Investment Pitches

Pitch Summary:
Munich Re, the world's largest reinsurance company, was a leading contributor for the quarter. The company reported strong results as it continues to win market share, leverage its global scale, and demonstrate underwriting discipline. Perhaps counterintuitively, recent global crises — such as war in both the Middle East and Ukraine, natural disaster losses that topped $100 billion, and the impact of inflation — have showcased Munich Re's strengths. Through these crises, the company has, we believe, displayed its prudent risk-taking and global diversification attributes. Moreover, Munich Re (and its peers) have benefited from industrywide price increases, which have contributed to increased return of capital to shareholders. The company raised its dividend by nearly 30% in 2023 and announced a new €1.5 billion share buyback program. We continue to believe Munich Re is attractively positioned to gain market share in a variety of areas, including cybersecurity, specialty insurance, and in the fast-growing economies in Asia, where the market is large but insurance penetration remains relatively low.

BSD Analysis:
Munich Re's position as the world's largest reinsurer provides unmatched global scale and diversification advantages, particularly evident during recent crisis periods including Middle East conflicts, Ukraine war, and $100+ billion natural disasters. The company's underwriting discipline and prudent risk-taking approach have been validated through these challenging conditions, demonstrating the quality of its risk management framework. Industry-wide price increases following recent losses have strengthened Munich Re's pricing power and profitability, enabling significant capital returns including a nearly 30% dividend increase and €1.5 billion share buyback program. The company's market share gains across multiple segments reflect its competitive positioning and operational excellence. Growth opportunities in cybersecurity and specialty insurance align with emerging risk trends and higher-margin business lines. Munich Re's expansion strategy in fast-growing Asian economies targets markets with large populations but low insurance penetration rates, offering substantial long-term growth potential. The combination of defensive characteristics from global diversification and growth prospects from emerging markets and specialty lines creates an attractive risk-adjusted return profile for long-term investors.

Pitch Summary:
Safran, a French aerospace propulsion and equipment manufacturer, was the top contributor. As the leading supplier of narrow-body aircraft engines, Safran has benefited from the increase in narrow-body air traffic (above 2019 levels) and an aging fleet of aircraft that has spurred demand for required service. Part of our attraction to Safran is the nature of its product categories, which tend to exhibit pricing power, and the benefits of higher-margin aftermarket businesses, which we expect to expand in the years ahead. As an example, the company recently signed several multi-year equipment contracts with international airline customers. In addition, deliveries of Safran's new-generation LEAP engines (which reduce fuel consumption and CO2 emissions) increased 38% in 2023, supporting the company's proposed 63% year-over-year dividend increase. Longer term, we believe Safran will benefit from the continued transition to LEAP engines as airlines upgrade their fleets to be more efficient and environmentally friendly.

BSD Analysis:
Safran's position as the leading narrow-body aircraft engine supplier provides significant competitive advantages in a recovering aviation market with air traffic exceeding 2019 levels. The company benefits from a powerful aftermarket business model with pricing power and higher margins, supported by an aging global aircraft fleet requiring increased maintenance and service. Multi-year equipment contracts with international airlines provide revenue visibility and demonstrate customer confidence in Safran's technology. The 38% increase in LEAP engine deliveries in 2023 reflects strong demand for fuel-efficient, environmentally friendly propulsion systems. Management's confidence is evident in the proposed 63% dividend increase, signaling strong cash generation and capital allocation discipline. The secular trend toward fleet modernization and environmental compliance creates a multi-year tailwind for LEAP engine adoption. Safran's dual revenue streams from new engine sales and high-margin aftermarket services provide both growth and defensive characteristics. The company's technological leadership in next-generation propulsion systems positions it well for the aviation industry's long-term recovery and environmental transition.

Pitch Summary:
AIA- Group, a pan-Asian life insurance company headquartered in Hong Kong, was one of the largest detractors for the quarter. While macro concerns over the state of the Chinese economy may have placed pressure on AIA's share price during the quarter, business fundamentals continue to improve. As evidence, the company's VONB* increased 33% in 2023. This, in our opinion, reflects AIA's resiliency and the progress it has made across Asia, with mainland China, Hong Kong and the ASEAN countries (excluding Vietnam) all reporting double-digit percentage increases. The company has also completed a multi-year digital transformation that has not only reduced costs per transaction by over 30% but has also improved customer experience (85% of customer transactions are now completed in a day or less). With these technological investments in place, along with the support of its highly productive agency sales force and further partnerships with major banks, we remain confident in AIA's ability to continue increasing its market share in mainland China and expanding across Asia.

BSD Analysis:
Despite share price pressure from Chinese economic concerns, AIA demonstrates strong fundamental momentum with 33% Value of New Business growth in 2023. The company's pan-Asian diversification strategy is paying dividends, with double-digit VONB increases across mainland China, Hong Kong, and ASEAN markets excluding Vietnam. AIA's completed digital transformation represents a significant competitive advantage, reducing transaction costs by over 30% while dramatically improving customer experience with 85% of transactions completed within one day. The combination of technology investments, a highly productive agency sales force, and strategic bank partnerships creates multiple distribution channels for market share expansion. AIA's positioning in mainland China, the world's largest insurance market with low penetration rates, offers substantial long-term growth potential. The company's operational efficiency improvements and geographic diversification provide resilience against regional economic volatility. Aristotle's confidence in AIA's ability to continue gaining market share across Asia reflects the insurer's strong execution of its digital-first strategy and multi-channel distribution approach.

