Investment Pitches

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.

Pitch Summary:
In our FY 2023 letter, we noted our less-than-ideal experience with merger-arbitrage strategies, with Lifecore Biomedical being the sole remaining investment of this nature in the portfolio. We anticipated a positive outcome for this particular investment but that proved too optimistic when Lifecore's board of directors decided to end the strategic process without a deal. Lifecore was also a 3% position in the portfolio and, after this announcement, the stock declined from $7.5 to $4.5 per share. However, unlike our other merger-arbitrage positions we had made the decision that we will be happy owning the stock if a deal does not materialize. We bought more shares at $4.8 per share to bring Lifecore back to a 3% position. Our average cost is $5.3 and the stock closed at $5.8 at quarter end. Lifecore Biomedical is a Contract Development and Manufacturing Organisation (CDMO) with expertise in specialty formulation, aseptic filling, and final packaging of complex, injectable medical drug products. Our previous experience investing in similar businesses has taught us that these are very difficult to operate assets, largely attributable to a single factor - compliance. FDA grants authorization and conducts regular inspections of facilities to ensure compliance with regulatory standards. When a pharmaceutical product is developed and manufactured by a CDMO, the FDA holds both the CDMO and the sponsor (the company that owns the drug) responsible for ensuring that the product meets regulatory requirements for safety, efficacy, and quality. Lifecore is increasing capacity from 22 mn units to 70 mn units over the next 4 years. Not all capacity can be filled at the same price, but this means that Lifecore's revenues can increase 2-3x over the next 4-5 years. This, when combined with operating leverage, will mean a rapid growth in earnings - perhaps closer to 3x. Importantly, most of this capacity is already paid for, potentially leading to a surge in free cash flow.

BSD Analysis:
White Falcon's Lifecore position originated as a merger arbitrage play that failed when the board terminated the strategic process without a deal. However, the manager had predetermined comfort owning the business fundamentally, distinguishing it from other failed merger-arb positions. The investment thesis centers on a massive capacity expansion from 22 million to 70 million units over four years, potentially driving 2-3x revenue growth. With operating leverage, earnings could grow approximately 3x, while the pre-funded nature of the expansion should generate substantial free cash flow. The CDMO business model benefits from high regulatory barriers and FDA compliance requirements that create switching costs for pharmaceutical sponsors. While acknowledging the operational complexity of compliance-driven businesses, White Falcon sees the capacity expansion as a compelling growth catalyst. The manager added shares at $4.8 after the merger failure, maintaining a 3% position with an average cost of $5.3.

Pitch Summary:
Endava was down 40% after it reported earnings in February. This was a 3% position before this decline but we have since added to the stock to make it one of the top 5 positions (by cost) in the White Falcon portfolio. Endava is a founder-led IT service provider headquartered in London, UK. It competes with the likes of Accenture and provides IT services to clients in the financial services, travel, retail, software, healthcare among other industries. We believe scaled IT service providers are good businesses as they are essentially a 'royalty' on IT spend. They are an important link between technology and corporations who increasingly need technology to transform their business. We see a favorable backdrop for businesses like Endava with rising investments in technology, growing trends in outsourcing, and the emergence of new technologies such as Artificial Intelligence (AI). Importantly, we believe that Endava has the culture, scale and competencies required to succeed. So what happened? Endava guided for negative growth in its business for the current fiscal year (ending June 2024). On the other hand, management had made hiring decisions expecting a growth in revenues leading to a mis-match in the cost structure. Due to this, operating margins collapsed and Endava's earnings are likely to decline ~30% in FY 2024 compared to FY 2023. Client projects are being delayed due to three reasons, (1) AI is new and clients require time to discern the optimal use-case scenarios, leading to a cautious "wait and see" approach; (2) IT services ' over-earned' during Covid and had a stellar performance in 2022. Some of this is now normalizing as clients 'digest' previous implementations; and (3) Endava is over-exposed to the financial sector, specifically payments, a sector that is seeing a pronounced slowdown in demand. Clients may postpone these projects temporarily, but ultimately, they will need to invest in order to maintain competitiveness. In essence, Endava (and EPAM) is currently going through a phase of cyclical weakness which, we believe, will subside in the near future leading again to strong topline growth. Importantly, Endava has a robust balance sheet and a capable management team, instilling confidence in their ability to effectively navigate these challenging circumstances. At 11x LTM EV/EBITDA and potentially 8x NTM EV/EBITDA, we believe the risk-reward is favorable for an increased allocation to Endava.

