Investment Pitches

Pitch Summary:
Aon was another contributor to relative performance during the quarter. The company ended its FY2023 with high-single-digit organic revenue growth and low-double-digit profit growth, which aligns with our long-term expectations. Management is guiding for mid-single-digit or better organic revenue growth for FY2024, with expectations for expanding operating margins. Additionally, Aon's acquisition of NFP brings the company into the middle-market insurance brokerage space for the first time, where we think its brand and scale should be advantageous.

BSD Analysis:
Polen Capital views Aon favorably based on the company's consistent execution and strategic positioning in the insurance brokerage industry. The high-single-digit organic revenue growth and low-double-digit profit growth in FY2023 demonstrate Aon's ability to expand margins while growing organically. Management's guidance for mid-single-digit revenue growth with expanding margins suggests continued operational leverage in the business model. The NFP acquisition represents a strategic expansion into the middle-market segment, where Aon's established brand and global scale should provide competitive advantages. This acquisition diversifies Aon's client base and creates cross-selling opportunities across different market segments. As a leading insurance broker, Aon benefits from increasing insurance penetration globally and rising premiums, which drive commission growth. The company's risk management and human capital consulting services provide additional revenue streams and deepen client relationships. Polen's confidence reflects Aon's ability to generate consistent cash flows and expand market share through both organic growth and strategic acquisitions.

Pitch Summary:
After delivering a robust fourth quarter, SAP's stock price again rose significantly in 1Q 2024 due to solid 4Q 2023 earnings and full-year 2024 guidance that management revised modestly higher. Importantly, SAP's transition to the cloud, a core part of our investment thesis, continues at a healthy pace, and the company is seeing compelling cloud revenue growth and expanding cloud gross margins. Management is guiding cloud sales growth through 2025 in the mid-20% range, which we view as reasonable and attractive. We also view SAP as one of the more resilient software business models, as it is an essential part of its customers' day-to-day operations and cannot easily be turned off or scaled back.

BSD Analysis:
Polen Capital's bullish thesis on SAP centers on the company's successful cloud transformation, which is driving compelling revenue growth and margin expansion. The cloud transition represents a fundamental shift in SAP's business model toward higher-margin, recurring revenue streams. Management's guidance for mid-20% cloud sales growth through 2025 demonstrates strong execution and market demand for SAP's cloud offerings. The company's mission-critical ERP software creates significant customer switching costs, making SAP's revenue base highly resilient even during economic downturns. This defensive characteristic, combined with the growth potential from cloud migration, creates an attractive risk-adjusted return profile. SAP's dominant position in enterprise software and the essential nature of its products provide pricing power and visibility into future cash flows. The revised higher guidance for 2024 reflects management's confidence in the business trajectory and validates Polen's investment thesis around the cloud transformation story.

Pitch Summary:
ICON was the Portfolio's largest contributor to relative performance during the quarter. The company's 4Q 2023 earnings were broadly in line, and management's guidance for the FY2024 (fiscal year) was generally better than expected, forecasting revenue growth in the mid-single-digit range and earnings growth in the mid-teens range.

BSD Analysis:
Polen Capital maintains a bullish stance on ICON following solid Q4 2023 results that met expectations and improved FY2024 guidance. Management's forecast of mid-single-digit revenue growth and mid-teens earnings growth demonstrates the company's ability to expand margins while growing the top line. The better-than-expected guidance suggests ICON is well-positioned to benefit from continued pharmaceutical R&D spending and clinical trial demand. As a leading contract research organization, ICON benefits from the outsourcing trend in drug development, providing essential services that are difficult to replace. The company's global scale and expertise in clinical trials management position it to capture market share in the growing life sciences tools sector. Polen's confidence in ICON reflects the company's competitive advantages in a resilient, growth-oriented industry. The strong relative performance contribution validates the investment thesis around ICON's earnings growth potential.

