Investment Pitches

Pitch Summary:
Rocket Companies, which was up 32% YTD in 2024, represents the newest large position in the SCC Composite Portfolio, having been purchased in December 2022. RKT represents a play on a future decline in mortgage rates if and when inflation becomes subdued again. RKT shareholders should take a measure of comfort in the fact that the company is ultimately helmed by founder Dan Gilbert, who owns 1.85 billion shares of stock (on an as-converted basis) through Rock Holdings Inc.

BSD Analysis:
Seven Corners Capital's investment in Rocket Companies represents a cyclical bet on mortgage market recovery tied to eventual interest rate normalization. The 32% year-to-date performance suggests early validation of the thesis as markets begin pricing in potential rate cuts. The investment timing in December 2022 appears well-positioned to capture the mortgage origination cycle upturn when rates eventually decline and refinancing activity resurges. Founder Dan Gilbert's massive 1.85 billion share ownership provides strong alignment with minority shareholders and suggests confidence in the long-term business model. The company's technology-driven platform and market-leading position in digital mortgage origination should benefit disproportionately from volume recovery. This represents a leveraged play on housing market normalization with strong insider ownership providing downside protection.

Pitch Summary:
Turning Point Brands, up 65% YTD in 2024, is an old standby in the SCC portfolio, having originally been purchased back in Q3 of 2016 (via SCC's investment in Standard Diversified [SDI], which then owned a majority stake in TPB and subsequently merged into TPB in mid-2020). The investment thesis remains that the company enjoys the benefit of a steady compounding business model via its Zig-Zag and Stoker's brands (the waters have recently been muddied by the struggles of its NewGen brands segment, which is now a de minimis portion of the overall pie at TPB). In my opinion, the company could become the target of one or more activist investors, with the thesis possibly involving (A) the separation of TPB's legacy cashflowing business (i.e., its Stoker's MST / chewing tobacco and Zig Zag rolling paper businesses) from its perpetually struggling "New Gen" vaping business and/or (B) a substantial increase in the dividend along with a consequent decrease in TPB's practice of taking equity stakes in other companies.

BSD Analysis:
Seven Corners Capital views Turning Point Brands as a steady compounding opportunity built around durable legacy tobacco brands. The 65% year-to-date performance validates the long-term thesis centered on Zig-Zag rolling papers and Stoker's smokeless tobacco products, which generate consistent cash flows. The manager identifies potential activist catalyst opportunities, particularly around separating the profitable legacy operations from the struggling NewGen vaping segment that has become a value detractor. The suggestion of increased dividend payments and reduced external investments indicates management could optimize capital allocation to enhance shareholder returns. With the NewGen business now representing a minimal portion of overall value, the core tobacco assets appear well-positioned to continue generating steady returns. This represents a classic value play where operational focus and capital discipline could drive meaningful re-rating.

Pitch Summary:
GNW increased 2.2% YTD in 2024, following a period of significant outperformance during the preceding 8 quarters vis-a-vis the S&P 500. GNW trades at a discount to its 81% ownership stake in Enact Holdings (ticker ACT), which at the end of Q1 was valued at $4.6 billion (or 30% greater than GNW's $3.5 billion aggregate enterprise value, up from 17% six months ago). The SCC long thesis on GNW involves the eventual separation of GNW's ACT stake from GNW's generally unprofitable long-term care & life and annuity operations. Longer term could see GNW's Life & Annuity business (L&A) value unlocked via a de-stacking transaction (currently L&A is trapped below the long-term care business in the org chart and the applicable insurance regulators must bless any de-stacking). The company has been actively repurchasing its stock in recent quarters.

BSD Analysis:
Seven Corners Capital's thesis on Genworth Financial centers on a classic sum-of-the-parts value realization opportunity. The company trades at a significant discount to its 81% stake in Enact Holdings, creating an immediate 30% value gap based on current market valuations. The core catalyst involves separating the valuable mortgage insurance business (ACT) from the struggling long-term care operations that have historically weighed on the parent company's valuation. The potential de-stacking of the Life & Annuity business represents additional upside, though regulatory approval adds complexity to the timeline. Active share repurchases demonstrate management's recognition of the valuation disconnect. This represents a patient capital opportunity where corporate restructuring could unlock substantial embedded value for shareholders willing to wait for regulatory and strategic execution.

Pitch Summary:
PSHZF, led by billionaire hedge fund manager Bill Ackman, finished Q3 2024 up 3.3% on the year, underperforming a 5.6% increase in its NAV (thus, PSH's discount to NAV increased to 31%): The long thesis continues to be two-fold: (1) a bet that Bill Ackman will outperform the overall market with his stock picking and uncanny ability to make huge sums via hedging; and (2) more importantly over the near to intermediate term, the closing of the sizable NAV discount. Simply closing the current discount would result in a ~45% appreciation in the stock, assuming NAV were to remain constant. In PSH's annual report for 2023, Ackman described some changes to the overall Pershing Square structure, aimed at lessening (or hopefully eventually eliminating) the NAV discount, which included a future reduction in fees charged to PSH investors under the Investment Management Agreement (IMA). In late July, PSH postponed the launch of a U.S. closed-ended fund called Pershing Square USA, Ltd., which was expected to largely mirror PSH in its investment strategy and hedging and asymmetric investment approach. Ackman stated he intended to revise the structure of PSUSA to make it more amenable to US-based investors, with an expected re-launch date TBD.