Pitch Summary:
Sony, a global provider of videogames and consoles, image sensors, music, and movies, was one of the largest detractors for the period. Sony cut its guidance from 25 million PlayStation 5 (PS5) units sold to 21 million units for the fiscal year that ended in March. Despite the underwhelming hardware results, management has emphasized the importance of boosting profitability to offset weak sales in the latter stage of the PS5's life cycle, which it expects to achieve through increased engagement, with monthly active users reaching a record high 123 million accounts. Furthermore, we will continue to monitor management's ability to improve game development, streamline project management, and control costs, as Sony has already begun to implement structural reforms in its Game & Network Services segment. In its Pictures segment, Sony terminated its merger with India's Zee Entertainment, as closing conditions were not met within the set two-year window. Nevertheless, management believes India remains a promising market and will proactively explore opportunities to bolster its position in the country. We remain confident in Sony's ability to build on its industry leadership, and we feel the company's continued optimization of business operations, including its plan for a partial spinoff of its Financial Services business, positions the company to enhance long-term value.

BSD Analysis:
Despite near-term PlayStation 5 hardware headwinds with guidance cut from 25 million to 21 million units, Aristotle maintains conviction in Sony's long-term value creation potential. The fund emphasizes Sony's strategic pivot toward profitability optimization over volume growth, supported by record monthly active users of 123 million accounts indicating strong engagement metrics. Management's structural reforms in the Game & Network Services segment demonstrate operational discipline during the PS5's mature lifecycle phase. While the terminated Zee Entertainment merger represents a setback, Sony's continued interest in the Indian market suggests strategic geographic expansion remains a priority. The planned partial spinoff of Financial Services could unlock significant value through improved capital allocation and business focus. Sony's diversified entertainment portfolio across gaming, music, and pictures provides multiple revenue streams and cross-selling opportunities. The company's industry leadership position and ongoing operational optimization initiatives support the manager's bullish long-term outlook despite current cyclical challenges.

Pitch Summary:
Munich Re, the world's largest reinsurance company, was a leading contributor for the quarter. The company reported strong results as it continues to win market share, leverage its global scale and demonstrate underwriting discipline. Perhaps counterintuitively, recent global crises — such as war in both the Middle East and Ukraine, natural disaster losses that topped $100 billion, and the impact of inflation — showcase Munich Re's strengths. Through these crises, the company has, we believe, displayed its prudent risk-taking and global diversification attributes. Moreover, Munich Re (and its peers) have benefited from industrywide price increases, which have contributed to increased return of capital to shareholders. The company raised its dividend by nearly 30% in 2023 and announced a new €1.5 billion share buyback program. We continue to believe Munich Re is attractively positioned to gain market share in a variety of areas, including cybersecurity, specialty insurance, and in the fast-growing economies in Asia, where the market is large but insurance penetration remains relatively low.

BSD Analysis:
The manager maintains strong conviction in Munich Re as the world's largest reinsurance company and a leading contributor during the quarter. The investment thesis highlights Munich Re's ability to thrive during periods of global uncertainty, with recent crises including Middle East and Ukraine conflicts, $100+ billion in natural disaster losses, and inflation actually showcasing the company's strengths. The manager views Munich Re's prudent risk-taking and global diversification as key competitive advantages that enable market share gains during volatile periods. Industry-wide price increases have created a favorable operating environment, allowing Munich Re to increase shareholder returns through a nearly 30% dividend increase and a new €1.5 billion share buyback program. The company's underwriting discipline and global scale provide sustainable competitive moats in the reinsurance market. Growth opportunities include expansion in cybersecurity insurance, specialty insurance products, and penetration of underdeveloped Asian markets where insurance adoption remains low despite large market size. Munich Re's combination of defensive characteristics, pricing power, and growth optionality in emerging segments supports the manager's bullish long-term outlook.

Pitch Summary:
Aggregates producer Martin Marietta Materials was a top contributor for the period. As a result of the company's successful execution of its value-over-volume commercial strategy, including 15% price increases in its aggregates business, Martin Marietta reported full-year records for revenues and profitability. Furthermore, the company continues to bolster its leadership position through the acquisitions of Albert Frei & Sons, a leading aggregates producer in Colorado, and the Southeast aggregates operations of Blue Water Industries. These transactions are expected to add one billion tons of reserves, improve product mix and profitability, and allow for the expansion into new target markets such as Nashville and Miami. We believe Martin Marietta is well positioned to continue executing on its catalysts, including optimizing its product portfolio and further enhancing profitability from both pricing and operations initiatives, all while benefiting from continued increases in both nonresidential construction and government spending.

