Investment Pitches

Pitch Summary:
Lightwave Logic has developed a proprietary electro-optical polymer technology that could dramatically improve the speed and efficiency of the Internet infrastructure backbone, which is already struggling under the increasing data demands of artificial intelligence. As the AI technological revolution intensifies, and then quantum computing becomes more relevant, the limitations and power inefficiency of the current optical network will only be more apparent, and the need to resolve that bottleneck more urgent. Lightwave is working with several leading players in the data center and semiconductor industries to test the effectiveness of its modulators and integrated circuits and hopes to secure design wins and licensing revenue within the next 12-24 months. While the road to adoption of its technology has been bumpy, and could continue to be so, the opportunity is incredibly significant and the company has recently brought on a highly regarded and experienced new CEO that we believe will bring some clarity and urgency to the business, accelerating the path to commercialization.

BSD Analysis:
Jacob Asset Management presents a high-conviction technology bet on Lightwave Logic's proprietary electro-optical polymer platform targeting critical infrastructure bottlenecks. The investment thesis centers on the company's potential to solve power efficiency and speed limitations in optical networks that are becoming increasingly strained by AI data demands. The manager positions this as a secular growth opportunity that will become more urgent as quantum computing adoption accelerates, creating a compelling long-term demand trajectory. The near-term catalyst timeline of 12-24 months for design wins and licensing revenue provides measurable milestones for thesis validation. Management acknowledges execution risks given the historically bumpy commercialization path, but expresses confidence in the new CEO's ability to accelerate progress. The partnership discussions with leading data center and semiconductor players suggest validation of the technology's potential and access to large-scale deployment opportunities. This represents a classic high-risk, high-reward technology investment with significant optionality if the commercialization efforts succeed.

Pitch Summary:
Western Digital Corp. (WDC) 4.750% Senior Unsecured Bonds due 2026 - Western Digital is a $30 billion enterprise value global leader in data storage solutions, manufacturing both hard disk drives (HDD) and NAND/flash-based solid-state drives (SSD). The company entered the SSD market through its $19 billion acquisition of SanDisk in 2016—a deal that ultimately underperformed expectations. After years of operational challenges and mounting activist investor pressure, Western Digital announced a plan in 2023 to spin off the SanDisk business. Due to the complexity of separating the businesses, regulatory hurdles, and operational integration, there was limited visibility on the transaction's completion until late 2024, when meaningful progress emerged and we initiated our investment thesis. Our analysis concluded that the SSD segment was the primary driver of historical operating losses. SSD is a more volatile, consumer-exposed business with cyclical pricing and capital-intensive manufacturing. In contrast, the legacy HDD business is less cyclical, benefits from growing enterprise demand, and historically generated 20%+ returns on invested capital prior to the SanDisk acquisition. We believe that, post-spin-off, Western Digital will emerge as a higher-margin, more stable business with improved credit quality—potentially upgrading from BB to investment grade. As part of the spin-off, SanDisk raised its own debt and paid a $1.45 bn dividend to Western Digital, enabling further de-leveraging, as part of a $2.0 bn leveraged loan financing (which we looked at and passed on). We began accumulating Western Digital's 4.750% Senior Unsecured Bonds due 2026—its nearest maturity—in late 4Q24 and continued through 1Q25 at prices below par. Our average yield-to-maturity was approximately 5.3%, consistent with our short-term high yield strategy. On March 13, Western Digital announced a partial redemption of 78% of the 2026 bonds at par, effective April 14. This early repayment significantly accelerated our return realization and increased our expected total return by 210 basis points due to our discount purchases.

BSD Analysis:
CrossingBridge presents a compelling credit thesis on Western Digital's corporate bonds, centered on the company's strategic spin-off of its underperforming SanDisk SSD business. The manager's analysis identifies the SSD segment as the primary drag on profitability, characterized by volatile consumer exposure and capital-intensive manufacturing. Post-separation, Western Digital's legacy HDD business is expected to benefit from stable enterprise demand and historically strong 20%+ returns on invested capital. The spin-off structure provided immediate deleveraging benefits through a $1.45 billion dividend from SanDisk's debt financing. CrossingBridge's tactical execution was exemplary, accumulating bonds below par at a 5.3% yield-to-maturity before Western Digital announced an early redemption at par. This timing generated an additional 210 basis points of return, demonstrating the value of credit-focused fundamental analysis combined with opportunistic entry points.

Pitch Summary:
For the second quarter in a row, NVIDIA represented the top detractor to relative performance as the stock climbed another 40%, bringing the YTD return to +153%. As of this writing, NVIDIA is the third largest company in the world, but for a brief moment towards the end of the quarter, it surpassed Microsoft to become the largest company in the world. Yet again, the company delivered blowout results that came in ahead of already lofty expectations, reinforcing the narrative that NVIDIA is the only obvious "AI winner" due to the eye-popping revenue growth it's generating now. However, our research shows that most businesses are only experimenting with GenAI rather than actual, proven use cases. If proven use cases with real return on investments for businesses do not materialize in time, it's possible that the huge infrastructure build and ravenous demand for graphics processing units (GPUs) and AI servers may be ahead of the true demand for that infrastructure. In prior commentaries, we've spoken at length about the cyclicality of NVIDIA's business and the potential for significant changes in its revenue and earnings growth from year to year. While NVIDIA is a highly advantaged business with many things to like (especially its current growth!), we believe it has a wider range of possible outcomes for revenue and earnings growth over the next three to five years than we are comfortable with at the company's current valuation. This is a dynamic environment on the bleeding edge of innovation and could change rapidly. While we'll continue to study the developments closely, we're confident that we can achieve our goal of being long-term owners of a concentrated portfolio of high-quality, competitively advantaged businesses that, in aggregate, can grow earnings per share (EPS) at a mid-teens rate or higher without taking undue risk.

