Investment Pitches

Pitch Summary:
Over the past year we have built a position in our first Canadian listed company. Blackline Safety (TSX:BLN) is a provider of gas detection and safety monitoring systems to the energy, industrial, transportation, and consumer packaged goods verticals. Blackline is led by Founder/CEO Cody Slater, who entered the gas detection space in 1987 as an undergraduate at the University of Alberta when he invented the RigRat. The RigRat was the world's first wireless area gas detector. Mr. Slater then founded BW Technologies to further develop and market gas detection systems. BW Technologies was responsible for the world's first disposable portable gas detector and the first wearable multi-gas detector. BW also pioneered a fleet management system for automated detection report generation. BW Technologies was sold to First Technology in 2004 and subsequently acquired by Honeywell in 2006. The same year BW was acquired by First Technology, Mr. Slater founded Blackline Safety. The company released several GPS-enabled asset tracking products over the next decade (think Apple Air Tag) before pivoting to gas detection in 2015 with the release of the G7 connected gas detector. The G7 added capabilities like two-way radio, fall detection, facility-wide alerting, 24/7 remote monitoring, and automated compliance reporting to an internet-connected gas detector. Following the release of the G7, Blackline began taking share from competitors like Honeywell, Industrial Scientific (owned by Fortive), MSA, and Drager. Competing gas detectors are mostly unchanged from the 80s (market leader Honeywell still sells the original Rig Rat gas detector that Mr. Slater invented in 1987) and rely on alarms to notify workers of danger. These devices can fail if a worker is already incapacitated or working in loud/chaotic environments, with potentially fatal consequences. The G7/G6's connectivity allows for falls or alarms to automatically trigger emergency response and facility evacuations, while also saving time and costs through automatic compliance and safety reporting. We believe that Blackline's products are significantly safer than existing opportunities and that the company will continue to take share from legacy products. Competitors have been slow to respond with only MSA launching a competing product so far. MSA launched its first connected products late in 2023, some of which were pulled from the market after release due to quality control issues. Today, Blackline sells hardware, consumables (gas detection sensors/cartridges), and bundles a service contract with each hardware sale with an average length of 3-5 years. Its net expansion rate is over 130% (on average, a customer spends >30% more on Blackline hardware/service year-over-year), but only fraction of this increase is from price increases. Sales have grown from less than $10 million in 2018 to over $50 million in 2023 (>40% CAGR). We believe that Blackline offers 100% upside over the next 3 years through a combination of sustained revenue growth and margin expansion as revenue scales over a largely fixed cost base. As margins inflect, we expect the company's multiple expand as well, but this would be a bonus (leading IoT companies listed in the U.S. have sales multiples north of 10x sales which compares to Blackline at ~2x).

BSD Analysis:
Liberty Park has initiated their first Canadian position in Blackline Safety, a connected gas detection and safety monitoring company led by industry pioneer Cody Slater. The investment thesis centers on Blackline's technological superiority over legacy competitors, with their G7 connected detector offering two-way radio, fall detection, facility-wide alerting, and automated compliance reporting versus basic alarm-only devices from the 1980s. The company has demonstrated exceptional growth with sales expanding from under $10 million in 2018 to over $50 million in 2023, representing a 40%+ CAGR. Blackline's business model combines hardware, consumables, and 3-5 year service contracts, generating a net expansion rate exceeding 130% with minimal price increases. The fund expects 100% upside over three years driven by continued market share gains, revenue growth, and margin expansion as the business scales over fixed costs. At approximately 2x sales, Blackline trades at a significant discount to leading IoT companies that command 10x+ sales multiples, suggesting substantial multiple expansion potential as the company matures.

Pitch Summary:
Our funds underperformed in 1Q24 primarily due to a large drawdown in one of our core positions, Luna Innovations (LUNA). In March, the company announced that it had incorrectly recognized revenue in the second and third quarters of 2023. A lack of details and the subsequent "retirement" of the CEO combined to send the stock down over 50%. Obviously, we were disappointed by the update. We do not expect a dramatic restatement to financials and do not expect a meaningful impact to the company's business going forward (i.e., Luna is not a fraud). In our view, fiber optic sensing remains a game-changing, next-generation technology, and Luna owns most of the intellectual property around it. As such, we view the stock's collapse as an extreme overreaction. Once the company updates its financials and the Board/management is able to speak with investors, we likely will buy more shares and more assertively engage with the company; we will update you on our plans in coming months.

BSD Analysis:
Liberty Park views Luna Innovations' 50% decline as an extreme overreaction to accounting irregularities that resulted in revenue restatements for Q2 and Q3 2023. The fund manager emphasizes that Luna is not a fraud and expects minimal impact to the underlying business fundamentals. The investment thesis centers on Luna's dominant intellectual property position in fiber optic sensing technology, which the manager characterizes as game-changing and next-generation. Despite the accounting issues and CEO departure, the fund maintains conviction in the long-term value proposition. Liberty Park plans to potentially increase their position once financial updates are provided and management becomes accessible to investors. The fund's willingness to add shares and engage more assertively demonstrates strong conviction in the turnaround potential. This represents a classic value opportunity where temporary operational issues have created a significant discount to intrinsic value.

Pitch Summary:
Paywalled (Primerica’s highest producing agents are engaged in misleading, false, or deceptive conduct including i) the recorded ppt has fake numbers and suggested ongoing investigation; ii) deliberate obfuscation with PRI; iii) recruiting over serving customers is emphasized; iv) 'its normal to be a millionaire' saying). Update 4/18/24 - The company responded that the allegations are false.

