Investment Pitches

Pitch Summary:
During the quarter, we reinvested back in Tencent (and proxy Prosus) primarily because we're observing another pattern from our playbook that we cited in our last letter: the idea that advertising is a helpful 'switch' that can be 'turned on' to enhance margins when they're required. Tencent's WeChat is used daily by 1 billion people in China. Still, Tencent has historically under-monetised the advertising potential of its vast social network, relying on in-game purchases and fintech take rates. Then came TikTok (Douyin in China), where engagement was determined not by what your friends were doing but through an omnipotent algorithm delivering personalised short-form video content. Social network effects became less relevant, and eyeballs moved elsewhere. Seeing this as a competitive threat, Tencent launched its own short-form video—much as Meta had done through Reels. Similarly to Facebook and Instagram, with Tencent's daily ubiquity and existing network effects, video took off rapidly as a complement to engagement time. Once they reached a sufficient scale, management started monetising the content. Our thesis is that AI is likely to enhance the opportunity by 1) improving video engagement through surfacing more personal content to users (providing more monetisable ad inventory) and 2) improving ad targeting (more relevant ads that lead to higher click-through rates) in the same way it has benefited AppLovin and Meta Platforms. Independent of AI. If Tencent gets these elements right, each is combinatorial to growing profitability, but AI is a force multiplier. Despite this positive backdrop, Tencent's promising narrative is somewhat overshadowed by broader negative sentiment towards Chinese investments, which has pressed Tencent's valuation multiples to historically low levels. In this environment, Tencent is compelled to self-heal. In response, Tencent is deploying its increasing profitability by returning capital to shareholders by boosting dividends by 42% and doubling its share repurchases over the coming year. There is a financial link to its shareholder Prosus here. In the past, Tencent's repurchases had little impact on their share price and were primarily a mechanism to 'sterilise' share sales from Prosus in its own value unlock programme. We think there is a good chance that Prosus will also step up its own repurchases. To give some sense of the scale of the repurchases, Prosus' market cap is $75bn, and Tencent has announced $12bn in repurchases over the next year. You'll notice that our thesis does not rely on Chinese macroeconomic conditions. We think a combination of 'self-healing' and low valuations should generate a favourable return for us.

BSD Analysis:
SaltLight Capital presents a compelling bull case for Tencent centered on the company's ability to monetize its massive WeChat user base through advertising. The manager identifies Tencent's historical under-monetization of its 1 billion daily WeChat users as a significant opportunity, particularly as the company launches short-form video content to compete with TikTok. The thesis hinges on AI-driven improvements in both content engagement and ad targeting, which could create a multiplicative effect on profitability. At current ad loads of only 3% compared to Western counterparts at ~10%, there's substantial room for revenue expansion. The investment benefits from Tencent's 'self-healing' approach through aggressive capital returns - a 42% dividend increase and doubled share repurchases totaling $12 billion annually. With Tencent trading at historically low valuations due to broader Chinese market sentiment, the manager sees an asymmetric opportunity where fundamental improvements in monetization could drive significant returns independent of macroeconomic conditions.

Pitch Summary:
Over the past nine months we have been able to build up a decent size position in ENDI Corp (ENDI) at around $4 per share, or two times earnings net of cash. It has since climbed to above $6.50 per share. ENDI Corp, formerly known as Enterprise Diversified and prior to that Sitestar, has been quite a ride for long-term shareholders. Eight years ago, the company was taken over by private investor Jeff Moore and Steven Kiel of Arquitos Capital. The company invested into Alluvial Fund, managed by Dave Waters. Then the wheels came off. An investment into an Arizona HVAC company failed miserably. The real estate investment, Mt. Melrose, grew too quickly and spent capital buying more homes than they could rehab and market in a reasonable amount of time, and was eventually sold. Then the Alluvial investment, the only major part of the business performing well, grew too big and triggered Investment Co. Act of 1940 regulatory issues. Management decided to fully redeem the investment and by late 2021 ENDI was left with a pile of cash, a small yet profitable internet dial up business, Sitestar, and Willow Oak Asset Management which had small revenue shares from a few small hedge funds along with offering administrative and compliance services to a handful of funds. In late December 2021 they announced a merger with CrossingBridge Advisors and Cohanzick Management, an investment advisory firm led by David Sherman that focused on mutual funds with shorter term debt instruments. Prior to starting Cohanzick and CrossingBridge, Mr. Sherman was a senior executive and Treasurer of insurance operations at Leucadia. The deal closed in August 2022. The end result was a "new company" and new management albeit with the same ticker – ENDI (note: older SEC filings are under Sitestar while newer ones are under ENDI Corp.). As part of the deal, CrossingBridge contributed some of its advisory agreements in exchange for shares valued at $8 per share, leaving the new entity with a large amount of cash and a profitable asset management business. The costs of closing the deal hurt results in 2022 yet they still reported $0.66 in EPS. In 2023 ENDI reported EPS of $0.46 per share. The share price was languishing around $4 per share. You might think things were trending in the wrong direction. Not at all! In fact, a number of positive events occurred in 2023 and even more in early 2024. On May 12, 2023, the company closed on agreement to acquire RiverPark Strategic Income Fund, which was sub-advised by David Sherman and Cohanzick. Essentially ENDI would own the full revenue stream from the advisory fees and pay RiverPark up to 50% of the revenue for the next three years and then 20% of revenue in years four and five. On October 23, 2023, ENDI launched a UCITS fund, the CrossingBridge Low Duration High Income Fund. The fund is similar to its US Low Duration High Income Fund but is intended for investors outside North America. The fund had reached $59 million in assets under management (AUM) by December 31, 2023, and over $80 million by March 31, 2024. According to the April 19, 2024, conference call this was accomplished without a seeder, and they are yet to target large family offices. On January 12, 2024, the company filed Form 15 to deregister with the SEC. This should reduce professional fees. On March 9, 2024, Crossing Bridge replaced Cohanzick as sub advisor to the RiverPark Short Term High Yield Fund as part of a deal for ENDI to acquire all remaining assets of Cohanzick for a $10 million note yielding 8%. This increased AUM by roughly $800 million. ENDI has 5.47 million shares outstanding. A current price of roughly $6.50 per share, for a $36 million market cap. Insiders own about 53%. What we felt the market was missing was that the company was no longer what it was, and more importantly it significantly increased earnings power based on the recent growth in AUM. Assets under management are currently $2.9 billion versus $1.8 billion at the end of 2023 and $1.5 billion at the end of 2022. Due to the March acquisition, true earnings power will not be reflected until the June quarter, but we estimate 2024 earnings at $0.86 per share. What made ENDI even more attractive was that they had cash and investments of $16.7 million, or $3.06 per share, as of the end of 2023. The most recent deal added $10 million of debt so net cash has subsequently decreased to $1.25 per share, but cash should build faster than earnings due to ENDI not being a full tax payer. We estimate March 2024 cash and investments at nearly $1.50 per share. At $6.50 per share ENDI is trading at just six times earnings net of cash. We think shares of ENDI are worth eight to ten times current earnings plus net cash, or $8.35 to $10 per share today with that value growing $0.25 per share every quarter. Thus, by the end of the year we see fair value being $9.75 to $11.50 per share based on slightly higher earnings run rate and an estimated cash balance of $2.30 per share. Unfortunately, due to ENDI's small size, it will be a smaller position for the fund, but big enough to be meaningful. We should note the stock has not had much liquidity the last month or so.