BSD Analysis:
Polen Capital takes a cautious stance on NVIDIA despite acknowledging its exceptional performance and competitive advantages. The fund recognizes NVIDIA's dominant position in AI infrastructure and impressive financial results that consistently exceed expectations. However, they express concern about valuation relative to the wide range of potential outcomes over the next 3-5 years. Polen's research suggests most businesses are still experimenting with AI rather than implementing proven use cases with clear ROI, raising questions about sustainable demand for GPU infrastructure. The fund emphasizes NVIDIA's historical cyclicality and potential for significant revenue volatility. While respecting the company's current growth and market position, Polen prefers investments with more predictable earnings growth profiles that align with their mid-teens EPS growth targets without excessive risk.

Pitch Summary:
Rocket Companies has quickly become one of the largest online mortgage lenders due mainly to their broad integration of advanced technology and AI into its platform. Unlike many of its peers, Rocket has made significant investments to drive efficiencies and drastically improve both the broker and consumer experience from what has historically been a highly manual process. The recent acquisitions of mortgage servicer Mr. Cooper and online real estate portal Redfin will provide numerous cross-selling opportunities, and we also believe it will likely result in a positive rerating of the stock, with higher valuation multiples for these combined businesses. Finally, if we do see lower interest rates later this year, we could see an uptick in mortgage origination and refi activity, which would lead to materially higher earnings estimates for 2026.

BSD Analysis:
Jacob Asset Management presents a compelling bull case for Rocket Companies based on technological differentiation and strategic positioning. The fund highlights Rocket's competitive advantage through AI integration and technology investments that streamline the traditionally manual mortgage process, creating operational efficiencies versus peers. The recent acquisitions of Mr. Cooper and Redfin are viewed as strategic moves that will unlock cross-selling synergies and potentially drive multiple expansion through business diversification. The manager positions the investment as a beneficiary of potential interest rate cuts, which would stimulate mortgage origination and refinancing activity. This thesis combines operational excellence with cyclical tailwinds, suggesting both defensive qualities through market share gains and offensive potential through rate-sensitive earnings leverage. The emphasis on technology-driven efficiency improvements indicates sustainable competitive advantages in a commoditized industry. The investment appears well-timed given the potential for both fundamental improvement and multiple re-rating catalysts.

Pitch Summary:
Amazon reported better-than-expected results in the quarter, most notably showing a re-acceleration in revenue growth in its AWS segment. Equally impressive, the AWS segment saw margins increase compared to the prior quarter and year as it continues to grow its economies of scale. For some investors, the good news was balanced by the company saying it would be ramping up its capex spending in AWS to meet cloud demand, including demand from GenAI. It's important to bear in mind that 1) this is in response to real demand the company is experiencing today and 2) the ability to continually reinvest capital at high returns is what drives outsized long-term compounding of per share earnings. Amazon has shown both the will and the skill to continually reinvest capital at high returns over many years. We trimmed our position in Amazon purely as a function of position size management, as it had grown over 10.5% weighting in the Portfolio. We still feel great about the business, its competitive advantages, growth runway, management team, and valuation relative to its long-term growth prospects, hence why it remains our largest position.

BSD Analysis:
Polen Capital maintains strong conviction in Amazon despite trimming for position size management. AWS showed impressive re-acceleration in revenue growth while simultaneously expanding margins, demonstrating the power of scale economics in cloud computing. The fund views increased capex spending positively, as it responds to real customer demand including AI workloads. Polen emphasizes Amazon's proven ability to reinvest capital at high returns over many years, which drives long-term earnings compounding. The fact that Amazon remains their largest position after trimming reflects deep confidence in the business model, competitive advantages, and management execution. The fund sees attractive valuation relative to long-term growth prospects across both e-commerce and cloud segments.

Pitch Summary:
With Adobe, in some ways, we see it as a microcosm of the market's "shoot first, ask questions later" approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.

BSD Analysis:
Polen Capital views Adobe as a prime example of market volatility around AI narratives, but sees the company successfully navigating the transition. Initially perceived as threatened by generative AI, Adobe quickly pivoted with the launch of Firefly, positioning itself as an AI beneficiary rather than victim. The company's ability to integrate AI into its creative suite demonstrates strong product innovation and market responsiveness. Recent robust quarterly results and raised full-year guidance across multiple metrics validate management's execution. Polen appreciates Adobe's resilience through narrative shifts and its ability to monetize AI in the near term. The fund sees this as evidence of Adobe's strong competitive moat in creative software and its capacity to adapt to technological disruption.

Pitch Summary:
Alphabet represented our top relative and absolute contributor. The stock responded very positively to strong results across the board that came in ahead of expectations, with particular strength in Google Search, YouTube, and Google Cloud. In all, the business's revenues accelerated to 16% constant currency growth, which is compelling for a business of its size. Additionally, the company introduced a dividend and announced an additional $70B share buyback.

BSD Analysis:
Polen Capital highlights Alphabet as their top contributor, driven by strong operational performance across all business segments. The company delivered revenue acceleration to 16% constant currency growth, which is impressive for a business of Alphabet's scale. Google Search, YouTube, and Google Cloud all showed particular strength, demonstrating the diversified nature of their revenue streams. The introduction of a dividend and $70B share buyback program signals management's confidence in cash generation and commitment to returning capital to shareholders. This represents a maturation of the business model while maintaining strong growth characteristics. The fund views this as validation of Alphabet's competitive positioning in search, video, and cloud computing markets.