BSD Analysis:
Primerica sells life insurance through an MLM-style distribution model. Critics argue the business depends on high-turnover agents selling to friends and family, with limited productivity beyond initial contacts. Regulatory scrutiny of MLM structures could impair the model, while persistency of policies sold to lower-income households remains a concern. Earnings growth has been steady but may mask underlying fragility of the distribution channel. Insurance;

Pitch Summary:
The first time we did a “Roadie” was back in early 2022 when Alex, Isaac, and I drove to visit Medpace just outside of Cincinnati, OH which was ~16 hours round trip. Medpace is a contract research organization (CRO) that operates as a service provider to the pharmaceutical/biotech industry. There are many services offered by CRO’s, and Medpace focuses on being a full-service clinical trial provider. Medpace helps to design and run the human-intensive Phase 1-4 clinical trials for small to mid-size biotech companies. One of Medpace’s competitive advantages is they have a large majority of their employees in one location, far away from their competitors and with many universities nearby. This provides a tremendous opportunity for recruiting and training employees to fit their model. It also helps the economics of the business to operate in a city that has a relatively lower cost of living. When we were in Cincinnati, we were able to see how much their main campus has grown (~30% over the last 24 months to 6,000 people) and better understand the future expansion potential that existed - think years and years of further headcount growth (which is what drives revenue!). In addition to being our first “Roadie”, it was also a first to see corporate swag in a vending machine in the parking garage…the hoodie I bought has become a staple in our ‘corporate swag Friday’ office dress policy. I think Isaac wishes he had grabbed one as well, though he did walk away with something more valuable. The investment he led, and that we made into Medpace, is the first to have doubled our clients’ money! We remain very supportive shareholders and think the future remains bright for their full-service approach.

BSD Analysis:
The Medpace pitch highlights a structurally advantaged, high-growth CRO with a differentiated single-campus model that supports culture, training, and operating leverage. By concentrating most employees in Cincinnati near a deep university talent pool and lower cost of living, Medpace can scale headcount efficiently while preserving quality and margin structure. Serving small and mid-size biotech clients across Phase I–IV gives it exposure to an innovation-rich segment of drug development, and recent ~30% campus growth underscores strong demand and revenue momentum. Historically, the company has delivered robust EPS and FCF growth, translating into meaningful share-price appreciation and a doubling of client capital, even as it continues to reinvest heavily in capacity. While the stock often commands a premium multiple versus CRO peers given its execution track record and reinvestment runway, the manager believes this is justified by sustainable high-teens or better earnings growth and disciplined capital allocation.

Pitch Summary:
Watches of Switzerland (WOSG) lowered its guidance for the 12-months ending April 2024 after a weak Christmas holiday period in the UK and some negative product mix in their Rolex deliveries (more stainless steel watches were produced than expected) which caused lower average selling prices. We did not fathom this business trading at or near invested capital when we made the investment and feel confident that no private owners of authorized Rolex agencies are willing to sell their businesses at the trading multiple of this company today. We have never invested assuming the ‘greater fool theory’ where we hope people pay a higher multiple for a dollar of earnings. A large portion of our time is spent on maintenance research, which includes meetings with industry stakeholders. In the case of WOSG, this has manifested as private meetings with participants in the luxury watch industry and an upcoming visit to the largest industry conference in Geneva. We think this business will grow in the mid-teens after 2024 and we are also comforted by the track record of 15%+ EPS growth since IPO despite this year appearing to be down 35% year-over-year. As we wrote last quarter, we will make mistakes; and so far, our holding period return would put WOSG in that camp for us. We believe bad news should travel as fast, if not faster, than good news, and so commit to always being accountable and transparent in sharing these updates.

BSD Analysis:
The manager acknowledges execution setbacks at Watches of Switzerland but sees current valuation near invested capital as overly punitive for a business with structurally attractive economics. WOSG controls scarce Rolex and other top-brand franchises, operates in a rational luxury watch ecosystem, and has historically grown EPS at mid-teens rates since IPO, indicating strong unit economics and brand leverage. Near-term headwinds—slower UK holiday demand and adverse Rolex mix—are framed as cyclical and mix-related rather than thesis-breaking, with management still expecting mid-teens growth beyond 2024. Industry channel checks and ongoing conference participation reinforce conviction that underlying demand and brand relationships remain intact. With the stock trading at a depressed multiple relative to its growth and return profile, the risk-reward is viewed as favorable if earnings normalize and the market reassesses the durability of its luxury positioning.

Pitch Summary:
Topicus, up ~40% in the quarter, is the first business spun out of Constellation Software and focuses on acquiring vertical market software across Europe. What we have discovered in the European market is that there is often a niche software solution that serves a specific country, tailored to unique language and regulatory requirements in that country. This leads to a much larger hunting ground and runway than North America alone would provide. We are excited by this capital deployment runway. So far this year, Topicus has outperformed expectations on both organic growth and capital deployed to acquire some of these European software businesses. They have also expanded their business development team across Europe in countries where they have fewer resources. We have found this to be a good leading indicator for regional capital deployment.