Pitch Summary:
We also initiated a position in Intapp, Inc. Founded in 2000, Intapp provides cloud-based software for regulated professional services industries such as legal, accounting, consulting, private capital markets, and investment banking. Intapp's software helps manage and automate many of the administrative workflows unique to these industries, such as clearing conflicts for new engagements, onboarding new clients, recording billable hours, and establishing regulatory walls between divisions. Its DealCloud suite also functions as a deal lifecycle management and customer relationship management system that has become the industry standard in private equity and investment banking. Intapp serves more than 2,400 customers, including 96 of the top 100 American law firms, 15 of the top 20 accounting firms, and 1,600 leading financial services firms. Intapp competes in a large and growing addressable market, spanning 28,000 firms that collectively spend roughly $15 billion annually on software in Intapp's categories. The company has grown its annual recurring revenue by more than 20% annually for the past five years as customers have seen good returns on their Intapp investment. For example, Intapp products have helped professional services firms reduce new client onboarding and conflict clearance processing times by more than 50%, saved millions of dollars in billable hours leakage, and significantly expanded new deal origination volumes for financial services firms. This success has led to low churn rates, increased market share capture, and expanding footprints in existing accounts. Intapp has several competitive advantages that should drive continued market share capture over time, including a proprietary graph data model that is better equipped for professional services needs than traditional databases, good brand recognition with decades of experience serving the largest firms in its industries, and AI capabilities that continuously improve product effectiveness. We see a long runway for growth through a combination of new customer wins and existing customer expansion. Management believes its largest 200 customers alone represent a $1.3 billion wallet opportunity, and that Intapp can continue to generate mid-teens expansion rates in existing accounts by cross-selling product modules, growing its user penetration, and capturing better pricing. While Intapp is profitable today and has expanded its free-cash-flow margins over the last two years, we see an opportunity for margins to inflect further to 20% or more as the company benefits from operating leverage and a higher cloud revenue mix. The combination of good organic growth and free-cash-flow margin expansion should bode well for the stock long term.

BSD Analysis:
Baron Discovery Fund initiated a position in Intapp based on the company's dominant position in professional services software and significant growth runway. Intapp serves over 2,400 customers including 96 of the top 100 US law firms, with its DealCloud platform becoming the industry standard in private equity and investment banking. The company operates in a large $15 billion addressable market with 28,000 potential firms, having demonstrated consistent 20%+ annual recurring revenue growth over five years. Baron highlights Intapp's competitive advantages including proprietary graph data technology, strong brand recognition, and AI capabilities that drive customer value through reduced processing times and improved operational efficiency. The fund sees substantial expansion opportunities with existing customers representing a $1.3 billion wallet opportunity and mid-teens expansion rates achievable through cross-selling and pricing optimization. Baron expects margin expansion to 20%+ driven by operating leverage and higher cloud revenue mix, creating a compelling long-term growth story.

Pitch Summary:
We made a new investment in Masimo Corporation, a provider of high-end vital sign monitoring equipment and software. This is a special situation investment, as it is in the process of unwinding an unpopular consumer products acquisition, which we believe will unlock the value of the core health care business (more on that below). Masimo is a market leader in monitoring pulse rates, oxygen levels and perfusion, blood hemoglobin content and other key signs on a continuous basis. Studies have shown that Masimo's higher-quality monitoring can save lives (and money) via higher accuracy and better warning capabilities. The base health care business produces revenues of about $1.3 billion (2024 company guidance), of which about 15% consists of non-recurring sensor hardware sales (what Masimo calls sockets) that are the razor in the business model analogy. The remaining 85% of revenues come from disposable sensors that are the blades in the business model analogy. They produce recurring (and growing) revenue. Masimo can grow its health care revenues by introducing new products (including monitor networking and warning software), gaining new U.S. and international customers, and getting customers to buy more parameters (additional vital signs) for the existing sockets they have installed. Currently, the company averages about $8 per socket in sensor revenues, but that has the potential to go to $100 per socket over time. While we don't believe we will see a 12-fold increase in revenues, we do believe that revenues could double over the next seven years. At the same time margins should expand due to gross margin improvements with the completion of a new Malaysian manufacturing facility and operating leverage because its sales force is largely built out and it has a comfortable research and development budget. So, overall base business cash flow could double as well in six to seven years. This is all overshadowed by Masimo's $1 billion acquisition of Sound United in early 2022. Sound United designs and manufacturers high-end stereo equipment under brands like Marantz and Denon. Masimo is launching a smartwatch designed for higher-end vital sign monitoring (for health and consumer markets) than products like Apple and Android's watches and bought the company for its sales and distribution assets. But the acquisition added debt and the market viewed it as a distraction, far afield from its health care roots. Shares dropped nearly 70% by October 2023. We got involved after an activist started to push for the separation of the businesses. At the end of the first quarter, Masimo announced that it was exploring modalities to split the consumer and health care businesses, including a spin-off or JV structure. We think this is a great idea that will unlock value in the currently under-appreciated health care business. In addition, Masimo is likely to retain a good portion the potential proceeds of a lawsuit against Apple alleging patent infringement related to vital signs on the Apple watch. While this could be worth hundreds of millions or more in ultimate value, we view it as just additional value optionality on the investment. All in, we believe we can double our investment from current valuation levels from Masimo's cash flow growth and higher trading multiple that we believe will be justified for the cleaner health care structure that the company should achieve this year.