Pitch Summary:
CCCS is a business that is central to the automotive insurance ecosystem. Its software systems connect autobody repair shops with parts suppliers and insurance carriers. There are multiple necessary points of contact between these three parties in the process of settling a claim, and CCCS helps streamline it all in a way that gets cars off the lot and back to owners more quickly and efficiently. That's of immense value to the insurer (rental days) as well as the repair shop (labor hour throughput). CCCS has the dominant position in this market with an installed base that includes all but 3 of the top 30 insurance carriers in the U.S as well as somewhere around ~30k out of ~35k autobody repair shops. Consider that ~80%+ of all US Auto Claims are running on the CCCS platform – this looks like a winner takes all market, and CCCS is already the winner. CCCS also collects data on over $100 billion annual transactions in this space. Their vast and growing data set offers a unique position to leverage data analytics and ML to automate the insurance claims process. Their customers – those insurance carriers and repair shops – continue to face headwinds from inflation, including labor, parts, and more complex repairs, given greater advances in vehicle technology. This all creates the need for new solutions which CCCS is uniquely positioned to provide. In terms of what attracts us here, CCCS is a SaaS business model that generates high returns on capital, has durable growth with a long reinvestment runway, is non-cyclical, has high customer retention, and has a longtime CEO (1990s-today) who has proven himself to be a good capital allocator – investing early in technology (cloud in 2003, AI in 2011) to keep CCCS ahead of the industry while consistently using its vast data set to create additional value for customers. And that last point is key, we find that almost all the best companies have some sort of customer obsession. Whether it is Costco, Amazon, Copart, Chick-Fil-A, etc. the common factor is the core desire to delight customers and earn their loyalty and thus greater future business, which in turn allows them to avoid the growth fade that almost all other companies experience. CCCS is no different, and one of the few vertical SaaS plays where customers all seem to have nothing but nice things to say about them. As far as Net Promoter Scores, CCCS is in the top percentile as far as Software benchmarks. Now, the best place to be is probably a high NPS software product with low market awareness/ penetration, because then all you need to do is add some sales and marketing and you can jumpstart growth. The second-best place to be is probably a high NPS software product, with high market share, where winning new customers is hard, and market share shifts are non-existent. Let's call this the Microsoft Office goldilocks zone where even if Excel's yearly cost doubled overnight, it would probably still be a hugely positive ROI, considering how much of the world's output depends on it. CCCS is in that second bucket, which we think is a good place to be, but we also get the bear case – how do you grow a business that is already a near monopoly? But there is already evidence of that happening, growth has actually accelerated here over time through new products and expanding into adjacent segments like parts and casualty. CCCS competes with a private equity owned company called Mitchell and to a lesser degree a company called Solera. Historically, the way the market has worked is that competitors would come up with single point solutions, which CCCS would then either copy or acquire, plugging into their established install base, and winning through a one-stop-shop solution. As such, overtime, the overlap between CCCS and their smaller competition has gotten less and less as the Mitchells of the world retreat to areas of the market CCCS isn't big in like casualty. My understanding is the only large insurer that uses Mitchell for estimation purposes is Progressive, so repair shops may maintain a Mitchell subscription just to get that Progressive business, but in almost every case they will have the CCCS subscription as well. Mitchell has basically bet its entire product roadmap on pleasing Progressive, and as such has lost business with everyone else. Consider if a repair shop was to use Mitchell and a customer came in with insurance that didn't use Mitchell, then there would just be no way to electronically submit that claim to the insurance company's adjusters. It must be e-mailed, or faxed in. So, the options really are to use CCCS as a repair shop, or do things manually, and wait for a check in the mail that can take weeks. Another thing to consider here is CCCS's relationship with insurance core vendor Guidewire which is basically the lifeblood system for the work adjusters do. CCCS plugs into Guidewire through an API and as far as we can tell, there's very little decision support tools and capabilities built within Guidewire itself, instead that is integrated through vendors like CCCS. Guidewire builds their system in a way that they can integrate easily with a lot of these data platforms. And so, it really is in synergy with one another as opposed to direct competition with one another. As far as the competitive moat here, it is basically switching costs, the network effect, and the scale + data advantage. On the first and second point, CCCS has a Direct Repair Program (DRP). Basically, a DRP connects auto insurers and collision repair shops to facilitate standardized repairs. These DRP connections have created a strong network effect for CCCS's platform, as insurers and repairers both benefit from a virtuous cycle in which more insurers on the platform drives more value for the repair shops on the platform, and vice versa. On that last point, CCCS can spend more on R&D in absolute terms than their competitors, and the historic crash data that they have is an amazing asset – they have $1 trillion of crash data that they can train their models on. This data is very granular, consistent of hundreds of data elements per claim, and is updated in real time from the massive amount of data flowing through the system daily. All of this lends itself to considerable pricing power – this is a chicken and egg thing where insurance can't roll off CCCS because all the repair shops use them, and the repair shops can't roll off because all the insurance companies use them. And yet, CCCS has never been that aggressive on price – they've been a pretty good partner. To say the U.S. car market is large might be an understatement. There are ~285M registered vehicles and ~240M registered drivers. Americans purchased ~16M new cars in 2023 and the total miles traveled by all vehicles in 2023 was nearly 3.3T. Given these numbers, there will