromodulation), urology and pelvic health, including laser systems, hydrogel systems and brain stimulation systems. Boston Scientific markets its products in about 130 countries, with U.S. sales generating about 60% of revenue. We believe Boston Scientific, as a leader in medical devices, is benefiting from the strong utilization trends coming out of COVID, positive demographic trends with aging patients, and new product innovation to gain market share. The company has executed well against the long-range plan issued last fall, which calls for organic sales growth in the range of 8%-10%, 150 basis points of operating margin expansion, and category leadership from 2024 through 2026. Additionally, we see a consistent track record of accelerating organic sales growth and a track record of accretive M&A.

BSD Analysis:
The manager presents a strong bull case for Boston Scientific driven by multiple favorable tailwinds in the medical device sector. The investment thesis rests on three key pillars: post-COVID healthcare utilization recovery, favorable demographics from an aging population, and market share gains through innovation. The company's execution against its long-range plan is particularly compelling, targeting 8-10% organic growth with 150 basis points of margin expansion through 2026. Boston Scientific's diversified product portfolio across cardiovascular, electrophysiology, and neuromodulation provides multiple growth vectors. The manager highlights the company's consistent track record of accelerating organic growth and value-accretive acquisitions. With 60% of revenues from the U.S. market and global presence in 130 countries, the company is well-positioned to capitalize on healthcare spending trends.

Pitch Summary:
Amphenol is one of the world's largest designer, manufacturer and marketer of electrical, electronic and fiber-optic connectors and interconnect systems; antennas; sensors and sensor-based products; and coaxial and high-speed specialty cable. The company estimates, based on recent reports of industry analysts, show worldwide sales of interconnect and sensor-related products were approximately $235 billion in 2023. The company aligns its businesses into three reportable business segments: Harsh Environment Solutions, Communications Solutions, and Interconnect and Sensor Systems. The company sells products to customers in a diversified set of end markets. We see Amphenol benefiting from increased spending by cloud-service providers, hyperscalers and enterprises on new data center architectures that enable AI computing technologies. The increased interconnect content that AI-enabled data centers require, we believe, will underpin a double-digit sales growth outlook for the company over the next few years. The company has attractive end-market diversification, with exposure to both short-cycle and long-cycle, and no single end-market vertical represents more than 25% of revenues. Additionally, Amphenol has strong free cash flow generation, which has supported a successful M&A strategy that has driven enhanced advancement.

BSD Analysis:
The manager presents a compelling bull case for Amphenol based on the AI infrastructure buildout theme. They highlight the company's dominant position in the $235 billion interconnect market and its strategic positioning across three key business segments. The investment thesis centers on AI-driven data center expansion requiring significantly higher interconnect content, which should drive double-digit revenue growth. The manager emphasizes Amphenol's attractive diversification with no single end market exceeding 25% of revenues, providing defensive characteristics. Strong free cash flow generation supports the company's successful M&A strategy for growth acceleration. The timing appears opportune as cloud providers and hyperscalers increase capital expenditure on AI-enabled infrastructure.

Pitch Summary:
U.S. Physical Therapy, Inc. (USPH) was one of the top detractors in the Small Cap strategy in the second quarter. The company is a national operator of outpatient physical therapy clinics and a provider of industrial injury prevention services. Founded in 1990, they operate 683 outpatient physical therapy clinics in 43 states. Adjusted EBITDA was down in the most recent quarter due to lower reimbursements from Medicare, which represents approximately 30% of their revenue base. However, the company continues to offset the lower Medicare reimbursements with positive negotiations with commercial insurance payers, and they continue to make bolt-on acquisitions for new clinics and their industrial injury prevention business. We continue to have confidence in the management team and the long-term prospects for growth and improving financial performance in the business.

