Investment Pitches

Pitch Summary:
Back in 2019, we pitched US big-box specialist hard-surface flooring retailer, Floor & Decor, as our stock pick at the Sohn Conference. Since Sohn, Floor & Decor has grown its business through the pandemic, subsequent years of record low housing turnover and the recent tariff announcements. We believe these external challenges have been extrapolated by the market; meanwhile, Floor & Decor exhibits an even stronger business case than it did in 2019 and is poised to accelerate its growth over the coming years. The US hard surface flooring industry is valued at about US$40 billion annually. The market has a mix of a few large, well-known retailers and thousands of smaller, independent stores. As the only player that's consistently gaining market share, Floor & Decor is the standout winner. They're the second largest player in the market. Home Depot, while still the biggest, has seen its share remain flat over the past five years. And Lowes has experienced a slight decline in its share. It is the thousands of smaller independent retailers that have felt the real pain. Unlike Floor & Decor, who have the scale to source direct from manufacturers, the independents typically buy inventory from distributors, which drives up their costs. They therefore can't match Floor & Decor's everyday low pricing strategy, and their product range is much smaller. Floor & Decor even offers the same design and installation services that helped independents compete with Home Depot and Lowes. As a result, the independents are steadily losing market share. We expect this trend to continue, and frankly, the longer the current market downturn lasts, the tougher it will be for these independents, which will only accelerate Floor & Decor's market share gains. We wouldn't be surprised to see Floor & Decor overtake Home Depot in market share by 2030. Floor & Decor's competitive advantages are deeply rooted in its 'flywheel' business model, which continually reinforces the strength of the business over time: First, specialisation and economies of scale are key. Unlike general big-box retailers, such as Home Depot and Lowe's, which dedicate a small fraction of their space to flooring, Floor & Decor specialises entirely in hard surface flooring. This gives them unmatched purchasing power with their over 240 global suppliers. As they grow and their market share increases, this scale advantage only gets stronger, and gives them even more bargaining power with manufacturers who rely on Floor and Decor as an increasingly important customer. Second, the customer value proposition and experience are central. Floor and Decor pass on those reduced costs to customers through consistently lower prices. When combined with an enormous selection (around 4,400 unique inventory pieces per store) and excellent in-store customer service, this drives adoption, trust and greater market share. Their ability to maintain and expand competitive price gaps is crucial. Finally, their store rollout strategy and the maturation of their store base are evolving advantages. With 254 stores and a long-term target of 500+ in the US, Floor and Decor have a substantial runway for growth. In its first year, a new store typically operates at a negative profit margin because sales are low while fixed costs and initial setup expenditures are high. By year three, however, the store has typically ramped up and generates mid- to high-single-digit operating profit margins. By then, the store is generating 50% cash-on-cash returns from the initial outlay. Beyond that, as they fully mature, individual stores can achieve impressive operating profit margins in the mid- to high teens. Currently, almost half of their 254 stores are three years old or younger. This means a significant portion of their business is still marginally profitable at best, clouding the aggregate profitability. Floor & Decor's 500+ store rollout program is a continuous growth engine. Despite this challenging market, they're still opening another 20 new stores this year. And these stores are truly enormous – the newly opened warehouse serving NYC spans 1.2 hectares. Although the ongoing rollout masks the underlying profitability of the mature store base, it will shine through over the coming years as stores mature and the market rebounds. The US import tariffs are affecting the entire industry; however, Floor & Decor's structural advantages allow them to manage the changing situation more effectively than smaller competitors. Their scale and direct purchasing relationships with over 240 suppliers across 26 countries gives them leverage and flexibility to mitigate increased costs. Since the 2018 tariffs, Floor & Decor has shifted sourcing from China, dropping from 50% to under 5% of sales by the end of this year. The US is now their largest supplier and, remarkably, gross margins increased throughout this transition. Smaller independents rely on distributors to source product, who hold the bargaining power to pass on tariff costs to retailers, adding to their already higher cost base. Interestingly, as tariffs are forcing competitors to raise prices, Floor & Decor has flexibility to expand the price difference between their products and competitors', a key feature of their flywheel model. This builds trust with customers and could accelerate their market share gains. So, while tariffs present a challenge for the industry, they actually reinforce Floor & Decor's competitive position. Recent conditions have masked the strength of Floor and Decor's flywheel business model and underlying earnings power, creating a highly attractive investment opportunity. Putting everything together, here's what it means for the company's financial future: Revenue: Currently US$4.5 billion, revenue is poised for significant growth from new store openings, the maturation of its large cohort of young locations, and an eventual market rebound. Profit Margins: The 6-7% operating margin is temporarily depressed by market weakness and the costs of the maturing store base. However, gross margins have risen throughout this period, proving strong cost management. As conditions improve, we expect operating margins could double. Overall Earnings Power: Current profitability is not indicative of the business' true potential. The underlying tailwinds discussed could drive Floor & Decor to US$1 billion in annual operating profit by 2030. Given Floor & Decor's market cap is just US$8 billion today, we have a significant margin of safety in a high quality, growing business and expect to realise a home run investment over the long term.