inevitably be accidents. Processing the claim from a single accident can require hundreds of transactions involving consumers, lenders, collision repair facilities, automotive manufacturers, dealers, parts suppliers, medical providers, vehicle auctions, and others. These transactions depend on extensive hyper-local decisions and data, creating a level of complexity that can increase processing costs as well as the potential for fraud and other forms of claim leakage. This complexity is only getting worse due to several converging factors: Vehicle parts proliferation: Repairable parts per auto claim have increased 60% since 2010. Internal technology systems: The average lines of software code per new vehicle doubled from 100 million in 2015 to 200 million in 2020. Growing connected car capabilities: By 2030, 95% of new vehicles sold globally are expected to be connected. Advanced Driver Assistance Systems (ADAS) and diagnostics systems: The number of vehicles receiving a diagnostic scan as part of a collision repair has increased 1,000% since 2017. Vehicle Electrification and related infrastructure: By 2035, 50% of global car sales are expected to be electrified vehicles. Vehicle damage severity from collisions: Since 2017, the cost to repair vehicles damaged in automotive claims has increased 54%. Labor constraints: there's an acute level of labor shortage across the industry with the knowledge and capability to both assess claims and repair these increasingly complex vehicles. For many years in a row now, combined loss ratios in the insurance industry have been over 100%. In other words, insurance companies take in $1 of premium and pay out more than $1 in claims and expenses. Inflation has caused huge issues with parts and labor costs while regulations make it difficult for insurance companies to raise prices fast enough to offset the impact. The only way to effectively manage this increasing complexity and cost is through digitization. Back in the day, all this was a highly manual process. Very disjointed, lacking coordination. Everybody kind of did it differently. As we already talked about, along came CCCS saying, hey, we're going to try to standardize this process and automate it. If everyone in the ecosystem can operate on the same platform and they can all agree on some standardization around pricing for things like parts and labor, it makes it less arbitrary, it creates less friction, and it reduces cycle time. Hence why the ecosystem has come to not only rely on but embrace CCCS as a near monopoly solution. Management has put out a 7-10% organic topline growth guide and internally it sounds like they target 15% topline growth. Let's start with the automotive repair side. They have about 29,500 auto shops on their platform, and the total market is probably 40,000 repair shops, in which maybe 34,000 are doing real auto body work, and the rest are doing things like oil changes. That leaves maybe 4,500 new logos to go after, so not much growth runway there and that 4,500 is probably exclusively Progressive and Mitchell's DRP anyway. The remaining growth here is going to largely be from upsell. The entry level SKU for repair shops is just going to be Estimating, the next level up is going to be estimating plus DRP tools, and then the big package is going to be all of that plus workflow (ERP for the repair shop). Workflow customers are only about 30-40% penetrated and there does remain a long runway as mom-and-pop locations are consolidated and update their tech stacks. The other opportunity here is in their diagnostics product (think car readouts). As the diagnostic scanning rate increases over time, the way CCCS monetizes that is they charge a toll for providers to be on their network. As usage increases, it's basically a 100% EBITDA drop through because there's not really a cost associated with it. Maybe 15%-25% of all repair orders today have a diagnostic scan, but that is increasing quickly as repair shops need to make sure sensors, cameras, and ADAS systems are working before sending cars back on the road. Management has talked about this being a north of $300M revenue opportunity (they only did $866M of revenue in 2023). And then moving to the insurance side of things. Similarly, there isn't much room for new logo growth, they already process something like 80%+ of all claims. Instead, the main growth engine here will be adoption of straight through processing (STP) over the next few years. STP is just a fancy way of saying fully automated claims processing from start to finish. It will take a few years to fully scale this product, starting with simplistic claims, like a small fender bender with one party, and then building off that with better models until 100% of all auto claims are completely touchless. They have had early success here with customer feedback being very positive. The other driver on the insurance side is going to be on the casualty side, think bodily injury in car crashes. CCCS may have a monopoly in physical damage, but they haven't even scratched the surface on the casualty side (Mitchell actually has more market share on the casualty side). If CCCS can get their casualty product up to par with point solutions in the market, and plug it into their full menu offering, then there is the opportunity for significant growth here. The other nascent business with upside is their parts marketplace. Parts is tricky, up until a couple of years ago there were three main players, OPSTrax, OEConnection, and CCCS, and each of them had approximately 1/3 market share. But then OPSTrax and OEConnection merged with each other, giving them the best scale, which is important when you are a marketplace, offset by the fact that they aren't integrated with the insurance estimating process. Where CCCS could still win here is by winning on the STP front and having parts procurement just one more step on the fully automated process. In other words, taking the decision away from the body shop technicians who might not be shopping around for the best deal nor the best cycle time in the way an automated process could. Big picture, the way to think about CCCS is that the steady state business can do 5-10% organic growth purely from established pricing and upselling. Along with that, there are some upside options, if they nail STP, if they nail the parts marketplace, if they nail something entirely different that we aren't even talking about today that will help the ecosystem, the growth rate can be closer to 13%-15%. If we can buy this underwriting 9% growth, then these upside options will give us a nice margin of safety. We believe the economics here are pretty locked in for the next few years, and at today's valuation we expect to earn double digit returns with very little risk of permanent business value impairment.