BSD Analysis:
SouthernSun maintains confidence in U.S. Physical Therapy despite recent headwinds from Medicare reimbursement pressures affecting approximately 30% of the revenue base. The fund views the company's ability to offset Medicare cuts through successful negotiations with commercial insurance payers as evidence of management's operational capabilities and the underlying value of their services. With 683 clinics across 43 states, USPH has built a substantial national footprint in outpatient physical therapy and industrial injury prevention services since its 1990 founding. The company's continued bolt-on acquisition strategy demonstrates management's commitment to growth and expansion of both core physical therapy operations and the industrial injury prevention business. SouthernSun's confidence in the management team suggests they view current challenges as temporary headwinds rather than structural issues. The fund appears to believe that the company's diversified payer mix, geographic scale, and acquisition-driven growth strategy position it well for long-term financial performance improvement. Despite near-term EBITDA pressure, SouthernSun's maintained position indicates they view current valuations as attractive relative to the company's long-term growth prospects in the healthcare services sector.

Pitch Summary:
Darling Ingredients Inc (DAR) is the largest publicly traded company turning edible by-products and food waste into sustainable products and a leading producer of renewable energy. DAR was the top detractor in the Small Cap strategy in the second quarter. The stock has struggled after a difficult reset period in the third quarter of last year, as fears regarding new industry supply of renewable diesel and the lack of government support have increased. Over time and through thoughtful leadership and capital allocation, the company has built a vertically integrated growth engine with attractive returns on capital while consolidating the industry and driving innovation. After a strong year of EBITDA growth in 2023, we expect 2024 to be an important year of transition before growth resumes over the next 2-3 years, as recent M&A and growth capex drive deleveraging and free cash flow. The company is currently constructing sustainable aviation fuel (SAF) capacity expected to come online in 4Q24 and is evaluating further SAF expansion for the future, as growth and incentives in that market provide significant margin expansion and return on investment. The valuation is compelling, in our opinion, based on multiple scenarios and valuation methodologies. We spent time with local leadership in Brazil during the second quarter – reviewing significant investments that have been made over recent years as well as touring important production facilities. Brazil is the most important international market for Darling where they have consolidated the industry and enjoy very strong market share. While these investments have put some strain on the balance sheet in the near term, we believe the growth in cash flow and return on invested capital will deliver improved stock performance in the years ahead.

BSD Analysis:
Despite recent underperformance, SouthernSun maintains a bullish long-term view on Darling Ingredients, viewing current weakness as a temporary setback in a compelling transformation story. The fund emphasizes the company's leadership position in converting waste into sustainable products and renewable energy, with a vertically integrated business model that has delivered attractive returns on capital through industry consolidation and innovation. While 2024 represents a transition year following strong 2023 EBITDA growth, SouthernSun expects growth to resume over the next 2-3 years as recent M&A and capex investments drive deleveraging and free cash flow generation. The upcoming sustainable aviation fuel (SAF) capacity launch in Q4 2024 represents a significant margin expansion opportunity, with potential for further expansion given attractive government incentives. SouthernSun's on-the-ground research in Brazil, Darling's most important international market, reinforces their confidence in the company's strategic investments and market consolidation efforts. The fund views current valuations as compelling across multiple scenarios, believing that near-term balance sheet strain from growth investments will be offset by improved cash flow generation and returns on invested capital, ultimately driving superior stock performance.

Pitch Summary:
Dycom Industries, Inc. (DY), a leading provider of engineering and construction services to the telecommunications and utility industries, was a top contributor in the Small Cap strategy in the second quarter as the company returned to organic growth and delivered continued margin expansion. The demand outlook for fiber construction in urban areas remains strong as carriers continue to generate good returns on their fiber investments. Public funding for fiber through the ARPA, RDOF, and BEAD programs is an additional source of significant demand. Notably, the $40 billion BEAD program is the largest federal broadband program ever in the U.S., and deployment is expected to start in 2025. According to management, the M&A environment has improved, and two small acquisitions were completed in the first half of 2024. With Net Debt/EBITDA at 1.6x, we believe DY has adequate financial flexibility to take advantage of additional opportunities. Steve Nielsen, CEO, will retire at the end of November, after 25 years leading the company. His successor, Dan Peyovich, was hired as COO in 2021 with succession in mind and has over 20 years of experience in engineering and construction. We plan to meet with Dan over the coming months to discuss his vision for the company. Overall, we believe DY is executing well and remains well positioned to capitalize on the strong tailwinds in the industry while maintaining a shareholder friendly capital allocation strategy.