BSD Analysis:
The manager expresses strong conviction in Martin Marietta Materials following its position as a top contributor during the quarter. The investment thesis centers on the company's successful value-over-volume strategy, which delivered 15% price increases in aggregates and resulted in record revenues and profitability. Strategic acquisitions of Albert Frei & Sons and Blue Water Industries' Southeast operations demonstrate disciplined capital allocation, adding one billion tons of reserves while expanding into attractive markets like Nashville and Miami. These transactions are expected to improve product mix and profitability, showcasing management's ability to create value through consolidation. The manager views Martin Marietta as well-positioned to benefit from multiple tailwinds, including continued growth in nonresidential construction and government infrastructure spending. The company's focus on optimizing its product portfolio and enhancing profitability through both pricing power and operational efficiency provides multiple levers for value creation. Martin Marietta's market leadership position in aggregates, combined with its strategic geographic expansion and operational excellence, supports the manager's bullish outlook for continued outperformance.

Pitch Summary:
Sony, a global provider of videogames and consoles, image sensors, music, and movies, was one of the largest detractors for the period. Sony cut its guidance from 25 million PlayStation 5 (PS5) units sold to 21 million units for the fiscal year that ended in March. Despite the underwhelming hardware results, management has emphasized the importance of boosting profitability to offset weak sales in the latter stage of the PS5's life cycle, which it expects to achieve through increased engagement, with monthly active users reaching a record high of 123 million accounts. Furthermore, we will continue to monitor management's ability to improve game development, streamline project management, and control costs, as Sony has already begun to implement structural reforms in its Game & Network Services segment. In its Pictures segment, Sony terminated its merger with India's Zee Entertainment, as closing conditions were not met within the set two-year window. Nevertheless, management believes India remains a promising market and will proactively explore opportunities to bolster its position in the country. We remain confident in Sony's ability to build on its industry leadership, and we feel the company's continued optimization of business operations, including its plan for a partial spinoff of its Financial Services business, positions the company to enhance long-term value.

BSD Analysis:
The manager maintains confidence in Sony despite the stock being a significant detractor and PlayStation 5 guidance cuts from 25 million to 21 million units. The investment thesis focuses on Sony's ability to monetize its large user base, with monthly active users reaching a record 123 million accounts, suggesting strong engagement despite hardware headwinds. Management's strategic pivot toward profitability over volume in the latter stages of the PS5 cycle demonstrates disciplined capital allocation. The manager is monitoring Sony's structural reforms in the Game & Network Services segment, including improvements in game development, project management, and cost control. While the terminated merger with India's Zee Entertainment was a setback, management's continued interest in the Indian market shows strategic vision for growth opportunities. The planned partial spinoff of the Financial Services business represents portfolio optimization that could unlock value and improve operational focus. Sony's diversified entertainment ecosystem across gaming, music, movies, and image sensors provides multiple revenue streams and cross-selling opportunities that support the manager's long-term bullish outlook.

Pitch Summary:
Adobe, a content creation and publishing software provider, was the leading detractor for the quarter. The company continues to benefit from its shift to a subscription model, with almost 95% of its record $19.4 billion in fiscal year 2023 revenue coming from subscriptions. Adobe also continues to invest in innovation that expands its addressable market. Nevertheless, investors seem concerned with some of the lower-cost alternatives entering the market, including Sora, an OpenAI platform that produces videos from text. While much attention has also been placed on Adobe's Firefly, a generative AI service that has already produced more than 6.5 billion images since its launch in March 2023, we will take our time to understand Adobe's AI monetization strategy. In the meantime, we continue to believe that the combination of Express, Firefly, Creative Cloud, Acrobat, and Experience Cloud provides a unique solution to address all the content and data needs of clients and their management of the customer experience. In addition to innovation, Adobe continues to generate and return cash to shareholders, exemplified most recently by its new $25 billion stock repurchase program.

BSD Analysis:
The manager maintains a bullish stance on Adobe despite the stock being a leading detractor during the quarter. The investment thesis centers on Adobe's successful transition to a subscription model, which now generates 95% of its $19.4 billion in annual revenue, providing predictable recurring cash flows. The manager acknowledges competitive pressures from lower-cost alternatives like OpenAI's Sora platform but emphasizes Adobe's comprehensive ecosystem advantage through its integrated suite of Express, Firefly, Creative Cloud, Acrobat, and Experience Cloud products. Adobe's generative AI service Firefly has demonstrated strong adoption with over 6.5 billion images produced since launch, though the manager is taking a measured approach to understanding the AI monetization strategy. The company's strong capital allocation is evidenced by a new $25 billion share repurchase program, demonstrating management's confidence in the business and commitment to shareholder returns. The manager views Adobe's innovation investments as expanding the addressable market while the integrated platform creates switching costs and competitive moats.

Pitch Summary:
PowerSchool (PWSC), a leading provider of cloud-based software for K-12 education in North America, was added to the portfolio. Overall, we believe the company stands to benefit from the growing demand for digital education solutions, an increased need for efficiency in school operations, and a favorable funding environment. Moreover, we believe the company's ability to innovate and adapt to the evolving needs of the education sector while expanding its capabilities and solutions should result in up-sell opportunities that can further create value for their customers and shareholders.