BSD Analysis:
Brasada presents a compelling bull case for CCC Intelligent Solutions, positioning it as a dominant player in the automotive insurance ecosystem with near-monopoly characteristics. The manager highlights CCCS's impressive market penetration, processing 80%+ of US auto claims and serving all but 3 of the top 30 insurance carriers, creating powerful network effects and switching costs. The investment thesis centers on the company's ability to monetize increasing vehicle complexity through digitization and automation, with multiple growth drivers including straight-through processing (STP), diagnostic scanning expansion, and casualty insurance penetration. Management's track record of early technology adoption (cloud in 2003, AI in 2011) and customer obsession, evidenced by top-percentile Net Promoter Scores, supports the durability thesis. The fund sees CCCS as benefiting from secular tailwinds including vehicle electrification, ADAS proliferation, and labor shortages that drive demand for automation. With $1 trillion of proprietary crash data and strong competitive moats, CCCS appears well-positioned to capture value from the industry's digital transformation. The manager expects double-digit returns with limited downside risk, viewing current valuations as attractive for a business with locked-in economics and multiple growth optionalities.

Pitch Summary:
Gogo sells in-flight wi-fi services, which makes it sound like a similar story to Astronics, but that is just coincidental. Instead, Gogo focuses on the business aviation market, so it's less tied to the aerospace backlog. Its current business and balance sheet are much healthier than Astronics. And yet, the story feels riskier to me, because it hinges on Gogo successfully launching its 5G and low earth satellite (named Galileo) products. Gogo has especially had trouble launching 5G, with habitual delays on the roll out. If it manages to successfully roll these out this year and early next, its free cash flow should go up a lot. If it doesn't, it is vulnerable to competition from Spacelink. It feels a little too close to a binary situation for me to make it a big position, but we may add more to the position over time.

BSD Analysis:
The manager presents a cautiously optimistic view on Gogo, emphasizing its focus on business aviation rather than commercial aerospace, which provides some insulation from industry-wide production bottlenecks. The company's current financial health is noted as superior to other aerospace-related investments in the portfolio. However, the investment thesis is heavily dependent on successful execution of next-generation technology rollouts, specifically 5G and the Galileo low earth satellite system. The manager acknowledges Gogo's track record of delays, particularly with 5G deployment, as a significant concern. Successful product launches could drive substantial free cash flow growth, while failure risks competitive displacement by SpaceX's Starlink. The binary nature of this outcome leads the manager to maintain a smaller position size initially, with potential for expansion based on execution progress.

Pitch Summary:
We believe Virtus Investment Partners offers a compelling investment from current levels. Virtus Investment Partners is a multi-boutique traditional investment manager. The company has several investment affiliates with their own investment teams and strategies. Virtus provides centralized sales, middle- and back-office services to support these teams. Virtus has grown by using cash flow to acquire additional investment firms. It keeps the investment teams of the acquisitions in place and centralizes sales and operations. We successfully owned Virtus for the Fund several years ago. Our investment thesis is below: 1. High-Quality Business Due to Recurring Revenue and High Free Cash Flow - Virtus Investment Partners boasts a high-quality business model underpinned by recurring revenue streams and elevated free cash flow. The firm's strategic focus on asset management ensures steady income through management fees, which are largely predictable and stable. This recurring revenue is a testament to the company's robust client relationships and consistent performance, providing a strong foundation for continued growth. Furthermore, high free cash flow enables Virtus to reinvest in its business, pursue acquisitions, and return capital to shareholders, enhancing overall value. 2. Low Valuation on Price to Earnings and EV/EBITDA Basis - VRTS has an attractive valuation. It trades for 6.5x price-to-earnings (P/E) and a shockingly low 3.0x on Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) basis. VRTS has a strong balance sheet that matches the strong cash flow profile of the business. The company only has $100 million of net debt, which is about 0.3x EBITDA. In addition, VRTS carries a portfolio of seed investments in start-up funds and products valued at $140M. It recycles this seed capital into incubating new funds and products as existing seed investments payoff or fail. Virtus also has about $140M in CLO equity investments. These investments are made as its advisors form new CLOs. We subtract the seed investments and the CLO equity investments from Enterprise Value when we quote the 3.0x EV/EBITDA multiple. One could argue that seed investments and CLO equity investments are necessary to run the business. If we excluded these two items from Enterprise Value because they are necessary to run the business, we still calculate a very low 4.0x EV/EBITDA multiple. Virtus trades at a lower multiple compared to its peers 3. Low Debt Levels Provide Management Flexibility - The firm's prudent approach to debt management further strengthens its investment appeal. Virtus Investment Partners maintains low debt levels, which afford management significant flexibility to act on M&A or share repurchase opportunities. This conservative financial stance mitigates risk and enhances the firm's ability to sustain operations during economic downturns. 4. Potential for Earnings Accretive Acquisition - Virtus Investment Partners is well-positioned to pursue earnings accretive acquisitions. The firm's strong balance sheet and free cash flow provide the necessary capital to acquire additional investment management capabilities. Multiples for privately held investment management businesses are inexpensive. Virtus has a strong platform and history of integrating acquisitions to realize synergies and create value. 5. Consistent Dividends and Stock Repurchases – VRTS management has been consistent in returning capital to shareholders through dividends and stock repurchases. VRTS stock currently yields 5.6%. Stock repurchases further enhance shareholder value by reducing outstanding shares and increasing earnings per share (EPS). In Q1, VRTS management repurchased about 2% of the stock and signaled that they would be more aggressive given the stock price decline from early March. We would encourage management to consider increasing leverage by 1.0x EBITDA and repurchase 30% of the shares. There are risks to our investment thesis on Virtus: 1. Challenged Flows Due to Active Management Out of Favor - Despite its strengths, Virtus Investment Partners faces challenges in asset flows, primarily due to the growing trend towards passive management. Active management has fallen out of favor with some investors, who prefer the lower fees and perceived simplicity of passive strategies. This shift poses a headwind for Virtus, potentially impacting on its ability to attract and retain assets. The firm must navigate this evolving landscape by demonstrating the value of active management and differentiating its offerings through superior performance and client service. 2. Some Past Acquisitions May Not Have Paid Off - Virtus's acquisition strategy, while generally successful, has not been without its missteps. Some past acquisitions have not delivered the anticipated returns. These underperforming acquisitions can weigh on financial results and erode investor confidence. 3. Waiting for Flows to Improve or Management to Take Action - Virtus Investment Partners is at a crossroads, awaiting improvement in asset flows or action from management to make an acquisition or materially increase share repurchases. This state of waiting creates uncertainty and requires patience from investors. In summary, Virtus Investment Partners presents a compelling investment case with a robust business model, attractive valuation, low debt levels, and a clear commitment to shareholder returns. However, the firm must navigate challenges related to asset flows and past acquisitions. Investors should weigh these strengths and weaknesses carefully, considering Virtus's potential for growth and the strategic actions needed to address its current hurdles. With prudent management and strategic execution, Virtus Investment Partners could deliver substantial value to its shareholders over the long term.