BSD Analysis:
Montaka presents a compelling bull case for Floor & Decor, positioning it as a market share winner in the $40 billion US hard surface flooring industry. The manager's thesis centers on the company's flywheel business model, which combines specialization, economies of scale, and superior customer value proposition to drive sustainable competitive advantages. With 254 stores currently and a target of 500+, Floor & Decor has significant expansion runway while benefiting from store maturation economics that improve from negative margins in year one to mid-to-high teens operating margins at maturity. The company's ability to source directly from 240+ suppliers across 26 countries provides pricing power and supply chain flexibility, particularly advantageous during the current tariff environment where competitors face higher costs. Montaka expects the cyclical housing downturn to create pent-up demand that will benefit Floor & Decor disproportionately, with potential for operating margins to double from current 6-7% levels and reach $1 billion in annual operating profit by 2030. At an $8 billion market cap, the manager sees significant upside potential as the market currently undervalues the company's true earnings power.

Pitch Summary:
Additionally, we purchased Schlumberger NV (SLB), the largest oilfield services company in the world by revenue. SLB provides equipment, services and digital tools to help oil and gas producers operate more efficiently, including reservoir characterization, rig and well construction and production enhancement. We believe the company's scale and technical expertise are key differentiators. Weak near-term demand, an oil glut, falling commodity prices and concerns about future spending amid a global shift to renewable energies presented an attractive entry point. We believe there are tailwinds supporting rising demand over the medium-term, as national oil companies invest in long-cycle projects to grow capacity and address the natural decline of production. Additionally, we expect SLB will continue to evolve their capabilities to help clients with rising energy needs going forward.

BSD Analysis:
Ariel initiated a position in Schlumberger, viewing current energy sector weakness as an attractive entry opportunity for the world's largest oilfield services company. The fund acknowledges near-term headwinds including weak demand, oil oversupply, falling commodity prices, and concerns about the renewable energy transition, but sees these as creating an attractive valuation entry point. Ariel's investment thesis centers on SLB's competitive advantages including unmatched scale and technical expertise that differentiate it from competitors. The fund identifies medium-term tailwinds from national oil companies investing in long-cycle projects to grow capacity and offset natural production decline. Additionally, Ariel expects SLB to continue evolving its capabilities to serve clients' rising energy needs, potentially including energy transition services. The combination of market-leading position, technical capabilities, and attractive valuation following sector weakness supports the fund's bullish long-term outlook despite near-term challenges.

Pitch Summary:
We initiated two positions in the leisure and travel industry, cruise ship operator, Norwegian Cruise Line Holdings Ltd. (NCLH) and global health and wellness provider onboard cruise ships and destination resorts, OneSpaWorld Holdings Ltd. (OSW). Shares of both companies traded meaningfully lower on investor concerns around a deterioration in consumer sentiment and related softening in discretionary spend due to the economic slowdown. A potential new tax on cruise lines also weighed on NCLH's shares. In our view, these risks are currently priced in and present an attractive entry point. Notably, consumer demand and booking trends remain strong and both companies continue to deliver robust earnings growth. OSW's management continues to work to strengthen its balance sheet by paying down debt and returning capital to shareholders through buybacks and dividends.

BSD Analysis:
Ariel initiated a position in OneSpaWorld alongside Norwegian Cruise Line Holdings, viewing the travel and leisure sector weakness as an attractive entry opportunity. The fund acknowledges investor concerns about deteriorating consumer sentiment and potential softening in discretionary spending due to economic slowdown, but believes these risks are already reflected in current valuations. Ariel's investment thesis is supported by strong underlying fundamentals including robust consumer demand, strong booking trends, and continued earnings growth. The company's financial position is improving with management focused on balance sheet strengthening through debt reduction and capital returns via buybacks and dividends. As a provider of health and wellness services on cruise ships and destination resorts, OneSpaWorld benefits from the recovery in travel demand and the resilient spending patterns of cruise passengers. The fund appears confident that current market concerns are temporary and present an attractive entry point for a company with strong operational performance.