BSD Analysis:
The fund initiated a new position in PowerSchool based on favorable secular trends in educational technology and the company's market-leading position in K-12 software solutions. The investment thesis is built on multiple growth drivers, including accelerating demand for digital education solutions, schools' increasing focus on operational efficiency, and a supportive funding environment for educational technology investments. PowerSchool's dominant market position in student information systems provides a strong foundation for cross-selling additional software modules and services. The fund emphasizes the company's innovation capabilities and ability to adapt to evolving educational needs, which should drive product development and market expansion opportunities. The up-sell potential from existing customers represents a significant value creation opportunity, as schools typically expand their software usage over time once they adopt a platform. PowerSchool's cloud-based delivery model provides recurring revenue visibility and scalability advantages. The combination of market leadership, secular growth trends, and expansion opportunities within the existing customer base creates multiple avenues for value creation and positions the company for sustained growth in the education technology sector.

Pitch Summary:
A developer and manufacturer of point-of-care and near-patient diagnostic solutions, declined during the period after delivering results that were below investor expectations. We maintain our position, as we believe the company's recent efforts to broaden its product portfolio and diversify the business away from respiratory illness should result in less volatile operating results and create additional value for shareholders.

BSD Analysis:
The fund maintains a bullish stance on QuidelOrtho despite disappointing quarterly results that fell short of investor expectations. The investment thesis centers on the company's strategic transformation to diversify beyond respiratory diagnostics, which historically created volatile earnings patterns due to seasonal and pandemic-driven demand fluctuations. The fund believes QuidelOrtho's efforts to broaden its product portfolio across multiple diagnostic categories will create a more stable and predictable revenue base. This diversification strategy should reduce the company's dependence on respiratory illness testing, which experienced significant volatility during and after the COVID-19 pandemic. The fund appears confident that the product portfolio expansion will drive more consistent operating results and improve the overall quality of earnings. By reducing earnings volatility through diversification, QuidelOrtho should command higher valuation multiples and create additional shareholder value. The fund's decision to maintain the position through near-term disappointment reflects conviction in the long-term strategic direction and belief that the market is undervaluing the company's transformation efforts.

Pitch Summary:
A Colorado-based health care services company that provides non-emergency medical transportation (NEMT), homecare services, and remote monitoring to Medicaid and Medicare populations declined during the period amid working capital challenges and a slower-than-expected start to the year. We continue to maintain a position despite near-term challenges as we believe the longer-term fundamental outlook for the business remains attractive and that an upcoming monetization event should alleviate investor concerns regarding the company's credit profile.

BSD Analysis:
The fund maintains a contrarian bullish position on ModivCare despite near-term operational headwinds and stock underperformance. The company faced working capital challenges and a disappointing start to 2024, which pressured shares during the quarter. However, the fund's investment thesis focuses on the longer-term fundamental attractiveness of the healthcare services business, particularly given the growing demand for non-emergency medical transportation and remote monitoring services among aging Medicaid and Medicare populations. The fund appears confident that current challenges are temporary and that the underlying business model remains sound. A key catalyst mentioned is an upcoming monetization event that should address investor concerns about the company's credit profile and financial flexibility. This suggests potential asset sales, refinancing, or other corporate actions that could unlock value and improve the balance sheet. The fund's decision to maintain the position through volatility indicates strong conviction in the long-term value proposition and belief that current market pricing does not reflect the business's fundamental worth.

Pitch Summary:
A global manufacturer and distributor of electricity, water and gas meters and advanced meter systems, benefited from continued momentum in the operational outlook for its business, a growing backlog of higher margin business, and an easing of supply chain conditions. We maintain a position, as we believe the company remains well-positioned to benefit from power grid modernization efforts, which should continue to drive demand for the company's smart metering and grid monitoring solutions. Additionally, we believe an acceleration in the company's services and SaaS-based revenue will improve the earnings and margin profile of the business moving forward.

BSD Analysis:
The fund maintains a constructive view on Itron based on improving operational fundamentals and favorable industry positioning. The company is experiencing positive momentum with a growing backlog of higher-margin business and easing supply chain pressures, which should support near-term execution. The core investment thesis revolves around Itron's strategic positioning to benefit from power grid modernization initiatives, a multi-year infrastructure upgrade cycle driven by aging utility infrastructure and smart grid adoption. The fund emphasizes the company's transition toward higher-value services and SaaS-based revenue streams, which should drive margin expansion and improve earnings quality. This business model evolution from hardware sales to recurring software and services revenue provides more predictable cash flows and higher valuations. The combination of infrastructure spending tailwinds and business model transformation positions Itron for sustained growth. The fund's confidence in maintaining the position reflects belief in the company's ability to capitalize on grid modernization trends while successfully executing its margin improvement strategy.

Pitch Summary:
A leading manufacturer of residential building products, primarily focused on wood-alternative decking, railing, and trim, benefited from strong fundamental performance. In its latest earnings release, the company reported favorable business trends, expanding margins, and strong sales. We maintain our position, as we believe strong secular demand for alternative, sustainably sourced building products, along with company-specific margin improvements, should benefit shareholders in periods to come.