BSD Analysis:
Seven Corners Capital maintains a bullish stance on Pershing Square Holdings, viewing it as a dual-play investment opportunity. The primary thesis centers on capturing value from the substantial 31% discount to NAV, which if closed would generate approximately 45% appreciation independent of underlying performance. The manager expresses confidence in Bill Ackman's stock-picking abilities and hedging expertise as a secondary value driver. Recent structural changes to reduce management fees and the planned launch of a US-focused vehicle demonstrate management's commitment to addressing the persistent discount. The postponement of Pershing Square USA suggests tactical flexibility in optimizing the structure for different investor bases. This represents a classic closed-end fund arbitrage opportunity with the added benefit of exposure to a proven hedge fund manager's concentrated portfolio strategy.

Pitch Summary:
Assurant, a significantly smaller company with a market cap of $10 billion compared to Travelers' $50 billion, has a unique business model. It specializes in two niche insurance types – extended service contracts for consumer electronics and lender-placed home insurance. Despite the apparent dissimilarity, both businesses share a common trait - the separation between the decision-maker and the payer - a factor contributing to Assurant's healthy profitability. In the case of extended service contracts, the rates are negotiated with mobile service providers and paid for by customers who choose to add this feature to their mobile plans. Mobile operators are encouraged to upsell this service through commissions and profit share arrangements. Lenders force lender-placed home insurance onto homeowners who need to get adequate insurance on their own. Lenders care only about the quality of the insurance provider and not about the cost of the insurance passed onto homeowners. Selling a product to a party that cares about the quality more than the price generally results in healthy profitability for the provider. Assurant's lender-placed home insurance is no exception, with the margins from this business usually hovering around 10% — a very healthy level for an insurance company. When we bought the company ten years ago, these lines of business represented roughly 60% of premiums, with the remainder made up of health insurance, employee benefits, and pre-need funeral expenses coverage. These were all sold off in a series of transactions for a total of around $2.3 billion. In exchange, Assurant purchased The Warranty Group for $2.5 billion in cash and shares. The acquired company had a significant presence in extended service contracts and automotive extended services coverage. These transactions, which took place between 2016 and 2021, have significantly reshaped Assurant's business. The company, while remaining roughly the same in terms of premiums, is now more concentrated in segments where it has clear competitive advantages and a healthier level of profitability. The combined expense ratio has improved, dropping from roughly 100% of premiums to around 95%, indicating a more efficient operation. Regarding the shareholder return drivers, margin expansion and shareholder returns have been the primary source of value over the last decade. Growth in premiums is relatively pedestrian at 2%, but the M&A transactions obscure it. The core segments of extended warranty and global housing have shown steady growth, averaging 4% per year since the acquisition of The Warranty Group. Unlike with Travelers, we did benefit from slight multiple expansion, but arguably, in this case, it is warranted given the improvement in the underlying business quality.

BSD Analysis:
Firebird's thesis on Assurant centers on the company's transformation into a focused specialty insurer with superior economics through strategic portfolio reshaping. The manager identifies a key competitive advantage in Assurant's business model where decision-makers and payers are separated, creating pricing power and healthy margins around 10%. Through disciplined M&A between 2016-2021, management divested lower-margin businesses for $2.3 billion and acquired The Warranty Group for $2.5 billion, concentrating in extended warranties and lender-placed insurance. This transformation improved the combined expense ratio from 100% to 95%, demonstrating operational efficiency gains. The core segments now generate 4% annual growth with sustainable competitive moats. The manager views the slight multiple expansion as justified given the improved business quality and margin profile. Assurant represents a successful business transformation story with management executing value-creating capital allocation in niche insurance markets with structural advantages.

Pitch Summary:
Travelers Co (TRV), a part of our portfolio since 2013, is a traditional regulated insurer. It stands out in the market by selling commercial and personal property/casualty insurance through a network of independent agents and brokers. While this approach may seem outdated to consumers accustomed to online comparison sites, it remains a dominant form of distribution for most insurance lines. Commercial, workers' compensation, and other lines are an area of strength for Travelers, which is 80%+ reliant on independent agents primarily because small and middle market businesses rely on the agents to understand each company's unique situation and tailor the insurance offering to the needs. Last year, Travelers' segment breakdown looked like 2013, with more than half of the premiums generated by the commercial insurance lines. Curiously, one area of outstanding growth has been personal auto insurance, where the company continues to effectively compete despite strong competition from DTC operators such as Geico and Progressive. Over the last decade, Traveler's gross written premiums grew by 5.9% per annum, precisely in line with the growth of the overall P&C market. Underlying profitability also stayed roughly the same, with the combined ratio, a key measure of insurance company profitability, fluctuating between 90% and 100% for most years, including the most recent period showing profitability. The company's solid yet admittedly unremarkable performance raises the question of why we owned it for the last decade and, more importantly, why we think it is the right company to own going forward. The answer is in capital allocation. Over the ten years, Travelers generated $57 billion of operating cash flow, which happens to be roughly equivalent to the company's current market cap. $30 billion was returned to shareholders as dividends and buybacks, with the remainder added to the investment portfolio that now stands at $90 billion and supports insurance operations. Thanks to the repurchases, shares outstanding declined by nearly 30%, one of the main reasons Travelers shares have a compounded return of over 11% per annum despite premiums and operating cash flows growing at a single-digit pace. Equally important, the contribution of multiple changes to Traveler's investor returns has been negative, whereas the S&P 500's 13% per annum primarily resulted from multiple expansion. We feel a lot more comfortable with the fact that Travelers can replicate this performance over the next decade than the S&P 500, which will eventually have to deal with the mathematical impossibility of continuous multiple expansion.