BSD Analysis:
The manager presents a compelling turnaround story for ENDI Corp, an asset management company that has transformed from a troubled conglomerate into a focused financial services business. The investment thesis centers on the company's dramatic AUM growth from $1.5 billion to $2.9 billion through strategic acquisitions, particularly the March 2024 Cohanzick deal that added $800 million in AUM. At 6x earnings net of cash, the valuation appears attractive for an asset manager with growing fee income streams. The manager's $8.35-$10 target price implies 8-10x earnings plus net cash, which seems reasonable for a profitable asset manager. Key catalysts include continued AUM growth, cost synergies from acquisitions, and the company's tax-advantaged structure that should accelerate cash generation. However, liquidity concerns and the company's complex corporate history present risks. The 53% insider ownership provides alignment but may limit trading liquidity for institutional investors.

Pitch Summary:
One position in the portfolio we have not discussed much in our earlier letters to investors is our 6% investment in OCI, which we started in April 2023. Despite important catalysts, the stock is currently trading at our entry price. On a total return basis, we are up 16.1% in the position due to regular and special dividends paid out last year. We expect to receive another significant special dividend this year, as outlined below. For those unfamiliar with the company, OCI is a European-listed, global fertilizer business focused on the "3 F's" of fuel, food, and feedstock. This company is essential to food supply chains and owns a strategically valuable, global asset base that would be difficult to replicate. The firm is the world's largest exporter of nitrogen fertilizer products and the only major producer with international production, distribution, and storage capacity in the US, Europe, and the MENA regions. The firm is a "family business," now helmed by the second generation of the Egyptian Sawiris family. Our initial interest in the business started in 2022. At the time, we were reviewing the fertilizer industry for potentially interesting short opportunities, as fertilizer prices were trading at what we judged to be cyclical peaks. While we did not find any short opportunities we liked, our sum-of-parts analysis suggested that OCI could be worth €50 per share vs. its 2022 peak of ~€43 per share with a downside of €20 per share. We judged the valuation discount insufficient to justify an investment at the time but enough to put it on a watch list. By March/April 2023, the stock had fallen by roughly 50% relative to its 2022 high due to a nearly 80% collapse in Middle Eastern ammonia prices (the core nitrogen fertilizer medium relevant to OCI). With that price fall, we accumulated a 6% position. We were rewarded in December of last year with the announcement from OCI that it was making two significant asset sales as part of a strategic review prompted by activist investor Jeff Ubben's 2022 prodding: The first announcement was the firm's $3.6 billion sale of its controlling interest in Fertiglobal PLC, the Abu Dhabi-based fertilizer venture with the Abu Dhabi National Oil Company (ADNOC). The second announcement was the sale of the firm's 100%-owned Iowa Fertilizer Company, OCI's US nitrogen fertilizer business, to Koch Ag and Energy Solutions for $3.6 billion. In December of last year, the firm announced asset sales, net of debt, of $6.2 billion, or roughly the firm's market capitalization at the end of 2023. The firm has traded down in 2024 and is currently sitting at a discount of ~6% to the cash we expect the business to receive at some point this year for the assets it has sold. Management has noted that they expect to return "a substantial amount of capital to shareholders…in a very tax efficient manner." Why the stock is now trading below the cash value of the two deals, especially given the remaining assets the firm owns and management's good track record of creating value, is a mystery. If management had a history of destroying shareholder value, we could understand; after all, many management teams have bungled the capital allocation job when confronted with a large pile of cash, but this is not the case with OCI. Furthermore, the business has other assets, specifically its European Nitrogen business, Methanol operations, and a currently under-construction ammonia plant in Texas, expected to be up and running in 2025. Finally, as Management noted in the FY2023 call in February, they intend a 2024 capital return of about ~€12 per share. Management also outlined on the same call that, in addition to the $3 billion capital return, they intend to use proceeds from the asset sales to pay down debt (~$2 billion) and fully finance the remaining CapEx on the firm Texas facility (~$500 million). This leaves the firm with a net cash position of $700 million at the end of 2024 if everything runs smoothly. According to management, the firm's post-transaction assets generate roughly $500 million in mid-cycle EBITDA, and the Texas ammonia facility is expected to generate mid-cycle EBITDA of $100 to $200 million. Assuming the business trades at a 5-year historical EV/EBITDA of 6x and generates $600 million in EBITDA in 2026, the post-transaction equity stub is worth roughly €18 per share. Put another way, assuming a hard cash return of €12 in 2024, the market is pricing the ongoing business at ~€13 per share, a 38% discount to our estimate of the value of the remaining assets. Although we do not believe there is strong evidence to support the idea that public markets will value the equity stub at the current 8x EV/EBITDA multiple the firm is trading for, management did sell the Iowa operations to Koch Industries at an 8x EV/EBITDA multiple. Assuming an 8x multiple, the post-transaction business is worth €23 per share. At a 3x multiple, the five-year low, the post-transaction business is worth €11 per share, implying a ~8% downside from the current share price after netting out the expected ~€12 per share capital return. Although this investment has become complicated, and we are unconvinced a breakup was the route to the highest investor returns, we are satisfied with how this investment is unfolding. If the firm price falls by €12 on the day of the abnormally large capital return, we will have a mark-to-market loss on the core equity position of 48%. However, we will also have received 65% of our original investment back in cash. If the remaining equity position rerates to between €18 and €23, we will still have a mark-to-market loss but a total return inclusive of dividends/capital returns of between 37% and 57%—a potentially tidy little investment and an interesting tax situation for us to consider.