BSD Analysis:
The fund maintains a bullish stance on AZEK based on strong operational execution and favorable secular trends. The company delivered impressive quarterly results with expanding margins and robust sales growth, demonstrating effective execution of its business model. The investment thesis centers on the growing demand for sustainable, wood-alternative building products, which positions AZEK to benefit from long-term environmental and durability trends in residential construction. The fund highlights company-specific margin improvements as an additional value driver beyond the favorable industry dynamics. AZEK's focus on recycled materials and sustainable sourcing aligns with increasing consumer and regulatory preferences for environmentally responsible building products. The combination of secular tailwinds and operational improvements suggests multiple expansion potential. The fund's decision to maintain the position indicates confidence in the company's ability to continue capitalizing on these favorable trends while executing margin enhancement initiatives.

Pitch Summary:
TotalEnergies S.E. Headquartered in Paris, France, TotalEnergies was founded in 1924 and is one of the world's largest energy companies. The company operates in more than 130 countries and spans the entire energy value chain, producing and marketing oil and biofuels, liquid natural gas (LNG), renewables, and electricity. To meet the challenge of the energy transition and still ensure reliable energy in the short term, TotalEnergies has implemented a two-pillar strategy: On one end, the company continues to develop low-cost exploration and production projects, with LNG playing a vital role in the transition; on the other, it has been building its Integrated Power segment through investments in renewable power. As such, management plans to invest over 30% of total spending in low-carbon businesses and rank among the world's top five providers of solar and wind energy by 2030. To emphasize this ambition, the company changed its name from Total to TotalEnergies in 2021. High-Quality Business Some of the quality characteristics we have identified for TotalEnergies include: • Low cost and geographically diversified portfolio of upstream assets • Commitment to research and development focused on clean energy sources (e.g., LNG, solar, wind) • Well-diversified business mix provides balance during periods of hydrocarbon price volatility • Experienced management team focused on cost discipline and free cash flow generation Attractive Valuation Using our estimates of normalized earnings, we believe TotalEnergies' current stock price is offered at a discount to the company's intrinsic value. Compelling Catalysts Catalysts we have identified for TotalEnergies, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include: • Uniquely positioned to benefit from increased global demand for clean energy • Increased free cash flow and ROIC, as traditional exploration and production assets are used to fund short-cycle projects and as profitability in Integrated Power increases over the coming years • Further ability of TotalEnergies' LNG trading business to capture volatility in markets given the company's global footprint and vast portfolio • Continued divestment of non-core assets as the company focuses on advantaged, low-cost, and low-emission projects

BSD Analysis:
Aristotle Capital presents TotalEnergies as a uniquely positioned energy transition play, combining traditional oil and gas cash generation with aggressive renewable energy expansion. The fund emphasizes the company's two-pillar strategy of maintaining low-cost hydrocarbon production while allocating over 30% of capital expenditures to low-carbon businesses, targeting top-five global status in solar and wind by 2030. TotalEnergies' integrated business model spanning 130+ countries provides geographic diversification and operational flexibility during commodity price volatility. The LNG trading business represents a particular competitive advantage, leveraging the company's global footprint to capture market volatility and serve as a bridge fuel during energy transition. Management's focus on cost discipline and free cash flow generation supports the capital-intensive renewable investments while maintaining shareholder returns. Key catalysts include rising global clean energy demand, improving returns on invested capital as renewable projects mature, and strategic asset optimization through non-core divestitures. Aristotle views the current valuation as attractive relative to normalized earnings, suggesting the market undervalues the company's transformation into a diversified energy leader positioned for both near-term cash generation and long-term energy transition benefits.

Pitch Summary:
Lowe's Companies, Inc. Based in North Carolina, and with a history dating back to 1921, Lowe's Companies is the world's second-largest home improvement retailer (after Home Depot). The company operates more than 1,700 stores in the United States that offer a wide variety of products to enhance a home, from plants for the garden and house décor to hardware and appliances. Often located in suburban areas, Lowe's stores primarily serve retail "do-it-yourself" customers (about 75% of revenue) and sell products that are used for home maintenance and repair (over 60% of revenue). This contrasts with Home Depot, whose stores have a higher presence in metropolitan areas and cater more to professional customers. We had previously been investors in Home Depot. Over much of the past decade Home Depot had, in our opinion, executed better than Lowe's—expanding its presence with large professional customers and increasing its store productivity. However, with Lowe's hiring of former Home Depot executive Marvin Ellison in 2018, we believe Lowe's has started the process of closing the gap to better compete with its nearest rival. High-Quality Business Some of the quality characteristics we have identified for Lowe's include: • Economies of scale and Lowe's extensive store network allow for cost and procurement advantages—i.e., significant bargaining power with vendors and suppliers. • Difficult-to-replicate knowledge and expertise of Lowe's associates create a differentiated experience for customers, contributing to the company's approximately 10% share of the highly fragmented home improvement market. • Home improvement is one of the few retailing businesses that hasn't been disrupted in a large way by online competition (namely Amazon), which should continue given products are either costly to ship or needed immediately (i.e., replacing a broken tool or buying more material necessary to complete a project). • Strong brand awareness and the ability to serve as a one-stop shop for any home improvement need creates a positive flywheel effect, promoting customer loyalty and in turn driving further scale benefits. Attractive Valuation We believe shares of Lowe's are attractively valued given our estimates of normalized earnings. More specifically, our analysis indicates that Lowe's opportunity to gain market share and enhance profitability is underappreciated by the market. Compelling Catalysts Catalysts we have identified for Lowe's, which we believe will propel the business forward over our three- to five-year investment horizon include: • Market share gains through improvements to Lowe's supply chains, upgraded IT systems, and enhanced omnichannel sales, which include "buy online, pick up in store" purchases • Increased share gains with professionals due to the company's renewed focus on offering products and services for this larger-scale customer base (Lowe's estimates a professional makes about 70 store visits per year versus about four per year for a "do-it-yourself" customer) • Increased profitability and sales per square foot of retail space, as the company has shifted its focus from geographical expansion toward improving store efficiency

