Investment Pitches

Pitch Summary:
During the quarter we added a new major expert market position, Exco Resources (expert: EXCE). We have followed the company for a number of years and previously owned shares in 2021. Exco is an independent oil and gas company focused on onshore US shale development and production. Their primary areas of focus are Haynesville and Bossier shale in east Texas and north Louisiana, Eagle Ford shale in south Texas, and Marcellus and Utica shales in Appalachia. Exco went through a restructuring and emerged from Chapter 11 in 2019. Exco has performed very well since then (see stock chart to the right). Production is nearly 90% natural gas. At the end of 2020 Exco had just over $560 million of equity ($11 per share based on 51 million shares). Fast forward to September 2025 and Exco had equity of nearly $1.1 billion ($23 per share based on roughly 46 million shares). Mark-to- market gains and losses on derivatives (hedging) make their earnings swing wildly. We ignore most of that and focus on operating income and cash flow. What caught our attention was their increased production the last three quarters - from 22 Bcfe (billion cubic feet equivalent) in the March quarter, rising to 27 Bcfe in June, and then to nearly 36 Bcfe in September. Additionally, in December they announced a $430 million capex budget for 2026 compared to a ~$185 million budget for 2025. We don’t think you have to be an expert on future natural gas prices or well flow rates to like the setup. With production set to increase and having a proven track record of hedging successfully, we are quite optimistic. If natural gas goes to $2 per mcf, Exco is near breakeven, but will have about $4 per share in cash flow. Assuming a 10% increase in production and pricing of $3 per mcf we think they can earn about $3 per share (and have $7 per share in cash flow), and at $4 per mcf they would push $6 per share (and have total cash flow of about $10 per share) in comparison to its current $19 per share price. As we write this, current two year strip pricing averages about $3.75 per mcf. Hopefully we are underestimating their potential production increase. Lastly as of the end of 2024 reserves were 28 times production. Admittedly, 75% of reserves were undeveloped, but that is still quite impressive. Their PV-10, which is the estimated present value of Exco’s future after tax cash flows discounted back at a 10% rate, was nearly $40 per share. Natural gas pricing outlook is more favorable today than it was at the end of 2024. Obviously, they would be an attractive acquisition candidate.

BSD Analysis:
EXCO Resources is effectively a legacy energy equity defined by restructuring history rather than operating momentum. Asset value and creditor outcomes dominate any remaining equity discussion. Commodity exposure exists, but optionality is constrained by capital structure realities. Investors hoping for an operating turnaround are usually late to the story. Residual value depends on asset monetization and legal outcomes, not drilling success. This is not a cyclical recovery play. It’s a capital-structure cleanup. Speculation, not investment.

Pitch Summary:
Federal Life Group FLFG announced that its 90% owned parent, which we believe is Bain, was forcing out shareholders via a short-form merger at $15.25 per share. We had been happily building a position at $9 to $9.50 per share and are disappointed that we cannot continue to do so. The company did not report publicly or privately; however, its primary subsidiary was required to report results to insurance regulators. The subsidiary was showing impressive growth and earnings while still investing heavily in the business and in a Bermuda- based reinsurer. In the first nine months of 2025 their Federal Life Insurance Co. subsidiary reported over $20 million in profits versus just $8 million in the first nine months of 2024.

BSD Analysis:
Federal Life is a small insurance operation whose value is tied to balance-sheet management rather than growth. The business depends on spread income, reserving discipline, and regulatory compliance, not sales momentum. Scale disadvantages limit operating leverage, but simplicity reduces blow-up risk. Investors ignore names like this until capital events force attention. Interest-rate normalization improves economics but also tests asset-liability matching. Transparency matters more here than upside narratives. This is insurance math at a micro scale. Returns hinge on patience and solvency, not excitement.

Pitch Summary:
During the quarter we continued to increase our position in PHI Group (expert: PHIG). As we noted above, it is nearly an 8% position. We think it is worth two to three times the most recent trading price. PHI Group is a leading provider of helicopter flight services for the global oil and gas exploration and production industry and the air medical industry. The Company emerged from bankruptcy protection in September 2019. The bankruptcy was primarily due to excessive debt rather than poor financial performance. PHI has subsequently focused on improving its margins and prioritizing a conservative balance sheet. The Company had filed an S-1 registration statement but withdrew it in May of this year. Oaktree and First Pacific Advisors each were listed as owning approximately 18% of the common shares.