BSD Analysis:
Massif Capital presents a compelling value opportunity in OCI, a global fertilizer producer trading at a significant discount to its asset value following major divestitures. The manager initiated the position in April 2023 after the stock fell 50% from its 2022 highs due to collapsing ammonia prices, creating an attractive entry point. OCI announced $6.2 billion in asset sales (roughly equal to its market cap) including its Abu Dhabi fertilizer venture and Iowa operations, with management committing to return approximately €12 per share to shareholders in 2024. The stock currently trades at a 6% discount to the expected cash proceeds alone, ignoring the value of remaining assets including European nitrogen operations, methanol business, and a new Texas ammonia facility. Using conservative 6x EV/EBITDA multiples on the remaining $600 million EBITDA business, the equity stub appears worth €18 per share, representing a 38% discount to current pricing. Even in a downside scenario using 3x multiples, total returns including the €12 capital return could range from 37-57%, making this an asymmetric risk-reward proposition with limited downside protection.

Pitch Summary:
AGNC is an internally managed REIT focused on the agency RMBS sector. As the best of breed RMBS REIT, AGNC trades at a discount to tangible book value and offers a mid-teens dividend yield. With MBS spreads at a 3+ standard deviation from the mean, investors in AGNC will benefit from a normalization of mortgage credit spreads. While we wait for agency mortgage spreads to normalize, Appleseed Fund clips a ~1.3% dividend each month.

BSD Analysis:
Appleseed Fund views AGNC as the premier agency RMBS REIT, trading at an attractive discount to tangible book value while offering compelling income generation through mid-teens dividend yields. The investment thesis centers on mean reversion of mortgage-backed securities spreads, which are currently trading at extreme levels more than three standard deviations from historical norms. This statistical anomaly suggests significant upside potential as spreads normalize to historical averages. The fund benefits from immediate income generation through monthly dividends of approximately 1.3%, providing attractive carry while waiting for the normalization catalyst. AGNC's focus on agency RMBS provides government backing and reduced credit risk compared to non-agency alternatives. The internally managed structure eliminates external management fees, improving cost efficiency and shareholder alignment. This position reflects Appleseed's strategy of capturing dislocated opportunities in fixed income markets while generating substantial current income.

Pitch Summary:
Humana is one of several U.S. large managed care organizations and is primarily focused on government health insurance. Humana's share price has fallen over 40.0% from post-COVID highs due to the recent emergence of elevated medical loss ratios. In our view, Humana's stock has been severely punished and the stock was quite attractive at the time when Appleseed Fund took a position.

BSD Analysis:
Appleseed Fund initiated a position in Humana following a significant 40% decline from post-COVID highs, viewing the selloff as creating an attractive entry point. The fund managers believe the market has overreacted to elevated medical loss ratios, which represent temporary headwinds rather than structural issues. As one of the largest managed care organizations focused on government health insurance, Humana benefits from demographic tailwinds including an aging population and Medicare Advantage growth. The company's established market position and government contract relationships provide defensive characteristics during economic uncertainty. However, the investment thesis relies on medical cost normalization and margin recovery, which may take time to materialize. The fund's contrarian approach suggests confidence in Humana's ability to navigate current challenges and return to historical profitability levels. This value-oriented investment aligns with Appleseed's defensive positioning strategy.

Pitch Summary:
For readers in the habit of using quantitative screens to identify investment ideas, NN will likely cause you to turn the other cheek. At first glance, this business does not look pretty. Under the hood, there is a lot to like. The fact patterns here along with management efforts are very similar to our investment in Bel Fuse. Like Bel Fuse, NNBR possesses strong technical expertise, a large manufacturing footprint, and long-dated customer relationships. Also, like Bel Fuse, NN was historically mismanaged, which shows up in the areas of pricing, manufacturing overhead and new business wins. NN, Inc. is a precision parts manufacturer that specializes in the development of plastic and metal components for various end markets. The company operates through two segments, Mobile Solutions and Power Solutions. Mobile Solutions manufactures parts primarily for the automotive market in power steering, braking, and fuel systems, while Power Solutions makes parts for general industrial, electronics, and medical markets. Specifically, NNBR manufactures parts that help other machinery spin, turn, and rotate. This other machinery is made up of everything from power steering systems to surgical devices to aerospace components. The company has a history dating back to the 1980's as a manufacturer of metal balls and rollers for the oil and gas industry, and today their precision capabilities and blue-chip customer base means they manufacture a wide variety of SKUs leading to a stable base of $500mm in revenues. The performance and durability required of NNBR's parts means that they have a high cost of failure, making them critical components despite their low cost to end customers. This has led to long-standing relationships with their customers, along with many of these components being sole source, making NNBR's competitive position quite strong. This helps partially explain how, despite NN losing its way recently, the customer base has held up well, despite a history of poor acquisitions, too much leverage and an incredibly weak culture. Thankfully, our involvement is recent, following multiple positive changes that the market has yet to price in, despite the 'why now' part of the investment thesis being more evident today than at any point in the past few years. As management continues to execute, I believe NNBR is rapidly approaching a more normalized cash flow profile that will reveal the future is going to be much different than the past. As you've likely seen with good businesses that besmirch their public market reputation, the prior management team took on significant leverage to make a string of bad acquisitions that didn't contribute meaningfully to profitability nor provide any cost savings or manufacturing synergies. Companies can sometimes hide behind bad deals, but when COVID hit, NN was forced to take drastic action in the form of unfavorable capital raises along with the sale of one of their other business segments in order to pay down debt. Today is a new day at NN as there is an incredibly high-quality management team and Board in place, spearheaded by two activist funds, also the largest shareholders of the business. Current CEO Harold Bevis is an industry veteran who has been there, done that in previous roles, having spent the last twelve years at two different public companies, Xerium (XRM) and Commercial Vehicle Group (CVGI), both of which left shareholders much better off than before he arrived. In line with my comments above about people and incentives, Harold recruited some old team members to join him at NN, where each have the opportunity to earn many multiples of their base salaries if successful. In fact, Harold dumped his prior role at CVGI to take the CEO job at NN, which should bode well for us as one source described Harold as someone who will 'run you right over' if you get in his way. Since their hiring, management has laid out several key strategic pillars on which they will focus and have already made remarkable progress in a short period of time. These pillars include strengthening the leadership team, addressing unprofitable business, expanding margins, delivering consistent free cash flow, and increasing new business wins. While that sounds like a tall order, most of these initiatives only require adopting common sense operational tactics. Importantly, there is valuation upside even before new business wins take place or top line growth resumes. In other words, there is plenty of low-hanging fruit to lower costs and expand margins, the bulk of which is being undertaken as I write this letter. Some of these items include addressing unprofitable business, implementing better pricing practices, and instituting a more centralized system to purchase raw materials. If I am correct about the cost improvements for each one of these items, the permanent flow through to EBITDA would be tremendous. While there is execution risk, and NNBR is still a show me story, I'm confident that in the near-term that management's efforts will start to show up in the company's financials and reveal NNBR to have much greater earnings power than is currently being demonstrated. Management has guided to $47-55mm of EBITDA for FY24, and there is likely a significant amount of upside to that figure as early as this year. Then, as new business wins contribute to improved top line growth, operating leverage should also kick in, presenting the opportunity for increased free cash flow conversion over time. This should help change the perception of NNBR, which will be very powerful for our returns.