BSD Analysis:
Aristotle Capital presents a compelling bull case for Lowe's Companies, positioning it as an undervalued turnaround story in home improvement retail. The fund highlights CEO Marvin Ellison's transformative leadership since 2018, leveraging his Home Depot experience to close the competitive gap with the market leader. The investment thesis centers on Lowe's structural advantages including economies of scale, Amazon-resistant business model, and strong brand moat in a fragmented $400+ billion market. Key catalysts include market share gains through supply chain optimization, enhanced omnichannel capabilities, and increased penetration with professional customers who visit stores 17x more frequently than DIY customers. The fund believes Lowe's operational improvements and focus on store productivity over geographic expansion will drive margin expansion and higher returns on invested capital. Management's strategic pivot toward serving professionals represents a significant revenue opportunity given their higher transaction frequency and basket size. Aristotle views current valuation as attractive relative to normalized earnings potential, suggesting the market underappreciates the company's transformation and profit enhancement opportunities.

Pitch Summary:
Today, investors are again concerned. They believe there is increased competition from Chinese automakers who are supported by a protectionist government. They worry about product-level margins after announced price cuts. They are skeptical about whether the company can achieve Full Self Driving (FSD) and wonder about the feasibility of Tesla's Robotaxi. And they debate if a mass appeal vehicle can be produced at scale and profitably. Just like in late 2022, we believe investors' concerns are overblown. Electric vehicle (EV) competition will always be present. The Chinese automakers make a good, value product. But we believe Tesla's offering is superior and will garner a meaningful market share within China. We also believe the Chinese OEM advantage will be minimized outside of its home market because of tariffs. We are already seeing traditional internal combustion engine (ICE) manufacturers scrap their EV plans as plant conversion is too costly and their technology is inferior. They have instead attempted to fight for market share in the outdated ICE category. We also believe a lower cost Tesla product will eventually be introduced and gain wide acceptance. Timing is uncertain, however, as the company attempts to develop both the new vehicle and fully autonomous vehicles in parallel. We have experienced Tesla's FSD versions and believe they are close to achieving success. While the combination of these two feats may extend the timeline, we believe it meaningfully improves profitability and solidifies its competitive advantage. Additionally, other ongoing projects within Tesla (e.g., battery packs, energy storage, humanoids, database, software, AI compute, and distributed inference) make the company a lot more dynamic than when we first invested in 2014. We initiated our investment in Tesla in February 2014 at a split-adjusted price of $11.88 per share. Over the subsequent two years, we acquired 16.65 million shares at a split-adjusted price of $14.22 per share. At the time of our final purchase in February 2016, the stock represented 9.6% of the Fund's total investments. Tesla produced 48,685 vehicles in 2014, the year of our initial purchase. In 2023, Tesla produced 1.85 million cars! Its production and profits per vehicle have since also experienced remarkable growth. Tesla has evolved from manufacturing a high-performance EV for the wealthy to a company producing affordable luxury for the mass market. Tesla's software, electrification technology, and manufacturing expertise have transformed an important industry. Investors have rewarded these efforts. Tesla's stock price increased about 20 times to $248.48 per share in the decade following our purchases. Because its share price had increased so substantially and it had become a large percentage of the Fund's assets under management, three years ago we sold approximately 4.5 million Tesla shares. The weighted average sale price was $218.39 per share. Those shares represented 27% of the Fund's original holdings. Tesla's business has since about tripled in size! Its recent share price is now about 50% lower! We remain focused on Tesla's ability to achieve its mission of accelerating the world's transition to sustainable energy rather than on how much it earns in any given quarter. After extensive and frequent meetings with Tesla executives and engineers, manufacturing and technology consultants, and competitors, we have increased confidence in Tesla's ability to accomplish its mission.

BSD Analysis:
Baron Capital maintains a strong bullish stance on Tesla despite the stock's 29.3% decline in Q1 2024, which detracted 13.41% from the fund's performance. The managers dismiss current investor concerns about Chinese competition, margin pressure from price cuts, and FSD/Robotaxi feasibility as overblown, drawing parallels to similar worries in late 2022 that proved unfounded. They believe Tesla's superior technology will maintain meaningful market share in China while tariffs will limit Chinese OEM advantages globally. The fund highlights Tesla's remarkable transformation from producing 48,685 vehicles in 2014 to 1.85 million in 2023, representing a 38x increase in production volume. Baron emphasizes Tesla's expanding ecosystem beyond automotive, including energy storage, AI compute, humanoids, and software capabilities that enhance competitive moats. The managers express confidence in Tesla's near-term FSD breakthrough and eventual mass-market vehicle launch, though timing remains uncertain. Their conviction stems from extensive due diligence including meetings with Tesla executives, engineers, and industry consultants, reinforcing their long-term thesis focused on sustainable energy transition rather than quarterly earnings volatility.

