Investment Pitches

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.

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. Looking ahead, NCLH remains focused on right sizing its cost base and improving margins to further improve its foundation for sustainable and profitable growth.

BSD Analysis:
Ariel initiated a position in Norwegian Cruise Line Holdings during market weakness, viewing current concerns as creating an attractive entry point. The fund acknowledges that shares declined on fears of deteriorating consumer sentiment and softening discretionary spending amid economic uncertainty, with additional pressure from potential new cruise line taxes. However, Ariel believes these risks are already reflected in current valuations, creating a compelling risk-reward opportunity. The investment thesis is supported by strong underlying fundamentals including robust consumer demand and booking trends, which contradict broader market concerns about discretionary spending weakness. Both NCLH and sector peer OSW continue delivering strong earnings growth despite macro headwinds. Ariel highlights NCLH's strategic focus on cost optimization and margin improvement as key drivers for sustainable profitability. The fund views the current dislocation as temporary, expecting the market to eventually recognize the company's operational improvements and strong demand fundamentals once economic uncertainty subsides.

Pitch Summary:
Lastly, shares of live entertainment, media and technology company, Sphere Entertainment Co. (SPHR), came under pressure as some investors took profits on solid earnings performance. In our view, this share price action runs counter to the company's strong business fundamentals. Looking ahead, we expect financial results will continue to ramp up as SPHR scales its concert residencies, secures additional marquee sporting events and reaches higher venue utilization across show types. Advertising, sponsorship and suite revenue should provide additional upside. Meanwhile, international expansion beyond Abu Dhabi remains a priority. In our view, the experiential immersive venue in Las Vegas and its franchise opportunities as well as the company's two regional sports and entertainment networks present a meaningfully underappreciated long-term opportunity.

BSD Analysis:
Ariel views recent share price weakness in Sphere Entertainment as disconnected from strong underlying business fundamentals, creating an attractive buying opportunity. The fund attributes the decline to profit-taking following solid earnings performance rather than deteriorating business conditions. Ariel's bullish thesis centers on multiple growth drivers including scaling concert residencies, securing marquee sporting events, and achieving higher venue utilization across diverse show types. The company's revenue diversification through advertising, sponsorship, and suite sales provides additional upside potential beyond ticket sales. International expansion plans, particularly beyond the Abu Dhabi project, represent significant long-term growth opportunities. Ariel emphasizes that the market significantly underappreciates the value of Sphere's experiential immersive venue in Las Vegas, franchise expansion potential, and two regional sports and entertainment networks. The fund views these assets as creating a unique entertainment ecosystem with substantial barriers to entry and pricing power.

Pitch Summary:
Brookfield Corporation is a holding company that manages investment strategies in direct real estate, asset management, private equity, and insurance. The company's longstanding expertise comes from its heritage in real estate investing, where it continues to hold an extensive portfolio of high-profile and trophy properties in the office, retail, and hospitality sectors. Through the firm's ownership of Brookfield Asset Management (BAM), it provides institutional investment portfolios with a significant focus on real estate, including projects related to energy and infrastructure. BAM's key holdings in these business lines include: Brookfield Renewable Partners, Brookfield Infrastructure Partners, and Brookfield Property Group. Brookfield Corp. is also in the process of growing its wealth solutions business through insurance-related offerings in annuities. The advantages of real estate in an environment of unstable currencies can be seen through two lenses. First, rental contracts with tenants generally have escalation clauses that compensate the lessor for rising inflation, thereby creating a built-in hedge for future cash flows. Second, because real estate is a hard asset, itself composed of various commodities, it has a readily discernible replacement value that can be calculated with some level of agreement in the marketplace. These two factors tend to protect real estate assets against depreciating currencies over longer periods of time. In addition to the core fundamental inflation hedges in its business, we are also drawn to Brookfield's focus on growth in the real estate sector through investment activities related to AI data centers and the increasing demand for electricity driven by the digital economy. Importantly, the company's global scale enables it to make these investments across various geographies and political jurisdictions, thereby diversifying its exposure to a single currency or economic policy. For instance, the company is investing in the buildout of AI data centers across Europe with key projects in Sweden and France, as well as in the United States. While we believe the two drivers we described above represent attractive fundamental qualities in this economic environment, and for that matter, future ones, we can also cite the scale at which Brookfield can deploy capital as a competitive advantage in this economy. The simple fact is that at the holding company level, it houses $155 billion in capital on its balance sheet, controls $110 billion in insurance float, and its asset management companies carry an AUM of approximately $1 trillion. We believe these levels of assets enable Brookfield and its subsidiaries to participate at their discretion in what is shaping up to be a significant global capex cycle in capital-intensive investments, as new technologies related to AI, electricity demand, and even country-specific stories such as India spur a widespread need for investment and the necessary financing. In other words, we believe the company is well-positioned to deploy capital at scale. Doing so, should sustain its profile as a growing company in a world that is embracing new technologies yet becoming increasingly fragmented and self-reliant. In conclusion, we believe Brookfield offers a unique combination of downside protection and scalable upside in a rapidly evolving global economy.