BSD Analysis:
White Falcon views Endava's 40% decline as a cyclical downturn rather than a structural issue, positioning it as a contrarian opportunity. The manager emphasizes Endava's role as a 'royalty' on IT spending, benefiting from secular trends in digital transformation and AI adoption. The current weakness stems from three factors: client hesitation around AI implementation, normalization after COVID-era over-earning, and exposure to the struggling payments sector. Management's hiring decisions ahead of expected revenue growth created a cost structure mismatch, leading to margin compression and ~30% earnings decline in FY2024. However, White Falcon believes this cyclical weakness is temporary, as clients will eventually need to invest in technology to remain competitive. The fund increased its position significantly, making Endava a top 5 holding by cost. At 11x LTM EV/EBITDA and potentially 8x forward, the valuation appears attractive for a scaled IT services provider with strong culture and capabilities.

Pitch Summary:
An example of a company that fits this model from our portfolio is the plastics manufacturer, Berry Global Group (NYSE:BERY). Berry is the low-cost producer of plastic packaging in the United States. As the dominant, mature company in a slow-growth industry, there is relatively little chance of a dramatic short-term growth in the company's stock. However, the company trades at a very cheap valuation and has been steadily profitable and growing over the past decade. With our expectations for its forward rate of return, we believe Berry makes a great contribution to the portfolio even if it may be "boring".

BSD Analysis:
Blue Tower positions Berry Global as a 'boring' value investment that exemplifies their low-volatility, high-return strategy. The manager highlights Berry's dominant market position as the low-cost producer of plastic packaging in the United States, providing defensive competitive advantages. Despite operating in a mature, slow-growth industry with limited upside catalysts, the company offers attractive risk-adjusted returns through consistent profitability and steady growth over the past decade. The investment thesis centers on valuation arbitrage, as Berry trades at cheap multiples relative to its stable cash generation capabilities. This represents a classic value play where market participants undervalue predictable, defensive businesses in favor of higher-growth alternatives. The fund expects superior forward returns from this 'boring' investment compared to more volatile 'lottery ticket' stocks. Berry's mature market position and cost leadership provide downside protection while generating steady portfolio returns.

Pitch Summary:
An example of an ugly duckling which is currently in the Global Value portfolio is Charles Schwab Corp (NYSE:SCHW) which we discussed in our Q1 2023 letter. As interest rates have increased, fears of insolvency developed due to Schwab's unrealized losses on their fixed income investments. These fears led to a selloff in the stock out of proportion to the low probability of bank failure.

BSD Analysis:
Blue Tower views Charles Schwab as an 'ugly duckling' investment opportunity created by market overreaction to low-probability risks. The manager argues that rising interest rates have created unrealized losses on Schwab's fixed income portfolio, leading to disproportionate insolvency fears and excessive stock price decline. This represents a classic behavioral finance scenario where investors exhibit irrational aversion to low-probability, high-magnitude losses. The fund believes the market has overestimated the probability of bank failure, creating an attractive risk-adjusted return opportunity. Schwab's core brokerage and wealth management franchise remains intact despite balance sheet concerns. The investment thesis relies on mean reversion as fear subsides and fundamental value recognition occurs. This position exemplifies the fund's contrarian approach to investing in quality companies facing temporary sentiment challenges.

Pitch Summary:
Moberg Pharma's MOB-015, branded as Terclara, is positioned to be a superior treatment for toenail fungus compared to existing topical and oral treatments. While oral terbinafine has a higher complete cure rate, it comes with significant side effects, making MOB-015 a safer alternative. The ongoing phase three trial aims to improve the complete cure rate by adjusting the dosage, with results expected in Q1 2025. If successful, MOB-015 could capture significant market share from existing treatments like Jublia and oral terbinafine. Moberg estimates the revenue potential for MOB-015 to be between USD $250-500M, with significant upside potential if market share and market size estimates are conservative.