BSD Analysis:
Greystone identifies NN, Inc. as a classic turnaround opportunity where new management is addressing years of operational mismanagement at a precision parts manufacturer. The investment thesis hinges on CEO Harold Bevis's proven track record of value creation at Xerium and Commercial Vehicle Group, combined with activist fund backing and aligned incentive structures. Despite poor historical performance due to bad acquisitions and excessive leverage, the company maintains strong competitive positioning through mission-critical components, sole-source relationships, and high switching costs across automotive, medical, and industrial end markets. Management's strategic pillars focus on operational improvements including better pricing practices, centralized procurement, and elimination of unprofitable business segments. With $500mm in stable revenues and management guidance of $47-55mm EBITDA for FY24, the company trades at attractive valuations before considering potential upside from operational leverage and new business wins. The investment offers significant earnings power normalization as cost structure improvements flow through to EBITDA, supported by a defensible market position in precision manufacturing.

Pitch Summary:
Innovative Food Holdings is a specialty food distributor with a niche service offering and a history of strong organic growth. The company distributes over 7,000 perishable and specialty food and food related products, with expertise in selection, sourcing, and logistics. The business was founded and run for nearly twenty years by the former CEO who was both overpaid and had a history of chasing pet projects to the company's detriment. Despite following IVFH for years and liking the core business, the company was un-investable under the prior management team. That is no longer the case. With a highly competent and experienced management team now in place, along with an aligned and incentivized Board, shareholders finally own a food distribution business that will focus on its core customer and has the opportunity for revenue growth and margin expansion. However, as the result of questionable strategic decisions, the past few years of financials reveal a business that is under-earning, with true earnings power being masked by an unnecessarily high-cost structure due to an unprofitable e-commerce segment that is in the process of being wound down. Innovative Foods has three core offerings: a direct-to-chef specialty food service platform, an asset-light drop shipping distribution business where IVFH partners with broadline distributors such as US Foods to drop ship directly to end customers, and a specialty food distribution business that serves professional chefs in the Chicago area through their subsidiary, Artisan Foods. Food distributed by IVFH ranges from familiar to completely esoteric, where they've carved out a niche for themselves due to their relationships with hundreds of small food producers, including small farms, boats, and ranches. Specialty food distributors, and IVFH in particular, serve a critical need in the food distribution ecosystem by providing an important add-on offering for broadline food distributors, sourcing quality in-demand fresh foods for professional chefs, and providing capabilities for broadline distributors to plug IVFH's offerings directly into their ordering and billing systems. Companies like IVFH and other regional specialty food distributors have often been ignored by competition given the difficulty in building out these capabilities, as it doesn't make sense from a cost or profitability standpoint for a US Foods or United Natural Foods to develop a specialty offering. As a result of this niche along with higher priced specialty items, IVFH has historically posted strong organic growth figures along with gross margins well in excess of broadline distributors. Given the asset lite nature of this business along with good incremental margins, the cash flow profile for food distribution is also strong. Unfortunately, despite the profitable food distribution business growing 20% per year from 2015 until 2020, prior management started spending more time on a direct-to-consumer e-commerce offering that was low margin and expensive to scale. This dragged down the profitability of the entire business due to elevated customer acquisition costs and bloated SG&A. Following years of disappointment and a business under-earning on its potential, members of the Board were successful in replacing the former CEO with new CEO Bill Bennett, an industry veteran who spent time with both Wal-Mart and more recently Kroger, where he oversaw their $10 billion e-commerce business. Once at IVFH, Bill's first tasks were to prioritize cash flow and reduce costs, by examining every single dollar that went out the door, including what IVFH pays to landscape the small patch of grass outside of headquarters. This is my kind of CEO. As you'll see with NN Inc., it's remarkable what Bill and the team have achieved since their hiring, winding down unprofitable e-commerce operations, divesting non-core assets, reducing SG&A, and securing additional broadline distributor relationships for the Professional Chef business. However, we are still in the first inning of management's strategic plan to stabilize the business, lay the foundation for growth, and then build and scale. Management is incentivized to do two things, above all else: increase profitability and deliver strong shareholder returns. If successful, management will own a large chunk of the business through their compensation package, and we are betting on their success. We didn't pay up for it either. Although there are a lot of moving parts, IVFH finished FY23 having generated $2.5mm in EBITDA, which is likely a trough figure. Low hanging fruit can double this number in the near term before any growth initiatives take place, and there is a mid-term goal to increase the top line to $100mm in revenues with a 10% EBITDA margin profile. While not quite there yet, as non-core assets continue to get sold, IVFH will be a $50mm market cap business with around $10-12mm in net cash on the balance sheet, a sustainable $5-6mm EBITDA profile, limited capex and high returns on capital. This is all before any new business growth. There are levers to pull to help uncover latent earnings power, and I'm betting on this management team to execute on the opportunity. A renewed focus, and various avenues for growth also means that the company can build scale in food distribution for the first time in years. If the core business returns to 20% annual growth, we will win big. Further optionality exists with IVFH being able to develop a platform for specialty food M&A, for which the industry is rife with such activity. Private equity is leaning hard into specialty food distribution M&A, and the fragmented industry provides opportunities to grow products, geographies, and customers. IVFH could find itself on the receiving end of a takeout offer as well. There will be bumps in the road on our way to success, but I'm excited to see what Bill and his team can accomplish during the next few years.

BSD Analysis:
Greystone presents a compelling turnaround story in Innovative Food Holdings, a specialty food distributor that has been hampered by poor management decisions but now benefits from experienced leadership. The manager's thesis centers on new CEO Bill Bennett's ability to unlock latent earnings power by eliminating unprofitable e-commerce operations and focusing on the core specialty food distribution business that historically grew 20% annually. The company operates in a defensible niche serving professional chefs with hard-to-source specialty items, creating competitive moats through supplier relationships and integration with broadline distributors. With $2.5mm in trough EBITDA for FY23, management believes low-hanging fruit can double profitability near-term, targeting $100mm revenues with 10% EBITDA margins. The investment offers attractive risk-adjusted returns at a $50mm market cap with $10-12mm net cash, minimal capex requirements, and potential M&A optionality in a consolidating industry. Management incentives are well-aligned through equity compensation, and the asset-light model should generate strong cash flow conversion as operational improvements take hold.