BSD Analysis:
The manager presents a compelling bull case for Brookfield Corporation centered on its role as an inflation hedge and growth vehicle in an uncertain currency environment. With the USD declining 12% in the first half of 2025, the manager views Brookfield's real estate portfolio as offering natural protection through rental escalation clauses and hard asset replacement values. The investment thesis emphasizes Brookfield's strategic positioning in high-growth sectors, particularly AI data centers across multiple geographies including Sweden, France, and the US. The manager highlights the company's massive scale advantage with $155 billion in balance sheet capital, $110 billion in insurance float, and $1 trillion in assets under management. This capital deployment capability positions Brookfield to capitalize on the emerging global capex cycle driven by AI infrastructure and electricity demand. The geographic diversification across political jurisdictions reduces single-currency exposure risk. The manager views this combination of defensive characteristics and growth optionality as particularly attractive in the current fragmented global economy.

Pitch Summary:
Manufacturer and developer of laboratory equipment and biological testing, Bio-Rad Laboratories Inc. (BIO), also 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 bullish stance on Bio-Rad Laboratories despite near-term headwinds from funding cuts and sector weakness. The company faced pressure following NIH announcements of significant internal funding reductions, which directly impacts demand for laboratory equipment and biological testing services. Management's disappointing guidance reflects continued softness in both biopharma and academic research segments, with uncertainty in the broader funding environment creating additional challenges. However, Ariel's investment thesis focuses on Bio-Rad's solid underlying financial profile and business model strengths. The fund emphasizes the company's recurring revenue streams, which provide stability and predictability in cash flow generation. Additionally, Ariel highlights rising operating profit margins as evidence of effective cost management and operational efficiency. This suggests the company is successfully navigating the challenging environment while positioning for recovery when funding conditions improve.

Pitch Summary:
By comparison, U.S. direct-to-consumer pool and spa care services company, Leslie's Inc. (LESL), detracted from performance this quarter on mixed earnings results. Green shoots began to emerge on the top-line as positive sales were offset by increased spend on the transformation strategy. The new executive leadership team is reevaluating pricing, optimizing inventory and implementing customer loyalty programs. Although investors remain on the sidelines, we believe early progress on these initiatives will yield efficiency improvements. While we have been deeply disappointed with this investment, we are optimistic the new efforts will positively impact the business and position the company for long-term success. In our view, LESL's current valuation reflects extreme pessimism, which is unwarranted given the company's loyal client base, vertically integrated supply chain, scale advantage and seamless customer experience.

BSD Analysis:
Ariel acknowledges significant disappointment with Leslie's performance but maintains conviction based on turnaround potential and attractive valuation. The fund recognizes mixed earnings results but highlights emerging green shoots in top-line performance, though transformation costs are currently pressuring margins. New executive leadership is implementing comprehensive operational improvements including pricing optimization, inventory management, and customer loyalty programs. While Ariel admits deep disappointment with the investment's performance, they express optimism that these strategic initiatives will drive efficiency improvements and long-term success. The investment thesis centers on extreme valuation pessimism that appears unwarranted given Leslie's competitive advantages. Ariel emphasizes the company's loyal customer base, vertically integrated supply chain, scale advantages, and superior customer experience as fundamental strengths that should support value recovery once operational improvements take hold.

Pitch Summary:
Additionally, leading manufacturer of consumer food products, J.M. Smucker Co. (SJM) traded higher 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 bullish outlook on J.M. Smucker despite mixed top-line performance, focusing on the company's strong earnings execution and strategic initiatives. While sales disappointed expectations, management delivered a significant bottom-line beat and raised fiscal 2025 EPS guidance, demonstrating effective cost management and operational efficiency. The fund acknowledges pressure on the Hostess brand but notes management's commitment to long-term sales targets and near-term revenue stabilization efforts. Ariel highlights SJM's implementation of a five-pillar brand improvement plan with increased marketing investments as a positive catalyst. The investment thesis centers on the company's portfolio of iconic and emerging food brands, which provides pricing power and market positioning advantages. Ariel believes SJM's broad-based innovation initiatives and productivity agenda will drive margin expansion and support attractive total shareholder returns over time.