BSD Analysis:
Firebird presents a compelling long-term thesis on Travelers based on superior capital allocation rather than operational excellence. The manager highlights that despite modest 5.9% annual premium growth matching industry averages, the company has generated exceptional shareholder returns of 11% annually through disciplined buybacks and dividends. The key insight is that Travelers returned $30 billion to shareholders over ten years while generating $57 billion in operating cash flow, reducing share count by 30%. Unlike the broader market's reliance on multiple expansion, Travelers' returns came from fundamental value creation through capital allocation. The manager emphasizes the sustainability advantage of this approach versus the S&P 500's mathematically unsustainable multiple expansion. The independent agent distribution model, while seemingly outdated, provides competitive advantages in commercial lines where relationships and customization matter. This positions Travelers as a steady compounder with predictable cash generation and shareholder-friendly management.

Pitch Summary:
M2S Group (MSGPIN) – Familiar with the predecessor to M2S, it did not take long for us to get up to speed; this reflects the fact that if you've been around long enough, you see high yield opportunities repeat. M2S is a producer of specialty coatings and chemicals used in thermal printing of labels and tags. Major customers include Amazon, Delta Airlines, FedEx, Starbucks, Dunkin Donuts, Walmart, etc. To refinance its existing debt and fund a major acquisition, MS2 hired Jefferies to raise an $870 mm leveraged loan. In order to win the mandate, Jefferies backstopped the financing with the expectation that the "hot" leveraged loan market would accept loose financing terms and aggressive pricing. The syndication process dragged on longer than usual, causing Jefferies to feel pressure that it might have to fund the loan. Push-back by prospective lenders resulted in improved lender protections in the credit agreement and a reduction in the offer price from 99 to 93, increasing the yield-to-maturity to over 12.00%. CrossingBridge participated in the M2S Group SOFR + 475 bp $870 mm First Lien Term Loan due 8/22/31. Rubric Analysis: Is It a Good Business? Following the acquisition, the company became the only vertically integrated participant and remains a market leader. In addition to the cross-selling and margin benefits of vertical integration, the acquisition also provides the company with greater insight into the supply chain, demand trends, and the development of new products. Generally, labels add little to the total end-user cost, providing the company with pricing power. At the same time, increased use of labels, especially in the foodservice, medical, and transportation markets, can have dramatic efficiency benefits. Due to systems and printer integration requirements, customer relationships tend to be long term and very "sticky." These are characteristics of a good business. Is There a Margin of Safety? Based on historic financial results, pro forma for the acquisition, the company appears to have significant ability to repay debt via future cash flows, after scheduled debt service payments and maintenance capital expenditures. Is There Alignment of Interests? The private equity sponsor has a 25-year track record in middle-market private equity, investing $9.2 bn via six funds, giving us some level of confidence. Since its initial acquisition, the company has used free cash flow to repay debt and the sponsor has stated its intention to continue this practice subject to growth opportunities. The strong covenant package constrains the ability of the company to increase leverage or pay dividends that would be detrimental to lenders. Is There a Good Track Record of Capital Allocation? The 2017 Chapter 11 cleansed the capital structure and allowed the company to sell unprofitable and non-core operations. Since 2021, the company has made two transformative acquisitions that successfully accelerated growth across capabilities and end-markets. That said, as noted above, a strong set of covenants imposes limits on the company's capital allocation plans.

BSD Analysis:
CrossingBridge identifies an attractive leveraged loan opportunity in M2S Group, leveraging their historical knowledge of the predecessor company Appvion. The fund participated in the $870 million first lien term loan at SOFR + 475 bps, benefiting from syndication difficulties that drove the price down from 99 to 93, yielding over 12% to maturity. M2S operates as the only vertically integrated producer of specialty thermal printing chemicals, serving blue-chip customers like Amazon, FedEx, and Starbucks. The business model features pricing power due to labels representing minimal end-user costs, sticky customer relationships from system integration requirements, and growing demand in foodservice, medical, and transportation markets. The company demonstrates strong cash flow generation with a history of debt repayment since the 2017 bankruptcy cleansing. The experienced private equity sponsor has a 25-year track record managing $9.2 billion across six funds. Strong covenant protections limit leverage increases and dividend payments, aligning interests between debt and equity holders while providing downside protection for lenders.

Pitch Summary:
Audacy Inc. (AUD), formerly Entercom Communications, is the second largest radio broadcasting company in the U.S. by revenues reaching over 118 million listeners. The impact of COVID-19, the decline in radio ad-spend, and higher interest rates, made it difficult to refinance its debt. Audacy filed a pre-packaged Chapter 11 plan of reorganization in January 2024 through which it reduced debt by $1.6 bn, emerging from bankruptcy in September 2024. Rubric Analysis: Is It a Good Business? As a terrestrial radio broadcaster in local and national ad markets, Audacy generates revenues by selling advertising time on their channels. Listenership for traditional radio is in secular decline due to market disruptors including Spotify, Apple Music, and SiriusXM. Although revenue is falling 1-2% per year, that fact alone does not mean that radio is a bad business. Radio broadcasting is a capital-lite business requiring minimal annual capital expenditures once a station is built. The variable costs of content are based on the songs played at the station, not on audience reach. This makes radio a cheap medium. Although the advertising business is cyclical, radio is less elastic and is buffered by high cash margins. Regardless, to withstand the cyclical ups and downs operators should maintain conservative balance sheets with low leverage. Is There a Margin of Safety? Post-bankruptcy, we estimate Audacy will have net debt of approximately $310 mm, or 48% loan-to-value against their mid-point reorganization enterprise value of $650 mm. Audacy's long-term debt is split into two tranches: 1) a SOFR + 700 bp $25 mm First-Out Exit Term Loan due 2028 with 0.9x leverage and 2) a SOFR+600 bp $225 mm Second-Out Exit Term Loan due 2029 with 2.5x leverage. CrossingBridge purchased pre-petition bank debt at a substantial discount to face value in the weeks following Audacy's bankruptcy filing and joined the Ad-Hoc Group of Term Lenders. In addition, we worked with a broker to purchase the First Out Exit Term Loan on a "when issued" basis, settling the trade when Audacy emerged from bankruptcy in September 2024. The bankruptcy process is a cleansing experience in which the balance sheet has been repaired and a margin of safety has been re-established. Is There Alignment of Interests? Post bankruptcy, David Field will remain at the helm as CEO, backed by deep-pocketed Soros Fund Management. David Field represents the second generation of leaders to run the radio business with roots dating back to 1968 when David's father started the business. The strong debt covenants align interests with shareholders. As a participant in both the debt and equity, we are comfortable with the alignment of interests and expect to earn an appropriate return on capital. Is There a Good Track Record of Capital Allocation? Arguably, Audacy's trip to bankruptcy court was the result of a poor capital allocation decision. The Company purchased CBS Radio at an elevated valuation, with too much debt financing, to complete the transaction. We believe the new majority shareholder, Soros Fund Management, will provide the necessary discipline to avoid previous mistakes.