BSD Analysis:
PHI Group is a speculative holding company where narrative has historically run far ahead of execution. The business model depends on asset monetization and deal flow rather than operating cash generation. Investors should treat it as optionality, not a compounder. Transparency and liquidity are persistent concerns that cap institutional interest. Any upside hinges on execution finally matching ambition. The stock trades more on sentiment than fundamentals. This is not a balance-sheet story — it’s a credibility story. High risk, asymmetric payoff, and zero margin for disappointment.

Pitch Summary:
As we noted in our last two letters, First IC had agreed to be acquired by MetroCity Bankshares (nasdaq: MCBS) for cash and stock. The deal closed in early December; however, we are still waiting on both the cash and stock proceeds. We are told the delay is due to the shares we purchased having been from certificate sellers and the matching/reconciliation process is manual. It should be completed in the next week or so. Our basis on First IC was $6.70 per share. With purchases mostly in 2023. We received two $1 per share dividends and expected proceeds are roughly $22 per share. We are very pleased with the outcome, even if the selling price of less than ten times earnings seemed a bit light to us.

BSD Analysis:
MetroCity is a niche regional bank that built its franchise by serving underserved immigrant and small-business communities with discipline rather than leverage. Its deposit base is relationship-driven, not rate-chasing, which matters enormously when funding costs spike. Credit quality has historically been conservative, even if growth optics look uneven. Investors lump MetroCity in with generic regional banks and miss the differentiated customer base. Loan growth is selective, not reckless, which limits upside in boom times but protects capital in stress. The balance sheet is simple, not engineered. As weaker competitors retrench, niche banks with loyal deposits quietly gain share. This is relationship banking in an era that forgot relationships still matter.

Pitch Summary:
ServiceNow (NOW) posted mid-teens losses during the quarter as investors reassessed valuation amid federal government business headwinds and concerns over capital allocation. The company announced a $7.75 billion all-cash acquisition of cybersecurity firm Armis, its largest deal ever, raising questions about strategic focus. Despite this, ServiceNow continues to transform into an AI-powered enterprise platform and targets $1 billion in annual AI contract value.

BSD Analysis:
ServiceNow is workflow infrastructure for large enterprises where experimentation is not tolerated. Once embedded, it expands horizontally across departments without needing new logos. Growth remains strong because digital process automation is still early, not saturated. Switching costs are operational and cultural, not contractual, which is even stronger. AI features monetize best when layered onto workflows customers already trust. Investors worry about valuation and saturation prematurely. Margin expansion follows scale and platform leverage. ServiceNow sells efficiency in organizations that can’t afford inefficiency. This is enterprise gravity disguised as SaaS.

Pitch Summary:
Micron Technology (MU) surged during the quarter as the memory-chip leader received validation of insatiable AI demand from customers. Management announced that the company’s entire 2026 production of advanced memory chips had already sold out, with pricing and volume agreements secured through the following year. Micron raised its total addressable market estimate for advanced memory to $100 billion by 2028 and announced plans to exit lower-margin consumer segments in favor of strategic AI accounts. Shares more than tripled during 2025.

BSD Analysis:
Micron is memory cyclicality distilled into a single equity. Pricing collapses create despair, then reverse violently when supply tightens. AI and data center demand change the slope of recovery, not the volatility. Industry consolidation improved supply discipline meaningfully. Investors anchor to past busts and miss structural improvements. Technology leadership matters more than sheer capacity. Operating leverage is extreme in both directions. This is cycle math, not speculation. Patience gets paid here.

Pitch Summary:
Shares of Taiwan Semiconductor Manufacturing (TSM) returned strong double digits during the quarter, as overwhelming AI chip demand from key customers including NVIDIA and Apple validated the company’s central role in the AI supply chain. TSM reported bullish quarterly results and raised forward growth expectations, citing exponential growth in AI token consumption that requires continuous capacity expansion. At quarter-end, the company announced production had begun for its next-generation two-nanometer technology. Shares of TSM rose over 50% during 2025.

BSD Analysis:
TSMC is the most critical manufacturer in the global technology supply chain. Advanced chips for AI, high-performance computing, and mobile all depend on its fabs. Capex is enormous, but competitors can’t match yield, scale, or trust. Customers design chips around TSMC’s process nodes, not alternatives. Geopolitics dominate headlines but ensure strategic backing. Margins cycle, dominance does not. Investors debate valuation endlessly. The world’s digital economy runs through TSMC. This is monopoly manufacturing with geopolitical noise.