Pitch Summary:
Lastly, new holding, Norwegian Cruise Line Holdings Ltd. (NCLH) declined alongside the sector during the period, following investor concerns about a potential new tax on cruise lines. Although, we believe the risk of any potential exposure is currently priced in, we note cruise lines operate globally and determining taxable income on a jurisdiction basis can be extremely complex. Generally, operators benefit from exemptions under Section 883 of the IRS code and bilateral tax treaties that relieve them from paying corporate income tax on profits beyond the taxes already paid in their operating regions. The elimination of the carve-out would require a Congressional vote. Meanwhile, NCLH continues to deliver robust quarterly earnings, highlighted by strong consumer demand, healthy onboard spending, attractive pricing, solid cost containment and sustained progress on leverage reduction. Looking ahead, NCLH remains focused on right sizing its cost base and improving margins to further strengthen its foundation for sustainable and profitable growth. Notably, consumer demand and booking trends remain strong and both companies continue to deliver robust earnings growth. OSW's management continues to work to strengthen its balance sheet by paying down debt and returning capital to shareholders through buybacks and dividends.

BSD Analysis:
Ariel initiated a new position in Norwegian Cruise Line Holdings, viewing recent sector weakness as an attractive entry point. The fund acknowledges investor concerns about potential cruise line taxation but believes these risks are already reflected in current valuations. Ariel notes the complexity of implementing such taxes given cruise lines' global operations and existing tax treaty protections under Section 883 of the IRS code. The investment thesis is supported by NCLH's strong operational performance including robust quarterly earnings, strong consumer demand, healthy onboard spending, and attractive pricing power. Key financial improvements include solid cost containment and sustained progress on leverage reduction. Management's focus on right-sizing the cost base and improving margins should strengthen the foundation for sustainable growth. The combination of strong fundamentals, improving financial metrics, and attractive valuation following sector concerns supports Ariel's bullish outlook on this new holding.

Pitch Summary:
Leading provider of audio components and precision electrical devices, Knowles Corporation (KN), also traded lower following a quarterly earnings miss as slower than expected shipments of new specialty film products weighed on results. Meanwhile, demand from hearing aid companies for speakers/receivers is accelerating and management noted the industrial market appears to be stabilizing. Longer-term, we believe KN will benefit from a focus on niche and market leading positions in hearing health and precision devices, generating attractive revenue growth and free cash flows. At current levels, KN is trading at a meaningful discount to our estimate of private market value.

BSD Analysis:
Ariel maintains a bullish long-term view on Knowles despite recent earnings disappointment and share price weakness. The fund acknowledges near-term challenges from slower specialty film product shipments that impacted quarterly results. However, Ariel identifies positive trends including accelerating demand from hearing aid companies for speakers and receivers, and stabilization in the industrial market segment. The investment thesis centers on Knowles' strategic focus on niche, market-leading positions in hearing health and precision devices, which should drive attractive revenue growth and free cash flow generation over time. Ariel's conviction is reinforced by their valuation analysis showing the stock trading at a meaningful discount to estimated private market value. The fund appears to view current weakness as a buying opportunity for a company with strong competitive positions in specialized markets.

Pitch Summary:
Alternatively, manufacturer and developer of laboratory equipment and biological testing, Bio-Rad Laboratories Inc. (BIO), declined over the period after the National Institutes of Health (NIH) announced significant cuts to its internal funding structure. Management also issued disappointing guidance on continued softness in the biopharma and academic research segments as well as uncertainty in the funding environment. Despite the challenging backdrop, we believe the company offers a solid financial profile, including recurring revenue streams and rising operating profit margins.

BSD Analysis:
Ariel maintains a contrarian bullish stance on Bio-Rad despite near-term headwinds from NIH funding cuts and softness in key end markets. The fund acknowledges the challenging environment with disappointing management guidance reflecting continued weakness in biopharma and academic research segments, along with broader funding uncertainty. However, Ariel's investment thesis focuses on Bio-Rad's solid underlying financial profile, particularly its recurring revenue streams that provide stability and predictability. The company's rising operating profit margins demonstrate operational efficiency and pricing power despite market challenges. Ariel appears to view the current weakness as temporary, betting on Bio-Rad's strong market position in life sciences tools and services. The fund likely sees the current valuation as attractive given the company's fundamental strengths and long-term growth prospects in the life sciences sector.

Pitch Summary:
Leading provider of automated security solutions ADT, Inc. (ADT) also traded higher on solid earnings results. Despite the challenging macro backdrop, the company is demonstrating pricing power, a historically low attrition rate and growing free cash flow generation. Notably, ADT continues to improve its balance sheet through significant debt reduction. Management expects to maintain this momentum into 2025 with strong cash flow growth as well as a new share repurchase plan. With ADT's industry-leading brand and national presence, coupled with its Google and State Farm strategic partnerships, the company is well-positioned to be a prime beneficiary of growing demand for smart home technologies, including fully monitored residential security.