Pitch Summary:
Shares of global leader in for-profit education, Adtalem Global Education (ATGE), also jumped following a top- and bottom-line quarterly earnings beat driven by accelerating new student enrollment growth and a subsequent raise to fiscal year 2025 guidance. Revenue per student and margins at Chamberlain and Walden also came in significantly better than expected. Meanwhile, we remain encouraged by management's solid execution of remediation initiatives at the medical and veterinary schools, where revenue growth outperformed and total enrollment trends are improving. Although regulatory uncertainty within the U.S education landscape remains, we view ATGE as well insulated, if not a beneficiary of potentially less onerous government scrutiny. Longer term, we believe ATGE's strong fundamentals, quality programs, free cash flow generation and sturdy balance sheet are attractive. As the number one grantor of nursing degrees in the U.S. and the largest producer of African American MDs, PhDs and nurses in the country, we remain confident ATGE will benefit from the healthcare worker shortage in the U.S.

BSD Analysis:
Ariel presents a compelling bull case for Adtalem Global Education based on strong operational execution and favorable industry dynamics. The company delivered impressive quarterly results with accelerating student enrollment growth and margin expansion at key divisions Chamberlain and Walden, prompting management to raise fiscal 2025 guidance. The fund emphasizes ATGE's successful remediation efforts at medical and veterinary schools, where enrollment trends are improving and revenue growth is outperforming expectations. Despite regulatory uncertainty in for-profit education, Ariel views ATGE as well-positioned to benefit from potentially reduced government oversight. The investment thesis centers on ATGE's market-leading position as the top grantor of nursing degrees and largest producer of African American healthcare professionals, creating a strategic advantage amid the ongoing healthcare worker shortage. Ariel highlights the company's strong balance sheet, free cash flow generation, and quality program offerings as fundamental strengths supporting long-term value creation.

Pitch Summary:
Worthington Steel also bounced back in Q2, following strong results for its fiscal fourth quarter (ended May). We've held our position for over a year, and while the investment has not met our expectations thus far, we continue to view it as a deeply cyclical opportunity with latent upside. The company is exposed to domestic automotive and construction markets, both of which have weakened since our initial purchase. Tariff-related uncertainty hasn't helped either—customers have grown cautious, curbing demand for Worthington's custom steel products used in vehicles, transformers, garage doors, grain bins, and more. Still, we believe Worthington's challenges are mostly cyclical, not structural. The company has minimal net debt, attractive exposure to electrical steel (a growth area), and a meaningful opportunity to consolidate a fragmented industry. With a current market cap of $1.5 billion, we believe free cash flow could exceed $200 million annually within the next 1–2 years as end markets recover and recent investments in electrical steel capacity come on line.

BSD Analysis:
Springview's Worthington Steel position represents a patient cyclical value play in a challenged but fundamentally sound business. The investment thesis centers on the company's exposure to automotive and construction end markets, which have weakened due to cyclical headwinds and tariff uncertainty affecting customer demand. Despite underperformance over the holding period, the manager maintains conviction based on strong balance sheet fundamentals with minimal net debt and structural growth opportunities. The electrical steel exposure provides attractive secular growth potential as infrastructure investments drive transformer demand. Industry consolidation opportunities in the fragmented steel processing market offer additional upside catalysts. At a $1.5 billion market cap, the valuation appears compelling if the company can achieve projected $200+ million annual free cash flow as end markets recover and electrical steel capacity investments mature. The investment requires patience but offers significant operating leverage to cyclical recovery.

Pitch Summary:
Shares of entertainment company, Paramount Global (PARA), rose during the period. The company entered 2025 with healthy operating momentum at Paramount+, with strong year-over-year engagement growth driven by its original programming and sports offerings. As such, Paramount+ remains on track for domestic profitability this year, with global profitability likely in 2026. Meanwhile, declining linear TV viewership and related pressure on advertising from ratings erosion remain headwinds. Although the Skydance transaction is expected to close in the near term, some investors are concerned the merger may remain in FCC purgatory. Whether the deal is approved or not, we believe the underlying value of the company's proprietary content and media assets is not reflected in its current share price.