BSD Analysis:
Gator Capital presents a compelling value thesis on Virtus Investment Partners, emphasizing the company's multi-boutique asset management model with centralized operations. The manager highlights VRTS's exceptionally attractive valuation at 6.5x P/E and 3.0x EV/EBITDA, significantly below peer multiples, supported by strong free cash flow generation and minimal leverage at 0.3x EBITDA. The investment case centers on the company's recurring revenue model from management fees, providing predictable cash flows that enable strategic acquisitions and shareholder returns through a 5.6% dividend yield and aggressive share repurchases. Management's capital allocation flexibility is enhanced by the conservative balance sheet, positioning VRTS to pursue accretive M&A opportunities in a favorable acquisition environment for private investment managers. However, the manager acknowledges meaningful headwinds including challenging asset flows due to the industry-wide shift toward passive management and mixed results from historical acquisitions. The thesis requires patience as investors await either organic flow improvement or more aggressive capital deployment by management. Despite these challenges, the combination of deep value pricing, strong fundamentals, and potential catalysts from increased share buybacks or strategic acquisitions creates an asymmetric risk-reward profile for patient value investors.

Pitch Summary:
J.M. Smucker, like Lululemon, is an S&P 500 component and one of the worst 70 or so stocks in the S&P 500 this year. The maker of Jif, Smuckers jams, Uncrustables, Folgers Coffee, and Dunkin Coffee pods has had a bad 10 months since announcing its purchase of Hostess Brands (Twinkies, Hostess Cupcakes, etc.). Hostess was expensive and exposes J.M. Smucker to the risk that the new weight-loss drugs suppress diehard consumers' appetite for sweets. I think J.M. Smucker shares have suffered enough, and are at a point where a buy should work. The company is producing ample free cash flow to cover its likely to grow ~4% dividend while also paying down debt, which will improve both its profitability and its stock value. J.M. Smucker's products and brands are leaders, including Hostess. I don't think this will be a huge winner, but I do think there's relatively safe upside here.

BSD Analysis:
The manager presents a contrarian value case on J.M. Smucker, viewing the stock's poor performance following the Hostess acquisition as creating an attractive entry point. The investment thesis acknowledges the market's concerns about the expensive Hostess deal and potential GLP-1 weight-loss drug impact on snack consumption. However, the manager believes the selloff has been overdone given the company's strong cash generation capabilities. The financial profile shows robust free cash flow sufficient to support a growing 4% dividend yield while simultaneously reducing debt levels, which should enhance both profitability and valuation multiples. The manager emphasizes the quality of Smucker's brand portfolio, including market-leading positions across multiple categories. Expectations are measured, with the manager viewing this as a relatively safe value play rather than a high-growth opportunity.

Pitch Summary:
One thing I try to do is apply what I know from one stock to another. Aercap has been a long-time holding, and one of the reasons it is attractive to hold onto at a fair price is the huge backlog in planes that need to be built and sold to airlines. Boeing's problems, the pandemic, supply chain issues, and so on have slowed delivery of planes and jets (Airbus is also struggling to get up to its production goals). That delay is good for Aercap's business as the world's biggest owner of planes, an in-demand commodity, but at some point, the manufacturers will have to figure it out. Steady demand for planes, stretching out for years, will be good for Astronics. Astronics supplies the seat-back video and power systems you will see on planes while traveling, and leads the market. It also has a small part of its business with the military, both in aerospace supplies and test systems. The company's balance sheet is shakier than I like, but it should have something like 10% revenue growth per year for quite a while, and is at the point where it should start to make real profit from that. It is not cheap at the moment, but I think it is cheap based on how much money it will make over the next 4 years, and where that will leave it going forward.

BSD Analysis:
The manager identifies Astronics as a beneficiary of the aerospace supply chain bottleneck, drawing parallels to their successful Aercap investment. The thesis relies on sustained aircraft production backlogs driven by Boeing's operational issues, pandemic recovery, and supply chain constraints creating multi-year tailwinds for Astronics' seat-back entertainment and power systems. The company holds market leadership in its niche and has military exposure providing additional diversification. The manager projects approximately 10% annual revenue growth with improving profitability as the business scales. Balance sheet concerns are acknowledged as a key risk factor, but the manager believes current valuation doesn't reflect the company's earnings potential over the next four years. The investment represents a forward-looking value play based on anticipated cash flow generation rather than current metrics.

Pitch Summary:
Molina Healthcare is a leading managed care company. Molina is the fourth largest player in managed Medicaid but has consistently delivered industry-leading growth and margins. In our view, this is thanks to the company's exceptional management team and culture of operational excellence. We think Molina has a long runway for growth via continued share gains in Medicaid and untapped opportunities in their Medicare and Marketplace business segments. Recently, fundamentals have been pressured by an unprecedented redeterminations cycle in Medicaid, and valuations have compressed due to uncertainty around policy changes in a new political administration. We believe earnings pressure from redeterminations is temporary and that any Medicaid policy changes will prove manageable, providing us an opportunity to purchase shares at a meaningful discount to intrinsic value.

BSD Analysis:
Harris Associates initiated a position in Molina Healthcare, viewing the managed care company as an attractive opportunity during temporary fundamental pressures. The fund highlights Molina's strong competitive position as the fourth-largest managed Medicaid player with industry-leading growth and margins driven by exceptional management and operational excellence. Harris sees significant growth potential through continued Medicaid market share gains and expansion into underpenetrated Medicare and Marketplace segments. The current Medicaid redeterminations cycle has created temporary earnings headwinds, but Harris views this as cyclical rather than structural, expecting normalization as the process concludes. Political uncertainty around potential Medicaid policy changes has compressed valuations, creating what Harris considers an attractive entry point below intrinsic value. The fund's confidence in management's ability to navigate policy changes and operational challenges supports the investment thesis. Harris's contrarian approach reflects conviction that current pressures are temporary while Molina's competitive advantages and growth opportunities remain intact, positioning the company for strong long-term performance as conditions normalize.