BSD Analysis:
Ariel maintains a bullish view on ADT based on strong operational execution and strategic positioning in the growing smart home market. The company demonstrated resilience during challenging macro conditions with solid earnings, pricing power, and historically low customer attrition rates. Key financial metrics show improvement with growing free cash flow generation and significant debt reduction strengthening the balance sheet. Management's confidence is reflected in the new share repurchase plan and optimistic 2025 guidance for continued cash flow growth. Strategic partnerships with Google and State Farm enhance ADT's competitive moat and position the company to capitalize on secular growth in smart home technologies. The combination of strong fundamentals, strategic partnerships, and favorable industry trends supports Ariel's positive outlook on the security services leader.

Pitch Summary:
Shares of leading food equipment manufacturer Middleby Corporation (MIDD) increased following management's announcement that the company is conducting a strategic review of its business portfolio. The news came shortly after activist firm, Garden Investments, acquired a minority stake in the company to gain board representation. They are seeking a potential divestiture of the Food Processing and Residential businesses to unlock value in the Commercial Foodservice segment. While the shares have been under pressure given the challenging macro backdrop and related concerns around new restaurant openings, we view these headwinds as transient. Longer term, MIDD's differentiated brands and focus on innovation should enable the company to benefit from secular demand for more automation and efficiency in the food service industry.

BSD Analysis:
Ariel views Middleby as a compelling value unlock story driven by activist involvement and strategic portfolio review. Garden Investments' minority stake acquisition and board representation has catalyzed management's strategic review, potentially leading to divestitures of the Food Processing and Residential segments to focus on the higher-value Commercial Foodservice business. The fund acknowledges near-term headwinds from challenging macro conditions and concerns about new restaurant openings but considers these temporary obstacles. Ariel's long-term thesis centers on Middleby's differentiated brand portfolio and innovation capabilities positioning the company to capitalize on secular trends toward automation and efficiency in foodservice. The combination of activist pressure, strategic focus, and favorable industry dynamics supports the fund's bullish outlook despite current market pressures.

Pitch Summary:
Toy manufacturer Mattel, Inc. (MAT) advanced over the quarter, following strong earnings results highlighted by solid sales growth, margin expansion and robust free cash flow generation. Management also provided full year 2025 guidance ahead of Wall Street expectations. With buyback activity expected to accelerate and the company poised to grow market share in 2025, we believe shares remain undervalued at current levels. Attractive opportunities to exploit its intellectual property through future film and TV projects only heighten our conviction.

BSD Analysis:
Ariel maintains a bullish stance on Mattel following strong Q1 2025 earnings that exceeded expectations with solid sales growth, margin expansion, and robust free cash flow generation. The fund views the company as undervalued despite recent gains, citing management's optimistic 2025 guidance that surpassed Wall Street estimates. Key catalysts include accelerating share buyback activity and expected market share growth in 2025. The investment thesis is further strengthened by Mattel's intellectual property monetization opportunities through film and TV projects, which could provide additional revenue streams. The fund's conviction appears high given the combination of strong operational performance and strategic growth initiatives. At current levels, Ariel believes the market has not fully recognized the company's intrinsic value and growth potential.

Pitch Summary:
Lastly, global leader in enterprise software, Oracle Corporation (ORCL), traded lower alongside the broader technology sector due to macroeconomic uncertainty and in particular, the near-term prospects for artificial intelligence investment (AI) spending. As a result, ORCL reported weaker than expected quarterly earnings results. Nonetheless, management expects double-digit growth for fiscal 2026 and 2027, citing significant demand for its cloud and AI capabilities. This supports our view that ORCL's positioning as the leading provider of database software and cloud-based infrastructure is entrenched, making it a key beneficiary of global demand for generative AI development.

BSD Analysis:
Ariel maintains strong conviction in Oracle despite recent earnings disappointment and sector-wide AI spending concerns. The fund views the current weakness as temporary, driven by macroeconomic uncertainty rather than fundamental deterioration in Oracle's competitive position. Management's guidance for double-digit growth in fiscal 2026 and 2027 demonstrates confidence in the company's strategic positioning and market opportunity. Ariel emphasizes Oracle's "entrenched" position as the leading provider of database software and cloud infrastructure, suggesting strong competitive moats and customer loyalty. The fund sees Oracle as a key beneficiary of the generative AI development trend, positioning the company to capture significant value from the AI infrastructure buildout. Strong demand for Oracle's cloud and AI capabilities indicates successful product positioning in high-growth markets. Ariel appears confident that Oracle's database leadership and cloud infrastructure capabilities will drive sustained growth as AI adoption accelerates across enterprises globally.