BSD Analysis:
CrossingBridge presents a compelling post-bankruptcy turnaround opportunity in Audacy, the second-largest U.S. radio broadcaster reaching 118 million listeners. The fund participated in the Chapter 11 process, purchasing pre-petition bank debt at substantial discounts and joining the Ad-Hoc Group of Term Lenders. The bankruptcy eliminated $1.6 billion in debt, creating a cleansed capital structure with net debt of only $310 million against $650 million enterprise value (48% LTV). Despite secular headwinds from streaming services, radio remains a capital-light business with high cash margins and less elastic advertising demand. The new capital structure features conservative leverage ratios: 0.9x for the first-out tranche and 2.5x for the second-out tranche. Soros Fund Management's backing provides financial stability and disciplined capital allocation oversight. CrossingBridge holds both debt and equity positions, benefiting from strong covenant protections and management alignment. The fund views the bankruptcy as a necessary cleansing process that re-established an appropriate margin of safety for credit investors.

Pitch Summary:
Walgreens Boots Alliance (WBA) is a good example of another credit that does not measure up to our value investing principles. In anticipation of further credit deterioration, the RiverPark Strategic Income Fund is short the company's 3.2% Senior Unsecured Bonds due April 15, 2030. The company is the nearly ubiquitous operator of retail pharmacies and other healthcare businesses with approximately 13,000 locations across the U.S., Europe, and Latin America. Deterioration in consumer spending and pharmacy reimbursement trends have pressured the company's top-line and margins, leading Moody's and S&P to downgrade the credit from investment grade to B1/BB in July 2024 and causing nearly $9 bn of debt to be added to the high yield index. In August, Walgreens issued its first high yield bond, a $750 mm senior unsecured bond due August 2029 priced at an issuance spread of 430 bps. Rubric Analysis: Is It a Good Business? The retail pharmacy business consists of two verticals: 1) "front of house" sales of general merchandise and 2) fulfillment of prescriptions. The retail business has high fixed costs with little pricing power and is plagued by direct-to-consumer competition and shoplifting. Walgreens and all other pharmacies are generally price takers with little ability to push back against reimbursement pressures by PBMs, Medicare and Medicaid. In general, these are not qualities of good businesses. Is There a Margin of Safety? Walgreens bonds may look cheap relative to historic trading levels, but this may not be so given large adjustments to reported metrics. We believe "cash is king" and over the last three years free cash flow has declined from nearly $2.2 bn to a loss of $363 mm. The company's capital structure includes nearly $5 bn of debt maturing within two years, increasing reliance on non-core asset sales, sale leaseback transactions, and accommodative capital markets to address its obligations, thus lowering the perceived margin of safety. In addition to funded debt, the company is also responsible for $6.6 bn in opioid liabilities. Is There Alignment of Interests? Stefano Pessina is the Executive Chairman and largest shareholder of Walgreens, owning nearly 17% of the shares outstanding. Equity investors are arguably aligned with Pessina as his incentive to increase a material component of his net worth will bring them along for the ride. Bondholders, however, may find themselves misaligned with the equity as the company is likely to come back to the market repeatedly to refinance maturing debt while credit quality deteriorates further. Is There a Good Track Record of Capital Allocation? Over the last five years, Walgreens generated more than $10 bn in cumulative free cash flow, about 100% of which was returned to shareholders via dividends and share buybacks. Additionally, Walgreens allocated more than $12 bn in capital to acquisitions funded via asset sales and sale leasebacks. Walgreens has taken large impairments on these acquisitions and now has fewer hard assets. Not so good for bondholders.

BSD Analysis:
CrossingBridge presents a comprehensive bear thesis on Walgreens, implementing an active short position in the company's 3.2% senior unsecured bonds due 2030. The fund applies its systematic value investing rubric, concluding WBA fails on all four criteria. The retail pharmacy business model suffers from high fixed costs, limited pricing power, and pressure from PBMs and government reimbursement cuts. Free cash flow deteriorated dramatically from $2.2 billion to negative $363 million over three years, while $5 billion in debt matures within two years. The company faces additional $6.6 billion in opioid liabilities beyond funded debt. Management's capital allocation destroyed bondholder value, returning 100% of free cash flow to equity holders while funding $12 billion in acquisitions through asset sales and sale-leasebacks. The credit was downgraded from investment grade to B1/BB in July 2024, adding $9 billion to the high yield index. CrossingBridge identifies a misalignment between equity and debt holders, expecting continued refinancing pressure as credit quality deteriorates further.