Pitch Summary:
Alphabet (GOOGL) delivered exceptional returns during the fourth quarter of 2025, with shares surging over 25% as the company reclaimed AI leadership through its Gemini 3 product family and reported its first-ever quarter with over $100 billion in revenue. The November launch of Gemini 3 fundamentally shifted investor perception from viewing Google as an AI follower to recognizing it as an industry leader. Strong financial performance bolstered confidence, alongside evidence of AI-driven cloud demand from enterprise customers, including major contract wins from the Pentagon and AI pioneer Anthropic, which committed to using up to one million of Alphabet’s chips for AI development. Alphabet shares increased over 60% during 2025.

BSD Analysis:
Alphabet remains the most powerful attention-monetization engine ever built, even as every new tech cycle claims it’s about to be disrupted. Search continues to print extraordinary cash flow because intent, not interfaces, is what advertisers pay for. YouTube has evolved into a multi-engine platform spanning ads, subscriptions, and creators. AI spending is heavy, but Alphabet owns the data, distribution, and infrastructure to make it productive. Cloud margins are quietly improving, adding a second profit pillar. Regulatory pressure is constant yet hasn’t meaningfully changed user behavior. Investors underestimate adaptation speed. Alphabet funds reinvention internally without balance-sheet stress. This is dominance with optionality, priced like it’s fragile.

Pitch Summary:
THRY reported deteriorating organic SaaS metrics that raised concerns over the company’s long-term outlook. Customer growth and retention trends weakened during the quarter. Management commentary suggested rising competitive pressure and slower demand from SMB clients. These factors led to multiple compression and negative sentiment.

BSD Analysis:
Thryv sells operating software to small businesses that don’t have IT departments or patience for complexity. Once embedded, it becomes the system of record for billing, scheduling, and customer management. Churn risk exists, but switching costs rise quickly as workflows consolidate. Growth has moderated as small businesses feel macro pressure. Investors assume SMB software is inherently fragile. Yet owners value tools that save time more than features that look good on demos. Pricing power improves with bundled services. Operating leverage is real once cohorts mature. This is vertical SaaS for the unsexy economy — and that’s the point.

Pitch Summary:
ARQ shares fell after third-quarter results disappointed. Ongoing delays in granular activated carbon (GAC) production ramp-up led to downward revisions to guidance. Management acknowledged operational challenges that pushed out expected revenue contributions. Investor confidence weakened as timelines slipped and execution risk increased.

BSD Analysis:
Arq is a transition story moving from legacy activated carbon into cleaner, specialty materials. Execution risk is high, and the market prices it accordingly. Demand for environmental solutions provides real relevance, not just ESG marketing. Near-term financials remain messy as the business reshapes itself. Investors assume permanent dysfunction too quickly. If new products scale, margin structure improves materially. Capital discipline will decide the outcome. This is not a compounder yet. It’s industrial optionality with asymmetric payoff.

Pitch Summary:
XMTR reported another better-than-expected quarter where marketplace revenue accelerated to 31%. Enterprise growth remained above 40%, reflecting strong adoption among larger customers. Management cited improving take rates and expanding customer use cases. The platform continues to benefit from network effects as both buyers and suppliers increase engagement.

BSD Analysis:
Xometry is trying to build a two-sided marketplace for manufacturing capacity, which is harder than it looks and more valuable if it works. Its platform reduces friction for buyers while improving utilization for suppliers, a rare win-win in industrials. Growth slowed as customers scrutinized spend, testing the model. But supplier networks deepen with scale, improving economics over time. Investors fixate on losses and miss marketplace dynamics. Pricing power emerges when liquidity improves. Gross margins tell the real story, not EBITDA today. This is manufacturing infrastructure dressed like a tech stock. If liquidity wins, leverage follows.

Pitch Summary:
MEC’s increase was driven by the company’s strong third-quarter earnings release, which beat analyst expectations on both revenue and earnings. Results highlighted progress from the recent Accu-Fab acquisition, which increased the company’s exposure to data centers and critical power infrastructure. Management emphasized improving utilization and cross-selling opportunities from the acquisition. The integration has expanded MEC’s addressable market and margin profile.

BSD Analysis:
Mayville Engineering is a contract manufacturer that lives or dies on execution, not storytelling. Its customers outsource complexity and capacity, not just metal bending, which creates stickier relationships than investors assume. Earnings volatility reflects utilization swings, not irrelevance. Backlogs provide visibility that most small industrials would kill for. Investors reflexively discount contract manufacturers as commoditized. But integration, quality, and delivery reliability matter far more than headline pricing. Reshoring and infrastructure spending quietly support long-term demand. Operating leverage cuts hard in both directions when volumes move. This is industrial math with discipline, not a broken model.