Pitch Summary:
IDEXX Labs is a global leader in pet diagnostics, offering in-clinic diagnostics (razor and razor blade consumables) and out-of-clinic reference labs. We have researched the business for two decades and admired its durable competitive advantages, highly recurring and profitable business model, attractive runway, supported by tailwinds from pet ownership and the "humanization of pets," and strong execution by its management team. IDEXX employs a successful "surround the customer" strategy by offering diagnostic tests across many modalities, along with imaging and veterinary practice management software. With a dominant market share in pet diagnostic tests, IDEXX continues to expand its addressable market by innovating new types of testing and creating additional revenue streams for its veterinary customers. We envision years of continued innovation and market expansion, with minimal competitive threats. Historically, we questioned IDEXX's persistently high valuation. However, the recent, transitory business slowdown—driven by fewer vet clinic visits as COVID-era pets remain relatively young—has made the valuation more attractive. We believe the company's long-term outlook remains largely unchanged. As these pets approach 6-7 years of age, their vet care needs will increase, supporting our expectation for sustained double-digit organic revenue growth and mid-to-high teens EPS growth. Even with EPS growth at least in line with the portfolio average, we expect IDEXX to also exhibit safety-like characteristics due to its unique competitive position, recurring revenues, and loyal shareholder base.

BSD Analysis:
Polen Capital's new position in IDEXX represents a classic quality compounder investment after two decades of research. The managers highlight IDEXX's dominant market position in pet diagnostics with a "razor and razor blade" recurring revenue model and comprehensive "surround the customer" strategy. The investment thesis centers on secular tailwinds from pet humanization trends and an aging COVID-era pet population that will drive increased veterinary visits. The fund capitalized on a temporary valuation compression caused by younger pets requiring fewer vet visits, viewing this as a transitory headwind. With minimal competitive threats and continuous innovation expanding the addressable market, IDEXX offers both growth (mid-to-high teens EPS growth expected) and defensive characteristics through its recurring revenue base. The 34% appreciation since purchase validates the timing of their entry at more attractive valuations.

Pitch Summary:
Manufacturer and developer of laboratory equipment and biological testing, Bio-Rad Laboratories Inc. (BIO), decreased over the period after the National Institutes of Health (NIH) announced significant cuts to its internal funding structure. Management also issued disappointing guidance on continued softness in the biopharma and academic research segments as well as uncertainty in the funding environment. Despite the challenging backdrop, we believe the company offers a solid financial profile, including recurring revenue streams and rising operating profit margins.

BSD Analysis:
Ariel maintains a constructive stance on Bio-Rad despite near-term headwinds from NIH funding cuts and sector softness. The fund acknowledges the challenging environment facing biopharma and academic research segments but focuses on the company's underlying financial strength. Ariel highlights BIO's solid financial profile, emphasizing the stability provided by recurring revenue streams that offer predictable cash flow generation. The fund notes rising operating profit margins, suggesting effective cost management and operational efficiency improvements despite revenue pressures. While management issued disappointing guidance reflecting funding uncertainty, Ariel appears to view current challenges as cyclical rather than structural. The company's position as a leading manufacturer of laboratory equipment and biological testing solutions provides exposure to long-term growth in life sciences research. Ariel likely sees the current valuation as attractive given the temporary nature of funding pressures and BIO's strong competitive positioning in essential research infrastructure.

Pitch Summary:
Oracle was our top-owned relative contributor, up 56% in the quarter (and 76% since the market bottom on April 9) as the market embraced a meaningful acceleration in growth driven by the Oracle Cloud Infrastructure (OCI) segment. The company appears to be in the early stages of a significant increase in revenue growth, fueled in part by its position as a go-to cloud infrastructure provider for training generative AI models. This is only one facet of the investment thesis. Oracle has been successfully migrating enterprise software customers to the cloud and is, for the first time, able to bring its database clients to the cloud as well—creating a multi-pronged growth investment thesis. As the air came out of many perceived "AI beneficiaries" amidst elevated tariff-related uncertainty in 1Q, we noted in our previous Quarterly Letter that this had pressured Oracle shares. We took advantage of this weakness by adding to our position in 1Q. Oracle is now one of our largest portfolio weightings.

BSD Analysis:
Polen Capital presents a compelling bull case for Oracle, highlighting the company's transformation into a cloud infrastructure leader. The managers emphasize Oracle's dual growth drivers: the accelerating Oracle Cloud Infrastructure segment, particularly for AI model training, and the successful migration of enterprise software and database clients to the cloud. This multi-pronged approach creates a diversified revenue acceleration story. The fund's tactical approach of adding during Q1 weakness demonstrates conviction in the long-term thesis. With Oracle now representing one of their largest positions and delivering 76% returns from market lows, the investment validates their thesis of Oracle being in the early stages of significant revenue growth acceleration. The positioning as a preferred cloud infrastructure provider for generative AI training adds a compelling secular growth component to the traditional enterprise software migration story.