BSD Analysis:
Baron Discovery Fund initiated a position in Masimo as a special situation investment focused on unlocking value through business separation. The fund views Masimo as a market leader in vital sign monitoring with a compelling razor-and-blade business model, where hardware installations drive recurring sensor revenue. With $1.3 billion in healthcare revenues and significant growth potential from new products, customer expansion, and increased parameter adoption per socket, Baron believes revenues could double over seven years. The investment thesis centers on the anticipated separation of Masimo's core healthcare business from the unpopular Sound United consumer acquisition, which has weighed on valuation. Baron expects margin expansion from operational leverage and a new Malaysian facility, potentially doubling cash flows. The fund sees additional upside from potential Apple patent litigation proceeds and believes the cleaner healthcare structure will command a higher trading multiple, targeting a double from current levels.

Pitch Summary:
CyberArk Software Ltd., an identity security platform focused primarily on privileged access management (protecting credentials for high-level technology administrators), rose after the company delivered strong quarterly results. CyberArk grew annual recurring revenue by 36% year-over-year and generated 20% free-cash-flow margins. New customer deal sizes and existing customer expansions at renewal were strong, boosted by high demand for CyberArk's newer product categories like access management (credential management and multi-factor authentication for all employees) and secrets management (credentials for machine identities). The increasing frequency and severity of cyberattacks, new SEC regulatory requirements for cyberattack disclosures, and greater emphasis from the federal government on privilege controls for its agencies and suppliers are driving healthy demand for CyberArk's products. Management issued consensus-beating full-year guidance across all metrics. We remain optimistic about CyberArk's long-term revenue and free-cash-flow growth prospects.

BSD Analysis:
Baron Discovery Fund maintains an optimistic outlook on CyberArk based on strong financial performance and favorable secular trends in cybersecurity. The company delivered impressive results with 36% annual recurring revenue growth and 20% free cash flow margins, demonstrating both top-line momentum and operational efficiency. CyberArk is benefiting from robust demand across its product portfolio, particularly in newer categories like access management and secrets management, with strong deal sizes and customer expansion rates. The fund highlights multiple tailwinds driving demand, including increasing cyberattack frequency, new SEC disclosure requirements, and heightened federal government focus on privileged access controls. Management's consensus-beating guidance across all metrics reinforces Baron's confidence in the company's long-term revenue and free cash flow growth trajectory.

Pitch Summary:
Shares of DraftKings Inc., a leading online sportsbook in the U.S., rose during the quarter following an earnings release that showed strong market share gains and an improved outlook for future profitability. Market share capture has been driven by investment in innovative product offerings that are resulting in strong customer retention. The company also announced the acquisition of JackPocket, a digital lottery courier service. We believe the acquisition will help DraftKings achieve a first-mover advantage in many states that offer the JackPocket service but have not yet legalized online sports betting and casino gaming. DraftKings is well positioned to expand margins and generate positive free cash flow as it grows revenues alongside the rapidly expanding U.S. sports betting market, in our view.

BSD Analysis:
Baron Discovery Fund expresses strong confidence in DraftKings' market position and growth trajectory in the expanding U.S. sports betting market. The company demonstrated strong operational momentum with significant market share gains driven by innovative product development and superior customer retention rates. The strategic acquisition of JackPocket provides DraftKings with a first-mover advantage in states offering digital lottery services but not yet online sports betting, creating a pathway for future expansion. Baron believes DraftKings is well-positioned to achieve margin expansion and positive free cash flow generation as the company scales alongside the rapidly growing U.S. sports betting market. The fund views the combination of market leadership, product innovation, and strategic positioning as key drivers for continued outperformance.