Pitch Summary:
Looming over the bond market is Boeing and rating agencies' statements that they may be compelled to downgrade Boeing's credit rating to junk. With $52 bn in long-term debt, Boeing would be the largest fallen angel in U.S. history. Once a revered national champion, Boeing plead guilty to criminal charges related to the well-documented crashes of the 737 MAX jet. The company's failures go beyond the MAX. Two American astronauts remain stranded on the International Space Station because Boeing's Starliner was deemed to be structurally unsafe, posing too much risk to be used to return the astronauts to Earth. Credit market participants have been wary. The graph above shows that changes in Boeing's Altman Z-score, a measure of default probability, has paralleled the decline in Boeing's share price. Out of concern regarding a future downgrade into high yield, buyers of Boeing's newly issued debt have been requiring, since 2020, that the coupon increase based on steps down in credit quality. Boeing has recruited an aerospace industry star CEO and is attempting to stave off a downgrade by issuing equity and other junior securities. At the time of this writing J.P. Morgan is recommending that long term investors "overweight the Boeing credit…Near term expect volatility." Nevertheless, Boeing is a business that fails our value investing rubric and, as disciplined investors, we don't suffer FOMO.

BSD Analysis:
CrossingBridge presents a compelling bear case against Boeing, highlighting severe operational and financial deterioration. The fund manager emphasizes Boeing's criminal guilty plea related to 737 MAX crashes and ongoing safety failures with the Starliner spacecraft, which left astronauts stranded on the International Space Station. With $52 billion in long-term debt, Boeing faces potential downgrade to junk status, which would make it the largest fallen angel in U.S. history. The deteriorating Altman Z-score correlates with declining share price, indicating rising default probability. Credit market participants have demanded step-up coupons since 2020 to compensate for downgrade risk. Despite J.P. Morgan's recommendation to overweight Boeing credit, CrossingBridge maintains discipline by avoiding the position entirely. The fund applies its value investing rubric systematically, concluding Boeing fails to meet investment criteria despite potential FOMO pressures.

Pitch Summary:
The company is an online marketplace/classifieds business for cannabis - it's a picks & shovel play. $180M revenue, 95% gross margins, 17% EBITDA margins, FCF generative. $45M cash, no debt but they do have operating leases. They have become the dominant platform in the industry. Given the company's lead in traffic, active users, and retailers/brands on the platform, WM Technology benefits from strong network effects. Dispensaries have to be on the platform if they want to drive sales. They trade at 1x revenue and 6x EBITDA. They had no sell side analysts or investors on their latest earnings call. The co-founders are trying to acquire the company at 1.7, effectively stealing the company from shareholders. The stock currently trades at 1.3 per share. We sent a letter to the Board urging them to reject the low ball acquisition and instead pursue a novel capital allocation approach that can improve their balance sheet and instantly get them attention from the capital markets.

BSD Analysis:
TMR Capital identifies WM Technology as a classic value play with dominant market position trading at distressed multiples. The cannabis marketplace operates with exceptional unit economics - 95% gross margins and 17% EBITDA margins on $180M revenue, generating free cash flow with a clean balance sheet. The network effects are compelling, as dispensaries require platform presence to drive sales, creating sustainable competitive advantages. Trading at 1x revenue and 6x EBITDA represents significant undervaluation for a market-leading technology platform. The activist situation adds urgency, with co-founders attempting a lowball buyout at $1.70 versus the current $1.30 trading price. TMR's engagement with the board to reject the offer and pursue alternative capital allocation strategies could unlock substantial value. The lack of sell-side coverage and institutional neglect creates an information asymmetry opportunity in this overlooked cannabis infrastructure play.

Pitch Summary:
Zenvia has announced a strategic refocus along with the potential for an opportunistic divestment of non-core assets to optimize their capital structure. Zenvia Customer Cloud (ZCC) was officially launched in October 2024 and will become Zenvia's core business moving forward. ZCC is powered by AI-driven solutions and robust data analytics and is designed to adapt similarly to business of all sizes and across diverse industries. Clients already using it report enhanced customer engagement, increased sales, and reduced costs. Zenvia's business will further shift to a volume-based pricing model, where clients pay based on the number of interactions they have with their clients and prospects rather than the traditional per-seat SaaS model. This approach is enabled by the extensive use of AI in their software, which minimizes the reliance of human agents, enhances efficiency for clients, and unlocks greater revenue generation potential with much less complexity. The ZCC customer base is a mix of existing clients who transitioned and new customers. ZCC is expected to grow revenue 30% in 2025 with 70% gross margins and positive EBITDA. Anything in the SaaS and CPaaS business that is not ZCC is counted as non-core and may be divested in the near future. Valuation multiples have been expanding in CPaaS and SaaS. Twilio, Zenvia's closest comparable in CPaaS, has seen its stock triple in the past three month and now trades at 3.4x NTM Revenue vs. Zenvia at 0.7x NTM Revenue. SaaS comparables such as CRM (7.3x Revenue), NOW (14.2x Revenue), and HUBS (12.2x Revenue) have also seen their multiples expand. Therefore, we are excited at the potential divestiture. We have encouraged Zenvia to pursue a sale/carve out as a way to force the market to rerate the stock should they sell part of their business at a valuation multiple closer to peers.