BSD Analysis:
The manager’s thesis on Topicus centers on its Constellation-style playbook of acquiring sticky vertical-market software franchises across a structurally fragmented European landscape. By targeting country- and regulation-specific niches, Topicus expands its addressable market far beyond what a North American footprint could offer, creating a very long reinvestment runway at attractive returns on capital. Strong recent results in both organic growth and M&A deployment support the idea that management can compound capital efficiently, while the build-out of business development teams across underpenetrated regions should seed future deal flow. Financially, Topicus exhibits the hallmarks of a high-quality VMS platform: high recurring revenue, strong margins, and modest capital intensity, supporting robust free-cash-flow generation and optionality for further acquisitions. With a long runway of bolt-on deals and disciplined capital allocation, the manager views the recent share-price strength as justified by fundamentals rather than mere multiple expansion.

Pitch Summary:
ATS Automation is a provider of automated supply chain technology. The business builds factory automation solutions for supply chains in the life science, food & beverage, energy, industrial, and consumer sectors. We reduced our position in ATS in mid-2023 for two reasons that we uncovered during our maintenance research on existing holdings period. First, the business was becoming increasingly reliant on EV battery programs from General Motors (over 40% of the business’s revenue backlog was concentrated with one economically sensitive customer) and second, some of ATS’s suppliers had seen slowdowns in their own orderbooks which we discovered by talking to European suppliers of the automation industry. Recently, ATS saw GM delay its EV battery program due to slower than expected demand for EVs, leading to negative growth revisions for ATS. We are pleased that the business is rebasing its backlog toward life sciences and food & beverage, which we view as higher quality end-markets. We retain conviction in the long-term potential of the business and had been waiting for the business to price in shorter-term headwinds, which we believe is beginning to be reflected more appropriately in the shares.

BSD Analysis:
The manager views ATS as a high-quality industrial automation compounder whose fundamentals remain attractive despite near-term earnings headwinds from EV-related program delays and customer concentration in General Motors. The thesis emphasizes that backlog is now tilting toward structurally better end markets such as life sciences and food & beverage, which should improve the business mix and reduce cyclicality over time. Balance-sheet and cash-flow strength, coupled with long customer relationships, support the view that the orderbook normalization is cyclical rather than structural. While the stock has de-rated on reduced growth expectations, that reset arguably lowers downside risk and offers upside optionality if execution in higher-quality verticals is strong. Overall, ATS is framed as a temporarily out-of-favor industrial with intact moat, making incremental weakness a potential opportunity rather than a reason to exit.

Pitch Summary:
The company is likely to fail to restart the fossil fuel complex it bought from Exxon; the auditors flagged the company's ability as a 'going concern'; immense regulatory hurdle to make the pipeline operational; Update 4/23/24 - The country determined the offshore application as 'incomplete' and making additional requirements;

BSD Analysis:
Sable Offshore develops offshore oil fields. The BSD short thesis stresses high-cost structures, exposure to volatile crude prices, and environmental/regulatory risks tied to offshore drilling. These projects require significant upfront capex with long paybacks, which are less competitive than shale in a lower-oil-price environment. ESG headwinds may further limit capital access.

Pitch Summary:
ACV Auctions has started to experience accelerating growth as the wholesale automotive market has finally returned to growth. They guided to revenue growth for 2024 of 25-30% while finally becoming adjusted EBITDA profitable. We believe the wholesale auto market now is in the first inning of a multiyear tailwind that will dramatically accelerate ACV's revenue and free cash flow generation.

BSD Analysis:
The manager presents a bullish thesis on ACV Auctions centered on the company's positioning to benefit from a recovering wholesale automotive market. After a challenging period, ACV is experiencing accelerating growth as the broader wholesale auto market returns to expansion. The fund highlights the company's strong 2024 guidance of 25-30% revenue growth while achieving adjusted EBITDA profitability for the first time, marking a significant operational milestone. The manager believes the wholesale automotive market is entering the early stages of a multi-year growth cycle that will provide sustained tailwinds for ACV's business model. As a digital marketplace connecting automotive dealers, ACV is well-positioned to capture increasing market share as the industry continues its digital transformation. The combination of market recovery, operational leverage, and the company's leading platform position supports the fund's conviction that ACV will experience dramatic acceleration in both revenue and free cash flow generation over the coming years.

Pitch Summary:
Uber continues to deliver strong bookings growth over ~20% while free cash flow is growing at over double that rate. At their investor day they stated they expect bookings to grow in the high teens while free cash flow will grow closer to 40% over the next 3 years. Given they now generate billions of free cash flow annually they also announced a $7B buyback authorization which was welcomed by investors.

BSD Analysis:
The manager maintains a bullish view on Uber based on the company's strong operational momentum and impressive cash generation capabilities. With bookings growth exceeding 20% and free cash flow growing at more than double that rate, Uber demonstrates significant operating leverage in its platform business model. The fund highlights management's confident three-year outlook projecting high-teens bookings growth while free cash flow accelerates to approximately 40% annual growth. This substantial cash generation has enabled Uber to announce a $7 billion share buyback authorization, signaling management's confidence in the business and commitment to returning capital to shareholders. The manager believes Uber has won the ride-share market, positioning it as the dominant player in a large and growing total addressable market. The combination of sustained growth, improving profitability, and shareholder-friendly capital allocation reinforces the fund's conviction in Uber's long-term value creation potential.