Pitch Summary:
Specialty insurer Kinsale Capital Group, Inc. reported financial results that exceeded Street forecasts. After a slowdown in the prior quarter, gross written premiums grew 34% and EPS grew 49% with a record-high underwriting margin. Market conditions remain favorable with rising premium rates and more business shifting from the standard market to the excess and surplus lines market where Kinsale operates. In addition, insurance stocks broadly rebounded from last quarter's pullback as interest rates stabilized. We remain bullish on the stock because we believe Kinsale is well managed and has a long runway for growth in an attractive segment of the insurance market.

BSD Analysis:
Baron Discovery Fund maintains a bullish stance on Kinsale Capital Group based on strong operational performance and favorable market dynamics. The company delivered impressive Q1 results with 34% growth in gross written premiums and 49% EPS growth, accompanied by record-high underwriting margins. The fund managers highlight the structural tailwinds benefiting Kinsale, including rising premium rates and continued migration of business from the standard market to the excess and surplus lines segment where Kinsale operates. The stabilization of interest rates has also provided a boost to insurance stocks broadly. Baron views Kinsale as well-managed with significant growth potential in an attractive insurance market niche, positioning the company for continued outperformance.

Pitch Summary:
We bought TTD stock exactly 4 years ago at an average cost of $17.40 (split-adjusted). Since our purchase we have made 5x on our original investment, translating to ~50% annualized return. But it's our journey to the 5-bagger return that is most interesting here. About 1.5 years following our purchase, the stock had skyrocketed to the highs of $107 in November 2021 as NASDAQ peaked. At the time we knew very well that the stock was overvalued and had gotten ahead of itself. After all, this was a 6-bagger in just 1.5 years, so the conventional wisdom would suggest to bag your profits. However, we decided to keep the stock, knowing that it will likely experience a correction sometime in the near future. And here is our rational… First of all, we had gotten to know Trade Desk and its management team relatively well during our 1.5 years of ownership. We were convinced that we had stumbled upon a great business with excellent long-term growth prospects. We were fortunate to establish a position at an attractive price as this stock has always been very expensive. If we were to bag our profits at the time, no one would criticize a 6x return over the course of 1.5 years. But… what would we do with the cash proceeds? First, our investors would be faced with a capital gain tax bill at the end of the year. Would we sit there in hopes that we can buy it back at a lower price? And if it dropped, would we have bought it back? Our experience has taught us that it sounds nice in theory but very unlikely in practice! Could we have avoided a setback? Yes, but who could be sure we would return to the stock in time before an important rally (close to impossible and not what we are good at). So 5x in 1.5 years is very nice, but 5x in 4 years as of now is still an amazing return. And… we still own a great business that will likely do well over time and we didn't take all that capital and plow it into something we don't know very well or is likely a mistake. There are not a lot of TTDs around! Truly exceptional companies are rare and our job is to buy right and to hold on!

BSD Analysis:
The managers present The Trade Desk as a prime example of their evolved investment philosophy of holding winners through volatility. They purchased TTD at $17.40 (split-adjusted) four years ago and have achieved a 5x return (~50% annualized). The key insight centers on their decision to hold through the 2021 peak when the stock reached $107, representing a 6x gain in just 1.5 years. Despite recognizing the stock was overvalued at the time, they chose to maintain their position based on their conviction in the business quality and management team. The managers emphasize the practical challenges of timing re-entry after taking profits, including tax implications and the difficulty of buying back into exceptional companies. They view TTD as a rare, high-quality business with excellent long-term growth prospects in the digital advertising space. The pitch reinforces their philosophy that truly exceptional companies are scarce and should be held through market cycles rather than traded tactically.

Pitch Summary:
The best investment ideas are simple. We have previously written about Chipotle (CMG). It turned out that this was our best investment idea since starting the fund. The stock is up 10x since we first invested at the end of 2017 (~47% annualized). Sounds absolutely incredible, except that your managers sold CMG back in 2018 (thinking that the stock had gotten ahead of itself), and proudly booked an 85% profit in 6 months, patting ourselves in the back. Interestingly, when we wrote about this in our 2019 letter, describing our big mistake to sell, the stock still went up +270% since that letter, delivering an impressive 30% annual return. This is an incredibly important point! You do not get many Chipotles in your investing career. Companies like these are super rare and the opportunity to buy them at an attractive price (which we got in 2017) is even rarer. Booking a quick profit, paying the capital gains tax and thinking that you will find another CMG to invest your proceeds into is usually delusional.