Pitch Summary:
Exponent, Inc. is a leading engineering & scientific consulting firm. Around half of the business is reactive work where the company gets brought in to determine the root cause of an event such as car recalls, oil spills, and wildfires; and the remainder is proactive work where clients engage Exponent before an issue arises to help with risk management and product design. Exponent is a business that we have admired from the sidelines for a while, and we finally saw an opportunity to initiate a position at an attractive price due to a rare pause in annual growth, which we believe to be temporary. Exponent has a strong competitive position. The company has been around for over 50 years and has developed a well-known brand; it is the go-to consultant in the engineering & scientific space. Additionally, Exponent has a unique combination of scale and premium service orientation. The company has more than 1,000 consulting staff (including 740 doctoral-level professionals) across 90 technical disciplines in over 30 offices around the globe. We estimate that even the biggest competitor is only 15% to 20% of Exponent's size. No competitors can match the capabilities that Exponent brings to the table, especially as it relates to multi-disciplinary and highly complex matters. Despite the near-term growth pause, we believe Exponent is well positioned to drive high single-digit or greater revenue growth over time through a combination of 6% to 8% net headcount growth, low/mid-70s utilization, and 2% to 4% realized price increases. From a market demand perspective, the business is driven by several secular trends, including an increasing focus on safety, health, and the environment, a faster pace of innovation, higher complexity of new technologies, amplified brand risk when product launches go wrong, and an increased risk of litigation. Exponent is not immune from the macro, as evidenced by the recent softness in consumer electronics, but its business model has held up well across economic cycles and key demand drivers are not impacted as much by the economy compared to most other consulting firms. Exponent has a robust financial model. Given its superior capabilities, the company is a premium priced provider. Bill rates for each consultant are set at the beginning of the year, and the company does not discount for any client. This drives strong adjusted EBITDA margins in the high-20s to low-30s and free-cash-flow generation, which the company deploys for internal investments and capital allocation (both dividends and share repurchase). The company also has a strong balance sheet with ample cash and no debt. We believe that Exponent is a high-quality business and will be a solid earnings compounder, which should drive good returns for the stock over a multi-year period.

BSD Analysis:
Baron initiated a position in Exponent after admiring the company from the sidelines, taking advantage of a temporary growth pause to enter at an attractive valuation. The manager emphasizes Exponent's dominant market position with over 50 years of brand building and unmatched scale in engineering consulting. With 1,000+ consultants including 740 PhD-level professionals across 90 technical disciplines, Exponent's largest competitor is only 15-20% of its size, creating a significant competitive moat. The investment thesis is built on secular growth drivers including increased focus on safety/environmental concerns, faster innovation cycles, and rising litigation risk. Baron projects high single-digit revenue growth through 6-8% headcount expansion, mid-70s utilization rates, and 2-4% annual price increases. The premium pricing model generates high-20s to low-30s EBITDA margins with strong free cash flow generation. Despite near-term macro headwinds in consumer electronics, the business model has proven resilient across cycles. The combination of market leadership, secular tailwinds, and strong financial metrics supports Baron's view of Exponent as a quality earnings compounder.

Pitch Summary:
We 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 serviceable addressable market, spanning 28,000 firms that collectively spend about $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 raising prices. 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 increase 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. In February, Intapp reported a solid fourth quarter with 23% revenue growth and 7% operating margins – both above consensus estimates – and management raised its full-year guidance for software-as-a-service revenue, operating margin, and earnings per share. However, shares sold off during the quarter due to some concerns about near-term budgetary headwinds in the investment banking customer segment and due to one of Intapp's pre-IPO investors exiting most of its position in early March. We view both issues as short term and opportunistically purchased additional shares on weakness.

BSD Analysis:
Baron initiated a position in Intapp, viewing it as a dominant software provider for professional services with strong competitive moats. The manager highlights Intapp's proprietary graph data model and AI capabilities as key differentiators in a $15 billion addressable market. With 96 of the top 100 law firms as customers and 20%+ annual recurring revenue growth over five years, the company demonstrates strong market penetration and customer retention. Management sees significant expansion opportunities within existing accounts, with the top 200 customers representing a $1.3 billion wallet opportunity. The investment thesis centers on margin expansion potential to 20%+ through operating leverage and cloud mix shift, combined with mid-teens account expansion rates. Despite recent share price weakness from investment banking headwinds and insider selling, Baron views these as temporary issues and added to the position opportunistically. The combination of secular growth in professional services software demand and Intapp's market-leading position supports the long-term bull case.