Pitch Summary:
Xponential Fitness is a founder-led boutique fitness market leader that has significant future growth opportunities trading at extremely depressed valuation. This was a new position in the quarter that we'll shed more light on later in the letter. Xponential Fitness is one of the largest franchisors in the boutique fitness sector worldwide, owning ten brands, each offering a unique fitness experience. Its largest brands are Club Pilates, Stretch Lab, and Pure Barre. The founder and CEO Anthony Geisler has been successfully navigating the boutique fitness industry since the early 2000s. Geisler's journey began with the acquisition of LA Boxing, which he transformed from a handful of locations into a network of nearly 100, culminating in its acquisition by UFC Gym for $25 million. Following a couple years with UFC Gym, Geisler's desire to scale another boutique fitness brand led him to purchase Club Pilates for $2 million, which at the time had less than 20 locations and generated around ~$500k of EBITDA. Over the next 3 years Geisler grew Club Pilates to ~100 locations and ~$6 million of EBITDA, after which he sold the company to the private equity firm TPG for $100 million. TPG's acquisition marked the genesis of Xponential Fitness, with Geisler spearheading a multi-brand entity poised to repeat the success of Club Pilates. Today, Geisler owns around 15% of Xponential Fitness, which today is valued at ~$100 million. We believe, and historical performance suggests, Anthony Geisler is an exceptional CEO. In the middle of 2023, an anonymous short report was released claiming that Anthony Geisler is an unethical, untrustworthy businessperson, and Xponential is an entity that oversells failing fitness concepts. Since this report was released the share price declined over 60% while the financial results continued to be robust. To address some of the concerns mentioned in the short report, the company hosted an investor day and dug into the health of the business and each individual boutique fitness brand. We believe the short report found a few disgruntled franchisee's, which every franchise system has, and claimed their complaints are shared by the entire franchisee base. From our research we don't believe this to be true. In aggregate the portfolio of brands is doing well, and franchisees are profitable and growing. Ultimately after investigating all the claims from the short report and speaking with management on multiple occasions, we believe Xponential fitness is a high-quality business trading at an extremely attractive price. Even if half the claims from the short report were true (which we don't believe to be the case) we believe the business would still be worth significantly more than the current market price. Xponential will generate around $100 million of free cash flow in 2024 and is currently a ~$850m market cap company. We believe Xponential can deliver on their 2026 adjusted EBITDA target of $200m (implying a 24% 3-year compounded annual growth rate) and their valuation will gradually return to ~20x adj. EBITDA (versus today's valuation of ~7x adj. EBITDA) which is where Xponential was valued before the short report was released. Put together, this implies a target price in the next 2 years of $56, or a 275% return from today price of ~$15. We think the risk/reward is attractive.

BSD Analysis:
The manager presents a compelling contrarian investment thesis on Xponential Fitness, viewing the company as a high-quality franchise business trading at a deeply discounted valuation following a damaging short report. The fund emphasizes CEO Anthony Geisler's exceptional track record, having successfully scaled multiple fitness brands including transforming Club Pilates from 20 locations generating $500k EBITDA to 100 locations with $6 million EBITDA before selling to TPG for $100 million. Despite a 60% stock decline following anonymous short seller allegations, the company's financial performance remained robust. The manager conducted thorough due diligence, speaking with management and investigating the short report claims, concluding that the concerns represent isolated franchisee complaints rather than systemic issues. With $100 million in projected 2024 free cash flow and an $850 million market cap, the company trades at approximately 7x adjusted EBITDA versus its historical 20x multiple. The fund targets a $56 price (275% upside) based on achieving the 2026 EBITDA target of $200 million and multiple re-rating.

Pitch Summary:
DoorDash continues to grow revenue over 20% while materially expanding margins. They provided strong guidance for 2024 implying continued strong revenue growth while profits will continue to grow >2x faster.

BSD Analysis:
The manager maintains a bullish stance on DoorDash based on the company's strong operational momentum and margin expansion. With revenue growth exceeding 20% and materially expanding margins, DoorDash demonstrates the scalability of its platform business model. The fund emphasizes the company's strong 2024 guidance indicating continued robust revenue growth with profit growth accelerating at more than double the rate of revenue growth. This operating leverage suggests DoorDash is successfully monetizing its market-leading position in restaurant delivery. The manager believes DoorDash has won the restaurant delivery market, positioning it as a dominant player in a large addressable market. The combination of sustained growth and improving profitability metrics supports the fund's conviction in the company's long-term value creation potential.

Pitch Summary:
On the Q4 earnings call Carvana announced that they expect to grow retail units sold year over year in Q1 while generating over $100 million of adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). We are now at the growth inflection we've been waiting for as alternative data providers are indicating Carvana grew units at a ~15% y/y growth rate in Q1. The combination of accelerating revenue and profit growth sets Carvana up well to prove to the skeptics they are on a path to becoming the largest and most profitable US used car dealership.

BSD Analysis:
The manager presents a bullish thesis on Carvana centered on the company reaching a critical growth inflection point after a challenging period. The fund highlights Carvana's transition to profitability with over $100 million in adjusted EBITDA while simultaneously achieving 15% year-over-year unit growth in Q1. This combination of accelerating revenue and profit growth represents a significant operational milestone. The manager draws parallels to Amazon's post-dot-com bubble dominance, suggesting Carvana has emerged as the clear winner in online used car sales after weaker competitors exited the market. The fund believes the market underappreciates Carvana's potential to become the largest and most profitable US used car dealership. This turnaround story aligns with the fund's strategy of investing in market leaders trading at depressed valuations.