BSD Analysis:
SouthernSun presents a compelling bull case for Dycom Industries, emphasizing the company's return to organic growth and continued margin expansion in a favorable industry environment. The fund highlights significant demand drivers including strong carrier returns on fiber investments and substantial government funding through federal programs totaling $40+ billion, with the BEAD program representing the largest federal broadband initiative in U.S. history. The company's conservative leverage at 1.6x Net Debt/EBITDA provides financial flexibility for strategic acquisitions, evidenced by two completed deals in H1 2024. While CEO succession presents a transition risk, SouthernSun appears confident in the planned leadership change, with successor Dan Peyovich having been groomed for the role since 2021 and bringing extensive industry experience. The fund views Dycom as well-positioned to capitalize on secular tailwinds in telecommunications infrastructure while maintaining disciplined capital allocation. The combination of organic growth recovery, margin expansion, and strategic acquisition opportunities supports SouthernSun's positive outlook for the company's ability to generate shareholder value in a structurally growing market.

Pitch Summary:
Boot Barn Holdings, Inc (BOOT) was the top contributor in the Small Cap strategy for the second quarter. The company sells western and work-related footwear, clothing and accessories through more than 350 Boot Barn stores in the U.S. BOOT has plans to expand their store count to approximately 900 stores in the coming years, at the rate of an additional 10-15% new stores per year. In our opinion, management continues to execute the play book well – driving healthy operating margins and returning to positive same-store sales growth after several quarters of declining year over year figures – giving more confidence to future top-line growth. We continue to believe that the company has the ability to grow the top-line, improve margins, and execute their strategy with internally generated cash flows, while maintaining a conservatively levered balance sheet.

BSD Analysis:
SouthernSun maintains a bullish stance on Boot Barn, highlighting the company's successful execution of its expansion strategy and operational improvements. The fund emphasizes management's ability to drive healthy operating margins while returning to positive same-store sales growth after several quarters of declines. The expansion plan to reach approximately 900 stores represents significant growth potential from the current 350+ locations, with a disciplined 10-15% annual growth rate. The company's ability to fund this expansion through internally generated cash flows while maintaining conservative leverage demonstrates strong financial discipline. SouthernSun views the combination of top-line growth potential, margin improvement, and prudent capital allocation as key drivers for continued outperformance. The return to positive comparable store sales provides validation of the company's market positioning and execution capabilities. The fund's confidence in management's playbook execution suggests they view Boot Barn as a well-managed growth story in the specialty retail space.

Pitch Summary:
Also in the quarter, we initiated a position in entertainment company, Paramount Global (PARA). Shares tumbled amidst merger talks, which coincided with leadership changes at both the executive and Board level. Continued pressures around the linear TV ecosystem and competition in streaming further drove the stock to new lows. We have held steadfast to our PARA holdings in other portfolios amidst the merger saga and this further price decrease presented an attractive buying opportunity, particularly as the company expects to deliver significant earnings growth in 2024 and to reach Paramount+ domestic profitability in 2025. In our view, the underlying value of the company's proprietary content and media assets are not reflected in the recent share price.

BSD Analysis:
Ariel initiated a new position in Paramount Global, viewing the recent share price decline as an attractive entry point despite ongoing industry headwinds. The fund acknowledges challenges from linear TV pressures and streaming competition but believes the market has oversold the stock amid merger uncertainty and leadership changes. Management's guidance for significant earnings growth in 2024 and Paramount+ domestic profitability by 2025 provides clear operational milestones. Ariel emphasizes the underlying value of Paramount's proprietary content library and media assets, which they believe are undervalued at current prices. The fund's existing holdings in other portfolios demonstrate long-term conviction in the company's assets. The combination of attractive valuation, improving streaming economics, and valuable content assets supports the contrarian investment thesis.