BSD Analysis:
Moberg Pharma's MOB-015 has shown promising results in treating toenail fungus, with a competitive advantage over existing treatments due to its safety profile. The phase three trial's outcome will be a critical catalyst, potentially enhancing the drug's marketability by improving the complete cure rate. The company's conservative revenue estimates suggest substantial upside potential, especially in markets like Canada and the USA, where the drug could dominate. However, risks include potential delays in roll-out, approval, and manufacturing challenges, as well as the impact of Jublia's patent expiration. Investors should weigh these risks against the potential for significant returns, considering the speculative nature of the investment.

Pitch Summary:
Simply Better Brands is undergoing a transformation by shedding its unprofitable cannabis brand, PureKana, and focusing on its profitable segment, Trubar. Trubar, a vegan protein bar brand, is experiencing rapid growth and is projected to achieve $45M in sales for 2024. The company is strategically positioned to capitalize on the underserved market of women-focused protein supplements. With new management prioritizing Trubar's expansion and the potential for significant sales growth, the current enterprise value of $23M is undervalued. The company's focus on SKU expansion, market positioning, and store rollout positions it for substantial growth and potential acquisition.

BSD Analysis:
Trubar's growth potential is supported by its unique market positioning as a vegan, gluten-free, and women-focused brand in a fragmented industry. The company's recent entry into major retailers like Costco and potential expansion into others like Kroger and Walmart highlight its growth trajectory. The management's decision to divest non-core assets and focus on Trubar aligns with shareholder interests and sets the stage for value realization. The financial restructuring, including shedding debt from PureKana's bankruptcy, strengthens the balance sheet. With a target price of C$1.25 per share, the stock presents a compelling investment opportunity with significant upside potential.

Pitch Summary:
During the quarter, we initiated a position in Lincoln Financial Corp (LNC). Lincoln Financial is a 120-year-old financial services company that provides financial protection and security to its customers through annuities, life insurance, group protection and retirement plan services. Over the past two years, the company has seen significant headwinds in its Life Insurance segment and profit challenges across the business largely due to the Covid outbreak. New senior management has indicated a greater focus on strengthening the balance sheet, focusing on more capital-efficient new business, and improving long-term free cash flow generation. Over the past year, the company has conducted a series of transactions that have improved their balance sheet and enhanced the Firm's capital ratios. Management is undertaking cost reduction actions and the headwinds in their life segment appear poised to turn to tailwinds over the next couple of years and potentially allow the segment to return to normalized profitability. In addition, the company's new Head of Workplace Solutions who previously at MetLife is focused on improving the company's Group and Retirement business, accelerating organic growth through new product offerings, and narrowing the segment margins with peers. If the company's plans are executed well, Lincoln's operating income could grow double digits over the next couple of years, improving company ROE (return on equity) and free cash flow conversion. Lincoln is down 60%+ from its 2-year high, at an attractive 50% discount to book value and 30%+ normalized earnings yield. Achieving long-term free cash flow conversion targets would support annual free cash flow in excess of $1B. With a forward price-to-earnings (P/E) multiple close to four times, every one multiple point improvement generates approximately 25% in share price returns (significantly higher than the S&P 500 today which would be closer to 5% for each multiple point improvement and for the top five market caps, closer to 3%). Over the next 3-5 years, LNC returning to normalized earnings and valuation expanding back towards the peer group 20-year P/E average of 9.6x and 1.2x book value, would support upside potential near three times its current price levels.

BSD Analysis:
Miller Value Partners initiated a position in Lincoln National, viewing the 60% decline from recent highs as an attractive entry point for a turnaround story. The manager emphasizes new senior management's strategic focus on balance sheet strengthening, capital-efficient business generation, and improved free cash flow conversion following COVID-related headwinds. Key catalysts include the life insurance segment's expected return to normalized profitability and the new Head of Workplace Solutions driving organic growth in group and retirement businesses. The valuation appears compelling at a 50% discount to book value and 30%+ normalized earnings yield, with potential for double-digit operating income growth. The manager highlights the leverage inherent in the low 4x forward P/E multiple, where each multiple point expansion generates 25% returns versus 5% for the S&P 500. With normalized earnings and peer-average valuation multiples of 9.6x P/E and 1.2x book value, the manager projects potential upside approaching three times current levels over 3-5 years.