Pitch Summary:
Another new addition was Spotify Technology S.A., a leading global digital music service, offering on-demand audio streaming through paid premium subscriptions and an ad-supported free option. Spotify was among the originators of paid streaming music after the downloads/Napster era, with the Spotify app launching broadly in the early 2010s. Since then, streaming music has grown at a 20%-plus CAGR, and Spotify has been the leading streaming music service both in the U.S. and globally, with more than 600 million monthly average users. We believe that Spotify offers a compelling user experience, which includes algorithmic recommendations and podcasts. While we have monitored Spotify for some time because of its product leadership and large market opportunity, we believe the last few months have signaled a meaningful positive inflection point for the company. First, Spotify has continued to show that its market is far from penetrated – subscriber net adds accelerated in 2023, even as the product has been widely available for years, thanks to targeted marketing in various countries and new product features. Next, Spotify's gross margin profile continues to improve thanks to the impact of its artist promotions marketplace, growth in its advertising business, and improved profitability in its podcast offerings. In addition, management has recently become much more focused on operating discipline, with 2024 expected to be Spotify's first meaningfully profitable year after operating losses in 2021 and 2022. This has entailed material staff layoffs, restructuring the podcast division, and hiring a new operationally focused CFO. Furthermore, Spotify increased its pricing structure while seeing minimal customer loss, demonstrating the pricing power in its product and the broader streaming music industry. Finally, Spotify has continued to innovate its product roadmap, introducing audiobooks and features like AI DJ that differentiate it from other music streaming providers. We believe that Spotify has the potential to reach more than 1 billion monthly active users, as its global market share increases and music listening habits mature internationally, and we expect its profitability to continue to improve.

BSD Analysis:
Baron added Spotify as a new position, citing a meaningful positive inflection point for the global streaming music leader. With over 600 million monthly active users, Spotify dominates a market that has grown at 20%+ CAGR since the early 2010s, yet subscriber net adds actually accelerated in 2023 despite the platform's maturity. The manager emphasizes improving unit economics driven by the artist promotions marketplace, advertising growth, and enhanced podcast profitability. A key catalyst is management's newfound focus on operational discipline, with 2024 expected to mark Spotify's first meaningfully profitable year following restructuring efforts and hiring an operationally-focused CFO. The company demonstrated pricing power by raising subscription fees with minimal churn, validating the strength of its product offering. Product innovation continues with audiobooks and AI DJ features that differentiate Spotify from competitors. Baron sees potential for the user base to reach 1 billion as global market share expands and international listening habits mature, with continued profitability improvement expected.

Pitch Summary:
We initiated an investment in Procore Technologies, Inc. Founded in 2002, Procore provides cloud-based construction management software that helps general contractors, subcontractors, and asset owners manage every step of the construction process. Procore's product suite includes project execution (storing and updating blueprints, designs, work orders, and project schedules in a single system of record), pre-construction (managing bids, permitting, and approvals), workforce management (scheduling worker hours and recording safety compliance), financial management (budgeting and invoicing), and data analytics. Together these products help contractors execute projects more efficiently, plan more accurately, avoid costly rework, improve worker safety, and generate better margins. This has led to very low customer churn. Procore serves a large and growing addressable market – annual construction volume exceeds $2 trillion in the U.S. alone – that is still in the early stages of digitization and technology adoption. The company has leading market share in the sector, with more than 16,000 construction firms and asset owners using its software to manage billions of dollars of annual project volume. Yet, Procore has penetrated just 12% of U.S. construction volume and 2% of international volume. We believe the company has several competitive advantages that will drive further share gains and revenue growth. First, Procore is the only cloud-native technology vendor that addresses all stages of the project life cycle with a single, integrated interface and data model. Second, Procore was the first vendor to price its platform using a take-rate model, charging a percentage fee against its customers' total construction volume. Compared to seat-based license models offered by many competitors, this approach has encouraged far more industry practitioners to trial and use Procore products. As of last year, more than 500,000 collaborator companies were interacting with its product, driving a strong pipeline for new customer wins. We see a long runway for growth through new customer additions and expanded usage within existing accounts. Recent product innovations like Procore Pay (managing payments for the various vendors and subcontractors on a given project) and geospatial mapping (for larger civil engineering projects) should improve the company's prospects. Procore is cash flow positive today and has been increasing its margins meaningfully during the past two years. We think the business can continue to grow at a healthy rate while further expanding free-cash-flow margins in excess of 20%, as it benefits from greater market share, higher take rates, and operating leverage. We believe this should result in good earnings growth and bodes well for the stock long term.

BSD Analysis:
Baron initiated a position in Procore Technologies, viewing it as a compelling play on the digitization of the massive construction industry. The manager highlights Procore's comprehensive cloud-based platform that addresses the entire construction project lifecycle, from pre-construction through completion. With over $2 trillion in annual U.S. construction volume and only 12% penetration domestically (2% internationally), the addressable market opportunity remains substantial. Procore's competitive advantages include being the only cloud-native vendor offering an integrated solution across all project stages and pioneering a take-rate pricing model that encourages broader adoption versus traditional seat-based licensing. The company's 16,000+ customers manage billions in project volume, yet the low market penetration suggests significant runway for growth. Recent product innovations like Procore Pay and geospatial mapping should enhance customer value and retention. With the business already cash flow positive and expanding margins toward 20%+, Baron expects continued healthy growth driven by market share gains, higher take rates, and operating leverage.