Pitch Summary:
We did initiate a position in an emerging compounder, Kneat.com, Inc. (TSX: KSI). Kneat provides purpose-built software to the life sciences industry to digitize validation life cycle management and testing. Most of the top 20 global pharmaceutical companies use Kneat's SaaS platform for quality management. Kneat generates recurring revenue from a sticky customer base with a powerful 'land and expand' business model, evidenced by an impressive 138% net revenue retention in 2023, with a large and growing addressable market. We have been watching this company grow from $4 million revenue in 2019 to $34 million in 2023 (four-year CAGR of 72%) and believe Kneat is at an inflection point to achieve profitability in the near future. We believe the company can continue to deliver impressive revenue growth and is supported by a healthy balance sheet.

BSD Analysis:
Pender initiated a position in Kneat.com as an emerging compounder in the life sciences software space. The manager highlights the company's impressive growth trajectory, scaling from $4 million to $34 million in revenue over four years (72% CAGR). The investment thesis centers on Kneat's sticky SaaS platform used by most top 20 global pharmaceutical companies for quality management and validation processes. The 138% net revenue retention demonstrates strong customer expansion dynamics through their 'land and expand' model. Pender believes the company is approaching a profitability inflection point while maintaining strong revenue growth momentum. The manager views the large addressable market and healthy balance sheet as additional supportive factors for continued growth.

Pitch Summary:
The fund's top position is RCI Hospitality (RICK). RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 56 clubs across 13 states and an additional 13 sports-bar restaurants with the "Bombshells" concept. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. With the construction of two Colorado casinos underway, the long runway of adult night club acquisition targets, the growth potential and spin off value of the Bombshells concept and finally the potential upside of the "admireMe" OnlyFans type website, I expect this to remain my top position for the foreseeable future. The recent quarter has shown same store sales weakness in the bombshells segment. M&A activity looks to be stalled by inflated 2022 revenues result on valuation expectations for club owners vs what RCI is willing to pay on a more normalized revenue valuation. The CEO has initiated a cost reduction effort for bombshells to get it back to profitability and has been in the talks for a club acquisition, stated on the recent conference call. In this high interest rate environment, upcoming elections and war activity abroad, we can expect investor money to remain on the sidelines near term I believe. RCI should make substantial buybacks over this period and any positive momentum with the gaming licenses, bombshells or the admireme.com website should create a nice tailwind at some point in the future. My thesis has not changed fundamentally but the value of bombshells may be insignificant if it continues to perform poorly. I still feel the company is well positioned and can drive shareholder returns without a strong contribution from the bombshells segment.

BSD Analysis:
The manager maintains a bullish stance on RCI Hospitality despite near-term headwinds, viewing it as a unique monopolistic business model in adult entertainment. The investment thesis centers on RICK's position as the only publicly traded adult nightclub operator with 56 clubs functioning as local monopolies due to limited licensing. Key growth drivers include Colorado casino construction, acquisition opportunities, the Bombshells restaurant concept, and the admireMe digital platform. However, the manager acknowledges current challenges including same-store sales weakness in Bombshells and stalled M&A activity due to valuation mismatches. The company is implementing cost reduction measures and pursuing share buybacks during this period of market uncertainty. The manager believes the core adult nightclub business can drive returns independently of the struggling Bombshells segment. Multiple catalysts including gaming licenses, operational improvements, and digital platform development could provide future upside momentum.

Pitch Summary:
In Q1, Google faced challenges with its Gemini release, which was followed by market skepticism that the company could successfully compete with Microsoft-backed ChatGPT. In reality, we think the opposite may be true: despite the messy release of Gemini, we believe Google's long-held advanced capabilities in generative AI may give rise to a far superior multi-modal AI, relative to its peers. Interestingly, Gemini Ultra's performance "exceeds current state-of-the-art results on 30 of the 32 widely-used academic benchmarks used in large language model (LLM) research and development," per Google. In other words, Gemini outperformed ChatGPT in multiple tests. We also continue to have a high degree of conviction in Google's advanced lead in AI infrastructure. Right now, organizations around the world are in a scramble to re-architect their internal infrastructure that can capitalize on the promise of generative AI applications. As Google noted in Q1: The rise of generative AI marks the start of a new AI transformation era. The larger, more complex models powering this transformation feature hundreds of billions (or even trillions) of parameters, require extensive training periods, sometimes spanning months — even on the most specialized systems… Google Cloud's AI infrastructure excels in this area, with a decade of cutting-edge AI advancement built into its foundation. This integrated solution of optimized hardware, software, frameworks, and flexible consumption models allows businesses to rapidly and cost-effectively scale their AI workloads from start to finish, across training, fine tuning, and inferencing/serving use-cases. In our view, Google is one of the most attractive risk/reward investments in the market today: its valuation is attractive, its value proposition is improving, and the market is, in our view, underappreciating the potential for sustained growth—while over-emphasizing some minor softness in the company's core advertising business. Ultimately, Google also has many structural advantages that give us confidence for the long-term: massive distribution for deployment of new AI features across its several billion+ user apps (Search, YouTube, and Maps), product ubiquity (Gmail, Chrome) and a core SaaS business (GCP) that we anticipate could generate close to $40 billion in high margin revenue in 2024.