Pitch Summary:
I recently had the opportunity to pitch a best idea at the BTIG Value Investing event in Omaha as part of the Berkshire Hathaway pilgrimage weekend. I pitched REVG, which is a manufacturer of primarily fire trucks and ambulances. We believe this is a very compelling industry due to current three-year backlogs for demand, significant price increases which have yet to fully flow through the P&L, and an oligopoly industry structure. Moreover, we believe REVG's new management team is well positioned to execute self-help initiatives to significantly increase EBITDA margins from current levels.

BSD Analysis:
Alta Fox identifies REV Group as a compelling value opportunity in the specialty vehicle manufacturing sector, particularly fire trucks and ambulances. The investment thesis centers on favorable industry dynamics including three-year demand backlogs that provide revenue visibility and pricing power. Significant price increases implemented by REVG have yet to fully flow through the P&L, suggesting near-term margin expansion potential as higher-priced orders are delivered. The oligopolistic industry structure provides competitive advantages and barriers to entry that support sustainable profitability. Alta Fox expresses confidence in REVG's new management team and their ability to execute operational improvements and self-help initiatives. The fund anticipates meaningful EBITDA margin expansion from current levels through management's strategic initiatives. REVG's position as a leading manufacturer in essential emergency vehicle markets provides defensive characteristics while benefiting from municipal spending on critical infrastructure. The combination of industry tailwinds, pricing power, and operational improvement potential supports Alta Fox's bullish investment case.

Pitch Summary:
Humble Group AB was the biggest detractor in the quarter, as it gave up some of its Q4 gains. We believe the thesis is on track and that this company remains one of the cheapest stocks in our portfolio. We see the potential for it to double over the next 12 months. Humble (full thesis here) has traded down in sympathy with the Swedish First North index as the institutional investor community increasingly abandons the venue in favor of the premiere Nasdaq Stockholm exchange. Over the last six months, Humble's adjusted beta vs the FN25 index has been 1.04. This has caused the group's forward EBITDA multiple to compress from 8.4x to 7.4x, implying a FY24 free cash flow yield of ~12.5% on our estimates. We are unaware of any consumer staples company trading in the public markets at a double-digit free cash flow yield while producing mid-teens organic revenue growth rates alongside strong operating leverage. Humble is "uplisting" from the First North exchange to the Nasdaq Stockholm exchange within the next six months. We believe this could be a catalyst for shares. However, if the company continues to trade at such low valuation levels, we believe Humble is likely to be acquired by a financial sponsor or strategic consumer staples company. This industry lends itself to acquisitions given the significant distribution and cost synergies of larger strategic acquirers.

BSD Analysis:
Alta Fox views Humble Group as an exceptional value opportunity in consumer staples, trading at compressed multiples due to institutional abandonment of the Swedish First North exchange. The company exhibits rare characteristics of mid-teens organic revenue growth combined with strong operating leverage while trading at only 7.4x forward EBITDA. Alta Fox estimates a 12.5% free cash flow yield for FY24, which appears anomalous for a consumer staples company demonstrating such robust growth metrics. The pending uplisting to Nasdaq Stockholm within six months represents a potential catalyst for multiple expansion and institutional re-engagement. Alta Fox identifies acquisition potential from financial sponsors or strategic acquirers seeking distribution synergies and cost optimization opportunities. The fund's 12-month doubling potential target reflects confidence in either multiple expansion through the uplisting or strategic acquisition at higher valuations. Despite Q1 underperformance, Alta Fox maintains conviction in the fundamental thesis and views current levels as attractive entry points.

Pitch Summary:
Daktronics was another large contributor in the first quarter. We will refrain from rehashing the thesis, as we have fully covered this in previous letters. However, we believe the thesis is very much on track and that DAKT remains significantly undervalued. The stock still trades for <6x our estimate of EBITDA, implying a double-digit free cash flow yield. We believe there remains underappreciated growth and self-improvement levers at DAKT and remain long the stock.

BSD Analysis:
Alta Fox maintains a bullish stance on Daktronics, viewing the electronic display manufacturer as significantly undervalued despite strong Q1 performance. The fund's valuation analysis suggests DAKT trades at less than 6x estimated EBITDA, generating a double-digit free cash flow yield that appears attractive relative to the company's growth prospects. Alta Fox identifies multiple underappreciated catalysts including organic growth opportunities and operational improvement initiatives that could drive value creation. The fund's continued confidence in the investment thesis, despite previous detailed coverage in prior letters, suggests strong conviction in the company's fundamental trajectory. DAKT's position as a leading provider of electronic display systems for sports venues and commercial applications provides exposure to secular growth trends in digital signage and sports facility upgrades. The combination of attractive valuation metrics and multiple value creation levers supports Alta Fox's long-term bullish outlook.

Pitch Summary:
Alta Fox has followed EML Payments for over five years. It started as a payments company focused on the gift and incentive card program management industry. Alta Fox was briefly invested in the company with the thesis that the business operated in a uniquely profitable payments niche and the company was cheap on normalized earnings. The company "diworsified" in 2020, at the worst possible time, by acquiring PFS, a European payments company focused on reloadable cards that, unlike EML, owned its own European banking license. In general, Alta Fox is highly skeptical of transformative M&A, particularly at aggressive valuation multiples. We exited our shares at the time, but continued to watch the stock from the sidelines. The acquisition turned out to be worse than even we could have foreseen. In addition to acquiring the company at an excessive valuation level, PFS's largest operating company, PCSIL, nearly immediately began to run into serious regulatory problems, resulting in significantly negative free cash flow from this entity. EML's stock fell over 90% from peak levels. During this tumultuous period, EML was approached by both Bain and Nuvei offering to take the business private at materially higher prices - the Board declined to bring either offer to shareholders and the founding CEO resigned out of frustration. To add to boiling shareholder frustration, the Board appointed a new CEO from the existing Board without interviewing outside candidates. Alta Fox saw an opportunity. The company still had a very profitable and valuable gift & incentive card management business. Moreover, this business should be much more valuable today given the company is a significant beneficiary of higher interest rates, as they earn the majority of interest on the float of customers' card balances. However, we had zero faith in the current strategy of the Board and management team to fix the mess. Alta Fox became the company's second largest shareholder and worked behind the scenes to dramatically alter the company's future. Within six weeks of our official involvement, half of the Board had been replaced by me and two other recruited industry experts, the CEO resigned, and we began the extremely hard work to turn around a business with valuable parts but no cohesive direction. The day we joined the Board, the stock closed at $0.40 AUD/share. ~13 months later, Alta Fox successfully helped EML liquidate their problematic PCSIL business, launch a cost-cutting effort, and maximize interest revenue on their large and valuable float. This was a heavy lift that required late night Board meetings, numerous brainstorming sessions, and becoming intimately familiar with the European payment regulatory regime. Alta Fox exited our full position at $0.95, well over 100% higher than the day we joined the Board. The company, in our view, is also much healthier with stronger leadership than when we joined the Board.