BSD Analysis:
The managers identify Chipotle as their best investment idea since inception, generating a 10x return (~47% annualized) from their late 2017 entry point. They acknowledge a critical mistake of selling the position in 2018 after an 85% gain in six months, missing out on substantial additional returns. The pitch emphasizes the rarity of finding exceptional companies like Chipotle at attractive valuations. The managers highlight that even after writing about their selling mistake in 2019, the stock continued to deliver 30% annual returns, demonstrating the power of holding onto truly exceptional businesses. This case study serves as a cautionary tale about the dangers of taking profits too early on high-quality growth companies. The analysis reinforces their evolved investment philosophy of letting winners run rather than cutting flowers. The managers view Chipotle as a prime example of why investors should hold onto rare, exceptional businesses once identified.

Pitch Summary:
The Boston Beer Company, Inc. (SAM), a leading provider of alcohol beverages, was one of the top detractors in the SMID Cap strategy in the first quarter. The company reported a modest revenue decline (on a comparable basis) for 2023, with strong growth in the Twisted Tea brand offset by declines in the Truly brand. Margins expanded during the year, including in the fourth quarter, as the company benefited from operational margin improvement initiatives, as well as deflation in freight costs. The company expects slight sales growth at the midpoint of its guidance and continued margin expansion in 2024. Concurrent with its fourth quarter earnings announcement, the company announced the retirement of CEO Dave Burwick and his replacement with former Nike executive and current SAM board member Michael Spillane. We expect no change in the company's strategy or its capital allocation from this leadership change. In the near term, we believe the company will remain focused on sustaining Twisted Tea's growth, turning Truly volume trends, improving operations to enhance gross margins, and thus providing more funds to invest in its core assets as a company – its brands and its sales force. Overall, we remain confident management's efforts and investments are likely to produce profitable growth that will reward investors over time.

BSD Analysis:
SouthernSun maintains a constructive view on Boston Beer despite near-term headwinds and leadership transition. The manager sees the margin expansion story as intact, driven by operational improvements and freight cost deflation, with continued margin gains expected in 2024. While Truly brand volumes declined, the strong growth in Twisted Tea demonstrates the company's ability to build successful brands in evolving beverage categories. The appointment of former Nike executive Michael Spillane as CEO is viewed as continuity rather than strategic disruption. SouthernSun emphasizes the company's focus on core competencies: brand building and sales force effectiveness. The margin improvement provides increased financial flexibility to reinvest in brand development and market expansion. This appears to be a turnaround story where operational efficiency gains and selective brand focus can drive profitable growth despite challenging category dynamics in hard seltzers.

Pitch Summary:
MGP Ingredients Inc. (MGPI), a leading provider of distilled spirits, branded spirits and food ingredient solutions, was the top detractor in the SMID Cap composite in the first quarter. During the quarter, MGPI reported strong fourth quarter results including gross margin expansion in all three of its business segments, and sales of brown goods were up 26% in 2023. Management noted that 2023 new distillate sales outpaced aged distillate sales for the first time since 2020, and they expect this trend to continue. New distillate carries a lower gross margin profile than aged, but customers contract for new distillate volumes for several years as opposed to aged distillate, which is primarily sold in the spot market. Management believes the shift to more new distillate sales will provide greater visibility into cash flows and lower the risk profile of the distilling solutions segment. However, the market seemed to react negatively to this news based on the slightly lower gross margin expectations. We recently visited with Brandon Gall, CFO, and Chief Commercial Officer, Amel Pasagic, at the company's Lux Row Distillery in Bardstown, KY, to discuss MGPI's path to continued margin expansion for the overall business. We believe the company has ample opportunity to grow both the top line and margins, as the team continues to build out the portfolio of premium, super premium and ultra premium products in its branded spirits segment. Additionally, while the ingredient solutions segment is a smaller piece of the overall business, we believe the company is poised to grow sales of specialty wheat proteins and starches as it ramps up production at its recently completed texturized protein production facility in Atchison, KS. We expect 2024 to be another year of investment as the company builds new warehouses to support growth in both the distilling solutions and branded spirits segments. These investments are supported by strong cash generated by the business, and we believe they will produce even stronger cash flow in 2025 and beyond.