BSD Analysis:
Nightview Capital presents a contrarian bull case for Google, arguing that market skepticism following the Gemini release creates an attractive entry opportunity for a superior AI franchise. The managers emphasize that despite initial execution challenges, Gemini Ultra actually outperformed ChatGPT on 30 of 32 academic benchmarks, suggesting Google's underlying AI capabilities remain best-in-class. They highlight Google's decade-long AI infrastructure advantage through Google Cloud Platform, which provides integrated hardware, software, and frameworks that enable businesses to scale AI workloads cost-effectively across training, fine-tuning, and inference. The fund views Google's massive distribution network as a key structural advantage, with billions of users across Search, YouTube, Maps, Gmail, and Chrome providing unparalleled reach for AI feature deployment. They project Google Cloud Platform could generate nearly $40 billion in high-margin revenue in 2024, representing significant growth potential. The managers believe the market is overemphasizing temporary advertising softness while underappreciating Google's sustained growth potential and improving value proposition. Their thesis rests on attractive valuation combined with superior AI capabilities, infrastructure leadership, and unmatched distribution scale. They position Google as one of the most attractive risk/reward investments available, expecting the market to eventually recognize the company's AI competitive advantages.

Pitch Summary:
We believe Amazon, in particular, has established itself as an AI powerhouse through strategic investments (e.g. Anthropic), its services offered via Amazon Web Services, and through consumer-facing Amazon products like Alexa and Amazon Prime. "While we're building a substantial number of GenAI applications ourselves, the vast majority will ultimately be built by other companies," said Andy Jassy in his April 2024 shareholder letter. "However, what we're building in AWS is not just a compelling app or foundation model. These AWS services, at all three layers of the stack, comprise a set of primitives that democratize this next seminal phase of AI, and will empower internal and external builders to transform virtually every customer experience that we know (and invent altogether new ones as well). We're optimistic that much of this world-changing AI will be built on top of AWS." To echo Jassy's comments, we view AWS, in particular, as a leader in AI applications: the segment provides a comprehensive suite of AI and machine learning services, including Amazon SageMaker for building, training, and deploying machine learning models, Amazon Rekognition for image and video analysis, and Amazon Polly for text-to-speech conversion. In other words, while AWS is technically a cloud offering, we view this division as a foundational layer of the next wave of AI applications across the broader ecosystem that will power thousands of companies and products around the globe. We believe demand for Amazon's AI offerings will continue to mount, which could benefit both top-line and bottom-line growth for the company. Importantly, we've recently begun studying how both Amazon and Google are proactively using AI applications to reduce costs and become more efficient at scale, which could yield significant shareholder value and boost operating margins (and net income) in the years to come, all while maintaining attractive growth rates. Amazon, in particular, is getting aggressive with cost efficiencies across multiple segments of the business, including its retail operations. In its February 2024 earnings call, Andy Jassy noted: "Our regionalization efforts have also brought transportation distances down, which has helped lower our cost to serve. In 2023, for the first time since 2018, we reduced our cost to serve on a per unit basis globally. In the U.S. alone, cost to serve was down by more than $0.45 per unit compared to the prior year. Lowering cost to serve allows us not only to invest in speed improvements but also afford adding more selection at lower average selling prices, or "ASPs," and profitably." As you can see in the above chart, this cost optimization regime has enabled operating margins to inflect upwards since the nadir of the pandemic era, a trend we believe could continue in the near-term, making Amazon one of our highest conviction ideas at the moment. Lastly, we continue to believe Amazon's advertising business is an unsung hero that could materially contribute to margins over time. The advertising business is growing at a robust 26% YoY, and does not seem to show any signs of slowing in the near-term.

BSD Analysis:
Nightview Capital positions Amazon as a premier AI beneficiary with multiple growth vectors converging to drive long-term value creation. The managers highlight AWS as the foundational infrastructure layer for the next wave of AI applications, emphasizing its comprehensive suite of AI/ML services including SageMaker, Rekognition, and Polly that will power thousands of companies globally. They view Amazon's strategic investment in Anthropic and integration of AI across consumer products as establishing the company as an "AI powerhouse" positioned to capture demand from the generative AI boom. Beyond revenue growth, the fund emphasizes Amazon's aggressive cost optimization initiatives, noting the company achieved its first cost-to-serve reduction since 2018, with U.S. operations improving by over $0.45 per unit. This operational efficiency, combined with AI-driven automation, is driving operating margin expansion from pandemic-era lows. The managers also highlight Amazon's advertising business as an "unsung hero" growing at 26% year-over-year with significant margin contribution potential. Their thesis centers on Amazon's ability to simultaneously drive top-line growth through AI services demand while expanding margins through operational efficiency, making it one of their highest conviction positions. The convergence of AI infrastructure leadership, cost optimization, and advertising growth creates a compelling multi-faceted value proposition.