BSD Analysis:
Alta Fox executed a successful activist turnaround at EML Payments, transforming a distressed payments company through board restructuring and strategic asset divestiture. The fund identified value in EML's core gift and incentive card management business, which benefits significantly from higher interest rates through float income generation. EML's problematic 2020 acquisition of PFS created regulatory issues and cash flow problems that drove the stock down over 90% from peak levels. Alta Fox's activist intervention resulted in board replacement, CEO resignation, and strategic focus on the profitable core business. The fund successfully helped liquidate the problematic PCSIL subsidiary and implement cost-cutting measures. Alta Fox achieved over 100% returns by exiting at $0.95 AUD versus their entry at $0.40 AUD. The turnaround demonstrates Alta Fox's operational expertise in distressed situations and ability to unlock value through governance improvements and strategic refocusing.

Pitch Summary:
Aubay is a family-owned French IT services company founded in 1997 and present in 7 European countries. The company generates just over half its turnover in France, with the remainder spread across other countries. Like LNA Santé, approximately 60% of Aubay is controlled by its founding families, ensuring alignment between management and shareholder interests. The company operates in various sectors, but has a strong exposure to the financial sector (60% of revenues), with clients such as BNP Paribas, Crédit Agricole and Banco Santander. Aubay's type of service, where reputation and certain switching costs play an important role, means that it has a very low client turnover. On the other hand, it is a business with limited capital employed and, therefore, high returns on invested capital, which has experienced a structural tailwind derived from the continuous digitization of processes and the drive for greater productivity across all industries. In the case of Aubay, the investment opportunity originates from the margin pressure that the sector is experiencing due to the halt in investments by some of its customers because of economic uncertainty. We believe that, at our acquisition prices, the market is discounting a permanent decline in the business's operating margins, as well as zero sales growth. In our opinion, Aubay's quality and positioning should allow it to recover its historical profitability and return to growth, which is why we decided to initiate this new position in the fund.

BSD Analysis:
Horos initiated a position in Aubay, a family-owned French IT services company, during a period of sector-wide margin pressure. The company operates across seven European countries with 60% revenue exposure to financial services clients including BNP Paribas, Crédit Agricole, and Banco Santander. Aubay benefits from high switching costs and strong client relationships, resulting in very low customer turnover and defensive revenue characteristics. The business model generates high returns on invested capital due to limited capital requirements and benefits from structural digitization trends across industries. Current weakness stems from client investment delays amid economic uncertainty, creating temporary margin compression. Management's 60% ownership ensures strong alignment with shareholders. The investment thesis centers on the market's overly pessimistic assumptions of permanent margin decline and zero growth, while Horos believes Aubay's quality positioning will enable margin recovery and renewed growth as client spending normalizes.

Pitch Summary:
This quarter, we also added the French companies LNA Santé and Aubay to our fund. The former is an entity founded in 1990 that manages nursing homes, rehabilitation and health centers, psychiatric clinics and home health care. LNA Santé manages 49 nursing homes in France (mostly) and Belgium, as well as 24 health clinics and 10 hospital care at home structures. It has also recently entered the Polish market with the acquisition of two rehabilitation centers. In total, the company has around 9,400 beds and 85 centers. The investment opportunity arises because the healthcare sector has experienced a succession of unprecedented problems, such as the coronavirus pandemic, malpractice scandals (which have not involved LNA Santé, but other companies such as Orpea) and significant cost inflation that they have not been able to counteract with price increases (many prices are set by regulation). All this, together with the historically high debt of companies operating in this industry due to their presumed stability, has led to bankruptcies and major stock market collapses. Nevertheless, LNA Santé's more conservative balance sheet management, as well as better practices in the management of its centers, have enabled it to weather this sector downturn with solid results, while taking advantage of the situation to pursue inorganic growth. Meanwhile, as in many other countries, the demographic dynamics in France are a structural tailwind for this business. Finally, it is important to note that the company is just over 60% controlled by the founding families and employees, which ensures a good alignment of interests with the rest of shareholders. All these factors, coupled with its sharp market correction in recent times, convinced us to invest in this company.

BSD Analysis:
Horos invested in LNA Santé, a French healthcare operator, capitalizing on sector-wide distress that created attractive entry valuations. The company operates 85 facilities with 9,400 beds across nursing homes, rehabilitation centers, and psychiatric clinics in France, Belgium, and Poland. While the healthcare sector faced unprecedented challenges from COVID-19, regulatory scandals, and cost inflation, LNA Santé differentiated itself through conservative balance sheet management and superior operational practices. The company avoided the scandals that plagued competitors like Orpea and maintained solid results during the downturn. Management has opportunistically pursued acquisitions during the crisis, expanding into Poland. The investment benefits from structural demographic tailwinds in aging European populations and strong governance with 60% family/employee ownership ensuring aligned interests. The thesis combines defensive healthcare exposure with recovery potential from current depressed valuations.

Pitch Summary:
The first new stake to highlight in the quarter is Acerinox. This stainless steel company, present in our Horos Value Iberia fund, has been penalized along with the rest of the sector by the weakness in demand in its European business for several quarters, both due to the fall in real demand, as well as that derived from the accumulation of inventories by its customers to cover the bottlenecks that have persisted in recent times. However, the situation seems to be coming to an end and we should at least anticipate a market bottom and a gradual recovery. Meanwhile, Acerinox has an enviable competitive position in the United States, where the dynamics are much more favorable for the company. Additionally, the company's robust financial health has enabled it to make value-accretive acquisitions in higher value-added segments. For example, in 2020 Acerinox acquired VDM Metals (a German manufacturer of high-performance alloy products and solutions) and, more recently, announced an agreement to purchase the U.S. company Haynes International (still pending approval by the various regulators). All these factors, combined with a very attractive valuation, led us to add the company to our international portfolio.