BSD Analysis:
Despite being a top detractor in Q1, SouthernSun maintains conviction in MGP Ingredients based on strong fundamental progress across all business segments. The manager views the shift toward contracted new distillate sales as a positive strategic move that enhances cash flow visibility and reduces business risk, even if it temporarily pressures gross margins. The 26% growth in brown goods sales and margin expansion across all three segments demonstrate operational momentum. SouthernSun's recent management visit to the Lux Row Distillery reinforces their confidence in the premium spirits portfolio buildout strategy. The company's investment in warehouse capacity and the new texturized protein facility in Atchison represents growth capex supported by strong cash generation. The manager sees significant runway for margin expansion in the branded spirits segment through premium product mix enhancement. This appears to be a temporary market misunderstanding of a strategic shift toward more predictable, contracted revenue streams in the distilling business.

Pitch Summary:
Boot Barn Holdings, Inc. (BOOT) is the largest retailer of western and work-related footwear, apparel, and accessories in the United States with more than 380 stores in 44 states, and an e-commerce channel consisting of bootbarn.com, sheplers.com and countryoutfitter.com. BOOT was one of the top contributors in the SMID Cap composite in the first quarter. We believe management has a sensible and achievable plan to expand their store count to approximately 900 stores over the next several years and believe they can do this without adding leverage to the balance sheet. Gross margin was up 180 bps in the most recent quarter, as they increased the mix of higher-margin proprietary brands. We continue to like the long-term growth and profitability prospects for BOOT and believe that the management team is well qualified to execute their strategy.

BSD Analysis:
SouthernSun's investment in Boot Barn represents a growth story centered on aggressive but disciplined retail expansion and margin enhancement. The manager sees significant runway for store count growth from 380 to approximately 900 locations, representing more than doubling the footprint without requiring additional leverage. The 180 basis point gross margin expansion demonstrates management's ability to drive profitability through proprietary brand mix optimization. As the dominant player in western and work-related apparel, Boot Barn benefits from a defensible niche market position with both physical and digital distribution channels. The company's multi-channel approach through bootbarn.com, sheplers.com, and countryoutfitter.com provides omnichannel capabilities in a specialized retail category. SouthernSun's confidence in management execution suggests this is a well-managed retail concept with clear growth visibility. The combination of unit growth and margin expansion creates a compelling dual-driver growth model in the specialty retail space.

Pitch Summary:
Dycom Industries, Inc. (DY), a leading provider of engineering and construction services to the telecommunications and utility industries, was the top contributor in the SMID Cap composite in the first quarter. Although results were slightly below management expectations due to severe winter weather, two large customers (AT&T and Frontier) returned to sequential growth, and management expects this trend to continue in 2024. More broadly, the demand for fiber construction over the next few years continues to look bright as both private and public capital enters the industry. Private equity continues to make investment in fiber assets via various channels, and the open access business model has emerged as a viable alternative to carrier owned networks. Some large carriers have even indicated they are willing to partner to build fiber networks, e.g., AT&T's joint venture with Blackrock in 2022, and recent rumors of a T-Mobile joint venture with Lumos Networks. Beyond private investment, there is significant public funding committed to fiber through the ARPA, RDOF, and BEAD programs. Although the $40 billion BEAD program has progressed slower than initially expected, management now expects deployments to begin in 2025. We expect this program to be a multi-year tailwind to the industry. Profitability at DY has increased over the last few quarters, and we believe there is further room for margin expansion by leveraging SG&A expenses as revenue grows. Management continues to operate the company well and allocate capital effectively while maintaining financial flexibility (Net Debt/Adj. EBITDA of 1.4x, the lowest level in over 10 years). As we have stated in past commentary, with only ~43% of the homes in the U.S. passed with fiber, we continue to believe there is a long runway for fiber penetration, and DY is well-positioned to engineer, construct and maintain these fiber networks.

BSD Analysis:
SouthernSun presents a compelling bull case for Dycom Industries based on the accelerating fiber infrastructure buildout across the United States. The manager highlights strong secular tailwinds from both private equity investment and substantial government funding programs totaling $40 billion through BEAD initiatives. Despite near-term weather-related headwinds, the return to sequential growth by major customers AT&T and Frontier signals improving demand momentum. The company's improving profitability metrics and conservative leverage ratio of 1.4x Net Debt/EBITDA provide financial flexibility to capitalize on the multi-year fiber deployment cycle. With only 43% of U.S. homes currently passed by fiber infrastructure, DY appears well-positioned to benefit from this massive infrastructure upgrade cycle. The manager's confidence in management's capital allocation and operational execution further supports the investment thesis. This appears to be a classic infrastructure play benefiting from both private and public investment in critical telecommunications infrastructure.