Pitch Summary:
BELFB delivered a strong 4Q25 with sales up 45% year-over-year and higher-than-expected guidance. The performance reflected robust demand across all segments, particularly in the aerospace & defense and networking markets. Management commentary highlighted improving order visibility and favorable mix. The company benefited from exposure to structurally growing defense and connectivity end markets. Strong execution translated into operating leverage during the quarter.

BSD Analysis:
Bel Fuse supplies power, protection, and connectivity components into defense, industrial, and communications markets where reliability is non-negotiable. Its products are small-ticket but mission-critical, creating sticky customer relationships. Defense and aerospace exposure provides demand stability through cycles. Investors often overlook Bel Fuse due to its small-cap profile and limited float. Margins reflect engineering depth rather than volume scale. Customization and qualification processes raise switching costs materially. Capital discipline has improved earnings quality. This is niche industrial compounding without promotional noise. Complexity quietly pays here.

Pitch Summary:
We also initiated a position in Spotify which continues to execute at a high level in our opinion. Spotify’s business is a scaled two-sided network enjoying secular growth as streaming and smartphone proliferation are now a global norm. We believe music is the most under-monetized form of digital entertainment and as the largest streaming network in the world, Spotify serves more than 600 million active users, a majority of whom use the service with ad-supported content. A large and growing paying user base of more than 250 million regularly consume content from the platform. As an entertainment destination in most users’ pockets, we see continued engagement growth ahead. Progress in adding new users, converting ad-supported listeners to paid subscribers and driving higher engagement with new offerings like podcasts, audio books and videos all enable profit and free cash flow growth. We believe these drivers can deliver greater than 20% annual free cash flow growth for the next five years.

BSD Analysis:
Spotify controls global audio distribution, which is far more powerful than owning content libraries. Scale allows Spotify to amortize licensing costs better than smaller competitors. Pricing power is improving as users accept higher tiers and bundles. Podcast monetization is stabilizing after early missteps. Discovery algorithms keep engagement sticky across cycles. Investors fear a hard margin ceiling that keeps creeping higher instead. Free cash flow inflection fundamentally changed the equity story. Competition fragments content but consolidates distribution. This is media infrastructure behaving like a utility.

Pitch Summary:
We initiated a position in Tencent, one of China’s largest technology companies with leading positions in gaming, social media and payments. The Portfolio last exited Tencent in 2021 amid a weak Chinese macro-economy and a political initiative that targeted the Technology sector and a few of its business leaders. Some of these pressures have since eased—namely the political crackdown—while the economic headwinds remain. Despite these headwinds, Tencent has remained a consistent growth business, compounding earnings growth at more than 30% annualized over the past 3 years. Furthermore, the integration of more AI into Tencent’s ad-tech could unlock higher returns on investment and accelerate growth in that segment. Altogether we believe the valuation is quite reasonable for a company that has the potential to grow revenues sustainably at a low double-digit rate and earnings at a mid-teens rate.

BSD Analysis:
Tencent is a digital ecosystem disguised as a single company, spanning gaming, payments, social, and enterprise services. WeChat is not just an app but infrastructure for daily life, commerce, and identity in China. Regulatory pressure crushed sentiment, but it also forced cost discipline and sharper capital allocation. Gaming approvals normalized, restoring a key profit engine without the excesses of the past. Fintech and cloud businesses embed Tencent deeper into enterprise and consumer workflows. Investors fixate on macro China risk and miss cash generation resilience. The balance sheet remains fortress-like, enabling buybacks and strategic investment. Tencent doesn’t need hypergrowth to work anymore. This is platform dominance transitioning into a cash compounding phase.

Pitch Summary:
The primary drag for the quarter was Oracle, accounting for almost all of the Portfolio’s relative underperformance in Q4, completely reversing its performance from the prior quarter and giving back all of the gains experienced in Q3. In line with waning market enthusiasm in the AI trade, Oracle’s massive increase in RPO’s (remaining performance obligations, which are essentially contracted future revenues) have been met with increased skepticism given the large percentage which is tied to OpenAI and the associated question marks over OpenAI’s ability to finance itself and therefore make good on those commitments. It would appear that investors are focused on the increasing threats of execution risk and financing risk for both Oracle and OpenAI, as opposed to the excitement of prior quarters around the magnitude of the numbers and their implied growth. We recognize and acknowledge these risks, but it is our current belief that the range of potential outcomes are skewed positively in Oracle’s favor and that the stock reaction is another example of the ‘shoot first, ask questions later’ mindset of the market today.