Pitch Summary:
Additionally, leading food equipment manufacturer, Middleby Corporation (MIDD), declined in the period following an earnings miss driven by weaker-than-anticipated organic sales across the commercial, residential and food processing businesses. Importantly, management noted conditions are improving with channel inventories returning to normalized levels and order volumes trending in a positive direction. Meanwhile, profitability remains solid and MIDD continues to generate strong free cash flow. In our view, MIDD's differentiated brands and kitchen innovations offer the latest in automation and advanced cooking technologies, positioning the company for growth and margin expansion as it serves the rapidly evolving needs of the food service industry.

BSD Analysis:
Despite recent earnings disappointment, Ariel remains constructive on Middleby based on improving operational trends and competitive positioning. Management has indicated that channel inventories are normalizing and order volumes are trending positively, suggesting a cyclical recovery. The company maintains solid profitability and strong free cash flow generation despite the recent sales weakness. Middleby's differentiated brands and innovative kitchen technologies, particularly in automation and advanced cooking systems, position the company well for long-term growth. The food service industry's evolving needs toward automation and efficiency play to Middleby's technological strengths. As conditions normalize, the fund expects the company to benefit from margin expansion opportunities. The combination of market-leading technology and strong cash generation supports the investment thesis.

Pitch Summary:
Shares of live entertainment, media and technology company, Sphere Entertainment Co. (SPHR) also traded down on mixed earnings results, giving back some of its strong first quarter gains. Although residency demand is robust and the venues' original content experience and Exosphere remain popular, some investors expect near-term utilization will slow due to Las Vegas seasonality. Meanwhile, international expansion remains the company's priority, with management suggesting a major announcement soon. Although we believe it will take time for Sphere to reach its full potential, the company is well on its way to having events 365 days a year. It is ramping up the scale of its concert residencies, securing marquee sporting and corporate events, and creating more original content for The Sphere Experience. In our view, the new experiential immersive venue in Las Vegas and its potential franchise opportunities alongside the company's two regional sports and entertainment networks present a long-term opportunity that remains meaningfully underappreciated at current trading levels.

BSD Analysis:
Ariel maintains a long-term bullish view on Sphere Entertainment despite near-term volatility and Las Vegas seasonality concerns. The fund highlights robust residency demand and the popularity of the venue's original content and Exosphere technology. Management's focus on international expansion with an anticipated major announcement suggests significant growth potential beyond the Las Vegas market. The company is successfully scaling concert residencies while securing marquee sporting and corporate events to drive year-round utilization. Sphere's unique immersive venue technology creates franchise opportunities that could be replicated globally. The combination of the Las Vegas venue and two regional sports networks provides multiple revenue streams. Ariel believes the market significantly undervalues this innovative entertainment platform and its long-term growth prospects.

Pitch Summary:
In contrast, U.S. direct-to-consumer pool and spa care services company, Leslie's Inc. (LESL), underperformed following another consecutive quarterly decline in earnings resulting from soft consumer demand. Importantly, management confirmed a material improvement in traffic and is forecasting an earnings recovery over the second half of the year. Although we have been deeply disappointed with this investment to date, trends have improved as weather conditions normalized. Meanwhile, we believe LESL is truly differentiated by its loyal client base, vertically integrated supply chain, scale advantage and seamless customer experience. At today's valuation, LESL appears to have more upside than downside.

BSD Analysis:
Despite recent underperformance, Ariel maintains conviction in Leslie's based on improving operational trends and compelling valuation. Management has confirmed material traffic improvements and projects an earnings recovery in the second half of the year as weather conditions normalize. The fund emphasizes Leslie's competitive advantages including a loyal customer base, vertically integrated supply chain, and scale benefits that create barriers to entry. The seamless customer experience differentiates the company in the pool and spa care market. While acknowledging disappointment with recent performance, Ariel views current valuation levels as attractive with asymmetric risk-reward favoring the upside. The seasonal nature of the business appears to be normalizing after weather-related headwinds.