Pitch Summary:
In contrast, supplier of residential thermal, comfort and security solutions, Resideo Technologies, Inc. (REZI), declined over the period. Despite strong quarterly earnings results, shares traded lower on management's relatively cautious market outlook, tariff concerns and higher for longer interest rates. Although 2025 guidance came in above expectations with broad-based growth across product categories and the integration of Snap One synergies running ahead of schedule, management did not disclose the potential impact tariffs could have on the business. That said, the company believes price increases, inventory positioning and running factories at different utilization rates can help mitigate near-term pressure. We believe REZI's earnings potential is underappreciated as the company is entering a new phase of sustainable growth driven by a secular preference for more connected smart home solutions and product innovation.

BSD Analysis:
Despite recent share price weakness, Ariel maintains a bullish outlook on Resideo, viewing the decline as a disconnect from strong fundamental performance. The fund highlights that REZI delivered strong quarterly earnings and above-expectations 2025 guidance with broad-based growth across product categories. The successful integration of Snap One synergies ahead of schedule demonstrates effective M&A execution and operational capabilities. Ariel believes the market is underappreciating REZI's earnings potential, suggesting the stock is undervalued relative to its growth prospects. The fund emphasizes secular tailwinds from increasing consumer preference for connected smart home solutions, positioning REZI to benefit from long-term technology adoption trends. Management's ability to implement pricing strategies, optimize inventory positioning, and adjust factory utilization rates shows operational flexibility to navigate near-term challenges. Ariel views the current period as a transition to sustainable growth driven by product innovation and market positioning in the expanding smart home ecosystem.

Pitch Summary:
Additionally, leading manufacturer of consumer food products, J.M. Smucker Co. (SJM) delivered solid returns over the period. While sales came in below expectations, a significant bottom-line beat and subsequent raise to its FY25 EPS outlook boosted shares. While Hostess remains under pressure, management reiterated its long-term sales target, with near-term focus on stabilizing revenue. The company is implementing a five-pillar plan to improve the brand with marketing investments. Looking ahead, we believe SJM's portfolio of iconic and emerging foods brands, coupled with its broad-based innovation and productivity agenda, supports an attractive total shareholder return opportunity.

BSD Analysis:
Ariel maintains a constructive view on J.M. Smucker despite mixed quarterly results, focusing on the company's earnings beat and raised guidance as positive indicators. The fund acknowledges near-term challenges with the Hostess brand but appears confident in management's strategic response through the five-pillar improvement plan. Ariel emphasizes SJM's portfolio strength, highlighting both "iconic and emerging" food brands that provide diversification and growth potential. The company's focus on innovation and productivity improvements suggests potential for margin expansion and operational efficiency gains. Management's reiteration of long-term sales targets demonstrates commitment to growth objectives despite current headwinds. The fund views the combination of brand strength, innovation capabilities, and productivity initiatives as drivers for attractive total shareholder returns. Ariel appears to see current challenges as temporary while the underlying business fundamentals remain solid.

Pitch Summary:
Shares of Chevron Corporation (CVX) also traded higher in the quarter, following news CVX acquired ~5% of Hess Corporation (HES) stock, reflecting confidence in the completion of its long-awaited acquisition. While an arbitration panel is due to consider the case in May, many signs are pointing to a successful merger which would strengthen CVX's long-term performance and enhance its portfolio by adding world-class assets. We remain confident in the firm's ability to remain a global leader in energy production.

BSD Analysis:
Ariel expresses strong confidence in Chevron's strategic positioning and acquisition capabilities. The fund views CVX's 5% stake acquisition in Hess Corporation as a signal of management's confidence in completing the larger merger transaction. The pending arbitration in May represents a near-term catalyst that could unlock significant value through portfolio enhancement. Ariel emphasizes that the Hess acquisition would add "world-class assets" to Chevron's portfolio, suggesting meaningful quality and scale improvements. The fund's conviction in CVX's ability to maintain global energy leadership indicates confidence in the company's competitive positioning and operational excellence. The successful completion of the Hess merger would likely strengthen Chevron's long-term cash flow generation and reserve base. Ariel appears to view this as a transformative transaction that reinforces Chevron's status as a premier integrated oil company.

Pitch Summary:
Gold mining company Barrick Gold Corporation (GOLD) advanced in the quarter as gold prices soared and investors flocked to safety amidst recession concerns. Strong quarterly earnings results driven by higher gold and copper production further aided shares. Although management delivered cautious 2025 guidance, there are rumors GOLD's prolonged dispute with the African government of Mali may be nearing an end. Despite ongoing uncertainty, management remains laser focused on upgrading mining operations and broadly improving efficiencies. The company also continues to prioritize capital returns to shareholders via dividends and share repurchases.