BSD Analysis:
The London Company initiated a position in Toro Company, viewing it as a dominant player in outdoor equipment with strong competitive positioning through professional-grade product focus. The company operates through Professional and Residential segments representing 80% and 20% of revenues respectively, with the professional segment providing more stable, non-discretionary demand. TTC's expansive dealer network creates natural entry barriers through exclusivities and scale advantages, supporting pricing power and market share leadership. The business model benefits from a large installed base with predictable replacement cycles of 2-5 years, providing visibility into future demand. Rentals and repairs constitute over 25% of revenues, adding recurring revenue streams and customer stickiness. The fund is attracted to TTC's resilient free cash flow generation, high return on invested capital, strong balance sheet, and disciplined capital allocation approach that has consistently increased shareholder value over time.

BSD Analysis:
The London Company acknowledges the challenging operating environment for Cable One while maintaining conviction in the company's long-term competitive positioning. The fund recognizes headwinds from increased competition via fixed wireless and fiber-to-the-home, along with reduced move activity affecting subscriber growth. Recent subscriber gains driven by new pricing schemes and promotions have negatively impacted ARPU, creating near-term margin pressure. However, management's disciplined pricing strategy prioritizes durable free cash flow growth over short-term metrics, demonstrating strategic focus on long-term value creation. CABO's advantaged position as a high-speed internet provider in rural markets provides defensive characteristics and pricing power. The company's relatively low penetration rates, superior service quality, and proven M&A capabilities support the long-term earnings growth thesis despite current market perception challenges.

BSD Analysis:
The London Company maintains confidence in Churchill Downs' operational performance despite quarterly underperformance, noting strong execution across most business segments. The fund highlights solid performance in key areas including on-trend Kentucky Derby ticket sales, strong historical racing machine business, and solid TwinSpires online betting platform results. Management's exemplary capital allocation track record continues to support the investment thesis. However, elevated leverage following a meaningful 2022 acquisition remains a concern, though the fund views the strategic rationale as sound. The expectation for leverage reduction next year through robust cash generation and EBITDA growth provides a clear path to improved financial metrics. Despite some softness in parts of the casino business, CHDN's diversified gaming and racing portfolio, combined with strong cash flow generation capabilities, supports the long-term investment case.

BSD Analysis:
The London Company expresses significant concern about Endava's strategic direction following disappointing Q4 earnings and reduced guidance. The fund attributes the guidance reduction to client spending delays, particularly concentrated in the payments and financial services verticals where clients are exercising heightened caution on new project commitments. However, the more troubling development is management's announced acquisition of GalaxE, an offshore Indian outsourcer, which represents a fundamental departure from DAVA's existing strategy and company identity. This strategic pivot raises questions about management's commitment to the company's differentiated positioning in the IT services market. The concentration risk in specific verticals, combined with the strategic uncertainty created by the GalaxE acquisition, suggests potential challenges ahead for the company's growth trajectory and competitive positioning.

BSD Analysis:
The London Company views Lancaster Colony's strong start to 2024 as validation of the company's operational improvements following a challenging prior year. The fund highlights significant margin expansion in Q4, driven by commodity deflation in key ingredients, demonstrating the company's ability to benefit from favorable input cost trends. Importantly, LANC has successfully completed both its ERP implementation and capacity expansion projects, removing operational headwinds and positioning the company for improved efficiency. The doubling of trailing twelve-month free cash flow from 2022 to 2023 illustrates the company's enhanced cash generation capabilities. The pristine balance sheet with net cash and zero debt provides substantial downside protection and financial flexibility. With operational improvements behind them and an attractive runway for cash flow expansion, LANC appears well-positioned for sustained performance improvement in the packaged foods industry.

BSD Analysis:
The London Company expresses strong conviction in Armstrong World Industries following its 27% quarterly gain and solid guidance delivery. The fund highlights AWI's effective execution on key growth initiatives and demonstrates confidence in management's ability to leverage pricing power in the building products sector. The annuity-like nature of the remodel business, representing approximately 70% of revenue, provides predictable cash flow generation and earnings stability. This recurring revenue model reduces cyclical volatility typically associated with construction-related businesses. Management's excellent capital allocation track record further enhances the investment appeal, suggesting disciplined use of cash flow for shareholder value creation. The company's demonstrated earnings resiliency and pricing power indicate strong competitive positioning within the ceiling systems market. AWI's ability to maintain margins while growing the business reflects operational excellence and market leadership in specialized building products.