BSD Analysis:
Oracle has weaponized incumbency better than almost any legacy technology company. Its database franchise still throws off massive cash that funds reinvention rather than decline. OCI competes where performance, security, and cost actually matter, not where marketing is loudest. Long-term contracts provide revenue visibility cloud peers envy. Investors remain anchored to outdated “old tech” narratives. AI workloads increasingly favor Oracle’s architecture and pricing model. Margin expansion is driven by mix, not austerity. Oracle doesn’t need to win the cloud—just the right workloads. This is legacy power turned strategic.

Pitch Summary:
Eli Lilly was the top performing relative contributor in Q4. Lilly’s stock price underperformed this year, much of it on the back of drug pricing concerns, potential tariff impacts and, perhaps, less enthusiasm for GLP-1 drugs. However, the stock rallied over 40% in Q4, supported by strong financial results, enthusiasm for its upcoming oral GLP-1 launch, and a White House agreement that lowers GLP-1 prices, expanding the U.S. addressable market and providing a long runway for future growth.

BSD Analysis:
Lilly is executing one of the strongest product cycles in modern pharmaceutical history. Obesity and diabetes therapies are redefining standards of care, not just incremental improvements. Demand far exceeds supply, shifting risk from science to manufacturing execution. Pricing power reflects real-world outcomes rather than marketing leverage. Investors debate peak sales prematurely while Lilly expands indications and capacity. The broader pipeline meaningfully reduces single-drug dependency risk. Political noise hasn’t slowed adoption in practice. This is pharma dominance backed by data and scale. Few franchises look this strong this late.

Pitch Summary:
But what happens when a business model, built on what is second to none execution and a proven track record of capital allocation, starts to show signs of exhaustion? And what if this happens after the stock has compounded at more than 20% per year for 20 years and trades at a high multiple, praised by analysts and investors as one of the great compounders of the last 30 years? In our experience, most companies, led by executives and boards, will double down on what has been a winning strategy, trying to improve at the margin, doing whatever they can to keep the momentum of the shares and the high valuation going. But how would a founder or a generational owner (someone who knows they will own the stock for decades) tackle this situation? While it is impossible to generalize, we believe that we have a very good example of how real owners assess risk and make decisions focused on the long-term success even if that means departing from a formula that has worked incredibly well for decades. It is particularly interesting given that the company in focus, Danaher, happens to be the largest position in Zeno Investment Fund. In the last few years we have had the opportunity to have many high-level conversations with the company which have informed the view we are sharing here. Danaher is one of the most celebrated investment cases of the last 30 years. It has also been the object of a myriad of academic business cases tracing its history, deals, culture and highly successful Danaher Business System, a collection of practices and management tools that have significantly impacted the performance of the businesses acquired by the conglomerate over the years. Given such exhaustive coverage, we will not spend these pages on yet another detailed deep dive on these topics. Instead, we want to examine how and why Danaher has threaded a different path from so many other contemporaneous businesses.

BSD Analysis:
Danaher is operational excellence disguised as a conglomerate, with the Danaher Business System doing the heavy lifting year after year. Its portfolio of life sciences and diagnostics businesses sits upstream of innovation rather than downstream of product risk. Demand softness tied to biotech funding cycles has pressured sentiment, not the franchises themselves. Margins remain resilient because DBS forces discipline when volumes wobble. Investors expect constant M&A magic and miss the value of steady execution. Cash flow supports reinvestment without leverage stress. As funding normalizes, utilization rebounds quickly. This is execution as a moat, not deal-making theater. Quality compounds quietly.

Pitch Summary:
Fonix Mobile Plc operates within the UK's mobile payments ecosystem, focusing on carrier billing and mobile messaging. The company has established strong relationships with major UK mobile network operators, allowing it to offer seamless payment solutions for media firms, broadcasters, charities, and merchants. Fonix's strategy includes expanding its charity donation platform and entering new European markets. However, the company faces challenges such as reliance on the UK charity and media sectors, competition from larger global players, and the shift towards card-based payment systems. Despite its dominant market position, Fonix must diversify its offerings to ensure long-term growth.

BSD Analysis:
Fonix's deep integration with UK mobile carriers provides a competitive advantage, but the company's growth is hindered by its dependence on a few key sectors. The evolving digital payment landscape poses a threat, as new technologies like Apple Pay and Google Pay gain traction. To mitigate these risks, Fonix needs to execute a strategy of international expansion and diversify its product offerings beyond its core focus. The founder's significant equity stake could provide stability and alignment with shareholder interests. However, the company's current business model may not deliver superior returns compared to more innovative fintech solutions.