BSD Analysis:
Ariel maintains a bullish stance on Barrick Gold, viewing the company as a beneficiary of both safe-haven demand and operational improvements. The fund highlights strong quarterly performance driven by higher gold and copper production, suggesting effective operational execution. Management's focus on upgrading mining operations and improving efficiencies indicates potential for margin expansion and cost optimization. The potential resolution of the Mali dispute represents a significant catalyst that could unlock value and reduce geopolitical risk. Barrick's commitment to capital returns through dividends and share buybacks demonstrates disciplined capital allocation and shareholder-friendly policies. The company's diversified production base across gold and copper provides exposure to multiple commodity cycles. Ariel appears confident in management's ability to navigate operational challenges while delivering consistent returns to shareholders.

Pitch Summary:
As the Big, Beautiful Bill (i.e., President Trump's tax bill) wound its way through Congress, we were bracing for large reductions to President Biden's Inflation Reduction Act ("IRA") and its bevy of green energy initiatives, one of which was the tax credits related to carbon, capture, use and sequestration ("CCUS"). Since the Trump administration took office, the Department of Energy has canceled many grants for the development of CCUS projects, and we surmised that the tax credits could be axed to generate revenue to fund other tax cuts. We held out hope though that since many of the CCUS hubs were located in red states (e.g., Texas) Republicans would rally to preserve the credits. To our surprise, they did just that. To our astonishment, Republicans actually raised the Sec. 45Q tax credit from $130/metric ton to $180/metric ton if carbon dioxide from direct air capture plants ("DAC") are used for enhanced oil recovery ("EOR"). Before, the higher credit was only available if DAC operators captured and sequestered the gas, but under the BBB, captured CO2 that's used for oil production will be eligible for the higher $180/metric ton credit. In EOR, oil producers inject liquids or gases into older oil fields to increase reservoir pressures. Doing so enhances oil recovery and lifts the amount of oil and gas ultimately recoverable from the field from 6-12% to 16-22%, a near doubling of the EUR. The injection wells will later be sealed, trapping the CO2 deep underground. By providing tax parity for how the carbon is used (i.e., sequester vs. used in EOR), the market's now free to determine the best use case for the CO2 captured. For OXY, EOR will become critical for the next phase of oil/gas development as the Permian basin matures, and CO2 will be a critical ingredient to lower the operating costs. This was a key ask by OXY's CEO Vicki Hollub and she's had many conversations with the President and Congress about the need to use DAC for EOR purposes. Fortunately, the intensive lobbying has paid off, and the Sec. 45Q credits were not only preserved, but enhanced. We expect to hear OXY announce the start of its first DAC facility, Stratos, in the coming months, and as it begins operations, the ongoing process improvement will do much to de-risk the venture and solidify the economics and viability of this nascent market. Selling carbon removal credits, producing sustainable aviation fuel and net-zero fuels, enabling EOR, and creating large scale carbon management programs will give OXY many synergistic advantages, and an imprimatur to operate freely. We're looking forward to seeing the advantages unfold soon.

BSD Analysis:
The manager presents a bullish thesis on Occidental Petroleum centered on the company's leadership position in carbon capture, utilization, and storage (CCUS) technology. The investment case was significantly strengthened when Republicans not only preserved but enhanced Section 45Q tax credits, raising them from $130 to $180 per metric ton for direct air capture used in enhanced oil recovery (EOR). This regulatory tailwind validates CEO Vicki Hollub's strategic lobbying efforts and positions OXY advantageously as the Permian Basin matures. EOR technology can nearly double oil recovery rates from 6-12% to 16-22%, making it critical for extending field life and reducing operating costs. OXY's upcoming Stratos DAC facility represents the first step in commercializing this technology, with multiple revenue streams including carbon removal credits, sustainable aviation fuel production, and large-scale carbon management programs. The manager expects the operational experience from Stratos to de-risk the venture and establish OXY's competitive moat in this emerging market. The convergence of favorable tax policy, technological leadership, and multiple monetization pathways creates significant synergistic advantages for OXY's long-term growth strategy.

Pitch Summary:
Also in the quarter, we initiated two positions in the leisure and travel industry, cruise ship operator, Norwegian Cruise Line Holdings Ltd. (NCLH) and global health and wellness provider onboard cruise ships and destination resorts, OneSpaWorld Holdings Ltd. (OSW). Shares of both companies traded meaningfully lower on investor concerns around a deterioration in consumer sentiment and related softening in discretionary spend due to the economic slowdown. A potential new tax on cruise lines also weighed on NCLH's shares. In our view, these risks are currently priced in and present an attractive entry point. Notably, consumer demand and booking trends remain strong and both companies continue to deliver robust earnings growth. And OSW's management continues to work to strengthen its balance sheet by paying down debt and returning capital to shareholders through buybacks and dividends.