BSD Analysis:
TMR Capital presents a compelling turnaround thesis for Zenvia centered on strategic refocusing and asset optimization. The launch of Zenvia Customer Cloud (ZCC) represents a pivot to AI-driven customer engagement solutions with superior unit economics - 70% gross margins and 30% revenue growth projected for 2025. The shift from per-seat SaaS to volume-based pricing leverages AI automation to reduce human dependency while expanding revenue potential. The valuation disconnect is stark, with Zenvia trading at 0.7x NTM revenue versus comparable Twilio at 3.4x, suggesting significant rerating potential. The manager's activist approach of encouraging asset divestitures could unlock value by forcing market recognition of the core business at peer multiples. The combination of operational improvements, margin expansion, and potential corporate actions creates multiple paths to value realization. However, execution risk remains given the company's transition phase and competitive CPaaS landscape.

Pitch Summary:
The company is an online marketplace/classifieds business for cannabis - it's a picks & shovel play. $180M revenue, 95% gross margins, 17% EBITDA margins, FCF generative. $45M cash, no debt but they do have operating leases. They have become the dominant platform in the industry. Given the company's lead in traffic, active users, and retailers/brands on the platform, WM Technology benefits from strong network effects. Dispensaries have to be on the platform if they want to drive sales. They trade at 1x revenue and 6x EBITDA. They had no sell side analysts or investors on their latest earnings call. The co-founders are trying to acquire the company at 1.7, effectively stealing the company from shareholders. The stock currently trades at 1.3 per share. We sent a letter to the Board urging them to reject the low ball acquisition and instead pursue a novel capital allocation approach that can improve their balance sheet and instantly get them attention from the capital markets.

BSD Analysis:
TMR Partners identifies WM Technology as a deeply undervalued cannabis marketplace with dominant market position and exceptional financial metrics. The company generates $180M in revenue with remarkable 95% gross margins and 17% EBITDA margins while maintaining a debt-free balance sheet with $45M cash. Trading at just 1x revenue and 6x EBITDA, MAPS appears significantly undervalued relative to its market-leading position and strong network effects that create barriers to entry. The manager emphasizes the 'picks and shovel' nature of the business model, benefiting from cannabis industry growth without direct exposure to regulatory risks. The activist situation presents a clear catalyst, with co-founders attempting a lowball buyout at $1.70 while shares trade at $1.30, suggesting immediate upside potential. TMR's engagement with the board to reject the inadequate offer and pursue alternative capital allocation strategies demonstrates active value creation efforts. The complete absence of sell-side coverage and institutional interest on earnings calls indicates a severely neglected stock with significant discovery potential.

Pitch Summary:
Zenvia has announced a strategic refocus along with the potential for an opportunistic divestment of non-core assets to optimize their capital structure. Zenvia Customer Cloud (ZCC) was officially launched in October 2024 and will become Zenvia's core business moving forward. ZCC is powered by AI-driven solutions and robust data analytics and is designed to adapt similarly to business of all sizes and across diverse industries. Clients already using it report enhanced customer engagement, increased sales, and reduced costs. Zenvia's business will further shift to a volume-based pricing model, where clients pay based on the number of interactions they have with their clients and prospects rather than the traditional per-seat SaaS model. This approach is enabled by the extensive use of AI in their software, which minimizes the reliance of human agents, enhances efficiency for clients, and unlocks greater revenue generation potential with much less complexity. The ZCC customer base is a mix of existing clients who transitioned and new customers. ZCC is expected to grow revenue 30% in 2025 with 70% gross margins and positive EBITDA. Anything in the SaaS and CPaaS business that is not ZCC is counted as non-core and may be divested in the near future. Valuation multiples have been expanding in CPaaS and SaaS. Twilio, Zenvia's closest comparable in CPaaS, has seen its stock triple in the past three month and now trades at 3.4x NTM Revenue vs. Zenvia at 0.7x NTM Revenue. SaaS comparables such as CRM (7.3x Revenue), NOW (14.2x Revenue), and HUBS (12.2x Revenue) have also seen their multiples expand. Therefore, we are excited at the potential divestiture. We have encouraged Zenvia to pursue a sale/carve out as a way to force the market to rerate the stock should they sell part of their business at a valuation multiple closer to peers.

BSD Analysis:
TMR Partners presents a compelling turnaround thesis for Zenvia centered on the company's strategic pivot to its AI-powered Zenvia Customer Cloud platform. The manager highlights the significant valuation disconnect, with ZENV trading at just 0.7x NTM revenue compared to comparable Twilio at 3.4x, representing a potential 5x rerating opportunity. The new ZCC platform's volume-based pricing model leverages AI to reduce human agent dependency while driving higher revenue per interaction, creating operational leverage. Management's guidance for 30% revenue growth in 2025 with 70% gross margins and positive EBITDA demonstrates the platform's scalability and profitability potential. The planned divestiture of non-core SaaS and CPaaS assets could serve as a catalyst to unlock value and force market recognition of the core business quality. The manager's activist approach in encouraging management to pursue strategic alternatives shows hands-on engagement to drive shareholder value. With expanding multiples across the CPaaS and SaaS sectors, Zenvia appears positioned for significant multiple expansion as the market recognizes the transformation.

Pitch Summary:
The final company we added this year is WillScot Holdings. WillScot is the dominant provider of turnkey space solutions in North America: think modular offices, temporary classrooms, portable storage containers, etc. When we established the position, the company was in the midst of a large acquisition – buying a smaller competitor called McGrath Rentcorp. We were sceptical that the acquisition would be approved by the competition authorities and so didn't include this acquisition in our financial forecast. As it turned out, WillScot had to cancel the proposed acquisition and announced a meaningful share repurchase program – right in line with our assumptions.