Pitch Summary:
Lululemon, the 2nd worst performer in the S&P 500 this year, qualifies. I published a full thesis on the stock before its most recent earnings, but the basics: the yoga pants and clothing company has had an amazing post pandemic run that is approaching its end. Its growth in the U.S. is slow/non-existent at the moment, but it is growing very fast in China and Europe. I think that international growth is likely to endure, and that its U.S. slowness is likely to be temporary. Lululemon shares are not 'cheap', but they are on sale for an average price, and I think the company will grow faster than average over the next five years. I would be wrong if Lululemon is a fad gone bust, or faces a huge post-pandemic hangover as people get used to leaving the house more. We'll see.

BSD Analysis:
The manager presents a contrarian bull case on Lululemon, viewing the stock's position as the second-worst S&P 500 performer this year as a buying opportunity. The thesis centers on international expansion offsetting domestic headwinds, with strong growth in China and Europe expected to continue while U.S. growth stagnation is viewed as temporary. The manager acknowledges valuation concerns but believes shares are attractively priced relative to expected above-average growth over the next five years. Key risks include the possibility that Lululemon represents a fading pandemic-era trend or faces sustained post-pandemic normalization pressures. The investment reflects the manager's value-oriented approach of buying quality companies during periods of market pessimism. The manager's confidence appears measured, acknowledging significant execution risk while maintaining conviction in the international growth narrative.

Pitch Summary:
First Citizens Bancshares was a detractor during the quarter. The U.S.-headquartered bank's stock price declined due to macroeconomic uncertainty, and despite strong fourth-quarter 2024 earnings and positive 2025 guidance, with earnings per share ahead of consensus expectations. Loans and deposits both grew at healthy rates during the fourth quarter, and management expects continued strong growth in 2025. We continue to believe that First Citizens is a well-run regional bank that is led by a best-in-class management team. We appreciate management's track record of value accretive capital allocation and think the stock offers an attractive upside.

BSD Analysis:
Harris Associates maintains conviction in First Citizens despite stock underperformance driven by macroeconomic uncertainty rather than company-specific fundamentals. The fund highlights strong Q4 2024 earnings that exceeded consensus expectations, demonstrating the bank's operational resilience amid challenging conditions. Healthy loan and deposit growth in Q4 with management's positive 2025 guidance indicates continued business momentum and market share gains. Harris emphasizes the quality of First Citizens' management team, characterizing them as best-in-class with a proven track record of value-accretive capital allocation decisions. The fund's appreciation for management's capital allocation discipline suggests confidence in the bank's ability to generate superior returns through economic cycles. Despite recent stock weakness, Harris views the valuation as offering attractive upside potential relative to the bank's fundamental strength and growth prospects. The investment thesis centers on First Citizens' operational excellence, strong management, and ability to execute growth strategies while maintaining disciplined risk management practices.

Pitch Summary:
IQVIA Holdings (IQV) was a detractor during the quarter. The U.S.-headquartered life sciences tools and services company's stock price declined due to a slowdown in R&D Solutions segment growth amid large pharma portfolio reprioritizations related to the Inflation Reduction Act. However, IQV is growing faster than competitors through this challenging period for the industry and expanding its scope of work with several clients. Management expects R&DS growth to improve in the second half of this year based on strength in leading indicators, such as RFP flow and biopharma funding. In addition, the cyclical recovery in the Technology and Analytics Solutions segment is playing out as anticipated, including a return to double-digit growth in real-world evidence. We were pleased to see management execute a large opportunistic share repurchase in the quarter. We believe the stock is cheap and trading at a significant discount to private market values.

BSD Analysis:
Harris Associates maintains a bullish stance on IQVIA despite recent headwinds from Inflation Reduction Act-related pharma portfolio reprioritizations affecting R&D Solutions growth. The fund emphasizes IQVIA's competitive outperformance during industry challenges, highlighting faster growth than peers and expanding client relationships as evidence of market share gains. Management's expectation for R&DS growth improvement in the second half based on leading indicators like RFP flow and biopharma funding supports Harris's conviction in the cyclical recovery thesis. The Technology and Analytics Solutions segment's return to double-digit growth in real-world evidence demonstrates the anticipated cyclical recovery is materializing. Harris views management's opportunistic share repurchase as value-accretive capital allocation, reflecting confidence in the business fundamentals. The fund considers IQVIA undervalued relative to private market comparables, suggesting significant upside potential as industry conditions normalize. Harris's investment thesis relies on IQVIA's market-leading position in life sciences services and the company's ability to gain share during challenging industry periods.

Pitch Summary:
Alphabet was the top detractor during the quarter. The U.S.-headquartered company's stock price declined despite having posted fourth-quarter 2024 earnings that were in line with consensus expectations. Search revenue growth remained strong, and management reiterated that the new "AI Overviews" feature is driving higher engagement with comparable monetization. The one miss during the quarter was in the Cloud segment, where revenue grew 30% year-over-year but fell slightly short of consensus expectations. We believe the shortfall was largely due to short-term capacity constraints and that the long-term growth outlook for Google Cloud remains robust. We continue to see Alphabet as a collection of great businesses that can further benefit from the company's world class AI capabilities. With shares trading at just 15x our estimate of next year's earnings per share, we believe the stock is meaningfully undervalued.