Pitch Summary:
While the auto business transitions between two waves of growth, we are pleased to see what we believe is the true beginning of end-to-end neural networks with Full Self Driving (FSD). Our team has long been proponents of this solution, and we've been encouraged by recent significant progress of the technology across our research. The timing is challenging to predict. But we are increasingly bullish that the market will recognize the potential of the intrinsic value that Tesla is building with its real-word AI software solutions. In our view, the exponential rise in FSD's progress will continue to be the most important catalyst for Tesla's growth. We'll discuss more of our impressions of Tesla FSD below, but it's worth examining Tesla's underwhelming production and delivery report from earlier this month, especially because it received so much media attention. For long-term shareholders of transformational companies, it's our view that temporary declines in growth are a natural course of business. All iconic companies in the early innings of a technological paradigm shift will have growth spurts. Growth is rarely linear. For instance, in the early days of the automotive business, one might be tempted to believe that General Motors saw consistent year-over-year growth throughout the 1910s and 1920s. After all, adoption of the combustion engine vehicle was at the beginning of a massive secular growth trend, and new auto sales would continue in an S-curve for decades into the 1930s, 40s, and 50s. And yet, the actual history indicates otherwise. Even the initial commercialization of the automobile was met with ardent skepticism and lumpy growth. In fact, GM reported negative volume growth in not just one, but three years, during its exponential early days: 1918, 1921, and 1924. Further, data pulled by the equity analyst MBI Deep Dives showed that GM volume growth contracted by a remarkable (45%) in 1921 alone, before re-accelerating in the subsequent two years. Ford faced a similar trajectory its early days of production of the Model T. While consumer adoption of gas-powered vehicles was on an exponential rise, the growth experienced intermittent volatility as a function of several factors: macroeconomic headwinds, production issues, and so on. In other words, growth is lumpy for a variety of idiosyncratic reasons. It's our belief that platform shifts—whether from horses to ICE vehicles, or ICE vehicles to EVs—will exhibit ebbs and flows in acceptance and public opinion throughout its adoption curve. Initially, early adopters (who are excited about the promise of the new technology) will bid up prices while production volumes are still low. A decade from now, however, we believe these minor fluctuations in growth could be a footnote to the overall Tesla story. In short, it's not surprising to us that Tesla may see periods of rapid growth followed by periods of relative short-term slowdowns. Periodic volatility in volume growth is just part of the game. If you believe battery electric vehicles will be the primary mode of transport in the future—and we do—then accepting occasional dips in growth is a natural consequence of industry sea change. As we wrote about in our January letter, the company is between two major growth waves: right now, Tesla is prioritizing focus on developing the next generation platform as quickly as possible, aiming for a production release in late 2025. Once this product is on-line, we expect growth to re-accelerate. Zoom out a few years, and the outlook looks promising indeed. Above all, we maintain our conviction about Tesla's long-term prospects and the potential for shareholders to achieve very attractive returns. While earnings estimates are trending down in the short-term and delivery numbers may continue to be revised downward, there are a couple of specific factors that signal optimism ahead—potentially even in the near-term. As we previously touched on, one of these factors has been the company's significant progress in autonomous driving capabilities over the last few months. In our view, the short-term blip in automotive growth has been overshadowed by a much larger, more material development that shareholders should be watching closely: the roll-out of Tesla's V12 FSD. The progress of FSD, driven by innovations in Tesla's approach to artificial intelligence, underscores Tesla's potential to revolutionize transportation and robotics. With a global network of 6 million cars, Tesla's training models draw on vastly wider database than any other competitor in the market. For years, we've written that Tesla's vision-only approach to autonomy is the correct path. Finally, it appears that we could be seeing a step-change in improvement since the company's roll-out of V12 in recent months. The rapid advances we're seeing in this software development boils down to a shift in architecture: V12 shifts the prediction models away from hand-coded programming techniques and moves towards a neural network model based on end-to-end imitation learning. What's interesting to see recently has been new investors, who had previously ignored Tesla, suddenly become very interested in the opportunity. "It was mind-boggling," Brad Gerstner, the founder of Altimeter Capital, said recently. "I think this is going to be a bit of a ChatGPT moment for Full Self-Driving." The FSD roll-out will be an iterative process, but we are more optimistic now than ever before on Tesla's road to achieving autonomy, which could have a profound effect on the ability to generate future cash flows and provide near-term accretive margins with an uptick in FSD attach-rates. The market works as a forward discounting mechanism, and it is not necessary for cash flows to be directly derived from the technology—or full autonomy to be achieved—for the market to begin incorporating the prospect of significant future cash flows. We also continue to be excited about Tesla's energy division, and while this growth will likely be lumpy as well, we foresee a significant amount of untapped growth still ahead. Last year saw a rapid increase in energy gross margins over the previous year, up to roughly ~19% for the year. The energy business segment is a great example of operating leverage as the business scales up, and the potential for an inflection point in margins. We also continue to monitor the Shanghai battery plant and are strong believers that this solid-margin business has years of runway ahead.

BSD Analysis:
Nightview Capital presents a compelling bull case for Tesla centered on the transformative potential of Full Self-Driving (FSD) technology and the company's position between two growth waves. The managers emphasize Tesla's breakthrough with V12 FSD, which represents a shift from hand-coded programming to end-to-end neural networks, leveraging data from 6 million vehicles globally. They argue that recent delivery disappointments are temporary growing pains typical of transformational companies, drawing historical parallels to early automotive pioneers like GM and Ford who experienced similar volatility. The fund views Tesla's vision-only approach to autonomy as the correct strategy and believes the market will eventually recognize the intrinsic value being built through AI software solutions. Beyond autonomous driving, they highlight Tesla's energy division as an underappreciated growth driver, noting energy gross margins improved to ~19% with significant operating leverage potential. The managers maintain that Tesla is strategically positioned for re-acceleration once the next-generation platform launches in late 2025. Their thesis rests on the belief that FSD will serve as the primary catalyst for long-term value creation, potentially generating substantial future cash flows even before full autonomy is achieved.