BSD Analysis:
Horos initiated a position in Acerinox, viewing the Spanish stainless steel manufacturer as attractively valued amid sector-wide weakness. The manager believes European demand headwinds are temporary, driven by inventory destocking and reduced real demand, with a market bottom and gradual recovery anticipated. Acerinox's competitive advantage lies in its strong U.S. market position where business dynamics remain favorable. The company's robust balance sheet has enabled strategic acquisitions in higher value-added segments, including VDM Metals in 2020 and the pending Haynes International acquisition. These moves demonstrate management's focus on expanding into more profitable specialty alloy products. The investment thesis centers on cyclical recovery potential combined with structural improvements from value-accretive M&A, all available at compelling valuations during the current downturn.

Pitch Summary:
Arrow Electronics ("ARW") is the world's largest authorized electronics components distributor (15% market share including larger shares in key markets) serving both electronics OEM customers and component suppliers. Most large component manufacturers buy directly from component suppliers. ARW has over 220,000 customers with a 90% customer retention rate and over 3,700 suppliers. ARW also distributes IT products such as servers, software, storage and computer security products. ARW has over 22,000 employees at over 219 sites located in 85 countries, including 39 distribution centers and 180 offices. Over 67% of its revenue is associated with products that include value-added services such as component design services and supply chain management services. The large portion of components associated with value-added services allows ARW to generate industry leading operating margins of 5.3%. Arrow Radio, the predecessor to ARW, was founded in 1935 on Radio Row in New York City. In 1946, ARW was incorporated. In 1961, ARW had $4 million in sales and went public via an IPO. In 1968, Mr. Glen, Green and Wadell bought a controlling interest in ARW and executed a leveraged roll-up strategy. By 1970, ARW was generating $9 million in sales and was the 12th ranked electronics distributor. At that time, Avnet was the largest. By 1979, ARW had $177 million in sales and was the second largest distributor listed on the NYSE. In 1980, Mr. Green and Glen were killed in a fire and Mr. Wadell stepped in as CEO until 1982 when Mr. Kaufmann became CEO. In the 1980's and 1990's, under Kaufman's leadership, ARW participated in more than 50 mergers and acquisitions transactions, expanded its range of products distributed and spread geographically around the world. In 1988, Arrow joint ventured (JVed) with Maruban to distribute components in Japan. In 1994, ARW entered the IT products distribution market with the purchase of Gates/FA. In the 2000s, under the leadership of Mr. Duval and Mitchell, ARW continued to purchase 17 distribution firms worldwide. In the 2010s, under the leadership of Mr. Long, ARW purchased an additional 40 distribution firms. In 2022, Mr. Keirnes became CEO, and is currently serving this role. ARW has been recognized over the past 11 years as one of Fortune's "Most Admired Companies". ARW has repurchased about 50% of its shares over the past 10 years most of that in the past 5 years as the pace of consolidation has slowed down. These repurchases have been accretive as ARW has sold between 5 and 10 times earnings over the past 10 years despite revenue and profit growth in-line with overall semiconductor sales growth. This has resulted in mid-teens EPS growth rates which I believe will continue if not accelerate as component demand increases through the end of the decade. Historically, ARW's revenue has grown with the growth in worldwide component sales. A distribution productivity measure is return on working capital, pre-tax profit/working capital. One of the best distributors in Europe, Bergman & Beving, has a goal of 45% pre-tax return on working capital. ARW's competitors have returns on working capital of 14% for Avnet and 24% for Manica. ARW's pre-tax return on working capital ranged from 20% to 30% over the past few years. This far exceeds its competitors and compares well even with the best among distributors. ARW has generated 20% to 30% free cash flow returns on tangible equity over the past 10 years. The ability to generate these returns is the result of high customer retention rates (higher than 90%) and high free cash flow conversion ((CFO less cap-ex/CFO) - 90%). These are characteristics of a business with a durable moat. During the 2010s and into the 2020s, ARWs return on equity increased as the acquisitions and divestitures generated high incremental returns on capital. ARW has five levers for cash flow growth: 1) electronic component market growth; 2) expanding the distribution franchise to new suppliers; 3) operational improvements; 4) paying down debt; and 5) distributing excess cash by buying back shares. The firm generates cash flows in excess of what is needed to modestly grow the firm, which is used to purchase firms in its target or adjacent markets. If no firms can be found that meet management's operational and valuation criteria, then management will buy back shares as the shares have typically traded at modest valuations reflecting modest organic growth. ARW currently spends about 10% of operational cash flow on capital expenditures leaving 90% for buy-backs and mergers and acquisitions. The business sector in which ARW competes is subject to economies of scale from distributing and value-added services and have route density characteristics with respect to the distribution of components. Evidence of the increasing scale is ARW'shigh margins compared to its authorized distributor competitors.

BSD Analysis:
The manager presents a compelling case for Arrow Electronics as a dominant player in electronic components distribution with significant competitive advantages. ARW commands a 15% global market share with over 90% customer retention rates and superior returns on working capital (20-30%) compared to competitors like Avnet (14%) and Manica (24%). The company has demonstrated exceptional capital allocation discipline, repurchasing 50% of shares over the past decade while maintaining mid-teens EPS growth rates. With 90% free cash flow conversion and returns on tangible equity of 20-30%, ARW exhibits characteristics of a durable moat business. The manager expects continued growth driven by AI and IoT trends, projecting 5% organic market growth with additional upside from acquisitions and share buybacks. At current valuations of 7x earnings, the stock appears significantly undervalued relative to the manager's $256 short-term target, implying substantial upside potential. The investment thesis centers on ARW's ability to compound returns through operational leverage, market consolidation, and disciplined capital allocation in a growing end market.

Pitch Summary:
Channel partners can track the company's business activity and consumption trends in real-time, offering an opportunity to front-run the financial announcement; the partner shares material nonpublic information and is unlikely to be controlled by the CEO or the management.

BSD Analysis:
Snowflake offers cloud-based data warehousing with consumption-based pricing. Bears argue growth is slowing as enterprise budgets tighten and hyperscalers like AWS, Azure, and Google expand competing services. Heavy stock-based compensation inflates adjusted profitability metrics, masking underlying dilution. While gross margins are strong, operating leverage remains unproven. With valuation embedding sustained hypergrowth, even modest deceleration could trigger sharp multiple compression.