BSD Analysis:
Turtle Creek invested in WillScot as the dominant North American provider of turnkey space solutions including modular offices, temporary classrooms, and portable storage containers. The manager demonstrated analytical rigor by excluding the proposed McGrath Rentcorp acquisition from their financial forecasts due to antitrust concerns, proving prescient when competition authorities blocked the deal. WillScot's response of announcing a meaningful share repurchase program aligned perfectly with Turtle Creek's assumptions, validating their investment thesis and analytical framework. The company's dominant market position in modular space solutions provides pricing power and recurring revenue characteristics. The failed acquisition outcome actually strengthened the investment case by returning capital to shareholders rather than pursuing potentially dilutive growth. Turtle Creek's contrarian stance on the merger probability allowed them to establish a position at attractive levels while others may have priced in acquisition synergies. The share buyback program demonstrates management's commitment to shareholder returns and confidence in the standalone business model. This represents a well-timed investment in a market-leading business with disciplined capital allocation.

Pitch Summary:
The third company is Kinsale Capital Group, a specialty insurance company based in the United States. Kinsale operates in the unregulated excess and surplus lines of the insurance market. This is a good example of how, unlike many value investors, we will sometimes own companies that trade at high price-to-earnings multiples. Since we are willing to give a company credit for substantial growth far into the future (if we think it is merited), we do not miss the opportunity to invest in an outstanding company like Kinsale that may appear expensive to some investors based on its currently high traded multiple.

BSD Analysis:
Turtle Creek added Kinsale Capital Group as a specialty insurance play focused on the unregulated excess and surplus lines market. The manager explicitly acknowledges the company trades at high price-to-earnings multiples but justifies the valuation through their willingness to credit substantial long-term growth potential. This investment demonstrates Turtle Creek's flexibility in moving beyond traditional value metrics when fundamental quality and growth prospects warrant premium valuations. The excess and surplus lines market provides Kinsale with pricing flexibility and reduced regulatory constraints compared to standard insurance markets. The manager's confidence in paying high multiples suggests exceptional growth visibility and competitive positioning within this specialized insurance niche. Turtle Creek's growth-at-a-reasonable-price approach allows them to capture opportunities that pure value investors might miss due to multiple constraints. The investment reflects their conviction in Kinsale's ability to compound returns over extended periods despite current valuation concerns. This represents a quality growth story within the specialty insurance sector with sustainable competitive advantages.

Pitch Summary:
The second company we added this year is Ashtead Group, the parent company of Sunbelt Rentals, the second largest equipment rental company in North America. Interestingly, Ashtead is the first European-headquartered and European-listed company we have ever owned. We weren't looking for a European company but as we were doing work on the largest equipment rental company – United Rentals – we concluded we liked Ashtead more. While Ashtead was founded in the United Kingdom many years ago, 95% of their operations are in North America today. Last month, they announced that they are redomiciling their headquarters to the United States and will be moving their primary listing to New York from London. Note that this is not simply a New York listing but fully relocating the company to the United States with an eye to being included in the S&P 500 index. Many of our Canadian companies are cross-listed in New York but are unlikely to be considered by S&P for index inclusion because they are not U.S. domiciled companies.

BSD Analysis:
Turtle Creek selected Ashtead over market leader United Rentals after comparative analysis, marking their first European-headquartered investment. The company operates as the second-largest equipment rental business in North America through Sunbelt Rentals, with 95% of operations based in North America despite UK origins. The investment thesis gains additional support from Ashtead's announced redomiciliation to the United States and primary listing move from London to New York, positioning for potential S&P 500 inclusion. This corporate restructuring addresses a key valuation discount that many international companies face when competing against domestically-domiciled peers. The manager's preference for Ashtead over United Rentals suggests superior risk-adjusted returns or more attractive valuation despite the latter's market leadership position. The redomiciliation catalyst could unlock significant value through index inclusion and improved institutional accessibility. Turtle Creek's willingness to invest in their first European company demonstrates the compelling nature of this opportunity. The combination of strong North American market position and pending corporate restructuring creates multiple value creation pathways.

Pitch Summary:
The first company we added was BRP (formerly known as Bombardier Recreational Products). We have owned BRP for five years in Turtle Creek Canadian Equity Fund, but it had never been priced attractively enough during that time to make it into the flagship fund. Early in the year, the share price declined to a point where it merited going into TCEF. Since that time, the share price has fluctuated and ended the year modestly below where we added it. BRP is the ultimate consumer discretionary company – when consumers are facing headwinds, purchases like Sea-Doos and ATVs often get deferred. Investment opportunities in consumer discretionary companies occur when consumers are pulling back, and we think BRP's intelligent management team is doing all the right things to continue to innovate and take market share in each of their categories. If one is willing to look past the current weak environment, one can see how attractive the stock is today.

BSD Analysis:
Turtle Creek added BRP to their flagship fund when the stock declined to attractive valuation levels, having previously owned it in their Canadian fund for five years. The manager acknowledges BRP as the "ultimate consumer discretionary company" where purchases of recreational vehicles like Sea-Doos and ATVs are typically deferred during economic uncertainty. However, they express confidence in management's ability to innovate and gain market share across product categories during this challenging period. The investment thesis relies on looking beyond current consumer headwinds to recognize the stock's attractiveness at depressed levels. Turtle Creek's patient approach demonstrates their conviction in BRP's long-term prospects despite near-term cyclical pressures. The timing of the addition suggests they view current weakness as a compelling entry point for a quality company with strong market positions. Management's track record of innovation and market share gains provides confidence in the company's ability to emerge stronger from the current downturn. This represents a classic contrarian play on a well-managed consumer discretionary leader trading at cyclical lows.