Pitch Summary:
Barrick Gold (GOLD) stands as the world's largest gold miner, boasting a diversified global portfolio of 10 gold mines and 3 copper mines. These mines hold a significant 77 million ounces of proven and probable reserves. The company benefits from a geographically balanced footprint, with 50% of gold production coming from North America, 37% from Africa, and 13% from South America. Notably, Barrick is led by Mark Bristow, a widely respected figure considered the best manager in the mining industry. Under his leadership since 2019, Barrick has impressively replaced over 140% of its gold reserves with mines that maintain the same high ore grade as their initial holdings – a critical achievement accomplished organically, without resorting to dilutive acquisitions. Barrick currently produces around 4.1 million ounces of gold annually and has a development pipeline to grow their production to 4.7 million ounces by 2027. These investments include projects with very high ore grades that will lower total cash cost per ounce from $900-$1,000 today to approximately $800 per ounce in 2027. Similarly, all-in sustainable costs will fall from $1,300 per ounce to $1,050 per ounce over that period. The company is also a prolific copper miner and is on pace to double their copper production by 2028. Barrick has a strong financial position with $4.7 billion in debt with very long maturities. 98% of their debt is termed between 2033 and 2043 with an average weight of 15 years and 6% coupon. The company also has a $4 billion un-tapped revolver that matures in 2028, as well as $4.1 billion of cash on hand. The net debt is just $580 million which represents a 0.1x net debt-to-EBITDA ratio. Barrick currently has a 2.5% dividend yield. With Gold prices of 1,800-2,100 per ounce we believe Barrick gold can generate operating cash flow of $4.0 to $5.3 billion in 2025. Capital expenditures (CAPEX) should run around $3.2 billion for the next 2 years before declining as new projects are completed. We believe normal earnings power is $1.00-$1.30 per share, with the potential for a substantial increase should gold prices continue to rally. At the time of this writing gold prices were pushing through all-time highs and are above our estimated range of our normal earnings model. If gold prices moved to $2,400 as some analysts have forecasted, earnings per share could exceed $2.00 per share. Our estimated range of intrinsic value of Barrick is $18-$27 per share. We initiated our position at $15.80 per share.

BSD Analysis:
Pelican Bay initiated a position in Barrick Gold at $15.80, viewing it as an attractive entry point for the world's largest gold miner. The manager highlights Barrick's exceptional leadership under Mark Bristow, who has organically replaced 140% of reserves while maintaining high ore grades since 2019. The company's diversified geographic footprint across North America, Africa, and South America provides operational stability and risk mitigation. Barrick's production growth trajectory from 4.1 million to 4.7 million ounces by 2027, combined with declining all-in costs from $1,300 to $1,050 per ounce, creates compelling operational leverage. The balance sheet appears fortress-like with only 0.1x net debt-to-EBITDA and long-dated maturities extending to 2043. With gold prices at all-time highs and potential upside to $2,400, the manager sees significant earnings power expansion from current $1.00-$1.30 per share to potentially over $2.00. The $18-$27 intrinsic value range suggests meaningful upside from the $15.80 entry price.

Pitch Summary:
Converge Technology Solutions Corp. is a North American IT solution provider. They specialize in helping organizations modernize their IT infrastructure, leverage emerging technologies, and optimize their operations to drive business growth and innovation. Converge offers a wide range of IT services, including cloud solutions, cybersecurity, advanced analytics, digital infrastructure, and managed services. In 2018, Converge went public with a strategy to consolidate small and medium-sized IT service providers (ITSPs). Initially successful, it attracted investors, including us, interested in both inorganic and organic business growth. However, in 2022, the M&A strategy faced challenges due to accumulated debt and a declining share price. Converge acquired well, but the problem was that it was not integrating these acquisitions and deriving revenue or cost synergies. Our initial mistake in this investment was believing that the management team was doing both things well. Value investors typically step in as a stock declines like this, however, Converge's situation was complicated. The company had become a disparate collection of businesses through rapid M&A. In addition, Converge faced working capital problems. Capital tied up in working capital resulted in a lack of free cash flow, causing skepticism among value investors about reported earnings. There was also the issue of a reputed CFO departing just after a few months on the job! All this contributed to a decline in the stock price from C$12 per share in 2021 to a low of $2.3 per share in 2023 as there were no natural buyers of the stock. At its bottom, it was trading for 3x EV/EBITDA. We held several meetings with management, including the new CFO, Avijit Kamboj, and determined that Converge is headed in the right direction. At that point, we significantly added to the position. Since then, Converge has undergone significant changes including putting the M&A strategy on hold. We anticipate improvements in free cash flow conversion in 2024, along with structural changes leading to margin expansion. The outlook for 2024 and 2025 includes modest revenue growth, margin expansion, and low double-digit earnings growth. Additionally, with better free cash flow conversion, Converge aims to deleverage its balance sheet and repurchase stock. We believe all this will lead to a re-rating and narrow the gap to intrinsic value.

BSD Analysis:
White Falcon's Converge investment represents a classic turnaround story where the fund initially misjudged management's integration capabilities during the roll-up phase. The company successfully acquired IT service providers but failed to integrate them effectively, leading to working capital issues and poor cash conversion. The stock collapsed from C$12 to $2.3, trading at just 3x EV/EBITDA at the trough. White Falcon significantly increased their position after extensive management meetings, particularly with new CFO Avijit Kamboj. The investment thesis hinges on operational improvements: halting M&A to focus on integration, implementing NetSuite ERP across North America, restructuring sales incentives around cash collection and managed services, and consolidating front-end operations. Management targets 55-60% EBITDA-to-FCF conversion and 7-8% EBITDA margins (vs current 5-6%). With better cash generation, Converge plans to deleverage and repurchase shares, potentially driving a re-rating toward 10x EV/EBITDA peer multiples.