BSD Analysis:
Harris Associates maintains strong conviction in Alphabet despite recent stock underperformance, viewing the decline as disconnected from solid fundamental performance. The fund highlights robust search revenue growth and successful AI integration through "AI Overviews" that's driving higher engagement without sacrificing monetization. While Google Cloud's 30% growth slightly missed expectations, Harris attributes this to temporary capacity constraints rather than competitive or demand issues, maintaining confidence in the long-term cloud growth trajectory. The fund views Alphabet as a portfolio of high-quality businesses well-positioned to benefit from world-class AI capabilities across multiple segments. At 15x estimated forward earnings, Harris considers the valuation meaningfully undervalued for a company with Alphabet's growth prospects and competitive advantages. The investment thesis centers on the company's dominant search franchise, growing cloud business, and AI leadership providing multiple avenues for value creation. Harris's conviction reflects confidence in Alphabet's ability to monetize AI innovations while maintaining market leadership across core business segments.

Pitch Summary:
We initiated a position in GE Aerospace based on its durable competitive advantages, anchored by its dominant market share in commercial and military aircraft engines—powering over 60% of the global narrowbody fleet through its joint ventures and proprietary platforms. Its strong aftermarket business, with long-term maintenance contracts and a growing installed base, provides a recurring revenue stream that buffers against cyclicality. The company's leadership in high-bypass turbofan technology and its ability to scale production efficiently have fortified its position, especially as airlines prioritize engine reliability and fuel efficiency. Meanwhile, management, led by CEO Larry Culp, continues to execute with precision, navigating new tariff regimes by localizing supply chains, securing alternate sources of key components, and optimizing logistics costs. Looking forward, the company is poised for continued growth across commercial aviation, defense, and emerging hybrid-electric propulsion. Growth in global aviation is expected to continue to outpace global GDP growth by as much as 2x. Margin expansion opportunities are supported by a shift toward higher-value service contracts, digital engine diagnostics, and vertical integration of key manufacturing processes. Additionally, the geared turbofan engine platform of its chief competitor, has faced persistent durability and maintenance challenges—most notably involving premature wear and costly inspections—that have undermined confidence and led to delays and compensation claims. In contrast, GE Aerospace's product suite is gaining share and customer trust, supported by a deep engineering bench and a culture of disciplined execution. We believe this combination of structural advantages and competitor missteps should sustain the company's upward trajectory and deliver strong long-term returns.

BSD Analysis:
Mar Vista initiated a position in GE Aerospace based on compelling competitive advantages and structural growth drivers in the aerospace industry. The manager highlights the company's dominant 60% market share in global narrowbody engines and strong aftermarket business providing recurring revenue streams. CEO Larry Culp's operational excellence and strategic navigation of tariff challenges through supply chain localization demonstrate strong management execution. The investment thesis centers on aviation growth outpacing GDP by 2x and margin expansion through higher-value service contracts and digital diagnostics. GE Aerospace benefits from competitor difficulties with geared turbofan engines, creating market share opportunities. The company's leadership in high-bypass turbofan technology and production scalability position it well for airline priorities of reliability and fuel efficiency. Mar Vista expects the combination of structural industry tailwinds, competitive advantages, and operational improvements to drive strong long-term returns in this new position.

Pitch Summary:
ConocoPhillips was a contributor during the quarter. The U.S.-headquartered oil and gas exploration and production company's stock price rose as the company's 2025 guidance benefitted from the substantial synergies from the recent acquisition of Marathon. We look forward to a large inflection in free cash flow over the next handful of years as several major capital investments come online. We continue to appreciate management's focus on returning capital to shareholders.

BSD Analysis:
Harris Associates maintains a bullish outlook on ConocoPhillips, highlighting the substantial synergies being realized from the Marathon acquisition that are enhancing 2025 guidance. The fund anticipates a significant free cash flow inflection over the coming years as major capital investments reach production, demonstrating confidence in the company's project execution capabilities. Harris appreciates management's disciplined approach to capital allocation, particularly the focus on returning capital to shareholders through dividends and buybacks. The Marathon acquisition appears to be delivering expected value creation through operational synergies and enhanced scale benefits. ConocoPhillips' ability to generate substantial free cash flows while maintaining shareholder-friendly capital allocation policies aligns with Harris's investment criteria. The fund's positive view is supported by the company's strong operational execution and management's track record of value creation. The combination of acquisition synergies, upcoming production growth, and shareholder returns creates a compelling investment proposition for Harris Associates.

Pitch Summary:
Meta Platforms (META) significantly outperformed investor expectations last quarter, showcasing robust operational and financial health. The company's strength in advertising propelled revenue up 16% year-over-year, while earnings per share surged by a remarkable 37%. Even with ongoing macroeconomic uncertainties and aggressive investments, Meta Platforms maintains a clear competitive edge in digital advertising. Its impressive fundamentals stem from ad market network effects, consistent user and engagement growth, improved monetization, and effective execution. Plus, we believe substantial growth opportunities still lie within Threads, Meta AI, WhatsApp, and Facebook Marketplace. Given its strong core metrics, AI advancements, and promising growth trajectory, Meta remains a compelling investment at an attractive valuation.

BSD Analysis:
Mar Vista presents a bullish case for Meta Platforms based on exceptional financial performance and competitive positioning in digital advertising. The manager emphasizes the company's 16% revenue growth and impressive 37% earnings per share surge, demonstrating operational excellence. Meta's competitive moat stems from powerful network effects in advertising, sustained user engagement growth, and improved monetization capabilities. The investment thesis extends beyond core platforms to emerging growth drivers including Threads, Meta AI, WhatsApp, and Facebook Marketplace. Despite aggressive investments in new technologies, the company maintains strong fundamentals and execution. Mar Vista views the current valuation as attractive relative to Meta's growth trajectory and AI advancement potential. The manager's confidence in Meta's ability to navigate macroeconomic uncertainties while expanding its digital advertising dominance supports the bull stance.