Pitch Summary:
Fossil Group (FOSL) is a micro-cap holding that is undertaking a multi-year transformation. The holding has recently underperformed due to near-term revenue headwinds from exiting their connected watch business, closing non-profitable stores and sales weakness from China. We believe management is taking the right action steps as their connected watch gross margins are well below overall company margins. Exiting the business will also allow the company to remove excess working capital and fixed costs which should have long-term positive benefits to free cash flow. With the recent senior management change, the company will also be undertaking a deeper review of the business which has the potential to remove greater fixed costs and further accelerate their transformation program, targeting $300M (25% of revenue) in total savings by the end 2025. Fossil has an underappreciated balance sheet with greater than $2/share in cash and expectations to be free cash flow positive in 2024 as the company expects to collect a $56M U.S. tax refund and monetizes non-core European assets. There are no debt maturities before late 2026, which should provide ample time for the company to further execute on its transformation plan. Fossil appears significantly mispriced at an 80% discount to its tangible book value. Success on the transformation plan should return the company to revenue growth and has potential to generate >$100M in normalized annual free cash flow. We see significant long-term upside potential, and a far higher share price.

BSD Analysis:
Miller Value Partners presents a compelling turnaround thesis for Fossil Group, viewing recent underperformance as a strategic repositioning opportunity rather than fundamental deterioration. The manager supports management's decision to exit the low-margin connected watch business and close unprofitable stores, which should improve overall profitability and free up working capital. The transformation program targeting $300 million in cost savings (25% of revenue) by end-2025 represents substantial margin expansion potential under new senior management. The balance sheet provides significant downside protection with over $2 per share in cash, expected 2024 free cash flow positivity, and no debt maturities until late 2026. Trading at an 80% discount to tangible book value, the valuation appears deeply discounted relative to the transformation potential. The manager projects normalized annual free cash flow exceeding $100 million upon successful execution, suggesting substantial upside from current levels.

Pitch Summary:
Gray Television has been under pressure due to the slow start to political advertising this year. However, we believe the marketplace is significantly underestimating the company's industry leading local TV stations, which are the number one- or number two-rated channels in 90% of their markets. Gray's local newscasts deliver more household viewership in their 113 markets than the top three cable news networks combined, or the "network prime" (NBC, CBS, ABC and Fox) combined. The company has been outpacing peers in growing their core business over the past couple of years and still appear to be in the early innings of an improvement cycle. Management appears focused on further monetizing their strong audience reach by growing sports content and is aiming to double their high margin digital advertising market share over the next couple of years. In addition, ATSC 3.0 (industry new IP standard), provides opportunity for Gray to stream more content and capture new high margin digital revenue streams overtime. Finally, the recently opened Assembly studio looks like a hidden asset that is being overlooked by the marketplace. We see the potential for Gray's earnings and free cash flow to improve as political advertising reaccelerates later in the year due to the upcoming elections and their core business shows improving growth. While the company has significant debt leverage, there are limited maturities over the next 2 years. With the potential for $2.5B of free cash flow generation over the next 5 years, Gray should be in a greater position to rapidly de-lever and accrue significant value to the equity holder. With a greater than 60% forward earnings and free cash flow yield, Gray's long-term upside potential may be multiples of the current share price.

BSD Analysis:
Miller Value Partners presents a strong contrarian bull case for Gray Television, emphasizing the market's undervaluation of the company's dominant local market positions. The manager highlights Gray's exceptional audience reach, with local newscasts delivering more viewership than major cable news networks and network prime combined across 113 markets. The investment thesis centers on multiple growth catalysts including political advertising recovery, digital advertising expansion targeting a doubling of market share, and ATSC 3.0 technology enabling new revenue streams. The recently opened Assembly studio represents an underappreciated asset with significant monetization potential. Despite high debt leverage, limited near-term maturities provide breathing room for the projected $2.5 billion in free cash flow over five years to drive rapid deleveraging. With a 60%+ forward earnings and free cash flow yield, the manager sees potential for multiple expansion as these catalysts materialize.