BSD Analysis:
Ariel initiated a position in OneSpaWorld Holdings alongside Norwegian Cruise Line, capitalizing on market weakness in the leisure and travel sector. The fund views recent share price declines as creating an attractive entry point, with concerns about consumer sentiment and discretionary spending already reflected in current valuations. Despite macro headwinds, Ariel emphasizes that consumer demand and booking trends remain robust, supporting continued strong earnings growth for both companies. The investment thesis for OSW specifically highlights management's proactive balance sheet strengthening initiatives, including debt reduction and capital returns through share buybacks and dividends. This financial discipline demonstrates management's commitment to shareholder value creation while maintaining operational flexibility. Ariel views OSW's position as a leading global health and wellness provider onboard cruise ships and at destination resorts as strategically advantaged, benefiting from the recovery in cruise and resort travel. The fund expects the market to eventually recognize the disconnect between current valuations and strong operational fundamentals once economic uncertainty diminishes.

Pitch Summary:
On May 15, Strathcona Resources ("SCR"), a Canadian oil and gas producer, commenced a hostile takeover for MEG Energy ("MEG"), our fund's largest position. Separate from the transaction (though part of its overall plan), SCR announced the day before a major divestiture of its natural gas assets, the proceeds of which will be used to repay all of its debt. Post-sale, SCR became a pure-play oil sands company with steam-oil assisted gravity drainage ("SAGD") operations in Cold Lake and Lloydminster. The future strategy was well received by the market as SCR shares rose to a near 52-week high at $30.92/share. The next day, SCR announced the bid for MEG, using the inflated SCR shares as partial consideration. At the time, MEG shares traded at $21.30/share, down 10% from the start of the year and mirroring the decline in oil prices. SCR's offer currently stands at 0.62 shares of SCR shares + $4.10 of cash for each share of MEG. At the unaffected price (i.e., the price before announcement) SCR is offering a total consideration of $23.72/share, a 9.3% premium. Prior to the public offer, SCR had quietly approached MEG on April 28 after acquiring 23.4M shares of MEG, or ~9.2% of MEG on the open market. If we calculate the value of the offer back on April 28, we can see that SCR effectively offered no premium for MEG's shares, an offer that the MEG board quickly and correctly rejected. Given the recent increase in SCR shares, the company is pitching the bid as one with a 9.3% premium. Opportunistic given oil prices and oil companies had fallen post-Liberation Day? Most definitely. So how has the market reacted? Today MEG shares are trading higher than SCR's offer, ending the quarter at ~$25.73/share. It's doing so because the market believes that once MEG was put "in play," a higher offer from either SCR or another acquirer will emerge. Other suitors may include some of the largest oil and gas producers in Canada, Cenovus, Suncor, CNQ, etc. MEG has undertaken a strategic review process, and we think the advisors will shop it around to see what's out there. As MEG conducts its evaluation, we're left to ponder what we think would be an appropriate premium for MEG shares. Oil sands have historically sold with a 20-40% premium, and in MEG's case it has actually received just such an offer from Husky Energy in late-2018 with a 44% premium. Obviously that offer was rejected, but MEG's situation today would warrant a similar premium. The company is lightly levered with only $815M in debt and a Christina Lake SAGD operation that is considered best-in-class, with a reserve life of ~50 years. The thesis on the company is fairly simple. If the company uses free cash flow ("FCF") to buyback stock, it will likely retire half of its shares in 5 years, and the stock will double. That's it. Yet, we've never thought that the company, with its single jewel of an asset would remain independent. This is what we wrote in our Q4 letter last year. Instead, because of Liberation Day and the resulting swoon in oil prices, MEG's shares declined along with other E&P producers, which proved to be too tempting for the opportunistic SCR. So would we be happy owning SCR shares? Sure. For the right price.

BSD Analysis:
The manager presents a compelling bull case for MEG Energy as a takeover target, emphasizing its position as the fund's largest holding. MEG operates a best-in-class SAGD oil sands operation at Christina Lake with approximately 50 years of reserve life and minimal leverage at only $815M in debt. The investment thesis is straightforward: if MEG continues its share buyback program using free cash flow, it could retire half its shares within five years, potentially doubling the stock price. However, the manager believes MEG's high-quality single asset makes it an inevitable acquisition target. Strathcona Resources' hostile bid at $23.72/share represents only a 9.3% premium, which the manager considers opportunistic given the post-Liberation Day oil price decline. The manager expects a higher offer, noting that oil sands historically trade at 20-40% premiums and MEG previously received a 44% premium offer from Husky Energy in 2018. With MEG shares already trading above the current offer at $25.73, the market anticipates either a higher bid from SCR or competing offers from major Canadian producers like Cenovus or Suncor.