Pitch Summary:
Berry Global, a company we have owned for seven years, was the source of the one notable corporate event the portfolio experienced during the quarter. Berry completed a previously announced spin-off of a part of the business into a separate publicly traded company. Berry then announced a merger with another publicly listed packaging company – Amcor. While combining the two companies makes sense from a synergy standpoint, much like the Discover Financial merger with Capital One, we don't believe Berry's shareholders received their fair share of the combined company. Rather than continue to pursue an independent strategy that would have maximized long term value creation, the Berry board accepted poor merger terms hoping to achieve a higher traded share price in the shorter term. We know Berry's board has been frustrated with its low share price for some time. When we first added the company to the flagship fund's portfolio seven years ago, it was a classic platform company. Berry was the leading consolidator in the plastics industry, able to make bolt-on acquisitions at very attractive prices once significant cost synergies were realized. In 2019, they made a large strategic acquisition in Europe that provided them the same platform in Europe as they have in the Americas – financing the acquisition with 100% debt. All good up until that point. But since then, the board has gradually altered the company's strategy, over time lowering their senior debt leverage target and backing away from 'inorganic' growth (bolt-on acquisitions) in favour of divestitures and spin-offs designed to improve the company's organic growth profile. This was all with an eye to getting a higher traded share price in the short term. Indeed, the merger with Amcor is in the same vein. Amcor has always traded at a higher price-to-earnings multiple than Berry, despite the fact that their earnings growth has lagged Berry's by a substantial margin. One could speculate that as one of the few large Australian public companies it garners a premium multiple from Australian investors (we see this sometimes in Canada with some Canadian companies). This, combined with the fact that it is in the S&P 500 index, could explain the traded multiple difference. Clearly, Berry's board is hoping that this transaction will result in Berry enjoying a higher traded earnings multiple, and they may be right. It might strike you as odd that we are criticizing a board for trying to achieve a higher traded price for shareholders. It should go without saying that we are all for higher share prices for our holdings, but not to the detriment of long term shareholder value. We believe that if Berry had continued on its path of a higher (but still prudent) senior debt level, making accretive acquisitions and opportunistic share repurchases, then the share price would be much higher in five to ten years than it will be through merging with Amcor.

BSD Analysis:
Turtle Creek expresses strong disappointment with Berry Global's strategic direction, particularly the Amcor merger which they view as value-destructive for Berry shareholders. The manager criticizes the board for abandoning Berry's successful consolidation strategy that made it a leading plastics industry platform company capable of executing accretive bolt-on acquisitions. Since 2019's successful European expansion, management shifted away from leveraged growth toward conservative capital allocation focused on short-term multiple expansion rather than long-term value creation. The Amcor merger exemplifies this misguided approach, as Berry accepted unfavorable terms to access Amcor's higher trading multiple despite Berry's superior earnings growth track record. Turtle Creek argues that Amcor's premium valuation stems from its Australian domicile and S&P 500 inclusion rather than operational superiority. The manager believes Berry's board sacrificed 5-10 year value creation potential by pursuing near-term stock price gains through financial engineering rather than maintaining their proven acquisition-driven growth model. This represents a classic case of management destroying long-term shareholder value while chasing short-term market validation.

Pitch Summary:
Moving on to specific companies, the largest positive contributor in our flagship fund, both for the quarter and full year, was our investment in Bread Financial. Bread is a regulated financial services company primarily focused on the issuance of private label and co-branded credit cards. It enjoys a strong return on equity (ROE) in excess of 25% as compared to Canadian banks that are in the low to mid teens. And while nearly 60% of Bread's credit card holders have a prime credit rating, the remaining 40% have credit ratings that are below prime. Despite higher losses from serving these lower credit customers, the higher revenue yield results in higher ROEs. Bread is an excellent example of the power of our long term thinking. It was, in fact, a negative contributor to our performance in 2023 and 2022 before generating a significant positive return for us in 2024. And despite its healthy move this past year, we feel it still holds the potential for significant price appreciation in the near future and it remains one of our largest holdings. There are a number of potential tailwinds for Bread including an expanding traded price multiple, a shrinking share count due to repurchases and the possible dropping of a proposed rule by the Consumer Financial Protection Bureau ("CFPB") to cap credit card late fees. Under prior Democrat administrations, the CFPB introduced numerous regulations and restrictions around the financial services industry. The proposed cap on late fees would have made it uneconomic to service lower credit score customers. Not only does the late fee importantly serve as a deterrent to skipping payments, it also adds to the total economic return that allows the provision of credit to these higher risk customers. The CFPB under President Trump is widely expected to be more business friendly and less focused on increasing an already hefty regulatory burden.

BSD Analysis:
Turtle Creek presents a compelling bull case for Bread Financial, highlighting the company's exceptional ROE of over 25% versus mid-teen returns for Canadian banks. The manager emphasizes Bread's differentiated business model serving both prime (60%) and sub-prime (40%) credit customers, where higher revenue yields from riskier borrowers more than compensate for elevated loss rates. The investment thesis centers on multiple expansion catalysts including share buybacks, potential regulatory relief under the Trump administration, and the possible elimination of CFPB late fee caps that would restore economics for serving lower-credit customers. Turtle Creek demonstrates conviction by maintaining Bread as one of their largest holdings despite previous volatility. The regulatory tailwind argument is particularly compelling, as late fees serve both as payment deterrents and economic enablers for extending credit to higher-risk segments. The manager's long-term perspective proved prescient, weathering negative performance in 2022-2023 before realizing significant gains in 2024. With continued upside potential anticipated, this represents a classic value realization story with regulatory and operational catalysts ahead.