BSD Analysis:
Ariel maintains a bullish stance on Paramount Global despite mixed fundamentals in the traditional media landscape. The fund highlights strong momentum at Paramount+, with robust engagement growth from original content and sports programming driving the streaming platform toward domestic profitability in 2025 and global profitability by 2026. However, the investment thesis faces headwinds from declining linear TV viewership and advertising pressure due to ratings erosion. The pending Skydance merger adds uncertainty, with potential regulatory delays creating near-term volatility. Ariel's conviction centers on the belief that the market significantly undervalues Paramount's proprietary content library and media assets. The fund views current share prices as disconnected from the intrinsic value of these strategic assets. This represents a classic value play where Ariel expects the market to eventually recognize the underlying asset value regardless of merger outcomes.

Pitch Summary:
Mercury General, which fell –15% in Q1, rebounded +21% in Q2 and has continued to rise into the third quarter. The stock's sharp recovery from January's Los Angeles wildfires—a period that cast real doubt on Mercury's ability to continue as a going concern—validated the core of our thesis. As discussed in our prior letter, we believed the wildfire losses would prove to be a short-term earnings event, not a capital impairment. Our research into the California insurance market and Mercury's reinsurance coverage supported this view, and we felt confident enough in our work to take the unusual step of publicly sharing our conclusions on X, directly countering a vocal short seller. That view is now playing out. With increasing clarity that Southern California Edison's transmission lines were likely responsible for the fires, and with substantial reinsurance recoveries, it appears Mercury's net exposure will be approximately $320 million after tax—equivalent to about 17% of pre-fire book value. To put that in context, Mercury reported $148 million in after-tax operating earnings in Q2 alone, and management estimates a forward earnings run-rate of $380 million to $440 million annually. Remarkably, GAAP book value per share at the end of Q2 2025 now exceeds the pre-wildfire level, highlighting the resilience of the business and the strength of its reinsurance program. At a market cap of $3.9 billion, Mercury trades at 9–10x earnings, generates ample free cash flow, and may soon resume returning capital to shareholders. We have modestly trimmed the position as the stock rallied but continue to maintain a significant holding.

BSD Analysis:
Springview's Mercury General investment demonstrates sophisticated insurance analysis and contrarian conviction during a crisis period. The manager correctly identified that Los Angeles wildfire losses represented a temporary earnings impact rather than permanent capital impairment, supported by thorough research into reinsurance coverage and California insurance market dynamics. The thesis required significant conviction, with the manager publicly defending their position against short sellers on social media. Validation came through strong reinsurance recoveries limiting net exposure to $320 million (17% of pre-fire book value) and rapid earnings recovery to $148 million in Q2 alone. The company's resilience is evident in book value per share exceeding pre-wildfire levels by Q2 2025. At 9-10x earnings with a $380-440 million forward run-rate, MCY offers attractive valuation with potential capital return resumption. The investment showcases the value of deep fundamental research and conviction during temporary crisis periods.

Pitch Summary:
We exited our investment in Seaport Entertainment during the second quarter. We initiated the position in Q3 2024 at an average cost of approximately $27 per share, including participation in a rights offering. At the time, we saw compelling value in acquiring what amounted to a swath of lower Manhattan real estate for just over $150 million in enterprise value. Our primary concern, however, was the company's persistent cash burn, driven largely by underperformance at the Tin Building by Jean-Georges, its flagship food hall in the Seaport District. Over the course of the year, our concerns deepened regarding management's ability to stabilize cash flow. These worries came to a head in May, when the company reported $37 million in cash outflow for the first quarter alone. Extrapolating that trend, we feared Seaport would soon be forced to raise equity or fire-sell assets—an outcome we were unwilling to risk. We exited the position at just under $19 per share.

BSD Analysis:
Springview's Seaport Entertainment exit illustrates the importance of monitoring operational execution in asset-heavy value plays. Initially attracted by compelling real estate value at $150 million enterprise value for prime Manhattan assets, the investment thesis deteriorated due to persistent cash burn and management execution issues. The Tin Building food hall's underperformance became a critical concern, with Q1 2025's $37 million cash outflow representing an unsustainable burn rate. The manager demonstrated disciplined risk management by exiting at $19 per share rather than risking potential equity dilution or asset fire sales. This case highlights how attractive asset values can be undermined by poor operational performance and cash flow management. The 30% loss from $27 to $19 per share reflects the challenge of turnaround situations where management fails to execute on the underlying asset value proposition.