Pitch Summary:
Amsterdam-based enterprise payments processor, Adyen, posted a quarterly update that was largely (at least in our opinion) business as usual. The company reported processed payment volume and net revenue growth of 46% and 21%, respectively. During the period, over 80% of the volume growth was derived from existing clients and volume churn was less than 1%. The pace of hiring has also slowed significantly to 26 net-new joiners in the quarter compared to 313 in the second half of 2023, which bodes well for margins moving forward. That said, Adyen shares sold off post the result as the market focused on the lower incremental take rates, a factor of having processed volumes relatively higher than net revenue growth. Management attributed the lower incremental take-rates to client mix, where the company experienced higher volume growth from larger merchants with lower rates, and not from any structural change in terms of how pricing is determined. In addition, management emphasised that the focus is to increase net revenue growth, not take rates. As the company has a relatively fixed cost base, every dollar added to net revenue improves the company's profit margins. With a longer-term view, the company's ability to gain wallet share and retain existing clients, coupled with a more normalised cost base, bodes well for future profitability and we remain patient holders.

BSD Analysis:
Lakehouse Capital maintains a bullish long-term view on Adyen despite short-term market concerns about take-rate compression. The manager emphasizes strong underlying business fundamentals with 46% payment volume growth and 21% net revenue growth, driven primarily by existing client expansion (80% of volume growth) and exceptional client retention (sub-1% churn). The significant deceleration in hiring from 313 to 26 net additions suggests improving operational efficiency and margin expansion potential. While the market focused negatively on lower incremental take-rates, management clarified this reflects client mix shifts toward larger merchants rather than structural pricing pressure. The fund appreciates management's focus on net revenue growth over take-rates, given the company's relatively fixed cost structure where incremental revenue flows directly to margins. Lakehouse views Adyen's wallet share gains, client retention capabilities, and normalizing cost base as positioning the company well for future profitability expansion, justifying their patient holding approach.

Pitch Summary:
US-based software company, ServiceNow, provided another strong result, continuing its long and consistent track record of 20%-plus revenue growth combined with healthy profitability. Subscription revenues grew 25% year-on-year to $2.5 billion and free cash flow grew 47% year-on-year to $1.2 billion. The company's core operating metrics were also impressive with remaining performance obligations growing 26% year-on-year to $17.7 billion (i.e. roughly 2x 2023 revenue) and renewal rates holding steady at 98%. Performance was evenly spread across segments, products, and geographies, with notable strength in the US federal government. The company now boasts 1,933 customers generating in excess of $1 million in Annual Contract Value (ACV), which is pleasing to see as it implies multiple solutions are involved and that the company's platform model is increasingly resonating with customers. In our view, ServiceNow is one the highest quality software businesses globally as the combination of consistent growth at scale, robust free cash flow generation and a large addressable market make it a compelling opportunity.

BSD Analysis:
Lakehouse Capital positions ServiceNow as one of the highest quality software businesses globally, emphasizing its consistent execution and strong fundamentals. The manager highlights impressive growth metrics with 25% subscription revenue growth to $2.5 billion and exceptional 47% free cash flow growth to $1.2 billion, demonstrating strong unit economics. The 26% growth in remaining performance obligations to $17.7 billion (roughly 2x 2023 revenue) provides significant revenue visibility, while the 98% renewal rate indicates strong customer satisfaction and sticky platform adoption. The expansion to 1,933 customers with over $1 million ACV suggests successful platform cross-selling and enterprise penetration. Notable strength in the US federal government segment adds diversification. The fund views ServiceNow's combination of consistent 20%+ growth at scale, robust cash generation, and large addressable market as creating a compelling long-term investment opportunity in the enterprise software space.

Pitch Summary:
Alphabet delivered a strong quarterly result that came in well ahead of analysts' expectations. Revenue grew 15.4% (16.0% constant currency) to $80.5 billion and operating income grew 46.0% to $25.5 billion. Revenue growth accelerated across Search, YouTube Ads, and Google Cloud, all whilst the company delivered its highest operating margin since 2021 – showing meaningful progress in the company's efforts to durably re-work their cost structure. On the Generative AI front, management emphasised the company's infrastructure advantages including 5th generation TPUs (chips developed by Google specifically for AI training and inference), high performance data centre architecture, and AI models that are 100x more efficient versus 18 months ago. Overall, we believe that Alphabet is well placed for the AI opportunity ahead and still has significant latent earnings power. When combined with a relatively undemanding valuation of 21x forward net profit and over $100 billion of cash on the balance sheet, it's not hard to see why we remain positive on the range of outcomes in the years ahead.

BSD Analysis:
Lakehouse Capital presents a compelling bull case for Alphabet based on strong Q1 2024 fundamentals and AI positioning. The manager highlights impressive financial metrics with revenue growth of 15.4% to $80.5 billion and operating income surging 46% to $25.5 billion, demonstrating effective cost management with the highest operating margin since 2021. The acceleration across core segments including Search, YouTube Ads, and Google Cloud indicates broad-based strength. The fund emphasizes Alphabet's competitive advantages in generative AI, particularly its proprietary 5th generation TPUs and 100x more efficient AI models compared to 18 months prior. The valuation appears attractive at 21x forward earnings with over $100 billion in cash providing financial flexibility. The manager views Alphabet as well-positioned to capitalize on AI opportunities while maintaining significant latent earnings power, supporting their positive long-term outlook.

Pitch Summary:
Hotel commerce platform, SiteMinder, reported a positive quarterly update with revenue and annualised recurring revenue (ARR) up 23.3% and 24.8%, respectively. The company is on the tipping point of profitability; reporting underlying free cash flow of almost breakeven and improving margins by more than 22 percentage points year-on-year. On the product side, management shared that the team is on-track, or ahead, of plans to deliver its key initiatives. For Channels Plus, the company has already signed 14 partners, including a large online travel agency, Trip.com. Further, momentum adding larger properties has kept its pace and will help fuel future growth when more transaction-based products are added to the platform. We remain strong supporters of the business and see a path for growth to accelerate from here.

BSD Analysis:
Lakehouse expresses strong bullish conviction on SiteMinder, emphasizing the company's approaching profitability inflection point with nearly breakeven free cash flow and dramatic margin expansion of over 22 percentage points. Revenue growth of 23.3% and ARR growth of 24.8% demonstrate solid execution in the hotel commerce platform market. The successful expansion of Channels Plus with 14 partners, including major OTA Trip.com, validates the platform's value proposition and network effect potential. Management's on-track or ahead-of-schedule delivery on key initiatives suggests strong operational execution. The focus on adding larger properties creates a foundation for future transaction-based revenue streams, which should drive accelerating growth. SiteMinder represents the fund's second-largest holding, reflecting high confidence in the hospitality technology sector's structural growth opportunity. The combination of approaching profitability, expanding partnerships, and product development momentum supports the manager's optimistic outlook.